February 22, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Attention: John C. Grzeskiewicz
Office of Disclosure Policy and Review
Division of Investment Management
Re: Princor Limited Term Bond Fund, Inc.
File No. 33-65031
Dear Sirs:
On behalf of Princor Limited Term Bond Fund, Inc. (the "Fund"), we transmit
herewith for filing pursuant to the Securities Act of 1933 ("1933 Act") and the
Investment Company Act of 1940 ("1940 Act"), amendment number 1 to the
registration statement on Form N-1A. Included in this filing, and in
post-effective amendments being filed for each of the other Princor Funds, are
changes in disclosure to reflect a change in the registrant's name from Princor
Short-Term Bond Fund, Inc. To Princor Limited Term Bond Fund, Inc., and other
immaterial changes for this and each of the other registrants.
Also transmitted herewith are requests for acceleration signed on behalf of the
registrant and the registrant's principal underwriter.
Please direct any comments or questions to John W. Blouch, 202-223-3500.
Very truly yours
Ernest H. Gillum
Assistant Secretary
EHG/sal
<PAGE>
February 22, 1996
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
RE Princor Limited Term Bond Fund, Inc.
Registration Statement, Form N-1A
File No. 33-65031
As president of the above fund I hereby request the effective date for the above
registration statement be accelerated to February 29, 1996, or as soon
thereafter as practicable.
Respectfully yours
Stephan L. Jones
President
SLJ/sal
<PAGE>
February 22, 1996
Securities and Exchange Commission
450 Fifth Street, NW
Washington, Dc 20549
RE Princor Limited Term Bond Fund, Inc.
Registration Statement, Form N-1A
File No. 33-65031
As principal underwriter of the above fund we hereby request the effective date
for the above registration statement be accelerated to February 29, 1996, or as
soon thereafter as practicable.
Respectfully yours
Stephan L. Jones
President
SLJ/sal
<PAGE>
February 21, 1996
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re Princor Limited Term Bond Fund, Inc.
Registration Statement, Form N-1A
File No. 33-65031
In my capacity as Counsel for the above-referenced Registrant, I have supervised
the preparation of the attached Post-Effective Amendment to Form N-1A. I hereby
represent that the amendment does not contain disclosures which would render it
ineligible to become effective pursuant to Rule 485(b).
Sincerely
Michael D. Roughton
Counsel
MDR/sal
Attachment
<PAGE>
Registration No. 33-65031
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM N-1A
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
and
REGISTRATION STATEMENT
under
THE INVESTMENT COMPANY ACT OF 1940
--------
PRINCOR LIMITED TERM BOND FUND, INC.
(formerly known as Princor Short-Term Bond Fund, Inc.)
(Exact name of Registrant as specified in Charter)
The Principal Financial Group
Des Moines, Iowa 50392
(Address of principal executive offices)
--------
Telephone Number (515) 248-3842
--------
MICHAEL D. ROUGHTON Copy to:
The Principal Financial Group JOHN W. BLOUCH, L.L.P.
Des Moines, Iowa 50392 Suite 405 West
1025 Thomas Jefferson Street, N.W.
Washington, DC 20007-0805
(Name and address of agent for service)
----------
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)of Rule 485
X on February 29, 1996 pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(1) of Rule 485
on (date) pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(2) of Rule 485
on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
----------
Approximate date of Proposed Public Offering: As soon as practicable after
effective date of Registration Statement.
This Prospectus describes a family of investment companies ("Princor
Funds") which has been organized by Principal Mutual Life Insurance Company and
which provides the following range of investment objectives:
Growth-Oriented Funds
Princor Balanced Fund, Inc. (formerly known as Princor Managed Fund, Inc.) seeks
to generate a total investment return consisting of current income and capital
appreciation while assuming reasonable risks in furtherance of the investment
objective.
Princor Blue Chip Fund, Inc. seeks to achieve growth of capital and growth of
income by investing primarily in common stocks of well capitalized, established
companies.
Princor Capital Accumulation Fund, Inc. seeks to achieve primarily long-term
capital appreciation and secondarily growth of investment income through the
purchase primarily of common stocks, but the Fund may invest in other
securities.
Princor Emerging Growth Fund, Inc. seeks to achieve long-term capital
appreciation by investing primarily in securities of emerging and other
growth-oriented companies.
Princor Growth Fund, Inc. seeks growth of capital through the purchase primarily
of common stocks, but the Fund may invest in other securities.
Princor World Fund, Inc. seeks long-term growth of capital by investing in a
portfolio of equity securities of companies domiciled in any of the nations of
the world.
Income-Oriented Funds
Princor Bond Fund, Inc. seeks to provide as high a level of income as is
consistent with preservation of capital and prudent investment risk.
Princor Government Securities Income Fund, Inc. seeks a high level of current
income, liquidity and safety of principal by purchasing obligations issued or
guaranteed by the United States Government or its agencies, with emphasis on
Government National Mortgage Association Certificates ("GNMA Certificates"). The
guarantee by the United States Government extends only to principal and
interest.
There are certain risks unique to GNMA Certificates.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 29, 1996
Princor High Yield Fund, Inc. seeks high current income primarily by purchasing
high yielding, lower or non-rated fixed income securities which are believed to
not involve undue risk to income or principal. Capital growth is a secondary
objective when consistent with the objective of high current income.
Princor High Yield Fund, Inc. invests predominantly in lower rated bonds,
commonly referred to as "junk bonds" and may invest 100% of its assets in such
bonds. Bonds of this type are considered to be speculative with regard to
payment of interest and return of principal. Purchasers should carefully assess
the risks associated with an investment in this fund. THESE ARE SPECULATIVE
SECURITIES.
Princor Limited Term Bond Fund, Inc. seeks a high level of current income
consistent with a relatively high level of principal stability by investing in a
portfolio of securities with a dollar weighted average maturity of five years or
less.
Princor Tax-Exempt Bond Fund, Inc. seeks as high a level of current income
exempt from federal income tax as is consistent with preservation of capital.
The Fund seeks to achieve its objective primarily through the purchase of
investment grade quality tax-exempt fixed income obligations.
Princor Utilities Fund, Inc. seeks to provide current income and long-term
growth of income and capital by investing primarily in equity and fixed income
securities of companies in the public utilities industry.
Money Market Funds
Princor Cash Management Fund, Inc. seeks as high a level of income available
from short-term securities as is considered consistent with preservation of
principal and maintenance of liquidity by investing in a portfolio of money
market instruments.
Princor Tax-Exempt Cash Management Fund, Inc. seeks, through investment in a
professionally managed portfolio of high quality, short-term Municipal
Obligations, as high a level of current interest income exempt from federal
income tax as is consistent with stability of principal and maintenance of
liquidity.
Each of the Princor Funds, except the Tax-Exempt Bond Fund and Tax-Exempt
Cash Management Fund, offers three classes of shares: Class A shares, Class B
shares and Class R shares. The Tax-Exempt Bond Fund and Tax-Exempt Cash
Management Fund offer only two classes of shares: Class A shares and Class B
shares. Each class is sold pursuant to different sales arrangements and bears
different expenses. Only Class A and Class B shares are offered through this
Prospectus. For more information about the different sales arrangements, see
"How to Purchase Shares" and "Offering Price of Fund's Shares ." For information
about various expenses borne by each class, see "Overview."
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, nor are shares of the Funds federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other agency.
An investment in any of the Funds is neither insured nor guaranteed by the
U.S. Government. There can be no assurance the Money Market Funds will be able
to maintain a stable net asset value of $1.00 per share.
This Prospectus concisely states information about the Princor Funds that
an investor should know before investing. It should be read and retained for
future reference.
Additional information about the Funds has been filed with the Securities
and Exchange Commission, including a document called a Statement of Additional
Information dated February 29, 1996 which is incorporated by reference herein.
The Statement of Additional Information and a Prospectus for Class R shares can
be obtained free of charge by writing or telephoning the Funds' principal
underwriter: Princor Financial Services Corporation, P.O. Box 10423, Des Moines,
IA 50306. Telephone 1-800-247-4123.
TABLE OF CONTENTS
Page
Overview...................................................... 4
Financial Highlights........................................... 10
Investment Objectives, Policies and Restrictions............... 20
Growth-Oriented Funds...................................... 20
Income-Oriented Funds...................................... 23
Money Market Funds......................................... 30
Certain Investment Policies and Restrictions............... 33
Risk Factors................................................... 34
How the Funds are Managed...................................... 35
How to Purchase Shares......................................... 38
Offering Price of Funds' Shares ............................... 40
Distribution and Shareholder Servicing Plans and Fees.......... 40
Determination of Net Asset Value of Funds' Shares.............. 42
Distribution of Income Dividends and Realized Capital Gains ... 42
Tax Treatment of the Funds, Dividends and Distributions ....... 43
How to Exchange Shares......................................... 44
How to Sell Shares............................................. 45
Periodic Withdrawal Plan....................................... 48
Performance Calculation........................................ 49
General Information About a Fund Account....................... 49
Retirement Plans............................................... 51
Shareholder Rights............................................. 51
Additional Information......................................... 52
This Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, the securities of any of the Funds in any jurisdiction in which
such sale, offer to sell, or solicitation may not be lawfully made. Currently,
shares of the Funds are not available for sale in New Hampshire or Vermont, in
any U.S. possession or in Canada or any other foreign country. No dealer,
salesperson, or other person has been authorized to give any information or to
make any representations, other than those contained in this Prospectus, in
connection with the offer contained in this Prospectus, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Funds or the Funds Manager. Because the Princor Funds use a
combined Prospectus there may be a possibility that one Fund might become liable
for any misstatements, inaccuracy, or incomplete disclosure in the Prospectus
concerning another Fund.
OVERVIEW
The following overview should be read in conjunction with the detailed
information appearing elsewhere in the Prospectus.
The Princor Funds are separately incorporated, open-end diversified
management investment companies. Each of the Funds, except the Tax-Exempt Bond
Fund and Tax-Exempt Cash Management Fund, offers three classes of shares: Class
A, Class B and Class R shares. The Tax-Exempt Bond Fund and Tax-Exempt Cash
Management Fund offer only Class A and Class B shares. Only Class A and Class B
Shares are offered through this Prospectus.
What it Costs to Invest
There are costs to acquire and own many types of investments. Shares of the
Princor Funds are no exception. The tables on the next page depict the fees and
expenses applicable to the purchase and ownership of shares of each of the
Funds. Table A depicts Class A shares and is based on amounts incurred by the
Funds during the fiscal year ended October 31, 1995, except as otherwise
indicated. Table B depicts Class B shares and is based on amounts incurred by
the Funds' during the fiscal year ended October 31, 1995. The tables included as
examples indicate the cumulative expenses an investor would pay on an initial
$1,000 investment that earns a 5% annual return. Example A assumes the investor
redeems the shares and Example B assumes the investor does not redeem the
shares. The examples are based on each Fund's Annual Operating Expenses
described in Tables A and B. Please remember that the examples should not be
considered a representation of future expenses and that actual expenses may be
greater or less than those shown.
<TABLE>
<CAPTION>
CLASS A SHARES
TABLE A
Shareholder Transaction Expenses *
Maximum Sales Load Imposed Contingent
on Purchases Deferred Sales
Fund (as a percentage of offering price) Charge
All Funds Except the Limited Term Bond Fund
and Money Market Funds 4.75% None**
Limited Term Bond Fund 1.50% None**
Money Market Funds None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management 12b-1 Other Total Operating
Fund Fee Fee Expenses Expenses
<S> <C> <C> <C> <C>
Balanced Fund .60% .25% .52% 1.37%
Blue Chip Fund .50 .25 .63 1.38
Bond Fund .50 .24 .20 .94***
Capital Accumulation Fund .45 .11 .19 .75
Cash Management Fund .38 None .34 .72***
Emerging Growth Fund .64 .25 .58 1.47
Government Securities Income Fund .46 .19 .22 .87
Growth Fund .48 .22 .46 1.16
High Yield Fund .60 .25 .60 1.45
Limited Term Bond Fund .50 .15 .15 .80****
Tax-Exempt Bond Fund .48 .20 .15 .83
Tax-Exempt Cash Management Fund .50 None .19 .69***
Utilities Fund .60 .25 .45 1.30
World Fund .74 .25 .64 1.63
<FN>
* A wire charge of up to $6.00 will be deducted for all wire transfers.
**Purchases of $1 million or more are not subject to an initial sales
charge but may be subject to a contingent deferred sales chargeof .75%
(.25% for Limited Term Bond Fund) on redemptions that occur within 18
months of purchase. See "Offering Price of Funds' Shares."
*** After waiver.
****Estimated expenses after waiver.
</FN>
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES
TABLE B Shareholder Transaction Expenses*
Contingent Deferred Sales Charge
Maximum Sales Load (as a percentage of the lower of
Imposed on Purchases the original purchase price
Fund (as a percentage of offering price) or redemption proceeds)
All Funds Except Limited Term Bond Fund None 4.0% in the first two years, declining
to 1% in the sixth year and eliminated
thereafter
Limited Term Bond Fund None
1.25% in the first two years, declining
to .25% in the sixth year and eliminated
thereafter.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management 12b-1 Other Total Operating
Fund Fee Fee Expenses Expenses
<S> <C> <C> <C> <C>
Balanced Fund .60% .88% .43% 1.91%
Blue Chip Fund .50 .84 .56 1.90
Bond Fund .50 .89 .20 1.59**
Capital Accumulation Fund .45 .88 .17 1.50
Cash Management Fund .38 .75 .29 1.42**
Emerging Growth Fund .64 .91 .49 2.04
Government Securities Income Fund .46 .90 .17 1.53
Growth Fund .48 .90 .42 1.80
High Yield Fund .60 .91 .59 2.10
Limited Term Bond Fund .50 .50 .15 1.15***
Tax-Exempt Bond Fund .48 .92 .11 1.51
Tax-Exempt Cash Management Fund .50 .75 .17 1.42**
Utilities Fund .60 .92 .29 1.81
World Fund .74 .91 .54 2.19
<FN>
* A wire charge of up to $6.00 will be deducted for all wire transfers.
** After waiver.
***Estimated expense after waiver.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Example A
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of
each time period: 1 Year 3 Years 5 Years 10 Years (a)
----------------- ----------------- ----------------- -----------------
Class A Class B Class A Class B Class A Class B Class A Class B
Fund Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund $61 $61 $89 $93 $119 $126 $204 $203
Blue Chip Fund $61 $61 $89 $93 $119 $126 $205 $202
Bond Fund $57 $58 $76 $83 $97 $110 $157 $163
Capital Accumulation Fund $55 $57 $70 $81 $87 $106 $136 $149
Cash Management Fund $7 $56 $23 $78 $40 $101 $89 $142
Emerging Growth Fund $62 $62 $92 $97 $124 $133 $215 $215
Government Securities Income Fund $56 $57 $74 $82 $93 $107 $150 $156
Growth Fund $59 $60 $83 $90 $108 $121 $182 $187
High Yield Fund $62 $62 $91 $98 $123 $136 $213 $219
Limited Term Bond Fund $23 $25 $40 $45 -- -- -- --
Tax-Exempt Bond Fund $56 $57 $73 $81 $91 $106 $145 $153
Tax-Exempt Cash Management Fund $7 $56 $22 $78 $38 $101 $86 $141
Utilities Fund $60 $59 $87 $87 $115 $117 $197 $187
World Fund $63 $63 $96 $101 $132 $140 $232 $232
</TABLE>
<TABLE>
<CAPTION>
Example B
You would pay the following expenses on the same investment, assuming no redemption:
1 Year 3 Years 5 Years 10 Years(a)
Class A Class B Class A Class B Class A Class B Class A Class B
Fund Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund $61 $19 $89 $60 $119 $103 $204 $203
Blue Chip Fund $61 $19 $89 $60 $119 $103 $205 $202
Bond Fund $57 $16 $76 $50 $97 $87 $157 $163
Capital Accumulation Fund $55 $15 $70 $47 $87 $82 $136 $149
Cash Management Fund $7 $14 $23 $45 $40 $78 $89 $142
Emerging Growth Fund $62 $21 $92 $64 $124 $110 $215 $215
Government Securities Income Fund $56 $16 $74 $48 $93 $83 $150 $156
Growth Fund $59 $18 $83 $57 $108 $97 $182 $187
High Yield Fund $62 $21 $91 $66 $123 $113 $213 $219
Limited Term Bond Fund $23 $12 $40 $37 -- -- -- --
Tax-Exempt Bond Fund $56 $15 $73 $48 $91 $82 $145 $153
Tax-Exempt Cash Management Fund $7 $14 $22 $45 $38 $78 $86 $141
Utilities Fund $60 $17 $87 $54 $115 $93 $197 $187
World Fund $63 $22 $96 $69 $132 $117 $232 $232
<FN>
(a) The amount in this column reflects the conversion of Class B shares to
Class A shares seven years after the initial purchase.
</FN>
</TABLE>
The purpose of the preceding tables is to help investors understand the
various expenses that they will bear either directly or indirectly. Although
Annual Fund Operating Expenses shown in the Expense Table for Class A shares are
generally based upon each Fund's actual expenses, the 12b-1 Plan adopted by each
of the Funds (except the Money Market Funds which have no such Plan for Class A
shares) permits the Underwriter to retain an annual fee of up to .25% of each
Fund's average net assets. A portion of this annual fee is considered an
asset-based sales charge. Thus, it is theoretically possible for a long-term
shareholder of Class A shares, whether acquired directly or by conversion of
Class B shares, to pay more than the economic equivalent of the maximum
front-end sales charges permitted by the National Association of Securities
Dealers. See "Distribution and Shareholder Servicing Plans and Fees", "How to
Purchase Shares" and "How the Funds are Managed."
The Manager voluntarily waived a portion of its fee for the Bond, Cash
Management and Tax-Exempt Cash Management Funds throughout the fiscal year ended
October 31, 1995. Without these waivers, total operating expenses actually
incurred by the Funds for the fiscal year ended October 31, 1995 for the Class A
shares would have amounted to 1.02% for the Bond Fund, .78% for the Cash
Management Fund, .84% for Tax-Exempt Cash Management Fund, and for the Class B
shares, 1.62% for the Bond Fund, 1.63% for Cash Management Fund, and 1.89% for
Tax-Exempt Cash Management Fund. The Manager intends to continue its voluntary
waiver and, if necessary, pay expenses normally payable by each of these Funds
through February 28, 1997 in an amount that will maintain a total level of
operating expenses which as a percent of average net assets attributable to a
class on an annualized basis during the period will not exceed, for the Class A
shares, .95% for the Bond Fund and .75% for the Money Market Funds, and for the
Class B shares, 1.70% for the Bond Fund and 1.75% for the Money Market Funds.
The foregoing examples assume the continuation of these waivers throughout the
periods shown. The Manager voluntarily waived a portion of its fee for the
Utilities Fund through February 29, 1996 in an amount that maintained a total
level of operating expenses which as a percent of average net assets
attributable to a class on an annualized basis during the period did not exceed
1.10% for the Class A shares and 1.85% for Class B shares. See "How the Funds
are Managed."
The Manager intends to voluntarily waive its fee and, if necessary, pay
expenses normally payable by the Limited Term Bond Fund through February 28,
1997 in such amounts that will maintain a total level of operating expenses
which as a percent of average net assets attributable to a class on an
annualized basis will not exceed .90% for Class A shares and 1.25% for Class B
shares. Without this waiver, estimated annual total operating expenses incurred
by each class of shares would amount to approximately 1.10% for Class A shares
and 1.35% for Class B shares.
What the Funds Offer Investors
Shares of the Funds are purchased by investors as a means to achieve their
financial objectives. Investor objectives range from accumulating a vacation
fund or investing for retirement or a child's education to generating current
income. Investors purchase shares of Funds that have investment objectives that
match their own financial objectives. The Funds also offer a choice of varying
levels of investment risks to enable the investor to choose one or more Funds
the investor believes is a prudent investment given the investor's willingness
to assume various risks. The Funds offer:
Professional Investment Management: Princor Management Corporation is the
Manager for each of the Funds. The Manager employs experienced securities
analysts to provide shareholders with professional investment management. The
Manager decides how and where to invest Fund assets. Investment decisions are
based on research into the financial performance of individual companies and
specific securities issues, taking into account general economic and market
trends. See "How the Funds are Managed."
Diversification: Mutual Funds allow shareholders to diversify their assets
across dozens of securities issued by a number of issuers. In addition, a
shareholder may further diversify by investing in several of the Funds.
Diversification reduces investment risk.
Economies of Scale: Pooling individual shareholders' money creates
administrative efficiencies and, in certain Funds, saves on brokerage
commissions through round-lot orders and quantity discounts. By pooling money
with other investors, shareholders can invest indirectly in many more securities
than they could on their own.
Liquidity: Upon request, each Fund will redeem all or part of an investor's
shares and promptly pay the current net asset value of the shares redeemed, less
any applicable contingent deferred sales charge. See "How to Sell Shares."
Dividends: Each Fund will normally declare a dividend payable to
shareholders from investment income in accordance with its distribution policy.
Dividends payable for Class B shares will be lower than dividends payable for
Class A shares. See "Distribution of Income Dividends and Realized Capital
Gains."
Convenient Investment and Recordkeeping Services: Generally, shareholders
of any of the Funds (except the Money Market Funds) will receive a statement of
account each time there is a transaction that effects their account and
shareholders of the Money Market Funds will receive a monthly statement of
account. However, certain shareholders will receive quarterly statements in lieu
of other statements. See "General Information About a Fund Account." In
addition, shareholders may complete certain transactions and access account
information by telephoning 1-800-247-4123.
Investment Objectives of the Funds
Growth-Oriented Funds
Fund Investment Objectives
Princor Balanced Fund, Inc. Total investment return consisting of current income
and capital appreciation while assuming reasonable risks in furtherance of
this objective.
Princor Blue Chip Fund, Inc. Growth of capital and growth of income. In seeking
to achieve its objective, the Fund will invest primarily in common stocks
of well-capitalized, established companies which the Fund's Manager
believes to have the potential for growth of capital, earnings and
dividends.
Princor Capital Accumulation Fund, Inc. Long-term capital appreciation with a
secondary objective of growth of investment income. The Fund seeks to
achieve its objectives primarily through the purchase of common stocks, but
the Fund may invest in other securities.
Princor Emerging Growth Fund, Inc. Long-term capital appreciation. The Fund
invests primarily in securities of emerging and other growth-oriented
companies.
Princor Growth Fund, Inc. Growth of capital. The Fund seeks to achieve its
objective through the purchase primarily of common stocks, but the Fund may
invest in other securities.
Princor World Fund, Inc. Long-term growth of capital by investing in a portfolio
of equity securities of companies domiciled in any of the nations of the
world.
Income-Oriented Funds
Fund Investment Objectives
Princor Bond Fund, Inc. As high a level of income as is consistent with
preservation of capital and prudent investment risk. This Fund invests
primarily in investment-grade bonds.
Princor Government Securities Income Fund, Inc. A high level of current income,
liquidity and safety of principal. The Fund seeks to achieve its objective
through the purchase of obligations issued or guaranteed by the United
States Government or its agencies, with emphasis on Government National
Mortgage Association Certificates ("GNMA Certificates"). Fund shares are
not guaranteed by the United States Government.
Princor High Yield Fund, Inc. High current income. Capital growth is a secondary
objective when consistent with the objective of high current-income. The
Fund will invest primarily in high yielding, lower or non-rated
fixed-income securities (commonly known as "junk bonds").
Princor Limited Term Bond Fund, Inc. A high level of current income consistent
with a relatively high level of principal stability by investing in a
portfolio of securities with a dollar weighted average maturity of five
years or less.
Princor Tax-Exempt Bond Fund, Inc. As high a level of current interest income
exempt from federal income tax as is consistent with preservation of
capital. This Fund invests primarily in investment-grade, tax-exempt,
fixed-income obligations.
Princor Utilities Fund, Inc. Current income and long-term growth of income and
capital. The Fund invests primarily in equity and fixed-income securities
of companies engaged in the public utilities industry.
Money Market Funds
Fund Investment Objectives
Princor Cash Management Fund, Inc. As high a level of current income available
from short-term securities as is considered consistent with preservation of
principal and maintenance of liquidity. The Fund invests in money market
instruments.
Princor Tax-Exempt Cash Management Fund, Inc. As high a level of current
interest income exempt from federal income tax as is consistent with
stability of principal and the maintenance of liquidity. The Fund invests
in high-quality, short-term municipal obligations.
There can be no assurance that the investment objectives of any of the
Funds will be realized. See "Investment Objectives, Policies and Restrictions."
The Risks of Investing
Because the Funds have different investment objectives, each Fund is
subject to varying degrees of financial and market risks and current income
volatility. Financial risk refers to the earnings stability and overall
financial soundness of an issuer of an equity security and to the ability of an
issuer of a debt security to pay interest and principal when due. Market risk
refers to the degree to which the price of a security will react to changes in
conditions in securities markets in general and, with particular reference to
debt securities, to changes in the overall level of interest rates. Current
income volatility refers to the degree and rapidity with which changes in the
overall level of interest rates become reflected in the level of current income
of a Fund. See "Risk Factors", and "Investment Objectives, Policies and
Restrictions."
How to Buy Shares
An individual investor can become a shareholder by completing the
application that accompanies this Prospectus and mailing it, along with a check,
to Princor Financial Services Corporation ("Princor"), a broker-dealer that is
also the principal underwriter for the Funds. The initial investment for the
Growth-Oriented Funds must be at least $300 and the initial investment for the
Income-Oriented Funds and Money Market Funds must be at least $1,000. An IRA may
be established with a minimum of $250. See "Retirement Plans." The minimum
subsequent investment is $50 ($100 for Money Market Funds). Lower minimum
initial and subsequent purchase amounts are available to shareholders who make
regular periodic investments under a Systematic Accumulation Plan. See "How to
Purchase Shares." Class B shares of the Money Market Funds may only be purchased
by an exchange from other Class B shares. See "How to Exchange Shares."
Each Fund offers three classes of shares through Princor and other dealers
which it selects. Only two classes of shares are offered through this
Prospectus, Class A shares and Class B shares. The two classes of shares bear
sales charges in different forms and amounts and bear different expense levels.
Class A shares. An investor who purchases less than $1 million of Class A
shares of any of the Princor Funds (except the Money Market Funds) pays a sales
charge at the time of purchase. The sales charge ranges from a high of 4.75%
(1.50% for Limited Term Bond Fund) on purchases of up to $50,000 to a low of 0%
on purchases of $1 million or more. Purchases of $1 million or more are subject
to a .75% (.25% of the Limited Term Bond Fund) contingent deferred sales charge
applicable for redemptions that occur within 18 months from the date of
purchase. Certain purchases of Class A shares qualify for reduced sales charges.
See "How to Purchase Shares" and "Offering Price of Funds' Shares." Class A
shares for each of the Funds (except the Money Market Funds) currently bear a
12b-1 fee at the annual rate of up to 0.25% (.15% for the Limited Term Bond
Fund) of the Fund's average net assets attributable to Class A shares. See
"Distribution and Shareholder Servicing Plans and Fees." All shares outstanding
as of the close of business on December 2, 1994 have been classified as Class A
shares.
Class A shares of the Money Market Funds are sold without a sales charge at
the net asset value next determined after receipt of an order. Under most
circumstances, the net asset value will remain constant at $1.00 per share;
however, there can be no assurance that the net asset value will not change.
Class B shares. Class B shares for each Fund are sold without an initial
sales charge, but are subject to a declining contingent deferred sales charge
which begins at 4% (1.25% for the Limited Term Bond Fund) and declines to zero
over a six-year schedule. Class B shares of the Money Market Funds may be
purchased only by exchange from other Class B shares. Class B shares bear a
higher 12b-1 fee than Class A shares, currently at the annual rate of 1.00%
(.50% for the Limited Term Bond Fund) of the Fund's average net assets
attributable to Class B shares. Class B shares will automatically convert into
Class A shares, based on relative net asset value, approximately seven years
after purchase. Class B shares provide an investor the benefit of putting all of
the investor's dollars to work from the time the investment is made, but (until
conversion) will have a higher expense ratio and pay lower dividends than Class
A shares due to the higher 12b-1 fee. See "How to Purchase Shares" and "Offering
Price of Funds' Shares." Class B shares were first offered to the public on
December 9, 1994.
How to Exchange Shares
Shares of Princor Funds may be exchanged for shares of the same Class of
other Princor Funds without a sales charge or administrative fee under certain
conditions as described under "How to Exchange Shares." In addition, Class A
shares of the Money Market Funds acquired by direct purchase or reinvestment of
dividends on such shares may be exchanged for Class B shares of any
Growth-Oriented or Income-Oriented Fund. Shares may be exchanged by telephone or
written request. An exchange is a sale for tax purposes. Also, dividends and
capital gains distributions from shares of a Class of one Princor Fund may be
automatically "cross-reinvested" in shares of the same Class of another Princor
Fund. See "Distribution of Income Dividends and Realized Capital Gains."
How to Sell Shares
Shareholders may sell (redeem) shares by mail or by telephone. Redemption
proceeds will generally be mailed to the shareholder on the next business day
after the redemption request is received in good order. Upon proper
authorization certain redemptions may be processed through a selected dealer.
Automatic redemptions of a specified amount may also be made through a Periodic
Withdrawal Plan. In addition, shareholders of Class A shares of the Money Market
Funds may redeem shares by writing a check against their account balance and by
establishing a preauthorized withdrawal service on their account. Redemptions of
Class A shares are generally made at net asset value with out charge. However,
Class A share purchases of $1 million or more may be subject to a .75% (.25% for
the Limited Term Bond Fund) contingent deferred sales charge if redeemed within
18 months of purchase. Redemptions of Class B shares within six years of
purchase will generally be subject to a contingent deferred sales charge. See
"Offering Price of Funds' Shares" and "How to Sell Shares."
FINANCIAL HIGHLIGHTS
The following financial highlights for each of the ten years in the period
ended October 31, 1995, or since the Fund's inception if a shorter period of
time, have been derived from financial statements which have been audited by
Ernst & Young LLP, independent auditors, whose report thereon has been
incorporated by reference herein. The financial highlights should be read in
conjunction with the financial statements, related notes and other financial
information for each Fund incorporated by reference herein. The financial
statements, which contain additional information regarding the performance of
the Funds, may be obtained by shareholders, without charge, by telephoning
1-800-451-5447.
<PAGE>
<TABLE>
<CAPTION>
GROWTH-ORIENTED FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor Balanced Fund, Inc.(b)
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $12.43 $.41 $1.31 $1.72 $(.36) $(.05) $(.41) $13.74
1994 13.26 .32 (.20) .12 (.40) (.55) (.95) 12.43
1993 12.78 .35 1 .14 1.49 (.37) (.64) (1.01) 13.26
1992 11.81 .41 .98 1.39 (.42) - (.42) 12.78
1991 9.24 .46 2.61 3.07 (.50) - (.50) 11.81
1990 11.54 .53 (1.70) (1.17) (.59) (.54) (1.13) 9.24
1989 11.09 .61 .56 1.17 (.56) (.16) (.72) 11.54
Period Ended October 31, 1988(c) 9.96 .40 1.02 1.42 (.29) - (.29) 11.09
Class B
Period Ended October 31, 1995(f) 11.80 .31 1.90 2.21 (.30) - (.30) 13.71
Princor Blue Chip Fund, Inc.
Class A
Year Ended October 31,
1995 12.45 .24 2.55 2.79 (.21) - (.21) 15.03
1994 11.94 .20 .57 .77 (.26) - (.26) 12.45
1993 11.51 .21 .43 .64 (.18) (.03) (.21) 11.94
1992 10.61 .17 .88 1.05 (.15) - (.15) 11.51
Period Ended October 31, 1991(g) 10.02 .10 .57 .67 (.08) - (.08) 10.61
Class B
Period Ended October 31, 1995(f) 11.89 .15 3.10 3.25 (.15) - (.15) 14.99
Princor Capital Accumulation
Fund, Inc.
Class A
Year Ended October 31,
1995 20.83 .45 3.15 3.60 (.39) (.35) (.74) 23.69
1994 21.41 .39 .93 1.32 (.41) (1.49) (1.90) 20.83
1993 21.34 .43 1.67 2.10 (.43) (1.60) (2.03) 21.41
1992 19.53 .45 1.82 2.27 (.46) - (.46) 21.34
1991 14.31 .49 5.24 5.73 (.51) - (.51) 19.53
1990 18.16 .52 (3.64) (3.12) (.40) (.33) (.73) 14.31
Four Months Ended
October 31, 1989 (h) 19.11 .18 (.06) .12 (.29) (.78) (1.07) 18.16
Year Ended June 30,
1989 18.82 .53 1.10 1.63 (.51) (.83) (1.34) 19.11
1988 21.66 .44 (1.06) (.62) (.41) (1.81) (2.22) 18.82
1987 20.47 .31 3.33 3.64 (.30) (2.15) (2.45) 21.66
1986 16.60 .61 4.94 5.55 (.72) (.96) (1.68) 20.47
Class B
Period Ended October 31, 1995(f) 19.12 .33 4.46 4.79 (.30) - (.30) 23.61
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor Balanced Fund, Inc.(b)
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 14.18% $ 57,125 1.37% 3.21% 35.8%
1994 .94% 53,366 1.51% 2.70% 14.4%
1993 12.24% 39,952 1.35% 2.78% 27.5%
1992 11.86% 31,339 1.29% 3.39% 30.6%
1991 34.09% 23,372 1.30% 4.25% 23.6%
1990 (11.28)% 18,122 1.32% 5.22% 33.7%
1989 11.03% 20,144 1.25% 5.45% 30.2%
Period Ended October 31, 1988(c) 12.42%(d) 16,282 1.12%(e) 4.51%(e) 65.2%(e)
Class B
Period Ended October 31, 1995(f) 18.72%(d) 1,263 1.91%(e) 2.53%(e) 35.8%(e)
Princor Blue Chip Fund, Inc.
Class A
Year Ended October 31,
1995 22.65% 35,212 1.38% 1.83% 26.1%
1994 6.58% 27,246 1.46% 1.72% 5.5%
1993 5.65% 23,759 1.25% 1.87% 11.2%
1992 9.92% 19,926 1.56% 1.49% 13.5%
Period Ended October 31, 1991(g) 6.37%(d) 12,670 1.71%(e) 1.67%(e) 0.4%(e)
Class B
Period Ended October 31, 1995(f) 26.94%(d) 1,732 1.90%(e) .97%(e) 26.1%(e)
Princor Capital Accumulation
Fund, Inc.
Class A
Year Ended October 31,
1995 17.94% 339,656 .75% 2.08% 46.0%
1994 6.67% 285,965 .83% 2.02% 31.7%
1993 10.42% 240,016 .82% 2.16% 24.8%
1992 11.67% 190,301 .93% 2.17% 38.3%
1991 40.63% 152,814 .99% 2.72% 19.7%
1990 (17.82)% 109,507 1.10% 3.10% 27.7%
Four Months Ended
October 31, 1989(h) .44%(d) 122,685 1.10%(e) 2.87%(e) 19.7%(e)
Year Ended June 30,
1989 9.53% 117,473 1.00% 3.04% 28.1%
1988 (2.30)% 97,147 .96% 2.40% 27.9%
1987 20.93% 93,545 .98% 1.73% 20.0%
1986 36.51% 55,763 .93% 3.59% 44.5%
Class B
Period Ended October 31, 1995(f) 25.06%(d) 2,248 1.50%(e) 1.07%(e) 46.0%(e)
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge or contingent
deferred sales charge.
(b) Effective December 5, 1994, the name of Princor Managed Fund, Inc. was
changed to Princor Balanced Fund, Inc.
(c) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.08 per share for the
period from the initial purchase of shares on October 30, 1987 through
December 17, 1987, was recognized, none of which was distributed to its
sole stockholder, Principal Mutual Life Insurance Company, during the
period. Additionally, the Fund incurred net realized and unrealized losses
on investments of $.12 per share during this initial interim period. This
represented activities of the fund prior to the initial public offering of
fund shares.
(d) Total Return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Period from December 9,1994, date Class B shares first offered to the
public, through October 31, 1995. The Growth Funds Class B shares
recognized no net investment income for the period from the initial
purchase of Class B shares on December 5, 1994 through December 8, 1994.
The Growth Funds Class B shares incurred unrealized loss during the initial
interim period as follows. This represented Class B share activities of
each fund prior to the initial public offering of Class B shares:
Per Share
Unrealized
Fund (Loss)
Princor Balanced Fund, Inc. (0.19)
Princor Blue Chip Fund, Inc. (0.15)
Princor Capital Accumulation
Fund, Inc. (0.46)
(g) Period from March 1, 1991, date shares first offered to public, through
October 31, 1991. Net investment income, aggregating $.01 per share for the
period from the initial purchase of shares on February 11, 1991 through
February 28, 1991, was recognized, none of which was distributed to its
sole stockholder, Principal Mutual Life Insurance Company, during the
period. Additionally, the Fund incurred unrealized gains on investments of
$.01 per share during this initial interim period. This represented
activities of the fund prior to the initial public offering of fund shares.
(h) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROWTH-ORIENTED FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor Emerging Growth Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $25.08 $.12 $6.45 $6.57 $(.06) $(.14) $(.20) $31.45
1994 23.56 - 1.61 1.61 - (.09) (.09) 25.08
1993 19.79 .06 3.82 3.88 (.11) - (.11) 23.56
1992 18.33 .14 1.92 2.06 (.15) (.45) (.60) 19.79
1991 11.35 .17 7.06 7.23 (.21) (.04) (.25) 18.33
1990 14.10 .31 (2.59) (2.28) (.37) (.10) (.47) 11.35
1989 12.77 .26 2.02 2.28 (.15) (.80) (.95) 14.10
Period Ended October 31, 1988(b) 10.50 .06 2.26 2.32 (.05) - (.05) 12.77
Class B
Period Ended October 31,1995(e) 23.15 - 8.18 8.18 (.02) - (.02) 31.31
Princor Growth Fund, Inc.
Class A
Year Ended October 31,
1995 31.14 .35 6.67 7.02 (.31) (.63) (.94) 37.22
1994 30.41 .26 2.56 2.82 (.28) (1.81) (2.09) 31.14
1993 28.63 .40 2.36 2.76 (.42) (.56) (.98) 30.41
1992 25.92 .39 3.32 3.71 (.40) (.60) (1.00) 28.63
1991 16.57 .41 9.32 9.73 (.38) - (.38) 25.92
1990 19.35 .35 (1.99) (1.64) (.34) (.80) (1.14) 16.57
Four Months Ended
October 31, 1989(f) 18.35 .08 1.17 1.25 (.16) (.09) (.25) 19.35
Year Ended June 30,
1989 19.84 .32 .36 .68 (.29) (1.88) (2.17) 18.35
1988 23.27 .26 (2.08) (1.82) (.22) (1.39) (1.61) 19.84
1987 21.85 .21 3.72 3.93 (.27) (2.24) (2.51) 23.27
1986 17.07 .32 6.31 6.63 (.38) (1.47) (1.85) 21.85
Class B
Period Ended October 31, 1995(e) 28.33 .21 8.76 8.97 (.20) - (.20) 37.10
Princor World Fund, Inc.
Class A
Year Ended October 31,
1995 7.44 .08 (.02) .06 (.03) (.19) (.22) 7.28
1994 6.85 .01 .64 .65 (.02) (.04) (.06) 7.44
1993 5.02 .03 1.98 2.01 (.05) (.13) (.18) 6.85
1992 5.24 .06 (.14) (.08) (.06) (.08) (.14) 5.02
1991 4.64 .05 .58 .63 (.03) - (.03) 5.24
1990 4.66 .09 (.04) .05 (.07) - (.07) 4.64
Ten Months Ended
October 31, 1989(g) 4.58 .07 .07 .14 (.06) - (.06) 4.66
Year Ended December 31,
1988 (h) 3.88 .12 .67 .79 (.09) - (.09) 4.58
1987 (h) 8.55 .12 (.96) (.84) (.08) (3.75) (3.83) 3.88
1986 (h) 7.32 .45 2.17 2.62 (.44) (.95) (1.39) 8.55
1985 (h) 6.07 .07 1.49 1.56 (.09) (.22) (.31) 7.32
Class B
Period Ended October 31, 1995(e) 6.71 .05 .51 .56 (.03) - (.03) 7.24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor Emerging Growth Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 26.41% $150,611 1.47% .47% 13.5%
1994 6.86% 92,965 1.74% .02% 8.1%
1993 19.66% 48,668 1.66% .26% 7.0%
1992 11.63% 29,055 1.74% .80% 5.8%
1991 64.56% 17,174 1.78% 1.14% 8.4%
1990 (16.80)% 8,959 1.94% 2.43% 15.8%
1989 19.65% 8,946 1.79% 2.09% 13.5%
Period Ended October 31, 1988(b) 19.72%(c) 6,076 1.52%(d) .84%(d) 19.5%(d)
Class B
Period Ended October 31,1995 (e) 35.65%(c) 8,997 2.04%(d) (.17)%(d) 13.5%(d)
Princor Growth Fund, Inc.
Class A
Year Ended October 31,
1995 23.29% 174,328 1.16% 1.12% 12.2%
1994 9.82% 116,363 1.30% .95% 13.6%
1993 9.83% 80,051 1.26% 1.40% 16.4%
1992 14.76% 63,405 1.19% 1.46% 15.6%
1991 59.30% 45,892 1.13% 1.85% 10.6%
1990 (9.20)% 28,917 1.18% 1.88% 9.7%
Four Months Ended
October 31, 1989 (f) 6.83%(c) 32,828 1.22%(d) 1.25%(d) 50.1%(d)
Year Ended June 30,
1989 4.38% 31,770 1.08% 1.78% 9.7%
1988 (7.19)% 34,316 1.00% 1.29% 24.9%
1987 20.94% 37,006 1.01% 1.07% 4.0%
1986 42.69% 26,493 .98% 1.75% 29.0%
Class B
Period Ended October 31, 1995(e) 31.48%(c) 8,279 1.80%(d) .31%(d) 12.2%(d)
Princor World Fund, Inc.
Class A
Year Ended October 31,
1995 1.03% 126,554 1.63% 1.10% 35.4%
1994 9.60% 115,812 1.74% .10% 13.2%
1993 41.39% 63,718 1.61% .59% 19.5%
1992 (1.57)% 35,048 1.69% 1.23% 19.9%
1991 13.82% 26,478 1.72% 1.36% 27.6%
1990 .94% 16,044 1.79% 1.89% 37.9%
Ten Months Ended
October 31, 1989(g) 2.98%(c) 13,928 1.55%(d) 1.82%(d) 32.4%(d)
Year Ended December 31,
1988(h) 20.25% 13,262 1.55% 1.43% 56.9%
1987(h) (10.13)% 3,943 2.09% .83% 183.0%
1986(h) 36.40% 9,846 2.17% .73% 166.0%
1985(h) 25.88% 2,525 2.25% 1.13% 55.9%
Class B
Period Ended October 31, 1995(e) 9.77%(c) 3,908 2.19%(d) .58%(d) 35.4%(d)
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge or the
contingent deferred sales charge.
(b) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.04 per share for the
period from the initial purchase of shares on October 30, 1987 through
December 17, 1987, was recognized, none of which was distributed to its
sole stockholder, Principal Mutual Life Insurance Company, during the
period. Additionally, the Fund incurred net realized and unrealized gains
on investments of $.46 per share during this initial interim period. This
represented activities of the fund prior to the initial public offering of
fund shares.
(c) Total Return amounts have not been annualized.
(d) Computed on an annualized basis.
(e) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. The Growth Funds Class B shares
recognized no net investment income for the period from the initial
purchase of Class B shares on December 5, 1994 through December 8, 1994.
The Growth Funds Class B shares incurred unrealized loss during the initial
interim period as follows. This represented Class B share activities of
each fund prior to the initial public offering of Class B shares:
Per Share
Unrealized
Fund (Loss)
Princor Emerging Growth Fund, Inc. (0.77)
Princor Growth Fund, Inc. (0.86)
Princor World Fund, Inc. (0.07)
(f) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
(g) Effective January 1, 1989, the fund changed its fiscal year-end from
December 31 to October 31.
(h) The investment manager of Princor World Fund, Inc. was changed on
August 1, 1988 to the current manager, Princor Management Corporation. The years
1983 through 1987 are not covered by the current independent auditor's report.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME-ORIENTED AND MONEY MARKET FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor Bond Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.27 $.78(b) $1.16 $1.94 $(.78) $(.01) $(.79) $11.42
1994 11.75 .78(b) (1.47) (.69) (.78) (.01) (.79) 10.27
1993 10.97 .81(b) .79 1.60 (.81) (.01) (.82) 11.75
1992 10.65 .85(b) .32 1.17 (.85) - (.85) 10.97
1991 9.99 .88(b) .65 1.53 (.87) - (.87) 10.65
1990 10.57 .86 (.55) .31 (.89) - (.89) 9.99
1989 10.37 .87 .25 1.12 (.86) (.06) (.92) 10.57
Period Ended October 31, 1988(c) 9.95 .80(b) .38 1.18 (.76) - (.76) 10.37
Class B
Period Ended October 31, 1995(f) 10.19 .63(b) 1.19 1.82 (.60) - (.60) 11.41
Princor Cash Management Fund, Inc.
Class A
Year Ended October 31,
1995 1.000 .052(b) - .052 (.052) - (.052) 1.000
1994 1.000 .033(b) - .033 (.033) - (.033) 1.000
1993 1.000 .026(b) - .026 (.026) - (.026) 1.000
1992 1.000 .036(b) - .036 (.036) - (.036) 1.000
1991 1.000 .061(b) - .061 (.061) - (.061) 1.000
1990 1.000 .074(b) - .074 (.074) - (.074) 1.000
Four Months Ended
October 31, 1989(g) 1.000 .027(b) - .027 (.027) - (.027) 1.000
Year Ended June 30,
1989 1.000 .080(b) - .080 (.080) - (.080) 1.000
1988 1.000 .060 - .060 (.060) - (.060) 1.000
1987 1.000 .053 - .053 (.053) - (.053) 1.000
1986 1.000 .065 - .065 (.065) - (.065) 1.000
Class B
Period Ended October 31, 1995(f) 1.000 .041(b) - .041 (.041) - (.041) 1.000
Princor Government Securities
Income Fund, Inc.
Class A
Year Ended October 31,
1995 10.28 .71 1.02 1.73 (.70) - (.70) 11.31
1994 11.79 .69 (1.40) (.71) (.68) (.12) (.80) 10.28
1993 11.44 .74 .55 1.29 (.74) (.20) (.94) 11.79
1992 11.36 .81 .12 .93 (.81) (.04) (.85) 11.44
1991 10.54 .85 .84 1.69 (.87) - (.87) 11.36
1990 10.76 .85 (.22) .63 (.85) - (.85) 10.54
Four Months Ended
October 31, 1989(g) 10.66 .29 .09 .38 (.28) - (.28) 10.76
Year Ended June 30,
1989 10.33 .87 .32 1.19 (.86) - (.86) 10.66
1988 10.40 .89 (.05) .84 (.88) (.03) (.91) 10.33
1987 10.82 .86 (.13) .73 (.87) (.28) (1.15) 10.40
1986 10.55 1.24 .49 1.73 (1.26) (.20) (1.46) 10.82
Class B
Period Ended October 31, 1995(f) 10.20 .56 1.07 1.63 (.54) - (.54) 11.29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Ratio of Net
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor Bond Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 19.73% $106,962 .94%(b) 7.26% 5.1%
1994 (6.01)% 88,801 .95%(b) 7.27% 8.9%
1993 15.22% 85,015 .92%(b) 7.19% 9.3%
1992 11.45% 62,534 .88%(b) 7.95% 8.4%
1991 16.04% 37,825 .80%(b) 8.66% .9%
1990 3.08% 22,719 1.22% 8.40% 3.6%
1989 11.54% 13,314 1.24% 8.59% 0.0%
Period Ended October 31, 1988(c) 11.59%(d) 10,560 .70%(b)(e) 8.85%(e) 63.9%(e)
Class B
Period Ended October 31, 1995(f) 17.98%(d) 2,708 1.59%(b)(e) 6.30%(e) 5.1%(e)
Princor Cash Management Fund, Inc.
Class A
Year Ended October 31,
1995 5.36% 623,864 .72%(b) 5.24% N/A
1994 3.40% 332,346 .70%(b) 3.27% N/A
1993 2.67% 284,739 .67%(b) 2.63% N/A
1992 3.71% 247,189 .65%(b) 3.66% N/A
1991 6.29% 262,543 .61%(b) 5.95% N/A
1990 7.65% 151,007 .93%(b) 7.36% N/A
Four Months Ended
October 31, 1989(g) 2.63%(d) 124,895 1.04%(b)(e) 7.86%(e) N/A
Year Ended June 30,
1989 8.15% 120,149 1.00% (b) 8.21% N/A
1988 6.18% 51,320 1.02% 6.06% N/A
1987 5.34% 45,015 1.02% 5.33% N/A
1986 6.71% 35,437 1.10% 6.76% N/A
Class B
Period Ended October 31, 1995(f) 4.19%(d) 208 1.42%(b)(e) 4.50%(e) N/A
Princor Government Securities
Income Fund, Inc.
Class A
Year Ended October 31,
1995 17.46% 261,128 .87% 6.57% 10.1%
1994 (6.26)% 249,438 .95% 6.35% 24.8%
1993 11.80% 236,718 .93% 6.38% 52.6%
1992 8.49% 161,565 .95% 7.04% 54.3%
1991 16.78% 94,613 .98% 7.80% 14.9%
1990 6.17% 71,806 1.07% 8.15% 22.4%
Four Months Ended
October 31, 1989(g) 3.63%(d) 55,702 1.07%(e) 8.18%(e) 5.2%(e)
Year Ended June 30,
1989 12.37% 56,848 .96% 8.58% -
1988 8.60% 59,884 .82% 8.65% -
1987 7.00% 65,961 .92% 7.93% 17.6%
1986 17.37% 43,576 .60% 9.33% 141.2%
Class B
Period Ended October 31, 1995(f) 16.07%(d) 4,699 1.53%(e) 5.68%(e) 10.1%(e)
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge or the
contingent deferred sales charge.
(b) Without the Manager's voluntary waiver of a portion of certain of its
expenses for the periods (year, except as noted in the financial
statements) ended October 31 of the years indicated, the following funds
would have had per share expenses and the ratios of expenses to average net
assets as shown:
Per Share Ratio of Expenses
Net Invest- to Average Net Amount
Fund Year ment Income Assets Waived
Princor Bond Fund, Inc.
Class A 1995 $.77 1.02% $86,018
1994 .77 1.09% 120,999
1993 .79 1.07% 111,162
1992 .82 1.11% 110,868
1991 .84 1.15% 100,396
1988(c) .76 1.12%(e) 31,187
Class B 1995(f) .62 1.62%(e) 300
Princor Cash Management
Fund, Inc.
Class A 1995 .052 .78% 296,255
1994 .031 .90% 595,343
1993 .025 .84% 468,387
1992 .035 .80% 385,328
1991 .059 .79% 433,196
1990 .073 1.01% 106,841
1989** .026 1.06%(e) 101,625
1989* .079 1.11% 9,558
Class B 1995(f) .041 1.63%(e) 104
* Year ended June 30, 1989
** Four months ended October 31, 1989
(c) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.10 per share for the
period from the initial purchase of shares on October 30, 1987 through
December 17, 1987, was recognized of which $.06 per share was distributed
to its sole stockholder, Principal Mutual Life Insurance Company, during
the period. Additionally, the Fund incurred net realized and unrealized
losses on investments of $.09 per share during this initial interim period.
This represented activities of the fund prior to the initial public
offering of fund shares.
(d) Total Return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. Certain of the Income Funds Class B
shares recognized net investment income as follows, for the period from the
initial purchase of Class B shares on December 5, 1994 through December 8,
1994, none of which was distributed to the sole shareholder, Princor
Management Corporation. Additionally, the Income Funds Class B shares
incurred unrealized loss during the initial interim period as follows. This
represented Class B share activities of each fund prior to the intitial
public offering of Class B shares:
Per Share Per Share
Net Investment Unrealized
Fund Income (Loss)
--------------------------------------------------
Princor Bond Fund, Inc. .01 -
Princor Government Securities
Income Fund, Inc. .01 (.02)
(g) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME-ORIENTED AND MONEY MARKET FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Assets
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor High Yield Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 7.83 $ .68 $ .20 $ .88 $ (.65) $ - $ (.65) $8.06
1994 8.36 .63 (.51) .12 (.65) - (.65) 7.83
1993 8.15 .71 .21 .92 (.71) - (.71) 8.36
1992 7.86 .79 .29 1.08 (.79) - (.79) 8.15
1991 7.12 .88 .80 1.68 (.94) - (.94) 7.86
1990 9.47 1.10 (2.35) (1.25) (1.09) (.01) (1.10) 7.12
1989 10.44 1.10 (.83) .27 (1.09) (.15) (1.24) 9.47
Period Ended October 31, 1988(b) 9.97 .98(c) .38 1.36 (.89) - (.89) 10.44
Class B
Period Ended October 31, 1995(f) 7.64 .53 .38 .91 (.50) - (.50) 8.05
Princor Tax-Exempt Bond Fund, Inc.
Class A
Year Ended October 31,
1995 10.93 .65 1.05 1.70 (.65) - (.65) 11.98
1994 12.62 .64 (1.54) (.90) (.63) (.16) (.79) 10.93
1993 11.62 .66 1.11 1.77 (.66) (.11) (.77) 12.62
1992 11.47 .68 .19 .87 (.69) (.03) (.72) 11.62
1991 10.82 .69 .68 1.37 (.70) (.02) (.72) 11.47
1990 11.06 .68 (.25) .43 (.67) - (.67) 10.82
Four Months Ended
October 31, 1989(g) 11.18 .22 (.12) .10 (.22) - (.22) 11.06
Year Ended June 30,
1989 10.40 .69 .77 1.46 (.68) - (.68) 11.18
1988 10.51 .71 .06 .77 (.72) (.16) (.88) 10.40
1987 10.75 .72 (.11) .61 (.73) (.12) (.85) 10.51
Period Ended June 30, 1986 (h) 10.95 .22 (.24) (.02) (.18) - (.18) 10.75
Class B
Period Ended October 31, 1995(f) 10.56 .50 1.38 1.88 (.48) - (.48) 11.96
Princor Tax-Exempt Cash
Management Fund, Inc.
Class A
Year Ended October 31,
1995 1.000 .032(c) - .032 (.032) - (.032) 1.000
1994 1.000 .021(c) - .021 (.021) - (.021) 1.000
1993 1.000 .020(c) - .020 (.020) - (.020) 1.000
1992 1.000 .028(c) - .028 (.028) - (.028) 1.000
1991 1.000 .043(c) - .043 (.043) - (.043) 1.000
1990 1.000 .053(c) - .053 (.053) - (.053) 1.000
1989 1.000 .058(c) - .058 (.058) - (.058) 1.000
Period Ended October 31, 1988(i) 1.000 .005(c) - .005 (.005) - (.005) 1.000
Class B
Period Ended October 31, 1995(f) 1.000 .021(e) - .021 (.021) - (.021) 1.000
Princor Utilities Fund, Inc.
Class A
Year Ended October 31,
1995 9.25 .48(c) 1.70 2.18 (.49) - (.49) 10.94
1994 11.45 .46(c) (2.19) (1.73) (.45) (.02) (.47) 9.25
Period Ended October 31, 1993(j) 10.18 .35(c) 1.27 1.62 (.35) - (.35) 11.45
Class B
Period Ended October 31, 1995(f) 9.20 .40(c) 1.77 2.17 (.44) - (.44) 10.93
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor High Yield Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 11.73% $ 23,396 1.45% 8.71% 40.3%
1994 1.45% 19,802 1.46% 7.82% 27.2%
1993 11.66% 19,154 1.35% 8.57% 23.4%
1992 14.35% 16,359 1.41% 9.69% 28.2%
1991 25.63% 13,195 1.50% 12.06% 14.2%
1990 (14.51)% 9,978 1.45% 12.99% 15.8%
1989 2.68% 12,562 1.43% 11.22% 19.9%
Period Ended October 31, 1988(b) 14.15%(d) 10,059 .77%(e)(c) 10.55%(e) 73.2%(e)
Class B
Period Ended October 31, 1995(f) 12.20%(c) 633 2.10%(d) 7.78%(d) 40.3%(d)
Princor Tax-Exempt Bond Fund, Inc.
Class A
Year Ended October 31,
1995 16.03% 179,715 .83% 5.67% 17.6%
1994 (7.41)% 171,425 .91% 5.49% 20.6%
1993 15.70% 177,480 .89% 5.45% 20.3%
1992 7.76% 106,661 .99% 5.96% 22.9%
1991 13.09% 62,755 1.01% 6.24% 13.1%
1990 4.06% 46,846 1.11% 6.31% 2.6%
Four Months Ended
October 31, 1989(g) .90%(d) 36,877 1.24%(e) 6.18%(e) 5.1% (e)
Year Ended June 30,
1989 14.64% 31,278 1.07% 6.54% 2.1%
1988 7.76% 22,812 .95% 7.00% 11.0%
1987 5.60% 19,773 .70% 6.70% 40.8%
Period Ended June 30, 1986 (h) (.16)%(d) 8,486 .20%(e) 8.60%(e) 0.0%(e)
Class B
Period Ended October 31, 1995(f) 17.97%(c) 3,486 1.51%(d) 4.78%(d) 17.6%(d)
Princor Tax-Exempt Cash
Management Fund, Inc.
Class A
Year Ended October 31,
1995 3.24% 99,887 .69%(e) 3.19% N/A
1994 2.11% 79,736 .67%(c) 2.08% N/A
1993 1.99% 79,223 .66%(c) 1.96% N/A
1992 2.86% 69,224 .65%(c) 2.84% N/A
1991 4.36% 71,469 .61%(c) 4.27% N/A
1990 5.40% 58,301 .71%(c) 5.26% N/A
1989 5.88% 42,639 .60%(c) 5.78% N/A
Period Ended October 31, 1988(i) .47%(d) 6,000 .26%(e)(c) 5.24%(e) N/A
Class B
Period Ended October 31, 1995(f) 2.19%(c) 27 1.42%(d)(e) 2.40%(d) N/A
Princor Utilities Fund, Inc.
Class A
Year Ended October 31,
1995 24.36% 65,873 1.04%(e) 4.95% 13.0%
1994 (15.20)% 56,747 1.00%(c) 4.89% 13.8%
Period Ended October 31, 1993(j) 15.92%(d) 50,372 1.00%(e)(c) 4.48%(e) 4.3%(e)
Class B
Period Ended October 31, 1995(f) 24.18%(c) 3,952 1.72%(d)(e) 3.84%(d) 13.0%(d)
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge or the
contingent deferred sales charge.
(b) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.10 per share for the
period from the initial purchase of shares on October 30, 1987 through
December 17, 1987, was recognized of which $.06 per share was distributed
to its sole stockholder, Principal Mutual Life Insurance Company, during
the period. Additionally, the Fund incurred net realized and unrealized
losses on investments of $.09 per share during this initial interim period.
This represented activities of the fund prior to the initial public
offering of Fund shares.
(c) Without the Manager's voluntary waiver of a portion of certain of its
expenses for the periods (year except as noted) ended October 31 of the
years indicated, the following funds would have had per share expenses and
the ratios of expenses to average net assets as shown:
Per Share Ratio of Expenses
Net Invest- to Average Net Amount
Fund Year ment Income Assets Waived
Princor High Yield
Fund, Inc. 1988(b) $.95 1.33%(e) $ 32,609
Princor Tax-Exempt Cash
Management Fund, Inc.
Class A 1995 .031 .84% 138,574
1994 .019 .85% 150,515
1993 .018 .83% 131,442
1992 .026 .82% 134,497
1991 .040 .83% 147,279
1990 .050 .96% 123,656
1989 .053 1.04% 125,604
1988(i) .004 .76%(e) 2,630
Class B 1995(f) .018 1.89%(e) 99
Princor Utilities
Fund, Inc.
Class A 1995 .46 1.30% 151,145
1994 .41 1.50% 284,836
1993(j) .32 1.54%(e) 139,439
Class B 1995(f) .40 1.81%(e) 1,338
(d) Total Return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. Certain of the Income Funds Class B
shares recognized net investment income as follows, for the period from the
initial purchase of Class B shares on December 5, 1994 through December 8,
1994, none of which was distributed to the sole shareholder, Princor
Management Corporation. Additionally, the Income Funds Class B shares
incurred unrealized loss during the initial interim period as follows. This
represented Class B share activities of each fund prior to the initial
public offering of Class B shares:
Per Share Per Share
Net Investment Unrealized
Fund Income (Loss)
Princor High Yield Fund, Inc. .01 (0.03)
Princor Tax-Exempt
Bond Fund, Inc. - (0.05)
Princor Utilities Fund, Inc. .01 (0.01)
(g) Effective July 1, 1989, the fund changed its fiscal year-end from June 30
to October 3l.
(h) Period from March 20, 1986, date shares first offered to public, through
June 30, 1986. Net investment income and net unrealized appreciation of
investments, for the period from the initial purchase of shares on December
18, 1985 through March 19, 1986, amounted to $.14 and $.94, respectively,
per share. All dividends from net investment income, from December 18, 1985
through March 19, 1986, were distributed to the sole stockholder, Principal
Mutual Life Insurance Company.
(i) Period from September 30, 1988, date shares first offered to public,
through October 31, 1988. Net investment income, aggregating $.005 per
share, for the period from the initial purchase of shares on August 23,
1988 through September 29, 1988, was recognized and distributed to its sole
stockholder, Principal Mutual Life Insurance Company, during the period.
This represented activities of the Fund prior to the initial public
offering of Fund shares.
(j) Period from December 16, 1992, date shares first offered to public, through
October 31, 1993. Net investment income, aggregating $.05 per share for the
period from the initial purchase of shares on November 16, 1992 through
December 15, 1992, was recognized, none of which was distributed to its
sole stockholder, Principal Mutual Life Insurance Company, during the
period. Additionally, the fund incurred unrealized gains on investments of
$.13 per share during the initial interim period. This represented
activities of the fund prior to the initial public offering of fund shares.
</FN>
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The investment objectives and policies of each Fund are described below.
There can be no assurance that the objectives of the Funds will be realized.
GROWTH-ORIENTED FUNDS
The Princor Growth-Oriented Funds currently include four Funds which seek
capital appreciation through investments in equity securities (Capital
Accumulation Fund, Emerging Growth Fund, Growth Fund and World Fund), one Fund
which seeks a total investment return including both capital appreciation and
income through investments in equity and debt securities (Balanced Fund) and one
Fund which seeks growth of capital and growth of income primarily through
investments in common stocks of well capitalized, established companies (Blue
Chip Fund).
The Growth-Oriented Funds may invest in the following equity securities:
common stocks; preferred stocks and debt securities that are convertible into
common stock, that carry rights or warrants to purchase common stock or that
carry rights to participate in earnings; rights or warrants to subscribe to or
purchase any of the foregoing securities; and sponsored and unsponsored American
Depository Receipts (ADRs) based on any of the foregoing securities. Unsponsored
ADRs are not created by the issuer of the underlying security, may be subject to
fees imposed by the issuing bank that, in the case of sponsored ADRs, would be
paid by the issuer of a sponsored ADR and may involve additional risks such as
reduced availability of information about the issuer of the underlying security.
The Blue Chip, Capital Accumulation, Emerging Growth, Growth and World Funds
will seek to be fully invested under normal conditions in equity securities.
When in the opinion of the Manager current market or economic conditions
warrant, a Growth-Oriented Fund may, for temporary defensive purposes, place all
or a portion of its assets in cash (on which the Fund would earn no income),
cash equivalents, bank certificates of deposit, bankers acceptances, repurchase
agreements, commercial paper, commercial paper master notes which are floating
rate debt instruments without a fixed maturity, United States Government
securities, and preferred stocks and debt securities, whether or not convertible
into or carrying rights for common stock. When investing for temporary defensive
purposes a Growth-Oriented Fund is not investing so as to achieve its investment
objective. A Growth-Oriented Fund may also maintain reasonable amounts in cash
or short-term debt securities for daily cash management purposes or pending
selection of particular long-term investments.
Princor Balanced Fund
The investment objective of Princor Balanced Fund is to generate a total
investment return consisting of current income and capital appreciation while
assuming reasonable risks in furtherance of the investment objective. The term
"reasonable risks" refers to investment decisions that in the Manager's judgment
do not present a greater than normal risk of loss in light of current or
anticipated future market and economic conditions, trends in yields and interest
rates, and fiscal and monetary policies.
In seeking to achieve the investment objective, the Fund invests primarily
in growth and income-oriented common stocks (including securities convertible
into common stocks), corporate bonds and debentures and short-term money market
instruments. The Fund may also invest in other equity securities and in debt
securities issued or guaranteed by the United States Government and its agencies
or instrumentalities. The Fund seeks to generate real (inflation plus) growth
during favorable investment periods and may emphasize income and capital
preservation strategies during uncertain investment periods. The Manager will
seek to minimize declines in the net asset value per share. However, there is no
guarantee that the Manager will be successful in achieving this goal.
The portions of the Fund's total assets invested in equity securities, debt
securities and short-term money market instruments are not fixed, although
ordinarily 40% to 70% of the Fund's portfolio will be invested in equity
securities with the balance of the portfolio invested in debt securities. The
investment mix will vary from time to time depending upon the judgment of the
Manager as to general market and economic conditions, trends in investment
yields and interest rates, and changes in fiscal or monetary policies. The Fund
may invest up to 20% of its assets in foreign securities. For a description of
certain investment risks associated with foreign securities, see "Risk Factors."
The Fund may invest in all types of common stocks and other equity
investments, without regard to any objective investment criteria such as size of
the issue or issuer, exchange listing or seasoning. The Fund may invest in both
exchange-listed and over-the-counter securities, in small or large companies,
and in well-established or unseasoned companies. Also, the Fund's investments in
corporate bonds and debentures and money market instruments are not restricted
by credit ratings or other objective investment criteria, except with respect to
bank certificates of deposit as set forth below. Some of the fixed income
securities in which the Fund may invest may be considered to include speculative
characteristics and the Fund may purchase such securities that are in default
but does not currently intend to invest more than 5% of its assets in securities
rated below BBB by Standard & Poor's or Baa by Moody's. The rating services'
descriptions of BBB or Baa securities are as follows: Moody's Investors Service,
Inc. Bond Ratings -- Baa: Bonds which are rated Baa are considered as medium
grade obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Standard &
Poor's Corporation Bond Ratings -- BBB: Debt rated "BBB" is regarded as having
an adequate capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than for debt in higher-rated
categories. See the discussion of the Princor High Yield Fund for information
concerning risks associated with below-investment grade bonds. The Fund will not
concentrate its investments in any industry.
In selecting common stocks, the Manager seeks companies which the Manager
believes have predictable earnings increases and which, based on their future
growth prospects, may be currently undervalued in the market place. During
periods when the Manager determines that general economic conditions are
favorable, it will generally purchase common stocks with the objective of
long-term capital appreciation. From time to time, and in periods of economic
uncertainty, the Manager may purchase common stocks with the expectation of
price appreciation over a relatively short period of time.
To achieve its investment objective, the Fund may at times emphasize the
generation of interest income by investing in short, medium or long-term debt
securities. Investment in debt securities may also be made with a view to
realizing capital appreciation when the Manager believes that declining interest
rates may increase market values. The Fund may also purchase "deep discount
bonds," i.e., bonds which are selling at a substantial discount from their face
amount, with a view to realizing capital appreciation.
The Fund may invest in the following short-term money market investments:
U.S. Treasury bills, 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. The Fund will only
invest in domestic bank certificates of deposit issued by banks which are
members of the Federal Reserve System that have total deposits in excess of one
billion dollars.
The United States Government securities in which the Fund may invest
consist of U.S. Treasury obligations and obligations of certain agencies, such
as the Government National Mortgage Association, which are supported by the full
faith and credit of the United States, as well as obligations of certain other
Federal agencies or instrumentalities, such as the Federal National Mortgage
Association, Federal Land Banks and the Federal Farm Credit Administration,
which are backed only by the right of the issuer to borrow limited funds from
the U.S. Treasury, by the discretionary authority of the U.S. Government to
purchase such obligations or by the credit of the agency or instrumentality
itself.
Princor Blue Chip Fund
The objective of Princor Blue Chip Fund is growth of capital and growth of
income. Growth of income means increasing the Fund's investment income which is
primarily derived from dividends earned on portfolio securities. In seeking to
achieve its objective, the Fund will invest primarily in common stocks of well
capitalized, established companies which the Fund's manager believes to have the
potential for growth of capital, earnings and dividends. Under normal market
conditions, the Fund will invest at least 65%, and may invest up to 100%, of its
total assets in the common stocks of blue chip companies.
Blue chip companies are defined as those companies with market
capitalizations of at least $1 billion. Blue chip companies are generally
identified by their substantial capitalization, established history of earnings
and dividends, easy access to credit, good industry position and superior
management structure. In addition, the large market of publicly held shares for
such companies and the generally high trading volume in those shares results in
a relatively high degree of liquidity for such investments. The characteristics
of high quality and high liquidity of blue chip investments should make the
market for such stocks attractive to many investors.
Examples of blue chip companies currently eligible for investment by the
Fund include, but are not limited to, companies such as General Electric
Company, Ford Motor Company, Exxon Corporation, Merck & Company, Inc., Digital
Equipment Corporation, Capital Cities ABC, Inc., J.P. Morgan & Co. and Coca Cola
Company. In general, the Fund will seek to invest in those established, high
quality companies whose industries are experiencing favorable secular or
cyclical change.
The Fund's Manager may invest up to 35% of the Fund's total assets in
equity securities, other than common stock, issued by companies that meet the
investment criteria for blue chip companies and in equity securities issued by
companies that do not meet those criteria. The Manager does not intend to invest
regularly in speculative securities, which are those issued by new, unseasoned
companies or by companies that have limited product lines, markets, financial
resources or management, but it may from time to time invest not more than 5% of
the Fund's total assets in those kinds of securities. The Fund may invest up to
20% of its assets in securities of foreign issuers. The foreign securities in
which the Fund may invest need not be issued by companies that meet the
investment criteria for blue chip companies. For a description of certain
investment risks associated with foreign securities, see "Risk Factors."
Princor Capital Accumulation Fund
The primary objective of Princor Capital Accumulation Fund is long-term
capital appreciation. A secondary objective is growth of investment income.
The Fund will invest primarily in common stocks, but it may invest in other
equity securities. In making selections for the Fund's investment portfolio, the
Manager will use an approach described broadly as that of fundamental analysis,
which is discussed in the Statement of Additional Information. In pursuit of the
Fund's investment objectives, investments will be made in securities which as a
group appear to offer prospects for capital and income growth. Securities chosen
for investment may include those of companies which the Manager believes can
reasonably be expected to share in the growth of the nation's economy over the
long term.
Princor Emerging Growth Fund
The objective of Princor Emerging Growth Fund is to achieve long-term
capital appreciation. The strategy of this Fund is to invest primarily in the
common stocks and securities (both debt and preferred stock) convertible into
common stocks of emerging and other growth-oriented companies that, in the
judgment of the Manager, are responsive to changes within the marketplace and
have the fundamental characteristics to support growth. In pursuing its
objective of capital appreciation, the Fund may invest, for any period of time,
in any industry and in any kind of growth-oriented company, whether new and
unseasoned or well known and established. Under normal market conditions, the
Fund will invest at least 65% of its assets in securities of companies having a
total market capitalization of $1 billion or less. The Fund may invest up to 20%
of its assets in securities of foreign issuers. For a description of certain
investment risks associated with foreign securities, see "Risk Factors."
There can be, of course, no assurance that the Fund will attain its
objective. Investment in emerging and other growth-oriented companies may
involve greater risk than investment in other companies. The securities of
growth-oriented companies may be subject to more abrupt or erratic market
movements, and many of them may have limited product lines, markets, financial
resources or management. Because of these factors and of the length of time that
may be required for full development of the growth prospects of some of the
companies in which the Fund invests, the Fund believes that its shares are
suitable only for persons who are able to assume the risk of investing in
securities of emerging and growth-oriented companies and prepared to maintain
their investment during periods of adverse market conditions. Investors should
not rely on the Fund for their short-term financial needs. Since the Fund will
not be seeking current income, investors should not view a purchase of Fund
shares as a complete investment program.
Princor Growth Fund
The objective of Princor Growth Fund is growth of capital. Realization of
current income will be incidental to the objective of growth of capital.
The Fund will invest primarily in common stocks, but it may invest in other
equity securities. In making selections for the Fund's investment portfolio, the
Manager will use an approach described broadly as that of fundamental analysis,
which is discussed in the Statement of Additional Information. In pursuit of the
Fund's investment objective, investments will be made in securities which as a
group appear to possess potential for appreciation in market value. Common
stocks chosen for investment may include those of companies which have a record
of sales and earnings growth that exceeds the growth rate of corporate profits
of the S&P 500 or which offer new products or new services. The policy of
investing in securities which have a high potential for growth of capital can
mean that the assets of the Fund may be subject to greater risk than securities
which do not have such potential.
Princor World Fund
The investment objective of Princor World Fund is to seek long-term growth
of capital through investment in a portfolio of equity securities of companies
domiciled in any of the nations of the world. In choosing investments in equity
securities of foreign and United States corporations, the Manager intends to pay
particular attention to long-term earnings prospects and the relationship of
then-current prices to such prospects. Short-term trading is not generally
intended, but occasional investments may be made for the purpose of seeking
short-term or medium-term gain. The Fund expects its investment objective to be
met over long periods which may include several market cycles. For a description
of certain investment risks associated with foreign securities, see "Risk
Factors."
For temporary defensive purposes, the World Fund may invest in the same
kinds of securities as the other Growth-Oriented Funds whether issued by
domestic or foreign corporations, governments, or governmental agencies,
instrumentalities or political subdivisions and whether denominated in United
States dollars or some other currency.
The Fund intends that its investments normally will be allocated among
various countries. Although there is no limitation on the percentage of assets
that may be invested in any one country or denominated in any one currency, the
Fund intends under normal market conditions to have at least 65% of its assets
invested in securities issued by corporations of at least three countries, one
of which may be the United States. Investments may be made anywhere in the
world, but it is expected that primary consideration will be given to investing
in the securities issued by corporations of Western Europe, North America and
Australasia (Australia, Japan and Far East Asia) that have developed economies.
Changes in investments may be made as prospects change for particular countries,
industries or companies.
The Fund may invest in the securities of other investment companies but may
not invest more than 10% of its assets in securities of other investment
companies, invest more than 5% of its total assets in the securities of any one
investment company, or acquire more than 3% of the outstanding voting securities
of any one investment company except in connection with a merger, consolidation
or plan of reorganization. The Fund's Manager will waive its management fee on
the Fund's assets invested in securities of other open-end investment companies.
The Fund will generally invest only in those investment companies that have
investment policies requiring investment in securities comparable in quality to
those in which the Fund invests.
INCOME-ORIENTED FUNDS
The Princor Funds currently include five Funds which seek a high level of
income through investments in fixed-income securities and one fund which seeks
current income and long-term growth of income and capital through investments in
equity and fixed-income securities of public utilities companies. These Funds
are Princor Bond Fund, Princor Government Securities Income Fund, Princor High
Yield Fund, Princor Limited Term Bond Fund, Princor Tax-Exempt Bond Fund, and
Princor Utilities Fund, collectively referred to as the "Income-Oriented Funds."
Each Fund has rating limitations with regard to the quality of securities that
may be held in the portfolio. The rating limitations apply at the time of
acquisition of a security and any subsequent change in a rating by a rating
service will not require elimination of a security from the Fund's portfolio.
The Statement of Additional Information contains descriptions of the ratings of
Moody's Investors Service, Inc. ("Moody's") and Standard and Poor's Corporation
("S&P").
Princor Bond Fund
The investment objective of Princor Bond Fund is to provide as high a level
of income as is consistent with preservation of capital and prudent investment
risk.
In seeking to achieve the investment objective, the Fund will predominantly
invest in marketable fixed-income securities. Investments will be made generally
on a long-term basis, but the Fund may make short-term investments from time to
time as deemed prudent by the Manager. Longer maturities typically provide
better yields but will subject the Fund to a greater possibility of substantial
changes in the values of its portfolio securities as interest rates change.
Under normal circumstances, the Fund will invest at least 65% of its assets
in bonds in one or more of the following categories: (i) corporate debt
securities and taxable municipal obligations, which at the time of purchase have
an investment grade rating within the four highest grades used by S&P (AAA, AA,
A or BBB) or by Moody's (Aaa, Aa, A or Baa) or which, if nonrated, are
comparable in quality in the opinion of the Fund's Manager; (ii) similar
Canadian corporate, Provincial and Federal Government securities payable in U.S.
funds; and (iii) securities issued or guaranteed by the United States Government
or its agencies or instrumentalities. The balance of the Fund's assets may be
invested in the following securities: domestic and foreign corporate debt
securities, preferred stocks, common stocks that provide returns that compare
favorably with the yields on fixed income investments, common stocks acquired
upon conversion of debt securities or preferred stocks or upon exercise of
warrants acquired with debt securities or otherwise and foreign government
securities. The debt securities and preferred stocks in which the Fund invests
may be convertible or nonconvertible. Securities rated below BBB or Baa are
commonly referred to as junk bonds. The Fund does not intend to purchase debt
securities rated lower than Ba3 by Moody's or BB- by S&P (bonds which are judged
to have speculative elements; their future cannot be considered as
well-assured). The rating services' descriptions of BBB or Baa securities are as
follows: Moody's Investors Service, Inc. Bond Ratings -- Baa: Bonds which are
rated Baa are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well. Standard & Poor's Corporation Bond Ratings -- BBB: Debt
rated "BBB" is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than for debt in higher-rated categories. See the discussion of the Princor High
Yield Fund for information concerning risks associated with below investment
grade bonds.
During the fiscal year ended October 31, 1995, the percentage of the Fund's
portfolio securities invested in the various ratings established by Moody's,
based upon the weighted average ratings of the portfolio, was as follows:
Moody's Rating Portfolio Percentage
Aa .97%
A 16.78%
Baa 78.67%
Ba 1.92%
B 1.66%
The above percentage for A rated securities include .39% of unrated
securities which have been determined by the Manager to be of comparable
quality.
Cash equivalents in which the Fund invests include corporate commercial
paper rated A-1+, A-1 or A-2 by S&P or P-1 or P-2 by Moody's, unrated commercial
paper issued by corporations with outstanding debt securities rated in the four
highest grades by S&P and Moody's and bank certificates of deposit and bankers'
acceptances issued or guaranteed by national or state banks and repurchase
agreements considered by the Fund to have investment quality. Under unusual
market or economic conditions, the Fund for temporary defensive purposes may
invest up to 100% of its assets in cash or cash equivalents.
Princor Government Securities Income Fund
The objective of Princor Government Securities Income Fund is a high level
of current income, liquidity and safety of principal.
The Fund will invest in obligations issued or guaranteed by the United
States Government or by its agencies or instrumentalities and in repurchase
agreements collateralized by such obligations. Such securities include
Government National Mortgage Association ("GNMA") Certificates of the modified
pass-through type, Federal National Mortgage Association ("FNMA") Obligations,
Federal Home Loan Mortgage Corporation ("FHLMC") Certificates and Student Loan
Marketing Association ("SLMA") Certificates and other U.S. Government
Securities. GNMA is a wholly-owned corporate instrumentality of the United
States whose securities and guarantees are backed by the full faith and credit
of the United States. FNMA, a federally chartered and privately-owned
corporation, FHLMC, a federal corporation, and SLMA, a government sponsored
stockholder-owned organization, are instrumentalities of the United States. The
securities and guarantees of FNMA, FHLMC and SLMA are not backed, directly or
indirectly, by the full faith and credit of the United States. Although the
Secretary of the Treasury of the United States has discretionary authority to
lend FNMA up to $2.25 billion outstanding at any time, neither the United States
nor any agency thereof is obligated to finance FNMA's or FHLMC's operations or
to assist FNMA or FHLMC in any other manner. The Fund may maintain reasonable
amounts of cash or short-term debt securities not issued or guaranteed by the
U.S. Government or its agencies or instrumentalities for daily cash management
purposes or pending selection of long-term investments.
Depending on market conditions, a substantial portion of the assets may be
invested in GNMA Certificates of the modified pass-through type and in
repurchase agreements collateralized by such obligations. GNMA is a United
States Government corporation within the Department of Housing and Urban
Development. GNMA Certificates are mortgage-backed securities representing an
interest in a pool of mortgage loans. Such loans are made by lenders such as
mortgage bankers, insurance companies, commercial banks and savings and loan
associations. Then, they are either insured by the Federal Housing
Administration (FHA) or they are guaranteed by the Veterans Administration (VA)
or Farmers Home Administration (FmHA). The lender or other prospective issuer
creates a specific pool of such mortgages, which it submits to GNMA for
approval. After approval, a GNMA Certificate is typically offered by the issuer
to investors through securities dealers.
GNMA Certificates differ from bonds in that the principal is scheduled to
be paid back by the borrower on a monthly basis over the life of the loan rather
than returned in a lump sum at maturity. Modified pass-through GNMA
Certificates, which are the only kind in which the Fund intends to invest,
entitle the holder to receive all interest and principal payments owed on the
mortgages in the pool (net of the issuer and GNMA fee of .5% prescribed by
regulation), regardless of whether or not the mortgagor has made such payment.
The timely payment of interest and principal is guaranteed by the full faith and
credit of the United States Government.
Although the payment of interest and principal is guaranteed, the guarantee
does not extend to the value of a GNMA Certificate or the value of the shares of
the Fund. The market value of a GNMA Certificate typically will fluctuate to
reflect changes in prevailing interest rates. It falls when rates increase (as
does the market value of other debt securities) and it rises when rates decline
(but it may not rise on a comparable basis with other debt securities because of
its prepayment feature), and, therefore, may be more or less than the face
amount of the GNMA Certificate, which reflects the aggregate principal amount of
the underlying mortgages. As a result the net asset value of Fund shares will
fluctuate as interest rates change.
Mortgagors may pay off their mortgages at any time. Expected prepayments of
the mortgages can affect the market value of the GNMA Certificate, and actual
prepayments can affect the return ultimately received. Prepayments, like
scheduled payments of principal, are reinvested by the Fund at prevailing
interest rates which may be less than the rate on the GNMA Certificate.
Prepayments are likely to increase as the interest rate for new mortgages moves
lower than the rate on the GNMA Certificate. Moreover, if the GNMA Certificate
had been purchased at a premium above principal because its rate exceeded
prevailing rates, the premium is not guaranteed and a decline in value to par
may result in a loss of the premium especially in the event of prepayment.
The FNMA and FHLMC securities in which the Fund invests are very similar to
GNMA certificates as described above but are not guaranteed by the full faith
and credit of the United States but rather by the agency itself. FNMA and FHLMC
securities are rated Aaa by Moody's and AAA by Standard & Poor's. These ratings
reflect the status of FNMA and FHLMC as federal agencies as well as the
important role each plays in financing purchases of homes in the U.S.
Student Loan Marking Association is a government sponsored
stockholder-owned organization whose goal is to provide liquidity to financial
and educational institutions. SLMA provides liquidity by purchasing student
loans, which are principally government guaranteed loans issued under the
Federal Guaranteed Student Loan Program and the Health Education Assistance Loan
Program. SLMA securities are not guaranteed by the U.S. Government but are
obligations solely of the agency. SLMA senior debt issues in which the Fund
invests are rated AAA by Standard & Poor's and Aaa by Moody's.
There are other obligations issued or guaranteed by the United States
Government (such as U.S. Treasury securities) or by its agencies or
instrumentalities that are either supported by the full faith and credit of the
U.S. Treasury or the credit of a particular agency or instrumentality. Included
in the latter category are Federal Home Loan Bank and Farm Credit Banks.
Obligations not guaranteed by the United States Government are highly rated
because they are issued by indirect branches of government. Such paper is issued
as needs arise by an agency and is traded regularly in denominations similar to
those in which government obligations are traded.
The Fund will not engage in the trading of securities for the purpose of
realizing short-term profits, but it will adjust its portfolio as considered
advisable in view of prevailing or anticipated market conditions and the Fund's
investment objective. Accordingly, the Fund may sell portfolio securities in
anticipation of a rise in interest rates and purchase securities for inclusion
in its portfolio in anticipation of a decline in interest rates.
As a hedge against changes in interest rates, the Fund may enter into
contracts with dealers in GNMA Certificates whereby the Fund agrees to purchase
or sell an agreed-upon principal amount of GNMA Certificates at a specified
price on a certain date. The Fund may enter into similar purchase agreements
with issuers of GNMA Certificates other than Principal Mutual Life Insurance
Company. The Fund may also purchase optional delivery standby commitments which
give the Fund the right to sell particular GNMA Certificates at a specified
price on a specified date. Failure of the other party to such a contract or
commitment to abide by the terms thereof could result in a loss to the Fund. To
the extent the Fund engages in delayed delivery transactions it will do so for
the purpose of acquiring portfolio securities consistent with its investment
objective and policies and not for the purpose of investment leverage or to
speculate on interest rate changes. Liability accrues to the Fund at the time it
becomes obligated to purchase such securities, although delivery and payment
occur at a later date. From the time the Fund becomes obligated to purchase
securities on a delayed delivery basis, the Fund has all the rights and risks
attendant to the ownership of a security except that no interest accrues to the
purchaser until delivery. At the time the Fund enters into a binding obligation
to purchase such securities, Fund assets of a dollar amount sufficient to make
payment for the securities to be purchased will be segregated. The availability
of liquid assets for this purpose and the effect of asset segregation on the
Fund's ability to meet its current obligations, to honor requests for redemption
and to have its investment portfolio managed properly will limit the extent to
which the Fund may engage in forward commitment agreements. Except as may be
imposed by these factors, there is no limit on the percent of the Fund's total
assets that may be committed to transactions in such agreements.
Princor High Yield Fund
Princor High Yield Fund's primary investment objective is high current
income. Capital growth is a secondary objective when consistent with the
objective of high current income. This Fund is designed for investors willing to
assume additional risk in return for above average income.
In seeking to attain the Fund's objective of high current income, the Fund
invests primarily in high yielding, lower or nonrated fixed-income securities
(commonly known as "junk bonds"), constituting a diversified portfolio which the
Fund Manager believes does not involve undue risk to income or principal.
Normally, at least 80% of the Fund's assets will be invested in debt securities,
convertible securities (both debt and preferred stock) or preferred stocks that
are consistent with its primary investment objective of high current income. The
Fund's remaining assets may be invested in common stocks and other equity
securities in which the Growth-Oriented Funds may invest when these types of
investments are consistent with the objective of high current income.
The Fund seeks to invest its assets in securities rated Ba1 or lower by
Moody's or BB+ or lower by S&P or in unrated securities which the Fund's Manager
believes are of comparable quality. These securities are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
interest and to repay principal in accordance with the terms of the obligation.
The Fund will not invest in securities rated below Caa by Moody's and below CCC
by S&P.
The rating services' descriptions of securities rating categories in which
the Fund may normally invest are as follows:
Moody's Investors Service, Inc. Bond Ratings - Ba: Bonds which are rated Ba
are judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class. B:
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Moody's may apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and a modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Standard & Poor's Corporation Bond Ratings - BB, B, CCC, CC: Debt rated
"BB", "B", "CCC" and "CC" is regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Plus (+) or Minus (-): The ratings from "AA" to "BB" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
The higher-yielding, lower-rated securities in which the High Yield Fund
invests present special risks to investors. The market value of lower-rated
securities may be more volatile than that of higher-rated securities and
generally tends to reflect the market's perception of the creditworthiness of
the issuer and short-term market developments to a greater extent than more
highly-rated securities, which reflect primarily fluctuations in general levels
of interest rates. Periods of economic uncertainty and change can be expected to
result in increased volatility in the market value of lower-rated securities.
Further, such securities may be subject to greater risks of loss of income and
principal, particularly in the event of adverse economic changes or increased
interest rates, because their issuers generally are not as financially secure or
as creditworthy as issuers of higher-rated securities. Additionally, to the
extent that there is not a national market system for secondary trading of
lower-rated securities, there may be a low volume of trading in such securities
which may make it more difficult to value or sell those securities than
higher-rated securities. Adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may decrease the values and liquidity of high
yield securities, especially in a thinly traded market.
Investors should recognize that the market for higher-yielding, lower-rated
securities is a relatively recent development that has not been tested by an
economic recession. An economic downturn may severely disrupt the market for
such securities and cause financial stress to the issuers which may adversely
affect the value of the securities held by the High Yield Fund and the ability
of the issuers of the securities held by it to pay principal and interest. A
default by an issuer may result in the Fund incurring additional expenses to
seek recovery of the amounts due it.
Some of the securities in which the Fund invests contain call provisions.
If the issuer of such a security exercises a call provision in a declining
interest rate market, the Fund would have to replace the security with a
lower-yielding security, resulting in a decreased return for investors. Further,
a higher-yielding security's value will decrease in a rising interest rate
market, which will be reflected in the Fund's net asset value per share.
Investors should carefully consider their ability to assume the risks of
investing in lower-rated securities before making an investment in the Fund, and
should be prepared to maintain their investment during periods of adverse market
conditions. Investors should not rely on the Fund for their short-term financial
needs.
The Fund seeks to minimize the risks of investing in lower-rated securities
through diversification, investment analysis and attention to current
developments in interest rates and economic conditions. Because the Fund invests
primarily in securities in the lower rating categories, the achievement of the
Fund's goals is more dependent on the Manager's ability than would be the case
if the Fund were investing in securities in the higher rating categories.
Although the Fund's Manager considers security ratings when making investment
decisions, it performs its own investment analysis and does not rely principally
on the ratings assigned by the rating services. There are risks in applying
credit ratings as a method for evaluating high yield securities. For example,
credit ratings evaluate the safety of principal and interest payments, not the
market value risk of high yield securities, and credit rating agencies may fail
to make timely changes in credit ratings to reflect subsequent events. The
Manager's analysis includes traditional security analysis considerations such as
the issuer's experience and managerial strength, changing financial condition,
borrowing requirements or debt maturity schedules, and its responsiveness to
changes in business conditions and interest rates. It also considers relative
values based on anticipated cash flow, interest or dividend coverage, asset
coverage and earnings prospects. In addition, the Manager analyzes general
business conditions and other factors such as anticipated changes in economic
activity and interest rates, the availability of new investment opportunities,
and the economic outlook for specific industries. The Manager continuously
monitors the issuers of portfolio securities to determine if the issuers will
have sufficient cash flow and profits to meet required principal and interest
payments and to assure the securities' liquidity so the Fund can meet redemption
requests. During the fiscal year ended October 31, 1995, the percentage of the
Fund's portfolio securities invested in the various ratings established by
Moody's, based upon the weighted average ratings of the portfolio, was as
follows:
Moody's Rating Portfolio Percentage
Baa 2.27%
Ba 41.53%
B 55.72%
C .48%
The above percentages for Ba and B rated securities include unrated securities
in the amount of .65% and .34%, respectively, which have been determined by the
Manager to be of comparable quality.
There may be times when, in the Manager's judgment, unusual market or
economic conditions make pursuing the Fund's basic investment strategy
inconsistent with the best interests of its shareholders. At such times the
Manager may employ alternative strategies, primarily seeking to reduce
fluctuations in the value of the Fund's assets. In implementing these
"defensive" strategies, the Fund may temporarily invest in money-market
instruments of all types, higher-rated fixed-income securities or any other
fixed-income securities that the Fund considers consistent with such strategy.
The yield to maturity on these securities would generally be lower than the
yield to maturity on lower-rated fixed-income securities. It is impossible to
predict when, or for how long, such alternative strategies will be utilized.
The Fund's Manager buys and sells securities for the Fund principally in
response to its evaluation of an issuer's continuing ability to meet its
obligations, the availability of better investment opportunities, and its
assessment of changes in business conditions and interest rates. From time to
time, consistent with its investment objectives, the Fund may sell securities
that have appreciated in value because of declines in interest rates. It may
also trade securities for the purpose of seeking short-term profits. Securities
may be sold in anticipation of a market decline or bought in anticipation of a
market rise. They may also be traded for securities of comparable quality and
maturity to take advantage of perceived short-term disparities in market values
or yields.
Princor Limited Term Bond Fund
The objective of Princor Limited Term Bond Fund is to seek a high level of
current income consistent with a relatively high level of principal stability by
investing in a portfolio of securities with a dollar weighted average maturity
of five years or less. The Fund seeks to achieve its objective by investing
primarily in high grade, short-term debt securities.
The Fund will invest, under normal circumstances, at least 80% of its total
assets in securities issued or guaranteed by the United States ("U.S.")
Government or its agencies or instrumentalities (as described in the discussion
of Princor Government Securities Income Fund) and other debt securities of U.S.
issuers rated within the three highest grades used by Standard & Poor's (AAA, AA
or A) or by Moody's (Aaa, Aa, or A) or which, if nonrated, are comparable in
quality in the opinion of the Fund's Manager. The balance of the Fund's assets
may be invested in debt securities rated in the fourth highest grade by the
major rating services (i.e., at least "Baa" by Moody's Investors Service or
"BBB" by Standard & Poor's Corporation, or their equivalents) or, if not rated,
judged to be of comparable quality. Securities rated BBB or Baa are considered
investment grade securities having adequate capacity to pay interest and repay
principal. Such securities may have speculative characteristics, however, and
changes in economic and other conditions are more likely to lead to a weakened
capacity of the issuer of such securities to make principal and interest
payments than is the case with higher rated securities. Under normal
circumstances, the Fund will maintain a dollar weighted average maturity of not
more than five years. In determining the average maturity of the Fund's
portfolio, the Manager may adjust the maturity dates on callable or prepayable
securities to reflect the Manager's judgment regarding the likelihood of such
securities being called or prepaid.
The Fund may also invest in other debt securities including corporate debt
securities such as bonds, notes and debentures, mortgage-backed securities
including collateralized mortgage obligations and other asset-backed securities.
For a more complete description of asset-backed securities, see "Princor
Government Securities Income Fund" discussion.
Cash equivalents in which the Fund invests include corporate commercial
paper rated A-1+, A-1 or A-2 by S&P or P-1 or P-2 by Moody's, unrated commercial
paper issued by corporations with outstanding debt securities rated in the four
highest grades by S&P and Moody's and bank certificates of deposit and bankers'
acceptances issued or guaranteed by national or state banks and repurchase
agreements considered by the Fund to have investment quality. Under unusual
market or economic conditions, the Fund for temporary defensive purposes, may
invest up to 100% of its assets in cash or cash equivalents.
Princor Tax-Exempt Bond Fund
The objective of Princor Tax-Exempt Bond Fund is to seek as high a level of
current income exempt from federal income tax as is consistent with preservation
of capital. The Fund seeks to achieve its objective by investing primarily in a
diversified portfolio of securities issued by or on behalf of state or local
governments or other public authorities. Interest on these obligations
("Municipal Obligations") is exempt from federal income tax in the opinion of
bond counsel to the issuer.
The Fund will invest, during normal market conditions, at least 80% of its
total assets in Municipal Obligations which, at the time of purchase, meet the
following standards: (a) Municipal Bonds rated within the four highest grades by
(i) Moody's, these ratings are: Aaa, Aa, A and Baa or (ii) S&P, these ratings
are: AAA, AA, A and BBB; (b) Municipal Notes rated within the highest grade by
Moody's (MIG-1) or S&P (SP-1); (c) Municipal Commercial Paper rated within the
highest grade by Moody's (Prime-1) or S&P (A-1); and (d) unrated Municipal
Obligations comparable in quality to those described above in the opinion of the
Fund's Manager.
The Fund may invest up to 20% of its total assets in Municipal Obligations
that do not meet the standards required for the balance of the portfolio as set
forth above. Securities rated below BBB or Baa are commonly referred to as junk
bonds. These investments normally will provide an opportunity for higher yield
but will be more speculative than Municipal Obligations that meet higher
standards. They typically will entail greater price volatility and a higher risk
of default, that is, the nonpayment of interest and principal by the issuer. The
Fund does not intend to purchase Municipal Obligations that would be in default
as to payment of either interest or principal at the time of purchase. As a
result, it will not purchase Municipal Bonds rated lower than B by Moody's or
S&P (bonds that are predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation) or
Municipal Notes or Municipal Commercial Paper which is unrated by either Moody's
or S&P and which in the opinion of the Fund's Manager is not comparable in
quality to rated obligations. See the discussion of the Princor High Yield Fund
for information concerning risks associated with below-investment grade bonds.
The Fund may also invest from time to time in the following taxable
securities which mature one year or less from the time of purchase: Obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities ("U.S. Government securities"), domestic bank certificates of
deposit and bankers' acceptances, commercial paper, short-term corporate debt
securities and repurchase agreements ("Taxable Investments"). The Fund will make
Taxable Investments primarily for liquidity purposes or as a temporary
investment of cash pending its investment in Municipal Obligations. During
normal market conditions, the Fund will not invest more than 20% of its total
assets in Taxable Investments, the Municipal Obligations identified in the
preceding paragraph and Municipal Obligations the interest on which is treated
as a tax preference item for purposes of the federal alternative minimum tax.
The Fund, however, may temporarily invest more than 20% of its assets in Taxable
Investments when in the opinion of the Fund's Manager it is advisable to do so
for defensive purposes because of market conditions.
The Fund may not invest more than 5% of its total assets in the securities
of any one issuer (except for U.S. Government securities), but it may invest
without limit in debt obligations of issuers located in the same state and in
debt obligations which are repayable out of revenue sources generated from
economically related projects or facilities. Sizeable investments in such
obligations could involve an increased risk to the Fund since an economic,
business or political development or change affecting one security could also
affect others. The Fund may also invest without limit in industrial development
bonds, which are issued by industrial development authorities but may be backed
only by the assets and revenues of the non-governmental entities that use the
facilities financed by the bonds.
During the fiscal year ended October 31, 1995, the percentage of the Fund's
portfolio securities invested in the various ratings established by Moody's,
based upon the weighted average ratings of the portfolio, was as follows:
Moody's Rating Portfolio Percentage
Aaa 2.49%
AA 26.66%
A 33.29%
Baa 30.98%
Ba 3.52%
The above percentages for AA, A and Baa rated securities include unrated
securities in the amount of 1.31%, 3.54% and 6.22%, respectively, which have
been determined by the Manager to be of comparable quality.
The Fund will not engage in the trading of securities for the purpose of
realizing short-term profits, but it will adjust its portfolio as considered
advisable in view of prevailing or anticipated market conditions and the Fund's
investment objective. Accordingly, the Fund may sell portfolio securities in
anticipation of a rise in interest rates and purchase securities for inclusion
in its portfolio in anticipation of a decline in interest rates.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. It may be expected that similar proposals may
be introduced in the future. If such a proposal were enacted, the ability of the
Fund to pay "exempt interest" dividends may be adversely affected and the Fund
would reevaluate its investment objective and policies and consider changes in
its structure.
Princor Utilities Fund
The investment objective of Princor Utilities Fund is to provide current
income and long-term growth of income and capital. The Fund seeks to achieve its
investment objective by investing primarily in equity and fixed-income
securities of companies engaged in the public utilities industry. The term
"public utilities industry" consists of companies engaged in the manufacture,
production, generation, transmission, sale and distribution of gas and electric
energy, as well as companies engaged in the communications field, including
telephone, telegraph, satellite, microwave and other companies providing
communication facilities for the public, but excluding public broadcasting
companies. For purposes of the Fund, a company will be considered to be in the
public utilities industry if, during the most recent twelve-month period, at
least 50% of the company's gross revenues, on a consolidated basis, is derived
from the public utilities industry. Under normal market conditions, the Fund, as
an investment policy, will invest at least 65%, and may invest up to 100%, of
its total assets in securities of companies in the public utilities industry,
and as a matter of fundamental policy will invest no less than 25% of its total
assets in those securities. As a non-fundamental policy, the Fund may not own
more than 5% of the outstanding voting securities of more than one public
utility company as defined by the Public Utility Holding Company Act of 1935.
The Fund invests in both equity securities (as defined previously under
"Growth-Oriented Funds") and fixed- income securities (bonds and preferred
stock) in the public utilities industry. The Fund does not have any set policies
to concentrate within any particular segment of the utilities industry. The Fund
will shift its asset allocation without restriction between types of utilities
and between equity and fixed-income securities based upon the Manager's
determination of how to achieve the Fund's investment objective in light of
prevailing market, economic and financial conditions. For example, at a
particular time the Manager may choose to allocate up to 100% of the Fund's
assets in a particular type of security (for example, equity securities) or in a
specific utility industry segment (for example, electric utilities).
Fixed-income securities in which the Fund may invest are debt securities
and preferred stocks, which are rated at the time of purchase Baa or better by
Moody's or BBB or better by S&P, or which, if unrated, are deemed to be of
comparable quality by the Fund's Manager. A description of corporate bond
ratings is contained in the Appendix to the Statement of Additional Information.
The rating services' descriptions of Baa or BBB securities are as follows:
Moody's Investors Service, Inc. Bond ratings -- Baa: Bonds which are rated Baa
are considered as medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Standard and Poor's Corporation Bond Ratings -- BBB:
Debt rated "BBB" is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than for debt in higher-rated categories.
If a fixed-income security held by the Fund is rated BBB or Baa and is
subsequently down graded by a rating agency, the Fund will retain such security
in its portfolio until the Manager determines that it is practicable to sell the
security without undue market or tax consequences to the Fund.
While the Fund will invest primarily in the securities of public utility
companies, it may invest up to 35% of its total assets in those securities that
are permissible investments for the Balanced Fund. See "Princor Balanced Fund"
and "Certain Investment Policies and Restrictions." However the Fund will not
invest in fixed-income securities rated below Baa by Moody's or BBB by S&P.
When in the opinion of the Manager current market or economic conditions
warrant, the Fund may for temporary defensive purposes place all or a portion of
its assets in cash, on which the Fund would earn no income, cash equivalents,
bank certificates of deposit, bankers acceptances, repurchase agreements,
commercial paper, commercial paper master notes or United States Government
securities. When investing for temporary defensive purposes the Fund is not
investing so as to achieve its investment objective. The Fund may also maintain
reasonable amounts of cash or short-term debt securities for daily cash
management purposes or pending selection of particular long-term investments.
The public utilities industry as a whole has certain characteristics and
risks particular to that industry. Unlike industrial companies, the rates which
utility companies may charge their customers generally are subject to review and
limitation by governmental regulatory commissions. Although rate changes of a
utility usually fluctuate in approximate correlation with financing costs, due
to political and regulatory factors rate changes ordinarily occur only following
a delay after the changes in financing costs. This factor will tend to favorably
affect a utility company's earnings and dividends in times of decreasing costs,
but conversely will tend to adversely affect earnings and dividends when costs
are rising. In addition, the value of public utility debt securities (and, to a
lesser extent, equity securities) tends to have an inverse relationship to the
movement of interest rates.
Among the risks affecting the utilities industry are the following: risks
of increases in fuel and other operating costs; the high cost of borrowing to
finance capital construction during inflationary periods; restrictions on
operations and increased costs and delays associated with compliance with
environmental and nuclear safety regulations; the difficulties involved in
obtaining natural gas for resale or fuel for generating electricity at
reasonable prices; the risks in connection with the construction and operation
of nuclear power plants; the effects of energy conservation and effects of
regulatory changes, such as the possible adverse effects on profits of recent
increased competition among telecommunications companies and the uncertainties
resulting from such companies' diversification into new domestic and
international businesses, as well as agreements by many such companies linking
future rate increases to inflation or other factors not directly related to the
actual operating profits of the enterprise.
MONEY MARKET FUNDS
The Princor Funds currently include two Funds which seek a high level of
income through investments in short-term securities. These Funds are Princor
Cash Management Fund and Princor Tax-Exempt Cash Management Fund, together
referred to as the "Money Market Funds." Securities in which the Money Market
Funds will invest may not yield as high a level of current income as securities
of lower quality and longer maturities which generally have less liquidity,
greater market risk and more fluctuation.
Each of the Money Market Funds will limit its portfolio investments to
United States dollar denominated instruments that the Manager, subject to the
oversight of the Board of Directors, determines present minimal credit risks and
which at the time of acquisition are "Eligible Securities" as that term is
defined in regulations issued under the Investment Company Act of 1940.
Eligible Securities include:
(1) A security with a remaining maturity of 397 days or less that is rated
(or that has been issued by an issuer that is rated in respect to a
class of short-term debt obligations, or any security within that
class, that is comparable in priority and security with the security)
by a nationally recognized statistical rating organization in one of
the two highest rating categories for short-term debt obligations; or
(2) A security that at the time of issuance was a long-term security with
a remaining maturity of 397 calendar days or less, and whose issuer
has received from a nationally recognized statistical rating
organization a rating, with respect to a class of short-term debt
obligations (or any security within that class) that is now comparable
in priority and security with the security, in one of the two highest
rating categories for short-term debt obligations; or
(3) an unrated security that is of comparable quality to a security
meeting the requirements of (1) or (2) above, as determined by the
board of directors.
Princor Cash Management Fund will not invest more than 5% of its total
assets in the following securities:
(1) Securities which, when acquired by the Fund (either initially or upon
any subsequent rollover), are rated in the second highest rating
category for short-term debt obligations;
(2) Securities which at the time of issuance were long-term securities but
when acquired by the Fund have a remaining maturity of 397 calendar
days or less, if the issuer of such securities is rated, with respect
to a class of comparable short-term debt obligations, in the second
highest rating category for short-term obligations; and
(3) Securities which are unrated but are determined by the Fund's Board of
Directors to be of comparable quality to securities rated in the second
highest rating category for short-term debt obligations.
Each Fund will maintain a dollar-weighted average portfolio maturity of 90
days or less. Each Fund intends to hold its investments until maturity, but may
on occasion trade securities to take advantage of market variations. Also,
revised valuations of an issuer or redemptions may result in sales of portfolio
investments prior to maturity or at a time when such sales might otherwise not
be desirable. Each Fund's right to borrow to facilitate redemptions may reduce
the need for such sales. The sale of portfolio securities would be a taxable
event. See "Tax Treatment of the Funds, Dividends and Distributions." It is the
policy of the Money Market Funds to be as fully invested as reasonably practical
at all times to maximize current income.
Since portfolio assets of the Money Market Funds will consist of short-term
instruments, replacement of portfolio securities will occur frequently. However,
since these Funds expect to usually transact purchases and sales of portfolio
securities with issuers or dealers on a net basis, it is not anticipated that
the Funds will pay any significant brokerage commissions. The Funds are free to
dispose of portfolio securities at any time, when changes in circumstances or
conditions make such a move desirable in light of their investment objectives.
Princor Cash Management Fund
The objective of Princor Cash Management Fund is to seek as high a level of
current income available from short-term securities as is considered consistent
with preservation of principal and maintenance of liquidity by investing its
assets in a portfolio of money market instruments. These money market
instruments are U.S. Government Securities, U.S. Government Agency Securities,
Bank Obligations, Commercial Paper, Short-term Corporate Debt and Repurchase
Agreements, which are described briefly below and in more detail in the
Statement of Additional Information.
U.S. Government Securities are securities issued or guaranteed by the U.S.
Government, including treasury bills, notes and bonds.
U.S. Government Agency Securities are obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government whether supported by the
full faith and credit of the U.S. Treasury or only by the credit of a particular
agency or instrumentality.
Bank Obligations consist of certificates of deposit which are generally
negotiable certificates issued against funds deposited in a commercial bank for
a definite period of time and earning a specified return and bankers acceptances
which are time drafts drawn on a commercial bank by a borrower, usually in
connection with international commercial transactions.
Commercial Paper is short-term promissory notes issued by corporations
primarily to finance short-term credit needs.
Short-term Corporate Debt consists of notes, bonds or debentures which at
the time of purchase have one year or less remaining to maturity.
Repurchase Agreements are transactions under which securities are purchased
from a bank or securities dealer with an agreement by the seller to repurchase
the securities at the same price plus interest at a specified rate. Generally,
Repurchase Agreements are of short duration, usually less than a week but on
occasion for longer periods.
Princor Tax-Exempt Cash Management Fund
The objective of Princor Tax-Exempt Cash Management Fund is to provide as
high a level of current interest income exempt from federal income tax as is
consistent, in the view of the Fund's management, with stability of principal
and the maintenance of liquidity. The Fund seeks to achieve its objective
through investment in a professionally managed portfolio of high quality,
short-term obligations that have been issued by or on behalf of state or local
governments or other public authorities and that pay interest which is exempt
from federal income tax in the opinion of bond counsel to the issuer ("Municipal
Obligations").
The Fund may invest in Municipal Obligations with fixed, variable or
floating interest rates and may invest in participation interests in pools of
Municipal Obligations held by banks or other financial institutions. The Fund
may treat a variable or floating interest rate obligation as maturing before its
ultimate maturity date if the Fund has acquired a right to sell the obligation
that meets requirements established by the Securities and Exchange Commission.
The Fund expects to invest primarily in variable rate or floating rate
instruments. Typically such instruments carry demand features permitting the
Fund to redeem at par upon specified notice. The Fund's right to obtain payment
at par on a demand instrument upon demand could be affected by events occurring
between the date the Fund elects to redeem the instrument and the date
redemption proceeds are due which affect the ability of the issuer to pay the
instrument at par value. The Manager will monitor on an ongoing basis the
pricing, quality and liquidity of such instruments and will similarly monitor
the ability of an issuer of a demand instrument, including those supported by
bank letters of credit or guarantees, to pay principal and interest on demand.
Although the ultimate maturity of such variable rate obligations may exceed one
year, the Fund will treat the maturity of each variable rate demand obligation
as the longer of (i) the notice period required before the Fund is entitled to
payment of the principal amount through demand, or (ii) the period remaining
until the next interest rate adjustment. Floating rate instruments with demand
features are deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
The Fund may also invest in bond anticipation notes, tax anticipation
notes, revenue anticipation notes, construction loan notes and bank notes issued
by governmental authorities to commercial banks as evidence of borrowings. Since
these short-term securities frequently serve as interim financing pending
receipt of anticipated funds from the issuance of long-term bonds, tax
collections or other anticipated future revenues, a weakness in an issuer's
ability to obtain such funds as anticipated could adversely affect the issuer's
ability to meet its obligations on these short-term securities.
The Fund may also invest from time to time on a temporary basis in the
following taxable securities which mature 397 days or less from the time of
purchase: Obligations issued or guaranteed by the United States Government or
its agencies or instrumentalities ("U.S. Government securities"), domestic bank
certificates of deposit and bankers' acceptances, commercial paper, short-term
corporate debt securities and repurchase agreements ("Temporary Investments").
The Fund will make Temporary Investments primarily for liquidity purposes or as
a temporary investment of cash pending its investment in Municipal Obligations.
During normal market conditions, the Fund will not invest more than 20% of its
total assets in Temporary Investments. The Fund, however, may temporarily invest
more than 20% of its assets in Temporary Investments when in the opinion of the
Fund's Manager it is advisable to maintain a temporary "defensive" posture.
The Fund may invest in the securities of other open-end investment
companies but may not invest more than 10% of its assets in securities of other
investment companies, invest more than 5% of its total assets in the securities
of any one investment company, or acquire more than 3% of the outstanding voting
securities of any one investment company except in connection with a merger,
consolidation or plan of reorganization. The Fund's Manager will waive its
management fee on the Fund's assets invested in securities of other open-end
investment companies. The Fund will generally invest in other investment
companies only for short-term cash management purposes when the advisor
anticipates the net return from the investment to be superior to alternatives
then available. The Fund will generally invest only in those investment
companies that have investment policies requiring investment in securities
comparable in quality to those in which the Fund invests.
The Fund may not invest more than 5% of its total assets in the securities
of any one issuer (except for U.S. Government securities), but it may invest
without limit in debt obligations of issuers located in the same state and in
debt obligations which are repayable out of revenue sources generated from
economically related projects or facilities. Sizeable investments in such
obligations could involve an increased risk to the Fund since an economic,
business or political development or change affecting one security could also
affect others. The Fund may also invest without limit in industrial development
bonds, which are issued by industrial development authorities but may be backed
only by the assets and revenues of the non-governmental entities that use the
facilities financed by the bonds. The Fund, however, will not invest more than
20% of its total assets in any Municipal Obligation the interest on which is
treated as a tax preference item for purposes of the federal alternative minimum
tax, and during normal market conditions, it will limit its investments in such
securities and in Temporary Investments to 20% of its total assets.
Municipal Obligations are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or any state extending the time for payment of principal or interest,
or both, or imposing other constraints upon enforcement of such obligations or
upon municipalities to levy taxes. The power or ability of issuers to pay, when
due, principal of and interest on Municipal Obligations may also be materially
affected by the results of litigation or other conditions.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. It may be expected that similar proposals may
be introduced in the future. If such a proposal were enacted, the ability of the
Fund to pay "exempt interest" dividends may be adversely affected, and the Fund
would reevaluate its investment objective and policies and consider changes in
its structure.
CERTAIN INVESTMENT POLICIES AND RESTRICTIONS
Following is a discussion of certain investment practices that the Funds
may use in an effort to achieve their respective investment objectives.
Repurchase Agreements/Lending Portfolio Securities
Each of the Funds may enter into repurchase agreements with, and each of
the Funds, except the Capital Accumulation Fund, Growth Fund and Cash Management
Fund, may lend its portfolio securities to, unaffiliated broker-dealers and
other unaffiliated qualified financial institutions. These transactions must be
fully collateralized at all times, but involve some credit risk to the Fund if
the other party should default on its obligations, and the Fund is delayed or
prevented from recovering on the collateral. See the Statement of Additional
Information for further information regarding the credit risks associated with
repurchase agreements and the standards adopted by each Fund's Board of
Directors to deal with those risks. None of the Funds intends either (i) to
enter into repurchase agreements that mature in more than seven days if any such
investment, together with any other illiquid securities held by the Fund, would
amount to more than 15% (10% for the Government Securities Income Fund) of its
total assets or (ii) to lend securities in excess of 30% of its total assets.
Forward Commitments
From time to time, each of the Income-Oriented Funds and the Balanced Fund
may enter into forward commitment agreements which call for the Fund to purchase
or sell a security on a future date and at a price fixed at the time the Fund
enters into the agreement. Each of these Funds may also acquire rights to sell
its investments to other parties, either on demand or at specific intervals.
Warrants
Each of the Funds, except the Cash Management Fund, Government Securities
Income Fund and Tax-Exempt Bond Fund, may invest in warrants up to 5% of its
assets, of which not more than 2% may be invested in warrants that are not
listed on the New York or American Stock Exchange. For the World Fund, the 2%
limitation also applies to warrants not listed on the Toronto Stock Exchange.
Borrowing
As a matter of fundamental policy, each Fund may borrow money only for
temporary or emergency purposes. Each of the Funds, except the Balanced Fund,
Blue Chip Fund, Bond Fund, Emerging Growth Fund, Government Securities Income
Fund, High Yield Fund, Limited Term Bond Fund, Utilities Fund and World Fund,
may borrow only from banks. Further, each Fund may borrow only in an amount not
exceeding 5% of its assets, except:
(1) the Capital Accumulation Fund and Growth Fund, each of which may borrow
only in an amount not exceeding the lesser of (i) 5% of the value of
its assets less liabilities other than such borrowings, or (ii) 10% of
its assets taken at cost at the time the borrowing is made;
(2) the Cash Management Fund which may borrow only in an amount not
exceeding the lesser of (i) 5% of the value of its assets, or (ii) 10%
of the value of its net assets taken at cost at the time the borrowing
is made; and
(3) the Tax-Exempt Cash Management Fund which may borrow in an amount which
permits it to maintain a 300% asset coverage and while any such
borrowing exceeds 5% of the Fund's total assets no additional purchases
of investment securities will be made. If due to market fluctuations or
other reasons the Fund's asset coverage falls below 300% of its
borrowings, the Fund will reduce its borrowings within 3 business days.
To do this, the Fund may have to sell a portion of its investments at a
time when it may be disadvantageous to do so.
Options
The Balanced Fund, Blue Chip Fund, Bond Fund, Emerging Growth Fund,
Government Securities Income Fund, High Yield Fund, Limited Term Bond Fund,
Utilities Fund and World Fund may purchase covered spread options, which would
give the Fund the right to sell a security that it owns at a fixed dollar spread
or yield spread in relationship to another security that the Fund does not own,
but which is used as a benchmark. These same Funds may also purchase and sell
financial futures contracts, options on financial futures contracts and options
on securities and securities indices, but will not invest more than 5% of their
assets in the purchase of options on securities, securities indices and
financial futures contracts or in initial margin and premiums on financial
futures contracts and options thereon. The Funds may write options on securities
and securities indices to generate additional revenue and for hedging purposes
and may enter into transactions in financial futures contracts and options on
those contracts for hedging purposes.
General
The Statement of Additional Information includes further information
concerning the Funds' investment policies and applicable investment
restrictions. The investment objectives of the Funds are fundamental and certain
investment restrictions designated as such in this Prospectus or in the
Statement of Additional Information are fundamental policies that may not be
changed without approval by the holders of the lesser of: (i) 67% of the Fund's
shares present or represented at a shareholders' meeting at which the holders of
more than 50% of such shares are present or represented by proxy; or (ii) more
than 50% of the outstanding shares of the Fund. All other investment policies
described in this Prospectus and the Statement of Additional Information are not
fundamental and may be changed by the Board of Directors of the appropriate Fund
without shareholder approval.
RISK FACTORS
An investment in any of the Growth-Oriented Funds involves the financial
and market risks that are inherent in any investment in equity securities. These
risks include changes in the financial condition of issuers, in economic
conditions generally and in the conditions in securities markets. They also
include the extent to which the prices of securities will react to those
changes.
An investment in any of the Income-Oriented Funds involves market risks
associated with movements in interest rates. The market value of the Funds'
investments will fluctuate in response to changes in interest rates and other
factors. During periods of falling interest rates, the values of outstanding
long-term fixed-income securities generally rise. Conversely, during periods of
rising interest rates, the values of such securities generally decline. Changes
by recognized rating agencies in their ratings of any fixed-income security and
in the ability of an issuer to make payments of interest and principal may also
affect the value of these investments. Changes in the value of portfolio
securities will affect the Funds' net asset values but will not affect cash
income derived from the securities unless a change results from a failure of an
issuer to pay interest or principal when due.
The yields on an investment in either of the Money Market Funds will vary
with changes in short-term interest rates. In addition, the investments of each
Money Market Fund are subject to the ability of the issuer to pay interest and
principal when due.
Each of the following Princor Funds may invest in foreign securities to the
indicated percentage of its assets: World Fund - 100%; Balanced, Blue Chip,
Bond, Capital Accumulation, Emerging Growth, High Yield, Limited Term Bond Fund,
and Utilities Funds - 20%. Neither the Government Securities Income Fund nor the
Tax-Exempt Bond Fund may invest in foreign securities. Investment in foreign
securities presents certain risks which may affect a Fund's net asset value.
These risks include, but are not limited to, those resulting from fluctuations
in currency exchange rates, revaluation of currencies, the imposition of foreign
taxes, the withholding of taxes on dividends at the source, political and
economic developments including war, expropriations, nationalization, the
possible imposition of currency exchange controls and other foreign governmental
laws or restrictions, reduced availability of public information concerning
issuers, and the fact that foreign issuers are not generally subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
practices and requirements comparable to those applicable to domestic issuers.
Moreover, securities of many foreign issuers may be less liquid and their prices
more volatile than those of comparable domestic issuers. In addition,
transactions in foreign securities may be subject to higher costs, and the time
for settlement of transactions in foreign securities may be longer than the
settlement period for domestic issuers. A Fund's investment in foreign
securities may also result in higher custodial costs and the costs associated
with currency conversions.
HOW THE FUNDS ARE MANAGED
Under Maryland law, the business and affairs of each of the Funds are
managed under the direction of its Board of Directors. Investment services and
certain other services are furnished to the Funds under the terms of a
Management Agreement between each of the Funds and the Manager. The Manager for
the Funds is Princor Management Corporation (the "Manager"), an indirectly
wholly-owned subsidiary of Principal Mutual Life Insurance Company, a mutual
life insurance company organized in 1879 under the laws of the State of Iowa.
The address of the Manager is The Principal Financial Group, Des Moines, Iowa
50392. The Manager was organized on January 10, 1969, and since that time has
managed various mutual funds sponsored by Principal Mutual Life Insurance
Company. As of January 31, 1996, the Manager served as investment advisor for 26
such funds with assets totaling approximately $3.0 billion.
The Manager has executed an agreement with Invista Capital Management, Inc.
("Invista") under which Invista has agreed to assume the obligations of the
Manager to provide investment advisory services for each of the Growth-Oriented
Funds, the Government Securities Income Fund, Limited Term Bond Fund, and
Utilities Fund. The Manager will reimburse Invista for the cost of providing
these services. Invista, an indirectly wholly-owned subsidiary of Principal
Mutual Life Insurance Company and an affiliate of the Manager, was founded in
1985 and manages investments for institutional investors, including Principal
Mutual Life. Assets under management at December 31, 1995 were approximately
$15.6 billion. Invista's address is 1500 Hub Tower, 699 Walnut, Des Moines, Iowa
50309.
The Manager or Invista advises the Funds on investment policies and on the
composition of the Funds' portfolios. In this connection, the Manager or Invista
furnishes to the Board of Directors of each Fund a recommended investment
program consistent with that Fund's investment objective and policies. The
Manager or Invista is authorized, within the scope of the approved investment
program, to determine which securities are to be bought or sold, and in what
amounts.
The Manager or Invista has assigned certain individuals the primary
responsibility for the day-to-day management of each Fund's portfolio. The
persons primarily responsible for the day-to-day management of each Fund are
identified in the table below:
<TABLE>
<CAPTION>
Primarily
Fund Responsible Since Person Primarily Responsible
<S> <C> <C>
Balanced April, 1993 Judith A. Vogel, CFA (BA degree, Central College). Vice President,
Invista Capital Management, Inc. since 1987.
Blue Chip March, 1991 Mark T. Williams, CFA (MBA degree, Drake University). Investment
(Fund's inception) Officer, Invista Capital Management, Inc., since 1992; Security Analyst
1989-1992.Prior thereto, Financial Analyst, Digital Equipment Corporation.
Bond December, 1987 Donald D. Brattebo (BBA degree, Upper Iowa University). Second Vice
(Fund's inception) President, Principal Mutual Life Insurance Company since 1990; Prior
thereto, Director, Investment Securities.
Capital Accumulation October, 1969 David L. White, CFA (BBA degree, University of Iowa). Executive Vice
(Fund's inception) President, Invista Capital Management, Inc. since 1984.
Emerging Growth and December, 1987 Michael R. Hamilton, (MBA degree, Bellarmine College). Vice President,
Growth (Fund's inception) Invista Capital Management, Inc. since 1987.
and August, 1987,
respectively
Government Securities May, 1985 Martin J. Schafer (BBA degree, University of Iowa). Vice President, Invista
Income (Fund's inception) Capital Management Company since 1992. Director - Securities Trading,
Principal Mutual Life Insurance Company 1992; Prior thereto, Associate
Director.
High Yield December, 1987 James K. Hovey, CFA (MBA degree University of Iowa). Director - Invest-
(Fund's inception) ment Securities, Principal Mutual Life Insurance Company since 1990; Prior
thereto, Assistant Director Investment Securities.
Limited Term Bond February, 1996 Martin J. Schafer (BBA degree, University of Iowa). Vice President, Invista
(Fund's inception) Capital Management Company since 1992. Director-Securities Trading,
Principal Mutual Life Insurance Company 1992; Prior thereto, Associate
Director.
Tax-Exempt Bond July, 1991 Daniel J. Garrett, CFA (MBA degree, Drake University). Assistant Director -
Investment Securities, Principal Mutual Life Insurance Company since 1989;
Prior thereto, Mortgage Banking Research Analyst.
Utilities April, 1993 Catherine A. Green, CFA, (MBA degree, Drake University). Vice President,
Invista Capital Management, Inc. since 1987.
World April, 1994 Scott D. Opsal, CFA, (MBA degree, University of Minnesota). Vice President,
Invista Capital Management, Inc. since 1987.
</TABLE>
Until August 1, 1988 the World Fund's portfolio was managed by Principal
Management, Inc. of Edmonton, Canada and Scottsdale, Arizona, which company has
changed its name to Sea Investment Management, Inc. The Fund's previous manager
and the current manager are unaffiliated. This change in managers should be kept
in mind when reviewing historical investment results.
For a description of the investment and other services provided by the
Manager, see "Cost of Manager's Services" in the Statement of Additional
Information. The management fee and total Class A share expenses incurred by
each Fund for the period ended October 31, 1995 were equal to the following
percentages of each Fund's respective average net assets:
Class A Shares Class B Shares
---------------------- ---------------------------
Total Total
Manager's Annualized Manager's Annualized
Fee Expenses Fee Expenses
Balanced .60% 1.37% .60% 1.91%
Blue Chip .50% 1.38% .50% 1.90%
Bond .50% .94%* .50% 1.59%*
Capital Accumulation .45% .75% .45% 1.50%
Cash Management .38% .72%* .38% 1.42%*
Emerging Growth .64% 1.47% .64% 2.04%
Government Securities
Income .46% .87% .46% 1.53%
Growth .48% 1.16% .48% 1.80%
High Yield .60% 1.45% .60% 2.10%
Tax-Exempt Bond .48% .83% .48% 1.51%
Tax-Exempt Cash
Management .50% .69%* .50% 1.42%*
Utilities .60% 1.04%* .60% 1.72%*
World .74% 1.63% .74% 2.19%
*After waiver.
The Manager voluntarily waived a portion of its fee for the Bond, Cash
Management, Tax-Exempt Cash Management and Utilities Funds throughout the fiscal
year ended October 31, 1995. The Manager intends to continue its voluntary
waiver and, if necessary, pay expenses normally payable by each of these Funds,
except the Utilities Fund, through February 28, 1997 in an amount that will
maintain a total level of operating expenses which as a percentage of average
net assets attributable to a class on an annualized basis during that period
will not exceed, for the Class A shares, .95% for the Bond Fund and .75% for the
Money Market Funds, and for the Class B shares, 1.70% for the Bond Fund and
1.75% for the Money Market Funds. The Manager continued its voluntary waiver for
the Utilities Fund through February 29, 1996 in an amount that maintained a
total level of operating expenses which as a percent of average net assets
attributable to a class on an annualized basis during the period did not exceed
1.10% for the Class A shares and 1.85% for Class B shares. The effect of the
waivers is and will be to reduce each Fund's annual operating expenses and
increase each Fund's yield.
The Manager's annual fee for the Limited Term Bond Fund is .50% of the
Fund's average net assets. The Manager intends to voluntarily waive its fee and,
if necessary, pay expenses normally payable by the Limited Term Bond Fund
through February 28, 1997 in such amount that will maintain a total level of
operating expenses which as a percent of average net assets attributable to a
class on an annualized basis will not exceed .90% for Class A shares and 1.15%
for Class B shares.
The compensation being paid by the World Fund for investment management
services, which currently is equal, on an annual basis, to .75% of the average
daily value of the Fund's net assets, is higher than that paid by most funds to
their advisors, but it is not higher than the fees paid by many funds with
similar investment objectives and policies.
The Manager and Invista may purchase at their own expense statistical and
other information or services from outside sources, including Principal Mutual
Life Insurance Company. An Investment Service Agreement between each Fund, the
Manager, and Principal Mutual Life Insurance Company provides that Principal
Mutual Life Insurance Company will furnish certain personnel, services and
facilities required by the Manager in connection with its performance of the
Management Agreements, and that the Manager will reimburse Principal Mutual Life
Insurance Company for its costs incurred in this regard.
Among the expenses paid by each Fund are brokerage commissions on portfolio
transactions, the cost of stock issue and transfer and dividend disbursements,
administration of shareholder accounts, custodial fees, expenses of registering
and qualifying shares for sale after the initial registration, auditing and
legal expenses, fees and expenses of unaffiliated directors, the cost of
shareholder meetings and taxes and interest (if any).
The Funds may from time to time execute transactions for portfolio
securities with, and pay related brokerage commissions to, Principal Financial
Securities, Inc. ("PFS") and Morgan Stanley and Co., each a broker-dealer
affiliated with Princor and/or the Manager for each of the Funds. PFS also
provides distribution services for the Money Market Funds for which it is
compensated by the Manager. These services include, but are not limited to,
providing office space, equipment, telephone facilities and various personnel as
necessary or beneficial to establish and maintain shareholder accounts. PFS
receives a fee from the Manager calculated as a percentage of the average net
asset value of shares of each Fund held in PFS client accounts during the period
for which PFS provides the services. During the fiscal years ended October 31,
1993, 1994, and 1995, PFS received fees in the amount of $516,939, $539,662, and
$991,520 respectively, in consideration of the services it rendered to the Cash
Management Fund. During the fiscal years ending October 31, 1993, 1994, and
1995, PFS received fees in the amount of $165,995, $167,309, and $191,789
respectively, in consideration of the services it rendered to the Tax-Exempt
Cash Management Fund.
The Manager serves as investment advisor, dividend disbursing agent and,
directly and through an affiliate, as transfer agent for each of the Funds
sponsored by Principal Mutual Life Insurance Company. The Funds reimburse the
Manager for the costs of providing these services.
HOW TO PURCHASE SHARES
Purchases are generally made through registered representatives of Princor
or other dealers it selects. If an order and check are properly submitted to
Princor, the shares will be issued at the offering price next computed after the
order and check are received at Princor's main office. If Fund shares are
purchased by telephone order or electronic means and thereafter settled by
delivery of a check or a payment by wire, the shares so purchased will be issued
at the offering price next computed after the telephone or electronic order is
received at Princor's main office. If an order and check are submitted through a
selected dealer, the shares will be issued in accordance with the following: An
order accepted by a dealer on any day before the close of the New York Stock
Exchange and received by Princor before the close of its business on that day
will be executed at the offering price computed as of the close of the Exchange
on that day. An order accepted by such dealer after the close of the Exchange
and received by Princor before its closing on the following business day will be
executed at the offering price computed as of the close of the Exchange on such
following business day. Dealers have the responsibility to transmit orders to
Princor promptly. After an open account has been established, purchases will be
executed at the price next computed after receipt of the investor's check at
Princor's main office. All orders are subject to acceptance by the Fund or Funds
and Princor.
Redemptions by shareholders investing by check will be effected only after
payment has been collected on the check, which may take up to eight days or
more. Investors considering redeeming or exchanging shares or transferring
shares to another person shortly after purchase should pay for those shares with
a certified check, bank cashier's check or money order to avoid any delay in
redemption, exchange or transfer.
Class B shares of the Money Market Funds may be purchased only by an
exchange from Class B shares of the Princor Funds. Shares of each of the other
Princor Funds may be purchased by mail, by telephone or by exchange from other
Princor Funds.
Investments by Mail. Shares of the Funds may be purchased by submitting a
completed application and check made payable to Princor. An application is
attached to this Prospectus. A different application is necessary to establish
an IRA, TDA, SEP, SAR-SEP or certain employee benefit plans. See "Retirement
Plans.".
Investments by Telephone. Shares of the Funds may be purchased by placing a
telephone order with Princor. Princor's telephone number is 1-800-247-4123.
Investors must have a current Prospectus for the funds in order to place a
telephone order. An investor must provide Princor with the payment for the order
within three business days from the date the order is placed. The investor may
provide this payment by submitting a check payable to Princor within the time
period. In addition, investors may provide the purchase payment by wiring
Federal Funds directly to Norwest Bank Iowa, N.A., on a day on which the New
York Stock Exchange and Norwest Bank Iowa, N.A. are open for business. The
investor should instruct the bank to wire transfer Federal Funds to: Norwest
Bank Iowa, N.A., Des Moines, Iowa , ABA No. 073000228; for credit to: Princor
Financial Services Corporation, Account No. 073-330; for further credit to:
investor's name and account number. Payment for both initial purchases and
subsequent purchases may be made by wire.
Investors may make subsequent purchases by wire to existing accounts
without placing a telephone order. However, if a telephone order is not placed,
shares will be purchased at the offering price next computed after the wired
payment is received by Princor. To make subsequent purchases by wire, the
investor should instruct the bank to wire transfer Federal Funds to: Norwest
Bank Iowa, N.A., Des Moines, Iowa , ABA No. 073000228; for credit to: Princor
Management Corporation, Account No. 3000499968; for further credit to:
investor's name and account number. Wire transfers may take two hours or more to
complete. Investors may make special arrangements to transmit orders for Money
Market Fund shares to Princor prior to 3:00 p.m. (Central Time) on a day when
the Fund is open for business with the investor's assurance that payment for
such shares will be made by wiring Federal Funds directly to Norwest Bank Iowa,
N.A. prior to 10:00 a.m. the following regular business day. Such orders will be
effected at the Fund's offering price in effect on the date such purchase order
is received by Princor. Wire purchases through a selected dealer may involve
other procedures established by that dealer.
Minimum Purchase Amount. An investor may open an account with any of the
Growth-Oriented Funds with a minimum initial investment of $300 or with any of
the Income-Oriented or Money Market Funds with a minimum initial investment of
$1,000. IRAs may be established with a minimum initial investment of $250. See
"Retirement Plans." Additional investments of $50 or more for a Growth-Oriented
or Income-Oriented Fund or $100 or more for a Money Market Fund may be made at
any time without completing a new application. The minimum initial and
subsequent investment amounts are not applicable to accounts used to fund
certain employee benefit plans, to accounts designated as receiving accounts in
a Dividend Relay Election or to Money Market Fund accounts used as sweep
accounts. Each Fund's Board of Directors reserves the right to change or waive
minimum investment requirements at any time, which would be applicable to all
investors alike.
Systematic Accumulation Plan. An investor may make regular monthly
investments through automatic deductions from the account of a bank or similar
financial institution. The minimum monthly purchase is $25 for all Funds except
the Money Market Funds, which have a $100 monthly minimum requirement. A $25
minimum monthly purchase may be established for the Money Market Funds if the
account value is at least $1,000 at the time the plan is established. Plan forms
and preauthorized check agreements are available from Princor on request. There
is no obligation to continue the plan and it may be terminated by the investor
at any time.
Each Fund offers investors two classes of shares through this Prospectus
which bear sales charges in different forms and amounts:
Class A Shares. An investor who invests less than $1 million in Class A
shares (except Class A shares of the Money Market Funds) pays a sales charge at
the time of purchase. As a result, shares purchased are not subject to any
charges when they are redeemed. Certain purchases of Class A shares qualify for
reduced sales charges. Class A shares purchases of $1 million or more are not
subject to a sales charge at the time of purchase but are subject to a
contingent deferred sales charge if redeemed within 18 months of purchase. Class
A shares of each of the Funds, except the Money Market Funds, currently bear a
12b-1 fee at the annual rate of up to 0.25% (.15% for the Limited Term Bond
Fund) of the Fund's average net assets attributable to Class A shares. See
"Distribution and Shareholder Servicing Plans and Fees."
Class B Shares. Class B shares are purchased without an initial sales
charge, but are subject to a declining contingent deferred sales charge ("CDSC")
of up to 4% (1.25% for Limited Term Bond Fund) if redeemed within six years. See
"Offering Price of Funds Shares."
Class B shares bear a higher 12b-1 fee than Class A shares, currently at
the annual rate of up to 1.00% (.50% for the Limited Term Bond Fund) of the
Fund's average net assets attributable to Class B shares. See "Distribution and
Shareholder Servicing Plans and Fees." Class B shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made, but (until conversion to Class A shares) will have a higher
expense ratio and pay lower dividends than Class A shares due to the higher
12b-1 fee. Class B shares will automatically convert to Class A shares, based on
relative net asset value (without a sales charge), on the first business day of
the 85th month after the purchase date. Class B shares acquired by exchange from
Class B shares of another Princor fund will convert into Class A shares based on
the time of the initial purchase. (See "How to Exchange Shares".) At the same
time, a pro rata portion of all shares purchased through reinvestment of
dividends and distributions would convert into Class A shares, with that portion
determined by the ratio that the shareholder's Class B shares converting into
Class A shares bears to the shareholder's total Class B shares that were not
acquired through dividends and distributions. The conversion of Class B shares
to Class A shares is subject to the continuing availability of a ruling from the
Internal Revenue Service or an opinion of counsel that such conversions will not
constitute taxable events for Federal tax purposes. There can be no assurance
that such ruling or opinion will be available, and the conversion of Class B
shares to Class A shares will not occur if such ruling or opinion is not
available. In such event, Class B shares would continue to be subject to higher
expenses than Class A shares for an indefinite period.
Which arrangement is better for you? The decision as to which class of
shares provides a more suitable investment for an investor depends on a number
of factors, including the amount and intended length of the investment.
Investors making investments that qualify for reduced sales charges might
consider Class A shares. Investors who prefer not to pay an initial sales charge
and who plan to hold their investment for more than seven years might consider
Class B shares. Orders from individuals for Class B shares for $250,000 or more
will be treated as orders for Class A shares unless the shareholder provides
written acknowledgment that the order should be treated as an order for Class B
shares. Sales personnel may receive different compensation depending on which
class of shares are purchased.
OFFERING PRICE OF FUNDS' SHARES
The Funds offer their respective shares continuously through Princor, which
is the principal underwriter for the Funds and sells shares as agent on behalf
of the Funds. Princor may select other dealers through which shares of the Funds
may be sold. Certain dealers may not sell all classes of shares.
Class A shares. Class A shares of the Money Market Funds are sold to the
public at net asset value; no sales charge applies to purchases of the Money
Market Funds. Class A shares of the Growth-Oriented and Income-Oriented Funds
are sold to the public at the net asset value plus a sales charge which ranges
from a high 4.75% (1.50% for the Limited Term Bond Fund) to a low of 0% of the
offering price (equivalent to a range of 4.99% to 0% of the net amount invested)
according to the schedule below. Selected dealers are allowed a concession as
shown. At Princor's discretion, the entire sales charge may at times be
reallowed to dealers. In some situations, depending on the services provided by
the dealer, the concession may be less. Any dealer allowance on purchases not
involving a sales charge will be determined by Princor.
<TABLE>
<CAPTION>
Sales Charge for All Funds Sales Charge for
Except Limited Term Bond Fund Limited Term Bond Fund
Sales Charge Sales Charge
as % of: as % of: Dealers Allowances as
---------------------------------------------------------------- % of Offering Price
Net Net ------------------------------
Offering Amount Offering Amount All Funds Except Limited Term
Price Invested Price Invested Limited Term Bond Bond
--------- -------- --------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Less than $50,000 4.75% 4.99% 1.50% 1.52% 4.00% 1.25%
$50,000 but less than $100,000 4.25% 4.44% 1.25% 1.27% 3.75% 1.00%
$100,000 but less than $250,000 3.75% 3.90% 1.00% 1.101% 3.25% 0.75%
$250,000 but less than $500,000 2.50% 2.56% 0.75% 0.76% 2.00% 0.50%
$500,000 but less than $1,000,000 1.50% 1.52% 0.50% 0.50% 1.25% 0.25%
$1,000,000 or more 0 0 0 0 0.75% 0.25%
</TABLE>
CDSC on Class A Shares. Purchases of Class A shares of $1,000,000 or more
may be subject to CDSC upon redemption. A CDSC is payable to Princor on these
investments in the event of a share redemption within 18 months following the
share purchase, at the rate of .75% (.25% for the Limited Term Bond Fund) of the
lesser of the value of the shares redeemed (exclusive of reinvested dividend and
capital gain distributions) or the total cost of such shares. Shares subject to
the CDSC which are exchanged into another Princor mutual fund will continue to
be subject to the CDSC until the original 18 month period expires. However, no
CDSC is payable with respect to redemptions of Class A shares used to fund a
Princor 401 (a) or Princor 401 (k) retirement plan, except redemptions resulting
from the termination of the plan or transfer of plan assets.
Investors may be eligible to buy Class A shares at reduced sales charges.
Consult your registered representative for details about Princor's Rights of
Accumulation and Statement of Intention as well as the reduced sales charge
available for the investment of certain life insurance and annuity contract
death benefits and various Employee Benefit Plans and other plans. Descriptions
are also included in the Statement of Additional Information.
Investors may be able to purchase Class A shares at net asset value. The
following persons may purchase Class A shares of the Growth-Oriented Funds and
Income-Oriented Funds at the net asset value (without a sales charge): (1)
Principal Mutual Life Insurance Company and its directly and indirectly owned
subsidiaries; (2) Active and retired directors, officers and employees of any of
the Funds, Principal Mutual Life Insurance Company, and directly and indirectly
owned subsidiaries of Principal Mutual Life Insurance Company (including
full-time insurance agents of, and persons who have entered into insurance
brokerage contracts with, Principal Mutual Life Insurance Company and its
directly and indirectly owned subsidiaries and employees of such persons); (3)
The Principal Financial Group Employees' Credit Union; (4) Non-ERISA investment
advisory clients of Invista Capital Management, Inc., an indirectly wholly-owned
subsidiary of Principal Mutual Life Insurance Company; (5) Sales representatives
and employees of sales representatives of Princor or other dealers through which
shares of the Funds are distributed; (6) Spouses, surviving spouses and
dependent children of the foregoing persons; (7) Trusts primarily for the
benefit of the foregoing individuals; (8) certain "wrap accounts" for the
benefit of clients of Princor and other broker-dealers or financial planners
selected by Princor; (9) clients of a registered representative of Princor or
other dealers through which shares of the Funds are distributed and who has
become affiliated with Princor or other dealer within 180 days of the date of
the purchase of Class A shares of the Funds, if the investment represents the
proceeds of a redemption within that 180 day period of shares of another
investment company the purchase of which included a front-end sales charge or
the redemption of which was subject to a contingent deferred sales charge; (10)
Unit Investment Trusts sponsored by Principal Mutual Life Insurance Company
and/or its directly or indirectly owned subsidiaries; and (11) certain employee
welfare benefit plan customers of Principal Mutual Life Insurance Company for
whom Plan Deposit Accounts are established.
Each of the Funds, except Princor Tax-Exempt Bond Fund and Princor
Tax-Exempt Cash Management Fund, have filed an application for an exemptive
order with the Securities and Exchange Commission ("SEC") to permit each Fund to
offer its shares at net asset value to participants of certain annuity contracts
issued by Principal Mutual Life Insurance Company. The Funds intend to make an
exchange offer to such participants if the SEC grants the order.
The Funds reserve the right to discontinue offering shares at net asset
value and/or at a reduced sales charge at any time for new accounts and upon 60
days notice to shareholders of existing accounts.
Class B shares. Class B shares (including Class B shares of the Money
Market Funds) are sold without an initial sales charge, although a CDSC will be
imposed if you redeem shares within six years of purchase. The following types
of shares may be redeemed without charge at any time: (i) shares acquired by
reinvestment of distributions and (ii) shares otherwise exempt from the CDSC, as
described below. Subject to the foregoing exclusions, the amount of the charge
is determined as a percentage of the lesser of the current market value or the
cost of the shares being redeemed. Therefore, when a share is redeemed, any
increase in its value above the initial purchase price is not subject to any
CDSC. The amount of the CDSC will depend on the number of years since you
invested and the dollar amount being redeemed, according to the following table:
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
as a Percentage of
Dollar Amount Subject to Charge
Years Since Purchase For all Funds Except For Limited Term
Payments Made Limited Term Bond Fund Bond Fund
-------------------- ----------------------- -----------------
<S> <C> <C> <C>
2 years or less 4.0% 1.25%
more than 2 years, up to 4 years 3.0% 0.75%
more than 4 years, up to 5 years 2.0% 0.50%
more than 5 years, up to 6 years 1.0% 0.25%
more than 6 years None None
</TABLE>
In determining how much, if any, a CDSC is payable on a redemption, the
Fund will first redeem shares not subject to any charge, and then shares held
longest during the six year period. For information on how sales charges are
calculated if shares are exchanged, see "How to Exchange Shares." Princor
receives the entire amount of any CDSC paid.
The CDSC will be waived on redemptions of shares arising out of death or
disability or in connection with certain withdrawals from certain retirement
plans. See the Statement of Additional Information. Up to 10% of the value of
Class B shares subject to a Periodic Withdrawal Plan may also be redeemed each
year without a CDSC. See "Periodic Withdrawal Plan."
Non-cash compensation. Princor may, at its expense, provide additional
promotional incentives or payments to dealers that sell shares of the Princor
Funds. In some instances, these incentives or payments may be offered only to
certain dealers who have sold or may sell significant amounts of shares. Princor
has established a non-cash compensation program for registered representatives
of Principal Financial Securities, Inc. ("PFS") based upon sales of shares of
the Princor funds during the year ending December 31, 1996. Registered
representatives of PFS will receive a choice of promotional items, or will be
invited to attend a professional development seminar, receive a subscription for
a financial newspaper and an allowance to be used to promote the Princor Funds.
DISTRIBUTION AND SHAREHOLDER SERVICING PLANS AND FEES
Class A Distribution Plan. Each of the Funds, except the Money Market
Funds, has adopted a distribution plan for the Class A shares. The Fund will
make payments from its assets to Princor pursuant to this Plan after the end of
each month at an annual rate not to exceed 0.25% (.15% for the Limited Term Bond
Fund) of the average daily net asset value of the Fund. Princor will retain such
amounts as are appropriate to compensate for actual expenses incurred in
distributing and promoting the sale of the Fund shares but may remit on a
continuous basis up to .25% (.15% for the Limited Term Bond Fund) to Registered
Representatives and other selected Dealers (including, for this purpose, certain
financial institutions) as a trail fee in recognition of their services and
assistance.
Class B Distribution Plan. Each of the Funds has adopted a distribution
plan for the Class B shares. Each Class B Plan provides for payments by the Fund
to Princor at the annual rate of up to 1.00% (.50% for the Limited Term Bond
Fund) of the Fund's average net assets attributable to Class B shares. Princor
also receives the proceeds of any CDSC imposed on redemptions of such shares.
Although Class B shares are sold without an initial sales charge, Princor
pays a sales commission equal to 4.00% (1.25% for the Limited Term Bond Fund) of
the amount invested to dealers who sell such shares. These commissions are not
paid on exchanges from other Princor Funds. In addition, Princor may remit on a
continuous basis up to .25% (.15% for the Limited Term Bond Fund) to Registered
Representatives and other selected Dealers (including, for this purpose, certain
financial institutions) as a trail fee in recognition of their ongoing services
and assistance.
General. The purpose of the Plans is to permit the Fund to compensate
Princor for expenses incurred by it in promoting and distributing Fund shares
and providing services to Fund shareholders. If the aggregate payments received
by Princor under any of the Plans in any fiscal year exceed the expenditures
made by Princor in that year pursuant to that Plan, Princor will promptly
reimburse the Fund for the amount of the excess. If expenses under a Plan exceed
the amount for which Princor may be compensated in any one fiscal year, the Fund
will not carry over such expenses to the next fiscal year. The Funds have no
legal obligation to pay any amount pursuant to the Plans that exceeds the
compensation limit. The Funds will not pay, directly or indirectly, interest,
carrying charges, or other financing costs in connection with the Plans. The
Plans are further described in the Statement of Additional Information.
DETERMINATION OF NET ASSET VALUE OF FUNDS' SHARES
Each Fund calculates net asset value of a share of each class by dividing
the total value of the assets attributable to the class, less all liabilities
attributable to the class, by the number of shares outstanding of the class.
Shares are valued as of the close of regular trading on the New York Stock
Exchange each day the Exchange is open.
Growth-Oriented and Income-Oriented Funds
The following valuation information applies to the Growth-Oriented and
Income-Oriented Funds. Securities for which market quotations are readily
available are valued using those quotations. Securities with remaining
maturities of 60 days or less are valued at amortized cost when it is determined
by the Board of Directors that amortized cost reflects fair value. Other assets
are valued at fair value as determined in good faith through procedures
established by the Board.
As previously described, some of the Funds may purchase foreign securities,
whose trading is substantially completed each day at various times prior to the
close of the New York Stock Exchange. The values of such securities used in
computing net asset value per share are usually determined as of such times.
Occasionally, events which affect the values of such securities and foreign
currency exchange rates may occur between the times at which they are generally
determined and the close of the New York Stock Exchange and would therefore not
be reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value as determined in good faith
by the Manager under procedures established and regularly reviewed by the Board
of Directors. To the extent the Fund invests in foreign securities listed on
foreign exchanges which trade on days on which the Fund does not determine its
net asset value, for example Saturdays and other customary national U.S.
holidays, the Fund's net asset value could be significantly affected on days
when shareholders have no access to the Fund.
Money Market Funds
Portfolio securities of the Money Market Funds are valued at amortized
cost. For a description of this calculation procedure see the Statement of
Additional Information. The Money Market Funds reserve the right to calculate or
estimate their net asset values more frequently than once a day if they deem it
desirable.
DISTRIBUTION OF INCOME DIVIDENDS AND REALIZED CAPITAL GAINS
Growth-Oriented and Income-Oriented Funds
Any dividends payable on Class B shares of a Fund on a per share basis will
be lower then dividends payable on Class A shares of the Fund. Any dividends
from the net income of the Growth-Oriented Funds, except the Balanced, Blue Chip
and World Funds, normally will be distributed to the respective shareholders
semiannually. Any dividends from the net income of the Balanced and Blue Chip
Funds will be distributed on a quarterly basis and any dividends from the net
income of the World Fund will be distributed annually. Any dividends from the
net income of the Income-Oriented Funds, except the Utilities Fund, will
normally be distributed monthly. Any dividends from the net income of the
Utilities Fund will be distributed quarterly. Distributions from the Funds that
make monthly distributions will normally be declared payable on the first
business day of each month to shareholders of record at the close of business on
the last business day of the preceding month. Distributions for the Funds that
make quarterly distributions will normally be declared payable on the last
business day of December and the first business day of April, July and October
to shareholders of record at the close of business on the preceding business
day. Distributions from the Funds that make semiannual distributions will
normally be declared payable on the first business day in July and the last
business day in December to shareholders of record at the close of business on
the last business day prior to distribution. Annual distributions from the World
Fund will normally be declared payable on the last business day in December to
shareholders of record at the close of business on the last business day prior
to distribution. Net realized capital gains for each of the Funds, if any, will
be distributed annually, generally the first business day of December. In the
open-account application, the shareholder authorizes income dividends and
capital gains distributions to be invested in additional Fund shares at their
net asset value (without a sales charge) as of the payment date, invested in
shares of other Princor Funds or paid in cash. A shareholder may change this
authorization without charge at any time by giving ten days written notice to
the Fund.
Any dividends or distributions paid shortly after a purchase of shares by
an investor will have the effect of reducing the per share net asset value by
the amount of the dividends or distributions. These dividends or distributions
are subject to taxation like other dividends and distributions, even though they
are in effect a return of capital. A shareholder of the Tax-Exempt Bond Fund who
redeems shares when tax-exempt income has been accrued but not declared as a
dividend by that Fund may have the portion of the redemption proceeds which
represents such income taxed at capital gains rates.
Money Market Funds
The Money Market Funds declare dividends of all their daily net investment
income on each day the net asset value per share is determined. Dividends for
each Fund are payable daily and are automatically reinvested in full and
fractional shares of the Fund at the then current net asset value. Shareholders
may request to have their dividends paid out monthly in cash. For such
shareholders, the shares reinvested and credited to their account during the
month will be redeemed as of the close of business on the 20th day (or the
preceding business day if the 20th is not a business day) of each month and the
proceeds will be paid to them in cash.
Net investment income of the Money Market Funds, for dividend purposes,
consists of (1) accrued interest income plus or minus accrued discount or
amortized premium; plus or minus (2) all net short-term realized gains and
losses; minus (3) all accrued expenses of the Fund. Expenses of the Fund are
accrued each day. Net income will be calculated immediately prior to the
determination of net asset value per share of each Fund. Dividends payable on
Class B shares of each of the Money Market Funds on a per share basis will be
lower than dividends payable on Class A shares of the Funds.
Since it is the policy of each Money Market Fund, under normal
circumstances, to hold portfolio securities to maturity and to value portfolio
securities at amortized cost, neither Fund expects any capital gains or losses.
If either Fund does experience gains, however, it could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for some
extraordinary reason, either Fund realizes net long-term capital gains, it will
distribute them once every 12 months.
Since the net income of each Fund (including realized gains and losses on
the portfolio securities) is normally declared as a dividend each time the net
income of the Fund is determined, the net asset value per share of each Fund
normally remains at $1.00 immediately after each determination and dividend
declaration. Any increase in the value of a shareholder's investment in either
Fund, representing reinvestment of dividend income, is reflected by an increase
in the number of shares of that Fund in the account.
Normally each Fund will have a positive net income at the time of each
determination thereof. Net income may be negative if an unexpected liability
must be accrued or a loss is realized. If the net investment income of either
Fund determined at any time is a negative amount, the net asset value per share
will be reduced below $1.00. If this happens, the Fund may endeavor to restore
the net asset value per share to $1.00 by reducing the number of outstanding
shares by redeeming proportionately from shareholders without the payment of any
monetary consideration, such number of full and fractional shares as is
necessary to maintain a net asset value per share of $1.00. Each shareholder
will be deemed to have agreed to such a redemption in these circumstances by
investment in the Fund. The Fund may seek to achieve the same objective of
restoring the net asset value per share to $1.00 by not declaring dividends from
net income on subsequent days until restoration, with the result that the net
asset value per share would increase to the extent of positive net income which
is not declared as a dividend, or any other method approved by the Board of
Directors for the Fund.
The Board of Directors of each Fund may revise the above dividend policy,
or postpone the payment of dividends, if the Fund should have or anticipate any
large presently unexpected expense, loss or fluctuation in net assets which in
the opinion of the Board might have a significant adverse effect on the
shareholders.
Dividend Relay Election
Shareholders may elect to have dividends and capital gains distributions
from one of the Princor funds invested in shares of the same class of one of the
other Princor funds. This Dividend Relay Election can be made on the application
or at any time on 10 days written notice or, if telephone transaction services
apply to the account from which the dividends and distributions originate, on 10
days notice by telephone to the Fund. A signature guarantee may be required to
make the Dividend Relay Election. See "General Information About a Fund
Account." There is no administrative charge for this service. No sales charge
will apply to the purchase of shares of the Growth-Oriented or Income-Oriented
Funds made pursuant to the election; dividends and distributions are credited to
the receiving Fund the day they are paid at the receiving Fund's net asset value
for that day. If the Dividend Relay Election is made to direct dividends and
distributions from a Fund used to fund the shareholder's retirement plan (for
example, an IRA) to a receiving Fund that is not used to fund the shareholder's
retirement plan, a taxable distribution from the retirement plan will result.
Shareholders should consult their tax advisor prior to making such an election.
Dividends and distributions derived from shares of the Funds used to fund
certain employee benefit plans are not eligible for the Dividend Relay Election.
If the Dividend Relay Election privilege is discontinued with respect to a
particular receiving Fund, the value of the account in that Fund must equal or
exceed the Fund's minimum initial investment requirement or the Fund shall have
the right, if the shareholder fails to increase the value of the account to such
minimum within 90 days after being notified of the deficiency, to redeem the
account and send the proceeds to the shareholder.
Shareholders may discontinue the Dividend Relay Election at any time on 10
days written notice or, if telephone transaction services apply to the account
from which the dividends originate, on 10 days notice by telephone to the Fund.
The Funds reserve the right to discontinue or modify this service upon 60 days
written notice to shareholders.
TAX-TREATMENT OF FUNDS, DIVIDENDS AND DISTRIBUTIONS
It is the policy of each of the Funds to distribute substantially all net
investment income and net realized gains. Through such distributions, and by
satisfying certain other requirements, the Funds intend to qualify for the tax
treatment applicable to regulated investment companies under the provisions of
the Internal Revenue Code. This means that in each year in which a Fund so
qualifies, it will be exempt from federal income tax upon the amounts so
distributed to investors. The Tax Reform Act of 1986 imposed an excise tax on
mutual funds which fail to distribute net investment income and capital gains by
the end of the calendar year in accordance with the provisions of the Act. The
Funds intend to comply with the Act's requirements and to avoid this excise tax.
The Funds record dividend income on the ex-dividend date, except dividend income
from foreign securities where the ex-dividend date may have passed, in which
case such dividends are recorded as soon as the Fund is informed of the
ex-dividend date. The Funds are required by law to withhold 31% of dividends
paid to investors who do not furnish the Fund their correct taxpayer
identification number, which in the case of most individuals is their social
security number.
The Tax-Exempt Bond Fund and Tax-Exempt Cash Management Fund also intend to
qualify to pay exempt-interest dividends to their shareholders. An
exempt-interest dividend is that part of dividend distributions made by the
Funds which consists of interest received by the Funds on tax-exempt Municipal
Obligations. Shareholders incur no federal income taxes on exempt-interest
dividends. However, these exempt-interest dividends may be taxable under state
or local law. Fund shareholders that are corporations must include
exempt-interest dividends when calculating the corporate alternative minimum
tax. Persons investing on behalf of a Subchapter S corporation should seek the
advice of a tax advisor prior to purchasing shares of the Tax-Exempt Bond Fund
or Tax-Exempt Cash Management Fund. Exempt-interest dividends that derive from
certain private activity bonds must be included by individuals as a preference
item to determine whether they are subject to the alternative minimum tax. These
Funds may also pay ordinary income dividends and distribute capital gains from
time to time. Ordinary income dividends and distributions of capital gains, if
any, are taxable for federal purposes.
If the World Fund should invest the greater part of its assets abroad (as
to which no assurance can be given), then in each fiscal year when, at the close
of such year, more than 50% of the value of the Fund's total assets are invested
in securities of foreign corporations, the Fund may elect pursuant to Section
853 of the Internal Revenue Code to permit its shareholders to take a credit (or
a deduction) for foreign income taxes paid by the Fund. In that case,
shareholders should include in gross income for federal income tax purposes both
cash dividends received from the Fund and the amount which the Fund advises is
their pro rata portion of foreign income taxes paid with respect to, or withheld
from, dividends and interest paid to the Fund from its foreign investments. The
shareholders would then be entitled to subtract from their federal income taxes
the amount of such taxes withheld, or else treat such foreign taxes as a
deduction from gross income, if that should be more advantageous. As in the case
of individuals receiving income directly from foreign sources, the
above-described tax credit for tax deduction is subject to certain limitations.
Under the federal income tax law, dividends paid from investment income and
from realized short-term capital gains, if any, are generally taxable at
ordinary income rates whether received in cash or additional shares. The net
income of the Cash Management Fund for purposes of its financial reports and
determination of the amount of distributions to shareholders may exceed its net
income as determined for tax purposes because certain market discount income
will be currently included as income for book purposes but not for tax purposes.
Although all net income for book purposes will be distributed to shareholders,
such distributions are taxable to shareholders of the Fund as ordinary income
only to the extent that they do not exceed the shareholder's ratable share of
the Fund's investment income and any short-term capital gain as determined for
tax purposes. The balance, if any, will be applied against and will reduce the
shareholder's cost or other tax basis for the shares.
Dividends from net investment income of each of the Funds will be eligible
for a 70% dividends received deduction generally available to corporations to
the extent of the amount of qualifying dividends received by the Fund from
domestic corporations for the taxable year. Dividends from the Income-Oriented
Funds, except the Utilities Fund, and the Money Market Funds are not expected to
qualify for the 70% dividend received deduction. Dividends and capital gains are
taxable in the year in which distributed, whether received in cash or reinvested
in additional shares. Dividends declared with a record date in December and paid
in January will be deemed to have been distributed to shareholders in December.
The Funds will inform shareholders of the amount and nature of their income
dividends and capital gains distributions. Dividends from net income and
distributions of capital gains may also be subject to state and local taxation.
Additional information regarding taxation is included in the Statement of
Additional Information. Shareholders should consult their own tax advisors as to
the federal, state and local tax consequences of ownership of shares of the
Funds in their particular circumstances.
HOW TO EXCHANGE SHARES
Class A shares for all of the Funds (except the Money Market Funds and the
Limited Term Bond Fund), or Class B shares for all of the Funds may be exchanged
at net asset value for shares of the same class of any other Princor Fund
described in the Prospectus, at any time. Class A shares of the Limited Term
Bond Fund may be exchanged at net asset value for Class A shares of any of the
other Princor Funds at any time 90 days after the purchase of such shares. The
CDSC that might apply if Class B shares, or certain Class A shares, are redeemed
will not apply if these shares are exchanged. However, for purposes of computing
the CDSC on the shares acquired through the exchange, the length of time the
acquired shares have been owned by a shareholder will be measured from the date
of original purchase of the exchanged shares and the amount of the CDSC will be
determined based upon the CDSC table to which the exchanged shares were subject.
Thus, when shares acquired through the exchange are redeemed, the redemption may
be subject to the CDSC, depending upon when the exchanged shares were originally
purchased.
Class A shares of Princor Cash Management Fund or Princor Tax-Exempt Cash
Management Fund acquired by direct purchase are not included in the net asset
value exchange privilege. However, Class A shares of these two Funds acquired by
exchange of any other Princor Fund shares, or by conversion of Class B shares,
and additional shares which have been purchased by reinvesting dividends earned
on Class A shares, may be exchanged for other Class A shares without a sales
charge. In addition, Class A shares of the Money Market Funds acquired by direct
purchase or reinvestment of dividends on such shares may be exchanged for Class
B shares of any Growth-Oriented or Income-Oriented Fund.
Shares of a Fund used to fund an employee benefit plan may be exchanged
only for shares of other Princor Funds made available to such plan. A request
for an exchange of shares used to fund an Employee Benefit Plan must be made in
accordance with the procedures provided in the Plan and the written service
agreement. All other shareholders may exchange shares by simply submitting a
written request or a completed Exchange Authorization Form to the Fund. Exchange
Authorization Forms are available by calling or writing the Fund. For federal
income tax purposes, an exchange is treated as a sale of shares and generally
results 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. A telephone exchange privilege is currently
available for amounts up to $500,000. Procedures for telephone transactions are
described under "How to Sell Shares." The telephone exchange privilege is not
available for accounts for which share certificates remain outstanding.
A shareholder may also make an Automatic Exchange Election. This election
authorizes an exchange as described above from one Princor Fund to any or all of
the other Princor Funds on a monthly, quarterly, semiannual or annual basis. The
minimum amount that may be exchanged into any Princor Fund must equal or exceed
$300 on an annual basis. The exchange will occur on the date of the month
specified by the shareholder in the election so long as the day is a trading
day. If the designated day is not a trading day, the exchange will occur on the
next trading day occurring during that month. If the next trading day occurs in
the following month, the exchange will occur on the trading day prior to the
designated day. The Automatic Exchange Election may be made on the open account
application, on 10 days written notice or, if telephone transaction services
apply to the account from which the exchange is made, on 10 days notice by
telephone to the Fund from which the exchange will be made. See "How to Sell
Shares" for an explanation of the applicability of telephone transaction
services. Exchanges from a Fund used to fund the shareholder's retirement plan
to a Princor Fund not used to fund the shareholder's retirement plan will result
in a taxable distribution from the retirement plan. Shareholders should consult
their tax adviser prior to making such an exchange. A shareholder may modify or
discontinue the election on 10 days written notice or notice by telephone to the
Fund from which exchanges are made.
General - An exchange, whether in writing, by telephone or other means, by
any joint owner shall be binding upon all joint owners. If the exchanging
shareholder does not have an account with the Fund in which shares are being
acquired, a new account will be established with the same registration, dividend
and capital gain options and dealer of record as the account from which shares
are exchanged. All exchanges are subject to the minimum investment and
eligibility requirements of the Fund being acquired. A shareholder may receive
shares in exchange only if they may be legally offered in the shareholder's
state of residence. If a certificate has been issued an exchange will be made
only upon receipt of the certificate of shares to be exchanged. In order to
establish a systematic accumulation plan or a periodic withdrawal plan for the
new account, an exchanging shareholder must file a specific written request.
The exchange privilege is not intended as a vehicle for short-term trading.
Excessive exchange activity may interfere with portfolio management and have an
adverse effect on all shareholders. In order to limit excessive exchange
activity and in other circumstances where the Directors or Princor Management
Corporation believes doing so would be in the best interest of the Fund, the
Fund reserves the right to revise or terminate the exchange privilege, limit the
amount or number of exchanges or reject any exchange. Shareholders would be
notified of any such action to the extent required by law. A shareholder may
modify or discontinue an election on 10 days written notice or notice by
telephone to the Fund from which exchanges are made.
HOW TO SELL SHARES
Each Fund will redeem its shares upon request. Shares are redeemed at the
net asset value calculated after the Fund receives the request in proper form,
less any applicable CDSC. There is no additional charge for redemptions.
Redemptions, whether in writing or by telephone or other means, by any joint
owner shall be binding upon all joint owners. The amount received for shares
upon redemption may be more or less than the cost of such shares depending upon
the net asset value at the time of redemption. The Funds generally send
redemption proceeds the business day after the request is received. Under
unusual circumstances, the Funds may suspend redemptions, or postpone payment
for more than three business days, as permitted by federal securities law. A
Fund will redeem only those shares for which it has received payment. To avoid
the inconvenience of a delay in obtaining redemption proceeds, shares may be
purchased with a certified check, bank cashiers check or money order.
A request for the redemption of shares used to fund certain employee
benefit plans must be made in accordance with the procedures provided in the
Plan and the written service agreement. Princor usually requires additional
documentation for the sale of shares by a corporation, partnership, agent or
fiduciary, or a surviving joint owner. Contact Princor for details. Shareholders
may redeem by mail, by telephone or, in the case of Class A shares of Money
Market Fund accounts, by a checkwriting service. The Fund reserves the right to
modify any of the methods of redemption or to charge a fee for providing these
services upon written notice to shareholders.
By Mail - A shareholder simply sends a letter to Princor, at P.O. Box
10423, Des Moines, Iowa 50306, requesting redemption of any part or all of the
shares owned by specifying the Fund account from which the redemption is to be
made and either a dollar or share amount. The letter must provide the account
number and be signed by a registered owner. If certificates have been issued,
they must be properly endorsed and forwarded with the redemption request. If
payment of less than $100,000 is to be mailed to the address of record, which
has not been changed within the three month period preceding the redemption
request, and is made payable to the registered shareholder or joint
shareholders, or to Principal Mutual Life Insurance Company or any of its
affiliated companies, the Fund will not require a signature guarantee as a part
of a proper endorsement; otherwise the shareholder's signature must be
guaranteed by either a commercial bank, trust company, credit union, savings and
loan association, national securities exchange member, or by a brokerage firm. A
signature guaranteed by a notary public or savings bank is not acceptable.
By Telephone - Shareholders may redeem shares valued at up to $100,000 from
any one Fund by telephone, unless the shareholder has notified the Fund of an
address change within the three month period preceding the date of the request.
Such redemption proceeds will be mailed to the shareholder's address of record.
Telephone redemption proceeds may also be sent by check or wire transfer to a
commercial bank account in the United States previously authorized in writing by
the shareholder. A wire charge of up to $6.00 will be deducted from the Fund
account from which the redemption is made for all wire transfers. If proceeds
are to be used to settle a securities transaction with a selected dealer,
telephone redemptions may be requested by the shareholder or upon appropriate
authorization from an authorized representative of the dealer, and the proceeds
will be wired to the dealer. The telephone redemption privilege is available
only if telephone transaction services apply to the account from which shares
are redeemed. Telephone transaction services apply to all accounts, except
accounts used to fund a Princor IRA or TDA or certain employee benefit plans,
unless the shareholder has specifically declined this service on the account
application or in writing to the Fund. The telephone redemption privilege will
not be allowed on shares for which certificates have been issued.
Shareholders may exercise the telephone redemption privilege by telephoning
1-800-247-4123. If all telephone lines are busy, shareholders might not be able
to request telephone redemptions and would have to submit written redemption
requests. Although the Funds and the transfer agent are not responsible for the
authenticity of redemption requests received by telephone, the right is reserved
to refuse telephone redemptions when in the opinion of the Fund from which the
redemption is requested or the transfer agent it seems prudent to do so. The
shareholder bears the risk of loss caused by a fraudulent telephone redemption
request the Fund reasonably believes to be genuine. Each Fund will employ
reasonable procedures to assure telephone instructions are genuine and if such
procedures are not followed, the Fund may be liable for losses due to
unauthorized or fraudulent transactions. Such procedures include recording all
telephone instructions, requesting personal identification information such as
the caller's name, daytime telephone number, social security number and/or birth
date and names of all owners listed on the account and sending a written
confirmation of the transaction to the shareholder's address of record. In
addition, the Fund directs redemption proceeds made payable to the owner or
owners of the account only to an address of record that has not been changed
within the three-month period prior to the date of the telephone request, or to
a previously authorized bank account.
By Checkwriting Service - Shareholders of Class A shares of the Money
Market Funds may redeem shares, other than shares subject to a CDSC or shares
used to fund a Princor IRA, TDA, SEP, SAR-SEP or certain employee benefit plans,
by writing checks on their accounts if this service is elected when completing
the Fund application. Upon receipt of the properly completed form and signature
card, the Fund will provide withdrawal checks drawn on Norwest Bank Iowa, N.A.
These checks may be payable to the order of any person in the amount of not less
than $100. Shareholders will continue to earn dividends until the check clears.
After a check is presented to Norwest Bank for payment, a sufficient number of
full or fractional shares will be redeemed from the account to cover the amount
of the check. Shareholders currently pay no fee for the checkwriting service,
but this may be changed in the future upon written notice to shareholders. The
checkwriting service is not available on shares for which certificates have been
issued.
Shareholders utilizing withdrawal checks will be subject to Norwest Bank's
rules governing checking accounts. Shareholders should make sure their accounts
have sufficient shares to cover the amount of any check drawn. If insufficient
shares are in the account, the check will be returned marked "Insufficient
Funds" and no shares will be redeemed. The checkwriting service may be revoked
on accounts on which "Insufficient Funds" checks are drawn. Accounts may not be
closed by a withdrawal check because the exact amount of the account will not be
known until after the check is received by Norwest Bank.
Moreover, following a purchase by check, redemptions from the Money Market
Funds pursuant to the checkwriting service or any of the Princor Funds pursuant
to the telephone withdrawal procedure will not be permitted until payment has
been collected on the check. During the period prior to the time the redemption
is effective, dividends on the Money Market Funds' shares will accrue and be
paid and the shareholder will be entitled to exercise all other rights of
beneficial ownership.
Reinvestment Privilege - Within 60 days after redemption, shareholders who
redeem all or part of their Class A shares for which a sales charge was paid or
which were acquired by the conversion of Class B shares, or Class B shares for
which a CDSC was paid, have a onetime privilege to reinvest the amount redeemed
in Class A shares of any of the Funds without a sales charge.
The reinvestment or exchange will be made at the net asset value next
computed after written notice of exercise of the privilege is received in proper
and correct form by Princor. All reinvestments or exchanges are subject to
acceptance by the Fund or Funds and Princor. The redemption which precedes such
reinvestment or exchange is regarded as a sale; therefore, if the shareholder
has realized a gain on the redemption, such gain may be taxable and exercising
the reinvestment privilege will not alter any tax payable. If a loss is realized
on the redemption of Fund shares, the reinvestment may be subject to the "wash
sale" rules, resulting in a postponement of the recognition of such loss for
federal income tax purposes. Accurate records should be kept for the duration of
the account for tax purposes.
PERIODIC WITHDRAWAL PLAN
A shareholder may request that a fixed number of Class A shares or Class B
shares ($25 initial minimum amount) or enough Class A shares or Class B shares
to produce a fixed amount of money ($25 initial minimum payment) be withdrawn
from an account monthly, quarterly, semiannually or annually. Periodic
withdrawals from Class B shares may be subject to a CDSC. However, each year a
shareholder may make periodic withdrawals of up to 10% of the value of an
account for Class B shares without incurring a CDSC. The amount of the 10% free
withdrawal privilege for an account is initially determined based upon the value
of the account as of the date of the initial periodic withdrawal. If a periodic
withdrawal plan is established at the time Class B shares are purchased, the
amount of the initial 10% free withdrawal privilege may be increased by 10% of
the amount of additional purchases in that account made within 60 days after
Class B shares were first purchased. After a periodic withdrawal plan has been
established the amount of the 10% withdrawal privilege will be re-determined as
of the last business day of December each year. The Fund from which the periodic
withdrawal is made makes no recommendation as to either the number of shares or
the fixed amount that the investor may withdraw. Shareholders considering the
implementation of a Plan using shares of the Tax-Exempt Bond Fund are cautioned
that the portion of redemption proceeds which represents tax-exempt income which
has been accrued but not declared as a dividend by the Fund may be taxed at
capital gains rates. See "Distribution of Income Dividends and Realized Capital
Gains." An investor may initiate a Periodic Withdrawal Plan by signing an
Agreement for Periodic Withdrawal Form and depositing any share certificates
that have been issued or, if no certificates have been issued and telephone
transaction services apply to the account, by telephoning the Fund.
A shareholder of Class A shares of the Money Market Funds may establish a
Pre-Authorized Check (PAC) Withdrawal Service to enable a shareholder's creditor
to receive monthly installment payments from the shareholder's account if the
shareholder's creditor is capable of providing this service. The shareholder's
creditor will provide the necessary forms to establish a PAC Withdrawal Service.
Redemptions to pay insurance premiums - Upon completion of the necessary
authorization, shareholders of Class A shares of the Money Market Funds who pay
insurance or annuity premiums or deposits to Principal Mutual Life Insurance
Company or its affiliated companies may authorize automatic redemptions from
Class A shares of the Fund to pay such amounts. Details relative to this option
may be obtained from the Funds.
Cash withdrawals are made out of the proceeds of redemption on the day
designated by the shareholder, so long as the day is a trading day, and will
continue until cancelled. If the designated day is not a trading day, the
redemption will occur on the next trading day occurring during that month. If
the next trading day occurs in the following month, the redemption will occur on
the trading day prior to the designated day. Withdrawal payments will be sent on
or before the third business day following such redemption. The redemption of
shares to make payments under this Plan will reduce and may eventually exhaust
the account. An investor will be disadvantaged by making additional purchases of
shares of any investment company on which there is a sales charge at the same
time that a Periodic Withdrawal Plan is in effect since a duplication of sales
charges will result. No purchase payments for shares of any Fund except Princor
Cash Management Fund or Princor Tax-Exempt Cash Management Fund will be
knowingly accepted by Princor Financial Services Corporation while periodic
withdrawals under this plan are being made, unless the purchase represents a
substantial addition to the shareholder's account.
Each redemption of shares may result in a gain or loss, which may be
reportable for income tax purposes. An investor should keep an accurate record
of any gain or loss on each withdrawal. Shareholders should consult their tax
advisors prior to establishing a periodic withdrawal plan from an Individual
Retirement Account. Any income dividends or capital gains distributions on
shares held under a Periodic Withdrawal Plan are reinvested in additional shares
at net asset value. Withdrawals may be stopped at any time without penalty,
subject to notice in writing which is received by the Fund.
PERFORMANCE CALCULATION
From time to time, the Funds may publish advertisements containing
information (including graphs, charts, tables and examples) about the
performance of one or more of the Funds and about a Fund's largest industry
holdings and largest five to ten specific securities holdings in its portfolio.
The funds may also quote rankings, yields or returns as published by independent
statistical services or publishers, and information regarding the performance of
certain market indices. The Funds' yield and total return figures described
below will vary depending upon market conditions, the composition of the Funds'
portfolios and operating expenses. These factors and possible differences in the
methods used in calculating yield and total return should be considered when
comparing the Funds' performance figures to performance figures published for
other investment vehicles. Any performance data quoted for the Funds represents
only historical performance and is not intended to indicate future performance
of the Funds. For further information on how the Funds calculate yield and total
return figures, see the Statement of Additional Information.
Growth-Oriented and Income-Oriented Funds
The Income-Oriented Funds may advertise their respective yields and average
annual total returns. The Growth-Oriented Funds may advertise their respective
average annual total returns. Yield is determined by annualizing each Fund's net
investment income per share for a specific, historical 30-day period and
dividing the result by the ending maximum public offering price for Class A
shares or the net asset value for Class B shares of the Fund for the same
period. Average annual total return for each Fund is computed by calculating the
average annual compounded rate of return over the stated period that would
equate an initial $1,000 investment to the ending redeemable value assuming the
reinvestment of all dividends and capital gains distributions at net asset
value. The same assumptions are made when computing cumulative total return by
dividing the ending redeemable value by the initial investment. These
calculations assume the payment of the maximum front-end load (in the case of
Class A shares) or the applicable CDSC (in the case of Class B shares). The
Funds may also calculate total return figures for a specified period that
reflect reduced sales charges available to certain classes of investors and
figures that do not take into account the maximum initial sales charge or
contingent deferred sales charge to illustrate changes in the Funds' net asset
values over time. A tax-equivalent yield may also be advertised by the
Tax-Exempt Bond Fund.
Money Market Funds
From time to time the Money Market Funds may advertise their respective
yield and effective yield. The yield of each Fund refers to the income generated
by an investment in that Fund over a seven-day period. This income is then
annualized. That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The effective yield will be slightly higher than
the yield because of the compounding effect of this assumed reinvestment. A
tax-equivalent yield may also be advertised by the Tax-Exempt Cash Management
Fund.
The yield for the Money Market Funds will fluctuate daily as the income
earned on the investments of the Funds fluctuates. Accordingly, there is no
assurance that the yield quoted on any given occasion will remain in effect for
any period of time. The Funds are open-end investment companies and there is no
guarantee that the net asset value or any stated rate of return will remain
constant. A shareholder's investment in the Funds is not insured. Investors
comparing results of the Funds with investment results and yields from other
sources such as banks or savings and loan associations should understand these
distinctions. Historical and comparative yield information may, from time to
time, be presented by the Fund.
GENERAL INFORMATION ABOUT A FUND ACCOUNT
Share certificates will be issued to shareholders only when requested.
Shareholders of the Funds will receive a statement of account for the Fund in
which they have invested. The Funds treat the statement of account as evidence
of ownership of Fund shares.
This is known as an open account system. Each Fund bears the cost of the open
account system.
A confirmation statement indicating the current transaction and the total
number of Fund shares owned will generally be provided each time a shareholder
invests in a Fund. However, there are certain exceptions, described below, when
quarterly or monthly confirmation statements will be provided.
Quarterly Statements. A quarterly statement disclosing information
regarding purchases, redemptions, and reinvested dividends or distributions
occurring during the quarter, as well as the balance of shares owned and account
values as of the statement date will be provided to shareholders for the
following types of accounts:
1. Accounts for which the only activity during a calendar quarter is the
purchase of shares due to the reinvestment of dividends and/or capital
gains distributions from the Fund or from another Princor Fund as a
result of a Dividend Relay Election;
2. Accounts from which redemptions are made pursuant to a Periodic
Withdrawal Plan;
3. Accounts for which purchases are made pursuant to a Systematic
Accumulation Plan;
4. Accounts from which purchases or redemptions are made pursuant to an
automatic exchange election;
5. Accounts used to fund certain individual retirement or individual
pensions plans qualified under the Internal Revenue Code; and
6. Accounts established through an arrangement involving a group of two
or more shareholders for whom purchases of shares are made through a
person (e.g. an employer ) designated by the group. A statement
indicating receipt of the total amount paid by the group will be sent
to the designated person at the time each purchase is made. If the
payment on behalf of the group is not received from the designated
person within 10 days of the date such payments are to be made, each
member will be notified and thereafter each member will receive a
statement at the time of each purchase for the three succeeding
payments. If a payment is not received in the current quarter on
behalf of a member for whom a payment had been received in the
previous quarter, a statement will be sent to such group member
reflecting that a payment was not received on the member's behalf.
Monthly Statements. Shareholders of the Money Market Funds for whom
quarterly statements are not available, will receive a monthly statement
disclosing the current balance of shares owned and a summary of transactions
through the last business day of the month.
Signature Guarantee. The Funds have adopted the policy of requiring
signature guarantees in certain circumstances to safeguard shareholder accounts.
A signature guarantee is necessary under the following circumstances:
1. If a redemption payment is to be made payable to a payee other than
the registered shareholder or joint shareholders, or Principal Mutual
Life Insurance Company or any of its affiliated companies;
2. To make a Dividend Relay Election directing dividends from a Fund
account which has joint owners to a Fund account which has only one
owner or different joint owners;
3. To change the ownership of the account;
4. To add telephone transaction services to an account established prior
to March 1, 1992 or to any account after the initial application is
processed;
5. When there is any change to a bank account designated under an
established telephone withdrawal plan; and
6. If a redemption payment is to be mailed to an address other than the
address of record or to an address of record that has been changed
within the preceding three months.
A shareholder's signature must be guaranteed by a commercial bank, trust
company, credit union, savings and loan association, national securities
exchange member, or brokerage firm. A signature guaranteed by a notary public is
not acceptable.
Minimum Account Balance. Although there currently is no minimum balance,
due to the disproportionately high cost of maintaining small accounts, the Funds
reserve the right to redeem all shares in an account with a value of less than
$300 and to mail the proceeds to the shareholder. Involuntary redemptions will
not be triggered solely by market activity. Shareholders will be notified before
these redemptions are to be made and will have thirty days to make an additional
investment to bring their accounts up to the required minimum. The Funds reserve
the right to increase the required minimum.
RETIREMENT PLANS
Shares of the Funds, except the Tax-Exempt Bond and Tax-Exempt Cash
Management Fund, are offered to fund certain retirement plans for which
Principal Mutual Life Insurance Company acts as custodian. These retirement
plans include Individual Retirement Accounts (IRAs), Simplified Employee Pension
and Salary Reduction Simplified Employee Pension Plans (SEPs and SAR/SEPs) all
of which are described in Section 408 of the Internal Revenue Code, and salary
deferral TDA plans as described in Section 403(b)(7) of the Internal Revenue
Code. The necessary forms to establish one of the Princor retirement plans,
including an application, may be obtained from a registered representative of
Princor or by calling 1-800-451-5447. DO NOT USE THE APPLICATION INCLUDED IN
THIS PROSPECTUS TO START A PRINCOR RETIREMENT PLAN. The Systematic Accumulation
Plan may be used to purchase shares of the Funds for a Princor retirement plan.
See "How to Purchase Shares." Telephone redemptions are not available on
accounts used to fund a Princor retirement plan. See "How to Sell Shares."
Investors should consult their tax counsel for retirement plan tax information.
SHAREHOLDER RIGHTS
The following information is applicable to each of the Princor Funds. Each
Fund's shares (except Princor Tax-Exempt Bond Fund and Tax-Exempt Cash
Management Fund) are currently divided into three classes. Shares of the Princor
Tax-Exempt Bond Fund and Princor Tax-Exempt Cash Management Fund are divided
into two classes. Each Fund share is entitled to one vote with fractional shares
voting proportionately. All classes of shares for each Fund will vote together
as a single class except where required by law or as determined by the Fund's
Board of Directors. Shares are freely transferable, are entitled to dividends as
declared by the Fund's Board of Directors and, if the Fund were liquidated,
would receive the net assets of the Fund. Shareholders of a Fund may remove any
director of that Fund with or without cause by the vote of a majority of the
votes entitled to be cast at a meeting of shareholders. Shareholders will be
assisted with shareholder communication in connection with such matter.
The Board of Directors of each Fund may increase or decrease the aggregate
number of shares which the Fund has authority to issue and may issue two or more
classes of shares having such preferences and special or relative rights and
privileges as the Directors may determine, without shareholder approval.
The Funds are not required to hold an annual meeting of shareholders in any
year unless required to do so under the Investment Company Act of 1940. The
Funds intend to hold shareholder meetings only when required by law and at such
other times as may be deemed appropriate by their respective Boards of
Directors. However, each Fund will hold a meeting of shareholders when requested
to do so in writing by the holders of 10% or more of the outstanding shares of
that Fund.
Shareholder inquiries should be directed to the appropriate Fund at The
Principal Financial Group, Des Moines, Iowa 50392.
As of October 31, 1995, Principal Mutual Life Insurance Company and its
subsidiaries and affiliates owned 25% or more of the outstanding voting shares
of each Fund as indicated:
Percentage of
Number of Outstanding Shares
Fund Shares Owned Owned
Blue Chip Fund 654,681 26.63%
Capital Accumulation Fund 6,477,046 44.88%
High Yield Fund 1,090,093 36.56%
ADDITIONAL INFORMATION
Organization: The Funds were incorporated in the state of Maryland on the
following dates: Balanced Fund - November 26, 1986; Blue Chip Fund - December
10, 1990; Bond Fund - December 2, 1986; Capital Accumulation Fund - May 26, 1989
(effective November 1, 1989 succeeded to the business of a predecessor Fund that
had been incorporated in Delaware on February 6, 1969); Cash Management Fund -
June 10, 1982; Emerging Growth Fund - February 20, 1987; Government Securities
Income Fund - September 5, 1984; Growth Fund May 26, 1989 (effective November 1,
1989 succeeded to the business of a predecessor Fund that had been incorporated
in Delaware on February 6, 1969); High Yield Fund - November 26, 1986; Limited
Term Bond Fund - August 9, 1995; Tax-Exempt Cash Management Fund August 17,
1987; Tax-Exempt Bond Fund - June 7, 1985; Utilities Fund - September 3, 1992;
World Fund - May 12, 1981
Custodian: Bank of New York, 48 Wall Street, New York, New York 10286, is
custodian of the portfolio securities and cash assets of each of the Funds
except the World Fund. The custodian for the World Fund is Chase Manhattan Bank,
Global Securities Services, Chase Metro Tech Center, Brooklyn, New York 11245.
The custodians perform no managerial or policymaking functions for the Funds.
Capitalization: The authorized capital stock of each Fund consists of
100,000,000 shares of common stock (2,000,000,000 for Princor Cash Management
Fund and 1,000,000,000 Princor Tax-Exempt Cash Management Fund), $.01 par value.
Financial Statements: Copies of the financial statements of each Fund will
be mailed to each shareholder semiannually. At the close of each fiscal year,
each Fund's financial statements will be audited by a firm of independent
auditors. The firm of Ernst & Young LLP has been appointed to audit the
financial statements of each Fund for their respective present fiscal years.
Registration Statement: This Prospectus omits some information contained in
the Statement of Additional Information (also known as Part B of the
Registration Statement) and Part C of the Registration Statements which the
Funds have filed with the Securities and Exchange Commission. The Funds'
Statement of Additional Information is hereby incorporated by reference into
this Prospectus. A copy of this Statement of Additional Information can be
obtained upon request, free of charge, by writing or telephoning Princor
Financial Services Corporation. You may obtain a copy of Part C of the
Registration Statements filed with the Securities and Exchange Commission,
Washington, D.C. from the Commission upon payment of the prescribed fees.
Principal Underwriter: Princor Financial Services Corporation, P.O. Box
10423, Des Moines, IA 50306, is the principal underwriter for each of the
Princor Funds.
Transfer Agent and Dividend Disbursing Agent: Princor Management
Corporation, The Principal Financial Group, Des Moines, Iowa, 50392, is the
transfer agent and dividend disbursing agent for each of the Princor Funds.
This Prospectus describes a family of investment companies ("Princor
Funds") which has been organized by Principal Mutual Life Insurance Company and
which provides the following range of investment objectives:
Growth-Oriented Funds
Princor Balanced Fund, Inc. (formerly known as Princor Managed Fund, Inc.) seeks
to generate a total investment return consisting of current income and capital
appreciation while assuming reasonable risks in furtherance of the investment
objective.
Princor Blue Chip Fund, Inc. seeks to achieve growth of capital and growth of
income by investing primarily in common stocks of well capitalized, established
companies.
Princor Capital Accumulation Fund, Inc. seeks to achieve primarily long-term
capital appreciation and secondarily growth of investment income through the
purchase primarily of common stocks, but the Fund may invest in other
securities.
Princor Emerging Growth Fund, Inc. seeks to achieve long-term capital
appreciation by investing primarily in securities of emerging and other
growth-oriented companies.
Princor Growth Fund, Inc. seeks growth of capital through the purchase primarily
of common stocks, but the Fund may invest in other securities.
Princor World Fund, Inc. seeks long-term growth of capital by investing in a
portfolio of equity securities of companies domiciled in any of the nations of
the world.
Income-Oriented Funds
Princor Bond Fund, Inc. seeks to provide as high a level of income as is
consistent with preservation of capital and prudent investment risk.
Princor Government Securities Income Fund, Inc. seeks a high level of current
income, liquidity and safety of principal by purchasing obligations issued or
guaranteed by the United States Government or its agencies, with emphasis on
Government National Mortgage Association Certificates ("GNMA Certificates"). The
guarantee by the United States Government extends only to principal and
interest. There are certain risks unique to GNMA Certificates.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 29,1996
Princor High Yield Fund, Inc. seeks high current income primarily by purchasing
high yielding, lower or non-rated fixed income securities which are believed to
not involve undue risk to income or principal. Capital growth is a secondary
objective when consistent with the objective of high current income.
Princor High Yield Fund, Inc. invests predominantly in lower rated bonds,
commonly referred to as "junk bonds" and may invest 100% of its assets in
such bonds. Bonds of this type are considered to be speculative with regard
to payment of interest and return of principal. Purchasers should carefully
assess the risks associated with an investment in this fund.
THESE ARE SPECULATIVE SECURITIES.
Princor Limited Term Bond Fund, Inc. seeks a high level of current income
consistent with a relatively high level of principal stability by investing in a
portfolio of securities with a dollar weighted average maturity of five years or
less.
Princor Utilities Fund, Inc. seeks to provide current income and long-term
growth of income and capital by investing primarily in equity and fixed income
securities of companies in the public utilities industry.
Money Market Fund
Princor Cash Management Fund, Inc. seeks as high a level of income available
from short-term securities as is considered consistent with preservation of
principal and maintenance of liquidity by investing in a portfolio of money
market instruments.
Each of the Princor Funds described in this Prospectus offers three classes
of shares: Class A shares, Class B shares and Class R shares. Each class is sold
pursuant to different sales arrangements and bears different expenses. Only
Class R shares are offered through this Prospectus. Class A shares are described
herein only because Class R shares convert to Class A shares after a period of
time. For more information about the different sales arrangements, see "How to
Purchase Shares" and "Offering Price of Fund's Shares ." For information about
various expenses borne by Class R shares and Class A shares, see "Overview."
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by any financial institution, nor are shares of the Funds federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other agency.
An investment in any of the Funds is neither insured nor guaranteed by the
U.S. Government. There can be no assurance the Princor Cash Management Fund will
be able to maintain a stable net asset value of $1.00 per share.
This Prospectus concisely states information about the Princor Funds that
an investor should know before investing. It should be read and retained for
future reference.
Additional information about the Funds has been filed with the Securities
and Exchange Commission, including a document called a Statement of Additional
Information dated February 29, 1996 which is incorporated by reference herein.
The Statement of Additional Information and a Prospectus describing Class A and
Class B shares can be obtained free of charge by writing or telephoning the
Funds' principal underwriter: Princor Financial Services Corporation, P.O. Box
10423, Des Moines, IA 50306. Telephone 1-800-247-4123.
TABLE OF CONTENTS
Page
Overview .................................................................. 4
Financial Highlights ...................................................... 9
Investment Objectives, Policies and Restrictions .......................... 18
Growth-Oriented Funds ................................................. 18
Income-Oriented Funds ................................................. 21
Money Market Fund ..................................................... 27
Certain Investment Policies and Restrictions .......................... 29
Risk Factors .............................................................. 30
How the Funds are Managed ................................................. 30
How to Purchase Shares .................................................... 33
Offering Price of Funds' Shares ........................................... 34
Distribution and Shareholder Servicing Plans and Fees ..................... 35
Determination of Net Asset Value of Funds' Shares ......................... 35
Distribution of Income Dividends and Realized Capital Gains ............... 36
Tax Treatment of the Funds, Dividends and Distributions ................... 37
How to Exchange Shares .................................................... 38
How to Sell Shares ........................................................ 38
Performance Calculation ................................................... 39
General Information About a Fund Account .................................. 40
Shareholder Rights ........................................................ 40
Additional Information .................................................... 41
This Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, the securities of any of the Funds in any jurisdiction in which
such sale, offer to sell, or solicitation may not be lawfully made. Currently,
shares of the Funds are not available for sale in New Hampshire or Vermont, in
any U.S. possession or in Canada or any other foreign country. No dealer,
salesperson, or other person has been authorized to give any information or to
make any representations, other than those contained in this Prospectus, in
connection with the offer contained in this Prospectus, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Funds or the Funds Manager. Because the Princor Funds use a
combined Prospectus there may be a possibility that one Fund might become liable
for any misstatements, inaccuracy, or incomplete disclosure in the Prospectus
concerning another Fund.
OVERVIEW
The following overview should be read in conjunction with the detailed
information appearing elsewhere in the Prospectus.
The Princor Funds are separately incorporated, open-end diversified
management investment companies. Each of the Princor Funds offers three classes
of shares. However, only Class R shares are offered through this Prospectus.
Who may Invest
Class R shares are offered only to fund Individual Retirement Accounts ("IRAs")
exclusively for recipients of lump sum distributions from certain retirement
plans administered by Principal Mutual Life Insurance Company under the terms of
a written service agreement ("Administered Employee Benefit Plans").
Shareholders may purchase Class R shares to fund additional IRAs after
establishing an initial IRA funded with Class R shares.
What it Costs to Invest
Class R shares are sold without a front-end sales charge or a contingent
deferred sales charge. Class R shares of each Fund are subject to a 12b-1 fee at
annual rate of .75% of the Fund's average net assets attributable to Class R
shares. Class R shares automatically convert into Class A shares, based on
relative net asset values (which means without a sales charge), approximately
four years after purchase. The tables on the next page depict the fees and
expenses applicable to the purchase and ownership of shares of each of the
Funds. Table A depicts Class R shares and is based on amounts incurred by the
Funds' Class A shares during the fiscal year ended October 31, 1995, and
assumptions regarding the level of expenses anticipated for Class R shares
during the current fiscal year. Table B depicts Class A shares and is based on
amounts incurred by the Funds during the fiscal year ended October 31, 1995,
except as otherwise indicated. While Table B depicts the maximum sales charge
applicable to shares sold to the public, no sales charge applies when Class R
shares convert to Class A shares. The table included as an Example indicates the
cumulative expenses an investor would pay on an initial $1,000 investment that
earns a 5% annual return, regardless of whether shares are redeemed. The
examples are based on each Fund's Annual Operating Expenses described in Tables
A and B. Please remember that the Examples should not be considered a
representation of future expenses and that actual expenses may be greater or
less than those shown.
<TABLE>
<CAPTION>
CLASS R SHARES
TABLE A Shareholder Transaction Expenses*
Contingent Deferred Sales Charge
Maximum Sales Load (as a percentage of the lower of
Imposed on Purchases the original purchase price
(as a percentage of offering price) or redemption proceeds)
All Funds None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management 12b-1 Other Total Operating
Fund Fee Fee Expenses**** Expenses
<S> <C> <C> <C> <C>
Balanced Fund .60% .75% .52% 1.87%
Blue Chip Fund .50 .75 .63 1.88
Bond Fund .50 .75 .20 1.45**
Capital Accumulation Fund .45 .75 .19 1.39
Cash Management Fund .38 .75 .34 1.47**
Emerging Growth Fund .64 .75 .58 1.97
Government Securities Income Fund .46 .75 .22 1.43
Growth Fund .48 .75 .46 1.69
High Yield Fund .60 .75 .60 1.95
Limited Term Bond Fund .50 .75 .15 1.40***
Utilities Fund .60 .75 .44 1.79
World Fund .74 .75 .64 2.13
* A wire charge of up to $6.00 will be deducted for all wire transfers.
** After waiver.
*** Estimated expense after waiver.
****Estimated expenses
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES
TABLE B Shareholder Transaction Expenses*
Maximum Sales Load Imposed Contingent
on Purchases Deferred
(as percentage of offering price) Sales Charge
<S> <C> <C>
All Funds Except the Limited Term Bond Fund
and Cash Management Fund 4.75% None**
Limited Term Bond Fund 1.50% None**
Cash Management Fund None None
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management 12b-1 Other Total Operating
Fund Fee Fee Expenses Expenses
<S> <C> <C> <C> <C>
Balanced Fund .60% .25% .52% 1.37%
Blue Chip Fund .50 .25 .63 1.38
Bond Fund .50 .24 .20 .94***
Capital Accumulation Fund .45 .11 .19 .75
Cash Management Fund .38 None .34 .72***
Emerging Growth Fund .64 .25 .58 1.47
Government Securities Income Fund .46 .19 .22 .87
Growth Fund .48 .22 .46 1.16
High Yield Fund .60 .25 .60 1.45
Limited Term Bond Fund .50 .15 .15 .80****
Utilities Fund .60 .25 .45 1.30
World Fund .74 .25 .64 1.63
* A wire charge of up to $6.00 will be deducted for all wire transfers.
** Purchases of $1 million or more are not subject to an initial sales
charge but may be subject to a contingent deferred sales charge of .75%
(.25% for Limited Term Bond Fund) on redemptions that occur within 18
months of purchase. See "Offering Price of Fund's Shares."
*** After waiver.
****Estimated expenses after waiver.
</TABLE>
EXAMPLE
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of
each time period: 1 Year 3 Years 5 Years (a) 10 Years (a)
Class A Class R Class A Class R Class A Class R Class A Class R
Fund Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund $61 $19 $89 $59 $119 $95 $204 $183
Blue Chip Fund $61 $19 $89 $59 $119 $96 $205 $184
Bond Fund $57 $15 $76 $46 $97 $73 $157 $135
Capital Accumulation Fund $55 $14 $70 $44 $87 $69 $136 $119
Cash Management Fund $7 $15 $23 $46 $40 $72 $89 $120
Emerging Growth Fund $62 $20 $92 $62 $124 $101 $215 $194
Government Securities Income Fund $56 $15 $74 $45 $93 $72 $150 $129
Growth Fund $59 $17 $83 $53 $108 $86 $182 $161
High Yield Fund $62 $20 $91 $61 $123 $100 $213 $192
Limited Term Bond Fund $23 $14 $40 $44 -- -- -- --
Utilities Fund $60 $16 $87 $49 $115 $81 $197 $166
World Fund $63 $22 $96 $67 $132 $109 $232 $211
(a) The amount in this column reflects the conversion of Class R shares to Class A shares four years after the initial
purchase.
</TABLE>
The purpose of the preceding tables is to help investors understand the
various expenses that they will bear either directly or indirectly. Although
Annual Fund Operating Expenses shown in the Expense Table for Class A shares are
generally based upon each Fund's actual expenses, the 12b-1 Plan adopted by each
of the Funds (except the Money Market Funds which have no such Plan for Class A
shares) permits the Underwriter to retain an annual fee of up to .25% of each
Fund's average net assets. A portion of this annual fee is considered an
asset-based sales charge. Thus, it is theoretically possible for a long-term
shareholder of Class A shares, whether acquired directly or by conversion of
Class R shares, to pay more than the economic equivalent of the maximum
front-end sales charges permitted by the National Association of Securities
Dealers. See "Distribution and Shareholder Servicing Plans and Fees", "How to
Purchase Shares" and "How the Funds are Managed."
The Manager waived a portion of its fee for the Bond and Cash Management
Funds throughout the fiscal year ended October 31, 1995. Without these waivers,
total operating expenses for Class A shares actually incurred by the Funds for
the fiscal year ended October 31, 1995 would have amounted to 1.02% and .78% of
each Fund's average net assets, respectively. The Manager intends to continue
its voluntary waiver and, if necessary, pay expenses normally payable by both of
these Funds through February 28, 1997 in an amount that will maintain a total
level of operating expenses which as a percent of average net assets
attributable to a class on an annualized basis during the period will not
exceed, for the Class A shares, .95% for the Bond Fund and .75% for the Cash
Management Fund, and for the Class R shares, 1.45% for the Bond Fund and 1.50%
for the Cash Management Fund. The Manager voluntarily waived a portion of its
fee for the Utilities Fund through February 29, 1996 in an amount that
maintained a total level of operating expenses which as a percent of average net
assets attributable to a class on an annualized basis during the period did not
exceed 1.10% for the Class A shares. See "How the Funds are Managed."
The Manager intends to voluntarily waive its fee and, if necessary, pay
expenses normally payable by the Limited Term Bond Fund through February 28,
1997 in such amounts that will maintain a total level of operating expenses
which as a percent of net assets attributable to a class on an annualized basis
will not exceed .90% for Class A shares and 1.40% for Class R shares. Without
this waiver, estimated annual total operating expenses incurred by each class of
shares would amount to approximately 1.10% for Class A shares and 1.60% for
Class R shares.
What the Funds Offer Investors
Class R shares are purchased by investors to fund IRAs. Investor retirement
objectives and risk tolerances vary. For example, some investors seek growth to
help accumulate assets prior to retirement while others seek to generate current
income during retirement. Investors purchase shares of Funds that have
investment objectives that match their own financial objectives. The Funds also
offer a choice of varying levels of investment risks to enable the investor to
choose one or more Funds the investor believes is a prudent investment given the
investor's willingness to assume various risks. The Funds offer:
Professional Investment Management: Princor Management Corporation is the
Manager for each of the Funds. The Manager employs experienced securities
analysts to provide shareholders with professional investment management. The
Manager decides how and where to invest Fund assets. Investment decisions are
based on research into the financial performance of individual companies and
specific securities issues, taking into account general economic and market
trends. See "How the Funds are Managed."
Diversification: Mutual Funds allow shareholders to diversify their assets
across dozens of securities issued by a number of issuers. In addition, a
shareholder may further diversify by investing in several of the Funds.
Diversification reduces investment risk.
Economies of Scale: Pooling individual shareholders' money creates
administrative efficiencies and, in certain Funds, saves on brokerage
commissions through round-lot orders and quantity discounts. By pooling money
with other investors, shareholders can invest indirectly in many more securities
than they could on their own.
Liquidity: Upon request, each Fund will redeem all or part of an investor's
shares and promptly pay the current net asset value of the shares redeemed, less
any applicable contingent deferred sales charge. See "How to Sell Shares."
Dividends: Each Fund will normally declare a dividend payable to
shareholders from investment income in accordance with its distribution policy.
Dividends payable for Class R shares will be lower than dividends payable for
Class A shares. See "Distribution of Income Dividends and Realized Capital
Gains."
Convenient Investment and Recordkeeping Services: Shareholders will receive
quarterly statements of account disclosing information regarding purchases,
redemptions and reinvested dividends or distributions occurring during the
quarter, as well as the balance of shares owned and account values as of the
statement date. In addition, shareholders may complete certain transactions and
access account information by telephoning 1-800-247-4123.
Investment Objectives of the Funds
Growth-Oriented Funds
Fund Investment Objectives
Princor Balanced Fund, Inc. Total investment return consisting of current income
and capital appreciation while assuming reasonable risks in furtherance of
this objective.
Princor Blue Chip Fund, Inc. Growth of capital and growth of income. In seeking
to achieve its objective, the Fund will invest primarily in common stocks of
well-capitalized, established companies which the Fund's Manager
believes to have the potential for growth of capital, earnings and
dividends.
Princor Capital Accumulation Fund, Inc. Long-term capital appreciation with a
secondary objective of growth of investment income. The Fund seeks to
achieve its objectives primarily through the purchase of common stocks, but
the Fund may invest in other securities.
Princor Emerging Growth Fund, Inc. Long-term capital appreciation. The Fund
invests primarily in securities of emerging and other growth-oriented companies.
Princor Growth Fund, Inc. Growth of capital. The Fund seeks to achieve its
objective through the purchase primarily of common stocks, but the Fund may
invest in other securities.
Princor World Fund, Inc. Long-term growth of capital by investing in a portfolio
of equity securities of companies domiciled in any of the nations of the world.
Income-Oriented Funds
Fund Investment Objectives
Princor Bond Fund, Inc. As high a level of income as is consistent with
preservation of capital and prudent investment risk. This Fund invests primarily
in investment-grade bonds.
Princor Government Securities Income Fund, Inc. A high level of current income,
liquidity and safety of principal. The Fund seeks to achieve its objective
through the purchase of obligations issued or guaranteed by the United States
Government or its agencies, with emphasis on Government National Mortgage
Association Certificates ("GNMA Certificates"). Fund shares are not guaranteed
by the United States Government.
Princor High Yield Fund, Inc. High current income. Capital growth is a secondary
objective when consistent with the objective of high current-income. The Fund
will invest primarily in high yielding, lower or non-rated fixed-income
securities (commonly known as "junk bonds").
Princor Limited Term Bond Fund, Inc. A high level of current income consistent
with a relatively high level of principal stability by investing in a portfolio
of securities with a dollar weighted average maturity of five years or less.
Princor Utilities Fund, Inc. Current income and long-term growth of income and
capital. The Fund invests primarily in equity and fixed-income securities of
companies engaged in the public utilities industry.
Money Market Fund
Fund Investment Objectives
Princor Cash Management Fund, Inc. As high a level of current income available
from short-term securities as is considered consistent with preservation of
principal and maintenance of liquidity. The Fund invests in money market
instruments.
There can be no assurance that the investment objectives of any of the Funds
will be realized. See "Investment Objectives, Policies and Restrictions."
The Risks of Investing
Because the Funds have different investment objectives, each Fund is
subject to varying degrees of financial and market risks and current income
volatility. Financial risk refers to the earnings stability and overall
financial soundness of an issuer of an equity security and to the ability of an
issuer of a debt security to pay interest and principal when due. Market risk
refers to the degree to which the price of a security will react to changes in
conditions in securities markets in general and, with particular reference to
debt securities, to changes in the overall level of interest rates. Current
income volatility refers to the degree and rapidity with which changes in the
overall level of interest rates become reflected in the level of current income
of a Fund. See "Risk Factors", and "Investment Objectives, Policies and
Restrictions."
How to Buy Shares
An investor can buy shares by completing a Princor IRA, SEP or SAR-SEP
application provided by Princor Financial Services Corporation ("Princor"), a
broker-dealer that is also the principal underwriter for the Funds, and mailing
it, along with a check if establishing an account that is not part of a direct
rollover, to Princor. The initial investment must be at least $250. The minimum
subsequent investment is $50 ($100 for Cash Management Fund). See "How to
Purchase Shares." Class R shares of the Cash Management Fund may only be
purchased by an exchange from other Class R shares. See "How to Exchange
Shares."
Each Fund described in the Prospectus offers three classes of shares
through Princor and other dealers which it selects. The three classes are Class
A shares, Class B shares and Class R shares. Only Class R shares are offered
through this Prospectus. Each class is sold in different sales arrangements and
bears different expense levels.
Class R shares for each Fund are sold without an initial sales charge or a
contingent deferred sales charge. Class R shares bear a higher 12b-1 fee than
Class A shares, currently at the annual rate of .75% of the Fund's average net
assets attributable to Class R shares. Class R shares will automatically convert
into Class A shares, based on relative net asset value, approximately four years
after purchase. Class R shares provide the benefit of putting all of the
investor's dollars to work from the time the investment is made, but (until
conversion) will have a higher expense ratio and pay lower dividends than Class
A shares due to the higher 12b-1 fee. See "How to Purchase Shares" and "Offering
Price of Funds' Shares." Class R shares were first offered to the public on
February 29, 1996.
How to Exchange Shares
Shares of Princor Funds may be exchanged for shares of the same Class of
other Princor Funds without a sales charge or administrative fee under certain
conditions as described under "How to Exchange Shares." Shares may be exchanged
by telephone or written request. Also, dividends and capital gains distributions
from shares of a Class of one Princor Fund may be automatically
"cross-reinvested" in shares of the same Class of another Princor Fund. See
"Distribution of Income Dividends and Realized Capital Gains."
How to Sell Shares
Shareholders may sell (redeem) shares only by written request. The request
form may be obtained by telephoning 1-800-247-4123 or by writing to Princor,
P.O. Box 10423, Des Moines, Iowa 50306. Redemption proceeds will generally be
mailed to the shareholder on the next business day after the redemption request
is received in good order. Redemptions are at net asset value, without charge.
See "Offering Price of Funds' Shares" and "How to Sell Shares."
FINANCIAL HIGHLIGHTS
The following financial highlights for each of the ten years in the period
ended October 31, 1995, or since the Fund's inception if a shorter period of
time, have been derived from financial statements which have been audited by
Ernst & Young LLP, independent auditors, whose report thereon has been
incorporated by reference herein. No Class R shares were outstanding during
these periods. The financial highlights should be read in conjunction with the
financial statements, related notes and other financial information for each
Fund incorporated by reference herein. The financial statements, which contain
additional information regarding the performance of the Funds, may be obtained
by shareholders, without charge, by telephoning 1-800-451-5447.
<TABLE>
<CAPTION>
GROWTH-ORIENTED FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End of
of Period Income Investments Operations Income Capital Gains Distributions Period
Princor Balanced Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $12.43 $.41 $1.31 $1.72 $(.36) $(.05) $(.41) $13.74
1994 13.26 .32 (.20) .12 (.40) (.55) (.95) 12.43
1993 12.78 .35 1.14 1.49 (.37) (.64) (1.01) 13.26
1992 11.81 .41 .98 1.39 (.42) - (.42) 12.78
1991 9.24 .46 2.61 3.07 (.50) - (.50) 11.81
1990 11.54 .53 (1.70) (1.17) (.59) (.54) (1.13) 9.24
1989 11.09 .61 .56 1.17 (.56) (.16) (.72) 11.54
Period Ended October 31, 1988 (b) 9.96 .40 1.02 1.42 (.29) - (.29) 11.09
Princor Blue Chip Fund, Inc.
Class A
Year Ended October 31,
1995 12.45 .24 2.55 2.79 (.21) - (.21) 15.03
1994 11.94 .20 .57 .77 (.26) - (.26) 12.45
1993 11.51 .21 .43 .64 (.18) (.03) (.21) 11.94
1992 10.61 .17 .88 1.05 (.15) - (.15) 11.51
Period Ended October 31, 1991(e) 10.02 .10 .57 .67 (.08) - (.08) 10.61
Princor Capital Accumulation
Fund, Inc.
Class A
Year Ended October 31,
1995 20.83 .45 3.15 3.60 (.39) (.35) (.74) 23.69
1994 21.41 .39 .93 1.32 (.41) (1.49) (1.90) 20.83
1993 21.34 .43 1.67 2.10 (.43) (1.60) (2.03) 21.41
1992 19.53 .45 1.82 2.27 (.46) - (.46) 21.34
1991 14.31 .49 5.24 5.73 (.51) - (.51) 19.53
1990 18.16 .52 (3.64) (3.12) (.40) (.33) (.73) 14.31
Four Months Ended
October 31, 1989 (f) 19.11 .18 (.06) .12 (.29) (.78) (1.07) 18.16
Year Ended June 30,
1989 18.82 .53 1.10 1.63 (.51) (.83) (1.34) 19.11
1988 21.66 .44 (1.06) (.62) (.41) (1.81) (2.22) 18.82
1987 20.47 .31 3.33 3.64 (.30) (2.15) (2.45) 21.66
1986 16.60 .61 4.94 5.55 (.72) (.96) (1.68) 20.47
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor Balanced Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 14.18% $ 57,125 1.37% 3.21% 35.8%
1994 .94% 53,366 1.51% 2.70% 14.4%
1993 12.24% 39,952 1.35% 2.78% 27.5%
1992 11.86% 31,339 1.29% 3.39% 30.6%
1991 34.09% 23,372 1.30% 4.25% 23.6%
1990 (11.28)% 18,122 1.32% 5.22% 33.7%
1989 11.03% 20,144 1.25% 5.45% 30.2%
Period Ended
October 31, 1988 (b) 12.42%(c) 16,282 1.12%(d) 4.51%(d) 65.2%(d)
Princor Blue Chip Fund, Inc.
Class A
Year Ended October 31,
1995 22.65% 35,212 1.38% 1.83% 26.1%
1994 6.58% 27,246 1.46% 1.72% 5.5%
1993 5.65% 23,759 1.25% 1.87% 11.2%
1992 9.92% 19,926 1.56% 1.49% 13.5%
Period Ended October 31, 1991(e) 6.37%(c) 12,670 1.71%(d) 1.67%(d) 0.4%(d)
Princor Capital Accumulation
Fund, Inc.
Class A
Year Ended October 31,
1995 17.94% 339,656 .75% 2.08% 46.0%
1994 6.67% 285,965 .83% 2.02% 31.7%
1993 10.42% 240,016 .82% 2.16% 24.8%
1992 11.67% 190,301 .93% 2.17% 38.3%
1991 40.63% 152,814 .99% 2.72% 19.7%
1990 (17.82)% 109,507 1.10% 3.10% 27.7%
Four Months Ended
October 31, 1989 (f) .44%(c) 122,685 1.10%(d) 2.87%(d) 19.7%(d)
Year Ended June 30,
1989 9.53% 117,473 1.00% 3.04% 28.1%
1988 (2.30)% 97,147 .96% 2.40% 27.9%
1987 20.93% 93,545 .98% 1.73% 20.0%
1986 36.51% 55,763 .93% 3.59% 44.5%
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge.
(b) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.08 per share for the
period from the initial purchase of shares on October 30, 1987 through December
17, 1987, was recognized, none of which was distributed to its sole stockholder,
Principal Mutual Life Insurance Company, during the period. Additionally, the
Fund incurred net realized and unrealized losses on investments of $.12 per
share during this initial interim period. This represented activities of the
fund prior to the initial public offering of fund shares. (c) Total Return
amounts have not been annualized.
(d) Computed on an annualized basis.
(e) Period from March 1, 1991, date shares first offered to public, through
October 31, 1991. Net investment income, aggregating $.01 per share for the
period from the initial purchase of shares on February 11, 1991 through February
28, 1991, was recognized, none of which was distributed to its sole stockholder,
Principal Mutual Life Insurance Company, during the period. Additionally, the
Fund incurred unrealized gains on investments of $.01 per share during this
initial interim period. This represented activities of the fund prior to the
initial public offering of fund shares.
(f) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROWTH-ORIENTED FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor Emerging Growth Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $25.08 $ .12 $6.45 $6.57 $(.06) $ (.14) $(.20) $31.45
1994 23.56 - 1.61 1.61 - (.09) (.09) 25.08
1993 19.79 .06 3.82 3.88 (.11) - (.11) 23.56
1992 18.33 .14 1.92 2.06 (.15) (.45) (.60) 19.79
1991 11.35 .17 7.06 7.23 (.21) (.04) (.25) 18.33
1990 14.10 .31 (2.59) (2.28) (.37) (.10) (.47) 11.35
1989 12.77 .26 2.02 2.28 (.15) (.80) (.95) 14.10
Period Ended October 31, 1988 (b) 10.50 .06 2.26 2.32 (.05) - (.05) 12.77
Princor Growth Fund, Inc.
Class A
Year Ended October 31,
1995 31.14 .35 6.67 7.02 (.31) (.63) (.94) 37.22
1994 30.41 .26 2.56 2.82 (.28) (1.81) (2.09) 31.14
1993 28.63 .40 2.36 2.76 (.42) (.56) (.98) 30.41
1992 25.92 .39 3.32 3.71 (.40) (.60) (1.00) 28.63
1991 16.57 .41 9.32 9.73 (.38) - (.38) 25.92
1990 19.35 .35 (1.99) (1.64) (.34) (.80) (1.14) 16.57
Four Months Ended October 31, 1989 (e)18.35 .08 1.17 1.25 (.16) (.09) (.25) 19.35
Year Ended June 30,
1989 19.84 .32 .36 .68 (.29) (1.88) (2.17) 18.35
1988 23.27 .26 (2.08) (1.82) (.22) (1.39) (1.61) 19.84
1987 21.85 .21 3.72 3.93 (.27) (2.24) (2.51) 23.27
1986 17.07 .32 6.31 6.63 (.38) (1.47) (1.85) 21.85
Princor World Fund, Inc.
Class A
Year Ended October 31,
1995 7.44 .08 (.02) .06 (.03) (.19) (.22) 7.28
1994 6.85 .01 .64 .65 (.02) (.04) (.06) 7.44
1993 5.02 .03 1.98 2.01 (.05) (.13) (.18) 6.85
1992 5.24 .06 (.14) (.08) (.06) (.08) (.14) 5.02
1991 4.64 .05 .58 .63 (.03) - (.03) 5.24
1990 4.66 .09 (.04) .05 (.07) - (.07) 4.64
Ten Months Ended
October 31, 1989 (f) 4.58 .07 .07 .14 (.06) - (.06) 4.66
Year Ended December 31,
1988 (g) 3.88 .12 .67 .79 (.09) - (.09) 4.58
1987 (g) 8.55 .12 (.96) (.84) (.08) (3.75) (3.83) 3.88
1986 (g) 7.32 .45 2.17 2.62 (.44) (.95) (1.39) 8.55
1985 (g) 6.07 .07 1.49 1.56 (.09) (.22) (.31) 7.32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor Emerging Growth Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 26.41% $150,611 1.47% .47% 13.5%
1994 6.86% 92,965 1.74% .02% 8.1%
1993 19.66% 48,668 1.66% .26% 7.0%
1992 11.63% 29,055 1.74% .80% 5.8%
1991 64.56% 17,174 1.78% 1.14% 8.4%
1990 (16.80)% 8,959 1.94% 2.43% 15.8%
1989 19.65% 8,946 1.79% 2.09% 13.5%
Period Ended October 31, 1988 (b) 19.72%(c) 6,076 1.52%(d) .84%(d) 19.5%(d)
Princor Growth Fund, Inc.
Class A
Year Ended October 31,
1995 23.29% 174,328 1.16% 1.12% 12.2%
1994 9.82% 116,363 1.30% .95% 13.6%
1993 9.83% 80,051 1.26% 1.40% 16.4%
1992 14.76% 63,405 1.19% 1.46% 15.6%
1991 59.30% 45,892 1.13% 1.85% 10.6%
1990 (9.20)% 28,917 1.18% 1.88% 9.7%
Four Months Ended October 31, 1989(e) 6.83%(c) 32,828 1.22%(d) 1.25%(d) 50.1%(d)
Year Ended June 30,
1989 4.38% 31,770 1.08% 1.78% 9.7%
1988 (7.19)% 34,316 1.00% 1.29% 24.9%
1987 20.94% 37,006 1.01% 1.07% 4.0%
1986 42.69% 26,493 .98% 1.75% 29.0%
Princor World Fund, Inc.
Class A
Year Ended October 31,
1995 1.03% 126,554 1.63% 1.10% 35.4%
1994 9.60% 115,812 1.74% .10% 13.2%
1993 41.39% 63,718 1.61% .59% 19.5%
1992 (1.57)% 35,048 1.69% 1.23% 19.9%
1991 13.82% 26,478 1.72% 1.36% 27.6%
1990 .94% 16,044 1.79% 1.89% 37.9%
Ten Months Ended
October 31, 1989 (f) 2.98%(c) 13,928 1.55%(d) 1.82%(d) 32.4%(d)
Year Ended December 31,
1988 (g) 20.25% 13,262 1.55% 1.43% 56.9%
1987 (g) (10.13)% 3,943 2.09% .83% 183.0%
1986 (g) 36.40% 9,846 2.17% .73% 166.0%
1985 (g) 25.88% 2,525 2.25% 1.13% 55.9%
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge.
(b) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.04 per share for the
period from the initial purchase of shares on October 30, 1987 through
December 17, 1987, was recognized, none of which was distributed to its
sole stockholder, Principal Mutual Life Insurance Company, during the
period. Additionally, the Fund incurred net realized and unrealized gains
on investments of $.46 per share during this initial interim period. This
represented activities of the fund prior to the initial public offering of
fund shares.
(c) Total Return amounts have not been annualized.
(d) Computed on an annualized basis.
(e) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
(f) Effective January 1, 1989, the fund changed its fiscal year-end from
December 31 to October 31.
(g) The investment manager of Princor World Fund, Inc. was changed on August 1, 1988 to the current manager,
Princor Management Corporation. The years 1983 through 1987 are not covered by the current independent auditor's report.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME-ORIENTED AND MONEY MARKET FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor Bond Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.27 $.78 (b) $1.16 $1.94 $(.78) $(.01) $(.79) $11.42
1994 11.75 .78 (b) (1.47) (.69) (.78) (.01) (.79) 10.27
1993 10.97 .81 (b) .79 1.60 (.81) (.01) (.82) 11.75
1992 10.65 .85 (b) .32 1.17 (.85) - (.85) 10.97
1991 9.99 .88 (b) .65 1.53 (.87) - (.87) 10.65
1990 10.57 .86 (.55) .31 (.89) - (.89) 9.99
1989 10.37 .87 .25 1.12 (.86) (.06) (.92) 10.57
Period Ended October 31, 1988 (c) 9.95 .80 (b) .38 1.18 (.76) - (.76) 10.37
Princor Cash Management Fund, Inc.
Class A
Year Ended October 31,
1995 1.000 .052 (b) - .052 (.052) - (.052) 1.000
1994 1.000 .033 (b) - .033 (.033) - (.033) 1.000
1993 1.000 .026 (b) - .026 (.026) - (.026) 1.000
1992 1.000 .036 (b) - .036 (.036) - (.036) 1.000
1991 1.000 .061 (b) - .061 (.061) - (.061) 1.000
1990 1.000 .074 (b) - .074 (.074) - (.074) 1.000
Four Months Ended
October 31, 1989 (f) 1.000 .027 (b) - .027 (.027) - (.027) 1.000
Year Ended June 30,
1989 1.000 .080 (b) - .080 (.080) - (.080) 1.000
1988 1.000 .060 - .060 (.060) - (.060) 1.000
1987 1.000 .053 - .053 (.053) - (.053) 1.000
1986 1.000 .065 - .065 (.065) - (.065) 1.000
Princor Government Securities
Income Fund, Inc.
Class A
Year Ended October 31,
1995 10.28 .71 1.02 1.73 (.70) - (.70) 11.31
1994 11.79 .69 (1.40) (.71) (.68) (.12) (.80) 10.28
1993 11.44 .74 .55 1.29 (.74) (.20) (.94) 11.79
1992 11.36 .81 .12 .93 (.81) (.04) (.85) 11.44
1991 10.54 .85 .84 1.69 (.87) - (.87) 11.36
1990 10.76 .85 (.22) .63 (.85) - (.85) 10.54
Four Months Ended
October 31, 1989 (f) 10.66 .29 .09 .38 (.28) - (.28) 10.76
Year Ended June 30,
1989 10.33 .87 .32 1.19 (.86) - (.86) 10.66
1988 10.40 .89 (.05) .84 (.88) (.03) (.91) 10.33
1987 10.82 .86 (.13) .73 (.87) (.28) (1.15) 10.40
1986 10.55 1.24 .49 1.73 (1.26) (.20) (1.46) 10.82
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor Bond Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 19.73% $106,962 .94% (b) 7.26% 5.1%
1994 (6.01)% 88,801 .95% (b) 7.27% 8.9%
1993 15.22% 85,015 .92% (b) 7.19% 9.3%
1992 11.45% 62,534 .88% (b) 7.95% 8.4%
1991 16.04% 37,825 .80% (b) 8.66% .9%
1990 3.08% 22,719 1.22% 8.40% 3.6%
1989 11.54% 13,314 1.24% 8.59% 0.0%
Period Ended October 31, 1988 (c) 11.59% (d) 10,560 .70% (e)(b) 8.85% (e) 63.9% (e)
Princor Cash Management Fund, Inc.
Class A
Year Ended October 31,
1995 5.36% 623,864 .72% (b) 5.24% N/A
1994 3.40% 332,346 .70% (b) 3.27% N/A
1993 2.67% 284,739 .67% (b) 2.63% N/A
1992 3.71% 247,189 .65% (b) 3.66% N/A
1991 6.29% 262,543 .61% (b) 5.95% N/A
1990 7.65% 151,007 .93% (b) 7.36% N/A
Four Months Ended
October 31, 1989 (f) 2.63% (d) 124,895 1.04% (e)(b) 7.86% (e) N/A
Year Ended June 30,
1989 8.15% 120,149 1.00% (b) 8.21% N/A
1988 6.18% 51,320 1.02% 6.06% N/A
1987 5.34% 45,015 1.02% 5.33% N/A
1986 6.71% 35,437 1.10% 6.76% N/A
Princor Government Securities
Income Fund, Inc.
Class A
Year Ended October 31,
1995 17.46% 261,128 .87% 6.57% 10.1%
1994 (6.26)% 249,438 .95% 6.35% 24.8%
1993 11.80% 236,718 .93% 6.38% 52.6%
1992 8.49% 161,565 .95% 7.04% 54.3%
1991 16.78% 94,613 .98% 7.80% 14.9%
1990 6.17% 71,806 1.07% 8.15% 22.4%
Four Months Ended
October 31, 1989 (f) 3.63% (d) 55,702 1.07% (e) 8.18% (e) 5.2% (e)
Year Ended June 30,
1989 12.37% 56,848 .96% 8.58% -
1988 8.60% 59,884 .82% 8.65% -
1987 7.00% 65,961 .92% 7.93% 17.6%
1986 17.37% 43,576 .60% 9.33% 141.2%
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge.
(b) Without the Manager's voluntary waiver of a portion of certain of its
expenses for the periods (year, except as noted in the financial statements)
ended October 31 of the years indicated, the following funds would have had per
share expenses and the ratios of expenses to average net assets as shown:
<PAGE>
Per Share Ratio of Expenses
Net Invest- to Average Net Amount
Fund Year ment Income Assets Waived
Princor Bond Fund, Inc.
Class A 1995 $.77 1.02% $ 86,018
1994 .77 1.09% 120,999
1993 .79 1.07% 111,162
1992 .82 1.11% 110,868
1991 .84 1.15% 100,396
1988 (c) .76 1.12% (e) 31,187
Princor Cash Management
Fund, Inc.
Class A 1995 .052 .78% 296,255
1994 .031 .90% 595,343
1993 .025 .84% 468,387
1992 .035 .80% 385,328
1991 .059 .79% 433,196
1990 .073 1.01% 106,841
1989** .026 1.06% (e) 101,625
1989* .079 1.11% 9,558
* Year ended June 30, 1989
** Four months ended October 31, 1989
(c) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.10 per share for the
period from the initial purchase of shares on October 30, 1987 through December
17, 1987, was recognized of which $.06 per share was distributed to its sole
stockholder, Principal Mutual Life Insurance Company, during the period.
Additionally, the Fund incurred net realized and unrealized losses on
investments of $.09 per share during this initial interim period. This
represented activities of the fund prior to the initial public offering of fund
shares.
(d) Total Return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME-ORIENTED AND MONEY MARKET FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor High Yield Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 7.83$ .68 $ .20 $ .88 $ (.65) $ - $ (.65) $ 8.06
1994 8.36 .63 (.51) .12 (.65) - (.65) 7.83
1993 8.15 .71 .21 .92 (.71) - (.71) 8.36
1992 7.86 .79 .29 1.08 (.79) - (.79) 8.15
1991 7.12 .88 .80 1.68 (.94) - (.94) 7.86
1990 9.47 1.10 (2.35) (1.25) (1.09) (.01) (1.10) 7.12
1989 10.44 1.10 (.83) .27 (1.09) (.15) (1.24) 9.47
Period Ended October 31, 1988 (b) 9.97 .98 (c) .38 1.36 (.89) - (.89) 10.44
Princor Utilities Fund, Inc.
Class A
Year Ended October 31,
1995 9.25 .48 (c) 1.70 2.18 (.49) - (.49) 10.94
1994 11.45 .46 (c) (2.19) (1.73) (.45) (.02) (.47) 9.25
Period Ended October 31, 1993 (f) 10.18 .35 (c) 1.27 1.62 (.35) - (.35) 11.45
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor High Yield Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 11.73% $23,396 1.45% 8.71% 40.3%
1994 1.45% 19,802 1.46% 7.82% 27.2%
1993 11.66% 19,154 1.35% 8.57% 23.4%
1992 14.35% 16,359 1.41% 9.69% 28.2%
1991 25.63% 13,195 1.50% 12.06% 14.2%
1990 (14.51)% 9,978 1.45% 12.99% 15.8%
1989 2.68% 12,562 1.43% 11.22% 19.9%
Period Ended October 31, 1988 (b) 14.15%(d) 10,059 .77%(c)(e) 10.55%(e) 73.2%(e)
Princor Utilities Fund, Inc.
Class A
Year Ended October 31,
1995 24.36% 65,873 1.04%(e) 4.95% 13.0%
1994 (15.20)% 56,747 1.00%(c) 4.89% 13.8%
Period Ended October 31, 1993 (f) 15.92%(d) 50,372 1.00%(c)(e) 4.48%(f) 4.3%(f)
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge.
(b) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.10 per share for the
period from the initial purchase of shares on October 30, 1987 through December
17, 1987, was recognized of which $.06 per share was distributed to its sole
stockholder, Principal Mutual Life Insurance Company, during the period.
Additionally, the Fund incurred net realized and unrealized losses on
investments of $.09 per share during this initial interim period. This
represented activities of the fund prior to the initial public offering of Fund
shares.
(c) Without the Manager's voluntary waiver of a portion of certain of its
expenses for the periods (year except as noted) ended October 31 of the years
indicated, the following funds would have had per share expenses and the ratios
of expenses to average net assets as shown:
Per Share Ratio of Expenses
Net Invest- to Average Net Amount
Fund Year ment Income Assets Waived
Princor High Yield
Fund, Inc. 1988(b) $.95 1.33%(e) $ 32,609
Class A
Princor Utilities Fund, Inc.
Class A 1995 .46 1.30% 151,145
1994 .41 1.50% 284,836
1993(f) .32 1.54%(e) 139,439
(d) Total Return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Period from December 16, 1992, date shares first offered to public, through
October 31, 1993. Net investment income, aggregating $.05 per share for the
period from the initial purchase of shares on November 16, 1992 through December
15, 1992, was recognized, none of which was distributed to its sole stockholder,
Principal Mutual Life Insurance Company, during the period. Additionally, the
fund incurred unrealized gains on investments of $.13 per share during the
initial interim period. This represented activities of the fund prior to the
initial public offering of fund shares.
</TABLE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The investment objectives and policies of each Fund are described below.
There can be no assurance that the objectives of the Funds will be realized.
GROWTH-ORIENTED FUNDS
The Princor Growth-Oriented Funds currently include four Funds which seek
capital appreciation through investments in equity securities (Capital
Accumulation Fund, Emerging Growth Fund, Growth Fund and World Fund), one Fund
which seeks a total investment return including both capital appreciation and
income through investments in equity and debt securities (Balanced Fund) and one
Fund which seeks growth of capital and growth of income primarily through
investments in common stocks of well capitalized, established companies (Blue
Chip Fund).
The Growth-Oriented Funds may invest in the following equity securities:
common stocks; preferred stocks and debt securities that are convertible into
common stock, that carry rights or warrants to purchase common stock or that
carry rights to participate in earnings; rights or warrants to subscribe to or
purchase any of the foregoing securities; and sponsored and unsponsored American
Depository Receipts (ADRs) based on any of the foregoing securities. Unsponsored
ADRs are not created by the issuer of the underlying security, may be subject to
fees imposed by the issuing bank that, in the case of sponsored ADRs, would be
paid by the issuer of a sponsored ADR and may involve additional risks such as
reduced availability of information about the issuer of the underlying security.
The Blue Chip, Capital Accumulation, Emerging Growth, Growth and World Funds
will seek to be fully invested under normal conditions in equity securities.
When in the opinion of the Manager current market or economic conditions
warrant, a Growth-Oriented Fund may, for temporary defensive purposes, place all
or a portion of its assets in cash (on which the Fund would earn no income),
cash equivalents, bank certificates of deposit, bankers acceptances, repurchase
agreements, commercial paper, commercial paper master notes which are floating
rate debt instruments without a fixed maturity, United States Government
securities, and preferred stocks and debt securities, whether or not convertible
into or carrying rights for common stock. When investing for temporary defensive
purposes a Growth-Oriented Fund is not investing so as to achieve its investment
objective. A Growth-Oriented Fund may also maintain reasonable amounts in cash
or short-term debt securities for daily cash management purposes or pending
selection of particular long-term investments.
Princor Balanced Fund
The investment objective of Princor Balanced Fund is to generate a total
investment return consisting of current income and capital appreciation while
assuming reasonable risks in furtherance of the investment objective. The term
"reasonable risks" refers to investment decisions that in the Manager's judgment
do not present a greater than normal risk of loss in light of current or
anticipated future market and economic conditions, trends in yields and interest
rates, and fiscal and monetary policies.
In seeking to achieve the investment objective, the Fund invests primarily
in growth and income-oriented common stocks (including securities convertible
into common stocks), corporate bonds and debentures and short-term money market
instruments. The Fund may also invest in other equity securities and in debt
securities issued or guaranteed by the United States Government and its agencies
or instrumentalities. The Fund seeks to generate real (inflation plus) growth
during favorable investment periods and may emphasize income and capital
preservation strategies during uncertain investment periods. The Manager will
seek to minimize declines in the net asset value per share. However, there is no
guarantee that the Manager will be successful in achieving this goal.
The portions of the Fund's total assets invested in equity securities, debt
securities and short-term money market instruments are not fixed, although
ordinarily 40% to 70% of the Fund's portfolio will be invested in equity
securities with the balance of the portfolio invested in debt securities. The
investment mix will vary from time to time depending upon the judgment of the
Manager as to general market and economic conditions, trends in investment
yields and interest rates, and changes in fiscal or monetary policies. The Fund
may invest up to 20% of its assets in foreign securities. For a description of
certain investment risks associated with foreign securities, see "Risk Factors."
The Fund may invest in all types of common stocks and other equity
investments, without regard to any objective investment criteria such as size of
the issue or issuer, exchange listing or seasoning. The Fund may invest in both
exchange-listed and over-the-counter securities, in small or large companies,
and in well-established or unseasoned companies. Also, the Fund's investments in
corporate bonds and debentures and money market instruments are not restricted
by credit ratings or other objective investment criteria, except with respect to
bank certificates of deposit as set forth below. Some of the fixed income
securities in which the Fund may invest may be considered to include speculative
characteristics and the Fund may purchase such securities that are in default
but does not currently intend to invest more than 5% of its assets in securities
rated below BBB by Standard & Poor's or Baa by Moody's. The rating services'
descriptions of BBB or Baa securities are as follows: Moody's Investors Service,
Inc. Bond Ratings -- Baa: Bonds which are rated Baa are considered as medium
grade obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Standard &
Poor's Corporation Bond Ratings -- BBB: Debt rated "BBB" is regarded as having
an adequate capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than for debt in higher-rated
categories. See the discussion of the Princor High Yield Fund for information
concerning risks associated with below-investment grade bonds. The Fund will not
concentrate its investments in any industry.
In selecting common stocks, the Manager seeks companies which the Manager
believes have predictable earnings increases and which, based on their future
growth prospects, may be currently undervalued in the market place. During
periods when the Manager determines that general economic conditions are
favorable, it will generally purchase common stocks with the objective of
long-term capital appreciation. From time to time, and in periods of economic
uncertainty, the Manager may purchase common stocks with the expectation of
price appreciation over a relatively short period of time.
To achieve its investment objective, the Fund may at times emphasize the
generation of interest income by investing in short, medium or long-term debt
securities. Investment in debt securities may also be made with a view to
realizing capital appreciation when the Manager believes that declining interest
rates may increase market values. The Fund may also purchase "deep discount
bonds," i.e., bonds which are selling at a substantial discount from their face
amount, with a view to realizing capital appreciation.
The Fund may invest in the following short-term money market investments:
U.S. Treasury bills, 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. The Fund will only
invest in domestic bank certificates of deposit issued by banks which are
members of the Federal Reserve System that have total deposits in excess of one
billion dollars.
The United States Government securities in which the Fund may invest
consist of U.S. Treasury obligations and obligations of certain agencies, such
as the Government National Mortgage Association, which are supported by the full
faith and credit of the United States, as well as obligations of certain other
Federal agencies or instrumentalities, such as the Federal National Mortgage
Association, Federal Land Banks and the Federal Farm Credit Administration,
which are backed only by the right of the issuer to borrow limited funds from
the U.S. Treasury, by the discretionary authority of the U.S. Government to
purchase such obligations or by the credit of the agency or instrumentality
itself.
Princor Blue Chip Fund
The objective of Princor Blue Chip Fund is growth of capital and growth of
income. Growth of income means increasing the Fund's investment income which is
primarily derived from dividends earned on portfolio securities. In seeking to
achieve its objective, the Fund will invest primarily in common stocks of well
capitalized, established companies which the Fund's manager believes to have the
potential for growth of capital, earnings and dividends. Under normal market
conditions, the Fund will invest at least 65%, and may invest up to 100%, of its
total assets in the common stocks of blue chip companies.
Blue chip companies are defined as those companies with market
capitalizations of at least $1 billion. Blue chip companies are generally
identified by their substantial capitalization, established history of earnings
and dividends, easy access to credit, good industry position and superior
management structure. In addition, the large market of publicly held shares for
such companies and the generally high trading volume in those shares results in
a relatively high degree of liquidity for such investments. The characteristics
of high quality and high liquidity of blue chip investments should make the
market for such stocks attractive to many investors.
Examples of blue chip companies currently eligible for investment by the
Fund include, but are not limited to, companies such as General Electric
Company, Ford Motor Company, Exxon Corporation, Merck & Company, Inc., Digital
Equipment Corporation, Capital Cities ABC, Inc., J.P. Morgan & Co. and Coca Cola
Company. In general, the Fund will seek to invest in those established, high
quality companies whose industries are experiencing favorable secular or
cyclical change.
The Fund's Manager may invest up to 35% of the Fund's total assets in
equity securities, other than common stock, issued by companies that meet the
investment criteria for blue chip companies and in equity securities issued by
companies that do not meet those criteria. The Manager does not intend to invest
regularly in speculative securities, which are those issued by new, unseasoned
companies or by companies that have limited product lines, markets, financial
resources or management, but it may from time to time invest not more than 5% of
the Fund's total assets in those kinds of securities. The Fund may invest up to
20% of its assets in securities of foreign issuers. The foreign securities in
which the Fund may invest need not be issued by companies that meet the
investment criteria for blue chip companies. For a description of certain
investment risks associated with foreign securities, see "Risk Factors."
Princor Capital Accumulation Fund
The primary objective of Princor Capital Accumulation Fund is long-term
capital appreciation. A secondary objective is growth of investment income.
The Fund will invest primarily in common stocks, but it may invest in other
equity securities. In making selections for the Fund's investment portfolio, the
Manager will use an approach described broadly as that of fundamental analysis,
which is discussed in the Statement of Additional Information. In pursuit of the
Fund's investment objectives, investments will be made in securities which as a
group appear to offer long-term prospects for capital and income growth.
Securities chosen for investment may include those of companies which the
Manager believes can reasonably be expected to share in the growth of the
nation's economy over the long term.
Princor Emerging Growth Fund
The objective of Princor Emerging Growth Fund is to achieve long-term
capital appreciation. The strategy of this Fund is to invest primarily in the
common stocks and securities (both debt and preferred stock) convertible into
common stocks of emerging and other growth-oriented companies that, in the
judgment of the Manager, are responsive to changes within the marketplace and
have the fundamental characteristics to support growth. In pursuing its
objective of capital appreciation, the Fund may invest, for any period of time,
in any industry and in any kind of growth-oriented company, whether new and
unseasoned or well known and established. Under normal market conditions, the
Fund will invest at least 65% of its assets in securities of companies having a
total market capitalization of $1 billion or less. The Fund may invest up to 20%
of its assets in securities of foreign issuers. For a description of certain
investment risks associated with foreign securities, see "Risk Factors."
There can be, of course, no assurance that the Fund will attain its
objective. Investment in emerging and other growth-oriented companies may
involve greater risk than investment in other companies. The securities of
growth-oriented companies may be subject to more abrupt or erratic market
movements, and many of them may have limited product lines, markets, financial
resources or management. Because of these factors and of the length of time that
may be required for full development of the growth prospects of some of the
companies in which the Fund invests, the Fund believes that its shares are
suitable only for persons who are able to assume the risk of investing in
securities of emerging and growth-oriented companies and prepared to maintain
their investment during periods of adverse market conditions. Investors should
not rely on the Fund for their short-term financial needs. Since the Fund will
not be seeking current income, investors should not view a purchase of Fund
shares as a complete investment program.
Princor Growth Fund
The objective of Princor Growth Fund is growth of capital. Realization of
current income will be incidental to the objective of growth of capital.
The Fund will invest primarily in common stocks, but it may invest in other
equity securities. In making selections for the Fund's investment portfolio, the
Manager will use an approach described broadly as that of fundamental analysis,
which is discussed in the Statement of Additional Information. In pursuit of the
Fund's investment objective, investments will be made in securities which as a
group appear to possess potential for appreciation in market value. Common
stocks chosen for investment may include those of companies which have a record
of sales and earnings growth that exceeds the growth rate of corporate profits
of the S&P 500 or which offer new products or new services. The policy of
investing in securities which have a high potential for growth of capital can
mean that the assets of the Fund may be subject to greater risk than securities
which do not have such potential.
Princor World Fund
The investment objective of Princor World Fund is to seek long-term growth
of capital through investment in a portfolio of equity securities of companies
domiciled in any of the nations of the world. In choosing investments in equity
securities of foreign and United States corporations, the Manager intends to pay
particular attention to long-term earnings prospects and the relationship of
then-current prices to such prospects. Short-term trading is not generally
intended, but occasional investments may be made for the purpose of seeking
short-term or medium-term gain. The Fund expects its investment objective to be
met over long periods which may include several market cycles. For a description
of certain investment risks associated with foreign securities, see "Risk
Factors."
For temporary defensive purposes, the World Fund may invest in the same
kinds of securities as the other Growth-Oriented Funds whether issued by
domestic or foreign corporations, governments, or governmental agencies,
instrumentalities or political subdivisions and whether denominated in United
States dollars or some other currency.
The Fund intends that its investments normally will be allocated among
various countries. Although there is no limitation on the percentage of assets
that may be invested in any one country or denominated in any one currency, the
Fund intends under normal market conditions to have at least 65% of its assets
invested in securities issued by corporations of at least three countries, one
of which may be the United States. Investments may be made anywhere in the
world, but it is expected that primary consideration will be given to investing
in the securities issued by corporations of Western Europe, North America and
Australasia (Australia, Japan and Far East Asia) that have developed economies.
Changes in investments may be made as prospects change for particular countries,
industries or companies.
The Fund may invest in the securities of other investment companies but may
not invest more than 10% of its assets in securities of other investment
companies, invest more than 5% of its total assets in the securities of any one
investment company, or acquire more than 3% of the outstanding voting securities
of any one investment company except in connection with a merger, consolidation
or plan of reorganization. The Fund's Manager will waive its management fee on
the Fund's assets invested in securities of other open-end investment companies.
The Fund will generally invest only in those investment companies that have
investment policies requiring investment in securities comparable in quality to
those in which the Fund invests.
INCOME-ORIENTED FUNDS
The Princor Funds that offer Class R shares currently include four Funds
which seek a high level of income through investments in fixed-income securities
and one fund which seeks current income and long-term growth of income and
capital through investments in equity and fixed-income securities of public
utilities companies. These Funds are Princor Bond Fund, Princor Government
Securities Income Fund, Princor High Yield Fund, Princor Limited Term Bond Fund
and Princor Utilities Fund, collectively referred to as the "Income-Oriented
Funds." Each Fund has rating limitations with regard to the quality of
securities that may be held in the portfolio. The rating limitations apply at
the time of acquisition of a security and any subsequent change in a rating by a
rating service will not require elimination of a security from the Fund's
portfolio. The Statement of Additional Information contains descriptions of the
ratings of Moody's Investors Service, Inc. ("Moody's") and Standard and Poor's
Corporation ("S&P").
Princor Bond Fund
The investment objective of Princor Bond Fund is to provide as high a level
of income as is consistent with preservation of capital and prudent investment
risk.
In seeking to achieve the investment objective, the Fund will predominantly
invest in marketable fixed-income securities. Investments will be made generally
on a long-term basis, but the Fund may make short-term investments from time to
time as deemed prudent by the Manager. Longer maturities typically provide
better yields but will subject the Fund to a greater possibility of substantial
changes in the values of its portfolio securities as interest rates change.
Under normal circumstances, the Fund will invest at least 65% of its assets
in bonds in one or more of the following categories: (i) corporate debt
securities and taxable municipal obligations, which at the time of purchase have
an investment grade rating within the four highest grades used by S&P (AAA, AA,
A or BBB) or by Moody's (Aaa, Aa, A or Baa) or which, if nonrated, are
comparable in quality in the opinion of the Fund's Manager; (ii) similar
Canadian corporate, Provincial and Federal Government securities payable in U.S.
funds; and (iii) securities issued or guaranteed by the United States Government
or its agencies or instrumentalities. The balance of the Fund's assets may be
invested in the following securities: domestic and foreign corporate debt
securities, preferred stocks, common stocks that provide returns that compare
favorably with the yields on fixed income investments, common stocks acquired
upon conversion of debt securities or preferred stocks or upon exercise of
warrants acquired with debt securities or otherwise and foreign government
securities. The debt securities and preferred stocks in which the Fund invests
may be convertible or nonconvertible. Securities rated below BBB or Baa are
commonly referred to as junk bonds. The Fund does not intend to purchase debt
securities rated lower than Ba3 by Moody's or BB- by S&P (bonds which are judged
to have speculative elements; their future cannot be considered as
well-assured). The rating services' descriptions of BBB or Baa securities are as
follows: Moody's Investors Service, Inc. Bond Ratings -- Baa: Bonds which are
rated Baa are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well. Standard & Poor's Corporation Bond Ratings -- BBB: Debt
rated "BBB" is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than for debt in higher-rated categories. See the discussion of the Princor High
Yield Fund for information concerning risks associated with below investment
grade bonds.
During the fiscal year ended October 31, 1995, the percentage of the Fund's
portfolio securities invested in the various ratings established by Moody's,
based upon the weighted average ratings of the portfolio, was as follows:
Moody's Rating Portfolio Percentage
Aa .97%
A 16.78
Baa 78.67
Ba 1.92
B 1.66
The above percentage for A rated securities include .39% of unrated
securities which have been determined by the Manager to be of comparable
quality.
Cash equivalents in which the Fund invests include corporate commercial
paper rated A-1+, A-1 or A-2 by S&P or P-1 or P-2 by Moody's, unrated commercial
paper issued by corporations with outstanding debt securities rated in the four
highest grades by S&P and Moody's and bank certificates of deposit and bankers'
acceptances issued or guaranteed by national or state banks and repurchase
agreements considered by the Fund to have investment quality. Under unusual
market or economic conditions, the Fund for temporary defensive purposes may
invest up to 100% of its assets in cash or cash equivalents.
Princor Government Securities Income Fund
The objective of Princor Government Securities Income Fund is a high level
of current income, liquidity and safety of principal.
The Fund will invest in obligations issued or guaranteed by the United
States Government or by its agencies or instrumentalities and in repurchase
agreements collateralized by such obligations. Such securities include
Government National Mortgage Association ("GNMA") Certificates of the modified
pass-through type, Federal National Mortgage Association ("FNMA") Obligations,
Federal Home Loan Mortgage Corporation ("FHLMC") Certificates and Student Loan
Marketing Association ("SLMA") Certificates and other U.S. Government
Securities. GNMA is a wholly-owned corporate instrumentality of the United
States whose securities and guarantees are backed by the full faith and credit
of the United States. FNMA, a federally chartered and privately-owned
corporation, FHLMC, a federal corporation, and SLMA, a government sponsored
stockholder-owned organization, are instrumentalities of the United States. The
securities and guarantees of FNMA, FHLMC and SLMA are not backed, directly or
indirectly, by the full faith and credit of the United States. Although the
Secretary of the Treasury of the United States has discretionary authority to
lend FNMA up to $2.25 billion outstanding at any time, neither the United States
nor any agency thereof is obligated to finance FNMA's or FHLMC's operations or
to assist FNMA or FHLMC in any other manner. The Fund may maintain reasonable
amounts of cash or short-term debt securities not issued or guaranteed by the
U.S. Government or its agencies or instrumentalities for daily cash management
purposes or pending selection of long-term investments.
Depending on market conditions, a substantial portion of the assets may be
invested in GNMA Certificates of the modified pass-through type and in
repurchase agreements collateralized by such obligations. GNMA is a United
States Government corporation within the Department of Housing and Urban
Development. GNMA Certificates are mortgage-backed securities representing an
interest in a pool of mortgage loans. Such loans are made by lenders such as
mortgage bankers, insurance companies, commercial banks and savings and loan
associations. Then, they are either insured by the Federal Housing
Administration (FHA) or they are guaranteed by the Veterans Administration (VA)
or Farmers Home Administration (FmHA). The lender or other prospective issuer
creates a specific pool of such mortgages, which it submits to GNMA for
approval. After approval, a GNMA Certificate is typically offered by the issuer
to investors through securities dealers.
GNMA Certificates differ from bonds in that the principal is scheduled to
be paid back by the borrower on a monthly basis over the life of the loan rather
than returned in a lump sum at maturity. Modified pass-through GNMA
Certificates, which are the only kind in which the Fund intends to invest,
entitle the holder to receive all interest and principal payments owed on the
mortgages in the pool (net of the issuer and GNMA fee of .5% prescribed by
regulation), regardless of whether or not the mortgagor has made such payment.
The timely payment of interest and principal is guaranteed by the full faith and
credit of the United States Government.
Although the payment of interest and principal is guaranteed, the guarantee
does not extend to the value of a GNMA Certificate or the value of the shares of
the Fund. The market value of a GNMA Certificate typically will fluctuate to
reflect changes in prevailing interest rates. It falls when rates increase (as
does the market value of other debt securities) and it rises when rates decline
(but it may not rise on a comparable basis with other debt securities because of
its prepayment feature), and, therefore, may be more or less than the face
amount of the GNMA Certificate, which reflects the aggregate principal amount of
the underlying mortgages. As a result the net asset value of Fund shares will
fluctuate as interest rates change.
Mortgagors may pay off their mortgages at any time. Expected prepayments of
the mortgages can affect the market value of the GNMA Certificate, and actual
prepayments can affect the return ultimately received. Prepayments, like
scheduled payments of principal, are reinvested by the Fund at prevailing
interest rates which may be less than the rate on the GNMA Certificate.
Prepayments are likely to increase as the interest rate for new mortgages moves
lower than the rate on the GNMA Certificate. Moreover, if the GNMA Certificate
had been purchased at a premium above principal because its rate exceeded
prevailing rates, the premium is not guaranteed and a decline in value to par
may result in a loss of the premium especially in the event of prepayment.
The FNMA and FHLMC securities in which the Fund invests are very similar to
GNMA certificates as described above but are not guaranteed by the full faith
and credit of the United States but rather by the agency itself. FNMA and FHLMC
securities are rated Aaa by Moody's and AAA by Standard & Poor's. These ratings
reflect the status of FNMA and FHLMC as federal agencies as well as the
important role each plays in financing purchases of homes in the U.S.
Student Loan Marking Association is a government sponsored
stockholder-owned organization whose goal is to provide liquidity to financial
and educational institutions. SLMA provides liquidity by purchasing student
loans, which are principally government guaranteed loans issued under the
Federal Guaranteed Student Loan Program and the Health Education Assistance Loan
Program. SLMA securities are not guaranteed by the U.S. Government but are
obligations solely of the agency. SLMA senior debt issues in which the Fund
invests are rated AAA by Standard & Poor's and Aaa by Moody's.
There are other obligations issued or guaranteed by the United States
Government (such as U.S. Treasury securities) or by its agencies or
instrumentalities that are either supported by the full faith and credit of the
U.S. Treasury or the credit of a particular agency or instrumentality. Included
in the latter category are Federal Home Loan Bank and Farm Credit Banks.
Obligations not guaranteed by the United States Government are highly rated
because they are issued by indirect branches of government. Such paper is issued
as needs arise by an agency and is traded regularly in denominations similar to
those in which government obligations are traded.
The Fund will not engage in the trading of securities for the purpose of
realizing short-term profits, but it will adjust its portfolio as considered
advisable in view of prevailing or anticipated market conditions and the Fund's
investment objective. Accordingly, the Fund may sell portfolio securities in
anticipation of a rise in interest rates and purchase securities for inclusion
in its portfolio in anticipation of a decline in interest rates.
As a hedge against changes in interest rates, the Fund may enter into
contracts with dealers in GNMA Certificates whereby the Fund agrees to purchase
or sell an agreed-upon principal amount of GNMA Certificates at a specified
price on a certain date. The Fund may enter into similar purchase agreements
with issuers of GNMA Certificates other than Principal Mutual Life Insurance
Company. The Fund may also purchase optional delivery standby commitments which
give the Fund the right to sell particular GNMA Certificates at a specified
price on a specified date. Failure of the other party to such a contract or
commitment to abide by the terms thereof could result in a loss to the Fund. To
the extent the Fund engages in delayed delivery transactions it will do so for
the purpose of acquiring portfolio securities consistent with its investment
objective and policies and not for the purpose of investment leverage or to
speculate on interest rate changes. Liability accrues to the Fund at the time it
becomes obligated to purchase such securities, although delivery and payment
occur at a later date. From the time the Fund becomes obligated to purchase
securities on a delayed delivery basis, the Fund has all the rights and risks
attendant to the ownership of a security except that no interest accrues to the
purchaser until delivery. At the time the Fund enters into a binding obligation
to purchase such securities, Fund assets of a dollar amount sufficient to make
payment for the securities to be purchased will be segregated. The availability
of liquid assets for this purpose and the effect of asset segregation on the
Fund's ability to meet its current obligations, to honor requests for redemption
and to have its investment portfolio managed properly will limit the extent to
which the Fund may engage in forward commitment agreements. Except as may be
imposed by these factors, there is no limit on the percent of the Fund's total
assets that may be committed to transactions in such agreements.
Princor High Yield Fund
Princor High Yield Fund's primary investment objective is high current
income. Capital growth is a secondary objective when consistent with the
objective of high current income. This Fund is designed for investors willing to
assume additional risk in return for above average income.
In seeking to attain the Fund's objective of high current income, the Fund
invests primarily in high yielding, lower or nonrated fixed-income securities
(commonly known as "junk bonds"), constituting a diversified portfolio which the
Fund Manager believes does not involve undue risk to income or principal.
Normally, at least 80% of the Fund's assets will be invested in debt securities,
convertible securities (both debt and preferred stock) or preferred stocks that
are consistent with its primary investment objective of high current income. The
Fund's remaining assets may be invested in common stocks and other equity
securities in which the Growth-Oriented Funds may invest when these types of
investments are consistent with the objective of high current income.
The Fund seeks to invest its assets in securities rated Ba1 or lower by
Moody's or BB+ or lower by S&P or in unrated securities which the Fund's Manager
believes are of comparable quality. These securities are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
interest and to repay principal in accordance with the terms of the obligation.
The Fund will not invest in securities rated below Caa by Moody's and below CCC
by S&P.
The rating services' descriptions of securities rating categories in which
the Fund may normally invest are as follows:
Moody's Investors Service, Inc. Bond Ratings - Ba: Bonds which are rated Ba
are judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class. B:
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Moody's may apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and a modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Standard & Poor's Corporation Bond Ratings - BB, B, CCC, CC: Debt rated
"BB", "B", "CCC" and "CC" is regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Plus (+) or Minus (-): The ratings from "AA" to "BB" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
The higher-yielding, lower-rated securities in which the High Yield Fund
invests present special risks to investors. The market value of lower-rated
securities may be more volatile than that of higher-rated securities and
generally tends to reflect the market's perception of the creditworthiness of
the issuer and short-term market developments to a greater extent than more
highly-rated securities, which reflect primarily fluctuations in general levels
of interest rates. Periods of economic uncertainty and change can be expected to
result in increased volatility in the market value of lower-rated securities.
Further, such securities may be subject to greater risks of loss of income and
principal, particularly in the event of adverse economic changes or increased
interest rates, because their issuers generally are not as financially secure or
as creditworthy as issuers of higher-rated securities. Additionally, to the
extent that there is not a national market system for secondary trading of
lower-rated securities, there may be a low volume of trading in such securities
which may make it more difficult to value or sell those securities than
higher-rated securities. Adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may decrease the values and liquidity of high
yield securities, especially in a thinly traded market.
Investors should recognize that the market for higher-yielding, lower-rated
securities is a relatively recent development that has not been tested by an
economic recession. An economic downturn may severely disrupt the market for
such securities and cause financial stress to the issuers which may adversely
affect the value of the securities held by the High Yield Fund and the ability
of the issuers of the securities held by it to pay principal and interest. A
default by an issuer may result in the Fund incurring additional expenses to
seek recovery of the amounts due it.
Some of the securities in which the Fund invests contain call provisions.
If the issuer of such a security exercises a call provision in a declining
interest rate market, the Fund would have to replace the security with a
lower-yielding security, resulting in a decreased return for investors. Further,
a higher-yielding security's value will decrease in a rising interest rate
market, which will be reflected in the Fund's net asset value per share.
Investors should carefully consider their ability to assume the risks of
investing in lower-rated securities before making an investment in the Fund, and
should be prepared to maintain their investment during periods of adverse market
conditions. Investors should not rely on the Fund for their short-term financial
needs.
The Fund seeks to minimize the risks of investing in lower-rated securities
through diversification, investment analysis and attention to current
developments in interest rates and economic conditions. Because the Fund invests
primarily in securities in the lower rating categories, the achievement of the
Fund's goals is more dependent on the Manager's ability than would be the case
if the Fund were investing in securities in the higher rating categories.
Although the Fund's Manager considers security ratings when making investment
decisions, it performs its own investment analysis and does not rely principally
on the ratings assigned by the rating services. There are risks in applying
credit ratings as a method for evaluating high yield securities. For example,
credit ratings evaluate the safety of principal and interest payments, not the
market value risk of high yield securities, and credit rating agencies may fail
to make timely changes in credit ratings to reflect subsequent events. The
Manager's analysis includes traditional security analysis considerations such as
the issuer's experience and managerial strength, changing financial condition,
borrowing requirements or debt maturity schedules, and its responsiveness to
changes in business conditions and interest rates. It also considers relative
values based on anticipated cash flow, interest or dividend coverage, asset
coverage and earnings prospects. In addition, the Manager analyzes general
business conditions and other factors such as anticipated changes in economic
activity and interest rates, the availability of new investment opportunities,
and the economic outlook for specific industries. The Manager continuously
monitors the issuers of portfolio securities to determine if the issuers will
have sufficient cash flow and profits to meet required principal and interest
payments and to assure the securities' liquidity so the Fund can meet redemption
requests. During the fiscal year ended October 31, 1995, the percentage of the
Fund's portfolio securities invested in the various ratings established by
Moody's, based upon the weighted average ratings of the portfolio, was as
follows:
Moody's Rating Portfolio Percentage
Baa 2.27%
Ba 41.53
B 55.72
C .48
The above percentages for Ba and B rated securities include unrated
securities in the amount of .65% and .34%, respectively, which have been
determined by the Manager to be of comparable quality.
There may be times when, in the Manager's judgment, unusual market or
economic conditions make pursuing the Fund's basic investment strategy
inconsistent with the best interests of its shareholders. At such times the
Manager may employ alternative strategies, primarily seeking to reduce
fluctuations in the value of the Fund's assets. In implementing these
"defensive" strategies, the Fund may temporarily invest in money-market
instruments of all types, higher-rated fixed-income securities or any other
fixed-income securities that the Fund considers consistent with such strategy.
The yield to maturity on these securities would generally be lower than the
yield to maturity on lower-rated fixed-income securities. It is impossible to
predict when, or for how long, such alternative strategies will be utilized.
The Fund's Manager buys and sells securities for the Fund principally in
response to its evaluation of an issuer's continuing ability to meet its
obligations, the availability of better investment opportunities, and its
assessment of changes in business conditions and interest rates. From time to
time, consistent with its investment objectives, the Fund may sell securities
that have appreciated in value because of declines in interest rates. It may
also trade securities for the purpose of seeking short-term profits. Securities
may be sold in anticipation of a market decline or bought in anticipation of a
market rise. They may also be traded for securities of comparable quality and
maturity to take advantage of perceived short-term disparities in market values
or yields.
Princor Limited Term Bond Fund
The objective of Princor Limited Term Bond Fund is to seek a high level of
current income consistent with a relatively high level of principal stability by
investing in a portfolio of securities with a dollar weighted average maturity
of five years or less. The Fund seeks to achieve its objective by investing
primarily in high grade, short-term debt securities.
The Fund will invest, under normal circumstances, at least 80% of its total
assets in securities issued or guaranteed by the United States ("U.S.")
Government or its agencies or instrumentalities (as described in the discussion
of Princor Government Securities Income Fund) and other debt securities of U.S.
issuers rated within the three highest grades used by Standard & Poor's (AAA, AA
or A) or by Moody's (Aaa, Aa, or A) or which, if nonrated, are comparable in
quality in the opinion of the Fund's Manager. The balance of the Fund's assets
may be invested in debt securities rated in the fourth highest grade by the
major rating services (i.e., at least "Baa" by Moody's Investors Service or
"BBB" by Standard & Poor's Corporation, or their equivalents) or, if not rated,
judged to be of comparable quality. Securities rated BBB or Baa are considered
investment grade securities having adequate capacity to pay interest and repay
principal. Such securities may have speculative characteristics, however, and
changes in economic and other conditions are more likely to lead to a weakened
capacity of the issuer of such securities to make principal and interest
payments than is the case with higher rated securities. Under normal
circumstances, the Fund will maintain a dollar weighted average maturity of not
more than five years. In determining the average maturity of the Fund's
portfolio, the Manager may adjust the maturity dates on callable or prepayable
securities to reflect the Manager's judgment regarding the likelihood of such
securities being called or prepaid.
The Fund may also invest in other debt securities including corporate debt
securities such as bonds, notes and debentures, mortgage-backed securities
including collateralized mortgage obligations and other asset-backed securities.
For a more complete description of asset-backed securities, see "Princor
Government Securities Income Fund" discussion.
Cash equivalents in which the Fund invests include corporate commercial
paper rated A-1+, A-1 or A-2 by S&P or P-1 or P-2 by Moody's, unrated commercial
paper issued by corporations with outstanding debt securities rated in the four
highest grades by S&P and Moody's and bank certificates of deposit and bankers'
acceptances issued or guaranteed by national or state banks and repurchase
agreements considered by the Fund to have investment quality. Under unusual
market or economic conditions, the Fund for temporary defensive purposes may
invest up to 100% of its assets in cash or cash equivalents.
Princor Utilities Fund
The investment objective of Princor Utilities Fund is to provide current
income and long-term growth of income and capital. The Fund seeks to achieve its
investment objective by investing primarily in equity and fixed-income
securities of companies engaged in the public utilities industry. The term
"public utilities industry" consists of companies engaged in the manufacture,
production, generation, transmission, sale and distribution of gas and electric
energy, as well as companies engaged in the communications field, including
telephone, telegraph, satellite, microwave and other companies providing
communication facilities for the public, but excluding public broadcasting
companies. For purposes of the Fund, a company will be considered to be in the
public utilities industry if, during the most recent twelve-month period, at
least 50% of the company's gross revenues, on a consolidated basis, is derived
from the public utilities industry. Under normal market conditions, the Fund, as
an investment policy, will invest at least 65%, and may invest up to 100%, of
its total assets in securities of companies in the public utilities industry,
and as a matter of fundamental policy will invest no less than 25% of its total
assets in those securities. As a non-fundamental policy, the Fund may not own
more than 5% of the outstanding voting securities of more than one public
utility company as defined by the Public Utility Holding Company Act of 1935.
The Fund invests in both equity securities (as defined previously under
"Growth-Oriented Funds") and fixed- income securities (bonds and preferred
stock) in the public utilities industry. The Fund does not have any set policies
to concentrate within any particular segment of the utilities industry. The Fund
will shift its asset allocation without restriction between types of utilities
and between equity and fixed-income securities based upon the Manager's
determination of how to achieve the Fund's investment objective in light of
prevailing market, economic and financial conditions. For example, at a
particular time the Manager may choose to allocate up to 100% of the Fund's
assets in a particular type of security (for example, equity securities) or in a
specific utility industry segment (for example, electric utilities).
Fixed-income securities in which the Fund may invest are debt securities
and preferred stocks, which are rated at the time of purchase Baa or better by
Moody's or BBB or better by S&P, or which, if unrated, are deemed to be of
comparable quality by the Fund's Manager. A description of corporate bond
ratings is contained in the Appendix to the Statement of Additional Information.
The rating services' descriptions of Baa or BBB securities are as follows:
Moody's Investors Service, Inc. Bond ratings -- Baa: Bonds which are rated Baa
are considered as medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Standard and Poor's Corporation Bond Ratings -- BBB:
Debt rated "BBB" is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than for debt in higher-rated categories.
If a fixed-income security held by the Fund is rated BBB or Baa and is
subsequently down graded by a rating agency, the Fund will retain such security
in its portfolio until the Manager determines that it is practicable to sell the
security without undue market or tax consequences to the Fund.
While the Fund will invest primarily in the securities of public utility
companies, it may invest up to 35% of its total assets in those securities that
are permissible investments for the Balanced Fund. See "Princor Balanced Fund"
and "Certain Investment Policies and Restrictions." However the Fund will not
invest in fixed-income securities rated below Baa by Moody's or BBB by S&P.
When in the opinion of the Manager current market or economic conditions
warrant, the Fund may for temporary defensive purposes place all or a portion of
its assets in cash, on which the Fund would earn no income, cash equivalents,
bank certificates of deposit, bankers acceptances, repurchase agreements,
commercial paper, commercial paper master notes or United States Government
securities. When investing for temporary defensive purposes the Fund is not
investing so as to achieve its investment objective. The Fund may also maintain
reasonable amounts of cash or short-term debt securities for daily cash
management purposes or pending selection of particular long-term investments.
The public utilities industry as a whole has certain characteristics and
risks particular to that industry. Unlike industrial companies, the rates which
utility companies may charge their customers generally are subject to review and
limitation by governmental regulatory commissions. Although rate changes of a
utility usually fluctuate in approximate correlation with financing costs, due
to political and regulatory factors rate changes ordinarily occur only following
a delay after the changes in financing costs. This factor will tend to favorably
affect a utility company's earnings and dividends in times of decreasing costs,
but conversely will tend to adversely affect earnings and dividends when costs
are rising. In addition, the value of public utility debt securities (and, to a
lesser extent, equity securities) tends to have an inverse relationship to the
movement of interest rates.
Among the risks affecting the utilities industry are the following: risks
of increases in fuel and other operating costs; the high cost of borrowing to
finance capital construction during inflationary periods; restrictions on
operations and increased costs and delays associated with compliance with
environmental and nuclear safety regulations; the difficulties involved in
obtaining natural gas for resale or fuel for generating electricity at
reasonable prices; the risks in connection with the construction and operation
of nuclear power plants; the effects of energy conservation and effects of
regulatory changes, such as the possible adverse effects on profits of recent
increased competition among telecommunications companies and the uncertainties
resulting from such companies' diversification into new domestic and
international businesses, as well as agreements by many such companies linking
future rate increases to inflation or other factors not directly related to the
actual operating profits of the enterprise.
MONEY MARKET FUND
The Princor Funds currently include one Fund which seeks a high level of
income through investments in short-term securities. This Fund is Princor Cash
Management Fund referred to as the "Money Market Fund." Securities in which the
Princor Cash Management Fund will invest may not yield as high a level of
current income as securities of lower quality and longer maturities which
generally have less liquidity, greater market risk and more fluctuation.
The Fund will limit its portfolio investments to United States dollar
denominated instruments that the Manager, subject to the oversight of the Board
of Directors, determines present minimal credit risks and which at the time of
acquisition are "Eligible Securities" as that term is defined in regulations
issued under the Investment Company Act of 1940. Eligible Securities include:
(1) A security with a remaining maturity of 397 days or less that is rated
(or that has been issued by an issuer that is rated in respect to a
class of short-term debt obligations, or any security within that
class, that is comparable in priority and security with the security)
by a nationally recognized statistical rating organization in one of
the two highest rating categories for short-term debt obligations; or
(2) A security that at the time of issuance was a long-term security with a
remaining maturity of 397 calendar days or less, and whose issuer has
received from a nationally recognized statistical rating organization a
rating, with respect to a class of short-term debt obligations (or any
security within that class) that is now comparable in priority and
security with the security, in one of the two highest rating categories
for short-term debt obligations; or
(3) an unrated security that is of comparable quality to a security
meeting the requirements of (1) or (2) above, as determined by the
board of directors.
Princor Cash Management Fund will not invest more than 5% of its total
assets in the following securities:
(1) Securities which, when acquired by the Fund (either initially or upon
any subsequent rollover), are rated in the second highest rating
category for short-term debt obligations;
(2) Securities which at the time of issuance were long-term securities but
when acquired by the Fund have a remaining maturity of 397 calendar
days or less, if the issuer of such securities is rated, with respect
to a class of comparable short-term debt obligations, in the second
highest rating category for short-term obligations; and
(3) Securities which are unrated but are determined by the Fund's Board of
Directors to be of comparable quality to securities rated in the second
highest rating category for short-term debt obligations.
The Fund will maintain a dollar-weighted average portfolio maturity of 90
days or less. The Fund intends to hold its investments until maturity, but may
on occasion trade securities to take advantage of market variations. Also,
revised valuations of an issuer or redemptions may result in sales of portfolio
investments prior to maturity or at a time when such sales might otherwise not
be desirable. The Fund's right to borrow to facilitate redemptions may reduce
the need for such sales. The sale of portfolio securities would be a taxable
event. See "Tax Treatment of the Funds, Dividends and Distributions." It is the
policy of the Fund to be as fully invested as reasonably practical at all times
to maximize current income.
Since portfolio assets of the Fund will consist of short-term instruments,
replacement of portfolio securities will occur frequently. However, since this
Fund expects to usually transact purchases and sales of portfolio securities
with issuers or dealers on a net basis, it is not anticipated that the Fund will
pay any significant brokerage commissions. The Fund is free to dispose of
portfolio securities at any time, when changes in circumstances or conditions
make such a move desirable in light of its investment objective.
The objective of Princor Cash Management Fund is to seek as high a level of
current income available from short-term securities as is considered consistent
with preservation of principal and maintenance of liquidity by investing its
assets in a portfolio of money market instruments. These money market
instruments are U.S. Government Securities, U.S. Government Agency Securities,
Bank Obligations, Commercial Paper, Short-term Corporate Debt and Repurchase
Agreements, which are described briefly below and in more detail in the
Statement of Additional Information.
U.S. Government Securities are securities issued or guaranteed by the U.S.
Government, including treasury bills, notes and bonds.
U.S. Government Agency Securities are obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government whether supported by the
full faith and credit of the U.S. Treasury or only by the credit of a particular
agency or instrumentality.
Bank Obligations consist of certificates of deposit which are generally
negotiable certificates issued against funds deposited in a commercial bank for
a definite period of time and earning a specified return and bankers acceptances
which are time drafts drawn on a commercial bank by a borrower, usually in
connection with international commercial transactions.
Commercial Paper is short-term promissory notes issued by corporations
primarily to finance short-term credit needs.
Short-term Corporate Debt consists of notes, bonds or debentures which at
the time of purchase have one year or less remaining to maturity.
Repurchase Agreements are transactions under which securities are purchased
from a bank or securities dealer with an agreement by the seller to repurchase
the securities at the same price plus interest at a specified rate. Generally,
Repurchase Agreements are of short duration, usually less than a week but on
occasion for longer periods.
CERTAIN INVESTMENT POLICIES AND RESTRICTIONS
Following is a discussion of certain investment practices that the Funds
may use in an effort to achieve their respective investment objectives.
Repurchase Agreements/Lending Portfolio Securities
Each of the Funds may enter into repurchase agreements with, and each of
the Funds, except the Capital Accumulation Fund, Growth Fund and Cash Management
Fund, may lend its portfolio securities to, unaffiliated broker-dealers and
other unaffiliated qualified financial institutions. These transactions must be
fully collateralized at all times, but involve some credit risk to the Fund if
the other party should default on its obligations, and the Fund is delayed or
prevented from recovering on the collateral. See the Statement of Additional
Information for further information regarding the credit risks associated with
repurchase agreements and the standards adopted by each Fund's Board of
Directors to deal with those risks. None of the Funds intends either (i) to
enter into repurchase agreements that mature in more than seven days if any such
investment, together with any other illiquid securities held by the Fund, would
amount to more than 15% (10% for the Government Securities Income Fund) of its
total assets or (ii) to lend securities in excess of 30% of its total assets.
Forward Commitments
From time to time, each of the Income-Oriented Funds and the Balanced Fund
may enter into forward commitment agreements which call for the Fund to purchase
or sell a security on a future date and at a price fixed at the time the Fund
enters into the agreement. Each of these Funds may also acquire rights to sell
its investments to other parties, either on demand or at specific intervals.
Warrants
Each of the Funds, except the Cash Management Fund and Government
Securities Income Fund, may invest in warrants up to 5% of its assets, of which
not more than 2% may be invested in warrants that are not listed on the New York
or American Stock Exchange. For the World Fund, the 2% limitation also applies
to warrants not listed on the Toronto Stock Exchange.
Borrowing
As a matter of fundamental policy, each Fund may borrow money only for
temporary or emergency purposes. Each of the Funds, except the Balanced Fund,
Blue Chip Fund, Bond Fund, Emerging Growth Fund, Government Securities Income
Fund, High Yield Fund, Limited Term Bond Fund, Utilities Fund and World Fund,
may borrow only from banks. Further, each Fund may borrow only in an amount not
exceeding 5% of its assets, except:
(1) the Capital Accumulation Fund and Growth Fund, each of which may borrow
only in an amount not exceeding the lesser of (i) 5% of the value of
its assets less liabilities other than such borrowings, or (ii) 10% of
its assets taken at cost at the time the borrowing is made; and
(2) the Cash Management Fund which may borrow only in an amount not
exceeding the lesser of (i) 5% of the value of its assets, or (ii) 10%
of the value of its net assets taken at cost at the time the borrowing
is made.
Options
The Balanced Fund, Blue Chip Fund, Bond Fund, Emerging Growth Fund,
Government Securities Income Fund, High Yield Fund, Limited Term Bond Fund,
Utilities Fund and World Fund may purchase covered spread options, which would
give the Fund the right to sell a security that it owns at a fixed dollar spread
or yield spread in relationship to another security that the Fund does not own,
but which is used as a benchmark. These same Funds may also purchase and sell
financial futures contracts, options on financial futures contracts and options
on securities and securities indices, but will not invest more than 5% of their
assets in the purchase of options on securities, securities indices and
financial futures contracts or in initial margin and premiums on financial
futures contracts and options thereon. The Funds may write options on securities
and securities indices to generate additional revenue and for hedging purposes
and may enter into transactions in financial futures contracts and options on
those contracts for hedging purposes.
General
The Statement of Additional Information includes further information
concerning the Funds' investment policies and applicable investment
restrictions. The investment objectives of the Funds are fundamental and certain
investment restrictions designated as such in this Prospectus or in the
Statement of Additional Information are fundamental policies that may not be
changed without approval by the holders of the lesser of: (i) 67% of the Fund's
shares present or represented at a shareholders' meeting at which the holders of
more than 50% of such shares are present or represented by proxy; or (ii) more
than 50% of the outstanding shares of the Fund. All other investment policies
described in this Prospectus and the Statement of Additional Information are not
fundamental and may be changed by the Board of Directors of the appropriate Fund
without shareholder approval.
RISK FACTORS
An investment in any of the Growth-Oriented Funds involves the financial
and market risks that are inherent in any investment in equity securities. These
risks include changes in the financial condition of issuers, in economic
conditions generally and in the conditions in securities markets. They also
include the extent to which the prices of securities will react to those
changes.
An investment in any of the Income-Oriented Funds involves market risks
associated with movements in interest rates. The market value of the Funds'
investments will fluctuate in response to changes in interest rates and other
factors. During periods of falling interest rates, the values of outstanding
long-term fixed-income securities generally rise. Conversely, during periods of
rising interest rates, the values of such securities generally decline. Changes
by recognized rating agencies in their ratings of any fixed-income security and
in the ability of an issuer to make payments of interest and principal may also
affect the value of these investments. Changes in the value of portfolio
securities will affect the Funds' net asset values but will not affect cash
income derived from the securities unless a change results from a failure of an
issuer to pay interest or principal when due.
The yields on an investment in the Cash Management Fund will vary with
changes in short-term interest rates. In addition, the investments of the Cash
Management Fund are subject to the ability of the issuer to pay interest and
principal when due.
Each of the following Princor Funds may invest in foreign securities to the
indicated percentage of its assets: World Fund - 100%; Balanced, Blue Chip,
Bond, Capital Accumulation, Emerging Growth, High Yield, Limited Term Bond Fund,
and Utilities Funds - 20%. The Government Securities Income Fund may not invest
in foreign securities. Investment in foreign securities presents certain risks
which may affect a Fund's net asset value. These risks include, but are not
limited to, those resulting from fluctuations in currency exchange rates,
revaluation of currencies, the imposition of foreign taxes, the withholding of
taxes on dividends at the source, political and economic developments including
war, expropriations, nationalization, the possible imposition of currency
exchange controls and other foreign governmental laws or restrictions, reduced
availability of public information concerning issuers, and the fact that foreign
issuers are not generally subject to uniform accounting, auditing and financial
reporting standards or to other regulatory practices and requirements comparable
to those applicable to domestic issuers. Moreover, securities of many foreign
issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers. In addition, transactions in foreign securities may
be subject to higher costs, and the time for settlement of transactions in
foreign securities may be longer than the settlement period for domestic
issuers. A Fund's investment in foreign securities may also result in higher
custodial costs and the costs associated with currency conversions.
HOW THE FUNDS ARE MANAGED
Under Maryland law, the business and affairs of each of the Funds are
managed under the direction of its Board of Directors. Investment services and
certain other services are furnished to the Funds under the terms of a
Management Agreement between each of the Funds and the Manager. The Manager for
the Funds is Princor Management Corporation (the "Manager"), an indirectly
wholly-owned subsidiary of Principal Mutual Life Insurance Company, a mutual
life insurance company organized in 1879 under the laws of the State of Iowa.
The address of the Manager is The Principal Financial Group, Des Moines, Iowa
50392. The Manager was organized on January 10, 1969, and since that time has
managed various mutual funds sponsored by Principal Mutual Life Insurance
Company. As of January 31, 1996, the Manager served as investment advisor for 26
such funds with assets totaling approximately $3.0 billion.
The Manager has executed an agreement with Invista Capital Management, Inc.
("Invista") under which Invista has agreed to assume the obligations of the
Manager to provide investment advisory services for each of the Growth-Oriented
Funds, the Government Securities Income Fund, Limited Term Bond Fund, and
Utilities Fund. The Manager will reimburse Invista for the cost of providing
these services. Invista, an indirectly wholly-owned subsidiary of Principal
Mutual Life Insurance Company and an affiliate of the Manager, was founded in
1985 and manages investments for institutional investors, including Principal
Mutual Life. Assets under management at December 31, 1995 were approximately
$15.6 billion. Invista's address is 1500 Hub Tower, 699 Walnut, Des Moines, Iowa
50309.
The Manager or Invista advises the Funds on investment policies and on the
composition of the Funds' portfolios. In this connection, the Manager or Invista
furnishes to the Board of Directors of each Fund a recommended investment
program consistent with that Fund's investment objective and policies. The
Manager or Invista is authorized, within the scope of the approved investment
program, to determine which securities are to be bought or sold, and in what
amounts.
The Manager or Invista has assigned certain individuals the primary
responsibility for the day-to-day management of each Fund's portfolio. The
persons primarily responsible for the day-to-day management of each Fund are
identified in the table below:
<TABLE>
<CAPTION>
Primarily
Fund Responsible Since Person Primarily Responsible
<S> <C> <C>
Balanced April, 1993 Judith A. Vogel, CFA (BA degree, Central College). Vice President,
Invista Capital Management, Inc. since 1987.
Blue Chip March, 1991 Mark T. Williams, CFA (MBA degree, Drake University). Investment
(Fund's inception) Officer, Invista Capital Management, Inc., since 1992; Security Analyst
1989-1992. Prior thereto, Financial Analyst, Digital Equipment Corporation.
Bond December, 1987 Donald D. Brattebo (BBA degree, Upper Iowa University). Second Vice
(Fund's inception) President, Principal Mutual Life Insurance Company since 1990; Prior thereto,
Director, Investment Securities.
Capital Accumulation October, 1969 David L. White, CFA (BBA degree, University of Iowa). Executive Vice
(Fund's inception) President, Invista Capital Management, Inc. since 1984.
Emerging Growth and December, 1987 Michael R. Hamilton, (MBA degree, Bellarmine College). Vice President,
Growth (Fund's inception) Invista Capital Management, Inc. since 1987.
and August, 1987,
respectively
Government Securities May, 1985 Martin J. Schafer (BBA degree, University of Iowa). Vice President, Invista
Income (Fund's inception) Capital Management Company since 1992. Director - Securities Trading, Principal
Mutual Life Insurance Company 1992; Prior thereto, Associate Director.
High Yield December, 1987 James K. Hovey, CFA (MBA degree University of Iowa). Director - Investment
(Fund's inception) Securities, Principal Mutual Life Insurance Company since 1990; Prior thereto,
Assistant Director Investment Securities.
Limited Term Bond February, 1996 Martin J. Schafer (BBA degree, University of Iowa). Vice President, Invista
(Fund's inception) Capital Management Company since 1992. Director-Securities Trading,
Principal Mutual Life Insurance Company 1992; Prior thereto, Associate
Director.
Utilities April, 1993 Catherine A. Green, CFA, (MBA degree, Drake University). Vice President,
Invista Capital Management, Inc. since 1987.
World April, 1994 Scott D. Opsal, CFA, (MBA degree, University of Minnesota). Vice President,
Invista Capital Management, Inc. since 1987.
</TABLE>
Until August 1, 1988 the World Fund's portfolio was managed by Principal
Management, Inc. of Edmonton, Canada and Scottsdale, Arizona, which company has
changed its name to Sea Investment Management, Inc. The Fund's previous manager
and the current manager are unaffiliated. This change in managers should be kept
in mind when reviewing historical investment results.
For a description of the investment and other services provided by the
Manager, see "Cost of Manager's Services" in the Statement of Additional
Information. The management fee and total Class A share expenses incurred by
each Fund for the period ended October 31, 1995 were equal to the following
percentages of each Fund's respective average net assets:
<TABLE>
<CAPTION>
Total Total
Class A Share Class A Share
Manager's Annualized Manager's Annualized
Fund Fee Expenses Fund Fee Expenses
<S> <C> <C> <C> <C> <C>
Balanced .60% 1.37% Government Securities Income .46% .87%
Blue Chip .50% 1.38% Growth .48% 1.16%
Bond.50% .94%*High Yield .60% 1.45%
Capital Accumulation .45% .75% Utilities .60% 1.04%*
Cash Management .38% .72%* World .74% 1.63%
Emerging Growth .64% 1.47%
*After waiver.
</TABLE>
The Manager voluntarily waived a portion of its fee for the Bond, Cash
Management and Utilities Funds throughout the fiscal year ended October 31,
1995. The Manager intends to continue its voluntary waiver and, if necessary,
pay expenses normally payable by each of these Funds except the Utilities Fund,
through February 28, 1997 in an amount that will maintain a total level of
operating expenses which as a percentage of average net assets attributable to a
class on an annualized basis during that period will not exceed, for the Class A
shares, .95% for the Bond Fund and .75% for the Cash Management Fund, and for
the Class R shares, 1.45% for the Bond Fund and 1.50% for the Cash Management
Fund. The Manager continued its voluntary waiver for the Utilities Fund through
February 29, 1996 in an amount that maintained a total level of operating
expenses which as a percent of average net assets attributable to a class on an
annualized basis during the period did not exceed 1.10% for the Class A shares.
The effect of the waivers is and will be to reduce each Fund's annual operating
expenses and increase each Fund's yield.
The Manager's annual fee for the Limited Term Bond Fund is .50% of the
Fund's average net assets. The Manager intends to voluntarily waive its fee and,
if necessary, pay expenses normally payable by the Limited Term Bond Fund
through February 28, 1997 in such amounts that will maintain a total level of
operating expenses which as a percent of average net assets attributable to a
class on an annualized basis will not exceed .90% for Class A shares and 1.40%
for Class R shares.
The compensation being paid by the World Fund for investment management
services, which currently is equal, on an annual basis, to .75% of the average
daily value of the Fund's net assets, is higher than that paid by most funds to
their advisors, but it is not higher than the fees paid by many funds with
similar investment objectives and policies.
The Manager and Invista may purchase at their own expense statistical and
other information or services from outside sources, including Principal Mutual
Life Insurance Company. An Investment Service Agreement between each Fund, the
Manager, and Principal Mutual Life Insurance Company provides that Principal
Mutual Life Insurance Company will furnish certain personnel, services and
facilities required by the Manager in connection with its performance of the
Management Agreements, and that the Manager will reimburse Principal Mutual Life
Insurance Company for its costs incurred in this regard.
Among the expenses paid by each Fund are brokerage commissions on portfolio
transactions, the cost of stock issue and transfer and dividend disbursements,
administration of shareholder accounts, custodial fees, expenses of registering
and qualifying shares for sale after the initial registration, auditing and
legal expenses, fees and expenses of unaffiliated directors, the cost of
shareholder meetings and taxes and interest (if any).
The Funds may from time to time execute transactions for portfolio
securities with, and pay related brokerage commissions to, Principal Financial
Securities, Inc. ("PFS") and Morgan Stanley and Co., each a broker-dealer
affiliated with Princor and/or the Manager for each of the Funds. PFS also
provides distribution services for Princor Cash Management Fund for which it is
compensated by the Manager. These services include, but are not limited to,
providing office space, equipment, telephone facilities and various personnel as
necessary or beneficial to establish and maintain shareholder accounts. PFS
receives a fee from the Manager calculated as a percentage of the average net
asset value of shares of the Fund held in PFS client accounts during the period
for which PFS provides the services. During the fiscal years ended October 31,
1993, 1994, and 1995, PFS received fees in the amount of $516,939, $539,662, and
$991,520 respectively, in consideration of the services it rendered to the Cash
Management Fund.
The Manager serves as investment advisor, dividend disbursing agent and,
directly and through an affiliate, as transfer agent for each of the Funds
sponsored by Principal Mutual Life Insurance Company. The Funds reimburse the
Manager for the costs of providing these services.
HOW TO PURCHASE SHARES
Purchases are generally made by completing an Princor IRA application
included with this Prospectus and mailing it to Princor. Shares will be issued
at the offering price next computed after the application is received at
Princor's main office and Princor receives the amount to be invested. Generally,
the initial amount to be invested will be directly transferred to Princor from
the retirement plan in which the investor participates. However, in some cases
the investor will purchase shares by check. If investing by check, shares will
be issued at the offering price next computed after the completed application
and check are received at Princor's main office. Subsequent purchases will be
executed at the price next computed after receipt of the investor's check at
Princor's main office. All orders are subject to acceptance by the Fund or Funds
and Princor.
Redemptions by shareholders investing by check will be effected only after
payment has been collected on the check, which may take up to eight days or
more. Investors considering redeeming or exchanging shares or transferring
shares to another person shortly after purchase should pay for those shares with
a certified check, bank cashier's check or money order to avoid any delay in
redemption, exchange or transfer.
Class R shares of the Cash Management Fund may be purchased only by an
exchange from Class R shares of the Princor Funds.
Minimum Purchase Amount. An investor may open an account with any of the
Funds with a minimum initial investment of $250. Additional investments of $50
or more for a Growth-Oriented or Income-Oriented Fund or $100 or more for the
Cash Management Fund may be made at any time without completing a new
application. The minimum initial and subsequent investment amounts are not
applicable to accounts designated as receiving accounts in a Dividend Relay
Election. Each Fund's Board of Directors reserves the right to change or waive
minimum investment requirements at any time, which would be applicable to all
investors alike.
Each Fund described in this Prospectus offers investors three classes of
shares which bear sales charges in different forms and amounts, Class A shares,
Class B shares and Class R shares. Only Class R shares are offered through this
Prospectus. Class A shares are described herein only because Class R shares
convert to Class A shares as described below.
Class R Shares. Class R shares are purchased without an initial sales
charge or a contingent deferred sales charge ("CDSC"). Class R shares bear a
higher 12b-1 fee than Class A shares, currently at the annual rate of up to .75%
of the Fund's average net assets attributable to Class R shares. See
"Distribution and Shareholder Servicing Plans and Fees." Class R shares provide
an investor the benefit of putting all of the investor's dollars to work from
the time the investment is made, but (until conversion to Class A shares) will
have a higher expense ratio and pay lower dividends than Class A shares due to
the higher 12b-1 fee. Class R shares will automatically convert to Class A
shares, based on relative net asset value (without a sales charge), on the first
business day of the 49th month after the purchase date. Class R shares acquired
by exchange from Class R shares of another Princor fund will convert into Class
A shares based on the time of the initial purchase. (See "How to Exchange
Shares".) At the same time, a pro rata portion of all shares purchased through
reinvestment of dividends and distributions would convert into Class A shares,
with that portion determined by the ratio that the shareholder's Class R shares
converting into Class A shares bears to the shareholder's total Class R shares
that were not acquired through dividends and distributions. The conversion of
Class R shares to Class A shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel that such
conversions will not constitute taxable events for Federal tax purposes. There
can be no assurance that such ruling or opinion will be available, and the
conversion of Class R shares to Class A shares will not occur if such ruling or
opinion is not available. In such event, Class R shares would continue to be
subject to higher expenses than Class A shares for an indefinite period.
Class A Shares. An investor who invests less than $1 million in Class A
shares (except Class A shares of the Cash Management Fund) pays a sales charge
at the time of purchase. Certain purchases of Class A shares qualify for reduced
sales charges. Class A share purchases of $1 million or more are not subject to
a sales charge at the time of purchase, but are subject to a contingent deferred
sales charge if redeemed within 18 months of purchase. Class A shares of each of
the Funds, except the Cash Management Fund, currently bear a 12b-1 fee at the
annual rate of up to 0.25% (0.15% for the Limited Term Bond Fund) of the Fund's
average net assets attributable to Class A shares. See "Distribution and
Shareholder Servicing Plans and Fees."
OFFERING PRICE OF FUNDS' SHARES
The Funds offer their respective shares continuously through Princor, which
is the principal underwriter for the Funds and sells shares as agent on behalf
of the Funds. Princor may select other dealers through which shares of the Funds
may be sold. Certain dealers may not sell all classes of shares.
Class R shares. Class R shares are sold to eligible purchasers at net asset
value; no front-end load or contingent deferred sales charge applies to the
purchase of Class R shares. Class R shares are offered only through Princor and
other dealers it selects.
Class A shares. Class A shares of Princor Cash Management Fund are sold to
the public at net asset value; no sales charge applies to such purchases. Class
R shares convert to Class A shares at NAV, without a sales charge, as previously
described. Class A shares of the Growth-Oriented and Income-Oriented Funds are
sold to the public at the net asset value plus a sales charge which ranges from
a high 4.75% (1.50% for the Limited Term Bond Fund) to a low of 0% of the
offering price (equivalent to a range of 4.99% to 0% of the net amount invested)
according to the schedule below. Selected dealers are allowed a concession as
shown. At Princor's discretion, the entire sales charge may at times be
reallowed to dealers. In some situations, depending on the services provided by
the dealer, the concession may be less. Any dealer allowance on purchases not
involving a sales charge will be determined by Princor.
<PAGE>
<TABLE>
<CAPTION>
Sales Charge for All Funds Sales Charge for
Except Limited Term Bond Fund Limited Term Bond Fund
Sales Charge Sales Charge Dealers Allowances as
as % of: as % of: % of Offering Price
All Funds
Net Net Except Limited
Offering Amount Offering Amount Limited Term Term
Price Invested Price Invested Bond Bond
<S> <C> <C> <C> <C> <C> <C>
Less than $50,000 4.75% 4.99% 1.50% 1.52% 4.00% 1.25%
$50,000 but less than $100,000 4.25% 4.44% 1.25% 1.27% 3.75% 1.00%
$100,000 but less than $250,000 3.75% 3.90% 1.00% 1.10% 3.25% .75%
$250,000 but less than $500,000 2.50% 2.56% 0.75% 0.76% 2.00% .50%
$500,000 but less than $1,000,000 1.50% 1.52% 0.50% 0.50% 1.25% .25%
$1,000,000 or more 0 0 0 0 .75% .25%
</TABLE>
CDSC on Class A Shares. Purchases of Class A shares of $1,000,000 or more
may be subject to CDSC upon redemption. A CDSC is payable to Princor on these
investments in the event of a share redemption within 18 months following the
share purchase, at the rate of .75% (.25% for the Limited Term Bond Fund) of the
lesser of the value of the shares redeemed (exclusive of reinvested dividend and
capital gain distributions) or the total cost of such shares. Shares subject to
the CDSC which are exchanged into another Princor mutual fund will continue to
be subject to the CDSC until the original 18 month period expires. However, no
CDSC is payable with respect to redemptions of Class A shares used to fund a
Princor 401 (a) or Princor 401 (k) retirement plan, except redemptions resulting
from the termination of the plan or transfer of plan assets.
Investors may be eligible to buy Class A shares at reduced sales charges.
Purchasers of Class A shares may benefit from Princor's Rights of Accumulation
and Statement of Intention as well as the reduced sales charge available for the
investment of certain life insurance and annuity contract death benefits and
various Employee Benefit Plans and other plans. Descriptions are included in the
Statement of Additional Information.
Investors may be able to purchase Class A shares at net asset value. The
following persons may purchase Class A shares of the Growth-Oriented Funds and
Income-Oriented Funds at the net asset value (without a sales charge): (1)
Principal Mutual Life Insurance Company and its directly and indirectly owned
subsidiaries; (2) Active and retired directors, officers and employees of any of
the Funds, Principal Mutual Life Insurance Company, and directly and indirectly
owned subsidiaries of Principal Mutual Life Insurance Company (including
full-time insurance agents of, and persons who have entered into insurance
brokerage contracts with, Principal Mutual Life Insurance Company and its
directly and indirectly owned subsidiaries, and employees of such persons); (3)
The Principal Financial Group Employees' Credit Union; (4) Non-ERISA investment
advisory clients of Invista Capital Management, Inc., an indirectly wholly-owned
subsidiary of Principal Mutual Life Insurance Company; (5) Sales representatives
and employees of sales representatives of Princor or other dealers through which
shares of the Funds are distributed; (6) Spouses, surviving spouses and
dependent children of the foregoing persons; (7) Trusts primarily for the
benefit of the foregoing individuals; (8) certain "wrap accounts" for the
benefit of clients of Princor and other broker-dealers or financial planners
selected by Princor; and (9) clients of a registered representative of Princor
or other dealers through which shares of the Funds are distributed and who has
become affiliated with Princor or other dealer within 180 days of the date of
the purchase of Class A shares of the Funds, if the investment represents the
proceeds of a redemption within that 180 day period of shares of another
investment company the purchase of which included a front-end sales charge or
the redemption of which was subject to a contingent deferred sales charge.
Each of the Funds, except Princor Tax-Exempt Bond Fund and Princor
Tax-Exempt Cash Management Fund, have filed an application for an exemptive
order with the Securities and Exchange Commission ("SEC") to permit each Fund to
offer its Class A shares at net asset value to participants of certain annuity
contracts issued by Principal Mutual Life Insurance Company. The Funds intend to
make an exchange offer to such participants if the SEC grants the order.
The Funds reserve the right to discontinue offering shares at net asset
value and/or at a reduced sales charge at any time for new accounts and upon 60
days notice to shareholders of existing accounts.
DISTRIBUTION AND SHAREHOLDER SERVICING PLANS AND FEES
Class R Distribution Plan. Each of the Funds described in this Prospectus
has adopted a distribution plan for the Class R shares. Each Class R Plan
provides for payments by the Fund to Princor at the annual rate of up to .75% of
the Fund's average net assets attributable to Class R shares.
Although Class R shares are sold without an initial sales charge, Princor
incurs certain distribution expenses. In addition, Princor may remit on a
continuous basis up to .50% to Registered Representatives and other selected
Dealers (including, for this purpose, certain financial institutions) as a trail
fee in recognition of their ongoing services and assistance.
Class A Distribution Plan. Each of the Funds, except the Cash Management
Fund, has adopted a distribution plan for the Class A shares. The Fund will make
payments from its assets to Princor pursuant to this Plan after the end of each
month at an annual rate not to exceed 0.25% (0.15% for the Limited Term Bond
Fund) of the average daily net asset value of the Fund. Princor will retain such
amounts as are appropriate to compensate for actual expenses incurred in
distributing and promoting the sale of the Fund shares but may remit on a
continuous basis up to .25% (0.15% for the Limited Term Bond Fund) to Registered
Representatives and other selected Dealers (including, for this purpose, certain
financial institutions) as a trail fee in recognition of their services and
assistance.
General. The purpose of the Plans is to permit the Fund to compensate
Princor for expenses incurred by it in promoting and distributing Fund shares
and providing services to Fund shareholders. If the aggregate payments received
by Princor under any of the Plans in any fiscal year exceed the expenditures
made by Princor in that year pursuant to that Plan, Princor will promptly
reimburse the Fund for the amount of the excess. If expenses under a Plan exceed
the amount for which Princor may be compensated in any one fiscal year, the Fund
will not carry over such expenses to the next fiscal year. The Funds have no
legal obligation to pay any amount pursuant to the Plans that exceeds the
compensation limit. The Funds will not pay, directly or indirectly, interest,
carrying charges, or other financing costs in connection with the Plans. The
Plans are further described in the Statement of Additional Information.
DETERMINATION OF NET ASSET VALUE OF FUNDS' SHARES
Each Fund calculates net asset value of a share of each class by dividing
the total value of the assets attributable to the class, less all liabilities
attributable to the class, by the number of shares outstanding of the class.
Shares are valued as of the close of regular trading on the New York Stock
Exchange each day the Exchange is open.
Growth-Oriented and Income-Oriented Funds
The following valuation information applies to the Growth-Oriented and
Income-Oriented Funds. Securities for which market quotations are readily
available are valued using those quotations. Securities with remaining
maturities of 60 days or less are valued at amortized cost when it is determined
by the Board of Directors that amortized cost reflects fair value. Other assets
are valued at fair value as determined in good faith through procedures
established by the Board.
As previously described, some of the Funds may purchase foreign securities,
whose trading is substantially completed each day at various times prior to the
close of the New York Stock Exchange. The values of such securities used in
computing net asset value per share are usually determined as of such times.
Occasionally, events which affect the values of such securities and foreign
currency exchange rates may occur between the times at which they are generally
determined and the close of the New York Stock Exchange and would therefore not
be reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value as determined in good faith
by the Manager under procedures established and regularly reviewed by the Board
of Directors. To the extent the Fund invests in foreign securities listed on
foreign exchanges which trade on days on which the Fund does not determine its
net asset value, for example Saturdays and other customary national U.S.
holidays, the Fund's net asset value could be significantly affected on days
when shareholders have no access to the Fund.
Money Market Fund
Portfolio securities of the Cash Management Fund are valued at amortized
cost. For a description of this calculation procedure see the Statement of
Additional Information. The Cash Management Fund reserves the right to calculate
or estimate its net asset value more frequently than once a day if it deems it
desirable.
DISTRIBUTION OF INCOME DIVIDENDS AND REALIZED CAPITAL GAINS
Growth-Oriented and Income-Oriented Funds
Any dividends payable on Class R shares of a Fund on a per share basis will
be lower than dividends payable on Class A shares of the Fund. Any dividends
from the net income of the Growth-Oriented Funds, except the Balanced, Blue Chip
and World Funds, normally will be distributed to the respective shareholders
semiannually. Any dividends from the net income of the Balanced and Blue Chip
Funds will be distributed on a quarterly basis and any dividends from the net
income of the World Fund will be distributed annually. Any dividends from the
net income of the Income-Oriented Funds, except the Utilities Fund, will
normally be distributed monthly. Any dividends from the net income of the
Utilities Fund will be distributed quarterly. Distributions from the Funds that
make monthly distributions will normally be declared payable on the first
business day of each month to shareholders of record at the close of business on
the last business day of the preceding month. Distributions for the Funds that
make quarterly distributions will normally be declared payable on the last
business day of December and the first business day of April, July and October
to shareholders of record at the close of business on the preceding business
day. Distributions from the Funds that make semiannual distributions will
normally be declared payable on the first business day in July and the last
business day in December to shareholders of record at the close of business on
the last business day prior to distribution. Annual distributions from the World
Fund will normally be declared payable on the last business day in December to
shareholders of record at the close of business on the last business day prior
to distribution. Net realized capital gains for each of the Funds, if any, will
be distributed annually, generally the first business day of December. Dividends
and capital gains distributions are reinvested in additional Fund shares at
their net asset value (without a sales charge) as of the payment date.
Money Market Fund
The Cash Management Fund declares dividends of all its daily net investment
income on each day the net asset value per share is determined. Dividends for
the Fund are payable daily and are automatically reinvested in full and
fractional shares of the Fund at the then current net asset value.
Net investment income of the Cash Management Fund, for dividend purposes,
consists of (1) accrued interest income plus or minus accrued discount or
amortized premium; plus or minus (2) all net short-term realized gains and
losses; minus (3) all accrued expenses of the Fund. Expenses of the Fund are
accrued each day. Net income will be calculated immediately prior to the
determination of net asset value per share of each Fund. Dividends payable on
Class R shares of the Cash Management Fund on a per share basis will be lower
than dividends payable on Class A shares of the Fund.
Since it is the policy of the Cash Management Fund, under normal
circumstances, to hold portfolio securities to maturity and to value portfolio
securities at amortized cost, the Fund does not expect any capital gains or
losses. If the Fund does experience gains, however, it could result in an
increase in dividends. Capital losses could result in a decrease in dividends.
If, for some extraordinary reason, the Fund realizes net long-term capital
gains, it will distribute them once every 12 months.
Since the net income of the Fund (including realized gains and losses on
the portfolio securities) is normally declared as a dividend each time the net
income of the Fund is determined, the net asset value per share of the Fund
normally remains at $1.00 immediately after each determination and dividend
declaration. Any increase in the value of a shareholder's investment in the
Fund, representing reinvestment of dividend income, is reflected by an increase
in the number of shares of the Fund in the account.
Normally the Fund will have a positive net income at the time of each
determination thereof. Net income may be negative if an unexpected liability
must be accrued or a loss is realized. If the net investment income of the Fund
determined at any time is a negative amount, the net asset value per share will
be reduced below $1.00. If this happens, the Fund may endeavor to restore the
net asset value per share to $1.00 by reducing the number of outstanding shares
by redeeming proportionately from shareholders without the payment of any
monetary consideration, such number of full and fractional shares as is
necessary to maintain a net asset value per share of $1.00. Each shareholder
will be deemed to have agreed to such a redemption in these circumstances by
investment in the Fund. The Fund may seek to achieve the same objective of
restoring the net asset value per share to $1.00 by not declaring dividends from
net income on subsequent days until restoration, with the result that the net
asset value per share would increase to the extent of positive net income which
is not declared as a dividend, or any other method approved by the Board of
Directors for the Fund.
The Board of Directors of the Fund may revise the above dividend policy, or
postpone the payment of dividends, if the Fund should have or anticipate any
large presently unexpected expense, loss or fluctuation in net assets which in
the opinion of the Board might have a significant adverse effect on the
shareholders.
Dividend Relay Election
Shareholders may elect to have dividends and capital gains distributions
from one of the Princor funds invested in shares of the same class of one of the
other Princor funds. This Dividend Relay Election can be made on the application
or at any time on 10 days written notice or, if telephone transaction services
apply to the account from which the dividends and distributions originate, on 10
days notice by telephone to the Fund. A signature guarantee may be required to
make the Dividend Relay Election. See "General Information About a Fund
Account." There is no administrative charge for this service. Dividends and
distributions are credited to the receiving Fund the day such dividends are paid
at the receiving Fund's net asset value for that day.
If the Dividend Relay Election privilege is discontinued with respect to a
particular receiving Fund, the value of the account in that Fund must equal or
exceed the Fund's minimum initial investment requirement or the Fund shall have
the right, if the shareholder fails to increase the value of the account to such
minimum within 90 days after being notified of the deficiency, to redeem the
account and send the proceeds to the shareholder.
Shareholders may discontinue the Dividend Relay Election at any time on 10
days written notice or, if telephone transaction services apply to the account
from which the dividends originate, on 10 days notice by telephone to the Fund.
The Funds reserve the right to discontinue or modify this service upon 60 days
written notice to shareholders.
TAX-TREATMENT OF FUNDS, DIVIDENDS AND DISTRIBUTIONS
It is the policy of each of the Funds to distribute substantially all net
investment income and net realized gains. Through such distributions, and by
satisfying certain other requirements, the Funds intend to qualify for the tax
treatment applicable to regulated investment companies under the provisions of
the Internal Revenue Code. This means that in each year in which a Fund so
qualifies, it will be exempt from federal income tax upon the amounts so
distributed to investors. The Tax Reform Act of 1986 imposed an excise tax on
mutual funds which fail to distribute net investment income and capital gains by
the end of the calendar year in accordance with the provisions of the Act. The
Funds intend to comply with the Act's requirements and to avoid this excise tax.
The Funds record dividend income on the ex-dividend date, except dividend income
from foreign securities where the ex-dividend date may have passed in which case
such dividends are recorded as soon as the Fund is informed of the ex-dividend
date.
Class R shares and Class A shares acquired by the conversion of Class R
shares are used to fund IRAs. Distributions from IRAs are taxed as ordinary
income to the recipient, although special rules exist for the tax-free return of
non-deductible contributions. In addition, taxable distributions received from
an IRA prior to age 59 1/2 are subject to a 10% penalty tax in addition to
regular income tax. Certain distributions are exempted from this penalty tax,
including distributions following the participant's death or disability or if
the distribution is paid as part of a series of substantially equal periodic
payments made for the life (or life expectancy) of the participant or the joint
lives (or joint life expectancies) of the participant and the participant's
designated beneficiary.
Generally, distributions from IRAs must commence not later than April 1 of
the calendar year following the calendar year in which the participant attains
age 70 1/2, and such distributions must be made over a period that does not
exceed the life expectancy of the participant (or the participant and
beneficiary). A penalty tax of 50% would be imposed on any amount by which the
minimum required distribution in any year exceeded the amount actually
distributed in that year. In addition, in the event that the participant dies
before his or her entire interest in the IRA has been distributed, the
participant's entire interest must be distributed at least as rapidly as under
the method of distribution being used as of the date of that person's death. If
the particpant dies prior to beginning any distributions from the IRA, the
entire interest in the IRA will be distributed (1) within five years after the
date of the participant's death or (2) as periodic payments which will begin
within one year of the participant's death and which will be made over the life
expectancy of the participant's designated beneficiary. However, if the
participant's designated beneficiary is the surviving spouse, the IRA may be
continued with the surviving spouse deemed to be the new IRA participant.
The Code permits the taxable portion of funds to be transferred in a
tax-free rollover from a qualified employer pension, profit-sharing, annuity,
bond purchase or tax-deferred annuity plan to an IRA if certain conditions are
met, and if the rollover of assets is completed within 60 days after the
distribution from the qualified plan is received. A direct rollover of funds may
avoid a 20% federal tax withholding generally applicable to qualified plans or
tax -deferred annuity plan distributions. In addition, not more frequently than
once every twelve months, amounts may be rolled over tax-free from one IRA to
another, subject to the 60-day limitation and other requirements. The
once-per-year limitation on rollovers does not apply to direct transfers of
funds between IRA custodians or trustees.
The Funds are required by law to withhold 10% of IRA distributions unless
the shareholder elects not to have withholding apply.
Shareholders should consult their own tax advisors as to the federal, state
and local tax consequences of ownership of shares of the Funds in their
particular circumstances.
HOW TO EXCHANGE SHARES
Class R shares and Class A shares acquired by the conversion of Class R
shares may be exchanged at net asset value for shares of the same class of any
other Princor Fund described in the Prospectus, at any time. For purposes of
computing the length of time Class R shares acquired by the exchange are held
prior to conversion to Class A shares, the length of time the acquired shares
have been owned by a shareholder will be measured from the date of original
purchase of the exchanged shares.
A shareholder may also make an Automatic Exchange Election. This election
authorizes an exchange as described above from one Princor Fund to any or all of
the other Princor Funds on a monthly, quarterly, semiannual or annual basis. The
minimum amount that may be exchanged into any Princor Fund must equal or exceed
$300 on an annual basis. The exchange will occur on the date of the month
specified by the shareholder in the election so long as the day is a trading
day. If the designated day is not a trading day, the exchange will occur on the
next trading day occurring during that month. If the next trading day occurs in
the following month, the exchange will occur on the trading day prior to the
designated day. The Automatic Exchange Election may be made on the open account
application, on 10 days written notice or, if telephone transaction services
apply to the account from which the exchange is made, on 10 days notice by
telephone to the Fund from which the exchange will be made.
Shareholders may exercise the telephone exchange privilege by telephoning
1-800-247-4123. If all telephone lines are busy, shareholders might not be able
to request telephone exchanges and would have to submit written exchange
requests. Although the Funds and the transfer agent are not responsible for the
authenticity of exchange requests received by telephone, the right is reserved
to refuse telephone exchanges when in the opinion of the Fund from which the
exchange is requested or the transfer agent it seems prudent to do so. The
shareholder bears the risk of loss caused by a fraudulent telephone exchange
request the Fund reasonably believes to be genuine. Each Fund will employ
reasonable procedures to assure telephone instructions are genuine and if such
procedures are not followed, the Fund may be liable for losses due to
unauthorized or fraudulent transactions. Such procedures include recording all
telephone instructions, requesting personal identification information such as
the caller's name, daytime telephone number, social security number and/or
birthdate and sending a written confirmation of the transaction to the
shareholder's address of record. In addition, the Fund directs exchange proceeds
only to another Princor fund account used to fund the shareholder's IRA.
General - If the exchanging shareholder does not have an account with the
Fund in which shares are being acquired, a new account will be established with
the same registration as the account from which shares are exchanged. All
exchanges are subject to the minimum investment and eligibility requirements of
the Fund being acquired. A shareholder may receive shares in exchange only if
they may be legally offered in the shareholder's state of residence.
The exchange privilege is not intended as a vehicle for short-term trading.
Excessive exchange activity may interfere with portfolio management and have an
adverse effect on all shareholders. In order to limit excessive exchange
activity and in other circumstances where the Directors or Princor Management
Corporation believes doing so would be in the best interest of the Fund, the
Fund reserves the right to revise or terminate the exchange privilege, limit the
amount or number of exchanges or reject any exchange. Shareholders would be
notified of any such action to the extent required by law. A shareholder may
modify or discontinue an election on 10 days written notice or notice by
telephone to the Fund from which exchanges are made.
HOW TO SELL SHARES
Class R shares and Class A shares acquired by the conversion of Class R
shares are used to fund IRAs. A request for a distribution from an IRA must be
made in writing. Shareholders may obtain a distribution form by telephoning
1-800-247-4123 or writing to Princor, at P.O. Box 10423, Des Moines, Iowa 50306.
Shares are redeemed at the net asset value calculated after the Fund receives
the written request in proper form. There is no charge for redemptions. The
amount received for shares upon redemption may be more or less than the cost of
such shares depending upon the net asset value at the time of redemption. The
Funds generally send redemption proceeds the business day after the request is
received. Under unusual circumstances, the Funds may suspend redemptions, or
postpone payment for more than three business days, as permitted by federal
securities law. A Fund will redeem only those shares for which it has received
payment. To avoid the inconvenience of a delay in obtaining redemption proceeds,
shares may be purchased with a certified check, bank cashiers check or money
order.
Distributions from an IRA may be taken as a lump sum of the entire interest
in the IRA, a partial interest in the IRA, or in periodic payments of either a
fixed amount or amounts based upon certain life expectancy calculations. Tax
penalties may apply to distributions taken before the IRA participant attains
age 59 1/2. See "Tax Treatment of Fund Dividends and Distributions."
A redemption request made payable to someone other than the plan participant
requires a signature guarantee as a part of a proper endorsement. The signature
must be guaranteed by either a commercial bank, trust company, credit union,
savings and loan association, national securities exchange member, or by a
brokerage firm. A signature guaranteed by a notary public or savings bank is not
acceptable.
Reinvestment Privilege - Within 60 days after redemption, shareholders who
redeem all or part of their Class R shares or Class A shares which were acquired
by conversion of Class R shares have a onetime privilege to reinvest the amount
redeemed in shares of the same class of any of the Funds without a sales charge.
The reinvestment will be made at the net asset value next computed after
written notice of exercise of the privilege is received in proper and correct
form by Princor. All reinvestments are subject to acceptance by the Fund or
Funds and Princor.
PERFORMANCE CALCULATION
From time to time, the Funds may publish advertisements containing
information (including graphs, charts, tables and examples) about the
performance of one or more of the Funds and about a Fund's largest industry
holdings and largest specific securities holdings in its portfolio. The Funds
may also quote rankings, yields or returns as published by independent
statistical services or publishers, and information regarding the performance of
certain market indices. The Funds' yield and total return figures described
below will vary depending upon market conditions, the composition of the Funds'
portfolios and operating expenses. These factors and possible differences in the
methods used in calculating yield and total return should be considered when
comparing the Funds' performance figures to performance figures published for
other investment vehicles. Any performance data quoted for the Funds represents
only historical performance and is not intended to indicate future performance
of the Funds. For further information on how the Funds calculate yield and total
return figures, see the Statement of Additional Information.
Growth-Oriented and Income-Oriented Funds
The Income-Oriented Funds may advertise their respective yields and average
annual total returns. The Growth-Oriented Funds may advertise their respective
average annual total returns. Yield is determined by annualizing each Fund's net
investment income per share for a specific, historical 30-day period and
dividing the result by the ending maximum public offering price for Class A
shares or the net asset value for Class R shares of the Fund for the same
period. Average annual total return for each Fund is computed by calculating the
average annual compounded rate of return over the stated period that would
equate an initial $1,000 investment to the ending redeemable value assuming the
reinvestment of all dividends and capital gains distributions at net asset
value. The same assumptions are made when computing cumulative total return by
dividing the ending redeemable value by the initial investment. These
calculations assume the payment of the maximum front-end load in the case of
Class A shares, although shareholders who acquire such shares by conversion from
Class R shares do not pay a front-end load. The Funds may also calculate total
return figures for a specified period that do not take into account the maximum
initial sales charge to illustrate changes in the Funds' net asset values over
time.
Money Market Fund
From time to time the Cash Management Fund may advertise its yield and
effective yield. The yield of the Fund refers to the income generated by an
investment in the Fund over a seven-day period. This income is then annualized.
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The effective yield is calculated similarly but,
when annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment.
The yield for the Cash Management Fund will fluctuate daily as the income
earned on the investments of the Fund fluctuates. Accordingly, there is no
assurance that the yield quoted on any given occasion will remain in effect for
any period of time. The Fund is an open-end investment company and there is no
guarantee that the net asset value or any stated rate of return will remain
constant. A shareholder's investment in the Fund is not insured. Investors
comparing results of the Fund with investment results and yields from other
sources such as banks or savings and loan associations should understand these
distinctions. Historical and comparative yield information may, from time to
time, be presented by the Fund.
GENERAL INFORMATION ABOUT A FUND ACCOUNT
Share certificates will be issued to shareholders only when requested.
Shareholders of the Funds will receive a quarterly statement of account for the
Fund in which they have invested disclosing information regarding purchases,
redemptions, and reinvested dividends or distributions occurring during the
quarter, as well as the balance of shares owned and account values as of the
statement date . The Funds treat the statement of account as evidence of
ownership of Fund shares. This is known as an open account system. Each Fund
bears the cost of the open account system.
Signature Guarantee. The Funds have adopted the policy of requiring
signature guarantees in certain circumstances to safeguard shareholder accounts.
A signature guarantee is necessary under the following circumstances:
1. If a redemption payment is to be made payable to a payee other than
the registered shareholder or Principal Mutual Life Insurance Company
or any of its affiliated companies;
2. To add telephone transaction services to an account after the initial
application is processed;
3. When there is any change to a bank account designated to receive
distributions; and
4. If a redemption payment is to be mailed to an address other than the
address of record or to an address of record that has been changed
within the preceding three months.
A shareholder's signature must be guaranteed by a commercial bank, trust
company, credit union, savings and loan association, national securities
exchange member, or brokerage firm. A signature guaranteed by a notary public is
not acceptable.
Minimum Account Balance. Although there currently is no minimum balance,
due to the disproportionately high cost of maintaining small accounts, the Funds
reserve the right to redeem all shares in an account with a value of less than
$250 and to mail the proceeds to the shareholder. Involuntary redemptions will
not be triggered solely by market activity. Shareholders will be notified before
these redemptions are to be made and will have thirty days to make an additional
investment to bring their accounts up to the required minimum. The Funds reserve
the right to increase the required minimum.
SHAREHOLDER RIGHTS
The following information is applicable to each of the Princor Funds
described in this prospectus. Each Fund's shares are currently divided into
three classes. Each Fund share is entitled to one vote with fractional shares
voting proportionately. Both classes of shares for each Fund will vote together
as a single class except where required by law or as determined by the Fund's
Board of Directors. Shares are freely transferable, are entitled to dividends as
declared by the Fund's Board of Directors and, if the Fund were liquidated,
would receive the net assets of the Fund. Shareholders of a Fund may remove any
director of that Fund with or without cause by the vote of a majority of the
votes entitled to be cast at a meeting of shareholders. Shareholders will be
assisted with shareholder communication in connection with such matter.
The Board of Directors of each Fund may increase or decrease the aggregate
number of shares which the Fund has authority to issue and may issue two or more
classes of shares having such preferences and special or relative rights and
privileges as the Directors may determine, without shareholder approval.
The Funds are not required to hold an annual meeting of shareholders in any
year unless required to do so under the Investment Company Act of 1940. The
Funds intend to hold shareholder meetings only when required by law and at such
other times as may be deemed appropriate by their respective Boards of
Directors. However, each Fund will hold a meeting of shareholders when requested
to do so in writing by the holders of 10% or more of the outstanding shares of
that Fund.
Shareholder inquiries should be directed to the appropriate Fund at The
Principal Financial Group, Des Moines, Iowa 50392.
As of October 31, 1995, Principal Mutual Life Insurance Company and its
subsidiaries and affiliates owned 25% or more of the outstanding voting shares
of each Fund as indicated:
Percentage of
Number of Outstanding Shares
Fund Shares Owned Owned
Blue Chip Fund 654,681 26.63%
Capital Accumulation Fund 6,477,046 44.88
High Yield Fund 1,090,093 36.56
ADDITIONAL INFORMATION
Organization: The Funds were incorporated in the state of Maryland on the
following dates: Balanced Fund - November 26, 1986; Blue Chip Fund - December
10, 1990; Bond Fund - December 2, 1986; Capital Accumulation Fund - May 26, 1989
(effective November 1, 1989 succeeded to the business of a predecessor Fund that
had been incorporated in Delaware on February 6, 1969); Cash Management Fund -
June 10, 1982; Emerging Growth Fund - February 20, 1987; Government Securities
Income Fund - September 5, 1984; Growth Fund May 26, 1989 (effective November 1,
1989 succeeded to the business of a predecessor Fund that had been incorporated
in Delaware on February 6, 1969); High Yield Fund - November 26, 1986; Limited
Term Bond Fund - August 9, 1995; Utilities Fund - September 3, 1992; World Fund
- - May 12, 1981
Custodian: Bank of New York, 48 Wall Street, New York, New York 10286, is
custodian of the portfolio securities and cash assets of each of the Funds
except the World Fund. The custodian for the World Fund is Chase Manhattan Bank,
Global Securities Services, Chase Metro Tech Center, Brooklyn, New York 11245.
The custodians perform no managerial or policymaking functions for the Funds.
Capitalization: The authorized capital stock of each Fund consists of
100,000,000 shares of common stock (2,000,000,000 for Princor Cash Management
Fund), $.01 par value.
Financial Statements: Copies of the financial statements of each Fund will
be mailed to each shareholder semiannually. At the close of each fiscal year,
each Fund's financial statements will be audited by a firm of independent
auditors. The firm of Ernst & Young LLP has been appointed to audit the
financial statements of each Fund for their respective present fiscal years.
Registration Statement: This Prospectus omits some information contained in
the Statement of Additional Information (also known as Part B of the
Registration Statement) and Part C of the Registration Statements which the
Funds have filed with the Securities and Exchange Commission. The Funds'
Statement of Additional Information is hereby incorporated by reference into
this Prospectus. A copy of this Statement of Additional Information can be
obtained upon request, free of charge, by writing or telephoning Princor
Financial Services Corporation. You may obtain a copy of Part C of the
Registration Statements filed with the Securities and Exchange Commission,
Washington, D.C. from the Commission upon payment of the prescribed fees.
Principal Underwriter: Princor Financial Services Corporation, P.O. Box
10423, Des Moines, IA 50306, is the principal underwriter for each of the
Princor Funds.
Transfer Agent and Dividend Disbursing Agent: Princor Management
Corporation, The Principal Financial Group, Des Moines, Iowa, 50392, is the
transfer agent and dividend disbursing agent for each of the Princor Funds.
PART B
PRINCOR BALANCED FUND, INC.
PRINCOR BLUE CHIP FUND, INC.
PRINCOR BOND FUND, INC.
PRINCOR CAPITAL ACCUMULATION FUND, INC.
PRINCOR CASH MANAGEMENT FUND, INC.
PRINCOR EMERGING GROWTH FUND, INC.
PRINCOR GOVERNMENT SECURITIES INCOME FUND, INC.
PRINCOR GROWTH FUND, INC.
PRINCOR HIGH YIELD FUND, INC.
PRINCOR LIMITED TERM BOND FUND, INC.
PRINCOR TAX-EXEMPT BOND FUND, INC.
PRINCOR TAX-EXEMPT CASH MANAGEMENT FUND, INC.
PRINCOR UTILITIES FUND, INC.
PRINCOR WORLD FUND, INC.
Statement of Additional Information
dated February 29, 1996
This Statement of Additional Information provides information
about each of the above Funds in addition to the information that is
contained in the Funds' Prospectus, dated February 29, 1996.
This Statement of Additional Information is not a prospectus.
It should be read in conjunction with the Funds' Prospectus, a copy of
which can be obtained free of charge by writing or telephoning:
Princor Financial Services Corporation
The Principal Financial Group
Des Moines, Iowa 50392-0200
Telephone: 1-800-247-4123
MM 625 B-6
TABLE OF CONTENTS
Investment Policies and Restrictions of the Funds.......... 2
Growth-Oriented Funds.............................. 3
Income-Oriented Funds ............................. 7
Money Market Funds................................. 13
Funds' Investments......................................... 16
Directors and Officers of the Funds........................ 29
Manager and Sub-Advisor.................................... 31
Cost of Manager's Services................................. 32
Brokerage on Purchases and Sales of Securities............. 35
How to Purchase Shares..................................... 37
Offering Price of Funds' Shares............................ 39
Distribution Plan.......................................... 44
Determination of Net Asset Value of Funds' Shares ......... 47
Performance Calculation.................................... 48
Tax Treatment of Funds, Dividends and Distributions ...... 53
General Information and History............................ 56
Financial Statements ...................................... 56
Appendix A................................................. 57
INVESTMENT POLICIES AND RESTRICTIONS OF THE FUNDS
The following information about the Princor Funds, a family of
separately incorporated, diversified, open-end management investment companies,
commonly called mutual funds, supplements the information provided in the
Prospectus under the caption "Investment Objectives, Policies and Restrictions."
There are three categories of Princor Funds: Growth-Oriented Funds,
which include four Funds which seek primarily capital appreciation through
investments in equity securities (Capital Accumulation Fund, Emerging Growth
Fund, Growth Fund and World Fund), one Fund which seeks a total investment
return including both capital appreciation and income through investments in
equity and debt securities (Balanced Fund) and one Fund which seeks growth of
capital and growth of income primarily through investments in common stocks of
well-capitalized, established companies (Blue Chip Fund); Income-Oriented Funds,
which include five funds which seek primarily a high level of income through
investments in debt securities (Bond Fund, Government Securities Income Fund,
High Yield Fund, Limited Term Bond Fund and Tax-Exempt Bond Fund) and one Fund
which seeks current income and long-term growth of income and capital by
investing primarily in equity and fixed-income securities of public utilities
companies (Utilities Fund); and Money Market Funds, which include two funds
which seek primarily a high level of income through investments in short-term
debt securities (Cash Management Fund and Tax-Exempt Cash Management Fund).
In seeking to achieve its investment objective, each Fund has adopted as
matters of fundamental policy certain investment restrictions which cannot be
changed without approval by the holders of the lesser of: (i) 67% of the Fund's
shares present or represented at a shareholders' meeting at which the holders of
more than 50% of such shares are present or represented by proxy; or (ii) more
than 50% of the outstanding shares of the Fund. Similar shareholder approval is
required to change the investment objective of each of the Funds. The following
discussion provides for each Fund a statement of its investment objective, a
description of its investment restrictions that are matters of fundamental
policy and a description of any investment restrictions it may have adopted that
are not matters of fundamental policy and may be changed without shareholder
approval. For purposes of the investment restrictions, all percentage and rating
limitations apply at the time of acquisition of a security, and any subsequent
change in any applicable percentage resulting from market fluctuations or in a
rating by a rating service will not require elimination of any security from the
portfolio. Unless specifically identified as a matter of fundamental policy,
each investment policy discussed in the Prospectus or the Statement of
Additional Information is not fundamental and may be changed by the respective
Fund's Board of Directors.
The Table on the next page graphically illustrates each Fund's emphasis
on producing current income and capital growth and the stability of the market
value of the Fund's portfolio. These illustrations represent comparative
relationships only with regard to the investment objectives sought by the Funds.
Relative income, stability and growth may vary among the Funds with certain
market conditions. The illustrations are not intended and should not be
construed as projected relative performances of the Princor Funds.
GROWTH-ORIENTED FUNDS
INVESTMENT OBJECTIVES
Princor Balanced Fund, Inc. ("Balanced Fund") seeks to generate a total
investment return consisting of current income and capital appreciation
while assuming reasonable risks in furtherance of the investment objective.
Princor Blue Chip Fund, Inc. ("Blue Chip Fund") seeks to achieve growth of
capital and growth of income by investing primarily in common stocks of
well capitalized, established companies.
Princor Capital Accumulation Fund, Inc. ("Capital Accumulation Fund") seeks
to achieve primarily long-term capital appreciation and secondarily growth
of investment income through the purchase primarily of common stocks, but
the Fund may invest in other securities.
Princor Emerging Growth Fund, Inc. ("Emerging Growth Fund") seeks to
achieve capital appreciation by investing primarily in securities of
emerging and other growth-oriented companies.
Princor Growth Fund, Inc. ("Growth Fund") seeks growth of capital through
the purchase primarily of common stocks, but the Fund may invest in other
securities.
Princor World Fund, Inc. ("World Fund") seeks long-term growth of capital
by investing in a portfolio of equity securities of companies domiciled in
any of the nations of the world.
INVESTMENT RESTRICTIONS
As a condition of its continued registration in the state of South
Dakota, each of the Growth-Oriented Funds has undertaken not to invest more than
10% of its total assets in securities of issuers which may not be sold to the
public without registration under the Securities Act of 1933 as amended through
April 1, 1990, nor may it have more than 10% of its total assets invested in
real estate investment trusts or investment companies, nor may it have more than
5% of its assets invested in options, financial futures, or stock index futures,
other than hedging positions or positions that are covered by cash or
securities, nor may it have more than 5% of its assets invested in equity
securities of issuers which are not readily marketable and securities of issuers
which have been in operation for less than three years. Each of these funds has
further undertaken to notify shareholders in the state of South Dakota 30 days
prior to changing any of the restrictions described in this paragraph.
Balanced Fund, Blue Chip Fund, Emerging Growth Fund and World Fund
Each of the following numbered restrictions is a matter of fundamental
policy and may not be changed without shareholder approval. The Balanced Fund,
Blue Chip Fund and Emerging Growth Fund each may not:
(1) Issue any senior securities as defined in the Investment Company
Act of 1940. Purchasing and selling securities and futures
contracts and options thereon and borrowing money in accordance
with restrictions described below do not involve the issuance of a
senior security.
(2) Purchase or retain in its portfolio securities of any issuer if
those officers or directors of the Fund or its Manager owning
beneficially more than one-half of 1% (0.5%) of the securities of
the issuer together own beneficially more than 5% of such
securities.
(3) Invest in commodities or commodity contracts, but it may purchase
and sell financial futures contracts and options on such contracts.
(4) Invest in real estate, although it may invest in securities which
are secured by real estate and securities of issuers which invest
or deal in real estate.
(5) Borrow money, except for temporary or emergency purposes, in an
amount not to exceed 5% of the value of the Fund's total assets at
the time of the borrowing.
(6) Make loans, except that the Fund may (i) purchase and hold debt
obligations in accordance with its investment objective and
policies, (ii) enter into repurchase agreements, and (iii) lend its
portfolio securities without limitation against collateral
(consisting of cash or securities issued or guaranteed by the
United States Government or its agencies or instrumentalities)
equal at all times to not less than 100% of the value of the
securities loaned.
(7) Invest more than 5% of its total assets in the securities of any
one issuer (other than obligations issued or guaranteed by the
United States Government or its agencies or instrumentalities); or
purchase more than 10% of the outstanding voting securities of any
one issuer.
(8) Act as an underwriter of securities, except to the extent the Fund
may be deemed to be an underwriter in connection with the sale of
securities held in its portfolio.
(9) Concentrate its investments in any particular industry or
industries, except that the Fund may invest not more than 25% of
the value of its total assets in a single industry.
(10) Sell securities short (except where the Fund holds or has the right
to obtain at no added cost a long position in the securities sold
that equals or exceeds the securities sold short) or purchase any
securities on margin, except it may obtain such short-term credits
as are necessary for the clearance of transactions. The deposit or
payment of margin in connection with transactions in options and
financial futures contracts is not considered the purchase of
securities on margin.
(11) Invest in interests in oil, gas or other mineral exploration or
development programs, although the Fund may invest in securities of
issuers which invest in or sponsor such programs.
Each of these Funds has also adopted the following restrictions which are
not fundamental policies and may be changed without shareholder approval. It is
contrary to each Fund's present policy to:
(1) Invest more than 15% of its total assets in securities not readily
marketable and in repurchase agreements maturing in more than seven
days. The value of any options purchased in the Over-the-Counter
market are included as part of this 15% limitation.
(2) Purchase warrants in excess of 5% of its total assets, of which 2%
may be invested in warrants that are not listed on the New York or
American Stock Exchange. The 2% limitation for the World Fund also
includes warrants not listed on the Toronto Stock Exchange.
(3) Purchase securities of any issuer having less than three years'
continuous operation (including operations of any predecessors) if
such purchase would cause the value of the Fund's investments in
all such issuers to exceed 5% of the value of its total assets.
(4) Pledge, mortgage or hypothecate its assets, except to secure
permitted borrowings. The deposit of underlying securities and
other assets in escrow and other collateral arrangements in
connection with transactions in put and call options, futures
contracts and options on futures contracts are not deemed to be
pledges or other encumbrances.
(5) Invest in companies for the purpose of exercising control or
management.
(6) Invest more than 5% of its total assets in the purchase of covered
spread options and the purchase of put and call options on
securities, securities indices and financial futures contracts.
Options on financial futures contracts and options on securities
indices will be used solely for hedging purposes; not for
speculation.
(7) Invest more than 5% of its assets in initial margin and premiums on
financial futures contracts and options on such contracts.
(8) Invest in arbitrage transactions.
(9) Invest in real estate limited partnership interests.
(10) Invest in mineral leases.
The Balanced Fund, Blue Chip Fund and Emerging Growth Fund have also
adopted the following restrictions which are not fundamental policies and may be
changed without shareholder approval. It is contrary to each such Fund's present
policy to:
(1) Purchase securities of other investment companies except in
connection with a merger, consolidation, or plan of reorganization
or by purchase in the open market of securities of closed-end
companies where no underwriter or dealer's commission or profit,
other than a customary broker's commission, is involved, and if
immediately thereafter not more than 10% of the value of the Fund's
total assets would be invested in such securities.
(2) Invest more than 20% of its total assets in securities of foreign
issuers.
The World Fund has also adopted the following restriction which is not a
fundamental policy and may be changed without shareholder approval. It is
contrary to the World Fund's present policy to:
(1) Invest more than 10% of its assets in securities of other
investment companies, invest more than 5% of its total assets in
the securities of any one investment company, or acquire more than
3% of the outstanding voting securities of any one investment
company except in connection with a merger, consolidation or plan
of reorganization.
Capital Accumulation Fund and Growth Fund
Each of the following numbered restrictions is a matter of fundamental
policy and may not be changed without shareholder approval. The Capital
Accumulation Fund and Growth Fund each may not:
(1) Concentrate its investments in any one industry. No more than 25% of
the value of its total assets will be invested in any one industry.
(2) Purchase the securities of any issuer if the purchase will cause more
than 5% of the value of its total assets to be invested in the
securities of any one issuer (except U. S. Government securities).
(3) Purchase the securities of any issuer if the purchase will cause more
than 10% of the voting securities, or any other class of securities of
the issuer, to be held by the Fund.
(4) Underwrite securities of other issuers, except that the Fund may
acquire portfolio securities under circumstances where if sold the
Fund might be deemed an underwriter for purposes of the Securities Act
of 1933.
(5) Purchase securities of any company with a record of less than three
years' continuous operation (including that of predecessors) if the
purchase would cause the value of the Fund's aggregate investments in
all such companies to exceed 5% of the Fund's total assets.
(6) Engage in the purchase and sale of illiquid interests in real estate.
For this purpose, readily marketable interests in real estate
investment trusts are not interests in real estate.
(7) Engage in the purchase and sale of commodities or commodity contracts.
(8) Purchase securities of other investment companies except in connection
with a merger, consolidation, or plan of reorganization.
(9) Purchase or retain in its portfolio securities of any issuer if those
officers and directors of the Fund or its Manager owning beneficially
more than one-half of one percent (0.5%) of the securities of the
issuer together own beneficially more than 5% of such securities.
(10) Purchase securities on margin, except it may obtain such short-term
credits as are necessary for the clearance of transactions. The Fund
will not effect a short sale of a security. The Fund will not issue or
acquire put and call options.
(11) Invest more than 5% of its assets at the time of purchase in rights
and warrants (other than those that have been acquired in units or
attached to other securities).
(12) Invest more than 20% of its total assets in securities of foreign
issuers.
In addition:
(13) The Fund may not make loans except that the Fund may (i) purchase and
hold debt obligations in accordance with its investment objective and
policies, and (ii) enter into repurchase agreements.
(14) The Fund does not propose to borrow money except for temporary or
emergency purposes from banks in an amount not to exceed the lesser of
(i) 5% of the value of the Fund's assets, less liabilities other than
such borrowings, or (ii) 10% of the Fund's assets taken at cost at the
time such borrowing is made. The Fund may not pledge, mortgage, or
hypothecate its assets (at value) to an extent greater than 15% of the
gross assets taken at cost.
Each of these Funds has also adopted the following restrictions which are
not fundamental policies and may be changed without shareholder approval. It is
contrary to each Fund's present policy to:
(1) Invest in companies for the purpose of exercising control or
management.
(2) Purchase warrants in excess of 5% of its total assets, of which 2% may
be invested in warrants that are not listed on the New York or
American Stock Exchange.
(3) Invest more than 15% of its total assets in securities not readily
marketable and in repurchase agreements maturing in more than seven
days.
(4) Invest in real estate limited partnership interests.
(5) Invest in interests in oil, gas, or other mineral exploration or
development programs, but the Fund may purchase and sell securities of
companies which invest or deal in such interests.
Although each of these Funds has the right to pledge, mortgage or
hypothecate its assets, in order to comply with Illinois statutes, the Funds
will not, as a matter of operating policy, pledge, mortgage or hypothecate their
portfolio securities to the extent that at any time the percentage of pledged
securities plus the sales load will exceed 10% of the offering price of the
Funds' shares.
INCOME-ORIENTED FUNDS
INVESTMENT OBJECTIVES
Princor Bond Fund, Inc. ("Bond Fund") seeks to provide as high a level
of income as is consistent with preservation of capital and prudent
investment risk.
Princor Government Securities Income Fund, Inc. ("Government
Securities Income Fund") seeks a high level of current income,
liquidity and safety of principal by purchasing obligations issued or
guaranteed by the United States Government or its agencies, with
emphasis on Government National Mortgage Association Certificates
("GNMA Certificates"). The guarantee by the United States Government
extends only to principal and interest. There are certain risks unique
to GNMA Certificates.
Princor High Yield Fund, Inc. ("High Yield Fund") seeks high current
income primarily by purchasing high yielding, lower or non-rated fixed
income securities which are believed to not involve undue risk to
income or principal. Capital growth is a secondary objective when
consistent with the objective of high current income.
Princor Limited Term Bond Fund, Inc. ("Limited Term Bond Fund") seeks
a high level of current income consistent with a relatively high level
of principal stability by investing in a portfolio of securities with
a dollar weighted average maturity of five years or less.
Princor Tax-Exempt Bond Fund, Inc. ("Tax-Exempt Bond Fund") seeks as
high a level of current income exempt from federal income tax as is
consistent with preservation of capital. The Fund seeks to achieve its
objective primarily through the purchase of investment grade quality,
tax-exempt fixed income obligations.
Princor Utilities Fund, Inc. ("Utilities Fund") seeks to provide high
current income and long-term growth of income and capital. The Fund
seeks to achieve its objective by investing primarily in equity and
fixed income securities of companies in the public utilities industry.
INVESTMENT RESTRICTIONS
As a condition of its continued registration in the state of South
Dakota, the Utilities Fund has undertaken not to invest more than 10% of its
total assets in securities of issuers which may not be sold to the public
without registration under the Securities Act of 1933 as amended through April
1, 1990, nor may it have more than 10% of its total assets invested in real
estate investment trusts or investment companies. In addition, as a condition of
its continued registration in the state of South Dakota, each of the
Income-Oriented Funds has undertaken not to invest more than 5% of its assets in
options, financial futures, or stock index futures, other than hedging positions
or positions that are covered by cash or securities, nor may it have more than
5% of its assets invested in equity securities of issuers which are not readily
marketable and securities of issuers which have been in operations for less than
three years. Each of these funds has further undertaken to notify shareholders
in the state of South Dakota 30 days prior to changing any of the Funds
investment restrictions described in this paragraph.
Bond Fund, High Yield Fund, Limited Term Bond Fund and Utilities Fund
Each of the following numbered restrictions is a matter of fundamental
policy and may not be changed without shareholder approval. The Bond Fund, High
Yield Fund, Limited Term Bond Fund and Utilities Fund each may not:
(1) Issue any senior securities as defined in the Investment Company
Act of 1940. Purchasing and selling securities and futures
contracts and options thereon and borrowing money in accordance
with restrictions described below do not involve the issuance of a
senior security.
(2) Purchase or retain in its portfolio securities of any issuer if
those officers or directors of the fund or its Manager owning
beneficially more than one-half of 1% (0.5%) of the securities of
the issuer together own beneficially more than 5% of such
securities.
(3) Invest in commodities or commodity contracts, but it may purchase
and sell financial futures contracts and options on such contracts.
(4) Invest in real estate, although it may invest in securities which
are secured by real estate and securities of issuers which invest
or deal in real estate.
(5) Borrow money, except for temporary or emergency purposes, in an
amount not to exceed 5% of the value of the Fund's total assets at
the time of the borrowing.
(6) Make loans, except that the Fund may (i) purchase and hold debt
obligations in accordance with its investment objective and
policies, (ii) enter into repurchase agreements, and (iii) lend its
portfolio securities without limitation against collateral
(consisting of cash or securities issued or guaranteed by the
United States Government or its agencies or instrumentalities)
equal at all times to not less than 100% of the value of the
securities loaned.
(7) Invest more than 5% of its total assets in the securities of any
one issuer (other than obligations issued or guaranteed by the
United States Government or its agencies or instrumentalities); or
purchase more than 10% of the outstanding voting securities of any
one issuer.
(8) Act as an underwriter of securities, except to the extent the Fund
may be deemed to be an underwriter in connection with the sale of
securities held in its portfolio.
(9) Concentrate its investments in any particular industry or
industries, except that:
(a) the Utilities Fund may not invest less than 25% of its total
assets in securities of companies in the public utilities
industry, and
(b) the Bond Fund, High Yield Fund and Limited Term Bond Fund
each may invest not more than 25% of the value of its total
assets in a single industry.
(10) Sell securities short (except where the Fund holds or has the right
to obtain at no added cost a long position in the securities sold
that equals or exceeds the securities sold short) or purchase any
securities on margin, except it may obtain such short-term credits
as are necessary for the clearance of transactions. The deposit or
payment of margin in connection with transactions in options and
financial futures contracts is not considered the purchase of
securities on margin.
(11) Invest in interests in oil, gas or other mineral exploration or
development programs, although the Fund may invest in securities of
issuers which invest in or sponsor such programs.
Each of these Funds has also adopted the following restrictions which are
not fundamental policies and may be changed without shareholder approval. It is
contrary to each Fund's present policy to:
(1) Invest more than 15% of its total assets in securities not readily
marketable and in repurchase agreements maturing in more than seven
days. The value of any options purchased in the Over-the-Counter
market are included as part of this 15% limitation.
(2) Purchase warrants in excess of 5% of its total assets, of which 2%
may be invested in warrants that are not listed on the New York or
American Stock Exchange.
(3) Purchase securities of any issuer having less than three years'
continuous operation (including operations of any predecessors) if
such purchase would cause the value of the Fund's investments in
all such issuers to exceed 5% of the value of its total assets.
(4) Purchase securities of other investment companies except in
connection with a merger, consolidation, or plan of reorganization
or by purchase in the open market of securities of closed-end
companies where no underwriter or dealer's commission or profit,
other than a customary broker's commission, is involved, and if
immediately thereafter not more than 10% of the value of the Fund's
total assets would be invested in such securities.
(5) Pledge, mortgage or hypothecate its assets, except to secure
permitted borrowings. The deposit of underlying securities and
other assets in escrow and other collateral arrangements in
connection with transactions in put and call options, futures
contracts and options on futures contracts are not deemed to be
pledges or other encumbrances.
(6) Invest in companies for the purpose of exercising control or
management.
(7) Invest more than 20% of its total assets in securities of foreign
issuers.
(8) Invest more than 5% of its total assets in the purchase of covered
spread options and the purchase of put and call options on
securities, securities indices and financial futures contracts.
Options on financial futures contracts and options on securities
indices will be used solely for hedging purposes; not for
speculation.
(9) Invest more than 5% of its assets in initial margin and premiums on
financial futures contracts and options on such contracts.
(10) Invest in arbitrage transactions.
(11) Invest in real estate limited partnership interests.
The Utilities Fund has also adopted a restriction, which is not a
fundamental policy and may be changed without shareholder approval, that the
Fund may not own more than 5% of the outstanding voting securities of more than
one public utility company as defined by the Public Utility Holding Company Act
of 1935.
Government Securities Income Fund
Each of the following numbered restrictions is a matter of fundamental
policy and may not be changed without shareholder approval. The Government
Securities Fund may not:
(1) Issue any senior securities.
(2) Purchase any securities other than obligations issued or guaranteed
by the United States Government or its agencies or
instrumentalities, except that the Fund may maintain reasonable
amounts in cash or purchase short-term debt securities not issued
or guaranteed by the United States Government or its agencies or
instrumentalities for daily cash management purposes or pending
selection of particular long-term investments. There is no limit on
the amount of its assets which may be invested in the securities of
any one issuer of obligations issued by the United States
Government or its agencies or instrumentalities.
(3) Act as an underwriter of securities, except to the extent the Fund
may be deemed to be an underwriter in connection with the sale of
GNMA certificates held in its portfolio.
(4) Engage in the purchase and sale of interests in real estate,
including interests in real estate investment trusts (although it
will invest in securities secured by real estate or interests
therein, such as mortgage-backed securities) or invest in
commodities or commodity contracts, oil and gas interests, or
mineral exploration or development programs.
(5) Purchase securities of other investment companies except in
connection with a merger, consolidation, or plan of reorganization.
(6) Purchase or retain in its portfolio securities of any issuer if
those officers and directors of the Fund or its Manager owning
beneficially more than one-half of 1% (0.5%) of the securities of
the issuer together own beneficially more than 5% of such
securities.
(7) Sell securities short or purchase any securities on margin, except
it may obtain such short-term credits as are necessary for the
clearance of transactions. The deposit or payment of margin in
connection with transactions in options and financial futures
contracts is not considered the purchase of securities on margin.
(8) Invest in companies for the purpose of exercising control or
management.
(9) Make loans, except that the Fund may purchase or hold debt
obligations in accordance with the investment restrictions set
forth in paragraph (2) and may enter into repurchase agreements for
such securities, and may lend its portfolio securities without
limitation against collateral consisting of cash, or securities
issued or guaranteed by the United States Government or its
agencies or instrumentalities, which is equal at all times to 100%
of the value of the securities loaned.
(10) Borrow money, except for temporary or emergency purposes, in an
amount not to exceed 5% of the value of the Fund's total assets.
(11) Enter into repurchase agreements maturing in more than seven days
if, as a result, thereof, more than 10% of the Fund's total assets
would be invested in such repurchase agreements and other assets
without readily available market quotations.
(12) Invest more than 5% of its total assets in the purchase of covered
spread options and the purchase of put and call options on
securities, securities indices and financial futures contracts.
(13) Invest more than 5% of its assets in initial margin and premiums on
financial futures contracts and options on such contracts.
The Fund has also adopted the following restrictions which are not
fundamental policies and may be changed without shareholder approval. It is
contrary to the Fund's current policy to:
(1) Invest more than 15% of its total assets in securities not readily
marketable and in repurchase agreements maturing in more than seven
days. The value of any options purchased in the Over-the-Counter
market are included as part of this 15% limitation.
(2) Pledge, mortgage or hypothecate its assets, except to secure
permitted borrowings. The deposit of underlying securities and
other assets in escrow and other collateral arrangements in
connection with transactions in put and call options, futures
contracts and options on futures contracts are not deemed to be
pledges or other encumbrances.
(3) Invest in real estate limited partnership interests.
Tax-Exempt Bond Fund
Each of the following numbered restrictions is a matter of fundamental
policy and may not be changed without shareholder approval. The Tax-Exempt Bond
Fund may not:
(1) Issue any senior securities as defined in the Act except insofar as
the Fund may be deemed to have issued a senior security by reason
of: (a) purchasing any securities on a when-issued or delayed
delivery basis; or (b) borrowing money in accordance with
restrictions described below.
(2) Purchase any securities other than Municipal Obligations and
Taxable Investments as defined in the Prospectus and Statement of
Additional Information.
(3) Act as an underwriter of securities, except to the extent the Fund
may be deemed to be an underwriter in connection with the sale of
securities held in its portfolio.
(4) Invest more than 10% of its assets in securities of other
investment companies, invest more than 5% of its total assets in
the securities of any one investment company, or acquire more than
3% of the outstanding voting securities of any one investment
company except in connection with a merger, consolidation or plan
of reorganization.
(5) Purchase or retain in its portfolio securities of any issuer if
those officers and directors of the Fund or its Manager owning more
than one-half of 1% (0.5%) of the securities of the issuer together
own beneficially more than 5% of such securities.
(6) Invest in companies for the purpose of exercising control or
management.
(7) Invest more than:
(a) 5% of its total assets in the securities of any one issuer
(other than obligations issued or guaranteed by the United
States Government or its agencies or instrumentalities).
(b) 15% of its total assets in securities that are not readily
marketable and in repurchase agreements maturing in more than
seven days.
(8) Invest in real estate, although it may invest in securities which
are secured by real estate and securities of issuers which invest
or deal in real estate.
(9) Invest in commodities or commodity futures contracts.
(10) Write, purchase or sell puts, calls or combinations thereof.
(11) Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in securities of
issuers which invest in or sponsor such programs.
(12) Make short sales of securities.
(13) Purchase any securities on margin, except it may obtain such
short-term credits as are necessary for the clearance of
transactions.
(14) Make loans, except that the Fund may purchase and hold debt
obligations in accordance with its investment objective and
policies, enter into repurchase agreements, and may lend its
portfolio securities without limitation against collateral,
consisting of cash or securities issued or guaranteed by the United
States Government or its agencies or instrumentalities, which is
equal at all times to 100% of the value of the securities loaned.
(15) Borrow money, except for temporary or emergency purposes from banks
in an amount not to exceed 5% of the value of the Fund's total
assets at the time the loan is made.
(16) Pledge, mortgage or hypothecate its assets, except to secure
permitted borrowings.
The Fund has also adopted the following restriction which is not
fundamental and may be changed without shareholder approval. It is contrary to
the Fund's current policy to:
(1) Invest in real estate limited partnership interests.
The identification of the issuer of a Municipal Obligation depends on the
terms and conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the security is backed only
by the assets and revenues of the subdivision, such subdivision would be deemed
to be the sole issuer. Similarly, in the case of an industrial development bond,
if that bond is backed only by the assets and revenues of the non-governmental
user, then such non-governmental user would be deemed to be the sole issuer. If,
however, in either case, the creating government or some other entity guarantees
a security, such a guarantee would be considered a separate security and will be
treated as an issue of such government or other entity provided that guarantee
is not deemed to be a security issued by the guarantor if the value of all
securities issued or guaranteed by the guarantor and owned by the Fund does not
exceed 10% of the value of the Fund's total assets.
The Fund may invest without limit in debt obligations of issuers located
in the same state and in debt obligations which are repayable out of revenue
sources generated from economically related projects or facilities. Sizable
investments in such obligations could involve an increased risk to the Fund
since an economic, business or political development or change affecting one
security could also affect others. The Fund may also invest without limit in
industrial development bonds, but it will not invest more than 20% of its total
assets in any Municipal Obligation the interest on which is treated as a tax
preference item for purposes of the federal alternative minimum tax.
MONEY MARKET FUNDS
INVESTMENT OBJECTIVES
Princor Cash Management Fund, Inc. ("Cash Management Fund") seeks as high
a level of income available from short-term securities as is considered
consistent with preservation of principal and maintenance of liquidity by
investing in a portfolio of money market instruments.
Princor Tax-Exempt Cash Management Fund, Inc. ("Tax-Exempt Cash
Management Fund") seeks, through investment in a professionally managed
portfolio of high quality short-term Municipal Obligations, as high a
level of interest income exempt from federal income tax as is consistent
with stability of principal and maintenance of liquidity.
INVESTMENT RESTRICTIONS
As a condition of its continued registration in the state of South
Dakota, each of the Money Market Funds has undertaken not to invest more than 5%
of its assets in options, financial futures, or stock index futures, other than
hedging positions or positions that are covered by cash or securities, nor may
it have more than 5% of its assets invested in equity securities of issuers
which are not readily marketable and securities of issuers which have been in
operations for less than three years. Each of these funds has further undertaken
to notify shareholders in the state of South Dakota 30 days prior to changing
any of the Funds investment restrictions described in this paragraph.
Cash Management Fund
Each of the following numbered restrictions is a matter of fundamental
policy and may not be changed without shareholder approval. The Cash Management
Fund may not:
(1) Concentrate its investments in any one industry. No more than 25%
of the value of its total assets will be invested in securities of
issuers having their principal activities in any one industry,
other than securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, or obligations of domestic
branches of U.S. banks and savings institutions.
(See "Bank Obligations").
(2) Purchase the securities of any issuer if the purchase will cause
more than 5% of the value of its total assets to be invested in the
securities of any one issuer (except securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities).
(3) Purchase the securities of any issuer if the purchase will cause
more than 10% of the outstanding voting securities of the issuer to
be held by the Fund (other than securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities).
(4) Act as an underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an
underwriter under the federal securities laws.
(5) Purchase securities of any company with a record of less than 3
years continuous operation (including that of predecessors) if the
purchase would cause the value of the Fund's aggregate investments
in all such companies to exceed 5% of the value of the Fund's total
assets.
(6) Engage in the purchase and sale of illiquid interests in real
estate, including interests in real estate investment trusts
(although it may invest in securities secured by real estate or
interests therein) or invest in commodities or commodity contracts,
oil and gas interests, or mineral exploration or development
programs.
(7) Purchase securities of other investment companies except in
connection with a merger, consolidation, or plan of reorganization.
(8) Purchase or retain in its portfolio securities of any issuer if
those officers and directors of the Fund or its Manager owning
beneficially more than one-half of 1% (0.5%) of the securities of
the issuer together own beneficially more than 5% of such
securities.
(9) Purchase securities on margin, except it may obtain such short-term
credits as are necessary for the clearance of transactions. The
Fund will not effect a short sale of any security. The Fund will
not issue or acquire put and call options, straddles or spreads or
any combination thereof.
(10) Invest in companies for the purpose of exercising control or
management.
(11) Make loans to others except through the purchase of debt
obligations in which the Fund is authorized to invest and by
entering into repurchase agreements (see "Fund Investments").
(12) Borrow money except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might otherwise
require the untimely disposition of securities, in an amount not to
exceed the lesser of (1) 5% of the value of the Fund's assets, or
(ii) 10% of the value of the Fund's net assets taken at cost at the
time such borrowing is made. The Fund will not issue senior
securities except in connection with such borrowings. The Fund may
not pledge, mortgage, or hypothecate its assets (at value) to an
extent greater than 10% of the net assets.
(13) Invest in time deposits maturing in more than seven days; time
deposits maturing from two business days through seven calendar
days may not exceed 10% of the value of the Fund's total assets.
(14) Invest more than 10% of its total assets in securities not readily
marketable and in repurchase agreements maturing in more than seven
days.
The Fund has also adopted the following restriction which is not
fundamental and may be changed without shareholder approval. It is contrary to
the Fund's current policy to:
(1) Invest in real estate limited partnership interests.
Tax-Exempt Cash Management Fund
Each of the following numbered restrictions is a matter of fundamental
policy and may not be changed without shareholder approval. The Tax-Exempt Cash
Management Fund may not:
(1) Invest in securities other than Municipal Obligations and Temporary
Investments as those terms are defined in the Prospectus and the
Statement of Additional Information.
(2) Issue any senior securities as defined in the Investment Company
Act of 1940. Purchasing and selling securities and borrowing money
in accordance with restrictions described below do not involve the
issuance of a senior security.
(3) Purchase or retain in its portfolio securities of any issuer if
those officers or directors of the Fund or its Manager owning
beneficially more than one-half of 1% (0.5%) of the securities of
the issuer together own beneficially more than 5% of such
securities.
(4) Invest in commodities or commodity contracts.
(5) Invest in real estate, although it may invest in securities which
are secured by real estate and securities of issuers which invest
or deal in real estate.
(6) Borrow money, except from banks for temporary or emergency
purposes, including the purpose of meeting redemption requests
which might otherwise require the untimely disposition of
securities, in an amount not to exceed one-third of the sum of (a)
the value of the Fund's net assets at the time of the borrowing and
(b) the amount borrowed. While any such borrowings exceed 5% of
total assets, no additional purchases of investment securities will
be made by the Fund. If due to market fluctuations or other reasons
the Fund's asset coverage falls below 300% of its borrowings, the
Fund will reduce its borrowings within 3 business days.
(7) Make loans, except that the Fund may (i) purchase and hold debt
obligations in accordance with its investment objective and
policies, (ii) enter into repurchase agreements, and (iii) lend its
portfolio securities without limitation against collateral
(consisting of cash or securities issued or guaranteed by the
United States Government or its agencies or instrumentalities)
equal at all times to not less than 100% of the value of the
securities loaned.
(8) Invest more than 5% of its total assets in the securities of any
one issuer (other than obligations issued or guaranteed by the
United States Government or its agencies or instrumentalities); or
purchase more than 10% of the outstanding voting securities of any
one issuer.
(9) Act as an underwriter of securities, except to the extent the Fund
may be deemed to be an underwriter in connection with the sale of
securities held in its portfolio.
(10) Concentrate its investments in any particular industry or
industries, except that the Fund may invest not more than 25% of
the value of its total assets in a single industry; provided,
however, that this limitation shall not be applicable to the
purchase of Municipal Obligations issued by governments or
political subdivisions of governments, obligations issued or
guaranteed by the United States Government or its agencies or
instrumentalities, or obligations of domestic banks (excluding
foreign branches of domestic banks).
(11) Sell securities short (except where the Fund holds or has the right
to obtain at no added cost a long position in the securities sold
that equals or exceeds the securities sold short) or purchase any
securities on margin, except it may obtain such short-term credits
as are necessary for the clearance of transactions.
(12) Invest in interests in oil, gas or other mineral exploration or
development programs, although the Fund may invest in securities of
issuers which invest in or sponsor such programs.
The Fund has also adopted the following restrictions which are not
fundamental policies and may be changed without shareholder approval. It is
contrary to the Fund's present policy to:
(1) Invest more than 10% of its total assets in securities not readily
marketable, in repurchase agreements maturing in more than seven
days, and in other illiquid securities.
(2) Purchase securities of any issuer having less than three years'
continuous operation (including operations of any predecessors) if
such purchase would cause the value of the Fund's investments in
all such issuers to exceed 5% of the value of its total assets;
provided that this limitation shall not apply to obligations issued
or guaranteed by the United States Government or its agencies or
instrumentalities or to Municipal Obligations other than industrial
development bonds issued by non-governmental issuers.
(3) Invest more than 10% of its assets in securities of other
investment companies, invest more than 5% of its total assets in
the securities of any one investment company, or acquire more than
3% of the outstanding voting securities of any one investment
company except in connection with a merger, consolidation or plan
of reorganization.
(4) Pledge, mortgage or hypothecate its assets, except to secure
permitted borrowings.
(5) Invest in companies for the purpose of exercising control or
management.
(6) Write or purchase put or call options.
(7) Invest more than 20% of its total assets in industrial development
bonds the interest on which is treated as a tax preference item for
purposes of the federal alternative minimum tax.
(8) Purchase warrants in excess of 5% of its total assets, of which 2%
may be invested in warrants that are not listed on the New York or
American Stock Exchange.
(9) Invest in real estate limited partnership interests.
The identification of the issuer of a Municipal Obligation depends on the
terms and conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the security is backed only
by the assets and revenues of the subdivision, such subdivision would be deemed
to be the sole issuer. Similarly, in the case of an industrial development bond,
if that bond is backed only by the assets and revenues of the non-governmental
user, then such non-governmental user would be deemed to be the sole issuer. If,
however, in either case, the creating government or some other entity guarantees
a security, such a guarantee would be considered a separate security and will be
treated as an issue of such government or other entity.
The Fund may invest without limit in debt obligations of issuers located
in the same state and in debt obligations which are repayable out of revenue
sources generated from economically related projects or facilities. Sizable
investments in such obligations could involve an increased risk to the Fund
since an economic, business or political development or change affecting one
security could also affect others. The Fund may also invest without limit in
industrial development bonds, but it will not invest more than 20% of its total
assets in any municipal obligations the interest on which is treated as a tax
preference item for purposes of the federal alternative minimum tax.
The Fund's Manager will waive its management fee on the Fund's assets
invested in securities of other investment companies. The Fund will generally
invest in other investment companies only for short-term cash management
purposes when the advisor anticipates the net return from the investment to be
superior to alternatives then available. The Fund will generally invest only in
those investment companies that have investment policies requiring investment in
securities comparable in quality to those in which the Fund invests.
FUNDS' INVESTMENTS
The following information further supplements the discussion of the
Funds' investment objectives and policies in the Prospectus under the caption
"INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS."
In making selections of equity securities for the Funds, the Manager will
use an approach described broadly as that of fundamental analysis. Three basic
steps are involved in this analysis. First is the continuing study of basic
economic factors in an effort to conclude what the future general economic
climate is likely to be over the next one to two years. Second, given some
conviction as to the likely economic climate, the Manager attempts to identify
the prospects for the major industrial, commercial and financial segments of the
economy, by looking at such factors as demand for products, capacity to produce,
operating costs, pricing structure, marketing techniques, adequacy of raw
materials and components, domestic and foreign competition, and research
productivity, to ascertain prospects for each industry for the near and
intermediate term. Finally, determinations are made regarding earnings prospects
for individual companies within each industry by considering the same types of
factors described above. These earnings prospects are then evaluated in relation
to the current price of the securities of each company.
Although the Funds may pursue the investment practices described under
the captions Restricted Securities, Foreign Securities, Spread Transactions,
Options on Securities and Securities Indices, and Futures Contracts and Options
on Futures Contracts, Forward Foreign Currency Exchange Contracts, Repurchase
Agreements, Lending of Portfolio Securities and When-Issued and Delayed of
Delivery Securities, none of the Funds either committed during the last fiscal
year or currently intends to commit during the present fiscal year more than 5%
of its net assets to any of the practices, with the following exceptions: (1)
The High Yield Fund's investment in restricted securities exceeded 5% during the
fiscal year ended October 31, 1995. The Fund does not intend to commit more than
5% of its net assets to restricted securities during the present fiscal year;
and (2) The World, Bond and High Yield Funds' investments in foreign securities
are expected to continue to exceed 5% of each Fund's net assets.
Restricted Securities
Each of the Funds has adopted investment restrictions that limit its
investments in restricted securities or other illiquid securities to 15% (10%
for the Government Securities Income Fund and the Money Market Funds and not
more than 5% in equity securities) of its assets. The Board of Directors of each
of the Growth-Oriented and Income-Oriented Funds has adopted procedures to
determine the liquidity of Rule 4(2) short-term paper and of restricted
securities under Rule 144A. Securities determined to be liquid pursuant to such
procedures are excluded from other restricted securities when applying the
preceding investment restrictions.
Generally, restricted securities are not readily marketable because they
are subject to legal or contractual restrictions upon resale. They may be sold
only in a public offering with respect to which a registration statement is in
effect under the Securities Act of 1933 or in a transaction which is exempt from
the registration requirements of that act. When registration is required, a Fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell. Restricted securities and other securities not readily
marketable will be priced at fair value as determined in good faith by or under
the direction of the Board of Directors.
Foreign Securities
Each of the following Princor Funds may invest in foreign securities to
the indicated percentage of its assets: World Fund - 100%; Balanced, Blue Chip,
Bond, Capital Accumulation, Emerging Growth, Growth, High Yield, Limited Term
Bond Fund and Utilities Funds - 20%.
Investment in foreign securities presents certain risks, including those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, the imposition of foreign taxes, future political and economic
developments including war, expropriations, nationalization, the possible
imposition of currency exchange controls and other foreign governmental laws or
restrictions, reduced availability of public information concerning issuers, and
the fact that foreign issuers are not generally subject to uniform accounting,
auditing and financial reporting standards or to other regulatory practices and
requirements comparable to those applicable to domestic issuers. Moreover,
securities of many foreign issuers may be less liquid and their prices more
volatile than those of comparable domestic issuers. In addition, transactions in
foreign securities may be subject to higher costs, and the time for settlement
of transactions in foreign securities may be longer than the settlement period
for domestic issuers. Each Fund's investment in foreign securities may also
result in higher custodial costs and the costs associated with currency
conversions.
Spread Transactions, Options on Securities and Securities Indices, and Futures
Contracts and Options on Futures Contracts
The Balanced, Blue Chip, Bond, Emerging Growth, Government Securities
Income, High Yield, Limited Term Bond, Utilities and World Funds may each engage
in the practices described under this heading. The Tax-Exempt Bond Fund may
invest in financial futures contracts as described under this heading. In the
following discussion, the terms "the Fund," "each Fund" or "the Funds" refer to
each of these Funds.
Spread Transactions
Each Fund may purchase from securities dealers covered spread options.
Such covered spread options are not presently exchange listed or traded. The
purchase of a spread option gives the Fund the right to put, or sell, a security
that it owns at a fixed dollar spread or fixed yield spread in relationship to
another security that the Fund does not own, but which is used as a benchmark.
The risk to the Fund in purchasing covered spread options is the cost of the
premium paid for the spread option and any transaction costs. In addition, there
is no assurance that closing transactions will be available. The purchase of
spread options can be used to protect each Fund against adverse changes in
prevailing credit quality spreads, i.e., the yield spread between high quality
and lower quality securities. The security covering the spread option will be
maintained in a segregated account by each Fund's custodian. The Funds do not
consider a security covered by a spread option to be "pledged" as that term is
used in the Funds' policy limiting the pledging or mortgaging of assets.
Options on Securities and Securities Indices
Each Fund may write (sell) and purchase call and put options on
securities in which it may invest and on securities indices based on securities
in which the Fund may invest. The World Fund may only write covered call options
on its portfolio securities; it may not write or purchase put options. The Funds
may write call and put options to generate additional revenue, and may write and
purchase call and put options in seeking to hedge against a decline in the value
of securities owned or an increase in the price of securities which the Fund
plans to purchase.
Writing Covered Call and Put Options. When a Fund writes a call
option, it gives the purchaser of the option, in return for the premium it
receives, the right to buy from the Fund the underlying security at a specified
price at any time before the option expires. When a Fund writes a put option, it
gives the purchaser of the option, in return for the premium it receives, the
right to sell to the Fund the underlying security at a specified price at any
time before the option expires.
The premium received by a Fund, when it writes a put or call option,
reflects, among other factors, the current market price of the underlying
security, the relationship of the exercise price to the market price, the time
period until the expiration of the option and interest rates. The premium will
generate additional income for the Fund if the option expires unexercised or is
closed out at a profit. By writing a call, a Fund limits its opportunity to
profit from any increase in the market value of the underlying security above
the exercise price of the option, but it retains the risk of loss if the price
of the security should decline. By writing a put, a Fund assumes the risk that
it may have to purchase the underlying security at a price that may be higher
than its market value at time of exercise.
The Funds write only covered options and will comply with applicable
regulatory and exchange cover requirements. The Funds usually will (and the
World Fund must) own the underlying security covered by any outstanding call
option that it has written. With respect to an outstanding put option that it
has written, each Fund will deposit and maintain with its custodian cash, U.S.
Government securities or other liquid securities with a value at least equal to
the exercise price of the option.
Once a Fund has written an option, it may terminate its obligation,
before the option is exercised, by effecting a closing transaction, which is
accomplished by the Fund's purchasing an option of the same series as the option
previously written. The Funds will have a gain or loss depending on whether the
premium received when the option was written exceeds the closing purchase price
plus related transaction costs.
Purchasing Call and Put Options. When a Fund purchases a call option, it
receives, in return for the premium it pays, the right to buy from the writer of
the option the underlying security at a specified price at any time before the
option expires. The Fund may purchase call options in anticipation of an
increase in the market value of securities that it intends ultimately to buy.
During the life of the call option, the Fund would be able to buy the underlying
security at the exercise price regardless of any increase in the market price of
the underlying security. In order for a call option to result in a gain, the
market price of the underlying security must rise to a level that exceeds the
sum of the exercise price, the premium paid and transaction costs.
When a Fund purchases a put option, it receives, in return for the
premium it pays, the right to sell to the writer of the option the underlying
security at a specified price at any time before the option expires. The Fund
may purchase put options in anticipation of a decline in the market value of the
underlying security. During the life of the put option, the Fund would be able
to sell the underlying security at the exercise price regardless of any decline
in the market price of the underlying security. In order for a put option to
result in a gain, the market price of the underlying security must decline,
during the option period, below the exercise price sufficiently to cover the
premium and transaction costs.
Once a Fund has purchased an option, it may close out its position by
selling an option of the same series as the option previously purchased. The
Fund will have a gain or loss depending on whether the closing sale price
exceeds the initial purchase price plus related transaction costs.
None of the Funds will invest more than 5% of its assets in the purchase
of call and put options on individual securities, securities indices and futures
contracts.
Options on Securities Indices. Each Fund may purchase and sell put
and call options on any securities index based on securities in which the Fund
may invest. Securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than price
fluctuations in a single security. Options on securities indices are similar to
options on securities, except that the exercise of securities index options
requires cash payments and does not involve the actual purchase or sale of
securities. The Funds would engage in transactions in put and call options on
securities indices for the same purposes as they would engage in transactions in
options on securities. When a Fund writes call options on securities indices, it
will hold in its portfolio underlying securities which, in the judgment of the
Manager, correlate closely with the securities index and which have a value at
least equal to the aggregate amount of the securities index options.
Risks Associated with Options Transactions. An options position may
be closed out only on an exchange which provides a secondary market for an
option of the same series. Although the Funds will generally purchase or write
only those options for which there appears to be an active secondary market,
there is no assurance that a liquid secondary market on an exchange will exist
for any particular option, or at any particular time. For some options, no
secondary market on an exchange or elsewhere may exist. If a Fund is unable to
effect closing sale transactions in options it has purchased, the Fund would
have to exercise its options in order to realize any profit and may incur
transaction costs upon the purchase or sale of underlying securities pursuant
thereto. If a Fund is unable to effect a closing purchase transaction for a
covered option that it has written, it will not be able to sell the underlying
securities, or dispose of the assets held in a segregated account, until the
option expires or is exercised. A Fund's ability to terminate option positions
established in the over-the-counter market may be more limited than for
exchange-traded options and may also involve the risk that broker-dealers
participating in such transactions might fail to meet their obligations.
Futures Contracts and Options on Futures
Each Fund may purchase and sell financial futures contracts and options
on those contracts. Financial futures contracts are commodities contracts based
on financial instruments such as U.S. Treasury bonds or bills or on securities
indices such as the S&P 500 Index. Futures contracts, options on futures
contracts and the commodity exchanges on which they are traded are regulated by
the Commodity Futures Trading Commission ("CFTC"). Through the purchase and sale
of futures contracts and related options, a Fund may seek to hedge against a
decline in securities owned by the Fund or an increase in the price of
securities which the Fund plans to purchase.
Futures Contracts. When a Fund sells a futures contract based on a
financial instrument, the Fund becomes obligated to deliver that kind of
instrument at a specified future time for a specified price. When a Fund
purchases that kind of contract, it becomes obligated to take delivery of the
instrument at a specified time and to pay the specified price. In most
instances, these contracts are closed out by entering into an offsetting
transaction before the settlement date, thereby canceling the obligation to make
or take delivery of specific securities. The Fund realizes a gain or loss
depending on whether the price of an offsetting purchase plus transaction costs
are less or more than the price of the initial sale or on whether the price of
an offsetting sale is more or less than the price of the initial purchase plus
transaction costs. Although the Funds will usually liquidate futures contracts
on financial instruments in this manner, they may instead make or take delivery
of the underlying securities whenever it appears economically advantageous to do
so.
A futures contract based on a securities index provides for the purchase
or sale of a group of securities at a specified future time for a specified
price. These contracts do not require actual delivery of securities, but result
in a cash settlement based upon the difference in value of the index between the
time the contract was entered into and the time it is liquidated, which may be
at its expiration or earlier if it is closed out by entering into an offsetting
transaction.
When a futures contract is purchased or sold a brokerage commission is
paid, but unlike the purchase or sale of a security or option, no price or
premium is paid or received. Instead, an amount of cash or U.S. Government
securities, which varies, but is generally about 5% of the contract amount, is
deposited by the Fund with its custodian for the benefit of the futures
commission merchant through which the Fund engages in the transaction. This
amount is known as "initial margin." It does not involve the borrowing of funds
by the Fund to finance the transaction, but instead represents a "good faith"
deposit assuring the performance of both the purchaser and the seller under the
futures contract. It is returned to the Fund upon termination of the futures
contract, if all the Fund's contractual obligations have been satisfied.
Subsequent payments to and from the broker, known as "variation margin,"
are required to be made on a daily basis as the price of the futures contract
fluctuates, making the long or short positions in the futures contract more or
less valuable, a process known as "marking to market." If the position is closed
out by taking an opposite position prior to the settlement date of the futures
contract, a final determination of variation margin is made, additional cash is
required to be paid to or released by the broker, and the Fund realizes a loss
or gain.
In using futures contracts, the Funds will seek to establish more
certainly than would otherwise be possible the effective price of or rate of
return on portfolio securities or securities that the Fund proposes to acquire.
A Fund, for example, may sell futures contracts in anticipation of a rise in
interest rates which would cause a decline in the value of its debt investments.
When this kind of hedging is successful, the futures contracts should increase
in value when the Fund's debt securities decline in value and thereby keep the
Fund's net asset value from declining as much as it otherwise would. A Fund may
also sell futures contracts on securities indices in anticipation of or during a
stock market decline in an endeavor to offset a decrease in the market value of
its equity investments. When a Fund is not fully invested and anticipates an
increase in the cost of securities it intends to purchase, it may purchase
financial futures contracts. When increases in the prices of equities are
expected, a Fund may purchase futures contracts on securities indices in order
to gain rapid market exposure that may partially or entirely offset increases in
the cost of the equity securities it intends to purchase.
Options on Futures. The Funds may also purchase and write call and
put options on futures contracts. A call option on a futures contract gives the
purchaser the right, in return for the premium paid, to purchase a futures
contract (assume a long position) at a specified exercise price at any time
before the option expires. A put option gives the purchaser the right, in return
for the premium paid, to sell a futures contract (assume a short position), for
a specified exercise price, at any time before the option expires.
Upon the exercise of a call, the writer of the option is obligated to sell
the futures contract (to deliver a long position to the option holder) at the
option exercise price, which will presumably be lower than the current market
price of the contract in the futures market. Upon exercise of a put, the writer
of the option is obligated to purchase the futures contract (deliver a short
position to the option holder) at the option exercise price, which will
presumably be higher than the current market price of the contract in the
futures market. However, as with the trading of futures, most options are closed
out prior to their expiration by the purchase or sale of an offsetting option at
a market price that will reflect an increase or a decrease from the premium
originally paid.
Options on futures can be used to hedge substantially the same risks as
might be addressed by the direct purchase or sale of the underlying futures
contracts. For example, if a Fund anticipated a rise in interest rates and a
decline in the market value of the debt securities in its portfolio, it might
purchase put options or write call options on futures contracts instead of
selling futures contracts.
If a Fund purchases an option on a futures contract, it may obtain
benefits similar to those that would result if it held the futures position
itself. But in contrast to a futures transaction, the purchase of an option
involves the payment of a premium in addition to transaction costs. In the event
of an adverse market movement, however, the Fund will not be subject to a risk
of loss on the option transaction beyond the price of the premium it paid plus
its transaction costs.
When a Fund writes an option on a futures contract, the premium paid by
the purchaser is deposited with the Fund's custodian, and the Fund must maintain
with its custodian all or a portion of the initial margin requirement on the
underlying futures contract. The Fund assumes a risk of adverse movement in the
price of the underlying futures contract comparable to that involved in holding
a futures position. Subsequent payments to and from the broker, similar to
variation margin payments, are made as the premium and the initial margin
requirement are marked to market daily. The premium may partially offset an
unfavorable change in the value of portfolio securities, if the option is not
exercised, or it may reduce the amount of any loss incurred by the Fund if the
option is exercised.
Risks Associated with Futures Transactions. There are a number of
risks associated with transactions in futures contracts and related options. A
Fund's successful use of futures contracts is subject to the Manager's ability
to predict correctly the factors affecting the market values of the Fund's
portfolio securities. For example, if a Fund was hedged against the possibility
of an increase in interest rates which would adversely affect debt securities
held by the Fund and the prices of those debt securities instead increased, the
Fund would lose part or all of the benefit of the increased value of its
securities which it hedged because it would have offsetting losses in its
futures positions. Other risks include imperfect correlation between price
movements in the financial instrument or securities index underlying the futures
contract, on the one hand, and the price movements of either the futures
contract itself or the securities held by the Fund, on the other hand. If the
prices do not move in the same direction or to the same extent, the transaction
may result in trading losses.
Prior to exercise or expiration, a position in futures may be terminated
only by entering into a closing purchase or sale transaction. This requires a
secondary market on the relevant contract market. The Fund will enter into a
futures contract or related option only if there appears to be a liquid
secondary market therefor. There can be no assurance, however, that such a
liquid secondary market will exist for any particular futures contract or
related option at any specific time. Thus, it may not be possible to close out a
futures position once it has been established. Under such circumstances, the
Fund would continue to be required to make daily cash payments of variation
margin in the event of adverse price movements. In such situations, if the Fund
has insufficient cash, it may be required to sell portfolio securities to meet
daily variation margin requirements at a time when it may be disadvantageous to
do so. In addition, the Fund may be required to perform under the terms of the
futures contracts it holds. The inability to close out futures positions also
could have an adverse impact on the Fund's ability effectively to hedge its
portfolio.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. This daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
Limitations on the Use of Futures and Options on Futures. Each Fund
intends to come within an exclusion from the definition of "commodity pool
operator" provided by CFTC regulations by complying with certain limitations on
the use of futures and related options prescribed by those regulations.
None of the Funds will purchase or sell futures contracts or options
thereon if immediately thereafter the aggregate initial margin and premiums
exceed 5% of the fair market value of the Fund's assets, after taking into
account unrealized profits and unrealized losses on any such contracts it has
entered into (except that in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount generally may be excluded in computing
the 5%).
The Funds will enter into futures contracts and related options
transactions only for bona fide hedging purposes as permitted by the CFTC and
for other appropriate risk management purposes, if any, which the CFTC may deem
appropriate for mutual funds excluded from the regulations governing commodity
pool operators. The Funds are not permitted to engage in speculative futures
trading. Each Fund will determine that the price fluctuations in the futures
contracts and options on futures used for hedging or risk management purposes
are substantially related to price fluctuations in securities held by the Fund
or which it expects to purchase. In pursuing traditional hedging activities,
each Fund will sell futures contracts or acquire puts to protect against a
decline in the price of securities that the Fund owns, and each Fund will
purchase futures contracts or calls on futures contracts to protect the Fund
against an increase in the price of securities the Fund intends to purchase
before it is in a position to do so.
When a Fund purchases a futures contract, or purchases a call option on a
futures contract, it will maintain an amount of cash, cash equivalents or
short-term high-grade fixed-income securities in a segregated account with the
Fund's custodian, so that the amount so segregated plus the amount of initial
margin held for the account of its broker equals the market value of the futures
contract.
The Funds will not maintain open short positions in futures contracts,
call options written on futures contracts, and call options written on
securities indices if, in the aggregate, the value of the open positions (marked
to market) exceeds the current market value of that portion of its securities
portfolio being hedged by those futures and options plus or minus the unrealized
gain or loss on those open positions, adjusted for the historical volatility
relationship between that portion of the portfolio and the contracts (i.e., the
Beta volatility factor). To the extent a Fund has written call options on
specific securities in that portion of its portfolio, the value of those
securities will be deducted from the current market value of that portion of the
securities portfolio. If this limitation should be exceeded at any time, the
Fund will take prompt action to close out the appropriate number of open short
positions to bring its open futures and options positions within this
limitation.
Forward Foreign Currency Exchange Contracts
The World Fund may, but is not obligated to, enter into forward foreign
currency exchange contracts but may do so only under two circumstances. First,
when it is entering into a contract for the purchase or sale of a security
denominated in a foreign currency and wants to "lock-in" the U.S. dollar price
of the security. Second, when the Manager believes that the currency of a
particular foreign country in which a portion of the Fund's securities are
denominated may suffer a substantial decline against the U.S. dollar. The Fund
generally will not enter into a forward contract with a term of greater than one
year.
The World Fund will enter into forward foreign currency exchange
contracts only for the purpose of "hedging," that is limiting the risks
associated with changes in the relative rates of exchange between the U.S.
dollar and foreign currencies in which securities owned by the Fund are
denominated. It will not enter into such forward contracts for speculative
purposes. The Fund will set up a separate account with the Custodian to place
foreign securities denominated in the currency for which the Fund has entered
into forward contracts under the second circumstance, as set forth above, for
the term of the forward contract.
It should be noted that the use of forward foreign currency exchange
contracts does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange between the currencies
which can be achieved at some future point in time. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, they also tend to limit any potential gain which might result
if the value of the currency increases.
Repurchase Agreements
All Princor Funds may invest in repurchase agreements. None of the
Growth-Oriented or Income- Oriented Funds will enter into repurchase agreements
that do not mature within seven days if any such investment, together with other
illiquid securities held by the Fund, would amount to more than 15% of its
assets. Neither of the Money Market Funds will enter into repurchase agreements
that do not mature within seven days of such investment together with other
illiquid securities held by the Fund, would amount to more than 10% of its
assets. Repurchase agreements will typically involve the acquisition by the Fund
of debt securities from a selling financial institution such as a bank, savings
and loan association or broker-dealer. A repurchase agreement provides that the
Fund will sell back to the seller and that the seller will repurchase the
underlying securities at a specified price and at a fixed time in the future.
Repurchase agreements may be viewed as loans by a Fund collateralized by the
underlying securities ("collateral"). This arrangement results in a fixed rate
of return that is not subject to market fluctuation during the Fund's holding
period. Although repurchase agreements involve certain risks not associated with
direct investments in debt securities, each of the Funds follows procedures
established by its Board of Directors which are designed to minimize such risks.
These procedures include entering into repurchase agreements only with large,
well-capitalized and well-established financial institutions, which have been
approved by the Fund's Board of Directors and which the Fund's Manager believes
present minimum credit risks. In addition, the value of the collateral
underlying the repurchase agreement will always be at least equal to the
repurchase price, including accrued interest. In the event of a default or
bankruptcy by a selling financial institution, the affected Fund bears a risk of
loss. In seeking to liquidate the collateral, a Fund may be delayed in or
prevented from exercising its rights and may incur certain costs. Further to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a loss.
Lending of Portfolio Securities
All Princor Funds, except the Capital Accumulation, Growth and Cash
Management Funds, may lend their portfolio securities. None of the Princor Funds
intends to lend its portfolio securities if as a result the aggregate of such
loans made by the Fund would exceed 30% of its total assets. Portfolio
securities may be lent to unaffiliated broker-dealers and other unaffiliated
qualified financial institutions provided that such loans are callable at any
time on not more than five business days' notice and that cash or government
securities equal to at least 100% of the market value of the securities loaned,
determined daily, is deposited by the borrower with the Fund and is maintained
each business day in a segregated account. While such securities are on loan,
the borrower will pay the Fund any income accruing thereon, and the Fund may
invest any cash collateral, thereby earning additional income, or may receive an
agreed-upon fee from the borrower. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to the Fund and its
shareholders. A Fund may pay reasonable administrative, custodial and other fees
in connection with such loans and may pay a negotiated portion of the interest
earned on the cash or government securities pledged as collateral to the
borrower or placing broker. A Fund does not vote securities that have been
loaned, but it will call a loan of securities in anticipation of an important
vote.
When-Issued and Delayed Delivery Securities
Each of the Princor Funds may from time to time purchase securities on a
when-issued basis and may purchase or sell securities on a delayed delivery
basis. The price of such a transaction is fixed at the time of the commitment,
but delivery and payment take place on a later settlement date, which may be a
month or more after the date of the commitment. No interest accrues to the
purchaser during this period, and the securities are subject to market
fluctuation, which involves the risk for the purchaser that yields available in
the market at the time of delivery may be higher than those obtained in the
transaction. Each Fund will only purchase securities on a when-issued or delayed
delivery basis with the intention of acquiring the securities, but a Fund may
sell the securities before the settlement date, if such action is deemed
advisable. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction and
thereafter reflect the value, each day, of the securities in determining its net
asset value. Each Fund will also establish a segregated account with its
custodian bank in which it will maintain cash or cash equivalents, United States
Government securities and other high grade debt obligations equal in value to
the Fund's commitments for such when-issued or delayed delivery securities. The
availability of liquid assets for this purpose and the effect of asset
segregation on a Fund's ability to meet its current obligations, to honor
requests for redemption and to have its investment portfolio managed properly
will limit the extent to which the Fund may engage in forward commitment
agreements. Except as may be imposed by these factors, there is no limit on the
percent of a Fund's total assets that may be committed to transactions in such
agreements.
Money Market Instruments
The Cash Management Fund will invest all of its available assets in money
market instruments maturing in 397 days or less. The types of instruments which
this Fund may purchase are described in the Prospectus and below.
(1) U.S. Government Securities -- Securities issued or guaranteed by the
U.S. Government, including treasury bills, notes and bonds.
(2) U.S. Government Agency Securities -- Obligations issued or guaranteed
by agencies or instrumentalities of the U.S. Government. U.S. agency
obligations include, but are not limited to, the Bank for
Co-operatives, Federal Home Loan Banks, Federal Intermediate Credit
Banks, and the Federal National Mortgage Association. U.S.
instrumentality obligations include, but are not limited to, the
Export-Import Bank and Farmers Home Administration. Some obligations
issued or guaranteed by U.S. Government agencies and instrumentalities
are supported by the full faith and credit of the U.S. Treasury,
others such as those issued by the Federal National Mortgage
Association, by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality, and
others, such as those issued by the Student Loan Marketing
Association, only by the credit of the agency or instrumentality.
(3) Bank Obligations -- Certificates of deposit, time deposits and
bankers' acceptances of U.S. commercial banks having total assets of
at least one billion dollars, and of the overseas branches of U.S.
commercial banks and foreign banks, which in the Manager's opinion,
are of comparable quality, provided each such bank with its branches
has total assets of at least five billion dollars, and certificates,
including time deposits of domestic savings and loan associations
having at least one billion dollars in assets which are insured by the
Federal Savings and Loan Insurance Corporation. The Fund may acquire
obligations of U.S. banks which are not members of the Federal Reserve
System or of the Federal Deposit Insurance Corporation. Any
obligations of foreign banks shall be denominated in U.S. dollars.
Obligations of foreign banks and obligations of overseas branches of
U.S. banks are subject to somewhat different regulations and risks
than those of U.S. domestic banks. For example, an issuing bank may be
able to maintain that the liability for an investment is solely that
of the overseas branch which could expose the Fund to a greater risk
of loss. In addition, obligations of foreign banks or of overseas
branches of U.S. banks may be affected by governmental action in the
country of domicile of the branch or parent bank. Examples of adverse
foreign governmental actions include the imposition of currency
controls, the imposition of withholding taxes on interest income
payable on such obligations, interest limitations, seizure or
nationalization of assets, or the declaration of a moratorium.
Deposits in foreign banks or foreign branches of U.S. banks are not
covered by the Federal Deposit Insurance Corporation. The Fund will
only buy short-term instruments where the risks of adverse
governmental action are believed by the Manager to be minimal. The
Fund will consider these factors along with other appropriate factors
in making an investment decision to acquire such obligations and will
only acquire those which, in the opinion of management, are of an
investment quality comparable to other debt securities bought by the
Fund. The Fund may invest in certificates of deposit of selected banks
having less than one billion dollars of assets providing the
certificates do not exceed the level of insurance (currently $100,000)
provided by the applicable government agency.
A certificate of deposit is issued against funds deposited in a bank
or savings and loan association for a definite period of time, at a
specified rate of return. Normally they are negotiable. However, the
Fund may occasionally invest in certificates of deposit which are not
negotiable. Such certificates may provide for interest penalties in
the event of withdrawal prior to their maturity. A bankers' acceptance
is a short-term credit instrument issued by corporations to finance
the import, export, transfer or storage of goods. They are termed
"accepted" when a bank guarantees their payment at maturity and
reflect the obligation of both the bank and drawer to pay the face
amount of the instrument at maturity.
(4) Commercial Paper -- Short-term promissory notes issued by corporations.
(5) Short-term Corporate Debt -- Corporate notes, bonds and debentures
which at the time of purchase have 397 days or less remaining to
maturity.
(6) Repurchase Agreements -- Instruments under which securities are
purchased from a bank or securities dealer with an agreement by the
seller to repurchase the securities at the same price plus interest at
a specified rate. (See "FUND INVESTMENTS - Repurchase Agreements.")
The ratings of nationally recognized statistical rating organization
(NRSRO's), such as Moody's Investor Services, Inc. ("Moody's") and Standard and
Poor's ("S&P"), which are described in Appendix A, represent their opinions as
to the quality of the money market instruments which they undertake to rate. It
should be emphasized, however, that ratings are general and are not absolute
standards of quality. These ratings, including ratings of NRSRO's other than
Moody's and S&P, are the initial criteria for selection of portfolio
investments, but the Manager will further evaluate these securities.
Municipal Obligations
The Tax-Exempt Bond Fund and Tax-Exempt Cash Management Fund can each
invest in "Municipal Obligations." Municipal Obligations are obligations issued
by or on behalf of states, territories, and possessions of the United States and
the District of Columbia and their political subdivisions, agencies and
instrumentalities, including municipal utilities, or multi-state agencies or
authorities, the interest from which is exempt from federal income tax in the
opinion of bond counsel to the issuer. Three major classifications of Municipal
Obligations are Municipal Bonds, which generally have a maturity at the time of
issue of one year or more, Municipal Notes, which generally have a maturity at
the time of issue of six months to three years, and Municipal Commercial Paper,
which generally has a maturity at the time of issue of 30 to 270 days. The
Tax-Exempt Cash Management Fund will only purchase Municipal Obligations that,
at the time of purchase, have 397 days or less remaining to maturity or have a
variable or floating rate of interest.
The term "Municipal Obligations" includes debt obligations issued to
obtain funds for various public purposes, including the construction of a wide
range of public facilities such as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer works and
electric utilities. Other public purposes for which Municipal Obligations may be
issued include refunding outstanding obligations, obtaining funds for general
operating expenses and lending such funds to other public institutions and
facilities.
Industrial development bonds issued by or on behalf of public authorities
to obtain funds to provide for the construction, equipment, repair or
improvement of privately operated housing facilities, sports facilities,
convention or trade show facilities, airport, mass transit, industrial, port or
parking facilities, air or water pollution control facilities and certain local
facilities for water supply, gas, electricity or sewage or solid waste disposal
are considered to be Municipal Obligations if the interest paid thereon
qualifies as exempt from federal income tax in the opinion of bond counsel to
the issuer, even though the interest may be subject to the federal alternative
minimum tax.
Municipal Bonds. Municipal Bonds may be either "general obligation" or
"revenue" issues. General obligation bonds are secured by the issuer's pledge of
its faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source (e.g., the user of the facilities being
financed), but not from the general taxing power. Industrial development bonds
and pollution control bonds in most cases are revenue bonds and generally do not
carry the pledge of the credit of the issuing municipality. The payment of the
principal and interest on industrial revenue bonds depends solely on the ability
of the user of the facilities financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment. The Fund may also invest in "moral obligation" bonds
which are normally issued by special purpose public authorities. If an issuer of
moral obligation bonds is unable to meet its obligations, the repayment of the
bonds becomes a moral commitment but not a legal obligation of the state or
municipality in question.
Municipal Notes. Municipal Notes usually are general obligations of the
issuer and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Payment of these notes is primarily dependent upon
the issuer's receipt of the anticipated revenues. Other notes include
"Construction Loan Notes" issued to provide construction financing for specific
projects, and "Bank Notes" issued by local governmental bodies and agencies to
commercial banks as evidence of borrowings. Some notes ("Project Notes") are
issued by local agencies under a program administered by the United States
Department of Housing and Urban Development. Project Notes are secured by the
full faith and credit of the United States.
Bond Anticipation Notes (BANs) are usually general obligations of state
and local governmental issuers which are sold to obtain interim financing for
projects that will eventually be funded through the sale of long-term debt
obligations or bonds. The ability of an issuer to meet its obligations on its
BANs is primarily dependent on the issuer's access to the long-term municipal
bond market and the likelihood that the proceeds of such bond sales will be used
to pay the principal and interest on the BANs.
Tax Anticipation Notes (TANs) are issued by state and local governments
to finance the current operations of such governments. Repayment is generally to
be derived from specific future tax revenues. TANs are usually general
obligations of the issuer. A weakness in an issuer's capacity to raise taxes due
to, among other things, a decline in its tax base or a rise in delinquencies,
could adversely affect the issuer's ability to meet its obligations on
outstanding TANs.
Revenue Anticipation Notes (RANs) are issued by governments or
governmental bodies with the expectation that future revenues from a designated
source will be used to repay the notes. In general they also constitute general
obligations of the issuer. A decline in the receipt of projected revenues, such
as anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal and
interest on RANs.
Construction Loan Notes are issued to provide construction financing for
specific projects. Frequently, these notes are redeemed with funds obtained from
the Federal Housing Administration.
Bank Notes are notes issued by local governmental bodies and agencies
such as those described above to commercial banks as evidence of borrowings. The
purpose for which the notes are issued are varied but they are frequently issued
to meet short-term working-capital or capital-project needs. These notes may
have risks similar to the risks associated with TANs and RANs.
Municipal Commercial Paper. Municipal Commercial Paper refers to short-term
obligations of municipalities which may be issued at a discount and may be
referred to as Short-Term Discount Notes. Municipal Commercial Paper is likely
to be used to meet seasonal working capital needs of a municipality or interim
construction financing and to be paid from general revenues of the municipality
or refinanced with long-term debt. In most cases Municipal Commercial Paper is
backed by letters of credit, lending agreements, note repurchase agreements or
other credit facility agreements offered by banks or other institutions.
Variable and Floating Rate Obligations. Certain Municipal Obligations,
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities and debt instruments issued by domestic banks or corporations
may carry variable or floating rates of interest. Such instruments bear interest
at rates which are not fixed, but which vary with changes in specified market
rates or indices, such as a bank prime rate or tax-exempt money market index.
Variable rate notes are adjusted to current interest rate levels at certain
specified times, such as every 30 days, as set forth in the instrument. A
floating rate note adjusts automatically whenever there is a change in its base
interest rate adjustor, e.g., a change in the prime lending rate or specified
interest rate indices. Typically such instruments carry demand features
permitting the Fund to redeem at par upon specified notice.
A Fund's right to obtain payment at par on a demand instrument upon
demand could be affected by events occurring between the date the Fund elects to
redeem the instrument and the date redemption proceeds are due which affects the
ability of the issuer to pay the instrument at par value. The Manager will
monitor on an ongoing basis the pricing, quality and liquidity of such
instruments and will similarly monitor the ability of an issuer of a demand
instrument, including those supported by bank letters of credit or guarantees,
to pay principal and interest on demand. Although the ultimate maturity of such
variable rate obligations may exceed one year, the Funds will treat the maturity
of each variable rate demand obligation as the longer of (i) the notice period
required before the Fund is entitled to payment of the principal amount through
demand, or (ii) the period remaining until the next interest rate adjustment.
Floating rate instruments with demand features are deemed to have a maturity
equal to the period remaining until the principal amount can be recovered
through demand.
The Funds may purchase from financial institutions participation
interests in variable rate Municipal Obligations (such as industrial development
bonds). A participation interest gives the purchaser an undivided interest in
the Municipal Obligation in the proportion that its participation interest bears
to the total principal amount of the Municipal Obligation. A Fund has the right
to demand payment on seven days' notice, for all or any part of the Fund's
participation interest in the Municipal Obligation, plus accrued interest. Each
participation interest is backed by an irrevocable letter of credit or guarantee
of a bank. Banks will retain a service and letter of credit fee and a fee for
issuing repurchase commitments in an amount equal to the excess of the interest
paid on the Municipal Obligations over the negotiated yield at which the
instruments were purchased by the Funds. No Fund committed during the last
fiscal year or currently intends to commit during the present fiscal year more
than 5% of its net assets to participation interests.
Other Municipal Obligations. Other kinds of Municipal Obligations are
occasionally available in the marketplace, and a Fund may invest in such other
kinds of obligations to the extent consistent with its investment objective and
limitations. Such obligations may be issued for different purposes and with
different security than those mentioned above.
Risks of Municipal Obligations. The yields on Municipal Obligations are
dependent on a variety of factors, including general economic and monetary
conditions, money market factors, conditions in the Municipal Obligations
market, size of a particular offering, maturity of the obligation, and rating of
the issue. Each Fund's ability to achieve its investment objective is also
dependent on the continuing ability of the issuers of the Municipal Obligations
in which it invests to meet their obligation for the payment of interest and
principal when due.
Municipal Obligations are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or any state extending the time for payment of principal or interest,
or both, or imposing other constraints upon enforcement of such obligations or
upon municipalities to levy taxes. The power or ability of issuers to pay, when
due, principal of and interest on Municipal Obligations may also be materially
affected by the results of litigation or other conditions.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. It may be expected that similar proposals may
be introduced in the future. If such a proposal were enacted, the ability of the
Funds to pay "exempt interest" dividends may be adversely affected and each Fund
would re-evaluate its investment objective and policies and consider changes in
its structure.
Taxable Investments of the Tax-Exempt Bond Fund
The Tax-Exempt Bond Fund may invest up to 20% of its assets in taxable
short-term investments consisting of: Obligations issued or guaranteed by the
United States Government or its agencies or instrumentalities; domestic bank
certificates of deposit and bankers' acceptances; short-term corporate debt
securities such as commercial paper; and repurchase agreements ("Taxable
Investments"). These investments must have a stated maturity of one year or less
at the time of purchase and must meet the following standards: banks must have
assets of at least $1 billion; commercial paper must be rated at least "A" by
S&P or "Prime" by Moody's or, if not rated, must be issued by companies having
an outstanding debt issue rated at least "A" by S&P or Moody's; corporate bonds
and debentures must be rated at least "A" by S&P or Moody's. Interest earned
from Taxable Investments will be taxable to investors. When, in the opinion of
the Fund's Manager, it is advisable to maintain a temporary "defensive" posture,
the Fund may invest more than 20% of its total assets in Taxable Investments. At
other times, Taxable Investments, Municipal Obligations that do not meet the
quality standards required for the 80% portion of the portfolio and Municipal
Obligations the interest on which is treated as a tax preference item for
purposes of the federal alternative minimum tax will not exceed 20% of the
Fund's total assets.
Temporary Investments for the Tax-Exempt Cash Management Fund
The Tax-Exempt Cash Management Fund may invest, on a temporary basis, up
to 20% of its net assets in taxable short-term investments consisting of:
Obligations issued or guaranteed by the United States Government or its agencies
or instrumentalities; U.S. dollar denominated certificates of deposit issued by
U.S. banks and bankers' acceptances; commercial paper of U.S. corporations;
short-term corporate debt securities; and repurchase agreements ("Temporary
Investments"). These investments must have a stated maturity of 397 days or less
at the time of purchase and must meet the same standards that apply to
securities in which the Cash Management Fund may invest. Interest earned from
Temporary Investments will be taxable to investors. When, in the opinion of the
Fund's Manager, it is advisable to maintain a temporary "defensive" posture, the
Fund may invest more than 20% of its total assets in Temporary Investments.
Portfolio Turnover
Portfolio turnover will normally differ for each Fund, may vary from year
to year, as well as within a year, and may be affected by portfolio sales
necessary to meet cash requirements for redemptions of Fund shares. The
portfolio turnover rate for a Fund is calculated by dividing the lesser of
purchases or sales of its portfolio securities during the fiscal year by the
monthly average of the value of its portfolio securities (excluding from the
computation all securities, including options, with maturities at the time of
acquisition of one year or less). A high rate of portfolio turnover generally
involves correspondingly greater brokerage commission expenses, which must be
borne directly by the Fund. Although the rate of portfolio turnover will not be
a limiting factor when it is deemed appropriate to purchase or sell securities
for a Fund, each Fund intends to limit turnover so that realized short-term
gains on securities held for less than three months do not exceed 30% of gross
income in order to qualify as a "regulated investment company" under the
Internal Revenue Code. This requirement may in some cases limit the ability of a
Fund to effect certain portfolio transactions. No portfolio turnover rate can be
calculated for the Money Market Funds because of the short maturities of the
securities in which they invest. The portfolio turnover rates for each of the
other Funds for its most recent and immediately preceding fiscal periods were as
follows (annualized when reporting period is less than one year): Balanced Fund
- - 35.8% and 14.4%; Blue Chip Fund 26.1% and 5.5%; Bond Fund - 5.1% and 8.9%;
Capital Accumulation Fund - 46.0% and 31.7%; Emerging Growth Fund - 13.5% and
8.1%; Government Securities Income Fund - 10.1% and 24.8%; Growth Fund - 12.2%
and 13.6%; High Yield Fund - 40.3% and 27.2%; Tax-Exempt Bond Fund - 17.6% and
20.6%; Utilities Fund - 13.0% and 13.8%; World Fund - 35.4% and 13.2%. In view
of the Limited Term Bond Fund's investment objective and portfolio management
policies it is anticipated that its annual portfolio turnover rate should
generally not exceed 50%, but in any particular year market conditions could
result in portfolio activity greater than anticipated.
DIRECTORS AND OFFICERS OF THE FUNDS
The following listing discloses the principal occupations and other
principal business affiliations of the Funds' Officers and Directors during the
past five years. All Directors and Officers listed here also hold similar
positions with each of the other mutual funds sponsored by Principal Mutual Life
Insurance Company, except Principal Special Markets Fund, Inc. All mailing
addresses are The Principal Financial Group, Des Moines, Iowa 50392, unless
otherwise indicated.
@James D. Davis, 61, Director. 4940 Center Court, Bettendorf, Iowa.
Attorney. Vice President, Deere and Company, Retired.
*Roy W. Ehrle, 67, Director. 2424 Jordan Trail, West Des Moines, Iowa.
Retired. Prior thereto, Vice Chairman, Principal Mutual Life Insurance Company.
Vice Chairman of the Board and Director, Princor Management Corporation.
Chairman of the Board and Director, Invista Capital Management, Inc. Director,
Iowa Business Development Credit Corporation.
Pamela A. Ferguson, 52, Director. P.O. Box 805, Grinnell, Iowa. President
and Professor of Mathematics, Grinnell College since 1991. Prior thereto,
Associate Provost and Dean of the Graduate School, University of Miami.
@Richard W. Gilbert, 55, Director. 1357 Asbury Avenue, Winnetka, Illinois.
President, Gilbert Communications, Inc. since 1993. Prior thereto, President and
Publisher, Pioneer Press.
*&J. Barry Griswell, 46, Director and Chairman of the Board. Senior Vice
President, Principal Mutual Life Insurance Company, since 1991. Prior thereto,
Agency Vice President. Director and Chairman of the Board, Princor Management
Corporation, Princor Financial Services Corporation.
*&Stephan L. Jones, 60, Director and President. Vice President, Principal
Mutual Life Insurance Company since 1986. Director and President, Princor
Financial Services Corporation and Princor Management Corporation.
*Ronald E. Keller, 59, Director. Executive Vice President, Principal Mutual
Life Insurance Company since 1992. Prior thereto, Senior Vice President,
Principal Mutual Life Insurance Company. Director, Princor Financial Services
Corporation and Princor Management Corporation. Director and Chairman, Invista
Capital Management, Inc.
Barbara A. Lukavsky, 55, Director. 3920 Grand Avenue, Des Moines, Iowa.
President, Lu San, Inc.
@&Richard G. Peebler, 66, Director. 1916 79th Street, Des Moines, Iowa.
Professor, Drake University, College of Business and Public Administration,
since 1990. President, Drake-Des Moines Development Corporation 1986-1990.
Kristian E. Anderson, 37, Assistant Counsel. Counsel, Principal Mutual Life
Insurance Company since 1989. Prior thereto, Attorney 1988-1989; Attorney
Advisor, United States International Trade Commission, 1985-1988.
Craig L. Bassett, 43, Assistant Treasurer. Associate Treasurer, Principal
Mutual Life Insurance Company since 1988. Assistant Treasurer, 1984-1988. Prior
thereto, Manager, Investment-Securities and Accounting.
*Michael J. Beer, 35, Vice President and Financial Officer. Vice President
and Chief Operating Officer, Princor Financial Services Corporation and Princor
Management Corporation, since 1995; Financial Officer, 1991-1995. Prior thereto,
Accounting Manager, Principal Mutual Life Insurance Company.
Arthur S. Filean, 57, Vice President and Secretary. Vice President, Princor
Financial Services Corporation, since 1990.
*Ernest H. Gillum, 40, Assistant Secretary. Assistant Vice President,
Registered Products, Princor Financial Services Corporation and Princor
Management Corporation, since 1995; Product Development and Compliance Officer,
1991-1995. Prior thereto, Registered Investments Products Manager, Principal
Mutual Life Insurance Company.
*Michael D. Roughton, 44, Counsel. Counsel, Principal Mutual Life Insurance
Company since 1994; Prior thereto, Assistant Counsel. Counsel, Invista Capital
Management, Inc., Princor Financial Services Corporation, Principal Investors
Corporation and Princor Management Corporation.
*Jerry G. Wisgerhof, 58, Treasurer. Treasurer, Principal Mutual Life
Insurance Company. Treasurer, Princor Financial Services Corporation. Vice
President and Treasurer, Princor Management Corporation.
@ Member of Audit and Nominating Committee.
* Affiliated with the Manager of the Fund or its parent and considered an
"Interested Person," as defined in the Investment Company Act of 1940, as
amended.
& Member of the Executive Committee. The Executive Committee is elected by
the Board of Directors and may exercise all the powers of the Board of
Directors, with certain exceptions, when the Board is not in session and shall
report its actions to the Board.
During the period ended October 31, 1995, the Funds did not pay any
salaries directly to officers but paid management fees to the Manager as
described herein. During such period, six directors of each Fund (those who are
not officers or directors of the Manager) as a group received the following
amounts in directors' fees ($600 Annual Retainer plus $150 per Board of
Directors or Audit and Nominating Committee meeting attended, and $75 for
attendance at any executive or special committee meetings) plus expenses of
attending the meeting, if any: Balanced Fund, $7,825; Blue Chip Fund, $7,825;
Bond Fund, $7,825; Capital Accumulation Fund, $8,125; Cash Management Fund,
$7,824; Emerging Growth Fund, $8,125; Government Securities Fund, $7,825; Growth
Fund, $8,125; High Yield Fund, $7,825; Tax-Exempt Bond Fund, $7,825; Tax-Exempt
Cash Management Fund, $7,825; Utilities Fund, $7,825; and World Fund, $7,975.
The following information relates to compensation paid by each fund during
the fiscal year ended October 31, 1995. James D. Davis and Pamela A. Ferguson
received $1,350 from each Princor Fund, except the Limited Term Bond Fund, from
which each received $150. Roy W. Ehrle, Richard W. Gilbert and Barbara A.
Lukavsky each received $1,200 from each Princor Fund, except the Limited Term
Bond Fund from which each received $150. Richard G. Peebler received $1,350 from
each Princor Fund, except the Capital Accumulation Fund, Emerging Growth Fund,
Growth Fund and World Fund, from which he received $1,500 from each fund, and
the Limited Term Bond Fund from which he received $150.
None of the mutual funds provide retirement benefits for any of the
directors. Total compensation from each of the 26 investment companies included
in the fund complex for the fiscal year ended October 31, 1995 was as follows:
James D. Davis, $33,750; Roy W. Ehrle, $28,950; Pamela A. Ferguson,
$33,750; Richard W. Gilbert, $28,950; Barbara A. Lukavsky, $30,150; and Richard
G. Peebler, $34,425.
As of February 13, 1996, Principal Mutual Life Insurance Company, a mutual
life insurance company organized in 1879 under the laws of Iowa, its
subsidiaries and affiliates owned of record and beneficially the following
number of voting shares or percentage of the outstanding voting shares of each
Fund:
No. of Shares % of Outstanding
Fund Owned Shares Owned
---- ----- ------------
Balanced 673,430 14.48
Blue Chip 304,557 12.68
Bond 178,357 1.79
Capital Accumulation 6,818,331 44.14
Cash Management 8,712,743 1.26
Emerging Growth 46,781 0.83
Government Securities Income 94,139 0.39
Growth 37,613 0.70
High Yield 1,116,315 35.34
Limited Term Bond 1,000,000 100.00
Tax-Exempt Bond 92,616 0.60
Tax-Exempt Cash Management 1,026,700 0.87
Utilities 85,668 1.34
World 4,072,290 20.50
As of February 13, 1996, the Officers and Directors of each Fund as a
group owned less than 1% of the outstanding shares of any of the Funds.
MANAGER AND SUB-ADVISOR
The Manager of each of the Funds is Princor Management Corporation, a
wholly-owned subsidiary of Princor Financial Services Corporation which is a
wholly-owned subsidiary of Principal Holding Company. Principal Holding Company
is a holding company which is a wholly-owned subsidiary of Principal Mutual Life
Insurance Company, a mutual life insurance company organized in 1879 under the
laws of the state of Iowa. The address of the Manager is The Principal Financial
Group, Des Moines, Iowa 50392-0200. The Manager was organized on January 10,
1969 and since that time has managed various mutual funds sponsored by Principal
Mutual Life Insurance Company.
The Manager has executed an agreement with Invista Capital Management,
Inc. ("Invista") under which Invista has agreed to assume the obligations of the
Manager to provide investment advisory services for each of the Growth-Oriented
Funds, the Government Securities Income Fund, the Limited Term Bond Fund and the
Utilities Fund. The Manager will reimburse Invista for the cost of providing
these services. Invista, an indirectly wholly-owned subsidiary of Principal
Mutual Life Insurance Company and an affiliate of the Manager, was founded in
1985 and manages investments for institutional investors, including Principal
Mutual Life Insurance Company. Assets under management at December 31, 1995 were
approximately $15.6 billion. Invista's address is 1500 Hub Tower, 699 Walnut,
Des Moines, Iowa 50309.
The Manager, Invista and each of the Funds have adopted a Code of Ethics
designed to prevent persons with access to information regarding the portfolio
trading activity of the Funds from using that information for their personal
benefit. In certain circumstances personal securities trading is permitted in
accordance with procedures established by the Code of Ethics. The Board of
Directors for the Manager, Invista and each of the Funds periodically reviews
the Code of Ethics.
Each of the persons affiliated with a Fund who is also an affiliated
person of the Manager or Sub- Advisor is named below, together with the
capacities in which such person is affiliated:
Office Held With Office Held With
Name Each Fund The Manager/Invista
Michael J. Beer Financial Officer Vice President and Chief
Operating Officer (Manager)
Ernest H. Gillum Assistant Secretary Assistant Vice President,
Registered Products (Manager)
J. Barry Griswell Director and Chairman Director and Chairman of
of the Board the Board (Manager)
Stephan L. Jones Director and President Director and President
(Manager)
Ronald E. Keller Director Director (Manager)
Director and Chairman of
the Board (Invista)
Michael D. Roughton Counsel Counsel (Manager; Invista)
Jerry G. Wisgerhof Treasurer Vice President and Treasurer
(Manager)
COST OF MANAGER'S SERVICES
For providing the investment advisory services, and specified other
services, the Manager, under the terms of the Management Agreement for each
Fund, is entitled to receive a fee computed and accrued daily and payable
monthly, at the following annual rates:
Balanced, High All
World Emerging Yield and Other
Net Asset Value of Fund Fund Growth Fund Utilities Fund Funds
First $100,000,000 .75% .65% .60% .50%
Next 100,000,000 .70% .60% .55% .45%
Next 100,000,000 .65% .55% .50% .40%
Next 100,000,000 .60% .50% .45% .35%
Over 400,000,000 .55% .45% .40% .30%
There is no assurance that any of the Funds' net assets will reach
sufficient amounts to be able to take advantage of the rate decreases. The net
asset value of each Fund on October 31, 1995 and the rate of the fee for each
Fund for investment management services as provided in the Management Agreement
for the fiscal year then ended were as follows:
Management Fee
Net Assets as of For Fiscal Year Ended
Fund October 31, 1995 October 31, 1995
- -------------------------- ---------------- ----------------
Balanced $58,388,354 .60%
Blue Chip 36,943,739 .50
Bond 109,669,504 .50*
Capital Accumulation 341,904,467 .45
Cash Management 624,072,015 .38*
Emerging Growth 159,608,614 .64
Government Securities Income 265,827,507 .46
Growth 182,606,856 .48
High Yield 24,028,813 .60
Tax-Exempt Bond 183,201,423 .48
Tax-Exempt Cash Management 99,913,684 .50*
Utilities 69,825,370 .60*
World 130,462,176 .74
* Before waiver.
- --------
The Manager intends to voluntarily waive a portion of its fee and, if
necessary, pay expenses normally payable by the Limited Term Bond Fund through
the period ending February 28, 1997 in an amount that will maintain a total
level of operating expenses, which as a percent of average net assets
attributable to a class on an annualized basis will not exceed .90% for the
Class A shares and 1.15% for the Class B shares.
Under a Sub-Advisory Agreement between Invista and the Manager, Invista
performs all the investment advisory responsibilities of the Manager under the
Management Agreement for the Growth- Oriented Funds, the Government Securities
Income Fund, the Limited Term Bond Fund and the Utilities Fund and is reimbursed
by the Manager for the cost of providing such services.
The Manager pays for office space, facilities and simple business
equipment and the costs of keeping the books of the Fund. The Manager also
compensates all personnel who are officers and directors, if such officers and
directors are also affiliated with the Manager.
Each Fund pays all its other corporate expenses incurred in the operation
of the Fund and the continuous public offering of its shares, but not selling
expenses. Among other expenses, the Fund pays its taxes (if any), brokerage
commissions on portfolio transactions, interest, the cost of stock issue and
transfer and dividend disbursement, administration of shareholder accounts,
custodial fees, expenses of registering and qualifying shares for sale after the
initial registration, auditing and legal expenses, fees and expenses of
unaffiliated directors, and costs of shareholder meetings. The Manager pays most
of these expenses in the first instance, and is reimbursed for them by the Fund
as provided in the Management Agreement. The Manager also is responsible for the
performance of certain of the functions described above, such as transfer and
dividend disbursement and administration of shareholder accounts, the cost of
which the Manager is reimbursed by the Fund.
If aggregate annual expenses of a Fund of every character including the
fee received by the Manager for managing the Fund, but excluding portfolio
brokerage commissions and interest and taxes exceed for any fiscal year the
lowest applicable percentage of average net assets prescribed by any state in
which Fund shares are qualified for sale, the Manager has undertaken to
reimburse the Fund the amount of the excess as promptly as practicable after the
end of the fiscal year. The Funds understand that the most restrictive
limitation is presently 2 1/2% of the first $30,000,000 of average annual net
assets, 2% of the next $70,000,000 of such assets and 1 1/2% of such assets in
excess thereof.
Fees paid for investment management services during the periods indicated
were as follows:
Management Fees For
Fiscal Years Ended October 31,
Fund 1995 1994 1993
---- ---- ---- ----
Balanced $ 330,469 $ 282,514 $ 212,464
Blue Chip 154,603 125,655 110,869
Bond 489,133* 447,108* 366,278*
Capital Accumulation 1,380,466 1,212,997 1,012,257
Cash Management 1,980,472* 1,324,627* 1,248,729*
Emerging Growth 772,512 463,046 239,952
Government Securities Income 1,165,241 1,178,688 953,871
Growth 701,276 485,565 354,714
High Yield 129,542 119,036 105,024
Tax-Exempt Bond 828,825 854,230 669,681
Tax-Exempt Cash Management 471,994* 406,047* 393,278*
Utilities 367,403* 340,121* 156,699* **
World 881,227 716,044 338,435
*Before waiver.
**Period from November 16, 1992 (Commencement of Operations) through October 31,
1993.
The Manager waived $86,318, $120,999, $111,162 of its fee for the Bond
Fund for the years ended October 31, 1995, 1994 and 1993, respectively. The
Manager also waived $138,673, $150,515 and $131,442 of its fee for the
Tax-Exempt Cash Management Fund for the years ended October 31, 1995, 1994 and
1993, respectively. The Manager also waived $296,359, $595,343 and $468,387 of
its fee for the Cash Management Fund for the years ended October 31, 1995, 1994
and 1993, respectively. The Manager also waived $152,483, $284,836 and $144,581
of its fee for the Utilities Fund for the period ended October 31, 1993 and the
years ended October 31, 1994 and 1995, respectively.
Costs reimbursed to the Manager during the periods indicated for
providing other services pursuant to the Management Agreement were as follows:
Reimbursement by Fund
of Certain Costs For
Fiscal Years Ended October 31,
Fund 1995 1994 1993
---- ---- ---- ----
Balanced $220,147 $ 241,156 $ 145,726
Blue Chip 146,409 123,381 87,667
Bond 213,198 226,146 205,434
Capital Accumulation 510,906 513,568 385,413
Cash Management 1,494,200 1,077,477 973,866
Emerging Growth 612,488 514,920 251,632
Government Securities Income 435,625 545,148 441,849
Growth 584,133 455,138 335,522
High Yield 86,915 76,576 67,329
Tax-Exempt Bond 193,662 254,209 227,001
Tax-Exempt Cash Management 214,963 205,771 234,960
Utilities 211,232 281,532 157,417*
World 525,897 502,953 183,461
* Period from November 16, 1992 (Date Operations Commenced) through October 31,
1993.
- -------
NOTE: The Manager voluntarily waived a portion of its management fees for
Princor Cash Management Fund, Inc. and Princor Tax-Exempt Cash Management Fund,
Inc. throughout the fiscal years ended October 31, 1993, 1994 and 1995. The
Manager intends to continue its voluntary waiver and, if necessary, pay expenses
normally payable by each of these Funds through February 28, 1997 in an amount
that will maintain a total level of operating expenses which as a percentage of
average net assets attributable to a class on an annualized basis during such
periods will not exceed 0.75% of each Fund's Class A shares and 1.75% of each
Fund's Class B shares. The effect of the waiver was and will be to reduce each
Fund's annual operating expenses and increase each Fund's yield and effective
yield.
NOTE: Effective February 1, 1991, the Manager began voluntarily waiving a
portion of its fee for Princor Bond Fund. The Manager continued its voluntary
waiver for the period beginning March 1, 1992 through February 28, 1993 in an
amount that maintained a total level of operating expenses for the Fund that did
not exceed .90% of the Fund's average net assets on an annualized basis during
such period. The Manager waived a portion of its fee for the period beginning
March 1, 1993 and intends to continue such waiver through February 28, 1997 in
an amount that will maintain a total level of operating expenses which as a
percentage of the Fund's average net assets attributable to a class on an
annualized basis during such period did not and will not exceed 0.95% of the
Fund's Class A shares and 1.70% of the Fund's Class B shares. The effect of the
waiver was and will be to reduce the Fund's annual operating expenses and
increase the Fund's yield.
NOTE: The Manager voluntarily waived a portion of its fee for the Utilities Fund
from the date operations commenced and continued such waiver through the period
ending February 28, 1995 in an amount that maintained a total level of operating
expenses which as a percentage of the Fund's average net assets attributable to
a class on an annualized basis did not exceed 1.00% of the Fund's Class A shares
and did not exceed 1.75% of the Fund's Class B shares. Also, the Manager
continued its voluntary waiver for the period beginning March 1, 1995 and ended
February 29, 1996 in an amount that maintained a total level of operating
expenses which as a percentage of the Fund's average net assets attributable to
a class on an annualized basis did not exceed 1.10% of the Fund's Class A shares
and 1.85% of the Fund's Class B shares.
The Management Agreements and the Investment Service Agreements, pursuant
to which Principal Mutual Life Insurance Company has agreed to furnish certain
personnel, services and facilities required by the Manager, and the Sub-Advisory
Agreements for each of the Growth-Oriented Funds, the Government Securities
Income Fund, the Utilities Fund and the Limited Term Bond Fund were last
approved by the Board of Directors for each of the Funds on September 11, 1995.
Each of these agreements for the Limited Term Bond Fund, which are dated
December 12, 1995, provide for continuation in effect until the conclusion of
the first meeting of shareholders of the Fund and if approved by a vote of a
majority of the outstanding voting securities of the Fund, shall continue in
effect in the same manner as such agreements for the other Princor Funds. Each
of these agreements provides for continuation in effect from year to year only
so long as such continuation is specifically approved at least annually either
by the Board of Directors of the Fund or by vote of a majority of the
outstanding voting securities of the Fund, provided that in either event such
continuation shall be approved by vote of a majority of the Directors who are
not "interested persons" (as defined in the Investment Company Act of 1940) of
the Manager, Principal Mutual Life Insurance Company or its subsidiaries or the
Fund, cast in person at a meeting called for the purpose of voting on such
approval. The Agreements may be terminated at any time on 60 days written notice
to the Manager by the Board of Directors of the Fund or by a vote of a majority
of the outstanding securities of the Fund and by the Manager, Invista or
Principal Mutual Life Insurance Company, as the case may be, on 60 days written
notice to the Fund. The Agreements will automatically terminate in the event of
their assignment.
The Manager assumed management of the World Fund's portfolio on August
1, 1988. Prior to that time, the previous Investment Advisor for the World Fund,
as compensation for its services to the Fund, had been receiving monthly
compensation in the form of an advisory fee at an annual rate of 1/2 of 1% of
the average daily net assets of the Fund. In addition, the Investment Advisor
received an annual fee, paid monthly, for the administrative services at an
annual rate of 1.5% of the first $10,000,000 of the Fund's average net assets
during the month preceding each payment, decreasing to 1% on assets in excess of
$10,000,000 and 1/2 of 1% of the Fund's assets in excess of $30,000,000.
Overall, the Fund's aggregate expenses for any fiscal year other than taxes,
brokerage fees, Directors' fees, commissions, and extraordinary expenses, such
as litigation, could not exceed 2% of the first $10,000,000 of the Fund's total
net assets, 1.5% of the next $20,000,000 and 1% of the Fund's total net assets
in excess of $30,000,000. The aggregate of these two fees could have amounted to
a maximum of 2.0% of net assets, which is higher than most funds pay as an
advisory fee; however, the administrative services fee included payment for
certain expenses most other funds are required to pay themselves. Under the
prior agreement, when the accrued amount of such expenses exceeded the 2% limit
the monthly payment to the Advisor was reduced by the amount of such excess. For
the seven-month period ended July 31, 1988, the Fund paid the previous
Investment Advisor $9,811 for investment advisory services and $29,433 for
administrative services and other expenses.
BROKERAGE ON PURCHASES AND SALES OF SECURITIES
In distributing brokerage business arising out of the placement of orders
for the purchase and sale of securities for any Fund, the objective of the
Fund's Manager or Sub-Advisor is to obtain the best overall terms. In pursuing
this objective, the Manager or Sub-Advisor considers all matters it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and executing capability of the broker or
dealer and the reasonableness of the commission, if any (for the specific
transaction and on a continuing basis). This may mean in some instances that the
Manager or Sub- Advisor will pay a broker commissions that are in excess of the
amount of commission another broker might have charged for executing the same
transaction when the Manager or Sub-Advisor believes that such commissions are
reasonable in light of (a) the size and difficulty of transactions (b) the
quality of the execution provided and (c) the level of commissions paid relative
to commissions paid by other institutional investors. (Such factors are viewed
both in terms of that particular transaction and in terms of all transactions
that broker executes for accounts over which the Manager or Sub-Advisor
exercises investment discretion. The Manager or Sub-Advisor may purchase
securities in the over-the-counter market, utilizing the services of principal
market makers, unless better terms can be obtained by purchases through brokers
or dealers, and may purchase securities listed on the New York Stock Exchange
from non- Exchange members in transactions off the Exchange.) The Manager or
Sub-Advisor gives consideration in the allocation of business to services
performed by a broker (e.g. the furnishing of statistical data and research
generally consisting of information of the following types: analyses and reports
concerning issuers, industries, economic factors and trends, portfolio strategy
and performance of client accounts). If any such allocation is made, the primary
criteria used will be to obtain the best overall terms for such transactions.
The Manager or Sub-Advisor may pay additional commission amounts for research
services. Such statistical data and research information received from brokers
or dealers may be useful in varying degrees and the Manager or Sub-Advisor may
use it in servicing some or all of the accounts it manages.
Some statistical data and research information may not be useful to the
Manager or Sub-Advisor in managing the client account, brokerage for which
resulted in the Manager's or Sub-Advisor's receipt of the statistical data and
research information. However, in the Manager's or Sub-Advisor's opinion, the
value thereof is not determinable and it is not expected that the Manager's or
Sub-Advisor's expenses will be significantly reduced since the receipt of such
statistical data and research information is only supplementary to the Manager's
or Sub-Advisor's own research efforts. The Manager or Sub-Advisor allocated
portfolio transactions for the Funds indicated in the following table to certain
brokers during the fiscal year ended October 31, 1995 due to research services
provided by such brokers. The table also indicates the commissions paid to such
brokers as a result of these portfolio transactions.
Fund Commissions Paid
Balanced $4,085
Blue Chip 6,935
Capital Accumulation 61,350
Emerging Growth 10,513
Growth 5,645
Utilities 3,710
World 2,743
Purchases and sales of debt securities and money market instruments usually
will be principal transactions; portfolio securities will normally be purchased
directly from the issuer or from an underwriter or marketmaker for the
securities. Such transactions are usually conducted on a net basis with the Fund
paying no brokerage commissions. Purchases from underwriters will include a
commission or concession paid by the issuer to the underwriter, and the
purchases from dealers serving as marketmakers will include the spread between
the bid and asked prices.
The following table shows the brokerage commissions paid during the periods
indicated. In each year, 100% of the commissions paid by each Fund went to
broker-dealers which provided research, statistical or other factual
information.
Total Brokerage Commissions Paid
During Fiscal Years Ended October 31,
Fund 1995 1994 1993
---- ---- ---- ----
Balanced $ 34,622 $23,780 $ 16,314
Blue Chip 21,040 8,536 12,858
Capital Accumulation 335,720 259,072 157,995
Emerging Growth 59,471 51,538 21,655
Growth 56,733 51,904 42,085
Utilities 27,861 58,245 70,043*
World 360,682 277,027 105,617
* Period from November 16, 1992 (date operations commenced)
through October 31, 1993.
- -----------
Brokerage commissions paid to affiliates during the year ended October 31, 1995
were as follows:
Commissions Paid to Principal Financial Securities, Inc.
As Percent of
Dollar Amount of
Total Dollar As Percent of Commissionable
Fund Amount Total Commissions Transactions
---- ------ ----------------- -----------------
Balanced Fund $ 837 2.4% 3.0%
Capital Accumulation Fund 12,831 3.8% 5.8%
Emerging Growth Fund 1,200 2.0% 3.6%
Growth Fund 3,394 6.0% 7.2%
Utilities Fund 2,966 10.6% 15.7%
Commissions Paid to Morgan Stanley and Co.
As Percent of
Dollar Amount
Total Dollar As Percent of of Commissionable
Fund Amount Total Commissions Transactions
---- ------ ----------------- -------------------
Balanced Fund $ 325 0.9% 0.6%
Capital Accumulation Fund 4,660 1.4% 0.9%
Emerging Growth Fund 2,500 4.4% 3.9%
Growth Fund 500 1.8% 1.4%
Utilities Fund 21,577 6.0% 6.8%
Morgan Stanley and Co. Is affiliated with Morgan Stanley Asset Management, Inc.,
which acts as sub- advisor to two mutual funds included in the Fund complex.
The Manager acts as investment advisor for each of the funds sponsored by
Principal Mutual Life Insurance Company and it, or Invista where Invista acts as
sub-advisor, places orders to trade portfolio securities for each of these
Funds. If, in carrying out the investment objectives of the funds, occasions
arise when purchases or sales of the same equity securities are to be made for
two or more of the funds at the same time, a computer program will randomly
order the instructions to purchase and, whenever possible, to sell securities.
Securities purchased or proceeds of sales received on each trading day with
respect to such orders shall be allocated to the various funds placing orders on
that trading day by filling each fund's order for that day, in the sequence
arrived at by the random ordering. If purchases or sales of the same debt
securities are to be made for two or more of the Funds at the same time, the
securities will be purchased or sold proportionately in accordance with the
amount of such security sought to be purchased or sold at that time for each
Fund.
HOW TO PURCHASE SHARES
Each Fund, except the Tax-Exempt Bond Fund and Tax-Exempt Cash Management
Fund, offers investors three classes of shares which bear sales charges in
different forms and amounts: Class A, Class B and Class R shares. The Tax-Exempt
Bond Fund and Tax-Exempt Cash Management Fund offer only Class A and Class B
shares.
Class A Shares. An investor who purchases less than $1 million of Class A
shares (except Class A shares of the Money Market Funds) pays a sales charge at
the time of purchase. As a result, such shares are not subject to any charges
when they are redeemed. An investor who purchases $1 million or more of Class A
shares does not pay a sales charge at the time of purchase. However, a
redemption of such shares occurring within 18 months from the date of purchase
will be subject to a contingent deferred sales charge ("CDSC") at the rate of
.75% (.25% for the Limited Term Bond Fund) the lesser of the value of the shares
redeemed (exclusive of reinvested dividend and capital gain distributions) or
the total cost of such shares. Shares subject to the CDSC which are exchanged
into another Princor Fund will continue to be subject to the CDSC until the
original 18 month period expires. However no CDSC is payable with respect to
redemption of Class A shares used to fund a Princor 401(a) or Princor 401(k)
retirement plan, except redemptions resulting from the termination of the plan
or transfer of plan assets. Certain purchases of Class A shares qualify for
reduced sales charges. Class A shares for each Fund, except the Money Market
Funds, currently bear a 12b-1 fee at the annual rate of up to 0.25% of the
Fund's average net assets attributable to Class A shares. See "Distribution
Plan."
Class B Shares. Class B shares are purchased without an initial sales
charge, but are subject to a declining CDSC of up to 4% (1.25% for the Limited
Term Bond Fund) if redeemed within six years. See "Offering Price of Funds'
Shares." Class B shares bear a higher 12b-1 fee than Class A shares, currently
at the annual rate of up to 1.00% (.50% for the Limited Term Bond Fund) of the
Fund's average net assets attributable to Class B shares. See "Distribution
Plan." Class B shares provide an investor the benefit of putting all of the
investor's dollars to work from the time the investment is made, but (until
conversion to Class A shares) will have a higher expense ratio and pay lower
dividends than Class A shares due to the higher 12b-1 fee. Class B shares will
automatically convert into Class A shares, based on relative net asset value
(without a sales charge), on the first business day of the 85th month after the
purchase date. Class B shares acquired by exchange from Class B shares of
another Princor fund will convert into Class A shares based on the time of the
initial purchase. At the same time, a pro rata portion of all shares purchased
through reinvestment of dividends and distributions would convert into Class A
shares, with that portion determined by the ratio that the shareholder's Class B
shares converting into Class A shares bears to the shareholder's total Class B
shares that were not acquired through dividends and distributions. The
conversion of Class B shares to Class A shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an opinion of
counsel that such conversions will not constitute taxable events for Federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not occur
if such ruling or opinion is not available. In such event, Class B shares would
continue to be subject to higher expenses than Class A shares for an indefinite
period.
Purchasing Class A and Class B shares. Purchases are generally made
through registered representatives of Princor or other dealers it selects. If an
order and check are properly submitted to Princor, the shares will be offered at
the offering price next computed after the order and check are received at
Princor's main office. If fund shares are purchased by telephone order or
electronic means and thereafter settled by delivery of a check or a payment by
wire, the shares so purchased will be issued at the offering price next computed
after the telephone or electronic order are received at Princor's main office.
If an order and check are submitted through a selected dealer, the shares will
be issued in accordance with the following: An order accepted by a dealer on any
day before the close of the New York Stock Exchange and received by Princor
before the close of its business on that day will be executed at the offering
price computed of the close of the Exchange on that day. An order accepted by
such dealer after the close of the Exchange and received by Princor before its
closing on the following business day will be executed at the offering price
computed as of the close of the Exchange on such following business day. Dealers
have the responsibility to transmit orders to Princor promptly. After an open
account has been established, purchases will be executed at the price next
computed after receipt of the investor's check at Princor's main office. All
orders are subject to acceptance by the Fund or Funds and Princor.
Redemptions by shareholders investing by check will be effected only
after payment has been collected on the check, which may take up to eight days
or more. Investors considering redeeming or exchanging shares or transferring
shares to another person shortly after purchase should pay for those shares with
a certified check, bank cashier's check or money order to avoid any delay in
redemption, exchange or transfer.
Shares of the funds may be purchased by mail or by telephone as described
in the Funds' Prospectus. Class B shares of the Money Market Funds may only be
purchased by an exchange from the Class B shares.
Which arrangement between Class A and Class B Shares is better for an
investor? The decision as to which class of shares provides a more suitable
investment for an investor depends on a number of factors, including the amount
and intended length of the investment. Investors making investments that qualify
for reduced sales charges might consider Class A shares. Investors who prefer
not to pay an initial sales charge and who plan to hold their investment for
more than seven years might consider Class B shares. Orders from individuals for
Class B shares for $250,000 or more will be treated as orders for Class A shares
unless the shareholder provides written acknowledgment that the order should be
treated as an order for Class B shares. Sales personnel may receive different
compensation depending on which class of shares are purchased.
Class R Shares. Class R shares are purchased without an initial sales
charge or a contingent deferred sales charge ("CDSC"). Class R shares bear a
higher 12b-1 fee than Class A shares, currently at the annual rate of up to .75%
of the Fund's average net assets attributable to Class R shares. See
"Distribution and Shareholder Servicing Plans and Fees." Class R shares provide
an investor the benefit of putting all of the investor's dollars to work from
the time the investment is made, but (until conversion to Class A shares) will
have a higher expense ratio and pay lower dividends than Class A shares due to
the higher 12b-1 fee. Class R shares will automatically convert to Class A
shares, based on relative net asset value (without a sales charge), on the first
business day of the 49th month after the purchase date. Class R shares acquired
by exchange from Class R shares of another Princor fund will convert into Class
A shares based on the time of the initial purchase. (See "How to Exchange
Shares".) At the same time, a pro rata portion of all shares purchased through
reinvestment of dividends and distributions would convert into Class A shares,
with that portion determined by the ratio that the shareholder's Class R shares
converting into Class A shares bears to the shareholder's total Class R shares
that were not acquired through dividends and distributions. The conversion of
Class R shares to Class A shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel that such
conversions will not constitute taxable events for Federal tax purposes. There
can be no assurance that such ruling or opinion will be available, and the
conversion of Class R shares to Class A shares will not occur if such ruling or
opinion is not available. In such event, Class R shares would continue to be
subject to higher expenses that Class A shares for an indefinite period.
Purchasing Class R Shares. Class R shares are offered only to fund
Individual Retirement Accounts ("IRA's") established by people who receive lump
sum distributions from certain retirement plans administered by Principal Mutual
Life Insurance Company under the terms of a written service agreement
("Administered Employee Benefit Plans" or "AEBP"). Eligible purchasers may
purchase Class R shares to fund additional IRA's after establishing an initial
IRA funded with Class R shares. Purchases are generally made by completing a
Princor IRA application and mailing it to Princor. Shares will be issued at the
offering price next computed after the application is received at Princor's main
office and Princor receives the amount to be invested. Generally, the initial
amount to be invested will be directly transferred to Princor from the AEBP.
However, in some cases the investor will purchase shares by check. If investing
by check, shares will be issued at the offering price next computed after the
completed application and check are received at Princor's main office.
Subsequent purchases will be executed at the price next computed after receipt
of the investor's check at Princor's main office. All orders are subject to
acceptance by the Fund or Funds and Princor.
Redemptions by shareholders investing by check will be effected only
after payment has been collected on the check, which may take up to 15 days or
more. Investors considering redeeming or exchanging shares shortly after
purchase should pay for those shares with a certified check, bank cashier's
check or money order to avoid any delay in redemption, exchange or transfer.
Class R shares of the Cash Management Fund may be purchased only by an
exchange from Class R shares of the Princor Funds.
OFFERING PRICE OF FUNDS' SHARES
The Funds offer their respective shares continuously through Princor,
which is the principal underwriter for the Funds and sells shares as agent on
behalf of the Funds. Princor may select other dealers through which shares of
the Funds may be sold. Certain dealers may not sell all classes of shares.
Class A shares
Class A shares of the Money Market Funds are sold to the public at net
asset value; no sales charge applies to purchases of the Money Market Funds.
Class A shares of the Growth-Oriented and Income- Oriented Funds, except the
Limited Term Bond Fund, are sold to the public at the net asset value plus a
sales charge which ranges from a high 4.75% to a low of 0% of the offering price
(equivalent to a range of 4.99% to 0% of the net amount invested) according to
the schedule below. Class A shares of the Limited Term Bond Fund are sold to the
public at the net asset value plus a sales charge which ranges from a high of
1.50% to a low of 0% of the offering price according to the schedule below.
Selected dealers are allowed a concession as shown. At Princor's discretion, the
entire sales charge may at times be reallowed to dealers. In some situations,
depending on the services provided by the dealer, the concession may be less.
Any dealer allowance on purchases not involving a sales charge will be
determined by Princor. Upon notice to all broker-dealers with whom it has a
selling agreement, Princor may allow to broker-dealers electing to participate
up to the full applicable sales charge, as shown in the table below, during
periods and for transactions specified in such notice, and such reallowances may
be based in whole or in part upon attainment of minimum sales levels. Certain
commercial banks may make shares of the Funds available to their customers on an
agency basis. Pursuant to the agreements between Princor and such banks all or a
portion of the sales charge paid by a bank customer in connection with a
purchase of Fund shares may be retained by or remitted to the bank. The
Glass-Steagall Act prohibits banks from underwriting securities, including fund
shares; the Act does, however, permit certain agency transactions and banking
regulators have ruled that these particular agency transactions are not
prohibited under the Act. The Fund will obtain a representation from the banks
doing business in Texas or dealing with Texas residents that they will be
licensed as dealers as required by the Texas Securities Act, or that they will
not engage in activities which would constitute acting as a "dealer" as defined
under the Act.
Sales Charge for
All Funds Except
Limited Term Bond Fund
Sales Charge as % of:
Offering Amount
Amount of Purchase Price Invested
------------------ ----- --------
Less than $50,000 4.75% 4.99%
$50,000 but less than $100,000 4.25% 4.44%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $1,000,000 1.50% 1.52%
$1,000,000 or more No Sales Charge 0%
Sales Charge for Dealer Allowance as
Limited Term Bond Fund % of Offering Price
Sales Charge as % of: All Funds Limited
Offering Amount Except Limited Term
Price Invested Term Bond Fund Bond Fund
----- -------- -------------- ---------
1.50% 1.52% 4.00% 1.25%
1.25% 1.27% 3.75% 1.00%
1.00% 1.01% 3.25% .75%
0.75% 0.76% 2.00% .50%
0.50% 0.50% 1.25% .25%
No Sales Charge 0% .75% .25%
Rights of Accumulation. The applicable sales charge is determined by
adding the current net asset value of any Class A shares and Class B shares
already owned by the investor to the amount of the new purchase. The
corresponding percentage factor in the schedule is then applied to the entire
amount of the new purchase. For example, if an investor currently owns Class A
or Class B shares with a value of $5,000 and makes an additional investment of
$45,000 in Class A shares of a Growth-Oriented Fund (the total of which equals
$50,000), the charge applicable to the $45,000 investment would be 4.25% of the
offering price. If the investor purchases shares of more than one Princor Fund
at the same time, those purchases are aggregated and added to the net asset
value of the shares of Princor Funds already owned by the investor to determine
the sales charge for the new purchase. Class A shares of the Money Market Funds
are not counted in determining either the amount of a new purchase or the
current net asset value of shares already owned, unless the shares of the Money
Market Funds were acquired in exchange for shares of other Princor Funds. If the
investor purchases shares from a broker/dealer other than Princor, the dealer
should be advised of any shares already owned.
Investments made by an individual, or by an individual's spouse and
dependent children purchasing shares for their own account or by a trust
primarily for the benefit of such persons, or by a trustee or other fiduciary
purchasing for a single trust estate or single fiduciary account (including a
pension, profit-sharing, or other employee-benefit trust created pursuant to a
plan qualified under Section 401 of the Internal Revenue Code) will be treated
as investments made by a single investor in calculating the sales charge. Other
groups (as allowed by rules of the Securities and Exchange Commission) may be
considered for a reduced sales charge. An investor whose new account qualifies
for a reduced charge on the basis of other accounts owned by the individual,
spouse or children, should be certain to identify those accounts at the time of
the new application.
Statement of Intention. Another method is available by which a purchaser
may qualify for a reduced sales charge on the purchase of Class A shares of the
Funds. A purchaser may execute a Statement of Intention indicating the total
amount (excluding reinvested dividends and capital gains distributions) intended
to be invested (including all investments for the account of the spouse and
dependent children or trusts for the benefit of such persons) in Class A shares
(except Class A shares of the Money Market Funds) and Class B shares of the
Funds within a thirteen-month period (two-year period if the intended investment
is equal to or greater than $1 million). The Statement of Intention should be
read and may be submitted on the date of the initial purchase at the start of a
thirteen-month period (or two-year period if applicable) or within 90 days
thereafter. The Statement of Intention period will begin on the date of the
first purchase included for purposes of satisfying the statement. When an
existing shareholder submits a Statement of Intention, the net asset value of
all Class A shares (except Class A shares of the Money Market Funds) and Class B
shares in that shareholder's account or accounts combined for rights of
accumulation purposes, is added to the amount that has been indicated will be
invested during the applicable period, and the sales charge applicable to all
purchases of Class A shares made under the Statement of Intention is the sales
charge which will apply to a single purchase of this total amount.
A Statement of Intention may be entered into for any amount provided such
amount, when added to the net asset value of any shares already held, equals or
is in excess of the amount needed to qualify for a reduced sales charge. In the
event a shareholder invests an amount in excess of the indicated amount, such
excess will be allowed any further reduced sales charge for which it qualifies.
The Statement of Intention provides for a price adjustment if the amount
actually invested is less than the amount specified therein. Sufficient Class A
shares belonging to the shareholder will be held in escrow in the shareholder's
account by Princor to make up any difference in sales charges based on the
amount actually purchased. If the intended investment is completed within the
thirteen-month period (or two-year period), such shares will be released to the
shareholder. If the total intended investment is not completed within that
period shares will, to the extent necessary, be redeemed and the proceeds used
to pay the additional sales charge due. In any event, the sales charge
applicable to these purchases will be no more than the applicable sales charge
had the shareholder made all of such purchases at one time. The Statement of
Intention does not constitute an obligation on the shareholder to purchase, nor
the Funds to sell, the amount indicated.
Purchases at Net Asset Value. The following may purchase Class A shares
of the Growth-Oriented Funds and Income-Oriented Funds at the net asset value,
without a sales charge: (1) Principal Mutual Life Insurance Company and its
directly and indirectly owned subsidiaries; (2) Active and retired directors,
officers and employees of the Fund, Principal Mutual Life Insurance Company, and
directly and indirectly owned subsidiaries of Principal Mutual Life Insurance
Company (including full-time insurance agents of, and persons who have entered
into insurance brokerage contracts with, Principal Mutual Life Insurance Company
and its directly and indirectly owned subsidiaries and employees of such
persons); (3) The Principal Financial Group Employee's Credit Union; (4)
Non-ERISA investment advisory clients of Invista Capital Management, Inc., an
indirectly wholly-owned subsidiary of Principal Mutual Life Insurance Company;
(5) Sales representatives and employees of sales representatives of the
Distributor or other dealers through which shares of the Fund are distributed;
(6) Spouses, surviving spouses and dependent children of the foregoing persons;
and (7) Trusts primarily for the benefit of the foregoing individuals; (8)
certain "wrap accounts" for the benefit of clients of Princor and other Broker
dealers or financial planners selected by Princor; (9) Unit Investment Trusts
sponsored by Principal Mutual Life Insurance Company, and/or its directly or
indirectly owned subsidiaries; and (10) certain employee welfare benefit plan
customers of Principal Mutual Life Insurance Company for whom Plan Deposit
Accounts are established.
In addition, investors who are clients of a registered representative of
Princor or other dealers through which shares of the Funds are distributed and
who has become affiliated with Princor or such other dealer within 180 days of
the date of the purchase of Class A shares of the Funds may purchase such shares
at net asset value provided that (i) the purchase is made within the first 180
days of the registered representative's affiliation with the firm involved (as
certified by an officer or partner of the firm); and (ii) the investment
represents the proceeds of a redemption within that 180 day period of shares of
another investment company the purchase of which included a front-end sales
charge or the redemption of which included a contingent deferred sales charge;
and (iii) the investor indicates on the account application that the purchase
qualifies for a net asset value purchase and forwards to Princor either (a) the
redemption check representing the proceeds of the shares redeemed, endorsed to
the order of Princor, or (b) a copy of the confirmation from the other
investment company showing the redemption transaction. In the case of a wire
purchase pursuant to this provision, a copy of the confirmation from the other
investment company showing the redemption must be forwarded to and received by
Princor within 21 days following the date of purchase. If the confirmation is
not provided within the 21-day period, a sufficient number of shares will be
redeemed from the shareholder's account to pay the otherwise applicable sales
charge. Investors availing themselves of this option should be aware that a
redemption from another mutual fund will be a taxable event and may be subject
to a surrender charge imposed by that fund.
Also during the period beginning December 1, 1996 and ending January 31,
1997, investors may purchase Class A shares of the Funds at net asset value to
the extent that this investment represents the proceeds of a redemption, within
the preceding 60 days, of shares (the purchase price of which shares included a
front-end sales charge on the redemption of which was subject to a contingent
deferred sales charge) of another investment company. When making a purchase at
net asset value pursuant to this provision, the investor must indicate on the
account application that the purchase qualifies for a net asset value purchase
and must forward to Princor either (i) the redemption check representing the
proceeds of the shares redeemed, endorsed to the order of Princor Financial
Services Corporation, or (ii) a copy of the confirmation from the other
investment company showing the redemption transactions. In the case of a
wire purchase pursuant to this provision, a copy of the confirmation from the
other investment company showing the redemption must be forwarded to and
received by Princor within 21 days following the date of purchase. If the
confirmation is not provided within the 21-day period, a sufficient number of
shares will be redeemed from the shareholder's account to pay the otherwise
applicable sales charge.
Purchases at a Reduced Sales Charge. A reduced sales charge is also
available for purchases of Class A shares of the Funds, except the Limited Term
Bond Fund, to the extent that the investment represents either the proceeds from
a total surrender of a Pension Builder Annuity Contract ( an unregistered fixed
annuity contract issued by Principal Mutual Life Insurance Company) or the death
benefit proceeds of one or more life insurance policies or annuity contracts
(other than an annuity contract issued to fund an employer-sponsored retirement
plan that is not a SEP, salary deferral 403(b) plan or HR-10 plan) of which the
shareholder is a beneficiary if one or more of such policies or contracts is
issued by Principal Mutual Life Insurance Company, or any directly or indirectly
owned subsidiary of Principal Mutual Life Insurance Company, and such investment
is made in any Princor fund within one year after the date of death of the
insured. (Shareholders should seek advice from their tax advisors regarding the
tax consequences of distributions from annuity contracts.) Such shares may be
purchased at net asset value plus a sales charge which ranges from a high of
2.50% to a low of 0% of the offering price (equivalent to a range of 2.56% to 0%
of the net amount invested) according to the schedule below:
Sales Charge as a % of:
Net
Offering Amount
Amount of Purchase Price Invested
------------------ ----- --------
Less than $500,000 2.50% 2.56%
$500,000 but less than $1,000,000 1.50% 1.52%
$1,000,000 or more No Sales Charge 0%
Dealer Allowance as %
of Offering
Price
------
2.10%
1.25%
.75%
Sales Charges for Employer-Sponsored Plans
Administered Employee Benefit Plans. Class A shares of the
Growth-Oriented Funds and Income- Oriented Funds, except Princor Limited Term
Bond Fund and, in certain circumstances, Princor Tax-Exempt Bond Fund which is
not available for certain retirement plans, are sold at net asset value to stock
bonus, pension or profit sharing plans that meet the requirements for
qualification under Section 401 of the Internal Revenue Code of 1986, as
amended, certain Section 403(b) Plans, Section 457 Plans and other Non-qualified
Plans administered by Principal Mutual Life Insurance Company pursuant to a
written service agreement ("Administered Employee Benefit Plans"). The service
agreement between Principal Mutual Life Insurance Company and the employer
relating to the administration of the plan includes a charge payable by the
employer for any commissions which Princor is authorized to pay in connection
with such sales. Principal Mutual Life Insurance Company in turn pays the amount
of these charges to Princor. The commission payable by Princor in connection
with any such sale will be determined in accordance with one of the following
schedules:
Schedule 1
Amount of Plain Contributions* Amount Payable by Employer as a
In each year Percent of Plan Contributions
------------- ------------------------------
The first $5,000 4.50%
The next $5,000 3.00%
The next $5,000 1.70%
The next $35,000 1.40%
The next $50,000 0.90%
The next $400,000 0.60%
Excess over $500,000 0.25%
Schedule 2
The first $50,000 3.00%
The next $50,000 2.00%
The next $400,000 1.00%
The next $2,500,000 0.50%
Excess over $3,000,000 0.25%
- --------------------------------------------------------------------------
* Plan contributions directed to an annuity contract issued by Principal Mutual
Life Insurance Company to fund the plan are combined with contributions
directed to the Funds to determine the applicable commission charge.
- --------------------------------------------------------------------------
Generally, the commission level described in Schedule 2 will apply for
salary deferral Plans and the commission level described in Schedule 1 will
apply to other plans. No commission will be payable by the employer if shares of
the Funds used to fund an Administered Employee Benefit Plan are purchased
through a registered representative of Princor Financial Services Corporation
who is also a Group Insurance Representative employee of Principal Mutual Life
Insurance Company.
Plans Other than Administered Employee Benefit Plans. Shares of the Funds
are offered to fund certain sponsored Princor plans. These plans currently
include Simplified Employee Pension Plans ("SEPs"), Salary Reduction Simplified
Employee Pension Plans ("SAR/SEPs"), Non-Qualified Deferred Compensation Plans,
Payroll Deduction Plans ("PDPs") and certain Association Plans. A PDP is a plan
other than a 403(b) plan, that provides for investments to be made by or through
an employer on behalf of the employees by means of periodic payroll deductions,
or otherwise. An Association Plan is an arrangement whereby an association
enters into a written agreement with Princor permitting the solicitation of the
association's members. Other types of sponsored plans may be added in the
future.
When establishing an employer-sponsored plan, the employer chooses
whether to fund the plan with either Class A shares or Class B shares. If Class
A shares are used to fund the plan, all plan investments will be treated as made
by a single investor to determine whether a reduced sales charge is available.
The sales charge for purchases of less than $100,000 is 3.75% as a percentage of
the offering price and 3.90% of the net amount invested. The regular sales
charge table for Class A shares applies to purchases of $100,000 or more. Plan
assets will not be combined with investments made outside of the plan by an
employee, the employee's spouse and dependent children, or trusts primarily for
the benefit of such persons, to determine the sales charge applicable to such
investments. Investments made outside of the plan will not be included with plan
assets to determine the sales charge applicable to the plan.
If Class B shares are used to fund the plan and a plan participant has
$250,000 or more invested in Class B shares, Class A shares will be purchased
with plan contributions attributable to the plan participant, unless the plan
participant elects otherwise.
The Funds reserve the right to discontinue offering shares at net asset
value and/or at a reduced sales charge at any time for new accounts and upon
60-days notice to shareholders of existing accounts.
Class B shares
Class B shares are sold without an initial sales charge, although a CDSC
will be imposed if you redeem shares within six years of purchase. The following
types of shares may be redeemed without charge at any time: (i) shares acquired
by reinvestment of distributions and (ii) shares otherwise exempt
from the CDSC, as described below. Subject to the foregoing exclusions, the
amount of the charge is determined as a percentage of the lesser of the current
market value or the cost of the shares being redeemed. Therefore, when a share
is redeemed, any increase in its value above the initial purchase price is not
subject to any CDSC. The amount of the CDSC will depend on the number of years
since you invested and the dollar amount being redeemed, according to the
following table:
Contingent Deferred Sales Charge as a
Percentage of Dollar Amount Subject to Charge Limited
Years Since Purchase All Funds Except Term Bond
Payments Made Limited Term Bond Fund Fund
2 years or less 4.0% 1.25%
more than 2 years, up to 4 years 3.0% 0.75%
more than 4 years, up to 5 years 2.0% 0.50%
more than 5 years, up to 6 years 1.0% 0.25%
more than 6 years None None
In determining whether a CDSC is payable on any redemption, the Fund will
first redeem shares not subject to any charge, and then shares held longest
during the six-year period. For information on how sales charges are calculated
if shares are exchanged, see "How to Exchanges Shares" in the Prospectus.
The CDSC will be waived on redemptions of Class B shares in connection
with the following types of transactions:
a. Shares redeemed due to a shareholder's death;
b. Shares redeemed due to the shareholder's disability, as defined
in the Internal Revenue Code of 1986 (the "Code"), as amended;
c. Shares redeemed from retirement plans to satisfy minimum
distribution rules under the Code;
d. Shares redeemed to pay surrender charges;
e. Shares redeemed to pay retirement plan fees;
f. Shares redeemed involuntarily from small balance accounts (values
of less than $300);
g. Shares redeemed through a systematic withdrawal plan that permits
up to 10% of the value of a shareholder's Class B shares of a
particular Fund on the last business day of December of each year
to be withdrawn automatically in equal monthly installments
throughout the year;
h. Shares redeemed from a retirement plan to assure the plan complies
with Sections 401(k), 401(m), 408(k) and 415 of the Code; or
i. Shares redeemed from retirement plans qualified under Section
401(a) of the Code due to the plan participant's death, disability,
retirement or separation from service after attaining age 55.
Underwriting fees from the sale of shares for the periods indicated were
as follows:
Underwriting Fees for
Fiscal Years Ended October 31,
1995 1994 1993
---- ----
Balanced Fund $266,479 $ 658,322 $ 440,799
Blue Chip Fund 168,419 131,074 145,722
Bond Fund 476,813 925,482 1,149,455
Capital Accumulation Fund 611,180 821,157 917,749
Emerging Growth Fund 1,293,597 1,345,381 785,000
Government Securities Income Fund 835,393 2,607,934 2,902,403
Growth Fund 1,237,015 1,111,124 983,298
High Yield Fund 93,608 106,780 105,270
Tax-Exempt Bond Fund 584,221 1,283,198 2,002,412
Utilities 288,533 987,252 1,348,385*
World Fund 739,560 1,558,089 421,612
* Period from November 16, 1992 (Date Operations Commenced) through October 31,
1993.
- --------------------------------------------
DISTRIBUTION PLAN
Rule 12b-1 of the Investment Company Act of 1940 (the "Act"), as amended,
permits a mutual fund to finance distribution activities and bear expenses
associated with the distribution of its shares provided that any payments made
by the Fund are made pursuant to a written plan adopted in accordance with the
Rule. A majority of the Board of Directors of each Fund, including a majority of
the Directors who have no direct or indirect financial interest in the operation
of the Plan or any agreements related to the Plan and who are not "interested
persons" as defined in the Act, adopted the Distribution Plans as described
below. No such Plan was adopted for Class A shares of the Money Market Funds.
Shareholders of each class of shares of each Fund approved the adoption of the
Plan for their respective class of shares.
Class A Distribution Plan. Each of the Funds, except the Money Market
Funds, has adopted a distribution plan for the Class A shares. The Class A Plan
provides that the Fund will make payments from its assets to Princor pursuant to
this Plan to compensate Princor and other selling Dealers for providing
shareholder services to existing Fund shareholders and rendering assistance in
the distribution and promotion of the Fund Class A shares to the public. The
Fund will pay Princor a fee after the end of each month at an annual rate no
greater than 0.25% (.15% for the Limited Term Bond Fund) of the daily net asset
value of the Fund. Princor will retain such amounts as are appropriate to
compensate for actual expenses incurred in distributing and promoting the sale
of the Fund shares to the public but may remit on a continuous basis up to .25%
(.15% for the Limited Term Bond Fund) to Registered Representatives and other
selected Dealers (including for this purpose, certain financial institutions) as
a trail fee in recognition of their services and assistance.
Class B Distribution Plan. Each Class B Plan provides for payments by the
Fund to Princor at the annual rate of up to 1.00% (.50% for the Limited Term
Bond Fund) of the Fund's average net asset attributable to Class B shares.
Princor also receives the proceeds of any CDSC imposed on redemptions of such
shares.
Although Class B shares are sold without an initial sales charge, Princor
pays a sales commission equal to 4.00% (1.25% for the Limited Term Bond Fund) of
the amount invested to dealers who sell such shares. These commissions are not
paid on exchanges from other Princor Funds. In addition, Princor may remit on a
continuous basis up to .25% (.15% for the Limited Term Bond Fund) to the
Registered Representatives and other selected Dealers (including for this
purpose, certain financial institutions) as a trail fee in recognition of their
services and assistance.
Class R Distribution Plan. Each of the Funds, except the Tax-Exempt Bond
Fund and Tax-Exempt Cash Management Fund, have adopted a distribution plan for
the Class R shares. Each Class R Plan provides for payments by the Fund to
Princor at the annual rate of up to .75% of the Fund's average net assets
attributable to Class R shares.
Although Class R shares are sold without an initial sales charge, Princor
incurs certain distribution expenses. In addition, Princor may remit on a
continuous basis up to .50% to Registered Representatives and other selected
Dealers (including, for this purpose, certain financial institutions) as a trail
fee in recognition of their ongoing services and assistance.
General Information Regarding Distribution Plans. A representative of
Princor will provide to the Fund's Board of Directors, and the Board will
review, at least quarterly, a written report of the amounts expended pursuant to
the Plans and the purposes for which such expenditures were made.
Whether any expenditure under the Plans is subject to a state expense
limit will depend upon the nature of the expenditure and the terms of the state
law, regulation or order imposing the limit. Any expenditure subject to such a
limit will be included in the Fund's total operating expenses for purposes of
determining compliance with the expense limit.
If expenses under a Plan exceed the compensation limit for Princor
described in the Plan in any one fiscal year, the Fund will not carry over such
expenses to the next fiscal year. The Funds have no legal obligation to pay any
amount pursuant to this Plan that exceeds the compensation limit. The Funds will
not pay, directly or indirectly, interest, carrying charges, or other financing
costs in connection with the Plans. If the aggregate payments received by
Princor under a Plan in any fiscal year exceed the expenditures made by Princor
in that year pursuant to the Plan, Princor will promptly reimburse the Fund for
the amount of the excess.
The amount received from each Fund and retained by Princor during the
year ended October 31, 1995 and the manner in which such amounts were spent
pursuant to the Class A Distribution Plan for the last fiscal period of each of
the Funds were as follows:
<TABLE>
<CAPTION>
EXPENDITURES
Prospectus and
Shareholder Registered Underwriter's
Amount Report Sales Representative Salaries and Total
Fund Retained Printing Brochures Sales MaterialService Fees Overhead Expenditures
<S> <C> <C> <C> <C> <C> <C> <C>
Balanced $155,772 $4,651 $14,688 $7,267 $64,660 $64,507 $155,772
Blue Chip 111,480 3,941 13,932 6,207 32,202 55,197 111,480
Bond 239,073 4,446 15,216 6,940 151,295 61,177 239,073
Capital Accumulation 348,586 5,355 17,075 8,366 246,737 71,053 348,586
Emerging Growth 342,601 9,018 36,543 14,091 170,337 112,612 342,601
Government Securities Income 480,373 5,513 17,695 11,635 371,450 74,081 480,373
Growth 341,141 8,202 23,821 12,760 198,204 98,154 341,141
High Yield 96,747 3,473 13,810 5,428 21,991 52,045 96,747
Tax-Exempt Bond 355,035 3,830 17,038 7,745 270,056 56,367 355,035
Utilities 186,458 4,456 23,346 7,330 89,142 62,184 186,458
World 298,574 8,731 25,266 17,820 140,381 106,376 298,574
</TABLE>
The amount received from each Fund and retained by Princor during the
period ended October 31, 1995 and the manner in which such amounts were spent
pursuant to the Class B Distribution Plan for the last fiscal period of each of
the Funds were as follows:
Fund Amount Retained Service Fees
---- --------------- ------------
Balanced $ 737 $ 737
Blue Chip 1,256 1,256
Bond 1,907 1,907
Capital Accumulation 1,374 1,374
Emerging Growth 6,758 6,758
Government Securities Income 3,424 3,424
Growth 5,392 5,392
High Yield 501 501
Tax-Exempt Bond 3,399 3,399
Utilities 3,450 3,450
World 3,217 3,217
A Plan may be terminated at any time by vote of a majority of the
Directors who are not interested persons (as defined in the Act), or by vote of
a majority of the outstanding voting securities of the class of shares of a Fund
to which the Plan relates. Any change in a Plan that would materially increase
the distribution expenses of a class of shares of a Fund provided for in the
Plan requires approval of the shareholders of the class of shares to which such
increase would relate.
While a Distribution Plan is in effect for a Fund, the selection and
nomination of Directors who are not interested persons of that Fund will be
committed to the discretion of the Directors who are not interested persons.
Each Plan will continue in effect from year to year as long as its
continuance is specifically approved at least annually by a majority vote of the
directors of the Fund including a majority of the non-interested directors. The
Plans for all Classes of shares were last approved by each Fund's Board of
Directors, including a majority of the non-interested directors, on December 11,
1995.
DETERMINATION OF NET ASSET VALUE OF FUNDS' SHARES
Growth-Oriented and Income-Oriented Funds
The net asset values of the shares of each of the Growth-Oriented and
Income-Oriented Funds are determined daily, Monday through Friday, as of the
close of trading on the New York Stock Exchange, except on days on which changes
in the value of a Fund's portfolio securities will not materially affect the
current net asset value of that Fund's redeemable securities, on days during
which a Fund receives no order for the purchase or sale of its redeemable
securities and no tender of such a security for redemption, and on customary
national business holidays. The Funds treat as customary national business
holidays those days on which the New York Stock Exchange is closed for New
Year's Day (January 1), Washington's Birthday (third Monday in February), Good
Friday (variable date between March 20 and April 23, inclusive), Memorial Day
(last Monday in May), Independence Day (July 4), Labor Day (first Monday in
September), Thanksgiving Day (fourth Thursday in November) and Christmas Day
(December 25). The net asset value per share for each class of shares for each
Fund is determined by dividing the value of securities in the Fund's investment
portfolio plus all other assets attributable to that class, less all liabilities
attributable to that class, by the number of Fund shares of that class
outstanding. Securities for which market quotations are readily available,
including options and futures traded on an exchange, are valued at market value,
which is for exchanged-listed securities, the closing price; for United
Kingdom-listed securities, the market-maker provided price; and for non-listed
equity securities, the bid price. Non-listed corporate debt securities,
government securities and municipal securities are usually valued using an
evaluated bid price provided by a pricing service. If closing prices are
unavailable for exchange-listed securities, generally the bid price, or in the
case of debt securities an evaluated bid price, is used to value such
securities. When reliable market quotations are not considered to be readily
available, which may be the case, for example, with respect to certain debt
securities, preferred stocks, foreign securities and over-the-counter options,
the investments are valued by using market quotations, prices provided by market
makers, which may include dealers with which the Fund has executed transactions,
or estimates of market values obtained from yield data and other factors
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Directors. Securities
with remaining maturities of 60 days or less are valued at amortized cost. Other
assets are valued at fair value as determined in good faith through procedures
established by the Board of Directors of the Fund.
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing net asset value per share are
usually determined as of such times. Occasionally, events which affect the
values of such securities and foreign currency exchange rates may occur between
the times at which they are generally determined and the close of the New York
Stock Exchange and would therefore not be reflected in the computation of the
Fund's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value as determined in good faith by the Manager under procedures
established and regularly reviewed by the Board of Directors. To the extent the
Fund invests in foreign securities listed on foreign exchanges which trade on
days on which the Fund does not determine its net asset value, for example
Saturdays and other customary national U.S. holidays, the Fund's net asset value
could be significantly affected on days when shareholders have no access to the
Fund.
Money Market Funds
The net asset value of each class of shares of each of the Money Market
Funds is determined at the same time and on the same days as each of the
Growth-Oriented Funds and Income-Oriented Funds as described above. The net
asset value per share for each class of shares of each Fund is computed by
dividing the total value of the Fund's securities and other assets, less
liabilities, by the number of Fund shares outstanding.
All securities held by the Money Market Funds will be valued on an
amortized cost basis. Under this method of valuation, a security is initially
valued at cost; thereafter, the Fund assumes a constant proportionate
amortization in value until maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the security.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price that would be received upon sale of the security.
Use of the amortized cost valuation method by the Money Market Funds
requires each Fund to maintain a dollar weighted average maturity of 90 days or
less and to purchase only obligations that have remaining maturities of 397 days
or less or have a variable or floating rate of interest. In addition, each Fund
can invest only in obligations determined by its Board of Directors to be of
high quality with minimal credit risks.
The Board of Directors for each of the Money Market Funds has established
procedures designed to stabilize, to the extent reasonably possible, the Fund's
price per share as computed for the purpose of sales and redemptions at $1.00.
Such procedures include a directive to the Manager to test price the portfolio
or specific securities thereof on a weekly basis using a mark-to-market method
of valuation to determine possible deviations in the net asset value from $1.00
per share. If such deviation exceeds 1/2 of 1%, the Board of Directors will
promptly consider what action, if any, will be initiated. In the event the Board
of Directors determines that a deviation exists which may result in material
dilution or other unfair results to shareholders, the Board will take such
corrective action as it regards as appropriate, including: the sale of portfolio
instruments prior to maturity; the withholding of dividends; redemptions of
shares in kind; the establishment of a net asset value per share based upon
available market quotations; or splitting, combining or otherwise recapitalizing
outstanding shares. The Fund may also reduce the number of shares outstanding by
redeeming proportionately from shareholders, without the payment of any monetary
compensation, such number of full and fractional shares as is necessary to
maintain the net asset value at $1.00 per share.
PERFORMANCE CALCULATION
Each of the Princor Funds may from time to time advertise its performance
in terms of total return or yield for each class of shares. The figures used for
total return and yield are based on the historical performance of a Fund, show
the performance of a hypothetical investment and are not intended to indicate
future performance. Total return and yield will vary from time to time depending
upon market conditions, the composition of a Fund's portfolio and operating
expenses. These factors and possible differences in the methods used in
calculating performance figures should be considered when comparing a Fund's
performance to the performance of some other kind of investment.
A Fund may also include in its advertisements performance rankings and
other performance-related information published by independent statistical
services or publishers, such as Lipper Analytical Services, Weisenberger
Investment Companies Services, Money Magazine, Forbes, The Wall Street Journal,
Baron's, Changing Times, Fortune, U.S. News, W. R. Kipplinger's Personal
Finance, USA Today, Investment Advisor and Stanger's Investment Advisor and
comparisons of the performance of a Fund to that of various market indices, such
as the S&P 500 Index, Valueline, Dow Jones Industrials Index, Morgan Stanley
Capital International EAFE (Europe, Australia and Far East) Index and World
Index, Lehman Brothers GNMA Index, Salomon Brothers Investment Grade Bond Index
and Bond Buyer Municipal Index, Lehman Brothers BAA Corporate Index, Lehman
Brothers High Yield Index, Lehman Brothers Revenue Bond Index, Merrill Lynch
Corporate Government Bond Index and the Lehman Brothers Mutual Fund Short
Government/Corporate Index.
Total Return
When advertising total return figures, each of the Growth-Oriented Funds
and Income-Oriented Funds will include its average annual total return for each
of the one-, five- and ten-year periods (or for such shorter periods as the
registration statement for the relevant class has been in effect) that end on
the last day of the most recent calendar quarter. Average annual total return is
computed by calculating the average annual compounded rate of return over the
stated period that would equate an initial $1,000 investment to the ending
redeemable value assuming the reinvestment of all dividends and capital gains
distributions at net asset value. In its advertising, a Fund may also include
average annual total return for some other period or cumulative total return for
a specified period. Cumulative total return is computed by dividing the
difference between the ending redeemable value (assuming the reinvestment of all
dividends and capital gains distributions at net asset value) and the initial
investment by the initial investment. Total return calculations assume the
payment of the maximum front-end load (in the case of Class A shares) or the
applicable CDSC (in the case of Class B shares). Average annual total return and
cumulative total return may also be calculated for a specified period which
reflect reduced sales charges or which reflect no sales charge or CDSC in order
to illustrate the change in a Fund's net asset value over time.
The following table shows as of October 31, 1995 average annual return
for Class A shares for each of the Funds for the periods indicated:
Fund 1-Year 5-Year 10-Year
Balanced 8.82 13.08 9.54(1)
Blue Chip 16.89 9.67(2) N/A
Bond 14.10 9.83 9.55(1)
Capital Accumulation 12.40 15.76 11.51
Emerging Growth 20.47 23.13 16.71(1)
Government Securities Income 11.94 8.25 9.13
Growth 17.50 20.97 15.03
High Yield 6.48 11.62 7.26
Tax-Exempt Bond 10.57 7.62 7.33(3)
Utilities 18.52 5.46(4) N/A
World -3.72 10.82 10.97
(1) Period Beginning December 18, 1987 and ending October 31, 1995.
(2) Period Beginning March 1, 1991 and ending October 31, 1995.
(3) Period Beginning March 20,1986 and ending October 31, 1995.
(4) Period Beginning December 16, 1992 and ending October 31, 1995.
- ------------------------------------------------
The following table shows as of October 31, 1995 average annual
return for Class B shares for each of the Funds for the periods indicated:
Fund 1-Year (1)
Balanced 14.72
Blue Chip 22.94
Bond 13.98
Capital Accumulation 21.06
Emerging Growth 31.65
Government Securities Income 12.07
Growth 27.48
High Yield 8.20
Tax-Exempt Bond 13.97
Utilities 20.18
World 5.77
(1) Period Beginning December 9, 1994 and ending October 31, 1995
Yield
Income-Oriented Funds
Each of the Income-Oriented Funds calculates its yield by determining its
net investment income per share for a 30-day (or one month) period, annualizing
that figure (assuming semi-annual compounding) and dividing the result by the
maximum public offering price for Class A shares or the net asset value for
Class B and Class R shares for the last day of the same period. The following
table shows as of October 31, 1995 the yield for Class A shares and Class B
shares for each of the Income-Oriented Funds:
Fund Yield as of October 31, 1995
- ------------------------------- --------------------------------------
Class A Class B
Bond Fund 6.12% 5.68
Government Securities Income 6.22% 5.69
Fund 8.51% 7.92
High Yield Fund 5.11% 4.50
Tax-Exempt Bond Fund 4.12% 3.58
Utilities
The Tax-Exempt Bond Fund may advertise a tax-equivalent yield, which is
calculated by dividing that portion of the yield which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if any,
of the yield which is not tax-exempt. As of October 31, 1995 the Fund's
tax-equivalent yields for Class A and Class B shares were as follows:
Tax-Equivalent Yield Assumed
Class A Class B Tax Rate
7.10% 6.25% 28.0%
7.98% 7.03% 36.0%
8.46% 7.45% 39.6%
Money Market Funds
Each of the Money Market Funds may advertise its yield and its effective
yield and the Tax-Exempt Cash Management Fund may also advertise its
tax-equivalent yield.
Yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then multiplying the base period return by (365/7) with the
resulting yield figure carried to at least the nearest hundredth of one percent.
As of October 31, 1995, the Cash Management Fund's yield for Class A shares and
Class B shares was 5.11% and 4.45%, respectively, and the Tax-Exempt Cash
Management Fund's yield for Class A shares and Class B shares was 3.16% and
2.40%, respectively. Because realized capital gains or losses in a Fund's
portfolio are not included in the calculation, the Fund's net investment income
per share for yield purposes may be different from the net investment income per
share for dividend purposes, which includes net short-term realized gains or
losses on the Fund's portfolio.
Effective yield is computed by determining the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result. The resulting effective yield figure is carried to at least
the nearest hundredth of one percent. As of October 31, 1995, the Cash
Management Fund's effective yield for Class A shares and Class B shares was
5.24% and 4.55%, respectively, and the Tax-Exempt Cash Management Fund's
effective yield for Class A shares and Class B shares was 3.21% and 2.43%,
respectively.
Tax equivalent yield for the Tax-Exempt Cash Management Fund is computed
by dividing that portion of the yield or effective yield which is tax-exempt by
one minus a stated income tax rate and adding the product to that portion, if
any, of the yield or effective yield which is not tax-exempt. As of October 31,
1995 the Fund's tax-equivalent yield and tax-equivalent effective yield for
Class A shares and Class B shares were as follows:
Tax-Equivalent Yield Tax-Equivalent Effective Yield Assumed
-------------------- ------------------------------
Class A Class B Class A Class B Tax Rate
- ------- ------- ------- ------- --------
4.39% 3.33% 4.46% 3.38% 28%
4.94% 3.75% 5.02% 3.80% 36%
5.23% 3.97% 5.31% 4.02% 39.6%
The yield quoted at any time for one of the Money Market Funds represents
the amount that was earned during a specific, recent seven-day period and is a
function of the quality, types and length of maturity of instruments in the
Fund's portfolio and the Fund's operating expenses. The length of maturity for
the portfolio is the average dollar weighted maturity of the portfolio. This
means that the portfolio has an average maturity of a stated number of days for
its issues. The calculation is weighted by the relative value of each
investment.
The yield for either of the Money Market Funds will fluctuate daily as
the income earned on the investments of the Fund fluctuates. Accordingly, there
is no assurance that the yield quoted on any given occasion will remain in
effect for any period of time. It should also be emphasized that the Funds are
open-end investment companies and that there is no guarantee that the net asset
value or any stated rate of return will remain constant. A shareholder's
investment in either Fund is not insured. Investors comparing results of the
Money Market Funds with investment results and yields from other sources such as
banks or savings and loan associations should understand these distinctions.
Historical and comparative yield information may, from time to time, be
presented by the Funds.
A Fund may include in its advertisements the compounding effect of
reinvested dividends over an extended period of time as illustrated below.
The Power of Compounding
Fund shareholders who choose to reinvest their distributions get the advantage
of compounding. Here's what happens to a $10,000 investment with monthly income
reinvested at 6 percent, 8 percent and 10 percent over 20 years.
These figures assume no fluctuation in the value of principal. This chart is for
illustration purposes only and is not intended as an indication of the results a
shareholder may receive as a shareholder of a specific Fund. The return and
capital value of an investment in a Fund will fluctuate so that the value, when
redeemed, may be worth more or less than the original cost.
Year 6% 8% 10%
0 $10,000 $10,000 $10,000
20 $32,071 $46,610 $67,275
A Fund may also include in its advertisements an illustration of the
impact of income taxes and inflation on earnings from bank certificates of
deposit ("CD's"). The interest rate on the hypothetical CD will be based upon
average CD rates for a stated period as reported in the Federal Reserve
Bulletin. The illustrated annual rate of inflation will be the core inflation
rate as measured by the Consumer Price Index for the 12-month period ended as of
the most recent month prior to the advertisement's publication. The illustrated
income tax rate may include any federal income tax rate applicable to
individuals at the time the advertisement is published. Any such advertisement
will indicate that, unlike bank CD's, an investment in the Fund is not insured
nor is there any guarantee that the Fund's net asset value or any stated rate of
return will remain constant.
An example of a typical calculation included in such advertisements is as
follows: the after-tax and inflation-adjusted earnings on a bank CD, assuming a
$10,000 investment in a six-month bank CD with an annual interest rate of 5.76%
(monthly average six-month CD rate for the month of October, 1995, as reported
in the Federal Reserve Bulletin) and an inflation rate of 2.8% (rate of
inflation for the 12-month period ended October 31, 1995 as measured by the
Consumer Price Index) and an income tax bracket of 28% would be $(67).
($10,000 x 5.76%) / 2 = $288 Interest for six-month period
- 81 Federal income taxes (28%)
- 140 Inflation's impact on invested principal
($10,000 x 2.8%) / 2
($ 67) After-tax, inflation-adjusted earnings
A Fund may also include in its advertisements an illustration of
tax-deferred accumulation versus currently taxable accumulation in conjunction
with the Fund's use as a funding vehicle for 403(b) plans, IRAs or other
retirement plans. The illustration set forth below assumes a monthly investment
of $200, an annual return of 8% compounded monthly, and a 28% tax bracket.
The information is for illustrative purposes only and is not meant to
represent the performance of any of the Princor Funds. An investment in the
Princor Funds is not guaranteed; values and returns generally vary with changes
in market conditions.
Tax-deferred vs. taxable savings plan
_______________________________________________$300,059
-----------------------------------------------
_______________________________________________$192,844
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
Years: 5 10 15 20 25 30
--- With a tax-deferred savings plan
--- Without a tax-deferred savings plan
TAX TREATMENT OF FUNDS, DIVIDENDS AND DISTRIBUTIONS
It is the policy of each Fund to distribute substantially all net
investment income and net realized gains. Through such distributions, and by
satisfying certain other requirements, each Fund intends to qualify for the tax
treatment accorded to regulated investment companies under the applicable
provisions of the Internal Revenue Code. This means that in each year in which a
Fund so qualifies, it will be exempt from federal income tax upon the amount so
distributed to investors. The Tax Reform Act of 1986 imposed an excise tax on
mutual funds which fail to distribute net investment income and capital gains by
the end of the calendar year in accordance with the provisions of the Act. Each
Fund intends to comply with the Act's requirements and to avoid this excise tax.
Dividends from net investment income will be eligible for a 70% dividends
received deduction generally available to corporations to the extent of the
amount of qualifying dividends received by the Funds from domestic corporations
for the taxable year. Distributions from the Money Market Funds and
Income-Oriented Funds (except Princor Utilities Fund) are generally not eligible
for the corporate dividend received deduction.
All taxable dividends and capital gains are taxable in the year in which
distributed, whether received in cash or reinvested in additional shares.
Dividends declared with a record date in December and paid in January will be
deemed to have been distributed to shareholders in December. Each Fund will
inform its shareholders of the amount and nature of their taxable income
dividends and capital gain distributions. Dividends from a Fund's net income and
distributions of capital gains, if any, may also be subject to state and local
taxation.
The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the Internal Revenue Service for failure
to report the receipt of interest or dividend income properly, or (3) who has
failed to certify to the Fund that it is not subject to backup withholding or
that it is a corporation or other "exempt recipient."
A shareholder will recognize gain or loss on the sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds of
the sales or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the Fund will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. However, any capital loss arising from the sales or
redemption of shares held for six months or less will be disallowed to the
extent of the amount of exempt-interest dividends received on such shares and
(to the extent not disallowed) will be treated as a long-term capital loss to
the extent of the amount of capital gain dividends received on such shares.
Capital losses in any year are deductible only to the extent of capital gains
plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (i) incurs a sales load in acquiring shares of the Fund,
(ii) disposes of such shares less than 91 days after they are acquired and (iii)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
Shareholders should consult their own tax advisors as to the federal,
state and local tax consequences of ownership of shares of the Funds in their
particular circumstances.
Special Tax Considerations
Tax-Exempt Bond Fund and Tax-Exempt Cash Management Fund
The Tax-Exempt Bond Fund and Tax-Exempt Cash Management Fund also intend
to qualify to pay "exempt-interest dividends" to their respective shareholders.
An exempt-interest dividend is that part of dividend distributions made by
either Fund which consist of interest received by that Fund on tax-exempt
Municipal Obligations. Shareholders incur no federal income taxes on
exempt-interest dividends. However, these exempt-interest dividends may be
taxable under state or local law. Fund shareholders that are corporations must
include exempt-interest dividends in determining whether they are subject to the
corporate alternative minimum tax. Exempt-interest dividends that derive from
certain private activity bonds must be included by individuals as a preference
item in determining whether they are subject to the alternative minimum tax.
Each Fund may also pay ordinary income dividends and distribute capital gains
from time to time. Ordinary income dividends and distributions of capital gains,
if any, are taxable for federal purposes.
If a shareholder receives an exempt-interest dividend with respect to
shares of the Funds held for six months or less, then any loss on the sale or
exchange of such shares, to the extent of the amount of such dividend, is
disallowed. If a shareholder receives a capital gain dividend with respect to
shares held for six months or less, then any loss on the sale or exchange of
such shares will be treated as a long term capital loss to the extent such loss
exceeds any exempt-interest dividend received with respect to such shares, and
will be disallowed to the extent of such exempt-interest dividend.
Interest on indebtedness incurred or continued by a shareholder to
purchase or carry shares of either of these Funds is not deductible.
Furthermore, entities or persons who are "substantial users" (or related
persons) under Section 147(a) of the Code of facilities financed by private
activity bonds should consult their tax advisors before purchasing shares of the
Funds.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. If any such legislation as enacted would
eliminate or significantly reduce the availability of Municipal Obligations, it
could adversely affect the ability of the Funds to continue to pursue their
respective investment objectives and policies. In such event, the Funds would
reevaluate their investment objectives and policies.
World Fund
If under the investment manager's flexible investment policy, the World
Fund should invest the greater part of its assets abroad (as to which no
assurance can be given), then in each fiscal year when, at the close of such
year, more than 50% of the value of the Fund's total assets are invested in
securities of foreign corporations, the Fund may elect pursuant to Section 853
of the Code to permit its Shareholders to take a credit (or a deduction) for
foreign income taxes paid by the Fund. In that case, Shareholders should include
in their report of gross income in their federal income tax returns both cash
dividends received from the Fund and also the amount which the Fund advises is
their pro rata portion of foreign income taxes paid with respect to, or withheld
from, dividends and interest paid to the Fund from its foreign investments.
Shareholders would then be entitled to subtract from their federal income taxes
the amount of such taxes withheld, or treat such foreign taxes as a deduction
from gross income, if that should be more advantageous. As in the case of
individuals receiving income directly from foreign sources, the above-described
tax credit or tax deduction is subject to certain limitations. Shareholders or
prospective shareholders should consult their tax advisors on how these
provisions apply to them.
Futures Contracts and Options
As previously discussed, some of the Princor Funds may invest in futures
contracts or options thereon, index options or options traded on qualified
exchanges. For federal income tax purposes, capital gains and losses on futures
contracts or options thereon, index options or options traded on qualified
exchanges are generally treated as 60% long-term and 40% short-term. In
addition, the Funds must recognize any unrealized gains and losses on such
positions held at the end of the fiscal year. A Fund may elect out of such tax
treatment, however, for a futures or options position that is part of an
"identified mixed straddle" such as a put option purchased with respect to a
portfolio security. Gains and losses on futures and options included in an
identified mixed straddle will be considered 100% short-term and unrealized gain
or loss on such positions will not be realized at year end. The straddle
provisions of the Code may require the deferral of realized losses to the extent
that a Fund has unrealized gains in certain offsetting positions at the end of
the fiscal year, and may also require recharacterization of all or a part of
losses on certain offsetting positions from short-term to long-term, as well as
adjustment of the holding periods of straddle positions.
Short-Term Capital Gains
One of the requirements each Fund must meet to qualify as a regulated
investment company under federal tax law is that it must derive less than 30% of
its gross income from gains on the sale or other disposition of securities held
for less than three months. Accordingly, each Fund will be restricted in selling
securities held or considered under Code rules to have been held for less than
three months and in engaging in certain transactions to obtain or close
positions in options and futures contracts.
Taxation of IRA Distributions
Distributions from IRAs are taxed as ordinary income to the recipient,
although special rules exist for the tax-free return of non-deductible
contributions. In addition, taxable distributions received from an IRA prior to
age 59 1/2 are subject to a 10% penalty tax in addition to regular income tax.
Certain distributions are exempted from this penalty tax, including
distributions following the participant's death or disability or if the
distribution is paid as part of a series of substantially equal periodic
payments made for the life (or life expectancy) of the participant or the joint
lives (or joint life expectancies) of the participant and the participant's
designated beneficiary.
Generally, distributions from IRAs must commence not later than April 1
of the calendar year following the calendar year in which the participant
attains age 70 1/2, and such distributions must be made over a period that does
not exceed the life expectancy of the participant (or the participant and
beneficiary.) A penalty tax of 50% would be imposed on any amount by which the
minimum required distribution in any year exceeded the amount actually
distributed in that year. In addition, in the event that the participant dies
before his or her entire interest in the IRA has been distributed, the
participant's entire interest must be distributed at least as rapidly as under
the method of distribution being used as of the date of that person's death. If
the shareholder dies prior to beginning any distributions from the IRA, the
entire interest in the IRA will be distributed (1) within five years after the
date of the participant's death or (2) as periodic payments which will begin
within one year of the participant's death and which will be made over the life
expectancy of the participant's designated beneficiary. However, if the
participant's designated beneficiary is the surviving spouse, the IRA may be
continued with the surviving spouse deemed to be the new IRA participant.
The Code permits the taxable portion of funds to be transferred in a
tax-free rollover from a qualified employer pension, profit-sharing, annuity,
bond purchase or tax-deferred annuity plan to an IRA if certain
conditions are met, and if the rollover of assets is completed within 60 days
after the distribution from the qualified plan is received. A direct rollover of
funds may avoid a 20% federal tax withholding generally applicable to qualified
plans or tax-deferred annuity plan distributions. In addition, not more
frequently than once every twelve months, amounts may be rolled over tax-free
from one IRA to another, subject to the 60-day limitation and other
requirements. The once-per-year limitation on rollovers does not apply to direct
transfers of funds between IRA custodians or trustees.
GENERAL INFORMATION AND HISTORY
The Balanced Fund was incorporated under the laws of Maryland on November
26, 1986. Effective December 5, 1994, its name was changed from Princor Managed
Fund, Inc. to Princor Balanced Fund, Inc.
The Emerging Growth Fund was incorporated under the laws of Maryland on
February 20, 1987. Effective March 1, 1992, its name was changed from Princor
Aggressive Growth Fund, Inc. to Princor Emerging Growth Fund, Inc.
FINANCIAL STATEMENTS
The financial statements for each of the Princor Funds for the year ended
October 31, 1995 appearing in the Annual Reports to shareholders and the reports
thereon of Ernst & Young LLP, independent auditors, appearing therein are
incorporated by reference in this Statement of Additional Information. The
Annual Reports will be furnished without charge, to investors who request copies
of the Statement of Additional Information.
The statement of net assets of the Limited Term Bond Fund as of February
13, 1996 and the report of Ernst & Young LLP thereon are provided herein
following the Appendix.
APPENDIX A
Description of Bond Ratings:
Moody's Investors Service, Inc. Bond Ratings
Aaa:
Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa:
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A:
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa:
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba:
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B:
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa:
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca:
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C:
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
CONDITIONAL RATING: Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and a
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
SHORT-TERM NOTES: The four ratings of Moody's for short-term notes are
MIG 1, MIG 2, MIG 3 and MIG 4; MIG 1 denotes "best quality, enjoying strong
protection from established cash flows"; MIG 2 denotes "high quality" with
"ample margins of protection"; MIG 3 notes are of "favorable quality...but
lacking the undeniable strength of the preceding grades"; MIG 4 notes are of
"adequate quality, carrying specific risk for having protection...and not
distinctly or predominantly speculative."
Description of Moody's Commercial Paper Ratings
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Description of Standard & Poor's Corporation's Debt Ratings:
A Standard & Poor's debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligers such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources Standard & Poor's considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditor's rights.
AAA:
Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA:
Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.
A:
Debt rated "A" has a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB:
Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher-rated categories.
BB, B, CCC, CC:
Debt rated "BB", "B", "CCC" and "CC" is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "CC" the highest degree
of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
C:
The rating "C" is reserved for income bonds on which no interest is
being paid.
D:
Debt rated "D" is in default, and payment of interest and/or repayment
of principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of
the project being financed by the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk
of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
NR:
Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not
rate a particular type of obligation as a matter of policy.
Standard & Poor's, Commercial Paper Ratings
A Standard & Poor's Commercial Paper Rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. Ratings are applicable to
both taxable and tax-exempt commercial paper. The four categories are as
follows:
A:
Issues assigned the highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1 This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Issues that
possess overwhelming safety characteristics will be given a "+"
designation.
A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as
for issues designated "A-1".
A-3 Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to
the adverse effects of changes in circumstances than obligations
carrying the highest designations.
B:
Issues rated "B" are regarded as having only an adequate capacity for
timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
C:
This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D:
This rating indicates that the issue is either in default or is expected
to be in default upon maturity.
The Commercial Paper Rating is not a recommendation to purchase or sell
a security. The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in or unavailability of, such information.
Standard & Poor's rates notes with a maturity of less than three years
as follows:
SP-1 A very strong, or strong, capacity to pay principal and interest.
Issues that possess overwhelming safety characteristics will be
given a "+" designation.
SP-2 A satisfactory capacity to pay principal and interest.
SP-3 A speculative capacity to pay principal and interest.
<PAGE>
Princor Limited Term Bond Fund, Inc.
Statement of Net Assets
February 13, 1996
Assets - cash in bank $10,000,000
===================
===================
Net assets (100%) applicable to Capital
Stock outstanding (Note 3) $10,000,000
===================
===================
Net asset value per share - Class A $10.00
===================
See accompanying notes.
<PAGE>
Princor Limited Term Bond Fund, Inc.
Notes to Statement of Net Assets
February 13, 1996
1. Organization
Princor Limited Term Bond Fund, Inc. ("the Fund") is registered under the
Investment Company Act of 1940, as amended, as an open-end diversified
management investment company and operates in the mutual fund industry. On
February 13, 1996, the initial purchase of 1,000,000 shares of Capital Stock was
made by Principal Mutual Life Insurance Company who is the indirect parent of
Invista Capital Management, Inc. and Princor Financial Services Corporation,
parent of Princor Management Corporation.
All organizational expenses have been paid by Princor Management Corporation.
Certain officers and directors of the Fund are also officers of Principal Mutual
Life Insurance Company, Princor Financial Services Corporation, Invista Capital
Management, Inc., and Princor Management Corporation.
2. Operations
The Fund has agreed to pay investment advisory and management fees to Princor
Management Corporation ("the Manager") computed at an annual percentage rate of
the Fund's average daily net assets. The rate used in this calculation is .50%
of the first $100 million of the Fund's average daily net assets. The Manager
has subcontracted the investment advisory services to Invista Capital
Management, Inc.
The Fund also reimburses the Manager for transfer and administrative services,
including the cost of accounting, data processing, supplies and other services
rendered.
The Manager has agreed to reimburse the Fund annually for its total expenses
(excluding brokerage commissions, interest and taxes) in excess of limits
prescribed by any state in which the Fund's shares are offered for sale
(currently 2-1/2% of the first $30 million of the Fund's average annual net
assets, 2% of the next $70 million of such assets, and 1-1/2% of such assets in
excess thereof).
The Manager may, at its option, waive all or part of its compensation for such
period of time as it deems necessary or appropriate.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and intends to distribute each year substantially all of
its net investment income and realized capital gains to its shareholders.
<PAGE>
Princor Limited Term Bond Fund, Inc.
Notes to Statement of Net Assets (continued)
3. Capital Stock
Net assets as of February 13, 1996 consisted of:
Capital Stock - Class A $ 10,000
Additional paid-in capital 9,990,000
------------------
==================
Net assets $10,000,000
==================
Capital Stock, as of February 13, 1996, consisted of:
Par value $.01
Shares authorized 100,000,000
Shares issued and outstanding - Class A 1,000,000
The Fund is authorized to issue three classes of shares: Class A which are sold
with an initial sales charge, Class B which are sold without an initial sales
charge but is subject to a declining contingent deferred sales charge, and Class
R which are sold without an initial sales charge or a contingent deferred sales
charge.
Of the 100,000,000 authorized shares, the Fund presently has allocated
25,000,000 shares each for issuance of Class A, Class B, and Class R shares.
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholder
Princor Limited Term Bond Fund, Inc.
We have audited the accompanying statement of net assets of Princor Limited Term
Bond Fund, Inc. as of February 13, 1996. This statement of net assets is the
responsibility of the Fund's management. Our responsibility is to express an
opinion on this statement of net assets based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of net assets. Our procedures
included confirmation of cash held as of February 13, 1996, by correspondence
with the custodian. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall statement of net assets presentation. We believe that our audit of the
statement of net assets provides a reasonable basis for our opinion.
In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of Princor Limited Term Bond
Fund, Inc. at February 13, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Des Moines, Iowa
February 13, 1996
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in the Registration Statement
(1) Part A:
None
(2) Part B:
None
(3) Part C:
None
(b) Exhibits
(1) Articles of Incorporation (Filed 12/14/95)
(1a) Articles of Amendment
(1b) Articles Supplementary
(2) By-Laws (Filed 12/14/95)
(5a) Management Agreement
(5b) Investment Service Agreement
(5c) Sub-Advisory Agreement
(6a) Distribution Agreement
(6b) Account Application
(6c) Account Application-R Shares
(8a) Custody Agreement
(9a) Dealer Selling Agreement
(10) Opinion of Counsel
(11) Consent of Independent Auditors
(12) Audited Financial Statements as of October 31,
1995, including the Report of Ernst & Young
LLP, independent auditors for the Registrant.
(Filed 12/14/95)
(13) Investment Letter
(14a) Principal Mutual IRA Plan (Filed 12/14/95)
(14b) Principal Mutual SEP Plan (Filed 12/14/95)
(14c) Principal Mutual 403(b) Plan (Filed 12/14/95)
(14d) Principal Mutual IRA Plan-R Shares
(15a) 12b-1 Plan - Class A Shares
(15b) 12b-1 Plan - Class B Shares
(15r) 12b-1 Plan - Class R Shares
(18) Multiple Class Distribution Plan
Item 25. Persons Controlled by or Under Common Control with Depositor
Principal Mutual Life Insurance Company (incorporated as a
mutual life insurance company under the laws of Iowa);
Sponsored the organization of the following mutual funds,
some of which it controls by virtue of owning voting
securities:
Principal Asset Allocation Fund, Inc. (a Maryland
Corporation) 100.0% of shares outstanding owned by
Principal Mutual Life Insurance Company and its
separate accounts on February 13, 1996.
Principal Aggressive Growth Fund, Inc. (a Maryland
Corporation) 100.0% of shares outstanding owned by
Principal Mutual Life Insurance Company and its
separate accounts on February 13, 1996.
Princor Balanced Fund, Inc.a Maryland Corporation)
14.48% of shares outstanding owned by Principal Mutual
Life Insurance Company on February 13, 1996.
Principal Balanced Fund, Inc. (a Maryland Corporation)
100.0% of shares outstanding owned by Principal Mutual
Life Insurance Company and its separate accounts on
February 13, 1996.
Princor Blue Chip Fund, Inc. (a Maryland Corporation)
12.68% of shares outstanding owned by Principal Mutual
Life Insurance Company on February 13, 1996.
Princor Bond Fund, Inc. (a Maryland Corporation) 1.79%
of shares outstanding owned by Principal Mutual Life
Insurance Company on February 13, 1996.
Principal Bond Fund, Inc. (a Maryland Corporation)
100.0% of shares outstanding owned by Principal Mutual
Life Insurance Company and its separate accounts on
February 13, 1996.
Princor Capital Accumulation Fund, Inc. (a Maryland
Corporation) 44.14% of outstanding shares owned by
Principal Mutual Life Insurance Company on
February 13, 1996.
Principal Capital Accumulation Fund, Inc. (a Maryland
Corporation) 100.0% of outstanding shares owned by
Principal Mutual Life Insurance Company and its
Separate Accounts on February 13, 1996.
Princor Cash Management Fund, Inc. (a Maryland
Corporation) 1.26% of outstanding shares owned by
Principal Mutual Life Insurance Company (including
subsidiaries and affiliates) on February 13, 1996.
Princor Emerging Growth Fund, Inc. (a Maryland
Corporation) 0.83% of shares outstanding owned by
Principal Mutual Life Insurance Company on
February 13, 1996.
Principal Emerging Growth Fund, Inc. (a Maryland
Corporation) 100.0% of shares outstanding owned by
Principal Mutual Life Insurance Company and its
Separate Accounts on February 13, 1996.
Princor Government Securities Income Fund, Inc. (a
Maryland Corporation) 0.39% of shares outstanding owned
by Principal Mutual Life Insurance Company on
February 13, 1996.
Principal Government Securities Fund, Inc. (a Maryland
Corporation) 100.0% of shares outstanding owned by
Principal Mutual Life Insurance Company and its
Separate Accounts on February 13, 1996.
Princor Growth Fund, Inc. (a Maryland Corporation)
0.70% of outstanding shares owned by Principal Mutual
Life Insurance Company on February 13, 1996.
Principal Growth Fund, Inc. (a Maryland Corporation)
100.0% of outstanding shares are owned by Principal
Mutual Life Insurance Company and its Separate Accounts
on February 13, 1996.
Princor High Yield Fund, Inc. (a Maryland Corporation)
35.34% of shares outstanding owned by Principal Mutual
Life Insurance Company on February 13, 1996.
Principal High Yield Fund, Inc.(a Maryland Corporation)
100.0% of shares outstanding owned by Principal Mutual
Life Insurance Company and its Separate Accounts on
February 13, 1996.
Princor Limited Term Bond Fund, Inc. (a Maryland
Corporation) 100.0% of shares outstanding owned by
Principal Mutual Life Insurance Company and its
separate accounts on February 13, 1996.
Principal Money Market Fund, Inc. (a Maryland
Corporation) 100.0% of shares outstanding owned by
Principal Mutual Life Insurance Company and its
Separate Accounts on February 13, 1996.
Principal Special Markets Fund, Inc. (a Maryland
Corporation) 79.25% of the shares outstanding of the
International Securities Portfolio and 82.79% of the
shares outstanding of the Mortgage-Backed Securities
Portfolio were owned by Principal Mutual Life Insurance
Company on February 13, 1996.
Princor Tax-Exempt Bond Fund, Inc. (a Maryland
Corporation) 0.60% of shares outstanding owned by
Principal Mutual Life Insurance Company on
February 13, 1996.
Princor Tax-Exempt Cash Management Fund, Inc. (a
Maryland Corporation) 0.87% of shares outstanding owned
by Principal Mutual Life Insurance Company on
February 13, 1996.
Princor Utilities Fund, Inc. (a Maryland Corporation)
1.34% of shares outstanding owned by Principal Mutual
Life Insurance Company on February 13, 1996.
Princor World Fund, Inc. (a Maryland Corporation)
20.50% of shares outstanding owned by Principal Mutual
Life Insurance Company on February 13, 1996.
Principal World Fund, Inc. (a Maryland Corporation)
100.0% of shares outstanding owned by Principal Mutual
Life Insurance Company on February 13, 1996.
Subsidiaries organized and wholly-owned by Principal
Mutual Life Insurance Company:
Principal Life Insurance Company (an Iowa Corporation)
A general insurance and annuity company. It is not
currently active.
Principal Holding Company (an Iowa Corporation)
A holding company wholly-owned by Principal Mutual
Life Insurance Company.
PT Asuransi Jiwa Principal Egalita Indonesia
Subsidiaries wholly-owned by Principal Holding Company:
a. Petula Associates, Ltd. (an Iowa Corporation) a real
estate development company.
b. Patrician Associates, Inc.(a California Corporation)
a real estate development company.
c. Principal Development Associates, Inc. (a California
Corporation) a real estate development company.
d. Princor Financial Services Corporation (an Iowa
Corporation) a registered broker-dealer.
e. Invista Capital Management, Inc. (an Iowa
Corporation) a registered investment adviser.
f. Principal Marketing Services, Inc. (a Delaware
Corporation) a corporation formed to serve as an
interface between marketers and manufacturers of
financial services products.
g. The Principal Financial Group, Inc. (a Delaware
corporation) a general business corporation
established in connection with the new corporate
identity. It is not currently active.
h. Delaware Charter Guarantee & Trust Company (a
Delaware Corporation) a nondepository trust company.
i. Principal Securities Holding Corp. (a Delaware
Corporation) a holding company.
j. Principal Health Care, Inc. (an Iowa Corporation) a
developer and administrator of managed care systems.
k. Principal Financial Advisors, Inc. (an Iowa
Corporation) a registered investment advisor.
l. Principal Asset Markets, Inc.(an Iowa Corporation) a
residential mortgage loan broker.
m. Principal Portfolio Services, Inc. (an Iowa
Corporation) a mortgage due diligence company.
n. Principal International, Inc.(an Iowa Corporation) a
company formed for the purpose of international
business development.
o. Principal Spectrum Associates, Inc. (a California
Corporation) a real estate development company.
p. Principal Commercial Advisors, Inc. (an Iowa
Corporation) a company that purchases and manages
commercial real estate in the secondary market.
q. Principal FC, Ltd. (an Iowa Corporation) a limited
purpose investment corporation.
r. Principal Residential Mortgage, Inc. (an Iowa
Corporation) a full service mortgage banking company
s. Equity FC, LTD. (an Iowa Corporation) engaged in
investment transactions including limited
partnership and limited liability companies.
Subsidiaries organized and wholly-owned by Princor
Financial Services Corporation:
a. Princor Management Corporation (an Iowa Corporation)
a registered investment advisor.
b. Principal Investors Corporation (a New Jersey
Corporation) a registered broker-dealer with the
Securities Exchange Commission. It is not currently
active.
Subsidiary wholly owned by Principal Securities Holding
Corporation:
Principal Financial Securities, Inc. (a Delaware
Corporation) an investment banking and securities
brokerage firm.
Subsidiaries organized and wholly-owned by Principal
Health Care, Inc.:
a. Principal Health Care of Illinois, Inc. (an Illinois
Corporation) a health maintenance organization.
b. Principal Health Care of Nebraska, Inc. (a Nebraska
Corporation) a health maintenance organization.
c. Principal Health Care of Delaware, Inc. (a Delaware
Corporation) a health maintenance organization.
d. Principal Health Care of Georgia, Inc. (a Georgia
Corporation) a health maintenance organization.
e. Principal Health Care of Kansas City, Inc. (a
Missouri Corporation) a health maintenance
organization.
f. Principal Health Care of Louisiana, Inc.(a Louisiana
Corporation) a health maintenance organization.
g. Principal Health Care of Florida, Inc. (a Florida
Corporation) a health maintenance organization.
h. United Health Care Services of Iowa, Inc. (an Iowa
Corporation) a preferred provider organization.
i. Principal Health Care of Iowa, Inc. (an Iowa
Corporation) a health maintenance organization.
j. Principal Health Care of Indiana, Inc. (a Delaware
Corporation) a health maintenance organization.
k. Principal Behavioral Health Care, Inc. (an Iowa
Corporation) a mental and nervous substance abuse
preferred provider organization.
l. America's Health Plan, Inc. (a Maryland Corporation)
a developer of discount provider networks.
m. Principal Health Care of Tennessee, Inc.(a Tennesse
Corporation) a health maintenance organization.
n. Principal Health Care of Texas, Inc. ( a Texas
Corporation) a health maintenance organization.
o. Principal Health Care of The Carolinas (a North
Carolina Corporation) a health maintenance
organization.
p. Principal Health Care of South Carolina, Inc. (a
South Carolina Corporation) a health maintenance
organization
q. PHC Merging Company (a Florida Corporation)
It is not currently active.
r. Principal Health Care of Pennsylvania, Inc. (a
Pennsylvania Corporation) It is not currently
active.
Subsidiary owned by Principal Health Care of
Delaware, Inc.:
Principal Health Care of the Mid-Atlantic, Inc. (a
Virginia Corporation) a health maintenance
organization.
Subsidiaries owned by Principal International, Inc.:
a. Grupo Financiero Principal S.A. De Seguros De Vida
(a Spain Corporation).
b. Principal Internacional, S.A. Compania De Seguros (a
Mexico Corporation).
c. Principal International Argentina, S.A. (an
Argentina Corporation).
d. Principal International ASIA Limited (Goldchin
Champ, Limited) (a Hong Kong Corporation).
e. Principal International De Chile S.A. (a Chile
Corporation)
Subsidiary owned by Grupo Financiero Principal S.A. De
Seguros De Vida:
Agencia De Seguros, SA (a Spain Corporation). It is
not currently active.
Subsidiaries owned by Principal International
Argentina, S.A.:
a. Ethika, S.A. Administradora De Fondos De
Jubilaciones De Pensiones (an Argentina Corporation)
b. Jacaranda Administradora De Fondos De Jubilaciones
Y Pensiones S. A. (an Argentina Corporation)
b. Princor Compania De Seguros De Retiro S.A. (an
Argentina Corporation).
c. Prinlife Compania De Seguros De Vida, S.A. (an
Argentina Corporation)
Subsidiaries owned by Principal International De
Chile S.A.:
Banrenta Compania De Seguros De Vida Vanmedica S.A.
(a Chile Corporation)
Item 26. Number of Holders of Securities - As of: January 31, 1996
(1) (2)
Title of Class Number of Holders
Princor Limited Term Bond Fund, Inc.
Common-Class A N/A
Common-Class B N/A
Common-Class R N/A
Item 27. 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 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 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.
<TABLE>
<CAPTION>
Item 28. Business or Other Connection of Investment Adviser
A complete list of the officers and directors of the investment adviser,
Princor Management Corporation, are set out below. This list includes some of
the same people (designated by an *), who are serving as officers and directors
of the Registrant. For these people the information as set out in the Statement
of Additional Information (See Part B) under the caption "Directors and Officers
of the Fund" is incorporated by reference.
<S> <C> <C> <C>
*Michael J. Beer The Principal See Part B
Vice President Financial Group
Des Moines, Iowa
50392
Mary L. Bricker Same Assistant Corporate
Assistant Corporate Secretary
Secretary Principal Mutual Life
Insurance Company
Ray S. Crabtree Same Senior Vice President
Director Principal Mutual Life
Insurance Company
David J. Drury Same Chief Executive Officer
Director and Chairman of the Board
Principal Mutual Life
Insurance Company
Paul N. Germain Same Operations Officer
Operations Officer Princor Financial Services
Corporation
*Ernest H. Gillum Same See Part B
Assistant Vice President
*J. Barry Griswell Same See Part B
Chairman of the Board
and Director
Joyce N. Hoffman Same Vice President and
Vice President and Corporate Secretary
Corporate Secretary Principal Mutual Life
Insurance Company
Theodore M. Hutchison Same Executive Vice President
Director Principal Mutual Life
Insurance Company
*Stephan L. Jones Same See Part B
President and Director
Ronald E. Keller Same Executive Vice President
Director Principal Mutual Life
Insurance Company
Sterling R. Kosmicke Same President and Director
Vice President Invista Capital Management,
Inc.
*Michael D. Roughton Same See Part B
Counsel
Charles E. Rohm Same Executive Vice President
Director Principal Mutual Life
Insurance Company
Dewain A. Sparrgrove Same Vice President -
Vice President Investment Securities
Principal Mutual Life
Insurance Company
*Jerry G. Wisgerhof Same See Part B
Vice President and
Treasurer
</TABLE>
Princor Management Corporation serves as investment adviser and dividend
disbursing and transfer agent for, Principal Bond Fund, Inc., Principal Capital
Accumulation Fund, Inc., Principal Emerging Growth Fund, Inc., Principal
Government Securities Fund, Inc., Principal Growth Fund, Inc., Principal High
Yield Fund, Inc., Principal Balanced Fund, Inc., Principal Money Market Fund,
Inc., Principal Special Markets Fund, Inc., Principal Utilities Fund, Inc.,
Principal World Fund, Inc., Princor Blue Chip Fund, Inc., Princor Bond Fund,
Inc., Princor Capital Accumulation Fund, Inc., Princor Cash Management Fund,
Inc., Princor Emerging Growth Fund, Inc., Princor Government Securities Income
Fund, Inc., Princor Growth Fund, Inc., Princor High Yield Fund, Inc., Princor
Balanced Fund, Inc., Princor Tax-Exempt Bond Fund, Inc., Princor Tax-Exempt Cash
Management Fund, Inc., Princor Limited Term Bond Fund, Inc., Princor Utilities
Fund, Inc. and Princor World Fund, Inc. - funds sponsored by Principal Mutual
Life Insurance Company.
Item 29. Principal Underwriters
(a) Princor Financial Services Corporation, principal underwriter for
Registrant, acts as principal underwriter for, Principal Bond Fund, Inc.,
Principal Capital Accumulation Fund, Inc., Principal Emerging Growth Fund, Inc.,
Principal Government Securities Fund, Inc., Principal Growth Fund, Inc.,
Principal High Yield Fund, Inc., Principal Balanced Fund, Inc., Principal Money
Market Fund, Inc., Principal Special Markets Fund, Inc., Principal Utilities
Fund, Inc., Principal World Fund, Inc., Princor Blue Chip Fund, Inc., Princor
Bond Fund, Inc., Princor Capital Accumulation Fund, Inc., Princor Cash
Management Fund, Inc., Princor Emerging Growth Fund, Inc., Princor Government
Securities Income Fund, Inc., Princor Growth Fund, Inc., Princor High Yield
Fund, Inc., Princor Balanced Fund, Inc., Princor Tax-Exempt Bond Fund, Inc.,
Princor Tax-Exempt Cash Management Fund, Inc., Princor Limited Term Bond Fund,
Inc., Princor Utilities Fund, Inc., Princor World Fund, Inc. and for variable
annuity contracts participating in Principal Mutual Life Insurance Company
Separate AccountB, a registered unit investment trust for retirement plans
adopted by public school systems or certain tax-exempt organizations pursuant to
Section403(b) of the Internal Revenue Code, Section 457 retirement plans,
Section 401(a) retirement plans, certain non- qualified deferred compensation
plans and Individual Retirement Annuity Plans adopted pursuant to Section408 of
the Internal Revenue Code, and for variable life insurance contracts issued by
Principal Mutual Life Insurance Company Variable Life Separate Account, a
registered unit investment trust.
<TABLE>
<CAPTION>
(b) (1) (2) (3)
Positions
and offices Positions and
Name and principal with principal offices with
business address underwriter registrant
<S> <C> <C> <C>
J. Barbara Alvord Marketing Officer None
The Principal
Financial Group
Des Moines, IA 50392
Robert W. Baehr Marketing Services None
The Principal Officer
Financial Group
Des Moines, IA 50392
Michael J. Beer Vice President Vice President
The Principal
Financial Group
Des Moines, IA 50392
Mary L. Bricker Assistant Corporate None
The Principal Secretary
Financial Group
Des Moines, IA 50392
Ray S. Crabtree Director None
The Principal
Financial Group
Des Moines, IA 50392
David J. Drury Director None
The Principal
Financial Group
Des Moines, IA 50392
Arthur S. Filean Vice President Vice President
The Principal and Secretary
Financial Group
Des Moines, IA 50392
Paul N. Germain Assistant Vice President- None
The Principal Operations
Financial Group
Des Moines, IA 50392
Ernest H. Gillum Assistant Vice President- Assistant
The Principal Registered Products Secretary
Financial Group
Des Moines, IA 50392
Thomas J. Graf Director None
The Principal
Financial Group
Des Moines, IA 50392
J. Barry Griswell Director and Director and
The Principal Chairman of the Chairman of the
Financial Group Board Board
Des Moines, IA 50392
Joyce N. Hoffman Vice President and None
The Principal Corporate Secretary
Financial Group
Des Moines, IA 50392
Theodore M. Hutchison Director None
The Principal
Financial Group
Des Moines, IA 50392
Stephan L. Jones Director and Director and
The Principal President President
Financial Group
Des Moines, IA 50392
Ronald E. Keller Director Director
The Principal
Financial Group
Des Moines, IA 50392
John R. Lepley Senior Vice None
The Principal President - Marketing
Financial Group and Distribution
Des Moines, IA 50392
Gregg R. Narber Director None
The Principal
Financial Group
Des Moines, IA 50392
Richard H. Neil Director None
The Principal
Financial Group
Des Moines, IA 50392
Layne A. Rasmussen Controller None
The Principal
Financial Group
Des Moines, IA 50392
Charles E. Rohm Director None
The Principal
Financial Group
Des Moines, IA 50392
Michael D. Roughton Counsel Counsel
The Principal
Financial Group
Des Moines, IA 50392
Jean B. Schustek Compliance Officer None
The Principal
Financial Group
Des Moines, IA 50392
Roger C. Stroud Assistant Director- None
The Principal Marketing
Financial Group
Des Moines, IA 50392
Jerry G. Wisgerhof Treasurer Treasurer
The Principal
Financial Group
Des Moines, IA 50392
Peter D. Zornik Arkansas State Director None
The Principal
Financial Group
Des Moines, IA 50392
(c) Inapplicable.
</TABLE>
Item 30. Location of Accounts and Records
All accounts, books or other documents of the Registrant are located at the
offices of the Registrant and its Investment Adviser in the Principal Mutual
Life Insurance Company home office building, The Principal Financial Group, Des
Moines, Iowa 50392.
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
Indemnification
Reference is made to Item 27 above, which discusses circumstances under
which directors and officers of the Registrant shall be indemnified by the
Registrant against certain liabilities and expenses incurred by them by reason
of being a director or officer of the Registrant.
Notwithstanding the provisions of Registrant's Articles of Incorporation
and Bylaws, the Registrant hereby makes the following undertaking:
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 of the Registrant, 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
Shareholder Communications
Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a director or directors when
requested in writing to do so by the holders of at least 10% of the Registrant's
outstanding shares of common stock and in connection with such meeting to comply
with the provisions of Section 16(c) of the Investment Company Act of 1940
relating to shareholder communications
Delivery of Annual Report to Shareholders
The registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of the registrant's latest annual report to
shareholders, upon request and without charge.
Post-Effective Amendment Filing
Registrant hereby undertakes to file a post-effective amendment using
financial statements which need not be certified, within four to six months from
the effective date of Registrant's 1933 Act Registration Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Des Moines and State of Iowa, on the
22nd day of February, 1996.
PRINCOR LIMITED TERM BOND FUND, INC.
(Registrant)
By S. L. JONES
______________________________________
S. L. Jones, President
and Director
Attest:
ERNEST H. GILLUM
______________________________________
E. H. Gillum
Assistant Secretary
<PAGE>
As required by the Securities Act of 1933, this Amendment to the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
S. L. JONES
_____________________________ President and Director __________
(Principal Executive Officer)
J. B. GRISWELL Director and __________
_____________________________ Chairman of the Board
J. G. WISGERHOF Treasurer (Principal Financial __________
_____________________________ and Accounting Officer)
(J. D. Davis)* Director __________
_____________________________
(R. W. Ehrle)* Director __________
_____________________________
(P. A. Ferguson)* Director __________
_____________________________
(R. W. Gilbert)* Director __________
_____________________________
(R. E. Keller)* Director __________
_____________________________
(B. A. Lukavsky)* Director __________
_____________________________
(R. G. Peebler)* Director __________
_____________________________
*By S. L. JONES
_____________________________________
S. L. Jones
President and Director
February 22, 1996
Pursuant to Powers of Attorney
Previously Filed or Included
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints S. L. Jones and J. B.
Griswell and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name of the undersigned, to
execute and file any documents relating to registration under the Securities Act
of 1933 and the Investment Company Act of 1940 with respect to open end
management investment companies currently organized or to be organized in the
future which are sponsored by Principal Mutual Life Insurance Company, and any
and all amendments thereto and reports thereunder with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or their substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing necessary or appropriate to be done in order to effectuate the
same, as fully to all intents and purposes as the undersigned might or could do
in person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of February, 1996.
R. G. Peebler
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints S. L. Jones and J. B.
Griswell and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name of the undersigned, to
execute and file any documents relating to registration under the Securities Act
of 1933 and the Investment Company Act of 1940 with respect to open end
management investment companies currently organized or to be organized in the
future which are sponsored by Principal Mutual Life Insurance Company, and any
and all amendments thereto and reports thereunder with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or their substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing necessary or appropriate to be done in order to effectuate the
same, as fully to all intents and purposes as the undersigned might or could do
in person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of February, 1996.
J. D. Davis
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints S. L. Jones and J. B.
Griswell and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name of the undersigned, to
execute and file any documents relating to registration under the Securities Act
of 1933 and the Investment Company Act of 1940 with respect to open end
management investment companies currently organized or to be organized in the
future which are sponsored by Principal Mutual Life Insurance Company, and any
and all amendments thereto and reports thereunder with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or their substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing necessary or appropriate to be done in order to effectuate the
same, as fully to all intents and purposes as the undersigned might or could do
in person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of February, 1996.
B. A. Lukavsky
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints S. L. Jones and J. B.
Griswell and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name of the undersigned, to
execute and file any documents relating to registration under the Securities Act
of 1933 and the Investment Company Act of 1940 with respect to open end
management investment companies currently organized or to be organized in the
future which are sponsored by Principal Mutual Life Insurance Company, and any
and all amendments thereto and reports thereunder with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or their substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing necessary or appropriate to be done in order to effectuate the
same, as fully to all intents and purposes as the undersigned might or could do
in person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of February, 1996.
S. L. Jones
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints S. L. Jones and J. B.
Griswell and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name of the undersigned, to
execute and file any documents relating to registration under the Securities Act
of 1933 and the Investment Company Act of 1940 with respect to open end
management investment companies currently organized or to be organized in the
future which are sponsored by Principal Mutual Life Insurance Company, and any
and all amendments thereto and reports thereunder with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or their substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing necessary or appropriate to be done in order to effectuate the
same, as fully to all intents and purposes as the undersigned might or could do
in person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of February, 1996.
R. W. Ehrle
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints S. L. Jones and J. B.
Griswell and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name of the undersigned, to
execute and file any documents relating to registration under the Securities Act
of 1933 and the Investment Company Act of 1940 with respect to open end
management investment companies currently organized or to be organized in the
future which are sponsored by Principal Mutual Life Insurance Company, and any
and all amendments thereto and reports thereunder with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or their substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing necessary or appropriate to be done in order to effectuate the
same, as fully to all intents and purposes as the undersigned might or could do
in person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of February, 1996.
R. E. Keller
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints S. L. Jones and J. B.
Griswell and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name of the undersigned, to
execute and file any documents relating to registration under the Securities Act
of 1933 and the Investment Company Act of 1940 with respect to open end
management investment companies currently organized or to be organized in the
future which are sponsored by Principal Mutual Life Insurance Company, and any
and all amendments thereto and reports thereunder with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or their substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing necessary or appropriate to be done in order to effectuate the
same, as fully to all intents and purposes as the undersigned might or could do
in person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of February, 1996.
R. W. Gilbert
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints S. L. Jones and J. B.
Griswell and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name of the undersigned, to
execute and file any documents relating to registration under the Securities Act
of 1933 and the Investment Company Act of 1940 with respect to open end
management investment companies currently organized or to be organized in the
future which are sponsored by Principal Mutual Life Insurance Company, and any
and all amendments thereto and reports thereunder with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or their substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing necessary or appropriate to be done in order to effectuate the
same, as fully to all intents and purposes as the undersigned might or could do
in person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of February, 1996.
P. A. Ferguson
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints S. L. Jones and J. B.
Griswell and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name of the undersigned, to
execute and file any documents relating to registration under the Securities Act
of 1933 and the Investment Company Act of 1940 with respect to open end
management investment companies currently organized or to be organized in the
future which are sponsored by Principal Mutual Life Insurance Company, and any
and all amendments thereto and reports thereunder with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or their substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing necessary or appropriate to be done in order to effectuate the
same, as fully to all intents and purposes as the undersigned might or could do
in person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of February, 1996.
J. B. Griswell
ARTICLES OF AMENDMENT
OF
PRINCOR SHORT-TERM BOND FOND, INC.
Princor Short-Term Bond Fund, Inc., a Maryland Corporation having its
principal office in this state in Baltimore City, Maryland (hereinafter called
the Corporation, hereby certifies to the State Department of Assessments and
Taxation of Maryland, that:
FIRST: The charter of the Corporation is hereby amended by changing Article
II of the Articles of Incorporation so that as amended, said Article shall be
and read as follows:
"The name of the corporation is Princor Limited Term Bond Fund, Inc.
hereinafter called the `Corporation'."
SECOND: The board of directors of the Corporation on January 30, 1996 duly
adopted the following resolution:
"BE IT RESOLVED, That the Certificate of Incorporation of Princor
Short-Term Bond Fund, Inc. Be amended by changing Article II thereof so that, as
amended, said Article shall be and read as follows:
"The name of the corporation is Princor Limited Term Bond Fund, Inc.
hereinafter called the `Corporation'."
THIRD: No stock entitled to be voted on the proposed name change was
outstanding or subscribed for at the time the board of directors adopted the
resolution.
FOURTH: The board of directors believes the resolution is in the best
interests of the corporation.
FIFTH: The Articles of Amendment shall become effective on the 1st day of
February, 1996.
IN WITNESS WHEREOF, Princor Short-Term Bond Fund, Inc. Has caused these
presents to be signed in its name and on its behalf by its Vice President by its
Assistant Secretary on April 18, 1994.
Princor Short-Term Bond Fund, Inc.
By A. S. Filean
Vice President and Secretary
Attest
Ernest H. Gillum
Assistant Secretary
THE UNDERSIGNED, Vice President of Princor Short Term Bond Fund, Inc.,
who executed on behalf of said corporation the foregoing Articles of Amendment,
of which this certificate is made a part, hereby acknowledged, in the name and
on behalf of said corporation, the foregoing Articles of Amendment to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
Arthur S. Filean
Vice President and Secretary
ARTICLES SUPPLEMENTARY
OF
PRINCOR SHORT-TERM BOND FUND, INC.
Princor Short-Term Bond Fund, Inc., and Maryland Corporation having its
principal office on this state in Baltimore City, Maryland (hereinafter called
the Corporation), hereby certifies to the State Department of Assessments and
Taxation of Maryland, that:
FIRST: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940.
SECOND: The Board of Directors of the Corporation have classified
authorized but unissued stock of the Corporation under authority contained in
the charter of the Corporation.
THIRD: A description of the stock as set by the Board of Directors and as
provided in Article V of the corporate charter as supplemented by these Articles
Supplementary is as follows:
ARTICLE V
Capital Stock
Section 1. Authorized Shares: The total number of shares of stock which
the Corporation shall have authority to issue is one hundred million
(100,000,000) shares, of the par value of one cent ($.01) each and of the
aggregate par value of one million dollars ($1,000,000). The shares may be
issued by the Board of Directors in such separate distinct classes as the Board
of Directors shall from time to time create and establish. The Board of
Directors shall have full power and authority, in its sole discretion, to
establish and designate classes, and to classify or reclassify any unissued
shares in separate classes having such preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption as shall be fixed and determined from time to
time by the Board of Directors. Expenses related to the distribution of, and
other identified expenses that should properly be allocated to, the shares of a
particular class may be charged to and borne solely by such class, and the
bearing of expenses solely by a class may be appropriately reflected (in a
manner determined by the Board of Directors) and cause differences in the net
asset value attributable to, and the dividend, redemption and liquidation rights
of, the shares of each class. Subject to the authority of the Board of Directors
to increase and decrease the number of, and to reclassify the, shares of any
class, there are hereby established three classes of common stock, each
comprising the number of shares and having the designation indicated:
Class Number of Shares
Class A 25,000,000
Class B 25,000,000
Class R 25,000,000
In addition, the Board of Directors is hereby expressly granted authority to
change the designation of any class, to increase or decrease the number of
shares of any class, provided that the number of shares of any class shall not
be decreased by the Board of Directors below the number of shares thereof then
outstanding, and to reclassify any unissued shares into one or more classes that
may be established and designated from time to time. Notwithstanding the
designations herein of classes, the Corporation may refer, in prospectuses and
other documents furnished to shareholders, filed with the Securities and
Exchange Commission or used for other purposes, to a class of shares as a
"series".
(a) The Corporation may issue shares of stock in fractional
denominations to the same extent as its whole shares, and shares in
fractional denominations shall be shares of stock having
proportionately, to the respective fractions represented thereby, all
the rights of whole shares, including without limitation, the right to
vote, the right to receive dividends and distributions and the right
to participate upon liquidation of the Corporation, but excluding the
right to receive a stock certificate representing fractional shares.
(b) The holder of each share of stock of the Corporation shall be
entitled to one vote for each full share, and the fractional vote for
each fractional share of stock, irrespective of the class, then
standing in the holder's name on the books of the Corporation. On any
matter submitted to a vote of stockholders, all shares of the
Corporation then issued and outstanding and entitled to vote shall be
voted in the aggregate and not by class except that (1) when otherwise
expressly required by the Maryland General Corporation Law or the
Investment Company Act of 1940, as amended, shares shall be voted by
individual class, and (2) if the Board of Directors, in its
discretion, determines that a matter affects the interests of only one
or more particular classes then only the holders of shares of such
affected class or classes shall be entitled to vote thereon.
(c) Unless otherwise provided in the resolution of the Board of
Directors providing for the establishment and designation of any new
class or classes, each class of stock of the Corporation shall have
the following powers, preferences and rights, and qualifications,
restrictions and limitations thereof:
(1) Assets belonging to a class. All consideration received by
the Corporation for the issue or sale of shares of a particular
class, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits and
proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form
the same may be, shall irrevocably belong to that class for all
purposes, subject only to the rights of creditors, and shall be
so recorded upon the books and accounts of the corporation. Such
consideration, assets, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange
or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds, in whatever form the same
may be, together with any general items allocated to that class
as provided in the following sentence, are hereinafter referred
to as "assets belonging to" that class. In the event that there
are any assets, income, earning, profits, proceeds thereof, funds
or payments which are not readily identifiable as belonging to
any particular class (collectively "general items"), such general
items shall be allocated by or under the supervision of the Board
of Directors to and among any one or more of the classes
established and designated from time to time in such manner and
on such basis as the Board of Directors, in its sole discretion,
deems fair and equitable, and any general items so allocated to a
particular class shall belong to that class. Each such allocation
by the Board of Directors shall be conclusive and binding for all
purposes. Notwithstanding the foregoing, the assets belonging to
the Class A Shares and to the Class B Shares need not be
segregated or recorded separately on the books and records of the
Corporation, and reference herein to each of those classes shall
refer to the proportional interest of that class in the aggregate
assets belonging to both classes.
(2) Liabilities belonging to a class. The assets belonging to
each particular class shall be charged with the liabilities of
the Corporation in respect of that class and all expenses, costs,
charges, and reserves attributable to that class, and any general
liabilities, expenses, costs, charges or reserves of the
Corporation which are not readily identifiable as belonging to
any particular class shall be allocated and charged by or under
the supervision of the Board of Directors to and among any one or
more of the classes established and designated from time to time
in such manner and on such basis as the Board of Directors, in
its sole discretion, deems fair and equitable. The liabilities,
expenses, costs, charges and reserves allocated and so charged to
a class are herein referred to a "liabilities belonging to" that
class. Each allocation of liabilities, expenses, costs, charges
and reserves by the Board of Directors shall be conclusive and
binding for all purposes.
(3) Dividends. The Board of Directors may from time to time
declare and pay dividends or distributions, in stock, property or
cash, on any or all classes of stock, the amount of such
dividends and property distributions and the payment of them
being wholly in the discretion of the Board of Directors.
Dividends may be declared daily or otherwise pursuant to a
standing resolution or resolutions adopted only once or with such
frequency as the Board of Directors may determine, after
providing for actual and accrued liabilities belonging to that
class. All dividends or distributions on shares of a particular
class shall be paid only out of surplus or other lawfully
available assets determined by the Board of Directors as
belonging to such class. The Board of Directors shall have the
power, in its sole discretion, to distribute in any fiscal year
as dividends, including dividends designated in whole or in part
as capital gains distribution, amounts sufficient, in the opinion
of the Board of Directors, to enable the Corporation, or where
applicable each class of shares, to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as
amended, or any successor or comparable statute thereto, and
regulations, promulgated thereunder, and to avoid liability for
the Corporation, or each class of shares, for federal income and
excise taxes in respect of that or any other year.
(4) Liquidation. In the event of the liquidation of the
Corporation or of the assets attributable to a particular class,
the shareholders of each class that has been established and
designated and is being liquidated shall be entitled to receive,
as a class, when and as declared by the Board of Directors, the
excess of the assets belonging to that class over the liabilities
belonging to that class. The holders of shares of any class shall
not be entitled thereby to any distribution upon liquidation of
any other class. The assets so distributable to the shareholder
of any particular class shall be distributed among such
shareholders according to their respective rights taking into
account the proper allocation of expenses being borne by that
class. The liquidation of assets attributable to any particular
class in which there are shares then outstanding may be
authorized by vote of a majority of the Board of Directors then
in office, subject to the approval of a majority of the
outstanding voting securities of that class, as defined in the
Investment Company Act of 1940, as amended. In the event that
there are any general assets not belonging to any particular
class of stock and available for distribution, such distribution
shall be made to the holder of stock of various classes in such
proportion as the Board of Directors shall be conclusive and
binding for all purposes.
(5) Redemption. All shares of stock of the Corporation shall have
the redemption rights provided for in Article V, Section 5.
(d) The Corporation's shares of stock are issued and sole, and all
persons who shall acquire stock of the Corporation shall acquire the
same, subject to the condition and understanding that the provisions
of the Corporation's Articles of Incorporation, as from time to time
amended, shall be binding upon them.
Section 2. Quorum requirements and voting rights: Except as otherwise
expressly provided by the Maryland General Corporation Law, the presence in
person or by proxy of the holders of one-third of the shares of capital stock of
quorum at any meeting of the stockholders, except that where the holders of any
class are required or permitted to vote as a class, one-third of the aggregate
number of shares of that class outstanding and entitled to vote shall constitute
a quorum.
Notwithstanding any provision of Maryland General Corporation Law
requiring a greater proportion than a majority of the votes of all classes or of
any classes of the Corporation's stock entitled to be cast in order to take or
authorize any action, any such action may be taken or authorized upon the
concurrence of a majority of the aggregate number of votes entitled to be cast
thereon subject to the applicable laws and regulations as from time to time in
effect or rules or orders of the Securities and Exchange Commission or any
successor thereto. All shares of stock of this Corporation shall have the voting
rights provided for in Article V, Section 1, paragraph (b).
Section 3. No preemptive rights: No holder of shares of capital stock
of the Corporation shall, as such holder, have any right to purchase or
subscribe for any shares of capital stock of the Corporation which the
Corporation may issue or sell (whether consisting of shares of capital stock
authorized by these Articles of Incorporation, or shares of capital stock of the
Corporation acquired by it after the issue thereof, or other shares) other than
any right which the Board of Directors of the Corporation, in its discretion,
may determine.
Section 4. Determination of net asset value: The net asset value of
each shares of the Corporation, or of each class, shall be the quotient obtained
by dividing the value of the net assets of the Corporation, or if applicable of
the class (being the value of the assets of the Corporation or of the particular
class less its actual and accrued liabilities exclusive of capital stock and
surplus), by the total number of outstanding shares of the Corporation or the
class, as applicable. Such determination may be made on a class-by-class basis
and shall include any expenses allocated to a specific class thereof. The Board
of Directors may adopt procedures for determination of net asset value
consistent with the requirements of applicable statutes and regulations and, so
far as accounting matters are concerned, with generally accepted accounting
principles. The procedures may include, without limitation, procedures for
valuation of the Corporation's portfolio securities and other assets, for
accrual of expenses or creation of reserves and for the determination of the
number of shares issued and outstanding at any given time.
Section 5. Redemption and repurchase of shares of capital stock: Any
shareholder may redeem shares of the Corporation for the net asset value of each
class or series thereof by presentation of an appropriate request, together with
the certificates, if any, for such shares, duly endorsed, at the office or
agency designated by the Corporation. Redemptions as aforesaid, or purchases by
the Corporation of its own stock, shall be made in the manner and subject to the
conditions contained in the bylaws or approved by the Board of Directors.
Section 6. Purchase of shares: The Corporation shall be entitled to
purchase shares of any class of its capital stock, to the extent that the
Corporation may lawfully effect such purchase under Maryland General Corporation
Law, upon such terms and conditions and for such consideration as the Board of
Directors shall deem advisable, by agreement with the stockholder at a price not
exceeding the net asset value per share computed in accordance with Section 4 of
this Article.
Section 7. Redemption of minimum amounts:
(a) If after giving effect to a request for redemption by a
stockholder the aggregate net asset value of his remaining shares of
any class will be less than the minimum amount then in effect, the
Corporation shall be entitled to require the redemption of the
remaining shares of such class owned by such stockholder, upon notice
given in accordance with paragraph (c) of this section, to the extent
that the Corporation may lawfully effect such redemptions under
Maryland General Corporation Law.
(b) The term "Minimum Amount" when used herein shall mean Three
Hundred Dollars ($300) unless otherwise fixed by the Board of
Directors from time to time, provided that the minimum amount may not
in any event exceed Five Thousand Dollars ($5,000).
(c) If any redemption under paragraph (a) of this section is upon
notice, the notice shall be in writing personally delivered or
deposited in the mail, at least thirty days prior to such redemption.
If mailed, the notice shall be addressed to the stockholder at his
post office address as shown on the books of the Corporation, and sent
by certified or registered mail, postage prepaid. The price for shares
redeemed by the Corporation pursuant to paragraph (a) of this section
shall be paid in cash in an amount equal to the net asset value of
such shares, computed in accordance with Section 4 of this article.
Section 8. Mode of payment: Payment by the Corporation for shares of
any class of the capital stock of the Corporation surrendered to it for
redemption shall be made by the Corporation within seven business days of such
surrender out of the funds legally available, therefor, provided that the
Corporation may suspend the right of the holders of capital stock of the
Corporation to redeem shares of capital stock and may postpone the right of such
holders to receive payment for any shares when permitted or required to do so by
law. Payment of the redemption or purchase price may be made in cash or, at the
option of the Corporation, wholly or partly in such portfolio securities of the
Corporation as the Corporation may select.
Section 9. Rights of holders of shares purchased or redeemed: The right
of any holder of any class of capital stock of the Corporation purchased or
redeemed by the Corporation as provided in this article to receive dividends
thereon and all other rights of such holder with respect to such shares shall
terminate on all other rights of such holder with respect to such shares shall
terminate at the time as of which the purchase or redemption price of such
shares id determined, except the right of such holder to receive (i) the
purchase or redemption price of such shares from the Corporation or its
designated agent and (ii) any dividend or distribution or voting rights to which
such holder has previously become entitled as the record holder of such shares
on the record date for the determination of the stockholders entitled to receive
such dividend or distribution or to vote at the meeting of stockholders.
Section 10. Status of shares purchased or redeemed: In the absence of
any specification as to the purchase for which such shares of any class of
capital stock of the Corporation are redeemed or purchased by it, all shares so
redeemed or purchased shall be deemed to re retired in the sense contemplated by
the laws of the State of Maryland and may be reissued. The number of authorized
shares of capital stock of the Corporation shall not be reduced by the number of
any shares redeemed or purchased by it.
Section 11. Additional limitations and powers: The following provisions
are inserted for the purpose of defining limiting and regulating the powers of
the Corporation and of the Board of Directors and stockholders:
(a) Any determination made in good faith and, so far as accounting
matters are involved, in accordance with generally accepted accounting
principles by or pursuant to the direction of the Board of Directors,
as to the amount of the assets, debts, obligations or liabilities of
the Corporation, as to the amount of any reserves or charges set up
and the propriety thereof, as to the time of or purpose for creating
such reserves or charges, as to the use, alteration or cancellation of
any reserves or charges (whether or not any debt, obligation or
liability for which such reserves or charges shall have been created
shall have been paid or discharged or shall be then or thereafter
required to be paid or discharged), as to the establishment or
designation of procedures or methods to be employed for valuing any
investment or other assets as to the allocation of any asset of the
Corporation to a particular class or classes of the Corporation's
stock, as to the funds available for the declaration of dividends and
as to the declaration of dividends, as to the charging of any
liability of the Corporation to a particular class or classes of the
Corporation's stock, as to the number of shares of any class or
classes of the Corporation's outstanding stock, as to the estimated
expense to the Corporation in connection with purchases or redemptions
of its shares, as to the ability to liquidate investments in orderly
fashion, or as to any other matters relating to the issue, sale,
purchase or redemption or other acquisition or disposition of
investments or shares of the Corporation, or in the determination of
the net asset value per share of shares of any class of the
Corporation's stock shall be conclusive and binding for all purposes.
(b) Except to the extend prohibited by the Investment Company Act of
1940, as amended, or rules, regulations or orders thereunder
promulgated by the Securities and Exchange Commission or any successor
thereto or by the bylaws of the Corporation, a director, officer or
employee of the Corporation shall not be disqualified by his position
from dealing or contracting with the Corporation, nor shall any
transaction or contract of the Corporation be void or voidable by
reason of the fact that any director, officer or employee or any firm
of which any director, officer or employee is a member, of any
corporation of which any director, officer or employee is a
stockholder, officer or director, is in any way interested in such
transaction or contract; provided that in case a director, or a firm
or corporation of which a director is a member, stockholder, officer
or director is so interested, such fact shall be disclosed to or shall
have been known by the Board of Directors or a majority thereof. Nor
shall any director or officer of the Corporation by liable to the
Corporation or to any stockholder or creditor thereof or to any person
for any loss incurred by it or him or for any profit realized by such
director or officer under or by reason of such contract or
transaction; provided that nothing herein shall protect any director
or officer of the Corporation against any liability to the Corporation
or to its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office; and
provided always that such contract or transaction shall have been on
terms that were not unfair to the Corporation at the time at which it
was entered into. Any director of the Corporation who is so
interested, or who is a member, stockholder, officer or director of
such firm or corporation, may be counted in determining the existence
of a quorum at any meeting of the Board of Directors of the
Corporation which shall authorize any such transaction or contract,
with like force and effect as if he were not such director, or member,
stockholder, officer or director of such firm or corporation.
(c) Specifically and without limitation of the foregoing paragraph (b)
but subject to the exception therein prescribed, the Corporation may
enter into management or advisory, underwriting, distribution and
administration contracts, custodian contracts and such other contracts
as may be appropriate.
I, Arthur S. Filean, Vice President and Secretary, hereby acknowledge
on behalf of Princor Short-Term Bond Fund, Inc., that the foregoing Articles
Supplementary are the corporate act of said Corporation under the penalties of
perjury.
Arthur S. Filean
By _______________________________________
Arthur S. Filean, Vice President and Secretary
Princor Short-Term Bond Fund, Inc.
ATTEST:
Ernest H. Gillum
By ________________________________________
Ernest H. Gillum
Assistant Secretary
MANAGEMENT AGREEMENT
AGREEMENT to be effective the 12th day of December 1995, by and between
PRINCOR LIMITED TERM BOND FUND, INC., a Maryland corporation (hereinafter called
the "Fund") and PRINCOR MANAGEMENT CORPORATION, an Iowa corporation (hereinafter
called "the Manager").
W I T N E S S E T H:
WHEREAS, The Fund has furnished the Manager with copies properly
certified or authenticated of each of the following:
(a) Certificate of Incorporation of the Fund;
(b) Bylaws of the Fund as adopted by the Board of Directors;
(c) Resolutions of the Board of Directors of the Fund selecting the
Manager as investment adviser and approving the form of this
Agreement.
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, the Fund hereby appoints the Manager to act as investment
adviser and manager of the Fund, and the Manager agrees to act, perform or
assume the responsibility therefor in the manner and subject to the conditions
hereinafter set forth. The Fund will furnish the Manager from time to time with
copies, properly certified or authenticated, of all amendments of or supplements
to the foregoing, if any.
1. INVESTMENT ADVISORY SERVICES
The Manager will regularly perform the following services for the Fund:
(a) Provide investment research, advice and supervision;
(b) Provide investment advisory, research and statistical facilities
and all clerical services relating to research, statistical and
investment work;
(c) Furnish to the Board of Directors of the Fund (or any appropriate
committee of such Board), and revise from time to time as
economic conditions require, a recommended investment program for
the Fund's portfolio consistent with the Fund's investment
objective and policies;
(d) Implement such of its recommended investment program as the Fund
shall approve, by placing orders for the purchase and sale of
securities, subject always to the provisions of the Fund's
Certificate of Incorporation and Bylaws and the requirements of
the Investment Company Act of 1940, as each of the same shall be
from time to time in effect;
(e) Advise and assist the officers of the Fund in taking such steps
as are necessary or appropriate to carry out the decisions of its
Board of Directors and any appropriate committees of such Board
regarding the general conduct of the investment business of the
Fund; and
(f) Report to the Board of Directors of the Fund at such times and in
such detail as the Board may deem appropriate in order to enable
it to determine that the investment policies of the Fund are
being observed.
2. CORPORATE ADMINISTRATIVE SERVICES
In addition to the investment advisory services set forth in Section 1,
the Manager will perform the following corporate administrative services:
(a) Furnish the services of such of the Manager's officers and
employees as may be elected officers or directors of the Fund,
subject to their individual consent to serve and to any
limitations imposed by law;
(b) Furnish office space, and all necessary office facilities and
equipment, for the general corporate functions of the Fund (i.e.,
functions other than (i) underwriting and distribution of Fund
shares; (ii) custody of Fund assets, and (iii) transfer and
paying agency services); and
(c) Furnish the services of the supervisory and clerical personnel
necessary to perform the general corporate functions of the Fund.
(d) Determine the net asset value of the shares of the Fund's Capital
Stock as frequently as the Fund shall request, or as shall be
required by applicable law or regulations.
3. RESERVED RIGHT TO DELEGATE DUTIES AND SERVICES TO OTHERS
The Manager in assuming responsibility for the various services as set
forth in this Agreement reserves the right to enter into agreements with others
for the performance of certain duties and services or to delegate the
performance of some or all of such duties and services to Principal Mutual Life
Insurance Company, or an affiliate thereof.
4. EXPENSES BORNE BY THE MANAGER
The Manager will pay:
(a) The compensation and expenses of all officers and executive
employees of the Fund;
(b) The compensation and expenses of all directors of the Fund who
are persons affiliated with the Manager; and
(c) The expenses of the organization of the Fund, including its
registration under the Investment Company Act of 1940, and the
initial registration and qualification of its Capital Stock for
sale under the Securities Act of 1933 and the Blue Sky laws of
the states in which it initially qualifies.
5. COMPENSATION OF THE MANAGER BY FUND
For all services to be rendered and payments made as provided in
Sections 1, 2 and 4 hereof, the Fund will accrue daily and pay the Manager
within five days after the end of each calendar month a fee based on the average
of the values placed on the net assets of the Fund as of the time of
determination of the net asset value on each trading day throughout the month in
accordance with the following schedule.
Average Daily Net Fee as a Percentage of
Assets of the Fund Average Daily Net Assets
First $100,000,000 .50%
Next 100,000,000 .45%
Next 100,000,000 .40%
Next 100,000,000 .35%
Amount Over 400,000,000 .30%
Net asset value shall be determined pursuant to applicable provisions of
the Certificate of Incorporation of the Fund. If pursuant to such provisions the
determination of net asset value is suspended, then for the purposes of this
Section 5 the value of the net assets of the Fund as last determined shall be
deemed to be the value of the net assets for each day the suspension continues.
The Manager may, at its option, waive all or part of its compensation
for such period of time as it deems necessary or appropriate.
6. SERVICES FURNISHED AT COST BY THE MANAGER
The Manager (in addition to the services to be performed by it pursuant
to Sections 1 and 2 hereof) will:
(a) Act as, and provide all services customarily performed by, the
transfer and paying agent of the Fund including, without
limitation, the following:
(i) preparation and distribution to shareholders of reports,
tax information, notices, proxy statements and proxies;
(ii) preparation and distribution of dividend and capital gain
payments to shareholders;
iii) issuance, transfer and registry of shares, and maintenance
of open account system;
(iv) delivery, redemption and repurchase of shares, and
remittances to shareholders; and
(v) communication with shareholders concerning items (i), (ii),
(iii) and (iv) above.
In the carrying out of this function the Manager may contract
with others for data systems, processing services and other
administrative services.
(b) Use its best efforts to qualify the Capital Stock of the Fund for
sale in states and jurisdictions other than those in which
initially qualified, as directed by the Fund; and
(c) Prepare stock certificates, and distribute the same as requested
by shareholders of the Fund.
The Manager will maintain records in reasonable detail of the costs
(including a reasonable charge for administrative overhead) incurred by it in
the performance of the services set forth in this Section 6, and at the end of
each calendar month the Fund will reimburse the Manager for such costs.
7. EXPENSES BORNE BY FUND
(a) The Fund will pay, without reimbursement by the Manager, the
following expenses:
(i) Taxes, including in case of redeemed shares any initial
transfer taxes, and governmental fees (except with respect
to the Fund's organization and the initial qualification
and registration of its Capital Stock);
(ii) Portfolio brokerage fees and incidental brokerage
expenses; and
iii) Interest.
(b) The Fund will pay, without reimbursement by the Manager except
under the circumstances set forth in Section 8, the following
expenses:
(i) The fees of its independent auditor and its legal counsel,
incurred subsequent to the Fund's organization and the
initial qualification and registration of its Capital
Stock;
(ii) The fees and expenses of the Custodian of its assets;
iii) The fees and expenses of all directors of the Fund who are
not persons affiliated with the Manager; and
(iv) The cost of meetings of shareholders.
8. REIMBURSEMENT OF CERTAIN FUND EXPENSES
If in any fiscal year of the Fund the normal operating expenses of the
Fund chargeable to its income account shall exceed the lowest applicable
percentage of average net assets or income limitations prescribed by any state
in which Fund shares are qualified for sale, the Manager will pay the Fund, as
promptly as practical after the end of such year, an amount equal to such
excess. For purposes of this Section 8, "normal operating expenses" shall
include the Section 5 investment advisory fee, the Section 6 monthly
reimbursement, and the expenses enumerated in subsection 7(b), but shall not
include the expenses enumerated in subsection 7(a).
9. AVOIDANCE OF INCONSISTENT POSITION
In connection with purchases or sales of portfolio securities for the
account of the Fund, neither the Manager nor any of the Manager's directors,
officers or employees will act as a principal or agent or receive any
commission.
10. LIMITATION OF LIABILITY OF THE MANAGER
The Manager shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence on the Manager's part in the performance of its duties
or from reckless disregard by it of its obligations and duties under this
Agreement.
11. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall remain in force until the first meeting of the
shareholders of the Fund and if it is approved by a vote of a majority of the
outstanding voting securities of the Fund it shall continue in effect thereafter
from year to year provided that the continuance is specifically approved at
least annually either by the Board of Directors of the Fund or by a vote of a
majority of the outstanding voting securities of the Fund and in either event by
vote of a majority of the directors of the Fund who are not interested persons
of the Manager, Principal Mutual Life Insurance Company, or the Fund cast in
person at a meeting called for the purpose of voting on such approval. This
Agreement may, on sixty days written notice, be terminated at any time without
the payment of any penalty, by the Board of Directors of the Fund, by vote of a
majority of the outstanding voting securities of the Fund, or by the Manager.
This Agreement shall automatically terminate in the event of its assignment. In
interpreting the provisions of this Section 10, the definitions contained in
Section 2(a) of the Investment Company Act of 1940 (particularly the definitions
of "interested person," "assignment" and "voting security") shall be applied.
12. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote of the holders of a majority of the Fund's outstanding voting securities
and by vote of a majority of the directors who are not interested persons of the
Manager, Principal Mutual Life Insurance Company or the Fund cast in person at a
meeting called for the purpose of voting on such approval.
13. ADDRESS FOR PURPOSE OF NOTICE
Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for the receipt of such notices. Until further notice
to the other party, it is agreed that the address of the Fund and that of the
Manager for this purpose shall be The Principal Financial Group, Des Moines,
Iowa 50392.
14. MISCELLANEOUS
The captions in this Agreement are included for convenience of reference
only, and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized.
PRINCOR LIMITED TERM BOND FUND, INC.
By Arthur S. Filean________________
Arthur S. Filean, Vice President
PRINCOR MANAGEMENT CORPORATION
By Stephan L. Jones___________
Stephan L. Jones, President
INVESTMENT SERVICE AGREEMENT
THIS INVESTMENT SERVICE AGREEMENT, to be effective the 12th day of
December, 1995, by and between PRINCOR LIMITED TERM BOND FUND, INC. (the
"Fund"), an open-end investment company formed under the laws of Maryland,
PRINCOR MANAGEMENT CORPORATION ("Manager"), an Iowa corporation, and PRINCIPAL
MUTUAL LIFE INSURANCE COMPANY, a specially chartered Iowa life insurance
company;
W I T N E S S E T H:
WHEREAS, Principal Mutual Life Insurance Company has organized the
Manager to serve as investment adviser and is the owner (through its
subsidiaries) of all of the outstanding stock of the Manager; and
WHEREAS, the Manager and the Fund have entered into a Management
Agreement effective as of December 12, 1995 whereby the Manager undertakes to
furnish the Fund with investment advisory services and certain other services;
and
WHEREAS, the Manager has the right under the Management Agreement to
appoint one or more sub-advisors to furnish such services to the Fund; and
WHEREAS, Principal Mutual Life Insurance Company is willing to make
available to the Manager on a part-time basis certain employees and services of
Principal Mutual Life Insurance Company and its subsidiaries for the purpose of
better enabling the Manager to fulfill its investment advisory obligations under
the Management Agreement, provided that the Manager bears all costs allocable to
the time spent by them on the affairs of the Manager, and the Manager and the
Fund believe that such an arrangement will be for their mutual benefit:
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. The Manager shall have the right to use, on a part-time basis, and
Principal Mutual Life Insurance Company shall make available on such basis, such
employees of Principal Mutual Life Insurance Company and its subsidiaries and
for such periods as may be agreed upon by the Manager and Principal Mutual Life
Insurance Company and its subsidiaries, as reasonably needed by the Manager in
the performance of its investment advisory services (but not its administrative,
transfer and paying services) under the Management Agreement. It is anticipated
that such employees will be persons employed in the Investment Department of
Principal Mutual Life Insurance Company or its subsidiaries. Principal Mutual
Life Insurance Company will also make available to the Manager or the Fund such
clerical, stenographic and administrative services as the Manager may reasonably
request to facilitate its performance of such investment advisory services.
2. The employees of Principal Mutual Life Insurance Company and its
subsidiaries in performing services for the Manager hereunder may, to the full
extent that they deem appropriate, have access to and utilize statistical and
economic data, investment research reports and other material prepared for or
contained in the files of the Investment Department of Principal Mutual Life
Insurance Company or its subsidiaries which is relevant to making investments
for the Fund, and may make such materials available to the Manager, provided,
that any such materials prepared or obtained in connection with a private
placement or other non-public transaction need not be made available to the
Manager if Principal Mutual Life Insurance Company or its subsidiaries deem such
materials confidential.
3. Employees of Principal Mutual Life Insurance Company or its
subsidiaries performing services for the Manager pursuant hereto shall report
and be responsible solely to the officers and directors of the Manager or
persons designated by them. Principal Mutual Life Insurance Company or its
subsidiaries shall have no responsibility for investment recommendations and
decisions of the Manager based upon information or advice given or obtained by
or through such Principal Mutual Life Insurance Company employees or employees
of Principal Mutual Life Insurance Company subsidiaries.
4. Principal Mutual Life Insurance Company will, to the extent requested
by the Manager, supply to employees of the Manager (including part-time
employees of Principal Mutual Life Insurance Company or its subsidiaries serving
the Manager) such clerical, stenographic and administrative services and such
office supplies and equipment as may be reasonably required in order that they
may properly perform their respective functions on behalf of the Manager in
connection with its performance of its investment advisory services under the
Management Agreement.
5. The obligation of performance under the Management Agreement is solely
that of the Manager, and Principal Mutual Life Insurance Company and its
subsidiaries undertake no obligation in respect thereto, except as otherwise
expressly provided herein.
6. In consideration of the services to be rendered by Principal Mutual
Life Insurance Company or its subsidiaries and their employees pursuant to this
Investment Service Agreement, the Manager agrees to reimburse Principal Mutual
Life Insurance Company or its subsidiaries for such costs, direct and indirect,
as may be fairly attributable to the services performed for the Manager. Such
costs shall include, but not be limited to, an appropriate portion of:
(a) salaries;
(b) employee benefits;
(c) general overhead expense;
(d) supplies and equipment; and
(e) a charge in the nature of rent for the cost of space in
Principal Mutual Life Insurance Company offices fairly
allocable to activities of the Manager under the Management
Agreement.
In the event of disagreement between the Manager and Principal Mutual Life
Insurance Company and its subsidiaries as to a fair basis for allocating or
apportioning costs, such basis shall be fixed by the public accountants for the
Fund.
7. This Investment Service Agreement shall remain in force until the
conclusion of the first meeting of the shareholders of the Fund and if it is
approved by a vote of a majority of the outstanding voting securities of the
Fund, it shall continue from year to year provided that the continuance is
specifically approved at least annually either by the Board of Directors of the
Fund or by vote of a majority of the outstanding voting securities of the Fund
and in either event such continuance shall be approved by the vote of a majority
of the directors who are not interested persons of the Manager, Principal Mutual
Life Insurance Company or its subsidiaries or the Fund cast in person at a
meeting called for the purpose of voting on such approval. This Investment
Service Agreement may, on sixty days written notice, be terminated at any time
without the payment of any penalty, by the Board of Directors of the Fund, by
vote of a majority of the outstanding voting securities of the Fund, by the
Manager or Principal Mutual Life Insurance Company. This Investment Service
Agreement shall automatically terminate in the event of its assignment. In
interpreting the provisions of this Section 7, the definitions contained in
Section 2(a) of the Investment Company Act of 1940 (particularly the definitions
of "interested persons", "assignment" and "voting securities") shall be applied.
8. Any notice under this Investment Service Agreement shall be in
writing, addressed and delivered or mailed postage prepaid to the other parties
at such addresses as such other parties may designate for the receipt of such
notices. Until further notice it is agreed that the address of the fund, that of
the Manager and that of Principal Mutual Life Insurance Company and its
subsidiaries for this purpose shall be The Principal Financial Group, Des
Moines, Iowa 50392.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in three counterparts by their duly authorized officers the day and
year first above written.
PRINCOR LIMITED TERM BOND FUND, INC.
By _________________A. S. Filean____________________
A. S. Filean
PRINCOR MANAGEMENT CORPORATION
By __________________S. L. Jones____________________
S. L. Jones
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By _________________R. E. Keller____________________
R. E. Keller
PRINCOR LIMITED TERM BOND FUND, INC.
SUB-ADVISORY AGREEMENT
AGREEMENT executed as of the 12th day of December, 1995, by and between
PRINCOR MANAGEMENT CORPORATION, an Iowa Corporation (hereinafter called "the
Manager") and INVISTA CAPITAL MANAGEMENT, INC. (hereinafter called "Invista").
W I T N E S S E T H:
WHEREAS, the Manager is the manager and investment adviser to Princor
Limited Term Bond Fund, Inc., (the "Fund"), an open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Manager desires to retain Invista to furnish portfolio
selection and related research and statistical services in connection with the
investment advisory services which the Manager has agreed to provide to the
Fund, and Invista desires to furnish such services; and
WHEREAS, The Manager has furnished Invista with copies properly
certified or authenticated of each of the following:
(a) Management Agreement (the "Management Agreement") with the Fund;
(b) Copies of the registration statement of the Fund as filed
pursuant to the federal securities laws of the
United States, including all exhibits and amendments;
NOW, THEREFORE, in consideration of the premises and the terms and
conditions hereinafter set forth, it is agreed as follows:
1. Appointment of Invista
In accordance with and subject to the Management Agreement, the Manager
hereby appoints Invista to perform portfolio selection services described in
Section 2 below for investment and reinvestment of the securities and other
assets of the Fund, subject to the control and direction of the Fund's Board of
Directors, as well as to assume other obligations as specified in Section 2
below, for the period and on the terms hereinafter set forth. Invista accepts
such appointment and agrees to furnish the services hereinafter set forth for
the compensation herein provided. Invista shall for all purposes herein be
deemed to be an independent contractor and shall, except as expressly provided
or authorized, have no authority to act for or represent the Fund or the Manager
in any way or otherwise be deemed an agent of the Fund or the Manager.
2. Obligations of and Services to be Provided by Invista
(a) Invista shall provide with respect to the Fund all services and
obligations of the Manager described in Section 1, Investment Advisory Services,
of the Management Agreement.
(b) Invista shall use the same skill and care in providing services to
the Fund as it uses in providing services to fiduciary accounts for which it has
investment responsibility. Invista will conform with all applicable rules and
regulations of the Securities and Exchange Commission.
3. Compensation
As full compensation for all services rendered and obligations assumed
by Invista hereunder with respect to the Fund, the Manager shall pay Invista
within 10 days after the end of each calendar month, or as otherwise agreed, an
amount representing Invista's actual cost of providing such services and
assuming such obligations.
4. Duration and Termination of This Agreement
This Agreement shall become effective on the latest of (i) the date of
its execution, (ii) the date of its approval by a majority of the directors of
the Fund, including approval by the vote of a majority of the directors of the
Fund who are not interested persons of the Manager, Principal Mutual Life
Insurance Company, Invista or the Fund cast in person at a meeting called for
the purpose of voting on such approval and (iii) the date of its approval by a
majority of the outstanding voting securities of the Fund. It shall continue in
effect thereafter from year to year provided that the continuance is
specifically approved at least annually either by the Board of Directors of the
Fund or by a vote of a majority of the outstanding voting securities of the Fund
and in either event by vote of a majority of the directors of the Fund who are
not interested persons of the Manager, Principal Mutual Life Insurance Company,
Invista or the Fund cast in person at a meeting called for the purpose of voting
on such approval. This Agreement may, on sixty days written notice, be
terminated at any time without the payment of any penalty, by the Board of
Directors of the Fund, by vote of a majority of the outstanding voting
securities of the Fund, Invista or by the Manager. This Agreement shall
automatically terminate in the event of its assignment. In interpreting the
provisions of this Section 10, the definitions contained in Section 2(a) of the
Investment Company Act of 1940 (particularly the definitions of "interested
person," "assignment" and "voting security") shall be applied.
5. Amendment of this Agreement
No amendment of this Agreement shall be effective until approved by
vote of the holders of a majority of the outstanding voting securities and by
vote of a majority of the directors of the Fund who are not interested persons
of the Manager, Invista, Principal Mutual Life Insurance Company or the Fund
cast in person at a meeting called for the purpose of voting on such approval.
6. General Provisions
(a) Each party agrees to perform such further acts and execute such
further documents as are necessary to effectuate the purposes hereof. This
Agreement shall be construed and enforced in accordance with and governed by the
laws of the State of Iowa. The captions in this Agreement are included for
convenience only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(b) Any notice under this Agreement shall be in writing, addressed and
delivered or mailed postage pre-paid to the other party at such address as such
other party may designate for the receipt of such notices. Until further notice
to the other party, it is agreed that the address of Invista and of the Manager
for this purpose shall be The Principal Financial Group, Des Moines, Iowa
50392-0200.
(c) Invista agrees to notify the Manager of any change in Invista's
officers and directors within a reasonable time after such change.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
PRINCOR MANAGEMENT CORPORATION
By ______Stephan L. Jones____________
Stephan L. Jones, President
INVISTA CAPITAL MANAGEMENT, INC.
By _______S. R. Kosmicke_____________
S. R. Kosmicke, President
DISTRIBUTION AGREEMENT
Agreement to be effective December 12, 1995 by and between PRINCOR LIMITED TERM
BOND FUND, INC., a Maryland corporation (hereinafter sometimes called the
"Fund") and PRINCOR FINANCIAL SERVICES CORPORATION, an Iowa corporation
(Hereinafter sometimes called the "Distributor").
W I T N E S S E T H:
WHEREAS, The Fund and the Distributor wish to enter into an agreement setting
forth the terms upon which the Distributor will act as underwriter and
distributor of the Fund.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Fund hereby appoints the Distributor to act as principal
underwriter (as such term is defined in Section 2(a)(29) of the Investment
Company Act of 1940 (as amended) of the shares of Capital Stock of the Fund
(hereinafter sometimes call "shares"), and the distributor agrees to act and
perform the duties and functions of underwriter in the manner and subject to the
conditions hereinafter set forth.
1. SOLICITATION OF ORDERS
The Distributor will use its best efforts (but only in states where it
may lawfully do so) to obtain from investors unconditional orders for
shares authorized for issue by the Fund and registered under the
Securities Act of 1933, as amended, provided the Distributor may in its
own discretion refuse to accept orders for shares from any particular
applicant. The Distributor does not undertake to sell any specific
number of shares of the Fund.
2. SALE OF SHARES
The Distributor is authorized to sell as agent on behalf of the Fund
authorized shares of the Fund by accepting unconditional orders placed
with the Distributor by investors in states wherever sales may lawfully
be made.
3. PUBLIC OFFERING PRICE
Except as limited by paragraphs 6 and 7 hereof, all shares of the Fund
sold to investors by the Distributor as agent for the Fund will be sold
for the basic retail price, which basic retail price shall be the public
offering price applicable to each purchase as from time to time stated
in the current prospectus of the Fund.
4. COMMISSIONS
The Distributor shall receive a commission equal to the difference
between the basic retail price and the "net asset value" of the Fund's
shares sold through the Distributor subject to a sales charge at the
basic retail price. The term, "net asset value," as used herein, means
said value as determined either as of the close of trading of the New
York Stock Exchange on the day an order for purchase of shares is
accepted or as of such other time as may be in accordance with any
provision of the 1940 Investment Company Act, any rule or regulation
thereunder, or any rule or regulation made or adopted by any securities
association registered under the 1934 Securities Exchange Act (all as
the Distributor may determine) or as of such time as the Board of
Directors or duly authorized officers or agents of the Fund may
determine in the manner provided in the Fund's Certificate of
Incorporation or Bylaws as from time to time amended. If any such
commission is received by the Fund, it will pay such commission to the
Distributor. In addition, the Distributor will be paid the entire amount
of any contingent deferred sales charge imposed and paid by shareholders
upon the redemption or repurchase of the Fund's shares as set forth in
the Fund's prospectus, subject to any waivers or reductions in sales
charge that may be disclosed in the prospectus. The Distributor may pay
its agents and employees such compensation, allow to dealers such
concessions, and allow (and authorize dealers to re-allow) such
discounts to purchasers, as the Distributor may determine from time to
time. The Distributor may also purchase as principal shares of the Fund
at "net asset value" and sell such shares at the public offering price.
5. DELIVERY OF PAYMENTS AND ISSUANCE OF SHARES
The Distributor will deliver to the Fund all payments made pursuant to
orders accepted by the Distributor upon receipt thereof by the
Distributor in its principal place of business.
After payment the Fund will issue shares of Capital Stock by crediting
to a stockholder account in such names and such manner as specified in
the application or order relating to such shares. Certificates will be
issued only upon request by the shareholder.
6. SALES OF SHARES TO CERTAIN CLASSES OF INVESTORS OR TRANSACTIONS
The sale price of Class A shares of the Fund will reflect the scheduled
variations in, or elimination of, the sales load to particular classes
of investors or transactions as may be described in the Fund's current
prospectus or statement of additional information.
7. SALE OF SHARES TO INVESTORS BY THE FUND
Any right granted to the Distributor to accept orders for shares or make
sales on behalf of the Fund will not apply to shares issued in
connection with the merger or consolidation of any other investment
company with the Fund or its acquisition, purchase or otherwise, of all
or substantially all the assets of any investment company or
substantially all the outstanding shares of any such company. Also, any
such right shall not apply to shares issued, sold or transferred,
whether Treasury or newly issued shares, that may be offered by the Fund
to its shareholders as stock dividends or splits for not less than "net
asset value".
8. AGREEMENTS WITH DEALERS OR OTHERS
In making agreements with any dealers or others, the Distributor shall
act only in its own behalf and in no sense as agent for the Fund and
shall be agent for the Fund only in respect of sales and repurchases of
Fund shares.
9. COPIES OF CORPORATE DOCUMENTS
The Fund will furnish the Distributor promptly with properly certified
or authenticated copies of any registration statements filed by it with
the Securities and Exchange Commission under the Securities Act of 1933,
as amended, or the Investment Company Act of 1940, as amended, together
with any financial statements and exhibits included therein and all
amendments or supplements thereto hereafter filed. Also, the Fund shall
furnish the Distributor with a reasonable number of printed copies of
each semi-annual and annual report (quarterly if made) of the Fund as
the Distributor may request, and shall cooperate fully in the efforts of
the Distributor to sell and arrange for the sale of the Fund's shares of
Capital Stock and in the performance by the Distributor of all of its
duties under this Agreement.
10. RESPONSIBILITY FOR CONTINUED REGISTRATION INCLUDING INCREASE IN SHARES
The Fund will assume the continued responsibility for meeting the
requirements of registration under the Securities Act of 1933, as
amended, under the Investment Company Act of 1940, as amended, and under
the securities laws of the various states where the Distributor is
registered as a broker-dealer. The Fund, subject to the necessary
approval of its shareholders, will increase the number of authorized
shares from time to time as may be necessary to provide the Distributor
with such number of shares as the Distributor may reasonably be expected
to sell.
11. SUSPENSION OF SALES
If and whenever the determination of asset value is suspended pursuant
to applicable law, and such suspension has become effective, until such
suspension is terminated no further applications for shares shall be
accepted by the Distributor except unconditional orders placed with the
Distributor before the Distributor had knowledge of the suspension. In
addition, the Fund reserves the right to suspend sales and the
Distributor's authority to accept orders for shares on behalf of the
Fund, if in the judgment of the majority of its Board of Directors, if
such Committee exists, it is in the best interest of the Fund to do so,
suspension to continue for such period as may be determined by such
majority; and in that event no shares will be sold by the Fund or by the
Distributor on behalf of the Fund while such suspension remains in
effect except for shares necessary to cover unconditional orders
accepted by the Distributor before the Distributor had knowledge of the
suspension.
12. EXPENSES
The Fund will pay (or will enter into arrangements providing for the
payment of) all fees and expenses (1) in connection with the preparation
and filing of any registration statement or amendments thereto as
required under the Investment Company Act of 1940, as amended; (2) in
connection with the preparation and filing of any registration statement
and prospectus or amendments thereto under the Securities Act of 1933,
as amended, covering the issue and sale of the Fund's shares; and (3) in
connection with the registration of the Fund and qualification of shares
for sale in the various states and other jurisdictions. The Fund will
also pay the cost of (i) preparation and distribution to shareholders of
prospectuses, reports, tax information, notices, proxy statements and
proxies; (ii) preparation and distribution of dividend and capital gain
payments to shareholders; (iii) issuance, transfer, registry and
maintenance of open account charges; (iv) delivery, remittance,
redemption and repurchase charges; (v) communication with shareholders
concerning these items; and (vi) stock certificates. The Fund will pay
taxes including, in the case of redeemed shares, any initial transfer
taxes unpaid.
The Distributor shall assume responsibility for the expense of printing
prospectuses used for the solicitation of new accounts. The Distributor
will pay the expenses of other sales literature, all fees and expenses
in connection with the Distributor's qualification as a dealer under the
Securities Exchange Act of 1934, as amended, and in the various states,
and all other expenses in connection with the sale and offering for sale
of shares of the Fund which have not been herein specifically allocated
to or assumed by the Fund.
13. CONFORMITY WITH LAW
The Distributor agrees that in selling the shares of the Fund it will
duly conform in all respects with the laws of the United States and any
state or other jurisdiction in which such shares may be offered for sale
pursuant to this Agreement.
14. MEMBERSHIP IN NATIONAL ASSOCIATION OF SECURITIES DEALERS
The Fund recognizes that the Distributor is now a member of the National
Association of Securities Dealers, and in the conduct of its duties
under this Agreement the Distributor is subject to the various rules,
orders and regulations of such organization. The right to determine
whether such membership should or should not continue, or to join other
organizations, is reserved by the Distributor.
15. OTHER INTERESTS
It is understood that directors, officers, agents and stockholders of
the Fund are or may be interested in the Distributor as directors,
officers, stockholders, or otherwise; that directors, officers, agents,
and stockholders of the Distributor are or may be interested in the Fund
as directors, officers, stockholders or otherwise; that the Distributor
may be interested in the Fund as a stockholder or otherwise; and that
the existence of any dual interest shall not affect the validity hereof
or of any transaction hereunder except as otherwise provided in the
Certification of Incorporation of the Fund and the Distributor,
respectively, or by specific provision of applicable law.
16. INDEMNIFICATION
The Fund agrees 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 Fund'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 in
conformity with information furnished in writing by the Distributor to
the Fund for use in the Fund'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 Fund or who controls the Fund 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 Fund 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 Fund's agreement to indemnify the
Distributor, its officers and directors and any such controlling person
as aforesaid is expressly conditioned upon the Fund 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 Fund. The Fund agrees promptly to
notify the Distributor of the commencement of any litigation or
proceedings against it or any of its directors in connection with the
issue and sale of any shares of it Capital Stock.
The Distributor agrees to indemnify, defend and hold the Fund, its
officers and directors and any person who controls the Fund, if any,
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 liabilities and any counsel fees incurred in connection
therewith) which the Fund, its directors or officers or any such
controlling person may incur under the Securities Act of 1933 or under
common law or otherwise; but only to the extent that such liability or
expense incurred by the Fund, its directors or officers or such
controlling person resulting from such claims or demands shall arise out
of or be based upon any alleged untrue statement of a material fact
contained in information furnished in writing by the Distributor to the
Fund for use in the Fund's registration statement or prospectus or shall
arise out of or be based upon any alleged omission to state a material
fact in connection with such information required to be stated in the
registration statement or prospectus or necessary to make such
information not misleading. The Distributor's agreement to indemnify the
Fund, its directors and officers, and any such controlling person as
aforesaid is expressly conditioned upon the Distributor being promptly
notified of any action brought against the Fund, its officers or
directors or any such controlling person.
17. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective upon the effective date of the
Fund's initial registration statement under the Securities Act of 1933
and will remain in effect from year to year thereafter, but only so long
as such continuance is specifically approved, at least annually, either
by the Board of Directors of the Fund, or by a vote of a majority of the
outstanding voting securities of the Fund, provided that in either event
such continuation shall be approved by the vote of a majority of the
directors who are not interested persons of the Distributor, Principal
Mutual Life Insurance Company, or the Fund cast in person at a meeting
called for the purpose of voting on such
approval. This Agreement may on 60 days written notice be terminated at
any time, without the payment of any penalty, by the Fund, or by the
Distributor. This Agreement shall terminate automatically in the event
of its assignment by the Distributor and shall not be assignable by the
Fund without the consent of the Distributor.
In interpreting the provisions of this paragraph 15, the definitions
contained in section 2(a) of the Investment Company Act of 1940
(particularly the definitions of "interested person", "assignment" and
"voting security") shall be applied.
18. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought. If the Fund should at any time deem it necessary
or advisable in the best interests of the Fund that any amendment of
this Agreement be made in order to comply with the recommendations or
requirements of the Securities and Exchange Commission or other
governmental authority or to obtain any advantage under state or federal
tax laws and should notify the Distributor of the form of such
amendment, and the reasons therefor, and if the Distributor should
decline to assent to such amendment, the Fund may terminate this
Agreement forthwith. If the Distributor should at any time request that
a change be made in the Fund's Certificate of Incorporation or By-laws,
or in its method of doing business, in order to comply with any
requirements of federal law or regulations of the Securities and
Exchange Commission or of a national securities association of which the
Distributor is or may be a member, relating to the sale of shares of the
Fund, and the Fund should not make such necessary change within a
reasonable time, the Distributor may terminate this Agreement forthwith.
19. ADDRESS FOR PURPOSES OF NOTICE
Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address
as such other party may designate for the receipt of such notices. Until
further notice to the other party, it is agreed that the address of the
Fund and that of the Distributor for this purpose shall be The Principal
Financial Group, Des Moines, Iowa 50392.
IN WITNESS WHEREOF, the parties hereof have caused this Agreement to be
executed in duplicate on the day and year first above written.
PRINCOR LIMITED TERM BOND FUND, INC. PRINCOR FINANCIAL SERVICES CORPORATION
By A. S. Filean____________________ By S. L. Jones___________________
A. S. Filean, Vice President S. L. Jones, President
ACCOUNT APPLICATION
Princor Mutual Funds
1-800-247-4123, 7:00 AM to 7:00 PM Central Time
1 ACCOUNT REGISTRATION
(Please Print)
If this account has more than one shareholder, the account will be
registered "JOINT TENANTS WITH RIGHTS OF SURVIVORSHIP" unless otherwise
specified.
For a Uniform Gift/Transfer to Minors Act ("UTMA") account, use the name of
the adult custodian on the owner line and the name of the child on the
joint owner(s) line. Use child's social security number.
For Trust, Corporation, Partnership or other entity, complete first two
lines exactly as the registration should appear. Include completed
Corporate Resolution Form (see Prospectus) or attach a copy of the Trust
Agreement.
Type of Account Personal __ UTMA __ Corporate __ Trust __ Partnership __
Own ______________________________________________________________________
First Middle Initial Last Date of Birth
Joint
Owner(s)___________________________________________________________________
First Middle Initial Last Date of Birth
___________________________________________________________________
Address
___________________________________________________________________
City State Zip Code
___________________________________________________________________
Business Phone Home Phone
Social Security or
Tax Identification Number
____________________________
____________________________
__ I am subject to backup withholding.
__ I am a nonresident alien - attach IRS Form W-8.
__ I am a resident alien - specify country of citizenship and attach IRS Form
W-8 and, if applicable IRS Form 1078.
____________________________
Country
<TABLE>
<CAPTION>
2 INVESTMENT AND DIVIDEND SELECTION
CLASS OF SYSTEMATIC CASH
SHARES LUMP SUM MONTHLY CASH CAPITAL CASH DIVIDENDS & DIVIDENDS TO
A B INVESTMENT* INVESTMENT** DIVIDENDS GAINS CAPITAL GAINS BANK ACCOUNT***
Growth-Oriented Funds
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund $ $
Blue Chip Fund $ $
Capital Accumulation Fund $ $
Emerging Growth Fund $ $
Growth Fund $ $
World Fund $ $
Income-Oriented Funds
Bond Fund $ $
Government Securities
Income Fund $ $
High Yield Fund $ $
Limited Term Bond Fund $ $
Tax-Exempt Bond Fund $ $
Utilities Fund $ $
Money Market Funds
Cash Management Fund $ $
Tax-Exempt Cash
Management Fund $ $
Totals $ $
Check Enclosed. (Make checks payable to Princor)
This application is for settlement of a telephone order placed on ___________
* Minimum of $300 for Growth-Oriented Funds and $1,000 for all other Funds.
** For systematic monthly investment option complete Section 5D and include a
voided check or deposit slip.
*** For dividends to be directed to bank account complete Section 5B and include
a voided check or deposit slip.
NOTE: Dividends and capital gains will be reinvested if no election is made.
Class "A" shares will be purchased if no class selection is made.
</TABLE>
3 DIVIDEND RELAY ELECTION
If you elect to have dividends and capital gains distributionsfrom one fund
automatically invested into another PRINCOR mutual fund, please provide the
following:
Fund From Which Dividends and Fund to Receive Dividends
Distributions Originate and Distributions
1. _____________________________ ____________________________________
2. _____________________________ ____________________________________
3. _____________________________ ____________________________________
NOTE: Dividends and distributions can only be used to purchase shares of the
same class.
4 SALES CHARGE REDUCTION PRIVILEGES
(See the Prospectus "Offering Price of Funds' Shares" for details.)
A. Statement of Intention
If $50,000 or more will be invested in shares of the PRINCOR FUNDS
(Class A shares subject to a sales charge or Class B Shares) over a
13-month period (2-year period if investing $1 million or more), check
the intended amount. A reduced sales charge will be granted, subject
to the terms and conditions set forth in the Statement of Additional
Information.
$50,000 $100,000 $250,000 $500,000 $1,000,000
__ or Over __ or Over __ or Over __ or Over __ or Over
NOTE: Statements of Intent apply only to Class "A" shares, however, Class "B"
shares will be credited toward the fulfillment of this Statement of
Intent.
B. Rights of Accumulation
List below the fund account number(s) for you, your spouse and
dependents who have existing Princor Mutual Fund accounts or are
opening one at this time. Class A shares, including Class A shares of
the Money Market Funds acquired by exchange of other Princor Funds,
and Class B shares are combined for Rights of Accumulation purposes. A
reduced sales charge is available as described in the Statement of
Additional Information.
______________ ______________ ______________ ______________ ______________
account number account number account number account number account number
C. Designated Investors that may Purchase Class "A" Shares at a Reduced
Sales Charge
(Additional information may be required. See the Statement of
Additional Information for details.)
No sales charge applies because of the following designation:
_______________________________________________________________________
A reduced sales charge applies as outlined within the Statement of
Additional Information: (specify, e.g., payroll deduction plan)
_______________________________________________________________________
5 OPTIONAL FEATURES
A. Decline Telephone Transaction Services. I (We) do not want telephone
transaction services as described in the prospectus. (If this box is
not checked telephone transaction services will apply)
B. Redemptions Directed to Bank Account. Redemptions may be wired
(subject to a wire charge of up to $15) or mailed for deposit only to
my (our) account as follows:
(please attach a deposit slip or voided check)
____________________________ ________________ ______________________
Name of Bank Account Number Address of Bank
C. Checkwriting. I (We) wish to be able to redeem Class A shares from
Princor Cash Management Fund, Inc. and/or Princor Tax-Exempt Cash
Management Fund, Inc. by check ($100 minimum). For details see "How to
Sell Shares" in the prospectus.
By signing below in Section 7, I/we authorize Norwest Bank Iowa,
N.A. (the "Bank") to honor checks drawn by the undersigned on the
account of the indicating Funds(s). The Fund(s) transfer agent,
Princor Management Corporation (the "Transfer Agent"), is
authorized to redeem enough shares from the Fund account of the
undersigned to cover payment of the check. I/We understand that:
The Check Writing Service may be terminated at any time by the
Fund(s) or the Bank. Neither they nor the Transfer Agent shall
incur any liability for honoring such checks, for redeeming
shares to pay such checks or for returning checks unpaid, which
have not been accepted.
The Check Writing Service is subject to all of the terms and
conditions contained in the Fund(s) then-current prospectus.
This authorization will continue in effect until the Fund(s) receive
actual written notice of any change signed by the undersigned, with
signatures guaranteed.
___ Check here if the signatures of all account owners are required
on checks. If this box is not checked only one signature will be
required.
__ Personal Checks __ Business Checks __ Business Check Binder
(Enclose $15)
D. Systematic Accumulation Plan. I (We) wish to make monthly investments
in the funds directly from my (our) checking account in the amounts
and on the dates as follows: (Complete the Check Authorization Order,
Section 8 below, and attach a voided check or deposit slip.)
Class A or Dollar Date of Withdrawal
Fund Class B Amount From Bank Account
1.
2.
3.
E. Automatic Exchange Election* (See Prospectus for details). I hereby
make the Automatic Exchange Election and authorize automatic exchanges
on the dates and in the amounts ($25 minimum) from the Fund(s) and to
such Fund(s) as indicated below:
Fund From Which Exchange (M)onthly or Receiving Fund and Dollar Amount
Exchange is Made Date (Q)uarterly of Exchange
($25 minimum for each receiving Fund)
1.________________ ________ ____________ ($ )_______ ($ )________ ($ )_______
2.________________ ________ ____________ ($ )_______ ($ )________ ($ )_______
3.________________ ________ ____________ ($ )_______ ($ )________ ($ )_______
* __ Check here if requesting an exchange from Money Market Fund Class A shares
to Class B shares of other Princor Funds.
F. Periodic Withdrawal Election. (Complete "5.B." above if
periodic withdrawals are to be directed to a bank account.) I
wish to automatically withdraw funds from the accounts, in the
amounts and on the dates indicated below:
Date of Withdrawal
Class A or Amount Beginning (M)onthly,
Fund Class B ($25 Minimum) Month Date (Q)uarterly or
(S)emi-Annually or
(A)nnually
1.______________ _________ _________________ _________ _______ _________________
2.______________ _________ _________________ _________ _______ _________________
3.______________ _________ _________________ _________ _______ _________________
6 INVESTOR INFORMATION
(This Section Must be Completed)
My(Our) investment objective(s) is(are): __ Long-Term Growth (3+ years)
__ Growth and Income __ Current Income __ Tax-Exempt Income
Estimated Income (current tax year in thousands):
__ Under $25 __ Under $50 __ Under $100 __ Under $250
Tax Bracket _________%
Approximate Net Worth (in thousands):
__ Under $25 __ Under $50 __ Under $100 __ Under $250
Occupation(s):
________________________________________________________________________________
Employer(s) name and address
________________________________________________________________________________
Source of funds for this purchase
________________________________________________________________________________
Other Investments $__________________________________
(amount) invested in ___________________________________________________________
I am an associated person of an NASD member firm __ No __ Yes
______________________________________________________________________________
Name and Address of Firm
7 SIGNATURE AND TAX NUMBER CERTIFICATION
I have read this application and have had the opportunity to read the prospectus
and agree to all their terms. In addition, I authorize the instructions in this
application. I have been given the opportunity to ask any questions I have
regarding this investment, and they have been answered to my satisfaction. I
understand the investment objective(s) of the Princor Mutual Fund(s) for which I
am applying and believe it is compatible with my investment objective(s). I
understand that telephone transaction privileges (including telephone redemption
and exchange requests) apply unless I have specifically declined them on this
application and that I bear the risk of loss resulting from any fraudulent
telephone redemption or exchange request which the Fund reasonably believes to
be genuine. I also understand the Fund has adopted procedures designed to reduce
the risk of fraudulent transactions, which are disclosed in the prospectus. I
also understand that exchanges between funds are taxable transactions. I certify
under penalties of perjury (check the appropriate response):
(1) that the Social Security or taxpayer identification number shown in
Section 1 is correct and that the IRS has never notified me that I am
subject to backup withholding, or has notified me that I am no longer
subject to such backup withholding; or
(2) I have not been issued a taxpayer identification number but have
applied for such number, or intend to apply for such number in the
near future. I understand that if I do not provide a correct taxpayer
identification number to the Fund within 60 days from the date of this
certification, backup withholding as described in the Fund's
prospectus will commence; or
(3) I am subject to backup withholding.
Sign below exactly as your name appears in Section 1. For joint registration,
all owners must sign.
X________________________________________________________________
Signature of shareholder Date
X_________________________________________________________________
Signature of shareholder Date
TO BE COMPLETED BY SELLING FIRM
Dealer's Name _____________________________________
By ______________________________________________
Authorized Signature of Dealer
Home Office Address _______________________________
City, State, Zip ____________________________________
1. Representative's Signature ________________________
Name (Please Print) _____________________________
2. Representative's Signature ________________________
Name (Please Print) _____________________________
Representative Number ___________________
% Split ________________________________
Representative Number ___________________
State Written ___________________________
Address of Office Servicing Account:____________________________________________
City ________________________________________
State, Zip______________________________ Telephone _________________________
Mail to: Princor Financial Services Corporation, P.O. Box 10423, Des Moines,
Iowa 50306 For assistance in completing this form, call toll-free
1-800-247-4123.
8 Indemnification to Depositor's Bank:
In consideration of your participation in a plan which Norwest Bank Iowa, N.A.,
("the Bank") has put into effect by which amounts payable to it as Agent for
purchase of shares of any of the Princor funds described above are collected by
checks drawn by the Bank which hereby agrees:
1. To indemnify and hold you harmless from any loss you may suffer
resulting from or in connection with the execution and issuance of any
check, whether or not genuine, purporting to be drawn by or on behalf
of, and payable to, the Bank on the account of your depositor(s)
executing the Authorization on the face hereof and received by you in
the regular course of business through normal banking channels for the
purpose of payment, including any costs or expenses reasonably
incurred in connection with such loss, but excepting any loss due to
your payment of any check drawn against such insufficient funds.
2. In the event that any such check shall be dishonored, whether with or
without cause, and whether intentionally or inadvertently, to
indemnify you and hold you harmless from any loss resulting from any
such dishonor, including your costs and reasonable expense.
NORWEST BANK IOWA, N.A.
666 Walnut Street
Des Moines, Iowa 50309
Check Authorization Order:
To: ________________________________________________________________
(Your Bank)
Address: ____________________________________________________________
As a convenience to me, I hereby authorize you to pay and charge my account
checks drawn on my account by and payable to the order of Norwest Bank Iowa,
N.A. I agree that your rights in respect to each such check shall be the same as
if it were a check drawn on you and signed personally by me. This authority is
to remain in effect until revoked by me in writing and you actually receive such
notice. I agree that you shall be fully protected in honoring any such check. I
further agree that if any such check be dishonored, whether with or without
cause and whether intentionally or inadvertently, you shall be under no
liability whatsoever.
Date ____________________ Bank Account No. __________________________
Depositor's Name(s) ___________________________________________________
________________________________________________________________________________
Depositor's Signature(s) _________________________________________________
________________________________________________________________________________
(Joint signatures are required when bank account is in joint names. Please sign
exactly as appearing on your bank's records.)
FUND USE ONLY
Account Number
PRINCOR IRA APPLICATION
A. Account
Registration ______________________________________________________
(Please print) First Name Middle Initial Last
______________________________________________________
Street address
______________________________________________________
City State Zip
Home phone #
(______)____________________________
Daytime/business phone #
(______)____________________________
Date of birth ________________________
Mo. Day Yr.
Social Security # ____________________
Are you subject to backup withholding?
__ Yes __ No
Are you a U.S. Citizen? __ Yes __ No
If you are a resident alien, attach IRS Form 1078.
If you are a nonresident alien, specify country
of residence and attach IRS Form W-8
______________________________
B. Source of Rollover Source of assets to be rolled over:
Assets ________________________________________________________
(Note: This application Name of plan Principal Mutual Contract #
is used only for IRAs
established with rollovers
from retirement plans
administered by Principal If you are over age 70 1/2, you must receive
Mutual Life Insurance distributions from this plan under IRS regulations.
Company. For all other The Required Minimum Distribution (RMD) for this
IRAs, use Form MM-394.) year may not be included in the rollover.
__ Please indicate if you have begun to receive
distributions from the previous plan.
C. Investment Direction
I elect to invest the assets rolled over from my employer's retirement plan as
follows:
PRINCOR FUND ROLLOVER INVESTMENT
__ Balanced Fund, Inc. (305) $ or %
__ Blue Chip Fund, Inc. (310) $ or %
__ Bond Fund, Inc. (315) $ or %
__ Capital Accumulation Fund, Inc. (320) $ or %
__ Cash Management Fund, Inc. (325) $ or %
__ Emerging Growth Fund, Inc. (330) $ or %
__ Government Securities Income Fund, Inc. (335) $ or %
__ Growth Fund, Inc. (340) $ or %
__ High Yield Fund, Inc. (345) $ or %
__ Limited Term Bond Fund, Inc. (347) $ or %
__ Utilities Fund, Inc. (350) $ or %
__ World Fund, Inc. (355) $ or %
TOTAL 100%
D. Decline Telephone
Transaction Services
__ Please check if you DO NOT wish to authorize telephone transaction services.
(Telephone transaction services automatically apply if box is not checked.)
Note: All distribution requests from IRA accounts must be in writing on
forms provided by Princor.
E. Automatic Exchange Election
(See Prospectus for details)
Please complete to make the Automatic Exchange Election and authorize automatic
exchanges as indicated below:
Fund From Which Exchange (M)onthly or Dollar
Exchange is Made Date (Q)uarterly Receiving Fund Amount
1. $
2. $
3. $
__ Check here if exchange is from Class A shares of the Cash Management Fund to
Class R shares of another fund.
F. Investor
Information
(This Section Must
Be Completed)
Investment objective(s):
__ Long-Term Growth __ Growth and Income __ Current Income
Estimated Income (in thousands for current tax year)
__ Under $25 __ $25-$50 __ $51-$100 __ Over $100
Approximate Net Worth (in thousands)
__ Under $25 __ $25-$50 __ $51-$100 __ $101-$250 __ Over $250
Tax Bracket _________% Occupation:_____________________________________________
Other Investments (amount) $_______________invested in__________________________
Are you an associated person of an NASD member firm? __ No __ Yes
________________________________________________________________________________
Name and address of Member Firm
G. Beneficiary Instructions
(If not completed we will
assume the estate of the
investor to be the beneficiary
which may result in adverse
tax consequences at death. If
you have additional
beneficiaries, please attach a
separate list.)
Primary Beneficiaries
At your death, the assets in this Princor IRA will be distributed to the primary
beneficiary(ies) named below. If two or more primary beneficiaries are named,
they will receive equal amounts unless you specify otherwise. If one of the
named primary beneficiaries dies before you, that person's share will be
distributed proportionately among the surviving primary beneficiaries, unless
you select one of the following options:
__ If a primary beneficiary dies before you, that person's share will be
distributed to their surviving lineal descendants in equal shares; OR
__ If a primary beneficiary dies before you, that person's share will be
distributed to your estate.
Name Relationship Social Security # %
_________________________________ _____________ _________________ _________
_________________________________ _____________ _________________ _________
_________________________________ _____________ _________________ _________
Secondary Beneficiaries
If no primary beneficiary survives you, the secondary beneficiary(ies) will
receive the assets in your account, in equal shares unless you specify
otherwise.
Name Relationship Social Security # %
_________________________________ _____________ _________________ _________
_________________________________ _____________ _________________ _________
_________________________________ _____________ _________________ _________
Are you married? __ Yes __ No
H. Signature
I hereby establish a Princor IRA account and appoint Principal Mutual Life
Insurance Company as custodian. I direct that contributions be invested as
authorized in Section C, and designate the individual(s) in Section G as my
beneficiary(ies). I have received and read the prospectus, Custodial
Agreement, IRA Disclosure Statement and this application and agree to all
their terms and conditions. I acknowledge that I am responsible for
determining the deductibility of any contributions that may be made in the
future to my account. I certify that I have satisfied all rules applicable
to this rollover distribution, and I irrevocably elect to treat this
Qualified Plan distribution as nontaxable and ineligible for any special
tax treatment that may otherwise be available. I consent to an annual
maintenance fee as provided in the Custodial Agreement. I understand the
investment objective(s) of the Princor Fund(s) for which I am applying and
believe such to be compatible with my investment objective(s). I understand
that telephone transaction services (which includes telephone exchange
services) apply unless I have specifically declined them on this
application and that I bear the risk of loss resulting from any fraudulent
telephone transaction (including telephone exchange) request. I certify
under penalty of perjury that the Social Security number shown in Section A
is correct.
________________________________________________________________________________
Participant's Signature Date
I. To Be Completed
by Selling Firm
Dealer's Name __________________________________________________________________
By _____________________________________________________________________________
Authorized Signature of Dealer
Home Office Address ____________________________________________________________
City, State, Zip _______________________________________________________________
================================================================================
Address of Office Servicing Account:
City __________________________________________________________________________
State, Zip _____________________________________________________________________
Telephone _____________________________________________________________________
================================================================================
Checks payable to "Principal Mutual Life Insurance Company
as custodian FBO (Participant's name) IRA."
Mail this completed form to:
Princor Financial Services Corporation
Attention: Princor IRA
P.O. Box 10423
Des Moines, Iowa 50306
CUSTODY AGREEMENT
Agreement made as of this 13th day of February, 1996, between PRINCOR
LIMITED TERM BOND FUND, INC., a corporation organized and existing under the
laws of the State of Maryland having its principal office and place of business
at 711 High Street, Des Moines, Iowa 50392-0200 (hereinafter called the "Fund"),
and THE BANK OF NEW YORK, a New York corporation authorized to do a banking
business, having its principal office and place of business at 48 Wall Street,
New York, New York 10286 (hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as fol lows:
ARTICLE I.
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry system
for United States and federal agency securities, its successor or successors and
its nominee or nominees.
2. "Call Option" shall mean an exchange traded option with respect to Securities
other than Stock Index Options, Futures Contracts, and Futures Contract Options
entitling the holder, upon timely exercise and payment of the exercise price, as
specified therein, to purchase from the writer thereof the specified underlying
Securities.
3. "Certificate" shall mean any notice, instruction, or other instrument in
writing, authorized or required by this Agreement to be given to the Custodian
which is actually received by the Custodian and signed on behalf of the Fund by
any two Officers.
4. "Clearing Member" shall mean a registered broker-dealer which is a clearing
member under the rules of O.C.C. and a member of a national securities exchange
qualified to act as a custodian for an investment company, or any broker-dealer
reasonably believed by the Custodian to be such a clearing member.
5. "Collateral Account" shall mean a segregated account so denominated which is
specifically allocated to a Series and pledged to the Custodian as security for,
and in consideration of, the Custodian's issuance of (a) any Put Option
guarantee letter or similar document described in paragraph 8 of Article V
herein, or (b) any receipt described in Article V or VIII herein.
6. "Covered Call Option" shall mean an exchange traded option entitling the
holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying Securities
(excluding Futures Contracts) which are owned by the writer thereof and subject
to appropriate restrictions.
7. "Depository" shall mean The Depository Trust Company ("DTC"), a clearing
agency registered with the Securities and Exchange Commission, its successor or
successors and its nominee or nominees. The term "Depository" shall further mean
and include any other person authorized to act as a depository under the
Investment Company Act of 1940, its successor or successors and its nominee or
nominees, specifically identified in a certified copy of a resolution of the
Fund's Board of Directors specifically approving deposits therein by the
Custodian.
8. "Financial Futures Contract" shall mean the firm commitment to buy or sell
fixed income securities including, without limitation, U.S. Treasury Bills, U.S.
Treasury Notes, U.S. Treasury Bonds, domestic bank certificates of deposit, and
Eurodollar certificates of deposit, during a specified month at an agreed upon
price.
9. "Futures Contract" shall mean a Financial Futures Contract and/or Stock Index
Futures Contracts.
10. "Futures Contract Option" shall mean an option with respect to a Futures
Contract.
11. "Margin Account" shall mean a segregated account in the name of a broker,
dealer, futures commission merchant, or a Clearing Member, or in the name of the
Fund for the benefit of a broker, dealer, futures commission merchant, or
Clearing Member, or otherwise, in accordance with an agreement between the Fund,
the Custodian and a broker, dealer, futures commission merchant or a Clearing
Member (a "Margin Account Agreement"), separate and distinct from the custody
account, in which certain Securities and/or money of the Fund shall be deposited
and withdrawn from time to time in connection with such transactions as the Fund
may from time to time determine. Securities held in the Book-Entry System or the
Depository shall be deemed to have been deposited in, or withdrawn from, a
Margin Account upon the Custodian's effecting an appropriate entry in its books
and records.
12. "Money Market Security" shall be deemed to include, without limitation,
certain Reverse Repurchase Agreements, debt obligations issued or guaranteed as
to interest and principal by the government of the United States or agencies or
instrumentalities thereof, any tax, bond or revenue anticipation note issued by
any state or municipal government or public authority, commercial paper,
certificates of deposit and bankers' acceptances, repurchase agreements with
respect to the same and bank time deposits, where the purchase and sale of such
securities normally requires settlement in federal funds on the same day as such
purchase or sale.
13. "O.C.C." shall mean the Options Clearing Corporation, a clearing agency
registered under Section 17A of the Securities Exchange Act of 1934, its
successor or successors, and its nominee or nominees.
14. "Officers" shall be deemed to include the President, any Vice President, the
Secretary, the Treasurer, the Controller, any Assistant Secretary, any
Assistant Treasurer, and any other person or persons, whether or not any such
other person is an officer of the Fund, duly authorized by the Board of
Directors of the Fund to execute any Certificate, instruction, notice or other
instrument on behalf of the Fund and listed in the Certificate annexed hereto as
Appendix A or such other Certificate as may be received by the Custodian from
time to time.
15. "Option" shall mean a Call Option, Covered Call Option, Stock Index Option
and/or a Put Option.
16. "Oral Instructions" shall mean verbal instructions actually received by the
Custodian from an Officer or from a person reasonably believed by the Custodian
to be an Officer.
17. "Put Option" shall mean an exchange traded option with respect to Securities
other than Stock Index Options, Futures Contracts, and Futures Contract Options
entitling the holder, upon timely exercise and tender of the specified
underlying Securities, to sell such Securities to the writer thereof for the
exercise price.
18. "Reverse Repurchase Agreement" shall mean an agreement pursuant to which
the Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
19. "Security" shall be deemed to include, without limitation, Money Market
Securities, Call Options, Put Options, Stock Index Options, Stock Index Futures
Contracts, Stock Index Futures Contract Options, Financial Futures Contracts,
Financial Futures Contract Options, Reverse Repurchase Agreements, common stocks
and other securities having characteristics similar to common stocks, preferred
stocks, debt obligations issued by state or municipal governments and by public
authorities, (including, without limitation, general obligation bonds, revenue
bonds, industrial bonds and industrial development bonds), bonds, debentures,
notes, mortgages or other obligations, and any certificates, receipts, warrants
or other instruments representing rights to receive, purchase, sell or subscribe
for the same, or evidencing or representing any other rights or interest
therein, or any property or assets.
20. "Senior Security Account" shall mean an account maintained and specifically
allocated to a Series under the terms of this Agreement as a segregated account,
by recordation or otherwise, within the custody account in which certain
Securities and/or other assets of the Fund specifically allocated to such
Series shall be deposited and withdrawn from time to time in accordance with
Certificates received by the Custodian in connection with such transactions as
the Fund may from time to time determine.
21. "Series" shall mean the various portfolios, if any, of the Fund as described
from time to time in the current and effective prospectus for the Fund and
listed on Appendix B hereto as amended from time to time.
22. "Shares" shall mean the shares of capital stock of the Fund, each of which
is, in the case of a Fund having Series, allocated to a particular Series.
23. "Stock Index Futures Contract" shall mean a bilateral agreement pursuant to
which the parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the value of a particular
stock index at the close of the last business day of the contract and the price
at which the futures contract is originally struck.
24. "Stock Index Option" shall mean an exchange traded option entitling the
holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
ARTICLE II.
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian of the
Securities and moneys at any time owned by the Fund during the period of this
Agreement.
2. The Custodian hereby accepts appointment as such custodian and agrees to
perform the duties thereof as hereinafter set forth.
ARTICLE III.
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in Article
VIII, the Fund will deliver or cause to be delivered to the Custodian all
Securities and all moneys owned by it, at any time during the period of this
Agreement, and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated. The Custodian shall
segregate, keep and maintain the assets of each Series separate and apart from
the others. The Custodian will not be responsible for any Securities and moneys
not actually received by it. The Custodian will be entitled to reverse any
credits made on the Fund's behalf where such credits have been previously made
and moneys are not finally collected. The Fund shall deliver to the Custodian a
certified resolution of the Board of Directors of the Fund approving the
Custodian's use of the Book-Entry System with respect to all Securities eligible
for deposit therein, regardless of the Series to which the same are specifically
allocated and utilization of the Book-Entry System to the extent possible in
connection with its performance hereunder, including, without limitation, in
connection with settlements of purchases and sales of Securities, loans of
Securities and deliveries and returns of Securities collateral. Prior to a
deposit of Securities specifically allocated to a Series in the Depository, the
Fund shall deliver to the Custodian a certified resolution of the Board of
Directors of the Fund approving the Custodian's use of the Depository with
respect to all Securities specifically allocated to such Series eligible for
deposit therein and utilization of the Depository to the extent possible with
respect to such Securities in connection with its performance hereunder,
including, without limitation, in connection with settlements of purchases and
sales of Securities, loans of Securities, and deliveries and returns of
Securities collateral. Securities and moneys deposited in either the Book-Entry
System or the Depository will be represented in accounts which include only
assets held by the Custodian for customers, including, but not limited to,
accounts in which the Custodian acts in a fiduciary or representative capacity
and will be specifically allocated on the Custodian's books to the separate
account for the applicable Series. Prior to the Custodian's accepting, utilizing
and acting with respect to Clearing Member confirmations for Options and
transactions in Options for a Series as provided in this Agreement, the
Custodian shall have received a certified resolution of the Fund's Board of
Directors, substantially in the form of Exhibit A hereto, approving, authorizing
and instructing the Custodian on a continuous and on-going basis, until
instructed to the contrary by a Certificate actually received by the Custodian,
to accept, utilize and act in accordance with such confirmations as provided in
this Agreement with respect to such Series.
2. The Custodian shall establish and maintain separate accounts, in the name of
each Series, and shall credit to the separate account for each Series all cash
received by it for the account of the Fund with respect to such Series. Money
credited to a separate account for a Series shall be disbursed by the Custodian
only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and
address of the person to whom the payment is to be made, the Series account from
which payment is to be made and the purpose for which payment is to be made; or
(c) In payment of the fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the Custodian shall furnish
the Fund with confirmations and a summary, on a per Series basis, of all
transfers to or from the account of the Fund for a Series, either hereunder or
with any co-custodian or sub-custodian appointed in accordance with this
Agreement during said day. Where Securities are transferred to the account of
the Fund for a Series, the Custodian shall also by book-entry or otherwise
identify as belonging to such Series a quantity of Securities in a fungible bulk
of Securities registered in the name of the Custodian (or its nominee) or shown
on the Custodian's account on the books of the Book-Entry System or the
Depository. At least monthly and from time to time, the Custodian shall furnish
the Fund with a detailed statement, on a per Series basis, of the Securities and
cash held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in Article
VIII, all Securities held by the Custodian hereunder, that are issued or
issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the Custodian may
from time to time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or the
Depository any Securities which it may hold hereunder and which may from time to
time be registered in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Series which are not held in the
Book-Entry System or in the Depository in a separate account in the name of such
Series physically segregated at all times from those of any other person or
persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or the Depository with respect to Securities
held hereunder and therein deposited, shall with respect to all Securities held
for the Fund hereunder in accordance with preceding paragraph 4:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount pay able upon such
Securities which are called, but only if either (i) the Custodian receives a
written notice of such call, or (ii) notice of such call appears in one or
more of the publications listed in Appendix C annexed hereto, which may be
amended at any time by the Custodian without the prior notification or consent
of the Fund;
(c) Present for payment and collect the amount payable upon all
Securities which mature;
(d) Surrender Securities in temporary form for definitive
Securities;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the Federal Income Tax Laws or the laws or
regulations of any other taxing authority now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the account of a
Series, all rights and similar securities issued with respect to any Securities
held by the Custodian for such Series hereunder.
6. Upon receipt of a Certificate and not otherwise, the Custodian, directly or
through the use of the Book-Entry System or the Depository, shall:
(a) Execute and deliver to such persons as may be designated
in such Certificate proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any Securities held by
the Custodian hereunder for the Series specified in such Certificate may be
exercised;
(b) Deliver any Securities held by the Custodian hereunder for
the Series specified in such Certificate in exchange for other Securities or
cash issued or paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation or recapitalization of any corporation, or
the exercise of any conversion privilege and receive and hold hereunder
specifically allocated to such Series any cash or other Securities received in
exchange;
(c) Deliver any Securities held by the Custodian hereunder forthe
Series specified in such Certificate to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
corporation, and receive and hold hereunder specifically allocated to such
Series such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Series
specified in such Certificate, and take such other steps as shall be
stated in such Certificate to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger, consolidation or
recapitalization of the Fund; and
(e) Present for payment and collect the amount payable upon
Securities not described in preceding paragraph 5(b) of this Article which may
be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the Custodian shall
not be required to obtain possession of any instrument or certificate
representing any Futures Contract, any Option, or any Futures Contract Option
until after it shall have determined, or shall have received a Certificate from
the Fund stating, that any such instruments or certificates are available. The
Fund shall deliver to the Custodian such a Certificate no later than the
business day preceding the availability of any such instrument or certificate.
Prior to such availability, the Custodian shall comply with Section 17(f) of the
Investment Company Act of 1940, as amended, in connection with the purchase,
sale, settlement, closing out or writing of Futures Contracts, Options, or
Futures Contract Options by making payments or deliveries specified in
Certificates received by the Custodian in connection with any such purchase,
sale, writing, settlement or closing out upon its receipt from a broker, dealer,
or futures commission merchant of a statement or confirmation reasonably
believed by the Custodian to be in the form customarily used by brokers,
dealers, or future commission merchants with respect to such Futures Contracts,
Options, or Futures Contract Options, as the case may be, confirming that such
Security is held by such broker, dealer or futures commission merchant, in
book-entry form or otherwise, in the name of the Custodian (or any nominee of
the Custodian) as custodian for the Fund, provided, however, that
notwithstanding the foregoing, payments to or deliveries from the Margin
Account, and payments with respect to Securities to which a Margin Account
relates, shall be made in accordance with the terms and conditions of the Margin
Account Agreement. Whenever any such instruments or certificates are available,
the Custodian shall, notwithstanding any provision in this Agreement to the
contrary, make payment for any Futures Contract, Option, or Futures Contract
Option for which such instruments or such certificates are available only
against the delivery to the Custodian of such instrument or such certificate,
and deliver any Futures Contract, Option or Futures Contract Option for which
such instruments or such certificates are available only against receipt by the
Custodian of payment therefor. Any such instrument or certificate delivered to
the Custodian shall be held by the Custodian hereunder in accordance with, and
subject to, the provisions of this Agreement.
ARTICLE IV.
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other than a purchase
of an Option, a Futures Contract, or a Futures Contract Option, the Fund shall
deliver to the Custodian (i) with respect to each purchase of Securities which
are not Money Market Securities, a Certificate, and (ii) with respect to each
purchase of Money Market Securities, a Certificate or Oral Instructions,
specifying with respect to each such purchase: (a) the Series to which such
Securities are to be specifically allocated; (b) the name of the issuer and the
title of the Securities; (c) the number of shares or the principal amount
purchased and accrued interest, if any; (d) the date of purchase and settlement;
(e) the purchase price per unit; (f) the total amount payable upon such
purchase; (g) the name of the person from whom or the broker through whom the
purchase was made, and the name of the clearing broker, if any; and (h) the name
of the broker to whom payment is to be made. The Custodian shall, upon receipt
of Securities purchased by or for the Fund, pay to the broker specified in the
Certificate out of the cash held for the account of such Series the total
amount payable upon such purchase, provided that the same conforms to the total
amount payable as set forth in such Certificate or Oral Instructions.
2. Promptly after each sale of Securities by the Fund, other than a sale of any
Option, Futures Contract, Futures Contract Option, or any Reverse Repurchase
Agreement, the Fund shall deliver to the Custodian (i) with respect to each sale
of Securities which are not Money Market Securities, a Certificate, and (ii)
with respect to each sale of Money Market Securities, a Certificate or Oral
Instructions, specifying with respect to each such sale: (a) the Series to which
such Securities were specifically allocated; (b) the name of the issuer and the
title of the Security; (c) the number of shares or principal amount sold, and
accrued interest, if any; (d) the date of sale; (e) the sale price per unit; (f)
the total amount payable to the Fund upon such sale; (g) the name of the broker
through whom or the person to whom the sale was made, and the name of the
clearing broker, if any; and (h) the name of the broker to whom the Securities
are to be delivered. The Custodian shall deliver the Securities specifically
allocated to such Series to the broker specified in the Certificate against
payment of the total amount payable to the Fund upon such sale, provided that
the same conforms to the total amount payable as set forth in such Certificate
or Oral Instructions.
ARTICLE V.
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund shall deliver
to the Custodian a Certificate specifying with respect to each Option purchased:
(a) the Series to which such Option is specifically allocated; (b) the type of
Option (put or call); (c) the name of the issuer and the title and number of
shares subject to such Option or, in the case of a Stock Index Option, the stock
index to which such Option relates and the number of Stock Index Options
purchased; (d) the expiration date; (e) the exercise price; (f) the dates of
purchase and settlement; (g) the total amount payable by the Fund in connection
with such purchase; (h) the name of the Clearing Member through whom such Option
was purchased; and (i) the name of the broker to whom payment is to be made. The
Custodian shall pay, upon receipt of a Clearing Member's statement confirming
the purchase of such Option held by such Clearing Member for the account of the
Custodian (or any duly appointed and registered nominee of the Custodian) as
custodian for the Fund, out of cash held for the account of the Series to which
such Option is to be specifically allocated, the total amount payable upon such
purchase to the Clearing Member through whom the purchase was made, provided
that the same conforms to the total amount payable as set forth in such
Certificate.
2. Promptly after the sale of any Option purchased by the Fund pursuant to
paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) the Series to which such Option
was specifically allocated; (b) the type of Option (put or call); (c) the name
of the issuer and the title and number of shares subject to such Option or, in
the case of a Stock Index Option, the stock index to which such Option relates
and the number of Stock Index Options sold; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the Clearing Member through whom the sale was
made. The Custodian shall consent to the delivery of the Option sold by the
Clearing Member which previously supplied the confirmation described in
preceding paragraph 1 of this Article with respect to such Option against
payment to the Custodian of the total amount payable to the Fund, provided that
the same conforms to the total amount payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option purchased by the
Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a
Certificate specify ing with respect to such Call Option: (a) the Series to
which such Call Option was specifically allocated; (b) the name of the issuer
and the title and number of shares subject to the Call Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call Option was exercised.
The Custodian shall, upon receipt of the Securities underlying the Call Option
which was exercised, pay out of the cash held for the account of the Series to
which such Call Option was specifically allocated the total amount payable to
the Clearing Member through whom the Call Option was exercised, provided that
the same conforms to the total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased by the
Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a
Certificate specifying with respect to such Put Option: (a) the Series to which
such Put Option was specifically allocated; (b) the name of the issuer and the
title and number of shares subject to the Put Option; (c) the expiration date;
(d) the date of exercise and settlement; (e) the exercise price per share; (f)
the total amount to be paid to the Fund upon such exercise; and (g) the name of
the Clearing Member through whom such Put Option was exercised. The Custodian
shall, upon receipt of the amount pay able upon the exercise of the Put Option,
deliver or direct the Depository to deliver the Securities specifically
allocated to such Series, provided the same conforms to the amount payable to
the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Stock Index Option: (a)
the Series to which such Stock Index Option was specifically allocated; (b) the
type of Stock Index Option (put or call); (c) the number of Options being
exercised; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the total amount to be received by the Fund in
connection with such exercise; and (h) the Clearing Member from whom such
payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Covered
Call Option: (a) the Series for which such Covered Call Option was written; (b)
the name of the issuer and the title and number of shares for which the Covered
Call Option was written and which underlie the same; (c) the expiration date;
(d) the exercise price; (e) the premium to be received by the Fund; (f) the date
such Covered Call Option was written; and (g) the name of the Clearing Member
through whom the premium is to be received. The Custodian shall deliver or cause
to be delivered, in exchange for receipt of the premium specified in the
Certificate with respect to such Covered Call Option, such receipts as are
required in accordance with the customs prevailing among Clearing Members
dealing in Covered Call Options and shall impose, or direct the Depository to
impose, upon the underlying Securities specified in the Certificate specifically
allocated to such Series such restrictions as may be required by such receipts.
Notwithstanding the foregoing, the Custodian has the right, upon prior written
notification to the Fund, at any time to refuse to issue any receipts for
Securities in the possession of the Custodian and not deposited with the
Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in the
preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the is suer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
Securities are to be delivered; and (d) the total amount pay able to the Fund
upon such delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver,
or direct the Depository to deliver, the underlying Securities as specified in
the Certificate against payment of the amount to be received as set forth in
such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to such Put Option: (a) the
Series for which such Put Option was written; (b) the name of the issuer and the
title and number of shares for which the Put Option is written and which
underlie the same; (c) the expiration date; (d) the exercise price; (e) the
premium to be received by the Fund; (f) the date such Put Option is written; (g)
the name of the Clearing Member through whom the premium is to be received and
to whom a Put Option guarantee letter is to be delivered; (h) the amount of
cash, and/or the amount and kind of Securities, if any, specifically allocated
to such Series to be deposited in the Senior Security Account for such Series;
and (i) the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be deposited into the Collateral Account for such
Series. The Custodian shall, after making the deposits into the Collateral
Account specified in the Certificate, issue a Put Option guarantee letter
substantially in the form utilized by the Custodian on the date hereof, and
deliver the same to the Clearing Member specified in the Certificate against
receipt of the premium specified in said Certificate. Notwithstanding the
foregoing, the Custodian shall be under no obligation to issue any Put Option
guarantee letter or similar document if it is unable to make any of the
representations contained therein.
9. Whenever a Put Option written by the Fund and described in the preceding
paragraph is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Put Option was written;
(b) the name of the issuer and title and number of shares subject to the Put
Option; (c) the Clearing Member from whom the underlying Securities are to be
received; (d) the total amount payable by the Fund upon such delivery; (e) the
amount of cash and/or the amount and kind of Securities specifically allocated
to such Series to be withdrawn from the Collateral Account for such Series and
(f) the amount of cash and/or the amount and kind of Securities, specifically
allocated to such Series, if any, to be withdrawn from the Senior Security
Account. Upon the return and/or cancellation of any Put Option guarantee letter
or similar document issued by the Custodian in connection with such Put Option,
the Custodian shall pay out of the cash held for the account of the Series to
which such Put Option was specifically allocated the total amount payable to the
Clearing Member specified in the Certificate as set forth in such Certificate
against delivery of such Securities, and shall make the withdrawals specified in
such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series for which such Stock Index Option was written; (b)
whether such Stock Index Option is a put or a call; (c) the number of options
written; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the Clearing Member through whom such Option
was written; (h) the premium to be received by the Fund; (i) the amount of cash
and/or the amount and kind of Securities, if any, specifically allocated to such
Series to be deposited in the Senior Security Account for such Series; (j) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in the Collateral Account for such
Series; and (k) the amount of cash and/or the amount and kind of Securities, if
any, specifically allocated to such Series to be deposited in a Margin Account,
and the name in which such account is to be or has been established. The
Custodian shall, upon receipt of the premium specified in the Certificate, make
the deposits, if any, into the Senior Security Account specified in the
Certificate, and either (1) deliver such receipts, if any, which the Custodian
has specifically agreed to issue, which are in accordance with the customs
prevailing among Clearing Members in Stock Index Options and make the deposits
into the Collateral Account specified in the Certificate, or (2) make the
deposits into the Margin Account specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and described in the
preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series for which such Stock Index Option was written; (b)
such information as may be necessary to identify the Stock Index Option being
exercised; (c) the Clearing Member through whom such Stock Index Option is being
exercised; (d) the total amount payable upon such exercise, and whether such
amount is to be paid by or to the Fund; (e) the amount of cash and/or amount and
kind of Securities, if any, to be withdrawn from the Margin Account; and (f) the
amount of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account for such Series; and the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn from the Collateral
Account for such Series. Upon the return and/or cancellation of the receipt, if
any, delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the moneys held for the account of the Series to
which such Stock Index Option was specifically allocated to the Clearing Member
specified in the Certificate the total amount payable, if any, as specified
therein.
12. Whenever the Fund purchases any Option identical to a previously written
Option described in paragraphs, 6, 8 or 10 of this Article in a transaction
expressly designated as a "Closing Purchase Transaction" in order to liquidate
its position as a writer of an Option, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to the Option being purchased:
(a) that the transaction is a Closing Purchase Transaction; (b) the Series for
which the Option was written; (c) the name of the issuer and the title and
number of shares subject to the Option, or, in the case of a Stock Index Option,
the stock index to which such Option relates and the number of Options held; (d)
the exercise price; (e) the premium to be paid by the Fund; (f) the expiration
date; (g) the type of Option (put or call); (h) the date of such purchase; (i)
the name of the Clearing Member to whom the premium is to be paid; and (j) the
amount of cash and/or the amount and kind of Securities, if any, to be withdrawn
from the Collateral Account, a specified Margin Account, or the Senior Security
Account for such Series. Upon the Custodian's payment of the premium and the
return and/or cancellation of any receipt issued pursuant to paragraphs 6, 8 or
10 of this Article with respect to the Option being liquidated through the
Closing Purchase Transaction, the Custodian shall remove, or direct the
Depository to remove, the previously imposed restrictions on the Securities
underlying the Call Option.
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 Article III herein, and
upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
ARTICLE VI.
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund shall deliver
to the Custodian a Certificate specifying with respect to such Futures Contract,
(or with respect to any number of identical Futures Contract(s)): (a) the Series
for which the Futures Contract is being entered; (b) the category of Futures
Contract (the name of the underlying stock index or financial instrument); (c)
the number of identi cal Futures Contracts entered into; (d) the delivery or
settlement date of the Futures Contract(s); (e) the date the Futures
Contract(s) was (were) entered into and the maturity date; (f) whether the Fund
is buying (going long) or selling (going short) on such Futures Contract(s); (g)
the amount of cash and/or the amount and kind of Securities, if any, to be
deposited in the Senior Security Account for such Series; (h) the name of the
broker, dealer, or futures commission merchant through whom the Futures Contract
was entered into; and (i) the amount of fee or commission, if any, to be paid
and the name of the broker, dealer, or futures commission merchant to whom such
amount is to be paid. The Custodian shall make the deposits, if any, to the
Margin Account in accordance with the terms and conditions of the Margin Account
Agreement. The Custodian shall make payment out of the cash specifically
allocated to such Series of the fee or commission, if any, specified in the
Certificate and deposit in the Senior Security Account for such Series the
amount of cash and/or the amount and kind of Securities specified in said
Certificate.
2. (a) Any variation margin payment or similar payment required to bemade
by the Fund to a broker, dealer, or futures commission merchant with
respect to an outstanding Futures Contract, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a broker,
dealer, or futures commission merchant to the Fund with respect to an
outstanding Futures Contract, shall be received and dealt with by the Custodian
in accordance with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is retained by
the Fund until delivery or settlement is made on such Futures Contract, the Fund
shall deliver to the Custodian a Certificate specifying: (a) the Futures
Contract and the Series to which the same relates; (b) with respect to a Stock
Index Futures Contract, the total cash settlement amount to be paid or received,
and with respect to a Financial Futures Contract, the Securities and/or amount
of cash to be delivered or received; (c) the broker, dealer, or futures
commission merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be withdrawn from the
Senior Security Account for such Series. The Custodian shall make the payment or
delivery specified in the Certificate, and delete such Futures Contract from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a Futures
Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
ARTICLE VII.
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by the Fund, the
Fund shall promptly deliver to the Custodian a Certificate specifying with
respect to such Futures Contract Option: (a) the Series to which such Option is
specifically allocated; (b) the type of Futures Contract Option (put or call);
(c) the type of Futures Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Contract Option
purchased; (d) the expiration date; (e) the exercise price; (f) the dates of
purchase and settlement; (g) the amount of premium to be paid by the Fund upon
such purchase; (h) the name of the broker or futures commission merchant through
whom such option was purchased; and (i) the name of the broker, or futures
commission merchant, to whom payment is to be made. The Custodian shall pay out
of the moneys specifically allocated to such Series, the total amount to be paid
upon such purchase to the broker or futures commissions merchant through whom
the purchase was made, provided that the same conforms to the amount set forth
in such Certificate.
2. Promptly after the sale of any Futures Contract Option purchased by the Fund
pursuant to paragraph 1 hereof, the Fund shall promptly deliver to the Custodian
a Certificate specifying with respect to each such sale: (a) Series to which
such Futures Contract Option was specifically allocated; (b) the type of Future
Contract Option (put or call); (c) the type of Futures Contract and such other
information as may be necessary to identify the Futures Contract underlying the
Futures Contract Option; (d) the date of sale; (e) the sale price; (f) the date
of settlement; (g) the total amount payable to the Fund upon such sale; and (h)
the name of the broker of futures commission merchant through whom the sale was
made. The Custodian shall consent to the cancellation of the Futures Contract
Option being closed against payment to the Custodian of the total amount payable
to the Fund, provided the same conforms to the total amount payable as set forth
in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Op tion (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e) the name
of the broker or futures commission merchant through whom the Futures Contract
Option is exercised; (f) the net total amount, if any, payable by the Fund; (g)
the amount, if any, to be received by the Fund; and (h) the amount of cash
and/or the amount and kind of Securities to be deposited in the Senior Security
Account for such Series. The Custodian shall make, out of the moneys and
Securities specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Futures
Contract Option: (a) the Series for which such Futures Contract Option was
written; (b) the type of Futures Contract Option (put or call); (c) the type of
Futures Contract and such other information as may be necessary to identify the
Futures Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the Fund; (g)
the name of the broker or futures commission merchant through whom the premium
is to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon receipt of the premium specified in the
Certificate, make out of the cash and Securities specifically allocated to such
Series the deposits into the Senior Security Account, if any, as specified in
the Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a call is
exercised, the Fund shall promptly deliver to the Custodian a Certificate
specifying: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom such Futures
Contract Option was exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in such Certificate make the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and which is
a put is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Option was specifically
allocated; (b) the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Futures Contract Option
is exercised; (e) the net total amount, if any, payable to the Fund upon such
exercise; (f) the net total amount, if any, payable by the Fund upon such
exercise; and (g) the amount and kind of Securities and/or cash to be withdrawn
from or deposited in, the Senior Security Account for such Series, if any. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in the Certificate, make out of the moneys and Securities
specifically allocated to such Series, the payments, if any, and the deposits,
if any, into the Senior Security Account as specified in the Certificate. The
deposits to and/or withdrawals from the Margin Account, if any, shall be made by
the Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
7. Whenever the Fund purchases any Futures Contract Option identical to a
previously written Futures Contract Option described in this Article in order
to liquidate its position as a writer of such Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect
to the Futures Contract Option being purchased: (a) the Series to which such
Option is specifically allocated; (b) that the transaction is a closing
transaction; (c) the type of Future Contract and such other information as may
be necessary to identify the Futures Contract underlying the Futures Option
Contract; (d) the exercise price; (e) the premium to be paid by the Fund; (f)
the expiration date; (g) the name of the broker or futures commission merchant
to whom the premium is to be paid; and (h) the amount of cash and/or the amount
and kind of Securities, if any, to be withdrawn from the Senior Security Account
for such Series. The Custodian shall effect the withdrawals from the Senior
Security Account specified in the Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing transaction with
respect to, any Futures Contract Option written or purchased by the Fund and
described in this Article, the Custodian shall (a) delete such Futures Contract
Option from the statements delivered to the Fund pursuant to paragraph 3 of
Article III herein and, (b) make such withdrawals from and/or in the case of an
exercise such deposits into the Senior Security Account as may be specified in a
Certificate. The deposits to and/or withdrawals from the Margin Account, if any,
shall be made by the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a Futures
Contract Option described in this Article shall be subject to Article VI hereof.
ARTICLE VIII.
SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the Fund shall
promptly deliver to the Custodian a Certificate specifying: (a) the Series for
which such short sale was made; (b) the name of the issuer and the title of the
Security; (c) the number of shares or principal amount sold, and accrued
interest or dividends, if any; (d) the dates of the sale and settlement; (e) the
sale price per unit; (f) the total amount credited to the Fund upon such sale,
if any, (g) the amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in which such Margin
Account has been or is to be established; (h) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in a Senior Security
Account, and (i) the name of the broker through whom such short sale was made.
The Custodian shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon such sale, if any,
as specified in the Certificate is held by such broker for the account of the
Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a
receipt or make the deposits into the Margin Account and the Senior Security
Account specified in the Certificate.
2. In connection with the closing-out of any short sale, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to each such
closing out: (a) the Series for which such transaction is being made; (b) the
name of the issuer and the title of the Security; (c) the number of shares or
the principal amount, and accrued interest or dividends, if any, required to
effect such closing-out to be delivered to the broker; (d) the dates of
closing-out and settlement; (e) the purchase price per unit; (f) the net total
amount payable to the Fund upon such closing-out; (g) the net total amount
payable to the broker upon such closing-out; (h) the amount of cash and the
amount and kind of Securities to be withdrawn, if any, from the Margin Account;
(i) the amount of cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Senior Security Account; and (j) the name of the broker
through whom the Fund is effecting such closing-out. The Custodian shall, upon
receipt of the net total amount pay able to the Fund upon such closing-out, and
the return and/or cancellation of the receipts, if any, issued by the Custodian
with respect to the short sale being closed-out, pay out of the moneys held for
the account of the Fund to the broker the net total amount payable to the
broker, and make the withdrawals from the Margin Account and the Senior Security
Account, as the same are specified in the Certificate.
ARTICLE IX.
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement with respect to
Securities and money held by the Custodian hereunder, the Fund shall deliver to
the Custodian a Certificate, or in the event such Reverse Repurchase Agreement
is a Money Market Security, a Certificate or Oral Instructions specifying: (a)
the Series for which the Reverse Repurchase Agreement is entered; (b) the total
amount payable to the Fund in connection with such Reverse Repurchase Agreement
and specifically allocated to such Series; (c) the broker or dealer through or
with whom the Reverse Repurchase Agreement is entered; (d) the amount and kind
of Securities to be delivered by the Fund to such broker or dealer; (e) the date
of such Reverse Repurchase Agreement; and (f) the amount of cash and/or the
amount and kind of Securities, if any, specifically allocated to such Series to
be deposited in a Senior Security Account for such Series in connection with
such Reverse Repurchase Agreement. The Custodian shall, upon receipt of the
total amount payable to the Fund specified in the Certificate, Oral
Instructions, or Written Instructions make the delivery to the broker or dealer,
and the deposits, if any, to the Senior Security Account, specified in such
Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in
preceding paragraph 1 of this Article, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money Market
Security, a Certificate or Oral Instructions to the Custodian specifying: (a)
the Reverse Repurchase Agreement being terminated and the Series for which same
was entered; (b) the total amount payable by the Fund in connection with such
termination; (c) the amount and kind of Securities to be received by the Fund
and specifically allocated to such Series in connection with such termination;
(d) the date of termination; (e) the name of the broker or dealer with or
through whom the Reverse Repurchase Agreement is to be terminated; and (f) the
amount of cash and/or the amount and kind of Securities to be withdrawn from the
Senior Securities Account for such Series. The Custodian shall, upon receipt of
the amount and kind of Securities to be received by the Fund specified in the
Certificate or Oral Instructions, make the payment to the broker or dealer, and
the withdrawals, if any, from the Senior Security Account, specified in such
Certificate or Oral Instructions.
ARTICLE X.
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically allocated to a
Series held by the Custodian hereunder, the Fund shall deliver or cause to be
delivered to the Custodian a Certificate specifying with respect to each such
loan: (a) the Series to which the loaned Securities are specifically allocated;
(b) the name of the issuer and the title of the Securities, (c) the number of
shares or the principal amount loaned, (d) the date of loan and delivery, (e)
the total amount to be delivered to the Custodian against the loan of the
Securities, including the amount of cash collateral and the premium, if any,
separately identified, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount designated as to be
delivered against the loan of Securities. The Custodian may accept payment in
connection with a delivery otherwise than through the Book-Entry System or
Depository only in the form of a certified or bank cashier's check payable to
the order of the Fund or the Custodian drawn on New York Clear ing House funds
and may deliver Securities in accordance with the customs prevailing among
dealers in securities.
2. Promptly after each termination of the loan of Securities by the Fund, the
Fund shall deliver or cause to be delivered to the Custodian a Certificate
specifying with respect to each such loan termination and return of Securities:
(a) the Series to which the loaned Securities are specifically allocated; (b)
the name of the issuer and the title of the Securities to be returned, (c) the
number of shares or the principal amount to be returned, (d) the date of
termination, (e) the total amount to be delivered by the Custodian (including
the cash collateral for such Securities minus any offsetting credits as
described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the cash held for the account of the Fund, the total amount payable
upon such return of Securities as set forth in the Certificate.
ARTICLE XI.
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or withdrawals
from, a Senior Security Account as specified in a Certificate received by the
Custodian. Such Certificate shall specify the Series for which such deposit or
withdrawal is to be made and the amount of cash and/or the amount and kind of
Securities specifically allocated to such Series to be deposited in, or
withdrawn from, such Senior Security Account for such Series. In the event that
the Fund fails to specify in a Certificate the Series, the name of the issuer,
the title and the number of shares or the principal amount of any particular
Securities to be deposited by the Custodian into, or withdrawn from, a Senior
Securities Account, the Custodian shall be under no obligation to make any such
deposit or withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from a Margin Account to the
broker, dealer, futures commission merchant or Clearing Member in whose name, or
for whose benefit, the account was established as specified in the Margin
Account Agreement.
3. Amounts received by the Custodian as payments or distributions with respect
to Securities deposited in any Margin Account shall be dealt with in accordance
with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest in and to
any property at any time held by the Custodian in any Collateral Account
described herein. In accordance with applicable law the Custodian may enforce
its lien and realize on any such property whenever the Custodian has made
payment or delivery pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In the event the
Custodian should realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee letter or similar
document or any receipt, such deficiency shall be a debt owed the Custodian by
the Fund within the scope of Article XII herein.
5. On each business day the Custodian shall furnish the Fund with a statement
with respect to each Margin Account in which cash or Securities are held
specifying as of the close of business on the previous business day: (a) the
name of the Margin Account; (b) the amount and kind of Securities held therein;
and (c) the amount of cash held therein. The Custodian shall make available upon
request to any broker, dealer, or futures commission merchant specified in the
name of a Margin Account a copy of the statement furnished the Fund with respect
to such Margin Account.
6. Promptly after the close of business on each business day in which cash
and/or Securities are maintained in a Collateral Account for any Series, the
Custodian shall furnish the Fund with a statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business next succeeding
the delivery to the Fund of such statement, the Fund shall furnish to the
Custodian a Certificate or Written Instructions specifying the then market value
of the Securities described in such statement. In the event such then market
value is indicated to be less than the Custodian's obligation with respect to
any outstanding Put Option guarantee letter or similar document, the Fund shall
promptly specify in a Certificate the additional cash and/or Securities to be
deposited in such Collateral Account to eliminate such deficiency.
ARTICLE XII.
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds on behalf of
any Series which results in an overdraft because the cash held by the Custodian
in the separate account for such Series shall be insufficient to pay the total
amount payable upon a purchase of Securities specifically allocated to such
Series, as set forth in a Certificate or Oral Instructions, or which results in
an overdraft in the separate account of such Series for some other reason, or if
the Fund is for any other reason indebted to the Custodian with respect to a
Series, including any indebtedness to The Bank of New York under the Fund's Cash
Management and Related Services Agreement, if applicable, (except a borrowing
for investment or for temporary or emergency purposes using Securities as
collateral pursuant to a separate agreement and subject to the provisions of
paragraph 2 of this Article), such overdraft or indebtedness shall be deemed to
be a loan made by the Custodian to the Fund for such Series payable on demand
and shall bear interest from the date incurred at a rate per annum (based on a
360-day year for the actual number of days involved) equal to 1/2% over
Custodian's prime commercial lending rate in effect from time to time, such rate
to be adjusted on the effective date of any change in such prime commercial
lending rate but in no event to be less than 6% per annum. In addition, the Fund
hereby agrees that the Custodian shall have a continuing lien and security
interest in and to any property specifically allocated to such Series at any
time held by it for the benefit of such Series or in which the Fund may have an
interest which is then in the Custodian's possession or control or in posses
sion or control of any third party acting in the Custodian's behalf. The Fund
authorizes the Custodian, in its sole discretion, at any time to charge any
such overdraft or indebtedness together with interest due thereon against any
balance of account standing to such Series' credit on the Custodian's books. In
addition, the Fund hereby covenants that on each Business Day on which either it
intends to enter a Reverse Repurchase Agreement and/or otherwise borrow from a
third party, or which next succeeds a Business Day on which at the close of
business the Fund had outstanding a Reverse Repurchase Agreement or such a
borrowing, it shall prior to 9 a.m., New York City time, advise the Custodian,
in writing, of each such borrowing, shall specify the Series to which the same
relates, and shall not incur any indebtedness not so specified other than from
the Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank (including,
if the borrowing is pursuant to a separate agreement, the Custodian) from which
it borrows money for investment or for temporary or emergency purposes using
Securities held by the Custodian hereunder as collateral for such borrowings, a
notice or undertaking in the form currently employed by any such bank setting
forth the amount which such bank will loan to the Fund against delivery of a
stated amount of collateral. The Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to each such borrowing: (a) the Series to
which such borrowing relates; (b) the name of the bank, (c) the amount and terms
of the borrowing, which may be set forth by incorporating by reference an
attached promissory note, duly endorsed by the Fund, or other loan agreement,
(d) the time and date, if known, on which the loan is to be entered into, (e)
the date on which the loan becomes due and payable, (f) the total amount payable
to the Fund on the borrowing date, (g) the market value of Securities to be
delivered as collateral for such loan, including the name of the issuer, the
title and the number of shares or the principal amount of any particular
Securities, and (h) a statement specifying whether such loan is for investment
purposes or for temporary or emergency purposes and that such loan is in
conformance with the Investment Company Act of 1940 and the Fund's prospectus.
The Custodian shall deliver on the borrowing date specified in a Certificate the
specified collateral and the executed promissory note, if any, against delivery
by the lending bank of the total amount of the loan payable, provided that the
same conforms to the total amount payable as set forth in the Certificate. The
Custodian may, at the option of the lending bank, keep such collateral in its
possession, but such collateral shall be subject to all rights therein given the
lending bank by virtue of any promissory note or loan agreement. The Custodian
shall deliver such Securities as additional collateral as may be specified in a
Certificate to collateralize further any transaction described in this
paragraph. The Fund shall cause all Securities released from collateral status
to be returned directly to the Custodian, and the Custodian shall receive from
time to time such return of collateral as may be tendered to it. In the event
that the Fund fails to specify in a Certificate the Series, the name of the
issuer, the title and number of shares or the principal amount of any particular
Securities to be delivered as collateral by the Custodian, the Custodian shall
not be under any obligation to deliver any Securities.
ARTICLE XIII.
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ, as sub-custodian for
each Series' Foreign Securities (as such term is defined in paragraph (c)(1) of
Rule 17f-5 under the Investment Company Act of 1940, as amended) and other
assets, the foreign banking institutions and foreign securities depositories and
clearing agencies designated on Schedule I hereto ("Foreign Sub-Custodians") to
carry out their respective responsibilities in accordance with the terms of the
sub-custodian agreement between each such Foreign Sub-Custodian and the
Custodian, copies of which have been previously delivered to the Fund and
receipt of which is hereby acknowledged (each such agreement, a "Foreign
Sub-Custodian Agreement"). Upon receipt of a Certificate, together with a
certified resolution substantially in the form attached as Exhibit B of the
Fund's Board of Directors, the Fund may designate any additional foreign
sub-custodian with which the Custodian has an agreement for such entity to act
as the Custodian's agent, as its sub-custodian and any such additional foreign
sub-custodian shall be deemed added to Schedule I. Upon receipt of a Certificate
from the Fund, the Custodian shall cease the employment of any one or more
Foreign Sub-Custodians for maintaining custody of the Fund's assets and such
Foreign Sub-Custodian shall be deemed deleted from Schedule I.
2. Each Foreign Sub-Custodian Agreement shall be substantially in the form
previously delivered to the Fund and will not be amended in a way that
materially adversely affects the Fund without the Fund's prior written consent.
3. The Custodian shall identify on its books as belonging to each Series of the
Fund the Foreign Securities of such Series held by each Foreign Sub-Custodian.
At the election of the Fund, it shall be entitled to be subrogated to the rights
of the Custodian with respect to any claims by the Fund or any Series against a
Foreign Sub-Custodian as a consequence of any loss, damage, cost, expense,
liability or claim sustained or incurred by the Fund or any Series if and to the
extent that the Fund or such Series has not been made whole for any such loss,
damage, cost, expense, liability or claim.
4. Upon request of the Fund, the Custodian will, consistent with the terms of
the applicable Foreign Sub-Custodian Agreement, use reasonable efforts to
arrange for the independent accountants of the Fund to be afforded access to the
books and records of any Foreign Sub-Custodian insofar as such books and records
relate to the performance of such Foreign Sub-Custodian under its agreement with
the Custodian on behalf of the Fund.
5. The Custodian will supply to the Fund from time to time, as mutually agreed
upon, statements in respect of the securities and other assets of each Series
held by Foreign Sub-Custodians, including but not limited to, an identification
of entities having possession of each Series' Foreign Securities and other
assets, and advices or notifications of any transfers of Foreign Securities to
or from each custodial account maintained by a Foreign Sub-Custodian for the
Custodian on behalf of the Series.
6. The Custodian shall furnish annually to the Fund, as mutually agreed upon,
information concerning the Foreign Sub-Custodians employed by the Custodian.
Such information shall be similar in kind and scope to that furnished to the
Fund in connection with the Fund's initial approval of such Foreign
Sub-Custodians and, in any event, shall include information pertaining to (i)
the Foreign Custodians' financial strength, general reputation and standing in
the countries in which they are located and their ability to provide the
custodial services required, and (ii) whether the Foreign Sub-Custodians would
provide a level of safeguards for safekeeping and custody of securities not
materially different form those prevailing in the United States. The Custodian
shall monitor the general operating performance of each Foreign Sub-Custodian.
The Custodian agrees that it will use reasonable care in monitoring compliance
by each Foreign Sub-Custodian with the terms of the relevant Foreign
Sub-Custodian Agreement and that if it learns of any breach of such Foreign
Sub-Custodian Agreement believed by the Custodian to have a material adverse
effect on the Fund or any Series it will promptly notify the Fund of such
breach. The Custodian also agrees to use reasonable and diligent efforts to
enforce its rights under the relevant Foreign Sub-Custodian Agreement.
7. The Custodian shall transmit promptly to the Fund all notices, reports or
other written information received pertaining to the Fund's Foreign Securities,
including without limitation, notices of corporate action, proxies and proxy
solicitation materials.
8. Notwithstanding any provision of this Agreement to the contrary, settlement
and payment for securities received for the account of any Series and delivery
of securities maintained for the account of such Series may be effected in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
9. Notwithstanding any other provision in this Agreement to the contrary, with
respect to any losses or damages arising out of or relating to any actions or
omissions of any Foreign Sub-Custodian the sole responsibility and liability of
the Custodian shall be to take appropriate action at the Fund's expense to
recover such loss or damage from the Foreign Sub-Custodian. It is expressly
understood and agreed that the Custodian's sole responsibility and liability
shall be limited to amounts so recovered from the Foreign Sub-Custodian.
ARTICLE XIV.
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or as provided in Article XIII neither the
Custodian nor its nominee shall be liable for any loss or damage, including
counsel fees, resulting from its action or omission to act or otherwise, either
hereunder or under any Margin Account Agreement, except for any such loss or
damage arising out of its own negligence or willful misconduct. In no event
shall the Custodian be liable to the Fund or any third party for special,
indirect or consequential damages or lost profits or loss of business, arising
under or in connection with this Agreement, even if previously informed of the
possibility of such damages and regardless of the form of action. The Custodian
may, with respect to questions of law arising hereunder or under any Margin
Account Agreement, apply for and obtain the advice and opinion of counsel to the
Fund or of its own counsel, at the expense of the Fund if the custodian has
given prior notice to the Fund, or at its own expense if it has not given such
notice, and shall be fully protected with respect to anything done or omitted by
it in good faith in conformity with such advice or opinion. The Custodian shall
be liable to the Fund for any loss or damage resulting from the use of the
Book-Entry System or any Depository arising by reason of any negligence or
willful misconduct on the part of the Custodian or any of its employees or
agents.
2. Without limiting the generality of the foregoing, the Custodian shall be
under no obligation to inquire into, and shall not be liable for:
(a) The validity of the issue of any Securities purchased,
sold, or written by or for the Fund, the legality of the purchase, sale or
writing thereof, or the propriety of the amount paid or received therefor;
(b) The legality of the sale or redemption of any
Shares, or the propriety of the amount to be received or paid
therefor;
(c) The legality of the declaration or payment of
any dividend by the Fund;
(d) The legality of any borrowing by the Fund using
Securities as collateral;
(e) The legality of any loan of portfolio Securities, nor
shall the Custodian be under any duty or obligation to see to it that any cash
collateral delivered to it by a broker, dealer, or financial institution or held
by it at any time as a result of such loan of portfolio Securities of the Fund
is adequate collateral for the Fund against any loss it might sustain as a
result of such loan. The Custodian specifically, but not by way of limitation,
shall not be under any duty or obligation periodically to check or notify the
Fund that the amount of such cash collateral held by it for the Fund is
sufficient collateral for the Fund, but such duty or obligation shall be the
sole responsibility of the Fund. In addition, the Custodian shall be under no
duty or obligation to see that any broker, dealer or financial institution to
which portfolio Securities of the Fund are lent pursuant to Article X of this
Agreement makes payment to it of any dividends or interest which are payable to
or for the account of the Fund during the period of such loan or at the
termination of such loan, provided, however, that the Custodian shall promptly
notify the Fund in the event that such dividends or interest are not paid and
received when due; or
(f) The sufficiency or value of any amounts of cash and/or
Securities held in any Margin Account, Senior Security Account or Collateral
Account in connection with transactions by the Fund. In addition, the Custodian
shall be under no duty or obligation to see that any broker, dealer, futures
commission merchant or Clearing Member makes payment to the Fund of any
variation margin payment or similar payment which the Fund may be entitled to
receive from such broker, dealer, futures commission merchant or Clearing
Member, to see that any payment received by the Custodian from any broker,
dealer, futures commission merchant or Clearing Member is the amount the Fund is
entitled to receive, or to notify the Fund of the Custodian's receipt or
non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the Custodian of,
any cash, whether or not represented by any check, draft, or other instrument
for the payment of cash, received by it on behalf of the Fund until the
Custodian actually receives and collects such money directly or by the final
crediting of the account representing the Fund's interest at the Book-Entry
System or the Depository.
4. The Custodian shall have no responsibility and shall not be liable for
ascertaining or acting upon any calls, conversions, exchange offers, tenders,
interest rate changes or similar matters relating to Securities held in the
Depository, unless the Custodian shall have actually received timely notice from
the Depository. In no event shall the Custodian have any responsibility or
liability for the failure of the Depository to collect, or for the late
collection or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
the Fund of an overdue amount on Securities held in the Depository the Custodian
shall make a claim against the Depository on behalf of the Fund, except that the
Custodian shall not be under any obligation to appear in, prosecute or defend
any action suit or proceeding in respect to any Securities held by the
Depository which in its opinion may involve it in expense or liability, unless
indemnity satisfactory to it against all expense and liability be furnished as
often as may be required.
5. The Custodian shall not be under any duty or obligation to take action to
effect collection of any amount due to the Fund from the Transfer Agent of the
Fund nor to take any action to effect payment or distribution by the Transfer
Agent of the Fund of any amount paid by the Custodian to the Transfer Agent of
the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take action to
effect collection of any amount, if the Securities upon which such amount is
payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
7. The Custodian may in addition to the employment of Foreign Sub-Custodians
pursuant to Article XIII appoint one or more banking institutions as Depository
or Depositories, as Sub-Custodian or Sub-Custodians, or as Co-Custodian or
Co-Custodians including, but not limited to, banking institutions located in
foreign countries, of Securities and moneys at any time owned by the Fund, upon
such terms and conditions as may be approved in a Certificate or contained in an
agreement executed by the Custodian, the Fund and the appointed institution.
8. The Custodian shall not be under any duty or obligation (a) to ascertain
whether any Securities at any time delivered to, or held by it or by any Foreign
Sub-Custodian, for the account of the Fund and specifically allocated to a
Series are such as properly may be held by the Fund or such Series under the
provisions of its then current prospectus, or (b) to ascertain whether any
transactions by the Fund, whether or not involving the Custodian, are such
transactions as may properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the Fund agrees to pay to the
Custodian all out-of-pocket expenses and such compensation as may be agreed upon
from time to time between the Custodian and the Fund. The Custodian may charge
such compensation and any expenses with respect to a Series incurred by the
Custodian in the performance of its duties pursuant to such agreement against
any money specifically al located to such Series. Unless and until the Fund
instructs the Custodian by a Certificate to apportion any loss, damage,
liability or expense among the Series in a specified manner, the Custodian shall
also be entitled to charge against any money held by it for the account of a
Series such Series' pro rata share (based on such Series net asset value at the
time of the charge to the aggregate net asset value of all Series at that time)
of the amount of any loss, damage, liability or expense, including counsel fees,
for which it shall be entitled to reimbursement under the provisions of this
Agreement. The expenses for which the Custodian shall be entitled to
reimbursement hereunder shall include, but are not limited to, the expenses of
sub-custodians and foreign branches of the Custodian incurred in settling
outside of New York City transactions involving the purchase and sale of
Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate, notice or
other instrument in writing received by the Custodian and reasonably believed by
the Custodian to be a Certificate. The Custodian shall be entitled to rely upon
any Oral Instructions actually received by the Custodian hereinabove provided
for. The Fund agrees to forward to the Custodian a Certificate or facsimile
thereof confirming such Oral Instructions in such manner so that such
Certificate or facsimile thereof is received by the Custodian, whether by hand
delivery, telecopier or other similar device, or otherwise, by the close of
business of the same day that such Oral Instructions are given to the
Custodian. The Fund agrees that the fact that such confirming instructions are
not received, or that contrary instructions are received, by the Custodian shall
in no way affect the validity of the transactions or enforceability of the
transactions hereby authorized by the Fund. The Fund agrees that the Custodian
shall incur no liability to the Fund in acting upon Oral Instructions given to
the Custodian hereunder concerning such transactions provided such instructions
reasonably appear to have been received from an Officer.
11. The Custodian shall be entitled to rely upon any instrument, instruction or
notice received by the Custodian and reasonably believed by the Custodian to be
given in accordance with the terms and conditions of any Margin Account
Agreement. Without limiting the generality of the foregoing, the Custodian shall
be under no duty to inquire into, and shall not be liable for, the accuracy of
any statements or representations contained in any such instrument or other
notice including, without limitation, any specification of any amount to be paid
to a broker, dealer, futures commission merchant or Clearing Member.
12. The books and records pertaining to the Fund which are in the possession of
the Custodian shall be the property of the Fund. Such books and records shall be
prepared and maintained as required by the Investment Company Act of 1940, as
amended, and other applicable securities laws and rules and regulations. The
Fund, or the Fund's authorized representatives, shall have access to such books
and records during the Custodian's normal business hours. Upon the reasonable
request of the Fund, copies of any such books and records shall be provided by
the Custodian to the Fund or the Fund's authorized representative, and the Fund
shall reimburse the Custodian its expenses of providing such copies. Upon
reasonable request of the Fund, the Custodian shall provide in hard copy or on
micro- film, whichever the Custodian elects, any records included in any such
delivery which are maintained by the Custodian on a computer disc, or are
similarly maintained, and the Fund shall reimburse the Custodian for its
expenses of providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report obtained by the
Custodian on the system of internal accounting control of the Book-Entry System,
the Depository or O.C.C., and with such reports on its own systems of internal
accounting control as the Fund may reasonably request from time to time.
14. The Fund agrees to indemnify the Custodian against and save the Custodian
harmless from all liability, claims, losses and demands whatsoever, including
attorney's fees, howsoever arising or incurred because of or in connection with
this Agreement, including the Custodian's payment or non-payment of checks
pursuant to paragraph 6 of Article XIII as part of any check redemption
privilege program of the Fund, except for any such liability, claim, loss and
demand arising out of the Custodian's own negligence or willful misconduct.
15. Subject to the foregoing provisions of this Agreement, including, without
limitation, those contained in Article XIII the Custodian may deliver and
receive Securities, and receipts with respect to such Securities, and arrange
for payments to be made and received by the Custodian in accordance with the
customs prevailing from time to time among brokers or dealers in such
Securities. When the Custodian is instructed to deliver Securities against
payment, delivery of such Securities and receipt of payment therefor may not be
completed simultaneously. The Fund assumes all responsibility and li ability for
all credit risks involved in connection with the Custodian's delivery of
Securities pursuant to instructions of the Fund, which responsibility and
liability shall continue until final payment in full has been received by the
Custodian.
16. The Custodian shall have no duties or responsibilities whatsoever except
such duties and responsibilities as are specifically set forth in this Agree
ment, and no covenant or obligation shall be implied in this Agreement against
the Custodian.
ARTICLE XV.
TERMINATION
1. Either of the parties hereto may terminate this Agreement by giving to the
other party a notice in writing specifying the date of such termination, which
shall be not less than ninety (90) days after the date of giving of such notice.
In the event such notice is given by the Fund, it shall be accompanied by a copy
of a resolution of the Board of Directors of the Fund, certified by the
Secretary or any Assistant Secretary, electing to terminate this Agreement and
designating a successor custodian or custodians, each of which shall be a bank
or trust company having not less than $2,000,000 aggregate capital, surplus and
undivided profits. In the event such notice is given by the Custodian, the Fund
shall, on or before the termination date, deliver to the Custodian a copy of a
resolution of the Board of Directors of the Fund, certified by the Secretary or
any Assistant Secretary, designating a successor custodian or custodians. In the
absence of such designation by the Fund, the Custodian may designate a successor
custodian which shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. Upon the date set forth in
such notice this Agreement shall terminate, and the Custodian shall upon receipt
of a notice of acceptance by the successor custodian on that date deliver
directly to the successor custodian all Securities and moneys then owned by the
Fund and held by it as Custodian, after deducting all fees, expenses and other
amounts for the payment or reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the Custodian in
accordance with the preceding paragraph, the Fund shall upon the date specified
in the notice of termination of this Agreement and upon the delivery by the
Custodian of all Securities (other than Securities held in the Book-Entry System
which cannot be delivered to the Fund) and cash then owned by the Fund be deemed
to be its own custodian and the Custodian shall thereby be relieved of all
duties and responsibilities pursuant to this Agreement, other than the duty with
respect to Securities held in the Book Entry System which cannot be delivered to
the Fund to hold such Securities hereunder in accordance with this Agreement.
ARTICLE XVI.
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the present
Officers of the Fund under its corporate seal, setting forth the names and the
signatures of the present Officers of the Fund. The Fund agrees to furnish to
the Custodian a new Certificate in similar form in the event any such present
Officer ceases to be an Officer of the Fund, or in the event that other or
additional Officers are elected or ap pointed. Until such new Certificate shall
be received, the Custodian shall be fully protected in acting under the provi
sions of this Agreement upon the signatures of the Officers as set forth in the
last delivered Certificate.
2. Any notice or other instrument in writing, authorized or required by this
Agreement to be given to the Custodian, shall be sufficiently given if addressed
to the Custodian and mailed or delivered to it at its offices at 90 Washington
Street, New York, New York 10286, or at such other place as the Custodian may
from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by this
Agreement to be given to the Fund shall be sufficiently given if addressed to
the Fund (Attention: Vice President and Secretary) and mailed or delivered to it
at its office at the address for the Fund first above written, or at such other
place as the Fund may from time to time designate in writing.
4. This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Directors of the Fund.
5. This Agreement shall extend to and shall be binding upon the parties hereto,
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable by the Fund without the written consent of the
Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of the Fund's Board of Directors.
6. This Agreement shall be construed in accordance with the laws of the State of
New York without giving effect to conflict of laws principles thereof. Each
party hereby consents to the jurisdiction of a state or federal court situated
in New York City, New York in connection with any dispute arising hereunder and
hereby waives its right to trial by jury.
7. This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate Officers, thereunto duly authorized and
their respective corporate seals to be hereunto affixed, as of the day and year
first above written.
PRINCOR LIMITED TERM BOND
FUND, INC.
A. S. Filean
[SEAL] By: _______________________________
Attest:
E. H. Gillum
__________________________________
THE BANK OF NEW YORK
[SEAL] By: _______________________________
Name:
Title:
Attest:
__________________________________
<PAGE>
APPENDIX A
I, , and I, , of Princor Limited Term Bond Fund, Inc., a Maryland corporation
(the "Fund"), do hereby certify that:
The following individuals serve in the following positions with the
Fund and each has been duly elected or appointed by the Board of Directors of
the Fund to each such position and qualified therefor in conformity with the
Fund's Articles of Incorporation and By-Laws, and the signatures set forth
opposite their respective names are their true and correct signatures:
Name Position Signature
___________________ _____________________ _________________________________
<PAGE>
APPENDIX B
SERIES
NONE
<PAGE>
APPENDIX C
I, , a Vice President with THE BANK OF NEW YORK do hereby designate the
following publications:
The Bond Buyer Depository Trust Company Notices Financial Daily Card Service JJ
Kenney Municipal Bond Service London Financial Times New York Times Standard &
Poor's Called Bond Record Wall Street Journal
<PAGE>
EXHIBIT A
CERTIFICATION
The undersigned, , hereby certifies
that he or she is the duly elected and acting
of Princor Limited Term Bond Fund, Inc.,
a Maryland corporation (the "Fund"), and further certifies that the following
resolution was adopted by the Board of Directors of the Fund at a meeting duly
held on , 1996, at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full force and effect as
of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of , 1996, (the
"Custody Agreement") is authorized and instructed on a continuous and ongoing
basis until such time as it receives a Certificate, as defined in the Custody
Agreement, to the contrary, to accept, utilize and act with respect to Clearing
Member confirmations for Options and transaction in Options, regardless of the
Series to which the same are specifically allocated, as such terms are defined
in the Custody Agreement, as provided in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Princor
Limited Term Bond Fund, Inc. as of the day of , 1996.
[SEAL]
<PAGE>
EXHIBIT B
The undersigned, , hereby certifies
that he or she is the duly elected and acting
of Princor Limited Term Bond Fund, Inc.,
a Maryland corporation (the "Fund"), and further certifies that the following
resolutions were adopted by the Board of Directors of the Fund at a meeting duly
held on , 1996, at which a quorum was at all times present and that such
resolutions have not been modified or rescinded and are in full force and effect
as of the date hereof.
RESOLVED, that the maintenance of the Fund's assets in each country
listed in Schedule I hereto be, and hereby is, approved by the Board of
Directors as consistent with the best interests of the Fund and its
shareholders; and further
RESOLVED, that the maintenance of the Fund's assets with the foreign
branches of The Bank of New York (the "Bank") listed in Schedule I located in
the countries specified therein, and with the foreign sub-custodians and
depositories listed in Schedule I located in the countries specified therein be,
and hereby is, approved by the Board of Directors as consistent with the best
interest of the Fund and its shareholders; and further
RESOLVED, that the Sub-Custodian Agreements presented to this meeting
between the Bank and each of the foreign sub-custodians and depositories listed
in Schedule I providing for the maintenance of the Fund's assets with the
applicable entity, be and hereby are, approved by the Board of Directors as
consistent with the best interests of the Fund and its shareholders; and further
RESOLVED, that the appropriate officers of the Fund are hereby
authorized to place assets of the Fund with the aforementioned foreign branches
and foreign sub-custodians and depositories as hereinabove provided; and further
RESOLVED, that the appropriate officers of the Fund, or any of them,
are authorized to do any and all other acts, in the name of the Fund and on its
behalf, as they, or any of them, may determine to be necessary or desirable and
proper in connection with or in furtherance of the foregoing resolutions.
IN WITNESS WHEREOF, I hereunto set my hand and the seal of Princor
Limited Term Bond Fund, Inc., as of the day of , 1996.
[SEAL]
PRINCOR FINANCIAL SERVICES CORPORATION
The Principal Financial Group
Des Moines, Iowa 50392-0200
(515) 247-5711
DEALER
SELLING AGREEMENT
FOR SHARES OF
THE PRINCOR FAMILY OF MUTUAL FUNDS
Dealer Selling Agreement between Princor Financial Services Corporation
("Princor", "We" or "Us") and _________________________________________
("Dealer" or "You") dated as of ________________________________.
As Distributor and Principal Underwriter for the Princor Funds (hereinafter
collectively referred to as the "Funds" and individually as a "Fund"), each an
open-end investment company of which we are, or may become, Distributor and
whose shares are offered to the public at an offering price which may or may not
include a sales charge, we invite you to become a Selected Dealer to distribute
shares of the Funds.
1. Each Fund offers two classes of shares - one class which bears a front-end
load (the "Class A Shares) and one class which bears a deferred load (the
"Class B Shares"). (The Class A Shares and the Class B Shares are
collectively referred to as the "Shares"). Class A Shares of the Money
Market Funds are offered at net asset value, without any sales charge.
2. Orders for shares received from you and accepted by us will be at the
current public offering price applicable to each order as established by
the then current Prospectus of each Fund. The procedure relating to the
handling of orders shall be subject to instructions which we shall forward
from time to time to all Selected Dealers. Each Fund reserves the right to
withdraw shares from sale temporarily or permanently. All orders are
subject to acceptance or rejection by us and the Fund, each in its sole
discretion.
3. The sales charge applicable to any sale of Class A Shares by you and the
dealer discount applicable to any order from you for the purchase of Class
A Shares accepted by us shall be that percentage of the applicable public
offering price determined as set forth in the Funds' then current
Prospectus and/or Statement of Additional Information.
The rates of any sales charge and/or dealer discount for Class A
Shares are subject to change by us from time to time, and any orders
placed after the effective date of such change will be subject to the
rate(s) in effect at the time of receipt of the payment by us.
Any such sales charges and discounts to selected dealers are subject to
reductions under a variety of circumstances as may be described in the
Funds' then current Prospectus and/or Statement of Additional Information.
To obtain any such reductions, we must be notified when a sale takes place
which would qualify for the reduced charge. There is currently no sales
charge, selling concession or discount on purchases of Shares by the
reinvestment of dividends or capital gains distributions, or when there is
a transfer from one Fund to another Fund or from one account to another
account.
4. If you sell Class B Shares, we will pay you a sales commission equal to the
percentage of the aggregate net asset value of such Class B shares sold as
set forth in the Funds' then current Prospectus and/or Statement of
Additional Information.
We will pay such sales commissions to you bi-monthly on the 15th and last
day of each month.
The rates of any sales charge and/or dealer discount for Class B Shares are
subject to change by us from time to time, and any orders placed after the
effective date of such change will be subject to the rate(s) in effect at
the time of receipt of the payment by us.
We shall be entitled to any contingent deferred sales charges ("CDSC") on
any Shares sold. If, with respect to any Class B Shares sold by you, any
CDSC is waived as provided in the Funds' then current Prospectus and/or
Statement of Additional Information, then in any such case you shall remit
to us promptly upon notice an amount equal to the commissions or a portion
of the commission paid on such shares.
5. Redemption of Shares will be made at the net asset value of such Shares in
accordance with the then current Prospectus and Statement of Additional
Information of the Funds less, in the case of Class B Shares, any
applicable CDSC payable to us.
6. All of the Funds (the "Plan Funds") have adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "1940 Act"). No such Agreement has been adopted by Princor Cash
Management Fund or Princor Tax-Exempt Cash Management Fund for its Class A
shares. Each Agreement defines service to be provided by Selected Dealers
for which they will be compensated pursuant to the Plan.
(a) As a Selected Dealer, you agree to provide distribution assistance
and administrative support services in connection with the
distribution of shares of the Plan Funds to customers who may from
time to time directly or beneficially-owned Shares, including but not
limited to distributing sales literature, answering routine customer
inquiries regarding the Plan Funds, assisting in the establishment and
maintenance of accounts in the Plan Funds and in the processing of
purchases and redemptions of Shares, making the Plan Funds' investment
plans and dividend options available, and providing such other
information and services in connection with the distribution of Plan
Funds Shares as may be reasonably requested from time to time.
(b) For such services, you will be compensated in accordance with the
then current Prospectus of the Plan Funds.
(c) The Plan may be terminated at any time without payment of any
penalty by any Fund in accordance with the rules governing such plans
promulgated by the Securities and Exchange Commission.
(d) The provisions of the Plan are incorporated herein and made a part
hereof by reference, and will continue in full force and effect so
long as its continuance is approved at least annually pursuant to Rule
12b-1.
7. Each party to this Agreement represents that it currently is and, while
this Agreement is in effect, will continue to be a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD") and agrees
to abide by all Rules and Regulations of that Association, including the
NASD Rules of Fair Practice. If you are a foreign dealer, not eligible for
membership in the Association, you still agree to abide by the Rules and
Regulations of the Association. We both agree to comply with all applicable
state and federal laws, rules and regulations of the Securities and
Exchange Commission and other authorized United States or foreign
regulatory agencies. You further agree that you will not sell, offer for
sale, or solicit shares of the Funds in any state where they have not been
qualified for sale. You will solicit applications and sell shares only in
accordance with the terms and on the basis of the representations contained
in the appropriate prospectus and any supplemental literature furnished by
us.
8. You must represent that you are currently a member of SIPC and, while this
agreement is in effect, will continue to be a member of SIPC. You agree to
notify us immediately if your SIPC membership status changes.
9. IT IS AGREED
(a) That neither of us shall withhold placing customers' orders for
shares so as to profit as a result of such withholding.
(b) We shall not purchase shares from the Funds except for the purpose
of covering purchase orders already received, and you shall not
purchase shares of the Funds except for the purpose of covering
purchase orders already received by you or for your own bona fide
investment purposes, provided, however, any shares purchased for your
own bona fide investment purposes will not be resold except through
redemption of the Funds. Delivery of certificates, if any, for Shares
purchased shall be made by a Fund only against receipt of the purchase
price. If payment for the Shares purchased and all necessary
applications and documents required by the Funds or us are not
received within five business days or such shorter time as may be
required by law, the sale may be cancelled forthwith without any
responsibility or liability on our part or on the part of the Funds
(in which case you will be responsible for any loss, including loss of
profit, suffered by a Fund resulting from your failure to make
payments or provide documents as aforesaid), or, at our option, we may
cause the Shares ordered to be redeemed by the relevant Fund (in which
case we may hold you responsible for any loss).
(c) We shall accept only unconditional orders. Any right granted to
you to sell shares on behalf of the Funds will not apply to shares
issued in connection with the merger or consolidation of any other
investment company with a Fund or its acquisition, purchase or
otherwise, of all or substantially all the assets of any investment
company or substantially all the outstanding shares of any such
company. Also, any such right shall not apply to shares issued, sold,
or transferred, whether Treasury or newly issued shares, that may be
offered by a Fund to its shareholders as stock dividends or splits for
not less than "net asset value."
(d) We reserve the right to reject any order or application for shares
or to withdraw the offering of shares entirely, and to change any
sales charge and dealer concession, provided that no such change shall
affect concessions on orders accepted by us prior to notice of such
change, unless such change results from a reduction in sales charges
because of legal requirements.
(e) You shall not purchase shares of a Fund from a shareholder at a
price per share which is lower than the current net asset value per
share which is next computed after the receipt of the tender of such
shares by the shareholder.
(f) If shares of the Fund are tendered for redemption within seven
business days after confirmation by us of your original purchase order
for such shares, (i) you shall immediately refund to us the full
concession allowed to you on the original sale, and (ii) we shall pay
to the Fund our share of the "sales charge" on the original sale by
us, and shall also pay to the Fund the refund which we received under
(i) above. You shall be notified by us of such redemption within ten
days of the date on which proper request for redemption is delivered
to us or the Fund. Termination or cancellation of this Agreement shall
not relieve you or us from requirements of this subparagraph (f).
(g) This agreement may not be assigned or transferred in any manner
including by operation of law.
10. We will furnish you, without charge, reasonable quantities of Prospectuses
and sales material or supplemental literature relating to the sale of
shares of the Funds.
11. In all sales of shares, you act as principal and are not employed by us as
broker-agent or employee. You are not authorized to act for us nor to make
any representations in our behalf. In purchasing or selling shares
hereunder you are entitled to rely only upon the current Prospectus and
supplemental literature approved in writing by us. In the offer and sale of
shares of the Funds, you shall not use any Prospectus or supplemental
literature not approved in writing by us. No person is authorized to make
any representations concerning shares of the Funds except those contained
in a current Prospectus and supplemental literature approved in writing by
us. You will use your best efforts in the promotion of sales of Shares and
will be responsible for the proper instruction and training of all sales
personnel employed by you. In making sales of Shares, you and your
personnel will conform to the compliance standards set forth in Exhibit A
hereto.
12. You will indemnify, defend, and hold harmless our firm and all of its
affiliates, and their officers, directors, employees, agents, and assignees
against all losses, claims, demands, liabilities, and expenses, including
reasonable legal and other expenses incurred in defending such claims or
liabilities, whether or not resulting in any liability to any of them, or
which they or any of them may incur, including but not limited to alleged
violations of the Securities Act of 1933, as amended and/or to the
Securities Exchange Act of 1934, as amended, arising out of the offer or
sale of any securities pursuant to this Agreement, or arising out of the
breach of any of the terms and conditions of this Agreement, other than any
claim, demand, or liability arising from any untrue statement or alleged
untrue statement of a material fact contained in a prospectus for the
Funds, as filed and in effect with the SEC, or any amendment or supplement
thereto, or in any application prepared or approved in writing by our
counsel and filed with any state regulatory agency in order to register or
qualify under the securities laws thereof (the "blue sky applications"), or
which shall arise out of or be based upon any omission or alleged omission
to state therein a material fact required to be stated in the prospectus or
any of the blue sky applications or which is necessary to make the
statements or a part thereof not misleading, which indemnity provision
shall survive the termination of this Agreement.
13. No obligation not expressly assumed by us in this Agreement shall be
implied.
14. Either party to this Agreement may terminate this Agreement by written
notice to the other party. We may modify this Agreement at any time by
written notice to you. Any notice shall be deemed to have been given on the
date upon which it was either delivered personally or by fax transmission
to the other party or to any office or member thereof, or was mailed
post-paid or delivered to a telegraph office for transmission at his or its
address as shown herein.
15. All communications to us should be sent to the above address. Any notice to
you shall be duly given if mailed or telegraphed to you at the address
specified by you herein.
16. This Agreement shall be construed in accordance with the laws of the State
of Iowa and shall be binding upon both parties hereto when signed by both
of us in the spaces provided below. This Agreement shall not be applicable
to shares of the Funds in any state in which those shares are not qualified
for sale.
17. This Agreement shall be binding upon both parties hereto when executed by
both parties and supersedes any prior agreement or understanding between us
and you with respect to the sale of the Shares and any of the Funds.
18. This Agreement is in all respects subject to Section 26 of the Rules of
Fair Practice of the NASD which shall control any provisions to the
contrary in this Agreement.
19. If the foregoing represents your understanding, please so indicate by
signing in the proper space below.
PRINCOR FINANCIAL SERVICES CORPORATION
By:_________________________________________
Title:______________________________________
We accept the offer set forth above, which constitutes a Selling Agreement with
us.
BY:_______________________________________________
TITLE:____________________________________________
DEALER:___________________________________________
ADDRESS___________________________________________
___________________________________________
DATE:_____________________________________________
APPENDIX A
Compliance Standards
Princor Financial Services Corporation ("Princor"), as distributor for the
Princor Funds which offers their shares on both a front-end load and deferred
load basis, has established compliance standards setting forth the basis upon
which shares of the Princor Funds may be sold. These standards are designed for
each broker/dealer ("dealer") which distributes shares of the Princor Funds and
for such dealer's financial advisers.
As Princor Funds are offered with two different arrangements of sales and
distribution fees, it is important for an investor not only to choose a fund
that best suits his or her investment objectives, but also to choose the sales
financing method which best suits the investor's particular situation. To assist
clients of those firms which distribute shares of the Princor Funds in these
decisions and to ensure proper supervision of Princor Fund purchase
recommendations, Princor requires that such dealers adhere to the following
compliance standards when selling Princor Funds:
1. Any purchase that results in a shareholder having less than $250,000
invested in Princor accounts that are aggregated for rights of accumulation
purposes may be either front-end load (Class A) or subject to a contingent
deferred sales charge (Class B).
The dealer's branch office manager (or other appropriate reviewing officer)
must review for suitability the purchase order ticket for shares subject to
either a front-end or a contingent deferred sales charge, given the
relevant facts and circumstances, including but not limited to:
(a) the specific purchase order dollar amount;
(b) the length of time the investor expects to hold the shares purchased;
and
(c) any other relevant circumstances, such as the availability of purchases
under letters of intent or pursuant to rights of accumulation.
2. Any mutual fund purchase order that results in a shareholder having
$250,000 or more invested in Princor accounts that are aggregated for
rights of accumulation purposes should be for shares which are subject to a
front-end sales load (Class A shares) because there are few circumstances
under which it is advantageous for an investor to place such an order for
Class B shares. Such an order placed for shares subject to a contingent
deferred sales charge must be approved by the dealer's regional director
(or a person of comparable status) and confirmed in writing by the
investor.
General Guidelines
There are instances where one financing method may be more advantageous to an
investor than the other. For example, investors who qualify for a significant
discount on a front-end sales load may determine that a front-end load purchase
is preferable to payment of the higher SEC Rule 12b-1 distribution fee and the
contingent deferred sales charge imposed upon Class B shares.
On the other hand, an investor whose order would not qualify for a discount may
wish to defer the sales load and have all funds invested in shares initially.
Responsibility of Branch Office Manager
(or other appropriate reviewing officer)
The dealer's branch office manager or other appropriate reviewing officer (the
"Reviewing Officer") must ensure that the registered representative has advised
the client of the available financing methods offered by the Princor Funds, and
the impact of choosing one method over another. In certain instances, it may be
appropriate for the branch office manager to discuss the purchase directly with
the client.
Effectiveness
These compliance guidelines are effective immediately upon execution of a dealer
agreement with Princor with respect to any order for shares of any Princor Fund
for which Princor acts as distributor.
Questions relating to these compliance guidelines should be directed by the
dealer to its national mutual fund sales and marketing group or its Legal
Department or Compliance Director. Princor will advise dealers of any changes in
these guidelines in the
future.
February 13, 1996
Princor Limited Term Bond Fund, Inc.
Des Moines, Iowa 50392
Re Registration Statement on Form N-1A
Pursuant to Securities Act of 1933
Registration No. 33-65031
I am familiar with the organization of Princor Limited Term Bond Fund, Inc. (the
"Fund:) under the laws of the State of Maryland and have reviewed the
above-referenced Registration Statement (the "Registration Statement") filed
with the Securities and Exchange Commission relating to the offer and sale of an
indefinite number of shares of the Corporation's Common Stock, par value $.01
per share (the "Shares"). Based upon such investigation as I have deemed
necessary, I am of the following opinion:
(1) The Fund has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Maryland.
(2) The Fund has authority to issue 100,000,000 shares of the common stock.
Subject to the authority of the Board of Directors to increase and
decrease the number of, and to reclassify the shares of any class, the
Directors have established three classes of common stock having the
designation of Class A, Class B and Class R, with each class comprising
of 25,000,000 shares, and the shares, when issued in accordance with
the terms described in the Registration Statement, will be legally
issued, fully paid and non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours
Michael D. Roughton
Counsel
MDR/sal
Consent of Independent Auditors
The Board of Directors and Shareholder
Princor Limited Term Bond Fund, Inc.
We consent to the reference to our firm under the captions "Financial
Highlights" and "Additional Information - Financial Statements" in each of the
Prospectuses in Part A, to the inclusion in Part B of our report dated February
13, 1996 on the statement of net assets of Princor Limited Term Bond Fund, Inc.,
and to the incorporation by reference in Part B of our report dated November 22,
1995 on the financial statements and financial highlights of Princor Balanced
Fund., Princor Blue Chip Fund, Inc., Princor Capital Accumulation Fund, Inc.,
Princor Emerging Growth Fund, Inc., Princor Growth Fund, Inc., Princor World
Fund, Inc., Princor Bond Fund, Inc., Princor Cash Management Fund, Inc., Princor
Government Securities Fund, Inc., Princor High Yield Fund, Inc., Princor
Tax-Exempt Bond Fund, Inc., Princor Tax-Exempt Cash Management Fund, Inc., and
Princor Utilities Fund, Inc. in this Pre-Effective Amendment No. 1 to Form N-1A
Registration Statement under the Securities Act of 1933 (No. 33-65031) and
Registration Statement under the Investment Company Act of 1940 (No. 811-07453)
of Princor Limited Term Bond Fund, Inc.
Ernst & Young LLP
Des Moines, Iowa
February 21, 1996
February 13, 1996
Mr. Stephan L. Jones
President
Princor Limited Term Bond Fund, Inc.
Principal Financial Group
Des Moines, IA 50392-02022
Dear Mr. Jones
Principal Mutual Life Insurance Company intends to purchase 1,000,000
shares of Common Stock of Princor Limited Term Bond Fund, Inc., par value $.01
per share (the "Shares") at $10.00 per share. In connection with such purchase,
Principal Mutual Life Insurance Company represents and warrants that it will
purchase such Shares as an investment and not with a view to resale,
distribution or redemption.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
Michael D. Roughton
By ______________________________________________
Michael D. Roughton
MDR/sl
Principal Mutual Life Insurance Company Master Individual Retirement Account
Plan and Custody Agreement
This is the Principal Mutual Life Insurance Company's Master Individual
Retirement Account Plan and Custody Agreement for use by individuals who desire
to establish an Individual Retirement Account (IRA), as described in Section
408(a) of the Internal Revenue Code (Code). Principal Mutual Life Insurance
Company hereby agrees to act as Custodian of any IRA established under the Plan
and this Agreement, subject to the following terms and conditions:
ARTICLE I - Limitations on Contributions
In addition to the initial contribution made at the time the Account is
established, the Custodian may accept additional cash contributions from, or on
behalf of, the Participant for a taxable year of the Participant except as
limited below.
Except in the case of a Rollover Contribution as that term is described in Code
Sections 402(c), 403(a)(4), 403(b)(8) or 408(d)(3), or an employer contribution
to a Simplified Employee Pension as defined in Section 408(k), only cash
contributions will be accepted, and such contribution shall not exceed the
lesser of $2,000 or 100% of compensation.
Two applications are necessary if both spouses are establishing an IRA. The
maximum combined contribution in the event of a non-working spouse is the lesser
of 100% of compensation or $2250. The maximum contribution must be split between
the two accounts so no more than $2000 is placed in either account.
Excess Contributions
A retirement savings deduction will not be allowed for contributions to an IRA
in excess of the 100%-$2,000/$2,250 limits, or in the case of a Simplified
Employee Pension, 15%-$30,000 limitation discussed above; nor will the deduction
be allowed for any contribution made during the year in which or after the
Participant reaches 70 1/2 (except in the case of a Simplified Employee
Pension), or in the case of a Participant who is a non-working spouse, the year
in which or after the working spouse reaches age 70 1/2. (A deductible spousal
contribution can be made to the IRA of the non-working spouse as long as the
non-working spouse is under age 70 1/2 and the working spouse has earned
income.) Additionally, a nondeductible federal excise tax penalty in the amount
of 6% of such excess contributions will be imposed on any Participant who has
excess contributions in his IRA. This penalty will be imposed each year until
the excess contributions are removed.
An excess contribution may be removed from an IRA by withdrawing the amount of
the excess or by applying the excess toward the retirement savings deduction of
the Participant in a subsequent year. If an excess contribution is withdrawn
from the Retirement Account, together with the net income of such excess
contribution, prior to the due date for filing the Participant's income tax
return for the year in which the excess contribution was made (including
extensions of time), the 6% nondeductible excise tax will not be imposed, the
contribution withdrawn will not be included in the Participant's gross income
for the year in which received, and the federal 10% tax on premature
distributions (see Distributions) will not be imposed on the excess withdrawn.
The net income on such excess contribution that is withdrawn will be deemed to
have been earned and is taxable in the taxable year in which such excess
contribution was made.
If an excess contribution is withdrawn after the due date for filing the
Participant's income tax return for the taxable year (including extensions of
time) and no deduction was taken for the excess portion of the contribution, the
excess withdrawn will not be included in the Participant's federal gross income
for the year in which received, and the 10% federal tax on premature
distributions will not be imposed on the excess withdrawn, provided that the
total contributions during the year, including the excess contribution, did not
exceed $2,250. Any earnings of such excess contributions withdrawn after the due
date for filing the Participant's income tax return (including extensions of
time) will be subject to the taxes on premature distributions and will be
included in federal gross income.
If an excess contribution is withdrawn after the due date for filing the
Participant's income tax return for the taxable year (including extensions of
time) and the total contribution for the taxable year exceeded $2,250, the
excess contribution that is withdrawn will be included in the Participant's
federal gross income for the year in which received, the 10% federal tax on
premature distributions will be imposed on the amount withdrawn, and the 6%
nondeductible excise tax will be imposed for each year until the excess
contribution is removed.
ARTICLE II - Nonforfeitability
The interest of the Participant in the balance in his or her Account shall at
all times be nonforfeitable.
The Account is established for the exclusive benefit of the Participant and his
or her beneficiaries.
ARTICLE III - Prohibited Investments
No part of the custodial funds shall be invested in life insurance contracts,
nor may the assets of any Participant's Account be commingled with other
property except in a common trust fund or common investment fund [within the
meaning of Code Section 408(a)(5)]. All funds shall be invested in shares of
such Mutual Funds as Participant shall designate.
ARTICLE IV - Distributions
The entire amount of any distribution from an IRA, other than a timely
withdrawal of excess contribution, including amounts deemed distributed as the
result of a prohibited transaction (see Prohibited Transactions) will be
includible in the gross income of the person receiving such distribution and
taxable as ordinary income. If the distribution occurs before the Participant is
age 59 1/2, the Participant will be charged with a nondeductible federal excise
tax of 10% of the amount of the premature distribution. The excise tax will not
be applied, however, if the distribution or withdrawal is due to the
Participant's death, disability as defined in the Plan, or if distributions are
made in substantially equal periodic payments (at least annually) for the life
expectancy of the individual or the joint life expectancies of the individual
and his or her own beneficiary.
The Participant may begin to take money out of an IRA without penalty after the
age of 59 1/2, but must begin receiving a distribution from his or her Account
not later than the April 1 following the calendar year in which the Participant
attains age 70 1/2 (required beginning date). At least 30 days prior to that
date the Participant must elect to have the balance in the Account distributed
in:
(a) a single sum payment,
(b) equal, or substantially equal, monthly, quarterly, semiannual or annual
payments (see "Minimum amounts to be distributed" below) commencing not
later than the above date and not extending beyond the life expectancy
of the Participant, or
(c) equal, or substantially equal, monthly, quarterly, semiannual or annual
payments (see "Minimum amounts to be distributed" below) commencing not
later than the above date and not extending beyond the joint and last
survivor expectancy of the lives of the Participant and the designated
Beneficiary.
Minimum amounts to be distributed. If the Participant's entire interest is to be
distributed in other than a lump sum, then the amount to be distributed each
year (commencing with the required beginning date and each year thereafter) must
be at least equal to the quotient obtained by dividing the Participant's benefit
by the applicable life expectancy.
For calendar years beginning after December 31, 1988, the amount to be
distributed each year, beginning with the first calendar year for which
distributions are required and then for each succeeding calendar year, shall not
be less than the quotient obtained by dividing the Participant's benefit by the
lesser of (1) the applicable life expectancy or (2) if the Participant's spouse
is not the designated beneficiary, the applicable divisor determined from the
table set forth in Q&A-4 of section 1.401(a)(9)-2 of the Proposed Income Tax
Regulations. Distributions after the death of the Participant shall be
distributed using the applicable life expectancy as the relevant divisor without
regard to proposed regulations section 1.401(a)(9)-2.
Life expectancy is computed by use of the expected return multiples in Tables V
and VI of section 1.72-9 of the Income Tax Regulations. Unless otherwise elected
by the Participant by the time distributions are required to begin, life
expectancies shall be recalculated annually. Such election shall be irrevocable
as to the Participant and shall apply to all subsequent years. The life
expectancy of a non-spouse beneficiary may not be recalculated; instead, life
expectancy will be calculated using the attained age of such beneficiary during
the calendar year in which distributions are required to begin pursuant to this
section, and payments for subsequent years shall be calculated based on such
life expectancy reduced by one for each calendar year which has elapsed since
the calendar year life expectancy was first calculated.
A 50% excise tax will be imposed on the difference between the minimum payout
required and the amount actually paid, unless the underdistribution was due to
reasonable cause.
Notwithstanding that distributions may have commenced pursuant to (b) or (c)
above, the Participant may receive a larger distribution from the Account upon
written request to the Custodian. If the Participant fails to elect any of the
methods described above on or before April 1 following the year in which the
Participant attains age 70 1/2, distribution will be made in a single sum
payment on or before that date.
Notwithstanding any other provision of this Plan, the Participant or a
Beneficiary may elect to receive distribution in any manner permitted by law
which satisfies the requirements of Section 401(a)(9) of the Code and
Regulations thereunder, and approved by the Custodian.
The duty to determine the amount of the distributions hereunder shall be the
Participant's or, when applicable, the designated Beneficiary. The Custodian
shall not be liable to the Participant or any other person for taxes or other
penalties incurred as a result of failure to distribute the minimum amount
required by law.
Any distributions before the age of 59 1/2 will result in an additional tax
equal to 10% of the taxable amount of the distribution, unless the participant
is disabled. The 10% penalty does not apply to amounts not exceeding the amount
allowable as a deduction for medical expenses, or to a series of substantially
equal periodic payments over the participant's life or life expectancy or the
joint lives or life expectancies of the participant and the beneficiary.
Distributions are generally taxed as ordinary income in the year they are
received, and are not eligible for capital gains treatment or the special
averaging rules that apply to lump sum distributions from qualified employee
plans. Distributions are nontaxable to the extent they represent a return of
certain nondeductible contributions made for years after 1986 (See Income Tax
Considerations). The nontaxable percentage of such a distribution is determined
by dividing (a) undistributed nondeductible contributions by (b) the total value
of all IRAs (including SEPs and Rollover IRAs).
Unless a special election is made by a taxpayer, any distributions from IRAs and
other qualified plans within one year in excess of $150,000 may be subject to a
15% excess distribution penalty.
ARTICLE V - Death Benefits
If the Participant dies before receiving full distribution from the Account, the
balance in the Account must be distributed in the following manner: (a)
Distributions beginning before death. If the owner dies after distribution of
his or her interest has begun, the remaining
portion of such interest will continue to be distributed at least as
rapidly as under the method of distribution being used prior to the owner's
death.
(b) Distributions beginning after death. If the owner dies before distribution
of his or her interest begins, the owner's entire interest will be
distributed in accordance with one of the following four provisions: (1)
The owner's entire interest will be paid by December 31 of the calendar
year containing the fifth anniversary of the owner's
death.
(2) If the owner's interest is payable to a Beneficiary designated by the
owner and the owner has not elected (1) above, then the entire interest
will be distributed over the life or over a period certain not greater
than the life expectancy of the designated Beneficiary commencing on or
before December 31 of the calendar year immediately following the
calendar year in which the owner died. The designated Beneficiary may
elect at any time to receive greater payments.
(3) If the designated Beneficiary of the owner is the owner's surviving
spouse, the spouse may elect to receive equal or substantially equal
payments over the life or life expectancy of the surviving spouse
commencing at any date prior to the later of (1) December 31 of the
calendar year immediately following the calendar year in which the
owner died and (2) December 31 of the calendar year in which the owner
would have attained age 70 1/2. Such election must be made no later
than the earlier of December 31 of the calendar year containing the
fifth anniversary of the owner's death or the date distributions are
required to begin pursuant to the preceding sentence. The surviving
spouse may increase the frequency or amount of such payments at any
time.
(4) If the designated Beneficiary is the owner's surviving spouse, the
spouse may treat the account as his or her own individual retirement
arrangement (IRA). This election will be deemed to have been made if
such surviving spouse makes a regular IRA contribution to the account,
makes a rollover to or from such account, or fails to elect any of the
above three provisions.
(c) Life expectancy is computed by use of the expected return multiples in
Tables V and VI of section 1.72-9 of the Income Tax Regulations. For
purposes of distributions beginning after the owner's death, unless
otherwise elected by the surviving spouse by the time distributions are
required to begin, life expectancies shall be recalculated annually.
Such election shall be irrevocable as to the surviving spouse and shall
apply to all subsequent years. In the case of any other designated
Beneficiary, life expectancies shall be calculated using the attained
age of such beneficiary during the calendar year in which distributions
are required to begin pursuant to this section, and payments for any
subsequent calendar year shall be calculated based on such life
expectancy reduced by one for each calendar year which has elapsed
since the calendar year life expectancy was first calculated.
(d) For purposes of this requirement, any amount paid to a child of the owner
will be treated as if it had been paid to the surviving spouse if the
remainder of the interest becomes payable to the surviving spouse when the
child reaches the age of majority.
ARTICLE VI - Declaration of Intention
Except in the case of the Participant's death, Disability [as defined in Section
72(m) of the Code] or attainment of age 59 1/2, the Custodian shall receive from
the Participant a declaration of the Participant's intention as to the
disposition of the amount distributed before distributing an amount from the
Participant's Account.
ARTICLE VII - Notices And Reports
The Participant agrees to provide information to the Custodian at such time and
in such manner and containing such information as may be necessary for the
Custodian to prepare any reports required pursuant to Section 408(i) of the Code
and the regulations thereunder.
The Custodian agrees to submit reports to the Internal Revenue Service and the
Participant at such time and in such manner and containing such information as
is prescribed by the Internal Revenue Service. Currently, calendar year reports
concerning the status of the account are required to be furnished annually.
ARTICLE VIII - Controlling Article
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence shall be controlling.
Furthermore, any such additional article shall be wholly invalid if it is
inconsistent, in whole or in part, with Section 408(a) of the Code and the
regulations thereunder.
ARTICLE IX
The Custodian shall have the authority to amend this Agreement from time to time
in order to comply with the provisions of the Code and regulations thereunder.
The Custodian shall have the right to amend its fee structure and amounts. Such
an amendment shall apply to current and/or future years only. The Custodian
shall also have the right to amend this agreement by adding additional
investment alternatives. Furthermore, other amendments may be made upon written
consent of the Custodian and the Participant.
ARTICLE X - Definitions
Account shall mean the Principal Mutual Life Insurance Company Individual
Retirement Account which has been established in accordance with Section 408 of
the Code and consists of the terms and conditions herein set forth together with
the provisions of the Application.
Beneficiary shall mean the person(s) or entity(ies) designated to receive the
balance in the Account upon the death of the Participant or upon the death of a
prior Beneficiary.
ERISA means the Employee Retirement Income Security Act of 1974, as it may be
amended from time to time.
Compensation means wages, salaries, professional fees, and other amounts derived
from or received for personal services actually rendered (including, but not
limited to, commissions-paid salespersons, remuneration for services on the
basis of a percentage of profits, commissions on insurance premiums, tips and
bonuses) and includes earned income, as defined in Section 401(c)(2) of the Code
(reduced by the deduction the self-employed individual takes for contributions
made to a self-employed retirement plan). For purposes of this definition,
Section 401(c)(2) shall be applied as if the term trade or business for purposes
of Section 1402 included service described in subsection (c)(6). Compensation
does not include amounts derived from or received as earnings or profits from
property (including, but not limited to, interest and dividends) or amounts not
includible in gross income. Compensation also does not include any amount
received as a pension or annuity or as deferred compensation. The term
compensation shall include any amount includible in the individual's gross
income under Section 71 with respect to a divorce or separation instrument
described in subparagraph (A) of Section 71(b)(2).
Custodian means Principal Mutual Life Insurance Company or any successor
thereto.
Investment Manager refers to Princor Management Corporation. This term shall
have the same meaning as that in Section 3(38) of ERISA. The Investment Managers
with respect to the Mutual Funds hereby acknowledge that they are fiduciaries
with respect to the Plan. The Investment Managers with respect to the individual
Participant's Account hereby acknowledge that they are fiduciaries with respect
to the funds of the Participant.
Princor Group of Funds, Mutual Fund, Fund, or The Princor Family of Mutual Funds
means the fund or funds managed by Princor Management Corporation which have
been made available for the investment of IRA contributions and in which all
contributions made under this Plan shall be invested.
Participant means any individual of legal age who shall execute the
Participation Agreement and make contributions to this Plan.
Participation Agreement means the written agreement executed by the Participant
and, where applicable, the Broker, whereby the Participant agrees to participate
in the Plan.
Plan means the terms and conditions of this Principal Mutual Life Insurance
Company IRA Plan and Custody Agreement including any amendments made pursuant to
Article XV of the Plan.
Spousal IRA means two contributory IRAs established by a working individual for
himself or herself and for the benefit of his or her non-employed spouse.
All other capitalized words, terms and phrases not specifically defined shall
have and carry the meaning given them under the Code.
ARTICLE XI - Investments
All contributions received by the Custodian shall be invested in such Mutual
Funds as the Participant may designate.
At the time the Participant executes the Participation Agreement, the
Participant shall specify the particular Mutual Fund or Funds in which
contributions shall be invested. After the initial contribution, the Participant
may, at any time, direct the Custodian to transfer contributions then invested
in any such Fund into any other such Funds. Transfers made pursuant to such
direction shall not be considered a distribution of any Account to the
Participant.
No party identified herein shall be required to comply with any direction of the
Participant which in the judgment of such party may subject it to liability or
expense unless such party shall be indemnified in manner and amount satisfactory
to it.
The Participant is 100% vested at all times in all funds attributed to his
Account.
The Participant may not borrow funds from his Account, nor may he use the funds
as security for any loan or extension of credit.
Except as provided in this Plan, no right, interest or claim in or to any funds
held in the Mutual Fund shall be transferable, assignable or subject to pledge
by the Participant or Beneficiary, and any attempt to transfer, assign or pledge
the same shall not be recognized except as required by law. The right, interest
or claim in or to any funds held in the Mutual Fund shall not be subject to
garnishment, attachment, execution or levy except as permitted by law.
Any Participant under the Plan may transfer his or her interest, in whole or in
part, to his or her spouse under a decree of divorce or dissolution of marriage
or a written instrument incident to such divorce or dissolution. At the time of
transfer, such interest shall be deemed an IRA of such spouse. The Participant
shall promptly notify Custodian of any such transfer by delivery to Custodian of
a certified copy of such decree or a true copy of such written instrument. Upon
receipt of the certified copy of such decree or a true copy of such written
instrument from any source, Custodian shall promptly adjust its books and
records to reflect that such Account is for the benefit of such former spouse.
Custodian shall not be required to accept contributions to or make distributions
from an Account established for a former spouse by reason of a transfer of
interest by a Participant to such former spouse hereunder until such former
spouse shall execute a Participation Agreement.
The Plan and the Accounts established hereunder shall be governed by all
applicable laws, rules and regulations of the United States of America and the
State of Iowa.
ARTICLE XII - Contributions
All initial contributions shall be paid to the Custodian at the time the
Participation Agreement is executed. Additional contributions may be paid to the
Custodian in such manner and in such amounts as the Custodian shall specify.
Contributions made by or on behalf of the Participant may be paid at any time
during the calendar year, but in no event later than the last day for the filing
of the Federal Income Tax Return for the calendar year to which they relate, not
to include any extensions thereof.
Except in the case of a Rollover IRA or Simplified Employee Pension,
contributions made by or on behalf of the Participant shall not be made during
or after the calendar year in which the Participant attains age 70 1/2 years.
All IRA contributions must be in cash.
If an Excess Contribution is made by or on behalf of the Participant for any
calendar year, upon written request for distribution from the Participant
stating the amount of the Excess Contribution to be distributed, Custodian will
distribute such amount of the Excess Contribution to the Participant, together
with the income attributable thereto. The Custodian shall not have any duty to
determine whether an Excess Contribution has been made by or on behalf of the
Participant, and the Custodian shall not be held liable by the Participant or
any other person for failing to determine whether an Excess Contribution was
made or for failing to make distribution of such Excess Contribution without
request of the Participant. The Custodian shall not be liable to the Participant
or any other person for taxes or other penalties incurred as a result of an
Excess Contribution and any income attributable thereto or as a result of a
distribution of an Excess Contribution and any income attributable thereto.
Before the Custodian shall accept a contribution by or on behalf of the
Participant as a Rollover Contribution, the Participant shall deliver to the
Custodian a written declaration, in a form acceptable to the Custodian, that
such contribution is eligible for treatment as a Rollover Contribution.
Notwithstanding anything to the contrary in the Plan, once the Custodian has
received a declaration from the Participant that a contribution is a Rollover
Contribution, the Custodian may conclusively rely on the Participant's
declaration and may accept and treat the contribution as a Rollover
Contribution. All Rollover Contributions from a qualified employer plan shall be
maintained in a separate Rollover IRA.
ARTICLE XIII - Designation of Beneficiary
The Participant may designate the Beneficiary of his or her Account by a written
form acceptable to and filed with Custodian. Community property states and
marital property states require spousal consent if someone other than the spouse
is to be named as Beneficiary.
If the Participant designates more than one Beneficiary, he or she shall
designate the percentage interest that each such Beneficiary shall receive from
his or her Account upon distribution. In the event no such percentage interest
is designated, the interest of each Beneficiary shall be equal.
If the Participant predeceases his or her spouse before his or her entire
Account is distributed in accordance with Article IV(c) of the Plan and the
Participant has designated no Beneficiary for the remaining interest or all such
Beneficiaries predecease the Participant's spouse, then the interest of the
Participant's spouse in the Account shall be fully vested and subject to the
terms and conditions of this Article and the Participant's spouse shall be
entitled to designate the Beneficiary of the Account in accordance with this
Article.
The Participant may, at any time, change or revoke any designation made under
this Article in a written form acceptable to and filed with the Custodian. Upon
the death of the Participant, the designation or designations made hereunder
shall be irrevocable. The designation shall be effective only if received by the
Custodian prior to the death of the Participant.
If the Participant fails to designate any Beneficiary or if the Participant
revokes the designation of Beneficiary or if all Beneficiaries designated
predecease the Participant, then the entire interest of the Participant in his
Account shall pass to the Participant's estate.
ARTICLE XIV - Administrative Duties
This Article shall delineate the responsibilities of the Custodian. The
Custodian shall maintain the Account in the name of the Participant and shall be
responsible only for the contributions of which it receives notice from the
Participant. The Custodian shall make distributions and transfers only in
accordance with the directions of the Participant. The Custodian shall keep
records of all receipts, investments and disbursements relating to the Account.
The Custodian shall furnish the Participant or the Beneficiary, where
applicable, with a written Statement of transactions relating to the Account.
Unless the Participant shall have filed with the Custodian Agent written
exceptions or objections to such Statement within thirty (30) days after it is
furnished, the custodian shall be forever released and discharged from liability
or accountability to the Participant or the Beneficiary, with respect to the
acts and transactions shown in the Statement. No Beneficiary shall be entitled
to Statements hereunder until the Participant is deceased and distribution shall
have commenced to such Beneficiary.
The duties and responsibilities of all parties to this Agreement are limited to
those specifically stated herein and no other or further duties or
responsibilities shall be implied.
ARTICLE XV - Amendments Or Revocation Of Participation in Plan
The Participant may terminate participation in the Plan at any time by notifying
the Custodian in writing of the intention to terminate and instructing the
Custodian in writing to whom and by what means the funds on deposit in his
Account shall be transferred. Withdrawal of all funds invested in the Mutual
Fund shall terminate participation in the Plan. Although termination of this
Account could have an adverse effect on a Simplified Employee Pension in which
the Participant is participating, the Custodian has no liability to the
Participant, the employer, or to any other employees of that employer with
respect to such termination.
The Participant may revoke participation in the Plan within seven (7) business
days from the date the Participant executes the Participation Agreement by
notice to the Custodian in writing.
The Custodian may be required to withhold 10% from any taxable distribution an
IRA unless the Participant elects no withholding at the time distributions
begin. Whether or not the Participant allows the Custodian to withhold, he or
she may be required to make quarterly estimated tax payments. In addition,
unless the Participant indicates at the time he or she closes an IRA account
that it is being transferred to another tax qualified plan, the Custodian will
be required to withhold at least 10% of the distribution.
ARTICLE XVI - Miscellaneous
All instructions to the Custodian shall be in writing. The Participant may
authorize an agent to give instructions hereunder. Any such agent, including any
Broker authorized to direct the investment of a Participant's Account, must be
authorized in writing by the Participant in such form which is approved by and
filed with the Custodian. Any instruction by an agent so authorized shall be
binding on the Participant. Any authorization hereunder shall remain in effect
until revoked by the Participant in writing filed with the Custodian.
Principal Mutual Life Insurance Company shall substitute another Trustee or
Custodian upon notification by the Internal Revenue Service that such
substitution is required because it has failed to comply with the requirements
of Section 1.401-12(n) of the Treasury Regulations, or is not keeping such
records, or mailing such returns or sending such statements as are required by
forms or regulations.
In no event shall the Custodian be liable or responsible for the payment of any
tax or any penalty attributable to Excess Contributions, retention of Excess
Contributions, failure to make the minimum distribution from the Account, or
withdrawals or distributions made from the Account. Custodian shall not be
required to make any distribution which, in the judgment of Custodian, will
render Custodian directly liable for any such tax or penalty.
In the event Custodian shall receive any claim to the funds held under the Plan
which claim is adverse to the interest of the Participant or the Beneficiary and
which claim Custodian, in its absolute discretion, deems meritorious, Custodian
may withhold distribution under the Plan until the claim is resolved or until
instructed by a court of competent jurisdiction or Custodian may pay all or any
portion of the funds then invested in the Mutual Fund into such court. Payment
to a court under the Plan shall relieve Custodian of any further obligation to
anyone for the amount so paid.
In the event any question arises or ambiguity exists as to the meaning,
interpretation or construction of any provisions of the Plan, the Custodian is
authorized to construe or interpret any such provision and such construction and
interpretation shall be binding upon the Participant and the Beneficiary.
As compensation for its service hereunder, the Custodian shall be paid an annual
maintenance fee of $15 per IRA Plan Participant Account on the first business
day of December each year. Such fees shall be deducted from the Accounts as
applicable and paid to the Custodian unless the participant elects, in a writing
filed with the Custodian, to pay such fee directly. Any fee not paid directly
when due may be deducted from the Account and paid to the Custodian.
Any notices required or permitted to be given to Custodian under the Plan shall
be given to Custodian at the office of Custodian or any of its offices, and any
notices required or permitted to be given to the Participant under the Plan
shall be given to the Participant at the address for notice the Participant may
file with Custodian from time to time. Notices hereunder may be personally
served or sent by United States mail, first class, with postage prepaid and
properly addressed.
Any provision of the Plan which disqualifies it as an IRA shall be disregarded
to the extent necessary to continue to qualify it as an IRA under the code.
Titles to Articles in this Plan are for convenience only and, in the event of
any conflict, the text of the Plan rather than the titles shall control.
Individual Retirement Custody
Account Disclosure Statement
Right To Revoke AN INDIVIDUAL MAY REVOKE HIS OR HER INDIVIDUAL RETIREMENT
ACCOUNT (IRA) AND HIS OR HER PARTICIPATION IN THE PLAN AT ANY TIME WITHIN SEVEN
(7) BUSINESS DAYS AFTER HIS OR HER ADOPTION OF THE PLAN. In the event of such a
revocation, the entire amount contributed by the individual will be returned.
Individuals wishing to revoke their Individual Retirement Accounts are required
to mail or deliver a written notice of revocation to the custodian not later
than the seventh business day after the establishment of his Retirement Account.
The notice shall be deemed delivered on the date of the postmark.
Custodian: Principal Mutual Life Insurance Company
Princor Financial Services Corporation
Attn: IRA Section
PO Box 10423
Des Moines, Iowa 50306
Telephone Number: 1-800-247-4123
Sponsor: Princor Group of Funds
General Description Of The Plan
Except in the case of Rollover Contributions and Simplified Employee Pension
Contributions, an Individual Retirement Account may be established under the
Plan by any working individual who will not reach the age of 70 1/2 before the
end of the year. See the Plan for a more detailed description of the
restrictions on participation.
Contributions may be invested in any of the Mutual Funds named in the
application. All dividends, capital gains distributions and interest will be
reinvested in the Funds selected and will accumulate in the account on a
tax-deferred basis. The individual (or the named beneficiary who survives the
individual) may request the Custodian to exchange shares of one fund for any
other eligible fund. Investments may be split among any of the funds named in
the application.
The Participant may begin receiving distributions from their Individual
Retirement Account without incurring a 10% penalty tax on premature
distributions at any time after a Participant reaches age 59 1/2. (Please note
the exceptions to distributions prior to the age of 59 1/2 in Article IV -
Distributions.) The Participant must begin receiving distributions before April
1 following the year in which he or she attains age 70 1/2. He or she may elect
to receive their distribution in a lump sum or in installments over any number
of years selected by the Participant, but not exceeding their life expectancy or
the joint and survivor expectancy of the Participant and his or her designated
Beneficiary. Each payment is calculated by dividing the net asset value of the
shares in the account, and any dividends held, by the number of payments
remaining until the end of the period selected. A Participant may begin
distributions before age 59 1/2 without incurring a 10% tax applicable to
premature distributions if he or she proves that he or she is disabled, as
defined in the Plan.
Income Tax Considerations
Persons who are not covered by an employer retirement plan can deduct amounts
contributed to an IRA up to the lesser of $2,000 or 100% of compensation.
Persons who are covered by an employer retirement plan will only be able to make
tax-deductible contributions to IRAs if their incomes are below certain levels.
For married persons filing separate tax returns, the fact that the spouse is
covered by an employer retirement plan does not affect the non-covered spouses
ability to make deductible contributions. For married persons filing jointly
where either spouse has an employer retirement plan, the full IRA deduction may
be taken if adjusted gross income (AGI) is $40,000 or less ($25,000 or less for
single taxpayers.) However, as the joint AGI exceeds $40,000 ($25,000 for
singles), the IRA deduction is phased down at 20 cents (22.5 cents for spousal
IRAs) per dollar of AGI and is eventually phased-out when joint AGI reaches
$50,000 ($35,000 for singles). The phaseout is based on AGI before it is reduced
for deductible IRA contributions. The deduction is rounded down to the next
lowest multiple of $10 when not already a multiple of $10. There is a $200
minimum deduction for anyone without phaseout limits. The amount of a
contribution that is deductible is determined by the Participant and must be
reported to the Custodian.
Employer retirement plans include pension and profit sharing plans, 401(k)
plans, 403(b) plans, government plans and just about every other type of
employer-maintained retirement plan. One exception: unfunded deferred
compensation plans of state and local government and tax-exempt organizations. A
person will be considered a participant in an employer retirement plan even if
not vested. However, a person who works for an employer that has a plan, but who
has not yet met the plan's eligibility requirements, can make deductible IRA
contributions. A person's Form W-2 for the year should indicate whether that
person is covered by an employer retirement plan.
The $2,000 annual contribution limit is reduced by any voluntary employee
contributions to a qualified retirement plan maintained by an employer which are
deductible from AGI.
Set-up charges and annual fees are considered miscellaneous deductions and,
therefore, are not deductible unless miscellaneous deductions are in excess of
2% of the Participant's adjusted gross income.
Rollover Contributions
Certain distributions from qualified employee benefit plans and 403(b) plans
(tax-sheltered annuities) are eligible to be paid to an individual retirement
account or to another employee benefit plan or 403(b) plan. Such a payment is
referred to as a rollover of an eligible rollover distribution. The
administrator or custodian for the employee benefit plan or 403(b) plan from
which the distribution is made can indicate which portion of a distribution is
an eligible rollover distribution. Non-taxable distributions, distributions that
are part of a series of substantially equal payments made at least once a year
over long periods of time and distributions that are required after a
participant attains age 70 1/2 are not eligible rollover distributions.
A rollover can be completed as a direct rollover to an individual retirement
account (which avoids the application of a 20% income tax withholding
requirement) or by reinvesting distribution proceeds paid to the plan
participant in an individual retirement account within 60 days of the date the
participant receives the distribution. If the distribution is not reinvested
within 60 days of its receipt, the payment is taxed in the year in which the
participant received it. Distributions from a qualified employee benefit plan
may be eligible for special tax treatment such as 5-year averaging, 10-year
averaging and capital gain tax treatment. This special tax treatment is not
available if an individual previously rolled over a payment from the employee
benefit plan or certain other similar plans of the employer. The special tax
treatment is also not available for distributions rolled over to an IRA when
distributions are subsequently made from that IRA. Also, if only part of a
distribution from an employee benefit plan is rolled over to an IRA, this
special tax treatment is not available for the part of the distribution that was
not so rolled over. Additional restrictions are described in IRS Form 4972,
which has more information on lump sum distributions and how an individual may
elect the special tax treatment. The Plan provides that Rollover contributions
from a qualified employer plan shall be held in a separate IRA at all times.
Amounts distributed from another IRA may be rolled over to the Princor IRA.
Rollovers between IRAs may occur no more than once a year; however, direct
transfers of IRA assets to another IRA may occur at any time.
Under the Plan, Rollover Contributions may only be made in cash. If an
individual receives a distribution from a qualified employee benefit plan of
property other than cash, the individual may sell such property and invest the
proceeds of the sale in a Rollover IRA under the Plan within 60 days after
distribution.
Simplified Employee Pension Contribution
If an Individual Retirement Account is being used as a receptacle for employer
contributions made under a Simplified Employee Pension (SEP) Plan, the limit on
employer contributions in a taxable year is the lesser of $30,000 or 15% of a
Participant's compensation.
Contributions must bear a uniform relationship to the total compensation (not in
excess of the first $150,000 beginning in 1994) of each employee maintaining a
SEP.
The employer's contribution is excluded from the Participant's taxable income.
Please see your Registered Representative for additional information about
Simplified Employee Pension plans.
Excess Contributions
Contributions for an individual during a taxable year are considered excess
contributions if they exceed 100% of compensation or $2,000, or such other limit
as may be prescribed by law. Contributions to individual accounts for a person
and that person's spouse are considered excess contributions if contributions
exceed the lesser of: (1) $2,250; (b) 100% of the compensation includable in
gross income for the taxable year; or (c) more than $2,000 paid to a single
individual retirement account for the individual or the individual's spouse. If
excess contributions are made, the individual must pay a cumulative,
non-deductible 6% excise tax on the portion of the contribution that exceeds the
amounts permitted by law. An individual can avoid this excise tax by withdrawing
the excess contribution prior to filing the tax return. Any income earned by the
excess contribution must also be withdrawn at the time the excess contribution
is withdrawn. Since the excess contribution was not deductible when made, it is
not included in the individual's income when returned, nor is it subject to the
10% tax on premature distributions. Income earned by the excess contribution,
however, must be included in the individual's income tax return for the tax year
in which it was earned. The foregoing is inapplicable if: (a) a deduction was
allowed for the excess contribution or (b) full contributions (including excess
contributions) for the year exceeded $2,250. If the 6% excise tax is imposed for
the taxable year, its cumulative effect can be avoided by making reduced
contributions in a future year. Excess rollover contributions can also be
corrected (with regard to dollar limitations) if the excess contribution was due
to reasonable cause.
Form 5329
Form 5329 (Return for Individual Retirement Savings Arrangement) must accompany
an individual's tax return (Form 1040) only if the individual owes excess
contribution taxes, premature distribution taxes, or taxes on certain
accumulations.
Distributions/Transfers
Distributions are taxed as ordinary income when received. Ten-year and/or
five-year averaging is not permissible.
If nondeductible contributions are made, the portion of the IRA contribution
consisting of non-deductible contributions will not be taxed again when
distributed. A distribution of a non-deductible IRA contribution will generally
consist of a non-taxable portion (the return of non-deductible contributions)
and a taxable portion (the return deductible contributions, if any, and account
earnings).
Thus, an individual may not take a distribution which is entirely tax free. The
following formula is used to determine the nontaxable portion of distributions
for a taxable year:
[Remaining NonDeductible Contributions Year-End / Total IRA Account
Balances] X Total Distributions (for the year) = NonTaxable Distributions
(for the year)
All of an individual's IRAs are treated as a single IRA to figure the year-end
total IRA account balance. This includes all regular IRAs, as well as Simplified
Employer Pension (SEP) IRAs, and Rollover IRAs. Distributions taken during the
year must also be added back in.
Financial Disclosure
Information about the Funds and the method by which the annual earnings are
computed and allocated to each shareholder's account is described in the
prospectus accompanying this disclosure statement.
An annual administration fee of $15.00 is also required. This fee will be
deducted from the account as a separate item on the first business day of
December each year. You will be notified of this fee by invoice and may pay by
separate check before November 15. A complete description of Class R shares is
provided in the prospectus. You must have received a prospectus prior to
submitting your application to create an IRA. The annual earnings on your IRA
will depend upon the investment income received by the Fund or Funds which you
select. Growth in value of this account is neither guaranteed nor projected. All
certificates shall be held by the Custodian. The Custodian has the right to
change its fees in the current and/or future years.
Prohibited Transactions
If Participant borrows money by use of their IRA or uses any portion of his or
her IRA as security for a loan (which the Plan prohibits), the portion so used
will be treated for tax purposes as having been distributed to them. In
addition, if a Participant or his or her Beneficiary engages in a prohibited
transaction (as defined in Section 4975 of the Internal Revenue Code) with
respect to his or her IRA, the Account will be disqualified and the entire
amount in the IRA Account will be treated as having been distributed to him or
her. Examples of prohibited transactions are the borrowing of the income or
principal from an IRA, selling property to or buying property from an IRA, or
receiving more than reasonable compensation for services performed for an IRA.
When all or a portion of an IRA is treated as having been distributed, such
amounts will be includable in the Participant's gross income for that taxable
year and will generally be subject to the 10% federal tax on premature
distributions (unless the Participant is disabled or has reached the age of 59
1/2).
Estate And Gift Tax Considerations
Transfers of IRAs are generally subject to taxation under federal estate and
gift tax laws. To the extent that benefits are distributed to the spouse of the
Participant, the amount of the benefits may be eligible for the estate tax
marital deduction
The excise tax on excess retirement distributions does not apply to such
distributions after the death of the Plan Participant, but a federal estate tax
is imposed amounting to 15% of any excess retirement accumulation. This estate
tax is imposed regardless of whether the decedent had a taxable estate and
cannot be reduced or offset by any estate tax credits or deductions. However, a
surviving spouse beneficiary of essentially all of the decedent's aggregate
retirement plans may elect out of the estate tax treatment and have the
decedent's aggregate retirement plans be treated as those of the surviving
spouse for income and estate tax purposes.
An irrevocable beneficiary designation may result in a taxable gift of a future
interest which would not qualify for the gift tax annual inclusion. However, if
a spouse is the beneficiary, the gift will generally qualify for the marital
deduction. In community property states, if a person other than a spouse is
designated as the plan beneficiary, the spouse might be considered to have made
a gift on one-half of the value of the benefit conveyed when the conveyance is
complete.
IRA Approval Letter
The IRS approval letter provided in this booklet is a determination only as to
the form of the IRA and does not represent a determination of the merits of the
IRA investment plan.
Further Information
Further information regarding Individual Retirement Accounts and the retirement
savings deduction may be obtained from any district office of the Internal
Revenue Service.
BECAUSE LEGAL AND TAX CONSEQUENCES OF THE USE OF THE PLAN MAY VARY IN PARTICULAR
CASES, INDEPENDENT ADVICE SHOULD BE SOUGHT FROM YOUR ATTORNEY OR TAX ADVISOR.
<PAGE>
IRS OPINION LETTER
Below is the Internal Revenue Service opinion letter approving the form of the
custodian agreement for the Princor IRA.
Internal Revenue Service Department of Treasury
Plan Name: IRA Custodial Account Washington, DC 20224
FFN: 50107440000-016 Case: 9170139
EIN: 42-0127290 Person to Contact: Mr. Welty
Letter Serial No: D112912a
Telephone Number: (202)566-4111
PRINCIPAL MUTUAL LIFE INSURANCE CO.
THE PRINCIPAL FINANCIAL GROUP Refer Reply to: E:EP:Q:2
DES MOINES IA 50392 Date: 08/29/91
Dear Applicant:
In our opinion, the form of the prototype trust, custodial account or annuity
contract identified above is acceptable under section 408 of the Internal
Revenue Code, as amended by the Tax Reform Act of 1986.
Each individual who adopts this approved plan will be considered to have a
retirement savings program that satisfies the requirements of Code section 408,
provided they follow the terms of the program and do not engage in certain
transactions specified in Code section 408(e). Please provide a copy of this
letter to each person affected.
The Internal Revenue Service has not evaluated the merits of this savings
program and does not guarantee contributions or investments made under the
savings program. Furthermore, this letter does not express any opinion as to
the applicability of Code section 4975, regarding prohibited transactions.
Code section 408(i) and related regulations require that the trustee, custodian
or issuer of a contract provide a disclosure statement to each participant in
this program as specified in the regulations. Publication 590, Tax Information
on Individual Retirement Arrangements, gives information about the items to be
disclosed.
The trustee, custodian or issuer of a contract is also required to provide each
adopting individual with annual reports of savings program transactions.
Your program may have to be amended to include or revise provisions in order to
comply with future changes in the law or regulations.
If you have any questions concerning IRS processing of this case, call us at the
above telephone number. Please refer to the Letter Serial Number and File
Folder Number shown in the heading of this letter. Please provide those
adopting this plan with your phone number, and advise them to contact your
office if they have any questions about the operation of this plan.
You should keep this letter as a permanent record. Please notify us if you
terminate the form of this plan.
Sincerely yours,
JOHN SWIECA
John Swieca
Chief, Employee Plans
Qualifications Branch
PRINCOR LIMITED TERM BOND FUND, INC.
DISTRIBUTION AND SHAREHOLDER SERVICING
PLAN AND AGREEMENT
CLASS A SHARES
PLAN AND AGREEMENT made as of the 12th day of December 1995, by and between
PRINCOR LIMITED TERM BOND FUND, INC., a Maryland corporation (the "Fund"), and
PRINCOR FINANCIAL SERVICES CORPORATION, an Iowa corporation (the "Underwriter").
WHEREAS, Rule 12b-1 under the Investment Company Act of 1940 (the
"Act"), provides that a registered open-end management investment company may
participate in financing the distribution of securities of which it is the
issuer; and
WHEREAS, any payments made by the Fund in accordance with Rule 12b-1
must be made pursuant to a written plan describing all material aspects of the
proposed financing of distribution; and
WHEREAS, the Underwriter acts as the underwriter for the Fund; and
various broker-dealers (the "Dealers"), including the Underwriter, sell shares
of the Fund and provide services to existing shareholders; and
WHEREAS, the Board of Directors of the Fund has determined that the
Fund should make direct payments to the Underwriter for transmission to Dealers
(including the Underwriter) in connection with selling class A shares of the
Fund and the rendering of services to class A shareholders and that such payment
should be separate from the investment advisory and management fee paid to
Princor Management Corporation; and
WHEREAS, the Board of Directors of the Fund has determined that there
is a reasonable likelihood that the adoption of the Plan will benefit the Fund
and its class A shareholders;
NOW, THEREFORE, the following shall constitute the written Plan
pursuant to which the Fund shall participate in financing the distribution of
its class A shares.
Section 1. The Fund is hereby authorized to make payments to the
Underwriter from that portion of the Fund's assets attributable to its class A
shares for the purpose of compensating the Underwriter and other selling Dealers
for (i) providing shareholder services to existing class A shareholders,
including without limitation, furnishing information as to the status of
shareholder accounts, requests, responding to telephone and written inquiries,
and assisting class A shareholders with tax information and (ii) rendering
assistance in the distribution and promotion of the sale of class A shares to
the public.
In consideration of the activities described above, the Fund shall pay
the Underwriter a fee after the end of each month at the annual rate of 0.15% of
the daily net asset value of the Fund's class A shares. The Underwriter shall
retain such amounts as are appropriate to compensate the Underwriter for actual
expenses incurred in distributing and promoting the sale of class A shares to
the public and remit such amounts as are appropriate to other Dealers in
recognition of their services and assistance as described above. If the
aggregate payments received by the Underwriter under this Plan in any fiscal
year exceed the expenditures made by the Underwriter in such fiscal year for
these purposes, the Underwriter shall promptly reimburse the Fund for the amount
of such excess.
Section 2. This Plan shall not take effect until it has been approved
(1) by a vote of at least a majority (as defined in the Act) of the outstanding
class A shares of the Fund and (2) by votes of the majority of both (i) the
Board of Directors of the Fund, and (ii) those Directors of the Fund who, except
for their positions as Directors of the Fund, are not "interested persons" (as
defined in the Act) of the Fund and who have no direct or indirect financial
interest in the operation of this Plan or any agreements related to this Plan
(the "Disinterested Directors"), cast in person at a meeting called for the
purpose of voting on this Plan or such agreements.
Section 3. Unless sooner terminated pursuant to Section 5, this Plan
shall continue in effect for a period of twelve months from the date it takes
effect and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 2(2).
Section 4. A representative of the Underwriter shall provide to the
Board and the Board shall review at least quarterly a written report of the
amounts so expended and the purposes for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Disinterested Directors, or by vote of a majority (as defined in
the Act) of the Fund's outstanding class A shares.
Section 6. Any agreement of the Fund related to this Plan shall be in
writing and shall provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the members
of the Board of Directors of the Fund who are not interested
persons of the Fund and have no direct or indirect financial
interest in the operation of the Plan or in any agreements
related to the Plan or by a vote of a majority (as defined in
the Investment Company Act of 1940) of the Fund's outstanding
class A shares on not more than sixty days' written notice to
any other party to the agreement); and
B. That such agreement shall terminate automatically in the event
of its assignment.
Section 7. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the Directors who are not interested
persons.
Section 8. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Paragraph 4, for a period of not
less than six years from the date of the Plan, or the agreements or such report,
as the case may be, the first two years in an easily accessible place.
Section 9. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 1 hereof unless such
amendment is approved in the manner provided for initial approval in Section 2
hereof and no other material amendment to this Plan shall be made unless
approved in the manner provided for initial approval in Section 2(2) hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Plan as of the first date written above.
PRINCOR LIMITED TERM BOND FUND, INC.
By: A. S. FILEAN___________________
A. S. Filean, Vice President
PRINCOR FINANCIAL SERVICES
CORPORATION
By: __S. L. JONES__________________
S. L. Jones, President
PRINCOR LIMITED TERM BOND FUND, INC.
DISTRIBUTION AND SHAREHOLDER SERVICING
PLAN AND AGREEMENT
CLASS B SHARES
PLAN AND AGREEMENT made as of the 12th day of December 1995, by and between
PRINCOR LIMITED TERM BOND FUND, INC., a Maryland corporation (the "Fund"), and
PRINCOR FINANCIAL SERVICES CORPORATION, an Iowa corporation (the "Underwriter").
WHEREAS, Rule 12b-1 under the Investment Company Act of 1940 (the "Act"),
provides that a registered open-end management investment company may
participate in financing the distribution of securities of which it is the
issuer; and
WHEREAS, any payments made by the Fund in accordance with Rule 12b-1 must
be made pursuant to a written plan describing all material aspects of the
proposed financing of distribution; and
WHEREAS, the Underwriter acts as the underwriter for the Fund; and various
broker-dealers (the "Dealers"), including the Underwriter, sell shares of the
Fund and provide services to existing shareholders; and
WHEREAS, the Board of Directors of the Fund has determined that the Fund
should make direct payments to the Underwriter for transmission to Dealers
(including the Underwriter) in connection with selling Class B shares of the
Fund and the rendering of services to Class B shareholders and that such payment
should be separate from the investment advisory and management fee paid to
Princor Management Corporation; and
WHEREAS, the Board of Directors of the Fund has determined that there is a
reasonable likelihood that the adoption of the Plan will benefit the Fund and
its Class B shareholders;
NOW, THEREFORE, the following shall constitute the written Plan pursuant to
which the Fund shall participate in financing the distribution of its Class B
shares.
Section 1. The Fund is hereby authorized to make payments to the
Underwriter from that portion of its assets attributable to its Class B shares
for the purpose of reimbursing the Underwriter for commissions it pays to
registered representatives and Dealers in connection with sales of the Class B
shares and to compensate the Underwriter and other selling Dealers for (i)
providing shareholder services to existing Class B shareholders, including
without limitation, furnishing information as to the status of shareholder
accounts, requests, responding to telephone and written inquiries, and assisting
shareholders with tax information and (ii) rendering assistance in the
distribution and promotion of the sale of Class B shares to the public.
In consideration of the activities described above, the Fund shall pay the
Underwriter a fee after the end of each month at the annual rate of 0.50% of the
daily net asset value of the Fund's Class B shares. The Underwriter shall retain
such amounts as are appropriate to compensate the Underwriter for actual
expenses incurred in distributing and promoting the sale of Class B shares to
the public and remit such amounts (not to exceed 0.15% annually of the daily net
asset value of the Fund's shares) as are appropriate to other Dealers in
recognition of their services and assistance as described above. If the
aggregate payments received by the Underwriter under this Plan in any fiscal
year exceed the expenditures made by the Underwriter in such fiscal year for
these purposes, the Underwriter shall promptly reimburse the Fund for the amount
of such excess.
Section 2. This Plan shall not take effect until is has been approved (1)
by a vote of at least a majority (as defined in the Act) of the outstanding
Class B shares of the Fund and (2) by votes of the majority of both (i) the
Board of Directors of the Fund, and (ii) those Directors of the Fund who, except
for their positions as Directors of the Fund, are not "interested persons" (as
defined in the Act) of the Fund and who have no direct or indirect financial
interest in the operation of this Plan or any agreements related to this Plan
(the "Disinterested Directors"), cast in person at a meeting called for the
purpose of voting on this Plan or such agreements.
Section 3. Unless sooner terminated pursuant to Section 5, this Plan shall
continue in effect for a period of twelve months from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 2(2).
Section 4. A representative of the Underwriter shall provide to the Board
and the Board shall review at least quarterly a written report of the amounts so
expended and the purposes for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a majority of
the Disinterested Directors, or by vote of a majority (as defined in the Act) of
the Fund's outstanding Class B shares.
Section 6. Any agreement of the Fund related to this Plan shall be in
writing and shall provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the members of the Board of
Directors of the Fund who are not interested persons of the Fund and
have no direct or indirect financial interest in the operation of the
Plan or in any agreements related to the Plan or by a vote of a
majority (as defined in the Investment Company Act of 1940) of the
Fund's outstanding Class B shares on not more than sixty days'
written notice to any other party to the agreement); and
B. That such agreement shall terminate automatically in the event of its
assignment.
Section 7. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the Directors who are not interested
persons.
Section 8. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Paragraph 4, for a period of not
less than six years from the date of the Plan, or the agreements or such report,
as the case may be, the first two years in an easily accessible place.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 1 hereof unless such amendment
is approved in the manner provided for initial approval in Section 2 hereof and
no other material amendment to this Plan shall be made unless approved in the
manner provided for initial approval in Section 2(2) hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Plan as of the first date written above.
PRINCOR LIMITED TERM BOND FUND, INC.
By: A. S. FILEAN___________________
A. S. Filean, Vice President
PRINCOR FINANCIAL SERVICES
CORPORATION
By: __S. L. JONES__________________
S. L. Jones, President
PRINCOR LIMITED TERM BOND FUND, INC.
DISTRIBUTION AND SHAREHOLDER SERVICING
PLAN AND AGREEMENT
CLASS R SHARES
PLAN AND AGREEMENT made as of the 12th of December, 1995, by and between
PRINCOR LIMITED TERM BOND FUND, INC., a Maryland corporation (the "Fund"), and
PRINCOR FINANCIAL SERVICES CORPORATION, an Iowa corporation (the "Underwriter").
WHEREAS, Rule 12b-1 under the Investment Company Act of 1940 (the
"Act"), provides that a registered open-end management investment company may
participate in financing the distribution of securities of which it is the
issuer; and
WHEREAS, any payments made by the Fund in accordance with Rule 12b-1
must be made pursuant to a written plan describing all material aspects of the
proposed financing of distribution; and
WHEREAS, the Underwriter acts as the underwriter for the Fund; and
various broker-dealers (the "Dealers"), including the Underwriter, sell shares
of the Fund and provide services to existing shareholders; and
WHEREAS, the Board of Directors of the Fund has determined that the
Fund should make direct payments to the Underwriter for transmission to Dealers
(including the Underwriter) in connection with selling Class R shares of the
Fund and the rendering of services to Class R shareholders and that such payment
should be separate from the investment advisory and management fee paid to
Princor Management Corporation; and
WHEREAS, the Board of Directors of the Fund has determined that there
is a reasonable likelihood that the adoption of the Plan will benefit the Fund
and its Class R shareholders;
NOW, THEREFORE, the following shall constitute the written Plan
pursuant to which the Fund shall participate in financing the distribution of
its Class R shares.
Section 1. The Fund is hereby authorized to make payments to the
Underwriter from that portion of its assets attributable to its Class R shares
for the purpose of reimbursing the Underwriter for expenses it incurs in
connection with sales of the Class R shares and to compensate the Underwriter
and other selling Dealers for (i) providing shareholder services to existing
Class R shareholders, including without limitation, furnishing information as to
the status of shareholder accounts, requests, responding to telephone and
written inquiries, and assisting shareholders with tax information and (ii)
rendering assistance in the distribution and promotion of the sale of Class R
shares to the public.
In consideration of the activities described above, the Fund shall pay
the Underwriter a fee after the end of each month at the annual rate of 0.75% of
the daily net asset value of the Fund's Class R shares. The Underwriter shall
retain such amounts as are appropriate to compensate the Underwriter for actual
expenses incurred in distributing and promoting the sale of Class R shares to
the public and remit such amounts as are appropriate to other Dealers in
recognition of their services and assistance as described above provided however
the Underwriter shall not pay compensation to registered representatives and
Dealers for the services they render to Class R shareholders in an amount
exceeding 0.50% annually of the daily net asset value of the Fund's Class R
shares. If the aggregate payments received by the Underwriter under this Plan in
any fiscal year exceed the expenditures made by the Underwriter in such fiscal
year for these purposes, the Underwriter shall promptly reimburse the Fund for
the amount of such excess.
Section 2. This Plan shall not take effect until it has been approved
(1) by a vote of at least a majority (as defined in the Act) of the outstanding
Class R shares of the Fund and (2) by votes of the majority of both (i) the
Board of Directors of the Fund, and (ii) those Directors of the Fund who, except
for their positions as Directors of the Fund, are not "interested persons" (as
defined in the Act) of the Fund and who have no direct or indirect financial
interest in the operation of this Plan or any agreements related to this Plan
(the "Disinterested Directors"), cast in person at a meeting called for the
purpose of voting on this Plan or such agreements.
Section 3. Unless sooner terminated pursuant to Section 5, this Plan
shall continue in effect for a period of twelve months from the date it takes
effect and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 2(2).
Section 4. A representative of the Underwriter shall provide to the
Board and the Board shall review at least quarterly a written report of the
amounts so expended and the purposes for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Disinterested Directors, or by vote of a majority (as defined in
the Act) of the Fund's outstanding Class R shares.
Section 6. Any agreement of the Fund related to this Plan shall be in
writing and shall provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the members
of the Board of Directors of the Fund who are not interested
persons of the Fund and have no direct or indirect financial
interest in the operation of the Plan or in any agreements
related to the Plan or by a vote of a majority (as defined in
the Investment Company Act of 1940) of the Fund's outstanding
Class R shares on not more than sixty days' written notice to
any other party to the agreement); and
B. That such agreement shall terminate automatically in the event
of its assignment.
Section 7. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the Directors who are not interested
persons.
Section 8. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Paragraph 4, for a period of not
less than six years from the date of the Plan, or the agreements or such report,
as the case may be, the first two years in an easily accessible place.
Section 9. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 1 hereof unless such
amendment is approved in the manner provided for initial approval in Section 2
hereof and no other material amendment to this Plan shall be made unless
approved in the manner provided for initial approval in Section 2(2) hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Plan as of the first date written above.
PRINCOR LIMITED TERM BOND FUND, INC.
By: A. S. FILEAN___________________
A. S. Filean, Vice President
PRINCOR FINANCIAL SERVICES
CORPORATION
By: __S. L. JONES__________________
S. L. Jones, President
PRINCOR FAMILY OF MUTUAL FUNDS
MULTIPLE CLASS DISTRIBUTION PLAN
Princor Financial Services Corporation ("The Distributor"), Princor Management
Corporation ("Adviser") and each of the funds listed on Exhibit 1 (the "Fund or
Funds") seek to allow each of the Funds to issue multiple separate classes of
shares under this Multiple Class Distribution Plan (the "Plan") in reliance upon
Rule 18f-3 of the Investment Company Act of 1940.
This Plan enables each Fund to offer certain investors the option of purchasing
shares subject to: (i) a conventional front-end sales charge ("Class A shares")
or (ii) a contingent deferred sales charge ("Class B shares"). The Plan also
permits each Fund, except Princor Tax-Exempt Bond Fund, Inc. and Princor Tax
Exempt Cash Management Fund, Inc., to offer distributees of retirement plans
administered by Principal Mutual Life Insurance Company a class of shares that
is not subject to either a front-end or contingent deferred sales charge ("Class
R shares"). Each Class represents an interest in the same portfolio of
investments of a Fund.
SALES CHARGES
Class A shares
Class A shares of the Money Market Funds are sold to the public at net
asset value; no sales charge applies to purchases of the Money Market Funds.
Class A shares of the Growth-Oriented and Income-Oriented Funds, except the
Limited Term Bond Fund, are sold to the public at the net asset value plus a
sales charge which ranges from a high 4.75% to a low of 0% of the offering price
(equivalent to a range of 4.99% to 0% of the net amount invested) according to
the schedule below. Class A shares of the Limited Term Bond Fund are sold to the
public at the net asset value plus a sales charge which ranges from a high of
1.50% to a low of 0% of the offering price according to the schedule below. An
investor who purchases $1 million or more of Class A shares does not pay a sales
charge at the time of purchase. However, a redemption of such shares occurring
within 18 months from the date of purchase will be subject to a contingent
deferred sales charge ("CDSC") at the rate of .75% (.25% for the Limited Term
Bond Fund) of the lesser of the value of the shares redeemed (exclusive of
reinvested dividend and capital gain distributions) or the total cost of such
shares. Shares subject to the CDSC which are exchanged into another Princor Fund
will continue to be subject to the CDSC until the original 18 month period
expires. However, no CDSC is payable with respect to the redemptions of Class A
shares to fund a Princor 401(a) or Princor 401(k) retirement plan, except
redemptions resulting from the termination of the plan or transfer of plan
assets. Certain purchases of Class A shares qualify for reduced sales charges.
<TABLE>
<CAPTION>
Sales Charge for
All Funds Except Sales Charge for Dealer Allowance as
Limited Term Bond Fund Limited Term Bond Fund % of Offering Price
Sales Charge as % of: Sales Charge as % of: All Funds
Offering Amount Offering Amount Except Limited Term Limited Term
Amount of Purchase Price Invested Price Invested Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
Less than $50,000 4.75% 4.99% 1.50% 1.52% 4.00% 1.25%
$50,000 but less than $100,000 4.25% 4.44% 1.25% 1.27% 3.75% 1.00%
$100,000 but less than $250,000 3.75% 3.90% 1.00% 1.01% 3.25% .75%
$250,000 but less than $500,000 2.50% 2.56% 0.75% 0.76% 2.00% .50%
$500,000 but less than $1,000,000 1.50% 1.52% 0.50% 0.50% 1.25% .25%
$1,000,000 or more No Sales Charge 0% No Sales Charge 0% .75% .25%
</TABLE>
Class B shares
Class B shares are sold without an initial sales charge, although a CDSC
will be imposed on shares redeemed within six years of purchase. The following
types of shares may be redeemed without charge at any time: (i) shares acquired
by reinvestment of distributions and (ii) shares otherwise exempt from the CDSC,
as described below. Subject to the foregoing exclusions, the amount of the
charge is determined as a percentage of the lesser of the current market value
or the cost of the shares being redeemed. Therefore, when a share is redeemed,
any increase in its value above the initial purchase price is not subject to any
CDSC. The amount of the CDSC will depend on the number of years shares have been
owned and the dollar amount being redeemed, according to the following table:
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge as a
Percentage of Dollar Amount Subject to Charge
Years Since Purchase All Funds Except
Payments Made Limited Term Bond Fund Limited Term Bond Fund
<S> <C> <C>
2 years or less 4.0% 1.25%
more than 2 years, up to 4 years 3.0% 0.75%
more than 4 years, up to 5 years 2.0% 0.50%
more than 5 years, up to 6 years 1.0% 0.25%
more than 6 years None None
</TABLE>
In determining whether a CDSC is payable on any redemption, the Fund will
first redeem shares not subject to any charge, and then shares held longest
during the six-year period.
The CDSC will be waived on redemptions of Class B shares in connection
with the following types of transactions:
a. Shares redeemed due to a shareholder's death;
b. Shares redeemed due to the shareholder's disability, as defined in
the Internal Revenue Code of 1986 (the "Code"), as amended;
c. Shares redeemed from retirement plans to satisfy minimum
distribution rules under the Code;
d. Shares redeemed to pay surrender charges;
e. Shares redeemed to pay retirement plan fees;
f. Shares redeemed involuntarily from small balance accounts (values
of less than $300);
g. Shares redeemed through a systematic withdrawal plan that permits
up to 10% of the value of a shareholder's Class B shares of a
particular Fund on the last business day of December of each year
to be withdrawn automatically in equal monthly installments
throughout the year;
h. Shares redeemed from a retirement plan to assure the plan complies
with Sections 401(k), 401(m), 408(k) and 415 of the Code; or
i. Shares redeemed from retirement plans qualified under Section
401(a) of the Code due to the plan participant's death, disability,
retirement or separation from service after attaining age 55.
Class R shares
Class R shares are purchased without an initial sales charge or a
contingent deferred sales charge.
EXPENSE ALLOCATION
The Fund will pay to the distributor a distribution fee pursuant to the Fund's
Rule 12b-1 distribution plan at an annual rate of (i) up to .25% (.15% for
Princor Limited Term Bond Fund, Inc.) of the average daily net asset value of
the Class A shares; (ii) up to 1.00% (.50% for Princor Limited Term Bond Fund,
Inc.) of the average daily net asset value of the Class B shares; and (iii) up
to .75% of the average daily net asset value of Class R shares. For accounting
purposes, the classes of a Fund are identical except that the net asset value
and expenses each class will reflect the Distribution Plan expenses (if any) and
any Class Expenses, as defined below, attributable to the class. "Class
Expenses" are limited to: (i) transfer agency fees, as identified by the Funds'
transfer agent as being attributable to a specific class; (ii) blue sky
registration fees incurred with respect to a class of shares; (iii) Commission
registration fees incurred with respect to a class of shares; (iv) the expenses
of administrative personnel and services as required to provide services to the
shareholders of a specific class (depending on the type of service provided
administrative expenses are allocated to specific classes based on the relative
percentage of shareholder transactions and net asset values compared to the
total of both share classes); (v) litigation or other legal expenses or audit or
other accounting expenses relating solely to one class of shares (vi) Directors'
fees incurred as a result of issues relating to one class of shares; and (vii)
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders of
a given class.
Any additional incremental expenses not specifically identified above that are
subsequently identified and determined to be properly allocated to one class of
shares will not be so allocated unless and until approved by the Funds'
directors. Certain expenses may be allocated differently if their method of
imposition changes; thus, if a Class Expense of a Fund can no longer be
attributed to a class it will be allocated to the Fund as a whole.
The net asset value of all outstanding shares of each class is determined by
dividing the ending total net assets applicable to a specific class by the
number of shares outstanding relating to the class. Expenses are attributable to
each class of shares depending on the nature of the expenditure and are accrued
on a daily basis. These fall into two categories: (1) fund level expenses that
are attributable to each class that are allocated based on net assets at the
beginning of the day (i.e., legal, audit, etc.) and (2) certain class level
expenses that may have a different cost for one class versus the other (i.e.,
12b-1 fees). Because of the additional expenses that will be borne by the Class
B shares and Class R shares, the net income attributable to and the dividends
payable on Class B shares and Class R shares will be lower than the net income
attributable to and the dividends payable on Class A shares.
CONVERSION FEATURES
Class A shares. Class A shares do not convert into any other class of shares at
any time.
Class B shares. Class B shares will automatically convert to Class A shares,
based on relative net asset value on the first business day of the 85th month
after the purchase date. Class B shares acquired by exchange from Class B shares
of another Princor fund will convert into Class A shares based on the time of
the initial purchase. At the same time, a pro rata portion of all shares
purchased through reinvestment of dividends and distributions would convert into
Class A shares, with that portion determined by the ratio that the shareholder's
Class B shares converting into Class A shares bears to the shareholder's total
Class B shares that were not acquired through dividends and distributions. The
conversion of Class B to Class A shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an opinion of
counsel that such conversions will not constitute taxable events for Federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not occur
if such ruling or opinion is not available. In such event, Class B shares would
continue to be subject to higher expenses than Class A shares for an indefinite
period.
Class R shares. Class R shares will automatically convert to Class A shares,
based on relative net asset value, on the first business day of the 49th month
after the purchase date. Class R shares acquired by exchange from Class R shares
of another Princor fund will convert into Class A shares based on the time of
the initial purchase. At the same time, a pro rata portion of all shares
purchased through reinvestment of dividends and distributions would convert into
Class A shares, with that portion determined by the ratio that the shareholder's
Class R shares converting into Class A shares bears to the shareholder's total
Class R shares that were not acquired through dividends and distributions. The
conversion of Class R shares to Class A shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an opinion of
counsel that such conversions will not constitute taxable events for Federal tax
purposes. There can be no assurance that such ruling or opinion is not
available. In such event, Class R shares would continue to be subject to higher
expenses than Class A shares for an indefinite period.
EXCHANGE FEATURES
Class A shares. Class A shares of any Fund (except the Money Market Funds and
the Short Term Bond Fund) may be exchanged at the net asset value for Class A
shares of any other Princor Fund at any time.
Class A shares of the Limited Term Bond Fund may be exchanged at net asset value
for Class A shares of any Fund at any time three months after the purchase of
such shares.
The CDSC that might apply to certain Class A shares upon redemption will not
apply if these shares are exchanged for shares of another Fund. However, for
purposes of computing the CDSC on the shares acquired through this exchange, the
length of time the acquired shares have been owned by a shareholder will be
measured from the date the exchanged shares were purchased. The amount of the
CDSC will be determined by reference to the CDSC table to which the exchanged
shares were subject.
Class A shares of Princor Cash Management Fund or Princor Tax-Exempt Cash
Management Fund acquired by direct purchase may not be exchanged for other Class
A shares. However, Class A shares of these two Funds acquired by exchange of any
other Princor Fund shares, or by conversion of Class B or Class R shares, and
additional shares which have been purchased by reinvesting dividends earned on
such shares, may be exchanged for other Class A shares without a sales charge.
In addition, Class A shares of the Money Market Funds acquired by direct
purchase or reinvestment of dividends on such shares may be exchanged for Class
B shares of any Growth-Oriented or Income-Oriented Fund.
Class B shares. Class B shares for all Funds may be exchanged at net asset value
at any time for Class B shares of any Fund.
The CDSC that might apply to Class B shares upon redemption will not apply if
these shares are exchanged for shares of another Fund. However, for purposes of
computing the CDSC on the shares acquired through this exchange, the length of
time the acquired shares have been owned by a shareholder will be measured from
the date the exchanged shares were purchased. The amount of the CDSC will be
determined by reference to the CDSC table to which the exchanged shares were
subject.
Class R shares. Class R shares for all Funds may be exchanged at net asset value
at any time for Class R shares of any Fund. For purposes of computing the length
of time Class R shares acquired by the exchange are held prior to conversion to
Class A shares, the length of time the acquired shares have been owned by a
shareholder will be measured from the date the exchanged shares were purchased.
<PAGE>
Exhibit 1
Princor Balanced Fund, Inc.
Princor Blue Chip Fund, Inc.
Princor Bond Fund, Inc.
Princor Capital Accumulation Fund, Inc.
Princor Cash Management Fund, Inc.
Princor Emerging Growth Fund, Inc.
Princor Government Securities Income Fund, Inc.
Princor Growth Fund, Inc.
Princor High Yield Fund, Inc.
Princor Limited Term Bond Fund, Inc.
Princor Tax-Exempt Bond Fund, Inc.
Princor Tax-Exempt Cash Management Fund, Inc.
Princor Utilities Fund, Inc.
Princor World Fund, Inc.
