Changes have been made to the prospectus for the Principal Mutual Funds. The
changes are shown below.
SUPPLEMENT DATED AUGUST 10, 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 11, under the Day-to-day Account Management section, replace with
the following:
Since July 2000 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 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.
3. 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.
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH-ORIENTED FUNDS
Principal Balanced Fund, Inc.
Principal Blue Chip Fund, Inc.
Principal Capital Value Fund, Inc.
Principal Growth Fund, Inc.
Principal LargeCap Stock Index Fund, Inc.
Principal MidCap 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 Utilities Fund, Inc.
INTERNATIONAL GROWTH-ORIENTED FUNDS
Principal European Equity Fund, Inc.
Principal International Emerging Markets Fund, Inc.
Principal International Fund, Inc.
Principal International SmallCap Fund, Inc.
Principal Pacific Basin Fund, Inc.
INCOME-ORIENTED FUNDS
Principal Bond Fund, Inc.
Principal Government Securities Income Fund, Inc.
Principal High Yield Fund, Inc.
Principal Limited Term Bond Fund, Inc.
Principal Tax-Exempt Bond Fund, Inc.
MONEY MARKET FUND
Principal Cash Management Fund, Inc.
-----------------------------------------------------------------
This Prospectus describes mutual funds organized by Principal Life Insurance
Company ("Principal Life"). The Funds provide a choice of investment objectives
through Domestic Growth-Oriented Funds, International Growth-Oriented Funds,
Income-Oriented Funds and a Money Market Fund.
The date of this Prospectus is March 1, 2000
as revised through May 1, 2000.
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
TABLE OF CONTENTS
Fund Descriptions...................................................4
Domestic Growth-Oriented Funds...................................6
Balanced Fund..................................................6
Blue Chip Fund.................................................8
Capital Value Fund............................................10
Growth Fund ..................................................12
LargeCap Stock Index Fund.....................................14
MidCap Fund...................................................16
Partners Aggressive Growth Fund...............................18
Partners LargeCap Growth Fund.................................20
Partners MidCap Growth Fund...................................22
Real Estate Fund..............................................24
SmallCap Fund.................................................26
Utilities Fund................................................28
International Growth-Oriented Funds.............................30
European Equity Fund..........................................30
International Emerging Markets Fund...........................32
International Fund............................................34
International SmallCap Fund...................................36
Pacific Basin Fund............................................38
Income Funds....................................................40
Bond Fund.....................................................40
Government Securities Income Fund.............................42
High Yield Fund...............................................44
Limited Term Bond Fund........................................46
Tax-Exempt Bond Fund..........................................48
Money Market Fund...............................................50
Cash Management Fund..........................................50
The Costs of Investing.............................................52
Certain Investment Strategies and Related Risks....................59
Management, Organization and Capital Structure.....................63
Pricing of Fund Shares.............................................65
Dividends and Distributions........................................66
How To Buy Shares..................................................67
How To Redeem (Sell) Shares........................................69
How To Exchange Shares Among Principal Mutual Funds................72
General Information about a Fund Account...........................74
Financial Highlights...............................................76
FUND DESCRIPTIONS.
The Principal Mutual Funds have four categories of funds: domestic
growth-oriented funds, international growth-oriented funds, income-oriented
funds and a money market fund. Principal Management Corporation*, the "Manager"
of each of the Funds, has selected a Sub-Advisor for certain Funds based on the
Sub-Advisor's experience with the investment strategy for which it was selected.
The Manager seeks to provide a full range of investment approaches through the
Principal Mutual Funds.
<TABLE>
<CAPTION>
<S> <C>
Fund Sub-Advisor
Balanced, Blue Chip, Capital Value, Invista Capital Management, LLC ("Invista")*
Government Securities Income, Growth,
International, International Emerging Markets,
International SmallCap, LargeCap Stock Index,
Limited Term Bond, MidCap, SmallCap and Utilities
European Equity and Pacific Basin BT Funds Management (International) Limited ("BT")*
Partners Aggressive Growth Morgan Stanley Asset Management ("Morgan Stanley")
Partners LargeCap Growth Duncan-Hurst Capital Management Inc. ("Duncan-Hurst")
Partners MidCap Growth Turner Investment Partners, Inc. ("Turner")
<FN>
* Principal Management Corporation, Invista and BT are members of the
Principal Financial Group.
</FN>
</TABLE>
Three classes of each of these Funds shares are available through this
Prospectus:
o Class A shares are generally sold with a sales charge that is a variable
percentage based on the amount of the purchase;
o Class B shares are not subject to a sales charge at the time of purchase
but are subject to a contingent deferred sales charge ("CDSC") on shares
redeemed within six years of purchase; and
o Class C shares are sold without a sales charge at the time of purchase but
are subject to a CDSC on shares redeemed within one year of purchase.
In the description for each Fund, you will find important information about the
Fund's:
Primary investment strategy
This section summarizes how the Fund intends to achieve its investment
objective. It identifies the Fund's primary investment strategy (including the
type or types of securities in which the Fund invests) and any policy to
concentrate in securities of issuers in a particular industry or group of
industries.
Annual operating expenses
Annual operating expenses for each Fund are deducted from Fund assets (stated as
a percentage of Fund assets) and are shown as of the end of the most recent
fiscal year (estimates of expenses are shown for Funds which have not completed
a fiscal year of operation). Examples are provided which are intended to help
you compare the cost of investing in a particular fund with the cost of
investing in other mutual funds. The examples assume you invest $10,000 in a
Fund for the time periods indicated. The examples also assume that your
investment has a 5% return each year and that the Fund's operating expenses are
the same as the most recent fiscal year expenses. Although your actual costs may
be higher or lower, based on these assumptions your costs would be as shown.
Day-to-day fund management
The investment professionals who manage the assets of each Fund are listed with
each Fund. Backed by their staff of experienced securities analysts, they
provide the Funds with professional investment management.
Fund Performance
As certain Funds have been operating only for a limited period of time no
historical information is available for those Funds. If historical data is
available, the Fund's description includes a set of tables and a bar chart.
The bar chart is included to provide you with an indication of the risks
involved when you invest. The chart shows changes in the Fund's performance from
year to year. The performance reflected in the chart does not include a sales
charge, which would make the returns less than those shown. Fund shares are
generally sold subject to a sales charge.
One of the tables compares the Fund's average annual returns with:
o a broad-based securities market index (An index measures the market price
of a specific group of securities in a particular market of securities in a
market sector. You cannot invest directly in an index. An index does not
have an investment adviser and does not pay any commissions or expenses. If
an index had expenses, its performance would be lower.); and
o an average of mutual funds with a similar investment objective and
management style. The averages used are prepared by independent statistical
services.
The other table provides the highest and lowest quarterly rate of return for the
Fund's Class A shares over a given period.
A Fund's past performance is not necessarily an indication of how the Fund will
perform in the future.
You may call Principal Mutual Funds (1-800-247-4123) to get the current 7-day
yield for the Cash Management Fund.
NOTE: Investments in these Funds are not deposits of a bank and are not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
No salesperson, dealer or any other person is authorized to give
information or make representations about a Fund other than those
contained in this Prospectus. Information or representations from
unauthorized parties may not be relied upon as having been made by a
Fund, the Manager or any Sub-Advisor.
DOMESTIC GROWTH-ORIENTED FUND
PRINCIPAL BALANCED FUND, INC.
The 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.
Main Strategies
The Fund invests primarily in common stocks and corporate bonds. It may also
invest in other equity securities, government bonds and notes (obligations of
the U.S. government or its agencies) and cash. Though the percentages in each
category are not fixed, common stocks generally represent 40% to 70% of the
Fund's assets. The remainder of the Fund's assets are invested in bonds and
cash.
In selecting common stocks, the Sub-Advisor, Invista, looks for companies that
have predictable earnings and which, based on growth prospects, it believes are
undervalued in the marketplace. Invista buys stocks with the objective of
long-term capital appreciation. Stocks in which the Fund invests normally
generate dividend income. From time to time, Invista purchases stocks with the
expectation of price appreciation over the short term. In response to changes in
economic conditions, Invista may change the make-up of the portfolio and
emphasize different market sectors by buying and selling the portfolio's stocks.
The Fund generates interest income by investing in bonds and notes. Bonds and
notes are also purchased for capital appreciation purposes when Invista thinks
that declining interest rates may increase market value. Deep discount bonds
(those which sell at a substantial discount from their face amount) are also
purchased to generate capital appreciation. The Fund may invest in bonds with
speculative characteristics but does not intend to invest more than 5% of its
assets in securities rated below BBB by S&P or Baa by Moody's. Fixed-income
securities that are not investment grade are commonly referred to as "junk
bonds" or high yield securities. These securities offer a higher yield than
other, higher rated securities, but they carry a greater degree of risk and are
considered speculative by the major credit rating agencies.
Main Risks
The value of the stocks owned by the Fund changes on a daily basis. Stock prices
reflect the activities of individual companies and general market and economic
conditions. In the short term, stock prices can fluctuate dramatically in
response to these factors.
Bond values change daily. Their prices reflect changes in interest rates, market
conditions and announcements of other economic, political or financial
information. When interest rates fall, the price of a bond rises and when
interest rates rise, the price declines.
As with all mutual funds, the value of the Fund's assets may rise or fall. If
you sell your shares when their value is less than the price you paid, you will
lose money.
Investor Profile
The Fund is generally a suitable investment if you are seeking long-term growth
but are uncomfortable accepting the risks of investing entirely in common
stocks.
The Fund's past performance is not predictive of future performance. The bar
chart and tables provide some indication of the risks of investing in the Fund
by showing changes in the Fund's Class A share performance from year to year.
Annual Total Returns
1990 -5.18
1991 31.72
1992 10.47
1993 9.01
1994 -3.38
1995 23.39
1996 13.00
1997 17.29
1998 11.20
1999 0.63
The year-to-date return as of March 31, 2000 for Class A shares is 0.81%, for
Class B shares is 0.64% and for Class C shares is 0.47%.
The fund's highest/lowest quarterly returns during this time period were:
Highest 11.34% (3-31-1991)
Lowest -11.70% (9-30-1990)
Average annual total returns for the period ending December 31, 1999
This table shows how the Fund's average annual returns compare with those of a
broad-based securities market index and an index of funds with similar
investment objectives.
<TABLE>
<CAPTION>
Past One Past FivePast Ten Past One Past FivePast Ten
Year Years Years Year Years Years
<S> <C> <C> <C> <C> <C> <C> <C>
Class A -4.10% 11.77% 9.75% S&P 500 Stock Index 21.04% 28.55% 18.21%
Class B -3.88 11.70 12.05* Lehman Brothers Government/Corporate Bond Index -2.15 7.61 7.65
Class C -5.40** Lipper Balanced Fund Average 8.69 16.39 11.94
<FN>
* Period from December 9, 1994, date Class B shares first offered to the public, through December 31, 1999.
** Period from June 30, 1999, date Class C shares first offered to the public, through December 31, 1999.
</FN>
</TABLE>
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
Class A $599 $862 $1,144 $1,947
Class B 617 961 1,320 2,068
Class C 317 661 1,134 2,441
You would pay the following expenses if you did not redeem your shares:
Class A 599 862 1,144 1,947
Class B 205 634 1,088 2,068
Class C 214 661 1,134 2,441
Fund Operating Expenses*
Class A Class B Class C
Management Fees................ 0.58% 0.58% 0.58%
12b-1 Fees..................... 0.25 0.89 1.00
Other Expenses................. 0.45 0.55 0.53
---- ---- ----
Total Fund Operating Expenses 1.28% 2.02% 2.11%
* Total Fund Operating Expenses for Class A and Class B shares are for
the year ended October 31, 1999. Expenses for Class C shares are for
the period from June 30, 1999 through October 31, 1999.
Day-to-day Fund Management
Since December 1997 Co-Manager: Martin J. Schafer. Mr. Schafer joined the
Principal in 1977 and has broad experience in residential
mortgage related securities. He served as Director of
Investment Securities at the Principal prior to joining
Invista Capital Management in 1992. He holds a BBA in
Accounting and Finance from the University of Iowa.
Since April 1993 Co-Manager: Judith A. Vogel, CFA. Ms. Vogel joined Invista
Capital Management in 1987. She holds an undergraduate
degree in Business Administration from Central College. She
has earned the right to use the Chartered Financial Analyst
designation.
Since February 2000 Co-Manager: Mary Sunderland, CFA. Prior to joining Invista
Capital Management in 1999, Ms. Sunderland managed growth
and technology portfolios for Skandia Asset Management for
10 years. She holds an MBA in Finance from Columbia
University Graduate School of Business and an undergraduate
degree from Northwestern University. She has earned the
right to use the Chartered Financial Analyst designation.
DOMESTIC GROWTH-ORIENTED FUND
PRINCIPAL BLUE CHIP FUND, INC.
The Fund seeks to achieve growth of capital and growth of income by investing
primarily in common stocks of well capitalized, established companies.
Main Strategies
The Fund invests primarily in common stocks of large, established companies. The
Sub-Advisor, Invista, selects the companies it believes to have the potential
for growth of capital, earnings and dividends. Under normal market conditions,
the Fund invests at least 65% (and may invest up to 100%) of its assets in blue
chip companies. Blue chip companies are easily identified by:
o size (market capitalization of at least $1 billion)
o easy access to credit
o superior management structure
o established history of earnings and dividends
o good industry position
In addition, the large market of publicly held shares for these companies and
their generally high trading volume results in a relatively high degree of
liquidity for these stocks.
Invista may invest up to 35% of Fund assets in equity securities, other than
common stocks, issued by blue chip companies and in equity securities of
companies that do not fit the blue chip definition. It may also invest up to 5%
of Fund assets in securities of unseasoned issuers, which are more speculative
than blue chip company securities. While small, unseasoned companies may offer
greater opportunities for capital growth than larger, more established
companies, they also involve greater risks and should be considered speculative.
Up to 20% of Fund assets may be invested in foreign securities. The issuers of
the foreign securities do not have to meet the criteria for blue chip companies.
In addition, foreign securities carry risks that are not generally found in
stocks of U.S. companies. These include the risk that a foreign security could
lose value as a result of political, financial and economic events in foreign
countries. In addition, foreign securities may be subject to securities
regulators with less stringent accounting and disclosure standards than are
required of U.S. companies.
Main Risks
The value of the stocks owned by the Fund changes on a daily basis. The current
price reflects the activities of individual companies and general market and
economic conditions. In the short term, stock prices can fluctuate dramatically
in response to these factors. Because of these fluctuations, as with all mutual
funds, the value of the Fund's assets may rise or fall. If you sell your shares
when their value is less than the price you paid, you will lose money.
Investor Profile
The Fund is generally a suitable investment if you are seeking long-term growth
and are willing to accept the risks of investing in common stocks but prefer
investing in larger, established companies.
The Fund's past performance is not predictive of future performance. The bar
chart and tables provide some indication of the risks of investing in the Fund
by showing changes in the Fund's Class A share performance from year to year.
Annual Total Returns
1992 6.09
1993 2.62
1994 3.36
1995 33.19
1996 16.78
1997 26.25
1998 16.65
1999 11.96
The year-to-date return as of March 31, 2000 for Class A shares is -2.97%, for
Class B shares is -3.15% and for Class C shares is -3.17%.
The fund's highest/lowest quarterly returns during this time period were:
Highest 16.40% (6-30-1997)
Lowest -9.92% (9-30-1998)
Average annual total returns for the period ending December 31, 1999
This table shows how the Fund's average annual returns compare with those of a
broad-based securities market index and an index of funds with similar
investment objectives.
<TABLE>
<CAPTION>
Past One Past FivePast Ten Past One Past FivePast Ten
Year Years Years Year Years Years
<S> <C> <C> <C> <C> <C> <C> <C>
Class A 6.70% 19.55% 13.91%* S&P 500 Stock Index 21.04% 28.55% 18.21%
Class B 7.13 19.54 19.97** Lipper Large-Cap Value Fund Average(1) 11.23 22.56 15.06
Class C -0.92***
<FN>
* Period from March 1, 1991, date Class A shares through December 31,
1999
** Period from December 9, 1994, date Class B shares through December 31,
1999.
*** Period from June 30, 1999, date Class C shares first offered to the
public, through December 31, 1999.
(1) Lipper has discontinued calculation of the Average previously used for
this Fund. first offered to the public, . This chart reflects
information for the discontinued Average for years prior to 1999.
The newly assigned Average will be reflected for 1999 and beyond.
first offered to the public,
</FN>
</TABLE>
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
---------------------------------
Class A $597 $856 $1,134 $1,925
Class B 619 967 1,330 2,075
Class C 333 709 1,215 2,605
You would pay the following expenses if you did not redeem your shares:
Class A 597 856 1,134 1,925
Class B 207 640 1,098 2,075
Class C 230 709 1,215 2,605
Fund Operating Expenses*
Class A Class B Class C
Management Fees**.............. 0.46% 0.46% 0.46%
12b-1 Fees..................... 0.25 0.92 1.00
Other Expenses................. 0.55 0.66 0.81
----- ----- -----
Total Fund Operating Expenses 1.26% 2.04% 2.27%
* Total Fund Operating Expenses for Class A and Class B shares are for
the year ended October 31, 1999. Expenses for Class C shares are for
the period from June 30, 1999 through October 31, 1999.
** TheManager has agreed to waive a portion of its fee for the Fund. The
Manager intends to continue the waiver and, if necessary, pay expenses
normally payable by the Fund through the period ending October 31,
2000. The effect of the waiver is to reduce the Fund's annual
operating expenses. The waiver 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:
1.20% for Class A Shares
1.95% for Class B Shares
1.95% for Class C Shares
Day-to-day Fund Management
Since March 1991
Mark T. Williams, CFA.
(Fund's inception)
Mr. Williams joined Invista Capital Management in 1989. He holds
an MBA from Drake University and a BA in Finance from the
University of the State of New York. He has earned the right to
use the Chartered Financial Analyst designation.
DOMESTIC GROWTH-ORIENTED FUND
PRINCIPAL CAPITAL VALUE FUND, INC.
The 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.
Main Strategies
The Fund invests primarily in common stocks. It may also invest in other equity
securities. To achieve its investment objective, the Sub-Advisor, Invista,
invests primarily in securities that have "value" characteristics. This process
is known as "value investing." Value stocks tend to have higher yields and lower
price to earnings (P/E) ratios than other stocks.
Securities chosen for investment may include those of companies which Invista
believes can be expected to share in the growth of the nation's economy over the
long term. In making selections for the Fund's investment portfolio, Invista
uses an approach described as "fundamental analysis." The basic steps involved
in this analysis are:
o Research. Invista researches economic prospects over the next one to two
years rather than focusing on near term expectations. This approach is
designed to provide insight into a company's real growth potential.
o Valuation. The research findings allow Invista to identify the prospects
for the major industrial, commercial and financial segments of the economy.
Invista looks 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. It then uses this information to judge the prospects for each
industry for the near and intermediate term.
o Ranking. Invista then ranks the companies in each industry group according
to their relative value. The greater a company's estimated worth compared
to the current market price of its stock, the more undervalued the company.
Computer models help to quantify the research findings.
o Stock selection. Invista buys and sells stocks according to the Fund's own
policies using the research and valuation rankings as a basis. In general,
Invista buys stocks that are identified as undervalued and considers
selling them when they appear overvalued. Along with attractive valuation,
other factors may be taken into account such as: o events that could cause
a stock's price to rise or fall; o anticipation of high potential reward
compared to potential risk; and o belief that a stock is temporarily
mispriced because of market overreactions.
Main Risks
The value of the stocks owned by the Fund changes on a daily basis. The current
price reflects the activities of individual companies and general market and
economic conditions. In the short term, stock prices can fluctuate dramatically
in response to these factors. Because of these fluctuations, principal values
and investment returns vary. As with all mutual funds, the value of the Fund's
assets may rise or fall. If you sell your shares when their value is less than
the price you paid, you will lose money.
Investor Profile
The Fund is generally a suitable investment if you are seeking long-term growth
and are willing to accept the risks of investing in common stocks but also
prefer investing in companies that appear to be considered undervalued relative
to similar companies.
The Fund's past performance is not predictive of future performance. The bar
chart and tables provide some indication of the risks of investing in the Fund
by showing changes in the Fund's Class A share performance from year to year.
Annual Total Returns
1990 -10.64
1991 37.21
1992 9.09
1993 7.56
1994 0.21
1995 31.90
1996 23.42
1997 28.69
1998 12.13
1999 -6.86
The year-to-date return as of March 31, 2000 for Class A shares is -2.17%, for
Class B shares is -2.38% and for Class C shares is -2.53%.
The fund's highest/lowest quarterly returns during this time period were:
Highest 17.94% (3-31-1991)
Lowest -17.62% (9-30-1990)
Average annual total returns for the period ending December 31, 1999
This table shows how the Fund's average annual returns compare with those of a
broad-based securities market index and an index of funds with similar
investment objectives.
<TABLE>
<CAPTION>
Past One Past FivePast Ten Past One Past FivePast Ten
Year Years Years Year Years Years
<S> <C> <C> <C> <C> <C> <C> <C>
Class A -11.24% 15.83% 11.64% S&P 500 Stock Index 21.04% 28.55% 18.21%
Class B -10.96 15.73 16.30* S&P 500 Barra Value Index(1) 12.72 22.94 15.37
Class C -13.31** Lipper Large-Cap Value Fund Average(2) 11.23 22.56 15.06
<FN>
* Period from December 9, 1994, date Class B shares first offered to the
public, through December 31, 1999.
** Period from June 30, 1999, date Class C shares first offered to the
public, through December 31, 1999.
(1) This index is now the benchmark against which the Fund measures its
performance. The Manager and portfolio manager believe it better
represents the universe of investment choices open to the Fund under
its investment philosophy. The index formerly used is also shown.
(2) Lipper has discontinued calculation of the Average previously used for
this Fund. This chart reflects information for the discontinued
Average for years prior to 1999. The newly assigned Average will be
reflected for 1999 and beyond.
</FN>
</TABLE>
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
Class A $548 $703 $ 872 $1,361
Class B 569 813 1,066 1,507
Class C 313 649 1,114 2,400
You would pay the following expenses if you did not redeem your shares:
Class A 548 703 872 1,361
Class B 155 480 829 1,507
Class C 210 649 1,114 2,400
Fund Operating Expenses*
Class A Class B Class C
Management Fees................ 0.37% 0.37% 0.37%
12b-1 Fees..................... 0.18 0.80 1.00
Other Expenses................. 0.20 0.35 0.70
----- ----- -----
Total Fund Operating Expenses 0.75% 1.52% 2.07%
* Total Fund Operating Expenses for Class A and Class B shares are for
the year ended October 31, 1999. Expenses for Class C shares are for
the period from June 30, 1999 through October 31, 1999.
Day-to-day Fund Management
Since November 1996 Catherine A. Zaharis, CFA. Ms. Zaharis joined Invista
Capital Management in 1987. She holds a BA in Finance from
the University of Iowa and an MBA from Drake University. She
has earned the right to use the Chartered Financial Analyst
designation.
DOMESTIC GROWTH-ORIENTED FUND
PRINCIPAL GROWTH FUND, INC.
The Fund seeks to achieve growth of capital through the purchase primarily of
common stocks, but the Fund may invest in other securities.
Main Strategies
The Fund seeks to achieve its objective by investing in common stocks and other
equity securities. In selecting securities for investment, the Sub-Advisor,
Invista, looks at stocks it believes have prospects for above average growth
over an extended period of time. Invista uses an approach described as
"fundamental analysis" as it selection process.
The three basic steps of fundamental analysis are:
1) research - consideration of economic prospects over the next one to two
years rather than focusing on near term expectations. This approach is
designed to provide insight into a company's real growth potential.
2) valuation - use of the research to allow Invista to identify segments of
the market for investment. Invista considers various factors including
sustainable, superior earnings growth and above average or accelerating
rates of growth.
3) stock selection - Invista buys and sells stocks using its research and
valuation as the basis. It attempts to identify the individual issuers that
it considers to have high growth potential, that are market share leaders
and/or have high quality management with consistent track records and solid
balance sheets.
Main Risks
Prices of equity securities rise and fall in response to a number of factors
including events that affect entire financial markets or industries (for
example, changes in inflation or consumer demand) as well as events impacting a
particular issuer (for example, news about the success or failure of a new
product). The securities purchased by the Fund present greater opportunities for
growth because of high potential earnings growth, but may also involve greater
risks than securities that do not have the same potential. The Fund may invest
in companies with limited product lines, markets or financial resources. As a
result, these securities may change in value more than those of larger, more
established companies. As the value of the stocks owned by the Fund changes, the
Fund share price changes. In the short-term, the price can fluctuate
dramatically.
As with all mutual funds, as the value of the Fund's assets rise and fall, the
Fund's share price changes. If you sell your shares when their value is less
than the price you paid, you will lose money.
Investor Profile
The Fund is generally a suitable investment if you are seeking long-term growth.
You must be willing to accept the risks of investing in common stocks that may
have greater risks than stocks of companies with lower potential for earnings
growth.
The Fund's past performance is not predictive of future performance. The bar
chart and tables provide some indication of the risks of investing in the Fund
by showing changes in the Fund's Class A share performance from year to year.
Annual Total Returns
1990 -1.41
1991 56.61
1992 10.16
1993 7.51
1994 3.21
1995 33.47
1996 12.23
1997 28.41
1998 20.37
1999 16.13
The year-to-date return as of March 31, 2000 for Class A shares is 5.38%, for
Class B shares is 5.22% and for Class C shares is 5.14%.
The fund's highest/lowest quarterly returns during this time period were:
Highest 24.39% (3-31-1991)
Lowest -18.61% (9-30-1990)
Average annual total returns for the period ending December 31, 1999
This table shows how the Fund's average annual returns compare with those of a
broad-based securities market index and an index of funds with similar
investment objectives.
<TABLE>
<CAPTION>
Past One Past FivePast Ten Past One Past FivePast Ten
Year Years Years Year Years Years
<S> <C> <C> <C> <C> <C> <C> <C>
Class A 10.67% 20.71% 17.07% S&P 500 Stock Index 21.04% 28.55% 18.21%
Class B 11.33 20.94 21.75* Lipper Large-Cap Growth Fund Average(1) 38.09 30.55 19.73
Class C 4.15**
<FN>
* Period from December 9, 1994, date Class B shares first offered to the
public, through December 31, 1999.
** Period from June 30, 1999, date Class C shares first offered to the
public, through December 31, 1999.
(1) Lipper has discontinued calculation of the Average previously used for
this Fund. This chart reflects information for the discontinued
Average for years prior to 1999. The newly assigned Average will be
reflected for 1999 and beyond.
</FN>
</TABLE>
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------
Class A $562 $745 $ 945 $1,519
Class B 567 807 1,056 1,548
Class C 291 582 1,001 2,169
You would pay the following expenses if you did not redeem your shares:
Class A 562 745 945 1,519
Class B 153 474 818 1,548
Class C 188 582 1,001 2,169
Fund Operating Expenses*
Class A Class B Class C
Management Fees................ 0.38% 0.38% 0.38%
12b-1 Fees..................... 0.23 0.78 1.00
Other Expenses................. 0.28 0.34 0.47
----- ----- -----
Total Fund Operating Expenses 0.89% 1.50% 1.85%
* Total Fund Operating Expenses for Class A and Class B shares are for
the year ended October 31, 1999. Expenses for Class C shares are for
the period from June 30, 1999 through October 31, 1999.
Since January 2000 Mary Sunderland, CFA. Prior to joining Invista Capital
Management in 1999, Ms. Sunderland managed growth and
technology portfolios for Skandia Asset Management for 10
years. She holds an MBA in Finance from Columbia University
Graduate School of Business and an undergraduate degree from
Northwestern University. She has earned the right to use the
Chartered Financial Analyst designation.
DOMESTIC GROWTH-ORIENTED FUND
PRINCIPAL LARGECAP STOCK INDEX FUND, INC.
The Fund seeks to achieve long-term growth of capital.
Main Strategies
Under normal market conditions, the Fund invests at least 80% of its assets in
common stocks of companies that compose the Standard & Poor's* ("S&P") 500
Index. The Sub-Advisor, Invista, will attempt to mirror the investment
performance of the index by allocating the Fund's assets in approximately the
same weightings as the S&P 500. Over the long-term, Invista seeks a correlation
between performance of the Fund, before expenses, and that of the S&P 500. It is
unlikely that a perfect correlation of 100% will be achieved.
The Fund is not managed according to traditional methods of "active" investment
management. Active management would include buying and selling securities based
on economic, financial and investment judgement. Instead, the Fund uses a
passive investment approach. Rather than judging the merits of a particular
stock in selecting investments, Invista focuses on tracking the S&P 500.
Main Risks
Because of the difficulty and expense of executing relatively small stock
trades, the Fund may not always be invested in the less heavily weighted S&P 500
stocks. At times, the Fund's portfolio may be weighted differently from the S&P
500, particularly if the Fund has a small level of assets to invest. In
addition, the Fund's ability to match the performance of the S&P 500 is affected
to some degree by the size and timing of cash flows into and out of the Fund.
The Fund is managed to attempt to minimize such effects.
Invista reserves the right to omit or remove any of the S&P 500 stocks from the
Fund if it determines that the stock is not sufficiently liquid. In addition, a
stock might be excluded or removed from the Fund if extraordinary events or
financial conditions lead Invista to believe that it should not be a part of the
Fund's assets.
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of your investment in the Fund will go up
and down which means that you could lose money. Because different types of
stocks tend to shift in and out of favor depending on market and economic
conditions, the Fund's performance may sometimes be lower or higher than that of
other types of funds.
The Fund uses an indexing strategy. It does not attempt to manage market
volatility, use defensive strategies or reduce the effect of any long-term
periods of poor stock performance. The correlation between Fund and index
performance may be affected by the Fund's expenses, changes in securities
markets, changes in the composition of the index and the timing of purchases and
sales of Fund shares. The Fund may invest in futures and options, which could
carry additional risks such as losses due to unanticipated market price
movements, and could also reduce the opportunity for gain.
Investor Profile
The Fund is generally a suitable investment if you are seeking long-term growth
and are willing to accept the risks of investing in common stocks and prefer a
passive rather than active management style.
* Standard & Poor's Corporation is not affiliated with the Principal LargeCap
Stock Index Fund, Inc., Invista Capital Management LLC or Principal Life
Insurance Company.
As the inception date of the Fund is March 1, 2000, historical performance data
is not available. Estimated annual Fund operating expenses are as follows:
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
Class A $343 $747 N/A N/A
Class B 376 844 N/A N/A
Class C 301 770 N/A N/A
You would pay the following expenses if you did not redeem your shares:
Class A 343 747 N/A N/A
Class B 248 764 N/A N/A
Class C 250 770 N/A N/A
Day-to-day Fund Management
Since March 2000 Co-Manager: Robert Baur, Ph.D. Dr. Baur joined Invista
(Fund's inception) Capital Management in 1995. Prior to joining the firm, he
was a Professor of Finance and Economics at Drake University
and Grand View College. He received his Ph.D. in Economics
from Iowa State University and did post-doctoral study at
the University of Minnesota. He also holds a BS in
Mathematics from Iowa State University.
Since March 2000 Co-Manager: Rhonda VanderBeek. Ms. VanderBeek joined Invista
(Fund's inception) Capital Management in 1983. She directs trading operations
for the firm and has extensive experience trading both
domestic and international securities.
DOMESTIC GROWTH-ORIENTED FUND
PRINCIPAL MIDCAP FUND, INC.
The Fund seeks to achieve capital appreciation by investing primarily in
securities of emerging and other growth-oriented companies.
Main Strategies
The Fund primarily invests in stocks of growth-oriented companies. Stocks that
are chosen for the Fund by the Sub-Advisor, Invista, are thought to be
responsive to changes in the marketplace and have the fundamental
characteristics to support growth. The Fund may invest for any period in any
industry, in any kind of growth-oriented company. Companies may range from the
well-established and well-known to the new and unseasoned. While small,
unseasoned companies may offer greater opportunities for capital growth than
larger, more established companies, they also involve greater risks and should
be considered speculative.
Under normal market conditions, the Fund invests at least 65% of its assets in
securities of companies with market capitalizations in the $1 billion to $10
billion range. Market capitalization is defined as total current market value of
a company's outstanding common stock.
The Fund may invest up to 20% of its assets in securities of foreign companies.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
Main Risks
The value of the stocks owned by the Fund changes on a daily basis. The Fund's
share price may fluctuate more than that of funds primarily invested in stocks
of large companies. Mid-sized companies may pose greater risk due to narrow
product lines, limited financial resources, less depth in management or a
limited trading market for their stocks. In the short-term, stock prices can
fluctuate dramatically in response to these factors. Because of these
fluctuations, principal values and investment returns vary. As with all mutual
funds, the value of the Fund's assets may rise or fall. If you sell your shares
when their value is less than the price you paid, you will lose money.
Investor Profile
The Fund is generally a suitable investment if you are seeking long-term growth
and are willing to accept the potential for short-term fluctuations in the value
of your investments. It is designed for a portion of your investments and not
designed for you if you are seeking income or conservation of capital.
The Fund's past performance is not predictive of future performance. The bar
chart and tables provide some indication of the risks of investing in the Fund
by showing changes in the Fund's Class A share performance from year to year.
Annual Total Returns
1990 -6.33
1991 52.83
1992 14.81
1993 12.29
1994 3.03
1995 34.20
1996 19.13
1997 22.94
1998 -0.23
1999 11.62
The year-to-date return as of March 31, 2000 for Class A shares is 12.40%, for
Class B shares is 12.27% and for Class C shares is 12.01%.
The fund's highest/lowest quarterly returns during this time period were:
Highest 25.77% (3-31-1991)
Lowest -21.24% (9-30-1998)
Average annual total returns for the period ending December 31, 1999
This table shows how the Fund's average annual returns compare with those of a
broad-based securities market index and an index of funds with similar
investment objectives.
<TABLE>
<CAPTION>
Past One Past FivePast Ten Past One Past FivePast Ten
Year Years Years Year Years Years
<S> <C> <C> <C> <C> <C> <C> <C>
Class A 6.37% 15.84% 14.77% S&P 400 MidCap Index(1) 14.72% 23.05% -- %
Class B 7.08 16.10 17.27* S&P 500 Stock Index 21.04 28.55 18.21
Class C 5.22** Lipper Mid-Cap Core Fund Average(2) 38.27 21.93 16.28
<FN>
* Period from December 9, 1994, date Class B shares first offered to the
public, through December 31, 1999.
** Period from June 30, 1999, date Class C shares to the public, through
December 31, 1999.
(1) This index is now the benchmark against which the Fund measures its
performance. The Manager and portfolio manager believe it better
represents the universe of investment choices open to the Fund under
its investment philosophy. first offered The index formerly used is
also shown.
(2) Lipper has discontinued calculation of the Average previously used for
this Fund. This chart reflects information for the discontinued
Average for years prior to 1999. The newly assigned Average will be
reflected for 1999 and beyond.
</FN>
</TABLE>
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $593 $844 $1,113 $1,882
Class B 583 857 1,143 1,801
Class C 331 703 1,205 2,585
You would pay the following expenses if you did not redeem your shares:
Class A 593 844 1,113 1,882
Class B 170 526 907 1,801
Class C 228 703 1,205 2,585
Fund Operating Expenses*
Class A Class B Class C
Management Fees................ 0.56% 0.56% 0.56%
12b-1 Fees..................... 0.25 0.63 1.00
Other Expenses................. 0.41 0.48 0.69
----- ----- -----
Total Fund Operating Expenses 1.22% 1.67% 2.25%
* Total Fund Operating Expenses for Class A and Class B shares are for
the year ended October 31, 1999. Expenses for Class C shares are for
the period from June 30, 1999 through October 31, 1999.
Day-to-day Fund Management
Since February 2000 K. William Nolin, CFA. Mr. Nolin joined Invista Capital
Management in 1996. He holds an MBA from The Yale School of
Management and a BA in Finance from the University of Iowa.
He has earned the right to use the Chartered Financial
Analyst designation.
DOMESTIC GROWTH-ORIENTED FUND
PRINCIPAL PARTNERS AGGRESSIVE GROWTH FUND, INC.
The Fund seeks to achieve long-term capital appreciation.
Main Strategies
The Fund seeks to maximize long-term capital appreciation by investing primarily
in equity securities of U.S. and, to a limited extent, foreign companies that
exhibit strong or accelerating earnings growth. The universe of eligible
companies generally includes those with market capitalizations of $1 billion or
more. The Sub-Advisor, Morgan Stanley, emphasizes individual security selection
and may focus the Fund's holdings within the limits permissible for a
diversified fund.
Morgan Stanley follows a flexible investment program in looking for companies
with above average capital appreciation potential. Morgan Stanley focuses on
companies with consistent or rising earnings growth records and compelling
business strategies. Morgan Stanley continually and rigorously studies company
developments, including business strategy, management focus and financial
results to identify companies with earnings growth and business momentum. In
addition, Morgan Stanley closely monitors analysts' expectations to identify
issuers that have the potential for positive earnings surprises versus consensus
expectations. Valuation is of secondary importance and is viewed in the context
of prospects for sustainable earnings growth and the potential for positive
earnings surprises in relation to consensus expectations.
The Fund has a long-term investment approach. However, Morgan Stanley considers
selling securities of issuers that no longer meet its criteria. To the extent
that the Fund engages in short-term trading, it may have increased transaction
costs.
Main Risks
The value of the stocks owned by the Fund changes on a daily basis. Stock prices
can fluctuate dramatically both in the long-term and short-term. The current
price reflects the activities of individual companies and general market and
economic conditions. Prices of equity securities tend to be more volatile than
prices of fixed-income securities. The prices of equity securities rise and fall
in response to a number of different factors. In particular, prices of equity
securities respond to events that affect entire financial markets or industries
(for example changes in inflation or consumer demand) and to events that affect
particular issuers (for example news about the success or failure of a new
product).
The Fund may invest up to 25% of its assets in securities of foreign companies.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
At times, the Fund's market sector (mid- to large-capitalization growth-oriented
equity securities) may underperform relative to other sectors. The Fund may
purchase stocks of companies that may have greater risks than other stocks with
lower potential for earnings growth.
As with all mutual funds, as the value of the Fund's assets rise and fall, the
Fund's share price changes. If you sell your shares when their value is less
than the price you paid, you will lose money.
Investor Profile
The Fund is generally a suitable investment if you are willing to accept the
risks and uncertainties of investing in equity securities in the hope of earning
superior returns.
As the inception date of the Fund is November 1, 1999, only limited historical
performance data is available.
Average annual total returns for the period ending December 31, 1999
This table shows how the Fund's cumulative returns compare with those of a
broad-based securities market index and an index of funds with similar
investment objectives.
<TABLE>
<CAPTION>
Past One Past One Past FivePast Ten
Year Year Years Years
<S> <C> <C> <C> <C> <C>
Class A 6.57%* S&P 500 Stock Index 21.04% 28.55% 18.21%
Class B 7.80* Lipper Large-Cap Growth Fund Average 38.09 30.55 19.73
Class C 10.80*
<FN>
* Period from November 1, 1999, date shares first offered to the public,
through December 31, 1999.
</FN>
</TABLE>
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $681 $1,110 N/A N/A
Class B 685 1,168 N/A N/A
Class C 462 1,097 N/A N/A
You would pay the following expenses if you did not redeem your shares:
Class A 681 1,110 N/A N/A
Class B 276 847 N/A N/A
Class C 361 1,097 N/A N/A
Fund Operating Expenses*
Class A Class B Class C
Management Fees**.............. 0.75% 0.75% 0.75%
12b-1 Fees..................... 0.25 0.90 1.00
Other Expenses................. 1.13 1.08 1.83
----- ----- -----
Total Fund Operating Expenses 2.13% 2.73% 3.58%
* Total Fund Operating Expenses are estimated.
** The Manager has agreed to waive a portion of its fee for the Fund from
the date operations commenced. The Manager intends to continue the
waiver and, if necessary, pay expenses normally payable by the Fund
through the period ending October 31, 2000. The effect of the waiver
is to reduce the Fund's annual operating expenses. The waiver 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:
1.60% for Class A Shares
2.35% for Class B Shares
2.35% for Class C Shares
Day-to-day Fund Management
Since November 1999 Co-Manager: William S. Auslander, Portfolio Manager and
(Fund's Inception) Principal of Morgan Stanley & Co. Incorporated and Morgan
Stanley Dean Witter Investment Management Inc. Prior
thereto, equity analyst since 1995. Equity analyst at Icahn
& Co., 1986-1995. He holds a BA in Economics from the
University of Wisconsin and an MBA from Columbia University.
Co-Manager: Philip W. Friedman, Managing Director of Morgan
Stanley & Co. Incorporated and Morgan Stanley Dean Witter
Investment Management Inc. since 1997. Member of Morgan
Stanley & Co. Research since 1990, served as Director of
North America Research 1995-1997. Prior thereto, Assistant
to the Controller and Chief Equity Financial Officer, Arthur
Andersen & Company. He holds a BA from Rutgers University
and an MBA from Northwestern - J.L. Kellogg School.
DOMESTIC GROWTH-ORIENTED FUND
PRINCIPAL PARTNERS LARGECAP GROWTH FUND, INC.
The Fund seeks to achieve long-term growth of capital by investing primarily in
common stocks of larger capitalization domestic companies.
Main Strategies
The Fund is a non-diversified fund that invests primarily in equity securities
of companies in the U.S. with comparatively larger market capitalizations.
Market capitalization is defined as total current market value of a company's
outstanding common stock. Under normal market conditions, the Fund invests at
least 75% of its total assets in domestic companies with market capitalizations
in excess of $10 billion. In addition, the Fund may invest up to 25% of its
assets in securities of foreign issuers.
In selecting securities for investment, the Sub-Advisor, Duncan-Hurst, looks at
stocks it believes have prospects for above average growth over an extended
period of time. Duncan-Hurst seeks to identify companies with accelerating
earnings growth and positive company fundamentals. While economic forecasting
and industry sector analysis play a part in its research effort, Duncan-Hurst's
stock selection process begins with individual company analysis. This is often
referred to as a bottom-up approach to investing. From a group of companies that
meet Duncan-Hurst's standards, it selects the securities of those companies that
it believes will have accelerating earnings growth. In making this
determination, Duncan-Hurst considers certain characteristics of a particular
company including new product development, management change and competitive
market dynamics.
Main Risks
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of the stocks owned by the Fund changes on
a daily basis. The current price reflects the activities of individual companies
and general market conditions. In the short-term, stock prices fluctuate
dramatically in response to these factors. As a result, the value of your
investment in the Fund will go up and down. If you sell your shares when their
value is less than the price you paid, you will lose money. Because different
types of stocks tend to shift in and out of favor depending on market and
economic conditions, the Fund's performance may sometimes be lower or higher
than that of other funds.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
The Fund anticipates that its portfolio turnover rate will typically exceed
150%. Turnover rates in excess of 100% generally result in higher transaction
costs and a possible increase in short-term capital gains (or losses).
The Fund is a non-diversified company, as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"), which means that a relatively high
percentage of assets of the Fund may be invested in the obligations of a limited
number of issuers. The value of the shares of the Fund may be more susceptible
to a single economic, political or regulatory occurrence than the shares of a
diversified investment company.
Investor Profile
The Fund is generally a suitable investment if you are seeking long-term growth
and are willing to accept the potential for short-term, volatile fluctuations in
the value of your investment. This Fund is designed as a long- term investment
with growth potential. It is not appropriate if you are seeking income or
short-term conservation of capital.
As the inception date of the Fund is March 1, 2000, historical performance data
is not available. Estimated annual Fund operating expenses are as follows:
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $724 $1,239 N/A N/A
Class B 749 1,359 N/A N/A
Class C 456 1,080 N/A N/A
You would pay the following expenses if you did not redeem your shares:
Class A 724 1,239 N/A N/A
Class B 343 1,045 N/A N/A
Class C 355 1,080 N/A N/A
Fund Operating Expenses*
Class A Class B Class C
Management Fees**.............. 0.90% 0.90% 0.90%
12b-1 Fees..................... 0.25 0.90 1.00
Other Expenses................. 1.43 1.60 1.62
----- ----- -----
Total Fund Operating Expenses 2.58% 3.40% 3.52%
* Total Fund Operating Expenses are estimated.
** The Manager has agreed to waive a portion of its fee for the Fund from
the date operations commenced. The Manager intends to continue the
waiver and, if necessary, pay expenses normally payable by the Fund
through the period ending October 31, 2000. The effect of the waiver
is to reduce the Fund's annual operating expenses. The waiver 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:
1.80% for Class A Shares
2.55% for Class B Shares
2.55% for Class C Shares
Day-to-day Fund Management
Since March 2000 David C. Magee. Mr. Magee has been with Duncan-Hurst Capital
(Fund's inception) Management since 1992. He holds an MBA in Finance from UCLA
and a BS in Economics and Business Management from the
University of California, Davis.
DOMESTIC GROWTH-ORIENTED FUND
PRINCIPAL PARTNERS MIDCAP GROWTH FUND, INC.
The Fund seeks to achieve long-term growth of capital by investing primarily in
medium capitalization U.S. companies with strong earnings growth potential.
Main Strategies
The Fund invests primarily in common stocks and other equity securities of U.S.
companies. Under normal market conditions, the Fund invests at least 65% of its
assets in companies with market capitalizations in the $1 billion and $10
billion range.
The Fund invests in securities of companies that are diversified across economic
sectors. It attempts to maintain sector concentrations that approximate those of
its current benchmark, the Russell MidCap Index. The Fund is not an index fund
and does not limit its investment to the securities of issuers in the Russell
MidCap Index.
The Sub-Advisor, Turner, selects stocks that it believes have strong earnings
growth potential. Turner invests in companies with strong earnings dynamics, and
sells those with deteriorating earnings prospects. Turner believes forecasts for
market timing and sector rotation are unreliable, and introduce an unacceptable
level of risk. As a result, under normal market conditions the Fund is fully
invested.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
In addition, the Fund is subject to the risk that its principal market segment,
medium capitalization growth stocks, may underperform compared to other market
segments or to the equity markets as a whole. Because of this volatility, the
value of the Fund's equity securities may fluctuate on a daily basis. These
fluctuations may reduce your principal investment and lead to varying returns.
If you sell your shares when their value is less than the price you paid, you
will lose money.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these mid-size companies may pose greater risk due to narrow
product lines, limited financial resources, less depth in management or a
limited trading market for their securities.
Investor Profile
The Fund is generally a suitable investment if you are seeking long-term growth
of capital and are willing to accept the potential for short-term fluctuations
in the value of your investment. This Fund is not designed for income or
conservation of capital.
As the inception date of the Fund is March 1, 2000, historical performance data
is not available. Estimated annual Fund operating expenses are as follows:
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $724 $1,239 N/A N/A
Class B 749 1,359 N/A N/A
Class C 456 1,080 N/A N/A
You would pay the following expenses if you did not redeem your shares:
Class A 724 1,239 N/A N/A
Class B 343 1,045 N/A N/A
Class C 355 1,080 N/A N/A
Fund Operating Expenses*
Class A Class B Class C
Management Fees**.............. 0.90% 0.90% 0.90%
12b-1 Fees..................... 0.25 0.90 1.00
Other Expenses................. 1.43 1.60 1.62
----- ----- -----
Total Fund Operating Expenses 2.58% 3.40% 3.52%
* Total Fund Operating Expenses are estimated.
** The Manager has agreed to waive a portion of its fee for the Fund from
the date operations commenced. The Manager intends to continue the
waiver and, if necessary, pay expenses normally payable by the Fund
through the period ending October 31, 2000. The effect of the waiver
is to reduce the Fund's annual operating expenses. The waiver 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:
1.80% for Class A Shares
2.55% for Class B Shares
2.55% for Class C Shares
Day-to-day Fund Management
Since March 2000 Christopher K. McHugh. Mr. McHugh joined Turner Investment
(Fund's inception) Partners, Inc. in 1990. He holds a BS in Accounting from
Philadelphia College of Textiles and Science and an MBA in
Finance from St. Joseph's University.
DOMESTIC GROWTH-ORIENTED FUND
PRINCIPAL REAL ESTATE FUND, INC.
The Fund seeks to generate total return by investing primarily in equity
securities of companies principally engaged in the real estate industry.
Main Strategies
The Fund invests primarily in equity securities of companies engaged in the real
estate industry. For purposes of the Fund's investment policies, a real estate
company has at least 50% of its assets, income or profits derived from products
or services related to the real estate industry. Real estate companies include
real estate investment trusts and companies with substantial real estate
holdings such as paper, lumber, hotel and entertainment companies. Companies
whose products and services relate to the real estate industry include building
supply manufacturers, mortgage lenders and mortgage servicing companies.
The Fund may invest up to 25% of its assets in securities of foreign real estate
companies. Foreign stocks carry risks that are not generally found in stocks of
U.S. companies. These include the risk that a foreign security could lose value
as a result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
Real estate investment trusts ("REITs") are corporations or business trusts that
are effectively permitted to eliminate corporate level federal income taxes if
they meet certain requirements of the Internal Revenue Code. The Fund focuses on
equity REITs. REITs are characterized as:
o equity REITs, which primarily own property and generate revenue from rental
income;
o mortgage REITs, which invest in real estate mortgages; and
o hybrid REITs, which combine the characteristics of both equity and mortgage
REITs.
Main Risks
Securities of real estate companies are subject to securities market risks as
well as risks similar to those of direct ownership of real estate. These
include:
o declines in the value of real estate
o risks related to general and local economic conditions
o dependency on management skills
o heavy cash flow dependency o possible lack of available mortgage funds
o overbuilding o extended vacancies in properties
o increases in property taxes and operating expenses
o changes in zoning laws
o expenses incurred in the cleanup of environmental problems
o casualty or condemnation losses o changes in interest rates
In addition to the risks listed above, equity REITs are affected by the changes
in the value of the properties owned by the trust. Mortgage REITs are affected
by the quality of the credit extended. Both equity and mortgage REITs:
o are dependent upon management skills and may not be diversified;
o are subject to cash flow dependency and defaults by borrowers; and
o could fail to qualify for tax-free pass-through of income under the Code.
Because of these factors, the value of the securities held by the Fund, and in
turn the net asset value of the shares of the Fund change on a daily basis. The
current share price reflects the activities of individual companies and general
market and economic conditions. In the short term, share prices can fluctuate
dramatically in response to these factors. Because of these fluctuations,
principal values and investment returns vary. As with all mutual funds, the
value of the Fund's assets may rise or fall. If you sell your shares when their
value is less than the price you paid, you will lose money.
Investor Profile
The Fund is generally a suitable investment if you are seeking long-term growth,
want to invest in companies engaged in the real estate industry and are willing
to accept fluctuations in the value of your investment.
The Fund's past performance is not predictive of future performance. The bar
chart and tables provide some indication of the risks of investing in the Fund
by showing changes in the Fund's Class A share performance from year to year.
Annual Total Returns
1998 -13.62
1999 -4.76
The year-to-date return as of March 31, 2000 for Class A shares is 2.50%, for
Class B shares is 2.34% and for Class C shares is 2.37%.
The fund's highest/lowest quarterly returns during this time period were:
Highest 11.00% (6-30-1999)
Lowest -8.25% (9-30-1999)
Average annual total returns for the period ending December 31, 1999
This table shows how the Fund's average annual returns compare with those of a
broad-based securities market index and an index of funds with similar
investment objectives.
<TABLE>
<CAPTION>
Past One Past Five Past One Past FivePast Ten
Year Years Year Years Years
<S> <C> <C> <C> <C> <C>
Class A -9.24% -11.46* Morgan Stanley REIT Index -4.55 7.61 -- %
Class B -9.10 -11.55* Lipper Real Estate Fund Average -3.14 8.38 6.62
Class C -9.70**
<FN>
* Period from December 31, 1997, date shares first offered to the
public, through December 31, 1999.
** Period from June 30, 1999, date Class C shares first offered to the
public, through December 31, 1999.
</FN>
</TABLE>
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $687 $1,128 $1,594 $2,879
Class B 709 1,240 1,788 3,027
Class C 418 966 1,640 3,439
You would pay the following expenses if you did not redeem your shares:
Class A 687 1,128 1,594 2,879
Class B 301 921 1,567 3,027
Class C 316 966 1,640 3,439
Fund Operating Expenses*
Class A Class B Class C
Management Fees**.............. 0.90% 0.90% 0.90%
12b-1 Fees..................... 0.23 0.91 1.00
Other Expenses................. 1.06 1.17 1.23
----- ----- -----
Total Fund Operating Expenses 2.19% 2.98% 3.13%
* Total Fund Operating Expenses for Class A and Class B shares are for
the year ended October 31, 1999. Expenses for Class C shares are for
the period from June 30, 1999 through October 31, 1999.
** The Manager has agreed to waive a portion of its fee for the Fund from
the date operations commenced. The Manager intends to continue the
waiver and, if necessary, pay expenses normally payable by the Fund
through the period ending October 31, 2000. The effect of the waiver
is to reduce the Fund's annual operating expenses. The waiver 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:
1.90% for Class A Shares
2.65% for Class B Shares
2.65% for Class C Shares
Day-to-day Fund Management
Since December 1997 Kelly D. Rush, CFA. Mr. Rush has been with the Principal
(Fund's inception) organization since 1995. He holds an MBA and a BA in Finance
from the University of Iowa. He has earned the right to use
the Chartered Financial Analyst designation.
DOMESTIC GROWTH-ORIENTED FUND
PRINCIPAL SMALLCAP FUND, INC.
The Fund seeks to achieve long-term growth of capital by investing primarily in
equity securities of companies with comparatively smaller market
capitalizations.
Main Strategies
The Fund invests in equity securities of companies in the U.S. with
comparatively smaller market capitalizations. Market capitalization is defined
as total current market value of a company's outstanding common stock. Under
normal market conditions, the Fund invests at least 65% of its assets in
securities of companies with market capitalizations of $1.5 billion or less at
the time of purchase.
In selecting securities for investment, the Sub-Advisor, Invista, looks at
stocks with value and/or growth characteristics. In managing the assets of the
Fund, Invista does not have a policy of preferring one of these categories to
the other. The value orientation emphasizes buying stocks at less than their
investment value and avoiding stocks whose price has been artificially built up.
The growth orientation emphasizes buying stocks of companies whose potential for
growth of capital and earnings is expected to be above average. Selection is
based on fundamental analysis of the company relative to other companies with
the focus being on Invista's estimation of forward looking rates of return.
Main Risks
Investments in companies with smaller market capitalizations may involve greater
risks and price volatility (wide, rapid fluctuations) than investments in
larger, more mature companies. Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become established. While small, unseasoned companies may offer greater
opportunities for capital growth than larger, more established companies, they
also involve greater risks and should be considered speculative.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. The current share price reflects the activities of individual
companies as well as general market and economic conditions. In the short-term,
stock prices can fluctuate dramatically in response to these factors. The Fund's
share price may fluctuate more than that of funds primarily invested in stocks
of mid-sized and large companies and may underperform as compared to the
securities of larger companies. Because of these fluctuations, principal values
and investment returns vary. As with all mutual funds, the value of the Fund's
assets may rise or fall. If you sell your shares when their value is less than
the price you paid, you will lose money.
Investor Profile
The Fund is generally a suitable investment if you are seeking long-term growth
and are willing to accept the potential for volatile fluctuations in the value
of your investment. It is not designed for you if you are seeking income or
conservation of capital.
The Fund's past performance is not predictive of future performance. The bar
chart and tables provide some indication of the risks of investing in the Fund
by showing changes in the Fund's Class A share performance from year to year.
Annual Total Returns
1998 -5.68
1999 43.22
The year-to-date return as of March 31, 2000 for Class A shares is 16.12%, for
Class B shares is 15.93% and for Class C shares is 15.76%.
The fund's highest/lowest quarterly returns during this time period were:
Highest 23.39% (12-31-1999)
Lowest -23.52% (9-30-1998)
Average annual total returns for the period ending December 31, 1999
This table shows how the Fund's average annual returns compare with those of a
broad-based securities market index and an index of funds with similar
investment objectives.
<TABLE>
<CAPTION>
Past One Past Five Past One Past FivePast Ten
Year Years Year Years Years
<S> <C> <C> <C> <C> <C> <C>
Class A 36.49% 13.46* S&P 600 Stock Index 12.40% 17.05% 13.04%
Class B 38.32 13.75* Lipper Small-Cap Core Fund Average(1) 28.43 17.88 13.39
Class C 20.26** --
<FN>
* Period from December 31, 1997, date shares first offered to the
public, through December 31, 1999.
** Period from June 30, 1999, date Class C shares first offered to the
public, through December 31, 1999.
(1) Lipper has discontinued calculation of the Average previously used for
this Fund. This chart reflects information for the discontinued
Average for years prior to 1999. The newly assigned Average will be
reflected for 1999 and beyond.
</FN>
</TABLE>
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $661 $1,049 $1,462 $2,612
Class B 676 1,139 1,620 2,711
Class C 366 808 1,380 2,934
You would pay the following expenses if you did not redeem your shares:
Class A 661 1,049 1,462 2,612
Class B 266 817 1,395 2,711
Class C 263 808 1,380 2,934
Fund Operating Expenses*
Class A Class B Class C
Management Fees**.............. 0.85% 0.85% 0.85%
12b-1 Fees..................... 0.21 0.88 1.00
Other Expenses................. 0.86 0.90 0.75
----- ----- -----
Total Fund Operating Expenses 1.92% 2.63% 2.60%
* Total Fund Operating Expenses for Class A and Class B shares are for
the year ended October 31, 1999. Expenses for Class C shares are for
the period from June 30, 1999 through October 31, 1999.
** The Manager has agreed to waive a portion of its fee for the Fund from
the date operations commenced. The Manager intends to continue the
waiver and, if necessary, pay expenses normally payable by the Fund
through the period ending October 31, 2000. The effect of the waiver
is to reduce the Fund's annual operating expenses. The waiver 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:
1.80% for Class A Shares
2.55% for Class B Shares
2.55% for Class C Shares
Day-to-day Fund Management
Since December 1997 Co-Manager: John F. McClain. Mr. McClain joined Invista
(Fund's inception) Capital Management as a Portfolio Analyst in 1990. He holds
an undergraduate degree in Economics from the University of
Iowa and an MBA from Indiana University.
Since December 1997 Co-Manager: Mark T. Williams, CFA. Mr. Williams joined
(Fund's inception) Invista Capital Management in 1989. He holds an MBA from
Drake University and a BA in Finance from the University of
the State of New York. He has earned the right to use the
Chartered Financial Analyst designation.
DOMESTIC GROWTH-ORIENTED FUND
PRINCIPAL UTILITIES FUND, INC.
The Fund seeks to achieve 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.
Main Strategies
The Fund invests in securities issued by companies in the public utilities
industry. These companies include:
o companies engaged in the manufacture, production, generation, sale or
distribution of electric or gas energy or other types of energy; and
o companies engaged in telecommunications, including telephone, telegraph,
satellite, microwave and other communications media (but not public
broadcasting or cable television).
The Sub-Advisor, Invista, considers a company to be in the public utilities
industry if, at the time of investment, at least 50% of the company's assets,
revenues or profits are derived from one or more of those industries.
Under normal market conditions, at least 65% (and up to 100%) of the assets of
the Fund are invested in equity securities and fixed-income securities in the
public utilities industry. The Fund does not have any policy to concentrate its
assets in any segment of the utilities industry. The portion of Fund assets
invested in equity securities and fixed-income securities varies from time to
time. When determining how to invest the Fund's assets to achieve its investment
objective, Invista considers:
o changes in interest rates;
o prevailing market conditions; and
o general economic and financial conditions.
The Fund invests in fixed-income securities, which at the time of purchase, are
o rated in one of the top four categories by S&P or Moody's; or
o if not rated, in the Manager's opinion are of comparable quality.
Main Risks
Since the Fund's investments are concentrated in the utilities industry, the
value of its shares changes in response to factors affecting those industries.
Many utility companies have been subject to risks of:
o increase in fuel and other operating costs;
o changes in interests rates on borrowings for capital improvement programs;
o changes in applicable laws and regulations;
o changes in technology which render existing plants, equipment or products
obsolete;
o effects of conservation; and
o increased costs and delays associated with environmental regulations.
Generally, the prices charged by utilities are regulated with the intention of
protecting the public while ensuring that utility companies earn a return
sufficient to attract capital to grow and provide appropriate services. However,
due to political and regulatory factors, rate changes ordinarily occur following
a change in financing costs. This delay tends to favorably affect a utility
company's earnings and dividends when costs are decreasing but also adversely
affects earnings and dividends when costs are rising. In addition, the value of
the utility company bond prices rise when interest rates fall and fall when
interest rates rise.
Certain states are adopting deregulation plans. These plans generally allow for
the utility company to set the amount of their earnings without regulatory
approval.
The share price of the Fund may fluctuate more widely than the value of shares
of a fund that invests in a broader range of industries. Because of these
fluctuations, principal values and investment returns vary. As with all mutual
funds, the value of the Fund's assets may rise or fall. If you sell your shares
when their value is less than the price you paid, you will lose money.
Investor Profile
The Fund is generally a suitable investment if you are seeking quarterly
dividends to generate income or to be reinvested for growth, want to invest in
companies in the utilities industry and are willing to accept fluctuations in
the value of your investment.
The Fund's past performance is not predictive of future performance. The bar
chart and tables provide some indication of the risks of investing in the Fund
by showing changes in the Fund's Class A share performance from year to year.
Annual Total Returns
1993 8.42
1994 -11.09
1995 33.87
1996 4.56
1997 29.58
1998 22.50
1999 2.25
The year-to-date return as of March 31, 2000 for Class A shares is 6.50%, for
Class B shares is 6.32% and for Class C shares is 6.12%.
The fund's highest/lowest quarterly returns during this time period were:
Highest 19.24% (12-31-1997)
Lowest -9.00% (3-31-1994)
Average annual total returns for the period ending December 31, 1999
This table shows how the Fund's average annual returns compare with those of a
broad-based securities market index and an index of funds with similar
investment objectives.
<TABLE>
<CAPTION>
Past One Past FivePast Ten Past One Past FivePast Ten
Year Years Years Year Years Years
<S> <C> <C> <C> <C> <C> <C> <C>
Class A -2.56% 16.71% 11.29%* S&P 500 Stock Index 21.04% 17.05% 13.04%
Class B -2.18 16.79 16.69** Dow Jones Utilities Index with
Income Fund Average -5.73 14.74 --
Class C -4.18*** Lipper Utilities Fund Average 15.82 18.70 12.80
<FN>
* Period from December 16, 1992, date Class A shares first offered to
the public, through December 31, 1999.
** Period from December 9, 1994, date Class B shares first offered to the
public, through December 31, 1999. *** Period from June 30, 1999, date
Class C shares first offered to the public, through December 31, 1999.
</FN>
</TABLE>
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $591 $838 $1,103 $1,860
Class B 610 941 1,285 1,989
Class C 330 700 1,200 2,575
You would pay the following expenses if you did not redeem your shares:
Class A 591 838 1,103 1,860
Class B 198 612 1,052 1,989
Class C 227 700 1,200 2,575
Fund Operating Expenses*
Class A Class B Class C
Management Fees................ 0.59% 0.59% 0.59%
12b-1 Fees..................... 0.25 0.90 1.00
Other Expenses................. 0.36 0.46 0.46
----- ----- -----
Total Fund Operating Expenses 1.20% 1.95% 2.05%
* Total Fund Operating Expenses for Class A and Class B shares are for
the year ended October 31, 1999. Expenses for Class C shares are for
the period from June 30, 1999 through October 31, 1999.
Day-to-day Fund Management
Since April 1993 Catherine A. Zaharis, CFA. Ms. Zaharis joined Invista
Capital Management in 1987. She holds a BA in Finance from
the University of Iowa and an MBA from Drake University. She
has earned the right to use the Chartered Financial Analyst
designation.
INTERNATIONAL GROWTH-ORIENTED FUND
PRINCIPAL EUROPEAN EQUITY FUND, INC.
The Fund seeks to achieve growth of capital by investing primarily in equity
securities of companies domiciled or in the opinion of the Sub-Advisor, BT,
having their core business in Europe. The Fund may also invest in other
securities of such companies. The Fund offers an opportunity to invest in a
region with a wide spread of industries and in companies which, in the opinion
of BT, may be undervalued.
Main Strategies
The Fund invests in securities listed on foreign or domestic securities
exchanges, securities traded in foreign or domestic over-the-counter markets and
depositary receipts. Under normal market conditions, the Fund invests at least
65% of its assets in European securities. These include:
o companies organized under the laws of European countries;
o companies for which the principal securities trading market is in a
European country; and
o companies, regardless of where its securities are traded, that derive 50%
or more of their total revenue from either goods or services produced in
European countries or sales made in European countries.
The global equity investment philosophy of BT is to exploit market
inefficiencies that arise from differing interpretations of market information.
As a result, in BT's view, a company's share price does not always represent its
true "business value." BT actively invests in those companies that it believes
have been mispriced by investment markets. In order to exploit these
inefficiencies successfully, BT seeks to enhance investment returns through:
o rigorous proprietary stock research which enables their analysts to
understand the:
o quality of the company;
o nature of its management;
o nature of its industry competition; and
o business valuation - the true "business value" of the company;
o maintaining global coverage within the universe of investment choices; and
o maintaining a medium term focus.
As a result, the Fund's portfolio reflects the opportunities presented by
mispriced companies that offer the potential for strong, long-term investment
returns with an acceptable level of investment risk.
Main Risks
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
The Fund anticipates that its portfolio turnover will typically range from 200%
to 300%. Turnover rates in excess of 100% generally result in higher transaction
costs and a possible increase in short-term capital gains (or losses).
The Fund may invest in securities of companies with small to medium market
capitalizations. While small companies may offer greater opportunities for
capital growth than large, more established companies, they also involve greater
risk and should be considered speculative. Small to mid-sized companies may pose
greater risk due to narrow product lines, limited financial resources, less
depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term. Because of these fluctuations,
principal values and investment returns vary. As with all mutual funds, if you
sell your shares when their value is less than the price you paid, you will lose
money.
Investor Profile
The Fund is generally a suitable investment if you are seeking long-term growth
in markets outside of the U.S. and are willing to accept short-term foreign
stock market fluctuations. The Fund invests for growth and generally does not
pursue income producing securities.
As the inception date of the Fund is May 1, 2000, historical performance data is
not available. Estimated annual Fund operating expenses are as follows:
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $728 $1,254 N/A N/A
Class B 813 1,547 N/A N/A
Class C 510 1,238 N/A N/A
You would pay the following expenses if you did not redeem your shares:
Class A 728 1,254 N/A N/A
Class B 409 1,238 N/A N/A
Class C 409 1,238 N/A N/A
Fund Operating Expenses*
Class A Class B Class C
Management Fees**.............. 0.90% 0.90% 0.90%
12b-1 Fees..................... 0.25 1.00 1.00
Other Expenses................. 1.48 2.17 2.17
----- ----- -----
Total Fund Operating Expenses 2.63% 4.07% 4.07%
* Total Fund Operating Expenses are estimated.
** The Manager has agreed to waive a portion of its fee for the Fund from
the date operations commenced. The Manager intends to continue the
waiver and, if necessary, pay expenses normally payable by the Fund
through the period ending October 31, 2000. The effect of the waiver
is to reduce the Fund's annual operating expenses. The waiver 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:
2.50% for Class A Shares
3.25% for Class B Shares
3.25% for Class C Shares
Day-to-day Fund Management
Since May 1, 2000 Crispin Murray, Executive Vice President, BT Funds
(Fund's inception) Management Limited. Mr. Murray joined BT in 1994. Prior to
joining the firm, he was a bond and currency analyst for
Equitable Life Assurance Society in the United Kingdom. He
holds an Honour degree in Economics and Human Geography from
Reading University in the United Kingdom.
INTERNATIONAL GROWTH-ORIENTED FUND
PRINCIPAL INTERNATIONAL EMERGING MARKETS FUND, INC.
The Fund seeks to achieve long-term growth of capital by investing primarily in
equity securities of issuers in emerging market countries.
Main Strategies
The Fund seeks to achieve its objective by investing in common stocks of
companies in emerging market countries. For this Fund, the term "emerging market
country" means any country which is considered to be an emerging country by the
international financial community (including the International Bank for
Reconstruction and Development (also known as the World Bank) and the
International Financial Corporation). These countries generally include every
nation in the world except the United States, Canada, Japan, Australia, New
Zealand and most nations located in Western Europe. Investing in many emerging
market countries is not feasible or may involve unacceptable political risk.
Invista, the Sub-Advisor, focuses on those emerging market countries that it
believes have strongly developing economies and markets which are becoming more
sophisticated.
Under normal conditions, at least 65% of the Fund's assets are invested in
emerging market country equity securities. The Fund invests in securities of:
o companies with their principal place of business or principal office in
emerging market countries;
o companies for which the principal securities trading market is an emerging
market country; or
o companies, regardless of where its securities are traded, that derive 50%
or more of their total revenue from either goods or services produced in
emerging market countries or sales made in emerging market countries.
Main Risks
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
Investments in emerging market countries involve special risks. Certain emerging
market countries have historically experienced, and may continue to experience,
certain economic problems. These may include: high rates of inflation, high
interest rates, exchange rate fluctuations, large amounts of debt, balance of
payments and trade difficulties, and extreme poverty and unemployment.
Under unusual market or economic conditions, the Fund may invest in the same
kinds of securities as the other Growth-Oriented Funds. These include securities
issued by domestic or foreign corporations, governments or governmental
agencies, instrumentalities or political subdivisions. The securities may be
denominated in U.S. dollars or other currencies.
Because the values of the Fund's assets are likely to rise or fall dramatically,
if you sell your shares when their value is less than the price you paid, you
will lose money.
Investor Profile
The Fund is generally a suitable investment if you are seeking long-term growth
and want to invest a portion of your assets in securities of companies in
emerging market countries. This Fund is not an appropriate investment if you are
seeking either preservation of capital or high current income. You must be able
to assume the increased risks of higher price volatility and currency
fluctuations associated with investments in international stocks which trade in
non-U.S. currencies.
The Fund's past performance is not predictive of future performance. The bar
chart and tables provide some indication of the risks of investing in the Fund
by showing changes in the Fund's Class A share performance from year to year.
Annual Total Returns
1998 -17.42
1999 67.20
The year-to-date return as of March 31, 2000 for Class A shares is 7.07%, for
Class B shares is 6.97% and for Class C shares is 6.73%.
The fund's highest/lowest quarterly returns during this time period were:
Highest 38.24% (12-31-1999)
Lowest -18.97% (9-30-1998)
Average annual total returns for the period ending December 31, 1999
This table shows how the Fund's average annual returns compare with those of a
broad-based securities market index and an index of funds with similar
investment objectives.
<TABLE>
<CAPTION>
Past One Past Five Past One Past FivePast Ten
Year Years Year Years Years
<S> <C> <C> <C> <C> <C> <C>
Class A 59.34% 6.96%* Morgan Stanley Capital International EMF
Class B 62.02 7.03* (Emerging Markets Free) Index 66.41% 2.00% 11.04%
Class C 25.40** Lipper Emerging Markets Fund Average 70.77 5.11 7.47
<FN>
* Period from August 29, 1997, date shares first offered to the public,
through December 31, 1999.
** Period from June 30, 1999, date Class C shares first offered to the
public, through December 31, 1999.
</FN>
</TABLE>
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $740 $1,288 $1,860 $3,409
Class B 765 1,407 2,065 3,586
Class C 456 1,080 1,826 3,792
You would pay the following expenses if you did not redeem your shares:
Class A 740 1,288 1,860 3,409
Class B 360 1,094 1,850 3,586
Class C 355 1,080 1,826 3,792
Fund Operating Expenses*
Class A Class B Class C
Management Fees**.............. 1.25% 1.25% 1.25%
12b-1 Fees..................... 0.17 0.93 1.00
Other Expenses................. 1.33 1.39 1.27
----- ----- -----
Total Fund Operating Expenses 2.75% 3.57% 3.52%
* Total Fund Operating Expenses for Class A and Class B shares are for
the year ended October 31, 1999. Expenses for Class C shares are for
the period from June 30, 1999 through October 31, 1999.
** The Manager has agreed to waive a portion of its fee for the Fund. The
Manager intends to continue the waiver and, if necessary, pay expenses
normally payable by the Fund through the period ending October 31,
2000. The effect of the waiver is to reduce the Fund's annual
operating expenses. The waiver 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:
2.50% for Class A Shares
3.25% for Class B Shares
3.25% for Class C Shares
Day-to-day Fund Management
Since May 1997 Kurtis D. Spieler, CFA. Mr. Spieler joined Invista Capital
(Fund's inception) Management in 1995. He holds an MBA from Drake University
and a BBA from Iowa State University. He has earned the
right to use the Chartered Financial Analyst designation.
INTERNATIONAL GROWTH-ORIENTED FUND
PRINCIPAL INTERNATIONAL FUND, INC.
The Fund seeks to achieve long-term growth of capital by investing in a
portfolio of equity securities of companies domiciled in any of the nations of
the world.
Main Strategies The Fund invests in securities of:
o companies with their principal place of business or principal office
outside the U.S.;
o companies for which the principal securities trading market is outside the
U.S.; and
o companies, regardless of where its securities are traded, that derive 50%
or more of their total revenue from goods or services produced or sales
made outside the U.S.
The Fund has no limitation on the percentage of assets that are invested in any
one country or denominated in any one currency. However under normal market
conditions, the Fund intends to have at least 65% of its assets invested in
companies in at least three different countries. One of those countries may be
the U.S. though currently the Fund does not intend to invest in equity
securities of U.S. companies.
Investments may be made anywhere in the world. Primary consideration is given to
securities of corporations of Western Europe, North America and Australasia
(Australia, Japan and Far East Asia). Changes in investments are made as
prospects change for particular countries, industries or companies.
In choosing investments for the Fund, the Sub-Advisor, Invista, pays particular
attention to the long-term earnings prospects of the various companies under
consideration. Invista then weighs those prospects relative to the price of the
security.
Main Risks
The values of the stocks owned by the Fund change on a daily basis. Stock prices
reflect the activities of individual companies as well as general market and
economic conditions. In the short term, stock prices and currencies can
fluctuate dramatically in response to these factors. In addition, there are
risks involved with any investment in foreign securities that are not generally
found in stocks of U.S. companies. These include the risk that a foreign
security could lose value as a result of political, financial and economic
events in foreign countries. In addition, foreign securities may be subject to
securities regulators with less stringent accounting and disclosure standards
than are required of U.S. companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
Under unusual market or economic conditions, the Fund may invest in the same
kinds of securities as the other Growth-Oriented Funds. These include securities
issued by domestic or foreign corporations, governments or governmental
agencies, instrumentalities or political subdivisions. The securities may be
denominated in U.S. dollars or other currencies.
As with all mutual funds, the value of the Fund's assets may rise or fall. If
you sell your shares when their value is less than the price you paid, you will
lose money.
Investor Profile
The Fund is generally a suitable investment if you are seeking long-term growth
and want to invest in non-U.S. companies. This Fund is not an appropriate
investment if you are seeking either preservation of capital or high current
income. You must be able to assume the increased risks of higher price
volatility and currency fluctuations associated with investments in
international stocks which trade in non-U.S. currencies.
The Fund's past performance is not predictive of future performance. The bar
chart and tables provide some indication of the risks of investing in the Fund
by showing changes in the Fund's Class A share performance from year to year.
Annual Total Returns
1990 -9.51
1991 15.25
1992 0.81
1993 46.34
1994 -5.26
1995 11.56
1996 23.76
1997 12.22
1998 8.48
1999 25.82
The year-to-date return as of March 31, 2000 for Class A shares is 3.04%, for
Class B shares is 2.84% and for Class C shares is 2.72%.
The fund's highest/lowest quarterly returns during this time period were:
Highest 16.78% (12-31-1999)
Lowest -18.37% (9-30-1990)
Average annual total returns for the period ending December 31, 1999
This table shows how the Fund's average annual returns compare with those of a
broad-based securities market index and an index of funds with similar
investment objectives.
<TABLE>
<CAPTION>
Past One Past FivePast Ten Past One Past FivePast Ten
Year Years Years Year Years Years
<S> <C> <C> <C> <C> <C> <C>
Class A 19.91% 15.05% 11.38% Morgan Stanley Capital International EAFE
Class B 21.08 15.13 15.30* (Europe, Australia and Far East) Index 26.96% 12.83% 7.01%
Class C 18.48** Lipper International Fund Average 40.80 15.37 10.54
<FN>
* Period from December 9, 1994, date Class B shares first offered to the
public, through December 31, 1999.
** Period from June 30, 1999, date Class C shares first offered to the
public, through December 31, 1999.
</FN>
</TABLE>
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $593 $844 $1,113 $1,882
Class B 605 926 1,259 1,962
Class C 344 742 1,270 2,716
You would pay the following expenses if you did not redeem your shares:
Class A 593 844 1,113 1,882
Class B 193 597 1,026 1,962
Class C 241 742 1,270 2,716
Fund Operating Expenses*
Class A Class B Class C
Management Fees................ 0.68% 0.68% 0.68%
12b-1 Fees..................... 0.21 0.79 1.00
Other Expenses................. 0.33 0.43 0.70
----- ----- -----
Total Fund Operating Expenses 1.22% 1.90% 2.38%
* Total Fund Operating Expenses for Class A and Class B shares are for
the year ended October 31, 1999. Expenses for Class C shares are for
the period from June 30, 1999 through October 31, 1999.
Day-to-day Fund Management
Since April 1994 Co-Manager: 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.
Since March 2000 Co-Manager: Kurtis D. Spieler, CFA. Mr. Spieler joined
Invista Capital Management in 1995. He holds an MBA from
Drake University and a BBA from Iowa State University. He
has earned the right to use the Chartered Financial Analyst
designation.
INTERNATIONAL GROWTH-ORIENTED FUND
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
The Fund seeks to achieve long-term growth of capital by investing primarily in
equity securities of non-U.S. companies with comparatively smaller market
capitalizations.
Main Strategies The Fund invests in securities of:
o companies with their principal place of business or principal office
outside the U.S.;
o companies for which the principal securities trading market is outside the
U.S.; and
o companies, regardless of where its securities are traded, that derive 50%
or more of their total revenue from goods or services produced or sales
made outside the U.S.
Under normal market conditions, the Fund invests at least 65% of its assets in
securities of companies having market capitalizations of $1.5 billion or less at
the time of purchase. Market capitalization is defined as total current market
value of a company's outstanding common stock.
The Fund diversifies its investments geographically. There is no limitation on
the percentage of assets that may be invested in one country or denominated in
any one currency. However, under normal market circumstances, the Fund intends
to invest at least 65% of its assets in securities of companies of at least
three countries.
Main Risks
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
Investments in companies with smaller market capitalizations may involve greater
risks and price volatility (wide, rapid fluctuations) than investments in
larger, more mature companies. Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become established. While small, unseasoned companies may offer greater
opportunities for capital growth than larger, more established companies, they
also involve greater risks and should be considered speculative.
As with all mutual funds, the value of the Fund's assets may rise or fall. If
you sell your shares when their value is less than the price you paid, you will
lose money.
Investor Profile
This Fund is not an appropriate investment if you are seeking either
preservation of capital or high current income. You must be able to assume the
increased risks of higher price volatility and currency fluctuations associated
with investments in international stocks which trade in non-U.S. currencies. The
Fund is generally a suitable investment if you are seeking long-term growth and
want to invest a portion of your assets in smaller, non-U.S. companies.
The Fund's past performance is not predictive of future performance. The bar
chart and tables provide some indication of the risks of investing in the Fund
by showing changes in the Fund's Class A share performance from year to year.
Annual Total Returns
1998 14.40
1999 84.72
The year-to-date return as of March 31, 2000 for Class A shares is 16.35%, for
Class B shares is 16.15% and for Class C shares is 16.04%.
The fund's highest/lowest quarterly returns during this time period were:
Highest 36.96% (12-31-1999)
Lowest -19.84% (9-30-1998)
Average annual total returns for the period ending December 31, 1999
This table shows how the Fund's average annual returns compare with those of a
broad-based securities market index and an index of funds with similar
investment objectives.
<TABLE>
<CAPTION>
Past One Past Five Past One Past FivePast Ten
Year Years Year Years Years
<S> <C> <C> <C> <C> <C>
Class A 76.04% 33.94%* Morgan Stanley Capital International EAFE
Class B 79.65 34.99* (Europe, Australia and Far East) Index 26.96% 12.83% 7.01%
Class C 56.03** Lipper International Small-Cap Fund Average 75.41 19.91 13.04
<FN>
* Period from August 29, 1997, date shares first offered to the public,
through December 31, 1999.
** Period from June 30, 1999, date Class C shares first offered to the
public, through December 31, 1999.
</FN>
</TABLE>
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $688 $1,113 $1,603 $2,898
Class B 699 1,208 1,736 2,966
Class C 401 915 1,557 3,280
You would pay the following expenses if you did not redeem your shares:
Class A 688 1,113 1,603 2,898
Class B 290 889 1,513 2,966
Class C 299 915 1,557 3,280
Fund Operating Expenses*
Class A Class B Class C
Management Fees................ 1.20% 1.20% 1.20%
12b-1 Fees..................... 0.21 0.91 1.00
Other Expenses................. 0.80 0.76 0.76
----- ----- -----
Total Fund Operating Expenses 2.21% 2.87% 2.96%
* Total Fund Operating Expenses for Class A and Class B shares are for
the year ended October 31, 1999. Expenses for Class C shares are for
the period from June 30, 1999 through October 31, 1999.
Day-to-day Fund Management
Since March 2000 Co-Manager: Dan J. Sherman, CFA. Mr. Sherman joined Invista
Capital Management in 1998. Prior to joining the firm, he
led a regional research team for Salomon Smith Barney. He
holds an MBA from the University of Wisconsin. He has earned
the right to use the Chartered Financial Analyst
designation.
Since May 1997 Co-Manager: Darren K. Sleister, CFA. Mr. Sleister joined
(Fund's inception) Invista Capital Management as a Portfolio Strategist in
1993. He holds an MBA from the University of Iowa, and an
undergraduate degree from Central College. He has earned the
right to use the Chartered Financial Analyst designation.
INTERNATIONAL GROWTH-ORIENTED FUND
PRINCIPAL PACIFIC BASIN FUND, INC.
The Fund seeks to achieve growth of capital. It invests primarily in equity
securities (or other securities with equity characteristics) of issuers located
in the Pacific Basin region, including Japan.
Main Strategies
The Fund invests in securities listed on foreign or domestic securities
exchanges, securities traded in foreign or domestic over-the-counter markets and
depositary receipts. Under normal market conditions, the Fund invests at least
65% of its assets in such securities. The Fund's investments are generally
diversified among securities of issuers of several Pacific Basin countries,
which include but are not limited to: Australia, China, Hong Kong, India,
Indonesia, Japan, Malaysia, New Zealand, Singapore, Sri Lanka, South Korea,
Thailand, Taiwan and Vietnam. These include:
o companies organized under the laws of Pacific Basin countries;
o companies for which the principal securities trading market is in a Pacific
Basin country; and
o companies, regardless of where its securities are traded, that derive 50%
or more of their total revenue from either goods or services produced in
Pacific Basin countries or sales made in Pacific Basin countries.
Under normal market conditions, the Fund intends to have at least 65% of its
assets invested in companies in Pacific Basin countries and may have a
significant portion of its assets invested in securities of issuers in Japan.
Criteria for determining the distribution of investments include the prospects
for relative growth among foreign countries, expected levels of inflation,
government policies influencing business conditions and the range of
opportunities available to international investors.
The global equity investment philosophy of BT, the Sub-Advisor, is to exploit
market inefficiencies that arise from differing interpretations of market
information. As a result, in BT's view, a company's share price does not always
represent its true "business value." BT actively invests in those companies that
it believes have been mispriced by investment markets. In order to exploit these
inefficiencies successfully, BT seeks to enhance investment returns through:
o rigorous proprietary stock research which enables their analysts to
understand the:
o quality of the company;
o nature of its management;
o nature of its industry competition; and
o business valuation - the true "business value" of the company;
o maintaining global coverage within the universe of investment choices; and
o maintaining a medium term focus.
As a result, the Fund's portfolio reflects the opportunities presented by
mispriced companies that offer the potential for strong, long-term investment
returns with an acceptable level of investment risk.
Main Risks
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
The Fund anticipates that its portfolio turnover will typically range from 200%
to 300%. Turnover rates in excess of 100% generally result in higher transaction
costs and a possible increase in short-term capital gains (or losses).
To the extent that the assets of the Fund are concentrated in securities of
issuers in Japan, the value of the shares of the Fund may be more susceptible to
a single economic, political or regulatory occurrence than shares of a Fund less
concentrated in a single country.
In addition, the Fund may invest in securities of companies with small to medium
market capitalizations. While small companies may offer greater opportunities
for capital growth than large, more established companies, they also involve
greater risk and should be considered speculative. Small to mid-sized companies
may pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term. Because of these fluctuations,
principal values and investment returns vary. As with all mutual funds, if you
sell your shares when their value is less than the price you paid, you will lose
money.
Investor Profile
The Fund is generally a suitable investment if you are seeking long-term growth
in markets outside of the U.S. and are willing to accept short-term foreign
stock market fluctuations. The Fund invests for growth and generally does not
pursue income producing securities.
As the inception date of the Fund is May 1, 2000, historical performance data is
not available. Estimated annual Fund operating expenses are as follows:
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $747 $1,310 N/A N/A
Class B 831 1,602 N/A N/A
Class C 529 1,295 N/A N/A
You would pay the following expenses if you did not redeem your shares:
Class A 747 1,310 N/A N/A
Class B 429 1,295 N/A N/A
Class C 429 1,295 N/A N/A
Fund Operating Expenses*
Class A Class B Class C
Management Fees**.............. 1.10% 1.10% 1.10%
12b-1 Fees..................... 0.25 1.00 1.00
Other Expenses................. 1.48 2.17 2.17
----- ----- -----
Total Fund Operating Expenses 2.83% 4.27% 4.27%
* Total Fund Operating Expenses are estimated.
** The Manager has agreed to waive a portion of its fee for the Fund. The
Manager intends to continue the waiver and, if necessary, pay expenses
normally payable by the Fund through the period ending October 31,
2000. The effect of the waiver is to reduce the Fund's annual
operating expenses. The waiver 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:
2.50% for Class A Shares
3.25% for Class B Shares
3.25% for Class C Shares
Day-to-day Fund Management
Since May 1, 2000 Dean Cashman, Executive Vice President, BT Funds Management
(Fund's inception) Limited. Mr. Cashman joined BT in 1988. He holds a Bachelor
of Economics from the University of Queensland.
INCOME-ORIENTED FUND
PRINCIPAL BOND FUND, INC.
The Fund seeks to provide as high a level of income as is consistent with
preservation of capital and prudent investment risk.
Main Strategies
The Fund invests in fixed-income securities. Generally, the Fund invests on a
long-term basis but may make short-term investments. Longer maturities typically
provide better yields but expose the Fund to the possibility of changes in the
values of its securities as interest rates change. Generally, when interest
rates fall, the price per share rises, and when rates rise, the price per share
declines.
Under normal circumstances, the Fund invests at least 65% of its assets in:
o debt securities and taxable municipal bonds;
o rated, at the time of purchase, in one of the top four categories by
S&P or Moody's; or
o if not rated, in the Manager's opinion are of comparable quality.
o similar Canadian, Provincial or Federal Government securities payable in
U.S. dollars; and
o securities issued or guaranteed by the U.S. Government or its agencies.
The rest of the Fund's assets may be invested in securities that may be
convertible (may be exchanged for a fixed number of shares of common stock of
the same issuer) or non-convertible including:
o domestic and foreign debt securities;
o preferred and common stock;
o foreign government securities; and
o securities rated less than the four highest grades of S&P or Moody's but
not lower BB- (S&P) or Ba3 (Moody's). Fixed income securities that are not
investment grade are commonly referred to as junk bonds or high yield
securities. These securities offer a potentially higher yield than other,
higher rated securities, but they carry a greater degree of risk and are
considered speculative by the major credit rating agencies.
During the fiscal year ended October 31, 1999, the average ratings of this
Fund's assets based on market value at each month-end, were as follows (all
ratings are by Moody's):
Aaa 0.05%
Aa 2.90%
A 21.87%
Baa 66.12%
Ba 9.06%
Under unusual market or economic conditions, the Fund may invest up to 100% of
its assets in cash and cash equivalents.
Main Risks
When interest rates fall, the price of a bond rises and when interest rates
rise, the price declines. In addition, the value of securities held by the Fund
may be affected by factors such as credit rating of the entity that issued the
bond and effective maturities of the bond. Lower quality and longer maturity
bonds will be subject to greater credit risk and price fluctuations than higher
quality and shorter maturity bonds.
Investor Profile
The Fund is generally a suitable investment if you are seeking monthly dividends
to produce income or to be reinvested in additional Fund shares to help achieve
modest growth objectives without accepting the risks of investing in common
stocks. As with all mutual funds, if you sell your shares when their value is
less than the price you paid, you will lose money.
The Fund's past performance is not predictive of future performance. The bar
chart and tables provide some indication of the risks of investing in the Fund
by showing changes in the Fund's Class A share performance from year to year.
Annual Total Returns
1990 4.64
1991 17.45
1992 8.61
1993 12.77
1994 -4.35
1995 22.28
1996 2.27
1997 10.96
1998 7.14
1999 -3.04
The year-to-date return as of March 31, 2000 for Class A shares is 0.77%, for
Class B shares is 0.58% and for Class C shares is 0.47%.
The fund's highest/lowest quarterly returns during this time period were:
Highest 8.54% (6-30-1995)
Lowest -4.06% (3-31-1994)
Average annual total returns for th eperiod ending December 31, 1999
This table shows how the Fund's average annual returns compare with those of a
broad-based securities market index and an index of funds with similar
investment objectives.
<TABLE>
<CAPTION>
Past One Past FivePast Ten Past One Past FivePast Ten
Year Years Years Year Years Years
<S> <C> <C> <C> <C> <C> <C>
Class A -7.60% 6.56% 7.06% Lehman Brothers BAA Corporate Index -0.82% 8.49% 8.48%
Class B -7.43 6.48 6.57* Lipper Corporate Debt BBB Rated Fund Average -1.68 7.71 8.01
Class C -1.75**
<FN>
* Period from December 9, 1994, date Class B shares first offered to the
public, through December 31, 1999.
** Period from June 30, 1999, date Class C shares first offered to the
public, through December 31, 1999.
</FN>
</TABLE>
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $576 $790 $1,022 $1,686
Class B 595 893 1,204 1,815
Class C 290 579 995 2,159
You would pay the following expenses if you did not redeem your shares:
Class A 576 790 1,022 1,686
Class B 182 563 970 1,815
Class C 187 579 995 2,159
Fund Operating Expenses*
Class A Class B Class C
Management Fees................ 0.48% 0.48% 0.48%
12b-1 Fees..................... 0.26 0.92 1.00
Other Expenses................. 0.30 0.39 0.36
----- ----- -----
Total Fund Operating Expenses 1.04% 1.79% 1.84%
* Total Fund Operating Expenses for Class A and Class B shares are for
the year ended October 31, 1999. Expenses for Class C shares are for
the period from June 30, 1999 through October 31, 1999.
Day-to-day Fund Management
Since November 1996 Scott A. Bennett, CFA. Mr. Bennett has been with the
Principal organization since 1988. He holds an MBA and a BA
from the University of Iowa. He has earned the right to use
the Chartered Financial Analyst designation.
INCOME-ORIENTED FUND
PRINCIPAL GOVERNMENT SECURITIES INCOME FUND, INC.
The 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. The guarantees by the United States Government extends only to
principal and interest. There are certain risks unique to GNMA Certificates.
Main Strategies
The Fund invests in U.S. Government securities, which include obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities. The
Fund may invest in securities supported by:
o full faith and credit of the U.S. Government (e.g. GNMA certificates); or
o credit of the instrumentality (e.g. bonds issued by the Federal Home Loan
Bank).
In addition, the Fund may invest in money market instruments.
The Fund invests in modified pass-through GNMA Certificates. GNMA Certificates
are mortgage-backed securities representing an interest in a pool of mortgage
loans. Various lenders make the loans which are then insured (by the Federal
Housing Administration) or loans which are guaranteed (by Veterans
Administration or Farmers Home Administration). The lender or other security
issuer creates a pool of mortgages which it submits to GNMA for approval.
Owners of modified pass-through Certificates receive all interest and principal
payments owed on the mortgages in the pool, regardless of whether or not the
mortgagor has made the payment. Timely payment of interest and principal is
guaranteed by the full faith and credit of the U.S. Government.
Main Risks
Although some of the securities the Fund purchases are backed by the U.S.
government and its agencies, shares of the Fund are not guaranteed. When
interest rates fall, the value of the Fund's shares rises, and when rates rise,
the value declines. Because of the fluctuation in values of the Fund's shares,
if you sell your shares when their value is less than the price you paid, you
will lose money.
U.S. Government securities do not involve the degree of credit risk associated
with investments in lower quality fixed-income securities. As a result, the
yields available from U.S. Government securities are generally lower than the
yields available from many other fixed-income securities. Like other
fixed-income securities, the values of U.S. Government securities change as
interest rates fluctuate. Fluctuations in the value of the Fund's securities do
not effect interest income on securities already held by the Fund, but are
reflected in the Fund's price per share. Since the magnitude of these
fluctuations generally are greater at times when the Fund's average maturity is
longer, under certain market conditions the Fund may invest in short-term
investments yielding lower current income rather than investing in higher
yielding longer term securities.
Mortgage-backed securities are subject to prepayment risk. Prepayments,
unscheduled principal payments, may result from voluntary prepayment,
refinancing or foreclosure of the underlying mortgage. When interest rates
decline, significant unscheduled prepayments may result. These prepayments must
then be reinvested at lower rates. Prepayments may also shorten the effective
maturities of these securities, especially during periods of declining interest
rates. On the other hand, during periods of rising interest rates, a reduction
in prepayments may increase the effective maturities of these securities,
subjecting them to the risk of decline in market value in response to rising
interest and potentially increasing the volatility of the fund.
In addition, prepayments may cause losses on securities purchased at a premium
(dollar amount by which the price of the bond exceeds its face value). At times,
mortgage-backed securities may have higher than market interest rates and are
purchased at a premium. Unscheduled prepayments are made at par and cause the
Fund to experience a loss of some or all of the premium.
Investor Profile
The Fund is generally a suitable investment if you want monthly dividends to
provide income or to be reinvested in additional Fund shares to produce growth
and prefer to have the repayment of principal and interest on most of the
securities in which the Fund invests to be backed by the U.S. Government or its
agencies.
The Fund's past performance is not predictive of future performance. The bar
chart and tables provide some indication of the risks of investing in the Fund
by showing changes in the Fund's Class A share performance from year to year.
Annual Total Returns
1990 9.52
1991 16.83
1992 6.13
1993 9.16
1994 -4.89
1995 19.19
1996 3.85
1997 9.69
1998 7.19
1999 0.01
The year-to-date return as of March 31, 2000 for Class A shares is 1.83%, for
Class B shares is 1.65% and for Class C shares is 1.62%.
The fund's highest/lowest quarterly returns during this time period were:
Highest 6.38% (6-30-1995)
Lowest -4.38% (3-31-1994)
Average annual total returns for the period ending December 31, 1999
This table shows how the Fund's average annual returns compare with those of a
broad-based securities market index and an index of funds with similar
investment objectives.
<TABLE>
<CAPTION>
Past One Past FivePast Ten Past One Past FivePast Ten
Year Years Years Year Years Years
<S> <C> <C> <C> <C> <C> <C>
Class A -4.69% 6.76% 6.94% Lehman Brothers GNMA Index 1.93% 8.08% 7.87%
Class B -4.50 6.72 6.95* Lipper GNMA Fund Average 0.11 7.03 7.02
Class C -0.48**
<FN>
* Period from December 9, 1994, date Class B shares first offered to the
public, through December 31, 1999.
** Period from June 30, 1999, date Class C shares first offered to the
public, through December 31, 1999.
</FN>
</TABLE>
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $562 $745 $ 945 $1,519
Class B 579 846 1,123 1,642
Class C 279 545 939 2,041
You would pay the following expenses if you did not redeem your shares:
Class A 562 745 945 1,519
Class B 166 514 887 1,642
Class C 176 545 939 2,041
Fund Operating Expenses*
Class A Class B Class C
Management Fees................ 0.45% 0.45% 0.45%
12b-1 Fees..................... 0.22 0.89 1.00
Other Expenses................. 0.22 0.29 0.28
----- ----- -----
Total Fund Operating Expenses 0.89% 1.63% 1.73%
* Total Fund Operating Expenses for Class A and Class B shares are for
the year ended October 31, 1999. Expenses for Class C shares are for
the period from June 30, 1999 through October 31, 1999.
Day-to-day Fund Management
Since May 1985 Martin J. Schafer. Mr. Schafer joined the Principal in 1977
(Fund's inception) and has broad experience in residential mortgage related
securities. He served as Director of Investment Securities
at the Principal prior to joining Invista Capital Management
in 1992. He holds a BBA in Accounting and Finance from the
University of Iowa.
INCOME-ORIENTED FUND
PRINCIPAL HIGH YIELD FUND, INC.
The Fund seeks high current income primarily by purchasing high yielding, lower
or non-rated fixed-income securities which are believed not to involve undue
risk to income or principal. Capital growth is a secondary objective when
consistent with the objective of high current income.
Main Strategies
The Fund invests in high yield, lower or unrated fixed-income securities.
Fixed-income securities that are commonly known as "junk bonds" or high yield
securities. These securities offer a higher yield than other, higher rated
securities, but they carry a greater degree of risk and are considered to be
speculative with respect to the issuer's ability to pay interest and repay
principal.
The Fund invests its assets in securities rated Ba1 or lower by Moody's or BB+
or lower by S&P. The Fund may also invest in unrated securities which the
Manager believes to be of comparable quality. The Fund does not invest in
securities rated below Caa (Moody's) or below CCC (S&P) at the time of purchase.
The SAI contains descriptions of the securities rating categories.
During the fiscal year ended October 31, 1999, the average ratings of the Fund's
assets, based on market value at each month-end, were as follows (all ratings
are by Moody's):
0.74% in securities rated A 50.07% in securities rated B
2.62% in securities rated Baa 2.64% in securities rated C
43.83% in securities rated Ba 0.10% in securities rated D
The above percentage for securities rated Ba includes 2.89% of unrated
securities and securities rated B includes 2.52% of unrated securities which
have been determined by the Manager to be of comparable quality.
Main Risks
Investors assume special risks when investing in the Fund. Compared to higher
rated securities, lower rated securities may:
o have a more volatile market value, generally reflecting specific events
affecting the issuer;
o be subject to greater risk of loss of income and principal (issuers are
generally not as financially secure);
o have a lower volume of trading, making it more difficult to value or sell
the security; and
o be more susceptible to a change in value or liquidity based on adverse
publicity and investor perception, whether or not based on factual
analysis.
The market for higher-yielding, lower-rated securities has not been tested by an
economic recession. An economic downturn may severely disrupt the market for
these securities. This could cause financial stress to the issuer negatively
affecting the issuer's ability to pay principal and interest. This may also
negatively affect the value of the Fund's securities. In addition, if an issuer
defaults the Fund may have additional expenses if it tries to recover the
amounts due it.
Some securities the Fund buys have call provisions. A call provision allows the
issuer of the security to redeem it before its maturity date. If a bond is
called in a declining interest rate market, the Fund would have to replace it
with a lower yielding security. This results in a decreased return for
investors. In addition, in a rising interest rate market, a higher yielding
security's value decreases. This is reflected in a lower share price for the
Fund.
The Fund tries to minimize the risks of investing in lower rated securities by
diversification, investment analysis and attention to current developments in
interest rates and economics conditions. Although the Fund's Manager considers
securities ratings when making investment decisions, it performs its own
investment analysis. This analysis includes traditional security analysis
considerations such as:
o experience and managerial strength
o changing financial condition
o borrowing requirements or debt maturity schedules
o responsiveness to changes in business conditions
o relative value based on anticipated cash flow
o earnings prospects
The Manager continuously monitors the issuers of the Fund's securities to
determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments. It also monitors each security to
assure the security's liquidity so the Fund can meet requests for sales of Fund
shares.
For defensive purposes, the Fund may invest in other securities. During periods
of adverse market conditions, the Fund may invest in all types of money market
instruments, higher rated fixed-income securities or any other fixed-income
securities consistent with the temporary defensive strategy. The yield to
maturity on these securities is generally lower than the yield to maturity on
lower rated fixed-income securities.
Investor Profile
The Fund is generally a suitable investment if you are seeking monthly dividends
to provide income or to be reinvested in Fund shares for growth. However, it is
suitable only for that portion of your investments for which you are willing to
accept potentially greater risk. You should carefully consider your ability to
assume the risks of this Fund before making an investment and be prepared to
maintain your investment in the Fund during periods of adverse market
conditions. This Fund should not be relied on to meet short-term financial
needs. As with all mutual funds, the value of the Fund's assets may rise or
fall. If you sell your shares when their value is less than the price you paid,
you will lose money.
The Fund's past performance is not predictive of future performance. The bar
chart and tables provide some indication of the risks of investing in the Fund
by showing changes in the Fund's Class A share performance from year to year.
Annual Total Returns
1990 -11.66
1991 28.74
1992 13.09
1993 12.10
1994 -0.65
1995 15.61
1996 12.54
1997 9.68
1998 -1.28
1999 0.97
The year-to-date return as of March 31, 2000 for Class A shares is -4.29%, for
Class B shares is -4.52% and for Class C shares is -4.77%.
The fund's highest/lowest quarterly returns during this time period were:
Highest 9.75% (3-31-1991)
Lowest -6.52% (9-30-1998)
Average annual total returns for the period ending December 31, 1999
This table shows how the Fund's average annual returns compare with those of a
broad-based securities market index and an index of funds with similar
investment objectives.
<TABLE>
<CAPTION>
Past One Past FivePast Ten Past One Past FivePast Ten
Year Years Years Year Years Years
<S> <C> <C> <C> <C> <C> <C>
Class A -3.77% 6.27% 6.86% Lehman Brothers High Yield Composite Bond Index 2.39% 9.31% 10.72%
Class B -3.46 6.07 6.28* Lipper High Current Yield Fund Average 4.53 8.89 10.08
Class C -0.79**
<FN>
* Period from December 9, 1994, date Class B shares first offered to the
public, through December 31, 1999.
** Period from June 30, 1999, date Class C shares first offered to the
public, through December 31, 1999.
</FN>
</TABLE>
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $602 $870 $1,159 $1,979
Class B 614 952 1,305 2,059
Class C 307 630 1,083 2,338
You would pay the following expenses if you did not redeem your shares:
Class A 602 870 1,159 1,979
Class B 202 624 1,073 2,059
Class C 204 630 1,083 2,338
Fund Operating Expenses*
Class A Class B Class C
Management Fees................ 0.60% 0.60% 0.60%
12b-1 Fees..................... 0.24 0.80 1.00
Other Expenses................. 0.47 0.59 0.41
----- ----- -----
Total Fund Operating Expenses 1.31% 1.99% 2.01%
* Total Fund Operating Expenses for Class A and Class B shares are for
the year ended October 31, 1999. Expenses for Class C shares are for
the period from June 30, 1999 through October 31, 1999.
Day-to-day Fund Management
Since April 1998 Mark P. Denkinger, CFA. Mr. Denkinger joined the Principal
organization in 1990. He holds an MBA and BA in Finance from
the University of Iowa. He has earned the right to use the
Chartered Financial Analyst designation.
INCOME-ORIENTED FUND
PRINCIPAL LIMITED TERM BOND FUND, INC.
The 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.
Main Strategies
The Fund invests in high grade, short-term debt securities. Under normal
circumstances, it invests at least 80% of its assets in:
o securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities;
o debt securities of U.S. issuers rated in the three highest grades by S&P or
Moody's; or
o if unrated, are of comparable quality in the opinion of the Sub-Advisor,
Invista.
The rest of the Fund's assets are invested in securities in the fourth highest
rating category or their equivalent. Securities in the fourth highest category
are "investment grade." While they are considered to have adequate capacity to
pay interest and repay principal, they do have speculative characteristics.
Changes in economic and other conditions are more likely to impact the ability
of the issuer to make principal and interest payments than is the case with
higher rated securities.
Main Risks
The Fund may invest in corporate debt securities and mortgage-backed securities.
When interest rates fall, the price of a bond rises and when interest rates
rise, the price declines. In addition, the value of the corporate debt
securities held by the Fund may be affected by factors such as credit rating of
the entity that issued the bond and effective maturities of the bond. Lower
quality and longer maturity bonds will be subject to greater credit risk and
price fluctuations than higher quality and short maturity bonds.
Mortgage-backed securities are subject to prepayment risk. When interest rates
decline, significant unscheduled prepayments may result. These prepayments must
then be reinvested at lower rates. Prepayments may also shorten the effective
maturities of these securities, especially during periods of declining interest
rates. On the other hand, during periods of rising interest rates, a reduction
in prepayments may increase the effective maturities of these securities,
subjecting them to the risk of decline in market value in response to rising
interest. This may increase the volatility of the Fund.
Under normal circumstances, the Fund maintains a dollar-weighted average
maturity of not more than five years. In determining the average maturity of the
Fund's assets, the maturity date of callable or prepayable securities may be
adjusted to reflect Invista's judgment regarding the likelihood of the security
being called or prepaid.
Under unusual market or economic conditions, for temporary defensive purposes
the Fund may invest up to 100% of its assets in the cash or cash equivalents.
However, as with all mutual funds, the value of the Fund's assets may rise or
fall. If you sell your shares when their value is less than the price you paid,
you will lose money.
Investor Profile
The Fund is generally a suitable investment if you want monthly dividends to
generate income or to reinvest for modest growth. You must be willing to accept
some volatility in the value of your investment but do not want dramatic
volatility.
The Fund's past performance is not predictive of future performance. The bar
chart and tables provide some indication of the risks of investing in the Fund
by showing changes in the Fund's Class A share performance from year to year.
Annual Total Returns
1997 6.33
1998 6.70
1999 0.96
The year-to-date return as of March 31, 2000 for Class A shares is 0.93%, for
Class B shares is 0.87% and for Class C shares is 0.91%.
The fund's highest/lowest quarterly results during this time period were:
Highest 2.99% (9-30-1998)
Lowest -0.49% (6-30-1999)
Average annual total returns for the period ending December 31, 1999
This table shows how the Fund's average annual returns compare with those of a
broad-based securities market index and an index of funds with similar
investment objectives.
<TABLE>
<CAPTION>
Past One Past Five Past One Past FivePast Ten
Year Years Year Years Years
<S> <C> <C> <C> <C> <C>
Class A -0.56% 4.48%* Lehman Brothers Intermediate Government/Corporate Index 0.39% 7.10% 7.26%
Class B -0.67 4.31* Lipper Short-Intermediate Investment Grade Debt
Class C 0.35** Fund Average 0.89 6.23 6.55
<FN>
* Period from February 29, 1996, date shares first offered to the
public, through December 31, 1999.
** Period from June 30, 1999, date Class C shares first offered to the
public, through December 31, 1999.
</FN>
</TABLE>
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $265 $510 $773 $1,527
Class B 325 688 1,100 1,956
Class C 256 634 1,088 2,348
You would pay the following expenses if you did not redeem your shares:
Class A 265 510 773 1,527
Class B 196 606 1,042 1,956
Class C 205 634 1,088 2,348
Fund Operating Expenses*
Class A Class B Class C
Management Fees**.............. 0.50% 0.50% 0.50%
12b-1 Fees..................... 0.15 0.50 0.50
Other Expenses................. 0.49 0.92 0.55
----- ----- -----
Total Fund Operating Expenses 1.14% 1.92% 1.55%
* Total Fund Operating Expenses for Class A and Class B shares are for
the year ended October 31, 1999. Expenses for Class C shares are for
the period from June 30, 1999 through October 31, 1999.
** The Manager has agreed to waive a portion of its fee for the Fund. The
Manager intends to continue the waiver and, if necessary, pay expenses
normally payable by the Fund through the period ending October 31,
2000. The effect of the waiver is to reduce the Fund's annual
operating expenses. The waiver 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:
1.00% for Class A Shares
1.35% for Class B Shares
1.35% for Class C Shares
Day-to-day Fund Management
Since February 1996 Martin J. Schafer. Mr. Schafer joined the Principal in 1977
(Fund's inception) and has broad experience in residential mortgage related
securities. He served as Director of Investment Securities
at the Principal prior to joining Invista Capital Management
in 1992. He holds a BBA in Accounting and Finance from the
University of Iowa.
INCOME-ORIENTED FUND
PRINCIPAL TAX-EXEMPT BOND FUND, INC.
The 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.
Main Strategies and Risks
The Fund invests in a diversified portfolio of securities issued by or on behalf
of state or local governments and other public authorities. In the opinion of
the issuer's bond counsel, interest on these obligations is exempt from federal
income tax. Investment in the Fund is not appropriate for IRA or other
tax-advantaged accounts.
Under normal market conditions, the Fund invests at least 80% of its assets in
municipal obligations. At the time these securities are purchased, they are:
municipal bonds which are rated in the four highest grades by Moody's; municipal
notes rated in the highest grade by Moody's; municipal commercial paper rated in
the highest grade by Moody's or S&P; or if unrated, are of comparable quality in
the opinion of the Manager. During normal market conditions, the Fund will not
invest more than 20% of its assets in securities that do not meet the criteria
stated above; taxable securities; or municipal obligations the interest on which
is treated as a tax preference item for purposes of the federal alternative
minimum tax. The Fund may also invest in taxable securities which mature one
year or less from the time of purchase. These taxable investments are generally
made for liquidity purposes or as a temporary investment of cash pending
investment in municipal obligations. Under unusual market or economic conditions
and for temporary defensive purposes, the Fund may invest more than 20% of its
assets in taxable securities.
Up to 20% of Fund assets may be invested in fixed-income securities rated lower
than BBB by S&P or Baa by Moody's. The Fund will not purchase municipal bonds
rated lower than B by Moody's or S&P. It also will not buy municipal notes or
commercial paper which are unrated or are not comparable in quality to rated
securities.
Main Risks
The Fund may not invest more than 5% of its assets in the securities of any one
issuer (except the U.S. Government) but may invest without limit in obligations
of issuers located in the same state. It may also invest in debt obligations
which are repayable out of revenue from economically related projects or
facilities. This represents a risk to the Fund since an economic, business or
political development or change affecting one security could also affect others.
The Fund may purchase industrial development bonds. These securities are issued
by industrial development authorities. They may only be backed by the assets and
revenues of the industrial corporation which uses the facility financed by the
bond.
Fixed-income securities that are not investment grade are commonly referred to
as "junk bonds" or high yield securities. These securities offer a higher yield
than other, higher rated securities, but they carry a greater degree of risk and
are considered speculative by the major credit rating agencies.
When interest rates fall, the price of a bond rises and when interest rates
rise, the price declines. The value of debt securities may also be affected by
factors such as credit rating of the entity that issued the bond and effective
maturities of the bond. Lower quality and longer maturity bonds will be subject
to greater credit risk and price fluctuations than higher quality and short
maturity bonds.
As with all mutual funds, the value of the Fund's assets may rise or fall. If
you sell your shares when their value is less than the price you paid, you will
lose money.
Investor Profile
The Fund is generally a suitable investment if you are seeking monthly,
federally tax-exempt dividends to produce income or to be reinvested for modest
growth and are willing to accept fluctuations in the value of your investment.
The Fund's past performance is not predictive of future performance. The bar
chart and tables provide some indication of the risks of investing in the Fund
by showing changes in the Fund's Class A share performance from year to year.
Annual Total Returns
1990 5.08
1991 12.07
1992 9.62
1993 12.44
1994 -9.44
1995 20.72
1996 4.60
1997 9.19
1998 5.08
1999 -3.17
The year-to-date return as of March 31, 2000 for Class A shares is 1.82%, for
Class B shares is 1.67% and for Class C shares is 1.31%.
The fund's highest/lowest quarterly returns during this time period were:
Highest 9.13% (3-31-1995)
Lowest -7.08% (3-31-1994)
Average annual total returns for the period ending December 31, 1999
This table shows how the Fund's average annual returns compare with those of a
broad-based securities market index and an index of funds with similar
investment objectives.
<TABLE>
<CAPTION>
Past One Past FivePast Ten Past One Past FivePast Ten
Year Years Years Year Years Years
<S> <C> <C> <C> <C> <C> <C>
Class A -7.72% 5.98% 5.80% Lehman Brothers Municipal Bond Index -2.06% 6.92% 6.89%
Class B -7.25 5.99 6.35* Lipper General Municipal Debt Fund Average -4.63 5.77 6.19
Class C -3.99**
<FN>
* Period from December 9, 1994, date Class B shares first offered to the
public, through December 31, 1999.
** Period from June 30, 1999, date Class C shares first offered to the
public, through December 31, 1999.
</FN>
</TABLE>
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $553 $718 $ 898 $1,418
Class B 549 753 963 1,381
Class C 284 560 964 2,095
You would pay the following expenses if you did not redeem your shares:
Class A 553 718 898 1,418
Class B 134 418 723 1,381
Class C 181 560 964 2,095
Fund Operating Expenses*
Class A Class B Class C
Management Fees................ 0.46% 0.46% 0.46%
12b-1 Fees..................... 0.24 0.69 1.00
Other Expenses................. 0.10 0.17 0.32
----- ----- -----
Total Fund Operating Expenses 0.80% 1.32% 1.78%
* Total Fund Operating Expenses for Class A and Class B shares are for
the year ended October 31, 1999. Expenses for Class C shares are for
the period from June 30, 1999 through October 31, 1999.
Day-to-day Fund Management
Since July 1991 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.
MONEY MARKET FUND
PRINCIPAL CASH MANAGEMENT FUND, INC.
The 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.
Main Strategies
The Fund invests its assets in a portfolio of money market instruments. The
investments are U.S. dollar denominated securities which the Manager believes
present minimal credit risks. At the time the Fund purchases each security, it
is an "eligible security" as defined in the regulations issued under the
Investment Company Act of 1940.
The Fund maintains a dollar weighted average portfolio maturity of 90 days or
less. It intends to hold its investments until maturity. However, the Fund may
sell a security before it matures:
o to take advantage of market variations;
o to generate cash to cover sales of Fund shares by its shareholders; or
o upon revised credit opinions of the security's issuer.
The sale of a security by the Fund before maturity may not be in the best
interest of the Fund. The Fund does have an ability to borrow money to cover the
sale of Fund shares. The sale of portfolio securities is usually a taxable
event.
It is the policy of the Fund to be as fully invested as possible to maximize
current income. Securities in which the Fund invests include:
o government securities which are issued or guaranteed by the U.S.
Government, including treasury bills, notes and bonds;
o U.S. Government agency securities which are issued or guaranteed by
agencies or instrumentalities of the U.S. Government. These are backed
either by the full faith and credit of the U.S. Government or by the credit
of the particular agency or instrumentality;
o bank obligations consisting of:
o certificates of deposit which generally are negotiable certificates
against funds deposited in a commercial bank; or
o bankers acceptances which are time drafts drawn on a commercial bank,
usually in connection with international commercial transactions.
o commercial paper which is short-term promissory notes issued by U.S. or
foreign corporations primarily to finance short-term credit needs;
o short-term corporate debt consisting of notes, bonds or debentures which at
the time of purchase by the Fund has 397 days or less remaining to
maturity;
o repurchase agreements under which securities are purchased with an
agreement by the seller to repurchase the security at the same price plus
interest at a specified rate. Generally these have a short duration (less
than a week) but may also have a longer duration; and
o taxable municipal obligations which are short-term obligations issued or
guaranteed by state and municipal issuers which generate taxable income.
Main Risks
As with all mutual funds, the value of the Fund's assets may rise or fall.
Although the Fund seeks to preserve the value of an investment at $1.00 per
share, it is possible to lose money by investing in the Fund if you sell your
shares when their value is less than the price you paid. An investment in the
Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency.
Investor Profile
The Fund is generally a suitable investment if you are seeking monthly dividends
to produce income without incurring much principal risk or your short-term
needs.
The Fund's past performance is not predictive of future performance. The bar
chart and tables provide some indication of the risks of investing in the Fund
by showing changes in the Fund's Class A share performance from year to year.
Annual Total Returns
1990 7.63
1991 5.80
1992 3.38
1993 2.63
1994 3.77
1995 5.44
1996 4.96
1997 4.88
1998 5.15
1999 4.63
The 7-day yield for the period ended March 31, 2000 for Class A shares is 5.30%,
for Class B shares is 4.66% and for Class C shares is 1.87%. To obtain the
Fund's current yield information, please call 1-800-247-4123.
Average annual total returns for the period ending December 31, 1999
This table shows the Fund's average annual returns over the periods indicated.
Past One Past FivePast Ten
Year Years Years
Class A 4.63% 5.10% 4.78%
Class B 4.11 4.31 4.24*
Class C 1.71**
* Period from December 9, 1994, date Class B shares first offered to the
public, through December 31, 1999.
** Period from June 30, 1999, date Class C shares first offered to the
public, through December 31, 1999.
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
Class A $ 70 $221 $ 384 $ 859
Class B 537 713 895 1,239
Class C 332 706 1,210 2,595
You would pay the following expenses if you did not redeem your shares:
Class A 70 221 384 859
Class B 121 378 654 1,239
Class C 229 706 1,210 2,595
Fund Operating Expenses*
Class A Class B Class C
Management Fees................ 0.44% 0.44% 0.44%
12b-1 Fees..................... None 0.35 0.99
Other Expenses................. 0.25 0.40 0.83
----- ----- -----
Total Fund Operating Expenses 0.69% 1.19% 2.26%
* Total Fund Operating Expenses for Class A and Class B shares are for
the year ended October 31, 1999. Expenses for Class C shares are for
the period from June 30, 1999 through October 31, 1999.
Day-to-day Fund Management
Since June 1999 Co-Manager: Alice Robertson. Ms. Robertson has been with the
Principal organization since 1990. She holds an MBA from
DePaul and a BA in Economics from Northwestern University.
Since March 1983 Co-Manager: Michael R. Johnson. Mr. Johnson has been with
the Principal organization since 1982. He holds a BA from
Iowa State University. He is a Fellow of the Life Management
Institute.
THE COSTS OF INVESTING
Fees and Expenses of the Funds
This table describes the fees and expenses that you may pay if you buy and hold
shares of a Fund.
<TABLE>
Shareholder Fees
(fees paid directly from your investment)
<CAPTION>
Class A Shares Class B Shares Class C Shares
Maximum Deferred Sales Charge Maximum Deferred
Maximum Sales Charge (as a percentage of the lower of Sales Charge on
on Purchases the original purchase price Purchases (as a
(as a percentage of or market value at the percentage of
offering price) time of redemption) offering price)
Redemptions During Redemptions During
Year Year 1
1 2 3 4 5 6 7
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
All Funds except LargeCap Stock Index,
Limited Term Bond
and Cash Management Funds 4.75% 4% 4% 3% 3% 2% 1% 0% 1.00%
LargeCap Stock Index and
Limited Term Bond Funds 1.50% 1.25% 1.25% .75% .75% .50% .25% 0% .50%
Cash Management Fund None 4% 4% 3% 3% 2% 1% 0% 1.00%
<FN>
Notes:
o Shares do not have an exchange or redemption fee.
o A wire charge of $6.00 will be deducted for all wire transfers.
o Class A shares have no deferred sales charge on sales of less than $1
million.
o Class B and Class C shares have no front-end sales charge.
</FN>
</TABLE>
Fees and expenses are important because they lower your earnings. However, low
costs do not guarantee higher earnings. For example, a fund with no front-end
sales charge may have higher ongoing expenses than a fund with such a sales
charge. Before investing, you should be sure you understand the nature of
different costs. Your Registered Representative can help you with this process.
One-time fees. You may pay a one-time sales charge for each purchase (Class A
shares) or redemption (Class B or Class C shares).
o Class A shares may be purchased at a price equal to the share price plus an
initial sales charge.
o Investments of $1 million or more of Class A shares are sold without an
initial sales charge but may be subject to a contingent deferred sales
charge (CDSC) at the time of redemption.
o Class B and Class C shares have no initial sales charge but may be subject
to a CDSC. If you sell (redeem) shares and the CDSC is imposed, it will
reduce the amount of sales proceeds.
Choosing a Share Class
You may purchase Class A, Class B or Class C shares of each Fund. Your decision
to purchase a particular class depends on a number of factors including:
o the dollar amount you are investing;
o the amount of time you plan to hold the investment; and
o any plans to make additional investments in the Principal Mutual Funds.
In addition, you might consider:
o Class A shares if you are making an investment that qualifies for a reduced
sales charge;
o Class B shares if you prefer not to pay an initial sales charge and you
plan to hold your investment for at least six years; or
o Class C shares if you prefer not to pay an initial sales charge and you
plan to hold your investment for only a few years.
The difference between the share Classes is their expenses. Because of their
expenses, Class A shares tend to outperform Class C shares when the amount
invested is higher and/or the money is invested for a longer period of time. If
you plan on purchasing shares, but are unsure which Class to select, this table
may assist you. Class A shares may be advantageous over Class C shares when:
The amount invested is The holding period of the investment is
Less than $50,000 Greater than 5 years
$50,000 but less than $100,000 Greater than 5 years
$100,000 but less than $250,000 Greater than 4 years
$250,000 but less than $500,000 Greater than 4 years
$500,000 but less than $1,000,000 Greater than 1 year
Class A Shares
o You generally pay a sales charge on an investment in Class A shares.
o Class A shares generally have lower annual operating expenses than Class B
or Class C shares.
o If you invest $50,000 or more, the sales charge is reduced.
o You are not assessed a sales charge on purchases of Class A shares of $1
million or more. A deferred sales charge may be imposed if you sell those
shares within eighteen months of purchase.
Class B Shares
o You do not pay a sales charge on an investment in Class B shares.
o If you sell your Class B shares within six years from the date of purchase,
you may pay a deferred sales charge.
o If you keep your Class B shares for seven years, your Class B shares
automatically convert to Class A shares without a charge.
o Class B shares generally have higher annual operating expenses than Class A
shares.
Class C Shares
o You do not pay a sales charge on an investment in Class C shares.
o If you sell your Class C shares within one year from the date of purchase,
you may pay a deferred sales charge.
o Class C shares generally have higher annual operating expenses than Class A
or Class B shares.
Front-end sales charge: Class A shares
There is no sales charge on purchases of Class A shares of the Cash Management
Fund. Class A shares of the other Funds are purchased with a sales charge that
is a variable percentage based on the amount of the purchase. There is no sales
charge on shares of a Fund purchased with reinvested dividends or other
distributions. Your sales charge may be reduced for larger purchases as
indicated below.
<TABLE>
<CAPTION>
All Funds (Except Sales Charge for
LargeCap Stock LargeCap Stock
Index and Limited Term Index and Limited Term
Bond Funds) Bond Funds Dealers Allowance as
Sales Charge as % of: Sales Charge as % of: % of Offering Price
---------------------- ----------------------- ---------------------------------
All Funds Except LargeCap Stock
LargeCap Stock Index and
Offering Net Amount Offering Net Amount Index and Limited Term
Amount invested 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% 1.10% 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>
The front-end sales charge is waived on an investment of $1 million or more in
Class A shares. There may be a CDSC on shares sold within 18 months of the
purchase date. The CDSC does not apply to shares purchased with reinvested
dividends or other distributions. The CDSC is calculated as 0.75% of the lesser
of the market value at the time of the redemption or the initial purchase price
of the shares sold. The CDSC is waived on shares sold to fund a Principal Mutual
Fund 401(a) or Principal Mutual Fund 401(k) retirement plan, except redemptions
which are the result of termination of the plan or transfer of all plan assets.
The CDSC is also waived on shares sold:
o to satisfy IRS minimum distribution rules; and
o using a periodic withdrawal plan. (You may sell up to 10% of the value of
the shares (as of December 31 of the prior year) subject to a CDSC without
paying the CDSC.)
In the case of selling some but not all of the shares in an account, the shares
not subject to a sales charge are redeemed first. Other shares are redeemed in
the order purchased (first in, first out). Shares subject to the CDSC which are
exchanged into another Principal Mutual Fund continue to be subject to the CDSC
until the CDSC expires.
Broker-dealers that sell Principal Mutual Funds are paid a certain percentage of
the sales charge in exchange for their services. At the option of Princor
Financial Services Corporation ("Princor"), the amount paid to a dealer may be
more or less than that shown in the chart above. The amount paid depends on the
services provided. Amounts paid to dealers on purchases without a front-end
sales charge are determined by and paid for by Princor.
SALES CHARGE WAIVER OR REDUCTION (Class A shares)
Class A shares of the Funds may be purchased without a sales charge or at a
reduced sales charge. The Funds reserve the right to change or stop offering
shares in this manner at any time for new accounts and with 60 days notice to
shareholders of existing accounts.
Waiver of sales charge (Class A shares)
A Fund's Class A shares may be purchased without a sales charge:
o by its Directors, Principal Life and its subsidiaries and affiliates, and
their employees, officers, directors (active or retired), brokers or
agents. This also includes their immediate family members (spouse, children
(regardless of age) and parents) and trusts for the benefit of these
individuals;
o by the Principal Employees' Credit Union;
o by non-ERISA clients of Invista Capital Management, LLC and Principal
Capital Management LLC;
o by any employee or Registered Representative (and their employees) of an
authorized broker-dealer;
o through a "wrap account" offered by Princor or through broker-dealers,
investment advisors and other financial institutions that have entered into
an agreement with Princor which includes a requirement that such shares be
sold for the benefit of clients participating in a "wrap account" or
similar program under which clients pay a fee to the broker-dealer,
investment advisor or financial institution;
o by unit investment trusts sponsored by Principal Life Insurance Company
and/or its subsidiaries or affiliates;
o by certain employee welfare benefit plan customers of Principal Life with
Plan Deposit Accounts;
o by participants who receive distributions from certain annuity contracts
offered by Principal Life;
o to the extent the investment represents the proceeds of a total surrender
of certain Principal Life issued unregistered group annuity contracts if
Principal Life waives any applicable CDSC or other contract surrender
charge;
o using cash payments received from Principal Bank under its awards program;
o to the extent the investment represents redemption proceeds from certain
unregistered group annuity contracts issued by Principal Life to fund an
employer's 401(a) plan where such proceeds are used to fund the employer's
401(a) plan;
o to the extent the purchase proceeds represent a distribution from a
terminating 401(a) plan if the employer or plan trustee has entered into a
written agreement with Princor permitting the group solicitation of active
employees/participants. (Such purchases are subject to the CDSC which
applies to purchases of $1 million or more as described above.); and
o to fund non-qualified plans administered by Principal Life pursuant to a
written service agreement.
Class A shares may also be purchased without a sales charge if your Registered
Representative has recently become affiliated with a broker-dealer authorized to
sell shares of the Principal Mutual Funds. The following conditions must be met:
o your purchase of Class A shares must take place within the first 180 days
of your Registered Representative's affiliation with the authorized
broker-dealer;
o your investment must represent the sales proceeds from other mutual fund
shares (you must have paid a front-end sales charge or a CDSC) and the sale
must occur within the 180 day period; and
o you must indicate on your Principal Mutual Fund application that you are
eligible for waiver of the front-end sales charge.
o You must send us either:
o the check for the sales proceeds (endorsed to Principal Mutual Funds)
or
o a copy of the confirmation statement from the other mutual fund showing
the sale transaction. If you place your order to buy Principal Mutual
Fund shares on the telephone, you must send us a copy of the
confirmation within 21 days of placing the order. If we do not receive
the confirmation within 21 days, we will sell enough of your Class A
shares to pay the sales charge that otherwise would have been charged.
NOTE: Please be aware that the sale of your other mutual fund shares may
be subject to federal (and state) income taxes. In addition, you
may pay a surrender charge to the other mutual fund.
Reduction of sales charge (Class A shares)
1) Dollar amount of purchase. The sales charge varies with the size of your
purchase. Reduced charges apply to the total of Principal Mutual Funds'
(excluding the Cash Management Fund) shares purchased at one time by any
"Qualified Purchaser." A Qualified Purchaser includes an individual and
his/her spouse and their children under the age of 25, a trust primarily
for such persons, and a trustee or other fiduciary purchasing for a single
trust estate or single fiduciary account. If the total amount being
invested in the Principal Mutual Funds is near a sales charge breakpoint,
you should consider increasing amount invested to take advantage of a lower
sales charge. A purchase made by or through an employer on behalf of an
employee or employees (including independent contractors) is also
considered a purchase by a Qualified Purchaser.
2) Statement of intention (SOI). Qualified Purchasers may obtain reduced sales
charges by signing an SOI. The SOI is a nonbinding obligation on the
Qualified Purchaser to purchase the full amount indicated in the SOI. The
sales charge is based on the total amount to be invested in a 13 month
period (24 months if the intended investment is $1 million or more). Upon
your request, we will set up a 90-day lookback period to include earlier
purchases - the 13 (24) month period then begins on the date of your first
purchase during the 90-day period. If the intended investment is not made,
sufficient shares will be sold to pay the additional sales charge due. A
401(a) plan trustee must submit the SOI at the time of the first plan
purchase. The 90-day lookback period is not available to a 401(a) plan
trustee.
3) Rights of accumulation. The Class A, Class B and Class C shares already
owned by a Qualified Purchaser are added to the amount of the new purchase
to determine the applicable sales charge percentage. Class A shares of the
Cash Management Fund are not included in the calculation unless they were
acquired in exchange for other Principal Mutual Fund shares.
4) Death Benefit proceeds. Death benefit proceeds from a life insurance policy
or certain annuity contracts issued by Principal Life (or its subsidiaries
or affiliates) may be invested in Class A shares at a reduced sales charge.
To qualify for the reduced sales charge, the proceeds must be applied to
the purchase of shares of a Principal Mutual Fund within one year of the
insured's death. The applicable sales charge is determined by the table
below.
<TABLE>
<CAPTION>
Sales Charge as a % of:
-----------------------
Dealer Allowance
Offering Net Amount as % of
Amount of Purchase Price Invested Offering Price
----------------------- --------------- ---------- ----------------
<S> <C> <C> <C> <C>
Less than $500,000 2.50% 2.56% 2.10%
$500,000 but less than $1,000,000 1.50% 1.52% 1.25%
$1,000,000 or more no sales charge
</TABLE>
5) Employer sponsored plans. Retirement plans meeting the requirements of
Section 401 of the Internal Revenue Code (401(k), Profit Sharing and Money
Purchase Pension Plans) and other employer sponsored retirement plans
(Principal Mutual Fund 403(b), SIMPLE IRAs, SEPs, SAR-SEPs, non-qualified
deferred compensation plans, and Payroll Deduction Plans).
o Principal Mutual Fund 401(a) Plans. The trustee chooses to fund the
plan with either Class A, Class B or Class C shares when the plan is
established.
o Other employer sponsored retirement plans. Each participant chooses
Class A, Class B or Class C shares when at the time of their first
contribution into the plan.
o If Class A shares are used:
o all plan investments are treated as made by a single investor to
determine the applicable sales charge;
o the sales charge for investments of less than $250,000 is 3.75%
as a percentage of offering price; and
o if the investment is $250,000 or more, the regular sales charge
table is used.
o If Class B shares are used, contributions into the plan after the plan
assets are $250,000 or more are used to buy Class A shares.
o Investments outside of a plan are not included with plan assets to
determine the applicable sales charge.
Contingent deferred sales charge: Class B and Class C shares
o The CDSC does not apply to shares purchased with reinvested dividends or
other distributions.
o The amount of the CDSC is a percentage based on the number of years you own
the shares multiplied by the lesser of the market value at the time of the
redemption or the initial purchase price of the shares sold.
o In the case of selling some but not all of the shares in an account, the
shares not subject to a sales charge are redeemed first. Other Class B
shares are redeemed in the order purchased (first in, first out). In
processing redemptions for other Class C shares, shares held for the
shortest period of time during the one year period are next redeemed. As a
result of these methods, you pay the lowest possible CDSC.
o Using a periodic withdrawal plan, you may sell up to 10% of the value of
the shares (as of December 31 of the prior year) subject to a CDSC without
paying the CDSC.
o Shares subject to the CDSC which are exchanged into another Principal
Mutual Fund continue to be subject to the CDSC until the CDSC expires.
o Princor receives the proceeds of any CDSC.
Class B shares
A CDSC may be imposed on Class B shares sold within six years of purchase (five
years for certain sponsored plans). Class B shares automatically convert into
Class A shares (based on share prices, not numbers of shares) seven years after
purchase. Class B shares provide you the benefit of putting all your dollars to
work from the time of investment, but (until conversion) have higher ongoing
fees and lower dividends than Class A shares.
The Class B share CDSC, if any, is determined by multiplying the lesser of the
market value at the time of redemption or the initial purchase price of the
shares sold by the appropriate percentage from the table below:
<TABLE>
<CAPTION>
Class B Share CDSC as a
Percentage of Dollar Amount Subject to Charge
---------------------------------------------
For Certain Sponsored Plans
Commenced After 2/1/98
----------------------------------------
All Funds Except LargeCap Stock All Funds Except LargeCap Stock
LargeCap Stock Index and LargeCap Stock Index and
Years Since Purchase Index and Limited Term Limited Term Index and Limited Term Limited Term
Payments Made Bond Funds Bond Funds Bond Funds Bond Funds
------------------------------ ---------------------- -------------- ---------------------- --------------
<S> <C> <C> <C> <C>
2 years or less 4.00% 1.25% 3.00% .75%
more than 2 years, up to 4 years 3.00 0.75 2.00 .50
more than 4 years, up to 5 years 2.00 0.50 1.00 .25
more than 5 years, up to 6 years 1.00 0.25 None None
more than 6 years None None None None
</TABLE>
Class C shares
A CDSC of 1% may be imposed on Class C shares sold within one year of purchase.
No CDSC is imposed on increases in account value above the initial purchase
price (including shares acquiring from the reinvestment of dividends or capital
gains distributions). Class C shares do not convert to any other class of Fund
shares.
Waiver of the sales charge (Class B and Class C shares)
--------------------------
The CDSC is waived on sales of Class B shares and of Class C shares which are
sold:
o due to a shareholder's death;
o due to the shareholder's disability, as defined in the Internal Revenue
Code;
o from retirement plans to satisfy minimum distribution rules under the Code;
o to pay surrender charges; o to pay retirement plan fees;
o involuntarily from small balance accounts;
o through a systematic withdrawal plan (certain limits apply);
o from a retirement plan to assure the plan complies with Sections 401(k),
401(m), 408(k) and 415 of the Code; or
o 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.
Ongoing fees. Each Fund pays ongoing fees to its Manager, Underwriter and others
who provide services to the Fund. They reduce the value of each share you own.
Distribution (12b-1) Fees
Each of the Funds (except the Cash Management Fund for Class A shares) has
adopted a Distribution Plan under Rule 12b-1 of the Investment Company Act of
1940. Under the Plan, the Fund pays a fee to Princor based on the average daily
net asset value of the Fund. These ongoing fees pay expenses relating to
distribution fees for the sale of Fund shares and for services provided by
Princor and other selling dealers to shareholders. Because they are ongoing
fees, over time they may exceed other types of sales charges.
The maximum 12b-1 fees that may be paid by the Funds on an annual basis are:
<TABLE>
<CAPTION>
<S> <C>
o Class A shares (except Cash Management, LargeCap Stock Index and Limited Term Bond) 0.25%
o Class A shares of LargeCap Stock Index and Limited Term Bond 0.15%
o Class B shares (except LargeCap Stock Index and Limited Term Bond) 1.00%
o Class B shares of LargeCap Stock Index and Limited Term Bond 0.50%
o Class C shares (except LargeCap Stock Index and Limited Term Bond) 1.00%
o Class C shares of LargeCap Stock Index and Limited Term Bond 0.50%
</TABLE>
CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS
The Statement of Additional Information (SAI) contains additional information
about investment strategies and their related risks.
Securities and Investment Practices
Equity securities include common stocks, preferred stocks, convertible
securities and warrants. Common stocks, the most familiar type, represent an
equity (ownership) interest in a corporation. Although equity securities have a
history of long-term growth in value, their prices fluctuate based on changes in
a company's financial condition and in overall market and economic conditions.
Smaller companies are especially sensitive to these factors.
Fixed-income securities include bonds and other debt instruments that are used
by issuers to borrow money from investors. The issuer generally pays the
investor a fixed, variable or floating rate of interest. The amount borrowed
must be repaid at maturity. Some debt securities, such as zero coupon bonds, do
not pay current interest, but are sold at a discount from their face values.
Fixed-income securities are sensitive to changes in interest rates. In general,
bond prices rise when interest rates fall and fall when interest rates rise.
Longer term bonds and zero coupon bonds are generally more sensitive to interest
rate changes.
Bond prices are also affected by the credit quality of the issuer. Investment
grade debt securities are medium and high quality securities. Some bonds, such
as "junk" bonds, may have speculative characteristics and may be particularly
sensitive to economic conditions and the financial condition of the issuers.
Repurchase Agreements and Loaned Securities
Each of the Funds may invest a portion of its assets in repurchase agreements.
Repurchase agreements typically involve the purchase of debt securities from a
financial institution such as a bank, savings and loan association or
broker-dealer. A repurchase agreement provides that the Fund sells back to the
seller and that the seller repurchases the underlying securities at a specified
price on a specific date. Repurchase agreements may be viewed as loans by a Fund
collateralized by the underlying securities. This arrangement results in a fixed
rate of return that is not subject to market fluctuation while the Fund holds
the security. In the event of a default or bankruptcy by a selling financial
institution, the affected Fund bears a risk of loss. To minimize such risks, the
Fund enters into repurchase agreements only with large, well-capitalized and
well-established financial institutions. In addition, the value of the
collateral underlying the repurchase agreement is always at least equal to the
repurchase price, including accrued interest.
Each of the Funds may lend its portfolio securities to unaffiliated
broker-dealers and other unaffiliated qualified financial institutions.
Currency Contracts
The International Growth-Oriented, Partners Aggressive Growth, Partners LargeCap
Growth and Partners MidCap Growth Funds may each enter into forward currency
contracts, currency futures contracts and options, and options on currencies for
hedging and other non-speculative purposes. In addition, the European Equity and
Pacific Basin Funds each may invest a limited percentage of its assets in such
contracts for speculative purposes. A forward currency contract involves a
privately negotiated obligation to purchase or sell a specific currency at a
future date at a price set in the contract. A Fund will not hedge currency
exposure to an extent greater than the aggregate market value of the securities
held or to be purchased by the Fund (denominated or generally quoted or
currently convertible into the currency).
Hedging is a technique used in an attempt to reduce risk. If the Fund's Manager
or Sub-Advisor hedges market conditions incorrectly or employs a strategy that
does not correlate well with the Fund's investment, these techniques could
result in a loss, regardless of whether the intent was to reduce risk or to
increase return. These techniques may increase the volatility of a Fund and may
involve a small investment of cash relative to the magnitude of the risk
assumed. In addition, these techniques could result in a loss if the other party
to the transaction does not perform as promised. Additionally, there is the risk
of government action through exchange controls that would restrict the ability
of the Fund to deliver or receive currency.
Forward Commitments
Each of the Income-Oriented, Balanced, European Equity, Pacific Basin and
Partners Aggressive Growth Funds may enter into forward commitment agreements.
These agreements call for the Fund to purchase or sell a security on a future
date at a fixed price. Each of these Funds may also enter into contracts to sell
its investments either on demand or at a specific interval.
Warrants
Each of the Funds (except Cash, Government Securities Income and Tax-Exempt
Bond) may invest up to 5% of its assets in warrants. A warrant is a certificate
granting its owner the right to purchase securities from the issuer at a
specified price, normally higher than the current market price.
Risks of High Yield Securities
The Balanced, Bond, High Yield and Tax-Exempt Bond Funds may, to varying
degrees, invest in debt securities rated lower than BBB by S&P or Baa by Moody's
or, if not rated, determined to be of equivalent quality by the Manager. Such
securities are sometimes referred to as high yield or "junk bonds" and are
considered speculative.
Investment in high yield bonds involves special risks in addition to the risks
associated with investment in high rated debt securities. High yield bonds may
be regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments. Moreover, such securities may,
under certain circumstances, be less liquid than higher rated debt securities.
Analysis of the creditworthiness of issuers of high yield securities may be more
complex than for issuers of higher quality debt securities. The ability of a
Fund to achieve its investment objective may, to the extent of its investment in
high yield bonds, be more dependent on such creditworthiness analysis than would
be the case if the Fund were investing in higher quality bonds.
High yield bonds may be more susceptible to real or perceived adverse economic
and competitive industry conditions than higher grade bonds. The prices of high
yield bonds have been found to be less sensitive to interest rate changes than
more highly rated investments, but more sensitive to adverse economic downturns
or individual corporate developments. If the issuer of high yield bonds
defaults, a Fund may incur additional expenses to seek recovery.
The secondary market on which high yield bonds are traded may be less liquid
than the market for higher grade bonds. Less liquidity in the secondary trading
market could adversely affect the price at which a Fund could sell a high yield
bond and could adversely affect and cause large fluctuations in the daily price
of the Fund's shares. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the value and liquidity of high
yield bonds, especially in a thinly traded market.
The use of credit ratings for evaluating high yield bonds also involves certain
risks. For example, credit ratings evaluate the safety of principal and interest
payments, not the market value risk of high yield bonds. Also, credit rating
agencies may fail to change credit ratings in a timely manner to reflect
subsequent events. If a credit rating agency changes the rating of a portfolio
security held by a Fund, the Fund may retain the security if the Manager thinks
it is in the best interest of shareholders.
Options
Each of the Funds (except Capital Value, Cash Management, Growth and Tax-Exempt
Bond) may buy and sell certain types of options. Each type is more fully
discussed in the SAI.
Foreign Securities
Each of the following Funds may invest in securities of foreign companies. For
the purpose of this restriction, foreign companies are:
o companies with their principal place of business or principal office
outside the U.S.;
o companies for which the principal securities trading market is outside the
U.S.; and
o companies, regardless of where its securities are traded, that derive 50%
or more of their total revenue from goods or services produced or sales
made outside the U.S.
Each Fund may invest its assets in foreign securities to the indicated
percentage of its assets:
o European Equity, International, International Emerging Markets,
International SmallCap and Pacific Basin Funds - 100%;
o Partners Aggressive Growth, Partners LargeCap Growth and Real Estate Funds
- 25%;
o Balanced, Blue Chip, Bond, Capital Value, Growth, High Yield, Limited Term
Bond, MidCap, SmallCap and Utilities Funds - 20%; and
o LargeCap Stock Index and Partners MidCap Growth Funds - 10%.
The Cash Management Fund does not invest in foreign securities other than those
that are U.S. dollar denominated. All principal and interest payments for the
security are payable in U.S. dollars. The interest rate, the principal amount to
be repaid and the timing of payments related to the security do not vary or
float with the value of a foreign currency, the rate of interest on foreign
currency borrowings or with any other interest rate or index expressed in a
currency other than U.S. dollars.
Foreign companies may not be subject to the same uniform accounting, auditing
and financial reporting practices as are required of U.S. companies. In
addition, there may be less publicly available information about a foreign
company than about a U.S. company. Securities of many foreign companies are less
liquid and more volatile than securities of comparable U.S. companies.
Commissions on foreign securities exchanges may be generally higher than those
on U.S. exchanges, although each Fund seeks the most favorable net results on
its portfolio transactions.
Foreign markets also have different clearance and settlement procedures than
those in U.S. markets. In certain markets there have been times when settlements
have been unable to keep pace with the volume of securities transactions, making
it difficult to conduct these transactions. Delays in settlement could result in
temporary periods when a portion of Fund assets are not invested and are earning
no return. If a Fund is unable to make intended security purchases due to
settlement problems, the Fund may miss attractive investment opportunities. In
addition, a Fund may incur a loss as a result of a decline in the value of its
portfolio if it is unable to sell a security.
With respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments that could affect a Fund's investments in those
countries. In addition, a Fund may also suffer losses due to nationalization,
expropriation or differing accounting practices and treatments. Investments in
foreign securities are subject to laws of the foreign country that may limit the
amount and types of foreign investments. Changes of governments or of economic
or monetary policies, in the U.S. or abroad, changes in dealings between
nations, currency convertibility or exchange rates could result in investment
losses for a Fund. Finally, even though certain currencies may be convertible
into U.S. dollars, the conversion rates may be artificial relative to the actual
market values and may be unfavorable to Fund investors.
Foreign securities are often traded with less frequency and volume, and
therefore may have greater price volatility, than is the case with many U.S.
securities. Brokerage commissions, custodial services, and other costs relating
to investment in foreign countries are generally more expensive than in the U.S.
Though the Funds intend to acquire the securities of foreign issuers where there
are public trading markets, economic or political turmoil in a country in which
a Fund has a significant portion of its assets or deterioration of the
relationship between the U.S. and a foreign country may negatively impact the
liquidity of a Fund's portfolio. The Fund may have difficulty meeting a large
number of redemption requests. Furthermore, there may be difficulties in
obtaining or enforcing judgments against foreign issuers.
A Fund may choose to invest in a foreign company by purchasing depositary
receipts. Depositary receipts are certificates of ownership of shares in a
foreign based issuer held by a bank or other financial institution. They are
alternatives to purchasing the underlying security but are subject to the
foreign securities to which they relate.
Investments in companies of developing countries may be subject to higher risks
than investments in companies in more developed countries. These risks include:
o increased social, political and economic instability;
o a smaller market for these securities and low or nonexistent volume of
trading that results in a lack of liquidity and in greater price
volatility;
o lack of publicly available information, including reports of payments of
dividends or interest on outstanding securities;
o foreign government policies that may restrict opportunities, including
restrictions on investment in issuers or industries deemed sensitive to
national interests;
o relatively new capital market structure or market-oriented economy;
o the possibility that recent favorable economic developments may be slowed
or reversed by unanticipated political or social events in these countries;
o restrictions that may make it difficult or impossible for the Fund to vote
proxies, exercise shareholder rights, pursue legal remedies, and obtain
judgments in foreign courts; and
o possible losses through the holding of securities in domestic and foreign
custodial banks and depositories.
In addition, many developing countries have experienced substantial, and in some
periods, extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of those countries.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. A Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for
repatriation.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade.
Securities of Smaller Companies
The Funds may invest in securities of companies with small- or mid-sized market
capitalizations. Market capitalization is defined as total current market value
of a company's outstanding common stock. Investments in companies with smaller
market capitalizations may involve greater risks and price volatility (wide,
rapid fluctuations) than investments in larger, more mature companies. Smaller
companies may be less mature than larger companies. At this earlier stage of
development, the companies may have limited product lines, reduced market
liquidity for their shares, limited financial resources or less depth in
management than larger or more established companies. Small companies also may
be less significant within their industries and may be at a competitive
disadvantage relative to their larger competitors. While smaller companies may
be subject to these additional risks, they may also realize more substantial
growth than larger or more established companies.
Unseasoned Issuers
The Funds may invest in the securities of unseasoned issuers. Unseasoned issuers
are companies with a record of less than three years continuous operation,
including the operation of predecessors and parents. Unseasoned issuers by their
nature have only a limited operating history which can be used for evaluating
the company's growth prospects. As a result, investment decisions for these
securities may place a greater emphasis on current or planned product lines and
the reputation and experience of the company's management and less emphasis on
fundamental valuation factors than would be the case for more mature growth
companies. In addition, many unseasoned issuers also may be small companies and
involve the risks and price volatility associated with smaller companies.
Temporary Defensive Measures
For temporary defensive purposes in times of unusual or adverse market
conditions, the Funds may invest without limit in cash and cash equivalents. For
this purpose, cash equivalents include: bank certificates of deposit, bank
acceptances, repurchase agreements, commercial paper, and commercial paper
master notes which are floating rate debt instruments without a fixed maturity.
In addition, a Fund may purchase U.S. Government securities, preferred stocks
and debt securities, whether or not convertible into or carrying rights for
common stock.
Portfolio Turnover
"Portfolio Turnover" is the term used in the industry for measuring the amount
of trading that occurs in a Fund's portfolio during the year. For example, a
100% turnover rate means that on average every security in the portfolio has
been replaced once during the year.
Funds with high turnover rates (more than 100%) often have higher transaction
costs (which are paid by the Fund) and may generate short-term capital gains (on
which you pay taxes even if you don't sell any of your shares during the year).
No turnover rate can be calculated for the Cash Management Fund because of the
short maturities of the securities in which it invests. No turnover rates are
calculated for the Funds which have been in existence for less than six months
(European Equity, LargeCap Stock Index, Pacific Basin, Partners Aggressive
Growth, Partners LargeCap Growth and Partners MidCap Growth Funds). Turnover
rates for each of the other Funds may be found in the Fund's Financial
Highlights table.
Please consider all the factors when you compare the turnover rates of different
funds. A fund with consistently higher total returns and higher turnover rates
than another fund may actually be achieving better performance precisely because
the managers are active traders. You should also be aware that the "total
return" line in the Financial Highlights already includes portfolio turnover
costs.
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
The Manager
Principal Management Corporation serves as the manager for the Principal Mutual
Funds. In its handling of the business affairs of each Fund, the Manager
provides clerical, recordkeeping and bookkeeping services, and keeps the
financial and accounting records required for the Funds. The Manager has signed
sub-advisory agreements with various Sub-Advisors for portfolio management
functions for certain Funds. The Manager compensates the Sub-Advisor for its
services as provided in the sub-advisory agreement.
The Manager is an indirect subsidiary of Principal Financial Services, Inc. and
has managed mutual funds since 1969. As of December 31, 1999, the funds it
managed had assets of approximately $6.42 billion. The Manager's address is
Principal Financial Group, Des Moines, Iowa 50392-0200.
The Sub-Advisors
Funds: Balanced, Blue Chip, Capital Value, Government Securities
Income, Growth, International, International Emerging
Markets, International SmallCap, LargeCap Stock Index,
Limited Term Bond, MidCap, SmallCap, and Utilities.
Sub-Advisor: Invista, an indirectly 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 December 31, 1999 were approximately $35.3 billion.
Invista's address is 1800 Hub Tower, 699 Walnut, Des Moines,
Iowa 50309.
Fund: European Equity and Pacific Basin
Sub-Advisor: BT is an indirectly wholly owned subsidiary of BT Funds
Management Limited ("BTFM") and a member of the Principal
Financial Group. Its address is The Chifley Tower, 2 Chifley
Square, Sydney 2000 Australia. As of January 2000, BT had
approximately $24 billion under management for more than
410,000 institutional and individual clients. Offering
institutional investment products since the early 1970s, BT,
together with BTFM, manages all asset classes from its
headquarters in Sydney, Australia. It has specialized
expertise in European and Asian regional equity portfolios
as well as global equities, global and Australian
fixed-income securities, currency management and Australian
real estate.
Fund: Partners Aggressive Growth
Sub-Advisor: Morgan Stanley, with principal offices at 1221 Avenue of the
Americas, New York, NY 10020, provides a broad range of
portfolio management services to customers in the U.S. and
abroad. As of December 31, 1999, Morgan Stanley, together
with its affiliated institutional asset management
companies, managed investments totaling approximately $184.9
billion as named fiduciary or fiduciary adviser. On December
1, 1998, Morgan Stanley Assets Management Inc. changed its
name to Morgan Stanley Dean Witter Investment Management
Inc. but continues to do business in certain instances using
the name Morgan Stanley Asset Management.
Fund: Partners LargeCap Growth
Sub-Advisor: Duncan-Hurst was founded in 1990. Its address is 4365
Executive Drive, Suite 1520, San Diego, CA 92121. As of
December 31, 1999, Duncan-Hurst managed assets of
approximately $5.9 billion for institutional and individual
investors.
Fund: Partners MidCap Growth
Sub-Advisor: Turner was founded in 1990. Its address is 1235 Westlake
Drive, Suite 350, Berwyn, PA 1931. As of December 31, 1999,
Turner had discretionary management authority with respect
to approximately $5.7 billion in assets.
Duties of the Manager and Sub-Advisor
The Manager or Sub-Advisor provides the Board of Directors of the Fund a
recommended investment program. The program must be consistent with the Fund's
investment objective and policies. Within the scope of the approved investment
program, the Manager or Sub-Advisor advises the Fund on its investment policies
and determines which securities are bought and sold, and in what amounts.
The Manager is paid a fee by the Fund for its services, which includes any fee
paid to the Sub-Advisor. The fee paid by each Fund (as a percentage of the
average daily net assets) for the fiscal year ended October 31, 1999 was:
<TABLE>
<S> <C> <C> <C>
Balanced 0.58% International Emerging Markets 1.25%
Blue Chip 0.46% International SmallCap 1.20%
Bond 0.48% Limited Term Bond 0.50%
Capital Value 0.37% MidCap 0.56%
Cash Management 0.44% Real Estate 0.90%
Government Securities Income 0.45% SmallCap 0.85%
Growth 0.38% Tax-Exempt Bond 0.46%
High Yield 0.60% Utilities 0.59%
International 0.68%
</TABLE>
Each Fund and the Manager, under an order received from the SEC, may enter into
and materially amend agreements with Sub-Advisors without obtaining shareholder
approval. For any Fund that is relying on the order, the Manager may:
o hire one or more Sub-Advisors;
o change Sub-Advisors; and
o reallocate management fees between itself and Sub-Advisors.
The Manager will continue to have the ultimate responsibility for the investment
performance of these Accounts due to its responsibility to oversee Sub-Advisors
and recommend their hiring, termination and replacement. No Fund will rely on
the order until it receives approval from:
o its shareholder; or
o in the case of a new Fund, the Fund's sole initial shareholder before the
Fund is available to the public, and the Fund states in its prospectus that
it intends to rely on the order. The Manager will not enter into an
agreement with an affiliated Sub-Advisor without that agreement, including
the compensation to be paid under it, being similarly approved. The
Partners Aggressive Growth, Partners LargeCap Growth and Partners MidCap
Growth Funds have received the necessary shareholder approval and intend to
rely on the order.
PRICING OF FUND SHARES
Each Fund's shares are bought and sold at the current share price. The share
price of each Class of shares of each Fund is calculated each day the New York
Stock Exchange is open. The share price is determined at the close of business
of the Exchange (normally at 3:00 p.m. Central Time). When your order to buy or
sell shares is received, the share price used to fill the order is the next
price calculated after the order is placed.
For all Funds except the Cash Management Fund, the share price is calculated by:
o taking the current market value of the total assets of the Fund
o subtracting liabilities of the Fund
o dividing the remainder proportionately into the Classes of the Fund
o subtracting the liabilities of each Class
o dividing the remainder by the total number of shares owned by that Class.
The securities of the Cash Management Fund are valued at amortized cost. The
calculation procedure is described in the Statement of Additional Information.
The Cash Management Fund reserves the right to determine a share price more than
once a day.
NOTES:
o If current market values are not readily available for a security, its fair
value is determined using a policy adopted by the Fund's Board of
Directors.
o A Fund's securities may be traded on foreign securities markets which
generally complete trading at various times during the day prior to the
close of the New York Stock Exchange. The values of foreign securities used
in computing share price are determined at the time the foreign market
closes. Occasionally, events affecting the value of foreign securities
occur when the foreign market is closed and the New York Stock Exchange is
open. If the Manager believes the market value is materially affected, the
share price will be calculated using the policy adopted by the Fund.
o Certain securities issued by companies in emerging market countries may
have more than one quoted valuation at any point in time. These may be
referred to as a local price and a premium price. The premium price is
often a negotiated price that may not consistently represent a price at
which a specific transaction can be effected. The international
growth-oriented funds each have a policy to value such securities at a
price at which the Manager or Sub-Advisor expects the shares may be sold.
DIVIDENDS AND DISTRIBUTIONS
The Growth-Oriented and Income-Oriented Funds pay most of their net dividend
income to you every year. The payment schedule is:
<TABLE>
<CAPTION>
Funds Record Date Payable Date
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Balanced, three business days before March 24, June 24,
Real Estate and each payable date September 24 and December 24
Utilities (or previous business day)
Blue Chip three business days before June 24 and December 24
each payable date (or previous business day)
Capital Value, European Equity, three business days before December 24
Growth, International, International each payable date (or previous business day)
Emerging Markets, International
SmallCap, LargeCap Stock Index
MidCap, Pacific Basin, Partners
Aggressive Growth, Partners
LargeCap Growth, Partners Midcap
Growth and SmallCap
Bond, Government Securities three business days before monthly on the 24th
Income, High Yield, Limited each payable date (or previous business day)
Term Bond and Tax-Exempt Bond
</TABLE>
Net realized capital gains, if any, are distributed annually. Generally the
distribution is made on the fourth business day of December. Payments are made
to shareholders of record on the third business day prior to the payable date.
Capital gains may be taxable at different rates, depending on the length of time
that the Fund holds its assets.
You can authorize income dividend and capital gain distributions to be:
o invested in additional shares of the Fund you own without a sales charge;
o invested in shares of another Principal Mutual Fund (Dividend Relay)
without a sales charge (distributions of a Fund may be directed only to one
receiving Fund); or
o paid in cash.
NOTE: Payment of income dividends and capital gains shortly after you buy
shares has the effect of reducing the share price by the amount of the
payment.
Distributions from the Fund, whether received in cash or reinvested in
additional shares, may be subject to federal (and state) income tax.
Money Market Fund
The Cash Management Fund declares dividends of all its daily net investment
income each day its shares are priced. The dividends are paid daily and are
automatically reinvested back into additional shares of the Fund. You may ask to
have your dividends paid to you monthly in cash. These cash payments are made on
the 20th (or preceding business day if the 20th is not a business day) of each
month.
Under normal circumstances, the Fund intends to hold portfolio securities until
maturity and value them at amortized cost. Therefore, the Fund does not expect
any capital gains or losses. Should there be any gain, it could result in an
increase in dividends. A capital loss could result in a dividend decrease.
HOW TO BUY SHARES
To open an account and buy fund shares, rely on your Registered Representative.
Principal Mutual Funds are "load" funds which means you pay a sales charge for
the ongoing assistance of your Registered Representative.
Fill out the Principal Mutual Fund application* completely. You must include:
o the name(s) you want to appear on the account;
o your choice of Class A, Class B or Class C shares;
o the amount of the investment;
o your Social Security number or Taxpayer I.D. number; and
o other required information (may include corporate resolutions, trust
agreements, etc.).
* An application is included with this prospectus. A different application
is needed for a Principal Mutual Fund IRA, 403(b), SEP, SIMPLE, SAR-SEP
or certain employee benefit plans. Call Principal Mutual Funds
(1-800-247-4123) for more information.
Each Fund requires a minimum initial investment:
o Regular Accounts $1,000
o Uniform Transfer to Minor Accounts $500
o IRA Accounts $500
Subsequent investment minimums are $100. However, if your subsequent investments
are made using an Automatic Investment Plan, the investment minimum is $50 ($100
for the Cash Management Fund).
Note: The minimum investment applies on a fund level, not on the total
investment being made. Minimums may be waived on accounts set up for:
certain employee benefit plans; retirement plans qualified under
Internal Revenue Code Section 401(a); payroll deduction plans
submitting contributions in an electronic format devised and approved
by Princor; Principal Mutual Fund asset allocation programs; Automatic
Investment Plans; and Cash Management Accounts.
Class B and Class C shares of the Cash Management Fund may be purchased only by
exchange from other Fund accounts in the same share class.
In order for us to process your purchase order on the day it is received, we
must receive the order (with complete information):
o on a day that the New York Stock Exchange (NYSE) is open; and
o prior to the close of trading on the NYSE (normally 3 p.m. Central Time).
Orders received after the close of the NYSE or on days that the NYSE is not open
will be processed on the next day that the NYSE is open for normal trading.
Invest by mail
o Send a check and completed application to:
Principal Mutual Funds
P. O. Box 10423
Des Moines Iowa 50306-9780
o Make your check payable to Principal Mutual Funds.
o Your purchase will be priced at the next share price calculated after
Principal Mutual Funds receives your paperwork, completed in a manner
acceptable to us.
Order by telephone
o Call us at 1-800-247-4123 between 7:00 a.m. and 7:00 p.m. Central Time on
any day that the New York Stock Exchange is open.
o We must receive your payment for the order within three business days (or
the order will be canceled and you may be liable for any loss).
o For new accounts, you also need to send a completed application.
Wire money from your bank
o Have your Registered Representative call Principal Mutual Funds
(1-800-247-4123) for an account number and wiring instructions.
o For both initial and subsequent purchases, federal funds should be wired
to:
Norwest Bank Iowa, N.A.
Des Moines, Iowa 50309
ABA No.: 073000228
For credit to: Principal Mutual Funds
Account No.: 3000499968
For credit: Principal ________ Fund, Class ____
Shareholder Account No. __________________
Shareholder Registration __________________
o Give the number and instructions to your bank (which may charge a wire
fee).
o No wires are accepted on days when the New York Stock Exchange is closed or
when the Federal Reserve is closed (because the bank that would receive
your wire is closed).
Establish a Direct Deposit Plan
Direct Deposit allows you to deposit automatically all or part of your paycheck
(or government allotment) to your Principal Mutual Fund account(s).
o Availability of this service must be approved by your payroll department.
o Have your Registered Representative call Principal Mutual Funds
(1-800-247-4123) for an account number, Automated Clearing House (ACH)
instructions and the form needed to establish Direct Deposit.
o Give the Direct Deposit Authorization Form to your employer or the
governmental agency (either of which may charge a fee for this service).
o Shares will be purchased on the day the ACH notification is received by
Norwest Bank Iowa, N.A.
o On days when the NYSE is closed, but the bank receiving the ACH
notification is open, your purchase will be priced at the next calculated
share price.
Establish an Automatic Investment Plan
o Make regular monthly investments with automatic deductions from your bank
or other financial institution account.
o The minimum initial investment is waived if you set up an Automatic
Investment Plan when you open your account.
o Minimum monthly purchase $50 per Fund (except Cash Management Fund).
o Cash Management Fund minimum monthly purchase is $100. However, if the Cash
Management account is greater than $1,000 when the plan is set up, the
monthly minimum is $50.
o Send completed application, check authorization form and voided check (or
voided deposit slip) to:
Principal Mutual Funds
P. O. Box 10423
Des Moines Iowa 50306-9780
Set up a Dividend Relay
o Invest your dividends and capital gains from one Principal Mutual Fund in
shares of another Principal Mutual Fund.
o Distributions from a Fund may be directed to only one receiving Fund.
o The Fund share class receiving the investment must be the same class as the
originating Fund.
o There is no sales charge or administrative charge for the Dividend Relay.
o You can set up Dividend Relay:
o on the application for a new account; or
o by calling Principal Mutual Funds (1-800-247-4123) if telephone
services apply to the originating account; or
o in writing (a signature guarantee may be required).
o You may discontinue your Dividend Relay election with a written notice to
Principal Mutual Funds.
o There may be a delay of up to 10 days before the Dividend Relay plan is
discontinued.
o The receiving Fund must meet fund minimums. If it does not, the Fund
reserves the right to close the account if it is not brought up to the
minimum investment amount within 90 days of sending you a deficiency
notice.
HOW TO REDEEM (SELL) SHARES
After you place a sell order in proper form, shares are sold using the next
share price calculated. The amount you receive will be reduced by any applicable
CDSC. There is no additional charge for a sale. However, you will be charged a
$6 wire fee if you have the sale proceeds wired to your bank. Generally, the
sale proceeds are sent out on the next business day after the sell order has
been placed. At your request, the check will be sent overnight (a $15 overnight
fee will be deducted from your account unless other arrangements are made). A
Fund can only sell shares after your check making the Fund investment has
cleared your bank. To avoid the inconvenience of a delay in obtaining sale
proceeds, shares may be purchased with a cashier's check, money order or
certified check. A sell order from one owner is binding on all joint owners.
Selling shares may create a gain or a loss for federal (and state) income tax
purposes. You should maintain accurate records for use in preparing your income
tax returns.
Generally, sales proceeds checks are:
o payable to all owners on the account (as shown in the account registration)
and
o mailed to address on the account (if not changed within last month) or
previously authorized bank account.
For other payment arrangements, please call Principal Mutual Funds
(1-800-247-4123).
You should also call Principal Mutual Funds (1-800-247-4123) for special
instructions that may apply to sales from accounts:
o when an owner has died;
o for certain employee benefit plans; or
o owned by corporations, partnerships, agents or fiduciaries.
Within 60 days after the sale of shares, you may reinvest the amount of the sale
proceeds into any Principal Mutual Funds' Class A shares without a sales charge
if the shares that were sold were:
o Class A shares on which a sales charge was paid;
o Class A shares acquired by conversion of Class B shares; or
o Class B or Class C shares on which a CDSC was paid.
The transaction is considered a sale for federal (and state) income tax purposes
even if the proceeds are reinvested. If a loss is realized on the sale, the
reinvestment may be subject to the "wash sale" rules resulting in the
postponement of the recognition of the loss for tax purposes.
Sell shares by mail
o Send a letter (signed by the owner of the account) to:
Principal Mutual Funds
P. O. Box 10423
Des Moines Iowa 50306-9780
o Specify the Fund and account number.
o Specify the number of shares or the dollar amount to be sold. o A signature
guarantee* will be required if the:
o sell order is for more than $100,000;
o account address has been changed within one month of the sell order; or
o check is payable to a party other than the account shareholder(s) or
Principal Life Insurance Company.
* If required, the signature(s) must be guaranteed by a commercial
bank, trust company, credit union, savings and loan, national
securities exchange member or brokerage firm. A signature
guaranteed by a notary public or savings bank is not acceptable.
Sell shares in amounts of $100,000 or less by telephone* (1-800-247-4123)
o The address on the account must not have been changed within the last month
and telephone privileges must apply to the account from which the shares
are being sold.
o If our phone lines are busy, you may need to send in a written sell order.
o To sell shares the same day, the order must be received before the close of
normal trading on the New York Stock Exchange (generally 3:00 p.m. Central
Time).
o Telephone redemption privileges are NOT available for Principal Mutual
Funds IRAs, 403(b)s, SEPs, SIMPLES, SAR-SEPs, or certain employee benefit
plans, or on shares for which certificates have been issued.
o If previously authorized, checks can be sent to a shareholder's U.S. bank
account.
* The Fund and transfer agent reserve the right to refuse telephone
orders to sell shares. The shareholder is liable for a loss resulting
from a fraudulent telephone order that the Fund reasonably believes is
genuine. The Fund will use reasonable procedures to assure instructions
are genuine. If the procedures are not followed, the Fund may be liable
for loss due to unauthorized or fraudulent transactions. The procedures
include: recording all telephone instructions, requesting personal
identification information (name, phone number, social security number,
birth date, etc.) and sending written confirmation to the address on
the account.
Sell shares by checkwriting (Class A shares of Cash Management Fund only)
o Checkwriting must be elected on initial application or by written request
to Principal Mutual Funds.
o The Fund can only sell shares after your check making the Fund investment
has cleared your bank.
o Checks must be written for at least $100.
o Checks are drawn on Norwest Bank Iowa, N.A. and its rules concerning
checking accounts apply.
o If the account does not have sufficient funds to cover the check, it is
marked "Insufficient Funds" and returned (the Fund may revoke checkwriting
on accounts on which "Insufficient Funds" checks are drawn).
o Accounts may not be closed by withdrawal check (accounts continue to earn
dividends until checks clear and the exact value of the account is not
known until the check is received by Norwest).
o Not available for Principal Mutual Funds IRAs, 403(b)s, SEPs, SIMPLES,
SAR-SEPs or certain employee benefit plans or shares subject to a CDSC or
on shares for which a certificate has been issued.
Periodic withdrawal plans
You may set up a periodic withdrawal plan on a monthly, quarterly, semiannual or
annual basis to:
o sell a fixed number of shares ($25 initial minimum amount);
o sell enough shares to provide a fixed amount of money ($25 initial minimum
amount);
o pay insurance or annuity premiums or deposits to Principal Life Insurance
Company (call us at 1-800-247-4123 for details); and
o provide an easy method of making monthly installment payments (if the
service is available from your creditor who must supply the necessary
forms).
You can set up a periodic withdrawal plan by:
o completing the applicable section of the application; or
o sending us your written instructions (and share certificate, if any, issued
for the account).
Your periodic withdrawal plan continues until:
o you instruct us to stop; or
o your Fund account balance is zero.
When you set up the withdrawal plan, you select which day you want the sale made
(if none selected, the sale will be made on the 15th of the month). If the
selected date is not a trading day, the sale will take place on the next trading
day (if that day falls in the month after your selected date, the transaction
will take place on the trading day before your selected date). If telephone
privileges apply to the account, you may change the date or amount by
telephoning us at 1-800-247-4123.
Sales may be subject to a CDSC. Up to 10% of the value of a Class B or Class C
share account may be withdrawn annually free of a CDSC. If the plan is set up
when the account is opened, 10% of the value of additional purchases made within
60 days may also be withdrawn free of a CDSC. The amount of the 10% withdrawal
privilege is reset as of the last business day of December of each year based on
the account's value as of that day.
Withdrawal payments are sent on or before the third business day after the date
of the sale. It may take an additional three business days for your financial
institution to post this payment to your account at that financial institution.
Sales made under your periodic withdrawal plan will reduce and may eventually
exhaust your account. The Funds do not normally accept purchase payments while a
periodic withdrawal plan is in effect (unless the purchase represents a
substantial addition to your account).
The Fund from which the periodic withdrawal is made makes no recommendation as
to either the number of shares or the fixed amount that you withdraw. The
portion of sales proceeds from the Tax-Exempt Bond Fund which represents
tax-exempt income which has been accrued but not declared a dividend by the Fund
may be taxed at capital gain rates.
HOW TO EXCHANGE SHARES AMONG PRINCIPAL MUTUAL FUNDS
Your shares in the Funds (except Class A shares of Cash Management, LargeCap
Stock Index and Limited Term Bond Funds) may be exchanged without a sales charge
for the same class of any other Principal Mutual Fund. After 90 days of their
purchase, Class A shares of LargeCap Stock Index and Limited Term Bond Funds may
be exchanged into Class A shares of the other Principal Mutual Funds. The 90 day
holding period requirement is waived if your purchase of Limited Term Bond Fund
shares is made through our Principal Path for Income program.
Class A shares of the Cash Management Fund may be exchanged into
o Class A shares of other Principal Mutual Funds.
o If the Cash Management shares were acquired by direct purchase, a sales
charge will be imposed on the exchange into other Class A shares.
o If the Cash Management shares were acquired by (i) exchange from other
Funds, (ii) conversion of Class B shares or (iii) reinvestment of
dividends earned on Class A shares that were acquired through exchange,
no sales charge will be imposed on the exchange into other Class A
shares.
o Class B or Class C shares of other Principal Mutual Funds - subject to the
CDSC.
The CDSC, if any, is not charged on exchanges. However, the purchase date of the
exchanged shares and the CSDC table are used to determine if the newly acquired
shares are subject to the CDSC (and the amount of the CDSC if any) when they are
sold.
You may exchange shares by:
o calling us (1-800-247-4123), if you have telephone privileges on the
account and if no share certificate has been issued.
o sending a written request to:
Principal Mutual Funds
P. O. Box 10423
Des Moines, Iowa 50306-9780
o completing an Exchange Authorization Form (call us at 1-800-247-4123 to
obtain the form).
Automatic exchange election
This election authorizes an exchange from one Principal Mutual Fund to another
on a monthly, quarterly, semiannual or annual basis. You can set up an automatic
exchange by:
o completing the Automatic Exchange Election section of the application;
o calling us (1-800-247-4123) if telephone privileges apply to the account
from which the exchange is to be made; or
o sending us your written instructions.
Your automatic exchange continues until:
o you instruct us to stop; or
o your Fund account balance is zero.
You may specify the day of the exchange. If the selected day is not a trading
day, the sale will take place on the next trading day (if that day falls in the
month after your selected date, the transaction will take place on the trading
day before your selected date). If telephone privileges apply to the account,
you may change the date or amount by telephoning us at 1-800-247-4123.
General
o An exchange by any joint owner is binding on all joint owners.
o If you do not have an existing account in the Fund to which the exchange is
being made, a new account is established. The new account has the same
owner(s), dividend and capital gain options and dealer of record as the
account from which the shares are being exchanged.
o All exchanges are subject to the minimum investment and eligibility
requirements of the Fund being acquired.
o You may acquire shares of a Fund only if its shares are legally offered in
your state of residence.
o If a certificate has been issued, it must be returned to the Fund before
the exchange can take place.
o For an exchange to be effective the day we receive your instruction, we
must receive the instruction before the close of normal trading on the New
York Stock Exchange (generally 3 p.m. Central Time).
When money is exchanged or transferred from one account registration or tax
identification number to another, the account holder is relinquishing his or her
rights to the money. Therefore exchanges and transfers can only be accepted by
telephone if the exchange (transfer) is between:
o accounts with identical ownership;
o an account with a single owner to one with joint ownership if the owner of
the single owner account is also an owner of the jointly owned account;
o a single owner to a UTMA account if the owner of the single ownership
account is also the custodian on the UTMA account; or
o a single or jointly owned account to an IRA account to fund the yearly IRA
contribution of the owner (or one of the owners in the case of a jointly
owned account).
The exchange privilege is not intended for short-term trading. Excessive
exchange activity may interfere with portfolio management and have an adverse
impact on all shareholders. In order to limit excessive exchange activity, and
under other circumstances where the Board of Directors of the Fund or the
Manager believes it is 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, reject any exchange or close any account. You would be notified of
any such action to the extent required by law.
Fund shares used to fund an employee benefit plan may be exchanged only for
shares of other Principal Mutual Funds available to employee benefit plans. Such
an exchange must be made by following the procedures provided in the employee
benefit plan and the written service agreement. The exchange is treated as a
sale of shares for federal (and state) income tax purposes and may result in a
capital gain or loss. Income tax rules regarding the calculation of cost basis
may make it undesirable in certain circumstances to exchange shares within 90
days of their purchase.
GENERAL INFORMATION ABOUT A FUND ACCOUNT
Statements
You will receive quarterly statements (monthly statements for the Cash
Management Fund) for the Funds you own. The statements provide the number and
value of shares you own, transactions during the quarter, dividends declared or
paid and other information. The year end statement includes information for all
transactions that took place during the year. Please review your statement as
soon as you receive it. Keep your statements as you may need them for tax
reporting purposes.
Generally, each time you buy, sell or exchange shares between Principal Mutual
Funds, you will receive a confirmation in the mail shortly thereafter. It
summarizes all the key information - what you bought or sold, the amount of the
transaction, and other vital data. The Cash Management Fund mails confirmations
only once a month detailing dividend and account activity.
Certain purchases and sales are only included on your quarterly statement. These
include accounts
o when the only activity during the quarter:
o is purchase of shares from reinvested dividends and/or capital gains;
o is a result of Dividend Relay;
o are purchases under an Automatic Investment Plan;
o are sales under a periodic withdrawal plan; and
o are purchases or sales under an automatic exchange election.
o used to fund certain individual retirement or individual pension plans.
o established under a payroll deduction plan.
Principal Mutual Fund 401(a) plan participants will receive semi-annual
statements which detail account activity. If you need information about your
account(s) at other times, you may:
o call us at 1-800-247-4123, our office generally is open Monday through
Friday between 7 a.m. and 7 p.m. Central Time;
o call our PrinCall(R) line 24 hours a day at 1-800-421-2298; or o access
your account on the internet at www.principal.com.
Signature Guarantees
Certain transactions require that your signature be guaranteed. If required, the
signature(s) must be guaranteed by a commercial bank, trust company, credit
union, savings and loan, national securities exchange member or brokerage firm.
A signature guaranteed by a notary public or savings bank is not acceptable.
Signature guarantees are required:
o if you sell more than $100,000 from any one Fund;
o if a sales proceeds check is payable to other than the account
shareholder(s), Principal Life Insurance Company or one of its affiliates;
o to make a Dividend Relay election from an account with joint owners to an
account with only one owner or different joint owners;
o to change ownership of an account;
o to add telephone transaction services, checkwriting and/or wire privileges
to an existing account;
o to change bank account information designated under an existing telephone
withdrawal plan;
o to have a sales proceeds check mailed to an address other than the address
on the account or to the address on the account if it has been changed
within the preceding month; and
o to exchange or transfer among accounts with different ownerships.
Minimum Account Balance
Generally, the Funds do not have a minimum required balance. Because of the
disproportional high cost of maintaining small accounts, the Funds reserve the
right to set a minimum and sell all shares in an account with a value of less
than $300. The sales proceeds would then be mailed to you. These involuntary
sales will not be triggered just by market conditions. If the Fund exercises
this right, you will be notified that the redemption is going to be made. You
will have 30 days to make an additional investment and bring your account up to
the required minimum. The Fund reserves the right to increase the required
minimum.
Special Plans
The Funds reserve the right to amend or terminate the special plans described in
this prospectus. Such plans include automatic investment, dividend relay,
periodic withdrawal, and waiver or reduction of sales charges for certain
purchasers. You will be notified of any such action to the extent required by
law.
Telephone Instructions
The Funds reserve the right to refuse telephone instructions. You are liable for
a loss resulting from a fraudulent telephone instruction that we reasonably
believe is genuine. We use reasonable procedures to assure instructions are
genuine. If the procedures are not followed, we may be liable for loss due to
unauthorized or fraudulent transactions. The procedures include: recording all
telephone instructions, requesting personal identification information (name,
phone number, social security number, birth date, etc.) and sending written
confirmation to the shareholder's address of record.
Financial Statements
Shareholders will receive annual financial statements for the Funds, examined by
the Funds' independent auditors, Ernst & Young LLP. Shareholders will also
receive a semiannual financial statement which is unaudited. That report is a
part of this prospectus. The following financial highlights are derived from
financial statements which were audited by Ernst & Young LLP.
HIGHLIGHTS Domestic Growth-Oriented Funds
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL BALANCED FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $15.28 $15.11 $14.61 $13.74 $12.43
Income from Investment Operations:
Net Investment Income............................... .40 .42 .35 .38 .41
Net Realized and Unrealized Gain (Loss)
on Investments.................................... .34 1.15 1.81 1.59 1.31
Total from Investment Operations .74 1.57 2.16 1.97 1.72
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.44) (.37) (.36) (.43) (.36)
Distributions from Capital Gains.................... (.45) (1.03) (1.30) (.67) (.05)
Total Dividends and Distributions (.89) (1.40) (1.66) (1.10) (.41)
Net Asset Value, End of Period......................... $15.13 $15.28 $15.11 $14.61 $13.74
Total Return(b) ....................................... 4.85% 11.00% 15.88% 15.10% 14.18%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $112,329 $104,414 $85,436 $70,820 $57,125
Ratio of Expenses to Average Net Assets............. 1.28% 1.28% 1.33% 1.28% 1.37%
Ratio of Net Investment Income to
Average Net Assets................................ 2.67% 2.86% 2.42% 2.82% 3.21%
Portfolio Turnover Rate............................. 24.2% 57.0% 27.6% 32.6% 35.8%
PRINCIPAL BALANCED FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(c)
--------------------------------------------------------------------------------------------- ---- -----------
Net Asset Value, Beginning of Period................... $15.22 $15.05 $14.56 $13.71 $11.80
Income from Investment Operations:
Net Investment Income............................... .29 .31 .25 .29 .31
Net Realized and Unrealized Gain (Loss)
on Investments.................................... .32 1.14 1.79 1.55 1.90
Total from Investment Operations .61 1.45 2.04 1.84 2.21
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.32) (.25) (.25) (.32) (.30)
Distributions from Capital Gains.................... (.45) (1.03) (1.30) (.67) --
Total Dividends and Distributions (.77) (1.28) (1.55) (.99) (.30)
Net Asset Value, End of Period......................... $15.06 $15.22 $15.05 $14.56 $13.71
Total Return(b) ....................................... 4.02% 10.18% 14.96% 14.10% 18.72%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $23,570 $18,930 $11,885 $5,964 $1,263
Ratio of Expenses to Average Net Assets............. 2.02% 2.04% 2.14% 2.13% 1.91%(e)
Ratio of Net Investment Income to
Average Net Assets................................ 1.93% 2.08% 1.58% 1.93% 2.53%(e)
Portfolio Turnover Rate............................. 24.2% 57.0% 27.6% 32.6% 35.8%(e)
PRINCIPAL BALANCED FUND, INC.(a)
Class C shares 1999(f)
-------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $15.94
Income from Investment Operations:
Net Investment Income............................... .07
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (.81)
Total from Investment Operations (.74)
Less Dividends:
Dividends from Net Investment Income................ (.07)
Total Dividends (.07)
Net Asset Value, End of Period......................... $15.13
Total Return(b) ....................................... (4.67)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $242
Ratio of Expenses to Average Net Assets............. 2.11%(e)
Ratio of Net Investment Income to
Average Net Assets................................ 1.78%(e)
Portfolio Turnover Rate............................. 24.2%(e)
PRINCIPAL BLUE CHIP FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
------------------------------------------------------------------- ------------------------ ---- ----
Net Asset Value, Beginning of Period................... $21.71 $20.22 $17.10 $15.03 $12.45
Income from Investment Operations:
Net Investment Income............................... .15 .12 .21 .23 .24
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 3.53 3.57 3.58 2.45 2.55
Total from Investment Operations 3.68 3.69 3.79 2.68 2.79
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.14) (.12) (.21) (.26) (.21)
Distributions from Capital Gains.................... -- (2.08) (.46) (.35) --
Total Dividends and Distributions (.14) (2.20) (.67) (.61) (.21)
Net Asset Value, End of Period......................... $25.25 $21.71 $20.22 $17.10 $15.03
Total Return(b) ....................................... 17.00% 19.48% 22.57% 18.20% 22.65%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $184,217 $126,740 $79,985 $44,389 $35,212
Ratio of Expenses to Average Net Assets............. 1.26% 1.31% 1.30% 1.33% 1.38%
Ratio of Net Investment Income to
Average Net Assets................................ .63% .57% 1.10% 1.41% 1.83%
Portfolio Turnover Rate............................. 16.4% .5% 55.4% 13.3% 26.1%
PRINCIPAL BLUE CHIP FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(c)
------------------------------------------------------------------- ------------------------ ---- -----------
Net Asset Value, Beginning of Period................... $21.55 $20.14 $17.03 $14.99 $11.89
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.02) (.02) .07 .11 .15
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 3.48 3.53 3.54 2.41 3.10
Total from Investment Operations 3.46 3.51 3.61 2.52 3.25
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.01) (.02) (.04) (.13) (.15)
Distributions from Capital Gains.................... -- (2.08) (.46) (.35) --
Total Dividends and Distributions (.01) (2.10) (.50) (.48) (.15)
Net Asset Value, End of Period......................... $25.00 $21.55 $20.14 $17.03 $14.99
Total Return(b) ....................................... 16.09% 18.59% 21.59% 17.18% 26.20%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $56,493 $34,223 $18,265 $6,527 $1,732
Ratio of Expenses to Average Net Assets............. 2.04% 2.02% 2.06% 2.19% 1.90%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.15)%` (.14)% .32% .49% .97%(e)
Portfolio Turnover Rate............................. 16.4% .5% 55.4% 13.3% 26.1%(e)
PRINCIPAL BLUE CHIP FUND, INC.(a)
Class C shares 1999(f)
-------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $25.50
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.03)
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (.30)
Total from Investment Operations (.33)
Net Asset Value, End of Period......................... $25.17
Total Return(b) ....................................... (1.29)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $331
Ratio of Expenses to Average Net Assets............. 2.27%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................ (.72)%(e)
Portfolio Turnover Rate............................. 16.4%(e)
PRINCIPAL CAPITAL VALUE FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------- ---- ----
Net Asset Value, Beginning of Period................... $31.07 $29.69 $27.72 $23.69 $20.83
Income from Investment Operations:
Net Investment Income............................... .52 .50 .50 .45 .45
Net Realized and Unrealized Gain (Loss)
on Investments.................................... .45 3.88 5.80 5.48 3.15
Total from Investment Operations .97 4.38 6.30 5.93 3.60
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.51) (.53) (.48) (.43) (.39)
Distributions from Capital Gains.................... (1.95) (2.47) (3.85) (1.47) (.35)
Total Dividends and Distributions (2.46) (3.00) (4.33) (1.90) (.74)
Net Asset Value, End of Period......................... $29.58 $31.07 $29.69 $27.72 $23.69
Total Return(b) ....................................... 3.00% 15.59% 25.36% 26.41% 17.94%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $573,485 $565,052 $494,444 $435,617 $339,656
Ratio of Expenses to Average Net Assets............. .75% .74% .70% .69% .75%
Ratio of Net Investment Income to
Average Net Assets................................ 1.73% 1.67% 1.85% 1.82% 2.08%
Portfolio Turnover Rate............................. 44.5% 23.2% 30.8% 50.2% 46.0%
PRINCIPAL CAPITAL VALUE FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(c)
--------------------------------------------------------------------------------------------- ----- ----
Net Asset Value, Beginning of Period................... $30.90 $29.51 $27.58 $23.61 $19.12
Income from Investment Operations:
Net Investment Income............................... .29 .26 .23 .21 .33
Net Realized and Unrealized Gain (Loss)
on Investments.................................... .44 3.86 5.77 5.45 4.46
Total from Investment Operations .73 4.12 6.00 5.66 4.79
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.27) (.26) (.22) (.22) (.30)
Distributions from Capital Gains.................... (1.95) (2.47) (3.85) (1.47) --
Total Dividends and Distributions (2.22) (2.73) (4.07) (1.69) (.30)
Net Asset Value, End of Period......................... $29.41 $30.90 $29.51 $27.58 $23.61
Total Return(b) ....................................... 2.24% 14.71% 24.13% 25.19% 25.06%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $53,169 $44,765 $27,240 $9,832 $2,248
Ratio of Expenses to Average Net Assets............. 1.52% 1.52% 1.65% 1.70% 1.50%(e)
Ratio of Net Investment Income to
Average Net Assets................................ .96% .88% .84% .80% 1.07%(e)
Portfolio Turnover Rate............................. 44.5% 23.2% 30.8% 50.2% 46.0%(e)
PRINCIPAL CAPITAL VALUE FUND, INC.(a)
Class C shares 1999(f)
-------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $31.81
Income from Investment Operations:
Net Investment Income............................... .01
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (2.37)
Total from Investment Operations (2.36)
Net Asset Value, End of Period......................... $29.45
Total Return(b) ....................................... (7.42)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $211
Ratio of Expenses to Average Net Assets............. 2.07%(e)
Ratio of Net Investment Income to
Average Net Assets................................ .23%(e)
Portfolio Turnover Rate............................. 44.5%(e)
PRINCIPAL GROWTH FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
------------------------------------------------------------------- ------------------------ ---- ----
Net Asset Value, Beginning of Period................... $56.09 $50.43 $39.54 $37.22 $31.14
Income from Investment Operations:
Net Investment Income............................... .21 .35 .31 .35 .35
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 9.56 7.14 11.26 3.50 6.67
Total from Investment Operations 9.77 7.49 11.57 3.85 7.02
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.30) (.34) (.31) (.35) (.31)
Distributions from Capital Gains.................... -- (1.49) (.37) (1.18) (.63)
Total Dividends and Distributions (.30) (1.83) (.68) (1.53) (.94)
Net Asset Value, End of Period......................... $65.57 $56.09 $50.43 $39.54 $37.22
Total Return(b) ....................................... 17.46% 15.17% 29.55% 10.60% 23.29%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $493,117 $395,954 $317,386 $228,361 $174,328
Ratio of Expenses to Average Net Assets............. .89% .95% 1.03% 1.08% 1.16%
Ratio of Net Investment Income to
Average Net Assets................................ .33% .66% .68% .95% 1.12%
Portfolio Turnover Rate............................. 32.4% 21.9% 16.5% 1.8% 12.2%
PRINCIPAL GROWTH FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(c)
--------------------------------------------------------------------------------------------- ---- -----------
Net Asset Value, Beginning of Period................... $55.98 $50.36 $39.43 $37.10 $28.33
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.17) .06 .09 .08 .21
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 9.55 7.14 11.23 3.48 8.76
Total from Investment Operations 9.38 7.20 11.32 3.56 8.97
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.03) (.09) (.02) (.05) (.20)
Distributions from Capital Gains.................... -- (1.49) (.37) (1.18) --
Total Dividends and Distributions (.03) (1.58) (.39) (1.23) (.20)
Net Asset Value, End of Period......................... $65.33 $55.98 $50.36 $39.43 $37.10
Total Return(b) ....................................... 16.75% 14.58% 28.92% 9.80% 31.48%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $96,116 $64,809 $42,241 $24,019 $8,279
Ratio of Expenses to Average Net Assets............. 1.50% 1.46% 1.48% 1.79% 1.80%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.28)% .15% .23% .22% .31%(e)
Portfolio Turnover Rate............................. 32.4% 21.9% 16.5% 1.8% 12.2%(e)
PRINCIPAL GROWTH FUND, INC.(a)
Class C shares 1999(f)
-------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $67.89
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.07)
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (2.48)
Total from Investment Operations (2.55)
Net Asset Value, End of Period......................... $65.34
Total Return(b) ....................................... (3.75)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $452
Ratio of Expenses to Average Net Assets............. 1.85%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.58)%(e)
Portfolio Turnover Rate............................. 32.4%(e)
PRINCIPAL MIDCAP FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
------------------------------------------------------------------- ------------------------ ---- ----
Net Asset Value, Beginning of Period................... $39.90 $45.33 $35.75 $31.45 $25.08
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.06) (.07) .07 .14 .12
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 2.28 (4.26) 10.80 5.05 6.45
Total from Investment Operations 2.22 (4.33) 10.87 5.19 6.57
Less Dividends and Distributions:
Dividends from Net Investment Income -- -- (.11) (.14) (.06)
Distributions from Capital Gains.................... -- (1.10) (1.18) (.75) (.14)
Total Dividends and Distributions -- (1.10) (1.29) (.89) (.20)
Net Asset Value, End of Period......................... $42.12 $39.90 $45.33 $35.75 $31.45
Total Return(b) ....................................... 5.56% (9.78)% 31.26% 16.89% 26.89%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $313,984 $332,942 $346,666 $229,465 $150,611
Ratio of Expenses to Average Net Assets............. 1.22% 1.22% 1.26% 1.32% 1.47%
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.17)% (.14)% .20% .46% .47%
Portfolio Turnover Rate............................. 59.9% 25.1% 9.5% 12.3% 13.5%
PRINCIPAL MIDCAP FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(c)
------------------------------------------------------------------- ------------------------ ---- -----------
Net Asset Value, Beginning of Period................... $39.29 $44.88 $35.48 $31.31 $23.15
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.28) (.23) (.05) (.04) --
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 2.28 (4.26) 10.64 4.97 8.18
Total from Investment Operations 2.00 (4.49) 10.59 4.93 8.18
Less Dividends and Distributions:
Dividends from Net Investment Income................ -- -- (.01) (.01) (.02)
Distributions from Capital Gains.................... -- (1.10) (1.18) (.75) --
Total Dividends and Distributions -- (1.10) (1.19) (.76) (.02)
Net Asset Value, End of Period......................... $41.29 $39.29 $44.88 $35.48 $31.31
Total Return(b) ....................................... 5.09% (10.24)% 30.64% 16.07% 35.65%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $68,639 $68,358 $59,554 $28,480 $8,997
Ratio of Expenses to Average Net Assets............. 1.67% 1.73% 1.69% 2.01% 2.04%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.62)% (.66)% (.24)% (.24)% (.17)%(e)
Portfolio Turnover Rate............................. 59.9% 25.1% 9.5% 12.3% 13.5%(e)
PRINCIPAL MIDCAP FUND, INC.(a)
Class C shares 1999(f)
-------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $45.79
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.11)
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (3.72)
Total from Investment Operations (3.83)
Net Asset Value, End of Period......................... $41.96
Total Return(b) ....................................... (8.36)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $222
Ratio of Expenses to Average Net Assets............. 2.25%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (1.14)%(e)
Portfolio Turnover Rate............................. 59.9%(e)
PRINCIPAL REAL ESTATE FUND, INC.
Class A shares 1999 1998(g)
--------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $8.39 $10.15
Income from Investment Operations:
Net Investment Income............................... .31 .20
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (.67) (1.76)
Total from Investment Operations (.36) (1.56)
Less Dividends:
Dividends from Net Investment Income................ (.30) (.20)
Total Dividends (.30) (.20)
Net Asset Value, End of Period......................... $7.73 $8.39
Total Return(b) ....................................... (4.38)% (15.45)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $6,459 $5,490
Ratio of Expenses to Average Net Assets............. 2.19% 2.25%(e)
Ratio of Net Investment Income to
Average Net Assets................................ 3.77% 2.89%(e)
Portfolio Turnover Rate............................. 55.1% 60.4%(e)
PRINCIPAL REAL ESTATE FUND, INC.
Class B shares 1999 1998(g)
--------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $8.38 $10.15
Net Investment Income............................... .24 .20
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (.66) (1.78)
Total from Investment Operations (.42) (1.58)
Less Dividends:
Dividends from Net Investment Income................ (.25) (.19)
Total Dividends (.25) (.19)
Net Asset Value, End of Period......................... $7.71 $ 8.38
Total Return(b) ....................................... (5.10)% (15.67)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $3,351 $3,120
Ratio of Expenses to Average Net Assets............. 2.98% 2.47% (e)
Ratio of Net Investment Income to
Average Net Assets................................ 2.98% 2.67%(e)
Portfolio Turnover Rate............................. 55.1% 60.4%(e)
PRINCIPAL REAL ESTATE FUND, INC.
Class C shares 1999(f)
-------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $8.66
Income from Investment Operations:
Net Investment Income............................... .06
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (.94)
Total from Investment Operations (.88)
Less Dividends:
Dividends from Net Investment Income................ (.06)
--- ---------
Total Dividends (.06)
Net Asset Value, End of Period......................... $7.72
Total Return(b) ....................................... (10.21)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $99
Ratio of Expenses to Average Net Assets............. 3.13%(e)
Ratio of Net Investment Income to
Average Net Assets................................ 2.00%(e)
Portfolio Turnover Rate............................. 55.1%(e)
PRINCIPAL SMALLCAP FUND, INC.
Class A shares 1999 1998(g)
------------------------------------------------------------------- -----------
Net Asset Value, Beginning of Period................... $8.43 $9.92
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.11) (.08)
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 3.02 (1.41)
Total from Investment Operations 2.91 (1.49)
Net Asset Value, End of Period......................... $11.34 $8.43
Total Return(b) ....................................... 34.52% (15.95)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $41,598 $18,438
Ratio of Expenses to Average Net Assets............. 1.92% 2.58%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (1.04)% (1.65)%(e)
Portfolio Turnover Rate............................. 100.7% 20.5%(e)
PRINCIPAL SMALLCAP FUND, INC.
Class B shares 1999 1998(g)
------------------------------------------------------------------- -----------
Net Asset Value, Beginning of Period................... $8.41 $9.91
Net Investment Income (Operating Loss).............. (.11) (.11)
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 2.91 (1.39)
Total from Investment Operations 2.80 (1.50)
Net Asset Value, End of Period......................... $11.21 $ 8.41
Total Return(b) ....................................... 33.29% (16.15)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $14,158 $6,550
Ratio of Expenses to Average Net Assets............. 2.63% 2.80% (e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (1.75)% (1.85)%(e)
Portfolio Turnover Rate............................. 100.7% 20.5% (e)
PRINCIPAL SMALLCAP FUND, INC.
Class C shares 1999(f)
-------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $11.14
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.05)
Net Realized and Unrealized Gain (Loss)
on Investments.................................... .22
Total from Investment Operations .17
Net Asset Value, End of Period......................... $11.31
Total Return(b) ....................................... 1.53%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $189
Ratio of Expenses to Average Net Assets............. 2.60%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (1.79)%(e)
Portfolio Turnover Rate............................. 100.7%(e)
PRINCIPAL UTILITIES FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
------------------------------------------------------------------------------- ------------- ---- ----
Net Asset Value, Beginning of Period................... $16.11 $12.55 $11.40 $10.94 $9.25
Income from Investment Operations:
Net Investment Income............................... .33 .41(h) .48(h) .44(h) .48(h)
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 2.00 3.59 1.12 .45 1.70
Total from Investment Operations 2.33 4.00 1.60 .89 2.18
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.34) (.44) (.45) (.43) (.49)
Distributions from Capital Gains.................... (.24) -- -- -- --
Total Dividends and Distributions (.58) (.44) (.45) (.43) (.49)
Net Asset Value, End of Period......................... $17.86 $16.11 $12.55 $11.40 $10.94
Total Return(b) ....................................... 14.74% 32.10% 14.26% 8.13% 24.36%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $99,857 $83,533 $64,366 $66,322 $65,873
Ratio of Expenses to Average Net Assets............. 1.20% 1.15%(h) 1.15%(h) 1.17%(h) 1.04%(h)
Ratio of Net Investment Income to
Average Net Assets................................ 1.94% 2.73% 3.90% 3.85% 4.95%
Portfolio Turnover Rate............................. 23.5% 11.9% 22.5% 34.2% 13.0%
PRINCIPAL UTILITIES FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(c)
------------------------------------------------------------------- ------------------------ ---- -----------
Net Asset Value, Beginning of Period................... $16.09 $12.53 $11.38 $10.93 $9.20
Income from Investment Operations:
Net Investment Income............................... .22 .30(h) .38(h) .36(h) .40(h)
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 1.98 3.59 1.13 .43 1.77
Total from Investment Operations 2.20 3.89 1.51 .79 2.17
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.22) (.33) (.36) (.34) (.44)
Distributions from Capital Gains.................... (.24) -- -- -- --
Total Dividends and Distributions (.46) (.33) (.36) (.34) (.44)
Net Asset Value, End of Period......................... $17.83 $16.09 $12.53 $11.38 $10.93
Total Return(b) ....................................... 13.85% 31.23% 13.41% 7.23% 24.18%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $18,282 $11,391 $6,937 $5,579 $3,952
Ratio of Expenses to Average Net Assets............. 1.95% 1.90%(h) 1.90%(h) 1.93%(h) 1.72%(e)(h)
Ratio of Net Investment Income to
Average Net Assets................................ 1.19% 2.04% 3.14% 3.07% 3.84%(e)
Portfolio Turnover Rate............................. 23.5% 11.9% 22.5% 34.2% 13.0%(e)
PRINCIPAL UTILITIES FUND, INC.(a)
Class C shares 1999(f)
-------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $17.97
Income from Investment Operations:
Net Investment Income............................... .05
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (.14)
Total from Investment Operations (.09)
Less Dividends:
Dividends from Net Investment Income................ (.04)
Total Dividends (.04)
Net Asset Value, End of Period......................... $17.84
Total Return(b) ....................................... (.47)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $226
Ratio of Expenses to Average Net Assets............. 2.05%(e)
Ratio of Net Investment Income to
Average Net Assets................................ 1.08%(e)
Portfolio Turnover Rate............................. 23.5%(e)
</TABLE>
Notes to Financial Highlights
(a) Effective January 1, 1998, the following changes were made to the names of
the Domestic Growth Funds:
<TABLE>
<CAPTION>
Former Fund Name New Fund Name
<S> <C> <C>
Princor Balanced Fund, Inc. Principal Balanced Fund, Inc.
Princor Blue Chip Fund, Inc. Principal Blue Chip Fund, Inc.
Princor Capital Accumulation Fund, Inc. Principal Capital Value Fund, Inc.
Princor Growth Fund, Inc. Principal Growth Fund, Inc.
Princor Emerging Growth Fund, Inc. Principal MidCap Fund, Inc.
Princor Utilities Fund, Inc. Principal Utilities Fund, Inc.
</TABLE>
(b) Total return is calculated without the front-end sales charge or contingent
deferred sales charge.
(c) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. The Domestic Growth 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, Principal Management
Corporation. The Domestic Growth Funds' Class B shares incurred unrealized
losses on investments during the initial interim period as follows. This
represents Class B share activities of each fund prior to the initial
public offering of Class B shares:
Per Share
Net Investment Per Share
Income Unrealized (Loss)
Principal Balanced Fund, Inc. $-- $(.19)
Principal Blue Chip Fund, Inc. -- (.15)
Principal Capital Value Fund, Inc. -- (.46)
Principal Growth Fund, Inc. -- (.86)
Principal MidCap Fund, Inc. -- (.77)
Principal Utilities Fund, Inc. .01 (.01)
(d) Total return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Period from June 30, 1999, date Class C shares first offered to the public
and the date of the initial purchase of Class C Shares by Principal Life
Insurance Company, through October 31, 1999.
(g) Period from December 31, 1997, date Class A and Class B shares first
offered to the public, through October 31, 1998. With respect to Principal
Real Estate Fund, Inc. Class A and Class B shares, net investment income
aggregating $.03 per share for the period from the initial purchase of
shares on December 11, 1997 through December 30, 1997 was recognized, of
which $.01 per share was distributed to its sole shareholder, Principal
Life Insurance Company, during the period. With respect to Principal
SmallCap Fund, Inc. Class A and Class B shares, net investment income
aggregating $.02 per share from the initial purchase of shares on December
11, 1997 through December 30, 1997 was recognized. Principal SmallCap Fund,
Inc. Class A and Class B did distribute $.01 per share a taxable return of
capital to the sole shareholder Principal Life Insurance Company, during
the period. Principal Real Estate Fund, Inc. and Principal SmallCap Fund,
Inc. Class A and Class B shares incurred unrealized gains (losses) on
investments during the initial interim period as follows. This represents
Class A and Class B share activities of each fund prior to the initial
public offering of each class of shares.
Per Share Unrealized
Gain (Loss)
Class Class
A B
Principal Real Estate Fund, Inc. $ .13 $ .13
Principal SmallCap Fund, Inc. (.09) (.09)
(h) Without the Manager's voluntary waiver of a portion of certain of its
expenses for the periods indicated, Principal Utilities Fund, Inc. would
have had per share net investment income and the ratios of expenses to
average net assets as shown:
<TABLE>
<CAPTION>
Year Ended
October 31, Per Share Ratio of Expenses
Except Net Investment to Average Net Amount
as Noted Income Assets Waived
<S> <C> <C> <C> <C>
Class A 1998 $.39 1.23% $ 60,477
1997 .46 1.25% 65,940
1996 .43 1.25% 54,932
1995 .46 1.30% 151,145
Class B 1998 .29 2.00% 9,557
1997 .37 1.95% 3,753
1996 .34 2.06% 6,690
1995(c) .40 1.81%(e) 1,338
<FN>
The Manager ceased its waiver of expenses October 31, 1998.
</FN>
</TABLE>
International Growth-Oriented Funds
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL INTERNATIONAL EMERGING MARKETS FUND, INC.
Class A shares 1999 1998 1997(a)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $6.54 $8.29 $9.51
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.03) (.02) (.01)
Net Realized and Unrealized
Gain (Loss) on Investments........................ 2.05 (1.73) (1.21)
Total from Investment Operations 2.02 (1.75) (1.22)
Net Asset Value, End of Period......................... $8.56 $6.54 $8.29
Total Return(b) ....................................... 30.89% (21.11)% (10.18)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $13,401 $7,312 $5,039
Ratio of Expenses to Average Net Assets............. 2.75% 3.31% 2.03%(d)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.35)% (.36)% (.32)%(d)
Portfolio Turnover Rate............................. 95.8% 45.2% 21.4%(d)
PRINCIPAL INTERNATIONAL EMERGING MARKETS FUND, INC.
Class B shares 1999 1998 1997(a)
---------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $6.52 $8.28 $9.51
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.07) (.05) (.01)
Net Realized and Unrealized
Gain (Loss) on Investments........................ 2.02 (1.71) (1.22)
Total from Investment Operations 1.95 (1.76) (1.23)
Net Asset Value, End of Period......................... $8.47 $6.52 $8.28
Total Return(b) ....................................... 29.91% (21.26)% (10.29)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $5,051 $3,275 $3,116
Ratio of Expenses to Average Net Assets............. 3.57% 3.59% 2.16%(d)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (1.12)% (.69)% (.46)%(d)
Portfolio Turnover Rate............................. 95.8% 45.2% 21.4%(d)
PRINCIPAL INTERNATIONAL EMERGING MARKETS FUND, INC.(f)
---------------------------------------------------
Class C shares 1999(e)
-------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $8.94
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.06)
Net Realized and Unrealized
Gain (Loss) on Investments........................ (.34)
Total from Investment Operations (.40)
Net Asset Value, End of Period......................... $8.54
Total Return(b) ....................................... (4.47)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $108
Ratio of Expenses to Average Net Assets............. 3.52%(d)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (2.24)%(d)
Portfolio Turnover Rate............................. 95.8%(d)
PRINCIPAL INTERNATIONAL FUND, INC.(f)
Class A shares 1999 1998 1997 1996 1995
------------------------------------------------------------------- ------------------------ ---- ----
Net Asset Value, Beginning of Period................... $9.20 $9.33 $8.14 $7.28 $7.44
Income from Investment Operations:
Net Investment Income............................... .13 .13 .09 .10 .08
Net Realized and Unrealized
Gain (Loss) on Investments........................ 1.28 .04 1.52 1.17 (.02)
Total from Investment Operations 1.41 .17 1.61 1.27 .06
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.11) (.10) (.11) (.08) (.03)
Distributions from Capital Gains.................... (.46) (.20) (.31) (.33) (.19)
Total Dividends and Distributions (.57) (.30) (.42) (.41) (.22)
Net Asset Value, End of Period......................... $10.04 $9.20 $9.33 $8.14 $7.28
Total Return(b) ....................................... 16.18% 1.93% 20.46% 18.36% 1.03%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $338,144 $302,757 $281,158 $172,276 $126,554
Ratio of Expenses to Average Net Assets............. 1.22% 1.25% 1.39% 1.45% 1.63%
Ratio of Net Investment Income
to Average Net Assets............................. 1.35% 1.45% 1.25% 1.43% 1.10%
Portfolio Turnover Rate............................. 58.7% 38.7% 26.6% 23.8% 35.4%
PRINCIPAL INTERNATIONAL FUND, INC.(f)
Class B shares 1999 1998 1997 1996 1995(g)
--------------------------------------------------------------------------------------------- ---- -----------
Net Asset Value, Beginning of Period................... $9.14 $9.26 $8.07 $7.24 $6.71
Income from Investment Operations:
Net Investment Income............................... .06 .07 .03 .03 .05
Net Realized and Unrealized
Gain (Loss) on Investments........................ 1.27 .04 1.51 1.15 .51
Total from Investment Operations 1.33 .11 1.54 1.18 .56
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.05) (.03) (.04) (.02) (.03)
Distributions from Capital Gains.................... (.46) (.20) (.31) (.33) --
Total Dividends and Distributions (.51) (.23) (.35) (.35) (.03)
Net Asset Value, End of Period......................... $9.96 $9.14 $9.26 $8.07 $7.24
Total Return(b) ....................................... 15.27% 1.27% 19.62% 17.16% 9.77%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $48,319 $41,676 $33,842 $15,745 $3,908
Ratio of Expenses to Average Net Assets............. 1.90% 1.91% 2.17% 2.28% 2.19%(d)
Ratio of Net Investment Income
to Average Net Assets............................. .67% .77% .42% .64% .58%(d)
Portfolio Turnover Rate............................. 58.7% 38.7% 26.6% 23.8% 35.4%(d)
PRINCIPAL INTERNATIONAL FUND, INC.(f)
Class C shares 1999(e)
-------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $9.61
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.02)
Net Realized and Unrealized
Gain (Loss) on Investments........................ .40
Total from Investment Operations .38
Net Asset Value, End of Period......................... $9.99
Total Return(b) ....................................... 3.95%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $191
Ratio of Expenses to Average Net Assets............. 2.38%(d)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.95)%(d)
Portfolio Turnover Rate............................. 58.7%(d)
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
Class A shares 1999 1998 1997(a)
---------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $9.99 $9.96 $10.04
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.12) (.07) (.01)
Net Realized and Unrealized
Gain (Loss) on Investments........................ 5.53 .10 (.07)
Total from Investment Operations 5.41 .03 (.08)
Less Distributions:
Distributions from Capital Gains.................... (.08) -- --
Total Distributions (.08) -- --
Net Asset Value, End of Period......................... $15.32 $9.99 $9.96
Total Return(b) ....................................... 54.52% .30% .50%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $23.612 $11,765 $6,210
Ratio of Expenses to Average Net Assets............. 2.21% 2.66% 1.99%(d)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (1.02)% (.81)% (.40)%(d)
Portfolio Turnover Rate............................. 191.5% 99.8% 10.4%(d)
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
Class B shares 1999 1998 1997(a)
------------------------------------------------------------------- ------------------------
Net Asset Value, Beginning of Period................... $9.97 $9.96 $10.04
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.20) (.10) (.01)
Net Realized and Unrealized
Gain (Loss) on Investments........................ 5.49 .11 (.07)
Total from Investment Operations 5.29 .01 (.08)
Less Distributions:
Distributions from Capital Gains.................... (.08) -- --
Total Distributions (.08) -- --
Net Asset Value, End of Period......................... $15.18 $9.97 $9.96
Total Return(b) ....................................... 53.42% .10% .50%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $10,926 $6,585 $4,774
Ratio of Expenses to Average Net Assets............. 2.87% 2.90% 2.07%(d)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (1.68)% (1.05)% (.47)%(d)
Portfolio Turnover Rate............................. 191.5% 99.8% 10.4%(d)
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
Class C shares 1999(e)
-------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $12.97
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.11)
Net Realized and Unrealized
Gain (Loss) on Investments........................ 2.42
Total from Investment Operations 2.31
Net Asset Value, End of Period......................... $15.28
Total Return(b) ....................................... 17.81%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $141
Ratio of Expenses to Average Net Assets............. 2.96%(d)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (2.31)%(d)
Portfolio Turnover Rate............................. 191.5%(d)
</TABLE>
Notes to Financial Highlights
(a) Period from August 29, 1997, date Class A and Class B shares first offered
to the public, through October 31, 1997. Principal International Emerging
Markets Fund, Inc. and Principal International SmallCap Fund, Inc. classes
of shares recognized net investment income as follows for the period from
the initial purchase of shares on August 14, 1997, through August 28, 1997,
none of which was distributed to the sole shareholder, Principal Life
Insurance Company. Principal International Emerging Markets Fund, Inc. and
Principal International SmallCap Fund, Inc. incurred unrealized gains
(losses) on investments during the initial interim period as follows. This
represents Class A and Class B share activities prior to the initial public
offering of all classes of shares of each fund.
<TABLE>
<CAPTION>
Per Share Per Share
Net Investment Unrealized
Income Gain (Loss)
Principal International Emerging Markets Fund, Inc.:
<S> <C> <C>
Class A $.01 $(.50)
Class B .01 (.50)
Principal International SmallCap Fund, Inc.:
Class A .01 .03
Class B .01 .03
</TABLE>
(b) Total return is calculated without the front-end sales charge or contingent
deferred sales charge.
(c) Total return amounts have not been annualized.
(d) Computed on an annualized basis.
(e) Period from June 30, 1999, date Class C shares first offered to the public
and the date of the initial purchase of Class C shares by Principal Life
Insurance Company, through October 31, 1999.
(f) Effective January 1, 1998, Princor World Fund, Inc. changed its name to
Principal International Fund, Inc.
(g) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. Principal International Fund, Inc. Class
B shares recognized no net investment income for the period from the
initial purchase by Principal Management Corporation of Class B shares on
December 5, 1994, through December 8, 1994. Additionally, Class B shares
incurred unrealized losses on investments of $.07 per share during the
initial interim period. This represents Class B share activities of the
fund prior to the initial public offering of Class B shares.
Income-Oriented Funds
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL BOND FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $11.59 $11.44 $11.17 $11.42 $10.27
Income from Investment Operations:
Net Investment Income................................. .70 .71(b) .75(b) .76(b) .78(b)
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.91) .16 .33 (.25) 1.16
Total from Investment Operations .21 .87 1.08 .51 1.94
Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.69) (.72) (.81) (.76) (.78)
Distributions from Capital Gains...................... -- -- -- -- (.01)
Excess Distributions from Capital Gains............... (.03) -- -- -- --
Total Dividends and Distributions (.72) (.72) (.81) (.76) (.79)
Net Asset Value, End of Period........................... $10.66 $11.59 $11.44 $11.17 $11.42
Total Return(c) ......................................... (1.92)% 7.76% 10.15% 4.74% 19.73%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $145,975 $148,081 $126,427 $113,437 $106,962
Ratio of Expenses to Average Net Assets............... 1.04% .95%(b) .95%(b) .95%(b) .94%(b)
Ratio of Net Investment Income to
Average Net Assets.................................. 6.25% 6.19% 6.70% 6.85% 7.26%
Portfolio Turnover Rate............................... 48.9% 15.2% 12.8% 3.4% 5.1%
PRINCIPAL BOND FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(d)
--------------------------------------------------------------------------------------------- ---- ----
Net Asset Value, Beginning of Period..................... $11.58 $11.42 $11.15 $11.41 $10.19
Income from Investment Operations:
Net Investment Income................................. .61 .63(b) .67(b) .67(b) .63(b)
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.91) .16 .31 (.25) 1.19
Total from Investment Operations (.30) .79 .98 .42 1.82
Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.60) (.63) (.71) (.68) (.60)
Excess Distributions from Capital Gains............... (.03) -- -- -- --
Total Dividends and Distributions (.63) (.63) (.71) (.68) (.60)
Net Asset Value, End of Period........................... $10.65 $11.58 $11.42 $11.15 $11.41
Total Return(c) ......................................... (2.68)% 7.04% 9.20% 3.91% 17.98%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $25,451 $22,466 $13,403 $7,976 $2,708
Ratio of Expenses to Average Net Assets............... 1.79% 1.67%(b) 1.70%(b) 1.69%(b) 1.59%(b)(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 5.50% 5.45% 5.92% 6.14% 6.30%(f)
Portfolio Turnover Rate............................... 48.9% 15.2% 12.8% 3.4% 5.1%(f)
PRINCIPAL BOND FUND, INC.(a)
Class C shares 1999(g)
--------------------------------------------------------------------
Net Asset Value, Beginning of Period..................... $10.90
Income from Investment Operations:
Net Investment Income................................. .20
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.24)
Total from Investment Operations (.04)
Less Dividends:
Dividends from Net Investment Income................ (.20)
Total Dividends (.20)
Net Asset Value, End of Period........................... $10.66
Total Return(c) ......................................... (.40)%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $271
Ratio of Expenses to Average Net Assets............... 1.84%(f)
Ratio of Net Investment Income to
Average Net Assets ............................... 5.81%(f)
Portfolio Turnover Rate ............................. 48.9%(f)
PRINCIPAL GOVERNMENT SECURITIES INCOME FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------- ---- ----
Net Asset Value, Beginning of Period..................... $11.63 $11.51 $11.26 $11.31 $10.28
Income from Investment Operations:
Net Investment Income................................. .69 .70 .70 .70 .71
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.52) .12 .29 (.05) 1.02
Total from Investment Operations .17 .82 .99 .65 1.73
Less Dividends:
Dividends from Net Investment Income.................. (.70) (.70) (.74) (.70) (.70)
Total Dividends (.70) (.70) (.74) (.70) (.70)
Net Asset Value, End of Period........................... $11.10 $11.63 $11.51 $11.26 $11.31
Total Return(c) ......................................... 1.47% 7.38% 9.23% 6.06% 17.46%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $237,811 $251,455 $249,832 $259,029 $261,128
Ratio of Expenses to Average Net Assets............... .89% .86% .84% .81% .87%
Ratio of Net Investment Income to
Average Net Assets.................................. 6.04% 6.07% 6.19% 6.31% 6.57%
Portfolio Turnover Rate............................... 19.4% 17.1% 10.8% 25.9% 10.1%
PRINCIPAL GOVERNMENT SECURITIES INCOME FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(d)
--------------------------------------------------------------------------------------------- ---- ----
Net Asset Value, Beginning of Period..................... $11.60 $11.50 $11.23 $11.29 $10.20
Income from Investment Operations:
Net Investment Income................................. .61 .62 .64 .61 .56
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.54) .12 .29 (.05) 1.07
Total from Investment Operations .07 .74 .93 .56 1.63
Less Dividends:
Dividends from Net Investment Income.................. (.62) (.64) (.66) (.62) (.54)
Total Dividends (.62) (.64) (.66) (.62) (.54)
Net Asset Value, End of Period........................... $11.05 $11.60 $11.50 $11.23 $11.29
Total Return(c) ......................................... 0.65% 6.60% 8.65% 5.17% 16.07%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $29,751 $24,370 $15,431 $11,586 $4,699
Ratio of Expenses to Average Net Assets............... 1.63% 1.57% 1.39% 1.60% 1.53%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 5.30% 5.43% 5.63% 5.53% 5.68%(f)
Portfolio Turnover Rate............................... 19.4% 17.1% 10.8% 25.9% 10.1%(f)
PRINCIPAL GOVERNMENT SECURITIES INCOME FUND, INC.(a)
-------------------------------------------------
Class C shares 1999(g)
-------------------------------------------------------------------
Net Asset Value, Beginning of Period..................... $11.17
Income from Investment Operations:
Net Investment Income................................. .19
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.07)
Total from Investment Operations .12
Less Dividends:
Dividends from Net Investment Income.................. (.19)
Total Dividends (.19)
Net Asset Value, End of Period........................... $11.10
Total Return(c) ......................................... 1.11%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $332
Ratio of Expenses to Average Net Assets.................. 1.73%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 5.29%(f)
Portfolio Turnover Rate............................... 19.4%(f)
PRINCIPAL HIGH YIELD FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------- ---- ----
Net Asset Value, Beginning of Period..................... $7.63 $8.52 $8.27 $8.06 $7.83
Income from Investment Operations:
Net Investment Income................................. .63 .64 .67 .68 .68
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.41) (.88) .31 .23 .20
Total from Investment Operations .22 (.24) .98 .91 .88
Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.63) (.64) (.73) (.70) (.65)
Excess Distribution of Net Investment Income(h) ..... (.01) (.01) -- -- --
Total Dividends and Distributions (.64) (.65) (.73) (.70) (.65)
Net Asset Value, End of Period........................... $7.21 $7.63 $8.52 $8.27 $8.06
Total Return(c) ......................................... 2.81% (3.18)% 12.33% 11.88% 11.73%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $30,065 $33,474 $38,239 $28,432 $23,396
Ratio of Expenses to Average Net Assets............... 1.31% 1.40% 1.22% 1.26% 1.45%
Ratio of Net Investment Income to
Average Net Assets.................................. 8.23% 7.71% 7.99% 8.49% 8.71%
Portfolio Turnover Rate............................... 86.1% 65.9% 39.2% 18.8% 40.3%
PRINCIPAL HIGH YIELD FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(d)
--------------------------------------------------------------------------------------------- ---- ----
Net Asset Value, Beginning of Period..................... $7.59 $8.47 $8.22 $8.05 $7.64
Income from Investment Operations:
Net Investment Income................................. .57 .57 .62 .60 .53
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.41) (.87) .28 .20 .38
Total from Investment Operations .16 (.30) .90 .80 .91
Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.57) (.57) (.65) (.63) (.50)
Excess Distribution of Net Investment Income(h) ..... (.01) (.01) -- -- --
Total Dividends and Distributions (.58) (.58) (.65) (.63) (.50)
Net Asset Value, End of Period........................... $7.17 $7.59 $8.47 $8.22 $8.05
Total Return(c) ......................................... 2.02% (3.93)% 11.31% 10.46% 12.20%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $7,467 $8,527 $6,558 $2,113 $633
Ratio of Expenses to Average Net Assets............... 1.99% 2.34% 2.13% 2.38% 2.10%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 7.55% 6.78% 7.03% 7.39% 7.78%(f)
Portfolio Turnover Rate............................... 86.1% 65.9% 39.2% 18.8% 40.3%(f)
PRINCIPAL HIGH YIELD FUND, INC.(a)
Class C shares 1999(g)
-------------------------------------------------------------------
Net Asset Value, Beginning of Period..................... $7.48
Income from Investment Operations:
Net Investment Income................................. .18
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.25)
Total from Investment Operations (.07)
Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.18)
Excess Distributions of Net Investment Income(h) ..... (.01)
Total Dividends and Distributions (.19)
Net Asset Value, End of Period........................... $7.22
Total Return(c) ......................................... (.99)%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $182
Ratio of Expenses to Average Net Assets............... 2.01%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 7.15%(f)
Portfolio Turnover Rate............................... 86.1%(f)
PRINCIPAL LIMITED TERM BOND FUND, INC.(a)
Class A shares 1999 1998 1997 1996(i)
--------------------------------------------------------------------------------------------- ----
Net Asset Value, Beginning of Period..................... $9.93 $9.88 $9.89 $9.90
Income from Investment Operations:
Net Investment Income(b) ........................... .57 .57 .61 .38
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.39) .06 .03 (.04)
Total from Investment Operations .18 .63 .64 .34
Less Dividends:
Dividends from Net Investment Income.................. (.57) (.58) (.65) (.35)
Total Dividends (.57) (.58) (.65) (.35)
Net Asset Value, End of Period........................... $9.54 $9.93 $9.88 $9.89
Total Return(c) ......................................... 1.83% 6.57% 6.75% 3.62%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $27,096 $27,632 $20,567 $17,249
Ratio of Expenses to Average Net Assets(b) ........ 1.00% .82% .90% .89%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 5.76% 5.86% 6.20% 6.01%(f)
Portfolio Turnover Rate............................... 20.9% 23.8% 17.4% 16.5%(f)
PRINCIPAL LIMITED TERM BOND FUND, INC.(a)
Class B shares 1999 1998 1997 1996(i)
--------------------------------------------------------------------------------------------- ----
Net Asset Value, Beginning of Period..................... $9.98 $9.90 $9.89 $9.90
Income from Investment Operations:
Net Investment Income(b) ........................... .52 .54 .56 .36
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.39) .06 .04 (.05)
Total from Investment Operations .13 .60 .60 .31
Less Dividends:
Dividends from Net Investment Income.................. (.51) (.54) (.59) (.32)
Total Dividends (.51) (.54) (.59) (.32)
Net Asset Value, End of Period........................... $9.60 $9.98 $9.90 $9.89
Total Return(c) ......................................... 1.29% 6.24% 6.31% 3.32%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $2,696 $1,705 $625 $112
Ratio of Expenses to Average Net Assets(b) ........ 1.35% 1.22% 1.24% 1.15%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 5.41% 5.44% 5.84% 5.75%(f)
Portfolio Turnover Rate............................... 20.9% 23.8% 17.4% 16.5%(f)
PRINCIPAL LIMITED TERM BOND FUND, INC.(a)
Class C shares 1999(g)
-------------------------------------------------------------------
Net Asset Value, Beginning of Period..................... $9.64
Income from Investment Operations:
Net Investment Income(b) .......................... .16
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.08)
Total from Investment Operations .08
Less Dividends:
Dividends from Net Investment Income.................. (.16)
Total Dividends (.16)
Net Asset Value, End of Period........................... $9.56
Total Return(c) ......................................... .84(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $350
Ratio of Expenses to Average Net Assets(b) ......... 1.34%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 5.52%(f)
Portfolio Turnover Rate............................... 20.9%(f)
PRINCIPAL TAX-EXEMPT BOND FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
------------------------------------------------------------------- ------------------------ ---- ----
Net Asset Value, Beginning of Period..................... $12.59 $12.38 $12.04 $11.98 $10.93
Income from Investment Operations:
Net Investment Income................................. .60 .60 .63 .64 .65
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.90) .22 .39 .07 1.05
Total from Investment Operations .30 .82 1.02 .71 1.70
Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.59) (.61) (.68) (.65) (.65)
Distributions from Capital Gains...................... (.01) -- -- -- --
Total Dividends and Distributions (.60) (.61) (.68) (.65) (.65)
Net Asset Value, End of Period........................... $11.69 $12.59 $12.38 $12.04 $11.98
Total Return(c) ......................................... (2.51)% 6.76% 8.71% 6.08% 16.03%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $186,973 $204,865 $193,007 $187,180 $179,715
Ratio of Expenses to Average Net Assets............... .80% .83% .79% .78% .83%
Ratio of Net Investment Income to
Average Net Assets.................................. 4.84% 4.83% 5.14% 5.34% 5.67%
Portfolio Turnover Rate............................... 15.6% 6.6% 8.9% 9.8% 17.6%
PRINCIPAL TAX-EXEMPT BOND FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(d)
--------------------------------------------------------------------------------------------- ---- ----
Net Asset Value, Beginning of Period..................... $12.59 $12.39 $12.02 $11.96 $10.56
Income from Investment Operations:
Net Investment Income................................. .53 .53 .55 .55 .50
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.89) .20 .40 .06 1.38
Total from Investment Operations (.36) .73 .95 .61 1.88
Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.52) (.53) (.58) (.55) (.48)
Distributions from Capital Gains...................... (.01) -- -- -- --
Total Dividends and Distributions (.53) (.53) (.58) (.55) (.48)
Net Asset Value, End of Period........................... $11.70 $12.59 $12.39 $12.02 $11.96
Total Return(c) ......................................... (3.01)% 6.01% 8.08% 5.23% 17.97%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $11,480 $11,419 $7,783 $5,794 $3,486
Ratio of Expenses to Average Net Assets............... 1.32% 1.43% 1.45% 1.52% 1.51%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 4.32% 4.22% 4.46% 4.59% 4.78%(f)
Portfolio Turnover Rate............................... 15.6% 6.6% 8.9% 9.8% 17.6%(f)
PRINCIPAL TAX-EXEMPT BOND FUND, INC.(a)
Class C shares 1999(g)
-------------------------------------------------------------------
Net Asset Value, Beginning of Period..................... $12.16
Income from Investment Operations:
Net Investment Income................................. .16
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.47)
Total from Investment Operations (.31)
Less Dividends:
Dividends from Net Investment Income.................. (.16)
Total Dividends (.16)
Net Asset Value, End of Period........................... $11.69
Total Return(c) ......................................... (2.59)%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $136
Ratio of Expenses to Average Net Assets............... 3.96%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 1.78%(f)
Portfolio Turnover Rate............................... 15.6%(f)
</TABLE>
Notes to Financial Highlights
(a) Effective January 1, 1998, the following changes were made to the names of
the Income Funds:
<TABLE>
<CAPTION>
Former Fund Name New Fund Name
<S> <C>
Princor Bond Fund, Inc. Principal Bond Fund, Inc.
Princor Government Securites Income Fund, Inc. Principal Government Securities Income Fund, Inc.
Princor High Yield Fund, Inc. Principal High Yield Fund, Inc.
Princor Limited Term Bond Fund, Inc. Principal Limited Term Bond Fund, Inc.
Princor Tax-Exempt Bond Fund, Inc. Principal Tax-Exempt Bond Fund, Inc.
</TABLE>
(b) Without the Manager's voluntary waiver of a portion of certain of its
expenses for the periods indicated, the following funds would have had per
share net investment income and the ratios of expenses to average net
assets as shown:
<TABLE>
<CAPTION>
Year Ended
October 31, Per Share Ratio of Expenses
Except Net Investment to Average Net Amount
as Noted Income Assets Waived
Principal Bond Fund, Inc.:*
<S> <C> <C> <C> <C>
Class A 1998 $.70 1.04% $121,092
1997 .74 .98 41,256
1996 .76 .97 22,536
1995 .77 1.02 86,018
Class B 1998 .62 1.81 26,130
1997 .66 1.79 8,982
1996 .67 1.79 5,874
1995(d) .62 1.62(f) 300
Principal Limited Term Bond Fund, Inc.:
Class A 1999 .55 1.14 40,285
1998 .55 1.13 76,952
1997 .59 1.15 46,271
1996(j) .37 1.16(f) 22,716
Class B 1999 .47 1.92 14,004
1998 .47 2.36 11,537
1997 .46 3.82 6,528
1996(j) .34 1.94(f) 259
Class C 1999(g) .15 2.05(f) 488
<FN>
* The Manager ceased its waiver of expenses for Principal Bond Fund, Inc. on October 31, 1998.
</FN>
</TABLE>
(c) Total return is calculated without the front-end sales charge or contingent
deferred sales charge.
(d) 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, Principal
Management Corporation. Additionally, the Income Funds' Class B shares
incurred unrealized losses on investments during the initial interim period
as follows. This represents Class B share activities of each fund prior to
the initial public offering of Class B shares:
<TABLE>
<CAPTION>
Per Share Per Share
Net Investment Unrealized
Income (Loss)
<S> <C> <C>
Principal Bond Fund, Inc. $.01 $ --
Principal Government Securities Income Fund, Inc. .01 (.02)
Principal High Yield Fund, Inc. .01 (.03)
Principal Tax-Exempt Bond Fund, Inc. -- (.05)
</TABLE>
(e) Total return amounts have not been annualized.
(f) Computed on an annualized basis.
(g) Period from June 30, 1999, date Class C shares first offered to the public
and the date of the initial purchase of Class C shares by Principal Life
Insurance Company, through October 31, 1999.
(h) Dividends and distributions which exceed investment income and net realized
gains for financial reporting purposes but not for tax purposes are
reported as dividends in excess of net investment income or distributions
in excess of net realized gains on investments. To the extent distributions
exceed current and accumulated earnings and profits for federal income tax
purposes, they are reported as tax return of capital distributions.
(i) Period from February 29, 1996, date shares first offered to the public,
through October 31, 1996. With respect to Class A shares, net investment
income, aggregating $.02 per share for the period from the initial purchase
of shares on February 13, 1996 through February 28, 1996, was recognized,
none of which was distributed to its sole shareholder, Principal Life
Insurance Company during the period. Additionally, Class A shares incurred
unrealized losses on investments of $.12 per share during the initial
interim period. With respect to Class B shares, no net investment income
was recognized for the period from initial purchase of shares on February
27, 1996 through February 28, 1996. Additionally, Class B shares incurred
unrealized losses on investments of $.02 per share during the initial
interim period. This represents Class A share and Class B share activities
of the fund prior to the initial public offering of both classes of shares.
Money Market Fund
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL CASH MANAGEMENT FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................... $1.000 $1.000 $1.000 $1.000 $1.000
Income from Investment Operations:
Net Investment Income................................ .045 .051(b)(d) .050(b) .049(b) .052(b)
Total from Investment Operations .045 .051 .050 .049 .052
Less Dividends:
Dividends From Net Investment Income................. (.045) (.051) (.050) (.049) (.052)
Total Dividends (.045) (.051) (.050) (.049) (.052)
Net Asset Value, End of Period.......................... $1.000 $1.000 $1.000 $1.000 $1.000
Total Return(c) ........................................ 4.56% 5.10% 4.96% 5.00% 5.36%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $352,675 $294,918 $836,072 $694,962 $623,864
Ratio of Expenses to Average Net Assets.............. .69% .56%(b)(d) .63%(b) .66%(b) .72%(b)
Ratio of Net Investment Income to
Average Net Assets................................. 4.45% 5.12% 4.98% 4.88% 5.24%
PRINCIPAL CASH MANAGEMENT FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(e)
--------------------------------------------------------------------------------------------- ------ ----
Net Asset Value, Beginning of Period.................... $1.000 $1.000 $1.000 $1.000 $1.000
Income from Investment Operations:
Net Investment Income................................ .039 .042(b)(d) .041(b) .041(b) .041(b)
Total from Investment Operations .039 .042 .041 .041 .041
Less Dividends:
Dividends from Net Investment Income................. (.039) (.042) (.041) (.041) (.041)
Total Dividends (.039) (.042) (.041) (.041) (.041)
Net Asset Value, End of Period.......................... $1.000 $1.000 $1.000 $1.000 $1.000
Total Return(c) ........................................ 4.00% 4.25% 4.05% 4.13% 4.19%(f)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $6,330 $3,602 $992 $520 $208
Ratio of Expenses to Average Net Assets.............. 1.19% 1.41%(b)(d) 1.47% 1.50% 1.42%(g)
Ratio of Net Investment Income to
Average Net Assets................................. 4.00% 4.23% 4.08% 4.08% 4.50%(g)
PRINCIPAL CASH MANAGEMENT FUND, INC.(a)
Class C shares 1999(h)
-------------------------------------------------------------------
Net Asset Value, Beginning of Period.................... $1.000
Income from Investment Operations:
Net Investment Income(b) ............................ .010
Total from Investment Operations .010
Less Dividends:
Dividends from Net Investment Income................. (.010)
Total Dividends (.010)
Net Asset Value, End of Period.......................... $1.000
Total Return(c) ........................................ 1.01%(f)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $132
Ratio of Expenses to Average Net Assets(b) .......... 2.26%(g)
Ratio of Net Investment Income to
Average Net Assets................................. 3.01%(g)
</TABLE>
Notes to Financial Highlights
(a) Effective January 1, 1998, the following change was made to the name of the
Money Market Fund:
Former Fund Name New Fund Name
Princor Cash Management Fund, Inc. Principal Cash Management Fund, Inc.
(b) Without the Manager's voluntary waiver of a portion of certain of its
expenses (see Note 3 to the financial statements) for the periods
indicated, the Fund would have had per share net investment income and the
ratios of expenses to average net assets as shown:
<TABLE>
<CAPTION>
Year Ended Ratio of
October 31, Per Share Expenses
Except Net Investment to Average Amount
as Noted Income Net Assets Waived
<S> <C> <C> <C> <C>
Class A 1998 $.051 .56% $ -- *
1997 .050 .63 --
1996 .049 .67 7,102
1995 .052 .78 296,255
Class B 1998 .041 1.49 1,343*
1997 .036 2.14 5,492
1996 .029 3.94 6,140
1995(e) .041 1.63(g) 104
<FN>
* The Manager ceased its waiver of expenses for Principal Cash Management Fund, Inc. on March 1, 1998.
</FN>
</TABLE>
(c) Total return is calculated without the contingent deferred sales charge.
(d) Management fee waivers apply to November 1, 1997 through February 28, 1998.
(e) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995.
(f) Total return amounts have not been annualized.
(g) Computed on an annualized basis.
(h) Period from June 30, 1999, date Class C shares first offered to the public
and the date of the initial purchase of Class C shares by Principal Life
Insurance Company, through October 31, 1999.
Additional information about the Fund is available in the Statement of
Additional Information dated March 1, 2000, as revised through May 1, 2000, and
which is part of this prospectus. The Statement of Additional Information can be
obtained free of charge by writing or telephoning Princor Financial Services
Corporation, P.O. Box 10423, Des Moines, IA 50306. Telephone 1-800-247-4123.
Information about the Fund can be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. Information on
the operation of the public reference room may be obtained by calling the
Commission at 1-800-SEC-0330. Reports and other information about the Fund are
available on the Commission's internet site at http://www.sec.gov. Copies of
this information may be obtained, upon payment of a duplicating fee, by writing
the Public Reference Section of the Commission, Washington, D.C. 20549-6009.
The U.S. Government does not insure or guarantee an investment in any of the
Funds. There can be no assurance that the Cash Management Fund will be able to
maintain a stable share price of $1.00 per share.
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.
SEC FILE DOMESTIC GROWTH-ORIENTED FUNDS
811-05072 Principal Balanced Fund, Inc.
811-06263 Principal Blue Chip Fund, Inc.
811-01874 Principal Capital Value Fund, Inc.
811-01873 Principal Growth Fund, Inc.
811-09755 Principal LargeCap Stock Index Fund, Inc.
811-05171 Principal MidCap Fund, Inc.
811-09567 Principal Partners Aggressive Growth Fund, Inc.
811-09757 Principal Partners LargeCap Growth Fund, Inc.
811-09759 Principal Partners MidCap Growth Fund, Inc.
811-08379 Principal Real Estate Fund, Inc.
811-08381 Principal SmallCap Fund, Inc.
811-07266 Principal Utilities Fund, Inc.
INTERNATIONAL GROWTH-ORIENTED FUNDS
811-09801 Principal European Equity Fund, Inc.
811-08249 Principal International Emerging Markets Fund, Inc.
811-03183 Principal International Fund, Inc.
811-08251 Principal International SmallCap Fund, Inc.
811-09803 Principal Pacific Basin Fund, Inc.
INCOME-ORIENTED FUNDS
811-05172 Principal Bond Fund, Inc.
811-04226 Principal Government Securities Income Fund, Inc.
811-05174 Principal High Yield Fund, Inc.
811-07453 Principal Limited Term Bond Fund, Inc.
811-04449 Principal Tax-Exempt Bond Fund, Inc.
MONEY MARKET FUND
811-03585 Principal Cash Management Fund, Inc.
