Jones & Blouch L.L.P.
Suite 405 West
1025 Thomas Jefferson St., N.W.
Washington, D.C. 20007
202-223-3500
December 13, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Jeremiah deMichaelis, Branch Chief
Office of Disclosure and Review
Division of Investment Management
Re: The Princor Funds Identified on
Attachment A hereto
Dear Sirs:
Each of the above-referenced funds (the "Funds") is today
filing a post-effective amendment to its registration statement on
Form N-1A. The filings are being made pursuant to paragraph (a) of
Rule 485 primarily because of the inclusion of a new class of
shares, Class R Shares, which will be offered to fund Individual
Retirement Accounts exclusively for recipients of lump sum
distributions from certain retirement plans administrated by
Principal Mutual Life Insurance Company. The Class R Shares will
be offered by each of the Funds except for Princor Tax-Exempt Bond
Fund and Princor Tax-Exempt Cash Management Fund.
All of the Princor Funds use a common prospectus for Class A
Shares and Class B Shares. All of the Princor Funds (except the
Tax-Exempt Bond Fund and the Tax-Exempt Cash Management Fund) will
use a separate, common prospectus for Class R Shares. The two
money market funds, Princor Cash Management Fund and Princor Tax-
Exempt Cash Management Fund, use a separate prospectus for Class A
Shares. All of the Funds use a common Statement of Additional
Information.
The proposed effective date for each of the post-effective
amendments is February 29, 1996.
Please direct any comments or questions on these filings to
the undersigned.
Very truly yours,
Jones & Blouch L.L.P.
By_____________________
John W. Blouch
<PAGE>
Princor Funds File No.
1. Princor Balanced Fund, Inc. 33-12866
2. Princor Blue Chip Fund, Inc. 33-38355
3. Princor Bond Fund, Inc. 33-14536
4. Princor Capital
Accumulation Fund, Inc. 2-33227
5. Princor Cash Management
Fund, Inc. 2-79791
6. Princor Emerging
Growth Fund, Inc. 33-14535
7. Princor Government
Securities Income Fund, Inc. 2-95816
8. Princor Growth Fund, Inc. 2-33228
9. Princor High Yield
Fund, Inc. 33-14539
10. Princor Tax-Exempt Bond
Fund, Inc. 33-1189
11. Princor Tax-Exempt Cash
Management Fund, Inc. 33-21710
12. Princor Utilities Fund, Inc. 33-53062
13. Princor World Fund, Inc. 2-72337
<PAGE>
Registration No. 2-33227
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------
POST-EFFECTIVE AMENDMENT NO. 41 TO
FORM N-1A
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
and
REGISTRATION STATEMENT
under
THE INVESTMENT COMPANY ACT OF 1940
--------
PRINCOR CAPITAL ACCUMULATION FUND, INC.
(Exact name of Registrant as specified in Charter)
The Principal Financial Group
Des Moines, Iowa 50392
(Address of principal executive offices)
--------
Telephone Number (515) 248-3842
--------
MICHAEL D. ROUGHTON Copy to:
The Principal Financial Group JOHN W. BLOUCH, L.L.P.
Des Moines, Iowa 50392 Suite 405 West
1025 Thomas Jefferson Street, N.W.
Washington, DC 20007-0805
(Name and address of agent for service)
----------
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)of Rule 485
on (date) pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(1) of Rule 485
X on February 29, 1996 pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(2) of Rule 485
on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
----------
Pursuant to the provisions of Rule 24f-2 under the Investment Company Act
of 1940, Registrant has registered an indefinite number of shares under the
Securities Act of 1933; Registrant intends to file a Rule 24f-2 Notice for the
fiscal year ended October 31, 1995 on or before December 19, 1995.
<PAGE>
This Prospectus describes a family of investment companies ("Princor
Funds") which has been organized by Principal Mutual Life Insurance Company and
which provides the following range of investment objectives:
Growth-Oriented Funds
Princor Balanced Fund, Inc. (formerly known as Princor Managed Fund, Inc.) seeks
to generate a total investment return consisting of current income and capital
appreciation while assuming reasonable risks in furtherance of the investment
objective.
Princor Blue Chip Fund, Inc. seeks to achieve growth of capital and growth of
income by investing primarily in common stocks of well capitalized, established
companies.
Princor Capital Accumulation Fund, Inc. seeks to achieve primarily long-term
capital appreciation and secondarily growth of investment income through the
purchase primarily of common stocks, but the Fund may invest in other
securities.
Princor Emerging Growth Fund, Inc. seeks to achieve long-term capital
appreciation by investing primarily in securities of emerging and other
growth-oriented companies.
Princor Growth Fund, Inc. seeks growth of capital through the purchase primarily
of common stocks, but the Fund may invest in other securities.
Princor World Fund, Inc. seeks long-term growth of capital by investing in a
portfolio of equity securities of companies domiciled in any of the nations of
the world.
Income-Oriented Funds
Princor Bond Fund, Inc. seeks to provide as high a level of income as is
consistent with preservation of capital and prudent investment risk.
Princor Government Securities Income Fund, Inc. seeks a high level of current
income, liquidity and safety of principal by purchasing obligations issued or
guaranteed by the United States Government or its agencies, with emphasis on
Government National Mortgage Association Certificates ("GNMA Certificates"). The
guarantee by the United States Government extends only to principal and
interest. There are certain risks unique to GNMA Certificates.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _________________1996
<PAGE>
Princor High Yield Fund, Inc. seeks high current income primarily by purchasing
high yielding, lower or non-rated fixed income securities which are believed to
not involve undue risk to income or principal. Capital growth is a secondary
objective when consistent with the objective of high current income.
Princor High Yield Fund, Inc. invests predominantly in lower rated bonds,
commonly referred to as "junk bonds" and may invest 100% of its assets in
such bonds. Bonds of this type are considered to be speculative with regard
to payment of interest and return of principal. Purchasers should carefully
assess the risks associated with an investment in this fund.
THESE ARE SPECULATIVE SECURITIES.
Princor Short-Term Bond Fund, Inc. seeks a high level of current income
consistent with a relatively high level of principal stability by investing in a
portfolio of securities with a dollar weighted average maturity of five years or
less.
Princor Tax-Exempt Bond Fund, Inc. seeks as high a level of current income
exempt from federal income tax as is consistent with preservation of capital.
The Fund seeks to achieve its objective primarily through the purchase of
investment grade quality tax-exempt fixed income obligations.
Princor Utilities Fund, Inc. seeks to provide current income and long-term
growth of income and capital by investing primarily in equity and fixed income
securities of companies in the public utilities industry.
Money Market Funds
Princor Cash Management Fund, Inc. seeks as high a level of income available
from short-term securities as is considered consistent with preservation of
principal and maintenance of liquidity by investing in a portfolio of money
market instruments.
Princor Tax-Exempt Cash Management Fund, Inc. seeks, through investment in a
professionally managed portfolio of high quality, short-term Municipal
Obligations, as high a level of current interest income exempt from federal
income tax as is consistent with stability of principal and maintenance of
liquidity.
Each of the Princor Funds, except the Tax-Exempt Bond Fund and Tax-Exempt Cash
Management Fund, offers three classes of shares: Class A shares, Class B shares
and Class R shares. The Tax-Exempt Bond Fund and Tax-Exempt Cash Management Fund
offer only two classes of shares: Class A shares and Class B shares. Each class
is sold pursuant to different sales arrangements and bears different expenses.
Only Class A and Class B shares are offered through this Prospectus. For more
information about the different sales arrangements, see "How to Purchase Shares"
and "Offering Price of Fund's Shares ." For information about various expenses
borne by each class, see "Overview."
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, nor are shares of the Funds federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other agency.
An investment in any of the Funds is neither insured nor guaranteed by the U.S.
Government. There can be no assurance the Money Market Funds will be able to
maintain a stable net asset value of $1.00 per share.
This Prospectus concisely states information about the Princor Funds that an
investor should know before investing. It should be read and retained for future
reference.
Additional information about the Funds has been filed with the Securities and
Exchange Commission, including a document called a Statement of Additional
Information dated ________ _, 1996 which is incorporated by reference herein.
The Statement of Additional Information and a Prospectus for Class R shares can
be obtained free of charge by writing or telephoning the Funds' principal
underwriter: Princor Financial Services Corporation, P.O. Box 10423, Des Moines,
IA 50306. Telephone 1-800-247-4123.
TABLE OF CONTENTS
Page
Overview.......................................................... 4
Financial Highlights.............................................. 10
Investment Objectives, Policies andRestrictions................... 20
Growth-Oriented Funds.................................... 20
Income-Oriented Funds.................................... 23
Money Market Funds....................................... 30
Certain Investment Policies and Restrictions............. 33
Risk Factors...................................................... 34
How the Funds are Managed......................................... 35
How to Purchase Shares............................................ 37
Offering Price of Funds' Shares................................... 39
Distribution and Shareholder Servicing Plans and Fees............. 40
Determination of Net Asset Value of Funds' Shares................ 41
Distribution of Income Dividends and Realized Capital Gains....... 41
Tax Treatment of the Funds, Dividends and Distributions .......... 43
How to Exchange Shares.......................................... 44
How to Sell Shares............................................... 45
Periodic Withdrawal Plan......................................... 47
Performance Calculation........................................... 48
General Information About a Fund Account.......................... 48
Retirement Plans................................................. 50
Shareholder Rights................................................ 50
Additional Information............................................ 51
This Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, the securities of any of the Funds in any jurisdiction in which
such sale, offer to sell, or solicitation may not be lawfully made. Currently,
shares of the Funds are not available for sale in New Hampshire or Vermont, in
any U.S. possession or in Canada or any other foreign country. No dealer,
salesperson, or other person has been authorized to give any information or to
make any representations, other than those contained in this Prospectus, in
connection with the offer contained in this Prospectus, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Funds or the Funds Manager. Because the Princor Funds use a
combined Prospectus there may be a possibility that one Fund might become liable
for any misstatements, inaccuracy, or incomplete disclosure in the Prospectus
concerning another Fund.
OVERVIEW
The following overview should be read in conjunction with the detailed
information appearing elsewhere in the Prospectus.
The Princor Funds are separately incorporated, open-end diversified
management investment companies. Each of the Funds, except the Tax-Exempt Bond
Fund and Tax-Exempt Cash Management Fund, offers three classes of shares: Class
A, Class B and Class R shares. The Tax-Exempt Bond Fund and Tax-Exempt Cash
Management Fund offer only Class A and Class B shares. Only Class A and Class B
Shares are offered through this Prospectus.
What it Costs to Invest
There are costs to acquire and own many types of investments. Shares of the
Princor Funds are no exception. The tables on the next page depict the fees and
expenses applicable to the purchase and ownership of shares of each of the
Funds. Table A depicts Class A shares and is based on amounts incurred by the
Funds during the fiscal year ended October 31, 1995, except as otherwise
indicated. Table B depicts Class B shares and is based on amounts incurred by
the Funds' during the fiscal year ended October 31, 1995. The tables included as
examples indicate the cumulative expenses an investor would pay on an initial
$1,000 investment that earns a 5% annual return. Example A assumes the investor
redeems the shares and Example B assumes the investor does not redeem the
shares. The examples are based on each Fund's Annual Operating Expenses
described in Tables A and B. Please remember that the examples should not be
considered a representation of future expenses and that actual expenses may be
greater or less than those shown.
<TABLE>
<CAPTION>
CLASS A SHARES
TABLE A
Shareholder Transaction Expenses *
Maximum Sales Load Imposed Contingent
on Purchases Deferred Sales
Fund (as a percentage of offering price) Charge
All Funds Except the Short-Term Bond Fund
and Money Market Funds 4.75% None**
Short-Term Bond Fund 1.50% None**
Money Market Funds None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management 12b-1 Other Total Operating
Fund Fee Fee Expenses Expenses
<S> <C> <C> <C> <C>
Balanced Fund .60% .25% .52% 1.37%
Blue Chip Fund .50 .25 .63 1.38
Bond Fund .50 .24 .20 .94***
Capital Accumulation Fund .45 .11 .19 .75
Cash Management Fund .38 None .34 .72***
Emerging Growth Fund .64 .25 .58 1.47
Government Securities Income Fund .46 .19 .22 .87
Growth Fund .48 .22 .46 1.16
High Yield Fund .60 .25 .60 1.45
Short-Term Bond Fund .50 .15 .15 .80****
Tax-Exempt Bond Fund .48 .20 .15 .83
Tax-Exempt Cash Management Fund .50 None .19 .69***
Utilities Fund .60 .25 .45 1.30
World Fund .74 .25 .64 1.63
<FN>
* A wire charge of up to $6.00 will be deducted for all wire transfers.
**Purchases of $1 million or more are not subject to an initial sales
charge but may be subject to a contingent deferred sales chargeof .75%
(.25% for Short-Term Bond Fund) on redemptions that occur within 18 months
of purchase. See "Offering Price of Funds' Shares."
*** After waiver.
****Estimated expenses after waiver.
</FN>
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES
TABLE B Shareholder Transaction Expenses*
Contingent Deferred Sales Charge
Maximum Sales Load (as a percentage of the lower of
Imposed on Purchases the original purchase price
Fund (as a percentage of offering price) or redemption proceeds)
All Funds Except Short-Term Bond Fund None 4.0% in the first two years, declining
to 1% in the sixth year and eliminated
thereafter
Short-Term Bond Fund None
1.25% in the first two years, declining
to .25% in the sixth year and eliminated
thereafter.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management 12b-1 Other Total Operating
Fund Fee Fee Expenses Expenses
<S> <C> <C> <C> <C>
Balanced Fund .60% .88% .43% 1.91%
Blue Chip Fund .50 .84 .56 1.90
Bond Fund .50 .89 .20 1.59**
Capital Accumulation Fund .45 .88 .17 1.50
Cash Management Fund .38 .75 .29 1.42**
Emerging Growth Fund .64 .91 .49 2.04
Government Securities Income Fund .46 .90 .17 1.53
Growth Fund .48 .90 .42 1.80
High Yield Fund .60 .91 .59 2.10
Short-Term Bond Fund .50 .50 .15 1.15***
Tax-Exempt Bond Fund .48 .92 .11 1.51
Tax-Exempt Cash Management Fund .50 .75 .17 1.42**
Utilities Fund .60 .92 .29 1.81
World Fund .74 .91 .54 2.19
<FN>
* A wire charge of up to $6.00 will be deducted for all wire transfers.
** After waiver.
***Estimated expense after waiver.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Example A
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of
each time period: 1 Year 3 Years 5 Years 10 Years (a)
----------------- ----------------- ----------------- -----------------
Class A Class B Class A Class B Class A Class B Class A Class B
Fund Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund $61 $61 $89 $93 $119 $126 $204 $203
Blue Chip Fund $61 $61 $89 $93 $119 $126 $205 $202
Bond Fund $57 $58 $76 $83 $97 $110 $157 $163
Capital Accumulation Fund $55 $57 $70 $81 $87 $106 $136 $149
Cash Management Fund $7 $56 $23 $78 $40 $101 $89 $142
Emerging Growth Fund $62 $62 $92 $97 $124 $133 $215 $215
Government Securities Income Fund $56 $57 $74 $82 $93 $107 $150 $156
Growth Fund $59 $60 $83 $90 $108 $121 $182 $187
High Yield Fund $62 $62 $91 $98 $123 $136 $213 $219
Short-Term Bond Fund $23 $25 $40 $45 -- -- -- --
Tax-Exempt Bond Fund $56 $57 $73 $81 $91 $106 $145 $153
Tax-Exempt Cash Management Fund $7 $56 $22 $78 $38 $101 $86 $141
Utilities Fund $60 $59 $87 $87 $115 $117 $197 $187
World Fund $63 $63 $96 $101 $132 $140 $232 $232
</TABLE>
<TABLE>
<CAPTION>
Example B
You would pay the following expenses on the same investment, assuming no redemption:
1 Year 3 Years 5 Years 10 Years(a)
Class A Class B Class A Class B Class A Class B Class A Class B
Fund Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund $61 $19 $89 $60 $119 $103 $204 $203
Blue Chip Fund $61 $19 $89 $60 $119 $103 $205 $202
Bond Fund $57 $16 $76 $50 $97 $87 $157 $163
Capital Accumulation Fund $55 $15 $70 $47 $87 $82 $136 $149
Cash Management Fund $7 $14 $23 $45 $40 $78 $89 $142
Emerging Growth Fund $62 $21 $92 $64 $124 $110 $215 $215
Government Securities Income Fund $56 $16 $74 $48 $93 $83 $150 $156
Growth Fund $59 $18 $83 $57 $108 $97 $182 $187
High Yield Fund $62 $21 $91 $66 $123 $113 $213 $219
Short-Term Bond Fund $23 $12 $40 $37 -- -- -- --
Tax-Exempt Bond Fund $56 $15 $73 $48 $91 $82 $145 $153
Tax-Exempt Cash Management Fund $7 $14 $22 $45 $38 $78 $86 $141
Utilities Fund $60 $17 $87 $54 $115 $93 $197 $187
World Fund $63 $22 $96 $69 $132 $117 $232 $232
<FN>
(a) The amount in this column reflects the conversion of Class B shares to
Class A shares seven years after the initial purchase.
</FN>
</TABLE>
The purpose of the preceding tables is to help investors understand the
various expenses that they will bear either directly or indirectly. Although
Annual Fund Operating Expenses shown in the Expense Table for Class A shares are
generally based upon each Fund's actual expenses, the 12b-1 Plan adopted by each
of the Funds (except the Money Market Funds which have no such Plan for Class A
shares) permits the Underwriter to retain an annual fee of up to .25% of each
Fund's average net assets. A portion of this annual fee is considered an
asset-based sales charge. Thus, it is theoretically possible for a long-term
shareholder of Class A shares, whether acquired directly or by conversion of
Class B shares, to pay more than the economic equivalent of the maximum
front-end sales charges permitted by the National Association of Securities
Dealers. See "Distribution and Shareholder Servicing Plans and Fees", "How to
Purchase Shares" and "How the Funds are Managed."
The Manager voluntarily waived a portion of its fee for the Bond, Cash
Management and Tax-Exempt Cash Management Funds throughout the fiscal year ended
October 31, 1995. Without these waivers, total operating expenses actually
incurred by the Funds for the fiscal year ended October 31, 1995 for the Class A
shares would have amounted to 1.02% for the Bond Fund, .78% for the Cash
Management Fund, .84% for Tax-Exempt Cash Management Fund, and for the Class B
shares, 1.62% for the Bond Fund, 1.63% for Cash Management Fund, and 1.89% for
Tax-Exempt Cash Management Fund. The Manager intends to continue its voluntary
waiver and, if necessary, pay expenses normally payable by each of these Funds
through February 28, 1997 in an amount that will maintain a total level of
operating expenses which as a percent of average net assets attributable to a
class on an annualized basis during the period will not exceed, for the Class A
shares, .95% for the Bond Fund and .75% for the Money Market Funds, and for the
Class B shares, 1.70% for the Bond Fund and 1.75% for the Money Market Funds.
The foregoing examples assume the continuation of these waivers throughout the
periods shown. The Manager voluntarily waived a portion of its fee for the
Utilities Fund through February 29, 1996 in an amount that maintained a total
level of operating expenses which as a percent of average net assets
attributable to a class on an annualized basis during the period did not exceed
1.10% for the Class A shares and 1.85% for Class B shares. See "How the Funds
are Managed."
The Manager intends to voluntarily waive its fee and, if necessary, pay expenses
normally payable by the Short-Term Bond Fund through February 28, 1997 in such
amounts that will maintain a total level of operating expenses which as a
percent of average net assets attributable to a class on an annualized basis
will not exceed .90% for Class A shares and 1.25% for Class B shares. Without
this waiver, estimated annual total operating expenses incurred by each class of
shares would amount to approximately 1.10% for Class A shares and 1.35% for
Class B shares.
What the Funds Offer Investors
Shares of the Funds are purchased by investors as a means to achieve their
financial objectives. Investor objectives range from accumulating a vacation
fund or investing for retirement or a child's education to generating current
income. Investors purchase shares of Funds that have investment objectives that
match their own financial objectives. The Funds also offer a choice of varying
levels of investment risks to enable the investor to choose one or more Funds
the investor believes is a prudent investment given the investor's willingness
to assume various risks. The Funds offer:
Professional Investment Management: Princor Management Corporation is the
Manager for each of the Funds. The Manager employs experienced securities
analysts to provide shareholders with professional investment management. The
Manager decides how and where to invest Fund assets. Investment decisions are
based on research into the financial performance of individual companies and
specific securities issues, taking into account general economic and market
trends. See "How the Funds are Managed."
Diversification: Mutual Funds allow shareholders to diversify their assets
across dozens of securities issued by a number of issuers. In addition, a
shareholder may further diversify by investing in several of the Funds.
Diversification reduces investment risk.
Economies of Scale: Pooling individual shareholders' money creates
administrative efficiencies and, in certain Funds, saves on brokerage
commissions through round-lot orders and quantity discounts. By pooling money
with other investors, shareholders can invest indirectly in many more securities
than they could on their own.
Liquidity: Upon request, each Fund will redeem all or part of an investor's
shares and promptly pay the current net asset value of the shares redeemed, less
any applicable contingent deferred sales charge. See "How to Sell Shares."
Dividends: Each Fund will normally declare a dividend payable to
shareholders from investment income in accordance with its distribution policy.
Dividends payable for Class B shares will be lower than dividends payable for
Class A shares. See "Distribution of Income Dividends and Realized Capital
Gains."
Convenient Investment and Recordkeeping Services: Generally, shareholders
of any of the Funds (except the Money Market Funds) will receive a statement of
account each time there is a transaction that effects their account and
shareholders of the Money Market Funds will receive a monthly statement of
account. However, certain shareholders will receive quarterly statements in lieu
of other statements. See "General Information About a Fund Account." In
addition, shareholders may complete certain transactions and access account
information by telephoning 1-800-247-4123.
Investment Objectives of the Funds
Growth-Oriented Funds
Fund Investment Objectives
Princor Balanced Fund, Inc. Total investment return consisting of
current income and capital appreciation
while assuming reasonable risks in
furtherance of this objective.
Princor Blue Chip Fund, Inc. Growth of capital and growth of income.
In seeking to achieve its objective, the
Fund will invest primarily in common
stocks of well-capitalized, established
companies which the Fund's Manager believes
to have the potential for growth of
capital, earnings and dividends.
Princor Capital Accumulation
Fund, Inc. Long-term capital appreciation with a
secondary objective of growth of
investment income. The Fund seeks to
achieve its objectives primarily through
the purchase of common stocks, but the
Fund may invest in other securities.
Princor Emerging Growth Fund, Inc. Long-term capital appreciation.The Fund
invests primarily in securities of emerging
and other growth-oriented companies.
Princor Growth Fund, Inc. Growth of capital. The Fund seeks to
achieve its objective through the
purchase primarily of common stocks, but
the Fund may invest in other securities.
Princor World Fund, Inc. Long-term growth of capital by
investing in a portfolio of equity
securities of companies domiciled in any of
the nations of the world.
Income-Oriented Funds
Fund Investment Objectives
Princor Bond Fund, Inc. As high a level of income as is consistent
with preservation of capital and prudent
investment risk. This Fund invests
primarily in investment-grade bonds.
Princor Government Securities
Income Fund, Inc. A high level of current income, liquidity
and safety of principal. The Fund seeks to
achieve its objective through the purchase
of obligations issued or guaranteed by
the United States Government or its
agencies, with emphasis on Government
National Mortgage Association Certificates
("GNMA Certificates"). Fund shares are
not guaranteed by the United States
Government.
Princor High Yield Fund, Inc. High current income. Capital growth is
a secondary objective when consistent with
the objective of high current-income.
The Fund will invest primarily in high
yielding, lower or non-rated fixed-income
securities (commonly known as "junk
bonds").
Princor Short-Term Bond Fund, Inc. A high level of current income consistent
with a relatively high level of principal
stability by investing in a portfolio of
securities with a dollar weighted average
maturity of five years or less.
Princor Tax-Exempt Bond Fund, Inc. As high a level of current interest income
exempt from federal income tax as is
consistent with preservation of capital.
This Fund invests primarily in investment-
grade, tax-exempt, fixed-income
obligations.
Princor Utilities Fund, Inc. Current income and long-term growth of
income and capital. The Fund invests
primarily in equity and fixed-income
securities of companies engaged in the
public utilities industry.
Money Market Funds
Fund Investment Objectives
Princor Cash Management Fund, Inc. As high a level of current income available
from short-term securities as is considered
consistent with preservation of principal
and maintenance of liquidity. The Fund
invests in money market instruments.
Princor Tax-Exempt Cash
Management Fund, Inc. As high a level of current interest income
exempt from federal income tax as is
consistent with stability of principal and
the maintenance of liquidity. The Fund
invests in high-quality, short-term
municipal obligations.
There can be no assurance that the investment objectives of any of the
Funds will be realized. See "Investment Objectives, Policies and Restrictions."
The Risks of Investing
Because the Funds have different investment objectives, each Fund is
subject to varying degrees of financial and market risks and current income
volatility. Financial risk refers to the earnings stability and overall
financial soundness of an issuer of an equity security and to the ability of an
issuer of a debt security to pay interest and principal when due. Market risk
refers to the degree to which the price of a security will react to changes in
conditions in securities markets in general and, with particular reference to
debt securities, to changes in the overall level of interest rates. Current
income volatility refers to the degree and rapidity with which changes in the
overall level of interest rates become reflected in the level of current income
of a Fund. See "Risk Factors", and "Investment Objectives, Policies and
Restrictions."
How to Buy Shares
An individual investor can become a shareholder by completing the
application that accompanies this Prospectus and mailing it, along with a check,
to Princor Financial Services Corporation ("Princor"), a broker-dealer that is
also the principal underwriter for the Funds. The initial investment for the
Growth-Oriented Funds must be at least $300 and the initial investment for the
Income-Oriented Funds and Money Market Funds must be at least $1,000. An IRA may
be established with a minimum of $250. See "Retirement Plans." The minimum
subsequent investment is $50 ($100 for Money Market Funds). Lower minimum
initial and subsequent purchase amounts are available to shareholders who make
regular periodic investments under a Systematic Accumulation Plan. See "How to
Purchase Shares." Class B shares of the Money Market Funds may only be purchased
by an exchange from other Class B shares. See "How to Exchange Shares."
Each Fund offers three classes of shares through Princor and other dealers
which it selects. Only two classes of shares are offered through this
Prospectus, Class A shares and Class B shares. The two classes of shares bear
sales charges in different forms and amounts and bear different expense levels.
Class A shares. An investor who purchases less than $1 million of Class A
shares of any of the Princor Funds (except the Money Market Funds) pays a sales
charge at the time of purchase. The sales charge ranges from a high of 4.75%
(1.50% for Short-Term Bond Fund) on purchases of up to $50,000 to a low of 0% on
purchases of $1 million or more. Purchases of $1 million or more are subject to
a .75% (.25% of the Short-Term Bond Fund) contingent deferred sales charge
applicable for redemptions that occur within 18 months from the date of
purchase. Certain purchases of Class A shares qualify for reduced sales charges.
See "How to Purchase Shares" and "Offering Price of Funds' Shares." Class A
shares for each of the Funds (except the Money Market Funds) currently bear a
12b-1 fee at the annual rate of up to 0.25% (.15% for the Short-Term Bond Fund)
of the Fund's average net assets attributable to Class A shares. See
"Distribution and Shareholder Servicing Plans and Fees." All shares outstanding
as of the close of business on December 2, 1994 have been classified as Class A
shares.
Class A shares of the Money Market Funds are sold without a sales charge at
the net asset value next determined after receipt of an order. Under most
circumstances, the net asset value will remain constant at $1.00 per share;
however, there can be no assurance that the net asset value will not change.
Class B shares. Class B shares for each Fund are sold without an initial sales
charge, but are subject to a declining contingent deferred sales charge which
begins at 4% (1.25% for the Short-Term Bond Fund) and declines to zero over a
six-year schedule. Class B shares of the Money Market Funds may be purchased
only by exchange from other Class B shares. Class B shares bear a higher 12b-1
fee than Class A shares, currently at the annual rate of 1.00% (.50% for the
Short-Term Bond Fund) of the Fund's average net assets attributable to Class B
shares. Class B shares will automatically convert into Class A shares, based on
relative net asset value, approximately seven years after purchase. Class B
shares provide an investor the benefit of putting all of the investor's dollars
to work from the time the investment is made, but (until conversion) will have a
higher expense ratio and pay lower dividends than Class A shares due to the
higher 12b-1 fee. See "How to Purchase Shares" and "Offering Price of Funds'
Shares." Class B shares were first offered to the public on December 9, 1994.
How to Exchange Shares
Shares of Princor Funds may be exchanged for shares of the same Class of
other Princor Funds without a sales charge or administrative fee under certain
conditions as described under "How to Exchange Shares." In addition, Class A
shares of the Money Market Funds acquired by direct purchase or reinvestment of
dividends on such shares may be exchanged for Class B shares of any
Growth-Oriented or Income-Oriented Fund. Shares may be exchanged by telephone or
written request. An exchange is a sale for tax purposes. Also, dividends and
capital gains distributions from shares of a Class of one Princor Fund may be
automatically "cross-reinvested" in shares of the same Class of another Princor
Fund. See "Distribution of Income Dividends and Realized Capital Gains."
How to Sell Shares
Shareholders may sell (redeem) shares by mail or by telephone. Redemption
proceeds will generally be mailed to the shareholder on the next business day
after the redemption request is received in good order. Upon proper
authorization certain redemptions may be processed through a selected dealer.
Automatic redemptions of a specified amount may also be made through a Periodic
Withdrawal Plan. In addition, shareholders of Class A shares of the Money Market
Funds may redeem shares by writing a check against their account balance and by
establishing a preauthorized withdrawal service on their account. Redemptions of
Class A shares are generally made at net asset value with out charge. However,
Class A share purchases of $1 million or more may be subject to a .75% (.25% for
the Short-Term Bond Fund) contingent deferred sales charge if redeemed within 18
months of purchase. Redemptions of Class B shares within six years of purchase
will generally be subject to a contingent deferred sales charge. See "Offering
Price of Funds' Shares" and "How to Sell Shares."
FINANCIAL HIGHLIGHTS
The following financial highlights for each of the ten years in the period
ended October 31, 1995, or since the Fund's inception if a shorter period of
time, have been derived from financial statements which have been audited by
Ernst & Young LLP, independent auditors, whose report thereon has been
incorporated by reference herein. The financial highlights should be read in
conjunction with the financial statements, related notes and other financial
information for each Fund incorporated by reference herein. The financial
statements, which contain additional information regarding the performance of
the Funds, may be obtained by shareholders, without charge, by telephoning
1-800-451-5447.
This page left blank intentionally.
<PAGE>
<TABLE>
<CAPTION>
GROWTH-ORIENTED FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor Balanced Fund, Inc.(b)
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $12.43 $.41 $1.31 $1.72 $(.36) $(.05) $(.41) $13.74
1994 13.26 .32 (.20) .12 (.40) (.55) (.95) 12.43
1993 12.78 .35 1 .14 1.49 (.37) (.64) (1.01) 13.26
1992 11.81 .41 .98 1.39 (.42) - (.42) 12.78
1991 9.24 .46 2.61 3.07 (.50) - (.50) 11.81
1990 11.54 .53 (1.70) (1.17) (.59) (.54) (1.13) 9.24
1989 11.09 .61 .56 1.17 (.56) (.16) (.72) 11.54
Period Ended October 31, 1988(c) 9.96 .40 1.02 1.42 (.29) - (.29) 11.09
Class B
Period Ended October 31, 1995(f) 11.80 .31 1.90 2.21 (.30) - (.30) 13.71
Princor Blue Chip Fund, Inc.
Class A
Year Ended October 31,
1995 12.45 .24 2.55 2.79 (.21) - (.21) 15.03
1994 11.94 .20 .57 .77 (.26) - (.26) 12.45
1993 11.51 .21 .43 .64 (.18) (.03) (.21) 11.94
1992 10.61 .17 .88 1.05 (.15) - (.15) 11.51
Period Ended October 31, 1991(g) 10.02 .10 .57 .67 (.08) - (.08) 10.61
Class B
Period Ended October 31, 1995(f) 11.89 .15 3.10 3.25 (.15) - (.15) 14.99
Princor Capital Accumulation
Fund, Inc.
Class A
Year Ended October 31,
1995 20.83 .45 3.15 3.60 (.39) (.35) (.74) 23.69
1994 21.41 .39 .93 1.32 (.41) (1.49) (1.90) 20.83
1993 21.34 .43 1.67 2.10 (.43) (1.60) (2.03) 21.41
1992 19.53 .45 1.82 2.27 (.46) - (.46) 21.34
1991 14.31 .49 5.24 5.73 (.51) - (.51) 19.53
1990 18.16 .52 (3.64) (3.12) (.40) (.33) (.73) 14.31
Four Months Ended
October 31, 1989 (h) 19.11 .18 (.06) .12 (.29) (.78) (1.07) 18.16
Year Ended June 30,
1989 18.82 .53 1.10 1.63 (.51) (.83) (1.34) 19.11
1988 21.66 .44 (1.06) (.62) (.41) (1.81) (2.22) 18.82
1987 20.47 .31 3.33 3.64 (.30) (2.15) (2.45) 21.66
1986 16.60 .61 4.94 5.55 (.72) (.96) (1.68) 20.47
Class B
Period Ended October 31, 1995(f) 19.12 .33 4.46 4.79 (.30) - (.30) 23.61
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor Balanced Fund, Inc.(b)
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 14.18% $ 57,125 1.37% 3.21% 35.8%
1994 .94% 53,366 1.51% 2.70% 14.4%
1993 12.24% 39,952 1.35% 2.78% 27.5%
1992 11.86% 31,339 1.29% 3.39% 30.6%
1991 34.09% 23,372 1.30% 4.25% 23.6%
1990 (11.28)% 18,122 1.32% 5.22% 33.7%
1989 11.03% 20,144 1.25% 5.45% 30.2%
Period Ended October 31, 1988(c) 12.42%(d) 16,282 1.12%(e) 4.51%(e) 65.2%(e)
Class B
Period Ended October 31, 1995(f) 18.72%(d) 1,263 1.91%(e) 2.53%(e) 35.8%(e)
Princor Blue Chip Fund, Inc.
Class A
Year Ended October 31,
1995 22.65% 35,212 1.38% 1.83% 26.1%
1994 6.58% 27,246 1.46% 1.72% 5.5%
1993 5.65% 23,759 1.25% 1.87% 11.2%
1992 9.92% 19,926 1.56% 1.49% 13.5%
Period Ended October 31, 1991(g) 6.37%(d) 12,670 1.71%(e) 1.67%(e) 0.4%(e)
Class B
Period Ended October 31, 1995(f) 26.94%(d) 1,732 1.90%(e) .97%(e) 26.1%(e)
Princor Capital Accumulation
Fund, Inc.
Class A
Year Ended October 31,
1995 17.94% 339,656 .75% 2.08% 46.0%
1994 6.67% 285,965 .83% 2.02% 31.7%
1993 10.42% 240,016 .82% 2.16% 24.8%
1992 11.67% 190,301 .93% 2.17% 38.3%
1991 40.63% 152,814 .99% 2.72% 19.7%
1990 (17.82)% 109,507 1.10% 3.10% 27.7%
Four Months Ended
October 31, 1989(h) .44%(d) 122,685 1.10%(e) 2.87%(e) 19.7%(e)
Year Ended June 30,
1989 9.53% 117,473 1.00% 3.04% 28.1%
1988 (2.30)% 97,147 .96% 2.40% 27.9%
1987 20.93% 93,545 .98% 1.73% 20.0%
1986 36.51% 55,763 .93% 3.59% 44.5%
Class B
Period Ended October 31, 1995(f) 25.06%(d) 2,248 1.50%(e) 1.07%(e) 46.0%(e)
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge or contingent
deferred sales charge.
(b) Effective December 5, 1994, the name of Princor Managed Fund, Inc. was
changed to Princor Balanced Fund, Inc.
(c) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.08 per share for the
period from the initial purchase of shares on October 30, 1987 through
December 17, 1987, was recognized, none of which was distributed to its
sole stockholder, Principal Mutual Life Insurance Company, during the
period. Additionally, the Fund incurred net realized and unrealized losses
on investments of $.12 per share during this initial interim period. This
represented activities of the fund prior to the initial public offering of
fund shares.
(d) Total Return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Period from December 9,1994, date Class B shares first offered to the
public, through October 31, 1995. The Growth Funds Class B shares
recognized no net investment income for the period from the initial
purchase of Class B shares on December 5, 1994 through December 8, 1994.
The Growth Funds Class B shares incurred unrealized loss during the initial
interim period as follows. This represented Class B share activities of
each fund prior to the initial public offering of Class B shares:
Per Share
Unrealized
Fund (Loss)
Princor Balanced Fund, Inc. (0.19)
Princor Blue Chip Fund, Inc. (0.15)
Princor Capital Accumulation
Fund, Inc. (0.46)
(g) Period from March 1, 1991, date shares first offered to public, through
October 31, 1991. Net investment income, aggregating $.01 per share for the
period from the initial purchase of shares on February 11, 1991 through
February 28, 1991, was recognized, none of which was distributed to its
sole stockholder, Principal Mutual Life Insurance Company, during the
period. Additionally, the Fund incurred unrealized gains on investments of
$.01 per share during this initial interim period. This represented
activities of the fund prior to the initial public offering of fund shares.
(h) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROWTH-ORIENTED FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor Emerging Growth Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $25.08 $.12 $6.45 $6.57 $(.06) $(.14) $(.20) $31.45
1994 23.56 - 1.61 1.61 - (.09) (.09) 25.08
1993 19.79 .06 3.82 3.88 (.11) - (.11) 23.56
1992 18.33 .14 1.92 2.06 (.15) (.45) (.60) 19.79
1991 11.35 .17 7.06 7.23 (.21) (.04) (.25) 18.33
1990 14.10 .31 (2.59) (2.28) (.37) (.10) (.47) 11.35
1989 12.77 .26 2.02 2.28 (.15) (.80) (.95) 14.10
Period Ended October 31, 1988(b) 10.50 .06 2.26 2.32 (.05) - (.05) 12.77
Class B
Period Ended October 31,1995(e) 23.15 - 8.18 8.18 (.02) - (.02) 31.31
Princor Growth Fund, Inc.
Class A
Year Ended October 31,
1995 31.14 .35 6.67 7.02 (.31) (.63) (.94) 37.22
1994 30.41 .26 2.56 2.82 (.28) (1.81) (2.09) 31.14
1993 28.63 .40 2.36 2.76 (.42) (.56) (.98) 30.41
1992 25.92 .39 3.32 3.71 (.40) (.60) (1.00) 28.63
1991 16.57 .41 9.32 9.73 (.38) - (.38) 25.92
1990 19.35 .35 (1.99) (1.64) (.34) (.80) (1.14) 16.57
Four Months Ended
October 31, 1989(f) 18.35 .08 1.17 1.25 (.16) (.09) (.25) 19.35
Year Ended June 30,
1989 19.84 .32 .36 .68 (.29) (1.88) (2.17) 18.35
1988 23.27 .26 (2.08) (1.82) (.22) (1.39) (1.61) 19.84
1987 21.85 .21 3.72 3.93 (.27) (2.24) (2.51) 23.27
1986 17.07 .32 6.31 6.63 (.38) (1.47) (1.85) 21.85
Class B
Period Ended October 31, 1995(e) 28.33 .21 8.76 8.97 (.20) - (.20) 37.10
Princor World Fund, Inc.
Class A
Year Ended October 31,
1995 7.44 .08 (.02) .06 (.03) (.19) (.22) 7.28
1994 6.85 .01 .64 .65 (.02) (.04) (.06) 7.44
1993 5.02 .03 1.98 2.01 (.05) (.13) (.18) 6.85
1992 5.24 .06 (.14) (.08) (.06) (.08) (.14) 5.02
1991 4.64 .05 .58 .63 (.03) - (.03) 5.24
1990 4.66 .09 (.04) .05 (.07) - (.07) 4.64
Ten Months Ended
October 31, 1989(g) 4.58 .07 .07 .14 (.06) - (.06) 4.66
Year Ended December 31,
1988 (h) 3.88 .12 .67 .79 (.09) - (.09) 4.58
1987 (h) 8.55 .12 (.96) (.84) (.08) (3.75) (3.83) 3.88
1986 (h) 7.32 .45 2.17 2.62 (.44) (.95) (1.39) 8.55
1985 (h) 6.07 .07 1.49 1.56 (.09) (.22) (.31) 7.32
Class B
Period Ended October 31, 1995(e) 6.71 .05 .51 .56 (.03) - (.03) 7.24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor Emerging Growth Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 26.41% $150,611 1.47% .47% 13.5%
1994 6.86% 92,965 1.74% .02% 8.1%
1993 19.66% 48,668 1.66% .26% 7.0%
1992 11.63% 29,055 1.74% .80% 5.8%
1991 64.56% 17,174 1.78% 1.14% 8.4%
1990 (16.80)% 8,959 1.94% 2.43% 15.8%
1989 19.65% 8,946 1.79% 2.09% 13.5%
Period Ended October 31, 1988(b) 19.72%(c) 6,076 1.52%(d) .84%(d) 19.5%(d)
Class B
Period Ended October 31,1995 (e) 35.65%(c) 8,997 2.04%(d) (.17)%(d) 13.5%(d)
Princor Growth Fund, Inc.
Class A
Year Ended October 31,
1995 23.29% 174,328 1.16% 1.12% 12.2%
1994 9.82% 116,363 1.30% .95% 13.6%
1993 9.83% 80,051 1.26% 1.40% 16.4%
1992 14.76% 63,405 1.19% 1.46% 15.6%
1991 59.30% 45,892 1.13% 1.85% 10.6%
1990 (9.20)% 28,917 1.18% 1.88% 9.7%
Four Months Ended
October 31, 1989 (f) 6.83%(c) 32,828 1.22%(d) 1.25%(d) 50.1%(d)
Year Ended June 30,
1989 4.38% 31,770 1.08% 1.78% 9.7%
1988 (7.19)% 34,316 1.00% 1.29% 24.9%
1987 20.94% 37,006 1.01% 1.07% 4.0%
1986 42.69% 26,493 .98% 1.75% 29.0%
Class B
Period Ended October 31, 1995(e) 31.48%(c) 8,279 1.80%(d) .31%(d) 12.2%(d)
Princor World Fund, Inc.
Year Ended October 31,
1995 1.03% 126,554 1.63% 1.10% 35.4%
1994 9.60% 115,812 1.74% .10% 13.2%
1993 41.39% 63,718 1.61% .59% 19.5%
1992 (1.57)% 35,048 1.69% 1.23% 19.9%
1991 13.82% 26,478 1.72% 1.36% 27.6%
1990 .94% 16,044 1.79% 1.89% 37.9%
Ten Months Ended
October 31, 1989(g) 2.98%(c) 13,928 1.55%(d) 1.82%(d) 32.4%(d)
Year Ended December 31,
1988(h) 20.25% 13,262 1.55% 1.43% 56.9%
1987(h) (10.13)% 3,943 2.09% .83% 183.0%
1986(h) 36.40% 9,846 2.17% .73% 166.0%
1985(h) 25.88% 2,525 2.25% 1.13% 55.9%
Class B
Period Ended October 31, 1995(e) 9.77%(c) 3,908 2.19%(d) .58%(d) 35.4%(d)
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge or the
contingent deferred sales charge.
(b) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.04 per share for the
period from the initial purchase of shares on October 30, 1987 through
December 17, 1987, was recognized, none of which was distributed to its
sole stockholder, Principal Mutual Life Insurance Company, during the
period. Additionally, the Fund incurred net realized and unrealized gains
on investments of $.46 per share during this initial interim period. This
represented activities of the fund prior to the initial public offering of
fund shares.
(c) Total Return amounts have not been annualized.
(d) Computed on an annualized basis.
(e) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. The Growth Funds Class B shares
recognized no net investment income for the period from the initial
purchase of Class B shares on December 5, 1994 through December 8, 1994.
The Growth Funds Class B shares incurred unrealized loss during the initial
interim period as follows. This represented Class B share activities of
each fund prior to the initial public offering of Class B shares:
Per Share
Unrealized
Fund (Loss)
Princor Emerging Growth Fund, Inc. (0.77)
Princor Growth Fund, Inc. (0.86)
Princor World Fund, Inc. (0.07)
(f) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
(g) Effective January 1, 1989, the fund changed its fiscal year-end from
December 31 to October 31.
(h) The investment manager of Princor World Fund, Inc. was changed on
August 1, 1988 to the current manager, Princor Management Corporation. The years
1983 through 1987 are not covered by the current independent auditor's report.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME-ORIENTED AND MONEY MARKET FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor Bond Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.27 $.78(b) $1.16 $1.94 $(.78) $(.01) $(.79) $11.42
1994 11.75 .78(b) (1.47) (.69) (.78) (.01) (.79) 10.27
1993 10.97 .81(b) .79 1.60 (.81) (.01) (.82) 11.75
1992 10.65 .85(b) .32 1.17 (.85) - (.85) 10.97
1991 9.99 .88(b) .65 1.53 (.87) - (.87) 10.65
1990 10.57 .86 (.55) .31 (.89) - (.89) 9.99
1989 10.37 .87 .25 1.12 (.86) (.06) (.92) 10.57
Period Ended October 31, 1988(c) 9.95 .80(b) .38 1.18 (.76) - (.76) 10.37
Class B
Period Ended October 31, 1995(f) 10.19 .63(b) 1.19 1.82 (.60) - (.60) 11.41
Princor Cash Management Fund, Inc.
Class A
Year Ended October 31,
1995 1.000 .052(b) - .052 (.052) - (.052) 1.000
1994 1.000 .033(b) - .033 (.033) - (.033) 1.000
1993 1.000 .026(b) - .026 (.026) - (.026) 1.000
1992 1.000 .036(b) - .036 (.036) - (.036) 1.000
1991 1.000 .061(b) - .061 (.061) - (.061) 1.000
1990 1.000 .074(b) - .074 (.074) - (.074) 1.000
Four Months Ended
October 31, 1989(g) 1.000 .027(b) - .027 (.027) - (.027) 1.000
Year Ended June 30,
1989 1.000 .080(b) - .080 (.080) - (.080) 1.000
1988 1.000 .060 - .060 (.060) - (.060) 1.000
1987 1.000 .053 - .053 (.053) - (.053) 1.000
1986 1.000 .065 - .065 (.065) - (.065) 1.000
Class B
Period Ended October 31, 1995(f) 1.000 .041(b) - .041 (.041) - (.041) 1.000
Princor Government Securities
Income Fund, Inc.
Class A
Year Ended October 31,
1995 10.28 .71 1.02 1.73 (.70) - (.70) 11.31
1994 11.79 .69 (1.40) (.71) (.68) (.12) (.80) 10.28
1993 11.44 .74 .55 1.29 (.74) (.20) (.94) 11.79
1992 11.36 .81 .12 .93 (.81) (.04) (.85) 11.44
1991 10.54 .85 .84 1.69 (.87) - (.87) 11.36
1990 10.76 .85 (.22) .63 (.85) - (.85) 10.54
Four Months Ended
October 31, 1989(g) 10.66 .29 .09 .38 (.28) - (.28) 10.76
Year Ended June 30,
1989 10.33 .87 .32 1.19 (.86) - (.86) 10.66
1988 10.40 .89 (.05) .84 (.88) (.03) (.91) 10.33
1987 10.82 .86 (.13) .73 (.87) (.28) (1.15) 10.40
1986 10.55 1.24 .49 1.73 (1.26) (.20) (1.46) 10.82
Class B
Period Ended October 31, 1995(f) 10.20 .56 1.07 1.63 (.54) - (.54) 11.29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Ratio of Net
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor Bond Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 19.73% $106,962 .94%(b) 7.26% 5.1%
1994 (6.01)% 88,801 .95%(b) 7.27% 8.9%
1993 15.22% 85,015 .92%(b) 7.19% 9.3%
1992 11.45% 62,534 .88%(b) 7.95% 8.4%
1991 16.04% 37,825 .80%(b) 8.66% .9%
1990 3.08% 22,719 1.22% 8.40% 3.6%
1989 11.54% 13,314 1.24% 8.59% 0.0%
Period Ended October 31, 1988(c) 11.59%(d) 10,560 .70%(b)(e) 8.85%(e) 63.9%(e)
Class B
Period Ended October 31, 1995(f) 17.98%(d) 2,708 1.59%(b)(e) 6.30%(e) 5.1%(e)
Princor Cash Management Fund, Inc.
Class A
Year Ended October 31,
1995 5.36% 623,864 .72%(b) 5.24% N/A
1994 3.40% 332,346 .70%(b) 3.27% N/A
1993 2.67% 284,739 .67%(b) 2.63% N/A
1992 3.71% 247,189 .65%(b) 3.66% N/A
1991 6.29% 262,543 .61%(b) 5.95% N/A
1990 7.65% 151,007 .93%(b) 7.36% N/A
Four Months Ended
October 31, 1989(g) 2.63%(d) 124,895 1.04%(b)(e) 7.86%(e) N/A
Year Ended June 30,
1989 8.15% 120,149 1.00% (b) 8.21% N/A
1988 6.18% 51,320 1.02% 6.06% N/A
1987 5.34% 45,015 1.02% 5.33% N/A
1986 6.71% 35,437 1.10% 6.76% N/A
Class B
Period Ended October 31, 1995(f) 4.19%(d) 208 1.42%(b)(e) 4.50%(e) N/A
Princor Government Securities
Income Fund, Inc.
Class A
Year Ended October 31,
1995 17.46% 261,128 .87% 6.57% 10.1%
1994 (6.26)% 249,438 .95% 6.35% 24.8%
1993 11.80% 236,718 .93% 6.38% 52.6%
1992 8.49% 161,565 .95% 7.04% 54.3%
1991 16.78% 94,613 .98% 7.80% 14.9%
1990 6.17% 71,806 1.07% 8.15% 22.4%
Four Months Ended
October 31, 1989(g) 3.63%(d) 55,702 1.07%(e) 8.18%(e) 5.2%(e)
Year Ended June 30,
1989 12.37% 56,848 .96% 8.58% -
1988 8.60% 59,884 .82% 8.65% -
1987 7.00% 65,961 .92% 7.93% 17.6%
1986 17.37% 43,576 .60% 9.33% 141.2%
Class B
Period Ended October 31, 1995(f) 16.07%(d) 4,699 1.53%(e) 5.68%(e) 10.1%(e)
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge or the
contingent deferred sales charge.
(b) Without the Manager's voluntary waiver of a portion of certain of its
expenses for the periods (year, except as noted in the financial
statements) ended October 31 of the years indicated, the following funds
would have had per share expenses and the ratios of expenses to average net
assets as shown:
Per Share Ratio of Expenses
Net Invest- to Average Net Amount
Fund Year ment Income Assets Waived
Princor Bond Fund, Inc.
Class A 1995 $.77 1.02% $86,018
1994 .77 1.09% 120,999
1993 .79 1.07% 111,162
1992 .82 1.11% 110,868
1991 .84 1.15% 100,396
1988(c) .76 1.12%(e) 31,187
Class B 1995(f) .62 1.62%(e) 300
Princor Cash Management
Fund, Inc.
Class A 1995 .052 .78% 296,255
1994 .031 .90% 595,343
1993 .025 .84% 468,387
1992 .035 .80% 385,328
1991 .059 .79% 433,196
1990 .073 1.01% 106,841
1989** .026 1.06%(e) 101,625
1989* .079 1.11% 9,558
Class B 1995(f) .041 1.63%(e) 104
* Year ended June 30, 1989
** Four months ended October 31, 1989
(c) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.10 per share for the
period from the initial purchase of shares on October 30, 1987 through
December 17, 1987, was recognized of which $.06 per share was distributed
to its sole stockholder, Principal Mutual Life Insurance Company, during
the period. Additionally, the Fund incurred net realized and unrealized
losses on investments of $.09 per share during this initial interim period.
This represented activities of the fund prior to the initial public
offering of fund shares.
(d) Total Return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. Certain of the Income Funds Class B
shares recognized net investment income as follows, for the period from the
initial purchase of Class B shares on December 5, 1994 through December 8,
1994, none of which was distributed to the sole shareholder, Princor
Management Corporation. Additionally, the Income Funds Class B shares
incurred unrealized loss during the initial interim period as follows. This
represented Class B share activities of each fund prior to the intitial
public offering of Class B shares:
Per Share Per Share
Net Investment Unrealized
Fund Income (Loss)
--------------------------------------------------
Princor Bond Fund, Inc. .01 -
Princor Government Securities
Income Fund, Inc. .01 (.02)
(g) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME-ORIENTED AND MONEY MARKET FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Assets
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor High Yield Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 7.83 $ .68 $ .20 $ .88 $ (.65) $ - $ (.65) $8.06
1994 8.36 .63 (.51) .12 (.65) - (.65) 7.83
1993 8.15 .71 .21 .92 (.71) - (.71) 8.36
1992 7.86 .79 .29 1.08 (.79) - (.79) 8.15
1991 7.12 .88 .80 1.68 (.94) - (.94) 7.86
1990 9.47 1.10 (2.35) (1.25) (1.09) (.01) (1.10) 7.12
1989 10.44 1.10 (.83) .27 (1.09) (.15) (1.24) 9.47
Period Ended October 31, 1988(b) 9.97 .98(c) .38 1.36 (.89) - (.89) 10.44
Class B
Period Ended October 31, 1995(f) 7.64 .53 .38 .91 (.50) - (.50) 8.05
Princor Tax-Exempt Bond Fund, Inc.
Class A
Year Ended October 31,
1995 10.93 .65 1.05 1.70 (.65) - (.65) 11.98
1994 12.62 .64 (1.54) (.90) (.63) (.16) (.79) 10.93
1993 11.62 .66 1.11 1.77 (.66) (.11) (.77) 12.62
1992 11.47 .68 .19 .87 (.69) (.03) (.72) 11.62
1991 10.82 .69 .68 1.37 (.70) (.02) (.72) 11.47
1990 11.06 .68 (.25) .43 (.67) - (.67) 10.82
Four Months Ended
October 31, 1989(g) 11.18 .22 (.12) .10 (.22) - (.22) 11.06
Year Ended June 30,
1989 10.40 .69 .77 1.46 (.68) - (.68) 11.18
1988 10.51 .71 .06 .77 (.72) (.16) (.88) 10.40
1987 10.75 .72 (.11) .61 (.73) (.12) (.85) 10.51
Period Ended June 30, 1986 (h) 10.95 .22 (.24) (.02) (.18) - (.18) 10.75
Class B
Period Ended October 31, 1995(f) 10.56 .50 1.38 1.88 (.48) - (.48) 11.96
Princor Tax-Exempt Cash
Management Fund, Inc.
Class A
Year Ended October 31,
1995 1.000 .032(c) - .032 (.032) - (.032) 1.000
1994 1.000 .021(c) - .021 (.021) - (.021) 1.000
1993 1.000 .020(c) - .020 (.020) - (.020) 1.000
1992 1.000 .028(c) - .028 (.028) - (.028) 1.000
1991 1.000 .043(c) - .043 (.043) - (.043) 1.000
1990 1.000 .053(c) - .053 (.053) - (.053) 1.000
1989 1.000 .058(c) - .058 (.058) - (.058) 1.000
Period Ended October 31, 1988(i) 1.000 .005(c) - .005 (.005) - (.005) 1.000
Class B
Period Ended October 31, 1995(f) 1.000 .021(e) - .021 (.021) - (.021) 1.000
Princor Utilities Fund, Inc.
Class A
Year Ended October 31,
1995 9.25 .48(c) 1.70 2.18 (.49) - (.49) 10.94
1994 11.45 .46(c) (2.19) (1.73) (.45) (.02) (.47) 9.25
Period Ended October 31, 1993(j) 10.18 .35(c) 1.27 1.62 (.35) - (.35) 11.45
Class B
Period Ended October 31, 1995(f) 9.20 .40(c) 1.77 2.17 (.44) - (.44) 10.93
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor High Yield Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 11.73% $ 23,396 1.45% 8.71% 40.3%
1994 1.45% 19,802 1.46% 7.82% 27.2%
1993 11.66% 19,154 1.35% 8.57% 23.4%
1992 14.35% 16,359 1.41% 9.69% 28.2%
1991 25.63% 13,195 1.50% 12.06% 14.2%
1990 (14.51)% 9,978 1.45% 12.99% 15.8%
1989 2.68% 12,562 1.43% 11.22% 19.9%
Period Ended October 31, 1988(b) 14.15%(d) 10,059 .77%(e)(c) 10.55%(e) 73.2%(e)
Class B
Period Ended October 31, 1995(f) 12.20%(c) 633 2.10%(d) 7.78%(d) 40.3%(d)
Princor Tax-Exempt Bond Fund, Inc.
Class A
Year Ended October 31,
1995 16.03% 179,715 .83% 5.67% 17.6%
1994 (7.41)% 171,425 .91% 5.49% 20.6%
1993 15.70% 177,480 .89% 5.45% 20.3%
1992 7.76% 106,661 .99% 5.96% 22.9%
1991 13.09% 62,755 1.01% 6.24% 13.1%
1990 4.06% 46,846 1.11% 6.31% 2.6%
Four Months Ended
October 31, 1989(g) .90%(d) 36,877 1.24%(e) 6.18%(e) 5.1% (e)
Year Ended June 30,
1989 14.64% 31,278 1.07% 6.54% 2.1%
1988 7.76% 22,812 .95% 7.00% 11.0%
1987 5.60% 19,773 .70% 6.70% 40.8%
Period Ended June 30, 1986 (h) (.16)%(d) 8,486 .20%(e) 8.60%(e) 0.0%(e)
Class B
Period Ended October 31, 1995(f) 17.97%(c) 3,486 1.51%(d) 4.78%(d) 17.6%(d)
Princor Tax-Exempt Cash
Management Fund, Inc.
Class A
Year Ended October 31,
1995 3.24% 99,887 .69%(e) 3.19% N/A
1994 2.11% 79,736 .67%(c) 2.08% N/A
1993 1.99% 79,223 .66%(c) 1.96% N/A
1992 2.86% 69,224 .65%(c) 2.84% N/A
1991 4.36% 71,469 .61%(c) 4.27% N/A
1990 5.40% 58,301 .71%(c) 5.26% N/A
1989 5.88% 42,639 .60%(c) 5.78% N/A
Period Ended October 31, 1988(i) .47%(d) 6,000 .26%(e)(c) 5.24%(e) N/A
Class B
Period Ended October 31, 1995(f) 2.19%(c) 27 1.42%(d)(e) 2.40%(d) N/A
Princor Utilities Fund, Inc.
Class A
Year Ended October 31,
1995 24.36% 65,873 1.04%(e) 4.95% 13.0%
1994 (15.20)% 56,747 1.00%(c) 4.89% 13.8%
Period Ended October 31, 1993(j) 15.92%(d) 50,372 1.00%(e)(c) 4.48%(e) 4.3%(e)
Class B
Period Ended October 31, 1995(f) 24.18%(c) 3,952 1.72%(d)(e) 3.84%(d) 13.0%(d)
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge or the
contingent deferred sales charge.
(b) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.10 per share for the
period from the initial purchase of shares on October 30, 1987 through
December 17, 1987, was recognized of which $.06 per share was distributed
to its sole stockholder, Principal Mutual Life Insurance Company, during
the period. Additionally, the Fund incurred net realized and unrealized
losses on investments of $.09 per share during this initial interim period.
This represented activities of the fund prior to the initial public
offering of Fund shares.
(c) Without the Manager's voluntary waiver of a portion of certain of its
expenses for the periods (year except as noted) ended October 31 of the
years indicated, the following funds would have had per share expenses and
the ratios of expenses to average net assets as shown:
Per Share Ratio of Expenses
Net Invest- to Average Net Amount
Fund Year ment Income Assets Waived
Princor High Yield
Fund, Inc. 1988(b) $.95 1.33%(e) $ 32,609
Princor Tax-Exempt Cash
Management Fund, Inc.
Class A 1995 .031 .84% 138,574
1994 .019 .85% 150,515
1993 .018 .83% 131,442
1992 .026 .82% 134,497
1991 .040 .83% 147,279
1990 .050 .96% 123,656
1989 .053 1.04% 125,604
1988(i) .004 .76%(e) 2,630
Class B 1995(f) .018 1.89%(e) 99
Princor Utilities
Fund, Inc.
Class A 1995 .46 1.30% 151,145
1994 .41 1.50% 284,836
1993(j) .32 1.54%(e) 139,439
Class B 1995(f) .40 1.81%(e) 1,338
(d) Total Return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. Certain of the Income Funds Class B
shares recognized net investment income as follows, for the period from the
initial purchase of Class B shares on December 5, 1994 through December 8,
1994, none of which was distributed to the sole shareholder, Princor
Management Corporation. Additionally, the Income Funds Class B shares
incurred unrealized loss during the initial interim period as follows. This
represented Class B share activities of each fund prior to the initial
public offering of Class B shares:
Per Share Per Share
Net Investment Unrealized
Fund Income (Loss)
Princor High Yield Fund, Inc. .01 (0.03)
Princor Tax-Exempt
Bond Fund, Inc. - (0.05)
Princor Utilities Fund, Inc. .01 (0.01)
(g) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
(h) Period from March 20, 1986, date shares first offered to public, through
June 30, 1986. Net investment income and net unrealized appreciation of
investments, for the period from the initial purchase of shares on December
18, 1985 through March 19, 1986, amounted to $.14 and $.94, respectively,
per share. All dividends from net investment income, from December 18, 1985
through March 19, 1986, were distributed to the sole stockholder, Principal
Mutual Life Insurance Company.
(i) Period from September 30, 1988, date shares first offered to public,
through October 31, 1988. Net investment income, aggregating $.005 per
share, for the period from the initial purchase of shares on August 23,
1988 through September 29, 1988, was recognized and distributed to its sole
stockholder, Principal Mutual Life Insurance Company, during the period.
This represented activities of the Fund prior to the initial public
offering of Fund shares.
(j) Period from December 16, 1992, date shares first offered to public, through
October 31, 1993. Net investment income, aggregating $.05 per share for the
period from the initial purchase of shares on November 16, 1992 through
December 15, 1992, was recognized, none of which was distributed to its
sole stockholder, Principal Mutual Life Insurance Company, during the
period. Additionally, the fund incurred unrealized gains on investments of
$.13 per share during the initial interim period. This represented
activities of the fund prior to the initial public offering of fund shares.
</FN>
</TABLE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The investment objectives and policies of each Fund are described below.
There can be no assurance that the objectives of the Funds will be realized.
GROWTH-ORIENTED FUNDS
The Princor Growth-Oriented Funds currently include four Funds which seek
capital appreciation through investments in equity securities (Capital
Accumulation Fund, Emerging Growth Fund, Growth Fund and World Fund), one Fund
which seeks a total investment return including both capital appreciation and
income through investments in equity and debt securities (Balanced Fund) and one
Fund which seeks growth of capital and growth of income primarily through
investments in common stocks of well capitalized, established companies (Blue
Chip Fund).
The Growth-Oriented Funds may invest in the following equity securities:
common stocks; preferred stocks and debt securities that are convertible into
common stock, that carry rights or warrants to purchase common stock or that
carry rights to participate in earnings; rights or warrants to subscribe to or
purchase any of the foregoing securities; and sponsored and unsponsored American
Depository Receipts (ADRs) based on any of the foregoing securities. Unsponsored
ADRs are not created by the issuer of the underlying security, may be subject to
fees imposed by the issuing bank that, in the case of sponsored ADRs, would be
paid by the issuer of a sponsored ADR and may involve additional risks such as
reduced availability of information about the issuer of the underlying security.
The Blue Chip, Capital Accumulation, Emerging Growth, Growth and World Funds
will seek to be fully invested under normal conditions in equity securities.
When in the opinion of the Manager current market or economic conditions
warrant, a Growth-Oriented Fund may, for temporary defensive purposes, place all
or a portion of its assets in cash (on which the Fund would earn no income),
cash equivalents, bank certificates of deposit, bankers acceptances, repurchase
agreements, commercial paper, commercial paper master notes which are floating
rate debt instruments without a fixed maturity, United States Government
securities, and preferred stocks and debt securities, whether or not convertible
into or carrying rights for common stock. When investing for temporary defensive
purposes a Growth-Oriented Fund is not investing so as to achieve its investment
objective. A Growth-Oriented Fund may also maintain reasonable amounts in cash
or short-term debt securities for daily cash management purposes or pending
selection of particular long-term investments.
Princor Balanced Fund
The investment objective of Princor Balanced Fund is to generate a total
investment return consisting of current income and capital appreciation while
assuming reasonable risks in furtherance of the investment objective. The term
"reasonable risks" refers to investment decisions that in the Manager's judgment
do not present a greater than normal risk of loss in light of current or
anticipated future market and economic conditions, trends in yields and interest
rates, and fiscal and monetary policies.
In seeking to achieve the investment objective, the Fund invests primarily
in growth and income-oriented common stocks (including securities convertible
into common stocks), corporate bonds and debentures and short-term money market
instruments. The Fund may also invest in other equity securities and in debt
securities issued or guaranteed by the United States Government and its agencies
or instrumentalities. The Fund seeks to generate real (inflation plus) growth
during favorable investment periods and may emphasize income and capital
preservation strategies during uncertain investment periods. The Manager will
seek to minimize declines in the net asset value per share. However, there is no
guarantee that the Manager will be successful in achieving this goal.
The portions of the Fund's total assets invested in equity securities, debt
securities and short-term money market instruments are not fixed, although
ordinarily 40% to 70% of the Fund's portfolio will be invested in equity
securities with the balance of the portfolio invested in debt securities. The
investment mix will vary from time to time depending upon the judgment of the
Manager as to general market and economic conditions, trends in investment
yields and interest rates, and changes in fiscal or monetary policies. The Fund
may invest up to 20% of its assets in foreign securities. For a description of
certain investment risks associated with foreign securities, see "Risk Factors."
The Fund may invest in all types of common stocks and other equity
investments, without regard to any objective investment criteria such as size of
the issue or issuer, exchange listing or seasoning. The Fund may invest in both
exchange-listed and over-the-counter securities, in small or large companies,
and in well-established or unseasoned companies. Also, the Fund's investments in
corporate bonds and debentures and money market instruments are not restricted
by credit ratings or other objective investment criteria, except with respect to
bank certificates of deposit as set forth below. Some of the fixed income
securities in which the Fund may invest may be considered to include speculative
characteristics and the Fund may purchase such securities that are in default
but does not currently intend to invest more than 5% of its assets in securities
rated below BBB by Standard & Poor's or Baa by Moody's. The rating services'
descriptions of BBB or Baa securities are as follows: Moody's Investors Service,
Inc. Bond Ratings -- Baa: Bonds which are rated Baa are considered as medium
grade obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Standard &
Poor's Corporation Bond Ratings -- BBB: Debt rated "BBB" is regarded as having
an adequate capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than for debt in higher-rated
categories. See the discussion of the Princor High Yield Fund for information
concerning risks associated with below-investment grade bonds. The Fund will not
concentrate its investments in any industry.
In selecting common stocks, the Manager seeks companies which the Manager
believes have predictable earnings increases and which, based on their future
growth prospects, may be currently undervalued in the market place. During
periods when the Manager determines that general economic conditions are
favorable, it will generally purchase common stocks with the objective of
long-term capital appreciation. From time to time, and in periods of economic
uncertainty, the Manager may purchase common stocks with the expectation of
price appreciation over a relatively short period of time.
To achieve its investment objective, the Fund may at times emphasize the
generation of interest income by investing in short, medium or long-term debt
securities. Investment in debt securities may also be made with a view to
realizing capital appreciation when the Manager believes that declining interest
rates may increase market values. The Fund may also purchase "deep discount
bonds," i.e., bonds which are selling at a substantial discount from their face
amount, with a view to realizing capital appreciation.
The Fund may invest in the following short-term money market investments:
U.S. Treasury bills, bank certificates of deposit, bankers' acceptances,
repurchase agreements, commercial paper and commercial paper master notes which
are floating rate debt instruments without a fixed maturity. The Fund will only
invest in domestic bank certificates of deposit issued by banks which are
members of the Federal Reserve System that have total deposits in excess of one
billion dollars.
The United States Government securities in which the Fund may invest
consist of U.S. Treasury obligations and obligations of certain agencies, such
as the Government National Mortgage Association, which are supported by the full
faith and credit of the United States, as well as obligations of certain other
Federal agencies or instrumentalities, such as the Federal National Mortgage
Association, Federal Land Banks and the Federal Farm Credit Administration,
which are backed only by the right of the issuer to borrow limited funds from
the U.S. Treasury, by the discretionary authority of the U.S. Government to
purchase such obligations or by the credit of the agency or instrumentality
itself.
Princor Blue Chip Fund
The objective of Princor Blue Chip Fund is growth of capital and growth of
income. Growth of income means increasing the Fund's investment income which is
primarily derived from dividends earned on portfolio securities. In seeking to
achieve its objective, the Fund will invest primarily in common stocks of well
capitalized, established companies which the Fund's manager believes to have the
potential for growth of capital, earnings and dividends. Under normal market
conditions, the Fund will invest at least 65%, and may invest up to 100%, of its
total assets in the common stocks of blue chip companies.
Blue chip companies are defined as those companies with market
capitalizations of at least $1 billion. Blue chip companies are generally
identified by their substantial capitalization, established history of earnings
and dividends, easy access to credit, good industry position and superior
management structure. In addition, the large market of publicly held shares for
such companies and the generally high trading volume in those shares results in
a relatively high degree of liquidity for such investments. The characteristics
of high quality and high liquidity of blue chip investments should make the
market for such stocks attractive to many investors.
Examples of blue chip companies currently eligible for investment by the
Fund include, but are not limited to, companies such as General Electric
Company, Ford Motor Company, Exxon Corporation, Merck & Company, Inc., Digital
Equipment Corporation, Capital Cities ABC, Inc., J.P. Morgan & Co. and Coca Cola
Company. In general, the Fund will seek to invest in those established, high
quality companies whose industries are experiencing favorable secular or
cyclical change.
The Fund's Manager may invest up to 35% of the Fund's total assets in
equity securities, other than common stock, issued by companies that meet the
investment criteria for blue chip companies and in equity securities issued by
companies that do not meet those criteria. The Manager does not intend to invest
regularly in speculative securities, which are those issued by new, unseasoned
companies or by companies that have limited product lines, markets, financial
resources or management, but it may from time to time invest not more than 5% of
the Fund's total assets in those kinds of securities. The Fund may invest up to
20% of its assets in securities of foreign issuers. The foreign securities in
which the Fund may invest need not be issued by companies that meet the
investment criteria for blue chip companies. For a description of certain
investment risks associated with foreign securities, see "Risk Factors."
Princor Capital Accumulation Fund
The primary objective of Princor Capital Accumulation Fund is long-term
capital appreciation. A secondary objective is growth of investment income.
The Fund will invest primarily in common stocks, but it may invest in other
equity securities. In making selections for the Fund's investment portfolio, the
Manager will use an approach described broadly as that of fundamental analysis,
which is discussed in the Statement of Additional Information. In pursuit of the
Fund's investment objectives, investments will be made in securities which as a
group appear to offer long-term prospects for capital and income growth.
Securities chosen for investment may include those of companies which the
Manager believes can reasonably be expected to share in the growth of the
nation's economy over the long term.
Princor Emerging Growth Fund
The objective of Princor Emerging Growth Fund is to achieve long-term
capital appreciation. The strategy of this Fund is to invest primarily in the
common stocks and securities (both debt and preferred stock) convertible into
common stocks of emerging and other growth-oriented companies that, in the
judgment of the Manager, are responsive to changes within the marketplace and
have the fundamental characteristics to support growth. In pursuing its
objective of capital appreciation, the Fund may invest, for any period of time,
in any industry and in any kind of growth-oriented company, whether new and
unseasoned or well known and established. Under normal market conditions, the
Fund will invest at least 65% of its assets in securities of companies having a
total market capitalization of $1 billion or less. The Fund may invest up to 20%
of its assets in securities of foreign issuers. For a description of certain
investment risks associated with foreign securities, see "Risk Factors."
There can be, of course, no assurance that the Fund will attain its
objective. Investment in emerging and other growth-oriented companies may
involve greater risk than investment in other companies. The securities of
growth-oriented companies may be subject to more abrupt or erratic market
movements, and many of them may have limited product lines, markets, financial
resources or management. Because of these factors and of the length of time that
may be required for full development of the growth prospects of some of the
companies in which the Fund invests, the Fund believes that its shares are
suitable only for persons who are able to assume the risk of investing in
securities of emerging and growth-oriented companies and prepared to maintain
their investment during periods of adverse market conditions. Investors should
not rely on the Fund for their short-term financial needs. Since the Fund will
not be seeking current income, investors should not view a purchase of Fund
shares as a complete investment program.
Princor Growth Fund
The objective of Princor Growth Fund is growth of capital. Realization of
current income will be incidental to the objective of growth of capital.
The Fund will invest primarily in common stocks, but it may invest in other
equity securities. In making selections for the Fund's investment portfolio, the
Manager will use an approach described broadly as that of fundamental analysis,
which is discussed in the Statement of Additional Information. In pursuit of the
Fund's investment objective, investments will be made in securities which as a
group appear to possess potential for appreciation in market value. Common
stocks chosen for investment may include those of companies which have a record
of sales and earnings growth that exceeds the growth rate of corporate profits
of the S&P 500 or which offer new products or new services. The policy of
investing in securities which have a high potential for growth of capital can
mean that the assets of the Fund may be subject to greater risk than securities
which do not have such potential.
Princor World Fund
The investment objective of Princor World Fund is to seek long-term growth
of capital through investment in a portfolio of equity securities of companies
domiciled in any of the nations of the world. In choosing investments in equity
securities of foreign and United States corporations, the Manager intends to pay
particular attention to long-term earnings prospects and the relationship of
then-current prices to such prospects. Short-term trading is not generally
intended, but occasional investments may be made for the purpose of seeking
short-term or medium-term gain. The Fund expects its investment objective to be
met over long periods which may include several market cycles. For a description
of certain investment risks associated with foreign securities, see "Risk
Factors."
For temporary defensive purposes, the World Fund may invest in the same
kinds of securities as the other Growth-Oriented Funds whether issued by
domestic or foreign corporations, governments, or governmental agencies,
instrumentalities or political subdivisions and whether denominated in United
States dollars or some other currency.
The Fund intends that its investments normally will be allocated among
various countries. Although there is no limitation on the percentage of assets
that may be invested in any one country or denominated in any one currency, the
Fund intends under normal market conditions to have at least 65% of its assets
invested in securities issued by corporations of at least three countries, one
of which may be the United States. Investments may be made anywhere in the
world, but it is expected that primary consideration will be given to investing
in the securities issued by corporations of Western Europe, North America and
Australasia (Australia, Japan and Far East Asia) that have developed economies.
Changes in investments may be made as prospects change for particular countries,
industries or companies.
The Fund may invest in the securities of other investment companies but may
not invest more than 10% of its assets in securities of other investment
companies, invest more than 5% of its total assets in the securities of any one
investment company, or acquire more than 3% of the outstanding voting securities
of any one investment company except in connection with a merger, consolidation
or plan of reorganization. The Fund's Manager will waive its management fee on
the Fund's assets invested in securities of other open-end investment companies.
The Fund will generally invest only in those investment companies that have
investment policies requiring investment in securities comparable in quality to
those in which the Fund invests.
INCOME-ORIENTED FUNDS
The Princor Funds currently include five Funds which seek a high level of
income through investments in fixed-income securities and one fund which seeks
current income and long-term growth of income and capital through investments in
equity and fixed-income securities of public utilities companies. These Funds
are Princor Bond Fund, Princor Government Securities Income Fund, Princor High
Yield Fund, Princor Short-Term Bond Fund, Princor Tax-Exempt Bond Fund, and
Princor Utilities Fund, collectively referred to as the "Income-Oriented Funds."
Each Fund has rating limitations with regard to the quality of securities that
may be held in the portfolio. The rating limitations apply at the time of
acquisition of a security and any subsequent change in a rating by a rating
service will not require elimination of a security from the Fund's portfolio.
The Statement of Additional Information contains descriptions of the ratings of
Moody's Investors Service, Inc. ("Moody's") and Standard and Poor's Corporation
("S&P").
Princor Bond Fund
The investment objective of Princor Bond Fund is to provide as high a level
of income as is consistent with preservation of capital and prudent investment
risk.
In seeking to achieve the investment objective, the Fund will predominantly
invest in marketable fixed-income securities. Investments will be made generally
on a long-term basis, but the Fund may make short-term investments from time to
time as deemed prudent by the Manager. Longer maturities typically provide
better yields but will subject the Fund to a greater possibility of substantial
changes in the values of its portfolio securities as interest rates change.
Under normal circumstances, the Fund will invest at least 65% of its assets
in bonds in one or more of the following categories: (i) corporate debt
securities and taxable municipal obligations, which at the time of purchase have
an investment grade rating within the four highest grades used by S&P (AAA, AA,
A or BBB) or by Moody's (Aaa, Aa, A or Baa) or which, if nonrated, are
comparable in quality in the opinion of the Fund's Manager; (ii) similar
Canadian corporate, Provincial and Federal Government securities payable in U.S.
funds; and (iii) securities issued or guaranteed by the United States Government
or its agencies or instrumentalities. The balance of the Fund's assets may be
invested in the following securities: domestic and foreign corporate debt
securities, preferred stocks, common stocks that provide returns that compare
favorably with the yields on fixed income investments, common stocks acquired
upon conversion of debt securities or preferred stocks or upon exercise of
warrants acquired with debt securities or otherwise and foreign government
securities. The debt securities and preferred stocks in which the Fund invests
may be convertible or nonconvertible. Securities rated below BBB or Baa are
commonly referred to as junk bonds. The Fund does not intend to purchase debt
securities rated lower than Ba3 by Moody's or BB- by S&P (bonds which are judged
to have speculative elements; their future cannot be considered as
well-assured). The rating services' descriptions of BBB or Baa securities are as
follows: Moody's Investors Service, Inc. Bond Ratings -- Baa: Bonds which are
rated Baa are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well. Standard & Poor's Corporation Bond Ratings -- BBB: Debt
rated "BBB" is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than for debt in higher-rated categories. See the discussion of the Princor High
Yield Fund for information concerning risks associated with below investment
grade bonds.
During the fiscal year ended October 31, 1995, the percentage of the Fund's
portfolio securities invested in the various ratings established by Moody's,
based upon the weighted average ratings of the portfolio, was as follows:
Moody's Rating Portfolio Percentage
Aa .97%
A 16.78%
Baa 78.67%
Ba 1.92%
B 1.66%
The above percentage for A rated securities include .39% of unrated
securities which have been determined by the Manager to be of comparable
quality.
Cash equivalents in which the Fund invests include corporate commercial
paper rated A-1+, A-1 or A-2 by S&P or P-1 or P-2 by Moody's, unrated commercial
paper issued by corporations with outstanding debt securities rated in the four
highest grades by S&P and Moody's and bank certificates of deposit and bankers'
acceptances issued or guaranteed by national or state banks and repurchase
agreements considered by the Fund to have investment quality. Under unusual
market or economic conditions, the Fund for temporary defensive purposes may
invest up to 100% of its assets in cash or cash equivalents.
Princor Government Securities Income Fund
The objective of Princor Government Securities Income Fund is a high level
of current income, liquidity and safety of principal.
The Fund will invest in obligations issued or guaranteed by the United
States Government or by its agencies or instrumentalities and in repurchase
agreements collateralized by such obligations. Such securities include
Government National Mortgage Association ("GNMA") Certificates of the modified
pass-through type, Federal National Mortgage Association ("FNMA") Obligations,
Federal Home Loan Mortgage Corporation ("FHLMC") Certificates and Student Loan
Marketing Association ("SLMA") Certificates and other U.S. Government
Securities. GNMA is a wholly-owned corporate instrumentality of the United
States whose securities and guarantees are backed by the full faith and credit
of the United States. FNMA, a federally chartered and privately-owned
corporation, FHLMC, a federal corporation, and SLMA, a government sponsored
stockholder-owned organization, are instrumentalities of the United States. The
securities and guarantees of FNMA, FHLMC and SLMA are not backed, directly or
indirectly, by the full faith and credit of the United States. Although the
Secretary of the Treasury of the United States has discretionary authority to
lend FNMA up to $2.25 billion outstanding at any time, neither the United States
nor any agency thereof is obligated to finance FNMA's or FHLMC's operations or
to assist FNMA or FHLMC in any other manner. The Fund may maintain reasonable
amounts of cash or short-term debt securities not issued or guaranteed by the
U.S. Government or its agencies or instrumentalities for daily cash management
purposes or pending selection of long-term investments.
Depending on market conditions, a substantial portion of the assets may be
invested in GNMA Certificates of the modified pass-through type and in
repurchase agreements collateralized by such obligations. GNMA is a United
States Government corporation within the Department of Housing and Urban
Development. GNMA Certificates are mortgage-backed securities representing an
interest in a pool of mortgage loans. Such loans are made by lenders such as
mortgage bankers, insurance companies, commercial banks and savings and loan
associations. Then, they are either insured by the Federal Housing
Administration (FHA) or they are guaranteed by the Veterans Administration (VA)
or Farmers Home Administration (FmHA). The lender or other prospective issuer
creates a specific pool of such mortgages, which it submits to GNMA for
approval. After approval, a GNMA Certificate is typically offered by the issuer
to investors through securities dealers.
GNMA Certificates differ from bonds in that the principal is scheduled to
be paid back by the borrower on a monthly basis over the life of the loan rather
than returned in a lump sum at maturity. Modified pass-through GNMA
Certificates, which are the only kind in which the Fund intends to invest,
entitle the holder to receive all interest and principal payments owed on the
mortgages in the pool (net of the issuer and GNMA fee of .5% prescribed by
regulation), regardless of whether or not the mortgagor has made such payment.
The timely payment of interest and principal is guaranteed by the full faith and
credit of the United States Government.
Although the payment of interest and principal is guaranteed, the guarantee
does not extend to the value of a GNMA Certificate or the value of the shares of
the Fund. The market value of a GNMA Certificate typically will fluctuate to
reflect changes in prevailing interest rates. It falls when rates increase (as
does the market value of other debt securities) and it rises when rates decline
(but it may not rise on a comparable basis with other debt securities because of
its prepayment feature), and, therefore, may be more or less than the face
amount of the GNMA Certificate, which reflects the aggregate principal amount of
the underlying mortgages. As a result the net asset value of Fund shares will
fluctuate as interest rates change.
Mortgagors may pay off their mortgages at any time. Expected prepayments of
the mortgages can affect the market value of the GNMA Certificate, and actual
prepayments can affect the return ultimately received. Prepayments, like
scheduled payments of principal, are reinvested by the Fund at prevailing
interest rates which may be less than the rate on the GNMA Certificate.
Prepayments are likely to increase as the interest rate for new mortgages moves
lower than the rate on the GNMA Certificate. Moreover, if the GNMA Certificate
had been purchased at a premium above principal because its rate exceeded
prevailing rates, the premium is not guaranteed and a decline in value to par
may result in a loss of the premium especially in the event of prepayment.
The FNMA and FHLMC securities in which the Fund invests are very similar to
GNMA certificates as described above but are not guaranteed by the full faith
and credit of the United States but rather by the agency itself. FNMA and FHLMC
securities are rated Aaa by Moody's and AAA by Standard & Poor's. These ratings
reflect the status of FNMA and FHLMC as federal agencies as well as the
important role each plays in financing purchases of homes in the U.S.
Student Loan Marking Association is a government sponsored
stockholder-owned organization whose goal is to provide liquidity to financial
and educational institutions. SLMA provides liquidity by purchasing student
loans, which are principally government guaranteed loans issued under the
Federal Guaranteed Student Loan Program and the Health Education Assistance Loan
Program. SLMA securities are not guaranteed by the U.S. Government but are
obligations solely of the agency. SLMA senior debt issues in which the Fund
invests are rated AAA by Standard & Poor's and Aaa by Moody's.
There are other obligations issued or guaranteed by the United States
Government (such as U.S. Treasury securities) or by its agencies or
instrumentalities that are either supported by the full faith and credit of the
U.S. Treasury or the credit of a particular agency or instrumentality. Included
in the latter category are Federal Home Loan Bank and Farm Credit Banks.
Obligations not guaranteed by the United States Government are highly rated
because they are issued by indirect branches of government. Such paper is issued
as needs arise by an agency and is traded regularly in denominations similar to
those in which government obligations are traded.
The Fund will not engage in the trading of securities for the purpose of
realizing short-term profits, but it will adjust its portfolio as considered
advisable in view of prevailing or anticipated market conditions and the Fund's
investment objective. Accordingly, the Fund may sell portfolio securities in
anticipation of a rise in interest rates and purchase securities for inclusion
in its portfolio in anticipation of a decline in interest rates.
As a hedge against changes in interest rates, the Fund may enter into
contracts with dealers in GNMA Certificates whereby the Fund agrees to purchase
or sell an agreed-upon principal amount of GNMA Certificates at a specified
price on a certain date. The Fund may enter into similar purchase agreements
with issuers of GNMA Certificates other than Principal Mutual Life Insurance
Company. The Fund may also purchase optional delivery standby commitments which
give the Fund the right to sell particular GNMA Certificates at a specified
price on a specified date. Failure of the other party to such a contract or
commitment to abide by the terms thereof could result in a loss to the Fund. To
the extent the Fund engages in delayed delivery transactions it will do so for
the purpose of acquiring portfolio securities consistent with its investment
objective and policies and not for the purpose of investment leverage or to
speculate on interest rate changes. Liability accrues to the Fund at the time it
becomes obligated to purchase such securities, although delivery and payment
occur at a later date. From the time the Fund becomes obligated to purchase
securities on a delayed delivery basis, the Fund has all the rights and risks
attendant to the ownership of a security except that no interest accrues to the
purchaser until delivery. At the time the Fund enters into a binding obligation
to purchase such securities, Fund assets of a dollar amount sufficient to make
payment for the securities to be purchased will be segregated. The availability
of liquid assets for this purpose and the effect of asset segregation on the
Fund's ability to meet its current obligations, to honor requests for redemption
and to have its investment portfolio managed properly will limit the extent to
which the Fund may engage in forward commitment agreements. Except as may be
imposed by these factors, there is no limit on the percent of the Fund's total
assets that may be committed to transactions in such agreements.
Princor High Yield Fund
Princor High Yield Fund's primary investment objective is high current
income. Capital growth is a secondary objective when consistent with the
objective of high current income. This Fund is designed for investors willing to
assume additional risk in return for above average income.
In seeking to attain the Fund's objective of high current income, the Fund
invests primarily in high yielding, lower or nonrated fixed-income securities
(commonly known as "junk bonds"), constituting a diversified portfolio which the
Fund Manager believes does not involve undue risk to income or principal.
Normally, at least 80% of the Fund's assets will be invested in debt securities,
convertible securities (both debt and preferred stock) or preferred stocks that
are consistent with its primary investment objective of high current income. The
Fund's remaining assets may be invested in common stocks and other equity
securities in which the Growth-Oriented Funds may invest when these types of
investments are consistent with the objective of high current income.
The Fund seeks to invest its assets in securities rated Ba1 or lower by
Moody's or BB+ or lower by S&P or in unrated securities which the Fund's Manager
believes are of comparable quality. These securities are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
interest and to repay principal in accordance with the terms of the obligation.
The Fund will not invest in securities rated below Caa by Moody's and below CCC
by S&P.
The rating services' descriptions of securities rating categories in which
the Fund may normally invest are as follows:
Moody's Investors Service, Inc. Bond Ratings - Ba: Bonds which are rated Ba
are judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class. B:
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Moody's may apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and a modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Standard & Poor's Corporation Bond Ratings - BB, B, CCC, CC: Debt rated
"BB", "B", "CCC" and "CC" is regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Plus (+) or Minus (-): The ratings from "AA" to "BB" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
The higher-yielding, lower-rated securities in which the High Yield Fund
invests present special risks to investors. The market value of lower-rated
securities may be more volatile than that of higher-rated securities and
generally tends to reflect the market's perception of the creditworthiness of
the issuer and short-term market developments to a greater extent than more
highly-rated securities, which reflect primarily fluctuations in general levels
of interest rates. Periods of economic uncertainty and change can be expected to
result in increased volatility in the market value of lower-rated securities.
Further, such securities may be subject to greater risks of loss of income and
principal, particularly in the event of adverse economic changes or increased
interest rates, because their issuers generally are not as financially secure or
as creditworthy as issuers of higher-rated securities. Additionally, to the
extent that there is not a national market system for secondary trading of
lower-rated securities, there may be a low volume of trading in such securities
which may make it more difficult to value or sell those securities than
higher-rated securities. Adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may decrease the values and liquidity of high
yield securities, especially in a thinly traded market.
Investors should recognize that the market for higher-yielding, lower-rated
securities is a relatively recent development that has not been tested by an
economic recession. An economic downturn may severely disrupt the market for
such securities and cause financial stress to the issuers which may adversely
affect the value of the securities held by the High Yield Fund and the ability
of the issuers of the securities held by it to pay principal and interest. A
default by an issuer may result in the Fund incurring additional expenses to
seek recovery of the amounts due it.
Some of the securities in which the Fund invests contain call provisions.
If the issuer of such a security exercises a call provision in a declining
interest rate market, the Fund would have to replace the security with a
lower-yielding security, resulting in a decreased return for investors. Further,
a higher-yielding security's value will decrease in a rising interest rate
market, which will be reflected in the Fund's net asset value per share.
Investors should carefully consider their ability to assume the risks of
investing in lower-rated securities before making an investment in the Fund, and
should be prepared to maintain their investment during periods of adverse market
conditions. Investors should not rely on the Fund for their short-term financial
needs.
The Fund seeks to minimize the risks of investing in lower-rated securities
through diversification, investment analysis and attention to current
developments in interest rates and economic conditions. Because the Fund invests
primarily in securities in the lower rating categories, the achievement of the
Fund's goals is more dependent on the Manager's ability than would be the case
if the Fund were investing in securities in the higher rating categories.
Although the Fund's Manager considers security ratings when making investment
decisions, it performs its own investment analysis and does not rely principally
on the ratings assigned by the rating services. There are risks in applying
credit ratings as a method for evaluating high yield securities. For example,
credit ratings evaluate the safety of principal and interest payments, not the
market value risk of high yield securities, and credit rating agencies may fail
to make timely changes in credit ratings to reflect subsequent events. The
Manager's analysis includes traditional security analysis considerations such as
the issuer's experience and managerial strength, changing financial condition,
borrowing requirements or debt maturity schedules, and its responsiveness to
changes in business conditions and interest rates. It also considers relative
values based on anticipated cash flow, interest or dividend coverage, asset
coverage and earnings prospects. In addition, the Manager analyzes general
business conditions and other factors such as anticipated changes in economic
activity and interest rates, the availability of new investment opportunities,
and the economic outlook for specific industries. The Manager continuously
monitors the issuers of portfolio securities to determine if the issuers will
have sufficient cash flow and profits to meet required principal and interest
payments and to assure the securities' liquidity so the Fund can meet redemption
requests. During the fiscal year ended October 31, 1995, the percentage of the
Fund's portfolio securities invested in the various ratings established by
Moody's, based upon the weighted average ratings of the portfolio, was as
follows:
Moody's Rating Portfolio Percentage
Baa 2.27%
Ba 41.53%
B 55.72%
C .48%
The above percentages for Ba and B rated securities include unrated securities
in the amount of .65% and .34%, respectively, which have been determined by the
Manager to be of comparable quality.
There may be times when, in the Manager's judgment, unusual market or
economic conditions make pursuing the Fund's basic investment strategy
inconsistent with the best interests of its shareholders. At such times the
Manager may employ alternative strategies, primarily seeking to reduce
fluctuations in the value of the Fund's assets. In implementing these
"defensive" strategies, the Fund may temporarily invest in money-market
instruments of all types, higher-rated fixed-income securities or any other
fixed-income securities that the Fund considers consistent with such strategy.
The yield to maturity on these securities would generally be lower than the
yield to maturity on lower-rated fixed-income securities. It is impossible to
predict when, or for how long, such alternative strategies will be utilized.
The Fund's Manager buys and sells securities for the Fund principally in
response to its evaluation of an issuer's continuing ability to meet its
obligations, the availability of better investment opportunities, and its
assessment of changes in business conditions and interest rates. From time to
time, consistent with its investment objectives, the Fund may sell securities
that have appreciated in value because of declines in interest rates. It may
also trade securities for the purpose of seeking short-term profits. Securities
may be sold in anticipation of a market decline or bought in anticipation of a
market rise. They may also be traded for securities of comparable quality and
maturity to take advantage of perceived short-term disparities in market values
or yields.
Princor Short-Term Bond Fund
The objective of Princor Short-Term Bond Fund is to seek a high level of
current income consistent with a relatively high level of principal stability by
investing in a portfolio of securities with a dollar weighted average maturity
of five years or less. The Fund seeks to achieve its objective by investing
primarily in high grade, short-term debt securities.
The Fund will invest, under normal circumstances, at least 80% of its total
assets in securities issued or guaranteed by the United States ("U.S.")
Government or its agencies or instrumentalities (as described in the discussion
of Princor Government Securities Income Fund) and other debt securities of U.S.
issuers rated within the three highest grades used by Standard & Poor's (AAA, AA
or A) or by Moody's (Aaa, Aa, or A) or which, if nonrated, are comparable in
quality in the opinion of the Fund's Manager. The balance of the Fund's assets
may be invested in debt securities rated in the fourth highest grade by the
major rating services (i.e., at least "Baa" by Moody's Investors Service or
"BBB" by Standard & Poor's Corporation, or their equivalents) or, if not rated,
judged to be of comparable quality. Securities rated BBB or Baa are considered
investment grade securities having adequate capacity to pay interest and repay
principal. Such securities may have speculative characteristics, however, and
changes in economic and other conditions are more likely to lead to a weakened
capacity of the issuer of such securities to make principal and interest
payments than is the case with higher rated securities. Under normal
circumstances, the Fund will maintain a dollar weighted average maturity of not
more than five years. In determining the average maturity of the Fund's
portfolio, the Manager may adjust the maturity dates on callable or prepayable
securities to reflect the Manager's judgment regarding the likelihood of such
securities being called or prepaid.
The Fund may also invest in other debt securities including corporate debt
securities such as bonds, notes and debentures, mortgage-backed securities
including collateralized mortgage obligations and other asset-backed securities.
For a more complete description of asset-backed securities, see "Princor
Government Securities Income Fund" duscusssion.
Cash equivalents in which the Fund invests include corporate commercial
paper rated A-1+, A-1 or A-2 by S&P or P-1 or P-2 by Moody's, unrated commercial
paper issued by corporations with outstanding debt securities rated in the four
highest grades by S&P and Moody's and bank certificates of deposit and bankers'
acceptances issued or guaranteed by national or state banks and repurchase
agreements considered by the Fund to have investment quality. Under unusual
market or economic conditions, the Fund for temporary defensive purposes, may
invest up to 100% of its assets in cash or cash equivalents.
Princor Tax-Exempt Bond Fund
The objective of Princor Tax-Exempt Bond Fund is to seek as high a level of
current income exempt from federal income tax as is consistent with preservation
of capital. The Fund seeks to achieve its objective by investing primarily in a
diversified portfolio of securities issued by or on behalf of state or local
governments or other public authorities. Interest on these obligations
("Municipal Obligations") is exempt from federal income tax in the opinion of
bond counsel to the issuer.
The Fund will invest, during normal market conditions, at least 80% of its
total assets in Municipal Obligations which, at the time of purchase, meet the
following standards: (a) Municipal Bonds rated within the four highest grades by
(i) Moody's, these ratings are: Aaa, Aa, A and Baa or (ii) S&P, these ratings
are: AAA, AA, A and BBB; (b) Municipal Notes rated within the highest grade by
Moody's (MIG-1) or S&P (SP-1); (c) Municipal Commercial Paper rated within the
highest grade by Moody's (Prime-1) or S&P (A-1); and (d) unrated Municipal
Obligations comparable in quality to those described above in the opinion of the
Fund's Manager.
The Fund may invest up to 20% of its total assets in Municipal Obligations
that do not meet the standards required for the balance of the portfolio as set
forth above. Securities rated below BBB or Baa are commonly referred to as junk
bonds. These investments normally will provide an opportunity for higher yield
but will be more speculative than Municipal Obligations that meet higher
standards. They typically will entail greater price volatility and a higher risk
of default, that is, the nonpayment of interest and principal by the issuer. The
Fund does not intend to purchase Municipal Obligations that would be in default
as to payment of either interest or principal at the time of purchase. As a
result, it will not purchase Municipal Bonds rated lower than B by Moody's or
S&P (bonds that are predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation) or
Municipal Notes or Municipal Commercial Paper which is unrated by either Moody's
or S&P and which in the opinion of the Fund's Manager is not comparable in
quality to rated obligations. See the discussion of the Princor High Yield Fund
for information concerning risks associated with below-investment grade bonds.
The Fund may also invest from time to time in the following taxable
securities which mature one year or less from the time of purchase: Obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities ("U.S. Government securities"), domestic bank certificates of
deposit and bankers' acceptances, commercial paper, short-term corporate debt
securities and repurchase agreements ("Taxable Investments"). The Fund will make
Taxable Investments primarily for liquidity purposes or as a temporary
investment of cash pending its investment in Municipal Obligations. During
normal market conditions, the Fund will not invest more than 20% of its total
assets in Taxable Investments, the Municipal Obligations identified in the
preceding paragraph and Municipal Obligations the interest on which is treated
as a tax preference item for purposes of the federal alternative minimum tax.
The Fund, however, may temporarily invest more than 20% of its assets in Taxable
Investments when in the opinion of the Fund's Manager it is advisable to do so
for defensive purposes because of market conditions.
The Fund may not invest more than 5% of its total assets in the securities
of any one issuer (except for U.S. Government securities), but it may invest
without limit in debt obligations of issuers located in the same state and in
debt obligations which are repayable out of revenue sources generated from
economically related projects or facilities. Sizeable investments in such
obligations could involve an increased risk to the Fund since an economic,
business or political development or change affecting one security could also
affect others. The Fund may also invest without limit in industrial development
bonds, which are issued by industrial development authorities but may be backed
only by the assets and revenues of the non-governmental entities that use the
facilities financed by the bonds.
During the fiscal year ended October 31, 1995, the percentage of the Fund's
portfolio securities invested in the various ratings established by Moody's,
based upon the weighted average ratings of the portfolio, was as follows:
Moody's Rating Portfolio Percentage
Aaa 2.49%
AA 26.66%
A 33.29%
Baa 30.98%
Ba 3.52%
The above percentages for AA, A and Baa rated securities include unrated
securities in the amount of 1.31%, 3.54% and 6.22%, respectively, which have
been determined by the Manager to be of comparable quality.
The Fund will not engage in the trading of securities for the purpose of
realizing short-term profits, but it will adjust its portfolio as considered
advisable in view of prevailing or anticipated market conditions and the Fund's
investment objective. Accordingly, the Fund may sell portfolio securities in
anticipation of a rise in interest rates and purchase securities for inclusion
in its portfolio in anticipation of a decline in interest rates.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. It may be expected that similar proposals may
be introduced in the future. If such a proposal were enacted, the ability of the
Fund to pay "exempt interest" dividends may be adversely affected and the Fund
would reevaluate its investment objective and policies and consider changes in
its structure.
Princor Utilities Fund
The investment objective of Princor Utilities Fund is to provide current
income and long-term growth of income and capital. The Fund seeks to achieve its
investment objective by investing primarily in equity and fixed-income
securities of companies engaged in the public utilities industry. The term
"public utilities industry" consists of companies engaged in the manufacture,
production, generation, transmission, sale and distribution of gas and electric
energy, as well as companies engaged in the communications field, including
telephone, telegraph, satellite, microwave and other companies providing
communication facilities for the public, but excluding public broadcasting
companies. For purposes of the Fund, a company will be considered to be in the
public utilities industry if, during the most recent twelve-month period, at
least 50% of the company's gross revenues, on a consolidated basis, is derived
from the public utilities industry. Under normal market conditions, the Fund, as
an investment policy, will invest at least 65%, and may invest up to 100%, of
its total assets in securities of companies in the public utilities industry,
and as a matter of fundamental policy will invest no less than 25% of its total
assets in those securities. As a non-fundamental policy, the Fund may not own
more than 5% of the outstanding voting securities of more than one public
utility company as defined by the Public Utility Holding Company Act of 1935.
The Fund invests in both equity securities (as defined previously under
"Growth-Oriented Funds") and fixed- income securities (bonds and preferred
stock) in the public utilities industry. The Fund does not have any set policies
to concentrate within any particular segment of the utilities industry. The Fund
will shift its asset allocation without restriction between types of utilities
and between equity and fixed-income securities based upon the Manager's
determination of how to achieve the Fund's investment objective in light of
prevailing market, economic and financial conditions. For example, at a
particular time the Manager may choose to allocate up to 100% of the Fund's
assets in a particular type of security (for example, equity securities) or in a
specific utility industry segment (for example, electric utilities).
Fixed-income securities in which the Fund may invest are debt securities
and preferred stocks, which are rated at the time of purchase Baa or better by
Moody's or BBB or better by S&P, or which, if unrated, are deemed to be of
comparable quality by the Fund's Manager. A description of corporate bond
ratings is contained in the Appendix to the Statement of Additional Information.
The rating services' descriptions of Baa or BBB securities are as follows:
Moody's Investors Service, Inc. Bond ratings -- Baa: Bonds which are rated Baa
are considered as medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Standard and Poor's Corporation Bond Ratings -- BBB:
Debt rated "BBB" is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than for debt in higher-rated categories.
If a fixed-income security held by the Fund is rated BBB or Baa and is
subsequently down graded by a rating agency, the Fund will retain such security
in its portfolio until the Manager determines that it is practicable to sell the
security without undue market or tax consequences to the Fund.
While the Fund will invest primarily in the securities of public utility
companies, it may invest up to 35% of its total assets in those securities that
are permissible investments for the Balanced Fund. See "Princor Balanced Fund"
and "Certain Investment Policies and Restrictions." However the Fund will not
invest in fixed-income securities rated below Baa by Moody's or BBB by S&P.
When in the opinion of the Manager current market or economic conditions
warrant, the Fund may for temporary defensive purposes place all or a portion of
its assets in cash, on which the Fund would earn no income, cash equivalents,
bank certificates of deposit, bankers acceptances, repurchase agreements,
commercial paper, commercial paper master notes or United States Government
securities. When investing for temporary defensive purposes the Fund is not
investing so as to achieve its investment objective. The Fund may also maintain
reasonable amounts of cash or short-term debt securities for daily cash
management purposes or pending selection of particular long-term investments.
The public utilities industry as a whole has certain characteristics and
risks particular to that industry. Unlike industrial companies, the rates which
utility companies may charge their customers generally are subject to review and
limitation by governmental regulatory commissions. Although rate changes of a
utility usually fluctuate in approximate correlation with financing costs, due
to political and regulatory factors rate changes ordinarily occur only following
a delay after the changes in financing costs. This factor will tend to favorably
affect a utility company's earnings and dividends in times of decreasing costs,
but conversely will tend to adversely affect earnings and dividends when costs
are rising. In addition, the value of public utility debt securities (and, to a
lesser extent, equity securities) tends to have an inverse relationship to the
movement of interest rates.
Among the risks affecting the utilities industry are the following: risks
of increases in fuel and other operating costs; the high cost of borrowing to
finance capital construction during inflationary periods; restrictions on
operations and increased costs and delays associated with compliance with
environmental and nuclear safety regulations; the difficulties involved in
obtaining natural gas for resale or fuel for generating electricity at
reasonable prices; the risks in connection with the construction and operation
of nuclear power plants; the effects of energy conservation and effects of
regulatory changes, such as the possible adverse effects on profits of recent
increased competition among telecommunications companies and the uncertainties
resulting from such companies' diversification into new domestic and
international businesses, as well as agreements by many such companies linking
future rate increases to inflation or other factors not directly related to the
actual operating profits of the enterprise.
MONEY MARKET FUNDS
The Princor Funds currently include two Funds which seek a high level of
income through investments in short-term securities. These Funds are Princor
Cash Management Fund and Princor Tax-Exempt Cash Management Fund, together
referred to as the "Money Market Funds." Securities in which the Money Market
Funds will invest may not yield as high a level of current income as securities
of lower quality and longer maturities which generally have less liquidity,
greater market risk and more fluctuation.
Each of the Money Market Funds will limit its portfolio investments to
United States dollar denominated instruments that the Manager, subject to the
oversight of the Board of Directors, determines present minimal credit risks and
which at the time of acquisition are "Eligible Securities" as that term is
defined in regulations issued under the Investment Company Act of 1940.
Eligible Securities include:
(1) A security with a remaining maturity of 397 days or less that is rated
(or that has been issued by an issuer that is rated in respect to a
class of short-term debt obligations, or any security within that
class, that is comparable in priority and security with the security)
by a nationally recognized statistical rating organization in one of
the two highest rating categories for short-term debt obligations; or
(2) A security that at the time of issuance was a long-term security with a
remaining maturity of 397 calendar days or less, and whose issuer has
received from a nationally recognized statistical rating organization a
rating, with respect to a class of short-term debt obligations (or any
security within that class) that is now comparable in priority and
security with the security, in one of the two highest rating categories
for short-term debt obligations; or
(3) an unrated security that is of comparable quality to a security meeting
the requirements of (1) or (2) above, as determined by the board of
directors.
Princor Cash Management Fund will not invest more than 5% of its total
assets in the following securities:
(1) Securities which, when acquired by the Fund (either initially or upon
any subsequent rollover), are rated in the second highest rating
category for short-term debt obligations;
(2) Securities which at the time of issuance were long-term securities but
when acquired by the Fund have a remaining maturity of 397 calendar
days or less, if the issuer of such securities is rated, with respect
to a class of comparable short-term debt obligations, in the second
highest rating category for short-term obligations; and
(3) Securities which are unrated but are determined by the Fund's Board of
Directors to be of comparable quality to securities rated in the second
highest rating category for short-term debt obligations.
Each Fund will maintain a dollar-weighted average portfolio maturity of 90
days or less. Each Fund intends to hold its investments until maturity, but may
on occasion trade securities to take advantage of market variations. Also,
revised valuations of an issuer or redemptions may result in sales of portfolio
investments prior to maturity or at a time when such sales might otherwise not
be desirable. Each Fund's right to borrow to facilitate redemptions may reduce
the need for such sales. The sale of portfolio securities would be a taxable
event. See "Tax Treatment of the Funds, Dividends and Distributions." It is the
policy of the Money Market Funds to be as fully invested as reasonably practical
at all times to maximize current income.
Since portfolio assets of the Money Market Funds will consist of short-term
instruments, replacement of portfolio securities will occur frequently. However,
since these Funds expect to usually transact purchases and sales of portfolio
securities with issuers or dealers on a net basis, it is not anticipated that
the Funds will pay any significant brokerage commissions. The Funds are free to
dispose of portfolio securities at any time, when changes in circumstances or
conditions make such a move desirable in light of their investment objectives.
Princor Cash Management Fund
The objective of Princor Cash Management Fund is to seek as high a level of
current income available from short-term securities as is considered consistent
with preservation of principal and maintenance of liquidity by investing its
assets in a portfolio of money market instruments. These money market
instruments are U.S. Government Securities, U.S. Government Agency Securities,
Bank Obligations, Commercial Paper, Short-term Corporate Debt and Repurchase
Agreements, which are described briefly below and in more detail in the
Statement of Additional Information.
U.S. Government Securities are securities issued or guaranteed by the U.S.
Government, including treasury bills, notes and bonds.
U.S. Government Agency Securities are obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government whether supported by the
full faith and credit of the U.S. Treasury or only by the credit of a particular
agency or instrumentality.
Bank Obligations consist of certificates of deposit which are generally
negotiable certificates issued against funds deposited in a commercial bank for
a definite period of time and earning a specified return and bankers acceptances
which are time drafts drawn on a commercial bank by a borrower, usually in
connection with international commercial transactions.
Commercial Paper is short-term promissory notes issued by corporations
primarily to finance short-term credit needs.
Short-term Corporate Debt consists of notes, bonds or debentures which at
the time of purchase have one year or less remaining to maturity.
Repurchase Agreements are transactions under which securities are purchased
from a bank or securities dealer with an agreement by the seller to repurchase
the securities at the same price plus interest at a specified rate. Generally,
Repurchase Agreements are of short duration, usually less than a week but on
occasion for longer periods.
Princor Tax-Exempt Cash Management Fund
The objective of Princor Tax-Exempt Cash Management Fund is to provide as
high a level of current interest income exempt from federal income tax as is
consistent, in the view of the Fund's management, with stability of principal
and the maintenance of liquidity. The Fund seeks to achieve its objective
through investment in a professionally managed portfolio of high quality,
short-term obligations that have been issued by or on behalf of state or local
governments or other public authorities and that pay interest which is exempt
from federal income tax in the opinion of bond counsel to the issuer ("Municipal
Obligations").
The Fund may invest in Municipal Obligations with fixed, variable or
floating interest rates and may invest in participation interests in pools of
Municipal Obligations held by banks or other financial institutions. The Fund
may treat a variable or floating interest rate obligation as maturing before its
ultimate maturity date if the Fund has acquired a right to sell the obligation
that meets requirements established by the Securities and Exchange Commission.
The Fund expects to invest primarily in variable rate or floating rate
instruments. Typically such instruments carry demand features permitting the
Fund to redeem at par upon specified notice. The Fund's right to obtain payment
at par on a demand instrument upon demand could be affected by events occurring
between the date the Fund elects to redeem the instrument and the date
redemption proceeds are due which affect the ability of the issuer to pay the
instrument at par value. The Manager will monitor on an ongoing basis the
pricing, quality and liquidity of such instruments and will similarly monitor
the ability of an issuer of a demand instrument, including those supported by
bank letters of credit or guarantees, to pay principal and interest on demand.
Although the ultimate maturity of such variable rate obligations may exceed one
year, the Fund will treat the maturity of each variable rate demand obligation
as the longer of (i) the notice period required before the Fund is entitled to
payment of the principal amount through demand, or (ii) the period remaining
until the next interest rate adjustment. Floating rate instruments with demand
features are deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
The Fund may also invest in bond anticipation notes, tax anticipation
notes, revenue anticipation notes, construction loan notes and bank notes issued
by governmental authorities to commercial banks as evidence of borrowings. Since
these short-term securities frequently serve as interim financing pending
receipt of anticipated funds from the issuance of long-term bonds, tax
collections or other anticipated future revenues, a weakness in an issuer's
ability to obtain such funds as anticipated could adversely affect the issuer's
ability to meet its obligations on these short-term securities.
The Fund may also invest from time to time on a temporary basis in the
following taxable securities which mature 397 days or less from the time of
purchase: Obligations issued or guaranteed by the United States Government or
its agencies or instrumentalities ("U.S. Government securities"), domestic bank
certificates of deposit and bankers' acceptances, commercial paper, short-term
corporate debt securities and repurchase agreements ("Temporary Investments").
The Fund will make Temporary Investments primarily for liquidity purposes or as
a temporary investment of cash pending its investment in Municipal Obligations.
During normal market conditions, the Fund will not invest more than 20% of its
total assets in Temporary Investments. The Fund, however, may temporarily invest
more than 20% of its assets in Temporary Investments when in the opinion of the
Fund's Manager it is advisable to maintain a temporary "defensive" posture.
The Fund may invest in the securities of other open-end investment
companies but may not invest more than 10% of its assets in securities of other
investment companies, invest more than 5% of its total assets in the securities
of any one investment company, or acquire more than 3% of the outstanding voting
securities of any one investment company except in connection with a merger,
consolidation or plan of reorganization. The Fund's Manager will waive its
management fee on the Fund's assets invested in securities of other open-end
investment companies. The Fund will generally invest in other investment
companies only for short-term cash management purposes when the advisor
anticipates the net return from the investment to be superior to alternatives
then available. The Fund will generally invest only in those investment
companies that have investment policies requiring investment in securities
comparable in quality to those in which the Fund invests.
The Fund may not invest more than 5% of its total assets in the securities
of any one issuer (except for U.S. Government securities), but it may invest
without limit in debt obligations of issuers located in the same state and in
debt obligations which are repayable out of revenue sources generated from
economically related projects or facilities. Sizeable investments in such
obligations could involve an increased risk to the Fund since an economic,
business or political development or change affecting one security could also
affect others. The Fund may also invest without limit in industrial development
bonds, which are issued by industrial development authorities but may be backed
only by the assets and revenues of the non-governmental entities that use the
facilities financed by the bonds. The Fund, however, will not invest more than
20% of its total assets in any Municipal Obligation the interest on which is
treated as a tax preference item for purposes of the federal alternative minimum
tax, and during normal market conditions, it will limit its investments in such
securities and in Temporary Investments to 20% of its total assets.
Municipal Obligations are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or any state extending the time for payment of principal or interest,
or both, or imposing other constraints upon enforcement of such obligations or
upon municipalities to levy taxes. The power or ability of issuers to pay, when
due, principal of and interest on Municipal Obligations may also be materially
affected by the results of litigation or other conditions.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. It may be expected that similar proposals may
be introduced in the future. If such a proposal were enacted, the ability of the
Fund to pay "exempt interest" dividends may be adversely affected, and the Fund
would reevaluate its investment objective and policies and consider changes in
its structure.
CERTAIN INVESTMENT POLICIES AND RESTRICTIONS
Following is a discussion of certain investment practices that the Funds
may use in an effort to achieve their respective investment objectives.
Repurchase Agreements/Lending Portfolio Securities
Each of the Funds may enter into repurchase agreements with, and each of
the Funds, except the Capital Accumulation Fund, Growth Fund and Cash Management
Fund, may lend its portfolio securities to, unaffiliated broker-dealers and
other unaffiliated qualified financial institutions. These transactions must be
fully collateralized at all times, but involve some credit risk to the Fund if
the other party should default on its obligations, and the Fund is delayed or
prevented from recovering on the collateral. See the Statement of Additional
Information for further information regarding the credit risks associated with
repurchase agreements and the standards adopted by each Fund's Board of
Directors to deal with those risks. None of the Funds intends either (i) to
enter into repurchase agreements that mature in more than seven days if any such
investment, together with any other illiquid securities held by the Fund, would
amount to more than 15% (10% for the Government Securities Income Fund) of its
total assets or (ii) to lend securities in excess of 30% of its total assets.
Forward Commitments
From time to time, each of the Income-Oriented Funds and the Balanced Fund
may enter into forward commitment agreements which call for the Fund to purchase
or sell a security on a future date and at a price fixed at the time the Fund
enters into the agreement. Each of these Funds may also acquire rights to sell
its investments to other parties, either on demand or at specific intervals.
Warrants
Each of the Funds, except the Cash Management Fund, Government Securities
Income Fund and Tax-Exempt Bond Fund, may invest in warrants up to 5% of its
assets, of which not more than 2% may be invested in warrants that are not
listed on the New York or American Stock Exchange. For the World Fund, the 2%
limitation also applies to warrants not listed on the Toronto Stock Exchange.
Borrowing
As a matter of fundamental policy, each Fund may borrow money only for
temporary or emergency purposes. Each of the Funds, except the Balanced Fund,
Blue Chip Fund, Bond Fund, Emerging Growth Fund, Government Securities Income
Fund, High Yield Fund, Short-Term Bond Fund, Utilities Fund and World Fund, may
borrow only from banks. Further, each Fund may borrow only in an amount not
exceeding 5% of its assets, except:
(1) the Capital Accumulation Fund and Growth Fund, each of which may borrow
only in an amount not exceeding the lesser of (i) 5% of the value of
its assets less liabilities other than such borrowings, or (ii) 10% of
its assets taken at cost at the time the borrowing is made;
(2) the Cash Management Fund which may borrow only in an amount not
exceeding the lesser of (i) 5% of the value of its assets, or (ii) 10%
of the value of its net assets taken at cost at the time the borrowing
is made; and
(3) the Tax-Exempt Cash Management Fund which may borrow in an amount which
permits it to maintain a 300% asset coverage and while any such
borrowing exceeds 5% of the Fund's total assets no additional purchases
of investment securities will be made. If due to market fluctuations or
other reasons the Fund's asset coverage falls below 300% of its
borrowings, the Fund will reduce its borrowings within 3 business days.
To do this, the Fund may have to sell a portion of its investments at a
time when it may be disadvantageous to do so.
Options
The Balanced Fund, Blue Chip Fund, Bond Fund, Emerging Growth Fund,
Government Securities Income Fund, High Yield Fund, Short-Term Bond Fund,
Utilities Fund and World Fund may purchase covered spread options, which would
give the Fund the right to sell a security that it owns at a fixed dollar spread
or yield spread in relationship to another security that the Fund does not own,
but which is used as a benchmark. These same Funds may also purchase and sell
financial futures contracts, options on financial futures contracts and options
on securities and securities indices, but will not invest more than 5% of their
assets in the purchase of options on securities, securities indices and
financial futures contracts or in initial margin and premiums on financial
futures contracts and options thereon. The Funds may write options on securities
and securities indices to generate additional revenue and for hedging purposes
and may enter into transactions in financial futures contracts and options on
those contracts for hedging purposes.
General
The Statement of Additional Information includes further information
concerning the Funds' investment policies and applicable investment
restrictions. The investment objectives of the Funds are fundamental and certain
investment restrictions designated as such in this Prospectus or in the
Statement of Additional Information are fundamental policies that may not be
changed without approval by the holders of the lesser of: (i) 67% of the Fund's
shares present or represented at a shareholders' meeting at which the holders of
more than 50% of such shares are present or represented by proxy; or (ii) more
than 50% of the outstanding shares of the Fund. All other investment policies
described in this Prospectus and the Statement of Additional Information are not
fundamental and may be changed by the Board of Directors of the appropriate Fund
without shareholder approval.
RISK FACTORS
An investment in any of the Growth-Oriented Funds involves the financial
and market risks that are inherent in any investment in equity securities. These
risks include changes in the financial condition of issuers, in economic
conditions generally and in the conditions in securities markets. They also
include the extent to which the prices of securities will react to those
changes.
An investment in any of the Income-Oriented Funds involves market risks
associated with movements in interest rates. The market value of the Funds'
investments will fluctuate in response to changes in interest rates and other
factors. During periods of falling interest rates, the values of outstanding
long-term fixed-income securities generally rise. Conversely, during periods of
rising interest rates, the values of such securities generally decline. Changes
by recognized rating agencies in their ratings of any fixed-income security and
in the ability of an issuer to make payments of interest and principal may also
affect the value of these investments. Changes in the value of portfolio
securities will affect the Funds' net asset values but will not affect cash
income derived from the securities unless a change results from a failure of an
issuer to pay interest or principal when due.
The yields on an investment in either of the Money Market Funds will vary
with changes in short-term interest rates. In addition, the investments of each
Money Market Fund are subject to the ability of the issuer to pay interest and
principal when due.
Each of the following Princor Funds may invest in foreign securities to the
indicated percentage of its assets: World Fund - 100%; Balanced, Blue Chip,
Bond, Capital Accumulation, Emerging Growth, High Yield, Short-Term Bond Fund,
and Utilities Funds - 20%. Neither the Government Securities Income Fund nor the
Tax-Exempt Bond Fund may invest in foreign securities. Investment in foreign
securities presents certain risks which may affect a Fund's net asset value.
These risks include, but are not limited to, those resulting from fluctuations
in currency exchange rates, revaluation of currencies, the imposition of foreign
taxes, the withholding of taxes on dividends at the source, political and
economic developments including war, expropriations, nationalization, the
possible imposition of currency exchange controls and other foreign governmental
laws or restrictions, reduced availability of public information concerning
issuers, and the fact that foreign issuers are not generally subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
practices and requirements comparable to those applicable to domestic issuers.
Moreover, securities of many foreign issuers may be less liquid and their prices
more volatile than those of comparable domestic issuers. In addition,
transactions in foreign securities may be subject to higher costs, and the time
for settlement of transactions in foreign securities may be longer than the
settlement period for domestic issuers. A Fund's investment in foreign
securities may also result in higher custodial costs and the costs associated
with currency conversions.
HOW THE FUNDS ARE MANAGED
Under Maryland law, the business and affairs of each of the Funds are
managed under the direction of its Board of Directors. Investment services and
certain other services are furnished to the Funds under the terms of a
Management Agreement between each of the Funds and the Manager. The Manager for
the Funds is Princor Management Corporation (the "Manager"), an indirectly
wholly-owned subsidiary of Principal Mutual Life Insurance Company, a mutual
life insurance company organized in 1879 under the laws of the State of Iowa.
The address of the Manager is The Principal Financial Group, Des Moines, Iowa
50392. The Manager was organized on January 10, 1969, and since that time has
managed various mutual funds sponsored by Principal Mutual Life Insurance
Company. As of October 31, 1995, the Manager served as investment advisor for 26
such funds with assets totaling approximately $2.8 billion.
The Manager has executed an agreement with Invista Capital Management, Inc.
("Invista") under which Invista has agreed to assume the obligations of the
Manager to provide investment advisory services for each of the Growth-Oriented
Funds, the Government Securities Income Fund, Short-Term Bond Fund, and
Utilities Fund. The Manager will reimburse Invista for the cost of providing
these services. Invista, an indirectly wholly-owned subsidiary of Principal
Mutual Life Insurance Company and an affiliate of the Manager, was founded in
1985 and manages investments for institutional investors, including Principal
Mutual Life. Assets under management at September 30, 1995 were approximately
$14.6 billion. Invista's address is 1500 Hub Tower, 699 Walnut, Des Moines, Iowa
50309.
The Manager or Invista advises the Funds on investment policies and on the
composition of the Funds' portfolios. In this connection, the Manager or Invista
furnishes to the Board of Directors of each Fund a recommended investment
program consistent with that Fund's investment objective and policies. The
Manager or Invista is authorized, within the scope of the approved investment
program, to determine which securities are to be bought or sold, and in what
amounts.
The Manager or Invista has assigned certain individuals the primary
responsibility for the day-to-day management of each Fund's portfolio. The
persons primarily responsible for the day-to-day management of each Fund are
identified in the table below:
<TABLE>
<CAPTION>
Primarily
Fund Responsible Since Person Primarily Responsible
<S> <C> <C>
Balanced April, 1993 Judith A. Vogel, CFA (BA degree, Central College). Vice President,
Invista Capital Management, Inc. since 1987.
Blue Chip March, 1991 Mark T. Williams, CFA (MBA degree, Drake University). Investment
(Fund's inception) Officer, Invista Capital Management, Inc., since 1992; Security Analyst
1989-1992.Prior thereto, Financial Analyst, Digital Equipment Corporation.
Bond December, 1987 Donald D. Brattebo (BBA degree, Upper Iowa University). Second Vice
(Fund's inception) President, Principal Mutual Life Insurance Company since 1990; Prior
thereto, Director, Investment Securities.
Capital Accumulation October, 1969 David L. White, CFA (BBA degree, University of Iowa). Executive Vice
(Fund's inception) President, Invista Capital Management, Inc. since 1984.
Emerging Growth and December, 1987 Michael R. Hamilton, (MBA degree, Bellarmine College). Vice President,
Growth (Fund's inception) Invista Capital Management, Inc. since 1987.
and August, 1987,
respectively
Government Securities May, 1985 Martin J. Schafer (BBA degree, University of Iowa). Vice President, Invista
Income (Fund's inception) Capital Management Company since 1992. Director - Securities Trading,
Principal Mutual Life Insurance Company 1992; Prior thereto, Associate
Director.
High Yield December, 1987 James K. Hovey, CFA (MBA degree University of Iowa). Director - Invest-
(Fund's inception) ment Securities, Principal Mutual Life Insurance Company since 1990; Prior
thereto, Assistant Director Investment Securities.
Short-Term Bond February, 1996 Martin J. Schafer (BBA degree, University of Iowa). Vice President, Invista
(Fund's inception) Capital Management Company since 1992. Director-Securities Trading,
Principal Mutual Life Insurance Company 1992; Prior thereto, Associate
Director.
Tax-Exempt Bond July, 1991 Daniel J. Garrett, CFA (MBA degree, Drake University). Assistant Director -
Investment Securities, Principal Mutual Life Insurance Company since 1989;
Prior thereto, Mortgage Banking Research Analyst.
Utilities April, 1993 Catherine A. Green, CFA, (MBA degree, Drake University). Vice President,
Invista Capital Management, Inc. since 1987.
World April, 1994 Scott D. Opsal, CFA, (MBA degree, University of Minnesota). Vice President,
Invista Capital Management, Inc. since 1987.
</TABLE>
Until August 1, 1988 the World Fund's portfolio was managed by Principal
Management, Inc. of Edmonton, Canada and Scottsdale, Arizona, which company has
changed its name to Sea Investment Management, Inc. The Fund's previous manager
and the current manager are unaffiliated. This change in managers should be kept
in mind when reviewing historical investment results.
For a description of the investment and other services provided by the
Manager, see "Cost of Manager's Services" in the Statement of Additional
Information. The management fee and total Class A share expenses incurred by
each Fund for the period ended October 31, 1995 were equal to the following
percentages of each Fund's respective average net assets:
Class A Shares Class B Shares
Total Total
Manager's Annualized Manager's Annualized
Fund Fee Expenses Fee Expenses
Balanced .60% 1.37% .60% 1.91%
Blue Chip .50% 1.38% .50% 1.90%
Bond .50% .94%* .50% 1.59%*
Capital Accumulation .45% .75% .45% 1.50%
Cash Management .38% .72%* .38% 1.42%*
Emerging Growth .64% 1.47% .64% 2.04%
Government Securities Income .46% .87% .46% 1.53%
Growth .48% 1.16% .48% 1.80%
High Yield .60% 1.45% .60% 2.10%
Tax-Exempt Bond .48% .83% .48% 1.51%
Tax-Exempt Cash Management .50% .69%* .50% 1.42%*
Utilities .60% 1.04%* .60% 1.72%*
World .74% 1.63% .74% 2.19%
*After waiver.
The Manager voluntarily waived a portion of its fee for the Bond, Cash
Management, Tax-Exempt Cash Management and Utilities Funds throughout the fiscal
year ended October 31, 1995. The Manager intends to continue its voluntary
waiver and, if necessary, pay expenses normally payable by each of these Funds,
except the Utilities Fund, through February 28, 1997 in an amount that will
maintain a total level of operating expenses which as a percentage of average
net assets attributable to a class on an annualized basis during that period
will not exceed, for the Class A shares, .95% for the Bond Fund and .75% for the
Money Market Funds, and for the Class B shares, 1.70% for the Bond Fund and
1.75% for the Money Market Funds. The Manager continued its voluntary waiver for
the Utilities Fund through February 29, 1996 in an amount that maintained a
total level of operating expenses which as a percent of average net assets
attributable to a class on an annualized basis during the period did not exceed
1.10% for the Class A shares and 1.85% for Class B shares. The effect of the
waivers is and will be to reduce each Fund's annual operating expenses and
increase each Fund's yield.
The Manager's annual fee for the Short-Term Bond Fund is .50% of the Fund's
average net assets. The Manager intends to voluntarily waive its fee and, if
necessary, pay expenses normally payable by the Short-Term Bond Fund through
February 28, 1997 in such amount that will maintain a total level of operating
expenses which as a percent of average net assets attributable to a class on an
annualized basis will not exceed .90% for Class A shares and 1.15% for Class B
shares.
The compensation being paid by the World Fund for investment management
services, which currently is equal, on an annual basis, to .75% of the average
daily value of the Fund's net assets, is higher than that paid by most funds to
their advisors, but it is not higher than the fees paid by many funds with
similar investment objectives and policies.
The Manager and Invista may purchase at their own expense statistical and
other information or services from outside sources, including Principal Mutual
Life Insurance Company. An Investment Service Agreement between each Fund, the
Manager, and Principal Mutual Life Insurance Company provides that Principal
Mutual Life Insurance Company will furnish certain personnel, services and
facilities required by the Manager in connection with its performance of the
Management Agreements, and that the Manager will reimburse Principal Mutual Life
Insurance Company for its costs incurred in this regard.
Among the expenses paid by each Fund are brokerage commissions on portfolio
transactions, the cost of stock issue and transfer and dividend disbursements,
administration of shareholder accounts, custodial fees, expenses of registering
and qualifying shares for sale after the initial registration, auditing and
legal expenses, fees and expenses of unaffiliated directors, the cost of
shareholder meetings and taxes and interest (if any).
The Funds may from time to time execute transactions for portfolio
securities with, and pay related brokerage commissions to, Principal Financial
Securities, Inc. ("PFS") and Morgan Stanley and Co., each a broker-dealer
affiliated with Princor and/or the Manager for each of the Funds. PFS also
provides distribution services for the Money Market Funds for which it is
compensated by the Manager. These services include, but are not limited to,
providing office space, equipment, telephone facilities and various personnel as
necessary or beneficial to establish and maintain shareholder accounts. PFS
receives a fee from the Manager calculated as a percentage of the average net
asset value of shares of each Fund held in PFS client accounts during the period
for which PFS provides the services. During the fiscal years ended October 31,
1993, 1994, and 1995, PFS received fees in the amount of $516,939, $539,662, and
$991,520 respectively, in consideration of the services it rendered to the Cash
Management Fund. During the fiscal years ending October 31, 1993, 1994, and
1995, PFS received fees in the amount of $165,995, $167,309, and $191,789
respectively, in consideration of the services it rendered to the Tax-Exempt
Cash Management Fund.
The Manager serves as investment advisor, dividend disbursing agent and,
directly and through an affiliate, as transfer agent for each of the Funds
sponsored by Principal Mutual Life Insurance Company. The Funds reimburse the
Manager for the costs of providing these services.
HOW TO PURCHASE SHARES
Purchases are generally made through registered representatives of Princor
or other dealers it selects. If an order and check are properly submitted to
Princor, the shares will be issued at the offering price next computed after the
order and check are received at Princor's main office. If Fund shares are
purchased by telephone order or electronic means and thereafter settled by
delivery of a check or a payment by wire, the shares so purchased will be issued
at the offering price next computed after the telephone or electronic order is
received at Princor's main office. If an order and check are submitted through a
selected dealer, the shares will be issued in accordance with the following: An
order accepted by a dealer on any day before the close of the New York Stock
Exchange and received by Princor before the close of its business on that day
will be executed at the offering price computed as of the close of the Exchange
on that day. An order accepted by such dealer after the close of the Exchange
and received by Princor before its closing on the following business day will be
executed at the offering price computed as of the close of the Exchange on such
following business day. Dealers have the responsibility to transmit orders to
Princor promptly. After an open account has been established, purchases will be
executed at the price next computed after receipt of the investor's check at
Princor's main office.
All orders are subject to acceptance by the Fund or Funds and Princor.
Redemptions by shareholders investing by check will be effected only after
payment has been collected on the check, which may take up to eight days or
more. Investors considering redeeming or exchanging shares or transferring
shares to another person shortly after purchase should pay for those shares with
a certified check, bank cashier's check or money order to avoid any delay in
redemption, exchange or transfer.
Class B shares of the Money Market Funds may be purchased only by an
exchange from Class B shares of the Princor Funds. Shares of each of the other
Princor Funds may be purchased by mail, by telephone or by exchange from other
Princor Funds.
Investments by Mail. Shares of the Funds may be purchased by submitting a
completed application and check made payable to Princor. An application is
attached to this Prospectus. A different application is necessary to establish
an IRA, TDA, SEP, SAR-SEP or certain employee benefit plans. See "Retirement
Plans.".
Investments by Telephone. Shares of the Funds may be purchased by placing a
telephone order with Princor. Princor's telephone number is 1-800-247-4123.
Investors must have a current Prospectus for the funds in order to place a
telephone order. An investor must provide Princor with the payment for the order
within three business days from the date the order is placed. The investor may
provide this payment by submitting a check payable to Princor within the time
period. In addition, investors may provide the purchase payment by wiring
Federal Funds directly to Norwest Bank Iowa, N.A., on a day on which the New
York Stock Exchange and Norwest Bank Iowa, N.A. are open for business. The
investor should instruct the bank to wire transfer Federal Funds to: Norwest
Bank Iowa, N.A., Des Moines, Iowa , ABA No. 073000228; for credit to: Princor
Financial Services Corporation, Account No. 073-330; for further credit to:
investor's name and account number. Payment for both initial purchases and
subsequent purchases may be made by wire.
Investors may make subsequent purchases by wire to existing accounts
without placing a telephone order. However, if a telephone order is not placed,
shares will be purchased at the offering price next computed after the wired
payment is received by Princor. Wire transfers may take two hours or more to
complete. Investors may make special arrangements to transmit orders for Money
Market Fund shares to Princor prior to 3:00 p.m. (Central Time) on a day when
the Fund is open for business with the investor's assurance that payment for
such shares will be made by wiring Federal Funds directly to Norwest Bank Iowa,
N.A. prior to 10:00 a.m. the following regular business day. Such orders will be
effected at the Fund's offering price in effect on the date such purchase order
is received by Princor. Wire purchases through a selected dealer may involve
other procedures established by that dealer.
Minimum Purchase Amount. An investor may open an account with any of the
Growth-Oriented Funds with a minimum initial investment of $300 or with any of
the Income-Oriented or Money Market Funds with a minimum initial investment of
$1,000. IRAs may be established with a minimum initial investment of $250. See
"Retirement Plans." Additional investments of $50 or more for a Growth-Oriented
or Income-Oriented Fund or $100 or more for a Money Market Fund may be made at
any time without completing a new application. The minimum initial and
subsequent investment amounts are not applicable to accounts used to fund
certain employee benefit plans, to accounts designated as receiving accounts in
a Dividend Relay Election or to Money Market Fund accounts used as sweep
accounts. Each Fund's Board of Directors reserves the right to change or waive
minimum investment requirements at any time, which would be applicable to all
investors alike.
Systematic Accumulation Plan. An investor may make regular monthly
investments through automatic deductions from the account of a bank or similar
financial institution. The minimum monthly purchase is $25 for all Funds except
the Money Market Funds, which have a $100 monthly minimum requirement. A $25
minimum monthly purchase may be established for the Money Market Funds if the
account value is at least $1,000 at the time the plan is established. Plan forms
and preauthorized check agreements are available from Princor on request. There
is no obligation to continue the plan and it may be terminated by the investor
at any time.
Each Fund offers investors two classes of shares through this Prospectus
which bear sales charges in different forms and amounts:
Class A Shares. An investor who invests less than $1 million in Class A
shares (except Class A shares of the Money Market Funds) pays a sales charge at
the time of purchase. As a result, shares purchased are not subject to any
charges when they are redeemed. Certain purchases of Class A shares qualify for
reduced sales charges. Class A shares purchases of $1 million or more are not
subject to a sales charge at the time of purchase but are subject to a
contingent deferred sales charge if redeemed within 18 months of purchase. Class
A shares of each of the Funds, except the Money Market Funds, currently bear a
12b-1 fee at the annual rate of up to 0.25% (.15% for the Short-Term Bond Fund)
of the Fund's average net assets attributable to Class A shares. See
"Distribution and Shareholder Servicing Plans and Fees."
Class B Shares. Class B shares are purchased without an initial sales
charge, but are subject to a declining contingent deferred sales charge ("CDSC")
of up to 4% (1.25% for Short-Term Bond Fund) if redeemed within six years. See
"Offering Price of Funds Shares."
Class B shares bear a higher 12b-1 fee than Class A shares, currently at the
annual rate of up to 1.00% (.50% for the Short-Term Bond Fund) of the Fund's
average net assets attributable to Class B shares. See "Distribution and
Shareholder Servicing Plans and Fees." Class B shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made, but (until conversion to Class A shares) will have a higher
expense ratio and pay lower dividends than Class A shares due to the higher
12b-1 fee. Class B shares will automatically convert to Class A shares, based on
relative net asset value (without a sales charge), on the first business day of
the 85th month after the purchase date. Class B shares acquired by exchange from
Class B shares of another Princor fund will convert into Class A shares based on
the time of the initial purchase. (See "How to Exchange Shares".) At the same
time, a pro rata portion of all shares purchased through reinvestment of
dividends and distributions would convert into Class A shares, with that portion
determined by the ratio that the shareholder's Class B shares converting into
Class A shares bears to the shareholder's total Class B shares that were not
acquired through dividends and distributions. The conversion of Class B shares
to Class A shares is subject to the continuing availability of a ruling from the
Internal Revenue Service or an opinion of counsel that such conversions will not
constitute taxable events for Federal tax purposes. There can be no assurance
that such ruling or opinion will be available, and the conversion of Class B
shares to Class A shares will not occur if such ruling or opinion is not
available. In such event, Class B shares would continue to be subject to higher
expenses than Class A shares for an indefinite period.
Which arrangement is better for you? The decision as to which class of
shares provides a more suitable investment for an investor depends on a number
of factors, including the amount and intended length of the investment.
Investors making investments that qualify for reduced sales charges might
consider Class A shares. Investors who prefer not to pay an initial sales charge
and who plan to hold their investment for more than seven years might consider
Class B shares. Orders from individuals for Class B shares for $250,000 or more
will be treated as orders for Class A shares unless the shareholder provides
written acknowledgment that the order should be treated as an order for Class B
shares. Sales personnel may receive different compensation depending on which
class of shares are purchased.
OFFERING PRICE OF FUNDS' SHARES
The Funds offer their respective shares continuously through Princor, which
is the principal underwriter for the Funds and sells shares as agent on behalf
of the Funds. Princor may select other dealers through which shares of the Funds
may be sold. Certain dealers may not sell all classes of shares.
Class A shares. Class A shares of the Money Market Funds are sold to the
public at net asset value; no sales charge applies to purchases of the Money
Market Funds. Class A shares of the Growth-Oriented and Income-Oriented Funds
are sold to the public at the net asset value plus a sales charge which ranges
from a high 4.75% (1.50% for the Short-Term Bond Fund) to a low of 0% of the
offering price (equivalent to a range of 4.99% to 0% of the net amount invested)
according to the schedule below. Selected dealers are allowed a concession as
shown. At Princor's discretion, the entire sales charge may at times be
reallowed to dealers. In some situations, depending on the services provided by
the dealer, the concession may be less. Any dealer allowance on purchases not
involving a sales charge will be determined by Princor.
<TABLE>
<CAPTION>
Sales Charge for All Funds Sales Charge for
Except Short-Term Bond Fund Short-Term Bond Fund
Sales Charge Sales Charge
as % of: as % of: Dealers Allowances as
---------------------------------------------------------
Net Net % of Offering Price
---------------------------------
Offering Amount Offering Amount All Funds Except Short-Term
Price Invested Price Invested Short-Term Bond Bond
--------- -------- --------- -------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Less than $50,000 4.75% 4.99% 1.50% 1.52% 4.00% 1.25%
$50,000 but less than $100,000 4.25% 4.44% 1.25% 1.27% 3.75% 1.00%
$100,000 but less than $250,000 3.75% 3.90% 1.00% 1.101% 3.25% 0.75%
$250,000 but less than $500,000 2.50% 2.56% 0.75% 0.76% 2.00% 0.50%
$500,000 but less than $1,000,000 1.50% 1.52% 0.50% 0.50% 1.25% 0.25%
$1,000,000 or more 0 0 0 0 .75% .25%
</TABLE>
CDSC on Class A Shares. Purchases of Class A shares of $1,000,000 or more
may be subject to CDSC upon redemption. A CDSC is payable to Princor on these
investments in the event of a share redemption within 18 months following the
share purchase, at the rate of .75% (.25% for the Short-Term Bond Fund) of the
lesser of the value of the shares redeemed (exclusive of reinvested dividend and
capital gain distributions) or the total cost of such shares. Shares subject to
the CDSC which are exchanged into another Princor mutual fund will continue to
be subject to the CDSC until the original 18 month period expires. However, no
CDSC is payable with respect to redemptions of Class A shares used to fund a
Princor 401 (a) or Princor 401 (k) retirement plan, except redemptions resulting
from the termination of the plan or transfer of plan assets.
Investors may be eligible to buy Class A shares at reduced sales charges.
Consult your registered representative for details about Princor's Rights of
Accumulation and Statement of Intention as well as the reduced sales charge
available for the investment of certain life insurance and annuity contract
death benefits and various Employee Benefit Plans and other plans. Descriptions
are also included in the Statement of Additional Information.
Investors may be able to purchase Class A shares at net asset value. The
following persons may purchase Class A shares of the Growth-Oriented Funds and
Income-Oriented Funds at the net asset value (without a sales charge): (1)
Principal Mutual Life Insurance Company and its directly and indirectly owned
subsidiaries; (2) Active and retired directors, officers and employees of any of
the Funds, Principal Mutual Life Insurance Company, and directly and indirectly
owned subsidiaries of Principal Mutual Life Insurance Company (including
full-time insurance agents of, and persons who have entered into insurance
brokerage contracts with, Principal Mutual Life Insurance Company and its
directly and indirectly owned subsidiaries); (3) The Principal Financial Group
Employees' Credit Union; (4) Non-ERISA investment advisory clients of Invista
Capital Management, Inc., an indirectly wholly-owned subsidiary of Principal
Mutual Life Insurance Company; (5) Sales representatives and employees of sales
representatives of Princor or other dealers through which shares of the Funds
are distributed; (6) Spouses, surviving spouses and dependent children of the
foregoing persons; (7) Trusts primarily for the benefit of the foregoing
individuals; (8) certain "wrap accounts" for the benefit of clients of Princor
and other broker-dealers or financial planners selected by Princor; and (9)
clients of a registered representative of Princor or other dealers through which
shares of the Funds are distributed and who has become affiliated with Princor
or other dealer within 180 days of the date of the purchase of Class A shares of
the Funds, if the investment represents the proceeds of a redemption within that
180 day period of shares of another investment company the purchase of which
included a front-end sales charge or the redemption of which was subject to a
contingent deferred sales charge.
Each of the Funds, except Princor Tax-Exempt Bond Fund and Princor
Tax-Exempt Cash Management Fund, have filed an application for an exemptive
order with the Securities and Exchange Commission ("SEC") to permit each Fund to
offer its shares at net asset value to participants of certain annuity contracts
issued by Principal Mutual Life Insurance Company. The Funds intend to make an
exchange offer to such participants if the SEC grants the order.
The Funds reserve the right to discontinue offering shares at net asset
value and/or at a reduced sales charge at any time for new accounts and upon 60
days notice to shareholders of existing accounts.
Class B shares. Class B shares (including Class B shares of the Money
Market Funds) are sold without an initial sales charge, although a CDSC will be
imposed if you redeem shares within six years of purchase. The following types
of shares may be redeemed without charge at any time: (i) shares acquired by
reinvestment of distributions and (ii) shares otherwise exempt from the CDSC, as
described below. Subject to the foregoing exclusions, the amount of the charge
is determined as a percentage of the lesser of the current market value or the
cost of the shares being redeemed. Therefore, when a share is redeemed, any
increase in its value above the initial purchase price is not subject to any
CDSC. The amount of the CDSC will depend on the number of years since you
invested and the dollar amount being redeemed, according to the following table:
Contingent Deferred Sales Charge
as a Percentage of
Dollar Amount Subject to Charge
Years Since Purchase For all Funds Except For Short-Term
Payments Made Short-Term Bond Fund Bond Fund
-------------------- -------------------- ---------------
2 years or less 4.0% 1.00%
more than 2 years, up to 4 years 3.0% 0.75%
more than 4 years, up to 5 years 2.0% 0.50%
more than 5 years, up to 6 years 1.0% 0.25%
more than 6 years None None
In determining how much, if any, a CDSC is payable on a redemption, the
Fund will first redeem shares not subject to any charge, and then shares held
longest during the six year period. For information on how sales charges are
calculated if shares are exchanged, see "How to Exchange Shares." Princor
receives the entire amount of any CDSC paid.
The CDSC will be waived on redemptions of shares arising out of death or
disability or in connection with certain withdrawals from certain retirement
plans. See the Statement of Additional Information. Up to 10% of the value of
Class B shares subject to a Periodic Withdrawal Plan may also be redeemed each
year without a CDSC. See "Periodic Withdrawal Plan."
DISTRIBUTION AND SHAREHOLDER SERVICING PLANS AND FEES
Class A Distribution Plan. Each of the Funds, except the Money Market
Funds, has adopted a distribution plan for the Class A shares. The Fund will
make payments from its assets to Princor pursuant to this Plan after the end of
each month at an annual rate not to exceed 0.25% (.15% for the Short-Term Bond
Fund) of the average daily net asset value of the Fund. Princor will retain such
amounts as are appropriate to compensate for actual expenses incurred in
distributing and promoting the sale of the Fund shares but may remit on a
continuous basis up to .25% (.15% for the Short-Term Bond Fund) to Registered
Representatives and other selected Dealers (including, for this purpose, certain
financial institutions) as a trail fee in recognition of their services and
assistance.
Class B Distribution Plan. Each of the Funds has adopted a distribution
plan for the Class B shares. Each Class B Plan provides for payments by the Fund
to Princor at the annual rate of up to 1.00% (.50% for the Short-Term Bond Fund)
of the Fund's average net assets attributable to Class B shares. Princor also
receives the proceeds of any CDSC imposed on redemptions of such shares.
Although Class B shares are sold without an initial sales charge, Princor
pays a sales commission equal to 4.00% (1.25% for the Short-Term Bond Fund) of
the amount invested to dealers who sell such shares. These commissions are not
paid on exchanges from other Princor Funds. In addition, Princor may remit on a
continuous basis up to .25% (.15% for the Short-Term Bond Fund) to Registered
Representatives and other selected Dealers (including, for this purpose, certain
financial institutions) as a trail fee in recognition of their ongoing services
and assistance.
General. The purpose of the Plans is to permit the Fund to compensate
Princor for expenses incurred by it in promoting and distributing Fund shares
and providing services to Fund shareholders. If the aggregate payments received
by Princor under any of the Plans in any fiscal year exceed the expenditures
made by Princor in that year pursuant to that Plan, Princor will promptly
reimburse the Fund for the amount of the excess. If expenses under a Plan exceed
the amount for which Princor may be compensated in any one fiscal year, the Fund
will not carry over such expenses to the next fiscal year. The Funds have no
legal obligation to pay any amount pursuant to the Plans that exceeds the
compensation limit. The Funds will not pay, directly or indirectly, interest,
carrying charges, or other financing costs in connection with the Plans. The
Plans are further described in the Statement of Additional Information.
DETERMINATION OF NET ASSET VALUE OF FUNDS' SHARES
Each Fund calculates net asset value of a share of each class by dividing
the total value of the assets attributable to the class, less all liabilities
attributable to the class, by the number of shares outstanding of the class.
Shares are valued as of the close of regular trading on the New York Stock
Exchange each day the Exchange is open.
Growth-Oriented and Income-Oriented Funds
The following valuation information applies to the Growth-Oriented and
Income-Oriented Funds. Securities for which market quotations are readily
available are valued using those quotations. Securities with remaining
maturities of 60 days or less are valued at amortized cost when it is determined
by the Board of Directors that amortized cost reflects fair value. Other assets
are valued at fair value as determined in good faith through procedures
established by the Board.
As previously described, some of the Funds may purchase foreign securities,
whose trading is substantially completed each day at various times prior to the
close of the New York Stock Exchange. The values of such securities used in
computing net asset value per share are usually determined as of such times.
Occasionally, events which affect the values of such securities and foreign
currency exchange rates may occur between the times at which they are generally
determined and the close of the New York Stock Exchange and would therefore not
be reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value as determined in good faith
by the Manager under procedures established and regularly reviewed by the Board
of Directors. To the extent the Fund invests in foreign securities listed on
foreign exchanges which trade on days on which the Fund does not determine its
net asset value, for example Saturdays and other customary national U.S.
holidays, the Fund's net asset value could be significantly affected on days
when shareholders have no access to the Fund.
Money Market Funds
Portfolio securities of the Money Market Funds are valued at amortized
cost. For a description of this calculation procedure see the Statement of
Additional Information. The Money Market Funds reserve the right to calculate or
estimate their net asset values more frequently than once a day if they deem it
desirable.
DISTRIBUTION OF INCOME DIVIDENDS AND REALIZED CAPITAL GAINS
Growth-Oriented and Income-Oriented Funds
Any dividends payable on Class B shares of a Fund on a per share basis will
be lower then dividends payable on Class A shares of the Fund. Any dividends
from the net income of the Growth-Oriented Funds, except the Balanced, Blue Chip
and World Funds, normally will be distributed to the respective shareholders
semiannually. Any dividends from the net income of the Balanced and Blue Chip
Funds will be distributed on a quarterly basis and any dividends from the net
income of the World Fund will be distributed annually. Any dividends from the
net income of the Income-Oriented Funds, except the Utilities Fund, will
normally be distributed monthly. Any dividends from the net income of the
Utilities Fund will be distributed quarterly. Distributions from the Funds that
make monthly distributions will normally be declared payable on the first
business day of each month to shareholders of record at the close of business on
the last business day of the preceding month. Distributions for the Funds that
make quarterly distributions will normally be declared payable on the last
business day of December and the first business day of April, July and October
to shareholders of record at the close of business on the preceding business
day. Distributions from the Funds that make semiannual distributions will
normally be declared payable on the first business day in July and the last
business day in December to shareholders of record at the close of business on
the last business day prior to distribution. Annual distributions from the World
Fund will normally be declared payable on the last business day in December to
shareholders of record at the close of business on the last business day prior
to distribution. Net realized capital gains for each of the Funds, if any, will
be distributed annually, generally the first business day of December. In the
open-account application, the shareholder authorizes income dividends and
capital gains distributions to be invested in additional Fund shares at their
net asset value (without a sales charge) as of the payment date, invested in
shares of other Princor Funds or paid in cash. A shareholder may change this
authorization without charge at any time by giving ten days written notice to
the Fund.
Any dividends or distributions paid shortly after a purchase of shares by
an investor will have the effect of reducing the per share net asset value by
the amount of the dividends or distributions. These dividends or distributions
are subject to taxation like other dividends and distributions, even though they
are in effect a return of capital. A shareholder of the Tax-Exempt Bond Fund who
redeems shares when tax-exempt income has been accrued but not declared as a
dividend by that Fund may have the portion of the redemption proceeds which
represents such income taxed at capital gains rates.
Money Market Funds
The Money Market Funds declare dividends of all their daily net investment
income on each day the net asset value per share is determined. Dividends for
each Fund are payable daily and are automatically reinvested in full and
fractional shares of the Fund at the then current net asset value. Shareholders
may request to have their dividends paid out monthly in cash. For such
shareholders, the shares reinvested and credited to their account during the
month will be redeemed as of the close of business on the 20th day (or the
preceding business day if the 20th is not a business day) of each month and the
proceeds will be paid to them in cash.
Net investment income of the Money Market Funds, for dividend purposes,
consists of (1) accrued interest income plus or minus accrued discount or
amortized premium; plus or minus (2) all net short-term realized gains and
losses; minus (3) all accrued expenses of the Fund. Expenses of the Fund are
accrued each day. Net income will be calculated immediately prior to the
determination of net asset value per share of each Fund. Dividends payable on
Class B shares of each of the Money Market Funds on a per share basis will be
lower than dividends payable on Class A shares of the Funds.
Since it is the policy of each Money Market Fund, under normal
circumstances, to hold portfolio securities to maturity and to value portfolio
securities at amortized cost, neither Fund expects any capital gains or losses.
If either Fund does experience gains, however, it could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for some
extraordinary reason, either Fund realizes net long-term capital gains, it will
distribute them once every 12 months.
Since the net income of each Fund (including realized gains and losses on
the portfolio securities) is normally declared as a dividend each time the net
income of the Fund is determined, the net asset value per share of each Fund
normally remains at $1.00 immediately after each determination and dividend
declaration. Any increase in the value of a shareholder's investment in either
Fund, representing reinvestment of dividend income, is reflected by an increase
in the number of shares of that Fund in the account.
Normally each Fund will have a positive net income at the time of each
determination thereof. Net income may be negative if an unexpected liability
must be accrued or a loss is realized. If the net investment income of either
Fund determined at any time is a negative amount, the net asset value per share
will be reduced below $1.00. If this happens, the Fund may endeavor to restore
the net asset value per share to $1.00 by reducing the number of outstanding
shares by redeeming proportionately from shareholders without the payment of any
monetary consideration, such number of full and fractional shares as is
necessary to maintain a net asset value per share of $1.00. Each shareholder
will be deemed to have agreed to such a redemption in these circumstances by
investment in the Fund. The Fund may seek to achieve the same objective of
restoring the net asset value per share to $1.00 by not declaring dividends from
net income on subsequent days until restoration, with the result that the net
asset value per share would increase to the extent of positive net income which
is not declared as a dividend, or any other method approved by the Board of
Directors for the Fund.
The Board of Directors of each Fund may revise the above dividend policy,
or postpone the payment of dividends, if the Fund should have or anticipate any
large presently unexpected expense, loss or fluctuation in net assets which in
the opinion of the Board might have a significant adverse effect on the
shareholders.
Dividend Relay Election
Shareholders may elect to have dividends and capital gains distributions
from one of the Princor funds invested in shares of the same class of one of the
other Princor funds. This Dividend Relay Election can be made on the application
or at any time on 10 days written notice or, if telephone transaction services
apply to the account from which the dividends and distributions originate, on 10
days notice by telephone to the Fund. A signature guarantee may be required to
make the Dividend Relay Election. See "General Information About a Fund
Account." There is no administrative charge for this service. No sales charge
will apply to the purchase of shares of the Growth-Oriented or Income-Oriented
Funds made pursuant to the election; dividends and distributions are credited to
the receiving Fund the day they are paid at the receiving Fund's net asset value
for that day. If the Dividend Relay Election is made to direct dividends and
distributions from a Fund used to fund the shareholder's retirement plan (for
example, an IRA) to a receiving Fund that is not used to fund the shareholder's
retirement plan, a taxable distribution from the retirement plan will result.
Shareholders should consult their tax advisor prior to making such an election.
Dividends and distributions derived from shares of the Funds used to fund
certain employee benefit plans are not eligible for the Dividend Relay Election.
If the Dividend Relay Election privilege is discontinued with respect to a
particular receiving Fund, the value of the account in that Fund must equal or
exceed the Fund's minimum initial investment requirement or the Fund shall have
the right, if the shareholder fails to increase the value of the account to such
minimum within 90 days after being notified of the deficiency, to redeem the
account and send the proceeds to the shareholder.
Shareholders may discontinue the Dividend Relay Election at any time on 10
days written notice or, if telephone transaction services apply to the account
from which the dividends originate, on 10 days notice by telephone to the Fund.
The Funds reserve the right to discontinue or modify this service upon 60 days
written notice to shareholders.
TAX-TREATMENT OF FUNDS, DIVIDENDS AND DISTRIBUTIONS
It is the policy of each of the Funds to distribute substantially all net
investment income and net realized gains. Through such distributions, and by
satisfying certain other requirements, the Funds intend to qualify for the tax
treatment applicable to regulated investment companies under the provisions of
the Internal Revenue Code. This means that in each year in which a Fund so
qualifies, it will be exempt from federal income tax upon the amounts so
distributed to investors. The Tax Reform Act of 1986 imposed an excise tax on
mutual funds which fail to distribute net investment income and capital gains by
the end of the calendar year in accordance with the provisions of the Act. The
Funds intend to comply with the Act's requirements and to avoid this excise
tax.The Funds record dividend income on the ex-dividend date, except dividend
income from foreign securities where the ex-dividend date may have passed, in
which case such dividends are recorded as soon as the Fund is informed of the
ex-dividend date.
The Tax-Exempt Bond Fund and Tax-Exempt Cash Management Fund also intend to
qualify to pay exempt-interest dividends to their shareholders. An
exempt-interest dividend is that part of dividend distributions made by the
Funds which consists of interest received by the Funds on tax-exempt Municipal
Obligations. Shareholders incur no federal income taxes on exempt-interest
dividends. However, these exempt-interest dividends may be taxable under state
or local law. Fund shareholders that are corporations must include
exempt-interest dividends when calculating the corporate alternative minimum
tax. Persons investing on behalf of a Subchapter S corporation should seek the
advice of a tax advisor prior to purchasing shares of the Tax-Exempt Bond Fund
or Tax-Exempt Cash Management Fund. Exempt-interest dividends that derive from
certain private activity bonds must be included by individuals as a preference
item to determine whether they are subject to the alternative minimum tax. These
Funds may also pay ordinary income dividends and distribute capital gains from
time to time. Ordinary income dividends and distributions of capital gains, if
any, are taxable for federal purposes.
If the World Fund should invest the greater part of its assets abroad (as
to which no assurance can be given), then in each fiscal year when, at the close
of such year, more than 50% of the value of the Fund's total assets are invested
in securities of foreign corporations, the Fund may elect pursuant to Section
853 of the Internal Revenue Code to permit its shareholders to take a credit (or
a deduction) for foreign income taxes paid by the Fund. In that case,
shareholders should include in gross income for federal income tax purposes both
cash dividends received from the Fund and the amount which the Fund advises is
their pro rata portion of foreign income taxes paid with respect to, or withheld
from, dividends and interest paid to the Fund from its foreign investments. The
shareholders would then be entitled to subtract from their federal income taxes
the amount of such taxes withheld, or else treat such foreign taxes as a
deduction from gross income, if that should be more advantageous. As in the case
of individuals receiving income directly from foreign sources, the
above-described tax credit for tax deduction is subject to certain limitations.
Under the federal income tax law, dividends paid from investment income and
from realized short-term capital gains, if any, are generally taxable at
ordinary income rates whether received in cash or additional shares. The net
income of the Cash Management Fund for purposes of its financial reports and
determination of the amount of distributions to shareholders may exceed its net
income as determined for tax purposes because certain market discount income
will be currently included as income for book purposes but not for tax purposes.
Although all net income for book purposes will be distributed to shareholders,
such distributions are taxable to shareholders of the Fund as ordinary income
only to the extent that they do not exceed the shareholder's ratable share of
the Fund's investment income and any short-term capital gain as determined for
tax purposes. The balance, if any, will be applied against and will reduce the
shareholder's cost or other tax basis for the shares.
Dividends from net investment income of each of the Funds will be eligible
for a 70% dividends received deduction generally available to corporations to
the extent of the amount of qualifying dividends received by the Fund from
domestic corporations for the taxable year. Dividends from the Income-Oriented
Funds, except the Utilities Fund, and the Money Market Funds are not expected to
qualify for the 70% dividend received deduction. Dividends and capital gains are
taxable in the year in which distributed, whether received in cash or reinvested
in additional shares. Dividends declared with a record date in December and paid
in January will be deemed to have been distributed to shareholders in December.
The Funds will inform shareholders of the amount and nature of their income
dividends and capital gains distributions. Dividends from net income and
distributions of capital gains may also be subject to state and local taxation.
The Funds are required by law to withhold 31% of dividends paid to
investors who do not furnish the Fund their correct taxpayer identification
number, which in the case of most individuals is their social security number.
If at the time the account is established the investor does not have a taxpayer
identification number but certifies that one has been applied for, such
withholding will be delayed but will commence 60 days after the date of such
certification if within such time the investor has not provided such number to
the Fund.
Additional information regarding taxation is included in the Statement of
Additional Information. Shareholders should consult their own tax advisors as to
the federal, state and local tax consequences of ownership of shares of the
Funds in their particular circumstances.
HOW TO EXCHANGE SHARES
Class A shares for all of the Funds (except the Money Market Funds and the
Short-Term Bond Fund), or Class B shares for all of the Funds may be exchanged
at net asset value for shares of the same class of any other Princor Fund
described in the Prospectus, at any time. Class A shares of the Short-Term Bond
Fund may be exchanged at net asset value for Class A shares of any of the other
Princor Funds at any time 90 days after the purchase of such shares. The CDSC
that might apply if Class B shares, or certain Class A shares, are redeemed will
not apply if these shares are exchanged. However, for purposes of computing the
CDSC on the shares acquired through the exchange, the length of time the
acquired shares have been owned by a shareholder will be measured from the date
of original purchase of the exchanged shares and the amount of the CDSC will be
determined based upon the CDSC table to which the exchanged shares were subject.
Thus, when shares acquired through the exchange are redeemed, the redemption may
be subject to the CDSC, depending upon when the exchanged shares were originally
purchased.
Class A shares of Princor Cash Management Fund or Princor Tax-Exempt Cash
Management Fund acquired by direct purchase are not included in the net asset
value exchange privilege. However, Class A shares of these two Funds acquired by
exchange of any other Princor Fund shares, or by conversion of Class B shares,
and additional shares which have been purchased by reinvesting dividends earned
on such shares, may be exchanged for other Class A shares without a sales
charge. In addition, Class A shares of the Money Market Funds acquired by direct
purchase or reinvestment of dividends on such shares may be exchanged for Class
B shares of any Growth-Oriented or Income-Oriented Fund.
Shares of a Fund used to fund an employee benefit plan may be exchanged
only for shares of other Princor Funds made available to such plan. A request
for an exchange of shares used to fund an Employee Benefit Plan must be made in
accordance with the procedures provided in the Plan and the written service
agreement. All other shareholders may exchange shares by simply submitting a
written request or a completed Exchange Authorization Form to the Fund. Exchange
Authorization Forms are available by calling or writing the Fund. For federal
income tax purposes, an exchange is treated as a sale of shares and generally
results in a capital gain or loss. Income tax rules regarding the calculation of
cost basis may make it undesirable in certain circumstances to exchange shares
within 90 days of their purchase. A telephone exchange privilege is currently
available for amounts up to $500,000. Procedures for telephone transactions are
described under "How to Sell Shares." The telephone exchange privilege is not
available for accounts for which share certificates remain outstanding.
A shareholder may also make an Automatic Exchange Election. This election
authorizes an exchange as described above from one Princor Fund to any or all of
the other Princor Funds on a monthly, quarterly, semiannual or annual basis. The
minimum amount that may be exchanged into any Princor Fund must equal or exceed
$300 on an annual basis. The exchange will occur on the date of the month
specified by the shareholder in the election so long as the day is a trading
day. If the designated day is not a trading day, the exchange will occur on the
next trading day occurring during that month. If the next trading day occurs in
the following month, the exchange will occur on the trading day prior to the
designated day. The Automatic Exchange Election may be made on the open account
application, on 10 days written notice or, if telephone transaction services
apply to the account from which the exchange is made, on 10 days notice by
telephone to the Fund from which the exchange will be made. See "How to Sell
Shares" for an explanation of the applicability of telephone transaction
services. Exchanges from a Fund used to fund the shareholder's retirement plan
to a Princor Fund not used to fund the shareholder's retirement plan will result
in a taxable distribution from the retirement plan. Shareholders should consult
their tax adviser prior to making such an exchange. A shareholder may modify or
discontinue the election on 10 days written notice or notice by telephone to the
Fund from which exchanges are made.
General - An exchange, whether in writing, by telephone or other means, by
any joint owner shall be binding upon all joint owners. If the exchanging
shareholder does not have an account with the Fund in which shares are being
acquired, a new account will be established with the same registration, dividend
and capital gain options and dealer of record as the account from which shares
are exchanged. All exchanges are subject to the minimum investment and
eligibility requirements of the Fund being acquired. A shareholder may receive
shares in exchange only if they may be legally offered in the shareholder's
state of residence. If a certificate has been issued an exchange will be made
only upon receipt of the certificate of shares to be exchanged. In order to
establish a systematic accumulation plan or a periodic withdrawal plan for the
new account, an exchanging shareholder must file a specific written request.
The exchange privilege is not intended as a vehicle for short-term trading.
Excessive exchange activity may interfere with portfolio management and have an
adverse effect on all shareholders. In order to limit excessive exchange
activity and in other circumstances where the Directors or Princor Management
Corporation believes doing so would be in the best interest of the Fund, the
Fund reserves the right to revise or terminate the exchange privilege, limit the
amount or number of exchanges or reject any exchange. Shareholders would be
notified of any such action to the extent required by law. A shareholder may
modify or discontinue an election on 10 days written notice or notice by
telephone to the Fund from which exchanges are made.
HOW TO SELL SHARES
Each Fund will redeem its shares upon request. Shares are redeemed at the
net asset value calculated after the Fund receives the request in proper form,
less any applicable CDSC. There is no additional charge for redemptions.
Redemptions, whether in writing or by telephone or other means, by any joint
owner shall be binding upon all joint owners. The amount received for shares
upon redemption may be more or less than the cost of such shares depending upon
the net asset value at the time of redemption. The Funds generally send
redemption proceeds the business day after the request is received. Under
unusual circumstances, the Funds may suspend redemptions, or postpone payment
for more than three business days, as permitted by federal securities law. A
Fund will redeem only those shares for which it has received payment. To avoid
the inconvenience of a delay in obtaining redemption proceeds, shares may be
purchased with a certified check, bank cashiers check or money order.
A request for the redemption of shares used to fund certain employee
benefit plans must be made in accordance with the procedures provided in the
Plan and the written service agreement. Princor usually requires additional
documentation for the sale of shares by a corporation, partnership, agent or
fiduciary, or a surviving joint owner. Contact Princor for details. Shareholders
may redeem by mail, by telephone or, in the case of Class A shares of Money
Market Fund accounts, by a checkwriting service. The Fund reserves the right to
modify any of the methods of redemption or to charge a fee for providing these
services upon written notice to shareholders.
By Mail - A shareholder simply sends a letter to Princor, at P.O. Box
10423, Des Moines, Iowa 50306, requesting redemption of any part or all of the
shares owned by specifying the Fund account from which the redemption is to be
made and either a dollar or share amount. The letter must provide the account
number and be signed by a registered owner. If certificates have been issued,
they must be properly endorsed and forwarded with the redemption request. If
payment of less than $100,000 is to be mailed to the address of record, which
has not been changed within the three month period preceding the redemption
request, and is made payable to the registered shareholder or joint
shareholders, or to Principal Mutual Life Insurance Company or any of its
affiliated companies, the Fund will not require a signature guarantee as a part
of a proper endorsement; otherwise the shareholder's signature must be
guaranteed by either a commercial bank, trust company, credit union, savings and
loan association, national securities exchange member, or by a brokerage firm. A
signature guaranteed by a notary public or savings bank is not acceptable.
By Telephone - Shareholders may redeem shares valued at up to $100,000 from
any one Fund by telephone, unless the shareholder has notified the Fund of an
address change within the three month period preceding the date of the request.
Such redemption proceeds will be mailed to the shareholder's address of record.
Telephone redemption proceeds may also be sent by check or wire transfer to a
commercial bank account in the United States previously authorized in writing by
the shareholder. A wire charge of up to $6.00 will be deducted from the Fund
account from which the redemption is made for all wire transfers. If proceeds
are to be used to settle a securities transaction with a selected dealer,
telephone redemptions may be requested by the shareholder or upon appropriate
authorization from an authorized representative of the dealer, and the proceeds
will be wired to the dealer. The telephone redemption privilege is available
only if telephone transaction services apply to the account from which shares
are redeemed. Telephone transaction services apply to all accounts, except
accounts used to fund a Princor IRA or TDA or certain employee benefit plans,
unless the shareholder has specifically declined this service on the account
application or in writing to the Fund. The telephone redemption privilege will
not be allowed on shares for which certificates have been issued.
Shareholders may exercise the telephone redemption privilege by telephoning
1-800-247-4123. If all telephone lines are busy, shareholders might not be able
to request telephone redemptions and would have to submit written redemption
requests. Although the Funds and the transfer agent are not responsible for the
authenticity of redemption requests received by telephone, the right is reserved
to refuse telephone redemptions when in the opinion of the Fund from which the
redemption is requested or the transfer agent it seems prudent to do so. The
shareholder bears the risk of loss caused by a fraudulent telephone redemption
request the Fund reasonably believes to be genuine. Each Fund will employ
reasonable procedures to assure telephone instructions are genuine and if such
procedures are not followed, the Fund may be liable for losses due to
unauthorized or fraudulent transactions. Such procedures include recording all
telephone instructions, requesting personal identification information such as
the caller's name, daytime telephone number, social security number and/or birth
date and names of all owners listed on the account and sending a written
confirmation of the transaction to the shareholder's address of record. In
addition, the Fund directs redemption proceeds made payable to the owner or
owners of the account only to an address of record that has not been changed
within the three-month period prior to the date of the telephone request, or to
a previously authorized bank account.
By Checkwriting Service - Shareholders of Class A shares of the Money
Market Funds may redeem shares, other than shares subject to a CDSC or shares
used to fund a Princor IRA, TDA, SEP, SAR-SEP or certain employee benefit plans,
by writing checks on their accounts if this service is elected when completing
the Fund application. Upon receipt of the properly completed form and signature
card, the Fund will provide withdrawal checks drawn on Norwest Bank Iowa, N.A.
These checks may be payable to the order of any person in the amount of not less
than $100. Shareholders will continue to earn dividends until the check clears.
After a check is presented to Norwest Bank for payment, a sufficient number of
full or fractional shares will be redeemed from the account to cover the amount
of the check. Shareholders currently pay no fee for the checkwriting service,
but this may be changed in the future upon written notice to shareholders. The
checkwriting service is not available on shares for which certificates have been
issued.
Shareholders utilizing withdrawal checks will be subject to Norwest Bank's
rules governing checking accounts. Shareholders should make sure their accounts
have sufficient shares to cover the amount of any check drawn. If insufficient
shares are in the account, the check will be returned marked "Insufficient
Funds" and no shares will be redeemed. The checkwriting service may be revoked
on accounts on which "Insufficient Funds" checks are drawn. Accounts may not be
closed by a withdrawal check because the exact amount of the account will not be
known until after the check is received by Norwest Bank.
Moreover, following a purchase by check, redemptions from the Money Market
Funds pursuant to the checkwriting service or any of the Princor Funds pursuant
to the telephone withdrawal procedure will not be permitted until payment has
been collected on the check. During the period prior to the time the redemption
is effective, dividends on the Money Market Funds' shares will accrue and be
paid and the shareholder will be entitled to exercise all other rights of
beneficial ownership.
Reinvestment Privilege - Within 60 days after redemption, shareholders who
redeem all or part of their Class A shares for which a sales charge was paid or
which were acquired by the conversion of Class B shares, or Class B shares for
which a CDSC was paid, have a onetime privilege to reinvest the amount redeemed
in Class A shares of any of the Funds without a sales charge.
The reinvestment or exchange will be made at the net asset value next
computed after written notice of exercise of the privilege is received in proper
and correct form by Princor. All reinvestments or exchanges are subject to
acceptance by the Fund or Funds and Princor. The redemption which precedes such
reinvestment or exchange is regarded as a sale; therefore, if the shareholder
has realized a gain on the redemption, such gain may be taxable and exercising
the reinvestment privilege will not alter any tax payable. If a loss is realized
on the redemption of Fund shares, the reinvestment may be subject to the "wash
sale" rules, resulting in a postponement of the recognition of such loss for
federal income tax purposes. Accurate records should be kept for the duration of
the account for tax purposes.
PERIODIC WITHDRAWAL PLAN
A shareholder may request that a fixed number of Class A shares or Class B
shares ($25 initial minimum amount) or enough Class A shares or Class B shares
to produce a fixed amount of money ($25 initial minimum payment) be withdrawn
from an account monthly, quarterly, semiannually or annually. Periodic
withdrawals from Class B shares may be subject to a CDSC. However, each year a
shareholder may make periodic withdrawals of up to 10% of the value of an
account for Class B shares without incurring a CDSC. The amount of the 10% free
withdrawal privilege for an account is initially determined based upon the value
of the account as of the date of the initial periodic withdrawal. If a periodic
withdrawal plan is established at the time Class B shares are purchased, the
amount of the initial 10% free withdrawal privilege may be increased by 10% of
the amount of additional purchases in that account made within 60 days after
Class B shares were first purchased. After a periodic withdrawal plan has been
established the amount of the 10% withdrawal privilege will be re-determined as
of the last business day of December each year. The Fund from which the periodic
withdrawal is made makes no recommendation as to either the number of shares or
the fixed amount that the investor may withdraw. Shareholders considering the
implementation of a Plan using shares of the Tax-Exempt Bond Fund are cautioned
that the portion of redemption proceeds which represents tax-exempt income which
has been accrued but not declared as a dividend by the Fund may be taxed at
capital gains rates. See "Distribution of Income Dividends and Realized Capital
Gains." An investor may initiate a Periodic Withdrawal Plan by signing an
Agreement for Periodic Withdrawal Form and depositing any share certificates
that have been issued or, if no certificates have been issued and telephone
transaction services apply to the account, by telephoning the Fund.
A shareholder of Class A shares of the Money Market Funds may establish a
Pre-Authorized Check (PAC) Withdrawal Service to enable a shareholder's creditor
to receive monthly installment payments from the shareholder's account if the
shareholder's creditor is capable of providing this service. The shareholder's
creditor will provide the necessary forms to establish a PAC Withdrawal Service.
Redemptions to pay insurance premiums - Upon completion of the necessary
authorization, shareholders of Class A shares of the Money Market Funds who pay
insurance or annuity premiums or deposits to Principal Mutual Life Insurance
Company or its affiliated companies may authorize automatic redemptions from
Class A shares of the Fund to pay such amounts. Details relative to this option
may be obtained from the Funds.
Cash withdrawals are made out of the proceeds of redemption on the day
designated by the shareholder, so long as the day is a trading day, and will
continue until cancelled. If the designated day is not a trading day, the
redemption will occur on the next trading day occurring during that month. If
the next trading day occurs in the following month, the redemption will occur on
the trading day prior to the designated day. Withdrawal payments will be sent on
or before the third business day following such redemption. The redemption of
shares to make payments under this Plan will reduce and may eventually exhaust
the account. An investor will be disadvantaged by making additional purchases of
shares of any investment company on which there is a sales charge at the same
time that a Periodic Withdrawal Plan is in effect since a duplication of sales
charges will result. No purchase payments for shares of any Fund except Princor
Cash Management Fund or Princor Tax-Exempt Cash Management Fund will be
knowingly accepted by Princor Financial Services Corporation while periodic
withdrawals under this plan are being made, unless the purchase represents a
substantial addition to the shareholder's account.
Each redemption of shares may result in a gain or loss, which may be
reportable for income tax purposes. An investor should keep an accurate record
of any gain or loss on each withdrawal. Shareholders should consult their tax
advisors prior to establishing a periodic withdrawal plan from an Individual
Retirement Account. Any income dividends or capital gains distributions on
shares held under a Periodic Withdrawal Plan are reinvested in additional shares
at net asset value. Withdrawals may be stopped at any time without penalty,
subject to notice in writing which is received by the Fund.
PERFORMANCE CALCULATION
From time to time, the Funds may publish advertisements containing
information (including graphs, charts, tables and examples) about the
performance of one or more of the Funds and about a Fund's largest industry
holdings and largest five to ten specific securities holdings in its portfolio.
The funds may also quote rankings, yields or returns as published by independent
statistical services or publishers, and information regarding the performance of
certain market indices. The Funds' yield and total return figures described
below will vary depending upon market conditions, the composition of the Funds'
portfolios and operating expenses. These factors and possible differences in the
methods used in calculating yield and total return should be considered when
comparing the Funds' performance figures to performance figures published for
other investment vehicles. Any performance data quoted for the Funds represents
only historical performance and is not intended to indicate future performance
of the Funds. For further information on how the Funds calculate yield and total
return figures, see the Statement of Additional Information.
Growth-Oriented and Income-Oriented Funds
The Income-Oriented Funds may advertise their respective yields and average
annual total returns. The Growth-Oriented Funds may advertise their respective
average annual total returns. Yield is determined by annualizing each Fund's net
investment income per share for a specific, historical 30-day period and
dividing the result by the ending maximum public offering price for Class A
shares or the net asset value for Class B shares of the Fund for the same
period. Average annual total return for each Fund is computed by calculating the
average annual compounded rate of return over the stated period that would
equate an initial $1,000 investment to the ending redeemable value assuming the
reinvestment of all dividends and capital gains distributions at net asset
value. The same assumptions are made when computing cumulative total return by
dividing the ending redeemable value by the initial investment. These
calculations assume the payment of the maximum front-end load (in the case of
Class A shares) or the applicable CDSC (in the case of Class B shares). The
Funds may also calculate total return figures for a specified period that
reflect reduced sales charges available to certain classes of investors and
figures that do not take into account the maximum initial sales charge or
contingent deferred sales charge to illustrate changes in the Funds' net asset
values over time. A tax-equivalent yield may also be advertised by the
Tax-Exempt Bond Fund.
Money Market Funds
From time to time the Money Market Funds may advertise their respective
yield and effective yield. The yield of each Fund refers to the income generated
by an investment in that Fund over a seven-day period. This income is then
annualized. That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The effective yield will be slightly higher than
the yield because of the compounding effect of this assumed reinvestment. A
tax-equivalent yield may also be advertised by the Tax-Exempt Cash Management
Fund.
The yield for the Money Market Funds will fluctuate daily as the income
earned on the investments of the Funds fluctuates. Accordingly, there is no
assurance that the yield quoted on any given occasion will remain in effect for
any period of time. The Funds are open-end investment companies and there is no
guarantee that the net asset value or any stated rate of return will remain
constant. A shareholder's investment in the Funds is not insured. Investors
comparing results of the Funds with investment results and yields from other
sources such as banks or savings and loan associations should understand these
distinctions. Historical and comparative yield information may, from time to
time, be presented by the Fund.
GENERAL INFORMATION ABOUT A FUND ACCOUNT
Share certificates will be issued to shareholders only when requested.
Shareholders of the Funds will receive a statement of account for the Fund in
which they have invested. The Funds treat the statement of account as evidence
of ownership of Fund shares.
This is known as an open account system. Each Fund bears the cost of the open
account system.
A confirmation statement indicating the current transaction and the total
number of Fund shares owned will generally be provided each time a shareholder
invests in a Fund. However, there are certain exceptions, described below, when
quarterly or monthly confirmation statements will be provided.
Quarterly Statements. A quarterly statement disclosing information
regarding purchases, redemptions, and reinvested dividends or distributions
occurring during the quarter, as well as the balance of shares owned and account
values as of the statement date will be provided to shareholders for the
following types of accounts:
1. Accounts for which the only activity during a calendar quarter is the
purchase of shares due to the reinvestment of dividends and/or capital
gains distributions from the Fund or from another Princor Fund as a
result of a Dividend Relay Election;
2. Accounts from which redemptions are made pursuant to a Periodic
Withdrawal Plan;
3. Accounts for which purchases are made pursuant to a Systematic
Accumulation Plan;
4. Accounts from which purchases or redemptions are made pursuant to an
automatic exchange election;
5. Accounts used to fund certain individual retirement or individual
pensions plans qualified under the Internal Revenue Code; and
6. Accounts established through an arrangement involving a group of two
or more shareholders for whom purchases of shares are made through a
person (e.g. an employer) designated by the group. A statement
indicating receipt of the total amount paid by the group will be sent
to the designated person at the time each purchase is made. If the
payment on behalf of the group is not received from the designated
person within 10 days of the date such payments are to be made, each
member will be notified and thereafter each member will receive a
statement at the time of each purchase for the three succeeding
payments. If a payment is not received in the current quarter on behalf
of a member for whom a payment had been received in the previous
quarter, a statement will be sent to such group member reflecting
that a payment was not received on the member's behalf.
Monthly Statements. Shareholders of the Money Market Funds for whom
quarterly statements are not available, will receive a monthly statement
disclosing the current balance of shares owned and a summary of transactions
through the last business day of the month.
Signature Guarantee. The Funds have adopted the policy of requiring
signature guarantees in certain circumstances to safeguard shareholder accounts.
A signature guarantee is necessary under the following circumstances:
1. If a redemption payment is to be made payable to a payee other than
the registered shareholder or joint shareholders, or Principal Mutual
Life Insurance Company or any of its affiliated companies;
2. To make a Dividend Relay Election directing dividends from a Fund
account which has joint owners to a Fund account which has only one
owner or different joint owners;
3. To change the ownership of the account;
4. To add telephone transaction services to an account established prior
to March 1, 1992 or to any account after the initial application is
processed;
5. When there is any change to a bank account designated under an
established telephone withdrawal plan; and
6. If a redemption payment is to be mailed to an address other than the
address of record or to an address of record that has been changed
within the preceding three months.
A shareholder's signature must be guaranteed by a commercial bank, trust
company, credit union, savings and loan association, national securities
exchange member, or brokerage firm. A signature guaranteed by a notary public is
not acceptable.
Minimum Account Balance. Although there currently is no minimum balance,
due to the disproportionately high cost of maintaining small accounts, the Funds
reserve the right to redeem all shares in an account with a value of less than
$300 and to mail the proceeds to the shareholder. Involuntary redemptions will
not be triggered solely by market activity. Shareholders will be notified before
these redemptions are to be made and will have thirty days to make an additional
investment to bring their accounts up to the required minimum. The Funds reserve
the right to increase the required minimum.
RETIREMENT PLANS
Shares of the Funds, except the Tax-Exempt Bond and Tax-Exempt Cash
Management Fund, are offered to fund certain retirement plans for which
Principal Mutual Life Insurance Company acts as custodian. These retirement
plans include Individual Retirement Accounts (IRAs), Simplified Employee Pension
and Salary Reduction Simplified Employee Pension Plans (SEPs and SAR/SEPs) all
of which are described in Section 408 of the Internal Revenue Code, and salary
deferral TDA plans as described in Section 403(b)(7) of the Internal Revenue
Code. The necessary forms to establish one of the Princor retirement plans,
including an application, may be obtained from a registered representative of
Princor or by calling 1-800-451-5447. DO NOT USE THE APPLICATION INCLUDED IN
THIS PROSPECTUS TO START A PRINCOR RETIREMENT PLAN. The Systematic Accumulation
Plan may be used to purchase shares of the Funds for a Princor retirement plan.
See "How to Purchase Shares." Telephone redemptions are not available on
accounts used to fund a Princor retirement plan. See "How to Sell Shares."
Investors should consult their tax counsel for retirement plan tax information.
SHAREHOLDER RIGHTS
The following information is applicable to each of the Princor Funds. Each
Fund's shares (except Princor Tax-Exempt Bond Fund and Tax-Exempt Cash
Management Fund) are currently divided into three classes. Shares of the Princor
Tax-Exempt Bond Fund and Princor Tax-Exempt Cash Management Fund are divided
into two classes. Each Fund share is entitled to one vote with fractional shares
voting proportionately. All classes of shares for each Fund will vote together
as a single class except where required by law or as determined by the Fund's
Board of Directors. Shares are freely transferable, are entitled to dividends as
declared by the Fund's Board of Directors and, if the Fund were liquidated,
would receive the net assets of the Fund. Shareholders of a Fund may remove any
director of that Fund with or without cause by the vote of a majority of the
votes entitled to be cast at a meeting of shareholders.
Shareholders will be assisted with shareholder communication in connection with
such matter.
The Board of Directors of each Fund may increase or decrease the aggregate
number of shares which the Fund has authority to issue and may issue two or more
classes of shares having such preferences and special or relative rights and
privileges as the Directors may determine, without shareholder approval.
The Funds are not required to hold an annual meeting of shareholders in any
year unless required to do so under the Investment Company Act of 1940. The
Funds intend to hold shareholder meetings only when required by law and at such
other times as may be deemed appropriate by their respective Boards of
Directors. However, each Fund will hold a meeting of shareholders when requested
to do so in writing by the holders of 10% or more of the outstanding shares of
that Fund.
Shareholder inquiries should be directed to the appropriate Fund at The
Principal Financial Group, Des Moines, Iowa 50392.
As of October 31, 1995, Principal Mutual Life Insurance Company and its
subsidiaries and affiliates owned 25% or more of the outstanding voting shares
of each Fund as indicated:
Percentage of
Number of Outstanding Shares
Fund Shares Owned Owned
Blue Chip Fund 654,681 26.63%
Capital Accumulation Fund 6,477,046 44.88%
High Yield Fund 1,090,093 36.56%
ADDITIONAL INFORMATION
Organization: The Funds were incorporated in the state of Maryland on the
following dates: Balanced Fund - November 26, 1986; Blue Chip Fund - December
10, 1990; Bond Fund - December 2, 1986; Capital Accumulation Fund - May 26, 1989
(effective November 1, 1989 succeeded to the business of a predecessor Fund that
had been incorporated in Delaware on February 6, 1969); Cash Management Fund -
June 10, 1982; Emerging Growth Fund - February 20, 1987; Government Securities
Income Fund - September 5, 1984; Growth Fund May 26, 1989 (effective November 1,
1989 succeeded to the business of a predecessor Fund that had been incorporated
in Delaware on February 6, 1969); High Yield Fund - November 26, 1986;
Short-Term Bond Fund - August 9, 1995; Tax-Exempt Cash Management Fund August
17, 1987; Tax-Exempt Bond Fund - June 7, 1985; Utilities Fund - September 3,
1992; World Fund - May 12, 1981
Custodian: Bank of New York, 48 Wall Street, New York, New York 10286, is
custodian of the portfolio securities and cash assets of each of the Funds
except the World Fund. The custodian for the World Fund is Chase Manhattan Bank,
Global Securities Services, Chase Metro Tech Center, Brooklyn, New York 11245.
The custodians perform no managerial or policymaking functions for the Funds.
Capitalization: The authorized capital stock of each Fund consists of
100,000,000 shares of common stock (2,000,000,000 for Princor Cash Management
Fund and 1,000,000,000 Princor Tax-Exempt Cash Management Fund), $.01 par value.
Financial Statements: Copies of the financial statements of each Fund will
be mailed to each shareholder semiannually. At the close of each fiscal year,
each Fund's financial statements will be audited by a firm of independent
auditors. The firm of Ernst & Young LLP has been appointed to audit the
financial statements of each Fund for their respective present fiscal years.
Registration Statement: This Prospectus omits some information contained in
the Statement of Additional Information (also known as Part B of the
Registration Statement) and Part C of the Registration Statements which the
Funds have filed with the Securities and Exchange Commission. The Funds'
Statement of Additional Information is hereby incorporated by reference into
this Prospectus. A copy of this Statement of Additional Information can be
obtained upon request, free of charge, by writing or telephoning Princor
Financial Services Corporation. You may obtain a copy of Part C of the
Registration Statements filed with the Securities and Exchange Commission,
Washington, D.C. from the Commission upon payment of the prescribed fees.
Principal Underwriter: Princor Financial Services Corporation, P.O. Box
10423, Des Moines, IA 50306, is the principal underwriter for each of the
Princor Funds.
Transfer Agent and Dividend Disbursing Agent: Princor Management
Corporation, The Principal Financial Group, Des Moines, Iowa, 50392, is the
transfer agent and dividend disbursing agent for each of the Princor Funds.
This Prospectus describes a family of investment companies ("Princor
Funds") which has been organized by Principal Mutual Life Insurance Company and
which provides the following range of investment objectives:
Growth-Oriented Funds
Princor Balanced Fund, Inc. (formerly known as Princor Managed Fund, Inc.)
seeks to generate a total investment return consisting of current income and
capital appreciation while assuming reasonable risks in furtherance of the
investment objective.
Princor Blue Chip Fund, Inc. seeks to achieve growth of capital and growth
of income by investing primarily in common stocks of well capitalized,
established companies.
Princor Capital Accumulation Fund, Inc. seeks to achieve primarily
long-term capital appreciation and secondarily growth of investment income
through the purchase primarily of common stocks, but the Fund may invest in
other securities.
Princor Emerging Growth Fund, Inc. seeks to achieve long-term capital
appreciation by investing primarily in securities of emerging and other
growth-oriented companies.
Princor Growth Fund, Inc. seeks growth of capital through the purchase
primarily of common stocks, but the Fund may invest in other securities.
Princor World Fund, Inc. seeks long-term growth of capital by investing in
a portfolio of equity securities of companies domiciled in any of the nations of
the world.
Income-Oriented Funds
Princor Bond Fund, Inc. seeks to provide as high a level of income as is
consistent with preservation of capital and prudent investment risk.
Princor Government Securities Income Fund, Inc. seeks a high level of
current income, liquidity and safety of principal by purchasing obligations
issued or guaranteed by the United States Government or its agencies, with
emphasis on Government National Mortgage Association Certificates ("GNMA
Certificates"). The guarantee by the United States Government extends only to
principal and interest. There are certain risks unique to GNMA Certificates.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _________________1996
Princor High Yield Fund, Inc. seeks high current income primarily by
purchasing high yielding, lower or non-rated fixed income securities which are
believed to not involve undue risk to income or principal. Capital growth is a
secondary objective when consistent with the objective of high current income.
Princor High Yield Fund, Inc. invests predominantly in lower rated bonds,
commonly referred to as "junk bonds" and may invest 100% of its assets in such
bonds. Bonds of this type are considered to be speculative with regard to
payment of interest and return of principal. Purchasers should carefully assess
the risks associated with an investment in this fund. THESE ARE SPECULATIVE
SECURITIES.
Princor Short-Term Bond Fund, Inc. seeks a high level of current income
consistent with a relatively high level of principal stability by investing in a
portfolio of securities with a dollar weighted average maturity of five years or
less.
Princor Utilities Fund, Inc. seeks to provide current income and long-term
growth of income and capital by investing primarily in equity and fixed income
securities of companies in the public utilities industry.
Money Market Fund
Princor Cash Management Fund, Inc. seeks as high a level of income
available from short-term securities as is considered consistent with
preservation of principal and maintenance of liquidity by investing in a
portfolio of money market instruments.
Each of the Princor Funds described in this Prospectus offers three classes
of shares: Class A shares, Class B shares and Class R shares. Each class is sold
pursuant to different sales arrangements and bears different expenses. Only
Class R shares are offered through this Prospectus. Class A shares are described
herein only because Class R shares convert to Class A shares after a period of
time. For more information about the different sales arrangements, see "How to
Purchase Shares" and "Offering Price of Fund's Shares ." For information about
various expenses borne by Class R shares and Class A shares, see "Overview."
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by any financial institution, nor are shares of the Funds federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other agency.
An investment in any of the Funds is neither insured nor guaranteed by the
U.S. Government. There can be no assurance the Princor Cash Management Fund will
be able to maintain a stable net asset value of $1.00 per share.
This Prospectus concisely states information about the Princor Funds that
an investor should know before investing. It should be read and retained for
future reference.
Additional information about the Funds has been filed with the Securities
and Exchange Commission, including a document called a Statement of Additional
Information dated ________ _, 1996 which is incorporated by reference herein.
The Statement of Additional Information and a Prospectus describing Class A and
Class B shares can be obtained free of charge by writing or telephoning the
Funds' principal underwriter: Princor Financial Services Corporation, P.O. Box
10423, Des Moines, IA 50306. Telephone 1-800-247-4123.
<PAGE>
TABLE OF CONTENTS
Page
Overview................................................................... 4
Financial Highlights........................................................ 9
Investment Objectives, Policies and Restrictions............................ 18
Growth-Oriented Funds.................................................. 18
Income-Oriented Funds.................................................. 21
Money Market Fund...................................................... 27
Certain Investment Policies and Restrictions........................... 29
Risk Factors................................................................ 30
How the Funds are Managed................................................... 30
How to Purchase Shares...................................................... 33
Offering Price of Funds' Shares ............................................ 34
Distribution and Shareholder Servicing Plans and Fees....................... 35
Determination of Net Asset Value of Funds' Shares........................... 35
Distribution of Income Dividends and Realized Capital Gains ................ 36
Tax Treatment of the Funds, Dividends and Distributions .................... 37
How to Exchange Shares...................................................... 38
How to Sell Shares.......................................................... 38
Performance Calculation..................................................... 39
General Information About a Fund Account.................................... 40
Shareholder Rights.......................................................... 40
Additional Information...................................................... 41
This Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, the securities of any of the Funds in any jurisdiction in which
such sale, offer to sell, or solicitation may not be lawfully made. Currently,
shares of the Funds are not available for sale in New Hampshire or Vermont, in
any U.S. possession or in Canada or any other foreign country. No dealer,
salesperson, or other person has been authorized to give any information or to
make any representations, other than those contained in this Prospectus, in
connection with the offer contained in this Prospectus, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Funds or the Funds Manager. Because the Princor Funds use a
combined Prospectus there may be a possibility that one Fund might become liable
for any misstatements, inaccuracy, or incomplete disclosure in the Prospectus
concerning another Fund.
OVERVIEW
The following overview should be read in conjunction with the detailed
information appearing elsewhere in the Prospectus.
The Princor Funds are separately incorporated, open-end diversified
management investment companies. Each of the Princor Funds offers three classes
of shares. However, only Class R shares are offered through this Prospectus.
Who may Invest
Class R shares are offered only to fund Individual Retirement Accounts ("IRAs")
exclusively for recipients of lump sum distributions from certain retirement
plans administered by Principal Mutual Life Insurance Company under the terms of
a written service agreement ("Administered Employee Benefit Plans").
Shareholders may purchase Class R shares to fund additional IRAs after
establishing an initial IRA funded with Class R shares.
What it Costs to Invest
Class R shares are sold without a front-end sales charge or a contingent
deferred sales charge. Class R shares of each Fund are subject to a 12b-1 fee at
annual rate of .75% of the Fund's average net assets attributable to Class R
shares. Class R shares automatically convert into Class A shares, based on
relative net asset values (which means without a sales charge), approximately
four years after purchase. The tables on the next page depict the fees and
expenses applicable to the purchase and ownership of shares of each of the
Funds. Table A depicts Class R shares and is based on amounts incurred by the
Funds' Class A shares during the fiscal year ended October 31, 1995, and
assumptions regarding the level of expenses anticipated for Class R shares
during the current fiscal year. Table B depicts Class A shares and is based on
amounts incurred by the Funds during the fiscal year ended October 31, 1995,
except as otherwise indicated. While Table B depicts the maximum sales charge
applicable to shares sold to the public, no sales charge applies when Class R
shares convert to Class A shares. The table included as an Example indicates the
cumulative expenses an investor would pay on an initial $1,000 investment that
earns a 5% annual return, regardless of whether shares are redeemed. The
examples are based on each Fund's Annual Operating Expenses described in Tables
A and B. Please remember that the Examples should not be considered a
representation of future expenses and that actual expenses may be greater or
less than those shown.
<TABLE>
<CAPTION>
CLASS R SHARES
TABLE A Shareholder Transaction Expenses*
Contingent Deferred Sales Charge
Maximum Sales Load (as a percentage of the lower of
Imposed on Purchases the original purchase price Fund
(as a percentage of offering price) or redemption proceeds)
All Funds None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management 12b-1 Other Total Operating
Fund Fee Fee Expenses**** Expenses
<S> <C> <C> <C> <C>
Balanced Fund .60% .75% .52% 1.87%
Blue Chip Fund .50 .75 .63 1.88
Bond Fund .50 .75 .20 1.45**
Capital Accumulation Fund .45 .75 .19 1.39
Cash Management Fund .38 .75 .34 1.47**
Emerging Growth Fund .64 .75 .58 1.97
Government Securities Income Fund .46 .75 .22 1.43
Growth Fund .48 .75 .46 1.69
High Yield Fund .60 .75 .60 1.95
Short-Term Bond Fund .50 .75 .15 1.40***
Utilities Fund .60 .75 .44 1.79**
World Fund .74 .75 .64 2.13
<FN>
* A wire charge of up to $6.00 will be deducted for all wire transfers.
** After waiver.
*** Estimated expense after waiver.
**** Estimated expenses
</FN>
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES
TABLE B Shareholder Transaction Expenses*
Maximum Sales Load Imposed Contingent
on Purchases Deferred Fund
(as a percentage of offering price) Sales Charge
All Funds Except the Short-Term Bond Fund
and Cash Management Fund 4.75% None**
Short-Term Bond Fund 1.50% None**
Cash Management Fund None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management 12b-1 Other Total Operating
Fund Fee Fee Expenses Expenses
<S> <C> <C> <C> <C>
Balanced Fund .60% .25% .52% 1.37%
Blue Chip Fund .50 .25 .63 1.38
Bond Fund .50 .24 .20 .94***
Capital Accumulation Fund .45 .11 .19 .75
Cash Management Fund .38 None .34 .72***
Emerging Growth Fund .64 .25 .58 1.47
Government Securities Income Fund .46 .19 .22 .87
Growth Fund .48 .22 .46 1.16
High Yield Fund .60 .25 .60 1.45
Short-Term Bond Fund .50 .15 .15 .80****
Utilities Fund .60 .25 .45 1.30
World Fund .74 .25 .64 1.63
<FN>
* A wire charge of up to $6.00 will be deducted for all wire transfers.
** Purchases of $1 million or more are not subject to an initial sales charge but may be subject to a
contingent deferred sales charge of .75% (.25% for Short-Term Bond Fund) on redemptions that occur within 18
months of purchase. See "Offering Price of Fund's Shares."
*** After waiver.
**** Estimated expenses after waiver.
</FN>
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end
of each time period: 1 Year 3 Years 5 Years (a) 10 Years (a)
------------- ------------- ---------
Class A Class R Class A Class R Class A Class R Class A Class R
Fund Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund $61 $19 $89 $59 $119 $95 $204 $183
Blue Chip Fund $61 $19 $89 $59 $119 $96 $205 $184
Bond Fund $57 $15 $76 $46 $97 $73 $157 $135
Capital Accumulation Fund $55 $14 $70 $44 $87 $69 $136 $119
Cash Management Fund $7 $15 $23 $46 $40 $72 $89 $120
Emerging Growth Fund $62 $20 $92 $62 $124 $101 $215 $194
Government Securities Income Fund $56 $15 $74 $45 $93 $72 $150 $129
Growth Fund $59 $17 $83 $53 $108 $86 $182 $161
High Yield Fund $62 $20 $91 $61 $123 $100 $213 $192
Short-Term Bond Fund $23 $14 $40 $44 -- -- -- --
Utilities Fund $60 $16 $87 $49 $115 $81 $197 $166
World Fund $63 $22 $96 $67 $132 $109 $232 $211
<FN>
(a) The amount in this column reflects the conversion of Class R shares to
Class A shares four years after the initial purchase.
</FN>
</TABLE>
The purpose of the preceding tables is to help investors understand the
various expenses that they will bear either directly or indirectly. Although
Annual Fund Operating Expenses shown in the Expense Table for Class A shares are
generally based upon each Fund's actual expenses, the 12b-1 Plan adopted by each
of the Funds (except the Money Market Funds which have no such Plan for Class A
shares) permits the Underwriter to retain an annual fee of up to .25% of each
Fund's average net assets. A portion of this annual fee is considered an
asset-based sales charge. Thus, it is theoretically possible for a long-term
shareholder of Class A shares, whether acquired directly or by conversion of
Class R shares, to pay more than the economic equivalent of the maximum
front-end sales charges permitted by the National Association of Securities
Dealers. See "Distribution and Shareholder Servicing Plans and Fees", "How to
Purchase Shares" and "How the Funds are Managed."
The Manager waived a portion of its fee for the Bond and Cash Management
Funds throughout the fiscal year ended October 31, 1995. Without these waivers,
total operating expenses for Class A shares actually incurred by the Funds for
the fiscal year ended October 31, 1995 would have amounted to 1.02% and .78% of
each Fund's average net assets, respectively. The Manager intends to continue
its voluntary waiver and, if necessary, pay expenses normally payable by both of
these Funds through February 28, 1997 in an amount that will maintain a total
level of operating expenses which as a percent of average net assets
attributable to a class on an annualized basis during the period will not
exceed, for the Class A shares, .95% for the Bond Fund and .75% for the Cash
Management Fund, and for the Class R shares, 1.45% for the Bond Fund and 1.50%
for the Cash Management Fund. The Manager voluntarily waived a portion of its
fee for the Utilities Fund through February 29, 1996 in an amount that
maintained a total level of operating expenses which as a percent of average net
assets attributable to a class on an annualized basis during the period did not
exceed 1.10% for the Class A shares. See "How the Funds are Managed."
The Manager intends to voluntarily waive its fee and, if necessary, pay
expenses normally payable by the Short-Term Bond Fund through February 28, 1997
in such amounts that will maintain a total level of operating expenses which as
a percent of net assets attributable to a class on an annualized basis will not
exceed .90% for Class A shares and 1.40% for Class R shares. Without this
waiver, estimated annual total operating expenses incurred by each class of
shares would amount to approximately 1.10% for Class A shares and 1.60% for
Class R shares.
What the Funds Offer Investors
Class R shares are purchased by investors to fund IRAs. Investor retirement
objectives and risk tolerances vary. For example, some investors seek growth to
help accumulate assets prior to retirement while others seek to generate current
income. Investors purchase shares of Funds that have investment objectives that
match their own financial objectives. The Funds also offer a choice of varying
levels of investment risks to enable the investor to choose one or more Funds
the investor believes is a prudent investment given the investor's willingness
to assume various risks. The Funds offer:
Professional Investment Management: Princor Management Corporation is the
Manager for each of the Funds. The Manager employs experienced securities
analysts to provide shareholders with professional investment management. The
Manager decides how and where to invest Fund assets. Investment decisions are
based on research into the financial performance of individual companies and
specific securities issues, taking into account general economic and market
trends. See "How the Funds are Managed."
Diversification: Mutual Funds allow shareholders to diversify their assets
across dozens of securities issued by a number of issuers. In addition, a
shareholder may further diversify by investing in several of the Funds.
Diversification reduces investment risk.
Economies of Scale: Pooling individual shareholders' money creates
administrative efficiencies and, in certain Funds, saves on brokerage
commissions through round-lot orders and quantity discounts. By pooling money
with other investors, shareholders can invest indirectly in many more securities
than they could on their own.
Liquidity: Upon request, each Fund will redeem all or part of an investor's
shares and promptly pay the current net asset value of the shares redeemed, less
any applicable contingent deferred sales charge. See "How to Sell Shares."
Dividends: Each Fund will normally declare a dividend payable to
shareholders from investment income in accordance with its distribution policy.
Dividends payable for Class R shares will be lower than dividends payable for
Class A shares. See "Distribution of Income Dividends and Realized Capital
Gains."
Convenient Investment and Recordkeeping Services: Shareholders will receive
quarterly statements of account disclosing information regarding purchases,
redemptions and reinvested dividends or distributions occurring during the
quarter, as well as the balance of shares owned and account values as of the
statement date. In addition, shareholders may complete certain transactions and
access account information by telephoning 1-800-247-4123.
Investment Objectives of the Funds
Growth-Oriented Funds
Fund Investment Objectives
Princor Balanced Fund, Inc. Total investment return consisting of
current income and capital appreciation
while assuming reasonable risks in
furtherance of this objective.
Princor Blue Chip Fund, Inc. Growth of capital and growth of income.
In seeking to achieve its objective, the
Fund will invest primarily in common stocks
of well-capitalized, established companies
which the Fund's Manager believes to have
the potential for growth of capital,
earnings and dividends.
Princor Capital Accumulation
Fund, Inc. Long-term capital appreciation with a
secondary objective of growth of
investment income. The Fund seeks to
achieve its objectives primarily through
the purchase of common stocks, but the Fund
may invest in other securities.
Princor Emerging Growth Fund, Inc. Long-term capital appreciation. The Fund
invests primarily in securities of
emerging and other growth-oriented companies.
Princor Growth Fund, Inc. Growth of capital. The Fund seeks to
achieve its objective through the
purchase primarily of common stocks,
but the Fund may invest in other
securities.
Princor World Fund, Inc. Long-term growth of capital by investing
in a portfolio of equity securities of
companies domiciled in any of the nations
of the world.
Income-Oriented Funds
Fund Investment Objectives
Princor Bond Fund, Inc. As high a level of income as is consistent
with preservation of capital and
prudent investment risk. This Fund invests
primarily in investment-grade bonds.
Princor Government Securities
Income Fund, Inc. A high level of current income, liquidity and
safety of principal. The Fund seeks to
achieve its objective through the purchase
of obligations issued or guaranteed by the
United States Government or its agencies,
with emphasis on Government National Mortgage
Association Certificates ("GNMA
Certificates"). Fund shares are not
guaranteed by the United States Government.
Princor High Yield Fund, Inc. High current income. Capital growth is
a secondary objective when consistent
with the objective of high current-income.
The Fund will invest primarily in high
yielding, lower or non-rated fixed-income
securities (commonly known as "junk bonds").
Princor Short-Term Bond Fund, Inc. A high level of current income consistent
with a relatively high level of principal
stability by investing in a portfolio of
securities with a dollar weighted average
maturity of five years or less.
Princor Utilities Fund, Inc. Current income and long-term growth of income
and capital. The Fund invests primarily in
equity and fixed-income securities of
companies engaged in the public utilities
industry.
Money Market Fund
Fund Investment Objectives
Princor Cash Management Fund, Inc. As high a level of current income available
from short-term securities as is considered
consistent with preservation of principal
and maintenance of liquidity. The Fund
invests in money market instruments.
There can be no assurance that the investment objectives of any of the
Funds will be realized. See "Investment Objectives, Policies and Restrictions."
The Risks of Investing
Because the Funds have different investment objectives, each Fund is
subject to varying degrees of financial and market risks and current income
volatility. Financial risk refers to the earnings stability and overall
financial soundness of an issuer of an equity security and to the ability of an
issuer of a debt security to pay interest and principal when due. Market risk
refers to the degree to which the price of a security will react to changes in
conditions in securities markets in general and, with particular reference to
debt securities, to changes in the overall level of interest rates. Current
income volatility refers to the degree and rapidity with which changes in the
overall level of interest rates become reflected in the level of current income
of a Fund. See "Risk Factors", and "Investment Objectives, Policies and
Restrictions."
How to Buy Shares
An investor can buy shares by completing a Princor IRA, SEP or SAR-SEP
application provided by Princor Financial Services Corporation ("Princor"), a
broker-dealer that is also the principal underwriter for the Funds, and mailing
it, along with a check if establishing an account that is not part of a direct
rollover, to Princor. The initial investment must be at least $250. The minimum
subsequent investment is $25 ($100 for Cash Management Fund). See "How to
Purchase Shares." Class R shares of the Cash Management Funds may only be
purchased by an exchange from other Class R shares. See "How to Exchange
Shares."
Each Fund described in the Prospectus offers three classes of shares
through Princor and other dealers which it selects. The three classes are Class
A shares, Class B shares and Class R shares. Only Class R shares are offered
through this Prospectus. Each class is sold in different sales arrangements and
bears different expense levels.
Class R shares for each Fund are sold without an initial sales charge or a
contingent deferred sales charge. Class R shares bear a higher 12b-1 fee than
Class A shares, currently at the annual rate of .75% of the Fund's average net
assets attributable to Class R shares. Class R shares will automatically convert
into Class A shares, based on relative net asset value, approximately four years
after purchase. Class R shares provide the benefit of putting all of the
investor's dollars to work from the time the investment is made, but (until
conversion) will have a higher expense ratio and pay lower dividends than Class
A shares due to the higher 12b-1 fee. See "How to Purchase Shares" and "Offering
Price of Funds' Shares." Class R shares were first offered to the public on
___________________, 1996.
How to Exchange Shares
Shares of Princor Funds may be exchanged for shares of the same Class of
other Princor Funds without a sales charge or administrative fee under certain
conditions as described under "How to Exchange Shares." Shares may be exchanged
by telephone or written request. Also, dividends and capital gains distributions
from shares of a Class of one Princor Fund may be automatically
"cross-reinvested" in shares of the same Class of another Princor Fund. See
"Distribution of Income Dividends and Realized Capital Gains."
How to Sell Shares
Shareholders may sell (redeem) shares only by written request. The request
form may be obtained by telephoning 1-800-247-4123 or by writing to Princor,
P.O. Box 10423, Des Moines, Iowa 50306. Redemption proceeds will generally be
mailed to the shareholder on the next business day after the redemption request
is received in good order. Redemptions are at net asset value, without charge.
See "Offering Price of Funds' Shares" and "How to Sell Shares."
FINANCIAL HIGHLIGHTS
The following financial highlights for each of the ten years in the period
ended October 31, 1995, or since the Fund's inception if a shorter period of
time, have been derived from financial statements which have been audited by
Ernst & Young LLP, independent auditors, whose report thereon has been
incorporated by reference herein. No Class R shares were outstanding during
these periods. The financial highlights should be read in conjunction with the
financial statements, related notes and other financial information for each
Fund incorporated by reference herein. The financial statements, which contain
additional information regarding the performance of the Funds, may be obtained
by shareholders, without charge, by telephoning 1-800-451-5447.
<PAGE>
<TABLE>
<CAPTION>
GROWTH-ORIENTED FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End of
of Period Income Investments Operations Income Capital Gains Distributions Period
Princor Balanced Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $12.43 $.41 $1.31 $1.72 $(.36) $(.05) $(.41) $13.74
1994 13.26 .32 (.20) .12 (.40) (.55) (.95) 12.43
1993 12.78 .35 1.14 1.49 (.37) (.64) (1.01) 13.26
1992 11.81 .41 .98 1.39 (.42) - (.42) 12.78
1991 9.24 .46 2.61 3.07 (.50) - (.50) 11.81
1990 11.54 .53 (1.70) (1.17) (.59) (.54) (1.13) 9.24
1989 11.09 .61 .56 1.17 (.56) (.16) (.72) 11.54
Period Ended October 31, 1988 (b) 9.96 .40 1.02 1.42 (.29) - (.29) 11.09
Princor Blue Chip Fund, Inc.
Class A
Year Ended October 31,
1995 12.45 .24 2.55 2.79 (.21) - (.21) 15.03
1994 11.94 .20 .57 .77 (.26) - (.26) 12.45
1993 11.51 .21 .43 .64 (.18) (.03) (.21) 11.94
1992 10.61 .17 .88 1.05 (.15) - (.15) 11.51
Period Ended October 31, 1991(e) 10.02 .10 .57 .67 (.08) - (.08) 10.61
Princor Capital Accumulation
Fund, Inc.
Class A
Year Ended October 31,
1995 20.83 .45 3.15 3.60 (.39) (.35) (.74) 23.69
1994 21.41 .39 .93 1.32 (.41) (1.49) (1.90) 20.83
1993 21.34 .43 1.67 2.10 (.43) (1.60) (2.03) 21.41
1992 19.53 .45 1.82 2.27 (.46) - (.46) 21.34
1991 14.31 .49 5.24 5.73 (.51) - (.51) 19.53
1990 18.16 .52 (3.64) (3.12) (.40) (.33) (.73) 14.31
Four Months Ended
October 31, 1989 (f) 19.11 .18 (.06) .12 (.29) (.78) (1.07) 18.16
Year Ended June 30,
1989 18.82 .53 1.10 1.63 (.51) (.83) (1.34) 19.11
1988 21.66 .44 (1.06) (.62) (.41) (1.81) (2.22) 18.82
1987 20.47 .31 3.33 3.64 (.30) (2.15) (2.45) 21.66
1986 16.60 .61 4.94 5.55 (.72) (.96) (1.68) 20.47
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor Balanced Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 14.18% $ 57,125 1.37% 3.21% 35.8%
1994 .94% 53,366 1.51% 2.70% 14.4%
1993 12.24% 39,952 1.35% 2.78% 27.5%
1992 11.86% 31,339 1.29% 3.39% 30.6%
1991 34.09% 23,372 1.30% 4.25% 23.6%
1990 (11.28)% 18,122 1.32% 5.22% 33.7%
1989 11.03% 20,144 1.25% 5.45% 30.2%
Period Ended
October 31, 1988 (b) 12.42%(c) 16,282 1.12%(d) 4.51%(d) 65.2%(d)
Princor Blue Chip Fund, Inc.
Class A
Year Ended October 31,
1995 22.65% 35,212 1.38% 1.83% 26.1%
1994 6.58% 27,246 1.46% 1.72% 5.5%
1993 5.65% 23,759 1.25% 1.87% 11.2%
1992 9.92% 19,926 1.56% 1.49% 13.5%
Period Ended October 31, 1991(e) 6.37%(c) 12,670 1.71%(d) 1.67%(d) 0.4%(d)
Princor Capital Accumulation
Fund, Inc.
Class A
Year Ended October 31,
1995 17.94% 339,656 .75% 2.08% 46.0%
1994 6.67% 285,965 .83% 2.02% 31.7%
1993 10.42% 240,016 .82% 2.16% 24.8%
1992 11.67% 190,301 .93% 2.17% 38.3%
1991 40.63% 152,814 .99% 2.72% 19.7%
1990 (17.82)% 109,507 1.10% 3.10% 27.7%
Four Months Ended
October 31, 1989 (f) .44%(c) 122,685 1.10%(d) 2.87%(d) 19.7%(d)
Year Ended June 30,
1989 9.53% 117,473 1.00% 3.04% 28.1%
1988 (2.30)% 97,147 .96% 2.40% 27.9%
1987 20.93% 93,545 .98% 1.73% 20.0%
1986 36.51% 55,763 .93% 3.59% 44.5%
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge.
(b) Period from December 18, 1987, date shares first offered to public,
through October 31, 1988. Net investment income, aggregating $.08 per share for
the period from the initial purchase of shares on October 30, 1987 through
December 17, 1987, was recognized, none of which was distributed to its sole
stockholder, Principal Mutual Life Insurance Company, during the period.
Additionally, the Fund incurred net realized and unrealized losses on
investments of $.12 per share during this initial interim period. This
represented activities of the fund prior to the initial public offering of fund
shares.
(c) Total Return amounts have not been annualized.
(d) Computed on an annualized basis.
(e) Period from March 1, 1991, date shares first offered to public, through
October 31, 1991. Net investment income, aggregating $.01 per share for the
period from the initial purchase of shares on February 11, 1991 through February
28, 1991, was recognized, none of which was distributed to its sole stockholder,
Principal Mutual Life Insurance Company, during the period. Additionally, the
Fund incurred unrealized gains on investments of $.01 per share during this
initial interim period. This represented activities of the fund prior to the
initial public offering of fund shares.
(f) Effective July 1, 1989, the fund changed its fiscal year-end from June
30 to October 3l.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROWTH-ORIENTED FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor Emerging Growth Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $25.08 $ .12 $6.45 $6.57 $(.06) $ (.14) $(.20) $31.45
1994 23.56 - 1.61 1.61 - (.09) (.09) 25.08
1993 19.79 .06 3.82 3.88 (.11) - (.11) 23.56
1992 18.33 .14 1.92 2.06 (.15) (.45) (.60) 19.79
1991 11.35 .17 7.06 7.23 (.21) (.04) (.25) 18.33
1990 14.10 .31 (2.59) (2.28) (.37) (.10) (.47) 11.35
1989 12.77 .26 2.02 2.28 (.15) (.80) (.95) 14.10
Period Ended October 31, 1988 (b) 10.50 .06 2.26 2.32 (.05) - (.05) 12.77
Princor Growth Fund, Inc.
Class A
Year Ended October 31,
1995 31.14 .35 6.67 7.02 (.31) (.63) (.94) 37.22
1994 30.41 .26 2.56 2.82 (.28) (1.81) (2.09) 31.14
1993 28.63 .40 2.36 2.76 (.42) (.56) (.98) 30.41
1992 25.92 .39 3.32 3.71 (.40) (.60) (1.00) 28.63
1991 16.57 .41 9.32 9.73 (.38) - (.38) 25.92
1990 19.35 .35 (1.99) (1.64) (.34) (.80) (1.14) 16.57
Four Months Ended October 31, 1989 (e)18.35 .08 1.17 1.25 (.16) (.09) (.25) 19.35
Year Ended June 30,
1989 19.84 .32 .36 .68 (.29) (1.88) (2.17) 18.35
1988 23.27 .26 (2.08) (1.82) (.22) (1.39) (1.61) 19.84
1987 21.85 .21 3.72 3.93 (.27) (2.24) (2.51) 23.27
1986 17.07 .32 6.31 6.63 (.38) (1.47) (1.85) 21.85
Princor World Fund, Inc.
Class A
Year Ended October 31,
1995 7.44 .08 (.02) .06 (.03) (.19) (.22) 7.28
1994 6.85 .01 .64 .65 (.02) (.04) (.06) 7.44
1993 5.02 .03 1.98 2.01 (.05) (.13) (.18) 6.85
1992 5.24 .06 (.14) (.08) (.06) (.08) (.14) 5.02
1991 4.64 .05 .58 .63 (.03) - (.03) 5.24
1990 4.66 .09 (.04) .05 (.07) - (.07) 4.64
Ten Months Ended
October 31, 1989 (f) 4.58 .07 .07 .14 (.06) - (.06) 4.66
Year Ended December 31,
1988 (g) 3.88 .12 .67 .79 (.09) - (.09) 4.58
1987 (g) 8.55 .12 (.96) (.84) (.08) (3.75) (3.83) 3.88
1986 (g) 7.32 .45 2.17 2.62 (.44) (.95) (1.39) 8.55
1985 (g) 6.07 .07 1.49 1.56 (.09) (.22) (.31) 7.32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor Emerging Growth Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 26.41% $150,611 1.47% .47% 13.5%
1994 6.86% 92,965 1.74% .02% 8.1%
1993 19.66% 48,668 1.66% .26% 7.0%
1992 11.63% 29,055 1.74% .80% 5.8%
1991 64.56% 17,174 1.78% 1.14% 8.4%
1990 (16.80)% 8,959 1.94% 2.43% 15.8%
1989 19.65% 8,946 1.79% 2.09% 13.5%
Period Ended October 31, 1988 (b) 19.72%(c) 6,076 1.52%(d) .84%(d) 19.5%(d)
Princor Growth Fund, Inc.
Class A
Year Ended October 31,
1995 23.29% 174,328 1.16% 1.12% 12.2%
1994 9.82% 116,363 1.30% .95% 13.6%
1993 9.83% 80,051 1.26% 1.40% 16.4%
1992 14.76% 63,405 1.19% 1.46% 15.6%
1991 59.30% 45,892 1.13% 1.85% 10.6%
1990 (9.20)% 28,917 1.18% 1.88% 9.7%
Four Months Ended October 31, 1989(e) 6.83%(c) 32,828 1.22%(d) 1.25%(d) 50.1%(d)
Year Ended June 30,
1989 4.38% 31,770 1.08% 1.78% 9.7%
1988 (7.19)% 34,316 1.00% 1.29% 24.9%
1987 20.94% 37,006 1.01% 1.07% 4.0%
1986 42.69% 26,493 .98% 1.75% 29.0%
Princor World Fund, Inc.
Class A
Year Ended October 31,
1995 1.03% 126,554 1.63% 1.10% 35.4%
1994 9.60% 115,812 1.74% .10% 13.2%
1993 41.39% 63,718 1.61% .59% 19.5%
1992 (1.57)% 35,048 1.69% 1.23% 19.9%
1991 13.82% 26,478 1.72% 1.36% 27.6%
1990 .94% 16,044 1.79% 1.89% 37.9%
Ten Months Ended
October 31, 1989 (f) 2.98%(c) 13,928 1.55%(d) 1.82%(d) 32.4%(d)
Year Ended December 31,
1988 (g) 20.25% 13,262 1.55% 1.43% 56.9%
1987 (g) (10.13)% 3,943 2.09% .83% 183.0%
1986 (g) 36.40% 9,846 2.17% .73% 166.0%
1985 (g) 25.88% 2,525 2.25% 1.13% 55.9%
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge.
(b) Period from December 18, 1987, date shares first offered to public, through October 31, 1988.
Net investment income, aggregating $.04 per share for the period from the initial purchase of shares on
October 30, 1987 through December 17, 1987, was recognized, none of which was distributed to its sole stockholder,
Principal Mutual Life Insurance Company, during the period. Additionally, the Fund incurred net realized and
unrealized gains on investments of $.46 per share during this initial interim period. This represented activities of the
fund prior to the initial public offering of fund shares.
(c) Total Return amounts have not been annualized.
(d) Computed on an annualized basis.
(e) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to October 3l.
(f) Effective January 1, 1989, the fund changed its fiscal year-end from December 31 to October 31.
(g) The investment manager of Princor World Fund, Inc. was changed on August 1, 1988 to the current manager,
Princor Management Corporation. The years 1983 through 1987 are not covered by the current independent auditor's report.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME-ORIENTED AND MONEY MARKET FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor Bond Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.27 $.78 (b) $1.16 $1.94 $(.78) $(.01) $(.79) $11.42
1994 11.75 .78 (b) (1.47) (.69) (.78) (.01) (.79) 10.27
1993 10.97 .81 (b) .79 1.60 (.81) (.01) (.82) 11.75
1992 10.65 .85 (b) .32 1.17 (.85) - (.85) 10.97
1991 9.99 .88 (b) .65 1.53 (.87) - (.87) 10.65
1990 10.57 .86 (.55) .31 (.89) - (.89) 9.99
1989 10.37 .87 .25 1.12 (.86) (.06) (.92) 10.57
Period Ended October 31, 1988 (c) 9.95 .80 (b) .38 1.18 (.76) - (.76) 10.37
Princor Cash Management Fund, Inc.
Class A
Year Ended October 31,
1995 1.000 .052 (b) - .052 (.052) - (.052) 1.000
1994 1.000 .033 (b) - .033 (.033) - (.033) 1.000
1993 1.000 .026 (b) - .026 (.026) - (.026) 1.000
1992 1.000 .036 (b) - .036 (.036) - (.036) 1.000
1991 1.000 .061 (b) - .061 (.061) - (.061) 1.000
1990 1.000 .074 (b) - .074 (.074) - (.074) 1.000
Four Months Ended
October 31, 1989 (f) 1.000 .027 (b) - .027 (.027) - (.027) 1.000
Year Ended June 30,
1989 1.000 .080 (b) - .080 (.080) - (.080) 1.000
1988 1.000 .060 - .060 (.060) - (.060) 1.000
1987 1.000 .053 - .053 (.053) - (.053) 1.000
1986 1.000 .065 - .065 (.065) - (.065) 1.000
Princor Government Securities
Income Fund, Inc.
Class A
Year Ended October 31,
1995 10.28 .71 1.02 1.73 (.70) - (.70) 11.31
1994 11.79 .69 (1.40) (.71) (.68) (.12) (.80) 10.28
1993 11.44 .74 .55 1.29 (.74) (.20) (.94) 11.79
1992 11.36 .81 .12 .93 (.81) (.04) (.85) 11.44
1991 10.54 .85 .84 1.69 (.87) - (.87) 11.36
1990 10.76 .85 (.22) .63 (.85) - (.85) 10.54
Four Months Ended
October 31, 1989 (f) 10.66 .29 .09 .38 (.28) - (.28) 10.76
Year Ended June 30,
1989 10.33 .87 .32 1.19 (.86) - (.86) 10.66
1988 10.40 .89 (.05) .84 (.88) (.03) (.91) 10.33
1987 10.82 .86 (.13) .73 (.87) (.28) (1.15) 10.40
1986 10.55 1.24 .49 1.73 (1.26) (.20) (1.46) 10.82
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor Bond Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 19.73% $106,962 .94% (b) 7.26% 5.1%
1994 (6.01)% 88,801 .95% (b) 7.27% 8.9%
1993 15.22% 85,015 .92% (b) 7.19% 9.3%
1992 11.45% 62,534 .88% (b) 7.95% 8.4%
1991 16.04% 37,825 .80% (b) 8.66% .9%
1990 3.08% 22,719 1.22% 8.40% 3.6%
1989 11.54% 13,314 1.24% 8.59% 0.0%
Period Ended October 31, 1988 (c) 11.59% (d) 10,560 .70% (e)(b) 8.85% (e) 63.9% (e)
Princor Cash Management Fund, Inc.
Class A
Year Ended October 31,
1995 5.36% 623,864 .72% (b) 5.24% N/A
1994 3.40% 332,346 .70% (b) 3.27% N/A
1993 2.67% 284,739 .67% (b) 2.63% N/A
1992 3.71% 247,189 .65% (b) 3.66% N/A
1991 6.29% 262,543 .61% (b) 5.95% N/A
1990 7.65% 151,007 .93% (b) 7.36% N/A
Four Months Ended
October 31, 1989 (f) 2.63% (d) 124,895 1.04% (e)(b) 7.86% (e) N/A
Year Ended June 30,
1989 8.15% 120,149 1.00% (b) 8.21% N/A
1988 6.18% 51,320 1.02% 6.06% N/A
1987 5.34% 45,015 1.02% 5.33% N/A
1986 6.71% 35,437 1.10% 6.76% N/A
Princor Government Securities
Income Fund, Inc.
Class A
Year Ended October 31,
1995 17.46% 261,128 .87% 6.57% 10.1%
1994 (6.26)% 249,438 .95% 6.35% 24.8%
1993 11.80% 236,718 .93% 6.38% 52.6%
1992 8.49% 161,565 .95% 7.04% 54.3%
1991 16.78% 94,613 .98% 7.80% 14.9%
1990 6.17% 71,806 1.07% 8.15% 22.4%
Four Months Ended
October 31, 1989 (f) 3.63% (d) 55,702 1.07% (e) 8.18% (e) 5.2% (e)
Year Ended June 30,
1989 12.37% 56,848 .96% 8.58% -
1988 8.60% 59,884 .82% 8.65% -
1987 7.00% 65,961 .92% 7.93% 17.6%
1986 17.37% 43,576 .60% 9.33% 141.2%
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge.
(b) Without the Manager's voluntary waiver of a portion of certain of its
expenses for the periods (year, except as noted in the financial statements)
ended October 31 of the years indicated, the following funds would have had per
share expenses and the ratios of expenses to average net assets as shown:
Per Share Ratio of Expenses
Net Invest- to Average Net Amount
Fund Year ment Income Assets Waived
Princor Bond Fund, Inc.
Class A 1995 $.77 1.02% $ 86,018
1994 .77 1.09% 120,999
1993 .79 1.07% 111,162
1992 .82 1.11% 110,868
1991 .84 1.15% 100,396
1988 (c) .76 1.12% (e) 31,187
Princor Cash Management
Fund, Inc.
Class A 1995 .052 .78% 296,255
1994 .031 .90% 595,343
1993 .025 .84% 468,387
1992 .035 .80% 385,328
1991 .059 .79% 433,196
1990 .073 1.01% 106,841
1989** .026 1.06% (e) 101,625
1989* .079 1.11% 9,558
* Year ended June 30, 1989
** Four months ended October 31, 1989
(c) Period from December 18, 1987, date shares first offered to public,
through October 31, 1988. Net investment income, aggregating $.10 per share for
the period from the initial purchase of shares on October 30, 1987 through
December 17, 1987, was recognized of which $.06 per share was distributed to its
sole stockholder, Principal Mutual Life Insurance Company, during the period.
Additionally, the Fund incurred net realized and unrealized losses on
investments of $.09 per share during this initial interim period. This
represented activities of the fund prior to the initial public offering of fund
shares.
(d) Total Return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Effective July 1, 1989, the fund changed its fiscal year-end from June
30 to October 3l.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME-ORIENTED AND MONEY MARKET FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor High Yield Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 7.83$ .68 $ .20 $ .88 $ (.65) $ - $ (.65) $ 8.06
1994 8.36 .63 (.51) .12 (.65) - (.65) 7.83
1993 8.15 .71 .21 .92 (.71) - (.71) 8.36
1992 7.86 .79 .29 1.08 (.79) - (.79) 8.15
1991 7.12 .88 .80 1.68 (.94) - (.94) 7.86
1990 9.47 1.10 (2.35) (1.25) (1.09) (.01) (1.10) 7.12
1989 10.44 1.10 (.83) .27 (1.09) (.15) (1.24) 9.47
Period Ended October 31, 1988 (b) 9.97 .98 (c) .38 1.36 (.89) - (.89) 10.44
Princor Utilities Fund, Inc.
Class A
Year Ended October 31,
1995 9.25 .48 (c) 1.70 2.18 (.49) - (.49) 10.94
1994 11.45 .46 (c) (2.19) (1.73) (.45) (.02) (.47) 9.25
Period Ended October 31, 1993 (f) 10.18 .35 (c) 1.27 1.62 (.35) - (.35) 11.45
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor High Yield Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 11.73% $23,396 1.45% 8.71% 40.3%
1994 1.45% 19,802 1.46% 7.82% 27.2%
1993 11.66% 19,154 1.35% 8.57% 23.4%
1992 14.35% 16,359 1.41% 9.69% 28.2%
1991 25.63% 13,195 1.50% 12.06% 14.2%
1990 (14.51)% 9,978 1.45% 12.99% 15.8%
1989 2.68% 12,562 1.43% 11.22% 19.9%
Period Ended October 31, 1988 (b) 14.15%(d) 10,059 .77%(c)(e) 10.55%(e) 73.2%(e)
Princor Utilities Fund, Inc.
Class A
Year Ended October 31,
1995 24.36% 65,873 1.04%(e) 4.95% 13.0%
1994 (15.20)% 56,747 1.00%(c) 4.89% 13.8%
Period Ended October 31, 1993 (f) 15.92%(d) 50,372 1.00%(c)(e) 4.48%(f) 4.3%(f)
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge.
(b) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.10 per share for the
period from the initial purchase of shares on October 30, 1987 through December
17, 1987, was recognized of which $.06 per share was distributed to its sole
stockholder, Principal Mutual Life Insurance Company, during the period.
Additionally, the Fund incurred net realized and unrealized losses on
investments of $.09 per share during this initial interim period. This
represented activities of the fund prior to the initial public offering of Fund
shares.
(c) Without the Manager's voluntary waiver of a portion of certain of its
expenses for the periods (year except as noted) ended October 31 of the years
indicated, the following funds would have had per share expenses and the ratios
of expenses to average net assets as shown:
Per Share Ratio of Expenses
Net Invest- to Average Net Amount
Fund Year ment Income Assets Waived
Princor High Yield
Fund, Inc. 1988(b) $.95 1.33%(e) $ 32,609
Class A
Princor Utilities Fund, Inc.
Class A 1995 .46 1.30% 151,145
1994 .41 1.50% 284,836
1993(f) .32 1.54%(e) 139,439
(d) Total Return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Period from December 16, 1992, date shares first offered to public, through
October 31, 1993. Net investment income, aggregating $.05 per share for the
period from the initial purchase of shares on November 16, 1992 through December
15, 1992, was recognized, none of which was distributed to its sole stockholder,
Principal Mutual Life Insurance Company, during the period. Additionally, the
fund incurred unrealized gains on investments of $.13 per share during the
initial interim period. This represented activities of the fund prior to the
initial public offering of fund shares.
</FN>
</TABLE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The investment objectives and policies of each Fund are described below.
There can be no assurance that the objectives of the Funds will be realized.
GROWTH-ORIENTED FUNDS
The Princor Growth-Oriented Funds currently include four Funds which seek
capital appreciation through investments in equity securities (Capital
Accumulation Fund, Emerging Growth Fund, Growth Fund and World Fund), one Fund
which seeks a total investment return including both capital appreciation and
income through investments in equity and debt securities (Balanced Fund) and one
Fund which seeks growth of capital and growth of income primarily through
investments in common stocks of well capitalized, established companies (Blue
Chip Fund).
The Growth-Oriented Funds may invest in the following equity securities:
common stocks; preferred stocks and debt securities that are convertible into
common stock, that carry rights or warrants to purchase common stock or that
carry rights to participate in earnings; rights or warrants to subscribe to or
purchase any of the foregoing securities; and sponsored and unsponsored American
Depository Receipts (ADRs) based on any of the foregoing securities. Unsponsored
ADRs are not created by the issuer of the underlying security, may be subject to
fees imposed by the issuing bank that, in the case of sponsored ADRs, would be
paid by the issuer of a sponsored ADR and may involve additional risks such as
reduced availability of information about the issuer of the underlying security.
The Blue Chip, Capital Accumulation, Emerging Growth, Growth and World Funds
will seek to be fully invested under normal conditions in equity securities.
When in the opinion of the Manager current market or economic conditions
warrant, a Growth-Oriented Fund may, for temporary defensive purposes, place all
or a portion of its assets in cash (on which the Fund would earn no income),
cash equivalents, bank certificates of deposit, bankers acceptances, repurchase
agreements, commercial paper, commercial paper master notes which are floating
rate debt instruments without a fixed maturity, United States Government
securities, and preferred stocks and debt securities, whether or not convertible
into or carrying rights for common stock. When investing for temporary defensive
purposes a Growth-Oriented Fund is not investing so as to achieve its investment
objective. A Growth-Oriented Fund may also maintain reasonable amounts in cash
or short-term debt securities for daily cash management purposes or pending
selection of particular long-term investments.
Princor Balanced Fund
The investment objective of Princor Balanced Fund is to generate a total
investment return consisting of current income and capital appreciation while
assuming reasonable risks in furtherance of the investment objective. The term
"reasonable risks" refers to investment decisions that in the Manager's judgment
do not present a greater than normal risk of loss in light of current or
anticipated future market and economic conditions, trends in yields and interest
rates, and fiscal and monetary policies.
In seeking to achieve the investment objective, the Fund invests primarily
in growth and income-oriented common stocks (including securities convertible
into common stocks), corporate bonds and debentures and short-term money market
instruments. The Fund may also invest in other equity securities and in debt
securities issued or guaranteed by the United States Government and its agencies
or instrumentalities. The Fund seeks to generate real (inflation plus) growth
during favorable investment periods and may emphasize income and capital
preservation strategies during uncertain investment periods. The Manager will
seek to minimize declines in the net asset value per share. However, there is no
guarantee that the Manager will be successful in achieving this goal.
The portions of the Fund's total assets invested in equity securities, debt
securities and short-term money market instruments are not fixed, although
ordinarily 40% to 70% of the Fund's portfolio will be invested in equity
securities with the balance of the portfolio invested in debt securities. The
investment mix will vary from time to time depending upon the judgment of the
Manager as to general market and economic conditions, trends in investment
yields and interest rates, and changes in fiscal or monetary policies. The Fund
may invest up to 20% of its assets in foreign securities. For a description of
certain investment risks associated with foreign securities, see "Risk Factors."
The Fund may invest in all types of common stocks and other equity
investments, without regard to any objective investment criteria such as size of
the issue or issuer, exchange listing or seasoning. The Fund may invest in both
exchange-listed and over-the-counter securities, in small or large companies,
and in well-established or unseasoned companies. Also, the Fund's investments in
corporate bonds and debentures and money market instruments are not restricted
by credit ratings or other objective investment criteria, except with respect to
bank certificates of deposit as set forth below. Some of the fixed income
securities in which the Fund may invest may be considered to include speculative
characteristics and the Fund may purchase such securities that are in default
but does not currently intend to invest more than 5% of its assets in securities
rated below BBB by Standard & Poor's or Baa by Moody's. The rating services'
descriptions of BBB or Baa securities are as follows: Moody's Investors Service,
Inc. Bond Ratings -- Baa: Bonds which are rated Baa are considered as medium
grade obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Standard &
Poor's Corporation Bond Ratings -- BBB: Debt rated "BBB" is regarded as having
an adequate capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than for debt in higher-rated
categories. See the discussion of the Princor High Yield Fund for information
concerning risks associated with below-investment grade bonds. The Fund will not
concentrate its investments in any industry.
In selecting common stocks, the Manager seeks companies which the Manager
believes have predictable earnings increases and which, based on their future
growth prospects, may be currently undervalued in the market place. During
periods when the Manager determines that general economic conditions are
favorable, it will generally purchase common stocks with the objective of
long-term capital appreciation. From time to time, and in periods of economic
uncertainty, the Manager may purchase common stocks with the expectation of
price appreciation over a relatively short period of time.
To achieve its investment objective, the Fund may at times emphasize the
generation of interest income by investing in short, medium or long-term debt
securities. Investment in debt securities may also be made with a view to
realizing capital appreciation when the Manager believes that declining interest
rates may increase market values. The Fund may also purchase "deep discount
bonds," i.e., bonds which are selling at a substantial discount from their face
amount, with a view to realizing capital appreciation.
The Fund may invest in the following short-term money market investments:
U.S. Treasury bills, bank certificates of deposit, bankers' acceptances,
repurchase agreements, commercial paper and commercial paper master notes which
are floating rate debt instruments without a fixed maturity. The Fund will only
invest in domestic bank certificates of deposit issued by banks which are
members of the Federal Reserve System that have total deposits in excess of one
billion dollars.
The United States Government securities in which the Fund may invest consist
of U.S. Treasury obligations and obligations of certain agencies, such as the
Government National Mortgage Association, which are supported by the full faith
and credit of the United States, as well as obligations of certain other Federal
agencies or instrumentalities, such as the Federal National Mortgage
Association, Federal Land Banks and the Federal Farm Credit Administration,
which are backed only by the right of the issuer to borrow limited funds from
the U.S. Treasury, by the discretionary authority of the U.S. Government to
purchase such obligations or by the credit of the agency or instrumentality
itself.
Princor Blue Chip Fund
The objective of Princor Blue Chip Fund is growth of capital and growth of
income. Growth of income means increasing the Fund's investment income which is
primarily derived from dividends earned on portfolio securities. In seeking to
achieve its objective, the Fund will invest primarily in common stocks of well
capitalized, established companies which the Fund's manager believes to have the
potential for growth of capital, earnings and dividends. Under normal market
conditions, the Fund will invest at least 65%, and may invest up to 100%, of its
total assets in the common stocks of blue chip companies.
Blue chip companies are defined as those companies with market
capitalizations of at least $1 billion. Blue chip companies are generally
identified by their substantial capitalization, established history of earnings
and dividends, easy access to credit, good industry position and superior
management structure. In addition, the large market of publicly held shares for
such companies and the generally high trading volume in those shares results in
a relatively high degree of liquidity for such investments. The characteristics
of high quality and high liquidity of blue chip investments should make the
market for such stocks attractive to many investors.
Examples of blue chip companies currently eligible for investment by the
Fund include, but are not limited to, companies such as General Electric
Company, Ford Motor Company, Exxon Corporation, Merck & Company, Inc., Digital
Equipment Corporation, Capital Cities ABC, Inc., J.P. Morgan & Co. and Coca Cola
Company. In general, the Fund will seek to invest in those established, high
quality companies whose industries are experiencing favorable secular or
cyclical change.
The Fund's Manager may invest up to 35% of the Fund's total assets in equity
securities, other than common stock, issued by companies that meet the
investment criteria for blue chip companies and in equity securities issued by
companies that do not meet those criteria. The Manager does not intend to invest
regularly in speculative securities, which are those issued by new, unseasoned
companies or by companies that have limited product lines, markets, financial
resources or management, but it may from time to time invest not more than 5% of
the Fund's total assets in those kinds of securities. The Fund may invest up to
20% of its assets in securities of foreign issuers. The foreign securities in
which the Fund may invest need not be issued by companies that meet the
investment criteria for blue chip companies. For a description of certain
investment risks associated with foreign securities, see "Risk Factors."
Princor Capital Accumulation Fund
The primary objective of Princor Capital Accumulation Fund is long-term
capital appreciation. A secondary objective is growth of investment income.
The Fund will invest primarily in common stocks, but it may invest in other
equity securities. In making selections for the Fund's investment portfolio, the
Manager will use an approach described broadly as that of fundamental analysis,
which is discussed in the Statement of Additional Information. In pursuit of the
Fund's investment objectives, investments will be made in securities which as a
group appear to offer long-term prospects for capital and income growth.
Securities chosen for investment may include those of companies which the
Manager believes can reasonably be expected to share in the growth of the
nation's economy over the long term.
Princor Emerging Growth Fund
The objective of Princor Emerging Growth Fund is to achieve long-term
capital appreciation. The strategy of this Fund is to invest primarily in the
common stocks and securities (both debt and preferred stock) convertible into
common stocks of emerging and other growth-oriented companies that, in the
judgment of the Manager, are responsive to changes within the marketplace and
have the fundamental characteristics to support growth. In pursuing its
objective of capital appreciation, the Fund may invest, for any period of time,
in any industry and in any kind of growth-oriented company, whether new and
unseasoned or well known and established. Under normal market conditions, the
Fund will invest at least 65% of its assets in securities of companies having a
total market capitalization of $1 billion or less. The Fund may invest up to 20%
of its assets in securities of foreign issuers. For a description of certain
investment risks associated with foreign securities, see "Risk Factors."
There can be, of course, no assurance that the Fund will attain its
objective. Investment in emerging and other growth-oriented companies may
involve greater risk than investment in other companies. The securities of
growth-oriented companies may be subject to more abrupt or erratic market
movements, and many of them may have limited product lines, markets, financial
resources or management. Because of these factors and of the length of time that
may be required for full development of the growth prospects of some of the
companies in which the Fund invests, the Fund believes that its shares are
suitable only for persons who are able to assume the risk of investing in
securities of emerging and growth-oriented companies and prepared to maintain
their investment during periods of adverse market conditions. Investors should
not rely on the Fund for their short-term financial needs. Since the Fund will
not be seeking current income, investors should not view a purchase of Fund
shares as a complete investment program.
Princor Growth Fund
The objective of Princor Growth Fund is growth of capital. Realization of
current income will be incidental to the objective of growth of capital.
The Fund will invest primarily in common stocks, but it may invest in other
equity securities. In making selections for the Fund's investment portfolio, the
Manager will use an approach described broadly as that of fundamental analysis,
which is discussed in the Statement of Additional Information. In pursuit of the
Fund's investment objective, investments will be made in securities which as a
group appear to possess potential for appreciation in market value. Common
stocks chosen for investment may include those of companies which have a record
of sales and earnings growth that exceeds the growth rate of corporate profits
of the S&P 500 or which offer new products or new services. The policy of
investing in securities which have a high potential for growth of capital can
mean that the assets of the Fund may be subject to greater risk than securities
which do not have such potential.
Princor World Fund
The investment objective of Princor World Fund is to seek long-term growth
of capital through investment in a portfolio of equity securities of companies
domiciled in any of the nations of the world. In choosing investments in equity
securities of foreign and United States corporations, the Manager intends to pay
particular attention to long-term earnings prospects and the relationship of
then-current prices to such prospects. Short-term trading is not generally
intended, but occasional investments may be made for the purpose of seeking
short-term or medium-term gain. The Fund expects its investment objective to be
met over long periods which may include several market cycles. For a description
of certain investment risks associated with foreign securities, see "Risk
Factors."
For temporary defensive purposes, the World Fund may invest in the same
kinds of securities as the other Growth-Oriented Funds whether issued by
domestic or foreign corporations, governments, or governmental agencies,
instrumentalities or political subdivisions and whether denominated in United
States dollars or some other currency.
The Fund intends that its investments normally will be allocated among
various countries. Although there is no limitation on the percentage of assets
that may be invested in any one country or denominated in any one currency, the
Fund intends under normal market conditions to have at least 65% of its assets
invested in securities issued by corporations of at least three countries, one
of which may be the United States. Investments may be made anywhere in the
world, but it is expected that primary consideration will be given to investing
in the securities issued by corporations of Western Europe, North America and
Australasia (Australia, Japan and Far East Asia) that have developed economies.
Changes in investments may be made as prospects change for particular countries,
industries or companies.
The Fund may invest in the securities of other investment companies but may
not invest more than 10% of its assets in securities of other investment
companies, invest more than 5% of its total assets in the securities of any one
investment company, or acquire more than 3% of the outstanding voting securities
of any one investment company except in connection with a merger, consolidation
or plan of reorganization. The Fund's Manager will waive its management fee on
the Fund's assets invested in securities of other open-end investment companies.
The Fund will generally invest only in those investment companies that have
investment policies requiring investment in securities comparable in quality to
those in which the Fund invests.
INCOME-ORIENTED FUNDS
The Princor Funds that offer Class R shares currently include four Funds
which seek a high level of income through investments in fixed-income securities
and one fund which seeks current income and long-term growth of income and
capital through investments in equity and fixed-income securities of public
utilities companies. These Funds are Princor Bond Fund, Princor Government
Securities Income Fund, Princor High Yield Fund, Princor Short-Term Bond Fund
and Princor Utilities Fund, collectively referred to as the "Income-Oriented
Funds." Each Fund has rating limitations with regard to the quality of
securities that may be held in the portfolio. The rating limitations apply at
the time of acquisition of a security and any subsequent change in a rating by a
rating service will not require elimination of a security from the Fund's
portfolio. The Statement of Additional Information contains descriptions of the
ratings of Moody's Investors Service, Inc. ("Moody's") and Standard and Poor's
Corporation ("S&P").
Princor Bond Fund
The investment objective of Princor Bond Fund is to provide as high a level
of income as is consistent with preservation of capital and prudent investment
risk.
In seeking to achieve the investment objective, the Fund will predominantly
invest in marketable fixed-income securities. Investments will be made generally
on a long-term basis, but the Fund may make short-term investments from time to
time as deemed prudent by the Manager. Longer maturities typically provide
better yields but will subject the Fund to a greater possibility of substantial
changes in the values of its portfolio securities as interest rates change.
Under normal circumstances, the Fund will invest at least 65% of its assets
in bonds in one or more of the following categories: (i) corporate debt
securities and taxable municipal obligations, which at the time of purchase have
an investment grade rating within the four highest grades used by S&P (AAA, AA,
A or BBB) or by Moody's (Aaa, Aa, A or Baa) or which, if nonrated, are
comparable in quality in the opinion of the Fund's Manager; (ii) similar
Canadian corporate, Provincial and Federal Government securities payable in U.S.
funds; and (iii) securities issued or guaranteed by the United States Government
or its agencies or instrumentalities. The balance of the Fund's assets may be
invested in the following securities: domestic and foreign corporate debt
securities, preferred stocks, common stocks that provide returns that compare
favorably with the yields on fixed income investments, common stocks acquired
upon conversion of debt securities or preferred stocks or upon exercise of
warrants acquired with debt securities or otherwise and foreign government
securities. The debt securities and preferred stocks in which the Fund invests
may be convertible or nonconvertible. Securities rated below BBB or Baa are
commonly referred to as junk bonds. The Fund does not intend to purchase debt
securities rated lower than Ba3 by Moody's or BB- by S&P (bonds which are judged
to have speculative elements; their future cannot be considered as
well-assured). The rating services' descriptions of BBB or Baa securities are as
follows: Moody's Investors Service, Inc. Bond Ratings -- Baa: Bonds which are
rated Baa are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well. Standard & Poor's Corporation Bond Ratings -- BBB: Debt
rated "BBB" is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than for debt in higher-rated categories. See the discussion of the Princor High
Yield Fund for information concerning risks associated with below investment
grade bonds.
During the fiscal year ended October 31, 1995, the percentage of the Fund's
portfolio securities invested in the various ratings established by Moody's,
based upon the weighted average ratings of the portfolio, was as follows:
Moody's Rating Portfolio Percentage
Aa .97%
A 16.78
Baa 78.67
Ba 1.92
B 1.66
The above percentage for A rated securities include .39% of unrated
securities which have been determined by the Manager to be of comparable
quality.
Cash equivalents in which the Fund invests include corporate commercial
paper rated A-1+, A-1 or A-2 by S&P or P-1 or P-2 by Moody's, unrated commercial
paper issued by corporations with outstanding debt securities rated in the four
highest grades by S&P and Moody's and bank certificates of deposit and bankers'
acceptances issued or guaranteed by national or state banks and repurchase
agreements considered by the Fund to have investment quality. Under unusual
market or economic conditions, the Fund for temporary defensive purposes may
invest up to 100% of its assets in cash or cash equivalents.
Princor Government Securities Income Fund
The objective of Princor Government Securities Income Fund is a high level
of current income, liquidity and safety of principal.
The Fund will invest in obligations issued or guaranteed by the United
States Government or by its agencies or instrumentalities and in repurchase
agreements collateralized by such obligations. Such securities include
Government National Mortgage Association ("GNMA") Certificates of the modified
pass-through type, Federal National Mortgage Association ("FNMA") Obligations,
Federal Home Loan Mortgage Corporation ("FHLMC") Certificates and Student Loan
Marketing Association ("SLMA") Certificates and other U.S. Government
Securities. GNMA is a wholly-owned corporate instrumentality of the United
States whose securities and guarantees are backed by the full faith and credit
of the United States. FNMA, a federally chartered and privately-owned
corporation, FHLMC, a federal corporation, and SLMA, a government sponsored
stockholder-owned organization, are instrumentalities of the United States. The
securities and guarantees of FNMA, FHLMC and SLMA are not backed, directly or
indirectly, by the full faith and credit of the United States. Although the
Secretary of the Treasury of the United States has discretionary authority to
lend FNMA up to $2.25 billion outstanding at any time, neither the United States
nor any agency thereof is obligated to finance FNMA's or FHLMC's operations or
to assist FNMA or FHLMC in any other manner. The Fund may maintain reasonable
amounts of cash or short-term debt securities not issued or guaranteed by the
U.S. Government or its agencies or instrumentalities for daily cash management
purposes or pending selection of long-term investments.
Depending on market conditions, a substantial portion of the assets may be
invested in GNMA Certificates of the modified pass-through type and in
repurchase agreements collateralized by such obligations. GNMA is a United
States Government corporation within the Department of Housing and Urban
Development. GNMA Certificates are mortgage-backed securities representing an
interest in a pool of mortgage loans. Such loans are made by lenders such as
mortgage bankers, insurance companies, commercial banks and savings and loan
associations. Then, they are either insured by the Federal Housing
Administration (FHA) or they are guaranteed by the Veterans Administration (VA)
or Farmers Home Administration (FmHA). The lender or other prospective issuer
creates a specific pool of such mortgages, which it submits to GNMA for
approval. After approval, a GNMA Certificate is typically offered by the issuer
to investors through securities dealers.
GNMA Certificates differ from bonds in that the principal is scheduled to be
paid back by the borrower on a monthly basis over the life of the loan rather
than returned in a lump sum at maturity. Modified pass-through GNMA
Certificates, which are the only kind in which the Fund intends to invest,
entitle the holder to receive all interest and principal payments owed on the
mortgages in the pool (net of the issuer and GNMA fee of .5% prescribed by
regulation), regardless of whether or not the mortgagor has made such payment.
The timely payment of interest and principal is guaranteed by the full faith and
credit of the United States Government.
Although the payment of interest and principal is guaranteed, the guarantee
does not extend to the value of a GNMA Certificate or the value of the shares of
the Fund. The market value of a GNMA Certificate typically will fluctuate to
reflect changes in prevailing interest rates. It falls when rates increase (as
does the market value of other debt securities) and it rises when rates decline
(but it may not rise on a comparable basis with other debt securities because of
its prepayment feature), and, therefore, may be more or less than the face
amount of the GNMA Certificate, which reflects the aggregate principal amount of
the underlying mortgages. As a result the net asset value of Fund shares will
fluctuate as interest rates change.
Mortgagors may pay off their mortgages at any time. Expected prepayments of
the mortgages can affect the market value of the GNMA Certificate, and actual
prepayments can affect the return ultimately received. Prepayments, like
scheduled payments of principal, are reinvested by the Fund at prevailing
interest rates which may be less than the rate on the GNMA Certificate.
Prepayments are likely to increase as the interest rate for new mortgages moves
lower than the rate on the GNMA Certificate. Moreover, if the GNMA Certificate
had been purchased at a premium above principal because its rate exceeded
prevailing rates, the premium is not guaranteed and a decline in value to par
may result in a loss of the premium especially in the event of prepayment.
The FNMA and FHLMC securities in which the Fund invests are very similar to
GNMA certificates as described above but are not guaranteed by the full faith
and credit of the United States but rather by the agency itself. FNMA and FHLMC
securities are rated Aaa by Moody's and AAA by Standard & Poor's. These ratings
reflect the status of FNMA and FHLMC as federal agencies as well as the
important role each plays in financing purchases of homes in the U.S.
Student Loan Marking Association is a government sponsored stockholder-owned
organization whose goal is to provide liquidity to financial and educational
institutions. SLMA provides liquidity by purchasing student loans, which are
principally government guaranteed loans issued under the Federal Guaranteed
Student Loan Program and the Health Education Assistance Loan Program. SLMA
securities are not guaranteed by the U.S. Government but are obligations solely
of the agency. SLMA senior debt issues in which the Fund invests are rated AAA
by Standard & Poor's and Aaa by Moody's.
There are other obligations issued or guaranteed by the United States
Government (such as U.S. Treasury securities) or by its agencies or
instrumentalities that are either supported by the full faith and credit of the
U.S. Treasury or the credit of a particular agency or instrumentality. Included
in the latter category are Federal Home Loan Bank and Farm Credit Banks.
Obligations not guaranteed by the United States Government are highly rated
because they are issued by indirect branches of government. Such paper is issued
as needs arise by an agency and is traded regularly in denominations similar to
those in which government obligations are traded.
The Fund will not engage in the trading of securities for the purpose of
realizing short-term profits, but it will adjust its portfolio as considered
advisable in view of prevailing or anticipated market conditions and the Fund's
investment objective. Accordingly, the Fund may sell portfolio securities in
anticipation of a rise in interest rates and purchase securities for inclusion
in its portfolio in anticipation of a decline in interest rates.
As a hedge against changes in interest rates, the Fund may enter into
contracts with dealers in GNMA Certificates whereby the Fund agrees to purchase
or sell an agreed-upon principal amount of GNMA Certificates at a specified
price on a certain date. The Fund may enter into similar purchase agreements
with issuers of GNMA Certificates other than Principal Mutual Life Insurance
Company. The Fund may also purchase optional delivery standby commitments which
give the Fund the right to sell particular GNMA Certificates at a specified
price on a specified date. Failure of the other party to such a contract or
commitment to abide by the terms thereof could result in a loss to the Fund. To
the extent the Fund engages in delayed delivery transactions it will do so for
the purpose of acquiring portfolio securities consistent with its investment
objective and policies and not for the purpose of investment leverage or to
speculate on interest rate changes. Liability accrues to the Fund at the time it
becomes obligated to purchase such securities, although delivery and payment
occur at a later date. From the time the Fund becomes obligated to purchase
securities on a delayed delivery basis, the Fund has all the rights and risks
attendant to the ownership of a security except that no interest accrues to the
purchaser until delivery. At the time the Fund enters into a binding obligation
to purchase such securities, Fund assets of a dollar amount sufficient to make
payment for the securities to be purchased will be segregated. The availability
of liquid assets for this purpose and the effect of asset segregation on the
Fund's ability to meet its current obligations, to honor requests for redemption
and to have its investment portfolio managed properly will limit the extent to
which the Fund may engage in forward commitment agreements. Except as may be
imposed by these factors, there is no limit on the percent of the Fund's total
assets that may be committed to transactions in such agreements.
Princor High Yield Fund
Princor High Yield Fund's primary investment objective is high current
income. Capital growth is a secondary objective when consistent with the
objective of high current income. This Fund is designed for investors willing to
assume additional risk in return for above average income.
In seeking to attain the Fund's objective of high current income, the Fund
invests primarily in high yielding, lower or nonrated fixed-income securities
(commonly known as "junk bonds"), constituting a diversified portfolio which the
Fund Manager believes does not involve undue risk to income or principal.
Normally, at least 80% of the Fund's assets will be invested in debt securities,
convertible securities (both debt and preferred stock) or preferred stocks that
are consistent with its primary investment objective of high current income. The
Fund's remaining assets may be invested in common stocks and other equity
securities in which the Growth-Oriented Funds may invest when these types of
investments are consistent with the objective of high current income.
The Fund seeks to invest its assets in securities rated Ba1 or lower by
Moody's or BB+ or lower by S&P or in unrated securities which the Fund's Manager
believes are of comparable quality. These securities are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
interest and to repay principal in accordance with the terms of the obligation.
The Fund will not invest in securities rated below Caa by Moody's and below CCC
by S&P.
The rating services' descriptions of securities rating categories in which
the Fund may normally invest are as follows:
Moody's Investors Service, Inc. Bond Ratings - Ba: Bonds which are rated Ba
are judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class. B:
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Moody's may apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and a modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Standard & Poor's Corporation Bond Ratings - BB, B, CCC, CC: Debt rated
"BB", "B", "CCC" and "CC" is regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Plus (+) or Minus (-): The ratings from "AA" to "BB" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
The higher-yielding, lower-rated securities in which the High Yield Fund
invests present special risks to investors. The market value of lower-rated
securities may be more volatile than that of higher-rated securities and
generally tends to reflect the market's perception of the creditworthiness of
the issuer and short-term market developments to a greater extent than more
highly-rated securities, which reflect primarily fluctuations in general levels
of interest rates. Periods of economic uncertainty and change can be expected to
result in increased volatility in the market value of lower-rated securities.
Further, such securities may be subject to greater risks of loss of income and
principal, particularly in the event of adverse economic changes or increased
interest rates, because their issuers generally are not as financially secure or
as creditworthy as issuers of higher-rated securities. Additionally, to the
extent that there is not a national market system for secondary trading of
lower-rated securities, there may be a low volume of trading in such securities
which may make it more difficult to value or sell those securities than
higher-rated securities. Adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may decrease the values and liquidity of high
yield securities, especially in a thinly traded market.
Investors should recognize that the market for higher-yielding, lower-rated
securities is a relatively recent development that has not been tested by an
economic recession. An economic downturn may severely disrupt the market for
such securities and cause financial stress to the issuers which may adversely
affect the value of the securities held by the High Yield Fund and the ability
of the issuers of the securities held by it to pay principal and interest. A
default by an issuer may result in the Fund incurring additional expenses to
seek recovery of the amounts due it.
Some of the securities in which the Fund invests contain call provisions. If
the issuer of such a security exercises a call provision in a declining interest
rate market, the Fund would have to replace the security with a lower-yielding
security, resulting in a decreased return for investors. Further, a
higher-yielding security's value will decrease in a rising interest rate market,
which will be reflected in the Fund's net asset value per share.
Investors should carefully consider their ability to assume the risks of
investing in lower-rated securities before making an investment in the Fund, and
should be prepared to maintain their investment during periods of adverse market
conditions. Investors should not rely on the Fund for their short-term financial
needs.
The Fund seeks to minimize the risks of investing in lower-rated securities
through diversification, investment analysis and attention to current
developments in interest rates and economic conditions. Because the Fund invests
primarily in securities in the lower rating categories, the achievement of the
Fund's goals is more dependent on the Manager's ability than would be the case
if the Fund were investing in securities in the higher rating categories.
Although the Fund's Manager considers security ratings when making investment
decisions, it performs its own investment analysis and does not rely principally
on the ratings assigned by the rating services. There are risks in applying
credit ratings as a method for evaluating high yield securities. For example,
credit ratings evaluate the safety of principal and interest payments, not the
market value risk of high yield securities, and credit rating agencies may fail
to make timely changes in credit ratings to reflect subsequent events. The
Manager's analysis includes traditional security analysis considerations such as
the issuer's experience and managerial strength, changing financial condition,
borrowing requirements or debt maturity schedules, and its responsiveness to
changes in business conditions and interest rates. It also considers relative
values based on anticipated cash flow, interest or dividend coverage, asset
coverage and earnings prospects. In addition, the Manager analyzes general
business conditions and other factors such as anticipated changes in economic
activity and interest rates, the availability of new investment opportunities,
and the economic outlook for specific industries. The Manager continuously
monitors the issuers of portfolio securities to determine if the issuers will
have sufficient cash flow and profits to meet required principal and interest
payments and to assure the securities' liquidity so the Fund can meet redemption
requests. During the fiscal year ended October 31, 1995, the percentage of the
Fund's portfolio securities invested in the various ratings established by
Moody's, based upon the weighted average ratings of the portfolio, was as
follows:
Moody's Rating Portfolio Percentage
Baa 2.27%
Ba 41.53
B 55.72
C .48
The above percentages for Ba and B rated securities include unrated
securities in the amount of .65% and .34%, respectively, which have been
determined by the Manager to be of comparable quality.
There may be times when, in the Manager's judgment, unusual market or
economic conditions make pursuing the Fund's basic investment strategy
inconsistent with the best interests of its shareholders. At such times the
Manager may employ alternative strategies, primarily seeking to reduce
fluctuations in the value of the Fund's assets. In implementing these
"defensive" strategies, the Fund may temporarily invest in money-market
instruments of all types, higher-rated fixed-income securities or any other
fixed-income securities that the Fund considers consistent with such strategy.
The yield to maturity on these securities would generally be lower than the
yield to maturity on lower-rated fixed-income securities. It is impossible to
predict when, or for how long, such alternative strategies will be utilized.
The Fund's Manager buys and sells securities for the Fund principally in
response to its evaluation of an issuer's continuing ability to meet its
obligations, the availability of better investment opportunities, and its
assessment of changes in business conditions and interest rates. From time to
time, consistent with its investment objectives, the Fund may sell securities
that have appreciated in value because of declines in interest rates. It may
also trade securities for the purpose of seeking short-term profits. Securities
may be sold in anticipation of a market decline or bought in anticipation of a
market rise. They may also be traded for securities of comparable quality and
maturity to take advantage of perceived short-term disparities in market values
or yields.
Princor Short-Term Bond Fund
The objective of Princor Short-Term Bond Fund is to seek a high level of
current income consistent with a relatively high level of principal stability by
investing in a portfolio of securities with a dollar weighted average maturity
of five years or less. The Fund seeks to achieve its objective by investing
primarily in high grade, short-term debt securities.
The Fund will invest, under normal circumstances, at least 80% of its total
assets in securities issued or guaranteed by the United States ("U.S.")
Government or its agencies or instrumentalities (as described in the discussion
of Princor Government Securities Income Fund) and other debt securities of U.S.
issuers rated within the three highest grades used by Standard & Poor's (AAA, AA
or A) or by Moody's (Aaa, Aa, or A) or which, if nonrated, are comparable in
quality in the opinion of the Fund's Manager. The balance of the Fund's assets
may be invested in debt securities rated in the fourth highest grade by the
major rating services (i.e., at least "Baa" by Moody's Investors Service or
"BBB" by Standard & Poor's Corporation, or their equivalents) or, if not rated,
judged to be of comparable quality. Securities rated BBB or Baa are considered
investment grade securities having adequate capacity to pay interest and repay
principal. Such securities may have speculative characteristics, however, and
changes in economic and other conditions are more likely to lead to a weakened
capacity of the issuer of such securities to make principal and interest
payments than is the case with higher rated securities. Under normal
circumstances, the Fund will maintain a dollar weighted average maturity of not
more than five years. In determining the average maturity of the Fund's
portfolio, the Manager may adjust the maturity dates on callable or prepayable
securities to reflect the Manager's judgment regarding the likelihood of such
securities being called or prepaid.
The Fund may also invest in other debt securities including corporate debt
securities such as bonds, notes and debentures, mortgage-backed securities
including collateralized mortgage obligations and other asset-backed securities.
For a more complete description of asset-backed securities, see "Princor
Government Securities Income Fund" discussion.
Cash equivalents in which the Fund invests include corporate commercial
paper rated A-1+, A-1 or A-2 by S&P or P-1 or P-2 by Moody's, unrated commercial
paper issued by corporations with outstanding debt securities rated in the four
highest grades by S&P and Moody's and bank certificates of deposit and bankers'
acceptances issued or guaranteed by national or state banks and repurchase
agreements considered by the Fund to have investment quality. Under unusual
market or economic conditions, the Fund for temporary defensive purposes may
invest up to 100% of its assets in cash or cash equivalents.
Princor Utilities Fund
The investment objective of Princor Utilities Fund is to provide current
income and long-term growth of income and capital. The Fund seeks to achieve its
investment objective by investing primarily in equity and fixed-income
securities of companies engaged in the public utilities industry. The term
"public utilities industry" consists of companies engaged in the manufacture,
production, generation, transmission, sale and distribution of gas and electric
energy, as well as companies engaged in the communications field, including
telephone, telegraph, satellite, microwave and other companies providing
communication facilities for the public, but excluding public broadcasting
companies. For purposes of the Fund, a company will be considered to be in the
public utilities industry if, during the most recent twelve-month period, at
least 50% of the company's gross revenues, on a consolidated basis, is derived
from the public utilities industry. Under normal market conditions, the Fund, as
an investment policy, will invest at least 65%, and may invest up to 100%, of
its total assets in securities of companies in the public utilities industry,
and as a matter of fundamental policy will invest no less than 25% of its total
assets in those securities. As a non-fundamental policy, the Fund may not own
more than 5% of the outstanding voting securities of more than one public
utility company as defined by the Public Utility Holding Company Act of 1935.
The Fund invests in both equity securities (as defined previously under
"Growth-Oriented Funds") and fixed- income securities (bonds and preferred
stock) in the public utilities industry. The Fund does not have any set policies
to concentrate within any particular segment of the utilities industry. The Fund
will shift its asset allocation without restriction between types of utilities
and between equity and fixed-income securities based upon the Manager's
determination of how to achieve the Fund's investment objective in light of
prevailing market, economic and financial conditions. For example, at a
particular time the Manager may choose to allocate up to 100% of the Fund's
assets in a particular type of security (for example, equity securities) or in a
specific utility industry segment (for example, electric utilities).
Fixed-income securities in which the Fund may invest are debt securities and
preferred stocks, which are rated at the time of purchase Baa or better by
Moody's or BBB or better by S&P, or which, if unrated, are deemed to be of
comparable quality by the Fund's Manager. A description of corporate bond
ratings is contained in the Appendix to the Statement of Additional Information.
The rating services' descriptions of Baa or BBB securities are as follows:
Moody's Investors Service, Inc. Bond ratings -- Baa: Bonds which are rated Baa
are considered as medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Standard and Poor's Corporation Bond Ratings -- BBB:
Debt rated "BBB" is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than for debt in higher-rated categories.
If a fixed-income security held by the Fund is rated BBB or Baa and is
subsequently down graded by a rating agency, the Fund will retain such security
in its portfolio until the Manager determines that it is practicable to sell the
security without undue market or tax consequences to the Fund.
While the Fund will invest primarily in the securities of public utility
companies, it may invest up to 35% of its total assets in those securities that
are permissible investments for the Balanced Fund. See "Princor Balanced Fund"
and "Certain Investment Policies and Restrictions." However the Fund will not
invest in fixed-income securities rated below Baa by Moody's or BBB by S&P.
When in the opinion of the Manager current market or economic conditions
warrant, the Fund may for temporary defensive purposes place all or a portion of
its assets in cash, on which the Fund would earn no income, cash equivalents,
bank certificates of deposit, bankers acceptances, repurchase agreements,
commercial paper, commercial paper master notes or United States Government
securities. When investing for temporary defensive purposes the Fund is not
investing so as to achieve its investment objective. The Fund may also maintain
reasonable amounts of cash or short-term debt securities for daily cash
management purposes or pending selection of particular long-term investments.
The public utilities industry as a whole has certain characteristics and
risks particular to that industry. Unlike industrial companies, the rates which
utility companies may charge their customers generally are subject to review and
limitation by governmental regulatory commissions. Although rate changes of a
utility usually fluctuate in approximate correlation with financing costs, due
to political and regulatory factors rate changes ordinarily occur only following
a delay after the changes in financing costs. This factor will tend to favorably
affect a utility company's earnings and dividends in times of decreasing costs,
but conversely will tend to adversely affect earnings and dividends when costs
are rising. In addition, the value of public utility debt securities (and, to a
lesser extent, equity securities) tends to have an inverse relationship to the
movement of interest rates.
Among the risks affecting the utilities industry are the following: risks of
increases in fuel and other operating costs; the high cost of borrowing to
finance capital construction during inflationary periods; restrictions on
operations and increased costs and delays associated with compliance with
environmental and nuclear safety regulations; the difficulties involved in
obtaining natural gas for resale or fuel for generating electricity at
reasonable prices; the risks in connection with the construction and operation
of nuclear power plants; the effects of energy conservation and effects of
regulatory changes, such as the possible adverse effects on profits of recent
increased competition among telecommunications companies and the uncertainties
resulting from such companies' diversification into new domestic and
international businesses, as well as agreements by many such companies linking
future rate increases to inflation or other factors not directly related to the
actual operating profits of the enterprise.
MONEY MARKET FUND
The Princor Funds currently include one Fund which seeks a high level of
income through investments in short-term securities. This Fund is Princor Cash
Management Fund referred to as the "Money Market Fund." Securities in which the
Princor Cash Management Fund will invest may not yield as high a level of
current income as securities of lower quality and longer maturities which
generally have less liquidity, greater market risk and more fluctuation.
The Fund will limit its portfolio investments to United States dollar
denominated instruments that the Manager, subject to the oversight of the Board
of Directors, determines present minimal credit risks and which at the time of
acquisition are "Eligible Securities" as that term is defined in regulations
issued under the Investment Company Act of 1940. Eligible Securities include:
(1) A security with a remaining maturity of 397 days or less that is rated
(or that has been issued by an issuer that is rated in respect to a
class of short-term debt obligations, or any security within that class,
that is comparable in priority and security with the security) by a
nationally recognized statistical rating organization in one of the two
highest rating categories for short-term debt obligations; or
(2) A security that at the time of issuance was a long-term security with a
remaining maturity of 397 calendar days or less, and whose issuer has
received from a nationally recognized statistical rating organization a
rating, with respect to a class of short-term debt obligations (or any
security within that class) that is now comparable in priority and
security with the security, in one of the two highest rating categories
for short-term debt obligations; or
(3) an unrated security that is of comparable quality to a security
meeting the requirements of (1) or (2) above, as determined by the
board of directors.
Princor Cash Management Fund will not invest more than 5% of its total
assets in the following securities:
(1) Securities which, when acquired by the Fund (either initially or upon
any subsequent rollover), are rated in the second highest rating
category for short-term debt obligations;
(2) Securities which at the time of issuance were long-term securities but
when acquired by the Fund have a remaining maturity of 397 calendar days
or less, if the issuer of such securities is rated, with respect to a
class of comparable short-term debt obligations, in the second highest
rating category for short-term obligations; and
(3) Securities which are unrated but are determined by the Fund's Board of
Directors to be of comparable quality to securities rated in the second
highest rating category for short-term debt obligations.
The Fund will maintain a dollar-weighted average portfolio maturity of 90
days or less. The Fund intends to hold its investments until maturity, but may
on occasion trade securities to take advantage of market variations. Also,
revised valuations of an issuer or redemptions may result in sales of portfolio
investments prior to maturity or at a time when such sales might otherwise not
be desirable. The Fund's right to borrow to facilitate redemptions may reduce
the need for such sales. The sale of portfolio securities would be a taxable
event. See "Tax Treatment of the Funds, Dividends and Distributions." It is the
policy of the Fund to be as fully invested as reasonably practical at all times
to maximize current income.
Since portfolio assets of the Fund will consist of short-term instruments,
replacement of portfolio securities will occur frequently. However, since this
Fund expects to usually transact purchases and sales of portfolio securities
with issuers or dealers on a net basis, it is not anticipated that the Fund will
pay any significant brokerage commissions. The Fund is free to dispose of
portfolio securities at any time, when changes in circumstances or conditions
make such a move desirable in light of its investment objective.
The objective of Princor Cash Management Fund is to seek as high a level of
current income available from short-term securities as is considered consistent
with preservation of principal and maintenance of liquidity by investing its
assets in a portfolio of money market instruments. These money market
instruments are U.S. Government Securities, U.S. Government Agency Securities,
Bank Obligations, Commercial Paper, Short-term Corporate Debt and Repurchase
Agreements, which are described briefly below and in more detail in the
Statement of Additional Information.
U.S. Government Securities are securities issued or guaranteed by the U.S.
Government, including treasury bills, notes and bonds.
U.S. Government Agency Securities are obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government whether supported by the
full faith and credit of the U.S. Treasury or only by the credit of a particular
agency or instrumentality.
Bank Obligations consist of certificates of deposit which are generally
negotiable certificates issued against funds deposited in a commercial bank for
a definite period of time and earning a specified return and bankers acceptances
which are time drafts drawn on a commercial bank by a borrower, usually in
connection with international commercial transactions.
Commercial Paper is short-term promissory notes issued by corporations
primarily to finance short-term credit needs.
Short-term Corporate Debt consists of notes, bonds or debentures which at
the time of purchase have one year or less remaining to maturity.
Repurchase Agreements are transactions under which securities are purchased
from a bank or securities dealer with an agreement by the seller to repurchase
the securities at the same price plus interest at a specified rate. Generally,
Repurchase Agreements are of short duration, usually less than a week but on
occasion for longer periods.
CERTAIN INVESTMENT POLICIES AND RESTRICTIONS
Following is a discussion of certain investment practices that the Funds may
use in an effort to achieve their respective investment objectives.
Repurchase Agreements/Lending Portfolio Securities
Each of the Funds may enter into repurchase agreements with, and each of the
Funds, except the Capital Accumulation Fund, Growth Fund and Cash Management
Fund, may lend its portfolio securities to, unaffiliated broker-dealers and
other unaffiliated qualified financial institutions. These transactions must be
fully collateralized at all times, but involve some credit risk to the Fund if
the other party should default on its obligations, and the Fund is delayed or
prevented from recovering on the collateral. See the Statement of Additional
Information for further information regarding the credit risks associated with
repurchase agreements and the standards adopted by each Fund's Board of
Directors to deal with those risks. None of the Funds intends either (i) to
enter into repurchase agreements that mature in more than seven days if any such
investment, together with any other illiquid securities held by the Fund, would
amount to more than 15% (10% for the Government Securities Income Fund) of its
total assets or (ii) to lend securities in excess of 30% of its total assets.
Forward Commitments
From time to time, each of the Income-Oriented Funds and the Balanced Fund
may enter into forward commitment agreements which call for the Fund to purchase
or sell a security on a future date and at a price fixed at the time the Fund
enters into the agreement. Each of these Funds may also acquire rights to sell
its investments to other parties, either on demand or at specific intervals.
Warrants
Each of the Funds, except the Cash Management Fund and Government Securities
Income Fund, may invest in warrants up to 5% of its assets, of which not more
than 2% may be invested in warrants that are not listed on the New York or
American Stock Exchange. For the World Fund, the 2% limitation also applies to
warrants not listed on the Toronto Stock Exchange.
Borrowing
As a matter of fundamental policy, each Fund may borrow money only for
temporary or emergency purposes. Each of the Funds, except the Balanced Fund,
Blue Chip Fund, Bond Fund, Emerging Growth Fund, Government Securities Income
Fund, High Yield Fund, Short-Term Bond Fund, Utilities Fund and World Fund, may
borrow only from banks. Further, each Fund may borrow only in an amount not
exceeding 5% of its assets, except:
(1) the Capital Accumulation Fund and Growth Fund, each of which may borrow
only in an amount not exceeding the lesser of (i) 5% of the value of its
assets less liabilities other than such borrowings, or (ii) 10% of its
assets taken at cost at the time the borrowing is made; and
(2) the Cash Management Fund which may borrow only in an amount not
exceeding the lesser of (i) 5% of the value of its assets, or (ii) 10%
of the value of its net assets taken at cost at the time the borrowing
is made.
Options
The Balanced Fund, Blue Chip Fund, Bond Fund, Emerging Growth Fund,
Government Securities Income Fund, High Yield Fund, Short-Term Bond Fund,
Utilities Fund and World Fund may purchase covered spread options, which would
give the Fund the right to sell a security that it owns at a fixed dollar spread
or yield spread in relationship to another security that the Fund does not own,
but which is used as a benchmark. These same Funds may also purchase and sell
financial futures contracts, options on financial futures contracts and options
on securities and securities indices, but will not invest more than 5% of their
assets in the purchase of options on securities, securities indices and
financial futures contracts or in initial margin and premiums on financial
futures contracts and options thereon. The Funds may write options on securities
and securities indices to generate additional revenue and for hedging purposes
and may enter into transactions in financial futures contracts and options on
those contracts for hedging purposes.
General
The Statement of Additional Information includes further information
concerning the Funds' investment policies and applicable investment
restrictions. The investment objectives of the Funds are fundamental and certain
investment restrictions designated as such in this Prospectus or in the
Statement of Additional Information are fundamental policies that may not be
changed without approval by the holders of the lesser of: (i) 67% of the Fund's
shares present or represented at a shareholders' meeting at which the holders of
more than 50% of such shares are present or represented by proxy; or (ii) more
than 50% of the outstanding shares of the Fund. All other investment policies
described in this Prospectus and the Statement of Additional Information are not
fundamental and may be changed by the Board of Directors of the appropriate Fund
without shareholder approval.
RISK FACTORS
An investment in any of the Growth-Oriented Funds involves the financial
and market risks that are inherent in any investment in equity securities. These
risks include changes in the financial condition of issuers, in economic
conditions generally and in the conditions in securities markets. They also
include the extent to which the prices of securities will react to those
changes.
An investment in any of the Income-Oriented Funds involves market risks
associated with movements in interest rates. The market value of the Funds'
investments will fluctuate in response to changes in interest rates and other
factors. During periods of falling interest rates, the values of outstanding
long-term fixed-income securities generally rise. Conversely, during periods of
rising interest rates, the values of such securities generally decline. Changes
by recognized rating agencies in their ratings of any fixed-income security and
in the ability of an issuer to make payments of interest and principal may also
affect the value of these investments. Changes in the value of portfolio
securities will affect the Funds' net asset values but will not affect cash
income derived from the securities unless a change results from a failure of an
issuer to pay interest or principal when due.
The yields on an investment in the Cash Management Fund will vary with
changes in short-term interest rates. In addition, the investments of the Cash
Management Fund are subject to the ability of the issuer to pay interest and
principal when due.
Each of the following Princor Funds may invest in foreign securities to the
indicated percentage of its assets: World Fund - 100%; Balanced, Blue Chip,
Bond, Capital Accumulation, Emerging Growth, High Yield, Short-Term Bond Fund,
and Utilities Funds - 20%. The Government Securities Income Fund may not invest
in foreign securities. Investment in foreign securities presents certain risks
which may affect a Fund's net asset value. These risks include, but are not
limited to, those resulting from fluctuations in currency exchange rates,
revaluation of currencies, the imposition of foreign taxes, the withholding of
taxes on dividends at the source, political and economic developments including
war, expropriations, nationalization, the possible imposition of currency
exchange controls and other foreign governmental laws or restrictions, reduced
availability of public information concerning issuers, and the fact that foreign
issuers are not generally subject to uniform accounting, auditing and financial
reporting standards or to other regulatory practices and requirements comparable
to those applicable to domestic issuers. Moreover, securities of many foreign
issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers. In addition, transactions in foreign securities may
be subject to higher costs, and the time for settlement of transactions in
foreign securities may be longer than the settlement period for domestic
issuers. A Fund's investment in foreign securities may also result in higher
custodial costs and the costs associated with currency conversions.
HOW THE FUNDS ARE MANAGED
Under Maryland law, the business and affairs of each of the Funds are
managed under the direction of its Board of Directors. Investment services and
certain other services are furnished to the Funds under the terms of a
Management Agreement between each of the Funds and the Manager. The Manager for
the Funds is Princor Management Corporation (the "Manager"), an indirectly
wholly-owned subsidiary of Principal Mutual Life Insurance Company, a mutual
life insurance company organized in 1879 under the laws of the State of Iowa.
The address of the Manager is The Principal Financial Group, Des Moines, Iowa
50392. The Manager was organized on January 10, 1969, and since that time has
managed various mutual funds sponsored by Principal Mutual Life Insurance
Company. As of October 31, 1995, the Manager served as investment advisor for 26
such funds with assets totaling approximately $2.8 billion.
The Manager has executed an agreement with Invista Capital Management, Inc.
("Invista") under which Invista has agreed to assume the obligations of the
Manager to provide investment advisory services for each of the Growth-Oriented
Funds, the Government Securities Income Fund, Short-Term Bond Fund, and
Utilities Fund. The Manager will reimburse Invista for the cost of providing
these services. Invista, an indirectly wholly-owned subsidiary of Principal
Mutual Life Insurance Company and an affiliate of the Manager, was founded in
1985 and manages investments for institutional investors, including Principal
Mutual Life. Assets under management at September 30, 1995 were approximately
$14.6 billion. Invista's address is 1500 Hub Tower, 699 Walnut, Des Moines, Iowa
50309.
The Manager or Invista advises the Funds on investment policies and on the
composition of the Funds' portfolios. In this connection, the Manager or Invista
furnishes to the Board of Directors of each Fund a recommended investment
program consistent with that Fund's investment objective and policies. The
Manager or Invista is authorized, within the scope of the approved investment
program, to determine which securities are to be bought or sold, and in what
amounts.
The Manager or Invista has assigned certain individuals the primary
responsibility for the day-to-day management of each Fund's portfolio. The
persons primarily responsible for the day-to-day management of each Fund are
identified in the table below:
<TABLE>
<CAPTION>
Primarily
Fund Responsible Since Person Primarily Responsible agement of each
<S> <C> <C>
Balanced April, 1993 Judith A. Vogel, CFA (BA degree, Central College). Vice President,
Invista Capital Management, Inc. since 1987.
Blue Chip March, 1991 Mark T. Williams, CFA (MBA degree, Drake University). Investment
(Fund's inception) Officer, Invista Capital Management, Inc., since 1992; Security Analyst
1989-1992. Prior thereto, Financial Analyst, Digital Equipment Corporation.
Bond December, 1987 Donald D. Brattebo (BBA degree, Upper Iowa University). Second Vice
(Fund's inception) President, Principal Mutual Life Insurance Company since 1990; Prior
thereto, Director, Investment Securities.
Capital October, 1969 David L. White, CFA (BBA degree, University of Iowa). Executive
Accumulation (Fund's inception) Vice President, Invista Capital Management, Inc. since 1984.
Emerging Growth December, 1987 Michael R. Hamilton, (MBA degree, Bellarmine College). Vice
and Growth (Fund's inception) President, Invista Capital Management, Inc. since 1987.
and August, 1987,
respectively
Government May, 1985 Martin J. Schafer (BBA degree, University of Iowa). Vice President,
Securities (Fund's inception) Invista Capital Management Company since 1992. Director - Securities Trading,
Income Principal Mutual Life Insurance Company 1992; Prior thereto, Associate Director.
High Yield December, 1987 James K. Hovey, CFA (MBA degree University of Iowa). Director -
(Fund's inception) Investment Securities, Principal Mutual Life Insurance
Company since 1990; Prior thereto, Assistant Director Investment Securities.
Short-Term Bond February, 1996 Martin J. Schafer (BBA degree, University of Iowa). Vice
(Fund's inception) President, Invista Capital Management Company since 1992. Director-Securities
Trading, Principal Mutual Life Insurance Company 1992; Prior thereto,
Associate Director.
Utilities April, 1993 Catherine A. Green, CFA, (MBA degree, Drake University). Vice
President, Invista Capital Management, Inc. since 1987.
World April, 1994 Scott D. Opsal, CFA, (MBA degree, University of Minnesota). Vice
President, Invista Capital Management, Inc. since 1987.
</TABLE>
Until August 1, 1988 the World Fund's portfolio was managed by Principal
Management, Inc. of Edmonton, Canada and Scottsdale, Arizona, which company has
changed its name to Sea Investment Management, Inc. The Fund's previous manager
and the current manager are unaffiliated. This change in managers should be kept
in mind when reviewing historical investment results.
For a description of the investment and other services provided by the
Manager, see "Cost of Manager's Services" in the Statement of Additional
Information. The management fee and total Class A share expenses incurred by
each Fund for the period ended October 31, 1995 were equal to the following
percentages of each Fund's respective average net assets:
<TABLE>
<CAPTION>
Total Total
Class A Share Class A Share
Manager's Annualized Manager's Annualized
Fund Fee Expenses Fund Fee Expenses
<S> <C> <C> <C> <C> <C>
Balanced .60% 1.37% Government Securities Income .46% .87%
Blue Chip .50% 1.38% Growth .48% 1.16%
Bond .50% .94%* High Yield .60% 1.45%
Capital Accumulation .45% .75% Utilities .60% 1.04%*
Cash Management .38% .72%* World .74% 1.63%
Emerging Growth .64% 1.47%
*After waiver.
</TABLE>
The Manager voluntarily waived a portion of its fee for the Bond, Cash
Management and Utilities Funds throughout the fiscal year ended October 31,
1995. The Manager intends to continue its voluntary waiver and, if necessary,
pay expenses normally payable by each of these Funds except the Utilities Fund,
through February 28, 1997 in an amount that will maintain a total level of
operating expenses which as a percentage of average net assets attributable to a
class on an annualized basis during that period will not exceed, for the Class A
shares, .95% for the Bond Fund and .75% for the Cash Management Fund, and for
the Class R shares, 1.70% for the Bond Fund and 1.75% for the Cash Management
Fund. The Manager continued its voluntary waiver for the Utilities Fund through
February 29, 1996 in an amount that maintained a total level of operating
expenses which as a percent of average net assets attributable to a class on an
annualized basis during the period did not exceed 1.10% for the Class A shares.
The effect of the waivers is and will be to reduce each Fund's annual operating
expenses and increase each Fund's yield.
The Manager's annual fee for the Short-Term Bond Fund is .50% of the Fund's
average net assets. The Manager intends to voluntarily waive its fee and, if
necessary, pay expenses normally payable by the Short-Term Bond Fund through
February 28, 1997 in such amounts that will maintain a total level of operating
expenses which as a percent of average net assets attributable to a class on an
annualized basis will not exceed .90% for Class A shares and 1.40% for Class R
shares.
The compensation being paid by the World Fund for investment management
services, which currently is equal, on an annual basis, to .75% of the average
daily value of the Fund's net assets, is higher than that paid by most funds to
their advisors, but it is not higher than the fees paid by many funds with
similar investment objectives and policies.
The Manager and Invista may purchase at their own expense statistical and
other information or services from outside sources, including Principal Mutual
Life Insurance Company. An Investment Service Agreement between each Fund, the
Manager, and Principal Mutual Life Insurance Company provides that Principal
Mutual Life Insurance Company will furnish certain personnel, services and
facilities required by the Manager in connection with its performance of the
Management Agreements, and that the Manager will reimburse Principal Mutual Life
Insurance Company for its costs incurred in this regard.
Among the expenses paid by each Fund are brokerage commissions on portfolio
transactions, the cost of stock issue and transfer and dividend disbursements,
administration of shareholder accounts, custodial fees, expenses of registering
and qualifying shares for sale after the initial registration, auditing and
legal expenses, fees and expenses of unaffiliated directors, the cost of
shareholder meetings and taxes and interest (if any).
The Funds may from time to time execute transactions for portfolio
securities with, and pay related brokerage commissions to, Principal Financial
Securities, Inc. ("PFS") and Morgan Stanley and Co., each a broker-dealer
affiliated with Princor and/or the Manager for each of the Funds. PFS also
provides distribution services for Princor Cash Management Fund for which it is
compensated by the Manager. These services include, but are not limited to,
providing office space, equipment, telephone facilities and various personnel as
necessary or beneficial to establish and maintain shareholder accounts. PFS
receives a fee from the Manager calculated as a percentage of the average net
asset value of shares of the Fund held in PFS client accounts during the period
for which PFS provides the services. During the fiscal years ended October 31,
1993, 1994, and 1995, PFS received fees in the amount of $516,939, $539,662, and
$991,520 respectively, in consideration of the services it rendered to the Cash
Management Fund.
The Manager serves as investment advisor, dividend disbursing agent and,
directly and through an affiliate, as transfer agent for each of the Funds
sponsored by Principal Mutual Life Insurance Company. The Funds reimburse the
Manager for the costs of providing these services.
HOW TO PURCHASE SHARES
Purchases are generally made by completing an Princor IRA application
included with this Prospectus and mailing it to Princor. Shares will be issued
at the offering price next computed after the application is received at
Princor's main office and Princor receives the amount to be invested. Generally,
the initial amount to be invested will be directly transferred to Princor from
the retirement plan in which the investor participates. However, in some cases
the investor will purchase shares by check. If investing by check, shares will
be issued at the offering price next computed after the completed application
and check are received at Princor's main office. Subsequent purchases will be
executed at the price next computed after receipt of the investor's check at
Princor's main office. All orders are subject to acceptance by the Fund or Funds
and Princor.
Redemptions by shareholders investing by check will be effected only after
payment has been collected on the check, which may take up to eight days or
more. Investors considering redeeming or exchanging shares or transferring
shares to another person shortly after purchase should pay for those shares with
a certified check, bank cashier's check or money order to avoid any delay in
redemption, exchange or transfer.
Class R shares of the Cash Management Fund may be purchased only by an
exchange from Class R shares of the Princor Funds.
Minimum Purchase Amount. An investor may open an account with any of the
Funds with a minimum initial investment of $250. Additional investments of $25
or more for a Growth-Oriented or Income-Oriented Fund or $100 or more for the
Cash Management Fund may be made at any time without completing a new
application. The minimum initial and subsequent investment amounts are not
applicable to accounts designated as receiving accounts in a Dividend Relay
Election. Each Fund's Board of Directors reserves the right to change or waive
minimum investment requirements at any time, which would be applicable to all
investors alike.
Each Fund described in this Prospectus offers investors three classes of
shares which bear sales charges in different forms and amounts, Class A shares,
Class B shares and Class R shares. Only Class R shares are offered through this
Prospectus. Class A shares are described herein only because Class R shares
convert to Class A shares as described below.
Class R Shares. Class R shares are purchased without an initial sales charge
or a contingent deferred sales charge ("CDSC"). Class R shares bear a higher
12b-1 fee than Class A shares, currently at the annual rate of up to .75% of the
Fund's average net assets attributable to Class R shares. See "Distribution and
Shareholder Servicing Plans and Fees." Class R shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made, but (until conversion to Class A shares) will have a higher
expense ratio and pay lower dividends than Class A shares due to the higher
12b-1 fee. Class R shares will automatically convert to Class A shares, based on
relative net asset value (without a sales charge), on the first business day of
the 49th month after the purchase date. Class R shares acquired by exchange from
Class R shares of another Princor fund will convert into Class A shares based on
the time of the initial purchase. (See "How to Exchange Shares".) At the same
time, a pro rata portion of all shares purchased through reinvestment of
dividends and distributions would convert into Class A shares, with that portion
determined by the ratio that the shareholder's Class R shares converting into
Class A shares bears to the shareholder's total Class R shares that were not
acquired through dividends and distributions. The conversion of Class R shares
to Class A shares is subject to the continuing availability of a ruling from the
Internal Revenue Service or an opinion of counsel that such conversions will not
constitute taxable events for Federal tax purposes. There can be no assurance
that such ruling or opinion will be available, and the conversion of Class R
shares to Class A shares will not occur if such ruling or opinion is not
available. In such event, Class R shares would continue to be subject to higher
expenses than Class A shares for an indefinite period.
Class A Shares. An investor who invests less than $1 million in Class A
shares (except Class A shares of the Cash Management Fund) pays a sales charge
at the time of purchase. Certain purchases of Class A shares qualify for reduced
sales charges. Class A share purchases of $1 million or more are not subject to
a sales charge at the time of purchase, but are subject to a contingent deferred
sales charge if redeemed within 18 months of purchase. Class A shares of each of
the Funds, except the Cash Management Fund, currently bear a 12b-1 fee at the
annual rate of up to 0.25% (0.15% for the Short-Term Bond Fund) of the Fund's
average net assets attributable to Class A shares. See "Distribution and
Shareholder Servicing Plans and Fees."
OFFERING PRICE OF FUNDS' SHARES
The Funds offer their respective shares continuously through Princor, which
is the principal underwriter for the Funds and sells shares as agent on behalf
of the Funds. Princor may select other dealers through which shares of the Funds
may be sold. Certain dealers may not sell all classes of shares.
Class R shares. Class R shares are sold to eligible purchasers at net asset
value; no front-end load or contingent deferred sales charge applies to the
purchase of Class R shares. Class R shares are offered only through Princor and
other dealers it selects.
Class A shares. Class A shares of Princor Cash Management Fund are sold to
the public at net asset value; no sales charge applies to such purchases. Class
R shares convert to Class A shares at NAV, without a sales charge, as previously
described. Class A shares of the Growth-Oriented and Income-Oriented Funds are
sold to the public at the net asset value plus a sales charge which ranges from
a high 4.75% (1.50% for the Short-Term Bond Fund) to a low of 0% of the offering
price (equivalent to a range of 4.99% to 0% of the net amount invested)
according to the schedule below. Selected dealers are allowed a concession as
shown. At Princor's discretion, the entire sales charge may at times be
reallowed to dealers. In some situations, depending on the services provided by
the dealer, the concession may be less. Any dealer allowance on purchases not
involving a sales charge will be determined by Princor.
<TABLE>
<CAPTION>
Sales Charge for All Funds Sales Charge for
Except Short-Term Bond Fund Short-Term Bond Fund
Sales Charge Sales Charge Dealers Allowances as
as % of: as % of: % of Offering Price
All Funds
Net Net Except
Offering Amount Offering Amount Short-Term Short-Term
Price Invested Price Invested Bond Bond
<S> <C> <C> <C> <C> <C> <C>
Less than $50,000 4.75% 4.99% 1.50% 1.52% 4.00% 1.25%
$50,000 but less than $100,000 4.25% 4.44% 1.25% 1.27% 3.75% 1.00%
$100,000 but less than $250,000 3.75% 3.90% 1.00% 1.10% 3.25% .75%
$250,000 but less than $500,000 2.50% 2.56% 0.75% 0.76% 2.00% .50%
$500,000 but less than $1,000,000 1.50% 1.52% 0.50% 0.50% 1.25% .25%
$1,000,000 or more 0 0 0 0 .75% .25%
</TABLE>
CDSC on Class A Shares. Purchases of Class A shares of $1,000,000 or more
may be subject to CDSC upon redemption. A CDSC is payable to Princor on these
investments in the event of a share redemption within 18 months following the
share purchase, at the rate of .75% (.25% for the Short-Term Bond Fund) of the
lesser of the value of the shares redeemed (exclusive of reinvested dividend and
capital gain distributions) or the total cost of such shares. Shares subject to
the CDSC which are exchanged into another Princor mutual fund will continue to
be subject to the CDSC until the original 18 month period expires. However, no
CDSC is payable with respect to redemptions of Class A shares used to fund a
Princor 401 (a) or Princor 401 (k) retirement plan, except redemptions resulting
from the termination of the plan or transfer of plan assets.
Investors may be eligible to buy Class A shares at reduced sales charges.
Purchasers of Class A shares may benefit from Princor's Rights of Accumulation
and Statement of Intention as well as the reduced sales charge available for the
investment of certain life insurance and annuity contract death benefits and
various Employee Benefit Plans and other plans. Descriptions are included in the
Statement of Additional Information.
Investors may be able to purchase Class A shares at net asset value. The
following persons may purchase Class A shares of the Growth-Oriented Funds and
Income-Oriented Funds at the net asset value (without a sales charge): (1)
Principal Mutual Life Insurance Company and its directly and indirectly owned
subsidiaries; (2) Active and retired directors, officers and employees of any of
the Funds, Principal Mutual Life Insurance Company, and directly and indirectly
owned subsidiaries of Principal Mutual Life Insurance Company (including
full-time insurance agents of, and persons who have entered into insurance
brokerage contracts with, Principal Mutual Life Insurance Company and its
directly and indirectly owned subsidiaries); (3) The Principal Financial Group
Employees' Credit Union; (4) Non-ERISA investment advisory clients of Invista
Capital Management, Inc., an indirectly wholly-owned subsidiary of Principal
Mutual Life Insurance Company; (5) Sales representatives and employees of sales
representatives of Princor or other dealers through which shares of the Funds
are distributed; (6) Spouses, surviving spouses and dependent children of the
foregoing persons; (7) Trusts primarily for the benefit of the foregoing
individuals; (8) certain "wrap accounts" for the benefit of clients of Princor
and other broker-dealers or financial planners selected by Princor; and (9)
clients of a registered representative of Princor or other dealers through which
shares of the Funds are distributed and who has become affiliated with Princor
or other dealer within 180 days of the date of the purchase of Class A shares of
the Funds, if the investment represents the proceeds of a redemption within that
180 day period of shares of another investment company the purchase of which
included a front-end sales charge or the redemption of which was subject to a
contingent deferred sales charge.
Each of the Funds, except Princor Tax-Exempt Bond Fund and Princor
Tax-Exempt Cash Management Fund, have filed an application for an exemptive
order with the Securities and Exchange Commission ("SEC") to permit each Fund to
offer its shares at net asset value to participants of certain annuity contracts
issued by Principal Mutual Life Insurance Company. The Funds intend to make an
exchange offer to such participants if the SEC grants the order.
The Funds reserve the right to discontinue offering shares at net asset
value and/or at a reduced sales charge at any time for new accounts and upon 60
days notice to shareholders of existing accounts.
DISTRIBUTION AND SHAREHOLDER SERVICING PLANS AND FEES
Class R Distribution Plan. Each of the Funds described in this Prospectus
has adopted a distribution plan for the Class R shares. Each Class R Plan
provides for payments by the Fund to Princor at the annual rate of up to .75% of
the Fund's average net assets attributable to Class R shares.
Although Class R shares are sold without an initial sales charge, Princor
incurs certain distribution expenses. In addition, Princor may remit on a
continuous basis up to .50% to Registered Representatives and other selected
Dealers (including, for this purpose, certain financial institutions) as a trail
fee in recognition of their ongoing services and assistance.
Class A Distribution Plan. Each of the Funds, except the Cash Management
Fund, has adopted a distribution plan for the Class A shares. The Fund will make
payments from its assets to Princor pursuant to this Plan after the end of each
month at an annual rate not to exceed 0.25% (0.15% for the Short-Term Bond Fund)
of the average daily net asset value of the Fund. Princor will retain such
amounts as are appropriate to compensate for actual expenses incurred in
distributing and promoting the sale of the Fund shares but may remit on a
continuous basis up to .25% (0.15% for the Short-Term Bond Fund) to Registered
Representatives and other selected Dealers (including, for this purpose, certain
financial institutions) as a trail fee in recognition of their services and
assistance.
General. The purpose of the Plans is to permit the Fund to compensate
Princor for expenses incurred by it in promoting and distributing Fund shares
and providing services to Fund shareholders. If the aggregate payments received
by Princor under any of the Plans in any fiscal year exceed the expenditures
made by Princor in that year pursuant to that Plan, Princor will promptly
reimburse the Fund for the amount of the excess. If expenses under a Plan exceed
the amount for which Princor may be compensated in any one fiscal year, the Fund
will not carry over such expenses to the next fiscal year. The Funds have no
legal obligation to pay any amount pursuant to the Plans that exceeds the
compensation limit. The Funds will not pay, directly or indirectly, interest,
carrying charges, or other financing costs in connection with the Plans. The
Plans are further described in the Statement of Additional Information.
DETERMINATION OF NET ASSET VALUE OF FUNDS' SHARES
Each Fund calculates net asset value of a share of each class by dividing
the total value of the assets attributable to the class, less all liabilities
attributable to the class, by the number of shares outstanding of the class.
Shares are valued as of the close of regular trading on the New York Stock
Exchange each day the Exchange is open.
Growth-Oriented and Income-Oriented Funds
The following valuation information applies to the Growth-Oriented and
Income-Oriented Funds. Securities for which market quotations are readily
available are valued using those quotations. Securities with remaining
maturities of 60 days or less are valued at amortized cost when it is determined
by the Board of Directors that amortized cost reflects fair value. Other assets
are valued at fair value as determined in good faith through procedures
established by the Board.
As previously described, some of the Funds may purchase foreign securities,
whose trading is substantially completed each day at various times prior to the
close of the New York Stock Exchange. The values of such securities used in
computing net asset value per share are usually determined as of such times.
Occasionally, events which affect the values of such securities and foreign
currency exchange rates may occur between the times at which they are generally
determined and the close of the New York Stock Exchange and would therefore not
be reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value as determined in good faith
by the Manager under procedures established and regularly reviewed by the Board
of Directors. To the extent the Fund invests in foreign securities listed on
foreign exchanges which trade on days on which the Fund does not determine its
net asset value, for example Saturdays and other customary national U.S.
holidays, the Fund's net asset value could be significantly affected on days
when shareholders have no access to the Fund.
Money Market Fund
Portfolio securities of the Cash Management Fund are valued at amortized
cost. For a description of this calculation procedure see the Statement of
Additional Information. The Cash Management Fund reserves the right to calculate
or estimate its net asset value more frequently than once a day if it deems it
desirable.
DISTRIBUTION OF INCOME DIVIDENDS AND REALIZED CAPITAL GAINS
Growth-Oriented and Income-Oriented Funds
Any dividends payable on Class R shares of a Fund on a per share basis will
be lower than dividends payable on Class A shares of the Fund. Any dividends
from the net income of the Growth-Oriented Funds, except the Balanced, Blue Chip
and World Funds, normally will be distributed to the respective shareholders
semiannually. Any dividends from the net income of the Balanced and Blue Chip
Funds will be distributed on a quarterly basis and any dividends from the net
income of the World Fund will be distributed annually. Any dividends from the
net income of the Income-Oriented Funds, except the Utilities Fund, will
normally be distributed monthly. Any dividends from the net income of the
Utilities Fund will be distributed quarterly. Distributions from the Funds that
make monthly distributions will normally be declared payable on the first
business day of each month to shareholders of record at the close of business on
the last business day of the preceding month. Distributions for the Funds that
make quarterly distributions will normally be declared payable on the last
business day of December and the first business day of April, July and October
to shareholders of record at the close of business on the preceding business
day. Distributions from the Funds that make semiannual distributions will
normally be declared payable on the first business day in July and the last
business day in December to shareholders of record at the close of business on
the last business day prior to distribution. Annual distributions from the World
Fund will normally be declared payable on the last business day in December to
shareholders of record at the close of business on the last business day prior
to distribution. Net realized capital gains for each of the Funds, if any, will
be distributed annually, generally the first business day of December. Dividends
and capital gains distributions are reinvested in additional Fund shares at
their net asset value (without a sales charge) as of the payment date.
Money Market Fund
The Cash Management Fund declares dividends of all its daily net investment
income on each day the net asset value per share is determined. Dividends for
the Fund are payable daily and are automatically reinvested in full and
fractional shares of the Fund at the then current net asset value.
Net investment income of the Cash Management Fund, for dividend purposes,
consists of (1) accrued interest income plus or minus accrued discount or
amortized premium; plus or minus (2) all net short-term realized gains and
losses; minus (3) all accrued expenses of the Fund. Expenses of the Fund are
accrued each day. Net income will be calculated immediately prior to the
determination of net asset value per share of each Fund. Dividends payable on
Class R shares of the Cash Management Fund on a per share basis will be lower
than dividends payable on Class A shares of the Fund.
Since it is the policy of the Cash Management Fund, under normal
circumstances, to hold portfolio securities to maturity and to value portfolio
securities at amortized cost, the Fund does not expect any capital gains or
losses. If the Fund does experience gains, however, it could result in an
increase in dividends. Capital losses could result in a decrease in dividends.
If, for some extraordinary reason, the Fund realizes net long-term capital
gains, it will distribute them once every 12 months.
Since the net income of the Fund (including realized gains and losses on the
portfolio securities) is normally declared as a dividend each time the net
income of the Fund is determined, the net asset value per share of the Fund
normally remains at $1.00 immediately after each determination and dividend
declaration. Any increase in the value of a shareholder's investment in the
Fund, representing reinvestment of dividend income, is reflected by an increase
in the number of shares of the Fund in the account.
Normally the Fund will have a positive net income at the time of each
determination thereof. Net income may be negative if an unexpected liability
must be accrued or a loss is realized. If the net investment income of the Fund
determined at any time is a negative amount, the net asset value per share will
be reduced below $1.00. If this happens, the Fund may endeavor to restore the
net asset value per share to $1.00 by reducing the number of outstanding shares
by redeeming proportionately from shareholders without the payment of any
monetary consideration, such number of full and fractional shares as is
necessary to maintain a net asset value per share of $1.00. Each shareholder
will be deemed to have agreed to such a redemption in these circumstances by
investment in the Fund. The Fund may seek to achieve the same objective of
restoring the net asset value per share to $1.00 by not declaring dividends from
net income on subsequent days until restoration, with the result that the net
asset value per share would increase to the extent of positive net income which
is not declared as a dividend, or any other method approved by the Board of
Directors for the Fund.
The Board of Directors of the Fund may revise the above dividend policy, or
postpone the payment of dividends, if the Fund should have or anticipate any
large presently unexpected expense, loss or fluctuation in net assets which in
the opinion of the Board might have a significant adverse effect on the
shareholders.
Dividend Relay Election
Shareholders may elect to have dividends and capital gains distributions
from one of the Princor funds invested in shares of the same class of one of the
other Princor funds. This Dividend Relay Election can be made on the application
or at any time on 10 days written notice or, if telephone transaction services
apply to the account from which the dividends and distributions originate, on 10
days notice by telephone to the Fund. A signature guarantee may be required to
make the Dividend Relay Election. See "General Information About a Fund
Account." There is no administrative charge for this service. Dividends and
distributions are credited to the receiving Fund the day such dividends are paid
at the receiving Fund's net asset value for that day.
If the Dividend Relay Election privilege is discontinued with respect to a
particular receiving Fund, the value of the account in that Fund must equal or
exceed the Fund's minimum initial investment requirement or the Fund shall have
the right, if the shareholder fails to increase the value of the account to such
minimum within 90 days after being notified of the deficiency, to redeem the
account and send the proceeds to the shareholder.
Shareholders may discontinue the Dividend Relay Election at any time on 10
days written notice or, if telephone transaction services apply to the account
from which the dividends originate, on 10 days notice by telephone to the Fund.
The Funds reserve the right to discontinue or modify this service upon 60 days
written notice to shareholders.
TAX-TREATMENT OF FUNDS, DIVIDENDS AND DISTRIBUTIONS
It is the policy of each of the Funds to distribute substantially all net
investment income and net realized gains. Through such distributions, and by
satisfying certain other requirements, the Funds intend to qualify for the tax
treatment applicable to regulated investment companies under the provisions of
the Internal Revenue Code. This means that in each year in which a Fund so
qualifies, it will be exempt from federal income tax upon the amounts so
distributed to investors. The Tax Reform Act of 1986 imposed an excise tax on
mutual funds which fail to distribute net investment income and capital gains by
the end of the calendar year in accordance with the provisions of the Act. The
Funds intend to comply with the Act's requirements and to avoid this excise tax.
Class R shares and Class A shares acquired by the conversion of Class R
shares are used to fund IRAs. Distributions from IRAs are taxed as ordinary
income to the recipient, although special rules exist for the tax-free return of
non-deductible contributions. In addition, taxable distributions received from
an IRA prior to age 59 1/2 are subject to a 10% penalty tax in addition to
regular income tax. Certain distributions are exempted from this penalty tax,
including distributions following the participant's death or disability or if
the distribution is paid as part of a series of substantially equal periodic
payments made for the life (or life expectancy) of the participant or the joint
lives (or joint life expectancies) of the participant and the participant's
designated beneficiary.
Generally, distributions from IRAs must commence not later than April 1 of
the calendar year following the calendar year in which the participant attains
age 70 1/2, and such distributions must be made over a period that does not
exceed the life expectancy of the participant (or the participant and
beneficiary). A penalty tax of 50% would be imposed on any amount by which the
minimum required distribution in any year exceeded the amount actually
distributed in that year. In addition, in the event that the participant dies
before his or her entire interest in the IRA has been distributed, the
participant's entire interest must be distributed at least as rapidly as under
the method of distribution being used as of the date of that person's death. If
the particpant dies prior to beginning any distributions from the IRA, the
entire interest in the IRA will be distributed (1) within five years after the
date of the participant's death or (2) as periodic payments which will begin
within one year of the participant's death and which will be made over the life
expectancy of the participant's designated beneficiary. However, if the
participant's designated beneficiary is the surviving spouse, the IRA may be
continued with the surviving spouse deemed to be the new IRA participant.
The Code permits the taxable portion of funds to be transferred in a
tax-free rollover from a qualified employer pension, profit-sharing, annuity,
bond purchase or tax-deferred annuity plan to an IRA if certain conditions are
met, and if the rollover of assets is completed within 60 days after the
distribution from the qualified plan is received. A direct rollover of funds may
avoid a 20% federal tax withholding generally applicable to qualified plans or
tax -deferred annuity plan distributions. In addition, not more frequently than
once every twelve months, amounts may be rolled over tax-free from one IRA to
another, subject to the 60-day limitation and other requirements. The
once-per-year limitation on rollovers does not apply to direct transfers of
funds between IRA custodians or trustees.
The Funds are required by law to withhold 10% of IRA distributions unless
the shareholder elects not to have withholding apply.
Shareholders should consult their own tax advisors as to the federal, state
and local tax consequences of ownership of shares of the Funds in their
particular circumstances.
HOW TO EXCHANGE SHARES
Class R shares and Class A shares acquired by the conversion of Class R
shares may be exchanged at net asset value for shares of the same class of any
other Princor Fund described in the Prospectus, at any time. For purposes of
computing the length of time Class R shares acquired by the exchange are held
prior to conversion to Class A shares, the length of time the acquired shares
have been owned by a shareholder will be measured from the date of original
purchase of the exchanged shares.
A shareholder may also make an Automatic Exchange Election. This election
authorizes an exchange as described above from one Princor Fund to any or all of
the other Princor Funds on a monthly, quarterly, semiannual or annual basis. The
minimum amount that may be exchanged into any Princor Fund must equal or exceed
$300 on an annual basis. The exchange will occur on the date of the month
specified by the shareholder in the election so long as the day is a trading
day. If the designated day is not a trading day, the exchange will occur on the
next trading day occurring during that month. If the next trading day occurs in
the following month, the exchange will occur on the trading day prior to the
designated day. The Automatic Exchange Election may be made on the open account
application, on 10 days written notice or, if telephone transaction services
apply to the account from which the exchange is made, on 10 days notice by
telephone to the Fund from which the exchange will be made.
Shareholders may exercise the telephone exchange privilege by telephoning
1-800-247-4123. If all telephone lines are busy, shareholders might not be able
to request telephone exchanges and would have to submit written exchange
requests. Although the Funds and the transfer agent are not responsible for the
authenticity of exchange requests received by telephone, the right is reserved
to refuse telephone exchanges when in the opinion of the Fund from which the
exchange is requested or the transfer agent it seems prudent to do so. The
shareholder bears the risk of loss caused by a fraudulent telephone exchange
request the Fund reasonably believes to be genuine. Each Fund will employ
reasonable procedures to assure telephone instructions are genuine and if such
procedures are not followed, the Fund may be liable for losses due to
unauthorized or fraudulent transactions. Such procedures include recording all
telephone instructions, requesting personal identification information such as
the caller's name, daytime telephone number, social security number and/or
birthdate and sending a written confirmation of the transaction to the
shareholder's address of record. In addition, the Fund directs exchange proceeds
only to another Princor fund account used to fund the shareholder's IRA.
General - If the exchanging shareholder does not have an account with the
Fund in which shares are being acquired, a new account will be established with
the same registration as the account from which shares are exchanged. All
exchanges are subject to the minimum investment and eligibility requirements of
the Fund being acquired. A shareholder may receive shares in exchange only if
they may be legally offered in the shareholder's state of residence.
The exchange privilege is not intended as a vehicle for short-term trading.
Excessive exchange activity may interfere with portfolio management and have an
adverse effect on all shareholders. In order to limit excessive exchange
activity and in other circumstances where the Directors or Princor Management
Corporation believes doing so would be in the best interest of the Fund, the
Fund reserves the right to revise or terminate the exchange privilege, limit the
amount or number of exchanges or reject any exchange. Shareholders would be
notified of any such action to the extent required by law. A shareholder may
modify or discontinue an election on 10 days written notice or notice by
telephone to the Fund from which exchanges are made.
HOW TO SELL SHARES
Class R shares and Class A shares acquired by the conversion of Class R
shares are used to fund IRAs. A request for a distribution from an IRA must be
made in writing. Shareholders may obtain a distribution form by telephoning
1-800-247-4123 or writing to Princor, at P.O. Box 10423, Des Moines, Iowa 50306.
Shares are redeemed at the net asset value calculated after the Fund receives
the written request in proper form. There is no charge for redemptions. The
amount received for shares upon redemption may be more or less than the cost of
such shares depending upon the net asset value at the time of redemption. The
Funds generally send redemption proceeds the business day after the request is
received. Under unusual circumstances, the Funds may suspend redemptions, or
postpone payment for more than three business days, as permitted by federal
securities law. A Fund will redeem only those shares for which it has received
payment. To avoid the inconvenience of a delay in obtaining redemption proceeds,
shares may be purchased with a certified check, bank cashiers check or money
order.
Distributions from an IRA may be taken as a lump sum of the entire interest
in the IRA, a partial interest in the IRA, or in periodic payments of either a
fixed amount or amounts based upon certain life expectancy calculations. Tax
penalties may apply to distributions taken before the IRA participant attains
age 59 1/2. See "Tax Treatment of Fund Dividends and Distributions."
A redemption request made payable to someone other than the plan
participant requires a signature guarantee as a part of a proper endorsement.
The signature must be guaranteed by either a commercial bank, trust company,
credit union, savings and loan association, national securities exchange member,
or by a brokerage firm. A signature guaranteed by a notary public or savings
bank is not acceptable.
Reinvestment Privilege - Within 60 days after redemption, shareholders who
redeem all or part of their Class R shares or Class A shares which were acquired
by conversion of Class R shares have a onetime privilege to reinvest the amount
redeemed in shares of the same class of any of the Funds without a sales charge.
The reinvestment will be made at the net asset value next computed after
written notice of exercise of the privilege is received in proper and correct
form by Princor. All reinvestments are subject to acceptance by the Fund or
Funds and Princor.
PERFORMANCE CALCULATION
From time to time, the Funds may publish advertisements containing
information (including graphs, charts, tables and examples) about the
performance of one or more of the Funds and about a Fund's largest industry
holdings and largest specific securities holdings in its portfolio. The Funds
may also quote rankings, yields or returns as published by independent
statistical services or publishers, and information regarding the performance of
certain market indices. The Funds' yield and total return figures described
below will vary depending upon market conditions, the composition of the Funds'
portfolios and operating expenses. These factors and possible differences in the
methods used in calculating yield and total return should be considered when
comparing the Funds' performance figures to performance figures published for
other investment vehicles. Any performance data quoted for the Funds represents
only historical performance and is not intended to indicate future performance
of the Funds. For further information on how the Funds calculate yield and total
return figures, see the Statement of Additional Information.
Growth-Oriented and Income-Oriented Funds
The Income-Oriented Funds may advertise their respective yields and average
annual total returns. The Growth-Oriented Funds may advertise their respective
average annual total returns. Yield is determined by annualizing each Fund's net
investment income per share for a specific, historical 30-day period and
dividing the result by the ending maximum public offering price for Class A
shares or the net asset value for Class R shares of the Fund for the same
period. Average annual total return for each Fund is computed by calculating the
average annual compounded rate of return over the stated period that would
equate an initial $1,000 investment to the ending redeemable value assuming the
reinvestment of all dividends and capital gains distributions at net asset
value. The same assumptions are made when computing cumulative total return by
dividing the ending redeemable value by the initial investment. These
calculations assume the payment of the maximum front-end load in the case of
Class A shares, although shareholders who acquire such shares by conversion from
Class R shares do not pay a front-end load. The Funds may also calculate total
return figures for a specified period that do not take into account the maximum
initial sales charge to illustrate changes in the Funds' net asset values over
time.
Money Market Fund
From time to time the Cash Management Fund may advertise its yield and
effective yield. The yield of the Fund refers to the income generated by an
investment in the Fund over a seven-day period. This income is then annualized.
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The effective yield is calculated similarly but,
when annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment.
The yield for the Cash Management Fund will fluctuate daily as the income
earned on the investments of the Fund fluctuates. Accordingly, there is no
assurance that the yield quoted on any given occasion will remain in effect for
any period of time. The Fund is an open-end investment company and there is no
guarantee that the net asset value or any stated rate of return will remain
constant. A shareholder's investment in the Fund is not insured. Investors
comparing results of the Fund with investment results and yields from other
sources such as banks or savings and loan associations should understand these
distinctions. Historical and comparative yield information may, from time to
time, be presented by the Fund.
GENERAL INFORMATION ABOUT A FUND ACCOUNT
Share certificates will be issued to shareholders only when requested.
Shareholders of the Funds will receive a quarterly statement of account for the
Fund in which they have invested disclosing information regarding purchases,
redemptions, and reinvested dividends or distributions occurring during the
quarter, as well as the balance of shares owned and account values as of the
statement date . The Funds treat the statement of account as evidence of
ownership of Fund shares. This is known as an open account system. Each Fund
bears the cost of the open account system.
Signature Guarantee. The Funds have adopted the policy of requiring
signature guarantees in certain circumstances to safeguard shareholder accounts.
A signature guarantee is necessary under the following circumstances:
1. If a redemption payment is to be made payable to a payee other than
the registered shareholder or Principal Mutual Life Insurance
Company or any of its affiliated companies;
2. To add telephone transaction services to an account after the initial
application is processed;
3. When there is any change to a bank account designated to receive
distributions; and
4. If a redemption payment is to be mailed to an address other than the
address of record or to an address of record that has been changed
within the preceding three months.
A shareholder's signature must be guaranteed by a commercial bank, trust
company, credit union, savings and loan association, national securities
exchange member, or brokerage firm. A signature guaranteed by a notary public is
not acceptable.
Minimum Account Balance. Although there currently is no minimum balance, due
to the disproportionately high cost of maintaining small accounts, the Funds
reserve the right to redeem all shares in an account with a value of less than
$250 and to mail the proceeds to the shareholder. Involuntary redemptions will
not be triggered solely by market activity. Shareholders will be notified before
these redemptions are to be made and will have thirty days to make an additional
investment to bring their accounts up to the required minimum. The Funds reserve
the right to increase the required minimum.
SHAREHOLDER RIGHTS
The following information is applicable to each of the Princor Funds
described in this prospectus. Each Fund's shares are currently divided into
three classes. Each Fund share is entitled to one vote with fractional shares
voting proportionately. Both classes of shares for each Fund will vote together
as a single class except where required by law or as determined by the Fund's
Board of Directors. Shares are freely transferable, are entitled to dividends as
declared by the Fund's Board of Directors and, if the Fund were liquidated,
would receive the net assets of the Fund. Shareholders of a Fund may remove any
director of that Fund with or without cause by the vote of a majority of the
votes entitled to be cast at a meeting of shareholders. Shareholders will be
assisted with shareholder communication in connection with such matter.
The Board of Directors of each Fund may increase or decrease the aggregate
number of shares which the Fund has authority to issue and may issue two or more
classes of shares having such preferences and special or relative rights and
privileges as the Directors may determine, without shareholder approval.
The Funds are not required to hold an annual meeting of shareholders in any
year unless required to do so under the Investment Company Act of 1940. The
Funds intend to hold shareholder meetings only when required by law and at such
other times as may be deemed appropriate by their respective Boards of
Directors. However, each Fund will hold a meeting of shareholders when requested
to do so in writing by the holders of 10% or more of the outstanding shares of
that Fund.
Shareholder inquiries should be directed to the appropriate Fund at The
Principal Financial Group, Des Moines, Iowa 50392.
As of October 31, 1995, Principal Mutual Life Insurance Company and its
subsidiaries and affiliates owned 25% or more of the outstanding voting shares
of each Fund as indicated:
Percentage of
Number of Outstanding Shares
Fund Shares Owned Owned
Blue Chip Fund 654,681 26.63%
Capital Accumulation Fund 6,477,046 44.88
High Yield Fund 1,090,093 36.56
ADDITIONAL INFORMATION
Organization: The Funds were incorporated in the state of Maryland on the
following dates: Balanced Fund - November 26, 1986; Blue Chip Fund - December
10, 1990; Bond Fund - December 2, 1986; Capital Accumulation Fund - May 26, 1989
(effective November 1, 1989 succeeded to the business of a predecessor Fund that
had been incorporated in Delaware on February 6, 1969); Cash Management Fund -
June 10, 1982; Emerging Growth Fund - February 20, 1987; Government Securities
Income Fund - September 5, 1984; Growth Fund - May 26, 1989 (effective November
1, 1989 succeeded to the business of a predecessor Fund that had been
incorporated in Delaware on February 6, 1969); High Yield Fund - November 26,
1986; Short-Term Bond Fund - August 9, 1995; Utilities Fund - September 3, 1992;
World Fund - May 12, 1981
Custodian: Bank of New York, 48 Wall Street, New York, New York 10286, is
custodian of the portfolio securities and cash assets of each of the Funds
except the World Fund. The custodian for the World Fund is Chase Manhattan Bank,
Global Securities Services, Chase Metro Tech Center, Brooklyn, New York 11245.
The custodians perform no managerial or policymaking functions for the Funds.
Capitalization: The authorized capital stock of each Fund consists of
100,000,000 shares of common stock (2,000,000,000 for Princor Cash Management
Fund), $.01 par value.
Financial Statements: Copies of the financial statements of each Fund will
be mailed to each shareholder semiannually. At the close of each fiscal year,
each Fund's financial statements will be audited by a firm of independent
auditors. The firm of Ernst & Young LLP has been appointed to audit the
financial statements of each Fund for their respective present fiscal years.
Registration Statement: This Prospectus omits some information contained in
the Statement of Additional Information (also known as Part B of the
Registration Statement) and Part C of the Registration Statements which the
Funds have filed with the Securities and Exchange Commission. The Funds'
Statement of Additional Information is hereby incorporated by reference into
this Prospectus. A copy of this Statement of Additional Information can be
obtained upon request, free of charge, by writing or telephoning Princor
Financial Services Corporation. You may obtain a copy of Part C of the
Registration Statements filed with the Securities and Exchange Commission,
Washington, D.C. from the Commission upon payment of the prescribed fees.
Principal Underwriter: Princor Financial Services Corporation, P.O. Box
10423, Des Moines, IA 50306, is the principal underwriter for each of the
Princor Funds.
Transfer Agent and Dividend Disbursing Agent: Princor Management
Corporation, The Principal Financial Group, Des Moines, Iowa, 50392, is the
transfer agent and dividend disbursing agent for each of the Princor Funds.
PART B
PRINCOR BALANCED FUND, INC.
PRINCOR BLUE CHIP FUND, INC.
PRINCOR BOND FUND, INC.
PRINCOR CAPITAL ACCUMULATION FUND, INC.
PRINCOR CASH MANAGEMENT FUND, INC.
PRINCOR EMERGING GROWTH FUND, INC.
PRINCOR GOVERNMENT SECURITIES INCOME FUND, INC.
PRINCOR GROWTH FUND, INC.
PRINCOR HIGH YIELD FUND, INC.
PRINCOR SHORT-TERM BOND FUND, INC.
PRINCOR TAX-EXEMPT BOND FUND, INC.
PRINCOR TAX-EXEMPT CASH MANAGEMENT FUND, INC.
PRINCOR UTILITIES FUND, INC.
PRINCOR WORLD FUND, INC.
Statement of Additional Information
dated ____________________, 1996
This Statement of Additional Information provides information
about each of the above Funds in addition to the information that is
contained in the Funds' Prospectus, dated _________________________,
1996.
This Statement of Additional Information is not a prospectus. It
should be read in conjunction with the Funds' Prospectus, a copy of
which can be obtained free of charge by writing or telephoning:
Princor Financial Services Corporation
The Principal Financial Group
Des Moines, Iowa 50392-0200
Telephone: 1-800-247-4123
MM 625 B-6
<PAGE>
TABLE OF CONTENTS
Investment Policies and Restrictions of the Funds..................... 2
Growth-Oriented Funds.......................................... 3
Income-Oriented Funds ......................................... 7
Money Market Funds............................................. 13
Funds' Investments.................................................... 16
Directors and Officers of the Funds................................... 29
Manager and Sub-Advisor............................................... 31
Cost of Manager's Services............................................ 32
Brokerage on Purchases and Sales of Securities........................ 35
How to Purchase Shares................................................ 35
Offering Price of Funds' Shares....................................... 39
Distribution Plan..................................................... 44
Determination of Net Asset Value of Funds' Shares .................... 46
Performance Calculation............................................... 48
Tax Treatment of Funds, Dividends and Distributions ................. 52
General Information and History....................................... 55
Financial Statements ................................................. 55
Appendix A............................................................ 56
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS OF THE FUNDS
The following information about the Princor Funds, a family of separately
incorporated, diversified, open-end management investment companies, commonly
called mutual funds, supplements the information provided in the Prospectus
under the caption "Investment Objectives, Policies and Restrictions."
There are three categories of Princor Funds: Growth-Oriented Funds, which
include four Funds which seek primarily capital appreciation through investments
in equity securities (Capital Accumulation Fund, Emerging Growth Fund, Growth
Fund and World Fund), one Fund which seeks a total investment return including
both capital appreciation and income through investments in equity and debt
securities (Balanced Fund) and one Fund which seeks growth of capital and growth
of income primarily through investments in common stocks of well-capitalized,
established companies (Blue Chip Fund); Income-Oriented Funds, which include
five funds which seek primarily a high level of income through investments in
debt securities (Bond Fund, Government Securities Income Fund, High Yield Fund,
Short-Term Bond Fund and Tax-Exempt Bond Fund) and one Fund which seeks current
income and long-term growth of income and capital by investing primarily in
equity and fixed-income securities of public utilities companies (Utilities
Fund); and Money Market Funds, which include two funds which seek primarily a
high level of income through investments in short-term debt securities (Cash
Management Fund and Tax-Exempt Cash Management Fund).
In seeking to achieve its investment objective, each Fund has adopted as
matters of fundamental policy certain investment restrictions which cannot be
changed without approval by the holders of the lesser of: (i) 67% of the Fund's
shares present or represented at a shareholders' meeting at which the holders of
more than 50% of such shares are present or represented by proxy; or (ii) more
than 50% of the outstanding shares of the Fund. Similar shareholder approval is
required to change the investment objective of each of the Funds. The following
discussion provides for each Fund a statement of its investment objective, a
description of its investment restrictions that are matters of fundamental
policy and a description of any investment restrictions it may have adopted that
are not matters of fundamental policy and may be changed without shareholder
approval. For purposes of the investment restrictions, all percentage and rating
limitations apply at the time of acquisition of a security, and any subsequent
change in any applicable percentage resulting from market fluctuations or in a
rating by a rating service will not require elimination of any security from the
portfolio. Unless specifically identified as a matter of fundamental policy,
each investment policy discussed in the Prospectus or the Statement of
Additional Information is not fundamental and may be changed by the respective
Fund's Board of Directors.
The Table on the next page graphically illustrates each Fund's emphasis
on producing current income and capital growth and the stability of the market
value of the Fund's portfolio. These illustrations represent comparative
relationships only with regard to the investment objectives sought by the Funds.
Relative income, stability and growth may vary among the Funds with certain
market conditions. The illustrations are not intended and should not be
construed as projected relative performances of the Princor Funds.
<PAGE>
GROWTH-ORIENTED FUNDS
INVESTMENT OBJECTIVES
Princor Balanced Fund, Inc. ("Balanced Fund") seeks to generate a total
investment return consisting of current income and capital appreciation
while assuming reasonable risks in furtherance of the investment
objective.
Princor Blue Chip Fund, Inc. ("Blue Chip Fund") seeks to achieve growth of
capital and growth of income by investing primarily in common stocks of
well capitalized, established companies.
Princor Capital Accumulation Fund, Inc. ("Capital Accumulation Fund")
seeks to achieve primarily long-term capital appreciation and secondarily
growth of investment income through the purchase primarily of common
stocks, but the Fund may invest in other securities.
Princor Emerging Growth Fund, Inc. ("Emerging Growth Fund") seeks to
achieve capital appreciation by investing primarily in securities of
emerging and other growth-oriented companies.
Princor Growth Fund, Inc. ("Growth Fund") seeks growth of capital through
the purchase primarily of common stocks, but the Fund may invest in other
securities.
Princor World Fund, Inc. ("World Fund") seeks long-term growth of capital
by investing in a portfolio of equity securities of companies domiciled in
any of the nations of the world.
INVESTMENT RESTRICTIONS
As a condition of its continued registration in the state of South Dakota,
each of the Growth-Oriented Funds has undertaken not to invest more than 10% of
its total assets in securities of issuers which may not be sold to the public
without registration under the Securities Act of 1933 as amended through April
1, 1990, nor may it have more than 10% of its total assets invested in real
estate investment trusts or investment companies, nor may it have more than 5%
of its assets invested in options, financial futures, or stock index futures,
other than hedging positions or positions that are covered by cash or
securities, nor may it have more than 5% of its assets invested in equity
securities of issuers which are not readily marketable and securities of issuers
which have been in operation for less than three years. Each of these funds has
further undertaken to notify shareholders in the state of South Dakota 30 days
prior to changing any of the restrictions described in this paragraph.
Balanced Fund, Blue Chip Fund, Emerging Growth Fund and World Fund
Each of the following numbered restrictions is a matter of fundamental
policy and may not be changed without shareholder approval. The Balanced Fund,
Blue Chip Fund and Emerging Growth Fund each may not:
(1) Issue any senior securities as defined in the Investment Company Act
of 1940. Purchasing and selling securities and futures contracts and
options thereon and borrowing money in accordance with restrictions
described below do not involve the issuance of a senior security.
(2) Purchase or retain in its portfolio securities of any issuer if those
officers or directors of the Fund or its Manager owning beneficially
more than one-half of 1% (0.5%) of the securities of the issuer
together own beneficially more than 5% of such securities.
(3) Invest in commodities or commodity contracts, but it may purchase and
sell financial futures contracts and options on such contracts.
(4) Invest in real estate, although it may invest in securities which are
secured by real estate and securities of issuers which invest or deal
in real estate.
(5) Borrow money, except for temporary or emergency purposes, in an
amount not to exceed 5% of the value of the Fund's total assets at
the time of the borrowing.
(6) Make loans, except that the Fund may (i) purchase and hold debt
obligations in accordance with its investment objective and policies,
(ii) enter into repurchase agreements, and (iii) lend its portfolio
securities without limitation against collateral (consisting of cash
or securities issued or guanteed by the United States Government or
its agencies or instrumentalities) equal at all times to not less
than 100% of the value of the securities loaned.
(7) Invest more than 5% of its total assets in the securities of any one
issuer (other than obligations issued or guaranteed by the United
States Government or its agencies or instrumentalities); or purchase
more than 10% of the outstanding voting securities of any one issuer.
(8) Act as an underwriter of securities, except to the extent the Fund
may be deemed to be an underwriter in connection with the sale of
securities held in its portfolio.
(9) Concentrate its investments in any particular industry or industries,
except that the Fund may invest not more than 25% of the value of its
total assets in a single industry.
(10) Sell securities short (except where the Fund holds or has the right
to obtain at no added cost a long position in the securities sold
that equals or exceeds the securities sold short) or purchase any
securities on margin, except it may obtain such short-term credits as
are necessary for the clearance of transactions. The deposit or
payment of margin in connection with transactions in options and
financial futures contracts is not considered the purchase of
securities on margin.
(11) Invest in interests in oil, gas or other mineral exploration or
development programs, although the Fund may invest in securities of
issuers which invest in or sponsor such programs.
Each of these Funds has also adopted the following restrictions which are
not fundamental policies and may be changed without shareholder approval. It is
contrary to each Fund's present policy to:
(1) Invest more than 15% of its total assets in securities not readily
marketable and in repurchase agreements maturing in more than seven
days. The value of any options purchased in the Over-the-Counter
market are included as part of this 15% limitation.
(2) Purchase warrants in excess of 5% of its total assets, of which 2%
may be invested in warrants that are not listed on the New York or
American Stock Exchange. The 2% limitation for the World Fund also
includes warrants not listed on the Toronto Stock Exchange.
(3) Purchase securities of any issuer having less than three years'
continuous operation (including operations of any predecessors) if
such purchase would cause the value of the Fund's investments in all
such issuers to exceed 5% of the value of its total assets.
(4) Pledge, mortgage or hypothecate its assets, except to secure
permitted borrowings. The deposit of underlying securities and other
assets in escrow and other collateral arrangements in connection with
transactions in put and call options, futures contracts and options
on futures contracts are not deemed to be pledges or other
encumbrances.
(5) Invest in companies for the purpose of exercising control or
management.
(6) Invest more than 5% of its total assets in the purchase of covered
spread options and the purchase of put and call options on
securities, securities indices and financial futures contracts.
Options on financial futures contracts and options on securities
indices will be used solely for hedging purposes; not for
speculation.
(7) Invest more than 5% of its assets in initial margin and premiums on
financial futures contracts and options on such contracts.
(8) Invest in arbitrage transactions.
(9) Invest in real estate limited partnership interests.
(10) Invest in mineral leases.
The Balanced Fund, Blue Chip Fund and Emerging Growth Fund have also
adopted the following restrictions which are not fundamental policies and may be
changed without shareholder approval. It is contrary to each such Fund's present
policy to:
(1) Purchase securities of other investment companies except in
connection with a merger, consolidation, or plan of reorganization or
by purchase in the open market of securities of closed-end companies
where no underwriter or dealer's commission or profit, other than a
customary broker's commission, is involved, and if immediately
thereafter not more than 10% of the value of the Fund's total assets
would be invested in such securities.
(2) Invest more than 20% of its total assets in securities of foreign
issuers.
The World Fund has also adopted the following restriction which is not a
fundamental policy and may be changed without shareholder approval. It is
contrary to the World Fund's present policy to:
(1) Invest more than 10% of its assets in securities of other investment
companies, invest more than 5% of its total assets in the securities
of any one investment company, or acquire more than 3% of the
outstanding voting securities of any one investment company except in
connection with a merger, consolidation or plan of reorganization.
Capital Accumulation Fund and Growth Fund
Each of the following numbered restrictions is a matter of fundamental
policy and may not be changed without shareholder approval. The Capital
Accumulation Fund and Growth Fund each may not:
(1) Concentrate its investments in any one industry. No more than 25% of
the value of its total assets will be invested in any one industry.
(2) Purchase the securities of any issuer if the purchase will cause more
than 5% of the value of its total assets to be invested in the
securities of any one issuer (except U. S. Government securities).
(3) Purchase the securities of any issuer if the purchase will cause more
than 10% of the voting securities, or any other class of securities
of the issuer, to be held by the Fund.
(4) Underwrite securities of other issuers, except that the Fund may
acquire portfolio securities under circumstances where if sold the
Fund might be deemed an underwriter for purposes of the Securities
Act of 1933.
(5) Purchase securities of any company with a record of less than three
years' continuous operation (including that of predecessors) if the
purchase would cause the value of the Fund's aggregate investments in
all such companies to exceed 5% of the Fund's total assets.
(6) Engage in the purchase and sale of illiquid interests in real estate.
For this purpose, readily marketable interests in real estate
investment trusts are not interests in real estate.
(7) Engage in the purchase and sale of commodities or commodity
contracts.
(8) Purchase securities of other investment companies except in
connection with a merger, consolidation, or plan of reorganization.
(9) Purchase or retain in its portfolio securities of any issuer if those
officers and directors of the Fund or its Manager owning beneficially
more than one-half of one percent (0.5%) of the securities of the
issuer together own beneficially more than 5% of such securities.
(10) Purchase securities on margin, except it may obtain such short-term
credits as are necessary for the clearance of transactions. The Fund
will not effect a short sale of a security. The Fund will not issue
or acquire put and call options.
(11) Invest more than 5% of its assets at the time of purchase in rights
and warrants (other than those that have been acquired in units or
attached to other securities).
(12) Invest more than 20% of its total assets in securities of foreign
issuers.
In addition:
(13) The Fund may not make loans except that the Fund may (i) purchase and
hold debt obligations in accordance with its investment objective and
policies, and (ii) enter into repurchase agreements.
(14) The Fund does not propose to borrow money except for temporary or
emergency purposes from banks in an amount not to exceed the lesser
of (i) 5% of the value of the Fund's assets, less liabilities other
than such borrowings, or (ii) 10% of the Fund's assets taken at cost
at the time such borrowing is made. The Fund may not pledge,
mortgage, or hypothecate its assets (at value) to an extent greater
than 15% of the gross assets taken at cost.
Each of these Funds has also adopted the following restrictions which are
not fundamental policies and may be changed without shareholder approval. It is
contrary to each Fund's present policy to:
(1) Invest in companies for the purpose of exercising control or
management.
(2) Purchase warrants in excess of 5% of its total assets, of which 2%
may be invested in warrants that are not listed on the New York or
American Stock Exchange.
(3) Invest more than 15% of its total assets in securities not readily
marketable and in repurchase agreements maturing in more than seven
days.
(4) Invest in real estate limited partnership interests.
(5) Invest in interests in oil, gas, or other mineral exploration or
development programs, but the Fund may purchase and sell securities
of companies which invest or deal in such interests.
Although each of these Funds has the right to pledge, mortgage or
hypothecate its assets, in order to comply with Illinois statutes, the Funds
will not, as a matter of operating policy, pledge, mortgage or hypothecate their
portfolio securities to the extent that at any time the percentage of pledged
securities plus the sales load will exceed 10% of the offering price of the
Funds' shares.
INCOME-ORIENTED FUNDS
INVESTMENT OBJECTIVES
Princor Bond Fund, Inc. ("Bond Fund") seeks to provide as high a level of
income as is consistent with preservation of capital and prudent
investment risk.
Princor Government Securities Income Fund, Inc. ("Government Securities
Income Fund") seeks a high level of current income, liquidity and safety
of principal by purchasing obligations issued or guaranteed by the United
States Government or its agencies, with emphasis on Government National
Mortgage Association Certificates ("GNMA Certificates"). The guarantee by
the United States Government extends only to principal and interest. There
are certain risks unique to GNMA Certificates.
Princor High Yield Fund, Inc. ("High Yield Fund") seeks high current
income primarily by purchasing high yielding, lower or non-rated fixed
income securities which are believed to not involve undue risk to income
or principal. Capital growth is a secondary objective when consistent with
the objective of high current income.
Princor Short-Term Bond Fund, Inc. ("Short-Term Bond Fund") seeks a high
level of current income consistent with a relatively high level of
principal stability by investing in a portfolio of securities with a
dollar weighted average maturity of five years or less.
Princor Tax-Exempt Bond Fund, Inc. ("Tax-Exempt Bond Fund") seeks as high
a level of current income exempt from federal income tax as is consistent
with preservation of capital. The Fund seeks to achieve its objective
primarily through the purchase of investment grade quality, tax-exempt
fixed income obligations.
Princor Utilities Fund, Inc. ("Utilities Fund") seeks to provide high
current income and long-term growth of income and capital. The Fund seeks
to achieve its objective by investing primarily in equity and fixed income
securities of companies in the public utilities industry.
INVESTMENT RESTRICTIONS
As a condition of its continued registration in the state of South Dakota,
the Utilities Fund has undertaken not to invest more than 10% of its total
assets in securities of issuers which may not be sold to the public without
registration under the Securities Act of 1933 as amended through April 1, 1990,
nor may it have more than 10% of its total assets invested in real estate
investment trusts or investment companies. In addition, as a condition of its
continued registration in the state of South Dakota, each of the Income-Oriented
Funds has undertaken not to invest more than 5% of its assets in options,
financial futures, or stock index futures, other than hedging positions or
positions that are covered by cash or securities, nor may it have more than 5%
of its assets invested in equity securities of issuers which are not readily
marketable and securities of issuers which have been in operations for less than
three years. Each of these funds has further undertaken to notify shareholders
in the state of South Dakota 30 days prior to changing any of the Funds
investment restrictions described in this paragraph.
Bond Fund, High Yield Fund, Short-Term Bond Fund and Utilities Fund
Each of the following numbered restrictions is a matter of fundamental
policy and may not be changed without shareholder approval. The Bond Fund, High
Yield Fund, Short-Term Bond Fund and Utilities Fund each may not:
(1) Issue any senior securities as defined in the Investment Company Act
of 1940. Purchasing and selling securities and futures contracts and
options thereon and borrowing money in accordance with restrictions
described below do not involve the issuance of a senior security.
(2) Purchase or retain in its portfolio securities of any issuer if those
officers or directors of the fund or its Manager owning beneficially
more than one-half of 1% (0.5%) of the securities of the issuer
together own beneficially more than 5% of such securities.
(3) Invest in commodities or commodity contracts, but it may purchase and
sell financial futures contracts and options on such contracts.
(4) Invest in real estate, although it may invest in securities which are
secured by real estate and securities of issuers which invest or deal
in real estate.
(5) Borrow money, except for temporary or emergency purposes, in an
amount not to exceed 5% of the value of the Fund's total assets at
the time of the borrowing.
(6) Make loans, except that the Fund may (i) purchase and hold debt
obligations in accordance with its investment objective and policies,
(ii) enter into repurchase agreements, and (iii) lend its portfolio
securities without limitation against collateral (consisting of cash
or securities issued or guaranteed by the United States Government or
its agencies or instrumentalities) equal at all times to not less
than 100% of the value of the securities loaned.
(7) Invest more than 5% of its total assets in the securities of any one
issuer (other than obligations issued or guaranteed by the United
States Government or its agencies or instrumentalities); or purchase
more than 10% of the outstanding voting securities of any one issuer.
(8) Act as an underwriter of securities, except to the extent the Fund
may be deemed to be an underwriter in connection with the sale of
securities held in its portfolio.
(9) Concentrate its investments in any particular industry or industries,
except that:
(a) the Utilities Fund may not invest less than 25% of its total
assets in securities of companies in the public utilities
industry, and
(b) the Bond Fund, High Yield Fund and Short-Term Bond Fund each
may invest not more than 25% of the value of its total assets
in a single industry.
(10) Sell securities short (except where the Fund holds or has the right
to obtain at no added cost a long position in the securities sold
that equals or exceeds the securities sold short) or purchase any
securities on margin, except it may obtain such short-term credits as
are necessary for the clearance of transactions. The deposit or
payment of margin in connection with transactions in options and
financial futures contracts is not considered the purchase of
securities on margin.
(11) Invest in interests in oil, gas or other mineral exploration or
development programs, although the Fund may invest in securities of
issuers which invest in or sponsor such programs.
Each of these Funds has also adopted the following restrictions which are
not fundamental policies and may be changed without shareholder approval. It is
contrary to each Fund's present policy to:
(1) Invest more than 15% of its total assets in securities not readily
marketable and in repurchase agreements maturing in more than seven
days. The value of any options purchased in the Over-the-Counter
market are included as part of this 15% limitation.
(2) Purchase warrants in excess of 5% of its total assets, of which 2%
may be invested in warrants that are not listed on the New York or
American Stock Exchange.
(3) Purchase securities of any issuer having less than three years'
continuous operation (including operations of any predecessors) if
such purchase would cause the value of the Fund's investments in all
such issuers to exceed 5% of the value of its total assets.
(4) Purchase securities of other investment companies except in
connection with a merger, consolidation, or plan of reorganization or
by purchase in the open market of securities of closed-end companies
where no underwriter or dealer's commission or profit, other than a
customary broker's commission, is involved, and if immediately
thereafter not more than 10% of the value of the Fund's total assets
would be invested in such securities.
(5) Pledge, mortgage or hypothecate its assets, except to secure
permitted borrowings. The deposit of underlying securities and other
assets in escrow and other collateral arrangements in connection with
transactions in put and call options, futures contracts and options
on futures contracts are not deemed to be pledges or other
encumbrances.
(6) Invest in companies for the purpose of exercising control or
management.
(7) Invest more than 20% of its total assets in securities of foreign
issuers.
(8) Invest more than 5% of its total assets in the purchase of covered
spread options and the purchase of put and call options on
securities, securities indices and financial futures contracts.
Options on financial futures contracts and options on securities
indices will be used solely for hedging purposes; not for
speculation.
(9) Invest more than 5% of its assets in initial margin and premiums on
financial futures contracts and options on such contracts.
(10) Invest in arbitrage transactions.
(11) Invest in real estate limited partnership interests.
The Utilities Fund has also adopted a restriction, which is not a
fundamental policy and may be changed without shareholder approval, that the
Fund may not own more than 5% of the outstanding voting securities of more than
one public utility company as defined by the Public Utility Holding Company Act
of 1935.
Government Securities Income Fund
Each of the following numbered restrictions is a matter of fundamental
policy and may not be changed without shareholder approval. The Government
Securities Fund may not:
(1) Issue any senior securities.
(2) Purchase any securities other than obligations issued or guaranteed
by the United States Government or its agencies or instrumentalities,
except that the Fund may maintain reasonable amounts in cash or
purchase short-term debt securities not issued or guaranteed by the
United States Government or its agencies or instrumentalities for
daily cash management purposes or pending selection of particular
long-term investments. There is no limit on the amount of its assets
which may be invested in the securities of any one issuer of
obligations issued by the United States Government or its agencies or
instrumentalities.
(3) Act as an underwriter of securities, except to the extent the Fund
may be deemed to be an underwriter in connection with the sale of
GNMA certificates held in its portfolio.
(4) Engage in the purchase and sale of interests in real estate,
including interests in real estate investment trusts (although it
will invest in securities secured by real estate or interests
therein, such as mortgage-backed securities) or invest in commodities
or commodity contracts, oil and gas interests, or mineral exploration
or development programs.
(5) Purchase securities of other investment companies except in
connection with a merger, consolidation, or plan of reorganization.
(6) Purchase or retain in its portfolio securities of any issuer if those
officers and directors of the Fund or its Manager owning beneficially
more than one-half of 1% (0.5%) of the securities of the issuer
together own beneficially more than 5% of such securities.
(7) Sell securities short or purchase any securities on margin, except it
may obtain such short-term credits as are necessary for the clearance
of transactions. The deposit or payment of margin in connection with
transactions in options and financial futures contracts is not
considered the purchase of securities on margin.
(8) Invest in companies for the purpose of exercising control or
management.
(9) Make loans, except that the Fund may purchase or hold debt
obligations in accordance with the investment restrictions set forth
in paragraph (2) and may enter into repurchase agreements for such
securities, and may lend its portfolio securities without limitation
against collateral consisting of cash, or securities issued or
guaranteed by the United States Government or its agencies or
instrumentalities, which is equal at all times to 100% of the value
of the securities loaned.
(10) Borrow money, except for temporary or emergency purposes, in an
amount not to exceed 5% of the value of the Fund's total assets.
(11) Enter into repurchase agreements maturing in more than seven days if,
as a result, thereof, more than 10% of the Fund's total assets would
be invested in such repurchase agreements and other assets without
readily available market quotations.
(12) Invest more than 5% of its total assets in the purchase of covered
spread options and the purchase of put and call options on
securities, securities indices and financial futures contracts.
(13) Invest more than 5% of its assets in initial margin and premiums on
financial futures contracts and options on such contracts.
The Fund has also adopted the following restrictions which are not
fundamental policies and may be changed without shareholder approval. It is
contrary to the Fund's current policy to:
(1) Invest more than 15% of its total assets in securities not readily
marketable and in repurchase agreements maturing in more than seven
days. The value of any options purchased in the Over-the-Counter
market are included as part of this 15% limitation.
(2) Pledge, mortgage or hypothecate its assets, except to secure
permitted borrowings. The deposit of underlying securities and other
assets in escrow and other collateral arrangements in connection with
transactions in put and call options, futures contracts and options
on futures contracts are not deemed to be pledges or other
encumbrances.
(3) Invest in real estate limited partnership interests.
Tax-Exempt Bond Fund
Each of the following numbered restrictions is a matter of fundamental
policy and may not be changed without shareholder approval. The Tax-Exempt Bond
Fund may not:
(1)Issue any senior securities as defined in the Act except insofar as
the Fund may be deemed to have issued a senior security by reason of:
(a) purchasing any securities on a when-issued or delayed delivery
basis; or (b) borrowing money in accordance with restrictions
described below.
(2)Purchase any securities other than Municipal Obligations and Taxable
Investments as defined in the Prospectus and Statement of Additional
Information.
(3)Act as an underwriter of securities, except to the extent the Fund
may be deemed to be an underwriter in connection with the sale of
securities held in its portfolio.
(4)Invest more than 10% of its assets in securities of other investment
companies, invest more than 5% of its total assets in the securities
of any one investment company, or acquire more than 3% of the
outstanding voting securities of any one investment company except in
connection with a merger, consolidation or plan of reorganization.
(5)Purchase or retain in its portfolio securities of any issuer if those
officers and directors of the Fund or its Manager owning more than
one-half of 1% (0.5%) of the securities of the issuer together own
beneficially more than 5% of such securities.
(6)Invest in companies for the purpose of exercising control or
management.
(7)Invest more than:
(a) 5% of its total assets in the securities of any one issuer
(other than obligations issued or guaranteed by the United
States Government or its agencies or instrumentalities).
(b) 15% of its total assets in securities that are not readily
marketable and in repurchase agreements maturing in more than
seven days.
(8)Invest in real estate, although it may invest in securities which are
secured by real estate and securities of issuers which invest or deal
in real estate.
(9)Invest in commodities or commodity futures contracts.
(10) Write, purchase or sell puts, calls or combinations thereof.
(11) Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in securities of issuers
which invest in or sponsor such programs.
(12) Make short sales of securities.
(13) Purchase any securities on margin, except it may obtain such
short-term credits as are necessary for the clearance of
transactions.
(14) Make loans, except that the Fund may purchase and hold debt
obligations in accordance with its investment objective and policies,
enter into repurchase agreements, and may lend its portfolio
securities without limitation against collateral, consisting of cash
or securities issued or guaranteed by the United States Government or
its agencies or instrumentalities, which is equal at all times to
100% of the value of the securities loaned.
(15) Borrow money, except for temporary or emergency purposes from banks
in an amount not to exceed 5% of the value of the Fund's total assets
at the time the loan is made.
(16) Pledge, mortgage or hypothecate its assets, except to secure
permitted borrowings.
The Fund has also adopted the following restriction which is not
fundamental and may be changed without shareholder approval. It is contrary to
the Fund's current policy to:
(1)Invest in real estate limited partnership interests.
The identification of the issuer of a Municipal Obligation depends on the
terms and conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the security is backed only
by the assets and revenues of the subdivision, such subdivision would be deemed
to be the sole issuer. Similarly, in the case of an industrial development bond,
if that bond is backed only by the assets and revenues of the non-governmental
user, then such non-governmental user would be deemed to be the sole issuer. If,
however, in either case, the creating government or some other entity guarantees
a security, such a guarantee would be considered a separate security and will be
treated as an issue of such government or other entity provided that guarantee
is not deemed to be a security issued by the guarantor if the value of all
securities issued or guaranteed by the guarantor and owned by the Fund does not
exceed 10% of the value of the Fund's total assets.
The Fund may invest without limit in debt obligations of issuers located
in the same state and in debt obligations which are repayable out of revenue
sources generated from economically related projects or facilities. Sizable
investments in such obligations could involve an increased risk to the Fund
since an economic, business or political development or change affecting one
security could also affect others. The Fund may also invest without limit in
industrial development bonds, but it will not invest more than 20% of its total
assets in any Municipal Obligation the interest on which is treated as a tax
preference item for purposes of the federal alternative minimum tax.
MONEY MARKET FUNDS
INVESTMENT OBJECTIVES
Princor Cash Management Fund, Inc. ("Cash Management Fund") seeks as high
a level of income available from short-term securities as is considered
consistent with preservation of principal and maintenance of liquidity by
investing in a portfolio of money market instruments.
Princor Tax-Exempt Cash Management Fund, Inc. ("Tax-Exempt Cash Management
Fund") seeks, through investment in a professionally managed portfolio of
high quality short-term Municipal Obligations, as high a level of interest
income exempt from federal income tax as is consistent with stability of
principal and maintenance of liquidity.
INVESTMENT RESTRICTIONS
As a condition of its continued registration in the state of South Dakota,
each of the Money Market Funds has undertaken not to invest more than 5% of its
assets in options, financial futures, or stock index futures, other than hedging
positions or positions that are covered by cash or securities, nor may it have
more than 5% of its assets invested in equity securities of issuers which are
not readily marketable and securities of issuers which have been in operations
for less than three years. Each of these funds has further undertaken to notify
shareholders in the state of South Dakota 30 days prior to changing any of the
Funds investment restrictions described in this paragraph.
Cash Management Fund
Each of the following numbered restrictions is a matter of fundamental
policy and may not be changed without shareholder approval. The Cash Management
Fund may not:
(1) Concentrate its investments in any one industry. No more than 25% of
the value of its total assets will be invested in securities of
issuers having their principal activities in any one industry, other
than securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, or obligations of domestic branches of
U.S. banks and savings institutions.
(See "Bank Obligations").
(2) Purchase the securities of any issuer if the purchase will cause more
than 5% of the value of its total assets to be invested in the
securities of any one issuer (except securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities).
(3) Purchase the securities of any issuer if the purchase will cause more
than 10% of the outstanding voting securities of the issuer to be
held by the Fund (other than securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities).
(4) Act as an underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an
underwriter under the federal securities laws.
(5) Purchase securities of any company with a record of less than 3 years
continuous operation (including that of predecessors) if the purchase
would cause the value of the Fund's aggregate investments in all such
companies to exceed 5% of the value of the Fund's total assets.
(6) Engage in the purchase and sale of illiquid interests in real estate,
including interests in real estate investment trusts (although it may
invest in securities secured by real estate or interests therein) or
invest in commodities or commodity contracts, oil and gas interests,
or mineral exploration or development programs.
(7) Purchase securities of other investment companies except in
connection with a merger, consolidation, or plan of reorganization.
(8) Purchase or retain in its portfolio securities of any issuer if those
officers and directors of the Fund or its Manager owning beneficially
more than one-half of 1% (0.5%) of the securities of the issuer
together own beneficially more than 5% of such securities.
(9) Purchase securities on margin, except it may obtain such short-term
credits as are necessary for the clearance of transactions. The Fund
will not effect a short sale of any security. The Fund will not issue
or acquire put and call options, straddles or spreads or any
combination thereof.
(10) Invest in companies for the purpose of exercising control or
management.
(11) Make loans to others except through the purchase of debt obligations
in which the Fund is authorized to invest and by entering into
repurchase agreements (see "Fund Investments").
(12) Borrow money except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might otherwise
require the untimely disposition of securities, in an amount not to
exceed the lesser of (1) 5% of the value of the Fund's assets, or
(ii) 10% of the value of the Fund's net assets taken at cost at the
time such borrowing is made. The Fund will not issue senior
securities except in connection with such borrowings. The Fund may
not pledge, mortgage, or hypothecate its assets (at value) to an
extent greater than 10% of the net assets.
(13) Invest in time deposits maturing in more than seven days; time
deposits maturing from two business days through seven calendar days
may not exceed 10% of the value of the Fund's total assets.
(14) Invest more than 10% of its total assets in securities not readily
marketable and in repurchase agreements maturing in more than seven
days.
The Fund has also adopted the following restriction which is not
fundamental and may be changed without shareholder approval. It is contrary to
the Fund's current policy to:
(1) Invest in real estate limited partnership interests.
Tax-Exempt Cash Management Fund
Each of the following numbered restrictions is a matter of fundamental
policy and may not be changed without shareholder approval. The Tax-Exempt Cash
Management Fund may not:
(1)Invest in securities other than Municipal Obligations and Temporary
Investments as those terms are defined in the Prospectus and the
Statement of Additional Information.
(2)Issue any senior securities as defined in the Investment Company Act
of 1940. Purchasing and selling securities and borrowing money in
accordance with restrictions described below do not involve the
issuance of a senior security.
(3)Purchase or retain in its portfolio securities of any issuer if those
officers or directors of the Fund or its Manager owning beneficially
more than one-half of 1% (0.5%) of the securities of the issuer
together own beneficially more than 5% of such securities.
(4)Invest in commodities or commodity contracts.
(5)Invest in real estate, although it may invest in securities which are
secured by real estate and securities of issuers which invest or deal
in real estate.
(6)Borrow money, except from banks for temporary or emergency purposes,
including the purpose of meeting redemption requests which might
otherwise require the untimely disposition of securities, in an
amount not to exceed one-third of the sum of (a) the value of the
Fund's net assets at the time of the borrowing and (b) the amount
borrowed. While any such borrowings exceed 5% of total assets, no
additional purchases of investment securities will be made by the
Fund. If due to market fluctuations or other reasons the Fund's asset
coverage falls below 300% of its borrowings, the Fund will reduce its
borrowings within 3 business days.
(7)Make loans, except that the Fund may (i) purchase and hold debt
obligations in accordance with its investment objective and policies,
(ii) enter into repurchase agreements, and (iii) lend its portfolio
securities without limitation against collateral (consisting of cash
or securities issued or guaranteed by the United States Government or
its agencies or instrumentalities) equal at all times to not less
than 100% of the value of the securities loaned.
(8)Invest more than 5% of its total assets in the securities of any one
issuer (other than obligations issued or guaranteed by the United
States Government or its agencies or instrumentalities); or purchase
more than 10% of the outstanding voting securities of any one issuer.
(9)Act as an underwriter of securities, except to the extent the Fund
may be deemed to be an underwriter in connection with the sale of
securities held in its portfolio.
(10) Concentrate its investments in any particular industry or industries,
except that the Fund may invest not more than 25% of the value of its
total assets in a single industry; provided, however, that this
limitation shall not be applicable to the purchase of Municipal
Obligations issued by governments or political subdivisions of
governments, obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities, or obligations of
domestic banks (excluding foreign branches of domestic banks).
(11) Sell securities short (except where the Fund holds or has the right
to obtain at no added cost a long position in the securities sold
that equals or exceeds the securities sold short) or purchase any
securities on margin, except it may obtain such short-term credits as
are necessary for the clearance of transactions.
(12) Invest in interests in oil, gas or other mineral exploration or
development programs, although the Fund may invest in securities of
issuers which invest in or sponsor such programs.
The Fund has also adopted the following restrictions which are not
fundamental policies and may be changed without shareholder approval. It is
contrary to the Fund's present policy to:
(1) Invest more than 10% of its total assets in securities not readily
marketable, in repurchase agreements maturing in more than seven
days, and in other illiquid securities.
(2) Purchase securities of any issuer having less than three years'
continuous operation (including operations of any predecessors) if
such purchase would cause the value of the Fund's investments in all
such issuers to exceed 5% of the value of its total assets; provided
that this limitation shall not apply to obligations issued or
guaranteed by the United States Government or its agencies or
instrumentalities or to Municipal Obligations other than industrial
development bonds issued by non-governmental issuers.
(3) Invest more than 10% of its assets in securities of other investment
companies, invest more than 5% of its total assets in the securities
of any one investment company, or acquire more than 3% of the
outstanding voting securities of any one investment company except in
connection with a merger, consolidation or plan of reorganization.
(4) Pledge, mortgage or hypothecate its assets, except to secure
permitted borrowings.
(5) Invest in companies for the purpose of exercising control or
management.
(6) Write or purchase put or call options.
(7) Invest more than 20% of its total assets in industrial development
bonds the interest on which is treated as a tax preference item for
purposes of the federal alternative minimum tax.
(8) Purchase warrants in excess of 5% of its total assets, of which 2%
may be invested in warrants that are not listed on the New York or
American Stock Exchange.
(9) Invest in real estate limited partnership interests.
The identification of the issuer of a Municipal Obligation depends on the
terms and conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the security is backed only
by the assets and revenues of the subdivision, such subdivision would be deemed
to be the sole issuer. Similarly, in the case of an industrial development bond,
if that bond is backed only by the assets and revenues of the non-governmental
user, then such non-governmental user would be deemed to be the sole issuer. If,
however, in either case, the creating government or some other entity guarantees
a security, such a guarantee would be considered a separate security and will be
treated as an issue of such government or other entity.
The Fund may invest without limit in debt obligations of issuers located
in the same state and in debt obligations which are repayable out of revenue
sources generated from economically related projects or facilities. Sizable
investments in such obligations could involve an increased risk to the Fund
since an economic, business or political development or change affecting one
security could also affect others. The Fund may also invest without limit in
industrial development bonds, but it will not invest more than 20% of its total
assets in any municipal obligations the interest on which is treated as a tax
preference item for purposes of the federal alternative minimum tax.
The Fund's Manager will waive its management fee on the Fund's assets
invested in securities of other investment companies. The Fund will generally
invest in other investment companies only for short-term cash management
purposes when the advisor anticipates the net return from the investment to be
superior to alternatives then available. The Fund will generally invest only in
those investment companies that have investment policies requiring investment in
securities comparable in quality to those in which the Fund invests.
FUNDS' INVESTMENTS
The following information further supplements the discussion of the Funds'
investment objectives and policies in the Prospectus under the caption
"INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS."
In making selections of equity securities for the Funds, the Manager will
use an approach described broadly as that of fundamental analysis. Three basic
steps are involved in this analysis. First is the continuing study of basic
economic factors in an effort to conclude what the future general economic
climate is likely to be over the next one to two years. Second, given some
conviction as to the likely economic climate, the Manager attempts to identify
the prospects for the major industrial, commercial and financial segments of the
economy, by looking at such factors as demand for products, capacity to produce,
operating costs, pricing structure, marketing techniques, adequacy of raw
materials and components, domestic and foreign competition, and research
productivity, to ascertain prospects for each industry for the near and
intermediate term. Finally, determinations are made regarding earnings prospects
for individual companies within each industry by considering the same types of
factors described above. These earnings prospects are then evaluated in relation
to the current price of the securities of each company.
Although the Funds may pursue the investment practices described under the
captions Restricted Securities, Foreign Securities, Spread Transactions, Options
on Securities and Securities Indices, and Futures Contracts and Options on
Futures Contracts, Forward Foreign Currency Exchange Contracts, Repurchase
Agreements, Lending of Portfolio Securities and When-Issued and Delayed of
Delivery Securities, none of the Funds either committed during the last fiscal
year or currently intends to commit during the present fiscal year more than 5%
of its net assets to any of the practices, with the following exceptions: (1)
The High Yield Fund's investment in restricted securities exceeded 5% during the
fiscal year ended October 31, 1995. The Fund does not intend to commit more than
5% of its net assets to restricted securities during the present fiscal year;
and (2) The World, Bond and High Yield Funds' investments in foreign securities
are expected to continue to exceed 5% of each Fund's net assets.
Restricted Securities
Each of the Funds has adopted investment restrictions that limit its
investments in restricted securities or other illiquid securities to 15% (10%
for the Government Securities Income Fund and the Money Market Funds and not
more than 5% in equity securities) of its assets. The Board of Directors of each
of the Growth-Oriented and Income-Oriented Funds has adopted procedures to
determine the liquidity of Rule 4(2) short-term paper and of restricted
securities under Rule 144A. Securities determined to be liquid pursuant to such
procedures are excluded from other restricted securities when applying the
preceding investment restrictions.
Generally, restricted securities are not readily marketable because they
are subject to legal or contractual restrictions upon resale. They may be sold
only in a public offering with respect to which a registration statement is in
effect under the Securities Act of 1933 or in a transaction which is exempt from
the registration requirements of that act. When registration is required, a Fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell. Restricted securities and other securities not readily
marketable will be priced at fair value as determined in good faith by or under
the direction of the Board of Directors.
Foreign Securities
Each of the following Princor Funds may invest in foreign securities to
the indicated percentage of its assets: World Fund - 100%; Balanced, Blue Chip,
Bond, Capital Accumulation, Emerging Growth, Growth, High Yield, Short-Term Bond
Fund and Utilities Funds - 20%.
Investment in foreign securities presents certain risks, including those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, the imposition of foreign taxes, future political and economic
developments including war, expropriations, nationalization, the possible
imposition of currency exchange controls and other foreign governmental laws or
restrictions, reduced availability of public information concerning issuers, and
the fact that foreign issuers are not generally subject to uniform accounting,
auditing and financial reporting standards or to other regulatory practices and
requirements comparable to those applicable to domestic issuers. Moreover,
securities of many foreign issuers may be less liquid and their prices more
volatile than those of comparable domestic issuers. In addition, transactions in
foreign securities may be subject to higher costs, and the time for settlement
of transactions in foreign securities may be longer than the settlement period
for domestic issuers. Each Fund's investment in foreign securities may also
result in higher custodial costs and the costs associated with currency
conversions.
Spread Transactions, Options on Securities and Securities Indices, and Futures
Contracts and Options on Futures Contracts
The Balanced, Blue Chip, Bond, Emerging Growth, Government Securities
Income, High Yield, Short-Term Bond, Utilities and World Funds may each engage
in the practices described under this heading. The Tax-Exempt Bond Fund may
invest in financial futures contracts as described under this heading. In the
following discussion, the terms "the Fund," "each Fund" or "the Funds" refer to
each of these Funds.
Spread Transactions
Each Fund may purchase from securities dealers covered spread options.
Such covered spread options are not presently exchange listed or traded. The
purchase of a spread option gives the Fund the right to put, or sell, a security
that it owns at a fixed dollar spread or fixed yield spread in relationship to
another security that the Fund does not own, but which is used as a benchmark.
The risk to the Fund in purchasing covered spread options is the cost of the
premium paid for the spread option and any transaction costs. In addition, there
is no assurance that closing transactions will be available. The purchase of
spread options can be used to protect each Fund against adverse changes in
prevailing credit quality spreads, i.e., the yield spread between high quality
and lower quality securities. The security covering the spread option will be
maintained in a segregated account by each Fund's custodian. The Funds do not
consider a security covered by a spread option to be "pledged" as that term is
used in the Funds' policy limiting the pledging or mortgaging of assets.
Options on Securities and Securities Indices
Each Fund may write (sell) and purchase call and put options on securities
in which it may invest and on securities indices based on securities in which
the Fund may invest. The World Fund may only write covered call options on its
portfolio securities; it may not write or purchase put options. The Funds may
write call and put options to generate additional revenue, and may write and
purchase call and put options in seeking to hedge against a decline in the value
of securities owned or an increase in the price of securities which the Fund
plans to purchase.
Writing Covered Call and Put Options. When a Fund writes a call
option, it gives the purchaser of the option, in return for the premium it
receives, the right to buy from the Fund the underlying security at a specified
price at any time before the option expires. When a Fund writes a put option, it
gives the purchaser of the option, in return for the premium it receives, the
right to sell to the Fund the underlying security at a specified price at any
time before the option expires.
The premium received by a Fund, when it writes a put or call option,
reflects, among other factors, the current market price of the underlying
security, the relationship of the exercise price to the market price, the time
period until the expiration of the option and interest rates. The premium will
generate additional income for the Fund if the option expires unexercised or is
closed out at a profit. By writing a call, a Fund limits its opportunity to
profit from any increase in the market value of the underlying security above
the exercise price of the option, but it retains the risk of loss if the price
of the security should decline. By writing a put, a Fund assumes the risk that
it may have to purchase the underlying security at a price that may be higher
than its market value at time of exercise.
The Funds write only covered options and will comply with applicable
regulatory and exchange cover requirements. The Funds usually will (and the
World Fund must) own the underlying security covered by any outstanding call
option that it has written. With respect to an outstanding put option that it
has written, each Fund will deposit and maintain with its custodian cash, U.S.
Government securities or other liquid securities with a value at least equal to
the exercise price of the option.
Once a Fund has written an option, it may terminate its obligation, before
the option is exercised, by effecting a closing transaction, which is
accomplished by the Fund's purchasing an option of the same series as the option
previously written. The Funds will have a gain or loss depending on whether the
premium received when the option was written exceeds the closing purchase price
plus related transaction costs.
Purchasing Call and Put Options. When a Fund purchases a call option,
it receives, in return for the premium it pays, the right to buy from the writer
of the option the underlying security at a specified price at any time before
the option expires. The Fund may purchase call options in anticipation of an
increase in the market value of securities that it intends ultimately to buy.
During the life of the call option, the Fund would be able to buy the underlying
security at the exercise price regardless of any increase in the market price of
the underlying security. In order for a call option to result in a gain, the
market price of the underlying security must rise to a level that exceeds the
sum of the exercise price, the premium paid and transaction costs.
When a Fund purchases a put option, it receives, in return for the premium
it pays, the right to sell to the writer of the option the underlying security
at a specified price at any time before the option expires. The Fund may
purchase put options in anticipation of a decline in the market value of the
underlying security. During the life of the put option, the Fund would be able
to sell the underlying security at the exercise price regardless of any decline
in the market price of the underlying security. In order for a put option to
result in a gain, the market price of the underlying security must decline,
during the option period, below the exercise price sufficiently to cover the
premium and transaction costs.
Once a Fund has purchased an option, it may close out its position by
selling an option of the same series as the option previously purchased. The
Fund will have a gain or loss depending on whether the closing sale price
exceeds the initial purchase price plus related transaction costs.
None of the Funds will invest more than 5% of its assets in the purchase
of call and put options on individual securities, securities indices and futures
contracts.
Options on Securities Indices. Each Fund may purchase and sell put
and call options on any securities index based on securities in which the Fund
may invest. Securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than price
fluctuations in a single security. Options on securities indices are similar to
options on securities, except that the exercise of securities index options
requires cash payments and does not involve the actual purchase or sale of
securities. The Funds would engage in transactions in put and call options on
securities indices for the same purposes as they would engage in transactions in
options on securities. When a Fund writes call options on securities indices, it
will hold in its portfolio underlying securities which, in the judgment of the
Manager, correlate closely with the securities index and which have a value at
least equal to the aggregate amount of the securities index options.
Risks Associated with Options Transactions. An options position may
be closed out only on an exchange which provides a secondary market for an
option of the same series. Although the Funds will generally purchase or write
only those options for which there appears to be an active secondary market,
there is no assurance that a liquid secondary market on an exchange will exist
for any particular option, or at any particular time. For some options, no
secondary market on an exchange or elsewhere may exist. If a Fund is unable to
effect closing sale transactions in options it has purchased, the Fund would
have to exercise its options in order to realize any profit and may incur
transaction costs upon the purchase or sale of underlying securities pursuant
thereto. If a Fund is unable to effect a closing purchase transaction for a
covered option that it has written, it will not be able to sell the underlying
securities, or dispose of the assets held in a segregated account, until the
option expires or is exercised. A Fund's ability to terminate option positions
established in the over-the-counter market may be more limited than for
exchange-traded options and may also involve the risk that broker-dealers
participating in such transactions might fail to meet their obligations.
Futures Contracts and Options on Futures
Each Fund may purchase and sell financial futures contracts and options on
those contracts. Financial futures contracts are commodities contracts based on
financial instruments such as U.S. Treasury bonds or bills or on securities
indices such as the S&P 500 Index. Futures contracts, options on futures
contracts and the commodity exchanges on which they are traded are regulated by
the Commodity Futures Trading Commission ("CFTC"). Through the purchase and sale
of futures contracts and related options, a Fund may seek to hedge against a
decline in securities owned by the Fund or an increase in the price of
securities which the Fund plans to purchase.
Futures Contracts. When a Fund sells a futures contract based on a
financial instrument, the Fund becomes obligated to deliver that kind of
instrument at a specified future time for a specified price. When a Fund
purchases that kind of contract, it becomes obligated to take delivery of the
instrument at a specified time and to pay the specified price. In most
instances, these contracts are closed out by entering into an offsetting
transaction before the settlement date, thereby canceling the obligation to make
or take delivery of specific securities. The Fund realizes a gain or loss
depending on whether the price of an offsetting purchase plus transaction costs
are less or more than the price of the initial sale or on whether the price of
an offsetting sale is more or less than the price of the initial purchase plus
transaction costs. Although the Funds will usually liquidate futures contracts
on financial instruments in this manner, they may instead make or take delivery
of the underlying securities whenever it appears economically advantageous to do
so.
A futures contract based on a securities index provides for the purchase
or sale of a group of securities at a specified future time for a specified
price. These contracts do not require actual delivery of securities, but result
in a cash settlement based upon the difference in value of the index between the
time the contract was entered into and the time it is liquidated, which may be
at its expiration or earlier if it is closed out by entering into an offsetting
transaction.
When a futures contract is purchased or sold a brokerage commission is
paid, but unlike the purchase or sale of a security or option, no price or
premium is paid or received. Instead, an amount of cash or U.S. Government
securities, which varies, but is generally about 5% of the contract amount, is
deposited by the Fund with its custodian for the benefit of the futures
commission merchant through which the Fund engages in the transaction. This
amount is known as "initial margin." It does not involve the borrowing of funds
by the Fund to finance the transaction, but instead represents a "good faith"
deposit assuring the performance of both the purchaser and the seller under the
futures contract. It is returned to the Fund upon termination of the futures
contract, if all the Fund's contractual obligations have been satisfied.
Subsequent payments to and from the broker, known as "variation margin,"
are required to be made on a daily basis as the price of the futures contract
fluctuates, making the long or short positions in the futures contract more or
less valuable, a process known as "marking to market." If the position is closed
out by taking an opposite position prior to the settlement date of the futures
contract, a final determination of variation margin is made, additional cash is
required to be paid to or released by the broker, and the Fund realizes a loss
or gain.
In using futures contracts, the Funds will seek to establish more
certainly than would otherwise be possible the effective price of or rate of
return on portfolio securities or securities that the Fund proposes to acquire.
A Fund, for example, may sell futures contracts in anticipation of a rise in
interest rates which would cause a decline in the value of its debt investments.
When this kind of hedging is successful, the futures contracts should increase
in value when the Fund's debt securities decline in value and thereby keep the
Fund's net asset value from declining as much as it otherwise would. A Fund may
also sell futures contracts on securities indices in anticipation of or during a
stock market decline in an endeavor to offset a decrease in the market value of
its equity investments. When a Fund is not fully invested and anticipates an
increase in the cost of securities it intends to purchase, it may purchase
financial futures contracts. When increases in the prices of equities are
expected, a Fund may purchase futures contracts on securities indices in order
to gain rapid market exposure that may partially or entirely offset increases in
the cost of the equity securities it intends to purchase.
Options on Futures. The Funds may also purchase and write call and
put options on futures contracts. A call option on a futures contract gives the
purchaser the right, in return for the premium paid, to purchase a futures
contract (assume a long position) at a specified exercise price at any time
before the option expires. A put option gives the purchaser the right, in return
for the premium paid, to sell a futures contract (assume a short position), for
a specified exercise price, at any time before the option expires.
Upon the exercise of a call, the writer of the option is obligated to sell
the futures contract (to deliver a long position to the option holder) at the
option exercise price, which will presumably be lower than the current market
price of the contract in the futures market. Upon exercise of a put, the writer
of the option is obligated to purchase the futures contract (deliver a short
position to the option holder) at the option exercise price, which will
presumably be higher than the current market price of the contract in the
futures market. However, as with the trading of futures, most options are closed
out prior to their expiration by the purchase or sale of an offsetting option at
a market price that will reflect an increase or a decrease from the premium
originally paid.
Options on futures can be used to hedge substantially the same risks as
might be addressed by the direct purchase or sale of the underlying futures
contracts. For example, if a Fund anticipated a rise in interest rates and a
decline in the market value of the debt securities in its portfolio, it might
purchase put options or write call options on futures contracts instead of
selling futures contracts.
If a Fund purchases an option on a futures contract, it may obtain
benefits similar to those that would result if it held the futures position
itself. But in contrast to a futures transaction, the purchase of an option
involves the payment of a premium in addition to transaction costs. In the event
of an adverse market movement, however, the Fund will not be subject to a risk
of loss on the option transaction beyond the price of the premium it paid plus
its transaction costs.
When a Fund writes an option on a futures contract, the premium paid by
the purchaser is deposited with the Fund's custodian, and the Fund must maintain
with its custodian all or a portion of the initial margin requirement on the
underlying futures contract. The Fund assumes a risk of adverse movement in the
price of the underlying futures contract comparable to that involved in holding
a futures position. Subsequent payments to and from the broker, similar to
variation margin payments, are made as the premium and the initial margin
requirement are marked to market daily. The premium may partially offset an
unfavorable change in the value of portfolio securities, if the option is not
exercised, or it may reduce the amount of any loss incurred by the Fund if the
option is exercised.
Risks Associated with Futures Transactions. There are a number of
risks associated with transactions in futures contracts and related options. A
Fund's successful use of futures contracts is subject to the Manager's ability
to predict correctly the factors affecting the market values of the Fund's
portfolio securities. For example, if a Fund was hedged against the possibility
of an increase in interest rates which would adversely affect debt securities
held by the Fund and the prices of those debt securities instead increased, the
Fund would lose part or all of the benefit of the increased value of its
securities which it hedged because it would have offsetting losses in its
futures positions. Other risks include imperfect correlation between price
movements in the financial instrument or securities index underlying the futures
contract, on the one hand, and the price movements of either the futures
contract itself or the securities held by the Fund, on the other hand. If the
prices do not move in the same direction or to the same extent, the transaction
may result in trading losses.
Prior to exercise or expiration, a position in futures may be terminated
only by entering into a closing purchase or sale transaction. This requires a
secondary market on the relevant contract market. The Fund will enter into a
futures contract or related option only if there appears to be a liquid
secondary market therefor. There can be no assurance, however, that such a
liquid secondary market will exist for any particular futures contract or
related option at any specific time. Thus, it may not be possible to close out a
futures position once it has been established. Under such circumstances, the
Fund would continue to be required to make daily cash payments of variation
margin in the event of adverse price movements. In such situations, if the Fund
has insufficient cash, it may be required to sell portfolio securities to meet
daily variation margin requirements at a time when it may be disadvantageous to
do so. In addition, the Fund may be required to perform under the terms of the
futures contracts it holds. The inability to close out futures positions also
could have an adverse impact on the Fund's ability effectively to hedge its
portfolio.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. This daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
Limitations on the Use of Futures and Options on Futures. Each Fund
intends to come within an exclusion from the definition of "commodity pool
operator" provided by CFTC regulations by complying with certain limitations on
the use of futures and related options prescribed by those regulations.
None of the Funds will purchase or sell futures contracts or options
thereon if immediately thereafter the aggregate initial margin and premiums
exceed 5% of the fair market value of the Fund's assets, after taking into
account unrealized profits and unrealized losses on any such contracts it has
entered into (except that in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount generally may be excluded in computing
the 5%).
The Funds will enter into futures contracts and related options
transactions only for bona fide hedging purposes as permitted by the CFTC and
for other appropriate risk management purposes, if any, which the CFTC may deem
appropriate for mutual funds excluded from the regulations governing commodity
pool operators. The Funds are not permitted to engage in speculative futures
trading. Each Fund will determine that the price fluctuations in the futures
contracts and options on futures used for hedging or risk management purposes
are substantially related to price fluctuations in securities held by the Fund
or which it expects to purchase. In pursuing traditional hedging activities,
each Fund will sell futures contracts or acquire puts to protect against a
decline in the price of securities that the Fund owns, and each Fund will
purchase futures contracts or calls on futures contracts to protect the Fund
against an increase in the price of securities the Fund intends to purchase
before it is in a position to do so.
When a Fund purchases a futures contract, or purchases a call option on a
futures contract, it will maintain an amount of cash, cash equivalents or
short-term high-grade fixed-income securities in a segregated account with the
Fund's custodian, so that the amount so segregated plus the amount of initial
margin held for the account of its broker equals the market value of the futures
contract.
The Funds will not maintain open short positions in futures contracts,
call options written on futures contracts, and call options written on
securities indices if, in the aggregate, the value of the open positions (marked
to market) exceeds the current market value of that portion of its securities
portfolio being hedged by those futures and options plus or minus the unrealized
gain or loss on those open positions, adjusted for the historical volatility
relationship between that portion of the portfolio and the contracts (i.e., the
Beta volatility factor). To the extent a Fund has written call options on
specific securities in that portion of its portfolio, the value of those
securities will be deducted from the current market value of that portion of the
securities portfolio. If this limitation should be exceeded at any time, the
Fund will take prompt action to close out the appropriate number of open short
positions to bring its open futures and options positions within this
limitation.
Forward Foreign Currency Exchange Contracts
The World Fund may, but is not obligated to, enter into forward foreign
currency exchange contracts but may do so only under two circumstances. First,
when it is entering into a contract for the purchase or sale of a security
denominated in a foreign currency and wants to "lock-in" the U.S. dollar price
of the security. Second, when the Manager believes that the currency of a
particular foreign country in which a portion of the Fund's securities are
denominated may suffer a substantial decline against the U.S. dollar. The Fund
generally will not enter into a forward contract with a term of greater than one
year.
The World Fund will enter into forward foreign currency exchange contracts
only for the purpose of "hedging," that is limiting the risks associated with
changes in the relative rates of exchange between the U.S. dollar and foreign
currencies in which securities owned by the Fund are denominated. It will not
enter into such forward contracts for speculative purposes. The Fund will set up
a separate account with the Custodian to place foreign securities denominated in
the currency for which the Fund has entered into forward contracts under the
second circumstance, as set forth above, for the term of the forward contract.
It should be noted that the use of forward foreign currency exchange contracts
does not eliminate fluctuations in the underlying prices of the securities. It
simply establishes a rate of exchange between the currencies which can be
achieved at some future point in time. Additionally, although such contracts
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they also tend to limit any potential gain which might result if the
value of the currency increases.
Repurchase Agreements
All Princor Funds may invest in repurchase agreements. None of the
Growth-Oriented or Income-Oriented Funds will enter into repurchase agreements
that do not mature within seven days if any such investment, together with other
illiquid securities held by the Fund, would amount to more than 15% of its
assets. Neither of the Money Market Funds will enter into repurchase agreements
that do not mature within seven days of such investment together with other
illiquid securities held by the Fund, would amount to more than 10% of its
assets. Repurchase agreements will typically involve the acquisition by the Fund
of debt securities from a selling financial institution such as a bank, savings
and loan association or broker-dealer. A repurchase agreement provides that the
Fund will sell back to the seller and that the seller will repurchase the
underlying securities at a specified price and at a fixed time in the future.
Repurchase agreements may be viewed as loans by a Fund collateralized by the
underlying securities ("collateral"). This arrangement results in a fixed rate
of return that is not subject to market fluctuation during the Fund's holding
period. Although repurchase agreements involve certain risks not associated with
direct investments in debt securities, each of the Funds follows procedures
established by its Board of Directors which are designed to minimize such risks.
These procedures include entering into repurchase agreements only with large,
well-capitalized and well-established financial institutions, which have been
approved by the Fund's Board of Directors and which the Fund's Manager believes
present minimum credit risks. In addition, the value of the collateral
underlying the repurchase agreement will always be at least equal to the
repurchase price, including accrued interest. In the event of a default or
bankruptcy by a selling financial institution, the affected Fund bears a risk of
loss. In seeking to liquidate the collateral, a Fund may be delayed in or
prevented from exercising its rights and may incur certain costs. Further to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a loss.
Lending of Portfolio Securities
All Princor Funds, except the Capital Accumulation, Growth and Cash
Management Funds, may lend their portfolio securities. None of the Princor Funds
intends to lend its portfolio securities if as a result the aggregate of such
loans made by the Fund would exceed 30% of its total assets. Portfolio
securities may be lent to unaffiliated broker-dealers and other unaffiliated
qualified financial institutions provided that such loans are callable at any
time on not more than five business days' notice and that cash or government
securities equal to at least 100% of the market value of the securities loaned,
determined daily, is deposited by the borrower with the Fund and is maintained
each business day in a segregated account. While such securities are on loan,
the borrower will pay the Fund any income accruing thereon, and the Fund may
invest any cash collateral, thereby earning additional income, or may receive an
agreed-upon fee from the borrower. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to the Fund and its
shareholders. A Fund may pay reasonable administrative, custodial and other fees
in connection with such loans and may pay a negotiated portion of the interest
earned on the cash or government securities pledged as collateral to the
borrower or placing broker. A Fund does not vote securities that have been
loaned, but it will call a loan of securities in anticipation of an important
vote.
When-Issued and Delayed Delivery Securities
Each of the Princor Funds may from time to time purchase securities on a
when-issued basis and may purchase or sell securities on a delayed delivery
basis. The price of such a transaction is fixed at the time of the commitment,
but delivery and payment take place on a later settlement date, which may be a
month or more after the date of the commitment. No interest accrues to the
purchaser during this period, and the securities are subject to market
fluctuation, which involves the risk for the purchaser that yields available in
the market at the time of delivery may be higher than those obtained in the
transaction. Each Fund will only purchase securities on a when-issued or delayed
delivery basis with the intention of acquiring the securities, but a Fund may
sell the securities before the settlement date, if such action is deemed
advisable. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction and
thereafter reflect the value, each day, of the securities in determining its net
asset value. Each Fund will also establish a segregated account with its
custodian bank in which it will maintain cash or cash equivalents, United States
Government securities and other high grade debt obligations equal in value to
the Fund's commitments for such when-issued or delayed delivery securities. The
availability of liquid assets for this purpose and the effect of asset
segregation on a Fund's ability to meet its current obligations, to honor
requests for redemption and to have its investment portfolio managed properly
will limit the extent to which the Fund may engage in forward commitment
agreements. Except as may be imposed by these factors, there is no limit on the
percent of a Fund's total assets that may be committed to transactions in such
agreements.
Money Market Instruments
The Cash Management Fund will invest all of its available assets in money
market instruments maturing in 397 days or less. The types of instruments which
this Fund may purchase are described in the Prospectus and below.
(1) U.S. Government Securities -- Securities issued or guaranteed by the
U.S. Government, including treasury bills, notes and bonds.
(2) U.S. Government Agency Securities -- Obligations issued or guaranteed
by agencies or instrumentalities of the U.S. Government. U.S. agency
obligations include, but are not limited to, the Bank for
Co-operatives, Federal Home Loan Banks, Federal Intermediate Credit
Banks, and the Federal National Mortgage Association. U.S.
instrumentality obligations include, but are not limited to, the
Export-Import Bank and Farmers Home Administration. Some obligations
issued or guaranteed by U.S. Government agencies and
instrumentalities are supported by the full faith and credit of the
U.S. Treasury, others such as those issued by the Federal National
Mortgage Association, by discretionary authority of the U.S.
Government to purchase certain obligations of the agency or
instrumentality, and others, such as those issued by the Student
Loan Marketing Association, only by the credit of the agency or
instrumentality.
(3) Bank Obligations -- Certificates of deposit, time deposits and
bankers' acceptances of U.S. commercial banks having total assets of
at least one billion dollars, and of the overseas branches of U.S.
commercial banks and foreign banks, which in the Manager's opinion,
are of comparable quality, provided each such bank with its branches
has total assets of at least five billion dollars, and certificates,
including time deposits of domestic savings and loan associations
having at least one billion dollars in assets which are insured by
the Federal Savings and Loan Insurance Corporation. The Fund may
acquire obligations of U.S. banks which are not members of the
Federal Reserve System or of the Federal Deposit Insurance
Corporation. Any obligations of foreign banks shall be denominated in
U.S. dollars. Obligations of foreign banks and obligations of
overseas branches of U.S. banks are subject to somewhat different
regulations and risks than those of U.S. domestic banks. For example,
an issuing bank may be able to maintain that the liability for an
investment is solely that of the overseas branch which could expose
the Fund to a greater risk of loss. In addition, obligations of
foreign banks or of overseas branches of U.S. banks may be affected
by governmental action in the country of domicile of the branch or
parent bank. Examples of adverse foreign governmental actions include
the imposition of currency controls, the imposition of withholding
taxes on interest income payable on such obligations, interest
limitations, seizure or nationalization of assets, or the declaration
of a moratorium. Deposits in foreign banks or foreign branches of
U.S. banks are not covered by the Federal Deposit Insurance
Corporation. The Fund will only buy short-term instruments where the
risks of adverse governmental action are believed by the Manager to
be minimal. The Fund will consider these factors along with other
appropriate factors in making an investment decision to acquire such
obligations and will only acquire those which, in the opinion of
management, are of an investment quality comparable to other debt
securities bought by the Fund. The Fund may invest in certificates of
deposit of selected banks having less than one billion dollars of
assets providing the certificates do not exceed the level of
insurance (currently $100,000) provided by the applicable government
agency.
A certificate of deposit is issued against funds deposited in a bank
or savings and loan association for a definite period of time, at a
specified rate of return. Normally they are negotiable. However, the
Fund may occasionally invest in certificates of deposit which are not
negotiable. Such certificates may provide for interest penalties in
the event of withdrawal prior to their maturity. A bankers'
acceptance is a short-term credit instrument issued by corporations
to finance the import, export, transfer or storage of goods. They are
termed "accepted" when a bank guarantees their payment at maturity
and reflect the obligation of both the bank and drawer to pay the
face amount of the instrument at maturity.
(4) Commercial Paper -- Short-term promissory notes issued by
corporations.
(5) Short-term Corporate Debt -- Corporate notes, bonds and debentures
which at the time of purchase have 397 days or less remaining to
maturity.
(6) Repurchase Agreements -- Instruments under which securities are
purchased from a bank or securities dealer with an agreement by the
seller to repurchase the securities at the same price plus interest
at a specified rate. (See "FUND INVESTMENTS - Repurchase
Agreements.")
The ratings of nationally recognized statistical rating organization
(NRSRO's), such as Moody's Investor Services, Inc. ("Moody's") and Standard and
Poor's ("S&P"), which are described in Appendix A, represent their opinions as
to the quality of the money market instruments which they undertake to rate. It
should be emphasized, however, that ratings are general and are not absolute
standards of quality. These ratings, including ratings of NRSRO's other than
Moody's and S&P, are the initial criteria for selection of portfolio
investments, but the Manager will further evaluate these securities.
Municipal Obligations
The Tax-Exempt Bond Fund and Tax-Exempt Cash Management Fund can each
invest in "Municipal Obligations." Municipal Obligations are obligations issued
by or on behalf of states, territories, and possessions of the United States and
the District of Columbia and their political subdivisions, agencies and
instrumentalities, including municipal utilities, or multi-state agencies or
authorities, the interest from which is exempt from federal income tax in the
opinion of bond counsel to the issuer. Three major classifications of Municipal
Obligations are Municipal Bonds, which generally have a maturity at the time of
issue of one year or more, Municipal Notes, which generally have a maturity at
the time of issue of six months to three years, and Municipal Commercial Paper,
which generally has a maturity at the time of issue of 30 to 270 days. The
Tax-Exempt Cash Management Fund will only purchase Municipal Obligations that,
at the time of purchase, have 397 days or less remaining to maturity or have a
variable or floating rate of interest.
The term "Municipal Obligations" includes debt obligations issued to
obtain funds for various public purposes, including the construction of a wide
range of public facilities such as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer works and
electric utilities. Other public purposes for which Municipal Obligations may be
issued include refunding outstanding obligations, obtaining funds for general
operating expenses and lending such funds to other public institutions and
facilities.
Industrial development bonds issued by or on behalf of public authorities
to obtain funds to provide for the construction, equipment, repair or
improvement of privately operated housing facilities, sports facilities,
convention or trade show facilities, airport, mass transit, industrial, port or
parking facilities, air or water pollution control facilities and certain local
facilities for water supply, gas, electricity or sewage or solid waste disposal
are considered to be Municipal Obligations if the interest paid thereon
qualifies as exempt from federal income tax in the opinion of bond counsel to
the issuer, even though the interest may be subject to the federal alternative
minimum tax.
Municipal Bonds. Municipal Bonds may be either "general obligation" or
"revenue" issues. General obligation bonds are secured by the issuer's pledge of
its faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source (e.g., the user of the facilities being
financed), but not from the general taxing power. Industrial development bonds
and pollution control bonds in most cases are revenue bonds and generally do not
carry the pledge of the credit of the issuing municipality. The payment of the
principal and interest on industrial revenue bonds depends solely on the ability
of the user of the facilities financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment. The Fund may also invest in "moral obligation" bonds
which are normally issued by special purpose public authorities. If an issuer of
moral obligation bonds is unable to meet its obligations, the repayment of the
bonds becomes a moral commitment but not a legal obligation of the state or
municipality in question.
Municipal Notes. Municipal Notes usually are general obligations of the
issuer and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Payment of these notes is primarily dependent upon
the issuer's receipt of the anticipated revenues. Other notes include
"Construction Loan Notes" issued to provide construction financing for specific
projects, and "Bank Notes" issued by local governmental bodies and agencies to
commercial banks as evidence of borrowings. Some notes ("Project Notes") are
issued by local agencies under a program administered by the United States
Department of Housing and Urban Development. Project Notes are secured by the
full faith and credit of the United States.
Bond Anticipation Notes (BANs) are usually general obligations of state
and local governmental issuers which are sold to obtain interim financing for
projects that will eventually be funded through the sale of long-term debt
obligations or bonds. The ability of an issuer to meet its obligations on its
BANs is primarily dependent on the issuer's access to the long-term municipal
bond market and the likelihood that the proceeds of such bond sales will be used
to pay the principal and interest on the BANs.
Tax Anticipation Notes (TANs) are issued by state and local governments to
finance the current operations of such governments. Repayment is generally to be
derived from specific future tax revenues. TANs are usually general obligations
of the issuer. A weakness in an issuer's capacity to raise taxes due to, among
other things, a decline in its tax base or a rise in delinquencies, could
adversely affect the issuer's ability to meet its obligations on outstanding
TANs.
Revenue Anticipation Notes (RANs) are issued by governments or
governmental bodies with the expectation that future revenues from a designated
source will be used to repay the notes. In general they also constitute general
obligations of the issuer. A decline in the receipt of projected revenues, such
as anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal and
interest on RANs.
Construction Loan Notes are issued to provide construction financing for
specific projects. Frequently, these notes are redeemed with funds obtained from
the Federal Housing Administration.
Bank Notes are notes issued by local governmental bodies and agencies such
as those described above to commercial banks as evidence of borrowings. The
purpose for which the notes are issued are varied but they are frequently issued
to meet short-term working-capital or capital-project needs. These notes may
have risks similar to the risks associated with TANs and RANs.
Municipal Commercial Paper. Municipal Commercial Paper refers to
short-term obligations of municipalities which may be issued at a discount and
may be referred to as Short-Term Discount Notes. Municipal Commercial Paper is
likely to be used to meet seasonal working capital needs of a municipality or
interim construction financing and to be paid from general revenues of the
municipality or refinanced with long-term debt. In most cases Municipal
Commercial Paper is backed by letters of credit, lending agreements, note
repurchase agreements or other credit facility agreements offered by banks or
other institutions.
Variable and Floating Rate Obligations. Certain Municipal Obligations,
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities and debt instruments issued by domestic banks or corporations
may carry variable or floating rates of interest. Such instruments bear interest
at rates which are not fixed, but which vary with changes in specified market
rates or indices, such as a bank prime rate or tax-exempt money market index.
Variable rate notes are adjusted to current interest rate levels at certain
specified times, such as every 30 days, as set forth in the instrument. A
floating rate note adjusts automatically whenever there is a change in its base
interest rate adjustor, e.g., a change in the prime lending rate or specified
interest rate indices. Typically such instruments carry demand features
permitting the Fund to redeem at par upon specified notice.
A Fund's right to obtain payment at par on a demand instrument upon demand
could be affected by events occurring between the date the Fund elects to redeem
the instrument and the date redemption proceeds are due which affects the
ability of the issuer to pay the instrument at par value. The Manager will
monitor on an ongoing basis the pricing, quality and liquidity of such
instruments and will similarly monitor the ability of an issuer of a demand
instrument, including those supported by bank letters of credit or guarantees,
to pay principal and interest on demand. Although the ultimate maturity of such
variable rate obligations may exceed one year, the Funds will treat the maturity
of each variable rate demand obligation as the longer of (i) the notice period
required before the Fund is entitled to payment of the principal amount through
demand, or (ii) the period remaining until the next interest rate adjustment.
Floating rate instruments with demand features are deemed to have a maturity
equal to the period remaining until the principal amount can be recovered
through demand.
The Funds may purchase from financial institutions participation interests
in variable rate Municipal Obligations (such as industrial development bonds). A
participation interest gives the purchaser an undivided interest in the
Municipal Obligation in the proportion that its participation interest bears to
the total principal amount of the Municipal Obligation. A Fund has the right to
demand payment on seven days' notice, for all or any part of the Fund's
participation interest in the Municipal Obligation, plus accrued interest. Each
participation interest is backed by an irrevocable letter of credit or guarantee
of a bank. Banks will retain a service and letter of credit fee and a fee for
issuing repurchase commitments in an amount equal to the excess of the interest
paid on the Municipal Obligations over the negotiated yield at which the
instruments were purchased by the Funds. No Fund committed during the last
fiscal year or currently intends to commit during the present fiscal year more
than 5% of its net assets to participation interests.
Other Municipal Obligations. Other kinds of Municipal Obligations are
occasionally available in the marketplace, and a Fund may invest in such other
kinds of obligations to the extent consistent with its investment objective and
limitations. Such obligations may be issued for different purposes and with
different security than those mentioned above.
Risks of Municipal Obligations. The yields on Municipal Obligations are
dependent on a variety of factors, including general economic and monetary
conditions, money market factors, conditions in the Municipal Obligations
market, size of a particular offering, maturity of the obligation, and rating of
the issue. Each Fund's ability to achieve its investment objective is also
dependent on the continuing ability of the issuers of the Municipal Obligations
in which it invests to meet their obligation for the payment of interest and
principal when due.
Municipal Obligations are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or any state extending the time for payment of principal or interest,
or both, or imposing other constraints upon enforcement of such obligations or
upon municipalities to levy taxes. The power or ability of issuers to pay, when
due, principal of and interest on Municipal Obligations may also be materially
affected by the results of litigation or other conditions.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. It may be expected that similar proposals may
be introduced in the future. If such a proposal were enacted, the ability of the
Funds to pay "exempt interest" dividends may be adversely affected and each Fund
would re-evaluate its investment objective and policies and consider changes in
its structure.
Taxable Investments of the Tax-Exempt Bond Fund
The Tax-Exempt Bond Fund may invest up to 20% of its assets in taxable
short-term investments consisting of: Obligations issued or guaranteed by the
United States Government or its agencies or instrumentalities; domestic bank
certificates of deposit and bankers' acceptances; short-term corporate debt
securities such as commercial paper; and repurchase agreements ("Taxable
Investments"). These investments must have a stated maturity of one year or less
at the time of purchase and must meet the following standards: banks must have
assets of at least $1 billion; commercial paper must be rated at least "A" by
S&P or "Prime" by Moody's or, if not rated, must be issued by companies having
an outstanding debt issue rated at least "A" by S&P or Moody's; corporate bonds
and debentures must be rated at least "A" by S&P or Moody's. Interest earned
from Taxable Investments will be taxable to investors. When, in the opinion of
the Fund's Manager, it is advisable to maintain a temporary "defensive" posture,
the Fund may invest more than 20% of its total assets in Taxable Investments. At
other times, Taxable Investments, Municipal Obligations that do not meet the
quality standards required for the 80% portion of the portfolio and Municipal
Obligations the interest on which is treated as a tax preference item for
purposes of the federal alternative minimum tax will not exceed 20% of the
Fund's total assets.
Temporary Investments for the Tax-Exempt Cash Management Fund
The Tax-Exempt Cash Management Fund may invest, on a temporary basis, up
to 20% of its net assets in taxable short-term investments consisting of:
Obligations issued or guaranteed by the United States Government or its agencies
or instrumentalities; U.S. dollar denominated certificates of deposit issued by
U.S. banks and bankers' acceptances; commercial paper of U.S. corporations;
short-term corporate debt securities; and repurchase agreements ("Temporary
Investments"). These investments must have a stated maturity of 397 days or less
at the time of purchase and must meet the same standards that apply to
securities in which the Cash Management Fund may invest. Interest earned from
Temporary Investments will be taxable to investors. When, in the opinion of the
Fund's Manager, it is advisable to maintain a temporary "defensive" posture, the
Fund may invest more than 20% of its total assets in Temporary Investments.
Portfolio Turnover
Portfolio turnover will normally differ for each Fund, may vary from year
to year, as well as within a year, and may be affected by portfolio sales
necessary to meet cash requirements for redemptions of Fund shares. The
portfolio turnover rate for a Fund is calculated by dividing the lesser of
purchases or sales of its portfolio securities during the fiscal year by the
monthly average of the value of its portfolio securities (excluding from the
computation all securities, including options, with maturities at the time of
acquisition of one year or less). A high rate of portfolio turnover generally
involves correspondingly greater brokerage commission expenses, which must be
borne directly by the Fund. Although the rate of portfolio turnover will not be
a limiting factor when it is deemed appropriate to purchase or sell securities
for a Fund, each Fund intends to limit turnover so that realized short-term
gains on securities held for less than three months do not exceed 30% of gross
income in order to qualify as a "regulated investment company" under the
Internal Revenue Code. This requirement may in some cases limit the ability of a
Fund to effect certain portfolio transactions. No portfolio turnover rate can be
calculated for the Money Market Funds because of the short maturities of the
securities in which they invest. The portfolio turnover rates for each of the
other Funds for its most recent and immediately preceding fiscal periods were as
follows (annualized when reporting period is less than one year): Balanced Fund
- - 35.8% and 14.4%; Blue Chip Fund 26.1% and 5.5%; Bond Fund - 5.1% and 8.9%;
Capital Accumulation Fund - 46.0% and 31.7%; Emerging Growth Fund - 13.5% and
8.1%; Government Securities Income Fund - 10.1% and 24.8%; Growth Fund - 12.2%
and 13.6%; High Yield Fund - 40.3% and 27.2%; Tax-Exempt Bond Fund - 17.6% and
20.6%; Utilities Fund - 13.0% and 13.8%; World Fund - 35.4% and 13.2%. In view
of the Short-Term Bond Fund's investment objective and portfolio management
policies it is anticipated that its annual portfolio turnover rate should
generally not exceed 50%, but in any particular year market conditions could
result in portfolio activity greater than anticipated.
DIRECTORS AND OFFICERS OF THE FUNDS
The following listing discloses the principal occupations and other
principal business affiliations of the Funds' Officers and Directors during the
past five years. All Directors and Officers listed here also hold similar
positions with each of the other mutual funds sponsored by Principal Mutual Life
Insurance Company except Principal Special Markets Fund, Inc. All mailing
addresses are The Principal Financial Group, Des Moines, Iowa 50392, unless
otherwise indicated.
@James D. Davis, 61, Director. 4940 Center Court, Bettendorf, Iowa.
Attorney. Vice President, Deere and Company, Retired.
*Roy W. Ehrle, 67, Director. 2424 Jordan Trail, West Des Moines, Iowa.
Retired. Prior thereto, Vice Chairman, Principal Mutual Life Insurance Company.
Vice Chairman of the Board and Director, Princor Management Corporation.
Chairman of the Board and Director, Invista Capital Management, Inc. Director,
Iowa Business Development Credit Corporation.
Pamela A. Ferguson, 52, Director. P.O. Box 805, Grinnell, Iowa. President
and Professor of Mathematics, Grinnell College since 1991. Prior thereto,
Associate Provost and Dean of the Graduate School, University of Miami.
@Richard W. Gilbert, 55, Director. 543 Park Drive, Kenilworth, Illinois.
President, Gilbert Communications, Inc. since 1993. Prior thereto, President and
Publisher, Pioneer Press.
*&J. Barry Griswell, 46, Director and Chairman of the Board. Senior Vice
President, Principal Mutual Life Insurance Company, since 1991. Prior thereto,
Agency Vice President. Director and Chairman of the Board, Princor Management
Corporation, Princor Financial Services Corporation.
*&Stephan L. Jones, 60, Director and President. Vice President, Principal
Mutual Life Insurance Company since 1986. Director and President, Princor
Financial Services Corporation and Princor Management Corporation.
*Ronald E. Keller, 59, Director. Executive Vice President, Principal Mutual
Life Insurance Company since 1992. Prior thereto, Senior Vice President,
Principal Mutual Life Insurance Company. Director, Princor Financial Services
Corporation and Princor Management Corporation. Director and Chairman, Invista
Capital Management, Inc.
Barbara A. Lukavsky, 55, Director. 3920 Grand Avenue, Des Moines, Iowa.
President, Lu San, Inc.
@&Richard G. Peebler, 66, Director. 1916 79th Street, Des Moines, Iowa.
Professor, Drake University, College of Business and Public Administration,
since 1990. President, Drake-Des Moines Development Corporation 1986-1990.
Kristian E. Anderson, 37, Assistant Counsel. Counsel, Principal
Mutual Life Insurance Company since 1989. Prior thereto, Attorney 1988-1989;
Attorney Advisor, United States International Trade Commission, 1985-1988.
Craig L. Bassett, 43, Assistant Treasurer. Associate Treasurer, Principal
Mutual Life Insurance Company since 1988. Assistant Treasurer, 1984-1988. Prior
thereto, Manager, Investment-Securities and Accounting.
*Michael J. Beer, 35, Vice President and Financial Officer. Vice President
and Chief Operating Officer, Princor Financial Services Corporation and Princor
Management Corporation, since 1995; Financial Officer, 1991-1995. Prior thereto,
Accounting Manager, Principal Mutual Life Insurance Company.
Arthur S. Filean, 57, Vice President and Secretary. Vice President, Princor
Financial Services Corporation, since 1990.
*Ernest H. Gillum, 40, Assistant Secretary. Assistant Vice President,
Registered Products, Princor Financial Services Corporation and Princor
Management Corporation, since 1995; Product Development and Compliance Officer,
1991-1995. Prior thereto, Registered Investments Products Manager, Principal
Mutual Life Insurance Company.
*Michael D. Roughton, 44, Counsel. Counsel, Principal Mutual Life Insurance
Company since 1994; Prior thereto, Assistant Counsel. Counsel, Invista Capital
Management, Inc., Princor Financial Services Corporation, Principal Investors
Corporation and Princor Management Corporation.
*Jerry G. Wisgerhof, 58, Treasurer. Treasurer, Principal Mutual Life
Insurance Company. Treasurer, Princor Financial Services Corporation. Vice
President and Treasurer, Princor Management Corporation.
@ Member of Audit and Nominating Committee.
* Affiliated with the Manager of the Fund or its parent and considered an
"Interested Person," as defined in the Investment Company Act of 1940, as
amended.
& Member of the Executive Committee. The Executive Committee is elected by
the Board of Directors and may exercise all the powers of the Board of
Directors, with certain exceptions, when the Board is not in session and shall
report its actions to the Board.
During the period ended October 31, 1995, the Funds did not pay any
salaries directly to officers but paid management fees to the Manager as
described herein. During such period, six directors of each Fund (those who
are not officers or directors of the Manager) as a group received the
following amounts in directors' fees ($600 Annual Retainer plus $150 per Board
of Directors or Audit and Nominating Committee meeting attended, and $75 for
attendance at any executive or special committee meetings) plus expenses of
attending the meeting, if any: Balanced Fund, $7,825; Blue Chip Fund, $7,825;
Bond Fund, $7,825; Capital Accumulation Fund, $8,125; Cash Management Fund,
$7,824; Emerging Growth Fund, $8,125; Government Securities Fund, $7,825; Growth
Fund, $8,125; High Yield Fund, $7,825; Tax-Exempt Bond Fund, $7,825; Tax-Exempt
Cash Management Fund, $7,825; Utilities Fund, $7,825; and World Fund, $7,975.
The following information relates to compensation paid by each fund during
the fiscal year ended October 31, 1995. James D. Davis and Pamela A. Ferguson
received $1,350 from each Princor Fund, except the Short-Term Bond Fund, from
which each received $150. Roy W. Ehrle, Richard W. Gilbert and Barbara A.
Lukavsky each received $1,200 from each Princor Fund, except the Short-Term Bond
Fund from which each received $150. Richard G. Peebler received $1,350 from each
Princor Fund, except the Capital Accumulation Fund, Emerging Growth Fund, Growth
Fund and World Fund, from which he received $1,500 from each fund, and the
Short-Term Bond Fund from which he received $150.
None of the mutual funds provide retirement benefits for any of the
directors. Total compensation from each of the 26 investment companies included
in the fund complex for the fiscal year ended October 31, 1995 was as follows:
James D. Davis, $33,750; Roy W. Ehrle, $28,950; Pamela A. Ferguson,
$33,750; Richard W. Gilbert, $28,950; Barbara A. Lukavsky, $30,150; and Richard
G. Peebler, $34,425.
As of October 31, 1995, Principal Mutual Life Insurance Company, a mutual
life insurance company organized in 1879 under the laws of Iowa, its
subsidiaries and affiliates owned of record and beneficially the following
number of voting shares or percentage of the outstanding voting shares of each
Fund:
No. of % of Outstanding
Fund Shares Shares
Owned Owned
Balanced 673,430 15.85%
Blue Chip 654,681 26.63
Bond 178,361 1.86
Capital Accumulation 6,477,046 44.88
Cash Management 11,768,274 1.89
Emerging Growth 46,778 0.92
Government Securities
Income 94,137 0.40
Growth 37,609 0.77
High Yield 1,090,093 36.56
Tax-Exempt Bond 92,614 0.61
Tax-Exempt Cash
Management 1,026,549 1.03
Utilities 285,351 4.47
World 3,583,266 20.00
As of October 31, 1995, the Officers and Directors of each Fund as a group
owned less than 1% of the outstanding shares of any of the Funds.
MANAGER AND SUB-ADVISOR
The Manager of each of the Funds is Princor Management Corporation, a
wholly-owned subsidiary of Princor Financial Services Corporation which is a
wholly-owned subsidiary of Principal Holding Company. Principal Holding Company
is a holding company which is a wholly-owned subsidiary of Principal Mutual Life
Insurance Company, a mutual life insurance company organized in 1879 under the
laws of the state of Iowa. The address of the Manager is The Principal Financial
Group, Des Moines, Iowa 50392-0200. The Manager was organized on January 10,
1969 and since that time has managed various mutual funds sponsored by Principal
Mutual Life Insurance Company.
The Manager has executed an agreement with Invista Capital Management,
Inc. ("Invista") under which Invista has agreed to assume the obligations of the
Manager to provide investment advisory services for each of the Growth-Oriented
Funds, the Government Securities Income Fund, the Short-Term Bond Fund and the
Utilities Fund. The Manager will reimburse Invista for the cost of providing
these services. Invista, an indirectly wholly-owned subsidiary of Principal
Mutual Life Insurance Company and an affiliate of the Manager, was founded in
1985 and manages investments for institutional investors, including Principal
Mutual Life Insurance Company. Assets under management at October 31, 1995 were
approximately $14.6 billion. Invista's address is 1500 Hub Tower, 699 Walnut,
Des Moines, Iowa 50309.
The Manager, Invista and each of the Funds have adopted a Code of Ethics
designed to prevent persons with access to information regarding the portfolio
trading activity of the Funds from using that information for their personal
benefit. In certain circumstances personal securities trading is permitted in
accordance with procedures established by the Code of Ethics. The Board of
Directors for the Manager, Invista and each of the Funds periodically reviews
the Code of Ethics.
Each of the persons affiliated with a Fund who is also an affiliated
person of the Manager or Sub-Advisor is named below, together with the
capacities in which such person is affiliated:
<TABLE>
<CAPTION>
Office Held With Office Held With
Name Each Fund The Manager/Invista
<S> <C> <C>
Michael J. Beer Financial Officer Vice President and Chief Operating Officer (Manager)
Ernest H. Gillum Assistant Secretary Assistant Vice President, Registered Products (Manager)
J. Barry Griswell Director and Chairman Director and Chairman of
of the Board the Board (Manager)
Stephan L. Jones Director and President Director and President (Manager)
Ronald E. Keller Director Director (Manager)
Director and Chairman of
the Board (Invista)
Michael D. Roughton Counsel Counsel (Manager; Invista)
Jerry G. Wisgerhof Treasurer Vice President and Treasurer (Manager)
</TABLE>
COST OF MANAGER'S SERVICES
For providing the investment advisory services, and specified other
services, the Manager, under the terms of the Management Agreement for each
Fund, is entitled to receive a fee computed and accrued daily and payable
monthly, at the following annual rates:
Balanced, High
World Emerging Yield and
Net Asset Value of Fund Fund Growth Utilities Fund All Other Funds
Fund
First $100,000,000 .75% .65% .60% .50%
Next 100,000,000 .70% .60% .55% .45%
Next 100,000,000 .65% .55% .50% .40%
Next 100,000,000 .60% .50% .45% .35%
Over 400,000,000 .55% .45% .40% .30%
There is no assurance that any of the Funds' net assets will reach
sufficient amounts to be able to take advantage of the rate decreases. The net
asset value of each Fund on October 31, 1995 and the rate of the fee for each
Fund for investment management services as provided in the Management Agreement
for the fiscal year then ended were as follows:
- --------------------------------------------------------------------------------
Management Fee
Net Assets as of For Fiscal Year Ended
Fund October 31, 1995 October 31, 1995
-------------------------- ---------------- ----------------
Balanced $58,388,354 .60%
Blue Chip 36,943,739 .50
Bond 109,669,504 .50*
Capital Accumulation 341,904,467 .45
Cash Management 624,072,015 .38*
Emerging Growth 159,608,614 .64
Government Securities Income 265,827,507 .46
Growth 182,606,856 .48
High Yield 24,028,813 .60
Tax-Exempt Bond 183,201,423 .48
Tax-Exempt Cash Management 99,913,684 .50*
Utilities 69,825,370 .60*
World 130,462,176 .74
* Before waiver.
- --------------------------------------------------------------------------------
The Manager intends to voluntarily waive a portion of its fee and, if
necessary, pay expenses normally payable by the Short-Term Bond Fund through the
period ending February 28, 1997 in an amount that will maintain a total level of
operating expenses, which as a percent of average net assets attributable to a
class on an annualized basis will not exceed .90% for the Class A shares and
1.15% for the Class B shares.
Under a Sub-Advisory Agreement between Invista and the Manager, Invista
performs all the investment advisory responsibilities of the Manager under the
Management Agreement for the Growth-Oriented Funds, the Government Securities
Income Fund, the Short-Term Bond Fund and the Utilities Fund and is reimbursed
by the Manager for the cost of providing such services.
The Manager pays for office space, facilities and simple business
equipment and the costs of keeping the books of the Fund. The Manager also
compensates all personnel who are officers and directors, if such officers and
directors are also affiliated with the Manager.
Each Fund pays all its other corporate expenses incurred in the operation
of the Fund and the continuous public offering of its shares, but not selling
expenses. Among other expenses, the Fund pays its taxes (if any), brokerage
commissions on portfolio transactions, interest, the cost of stock issue and
transfer and dividend disbursement, administration of shareholder accounts,
custodial fees, expenses of registering and qualifying shares for sale after the
initial registration, auditing and legal expenses, fees and expenses of
unaffiliated directors, and costs of shareholder meetings. The Manager pays most
of these expenses in the first instance, and is reimbursed for them by the Fund
as provided in the Management Agreement. The Manager also is responsible for the
performance of certain of the functions described above, such as transfer and
dividend disbursement and administration of shareholder accounts, the cost of
which the Manager is reimbursed by the Fund.
If aggregate annual expenses of a Fund of every character including the
fee received by the Manager for managing the Fund, but excluding portfolio
brokerage commissions and interest and taxes exceed for any fiscal year the
lowest applicable percentage of average net assets prescribed by any state in
which Fund shares are qualified for sale, the Manager has undertaken to
reimburse the Fund the amount of the excess as promptly as practicable after the
end of the fiscal year. The Funds understand that the most restrictive
limitation is presently 2 1/2% of the first $30,000,000 of average annual net
assets, 2% of the next $70,000,000 of such assets and 1 1/2% of such assets in
excess thereof.
Fees paid for investment management services during the periods indicated
were as follows:
- --------------------------------------------------------------------------------
Management Fees For
Fiscal Years Ended October 31,
Fund 1995 1994 1993
---- ---- ---- ----
Balanced $ 330,469 $ 282,514 $ 212,464
Blue Chip 154,603 125,655 110,869
Bond 489,133* 447,108* 366,278*
Capital Accumulation 1,380,466 1,212,997 1,012,257
Cash Management 1,980,472* 1,324,627* 1,248,729*
Emerging Growth 772,512 463,046 239,952
Government Securities Income 1,165,241 1,178,688 953,871
Growth 701,276 485,565 354,714
High Yield 129,542 119,036 105,024
Tax-Exempt Bond 828,825 854,230 669,681
Tax-Exempt Cash Management 471,994* 406,047* 393,278*,**
Utilities 367,403* 340,121* 156,699**
World 881,227 716,044 338,435
* Before waiver.
**Period from November 16, 1992 (Commencement of Operations) through
October 31, 1993.
- --------------------------------------------------------------------------------
The Manager waived $86,318, $120,999 and $111,162 of its fee for the Bond
Fund for the years ended October 31, 1995, 1994 and 1993, respectively. The
Manager also waived $138,673, $150,515, and $131,442 of its fee for the
Tax-Exempt Cash Management Fund for the years ended October 31, 1995, 1994 and
1993, respectively. The Manager also waived $296,359, $595,343 and $468,387 of
its fee for the Cash Management Fund for the years ended October 31, 1995, 1994
and 1993, respectively. The Manager also waived $144,581, $284,836 and $152,483
of its fee for the Utilities Fund for the period ended October 31, 1993 and the
years ended October 31, 1994 and 1995, respectively.
<PAGE>
Costs reimbursed to the Manager during the periods indicated for providing
other services pursuant to the Management Agreement were as follows:
Reimbursement by Fund
of Certain Costs For
Fiscal Years Ended October 31,
Fund 1995 1994 1993
---- ---- ---- ----
Balanced $220,147 $ 241,156 $ 145,726
Blue Chip 146,409 123,381 87,667
Bond 213,198 226,146 205,434
Capital Accumulation 510,906 513,568 385,413
Cash Management 1,494,200 1,077,477 973,866
Emerging Growth 612,488 514,920 251,632
Government Securities Income 435,625 545,148 441,849
Growth 584,133 455,138 335,522
High Yield 86,915 76,576 67,329
Tax-Exempt Bond 193,662 254,209 227,001
Tax-Exempt Cash Management 214,963 205,771 234,960
Utilities 211,232 281,532 157,417*
World 525,897 502,953 183,461
* Period from November 16, 1992 (Date Operations Commenced) through
October 31, 1993.
NOTE: The Manager voluntarily waived a portion of its management fees for
Princor Cash Management Fund, Inc. and Princor Tax-Exempt Cash Management Fund,
Inc. throughout the fiscal years ended October 31, 1993, 1994 and 1995. The
Manager intends to continue its voluntary waiver and, if necessary, pay expenses
normally payable by each of these Funds through February 28, 1997 in an amount
that will maintain a total level of operating expenses which as a percentage of
average net assets attributable to a class on an annualized basis during such
periods will not exceed 0.75% of each Fund's Class A shares and 1.75% of each
Fund's Class B shares. The effect of the waiver was and will be to reduce each
Fund's annual operating expenses and increase each Fund's yield and effective
yield.
NOTE: Effective February 1, 1991, the Manager began voluntarily waiving a
portion of its fee for Princor Bond Fund. The Manager continued its voluntary
waiver for the period beginning March 1, 1992 through February 28, 1993 in an
amount that maintained a total level of operating expenses for the Fund that did
not exceed .90% of the Fund's average net assets on an annualized basis during
such period. The Manager waived a portion of its fee for the period beginning
March 1, 1993 and intends to continue such waiver through February 28, 1997 in
an amount that will maintain a total level of operating expenses which as a
percentage of the Fund's average net assets attributable to a class on an
annualized basis during such period did not and will not exceed 0.95% of the
Fund's Class A shares and 1.70% of the Fund's Class B shares. The effect of the
waiver was and will be to reduce the Fund's annual operating expenses and
increase the Fund's yield.
NOTE: The Manager voluntarily waived a portion of its fee for the Utilities Fund
from the date operations commenced and continued such waiver through the period
ending February 28, 1995 in an amount that maintained a total level of operating
expenses which as a percentage of the Fund's average net assets attributable to
a class on an annualized basis did not exceed 1.00% of the Fund's Class A shares
and did not exceed 1.75% of the Fund's Class B shares. Also, the Manager
continued its voluntary waiver for the period beginning March 1, 1995 and ended
February 29, 1996 in an amount that maintained a total level of operating
expenses which as a percentage of the Fund's average net assets attributable to
a class on an annualized basis did not exceed 1.10% of the Fund's Class A shares
and 1.85% of the Fund's Class B shares.
The Management Agreements and the Investment Service Agreements, pursuant
to which Principal Mutual Life Insurance Company has agreed to furnish certain
personnel, services and facilities required by the Manager, and the Sub-Advisory
Agreements for each of the Growth-Oriented Funds, the Government Securities
Income Fund, the Utilities Fund and the Short-Term Bond Fund were last approved
by the Board of Directors for each of the Funds on September 11, 1995. Each of
these agreements for the Short-Term Bond Fund, which are dated December 7, 1995,
provide for continuation in effect until the conclusion of the first meeting of
shareholders of the Fund and if approved by a vote of a majority of the
outstanding voting securities of the Fund, shall continue in effect in the same
manner as such agreements for the other Princor Funds. Each of these agreements
provides for continuation in effect from year to year only so long as such
continuation is specifically approved at least annually either by the Board of
Directors of the Fund or by vote of a majority of the outstanding voting
securities of the Fund, provided that in either event such continuation shall be
approved by vote of a majority of the Directors who are not "interested persons"
(as defined in the Investment Company Act of 1940) of the Manager, Principal
Mutual Life Insurance Company or its subsidiaries or the Fund, cast in person at
a meeting called for the purpose of voting on such approval. The Agreements may
be terminated at any time on 60 days written notice to the Manager by the Board
of Directors of the Fund or by a vote of a majority of the outstanding
securities of the Fund and by the Manager, Invista or Principal Mutual Life
Insurance Company, as the case may be, on 60 days written notice to the Fund.
The Agreements will automatically terminate in the event of their assignment.
The Manager assumed management of the World Fund's portfolio on August 1,
1988. Prior to that time, the previous Investment Advisor for the World Fund, as
compensation for its services to the Fund, had been receiving monthly
compensation in the form of an advisory fee at an annual rate of 1/2 of 1% of
the average daily net assets of the Fund. In addition, the Investment Advisor
received an annual fee, paid monthly, for the administrative services at an
annual rate of 1.5% of the first $10,000,000 of the Fund's average net assets
during the month preceding each payment, decreasing to 1% on assets in excess of
$10,000,000 and 1/2 of 1% of the Fund's assets in excess of $30,000,000.
Overall, the Fund's aggregate expenses for any fiscal year other than taxes,
brokerage fees, Directors' fees, commissions, and extraordinary expenses, such
as litigation, could not exceed 2% of the first $10,000,000 of the Fund's total
net assets, 1.5% of the next $20,000,000 and 1% of the Fund's total net assets
in excess of $30,000,000. The aggregate of these two fees could have amounted to
a maximum of 2.0% of net assets, which is higher than most funds pay as an
advisory fee; however, the administrative services fee included payment for
certain expenses most other funds are required to pay themselves. Under the
prior agreement, when the accrued amount of such expenses exceeded the 2% limit
the monthly payment to the Advisor was reduced by the amount of such excess. For
the seven-month period ended July 31, 1988, the Fund paid the previous
Investment Advisor $9,811 for investment advisory services and $29,433 for
administrative services and other expenses.
BROKERAGE ON PURCHASES AND SALES OF SECURITIES
In distributing brokerage business arising out of the placement of orders
for the purchase and sale of securities for any Fund, the objective of the
Fund's Manager or Sub-Advisor is to obtain the best overall terms. In pursuing
this objective, the Manager or Sub-Advisor considers all matters it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and executing capability of the broker or
dealer and the reasonableness of the commission, if any (for the specific
transaction and on a continuing basis). This may mean in some instances that the
Manager or Sub-Advisor will pay a broker commissions that are in excess of the
amount of commission another broker might have charged for executing the same
transaction when the Manager or Sub-Advisor believes that such commissions are
reasonable in light of (a) the size and difficulty of transactions (b) the
quality of the execution provided and (c) the level of commissions paid relative
to commissions paid by other institutional investors. (Such factors are viewed
both in terms of that particular transaction and in terms of all transactions
that broker executes for accounts over which the Manager or Sub-Advisor
exercises investment discretion. The Manager or Sub-Advisor may purchase
securities in the over-the-counter market, utilizing the services of principal
market makers, unless better terms can be obtained by purchases through brokers
or dealers, and may purchase securities listed on the New York Stock Exchange
from non-Exchange members in transactions off the Exchange.) The Manager or
Sub-Advisor gives consideration in the allocation of business to services
performed by a broker (e.g. the furnishing of statistical data and research
generally consisting of information of the following types: analyses and reports
concerning issuers, industries, economic factors and trends, portfolio strategy
and performance of client accounts). If any such allocation is made, the primary
criteria used will be to obtain the best overall terms for such transactions.
The Manager or Sub-Advisor may pay additional commission amounts for research
services. Such statistical data and research information received from brokers
or dealers may be useful in varying degrees and the Manager or Sub-Advisor may
use it in servicing some or all of the accounts it manages. Some statistical
data and research information may not be useful to the Manager or Sub-Advisor in
managing the client account, brokerage for which resulted in the Manager's or
Sub-Advisor's receipt of the statistical data and research information. However,
in the Manager's or Sub-Advisor's opinion, the value thereof is not determinable
and it is not expected that the Manager's or Sub-Advisor's expenses will be
significantly reduced since the receipt of such statistical data and research
information is only supplementary to the Manager's or Sub-Advisor's own research
efforts. The Manager or Sub-Advisor allocated portfolio transactions for the
Funds indicated in the following table to certain brokers during the fiscal year
ended October 31, 1995 due to research services provided by such brokers. The
table also indicates the commissions paid to such brokers as a result of these
portfolio transactions.
Fund Commissions Paid
---- ----------------
Balanced $ 4,085
Blue Chip 6,935
Capital Accumulation 61,350
Emerging Growth 10,513
Growth 5,645
Utilities 3,710
World 2,743
Purchases and sales of debt securities and money market instruments usually
will be principal transactions; portfolio securities will normally be purchased
directly from the issuer or from an underwriter or marketmaker for the
securities. Such transactions are usually conducted on a net basis with the Fund
paying no brokerage commissions. Purchases from underwriters will include a
commission or concession paid by the issuer to the underwriter, and the
purchases from dealers serving as marketmakers will include the spread between
the bid and asked prices.
The following table shows the brokerage commissions paid during the periods
indicated. In each year, 100% of the commissions paid by each Fund went to
broker-dealers which provided research, statistical or other factual
information.
-------------------------------------------------------------------------------
Total Brokerage Commissions
During Fiscal Years Ended October 31,
Fund 1995 1994 1993
---- ---- ---- ----
Balanced $ 34,622 $23,780 $16,314
Blue Chip 21,040 8,536 12,858
Capital Accumulation 335,720 259,072 157,995
Emerging Growth 59,471 51,538 21,655
Growth 56,733 51,904 42,085
Utilities 27,861 58,245 70,043*
World 360,682 277,027 105,617
*Period from November 16, 1992 (date operations commenced)through October 31,
1993.
- --------------------------------------------------------------------------------
Brokerage commissions paid to affiliates during the year ended October 31, 1995
were as follows:
<TABLE>
<CAPTION>
Commissions Paid to Principal Financial Securities, Inc.
Total Dollar As Percent of As Percent of Dollar Amount
Fund Amount Total Commissions of Commissionable Transactions
<S> <C> <C> <C>
Balanced Fund $ 837 2.4% 3.0%
Capital Accumulation Fund 12,831 3.8% 5.8%
Emerging Growth Fund 1,200 2.0% 3.6%
Growth Fund 3,394 6.0% 7.2%
Utilities Fund 2,966 10.6% 15.7%
</TABLE>
<TABLE>
<CAPTION>
Commissions Paid to Morgan Stanley and Co.
Total Dollar As Percent of As Percent of Dollar Amount
Fund Amount Total Commissions of Commissionable Transactions
<S> <C> <C> <C>
Balanced Fund $ 325 0.9% 0.6%
Capital Accumulation Fund 4,660 1.4% 0.9%
Emerging Growth Fund 2,500 4.4% 3.9%
Growth Fund 500 1.8% 1.4%
Utilities Fund 21,577 6.0% 6.8%
</TABLE>
The Manager acts as investment advisor for each of the funds sponsored by
Principal Mutual Life Insurance Company and it, or Invista where Invista acts as
sub-advisor, places orders to trade portfolio securities for each of these
Funds. If, in carrying out the investment objectives of the funds, occasions
arise when purchases or sales of the same equity securities are to be made for
two or more of the funds at the same time, a computer program will randomly
order the instructions to purchase and, whenever possible, to sell securities.
Securities purchased or proceeds of sales received on each trading day with
respect to such orders shall be allocated to the various funds placing orders on
that trading day by filling each fund's order for that day, in the sequence
arrived at by the random ordering. If purchases or sales of the same debt
securities are to be made for two or more of the Funds at the same time, the
securities will be purchased or sold proportionately in accordance with the
amount of such security sought to be purchased or sold at that time for each
Fund.
HOW TO PURCHASE SHARES
Each Fund, except the Tax-Exempt Bond Fund and Tax-Exempt Cash Management
Fund, offers investors three classes of shares which bear sales charges in
different forms and amounts: Class A, Class B and Class R shares. The Tax-Exempt
Bond Fund and Tax-Exempt Cash Management Fund offer only Class A and Class B
shares.
Class A Shares. An investor who purchases less than $1 million of Class A
shares (except Class A shares of the Money Market Funds) pays a sales charge at
the time of purchase. As a result, such shares are not subject to any charges
when they are redeemed. An investor who purchases $1 million or more of Class A
shares does not pay a sales charge at the time of purchase. However, a
redemption of such shares occurring within 18 months from the date of purchase
will be subject to a contingent deferred sales charge ("CDSC") at the rate of
.75% (.25% for the Short-Term Bond Fund) the lesser of the value of the shares
redeemed (exclusive of reinvested dividend and capital gain distributions) or
the total cost of such shares. Shares subject to the CDSC which are exchanged
into another Princor Fund will continue to be subject to the CDSC until the
original 18 month period expires. However no CDSC is payable with respect to
redemption of Class A shares used to fund a Princor 401(a) or Princor 401(k)
retirement plan, except redemptions resulting from the termination of the plan
or transfer of plan assets. Certain purchases of Class A shares qualify for
reduced sales charges. Class A shares for each Fund, except the Money Market
Funds, currently bear a 12b-1 fee at the annual rate of up to 0.25% of the
Fund's average net assets attributable to Class A shares. See "Distribution
Plan."
Class B Shares. Class B shares are purchased without an initial sales
charge, but are subject to a declining CDSC of up to 4% (1.25% for the
Short-Term Bond Fund) if redeemed within six years. See "Offering Price of
Funds' Shares." Class B shares bear a higher 12b-1 fee than Class A shares,
currently at the annual rate of up to 1.00% (.50% for the Short-Term Bond Fund)
of the Fund's average net assets attributable to Class B shares. See
"Distribution Plan." Class B shares provide an investor the benefit of putting
all of the investor's dollars to work from the time the investment is made, but
(until conversion to Class A shares) will have a higher expense ratio and pay
lower dividends than Class A shares due to the higher 12b-1 fee. Class B shares
will automatically convert into Class A shares, based on relative net asset
value (without a sales charge), on the first business day of the 85th month
after the purchase date. Class B shares acquired by exchange from Class B shares
of another Princor fund will convert into Class A shares based on the time of
the initial purchase. At the same time, a pro rata portion of all shares
purchased through reinvestment of dividends and distributions would convert into
Class A shares, with that portion determined by the ratio that the shareholder's
Class B shares converting into Class A shares bears to the shareholder's total
Class B shares that were not acquired through dividends and distributions. The
conversion of Class B shares to Class A shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an opinion of
counsel that such conversions will not constitute taxable events for Federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not occur
if such ruling or opinion is not available. In such event, Class B shares would
continue to be subject to higher expenses than Class A shares for an indefinite
period.
Redemptions by shareholders investing by check will be effected only after
payment has been collected on the check, which may take up to eight days or
more. Investors considering redeeming or exchanging shares or transferring
shares to another person shortly after purchase should pay for those shares with
a certified check, bank cashier's check or money order to avoid any delay in
redemption, exchange or transfer.
Shares of the funds may be purchased by mail or by telephone as described
in the Funds' Prospectus. Class B shares of the Money Market Funds may only be
purchased by an exchange from the Class B shares.
Which arrangement between Class A and Class B Shares is better for an
investor? The decision as to which class of shares provides a more suitable
investment for an investor depends on a number of factors, including the amount
and intended length of the investment. Investors making investments that qualify
for reduced sales charges might consider Class A shares. Investors who prefer
not to pay an initial sales charge and who plan to hold their investment for
more than seven years might consider Class B shares. Orders from individuals for
Class B shares for $250,000 or more will be treated as orders for Class A shares
unless the shareholder provides written acknowledgment that the order should be
treated as an order for Class B shares. Sales personnel may receive different
compensation depending on which class of shares are purchased.
Class R Shares. Class R shares are purchased without an initial sales
charge or a contingent deferred sales charge ("CDSC"). Class R shares bear a
higher 12b-1 fee than Class A shares, currently at the annual rate of up to .75%
of the Fund's average net assets attributable to Class R shares. See
"Distribution and Shareholder Servicing Plans and Fees." Class R shares provide
an investor the benefit of putting all of the investor's dollars to work from
the time the investment is made, but (until conversion to Class A shares) will
have a higher expense ratio and pay lower dividends than Class A shares due to
the higher 12b-1 fee. Class R shares will automatically convert to Class A
shares, based on relative net asset value (without a sales charge), on the first
business day of the 49th month after the purchase date. Class R shares acquired
by exchange from Class R shares of another Princor fund will convert into Class
A shares based on the time of the initial purchase. (See "How to Exchange
Shares".) At the same time, a pro rata portion of all shares purchased through
reinvestment of dividends and distributions would convert into Class A shares,
with that portion determined by the ratio that the shareholder's Class R shares
converting into Class A shares bears to the shareholder's total Class R shares
that were not acquired through dividends and distributions. The conversion of
Class R shares to Class A shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel that such
conversions will not constitute taxable events for Federal tax purposes. There
can be no assurance that suchruling or opinion will be available, and the
conversion of Class R shares to Class A shares will not occur if such ruling or
opinion is not available. In such event, Class R shares would continue to be
subject to higher expenses that Class A shares for an indefinite period.
Purchasing Class R Shares. Class R shares are offered only to fund
Individual Retirement Accounts ("IRA's") established by people who receive lump
sum distributions from certain retirement plans administered by Principal Mutual
Life Insurance Company under the terms of a written service agreement
("Administered Employee Benefit Plans" or "AEBP"). Eligible purchasers may
purchase Class R shares to fund additional IRA's after establishing an initial
IRA funded with Class R shares. Purchases are generally made by completing a
Princor IRA application and mailing it to Princor. Shares will be issued at the
offering price next computed after the application is received at Princor's main
office and Princor receives the amount to be invested. Generally, the initial
amount to be invested will be directly transferred to Princor from the AEBP.
However, in some cases the investor will purchase shares by check. If investing
by check, shares will be issued at the offering price next computed after the
completed application and check are received at Princor's main office.
Subsequent purchases will be executed at the price next computed after receipt
of the investor's check at Princor's main office. All orders are subject to
acceptance by the Fund or Funds and Princor.
Redemptions by shareholders investing by check will be effected only after
payment has been collected on the check, which may take up to 15 days or more.
Investors considering redeeming or exchanging shares shortly after purchase
should pay for those shares with a certified check, bank cashier's check or
money order to avoid any delay in redemption, exchange or transfer.
Class R shares of the Cash Management Fund may be purchased only by an
exchange from Class R shares of the Princor Funds.
OFFERING PRICE OF FUNDS' SHARES
The Funds offer their respective shares continuously through Princor, which
is the principal underwriter for the Funds and sells shares as agent on behalf
of the Funds. Princor may select other dealers through which shares of the Funds
may be sold. Certain dealers may not sell all classes of shares.
Class A shares
Class A shares of the Money Market Funds are sold to the public at net
asset value; no sales charge applies to purchases of the Money Market Funds.
Class A shares of the Growth-Oriented and Income-Oriented Funds, except the
Short-Term Bond Fund, are sold to the public at the net asset value plus a sales
charge which ranges from a high 4.75% to a low of 0% of the offering price
(equivalent to a range of 4.99% to 0% of the net amount invested) according to
the schedule below. Class A shares of the Short-Term Bond Fund are sold to the
public at the net asset value plus a sales charge which ranges from a high of
1.50% to a low of 0% of the offering price according to the schedule below.
Selected dealers are allowed a concession as shown. At Princor's discretion, the
entire sales charge may at times be reallowed to dealers. In some situations,
depending on the services provided by the dealer, the concession may be less.
Any dealer allowance on purchases not involving a sales charge will be
determined by Princor. Upon notice to all broker-dealers with whom it has a
selling agreement, Princor may allow to broker-dealers electing to participate
up to the full applicable sales charge, as shown in the table below, during
periods and for transactions specified in such notice, and such reallowances may
be based in whole or in part upon attainment of minimum sales levels. Certain
commercial banks may make shares of the Funds available to their customers on an
agency basis. Pursuant to the agreements between Princor and such banks all or a
portion of the sales charge paid by a bank customer in connection with a
purchase of Fund shares may be retained by or remitted to the bank. The
Glass-Steagall Act prohibits banks from underwriting securities, including fund
shares; the Act does, however, permit certain agency transactions and banking
regulators have ruled that these particular agency transactions are not
prohibited under the Act. The Fund will obtain a representation from the banks
doing business in Texas or dealing with Texas residents that they will be
licensed as dealers as required by the Texas Securities Act, or that they will
not engage in activities which would constitute acting as a "dealer" as defined
under the Act.
<TABLE>
<CAPTION>
Sales Charge for
All Funds Except Sales Charge for Dealer Allowance as
Short-Term Bond Short-Term Bond % of Offering Price
Fund Sales Charge Fund Sales Charge as All Funds
as % of: % of:
Offering Amount Offering Amount Except Short-Term
Amount of Purchase Price Invested Price Invested Short-Term Bond
Bond Fund Fund
<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 4.25% 4.44% 1.25% 1.27% 3.75% 1.00%
$100,000 3.75% 3.90% 1.00% 1.01% 3.25% .75%
$100,000 but less than 2.50% 2.56% 0.75% 0.76% 2.00% .50%
$250,000 1.50% 1.52% 0.50% 0.50% 1.25% .25%
$250,000 but less than No Sales 0% No Sales 0% .75% .25%
$500,000 Charge Charge
$500,000 but less than
$1,000,000
$1,000,000 or more
</TABLE>
Rights of Accumulation. The applicable sales charge is determined by
adding the current net asset value of any Class A shares and Class B shares
already owned by the investor to the amount of the new purchase. The
corresponding percentage factor in the schedule is then applied to the entire
amount of the new purchase. For example, if an investor currently owns Class A
or Class B shares with a value of $5,000 and makes an additional investment of
$45,000 in Class A shares of a Growth-Oriented Fund (the total of which equals
$50,000), the charge applicable to the $45,000 investment would be 4.25% of the
offering price. If the investor purchases shares of more than one Princor Fund
at the same time, those purchases are aggregated and added to the net asset
value of the shares of Princor Funds already owned by the investor to determine
the sales charge for the new purchase. Class A shares of the Money Market Funds
are not counted in determining either the amount of a new purchase or the
current net asset value of shares already owned, unless the shares of the Money
Market Funds were acquired in exchange for shares of other Princor Funds. If the
investor purchases shares from a broker/dealer other than Princor, the dealer
should be advised of any shares already owned.
Investments made by an individual, or by an individual's spouse and
dependent children purchasing shares for their own account or by a trust
primarily for the benefit of such persons, or by a trustee or other fiduciary
purchasing for a single trust estate or single fiduciary account (including a
pension, profit-sharing, or other employee-benefit trust created pursuant to a
plan qualified under Section 401 of the Internal Revenue Code) will be treated
as investments made by a single investor in calculating the sales charge. Other
groups (as allowed by rules of the Securities and Exchange Commission) may be
considered for a reduced sales charge. An investor whose new account qualifies
for a reduced charge on the basis of other accounts owned by the individual,
spouse or children, should be certain to identify those accounts at the time of
the new application.
Statement of Intention. Another method is available by which a purchaser
may qualify for a reduced sales charge on the purchase of Class A shares of the
Funds. A purchaser may execute a Statement of Intention indicating the total
amount (excluding reinvested dividends and capital gains distributions) intended
to be invested (including all investments for the account of the spouse and
dependent children or trusts for the benefit of such persons) in Class A shares
(except Class A shares of the Money Market Funds) and Class B shares of the
Funds within a thirteen-month period (two-year period if the intended investment
is equal to or greater than $1 million). The Statement of Intention should be
read and may be submitted on the date of the initial purchase at the start of a
thirteen-month period (or two-year period if applicable) or within 90 days
thereafter. The Statement of Intention period will begin on the date of the
first purchase included for purposes of satisfying the statement. When an
existing shareholder submits a Statement of Intention, the net asset value of
all Class A shares (except Class A shares of the Money Market Funds) and Class B
shares in that shareholder's account or accounts combined for rights of
accumulation purposes, is added to the amount that has been indicated will be
invested during the applicable period, and the sales charge applicable to all
purchases of Class A shares made under the Statement of Intention is the sales
charge which will apply to a single purchase of this total amount.
A Statement of Intention may be entered into for any amount provided such
amount, when added to the net asset value of any shares already held, equals or
is in excess of the amount needed to qualify for a reduced sales charge. In the
event a shareholder invests an amount in excess of the indicated amount, such
excess will be allowed any further reduced sales charge for which it qualifies.
The Statement of Intention provides for a price adjustment if the amount
actually invested is less than the amount specified therein. Sufficient Class A
shares belonging to the shareholder will be held in escrow in the shareholder's
account by Princor to make up any difference in sales charges based on the
amount actually purchased. If the intended investment is completed within the
thirteen-month period (or two-year period), such shares will be released to the
shareholder. If the total intended investment is not completed within that
period shares will, to the extent necessary, be redeemed and the proceeds used
to pay the additional sales charge due. In any event, the sales charge
applicable to these purchases will be no more than the applicable sales charge
had the shareholder made all of such purchases at one time. The Statement of
Intention does not constitute an obligation on the shareholder to purchase, nor
the Funds to sell, the amount indicated.
Purchases at Net Asset Value. The following may purchase Class A shares of
the Growth-Oriented Funds and Income-Oriented Funds at the net asset value,
without a sales charge: (1) Principal Mutual Life Insurance Company and its
directly and indirectly owned subsidiaries; (2) Active and retired directors,
officers and employees of the Fund, Principal Mutual Life Insurance Company, and
directly and indirectly owned subsidiaries of Principal Mutual Life Insurance
Company (including full-time insurance agents of, and persons who have entered
into insurance brokerage contracts with, Principal Mutual Life Insurance Company
and its directly and indirectly owned subsidiaries); (3) The Principal Financial
Group Employee's Credit Union; (4) Non-ERISA investment advisory clients of
Invista Capital Management, Inc., an indirectly wholly-owned subsidiary of
Principal Mutual Life Insurance Company; (5) Sales representatives and employees
of sales representatives of the Distributor or other dealers through which
shares of the Fund are distributed; (6) Spouses, surviving spouses and dependent
children of the foregoing persons; and (7) Trusts primarily for the benefit of
the foregoing individuals; and (8) certain "wrap accounts" for the benefit of
clients of Princor and other Broker dealers or financial planners selected by
Princor.
In addition, investors who are clients of a registered representative of
Princor or other dealers through which shares of the Funds are distributed and
who has become affiliated with Princor or such other dealer within 180 days of
the date of the purchase of Class A shares of the Funds may purchase such shares
at net asset value provided that (i) the purchase is made within the first 180
days of the registered representative's affiliation with the firm involved (as
certified by an officer or partner of the firm); and (ii) the investment
represents the proceeds of a redemption within that 180 day period of shares of
another investment company the purchase of which included a front-end sales
charge or the redemption of which included a contingent deferred sales charge;
and (iii) the investor indicates on the account application that the purchase
qualifies for a net asset value purchase and forwards to Princor either (a) the
redemption check representing the proceeds of the shares redeemed, endorsed to
the order of Princor, or (b) a copy of the confirmation from the other
investment company showing the redemption transaction. In the case of a wire
purchase pursuant to this provision, a copy of the confirmation from the other
investment company showing the redemption must be forwarded to and received by
Princor within 21 days following the date of purchase. If the confirmation is
not provided within the 21-day period, a sufficient number of shares will be
redeemed from the shareholder's account to pay the otherwise applicable sales
charge. Investors availing themselves of this option should be aware that a
redemption from another mutual fund will be a taxable event and may be subject
to a surrender charge imposed by that fund.
Also during the period beginning December 1, 1996 and ending January 31,
1997, investors may purchase Class A shares of the Funds at net asset value to
the extent that this investment represents the proceeds of a redemption, within
the preceding 60 days, of shares (the purchase price of which shares included a
front-end sales charge on the redemption of which was subject to a contingent
deferred sales charge) of another investment company. When making a purchase at
net asset value pursuant to this provision, the investor must indicate on the
account application that the purchase qualifies for a net asset value purchase
and must forward to Princor either (i) the redemption check representing the
proceeds of the shares redeemed, endorsed to the order of Princor Financial
Services Corporation, or (ii) a copy of the confirmation from the other
investment company showing the redemption transactions. In the case of a wire
purchase pursuant to this provision, a copy of the confirmation from the other
investment company showing the redemption must be forwarded to and received by
Princor within 21 days following the date of purchase. If the confirmation is
not provided within the 21-day period, a sufficient number of shares will be
redeemed from the shareholder's account to pay the otherwise applicable sales
charge.
Purchases at a Reduced Sales Charge. A reduced sales charge is also
available for purchases of Class A shares of the Funds, except the Short-Term
Bond Fund, to the extent that the investment represents the death benefit
proceeds of one or more life insurance policies or annuity contracts (other than
an annuity contract issued to fund an employer-sponsored retirement plan that is
not a SEP, salary deferral 403(b) plan or HR-10 plan) of which the shareholder
is a beneficiary if one or more of such policies or contracts is issued by
Principal Mutual Life Insurance Company, or any directly or indirectly owned
subsidiary of Principal Mutual Life Insurance Company, and such investment is
made in any Princor fund within one year after the date of death of the insured.
(Shareholders should seek advice from their tax advisors regarding the tax
consequences of distributions from annuity contracts.) Such shares may be
purchased at net asset value plus a sales charge which ranges from a high of
2.50% to a low of 0% of the offering price (equivalent to a range of 2.56% to 0%
of the net amount invested) according to the schedule below:
- --------------------------------------------------------------------------------
Sales Charge as a % of:
Net Dealer Allowance
Offering Amount as %
Amount of Purchase Price Invested of Offering
Price
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 0% .75%
- --------------------------------------------------------------------------------
Sales Charges for Employer-Sponsored Plans
Administered Employee Benefit Plans. Class A shares of the Growth-Oriented
Funds and Income-Oriented Funds, except Princor Short-Term Bond Fund and, in
certain circumstances, Princor Tax-Exempt Bond Fund which is not available for
certain retirement plans, are sold at net asset value to stock bonus, pension or
profit sharing plans that meet the requirements for qualification under Section
401 of the Internal Revenue Code of 1986, as amended, certain Section 403(b)
Plans, Section 457 Plans and other Non-qualified Plans administered by Principal
Mutual Life Insurance Company pursuant to a written service agreement
("Administered Employee Benefit Plans"). The service agreement between Principal
Mutual Life Insurance Company and the employer relating to the administration of
the plan includes a charge payable by the employer for any commissions which
Princor is authorized to pay in connection with such sales. Principal Mutual
Life Insurance Company in turn pays the amount of these charges to Princor. The
commission payable by Princor in connection with any such sale will be
determined in accordance with one of the following schedules:
- --------------------------------------------------------------------------------
Schedule 1
- --------------------------------------------------------------------------------
Amount of Plain Contributions* Amount Payable by Employer as a
In each year Percent of Plan Contributions
The first $5,000 4.50%
The next $5,000 3.00%
The next $5,000 1.70%
The next $35,000 1.40%
The next $50,000 0.90%
The next $400,000 0.60%
Excess over $500,000 0.25%
- --------------------------------------------------------------------------------
Schedule 2
- --------------------------------------------------------------------------------
The first $50,000 3.00%
The next $50,000 2.00%
The next $400,000 1.00%
The next $2,500,000 0.50%
Excess over $3,000,000 0.25%
- --------------------------------------------------------------------------------
* Plan contributions directed to an annuity contract issued by
Principal Mutual Life Insurance Company to fund the plan are combined
with contributions directed to the Funds to determine the applicable
commission charge.
- --------------------------------------------------------------------------------
Generally, the commission level described in Schedule 2 will apply for
salary deferral Plans and the commission level described in Schedule 1 will
apply to other plans. No commission will be payable by the employer if shares of
the Funds used to fund an Administered Employee Benefit Plan are purchased
through a registered representative of Princor Financial Services Corporation
who is also a Group Insurance Representative employee of Principal Mutual Life
Insurance Company.
Plans Other than Administered Employee Benefit Plans. Shares of the Funds
are offered to fund certain sponsored Princor plans. These plans currently
include Simplified Employee Pension Plans ("SEPs"), Salary Reduction Simplified
Employee Pension Plans ("SAR/SEPs"), Non-Qualified Deferred Compensation Plans,
Payroll Deduction Plans ("PDPs") and certain Association Plans. A PDP is a plan
other than a 403(b) plan, that provides for investments to be made by or through
an employer on behalf of the employees by means of periodic payroll deductions,
or otherwise. An Association Plan is an arrangement whereby an association
enters into a written agreement with Princor permitting the solicitation of the
association's members. Other types of sponsored plans may be added in the
future.
When establishing an employer-sponsored plan, the employer chooses whether
to fund the plan with either Class A shares or Class B shares. If Class A shares
are used to fund the plan, all plan investments will be treated as made by a
single investor to determine whether a reduced sales charge is available. The
sales charge for purchases of less than $100,000 is 3.75% as a percentage of the
offering price and 3.90% of the net amount invested. The regular sales charge
table for Class A shares applies to purchases of $100,000 or more. Plan assets
will not be combined with investments made outside of the plan by an employee,
the employee's spouse and dependent children, or trusts primarily for the
benefit of such persons, to determine the sales charge applicable to such
investments. Investments made outside of the plan will not be included with plan
assets to determine the sales charge applicable to the plan.
If Class B shares are used to fund the plan and a plan participant has
$250,000 or more invested in Class B shares, Class A shares will be purchased
with plan contributions attributable to the plan participant, unless the plan
participant elects otherwise.
The Funds reserve the right to discontinue offering shares at net asset
value and/or at a reduced sales charge at any time for new accounts and upon
60-days notice to shareholders of existing accounts.
Class B shares
Class B shares are sold without an initial sales charge, although a CDSC
will be imposed if you redeem shares within six years of purchase. The following
types of shares may be redeemed without charge at any time: (i) shares acquired
by reinvestment of distributions and (ii) shares otherwise exempt from the CDSC,
as described below. Subject to the foregoing exclusions, the amount of the
charge is determined as a percentage of the lesser of the current market value
or the cost of the shares being redeemed. Therefore, when a share is redeemed,
any increase in its value above the initial purchase price is not subject to any
CDSC. The amount of the CDSC will depend on the number of years since you
invested and the dollar amount being redeemed, according to the following table:
Contingent Deferred Sales Charge as a
Percentage of Dollar Amount Subject to Charge
Years Since Purchase All Funds Except Short-Term
Payments Made Short-Term Bond Fund Bond Fund
2 years or less 4.0% 1.25%
more than 2 years, up to 4 years 3.0% 0.75%
more than 4 years, up to 5 years 2.0% 0.50%
more than 5 years, up to 6 years 1.0% 0.25%
more than 6 years None None
In determining whether a CDSC is payable on any redemption, the Fund will
first redeem shares not subject to any charge, and then shares held longest
during the six-year period. For information on how sales charges are calculated
if shares are exchanged, see "How to Exchanges Shares" in the Prospectus.
The CDSC will be waived on redemptions of Class B shares in connection with
the following types of transactions:
a. Shares redeemed due to a shareholder's death;
b. Shares redeemed due to the shareholder's disability, as defined in
the Internal Revenue Code of 1986 (the "Code"), as amended;
c. Shares redeemed from retirement plans to satisfy minimum distribution
rules under the Code;
d. Shares redeemed to pay surrender charges;
e. Shares redeemed to pay retirement plan fees;
f. Shares redeemed involuntarily from small balance accounts (values of
less than $300);
g. Shares redeemed through a systematic withdrawal plan that permits up
to 10% of the value of a shareholder's Class B shares of a particular
Fund on the last business day of December of each year to be withdrawn
automatically in equal monthly installments throughout the year;
h. Shares redeemed from a retirement plan to assure the plan complies
with Sections 401(k), 401(m), 408(k) and 415 of the Code; or
i. Shares redeemed from retirement plans qualified under Section 401(a)
of the Code due to the plan participant's death, disability,
retirement or separation from service after attaining age 55.
Underwriting fees from the sale of shares for the periods indicated were as
follows:
- -------------------------------- -----------------------------------------------
Underwriting Fees for
Fiscal Years Ended October 31,
1995 1994 1993
Balanced Fund $266,479 $ 658,322 $ 440,799
Blue Chip Fund 168,419 131,074 145,722
Bond Fund 476,813 925,482 1,149,455
Capital Accumulation Fund 611,180 821,157 917,749
Emerging Growth Fund 1,293,597 1,345,381 785,000
Government Securities Income Fund 835,393 2,607,934 2,902,403
Growth Fund 1,237,015 1,111,124 983,298
High Yield Fund 93,608 106,780 105,270
Tax-Exempt Bond Fund 584,221 1,283,198 2,002,412
Utilities 288,533 987,252 1,348,385*
World Fund 739,560 1,558,089 421,612
* Period from November 16, 1992 (Date Operations Commenced) through
October 31, 1993.
- --------------------------------------------------------------------------------
DISTRIBUTION PLAN
Rule 12b-1 of the Investment Company Act of 1940 (the "Act"), as amended,
permits a mutual fund to finance distribution activities and bear expenses
associated with the distribution of its shares provided that any payments made
by the Fund are made pursuant to a written plan adopted in accordance with the
Rule. A majority of the Board of Directors of each Fund, including a majority of
the Directors who have no direct or indirect financial interest in the operation
of the Plan or any agreements related to the Plan and who are not "interested
persons" as defined in the Act, adopted the Distribution Plans as described
below. No such Plan was adopted for Class A shares of the Money Market Funds.
Shareholders of each class of shares of each Fund approved the adoption of the
Plan for their respective class of shares.
Class A Distribution Plan. Each of the Funds, except the Money Market
Funds, has adopted a distribution plan for the Class A shares. The Class A Plan
provides that the Fund will make payments from its assets to Princor pursuant to
this Plan to compensate Princor and other selling Dealers for providing
shareholder services to existing Fund shareholders and rendering assistance in
the distribution and promotion of the Fund Class A shares to the public. The
Fund will pay Princor a fee after the end of each month at an annual rate no
greater than 0.25% (.15% for the Short-Term Bond Fund) of the daily net asset
value of the Fund. Princor will retain such amounts as are appropriate to
compensate for actual expenses incurred in distributing and promoting the sale
of the Fund shares to the public but may remit on a continuous basis up to .25%
(.15% for the Short-Term Bond Fund) to Registered Representatives and other
selected Dealers (including for this purpose, certain financial institutions) as
a trail fee in recognition of their services and assistance.
Class B Distribution Plan. Each Class B Plan provides for payments by the
Fund to Princor at the annual rate of up to 1.00% (.50% for the Short-Term Bond
Fund) of the Fund's average net asset attributable to Class B shares. Princor
also receives the proceeds of any CDSC imposed on redemptions of such shares.
Although Class B shares are sold without an initial sales charge, Princor
pays a sales commission equal to 4.00% (1.25% for the Short-Term Bond Fund) of
the amount invested to dealers who sell such shares. These commissions are not
paid on exchanges from other Princor Funds. In addition, Princor may remit on a
continuous basis up to .25% (.15% for the Short-Term Bond Fund) to the
Registered Representatives and other selected Dealers (including for this
purpose, certain financial institutions) as a trail fee in recognition of their
services and assistance.
Class R Distribution Plan. Each of the Funds, except the Tax-Exempt Bond
Fund and Tax-Exempt Cash Management Fund, have adopted a distribution plan for
the Class R shares. Each Class R Plan provides for payments by the Fund to
Princor at the annual rate of up to .75% of the Fund's average net assets
attributable to Class R shares.
Although Class R shares are sold without an initial sales charge, Princor
incurs certain distribution expenses. In addition, Princor may remit on a
continuous basis up to .50% to Registered Representatives and other selected
Dealers (including, for this purpose, certain financial institutions) as a trail
fee in recognition of their ongoing services and assistance.
General Information Regarding Distribution Plans. A representative of
Princor will provide to the Fund's Board of Directors, and the Board will
review, at least quarterly, a written report of the amounts expended pursuant to
the Plans and the purposes for which such expenditures were made.
Whether any expenditure under the Plans is subject to a state expense
limit will depend upon the nature of the expenditure and the terms of the state
law, regulation or order imposing the limit. Any expenditure subject to such a
limit will be included in the Fund's total operating expenses for purposes of
determining compliance with the expense limit.
If expenses under a Plan exceed the compensation limit for Princor
described in the Plan in any one fiscal year, the Fund will not carry over such
expenses to the next fiscal year. The Funds have no legal obligation to pay any
amount pursuant to this Plan that exceeds the compensation limit. The Funds will
not pay, directly or indirectly, interest, carrying charges, or other financing
costs in connection with the Plans. If the aggregate payments received by
Princor under a Plan in any fiscal year exceed the expenditures made by Princor
in that year pursuant to the Plan, Princor will promptly reimburse the Fund for
the amount of the excess.
The amount received from each Fund and retained by Princor during the year
ended October 31, 1995, and the manner in which such amounts were spent pursuant
to the Class A Distribution Plan for the last fiscal period of each of the Funds
were as follows:
<TABLE>
<CAPTION>
EXPENDITURES
PROSPECTUS
SHAREHOLDER REGISTERED UNDERWRITER'S
AMOUNT REPORT SALES REPRESENTATIVE SERVICE SALARIES AND TOTAL
FUND RETAINED PRINTING BROCHURES SALES MATERIALS FEES OVERHEAD EXPENDITURES
<S> <C> <C> <C> <C> <C> <C> <C>
Balanced $155,772 $4,651 $14,688 $7,267 $64,660 $64,507 $155,772
Blue Chip 111,480 3,941 13,932 6,207 32,202 55,197 111,480
Bond 239,073 4,446 15,216 6,940 151,295 61,177 239,073
Capital Accumulation 348,586 5,355 17,075 8,366 246,737 71,053 348,586
Emerging Growth 342,601 9,018 36,543 14,091 170,337 112,612 342,601
Government
Securities Income 480,373 5,513 17,695 11,635 371,450 74,081 480,373
Growth 341,141 8,202 23,821 12,760 198,204 98,154 341,141
High Yield 96,747 3,473 13,810 5,428 21,991 52,045 96,747
Tax-Exempt Bond 355,035 3,830 17,038 7,745 270,056 56,367 355,035
Utilities 186,458 4,456 23,346 7,330 89,142 62,184 186,458
World 298,574 8,731 25,266 17,820 140,381 106,376 298,574
</TABLE>
The amount received from each Fund and retained by Princor during the
period ended October 31, 1995, and the manner in which such amounts were spent
pursuant to the Class B Distribution Plan for the last fiscal period of each of
the Funds were as follows:
<PAGE>
<TABLE>
<CAPTION>
Fund Amount Retained Service Fees
<S> <C> <C>
Balanced $ 737 $ 737
Blue Chip 1,256 1,256
Bond 1,907 1,907
Capital Accumulation 1,374 1,374
Emerging Growth 6,758 6,758
Government Securities Income 3,424 3,424
Growth 5,392 5,392
High Yield 501 501
Tax-Exempt Bond 3,399 3,399
Utilities 3,450 3,450
World 3,217 3,217
</TABLE>
A Plan may be terminated at any time by vote of a majority of the Directors
who are not interested persons (as defined in the Act), or by vote of a majority
of the outstanding voting securities of the class of shares of a Fund to which
the Plan relates. Any change in a Plan that would materially increase the
distribution expenses of a class of shares of a Fund provided for in the Plan
requires approval of the shareholders of the class of shares to which such
increase would relate.
While a Distribution Plan is in effect for a Fund, the selection and
nomination of Directors who are not interested persons of that Fund will be
committed to the discretion of the Directors who are not interested persons.
Each Plan will continue in effect from year to year as long as its
continuance is specifically approved at least annually by a majority vote of the
directors of the Fund including a majority of the non-interested directors. The
Plans for all Classes of shares were last approved by each Fund's Board of
Directors, including a majority of the non-interested directors, on December 11,
1995.
DETERMINATION OF NET ASSET VALUE OF FUNDS' SHARES
Growth-Oriented and Income-Oriented Funds
The net asset values of the shares of each of the Growth-Oriented and
Income-Oriented Funds are determined daily, Monday through Friday, as of the
close of trading on the New York Stock Exchange, except on days on which changes
in the value of a Fund's portfolio securities will not materially affect the
current net asset value of that Fund's redeemable securities, on days during
which a Fund receives no order for the purchase or sale of its redeemable
securities and no tender of such a security for redemption, and on customary
national business holidays. The Funds treat as customary national business
holidays those days on which the New York Stock Exchange is closed for New
Year's Day (January 1), Washington's Birthday (third Monday in February), Good
Friday (variable date between March 20 and April 23, inclusive), Memorial Day
(last Monday in May), Independence Day (July 4), Labor Day (first Monday in
September), Thanksgiving Day (fourth Thursday in November) and Christmas Day
(December 25). The net asset value per share for each class of shares for each
Fund is determined by dividing the value of securities in the Fund's investment
portfolio plus all other assets attributable to that class, less all liabilities
attributable to that class, by the number of Fund shares of that class
outstanding. Securities for which market quotations are readily available,
including options and futures traded on an exchange, are valued at market value,
which is for exchanged-listed securities, the closing price; for United
Kingdom-listed securities, the market-maker provided price; and for non-listed
equity securities, the bid price. Non-listed corporate debt securities,
government securities and municipal securities are usually valued using an
evaluated bid price provided by a pricing service. If closing prices are
unavailable for exchange-listed securities, generally the bid price, or in the
case of debt securities an evaluated bid price, is used to value such
securities. When reliable market quotations are not considered to be readily
available, which may be the case, for example, with respect to certain debt
securities, preferred stocks, foreign securities and over-the-counter options,
the investments are valued by using market quotations, prices provided by market
makers, which may include dealers with which the Fund has executed transactions,
or estimates of market values obtained from yield data and other factors
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Directors. Securities
with remaining maturities of 60 days or less are valued at amortized cost. Other
assets are valued at fair value as determined in good faith through procedures
established by the Board of Directors of the Fund.
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing net asset value per share are
usually determined as of such times. Occasionally, events which affect the
values of such securities and foreign currency exchange rates may occur between
the times at which they are generally determined and the close of the New York
Stock Exchange and would therefore not be reflected in the computation of the
Fund's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value as determined in good faith by the Manager under procedures
established and regularly reviewed by the Board of Directors. To the extent the
Fund invests in foreign securities listed on foreign exchanges which trade on
days on which the Fund does not determine its net asset value, for example
Saturdays and other customary national U.S. holidays, the Fund's net asset value
could be significantly affected on days when shareholders have no access to the
Fund.
Money Market Funds
The net asset value of each class of shares of each of the Money Market
Funds is determined at the same time and on the same days as each of the
Growth-Oriented Funds and Income-Oriented Funds as described above. The net
asset value per share for each class of shares of each Fund is computed by
dividing the total value of the Fund's securities and other assets, less
liabilities, by the number of Fund shares outstanding.
All securities held by the Money Market Funds will be valued on an
amortized cost basis. Under this method of valuation, a security is initially
valued at cost; thereafter, the Fund assumes a constant proportionate
amortization in value until maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the security.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price that would be received upon sale of the security.
Use of the amortized cost valuation method by the Money Market Funds
requires each Fund to maintain a dollar weighted average maturity of 90 days or
less and to purchase only obligations that have remaining maturities of 397 days
or less or have a variable or floating rate of interest. In addition, each Fund
can invest only in obligations determined by its Board of Directors to be of
high quality with minimal credit risks.
The Board of Directors for each of the Money Market Funds has established
procedures designed to stabilize, to the extent reasonably possible, the Fund's
price per share as computed for the purpose of sales and redemptions at $1.00.
Such procedures include a directive to the Manager to test price the portfolio
or specific securities thereof on a weekly basis using a mark-to-market method
of valuation to determine possible deviations in the net asset value from $1.00
per share. If such deviation exceeds 1/2 of 1%, the Board of Directors will
promptly consider what action, if any, will be initiated. In the event the Board
of Directors determines that a deviation exists which may result in material
dilution or other unfair results to shareholders, the Board will take such
corrective action as it regards as appropriate, including: the sale of portfolio
instruments prior to maturity; the withholding of dividends; redemptions of
shares in kind; the establishment of a net asset value per share based upon
available market quotations; or splitting, combining or otherwise recapitalizing
outstanding shares. The Fund may also reduce the number of shares outstanding by
redeeming proportionately from shareholders, without the payment of any monetary
compensation, such number of full and fractional shares as is necessary to
maintain the net asset value at $1.00 per share.
PERFORMANCE CALCULATION
Each of the Princor Funds may from time to time advertise its performance
in terms of total return or yield for each class of shares. The figures used for
total return and yield are based on the historical performance of a Fund, show
the performance of a hypothetical investment and are not intended to indicate
future performance. Total return and yield will vary from time to time depending
upon market conditions, the composition of a Fund's portfolio and operating
expenses. These factors and possible differences in the methods used in
calculating performance figures should be considered when comparing a Fund's
performance to the performance of some other kind of investment.
A Fund may also include in its advertisements performance rankings and
other performance-related information published by independent statistical
services or publishers, such as Lipper Analytical Services, Weisenberger
Investment Companies Services, Money Magazine, Forbes, The Wall Street Journal,
Baron's, Changing Times, Fortune, U.S. News, W. R. Kipplinger's Personal
Finance, USA Today, Investment Advisor and Stanger's Investment Advisor and
comparisons of the performance of a Fund to that of various market indices, such
as the S&P 500 Index, Valueline, Dow Jones Industrials Index, Morgan Stanley
Capital International EAFE (Europe, Australia and Far East) Index and World
Index, Lehman Brothers GNMA Index, Salomon Brothers Investment Grade Bond Index
and Bond Buyer Municipal Index, Lehman Brothers BAA Corporate Index, Lehman
Brothers High Yield Index, Lehman Brothers Revenue Bond Index, Merrill Lynch
Corporate Government Bond Index and the Lehman Brothers Mutual Fund Short
Government/Corporate Index.
Total Return
When advertising total return figures, each of the Growth-Oriented Funds
and Income-Oriented Funds will include its average annual total return for each
of the one-, five- and ten-year periods (or for such shorter periods as the
registration statement for the relevant class has been in effect) that end on
the last day of the most recent calendar quarter. Average annual total return is
computed by calculating the average annual compounded rate of return over the
stated period that would equate an initial $1,000 investment to the ending
redeemable value assuming the reinvestment of all dividends and capital gains
distributions at net asset value. In its advertising, a Fund may also include
average annual total return for some other period or cumulative total return for
a specified period. Cumulative total return is computed by dividing the
difference between the ending redeemable value (assuming the reinvestment of all
dividends and capital gains distributions at net asset value) and the initial
investment by the initial investment. Total return calculations assume the
payment of the maximum front-end load (in the case of Class A shares) or the
applicable CDSC (in the case of Class B shares). Average annual total return and
cumulative total return may also be calculated for a specified period which
reflect reduced sales charges or which reflect no sales charge or CDSC in order
to illustrate the change in a Fund's net asset value over time.
The following table shows as of October 31, 1995 average annual return for
Class A shares for each of the Funds for the periods indicated:
- --------------------------------------------------------------------------------
Fund 1-Year 5-Year 10-Year
Balanced 8.82 13.08 9.54(1)
Blue Chip 16.89 9.67(2) N/A
Bond 14.10 9.83 9.55(1)
Capital Accumulation 12.40 15.76 11.51
Emerging Growth 20.47 23.13 16.71(1)
Government Securities Income 11.94 8.25 9.13
Growth 17.50 20.97 15.03
High Yield 6.48 11.62 7.26
Tax-Exempt Bond 10.57 7.62 7.33(3)
Utilities 18.52 5.46(4) N/A
World -3.72 10.82 10.97
(1) Period Beginning December 18, 1987 and ending October 31, 1995.
(2) Period Beginning March 1, 1991 and ending October 31, 1995.
(3) Period Beginning March 20,1986 and ending October 31, 1995.
(4) Period Beginning December 16, 1992 and ending October 31, 1995.
- --------------------------------------------------------------------------------
The following table shows as of October 31, 1995 average annual
return for Class B shares for each of the Funds for the periods indicated:
<PAGE>
- --------------------------------------------------------------
Fund 1-Year (1)
- --------------------------------------------------------------
Balanced 14.72
Blue Chip 22.94
Bond 13.98
Capital Accumulation 21.06
Emerging Growth 31.65
Government Securities Income 12.07
Growth 27.48
High Yield 8.20
Tax-Exempt Bond 13.97
Utilities 20.18
World 5.77
- --------------------------------------------------------------
(1) Period Beginning December 9, 1994 and ending October 31,
1995
- --------------------------------------------------------------
<PAGE>
Yield
Income-Oriented Funds
Each of the Income-Oriented Funds calculates its yield by determining its
net investment income per share for a 30-day (or one month) period, annualizing
that figure (assuming semi-annual compounding) and dividing the result by the
maximum public offering price for Class A shares or the net asset value for
Class B and Class R shares for the last day of the same period. The following
table shows as of October 31, 1995 the yield for Class A shares and Class B
shares for each of the Income-Oriented Funds:
- --------------------------------------------------------------------------------
Fund Yield as of
October 31, 1995
Class A Class B
Bond Fund 6.12% 5.68%
Government Securities Income Fund 6.22% 5.69%
High Yield Fund 8.51% 7.92%
Tax-Exempt Bond Fund 5.11% 4.50%
Utilities 4.12% 3.58%
- --------------------------------------------------------------------------------
The Tax-Exempt Bond Fund may advertise a tax-equivalent yield, which is
calculated by dividing that portion of the yield which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if any,
of the yield which is not tax-exempt. As of October 31, 1995 the Fund's
tax-equivalent yields for Class A and Class B shares were as follows:
Tax-Equivalent Yield Assumed
Class A Class B Tax Rate
7.10% 6.25% 28.0%
7.98% 7.03% 36.0%
8.46% 7.45% 39.6%
Money Market Funds
Each of the Money Market Funds may advertise its yield and its effective
yield and the Tax-Exempt Cash Management Fund may also advertise its
tax-equivalent yield.
Yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then multiplying the base period return by (365/7) with the
resulting yield figure carried to at least the nearest hundredth of one percent.
As of October 31, 1995, the Cash Management Fund's yield for Class A shares and
Class B shares was 5.11% and 4.45%, respectively, and the Tax-Exempt Cash
Management Fund's yield for Class A shares and Class B shares was 3.16% and
2.40%, respectively. Because realized capital gains or losses in a Fund's
portfolio are not included in the calculation, the Fund's net investment income
per share for yield purposes may be different from the net investment income per
share for dividend purposes, which includes net short-term realized gains or
losses on the Fund's portfolio.
Effective yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then compounding the base period return by adding 1, raising
the sum to a power equal to 365 divided by 7, and subtracting 1 from the result.
The resulting effective yield figure is carried to at least the nearest
hundredth of one percent. As of October 31, 1995, the Cash Management Fund's
effective yield for Class A shares and Class B shares was 5.24% and 4.55%,
respectively, and the Tax-Exempt Cash Management Fund's effective yield for
Class A shares and Class B shares was 3.21% and 2.43%, respectively.
Tax equivalent yield for the Tax-Exempt Cash Management Fund is computed by
dividing that portion of the yield or effective yield which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if any,
of the yield or effective yield which is not tax-exempt. As of October 31, 1995
the Fund's tax-equivalent yield and tax-equivalent effective yield for Class A
shares and Class B shares were as follows:
Tax-Equivalent Yield Tax-Equivalent Effective Yield Assumed
Class A Class B Class A Class B Tax Rate
------- ------- ------- ------- --------
4.39% 3.33% 4.46% 3.38% 28%
4.94% 3.75% 5.02% 3.80% 36%
5.23% 3.97% 5.31% 4.02% 39.6%
The yield quoted at any time for one of the Money Market Funds represents the
amount that was earned during a specific, recent seven-day period and is a
function of the quality, types and length of maturity of instruments in the
Fund's portfolio and the Fund's operating expenses. The length of maturity for
the portfolio is the average dollar weighted maturity of the portfolio. This
means that the portfolio has an average maturity of a stated number of days for
its issues. The calculation is weighted by the relative value of each
investment.
The yield for either of the Money Market Funds will fluctuate daily as the
income earned on the investments of the Fund fluctuates. Accordingly, there is
no assurance that the yield quoted on any given occasion will remain in effect
for any period of time. It should also be emphasized that the Funds are open-end
investment companies and that there is no guarantee that the net asset value or
any stated rate of return will remain constant. A shareholder's investment in
either Fund is not insured. Investors comparing results of the Money Market
Funds with investment results and yields from other sources such as banks or
savings and loan associations should understand these distinctions. Historical
and comparative yield information may, from time to time, be presented by the
Funds.
A Fund may include in its advertisements the compounding effect of
reinvested dividends over an extended period of time as illustrated below.
<PAGE>
The Power of Compounding
Fund shareholders who choose to reinvest their distributions get the advantage
of compounding. Here's what happens to a $10,000 investment with monthly income
reinvested at 6 percent, 8 percent and 10 percent over 20 years.
These figures assume no fluctuation in the value of principal. This chart is for
illustration purposes only and is not intended as an indication of the results a
shareholder may receive as a shareholder of a specific Fund. The return and
capital value of an investment in a Fund will fluctuate so that the value, when
redeemed, may be worth more or less than the original cost.
Year 6% 8% 10%
0 $10,000 $10,000 $10,000
20 $32,071 $46,610 $67,275
<PAGE>
A Fund may also include in its advertisements an illustration of the
impact of income taxes and inflation on earnings from bank certificates of
deposit ("CD's"). The interest rate on the hypothetical CD will be based upon
average CD rates for a stated period as reported in the Federal Reserve
Bulletin. The illustrated annual rate of inflation will be the core inflation
rate as measured by the Consumer Price Index for the 12-month period ended as of
the most recent month prior to the advertisement's publication. The illustrated
income tax rate may include any federal income tax rate applicable to
individuals at the time the advertisement is published. Any such advertisement
will indicate that, unlike bank CD's, an investment in the Fund is not insured
nor is there any guarantee that the Fund's net asset value or any stated rate of
return will remain constant.
An example of a typical calculation included in such advertisements is as
follows: the after-tax and inflation-adjusted earnings on a bank CD, assuming a
$10,000 investment in a six-month bank CD with an annual interest rate of 5.76%
(monthly average six-month CD rate for the month of October, 1995, as reported
in the Federal Reserve Bulletin) and an inflation rate of 2.8% (rate of
inflation for the 12-month period ended October 31, 1995 as measured by the
Consumer Price Index) and an income tax bracket of 28% would be $(67).
($10,000 x 5.76%) / 2 = $288 Interest for six-month period
- 81 Federal income taxes (28%)
- 140 Inflation's impact on invested principal
($10,000 x 2.8%) / 2
($ 67) After-tax, inflation-adjusted earnings
A Fund may also include in its advertisements an illustration of
tax-deferred accumulation versus currently taxable accumulation in conjunction
with the Fund's use as a funding vehicle for 403(b) plans, IRAs or other
retirement plans. The illustration set forth below assumes a monthly investment
of $200, an annual return of 8% compounded monthly, and a 28% tax bracket.
The information is for illustrative purposes only and is not meant to
represent the performance of any of the Princor Funds. An investment in the
Princor Funds is not guaranteed; values and returns generally vary with changes
in market conditions.
<PAGE>
Tax-deferred vs. taxable savings plan
_______________________________________ $300,059 *
---------------------------------------
_______________________________________ $192,844 **
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
Years: 5 10 15 20 25 30
* With a tax-deferred savings plan
** Without a tax-deferred savings plan
TAX TREATMENT OF FUNDS, DIVIDENDS AND DISTRIBUTIONS
It is the policy of each Fund to distribute substantially all net
investment income and net realized gains. Through such distributions, and by
satisfying certain other requirements, each Fund intends to qualify for the tax
treatment accorded to regulated investment companies under the applicable
provisions of the Internal Revenue Code. This means that in each year in which a
Fund so qualifies, it will be exempt from federal income tax upon the amount so
distributed to investors. The Tax Reform Act of 1986 imposed an excise tax on
mutual funds which fail to distribute net investment income and capital gains by
the end of the calendar year in accordance with the provisions of the Act. Each
Fund intends to comply with the Act's requirements and to avoid this excise tax.
Dividends from net investment income will be eligible for a 70% dividends
received deduction generally available to corporations to the extent of the
amount of qualifying dividends received by the Funds from domestic corporations
for the taxable year. Distributions from the Money Market Funds and
Income-Oriented Funds (except Princor Utilities Fund) are generally not eligible
for the corporate dividend received deduction.
All taxable dividends and capital gains are taxable in the year in which
distributed, whether received in cash or reinvested in additional shares.
Dividends declared with a record date in December and paid in January will be
deemed to have been distributed to shareholders in December. Each Fund will
inform its shareholders of the amount and nature of their taxable income
dividends and capital gain distributions. Dividends from a Fund's net income and
distributions of capital gains, if any, may also be subject to state and local
taxation.
The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the Internal Revenue Service for failure
to report the receipt of interest or dividend income properly, or (3) who has
failed to certify to the Fund that it is not subject to backup withholding or
that it is a corporation or other "exempt recipient."
A shareholder will recognize gain or loss on the sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds of
the sales or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the Fund will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. However, any capital loss arising from the sales or
redemption of shares held for six months or less will be disallowed to the
extent of the amount of exempt-interest dividends received on such shares and
(to the extent not disallowed) will be treated as a long-term capital loss to
the extent of the amount of capital gain dividends received on such shares.
Capital losses in any year are deductible only to the extent of capital gains
plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (i) incurs a sales load in acquiring shares of the Fund,
(ii) disposes of such shares less than 91 days after they are acquired and (iii)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
Shareholders should consult their own tax advisors as to the federal,
state and local tax consequences of ownership of shares of the Funds in their
particular circumstances.
Special Tax Considerations
Tax-Exempt Bond Fund and Tax-Exempt Cash Management Fund
The Tax-Exempt Bond Fund and Tax-Exempt Cash Management Fund also intend
to qualify to pay "exempt-interest dividends" to their respective shareholders.
An exempt-interest dividend is that part of dividend distributions made by
either Fund which consist of interest received by that Fund on tax-exempt
Municipal Obligations. Shareholders incur no federal income taxes on
exempt-interest dividends. However, these exempt-interest dividends may be
taxable under state or local law. Fund shareholders that are corporations must
include exempt-interest dividends in determining whether they are subject to the
corporate alternative minimum tax. Exempt-interest dividends that derive from
certain private activity bonds must be included by individuals as a preference
item in determining whether they are subject to the alternative minimum tax.
Each Fund may also pay ordinary income dividends and distribute capital gains
from time to time. Ordinary income dividends and distributions of capital gains,
if any, are taxable for federal purposes.
If a shareholder receives an exempt-interest dividend with respect to
shares of the Funds held for six months or less, then any loss on the sale or
exchange of such shares, to the extent of the amount of such dividend, is
disallowed. If a shareholder receives a capital gain dividend with respect to
shares held for six months or less, then any loss on the sale or exchange of
such shares will be treated as a long term capital loss to the extent such loss
exceeds any exempt-interest dividend received with respect to such shares, and
will be disallowed to the extent of such exempt-interest dividend.
Interest on indebtedness incurred or continued by a shareholder to
purchase or carry shares of either of these Funds is not deductible.
Furthermore, entities or persons who are "substantial users" (or related
persons) under Section 147(a) of the Code of facilities financed by private
activity bonds should consult their tax advisors before purchasing shares of the
Funds.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. If any such legislation as enacted would
eliminate or significantly reduce the availability of Municipal Obligations, it
could adversely affect the ability of the Funds to continue to pursue their
respective investment objectives and policies. In such event, the Funds would
reevaluate their investment objectives and policies.
World Fund
If under the investment manager's flexible investment policy, the World
Fund should invest the greater part of its assets abroad (as to which no
assurance can be given), then in each fiscal year when, at the close of such
year, more than 50% of the value of the Fund's total assets are invested in
securities of foreign corporations, the Fund may elect pursuant to Section 853
of the Code to permit its Shareholders to take a credit (or a deduction) for
foreign income taxes paid by the Fund. In that case, Shareholders should include
in their report of gross income in their federal income tax returns both cash
dividends received from the Fund and also the amount which the Fund advises is
their pro rata portion of foreign income taxes paid with respect to, or withheld
from, dividends and interest paid to the Fund from its foreign investments.
Shareholders would then be entitled to subtract from their federal income taxes
the amount of such taxes withheld, or treat such foreign taxes as a deduction
from gross income, if that should be more advantageous. As in the case of
individuals receiving income directly from foreign sources, the above-described
tax credit or tax deduction is subject to certain limitations. Shareholders or
prospective shareholders should consult their tax advisors on how these
provisions apply to them.
Futures Contracts and Options
As previously discussed, some of the Princor Funds may invest in futures
contracts or options thereon, index options or options traded on qualified
exchanges. For federal income tax purposes, capital gains and losses on futures
contracts or options thereon, index options or options traded on qualified
exchanges are generally treated as 60% long-term and 40% short-term. In
addition, the Funds must recognize any unrealized gains and losses on such
positions held at the end of the fiscal year. A Fund may elect out of such tax
treatment, however, for a futures or options position that is part of an
"identified mixed straddle" such as a put option purchased with respect to a
portfolio security. Gains and losses on futures and options included in an
identified mixed straddle will be considered 100% short-term and unrealized gain
or loss on such positions will not be realized at year end. The straddle
provisions of the Code may require the deferral of realized losses to the extent
that a Fund has unrealized gains in certain offsetting positions at the end of
the fiscal year, and may also require recharacterization of all or a part of
losses on certain offsetting positions from short-term to long-term, as well as
adjustment of the holding periods of straddle positions.
Short-Term Capital Gains
One of the requirements each Fund must meet to qualify as a regulated
investment company under federal tax law is that it must derive less than 30% of
its gross income from gains on the sale or other disposition of securities held
for less than three months. Accordingly, each Fund will be restricted in selling
securities held or considered under Code rules to have been held for less than
three months and in engaging in certain transactions to obtain or close
positions in options and futures contracts.
Taxation of IRA Distributions
Distributions from IRAs are taxed as ordinary income to the recipient,
although special rules exist for the tax-free return of non-deductible
contributions. In addition, taxable distributions received from an IRA prior to
age 59 1/2 are subject to a 10% penalty tax in addition to regular income tax.
Certain distributions are exempted from this penalty tax, including
distributions following the participant's death or disability or if the
distribution is paid as part of a series of substantially equal periodic
payments made for the life (or life expectancy) of the participant or the joint
lives (or joint life expectancies) of the participant and the participant's
designated beneficiary.
Generally, distributions from IRAs must commence not later than April 1 of
the calendar year following the calendar year in which the participant attains
age 70 1/2, and such distributions must be made over a period that does not
exceed the life expectancy of the participant (or the participant and
beneficiary.) A penalty tax of 50% would be imposed on any amount by which the
minimum required distribution in any year exceeded the amount actually
distributed in that year. In addition, in the event that the participant dies
before his or her entire interest in the IRA has been distributed, the
participant's entire interest must be distributed at least as rapidly as under
the method of distribution being used as of the date of that person's death. If
the shareholder dies prior to beginning any distributions from the IRA, the
entire interest in the IRA will be distributed (1) within five years after the
date of the participant's death or (2) as periodic payments which will begin
within one year of the participant's death and which will be made over the life
expectancy of the participant's designated beneficiary. However, if the
participant's designated beneficiary is the surviving spouse, the IRA may be
continued with the surviving spouse deemed to be the new IRA participant.
The Code permits the taxable portion of funds to be transferred in a
tax-free rollover from a qualified employer pension, profit-sharing, annuity,
bond purchase or tax-deferred annuity plan to an IRA if certain conditions are
met, and if the rollover of assets is completed within 60 days after the
distribution from the qualified plan is received. A direct rollover of funds may
avoid a 20% federal tax withholding generally applicable to qualified plans or
tax-deferred annuity plan distributions. In addition, not more frequently than
once every twelve months, amounts may be rolled over tax-free from one IRA to
another, subject to the 60-day limitation and other requirements. The
once-per-year limitation on rollovers does not apply to direct transfers of
funds between IRA custodians or trustees.
GENERAL INFORMATION AND HISTORY
The Balanced Fund was incorporated under the laws of Maryland on November
26, 1986. Effective December 5, 1994, its name was changed from Princor Managed
Fund, Inc. to Princor Balanced Fund, Inc.
The Emerging Growth Fund was incorporated under the laws of Maryland on
February 20, 1987. Effective March 1, 1992, its name was changed from Princor
Aggressive Growth Fund, Inc. to Princor Emerging Growth Fund, Inc.
FINANCIAL STATEMENTS
The financial statements for each of the Princor Funds for the year ended
October 31, 1995 appearing in the Annual Reports to shareholders and the reports
thereon of Ernst & Young LLP, independent auditors, appearing therein are
incorporated by reference in this Statement of Additional Information. The
Annual Reports will be furnished without charge, to investors who request copies
of the Statement of Additional Information.
<PAGE>
APPENDIX A
Description of Bond Ratings:
Moody's Investors Service, Inc. Bond Ratings
Aaa:
Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa:
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A:
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa:
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba:
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B:
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa:
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca:
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C:
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
CONDITIONAL RATING: Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and a
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
SHORT-TERM NOTES: The four ratings of Moody's for short-term notes are MIG
1, MIG 2, MIG 3 and MIG 4; MIG 1 denotes "best quality, enjoying strong
protection from established cash flows"; MIG 2 denotes "high quality" with
"ample margins of protection"; MIG 3 notes are of "favorable quality...but
lacking the undeniable strength of the preceding grades"; MIG 4 notes are of
"adequate quality, carrying specific risk for having protection...and not
distinctly or predominantly speculative."
Description of Moody's Commercial Paper Ratings
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Description of Standard & Poor's Corporation's Debt Ratings:
A Standard & Poor's debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligers such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources Standard & Poor's considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditor's rights.
AAA:
Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA:
Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A:
Debt rated "A" has a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB:
Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher-rated categories.
BB, B, CCC, CC:
Debt rated "BB", "B", "CCC" and "CC" is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "CC" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
C:
The rating "C" is reserved for income bonds on which no interest is being
paid.
D:
Debt rated "D" is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of
the project being financed by the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
NR:
Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not
rate a particular type of obligation as a matter of policy.
Standard & Poor's, Commercial Paper Ratings
A Standard & Poor's Commercial Paper Rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. Ratings are applicable to
both taxable and tax-exempt commercial paper. The four categories are as
follows:
A:
Issues assigned the highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1 This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Issues that
possess overwhelming safety characteristics will be given a "+"
designation.
A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as
for issues designated "A-1".
A-3 Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the highest designations.
B:
Issues rated "B" are regarded as having only an adequate capacity for
timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
C:
This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D:
This rating indicates that the issue is either in default or is expected
to be in default upon maturity.
The Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in or unavailability of, such information.
Standard & Poor's rates notes with a maturity of less than three years as
follows:
SP-1 A very strong, or strong, capacity to pay principal and interest.
Issues that possess overwhelming safety characteristics will be
given a "+" designation.
SP-2 A satisfactory capacity to pay principal and interest.
SP-3 A speculative capacity to pay principal and interest.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in the Registration Statement
(1) Part A:
Financial Highlights for each of the six years in
the period ended October 31, 1995, for the period
from July 1, 1989 through October 31, 1989 and the
four years ended June 30, 1989.
(2) Part B:
None
(b) Exhibits
(11) Consent of Independent Auditors
(12) Audited Financial Statements as of October 31,
1995, including the Report of Ernst & Young,
independent auditors for the Registrant.
(14a) Principal Mutual IRA Plan
(14b) Principal Mutual SEP Plan
(14c) Principal Mutual 403(b) Plan
(15a) 12b-1 Plan - Class A Shares
(15b) 12b-1 Plan - Class B Shares
(15r) 12b-1 Plan - Class R Shares
(16) Total Return Performance Quotation-Class B
(18) Multiple Class Distribution Plan
Item 25. Persons Controlled by or Under Common Control with Depositor
Principal Mutual Life Insurance Company (incorporated as a
mutual life insurance company under the laws of Iowa);
Sponsored the organization of the following mutual funds,
some of which it controls by virtue of owning voting
securities:
Principal Asset Allocation Fund, Inc. (a Maryland
Corporation) 100.0% of shares outstanding owned by
Principal Mutual Life Insurance Company and its
separate accounts on October 31, 1995.
Principal Aggressive Growth Fund, Inc. (a Maryland
Corporation) 100.0% of shares outstanding owned by
Principal Mutual Life Insurance Company and its
separate accounts on October 31, 1995.
Princor Balanced Fund, Inc.a Maryland Corporation)
15.85% of shares outstanding owned by Principal Mutual
Life Insurance Company on October 31, 1995.
Principal Balanced Fund, Inc. (a Maryland Corporation)
100.0% of shares outstanding owned by Principal Mutual
Life Insurance Company and its separate accounts on
October 31, 1995.
Princor Blue Chip Fund, Inc. (a Maryland Corporation)
26.63% of shares outstanding owned by Principal Mutual
Life Insurance Company on October 31, 1995.
Princor Bond Fund, Inc. (a Maryland Corporation) 1.86%
of shares outstanding owned by Principal Mutual Life
Insurance Company on October 31, 1995
Principal Bond Fund, Inc. (a Maryland Corporation)
100.0% of shares outstanding owned by Principal Mutual
Life Insurance Company and its separate accounts on
October 31, 1995.
Princor Capital Accumulation Fund, Inc. (a Maryland
Corporation) 44.88% of outstanding shares owned by
Principal Mutual Life Insurance Company on
October 31, 1995.
Principal Capital Accumulation Fund, Inc. (a Maryland
Corporation) 100.0% of outstanding shares owned by
Principal Mutual Life Insurance Company and its
Separate Accounts on October 31, 1995.
Princor Cash Management Fund, Inc. (a Maryland
Corporation) 1.89% of outstanding shares owned by
Principal Mutual Life Insurance Company (including
subsidiaries and affiliates) on October 31, 1995.
Princor Emerging Growth Fund, Inc. (a Maryland
Corporation) 0.92% of shares outstanding owned by
Principal Mutual Life Insurance Company on
October 31, 1995.
Principal Emerging Growth Fund, Inc. (a Maryland
Corporation) 100.0% of shares outstanding owned by
Principal Mutual Life Insurance Company and its
Separate Accounts on October 31, 1995.
Princor Government Securities Income Fund, Inc. (a
Maryland Corporation) 0.40% of shares outstanding owned
by Principal Mutual Life Insurance Company on
October 31, 1995.
Principal Government Securities Fund, Inc. (a Maryland
Corporation) 100.0% of shares outstanding owned by
Principal Mutual Life Insurance Company and its
Separate Accounts on October 31, 1995.
Princor Growth Fund, Inc. (a Maryland Corporation)
0.77% of outstanding shares owned by Principal Mutual
Life Insurance Company on October 31, 1995.
Principal Growth Fund, Inc. (a Maryland Corporation)
100.0% of outstanding shares are owned by Principal
Mutual Life Insurance Company and its Separate Accounts
on October 31, 1995.
Princor High Yield Fund, Inc. (a Maryland Corporation)
36.56% of shares outstanding owned by Principal Mutual
Life Insurance Company on October 31, 1995.
Principal High Yield Fund, Inc.(a Maryland Corporation)
100.0% of shares outstanding owned by Principal Mutual
Life Insurance Company and its Separate Accounts on
October 31, 1995.
Principal Money Market Fund, Inc. (a Maryland
Corporation) 100.0% of shares outstanding owned by
Principal Mutual Life Insurance Company and its
Separate Accounts on October 31, 1995.
Principal Special Markets Fund, Inc. (a Maryland
Corporation) 78.18% of the shares outstanding of the
International Securities Portfolio and 82.48% of the
shares outstanding of the Mortgage-Backed Securities
Portfolio were owned by Principal Mutual Life Insurance
Company on October 31, 1995.
Princor Tax-Exempt Bond Fund, Inc. (a Maryland
Corporation) 0.61% of shares outstanding owned by
Principal Mutual Life Insurance Company on
October 31, 1995.
Princor Tax-Exempt Cash Management Fund, Inc. (a
Maryland Corporation) 1.03% of shares outstanding owned
by Principal Mutual Life Insurance Company on
October 31, 1995.
Princor Utilities Fund, Inc. (a Maryland Corporation)
4.47% of shares outstanding owned by Principal Mutual
Life Insurance Company on October 31, 1995.
Princor World Fund, Inc. (a Maryland Corporation)
20.00% of shares outstanding owned by Principal Mutual
Life Insurance Company on October 31, 1995.
Principal World Fund, Inc. (a Maryland Corporation)
100.0% of shares outstanding owned by Principal Mutual
Life Insurance Company on October 31, 1995.
Subsidiaries organized and wholly-owned by Principal
Mutual Life Insurance Company:
Principal Life Insurance Company (an Iowa Corporation)
A general insurance and annuity company. It is not
currently active.
Principal Holding Company (an Iowa Corporation)
A holding company wholly-owned by Principal Mutual
Life Insurance Company.
PT Asuransi Jiwa Principal Egalita Indonesia
Subsidiaries wholly-owned by Principal Holding Company:
a. Petula Associates, Ltd. (an Iowa Corporation) a real
estate development company.
b. Patrician Associates, Inc.(a California Corporation)
a real estate development company.
c. Principal Development Associates, Inc. (a California
Corporation) a real estate development company.
d. Princor Financial Services Corporation (an Iowa
Corporation) a registered broker-dealer.
e. Invista Capital Management, Inc. (an Iowa
Corporation) a registered investment adviser.
f. Principal Marketing Services, Inc. (a Delaware
Corporation) a corporation formed to serve as an
interface between marketers and manufacturers of
financial services products.
g. The Principal Financial Group, Inc. (a Delaware
corporation) a general business corporation
established in connection with the new corporate
identity. It is not currently active.
h. Delaware Charter Guarantee & Trust Company (a
Delaware Corporation) a nondepository trust company.
i. Principal Securities Holding Corp. (a Delaware
Corporation) a holding company.
j. Principal Health Care, Inc. (an Iowa Corporation) a
developer and administrator of managed care systems.
k. Principal Financial Advisors, Inc. (an Iowa
Corporation) a registered investment advisor.
l. Principal Asset Markets, Inc.(an Iowa Corporation) a
residential mortgage loan broker.
m. Principal Portfolio Services, Inc. (an Iowa
Corporation) a mortgage due diligence company.
n. Principal International, Inc.(an Iowa Corporation) a
company formed for the purpose of international
business development.
o. Principal Spectrum Associates, Inc. (a California
Corporation) a real estate development company.
p. Principal Commercial Advisors, Inc. (an Iowa
Corporation) a company that purchases and manages
commercial real estate in the secondary market.
q. Principal FC, Ltd. (an Iowa Corporation) a limited
purpose investment corporation.
r. America's Health Plan, Inc.(a Maryland Corporation)
a developer of discount provider networks.
s. Principal Residential Mortgage, Inc. (an Iowa
Corporation) a full service mortgage banking company
t. Equity FC, LTD. (an Iowa Corporation) engaged in
investment transactions including limited
partnership and limited liability companies.
Subsidiaries organized and wholly-owned by Princor
Financial Services Corporation:
a. Princor Management Corporation (an Iowa Corporation)
a registered investment advisor.
b. Principal Investors Corporation (a New Jersey
Corporation) a registered broker-dealer with the
Securities Exchange Commission. It is not currently
active.
Subsidiary wholly owned by Principal Securities Holding
Corporation:
Principal Financial Securities, Inc. (a Delaware
Corporation) an investment banking and securities
brokerage firm.
Subsidiaries organized and wholly-owned by Principal
Health Care, Inc.:
a. Principal Health Care of Illinois, Inc. (an Illinois
Corporation) a health maintenance organization.
b. Principal Health Care of Nebraska, Inc. (a Nebraska
Corporation) a health maintenance organization.
c. Principal Health Care of Delaware, Inc. (a Delaware
Corporation) a health maintenance organization.
d. Principal Health Care of Georgia, Inc. (a Georgia
Corporation) a health maintenance organization.
e. Principal Health Care of Kansas City, Inc. (a
Missouri Corporation) a health maintenance
organization.
f. Principal Health Care of Louisiana, Inc.(a Louisiana
Corporation) a health maintenance organization.
g. Principal Health Care of Florida, Inc. (a Florida
Corporation) a health maintenance organization.
h. United Health Care Services of Iowa, Inc. (an Iowa
Corporation) a preferred provider organization.
i. Principal Health Care of Iowa, Inc. (an Iowa
Corporation) a health maintenance organization.
j. Principal Health Care of Indiana, Inc. (a Delaware
Corporation) a health maintenance organization.
k. Principal Behavioral Health Care, Inc. (an Iowa
Corporation) a mental and nervous substance abuse
preferred provider organization.
l. Principal Health Care of Nebraska, Inc. (a
Nebraska Corporation) a health maintenance
organization.
m. Principal Health Care of Tennessee, Inc.(a Tennesse
Corporation) a health maintenance organization.
n. Principal Health Care of Texas, Inc. ( a Texas
Corporation) a health maintenance organization.
o. Principal Health Care of The Carolinas (a North
Carolina Corporation) a health maintenance
organization.
P. Principal Health Care of South Carolina, Inc. (a
South Carolina Corporation) a health maintenance
organization
q. United Health Care Services of Iowa, Inc. (an Iowa
Corporation) a health maintenance organization
Subsidiary owned by Principal Health Care of
Delaware, Inc.:
Principal Health Care of the Mid-Atlantic, Inc. (a
Virginia Corporation) a health maintenance
organization.
Subsidiaries owned by Principal International, Inc.:
a. Grupo Financiero Principal S.A. De Seguros De Vida
(a Spain Corporation).
b. Principal Internacional, S.A. Compania De Seguros (a
Mexico Corporation).
c. Principal International Argentina, S.A. (an
Argentina Corporation).
d. Principal International ASIA Limited (Goldchin
Champ, Limited) (a Hong Kong Corporation).
e. Principal International De Chile S.A. (a Chile
Corporation)
Subsidiary owned by Grupo Financiero Principal S.A. De
Seguros De Vida:
Agencia De Seguros, SA (a Spain Corporation). It is
not currently active.
Subsidiaries owned by Principal International
Argentina, S.A.:
a. Ethika, S.A. Administradora De Fondos De
Jubilaciones De Pensiones (an Argentina Corporation)
b. Principal Compania De Seguros De Retiro S.A. (an
Argentina Corporation).
c. Principal Compania De Seguros De Vida, S.A. (an
Argentina Corporation)
Subsidiaries owned by Principal International De
Chile S.A.:
Banrenta Compania De Seguros De Vida Vanmedica S.A.
(a Chile Corporation)
Item 26. Number of Holders of Securities - As of: November 30, 1995
(1) (2)
Title of Class Number of Holders
Princor Capital Accumulation Fund, Inc.
Common-Class A 24,334
Common-Class B 751
Item 27. Indemnification
Under Section 2-418 of the Maryland General Corporation Law, with respect
to any proceedings against a present or former director, officer, agent or
employee (a "corporate representative") of the Registrant, the Registrant may
indemnify the corporate representative against judgments, fines, penalties, and
amounts paid in settlement, and against expenses, including attorneys' fees, if
such expenses were actually incurred by the corporate representative in
connection with the proceeding, unless it is established that:
(i) The act or omission of the corporate representative was
material to the matter giving rise to the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and deliberate dishonesty; or
(ii) The corporate representative actually received an improper
personal benefit in money, property, or services; or
(iii) In the case of any criminal proceeding, the corporate
representative had reasonable cause to believe that the act or
omission was unlawful.
If a proceeding is brought by or on behalf of the Registrant, however, the
Registrant may not indemnify a corporate representative who has been adjudged to
be liable to the Registrant. Under the Registrant's Articles of Incorporation
and Bylaws, directors and officers of Registrant are entitled to indemnification
by the Registrant to the fullest extent permitted under Maryland law and the
Investment Company Act of 1940. Reference is made to Article VI, Section 7 of
the Registrant's Articles of Incorporation, Article 12 of Registrant's Bylaws
and Section 2-418 of the Maryland General Corporation Law.
The Registrant has agreed to indemnify, defend and hold the Distributor,
its officers and directors, and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act of 1933, free and harmless from
and against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, directors or any such controlling person may incur under the
Securities Act of 1933, or under common law or otherwise, arising out of or
based upon any untrue statement of a material fact contained in the Registrant's
registration statement or prospectus or arising out of or based upon any alleged
omission to state a material fact required to be stated in either thereof or
necessary to make the statements in either thereof not misleading, except
insofar as such claims, demands, liabilities or expenses arise out of or are
based upon any such untrue statement or omission made in conformity with
information furnished in writing by the Distributor to the Registrant for use in
the Registrant's registration statement or prospectus: provided, however, that
this indemnity agreement, to the extent that it might require indemnity of any
person who is also an officer or director of the Registrant or who controls the
Registrant within the meaning of Section 15 of the Securities Act of 1933, shall
not inure to the benefit of such officer, director or controlling person unless
a court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent that such result would not be against public
policy as expressed in the Securities Act of 1933, and further provided, that in
no event shall anything contained herein be so construed as to protect the
Distributor against any liability to the Registrant or to its security holders
to which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence, in the performance of its duties,
or by reason of its reckless disregard of its obligations under this Agreement.
The Registrant's agreement to indemnify the Distributor, its officers and
directors and any such controlling person as aforesaid is expressly conditioned
upon the Registrant being promptly notified of any action brought against the
Distributor, its officers or directors, or any such controlling person, such
notification to be given by letter or telegram addressed to the Registrant.
Item 28. Business or Other Connection of Investment Adviser
<TABLE>
<CAPTION>
A complete list of the officers and directors of the investment adviser,
Princor Management Corporation, are set out below. This list includes some of
the same people (designated by an *), who are serving as officers and directors
of the Registrant. For these people the information as set out in the Statement
of Additional Information (See Part B) under the caption "Directors and Officers
of the Fund" is incorporated by reference.
<S> <C> <C> <C>
*Michael J. Beer The Principal See Part B
Vice President Financial Group
Des Moines, Iowa
50392
Mary L. Bricker Same Assistant Corporate
Assistant Corporate Secretary
Secretary Principal Mutual Life
Insurance Company
Ray S. Crabtree Same Senior Vice President
Director Principal Mutual Life
Insurance Company
David J. Drury Same Chief Executive Officer
Director and Chairman of the Board
Principal Mutual Life
Insurance Company
Paul N. Germain Same Operations Officer
Operations Officer Princor Financial Services
Corporation
*Ernest H. Gillum Same See Part B
Assistant Vice President
*J. Barry Griswell Same See Part B
Chairman of the Board
and Director
Joyce N. Hoffman Same Vice President and
Vice President and Corporate Secretary
Corporate Secretary Principal Mutual Life
Insurance Company
Theodore M. Hutchison Same Executive Vice President
Director Principal Mutual Life
Insurance Company
*Stephan L. Jones Same See Part B
President and Director
David K. Kauf Same Senior Vice President
Director Principal Mutual Life
Insurance Company
Ronald E. Keller Same Executive Vice President
Director Principal Mutual Life
Insurance Company
Sterling R. Kosmicke Same President and Director
Vice President Invista Capital Management,
Inc.
*Michael D. Roughton Same See Part B
Counsel
Charles E. Rohm Same Executive Vice President
Director Principal Mutual Life
Insurance Company
Dewain A. Sparrgrove Same Vice President -
Vice President Investment Securities
Principal Mutual Life
Insurance Company
*Jerry G. Wisgerhof Same See Part B
Vice President and
Treasurer
</TABLE>
Princor Management Corporation serves as investment adviser and dividend
disbursing and transfer agent for, Principal Bond Fund, Inc., Principal Capital
Accumulation Fund, Inc., Principal Emerging Growth Fund, Inc., Principal
Government Securities Fund, Inc., Principal Growth Fund, Inc., Principal High
Yield Fund, Inc., Principal Balanced Fund, Inc., Principal Money Market Fund,
Inc., Principal Special Markets Fund, Inc., Principal Utilities Fund, Inc.,
Principal World Fund, Inc., Princor Blue Chip Fund, Inc., Princor Bond Fund,
Inc., Princor Capital Accumulation Fund, Inc., Princor Cash Management Fund,
Inc., Princor Emerging Growth Fund, Inc., Princor Government Securities Income
Fund, Inc., Princor Growth Fund, Inc., Princor High Yield Fund, Inc., Princor
Balanced Fund, Inc., Princor Tax-Exempt Bond Fund, Inc., Princor Tax-Exempt Cash
Management Fund, Inc., Princor Short-Term Bond Fund, Inc., Princor Utilities
Fund, Inc. and Princor World Fund, Inc. - funds sponsored by Principal Mutual
Life Insurance Company.
Item 29. Principal Underwriters
(a) Princor Financial Services Corporation, principal underwriter for
Registrant, acts as principal underwriter for, Principal Bond Fund, Inc.,
Principal Capital Accumulation Fund, Inc., Principal Emerging Growth Fund, Inc.,
Principal Government Securities Fund, Inc., Principal Growth Fund, Inc.,
Principal High Yield Fund, Inc., Principal Balanced Fund, Inc., Principal Money
Market Fund, Inc., Principal Special Markets Fund, Inc., Principal Utilities
Fund, Inc., Principal World Fund, Inc., Princor Blue Chip Fund, Inc., Princor
Bond Fund, Inc., Princor Capital Accumulation Fund, Inc., Princor Cash
Management Fund, Inc., Princor Emerging Growth Fund, Inc., Princor Government
Securities Income Fund, Inc., Princor Growth Fund, Inc., Princor High Yield
Fund, Inc., Princor Balanced Fund, Inc., Princor Tax-Exempt Bond Fund, Inc.,
Princor Tax-Exempt Cash Management Fund, Inc., Princor Short-Term Bond Fund,
Inc., Princor Utilities Fund, Inc., Princor World Fund, Inc. and for variable
annuity contracts participating in Principal Mutual Life Insurance Company
Separate AccountB, a registered unit investment trust for retirement plans
adopted by public school systems or certain tax-exempt organizations pursuant to
Section403(b) of the Internal Revenue Code, Section 457 retirement plans,
Section 401(a) retirement plans, certain non- qualified deferred compensation
plans and Individual Retirement Annuity Plans adopted pursuant to Section408 of
the Internal Revenue Code, and for variable life insurance contracts issued by
Principal Mutual Life Insurance Company Variable Life Separate Account, a
registered unit investment trust.
<TABLE>
<CAPTION>
(b) (1) (2) (3)
Positions
and offices Positions and
Name and principal with principal offices with
business address underwriter registrant
<S> <C> <C> <C>
Michael J. Beer Vice President Vice President
The Principal
Financial Group
Des Moines, IA 50392
Mary L. Bricker Assistant Corporate None
The Principal Secretary
Financial Group
Des Moines, IA 50392
Ray S. Crabtree Director None
The Principal
Financial Group
Des Moines, IA 50392
David J. Drury Director None
The Principal
Financial Group
Des Moines, IA 50392
Arthur S. Filean Vice President Vice President
The Principal and Secretary
Financial Group
Des Moines, IA 50392
Paul N. Germain Operations Officer None
The Principal
Financial Group
Des Moines, IA 50392
Ernest H. Gillum Assistant Assistant
The Principal Vice President Secretary
Financial Group
Des Moines, IA 50392
J. Barry Griswell Director and Director and
The Principal Chairman of the Chairman of the
Financial Group Board Board
Des Moines, IA 50392
Joyce N. Hoffman Vice President and None
The Principal Corporate Secretary
Financial Group
Des Moines, IA 50392
Theodore M. Hutchison Director None
The Principal
Financial Group
Des Moines, IA 50392
Stephan L. Jones Director and Director and
The Principal President President
Financial Group
Des Moines, IA 50392
David K. Kauf Director None
The Principal
Financial Group
Des Moines, IA 50392
Ronald E. Keller Director Director
The Principal
Financial Group
Des Moines, IA 50392
John R. Lepley Senior Vice None
The Principal President - Marketing
Financial Group and Sales
Des Moines, IA 50392
Charles E. Rohm Director None
The Principal
Financial Group
Des Moines, IA 50392
Michael D. Roughton Counsel Counsel
The Principal
Financial Group
Des Moines, IA 50392
Jean B. Schustek Compliance Officer None
The Principal
Financial Group
Des Moines, IA 50392
Roger C. Stroud Assistant Director- None
The Principal Marketing
Financial Group
Des Moines, IA 50392
Jerry G. Wisgerhof Treasurer Treasurer
The Principal
Financial Group
Des Moines, IA 50392
(c) Inapplicable.
</TABLE>
Item 30. Location of Accounts and Records
All accounts, books or other documents of the Registrant are located at the
offices of the Registrant and its Investment Adviser in the Principal Mutual
Life Insurance Company home office building, The Principal Financial Group, Des
Moines, Iowa 50392.
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
Indemnification
Reference is made to Item 27 above, which discusses circumstances under
which directors and officers of the Registrant shall be indemnified by the
Registrant against certain liabilities and expenses incurred by them by reason
of being a director or officer of the Registrant.
Notwithstanding the provisions of Registrant's Articles of Incorporation
and Bylaws, the Registrant hereby makes the following undertaking:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant, in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person of the Registrant, in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue
Shareholder Communications
Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a director or directors when
requested in writing to do so by the holders of at least 10% of the Registrant's
outstanding shares of common stock and in connection with such meeting to comply
with the provisions of Section 16(c) of the Investment Company Act of 1940
relating to shareholder communications
Delivery of Annual Report to Shareholders
The registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of the registrant's latest annual report to
shareholders, upon request and without charge.
Consent of Independent Auditors
The Board of Directors and Shareholders
Princor Capital Accumulation Fund, Inc.
We consent to the reference to our firm under the captions "Financial
Highlights" and "Additional Information - Financial Statements" in the
Prospectuses in Part A and to the incorporation by reference in Part B of our
report dated November 22, 1995 on the financial statements and financial
highlights of Princor Balanced Fund, Inc., Princor Blue Chip Fund, Inc., Princor
Capital Accumulation Fund, Inc., Princor Emerging Growth Fund, Inc., Princor
Growth Fund, Inc., Princor World Fund, Inc., Princor Bond Fund, Inc., Princor
Cash Management Fund, Inc., Princor Government Securities Income Fund, Inc.,
Princor High Yield Fund, Inc., Princor Tax-Exempt Bond Fund, Inc., Princor
Tax-Exempt Cash Management Fund, Inc., and Princor Utilities Fund, Inc. in Post
Effective Amendment No. 41 to Form N-1A Registration Statement under the
Securities Act of 1933 (No. 2-33227) and Registration Statement under the
Investment Company Act of 1940 (No. 811-1874) of Princor Capital Accumulation
Fund, Inc.
Des Moines, Iowa
December 11, 1995
<TABLE>
<CAPTION>
Princor Funds Performance
Average Annual Total Returns
As of October 31, 1995
(the latest calendar quarter)
1 Year 5 Years 10 Years
with without with without with without
sales sales sales sales sales sales
A Shares of: charge charge charge charge charge charge
<S> <C> <C> <C> <C> <C> <C>
Balanced 8.82% 14.19% 13.08% 14.18% 9.54%a 10.21%a
Blue Chip 16.89 22.65 9.67b 10.81b - -
Bond 14.10 19.73 9.83 10.89 9.55a 10.23a
Capital Accumulation 12.40 17.94 15.76 16.88 11.51 12.05
Emerging Growth 20.47 26.41 23.13 24.32 16.71a 17.42a
Government Securities Income 11.94 17.46 8.25 9.29 9.13 9.65
Growth 17.50 23.29 20.97 22.14 15.03 15.59
High Yield 6.48 11.73 11.62 12.70 7.26a 7.92a
Tax-Exempt Bond 10.57 16.03 7.62 8.66 7.33d 7.87d
Utilities 18.52 24.36 5.46e 7.24e - -
World -3.72 1.03 10.82 11.89 10.97 11.51
1 Year f
with without
B Shares of: CDSC* CDSC*
Balanced 14.72% 18.72%
Blue Chip 22.94 26.94
Bond 13.98 17.98
Capital Accumulation 21.06 25.06
Emerging Growth 31.65 35.65
Government Securities Income 12.07 16.07
Growth 27.48 31.48
High Yield 8.20 12.20
Tax-Exempt Bond 13.97 17.97
Utilities 20.18 24.18
World 5.77 9.77
* Contingent Deferred Sales Charge
<FN>
a Partial period, from effective date 12/18/87
b Partial period, from effective date 3/1/91
c Partial period, from effective date 5/21/85
d Partial period, from effective date 3/20/86
e Partial period, from effective date 12/16/92
f Partial period, from effective date 12/9/94
</FN>
Total return represents the overall performance of an investment for a specific
period of time, assuming the reinvestment of dividends and capital gains.
Average annual total returns for A shares are with and without maximum 4.75%
sales charge. Average annual total returns for B shares are with and without
maximum 4.0% contingent deferred sales charge.
Total returns reflect past performance. Past performance does not predict future
performance. The investment return and principal value of an investment will
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
</TABLE>
<PAGE>
Contents
Page
President's Letter.......................1
Comments from the Funds'
Portfolio Managers....................2
Building Retirement Security --
Charting Your Route to a More
Secure Retirement....................10
The Princor Growth-Oriented Funds
Financial Statements and Financial
Highlights
Statements of Assets and
Liabilities..........................12
Statements of Operations.............14
Statements of Changes in
Net Assets.........................16
Notes to Financial Statements........18
Schedules of Portfolio Investments
Balanced Fund, Inc.................24
Blue Chip Fund, Inc................26
Capital Accumulation
Fund, Inc........................27
Emerging Growth Fund, Inc..........29
Growth Fund, Inc...................32
World Fund, Inc....................34
Financial Highlights.................40
The Princor Income-Oriented Funds
Financial Statements and Financial
Highlights
Statements of Assets and
Liabilities........................44
Statements of Operations.............46
Statements of Changes in
Net Assets.........................48
Notes to Financial Statements........50
Schedules of Portfolio Investments
Bond Fund, Inc.....................56
Cash Management Fund, Inc..........58
Government Securities Income
Fund, Inc........................61
High Yield Fund, Inc...............61
Tax-Exempt Bond Fund, Inc..........63
Tax-Exempt Cash Management
Fund, Inc........................66
Utilities Fund, Inc................68
Financial Highlights.................70
Report of Independent Auditors..........74
Federal Tax Information.................76
The Princor Family of Mutual
Funds..............................80
A Message From the President
Dear Shareholder:
The U.S. stock and bond markets have maintained the strong momentum with which
they began the year. As cited in financial publications, since January 1995,
stocks have risen dramatically and many market indices have reached record
levels. Bond returns have been more modest but remain good, rewarding fixed
income investors. Results in international stock markets were mixed with
European issues performing best; Japan and Latin America also performed well.
Shareholders of both Princor growth- and income-oriented funds have benefited
from these strong markets. For the one-year period ending September 30, 1995,
all Princor funds have posted positive returns at net asset value, most in
double digits. [More complete fund performance information is contained in this
report.]
Extraordinary performance of this type often leads to unbridled enthusiasm among
investors. However, this enthusiasm needs to be tempered with an awareness that
returns at this level cannot be expected to continue indefinitely, and this past
performance does not guarantee future results. Investors should view these times
as confirmation of the three, time-proven tactics of successful investing-focus
on the long term, invest regularly and diversify.
Looking to the new year, most market strategists expect to see continued
economic growth, moderate inflation and limited movement in interest rates.
These factors, combined with continued efforts to reduce the federal deficit,
should be favorable for the U.S. stock and bond markets. Though international
markets have recently lagged those of the U.S., potential gains from
international investing remain good for the long term.
Of additional interest is our upcoming conversion to a new, enhanced shareholder
recordkeeping system. This new system will allow Princor to better meet the
service needs of our shareholders. The most recent edition of The Princor
Shareholder contains an overview of the conversion. Complete details of the
Princor shareholder recordkeeping conversion will be sent to you at the
beginning of January.
Princor thanks you for helping to make this a very successful year. Buoyed by
strong performance, our funds have continued to grow in both assets and the
number of shareholders. We look forward to another fine year in 1996.
Sincerely,
Stephan L. Jones
President
<PAGE>
MANAGER'S COMMENTS
Princor Management Corporation, the adviser to the Princor funds, is staffed
with investment professionals who manage each individual fund. Comments by these
individuals in the following paragraphs summarize in capsule form the general
strategy and recent results of each fund over the past year. We believe any
Princor fund should, under normal circumstances, represent only a portion of an
investor's total investments. For most investors a portfolio should be balanced
among stocks, bonds, and cash reserves to fit their own needs and risk
tolerance. Those who maintain this balanced approach should be aware of the
short-term results, but focus on the long term. Past performance is no guarantee
of future results. Fund values will fluctuate so that the shares, upon
redemption, may be worth more or less than their original cost.
Growth-Oriented Funds
Princor Balanced Fund
Judi Vogel
This balanced portfolio is designed to combine stocks, bonds and cash in a
relatively conservative mix which provides both capital appreciation and income
to the shareholder without taking on undue risk. Financial markets cooperated in
helping us to achieve our objectives over the year. Both stocks and bonds
delivered double-digit returns. The economy backed off from strong growth in
late 1994 to register modest advances over the succeeding months. Inflation
remained benign over the year and still is not a concern today. Apparently the
Federal Reserve did a remarkable job of managing interest rates in order to cool
the economy without plunging it into recession. Long-term interest rates have
fallen about 1.5% over the last 10 months, enabling the bond market to surge.
Corporate earnings have continued to be strong four years into an economic
expansion thanks to widespread increases in productivity and almost zero growth
in labor costs. While higher earnings have boosted common stocks, lower interest
rates have enabled prices to soar without the market appearing overvalued. So
far 1995 has been a great year in the markets. We have taken a slightly more
cautious stance than the average balanced mutual fund with 50% of our holdings
in equity-related securities and the balance in fixed income. According to
Morningstar's Balanced Fund Overview, the average balanced fund has 53% in
equities. Although our asset allocation caused returns to lag relative to the
Lipper Balanced Fund Average, the Fund's returns in the absolute were quite
attractive. There is no independent market index against which to measure
returns of balanced portfolios. However, we show the S&P 500 stock index for
your information.
Comparison of Change in Value $10,000 Investment
Princor Balanced Fund, Inc.
Balanced Fund Lipper
Total S&P 500 Balanced
Year Ended October 31, Return Index Average
9,525 10,000 10,000
1988 10,714 11,628 11,233
1989 11,896 14,697 13,152
1990 10,554 13,595 12,465
1991 14,152 18,152 16,015
1992 15,830 19,959 17,413
1993 17,768 22,938 19,994
1994 17,935 23,823 19,852
1995 20,480 30,112 23,300
Princor Blue Chip Fund
Mark Williams
The economic slowdown experienced during the first half of the year, combined
with moderate inflation, laid the groundwork for the past year's excellent
returns. Investors, no longer afraid of interest rate increases, purchased
equities aggressively. As the year progressed, investors rotated to those
companies able to show consistent earnings growth in spite of the slowdown. The
weak dollar also contributed to good earnings comparisons for the multi-national
firms in the Fund. We ended this fiscal year ahead of Lipper's Growth and Income
Fund average return, while trailing the S&P 500 Index return. Two sectors with
moderate weightings in the Fund, Financials and Technology, experienced
above-average returns. Our moderate weightings penalized relative performance
somewhat, but we believed--and continue to believe--this account has the right
exposure to these industries. Going forward, we continue to search for those
companies with consistent earnings increases, well-capitalized balance sheets,
and strong business prospects. The companies in the Fund are positioned to
succeed in the increasingly competitive global marketplace.
Comparison of Change in Value $10,000 Investment
Princor Blue Chip Fund, Inc.
Blue Chip Lipper
Fund Growth &
Total S&P 500 Income
Year Ended October 31, Return Index Fund Average
9,525 10,000 10,000
1991 10,137 10,654 10,544
1992 11,142 11,714 11,499
1993 11,771 13,464 13,424
1994 12,546 13,982 13,763
1995 15,388 17,673 16,510
Princor Capital Accumulation Fund
David White
Our strategy is to hold common stocks that will produce better rates of return
if bought and held forever. Our analysis is very similar to the approach which
companies take when making acquisitions. Future cash flows are weighed against
today's price. This is our "bottoms up" approach. Overlaying this approach is a
"top down" strategy. We look at the big picture: the economy, international
trade, secular industry trends, earnings and the stock market. Any macro
insights help select specific investments for the portfolio. During this past
year, we have been reducing the portolio's exposure to the cyclical side of the
economy. The economy was nearing capacity at the end of calendar 1994 which
limited cyclical companies ability to expand earnings. Proceeds from these sales
were invested in companies that should continue to grow even if the economy
slows or enters a recession. Growth stocks, healthcare, food, banks and
utilities have received the bulk of the funds. Electronic technology stocks were
about the only large sector that produced good returns this past year.
Unfortunately, we were underweighted in this sector which hurt performance. Late
in the year, the electronic technology sector started to underperform and the
sectors this Fund is emphasizing started doing much better.
Comparison of Change in Value $10,000 Investment
Princor Capital Accumulation Fund, Inc.
Capital Accum. S&P 500 Lipper
Total Stock Growth & Income
Year Ended October 31, Return Index Fund Average
9,525 10,000 10,000
1986 12,189 13,320 12,818
1987 12,731 14,181 12,953
1988 14,565 16,281 15,069
1989 16,578 20,578 18,154
1990 13,624 19,037 16,371
1991 19,160 25,416 21,855
1992 21,396 27,948 23,835
1993 23,624 32,120 27,825
1994 25,199 33,359 28,527
1995 29,721 42,164 34,221
Princor Emerging Growth Fund
Mike Hamilton
The financial markets continue their strong advance. Strength has been across
all usual indexes with NASDAQ doing the best recently. The Princor Emerging
Growth Fund performed better than its comparison indexes.
The Princor Emerging Growth Fund continues to be structured to take advantage of
the economic tide toward efficiency, productivity and global competitiveness.
This had led us to overweight technology, industrial cyclicals, financial and
healthcare sectors. With the exception of the industrial cyclical area, all did
better than the S&P 500. The portfolio has little energy and no utility
exposure.
We continue to experience a growing balanced economy with little visible
imbalances currently. Our outlook is for more of the same and we don't
anticipate making any dramatic changes to the portfolio. The focus is on above
average growth companies with high returns on capital.
Comparison of Change in Value $10,000 Investment
Princor Emerging Growth Fund, Inc.
Emerging Growth S&P 500 Lipper
Total Stock MID CAP
Year Ended October 31, Return Index Fund Average
9,525 10,000 10,000
1988 11,409 11,628 11,344
1989 13,651 14,697 14,346
1990 11,357 13,595 12,349
1991 18,689 18,152 19,744
1992 20,862 19,959 21,136
1993 24,964 22,938 26,260
1994 26,676 23,823 26,816
1995 33,721 30,112 33,389
Princor Growth Fund
The financial markets have experienced one of the stronger years for
participants so far in 1995. The year has witnessed changed economic
expectations from strong growth at the start of the year to slower expectations
recently. This has influenced returns as the market has shifted from a
preference for cyclical companies to purer growth companies. The Princor Growth
Fund is positioned for an elongated economic cycle with little excess or
imbalance foreseen. The Fund is balanced between cyclical growth companies and
companies with diminished dependence on the economic cycle. The portfolio's main
weightings are in technology, financials and healthcare. The Fund has done
better than its benchmarks given this balance and continued focus on companies
providing products and services which improve productivity and are able to
compete globally.
Comparison of Change in Value $10,000 Investment
Princor Growth Fund, Inc.
Growth Fund S&P 500 Lipper
Total Stock Growth
Year Ended October 31, Return Index Fund Average
9,525 10,000 10,000
1986 12,387 13,320 12,759
1987 12,715 14,181 12,704
1988 13,925 16,281 14,719
1989 16,439 20,578 18,297
1990 14,926 19,037 16,166
1991 23,777 25,416 22,847
1992 27,286 27,948 24,643
1993 29,968 32,120 28,849
1994 32,912 33,359 29,293
1995 40,578 42,164 36,318
Princor World Fund
Scott Opsal
The Fund's fiscal year began with the financial and economic collapse in Mexico
following devaluation of the peso. Because the Fund owned stock in Mexican and
other emerging market companies, declines in Latin American stock prices caused
relative performance to lag. Our overweighting in European cyclicals reversed
that trend in mid-year. Europe's cyclical recovery produced strong earnings
gains in industrial companies. European markets also benefited from falling
interest rates over the course of this year. Europe experienced widespread
strength in its currencies relative to the US dollar. Strong foreign currencies
and a weak dollar enhance returns for US investors. The Fund experienced
significant return advantages from its overweighting in European currencies and
European cyclicals, both of which boosted relative returns throughout most of
the year. The Japanese market fell dramatically early in the year, but regained
its lost ground by year end. The yen has also fluctuated widely during the year.
These swings introduced tremendous volatility in International stock index
returns, however the Fund's low exposure in Japan allowed some avoidance to this
large source of volatility.
Comparison of Change in Value $10,000 Investment
Princor World Fund
World Fund Lipper
Total EAFE International
Year Ended October 31, Return Index Average
9,525 10,000 10,000
1988 9,529 10,594 10,854
1989 10,055 11,457 12,475
1990 10,149 9,995 12,380
1991 11,552 10,689 13,434
1992 11,371 9,276 12,776
1993 16,077 12,751 17,045
1994 17,620 14,036 18,848
1995 17,801 13,896 18,733
Important Notes of the Growth-Oriented Funds:
Standard & Poor's 500 Stock Index: An unmanaged index of 500 widely held common
stocks representing industrial, financial, utility and transportation companies
listed on the New York Stock Exchange, American Stock Exchange and the
Over-the-Counter market.
Lipper Growth & Income Fund Average: This average consists of funds which
combine a growth of earnings orientation and an income requirement for level
and/or rising dividends. The one-year average currently contains 397 funds.
Lipper Mid Cap Fund Average: This average consists of funds which by prospectus
or portfolio practice, limit their investments to companies with average market
capitalizations and/or revenues between $800 million and the average market
capitalization of the Wilshire 4500 Index (as captured by the Vanguard Index
Extended Market Fund). The one-year average currently contains 93 funds.
Lipper Growth Fund Average: This average consists of funds which normally invest
in companies whose long-term earnings are expected to grow significantly faster
than the earnings of the stocks represented in the major unmanaged stock
indices. The one-year average currently contains 537 funds.
Lipper Balanced Fund Average: This average consists of funds whose primary
objective is to conserve principal by maintaining at all times a balanced
portfolio of both stocks and bonds. Typically, the stock/bond ration ranges
around 60%/40%. The one-year average currently contains 194 funds.
Morgan Stanley EAFE (Europe, Australia and Far East) Index: This average
reflects an arithmetic, market value weighted average of performance of more
than 900 listed securities which are listed on the stock exchanges of the
following countries: Australia, Austria, Belgium, Denmark, Netherlands, New
Zealand, Norway, Singapore/Malaysia, Spain, Sweden, Switzerland, and the United
Kingdom.
Lipper International Fund Average: This average consists of funds which invest
in securities primarily traded in markets outside of the United States. The
one-year average currently contains 226 funds.
Note: Mutual fund data from Lipper Analytical Services, Inc.
Income-Oriented Funds
Princor Bond Fund
Don Brattebo One year ago we were reporting on what had been the worst bond
market performance in memory, due primarily to the Federal Reserve raising
interest rates frequently. However, with pleasure we report to you that during
this past twelve months we have witnessed a dramatic turnaround in the bond
market with interest rates falling sharply and bond prices recovering to levels
we last saw in early 1994.
Not only has there been a recovery in fixed-income markets generally, but the
Bond Fund has outperformed most of the funds in its peer group of Lipper Service
BBB-rated funds. The reason for this is two-fold: First, we have remained fully
invested and maintained our average portfolio maturity of 10 to 12 years to
obtain better yields. Secondly, we are more heavily concentrated in BBB-rated,
investment grade bonds than other funds, and this quality sector of the market
has outperformed most other sectors in the past twelve months.
We've come through some wild and challenging markets these past two years, but
have held firm to our philosophy of managing for total return over a long time
horizon. We continue to seek out better values on a day-to-day basis in order to
deliver attractive and competitive returns to you. We believe, once again, the
forces and volatility of the markets have reinforced our strategy (and we hope
the strategy of our shareholders) of investing and managing for the long term
and not the short.
Comparison of Change in Value $10,000 Investment
Princor Bond Fund, Inc.
Bond Fund Lehman Lipper
Total Baa BBB Corp.
Year Ended October 31, Return Index Average
9,525 10,000 10,000
1988 10,634 11,207 10,947
1989 11,862 12,598 11,980
1990 12,227 13,135 12,295
1991 14,189 15,451 14,397
1992 15,814 17,167 15,952
1993 18,220 19,771 18,362
1994 17,125 18,892 17,376
1995 20,504 22,156 19,873
Princor Government Securities Income Fund
Marty Schafer The U.S. Federal Reserve Board's long-term goal of low inflation
and steady growth appears closer to reality with each passing year. The dismal
performance of 1994 was due to the Fed's actions to slow economic growth and
potential inflation. In 1995, dramatic turnaround was the result of the markets
recognizing that inflation was well contained at the peak of this economic
cycle. In fact, the most powerful ingredient in calculating inflation--labor
costs--has been deflating. With wage increases holding steady and benefit
packages being trimmed, corporate America has forced workers to work smarter and
harder resulting in increased productivity. This provides products with lower
unit labor costs. We look for the Fed to continue their vigilant fight against
inflation. While ultimately this should be beneficial to all fixed-income
investors, the road to solid returns may be rocky from time to time.
Our disciplined approach of running a portfolio priced at or below par has once
again provided our shareholders with strong performance. This Fund's success
reflects our preference for slightly longer duration assets than our
competitors. We try to keep our duration between 5 and 6 years. The duration as
of October 31, 1995, at 5.25 years. Duration measures the sensitivity of the
value of the mortgage-backed securities to changes in interest rates. In
general, if interest rates change one percentage point, the value will change in
the opposite direction by a percentage which equals the duration.
Comparison of Change in Value $10,000 Investment
Princor Government Securities Income Fund
Government Lehman Lipper
Total GNMA GNMA
Year Ended October 31, Return Index Average
9,525 10,000 10,000
1986 11,270 11,653 11,343
1987 11,443 12,122 11,537
1988 13,043 13,793 12,917
1989 14,463 15,367 14,177
1990 15,356 16,641 15,212
1991 17,932 19,485 17,484
1992 19,454 21,199 18,937
1993 21,749 22,804 20,474
1994 20,388 22,451 19,844
1995 23,947 25,863 22,550
Princor High Yield Fund
Ken Hovey The period of the Fund's fiscal year was good for high yield markets
and the Fund, but not as good as for some other income-oriented assets and
funds. The Treasury bond market saw a flattening of its yield curve with a
sizeable decline in yields in all maturities except the shortest bills. The high
yield market is often compared to the ten-year Treasury. This Treasury had
increased in yield for much of the prior fiscal year and the reverse occurred
for the past fiscal year. The yield peaked in early November and fell throughout
the year except for a minor reversal in July and August. For the year, the ten
year Treasury declined in yield by 1.79% while the high yield market, as
measured by the Merrill Lynch High Yield Master Index, declined in yield by
1.09%. In other words, the positive price change for high yield was less as a
result of the decline in interest rates other than for Treasury bonds or other
assets more closely correlated to Treasuries.
Our Fund performed about as expected during the year except for a sizeable price
decline in our holding of Drypers Corp. This company, a manufacturer of baby
diapers, has had margin problems due to price competition and raw material
prices. Otherwise, the Fund has not experienced credit problems. Our strategy
remains to have a balance of "B" and "BB" rated bonds and not to speculate on
distressed bonds or trade often for short-term gains. We think, within the
context of high yield, that our Fund is relatively well positioned to withstand
a weaker or slower growing economy. Additionally, as a consequence of high yield
returns lagging behind other fixed-income assets, the going forward return
expectations are now more favorable for high yield when compared to other asset
types.
Comparison of Change in Value $10,000 Investment
Princor High Yield Fund, Inc.
High Yield Lehman Lipper
Total High Yield High Yield
Year Ended October 31, Return Index Average
9,525 10,000 10,000
1988 10,879 11,403 11,230
1989 11,171 11,625 11,355
1990 9,550 10,131 9,967
1991 11,998 15,050 13,589
1992 13,719 17,345 15,816
1993 15,319 20,450 18,991
1994 15,540 20,702 18,913
1995 17,363 23,958 21,409
Princor Tax-Exempt Bond Fund
Dan Garrett The bond market was a great place to be during the fiscal year ended
October 31, 1995. The long term investor was rewarded for staying the course
over the past few years. For most periods the Fund has outperformed the Lipper
General Municipal Fund average. We have done so by adding value through superior
credit quality analysis and avoiding mistakes such as unfavorable bond
structures like certificates of participation and lease revenue bonds. We also
focus on companies which have strengths within their industries, such as utility
companies with low cost structures. We have also avoided bonds which have no
call protection, such as housing bonds.
There are many questions about the impact tax reform may have on investment
markets but few answers because several proposals are being discussed. The
municipal market would have risen further in the absence of the tax reform
issue. Under a balanced federal budget, interest rates should fall, which would
benefit all bond investors. We will continue to find value in credit, structure
and call protection features. We focus on the long term balance of current
income and total return.
Comparison of Change in Value $10,000 Investment
Princor Tax-Exempt Bond Fund, Inc.
Tax Exempt Lehman Lipper
Total Revenue General
Year Ended October 31, Return Bond Index Muni. Debt
9,525 10,000 10,000
1986 10,193 10,634 10,639
1987 9,545 10,552 10,257
1988 11,476 12,391 11,880
1989 12,525 13,510 12,805
1990 13,033 14,515 13,515
1991 14,739 16,410 15,177
1992 15,883 17,837 16,298
1993 18,376 20,557 18,817
1994 17,014 19,466 17,714
1995 19,740 22,566 20,141
Princor Utilities Fund
Catherine Green Utility stocks have had a very strong year with many stocks
rising over 20%. The positive gains were caused by several factors. First, a
falling interest rate market had a positive impact on these stocks. Second,
there has been much discussion about increasing competition for utilities. As
the industry moves forward, many of the companies have developed plans to cope
with these changes. This has calmed investors' fears, and the stocks have
reacted accordingly. Third, weather changes impact certain regions as companies
are able to sell more energy. The last impact has been that of mergers. As
companies develop their plans to face the future, more of them are consolidating
to become more cost competitive. This has impacted electric utilities positively
as they are able to merge and cut costs to stay ahead of the game. Telephones,
over 25% of the Fund, have also enjoyed a strong year. Again, aggressive plans
to become winners in the fast growing telecommunications area has been a driving
factor. As our Fund is a "pure play," we have fared well in this environment. We
do not own any non-utility stocks or bonds, so we are focused solely on the
common stocks of utility companies. We will continue this focus along with a
goal to emphasize low-cost, high quality utility companies.
Comparison of Change in Value $10,000 Investment
Princor Utilities Fund
Utilities Fund S&P 500 Lipper Dow Jones
Total Stock Utilities Utilities
Year Ended October 31 , Return Index Average With Income
9,525 10,000 10,000 10,000
1993 11,047 10,980 11,575 11,658
1994 9,368 11,403 10,475 9,349
1995 11,651 14,413 12,325 11,810
Princor Cash Management Fund
Princor Tax-Exempt Cash Management Fund
Mike Johnson Steve Schneider Intervention by the Federal Reserve tapered off
during 1995 as opposed to the multitude of Fed tightening actions that occurred
in the prior year. The Fed raised short-term rates once again this past
February. Then the tightening trend in place since the beginning of 1994 was
reversed and a rate cut was affected in July. Since then, levels have remained
flat. The average maturity of our own portfolio, as well as that of the
industry, started slowing in the third quarter as investors were no longer being
given any incentive to buy longer paper. We continue to target and actively
monitor the industry averages to keep both our yields and average days in line.
Both portfolios continue to invest from a list of approved issues of the highest
credit quality actively managed by our investment securities analytical staff.
Through the third quarter of 1995, assets for both the Princor taxable and
tax-exempt portfolios, as well as those industry-wide, all continued to increase
to record levels since the beginning of this year.
Important Notes of the Income-Oriented Funds:
Lehman Brothers, Baa Index: An unmanaged index of all publicly issued,
fixed-rate, nonconvertible, dollar-denominated, SEC-registered corporate debt
rated Baa or BBB by Moody's or S&P.
Lipper Corporate Debt BBB Rated Fund Average: This average consists of funds
which invest at least 65% of their assets in corporate and government debt
issues rated in the top four grades. The one-year average currently contains 78
funds.
Lehman Brothers, GNMA Index: An unmanaged index of 15- and 30-year fixed-rate
securities backed by mortgage pools of the Government National Mortgage
Association (GNMA) and Graduated payment mortgages (GPMs) with at least $100
million outstanding and one year or more to maturity.
Lipper GNMA Fund Average: This average consists of funds which invest a least
65% of their assets in Government National Mortgage Association securities. The
one-year average currently contains 49 funds.
Lehman Brothers, High Yield Index: An unmanaged index of all publicly issued
fixed, dollar-denominated, SEC-registered corporate debt rated Ba1 or lower with
at least $100 million outstanding and one year or more to maturity.
Lipper High Current Yield Fund Average: This average consists of funds which aim
at high (relative) current yield from fixed income securities. No quality or
maturity restrictions. They tend to invest in lower grade debt issues. The
one-year average currently contains 112 funds.
Lehman Brothers, Revenue Bond Index: An unmanaged index of investment grade
tax-exempt revenue bonds which have been issued within the last five years and
at least one-year or more to maturity.
Lipper General Municipal Debt Fund Average: This average consists of funds which
invest at least 65% of their assets in municipal debt issues in the top four
credit ratings. The one-year average currently contains 216 funds.
Standard & Poor's 500 Stock Index: An unmanaged index of 500 widely held common
stocks representing industrial, financial, utility and transportation companies
listed on the New York Stock Exchange, American Stock Exchange and the
Over-the-Counter market.
Lipper Utilities Fund Average: This average consists of funds which invest 65%
of its equity portfolio in utility shares. The one-year average currently
contains 79 funds.
Dow Jones Utilities Index with Income: This average is a price-weighted average
of 15 utility companies that are listed on the New York Stock Exchange and are
involved in the production of electrical energy.
Note: Mutual fund data from Lipper Analytical Services, Inc.
<PAGE>
Building Retirement Security-Charting Your Route to a More Secure Retirement
Planning for retirement is more difficult than it was in the past. In
previous generations, when a person retired at age 65, they could expect to live
only a limited number of years. In recent years, modern medical technology and
healthier lifestyles help to lengthen our years in retirement. Today, a man
retiring at age 65 has a life expectancy of fifteen more years. A woman who
retires at the same age can anticipate living another twenty years. The trend
toward longer lives is expected to continue. As a result, retirement planning
today is a very important aspect of your financial future.
Successful retirement planning begins with developing a clear picture of
your own retirement. What are your retirement goals and dreams? How much will
they cost? How will inflation affect your plans for retirement? By charting out
your retirement in detail now, you gain a better idea of the path you need to
take.
The next step to building retirement security is to look at your sources of
retirement income. According to a study done by the Pension and Welfare Benefits
Administration, almost 70% of Americans between the ages of 45 and 64, believe
that their retirement income needs will be met by their Social Security and
employer pension benefits. In other words, from sources other than themselves.
In reality, most retirees derive, more than half their retirement income from
personal sources. These included: personal savings, investments and additional
earnings. These charts show the importance of taking responsibility for a large
portion of your own retirement income.
Perception
Americans, Age 45-64 believe their most important retirement income source is:
Pension 43%
Social Security 25%
Savings 18%
Other 10%
Earnings 4%
Reality
The actual percentages for heads of household, age 65 + and $20,000 + total
annual income:
Savings 32%
Earnings 24%
Social Security 23%
Pension 20%
Other 1%
As you continue down the retirement-planning road, you need to consider its
challenges. In addition to the normal, anticipated financial responsibilities,
we all face the threat of disability, caring for aging parents or the loss of a
spouse. All these challenge our financial well-being and plans for a more secure
retirement. The best way to meet these challenges, should they occur, is by
planning ahead. By planning ahead we mean beginning a regular, disciplined
savings and investment program.
Challenges to Meeting Your Retirement Goals
- - Income interruption from loss of job or disability
- - Death of Spouse
- - Health concerns for you and your family
- - The need to care for aging parents
- - Your need for long-term care
- - Lack of financial planning
To help ensure the success of your investment program you may want to use
these three basic investment strategies: investing for the long-term,
diversification and dollar-cost averaging. One benefit of long-term investing is
compounding. The compounding illustration to the right shows how your investment
can grow over time, assuming different rates of return. Diversification is the
process of spreading your investments among more than one asset class and
thereby reducing your potential investment risk. The example shows how
diversification leads to a balanced investment portfolio.
How Money Grows $100,000 invested
Investment earning 10% over 25 years grows to $1,083,471.
Investment earning 8% over 25 years grows to $684,848.
Investment earning 6% over 25 years grows to $429,187.
For illustrative purposes only. Assumes no taxes are paid on earnings as
the investment grows. Interest rates do not reflect actual performance of any
specific financial product.
One of the easiest investment strategies available to you is dollar-cost
averaging. This strategy is to invest regulary, and continuously, over time.
When investing using this strategy, you are purchasing shares whether the market
is up or down. Of course, no strategy guarantees success but, the result should
be that your average share cost is less than you would have paid trying to
predict the market. When using dollar-cost averaging, you need to evaluate your
ability to continue investing during periods lower market levels. Here is how a
dollar-cost averaging program might look.
Investment Balance
Interest Earning Equity
Investments: Investments:
Money Market Funds Common Stock
Bonds Real Estate
Government Securities
------------------------ ----------------------
^ ^
---------------------------------------
^
Emergency Money
Life/Medical/Disability/LTC
The final step in building retirement security is to develop a plan of
action. To accomplish this, you+ll want to take into consideration the types of
savings plans available to you. These might include: a 401(k), IRA, qualified or
non-qualified annuities or mutual fund investments. Your registered
representative can help you design and implement a plan for building retirement
security.
Dollar-Cost Averaging
Regular Share Shares
Investment Price Acquired
$300 $25 12
$300 $20 15
$300 $15 20
$300 $20 15
$300 $15 20
$300 $12 25
$1,800 107
Average Share Cost $16.82 ($1,800 / 107 Shares)
Average Share Price $17.83 *Sum of Share Price / 6)
(Investment programs like dollar-cost averaging do not assure a profit, nor
guarantee against a loss in declining markets. The plan involves continuous
investment regardless of price fluctuations. So investors should consider their
ability to continue purchasing shares during periods of low price levels.)
Here is a quick review of the four steps to building retirement security:
create a picture of your retirement goals, identify your sources of retirement
income, prepare for the challenges you may face along the way and, finally,
develop an action plan. Contact your registered representative to guide you
through the process of building retirement security.
<TABLE>
<CAPTION>
October 31, 1995
STATEMENTS OF ASSETS AND LIABILITIES
Princor Princor Princor Capital
Balanced Blue Chip Accumulation
GROWTH FUNDS Fund, Inc. Fund, Inc. Fund, Inc.
Assets
Investment in securities -- at value (cost -- $52,142,778;
$28,607,185; $289,104,493; $114,702,569; $127,847,324;
<S> <C> <C> <C>
and $118,823,668, respectively) (Note 4)............... $58,108,590 $37,378,265 $341,501,900
Cash ............................................................ 1,883 4,446 5,124
Receivables:
Dividends and interest........................................ 326,277 49,320 443,387
Investment securities sold.................................... 234,883 847,845 162,104
Capital Stock sold............................................ 11,831 10,961 10,112
Other assets..................................................... 3,796 545 24,412
Total Assets 58,687,260 38,291,382 342,147,039
Liabilities
Accrued expenses................................................. 75,023 47,894 228,835
Payables:
Investment securities purchased............................... 195,745 1,294,140 --
Capital Stock reacquired...................................... 28,138 5,609 13,737
Total Liabilities 298,906 1,347,643 242,572
Net Assets Applicable to Outstanding Shares....................... $58,388,354 $36,943,739 $341,904,467
Net Assets Consist of:
Capital Stock.................................................... $ 42,490 $ 24,581 $ 144,323
Additional paid-in capital....................................... 49,182,920 27,186,991 266,068,965
Accumulated undistributed net investment income.................. 350,410 105,316 2,279,052
Accumulated undistributed net realized gain from:
Investment transactions ..................................... 2,846,722 855,771 21,014,720
Foreign currency transactions................................. -- -- --
Net unrealized appreciation of investments....................... 5,965,812 8,771,080 52,397,407
Net unrealized appreciation on translation of assets and
liabilities in foreign currencies............................. -- -- --
Total Net Assets $58,388,354 $36,943,739 $341,904,467
Capital Stock (par value: $.01 a share)
Shares authorized................................................ 100,000,000 100,000,000 100,000,000
Net Asset Value Per Share:
Class A: Net Assets.............................................. $57,125,621 $35,211,596 $339,655,973
Shares issued and outstanding........................... 4,156,937 2,342,512 14,337,061
Net asset value per share............................... $13.74 $15.03 $23.69
Maximum offering price per share(1) ................... $14.43 $15.78 $24.87
Class B: Net Assets ............................................. $1,262,733 $1,732,143 $2,248,494
Shares issued and outstanding........................... 92,099 115,546 95,254
Net asset value per share(2)............................ $13.71 $14.99 $23.61
<FN>
(1) Maximum offering price is equal to net asset value plus a front-end
sales charge of 4.75% of the offering price.
(2) Redemption price per share
is equal to net asset value less any applicable contingent deferred sales
charge.
</FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Princor Princor Princor
Emerging Growth Growth World
GROWTH FUNDS Fund, Inc. Fund, Inc. Fund, Inc.
Assets
Investment in securities -- at value (cost -- $52,142,778;
$28,607,185; $289,104,493; $114,702,569; $127,847,324;
<S> <C> <C> <C>
and $118,823,668, respectively) (Note 4)...................... $157,431,132 $182,460,635 $133,458,881
Cash ............................................................ 238,607 24,872 17,052
Receivables:
Dividends and interest........................................ 195,210 180,857 172,355
Investment securities sold.................................... 343,742 -- --
Capital Stock sold............................................ 1,755,725 149,920 21,117
Other assets..................................................... 2,129 8,638 1,617
Total Assets 159,966,545 182,824,922 133,671,022
Liabilities
Accrued expenses................................................. 198,701 180,467 214,708
Payables:
Investment securities purchased............................... -- -- 2,968,759
Capital Stock reacquired...................................... 159,230 37,599 25,379
Total Liabilities 357,931 218,066 3,208,846
Net Assets Applicable to Outstanding Shares .................. $159,608,614 $182,606,856 $130,462,176
Net Assets Consist of:
Capital Stock............................................. $ 50,762 $ 49,069 $ 179,192
Additional paid-in capital....................................... 112,613,229 121,497,400 108,856,451
Accumulated undistributed net investment income.................. 324,845 564,227 776,759
Accumulated undistributed net realized gain from:
Investment transactions ..................................... 3,891,215 5,882,849 5,913,237
Foreign currency transactions................................. -- -- 97,847
Net unrealized appreciation of investments....................... 42,728,563 54,613,311 14,635,213
Net unrealized appreciation on translation of assets and
liabilities in foreign currencies............................. -- -- 3,477
Total Net Assets $159,608,614 $182,606,856 $130,462,176
Capital Stock (par value: $.01 a share)
Shares authorized................................................ 100,000,000 100,000,000 100,000,000
Net Asset Value Per Share:
Class A: Net Assets.............................................. $150,611,372 $174,328,071 $126,554,316
Shares issued and outstanding........................... 4,788,877 4,683,768 17,379,043
Net asset value per share............................... $31.45 $37.22 $7.28
Maximum offering price per share(1) ................... $33.02 $39.08 $7.64
Class B: Net Assets ............................................. $8,997,242 $8,278,785 $3,907,860
Shares issued and outstanding........................... 287,338 223,165 540,127
Net asset value per share(2)............................ $31.31 $37.10 $7.24
<FN>
(1) Maximum offering price is equal to net asset value plus a front-end
sales charge of 4.75% of the offering price.
(2) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
</FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31, 1995
STATEMENTS OF OPERATIONS
Princor Princor Princor Capital
Balanced Blue Chip Accumulation
GROWTH FUNDS Fund, Inc. Fund, Inc. Fund, Inc.
Net Investment Income
<S> <C> <C> <C>
Income:
Dividends..................................................... $ 874,225 $ 841,327 $ 8,308,899
Less: Withholding tax on foreign dividends.................... -- -- --
Interest...................................................... 1,645,802 149,804 473,882
Total Income 2,520,027 991,131 8,782,781
Expenses:
Management and investment advisory fees (Note 3) ........... 330,469 154,603 1,380,466
Distribution and shareholder servicing fees--Class A (Note 3). 136,567 75,787 331,639
Distribution and shareholder servicing fees--Class B (Note 3). 3,997 5,456 7,816
Transfer and administrative services (Note 3)................. 220,147 146,409 510,906
Registration fees--Class A.................................... 28,662 20,003 51,325
Registration fees--Class B.................................... 461 874 439
Custodian fees ............................................... 14,244 7,915 14,294
Auditing and legal fees ...................................... 6,638 5,880 8,733
Directors' fees .............................................. 7,825 7,825 8,125
Other ........................................................ 6,631 4,775 30,355
Total Expenses 755,641 429,527 2,344,098
Net Investment Income 1,764,386 561,604 6,438,683
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency
Net realized gain from:
Investment transactions....................................... 2,846,701 1,227,208 21,096,912
Foreign currency transactions................................. -- -- --
Net increase (decrease) in unrealized appreciation/
depreciation on:
Investments................................................... 2,809,432 4,662,787 24,916,772
Translation of assets and liabilities in foreign currencies... -- -- --
Net Realized and Unrealized Gain
on Investments and Foreign Currency 5,656,133 5,889,995 46,013,684
Net Increase in Net Assets
Resulting from Operations $7,420,519 $6,451,599 $52,452,367
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Princor Princor Princor
Emerging Growth Growth World
GROWTH FUNDS Fund, Inc. Fund, Inc. Fund, Inc.
Net Investment Income
<S> <C> <C> <C>
Income:
Dividends.....................................................$ 1,319,806 $ 2,383,176 $ 3,306,884
Less: Withholding tax on foreign dividends.................... -- -- (394,379)
Interest...................................................... 1,024,770 916,380 327,064
Total Income 2,344,576 3,299,556 3,239,569
Expenses:
Management and investment advisory fees (Note 3) .......... 772,512 701,276 881,227
Distribution and shareholder servicing fees--Class A (Note 3). 292,867 312,530 291,227
Distribution and shareholder servicing fees--Class B (Note 3). 31,456 26,585 15,058
Transfer and administrative services (Note 3)................. 612,488 584,133 525,897
Registration fees--Class A.................................... 49,607 44,349 49,862
Registration fees--Class B.................................... 1,851 779 481
Custodian fees ............................................... 8,253 8,550 151,534
Auditing and legal fees ...................................... 7,253 6,531 9,248
Directors' fees .............................................. 8,125 8,125 7,975
Other ........................................................ 10,189 12,863 12,116
Total Expenses 1,794,601 1,705,721 1,944,625
Net Investment Income 549,975 1,593,835 1,294,944
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency
Net realized gain from:
Investment transactions....................................... 3,897,774 5,884,252 5,921,120
Foreign currency transactions................................. -- -- 97,847
Net increase (decrease) in unrealized appreciation/
depreciation on:
Investments................................................... 25,019,957 24,040,842 (5,202,468)
Translation of assets and liabilities in foreign currencies... -- -- (5,691)
Net Realized and Unrealized Gain
on Investments and Foreign Currency 28,917,731 29,925,094 810,808
Net Increase in Net Assets
Resulting from Operations $29,467,706 $31,518,929 $ 2,105,752
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended October 31
STATEMENTS OF CHANGES IN NET ASSETS
Princor Princor
Balanced Blue Chip
GROWTH FUNDS Fund, Inc. Fund, Inc.
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Operations
Net investment income............................................ $1,764,386 $1,271,900 $ 561,604 $ 431,588
Net realized gain (loss) from investment transactions............ 2,846,701 234,600 1,227,208 (288,180)
Net realized gain (loss) from foreign currency transactions...... -- -- -- --
Net increase (decrease) in unrealized appreciation/depreciation
on investments and translation of assets and liabilities in
foreign currencies............................................ 2,809,432 (1,115,430) 4,662,787 1,524,678
Net Increase in Net Assets
Resulting from Operations 7,420,519 391,070 6,451,599 1,668,086
Dividends and Distributions to Shareholders
From net investment income:
Class A....................................................... (1,526,106) (1,470,992) (487,675) (541,987)
Class B....................................................... (10,560) -- (6,240) --
(1,536,666) (1,470,992) (493,915) (541,987)
From net realized gain on investments and foreign currency transactions:
Class A....................................................... (234,514) (1,646,619) -- --
Total Distributions (1,771,180) (3,117,611) (493,915) (541,987)
Capital Share Transactions (Note 5)
Shares sold:
Class A....................................................... 7,935,949 24,138,081 6,239,894 5,228,761
Class B....................................................... 1,269,648 -- 1,632,045 --
Shares issued in reinvestment of dividends and distributions:
Class A....................................................... 1,395,703 2,123,538 366,550 535,883
Class B....................................................... 10,489 -- 6,184 --
Shares redeemed:
Class A....................................................... (11,165,026)(10,121,469) (4,463,004) (3,403,936)
Class B....................................................... (73,722) -- (41,750) --
Net Increase (Decrease) in Net Assets from
Capital Share Transactions (626,959) 16,140,150 3,739,919 2,360,708
Total Increase 5,022,380 13,413,609 9,697,603 3,486,807
Net Assets
Beginning of year................................................ 53,365,974 39,952,365 27,246,136 23,759,329
End of year (including undistributed net investment
income as set forth below).................................... $58,388,354 $53,365,974 $36,943,739 $27,246,136
Undistributed Net Investment Income ............................ $ 350,410 $ 131,213 $ 105,316 $ 40,721
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended October 31
STATEMENTS OF CHANGES IN NET ASSETS
Princor Capital Princor
Accumulation Emerging Growth
GROWTH FUNDS Fund, Inc. Fund, Inc.
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Operations
Net investment income............................................ $ 6,438,683 $ 5,353,058 $ 549,975 $ 12,330
Net realized gain (loss) from investment transactions............ 21,096,912 4,676,679 3,897,774 541,397
Net realized gain (loss) from foreign currency transactions...... -- -- -- --
Net increase (decrease) in unrealized appreciation/depreciation
on investments and translation of assets and liabilities in
foreign currencies............................................ 24,916,772 7,375,728 25,019,957 4,047,834
Net Increase in Net Assets
Resulting from Operations 52,452,367 17,405,465 29,467,706 4,601,561
Dividends and Distributions to Shareholders
From net investment income:
Class A....................................................... (5,617,183) (5,289,873) (236,412) --
Class B....................................................... (6,731) -- (992) --
(5,623,914) (5,289,873) (237,404) --
From net realized gain on investments and foreign currency transactions:
Class A....................................................... (4,755,174) (16,954,587) (544,422) (193,029)
Total Distributions (10,379,088) (22,244,460) (781,826) (193,029)
Capital Share Transactions (Note 5)
Shares sold:
Class A....................................................... 28,287,310 52,028,708 46,003,051 51,667,572
Class B....................................................... 2,179,812 -- 8,944,401 --
Shares issued in reinvestment of dividends and distributions:
Class A....................................................... 10,162,185 21,826,872 763,370 188,206
Class B....................................................... 6,731 -- 992 --
Shares redeemed:
Class A....................................................... (26,662,663) (23,067,558) (16,885,879) (11,967,357)
Class B....................................................... (107,211) -- (867,829) --
Net Increase (Decrease) in Net Assets from
Capital Share Transactions 13,866,164 50,788,022 37,958,106 39,888,421
Total Increase 55,939,443 45,949,027 66,643,986 44,296,953
Net Assets
Beginning of year................................................ 285,965,024 240,015,997 92,964,628 48,667,675
End of year (including undistributed net investment
income as set forth below)....................................
$341,904,467 $285,965,024 $159,608,614 $92,964,628
Undistributed Net Investment Income ............................ $ 2,279,052 $ 1,464,283 $ 324,845 $ 12,274
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended October 31
STATEMENTS OF CHANGES IN NET ASSETS
Princor Princor
Growth World
GROWTH FUNDS Fund, Inc. Fund, Inc.
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Operations
Net investment income............................................ $ 1,593,835 $ 922,413 $ 1,294,944 $ 95,445
Net realized gain (loss) from investment transactions............ 5,884,252 2,368,804 5,921,120 2,972,274
Net realized gain (loss) from foreign currency transactions...... -- -- 97,847 (101,324)
Net increase (decrease) in unrealized appreciation/depreciation
on investments and translation of assets and liabilities in
foreign currencies............................................ 24,040,842 5,679,560 (5,208,159) 4,616,059
Net Increase in Net Assets
Resulting from Operations 31,518,929 8,970,777 2,105,752 7,582,454
Dividends and Distributions to Shareholders
From net investment income:
Class A....................................................... (1,314,723) (897,562) (571,155) (212,187)
Class B....................................................... (7,563) -- (1,106) --
(1,322,286) (897,562) (572,261) (212,187)
From net realized gain on investments and foreign currency transactions:
Class A....................................................... (2,370,009) (4,843,338) (2,940,766) (411,302)
Total Distributions (3,692,295) (5,740,900) (3,513,027) (623,489)
Capital Share Transactions (Note 5)
Shares sold:
Class A....................................................... 42,675,725 41,918,761 28,751,013 61,902,666
Class B....................................................... 7,815,161 -- 3,799,760 --
Shares issued in reinvestment of dividends and distributions:
Class A....................................................... 3,557,579 5,507,426 3,389,757 537,492
Class B....................................................... 7,560 -- 1,106 --
Shares redeemed:
Class A....................................................... (15,426,370) (14,344,269) (19,795,122) (17,305,679)
Class B....................................................... (212,100) -- (88,847) --
Net Increase (Decrease) in Net Assets from
Capital Share Transactions 38,417,555 33,081,918 16,057,667 45,134,479
Total Increase 66,244,189 36,311,795 14,650,392 52,093,444
Net Assets
Beginning of year................................................ 116,362,667 80,050,872 115,811,784 63,718,340
End of year (including undistributed net investment
income as set forth below)....................................
$182,606,856 $116,362,667 $130,462,176 $115,811,784
Undistributed Net Investment Income ............................ $ 564,227 $ 292,678 $ 776,759 $ 54,076
See accompanying notes.
</TABLE>
<PAGE>
October 31, 1995
NOTES TO FINANCIAL STATEMENTS
Princor Balanced Fund, Inc.
Princor Blue Chip Fund, Inc.
Princor Capital Accumulation Fund, Inc.
Princor Emerging Growth Fund, Inc.
Princor Growth Fund, Inc.
Princor World Fund, Inc.
Note 1 -- Significant Accounting Policies
Princor Balanced Fund, Inc., Princor Blue Chip Fund, Inc., Princor Capital
Accumulation Fund, Inc., Princor Emerging Growth Fund, Inc., Princor Growth
Fund, Inc. and Princor World Fund, Inc. (the "Growth Funds") are registered
under the Investment Company Act of 1940, as amended, as open-end diversified
management investment companies and operate in the mutual fund industry.
On December 5, 1994, the name of Princor Managed Fund, Inc. was changed to
Princor Balanced Fund, Inc.
On December 5, 1994, the initial purchases of Class B shares of the Growth Funds
were made by Princor Management Corporation (See Note 3). All shares outstanding
prior to the initial Class B share purchases have been classified as Class A
shares. Effective December 9, 1994, the Growth Funds also began offering Class B
shares to the public. Class A shares generally are sold with an initial sales
charge based on declining rates which begin at 4.75% of the offering price.
Class B shares are sold without an initial sales charge, but bear a higher
ongoing distribution fee and are subject to a declining contingent deferred
sales charge ("CDSC") of up to 4.00% on certain redemptions redeemed within six
years of purchase. Class B shares automatically convert into Class A shares,
based on relative net asset value (without a sales charge) after seven years.
Both classes of shares for each fund represent interests in the same portfolio
of investments and will vote together as a single class except where otherwise
required by law or as determined by the Funds' respective Boards of Directors.
In addition, the Board of Directors of each fund declare separate dividends on
each class of shares.
The Growth Funds allocate daily all income, expenses (other than class-specific
expenses), and realized and unrealized gains or losses to each class of shares
based upon the relative proportion of the value of shares outstanding of each
class. Class-specific expenses, which include distribution and shareholder
servicing fees and any other items specifically attributable to a particular
class, are charged directly to such class.
The Growth Funds value securities for which market quotations are readily
available at market value, which is determined using the last reported sale
price or, if no sales are reported, as is regularly the case for some securities
traded over-the-counter, the last reported bid price. When reliable market
quotations are not considered to be readily available, which may be the case,
for example, with respect to certain debt securities, preferred stocks and
foreign securities, the investments are valued by using market quotations,
prices provided by market makers or estimates of market values obtained from
yield data and other factors relating to instruments or securities with similar
characteristics in accordance with procedures established in good faith by each
fund's Board of Directors. Securities with remaining maturities of 60 days or
less are valued at amortized cost, which approximates market.
With respect to Princor World Fund, Inc., the value of foreign securities in
foreign currency amounts is expressed in U.S. dollars at the closing daily rate
of exchange. The identified cost of the portfolio holdings is translated at
approximate rates prevailing when acquired. Income and expense amounts are
translated at approximate rates prevailing when received or paid, with daily
accruals of such amounts reported at approximate rates prevailing at the date of
valuation.
Since the carrying amount of the foreign securities of the fund is determined
based on the exchange rate and market values at the close of the period, it is
not practicable to isolate that portion of the results of operations arising as
a result of changes in the foreign exchange rates from the fluctuations arising
from changes in the market prices of securities during the period.
The Growth Funds record investment transactions generally one day after the
trade date, except for short-term investment transactions which are recorded
generally on the trade date. The identified cost basis has been used in
determining the net realized gain or loss from investment transactions and
unrealized appreciation or depreciation on investments. Dividends are taken into
income on an accrual basis as of the ex-dividend date and interest income is
recognized on an accrual basis.
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Dividends and distributions to shareholders from net investment income and net
realized gain from investments and foreign currency transactions is determined
in accordance with federal income tax regulations, which may differ from
generally accepted accounting principles. To the extent these "book/tax"
differences are permanent in nature (i.e. that they result from other than
timing of recognition - "temporary"), such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Reclassifications made for the
years ended October 31, 1995 and 1994 were not material.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2 -- Federal Income Taxes
No provision for federal income taxes is considered necessary because each fund
is qualified as a "regulated investment company" under the Internal Revenue Code
and intends to distribute each year substantially all of its net investment
income and realized capital gains to shareholders. The cost of investments for
federal income tax reporting purposes is approximately the same as that for
financial reporting purposes.
Note 3 -- Management Agreement and Transactions With Affiliates
The Growth Funds have agreed to pay investment advisory and management fees to
Princor Management Corporation (wholly owned by Princor Financial Services
Corporation, a subsidiary of Principal Mutual Life Insurance Company) (the
"Manager") computed at an annual percentage rate of each fund's average daily
net assets. The annual rate used in this calculation for Princor Blue Chip Fund,
Inc., Princor Capital Accumulation Fund, Inc. and Princor Growth Fund, Inc. is
.50% of the first $100 million of each fund's average daily net assets, .45% of
the next $100 million of the fund's average daily net assets, .40% of the next
$100 million of the fund's average daily net assets and .35% of the next $100
million of the fund's average daily net assets. With respect to Princor Balanced
Fund, Inc. , the annual rate is .60% of the first $100 million of the fund's
average daily net assets. With respect to Princor Emerging Growth Fund, Inc.,
the annual rate is .65% of the first $100 million of the fund's average daily
net assets and .60% of the next $100 million of the fund's average daily net
assets.With respect to Princor World Fund, Inc., the annual rate is .75% of the
first $100 million of the fund's average daily net assets and .70% of the next
$100 million of the fund's average daily net assets. The Growth Funds also
reimburse the Manager for transfer and administrative services, including the
cost of accounting, data processing, supplies and other services rendered.
The Manager has agreed to reimburse the Growth Funds annually for their total
expenses (excluding brokerage commissions, interest and taxes) in excess of
limits prescribed by any state in which the Growth Funds' shares are offered for
sale (currently 2 1/2% of the first $30 million of each fund's average annual
net assets, 2% of the next $70 million of such assets and 1 1/2% of such assets
in excess thereof).
Princor Financial Services Corporation, as principal underwriter, receives
proceeds of any CDSC on certain Class B share redemptions within six years of
purchase. The charge is based on declining rates, which begin at 4.00% of the
lesser of the current market value or the cost of shares being redeemed. Princor
Financial Services Corporation also retains sales charges on sales of Class A
shares of the Growth Funds. The aggregate amount of these charges retained, by
fund, for the period ended October 31, 1995 were as follows:
Class A Class B
Princor Balanced Fund, Inc. 265,686 793
Princor Blue Chip Fund, Inc. 168,060 359
Princor Capital Accumulation
Fund, Inc. 610,408 772
Princor Emerging Growth Fund, Inc. 1,286,754 6,843
Princor Growth Fund, Inc. 1,235,555 1,460
Princor World Fund, Inc. 738,243 1,317
No brokerage commissions were paid by the Growth Funds to Princor Financial
Services Corporation during the periods. Brokerage commissions were paid to
other affiliates by the following funds:
October 31, October 31,
1995 1994
Princor Balanced Fund, Inc. 1,162 --
Princor Capital Accumulation
Fund, Inc. 17,491 6,922
Princor Emerging Growth Fund, Inc. 1,200 414
Princor Growth Fund, Inc. 5,894 500
Princor World Fund, Inc. 21,577 --
The Growth Funds bear distribution and shareholder servicing fees with respect
to Class A shares computed at an annual rate of up to 0.25% of the average daily
net assets attributable to Class A shares of each fund. Effective December 1994,
each of the Growth Funds adopted a distribution plan with respect to Class B
shares that provides for distribution and shareholder servicing fees computed at
an annual rate of up to 1.00% of the average daily net assets attributable to
Class B shares of each fund. Distribution and shareholder servicing fees are
paid to Princor Financial Services Corporation; a portion of the fees are
subsequently remitted to retail dealers. Pursuant to the distribution
agreements, fees unused by the principal underwriter at the end of the fiscal
year are returned to the Growth Funds.
At October 31, 1995, Principal Mutual Life Insurance Company, subsidiaries of
Principal Mutual Life Insurance Company and benefit plans sponsored on behalf of
Principal Mutual Life Insurance Company owned shares of the Growth Funds as
follows:
Class A Class B
Princor Balanced Fund, Inc. 673,345 85
Princor Blue Chip Fund, Inc. 654,597 84
Princor Capital Accumulation
Fund, Inc. 6,477,046 --
Princor Emerging Growth Fund, Inc. 46,736 42
Princor Growth Fund, Inc. 37,575 34
Princor World Fund, Inc. 3,583,118 148
Note 4 -- Investment Transactions
For the year ended October 31, 1995, the cost of investment securities purchased
and proceeds from investment securities sold (not including short-term
investments and U.S. government securities) by the Growth Funds were as follows:
Purchases Sales
Princor Balanced Fund, Inc. $ 13,161,285 $ 17,644,958
Princor Blue Chip Fund, Inc. 10,109,754 7,438,560
Princor Capital Accumulation Fund, Inc. 147,793,861 139,382,154
Princor Emerging Growth Fund, Inc. 39,381,525 14,694,474
Princor Growth Fund, Inc. 46,105,338 16,304,770
Princor World Fund, Inc. 54,686,386 40,509,439
At October 31, 1995, net unrealized appreciation of investments by the Growth
Funds was composed of the following:
Net Unrealized
Gross Unrealized Appreciation
Appreciation (Depreciation) of Investments
Princor Balanced Fund, Inc. $ 6,885,832 $ (920,020) $ 5,965,812
Princor Blue Chip Fund, Inc. 9,106,720 (335,640) 8,771,080
Princor Capital Accumulation
Fund, Inc. 61,683,452 (9,286,045) 52,397,407
Princor Emerging Growth
Fund, Inc. 47,938,146 (5,209,583) 42,728,563
Princor Growth Fund, Inc. 58,622,979 (4,009,668) 54,613,311
Princor World Fund, Inc. 23,433,449 (8,798,236) 14,635,213
At October 31, 1995, Princor Balanced Fund, Inc., Princor Emerging Growth Fund,
Inc., Princor Growth Fund, Inc. and Princor World Fund, Inc. held the following
securities which may require registration under the Securities Act of 1933, or
an exemption therefrom, in order to effect a sale in the ordinary course of
business.
<TABLE>
<CAPTION>
Value at Value as a
Date of October 31, Percentage of
Fund Security Description Acquisition Cost 1995 Net Assets
<S> <C> <C> <C> <C> <C>
Princor Balanced Federal-Mogul Corp.; Series D
Fund, Inc. Convertible Preferred Stock 10/15/92 $ 450,450 $ 431,925 .74%
Princor Emerging Ciba-Geigy Corp.; Exchangeable
Growth Fund, Inc. Subordinated Debentures 3/20/91 350,000 349,562 .22
Sierra On Line;
Convertible Subordinated Debentures 8/15/94 458,750 1,310,000 .82
8/17/94 447,125 1,283,800 .80
2,943,362 1.84
Princor Growth Ciba-Geigy Corp.; Exchangeable
Fund, Inc. Subordinated Debentures 3/20/91 500,000 499,375 .27
Princor World Alfa SA; Convertible
Fund, Inc. Subordinated Debentures 9/25/95 1,293,600 1,244,750 .95
Fokus Bank 10/9/95 557,692 635,732 .49
Koninklijke KNP BT NV 9/21/88 401,467 480,970 .37
5/11/90 13,730 14,429 .01
10/25/91 98,606 129,261 .10
11/13/91 99,491 129,262 .10
Royal Plastics Group 11/23/94 441,561 722,668 .56
Voest-Alpine Stahl 10/27/95 913,965 917,237 .70
4,274,309 3.28
</TABLE>
The Growth Funds' investments are with various issuers in various industries.
The Schedules of Investments contained herein summarize concentrations of credit
risk by issuer and industry except for Princor World Fund, Inc. which is
summarized by country, industry and issuer.
Note 5 -- Capital Share Transactions
Transactions in Capital Stock by fund were as follows:
<TABLE>
<CAPTION>
Princor Princor Blue Princor Capital
Balanced Fund, Inc. Chip Fund, Inc. Accumulation Fund, Inc.
Year Ended October 31, 1995:
Shares sold:
<S> <C> <C> <C>
Class A ......................................... 621,291 459,446 1,337,962
Class B* ........................................ 96,737 118,048 99,674
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... 109,764 27,369 504,425
Class B* .......................................... 785 428 303
Shares redeemed:
Class A ......................................... (868,199) (332,080) (1,230,978)
Class B* ........................................ (5,423) (2,930) (4,723)
Net Increase (45,045) 270,281 706,663
Year Ended October 31, 1994:
Shares sold:
Class A ......................................... 1,911,481 439,187 2,560,201
Shares issued in reinvestment of dividends and
distributions:
Class A ......................................... 168,881 45,517 1,086,526
Shares redeemed:
Class A ......................................... (798,332) (286,127) (1,131,319)
Net Increase 1,282,030 198,577 2,515,408
Princor Emerging Princor Princor
Growth Fund, Inc. Growth Fund, Inc. World Fund, Inc.
Year Ended October 31, 1995:
Shares sold:
Class A ......................................... 1,672,153 1,298,559 4,196,714
Class B* ........................................ 315,641 228,863 552,636
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... 30,633 118,018 500,571
Class B* .......................................... 35 220 166
Shares redeemed:
Class A ......................................... (620,722) (469,161) (2,887,555)
Class B* ........................................ (28,338) (5,918) (12,675)
Net Increase 1,369,402 1,170,581 2,349,857
Year Ended October 31, 1994:
Shares sold:
Class A ......................................... 2,125,608 1,390,912 8,559,151
Shares issued in reinvestment of dividends and
distributions:
Class A ......................................... 7,985 188,984 78,576
Shares redeemed:
Class A ......................................... (492,355) (475,778) (2,375,849)
Net Increase 1,641,238 1,104,118 6,261,878
<FN>
* Period from December 5, 1994 (date operations commenced) through October 31,
1995.
Effective December 5, 1994, the articles of incorporation of Princor World Fund,
Inc. were amended resulting in a decrease in the par value of its capital stock
from $.10 to $.01 per share.
</FN>
</TABLE>
Note 6 -- Line of Credit
The Growth Funds have an unsecured line of credit with a bank which allows each
fund to borrow up to $500,000. Borrowings are made solely to facilitate the
handling of unusual and/or unanticipated short-term cash requirements. Interest
is charged to each fund, based on its borrowings, at a rate equal to the bank's
Fed Funds Unsecured Rate plus 100 basis points. Additionally, a commitment fee
is charged at the annual rate of .25% on the unused portion of the line of
credit. At October 31, 1995, the Growth Funds had no outstanding borrowings
under the line of credit.
<PAGE>
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<PAGE>
SCHEDULES OF INVESTMENTS
GROWTH FUNDS
PRINCOR BALANCED FUND, INC.
Shares
Held Value
Common Stocks (44.61%)
Advertising (0.40%)
Interpublic Group of Cos., Inc. 6,100 $ 236,375
Air Transportation, Scheduled (0.19%)
Southwest Airlines Co. 5,500 110,000
Automotive Rentals, No Drivers (0.43%)
Ryder Systems, Inc. 10,500 253,313
Beverages (1.46%)
Pepsico, Inc. 14,100 743,775
Universal Foods Corp. 3,200 109,600
853,375
Combination Utility Services (0.56%)
Cinergy Corp. 8,000 227,000
Scana Corp. 3,700 93,888
320,888
Commercial Banks (6.46%)
AmSouth Bancorp. 11,900 474,513
Banc One Corp. 17,637 595,249
Boatmen's Bancshares, Inc. 14,746 560,348
Chase Manhattan Bank Corp. 3,700 210,900
Comerica, Inc. 6,900 232,012
First of America Bank Corp. 5,300 225,912
First Tennessee National Corp. 1,450 77,575
Firstar Corp. 5,400 191,025
KeyCorp. 8,800 297,000
Marshall & Ilsley Corp. 4,300 104,275
Mercantile Bankshares Corp. 14,550 400,125
Meridian Bancorp., Inc. 2,800 119,700
Nationsbank Corp. 4,200 276,150
3,764,784
Communications Equipment (1.13%)
Allen Group, Inc. 3,000 73,500
General Instrument Corp. 13,100(a) 248,900
Newbridge Networks Corp. 7,700(a) 234,850
Northern Telecom Ltd. 2,700 97,200
TransPro, Inc. 750(a) 8,250
662,700
Computer & Office Equipment (1.32%)
Cabletron Systems, Inc. 2,500(a) 196,563
Hewlett-Packard Co. 1,900 175,987
International Business Machines Corp. 4,100 398,725
771,275
Construction & Related
Machinery (0.62%)
Caterpillar, Inc. 6,500 364,812
Crude Petroleum & Natural Gas (0.79%)
Texaco, Inc. 6,800 463,250
Dairy Products (0.33%)
Dean Foods Co. 7,000 195,125
Department Stores (0.50%)
Sears, Roebuck & Co. 8,600 $ 292,400
Drugs (3.35%)
American Home Products Corp. 1,800 159,525
Bristol-Myers Squibb Co. 7,600 579,500
Lilly (Eli) & Co. 2,700 260,888
Merck & Co., Inc. 11,300 649,750
Warner-Lambert Co. 3,600 306,450
1,956,113
Eating & Drinking Places (0.44%)
McDonald's Corp. 6,300 258,300
Electric Light & Wiring
Equipment (0.12%)
Cooper Industries 2,000 67,500
Electric Services (2.25%)
American Electric Power Co., Inc. 10,800 411,750
Dominion Resources, Inc. 8,200 325,950
FPL Group, Inc. 5,600 234,500
Florida Progress Corp. 3,000 99,375
Potomac Electric Power Co. 9,700 242,500
1,314,075
Electrical Industrial
Apparatus (0.39%)
Emerson Electric Co. 3,200 228,000
Electronic Components &
Accessories (0.77%)
Duracell International, Inc. 8,600 450,425
Electronic Distribution
Equipment (1.05%)
General Electric Co. 9,700 613,525
Engineering & Architectural
Services (0.14%)
Dun & Bradstreet Corp. 1,400 83,650
Fats & Oils (0.43%)
Archer Daniels Midland Co. 15,700 253,162
Fire, Marine, & Casualty
Insurance (0.50%)
Allstate Corp. 7,965 292,713
General Industrial Machinery (0.35%)
BW/IP Holdings, Inc.;Class A 4,200 70,350
Pall Corp. 5,600 136,500
206,850
Grain Mill Products (0.82%)
Ralston-Ralston Purina Group 8,100 480,938
Grocery Stores (1.15%)
American Stores Co. 5,700 170,288
Sysco Corp. 16,500 501,187
671,475
Household Furniture (0.52%)
Masco Corp. 10,800 303,750
Industrial Inorganic Chemicals (0.65%)
Dow Chemical Co. 5,500 377,438
Insurance Agents, Brokers &
Services (0.44%)
Equifax, Inc. 6,600 $ 257,400
Jewelry, Silverware, &
Plated Ware (0.22%)
Jostens, Inc. 5,800 131,225
Meat Products (0.59%)
Tyson Foods, Inc. 14,500 346,187
Medical Instruments & Supplies (0.78%)
Becton, Dickinson & Co. 2,500 162,500
St. Jude Medical, Inc. 3,700 197,025
United States Surgical Corp. 4,000 98,000
457,525
Medical Service & Health Insurance (1.95%)
AON Corp. 3,300 135,713
Foundation Health Corp. 6,200(a) 262,725
Pacificare Health Systems, Inc.;
Class B 3,900(a) 283,725
Physicians Corp. of America 4,300(a) 66,112
U.S. Healthcare, Inc. 10,100 388,850
1,137,125
Metal Forgings & Stampings (0.66%)
Newell Co. 15,900 383,587
Metalworking Machinery (0.12%)
Giddings & Lewis 4,300 69,337
Miscellaneous Business Services (0.21%)
Safety-Kleen Corp. 8,000 123,000
Miscellaneous Converted Paper
Products (1.85%)
Avery Dennison Corp. 6,900 308,775
Minnesota Mining & Mfg. Co. 13,500 767,813
1,076,588
Miscellaneous Electrical Equipment
& Supplies (0.46%)
Motorola, Inc. 4,100 269,062
Miscellaneous Fabricated Metal
Products (0.19%)
Keystone International, Inc. 5,000 111,250
Miscellaneous Shopping Goods
Stores (0.62%)
Toys 'R' Us, Inc. 16,500(a) 360,938
Motor Vehicles & Equipment (0.54%)
Ford Motor Co. 11,000 316,250
Offices & Clinics of Medical Doctors (0.31%)
FHP International Corp. 7,500(a) 181,875
Personnel Supply Services (0.53%)
Olsten Corp. 7,984 307,384
Petroleum Refining (1.22%)
Atlantic Richfield Co. 2,400 256,200
Exxon Corp. 6,000 458,250
714,450
Photographic Equipment
& Supplies (0.24%)
Eastman Chemical Co. 2,350 139,825
Plastic Materials & Synthetics (0.17%)
Wellman, Inc. 4,300 101,050
Sanitary Services (1.52%)
Browning-Ferris Industries, Inc. 9,800 285,425
WMX Technologies, Inc. 21,400 601,875
887,300
Security Brokers & Dealers (0.30%)
Edwards (A.G.), Inc. 6,675 170,213
Soap, Cleaners & Toilet Goods (1.09%)
Avon Products 6,200 440,975
Colgate-Palmolive Co. 2,800 193,900
634,875
Telephone Communication (1.90%)
AT&T Corp. 9,700 620,800
MCI Communications Corp. 19,300 481,294
1,102,094
Variety Stores (1.58%)
Dayton-Hudson Corp. 8,800 605,000
Wal-Mart Stores, Inc. 14,600 315,725
920,725
Total Common Stocks 26,045,476
Preferred Stocks (3.32%)
Meat Products (0.88%)
Conagra, Inc.; Class E Convertible 13,200 518,100
Motor Vehicles & Equipment (2.35%)
Federal-Mogul Corp.;
Series D Convertible 7,800(b) 431,925
Ford Motor Co.;
Series A Convertible 10,000 940,000
1,371,925
Paper Mills (0.09%)
James River Corp. of Virginia;
Series L Convertible
Exchangeable 1,000 50,000
Total Preferred Stocks 1,940,025
Bonds (4.20%)
Principal
Amount Value
Aircraft & Parts (0.37%)
Rohr Industries, Inc.
Convertible Subordinated
Debentures; 7.00%; 10/1/12 $ 260,000 $ 218,400
Blast Furnace & Basic
Steel Products (0.55%)
Quanex Corp. Convertible
Subordinated Debentures;
6.88%; 6/30/07 $ 350,000 $ 323,750
Electric Lighting & Wiring
Equipment (0.42%)
Cooper Industries, Inc. Convertible
Subordinated Debentures;
7.05%; 1/1/15 245,000 247,450
Electrical Industrial Apparatus (0.51%)
Liebert Co. Convertible
Subordinated Debentures;
8.00%; 11/15/10 110,000 294,663
Engines & Turbines (0.90%)
Outboard Marine Corp. Convertible
Subordinated Debentures;
7.00%; 7/1/02 500,000 523,125
Lumber & Other Building
Materials (0.47%)
Hechinger Co. Convertible
Subordinated Debentures;
5.50%; 4/1/12 600,000 274,500
Petroleum Refining (0.60%)
Pennzoil Co. Senior Exchangeable
Debentures; 6.50%; 1/15/03 300,000 348,000
Trucking & Courier Services,
Ex., Air (0.38%)
Builders Transport, Inc. Convertible
Subordinated Debentures;
6.50%; 5/1/11 306,000 222,615
Total Bonds 2,452,503
U.S. Government Treasury Notes & Bonds (37.72%)
Treasury Notes & Bonds (37.72%)
5.13%; 11/30/98 1,000,000 983,750
5.13%; 2/28/98 4,000,000 3,953,747
6.00%; 10/15/99 2,150,000 2,168,139
5.50%; 4/15/00 5,800,000 5,743,809
6.38%; 8/15/02 2,300,000 2,357,500
5.88%; 2/15/04 2,200,000 2,182,125
7.50%; 2/15/05 1,000,000 1,103,125
8.25%; 5/15/05 750,000 815,860
7.25%; 5/15/16 575,000 630,344
7.50%; 11/15/16 575,000 647,594
7.88%; 2/15/21 750,000 883,360
7.25%; 8/15/22 500,000 552,656
22,022,009
Commercial Paper (9.67%)
Business Credit Institutions (5.73%)
CIT Group Holdings, Inc.;
5.72%;11/2/95 $1,325,000 $1,324,789
General Electric Capital Corp.;
5.88%;11/1/95 2,025,000 2,025,000
3,349,789
Personal Credit Institutions (3.94%)
Ford Motor Credit Co.;
5.72%;11/3/95 1,298,554 1,299,587
5.75%;11/6/95 1,000,000 999,201
2,298,788
Total Commercial Paper 5,648,577
Total Portfolio Investments (99.52%) 58,108,590
Cash, receivables and other assets,
net of liabilities (0.48%) 279,764
Total Net Assets (100.00%) $58,388,354
(a) Non-income producing security - No dividend paid during the period.
(b) Restricted security - See Note 4 to the financial statements
<PAGE>
PRINCOR BLUE CHIP FUND, INC.
Shares
Held Value
Common Stocks (91.94%)
Beverages (4.74%)
Coca-Cola Co. 12,600 $ 905,625
Pepsico, Inc. 16,000 844,000
1,749,625
Commercial Banks (4.75%)
Banc One Corp. (Ohio) 15,223 513,776
KeyCorp 12,500 421,875
Torchmark Corp. 7,800 323,700
Wachovia Corp. 11,200 494,200
1,753,551
Commercial Printing (1.13%)
R. R. Donnelley & Sons Co. 11,400 416,100
Computer & Office Equipment (3.36%)
Hewlett-Packard Co. 13,400 1,241,175
Consumer Products (2.01%)
Philip Morris Cos., Inc. 8,800 743,600
Department Stores (3.03%)
May Department Stores 28,500 1,118,625
Drug Stores & Proprietary Stores (2.95%)
Walgreen Co. 38,300 1,091,550
Drugs (14.17%)
Baxter International, Inc. 27,200 $1,050,600
Bristol-Myers Squibb Co. 14,500 1,105,625
Johnson & Johnson 14,200 1,157,300
Merck & Co., Inc. 20,100 1,155,750
Warner-Lambert Co. 9,000 766,125
5,235,400
Eating & Drinking Places (2.04%)
McDonald's Corp. 18,400 754,400
Electric Services (5.93%)
Dominion Resources, Inc. 27,500 1,093,125
KU Energy Corp. 37,000 1,096,125
2,189,250
Electrical Industrial Apparatus (2.45%)
Emerson Electric Co. 12,700 904,875
Electronic Distribution
Equipment (3.36%)
General Electric Co. 19,600 1,239,700
Engineering & Architectural
Services (1.97%)
Dun & Bradstreet Corp. 12,200 728,950
General Industrial Machinery (1.98%)
Pall Corp. 30,000 731,250
Grain Mill Products (2.33%)
Ralston-Ralston Purina Group 14,500 860,937
Industrial Inorganic
Chemicals (2.08%)
Dow Chemical Co. 11,200 768,600
Insurance Agents, Brokers &
Services (2.68%)
Equifax, Inc. 25,400 990,600
Metal Cans & Shipping
Containers (2.68%)
Crown Cork & Seal Co., Inc. 28,400(a) 990,450
Miscellaneous Converted Paper
Products (2.99%)
Minnesota Mining & Mfg. Co. 19,400 1,103,375
Miscellaneous Electrical Equipment &
Supplies (2.95%)
Motorola, Inc. 16,600 1,089,375
Motor Vehicles & Equipment (1.32%)
Ford Motor Co. 17,000 488,750
Petroleum Refining (5.68%)
Exxon Corp. 13,800 1,053,975
Royal Dutch Petroleum Co. ADR 8,500 1,044,437
2,098,412
Preserved Fruits & Vegetables (2.62%)
H. J. Heinz Co. 20,800 967,200
Sanitary Services (1.52%)
WMX Technologies, Inc. 20,000 562,500
Security Brokers & Dealers (1.26%)
American Express Co. 11,500 $ 467,188
Soap, Cleaners & Toilet Goods (2.13%)
Procter & Gamble Co. 9,700 785,700
Telephone Communication (6.38%)
AT&T Corp. 18,900 1,209,600
Bellsouth Corp. 15,000 1,147,500
2,357,100
Variety Stores (1.45%)
Dayton-Hudson Corp. 7,800 536,250
Total Common Stocks 33,964,488
Principal
Amount Value
Commercial Paper (9.24%)
Business Credit Institutions (5.18%)
General Electric Capital Corp.
5.75%;11/01/95 $1,135,000 $ 1,135,000
John Deere Capital Corp.
5.75%;11/7/95 780,000 779,253
1,914,253
Crude Petroleum & Natural Gas (4.06%)
Chevron Oil Finance Co.
5.71%;11/30/95 1,500,000 1,499,524
Total Commercial Paper 3,413,777
Total Portfolio Investments (101.18%) 37,378,265
Liabilities, net of cash, receivables
and other assets (-1.18%) (434,526)
Total Net Assets (100.00%) $ 36,943,739
(a) Non-Income producing security - No dividend paid during the period.
PRINCOR CAPITAL ACCUMULATION FUND, INC.
Shares
Held Value
Common Stocks (98.36%)
Advertising (0.98%)
Interpublic Group of Cos., Inc. 86,000 $ 3,332,500
Air Transportation, Scheduled (0.42%)
Southwest Airlines Co. 71,100 1,422,000
Automotive Rentals, No Drivers (1.12%)
Ryder Systems, Inc. 158,400 3,821,400
Beverages (3.29%)
Pepsico, Inc. 181,800 $ 9,589,950
Universal Foods Corp. 48,300 1,654,275
11,244,225
Combination Utility Services (1.00%)
Cinergy Corp. 120,300 3,413,513
Commercial Banks (7.70%)
Banc One Corp. 98,400 3,321,000
Boatmen's Bancshares, Inc. 87,000 3,306,000
Chase Manhattan Bank Corp. 55,900 3,186,300
Comerica, Inc. 104,700 3,520,537
First of America Bank Corp. 80,200 3,418,525
Firstar Corp. 82,100 2,904,288
KeyCorp 132,300 4,465,125
Nationsbank Corp. 33,700 2,215,775
26,337,550
Communications Equipment (2.60%)
Allen Group, Inc. 44,700 1,095,150
General Instrument Corp. 166,500(a) 3,163,500
Newbridge Networks Corp. 98,500(a) 3,004,250
Northern Telecom Ltd. 41,200 1,483,200
Transpro, Inc. 11,175(a) 122,925
8,869,025
Computer & Office Equipment (3.16%)
Cabletron Systems, Inc. 37,200(a) 2,924,850
Hewlett-Packard Co. 29,300 2,713,912
International Business
Machines Corp. 53,100 5,163,975
10,802,737
Construction & Related
Machinery (1.56%)
Caterpillar, Inc. 95,300 5,348,713
Crude Petroleum & Natural Gas (2.03%)
Texaco, Inc. 102,100 6,955,562
Dairy Products (1.16%)
Dean Foods Co. 142,200 3,963,825
Department Stores (1.29%)
Sears, Roebuck & Co. 29,500 4,403,000
Drugs (7.84%)
American Home Products Corp. 26,600 2,357,425
Bristol-Myers Squibb Co. 106,300 8,105,375
Lilly (Eli) & Co. 40,700 3,932,638
Merck & Co., Inc. 147,100 8,458,250
Warner-Lambert Co. 46,400 3,949,800
26,803,488
Eating & Drinking Places (1.14%)
McDonald's Corp. 94,800 3,886,800
Electric Light & Wiring
Equipment (0.29%)
Cooper Industries 29,600 999,000
Electric Services (5.57%)
American Electric Power Co., Inc. 141,100 5,379,437
Dominion Resources, Inc. 124,500 4,948,875
FPL Group, Inc. 85,100 3,563,563
Florida Progress Corp. 45,200 1,497,250
Potomac Electric Power Co. 146,800 3,670,000
19,059,125
Electrical Industrial Apparatus (1.85%)
Emerson Electric Co. 88,897 6,333,911
Electronic Components &
Accessories (1.71%)
Duracell International, Inc. 111,600 5,845,050
Electronic Distribution Equipment (2.48%)
General Electric Co. 134,200 8,488,150
Fats & Oils (1.03%)
Archer Daniels Midland Co. 218,000 3,515,250
Fire, Marine & Casualty Insurance (1.29%)
Allstate Corp. 120,051 4,411,874
General Industrial Machinery (0.91%)
BW/IP Holdings, Inc.; Class A 64,100 1,073,675
Pall Corp. 84,000 2,047,500
3,121,175
Grain Mill Products (2.13%)
Ralston-Ralston Purina Group 122,900 7,297,188
Grocery Stores (2.62%)
American Stores Co. 86,200 2,575,225
Sysco Corp. 210,500 6,393,937
8,969,162
Household Furniture (1.27%)
Masco Corp. 154,500 4,345,313
Industrial Inorganic Chemicals (1.65%)
Dow Chemical Co. 82,300 5,647,837
Insurance Agents, Brokers
& Services (1.04%)
Equifax, Inc. 91,400 3,564,600
Jewelry, Silverware & Plated Ware (0.58%)
Jostens, Inc. 88,200 1,995,525
Meat Products (1.30%)
Tyson Foods, Inc. 186,500 4,452,688
Medical Instruments & Supplies (2.01%)
Becton, Dickinson & Co. 38,000 2,470,000
St. Jude Medical, Inc. 54,700(a) 2,912,775
United States Surgical Corp. 61,100 1,496,950
6,879,725
Medical Service & Health Insurance (4.27%)
Foundation Health Corp. 93,200(a) 3,949,350
Pacificare Health Systems, Inc.;
Class B 52,300(a) 3,804,825
Physicians Corp. of America 64,300(a) 988,612
U.S. Healthcare, Inc. 152,200 5,859,700
14,602,487
Metal Forgings & Stampings (1.46%)
Newell Co. 207,000 $ 4,993,875
Metalworking Machinery (0.30%)
Giddings & Lewis 64,200 1,035,225
Miscellaneous Business Services (0.55%)
Safety-Kleen Corp. 121,200 1,863,450
Miscellaneous Converted Paper
Products (4.00%)
Avery Dennison Corp. 90,000 4,027,500
Minnesota Mining & Mfg. Co. 169,400 9,634,625
13,662,125
Miscellaneous Electrical Equipment
& Supplies (1.43%)
Motorola, Inc. 74,500 4,889,063
Miscellaneous Fabricated Metal
Products (0.50%)
Keystone International, Inc. 76,200 1,695,450
Miscellaneous Shopping Goods
Stores (1.37%)
Toys 'R' Us, Inc. 213,600(a) 4,672,500
Motor Vehicles & Equipment (1.39%)
Ford Motor Co. 165,800 4,766,750
Offices & Clinics of Medical Doctors (0.81%)
FHP International Corp. 113,700(a) 2,757,225
Petroleum Refining (3.14%)
Atlantic Richfield Co. 35,900 3,832,325
Exxon Corp. 90,400 6,904,300
10,736,625
Photographic Equipment & Supplies (0.62%)
Eastman Chemical Co. 35,400 2,106,300
Plastic Materials & Synthetics (0.44%)
Wellman, Inc. 64,200 1,508,700
Sanitary Services (3.80%)
Browning-Ferris Industries, Inc. 136,000 3,961,000
WMX Technologies, Inc. 320,800 9,022,500
12,983,500
Security Brokers & Dealers (0.75%)
Edwards (A.G.), Inc. 100,322 2,558,211
Soap, Cleaners & Toilet Goods (2.65%)
Avon Products 93,000 6,614,625
Colgate-Palmolive Co. 35,500 2,458,375
9,073,000
Telephone Communication (4.33%)
AT&T Corp. 132,800 8,499,200
MCI Communications Corp. 252,800 6,304,200
14,803,400
Variety Stores (3.53%)
Dayton-Hudson Corp. 115,100 7,913,125
Wal-Mart Stores, Inc. 191,600 4,143,350
12,056,475
Total Common Stocks 336,294,272
Commercial Paper (1.52%)
Business Credit Institutions (0.65%)
Cit Group Holdings, Inc.;
5.72%;11/2/95 $2,235,000 $ 2,234,645
Personal Credit Institutions (0.87%)
Associates Corp. of North America;
5.75%;11/6/95 2,525,000 2,522,983
Ford Motor Credit Co.;
5.76%; 11/01/95 450,000 450,000
2,972,983
Total Commercial Paper 5,207,628
Total Portfolio Investments (99.88%) 341,501,900
Cash, receivables and other assets,
net of liabilities (0.12%) 402,567
Total Net Assets (100.00%) $341,904,467
(a) Non-Income producing security - No dividend paid during the period.
PRINCOR EMERGING GROWTH FUND, INC.
Shares
Held Value
Common Stocks (80.85%)
Blast Furnace & Basic Steel Products (1.35%)
Lukens, Inc. 70,000 $ 2,152,500
Carpets & Rugs (1.40%)
Shaw Industries, Inc. 175,000 2,231,250
Chemicals & Allied Products (0.60%)
Sigma-Aldrich Corp. 20,000 950,000
Commercial Banks (8.39%)
Boatmen's Bancshares, Inc. 10,200 387,600
First Commerce Corp. 15,000 465,000
First Federal Capital Corp. 108,532 1,926,443
Hawkeye Bancorp. 67,000 1,616,375
Independent Bank Corp. Michigan 36,750 1,006,031
Integra Financial Corp. 10,000 587,500
Mercantile Bancorp., Inc. 50,148 2,206,512
Merchants Bancorp., Inc. 57,500 1,538,125
North Fork Bancorp., Inc. 25,000 546,875
Peoples Heritage Financial Group, Inc. 58,900 1,119,100
Princeton National Bancorp., Inc. 92,800 1,508,000
Summit Bancorp. 17,600 499,400
13,406,961
Commercial Printing (0.46%)
Bowne & Co., Inc. 5,000 93,125
Merrill Corp. 40,000 640,000
733,125
Communications Equipment (1.80%)
California Amplifier, Inc. 50,000(a)$ 1,350,000
Newbridge Networks Corp. 50,000(a) 1,525,000
2,875,000
Computer & Data Processing
Services (4.44%)
American Management Systems, Inc. 100,000(a) 2,887,500
HBO & Co. 24,000 1,698,000
Microsoft Corp. 25,000(a) 2,500,000
7,085,500
Computer & Office Equipment (2.12%)
Digital Biometrics, Inc. 18,500(a) 115,625
EMC Corp. 85,000(a) 1,317,500
Sun Microsystems, Inc. 25,000(a) 1,950,000
3,383,125
Construction & Related Machinery (0.89%)
Energy Ventures, Inc. 75,000(a) 1,425,000
Crude Petroleum & Natural Gas (0.27%)
Devon Energy Corp. 19,950 433,912
Dairy Products (0.64%)
Dreyer's Grand Ice Cream, Inc. 30,000 1,035,000
Drugs (1.39%)
Alliance Pharmaceutical Corp. 35,000(a) 420,000
Forest Laboratories, Inc. 10,000(a) 413,750
Merck & Co., Inc. 16,970 975,775
Seragen, Inc. 40,000(a) 235,000
Syntro Corp. 50,000(a) 178,125
2,222,650
Eating & Drinking Places (0.49%)
Ryan's Family Steak Houses, Inc. 100,000(a) 775,000
Electronic Components &
Accessories (3.39%)
Linear Technology Corp. 50,000 2,187,500
Solectron Corp. 80,000(a) 3,220,000
5,407,500
Engineering & Architectural
Services (0.55%)
Paychex, Inc. 20,250 878,344
Finance Services (1.34%)
First Financial Corp. 100,000 2,137,500
Fire, Marine & Casualty Insurance (3.17%)
Avemco Corp. 100,000 1,687,500
Berkley W. R. Corp. 78,000 3,373,500
5,061,000
Footwear, Except Rubber (1.12%)
Nine West Group, Inc. 40,000(a) 1,780,000
General Industrial Machinery (5.96%)
Flow International Corp. 100,000(a) 1,112,500
Kaydon Corp. 80,000 2,310,000
MFRI, Inc. 50,000 300,000
Pentair, Inc. 50,000 2,525,000
Roper Industries, Inc. 90,000 3,262,500
9,510,000
Grocery Stores (0.43%)
Casey's General Stores, Inc. 30,000 690,000
Hardware Stores (0.55%)
Central Tractor Farm & Country, Inc. 130,000(a) 877,500
Holding Offices (0.92%)
ISB Financial Corp. 50,000 837,500
Today's Bancorp., Inc. 29,000 623,500
1,461,000
Hose, Belting, Gaskets & Packing (1.28%)
Mark IV Industries 105,105 2,049,548
Hospitals (2.13%)
Humana, Inc. 90,000(a) 1,901,250
Universal Health Services, Inc.; Class B 40,000(a) 1,500,000
3,401,250
Industrial Inorganic Chemicals (1.00%)
AMSCO International, Inc. 100,000(a) 1,600,000
Insurance Agents, Brokers
& Services (1.47%)
Equifax, Inc. 60,000 2,340,000
Investment Offices (1.32%)
INVESCO PLC ADR 55,000 2,103,750
Iron & Steel Foundries (0.99%)
Atchison Casting Corp. 102,000(a) 1,581,000
Laundry, Cleaning & Garment
Services (0.52%)
G&K Services, Inc.; Class A 37,500 834,375
Life Insurance (1.02%)
First Colony Corp. 60,000 1,635,000
Measuring & Controlling Devices (0.20%)
ISCO, Inc. 30,935 324,812
Meat Products (1.14%)
Michael Foods, Inc. 150,000 1,818,750
Medical Instruments & Supplies (6.23%)
Andros Analyzers, Inc. 10,000(a) 172,500
Boston Scientific Corp. 170,760(a) 7,193,265
MDT Corp. 50,000(a) 275,000
Nellcor Puritan Bennett 40,000(a) 2,300,000
9,940,765
Medical Service & Health Insurance (3.73%)
Foundation Health Corp. 50,000(a) 2,118,750
Health System International, Inc. 38,900(a) 1,181,588
United Healthcare Corp. 50,000 2,656,250
5,956,588
Metal Forgings & Stampings (0.53%)
Varlen Corp. 31,333 838,158
Metal Services, NEC (1.69%)
BMC Industries, Inc. 70,000 2,703,750
Miscellaneous Chemical Products (2.71%)
Cytec Industries 30,000(a) $1,642,500
H. B. Fuller Co. 40,000 1,260,000
Loctite Corp. 30,000 1,417,500
4,320,000
Miscellaneous Fabricated
Metal Products (2.19%)
Intel Corp. 50,000 3,493,750
Miscellaneous Plastics
Products, NEC (0.09%)
Rubbermaid, Inc. 5,266 137,574
Nursing & Personal Care Facilities (0.19%)
Horizon Healthcare Corp. 15,131(a) 306,403
Office Furniture (1.07%)
Chromcraft Revington, Inc. 50,000(a) 1,200,000
Kimball International, Inc.; Class B 20,000 510,000
1,710,000
Offices & Clinics of Medical
Doctors (0.05%)
FHP International Corp. 3,360 81,480
Operative Builders (0.50%)
Pulte Corp. 25,000 790,625
Paints & Allied Products (0.67%)
RPM, Inc. 55,000 1,065,625
Pens, Pencils, Office & Art Supplies (0.04%)
Hunt Mfg. Co. 3,450 60,375
Personnel Supply Services (0.25%)
Olsten Corp. 10,266 395,241
Plastic Materials & Synthetics (0.88%)
A. Schulman, Inc. 75,000 1,406,250
Plumbing, Heating &
Air-Conditioning (1.32%)
Apogee Enterprises, Inc. 100,000 1,500,000
Metalclad Corp. 228,400 599,550
2,099,550
Refrigeration & Service Machinery (0.74%)
Tecumseh Products Co.; Class A 25,000 1,175,000
Sanitary Services (0.91%)
Browning-Ferris Industries, Inc. 50,000 1,456,250
Savings Institutions (0.78%)
North Side Savings Bank (NY) 16,275 476,044
Sterling Financial Corp. 57,233(a) 772,645
1,248,689
Screw Machine Product, Bolts, Etc. (1.04%)
Trimas Corp. 80,000 1,660,000
Security Brokers & Dealers (0.49%)
Jefferies Group, Inc. 20,000 785,000
Special Industry Machinery (0.02%)
Key Technology, Inc. 2,500(a) 31,875
Toys & Sporting Goods (0.99%)
Mattel, Inc. 55,000 $ 1,581,250
Trucking & Courier Services,
Ex., Air (1.00%)
Consolidated Freightways, Inc. 15,000 348,750
J. B. Hunt Transport Services, Inc. 80,500 1,247,750
1,596,500
Total Common Stocks 129,041,050
Preferred Stocks (2.11%)
Gas Production & Distribution (0.45%)
Kelley Oil and Gas Corp.
Convertible 54,432 721,224
Offices & Clinics of Medical Doctors (1.66%)
FHP International Corp.
Series A Convertible 111,200 2,641,000
Total Preferred Stocks 3,362,224
Bonds (3.36%)
Principal
Amount Value
Combination Utility Services (0.00%)
Bonneville Pacific Corp.
Convertible Subordinated
Debentures; 7.75%; 8/15/09 $ 150,000(b) $ --
Computer & Data Processing
Services (1.63%)
Sierra On Line Convertible
Subordinated Debentures;
6.50%; 4/1/01 990,000(c) 2,593,800
Computer & Office Equipment (0.14%)
Seagate Technology Convertible
Subordinated Debentures;
6.75%; 5/1/12 200,000 225,000
Drugs (0.29%)
Genzyme Corp. Convertible Notes;
6.75%; 10/1/01 400,000 469,000
Industrial Inorganic Chemicals (0.92%)
Ciba-Geigy Corp. Exchangeable
Subordinated Debentures;
6.25%; 3/15/16 350,000(c) 349,562
ICN Pharmaceuticals, Inc.
Convertible Subordinated
Debentures; 8.50%; 11/15/99 1,000,000 1,112,500
1,462,062
Nursing & Personal Care Facilities (0.14%)
Greenery Rehabilitation Group, Inc.
Convertible Senior Subordinated
Notes; 8.75%; 4/1/15 250,000 227,500
Sanitary Services (0.24%)
Enclean, Inc.Convertible
Subordinated Debentures;
7.50%; 8/1/01 $ 200,000 $ 208,729
Sanifill, Inc. Convertible
Subordinated Debentures;
7.50%; 6/1/06 150,000 170,438
379,167
Total Bonds 5,356,529
Commercial Paper (12.32%)
Business Credit Institutions (9.02%)
Cit Group Holdings, Inc.
5.72%;11/2/95 5,015,000 5,014,203
General Electric Capital Corp.;
5.70%;11/3/95 5,015,000 5,013,412
Deere (John) Capital Corp.;
5.75%;11/7/95 4,375,000 4,370,807
14,398,422
Crude Petroleum & Natural Gas (1.64%)
Chevron Oil Finance Co.;
5.74%;11/6/95 2,625,000 2,622,907
Personal Credit Institutions (1.66%)
Ford Motor Credit Co.;5.76%;11/1/95 2,650,000 2,650,000
Total Commercial Paper 19,671,329
Total Portfolio Investments (98.64%) 157,431,132
Cash, receivables and other assets,
net of liabilities (1.36%) 2,177,482
Net Assets (100.00%) $159,608,614
(a) Non-income producing security - No dividend paid during the period.
(b) Non-income producing security - Security in default.
(c) Restricted security - See Note 4 to the financial statements.
PRINCOR GROWTH FUND, INC.
Shares
Held Value
Common Stocks (87.70%)
Advertising (1.27%)
Interpublic Group of Cos., Inc. 60,000 $ 2,325,000
Beverages (2.62%)
Coca-Cola Co. 30,000 2,156,250
Pepsico, Inc. 50,000 $ 2,637,500
4,793,750
Blast Furnace & Basic Steel
Products (1.61%)
Lukens, Inc. 80,000 2,460,000
Quanex Corp. 24,142 476,805
2,936,805
Carpets & Rugs (1.40%)
Shaw Industries, Inc. 200,000 2,550,000
Cash Grains (2.72%)
Pioneer Hi-Bred International 100,000 4,962,500
Commercial Banks (5.75%)
Banc One Corp. 50,000 1,687,500
Boatmen's Bancshares, Inc. 45,000 1,710,000
First of America Bank Corp. 40,000 1,705,000
Firstar Corp. 75,000 2,653,125
FirstMerit Corp. 50,000 1,350,000
Meridian Bancorp., Inc. 10,000 427,500
Princeton National Bancorp., Inc. 60,000 975,000
10,508,125
Communications Equipment (0.98%)
Northern Telecom Ltd. 50,000 1,800,000
Computer & Data Processing
Services (2.30%)
Microsoft Corp. 42,000(a) 4,200,000
Computer & Office Equipment (2.23%)
Digital Equipment Corp. 6,800(a) 368,050
Hewlett-Packard Co. 30,000 2,778,750
Pitney Bowes, Inc. 10,000 436,250
Tandy Corp. 10,000 493,750
4,076,800
Department Stores (1.40%)
May Department Stores 65,000 2,551,250
Drugs (4.84%)
Alliance Pharmaceutical Corp. 20,000(a) 240,000
Bristol-Myers Squibb Co. 10,000 762,500
Johnson & Johnson 30,000 2,445,000
Lilly (Eli) & Co. 20,000 1,932,500
Merck & Co., Inc. 44,100 2,535,750
Seragen, Inc. 70,500(a) 414,187
Upjohn Co. 10,000 507,500
8,837,437
Electric Light & Wiring
Equipment (0.21%)
Raychem Corp. 8,100 375,638
Electrical Goods (0.83%)
Avnet, Inc. 30,000 1,511,250
Electronic Components &
Accessories (2.16%)
Linear Technology Corp. 90,000 3,937,500
Electronic Distribution Equipment (0.69%)
General Electric Co. 20,000 1,265,000
Engineering & Architectural
Services (0.33%)
Dun & Bradstreet Corp. 10,000 $ 597,500
Federal & Federally Sponsored
Credit (0.57%)
Federal National Mortgage
Association 10,000 1,048,750
Footwear, Except Rubber (0.74%)
Stride Rite Corp. 120,000 1,350,000
General Industrial Machinery (3.63%)
Flow International Corp. 100,000(a) 1,112,500
Ingersoll-Rand Co. 70,000 2,476,250
Tyco International Ltd. 50,000 3,037,500
6,626,250
Grain Mill Products (1.76%)
Ralcorp Holdings, Inc. 10,833(a) 249,159
Ralston-Ralston Purina Group 50,000 2,968,750
3,217,909
Grocery Stores (0.27%)
Casey's General Stores, Inc. 21,052 484,196
Holding Offices (0.35%)
Today's Bancorp., Inc. 30,000 645,000
Hose, Belting, Gaskets &
Packing (1.30%)
Mark IV Industries 122,054 2,380,053
Hospitals (2.03%)
Humana, Inc. 100,000(a) 2,112,500
Universal Health Services, Inc.;
Class B 42,511(a) 1,594,162
3,706,662
Household Furniture (1.23%)
Masco Corp. 80,000 2,250,000
Investment Offices (1.05%)
INVESCO PLC ADR 50,000 1,912,500
Lumber & Other Building
Materials (2.04%)
Home Depot, Inc. 100,000 3,725,000
Medical Instruments &
Supplies (7.94%)
Andros Analyzers, Inc. 60,000(a) 1,035,000
Becton, Dickinson & Co. 20,000 1,300,000
Boston Scientific Corp. 206,961(a) 8,718,232
Nellcor Puritan Bennett 60,000(a) 3,450,000
14,503,232
Medical Service & Health
Insurance (5.47%)
AON Corp. 40,000 1,645,000
Foundation Health Corp. 70,000(a) 2,966,250
Health System International, Inc. 50,000(a) 1,518,750
United Healthcare Corp. 51,000 2,709,375
Value Health, Inc. 50,000 1,143,750
9,983,125
Millwork, Plywood & Structural
Members (0.90%)
Georgia-Pacific Corp. 20,000 $1,650,000
Miscellaneous Chemical Products (0.52%)
Loctite Corp. 20,000 945,000
Miscellaneous Converted Paper
Products (0.44%)
Minnesota Mining & Mfg. Co. 14,000 796,250
Miscellaneous Electrical Equipment
& Supplies (2.16%)
Motorola, Inc. 60,000 3,937,500
Miscellaneous Fabricated Metal
Products (2.41%)
Intel Corp. 63,000 4,402,125
Miscellaneous Shopping Goods
Stores (0.42%)
Toys 'R' Us, Inc. 35,000(a) 765,625
Motor Vehicles & Equipment (2.79%)
Chrysler Corp. 50,000 2,581,250
Dana Corp. 98,000 2,511,250
5,092,500
Office Furniture (0.20%)
Chromcraft Revington, Inc. 15,000(a) 360,000
Offices & Clinics of Medical
Doctors (0.20%)
FHP International Corp. 15,000(a) 363,750
Operative Builders (0.73%)
Pulte Corp. 42,105 1,331,571
Petroleum Refining (2.63%)
Atlantic Richfield Co. 20,000 2,135,000
Exxon Corp. 35,000 2,673,125
4,808,125
Plastic Materials & Synthetics (0.82%)
A. Schulman, Inc. 80,000 1,500,000
Plumbing, Heating & Air-
Conditioning (0.38%)
Metalclad Corp. 264,500(a) 694,312
Preserved Fruits & Vegetables (0.91%)
CPC International, Inc. 25,000 1,659,375
Refrigeration & Service
Machinery (1.03%)
Tecumseh Products Co.; Class A 40,000 1,880,000
Rubber & Plastics Footwear (0.93%)
Reebok International Ltd. 50,000 1,700,000
Sanitary Services (1.97%)
Browning-Ferris Industries, Inc. 80,000 2,330,000
WMX Technologies, Inc. 45,000 1,265,625
3,595,625
Security Brokers & Dealers (1.38%)
Salomon, Inc. 70,000 $ 2,528,750
Soap, Cleaners & Toilet Goods (5.24%)
Colgate-Palmolive Co. 40,000 2,770,000
Ecolab, Inc. 120,000 3,480,000
International Flavors & Fragrances, Inc. 15,000 723,750
SmithKline Beecham PLC ADR 50,000 2,593,750
9,567,500
Toys & Sporting Goods (1.55%)
Mattel, Inc. 98,437 2,830,064
Trucking & Courier Services,
Ex., Air (0.37%)
Roadway Services, Inc. 15,000 671,250
Total Common Stocks 160,140,554
Preferred Stocks (2.13%)
Motor Vehicles & Equipment (0.52%)
Ford Motor Co.;
Series A Convertible 0,000 940,000
Offices & Clinics of Medical
Doctors (1.61%)
FHP International Corp.;
Series A Convertible 124,000 2,945,000
Total Preferred Stocks 3,885,000
Bonds (2.02%)
Principal
Amount Value
Drugs (0.16%)
Genzyme Corp. Convertible Notes;
6.75%; 10/1/01 $ 250,000 $ 293,125
Electrical Industrial Apparatus (0.73%)
Liebert Co. Convertible
Subordinated Debentures;
8.00%; 11/15/10 500,000 1,339,375
Industrial Inorganic Chemicals (0.27%)
Ciba-Geigy Corp. Exchangeable
Subordinated Debentures;
6.25%; 3/15/16 500,000(b) 499,375
Nursing & Personal Care Facilities (0.50%)
Greenery Rehabilitation Group, Inc.
Convertible Senior Subordinated
Notes; 8.75%; 4/1/15 1,000,000 910,000
Sanitary Services (0.36%)
Enclean, Inc. Convertible
Subordinated Debentures;
7.50%; 8/1/01 $ 300,000 $ 313,093
Sanifill, Inc. Convertible
Subordinated Debentures;
7.50%; 6/1/06 300,000 340,875
653,968
Total Bonds 3,695,843
Commercial Paper (8.07%)
Business Credit Institutions (3.53%)
CIT Group Holding, Inc.;
5.72%; 11/2/95 3,635,000 3,634,423
John Deere Capital Corp.;
5.75%; 11/7/95 2,815,000 2,812,302
6,446,725
Crude Petroleum & Natural Gas ( 2.39%)
Chevron Oil Finance Co.;
5.71%; 11/3/95 2,060,000 2,059,347
5.74%; 11/6/95 2,300,000 2,298,166
4,357,513
Personal Credit Institutions (2.15%)
Ford Motor Credit Co.;
5.76%; 11/1/95 3,935,000 3,935,000
Total Commercial Paper 14,739,238
Total Portfolio Investments (99.92%) 182,460,635
Cash, receivables and other assets,
net of liabilities (0.08%) 146,221
Total Net Assets (100.00%) $182,606,856
(a) Non-income producing security - No dividend paid during the period.
(b) Restricted security - See Note 4 to the financial statements.
PRINCOR WORLD FUND, INC.
Shares
Held Value
Common Stocks (97.16%)
AUSTRALIA (4.59%)
Commercial Banks (2.46%)
National Australia Bank Ltd. 374,715 $ 3,203,721
Crude Petroleum & Natural Gas (0.39%)
Ampolex Ltd. 259,000(a) 512,224
Gas Production & Distribution (0.81%)
Australia Gas & Light 305,000 1,055,597
Miscellaneous Food &
Kindred Products (0.93%)
Burns, Philp & Co., Ltd. 540,938 $ 1,209,711
5,981,253
AUSTRIA (1.34%)
Blast Furnace & Basic
Steel Products (0.70%)
Voest-Alpine Stahl 30,000(a)(b) 917,237
Railroad Equipment (0.64%)
Vae AG 9,350 835,917
1,753,154
CANADA (2.18%)
Coal Mining Services (0.49%)
Morgan Hydrocarbons, Inc. 13,600(a) 635,234
Communications Equipment (0.88%)
Newbridge Networks Corp. 37,700(a) 1,149,850
Iron & Steel Foundries (0.26%)
Dofasco, Inc. 26,300 332,412
Miscellaneous Plastics
Products, NEC (0.55%)
Royal Plastics Group 54,000(a)(b) 722,668
2,840,164
CHILE (0.53%)
Telephone Communication (0.53%)
Compania DeTelecomunicaciones ADR 9,600 691,200
DENMARK (1.18%)
Telephone Communication (1.18%)
Tele Danmark B 29,500 1,538,003
FINLAND (3.27%)
Forest Products (0.54%)
Metsa-Serla 18,800 699,395
Miscellaneous Wood Products (0.85%)
Enso-Gutzeit 142,000 1,113,371
Pulp Mills (1.06%)
Kymmene 50,700 1,384,756
Sugar & Confectionary Products (0.82%)
Huhtamake I Free 36,200 1,073,956
4,271,478
FRANCE (1.29%)
Drugs (1.29%)
Roussel-Uclaf 10,250 1,680,089
GERMANY (4.62%)
Flat Glass (0.37%)
Weru AG 1,275 479,846
Industrial Inorganic Chemicals (1.83%)
Bayer AG 9,055 $ 2,391,924
Miscellaneous Chemical Products (2.42%)
Hoechst AG 12,100 3,153,315
6,025,085
GREECE (0.52%)
Highway & Street Construction (0.52%)
Edrasis Psallidas 45,000 673,234
Edrasis Psallidas Rights 13,500(a) 8,440
681,674
HONG KONG (5.33%)
Communications Equipment (0.30%)
ABC Communications Holdings Ltd. 1,946,000 397,667
Electric Services (0.60%)
CEP-A Consolidated Electric
Power-Asia 387,000 783,331
Electronic Components
& Accessories (0.50%)
Varitronix 340,000 648,620
Highway & Street Construction (0.07%)
Wai Kee Holdings, Ltd 744,000 91,415
Holdings Offices (1.11%)
First Pacific Co. Ltd. 1,260,673 1,451,149
Miscellaneous Textile Goods (0.45%)
Espirit Asia 1,708,000 579,878
Office Furniture (0.46%)
Lamex Holdings 2,660,000 595,179
Personal Credit Institutions (0.81%)
Manhattan Card Co. 2,463,000 1,051,231
Security Brokers & Dealers (1.03%)
Peregrine Investment Holdings 1,058,000 1,347,850
6,946,320
INDONESIA (1.07%)
Miscellaneous Furniture &
Fixtures (0.25%)
Pt Surya Toto 154,000 318,714
Pulp Mills (0.82%)
Asia Pacific Resources 146,700(a) 1,063,575
1,382,289
ITALY (2.76%)
Metalworking Machinery (0.23%)
Danieli & Co.-DR 110,000 303,610
Telephone Communication (2.53%)
Telecom Italia-DI 1,440,000 1,698,209
Telecom Italia Mobile 1,440,000 1,598,845
3,297,054
3,600,664
JAPAN (0.89%)
Computer & Office
Equipment (0.46%)
Canon, Inc. 35,000 $ 599,051
Electronic Components
& Accessories (0.24%)
Murata Mfg. 9,000 316,006
Engines & Turbines (0.19%)
Mabuchi Motor 4,000 242,163
1,157,220
KOREA (2.40%)
Commercial Banks (0.31%)
Shinhan Bank 16,300 336,588
Shinhan Bank Bonus Shares 2,992(a) 61,783
398,371
Concrete Work (0.60%)
Hanil Cemet 13,500 785,140
Construction & Related
Machinery (0.59%)
Keumkang 10,000 771,091
Electric Services (0.90%)
Korea Electric Power Corp. 28,500 1,173,299
3,127,901
MALAYSIA (0.74%)
Holding Offices (0.49%)
C. I. Holdings 180,000 633,520
Non-Classifiable
Establishments (0.25%)
Malaysian Pacific Industries 122,000 328,636
962,156
MEXICO (1.57%)
Aircraft & Parts (0.13%)
Tolmex SA 46,000 174,592
Cement, Hydraulic (0.26%)
Apasco SA 90,000 332,770
Concrete, Gypsum & Plaster
Products (0.20%)
Cementos De Mexico SA 80,000 257,141
Department Stores (0.17%)
Sears Roebuck De Mexico SA 83,400(a) 227,771
Foreign Banks, Branches &
Agencies (0.21%)
Grupo Financiero Bancomer;
Series B 1,030,000(a)$ 271,202
Series L 38,148(a) 8,869
280,071
Miscellaneous Food & Kindred
Products (0.07%)
Grupo Herdez SA 328,000(a) 86,364
Telephone Communication (0.53%)
Telefonos De Mexico SA ADR 25,300 695,750
2,054,459
NETHERLANDS (14.41%)
Beer, Wine & Distilled Beverages (0.55%)
Heineken Holdings 4,343 717,357
Commercial Banks (1.81%)
ABN-AMRO Holdings NV 56,218 2,358,814
Communications Services, NEC (2.09%)
KPN Royal PTT Nederland 77,786 2,732,118
Electric Light & Wiring
Equipment (0.58%)
Otra 3,700 761,009
Electronic Distribution Equipment (1.81%)
Phillips Electronics 61,100 2,358,718
Grocery Stores (1.33%)
Ahold NV New ADR 41,057 1,549,902
Koninklijke Ahold NV 4,989 188,808
1,738,710
Meat Products (2.16%)
Unilever NV 21,500 2,812,444
Miscellaneous Durable Goods (1.91%)
Hagemeyer NV 50,100 2,492,099
Miscellaneous Transportation
Services (0.65%)
Koninklijke Pakhoed NV 31,255 850,536
Paperboard Containers & Boxes (0.58%)
Koninklijke KNP BT NV 25,080(b) 753,922
Special Industry Machinery (0.94%)
IHC Caland NV 43,300 1,230,380
18,806,107
NEW ZEALAND (3.28%)
Beverages (1.69%)
Lion Nathan 970,000 2,202,433
Household Appliances (1.05%)
Fisher & Paykel 421,000 1,375,497
Miscellaneous Manufacturers (0.54%)
Carter Holt Harvey Ltd. 297,300 710,356
4,288,286
NORWAY (3.29%)
Commercial Banks (1.13%)
Christiana Bank Ordinary Shares 361,000 $ 840,338
Fokus Bank 120,000(a)(b) 635,732
1,476,070
Drugs (0.41%)
Hafslund Nycomed 19,198 536,271
Meat Products (1.11%)
Orkla B Ordinary Shares 29,700 1,444,701
Ship & Boat Building &
Repairing (0.64%)
Unitor Ships Service 67,500 834,399
4,291,441
SINGAPORE (1.53%)
Air Transportation, Scheduled (0.54%)
Singapore International Airlines 76,000 703,802
Electric Light & Wiring
Equipment (0.28%)
Clipsal Industries Holdings 149,000 365,050
Electronic Components &
Accessories (0.71%)
Amtek Engineering 450,000 922,521
1,991,373
SPAIN (5.46%)
Combination Utility Services (1.21%)
Iberdrola 1 SA 210,000 1,580,368
Commercial Banks (1.49%)
Banco Popular 12,230 1,939,793
Oil & Gas Field Services (1.71%)
Repsol Petroleo, SA 74,800 2,230,232
Telephone Communication (1.05%)
Telefonica De Espana, SA 109,400 1,378,127
7,128,520
SWEDEN (7.38%)
Commercial Banks (1.68%)
Svenska Handelsbanken AB Free 130,750 2,194,394
Household Audio & Video
Equipment (0.72%)
SKF 'B' Free 49,700 942,595
Miscellaneous Transportation
Equipment (0.64%)
Autoliv AB 14,500 831,555
Motor Vehicles & Equipment (1.50%)
Volvo AB 87,000 1,957,755
Plastic Materials & Synthetics (1.30%)
Astra AB 47,050 1,699,687
Water Transportation of
Freight, NEC (1.54%)
Argonaut AB 'B' Free 158,000(a) $ 242,580
ICB Shipping AB 'B' Free 213,733 1,769,426
2,012,006
9,637,992
SWITZERLAND (12.12%)
Combination Utility Services (1.09%)
BBC AG (Brown Boveri) 1,230 1,425,336
Drugs (2.70%)
Galencia Holdings AG 2,890 902,719
Immuno International AG 970 477,954
Sandoz AG 2,600 2,143,578
3,524,251
Functions Closely Related
to Banking (1.42%)
BIL GT Group 3,000 1,847,760
Miscellaneous Chemical
Products (1.99%)
Ciba Geigy AG-REG 3,000 2,594,784
Plumbing & Heating,
Except Electric (0.30%)
Elco Holdings 940 385,425
Pulp Mills (0.34%)
Attisholz AG 620 451,698
Special Industry Machinery (2.19%)
Bobst SA 1,175 1,778,250
Sulzer AG 1,800 1,076,980
2,855,230
Sugar & Confectionary
Products (2.09%)
Nestle 2,604 2,726,555
15,811,039
THAILAND (1.95%)
Commercial Banks (1.20%)
Bangkok Bank 152,000 1,570,746
Non-Classifiable Establishments (0.75%)
Thailand International Fund 31 976,500
2,547,246
UNITED KINGDOM (13.46%)
Commercial Banks (0.81%)
Bank of Ireland 160,000 1,060,348
Construction & Related
Machinery (1.38%)
Powerscreen International PLC 296,000 1,802,844
Crude Petroleum & Natural Gas (1.18%)
Hardy Oil & Gas 520,000 1,534,349
Electric Services (2.03%)
Northern Ireland Electric 61,000 2,648,741
Investment Offices (0.65%)
Invesco PLC 222,000 $ 849,462
Lumber & Other Building
Materials (1.14%)
Wickes PLC 754,000 1,487,170
Miscellaneous Fabricated Metal
Products (0.50%)
Bridon PLC 289,285 652,742
Miscellaneous Non-Durable
Goods (1.88%)
Grand Metropolitan PLC 355,000 2,453,476
Primary Nonferrous Metals (1.41%)
British Steel PLC 712,000 1,836,864
Pulp Mills (0.46%)
Babcock International Group 228,171 601,253
Sand & Gravel (0.21%)
Bardon Group PLC 650,000 271,793
Telephone Communication (0.52%)
Cable & Wireless PLC 105,000 685,913
Water Supply (1.29%)
Wessex Water PLC 268,660 1,420,127
Wessex Water PLC; Class A 322,392 258,166
1,678,293
17,563,248
Total Common Stocks 126,758,361
Preferred Stocks (0.58%)
AUSTRIA (0.58%)
Highway & Street Construction (0.58%)
Bau Holdings AG 16,200 751,952
Bonds (0.95%)
MEXICO (0.95%)
Fire, Marine & Casualty
Insurance (0.95%)
Alfa SA Convertible Subordinated
Debenture; 8.00%; 9/15/00 $1,300,000(b) 1,244,750
Commercial Paper (3.61%)
UNITED STATES (3.61%)
Business Credit Institutions (2.04%)
Cit Group Holdings, Inc.;
5.72%; 11/2/95 1,265,000 1,264,799
General Electric Capital Corp.;
5.88%; 11/1/95 1,390,000 1,390,000
2,654,799
Crude Petroleum & Natural Gas (1.57%)
Chevron Oil Finance Co.;
5.71%; 11/3/95 1,360,000 1,359,569
5.74%; 11/6/95 690,000 689,450
2,049,019
Total Commercial Paper 4,703,818
Total Portfolio Investments (102.30%) 133,458,881
Liabilities, net of cash, receivables and
other assets, (-2.30%) (2,996,705)
Total Net Assets (100.00%) $130,462,176
(a) Non-Income producing security - No dividend paid during the period.
(b) Restricted security - See Notes 4 to the financial statements.
<PAGE>
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<PAGE>
<TABLE>
<CAPTION>
GROWTH-ORIENTED FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor Balanced Fund, Inc.(b)
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $12.43 $.41 $1.31 $1.72 $(.36) $(.05) $(.41) $13.74
1994 13.26 .32 (.20) .12 (.40) (.55) (.95) 12.43
1993 12.78 .35 1 .14 1.49 (.37) (.64) (1.01) 13.26
1992 11.81 .41 .98 1.39 (.42) - (.42) 12.78
1991 9.24 .46 2.61 3.07 (.50) - (.50) 11.81
Class B
Period Ended October 31, 1995(f) 11.80 .31 1.90 2.21 (.30) - (.30) 13.71
Princor Blue Chip Fund, Inc.
Class A
Year Ended October 31,
1995 12.45 .24 2.55 2.79 (.21) - (.21) 15.03
1994 11.94 .20 .57 .77 (.26) - (.26) 12.45
1993 11.51 .21 .43 .64 (.18) (.03) (.21) 11.94
1992 10.61 .17 .88 1.05 (.15) - (.15) 11.51
Period Ended October 31, 1991(g) 10.02 .10 .57 .67 (.08) - (.08) 10.61
Class B
Period Ended October 31, 1995(f) 11.89 .15 3.10 3.25 (.15) - (.15) 14.99
Princor Capital Accumulation
Fund, Inc.
Class A
Year Ended October 31,
1995 20.83 .45 3.15 3.60 (.39) (.35) (.74) 23.69
1994 21.41 .39 .93 1.32 (.41) (1.49) (1.90) 20.83
1993 21.34 .43 1.67 2.10 (.43) (1.60) (2.03) 21.41
1992 19.53 .45 1.82 2.27 (.46) - (.46) 21.34
1991 14.31 .49 5.24 5.73 (.51) - (.51) 19.53
Class B
Period Ended October 31, 1995(f) 19.12 .33 4.46 4.79 (.30) - (.30) 23.61
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor Balanced Fund, Inc.(b)
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 14.18% $ 57,125 1.37% 3.21% 35.8%
1994 .94% 53,366 1.51% 2.70% 14.4%
1993 12.24% 39,952 1.35% 2.78% 27.5%
1992 11.86% 31,339 1.29% 3.39% 30.6%
1991 34.09% 23,372 1.30% 4.25% 23.6%
Class B
Period Ended October 31, 1995(f) 18.72%(d) 1,263 1.91%(e) 2.53%(e) 35.8%(e)
Princor Blue Chip Fund, Inc.
Class A
Year Ended October 31,
1995 22.65% 35,212 1.38% 1.83% 26.1%
1994 6.58% 27,246 1.46% 1.72% 5.5%
1993 5.65% 23,759 1.25% 1.87% 11.2%
1992 9.92% 19,926 1.56% 1.49% 13.5%
Period Ended October 31, 1991(g) 6.37%(d) 12,670 1.71%(e) 1.67%(e) 0.4%(e)
Class B
Period Ended October 31, 1995(f) 26.94%(d) 1,732 1.90%(e) .97%(e) 26.1%(e)
Princor Capital Accumulation
Fund, Inc.
Class A
Year Ended October 31,
1995 17.94% 339,656 .75% 2.08% 46.0%
1994 6.67% 285,965 .83% 2.02% 31.7%
1993 10.42% 240,016 .82% 2.16% 24.8%
1992 11.67% 190,301 .93% 2.17% 38.3%
1991 40.63% 152,814 .99% 2.72% 19.7%
Class B
Period Ended October 31, 1995(f) 25.06%(d) 2,248 1.50%(e) 1.07(e) 46.0%(e)
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge or contingent
deferred sales charge.
(b) Effective December 5, 1994, the name of Princor Managed Fund, Inc. was
changed to Princor Balanced Fund, Inc.
(c) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.08 per share for the
period from the initial purchase of shares on October 30, 1987 through
December 17, 1987, was recognized, none of which was distributed to its
sole stockholder, Principal Mutual Life Insurance Company, during the
period. Additionally, the Fund incurred net realized and unrealized losses
on investments of $.12 per share during this initial interim period. This
represented activities of the fund prior to the initial public offering of
fund shares.
(d) Total Return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Period from December 9,1994, date Class B shares first offered to the
public, through October 31, 1995. The Growth Funds Class B shares
recognized no net investment income for the period from the initial
purchase of Class B shares on December 5, 1994 through December 8, 1994.
The Growth Funds Class B shares incurred unrealized loss during the initial
interim period as follows. This represented Class B share activities of
each fund prior to the initial public offering of Class B shares:
Per Share
Unrealized
Fund (Loss)
Princor Balanced Fund, Inc. (0.19)
Princor Blue Chip Fund, Inc. (0.15)
Princor Capital Accumulation
Fund, Inc. (0.46)
(g) Period from March 1, 1991, date shares first offered to public, through
October 31, 1991. Net investment income, aggregating $.01 per share for the
period from the initial purchase of shares on February 11, 1991 through
February 28, 1991, was recognized, none of which was distributed to its
sole stockholder, Principal Mutual Life Insurance Company, during the
period. Additionally, the Fund incurred unrealized gains on investments of
$.01 per share during this initial interim period. This represented
activities of the fund prior to the initial public offering of fund shares.
(h) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROWTH-ORIENTED FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor Emerging Growth Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $25.08 $.12 $6.45 $6.57 $(.06) $(.14) $(.20) $31.45
1994 23.56 - 1.61 1.61 - (.09) (.09) 25.08
1993 19.79 .06 3.82 3.88 (.11) - (.11) 23.56
1992 18.33 .14 1.92 2.06 (.15) (.45) (.60) 19.79
1991 11.35 .17 7.06 7.23 (.21) (.04) (.25) 18.33
Class B
Period Ended October 31,1995(e) 23.15 - 8.18 8.18 (.02) - (.02) 31.31
Princor Growth Fund, Inc.
Class A
Year Ended October 31,
1995 31.14 .35 6.67 7.02 (.31) (.63) (.94) 37.22
1994 30.41 .26 2.56 2.82 (.28) (1.81) (2.09) 31.14
1993 28.63 .40 2.36 2.76 (.42) (.56) (.98) 30.41
1992 25.92 .39 3.32 3.71 (.40) (.60) (1.00) 28.63
1991 16.57 .41 9.32 9.73 (.38) - (.38) 25.92
Class B
Period Ended October 31, 1995(e) 28.33 .21 8.76 8.97 (.20) - (.20) 37.10
Princor World Fund, Inc.
Class A
Year Ended October 31,
1995 7.44 .08 (.02) .06 (.03) (.19) (.22) 7.28
1994 6.85 .01 .64 .65 (.02) (.04) (.06) 7.44
1993 5.02 .03 1.98 2.01 (.05) (.13) (.18) 6.85
1992 5.24 .06 (.14) (.08) (.06) (.08) (.14) 5.02
1991 4.64 .05 .58 .63 (.03) - (.03) 5.24
Class B
Period Ended October 31, 1995(e) 6.71 .05 .51 .56 (.03) - (.03) 7.24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor Emerging Growth Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 26.41% $150,611 1.47% .47% 13.5%
1994 6.86% 92,965 1.74% .02% 8.1%
1993 19.66% 48,668 1.66% .26% 7.0%
1992 11.63% 29,055 1.74% .80% 5.8%
1991 64.56% 17,174 1.78% 1.14% 8.4%
Class B
Period Ended October 31,1995 (e) 35.65%(c) 8,997 2.04%(d) (.17)%(d) 13.5%(d)
Princor Growth Fund, Inc.
Class A
Year Ended October 31,
1995 23.29% 174,328 1.16% 1.12% 12.2%
1994 9.82% 116,363 1.30% .95% 13.6%
1993 9.83% 80,051 1.26% 1.40% 16.4%
1992 14.76% 63,405 1.19% 1.46% 15.6%
1991 59.30% 45,892 1.13% 1.85% 10.6%
Class B
Period Ended October 31, 1995(e) 31.48%(c) 8,279 1.80%(d) .31%(d) 12.2%(d)
Princor World Fund, Inc.
Year Ended October 31,
1995 1.03% 126,554 1.63% 1.10% 35.4%
1994 9.60% 115,812 1.74% .10% 13.2%
1993 41.39% 63,718 1.61% .59% 19.5%
1992 (1.57)% 35,048 1.69% 1.23% 19.9%
1991 13.82% 26,478 1.72% 1.36% 27.6%
Class B
Period Ended October 31, 1995(e) 9.77%(c) 3,908 2.19%(d) .58%(d) 35.4%(d)
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge or the
contingent deferred sales charge.
(b) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.04 per share for the
period from the initial purchase of shares on October 30, 1987 through
December 17, 1987, was recognized, none of which was distributed to its
sole stockholder, Principal Mutual Life Insurance Company, during the
period. Additionally, the Fund incurred net realized and unrealized gains
on investments of $.46 per share during this initial interim period. This
represented activities of the fund prior to the initial public offering of
fund shares.
(c) Total Return amounts have not been annualized.
(d) Computed on an annualized basis.
(e) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. The Growth Funds Class B shares
recognized no net investment income for the period from the initial
purchase of Class B shares on December 5, 1994 through December 8, 1994.
The Growth Funds Class B shares incurred unrealized loss during the initial
interim period as follows. This represented Class B share activities of
each fund prior to the initial public offering of Class B shares:
Per Share
Unrealized
Fund (Loss)
Princor Emerging Growth Fund, Inc. (0.77)
Princor Growth Fund, Inc. (0.86)
Princor World Fund, Inc. (0.07)
(f) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
(g) Effective January 1, 1989, the fund changed its fiscal year-end from
December 31 to October 31.
(h) The investment manager of Princor World Fund, Inc. was changed on
August 1, 1988 to the current manager, Princor Management Corporation. The years
1983 through 1987 are not covered by the current independent auditor's report.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
October 31, 1995
STATEMENTS OF ASSETS AND LIABILITIES
Princor Princor Cash Princor Government
Bond Management Securities Income
INCOME FUNDS Fund, Inc. Fund, Inc. Fund, Inc.
Assets
Investment in securities -- at value
(cost -- $101,743,009; $617,008,663;
$263,572,657; $23,347,818;
$171,607,538; $101,122,584; and
<S> <C> <C> <C>
$65,736,920, respectively) (Note 4)..... $108,055,567 $617,008,663 $264,501,332
Cash..................................... 1,187 87,366 2,761
Receivables:
Dividends and interest.................. 2,240,956 322,453 1,583,829
Investment securities sold.............. -- -- --
Capital Stock sold...................... 6,431 12,734,329 214,702
Other assets............................... 3,438 19,872 16,78
Total Assets 110,307,579 630,172,683 266,319,405
Liabilities
Accrued expenses........................... 91,454 486,381 206,132
Payables:
Investment securities purchased......... 505,065 -- --
Capital Stock reacquired................ 41,556 5,614,287 285,766
Total Liabilities 638,075 6,100,668 491,898
Net Assets Applicable to
Outstanding Shares ...................... $109,669,504 $624,072,015 $265,827,507
Net Assets Consist of:
Capital Stock.............................. $ 95,995 $ 6,240,720 $ 235,055
Additional paid-in capital................. 102,940,859 617,831,295 265,024,438
Accumulated undistributed net
investment income....................... 705,347 -- 1,548,316
Accumulated undistributed net realized
(loss) on investment transactions....... (385,255) -- (1,908,977)
Net unrealized appreciation
of investments.......................... 6,312,558 -- 928,675
Total Net Assets $109,669,504 $624,072,015 $265,827,507
Capital Stock (par value: $.01 a share)
Shares authorized.......................... 100,000,000 2,000,000,000 100,000,000
Net Asset Value Per Share:
Class A: Net Assets....................... $106,961,936 $623,864,278 $261,128,056
Shares issued and outstanding. 9,362,124 623,864,278 23,089,297
Net asset value per share...... $11.42 $1.000 $11.31
Maximum offering price per share $11.99(1) $1.000 $11.87(1)
Class B: Net Assets ................... $2,707,568 $207,737 $4,699,451
Shares issued and outstanding... 237,371 207,737 416,214
Net asset value per share(2).... $11.41 $1.000 $11.29
(1) Maximum offering price is equal to net asset value plus a front-end
sales charge of 4.75% of the offering price. (2) Redemption price per share
is equal to net asset value less any applicable contingent deferred sales
charge.
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
October 31, 1995
STATEMENTS OF ASSETS AND LIABILITIES
Princor Princor Princor Tax-Exempt Princor
High Yield Tax-Exempt Cash Management Utilities
INCOME FUNDS Fund, Inc. Bond Fund, Inc. Fund, Inc. Fund, Inc.
Assets
Investment in securities -- at value (cost
-- $101,743,009; $617,008,663;
$263,572,657; $23,347,818; $171,607,538;
$101,122,584; and $65,736,920,
<S> <C> <C> <C> <C>
respectively)(Note 4)................... $23,351,279 $177,611,183 $101,122,584 $69,577,129
Cash....................................... 4,561 11,996 102,830 4,117
Receivables:
Dividends and interest.................. 677,257 3,781,978 541,753 303,506
Investment securities sold.............. -- 1,910,000 -- --
Capital Stock sold...................... 26,206 71,370 736,281 53,904
Other assets............................... 1,991 7,333 3,024 431
Total Assets 24,061,294 183,393,860 102,506,472 69,939,087
Liabilities
Accrued expenses........................... 32,481 128,451 82,127 77,742
Payables:
Investment securities purchased......... -- -- 1,000,000 --
Capital Stock reacquired................ -- 63,986 1,510,661 35,975
Total Liabilities 32,481 192,437 2,592,788 113,717
Net Assets Applicable to
Outstanding Shares ...................... $24,028,813 $183,201,423 $ 99,913,684 $69,825,370
Net Assets Consist of:
Capital Stock.............................. 29,820 $ 152,970 $ 999,137 $ 63,824
Additional paid-in capital................. 26,732,138 178,324,173 98,914,547 68,916,481
Accumulated undistributed net
investment income....................... 266,395 1,048,291 -- 246,709
Accumulated undistributed net realized
(loss) on investment transactions....... (3,003,001) (2,327,656) -- (3,241,853)
Net unrealized appreciation
of investments.......................... 3,461 6,003,645 -- 3,840,209
Total Net Assets $24,028,813 $183,201,423 $ 99,913,684 $69,825,370
Capital Stock (par value: $.01 a share)
Shares authorized.......................... 100,000,000 100,000,000 1,000,000,000 100,000,000
Net Asset Value Per Share:
Class A: Net Assets....................... $23,395,879 $179,715,058 $ 99,887,179 $65,872,916
Shares issued and outstanding. 2,903,300 15,005,591 99,887,179 6,020,742
Net asset value per share...... $8.06 $11.98 $1.000 $10.94
Maximum offering price
per share .................... $8.46(1) $12.58(1) $1.000 $11.49(1)
Class B: Net Assets ................... $632,934 $3,486,365 $26,505 $3,952,454
Shares issued and outstanding. 78,670 291,444 26,505 361,704
Net asset value per share(2)... $8.05 $11.96 $1.000 $10.93
(1) Maximum offering price is equal to net asset value plus a front-end
sales charge of 4.75% of the offering price.
(2) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31, 1995
STATEMENTS OF OPERATIONS
Princor Princor Cash Princor Government
Bond Management Securities Inco
INCOME FUNDS Fund, Inc. Fund, Inc. Fund, Inc.
Net Investment Income
Income:
<S> <C> <C> <C>
Dividends.............................. $ -- $ -- $ --
$ Interest............................... 8,034,573 29,621,653 18,894,705
Total Income 8,034,573 29,621,653 18,894,705
Expenses:
Management and investment advisory
fees (Note 3)....................... 489,133 1,980,472 1,165,241
Distribution and shareholder servicing
fees--Class A (Note 3).............. 231,494 -- 471,723
Distribution and shareholder servicing
fees--Class B (Note 3).............. 9,138 366 16,582
Transfer and administrative services
(Note 3)............................ 213,198 1,494,200 435,625
Registration fees--Class A............. 33,282 320,925 53,604
Registration fees--Class B............. 485 102 507
Custodian fees ........................ 7,900 28,386 38,790
Auditing and legal fees ............... 6,635 8,992 9,367
Directors' fees ....................... 7,825 7,824 7,825
Other ................................. 11,068 36,220 33,730
Total Gross Expenses 1,010,158 3,877,487 2,232,994
Less: Management and investment
advisory fees waived................ (86,318) (296,359) --
Total Net Expenses 923,840 3,581,128 2,232,994
Net Investment Income 7,110,733 26,040,525 16,661,711
Net Realized and Unrealized
Gain (Loss) on Investments
Net realized (loss) from
investment transactions................ (385,488) -- (1,074,727)
Net increase in unrealized
appreciation/depreciation
on investments......................... 10,947,591 -- 25,002,420
Net Realized and Unrealized Gain
on Investments 10,562,103 -- 23,927,693
Net Increase in Net Assets
Resulting from Operations $17,672,836 $26,040,525 $40,589,404
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31, 1995
STATEMENTS OF OPERATIONS
Princor Princor Princor Tax-Exempt Princor
High Yield Tax-Exempt Cash Management Utilities
INCOME FUNDS Fund, Inc. Bond Fund, Inc. Fund, Inc. Fund, Inc.
Net Investment Income
Income:
<S> <C> <C> <C> <C>
Dividends.............................. $ -- $ -- $ -- $ 3,503,554
Interest............................... 2,196,631 11,308,569 3,745,010 165,411
Total Income 2,196,631 11,308,569 3,745,010 3,668,965
Expenses:
Management and investment advisory
fees (Note 3)....................... 129,542 828,825 471,994 367,403
Distribution and shareholder servicing
fees--Class A (Note 3).............. 53,404 337,576 -- 149,537
Distribution and shareholder servicing
fees--Class B (Note 3).............. 2,110 14,113 152 13,113
Transfer and administrative services
(Note 3)............................ 86,915 193,662 214,963 211,232
Registration fees--Class A............. 20,202 31,626 84,026 29,832
Registration fees--Class B............. 456 442 94 466
Custodian fees ........................ 4,389 7,305 11,560 8,252
Auditing and legal fees ............... 6,842 8,676 7,947 6,674
Directors' fees ....................... 7,825 7,825 7,825 7,825
Other ................................. 3,508 22,911 10,132 7,357
Total Gross Expenses 315,193 1,452,961 808,693 801,691
Less: Management and investment
advisory fees waived................ -- -- (138,673) (152,483)
Total Net Expenses 315,193 1,452,961 670,020 649,208
Net Investment Income 1,881,438 9,855,608 3,074,990 3,019,757
Net Realized and Unrealized
Gain (Loss) on Investments
Net realized (loss) from
investment transactions................ (105,759) (1,677,841) -- (393,414)
Net increase in unrealized
appreciation/depreciation
on investments......................... 581,993 17,420,735 -- 11,053,532
Net Realized and Unrealized Gain
on Investments 476,234 15,742,894 -- 10,660,118
Net Increase in Net Assets
Resulting from Operations $2,357,672 $25,598,502 $3,074,990 $13,679,875
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended October 31
STATEMENTS OF CHANGES IN NET ASSETS
Princor Princor Cash Princor Government
Bond Management Securities Income
INCOME FUNDS Fund, Inc. Fund, Inc. Fund, Inc.
1995 1994 1995 1994 1995 1994
Operations
<S> <C> <C> <C> <C> <C> <C>
Net investment income..................... $ 7,110,733 $ 6,505,178 $ 26,040,525 $9,633,432 $ 16,661,711 $16,336,007
Net realized gain (loss) from
investment transactions................ (385,488) 104,695 -- -- (1,074,727) (752,360)
Net increase (decrease) in unrealized
appreciation/depreciation
on investments......................... 10,947,591 (12,203,552) -- -- 25,002,420 (32,499,913)
Net Increase (Decrease) in Net Assets
Resulting from Operations 17,672,836 (5,593,679) 26,040,525 9,633,432 40,589,404(16,916,266)
Net Equalization Charges ................. -- -- -- -- -- 146,563
Dividends and Distributions to Shareholders
From net investment income:
Class A................................ (6,978,094) (6,377,064) (26,038,303) (9,633,432) (16,398,545) (15,876,078)
Class B ............................... (57,053) -- (2,222) -- (94,011) --
(7,035,147) (6,377,064) (26,040,525) (9,633,432) (16,492,556) (15,876,078)
From net realized gain on investments:
Class A................................ (104,351) (96,038) -- -- -- (2,490,495)
Total Distributions (7,139,498) (6,473,102) (26,040,525) (9,633,432) (16,492,556)(18,366,573)
Capital Share Transactions (Note 5)
Shares sold:
Class A................................ 18,360,174 33,612,070 2,636,234,604 1,466,697,888 29,006,758 95,058,851
Class B................................ 2,713,516 -- 281,031 -- 4,730,337 --
Shares issued in reinvestment of dividends
and distributions:
Class A................................ 4,697,390 4,266,227 25,316,128 9,340,862 12,817,448 14,819,070
Class B................................ 46,382 -- 2,222 -- 78,109 --
Shares redeemed:
Class A ............................... (15,323,500) (22,025,515)(2,370,032,403) (1,428,431,391) (54,093,676) (62,021,691)
Class B ............................... (159,124) -- (75,516) -- (246,114) --
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 10,334,838 15,852,782 291,726,066 47,607,359 (7,707,138) 47,856,230
Total Increase (Decrease) 20,868,176 3,786,001 291,726,066 47,607,359 16,389,710 12,719,954
Net Assets
Beginning of year......................... 88,801,328 85,015,327 332,345,949 284,738,590 249,437,797 236,717,843
End of year (including undistributed net
investment income as set forth below).. $109,669,504 $88,801,328 $624,072,015 $332,345,949 $265,827,507 $249,437,797
Undistributed Net Investment Income....... $ 705,347 $ 629,761 $ -- $ -- $ 1,548,316 $ 1,379,159
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended October 31
STATEMENTS OF CHANGES IN NET ASSETS
Princor Princor Princor Tax-Exempt
High Yield Tax-Exempt Bond Cash Management
INCOME FUNDS Fund, Inc. Fund, Inc. Fund, Inc.
1995 1994 1995 1994 1995 1994
Operations
<S> <C> <C> <C> <C> <C>
Net investment income..................... $1,881,438 $ 1,551,128 $ 9,855,608$ 9,870,108 $ 3,074,990 $ 1,733,433
Net realized gain (loss) from
investment transactions................ (105,759) (323,328) (1,677,841) (649,814) -- --
Net increase (decrease) in unrealized
appreciation/depreciation
on investments......................... 581,993 (954,699) 17,420,735 (23,104,372) -- --
Net Increase (Decrease) in Net Assets
Resulting from Operations 2,357,672 273,101 25,598,502 (13,884,078) 3,074,990 1,733,433
Net Equalization Charges ................. -- -- -- -- -- --
Dividends and Distributions to
Shareholders
From net investment income:
Class A................................ (1,737,075) (1,576,325) (9,781,885) (9,577,733) ( 3,074,485) (1,733,433)
Class B ............................... (15,260) -- (67,120) -- (505) --
(1,752,335) (1,576,325) (9,849,005) (9,577,733) ( 3,074,990) (1,733,433)
From net realized gain on investments:
Class A................................ -- -- -- (2,327,570) -- --
Total Distributions (1,752,335) (1,576,325) (9,849,005) (11,905,303) ( 3,074,990) (1,733,433)
Capital Share Transactions (Note 5)
Shares sold:
Class A................................ 3,890,858 4,181,418 18,520,960 44,140,938 391,567,743 266,977,052
Class B................................ 625,699 -- 3,375,082 -- 26,000 --
Shares issued in reinvestment of dividends
and distributions:
Class A................................ 1,277,540 1,151,559 6,671,473 8,767,989 2,992,959 1,689,093
Class B................................ 6,460 -- 49,501 -- 505 --
Shares redeemed:
Class A ............................... (2,175,333) (3,380,935) (32,510,884) (33,174,660) (374,409,156)(268,153,427)
Class B ............................... (4,140) -- (78,915) -- -- --
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 3,621,084 1,952,042 (3,972,783) 19,734,267 20,178,051 512,718
Total Increase (Decrease) 4,226,421 648,818 11,776,714 (6,055,114) 20,178,051 512,718
Net Assets
Beginning of year......................... 19,802,392 19,153,574 171,424,709 177,479,823 79,735,633 79,222,915
End of year (including undistributed net
investment income as set forth below).. $24,028,813 $19,802,392 $183,201,423 $171,424,709 $ 99,913,684 $79,735,633
Undistributed Net Investment Income....... $ 1,548,316 $ 1,379,159 $ 266,395 $ 139,643 $ 1,048,291 $ 1,041,121
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended October 31
STATEMENTS OF CHANGES IN NET ASSETS
Princor
Utilities
INCOME FUNDS Fund, Inc.
1995 1994
Operations
<S> <C> <C> <C>
Net investment income..................... $ 3,019,757 $ 2,771,062
Net realized gain (loss) from
investment transactions................ (393,414) (2,848,439)
Net increase (decrease) in unrealized
appreciation/depreciation
on investments......................... 11,053,532 (8,960,974)
Net Increase (Decrease) in Net Assets
Resulting from Operations 13,679,875 (9,038,351)
Net Equalization Charges ................. -- --
Dividends and Distributions to
Shareholders
From net investment income:
Class A................................ (3,003,083) (2,648,682)
Class B ............................... (66,295) --
(3,069,378) (2,648,682)
From net realized gain on investments:
Class A................................ -- (96,182)
Total Distributions (3,069,378) (2,744,864)
Capital Share Transactions (Note 5)
Shares sold:
Class A................................ 9,551,504 32,570,988
Class B................................ 3,732,230 --
Shares issued in reinvestment of dividends
and distributions:
Class A................................ 2,502,797 2,223,596
Class B................................ 61,981 --
Shares redeemed:
Class A ............................... (13,188,883) (16,636,425)
Class B ............................... (191,972) --
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 2,467,657 18,158,159
Total Increase (Decrease) 13,078,154 6,374,944
Net Assets
Beginning of year......................... 56,747,216 50,372,272
End of year (including undistributed net
investment income as set forth below).. $69,825,370 $56,747,216
Undistributed Net Investment Income....... $ 246,709 $ 330,235
See accompanying notes.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
Princor Bond Fund, Inc.
Princor Cash Management Fund, Inc.
Princor Government Securities Income Fund, Inc.
Princor High Yield Fund, Inc.
Princor Tax-Exempt Bond Fund, Inc.
Princor Tax-Exempt Cash Management Fund, Inc.
Princor Utilities Fund, Inc.
Note 1 -- Significant Accounting Policies
Princor Bond Fund, Inc., Princor Cash Management Fund, Inc., Princor Government
Securities Income Fund, Inc., Princor High Yield Fund, Inc., Princor Tax-Exempt
Bond Fund, Inc., Princor Tax-Exempt Cash Management Fund, Inc. and Princor
Utilities Fund, Inc. (the "Income Funds") are registered under the Investment
Company Act of 1940, as amended, as open-end diversified management investment
companies and operate in the mutual fund industry.
On December 8, 1994, the initial purchase of Class B shares of Princor Cash
Management Fund, Inc. and Princor Tax-Exempt Cash Management Fund, Inc. was made
by Princor Management Corporation; the initial purchases of Class B shares of
the other funds was made on December 5, 1994 (see Note 3). All shares
outstanding prior to the initial Class B share purchases have been classified as
Class A shares. Effective December 9, 1994, the Income Funds also began offering
Class B shares to the public. Except for Princor Cash Management Fund, Inc. and
Princor Tax-Exempt Cash Management Fund, Inc., Class A shares generally are sold
with an initial sales charge based on declining rates which begin at 4.75% of
the offering price. Class B shares are sold without an initial sales charge, but
bear a higher ongoing distribution fee and are subject to a declining contingent
deferred sales charge ("CDSC") of up to 4.00% on certain redemptions redeemed
within six years of purchase. Class B shares automatically convert into Class A
shares, based on relative net asset value (without a sales charge) after seven
years. Both classes of shares for each fund represent interests in the same
portfolio of investments, and will vote together as a single class except where
otherwise required by law or as determined by the Funds' respective Boards of
Directors. In addition, the Board of Directors of each fund declare separate
dividends on each class of shares.
With respect to Princor Cash Management Fund, Inc. and Princor Tax-Exempt Cash
Management Fund, Inc., all income, expenses (other than class-specific
expenses), and realized and unrealized gains or losses are allocated daily to
each class of shares based upon the relative proportion of the number of traded
shares outstanding of each class. The other funds allocate such amounts based
upon the relative proportion of the value of shares outstanding of each class.
Class-specific expenses, which include distribution and shareholder servicing
fees and any other items specifically attributable to a particular class, are
charged directly to such class.
Princor Cash Management Fund, Inc. and Princor Tax-Exempt Cash Management Fund,
Inc. value their securities at amortized cost, which approximates market. Under
the amortized cost method, a security is valued by applying a constant yield to
maturity of the difference between the principal amount due at maturity and the
cost of the security to the fund.
The other funds value securities for which market quotations are readily
available at market value, which is determined using the last reported sale
price or, if no sales are reported, as is regularly the case for some securities
traded over-the-counter, the last reported bid price. When reliable market
quotations are not considered to be readily available, which may be the case,
for example, with respect to certain debt securities and preferred stocks, the
investments are valued by using market quotations, prices provided by market
makers or estimates of market values obtained from yield data and other factors
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by each fund's Board of Directors.
Securities with remaining maturities of 60 days or less are valued at amortized
cost, which approximates market.
The Income Funds record investment transactions generally one day after the
trade date, except for short-term investment transactions which are recorded
generally on the trade date. The identified cost basis has been used in
determining the net realized gain or loss from investment transactions and
unrealized appreciation or depreciation on investments. Dividends are taken into
income on an accrual basis as of the ex-dividend date and interest income is
recognized on an accrual basis.
With respect to Princor Cash Management Fund, Inc. and Princor Tax-Exempt Cash
Management Fund, Inc., all net investment income and any realized gains and
losses from investment transactions are declared as dividends daily to
shareholders of record as of that day. Dividends and distributions to
shareholders of the other funds are recorded on the ex-dividend date.
Dividends and distributions to shareholders from net investment income and net
realized gain from investments is determined in accordance with federal income
tax regulations, which may differ from generally accepted accounting principles.
To the extent these "book/tax" differences are permanent in nature (i.e. that
they result from other than timing of recognition - "temporary"), such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification.
Reclassifications made for the years ended October 31, 1995 and 1994 were not
material.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
On November 1, 1994, Princor Government Securities Income Fund, Inc.
discontinued the accounting practice of equalization, which it had been using
since fiscal year 1986. Equalization is a practice whereby a portion of the
proceeds from sales and cost of purchases of shares, equivalent on a per-share
basis to the amount of the undistributed net investment income on the date of
the transaction, is credited or charged to undistributed net investment income.
The balance of equalization included in undistributed net investment income at
the date of the change, which was immaterial, was transferred to additional
paid-in capital. Such reclassification had no effect on net assets, results of
operations or net asset value per share of the fund.
Note 2 -- Federal Income Taxes
No provision for federal income taxes is considered necessary because each fund
is qualified as a "regulated investment company" under the Internal Revenue Code
and intends to distribute each year substantially all of its net investment
income and realized capital gains to shareholders. The cost of investments for
federal income tax reporting purposes is approximately the same as that for
financial reporting purposes.
At October 31, 1995, Princor Bond Fund, Inc. had a net capital loss carryforward
of approximately $385,000 which expires in 2003. Princor Government Securities
Income Fund, Inc. had a net capital loss carryforward of approximately
$1,909,000 of which $1,075,000 expires in 2003 and $834,000 expires in 2002.
Princor High Yield Fund, Inc. had a net capital loss carryforward of
approximately $3,003,000 of which $106,000 expires in 2003, $323,000 expires in
2002, $409,000 expires in 2001, $561,000 expires in 2000, $784,000 expires in
1999 and $820,000 expires in 1998. Princor Tax-Exempt Bond Fund, Inc. had a net
capital loss carryforward of approximately $2,328,000 of which $1,678,000
expires in 2003 and $650,000 expires in 2002. Princor Utilities Fund, Inc. had a
net capital loss carryforward of approximately $3,242,000 of which $394,000
expires in 2003 and $2,848,000 expires in 2002. Note 3 -- Management Agreement
and Transactions With Affiliates
The Income Funds have agreed to pay investment advisory and management fees to
Princor Management Corporation (wholly owned by Princor Financial Services
Corporation, a subsidiary of Principal Mutual Life Insurance Company) (the
"Manager") computed at an annual percentage rate of each fund's average daily
net assets. With the exception of Princor High Yield Fund, Inc. and Princor
Utilities Fund, Inc., the annual rate used in this calculation is .50% of the
first $100 million of each fund's average daily net assets, .45% of the next
$100 million of each fund's average daily net assets, .40% of the next $100
million of each fund's average daily net assets, .35% of the next $100 million
of each fund's average daily net assets and .30% of each fund's average daily
net assets over $400 million. With respect to Princor High Yield Fund, Inc. and
Princor Utilities Fund, Inc., the annual rate is .60% of the first $100 million
of the fund's average daily net assets. The Income Funds also reimburse the
Manager for transfer and administrative services, including the cost of
accounting, data processing, supplies and other services rendered.
The Manager has agreed to reimburse the Income Funds annually for their total
expenses (excluding brokerage commissions, interest and taxes) in excess of
limits prescribed by any state in which the Income Funds' shares are offered for
sale (currently 2 1/2% of the first $30 million of each fund's average annual
net assets, 2% of the next $70 million of such assets and 1 1/2% of such assets
in excess thereof).
The Manager voluntarily waived a portion of its fee for Princor Bond Fund, Inc.
(1995 - $86,318; 1994 - $120,999) throughout the years ended October 31, 1995
and 1994. The waiver was in an amount that maintained total operating expenses
as a percentage of the fund's average net assets attributable to each class on
an annualized basis during such period at or below .95% and 1.70% of Class A and
Class B shares, respectively. The Manager intends to continue such voluntary
waiver and, if necessary, reimburse operating expenses otherwise payable by the
fund through February 29, 1996.
The Manager voluntarily waived a portion of its fee for Princor Cash Management
Fund, Inc. (1995 - $296,359; 1994 - $595,343) and Princor Tax-Exempt Cash
Management Fund, Inc. (1995 - $138,673; 1994 - $150,515) throughout the years
ended October 31, 1995 and 1994. The waivers, through February 28, 1995, were in
amounts that maintained total operating expenses for each fund as a percentage
of average net assets attributable to each class on an annualized basis during
such period at or below .70% and 1.70% of Class A and Class B shares,
respectively. During the remainder of the period ended October 31, 1995, the
Manager waived a portion of its fee in an amount that maintained total operating
expenses for each fund as a percentage of average net assets attributable to
each class on an annualized basis during such period at or below .75% and 1.75%
of Class A and Class B shares, respectively. The Manager intends to continue
such voluntary waivers and, if necessary, reimburse operating expenses otherwise
payable by Princor Cash Management Fund, Inc. and Princor Tax-Exempt Cash
Management Fund, Inc. through February 29, 1996.
The Manager voluntarily waived a portion of its fee for Princor Utilities Fund,
Inc. (1995 - $152,483; 1994 - $284,836) throughout the years ended October 31,
1995 and 1994. The waiver, through February 28, 1995, was in an amount that
maintained total operating expenses for the fund as a percentage of average net
assets attributable to each class on an annualized basis during such period at
or below 1.00% and 1.75% of Class A and Class B shares, respectively. During the
remainder of the year ended October 31, 1995, the Manager waived a portion of
its fee in an amount that maintained a total level of operating expenses as a
percentage of average net assets attributable to each class on an annualized
basis during such period at or below 1.10% and 1.85% of Class A and Class B
shares, respectively. The Manager intends to continue such voluntary waiver and,
if necessary, reimburse operating expenses otherwise payable by the fund through
February 29, 1996.
Princor Financial Services Corporation, as principal underwriter, receives
proceeds of any CDSC on certain Class B share redemptions within six years of
purchase. The charge is based on declining rates, which begin at 4.00% of the
lesser of the current market value or the cost of shares being redeemed. Princor
Financial Services Corporation also retains sales charges on sales of Class A
shares of the Income Funds. The aggregate amount of these charges retained, by
fund, for the period ended October 31, 1995 were as follows:
Class A Class B
Princor Bond Fund, Inc. 474,797 2,016
Princor Government Securities
Income Fund, Inc. 831,089 4,304
Princor High Yield Fund, Inc. 93,453 155
Princor Tax-Exempt Bond Fund, Inc. 584,221 --
Princor Utilities Fund, Inc. 283,344 5,189
No brokerage commissions were paid by the Income Funds to Princor Financial
Services Corporation during the periods. Brokerage commissions were paid to
another affiliate by Princor Utilities Fund, Inc. in the amount of $3,446 and
$6,005 for the years ended October 31, 1995 and 1994, respectively.
With the exception of Princor Cash Management Fund, Inc. and Princor Tax-Exempt
Cash Management Fund, Inc., the Income Funds bear distribution and shareholder
servicing fees with respect to Class A shares computed at an annual rate of up
to 0.25% of the average daily net assets attributable to Class A shares of each
fund. Effective December 1994, each of the Income Funds adopted a distribution
plan with respect to Class B shares that provides for distribution and
shareholder servicing fees computed at an annual rate of up to 1.00% of the
average daily net assets attributable to Class B shares of each fund.
Distribution and shareholder servicing fees are paid to Princor Financial
Services Corporation; a portion of the fees are subsequently remitted to retail
dealers. Pursuant to the distribution agreements, fees unused by the principal
underwriter at the end of the fiscal year are returned to the Income Funds.
At October 31, 1995, Principal Mutual Life Insurance Company, subsidiaries of
Principal Mutual Life Insurance Company, benefit plans sponsored on behalf of
Principal Mutual Life Insurance Company and several joint ventures (in each of
which a subsidiary of Principal Mutual Life Insurance Company is a participant)
owned shares of the Income Funds as follows:
Class A Class B
Princor Bond Fund, Inc. 178,257 104
Princor Cash Management Fund, Inc. 11,741,334 26,940
Princor Government Securities
Income Fund, Inc. 94,034 103
Princor High Yield Fund, Inc. 1,089,954 139
Princor Tax-Exempt Bond Fund, Inc. 92,516 98
Princor Tax-Exempt Cash
Management Fund, Inc. 1,000,053 26,496
Princor Utilities Fund, Inc. 285,238 113
Note 4 -- Investment Transactions
For the year ended October 31, 1995, the cost of investment securities purchased
and proceeds from investment securities sold (not including short-term
investments and U.S. government securities) by the Income Funds were as follows:
Purchases Sales
Princor Bond Fund, Inc. $15,194,745 $ 4,858,780
Princor High Yield Fund, Inc. 11,256,955 8,269,362
Princor Tax-Exempt Bond Fund, Inc. 29,748,742 35,382,420
Princor Utilities Fund, Inc. 11,403,387 7,593,175
At October 31, 1995, net unrealized appreciation of investments by the Income
Funds was composed of the following:
Net Unrealized
Gross Unrealized Appreciation
Appreciation (Depreciation) of Investments
Princor Bond Fund, Inc. $6,759,913 $ (447,355) $6,312,558
Princor Government Securities
Income Fund, Inc. 3,867,663 (2,938,988) 928,675
Princor High Yield Fund, Inc. 796,863 (793,402) 3,461
Princor Tax-Exempt Bond Fund, Inc. 7,213,471 (1,209,826) 6,003,645
Princor Utilities Fund, Inc. 6,246,267 (2,406,058) 3,840,209
At October 31, 1995, Princor High Yield Fund, Inc. and Princor Tax-Exempt Bond
Fund, Inc. held the following securities which may require registration under
the Securities Act of 1933, or an exemption therefrom, in order to effect a sale
in the ordinary course of business.
<TABLE>
<CAPTION>
Value at Value as a
Date of October 31, Percentage of
Fund Security Description Acquisition Cost 1995 Net Assets
<S> <C> <C> <C> <C> <C>
Princor High Yield Fund, Inc. Weirton Steel Corp. 6/5/95 $394,000 $368,000 1.53%
Senior Notes
Princor Tax-Exempt Bond Fund, Inc. Eddyville, Iowa, IDR Ref. Bonds, 1/11/95 859,910 980,000 .53%
Cargill Inc. Project
</TABLE>
The Income Funds' investments are with various issuers in various industries.
The Schedules of Investments contained herein summarize concentration of credit
risk by issuer and industry.
<TABLE>
<CAPTION>
Note 5 -- Capital Share Transactions
Transactions in Capital Stock by fund were as follows:
Princor Princor Cash Princor Government
Bond Fund, Inc. Management Fund, Inc. Securities Income Fund, Inc.
Year Ended October 31, 1995:
Shares sold:
<S> <C> <C> <C>
Class A ......................................... 1,706,844 2,636,234,604 2,679,878
Class B* ........................................ 247,333 281,031 431,102
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... 439,527 25,316,128 1,196,621
Class B* .......................................... 4,196 2,222 7,084
Shares redeemed:
Class A ......................................... (1,429,838) (2,370,032,403) (5,051,162)
Class B* ........................................ (14,158) (75,516) (21,972)
Net Increase (Decrease) 953,904 291,726,066 (758,449)
Year Ended October 31, 1994:
Shares sold:
Class A ......................................... 3,039,199 1,466,697,888 8,550,182
Shares issued in reinvestment of dividends and
distributions:
Class A ......................................... 393,042 9,340,862 1,351,251
Shares redeemed:
Class A ......................................... (2,021,840) (1,428,431,391) (5,718,185)
Net Increase 1,410,401 47,607,359 4,183,248
</TABLE>
<TABLE>
<CAPTION>
Princor Princor Princor Tax-Exempt Princor
High Yield Tax-Exempt Bond Cash Management Utilities
Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
Year Ended October 31, 1995:
Shares sold:
<S> <C> <C> <C> <C>
Class A ......................................... 489,469 1,625,100 391,567,743 985,916
Class B* ........................................ 78,379 293,841 26,000 374,706
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... 162,114 590,347 2,992,959 257,037
Class B* .......................................... 812 4,276 505 6,082
Shares redeemed:
Class A ......................................... (275,812) (2,897,205) (374,409,156) (1,355,492)
Class B* ........................................ (521) (6,673) -- (19,084)
Net Increase (Decrease) 454,441 (390,314) 20,178,051 249,165
Year Ended October 31, 1994:
Shares sold:
Class A ......................................... 514,435 3,702,350 266,977,052 3,178,133
Shares issued in reinvestment of dividends and
distributions:
Class A ......................................... 143,233 739,643 1,689,093 232,342
Shares redeemed:
Class A ......................................... (419,999) (2,814,941) (268,153,427) (1,675,304)
Net Increase 237,669 1,627,052 512,718 1,735,171
<FN>
* Period from December 5, 1994 (December 8, 1994 -- Princor Cash Management
Fund, Inc. and Princor Tax-Exempt Cash Management Fund, Inc.), date
operations commenced through October 31, 1995.
</FN>
</TABLE>
Note 6 -- Line of Credit
The Income Funds have an unsecured line of credit with a bank which allows each
fund to borrow up to $500,000. Borrowings are made solely to facilitate the
handling of unusual and/or unanticipated short-term cash requirements. Interest
is charged to each fund, based on its borrowings, at a rate equal to the bank's
Fed Funds Unsecured Rate plus 100 basis points. Additionally, a commitment fee
is charged at the annual rate of .25% on the unused portion of the line of
credit. At October 31, 1995, the Income Funds had no outstanding borrowings
under the line of credit.
<PAGE>
SCHEDULES OF INVESTMENTS
INCOME FUNDS
PRINCOR BOND FUND, INC.
Principal
Amount Value
Bonds (96.79%)
Air Transportation, Scheduled (1.54%)
Federal Express Corp. 1994 Pass
Through Cert., Series A310-A3;
8.40%; 3/23/10 $1,500,000 $ 1,685,988
Aircraft & Parts (1.03%)
Textron, Inc. Medium-Term
Notes, Series C;
9.80%; 1/10/00 500,000 562,625
9.55%; 3/19/01 500,000 569,730
1,132,355
Auto & Home Supply Stores (0.46%)
Pep Boys-Manny, Moe & Jack Notes;
7.00%; 6/1/05 500,000 502,381
Beverages (1.02%)
Joseph E. Seagram & Sons
Guaranteed Debentures;
8.38%; 2/15/07 1,000,000 1,113,179
Business Credit Institutions (1.56%)
Gatx Capital Corp. Medium-Term
Notes, Series B; 9.50%; 1/10/02 1,500,000 1,716,150
Cable & Other Pay TV Services (2.26%)
Tele-Communications, Inc. Notes;
7.25%; 8/1/05 2,000,000 1,977,530
Tele-Communications, Inc. Senior
Debentures; 7.88%; 8/1/13 500,000 497,284
2,474,814
Cash Grains (2.65%)
Aktiebolaget SKF Senior Notes;
7.63%; 7/15/03 2,500,000 2,601,952
Dekalb Corp. Notes;
10.00%; 4/15/98 300,000 301,125
2,903,077
Combination Utility Services (1.74%)
Pennsylvania Gas & Water Co.
First Mortgage Bonds;
8.38%; 12/1/02 500,000 528,126
Public Service Electric & Gas
Medium-Term Notes;
8.16%; 5/26/09 1,250,000 1,375,300
1,903,426
Construction & Related
Machinery (1.12%)
Caterpillar, Inc. Global Debentures;
9.38%; 8/15/11 1,000,000 1,232,089
Consumer Products (0.92%)
RJR Nabisco Capital Corp. Senior
Notes; 8.75%; 4/15/04 1,000,000 1,012,500
Copper Ores (2.55%)
Asarco, Inc. Debentures;
7.88%; 4/15/13 $1,500,000 $ 1,558,527
Asarco, Inc. Notes; 7.38%; 2/1/03 1,200,000 1,233,161
2,791,688
Crude Petroleum & Natural Gas (0.52%)
Occidental Petroleum Corp.
Medium-Term Notes;
9.73%; 6/15/01 500,000 572,175
Department Stores (3.13%)
Dillard Investment Co. Notes;
9.25%; 5/1/97 200,000 209,458
Harcourt General, Inc. Subordinated
Notes; 9.50%; 3/15/00 400,000 445,412
Sears Roebuck Co.
Medium-Term Notes;
9.05%; 2/6/12 500,000 585,540
9.12%; 2/13/12 1,000,000 1,177,810
Sears Roebuck Co. Notes;
8.55%; 8/1/96 1,000,000 1,019,256
3,437,476
Drug Stores & Proprietary Stores (1.76%)
Rite Aid Corp. Senior Debentures;
6.88%; 8/15/13 2,000,000 1,931,222
Eating & Drinking Places (1.18%)
Marriott International Notes;
6.75%; 12/15/03 1,300,000 1,293,357
Electric Services (4.09%)
Cleveland Electric Illuminating Co.
First Mortgage Medium-Term
Notes; 7.85%; 7/30/02 1,500,000 1,458,405
Ohio Edison Co. First Mortgage
Bonds; 8.25%; 4/1/02 2,000,000 2,120,048
Toledo Edison Co. Debentures;
8.70%; 9/1/02 1,000,000 909,499
4,487,952
Fabricated Rubber Products,
NEC (1.59%)
M. A. Hanna Co. Senior Notes;
9.38%; 9/15/03 1,500,000 1,744,348
Farm & Garden Machinery (1.50%)
Tenneco, Inc. Notes;
9.88%; 2/1/01 500,000 572,994
7.88%; 10/1/02 1,000,000 1,067,915
1,640,909
Gas Production & Distribution (1.50%)
Tennessee Gas Pipeline Co. Notes;
9.25%; 5/15/96 400,000 403,750
Transco Energy Co. Notes;
9.38%; 8/15/01 1,100,000 1,246,611
1,650,361
General Government, NEC (3.90%)
Ontario Hydro Debentures;
7.45%; 3/31/13 2,000,000 2,097,420
Province of Saskatchewan, Canada
Global Notes; 8.00%; 2/1/13 2,000,000 2,181,240
4,278,660
Gold & Silver Ores (1.14%)
Placer Dome, Inc. Notes;
7.13%;6/15/07 $1,250,000 $ 1,250,087
Grain Mill Products (0.94%)
Ralston Purina Co. Debenture;
7.75%; 10/1/15 1,000,000 1,031,920
Grocery Stores (1.04%)
Food Lion, Inc.
Medium-Term Notes;
8.67%; 8/28/06 1,000,000 1,136,480
Household Furniture (1.80%)
Masco Corp. Debentures;
7.13%; 8/15/13 2,000,000 1,975,728
Industrial Inorganic Chemicals (3.12%)
FMC Corp. Senior Notes;
6.38%; 9/1/03 750,000 733,297
Grace, (W.R.) & Co. Guaranteed
Notes; 8.00%; 8/15/04 2,500,000 2,693,419
3,426,716
Iron Ores (0.69%)
Cyprus Minerals Co. Notes;
10.13%; 4/1/02 650,000 762,129
Machinery, Equipment,
& Supplies (0.23%)
AAR Corp. Notes; 7.25%;10/15/03 250,000 247,151
Metalworking Machinery (1.19%)
Black & Decker Corp. Notes;
7.00%; 2/1/06 1,300,000 1,300,586
Millwork, Plywood & Structural
Members (0.65%)
Georgia-Pacific Corp. Debentures;
9.50%; 12/1/11 600,000 716,765
Miscellaneous Chemical
Products (1.41%)
Cabot Corp. Notes;
10.25%; 12/15/97 400,000 431,966
Ferro Corp. Senior Debentures;
7.63%; 5/1/13 1,100,000 1,116,811
1,548,777
Miscellaneous Equipment Rental
& Leasing (0.99%)
McDonnell Douglas Finance Corp.
Medium-Term Notes, Series 9;
9.94%; 6/11/98 1,000,000 1,088,980
Miscellaneous Investing (1.18%)
Weingarten Realty Investors
Medium-Term Notes;
7.29%;5/23/05 1,250,000 1,290,487
Miscellaneous Metal Ores (1.04%)
Cyprus Amax Minerals Notes;
7.38%;5/15/07 1,100,000 1,136,004
Motion Picture Production
& Services (0.39%)
Columbia Pictures Entertainment, Inc.
Senior Subordinated Notes;
9.88%; 2/1/98 $ 400,000 $ 431,242
Motor Vehicles & Equipment (2.11%)
Ford Motor Co. Debentures;
8.88%; 1/15/22 1,000,000 1,186,439
General Motors Corp. Global
Medium-Term Notes;
8.88%; 5/15/03 1,000,000 1,126,840
2,313,279
Newspapers (0.75%)
News America Holdings, Inc.
Guaranteed Senior Notes;
8.50%;2/15/05 750,000 822,565
Paper Mills (8.55%)
Boise Cascade Corp. Notes;
9.90%; 3/15/00 500,000 560,506
9.85%; 6/15/02 1,000,000 1,146,330
Bowater, Inc. Debentures;
9.50%; 10/15/12 1,000,000 1,210,729
9.38%; 12/15/21 1,500,000 1,834,570
Champion International Corp. Notes;
9.88%; 6/1/00 750,000 850,928
Chesapeake Corp. Notes;
9.88%; 5/1/03 1,000,000 1,182,301
7.20%; 3/15/05 600,000 613,880
James River Corp. Notes;
6.70%; 11/15/03 2,000,000 1,975,758
9,375,002
Paperboard Mills (1.52%)
Federal Paper Board Co., Inc.
Debentures; 8.88%; 7/1/12 1,500,000 1,664,116
Personal Credit Institutions (4.12%)
Coastal Corp. Senior Notes;
9.75%; 8/1/03 1,500,000 1,739,539
General Motors Acceptance Corp.
Global Notes; 8.50%; 1/1/03 2,000,000 2,210,606
Household Finance Corp. Senior
Subordinated Notes;
9.63%; 7/15/00 500,000 564,037
4,514,182
Petroleum Refining (8.46%)
Ashland Oil, Inc.
Medium-Term Notes;
7.71%; 5/11/07 500,000 531,705
7.72%; 7/15/13 1,000,000 1,039,030
7.73%; 7/15/13 750,000 780,007
Mapco, Inc. Medium-Term Notes;
8.48%; 8/5/13 1,000,000 1,071,500
Pennzoil Co. Debentures;
10.13%; 11/15/09 1,675,000 2,084,032
Sun Co., Inc. Debentures;
9.00%;11/1/24 2,000,000 2,362,376
Sun Co., Inc. Notes; 7.13%; 3/15/04 300,000 306,601
Ultramar Credit Corp. Guaranteed
Notes 8.63%; 7/1/02 1,000,000 1,103,583
9,278,834
Photographic Equipment
& Supplies (0.97%)
Xerox Corp. Notes; 9.63%; 9/1/97 $1,000,000 $ 1,063,109
Primary Nonferrous Metals (3.79%)
Amax, Inc. Notes; 9.88%; 6/13/01 900,000 1,007,909
Reynolds Metals Co.
Medium-Term Notes;
8.22%; 5/30/07 2,000,000 2,214,460
7.65%; 2/4/08 875,000 930,781
4,153,150
Pulp Mills (2.60%)
ITT Rayonier, Inc. Notes;
7.50%; 10/15/02 1,875,000 1,941,508
International Paper Co.
Medium-Term Notes;
9.70%; 8/15/00 800,000 905,712
2,847,220
Refrigeration & Service
Machinery (2.32%)
Westinghouse Electric Corp.
Debentures; 8.63%; 8/1/12 1,000,000 993,783
Westinghouse Electric Corp.
Global Notes; 8.88%; 6/1/01 1,500,000 1,548,652
2,542,435
Rental of Railroad Cars (0.39%)
General American Transportation
Corp. Medium-Term Notes;
10.65%; 11/14/97 400,000 432,271
Sanitary Services (1.69%)
Laidlaw, Inc. Notes;
7.70%; 8/15/02 1,000,000 1,052,908
Laidlaw, Inc. Senior Notes;
7.88%; 4/15/05 750,000 801,284
1,854,192
Telephone Communication (1.48%)
Sprint Corp. Notes; 8.13%; 7/15/02 1,500,000 1,626,639
Variety Stores (6.21%)
Dayton-Hudson Corp. Debentures;
9.25%; 8/15/11 1,000,000 1,198,944
Dayton-Hudson Corp.
Sinking Fund Debentures;
9.50%; 10/15/16 900,000 943,890
K Mart Corp. Global Notes;
8.13%; 12/1/06 1,000,000 951,944
K Mart Corp.
Medium-Term Notes;
7.55%; 7/27/04 1,000,000 947,220
Shopko Stores, Inc.
Senior Notes;
9.00%; 11/15/04 2,500,000 2,770,027
6,812,025
Total Bonds 106,146,178
Commercial Paper (1.74%)
Business Credit Institutions (1.00%)
General Electric Capital Corp.;
5.88%; 11/1/95 $ 595,000 $ 595,000
John Deere Capital Corp.;
5.75%; 11/7/95 500,000 499,521
1,094,521
Crude Petroleum & Natural Gas (0.38%)
Chevron Oil Finance Co.;
5.71%; 11/3/95 415,000 414,868
Personal Credit Institutions (0.36%)
Ford Motor Credit Co.;
5.76%; 11/1/95 400,000 400,000
Total Commercial Paper 1,909,389
Total Portfolio Investments (98.53%) 108,055,567
Cash, receivables and other assets, net of
liabilities (1.47%) 1,613,937
Total Net Assets (100.00%) $109,669,504
PRINCOR CASH MANAGEMENT FUND, INC.
Principal
Amount Value
Commercial Paper (95.10%)
Advertising (0.53%)
Omnicom Finance, Inc.;
LOC Swiss Bank Corp.;
5.75%; 11/27/95 $3,350,000 $ 3,336,088
Asset-Backed Securities (3.52%)
Retailer Funding Corp.;
5.75%; 11/14/95 2,800,000 2,794,186
5.75%; 11/17/95 3,000,000 2,992,333
5.75%; 11/21/95 2,350,000 2,342,493
5.75%; 11/27/95 1,000,000 995,847
5.75%; 12/1/95 4,475,000 4,453,557
5.73%; 12/5/95 5,000,000 4,972,942
5.73%; 12/8/95 3,450,000 3,429,683
21,981,041
Business Credit Institutions (17.61%)
American Express Credit Corp.;
5.75%; 11/2/95 2,500,000 2,499,601
5.55%; 11/6/95 3,900,000 3,896,994
5.64%; 11/17/95 3,660,000 3,650,826
5.64%; 12/19/95 2,300,000 2,282,704
5.63%; 12/28/95 2,350,000 2,329,052
5.63%; 12/29/95 2,500,000 2,477,324
5.68%; 2/6/96 4,300,000 4,234,191
5.65%; 3/7/96 2,800,000 2,744,191
5.50%; 4/1/96 5,000,000 4,883,889
5.58%; 5/28/96 1,725,000 1,669,119
CIT Group Holdings, Inc.;
5.72%; 12/6/95 $3,675,000 $ 3,654,563
5.73%; 12/12/95 3,475,000 3,452,323
5.65%; 2/8/96 2,500,000 2,461,156
5.65%; 2/13/96 5,825,000 5,729,923
5.65%; 2/14/96 4,000,000 3,934,083
5.56%; 2/16/96 4,000,000 3,933,898
5.65%; 2/29/96 3,850,000 3,777,492
General Electric Capital Corp.;
5.75%; 11/10/95 3,250,000 3,245,328
5.70%; 11/13/95 3,550,000 3,543,255
5.64%; 12/27/95 2,375,000 2,354,163
5.58%; 1/29/96 3,000,000 2,958,615
5.59%; 3/1/96 3,000,000 2,943,634
5.62%; 3/25/96 2,750,000 2,687,751
5.60%; 3/26/96 1,500,000 1,465,933
International Lease Finance Corp.;
5.65%; 11/9/95 4,000,000 3,994,978
5.68%; 11/14/95 3,850,000 3,842,103
5.48%; 1/26/96 700,000 690,836
5.66%; 2/7/96 3,900,000 3,839,909
John Deere Capital Corp.;
5.74%; 11/13/95 2,750,000 2,744,738
5.66%; 12/14/95 5,250,000 5,214,507
5.69%; 1/30/96 4,000,000 3,943,100
5.59%; 2/22/96 4,000,000 3,929,814
5.64%; 3/29/96 5,000,000 4,883,283
109,893,276
Computer & Office
Equipment (0.88%)
Pitney Bowes Credit Corp.;
5.66%; 11/28/95 4,000,000 3,983,020
5.62%; 12/12/95 1,500,000 1,490,399
5,473,419
Drug Stores & Proprietary
Stores (0.20%)
Melville Corp.; 5.73%; 11/27/95 1,225,000 1,219,931
Electric Services (4.74%)
AES Shady Point, Inc.; LOC
Bank of Tokyo Ltd.;
5.90%; 11/9/95 5,000,000 4,993,445
5.92%; 11/28/95 750,000 740,380
5.84%; 12/1/95 2,500,000 2,487,833
5.90%; 1/18/96 5,000,000 4,936,083
5.90%; 1/19/96 5,000,000 4,935,264
CommEd Fuel Co., Inc.;
LOC Credit Suisse;
5.74%; 11/17/95 1,775,000 1,770,472
5.65%; 12/7/95 3,275,000 3,256,496
Transmission Agency-Northern
California; LOC Industrial
Bank of Japan Ltd.;
5.80%; 11/17/95 5,000,000 4,987,111
Wisconsin Power & Light Co.;
5.72%; 12/13/95 1,500,000 1,489,990
29,597,074
Electronic Components &
Accessories (0.58%)
SCI Systems, Inc.;
LOC ABN-AMRO Bank NV;
5.80%; 11/10/95 3,600,000 3,594,780
Federal & Federally Sponsored
Credit (1.78%)
Federal National Mortgage
Association;
5.50%; 4/29/96 $5,550,000 $ 5,397,375
5.58%; 8/9/96 4,000,000 3,825,160
U.S. Government Treasury Bills;
5.35%; 8/22/96 2,000,000 1,912,319
11,134,854
Finance Services (4.87%)
Mitsubishi International Corp.;
5.68%; 11/6/95 1,400,000 1,398,896
5.70%; 11/7/95 1,200,000 1,198,860
5.59%; 11/10/95 2,550,000 2,546,436
5.75%; 11/14/95 2,000,000 1,995,847
5.74%; 11/15/95 3,000,000 2,993,303
5.70%; 1/10/96 4,000,000 3,955,667
5.77%; 1/24/96 1,900,000 1,874,420
5.63%; 1/31/96 1,700,000 1,675,807
5.76%; 1/31/96 3,325,000 3,276,588
5.70%; 2/9/96 6,000,000 5,905,000
5.68%; 2/23/96 2,000,000 1,964,027
5.55%; 3/15/96 1,650,000 1,615,659
30,400,510
Investment Offices (0.80%)
Morgan Stanley Group Inc.;
5.75%; 11/13/95 5,000,000 4,990,417
Jewelry, Silverware, &
Plated Ware (1.44%)
Jostens, Inc.
5.70%; 11/15/95 5,000,000 4,988,917
5.75%; 11/15/95 4,000,000 3,991,055
8,979,972
Life Insurance (4.71%)
American General Corp.;
5.65%; 12/7/95 4,275,000 4,250,846
5.72%; 12/12/95 2,025,000 2,011,808
5.68%; 12/13/95 4,000,000 3,973,493
Prudential Funding Corp.;
Prudential Insurance Co.
of America;
5.47%; 11/22/95 2,500,000 2,492,023
5.54%; 11/29/95 4,000,000 3,982,765
5.45%; 12/18/95 3,500,000 3,475,097
5.45%; 12/21/95 3,000,000 2,977,292
5.45%; 12/22/95 3,000,000 2,976,837
5.65%; 12/28/95 3,275,000 3,245,702
29,385,863
Miscellaneous Electrical Equipment
& Supplies (2.95%)
General Electric Co.
5.70%; 11/20/95 2,450,000 2,442,630
5.73%; 11/20/95 4,825,000 4,810,408
5.66%; 12/6/95 4,000,000 3,977,989
5.72%; 12/7/95 4,175,000 4,151,119
5.57%; 12/29/95 3,050,000 3,022,630
18,404,776
Miscellaneous Food & Kindred
Products (0.55%)
Cargill, Inc.; 5.57%; 1/26/96 3,500,000 3,453,429
Miscellaneous Investing (0.83%)
MLTC Funding, Inc.; LOC
Union Bank of Switzerland;
5.75%; 11/30/95 $5,200,000 $ 5,175,914
Motor Vehicles & Equipment (0.72%)
Paccar Financial Corp.;
5.68%; 11/2/95 4,500,000 4,499,290
Personal Credit Institutions (21.12%)
American General Finance Corp.;
5.70%; 11/9/95 4,600,000 4,594,173
5.65%; 12/4/95 4,250,000 4,227,989
5.68%; 12/11/95 5,000,000 4,968,444
Associates Corp. of
North America;
5.72%; 11/6/95 5,250,000 5,245,829
5.68%; 11/7/95 4,500,000 4,495,740
5.65%; 12/6/95 3,100,000 3,082,971
5.67%; 12/8/95 5,500,000 5,467,949
5.69%; 12/27/95 4,400,000 4,361,055
5.66%; 2/26/96 2,000,000 1,963,210
5.69%; 2/27/96 4,000,000 3,925,398
Beneficial Corp.;
5.65%; 11/20/95 5,000,000 4,985,090
5.63%; 11/27/95 4,175,000 4,158,024
5.65%; 12/15/95 3,850,000 3,823,414
5.70%; 1/29/96 1,800,000 1,774,635
Ford Motor Credit Co.;
5.60%; 11/13/95 2,800,000 2,794,773
5.60%; 11/15/95 4,000,000 3,991,289
5.70%; 12/15/95 2,950,000 2,929,448
5.69%; 1/12/96 2,300,000 2,273,826
5.67%; 2/1/96 3,675,000 3,621,749
5.66%; 2/12/96 2,250,000 2,213,564
5.67%; 2/20/96 5,000,000 4,912,588
General Motors
Acceptance Corp.;
5.59%; 11/3/95 3,500,000 3,498,913
5.70%; 11/3/95 2,300,000 2,299,272
5.59%; 11/7/95 2,950,000 2,947,252
5.59%; 11/8/95 2,000,000 1,997,826
5.57%; 11/10/95 3,000,000 2,995,823
5.47%; 12/6/95 3,225,000 3,207,849
5.54%; 12/14/95 3,575,000 3,551,343
5.64%; 12/20/95 5,000,000 4,961,617
5.71%; 2/12/96 3,400,000 3,344,454
5.69%; 2/13/96 1,800,000 1,770,412
Household Finance Corp.;
5.65%; 11/16/95 3,460,000 3,451,855
5.65%; 11/21/95 4,500,000 4,485,875
5.73%; 12/1/95 3,900,000 3,881,377
Norwest Financial, Inc.;
5.68%; 11/1/95 4,000,000 4,000,000
5.68%; 11/21/95 3,600,000 3,588,640
5.67%; 12/8/95 2,000,000 1,988,345
131,782,011
Real Estate Operators & Lessors (7.12%)
Maguire/Thomas Partners
Westlake/Southlake Partnership;
LOC Sumitomo Bank Ltd.
5.85%; 11/1/95 $5,000,000 $ 5,000,000
5.88%; 11/1/95 2,000,000 2,000,000
5.92%; 11/3/95 7,000,000 6,997,698
5.85%; 12/4/95 5,500,000 5,470,506
5.85%; 12/5/95 5,000,000 4,972,375
5.88%; 12/5/95 1,175,000 1,168,480
5.75%; 12/19/95 5,000,000 4,961,667
Towson Town Center, Inc.;
LOC Mitsubishi Bank Ltd.
5.77%; 11/17/95 4,000,000 3,989,742
5.82%; 11/20/95 1,000,000 996,928
5.85%; 11/22/95 1,175,000 1,170,990
5.85%; 12/5/95 7,725,000 7,682,320
44,410,706
Security Brokers & Dealers (14.58%)
Bear Stearns Cos., Inc.;
5.71%; 11/15/95 4,000,000 3,991,118
5.72%; 11/16/95 4,050,000 4,040,348
5.71%; 12/1/95 3,875,000 3,856,561
5.71%; 12/13/95 4,400,000 4,370,689
5.63%; 12/15/95 4,675,000 4,642,831
5.72%; 1/11/96 5,000,000 4,943,595
5.70%; 1/12/96 5,000,000 4,943,000
Goldman Sachs Group L.P.;
5.68%; 11/16/95 5,000,000 4,988,167
5.73%; 11/21/95 5,000,000 4,984,083
5.60%; 2/14/96 2,925,000 2,877,225
5.64%; 2/23/96 1,950,000 1,915,173
5.52%; 3/14/96 4,000,000 3,917,813
5.63%; 4/9/96 5,000,000 4,874,889
5.63%; 4/11/96 5,000,000 4,873,325
5.60%; 4/19/96 2,675,000 2,604,261
Merrill Lynch & Co., Inc.;
5.60%; 11/8/95 3,500,000 3,496,189
5.62%; 11/14/95 4,000,000 3,991,882
5.72%; 11/22/95 1,325,000 1,320,579
5.73%; 11/29/95 3,000,000 2,986,630
5.67%; 12/5/95 4,000,000 3,978,580
5.70%; 12/7/95 4,800,000 4,772,640
5.70%; 12/8/95 3,250,000 3,230,960
5.67%; 2/28/96 3,100,000 3,041,898
5.67%; 2/29/96 2,400,000 2,354,640
90,997,076
Subdividers & Developers (0.98%)
Hartz 667 Commercial Paper Corp.;
LOC Mitsubishi Bank Ltd.;
5.85%; 11/6/95 2,150,000 2,148,253
5.85%; 11/9/95 4,000,000 3,994,800
6,143,053
Telephone Communication (0.44%)
Ameritech Corp.;
5.60%; 11/9/95 1,500,000 1,498,133
5.75%; 11/9/95 1,250,000 1,248,403
2,746,536
Tires & Inner Tubes (4.15%)
Bridgestone/Firestone, Inc.;
LOC Sumitomo Bank Ltd.;
5.92%; 11/3/95 2,525,000 2,524,169
5.82%; 11/22/95 2,775,000 2,765,579
5.77%; 11/29/95 $2,650,000 $ 2,638,107
5.77%; 12/1/95 3,000,000 2,985,575
5.82%; 12/27/95 3,000,000 2,972,840
6.07%; 1/18/96 2,000,000 1,973,697
Bridgestone/Firestone, Inc.;
LOC DAI-ICHI
Kangyo Bank Ltd.;
5.85%; 11/13/95 1,300,000 1,297,465
5.85%; 11/28/95 2,800,000 2,787,715
5.81%; 12/4/95 4,000,000 3,978,697
5.82%; 12/18/95 2,000,000 1,984,803
25,908,647
Bank Notes (3.77%)
Commercial Banks (3.77%)
Lasalle National Bank;
5.60%; 11/8/95 3,000,000 3,000,000
5.71%; 11/28/95 3,000,000 3,000,000
5.75%; 11/30/95 4,000,000 4,000,000
7.59%; 12/28/95 1,000,000 1,000,000
5.81%; 6/25/96 3,000,000 3,000,000
5.75%; 7/8/96 3,000,000 3,000,000
5.77%; 7/25/96 3,000,000 3,000,000
5.75%; 8/26/96 1,500,000 1,500,000
5.72%; 8/30/96 2,000,000 2,000,000
23,500,000
Total Portfolio Investments (98.87%) 617,008,663
Cash, receivables and other assets, net of
liabilities (1.13%) 7,063,352
Total Net Assets (100.00%) $624,072,015
PRINCOR GOVERNMENT SECURITIES INCOME
FUND, INC.
Description of Issue Principal
Type Rate Maturity Amount Value
Government National Mortgage Association (GNMA)
Certificates (99.17%)
GNMA I 6.00% 10/15/23-3/15/24 $20,503,962 $ 19,463,797
GNMA I 6.50 9/15/23-10/15/25 46,444,296 45,191,229
GNMA I 7.00 10/15/22-12/15/23 66,797,021 66,384,215
GNMA I 7.25 9/15/25 3,605,707 3,610,467
GNMA I 7.50 4/15/17-8/15/24 61,430,532 62,331,042
GNMA I 8.00 8/15/16-8/15/25 39,817,432 41,155,361
GNMA I 8.50 1/15/17-1/15/25 16,686,482 17,435,236
GNMA I 9.00 11/15/22 1,765,170 1,857,735
GNMA II M 6.00 1/20/24-9/20/25 3,053,674 2,868,224
GNMA II M 6.50 9/20/25 999,132 964,682
GNMA GPM 9.00 3/15/09-10/15/09 2,239,566 2,354,344
Total GNMA Certificates 263,616,332
Federal Agency Short-Term Obligations (0.33%)
Federal Home Loan Mortgage Corporation;
5.82%; 11/1/95 $ 885,000 $ 885,000
Total Portfolio Investments (99.50%) 264,501,332
Cash, receivables and other assets, net of
liabilities (0.50%) 1,326,175
Total Net Assets (100.00%) $265,827,507
PRINCOR HIGH YIELD FUND, INC.
Bonds (92.79%)
Principal
Amount Value
Agricultural Chemicals (3.02%)
IMC Fertilizer Group, Inc. Senior
Debentures; 9.45%; 12/15/11 $700,000 $ 726,250
Aircraft & Parts (2.55%)
Rohr Industries, Inc. Subordinated
Debentures; 9.25%; 3/1/17 700,000 612,500
Blast Furnace & Basic Steel
Products (2.98%)
Ivaco Senior Notes;
11.50%; 9/15/05 350,000 346,938
Weirton Steel Corp. Senior Notes;
10.75%; 6/1/05 400,000(a) 368,000
714,938
Broadwoven Fabric Mills, Cotton (2.87%)
J.P. Stevens & Co., Inc. Sinking
Fund Debentures; 9.00%; 3/1/17 700,000 689,500
Cable & Other Pay TV Services (3.06%)
Jones Intercable, Inc. Senior Notes;
9.63%; 3/15/02 700,000 735,875
Cogeneration - Small Power
Producer (1.50%)
California Energy Co., Inc. Limited
Resource Senior Secured Notes;
9.88%; 6/30/03 350,000 360,937
Communications Equipment (2.61%)
Rogers Cantel Mobile, Inc. Senior
Secured Guaranteed Notes;
10.75%; 11/1/01 600,000 627,000
Computer & Data Processing
Services (3.14%)
Tenet Heathcare Corp. Senior
Subordinated Notes;
10.13%; 3/1/05 700,000 754,250
Computer & Office Equipment (3.22%)
Dell Computer Corp. Senior Notes;
11.00%; 8/15/00 $700,000 $ 773,500
Consumer Products (2.50%)
RJR Nabisco, Inc. Senior Notes;
8.75%; 8/15/05 600,000 600,000
Electric Services (2.53%)
Tucson Electric Power Co. First
Mortgage Bonds;
8.50%; 11/1/99 600,000 607,844
Engines & Turbines (2.77%)
Outboard Marine Debentures;
9.13%; 4/15/17 700,000 665,000
Ferroalloy Ores, Except
Vanadium (2.10%)
Geneva Steel Co. Senior Notes;
9.50%; 1/15/04 700,000 505,750
Forest Products (2.91%)
Doman Industries Ltd.
Senior Notes; 8.75%; 3/15/04 700,000 697,508
Fuel Dealers (2.67%)
Petroleum Heat & Power Co., Inc.
Subordinated Notes;
10.13%; 4/1/03 700,000 642,250
General Government, NEC (2.12%)
Republic of Argentina
Global Bonds; 8.38%; 12/20/03 700,000 509,250
Groceries & Related Products (5.95%)
Fleming Cos., Inc. Senior Notes;
10.63%; 12/15/01 700,000 736,750
Rykoff-Sexton, Inc. Senior
Subordinated Notes;
8.88%; 11/1/03 700,000 693,000
1,429,750
Grocery Stores (7.99%)
Dominick's Finer Foods, Inc.
Senior Subordinated Notes;
10.88%; 5/1/05 700,000 736,750
Ralph's Grocery Co. Senior
Subordinated Notes;
11.00%; 6/15/05 700,000 679,000
Stater Brothers Holdings, Inc.
Senior Notes; 11.00%; 3/01/01 500,000 502,500
1,918,250
Hotels & Motels (5.72%)
Bally's Grand, Inc. First Mortgage
Notes; 10.38%; 12/15/03 $700,000 $ 700,000
John Q. Hammons Hotels, L.P. &
Finance Corp. First Mortgage
Notes; 8.88%; 2/15/04 700,000 675,500
1,375,500
Knitting Mills (3.00%)
Tultex Corp. Senior Notes;
10.63%; 3/15/05 700,000 721,000
Miscellaneous Amusement, Recreation
Service (1.42%)
Rio Hotel & Casino, Inc. Senior
Subordinated Notes;
10.63%; 7/15/05 350,000 341,250
Miscellaneous Converted Paper
Products (1.22%)
Drypers Corp. Senior Notes;
12.50%; 11/1/02 700,000 294,000
Miscellaneous Plastics Products,
NEC (4.13%)
Congoleum Corp. Senior Notes;
9.00%; 2/1/01 700,000 686,000
Plastic Containers, Inc.
Senior Secured Notes;
10.75%; 4/1/01 300,000 307,500
993,500
Motor Vehicles & Equipment (2.86%)
Lear Seating Corp. Subordinated
Notes; 8.25%; 2/1/02 700,000 687,750
Petroleum Refining (3.04%)
Crown Central Petroleum Corp.
Senior Notes; 10.88%; 2/1/05 700,000 729,750
Pulp Mills (2.84%)
Magnetek, Inc. Senior Subordinated
Debentures; 10.75%; 11/15/98 650,000 682,500
Radio, Television, & Computer
Stores (2.89%)
CompUSA, Inc. Senior Subordinated
Notes; 9.50%; 6/15/00 700,000 695,625
Soap, Cleaners, & Toilet Goods (3.09%)
Coty, Inc. Senior Subordinated
Notes; 10.25%; 5/1/05 700,000 742,000
Telephone Communication (6.09%)
Paging Network, Inc.
Senior Debentures;
8.88%; 2/1/06 700,000 700,000
Rogers Cablesystems Ltd. Senior
Secured Second Priority Notes;
9.63%; 8/1/02 750,000 763,125
1,463,125
Total Bonds 22,296,352
Commercial Paper (4.39%)
Business Credit Institutions (2.48%)
General Electric Capital Corp.;
5.88%; 11/1/95 $595,000 $ 595,000
Crude Petroleum & Natural Gas (1.91%)
Chevron Oil Finance Corp.;
5.71%; 11/2/95 460,000 459,927
Total Commercial Paper 1,054,927
Total Portfolio Investments (97.18%) 23,351,279
Cash, receivables and other assets, net of
liabilities (2.82%) 677,534
Total Net Assets (100.00%) $24,028,813
(a) Restricted security - See Note 4 to the financial statements.
PRINCOR TAX-EXEMPT BOND FUND, INC.
Principal
Amount Value
Long-Term Tax-Exempt Bonds (96.95%)
Alabama (2.73%)
Courtland, Alabama IDB IDR Series A
Bonds for Champion International;
7.20%; 12/1/13 $3,815,000 $ 4,153,581
Courtland, Alabama IDB Solid Waste
Disposal Rev. Bonds for Champion
International Corp. Project;
7.00%; 6/1/22 800,000 841,000
4,994,581
Alaska (1.61%)
Valdez, Alaska Terminal Rev. Ref. Bonds,
BP Pipelines, Inc. Project, Series C;
5.65%; 12/1/28 3,100,000 2,945,000
Arizona (2.67%)
Navajo County Arizona Pollution Control
Corp. Rev. Ref. Bonds, Arizona Public
Service Co., Series 1993A;
5.88%; 8/15/28 5,100,000 4,896,000
Arkansas (2.67%)
City of Blytheville, Arkansas Solid Waste
Recycling & Sewer Treatment Rev.
Bonds, Series 1992, Nucor Corp.
Project; 6.90%; 12/1/21 4,610,000 4,892,363
California (1.91%)
ABAG Finance Authority for Nonprofit
Corp., Cert.of Participation,
Stanford University Hospital;
5.00%; 11/1/04 750,000 728,438
5.50%; 11/1/13 1,250,000 1,198,437
5.25%; 11/1/20 1,750,000 1,570,625
3,497,500
Colorado (2.83%)
City & County of Denver, Colorado, Airport
System Rev. Bonds, Series 1991D;
7.75%; 11/15/13 $3,185,000 $ 3,754,319
Colorado Health Fac. Authority Rev. Bonds
for Sisters of Charity Healthcare
Systems, Series 1994; 5.25%; 5/15/14 1,500,000 1,428,750
5,183,069
Georgia (3.27%)
Coweta County, Georgia Dev. Authority
Pollution Control Rev. Bonds,
Georgia Power Co., Yates Project;
6.00%; 3/1/18 2,500,000 2,509,375
Fulco, Georgia, Hospital Authority Rev.
Anticipation Cert. for St. Joseph's
Hospital of Atlanta, Inc.; 5.50%; 10/1/14 2,000,000 1,857,500
Municipal Electric Authority of Georgia
Power Rev. Bonds, Series R;
7.30%; 1/1/09 1,505,000 1,623,519
5,990,394
Illinois (16.77%)
Chicago, Illinois O'Hare International
Airport Special Fac. Rev. Bonds for
American Airlines, Inc. Project-A;
7.88%; 11/1/25 6,010,000 6,453,238
City of Chicago, Illinois Adj. Rate Gas
Supply Rev. Bonds, Series 1985A,
Peoples Gas Light & Coke Project;
6.88%; 3/1/15 3,800,000 4,123,000
Illinois Dev. Financial Authority Pollution
Control Rev. Bonds for Illinois
Power Co.; 7.63%; 12/1/16 2,050,000 2,178,125
Illinois Health Fac. Authority for Sarah Bush
Lincoln Health Center Area E-7 Hospital
Association Bonds, Series 1987;
7.20%; 4/1/01 150,000 157,312
7.38%; 4/1/17 850,000 881,875
Illinois Health Fac. Authority Ref. Rev.
Bonds for OSF Healthcare System;
6.00%; 11/15/10 500,000 500,625
6.00%; 11/15/13 500,000 492,500
6.00%; 11/15/23 735,000 712,950
Illinois Health Fac. Authority Ref. Rev.
Bonds for OSF Healthcare System,
Series 1993; 5.75%; 11/15/07 1,600,000 1,608,000
Illinois Health Fac. Authority Rev. Bonds
for Sarah Bush Lincoln Health
Center, Series 1992;
7.25%; 5/15/12 2,950,000 3,079,062
7.25%; 5/15/22 1,515,000 1,569,919
Illinois Health Fac. Authority Rev. Bonds
for South Suburban Hospital,
Series 1992;
7.00%; 2/15/09 500,000 525,625
7.00%; 2/15/18 1,250,000 1,312,500
Illinois Health Fac. Authority Rev. Bonds,
Northwestern Memorial Hospital,
Series 1994A;
5.60%; 8/15/06 500,000 509,375
5.75%; 8/15/08 615,000 624,225
5.80%; 8/15/09 840,000 846,300
6.10%; 8/15/14 1,000,000 1,017,500
Illinois Health Fac. Authority Rev. Ref.
Bonds for Advocate Healthcare,
Series A; 6.75%; 4/15/12 $2,000,000 $ 2,077,500
Regional Transportation Authority,
Illinois General Obligation Bonds,
Series 1994A; 6.25%; 6/1/15 2,000,000 2,057,500
30,727,131
Indiana (6.51%)
City of Mount Vernon, Indiana, Pollution
Control Rev. Bonds, for Southern
Indiana Gas & Electric Co. Project,;
7.25%; 3/1/14 700,000 770,000
City of Petersburg, Indiana, Pollution
Control Rev. Bonds, for Indianapolis
Power & Light Co. Project,
Series 1993A; 6.10%; 1/1/16 4,000,000 4,085,000
Indiana Health Fac. Financing Authority
Hospital Rev. Ref. Bonds, Welborn
Memorial Baptist Hospital, Series 1993;
5.63%; 7/1/23 1,860,000 1,708,875
Lawrenceburg, Indiana Pollution Control
Rev. Ref. Bonds, Indiana Michigan
Power Co. Project,
Series D; 7.00%; 4/1/15 1,000,000 1,061,250
Series E; 5.90%; 11/1/19 3,220,000 3,099,250
Warrick County, Indiana Environmental
Improvement Rev. Bonds, Southern
Indiana Gas & Electric, Series 1993B;
6.00%; 5/1/23 1,190,000 1,203,388
11,927,763
Iowa (4.86%)
Chillicothe, Iowa Pollution Control Rev.
Bonds for Iowa Southern Utilities Co.,
Series 1977; 5.95%; 2/1/07 500,000 500,500
City of Muscatine, Iowa, Electric Rev.
Ref. Bonds, Series 1986;
6.00%; 1/1/06 160,000 160,126
5.00%; 1/1/07 1,665,000 1,581,750
Eddyville, Iowa, IDR Ref. Bonds,
Cargill, Inc. Project; 5.63%; 12/1/13 1,000,000(a) 980,000
Iowa Finance Authority Hospital Fac.
Ref. Rev. Bonds for Jennie
Edmundson Memorial Hospital;
7.40%; 11/1/06 550,000 590,563
7.65%; 11/1/16 4,900,000 5,089,875
8,902,814
Kentucky (1.01%)
City of Ashland, Kentucky Sewage and
Solid Waste Rev. Bonds for Ashland,
Inc. Project, Series 1995; 7.13%; 2/1/22 750,000 795,938
City of Ashland, Kentucky, Solid Waste
Rev. Bonds for Ashland Oil, Inc.
Project, Series 1991; 7.20%; 10/1/20 1,000,000 1,058,750
1,854,688
Louisiana (1.14%)
St. Charles Parish, Louisiana Pollution
Control Rev. Bonds for Louisiana
Power & Light Co. Project;
7.50%; 6/1/21 $1,950,000 $ 2,081,625
Maine (2.41%)
Skowhegan, Maine, Pollution Control
Rev. Ref. Bonds for Scott Paper
Co. Project, Series 1993;
5.90%; 11/1/13 4,450,000 4,416,625
Michigan (1.31%)
Michigan State Hospital Financing
Authority Hospital Rev. Bonds for
Detroit Medical Center, Series 1993B;
5.75%; 8/15/13 600,000 578,250
5.50%; 8/15/23 2,000,000 1,820,000
2,398,250
Minnesota (1.61%)
City of Bass Brook, Minnesota, Pollution
Control Rev. Ref. Bonds for Minnesota
Power & Light Project; 6.00%; 7/1/22 3,000,000 2,947,500
Missouri (2.26%)
Missouri State Environmental
Improvement & Energy Authority
Rev. Bonds, Union Electric Co.,
Series 1993; 5.45%; 10/1/28 2,050,000 1,914,187
Missouri State Health & Educational
Fac. Authority Health Fac. Rev., BJC
Health System, Series 1994A;
6.75%; 5/15/12 2,000,000 2,220,000
4,134,187
Montana (1.09%)
Forsyth, Montana, Pollution Control Rev.
Ref. Bonds, Montana Power Co.,
Colstrip Project, Series 1993A;
6.13%; 5/1/23 2,000,000 2,005,000
Nebraska (1.98%)
Nebraska Public Power Dist. Power
Supply System Rev. Bonds;
5.30%; 1/1/02 1,000,000 1,033,750
5.40%; 1/1/03 1,500,000 1,558,125
5.50%; 1/1/04 1,000,000 1,043,750
3,635,625
Nevada (2.08%)
Clark County, Nevada, IDR Ref. Bonds,
Nevada Power Co. Project,
Series 1992C; 7.20%; 10/1/22 3,600,000 3,807,000
New Mexico (1.14%)
City of Lordsburg, New Mexico,
Pollution Control Rev. Bonds
for Phelps Dodge Corp. Project;
6.50%; 4/1/13 2,000,000 2,090,000
North Carolina (3.85%)
Martin County, North Carolina Industrial
Fac. & Pollution Control Finance
Authority Solid Waste Rev. Bonds,
Weyerhaeuser; 6.80%; 5/1/24 3,750,000 3,937,500
North Carolina Medical Care Hospital
Rev. Bonds for Rex Hospital Project;
6.13%; 6/1/10 1,700,000 1,734,000
North Carolina Municipal Power Agency
Catawba Electric Rev. Bonds;
6.00%; 1/1/15 $1,400,000 $ 1,373,750
7,045,250
North Dakota (1.14%)
Mercer County, North Dakota, Pollution
Control Rev. Bonds, Ottertail Power
Co. Project, Series 1991; 6.90%; 2/1/19 1,950,000 2,096,250
Ohio (4.97%)
Cuyahoga County, Ohio, Hospital Rev.
Bonds for Meridia Health Systems,
Series 1991;
7.25%; 8/15/19 1,445,000 1,551,569
7.00%; 8/15/23 250,000 266,250
Lorain County, Ohio Hospital Ref. Bonds,
Humility Mary Health Care, Series A;
5.90%; 12/15/08 2,270,000 2,349,450
Ohio Air Quality Dev. Rev. Bonds,
Columbus Southern Power Co. Project,
Series 1985B; 6.25%; 12/1/20 4,900,000 4,930,625
9,097,894
Oklahoma (1.38%)
Midwest City, Oklahoma Memorial
Hospital Authority Rev. Ref. Bonds;
7.50%; 7/1/14 200,000 206,250
Tulsa Industrial Authority Rev. Bonds,
St. John Medical Center Project,
Series 1994;
6.25%; 2/15/14 1,280,000 1,308,800
6.25%; 2/15/17 1,000,000 1,018,750
2,533,800
South Carolina (1.05%)
York County, South Carolina Exempt Fac.
Industrial Rev. Bonds for Hoechst
Celanese Project, Series 1994;
5.70%; 1/1/24 2,000,000 1,922,500
South Dakota (0.58%)
Pennington County, South Dakota
Pollution Control Rev. Ref. Bonds
for Black Hills Power & Light Co.
Project; 6.70%; 6/1/10 1,000,000 1,071,250
Texas (5.39%)
Brazos River Authority, Texas, Pollution
Control Rev. Bonds for Houston
Lighting & Power;
8.25%; 5/1/15 820,000 894,825
7.75%; 10/1/15 855,000 930,881
8.25%; 5/1/19 500,000 545,625
Guadalupe-Blanco Riv Authority,
Texas, Industrial Dev. Corp.
Pollution Control Rev. E I Du Pont
1982 Series A; 6.35%;7/1/22 2,500,000 2,603,125
Matagorda County, Texas, Navigational
District No. 1 Pollution Control Rev.
Bonds for Central Power & Light Co.;
7.50%; 12/15/14 2,585,000 2,846,731
6.00%; 7/1/28 1,000,000 1,003,750
Tarrant County, Texas, Health Fac. Dev.
Corp. Harris Methodist Health System
Rev. Bonds; 5.90%; 9/1/06 1,000,000 1,047,500
9,872,437
Utah (0.78%)
Intermountain Power Agency, Utah
Power Supply, Rev. Ref. Bonds,
Series 1993A; 5.50%; 7/1/20 $1,500,000 $ 1,432,500
Virginia (3.81%)
Arlington County, Virginia, IDA
Hospital Fac. Rev. Ref. Bonds,
Arlington Hospital, Series 1993;
5.00%; 9/1/21 2,715,000 2,358,656
Chesapeake, Virginia Industrial Dev.
Authority Rev. Ref. Bond for Cargill,
Inc.Project .; 5.88%; 3/1/13 1,410,000 1,411,763
Penninsula Ports Authority of Virgina,
Dominion Terminal Associates
Project - The Pittson Co.;7.38;6/1/20 3,000,000 3,213,750
6,984,169
Washington (4.51%)
City of Seattle, Washington Municipal
Light and Power Rev. Bonds;
1993; 5.10%; 11/1/05 1,950,000 1,984,125
1994; 6.63%; 7/1/16 1,000,000 1,075,000
Pilchuck Dev. Public Corp., State of
Washington, Special Fac. Airport
Rev. Bonds, Series 1993, Tramco, Inc.
Project for BF Goodrich;
6.00%; 8/1/23 3,155,000 3,009,081
Washington Health Care Fac. Authority
Rev. Bond; Series 1989 Sisters of
Providence; 7.88%;10/1/10 2,000,000 2,187,500
8,255,706
West Virginia (6.52%)
Marshall County, West Virginia,
Pollution Control Rev. Bonds
for Ohio Power Co. Project;
Series C; 6.85%; 6/1/22 1,200,000 1,279,500
Series D; 5.90%; 4/1/22 4,500,000 4,567,500
Pleasant County, West Virgina
Pollution Control Rev. Bonds
for Potomac Edison Co.;
6.15%; 5/1/15 2,000,000 2,032,500
Putnam County, West Virginia,
Pollution Control Rev. Bonds for
Appalachian Power Co. Project,
Series C; 6.60%; 7/1/19 3,875,000 4,059,062
11,938,562
Wisconsin (1.11%)
Wisconsin Health & Educational Fac.
Authority Rev. Bonds; Series 1995;
Franciscan Skemp Medical Center, Inc.;
5.88%;11/15/10 1,000,000 1,017,500
6.13%;11/15/15 1,000,000 1,016,250
2,033,750
Total Portfolio Investments (96.95%) 177,611,183
Cash, receivables and other assets, net of
liabilities (3.05%) 5,590,240
Total Net Assets (100.00%) $183,201,423
(a) Restricted security - See Note 4 to the financial statements.
PRINCOR TAX-EXEMPT CASH MANAGEMENT
FUND, INC.
Principal
Amount Value
Short-Term Tax-Exempt Bonds (101.21%)
Alabama (1.30%)
City of Stevenson, Alabama, IDB,
Improvement Rev. Bonds, The Mead
Corp., Series 1986; LOC Credit Suisse;
3.90%; 11/1/95*; 11/1/16 $1,300,000 $ 1,300,000
Alaska (5.22%)
Alaska Industrial Dev. & Export Authority,
IDB Current Ref. Bonds, Series
1988A; LOC Security Pacific
Bank Washington;
Lot #2; 4.20%; 11/1/95*; 7/1/97 80,000 80,000
Lot #3; 4.20%; 11/1/95*; 7/1/97 505,000 505,000
Lot #5; 4.20%; 11/1/95*; 7/1/98 1,495,000 1,495,000
Lot #6; 4.20%; 11/1/95*; 7/1/01 1,485,000 1,485,000
Lot #7; 4.20%; 11/1/95*; 7/1/01 170,000 170,000
Lot #8; 4.20%; 11/1/95*; 7/1/05 185,000 185,000
Lot #9; 4.20%; 11/1/95*; 7/1/05 250,000 250,000
Lot #12; 4.20%; 11/1/95*; 7/1/12 1,040,000 1,040,000
5,210,000
Arizona (1.30%)
Chandler County, Arizona, IDA, F/R
Monthly IDR, Parsons Municipal
Services, Series 1983; LOC
National Westminster;
3.90%; 11/15/95*; 12/15/09 1,300,000 1,300,000
California (3.02%)
County of Los Angeles, California,
1995-96 Tax & Rev. Anticipation
Notes; 4.50%; 7/1/96 3,000,000 3,014,055
Colorado (1.00%)
Adams County, Colorado, IDR Bonds,
City View Park Project, Series
1985; LOC Barclays Bank;
3.95%; 11/1/95*; 12/1/15 300,000 300,000
Arapahoe County, Colorado, F/R
Monthly IDR, Beckett
Aviation, Inc., Series; 1983
LOC Barclays Bank;
3.81%; 11/15/95*; 5/15/13 600,000 600,000
City of Thornton, Colorado, F/R
Monthly IDR, Service Merchandise
Co., Inc., Series 1984; LOC
Industrial Bank of Japan;
3.80%; 11/15/95*; 12/15/99 100,000 100,000
1,000,000
Florida (4.30%)
Florida Housing Finance Agency,
F/R Monthly MF Rev's., Water
Apt. Project, Series 1984A;
LOC Wells Fargo;
4.00%; 11/1/95*; 4/1/07 1,700,000 1,700,000
Florida Housing Finance Agency,
F/R Monthly MF Rev's., Webb
Road 1 Apt. Project, Series 1984;
LOC Wells Fargo;
4.00%; 11/1/95*; 4/1/07 $1,000,000 $ 1,000,000
Florida Housing Finance Agency,
F/R Monthly MF Rev's., Webb
Road 2 Apt. Project; Series
1984C; LOC Wells Fargo;
4.00%; 11/1/95*; 4/1/07 1,600,000 1,600,000
4,300,000
Georgia (8.48%)
Burke County, Georgia, Dev. Authority, Adj.
Tender Pollution Control Rev. Bonds,
Ogelthorpe Power Corp., Vogtle Project,
Series 1992A; LOC Credit Suisse;
3.05%; 11/1/95**; 1/1/25 300,000 300,000
3.40%; 11/3/95**; 1/1/25 600,000 600,000
3.65%; 11/6/95**; 1/1/25 500,000 500,000
3.60%; 11/14/95**; 1/1/25 500,000 500,000
3.65%; 11/16/95**; 1/1/25 450,000 450,000
3.70%; 11/21/95**; 1/1/25 350,000 350,000
3.60%; 11/29/95**; 1/1/25 700,000 700,000
3.60%; 12/12/95**; 1/1/25 300,000 300,000
3.80%; 1/17/96**; 1/1/25 400,000 400,000
3.60%; 1/22/96**; 1/1/25 600,000 600,000
3.60%; 2/5/96**; 1/1/25 350,000 350,000
Fulton County, Georgia, Housing Authority,
Municipal Housing Rev. Bonds, Series
1986A; LOC Sumitomo Bank Ltd.;
4.30%; 11/1/95*; 8/1/16 2,725,000 2,725,000
Hapeville, Georgia, Dev. Authority, Adj.
Tender IDR Bonds, Hapeville Hotel Ltd.
Partnership Project, Series 1985;
LOC Swiss Bank Corp.;
4.10%; 11/1/95*; 11/1/15 700,000 700,000
8,475,000
Illinois (6.78%)
Chicago, Illinois, Cook County CSX Beckett
Aviation, Inc., F/R Monthly Airport
Rev. Bonds; LOC Barclays Bank;
3.81%; 11/15/95*; 12/15/14 1,000,000 1,000,000
City of Burbank, Illinois, F/R Monthly IDR,
Service Merchandise Co., Inc., Series
1984; LOC Pittsburgh National Bank;
3.80%; 11/15/95*; 9/15/24 2,100,000 2,100,000
City of Chicago General Obligation
Tender Notes, Series 1995A; LOC
Morgan Guaranty;
4.60%; 11/1/95**; 10/31/96 1,270,000 1,270,000
3.75%; 5/1/96**; 10/31/96 1,000,000 1,000,000
City of Naperville, Illinois, Economic Dev.
Rev. Bonds, Service Merchandise Co.,
Inc.; LOC Pittsburgh National Bank;
3.80%; 11/15/95*; 11/30/24 1,400,000 1,400,000
6,770,000
Iowa (4.62%)
Iowa Higher Education Loan Authority Fac.;
Rev. Bonds; Series 1995;
LOC Norwest Bank Minnesota;
3.90%; 11/2/95*; 2/1/05 2,200,000 2,200,000
Iowa School Corp. Warrant Cert. 1995-96
Series A; Guaranteed By Capital
Guaranty; 4.75%; 6/28/96 2,000,000 2,011,357
City of Storm Lake, Iowa; Private College
Rev. Bonds, Buena Vista College,
Series 1993; LOC Norwest Bank
Minnesota, N. A.; 3.95%; 11/2/95*;
12/1/03 $400,000 $ 400,000
4,611,357
Louisiana (11.88%)
Parish of Desoto, Louisianna; ADJ. Tender
Pollution Control Rev. Ref. Bonds,
LOC Swiss Bank Corp.;
Series 1991A; 3.80%; 11/1/95*; 7/1/18 2,200,000 2,200,000
Series 1991B; 3.80%; 11/1/95*; 7/1/18 600,000 600,000
Jefferson Parish, Louisiana, Hospital Rev.
Bonds, Jefferson Parish Hospital
Service, District #2, Customized
Purchase Program, Series 1985;
LOC Mitsubishi Bank;
3.90%; 11/1/95*; 12/1/15 3,300,000 3,300,000
Jefferson Parish, Louisiana, IDB Rev.
Ref. Bonds, George J. Achel, Sr.
Project, Series 1986; LOC Barclays
Bank; 3.95%; 11/1/95*; 12/1/04 1,400,000 1,400,000
Louisiana Public Fac. Authority, CP
Program Hospital Equip. Rev.
Bonds, Series 1985A, Pooled Project;
LOC Sumitomo Bank;
4.30%; 11/1/95*; 12/1/15 4,365,000 4,365,000
11,865,000
Maine (2.01%)
State of Maine General Obligation Tax
Anticipation Notes;
4.50%; 6/28/96 2,000,000 2,009,488
Maryland (0.90%)
Montgomery County, Maryland, F/R
Monthly IDA, Information Systems &
Networks; LOC Pittsburgh National
Bank; 3.75%; 11/1/95*; 4/1/14 900,000 900,000
Massachusetts (0.50%)
Commonwealth of Massachusetts,
Dedicated Income Tax Bonds, Series B;
LOC National Westminster;
3.70%; 11/1/95*; 12/1/97 500,000 500,000
Michigan (0.95%)
Township of Cornell, Michigan, The
Economic Dev. Corp.,
Environmental Improvement Rev.
Ref. Bonds, Series 1986, Mead
Escanaba Paper Co. Project; LOC Suisse
Bank; 3.80%; 11/1/95*; 11/1/16 950,000 950,000
Minnesota (9.16%)
City of Rochester, Minnesota, Health Care
Fac. Rev. Bonds, Mayo Foundation/
Mayo Medical Center, Adj. Tender;
Series 1992C;
3.50%; 11/8/95**; 11/15/21 500,000 500,000
3.60%; 11/10/95**; 11/15/21 500,000 500,000
3.75%; 11/20/95**; 11/15/21 500,000 500,000
3.60%; 12/8/95**; 11/15/21 750,000 750,000
3.60%; 12/11/95**; 11/15/21 800,000 800,000
3.75%; 1/24/96**; 11/15/21 600,000 600,000
3.80%; 2/9/96**; 11/15/21 500,000 500,000
3.75%; 2/12/96**; 11/15/21 500,000 500,000
University of Minnesota Regents Variable
Rate Demand Bonds;
Series 1985F; 3.65%; 2/1/96**; 10/1/01 $2,500,000 $2,500,000
Series 1985G; 3.65%; 2/1/96**; 10/1/07 2,000,000 2,000,000
9,150,000
Montana (4.90%)
City of Forsyth, Montana, Portland General
Electric Co.; LOC Swiss Bank Corp.;
Series B; 3.85%; 11/1/95*; 6/1/13 2,400,000 2,400,000
Series D; 3.85%; 11/1/95*; 6/1/13 1,500,000 1,500,000
Series 1984; 3.85%; 11/1/95*; 8/1/14 1,000,000 1,000,000
4,900,000
Nebraska (2.80%)
Nebraska Investment Finance Authority, F/R
Monthly MF Rev's., Series 1985A, Apple
Creek Associates; LOC Citibank;
4.00%; 11/1/95*; 9/1/07 2,800,000 2,800,000
New Hampshire (1.80%)
New Hampshire IDA, F/R Monthly 1983
Hudson, Oerlikon-Buhrle USA/Balzers;
LOC Union Bank of Switzerland;
3.90%; 11/1/95*; 7/1/13 1,800,000 1,800,000
New York (4.00%)
New York State Energy Research & Dev.
Authority Pollution Control Rev. Bonds,
Long Island Lighting Co.; Series 1985B;
LOC Deutsche Bank;
4.70%; 3/1/96**; 3/1/16 4,000,000 4,000,000
North Carolina (5.60%)
North Carolina Eastern Municipal Power
Agency, Series 1988B; LOC Morgan
Guaranty Trust Co.; LOC Union
Bank of Switzerland;
3.65%; 12/5/95**; 1/1/26 500,000 500,000
3.70%; 12/6/95**; 1/1/10 500,000 500,000
3.60%; 1/18/96**; 1/1/26 500,000 500,000
3.65%; 1/19/96**; 1/1/10 300,000 300,000
3.65%; 1/23/96**; 1/1/26 500,000 500,000
3.65%; 1/25/96**; 1/1/10 300,000 300,000
3.80%; 2/7/96**; 1/1/26 500,000 500,000
University of North Carolina
Foundation, Inc. Series 1989;
LOC Credit Suisse; 3.85%; 11/1/95* 2,500,000 2,500,000
5,600,000
Ohio (1.00%)
Village of Evendale, Ohio, SHV Real Estate
Income Project; LOC Citibank;
3.85%; 11/1/95*; 9/1/15 1,000,000 1,000,000
Pennsylvania (3.00%)
Bucks County, Pennsylvania, IDA SHV
Real Estate, Inc. Project, Series 1985;
LOC ABN-AMRO Bank;
3.85%; 11/1/95*; 7/1/15 1,800,000 1,800,000
Chester, Pennsylvania, IDA, F/R Monthly
IDR, Keystone Foods Corp.;
LOC Barclays Bank;
3.85%; 11/15/95*; 10/15/99 800,000 800,000
Delaware County, Pennsylvania, Tax & Rev.
Anticipation Notes, Fac. Rev.,
Series 1985; Guaranteed by
United Parcel Service;
3.80%; 11/1/95*; 12/1/15 $400,000 $ 400,000
3,000,000
Tennessee (0.50%)
Knox, Tennessee, IDB F/R Monthly IDR
1983, Service Merchandise Co., Inc.;
LOC Barclays Bank;
3.80%; 11/15/95*; 12/15/08 500,000 500,000
Texas (10.26%)
Calhoun County, Texas, NAV IDA PCA,
Alcoa, Series 1987; LOC Credit Suisse;
3.75%; 11/7/95*; 3/1/01 300,000 300,000
Cedar Hill, Texas, Industrial Dev. Corp.
F/R Monthly IDR 1985, Minyard
Properties Project; LOC Citibank;
4.00%; 11/1/95*; 5/1/02 400,000 400,000
City of Houston Tax and Rev. Anticipation
Notes Series 1995; 4.50%: 6/27/96 1,000,000 1,005,488
Coppell, Texas, Industrial Dev.
Corp., IDA 1984, Minyard
Properties Project; LOC Citibank;
4.00%; 11/1/95*; 12/1/01 1,270,000 1,270,000
Montgomery County, Texas Industrial
Developmental Corp. Ref. Bonds
Series 1986A; Dal-Tile Corporation
Project; LOC Credit Suisse;
3.95%; 11/1/95*; 12/1/03 150,000 150,000
Port Arthur Navigation Dist. Industrial
Dev. Corp. Adj. Tender Pollution
Control Rev. Bonds, American
Petrofina Co. of Texas Project, Series
1985; LOC Sumitomo Bank;
4.20%; 11/1/95*; 5/1/03 3,100,000 3,100,000
Port Dev. Corp., Adj. Tender Marine
Terminal Rev. Ref. Bonds, Mitsui &
Co. (USA), Inc. Project, Series 1985A;
LOC Industrial Bank of Japan;
3.90%; 11/15/95**; 12/1/05 500,000 500,000
3.55%; 12/4/95**; 12/1/05 500,000 500,000
Texas Assocation of Scool Boards Tax
Anticipation Notes; Series 1995;
4.75%; 8/30/96 3,000,000 3,016,758
10,242,246
Washington (2.62%)
Chelan County, Washington Dev. Corp.,
PCA, Alcoa, Series 1987; LOC Credit
Suisse; 3.75%; 11/7/95*; 3/1/01 200,000 200,000
Port of Kalama, Washington, Public Corp.,
Port Fac. Rev. Bonds, Conagra, Inc.
Project; LOC Morgan Guaranty;
3.80%; 11/1/95*; 1/1/04 2,420,000 2,420,000
2,620,000
West Virginia (1.80%)
Putnam County, West Virginia, F/R
Monthly IDR 1981, FMC Corp.
Project; LOC Bankers Trust;
3.90%; 11/1/95*; 10/1/11 $1,800,000 $ 1,800,000
Wisconsin (1.01%)
State of Wisconsin 1995 Operating
Notes; 4.50%; 6/17/96 1,000,000 1,005,438
Wyoming (0.50%)
Lincoln County, Wyoming, Pollution
Control Ref. Bonds, Pacificorp
Project, Series 1991; LOC
Union Bank of Switzerland;
3.75%; 12/7/95**; 1/1/16 500,000 500,000
Total Portfolio Investments (101.21%) 101,122,584
Liabilities, net of cash, receivables
and other assets, (-1.21%) (1,208,900)
Total Net Assets (100.00%) $99,913,684
* Demand Date
** Put Date
PRINCOR UTILITIES FUND, INC.
Shares
Held Value
Common Stocks (96.01%)
Combination Utility Services (20.32%)
Cilcorp, Inc. 42,900 $1,673,100
Cinergy Corp. 85,699 2,431,709
LG&E Energy Corp. 50,000 2,075,000
Niagara Mohawk Power Corp. 18,000 193,500
Pacificorp 101,000 1,906,375
Public Service Co. of Colorado 60,000 2,047,500
WPS Resources Corp. 63,000 1,960,875
Washington Water Power Co. 110,000 1,897,500
14,185,559
Electric Services (39.05%)
Allegheny Power System, Inc. 67,000 1,767,125
American Electric Power Co., Inc. 56,000 2,135,000
Dominion Resources, Inc. 49,400 1,963,650
Duke Power Co. 45,400 2,031,650
FPL Group, Inc. 50,000 2,093,750
Idaho Power Co. 59,800 1,659,450
KU Energy Corp. 71,800 2,127,075
Mid American Energy Co. 125,000 2,000,000
Minnesota Power & Light Co. 25,000 715,625
New England Electric System 44,000 1,716,000
PP&L Resources, Inc. 47,500 1,068,750
Portland General Corp. 70,000 1,898,750
Southern Co. 84,000 2,005,500
Teco Energy, Inc. 87,000 2,055,375
Texas Utilities Co. 55,200 2,028,600
27,266,300
Gas Production & Distribution (8.79%)
Atlanta Gas Light Co. 27,200 $1,050,600
British Gas PLC 26,600 1,010,800
Laclede Gas Co. 20,600 419,725
New Jersey Resources Corp. 43,700 1,092,500
Peoples Energy Corp. 53,000 1,523,750
Washington Energy Co. 56,800 1,043,700
6,141,075
Telephone Communication (27.85%)
AT&T Corp. 43,600 2,790,400
Ameritech Corp. 46,000 2,484,000
Bell Atlantic Corp. 39,000 2,481,375
Bellsouth Corp. 27,500 2,103,750
GTE Corp. 51,000 2,103,750
MCI Communications Corp. 55,000 1,371,563
Nynex Corp. 25,000 1,175,000
Sprint Corp. 64,000 2,464,000
US West Communications Group 52,000 2,476,500
19,450,338
Total Common Stocks 67,043,272
Commercial Paper (3.63%)
Principal
Amount Value
Business Credit Institutions (1.24%)
John Deere Capital Corp.;
5.75%; 11/7/95 $870,000 $ 869,166
Crude Petroleum & Natural Gas (1.40%)
Chevron Oil Finance Co.;
5.71%; 11/3/95 975,000 974,691
Life Insurance (0.99%)
Prudential Funding Corp.;
5.62%; 11/1/95 690,000 690,000
Total Commercial Paper 2,533,857
Total Portfolio Investments (99.64%) 69,577,129
Cash, receivables and other assets, net of
liabilities (0.36%) 248,241
Total Net Assets (100.00%) $69,825,370
[/TEXT]
<PAGE>
<TABLE>
<CAPTION>
INCOME-ORIENTED AND MONEY MARKET FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor Bond Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.27 $.78(b) $1.16 $1.94 $(.78) $(.01) $(.79) $11.42
1994 11.75 .78(b) (1.47) (.69) (.78) (.01) (.79) 10.27
1993 10.97 .81(b) .79 1.60 (.81) (.01) (.82) 11.75
1992 10.65 .85(b) .32 1.17 (.85) - (.85) 10.97
1991 9.99 .88(b) .65 1.53 (.87) - (.87) 10.65
Class B
Period Ended October 31, 1995(f) 10.19 .63(b) 1.19 1.82 (.60) - (.60) 11.41
Princor Cash Management Fund, Inc.
Class A
Year Ended October 31,
1995 1.000 .052(b) - .052 (.052) - (.052) 1.000
1994 1.000 .033(b) - .033 (.033) - (.033) 1.000
1993 1.000 .026(b) - .026 (.026) - (.026) 1.000
1992 1.000 .036(b) - .036 (.036) - (.036) 1.000
1991 1.000 .061(b) - .061 (.061) - (.061) 1.000
Class B
Period Ended October 31, 1995(f) 1.000 .041(b) - .041 (.041) - (.041) 1.000
Princor Government Securities
Income Fund, Inc.
Class A
Year Ended October 31,
1995 10.28 .71 1.02 1.73 (.70) - (.70) 11.31
1994 11.79 .69 (1.40) (.71) (.68) (.12) (.80) 10.28
1993 11.44 .74 .55 1.29 (.74) (.20) (.94) 11.79
1992 11.36 .81 .12 .93 (.81) (.04) (.85) 11.44
1991 10.54 .85 .84 1.69 (.87) - (.87) 11.36
Class B
Period Ended October 31, 1995(f) 10.20 .56 1.07 1.63 (.54) - (.54) 11.29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Ratio of Net
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor Bond Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 19.73% $106,962 .94%(b) 7.26% 5.1%
1994 (6.01)% 88,801 .95%(b) 7.27% 8.9%
1993 15.22% 85,015 .92%(b) 7.19% 9.3%
1992 11.45% 62,534 .88%(b) 7.95% 8.4%
1991 16.04% 37,825 .80%(b) 8.66% .9%
Class B
Period Ended October 31, 1995(f) 17.98%(d) 2,708 1.59%(b)(e) 6.30%(e) 5.1%(e)
Princor Cash Management Fund, Inc.
Class A
Year Ended October 31,
1995 5.36% 623,864 .72%(b) 5.24% N/A
1994 3.40% 332,346 .70%(b) 3.27% N/A
1993 2.67% 284,739 .67%(b) 2.63% N/A
1992 3.71% 247,189 .65%(b) 3.66% N/A
1991 6.29% 262,543 .61%(b) 5.95% N/A
Class B
Period Ended October 31, 1995(f) 4.19%(d) 208 1.42%(b)(e) 4.50%(e) N/A
Princor Government Securities
Income Fund, Inc.
Class A
Year Ended October 31,
1995 17.46% 261,128 .87% 6.57% 10.1%
1994 (6.26)% 249,438 .95% 6.35% 24.8%
1993 11.80% 236,718 .93% 6.38% 52.6%
1992 8.49% 161,565 .95% 7.04% 54.3%
1991 16.78% 94,613 .98% 7.80% 14.9%
Class B
Period Ended October 31, 1995(f) 16.07%(d) 4,699 1.53%(e) 5.68%(e) 10.1%(e)
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge or the
contingent deferred sales charge.
(b) Without the Manager's voluntary waiver of a portion of certain of its
expenses for the periods (year, except as noted in the financial
statements) ended October 31 of the years indicated, the following funds
would have had per share expenses and the ratios of expenses to average net
assets as shown:
Per Share Ratio of Expenses
Net Invest- to Average Net Amount
Fund Year ment Income Assets Waived
Princor Bond Fund, Inc.
Class A 1995 $.77 1.02% $86,018
1994 .77 1.09% 120,999
1993 .79 1.07% 111,162
1992 .82 1.11% 110,868
1991 .84 1.15% 100,396
Class B 1995(f) .62 1.62%(e) 300
Princor Cash Management
Fund, Inc.
Class A 1995 .052 .78% 296,255
1994 .031 .90% 595,343
1993 .025 .84% 468,387
1992 .035 .80% 385,328
1991 .059 .79% 433,196
Class B 1995(f) .041 1.63%(e) 104
* Year ended June 30, 1989
** Four months ended October 31, 1989
(c) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.10 per share for the
period from the initial purchase of shares on October 30, 1987 through
December 17, 1987, was recognized of which $.06 per share was distributed
to its sole stockholder, Principal Mutual Life Insurance Company, during
the period. Additionally, the Fund incurred net realized and unrealized
losses on investments of $.09 per share during this initial interim period.
This represented activities of the fund prior to the initial public
offering of fund shares.
(d) Total Return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. Certain of the Income Funds Class B
shares recognized net investment income as follows, for the period from the
initial purchase of Class B shares on December 5, 1994 through December 8,
1994, none of which was distributed to the sole shareholder, Princor
Management Corporation. Additionally, the Income Funds Class B shares
incurred unrealized loss during the initial interim period as follows. This
represented Class B share activities of each fund prior to the intitial
public offering of Class B shares:
Per Share Per Share
Net Investment Unrealized
Fund Income (Loss)
--------------------------------------------------
Princor Bond Fund, Inc. .01 -
Princor Government Securities
Income Fund, Inc. .01 (.02)
(g) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME-ORIENTED AND MONEY MARKET FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Assets
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor High Yield Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 7.83 $ .68 $ .20 $ .88 $ (.65) $ - $ (.65) $8.06
1994 8.36 .63 (.51) .12 (.65) - (.65) 7.83
1993 8.15 .71 .21 .92 (.71) - (.71) 8.36
1992 7.86 .79 .29 1.08 (.79) - (.79) 8.15
1991 7.12 .88 .80 1.68 (.94) - (.94) 7.86
Class B
Period Ended October 31, 1995(f) 7.64 .53 .38 .91 (.50) - (.50) 8.05
Princor Tax-Exempt Bond Fund, Inc.
Class A
Year Ended October 31,
1995 10.93 .65 1.05 1.70 (.65) - (.65) 11.98
1994 12.62 .64 (1.54) (.90) (.63) (.16) (.79) 10.93
1993 11.62 .66 1.11 1.77 (.66) (.11) (.77) 12.62
1992 11.47 .68 .19 .87 (.69) (.03) (.72) 11.62
1991 10.82 .69 .68 1.37 (.70) (.02) (.72) 11.47
Class B
Period Ended October 31, 1995(f) 10.56 .50 1.38 1.88 (.48) - (.48) 11.96
Princor Tax-Exempt Cash
Management Fund, Inc.
Class A
Year Ended October 31,
1995 1.000 .032(c) - .032 (.032) - (.032) 1.000
1994 1.000 .021(c) - .021 (.021) - (.021) 1.000
1993 1.000 .020(c) - .020 (.020) - (.020) 1.000
1992 1.000 .028(c) - .028 (.028) - (.028) 1.000
1991 1.000 .043(c) - .043 (.043) - (.043) 1.000
Class B
Period Ended October 31, 1995(f) 1.000 .021(e) - .021 (.021) - (.021) 1.000
Princor Utilities Fund, Inc.
Class A
Year Ended October 31,
1995 9.25 .48(c) 1.70 2.18 (.49) - (.49) 10.94
1994 11.45 .46(c) (2.19) (1.73) (.45) (.02) (.47) 9.25
Period Ended October 31, 1993(j) 10.18 .35(c) 1.27 1.62 (.35) - (.35) 11.45
Class B
Period Ended October 31, 1995(f) 9.20 .40(c) 1.77 2.17 (.44) - (.44) 10.93
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor High Yield Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 11.73% $ 23,396 1.45% 8.71% 40.3%
1994 1.45% 19,802 1.46% 7.82% 27.2%
1993 11.66% 19,154 1.35% 8.57% 23.4%
1992 14.35% 16,359 1.41% 9.69% 28.2%
1991 25.63% 13,195 1.50% 12.06% 14.2%
Class B
Period Ended October 31, 1995(f) 12.20%(c) 633 2.10%(d) 7.78%(d) 40.3%(d)
Princor Tax-Exempt Bond Fund, Inc.
Class A
Year Ended October 31,
1995 16.03% 179,715 .83% 5.67% 17.6%
1994 (7.41)% 171,425 .91% 5.49% 20.6%
1993 15.70% 177,480 .89% 5.45% 20.3%
1992 7.76% 106,661 .99% 5.96% 22.9%
1991 13.09% 62,755 1.01% 6.24% 13.1%
Class B
Period Ended October 31, 1995(f) 17.97(c) 3,486 1.51%(d) 4.78%(d) 17.6%(d)
Princor Tax-Exempt Cash
Management Fund, Inc.
Class A
Year Ended October 31,
1995 3.24% 99,887 .69%(e) 3.19% N/A
1994 2.11% 79,736 .67%(c) 2.08% N/A
1993 1.99% 79,223 .66%(c) 1.96% N/A
1992 2.86% 69,224 .65%(c) 2.84% N/A
1991 4.36% 71,469 .61%(c) 4.27% N/A
Class B
Period Ended October 31, 1995(f) 2.19%(c) 27 1.42%(d)(e) 2.40%(d) N/A
Princor Utilities Fund, Inc.
Class A
Year Ended October 31,
1995 24.36% 65,873 1.04%(e) 4.95% 13.0%
1994 (15.20)% 56,747 1.00%(c) 4.89% 13.8%
Period Ended October 31, 1993(j) 15.92%(d) 50,372 1.00%(e)(c) 4.48%(e) 4.3%(e)
Class B
Period Ended October 31, 1995(f) 24.18(c) 3,952 1.72%(d)(e) 3.84%(d) 13.0%(d)
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge or the
contingent deferred sales charge.
(b) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.10 per share for the
period from the initial purchase of shares on October 30, 1987 through
December 17, 1987, was recognized of which $.06 per share was distributed
to its sole stockholder, Principal Mutual Life Insurance Company, during
the period. Additionally, the Fund incurred net realized and unrealized
losses on investments of $.09 per share during this initial interim period.
This represented activities of the fund prior to the initial public
offering of Fund shares.
(c) Without the Manager's voluntary waiver of a portion of certain of its
expenses for the periods (year except as noted) ended October 31 of the
years indicated, the following funds would have had per share expenses and
the ratios of expenses to average net assets as shown:
Per Share Ratio of Expenses
Net Invest- to Average Net Amount
Fund Year ment Income Assets Waived
Princor High Yield
Fund, Inc. 1988(b) $.95 1.33%(e) $ 32,609
Princor Tax-Exempt Cash
Management Fund, Inc.
Class A 1995 .031 .84% 138,574
1994 .019 .85% 150,515
1993 .018 .83% 131,442
1992 .026 .82% 134,497
1991 .040 .83% 147,279
Class B 1995(f) .018 1.89%(e) 99
Princor Utilities
Fund, Inc.
Class A 1995 .46 1.30% 151,145
1994 .41 1.50% 284,836
1993(j) .32 1.54%(e) 139,439
Class B 1995(f) .40 1.81%(e) 1,339
(d) Total Return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. Certain of the Income Funds Class B
shares recognized net investment income as follows, for the period from the
initial purchase of Class B shares on December 5, 1994 through December 8,
1994, none of which was distributed to the sole shareholder, Princor
Management Corporation. Additionally, the Income Funds Class B shares
incurred unrealized loss during the initial interim period as follows. This
represented Class B share activities of each fund prior to the initial
public offering of Class B shares:
Per Share Per Share
Net Investment Unrealized
Fund Income (Loss)
Princor High Yield Fund, Inc. .01 (0.03)
Princor Tax-Exempt
Bond Fund, Inc. - (0.05)
Princor Utilities Fund, Inc. .01 (0.01)
(g) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
(h) Period from March 20, 1986, date shares first offered to public, through
June 30, 1986. Net investment income and net unrealized appreciation of
investments, for the period from the initial purchase of shares on December
18, 1985 through March 19, 1986, amounted to $.14 and $.94, respectively,
per share. All dividends from net investment income, from December 18, 1985
through March 19, 1986, were distributed to the sole stockholder, Principal
Mutual Life Insurance Company.
(i) Period from September 30, 1988, date shares first offered to public,
through October 31, 1988. Net investment income, aggregating $.005 per
share, for the period from the initial purchase of shares on August 23,
1988 through September 29, 1988, was recognized and distributed to its sole
stockholder, Principal Mutual Life Insurance Company, during the period.
This represented activities of the Fund prior to the initial public
offering of Fund shares.
(j) Period from December 16, 1992, date shares first offered to public, through
October 31, 1993. Net investment income, aggregating $.05 per share for the
period from the initial purchase of shares on November 16, 1992 through
December 15, 1992, was recognized, none of which was distributed to its
sole stockholder, Principal Mutual Life Insurance Company, during the
period. Additionally, the fund incurred unrealized gains on investments of
$.13 per share during the initial interim period. This represented
activities of the fund prior to the initial public offering of fund shares.
</FN>
</TABLE>
<TABLE>
<CAPTION>
INCOME-ORIENTED AND MONEY MARKET FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor Bond Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.27 $.78(b) $1.16 $1.94 $(.78) $(.01) $(.79) $11.42
1994 11.75 .78(b) (1.47) (.69) (.78) (.01) (.79) 10.27
1993 10.97 .81(b) .79 1.60 (.81) (.01) (.82) 11.75
1992 10.65 .85(b) .32 1.17 (.85) - (.85) 10.97
1991 9.99 .88(b) .65 1.53 (.87) - (.87) 10.65
1990 10.57 .86 (.55) .31 (.89) - (.89) 9.99
1989 10.37 .87 .25 1.12 (.86) (.06) (.92) 10.57
Period Ended October 31, 1988(c) 9.95 .80(b) .38 1.18 (.76) - (.76) 10.37
Class B
Period Ended October 31, 1995(f) 10.19 .63(b) 1.19 1.82 (.60) - (.60) 11.41
Princor Cash Management Fund, Inc.
Class A
Year Ended October 31,
1995 1.000 .052(b) - .052 (.052) - (.052) 1.000
1994 1.000 .033(b) - .033 (.033) - (.033) 1.000
1993 1.000 .026(b) - .026 (.026) - (.026) 1.000
1992 1.000 .036(b) - .036 (.036) - (.036) 1.000
1991 1.000 .061(b) - .061 (.061) - (.061) 1.000
1990 1.000 .074(b) - .074 (.074) - (.074) 1.000
Four Months Ended
October 31, 1989(g) 1.000 .027(b) - .027 (.027) - (.027) 1.000
Year Ended June 30,
1989 1.000 .080(b) - .080 (.080) - (.080) 1.000
1988 1.000 .060 - .060 (.060) - (.060) 1.000
1987 1.000 .053 - .053 (.053) - (.053) 1.000
1986 1.000 .065 - .065 (.065) - (.065) 1.000
Class B
Period Ended October 31, 1995(f) 1.000 .041(b) - .041 (.041) - (.041) 1.000
Princor Government Securities
Income Fund, Inc.
Class A
Year Ended October 31,
1995 10.28 .71 1.02 1.73 (.70) - (.70) 11.31
1994 11.79 .69 (1.40) (.71) (.68) (.12) (.80) 10.28
1993 11.44 .74 .55 1.29 (.74) (.20) (.94) 11.79
1992 11.36 .81 .12 .93 (.81) (.04) (.85) 11.44
1991 10.54 .85 .84 1.69 (.87) - (.87) 11.36
1990 10.76 .85 (.22) .63 (.85) - (.85) 10.54
Four Months Ended
October 31, 1989(g) 10.66 .29 .09 .38 (.28) - (.28) 10.76
Year Ended June 30,
1989 10.33 .87 .32 1.19 (.86) - (.86) 10.66
1988 10.40 .89 (.05) .84 (.88) (.03) (.91) 10.33
1987 10.82 .86 (.13) .73 (.87) (.28) (1.15) 10.40
1986 10.55 1.24 .49 1.73 (1.26) (.20) (1.46) 10.82
Class B
Period Ended October 31, 1995(f) 10.20 .56 1.07 1.63 (.54) - (.54) 11.29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Ratio of Net
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor Bond Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 19.73% $106,962 .94%(b) 7.26% 5.1%
1994 (6.01)% 88,801 .95%(b) 7.27% 8.9%
1993 15.22% 85,015 .92%(b) 7.19% 9.3%
1992 11.45% 62,534 .88%(b) 7.95% 8.4%
1991 16.04% 37,825 .80%(b) 8.66% .9%
1990 3.08% 22,719 1.22% 8.40% 3.6%
1989 11.54% 13,314 1.24% 8.59% 0.0%
Period Ended October 31, 1988(c) 11.59%(d) 10,560 .70%(b)(e) 8.85%(e) 63.9%(e)
Class B
Period Ended October 31, 1995(f) 17.98%(d) 2,708 1.59%(b)(e) 6.30(e) 5.1%(e)
Princor Cash Management Fund, Inc.
Class A
Year Ended October 31,
1995 5.36% 623,864 .72%(b) 5.24% N/A
1994 3.40% 332,346 .70%(b) 3.27% N/A
1993 2.67% 284,739 .67%(b) 2.63% N/A
1992 3.71% 247,189 .65%(b) 3.66% N/A
1991 6.29% 262,543 .61%(b) 5.95% N/A
1990 7.65% 151,007 .93%(b) 7.36% N/A
Four Months Ended
October 31, 1989(g) 2.63%(d) 124,895 1.04%(b)(e) 7.86%(e) N/A
Year Ended June 30,
1989 8.15% 120,149 1.00% (b) 8.21% N/A
1988 6.18% 51,320 1.02% 6.06% N/A
1987 5.34% 45,015 1.02% 5.33% N/A
1986 6.71% 35,437 1.10% 6.76% N/A
Class B
Period Ended October 31, 1995(f) 4.19(d) 208 1.42%(b)(e) 4.50%(e) N/A
Princor Government Securities
Income Fund, Inc.
Class A
Year Ended October 31,
1995 17.46% 261,128 .87% 6.57% 10.1%
1994 (6.26)% 249,438 .95% 6.35% 24.8%
1993 11.80% 236,718 .93% 6.38% 52.6%
1992 8.49% 161,565 .95% 7.04% 54.3%
1991 16.78% 94,613 .98% 7.80% 14.9%
1990 6.17% 71,806 1.07% 8.15% 22.4%
Four Months Ended
October 31, 1989(g) 3.63%(d) 55,702 1.07%(e) 8.18%(e) 5.2%(e)
Year Ended June 30,
1989 12.37% 56,848 .96% 8.58% -
1988 8.60% 59,884 .82% 8.65% -
1987 7.00% 65,961 .92% 7.93% 17.6%
1986 17.37% 43,576 .60% 9.33% 141.2%
Class B
Period Ended October 31, 1995(f) 16.07%(d) 4,699 1.53%(e) 5.68%(e) 10.1%(e)
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge or the
contingent deferred sales charge.
(b) Without the Manager's voluntary waiver of a portion of certain of its
expenses for the periods (year, except as noted in the financial
statements) ended October 31 of the years indicated, the following funds
would have had per share expenses and the ratios of expenses to average net
assets as shown:
Per Share Ratio of Expenses
Net Invest- to Average Net Amount
Fund Year ment Income Assets Waived
Princor Bond Fund, Inc.
Class A 1995 $.77 1.02% $86,018
1994 .77 1.09% 120,999
1993 .79 1.07% 111,162
1992 .82 1.11% 110,868
1991 .84 1.15% 100,396
1988(c) .76 1.12%(e) 31,187
Class B 1995(f) .62 1.62%(e) 300
Princor Cash Management
Fund, Inc.
Class A 1995 .052 .78% 296,255
1994 .031 .90% 595,343
1993 .025 .84% 468,387
1992 .035 .80% 385,328
1991 .059 .79% 433,196
1990 .073 1.01% 106,841
1989** .026 1.06%(e) 101,625
1989* .079 1.11% 9,558
Class B 1995(f) .041 1.63%(e) 104
* Year ended June 30, 1989
** Four months ended October 31, 1989
(c) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.10 per share for the
period from the initial purchase of shares on October 30, 1987 through
December 17, 1987, was recognized of which $.06 per share was distributed
to its sole stockholder, Principal Mutual Life Insurance Company, during
the period. Additionally, the Fund incurred net realized and unrealized
losses on investments of $.09 per share during this initial interim period.
This represented activities of the fund prior to the initial public
offering of fund shares.
(d) Total Return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. Certain of the Income Funds Class B
shares recognized net investment income as follows, for the period from the
initial purchase of Class B shares on December 5, 1994 through December 8,
1994, none of which was distributed to the sole shareholder, Princor
Management Corporation. Additionally, the Income Funds Class B shares
incurred unrealized loss during the initial interim period as follows. This
represented Class B share activities of each fund prior to the intitial
public offering of Class B shares:
Per Share Per Share
Net Investment Unrealized
Fund Income (Loss)
--------------------------------------------------
Princor Bond Fund, Inc. .01 -
Princor Government Securities
Income Fund, Inc. .01 (.02)
(g) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME-ORIENTED AND MONEY MARKET FUNDS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Assets
Value at Invest- Gain from from Net Distributions Value at
Beginning ment (Loss) on Investment Investment from Total End
of Period Income Investments Operations Income Capital Gains Distributions of Period
Princor High Yield Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 7.83 $ .68 $ .20 $ .88 $ (.65) $ - $ (.65) $8.06
1994 8.36 .63 (.51) .12 (.65) - (.65) 7.83
1993 8.15 .71 .21 .92 (.71) - (.71) 8.36
1992 7.86 .79 .29 1.08 (.79) - (.79) 8.15
1991 7.12 .88 .80 1.68 (.94) - (.94) 7.86
1990 9.47 1.10 (2.35) (1.25) (1.09) (.01) (1.10) 7.12
1989 10.44 1.10 (.83) .27 (1.09) (.15) (1.24) 9.47
Period Ended October 31, 1988(b) 9.97 .98(c) .38 1.36 (.89) - (.89) 10.44
Class B
Period Ended October 31, 1995(f) 7.64 .53 .38 .91 (.50) - (.50) 8.05
Princor Tax-Exempt Bond Fund, Inc.
Class A
Year Ended October 31,
1995 10.93 .65 1.05 1.70 (.65) - (.65) 11.98
1994 12.62 .64 (1.54) (.90) (.63) (.16) (.79) 10.93
1993 11.62 .66 1.11 1.77 (.66) (.11) (.77) 12.62
1992 11.47 .68 .19 .87 (.69) (.03) (.72) 11.62
1991 10.82 .69 .68 1.37 (.70) (.02) (.72) 11.47
1990 11.06 .68 (.25) .43 (.67) - (.67) 10.82
Four Months Ended
October 31, 1989(g) 11.18 .22 (.12) .10 (.22) - (.22) 11.06
Year Ended June 30,
1989 10.40 .69 .77 1.46 (.68) - (.68) 11.18
1988 10.51 .71 .06 .77 (.72) (.16) (.88) 10.40
1987 10.75 .72 (.11) .61 (.73) (.12) (.85) 10.51
Period Ended June 30, 1986 (h) 10.95 .22 (.24) (.02) (.18) - (.18) 10.75
Class B
Period Ended October 31, 1995(f) 10.56 .50 1.38 1.88 (.48) - (.48) 11.96
Princor Tax-Exempt Cash
Management Fund, Inc.
Class A
Year Ended October 31,
1995 1.000 .032(c) - .032 (.032) - (.032) 1.000
1994 1.000 .021(c) - .021 (.021) - (.021) 1.000
1993 1.000 .020(c) - .020 (.020) - (.020) 1.000
1992 1.000 .028(c) - .028 (.028) - (.028) 1.000
1991 1.000 .043(c) - .043 (.043) - (.043) 1.000
1990 1.000 .053(c) - .053 (.053) - (.053) 1.000
1989 1.000 .058(c) - .058 (.058) - (.058) 1.000
Period Ended October 31, 1988(i) 1.000 .005(c) - .005 (.005) - (.005) 1.000
Class B
Period Ended October 31, 1995(f) 1.000 .021(e) - .021 (.021) - (.021) 1.000
Princor Utilities Fund, Inc.
Class A
Year Ended October 31,
1995 9.25 .48(c) 1.70 2.18 (.49) - (.49) 10.94
1994 11.45 .46(c) (2.19) (1.73) (.45) (.02) (.47) 9.25
Period Ended October 31, 1993(j) 10.18 .35(c) 1.27 1.62 (.35) - (.35) 11.45
Class B
Period Ended October 31, 1995(f) 9.20 .40(c) 1.77 2.17 (.44) - (.44) 10.93
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to Portfolio
Total End of Period Average Average Turnover
Return(a) (in thousands) Net Assets Net Assets Rate
Princor High Yield Fund, Inc.
Class A
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C>
1995 11.73% $ 23,396 1.45% 8.71% 40.3%
1994 1.45% 19,802 1.46% 7.82% 27.2%
1993 11.66% 19,154 1.35% 8.57% 23.4%
1992 14.35% 16,359 1.41% 9.69% 28.2%
1991 25.63% 13,195 1.50% 12.06% 14.2%
1990 (14.51)% 9,978 1.45% 12.99% 15.8%
1989 2.68% 12,562 1.43% 11.22% 19.9%
Period Ended October 31, 1988(b) 14.15%(d) 10,059 .77%(e)(c) 10.55%(e) 73.2%(e)
Class B
Period Ended October 31, 1995(f) 12.20%(c) 633 2.10%(d) 7.78%(d) 40.3%(d)
Princor Tax-Exempt Bond Fund, Inc.
Class A
Year Ended October 31,
1995 16.03% 179,715 .83% 5.67% 17.6%
1994 (7.41)% 171,425 .91% 5.49% 20.6%
1993 15.70% 177,480 .89% 5.45% 20.3%
1992 7.76% 106,661 .99% 5.96% 22.9%
1991 13.09% 62,755 1.01% 6.24% 13.1%
1990 4.06% 46,846 1.11% 6.31% 2.6%
Four Months Ended
October 31, 1989(g) .90%(d) 36,877 1.24%(e) 6.18%(e) 5.1% (e)
Year Ended June 30,
1989 14.64% 31,278 1.07% 6.54% 2.1%
1988 7.76% 22,812 .95% 7.00% 11.0%
1987 5.60% 19,773 .70% 6.70% 40.8%
Period Ended June 30, 1986 (h) (.16)%(d) 8,486 .20%(e) 8.60%(e) 0.0%(e)
Class B
Period Ended October 31, 1995(f) 17.97%(c) 3,486 1.51%(d) 4.78%(d) 17.6%(d)
Princor Tax-Exempt Cash
Management Fund, Inc.
Class A
Year Ended October 31,
1995 3.24% 99,887 .69%(e) 3.19% N/A
1994 2.11% 79,736 .67%(c) 2.08% N/A
1993 1.99% 79,223 .66%(c) 1.96% N/A
1992 2.86% 69,224 .65%(c) 2.84% N/A
1991 4.36% 71,469 .61%(c) 4.27% N/A
1990 5.40% 58,301 .71%(c) 5.26% N/A
1989 5.88% 42,639 .60%(c) 5.78% N/A
Period Ended October 31, 1988(i) .47%(d) 6,000 .26%(e)(c) 5.24%(e) N/A
Class B
Period Ended October 31, 1995(f) 2.19%(c) 27 1.42%(d)(e) 2.40%(d) N/A
Princor Utilities Fund, Inc.
Class A
Year Ended October 31,
1995 24.36% 65,873 1.04%(e) 4.95% 13.0%
1994 (15.20)% 56,747 1.00%(c) 4.89% 13.8%
Period Ended October 31, 1993(j) 15.92%(d) 50,372 1.00%(e)(c) 4.48%(e) 4.3%(e)
Class B
Period Ended October 31, 1995(f) 24.18%(c) 3,952 1.72%(d)(e) 3.84%(d) 13.0%(d)
<FN>
Notes to financial highlights
(a) Total Return is calculated without the front-end sales charge or the
contingent deferred sales charge.
(b) Period from December 18, 1987, date shares first offered to public, through
October 31, 1988. Net investment income, aggregating $.10 per share for the
period from the initial purchase of shares on October 30, 1987 through
December 17, 1987, was recognized of which $.06 per share was distributed
to its sole stockholder, Principal Mutual Life Insurance Company, during
the period. Additionally, the Fund incurred net realized and unrealized
losses on investments of $.09 per share during this initial interim period.
This represented activities of the fund prior to the initial public
offering of Fund shares.
(c) Without the Manager's voluntary waiver of a portion of certain of its
expenses for the periods (year except as noted) ended October 31 of the
years indicated, the following funds would have had per share expenses and
the ratios of expenses to average net assets as shown:
Per Share Ratio of Expenses
Net Invest- to Average Net Amount
Fund Year ment Income Assets Waived
Princor High Yield
Fund, Inc. 1988(b) $.95 1.33%(e) $ 32,609
Princor Tax-Exempt Cash
Management Fund, Inc.
Class A 1995 .031 .84% 138,574
1994 .019 .85% 150,515
1993 .018 .83% 131,442
1992 .026 .82% 134,497
1991 .040 .83% 147,279
1990 .050 .96% 123,656
1989 .053 1.04% 125,604
1988(i) .004 .76%(e) 2,630
Class B 1995(f) .018 1.89%(e) 99
Princor Utilities
Fund, Inc.
Class A 1995 .46 1.30% 151,145
1994 .41 1.50% 284,836
1993(j) .32 1.54%(e) 139,439
Class B 1995(f) .40 1.81%(e) 1,339
(d) Total Return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. Certain of the Income Funds Class B
shares recognized net investment income as follows, for the period from the
initial purchase of Class B shares on December 5, 1994 through December 8,
1994, none of which was distributed to the sole shareholder, Princor
Management Corporation. Additionally, the Income Funds Class B shares
incurred unrealized loss during the initial interim period as follows. This
represented Class B share activities of each fund prior to the initial
public offering of Class B shares:
Per Share Per Share
Net Investment Unrealized
Fund Income (Loss)
Princor High Yield Fund, Inc. .01 (0.03)
Princor Tax-Exempt
Bond Fund, Inc. - (0.05)
Princor Utilities Fund, Inc. .01 (0.01)
(g) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
(h) Period from March 20, 1986, date shares first offered to public, through
June 30, 1986. Net investment income and net unrealized appreciation of
investments, for the period from the initial purchase of shares on December
18, 1985 through March 19, 1986, amounted to $.14 and $.94, respectively,
per share. All dividends from net investment income, from December 18, 1985
through March 19, 1986, were distributed to the sole stockholder, Principal
Mutual Life Insurance Company.
(i) Period from September 30, 1988, date shares first offered to public,
through October 31, 1988. Net investment income, aggregating $.005 per
share, for the period from the initial purchase of shares on August 23,
1988 through September 29, 1988, was recognized and distributed to its sole
stockholder, Principal Mutual Life Insurance Company, during the period.
This represented activities of the Fund prior to the initial public
offering of Fund shares.
(j) Period from December 16, 1992, date shares first offered to public, through
October 31, 1993. Net investment income, aggregating $.05 per share for the
period from the initial purchase of shares on November 16, 1992 through
December 15, 1992, was recognized, none of which was distributed to its
sole stockholder, Principal Mutual Life Insurance Company, during the
period. Additionally, the fund incurred unrealized gains on investments of
$.13 per share during the initial interim period. This represented
activities of the fund prior to the initial public offering of fund shares.
</FN>
<PAGE>
The Boards of Directors and Shareholders
Princor Balanced Fund, Inc.
Princor Blue Chip Fund, Inc.
Princor Capital Accumulation Fund, Inc.
Princor Emerging Growth Fund, Inc.
Princor Growth Fund, Inc.
Princor World Fund, Inc.
Princor Bond Fund, Inc.
Princor Cash Management Fund, Inc.
Princor Government Securities Income Fund, Inc.
Princor High Yield Fund, Inc.
Princor Tax-Exempt Bond Fund, Inc.
Princor Tax-Exempt Cash Management Fund, Inc.
Princor Utilities Fund, Inc.
We have audited the accompanying statements of assets and liabilities of
The Princor Growth Funds [comprising, respectively, Princor Balanced Fund,
Inc. (formerly known as Princor Managed Fund, Inc.), Princor Blue Chip
Fund, Inc., Princor Capital Accumulation Fund, Inc., Princor Emerging
Growth Fund, Inc., Princor Growth Fund, Inc., and Princor World Fund, Inc.]
and The Princor Income Funds (comprising, respectively, Princor Bond Fund,
Inc., Princor Cash Management Fund, Inc., Princor Government Securities
Income Fund, Inc., Princor High Yield Fund, Inc., Princor Tax-Exempt Bond
Fund, Inc., Princor Tax-Exempt Cash Management Fund, Inc., and Princor
Utilities Fund, Inc.), including the schedules of investments, as of
October 31, 1995, and the related statements of operations for the year
then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of
the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1995, by correspondence with the
custodians and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of each of the respective funds constituting The Princor Growth Funds and
The Princor Income Funds at October 31, 1995, and the results of their
operations for the year then ended, the changes in their net assets for
each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein, in conformity with
generally accepted accounting principles.
Des Moines, Iowa November 22, 1995
Ernst & Young LLP
<PAGE>
</TABLE>
Information for federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions shown below. Shareholders
should consult a tax adviser on how to report these distributions for state and
local purposes.
<TABLE>
<CAPTION>
Period Ended October 31, 1995
Per Share Per Share
Income Dividend Distributions Capital Gain Distributions
Total
Total Dividends
Payable Per Total Deductible Payable Long- Short- Capital Gain and
Date Share Dividends Percentage* Date Term** Term*** Distributions Distributions
Princor Balanced Fund, Inc.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A Shares 12/30/94 $.0925 34.01% 12/01/94 $.0547
4/3/95 .0850 30.43%
7/3/95 .0900 29.47%
10/2/95 .0925 27.22%
$.3600 $ .0547 $.4147
B Shares 12/30/94 $.0925 34.01%
4/3/95 .0630 30.43%
7/3/95 .0686 29.47%
10/2/95 .0733 27.22%
$.2974 $.2974
Princor Blue Chip Fund, Inc.
A Shares 12/30/94 $.0550 85.16%
4/3/95 .0500 81.80%
7/3/95 .0500 85.88%
10/2/95 .0600 85.94%
$.2150 $.2150
B Shares 12/30/94 $.0550 85.16%
4/3/95 .0271 81.80%
7/3/95 .0271 85.88%
10/2/95 .0382 85.94%
$.1474 $.1474
Princor Capital Accumulation Fund, Inc.
A Shares 12/30/94 $.1913 93.78% 12/01/94 $.3438
7/3/95 .2020 93.34%
$.3933 $.3438 $.7371
B Shares 12/30/94 $.1913 93.78%
7/3/95 .1126 93.34%
$.3039 $.3039
Princor Emerging Growth Fund, Inc.
A Shares 12/30/94 $.0155 43.43% 12/01/94 $.1441
7/3/95 .0400 44.54%
$.0555 $.1441 $.1996
B Shares 12/30/94 $.0155 43.43%
7/3/95 .0050 44.54%
$.0205 $.0205
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Period Ended October 31, 1995
Per Share Per Share
Income Dividend Distributions Capital Gain Distributions
Total
Total Dividends
Payable Per Total Deductible Payable Long- Short- Capital Gain and
Date Share Dividends Percentage* Date Term** Term*** Distributions Distributions
Princor Growth Fund, Inc.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A Shares 12/30/94 $.1420 65.74% 12/01/94 $.5052 $.1220
7/3/95 .1700 62.80%
$.3120 $.6272 $.9392
B Shares 12/30/94 $.1420 65.74%
7/3/95 .0564 62.80%
$.1984 $.1984
Princor Utilities Fund, Inc.
A Shares 12/30/94 $.1325 94.19%
4/3/95 .1200 93.02%
7/3/95 .1200 96.51%
10/2/95 .1200 97.48%
$.4925 $.4925
B Shares 12/30/94 $.1325 94.19%
4/3/95 .1033 93.02%
7/3/95 .1033 96.51%
10/2/95 .1033 97.48%
$.4424 $.4424
Princor World Fund, Inc.
A Shares 12/30/94 .0345 .00% 12/01/94 $.1532 $.0314
.0345 $.1846 $.2191
B Shares 12/30/94 .0345
.0345 .00% $.0345
<FN>
*Percent qualifying for deduction by shareholders who are corporations.
**Taxable as long-term capital gain.
***Taxable at ordinary income rates.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 289,104,493
<INVESTMENTS-AT-VALUE> 341,501,900
<RECEIVABLES> 615603
<ASSETS-OTHER> 24412
<OTHER-ITEMS-ASSETS> 5,124
<TOTAL-ASSETS> 342,147,039
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 242,572
<TOTAL-LIABILITIES> 242,572
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 266,213,288
<SHARES-COMMON-STOCK> 14,337,061
<SHARES-COMMON-PRIOR> 13,725,652
<ACCUMULATED-NII-CURRENT> 2,279,052
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 21,014,720
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 341,904,467
<DIVIDEND-INCOME> 8,308,899
<INTEREST-INCOME> 473,882
<OTHER-INCOME> 8,782,781
<EXPENSES-NET> (2,344,098)
<NET-INVESTMENT-INCOME> 6,438,683
<REALIZED-GAINS-CURRENT> 21,096,912
<APPREC-INCREASE-CURRENT> 24,916,772
<NET-CHANGE-FROM-OPS> 54,452,367
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,617,183)
<DISTRIBUTIONS-OF-GAINS> (4,755,174)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,337,962
<NUMBER-OF-SHARES-REDEEMED> (1,230,978)
<SHARES-REINVESTED> 504,425
<NET-CHANGE-IN-ASSETS> 55,939,443
<ACCUMULATED-NII-PRIOR> 1,464,283
<ACCUMULATED-GAINS-PRIOR> 4,672,982
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,380,466
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,344,098
<AVERAGE-NET-ASSETS> 309,743,449
<PER-SHARE-NAV-BEGIN> 20.83
<PER-SHARE-NII> .45
<PER-SHARE-GAIN-APPREC> 3.15
<PER-SHARE-DIVIDEND> (.39)
<PER-SHARE-DISTRIBUTIONS> (.35)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.69
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 289,104,493
<INVESTMENTS-AT-VALUE> 341,501,900
<RECEIVABLES> 615603
<ASSETS-OTHER> 24412
<OTHER-ITEMS-ASSETS> 5,124
<TOTAL-ASSETS> 342,147,039
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 242,572
<TOTAL-LIABILITIES> 242,572
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 266,213,288
<SHARES-COMMON-STOCK> 95,254
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2,279,052
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 21,014,720
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 341,904,467
<DIVIDEND-INCOME> 8,308,899
<INTEREST-INCOME> 473,882
<OTHER-INCOME> 8,782,781
<EXPENSES-NET> (2,344,098)
<NET-INVESTMENT-INCOME> 6,438,683
<REALIZED-GAINS-CURRENT> 21,096,912
<APPREC-INCREASE-CURRENT> 24,916,772
<NET-CHANGE-FROM-OPS> 54,452,367
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,731)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 99,674
<NUMBER-OF-SHARES-REDEEMED> (4,723)
<SHARES-REINVESTED> 303
<NET-CHANGE-IN-ASSETS> 55,939,443
<ACCUMULATED-NII-PRIOR> 1,464,283
<ACCUMULATED-GAINS-PRIOR> 4,672,982
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,380,466
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,344,098
<AVERAGE-NET-ASSETS> 309,743,449
<PER-SHARE-NAV-BEGIN> 19.12
<PER-SHARE-NII> .33
<PER-SHARE-GAIN-APPREC> 4.46
<PER-SHARE-DIVIDEND> (.30)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.61
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Principal Mutual Life Insurance Company Master Individual Retirement Account
Plan and Custody Agreement
This is the Principal Mutual Life Insurance Company's Master Individual
Retirement Account Plan and Custody Agreement for use by individuals who desire
to establish an Individual Retirement Account (IRA), as described in Section
408(a) of the Internal Revenue Code (Code). Principal Mutual Life Insurance
Company hereby agrees to act as Custodian of any IRA established under the Plan
and this Agreement, subject to the following terms and conditions:
ARTICLE I - Limitations on Contributions
In addition to the initial contribution made at the time the Account is
established, the Custodian may accept additional cash contributions from, or on
behalf of, the Participant for a taxable year of the Participant except as
limited below.
Except in the case of a Rollover Contribution as that term is described in Code
Sections 402(c), 403(a)(4), 403(b)(8) or 408(d)(3), or an employer contribution
to a Simplified Employee Pension as defined in Section 408(k), only cash
contributions will be accepted, and such contribution shall not exceed the
lesser of $2,000 or 100% of compensation.
Two applications are necessary if both spouses are establishing an IRA. The
maximum combined contribution in the event of a non-working spouse is the lesser
of 100% of compensation or $2250. The maximum contribution must be split between
the two accounts so no more than $2000 is placed in either account.
Excess Contributions
A retirement savings deduction will not be allowed for contributions to an IRA
in excess of the 100%-$2,000/$2,250 limits, or in the case of a Simplified
Employee Pension, 15%-$30,000 limitation discussed above; nor will the deduction
be allowed for any contribution made during the year in which or after the
Participant reaches 70 1/2 (except in the case of a Simplified Employee
Pension), or in the case of a Participant who is a non-working spouse, the year
in which or after the working spouse reaches age 70 1/2. (A deductible spousal
contribution can be made to the IRA of the non-working spouse as long as the
non-working spouse is under age 70 1/2 and the working spouse has earned
income.) Additionally, a nondeductible federal excise tax penalty in the amount
of 6% of such excess contributions will be imposed on any Participant who has
excess contributions in his IRA. This penalty will be imposed each year until
the excess contributions are removed.
An excess contribution may be removed from an IRA by withdrawing the amount of
the excess or by applying the excess toward the retirement savings deduction of
the Participant in a subsequent year. If an excess contribution is withdrawn
from the Retirement Account, together with the net income of such excess
contribution, prior to the due date for filing the Participant's income tax
return for the year in which the excess contribution was made (including
extensions of time), the 6% nondeductible excise tax will not be imposed, the
contribution withdrawn will not be included in the Participant's gross income
for the year in which received, and the federal 10% tax on premature
distributions (see Distributions) will not be imposed on the excess withdrawn.
The net income on such excess contribution that is withdrawn will be deemed to
have been earned and is taxable in the taxable year in which such excess
contribution was made.
If an excess contribution is withdrawn after the due date for filing the
Participant's income tax return for the taxable year (including extensions of
time) and no deduction was taken for the excess portion of the contribution, the
excess withdrawn will not be included in the Participant's federal gross income
for the year in which received, and the 10% federal tax on premature
distributions will not be imposed on the excess withdrawn, provided that the
total contributions during the year, including the excess contribution, did not
exceed $2,250. Any earnings of such excess contributions withdrawn after the due
date for filing the Participant's income tax return (including extensions of
time) will be subject to the taxes on premature distributions and will be
included in federal gross income.
If an excess contribution is withdrawn after the due date for filing the
Participant's income tax return for the taxable year (including extensions of
time) and the total contribution for the taxable year exceeded $2,250, the
excess contribution that is withdrawn will be included in the Participant's
federal gross income for the year in which received, the 10% federal tax on
premature distributions will be imposed on the amount withdrawn, and the 6%
nondeductible excise tax will be imposed for each year until the excess
contribution is removed.
ARTICLE II - Nonforfeitability
The interest of the Participant in the balance in his or her Account shall at
all times be nonforfeitable.
The Account is established for the exclusive benefit of the Participant and his
or her beneficiaries.
ARTICLE III - Prohibited Investments
No part of the custodial funds shall be invested in life insurance contracts,
nor may the assets of any Participant's Account be commingled with other
property except in a common trust fund or common investment fund [within the
meaning of Code Section 408(a)(5)]. All funds shall be invested in shares of
such Mutual Funds as Participant shall designate.
ARTICLE IV - Distributions
The entire amount of any distribution from an IRA, other than a timely
withdrawal of excess contribution, including amounts deemed distributed as the
result of a prohibited transaction (see Prohibited Transactions) will be
includible in the gross income of the person receiving such distribution and
taxable as ordinary income. If the distribution occurs before the Participant is
age 59 1/2, the Participant will be charged with a nondeductible federal excise
tax of 10% of the amount of the premature distribution. The excise tax will not
be applied, however, if the distribution or withdrawal is due to the
Participant's death, disability as defined in the Plan, or if distributions are
made in substantially equal periodic payments (at least annually) for the life
expectancy of the individual or the joint life expectancies of the individual
and his or her own beneficiary.
The Participant may begin to take money out of an IRA without penalty after the
age of 59 1/2, but must begin receiving a distribution from his or her Account
not later than the April 1 following the calendar year in which the Participant
attains age 70 1/2 (required beginning date). At least 30 days prior to that
date the Participant must elect to have the balance in the Account distributed
in:
(a) a single sum payment,
(b) equal, or substantially equal, monthly, quarterly, semiannual or annual
payments (see "Minimum amounts to be distributed" below) commencing not
later than the above date and not extending beyond the life expectancy
of the Participant, or
(c) equal, or substantially equal, monthly, quarterly, semiannual or annual
payments (see "Minimum amounts to be distributed" below) commencing not
later than the above date and not extending beyond the joint and last
survivor expectancy of the lives of the Participant and the designated
Beneficiary.
Minimum amounts to be distributed. If the Participant's entire interest is to be
distributed in other than a lump sum, then the amount to be distributed each
year (commencing with the required beginning date and each year thereafter) must
be at least equal to the quotient obtained by dividing the Participant's benefit
by the applicable life expectancy.
For calendar years beginning after December 31, 1988, the amount to be
distributed each year, beginning with the first calendar year for which
distributions are required and then for each succeeding calendar year, shall not
be less than the quotient obtained by dividing the Participant's benefit by the
lesser of (1) the applicable life expectancy or (2) if the Participant's spouse
is not the designated beneficiary, the applicable divisor determined from the
table set forth in Q&A-4 of section 1.401(a)(9)-2 of the Proposed Income Tax
Regulations. Distributions after the death of the Participant shall be
distributed using the applicable life expectancy as the relevant divisor without
regard to proposed regulations section 1.401(a)(9)-2.
Life expectancy is computed by use of the expected return multiples in Tables V
and VI of section 1.72-9 of the Income Tax Regulations. Unless otherwise elected
by the Participant by the time distributions are required to begin, life
expectancies shall be recalculated annually. Such election shall be irrevocable
as to the Participant and shall apply to all subsequent years. The life
expectancy of a non-spouse beneficiary may not be recalculated; instead, life
expectancy will be calculated using the attained age of such beneficiary during
the calendar year in which distributions are required to begin pursuant to this
section, and payments for subsequent years shall be calculated based on such
life expectancy reduced by one for each calendar year which has elapsed since
the calendar year life expectancy was first calculated.
A 50% excise tax will be imposed on the difference between the minimum payout
required and the amount actually paid, unless the underdistribution was due to
reasonable cause.
Notwithstanding that distributions may have commenced pursuant to (b) or (c)
above, the Participant may receive a larger distribution from the Account upon
written request to the Custodian. If the Participant fails to elect any of the
methods described above on or before April 1 following the year in which the
Participant attains age 70 1/2, distribution will be made in a single sum
payment on or before that date.
Notwithstanding any other provision of this Plan, the Participant or a
Beneficiary may elect to receive distribution in any manner permitted by law
which satisfies the requirements of Section 401(a)(9) of the Code and
Regulations thereunder, and approved by the Custodian.
The duty to determine the amount of the distributions hereunder shall be the
Participant's or, when applicable, the designated Beneficiary. The Custodian
shall not be liable to the Participant or any other person for taxes or other
penalties incurred as a result of failure to distribute the minimum amount
required by law.
Any distributions before the age of 59 1/2 will result in an additional tax
equal to 10% of the taxable amount of the distribution, unless the participant
is disabled. The 10% penalty does not apply to amounts not exceeding the amount
allowable as a deduction for medical expenses, or to a series of substantially
equal periodic payments over the participant's life or life expectancy or the
joint lives or life expectancies of the participant and the beneficiary.
Distributions are generally taxed as ordinary income in the year they are
received, and are not eligible for capital gains treatment or the special
averaging rules that apply to lump sum distributions from qualified employee
plans. Distributions are nontaxable to the extent they represent a return of
certain nondeductible contributions made for years after 1986 (See Income Tax
Considerations). The nontaxable percentage of such a distribution is determined
by dividing (a) undistributed nondeductible contributions by (b) the total value
of all IRAs (including SEPs and Rollover IRAs).
Unless a special election is made by a taxpayer, any distributions from IRAs and
other qualified plans within one year in excess of $150,000 may be subject to a
15% excess distribution penalty.
ARTICLE V - Death Benefits
If the Participant dies before receiving full distribution from the Account, the
balance in the Account must be distributed in the following manner: (a)
Distributions beginning before death. If the owner dies after distribution of
his or her interest has begun, the remaining
portion of such interest will continue to be distributed at least as
rapidly as under the method of distribution being used prior to the owner's
death.
(b) Distributions beginning after death. If the owner dies before distribution
of his or her interest begins, the owner's entire interest will be
distributed in accordance with one of the following four provisions: (1)
The owner's entire interest will be paid by December 31 of the calendar
year containing the fifth anniversary of the owner's
death.
(2) If the owner's interest is payable to a Beneficiary designated by the
owner and the owner has not elected (1) above, then the entire interest
will be distributed over the life or over a period certain not greater
than the life expectancy of the designated Beneficiary commencing on or
before December 31 of the calendar year immediately following the
calendar year in which the owner died. The designated Beneficiary may
elect at any time to receive greater payments.
(3) If the designated Beneficiary of the owner is the owner's surviving
spouse, the spouse may elect to receive equal or substantially equal
payments over the life or life expectancy of the surviving spouse
commencing at any date prior to the later of (1) December 31 of the
calendar year immediately following the calendar year in which the
owner died and (2) December 31 of the calendar year in which the owner
would have attained age 70 1/2. Such election must be made no later
than the earlier of December 31 of the calendar year containing the
fifth anniversary of the owner's death or the date distributions are
required to begin pursuant to the preceding sentence. The surviving
spouse may increase the frequency or amount of such payments at any
time.
(4) If the designated Beneficiary is the owner's surviving spouse, the
spouse may treat the account as his or her own individual retirement
arrangement (IRA). This election will be deemed to have been made if
such surviving spouse makes a regular IRA contribution to the account,
makes a rollover to or from such account, or fails to elect any of the
above three provisions.
(c) Life expectancy is computed by use of the expected return multiples in
Tables V and VI of section 1.72-9 of the Income Tax Regulations. For
purposes of distributions beginning after the owner's death, unless
otherwise elected by the surviving spouse by the time distributions are
required to begin, life expectancies shall be recalculated annually.
Such election shall be irrevocable as to the surviving spouse and shall
apply to all subsequent years. In the case of any other designated
Beneficiary, life expectancies shall be calculated using the attained
age of such beneficiary during the calendar year in which distributions
are required to begin pursuant to this section, and payments for any
subsequent calendar year shall be calculated based on such life
expectancy reduced by one for each calendar year which has elapsed
since the calendar year life expectancy was first calculated.
(d) For purposes of this requirement, any amount paid to a child of the owner
will be treated as if it had been paid to the surviving spouse if the
remainder of the interest becomes payable to the surviving spouse when the
child reaches the age of majority.
ARTICLE VI - Declaration of Intention
Except in the case of the Participant's death, Disability [as defined in Section
72(m) of the Code] or attainment of age 59 1/2, the Custodian shall receive from
the Participant a declaration of the Participant's intention as to the
disposition of the amount distributed before distributing an amount from the
Participant's Account.
ARTICLE VII - Notices And Reports
The Participant agrees to provide information to the Custodian at such time and
in such manner and containing such information as may be necessary for the
Custodian to prepare any reports required pursuant to Section 408(i) of the Code
and the regulations thereunder.
The Custodian agrees to submit reports to the Internal Revenue Service and the
Participant at such time and in such manner and containing such information as
is prescribed by the Internal Revenue Service. Currently, calendar year reports
concerning the status of the account are required to be furnished annually.
ARTICLE VIII - Controlling Article
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence shall be controlling.
Furthermore, any such additional article shall be wholly invalid if it is
inconsistent, in whole or in part, with Section 408(a) of the Code and the
regulations thereunder.
ARTICLE IX
The Custodian shall have the authority to amend this Agreement from time to time
in order to comply with the provisions of the Code and regulations thereunder.
The Custodian shall have the right to amend its fee structure and amounts. Such
an amendment shall apply to current and/or future years only. The Custodian
shall also have the right to amend this agreement by adding additional
investment alternatives. Furthermore, other amendments may be made upon written
consent of the Custodian and the Participant.
ARTICLE X - Definitions
Account shall mean the Principal Mutual Life Insurance Company Individual
Retirement Account which has been established in accordance with Section 408 of
the Code and consists of the terms and conditions herein set forth together with
the provisions of the Application.
Beneficiary shall mean the person(s) or entity(ies) designated to receive the
balance in the Account upon the death of the Participant or upon the death of a
prior Beneficiary.
ERISA means the Employee Retirement Income Security Act of 1974, as it may be
amended from time to time.
Compensation means wages, salaries, professional fees, and other amounts derived
from or received for personal services actually rendered (including, but not
limited to, commissions-paid salespersons, remuneration for services on the
basis of a percentage of profits, commissions on insurance premiums, tips and
bonuses) and includes earned income, as defined in Section 401(c)(2) of the Code
(reduced by the deduction the self-employed individual takes for contributions
made to a self-employed retirement plan). For purposes of this definition,
Section 401(c)(2) shall be applied as if the term trade or business for purposes
of Section 1402 included service described in subsection (c)(6). Compensation
does not include amounts derived from or received as earnings or profits from
property (including, but not limited to, interest and dividends) or amounts not
includible in gross income. Compensation also does not include any amount
received as a pension or annuity or as deferred compensation. The term
compensation shall include any amount includible in the individual's gross
income under Section 71 with respect to a divorce or separation instrument
described in subparagraph (A) of Section 71(b)(2).
Custodian means Principal Mutual Life Insurance Company or any successor
thereto.
Investment Manager refers to Princor Management Corporation. This term shall
have the same meaning as that in Section 3(38) of ERISA. The Investment Managers
with respect to the Mutual Funds hereby acknowledge that they are fiduciaries
with respect to the Plan. The Investment Managers with respect to the individual
Participant's Account hereby acknowledge that they are fiduciaries with respect
to the funds of the Participant.
Princor Group of Funds, Mutual Fund, Fund, or The Princor Family of Mutual Funds
means the fund or funds managed by Princor Management Corporation which have
been made available for the investment of IRA contributions and in which all
contributions made under this Plan shall be invested.
Participant means any individual of legal age who shall execute the
Participation Agreement and make contributions to this Plan.
Participation Agreement means the written agreement executed by the Participant
and, where applicable, the Broker, whereby the Participant agrees to participate
in the Plan.
Plan means the terms and conditions of this Principal Mutual Life Insurance
Company IRA Plan and Custody Agreement including any amendments made pursuant to
Article XV of the Plan.
Spousal IRA means two contributory IRAs established by a working individual for
himself or herself and for the benefit of his or her non-employed spouse.
All other capitalized words, terms and phrases not specifically defined shall
have and carry the meaning given them under the Code.
ARTICLE XI - Investments
All contributions received by the Custodian shall be invested in such Mutual
Funds as the Participant may designate.
At the time the Participant executes the Participation Agreement, the
Participant shall specify the particular Mutual Fund or Funds in which
contributions shall be invested. After the initial contribution, the Participant
may, at any time, direct the Custodian to transfer contributions then invested
in any such Fund into any other such Funds. Transfers made pursuant to such
direction shall not be considered a distribution of any Account to the
Participant.
No party identified herein shall be required to comply with any direction of the
Participant which in the judgment of such party may subject it to liability or
expense unless such party shall be indemnified in manner and amount satisfactory
to it.
The Participant is 100% vested at all times in all funds attributed to his
Account.
The Participant may not borrow funds from his Account, nor may he use the funds
as security for any loan or extension of credit.
Except as provided in this Plan, no right, interest or claim in or to any funds
held in the Mutual Fund shall be transferable, assignable or subject to pledge
by the Participant or Beneficiary, and any attempt to transfer, assign or pledge
the same shall not be recognized except as required by law. The right, interest
or claim in or to any funds held in the Mutual Fund shall not be subject to
garnishment, attachment, execution or levy except as permitted by law.
Any Participant under the Plan may transfer his or her interest, in whole or in
part, to his or her spouse under a decree of divorce or dissolution of marriage
or a written instrument incident to such divorce or dissolution. At the time of
transfer, such interest shall be deemed an IRA of such spouse. The Participant
shall promptly notify Custodian of any such transfer by delivery to Custodian of
a certified copy of such decree or a true copy of such written instrument. Upon
receipt of the certified copy of such decree or a true copy of such written
instrument from any source, Custodian shall promptly adjust its books and
records to reflect that such Account is for the benefit of such former spouse.
Custodian shall not be required to accept contributions to or make distributions
from an Account established for a former spouse by reason of a transfer of
interest by a Participant to such former spouse hereunder until such former
spouse shall execute a Participation Agreement.
The Plan and the Accounts established hereunder shall be governed by all
applicable laws, rules and regulations of the United States of America and the
State of Iowa.
ARTICLE XII - Contributions
All initial contributions shall be paid to the Custodian at the time the
Participation Agreement is executed. Additional contributions may be paid to the
Custodian in such manner and in such amounts as the Custodian shall specify.
Contributions made by or on behalf of the Participant may be paid at any time
during the calendar year, but in no event later than the last day for the filing
of the Federal Income Tax Return for the calendar year to which they relate, not
to include any extensions thereof.
Except in the case of a Rollover IRA or Simplified Employee Pension,
contributions made by or on behalf of the Participant shall not be made during
or after the calendar year in which the Participant attains age 70 1/2 years.
All IRA contributions must be in cash.
If an Excess Contribution is made by or on behalf of the Participant for any
calendar year, upon written request for distribution from the Participant
stating the amount of the Excess Contribution to be distributed, Custodian will
distribute such amount of the Excess Contribution to the Participant, together
with the income attributable thereto. The Custodian shall not have any duty to
determine whether an Excess Contribution has been made by or on behalf of the
Participant, and the Custodian shall not be held liable by the Participant or
any other person for failing to determine whether an Excess Contribution was
made or for failing to make distribution of such Excess Contribution without
request of the Participant. The Custodian shall not be liable to the Participant
or any other person for taxes or other penalties incurred as a result of an
Excess Contribution and any income attributable thereto or as a result of a
distribution of an Excess Contribution and any income attributable thereto.
Before the Custodian shall accept a contribution by or on behalf of the
Participant as a Rollover Contribution, the Participant shall deliver to the
Custodian a written declaration, in a form acceptable to the Custodian, that
such contribution is eligible for treatment as a Rollover Contribution.
Notwithstanding anything to the contrary in the Plan, once the Custodian has
received a declaration from the Participant that a contribution is a Rollover
Contribution, the Custodian may conclusively rely on the Participant's
declaration and may accept and treat the contribution as a Rollover
Contribution. All Rollover Contributions from a qualified employer plan shall be
maintained in a separate Rollover IRA.
ARTICLE XIII - Designation of Beneficiary
The Participant may designate the Beneficiary of his or her Account by a written
form acceptable to and filed with Custodian. Community property states and
marital property states require spousal consent if someone other than the spouse
is to be named as Beneficiary.
If the Participant designates more than one Beneficiary, he or she shall
designate the percentage interest that each such Beneficiary shall receive from
his or her Account upon distribution. In the event no such percentage interest
is designated, the interest of each Beneficiary shall be equal.
If the Participant predeceases his or her spouse before his or her entire
Account is distributed in accordance with Article IV(c) of the Plan and the
Participant has designated no Beneficiary for the remaining interest or all such
Beneficiaries predecease the Participant's spouse, then the interest of the
Participant's spouse in the Account shall be fully vested and subject to the
terms and conditions of this Article and the Participant's spouse shall be
entitled to designate the Beneficiary of the Account in accordance with this
Article.
The Participant may, at any time, change or revoke any designation made under
this Article in a written form acceptable to and filed with the Custodian. Upon
the death of the Participant, the designation or designations made hereunder
shall be irrevocable. The designation shall be effective only if received by the
Custodian prior to the death of the Participant.
If the Participant fails to designate any Beneficiary or if the Participant
revokes the designation of Beneficiary or if all Beneficiaries designated
predecease the Participant, then the entire interest of the Participant in his
Account shall pass to the Participant's estate.
ARTICLE XIV - Administrative Duties
This Article shall delineate the responsibilities of the Custodian. The
Custodian shall maintain the Account in the name of the Participant and shall be
responsible only for the contributions of which it receives notice from the
Participant. The Custodian shall make distributions and transfers only in
accordance with the directions of the Participant. The Custodian shall keep
records of all receipts, investments and disbursements relating to the Account.
The Custodian shall furnish the Participant or the Beneficiary, where
applicable, with a written Statement of transactions relating to the Account.
Unless the Participant shall have filed with the Custodian Agent written
exceptions or objections to such Statement within thirty (30) days after it is
furnished, the custodian shall be forever released and discharged from liability
or accountability to the Participant or the Beneficiary, with respect to the
acts and transactions shown in the Statement. No Beneficiary shall be entitled
to Statements hereunder until the Participant is deceased and distribution shall
have commenced to such Beneficiary.
The duties and responsibilities of all parties to this Agreement are limited to
those specifically stated herein and no other or further duties or
responsibilities shall be implied.
ARTICLE XV - Amendments Or Revocation Of Participation in Plan
The Participant may terminate participation in the Plan at any time by notifying
the Custodian in writing of the intention to terminate and instructing the
Custodian in writing to whom and by what means the funds on deposit in his
Account shall be transferred. Withdrawal of all funds invested in the Mutual
Fund shall terminate participation in the Plan. Although termination of this
Account could have an adverse effect on a Simplified Employee Pension in which
the Participant is participating, the Custodian has no liability to the
Participant, the employer, or to any other employees of that employer with
respect to such termination.
The Participant may revoke participation in the Plan within seven (7) business
days from the date the Participant executes the Participation Agreement by
notice to the Custodian in writing.
The Custodian may be required to withhold 10% from any taxable distribution an
IRA unless the Participant elects no withholding at the time distributions
begin. Whether or not the Participant allows the Custodian to withhold, he or
she may be required to make quarterly estimated tax payments. In addition,
unless the Participant indicates at the time he or she closes an IRA account
that it is being transferred to another tax qualified plan, the Custodian will
be required to withhold at least 10% of the distribution.
ARTICLE XVI - Miscellaneous
All instructions to the Custodian shall be in writing. The Participant may
authorize an agent to give instructions hereunder. Any such agent, including any
Broker authorized to direct the investment of a Participant's Account, must be
authorized in writing by the Participant in such form which is approved by and
filed with the Custodian. Any instruction by an agent so authorized shall be
binding on the Participant. Any authorization hereunder shall remain in effect
until revoked by the Participant in writing filed with the Custodian.
Principal Mutual Life Insurance Company shall substitute another Trustee or
Custodian upon notification by the Internal Revenue Service that such
substitution is required because it has failed to comply with the requirements
of Section 1.401-12(n) of the Treasury Regulations, or is not keeping such
records, or mailing such returns or sending such statements as are required by
forms or regulations.
In no event shall the Custodian be liable or responsible for the payment of any
tax or any penalty attributable to Excess Contributions, retention of Excess
Contributions, failure to make the minimum distribution from the Account, or
withdrawals or distributions made from the Account. Custodian shall not be
required to make any distribution which, in the judgment of Custodian, will
render Custodian directly liable for any such tax or penalty.
In the event Custodian shall receive any claim to the funds held under the Plan
which claim is adverse to the interest of the Participant or the Beneficiary and
which claim Custodian, in its absolute discretion, deems meritorious, Custodian
may withhold distribution under the Plan until the claim is resolved or until
instructed by a court of competent jurisdiction or Custodian may pay all or any
portion of the funds then invested in the Mutual Fund into such court. Payment
to a court under the Plan shall relieve Custodian of any further obligation to
anyone for the amount so paid.
In the event any question arises or ambiguity exists as to the meaning,
interpretation or construction of any provisions of the Plan, the Custodian is
authorized to construe or interpret any such provision and such construction and
interpretation shall be binding upon the Participant and the Beneficiary.
As compensation for its service hereunder, the Custodian shall be paid an annual
maintenance fee of $15 per IRA Plan Participant Account on the first business
day of December each year. Such fees shall be deducted from the Accounts as
applicable and paid to the Custodian unless the participant elects, in a writing
filed with the Custodian, to pay such fee directly. Any fee not paid directly
when due may be deducted from the Account and paid to the Custodian.
Any notices required or permitted to be given to Custodian under the Plan shall
be given to Custodian at the office of Custodian or any of its offices, and any
notices required or permitted to be given to the Participant under the Plan
shall be given to the Participant at the address for notice the Participant may
file with Custodian from time to time. Notices hereunder may be personally
served or sent by United States mail, first class, with postage prepaid and
properly addressed.
Any provision of the Plan which disqualifies it as an IRA shall be disregarded
to the extent necessary to continue to qualify it as an IRA under the code.
Titles to Articles in this Plan are for convenience only and, in the event of
any conflict, the text of the Plan rather than the titles shall control.
Principal Mutual Life Insurance Company's
Master Simplified Employee Pension Plan
This is the Principal Mutual Life Insurance Company's Master Simplified Employee
Pension Plan for use by individuals who desire to establish a Simplified
Employee Pension Plan (SEP) as described in Section 408(k) of the Internal
Revenue Code ("Code"). Principal Mutual Life Insurance Company hereby agrees to
act as sponsor of any SEP established under the Plan and this Agreement, subject
to the following terms and conditions.
ARTICLE I -- PURPOSE
It is the intention of the Employer to adopt this SEP agreement which satisfies
the requirements of Code Section 408(k), and any amendments thereto.
Under this SEP agreement, the Employer may agree to permit Elective Deferrals to
be made in each Plan Year to the Individual Retirement Account or Individual
Retirement Annuity (IRA) as described in Code Section 408(a) or (b)
respectively, established by or on behalf of each of the Employees who are
eligible to participate in the SEP. The Employer may also make a non-elective
Employer Contribution for or on behalf of each Eligible Employee covered under
this plan. If Elective Deferrals are allowed, this Plan is intended to qualify
as a salary reduction simplified employee pension ("SARSEP") under Code Section
408(k) (6) and the regulations thereunder.
This SEP agreement is effective upon adoption. No Elective Deferrals may be made
by an Employee on the basis of Compensation that the Employee received or had a
right to receive before adoption of this agreement and execution by the Employee
of the deferral election.
The Employer may deduct, subject to the otherwise applicable limits, those
contributions made to a SEP. Contributions to the SEP are deductible for the
Employer's taxable year with or within which the Plan Year of the SEP ends.
Contributions made for a particular taxable year and contributed by the due date
of the Employer's income tax return, including extensions, are deemed made in
that taxable year.
ARTICLE II -- PARTICIPATION
Any Employee who meets the participation requirements of Section II of the
Adoption Agreement must be permitted to participate in this SEP.
Elective Deferrals shall be permitted for a Plan Year only if:
(A) Not less than 50% of the Employees that are eligible to make Elective
Deferrals elect, or have an election in effect, to have Elective
Deferrals made to the SEP. See Article VII for further information; and
(B) The Employer had no more than 25 Employees eligible to participate in
the SEP at any time during the prior Plan Year.
A new Employer who had no Employees during the prior Plan Year will meet the
limitation in Code Section 408(k)(6)(B) (regarding no more than 25 eligible
employees during the preceding year) if it had 25 or fewer Employees throughout
the first 30 days of its existence.
ARTICLE III -- CONTRIBUTIONS
Employer
The Employer agrees that an Individual Retirement Account (IRA) will be
established for each Eligible Employee. When a Participant first becomes
eligible for a Contribution from the Employer, the Employer shall arrange for
the participant to apply for a SEP. Such application shall be made prior to the
date the first Employer Contribution is made.
For each Plan Year, the Employer will contribute a non-elective Employer
Contribution to the SEP of each Participant in an amount determined by the
Employer and allocated as determined in the Adoption Agreement. The Employer
must make a Contribution for each Eligible Employee whether or not they are
still employed at the time a Contribution is made. The Contribution made must be
the same percentage of each Employee's total Compensation.
The Employer Contribution for any Plan Year shall be due on the last day of the
Plan Year and shall be payable then or not later than the due date (as extended)
of the Employer's federal income tax return for the taxable year with or within
which the Plan Year ends.
The Employer Contribution shall be paid directly to the Employee's IRA insurer,
trustee, or custodian and applied to each Participant's Account.
Employer Contributions to this SEP, in combination with any other qualified plan
the Employer maintains for the Plan Year, may not exceed the lesser of $30,000
or 15% of Compensation for any Employee. If these limits are exceeded on behalf
of any Employee for a particular plan year, that Employee's Elective Deferrals
(if any) for that year must be reduced to the extent of the excess.
Employee Elective Deferral
An Employee may elect to have Elective Deferrals made under this SEP pursuant to
a salary reduction agreement. An Employee may elect to have Compensation reduced
by a percentage or amount per pay period or for a specified pay period or
periods, as designated in writing to the Employer.
No deferral election may be based on Compensation an Employee received, before
adoption of this elective SEP. This elective SEP shall be effective upon
adoption.
Under no circumstances may an Employee's Elective Deferrals in any Plan Year
exceed the lesser of fifteen percent of his or her Compensation (determined
without including the SEP-IRA contributions), or the limitation under Code
Section 402(g) based on all of the plans of the Employer. This amount may be
computed using the following formula:
Compensation (before subtracting employer SEP-IRA contributions) x
13.0435%.
If the Employer maintains any other SEP to which non-elective SEP Employer
Contributions are made for a Plan Year, or any qualified plan to which
contributions are made for such Plan Year, then an Employee's Elective Deferrals
may be limited to the extent necessary to satisfy the maximum contribution
limitations under Code Section 415(c)(1)(A).
In addition to the dollar limitation of Code Section 415(C)(1)(A), which is
$30,000 in 1991, contributions to this SEP when aggregated with contributions to
all other SEPs and qualified plans of the Employer generally may not exceed 15%
of Compensation or $30,000 for any Employee. If these limits are exceeded on
behalf of any Employee for a particular plan year, that Employee's Elective
Deferrals for that year must be reduced to the extent of the excess.
Each Employee's Elective Deferrals to this SEP may be based only on the first
$150,000 of Compensation (as adjusted annually in accordance with Code Section
408(k)(8)).
In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the plan to the contrary, for plan years
beginning on or after January 1, 1994, the annual compensation of each employee
taken into account under the plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceed 12
months, over which compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 annual compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the determination period, and
the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference in this plan
to the limitation under section 401(a)(17) of the Code shall mean the OBRA '93
annual compensation limit set forth in this provision.
The Employer shall contribute and allocate to each Employee's IRA an amount
equal to the amount of the Employee's Elective Deferrals. Elective Deferrals
will be paid by the Employer to the Employee's IRA trustee, custodian, or
insurer (in the case of a retirement annuity contract) or an IRA established on
behalf of an Employee by the Employer.
ARTICLE IV -- EXCESS ELECTIVE DEFERRALS (402(g) LIMIT)
Code Section 402(g) limits the maximum amount of Compensation an Employee may
elect to defer under a SEP (and certain other arrangements) during the Plan
Year. This limit, which originally was $7,000, is indexed according to the cost
of living. In addition, the limit may be increased if the Employee makes
Elective Deferrals to a salary reduction arrangement under Code Section 403(b).
The Code Section 402(g) limit applies to the total Elective Deferrals the
Employee makes for the Plan Year, from all Employers, under the following
arrangements:
(A) Elective SEPs under Code Section 408(k)(6); (B) Cash or deferred
arrangements under Code Section 401(k); and (C) Salary Reduction
arrangements under Code Section 403(b).
Thus, an Employee may have excess elective deferrals even if the amount deferred
under this SEP alone does not exceed the Code Section 402(g) limit.
If an Employee who elects to defer Compensation under this SEP and any other SEP
or arrangement has made excess elective deferrals for a Plan Year, the
Participant must withdraw those excess elective deferrals by April 15 following
the calendar year to which the deferrals relate. Those excess elective deferrals
not withdrawn by such date will be subject to the IRA contribution limitations
of Code Section 219 and 408 and thus may be considered an excess contribution to
the Employee's IRA. Such excess elective deferrals, therefore, may be subject to
the six percent tax on excess contributions under Code Section 4973.
Income on excess elective deferrals is includible in gross income in the year
withdrawn from the IRA and must be withdrawn by the Participant's tax return
following the calendar year to which the deferrals relate. Income withdrawn from
the IRA after that date may be subject to the ten percent tax on early
distributions under Code Section 72(t) if the recipient is not age 59 1/2.
ARTICLE V -- EXCESS SEP CONTRIBUTIONS -- DEFERRAL PERCENTAGE LIMITATION
Elective Deferrals by a Highly Compensated Employee must satisfy the Deferral
Percentage Limitation under Code Section 408(k)(6). Amounts in excess of the
Deferral Percentage Limitation will be deemed excess SEP contributions on behalf
of the affected Highly Compensated Employee or Employees. These excess SEP
contributions must be removed from the Employee's IRA. The Employer shall notify
each Highly Compensated Employee as outlined in Article VI - Excess SEP
Contributions.
The Deferral Percentage Limitation for Highly Compensated Employees is computed
by first averaging the Deferral Percentages for each eligible non-highly
compensated employee for the Plan Year and then multiplying this result by 1.25.
The deferral percentage for a Plan Year of any Highly Compensated Employee
eligible to participate in this SEP may not be more than the resulting product,
the Deferral Percentage Limitation.
Only Elective Deferrals are included in this computation. Non-elective Employer
Contributions may not be included. The determination of the Deferral Percentage
for any Employee is to be made in accordance with Code Section 408(k)(6) and
should satisfy such other requirements as may be provided by the Secretary of
the Treasury.
For purposes of making this computation, the calculation of the number and
identity of Highly Compensated Employees, and their deferral percentages, is
made on the basis of the entire Affiliated Employer.
In addition, for purposes of determining the Deferral Percentage of a Highly
Compensated Employee, the Elective Deferrals and Compensation of the Employee
will also include the Elective Deferrals and Compensation of any Family Member.
This special rule applies, however, only if the Highly Compensated Employee is a
5% owner or is one of a group of the ten most Highly Compensated Employees. The
Elective Deferrals and Compensation of Family Members used in this special rule
do not count in computing the average of the deferral percentages of non-highly
compensated employees.
ARTICLE VI -- EXCESS SEP CONTRIBUTIONS -- TAX CONSEQUENCES AND NOTIFICATION
OF EMPLOYEES
Elective Deferrals
The Employer is responsible for notifying each affected Employee, if any, within
2 1/2 months following the end of the Plan Year, of the amount of excess SEP
contributions to that Employee's SEP-IRA. Such excess SEP contributions are
includible in the Employee's gross income in the calendar year as of the
earliest date that any Elective Deferrals by the Employee during the Plan Year
would have been received by the Employee had he or she originally elected to
receive the amounts in cash. Income allocable to the excess SEP contributions is
includible in gross income in the year of withdrawal from the IRA. However, if
the excess SEP contributions (not including allocable income) total less than
$100, then the excess contributions are includible in the Employee's gross
income in the calendar year of notification. Income allocable to the excess SEP
contributions is includible in gross income in the year of notification. Income
allocable to the excess SEP contributions is includible in gross income in the
year of withdrawal from the IRA.
If the Employer fails to notify any affected Employees within 2 1/2 months
following the end of the Plan Year of an excess SEP contribution, the Employer
must pay a tax equal to 10% of the excess SEP contribution. If the Employer
fails to notify Employees by the end of the Plan Year following the Plan Year in
which the excess SEP contributions arose, the SEP will no longer be considered
to meet the requirements of Code Section 408(k)(6). If the SEP no longer meets
the requirements of Code Section 408(k)(6), then any contribution to an
Employee's IRA will be subject to the IRA contribution limitations of Code
Sections 219 and 408 and thus may be considered an excess contribution to the
Employee's IRA.
The Employer's notification to each affected Employee of the excess SEP
contributions must specifically state in a manner calculated to be understood by
the average Employee:
(A) The amount of the excess SEP contributions attributable to that
Employee's Elective Deferrals (B) The calendar year in which the excess SEP
contributions are includible in gross income; and (C) That the Employee
must withdraw the excess SEP contributions (and
allocable income) from the SEP-IRA by the due date (including
extensions) for filing the income tax return following the calendar
year of notification by the Employer. Those excess contributions not
withdrawn by April 15 following the year of notification will be
subject to the IRA contribution limitations of Code Sections 219 and
408 for the preceding calendar year and thus may be considered an
excess contribution to the Employee's IRA. Such excess contributions
may be subject to the six percent tax on excess contributions under
Section 4973. If income allocable to an excess SEP contribution is not
withdrawn by April 15 following the calendar year of notification by
the Employer, the income may be subject to the ten percent tax on early
distributions under Code Section 72(t) when withdrawn.
For information on reporting excess SEP contributions, see Notice 87-77, 1987-2
C.B. 385, and Notice 88-33, 1988-1 C.B. 513, as modified by Notice 89-32, 1989-1
C.B. 671. The Employer shall notify each Employee who makes an Elective Deferral
for a Plan Year that, notwithstanding the prohibition on withdrawal restrictions
contained in the SEP, any amount attributable to such Elective Deferrals which
is withdrawn or transferred before the earlier of 2 1/2 months after the end of
the particular Plan Year and the date the Employer notifies its Employees that
the Deferral Percentage Limitations have been calculated, will be includible in
income for purposes of Code Sections 72(t) and 408(d)(1).
Employer Contribution
Any Employer Contribution that is more than the yearly limitation may be
withdrawn without penalty by April 15 for the Employee's tax return, but is
includible in income. Excess SEP contributions left in the Employee's SEP-IRA
after that time may have adverse tax consequences. Withdrawals of those
contributions may be taxed as premature withdrawals.
ARTICLE VII -- FAILURE TO SATISFY THE 50% TEST
If the Employer determines, as of the end of the Plan Year, that more than half
of the eligible Employees have chosen not to make Elective Deferrals for that
Plan Year, then all Elective Deferrals made by Employees for that Plan Year
shall be considered "disallowed deferrals", i.e. IRA contributions that are not
SEP-IRA contributions.
The Employer must notify each affected Employee, within 2 1/2 months following
the end of the Plan Year to which the disallowed deferrals relate, that the
Participant's deferrals are no longer considered SEP-IRA contributions. Such
disallowed deferrals are includible in the Employee's gross income in the
calendar year as of the earliest date that any Elective Deferrals by the
Employee during the Plan Year would have been received by the Employee had the
Participant originally elected to receive the amounts in cash. Income allocable
to the disallowed deferrals is includible in the Employee's gross income in the
year of withdrawal from the IRA.
The notification to each affected Employee of the disallowed deferrals must
specifically state in a manner calculated to be understood by the average
Employee:
(A) The amount of the disallowed deferrals;
(B) The calendar year in which the disallowed deferrals are includible in
gross income; and
(C) That the Employee must withdraw the disallowed deferrals (and allocable
income) from the SEP-IRA by April 15 for filing the Employee's tax
return following the calendar year of notification by the Employer.
Those disallowed deferrals not withdrawn by such tax filing deadline
will be subject to the IRA contribution limitations of Code Sections
219 and 408 and thus may be considered an excess contribution to the
Employee's IRA. These disallowed deferrals thus may be subject to the
six percent tax on excess contributions under Section 4973. If income
allocable to a disallowed deferral is not withdrawn by April 15 for
filing the Employee's tax return, the income may be subject to the ten
percent tax on early distributions under Code Section 72(t) when
withdrawn.
Disallowed deferrals should be reported in the same manner as are excess SEP
contributions.
ARTICLE VIII -- TOP HEAVY REQUIREMENTS
This SEP is "top-heavy" for a plan year if, as of the last day of the previous
plan year (or current plan year if this is the first year of the SEP) the total
of elective and non-elective contributions made on behalf of key employees for
all the years this SEP has been in existence exceeds 60% of such contributions
for all employees. If the employer maintains (or maintained within the prior
five years) any other SEP or defined contribution plan in which a key employee
participates (or participated), the contributions or account balances, whichever
is applicable, must be aggregated with the contributions made to this SEP. The
employee who ceases to be a key employee or an individual who has not been in
the employ of the employer for the previous five years shall be disregarded.
During any Plan Year in which this Plan is a Top-heavy Plan, the Employer shall
make a minimum contribution or allocation on the last day of the Plan Year for
each person who is an Employee on that day and who either was or could have been
an Active Participant during the Year. The minimum contribution and allocation
for such persons shall be equal to the lesser of (A) or (B) below:
(A) Three percent of such person's Compensation
(B) If the contribution rate for all Key Employees is less than three
percent of Compensation, then the highest contribution rate that
applies to any Key Employee.
If the Employer Contributions and allocations otherwise required under the
defined contribution plans are at least equal to the minimum above, no
additional contribution or allocation shall be required. If the Employer
Contributions and allocations are less than the minimum above and the Employer
Contributions under this Plan are allocated to Participants, the Employer
Contributions (other than Elective Deferral Contributions) shall be reallocated
to provide the minimum. The remaining Contributions shall be allocated as
provided in the preceding articles of this Plan. If total Contributions and
allocations are less than the minimum above and the Employer's Contributions
under this Plan are not allocated, the Employer shall contribute the difference
for the year. The minimum contribution or allocation applies to all of the
defined contribution plans in the aggregate which are Top-heavy Plans. A minimum
allocation under a profit sharing plan shall be made without regard to whether
or not the Employer has profits.
If an Employer has more than one Top-heavy Plan, the minimum top-heavy
contribution does not need to be duplicated under each Plan. For Employees who
are Participants under both Top-heavy Plans, one of the Plans may provide the
minimum benefit required. For Employees who are Participants under only one
Top-heavy Plan, that Plan in which they are Participants shall provide the
top-heavy minimum contribution.
If the Employer has more than one Plan, all of the Plans of the Employer may be
required to be aggregated when testing to see if the Plans are top-heavy. This
"required aggregation group" consists of each Plan of the Employer
(A) in which a Key Employee is a Participant and
(B) any other Plan which causes a Plan covering Key Employees to meet the
requirements of Code Sections 401(a)(4) or 410.
If the "required aggregation group" is top-heavy, each Plan in the group is a
Top-heavy Plan.
The Employer is permitted to include other Plans when testing to see if the
group as a whole is top-heavy. This group as a whole is considered as
"permissive aggregation group". If this group is not top-heavy, none of the
Plans in the group is a Top-heavy Plan.
Calculations to determine if this Plan is a Top-heavy Plan and the
identification of Key Employee's shall be determined according to the provisions
of Code Section 416 and regulations thereunder. Compensation for determining the
top-heavy minimum excludes Elective Deferrals.
For purposes of satisfying the minimum contribution requirement under Code
Section 416, all non-elective Employer Contributions under the SEP shall be
taken into account, but Elective Deferrals shall not be taken into account.
The requirements of this section shall be met without regard to contributions
under Chapter 2 of the Code (relating to tax on self-employment), Chapter 21 of
the Code (relating to Federal Insurance Contributions Act), Title II of the
Social Security Act or any other Federal or state law.
ARTICLE IX -- DEFINITIONS
10.1 Adoption Agreement means the attached document which contains
the selections and specifications for the Plan.
10.2 Affiliated Employer means any corporation that is a member of a
controlled group of corporations (as described in Code Section 414(b))
that includes the employer; any trade or business (whether or not
incorporated) that is under common control (as defined in Code Section
414(c)) with the employer; any organization (whether or not
incorporated) which is a member of an affiliated service group (as
defined in Code Section 414(m)) that includes the employer; and any
other entity required to be aggregated with the employer pursuant to
regulations under Code Section 414(o).
10.3 Code means the Internal Revenue Code of 1986, as amended.
10.4 Compensation means information required to be reported under Code
Section 6041 and 6051 (Wages, Tips and Other Compensation Box on Form
W-2). Compensation is defined as a Participant's wages within the
meaning of Code Section 3401(a) and all other payments of compensation
to an Employee by the Employer (in the course of the Employer's trade
or business), for which the Employer is required to furnish the
Employee a written statement under Code Section 6041(d) and 6051(a)(3),
which is actually paid by the Employer for a specified period.
Compensation is determined without regard to any rules under Code
Section 3401(a) that limit the remuneration included in wages based on
the nature or location of the employment or services performed (such as
the exception for agricultural labor in Code Section 3401(a)(2)).
Compensation shall include elective contributions but shall exclude
contributions made to this SEP-IRA by the Employer. Elective
contributions are amounts excludable from the gross income of the
Employee under Code Sections 125, 402(a)(8), 402(h) or 403(b), and
contributed to the Employer at the Employee's election, to a Code
Section 401(k) arrangement, a simplified employee pension, cafeteria
plan or tax-sheltered annuity. Elective contributions also include pay
deferred under a Code Section 457 plan maintained by the Employer and
Employee contributions "picked up" by a governmental entity and,
pursuant to Code Section 414(b)(2), treated as the Employer's
contributions. Compensation shall include amounts received for personal
services actually performed (see Reg. 1.219-1(c)).
For purposes of Elective Deferral Contributions only, Compensation
shall not include reimbursements or other expense allowances, fringe
benefits (cash or non-cash), moving expenses, deferred compensation,
and welfare benefits, unless otherwise specified.
For any self-employed individual covered under the plan, Compensation
will mean earned income defined by Code Section 401(C)(2). Compensation
shall include only that Compensation which is actually paid to the
participant during the Plan Year.
The annual Compensation of each Participant taken into account under
the plan for any year shall not exceed $150,000. This limitation shall
be adjusted by the Secretary at the same time and in the same manner as
under Code Section 415(d), except the dollar increase in effect on
January 1 of any calendar year is effective for years beginning in such
calendar year and the first adjustment to the $150,000 limitation is
effected on January 1, 1990. If this plan determines Compensation on a
period of time that contains fewer than 12 months, then the annual
Compensation limit is an amount equal to the annual Compensation limit
for the calendar year in which the compensation period begins
multiplied by the ratio obtained by dividing the number of full months
in the period by 12.
In determining the Compensation of a Participant the rules of Code
Section 414(q)(6) shall apply, except in applying such rules, the term
Family Member shall include only the spouse of the Participant and any
lineal descendants of the Participant who have not attained age 19
before the close of the year. If, as a result of the application of
such rules the adjusted $150,000 is exceeded, then (except for purposes
of determining the portion of Compensation up to the Integration Level
if this plan provides for permitted disparity), the limitation shall be
prorated among the affected individuals in proportion to each such
individual's Compensation as determined under this section prior to the
application of this limitation.
Compensation for the purposes of the $300 limit of Code Section
408(k)(2)(C) shall be defined as Code Section 414(q)(7) compensation.
10.5 Contribution means Employer, Elective Deferrals, or Rollover
Contributions unless the text clearly indicates only one, or certain of
these are meant.
10.6 Deferral Percentage means the ratio (expressed as a percentage) of an
Employee's Elective Deferrals for a year to the Employee's Compensation
for that year. The Deferral Percentage of an Employee who is eligible
to make an Elective Deferral, but who does not make a deferral during
that year, is zero.
10.7 Deferral Percentage Limitation means the maximum amount of Elective
Deferrals, as expressed as a percentage of Compensation, that can be
contributed on behalf of any Highly Compensated Employee for a
particular plan year and it equals the product of (i) the average of
the amounts Elective Deferrals (expressed as a percentage of each such
Employee's Compensation) made on behalf of all the non-highly
compensated employees for the same Plan Year, and(ii) 1.25. In
calculating this average, the percentage for an eligible non-highly
compensated employee who chooses not to have Elective Deferrals made on
his or her behalf for a Plan Year, is zero.
10.8 Elective Deferrals means Contributions made to a Participant's
Simplified Employee Pension during the Plan Year by the Employer, at
the election of a Participant, in lieu of cash Compensation and
pursuant to a salary reduction agreement.
10.9 Eligible Employee means an Employee who meets the requirements
specified in section 2.1 of the Adoption Agreement.
10.10 Employee means an individual who is employed by the Employer, including
an employee within the meaning of Code Section 401(c)(1). For purposes
of a SARSEP plan, the term Employee shall not include a leased employee
within the meaning of Code Section 414(n)(2). The term Employee shall
include a leased employee within the meaning of Code Section 414(n)(2)
who is deemed an employee under the provisions of Code Section
414(n)(1)(A), but not earlier than the time prescribed by Code Section
414(n)(4). The term Employee shall not mean an independent contractor.
10.11 Employer means the person named in Section 1 of the Adoption Agreement.
The term shall also include any other person who has obtained the
written consent of the person named in section 1.1, and adopts this
Plan in writing; provided, however, that such person(s) is under common
control, within the meaning of Code Section 414(b) or (c), or forms
part of an affiliated service group within the meaning of Section
414(m) of the code with the person named in section 1.1.
10.12 Excess Elective Deferrals means amounts deferred for the year in excess
of the limit on Elective Deferrals of Code Section 402(g).
10.13 Family Member means an individual who is related to a Highly
Compensated Employee as a spouse, or as a lineal ascendant (such as a
parent or grandparent) or descendant (such as a child or grandchild) or
spouse of either of those, in accordance with Code Section 414(q) and
the regulations thereunder.
10.14 Fiscal Year means the Employer's taxable year as identified in Section
1 of the Adoption Agreement.
10.15 Highly Compensated Employee means any Employee described in code
Section 414(q) who, during the current Plan Year or the preceding Plan
Year--(a) was at any time a 5-percent owner (as defined in Code Section
416
(i)(1)(B)(i));
(b) received Compensation from the Employer in excess of $75,000 (as
adjusted pursuant to Code Section 415(d))
(c) received Compensation from the Employer in excess of $50,000 (as
adjusted pursuant to Code Section 415(d)) and was a member of the
top-paid group for such year (the top 20% of Employees, by
compensation)
(d) was at any time an officer of the Employer and received
compensation during such year that is greater than 50 percent of
the dollar limitation in effect under Code Section 415 for defined
benefit plans. No more than three Employees shall be treated as
officers and at least one (the highest paid officer) shall be
treated as Highly Compensated regardless of compensation.
Compensation includes the Participant's Elective Deferrals and any
elective contributions to a Section 125 cafeteria plan, Section
401(k) cash or deferred arrangement or Section 403(b)
tax-sheltered annuity.
10.16 Individual Retirement Account (IRA) means a personal retirement savings
program as set out in Code Section 408.
10.17 Integration Level means the Integration Level defined in section III of
the Adoption Agreement.
10.18 Key Employee means any Employee or former Employee (including
beneficiaries of deceased Employees) who at any time during the
determination period was
(a) one of the officers (subject to the maximum below) whose
Compensation for the Year exceeds 50 percent of the dollar
limitation under Code Section 415(b)(1)(A),
(b) one of the ten Employees who owns (or is considered to own, under
Code Section 318) more than a half percent ownership interest and
one of the largest interests in the Employer during any year of
the determination period if such person's Compensation for the
year exceeds the dollar limitation under Code Section
415(c)(1)(A).
(c) a five-percent owner of the Employer as defined in Code Section
416(i)(1)(B)(i), or (d) a one-percent owner whose Compensation for
the Year is more than $150,000.
Each Affiliated Employer shall be treated as a separate employer for
purposes of determining ownership. Compensation for determining which
Employees are key Employees includes Elective Deferrals.
The determination period is the current Plan Year and the four
preceding Plan Years. If there are fewer than 30 Employees, no more
than three Employees shall be treated as Key Employees because they are
officers. If there are over 30 Employees, no more than 10 percent of
the Employees shall be treated as Key Employees because they are
officers. The determination of who is a Key Employee shall be made
according to Code section 416(i)(1) and the regulations thereunder.
10.19 Leased Employee means any person (other than an employee of the
recipient) who pursuant to an agreement between the recipient and any
other person ("leasing organization") has performed services for the
recipient (or for the recipient and related persons determined in
accordance with Code Section 414(n)(6)).
10.20 Maximum Integration Rate is equal to the lesser of (a) 5.7% or (b) the
applicable % determined according to the following schedule:
MAXIMUM
INTEGRATION INTEGRATION
LEVEL RATE
100% of TWB 5.7%
Less than 100%, but more
than 80% of TWB 5.4%
More than greater of $10,000
or 20% of TWB, but not
more than 80% of TWB 4.3%
Not more than greater of
$10,000 or 20% of TWB 5.7%
TWB means the Taxable Wage Base as defined in Section 10.26. On any
date the portion of the rate of tax under Code Section 3121(a)(1) (in
effect on the latest Yearly Date) which is attributable to old age
insurance exceeds 5.7%, such rate shall be substituted for 5.7% and
5.4% and 4.3% shall be increased proportionately.
10.21 Participant means an Eligible Employee who meets the participation
requirements of Section 2 of the Adoption Agreement and is included in
this Plan.
10.22 Plan Year means the plan year elected in section 1.3 of the Adoption
Agreement.
10.23 Service means employment with the Employer, including self-employment.
For purposes of determining whether an Employee has satisfied the
service requirement in section 2.1, service with any entity which is
controlled by the Employer, is controlling the Employer, or forms part
of an affiliated service group, within the meaning of Code Section
414(b), (c), or (m), shall be treated as Service with the Employer.
Service for a leased employee shall include the entire period for which
the leased employee performed services for the Employer, or a related
person within the meaning of Code Section 144(a)(3), issued by the
Insurer.
10.24 Simplified Employee Pension (SEP) means an approved Individual
Retirement Account described in Code Section 408(a), issued by the
Sponsor or an approved Individual Retirement Annuity contract described
in Code Section 408(b).
10.25 Sponsor means Principal Mutual Life Insurance Company.
10.26 Taxable Wage Base means the contribution and benefit base in effect
under Section 230 of the Social Security Act at the beginning of the
Plan Year.
10.27 Top-heavy Plan means a Plan considered top heavy within the meaning of
Code Section 416 and regulations thereunder.
The Principal Financial Group
Princor Funds Custodial Agreement For Use With 403(b) Arrangements
Article I - Introduction
1.1 Intent of Agreement. This parties intend that this Agreement establish a
Custodial Account in accordance with section ("ss.") 403(b)(7) of the
Internal Revenue Code of 1986 and the regulations issued by the Internal
Revenue Service.
1.2 Effective Date. This Agreement shall take effect upon the execution by
the Employee named on the Application.
---------------
Article II - Definitions
As used in this Agreement, the following terms shall have the meaning set forth
below, unless the context plainly requires the use of a different meaning.
2.1 Agreement means The Principal Financial Group Princor Funds Custodial
Agreement.
2.2 Alternate Funding Agent means a custodian designated by the Employee and
authorized to receive any assets transferred under
Paragraph 4.8.
2.3 Application means the 403(b)(7) Plan Application executed by the
Employee. The Application is incorporated into this Agreement.
2.4 Beneficiary shall mean the beneficiary designated by the Employee in a
manner acceptable to the Custodian.
2.5 Code means the Internal Revenue Code of 1986, as amended.
2.6 Custodial Account means the account established under Article III of this
Agreement.
2.7 Custodian means Principal Mutual Life Insurance Company, or any successor
appointed to act as custodian under Article VIII of this Agreement.
2.8 Early Retirement means separation from service after the Employee reaches
age 55.
2.9 Employee means a person who performs services, directly or indirectly,
for an Employer, and who has entered into a salary reduction agreement
with the Employer under which the Employer shall reduce the Employee's
salary by the amount specified in the agreement and send it to the
Custodian for investment in accordance with this Agreement.
2.10 Employer means an Employer named in the Application and described in
ss.403(b)(1)(A) of the Code.
2.11 Excess Contributions means the amount of any contribution made by an
Employer on behalf of an Employee for any Plan Year which is an "excess
contributions" as defined in ss.4973(c) of the Code.
2.12 Exclusion Allowance means the maximum contributions made by an Employee
under 403(b)(2) of the Code or, for Employees making an election under
ss.403(b)(2)(B) of the Code, the limits described in ss.415(c)(4) of the
Code.
2.13 Plan Year means a calendar year.
2.14 Princor Funds means one or more of the regulated investment companies
for which Princor Management Corporation serves as investment advisor and
Princor Financial Services Corporation serves as the principal
underwriter. The Custodian and Sponsor shall determine which Princor
Funds are available under this Agreement.
2.15 Princor Fund Shares meaning whole or fractional shares of one or more of
the Princor Funds.
2.16 Sponsor means Princor Financial Services Corporation.
Article III - Establishment of Custodial Account
3.1 Establishing a Custodial Account. Upon receiving execution of the
Application by an Employee, the Custodian shall open and maintain a
Custodial Account for the Employee. The Custodial Account shall hold
title only to Princor Fund Shares or cash, or both. The Custodial shall
satisfy the requirement of ss.401(f)(2) of the Code.
3.2 Limitations On Custodial Account. The Custodian shall not pay or make
available any amounts from a Custodial Account, except as provided in
Paragraph 6.1. The Custodian shall not have any responsibility under this
Agreement for any assets not held in a Custodial Account.
Article IV - Contributions and Transfers
4.1 Contributions. The Custodian shall accept and hold in the Custodial
Account the contributions made on behalf of the Employee by an Employer.
The Custodian shall have no responsibility for determining the amount of
any contribution nor for the collection of contributions from an
Employer. Any reports or instructions prepared by or on behalf of the
Custodian for the Employer shall be solely for the benefit of the
Employer. The Employee shall be solely responsible for determining that
the correct amount of a contribution is remitted to the Custodian.
4.2 Rollovers, Direct Rollovers and Transfers From an Existing 403(b)
Arrangement. The Custodian shall accept contributions to a Custodial
Account which result from rollovers, direct rollovers and transfers from
an existing 403(b) annuity or custodial account. The Custodian shall have
no liability to verify that the prior 403(b) annuity or custodial account
complied with the requirements of the Code prior to the transfer of
funds. The employee shall inform the custodian about the identity of any
rollover or transfer contributions.
4.3 Rollovers From Individual Retirement Accounts. The Custodian shall accept
and hold in the Account rollovers from Individual Retirement Accounts as
described in ss.408 of the Code, if the Individual Retirement Accounts
resulted solely from the rollover of funds from an Existing 403(b)
Arrangement as described in ss.403(b)(8) of the Code. In accordance with
ss.408, the Employee shall inform the Custodian about the identity of any
rollover contributions.
4.4 Restrictions on Employee Contributions.
(a) Employee contributions cannot exceed the maximum contribution amounts
specified in the Code or any regulations issued by the Internal Revenue
Service. It shall be the Employee's responsibility to ensure that those
limits are not exceeded. The Custodian shall have no liability if an
Employee exceeds the contribution limits specified in the Code or any
regulations. The remaining subparagraphs of this Paragraph 4.4 describe,
in general, the limitations. However they are meant only to aid Employees
to determine the actual limitations that apply to them, they are not
meant to list all limitations which may apply to each Employee. (b) For
each Plan Year, the total Employer contributions for any taxable year of
the Employee made by salary reduction qualifying as elective deferrals
when added to all other elective deferrals made on behalf of the employee
to another plan described in ss.401(k), ss.408(k)(6), or ss.403(b) of the
Code and when added to other contributions made on behalf of the Employee
under any other plan described in ss.457(b) or ss.501(c)(18) shall not
exceed the lesser of--
(i) the limit described in ss.402(g)(4) of the Code; or
(ii) the Employee's Exclusion Allowance described in ss.403(b)(2) of the Code,
as modified by ss.415(1)(2) and ss.457(c)(2) of the Code. (c) Certain
qualified employees of certain qualified organizations may elect under
ss.402(g)(8)(A) to increase the elective deferrals by certain specified
amounts. Under ss.402(g)(8)(A) the term "qualified employee" means any
employee who has completed 15 years of service with the qualified
organization. The term "qualified organization" means any educational
organization, hospital, home health service agency, health and welfare
service agency, church or convention or association of churches.
4.5 Liabilities of Custodian. The Employee has the sole responsibility to
determine whether any contributions made on the Employee's behalf meet
the limitations specified in the Code. The Custodian shall have no
liability for losses that may arise if any contributions made on behalf
of an Employee exceed the contribution limitations of the Code.
4.6 Vesting. Each Employee's interest in the amounts credited to a Custodial
Account is fully vested and nonforfeitable.
4.7 Transfers To Alternate Funding Agent. At the direction of the Employee,
the Custodian shall transfer, in cash, such assets held in the Custodial
Account less the amount of any taxes, fees, charges, or other expenses
chargeable to the Custodial Account, to an Alternate Funding Agent
designated by the Employee, provided that such transfer occurs in
accordance with Paragraph 6.2(b). The Custodian may require that the
Employee use a form acceptable to the Custodian to request a transfer.
A transfer to an Alternate Funding Agent must comply with the purposes
described in paragraph 6.2(b). When the Custodian transfers assets to an
Alternate Funding Agent, the Custodian shall have no further obligation
to the Employee or Beneficiary.
4.8 Liabilities for Transfer. The Custodian shall have no liability for
losses that may arise from the acts, omissions, or delays or other
inaction of any other person involved with the transfer of assets either
to or from the Custodial Account. The Custodian shall have no
responsibility to the Employee for the tax treatment of any transfer from
the Custodial Account.
Article V - Investment of the Custodial Account
5.1 In General. The Custodian shall invest the cash it receives for the
Custodial Account in the Princor Fund Shares designated by the Employee.
The Custodian shall not be liable for payment of interest on any portion
of the Custodial Account that it may hold in cash from time to time. The
Custodian shall not have any duty to question the investment direction of
the Employee nor shall it have any duty to suggest that any other
investment direction would be more appropriate for the Employee.
5.2 Investment Direction Of Employee. The Application contains the initial
investment instructions given to the Custodian by the Employee. Those
instructions shall stay in effect until the Employee modifies them in a
manner acceptable to the Custodian. The Custodian may request
clarifications from an Employee if it receives incomplete, conflicting,
or unacceptable investment instructions from the employee. Until the
Custodian receives any required clarification or further instructions,
the Custodian shall invest the contribution using the last acceptable
investment instructions delivered to the Custodian. The Custodian may
rely upon the latest acceptable instructions of the Employee with respect
to investment of contributions.
5.3 Exchanges. The Employee may instruct the Custodian in a manner acceptable
to the Custodian to exchange all or any portion of the Princor Fund
Shares held in the Custodial Account for other Princor Fund Shares if
both this Agreement and the current prospectuses of the relevant Princor
Funds permit such an exchange. By giving any direction to exchange
Princor Fund Shares, the Employee acknowledges that the Employee has
received the current prospectuses for the Princor Funds in which the
Employee has directed investment.
5.4 Reinvestment. Unless otherwise directed by the employee on a form
acceptable to the Custodian, the Custodian shall invest all cash
dividends and capital gain distributions received by the Custodian with
respect to any Princor Fund Shares held in the Custodial Account in like
Princor Fund Shares. If the Custodian has the right to receive any
dividend or other distribution in cash or in shares it shall elect to
receive the dividend or other distribution in Princor Fund Shares.
5.5 Ownership Of Princor Fund Shares. The Custodian shall register the title
of all Princor Fund Shares purchased in accordance with this Article V in
the name of the Custodian (or its nominee) as custodian for the account
of the Employee. The Custodian shall send all proxy and other materials
that relate to the Princor Fund Shares to the Employee and shall follow
the Employee's instructions with respect to voting such Princor Fund
Shares. The Employee's voting instructions must use a form acceptable to
the Custodian. If the Custodian does not receive timely instructions from
the Employee, it shall not cote the Princor Fund Shares held for the
Employee.
Article VI - Distributions
6.1 General Rule. The Custodian shall not pay any amounts from the Custodial
Account, or otherwise make those amounts available to the Employee (or
Employee's Beneficiary) before:
(i) The Employee has separated from the service of the employer; or (ii)
The Employee has reached the age of 59 1/2; or (iii)The Employee has
become disabled (within the meaning of ss.72(m)(7) of the Code); or (iv)
the Employee has died; or (v) The Employee has encountered financial
hardship; or
(vi) Any other event that complies with Internal Revenue Service
regulations or rulings relating to distributions from ss.403(b)
Custodial Accounts.
6.2 Limitations on Distributions.
(a) The Custodian has no duty to make any distributions or make any
distributions otherwise available until it receives written notice and
proof of one of the above events from the Employee (or Beneficiary in
event of the Employee's death). The Employee (or Beneficiary when
applicable) must provide acceptable documentation to the Custodian. The
Custodian shall be able to conclusively rely upon any such documentation
(including any doctor's certification of disability) submitted by an
Employee or a Beneficiary, providing that it is in a form acceptable to
the Custodian. The Custodian shall not make any distributions until the
expenses described in Paragraph 7.1 are deducted from the Custodial
Account. (b) For purposes of determining whether an Employee has
encountered a financial hardship which would allow a distribution from the
Custodial Account, the Employee's condition must meet the requirements of
any regulations or proposed regulations issued by the Internal Revenue
Service. If no regulations or proposed regulations exist regarding the
meaning of the term "financial hardship" as used in ss.403(b), then the
Employee shall demonstrate that the Employee meets the requirements for a
financial hardship distribution established for ss.401(k) plans. An
employee requesting a hardship distribution shall submit an affidavit to
the Custodian which shall describe the facts supporting the Employee's
claim of financial hardship. The Custodian shall be able to conclusively
rely upon such an affidavit and shall have no obligation to independently
confirm any of the facts or statements contained in the affidavit. In
addition, the Custodian shall have no liability for any distribution to an
Employee based on a financial hardship affidavit. (c) The Custodian shall
have the power to ensure that the limitation on distributions contained in
Paragraph 6.1 are fully implemented and enforced.
6.3 Method of Distribution.
(a) Subject to the minimum distribution requirements described in
paragraph 6.7, the Custodian shall make distributions (other than
distributions for financial hardship which the Custodian shall pay with a
single payment) in cash or in kind in any one or more of the following
ways in accordance with the written directions of the Employee (or
Beneficiary if applicable): (i) in a single payment; or (ii) in a director
rollover of an eligible rollover distribution as defined in ss.402(c)(4)
of the Code to a ss.402(c)(4) plan or to an Individual retirement account
or individual retirement annuity provided that:
(a) a direct rollover distribution option is not available for a
distribution if the aggregate eligible rollover distributions during
a plan year are reasonably expected to total less than $200
(b) in the case of an eligible rollover distribution a portion of which
is distributed to the employee, a direct rollover distribution may
not be directed to an eligible retirement plan unless the portion of
the distribution so directed is equal to at least $200; and
(c) an election to make or not to make a direct rollover with respect to
one payment in a series of periodic payments will apply to all
subsequent payments in the series provided that such election with
regard to subsequent payments may be changed in writing by the
employee at any time
(iii)in equal, or substantially equal, installments not extending beyond
the life expectancy of the Employee; or (iv) in equal, or substantially
equal, installments not extending beyond the life expectancy of the joint
survivor
expectancy of the Employee and the Employee's spouse; or
(v) any combination of the above.
(b) The Employee may request that the Custodian make the payments
monthly, quarterly, semiannually, or annually. At the request of an
Employee, the Custodian may institute a program to automatically make
distributions over the period selected by the Employee, provided that
the request meets the guidelines established by the Custodian for
such periodic distributions. The Custodian shall reinvest any
dividends or capital gains distributions on the shares remaining in
the Account in the Princor Fund Shares in the Account. In the absence
of such direction, the Custodian may distribute the assets under any
method in accordance with the minimum distribution requirements
described in paragraph 6.7.(c) If the assets of the Custodial Account
are invested in more than one Princor Fund, any request for a
distribution must specify which Princor Fund Shares are to be
redeemed in order to make the distribution. For distributions
described in paragraph 6.7., if no prior designation has been made,
the distribution shall be made by redeeming the Princor Fund Shares
in a pro rata manner.
6.4 Distribution of Excess Contributions. In the event that the Employee
notifies the Custodian in writing that the Employer has made an excess
contribution on behalf of the Employee (as defined in ss.4973 of the
Code), the Custodian shall distribute, as soon as possible after receiving
the notice, an amount in cash or in kind, as the Employee shall elect,
equal to the excess contribution (with earnings received on those excess
contributions to the date of distribution) less any reasonable
administrative charges attributable to those amounts or to the
distribution.
6.5 Timing of Distributions. Unless otherwise specified in this Agreement,
distributions will normally commence within 30 days after the employee
notifies the Custodian in a form acceptable to the Custodian, that the
Employee is entitled to distributions pursuant to Paragraph 6.1. Prior to
the commencement of distributions the Employee may, if agreed to by the
Custodian, make an irrevocable election to have the commencement of
distributions deferred to a fixed future date.
6.6 Early Distributions. The Internal Revenue Service may assess a premature
penalty tax under ss.72(t) of the Code equal to 10% of the taxable amount
distributed to an Employee, except for the following types of
distributions:
(i) a distribution eligible for rollover treatment, if the Employee
rolls the money over to an Individual Retirement Account within 60
days of receipt; or
(ii) distributions on account of the death, or permanent disability as
defined in ss.72(m)(7) of the Code of the participant; or
(iii)distributions used to pay certain tax deductible medical expenses,
to the extent allowed under ss.72(t)(2)(B) and ss.213 of the Code; or
(iv) distributions after termination of service taken in a series of
similar periodic payments over the life expectancy of the Employee,
or joint life expectancy of the Employee and spouse, to the extent
allowed by ss.72(t)(2)(A)(iv) and ss.72(t)(3)(B) of the Code; or
(v) distributions made after the Employee attains age 55 and separates
from service on account of Early Retirement to the extent permitted
under ss.72(t)(2)(A)(v) of the Code; or
(vi) a distribution taken after the employee attains age 59 1/2.
6.7 Required Distributions.
(a) Distributions from the Account must comply with the minimum
distribution requirements of ss.403(b)(10) and ss.401(a)(9) of the Code
and the regulations thereunder. Failure to commence distributions, or to
satisfy the annual minimum distribution rules of ss.403(b)(10) of the Code
will result in an annual penalty tax equal to 50% of the amount produced
by subtracting the amount distributed, if any, from the required minimum
distribution. (b) Distributions shall commence not later than April 1,
following the calendar year in which the Employee attains age 70 1/2 (the
"Required Beginning Date"). The minimum amount to be distributed each year
(commencing with the Required Beginning Date and each subsequent year)
must be at least an amount equal to the quotient obtained by dividing the
entire amount of the Custodial Account at the time the distribution is
made (expressed in either dollars or shares) by the life expectancy and
last survivor expectancy of the Employee and the Employee's designated
Beneficiary (whichever is applicable). For determining such life
expectancy periods, the expected return multiples in ss.1.72-9 of the
regulations or the Internal Revenue Service, as amended, shall be used.
Such period shall be determined either (i) only once, at the time the
Employee first requests such distribution, or (ii) periodically, in a
consistent manner, provided, however, that the life expectancy of a
nonspouse beneficiary may not be recalculated.
6.8 Payments Upon Death of Employee. In the event an Employee dies before the
distribution of the Employee's benefits has commenced or before such
distribution has been completed, then the amount credited to the Custodial
Account shall be distributed to the Employee's Beneficiaries. Upon the
death of the Employee, the following distribution provisions shall take
effect: (a) If the Employee dies after distribution of his interest has
commenced, the remaining portion of such interest will
continue to be distributed at least as rapidly as under the method of
distribution being used prior to the Employee's death.
(b) If the Employee dies before distribution of the Custodial Account
commences, the Employee's interest will be distributed no later than
5 years after the Employee's death except to the extent that an
election is made to receive distributions in accordance with (i) or
(ii) below:
(i) If any portion of the Employee's interest is payable to a
Beneficiary, distribution may be made in substantially equal
installments over the life or life expectancy of the designated
Beneficiary commencing no later than 1 year after the Employee's
death;
(ii) If the Beneficiary is the Employee's surviving spouse, the date
distribution are required to begin in accordance with (i) above shall
not be earlier than the date on which the Employee would have
attained age 70 1/2, and, if the spouse dies before payments begin,
subsequent distributions shall be made as if the spouse had been the
Employee.
(c) For purposes of (b) above, payments will be calculated by use of the
return multiples specified in ss.1.72-9 of the regulations of the
Internal Revenue Service. Life expectancy of a surviving spouse may
be recalculated annually. In the case of any other Beneficiary, such
life expectancy will be calculated at the time payment first
commences without further recalculation.
(d) For purposes of this Paragraph 6.8, any amount paid to a child of the
Employee will be treated as if it had been paid to the surviving
spouse if the amount becomes payable to the surviving spouse when the
child reaches the age of majority.
(e) The Employee may change the designation of a Beneficiary at any time
by executing a form acceptable to the Custodian. If the Employee
fails to execute and file such form or if the Beneficiary or
Beneficiaries designated in such form fail to survive the Employee,
such amounts shall be paid to the Employee's estate.
(f) If the Employee's Beneficiary dies while receiving payments from the
Account, the Custodian shall pay any remaining payments to the estate
of the Employee's Beneficiary.
(g) Before making any distribution in the event of the Employee's death,
or the death of the Employee's Beneficiary, the Beneficiary shall
furnish the Custodian with any and all certificates, tax waivers,
proof of death and other documents requested by it in its discretion.
6.9 Inalienability of Benefits.
(a) The Employee shall not have the right to assign, transfer, or pledge
any interest in the Custodial Account and the Employee's interest in
the Custodial Account shall not be subject to the claims of the
Employee's creditors.
(b) No benefit payment or other interest in the Custodial Account will be
subject to assignment or alienation, either voluntary or involuntary.
This subparagraph shall also apply to the creation, assignment, or
recognition of a right to any benefit payable with respect to an
Employee pursuant to a domestic relations order, unless such order is
in a form acceptable to the Custodian.
Article VII - Rights and Duties Of The Custodian
7.1 Expenses. The Custodian shall use the assets in the Custodial Account to
pay any income taxes or other taxes of any kind whatsoever directly or
indirectly levied or assessed upon the Custodial Account, any
administrative expenses incurred by the Custodian in the performance of
its duties, including the cost of submitting reports which may be required
under Paragraphs 7.4 and 7.5, and any fees for legal services rendered to
the Custodian. When such expenses apply to more than one Custodial Account
(including Custodial Accounts established for other Employees or other
Employers), the Custodian shall apportion the expenses between the
Custodial Accounts in proportion to the assets in each Custodial Account.
7.2 Limitations On Custodian's Duties. The Custodian has no duty to take any
action other than those specified in this Agreement with respect to the
Custodial Account unless the Employee furnishes the Custodian with
instructions in proper form and the Custodian specifically agrees to take
such action. The Employee cannot require the Custodian to defend or engage
in any suit with respect to the Custodial Account unless the Custodian
shall have first agreed in writing to do so and the Employee fully
indemnifies the Custodian for that action. The Custodian may conclusively
rely upon and shall be protected in following any order from the Employee,
or an Employer, or any other notice, request, consent, certificate, or
other instrument or paper which appear genuine, so long as the Custodian
acts in good faith, in taking or omitting to take any other action. The
Custodian may retain assets in cash or cash balances pending receipt of
proper investment instructions and shall not be liable for interest on any
such cash or cash balance. The Custodian shall have no obligation to
demand or require that the Employer make any contributions on behalf of an
Employee to a Custodial Account.
7.3 Enforcement Of Agreement. The Employee shall have the sole authority to
enforce this Agreement on his or her own behalf and on behalf of any other
persons having or claiming any interest in the Custodial Account by virtue
of this Agreement.
7.4 Records and Reports. The Custodian shall keep accurate and detailed
records of all receipts, investments, disbursements, and other
transactions it performs under the terms of this Agreement. The Custodian
shall file with the Employee statements reflecting the receipts,
disbursements, and other transactions affecting the Custodial Account.
Upon the expiration of forty-five days after furnishing such statement to
the Employee, the Employee constructively releases and discharges the
Custodian from all liability and accountability to anyone with respect to
its acts, actions, duties, obligations, or responsibilities as shown in or
reflected by the statement, except with respect to any such acts or
transactions as to which the Employee shall have filed written objections
with the Custodian within the forty five day period.
7.5 Government Reports. The Employer, the Employee, the Custodian, and the
Sponsor shall furnish to one another such information relevant to the
Agreement and Custodial Account required by the Code or governmental
regulations. The Custodian shall file with the Internal Revenue Service
such returns and other information concerning the Custodial Account which
the Code requires it to file, but the Custodian has no obligation to
prepare, file, or provide any other reports except those expressly
required by this Agreement.
7.6 Administration of the Plan. The Custodian has no obligation to administer
any or all of the Employer's retirement plan, or to take any actions on
behalf of that plan.
7.7 Delegation Of Duties. The Custodian may delegate any of its duties
under this Agreement to any of it's subsidiaries, including the Sponsor.
Any delegation of duties shall not relieve the Custodian of its
obligations under this Agreement.
Article VIII - Resignation Or Removal Of Custodian
8.1 Resignation Or Removal Of Custodian. The Custodian may resign at any time
upon 30 days notice in writing to the Employee. The Sponsor may remove the
Custodian upon 30 days notice to the Custodian and the Employee. In
addition, the Employee shall remove the Custodian and substitute a
successor custodian if the Employee receives notification from the
Commissioner of the Internal Revenue Service that it requires the
substitution because (i) the Custodian has failed to comply with
ss.1.401-12(n) of the regulations of the Internal Revenue Service or (ii)
has not kept the records or made the returns or rendered the statements
required by the forms and regulations issued by the Internal Revenue
Service. Upon such resignation or removal, the Employee or the Sponsor
shall appoint a successor Custodian which shall meet the requirements of
the Code. Upon receipt by the Custodian of written acceptance of such
appointment by the successor Custodian, the Custodian shall transfer and
pay over to such successor Custodian the assets of the Custodial Account
and all records or copies thereof pertaining to the Custodial Account. The
Custodian may reserve such sum of money as it may deem advisable for
payment of all its fees, compensation, costs and expenses, or for payment
of any other liabilities consisting of a charge on or against the assets
of the Custodial Account. The Custodian shall have a lien on the assets of
the Custodial Account to the extent of any such charges.
8.2 Failure To Appoint Successor Custodian. If within 30 days after the
effective date of the Custodian's resignation or removal a qualified
successor to the Custodian has not been appointed or has not accepted such
appointment, the Custodian shall either appoint such successor itself or
terminate this Agreement. Upon termination the Custodian shall distribute
all assets in the Custodial Account in a manner that meets the
requirements of Paragraph 6.2(b). The Custodian has no obligations arising
from the performance of any successor to its duties under this Agreement.
Article IX - Miscellaneous
9.1 Notices and Instructions. For a notice to the Employee or other party to
take effect. the Custodian must send it by first-class mail to the last
address on the Custodian's records. The Employee shall also send any
notice to the Custodian pursuant to this Agreement by first-class mail.
The Employee must send all instructions under this Agreement in writing to
the Custodian using a form acceptable to the Custodian. unless the
Custodian indicates that instructions using some other Tom of
communications will be acceptable to give certain notices. The Custodian
shall have no obligation to act upon an instruction not in an acceptable
form.
9.2 Necessity of Qualification. The parties establish this Agreement with the
intent that it shall meet the requirements of 403(b)(7) of the Code, as
amended. Notwithstanding any other provisions contained in this Agreement,
if the Internal Revenue Service determines that because of some inadequacy
in the provisions of this Agreement it initially fails to meet those
requirements, the Custodian shall distribute all of the assets of the
Custodial Account to the Employee or shall transfer them in accordance
with Paragraph 4.7 and this Agreement shall terminate unless the parties
can remove the inadequacy by a retroactive amendment. The Sponsor shall
notify the Custodian in writing of any determination made with respect to
the status of the Agreement. The Employee understands the necessity of
seeking independent legal counsel with respect to the effect of
establishing this Agreement and further understands that the Internal
Revenue Service has not approved this Agreement and that therefore neither
the Custodian nor the Sponsor, nor anyone acting on behalf of the
Custodian or Sponsor. makes any representations as to the tax
qualification or effect of the Agreement.
9.3 Custodian's Fee Schedule. The Custodian may charge a setup fee in the
Custodial Account's first year and a fee for the maintenance of the
Custodial Account. The Custodian shall charge all fees with respect to an
Employee' s Custodial Account to that Custodial Account. The Employee
authorizes the Custodian to redeem sufficient Princor Fund Shares held in
the Custodial Account to pay any fees and to transfer the proceeds to
itself. Unless otherwise specified by the Employee, if the Account has
shares of more than one Princor Fund, they shall be redeemed pro rat a.
The Custodian may amend that fee schedule after 30 days written notice to
the Employee. The Custodian may assess additional charges for other
nonstandard services performed by the Custodian.
9.4 Assignability. The Employee may not assign any rights under this Agreement
without the prior written consent of the Custodian and the Sponsor.
9.5 Governing Law. This Agreement shall be construed in accordance with the
laws of the State of lowa.
9.6 Interpretation. This Agreement shall be interpreted in manner so that it
meets the requirements of ss.403(b)(7) of the Code. It the terms of this
Agreement and the requirements of ss.403(b)(7) of the Code conflict, the
requirements of ss.403(b)(7) of the Code shall be deemed to be part of
this Agreement and shall supersede any other provision in this Agreement.
Article X - Amendment And Termination
10.1 Amendment. The Employee by the establishment of the Custodial Account
delegates to the Custodian the power to make any retroactive or
prospective amendment to this Agreement necessary to conform the Agreement
to the requirements of any law regulating the Custodian, the Sponsor, the
Employer, the Employer' splay, or the Employee. The Employee shall be
deemed to have consented to such amendments. For other proposed
amendments, the Custodian and the Employee must agree to the amendment.
The Custodian shall notify the Employee of the proposed amendment in
writing. If the Employee does not object to the amendment within 30 days,
the amendment shall become effective. No amendment may allow any part of
the Custodial Account to be distributed except as described in Paragraph
6.2(b) of this Agreement nor shall any amendment increase the duties of
the Custodian without its consent. Neither the Custodian nor the Sponsor
shall have any affirmative obligation lo amend the Agreement for any
purpose. The Sponsor shall receive written notice of any amendments to
this Agreement.
10.2 Termination. This Agreement shall terminate upon the complete distribution
of the Custodial Account to the Employee or an Alternate Funding Agent.
The Custodian shall have the right to terminate this Agreement upon 30
days prior written notice to the Employee. In such event, the Custodian
shall transfer the assets of the Custodial Account in accordance with
Paragraph 4.7. However, if the Employee does not designate an appropriate
person to receive such a transfer within 30 days after a notice, then the
Custodian shall distribute the assets in the Custodial Account in any
manner that meets the requirements of Paragraph 6.2(b).
PRINCOR CAPITAL ACCUMULATION FUND, INC.
DISTRIBUTION AND SHAREHOLDER SERVICING
AMENDED AND RESTATED
PLAN AND AGREEMENT
CLASS A SHARES
AMENDMENT AND RESTATEMENT dated March 14, 1994 of the PLAN AND AGREEMENT
made as of the 1st day of November, 1989, by and between PRINCOR CAPITAL
ACCUMULATION FUND, INC., a Maryland corporation (the "Fund"), and PRINCOR
FINANCIAL SERVICES CORPORATION, an Iowa corporation (the "Underwriter").
WHEREAS, Rule 12b-1 under the Investment Company Act of 1940 (the "Act"),
provides that a registered open-end management investment company may
participate in financing the distribution of securities of which it is the
issuer; and
WHEREAS, any payments made by the Fund in accordance with Rule 12b-1 must
be made pursuant to a written plan describing all material aspects of the
proposed financing of distribution; and
WHEREAS, the Underwriter acts as the underwriter for the Fund; and
various broker-dealers (the "Dealers"), including the Underwriter, sell shares
of the Fund and provide services to existing shareholders; and
WHEREAS, the Board of Directors of the Fund has determined that the Fund
should make direct payments to the Underwriter for transmission to Dealers
(including the Underwriter) in connection with selling class A shares of the
Fund and the rendering of services to class A shareholders and that such payment
should be separate from the investment advisory and management fee paid to
Princor Management Corporation; and
WHEREAS, the Board of Directors of the Fund has determined that there is
a reasonable likelihood that the adoption of the Plan will benefit the Fund and
its class A shareholders;
NOW, THEREFORE, the following shall constitute the written Plan pursuant
to which the Fund shall participate in financing the distribution of its class A
shares.
Section 1. The Fund is hereby authorized to make payments to the
Underwriter from that portion of the Fund's assets attributable to its class A
shares for the purpose of compensating the Underwriter and other selling Dealers
for (i) providing shareholder services to existing class A shareholders,
including without limitation, furnishing information as to the status of
shareholder accounts, requests, responding to telephone and written inquiries,
and assisting class A shareholders with tax information and (ii) rendering
assistance in the distribution and promotion of the sale of class A shares to
the public.
In consideration of the activities described above, the Fund shall pay
the Underwriter a fee after the end of each month at the annual rate of 0.25% of
the daily net asset value of the Fund's class A shares. The Underwriter shall
retain such amounts as are appropriate to compensate the Underwriter for actual
expenses incurred in distributing and promoting the sale of class A shares to
the public and remit such amounts as are appropriate to other Dealers in
recognition of their services and assistance as described above. If the
aggregate payments received by the Underwriter under this Plan in any fiscal
year exceed the expenditures made by the Underwriter in such fiscal year for
these purposes, the Underwriter shall promptly reimburse the Fund for the amount
of such excess.
Section 2. This Plan shall not take effect until it has been approved (1)
by a vote of at least a majority (as defined in the Act) of the outstanding
class A shares of the Fund and (2) by votes of the majority of both (i) the
Board of Directors of the Fund, and (ii) those Directors of the Fund who, except
for their positions as Directors of the Fund, are not "interested persons" (as
defined in the Act) of the Fund and who have no direct or indirect financial
interest in the operation of this Plan or any agreements related to this Plan
(the "Disinterested Directors"), cast in person at a meeting called for the
purpose of voting on this Plan or such agreements.
Section 3. Unless sooner terminated pursuant to Section 5, this Plan
shall continue in effect for a period of twelve months from the date it takes
effect and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 2(2).
Section 4. A representative of the Underwriter shall provide to the Board
and the Board shall review at least quarterly a written report of the amounts so
expended and the purposes for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a majority
of the Disinterested Directors, or by vote of a majority (as defined in the Act)
of the Fund's outstanding class A shares.
Section 6. Any agreement of the Fund related to this Plan shall be in
writing and shall provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the members of the Board of
Directors of the Fund who are not interested persons of the Fund and
have no direct or indirect financial interest in the operation of the
Plan or in any agreements related to the Plan or by a vote of a
majority (as defined in the Investment Company Act of 1940) of the
Fund's outstanding class A shares on not more than sixty days'
written notice to any other party to the agreement); and
B. That such agreement shall terminate automatically in the event of its
assignment.
Section 7. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the Directors who are not interested
persons.
Section 8. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Paragraph 4, for a period of not
less than six years from the date of the Plan, or the agreements or such report,
as the case may be, the first two years in an easily accessible place.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 1 hereof unless such amendment
is approved in the manner provided for initial approval in Section 2 hereof and
no other material amendment to this Plan shall be made unless approved in the
manner provided for initial approval in Section 2(2) hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Plan as of the first date written above.
PRINCOR CAPITAL ACCUMULATION FUND, INC.
By: ______________________________
A. S. Filean, Vice President
PRINCOR FINANCIAL SERVICES CORPORATION
By: ______________________________
S. L. Jones, President
PRINCOR CAPITAL ACCUMULATION FUND, INC.
DISTRIBUTION AND SHAREHOLDER SERVICING
PLAN AND AGREEMENT
CLASS B SHARES
PLAN AND AGREEMENT made as of the 1st of November, 1994, by and between
PRINCOR CAPITAL ACCUMULATION FUND, INC., a Maryland corporation (the "Fund"),
and PRINCOR FINANCIAL SERVICES CORPORATION, an Iowa corporation (the
"Underwriter").
WHEREAS, Rule 12b-1 under the Investment Company Act of 1940 (the "Act"),
provides that a registered open-end management investment company may
participate in financing the distribution of securities of which it is the
issuer; and
WHEREAS, any payments made by the Fund in accordance with Rule 12b-1 must
be made pursuant to a written plan describing all material aspects of the
proposed financing of distribution; and
WHEREAS, the Underwriter acts as the underwriter for the Fund; and
various broker-dealers (the "Dealers"), including the Underwriter, sell shares
of the Fund and provide services to existing shareholders; and
WHEREAS, the Board of Directors of the Fund has determined that the Fund
should make direct payments to the Underwriter for transmission to Dealers
(including the Underwriter) in connection with selling class B shares of the
Fund and the rendering of services to class B shareholders and that such payment
should be separate from the investment advisory and management fee paid to
Princor Management Corporation; and
WHEREAS, the Board of Directors of the Fund has determined that there is
a reasonable likelihood that the adoption of the Plan will benefit the Fund and
its class B shareholders;
NOW, THEREFORE, the following shall constitute the written Plan pursuant
to which the Fund shall participate in financing the distribution of its class B
shares.
Section 1. The Fund is hereby authorized to make payments to the
Underwriter from that portion of its assets attributable to its class B shares
for the purpose of reimbursing the Underwriter for commissions it pays to
registered representatives and Dealers in connection with sales of the class B
shares and to compensate the Underwriter and other selling Dealers for (i)
providing shareholder services to existing class B shareholders, including
without limitation, furnishing information as to the status of shareholder
accounts, requests, responding to telephone and written inquiries, and assisting
shareholders with tax information and (ii) rendering assistance in the
distribution and promotion of the sale of class B shares to the public.
In consideration of the activities described above, the Fund shall pay
the Underwriter a fee after the end of each month at the annual rate of 1.00% of
the daily net asset value of the Fund's class B shares. The Underwriter shall
retain such amounts as are appropriate to compensate the Underwriter for actual
expenses incurred in distributing and promoting the sale of class B shares to
the public and remit such amounts as are appropriate to other Dealers in
recognition of their services and assistance as described above provided however
the Underwriter shall use no more than one-quarter of the fee to compensate
registered representatives and Dealers for the services they render to class B
shareholders. If the aggregate payments received by the Underwriter under this
Plan in any fiscal year exceed the expenditures made by the Underwriter in such
fiscal year for these purposes, the Underwriter shall promptly reimburse the
Fund for the amount of such excess.
Section 2. This Plan shall not take effect until is has been approved (1)
by a vote of at least a majority (as defined in the Act) of the outstanding
class B shares of the Fund and (2) by votes of the majority of both (i) the
Board of Directors of the Fund, and (ii) those Directors of the Fund who, except
for their positions as Directors of the Fund, are not "interested persons" (as
defined in the Act) of the Fund and who have no direct or indirect financial
interest in the operation of this Plan or any agreements related to this Plan
(the "Disinterested Directors"), cast in person at a meeting called for the
purpose of voting on this Plan or such agreements.
Section 3. Unless sooner terminated pursuant to Section 5, this Plan
shall continue in effect for a period of twelve months from the date it takes
effect and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 2(2).
Section 4. A representative of the Underwriter shall provide to the Board
and the Board shall review at least quarterly a written report of the amounts so
expended and the purposes for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a majority
of the Disinterested Directors, or by vote of a majority (as defined in the Act)
of the Fund's outstanding class B shares.
Section 6. Any agreement of the Fund related to this Plan shall be in
writing and shall provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the members of the Board of
Directors of the Fund who are not interested persons of the Fund and
have no direct or indirect financial interest in the operation of the
Plan or in any agreements related to the Plan or by a vote of a
majority (as defined in the Investment Company Act of 1940) of the
Fund's outstanding class B shares on not more than sixty days'
written notice to any other party to the agreement); and
B. That such agreement shall terminate automatically in the event of its
assignment.
Section 7. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the Directors who are not interested
persons.
Section 8. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Paragraph 4, for a period of not
less than six years from the date of the Plan, or the agreements or such report,
as the case may be, the first two years in an easily accessible place.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 1 hereof unless such amendment
is approved in the manner provided for initial approval in Section 2 hereof and
no other material amendment to this Plan shall be made unless approved in the
manner provided for initial approval in Section 2(2) hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Plan as of the first date written above.
PRINCOR CAPITAL ACCUMULATION FUND, INC.
By: ______________________________
A. S. Filean, Vice President
PRINCOR FINANCIAL SERVICES CORPORATION
By: ______________________________
S. L. Jones, President
PRINCOR CAPITAL ACCUMULATION FUND, INC.
DISTRIBUTION AND SHAREHOLDER SERVICING
PLAN AND AGREEMENT
CLASS R SHARES
PLAN AND AGREEMENT made as of the ___ of ________, 1995, by and between
PRINCOR BOND FUND, INC., a Maryland corporation (the "Fund"), and PRINCOR
FINANCIAL SERVICES CORPORATION, an Iowa corporation (the "Underwriter").
WHEREAS, Rule 12b-1 under the Investment Company Act of 1940 (the
"Act"), provides that a registered open-end management investment company may
participate in financing the distribution of securities of which it is the
issuer; and
WHEREAS, any payments made by the Fund in accordance with Rule 12b-1
must be made pursuant to a written plan describing all material aspects of the
proposed financing of distribution; and
WHEREAS, the Underwriter acts as the underwriter for the Fund; and
various broker-dealers (the "Dealers"), including the Underwriter, sell shares
of the Fund and provide services to existing shareholders; and
WHEREAS, the Board of Directors of the Fund has determined that the
Fund should make direct payments to the Underwriter for transmission to Dealers
(including the Underwriter) in connection with selling Class R shares of the
Fund and the rendering of services to Class R shareholders and that such payment
should be separate from the investment advisory and management fee paid to
Princor Management Corporation; and
WHEREAS, the Board of Directors of the Fund has determined that there
is a reasonable likelihood that the adoption of the Plan will benefit the Fund
and its Class R shareholders;
NOW, THEREFORE, the following shall constitute the written Plan
pursuant to which the Fund shall participate in financing the distribution of
its Class R shares.
Section 1. The Fund is hereby authorized to make payments to the
Underwriter from that portion of its assets attributable to its Class R shares
for the purpose of reimbursing the Underwriter for expenses it incurs in
connection with sales of the Class R shares and to compensate the Underwriter
and other selling Dealers for (i) providing shareholder services to existing
Class R shareholders, including without limitation, furnishing information as to
the status of shareholder accounts, requests, responding to telephone and
written inquiries, and assisting shareholders with tax information and (ii)
rendering assistance in the distribution and promotion of the sale of Class R
shares to the public.
In consideration of the activities described above, the Fund shall pay
the Underwriter a fee after the end of each month at the annual rate of 0.75% of
the daily net asset value of the Fund's Class R shares. The Underwriter shall
retain such amounts as are appropriate to compensate the Underwriter for actual
expenses incurred in distributing and promoting the sale of Class R shares to
the public and remit such amounts as are appropriate to other Dealers in
recognition of their services and assistance as described above provided however
the Underwriter shall not pay compensation to registered representatives and
Dealers for the services they render to Class R shareholders in an amount
exceeding 0.50% annually of the daily net asset value of the Fund's Class R
shares. If the aggregate payments received by the Underwriter under this Plan in
any fiscal year exceed the expenditures made by the Underwriter in such fiscal
year for these purposes, the Underwriter shall promptly reimburse the Fund for
the amount of such excess.
Section 2. This Plan shall not take effect until it has been approved
(1) by a vote of at least a majority (as defined in the Act) of the outstanding
Class R shares of the Fund and (2) by votes of the majority of both (i) the
Board of Directors of the Fund, and (ii) those Directors of the Fund who, except
for their positions as Directors of the Fund, are not "interested persons" (as
defined in the Act) of the Fund and who have no direct or indirect financial
interest in the operation of this Plan or any agreements related to this Plan
(the "Disinterested Directors"), cast in person at a meeting called for the
purpose of voting on this Plan or such agreements.
Section 3. Unless sooner terminated pursuant to Section 5, this Plan
shall continue in effect for a period of twelve months from the date it takes
effect and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 2(2).
Section 4. A representative of the Underwriter shall provide to the
Board and the Board shall review at least quarterly a written report of the
amounts so expended and the purposes for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Disinterested Directors, or by vote of a majority (as defined in
the Act) of the Fund's outstanding Class R shares.
Section 6. Any agreement of the Fund related to this Plan shall be in
writing and shall provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the members
of the Board of Directors of the Fund who are not interested
persons of the Fund and have no direct or indirect financial
interest in the operation of the Plan or in any agreements
related to the Plan or by a vote of a majority (as defined in
the Investment Company Act of 1940) of the Fund's outstanding
Class R shares on not more than sixty days' written notice to
any other party to the agreement); and
B. That such agreement shall terminate automatically in the event
of its assignment.
Section 7. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the Directors who are not interested
persons.
Section 8. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Paragraph 4, for a period of not
less than six years from the date of the Plan, or the agreements or such report,
as the case may be, the first two years in an easily accessible place.
Section 9. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 1 hereof unless such
amendment is approved in the manner provided for initial approval in Section 2
hereof and no other material amendment to this Plan shall be made unless
approved in the manner provided for initial approval in Section 2(2) hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Plan as of the first date written above.
PRINCOR CAPITAL ACCUMULATION FUND, INC.
By: ______________________________
A. S. Filean, Vice President
PRINCOR FINANCIAL SERVICES
CORPORATION
By: ______________________________
S. L. Jones, President
SCHEDULE FOR COMPUTING TOTAL RETURN
PRINCOR CAPITAL ACCUMULATION FUND, INC.
Class B Shares
The average annual total return quotation for the period from December
9, 1994 (effective date) to October 31, 1995 is computed by finding the
average annual compounded rate of return over the period that would
equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000
payment made at the beginning of the 1, 5, or 10 year
periods at the end of the 1, 5, or 10 year periods
(or fractional portion thereof).
The above calculation includes all recurring fees that are charged to
all shareholder accounts.
The Fund's average annual total return for the period from December 9,
to October 31, 1995 is calculated as follows:
Period December 9, 1994 to October 31, 1995:
$1,000(1 + T)(326/365) = $1,186.13
Solve for T
T = 21.06%
PRINCOR FAMILY OF MUTUAL FUNDS
MULTIPLE CLASS DISTRIBUTION PLAN
Princor Financial Services Corporation ("The Distributor"), Princor Management
Corporation ("Adviser") and each of the funds listed on Exhibit 1 (the "Fund or
Funds") seek to allow each of the Funds to issue multiple separate classes of
shares under this Multiple Class Distribution Plan (the "Plan") in reliance upon
Rule 18f-3 of the Investment Company Act of 1940.
This Plan enables each Fund to offer certain investors the option of purchasing
shares subject to: (i) a conventional front-end sales charge ("Class A shares")
or (ii) a contingent deferred sales charge ("Class B shares"). The Plan also
permits each Fund, except Princor Tax-Exempt Bond Fund, Inc. and Princor Tax
Exempt Cash Management Fund, Inc., to offer distributees of retirement plans
administered by Principal Mutual Life Insurance Company a class of shares that
is not subject to either a front-end or contingent deferred sales charge ("Class
R shares"). Each Class represents an interest in the same portfolio of
investments of a Fund.
SALES CHARGES
Class A shares
Class A shares of the Money Market Funds are sold to the public at net
asset value; no sales charge applies to purchases of the Money Market Funds.
Class A shares of the Growth-Oriented and Income-Oriented Funds, except the
Short-Term Bond Fund, are sold to the public at the net asset value plus a sales
charge which ranges from a high 4.75% to a low of 0% of the offering price
(equivalent to a range of 4.99% to 0% of the net amount invested) according to
the schedule below. Class A shares of the Short-Term Bond Fund are sold to the
public at the net asset value plus a sales charge which ranges from a high of
1.50% to a low of 0% of the offering price according to the schedule below. An
investor who purchases $1 million or more of Class A shares does not pay a sales
charge at the time of purchase. However, a redemption of such shares occurring
within 18 months from the date of purchase will be subject to a contingent
deferred sales charge ("CDSC") at the rate of .75% (.25% for the Short-Term Bond
Fund) of the lesser of the value of the shares redeemed (exclusive of reinvested
dividend and capital gain distributions) or the total cost of such shares.
Shares subject to the CDSC which are exchanged into another Princor Fund will
continue to be subject to the CDSC until the original 18 month period expires.
However, no CDSC is payable with respect to the redemptions of Class A shares to
fund a Princor 401(a) or Princor 401(k) retirement plan, except redemptions
resulting from the termination of the plan or transfer of plan assets. Certain
purchases of Class A shares qualify for reduced sales charges.
<TABLE>
<CAPTION>
Sales Charge for
All Funds Except Sales Charge for Dealer Allowance as
Short-Term Bond Fund Short-Term Bond Fund % of Offering Price
Sales Charge as % of: Sales Charge as % of: All Funds
Offering Amount Offering Amount Except Short-Term Short-Term
Amount of Purchase Price Invested Price Invested Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
Less than $50,000 4.75% 4.99% 1.50% 1.52% 4.00% 1.25%
$50,000 but less than $100,000 4.25% 4.44% 1.25% 1.27% 3.75% 1.00%
$100,000 but less than $250,000 3.75% 3.90% 1.00% 1.01% 3.25% .75%
$250,000 but less than $500,000 2.50% 2.56% 0.75% 0.76% 2.00% .50%
$500,000 but less than $1,000,000 1.50% 1.52% 0.50% 0.50% 1.25% .25%
$1,000,000 or more No Sales Charge 0% No Sales Charge 0% .75% .25%
</TABLE>
Class B shares
Class B shares are sold without an initial sales charge, although a CDSC
will be imposed on shares redeemed within six years of purchase. The following
types of shares may be redeemed without charge at any time: (i) shares acquired
by reinvestment of distributions and (ii) shares otherwise exempt from the CDSC,
as described below. Subject to the foregoing exclusions, the amount of the
charge is determined as a percentage of the lesser of the current market value
or the cost of the shares being redeemed. Therefore, when a share is redeemed,
any increase in its value above the initial purchase price is not subject to any
CDSC. The amount of the CDSC will depend on the number of years shares have been
owned and the dollar amount being redeemed, according to the following table:
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge as a
Percentage of Dollar Amount Subject to Charge
Years Since Purchase All Funds Except
Payments Made Short-Term Bond Fund Short-Term Bond Fund
<S> <C> <C>
2 years or less 4.0% 1.25%
more than 2 years, up to 4 years 3.0% 0.75%
more than 4 years, up to 5 years 2.0% 0.50%
more than 5 years, up to 6 years 1.0% 0.25%
more than 6 years None None
</TABLE>
In determining whether a CDSC is payable on any redemption, the Fund will
first redeem shares not subject to any charge, and then shares held longest
during the six-year period.
The CDSC will be waived on redemptions of Class B shares in connection
with the following types of transactions:
a. Shares redeemed due to a shareholder's death;
b. Shares redeemed due to the shareholder's disability, as defined in
the Internal Revenue Code of 1986 (the "Code"), as amended;
c. Shares redeemed from retirement plans to satisfy minimum
distribution rules under the Code;
d. Shares redeemed to pay surrender charges;
e. Shares redeemed to pay retirement plan fees;
f. Shares redeemed involuntarily from small balance accounts (values
of less than $300);
g. Shares redeemed through a systematic withdrawal plan that permits
up to 10% of the value of a shareholder's Class B shares of a
particular Fund on the last business day of December of each year
to be withdrawn automatically in equal monthly installments
throughout the year;
h. Shares redeemed from a retirement plan to assure the plan complies
with Sections 401(k), 401(m), 408(k) and 415 of the Code; or
i. Shares redeemed from retirement plans qualified under Section
401(a) of the Code due to the plan participant's death, disability,
retirement or separation from service after attaining age 55.
Class R shares
Class R shares are purchased without an initial sales charge or a
contingent deferred sales charge.
EXPENSE ALLOCATION
The Fund will pay to the distributor a distribution fee pursuant to the Fund's
Rule 12b-1 distribution plan at an annual rate of (i) up to .25% (.15% for
Princor Short-Term Bond Fund, Inc.) of the average daily net asset value of the
Class A shares; (ii) up to 1.00% (.50% for Princor Short-Term Bond Fund, Inc.)
of the average daily net asset value of the Class B shares; and (iii) up to .75%
of the average daily net asset value of Class R shares. For accounting purposes,
the classes of a Fund are identical except that the net asset value and expenses
each class will reflect the Distribution Plan expenses (if any) and any Class
Expenses, as defined below, attributable to the class. "Class Expenses" are
limited to: (i) transfer agency fees, as identified by the Funds'
transfer agent as being attributable to a specific class; (ii) blue sky
registration fees incurred with respect to a class of shares; (iii) Commission
registration fees incurred with respect to a class of shares; (iv) the expenses
of administrative personnel and services as required to provide services to the
shareholders of a specific class (depending on the type of service provided
administrative expenses are allocated to specific classes based on the relative
percentage of shareholder transactions and net asset values compared to the
total of both share classes); (v) litigation or other legal expenses or audit or
other accounting expenses relating solely to one class of shares (vi) Directors'
fees incurred as a result of issues relating to one class of shares; and (vii)
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders of
a given class.
Any additional incremental expenses not specifically identified above that are
subsequently identified and determined to be properly allocated to one class of
shares will not be so allocated unless and until approved by the Funds'
directors. Certain expenses may be allocated differently if their method of
imposition changes; thus, if a Class Expense of a Fund can no longer be
attributed to a class it will be allocated to the Fund as a whole.
The net asset value of all outstanding shares of each class is determined by
dividing the ending total net assets applicable to a specific class by the
number of shares outstanding relating to the class. Expenses are attributable to
each class of shares depending on the nature of the expenditure and are accrued
on a daily basis. These fall into two categories: (1) fund level expenses that
are attributable to each class that are allocated based on net assets at the
beginning of the day (i.e., legal, audit, etc.) and (2) certain class level
expenses that may have a different cost for one class versus the other (i.e.,
12b-1 fees). Because of the additional expenses that will be borne by the Class
B shares and Class R shares, the net income attributable to and the dividends
payable on Class B shares and Class R shares will be lower than the net income
attributable to and the dividends payable on Class A shares.
CONVERSION FEATURES
Class A shares. Class A shares do not convert into any other class of shares at
any time.
Class B shares. Class B shares will automatically convert to Class A shares,
based on relative net asset value on the first business day of the 85th month
after the purchase date. Class B shares acquired by exchange from Class B shares
of another Princor fund will convert into Class A shares based on the time of
the initial purchase. At the same time, a pro rata portion of all shares
purchased through reinvestment of dividends and distributions would convert into
Class A shares, with that portion determined by the ratio that the shareholder's
Class B shares converting into Class A shares bears to the shareholder's total
Class B shares that were not acquired through dividends and distributions. The
conversion of Class B to Class A shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an opinion of
counsel that such conversions will not constitute taxable events for Federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not occur
if such ruling or opinion is not available. In such event, Class B shares would
continue to be subject to higher expenses than Class A shares for an indefinite
period.
Class R shares. Class R shares will automatically convert to Class A shares,
based on relative net asset value, on the first business day of the 49th month
after the purchase date. Class R shares acquired by exchange from Class R shares
of another Princor fund will convert into Class A shares based on the time of
the initial purchase. At the same time, a pro rata portion of all shares
purchased through reinvestment of dividends and distributions would convert into
Class A shares, with that portion determined by the ratio that the shareholder's
Class R shares converting into Class A shares bears to the shareholder's total
Class R shares that were not acquired through dividends and distributions. The
conversion of Class R shares to Class A shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an opinion of
counsel that such conversions will not constitute taxable events for Federal tax
purposes. There can be no assurance that such ruling or opinion is not
available. In such event, Class R shares would continue to be subject to higher
expenses than Class A shares for an indefinite period.
EXCHANGE FEATURES
Class A shares. Class A shares of any Fund (except the Money Market Funds and
the Short Term Bond Fund) may be exchanged at the net asset value for Class A
shares of any other Princor Fund at any time.
Class A shares of the Short-Term Bond Fund may be exchanged at net asset value
for Class A shares of any Fund at any time three months after the purchase of
such shares.
The CDSC that might apply to certain Class A shares upon redemption will not
apply if these shares are exchanged for shares of another Fund. However, for
purposes of computing the CDSC on the shares acquired through this exchange, the
length of time the acquired shares have been owned by a shareholder will be
measured from the date the exchanged shares were purchased. The amount of the
CDSC will be determined by reference to the CDSC table to which the exchanged
shares were subject.
Class A shares of Princor Cash Management Fund or Princor Tax-Exempt Cash
Management Fund acquired by direct purchase may not be exchanged for other Class
A shares. However, Class A shares of these two Funds acquired by exchange of any
other Princor Fund shares, or by conversion of Class B or Class R shares, and
additional shares which have been purchased by reinvesting dividends earned on
such shares, may be exchanged for other Class A shares without a sales charge.
In addition, Class A shares of the Money Market Funds acquired by direct
purchase or reinvestment of dividends on such shares may be exchanged for Class
B shares of any Growth-Oriented or Income-Oriented Fund.
Class B shares. Class B shares for all Funds may be exchanged at net asset value
at any time for Class B shares of any Fund.
The CDSC that might apply to Class B shares upon redemption will not apply if
these shares are exchanged for shares of another Fund. However, for purposes of
computing the CDSC on the shares acquired through this exchange, the length of
time the acquired shares have been owned by a shareholder will be measured from
the date the exchanged shares were purchased. The amount of the CDSC will be
determined by reference to the CDSC table to which the exchanged shares were
subject.
Class R shares. Class R shares for all Funds may be exchanged at net asset value
at any time for Class R shares of any Fund. For purposes of computing the length
of time Class R shares acquired by the exchange are held prior to conversion to
Class A shares, the length of time the acquired shares have been owned by a
shareholder will be measured from the date the exchanged shares were purchased.
<PAGE>
Exhibit 1
Princor Balanced Fund, Inc.
Princor Blue Chip Fund, Inc.
Princor Bond Fund, Inc.
Princor Capital Accumulation Fund, Inc.
Princor Cash Management Fund, Inc.
Princor Emerging Growth Fund, Inc.
Princor Government Securities Income Fund, Inc.
Princor Growth Fund, Inc.
Princor High Yield Fund, Inc.
Princor Short-Term Bond Fund, Inc.
Princor Tax-Exempt Bond Fund, Inc.
Princor Tax-Exempt Cash Management Fund, Inc.
Princor Utilities Fund, Inc.
Princor World Fund, Inc.
