Changes have been made to the prospectus for the Principal Mutual Funds. The
changes are shown below.
SUPPLEMENT DATED DECEMBER 20, 2000
TO THE PROSPECTUS DATED MARCH 1, 2000 (AS REVISED THROUGH MAY 1, 2000) FOR
THE PRINCIPAL MUTUAL FUNDS
PRINCIPAL BALANCED FUND, INC.
PRINCIPAL BLUE CHIP FUND, INC.
PRINCIPAL BOND FUND, INC.
PRINCIPAL CAPITAL VALUE FUND, INC.
PRINCIPAL CASH MANAGEMENT FUND, INC.
PRINCIPAL EUROPEAN EQUITY FUND, INC.
PRINCIPAL GOVERNMENT SECURITIES INCOME FUND, INC.
PRINCIPAL GROWTH FUND, INC.
PRINCIPAL HIGH YIELD FUND, INC.
PRINCIPAL INTERNATIONAL EMERGING MARKETS FUND, INC.
PRINCIPAL INTERNATIONAL FUND, INC.
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
PRINCIPAL LARGECAP STOCK INDEX FUND, INC.
PRINCIPAL LIMITED TERM BOND FUND INC.
PRINCIPAL MIDCAP FUND, INC.
PRINCIPAL PACIFIC BASIN FUND, INC.
PRINCIPAL PARTNERS AGGRESSIVE GROWTH FUND, INC.
PRINCIPAL PARTNERS LARGECAP GROWTH FUND, INC.
PRINCIPAL PARTNERS MIDCAP GROWTH FUND, INC.
PRINCIPAL REAL ESTATE FUND, INC.
PRINCIPAL SMALLCAP FUND, INC.
PRINCIPAL TAX-EXEMPT BOND FUND, INC.
PRINCIPAL UTILITIES FUND, INC.
1. On page 8, under the Day-to-day Account Management section, replace with
the following:
Since January 2001
Scott D. Opsal, CFA. Mr. Opsal is Chief Investment Officer
of Invista Capital Management and has been with the
organization since 1993. He holds an MBA from the University
of Minnesota and BS from Drake University. He has earned the
right to use the Chartered Financial Analyst designation.
2. On page 11, under the Day-to-day Account Management section, replace with
the following:
Since January 2001
John Pihlblad, CFA. Mr. Pihlblad is director of quantitative
portfolio management for Invista. He has over 24 years
experience in creating and managing quantitative investment
systems. Prior to joining Invista in 2000, Mr. Pihlblad was
a partner and co-founder of GlobeFlex Capital in San Diego
where he was responsible for the development and
implementation of the investment process for both domestic
and international products. He received his BA from
Westminster College. He has earned the right to use the
Chartered Financial Analyst designation.
3. On page 26, under the Day-to-day Account Management section, replace with
the following:
Since January 2001
Tom Morabito, CFA. Mr. Morabito joined Invista in 2000 as
the lead small-cap value portfolio manager. He has more than
12 years of analytical and portfolio management expertise.
Since 1994, Mr. Morabito was a manager for INVESCO
Management & Research. He received his MBA in Finance from
Northeastern University and his Bachelor's degree in
Economics from State University of New York. He has earned
the right to use the Chartered Financial Analyst
designation.
4. On page 43, under the Day-to-day Account Management section, add the
following:
Since July 2000
Co-Manager: Kelly R. Alexander. Ms. Alexander joined Invista
Capital Management in 1992. Her duties include management
responsibility for nine fixed-income portfolios with
combined assets of more than $4.0 billion.
5. On page 47, under the Day-to-day Account Management section, add the
following:
Since July 2000
Co-Manager: Daniel J. Garrett, CFA. Mr. Garrett joined the
Principal organization in 1985. He holds a BA and an MBA
from Drake University. He has earned the right to use the
Chartered Financial Analyst designation.
6. Effective October 20, 2000, Principal Management Corporation, the Manager
for Principal Balanced Fund, Inc. (the "Balanced Fund") and Principal
Government Securities Income Fund, Inc. and Principal Limited Term Bond
Fund, Inc. (the "Income Funds"), entered into a sub-advisory agreement with
an affiliate, Principal Capital Income Investors, LLC ("PCII"), with respect
to each of these Funds. The individual who has been serving as portfolio
manager for each of the Income Funds and for the fixed-income investments of
the Balanced Fund has been transferred to PCII from another affiliate of the
Manager, Invista Capital Management, LLC (Invista). Invista served as
sub-advisor to the three Funds prior to October 20, 2000 and continues to
serve as sub-advisor to the Balanced Fund with respect to its equity
investments. The change will not affect the services received or the fees
paid by each of the Funds pursuant to its Management Agreement.
As a result, the Prospectus is amended as follows:
On page 4, the first section in the list of Funds and corresponding Sub-Advisors
is deleted and replaced with the following:
<TABLE>
<CAPTION>
Fund Sub-Advisor
--------------------------- -----------
<S> <C>
Balanced (equity portion), Blue Chip, Capital Value, Invista Capital Management, LLC ("Invista")
Growth, International, International Emerging Markets,
International SmallCap, LargeCap Stock Index, MidCap,
SmallCap and Utilities
Balanced (fixed-income portion), Government Principal Capital Income Investors, LLC ("PCII")
Securities Income and Limited Term Bond
</TABLE>
The section "Management, Organization and Capital Structure" is hereby
amended as follows:
Funds: Balanced (equity portion), Blue Chip, Capital Value, Growth,
International, International Emerging Markets, International
SmallCap, LargeCap Stock Index, MidCap, SmallCap and
Utilities
Sub-Advisor: Invista Capital Management, LLC ("Invista"), an indirect
wholly-owned subsidiary of Principal Life Insurance Company
and an affiliate of the Manager, was founded in 1985. It
manages investments for institutional investors, including
Principal Life. Assets under management as of June 30, 2000
were approximately $35.3 billion. Invista's address is 1800
Hub Tower, 699 Walnut, Des Moines, Iowa 50309.
Funds: Balanced (fixed-income portion), Government Securities
Income and Limited Term Bond
Sub-Advisor: Principal Capital Income Investors, LLC ("PCII"), an
indirect wholly-owned subsidiary of Principal Life
Insurance Company and an affiliate of the Manager, was
founded in 2000. It manages investments for institutional
investors, including Principal Life Insurance Company. As
of June 30, 2000, PCII had assets under management of $29
billion. PCII's address is 1800 Hub Tower, 699 Walnut, Des
Moines, Iowa 50309.
7. In the section "The Costs of Investing" (Class A shares), the 12th item
should be deleted and replaced with the following:
to the extent the purchase proceeds represent a distribution from a
terminating 401(a) plan if (a) such purchase is made through a
representative of Princor Financial Services Corporation who is a home
office employee of Principal Life Insurance Company and the purchase
proceeds represent a distribution from a terminating 401(a) plan
administered by Principal Life Insurance Company or any of its affiliates,
or (b) the employer or plan trustee has entered into a written agreement
with Princor permitting the group solicitation of active employees/ plan
participants. Such purchases are subject to the CDSC which applies to
purchases of $1 million or more as described above.
8. The Manager has voluntarily agreed to waive a portion of its fee for the
following Funds, if necessary, through the period ending October 31, 2001.
The effect of the waiver is to reduce the Fund's annual operating expenses.
The waivers will maintain a total level of operating expenses (expressed as
a percent of average net assets attributable to a Class on an annualized
basis) not to exceed:
<TABLE>
<CAPTION>
Class A Class B Class C Class R
---------------------------------------
<S> <C> <C> <C> <C>
Principal European Equity Fund 2.50% 3.25% 3.25% 3.00%
Principal International Emerging Markets Fund 2.50 3.25 3.25 3.00
Principal LargeCap Stock Index Fund 0.90 1.25 1.25 1.40
Principal Partners LargeCap Growth Fund 1.95 2.70 2.70 2.45
Principal Partners MidCap Growth Fund 1.95 2.70 2.70 2.45
Principal Pacific Basin Fund 2.50 3.25 3.25 3.00
</TABLE>
