SUPPLEMENT, DATED DECEMBER 1, 1995
TO THE PROSPECTUS DATED DECEMBER 9, 1994 AS REVISED THROUGH APRIL 3, 1995
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 Tax-Exempt Bond Fund, Inc.
Princor Tax-Exempt Cash Management Fund, Inc.
Princor Utilities Fund, Inc.
Princor World Fund, Inc.
Effective August 31, 1995, the Prospectus for each of the
above-referenced funds is amended by adding the following as the last paragraph
under the subheading "Investors may be eligible to buy Class A shares at reduced
sales charges" included under the heading "OFFERING PRICE OF FUNDS' SHARES":
A reduced sales charge described in the table below is available for
purchases of Class A shares of any of the Funds to the extent that the
investment represents the proceeds from a total surrender of a Pension Builder
Annuity Contract, an unregistered fixed annuity contract issued by Principal
Mutual Life Insurance Company.
Net Dealer Allowance
Offering Amount as %
Amount of Purchase Price Invested of Offering Price
Less than $500,000 2.5% 2.56% 2.10%
$500,000 but less than $1,000,000 1.5% 1.52% 1.25%
$1,000,000 or more No Sales Charge 0 Negotiated
Effective December 1, 1995, the Prospectus for each of the
above-referenced funds is amended by adding the following as the last paragraph
under the subheading "Investors may be able to purchase Class A shares at net
asset value" included under the heading "OFFERING PRICE OF FUNDS' SHARES":
Also beginning December 1, 1995 and ending January 31, 1996, 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 or 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.
Effective December 1, 1995, the Prospectus for each of the
above-referenced funds is amended by adding the following as a subheading under
the heading "OFFERING PRICE OF FUNDS' SHARES":
CDSC on Class A Shares. Purchases of Class A Shares of $1,000,000 or more
on or after January 1, 1996 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% 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.
MM625 S-6
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 December 9, 1994, as revised through
April 3, 1995.
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." 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 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 offers two classes of shares: Class A shares and
Class B shares. Each class is sold pursuant to different sales arrangements and
bears different expenses. 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 December 9, 1994 which is incorporated by reference herein.
The Statement of Additional Information 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 ................................................. 10
Investment Objectives, Policies and Restrictions ..................... 20
Growth-Oriented Funds ............................................ 20
Income-Oriented Funds ............................................ 23
Money Market Funds ............................................... 30
Certain Investment Policies and Restrictions ..................... 32
Risk Factors ......................................................... 34
How the Funds are Managed ............................................ 34
How to Purchase Shares ............................................... 37
Offering Price of Funds' Shares ...................................... 38
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 .............................................. 47
General Information About a Fund Account ............................. 48
Retirement Plans ..................................................... 49
Shareholder Rights ................................................... 49
Additional Information ............................................... 50
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.
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, 1994, except as otherwise
indicated. Table B depicts Class B shares and is based on amounts incurred by
the Funds' Class A shares during the fiscal year ended October 31, 1994, and
assumptions regarding the level of expenses anticipated for Class B shares
during the current fiscal year. 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.
<PAGE>
<TABLE>
<CAPTION>
CLASS A SHARES
TABLE A
Shareholder Transaction Expenses
Maximum Sales Load Imposed
on Purchases
Fund (as a percentage of offering price) Redemption Fee
<S> <C> <C>
All Funds Except the Money Market Funds 4.75% None*
Money Market Funds None None*
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management 12b-1 Other Total Operating
Fund Fee Fee Expenses Expenses
<S> <C> <C> <C> <C>
Balanced Fund .60% .25% .66% 1.51%
Blue Chip Fund .50 .25 .71 1.46
Bond Fund .36** .25 .34 .95**
Capital Accumulation Fund .46 .12 .25 .83
Cash Management Fund .25** None .45 .70**
Emerging Growth Fund .65 .25 .84 1.74
Government Securities Income Fund .46 .20 .29 .95
Growth Fund .50 .25 .55 1.30
High Yield Fund .60 .25 .61 1.46
Tax-Exempt Bond Fund .48 .22 .21 .91
Tax-Exempt Cash Management Fund .31** None .36 .67**
Utilities Fund .10** .25 .65 1.00**
World Fund .75 .25 .74 1.74
<FN>
* A wire charge of up to $6.00 will be deducted for all wire transfers.
**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)
<S> <C> <C>
All Funds None 4.0% in the first two years,
declining to 1% in the sixth
year and eliminated thereafter
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management 12b-1 Other Total Operating
Fund Fee Fee*** Expenses*** Expenses***
<S> <C> <C> <C> <C>
Balanced Fund .60% 1.00% .66% 2.26%
Blue Chip Fund .50 1.00 .71 2.21
Bond Fund .36** 1.00 .34 1.70**
Capital Accumulation Fund .46 1.00 .25 1.71
Cash Management Fund .25** 1.00 .45 1.70**
Emerging Growth Fund .65 1.00 .84 2.49
Government Securities Income Fund .46 1.00 .29 1.75
Growth Fund .50 1.00 .55 2.05
High Yield Fund .60 1.00 .61 2.21
Tax-Exempt Bond Fund .48 1.00 .21 1.69
Tax-Exempt Cash Management Fund .31** 1.00 .36 1.67**
Utilities Fund .10** 1.00 .65 1.75**
World Fund .75 1.00 .74 2.49
<FN>
* A wire charge of up to $6.00 will be deducted for all wire transfers.
** After waiver.
***Estimated expenses.
</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 $62 $64 $93 $103 $126 $144 $219 $231
Blue Chip Fund $62 $64 $91 $102 $123 $141 $214 $226
Bond Fund $57 $59 $76 $87 $98 $116 $159 $171
Capital Accumulation Fund $56 $59 $73 $87 $91 $116 $145 $167
Cash Management Fund $7 $59 $22 $87 $39 $116 $87 $161
Emerging Growth Fund $64 $66 $100 $110 $137 $155 $243 $255
Government Securities Income Fund $57 $59 $76 $88 $98 $118 $159 $175
Growth Fund $60 $62 $87 $97 $115 $133 $197 $209
High Yield Fund $62 $64 $91 $102 $123 $141 $214 $226
Tax-Exempt Bond Fund $56 $59 $75 $86 $95 $115 $154 $169
Tax-Exempt Cash Management Fund $7 $58 $21 $86 $37 $114 $83 $158
Utilities Fund $57 $59 $78 $88 $100 $118 $164 $177
World Fund $64 $66 $100 $110 $137 $155 $243 $255
<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 $62 $23 $93 $67 $126 $121 $219 $231
Blue Chip Fund $62 $22 $91 $69 $123 $118 $214 $226
Bond Fund $57 $17 $76 $54 $98 $92 $159 $171
Capital Accumulation Fund $56 $17 $73 $54 $91 $93 $145 $167
Cash Management Fund $7 $17 $22 $54 $39 $92 $87 $161
Emerging Growth Fund $64 $25 $100 $78 $137 $133 $243 $255
Government Securities Income Fund $57 $18 $76 $55 $98 $95 $159 $175
Growth Fund $60 $21 $87 $64 $115 $110 $197 $209
High Yield Fund $62 $22 $91 $69 $123 $118 $214 $226
Tax-Exempt Bond Fund $56 $17 $75 $53 $95 $92 $154 $169
Tax-Exempt Cash Management Fund $7 $17 $21 $53 $37 $91 $83 $158
Utilities Fund $57 $18 $78 $55 $100 $95 $164 $177
World Fund $64 $25 $100 $78 $137 $133 $243 $255
<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>
<PAGE>
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 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, 1994. Without these waivers, total operating expenses for Class A
shares actually incurred by the Funds for the fiscal year ended October 31, 1994
would have amounted to 1.09%, .90%, .85% and 1.50% of each Fund's average net
assets, respectively. The Manager intends to continue its voluntary waiver and,
if necessary, pay expenses normally payable by each of these Funds through
February 28, 1995 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, .70% for the Money Market Funds and 1.00% for the Utilities
Fund, and for the Class B shares, 1.70% for the Bond Fund and the Money Market
Funds and 1.75% for the Utilities Fund. In addition, the Manager intends to
continue its voluntary waiver, and, if necessary, pay expenses normally payable
by each of these Funds for the period beginning March 1, 1995 and ending
February 29, 1996 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, .75% for the Money Market Funds and 1.10% for the Utilities
Fund, and for Class B shares, 1.70% for the Bond Fund, 1.75% for the Money
Market Funds, and 1.85% for the Utilities Fund. See "How the Funds are Managed."
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: 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. Shareholders of the
Money Market Funds will receive a monthly statement of account. Shareholders who
own more than one Princor Fund account also receive a portfolio summary
statement as of June 30 and the last business day of December each year.
<TABLE>
<CAPTION>
Investment Objectives of the Funds
Growth-Oriented Funds
Fund Investment Objectives
<S> <C>
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.
<CAPTION>
Income-Oriented Funds
Fund Investment Objectives
<S> <C>
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 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.
<CAPTION>
Money Market Funds
Fund Investment Objectives
<S> <C>
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 maintenanc
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."
</TABLE>
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 two classes of shares through Princor and other dealers
which it selects. The two classes are 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 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% on purchases of up to
$50,000 to a low of 0% on purchases of $1 million or more. 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% 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 8, 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. Net asset value
will usually 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% 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% 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 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 of
$25.00 or more 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. 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 made at net asset value without charge. 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 the ten years ended October 31,
1994, 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 B 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 may be obtained by shareholders, without
charge, by telephoning 1-800-451-5447.
<PAGE>
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.
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 (a) 9.96 .40 1.02 1.42 (.29) - (.29) 11.09
Princor Blue Chip Fund, Inc.
Year Ended October 31,
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(b) 10.02 .10 .57 .67 (.08) - (.08) 10.61
Princor Capital Accumulation
Fund, Inc.
Year Ended October 31,
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(c)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
1985 14.68 .82 3.46 4.28 (.85) (1.51) (2.36) 16.60
<FN>
Notes to financial highlights
(a) 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.
(b) 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.
(c) Effective July 1, 1989, the fund changed its fiscal year-end from June 30
to October 3l.
(d) Computed on an annualized basis.
(e) Total Return is calculated without the front-end sales charge.
(f) Total Return amounts have not been annualized.
</FN>
</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(e) (in thousands) Net Assets Net Assets Rate
<S> <C> <C> <C> <C>
.94% $ 53,366 1.51% 2.70% 14.4%
12.24% 39,952 1.35% 2.78% 27.5%
11.86% 31,339 1.29% 3.39% 30.6%
34.09% 23,372 1.30% 4.25% 23.6%
(11.28)% 18,122 1.32% 5.22% 33.7%
11.03% 20,144 1.25% 5.45% 30.2%
12.42%(f) 16,282 1.12%(d) 4.51%(d) 65.2%(d)
6.58% 27,246 1.46% 1.72% 5.5%
5.65% 23,759 1.25% 1.87% 11.2%
9.92% 19,926 1.56% 1.49% 13.5%
6.37%(f) 12,670 1.71%(d) 1.67%(d) 0.4%(d)
6.67% 285,965 .83% 2.02% 31.7%
10.42% 240,016 .82% 2.16% 24.8%
11.67% 190,301 .93% 2.17% 38.3%
40.63% 152,814 .99% 2.72% 19.7%
(17.82)% 109,507 1.10% 3.10% 27.7%
.44%(f) 122,685 1.10%(d) 2.87%(d) 19.7%(d)
9.53% 117,473 1.00% 3.04% 28.1%
(2.30)% 97,147 .96% 2.40% 27.9%
20.93% 93,545 .98% 1.73% 20.0%
36.51% 55,763 .93% 3.59% 44.5%
33.87% 30,993 .96% 5.70% 27.0%
</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.
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 (a) 10.50 .06 2.26 2.32 (.05) - (.05) 12.77
Princor Growth Fund, Inc.
Year Ended October 31,
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(b)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
1985 15.94 .40 2.04 2.44 (.39) (.92) (1.31) 17.07
Princor World Fund, Inc.
Year Ended October 31,
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(c) 4.58 .07 .07 .14 (.06) - (.06) 4.66
Year Ended December 31,
1988 (f) 3.88 .12 .67 .79 (.09) - (.09) 4.58
1987 (f) 8.55 .12 (.96) (.84) (.08) (3.75) (3.83) 3.88
1986 (f) 7.32 .45 2.17 2.62 (.44) (.95) (1.39) 8.55
1985 (f) 6.07 .07 1.49 1.56 (.09) (.22) (.31) 7.32
1984 (f) 6.32 .21 (.15) .06 (.21) (.10) (.31) 6.07
<FN>
Notes to financial highlights
(a) 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.
(b) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
(c) Effective January 1, 1989, the fund changed its fiscal year-end from
December 31 to October 31.
(d) Computed on an annualized basis.
(e) Total Return is calculated without the front-end sales charge.
(f) 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.
(g) Total Return amounts have not been annualized.
</FN>
</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(e) (in thousands) Net Assets Net Assets Rate
<S> <C> <C> <C> <C>
6.86% $ 92,965 1.74% .02% 8.1%
19.66% 48,668 1.66% .26% 7.0%
11.63% 29,055 1.74% .80% 5.8%
64.56% 17,174 1.78% 1.14% 8.4%
(16.80)% 8,959 1.94% 2.43% 15.8%
19.65% 8,946 1.79% 2.09% 13.5%
19.72%(g) 6,076 1.52%(d) .84%(d) 19.5%(d)
9.82% 116,363 1.30% .95% 13.6%
9.83% 80,051 1.26% 1.40% 16.4%
14.76% 63,405 1.19% 1.46% 15.6%
59.30% 45,892 1.13% 1.85% 10.6%
(9.20)% 28,917 1.18% 1.88% 9.7%
6.83%(g) 32,828 1.22%(d) 1.25%(d) 50.1%(d)
4.38% 31,770 1.08% 1.78% 9.7%
(7.19)% 34,316 1.00% 1.29% 24.9%
20.94% 37,006 1.01% 1.07% 4.0%
42.69% 26,493 .98% 1.75% 29.0%
17.08% 18,835 1.00% 2.50% 40.5%
9.60% 115,812 1.74% .10% 13.2%
41.39% 63,718 1.61% .59% 19.5%
(1.57)% 35,048 1.69% 1.23% 19.9%
13.82% 26,478 1.72% 1.36% 27.6%
.94% 16,044 1.79% 1.89% 37.9%
2.98%(g) 13,928 1.55%(d) 1.82%(d) 32.4%(d)
20.25% 13,262 1.55% 1.43% 56.9%
(10.13)% 3,943 2.09% .83% 183.0%
36.40% 9,846 2.17% .73% 166.0%
25.88% 2,525 2.25% 1.13% 55.9%
1.05% 1,500 2.41% 3.66% 24.4%
</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.
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $11.75 $.78(g) $(1.47) $ (.69) $ (.78) $(.01) $ (.79) $10.27
1993 10.97 .81(g) .79 1.60 (.81) (.01) (.82) 11.75
1992 10.65 .85(g) .32 1.17 (.85) - (.85) 10.97
1991 9.99 .88(g) .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 (a) 9.95 .80(g) .38 1.18 (.76) - (.76) 10.37
Princor Cash Management Fund, Inc.
Year Ended October 31,
1994 1.000 .033(g) - .033 (.033) - (.033) 1.000
1993 1.000 .026(g) - .026 (.026) - (.026) 1.000
1992 1.000 .036(g) - .036 (.036) - (.036) 1.000
1991 1.000 .061(g) - .061 (.061) - (.061) 1.000
1990 1.000 .074(g) - .074 (.074) - (.074) 1.000
Four Months Ended October 31, 1989(b)1.000 .027(g) - .027 (.027) - (.027) 1.000
Year Ended June 30,
1989 1.000 .080(g) - .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
1985 1.000 .085 - .085 (.085) - (.085) 1.000
Princor Government Securities
Income Fund, Inc.
Year Ended October 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(b)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
Period Ended June 30, 1985(c) 10.31 .12 .26 .38 (.14) - (.14) 10.55
<FN>
Notes to financial highlights
(a) 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.
(b) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
(c) Period from May 21, 1985, date shares first available for offering to the
public, through June 30, 1985. Net investment income and net unrealized
appreciation of investments, for the period from the initial purchase of
shares on April 17, 1985 through May 20, 1985, amounted to $.10 and $.21,
respectively, per share. All dividends from net investment income, from
April 17, 1985 through June 30, 1985, were distributed to the sole
stockholder, Principal Mutual Life Insurance Company.
(d) Computed on an annualized basis.
(e) Total Return is calculated without the front-end sales charge.
(f) Total Return amounts have not been annualized.
(g) 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. 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(a) .76 1.12%(d) 31,187
Princor Cash Management
Fund, Inc. 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%(d) 101,625
1989* .079 1.11% 9,558
* Year ended June 30, 1989
** Four months ended October 31, 1989
</FN>
</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(e) (in thousands) Net Assets Net Assets Rate
<S> <C> <C> <C> <C>
(6.01)% $ 88,801 .95%(g) 7.27% 8.9%
15.22% 85,015 .92%(g) 7.19% 9.3%
11.45% 62,534 .88%(g) 7.95% 8.4%
16.04% 37,825 .80%(g) 8.66% .9%
3.08% 22,719 1.22% 8.40% 3.6%
11.54% 13,314 1.24% 8.59% 0.0%
11.59%(f) 10,560 .70%(d)(g) 8.85%(d) 63.9%(d)
3.40% 332,346 .70%(g) 3.27% N/A
2.67% 284,739 .67%(g) 2.63% N/A
3.71% 247,189 .65%(g) 3.66% N/A
6.29% 262,543 .61%(g) 5.95% N/A
7.65% 151,007 .93%(g) 7.36% N/A
2.63%(f) 124,895 1.04%(d)(g) 7.86%(d) N/A
8.15% 120,149 1.00%(g) 8.21% N/A
6.18% 51,320 1.02% 6.06% N/A
5.34% 45,015 1.02% 5.33% N/A
6.71% 35,437 1.10% 6.76% N/A
8.68% 26,731 1.16% 8.47% N/A
(6.26)% 249,438 .95% 6.35% 24.8%
11.80% 236,718 .93% 6.38% 52.6%
8.49% 161,565 .95% 7.04% 54.3%
16.78% 94,613 .98% 7.80% 14.9%
6.17% 71,806 1.07% 8.15% 22.4%
3.63%(f) 55,702 1.07%(d) 8.18%(d) 5.2%(d)
12.37% 56,848 .96% 8.58% -
8.60% 59,884 .82% 8.65% -
7.00% 65,961 .92% 7.93% 17.6%
17.37% 43,576 .60% 9.33% 141.2%
3.64%(f) 10,685 .95%(d) 9.99%(d) 5.0%(d)
</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.
Year Ended October 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 (a) 9.97 .98(i) .38 1.36 (.89) - (.89) 10.44
Princor Tax-Exempt Bond Fund, Inc.
Year Ended October 31,
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(b)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 (c) 10.95 .22 (.24) (.02) (.18) - (.18) 10.75
Princor Tax-Exempt Cash
Management Fund, Inc.
Year Ended October 31,
1994 1.000 .021(i) - .021 (.021) - (.021) 1.000
1993 1.000 .020(i) - .020 (.020) - (.020) 1.000
1992 1.000 .028(i) - .028 (.028) - (.028) 1.000
1991 1.000 .043(i) - .043 (.043) - (.043) 1.000
1990 1.000 .053(i) - .053 (.053) - (.053) 1.000
1989 1.000 .058(i) - .058 (.058) - (.058) 1.000
Period Ended October 31, 1988(d) 1.000 .005(i) - .005 (.005) - (.005) 1.000
Princor Utilities Fund, Inc.
Year Ended October 31, 1994 11.45 .46(i) (2.19) (1.73) (.45) (.02) (.47) 9.25
Period Ended October 31, 1993(e) 10.18 .35(i) 1.27 1.62 (.35) - (.35) 11.45
<FN>
Notes to financial highlights
(a) 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.
(b) Effective July 1, 1989, the fund changed its fiscal year-end from June 30 to
October 3l.
(c) 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.
(d) 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.
(e) 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.
(f) Computed on an annualized basis.
(g) Total Return is calculated without the front-end sales charge.
(h) Total Return amounts have not been annualized.
(i) 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(a) $.95 1.33%(f) $ 32,609
Princor Tax-Exempt Cash
Management Fund, Inc. 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(d) .004 .76%(f) 2,630
Princor Utilities Fund, Inc. 1994 .41 1.50% 284,836
1993(e) .32 1.54%(f) 139,439
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses Income to Portfolio
Total End of Period Average Average Turnover
Return(g) (in thousands) Net Assets Net Assets Rate
<S> <C> <C> <C> <C>
1.45% $ 19,802 1.46% 7.82% 27.2%
11.66% 19,154 1.35% 8.57% 23.4%
14.35% 16,359 1.41% 9.69% 28.2%
25.63% 13,195 1.50% 12.06% 14.2%
(14.51)% 9,978 1.45% 12.99% 15.8%
2.68% 12,562 1.43% 11.22% 19.9%
14.15%(h) 10,059 .77%(f)(i) 10.55%(f) 73.2%(f)
(7.41)% 171,425 .91% 5.49% 20.6%
15.70% 177,480 .89% 5.45% 20.3%
7.76% 106,661 .99% 5.96% 22.9%
13.09% 62,755 1.01% 6.24% 13.1%
4.06% 46,846 1.11% 6.31% 2.6%
.90%(h) 36,877 1.24%(f) 6.18%(f) 5.1%
14.64% 31,278 1.07% 6.54% 2.1%
7.76% 22,812 .95% 7.00% 11.0%
5.60% 19,773 .70% 6.70% 40.8%
(.16)%(h) 8,486 .20%(f) 8.60%(f) 0.0%(f)
2.11% 79,736 .67%(i) 2.08% N/A
1.99% 79,223 .66%(i) 1.96% N/A
2.86% 69,224 .65%(i) 2.84% N/A
4.36% 71,469 .61%(i) 4.27% N/A
5.40% 58,301 .71%(i) 5.26% N/A
5.88% 42,639 .60%(i) 5.78% N/A
.47%(h) 6,000 .26%(f)(i) 5.24%(f) N/A
(15.20)% 56,747 1.00%(i) 4.89% 13.8%
15.92%(h) 50,372 1.00%(f)(i) 4.48%(f) 4.3%(f)
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The investment objectives and policies of each Fund are described below.
There can be no assurance that the objectives of the Funds will be realized.
GROWTH-ORIENTED FUNDS
The Princor Growth-Oriented Funds currently include four Funds which seek
capital appreciation through investments in equity securities (Capital
Accumulation Fund, Emerging Growth Fund, Growth Fund and World Fund), one Fund
which seeks a total investment return including both capital appreciation and
income through investments in equity and debt securities (Balanced Fund) and one
Fund which seeks growth of capital and growth of income primarily through
investments in common stocks of well capitalized, established companies (Blue
Chip Fund).
The Growth-Oriented Funds may invest in the following equity securities:
common stocks; preferred stocks and debt securities that are convertible into
common stock, that carry rights or warrants to purchase common stock or that
carry rights to participate in earnings; rights or warrants to subscribe to or
purchase any of the foregoing securities; and sponsored and unsponsored American
Depository Receipts (ADRs) based on any of the foregoing securities. Unsponsored
ADRs are not created by the issuer of the underlying security, may be subject to
fees imposed by the issuing bank that, in the case of sponsored ADRs, would be
paid by the issuer of a sponsored ADR and may involve additional risks such as
reduced availability of information about the issuer of the underlying security.
The Blue Chip, Capital Accumulation, Emerging Growth, Growth and World Funds
will seek to be fully invested under normal conditions in equity securities.
When in the opinion of the Manager current market or economic conditions
warrant, a Growth-Oriented Fund may, for temporary defensive purposes, place all
or a portion of its assets in cash (on which the Fund would earn no income),
cash equivalents, bank certificates of deposit, bankers acceptances, repurchase
agreements, commercial paper, commercial paper master notes which are floating
rate debt instruments without a fixed maturity, United States Government
securities, and preferred stocks and debt securities, whether or not convertible
into or carrying rights for common stock. When investing for temporary defensive
purposes a Growth-Oriented Fund is not investing so as to achieve its investment
objective. A Growth-Oriented Fund may also maintain reasonable amounts in cash
or short-term debt securities for daily cash management purposes or pending
selection of particular long-term investments.
Princor Balanced Fund
The investment objective of Princor Balanced Fund is to generate a total
investment return consisting of current income and capital appreciation while
assuming reasonable risks in furtherance of the investment objective. The term
"reasonable risks" refers to investment decisions that in the Manager's judgment
do not present a greater than normal risk of loss in light of current or
anticipated future market and economic conditions, trends in yields and interest
rates, and fiscal and monetary policies.
In seeking to achieve the investment objective, the Fund invests primarily
in growth and income-oriented common stocks (including securities convertible
into common stocks), corporate bonds and debentures and short-term money market
instruments. The Fund may also invest in other equity securities and in debt
securities issued or guaranteed by the United States Government and its agencies
or instrumentalities. The Fund seeks to generate real (inflation plus) growth
during favorable investment periods and may emphasize income and capital
preservation strategies during uncertain investment periods. The Manager will
seek to minimize declines in the net asset value per share. However, there is no
guarantee that the Manager will be successful in achieving this goal.
The portions of the Fund's total assets invested in equity securities, debt
securities and short-term money market instruments are not fixed, although
ordinarily 40% to 70% of the Fund's portfolio will be invested in equity
securities with the balance of the portfolio invested in debt securities. The
investment mix will vary from time to time depending upon the judgment of the
Manager as to general market and economic conditions, trends in investment
yields and interest rates, and changes in fiscal or monetary policies. The Fund
may invest up to 20% of its assets in foreign securities. For a description of
certain investment risks associated with foreign securities, see "Risk Factors."
The Fund may invest in all types of common stocks and other equity
investments, without regard to any objective investment criteria such as size of
the issue or issuer, exchange listing or seasoning. The Fund may invest in both
exchange-listed and over-the-counter securities, in small or large companies,
and in well-established or unseasoned companies. Also, the Fund's investments in
corporate bonds and debentures and money market instruments are not restricted
by credit ratings or other objective investment criteria, except with respect to
bank certificates of deposit as set forth below. Some of the fixed income
securities in which the Fund may invest may be considered to include speculative
characteristics and the Fund may purchase such securities that are in default
but does not currently intend to invest more than 5% of its assets in securities
rated below BBB by Standard & Poor's or Baa by Moody's. The rating services'
descriptions of BBB or Baa securities are as follows: Moody's Investors Service,
Inc. Bond Ratings -- Baa: Bonds which are rated Baa are considered as medium
grade obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Standard &
Poor's Corporation Bond Ratings -- BBB: Debt rated "BBB" is regarded as having
an adequate capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than for debt in higher-rated
categories. See the discussion of the Princor High Yield Fund for information
concerning risks associated with below-investment grade bonds. The Fund will not
concentrate its investments in any industry.
In selecting common stocks, the Manager seeks companies which the Manager
believes have predictable earnings increases and which, based on their future
growth prospects, may be currently undervalued in the market place. During
periods when the Manager determines that general economic conditions are
favorable, it will generally purchase common stocks with the objective of
long-term capital appreciation. From time to time, and in periods of economic
uncertainty, the Manager may purchase common stocks with the expectation of
price appreciation over a relatively short period of time.
To achieve its investment objective, the Fund may at times emphasize the
generation of interest income by investing in short, medium or long-term debt
securities. Investment in debt securities may also be made with a view to
realizing capital appreciation when the Manager believes that declining interest
rates may increase market values. The Fund may also purchase "deep discount
bonds," i.e., bonds which are selling at a substantial discount from their face
amount, with a view to realizing capital appreciation.
The Fund may invest in the following short-term money market investments:
U.S. Treasury bills, bank certificates of deposit, bankers' acceptances,
repurchase agreements, commercial paper and commercial paper master notes which
are floating rate debt instruments without a fixed maturity. The Fund will only
invest in domestic bank certificates of deposit issued by banks which are
members of the Federal Reserve System that have total deposits in excess of one
billion dollars.
The United States Government securities in which the Fund may invest
consist of U.S. Treasury obligations and obligations of certain agencies, such
as the Government National Mortgage Association, which are supported by the full
faith and credit of the United States, as well as obligations of certain other
Federal agencies or instrumentalities, such as the Federal National Mortgage
Association, Federal Land Banks and the Federal Farm Credit Administration,
which are backed only by the right of the issuer to borrow limited funds from
the U.S. Treasury, by the discretionary authority of the U.S. Government to
purchase such obligations or by the credit of the agency or instrumentality
itself.
Princor Blue Chip Fund
The objective of Princor Blue Chip Fund is growth of capital and growth of
income. Growth of income means increasing the Fund's investment income which is
primarily derived from dividends earned on portfolio securities. In seeking to
achieve its objective, the Fund will invest primarily in common stocks of well
capitalized, established companies which the Fund's manager believes to have the
potential for growth of capital, earnings and dividends. Under normal market
conditions, the Fund will invest at least 65%, and may invest up to 100%, of its
total assets in the common stocks of blue chip companies.
Blue chip companies are defined as those companies with market
capitalizations of at least $200 million. 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 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 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, 1994, 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 .91%
A 13.56
Baa 70.46
Ba 14.56
B .51
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, 1994, 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 2.23%
Ba 40.24
B 57.53
The above percentages for B rated securities include 3.03% of unrated
securities 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 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, 1994, 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 .41%
AA 14.29
A 22.19
Baa 55.40
Ba 7.71
The above percentages for A and Baa rated securities include unrated
securities in the amount of 2.29% and 4.35%, 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, 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, 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 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, 1994, the Manager served as investment advisor for 25
such funds with assets totaling approximately $2 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 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 October 31, 1994 were approximately $10.2 billion. Invista's
address is 1500 Hub Tower, 699 Walnut, Des Moines, Iowa 50309.
The Manager or Invista advises the Funds on investment policies and on the
composition of the Funds' portfolios. In this connection, the Manager or Invista
furnishes to the Board of Directors of each Fund a recommended investment
program consistent with that Fund's investment objective and policies. The
Manager or Invista is authorized, within the scope of the approved investment
program, to determine which securities are to be bought or sold, and in what
amounts.
The Manager or Invista has assigned certain individuals the primary
responsibility for the day-to-day management of each Fund's portfolio. The
persons primarily responsible for the day-to-day management of each Fund are
identified in the table below:
<TABLE>
<CAPTION>
Primarily
Fund Responsible Since Person Primarily Responsible
<S> <C> <C>
Balanced April, 1993 Judith A. Vogel, CFA (BA degree, Central College). Vice President,
Invista Capital Management, Inc. since 1987.
Blue Chip March, 1991 Mark T. Williams, CFA (MBA degree, Drake University). Investment
(Fund's inception) Officer, Invista Capital Management, Inc., since 1992; Security Analyst
1989-1992. Prior thereto, Financial Analyst, Digital Equipment Corporation.
Bond December, 1987 Donald D. Brattebo (BBA degree, Upper Iowa University). Second Vice
(Fund's inception) President, Principal Mutual Life Insurance Company since 1990; Prior
thereto, Director, Investment Securities.
Capital Accumulation October, 1969 David L. White, CFA (BBA degree, University of Iowa). Executive Vice
(Fund's inception) President, Invista Capital Management, Inc. since 1984.
Emerging Growth and December, 1987 Michael R. Hamilton, (MBA degree, Bellarmine College). Vice President,
Growth (Fund's inception) Invista Capital Management, Inc. since 1987.
and August, 1987,
respectively
Government Securities May, 1985 Martin J. Schafer (BBA degree, University of Iowa). Vice President, Invista
Income (Fund's inception) Capital Management Company since 1992. Director - Securities Trading, Principal
Mutual Life Insurance Company 1992; Prior thereto, Associate Director.
High Yield December, 1987 James K. Hovey, CFA (MBA degree University of Iowa). Director - Investment
(Fund's inception) Securities, Principal Mutual Life Insurance Company since 1990; Prior thereto,
Assistant Director Investment Securities.
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.
<FN>
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.
</FN>
</TABLE>
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, 1994 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% 1.51% Growth .50% 1.30%
Blue Chip .50% 1.46% High Yield .60% 1.46%
Bond .36% .95% Tax-Exempt Bond .48% .91%
Capital Accumulation .46% .83% Tax-Exempt Cash Management .31% .67%
Cash Management .25% .70% Utilities .10% 1.00%
Emerging Growth .65% 1.74% World .75% 1.74%
Government Securities Income .46% .95%
</TABLE>
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, 1994. The Manager intends to continue its voluntary
waiver and, if necessary, pay expenses normally payable by each of these Funds
through February 28, 1995 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, .70% for the Money Market Funds and 1.00% for
the Utilities Fund, and for the Class B shares, 1.70% for the Bond Fund and the
Money Market Funds and 1.75% for the Utilities Fund. In addition, the Manager
intends to continue its voluntary waiver, and, if necessary, pay expenses
normally payable by each of these Funds for the period beginning March 1, 1995
and ending February 29, 1996 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, .75% for the Money Market Funds and 1.10% for
the Utilities Fund, and for Class B shares, 1.70% for the Bond Fund, 1.75% for
the Money Market Funds, and 1.85% for the Utilities Fund. The effect of the
waivers is and will be to reduce each Fund's annual operating expenses and
increase each Fund's yield.
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"), a broker-dealer affiliated with Princor and 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, 1992, 1993 and 1994, PFS received fees in the
amount of $442,151, $516,939 and $539,662, respectively, in consideration of the
services it rendered to the Cash Management Fund. During the fiscal years ending
October 31, 1992, 1993 and 1994, PFS received fees in the amount of $152,687,
$165,995 and $167,309, 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 15 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 or by telephone.
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 five 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 which bear sales charges
in different forms and amounts:
Class A Shares. An investor who purchases Class A shares (except Class A
shares of the Money Market Funds) pays a sales charge at the time of purchase.
As a result, Class A shares are not subject to any charges when they are
redeemed. Certain purchases of Class A shares qualify for reduced sales charges.
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% 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% 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% 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. 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% 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 on the
following page. 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 as % of:
Net
Offering Amount Dealer Allowance as %
Amount of Purchase Price Invested of Offering Price
<S> <C> <C> <C>
Less than $50,000 4.75% 4.99% 4.00%
$50,000 but less than $100,000 4.25% 4.44% 3.75%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000 1.50% 1.52% 1.25%
$1,000,000 or more No Sales Charge 0 Negotiated
</TABLE>
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.
During the period ending August 31, 1995, a reduced sales charge as
designated in the table below is available for purchases of Class A shares of
any of the Funds to the extent that the investment represents the proceeds from
a total surrender of the Pension Builder Annuity Contract, an unregistered fixed
annuity contract issued by Principal Mutual Life Insurance Company.
<TABLE>
<CAPTION>
Sales Charge as % of:
Net
Offering Amount Dealer Allowance as %
Amount of Purchase Price Invested of Offering Price
<S> <C> <C> <C>
Less than $500,000 2.50% 2.56% 2.10%
$500,000 but less than $1,000,000 1.50% 1.52% 1.25%
$1,000,000 or more No Sales Charge 0 Negotiated
</TABLE>
Also during the period ending June 30, 1995, 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 if those shares were purchased through Hamilton
Investments from offices of Household Bank Services Group. When making a
purchase at net asset value pursuant to this provision, the investor 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 shareholders account to pay the otherwise applicable sale
charge.
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 of Princor or other
dealers through which shares of the Funds are distributed; (6) Spouses,
surviving spouses and dependent children of the foregoing persons; and (7)
Trusts primarily for the benefit of the foregoing individuals.
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 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 was subject to 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 Financial Services Corporation, 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.
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
Years Since Purchase as a Percentage of
Payments Made Dollar Amount Subject to Charge
2 years or less 4.0%
more than 2 years, up to 4 years 3.0%
more than 4 years, up to 5 years 2.0%
more than 5 years, up to 6 years 1.0%
more than 6 years 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."
Non-cash compensation. Princor may, at its expense, provide additional
promotional incentives or payments to dealers that sell shares of the Princor
Funds. In some instances, these incentives or payments may be offered only to
certain dealers who have sold or may sell significant amount of shares. Princor
has established a non-cash compensation program for registered representatives
of Principal Financial Securities, Inc. ("PFS") based upon sales of shares of
the Princor Funds during the year ending December 31, 1994. Registered
representatives of PFS will receive a choice of promotional items, or will be
invited to attend a professional development seminar, receive a subscription for
a financial newspaper and an allowance to be used to promote the Princor Funds.
DISTRIBUTION AND SHAREHOLDER SERVICING PLANS AND FEES
Class A Distribution Plan. Each of the Funds, except the Money Market
Funds, has adopted a distribution plan for the Class A shares. The Fund will
make payments from its assets to Princor pursuant to this Plan after the end of
each month at an annual rate not to exceed 0.25% 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% 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% 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% 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% 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 last business day in June and the next to
last business day in December to shareholders of record at the close of business
on the date prior to distribution. Annual distributions from the World Fund will
normally be declared payable on the next to last business day in December to
shareholders of record at the close of business on the date 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, but the
shareholder at any time on ten days written notice to the Fund and without
charge may have future dividends (or dividends and capital gains distributions)
paid in cash. However, dividends and capital gain distributions otherwise
payable to a shareholder of any of the Growth-Oriented or Income-Oriented Funds
in an amount of less than $25 will be automatically reinvested in additional
shares of that 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
who so request may 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 last Thursday before
the last Friday (or the preceding business day if Thursday or Friday is a
holiday) of the 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 dividend payments of $25 or more from one of
the Princor funds invested in shares of the same class of one of the other
Princor funds. The Dividend Relay Election may be made to direct dividends from
one Fund to a receiving Fund so long as $25 or more is directed to the receiving
Fund. 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 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 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 is made to direct dividends 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 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 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 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), 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. The CDSC that might apply if Class B 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. 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 and may be from the lst through the
28th day of the month so long as the day is a trading day. If the day elected by
the shareholder is not a trading day, the exchange will occur on the first
trading day following the date elected. 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.
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 seven 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. All other
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 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 that is the
1st through the 28th day of the month, and will continue until cancelled.
Withdrawal payments will be sent on or before the fifth 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. 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. 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.
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 Growth-Oriented and Income-Oriented Funds will receive a
statement of account for the Fund in which they have invested each time they
invest. The statement will record the current investment in that Fund and show
the total number of Fund shares owned. Shareholders of the Money Market Funds
will receive a monthly statement disclosing the current balance of shares owned
and a summary of transactions through the last day of the month. Shareholders of
Funds used to fund certain individual retirement plans qualified under the
Internal Revenue Code will receive a quarterly statement of account disclosing
information regarding purchases, redemptions and reinvested dividends or
distributions occurring during the quarter, as well as the number 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.
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.
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 are currently divided into two 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, 1994, Principal Mutual Life Insurance Company and its
subsidiaries and affiliates owned 25% or more of the outstanding shares of each
Fund as indicated:
Percentage of
Number of Outstanding Shares
Fund Shares Owned Owned
Blue Chip Fund 797,017 36.43%
Capital Accumulation Fund 6,071,226 44.23
High Yield Fund 1,004,202 39.73
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; 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 America National Trust and Savings Association, 2 Rector
Street, New York, New York 10006, 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 (500,000,000 for Princor Cash Management Fund
and 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.
