Registration No. 33-59474
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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POST-EFFECTIVE AMENDMENT NO. 13 TO
FORM N-1A
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
and
REGISTRATION STATEMENT
under
THE INVESTMENT COMPANY ACT OF 1940
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PRINCIPAL INVESTORS FUND, INC.
f/k/a PRINCIPAL SPECIAL MARKETS FUND, INC.
(Exact name of Registrant as specified in Charter)
The Principal Financial Group
Des Moines, Iowa 50392
(Address of principal executive offices)
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Telephone Number (515) 248-3842
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MICHAEL D. ROUGHTON Copy to:
The Principal Financial Group JOHN W. BLOUCH
Des Moines, Iowa 50392 Jones & Blouch, L.L.P.
Suite 405 West
1025 Thomas Jefferson Street, N.W.
Washington, DC 20007-0805
(Name and address of agent for service)
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It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)of Rule 485
XXX on December 6, 2000, pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(1) of Rule 485
on (date), pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(2) of Rule 485
on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
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<PAGE>
PRINCIPAL INVESTORS FUND, INC.
This Prospectus describes a mutual fund organized by
Principal Life Insurance Company.
The date of this Prospectus is December 6, 2000.
As with all mutual funds, the Securities and Exchange Commission ("SEC") has
not approved or disapproved the Fund's securities nor has it determined that
this Prospectus is accurate or complete. It is a criminal offense to
represent otherwise.
TABLE OF CONTENTS
Fund Descriptions................................................4
Stable Funds
High Quality Short-Term Bond Fund.........................6
Money Market Fund.........................................8
Conservative Funds
Bond & Mortgage Securities Fund..........................10
Government Securities Fund...............................12
High Quality Intermediate-Term Bond Fund.................14
High Quality Long-Term Bond Fund.........................16
Moderate Funds
Balanced Fund............................................18
LargeCap Blend Fund......................................20
LargeCap Growth Fund.....................................22
LargeCap S&P 500 Index Fund..............................24
LargeCap Value Fund......................................26
MidCap Value Fund........................................28
Partners LargeCap Blend Fund.............................30
Partners LargeCap Growth Fund I..........................32
Partners LargeCap Growth Fund II.........................34
Partners LargeCap Value Fund.............................36
Partners MidCap Value Fund...............................38
Real Estate Fund.........................................40
Aggressive Funds
MidCap Blend Fund........................................42
MidCap Growth Fund.......................................44
MidCap S&P 400 Index Fund................................46
Partners MidCap Growth Fund..............................48
Partners SmallCap Growth Fund I..........................50
Partners SmallCap Growth Fund II.........................52
SmallCap Blend Fund......................................54
SmallCap Growth Fund.....................................56
SmallCap S&P 600 Index Fund..............................58
SmallCap Value Fund......................................60
Technology Fund..........................................62
Dynamic Funds
European Fund............................................64
International Emerging Markets Fund......................66
International Fund I.....................................68
International Fund II....................................70
International SmallCap Fund..............................72
Pacific Basin Fund.......................................74
General Information
The Costs of Investing......................................76
Certain Investment Strategies and Related Risks.............77
Management, Organization and Capital Structure..............82
Shareholder Information.....................................84
Fund Account Information....................................86
Appendix A......................................................87
The Principal Investors Funds have been divided into risk categories. The
working definition of each category is shown below:
Stable
Investment options that historically have had lower earnings over longer periods
of time and have not changed much in value over short periods of time as
compared to the other categories. Examples are money market, some short-term
bond and stable value investment options.
Conservative
Investments, including government securities, mortgage-backed securities, and
corporate bonds, that change in value as interest rates change. They are
generally less volatile than stocks.
Moderate
In general, these are stocks of large U.S. companies. In the past, they have
been more volatile than corporate and government bonds. Balanced investments are
also considered to be moderate investment options.
Aggressive
Although there are exceptions, these investments are generally stocks of small
and medium-size U.S. companies. These investments can change in value very
quickly over short time periods.
Dynamic
In general, theses are stocks of foreign companies. These investments have
additional risks associated with foreign investing, such as currency risk, and
can change in value very quickly over short-term periods.
FUND DESCRIPTIONS
Principal Investors Fund, Inc. is comprised of many investment portfolios
("Funds"). The Funds are divided into five risk categories: Stable,
Conservative, Moderate, Aggressive, and Dynamic. Principal Management
Corporation*, the "Manager" of each of the Funds, seeks to provide a broad range
of investment approaches through the Principal Investors Fund.
The Manager has selected a Sub-Advisor for each Fund based on the Sub-Advisor's
experience with the investment strategy for which it was selected. The
Sub-Advisor for each Fund is shown with the Fund's description on the following
pages. The Sub-Advisors are:
<TABLE>
<CAPTION>
<S> <C> <C>
Alliance Capital Management L.P. through its Invista Capital Management, LLC(R)("Invista")*
Bernstein Investment Research and Management Morgan Stanley Asset Management ("Morgan Stanley")
unit ("Bernstein") Neuberger Berman Management Inc. ("Neuberger Berman")
American Century Investment Management, Inc. Principal Capital Income Investors, LLC ("PCII")*
("American Century") Principal Capital Real Estate Investors, LLC ("PCREI")*
BT Funds Management (International) Limited ("BT")* Turner Investment Partners, Inc. ("Turner")
Federated Management Corporation ("Federated")
</TABLE>
Two classes of shares of each of these Funds are available through this
Prospectus. Both classes are currently available only through certain registered
representatives of dealers selected by Princor Financial Services Corporation
("Princor")*, the distributor of the Funds or through fee-based financial
planners.
o Advisors Select shares are available to an employer's sponsored retirement
plan(s) (the "plan") through the Principal Investors Advantage (the
services contract (or through execution of a service contract offered
through an affiliate of Principal Life)) if the plan invests at least $3
million (but less than $10 million) in the Principal Investors Fund.
o Advisors Preferred shares are available to an employer's sponsored
retirement plan(s) (the "plan") through the Principal Investors Advantage
(the services contract (or through execution of a service contract offered
through an affiliate of Principal Life)) if the plan invests at least $10
million in the Principal Investors Fund.
For more information about Principal Investors Advantage, contact us at
www.principal.com or call 1-800-547-7754.
* Principal Management Corporation, Invista, PCII, PCREI, BT and Princor
are members of the Principal Financial Group.(R)
In the description for each Fund, there is important information about the
Fund's:
Primary investment strategy
This section summarizes how each Fund intends to achieve its investment
objective. It identifies the Fund's primary investment strategy (including the
type or types of securities in which the Fund invests) and any policy to
concentrate in securities of issuers in a particular industry or group of
industries.
Each Fund is designed to be a portion of an investor's portfolio. None is
intended to be a complete investment program. Investors should consider the
risks of each Fund before making an investment and be prepared to maintain the
investment during periods of adverse market conditions.
A description of the main risks is included with the discussion of each Fund. A
full discussion of risks appears later in the Prospectus under the caption
"Certain Investment Strategies and Related Risks."
Annual operating expenses
The annual operating expenses for each Fund are deducted from that Fund's assets
(stated as a percentage of Fund assets). A Fund's operating expenses are shown
with each Fund. A discussion of the fees is found in the section of the
Prospectus titled "The Costs of Investing."
The examples are intended to help investors compare the cost of investing in a
particular Fund with the cost of investing in other mutual funds. The examples
assume an investment of $10,000 in a Fund for the time periods indicated. The
examples also assume that the investment has a 5% total return each year and
that the Fund's operating expenses are the same as the expenses shown. Based on
these assumptions, the costs would be as shown.
Day-to-day Fund management
The investment professionals who manage the assets of each Fund are listed with
each Fund. Backed by their staffs of experienced securities analysts, they
provide the Funds with professional investment management.
Fund performance
Because the Funds are new and have not completed a full calendar year of
operations, performance information for the Funds is not included in this
Prospectus. To obtain performance information for a Fund after its first full
calendar quarter of operations, contact us at www.principal.com or call
1-800-547-7754. Remember that a Fund's past performance is not necessarily an
indication of how the Fund will perform in the future.
Call the Principal Investors Fund (1-800-547-7754) to get the current 7-day
yield for the Money Market Fund.
NOTE: No salesperson, dealer or other person is authorized to give information
or make representations about a Fund other than those contained in this
Prospectus. Information or representations not contained in this
Prospectus may not be relied upon as having been made by the Principal
Investors Fund, a Fund, the Manager or any Sub-Advisor.
Stock Funds
HIGH QUALITY SHORT-TERM BOND FUND
The Fund seeks to provide current income.
Main Strategies
The Fund invests primarily in high quality, short-term fixed-income securities
with a dollar weighted average maturity of four years or less. The Fund
considers the term "bond" to mean any debt security. Under normal circumstances,
it invests at least 80% of its assets in:
o securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities;
o debt securities of U.S. issuers rated in the three highest grades by
Standard & Poor's Rating Service or Moody's Investors Service, Inc. or, if
unrated, in the opinion of the Sub-Advisor, PCII, of comparable quality;
and
o mortgage-backed securities representing an interest in a pool of mortgage
loans.
The rest of the Fund's assets are invested in securities in the fourth highest
rating category or their equivalent. Securities in the fourth highest category
are "investment grade." While they are considered to have adequate capacity to
pay interest and repay principal, they do have speculative characteristics.
Changes in economic and other conditions are more likely to affect the ability
of the issuer to make principal and interest payments than is the case with
issuers of higher rated securities.
Under unusual market or economic conditions, the Fund may invest up to 100% of
its assets in cash and cash equivalents.
Main Risks
The Fund may invest in corporate fixed-income securities. When interest rates
fall, the price of such securities rise and when interest rates rise, the price
declines. In addition, the value of the corporate debt securities held by the
Fund may be affected by factors such as credit rating of the entity that issued
the security and its maturity. Lower quality and longer maturity securities will
be subject to greater credit risk and price fluctuations than higher quality and
shorter maturity securities.
Mortgage-backed securities are subject to prepayment risk. When interest rates
decline, significant unscheduled prepayments may result. These prepayments must
then be reinvested at lower rates. Prepayments may also shorten the effective
maturities of these securities, especially during periods of declining interest
rates. On the other hand, during periods of rising interest rates, a reduction
in prepayments may increase the effective maturities of these securities,
subjecting them to the risk of decline in market value in response to rising
interest rates. This may increase the volatility of the Fund.
Under normal circumstances, the Fund maintains a dollar-weighted average
maturity of not more than four years. In determining the average maturity of the
Fund's assets, the maturity date of callable or prepayable securities may be
adjusted to reflect PCII's judgment regarding the likelihood of the security
being called or prepaid.
The average portfolio duration of the Fund normally is less than three years and
is based on PCII's forecast for interest rates. Duration is a measure of the
expected life of a fixed-income security that is used to determine the
sensitivity of a security's price to changes in interest rates. For example, if
the portfolio duration of the Fund is three years, a change of 1% in the Fund's
yield results in a change of approximately 3% in the value of the Fund's
securities. The longer a security's duration, the more sensitive it is to
changes in interest rates. A Fund with a longer average portfolio duration will
be more sensitive to changes in interest rates than a Fund with a shorter
average portfolio duration.
As with all mutual funds, as the value of the Fund's assets rise and fall, the
Fund's share price changes. If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking
diversification by investing in a fixed-income mutual fund.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.40% 0.40%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.15% 0.97%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $117 $365
Advisors Preferred Class 99 309
Day-to-day Fund Management
Since December, 2000 Co-Manager: Daniel J. Garrett, CFA. Mr. Garrett is a
(Fund's inception) portfolio manager for PCII. He joined the Principal
Financial Group in 1985 as a commercial mortgage
analyst and was named to his current position in
1998. Mr. Garrett received his Master's degree in
Business and his Bachelor's degree in Computer
Information Systems and Finance from Drake
University. He has earned the right to use the
Chartered Financial Analyst designation.
Since December, 2000 Co-Manager: Martin J. Schafer. Mr. Schafer is a
(Fund's inception) portfolio manager for PCII specializing in the
management of mortgage-backed securities utilizing
an active, total return approach. He joined the
Principal Financial Group in 1977. He holds a BBA in
Accounting and Finance from the University of Iowa.
MONEY MARKET FUND
The Fund seeks as high a level of current income as is considered consistent
with preservation of principal and maintenance of liquidity.
Main Strategies
The Fund invests its assets in a portfolio of high quality, short-term money
market instruments. The investments are U.S. dollar denominated securities which
the Sub-Advisor, PCII, believes present minimal credit risks. At the time the
Fund purchases each security, it is an "eligible security" as defined in the
regulations issued under the Investment Company Act of 1940 ("1940 Act"), as
amended.
The Fund maintains a dollar weighted average portfolio maturity of 90 days or
less. It intends to hold its investments until maturity. However, the Fund may
sell a security before it matures:
o to take advantage of market variations;
o to generate cash to cover sales of Fund shares by its shareholders; or o
upon revised credit opinions of the security's issuer.
The sale of a security by the Fund before maturity may not be in the best
interest of the Fund. The Fund does have an ability to borrow money to cover the
sale of Fund shares. The sale of portfolio securities is usually a taxable
event.
It is the policy of the Fund to be as fully invested as possible to maximize
current income. Securities in which the Fund invests include:
o securities issued or guaranteed by the U.S. Government, including treasury
bills, notes and bonds;
o securities issued or guaranteed by agencies or instrumentalities of the
U.S. Government. These are backed either by the full faith and credit of
the U.S. Government or by the credit of the particular agency or
instrumentality;
o bank obligations including:
o certificates of deposit which generally are negotiable certificates
against funds deposited in a commercial bank; or
o bankers acceptances which are time drafts drawn on a commercial bank,
usually in connection with international commercial transactions.
o commercial paper, which is short-term promissory notes issued by U.S. or
foreign corporations primarily to finance short-term credit needs;
o corporate debt consisting of notes, bonds or debentures which at the time
of purchase by the Fund has 397 days or less remaining to maturity;
o repurchase agreements under which securities are purchased with an
agreement by the seller to repurchase the security at the same price plus
interest at a specified rate. Generally these have a short maturity (less
than a week) but may also have a longer maturity; and
o taxable municipal obligations, which are short-term obligations issued or
guaranteed by state and municipal issuers which generate taxable income.
Among the certificates of deposit typically held by the Money Market Fund are
Eurodollar and Yankee obligations, which are issued in U.S. dollars by foreign
banks and foreign branches of U.S. banks. Eurodollar and Yankee obligations have
risks similar to U.S. money market instruments, such as income risk and credit
risk. Other risks of Eurodollar and Yankee obligations include the possibilities
that: a foreign government will not let U.S. dollar-denominated assets leave the
country; the banks that issue Eurodollar obligations may not be subject to the
same regulations as U.S. banks; and adverse political or economic developments
will affect investments in a foreign country. Before the Fund's Sub-Advisor
selects a Eurodollar or Yankee obligation, however, the foreign issue undergoes
the same credit-quality analysis and tests of financial strength as an issuer of
domestic securities.
Main Risks
As with all mutual funds, the value of the Fund's assets may rise or fall.
Although the Fund seeks to preserve the value of an investment at $1.00 per
share, it is possible to lose money by investing in the Fund. If the investor
sells Fund shares when their value is less than the price the investor paid for
them, the investor will lose money. An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
Investor Profile
The Fund is generally a suitable investment for investors seeking monthly
dividends without incurring much principal risk.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.40% 0.40%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.15% 0.97%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $117 $365
Advisors Preferred Class 99 309
Day-to-day Fund Management
Since December, 2000 Co-Manager: Alice Robertson. Ms. Roberston is a
(Fund's inception) trader for PCII on the corporate fixed-income
trading desk. She joined the Principal Financial
Group in 1990 as a credit analyst and moved to her
current position in 1993. Previously, Ms. Robertson
was an assistant vice president/commercial paper
analyst with Duff & Phelps Credit Company. Ms.
Robertson earned her Master's degree in Finance and
Marketing from DePaul University and her Bachelor's
degree in Economics from Northwestern University.
Since December, 2000 Co-Manager: Michael R. Johnson. Mr. Johnson directs
(Fund's inception) securities trading for PCII. He joined the Principal
Financial Group in 1982 and took his current
position in 1994. His responsibilities include
managing the fixed-income trading operation for
Principal Capital Income Investors and several
short-term money market accounts. He earned his
Bachelor's degree in Finance from Iowa State
University.
Conservative Funds
BOND & MORTGAGE SECURITIES FUND
The Fund seeks to provide current income.
Main Strategies
The Fund invests primarily in intermediate maturity fixed-income or debt
securities rated BBB or higher by Standard & Poor's Rating Service ("S&P") or
Moody's Investors Service, Inc. ("Moody's"). The Fund considers the term "bond"
to mean any debt security. Under normal circumstances, the Fund invests at least
75% of its assets in:
o securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities;
o mortgage-backed securities representing an interest in a pool of mortgage
loans;
o debt securities and taxable municipal bonds rated, at the time of purchase,
in one of the top four categories by S&P or Moody's or, if not rated, in
the opinion of the Sub-Advisor, PCII, of comparable quality; and
o securities issued or guaranteed by the governments of Canada (Provincial or
Federal Government) or the United Kingdom payable in U.S. dollars.
The rest of the Fund's assets may be invested in:
o preferred and common stock that may be convertible (may be exchanged for a
fixed number of shares of common stock of the same issuer) or may be
non-convertible; or
o securities rated less than the four highest grades of S&P or Moody's but
not lower than BB- (S&P) or Ba3 (Moody's) (i.e. less than investment
grade).
Under unusual market or economic conditions, the Fund may invest up to 100% of
its assets in cash and cash equivalents.
Main Risks
The average portfolio duration of the Fund normally varies within a three- to
six-year time frame based on PCII's forecast for interest rates. Duration is a
measure of the expected life of a fixed-income security that is used to
determine the sensitivity of a security's price to changes in interest rates.
For example, if the portfolio duration of the Fund is three years, a change of
1% in the Fund's yield results in a change of approximately 3% in the value of
the Fund's securities. The longer a security's duration, the more sensitive it
is to changes in interest rates. A Fund with a longer average portfolio duration
will be more sensitive to changes in interest rates than a Fund with a shorter
average portfolio duration.
Mortgage-backed securities are subject to prepayment risk. When interest rates
decline, significant unscheduled prepayments may result. These prepayments must
then be reinvested at lower rates. Prepayments may also shorten the effective
maturities of these securities, especially during periods of declining interest
rates. On the other hand, during periods of rising interest rates, a reduction
in prepayments may increase the effective maturities of these securities,
subjecting them to the risk of decline in market value in response to rising
interest rates. This may increase the volatility of the Fund.
When interest rates fall, the price of a debt security rises and when interest
rates rise, the price declines. In addition, the value of securities held by the
Fund may be affected by factors such as credit rating of the entity that issued
the security and its maturity. Lower quality and longer maturity securities will
be subject to greater credit risk and price fluctuations than higher quality and
shorter maturity securities.
Fixed-income securities that are not investment grade are commonly referred to
as junk bonds or high yield securities. These securities offer a potentially
higher yield than other, higher rated securities, but they carry a greater
degree of risk and are considered speculative by the major credit rating
agencies.
As with all mutual funds, as the value of the Fund's assets rise and fall, the
Fund's share price changes. If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking
diversification by investing in a fixed-income mutual fund.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.55% 0.55%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.30% 1.12%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $132 $412
Advisors Preferred Class 114 356
Day-to-day Fund Management
Since December, 2000 Co-Manager: Lisa A. Stange, CFA. As Portfolio
(Fund's inception) Manager for PCII, Ms. Stange manages over $3 billion
in fixed-income portfolios invested in public and
private corporate bonds, mortgage-backed securities,
commercial mortgage-backed securities, asset-backed
securities and commercial real estate mortgages. Ms.
Stange joined the Principal Financial Group in 1989
after earning her Master's and Bachelor's degrees in
Finance from the University of Iowa. She has earned
the right to use the Chartered Financial Analyst
designation.
Since December, 2000 Co-Manager: William C. Armstrong, CFA. Mr. Armstrong
(Fund's inception) leads the multi-sector/core portfolio management
group for PCIIs' stable value division. Mr.
Armstrong has been with the Principal Financial
Group since 1992. He earned his Master's degree from
the University of Iowa and his Bachelor's degree
from Kearney State College. He has earned the right
to use the Chartered Financial Analyst designation.
GOVERNMENT SECURITIES FUND
The Fund seeks to provide current income.
Main Strategies
The Fund seeks to achieve its investment objective by investing primarily (at
least 65% of its assets) in securities that are issued by the U.S. Government,
its agencies or instrumentalities. The Fund may invest in mortgage-backed
securities representing an interest in a pool of mortgage loans. These
securities are rated AAA by Standard & Poor's Corporation or Aaa by Moody's
Investor Services, Inc. or, if unrated, determined by the Sub-Advisor, PCII, to
be of equivalent quality.
The Fund relies on the professional judgment of PCII to make decisions about the
Fund's portfolio securities. The basic investment philosophy of PCII is to seek
undervalued securities that represent good long-term investment opportunities.
Securities may be sold when PCII believes they no longer represent good
long-term value.
The Fund may also hold cash and cash equivalents. The size of the Fund's cash
position depends on various factors, including market conditions and purchases
and redemptions of Fund shares. A large cash position could impact the ability
of the Fund to achieve its objective but it also would reduce the Fund's
exposure in the event of a market downturn and provide liquidity to make
additional investments or to meet redemptions.
Main Risks
Although some of the securities the Fund purchases are backed by the U.S.
government and its agencies, shares of the Fund are not guaranteed. When
interest rates fall, the value of the Fund's shares rises, and when rates rise,
the value declines. Because of the fluctuation in values of the Fund's shares,
if shares are sold when their value is less than the price paid, the investor
will lose money.
U.S. Government securities do not involve the degree of credit risk associated
with investments in lower quality fixed-income securities. As a result, the
yields available from U.S. Government securities are generally lower than the
yields available from many other fixed-income securities. Like other
fixed-income securities, the values of U.S. Government securities change as
interest rates fluctuate. Fluctuations in the value of the Fund's securities do
not affect interest income on securities already held by the Fund, but are
reflected in the Fund's price per share. Since the magnitude of these
fluctuations generally is greater at times when the Fund's average maturity is
longer, under certain market conditions the Fund may invest in short-term
investments yielding lower current income rather than investing in higher
yielding longer term securities.
Mortgage-backed securities are subject to prepayment risk. Prepayments,
unscheduled principal payments, may result from voluntary prepayment,
refinancing or foreclosure of the underlying mortgage. When interest rates
decline, significant unscheduled prepayments may result. These prepayments must
then be reinvested at lower rates. Prepayments may also shorten the effective
maturities of these securities, especially during periods of declining interest
rates. On the other hand, during periods of rising interest rates, a reduction
in prepayments may increase the effective maturities of these securities,
subjecting them to the risk of decline in market value in response to rising
interest rates and potentially increasing the volatility of the fund.
In addition, prepayments may cause losses on securities purchased at a premium
(dollar amount by which the price of the bond exceeds its face value). At times,
mortgage-backed securities may have higher than market interest rates and are
purchased at a premium. Unscheduled prepayments are made at par and cause the
Fund to experience a loss of some or all of the premium.
As with all mutual funds, as the value of the Fund's assets rise and fall, the
Fund's share price changes. If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking
diversification by investing in a fixed-income mutual fund.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.40% 0.40%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.15% 0.97%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $117 $365
Advisors Preferred Class 99 309
Day-to-day Fund Management
Since December, 2000 Co-Manager: Martin J. Schafer. Mr. Schafer is a
(Fund's inception) portfolio manager for PCII specializing in the
management of mortgage-backed securities utilizing
an active, total return approach. He joined the
Principal Financial Group in 1977. He holds a BBA in
Accounting and Finance from the University of Iowa.
Since December, 2000 Co-Manager: Kelly R. Alexander. Ms. Alexander shares
(Fund's inception) management responsibility for nine fixed-income
portfolios at PCII, with combined assets of more
than $4 billion. Before assuming her current
position, she had similar responsibilities with
Invista from 1992 to 2000. She joined the Principal
Financial Group in 1983 to develop the
mortgage-backed securities trading department. Her
experience includes hedging, securitization, product
development and portfolio management as well as the
risk management of a $1.5 billion residential
mortgage pipeline.
HIGH QUALITY INTERMEDIATE-TERM BOND FUND
The Fund seeks to provide current income.
Main Strategies
The Fund invests primarily in intermediate term fixed-income securities rated A
or higher by Standard & Poor's Rating Service ("S&P") or Moody's Investors
Service, Inc. ("Moody's"). The Fund considers the term "bond" to mean any debt
security. Under normal circumstances, the Fund invests at least 80% of its
assets in:
o securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities;
o mortgage-backed securities representing an interest in a pool of mortgage
loans;
o debt securities and taxable municipal bonds rated, at the time of purchase,
in one of the top three categories by S&P or Moody's or, if not rated, in
the opinion of the Sub-Advisor, PCII, of comparable quality; and
o securities issued or guaranteed by the governments of Canada (Provincial or
Federal Government) or the United Kingdom payable in U.S. dollars.
The rest of the Fund's assets may be invested in:
o common stock and preferred stock that may be convertible (may be exchanged
for a fixed number of shares of common stock of the same issuer) or may be
non-convertible; or
o securities rated less than the three highest grades of S&P or Moody's but
not lower than BBB- (S&P) or BAA3 (Moody's) (i.e. less than investment
grade).
Under unusual market or economic conditions, the Fund may invest up to 100% of
its assets in cash and cash equivalents.
Main Risks
The average portfolio duration of the Fund normally varies within a three- to
six-year time frame based on PCII's forecast for interest rates. Duration is a
measure of the expected life of a fixed-income security that is used to
determine the sensitivity of a security's price to changes in interest rates.
For example, if the portfolio duration of the Fund is three years, a change of
1% in the Fund's yield results in a change of approximately 3% in the value of
the Fund's securities. The longer a security's duration, the more sensitive it
is to changes in interest rates. A Fund with a longer average portfolio duration
will be more sensitive to changes in interest rates than a Fund with a shorter
average portfolio duration.
Although some of the securities the Fund purchases are backed by the U.S.
government and its agencies, shares of the Fund are not guaranteed. The values
of U.S. Government securities change as interest rates fluctuate. Fluctuations
in the value of the Fund's securities do not affect interest income on
securities already held by the Fund, but are reflected in the Fund's price per
share.
Mortgage-backed securities are subject to prepayment risk. When interest rates
decline, significant unscheduled prepayments may result. These prepayments must
then be reinvested at lower rates. Prepayments may also shorten the effective
maturities of these securities, especially during periods of declining interest
rates. On the other hand, during periods of rising interest rates, a reduction
in prepayments may increase the effective maturities of these securities,
subjecting them to the risk of decline in market value in response to rising
interest. This may increase the volatility of the Fund.
When interest rates fall, the price of a bond rises and when interest rates
rise, the price declines. In addition, the value of securities held by the Fund
may be affected by factors such as credit rating of the entity that issued the
bond and effective maturities of the bond. Lower quality and longer maturity
bonds will be subject to greater credit risk and price fluctuations than higher
quality and shorter maturity bonds.
As with all mutual funds, as the value of the Fund's assets rise and fall, the
Fund's share price changes. If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking
diversification by investing in a fixed-income mutual fund.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.40% 0.40%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.15% 0.97%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $117 $365
Advisors Preferred Class 99 309
Day-to-day Fund Management
Since December, 2000 Co-Manager: Kevin W. Croft, CFA. As a portfolio
(Fund's inception) manager for PCII, Mr. Croft has direct
responsibility for $950 million invested in
fixed-income portfolios. He joined the Principal
Financial Group in 1988. He earned his Master's and
Bachelor's degrees from Drake University. He has
earned the right to use the Chartered Financial
Analyst designation.
Since December, 2000 Co-Manager: Martin J. Schafer. Mr. Schafer is a
(Fund's inception) portfolio manager for PCII specializing in the
management of mortgage-backed securities utilizing
an active, total return approach. He joined the
Principal Financial Group in 1977. He holds a BBA in
Accounting and Finance from the University of Iowa.
HIGH QUALITY LONG-TERM BOND FUND
The Fund seeks to provide current income.
Main Strategies
The Fund invests primarily in long-term fixed-income securities rated A or
higher by Standard & Poor's Rating Service ("S&P") or Moody's Investors Service,
Inc. ("Moody's"). The Fund considers the term "bond" to mean any debt security.
Under normal circumstances, the Fund invests at least 75% of its assets in:
o securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities;
o mortgage-backed securities representing an interest in a pool of mortgage
loans;
o debt securities and taxable municipal bonds rated, at the time of purchase,
in one of the top three categories by S&P or Moody's or, if not rated, in
the opinion of the Sub-Advisor, PCII, of comparable quality; and
o securities issued or guaranteed by the governments of Canada (Provincial or
Federal Government) or the United Kingdom payable in U.S. dollars.
The rest of the Fund's assets may be invested in:
o common stock and preferred stock that may be convertible (may be exchanged
for a fixed number of shares of common stock of the same issuer) or may be
non-convertible; or
o securities rated less than the three highest grades of S&P or Moody's but
not lower than BBB- (S&P) or BAA3 (Moody's) (i.e., less than investment
grade).
Under unusual market or economic conditions, the Fund may invest up to 100% of
its assets in cash and cash equivalents.
Main Risks
The average portfolio duration of the Fund normally is greater than six years
and is based on PCII's forecast for interest rates. Duration is a measure of the
expected life of a fixed-income security that is used to determine the
sensitivity of a security's price to changes in interest rates. For example, if
the portfolio duration of the Fund is six years, a change of 1% in the Fund's
yield results in a change of approximately 6% in the value of the Fund's
securities. The longer a security's duration, the more sensitive it is to
changes in interest rates. A Fund with a longer average portfolio duration will
be more sensitive to changes in interest rates than a Fund with a shorter
average portfolio duration.
Although some of the securities the Fund purchases are backed by the U.S.
government and its agencies, shares of the Fund are not guaranteed. The values
of U.S. Government securities change as interest rates fluctuate. Fluctuations
in the value of the Fund's securities do not affect interest income on
securities already held by the Fund, but are reflected in the Fund's price per
share.
When interest rates fall, the price of a bond rises and when interest rates
rise, the price declines. In addition, the value of securities held by the Fund
may be affected by factors such as credit rating of the entity that issued the
bond and effective maturities of the bond. Lower quality and longer maturity
bonds will be subject to greater credit risk and price fluctuations than higher
quality and shorter maturity bonds.
As with all mutual funds, as the value of the Fund's assets rise and fall, the
Fund's share price changes. If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking
diversification by investing in a fixed-income mutual fund.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.40% 0.40%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.15% 0.97%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $117 $365
Advisors Preferred Class 99 309
Day-to-day Fund Management
Since December, 2000 Co-Manager: Kevin W. Croft, CFA. As a portfolio
(Fund's inception) manager for PCII, Mr. Croft has direct
responsibility for $950 million invested in
fixed-income portfolios. He joined the Principal
Financial Group in 1988. He earned his Master's and
Bachelor's degrees from Drake University. He has
earned the right to use the Chartered Financial
Analyst designation.
Since December, 2000 Co-Manager: Martin J. Schafer. Mr. Schafer is a
(Fund's inception) portfolio manager for PCII specializing in the
management of mortgage-backed securities utilizing
an active, total return approach. He joined the
Principal Financial Group in 1977. He holds a BBA in
Accounting and Finance from the University of Iowa.
Moderate Funds
BALANCED FUND
The Fund seeks to generate a total return consisting of current income and
long-term growth of capital.
Main Strategies
The Fund seeks growth of capital and current income by investing primarily in
common stocks and corporate bonds. It may also invest in other equity
securities, government bonds and notes (obligations of the U.S. government or
its agencies or instrumentalities) and cash. Though the percentages in each
category are not fixed, common stocks generally represent 40% to 70% of the
Fund's assets. The remainder of the Fund's assets is invested in bonds and cash.
Invista serves as Sub-Advisor for the portion of the Fund's portfolio that is
invested in equity securities. In making its selection Invista looks for
companies that have predictable earnings and which, based on growth prospects,
it believes are undervalued in the marketplace. Invista buys stocks with the
objective of long-term capital appreciation. From time to time, Invista
purchases stocks with the expectation of price appreciation over the short-term.
In response to changes in economic conditions, Invista may change the make-up of
the portfolio and emphasize different market sectors by buying and selling the
portfolio's stocks. The Fund may invest up to 25% of its assets in securities of
foreign companies.
PCII serves as Sub-Advisor for the portion of the Fund's portfolio that is
invested in fixed-income securities. Fixed-income securities are purchased to
generate income and for capital appreciation purposes when PCII thinks that
declining interest rates may increase market value. Deep discount bonds (those
which sell at a substantial discount from their face amount) are also purchased
to generate capital appreciation. The Fund may invest in bonds with speculative
characteristics but does not intend to invest more than 5% of its assets in
securities rated below BBB by Standard & Poor's Rating Service or Baa by Moody's
Investors Service, Inc. Fixed-income securities that are not investment grade
are commonly referred to as "junk bonds" or high yield securities. These
securities offer a higher yield than other, higher rated securities, but they
carry a greater degree of risk and are considered speculative by the major
credit rating agencies.
Main Risks
The value of the stocks owned by the Fund changes on a daily basis. Stock prices
reflect the activities of individual companies as well as general market and
economic conditions. In the short-term, stock prices can fluctuate dramatically
in response to these factors. Foreign stocks carry risks that are not generally
found in stocks of U.S. companies. These include the risk that a foreign
security could lose value as a result of political, financial and economic
events in foreign countries. In addition, foreign securities may be subject to
securities regulators with less stringent accounting and disclosure standards
than are required of U.S. companies.
Fixed-income security values change daily. Their prices reflect changes in
interest rates, market conditions and announcements of other economic, political
or financial information. When interest rates fall, the price of a bond rises
and when interest rates rise, the price declines.
Because the Fund invests in both stocks and bonds, the Fund may underperform
stock funds when stocks are in favor and underperform bond funds when bonds are
in favor. As with all mutual funds, as the value of the Fund's assets rise and
fall, the Fund's share price changes. If the investor sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking current income
as well as long-term growth of capital.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.50% 0.50%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.25% 1.07%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $127 $397
Advisors Preferred Class 109 340
Day-to-day Fund Management
Since December, 2000 Co-Manager: William C. Armstrong, CFA. Mr. Armstrong
(Fund's inception) leads the multi-sector/core portfolio management
group for PCII's stable value division. Mr.
Armstrong has been with the Principal Financial
Group since 1992. He earned his Master's degree from
the University of Iowa and his Bachelor's degree
from Kearney State College. He has earned the right
to use the Chartered Financial Analyst designation.
Since December, 2000 Co-Manager: Judith A. Vogel, CFA. Ms. Vogel is a
(Fund's inception) portfolio manager for domestic core and balanced
portfolios. Ms. Vogel joined the Principal Financial
Group in 1982 as a strategist and was one of
Invista's founding members in 1985. She earned her
Bachelor's degree in Business Administration from
Central College. She has earned the right to use the
Chartered Financial Analyst designation.
Since December, 2000 Co-Manager: Mary Sunderland, CFA. Ms. Sunderland
(Fund's inception) manages the large-cap growth portfolios for Invista.
She joined Invista in early 2000 following a 10-year
career with Skandia Asset Management where she
directed their more than $2.5 billion U.S. Equity
Large Cap Growth portfolios and U.S. Technology
portfolios. Ms. Sunderland earned her MBA from the
Columbia University Graduate School of Business and
her Bachelor's degree from Northwestern University.
She has earned the right to use the Chartered
Financial Analyst designation.
LARGECAP BLEND FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of large capitalization companies.
Under normal market conditions, the Fund invests at least 65% of its assets in
companies with a market capitalization of greater than $10 billion at the time
of purchase. Market capitalization is defined as total current market value of a
company's outstanding common stock.
In selecting securities for investment, the Sub-Advisor, Invista, looks at
stocks with value and/or growth characteristics and constructs an investment
portfolio that has a "blend" of stocks with these characteristics. In managing
the assets of the Fund, Invista does not have a policy of preferring one of
these categories to the other. The value orientation emphasizes buying stocks at
less than their investment value and avoiding stocks whose price has been
artificially built up. The growth orientation emphasizes buying stocks of
companies whose potential for growth of capital and earnings is expected to be
above average.
Invista uses a bottom-up approach in its selection of individual securities.
Selection is based on fundamental analysis of a company relative to other
companies with the focus being on Invista's estimation of forward-looking rates
of return. Up to 25% of Fund assets may be invested in foreign securities.
Invista focuses its stock selections on established companies that it believes
have a sustainable competitive advantage. Invista constructs a portfolio that is
"benchmark aware" in that it is sensitive to the sector (companies with similar
characteristics) and security weightings of its benchmark. However, the Fund is
actively managed and prepared to over- and/or under-weight sectors and
industries differently from the benchmark.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility, which
is the principal risk of investing in the Fund.
Foreign securities carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization stocks, may underperform compared to other market segments
or to the equity markets as a whole. Because certain of the securities purchased
by the Fund present greater opportunities for growth because of high potential
earnings growth, they may also involve greater risk than securities that do not
have the same potential. The value of the Fund's equity securities may fluctuate
on a daily basis. As with all mutual funds, as the value of the Fund's assets
rise and fall, the Fund's share price changes. If the investor sells Fund shares
when their value is less than the price the investor paid for them, the investor
will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks,
but who prefer investing in larger, established companies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.45% 0.45
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.20% 1.02%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $122 $381
Advisors Preferred Class 104 325
Day-to-day Fund Management
Since December, 2000 Mark T. Williams, CFA. Mr. Williams manages
(Fund's inception) Invista's research department conducting
macroeconomic and quantitative research as applied
to domestic and international economic trends and
forecasts. Previously, he served as a portfolio
manager with direct experience in the management of
core, value-oriented and growth-oriented portfolios.
He joined Invista in 1989 with seven years prior
experience in the technology industry. Mr. Williams
received his MBA from Drake University and holds a
Bachelor's degree in Finance from the University of
the State of New York. He has earned the right to
use the Chartered Financial Analyst designation.
LARGECAP GROWTH FUND
The Fund seeks long-term growth of capital
Main Strategies
The Fund invests primarily in common stocks and other equity securities of large
capitalization companies with strong earnings growth potential. Under normal
market conditions, the Fund invests at least 65% of its assets in companies with
a market capitalization of greater than $10 billion at the time of purchase.
Market capitalization is defined as total current market value of a company's
outstanding common stock.
The Sub-Advisor, Invista, uses a bottom-up approach in its selection of
individual securities that it believes have an above average potential for
earnings growth. Selection is based on fundamental analysis of a company
relative to other companies with the focus being on Invista's assessment of
current and future sales growth and operating margins. Companies meeting these
criteria typically have progressed beyond the development stage and are focused
on growing the business. Up to 25% of Fund assets may be invested in foreign
securities.
Invista places strong emphasis on companies it believes are guided by high
quality management teams with a proven ability to execute. In addition, the Fund
attempts to identify and emphasize those companies that are market leaders
possessing the ability to control pricing and margins in their respective
industries. Invista constructs a portfolio that is "benchmark aware" in that it
is sensitive to the sector (companies with similar characteristics) and security
weightings of its benchmark. However, the Fund is actively managed and prepared
to over- and/or under-weight sectors and industries differently from the
benchmark.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility, which
is the principal risk of investing in the Fund.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization growth stocks, may underperform compared to other market
segments or to the equity markets as a whole. The securities purchased by the
Fund present greater opportunities for growth because of high potential earnings
growth, but may also involve greater risks than securities that do not have the
same potential. The value of the Fund's securities may fluctuate on a daily
basis. As with all mutual funds, as the value of the Fund's assets rise and
fall, the Fund's share price changes. If the investor sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.55% 0.55%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.30% 1.12%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $132 $412
Advisors Preferred Class 114 356
Day-to-day Fund Management
Since December, 2000 Mary Sunderland, CFA. Ms. Sunderland manages the
(Fund's inception) large-cap growth portfolios for Invista. She joined
Invista in early 2000 following a 10-year career
with Skandia Asset Management where she directed
their more than $2.5 billion U.S. Equity Large Cap
Growth portfolios and U.S. Technology portfolios.
Ms. Sunderland earned her MBA from the Columbia
University Graduate School of Business and her
Bachelor's degree from Northwestern University. She
has earned the right to use the Chartered Financial
Analyst designation.
LARGECAP S&P 500 INDEX FUND
The Fund seeks long-term growth of capital.
Main Strategies
Under normal market conditions, the Fund invests at least 80% of its assets in
common stocks of companies that compose the Standard & Poor's* ("S&P") 500
Index. The Sub-Advisor, Invista, attempts to mirror the investment performance
of the index by allocating the Fund's assets in approximately the same
weightings as the S&P 500. The S&P 500 is an unmanaged index of 500 common
stocks chosen to reflect the industries of the U.S. economy and is often
considered a proxy for the stock market in general. Each stock is weighted by
its market capitalization which means large companies have greater
representation in the index than smaller ones. Over the long-term, Invista seeks
a very close correlation between performance of the Fund, before expenses, and
that of the S&P 500. It is unlikely that a perfect correlation of 1.00 will be
achieved.
The Fund uses an indexing strategy and is not managed according to traditional
methods of "active" investment management. Active management would include
buying and selling securities based on economic, financial and investment
judgement. Instead, the Fund uses a passive investment approach. Rather than
judging the merits of a particular stock in selecting investments, Invista
focuses on tracking the S&P 500. Invista may also use stock index futures as a
substitute for the sale or purchase of securities. It does not attempt to manage
market volatility, use defensive strategies or reduce the effect of any
long-term periods of poor stock performance.
The correlation between Fund and index performance may be affected by the Fund's
expenses, changes in securities markets, changes in the composition of the index
and the timing of purchases and sales of Fund shares. The Fund may invest in
futures and options, which could carry additional risks such as losses due to
unanticipated market price movements and could also reduce the opportunity for
gain.
Main Risks
Because of the difficulty and expense of executing relatively small stock
trades, the Fund may not always be invested in the less heavily weighted S&P 500
stocks. At times, the Fund's portfolio may be weighted differently from the S&P
500, particularly if the Fund has a small level of assets to invest. In
addition, the Fund's ability to match the performance of the S&P 500 is affected
to some degree by the size and timing of cash flows into and out of the Fund.
The Fund is managed to attempt to minimize such effects.
Invista reserves the right to omit or remove any of the S&P 500 stocks from the
Fund if it determines that the stock is not sufficiently liquid. In addition, a
stock might be excluded or removed from the Fund if extraordinary events or
financial conditions lead Invista to believe that it should not be a part of the
Fund's assets.
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization stocks, may underperform compared to other market segments
or to the equity markets as a whole. Because different types of stocks tend to
shift in and out of favor depending on market and economic conditions, the
Fund's performance may sometimes be lower or higher than that of other types of
funds.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. The current share price reflects the activities of individual
companies as well as general market and economic conditions. In the short-term,
stock prices can fluctuate dramatically in response to these factors.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital, willing to accept the potential for volatile fluctuations in
the value of investments and preferring a passive rather than active management
style.
* Standard & Poor's Corporation is not affiliated with the LargeCap S&P 500
Index Fund, Invista Capital Management, LLC or Principal Life Insurance
Company.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.15% 0.15%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 0.90% 0.72%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $92 $287
Advisors Preferred Class 74 230
Day-to-day Fund Management
Since December, 2000 Co-Manager: Robert Baur, Ph.D. Dr. Baur joined
(Fund's inception) Invista in 1995 after serving as a professor of
finance and economics at Drake University and Grand
View College. He received his Bachelor's degree in
Mathematics and his Ph.D. in Economics from Iowa
State University. Dr. Baur also did post-doctoral
study in finance and economics at the University of
Minnesota. He also holds a BS in Mathematics from
Iowa State University.
Since December, 2000 Co-Manager: Rhonda VanderBeek. Ms. Vander Beek
(Fund's inception) directs trading operations for Invista index
accounts. She joined the Principal Financial Group
in 1983 as a trading statistical clerk and moved to
Invista in 1992. Ms. Vander Beek has extensive
experience trading both domestic and international
securities.
LARGECAP VALUE FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks and other equity securities of large
capitalization companies. Under normal market conditions, the Fund invests at
least 65% of its assets in companies with a market capitalization of greater
than $10 billion at the time of purchase. Market capitalization is defined as
total current market value of a company's outstanding common stock. Up to 25% of
Fund assets may be invested in foreign securities.
The Fund invests in stocks that, in the opinion of the Sub-Advisor, Invista, are
undervalued in the marketplace at the time of purchase. This value orientation
emphasizes buying stocks at less than their investment value and avoiding stocks
whose price has been artificially built up. Value stocks are often characterized
by below average price/earnings ratios (P/E) and above average dividend yields
relative to their peers. The Fund's investments are selected primarily on the
basis of fundamental security analysis, focusing on the company's financial
stability, sales, earnings, dividend trends, return on equity and industry
trends. The Fund often invests in stocks considered temporarily out of favor.
Investors often overreact to bad news and do not respond quickly to good news.
This results in undervalued stocks of the type held by the Fund.
Invista focuses its stock selections on established companies that it believes
have a sustainable competitive advantage. Invista constructs a portfolio that is
"benchmark aware" in that it is sensitive to the sector (companies with similar
characteristics) and security weightings of its benchmark. However, the Fund is
actively managed and prepared to over- and/or under-weight sectors and
industries differently from the benchmark.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility, which
is the principal risk of investing in the Fund.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization value stocks, may underperform compared to other market
segments or to the equity markets as a whole. The value of the Fund's securities
may fluctuate on a daily basis. As with all mutual funds, as the value of the
Fund's assets rise and fall, the Fund's share price changes. If the investor
sells Fund shares when their value is less than the price the investor paid for
them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks,
but who prefer investing in companies that appear to be considered undervalued
relative to similar companies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.45% 0.45%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.20% 1.02%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $122 $381
Advisors Preferred Class 104 325
Day-to-day Fund Management
Since December, 2000 John Pihlblad, CFA. Mr. Pihlblad is director of
(Fund's Inception) quantitative portfolio management for Invista. He
has over 24 years experience in creating and
managing quantitative investment systems. Prior to
joining Invista in 2000, Mr. Pihlblad was a partner
and co-founder of GlobeFlex Capital in San Diego
where he was responsible for the development and
implementation of the investment process for both
domestic and international products. He received his
BA from Westminster College. He has earned the right
to use the Chartered Financial Analyst designation.
MIDCAP VALUE FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of medium capitalization companies.
Under normal market conditions, the Fund invests at least 65% of its assets in
companies with a market capitalization between $1 billion and $10 billion at the
time of purchase. Market capitalization is defined as total current market value
of a company's outstanding common stock. Up to 25% of Fund assets may be
invested in foreign securities.
The Fund invests in stocks that, in the opinion of the Sub-Advisor, Invista, are
undervalued in the marketplace at the time of purchase. This value orientation
emphasizes buying stocks at less than their inherent value and avoiding stocks
whose price has been artificially built up. Value stocks are often characterized
by below average price/earnings ratios (P/E) and above average dividend yields.
The Fund's investments are selected primarily on the basis of fundamental
security analysis, focusing on the company's financial stability, sales,
earnings, dividend trends, return on equity and industry trends. The Fund often
invests in stocks considered temporarily out of favor. Investors often over
react to bad news and do not respond quickly to good news. This results in
undervalued stocks of the type held by this Fund.
Invista focuses its stock selections on established companies that it believes
have a sustainable competitive advantage. Invista constructs a portfolio that is
"benchmark aware" in that it is sensitive to the sector (companies with similar
characteristics) and security weightings of its benchmark. However, the Fund is
actively managed and prepared to over- and/or under-weight sectors and
industries differently from the benchmark.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these mid-size companies may pose greater risk due to narrow
product lines, limited financial resources, less depth in management or a
limited trading market for their securities.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
medium capitalization value stocks, may underperform compared to other market
segments or to the equity markets as a whole. Because different types of stocks
tend to shift in and out of favor depending on market and economic conditions,
the Fund's performance may sometimes be lower or higher than that of other types
of funds. The value of the Fund's equity securities may fluctuate on a daily
basis. If the investor sells Fund shares when their value is less than the price
the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the potential for short-term
fluctuations in the value of investments.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.65% 0.65%
12b-1 Fees....................... 0.37 0.31
Other Expenses................... 0.38 0.26
Total Fund Operating Expenses 1.40% 1.22%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $143 $443
Advisors Preferred Class 124 387
Day-to-day Fund Management
Since December, 2000 Catherine A. Zaharis, CFA. Ms. Zaharis directs
(Fund's inception) portfolio management for the Invista value team and
leads the value research group. She joined Invista
in 1985. Ms. Zaharis received her MBA from Drake
University and her BBA in Finance from the
University of Iowa. She has earned the right to use
the Chartered Financial Analyst designation.
PARTNERS LARGECAP BLEND FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund pursues its investment objective by investing primarily in equity
securities of companies that the Sub-Advisor believes offers superior growth
prospects or of companies whose stock is undervalued. Under normal market
conditions, the Fund invests at least 65% of its assets in companies with large
market capitalizations. Market capitalization is defined as total current market
value of a company's outstanding common stock.
In selecting securities for investment, the Sub-Advisor, Federated, looks at
stocks with value and/or growth characteristics and constructs an investment
portfolio that has a "blend" of stocks with these characteristics. The value
orientation emphasizes buying stocks at less than their intrinsic investment
value and avoiding stocks whose price has been unjustifiably built up. The
growth orientation emphasizes buying stocks of companies whose potential for
growth of capital and earnings is expected to be above average. Federated
attempts to identify good long-term values through disciplined investing and
careful fundamental research.
Using its own quantitative process, Federated rates the future performance
potential of companies. Federated evaluates each company's earnings quality in
light of its current valuation to narrow the list of attractive companies.
Federated then evaluates product positioning, management quality and
sustainability of current growth trends of those companies. Using this type of
fundamental analysis, Federated selects the most promising companies for the
Fund's portfolio.
Companies with similar characteristics may be grouped together in broad
categories called sectors. In determining the amount to invest in a security,
Federated limits the Fund's exposure to each business sector that comprises the
S&P 500 Index. The Fund's allocation to a sector will not be less than 50% or
more than 200% of the Index's allocation to that sector. The Fund may invest up
to 25% of its assets in securities of foreign companies.
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate short-term gains (losses)
for its shareholders, which are taxed at a higher rate than long-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility, which
is the principal risk of investing in the Fund.
The Fund is also subject to sector risk which is the possibility that a certain
sector may underperform other sectors or the market as a whole. As Federated
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments that generally affect that sector.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization stocks, may underperform compared to other market segments
or to the equity markets as a whole. Because certain of the securities purchased
by the Fund present greater opportunities for growth, they may also involve
greater risks than securities that do not have the same potential. The value of
the Fund's equity securities may fluctuate on a daily basis. As with all mutual
funds, as the value of the Fund's assets rise and fall, the Fund's share price
changes. If the investor sells Fund shares when their value is less than the
price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks,
but who prefer investing in larger, established companies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.75% 0.75%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.50% 1.32%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $153 $474
Advisors Preferred Class 134 418
Day-to-day Fund Management
Since December, 2000 Co-Manager: James E. Grefenstette, CFA. Mr.
(Fund's inception) Grefenstette joined Federated in 1992 and has been a
Portfolio Manager and a Vice President of Federated
Investment Management Company since 1996. From 1994
until 1996, Mr. Grefenstette was a Portfolio Manager
and an Assistant Vice President of Federated
Investment Management Company. Mr. Grefenstette
received his MS in Industrial Administration from
Carnegie Mellon University. He has earned the right
to use the Chartered Financial Analyst designation.
Since December, 2000 Co-Manager: J. Thomas Madden, CFA. Mr. Madden joined
(Fund's inception) Federated as a Senior Portfolio Manager in 1977 and
has been an Executive Vice President of Federated
Investment Management Company since 1994. Mr. Madden
served as a Senior Vice President of Federated
Investment Management Company from 1989 to 1993. Mr.
Madden received his MBA with a concentration in
Finance from the University of Virginia. He has
earned the right to use the Chartered Financial
Analyst designation.
Since December, 2000 Co-Manager: Bernard J. Picchi, CFA. Mr. Picchi
(Fund's inception) joined Federated in 1999 as a Senior Vice
President/Director of U.S. Equity Research for
Federated Investment Management Company. From 1994
to 1999, Mr. Picchi was a Managing Director of
Lehman Brothers where he initially served as head of
the energy sector group. During 1995 and most of
1996, he served as U.S. Director of Stock Research
and in September 1996, he was named Growth Stock
Strategist. Mr. Picchi holds a BS in foreign service
from Georgetown University. He has earned the right
to use the Chartered Financial Analyst designation.
Since December, 2000 Co-Manager: David P. Gilmore. Mr. Gilmore joined
(Fund's inception) Federated in August 1997 as an Investment Analyst.
He was promoted to Senior Investment Analyst in July
1999 and became an Assistant Vice President of
Federated in July 2000. Mr. Gilmore was a Senior
Associate with Coopers & Lybrand from January 1992
to May 1995. He earned his M.B.A. from the
University of Virginia and has a B.S. from Liberty
University. He has earned the right to use the
Chartered Financial Analyst designation.
PARTNERS LARGECAP GROWTH FUND I
The Fund seeks long-term growth of capital.
Main Strategies
The Fund seeks to maximize long-term capital appreciation by investing primarily
in growth-oriented equity securities of U.S. and, to a limited extent, foreign
companies that exhibit strong or accelerating earnings growth. These companies
are generally characterized as "growth" companies. The Fund will invest
primarily in companies with market capitalizations of $10 billion or more. The
Sub-Advisor, Morgan Stanley, emphasizes individual security selection and may
focus the Fund's holdings within the limits permissible for a diversified fund.
The Fund's investments in foreign companies will be limited to 25% of its assets
and to securities listed on U.S. exchanges or traded in U.S. Markets.
Morgan Stanley follows a flexible investment program in looking for companies
with above average capital appreciation potential. Morgan Stanley focuses on
companies with consistent or rising earnings growth records and compelling
business strategies. Morgan Stanley continually and rigorously studies company
developments, including business strategy, management focus and financial
results to identify companies with earnings growth and business momentum. In
addition, Morgan Stanley closely monitors analysts' expectations to identify
issuers that have the potential for positive earnings surprises versus consensus
expectations. Valuation is of secondary importance and is viewed in the context
of prospects for sustainable earnings growth and the potential for positive
earnings surprises in relation to consensus expectations.
The Fund has a long-term investment approach. However, Morgan Stanley considers
selling securities of issuers that no longer meet its criteria. To the extent
that the Fund engages in short-term trading, it may have increased transaction
costs.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of the securities
issued by such companies may decline. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Foreign securities carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization growth-oriented stocks, may underperform compared to other
market segments or to the equity markets as a whole. The securities purchased by
the Fund present greater opportunities for growth because of high potential
earnings growth, but may also involve greater risks than securities that do not
have the same potential. The value of the Fund's securities may fluctuate on a
daily basis. As with all mutual funds, as the value of the Fund's assets rise
and fall, the Fund's share price changes. If the investor sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.75% 0.75%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.50% 1.32%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $153 $474
Advisors Preferred Class 134 418
Day-to-day Fund Management
Since December, 2000 Co-Manager: William S. Auslander, Principal of
(Fund's inception) Morgan Stanley & Co. Incorporated and Morgan Stanley
Dean Witter Investment Management Inc. Mr. Auslander
joined Morgan Stanley in 1995 as an Equity Analyst
and currently is a Portfolio Manager in Morgan
Stanley's Institutional Equity Group. Prior thereto,
he was an Equity Analyst at Icahn & Co., 1986-1995.
He holds a BA in Economics from the University of
Wisconsin and an MBA from Columbia University.
Since December, 2000 Co-Manager: Philip W. Friedman, Managing Director of
(Fund's inception) Morgan Stanley & Co. Incorporated and Morgan Stanley
Dean Witter Investment Management Inc. He was a
member of Morgan Stanley & Co. Incorporated's Equity
Research team (1990-1995) before becoming Director
of North America Research (1995-1997). Currently Mr.
Friedman is head of Morgan Stanley's Institutional
Equity Group. He holds a BA from Rutgers University
and an MBA from the J.L. Kellogg School of
Management at Northwestern University.
PARTNERS LARGECAP GROWTH FUND II
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of large capitalization companies.
Market capitalization is defined as total current market value of a company's
outstanding common stock.
The Sub-Advisor, American Century, selects stocks for investment that it
believes will increase in value over time using a growth investment strategy it
developed. This strategy looks for companies whose earnings and revenues are not
only growing, but growing at a successively faster, or accelerating, pace.
Accelerating growth is shown, for example, by growth that is faster this quarter
than last or faster this year than the year before. The American Century
strategy is based on the premise that, over the long-term, the stocks of
companies with accelerating earnings and revenues have a greater than average
chance to increase in value.
Using its extensive computer database, American Century tracks financial
information for thousands of companies to research and select the stocks it
believes will be able to sustain accelerating growth. This information is used
to help American Century select or decide to continue to hold the stocks of
companies it believes will be able to sustain accelerating growth, and to sell
stocks of companies whose growth begins to slow down.
Under normal market conditions, American Century intends to keep the Fund
essentially fully invested in stocks regardless of the movement of stock prices
generally. When it considers it prudent, American Century may invest Fund assets
in non-leveraged futures and options. Non-leveraged means that the Fund may not
invest in futures and options where it would be possible to lose more than the
Fund invested. Futures and options can help the Fund's cash assets remain liquid
while performing more like stocks. In addition, up to 25% of Fund assets may be
invested in foreign securities.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization growth stocks, may underperform compared to other market
segments or to the equity markets as a whole. The securities purchased by the
Fund present greater opportunities for growth because of high potential earnings
growth, but may also involve greater risks than securities that do not have the
same potential. The value of the Fund's securities may fluctuate on a daily
basis. As with all mutual funds, as the value of the Fund's assets rise and
fall, the Fund's share price changes. If the investor sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 1.00% 1.00%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.75% 1.57%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $178 $551
Advisors Preferred Class 160 496
Day-to-day Fund Management
Since December, 2000 Co-Manager: Gregory Woodhams, CFA. Mr. Woodhams is a
(Fund's inception) Vice President and Portfolio Manager for American
Century Investments, Mr. Woodhams has worked in the
financial industry since 1992 and joined American
Century in 1997. Previously, he was Vice President
and Director of Equity Research at Texas Commerce
Bank. Mr. Woodhams holds a Bachelor's Degree in
Economics from Rice University and a Master's Degree
in Economics from the University of Wisconsin at
Madison. He has earned the right to use the
Chartered Financial Analyst designation.
Since December, 2000 Co-Manager: C. Kim Goodwin. Ms. Goodwin was named
(Fund's inception) Co-Chief Investment Officer for American Century's
domestic growth equity discipline in 2000.
Previously she was Senior Vice President and Senior
Portfolio Manager and has been a member of the team
that manages Growth since joining American Century
in 1997. Before joining American Century, she served
as Senior Vice President and Portfolio Manager at
Putnam Investments from 1996 to 1997, and Vice
President and Portfolio Manager at Prudential
Investments from 1993 to 1996. Ms. Goodwin holds a
Bachelor of Arts Degree from Princeton University,
an MBA in Finance and a Master's Degree in Public
Affairs from the University of Texas.
Since December, 2000 Co-Manager: Prescott LeGard, CFA. Mr. LeGard is a
(Fund's inception) Portfolio Manager for American Century Investments.
Mr. LeGard joined the company in 1999. Before
joining the company, he was an Equity Analyst for
USAA Investment Management where he analyzed
technology companies. He has worked in the
investment industry since 1993. Mr. LeGard holds a
BA Degree in Economics from DePauw University. He
has earned the right to use the Chartered Financial
Analyst designation.
[/R]
PARTNERS LARGECAP VALUE FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in undervalued equity securities of companies among
the 750 largest by market capitalization that the Sub-Advisor, Bernstein,
believes offer above-average potential for growth in future earnings. Under
normal market conditions, the Fund generally invests at least 65% of its assets
in companies with a market capitalization of greater than $10 billion at the
time of purchase. Market capitalization is defined as total current market value
of a company's outstanding common stock. The Fund may invest up to 25% of its
assets in securities of foreign companies.
Bernstein employs an investment strategy, generally described as "value"
investing, that involves seeking securities that:
o exhibit low financial ratios (particularly stock price-to-book value, but
also stock price-to-earnings and stock price-to-cash flow);
o can be acquired for less than what Bernstein believes is the issuer's
intrinsic value; or
o appear attractive on a dividend discount model.
Value oriented investing entails a strong "sell discipline" in that it generally
requires the sale of securities that have reached their intrinsic value or a
target financial ratio. Value oriented investments may include securities of
companies in cyclical industries during periods when such securities appear to
Bernstein to have strong potential for capital appreciation or securities of
"special situation" companies. A special situation company is one that Bernstein
believes has potential for significant future earnings growth but has not
performed well in the recent past. These situations include companies with
management changes, corporate or asset restructuring or significantly
undervalued assets. For Bernstein, identifying special situation companies and
establishing an issuer's intrinsic value involves fundamental research about
such companies and issuers.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization value stocks, may underperform compared to other market
segments or to the equity markets as a whole. The value of the Fund's securities
may fluctuate on a daily basis. As with all mutual funds, as the value of the
Fund's assets rise and fall, the Fund's share price changes. If the investor
sells Fund shares when their value is less than the price the investor paid for
them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
but prefer investing in companies that appear to be considered undervalued
relative to similar companies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.80% 0.80%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.55% 1.37%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $178 $551
Advisors Preferred Class 139 434
Day-to-day Fund Management
Since December, 2000 Co-Manager: Marilyn G. Fedak. Ms. Fedak, Chief
(Fund's inception) Investment Officer of U.S. Value Equities and
Chairman of the U.S. Equity Investment Policy Group
of the Bernstein Investment Research and Management
unit of Alliance Capital Management L.P.
("Alliance") since October 2000 and prior to that at
Sanford C. Bernstein & Co., Inc. ("SCB Inc.") since
1993. She joined SCB Inc. in 1984 and has managed
portfolio investments since 1976. She has a BA from
Smith College and an MBA from Harvard Business
School.
Since December, 2000 Co-Manager: Steven Pisarkiewicz. Mr. Pisarkiewicz
(Fund's inception) has been with Alliance since October 2000 and prior
to that with SCB Inc. since 1989 and has been Senior
Portfolio Manager since 1997. He holds a BS from the
University of Missouri and an MBA from the
University of California at Berkeley.
PARTNERS MIDCAP VALUE FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of medium capitalization companies.
Under normal market conditions, the Account invests at least 65% of its total
assets in companies with a market capitalization between $1 billion and $10
billion at the time of purchase. The Fund may continue to hold or add to a
position in a stock after it has grown beyond $10 billion. Market capitalization
is defined as total current market value of a company's outstanding common
stock. Companies may range from the well established and well known to the new
and unseasoned. The Fund may invest up to 25% of its assets in securities of
foreign companies.
The stocks are selected using a value oriented investment approach by Neuberger
Berman, the Sub-Advisor. Neuberger Berman identifies value stocks in several
ways. Factors it considers in identifying value stocks may include:
o strong fundamentals, such as a company's financial, operational and
competitive positions;
o consistent cash flow; and
o a sound earnings record through all phases of the market cycle.
Neuberger Berman may also look for other characteristics in a company, such as a
strong position relative to competitors, a high level of stock ownership among
management, and a recent sharp decline in stock price that appears to be the
result of a short-term market overreaction to negative news. Neuberger Berman
believes that, over time, securities that are undervalued are more likely to
appreciate in price and are subject to less risk of price decline than
securities whose market prices have already reached their perceived economic
value.
This approach also involves selling portfolio securities when Neuberger Berman
believes they have reached their potential, when the securities fail to perform
as expected or when other opportunities appear more attractive. It is
anticipated that the annual portfolio turnover rate may be greater than 100%.
Turnover rates in excess of 100% generally result in higher transaction costs
and a possible increase in short-term capital gains (or losses).
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of the securities
issued by such companies may decline. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these mid-sized companies may pose greater risk due to narrow
product lines, limited financial resources, less depth in management or a
limited trading market for their securities.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
medium capitalization value stocks, may underperform compared to other market
segments or to the equity markets as a whole. Because different types of stocks
tend to shift in and out of favor depending on market and economic conditions,
the Fund's performance may sometimes be lower or higher than that of other types
of funds. The value of the Fund's equity securities may fluctuate on a daily
basis. If the investor sells Fund shares when their value is less than the price
the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment if investors seeking long-term
growth and willing to accept short-term fluctuations in the value of
investments.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 1.00% 1.00%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.75% 1.57%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $178 $551
Advisors Preferred Class 160 496
Day-to-day Fund Management
Since December, 2000 Robert I. Gendelman, Managing Director and Portfolio
(Fund's inception) Manager, Neuberger Berman Management, Inc., since
1994. He holds a BA from the University of Michigan
as well as a JD and an MBA from the University of
Chicago.
REAL ESTATE FUND
The Fund seeks to generate a total return.
Main Strategies
The Fund invests primarily in equity securities of companies principally engaged
in the real estate industry. For purposes of the Fund's investment policies, a
real estate company has at least 50% of its assets, income or profits derived
from products or services related to the real estate industry. Real estate
companies include real estate investment trusts and companies with substantial
real estate holdings such as paper, lumber, hotel and entertainment companies.
Companies whose products and services relate to the real estate industry include
building supply manufacturers, mortgage lenders and mortgage servicing
companies.
Real estate investment trusts ("REITs") are corporations or business trusts that
are permitted to eliminate corporate level federal income taxes by meeting
certain requirements of the Internal Revenue Code ("Code"). REITs are
characterized as:
o equity REITs, which primarily own property and generate revenue from rental
income;
o mortgage REITs, which invest in real estate mortgages; and
o hybrid REITs, which combine the characteristics of both equity and mortgage
REITs.
In selecting securities for the Fund, the Sub-Advisor, PCREI, focuses on equity
REITs.
The Fund may invest up to 25% of its assets in securities of foreign real estate
companies.
Main Risks
Securities of real estate companies are subject to securities market risks as
well as risks similar to those of direct ownership of real estate. These
include:
o declines in the value of real estate
o risks related to general and local economic conditions
o dependency on management skills
o heavy cash flow dependency
o possible lack of available mortgage funds
o overbuilding
o extended vacancies in properties
o increases in property taxes and operating expenses
o changes in zoning laws
o expenses incurred in the cleanup of environmental problems
o casualty or condemnation losses
o changes in interest rates
In addition to the risks listed above, equity REITs are affected by the changes
in the value of the properties owned by the trust. Mortgage REITs are affected
by the quality of the credit extended. Both equity and mortgage REITs:
o are dependent upon management skills and might not be diversified;
o are subject to cash flow dependency and defaults by borrowers; and
o could fail to qualify for tax-free pass-through of income under the Code.
Because of these factors, the value of the securities held by the Fund, and in
turn the price per share of the Fund, changes on a daily basis. The current
share price reflects the activities of individual companies as well as general
market and economic conditions. In the short-term, share prices can fluctuate
dramatically in response to these factors. Because of these fluctuations,
principal values and investment returns vary. As with all mutual funds, the
value of the Fund's assets may rise or fall. If the investor sells Fund shares
when their value is less than the price the investor paid for them, the investor
will lose money.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
Investor Profile
The Fund is generally a suitable investment for investors who seek a total
return, want to invest in companies engaged in the real estate industry and are
willing to accept the potential for volatile fluctuations in the value of
investments.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.85% 0.85%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.60% 1.42%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $163 $505
Advisors Preferred Class 145 449
Day-to-day Fund Management
Since December, 2000 Kelly D. Rush, CFA. Mr. Rush directs the Real Estate
(Fund's inception) Investment Trust (REIT) activity for PCREI. Mr. Rush
joined the Principal Financial Group in 1987 and has
been dedicated to public real estate investments
since 1995. His experience includes the structuring
of public real estate transactions that included
commercial mortgage loans and the issuance of
unsecured bonds. He received his Master's degree and
Bachelor's degree in Finance from the University of
Iowa. He has earned the right to use the Chartered
Financial Analyst designation.
Aggressive Funds
MIDCAP BLEND FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks and other equity securities of
medium capitalization companies. Under normal market conditions, the Fund
invests at least 65% of its assets in companies with a market capitalization
between $1 billion and $10 billion at the time of purchase. Market
capitalization is defined as total current market value of a company's
outstanding common stock.
In selecting securities for investment, the Sub-Advisor, Invista, looks at
stocks with value and/or growth characteristics and constructs an investment
portfolio that has a "blend" of stocks with these characteristics. In managing
the assets of the Fund, Invista does not have a policy of preferring one of
these categories to the other. The value orientation emphasizes buying stocks at
less than their inherent value and avoiding stocks whose price has been
artificially built up. The growth orientation emphasizes buying stocks of
companies whose potential for growth of capital and earnings is expected to be
above average.
Invista uses a bottom-up approach in its selection of individual securities.
Selection is based on fundamental analysis of a company relative to other
companies with the focus being on Invista's estimation of forward-looking rates
of return. Up to 25% of Fund assets may be invested in foreign securities.
Invista focuses its stock selections on established companies that it believes
have a sustainable competitive advantage. Invista constructs a portfolio that is
"benchmark aware" in that it is sensitive to the sector (companies with similar
characteristics) and security weightings of its benchmark. However, the Fund is
actively managed and prepared to over- and/or under-weight sectors and
industries differently from the benchmark.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these mid-size companies may pose greater risk due to narrow
product lines, limited financial resources, less depth in management or a
limited trading market for their securities.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
medium capitalization stocks, may underperform compared to other market segments
or to the equity markets as a whole. Because different types of stocks tend to
shift in and out of favor depending on market and economic conditions, the
Fund's performance may sometimes be lower or higher than that of other types of
funds. The value of the Fund's equity securities may fluctuate on a daily basis.
If the investor sells Fund shares when their value is less than the price the
investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the potential for short-term
fluctuations in the value of investments.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.65% 0.65%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.40% 1.22%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $143 $443
Advisors Preferred Class 124 387
Day-to-day Fund Management
Since December, 2000 K. William Nolin, CFA. Mr. Nolin has managed the
(Fund's inception) domestic mid-cap products since 1999. His expertise
is grounded in the telecommunications, media &
entertainment, lodging and consumer non-durables
sectors. Mr. Nolin joined the Principal Financial
Group in 1993 as an investment credit analyst. He
earned his MBA from the Yale School of Management
and his Bachelor's degree in Finance from the
University of Iowa. He has earned the right to use
the Chartered Financial Analyst designation.
MIDCAP GROWTH FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of medium capitalization companies
with strong earnings growth potential. Under normal market conditions, the Fund
invests at least 65% of its assets in companies with a market capitalization
between $1 billion and $10 billion at the time of purchase. Market
capitalization is defined as total current market value of a company's
outstanding common stock.
The Sub-Advisor, Invista, uses a bottom-up approach in its selection of
individual securities that it believes have an above average potential for
earnings growth. Selection is based on fundamental analysis of a company
relative to other companies with the focus being on Invista's assessment of
current and future sales growth and operating margins. Up to 25% of Fund assets
may be invested in foreign securities.
Invista focuses its stock selections on established companies that it believes
to have sustainable competitive advantages and reasonable stock prices. It then
constructs a portfolio that is "benchmark aware" in that it is sensitive to the
sector (companies with similar characteristics) and security weightings of its
benchmark. However, the Fund is actively managed and prepared to over-and/or
under-weight sectors and industries differently from the benchmark.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these mid-size companies may pose greater risk due to narrow
product lines, limited financial resources, less depth in management or a
limited trading market for their securities.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
medium capitalization growth stocks, may underperform compared to the equity
markets as a whole. The securities purchased by the Fund present greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than securities that do not have the same potential. The
value of the Fund's equity securities may fluctuate on a daily basis. As with
all mutual funds, as the value of the Fund's assets rise and fall, the Fund's
share price changes. If the investor sells Fund shares when their value is less
than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.65% 0.65%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.40% 1.22%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $143 $443
Advisors Preferred Class 124 387
Day-to-day Fund Management
Since December, 2000 John F. McClain. Mr. McClain is a portfolio manager
(Fund's inception) for small company and medium company growth
products. He joined Invista in 1990. Previously, he
was an investment executive with Paine Webber. He
earned an MBA from Indiana University and a BBA in
Economics from the University of Iowa.
MIDCAP S&P 400 INDEX FUND
The Fund seeks long-term growth of capital.
Main Strategies
Under normal market conditions, the Fund invests at least 80% of its assets in
common stocks of companies that compose the Standard & Poor's* ("S&P") MidCap
400 Index. The Sub-Advisor, Invista, attempts to mirror the investment
performance of the index by allocating the Fund's assets in approximately the
same weightings as the S&P MidCap 400. The S&P MidCap 400 is an unmanaged index
of 400 common stocks of medium sized U.S. (and some Canadian) companies. Each
stock is weighted by its market capitalization which means larger companies have
greater representation in the index than smaller ones. Over the long-term,
Invista seeks a very close correlation between performance of the Fund, before
expenses, and that of the S&P MidCap 400. It is unlikely that a perfect
correlation of 1.00 will be achieved.
The Fund uses an indexing strategy and is not managed according to traditional
methods of "active" investment management. Active management would include
buying and selling securities based on economic, financial and investment
judgement. Instead, the Fund uses a passive investment approach. Rather than
judging the merits of a particular stock in selecting investments, Invista
focuses on tracking the S&P MidCap 400. Invista may also use stock index futures
as a substitute for the sale or purchase of securities. It does not attempt to
manage market volatility, use defensive strategies or reduce the effect of any
long-term periods of poor stock performance.
The correlation between Fund and index performance may be affected by the Fund's
expenses, changes in securities markets, changes in the composition of the index
and the timing of purchases and sales of Fund shares. The Fund may invest in
futures and options, which could carry additional risks such as losses due to
unanticipated market price movements, and could also reduce the opportunity for
gain.
Main Risks
Because of the difficulty and expense of executing relatively small stock
trades, the Fund may not always be invested in the less heavily weighted S&P
MidCap 400 stocks. At times, the Fund's portfolio may be weighted differently
from the S&P MidCap 400, particularly if the Fund has a small level of assets to
invest. In addition, the Fund's ability to match the performance of the S&P
MidCap 400 is affected to some degree by the size and timing of cash flows into
and out of the Fund. The Fund attempts to minimize such effects.
Invista reserves the right to omit or remove any of the S&P MidCap 400 stocks
from the Fund if it determines that the stock is not sufficiently liquid. In
addition, a stock might be excluded or removed from the Fund if extraordinary
events or financial conditions lead Invista to believe that it should not be a
part of the Fund's assets.
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these mid-size companies may pose greater risk due to narrow
product lines, limited financial resources, less depth in management or a
limited trading market for their securities.
In addition, the Fund is subject to the risk that its principal market segment,
medium capitalization stocks, may underperform compared to other market segments
or to the equity markets as a whole. Because different types of stocks tend to
shift in and out of favor depending on market and economic conditions, the
Fund's performance may sometimes be lower or higher than that of other types of
funds.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. The current share price reflects the activities of individual
companies as well as general market and economic conditions. In the short-term,
stock prices can fluctuate dramatically in response to these factors.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital, willing to accept the potential for volatile fluctuations in
the value of investments and preferring a passive rather than active management
style.
* Standard & Poor's Corporation is not affiliated with the MidCap S&P 400 Index
Fund, Invista Capital Management LLC or Principal Life Insurance Company.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.15% 0.15%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 0.90% 0.72%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $92 $287
Advisors Preferred Class 74 230
Day-to-day Fund Management
Since December, 2000 Co-Manager: Robert Baur, Ph.D. Dr. Baur joined
(Fund's inception) Invista in 1995 after serving as a professor of
finance and economics at Drake University and Grand
View College. He received his Bachelor's degree in
Mathematics and his Ph.D. in Economics from Iowa
State University. Dr. Baur also did post-doctoral
study in finance and economics at the University of
Minnesota. He also holds a BS in Mathematics from
Iowa State University.
Since December, 2000 Co-Manager: Rhonda VanderBeek. Ms. Vander Beek
(Fund's inception) directs trading operations for Invista index
accounts. She joined the Principal Financial Group
in 1983 as a trading statistical clerk and moved to
Invista in 1992. Ms. Vander Beek has extensive
experience trading both domestic and international
securities.
PARTNERS MIDCAP GROWTH FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks and other equity securities of U.S.
companies with strong earnings growth potential. Under normal market conditions,
the Fund invests at least 65% of its assets in companies with market
capitalizations between $1 billion and $10 billion at the time of purchase.
Market capitalization is defined as total current market value of a company's
outstanding common stock.
The Fund invests in securities of companies that are diversified across economic
sectors. It attempts to maintain sector concentrations that approximate those of
its current benchmark, the Russell MidCap Growth Index. The Fund is not an index
fund and does not limit its investment to the securities of issuers in the
Russell MidCap Growth Index. The Fund may invest up to 25% of its assets in
securities of foreign companies.
The Sub-Advisor, Turner, selects stocks that it believes have strong earnings
growth potential. Turner invests in companies with strong earnings dynamics, and
sells those with deteriorating earnings prospects. Turner believes forecasts for
market timing and sector rotation are unreliable and introduce an unacceptable
level of risk. As a result, under normal market conditions the Fund is fully
invested.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher taxable distributions and lower performance due to
increased brokerage costs.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these mid-size companies may pose greater risk due to narrow
product lines, limited financial resources, less depth in management or a
limited trading market for their securities.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
medium capitalization growth stocks, may underperform compared to the equity
markets as a whole. The securities purchased by the Fund present greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than securities that do not have the same potential. The
value of the Fund's equity securities may fluctuate on a daily basis. As with
all mutual funds, as the value of the Fund's assets rise and fall, the Fund's
share price changes. If the investor sells Fund shares when their value is less
than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 1.00% 1.00%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.75% 1.57%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $178 $551
Advisors Preferred Class 160 496
Day-to-day Fund Management
Since December, 2000 Co-Manager: Robert E. Turner, CFA. Mr. Turner,
(Fund's inception) Chairman and Chief Investment Officer, founded
Turner Investment Partners, Inc. in 1990. Prior to
1990, he was Senior Investment Manager with Meridian
Investment Company. He has 17 years of investment
experience. He has earned the right to use the
Chartered Financial Analyst designation.
Since December, 2000 Co-Manager: Christopher K. McHugh. Mr. McHugh joined
(Fund's inception) Turner Investment Partners, Inc. in 1990. He holds a
BS in Accounting from Philadelphia College of
Textiles and Science and an MBA in Finance from St.
Joseph's University.
Since December, 2000 Co-Manager: William C. McVail. Mr. McVail, Senior
(Fund's inception) Equity Portfolio Manager, joined Turner in 1998.
Prior thereto, he was Portfolio Manager at PNC
Equity Advisers. He has 12 years of investment
experience.
PARTNERS SMALLCAP GROWTH FUND I
The Fund seeks long-term growth of capital.
Main Strategies
To pursue its goal, the Fund invests mainly in common stocks of
small-capitalization companies, which it defines as those with a total market
value of no more than $1.5 billion at the time the Fund first invests in them.
The Fund may continue to hold or add to a position in a stock after it has grown
beyond $1.5 billion. The Fund seeks to reduce risk by diversifying among many
companies and industries. In addition, the Fund may invest up to 25% of its
assets in securities of foreign companies.
The Sub-Advisor, Neuberger Berman, takes a growth approach to selecting stocks,
looking for new companies that are in the developmental stage as well as older
companies that appear poised to grow because of new products, markets or
management. Factors in identifying these firms may include financial strength, a
strong position relative to competitors and a stock price that is reasonable in
light of its growth rate.
Neuberger Berman follows a disciplined selling strategy and may eliminate a
stock from the portfolio when it reaches a target price, fails to perform as
expected, or appears substantially less desirable than another stock.
Through active trading, the Fund may have a high portfolio turnover rate. High
turnover rates can mean higher taxable distributions and lower performance due
to increased brokerage costs.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility, which
is the principal risk of investing in the Fund.
Investments in companies with smaller market capitalizations may involve greater
risks and price volatility (wide, rapid fluctuations) than investments in
larger, more mature companies. Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become established. While small, unseasoned companies may offer greater
opportunities for capital growth than larger, more established companies, they
also involve greater risks and should be considered speculative.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
small capitalization growth stocks, may underperform compared to the equity
markets as a whole. The securities purchased by the Fund present greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than securities that do not have the same potential. The
value of the Fund's equity securities may fluctuate on a daily basis. As with
all mutual funds, as the values of the Fund's assets rise and fall, the Fund's
share price changes. The Fund's share price may fluctuate more than that of
funds primarily invested in stocks of mid and large-sized companies and may
underperform as compared to the securities of larger companies. If the investor
sells Fund shares when their value is less than the price the investor paid for
them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 1.10% 1.10%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.85% 1.67%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $188 $562
Advisors Preferred Class 170 526
Day-to-day Fund Management
Since December, 2000 Co-Manager: Michael F. Malouf. Mr. Malouf is a Vice
(Fund's inception) President of Neuberger Berman Management and
Managing Director of Neuberger Berman, LLC. Mr.
Malouf joined the firm in 1998. From 1991 to 1998,
he was a Portfolio Manager at another firm.
Since December, 2000 Co-Manager: Jennifer K. Silver. Ms. Silver is a Vice
(Fund's inception) President of Neuberger Berman Management and
Managing Director of Neuberger Berman, LLC. Ms.
Silver has been Director of the Growth Equity Group
since 1997 and was an Analyst and a Portfolio
Manager at another firm from 1981 to 1997.
PARTNERS SMALLCAP GROWTH FUND II
The Fund seeks long-term growth of capital.
Main Strategies
The Fund pursues its investment objective by investing primarily in equity
securities of companies offering superior prospects for earnings growth. These
companies are generally characterized as "growth" companies. Under normal market
conditions, the Fund invests at least 65% of its assets in companies with small
market capitalization. Market capitalization is defined as total current market
value of a company's outstanding common stock. The Fund may invest up to 25% of
its assets in securities of foreign companies.
Using its own quantitative process, the Sub-Advisor, Federated, rates the future
performance potential of companies. Federated evaluates each company's earnings
quality in light of their current valuation to narrow the list of attractive
companies. Federated then evaluates product positioning, management quality and
sustainability of current growth trends of those companies. Using this type of
fundamental analysis, Federated selects the most promising companies for the
Fund's portfolio.
Companies with similar characteristics may be grouped together in broad
categories called sectors. In determining the amount to invest in a security,
Federated limits the Fund's exposure to each business sector that comprises the
S&P 500 Index. The Fund considers its approach aggressive because its strategies
with respect to security analysis, market capitalization, and sector allocation
are designed to produce a portfolio of stocks whose long-term growth prospects
are significantly above those of the S&P 500 Index. Accordingly, the prices of
the stocks held by the Fund may, under certain market conditions, be more
volatile than the prices of stocks selected using a less aggressive approach.
The Fund may attempt to manage market risk by buying and selling financial
futures and options. This may include the purchase of index futures contracts as
a substitute for direct investments in stocks. It may also include the purchase
and sale of options to protect against general declines in small capitalization
stocks economically.
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate short-term gains (losses)
for its shareholders, which are taxed at a higher rate than long-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility, which
is the principal risk of investing in the Fund.
Investments in companies with smaller market capitalizations may involve greater
risks and price volatility (wide, rapid fluctuations) than investments in
larger, more mature companies. Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become established. While small, unseasoned companies may offer greater
opportunities for capital growth than larger, more established companies, they
also involve greater risks and should be considered speculative.
Federated may group companies with similar characteristics into broad categories
called sectors. Sector risk is the possibility that a certain sector may
underperform other sectors or the market as a whole. As Federated allocates more
of the Fund's portfolio holdings to a particular sector, the Fund's performance
will be more susceptible to any economic, business or other developments that
generally affect that sector.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
small capitalization growth stocks, may underperform compared to the equity
markets as a whole. The securities purchased by the Fund present greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than securities that do not have the same potential. The
value of the Fund's equity securities may fluctuate on a daily basis. As with
all mutual funds, as the values of the Fund's assets rise and fall, the Fund's
share price changes. The Fund's share price may fluctuate more than that of
funds primarily invested in stocks of mid and large-sized companies and may
underperform as compared to the securities of larger companies. If the investor
sells Fund shares when their value is less than the price the investor paid for
them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 1.00% 1.00%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.75% 1.57%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $178 $551
Advisors Preferred Class 160 496
Since December, 2000 Co-Manager: Keith J. Sabol, CFA. Mr. Sabol joined
(Fund's inception) Federated in 1994. He has been a Porfolio Manager
since 1996 and served as an Assistant Vice President
of Federated Investment Management Company from 1997
to 1998. He has been a Vice President of Federated
Investment Management Company since 1998. Mr. Sabol
was an Investment Analyst, and then Equity Research
Coordinator for Federated Investment Management
Company from 1994 to 1996. Mr. Sabol earned his MS
in Industrial Administration from Carnegie Mellon
University. He has earned the right to use the
Chartered Financial Analyst designation.
Since December, 2000 Co-Manager: Aash M. Shah, CFA. Mr. Shah joined
(Fund's inception) Federated in 1993 and has been a Portfolio Manager
and a Vice President of Federated Investment
Management Company since 1997. Mr. Shah was a
Portfolio Manager and served as an Assistant Vice
President of Federated Investment Management Company
from 1995 through 1996, and as an Investment Analyst
from 1993 to 1995. Mr. Shah received his Masters in
Industrial Administration from Carnegie Mellon
University with a concentration in Finance and
Accounting. He has earned the right to use the
Chartered Financial Analyst designation.
SMALLCAP BLEND FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of small capitalization companies.
Under normal market conditions, the Fund invests at least 65% of its assets in
companies with a market capitalization of $1.5 billion or less at the time of
purchase. Market capitalization is defined as total current market value of a
company's outstanding common stock. The Fund may invest up to 25% of its assets
in securities of foreign companies.
In selecting securities for investment, the Sub-Advisor, Invista, looks at
stocks with value and/or growth characteristics and constructs an investment
portfolio that has a "blend" of stocks with these characteristics. In managing
the assets of the Fund, Invista does not have a policy of preferring one of
these categories to the other. The value orientation emphasizes buying stocks at
less than their investment value and avoiding stocks whose price has been
artificially built up. The growth orientation emphasizes buying stocks of
companies whose potential for growth of capital and earnings is expected to be
above average. Selection is based on fundamental analysis of the company
relative to other companies with the focus being on Invista's estimation of
forward looking rates of return.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Investments in companies with smaller market capitalizations may involve greater
risks and price volatility (wide, rapid fluctuations) than investments in
larger, more mature companies. Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become established. While small, unseasoned companies may offer greater
opportunities for capital growth than larger, more established companies, they
also involve greater risks and should be considered speculative.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
small capitalization stocks, may underperform compared to the equity markets as
a whole. The value of the Fund's equity securities may fluctuate on a daily
basis. As with all mutual funds, as the values of the Fund's assets rise and
fall, the Fund's share price changes. The Fund's share price may fluctuate more
than that of funds primarily invested in stocks of mid and large-sized companies
and may underperform as compared to the securities of larger companies. If the
investor sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the potential for volatile fluctuations
in the value of investments.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.75% 0.75%
12b-1 Fees....................... 0.37 0.31
Other Expenses................... 0.38 0.26
Total Fund Operating Expenses 1.50% 1.32%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $153 $474
Advisors Preferred Class 134 418
Day-to-day Fund Management
Since December, 2000 Co-Manager: Tom Morabito, CFA. Mr. Morabito joined
(Fund's inception) Invista in 2000 as the lead small-cap value
portfolio manager. He has more than 12 years of
analytical and portfolio management expertise. Since
1994, Mr. Morabito was a manager for INVESCO
Management & Research. He received his MBA in
Finance from Northeastern University and his
Bachelor's degree in Economics from State University
of New York. He has earned the right to use the
Chartered Financial Analyst designation.
Since December, 2000 Co-Manager: Michael L. Johnson. Mr. Johnson is a
(Fund's inception) portfolio manager of Invista. He performs security
analysis and strategy development for the firm's
growth equity research effort. Mr. Johnson
specializes in the capital goods, health care and
technology sectors. He joined Invista in 1992. He
received his MBA from Drake University and his
Bachelor's degree in business administration and
finance from the University of Nebraska. He has
earned the right to use the Chartered Financial
Analyst designation. .
SMALLCAP GROWTH FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of small capitalization companies.
Under normal market conditions, the Fund invests at least 65% of its assets in
companies with a market capitalization of $1.5 billion or less at the time of
purchase. Market capitalization is defined as total current market value of a
company's outstanding common stock.
The Sub-Advisor, Invista, uses a bottom-up approach in its selection of
individual securities that it believes have an above average potential for
earnings growth. Selection is based on fundamental analysis of a company
relative to other companies with the focus being on Invista's assessment of
current and future sales growth and operating margins. Up to 25% of Fund assets
may be invested in foreign securities.
Invista focuses its stock selections on established companies that it believes
have a sustainable competitive advantage. Invista constructs a portfolio that is
"benchmark aware" in that it is sensitive to the sector (companies with similar
characteristics) and security weightings of its benchmark. However, the Fund is
actively managed and prepared to over- and/or under-weight sectors and
industries differently from the benchmark.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Investments in companies with smaller market capitalizations may involve greater
risks and price volatility (wide, rapid fluctuations) than investments in
larger, more mature companies. Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become established. While small, unseasoned companies may offer greater
opportunities for capital growth than larger, more established companies, they
also involve greater risks and should be considered speculative.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
small capitalization growth stocks, may underperform compared to the equity
markets as a whole. The securities purchased by the Fund present greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than securities that do not have the same potential. The
value of the Fund's equity securities may fluctuate on a daily basis. As with
all mutual funds, as the values of the Fund's assets rise and fall, the Fund's
share price changes. The Fund's share price may fluctuate more than that of
funds primarily invested in stocks of mid and large-sized companies and may
underperform as compared to the securities of larger companies. If the investor
sells Fund shares when their value is less than the price the investor paid for
them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.75% 0.75%
12b-1 Fees....................... 0.37 0.31
Other Expenses................... 0.38 0.26
Total Fund Operating Expenses 1.50% 1.32%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $153 $474
Advisors Preferred Class 134 418
Day-to-day Fund Management
Since December, 2000 John F. McClain. Mr. McClain is a portfolio manager
(Fund's inception) for small company and medium company growth
products. He joined Invista in 1990. Previously, he
was an investment executive with Paine Webber. He
earned an MBA from Indiana University and a BBA in
Economics from the University of Iowa.
SMALLCAP S&P 600 INDEX FUND
The Fund seeks long-term growth of capital.
Main Strategies
Under normal market conditions, the Fund invests at least 80% of its assets in
common stocks of companies that compose the Standard & Poor's* ("S&P") SmallCap
600 Index. The Sub-Advisor, Invista, attempts to mirror the investment
performance of the index by allocating the Fund's assets in approximately the
same weightings as the S&P SmallCap 600. The S&P SmallCap 600 is an unmanaged
index of 600 domestic stocks chosen for market size, liquidity and industry
group representation. Each stock is weighted by its market capitalization which
means larger companies have greater representation in the index than smaller
ones. Over the long-term, Invista seeks a very close correlation between
performance of the Fund, before expenses, and that of the S&P SmallCap 600. It
is unlikely that a perfect correlation of 1.00 will be achieved.
The Fund uses an indexing strategy and is not managed according to traditional
methods of "active" investment management. Active management would include
buying and selling securities based on economic, financial and investment
judgement. Instead, the Fund uses a passive investment approach. Rather than
judging the merits of a particular stock in selecting investments, Invista
focuses on tracking the S&P SmallCap 600. Invista may also use stock index
futures as a substitute for the sale or purchase of securities. It does not
attempt to manage market volatility, use defensive strategies or reduce the
effect of any long-term periods of poor stock performance.
The correlation between Fund and index performance may be affected by the Fund's
expenses, changes in securities markets, changes in the composition of the index
and the timing of purchases and sales of Fund shares. The Fund may invest in
futures and options, which could carry additional risks such as losses due to
unanticipated market price movements, and could also reduce the opportunity for
gain.
Main Risks
Because of the difficulty and expense of executing relatively small stock
trades, the Fund may not always be invested in the less heavily weighted S&P
SmallCap 600 stocks. At times, the Fund's portfolio may be weighted differently
from the S&P SmallCap 600, particularly if the Fund has a small level of assets
to invest. In addition, the Fund's ability to match the performance of the S&P
SmallCap 600 is affected to some degree by the size and timing of cash flows
into and out of the Fund. The Fund attempts to minimize such effects.
Invista reserves the right to omit or remove any of the S&P SmallCap 600 stocks
from the Fund if it determines that the stock is not sufficiently liquid. In
addition, a stock might be excluded or removed from the Fund if extraordinary
events or financial conditions lead Invista to believe that it should not be a
part of the Fund's assets.
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility (wide, rapid fluctuations), which is the principal risk of investing
in the Fund.
Investments in companies with smaller market capitalizations may involve greater
risks and price volatility than investments in larger, more mature companies.
Smaller companies may be developing or marketing new products or services for
which markets are not yet established and may never become established. While
small, unseasoned companies may offer greater opportunities for capital growth
than larger, more established companies, they also involve greater risks and
should be considered speculative.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. The current share price reflects the activities of individual
companies as well as general market and economic conditions. In the short-term,
stock prices can fluctuate dramatically in response to these factors. The Fund's
share price may fluctuate more than that of funds primarily invested in stocks
of mid-sized and large companies and may underperform as compared to the
securities of larger companies. If the investor sells Fund shares when their
value is less than the price the investor paid for them, the investor will lose
money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital, willing to accept the potential for volatile fluctuations in
the value of investments and preferring a passive rather than active management
style.
* Standard & Poor's Corporation is not affiliated with the SmallCap S&P 600
Index Fund, Invista Capital Management, LLC or Principal Life Insurance
Company.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.15% 0.15%
12b-1 Fees....................... 0.37 0.31
Other Expenses................... 0.38 0.26
Total Fund Operating Expenses 0.90% 0.72%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the timeperiods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $92 $287
Advisors Preferred Class 74 230
Day-to-day Fund Management
Since December, 2000 Co-Manager: Robert Baur, Ph.D. Dr. Baur joined
(Fund's inception) Invista in 1995 after serving as a professor of
finance and economics at Drake University and Grand
View College. He received his Bachelor's degree in
Mathematics and his Ph.D. in Economics from Iowa
State University. Dr. Baur also did post-doctoral
study in finance and economics at the University of
Minnesota. He also holds a BS in Mathematics from
Iowa State University.
Since December, 2000 Co-Manager: Rhonda VanderBeek. Ms. Vander Beek
(Fund's inception) directs trading operations for Invista index
accounts. She joined the Principal Financial Group
in 1983 as a trading statistical clerk and moved to
Invista in 1992. Ms. Vander Beek has extensive
experience trading both domestic and international
securities.
SMALLCAP VALUE FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of small capitalization companies.
Under normal market conditions, the Fund invests at least 65% of its assets in
companies with a market capitalization of $1.5 billion or less at the time of
purchase. Market capitalization is defined as total current market value of a
company's outstanding common stock. The Fund may invest up to 25% of its assets
in securities of foreign companies. Up to 25% of Fund assets may be invested in
foreign securities.
The Fund specializes in stocks of small-sized companies that are undervalued at
the time of purchase. These stocks are often characterized by below-average
stock price/earnings ratios and above-average dividend yields. The Sub-Advisor,
Invista, selects the Fund's investments primarily on the basis of fundamental
security analysis, focusing on the company's financial stability, sales,
earnings, dividend trends, return on equity and industry trends. The Fund often
invests in stocks considered temporarily out of favor. Investors often overreact
to bad news and do not respond quickly to good news. This results in undervalued
stocks of the type held by this Fund.
Invista focuses its stock selections on established companies that it believes
have a sustainable competitive advantage. Invista constructs a portfolio that is
"benchmark aware" in that it is sensitive to the sector (companies with similar
characteristics) and security weightings of its benchmark. However, the Fund is
actively managed and prepared to over- and/or under-weight sectors and
industries differently from the benchmark.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility, which
is the principal risk of investing in the Fund.
Investments in companies with smaller market capitalizations may involve greater
risks and price volatility (wide, rapid fluctuations) than investments in
larger, more mature companies. Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become established. While small, unseasoned companies may offer greater
opportunities for capital growth than larger, more established companies, they
also involve greater risks and should be considered speculative.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
small capitalization value stocks, may underperform compared to the equity
markets as a whole. The value of the Fund's equity securities may fluctuate on a
daily basis. As with all mutual funds, as the values of the Fund's assets rise
and fall, the Fund's share price changes. The Fund's share price may fluctuate
more than that of funds primarily invested in stocks of mid and large-sized
companies and may underperform as compared to the securities of larger
companies. If the investor sells Fund shares when their value is less than the
price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the potential for volatile fluctuations
in the value of investments.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.75% 0.75%
12b-1 Fees....................... 0.37 0.31
Other Expenses................... 0.38 0.26
Total Fund Operating Expenses 1.50% 1.32%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $153 $474
Advisors Preferred Class 134 418
Day-to-day Fund Management
Since December, 2000 Tom Morabito, CFA. Mr. Morabito joined Invista in
(Fund's inception) 2000 as the lead small-cap value portfolio manager.
He has more than 12 years of analytical and
portfolio management expertise. Since 1994, Mr.
Morabito was a manager for Invesco Management &
Research. He received his MBA in Finance from
Northeastern University and his Bachelor's degree in
Economics from State University of New York. He has
earned the right to use the Chartered Financial
Analyst designation.
TECHNOLOGY FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks and other securities of technology
and telecommunications companies domiciled in any of the nations of the world.
The Sub-Advisor, BT believes that as markets are becoming increasingly
globalized, companies can no longer be researched on a purely regional basis.
Companies are increasingly influenced by global, not just local trends, and for
this reason BT believes that analysis and research needs to be conducted in a
global context. BT considers companies in a broad range of technology-related
industries, generally including: computers; software and peripheral products;
electronics; communications equipment and services; and information services.
The Sub-Advisor, BT, selects securities for the Fund based on its own global
investment research. The research program is focused on three key criteria:
o business franchise - considering factors such as the company's relationship
with its suppliers and customers, the degree of rivalry with competitors as
well as the exposure to regulatory and technological risk;
o quality of management - assessing the company's management on its ability
to execute current business plans, manage the capital invested in the
business as well as the level of transparency with respect to strategy and
operations; and
o business valuation - determining the private market or `true business
value' of the firm.
BT's qualitative analysis is complemented by disciplined valuation techniques.
These include proprietary models as well as conventional market measurements and
industry specific models of relative value. This analytical framework ensures
consistency and transparency throughout the research process. Portfolios are
constructed and managed within predetermined guidelines that are regularly
monitored by BT.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility.
In addition, foreign stocks carry risks that are not generally found in stocks
of U.S. companies. These include the risk that a foreign security could lose
value as a result of political, financial and economic events in foreign
countries. Foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
The Fund may invest in securities of companies with small to medium market
capitalizations. While small companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risk and should be considered speculative. Small to mid-sized companies
may pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.
The Fund is also subject to the risk that its principal market segment,
technology stocks, may underperform compared to other market segments or to the
equity markets as a whole. The competitive pressures of advancing technology and
the number of companies and product offerings which continue to expand could
cause technology companies to become increasingly sensitive to short product
cycles and aggressive pricing. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same industry, the Fund is
subject to legislative or regulatory changes, adverse market conditions and/or
increased competition affecting that industry.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions . In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. In the short-term, stock prices can fluctuate dramatically in
response to these factors. If the investor sells Fund shares when their value is
less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital in the technology and telecommunications sector and who are
able to assume the increased risks of higher price volatility associated with
such investments. In addition, an investor must be able to assume the increased
risks of higher price volatility and currency fluctuations associated with
investments in international stocks which trade in non-U.S. currencies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 1.00% 1.00%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.75% 1.57%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $178 $551
Advisors Preferred Class 160 496
Day-to-day Fund Management
Since December, 2000 David Mills is Executive Vice President of BT and
(Fund's inception) serves as its head of U.S. Equities. He joined BT's
retail unit trust team in January 1990 as an Analyst
in European equities. In July 1996, he assumed fund
management responsibility for all of the direct
European investment vehicles offered by BT.
Dynamic Funds
EUROPEAN FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in equity securities of companies domiciled or in the
opinion of the Sub-Advisor, BT, having their core business in Europe. The Fund
may also invest in other securities of such companies. The Fund offers an
opportunity to invest in a region with a wide spread of industries and in
companies which, in the opinion of BT, may be undervalued.
The Fund invests in securities listed on foreign or domestic securities
exchanges, securities traded in foreign or domestic over-the-counter markets and
depositary receipts. Under normal market conditions, the Fund invests at least
65% of its assets in European securities. These include securities of:
o companies organized under the laws of European countries;
o companies for which the principal securities trading market is in a
European country; and
o companies, regardless of where their securities are traded, that derive 50%
or more of their total revenue from either goods or services produced or
sales made in European countries.
The global equity investment philosophy of BT is to exploit market
inefficiencies that arise from differing interpretations of market information.
As a result, in BT's view, a company's share price does not always represent its
true "business value." BT actively invests in those companies that it believes
have been mispriced by investment markets. In order to exploit these
inefficiencies successfully, BT seeks to enhance investment returns through:
o rigorous proprietary stock research which enables their analysts to
understand the:
o quality of the company;
o nature of its management;
o nature of its industry competition; and
o business valuation - the true "business value" of the company;
o maintaining global coverage within the universe of investment choices; and
o maintaining a medium-term focus.
As a result, the Fund's portfolio reflects the opportunities presented by
mispriced companies that offer the potential for strong, long-term investment
returns with an acceptable level of investment risk.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S. companies. These include the risk that a foreign security
could lose value as a result of political, financial and economic events in
foreign countries. Foreign securities may be subject to securities regulators
with less stringent accounting and disclosure standards than are required of
U.S. companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
The Fund anticipates that its portfolio turnover may, on occasion, exceed 100%.
Turnover rates in excess of 100% generally result in higher transaction costs
and a possible increase in short-term capital gains (or losses).
The Fund may invest in securities of companies with small to medium market
capitalizations. While small companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risk and should be considered speculative. Small to mid-sized companies
may pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. In the short-term, stock prices can fluctuate dramatically in
response to these factors. If the investor sells Fund shares when their value is
less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital in European markets who are able to assume the increased risks
of higher price volatility and currency fluctuations associated with investments
in international stocks which trade in non-U.S. currencies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 1.00% 1.00%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.75% 1.57%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $178 $551
Advisors Preferred Class 160 496
Day-to-day Fund Management
Since December, 2000 Crispin Murray, Executive Vice President of BT,
(Fund's inception) joined BT in April 1994 as an Investment Analyst. In
1995, his role became pure European equities
analysis covering banks, telecommunication,
telecommunication equipment and media. In April
1998, he became Head of European Equities and in May
1998 became coordinator for BTFM's Global Banking
Group. His global sector responsibilities include
telecommunications and banks. Prior to joining BT,
Mr. Murray worked for Equitable Life Assurance
Society in the UK as a bond & currency analyst. He
received an Honours degree in Economics & Human
Geography from Reading University in the UK.
INTERNATIONAL EMERGING MARKETS FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund seeks to achieve its objective by investing in common stocks of
companies in emerging market countries. For this Fund, the term "emerging market
country" means any country which is considered to be an emerging country by the
international financial community (including the International Bank for
Reconstruction and Development (also known as the World Bank) and the
International Financial Corporation). These countries generally include every
nation in the world except the United States, Canada, Japan, Australia, New
Zealand and most nations located in Western Europe. Investing in many emerging
market countries is not feasible or may involve unacceptable political risk.
Invista, the Sub-Advisor, focuses on those emerging market countries that it
believes have strongly developing economies and markets which are becoming more
sophisticated.
Under normal conditions, at least 65% of the Fund's assets are invested in
emerging market country equity securities. The Fund invests in securities of:
o companies with their principal place of business or principal office in
emerging market countries;
o companies for which the principal securities trading market is an emerging
market country; or
o companies, regardless of where their securities are traded, that derive 50%
or more of their total revenue from either goods or services produced in
emerging market countries or sales made in emerging market countries.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S. companies. These include the risk that a foreign security
could lose value as a result of political, financial and economic events in
foreign countries. Foreign securities may be subject to securities regulators
with less stringent accounting and disclosure standards than are required of
U.S. companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
Investments in emerging market countries involve special risks. Certain emerging
market countries have historically experienced, and may continue to experience,
certain economic problems. These may include: high rates of inflation, high
interest rates, exchange rate fluctuations, large amounts of debt, balance of
payments and trade difficulties, and extreme poverty and unemployment.
The Fund may invest in securities of companies with small to medium market
capitalizations. While small companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risk and should be considered speculative. Small to mid-sized companies
may pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. The current share price reflects the activities of individual
companies as well as general market and economic conditions. In the short-term,
stock prices can fluctuate dramatically in response to these factors. If the
investor sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.
The Fund anticipates that its portfolio turnover will typically range from 200%
to 300%. Turnover rates in excess of 100% generally result in higher transaction
costs and a possible increase in short-term capital gains (or losses).
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital in securities of emerging market countries who are able to
assume the increased risks of higher price volatility and currency fluctuations
associated with investments in international stocks which trade in non-U.S.
currencies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 1.35% 1.35%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 2.10% 1.92%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $213 $658
Advisors Preferred Class 195 603
Day-to-day Fund Management
Since December, 2000 Kurtis D. Spieler, CFA. Mr. Spieler is a portfolio
(Fund's inception) manager specializing in the management of
international equity portfolios. He joined the
Principal Financial Group in 1987 in the Treasury
operation as a securities analyst and moved to
Invista in 1991. Mr. Spieler received his MBA from
Drake University and his BBA in Accounting from Iowa
State University. He has earned the right to use the
Chartered Financial Analyst designation.
INTERNATIONAL FUND I
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests in a portfolio of equity securities of companies domiciled in
any of the nations of the world. The Fund invests in securities of:
o companies with their principal place of business or principal office
outside the U.S.;
o companies for which the principal securities trading market is outside the
U.S.; and
o companies, regardless of where their securities are traded, that derive 50%
or more of their total revenue from goods or services produced or sales
made outside the U.S.
The Fund has no limitation on the percentage of assets that are invested in any
one country or denominated in any one currency. However under normal market
conditions, the Fund intends to have at least 65% of its assets invested in
companies in at least three different countries. One of those countries may be
the U.S. though currently the Fund does not intend to invest in equity
securities of U.S. companies.
Investments may be made anywhere in the world. Primary consideration is given to
securities of corporations of Western Europe, North America and Australasia
(Australia, Japan and Far East Asia). Changes in investments are made as
prospects change for particular countries, industries or companies.
In choosing investments for the Fund, the Sub-Advisor, Invista, pays particular
attention to the long-term earnings prospects of the various companies under
consideration. Invista then weighs those prospects relative to the price of the
security.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S. companies. These include the risk that a foreign security
could lose value as a result of political, financial and economic events in
foreign countries. Foreign securities may be subject to securities regulators
with less stringent accounting and disclosure standards than are required of
U.S. companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
The Fund may invest in securities of companies with small to medium market
capitalizations. While small companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risk and should be considered speculative. Small to mid-sized companies
may pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. The current share price reflects the activities of individual
companies as well as general market and economic conditions. In the short-term,
stock prices can fluctuate dramatically in response to these factors. If the
investor sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital in markets outside of the U.S. who are able to assume the
increased risks of higher price volatility and currency fluctuations associated
with investments in international stocks which trade in non-U.S. currencies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 0.90% 0.90%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.65% 1.47%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $168 $520
Advisors Preferred Class 150 465
Day-to-day Fund Management
Since December, 2000 Kurtis D. Spieler, CFA. Mr. Spieler is a portfolio
(Fund's inception) manager specializing in the management of
international equity portfolios. He joined the
Principal Financial Group in 1987 in the Treasury
operation as a securities analyst and moved to
Invista in 1991. Mr. Spieler received his MBA from
Drake University and his BBA in Accounting from Iowa
State University. He has earned the right to use the
Chartered Financial Analyst designation.
INTERNATIONAL FUND II
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests in common stocks and other securities of companies domiciled in
any of the nations of the world. The Fund invests in securities listed on
foreign or domestic securities exchanges, securities traded in foreign or
domestic over-the-counter markets and depositary receipts. It purchases
securities of:
o companies with their principal place of business or principal offices
outside the U.S.;
o companies for which the principal securities trading market is outside the
U.S.; or
o companies, regardless of where their securities are traded, that derive 50%
or more of their total revenue from either goods or services produced or
sales made outside the U.S.
The Sub-Advisor, BT, selects securities for the Fund based on its own global
investment research. The research program is focused on three key criteria:
o business franchise - considering factors such as the company's relationship
with its suppliers and customers, the degree of rivalry with competitors as
well as the exposure to regulatory and technological risk;
o quality of management - assessing the company's management on its ability
to execute current business plans, manage the capital invested in the
business as well as the level of transparency with respect to strategy and
operations; and
o business valuation - determining the private market or `true business
value' of the firm.
BT's qualitative analysis is complemented by disciplined valuation techniques.
These include proprietary models as well as conventional market measurements and
industry specific models of relative value. This analytical framework ensures
consistency and transparency throughout the research process. Portfolios are
constructed and managed within predetermined guidelines that are regularly
monitored by BT.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility.
In addition, foreign stocks carry risks that are not generally found in stocks
of U.S. companies. These include the risk that a foreign security could lose
value as a result of political, financial and economic events in foreign
countries. Foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
The Fund may invest in securities of companies with small to medium market
capitalizations. While small companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risk and should be considered speculative. Small to mid-sized companies
may pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. In the short-term, stock prices can fluctuate dramatically in
response to these factors. If the investor sells Fund shares when their value is
less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking growth of
capital in markets outside of the U.S. who are able to assume the increased
risks of higher price volatility and currency fluctuations associated with
investments in international stocks which trade in non-U.S. currencies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 1.00% 1.00%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.75% 1.57%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $178 $551
Advisors Preferred Class 160 496
Day-to-day Fund Management
Since December, 2000 Christopher Selth, Executive Vice President of BT,
(Fund's inception) was appointed its head of International Equities in
1998 and its joint head of Equities in 1999. He
joined BT in 1987 as an Investment Analyst in the
retail unit trust group. In 1988, he was assigned
the responsibility to cover European equities. Mr.
Selth was given responsibility for the European
component of all retail unit trusts in March 1994.
Since November 1996, he has been responsible for
institutional and retail European investments,
supervising all European activities, and the
European funds management group. Prior to joining
BT, Mr. Selth worked with QBE Insurance Limited in
investment management as an assistant to the Group
Treasurer. He holds a Bachelor's degree in Economics
(Honours) from the University of Sydney.
INTERNATIONAL SMALLCAP FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in equity securities of non-U.S. companies with
comparatively smaller market capitalizations. Under normal market conditions,
the Fund invests at least 65% of its assets in securities of companies having
market capitalizations of $1.5 billion or less at the time of purchase. Market
capitalization is defined as total current market value of a company's
outstanding common stock.
The Fund invests in securities of:
o companies with their principal place of business or principal office
outside the U.S.;
o companies for which the principal securities trading market is outside the
U.S.; and
o companies, regardless of where their securities are traded, that derive 50%
or more of their total revenue from goods or services produced or sales
made outside the U.S.
The Sub-Advisor, Invista, diversifies the Fund's investments geographically.
There is no limitation on the percentage of assets that may be invested in one
country or denominated in any one currency. However, under normal market
circumstances, the Fund intends to invest at least 65% of its assets in
securities of companies of at least three countries.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S. companies. These include the risk that a foreign security
could lose value as a result of political, financial and economic events in
foreign countries. Foreign securities may be subject to securities regulators
with less stringent accounting and disclosure standards than are required of
U.S. companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
The Fund may invest in securities of companies with small to medium market
capitalizations. While small companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risk and should be considered speculative. Small to mid-sized companies
may pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. The current share price reflects the activities of individual
companies as well as general market and economic conditions. In the short-term,
stock prices can fluctuate dramatically in response to these factors. If the
investor sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital in smaller companies outside of the U.S. who are able to
assume the increased risks of higher price volatility and currency fluctuations
associated with investments in international stocks which trade in non-U.S.
currencies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 1.20% 1.20%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.95% 1.77%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $198 $612
Advisors Preferred Class 180 557
Day-to-day Fund Management
Since December, 2000 Darren K. Sleister, CFA. Mr. Sleister is a portfolio
(Fund's inception) manager specializing in the management of
international equity portfolios. Mr. Sleister joined
Invista in 1993. He received his MBA in Investment
and Corporate Finances from the University of Iowa
and his Bachelor's degree in Communications from
Central College. He has earned the right to use the
Chartered Financial Analyst designation.
PACIFIC BASIN FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in equity securities (or other securities with equity
characteristics) of issuers located in the Pacific Basin region, including
Japan. The Fund invests in securities listed on foreign or domestic securities
exchanges, securities traded in foreign or domestic over-the-counter markets and
depositary receipts. Under normal market conditions, the Fund invests at least
65% of its assets in such securities. The Fund's investments are generally
diversified among securities of issuers of several Pacific Basin countries,
which include but are not limited to: Australia, China, Hong Kong, India,
Indonesia, Japan, Malaysia, New Zealand, Singapore, Sri Lanka, South Korea,
Thailand, Taiwan and Vietnam. These include securities of:
o companies organized under the laws of Pacific Basin countries;
o companies for which the principal securities trading market is in a Pacific
Basin country; and
o companies, regardless of where their securities are traded, that derive 50%
or more of their total revenue from either goods or services produced or
sales made in Pacific Basin countries.
Under normal market conditions, the Fund intends to have at least 65% of its
assets invested in companies in Pacific Basin countries and may have a
significant portion of its assets invested in securities of issuers in Japan.
Criteria for determining the distribution of investments include the prospects
for relative growth among foreign countries, expected levels of inflation,
government policies influencing business conditions and the range of
opportunities available to international investors.
The global equity investment philosophy of BT, the Sub-Advisor, is to exploit
market inefficiencies that arise from differing interpretations of market
information. As a result, in BT's view, a company's share price does not always
represent its true "business value." BT actively invests in those companies that
it believes have been mispriced by investment markets. In order to exploit these
inefficiencies successfully, BT seeks to enhance investment returns through:
o rigorous proprietary stock research which enables their analysts to
understand the:
o quality of the company;
o nature of its management;
o nature of its industry competition; and
o business valuation - the true "business value" of the company;
o maintaining global coverage within the universe of investment choices; and
o maintaining a medium-term focus.
As a result, the Fund's portfolio reflects the opportunities presented by
mispriced companies that offer the potential for strong, long-term investment
returns with an acceptable level of investment risk.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S. companies. These include the risk that a foreign security
could lose value as a result of political, financial and economic events in
foreign countries. Foreign securities may be subject to securities regulators
with less stringent accounting and disclosure standards than are required of
U.S. companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
The Fund anticipates that its portfolio turnover may, on occasion, exceed 100%.
Turnover rates in excess of 100% generally result in higher transaction costs
and a possible increase in short-term capital gains (or losses).
The Fund may invest in securities of companies with small to medium market
capitalizations. While small companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risk and should be considered speculative. Small to mid-sized companies
may pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. The current share price reflects the activities of individual
companies as well as general market and economic conditions. In the short-term,
stock prices can fluctuate dramatically in response to these factors. If the
investor sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.
To the extent that the assets of the Fund are concentrated in securities of
issuers in Japan, the value of the shares of the Fund may be more susceptible to
a single economic, political or regulatory occurrence than shares of a Fund less
concentrated in a single country.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital in Pacific Basin markets who are able to assume the increased
risks of higher price volatility and currency fluctuations associated with
investments in international stocks which trade in non-U.S. currencies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Advisors Advisors
Select Preferred
Class Class
Management Fees.................. 1.00% 1.00%
12b-1 Fees....................... 0.37 0.31
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.75% 1.57%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
Examples
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Advisors Select Class $178 $551
Advisors Preferred Class 160 496
Day-to-day Fund Management
Since December, 2000 Dean Cashman is Executive Vice President of BT and
(Fund's inception) serves as head of Japanese equities. He joined BT in
January 1988, initially involved in the liquids and
fixed interest group, but moved to the European
equity group in late 1989 specializing in the Latin
Block countries including France, Italy and Spain.
He started working on Japanese equities at the end
of 1991 and subsequently took over responsibility
for the group. Mr. Cashman received a degree in
Economics from the University of Queensland.
General Information
THE COSTS OF INVESTING
Fees and Expenses of the Funds
The shares of the Funds are sold without a front-end sales charge and do not
have a contingent deferred sales charge. There is no sales charge on shares of
the Funds purchased with reinvested dividends or other distributions. The Funds
do not pay any fees other than those described below and do not pay any other
expenses.
Ongoing Fees
Each Fund pays ongoing fees to the Manager and others who provide services to
the Fund. They reduce the value of each share. Because they are ongoing fees,
they increase the cost of investing in the Funds. These fees include:
o Management Fee - Through the Management Agreement with the Fund, the
Manager has agreed to provide investment advisory services and corporate
administrative services to the Funds.
o Distribution Fee - Each of the Funds has adopted a distribution plan under
Rule 12b-1 of the 1940 Act for its Advisors Select and Advisors Preferred
share classes. These ongoing fees pay distribution expenses for the sale of
Fund shares by Princor and other selling dealers. Under the plan, each of
those classes of each Fund pays a distribution fee based on the average
daily net asset value (NAV) of the Fund. Over time, these fees may exceed
other types of sales charges.
o Service Fee - The Manager has entered into a Services Agreement with the
Fund under which the Manager performs personal services to shareholders.
o Administrative Service Fee - The Manager has entered into an Administrative
Services Agreement with the Fund under which the Manager provides transfer
agent and corporate administrative services to the Fund. In addition, the
Manager has assumed the responsibility for communications with and
recordkeeping services for beneficial owners of Fund shares.
o Portfolio Accounting Services - The Manager has entered into an agreement
with the Fund under which the Manager supplies portfolio accounting
services. Currently there is no charge for these services.
Conversion Features
Principal Investors Fund will:
o convert all Advisors Select shares held by a plan to Advisors Preferred
shares if the aggregate value of the shares exceeds $10 million on the
annual determination date (which shall be the 75th day (or prior business
day) before the plan year-end);
o convert all Advisors Preferred shares held by a plan to Advisors Select
shares if the aggregate value of the shares is less than $8 million on the
annual determination date;
o effect the conversion on the basis of relative net assets of the two
classes without any charge; and
o make the conversion effective on the 30th day (or next business day) after
the annual determination date.
CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS
The Statement of Additional Information (SAI) contains additional information
about investment strategies and their related risks.
Securities and Investment Practices
Equity securities include common stocks, preferred stocks, convertible
securities, depositary receipts and warrants. Common stocks, the most familiar
type, represent an equity (ownership) interest in a corporation. Although equity
securities have a history of long-term growth in value, their prices fluctuate
based on changes in a company's financial condition and in overall market and
economic conditions. Smaller companies are especially sensitive to these
factors.
Fixed-income securities include bonds and other debt instruments that are used
by issuers to borrow money from investors. The issuer generally pays the
investor a fixed, variable or floating rate of interest. The amount borrowed
must be repaid at maturity. Some debt securities, such as zero coupon bonds, do
not pay current interest, but are sold at a discount from their face values.
Fixed-income securities are sensitive to changes in interest rates. In general,
fixed-income security prices rise when interest rates fall and fall when
interest rates rise. Longer term bonds and zero coupon bonds are generally more
sensitive to interest rate changes.
Fixed-income security prices are also affected by the credit quality of the
issuer. Investment grade debt securities are medium and high quality securities.
Some bonds, such as lower grade or "junk" bonds, may have speculative
characteristics and may be particularly sensitive to economic conditions and the
financial condition of the issuers.
Repurchase Agreements and Loaned Securities
Each of the Funds may invest a portion of its assets in repurchase agreements.
Repurchase agreements typically involve the purchase of debt securities from a
financial institution such as a bank, savings and loan association or
broker-dealer. A repurchase agreement provides that the Fund sells back to the
seller and that the seller repurchases the underlying securities at a specified
price on a specific date. Repurchase agreements may be viewed as loans by a Fund
collateralized by the underlying securities. This arrangement results in a fixed
rate of return that is not subject to market fluctuation while the Fund holds
the security. In the event of a default or bankruptcy by a selling financial
institution, the affected Fund bears a risk of loss. To minimize such risks, the
Fund enters into repurchase agreements only with large, well-capitalized and
well-established financial institutions. In addition, the value of the
collateral underlying the repurchase agreement is always at least equal to the
repurchase price, including accrued interest.
Each of the Funds may lend its portfolio securities to unaffiliated
broker-dealers and other unaffiliated qualified financial institutions.
Currency Contracts
The Funds may each enter into forward currency contracts, currency futures
contracts and options, and options on currencies for hedging and other
non-speculative purposes. A forward currency contract involves a privately
negotiated obligation to purchase or sell a specific currency at a future date
at a price set in the contract. A Fund will not hedge currency exposure to an
extent greater than the aggregate market value of the securities held or to be
purchased by the Fund (denominated or generally quoted or currently convertible
into the currency).
Hedging is a technique used in an attempt to reduce risk. If a Fund's
Sub-Advisor hedges market conditions incorrectly or employs a strategy that does
not correlate well with the Fund's investment, these techniques could result in
a loss. These techniques may increase the volatility of a Fund and may involve a
small investment of cash relative to the magnitude of the risk assumed. In
addition, these techniques could result in a loss if the other party to the
transaction does not perform as promised. There is also a risk of government
action through exchange controls that would restrict the ability of the Fund to
deliver or receive currency.
Forward Commitments
Each of the Funds may enter into forward commitment agreements. These agreements
call for the Fund to purchase or sell a security on a future date at a fixed
price. Each of the Funds may also enter into contracts to sell its investments
either on demand or at a specific interval.
Warrants
Each of the Funds may invest up to 5% of its assets in warrants. A warrant is a
certificate granting its owner the right to purchase securities from the issuer
at a specified price, normally higher than the current market price.
Risks of High Yield Securities
The Balanced and Bond & Mortgage Securities Funds may invest in debt securities
rated lower than BBB by S&P or Baa by Moody's or, if not rated, determined to be
of equivalent quality by the Sub-Advisor. Such securities are sometimes referred
to as high yield or "junk bonds" and are considered speculative.
Investment in high yield bonds involves special risks in addition to the risks
associated with investment in highly rated debt securities. High yield bonds may
be regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments. Moreover, such securities may,
under certain circumstances, be less liquid than higher rated debt securities.
Analysis of the creditworthiness of issuers of high yield securities may be more
complex than for issuers of higher quality debt securities. The ability of a
Fund to achieve its investment objective may, to the extent of its investment in
high yield bonds, be more dependent on such credit analysis than would be the
case if the Fund were investing in higher quality bonds.
High yield bonds may be more susceptible to real or perceived adverse economic
and competitive industry conditions than higher grade bonds. The prices of high
yield bonds have been found to be less sensitive to interest rate changes than
more highly rated investments, but more sensitive to adverse economic downturns
or individual corporate developments. If the issuer of high yield bonds
defaults, a Fund may incur additional expenses to seek recovery.
The secondary market on which high yield bonds are traded may be less liquid
than the market for higher grade bonds. Less liquidity in the secondary trading
market could adversely affect the price at which a Fund could sell a high yield
bond and could adversely affect and cause large fluctuations in the daily price
of the Fund's shares. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the value and liquidity of high
yield bonds, especially in a thinly traded market.
The use of credit ratings for evaluating high yield bonds also involves certain
risks. For example, credit ratings evaluate the safety of principal and interest
payments, not the market value risk of high yield bonds. Also, credit rating
agencies may fail to change credit ratings in a timely manner to reflect
subsequent events. If a credit rating agency changes the rating of a portfolio
security held by a Fund, the Fund may retain the security if the Sub-Advisor
thinks it is in the best interest of shareholders.
Derivatives
To the extent permitted by its investment objectives and policies, each of the
Funds may invest in securities that are commonly referred to as derivative
securities. Generally, a derivative is a financial arrangement, the value of
which is derived from, or based on, a traditional security, asset, or market
index. Certain derivative securities are described more accurately as
index/structured securities. Index/structured securities are derivative
securities whose value or performance is linked to other equity securities (such
as depositary receipts), currencies, interest rates, indices or other financial
indicators (reference indices).
Some derivatives, such as mortgage-related and other asset-backed securities,
are in many respects like any other investment, although they may be more
volatile or less liquid than more traditional debt securities.
There are many different types of derivatives and many different ways to use
them. Futures and options are commonly used for traditional hedging purposes to
attempt to protect a Fund from exposure to changing interest rates, securities
prices, or currency exchange rates and for cash management purposes as a
low-cost method of gaining exposure to a particular securities market without
investing directly in those securities.
No Fund may invest in a derivative security unless the reference index or the
instrument to which it relates is an eligible investment for the Fund. For
example, a security whose underlying value is linked to the price of oil would
not be a permissible investment because the Funds may not invest in oil leases
or futures.
The return on a derivative security may increase or decrease, depending upon
changes in the reference index or instrument to which it relates. The risks
associated with derivative investments include:
o the risk that the underlying security, interest rate, market index or other
financial asset will not move in the direction the Sub-Advisor anticipated;
o the possibility that there may be no liquid secondary market which may make
it difficult or impossible to close out a position when desired;
o the risk that adverse price movements in an instrument can result in a loss
substantially greater than a Fund's initial investment; and
o the counterparty may fail to perform its obligations.
Foreign Securities
Each of the following Funds may invest in securities of foreign companies. For
the purpose of this restriction, foreign companies are:
o companies with their principal place of business or principal office
outside the U.S.; and
o companies for which the principal securities trading market is outside the
U.S.
The European Equity, International I, International II, International Emerging
Markets, International SmallCap, Pacific Basin and Technology Funds each may
invest up to 100% of its assets in foreign securities. Each of the LargeCap S&P
500 Index, MidCap S&P 400 Index and SmallCap S&P 600 Index Funds may invest in
foreign securities to the extent that its relevant index is so invested. The
other Funds (except Government Securities) may each invest up to 25% of its
assets in foreign securities.
Foreign companies may not be subject to the same uniform accounting, auditing
and financial reporting practices as are required of U.S. companies. In
addition, there may be less publicly available information about a foreign
company than about a U.S. company. Securities of many foreign companies are less
liquid and more volatile than securities of comparable U.S. companies.
Commissions on foreign securities exchanges may be generally higher than those
on U.S. exchanges, although each Fund seeks the most favorable net results on
its portfolio transactions.
Foreign markets also have different clearance and settlement procedures than
those in U.S. markets. In certain markets there have been times when settlements
have been unable to keep pace with the volume of securities transactions, making
it difficult to conduct these transactions. Delays in settlement could result in
temporary periods when a portion of Fund assets is not invested and earning no
return. If a Fund is unable to make intended security purchases due to
settlement problems, the Fund may miss attractive investment opportunities. In
addition, a Fund may incur a loss as a result of a decline in the value of its
portfolio if it is unable to sell a security.
With respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments that could affect a Fund's investments in those
countries. In addition, a Fund may also suffer losses due to nationalization,
expropriation or differing accounting practices and treatments. Investments in
foreign securities are subject to laws of the foreign country that may limit the
amount and types of foreign investments. Changes of governments or of economic
or monetary policies, in the U.S. or abroad, changes in dealings between
nations, currency convertibility or exchange rates could result in investment
losses for a Fund. Finally, even though certain currencies may be convertible
into U.S. dollars, the conversion rates may be artificial relative to the actual
market values and may be unfavorable to Fund investors.
Foreign securities are often traded with less frequency and volume, and
therefore may have greater price volatility, than is the case with many U.S.
securities. Brokerage commissions, custodial services, and other costs relating
to investment in foreign countries are generally more expensive than in the U.S.
Though the Funds intend to acquire the securities of foreign issuers where there
are public trading markets, economic or political turmoil in a country in which
a Fund has a significant portion of its assets or deterioration of the
relationship between the U.S. and a foreign country may negatively impact the
liquidity of a Fund's portfolio. A Fund may have difficulty meeting a large
number of redemption requests. Furthermore, there may be difficulties in
obtaining or enforcing judgments against foreign issuers.
A Fund may choose to invest in a foreign company by purchasing depositary
receipts. Depositary receipts are certificates of ownership of shares in a
foreign based issuer held by a bank or other financial institution. They are
alternatives to purchasing the underlying security but are subject to the
foreign securities to which they relate.
Investments in companies of developing countries may be subject to higher risks
than investments in companies in more developed countries. These risks include:
o increased social, political and economic instability;
o a smaller market for these securities and low or nonexistent volume of
trading that results in a lack of liquidity and in greater price
volatility;
o lack of publicly available information, including reports of payments of
dividends or interest on outstanding securities;
o foreign government policies that may restrict opportunities, including
restrictions on investment in issuers or industries deemed sensitive to
national interests; o relatively new capital market structure or
market-oriented economy;
o the possibility that recent favorable economic developments may be slowed
or reversed by unanticipated political or social events in these countries;
o restrictions that may make it difficult or impossible for the Fund to vote
proxies, exercise shareholder rights, pursue legal remedies, and obtain
judgments in foreign courts; and
o possible losses through the holding of securities in domestic and foreign
custodial banks and depositories.
In addition, many developing countries have experienced substantial, and in some
periods, extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of those countries.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. A Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for
repatriation.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade.
Securities of Smaller Companies
The Funds may invest in securities of companies with small- or mid-sized market
capitalizations. Market capitalization is defined as total current market value
of a company's outstanding common stock. Investments in companies with smaller
market capitalizations may involve greater risks and price volatility (wide,
rapid fluctuations) than investments in larger, more mature companies. Smaller
companies may be less mature than larger companies. At this earlier stage of
development, the companies may have limited product lines, reduced market
liquidity for their shares, limited financial resources or less depth in
management than larger or more established companies. Small companies also may
be less significant within their industries and may be at a competitive
disadvantage relative to their larger competitors. While smaller companies may
be subject to these additional risks, they may also realize more substantial
growth than larger or more established companies.
Unseasoned Issuers
The Funds may invest in the securities of unseasoned issuers. Unseasoned issuers
are companies with a record of less than three years continuous operation,
including the operation of predecessors and parents. Unseasoned issuers by their
nature have only a limited operating history that can be used for evaluating the
company's growth prospects. As a result, investment decisions for these
securities may place a greater emphasis on current or planned product lines and
the reputation and experience of the company's management and less emphasis on
fundamental valuation factors than would be the case for more mature growth
companies. In addition, many unseasoned issuers also may be small companies and
involve the risks and price volatility associated with smaller companies.
Temporary Defensive Measures
For temporary defensive purposes in times of unusual or adverse market
conditions, the Funds may invest without limit in cash and cash equivalents. For
this purpose, cash equivalents include: bank notes, 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. In addition, a Fund may purchase U.S. Government securities,
preferred stocks and debt securities, whether or not convertible into or
carrying rights for common stock.
There is no limit on the extent to which the Funds may take temporary defensive
measures. In taking such measures, the Funds may fail to achieve their
investment objective.
Portfolio Turnover
"Portfolio Turnover" is the term used in the industry for measuring the amount
of trading that occurs in a Fund's portfolio during the year. For example, a
100% turnover rate means that on average every security in the portfolio has
been replaced once during the year.
Funds with high turnover rates (more than 100%) often have higher transaction
costs (which are paid by the Fund) and may generate short-term capital gains (on
which taxes may be imposed even if no shares of the Fund are sold during the
year). No turnover rate can be calculated for the Money Market Fund because of
the short maturities of the securities in which it invests. No turnover rates
are calculated for the other Funds as they have been in existence for less than
six months.
Please consider all the factors when you compare the turnover rates of different
funds. A fund with consistently higher total returns and higher turnover rates
than another fund may actually be achieving better performance precisely because
the managers are active traders.
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
The Manager
Principal Management Corporation serves as the Manager for the Fund. Through the
Management Agreement with the Fund, the Manager has agreed to handle the
investment advisory services and provide certain corporate administrative
services for the Fund. The Fund and the Manager have also entered into a Service
Agreement under which the Manager provides personal services to shareholders of
each Fund. Additionally, the Fund and the Manager have entered into an
Administrative Services Agreement under which the Manager has agreed to provide
transfer agency services and certain shareholder services for beneficial owners
of Advisors Select, Advisors Preferred, Select and Preferred Fund classes of
shares. The Fund and the Manager have entered into a Portfolio Accounting
Services Agreement under which the Manager provides portfolio accounting
services.
The Manager is an indirect subsidiary of Principal Financial Services, Inc. and
has managed mutual funds since 1969. As of October 31, 2000, the mutual funds it
manages had assets of approximately $6.6 billion. The Manager's address is
Principal Financial Group, Des Moines, Iowa 50392-0200.
The Sub-Advisors
The Manager has signed contracts with various Sub-Advisors. Under the
Sub-Advisory agreements, the Sub-Advisor agrees to assume the obligations of the
Manager to provide investment advisory services for a specific Fund. For these
services, the Sub-Advisor is paid a fee by the Manager.
Funds: Balanced (equity securities portion), International I,
International Emerging Markets, International SmallCap,
LargeCap Blend, LargeCap Growth, LargeCap S&P 500 Index,
LargeCap Value, MidCap Blend, MidCap Growth, MidCap S&P 400
Index, MidCap Value, SmallCap Blend, SmallCap Growth, SmallCap
S&P 600 Index and SmallCap Value
Sub-Advisor: Invista Capital Management, LLC ("Invista"), an indirect
wholly-owned subsidiary of Principal Life Insurance Company
and an affiliate of the Manager, was founded in 1985. It
manages investments for institutional investors, including
Principal Life. Assets under management as of September 30,
2000, were approximately $29.7 billion. Invista's address is
1800 Hub Tower, 699 Walnut, Des Moines, Iowa 50309.
Funds: Balanced (fixed-income portion), Bond & Mortgage Securities,
Government Securities, High Quality Short-Term Bond, High
Quality Intermediate-Term Bond, High Quality Long-Term Bond
and Money Market
Sub-Advisor: Principal Capital Income Investors, LLC ("PCII"), an indirect
wholly-owned subsidiary of Principal Life Insurance Company
and an affiliate of the Manager, was founded in 2000. It
manages investments for institutional investors, including
Principal Life Insurance Company. Assets under management as
of September 30, 2000, were approximately $31.1 billion.
PCII's address is 1800 Hub Tower, 699 Walnut, Des Moines, Iowa
50309.
Fund: Real Estate
Sub-Advisor: Principal Capital Real Estate Investors, LLC ("PCREI"), an
indirect wholly-owned subsidiary of Principal Life Insurance
Company and an affiliate of the Manager, was founded in 2000.
It manages investments for institutional investors, including
Principal Life Insurance Company. Assets under management as
of September 30, 2000, were approximately $20.7 billion.
PCREI's address is 1800 Hub Tower, 699 Walnut, Des Moines,
Iowa 50309.
Funds: European, International II, Pacific Basin and Technology
Sub-Advisor: BT Funds Management (International) Limited ("BT") is a
related company of BT Funds Management Limited ("BTFM") and a
member of the Principal Financial Group. Its address is The
Chifley Tower, 2 Chifley Square, Sydney NSW 2000 Australia. As
of October 31,2000, BT, together with BTFM, had approximately
$23.8 billion under management.
Fund: Partners LargeCap Growth I
Sub-Advisor: Morgan Stanley Asset Management ("Morgan Stanley"), with
principal offices at 1221 Avenue of the Americas, New York, NY
10020, conducts a worldwide portfolio management business and
provides a broad range of portfolio management services to
customers in the U.S. and abroad. As of September 30, 2000,
Morgan Stanley, together with its affiliated institutional
asset management companies, managed investments totaling
approximately $176.8 billion as named fiduciary or fiduciary
adviser. On December 1, 1998, Morgan Stanley Asset Management
Inc. changed its name to Morgan Stanley Dean Witter Investment
Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
Fund: Partners MidCap Growth
Sub-Advisor: Turner Investment Partners, Inc. ("Turner") was founded in
1990. Its address is 1235 Westlake Drive, Suite 350, Berwyn,
PA 19312. As of October 31, 2000, Turner had discretionary
management authority with respect to approximately $11.7
billion in assets.
Fund: Partners LargeCap Value
Sub-Advisor: Alliance Capital Management L.P. ("Alliance") through its
Bernstein Investment Research and Management unit
("Bernstein"). As of September 30, 2000, Alliance managed $470
billion in assets. Bernstein is located at 767 Fifth Avenue,
New York, NY 10153 and Alliance is located at 1345 Avenue of
the Americas, New York, NY 10105.
Funds: Partners MidCap Value and Partners SmallCap Growth I
Sub-Advisor: Neuberger Berman Management Inc. ("Neuberger Berman") is an
affiliate of Neuberger Berman, LLC. Neuberger Berman LLC is
located at 605 Third Avenue, 2nd Floor, New York, NY
10158-0180. Together with Neuberger Berman, the firms manage
more than $56.5 billion in total assets (as of September 30,
2000) and continue an asset management history that began in
1939.
Funds: Partners LargeCap Blend and Partners SmallCap Growth II
Sub-Advisor: Federated Investment Management Company ("Federated") is a
registered investment adviser and a wholly-owned subsidiary of
Federated Investors, Inc., which was founded in 1955.
Federated is located in the Federated Investors Tower at 1001
Liberty Avenue, Pittsburgh, PA 15222-3779. As of October 31,
2000, Federated managed $131 billion in assets.
Fund: Partners LargeCap Growth II
Sub-Advisor: American Century Investment Management, Inc. ("American
Century") was founded in 1958. Its office is located in the
American Century Tower at 4500 Main Street, Kansas City, KS
64111. As of October 31, 2000, American Century managed over
$109.7 billion in assets.
Duties of Manager and Sub-Advisors
The Manager or Sub-Advisor provides the Board of Directors of the Fund with a
recommended investment program. The program must be consistent with the Fund's
investment objective and policies. Within the scope of the approved investment
program, the Manager or Sub-Advisor advises the Fund on its investment policy
and determines which securities are bought and sold, and in what amounts.
The Manager is paid a fee by the Fund for its services, which includes any fee
paid to the Sub-Advisor.
Principal Investors Fund and the Manager, under an order received from the SEC,
may enter into and materially amend agreements with Sub-Advisors without
obtaining shareholder approval. For any Fund that is relying on that order, the
Manager may:
o hire one or more Sub-Advisors;
o change Sub-Advisors; and
o reallocate management fees between itself and Sub-Advisors.
The Manager will continue to have the ultimate responsibility for the investment
performance of these Funds due to its responsibility to oversee Sub-Advisors and
recommend their hiring, termination and replacement. No Fund will rely on the
order until it receives approval from its shareholders or, in the case of a new
Fund, the Fund's sole initial shareholder before the Fund is available to the
public, and the Fund states in its prospectus that it intends to rely on the
order. The Manager will not enter into an agreement with an affiliated
Sub-Advisor for a Fund that is relying on the order without that agreement,
including the compensation to be paid under it, being similarly approved. The
Partners LargeCap Blend Fund, Partners LargeCap Growth Fund I, Partners LargeCap
Growth Fund II, Partners LargeCap Value Fund, Partners MidCap Growth Fund,
Partners MidCap Value, Partners SmallCap Growth Fund I and Partners SmallCap
Growth Fund II have received the necessary shareholder approval and intend to
rely on the order.
SHAREHOLDER INFORMATION
Pricing of Fund Shares
Each Fund's shares are bought and sold at the current NAV. The share price of
each class of each Fund is calculated each day the New York Stock Exchange
(NYSE) is open. The NAV is determined at the close of business of the Exchange
(normally 3:00 p.m. Central time). When an order to buy or sell shares is
received, the NAV used to fill the order is the next price calculated after the
order is received.
For all Funds except the Money Market Fund, the NAV is calculated by:
o taking the current market value of the total assets of the Fund
o subtracting liabilities of the Fund
o dividing the remainder proportionately into the classes of the Fund
o subtracting the liabilities of each class
o dividing the remainder by the total number of shares owned in that class.
The securities of the Money Market Fund are valued at amortized cost. The
calculation procedure is described in the SAI. The Money Market Fund reserves
the right to determine a share price more than once each day.
NOTES:
o If current market values are not readily available for a security owned by
a Fund, its fair value is determined using a policy adopted by the Fund's
Board of Directors.
o A Fund's securities may be traded on foreign securities markets that
generally complete trading at various times during the day prior to the
close of the NYSE. The values of foreign securities used in computing share
price are determined at the time the foreign market closes. Occasionally,
events affecting the value of foreign securities occur when the foreign
market is closed and the NYSE is open. The NAV of a Fund investing in
foreign securities may change on days when shareholders are unable to
purchase or redeem shares. If the Sub-Advisor believes that the market
value is materially affected, the share price will be calculated using the
policy adopted by the Fund.
o Certain securities issued by companies in emerging market countries may
have more than one quoted valuation at any point in time. These may be
referred to as local price and premium price. The premium price is often a
negotiated price that may not consistently represent a price at which a
specific transaction can be effected. The European, International I,
International II, International Emerging Markets, International SmallCap
and Pacific Basin Funds each has a policy to value such securities at a
price at which the Sub-Advisor expects the securities may be sold.
Purchase of Fund Shares
Shares may be purchased:
o via the internet.
o standard method of accepting data for plans with fewer than 1,000
current and terminated (within the last five years) members.
o available 7 days a week (7 a.m. to 9 p.m. Central Time).
o using a modem.
o plan contributions transferred electronically.
o standard method of accepting data for plans with more than 1,000
current and terminated (within the last five years) members.
o available 24 hours a day, 7 days a week.
To eliminate the need for safekeeping, the Funds will not issue certificates for
shares. The Funds may periodically close to new purchases of shares or refuse
any order to buy shares if the Manager determines that doing so would be in the
best interests of the Fund and its shareholders.
Redemption of Fund Shares
Subject to any restrictions imposed by a plan, shares may be sold back to the
Fund any day the NYSE is open. For more information about how to sell shares of
the Fund, including any charges that a plan may impose, please consult the plan.
The Fund generally sends payment for shares sold the business day after the sell
order is received. Under unusual circumstances, the Fund may suspend
redemptions, or postpone payment for more than seven days, as permitted by
federal securities law.
Exchange of Fund Shares
An exchange between Funds is a sale of shares in one Fund and purchase of shares
of another Fund with the redemption proceeds. Subject to any restrictions a plan
imposes, shares in the Funds may be exchanged, without charge, for the same
class of any other Principal Investors Fund, provided that:
o the class shares of such other Fund are available in the plan member's state
of residence; and o shares of such other Fund are available through the plan.
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 under other circumstances where the Board of Directors of the Fund
or the Manager believes it is in the best interests of the Fund, the Fund
reserves the right to revise or terminate the exchange privilege, limit the
amount or number of exchanges, reject any exchange or close the account.
Notification of any such action will be given to the extent required by law.
Dividends and Distributions
The High Quality Short-Term Bond, Bond & Mortgage Securities, Government
Securities, High Quality Intermediate-Term Bond and High Quality Long-Term Bond
Funds pay most of their net dividend income on a monthly basis. Payments are
made to shareholders of record on the business day prior to the payment date.
The payment date is December 23 (or previous business day).
The other Funds (other than the Money Market Fund) pay most of their net
dividend income once each year. Payments are made to shareholders of record on
the business day prior to the payment date. The payment date is December 23 (or
previous business day).
Net realized capital gains, if any, are distributed annually. Generally the
distribution is made on the fourth business day of December. Payments are made
to shareholders of record on the business day prior to the payable date. Capital
gains may be taxable at different rates, depending on the length of time that
the Fund holds its assets.
The Money Market Fund declares dividends of all its daily net investment income
each day its shares are priced. The dividends are paid daily and are
automatically reinvested back into additional shares of the Money Market Fund.
Under normal circumstances, the Money Market Fund intends to hold portfolio
securities until maturity and value them at amortized cost. Therefore, the Money
Market Fund does not expect any capital gains or losses. Should there be any
gain, it could result in an increase in dividends. A capital loss could result
in a dividend decrease.
Dividend and capital gain distributions from a Fund are reinvested in additional
shares of the Fund making the distribution.
Generally, for federal income tax purposes, Fund distributions are taxable as
ordinary income, except that any distributions of long-term capital gains will
be taxed as such regardless of how long Fund shares have been held. However,
distributions by the Fund to retirement plans that qualify for tax-exempt
treatment under federal income tax laws will not be taxable. Special tax rules
apply to investments by such plans.
A tax advisor should be consulted to determine the suitability of the Fund as an
investment by such a plan and the tax treatment of distributions by the Fund. A
tax advisor can also provide information on the potential impact of possible
foreign, state and local taxes. A Fund's investments in foreign securities may
be subject to foreign withholding taxes. In that case, the Fund's yield on those
securities would be decreased.
A Fund's investments in certain debt obligations may cause the Fund to recognize
taxable income in excess of the cash generated by such obligations. Thus, the
Fund could be required at times to liquidate other investments in order to
satisfy its distribution requirement.
FUND ACCOUNT INFORMATION
Statements
Unless the plan elects to receive statements on a semiannual or annual basis,
statements are sent each calendar quarter. The statements provide the number and
value of shares owned by the plan, transactions during the quarter, dividends
declared or paid and other information.
This information may also be accessed by accessing www.principal.com.
Minimum Account Balance
The Principal Investors Fund reserves the right to set a minimum and redeem all
shares in the Fund if the value of a plan's investments in the Funds is less
than the minimum. Principal Investors Fund has set the minimum at $2.5 million.
The redemption proceeds would then be mailed to the plan sponsor. If the Fund
exercises this right, the plan sponsor will be notified that the redemption is
going to be made. The plan will have 30 days to make an additional investment
and bring plan assets up to the required minimum. The Fund reserves the right to
change the minimum.
Reservation of Rights
The Principal Investors Fund reserves the right to amend or terminate the
special plans described in this prospectus. In addition, Principal Investors
Fund reserves the right to change the share classes described herein.
Shareholders will be notified of any such action to the extent required by law.
Financial Statements
Plans will receive annual financial statements for the Funds, examined by the
Funds' independent auditors, Ernst & Young LLP. Plans will also receive a
semiannual financial statement that is unaudited.
Appendix A
PERFORMANCE RESULTS - STABLE FUNDS
<TABLE>
<CAPTION>
Average Annual Performance
(through September 30, 2000)
YTD 1 YR 3 YR 5 YR 10 YR
High Quality Short-Term Bond Fund Advisors Select*
High Quality Short-Term Bond Fund Advisors Preferred*
<S> <C> <C> <C> <C> <C>
PCII High Quality Short-Term Bond Composite 5.66 5.96 5.03
Lehman Brothers Mutual Fund 1-5 Gov't/Credit Index 0.93 6.10 5.76 6.04 6.95
Average Short-Term Bond Category (Morningstar) 5.25 5.98 5.05 5.41 6.47
</TABLE>
<TABLE>
<CAPTION>
Annual Performance
(year ended December 31)
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
High Quality Short-Term Bond Fund Advisors Select*
High Quality Short-Term Bond Fund Advisors Preferred*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PCII High Quality Short-Term Bond Composite 1.05 6.79 6.64
Lehman Brothers Mutual Fund 1-5 Gov't/Credit Index 2.09 7.63 7.13 4.67 12.88 -0.72 7.10 6.83 13.17 9.71
Average Short-Term Bond Category (Morningstar) 2.12 6.28 6.51 4.35 11.48 -0.86 6.86 6.15 13.43 7.98
</TABLE>
*Fund's inception 12/6/00.
PERFORMANCE RESULTS - CONSERVATIVE FUNDS
<TABLE>
<CAPTION>
Average Annual Performance
(through September 30, 2000)
YTD 1 YR 3 YR 5 YR 10 YR
Bond & Mortgage Securities Fund Advisors Select*
Bond & Mortgage Securities Fund Advisors Preferred*
<S> <C> <C> <C> <C> <C>
PCII Multi-Sector Composite 7.31 7.04 5.74 6.60 8.34
Lehman Brothers Aggregate Bond Index 0.63 6.99 5.93 6.47 8.05
Average Intermediate-Term Bond Category (Morningstar) 5.61 5.90 4.70 5.55 7.61
Government Securities Fund Advisors Select*
Government Securities Fund Advisors Preferred*
PCII Mortgage-Backed Broad Composite 6.94 7.05 5.75 6.47 7.90
Lehman Brothers Mortgage Backed Securities Index 1.04 7.42 6.07 6.80 7.93
Average Intermediate Government Category (Morningstar) 6.28 6.29 4.87 5.43 6.97
High Quality Intermediate-Term Bond Fund
Advisors Select*
High Quality Intermediate-Term Bond Fund
Advisors Preferred*
PCII High Quality Intermediate-Term Bond Composite 6.48 6.54 5.58
Lehman Brothers Aggregate Bond Index 0.63 6.99 5.93 6.47 8.05
Average Intermediate-Term Bond Category (Morningstar) 5.61 5.90 4.70 5.55 7.61
High Quality Long-Term Bond Fund Advisors Select*
High Quality Long-Term Bond Fund Advisors Preferred*
PCII High Quality Long-Term Bond Composite 4.42 3.61 3.82
Lehman Brothers Long Term Gov't./Corporate Bond Index -0.89 7.94 6.18 6.90 9.74
Average Long-Term Bond Category (Morningstar) 5.32 5.38 3.96 5.56 8.08
</TABLE>
<TABLE>
<CAPTION>
Annual Performance
(year ended December 31)
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
Bond & Mortgage Securities Fund Advisors Select*
Bond & Mortgage Securities Fund Advisors Preferred*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PCII Multi-Sector Composite -0.57 7.97 10.16 3.94 18.41 -2.05 10.67 8.25 15.89 9.49
Lehman Brothers Aggregate Bond Index -0.82 8.69 9.65 3.63 18.47 -2.92 9.75 7.40 16.00 8.96
Average Intermediate-Term Bond Category (Morningstar) -1.22 7.42 8.76 3.30 17.35 -3.73 10.39 7.20 16.62 6.66
Government Securities Fund Advisors Select*
Government Securities Fund Advisors Preferred*
PCII Mortgage-Backed Broad Composite 0.22 7.62 9.97 3.90 19.10 -4.41
Lehman Brothers Mortgage Backed Securities Index 1.85 6.97 9.49 5.36 16.80 -1.61 6.84 6.96 15.72 10.72
Average Intermediate Government Category (Morningstar) -1.44 7.45 8.45 2.80 16.42 -4.02 8.03 6.39 14.67 8.89
High Quality Intermediate-Term Bond Fund
Advisors Select*
High Quality Intermediate-Term Bond Fund
Advisors Preferred*
PCII High Quality Intermediate-Term Bond Composite -0.57 8.28 9.32
Lehman Brothers Aggregate Bond Index -0.82 8.69 9.65 3.63 13.47 -2.92 9.75 7.40 16.00 8.96
Average Intermediate-Term Bond Category (Morningstar) -1.22 7.42 8.76 3.30 17.35 -3.73 10.39 7.20 16.62 6.66
High Quality Long-Term Bond Fund Advisors Select*
High Quality Long-Term Bond Fund Advisors Preferred*
PCII High Quality Long-Term Bond Composite -7.41 10.39 4.85
Lehman Brothers Long Term Gov't./Corporate Bond Index -7.64 11.76 14.52 0.13 29.93 -7.10 16.17 8.53 19.53 6.42
Average Long-Term Bond Category (Morningstar) -2.78 6.51 10.53 3.54 21.33 -6.13 13.34 7.98 17.15 5.74
</TABLE>
*Fund's inception 12/6/00.
PERFORMANCE RESULTS - MODERATE FUNDS
<TABLE>
<CAPTION>
Average Annual Performance
(through September 30, 2000)
YTD 1 YR 3 YR 5 YR 10 YR
Balanced Fund Advisors Select*
Balanced Fund Advisors Preferred*
<S> <C> <C> <C> <C> <C>
Invista Balanced Composite -0.01 5.50 6.81 14.89
PCII Multi-Sector Composite 7.31 7.04 5.74 6.60 8.34
S&P 500 Index -5.28 13.28 16.44 21.69 19.44
Lehman Brothers Aggregate Bond Index 0.63 6.99 5.93 6.47 8.05
Average Domestic Hybrid Category (Morningstar) 3.67 11.72 8.43 12.23 12.46
LargeCap Blend Fund Advisors Select*
LargeCap Blend Fund Advisors Preferred*
Invista Large Cap Composite -4.06 3.77 10.36 17.94
S&P 500 Index -5.28 13.28 16.44 21.69 19.44
Average LargeCap Blend Category (Morningstar) 0.77 17.07 14.25 18.74 17.40
Partners LargeCap Blend Fund Advisors Select*
Partners LargeCap Blend Fund Advisors Preferred*
Federated Capital Appreciation Composite 2.54 34.42 22.23 24.43 20.83
S&P 500 Index -5.28 13.28 16.44 21.69 19.44
Average LargeCap Blend Category (Morningstar) 0.77 17.07 14.25 18.74 17.40
LargeCap Growth Fund Advisors Select*
LargeCap Growth Fund Advisors Preferred*
Invista Large Cap Growth Composite 8.63
S&P/BARRA 500 Growth Index -9.76 12.04 20.87 24.98 20.94
Average LargeCap Growth Category (Morningstar) 2.80 31.95 22.86 22.63 20.05
Partners LargeCap Growth Fund I Advisors Select*
Partners LargeCap Growth Fund I Advisors Preferred*
Morgan Stanley Equity Growth Composite 3.95 26.74 2.07 27.60 23.75
S&P 500 Index -5.28 13.28 16.44 21.69 19.44
Average LargeCap Growth Category (Morningstar) 2.80 31.95 22.86 22.63 20.05
Partners LargeCap Growth Fund II Advisors Select*
Partners LargeCap Growth Fund II Advisors Preferred*
American Century Growth Composite 2.45 26.64 22.27 20.79 19.61
Russell 1000 Growth Index -9.46 23.43 23.97 25.07
Average LargeCap Growth Category (Morningstar) 2.80 31.95 22.86 22.63 20.05
LargeCap S&P 500 Index Fund Advisors Select*
LargeCap S&P 500 Index Fund Advisors Preferred*
Invista S&P 500 Index Composite -1.70 12.84 16.02 21.25
S&P 500 Index -5.28 13.28 16.44 21.69 19.44
Average LargeCap Blend Category (Morningstar) 0.77 17.07 14.25 18.74 17.40
LargeCap Value Fund Advisors Select*
LargeCap Value Fund Advisors Preferred*
Invista Large Cap Value Composite -0.22 -1.67 5.66 13.77
S&P/BARRA 500 Value Index -0.02 13.75 11.31 17.90 17.55
Average LargeCap Value Category (Morningstar) 2.83 10.78 7.41 14.67 15.19
Partners LargeCap Value Fund Advisors Select*
Partners LargeCap Value Fund Advisors Preferred*
Sanford C. Bernstein Diversified Value Composite 3.50 5.00
Russell 1000 Value Index 0.91 8.91 10.23 17.59
Average LargeCap Value Category (Morningstar) 2.83 10.78 7.41 14.67 15.19
MidCap Value Fund Advisors Select*
MidCap Value Fund Advisors Preferred*
Invista Mid Cap Value Composite 3.74 3.08 2.12 11.44
S&P/BARRA 400 Value Index 16.95 25.46 9.69 16.02
Average MidCap Value Category (Morningstar) 9.56 17.35 5.97 13.69 14.89
Partners MidCap Value Fund Advisors Select*
Partners MidCap Value Fund Advisors Preferred*
Neuberger Berman MidCap Value Composite 21.79 35.08 4.73 15.66 16.60
Russell Midcap Value Index 0.96 13.00 5.96 14.07 17.81
Average MidCap Value Category (Morningstar) 9.56 17.35 5.97 13.69 14.89
Real Estate Fund Advisors Select*
Real Estate Fund Advisors Preferred*
PCREI Real Estate Composite 26.58 24.32 3.24
Morgan Stanley REIT Index 3.08 21.25 -0.73 10.27
</TABLE>
<TABLE>
<CAPTION>
Annual Performance
(year ended December 31)
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
Balanced Fund Advisors Select*
Balanced Fund Advisors Preferred*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Invista Balanced Composite 2.20 12.17 20.03 10.69 26.88 -1.63 14.25 10.73 27.19
PCII Multi-Sector Composite -0.57 7.97 10.16 3.94 18.41 -2.05 10.67 8.25 15.89 9.49
S&P 500 Index 21.04 28.58 33.36 22.96 37.58 1.32 10.08 7.62 30.47 -3.10
Lehman Brothers Aggregate Bond Index -0.82 8.69 9.65 3.63 18.47 -2.92 9.75 7.40 16.00 8.96
Average Domestic Hybrid Category (Morningstar) 8.24 12.50 18.24 13.07 24.87 -2.56 12.07 8.22 23.87 -0.09
LargeCap Blend Fund Advisors Select*
LargeCap Blend Fund Advisors Preferred*
Invista Large Cap Composite 9.57 24.70 29.66 24.35
S&P 500 Index 21.04 28.58 33.36 22.96 37.58 1.32 10.08 7.62 30.47 -3.10
Average LargeCap Blend Category (Morningstar) 19.72 21.95 27.43 20.37 31.99 -1.08 11.12 7.62 32.13 -3.34
Partners LargeCap Blend Fund Advisors Select*
Partners LargeCap Blend Fund Advisors Preferred*
Federated Capital Appreciation Composite 43.39 20.08 30.62 18.39 37.17 -0.30 11.31 11.37 27.43 -4.43
S&P 500 Index 21.04 28.58 33.36 22.96 37.58 1.32 10.08 7.62 30.47 -3.10
Average LargeCap Blend Category (Morningstar) 19.72 21.95 27.43 20.37 31.99 -1.08 11.12 7.62 32.13 -3.34
LargeCap Growth Fund Advisors Select*
LargeCap Growth Fund Advisors Preferred*
Invista Large Cap Growth Composite
S&P/BARRA 500 Growth Index 28.25 42.15 36.38 23.98 38.13 3.13 1.68 5.07 38.37 0.20
Average LargeCap Growth Category (Morningstar) 39.72 33.56 25.00 18.95 32.27 -2.32 10.31 5.83 43.69 -2.12
Partners LargeCap Growth Fund I Advisors Select*
Partners LargeCap Growth Fund I Advisors Preferred*
Morgan Stanley Equity Growth Composite 39.42 21.11 31.40 31.23 45.03 3.18 4.32 5.99 25.54 -2.92
S&P 500 Index 21.04 28.58 33.36 22.96 37.58 1.32 10.08 7.62 30.47 -3.10
Average LargeCap Growth Category (Morningstar) 39.72 33.56 25.00 18.95 32.27 -2.32 10.31 5.83 43.69 -2.12
Partners LargeCap Growth Fund II Advisors Select*
Partners LargeCap Growth Fund II Advisors Preferred*
American Century Growth Composite 34.68 36.77 29.28 14.92 20.35 -1.49 3.76 -4.29 69.02 -3.83
Russell 1000 Growth Index 33.16 38.71 30.49 23.12 37.19 2.66 2.90 5.00 41.16 -0.26
Average LargeCap Growth Category (Morningstar) 39.72 33.56 25.00 18.95 32.27 -2.32 10.31 5.83 43.69 -2.12
LargeCap S&P 500 Index Fund Advisors Select*
LargeCap S&P 500 Index Fund Advisors Preferred*
Invista S&P 500 Index Composite 20.62 28.16 32.89 22.51 37.07 1.05
S&P 500 Index 21.04 28.58 33.36 22.96 37.58 1.32 10.08 7.62 30.47 -3.10
Average LargeCap Blend Category (Morningstar) 19.72 21.95 27.43 20.37 31.99 -1.08 11.12 7.62 32.13 -3.34
LargeCap Value Fund Advisors Select*
LargeCap Value Fund Advisors Preferred*
Invista Large Cap Value Composite -7.12 18.04 28.94 22.18
S&P/BARRA 500 Value Index 12.72 14.68 29.99 21.99 37.00 -0.63 18.60 10.53 22.56 -6.85
Average LargeCap Value Category (Morningstar) 6.63 13.10 27.01 20.79 32.28 -0.81 13.25 9.89 28.51 -6.37
Partners LargeCap Value Fund Advisors Select*
Partners LargeCap Value Fund Advisors Preferred*
Sanford C. Bernstein Diversified Value Composite 7.80
Russell 1000 Value Index 7.35 15.63 35.18 21.64 38.35 -1.99 18.12 13.81 24.61 -8.08
Average LargeCap Value Category (Morningstar) 6.63 13.10 27.01 20.79 32.28 -0.81 13.25 9.89 28.51 -6.37
MidCap Value Fund Advisors Select*
MidCap Value Fund Advisors Preferred*
Invista Mid Cap Value Composite -7.36 3.25 35.49 16.03 41.18 0.98 11.43 7.57 33.54
S&P/BARRA 400 Value Index 2.33 4.67 34.32 19.40 34.04 -0.57 13.43 16.02
Average MidCap Value Category (Morningstar) 7.78 3.92 26.04 20.50 29.27 -1.11 17.11 13.54 29.65 -8.51
Partners MidCap Value Fund Advisors Select*
Partners MidCap Value Fund Advisors Preferred*
Neuberger Berman MidCap Value Composite 8.04 -10.66 32.66 28.08 35.23 -1.89 16.44 17.52 22.36 13.91
Russell Midcap Value Index -0.11 5.09 34.37 20.26 34.93 -2.13 15.62 21.68 37.92 -16.08
Average MidCap Value Category (Morningstar) 7.78 3.92 26.04 20.50 29.27 -1.11 17.11 13.54 29.65 -8.51
Real Estate Fund Advisors Select*
Real Estate Fund Advisors Preferred*
PCREI Real Estate Composite -3.01 -10.20 19.83
Morgan Stanley REIT Index -4.55 -16.90 18.58 35.89 12.90
</TABLE>
*Fund's inception 12/6/00.
PERFORMANCE RESULTS - AGGRESSIVE FUNDS
<TABLE>
<CAPTION>
Average Annual Performance
(through September 30, 2000)
YTD 1 YR 3 YR 5 YR 10 YR
MidCap Blend Fund Advisors Select*
MidCap Blend Fund Advisors Preferred*
<S> <C> <C> <C> <C> <C>
Invista Mid Cap Core Composite 11.55 34.01 9.05 16.08
S&P MidCap 400 Index -0.68 43.21 18.97 21.71
Average MidCap Blend Category (Morningstar) 7.19 24.94 8.81 15.11 16.30
MidCap Growth Fund Advisors Select*
MidCap Growth Fund Advisors Preferred*
Invista Mid Cap Growth Composite 14.47 51.66 22.95 24.76
Russell Midcap Growth Index -4.89 60.37 25.87 24.63 22.82
Average MidCap Growth Category (Morningstar) 15.15 65.48 27.62 23.23 21.28
MidCap S&P 400 Index Fund Advisors Select*
MidCap S&P 400 Index Fund Advisors Preferred*
Invista S&P 400 Index Composite 21.24 40.44
S&P MidCap 400 Index -0.68 43.21 18.97 21.71
Average MidCap Blend Category (Morningstar) 7.19 24.94 8.81 15.11 16.30
Partners MidCap Growth Fund Advisors Select*
Partners MidCap Growth Fund Advisors Preferred*
Turner Investment Partners Midcap Growth Composite 27.59 98.28 54.46
Russell Midcap Growth Index -4.89 60.37 25.87 24.63 22.82
Average MidCap Growth Category (Morningstar) 15.15 65.48 27.62 23.23 21.28
SmallCap Blend Fund Advisors Select*
SmallCap Blend Fund Advisors Preferred*
Invista Small Company Blend Composite 18.09 40.78 9.28 15.84
Russell 2000 Index -2.94 23.39 5.96 12.39 16.93
Average SmallCap Blend Category (Morningstar) 12.43 29.51 6.36 14.15 15.80
SmallCap Growth Fund Advisors Select*
SmallCap Growth Fund Advisors Preferred*
Invista Small Cap Growth Composite -5.30 25.50 13.43 19.84
Russell 2000 Growth Index -4.97 29.67 8.93 12.42
Average SmallCap Growth Category (Morningstar) 11.50 55.99 18.43 18.83 20.04
Partners SmallCap Growth Fund I Advisors Select*
Partners SmallCap Growth Fund I Advisors Preferred*
Neuberger Berman SmallCap Growth Composite -2.65 68.31
Russell 2000 Growth Index -4.97 29.67 8.93 12.42
Average SmallCap Growth Category (Morningstar) 11.50 55.99 18.43 18.83 20.04
Partners SmallCap Growth Fund II Advisors Select*
Partners SmallCap Growth Fund II Advisors Preferred*
Federated Aggressive Growth Composite -13.82 40.11 23.14
S&P/BARRA 600 Growth Index 7.52 29.77 7.24 11.99
Average SmallCap Growth Category (Morningstar) 11.50 55.99 18.43 18.83 20.04
SmallCap S&P 600 Index Fund Advisors Select*
SmallCap S&P 600 Index Fund Advisors Preferred*
Invista Small Cap S&P 600 Index Composite 9.54 22.11
S&P SmallCap 600 Index -2.72 24.17 5.88 13.39 17.65
Average SmallCap Blend Category (Morningstar) 12.43 29.51 6.36 14.15 15.80
SmallCap Value Fund Advisors Select*
SmallCap Value Fund Advisors Preferred*
Invista Small Cap Value Composite 4.68 3.14 -3.85 9.82
Russell 2000 Value Index -0.57 15.36 2.11 11.50
Average SmallCap Value Category (Morningstar) 12.43 19.92 1.33 12.12 14.16
Technology Fund Advisors Select*
Technology Fund Advisors Preferred*
Average Technology Category (Morningstar) 2.87 69.87 44.30 31.98 31.51
</TABLE>
<TABLE>
<CAPTION>
Annual Performance
(year ended December 31)
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
MidCap Blend Fund Advisors Select*
MidCap Blend Fund Advisors Preferred*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Invista Mid Cap Core Composite 12.37 4.72 24.95 18.66 33.39 5.46 -0.26 9.01
S&P MidCap 400 Index 14.72 19.11 32.25 19.18 30.92 -3.59 13.93 11.90 50.07 -5.12
Average MidCap Blend Category (Morningstar) 18.70 6.77 26.45 20.44 28.71 -1.61 14.50 14.93 36.20 -8.16
MidCap Growth Fund Advisors Select*
MidCap Growth Fund Advisors Preferred*
Invista Mid Cap Growth Composite 69.96 2.48 26.15 13.40
Russell Midcap Growth Index 51.29 17.86 22.54 17.48 33.98 -2.16 11.19 8.71 47.03 -5.13
Average MidCap Growth Category (Morningstar) 63.90 17.51 17.05 16.99 34.79 -1.03 15.64 9.03 50.97 -7.35
MidCap S&P 400 Index Fund Advisors Select*
MidCap S&P 400 Index Fund Advisors Preferred*
Invista S&P 400 Index Composite
S&P MidCap 400 Index 14.72 19.11 32.25 19.20 30.95 -3.58 13.95 11.91 50.10 -5.12
Average MidCap Blend Category (Morningstar) 18.70 6.77 26.45 20.44 28.71 -1.61 14.50 14.93 36.20 -8.16
Partners MidCap Growth Fund Advisors Select*
Partners MidCap Growth Fund Advisors Preferred*
Turner Investment Partners Midcap Growth Composite 126.09 26.33 41.77 18.25
Russell Midcap Growth Index 51.29 17.86 22.54 17.48 33.98 -2.16 11.19 8.71 47.03 -5.13
Average MidCap Growth Category (Morningstar) 63.90 17.51 17.05 16.99 34.79 -1.03 15.64 9.03 50.97 -7.35
SmallCap Blend Fund Advisors Select*
SmallCap Blend Fund Advisors Preferred*
Invista Small Company Blend Composite 12.31 -9.59 21.15 18.01 29.44 3.05 21.32 26.90 24.82
Russell 2000 Index 21.26 -2.55 22.36 16.50 28.45 -1.82 18.88 18.41 46.04 -19.48
Average SmallCap Blend Category (Morningstar) 18.18 -3.64 26.12 19.66 25.51 -0.97 16.65 14.39 39.57 -12.24
SmallCap Growth Fund Advisors Select*
SmallCap Growth Fund Advisors Preferred*
Invista Small Cap Growth Composite 66.37 -2.47 34.77 14.19
Russell 2000 Growth Index 43.09 1.23 12.95 11.26 31.04 -2.43 13.36 7.77 51.19 -17.41
Average SmallCap Growth Category (Morningstar) 61.45 4.49 18.19 19.99 35.44 -0.28 16.70 11.99 53.64 -5.96
Partners SmallCap Growth Fund I Advisors Select*
Partners SmallCap Growth Fund I Advisors Preferred*
Neuberger Berman SmallCap Growth Composite 134.28
Russell 2000 Growth Index 1.23 12.95 11.26 31.04 -2.43 13.36 7.77 51.19 -17.14
Average SmallCap Growth Category (Morningstar) 61.45 4.49 18.19 19.99 35.44 -0.28 16.70 11.99 53.64 -5.96
Partners SmallCap Growth Fund II Advisors Select*
Partners SmallCap Growth Fund II Advisors Preferred*
Federated Aggressive Growth Composite 111.60 8.08 30.06
S&P/BARRA 600 Growth Index 12.41 -1.31 25.58 21.32 29.97 -4.78 18.79 21.05 48.48 -23.69
Average SmallCap Growth Category (Morningstar) 61.45 4.49 18.19 19.99 35.44 -0.28 16.70 11.99 53.64 -5.96
SmallCap S&P 600 Index Fund Advisors Select*
SmallCap S&P 600 Index Fund Advisors Preferred*
Invista Small Cap S&P 600 Index Composite
S&P SmallCap 600 Index 12.40 -1.31 25.58 21.32 29.97 -4.77 18.78 21.04 48.49 -23.69
Average SmallCap Blend Category (Morningstar) 18.18 -3.64 26.12 19.66 25.51 -0.97 16.65 14.39 39.57 -12.24
SmallCap Value Fund Advisors Select*
SmallCap Value Fund Advisors Preferred*
Invista Small Cap Value Composite -8.92 -6.03 33.65 26.44
Russell 2000 Value Index -1.49 -6.45 31.78 21.37 25.75 -1.27 23.84 29.14 41.70 -21.77
Average SmallCap Value Category (Morningstar) 4.49 -6.99 30.04 25.53 25.13 -0.81 16.72 20.29 37.19 -14.34
Technology Fund Advisors Select*
Technology Fund Advisors Preferred*
Average Technology Category (Morningstar) 136.50 52.41 9.58 20.31 42.89 13.18 24.07 13.03 46.92 0.54
</TABLE>
*Fund's inception 12/6/00.
PERFORMANCE RESULTS - DYNAMIC FUNDS
<TABLE>
<CAPTION>
Average Annual Performance
(through September 30, 2000)
YTD 1 YR 3 YR 5 YR 10 YR
European Fund Advisors Select*
European Fund Advisors Preferred*
<S> <C> <C> <C> <C> <C>
BT European Composite -14.43 11.15 18.84 22.29
MSCI Europe (15) Index--ND 4.68 5.46 10.22 15.71 14.14
Average Europe Category (Morningstar) -4.30 22.19 10.29 15.27 11.51
International Emerging Markets Fund Advisors Select*
International Emerging Markets Fund Advisors Preferred*
Invista International Emerging Markets Equity Composite -16.63 15.21 -1.16 10.28
MSCI - Emerging Markets Free--ID -8.73 0.41 -6.39 -1.66 9.48
Average Diversified Emerging Market
Category (Morningstar) -20.53 7.29 -7.12 0.12 5.83
International Fund I Advisors Select*
International Fund I Advisors Preferred*
Invista International Broad Markets Composite -7.31 9.88 7.56 13.92 14.95
MSCI EAFE (Europe, Australia, Far East) Index--ND -11.80 3.18 7.38 8.57 9.62
Average Foreign Category (Morningstar) -10.79 13.84 9.59 10.81 9.92
International Fund II Advisors Select*
International Fund II Advisors Preferred*
MSCI EAFE (Europe, Australia, Far East) Index--ND -11.80 3.18 7.38 8.57 9.62
Average Foreign Category (Morningstar) -10.79 13.84 9.59 10.81 9.92
International SmallCap Fund Advisors Select*
International SmallCap Fund Advisors Preferred*
Invista International Small Cap Equity Composite -0.70 36.20 26.53 27.71
MSCI EAFE (Europe, Australia, Far East) Index--ND -11.80 3.18 7.38 8.57 9.62
Average Foreign Category (Morningstar) -10.79 13.84 9.59 10.81 9.92
Pacific Basin Fund Advisors Select*
Pacific Basin Fund Advisors Preferred*
BT Pacific Basin Composite -15.52 10.75 16.52
MSCI Pacific Free Index--ND -15.08 -1.39 2.72 -0.55 4.16
Average Diversified Pacific/Asia Category (Morningstar) -25.00 0.98 -0.13 -0.06 6.53
</TABLE>
<TABLE>
<CAPTION>
Annual Performance
(year ended December 31)
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
European Fund Advisors Select*
European Fund Advisors Preferred*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BT European Composite 33.95 30.86 26.33 41.31 9.36 8.49 43.12
MSCI Europe (15) Index--ND 15.89 28.53 23.80 21.09 21.62 2.28 29.28 -4.71 13.11 -3.85
Average Europe Category (Morningstar) 26.11 21.56 18.42 24.99 16.26 2.52 28.15 -6.82 7.47 -8.03
International Emerging Markets Fund Advisors Select*
International Emerging Markets Fund Advisors Preferred*
Invista International Emerging Markets Equity Composite 63.25 -17.59 11.38 25.57 7.46
MSCI - Emerging Markets Free--ID 58.89 -35.11 31.64 22.21 -12.83 0.64 53.92 13.41 149.65 -7.82
Average Diversified Emerging Market
Category (Morningstar) 71.86 -27.03 -3.68 13.35 -3.45 -9.27 73.26 0.26 18.10 -9.89
International Fund I Advisors Select*
International Fund I Advisors Preferred*
Invista International Broad Markets Composite 25.78 10.47 12.43 24.54 14.07 -2.39 44.83
MSCI EAFE (Europe, Australia, Far East) Index--ND 26.96 20.00 1.78 6.05 11.21 7.78 32.56 -12.17 12.13 -23.45
Average Foreign Category (Morningstar) 44.49 13.00 5.43 12.39 9.82 -0.40 36.71 -4.54 13.07 -10.90
International Fund II Advisors Select*
International Fund II Advisors Preferred*
MSCI EAFE (Europe, Australia, Far East) Index--ND 26.96 20.00 1.78 6.05 11.21 7.78 32.56 -12.17 12.13 -23.45
Average Foreign Category (Morningstar) 44.49 13.00 5.43 12.39 9.82 -0.40 36.71 -4.54 13.07 -10.90
International SmallCap Fund Advisors Select*
International SmallCap Fund Advisors Preferred*
Invista International Small Cap Equity Composite 86.79 13.24 15.62 40.53 3.61
MSCI EAFE (Europe, Australia, Far East) Index--ND 26.96 20.00 1.78 6.05 11.21 7.78 32.56 -12.17 12.13 -23.45
Average Foreign Category (Morningstar) 44.49 13.00 5.43 12.39 9.82 -0.40 36.71 -4.54 13.07 -10.90
Pacific Basin Fund Advisors Select*
Pacific Basin Fund Advisors Preferred*
BT Pacific Basin Composite 132.40 7.35 -27.91
MSCI Pacific Free Index--ND 56.65 2.72 -25.87 -8.30 2.95 12.76 36.21 -18.56 11.46 -34.57
Average Diversified Pacific/Asia Category (Morningstar) 92.50 -5.91 -27.90 4.02 2.39 -5.49 59.02 -3.03 15.05 -16.65
</TABLE>
*Fund's inception 12/6/00.
IMPORTANT NOTES TO THE APPENDIX
Lehman Brothers Aggregate Bond Index represents securities that are U.S.
domestic, taxable, and dollar denominated. The index covers the U.S. investment
grade fixed rate bond market, with index components for government and corporate
securities, mortgage pass-through securities, and asset-backed securities. These
major sectors are subdivided into more specific indices that are calculated and
reported on a regular basis.
Lehman Brothers Government/Corporate Bond Index is composed of all bonds that
are investment grade (rated BAA or higher by Moody's or BBB or higher by S&P, if
unrated by Moody's). Issues must have at least one year to maturity. Total
return comprises price appreciation/depreciation and income as a percentage of
the original investment. Indices are rebalanced monthly by market
capitalization.
Lehman Brothers Long Term Gov't./Corporate Bond Index is composed of all bonds
covered by the Lehman Brothers Government/Corporate Bond Index with maturities
of 10 years or greater. Total return comprises price appreciation/depreciation
and income as a percentage of the original investment. Indices are rebalanced
monthly by market capitalization.
Lehman Brothers Mortgage-Backed Securities Index is composed of all fixed-rate,
securitized mortgage pools by GNMA, FNMA, and the FHLMC, including GNMA
Graduated Payment Mortgages. The minimum principal amount required for inclusion
is $50 million. Total return comprises price appreciation/depreciation and
income as a percentage of the original investment. Indices are rebalanced
monthly by market capitalization.
Lehman Brothers Mutual Fund 1-5 Government/Credit Index is composed of treasury
notes, agencies, and credits rated BBB or better, and with maturities of 1 year
or greater and 5 years or less. It is a rolling mix of issues, as new issues are
added and issues becoming less than 1 year to maturity are deleted.
Morgan Stanley Capital International (MSCI) Europe (15) Index is a
capitalization-weighted index. The index is designed to track the broader MSCI
EMU Benchmark containing stocks in ten EMU member countries.
Morgan Stanley Capital International Pacific Free Index is a market
capitalization-weighted index representing all of the Morgan Stanley Capital
International developed markets in the Pacific. It comprises six of the
twenty-two countries that are included in the Morgan Stanley Capital
International World. This index is created by aggregating the six different
country indexes, all of which are created separately. This index is calculated
with gross dividends reinvested. The countries represented by this index are:
Australia, Hong Kong, Japan, Malaysia, New Zealand and Singapore. The "Free"
aspect indicates that this index includes only securities that are allowed to be
purchased by global investors.
Morgan Stanley REIT Index is a total-return index comprised of the most actively
traded real estate investment trusts, and is designed to be a measure of real
estate equity performance.
Morgan Stanley Capital International (MSCI) EAFE (Europe, Australia, Far East)
Index is a stock index designed to measure the investment returns of developed
economies outside of North America.
Russell 1000 Growth Index is an index that measures the performance of those
Russell 1000 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 1000 Value Index is an index that measures the performance of those
Russell 1000 companies with lower price to book ratios and lower forecasted
growth values.
Russell 2000 Growth Index measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth values.
Russell 2000 Index measures the performance of the 2,000 smallest companies in
the Russell 3000 Index, which represents approximately 8% of the total market
capitalization of the Russell 3000 Index. As of the latest reconstitution, the
average market capitalization was approximately $580 million; the median market
capitalization was approximately $466 million. The largest company in the index
had an approximate market capitalization of $1.5 billion.
Russell 2000 Value Index measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.
Russell Midcap Growth Index measures the performance of those Russell MidCap
companies with lower price-to-book ratios and higher forecasted growth values.
The stocks are also members of the Russell 1000 Value index.
Russell Midcap Value Index is an index that measures the performance of those
Russell Midcap companies with lower price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Value index.
S&P 500 Index is a market capitalization-weighted index of 500 widely held
stocks often used as a proxy for the stock market. It measures the movement of
the largest issues. Standard & Poor's chooses the member companies for the 500
based on market size, liquidity and industry group representation. Included are
the stocks of industrial, financial, utility and transportation companies.
S&P/BARRA 400 Value Index is a market capitalization-weighted index of all the
stocks in the S&P 400 that have low price-to-book ratios. The index is
rebalanced semi-annually on January 1 and July 1.
S&P/BARRA 500 Growth Index is a market capitalization-weighted index of all the
stocks in the S&P 500 that have high price-to-book ratios. It is designed so
that approximately 50% of the SPX market capitalization is in the Growth Index.
S&P/BARRA 500 Value Index is a market capitalization-weighted index of the
stocks in the S&P 500 Index having the highest book to price ratios. The index
consists of approximately half of the S&P 500 on a market capitalization basis.
S&P/BARRA 600 Growth Index is a market capitalization-weighted index of the
stocks in the S&P SmallCap 600 Index having the lowest book to price ratios. The
index consists of approximately half of the S&P SmallCap 600 on a market
capitalization basis.
S&P Midcap 400 Index includes approximately 10% of the capitalization of U.S.
equity securities. These are comprised of stocks in the middle capitalization
range. Any mid-sized stocks already included in the S&P 500 are excluded from
this index.
S&P SmallCap 600 Index consists of 600 domestic stocks chosen for market size,
liquidity and industry group representation. It is a market weighted index
(stock price x shares outstanding), with each stock affecting the index in
proportion to its market value.
PRINCIPAL INVESTORS FUND, INC.
This Prospectus describes a mutual fund organized by
Principal Life Insurance Company.
The date of this Prospectus is December 6, 2000.
As with all mutual funds, the Securities and Exchange Commission ("SEC")
has not approved or disapproved the Fund's securities nor has it
determined that this Prospectus is accurate or complete. It is a criminal
offense to represent otherwise.
TABLE OF CONTENTS
Fund Descriptions..............................................................4
Stable Funds
High Quality Short-Term Bond Fund.......................................6
Money Market Fund.......................................................8
Conservative Funds
Bond & Mortgage Securities Fund........................................10
Government Securities Fund.............................................12
High Quality Intermediate-Term Bond Fund...............................14
High Quality Long-Term Bond Fund.......................................16
Moderate Funds
Balanced Fund..........................................................18
LargeCap Blend Fund....................................................20
LargeCap Growth Fund...................................................22
LargeCap S&P 500 Index Fund............................................24
LargeCap Value Fund....................................................26
MidCap Value Fund......................................................28
Partners LargeCap Blend Fund...........................................30
Partners LargeCap Growth Fund I........................................32
Partners LargeCap Growth Fund II.......................................34
Partners LargeCap Value Fund...........................................36
Partners MidCap Value Fund.............................................38
Real Estate Fund.......................................................40
Aggressive Funds
MidCap Blend Fund......................................................42
MidCap Growth Fund.....................................................44
MidCap S&P 400 Index Fund..............................................46
Partners MidCap Growth Fund............................................48
Partners SmallCap Growth Fund I........................................50
Partners SmallCap Growth Fund II.......................................52
SmallCap Blend Fund....................................................54
SmallCap Growth Fund...................................................56
SmallCap S&P 600 Index Fund............................................58
SmallCap Value Fund....................................................60
Technology Fund........................................................62
Dynamic Funds
European Fund..........................................................64
International Emerging Markets Fund....................................66
International Fund I...................................................68
International Fund II..................................................70
International SmallCap Fund............................................72
Pacific Basin Fund.....................................................74
General Information
The Costs of Investing....................................................76
Certain Investment Strategies and Related Risks...........................77
Management, Organization and Capital Structure............................82
Shareholder Information...................................................84
Fund Account Information..................................................86
Appendix A....................................................................87
The Principal Investors Funds have been divided into risk categories. The
working definition of each category is shown below:
Stable
Investment options that historically have had lower earnings over longer periods
of time and have not changed much in value over short periods of time as
compared to the other categories. Examples are money market, some short-term
bond and stable value investment options.
Conservative
Investments, including government securities, mortgage-backed securities, and
corporate bonds, that change in value as interest rates change. They are
generally less volatile than stocks.
Moderate
In general, these are stocks of large U.S. companies. In the past, they have
been more volatile than corporate and government bonds. Balanced investments are
also considered to be moderate investment options.
Aggressive
Although there are exceptions, these investments are generally stocks of small
and medium-size U.S. companies. These investments can change in value very
quickly over short time periods.
Dynamic
In general, theses are stocks of foreign companies. These investments have
additional risks associated with foreign investing, such as currency risk, and
can change in value very quickly over short-term periods.
FUND DESCRIPTIONS
Principal Investors Fund, Inc. is comprised of many investment portfolios
("Funds"). The Funds are divided into five risk categories: Stable,
Conservative, Moderate, Aggressive, and Dynamic. Principal Management
Corporation*, the "Manager" of each of the Funds, seeks
to provide a broad range of investment approaches through the Principal
Investors Fund.
The Manager has selected a Sub-Advisor for each Fund based on the Sub-Advisor's
experience with the investment strategy for which it was selected. The
Sub-Advisor for each Fund is shown with the Fund's description on the following
pages. The Sub-Advisors are:
<TABLE>
<CAPTION>
<S> <C>
Alliance Capital Management L.P. through its Invista Capital Management, LLC(R)("Invista")*
Bernstein Investment Research and Management Morgan Stanley Asset Management ("Morgan Stanley")
unit ("Bernstein") Neuberger Berman Management Inc. ("Neuberger Berman")
American Century Investment Management, Inc. Principal Capital Income Investors, LLC ("PCII")*
("American Century") Principal Capital Real Estate Investors, LLC ("PCREI")*
BT Funds Management (International) Limited ("BT")* Turner Investment Partners, Inc. ("Turner")
Federated Management Corporation ("Federated")
</TABLE>
Two classes of shares of each of these Funds are available through this
Prospectus. Both classes are currently available only through certain registered
representatives of Princor Financial Services Corporation ("Princor")*, who are
also employees of Principal Life Insurance Company* or fee-based financial
planners.
o Select shares are available to an employer's sponsored retirement plan(s)
(the "plan") through the Principal Investors Advantage (the service
contract (or through execution of a service contract offered through an
affiliate of Principal Life Insurance Company)) if the plan invests at
least $3 million (but less than $10 million) in the Principal Investors
Fund.
o Preferred shares are available to an employer's sponsored retirement
plan(s) (the "plan") through the Principal Investors Advantage (or through
execution of a service contract offered through an affiliate of Principal
Life Insurance Company)) if the plan invests at least $10 million in the
Principal Investors Fund.
For more information about Principal Investors Advantage, contact us at
www.principal.com or call 1-800-547-7754.
* Principal Management Corporation, Invista, PCII, PCREI, BT, Princor and
Principal Life Insurance Company are members of the Principal Financial
Group(R).
In the description for each Fund, there is important information about the
Fund's:
Primary investment strategy
This section summarizes how each Fund intends to achieve its investment
objective. It identifies the Fund's primary investment strategy (including the
type or types of securities in which the Fund invests) and any policy to
concentrate in securities of issuers in a particular industry or group of
industries.
Each Fund is designed to be a portion of an investor's portfolio. None is
intended to be a complete investment program. Investors should consider the
risks of each Fund before making an investment and be prepared to maintain the
investment during periods of adverse market conditions.
A description of the main risks is included with the discussion of each Fund. A
full discussion of risks appears later in the Prospectus under the caption
"Certain Investment Strategies and Related Risks."
Annual operating expenses
The annual operating expenses for each Fund are deducted from that Fund's assets
(stated as a percentage of Fund assets). A Fund's operating expenses are shown
with each Fund. A discussion of the fees is found in the section of the
Prospectus titled "The Costs of Investing."
The examples are intended to help investors compare the cost of investing in a
particular Fund with the cost of investing in other mutual funds. The examples
assume an investment of $10,000 in a Fund for the time periods indicated. The
examples also assume that the investment has a 5% total return each year and
that the Fund's operating expenses are the same as the expenses shown. Based on
these assumptions, the costs would be as shown.
Day-to-day Fund management
The investment professionals who manage the assets of each Fund are listed with
each Fund. Backed by their staffs of experienced securities analysts, they
provide the Funds with professional investment management.
Fund performance
Because the Funds are new and have not completed a full calendar year of
operations, performance information for the Funds is not included in this
Prospectus. To obtain performance information for a Fund after its first full
calendar quarter of operations, contact us at www.principal.com or call
1-800-547-7754. Remember that a Fund's past performance is not necessarily an
indication of how the Fund will perform in the future.
Call the Principal Investors Fund (1-800-547-7754) to get the current 7-day
yield for the Money Market Fund.
NOTE: No salesperson, dealer or other person is authorized to give
information or make representations about a Fund other than those
contained in this Prospectus. Information or representations not
contained in this Prospectus may not be relied upon as having been
made by the Principal Investors Fund, a Fund, the Manager or any
Sub-Advisor.
HIGH QUALITY SHORT-TERM BOND FUND
The Fund seeks to provide current income.
Main Strategies
The Fund invests primarily in high quality, short-term fixed-income securities
with a dollar weighted average maturity of four years or less. The Fund
considers the term "bond" to mean any debt security. Under normal circumstances,
it invests at least 80% of its assets in:
o securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities;
o debt securities of U.S. issuers rated in the three highest grades by
Standard & Poor's Rating Service or Moody's Investors Service, Inc. or, if
unrated, in the opinion of the Sub-Advisor, PCII, of comparable quality;
and
o mortgage-backed securities representing an interest in a pool of mortgage
loans.
The rest of the Fund's assets are invested in securities in the fourth
highest rating category or their equivalent. Securities in the fourth highest
category are "investment grade." While they are considered to have adequate
capacity to pay interest and repay principal, they do have speculative
characteristics. Changes in economic and other conditions are more likely to
affect the ability of the issuer to make principal and interest payments than is
the case with issuers of higher rated securities.
Under unusual market or economic conditions, the Fund may invest up to
100% of its assets in cash and cash equivalents.
Main Risks
The Fund may invest in corporate fixed-income securities. When interest rates
fall, the price of such securities rise and when interest rates rise, the price
declines. In addition, the value of the corporate debt securities held by the
Fund may be affected by factors such as credit rating of the entity that issued
the security and its maturity. Lower quality and longer maturity securities will
be subject to greater credit risk and price fluctuations than higher quality and
shorter maturity securities.
Mortgage-backed securities are subject to prepayment risk. When
interest rates decline, significant unscheduled prepayments may result. These
prepayments must then be reinvested at lower rates. Prepayments may also shorten
the effective maturities of these securities, especially during periods of
declining interest rates. On the other hand, during periods of rising interest
rates, a reduction in prepayments may increase the effective maturities of these
securities, subjecting them to the risk of decline in market value in response
to rising interest rates. This may increase the volatility of the Fund.
Under normal circumstances, the Fund maintains a dollar-weighted
average maturity of not more than four years. In determining the average
maturity of the Fund's assets, the maturity date of callable or prepayable
securities may be adjusted to reflect PCII's judgment regarding the likelihood
of the security being called or prepaid.
The average portfolio duration of the Fund normally is less than four years and
is based on PCII's forecast for interest rates. Duration is a measure of the
expected life of a fixed-income security that is used to determine the
sensitivity of a security's price to changes in interest rates. For example, if
the portfolio duration of the Fund is three years, a change of 1% in the Fund's
yield results in a change of approximately 3% in the value of the Fund's
securities. The longer a security's duration, the more sensitive it is to
changes in interest rates. A Fund with a longer average portfolio duration will
be more sensitive to changes in interest rates than a Fund with a shorter
average portfolio duration.
As with all mutual funds, as the value of the Fund's assets rise and fall, the
Fund's share price changes. If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking
diversification by investing in a fixed-income mutual fund.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.40% 0.40%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 0.78% 0.66%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $80 $249
Preferred Class 67 211
Since December, 2000 Co-Manager: Daniel J. Garrett, CFA. Mr. Garrett is a
(Fund's inception) portfolio manager for PCII. He joined the Principal
Financial Group in 1985 as a commercial mortgage
analyst and was named to his current position in 1998.
Mr. Garrett received his Master's degree in Business
and his Bachelor's degree in Computer Information
Systems and Finance from Drake University. He has
earned the right to use the Chartered Financial
Analyst designation.
Since December, 2000 Co-Manager: Martin J. Schafer. Mr. Schafer is a
(Fund's inception) portfolio manager for PCII specializing in the
management of mortgage-backed securities utilizing
an active, total return approach. He joined the
Principal Financial Group in 1977. He holds a BBA in
Accounting and Finance from the University of Iowa.
MONEY MARKET FUND
The Fund seeks as high a level of current income as is considered consistent
with preservation of principal and maintenance of liquidity.
Main Strategies
The Fund invests its assets in a portfolio of high quality, short-term
money market instruments. The investments are U.S. dollar denominated securities
which the Sub-Advisor, PCII, believes present minimal credit risks. At the time
the Fund purchases each security, it is an "eligible security" as defined in the
regulations issued under the Investment Company Act of 1940 ("1940 Act"), as
amended.
The Fund maintains a dollar weighted average portfolio maturity of 90
days or less. It intends to hold its investments until maturity. However, the
Fund may sell a security before it matures:
o to take advantage of market variations;
o to generate cash to cover sales of Fund shares by its shareholders; or
o upon revised credit opinions of the security's issuer.
The sale of a security by the Fund before maturity may not be in the
best interest of the Fund. The Fund does have an ability to borrow money to
cover the sale of Fund shares. The sale of portfolio securities is usually a
taxable event.
It is the policy of the Fund to be as fully invested as possible to maximize
current income. Securities in which the Fund invests include:
o securities issued or guaranteed by the U.S. Government, including treasury
bills, notes and bonds;
o securities issued or guaranteed by agencies or instrumentalities of the
U.S. Government. These are backed either by the full faith and credit of
the U.S. Government or by the credit of the particular agency or
instrumentality;
o bank obligations including:
o certificates of deposit which generally are negotiable certificates
against funds deposited in a commercial bank; or
o bankers acceptances which are time drafts drawn on a commercial bank,
usually in connection with international commercial transactions.
o commercial paper, which is short-term promissory notes issued by U.S. or
foreign corporations primarily to finance short-term credit needs;
o corporate debt consisting of notes, bonds or debentures which at the time
of purchase by the Fund has 397 days or less remaining to maturity;
o repurchase agreements under which securities are purchased with an
agreement by the seller to repurchase the security at the same price plus
interest at a specified rate. Generally these have a short maturity (less
than a week) but may also have a longer maturity; and
o taxable municipal obligations, which are short-term obligations issued or
guaranteed by state and municipal issuers which generate taxable income.
Among the certificates of deposit typically held by the Money Market
Fund are Eurodollar and Yankee obligations, which are issued in U.S. dollars by
foreign banks and foreign branches of U.S. banks. Eurodollar and Yankee
obligations have risks similar to U.S. money market instruments, such as income
risk and credit risk. Other risks of Eurodollar and Yankee obligations include
the possibilities that: a foreign government will not let U.S.
dollar-denominated assets leave the country; the banks that issue Eurodollar
obligations may not be subject to the same regulations as U.S. banks; and
adverse political or economic developments will affect investments in a foreign
country. Before the Fund's Sub-Advisor selects a Eurodollar or Yankee
obligation, however, the foreign issue undergoes the same credit-quality
analysis and tests of financial strength as an issuer of domestic securities.
Main Risks
As with all mutual funds, the value of the Fund's assets may rise or fall.
Although the Fund seeks to preserve the value of an investment at $1.00 per
share, it is possible to lose money by investing in the Fund. If the investor
sells Fund shares when their value is less than the price the investor paid for
them, the investor will lose money. An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
Investor Profile
The Fund is generally a suitable investment for investors seeking monthly
dividends without incurring much principal risk.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.40% 0.40%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 0.78% 0.66%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $80 $249
Preferred Class 67 211
Since December, 2000 Co-Manager: Alice Robertson. Ms. Roberston is a trader
(Fund's inception) for PCII on the corporate fixed-income trading desk.
She joined the Principal Financial Group in 1990 as
a credit analyst and moved to her current position in
1993. Previously, Ms. Robertson was an assistant vice
president/commercial paper analyst with Duff & Phelps
Credit Company. Ms. Robertson earned her Master's
degree in Finance and Marketing from DePaul University
and her Bachelor's degree in Economics from
Northwestern University.
Since December, 2000 Co-Manager: Michael R. Johnson. Mr. Johnson directs
(Fund's inception) securities trading for PCII. He joined the Principal
Financial Group in 1982 and took his current position
in 1994. His responsibilities include managing
the fixed-income trading operation for Principal
Capital Income Investors and several short-term money
market accounts. He earned his Bachelor's degree in
Finance from Iowa State University.
BOND & MORTGAGE SECURITIES FUND
The Fund seeks to provide current income.
Main Strategies
The Fund invests primarily in intermediate maturity fixed-income or debt
securities rated BBB or higher by Standard & Poor's Rating Service ("S&P") or
Moody's Investors Service, Inc. ("Moody's"). The Fund considers the term "bond"
to mean any debt security. Under normal circumstances, the Fund invests at least
75% of its assets in:
o securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities;
o mortgage-backed securities representing an interest in a pool of mortgage
loans;
o debt securities and taxable municipal bonds rated, at the time of purchase,
in one of the top four categories by S&P or Moody's or, if not rated, in
the opinion of the Sub-Advisor, PCII, of comparable quality; and
o securities issued or guaranteed by the governments of Canada (Provincial or
Federal Government) or the United Kingdom payable in U.S. dollars.
The rest of the Fund's assets may be invested in:
o preferred and common stock that may be convertible (may be exchanged for a
fixed number of shares of common stock of the same issuer) or may be
non-convertible; or
o securities rated less than the four highest grades of
S&P or Moody's but not lower than BB- (S&P) or Ba3 (Moody's) (i.e. less
than investment grade).
Under unusual market or economic conditions, the Fund may invest up to 100% of
its assets in cash and cash equivalents.
Main Risks
The average portfolio duration of the Fund normally varies within a three- to
six-year time frame based on PCII's forecast for interest rates. Duration is a
measure of the expected life of a fixed-income security that is used to
determine the sensitivity of a security's price to changes in interest rates.
For example, if the portfolio duration of the Fund is three years, a change of
1% in the Fund's yield results in a change of approximately 3% in the value of
the Fund's securities. The longer a security's duration, the more sensitive it
is to changes in interest rates. A Fund with a longer average portfolio duration
will be more sensitive to changes in interest rates than a Fund with a shorter
average portfolio duration.
Mortgage-backed securities are subject to prepayment risk. When interest rates
decline, significant unscheduled prepayments may result. These prepayments must
then be reinvested at lower rates. Prepayments may also shorten the effective
maturities of these securities, especially during periods of declining interest
rates. On the other hand, during periods of rising interest rates, a reduction
in prepayments may increase the effective maturities of these securities,
subjecting them to the risk of decline in market value in response to rising
interest rates. This may increase the volatility of the Fund.
When interest rates fall, the price of a debt security rises and when interest
rates rise, the price declines. In addition, the value of securities held by the
Fund may be affected by factors such as credit rating of the entity that issued
the security and its maturity. Lower quality and longer maturity securities will
be subject to greater credit risk and price fluctuations than higher quality and
shorter maturity securities.
Fixed-income securities that are not investment grade are commonly referred to
as junk bonds or high yield securities. These securities offer a potentially
higher yield than other, higher rated securities, but they carry a greater
degree of risk and are considered speculative by the major credit rating
agencies.
As with all mutual funds, as the value of the Fund's assets rise and fall, the
Fund's share price changes. If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking
diversification by investing in a fixed-income mutual fund.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.55% 0.55%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 0.93% 0.81%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $95 $296
Preferred Class 83 259
Since December, 2000 Co-Manager: Lisa A. Stange, CFA. As Portfolio
(Fund's inception) Manager for PCII, Ms. Stange manages over
$3 billion in fixed-income portfolios invested in
public and private corporate bonds, mortgage-
backed securities, commercial mortgage-backed
securities, asset-backed securities and
commercial real estate mortgages. Ms. Stange
joined the Principal Financial Group in 1989
after earning her Master's and Bachelor's degrees
in Finance from the University of Iowa. She has
earned the right to use the Chartered Financial
Analyst designation.
Since December, 2000 Co-Manager: William C. Armstrong, CFA. Mr.
(Fund's inception) Armstrong leads the multi-sector/core portfolio
management group for PCIIs' stable value division.
Mr. Armstrong has been with the Principal
Financial Group since 1992. He earned his
Master's degree from the University of Iowa and
his Bachelor's degree from Kearney State College.
He has earned the right to use the Chartered
Financial Analyst designation.
GOVERNMENT SECURITIES FUND
The Fund seeks to provide current income.
Main Strategies
The Fund seeks to achieve its investment objective by investing primarily (at
least 65% of its assets) in securities that are issued by the U.S. Government,
its agencies or instrumentalities. The Fund may invest in mortgage-backed
securities representing an interest in a pool of mortgage loans. These
securities are rated AAA by Standard & Poor's Corporation or Aaa by Moody's
Investor Services, Inc. or, if unrated, determined by the Sub-Advisor, PCII, to
be of equivalent quality.
The Fund relies on the professional judgment of PCII to make decisions about the
Fund's portfolio securities. The basic investment philosophy of PCII is to seek
undervalued securities that represent good long-term investment opportunities.
Securities may be sold when PCII believes they no longer represent good
long-term value.
The Fund may also hold cash and cash equivalents. The size of the Fund's cash
position depends on various factors, including market conditions and purchases
and redemptions of Fund shares. A large cash position could impact the ability
of the Fund to achieve its objective but it also would reduce the Fund's
exposure in the event of a market downturn and provide liquidity to make
additional investments or to meet redemptions.
Main Risks
Although some of the securities the Fund purchases are backed by the U.S.
government and its agencies, shares of the Fund are not guaranteed. When
interest rates fall, the value of the Fund's shares rises, and when rates rise,
the value declines. Because of the fluctuation in values of the Fund's shares,
if shares are sold when their value is less than the price paid, the investor
will lose money.
U.S. Government securities do not involve the degree of credit risk
associated with investments in lower quality fixed-income securities. As a
result, the yields available from U.S. Government securities are generally lower
than the yields available from many other fixed-income securities. Like other
fixed-income securities, the values of U.S. Government securities change as
interest rates fluctuate. Fluctuations in the value of the Fund's securities do
not affect interest income on securities already held by the Fund, but are
reflected in the Fund's price per share. Since the magnitude of these
fluctuations generally is greater at times when the Fund's average maturity is
longer, under certain market conditions the Fund may invest in short-term
investments yielding lower current income rather than investing in higher
yielding longer term securities.
Mortgage-backed securities are subject to prepayment risk. Prepayments,
unscheduled principal payments, may result from voluntary prepayment,
refinancing or foreclosure of the underlying mortgage. When interest rates
decline, significant unscheduled prepayments may result. These prepayments must
then be reinvested at lower rates. Prepayments may also shorten the effective
maturities of these securities, especially during periods of declining interest
rates. On the other hand, during periods of rising interest rates, a reduction
in prepayments may increase the effective maturities of these securities,
subjecting them to the risk of decline in market value in response to rising
interest rates and potentially increasing the volatility of the fund.
In addition, prepayments may cause losses on securities purchased at a
premium (dollar amount by which the price of the bond exceeds its face value).
At times, mortgage-backed securities may have higher than market interest rates
and are purchased at a premium. Unscheduled prepayments are made at par and
cause the Fund to experience a loss of some or all of the premium.
As with all mutual funds, as the value of the Fund's assets rise and fall, the
Fund's share price changes. If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking
diversification by investing in a fixed-income mutual fund.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.40% 0.40%
Other Expenses................... 0.38 0.26
Total Fund Operating Expenses 0.78% 0.66%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $80 $249
Preferred Class 67 211
Since December, 2000 Co-Manager: Martin J. Schafer. Mr. Schafer is a
(Fund's inception) portfolio manager for PCII specializing in the
management of mortgage-backed securities utilizing
an active, total return approach. He joined the
Principal Financial Group in 1977. He holds a BBA
in Accounting and Finance from the University of
Iowa.
Since December, 2000 Co-Manager: Kelly R. Alexander. Ms. Alexander
(Fund's inception) shares management responsibility for nine
fixed-income portfolios at PCII, with combined
assets of more than $4 billion. Before assuming
her current position, she had similar
responsibilities with Invista from 1992 to 2000.
She joined the Principal Financial Group in 1983
to develop the mortgage-backed securities trading
department. Her experience includes hedging,
securitization, product development and portfolio
management as well as the risk management of a
$1.5 billion residential mortgage pipeline.
HIGH QUALITY INTERMEDIATE-TERM BOND FUND
The Fund seeks to provide current
income.
Main Strategies
The Fund invests primarily in intermediate term fixed-income securities rated A
or higher by Standard & Poor's Rating Service ("S&P") or Moody's Investors
Service, Inc. ("Moody's"). The Fund considers the term "bond" to mean any debt
security. Under normal circumstances, the Fund invests at least 80% of its
assets in:
o securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities;
o mortgage-backed securities representing an interest in a pool of mortgage
loans;
o debt securities and taxable municipal bonds rated, at the time of purchase,
in one of the top three categories by S&P or Moody's or, if not rated, in
the opinion of the Sub-Advisor, PCII, of comparable quality; and
o securities issued or guaranteed by the governments of Canada (Provincial or
Federal Government) or the United Kingdom payable in U.S. dollars.
The rest of the Fund's assets may be invested in:
o common stock and preferred stock that may be convertible (may be exchanged
for a fixed number of shares of common stock of the same issuer) or may be
non-convertible; or
o securities rated less than the three highest grades of S&P or Moody's but
not lower than BBB- (S&P) or BAA3 (Moody's) (i.e. less than investment
grade).
Under unusual market or economic conditions, the Fund may invest up to 100% of
its assets in cash and cash equivalents.
Main Risks
The average portfolio duration of the Fund normally varies within a three- to
six-year time frame based on PCII's forecast for interest rates. Duration is a
measure of the expected life of a fixed-income security that is used to
determine the sensitivity of a security's price to changes in interest rates.
For example, if the portfolio duration of the Fund is three years, a change of
1% in the Fund's yield results in a change of approximately 3% in the value of
the Fund's securities. The longer a security's duration, the more sensitive it
is to changes in interest rates. A Fund with a longer average portfolio duration
will be more sensitive to changes in interest rates than a Fund with a shorter
average portfolio duration.
Although some of the securities the Fund purchases are backed by the U.S.
government and its agencies, shares of the Fund are not guaranteed. The values
of U.S. Government securities change as interest rates fluctuate. Fluctuations
in the value of the Fund's securities do not affect interest income on
securities already held by the Fund, but are reflected in the Fund's price per
share.
Mortgage-backed securities are subject to prepayment risk. When interest rates
decline, significant unscheduled prepayments may result. These prepayments must
then be reinvested at lower rates. Prepayments may also shorten the effective
maturities of these securities, especially during periods of declining interest
rates. On the other hand, during periods of rising interest rates, a reduction
in prepayments may increase the effective maturities of these securities,
subjecting them to the risk of decline in market value in response to rising
interest. This may increase the volatility of the Fund.
When interest rates fall, the price of a bond rises and when interest rates
rise, the price declines. In addition, the value of securities held by the Fund
may be affected by factors such as credit rating of the entity that issued the
bond and effective maturities of the bond. Lower quality and longer maturity
bonds will be subject to greater credit risk and price fluctuations than higher
quality and shorter maturity bonds.
As with all mutual funds, as the value of the Fund's assets rise and fall, the
Fund's share price changes. If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking
diversification by investing in a fixed-income mutual fund.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.40% 0.40%
Other Expenses................... 0.38 0.26
Total Fund Operating Expenses 0.78% 0.66%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $80 $249
Preferred Class 67 211
Since December, 2000 Co-Manager: Kevin W. Croft, CFA. As a portfolio
(Fund's inception) manager for PCII, Mr. Croft has direct
responsibility for $950 million invested in
fixed-income portfolios. He joined the Principal
Financial Group in 1988. He earned his Master's
and Bachelor's degrees from Drake University. He
has earned the right to use the Chartered
Financial Analyst designation.
Since December, 2000 Co-Manager: Martin J. Schafer. Mr. Schafer is a
(Fund's inception) portfolio manager for PCII specializing in the
management of mortgage-backed securities
utilizing an active, total return approach. He
joined the Principal Financial Group in 1977.
He holds a BBA in Accounting and Finance from
the University of Iowa.
HIGH QUALITY LONG-TERM BOND FUND
The Fund seeks to provide current income.
Main Strategies
The Fund invests primarily in long-term fixed-income securities rated A or
higher by Standard & Poor's Rating Service ("S&P") or Moody's Investors Service,
Inc. ("Moody's"). The Fund considers the term "bond" to mean any debt security.
Under normal circumstances, the Fund invests at least 75% of its assets in:
o securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities;
o mortgage-backed securities representing an interest in a pool of mortgage
loans;
o debt securities and taxable municipal bonds rated, at the time of purchase,
in one of the top three categories by S&P or Moody's or, if not rated, in
the opinion of the Sub-Advisor, PCII, of comparable quality; and
o securities issued or guaranteed by the governments of Canada (Provincial or
Federal Government) or the United Kingdom payable in U.S. dollars.
The rest of the Fund's assets may be invested in:
o common stock and preferred stock that may be convertible (may be exchanged
for a fixed number of shares of common stock of the same issuer) or may be
non-convertible; or
o securities rated less than the three highest grades of S&P or Moody's but
not lower than BBB- (S&P) or BAA3 (Moody's) (i.e., less than investment
grade).
Under unusual market or economic conditions, the Fund may invest up to 100% of
its assets in cash and cash equivalents.
Main Risks
The average portfolio duration of the Fund normally is greater than six years
and is based on PCII's forecast for interest rates. Duration is a measure of the
expected life of a fixed-income security that is used to determine the
sensitivity of a security's price to changes in interest rates. For example, if
the portfolio duration of the Fund is six years, a change of 1% in the Fund's
yield results in a change of approximately 6% in the value of the Fund's
securities. The longer a security's duration, the more sensitive it is to
changes in interest rates. A Fund with a longer average portfolio duration will
be more sensitive to changes in interest rates than a Fund with a shorter
average portfolio duration.
Although some of the securities the Fund purchases are backed by the U.S.
government and its agencies, shares of the Fund are not guaranteed. The values
of U.S. Government securities change as interest rates fluctuate. Fluctuations
in the value of the Fund's securities do not affect interest income on
securities already held by the Fund, but are reflected in the Fund's price per
share.
When interest rates fall, the price of a bond rises and when interest rates
rise, the price declines. In addition, the value of securities held by the Fund
may be affected by factors such as credit rating of the entity that issued the
bond and effective maturities of the bond. Lower quality and longer maturity
bonds will be subject to greater credit risk and price fluctuations than higher
quality and shorter maturity bonds.
As with all mutual funds, as the value of the Fund's assets rise and fall, the
Fund's share price changes. If the investor sells Fund shares when their value
is less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking
diversification by investing in a fixed-income mutual fund.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.40% 0.40%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 0.78% 0.66%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $80 $249
Preferred Class 67 211
Since December, 2000 Co-Manager: Kevin W. Croft, CFA. As a portfolio
(Fund's inception) manager for PCII, Mr. Croft has direct
responsibility for $950 million invested in
fixed-income portfolios. He joined the Principal
Financial Group in 1988. He earned his Master's
and Bachelor's degrees from Drake University. He
has earned the right to use the Chartered
Financial Analyst designation.
Since December, 2000 Co-Manager: Martin J. Schafer. Mr. Schafer is a
(Fund's inception) portfolio manager for PCII specializing in the
management of mortgage-backed securities
utilizing an active, total return approach.
He joined the Principal Financial Group in 1977.
He holds a BBA in Accounting and Finance from the
University of
Iowa.
BALANCED FUND
The Fund seeks to generate a total return consisting of current income and
long-term growth of capital.
Main Strategies
The Fund seeks growth of capital and current income by investing primarily in
common stocks and corporate bonds. It may also invest in other equity
securities, government bonds and notes (obligations of the U.S. government or
its agencies or instrumentalities) and cash. Though the percentages in each
category are not fixed, common stocks generally represent 40% to 70% of the
Fund's assets. The remainder of the Fund's assets is invested in bonds and cash.
Invista serves as Sub-Advisor for the portion of the Fund's portfolio that is
invested in equity securities. In making its selection Invista looks for
companies that have predictable earnings and which, based on growth prospects,
it believes are undervalued in the marketplace. Invista buys stocks with the
objective of long-term capital appreciation. From time to time, Invista
purchases stocks with the expectation of price appreciation over the short-term.
In response to changes in economic conditions, Invista may change the make-up of
the portfolio and emphasize different market sectors by buying and selling the
portfolio's stocks. The Fund may invest up to 25% of its assets in securities of
foreign companies.
PCII serves as Sub-Advisor for the portion of the Fund's portfolio that is
invested in fixed-income securities. Fixed-income securities are purchased to
generate income and for capital appreciation purposes when PCII thinks that
declining interest rates may increase market value. Deep discount bonds (those
which sell at a substantial discount from their face amount) are also purchased
to generate capital appreciation. The Fund may invest in bonds with speculative
characteristics but does not intend to invest more than 5% of its assets in
securities rated below BBB by Standard & Poor's Rating Service or Baa by Moody's
Investors Service, Inc. Fixed-income securities that are not investment grade
are commonly referred to as "junk bonds" or high yield securities. These
securities offer a higher yield than other, higher rated securities, but they
carry a greater degree of risk and are considered speculative by the major
credit rating agencies.
Main Risks
The value of the stocks owned by the Fund changes on a daily basis. Stock prices
reflect the activities of individual companies as well as general market and
economic conditions. In the short-term, stock prices can fluctuate dramatically
in response to these factors. Foreign stocks carry risks that are not generally
found in stocks of U.S. companies. These include the risk that a foreign
security could lose value as a result of political, financial and economic
events in foreign countries. In addition, foreign securities may be subject to
securities regulators with less stringent accounting and disclosure standards
than are required of U.S. companies.
Fixed-income security values change daily. Their prices reflect changes in
interest rates, market conditions and announcements of other economic, political
or financial information. When interest rates fall, the price of a bond rises
and when interest rates rise, the price declines.
Because the Fund invests in both stocks and bonds, the Fund may underperform
stock funds when stocks are in favor and underperform bond funds when bonds are
in favor. As with all mutual funds, as the value of the Fund's assets rise and
fall, the Fund's share price changes. If the investor sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking current income
as well as long-term growth of capital.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.50% 0.50%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 0.88% 0.76%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $90 $281
Preferred Class 78 243
Since December, 2000 Co-Manager: William C. Armstrong, CFA. Mr. Armstrong
(Fund's inception) leads the multi-sector/core portfolio management
group for PCII's stable value division.
Mr. Armstrong has been with the Principal
Financial Group since 1992. He earned his
Master's degree from the University of Iowa and
his Bachelor's degree from Kearney State College.
He has earned the right to use the Chartered
Financial Analyst designation.
Since December, 2000 Co-Manager: Judith A. Vogel, CFA. Ms. Vogel is a
(Fund's inception) portfolio manager for domestic core and
balanced portfolios. Ms. Vogel joined the Principal
Financial Group in 1982 as a strategist and was
one of Invista's founding members in 1985.
She earned her Bachelor's degree in Business
Administration from Central College. She has earned
the right to use the Chartered Financial Analyst
designation.
Since December, 2000 Co-Manager: Mary Sunderland, CFA. Ms. Sunderland
(Fund's inception) manages the large-cap growth portfolios for Invista.
She joined Invista in early 2000 following a 10-year
career with Skandia Asset Management where she
directed their more than $2.5 billion U.S. Equity
Large Cap Growth portfolios and U.S. Technology
portfolios. Ms. Sunderland earned her MBA from the
Columbia University Graduate School of Business and
her Bachelor's degree from Northwestern University.
She has earned the right to use the Chartered
Financial Analyst designation.
LARGECAP BLEND FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of large capitalization companies.
Under normal market conditions, the Fund invests at least 65% of its assets in
companies with a market capitalization of greater than $10 billion at the time
of purchase. Market capitalization is defined as total current market value of a
company's outstanding common stock.
In selecting securities for investment, the Sub-Advisor, Invista, looks
at stocks with value and/or growth characteristics and constructs an investment
portfolio that has a "blend" of stocks with these characteristics. In managing
the assets of the Fund, Invista does not have a policy of preferring one of
these categories to the other. The value orientation emphasizes buying stocks at
less than their investment value and avoiding stocks whose price has been
artificially built up. The growth orientation emphasizes buying stocks of
companies whose potential for growth of capital and earnings is expected to be
above average.
Invista uses a bottom-up approach in its selection of individual securities.
Selection is based on fundamental analysis of a company relative to other
companies with the focus being on Invista's estimation of forward-looking rates
of return. Up to 25% of Fund assets may be invested in foreign securities.
Invista focuses its stock selections on established companies that it believes
have a sustainable competitive advantage. Invista constructs a portfolio that is
"benchmark aware" in that it is sensitive to the sector (companies with similar
characteristics) and security weightings of its benchmark. However, the Fund is
actively managed and prepared to over- and/or under-weight sectors and
industries differently from the benchmark.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility, which
is the principal risk of investing in the Fund.
Foreign securities carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization stocks, may underperform compared to other market segments
or to the equity markets as a whole. Because certain of the securities purchased
by the Fund present greater opportunities for growth because of high potential
earnings growth, they may also involve greater risk than securities that do not
have the same potential. The value of the Fund's equity securities may fluctuate
on a daily basis. As with all mutual funds, as the value of the Fund's assets
rise and fall, the Fund's share price changes. If the investor sells Fund shares
when their value is less than the price the investor paid for them, the investor
will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks,
but who prefer investing in larger, established companies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.45% 0.45%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 0.83% 0.71%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $85 $265
Preferred Class 73 227
Since December, 2000 Mark T. Williams, CFA. Mr. Williams manages Invista's
(Fund's inception) research department conducting macroeconomic and
quantitative research as applied to domestic and
international economic trends and
forecasts. Previously, he served as a portfolio
manager with direct experience in the management
of core, value-oriented and growth-oriented
portfolios. He joined Invista in 1989 with seven
years prior experience in the technology
industry. Mr. Williams received his MBA from
Drake University and holds a Bachelor's degree in
Finance from the University of the State of New
York. He has earned the right to use the
Chartered Financial Analyst designation.
LARGECAP GROWTH FUND
The Fund seeks long-term growth of capital
Main Strategies
The Fund invests primarily in common stocks and other equity securities of large
capitalization companies with strong earnings growth potential. Under normal
market conditions, the Fund invests at least 65% of its assets in companies with
a market capitalization of greater than $10 billion at the time of purchase.
Market capitalization is defined as total current market value of a company's
outstanding common stock.
The Sub-Advisor, Invista, uses a bottom-up approach in its selection of
individual securities that it believes have an above average potential for
earnings growth. Selection is based on fundamental analysis of a company
relative to other companies with the focus being on Invista's assessment of
current and future sales growth and operating margins. Companies meeting these
criteria typically have progressed beyond the development stage and are focused
on growing the business. Up to 25% of Fund assets may be invested in foreign
securities.
Invista places strong emphasis on companies it believes are guided by high
quality management teams with a proven ability to execute. In addition, the Fund
attempts to identify and emphasize those companies that are market leaders
possessing the ability to control pricing and margins in their respective
industries. Invista constructs a portfolio that is "benchmark aware" in that it
is sensitive to the sector (companies with similar characteristics) and security
weightings of its benchmark. However, the Fund is actively managed and prepared
to over- and/or under-weight sectors and industries differently from the
benchmark.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility, which
is the principal risk of investing in the Fund.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization growth stocks, may underperform compared to other market
segments or to the equity markets as a whole. The securities purchased by the
Fund present greater opportunities for growth because of high potential earnings
growth, but may also involve greater risks than securities that do not have the
same potential. The value of the Fund's securities may fluctuate on a daily
basis. As with all mutual funds, as the value of the Fund's assets rise and
fall, the Fund's share price changes. If the investor sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical
performance data is not available. Annual Fund operating expenses are as
follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.55% 0.55%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 0.93% 0.81%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $95 $296
Preferred Class 83 259
Since December, 2000 Mary Sunderland, CFA. Ms. Sunderland manages the
(Fund's inception) large-cap growth portfolios for Invista.
She joined Invista in early 2000 following a
10-year career with Skandia Asset Management
where she directed their more than $2.5 billion
U.S. Equity Large Cap Growth portfolios and U.S.
Technology portfolios. Ms. Sunderland earned her
MBA from the Columbia University Graduate School
of Business and her Bachelor's degree from
Northwestern University. She has earned the
right to use the Chartered Financial Analyst
designation.
LARGECAP S&P 500 INDEX FUND
The Fund seeks long-term growth of capital.
Main Strategies
Under normal market conditions, the Fund invests at least 80% of its assets in
common stocks of companies that compose the Standard & Poor's* ("S&P") 500
Index. The Sub-Advisor, Invista, attempts to mirror the investment performance
of the index by allocating the Fund's assets in approximately the same
weightings as the S&P 500. The S&P 500 is an unmanaged index of 500 common
stocks chosen to reflect the industries of the U.S. economy and is often
considered a proxy for the stock market in general. Each stock is weighted by
its market capitalization which means large companies have greater
representation in the index than smaller ones. Over the long-term, Invista seeks
a very close correlation between performance of the Fund, before expenses, and
that of the S&P 500. It is unlikely that a perfect correlation of 1.00 will be
achieved.
The Fund uses an indexing strategy and is not managed according to traditional
methods of "active" investment management. Active management would include
buying and selling securities based on economic, financial and investment
judgement. Instead, the Fund uses a passive investment approach. Rather than
judging the merits of a particular stock in selecting investments, Invista
focuses on tracking the S&P 500. Invista may also use stock index futures as a
substitute for the sale or purchase of securities. It does not attempt to manage
market volatility, use defensive strategies or reduce the effect of any
long-term periods of poor stock performance.
The correlation between Fund and index performance may be affected by the Fund's
expenses, changes in securities markets, changes in the composition of the index
and the timing of purchases and sales of Fund shares. The Fund may invest in
futures and options, which could carry additional risks such as losses due to
unanticipated market price movements and could also reduce the opportunity for
gain.
Main Risks
Because of the difficulty and expense of executing relatively small stock
trades, the Fund may not always be invested in the less heavily weighted S&P 500
stocks. At times, the Fund's portfolio may be weighted differently from the S&P
500, particularly if the Fund has a small level of assets to invest. In
addition, the Fund's ability to match the performance of the S&P 500 is affected
to some degree by the size and timing of cash flows into and out of the Fund.
The Fund is managed to attempt to minimize such effects.
Invista reserves the right to omit or remove any of the S&P 500 stocks from the
Fund if it determines that the stock is not sufficiently liquid. In addition, a
stock might be excluded or removed from the Fund if extraordinary events or
financial conditions lead Invista to believe that it should not be a part of the
Fund's assets.
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization stocks, may underperform compared to other market segments
or to the equity markets as a whole. Because different types of stocks tend to
shift in and out of favor depending on market and economic conditions, the
Fund's performance may sometimes be lower or higher than that of other types of
funds.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. The current share price reflects the activities of individual
companies as well as general market and economic conditions. In the short-term,
stock prices can fluctuate dramatically in response to these factors.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital, willing to accept the potential for volatile fluctuations in
the value of investments and preferring a passive rather than active management
style.
* Standard & Poor's Corporation is not affiliated with the LargeCap S&P 500
Index Fund, Invista Capital Management, LLC or Principal Life Insurance
Company.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.15% 0.15%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 0.53% 0.41%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and
that the Fund's operating expenses remain the same. Based on these assumptions
your cost would be:
1 Year 3 Years
Select Class $54 $170
Preferred Class 42 132
Since December, 2000 Co-Manager: Robert Baur, Ph.D. Dr. Baur joined Invista
(Fund's inception) in 1995 after serving as a professor of finance and
economics at Drake University and Grand View College.
He received his Bachelor's degree in Mathematics
and his Ph.D. in Economics from Iowa State University.
Dr. Baur also did post-doctoral study in finance and
economics at the University of Minnesota. He also
holds a BS in Mathematics from Iowa State University.
Since December, 2000 Co-Manager: Rhonda VanderBeek. Ms. Vander Beek directs
(Fund's inception) trading operations for Invista index accounts. She
joined the Principal Financial Group in 1983 as a
trading statistical clerk and moved to Invista in
1992. Ms. Vander Beek has extensive experience
trading both domestic and international securities.
LARGECAP VALUE FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks and other equity securities of large
capitalization companies. Under normal market conditions, the Fund invests at
least 65% of its assets in companies with a market capitalization of greater
than $10 billion at the time of purchase. Market capitalization is defined as
total current market value of a company's outstanding common stock. Up to 25% of
Fund assets may be invested in foreign securities.
The Fund invests in stocks that, in the opinion of the Sub-Advisor, Invista, are
undervalued in the marketplace at the time of purchase. This value orientation
emphasizes buying stocks at less than their investment value and avoiding stocks
whose price has been artificially built up. Value stocks are often characterized
by below average price/earnings ratios (P/E) and above average dividend yields
relative to their peers. The Fund's investments are selected primarily on the
basis of fundamental security analysis, focusing on the company's financial
stability, sales, earnings, dividend trends, return on equity and industry
trends. The Fund often invests in stocks considered temporarily out of favor.
Investors often overreact to bad news and do not respond quickly to good news.
This results in undervalued stocks of the type held by the Fund.
Invista focuses its stock selections on established companies that it believes
have a sustainable competitive advantage. Invista constructs a portfolio that is
"benchmark aware" in that it is sensitive to the sector (companies with similar
characteristics) and security weightings of its benchmark. However, the Fund is
actively managed and prepared to over- and/or under-weight sectors and
industries differently from the benchmark.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility, which
is the principal risk of investing in the Fund.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization value stocks, may underperform compared to other market
segments or to the equity markets as a whole. The value of the Fund's securities
may fluctuate on a daily basis. As with all mutual funds, as the value of the
Fund's assets rise and fall, the Fund's share price changes. If the investor
sells Fund shares when their value is less than the price the investor paid for
them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks,
but who prefer investing in companies that appear to be considered undervalued
relative to similar companies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.45% 0.45%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 0.83% 0.71%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $85 $265
Preferred Class 73 227
Since December, 2000 John Pihlblad, CFA. Mr. Pihlblad is director of
(Fund's Inception) quantitative portfolio management for Invista.
He has over 24 years experience in creating and
managing quantitative investment systems. Prior
to joining Invista in 2000, Mr. Pihlblad was a
partner and co-founder of GlobeFlex Capital in
San Diego where he was responsible for the
development and implementation of the investment
process for both domestic and international
products. He received his BA from Westminster
College. He has earned the right to use the
Chartered Financial Analyst designation.
MIDCAP VALUE FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of medium capitalization companies.
Under normal market conditions, the Fund invests at least 65% of its assets in
companies with a market capitalization between $1 billion and $10 billion at the
time of purchase. Market capitalization is defined as total current market value
of a company's outstanding common stock. Up to 25% of Fund assets may be
invested in foreign securities.
The Fund invests in stocks that, in the opinion of the Sub-Advisor, Invista, are
undervalued in the marketplace at the time of purchase. This value orientation
emphasizes buying stocks at less than their inherent value and avoiding stocks
whose price has been artificially built up. Value stocks are often characterized
by below average price/earnings ratios (P/E) and above average dividend yields.
The Fund's investments are selected primarily on the basis of fundamental
security analysis, focusing on the company's financial stability, sales,
earnings, dividend trends, return on equity and industry trends. The Fund often
invests in stocks considered temporarily out of favor. Investors often over
react to bad news and do not respond quickly to good news. This results in
undervalued stocks of the type held by this Fund.
Invista focuses its stock selections on established companies that it believes
have a sustainable competitive advantage. Invista constructs a portfolio that is
"benchmark aware" in that it is sensitive to the sector (companies with similar
characteristics) and security weightings of its benchmark. However, the Fund is
actively managed and prepared to over- and/or under-weight sectors and
industries differently from the benchmark.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these midsize companies may pose greater risk due to narrow
product lines, limited financial resources, less depth in management or a
limited trading market for their securities.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
medium capitalization value stocks, may underperform compared to other market
segments or to the equity markets as a whole. Because different types of stocks
tend to shift in and out of favor depending on market and economic conditions,
the Fund's performance may sometimes be lower or higher than that of other types
of funds. The value of the Fund's equity securities may fluctuate on a daily
basis. If the investor sells Fund shares when their value is less than the price
the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the potential for short-term
fluctuations in the value of investments.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.65% 0.65%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.03% 0.91%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $105 $328
Preferred Class 93 290
Since December, 2000 Catherine A. Zaharis, CFA. Ms. Zaharis directs
(Fund's inception) portfolio management for the Invista value team
and leads the value research group. She joined
Invista in 1985. Ms. Zaharis received her MBA
from Drake University and her BBA in Finance from
the University of Iowa. She has earned the right
to use the Chartered Financial Analyst
designation.
PARTNERS LARGECAP BLEND FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund pursues its investment objective by investing primarily in equity
securities of companies that the Sub-Advisor believes offers superior growth
prospects or of companies whose stock is undervalued. Under normal market
conditions, the Fund invests at least 65% of its assets in companies with large
market capitalizations. Market capitalization is defined as total current market
value of a company's outstanding common stock.
In selecting securities for investment, the Sub-Advisor, Federated, looks at
stocks with value and/or growth characteristics and constructs an investment
portfolio that has a "blend" of stocks with these characteristics. The value
orientation emphasizes buying stocks at less than their intrinsic investment
value and avoiding stocks whose price has been unjustifiably built up. The
growth orientation emphasizes buying stocks of companies whose potential for
growth of capital and earnings is expected to be above average. Federated
attempts to identify good long-term values through disciplined investing and
careful fundamental research.
Using its own quantitative process, Federated rates the future performance
potential of companies. Federated evaluates each company's earnings quality in
light of its current valuation to narrow the list of attractive companies.
Federated then evaluates product positioning, management quality and
sustainability of current growth trends of those companies. Using this type of
fundamental analysis, Federated selects the most promising companies for the
Fund's portfolio.
Companies with similar characteristics may be grouped together in broad
categories called sectors. In determining the amount to invest in a security,
Federated limits the Fund's exposure to each business sector that comprises the
S&P 500 Index. The Fund's allocation to a sector will not be less than 50% or
more than 200% of the Index's allocation to that sector. The Fund may invest up
to 25% of its assets in securities of foreign companies.
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate short-term gains (losses)
for its shareholders, which are taxed at a higher rate than long-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility, which
is the principal risk of investing in the Fund.
The Fund is also subject to sector risk which is the possibility that a certain
sector may underperform other sectors or the market as a whole. As Federated
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments that generally affect that sector.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization stocks, may underperform compared to other market segments
or to the equity markets as a whole. Because certain of the securities purchased
by the Fund present greater opportunities for growth, they may also involve
greater risks than securities that do not have the same potential. The value of
the Fund's equity securities may fluctuate on a daily basis. As with all mutual
funds, as the value of the Fund's assets rise and fall, the Fund's share price
changes. If the investor sells Fund shares when their value is less than the
price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks,
but who prefer investing in larger, established companies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.75% 0.75%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.13% 1.01%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $115 $359
Preferred Class 103 322
Since December, 2000 Co-Manager: James E. Grefenstette, CFA. Mr. Grefenstette
(Fund's inception) joined Federated in 1992 and has been a Portfolio Manager
and a Vice President of Federated Investment Management
Company since 1996. From 1994 until 1996,Mr. Grefenstette
was a Portfolio Manager and an Assistant Vice President
of Federated Investment Management Company. Mr.
Grefenstette received his MS in Industrial
Administration from Carnegie Mellon University. He has
earned the right to use the Chartered Financial
Analyst designation.
Since December, 2000 Co-Manager: J. Thomas Madden, CFA. Mr. Madden joined
(Fund's inception) Federated as a Senior Portfolio Manager in 1977 and has
been an Executive Vice President of Federated Investment
Management Company since 1994. Mr. Madden served as a
Senior Vice President of Federated Investment Management
Company from 1989 to 1993. Mr. Madden received his MBA
with a concentration in Finance from the University of
Virginia. He has earned the right to use the Chartered
Financial Analyst designation.
Since December, 2000 Co-Manager: Bernard J. Picchi, CFA. Mr. Picchi joined
(Fund's inception) Federated in 1999 as a Senior Vice President/Director of
U.S. Equity Research for Federated Investment Management
Company. From 1994 to 1999, Mr. Picchi was a Managing
Director of Lehman Brothers where he initially served as
head of the energy sector group. During 1995 and most
of 1996, he served as U.S. Director of Stock
Research and in September 1996, he was named
Growth Stock Strategist. Mr. Picchi holds a BS in
foreign service from Georgetown University. He
has earned the right to use the Chartered
Financial Analyst designation.
Since December, 2000 Co-Manager: David P. Gilmore. Mr. Gilmore joined
(Fund's inception) Federated in August 1997 as an Investment Analyst. He was
promoted to Senior Investment Analyst in July 1999
and became an Assistant Vice President of Federated in
July 2000. Mr. Gilmore was a Senior Associate with
Coopers & Lybrand from January 1992 to May 1995. He
earned his M.B.A. from the University of Virginia and has
a B.S. from Liberty University. He has earned the right
to use the Chartered Financial Analyst designation.
PARTNERS LARGECAP GROWTH FUND I
The Fund seeks long-term growth of capital.
Main Strategies
The Fund seeks to maximize long-term capital appreciation by investing primarily
in growth-oriented equity securities of U.S. and, to a limited extent, foreign
companies that exhibit strong or accelerating earnings growth. These companies
are generally characterized as "growth" companies. The Fund will invest
primarily in companies with market capitalizations of $10 billion or more. The
Sub-Advisor, Morgan Stanley, emphasizes individual security selection and may
focus the Fund's holdings within the limits permissible for a diversified fund.
The Fund's investments in foreign companies will be limited to 25% of its assets
and to securities listed on U.S. exchanges or traded in U.S. Markets.
Morgan Stanley follows a flexible investment program in looking for companies
with above average capital appreciation potential. Morgan Stanley focuses on
companies with consistent or rising earnings growth records and compelling
business strategies. Morgan Stanley continually and rigorously studies company
developments, including business strategy, management focus and financial
results to identify companies with earnings growth and business momentum. In
addition, Morgan Stanley closely monitors analysts' expectations to identify
issuers that have the potential for positive earnings surprises versus consensus
expectations. Valuation is of secondary importance and is viewed in the context
of prospects for sustainable earnings growth and the potential for positive
earnings surprises in relation to consensus expectations.
The Fund has a long-term investment approach. However, Morgan Stanley considers
selling securities of issuers that no longer meet its criteria. To the extent
that the Fund engages in short-term trading, it may have increased transaction
costs.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of the securities
issued by such companies may decline. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Foreign securities carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization growth-oriented stocks, may underperform compared to other
market segments or to the equity markets as a whole. The securities purchased by
the Fund present greater opportunities for growth because of high potential
earnings growth, but may also involve greater risks than securities that do not
have the same potential. The value of the Fund's securities may fluctuate on a
daily basis. As with all mutual funds, as the value of the Fund's assets rise
and fall, the Fund's share price changes. If the investor sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.75% 0.75%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.13% 1.01%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $115 $359
Preferred Class 103 322
Since December, 2000 Co-Manager:William S. Auslander, Principal of Morgan
(Fund's inception) Stanley & Co. Incorporated and Morgan Stanley Dean
Witter Investment Management Inc. Mr. Auslander
joined Morgan Stanley in 1995 as an Equity Analyst
and currently is a Portfolio Manager in Morgan
Stanley's Institutional Equity Group. Prior thereto,
he was an Equity Analyst at Icahn & Co., 1986-1995.
He holds a BA in Economics from the University of
Wisconsin and an MBA from Columbia University.
Since December, 2000 Co-Manager: Philip W. Friedman, Managing Director of
(Fund's inception) Morgan Stanley & Co. Incorporated and Morgan Stanley
Dean Witter Investment Management Inc. He was a
member of Morgan Stanley & Co. Incorporated's Equity
Research team (1990-1995) before becoming Director of
North America Research (1995-1997). Currently Mr.
Friedman is head of Morgan Stanley's Institutional
Equity Group. He holds a BA from Rutgers University
and an MBA from the J.L. Kellogg School of Management
at Northwestern University.
PARTNERS LARGECAP GROWTH FUND II
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of large capitalization companies.
Market capitalization is defined as total current market value of a company's
outstanding common stock.
The Sub-Advisor, American Century, selects stocks for investment that it
believes will increase in value over time using a growth investment strategy it
developed. This strategy looks for companies whose earnings and revenues are not
only growing, but growing at a successively faster, or accelerating, pace.
Accelerating growth is shown, for example, by growth that is faster this quarter
than last or faster this year than the year before. The American Century
strategy is based on the premise that, over the long-term, the stocks of
companies with accelerating earnings and revenues have a greater than average
chance to increase in value.
Using its extensive computer database, American Century tracks financial
information for thousands of companies to research and select the stocks it
believes will be able to sustain accelerating growth. This information is used
to help American Century select or decide to continue to hold the stocks of
companies it believes will be able to sustain accelerating growth, and to sell
stocks of companies whose growth begins to slow down.
Under normal market conditions, American Century intends to keep the Fund
essentially fully invested in stocks regardless of the movement of stock prices
generally. When it considers it prudent, American Century may invest Fund assets
in non-leveraged futures and options. Non-leveraged means that the Fund may not
invest in futures and options where it would be possible to lose more than the
Fund invested. Futures and options can help the Fund's cash assets remain liquid
while performing more like stocks. In addition, up to 25% of Fund assets may be
invested in foreign securities.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization growth stocks, may underperform compared to other market
segments or to the equity markets as a whole. The securities purchased by the
Fund present greater opportunities for growth because of high potential earnings
growth, but may also involve greater risks than securities that do not have the
same potential. The value of the Fund's securities may fluctuate on a daily
basis. As with all mutual funds, as the value of the Fund's assets rise and
fall, the Fund's share price changes. If the investor sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 1.00% 1.00%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.38% 1.26%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $140 $437
Preferred Class 128 400
Since December, 2000 Co-Manager: Gregory Woodhams, CFA. Mr.
(Fund's inception) Woodhams is a Vice President and Portfolio
Manager for American Century Investments, Mr. Woodhams has
worked in the financial industry since 1992 and joined
American Century in 1997. Previously, he was Vice
President and Director of Equity Research at Texas
Commerce Bank. Mr. Woodhams holds a Bachelor's Degree in
Economics from Rice University and a Master's Degree in
Economics from the University of Wisconsin at Madison.
He has earned the right to use the Chartered Financial
Analyst designation.
Since December, 2000 Co-Manager: C. Kim Goodwin. Ms. Goodwin was named Co-Chief
(Fund's inception) Investment Officer for American Century's domestic growth
equity discipline in 2000. Previously she was Senior Vice
President and Senior Portfolio Manager and has been a
member of the team that manages Growth since joining
American Century in 1997. Before joining American Century,
she served as Senior Vice President and Portfolio Manager
at Putnam Investments from 1996 to 1997, and Vice
President and Portfolio Manager at Prudential Investments
from 1993 to 1996. Ms. Goodwin holds a Bachelor of Arts
Degree from Princeton University, an MBA in Finance
and a Master's Degree in Public Affairs from the
University of Texas.
Since December, 2000 Co-Manager: Prescott LeGard, CFA. Mr. LeGard is a
(Fund's inception) Portfolio Manager for American Century Investments. Mr.
LeGard joined the company in 1999. Before joining the
company, he was an Equity Analyst for USAA Investment
Management where he analyzed technology companies. He has
worked in the investment industry since 1993. Mr. LeGard
holds a BA Degree in Economics from DePauw
University. He has earned the right to use the
Chartered Financial Analyst designation.
PARTNERS LARGECAP VALUE FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in undervalued equity securities of companies among
the 750 largest by market capitalization that the Sub-Advisor, Bernstein,
believes offer above-average potential for growth in future earnings. Under
normal market conditions, the Fund generally invests at least 65% of its assets
in companies with a market capitalization of greater than $10 billion at the
time of purchase. Market capitalization is defined as total current market value
of a company's outstanding common stock. The Fund may invest up to 25% of its
assets in securities of foreign companies.
Bernstein employs an investment strategy, generally described as "value"
investing, that involves seeking securities that:
o exhibit low financial ratios (particularly stock price-to-book value, but also
stock price-to-earnings and stock price-to-cash flow);
o can be acquired for less than what Bernstein believes is the issuer's
intrinsic value; or o appear attractive on a dividend discount model.
Value oriented investing entails a strong "sell discipline" in that it generally
requires the sale of securities that have reached their intrinsic value or a
target financial ratio. Value oriented investments may include securities of
companies in cyclical industries during periods when such securities appear to
Bernstein to have strong potential for capital appreciation or securities of
"special situation" companies. A special situation company is one that Bernstein
believes has potential for significant future earnings growth but has not
performed well in the recent past. These situations include companies with
management changes, corporate or asset restructuring or significantly
undervalued assets. For Bernstein, identifying special situation companies and
establishing an issuer's intrinsic value involves fundamental research about
such companies and issuers.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization value stocks, may underperform compared to other market
segments or to the equity markets as a whole. The value of the Fund's securities
may fluctuate on a daily basis. As with all mutual funds, as the value of the
Fund's assets rise and fall, the Fund's share price changes. If the investor
sells Fund shares when their value is less than the price the investor paid for
them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
but prefer investing in companies that appear to be considered undervalued
relative to similar companies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.80% 0.80%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.18% 1.06%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at the
end of those periods. The Examples also assume that your
investment has a 5% return each year and that the Fund's
operating expenses remain the same. Based on these assumptions
your cost would be:
1 Year 3 Years
Select Class $120 $375
Preferred Class 108 337
Since December, 2000 Co-Manager: Marilyn G.Fedak. Ms. Fedak, Chief Investment
(Fund's inception) Officer of U.S. Value Equities and Chairman of the U.S.
Equity Investment Policy Group of the Bernstein
Investment Research and Management unit of Alliance
Capital Management L.P. ("Alliance") since October 2000
and prior to that at Sanford C. Bernstein & Co., Inc.
(SCB Inc.") since 1993. She joined SCB Inc. in 1984 and
has managed portfolio investments since 1976. She has a
BA from Smith College and an MBA from Harvard Business
School.
Since December, 2000 Co-Manager: Steven Pisarkiewicz. Mr. Pisarkiewicz has
(Fund's inception) been with Alliance since October 2000 and prior to that
with SCB Inc. since 1989 and has been Senior Portfolio
Manager since 1997. He holds a BS from the University
of Missouri and an MBA from the University of California
at Berkeley.
PARTNERS MIDCAP VALUE FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of medium capitalization companies.
Under normal market conditions, the Account invests at least 65% of its total
assets in companies with a market capitalization between $1 billion and $10
billion at the time of purchase. The Fund may continue to hold or add to a
position in a stock after it has grown beyond $10 billion. Market capitalization
is defined as total current market value of a company's outstanding common
stock. Companies may range from the well established and well known to the new
and unseasoned. The Fund may invest up to 25% of its assets in securities of
foreign companies.
The stocks are selected using a value oriented investment approach by Neuberger
Berman, the Sub-Advisor. Neuberger Berman identifies value stocks in several
ways. Factors it considers in identifying value stocks may include:
o strong fundamentals, such as a company's financial, operational and
competitive positions;
o consistent cash flow; and
o a sound earnings record through all phases of the market cycle.
Neuberger Berman may also look for other characteristics in a company, such as a
strong position relative to competitors, a high level of stock ownership among
management, and a recent sharp decline in stock price that appears to be the
result of a short-term market overreaction to negative news. Neuberger Berman
believes that, over time, securities that are undervalued are more likely to
appreciate in price and are subject to less risk of price decline than
securities whose market prices have already reached their perceived economic
value.
This approach also involves selling portfolio securities when Neuberger Berman
believes they have reached their potential, when the securities fail to perform
as expected or when other opportunities appear more attractive. It is
anticipated that the annual portfolio turnover rate may be greater than 100%.
Turnover rates in excess of 100% generally result in higher transaction costs
and a possible increase in short-term capital gains (or losses).
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of the securities
issued by such companies may decline. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these mid-sized companies may pose greater risk due to narrow
product lines, limited financial resources, less depth in management or a
limited trading market for their securities.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
medium capitalization value stocks, may underperform compared to other market
segments or to the equity markets as a whole. Because different types of stocks
tend to shift in and out of favor depending on market and economic conditions,
the Fund's performance may sometimes be lower or higher than that of other types
of funds. The value of the Fund's equity securities may fluctuate on a daily
basis. If the investor sells Fund shares when their value is less than the price
the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment if investors seeking long-term
growth and willing to accept short-term fluctuations in the value of
investments. Because the inception date of the Fund is December 2000, historical
performance data is not available. Annual Fund operating expenses are as
follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 1.00% 1.00%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.38% 1.26%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at the
end of those periods. The Examples also assume that your
investment has a 5% return each year and that the Fund's
operating expenses remain the same. Based on these assumptions
your cost would be:
1 Year 3 Years
Select Class $140 $437
Preferred Class 128 400
Since December, 2000 Robert I. Gendelman, Managing Director and Portfolio
(Fund's inception) Manager, Neuberger Berman Management, Inc., since 1994.
He holds a BA from the University of Michigan as well
as a JD and an MBA from the University of Chicago.
REAL ESTATE FUND
The Fund seeks to generate a total return.
Main Strategies
The Fund invests primarily in equity securities of companies
principally engaged in the real estate industry. For purposes of the Fund's
investment policies, a real estate company has at least 50% of its assets,
income or profits derived from products or services related to the real estate
industry. Real estate companies include real estate investment trusts and
companies with substantial real estate holdings such as paper, lumber, hotel and
entertainment companies. Companies whose products and services relate to the
real estate industry include building supply manufacturers, mortgage lenders and
mortgage servicing companies.
Real estate investment trusts ("REITs") are corporations or business
trusts that are permitted to eliminate corporate level federal income taxes by
meeting certain requirements of the Internal Revenue Code ("Code"). REITs are
characterized as: o equity REITs, which primarily own property and generate
revenue from rental income; o mortgage REITs, which invest in real estate
mortgages; and o hybrid REITs, which combine the characteristics of both equity
and mortgage REITs. In selecting securities for the Fund, the Sub-Advisor,
PCREI, focuses on equity REITs.
The Fund may invest up to 25% of its assets in securities of foreign real estate
companies.
Main Risks
Securities of real estate companies are subject to securities market risks as
well as risks similar to those of direct ownership of real estate. These
include: o declines in the value of real estate o risks related to general and
local economic conditions o dependency on management skills o heavy cash flow
dependency o possible lack of available mortgage funds o overbuilding o extended
vacancies in properties o increases in property taxes and operating expenses o
changes in zoning laws o expenses incurred in the cleanup of environmental
problems o casualty or condemnation losses o changes in interest rates
In addition to the risks listed above, equity REITs are affected by the
changes in the value of the properties owned by the trust. Mortgage REITs are
affected by the quality of the credit extended. Both equity and mortgage REITs:
o are dependent upon management skills and might not be diversified; o are
subject to cash flow dependency and defaults by borrowers; and o could fail to
qualify for tax-free pass-through of income under the Code.
Because of these factors, the value of the securities held by the Fund,
and in turn the price per share of the Fund, changes on a daily basis. The
current share price reflects the activities of individual companies as well as
general market and economic conditions. In the short-term, share prices can
fluctuate dramatically in response to these factors. Because of these
fluctuations, principal values and investment returns vary. As with all mutual
funds, the value of the Fund's assets may rise or fall. If the investor sells
Fund shares when their value is less than the price the investor paid for them,
the investor will lose money.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
Investor Profile
The Fund is generally a suitable investment for investors who seek a total
return, want to invest in companies engaged in the real estate industry and are
willing to accept the potential for volatile fluctuations in the value of
investments.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.85% 0.85%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.23% 1.11%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $125 $390
Preferred Class 113 353
Since December, 2000 Kelly D. Rush, CFA. Mr. Rush directs the Real Estate
(Fund's inception) Investment Trust (REIT) activity for PCREI. Mr. Rush
joined the Principal Financial Group in 1987 and has
been dedicated to public real estate investments since
1995. His experience includes the structuring of
public real estate transactions that included
commercial mortgage loans and the issuance of
unsecured bonds. He received his Master's degree
and Bachelor's degree in Finance from the University
of Iowa. He has earned the right to use the
Chartered Financial Analyst designation.
MIDCAP BLEND FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks and other equity securities of
medium capitalization companies. Under normal market conditions, the Fund
invests at least 65% of its assets in companies with a market capitalization
between $1 billion and $10 billion at the time of purchase. Market
capitalization is defined as total current market value of a company's
outstanding common stock.
In selecting securities for investment, the Sub-Advisor, Invista, looks
at stocks with value and/or growth characteristics and constructs an investment
portfolio that has a "blend" of stocks with these characteristics. In managing
the assets of the Fund, Invista does not have a policy of preferring one of
these categories to the other. The value orientation emphasizes buying stocks at
less than their inherent value and avoiding stocks whose price has been
artificially built up. The growth orientation emphasizes buying stocks of
companies whose potential for growth of capital and earnings is expected to be
above average.
Invista uses a bottom-up approach in its selection of individual securities.
Selection is based on fundamental analysis of a company relative to other
companies with the focus being on Invista's estimation of forward-looking rates
of return. Up to 25% of Fund assets may be invested in foreign securities.
Invista focuses its stock selections on established companies that it believes
have a sustainable competitive advantage. Invista constructs a portfolio that is
"benchmark aware" in that it is sensitive to the sector (companies with similar
characteristics) and security weightings of its benchmark. However, the Fund is
actively managed and prepared to over- and/or under-weight sectors and
industries differently from the benchmark.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these midsize companies may pose greater risk due to narrow
product lines, limited financial resources, less depth in management or a
limited trading market for their securities.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
medium capitalization stocks, may underperform compared to other market segments
or to the equity markets as a whole. Because different types of stocks tend to
shift in and out of favor depending on market and economic conditions, the
Fund's performance may sometimes be lower or higher than that of other types of
funds. The value of the Fund's equity securities may fluctuate on a daily basis.
If the investor sells Fund shares when their value is less than the price the
investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking
long-term growth of capital and willing to accept the potential for short-term
fluctuations in the value of investments.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.65% 0.65%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.03% 0.91%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $105 $328
Preferred Class 93 290
Since December, 2000 K. William Nolin, CFA. Mr. Nolin has managed the domestic
(Fund's inception) mid-cap products since 1999. His expertise is grounded
in the telecommunications, media & entertainment, lodging
and consumer non-durables sectors. Mr. Nolin joined the
Principal Financial Group in 1993 as an investment credit
analyst. He earned his MBA from the Yale School of
Management and his Bachelor's degree in Finance from the
University of Iowa. He has earned the right to use
the Chartered Financial Analyst designation.
MIDCAP GROWTH FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of medium capitalization companies
with strong earnings growth potential. Under normal market conditions, the Fund
invests at least 65% of its assets in companies with a market capitalization
between $1 billion and $10 billion at the time of purchase. Market
capitalization is defined as total current market value of a company's
outstanding common stock.
The Sub-Advisor, Invista, uses a bottom-up approach in its selection of
individual securities that it believes have an above average potential for
earnings growth. Selection is based on fundamental analysis of a company
relative to other companies with the focus being on Invista's assessment of
current and future sales growth and operating margins. Up to 25% of Fund assets
may be invested in foreign securities.
Invista focuses its stock selections on established companies that it believes
to have sustainable competitive advantages and reasonable stock prices. It then
constructs a portfolio that is "benchmark aware" in that it is sensitive to the
sector (companies with similar characteristics) and security weightings of its
benchmark. However, the Fund is actively managed and prepared to over-and/or
under-weight sectors and industries differently from the benchmark.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these midsize companies may pose greater risk due to narrow
product lines, limited financial resources, less depth in management or a
limited trading market for their securities.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
medium capitalization growth stocks, may underperform compared to the equity
markets as a whole. The securities purchased by the Fund present greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than securities that do not have the same potential. The
value of the Fund's equity securities may fluctuate on a daily basis. As with
all mutual funds, as the value of the Fund's assets rise and fall, the Fund's
share price changes. If the investor sells Fund shares when their value is less
than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.65% 0.65%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.03% 0.91%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $105 $328
Preferred Class 93 290
Since December, 2000 John F. McClain. Mr. McClain is a portfolio manager for
(Fund's inception) small company and medium company growth products. He
joined Invista in 1990. Previously, he was an investment
executive with Paine Webber. He earned an MBA from
Indiana University and a BBA in Economics from the
University of Iowa.
MIDCAP S&P 400 INDEX FUND
The Fund seeks long-term growth of capital.
Main Strategies
Under normal market conditions, the Fund invests at least 80% of its assets in
common stocks of companies that compose the Standard & Poor's* ("S&P") MidCap
400 Index. The Sub-Advisor, Invista, will attempt to mirror the investment
performance of the index by allocating the Fund's assets in approximately the
same weightings as the S&P MidCap 400. The S&P MidCap 400 is an unmanaged index
of 400 common stocks of medium sized U.S. (and some Canadian) companies. Each
stock is weighted by its market capitalization which means larger companies have
greater representation in the index than smaller ones. Over the long-term,
Invista seeks a very close correlation between performance of the Fund, before
expenses, and that of the S&P MidCap 400. It is unlikely that a perfect
correlation of 1.00 will be achieved.
The Fund uses an indexing strategy and is not managed according to traditional
methods of "active" investment management. Active management would include
buying and selling securities based on economic, financial and investment
judgement. Instead, the Fund uses a passive investment approach. Rather than
judging the merits of a particular stock in selecting investments, Invista
focuses on tracking the S&P MidCap 400. Invista may also use stock index futures
as a substitute for the sale or purchase of securities. It does not attempt to
manage market volatility, use defensive strategies or reduce the effect of any
long-term periods of poor stock performance.
The correlation between Fund and index performance may be affected by the Fund's
expenses, changes in securities markets, changes in the composition of the index
and the timing of purchases and sales of Fund shares. The Fund may invest in
futures and options, which could carry additional risks such as losses due to
unanticipated market price movements, and could also reduce the opportunity for
gain.
Main Risks
Because of the difficulty and expense of executing relatively small stock
trades, the Fund may not always be invested in the less heavily weighted S&P
MidCap 400 stocks. At times, the Fund's portfolio may be weighted differently
from the S&P MidCap 400, particularly if the Fund has a small level of assets to
invest. In addition, the Fund's ability to match the performance of the S&P
MidCap 400 is affected to some degree by the size and timing of cash flows into
and out of the Fund. The Fund attempts to minimize such effects.
Invista reserves the right to omit or remove any of the S&P MidCap 400 stocks
from the Fund if it determines that the stock is not sufficiently liquid. In
addition, a stock might be excluded or removed from the Fund if extraordinary
events or financial conditions lead Invista to believe that it should not be a
part of the Fund's assets.
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these midsize companies may pose greater risk due to narrow
product lines, limited financial resources, less depth in management or a
limited trading market for their securities.
In addition, the Fund is subject to the risk that its principal market segment,
medium capitalization stocks, may underperform compared to other market segments
or to the equity markets as a whole. Because different types of stocks tend to
shift in and out of favor depending on market and economic conditions, the
Fund's performance may sometimes be lower or higher than that of other types of
funds.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. The current share price reflects the activities of individual
companies as well as general market and economic conditions. In the short-term,
stock prices can fluctuate dramatically in response to these factors.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital, willing to accept the potential for volatile fluctuations in
the value of investments and preferring a passive rather than active management
style.
* Standard & Poor's Corporation is not affiliated with the MidCap S&P 400 Index
Fund, Invista Capital Management LLC or Principal Life Insurance Company.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.15% 0.15%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 0.53% 0.41%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $54 $170
Preferred Class 42 132
Since December, 2000 Co-Manager: Robert Baur, Ph.D. Dr. Baur joined Invista
(Fund's inception) in 1995 after serving as a professor of finance and
economics at Drake University and Grand View College.
He received his Bachelor's degree in Mathematics and
his Ph.D. in Economics from Iowa State University.
Dr. Baur also did post-doctoral study in finance and
economics at the University of Minnesota. He also
holds a BS in Mathematics from Iowa State University.
Since December, 2000 Co-Manager: Rhonda VanderBeek. Ms. Vander Beek directs
(Fund's inception) trading operations for Invista index accounts. She
joined the Principal Financial Group in 1983 as a
trading statistical clerk and moved to Invista in
1992. Ms. Vander Beek has extensive experience trading
both domestic and international securities.
PARTNERS MIDCAP GROWTH FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks and other equity securities of U.S.
companies with strong earnings growth potential. Under normal market conditions,
the Fund invests at least 65% of its assets in companies with market
capitalizations between $1 billion and $10 billion at the time of purchase.
Market capitalization is defined as total current market value of a company's
outstanding common stock.
The Fund invests in securities of companies that are diversified across economic
sectors. It attempts to maintain sector concentrations that approximate those of
its current benchmark, the Russell MidCap Growth Index. The Fund is not an index
fund and does not limit its investment to the securities of issuers in the
Russell MidCap Growth Index. The Fund may invest up to 25% of its assets in
securities of foreign companies.
The Sub-Advisor, Turner, selects stocks that it believes have strong earnings
growth potential. Turner invests in companies with strong earnings dynamics, and
sells those with deteriorating earnings prospects. Turner believes forecasts for
market timing and sector rotation are unreliable and introduce an unacceptable
level of risk. As a result, under normal market conditions the Fund is fully
invested.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher taxable distributions and lower performance due to
increased brokerage costs.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these midsize companies may pose greater risk due to narrow
product lines, limited financial resources, less depth in management or a
limited trading market for their securities.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
medium capitalization growth stocks, may underperform compared to the equity
markets as a whole. The securities purchased by the Fund present greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than securities that do not have the same potential. The
value of the Fund's equity securities may fluctuate on a daily basis. As with
all mutual funds, as the value of the Fund's assets rise and fall, the Fund's
share price changes. If the investor sells Fund shares when their value is less
than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 1.00% 1.00%
Other Expenses* 0.38 0.26
Total Fund Operating Expenses 1.38% 1.26%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $140 $437
Preferred Class 128 400
Since December, 2000 Co-Manager: Robert E. Turner, CFA. Mr. Turner, Chairman
(Fund's inception) and Chief Investment Officer, founded Turner Investment
Partners, Inc. in 1990. Prior to 1990, he was Senior
Investment Manager with Meridian Investment Company.
He has 17 years of investment experience. He has
earned the right to use the Chartered Financial Analyst
designation.
Since December, 2000 Co-Manager: Christopher K. McHugh. Mr. McHugh joined
(Fund's inception) Turner Investment Partners, Inc. in 1990. He holds a BS
in Accounting from Philadelphia College of Textiles and
Science and an MBA in Finance from St. Joseph's
University.
Since December, 2000 Co-Manager: William C. McVail. Mr. McVail, Senior
(Fund's inception) Equity Portfolio Manager, joined Turner in 1998. Prior
thereto, he was Portfolio Manager at PNC Equity
Advisers. He has 12 years of investment experience.
PARTNERS SMALLCAP GROWTH FUND I
The Fund seeks long-term growth of capital.
Main Strategies
To pursue its goal, the Fund invests mainly in common stocks of
small-capitalization companies, which it defines as those with a total market
value of no more than $1.5 billion at the time the Fund first invests in them.
The Fund may continue to hold or add to a position in a stock after it has grown
beyond $1.5 billion. The Fund seeks to reduce risk by diversifying among many
companies and industries. In addition, the Fund may invest up to 25% of its
assets in securities of foreign companies.
The Sub-Advisor, Neuberger Berman, takes a growth approach to selecting stocks,
looking for new companies that are in the developmental stage as well as older
companies that appear poised to grow because of new products, markets or
management. Factors in identifying these firms may include financial strength, a
strong position relative to competitors and a stock price that is reasonable in
light of its growth rate.
Neuberger Berman follows a disciplined selling strategy and may eliminate a
stock from the portfolio when it reaches a target price, fails to perform as
expected, or appears substantially less desirable than another stock.
Through active trading, the Fund may have a high portfolio turnover rate. High
turnover rates can mean higher taxable distributions and lower performance due
to increased brokerage costs.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility, which
is the principal risk of investing in the Fund.
Investments in companies with smaller market capitalizations may involve greater
risks and price volatility (wide, rapid fluctuations) than investments in
larger, more mature companies. Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become established. While small, unseasoned companies may offer greater
opportunities for capital growth than larger, more established companies, they
also involve greater risks and should be considered speculative.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
small capitalization growth stocks, may underperform compared to the equity
markets as a whole. The securities purchased by the Fund present greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than securities that do not have the same potential. The
value of the Fund's equity securities may fluctuate on a daily basis. As with
all mutual funds, as the value of the Fund's assets rise and fall, the Fund's
share price changes. The Fund's share price may fluctuate more than that of
funds primarily invested in stocks of mid and large-sized companies and may
underperform as compared to the securities of larger companies. If the investor
sells Fund shares when their value is less than the price the investor paid for
them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000,
historical performance data is not available. Annual Fund operating expenses are
as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 1.10% 1.10%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.48% 1.36%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $151 $468
Preferred Class 138 431
Since December, 2000 Co-Manager: Michael F. Malouf. Mr. Malouf is a Vice
(Fund's inception) President of Neuberger Berman Management and Managing
Director of Neuberger Berman, LLC. Mr. Malouf joined
the firm in 1998. From 1991 to 1998, he was a
Portfolio Manager at another firm.
Since December, 2000 Co-Manager: Jennifer K. Silver. Ms. Silver is a Vice
(Fund's inception) President of Neuberger Berman Management and Managing
Director of Neuberger Berman, LLC. Ms. Silver has
been Director of the Growth Equity Group since 1997
and was an Analyst and a Portfolio Manager at another
firm from 1981 to 1997.
PARTNERS SMALLCAP GROWTH FUND II
The Fund seeks long-term growth of capital.
Main Strategies
The Fund pursues its investment objective by investing primarily in equity
securities of companies offering superior prospects for earnings growth. These
companies are generally characterized as "growth" companies. Under normal market
conditions, the Fund invests at least 65% of its assets in companies with a
small market capitalization. Market capitalization is defined as total current
market value of a company's outstanding common stock. The Fund may invest up to
25% of its assets in securities of foreign companies.
Using its own quantitative process, the Sub-Advisor, Federated, rates the future
performance potential of companies. Federated evaluates each company's earnings
quality in light of their current valuation to narrow the list of attractive
companies. Federated then evaluates product positioning, management quality and
sustainability of current growth trends of those companies. Using this type of
fundamental analysis, Federated selects the most promising companies for the
Fund's portfolio.
Companies with similar characteristics may be grouped together in broad
categories called sectors. In determining the amount to invest in a security,
Federated limits the Fund's exposure to each business sector that comprises the
S&P 500 Index. The Fund considers its approach aggressive because its strategies
with respect to security analysis, market capitalization, and sector allocation
are designed to produce a portfolio of stocks whose long-term growth prospects
are significantly above those of the S&P 500 Index. Accordingly, the prices of
the stocks held by the Fund may, under certain market conditions, be more
volatile than the prices of stocks selected using a less aggressive approach.
The Fund may attempt to manage market risk by buying and selling financial
futures and options. This may include the purchase of index futures contracts as
a substitute for direct investments in stocks. It may also include the purchase
and sale of options to protect against general declines in small capitalization
stocks economically.
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate short-term gains (losses)
for its shareholders, which are taxed at a higher rate than long-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility, which
is the principal risk of investing in the Fund.
Investments in companies with smaller market capitalizations may involve greater
risks and price volatility (wide, rapid fluctuations) than investments in
larger, more mature companies. Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become established. While small, unseasoned companies may offer greater
opportunities for capital growth than larger, more established companies, they
also involve greater risks and should be considered speculative.
Federated may group companies with similar characteristics into broad categories
called sectors. Sector risk is the possibility that a certain sector may
underperform other sectors or the market as a whole. As Federated allocates more
of the Fund's portfolio holdings to a particular sector, the Fund's performance
will be more susceptible to any economic, business or other developments that
generally affect that sector.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
small capitalization growth stocks, may underperform compared to the equity
markets as a whole. The securities purchased by the Fund present greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than securities that do not have the same potential. The
value of the Fund's equity securities may fluctuate on a daily basis. As with
all mutual funds, as the values of the Fund's assets rise and fall, the Fund's
share price changes. The Fund's share price may fluctuate more than that of
funds primarily invested in stocks of mid and large-sized companies and may
underperform as compared to the securities of larger companies. If shares are
sold when their value is less than the price paid, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 1.00% 1.00%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.38% 1.26%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $140 $437
Preferred Class 128 400
Since December, 2000 Co-Manager: Keith J. Sabol, CFA. Mr. Sabol joined
(Fund's inception) Federated in 1994. He has been a Portfolio Manager
since 1996 and served as an Assistant Vice President
of Federated Investment Management Company from 1997
to 1998. He has been a Vice President of Federated
Investment Management Company since 1998. Mr. Sabol
was an Investment Analyst, and then Equity Research
Coordinator for Federated Investment Management
Company from 1994 to 1996. Mr. Sabol earned his MS in
Industrial Administration from Carnegie Mellon
University. He has earned the right to use the
Chartered Financial Analyst designation.
Since December, 2000 Co-Manager: Aash M. Shah, CFA. Mr. Shah joined
(Fund's inception) Federated in 1993 and has been a Portfolio Manager and
a Vice President of Federated Investment Management
Company since 1997. Mr. Shah was a Portfolio Manager
and served as an Assistant Vice President of Federated
Investment Management Company from 1995 through 1996,
and as an Investment Analyst from 1993 to 1995.
Mr. Shah received his Masters in Industrial
Administration from Carnegie Mellon University with a
concentration in Finance and Accounting. He has
earned the right to use the Chartered Financial
Analyst designation.
SMALLCAP BLEND FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of small capitalization companies.
Under normal market conditions, the Fund invests at least 65% of its assets in
companies with a market capitalization of $1.5 billion or less at the time of
purchase. Market capitalization is defined as total current market value of a
company's outstanding common stock. The Fund may invest up to 25% of its assets
in securities of foreign companies.
In selecting securities for investment, the Sub-Advisor, Invista, looks
at stocks with value and/or growth characteristics and constructs an investment
portfolio that has a "blend" of stocks with these characteristics. In managing
the assets of the Fund, Invista does not have a policy of preferring one of
these categories to the other. The value orientation emphasizes buying stocks at
less than their investment value and avoiding stocks whose price has been
artificially built up. The growth orientation emphasizes buying stocks of
companies whose potential for growth of capital and earnings is expected to be
above average. Selection is based on fundamental analysis of the company
relative to other companies with the focus being on Invista's estimation of
forward looking rates of return.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Investments in companies with smaller market capitalizations may involve greater
risks and price volatility (wide, rapid fluctuations) than investments in
larger, more mature companies. Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become established. While small, unseasoned companies may offer greater
opportunities for capital growth than larger, more established companies, they
also involve greater risks and should be considered speculative.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
small capitalization stocks, may underperform compared to the equity markets as
a whole. The value of the Fund's equity securities may fluctuate on a daily
basis. As with all mutual funds, as the value of the Fund's assets rise and
fall, the Fund's share price changes. The Fund's share price may fluctuate more
than that of funds primarily invested in stocks of mid and large-sized companies
and may underperform as compared to the securities of larger companies. If the
investor sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the potential for volatile fluctuations
in the value of investments.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.75% 0.75%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.13% 1.01%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $115 $359
Preferred Class 103 322
Since December, 2000 Co-Manager: Tom Morabito, CFA. Mr. Morabito joined
(Fund's inception) Invista in 2000 as the lead small-cap value portfolio
manager. He has more than 12 years of analytical and
portfolio management expertise. Since 1994,
Mr. Morabito was a manager for INVESCO Management &
Research. He received his MBA in Finance from
Northeastern University and his Bachelor's degree in
Economics from State University of New York. He has
earned the right to use the Chartered Financial
Analyst designation.
Since December, 2000 Co-Manager: Michael L. Johnson. Mr. Johnson is a
(Fund's inception) portfolio manager of Invista. He performs security
analysis and strategy development for the firm's
growth equity research effort. Mr. Johnson
specializes in the capital goods, health care and
technology sectors. He joined Invista in 1992. He
received his MBA from Drake University and his
Bachelor's degree in business administration and
finance from the University of Nebraska. He has
earned the right to use the Chartered Financial
Analyst designation.
SMALLCAP GROWTH FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of small capitalization companies.
Under normal market conditions, the Fund invests at least 65% of its assets in
companies with a market capitalization of $1.5 billion or less at the time of
purchase. Market capitalization is defined as total current market value of a
company's outstanding common stock.
The Sub-Advisor, Invista, uses a bottom-up approach in its selection of
individual securities that it believes have an above average potential for
earnings growth. Selection is based on fundamental analysis of a company
relative to other companies with the focus being on Invista's assessment of
current and future sales growth and operating margins. Up to 25% of Fund assets
may be invested in foreign securities.
Invista focuses its stock selections on established companies that it believes
have a sustainable competitive advantage. Invista constructs a portfolio that is
"benchmark aware" in that it is sensitive to the sector (companies with similar
characteristics) and security weightings of its benchmark. However, the Fund is
actively managed and prepared to over- and/or under-weight sectors and
industries differently from the benchmark.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Investments in companies with smaller market capitalizations may involve greater
risks and price volatility (wide, rapid fluctuations) than investments in
larger, more mature companies. Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become established. While small, unseasoned companies may offer greater
opportunities for capital growth than larger, more established companies, they
also involve greater risks and should be considered speculative.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
small capitalization growth stocks, may underperform compared to the equity
markets as a whole. The securities purchased by the Fund present greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than securities that do not have the same potential. The
value of the Fund's equity securities may fluctuate on a daily basis. As with
all mutual funds, as the value of the Fund's assets rise and fall, the Fund's
share price changes. The Fund's share price may fluctuate more than that of
funds primarily invested in stocks of mid and large-sized companies and may
underperform as compared to the securities of larger companies. If the investor
sells Fund shares when their value is less than the price the investor paid for
them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.75% 0.75%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.13% 1.01%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $115 $359
Preferred Class 103 322
Since December, 2000 John F. McClain. Mr. McClain is a portfolio manager for
(Fund's inception) small company and medium company growth products. He
joined Invista in 1990. Previously, he was an investment
executive with Paine Webber. He earned an MBA from
Indiana University and a BBA in Economics from the
University of Iowa.
SMALLCAP S&P 600 INDEX FUND
The Fund seeks long-term growth of capital.
Main Strategies
Under normal market conditions, the Fund invests at least 80% of its assets in
common stocks of companies that compose the Standard & Poor's* ("S&P") SmallCap
600 Index. The Sub-Advisor, Invista, attempts to mirror the investment
performance of the index by allocating the Fund's assets in approximately the
same weightings as the S&P SmallCap 600. The S&P SmallCap 600 is an unmanaged
index of 600 domestic stocks chosen for market size, liquidity and industry
group representation. Each stock is weighted by its market capitalization which
means larger companies have greater representation in the index than smaller
ones. Over the long-term, Invista seeks a very close correlation between
performance of the Fund, before expenses, and that of the S&P SmallCap 600. It
is unlikely that a perfect correlation of 1.00 will be achieved.
The Fund uses an indexing strategy and is not managed according to traditional
methods of "active" investment management. Active management would include
buying and selling securities based on economic, financial and investment
judgement. Instead, the Fund uses a passive investment approach. Rather than
judging the merits of a particular stock in selecting investments, Invista
focuses on tracking the S&P SmallCap 600. Invista may also use stock index
futures as a substitute for the sale or purchase of securities. It does not
attempt to manage market volatility, use defensive strategies or reduce the
effect of any long-term periods of poor stock performance.
The correlation between Fund and index performance may be affected by the Fund's
expenses, changes in securities markets, changes in the composition of the index
and the timing of purchases and sales of Fund shares. The Fund may invest in
futures and options, which could carry additional risks such as losses due to
unanticipated market price movements, and could also reduce the opportunity for
gain.
Main Risks
Because of the difficulty and expense of executing relatively small stock
trades, the Fund may not always be invested in the less heavily weighted S&P
SmallCap 600 stocks. At times, the Fund's portfolio may be weighted differently
from the S&P SmallCap 600, particularly if the Fund has a small level of assets
to invest. In addition, the Fund's ability to match the performance of the S&P
SmallCap 600 is affected to some degree by the size and timing of cash flows
into and out of the Fund. The Fund attempts to minimize such effects.
Invista reserves the right to omit or remove any of the S&P SmallCap 600 stocks
from the Fund if it determines that the stock is not sufficiently liquid. In
addition, a stock might be excluded or removed from the Fund if extraordinary
events or financial conditions lead Invista to believe that it should not be a
part of the Fund's assets.
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility (wide, rapid fluctuations), which is the principal risk of investing
in the Fund.
Investments in companies with smaller market capitalizations may involve greater
risks and price volatility than investments in larger, more mature companies.
Smaller companies may be developing or marketing new products or services for
which markets are not yet established and may never become established. While
small, unseasoned companies may offer greater opportunities for capital growth
than larger, more established companies, they also involve greater risks and
should be considered speculative.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. The current share price reflects the activities of individual
companies as well as general market and economic conditions. In the short-term,
stock prices can fluctuate dramatically in response to these factors. The Fund's
share price may fluctuate more than that of funds primarily invested in stocks
of mid-sized and large companies and may underperform as compared to the
securities of larger companies. If the investor sells Fund shares when their
value is less than the price the investor paid for them, the investor will lose
money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital, willing to accept the potential for volatile fluctuations in
the value of investments and preferring a passive rather than active management
style.
* Standard & Poor's Corporation is not affiliated with the SmallCap S&P 600
Index Fund, Invista Capital Management, LLC or Principal Life Insurance
Company.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.15% 0.15%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 0.53% 0.41%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $54 $170
Preferred Class 42 132
Since December, 2000 Co-Manager: Robert Baur, Ph.D. Dr. Baur joined Invista
(Fund's inception) in 1995 after serving as a professor of finance and
economics at Drake University and Grand View College.
He received his Bachelor's degree in Mathematics and
his Ph.D. in Economics from Iowa State University.
Dr. Baur also did post-doctoral study in finance and
economics at the University of Minnesota. He also
holds a BS in Mathematics from Iowa State University.
Since December, 2000 Co-Manager: Rhonda VanderBeek. Ms. Vander Beek directs
(Fund's inception) trading operations for Invista index accounts. She
joined the Principal Financial Group in 1983 as a
trading statistical clerk and moved to Invista in
1992. Ms. Vander Beek has extensive experience trading
both domestic and international securities.
SMALLCAP VALUE FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of small capitalization companies.
Under normal market conditions, the Fund invests at least 65% of its assets in
companies with a market capitalization of $1.5 billion or less at the time of
purchase. Market capitalization is defined as total current market value of a
company's outstanding common stock. The Fund may invest up to 25% of its assets
in securities of foreign companies. Up to 25% of Fund assets may be invested in
foreign securities.
The Fund specializes in stocks of small-sized companies that are undervalued at
the time of purchase. These stocks are often characterized by below-average
stock price/earnings ratios and above-average dividend yields. The Sub-Advisor,
Invista, selects the Fund's investments primarily on the basis of fundamental
security analysis, focusing on the company's financial stability, sales,
earnings, dividend trends, return on equity and industry trends. The Fund often
invests in stocks considered temporarily out of favor. Investors often overreact
to bad news and do not respond quickly to good news. This results in undervalued
stocks of the type held by this Fund.
Invista focuses its stock selections on established companies that it believes
have a sustainable competitive advantage. Invista constructs a portfolio that is
"benchmark aware" in that it is sensitive to the sector (companies with similar
characteristics) and security weightings of its benchmark. However, the Fund is
actively managed and prepared to over- and/or under-weight sectors and
industries differently from the benchmark.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility, which
is the principal risk of investing in the Fund.
Investments in companies with smaller market capitalizations may involve greater
risks and price volatility (wide, rapid fluctuations) than investments in
larger, more mature companies. Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become established. While small, unseasoned companies may offer greater
opportunities for capital growth than larger, more established companies, they
also involve greater risks and should be considered speculative.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
small capitalization value stocks, may underperform compared to the equity
markets as a whole. The value of the Fund's equity securities may fluctuate on a
daily basis. As with all mutual funds, as the value of the Fund's assets rise
and fall, the Fund's share price changes. The Fund's share price may fluctuate
more than that of funds primarily invested in stocks of mid and large-sized
companies and may underperform as compared to the securities of larger
companies. If the investor sells Fund shares when their value is less than the
price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the potential for volatile fluctuations
in the value of investments.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.75% 0.75%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.13% 1.01%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $115 $359
Preferred Class 103 322
Since December, 2000 Tom Morabito, CFA. Mr. Morabito joined Invista in 2000
(Fund's inception) as the lead small-cap value portfolio manager. He has
more than 12 years of analytical and portfolio
management expertise. Since 1994, Mr. Morabito was a
manager for Invesco Management & Research. He received
his MBA in Finance from Northeastern University and
his Bachelor's degree in Economics from State
University of New York. He has earned the right to use
the Chartered Financial Analyst designation.
TECHNOLOGY FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks and other securities of technology
and telecommunications companies domiciled in any of the nations of the world.
The Sub-Advisor, BT believes that as markets are becoming increasingly
globalized, companies can no longer be researched on a purely regional basis.
Companies are increasingly influenced by global, not just local trends, and for
this reason BT believes that analysis and research needs to be conducted in a
global context. BT considers companies in a broad range of technology-related
industries, generally including: computers; software and peripheral products;
electronics; communications equipment and services; and information services.
The Sub-Advisor, BT, selects securities for the Fund based on its own global
investment research. The research program is focused on three key criteria:
o business franchise - considering factors such as the company's relationship
with its suppliers and customers, the degree of rivalry with competitors as
well as the exposure to regulatory and technological risk;
o quality of management - assessing the company's management on its ability
to execute current business plans, manage the capital invested in the
business as well as the level of transparency with respect to strategy and
operations; and
o business valuation - determining the private market or `true business value'
of the firm.
BT's qualitative analysis is complemented by disciplined valuation techniques.
These include proprietary models as well as conventional market measurements and
industry specific models of relative value. This analytical framework ensures
consistency and transparency throughout the research process. Portfolios are
constructed and managed within predetermined guidelines that are regularly
monitored by BT.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility.
In addition, foreign stocks carry risks that are not generally found in stocks
of U.S. companies. These include the risk that a foreign security could lose
value as a result of political, financial and economic events in foreign
countries. Foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
The Fund may invest in securities of companies with small to medium market
capitalizations. While small companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risk and should be considered speculative. Small to mid-sized companies
may pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.
The Fund is also subject to the risk that its principal market segment,
technology stocks, may underperform compared to other market segments or to the
equity markets as a whole. The competitive pressures of advancing technology and
the number of companies and product offerings which continue to expand could
cause technology companies to become increasingly sensitive to short product
cycles and aggressive pricing. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same industry, the Fund is
subject to legislative or regulatory changes, adverse market conditions and/or
increased competition affecting that industry.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions . In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. In the short-term, stock prices can fluctuate dramatically in
response to these factors. If the investor sells Fund shares when their value is
less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital in the technology and telecommunications sector and who are
able to assume the increased risks of higher price volatility associated with
such investments. In addition, an investor must be able to assume the increased
risks of higher price volatility and currency fluctuations associated with
investments in international stocks which trade in non-U.S. currencies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 1.00% 1.00%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.38% 1.26%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $140 $437
Preferred Class 128 400
Since December, 2000 David Mills is Executive Vice President of BT and serves
(Fund's inception) as its head of U.S. Equities. He joined BT's retail
unit trust team in January 1990 as an Analyst in
European equities. In July 1996, he assumed fund
management responsibility for all of the direct European
investment vehicles offered by BT.
EUROPEAN FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in equity securities of companies domiciled or in the
opinion of the Sub-Advisor, BT, having their core business in Europe. The Fund
may also invest in other securities of such companies. The Fund offers an
opportunity to invest in a region with a wide spread of industries and in
companies which, in the opinion of BT, may be undervalued.
The Fund invests in securities listed on foreign or domestic securities
exchanges, securities traded in foreign or domestic over-the-counter markets and
depositary receipts. Under normal market conditions, the Fund invests at least
65% of its assets in European securities. These include securities of:
o companies organized under the laws of European countries;
o companies for which the principal securities trading market is in a
European country; and
o companies, regardless of where their securities are traded, that derive 50%
or more of their total revenue from either goods or services produced or
sales made in European countries.
The global equity investment philosophy of BT is to exploit market
inefficiencies that arise from differing interpretations of market information.
As a result, in BT's view, a company's share price does not always represent its
true "business value." BT actively invests in those companies that it believes
have been mispriced by investment markets. In order to exploit these
inefficiencies successfully, BT seeks to enhance investment returns through:
o rigorous proprietary stock research which enables their analysts to
understand the:
o quality of the company;
o nature of its management;
o nature of its industry competition; and
o business valuation - the true "business value" of the company;
o maintaining global coverage within the universe of investment choices; and
o maintaining a medium-term focus.
As a result, the Fund's portfolio reflects the opportunities presented by
mispriced companies that offer the potential for strong, long-term investment
returns with an acceptable level of investment risk.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S. companies. These include the risk that a foreign security
could lose value as a result of political, financial and economic events in
foreign countries. Foreign securities may be subject to securities regulators
with less stringent accounting and disclosure standards than are required of
U.S. companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
The Fund anticipates that its portfolio turnover may, on occasion, exceed 100%.
Turnover rates in excess of 100% generally result in higher transaction costs
and a possible increase in short-term capital gains (or losses).
The Fund may invest in securities of companies with small to medium market
capitalizations. While small companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risk and should be considered speculative. Small to mid-sized companies
may pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. In the short-term, stock prices can fluctuate dramatically in
response to these factors. If the investor sells Fund shares when their value is
less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital in European markets who are able to assume the increased risks
of higher price volatility and currency fluctuations associated with investments
in international stocks which trade in non-U.S. currencies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 1.00% 1.00%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.38% 1.26%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $140 $437
Preferred Class 128 400
Since December, 2000 Crispin Murray, Executive Vice President of BT, joined
(Fund's inception) BT in April 1994 as an Investment Analyst. In 1995, his
role became pure European equities analysis covering
banks, telecommunication, telecommunication equipment and
media. In April 1998, he became Head of European Equities
and in May 1998 became coordinator for BTFM's Global
Banking Group. His global sector responsibilities
include telecommunications and banks. Prior to
joining BT, Mr. Murray worked for Equitable Life
Assurance Society in the UK as a bond & currency
analyst. He received an Honors degree in
Economics & Human Geography from Reading
University in the UK.
INTERNATIONAL EMERGING MARKETS FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund seeks to achieve its objective by investing in common stocks
of companies in emerging market countries. For this Fund, the term "emerging
market country" means any country which is considered to be an emerging country
by the international financial community (including the International Bank for
Reconstruction and Development (also known as the World Bank) and the
International Financial Corporation). These countries generally include every
nation in the world except the United States, Canada, Japan, Australia, New
Zealand and most nations located in Western Europe. Investing in many emerging
market countries is not feasible or may involve unacceptable political risk.
Invista, the Sub-Advisor, focuses on those emerging market countries that it
believes have strongly developing economies and markets which are becoming more
sophisticated.
Under normal conditions, at least 65% of the Fund's assets are invested
in emerging market country equity securities. The Fund invests in securities of:
o companies with their principal place of business or principal office in
emerging market countries;
o companies for which the principal securities trading market is an emerging
market country; or
o companies, regardless of where their securities are traded, that derive 50% or
more of their total revenue from either goods or services produced in
emerging market countries or sales made in emerging market countries.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S. companies. These include the risk that a foreign security
could lose value as a result of political, financial and economic events in
foreign countries. Foreign securities may be subject to securities regulators
with less stringent accounting and disclosure standards than are required of
U.S. companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
Investments in emerging market countries involve special risks. Certain emerging
market countries have historically experienced, and may continue to experience,
certain economic problems. These may include: high rates of inflation, high
interest rates, exchange rate fluctuations, large amounts of debt, balance of
payments and trade difficulties, and extreme poverty and unemployment.
The Fund may invest in securities of companies with small to medium market
capitalizations. While small companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risk and should be considered speculative. Small to mid-sized companies
may pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. The current share price reflects the activities of individual
companies as well as general market and economic conditions. In the short-term,
stock prices can fluctuate dramatically in response to these factors. If the
investor sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.
The Fund anticipates that its portfolio turnover will typically range from 200%
to 300%. Turnover rates in excess of 100% generally result in higher transaction
costs and a possible increase in short-term capital gains (or losses).
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital in securities of emerging market countries who are able to
assume the increased risks of higher price volatility and currency fluctuations
associated with investments in international stocks which trade in non-U.S.
currencies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 1.35% 1.35%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.73% 1.61%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $176 $545
Preferred Class 164 508
Since December, 2000 Kurtis D. Spieler, CFA. Mr. Spieler is a portfolio
(Fund's inception) manager specializing in the management of international
equity portfolios. He joined the Principal Financial
Group in 1987 in the Treasury operation as a securities
analyst and moved to Invista in 1991. Mr. Spieler
received his MBA from Drake University and his BBA in
Accounting from Iowa State University. He has earned
the right to use the Chartered Financial Analyst
designation.
INTERNATIONAL FUND I
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests in a portfolio of equity securities of companies domiciled in
any of the nations of the world. The Fund invests in securities of:
o companies with their principal place of business or principal office
outside the U.S.;
o companies for which the principal securities trading market is outside the
U.S.; and
o companies, regardless of where their securities are traded, that derive 50%
or more of their total revenue from goods or services produced or sales
made outside the U.S.
The Fund has no limitation on the percentage of assets that are invested in any
one country or denominated in any one currency. However under normal market
conditions, the Fund intends to have at least 65% of its assets invested in
companies in at least three different countries. One of those countries may be
the U.S. though currently the Fund does not intend to invest in equity
securities of U.S. companies.
Investments may be made anywhere in the world. Primary consideration is
given to securities of corporations of Western Europe, North America and
Australasia (Australia, Japan and Far East Asia). Changes in investments are
made as prospects change for particular countries, industries or companies.
In choosing investments for the Fund, the Sub-Advisor, Invista, pays
particular attention to the long-term earnings prospects of the various
companies under consideration. Invista then weighs those prospects relative to
the price of the security.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S. companies. These include the risk that a foreign security
could lose value as a result of political, financial and economic events in
foreign countries. Foreign securities may be subject to securities regulators
with less stringent accounting and disclosure standards than are required of
U.S. companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
The Fund may invest in securities of companies with small to medium market
capitalizations. While small companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risk and should be considered speculative. Small to mid-sized companies
may pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. The current share price reflects the activities of individual
companies as well as general market and economic conditions. In the short-term,
stock prices can fluctuate dramatically in response to these factors. If the
investor sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital in markets outside of the U.S. who are able to assume the
increased risks of higher price volatility and currency fluctuations associated
with investments in international stocks which trade in non-U.S. currencies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 0.90% 0.90%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.28% 1.16%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $130 $406
Preferred Class 118 368
Since December, 2000 Kurtis D. Spieler, CFA. Mr. Spieler is a portfolio
(Fund's inception) manager specializing in the management of international
equity portfolios. He joined the Principal Financial
Group in 1987 in the Treasury operation as a securities
analyst and moved to Invista in 1991. Mr. Spieler
received his MBA from Drake University and his BBA in
Accounting from Iowa State University. He has earned
the right to use the Chartered Financial Analyst
designation.
INTERNATIONAL II
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests in common stocks and other securities of companies domiciled in
any of the nations of the world. The Fund invests in securities listed on
foreign or domestic securities exchanges, securities traded in foreign or
domestic over-the-counter markets and depositary receipts. It purchases
securities of:
o companies with their principal place of business or principal offices
outside the U.S.;
o companies for which the principal securities trading market is outside
the U.S.; or
o companies, regardless of where their securities are traded, that derive
50% or more of their total revenue from either goods or services produced
or sales made outside the U.S.
The Sub-Advisor, BT, selects securities for the Fund based on its own global
investment research. The research program is focused on three key criteria:
o business franchise - considering factors such as the company's relationship
with its suppliers and customers, the degree of rivalry with competitors as
well as the exposure to regulatory and technological risk;
o quality of management - assessing the company's management on its ability
to execute current business plans, manage the capital invested in the
business as well as the level of transparency with respect to strategy and
operations; and
o business valuation - determining the private market or
`true business value' of the firm.
BT's qualitative analysis is complemented by disciplined valuation techniques.
These include proprietary models as well as conventional market measurements and
industry specific models of relative value. This analytical framework ensures
consistency and transparency throughout the research process. Portfolios are
constructed and managed within predetermined guidelines that are regularly
monitored by BT.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility.
In addition, foreign stocks carry risks that are not generally found in stocks
of U.S. companies. These include the risk that a foreign security could lose
value as a result of political, financial and economic events in foreign
countries. Foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
The Fund may invest in securities of companies with small to medium market
capitalizations. While small companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risk and should be considered speculative. Small to mid-sized companies
may pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. In the short-term, stock prices can fluctuate dramatically in
response to these factors. If the investor sells Fund shares when their value is
less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking growth of
capital in markets outside of the U.S. who are able to assume the increased
risks of higher price volatility and currency fluctuations associated with
investments in international stocks which trade in non-U.S. currencies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 1.00% 1.00%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.38% 1.26%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $140 $437
Preferred Class 128 400
Since December, 2000 Christopher Selth, Executive Vice President of BT, was
(Fund's inception) appointed its head of International Equities in 1998 and
its joint head of Equities in 1999. He joined BT in 1987
as an Investment Analyst in the retail unit trust group.
In 1988, he was assigned the responsibility to cover
European equities. Mr. Selth was given
responsibility for the European component of all
retail unit trusts in March 1994. Since November
1996, he has been responsible for institutional
and retail European investments, supervising all
European activities, and the European funds
management group. Prior to joining BT, Mr. Selth
worked with QBE Insurance Limited in investment
management as an assistant to the Group
Treasurer. He holds a Bachelor's degree in
Economics (Honours) from the University of Sydney.
INTERNATIONAL SMALLCAP FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in equity securities of non-U.S. companies with
comparatively smaller market capitalizations. Under normal market conditions,
the Fund invests at least 65% of its assets in securities of companies having
market capitalizations of $1.5 billion or less at the time of purchase. Market
capitalization is defined as total current market value of a company's
outstanding common stock.
The Fund invests in securities of:
o companies with their principal place of business or principal office
outside the U.S.;
o companies for which the principal securities trading market is outside the
U.S.; and
o companies, regardless of where their securities are traded, that derive 50%
or more of their total revenue from goods or services produced or sales
made outside the U.S.
The Sub-Advisor, Invista, diversifies the Fund's investments
geographically. There is no limitation on the percentage of assets that may be
invested in one country or denominated in any one currency. However, under
normal market circumstances, the Fund intends to invest at least 65% of its
assets in securities of companies of at least three countries.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S. companies. These include the risk that a foreign security
could lose value as a result of political, financial and economic events in
foreign countries. Foreign securities may be subject to securities regulators
with less stringent accounting and disclosure standards than are required of
U.S. companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
The Fund may invest in securities of companies with small to medium market
capitalizations. While small companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risk and should be considered speculative. Small to mid-sized companies
may pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. The current share price reflects the activities of individual
companies as well as general market and economic conditions. In the short-term,
stock prices can fluctuate dramatically in response to these factors. If the
investor sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital in smaller companies outside of the U.S. who are able to
assume the increased risks of higher price volatility and currency fluctuations
associated with investments in international stocks which trade in non-U.S.
currencies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 1.20% 1.20%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.58% 1.46%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $161 $499
Preferred Class 149 462
Since December, 2000 Darren K. Sleister, CFA. Mr. Sleister is a portfolio
(Fund's inception) manager specializing in the management of international
equity portfolios. Mr. Sleister joined Invista in
1993. He received his MBA in Investment and Corporate
Finances from the University of Iowa and his Bachelor's
degree in Communications from Central College. He has
earned the right to use the Chartered Financial
Analyst designation.
PACIFIC BASIN FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in equity securities (or other securities with equity
characteristics) of issuers located in the Pacific Basin region, including
Japan. The Fund invests in securities listed on foreign or domestic securities
exchanges, securities traded in foreign or domestic over-the-counter markets and
depositary receipts. Under normal market conditions, the Fund invests at least
65% of its assets in such securities. The Fund's investments are generally
diversified among securities of issuers of several Pacific Basin countries,
which include but are not limited to: Australia, China, Hong Kong, India,
Indonesia, Japan, Malaysia, New Zealand, Singapore, Sri Lanka, South Korea,
Thailand, Taiwan and Vietnam. These include securities of:
o companies organized under the laws of Pacific Basin countries;
o companies for which the principal securities trading market is in a Pacific
Basin country; and
o companies, regardless of where their securities are traded, that derive 50%
or more of their total revenue from either goods or services produced or sales
made in Pacific Basin countries.
Under normal market conditions, the Fund intends to have at least 65% of its
assets invested in companies in Pacific Basin countries and may have a
significant portion of its assets invested in securities of issuers in Japan.
Criteria for determining the distribution of investments include the prospects
for relative growth among foreign countries, expected levels of inflation,
government policies influencing business conditions and the range of
opportunities available to international investors.
The global equity investment philosophy of BT, the Sub-Advisor, is to exploit
market inefficiencies that arise from differing interpretations of market
information. As a result, in BT's view, a company's share price does not always
represent its true "business value." BT actively invests in those companies that
it believes have been mispriced by investment markets. In order to exploit these
inefficiencies successfully, BT seeks to enhance investment returns through:
o rigorous proprietary stock research which enables their analysts to understand
the:
o quality of the company;
o nature of its management;
o nature of its industry competition; and
o business valuation - the true "business value" of the company;
o maintaining global coverage within the universe of investment choices; and
o maintaining a medium-term focus.
As a result, the Fund's portfolio reflects the opportunities presented by
mispriced companies that offer the potential for strong, long-term investment
returns with an acceptable level of investment risk.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility. In addition, foreign stocks carry risks that are not generally found
in stocks of U.S. companies. These include the risk that a foreign security
could lose value as a result of political, financial and economic events in
foreign countries. Foreign securities may be subject to securities regulators
with less stringent accounting and disclosure standards than are required of
U.S. companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
The Fund anticipates that its portfolio turnover may, on occasion, exceed 100%.
Turnover rates in excess of 100% generally result in higher transaction costs
and a possible increase in short-term capital gains (or losses).
The Fund may invest in securities of companies with small to medium market
capitalizations. While small companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risk and should be considered speculative. Small to mid-sized companies
may pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. The current share price reflects the activities of individual
companies as well as general market and economic conditions. In the short-term,
stock prices can fluctuate dramatically in response to these factors. If the
investor sells Fund shares when their value is less than the price the investor
paid for them, the investor will lose money.
To the extent that the assets of the Fund are concentrated in securities of
issuers in Japan, the value of the shares of the Fund may be more susceptible to
a single economic, political or regulatory occurrence than shares of a Fund less
concentrated in a single country.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital in Pacific Basin markets who are able to assume the increased
risks of higher price volatility and currency fluctuations associated with
investments in international stocks which trade in non-U.S. currencies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Select Preferred
Class Class
Management Fees.................. 1.00% 1.00%
Other Expenses*.................. 0.38 0.26
Total Fund Operating Expenses 1.38% 1.26%
* Other Expenses:
Service Fee 0.25% 0.17%
Administrative Service Fee 0.13 0.09
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Based on these assumptions your cost
would be:
1 Year 3 Years
Select Class $140 $437
Preferred Class 128 400
Since December, 2000 Dean Cashman is Executive Vice President of BT and
(Fund's inception) serves as head of Japanese equities. He joined BT in
January 1988, initially involved in the liquids and
fixed interest group, but moved to the European equity
group in late 1989 specializing in the Latin Block
countries including France, Italy and Spain. He started
working on Japanese equities at the end of 1991
and subsequently took over responsibility for the
group. Mr. Cashman received a degree in Economics
from the University of Queensland.
THE COSTS OF INVESTING
Fees and Expenses of the Funds
The shares of the Funds are sold without a front-end sales charge and do not
have a contingent deferred sales charge. There is no sales charge on shares of
the Funds purchased with reinvested dividends or other distributions. The Funds
do not pay any fees other than those described below and do not pay any other
expenses.
Ongoing Fees
Each Fund pays ongoing fees to the Manager and others who provide services to
the Fund. They reduce the value of each share. Because they are ongoing fees,
they increase the cost of investing in the Funds. These fees include:
o Management Fee - Through the Management Agreement with the Fund,the Manager
has agreed to provide investment advisory services and corporate
administrative services to the Funds.
o Service Fee - The Manager has entered into a Services Agreement with the
Fund under which the Manager performs personal services to shareholders.
Over time, these fees may exceed other types of sales charges.
o Administrative Service Fee - The Manager has entered into an Administrative
Services Agreement with the Fund under which the Manager provides transfer
agent and corporate administrative services to the Fund. In addition, the
Manager has assumed the responsibility for communications with and
recordkeeping services for beneficial owners of Fund shares.
o Portfolio Accounting Services - The Manager has entered into an agreement
with the Fund under which the Manager supplies portfolio accounting
services. Currently there is no charge for these services.
Conversion Features
Principal Investors Fund will:
o convert all Select shares held by a plan to Preferred shares if the
aggregate value of the shares exceeds $10 million on the annual
determination date (which shall be the 75th day (or prior business day)
before the plan year-end);
o convert all Preferred shares held by a plan to Select shares if the
aggregate value of the shares is less than $8 million on the annual
determination date;
o effect the conversion on the basis of relative net assets of the two
classes without any charge; and
o make the conversion effective on the 30th day (or next business day) after
the annual determination date.
CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS
The Statement of Additional Information (SAI) contains additional information
about investment strategies and their related risks.
Securities and Investment Practices
Equity securities include common stocks, preferred stocks, convertible
securities, depositary receipts and warrants. Common stocks, the most familiar
type, represent an equity (ownership) interest in a corporation. Although equity
securities have a history of long-term growth in value, their prices fluctuate
based on changes in a company's financial condition and in overall market and
economic conditions. Smaller companies are especially sensitive to these
factors.
Fixed-income securities include bonds and other debt instruments that are used
by issuers to borrow money from investors. The issuer generally pays the
investor a fixed, variable or floating rate of interest. The amount borrowed
must be repaid at maturity. Some debt securities, such as zero coupon bonds, do
not pay current interest, but are sold at a discount from their face values.
Fixed-income securities are sensitive to changes in interest rates. In general,
fixed-income security prices rise when interest rates fall and fall when
interest rates rise. Longer term bonds and zero coupon bonds are generally more
sensitive to interest rate changes.
Fixed-income security prices are also affected by the credit quality of the
issuer. Investment grade debt securities are medium and high quality securities.
Some bonds, such as lower grade or "junk" bonds, may have speculative
characteristics and may be particularly sensitive to economic conditions and the
financial condition of the issuers.
Repurchase Agreements and Loaned Securities
Each of the Funds may invest a portion of its assets in repurchase agreements.
Repurchase agreements typically involve the purchase of debt securities from a
financial institution such as a bank, savings and loan association or
broker-dealer. A repurchase agreement provides that the Fund sells back to the
seller and that the seller repurchases the underlying securities at a specified
price on a specific date. Repurchase agreements may be viewed as loans by a Fund
collateralized by the underlying securities. This arrangement results in a fixed
rate of return that is not subject to market fluctuation while the Fund holds
the security. In the event of a default or bankruptcy by a selling financial
institution, the affected Fund bears a risk of loss. To minimize such risks, the
Fund enters into repurchase agreements only with large, well-capitalized and
well-established financial institutions. In addition, the value of the
collateral underlying the repurchase agreement is always at least equal to the
repurchase price, including accrued interest.
Each of the Funds may lend its portfolio securities to unaffiliated
broker-dealers and other unaffiliated qualified financial institutions.
Currency Contracts
The Funds may each enter into forward currency contracts, currency futures
contracts and options, and options on currencies for hedging and other
non-speculative purposes. A forward currency contract involves a privately
negotiated obligation to purchase or sell a specific currency at a future date
at a price set in the contract. A Fund will not hedge currency exposure to an
extent greater than the aggregate market value of the securities held or to be
purchased by the Fund (denominated or generally quoted or currently convertible
into the currency).
Hedging is a technique used in an attempt to reduce risk. If a Fund's
Sub-Advisor hedges market conditions incorrectly or employs a strategy that does
not correlate well with the Fund's investment, these techniques could result in
a loss. These techniques may increase the volatility of a Fund and may involve a
small investment of cash relative to the magnitude of the risk assumed. In
addition, these techniques could result in a loss if the other party to the
transaction does not perform as promised. There is also a risk of government
action through exchange controls that would restrict the ability of the Fund to
deliver or receive currency.
Forward Commitments
Each of the Funds may enter into forward commitment agreements. These agreements
call for the Fund to purchase or sell a security on a future date at a fixed
price. Each of the Funds may also enter into contracts to sell its investments
either on demand or at a specific interval.
Warrants
Each of the Funds may invest up to 5% of its assets in warrants. A warrant is a
certificate granting its owner the right to purchase securities from the issuer
at a specified price, normally higher than the current market price.
Risks of High Yield Securities
The Balanced and Bond & Mortgage Securities Funds may invest in debt securities
rated lower than BBB by S&P or Baa by Moody's or, if not rated, determined to be
of equivalent quality by the Sub-Advisor. Such securities are sometimes referred
to as high yield or "junk bonds" and are considered speculative.
Investment in high yield bonds involves special risks in addition to the risks
associated with investment in highly rated debt securities. High yield bonds may
be regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments. Moreover, such securities may,
under certain circumstances, be less liquid than higher rated debt securities.
Analysis of the creditworthiness of issuers of high yield securities may be more
complex than for issuers of higher quality debt securities. The ability of a
Fund to achieve its investment objective may, to the extent of its investment in
high yield bonds, be more dependent on such credit analysis than would be the
case if the Fund were investing in higher quality bonds.
High yield bonds may be more susceptible to real or perceived adverse economic
and competitive industry conditions than higher grade bonds. The prices of high
yield bonds have been found to be less sensitive to interest rate changes than
more highly rated investments, but more sensitive to adverse economic downturns
or individual corporate developments. If the issuer of high yield bonds
defaults, a Fund may incur additional expenses to seek recovery.
The secondary market on which high yield bonds are traded may be less liquid
than the market for higher grade bonds. Less liquidity in the secondary trading
market could adversely affect the price at which a Fund could sell a high yield
bond and could adversely affect and cause large fluctuations in the daily price
of the Fund's shares. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the value and liquidity of high
yield bonds, especially in a thinly traded market.
The use of credit ratings for evaluating high yield bonds also involves certain
risks. For example, credit ratings evaluate the safety of principal and interest
payments, not the market value risk of high yield bonds. Also, credit rating
agencies may fail to change credit ratings in a timely manner to reflect
subsequent events. If a credit rating agency changes the rating of a portfolio
security held by a Fund, the Fund may retain the security if the Sub-Advisor
thinks it is in the best interest of shareholders.
Derivatives
To the extent permitted by its investment objectives and policies, each of the
Funds may invest in securities that are commonly referred to as derivative
securities. Generally, a derivative is a financial arrangement, the value of
which is derived from, or based on, a traditional security, asset, or market
index. Certain derivative securities are described more accurately as
index/structured securities. Index/structured securities are derivative
securities whose value or performance is linked to other equity securities (such
as depositary receipts), currencies, interest rates, indices or other financial
indicators (reference indices).
Some derivatives, such as mortgage-related and other asset-backed securities,
are in many respects like any other investment, although they may be more
volatile or less liquid than more traditional debt securities.
There are many different types of derivatives and many different ways to use
them. Futures and options are commonly used for traditional hedging purposes to
attempt to protect a Fund from exposure to changing interest rates, securities
prices, or currency exchange rates and for cash management purposes as a
low-cost method of gaining exposure to a particular securities market without
investing directly in those securities.
No Fund may invest in a derivative security unless the reference index or the
instrument to which it relates is an eligible investment for the Fund. For
example, a security whose underlying value is linked to the price of oil would
not be a permissible investment because the Funds may not invest in oil leases
or futures.
The return on a derivative security may increase or decrease, depending upon
changes in the reference index or instrument to which it relates. The risks
associated with derivative investments include:
o the risk that the underlying security, interest rate, market index or other
financial asset will not move in the direction the Sub-Advisor anticipated;
o the possibility that there may be no liquid secondary market which may make
it difficult or impossible to close out a position when desired;
o the risk that adverse price movements in an instrument can result in a loss
substantially greater than a Fund's initial investment; and
o the counterparty may fail to perform its obligations.
Foreign Securities
Each of the following Funds may invest in securities of foreign companies. For
the purpose of this restriction, foreign companies are:
o companies with their principal place of business or principal office outside
the U.S.; and
o companies for which the principal securities trading market is outside the
U.S.
The European Equity, International I, International II, International Emerging
Markets, International SmallCap, Pacific Basin and Technology Funds each may
invest up to 100% of its assets in foreign securities. Each LargeCap S&P 500
Index, MidCap S&P 400 Index and SmallCap S&P 600 Index Funds may invest in
foreign securities to the extent that its relevant index is so invested. The
other Funds (except Government Securities) may each invest up to 25% of its
assets in foreign securities.
Foreign companies may not be subject to the same uniform accounting, auditing
and financial reporting practices as are required of U.S. companies. In
addition, there may be less publicly available information about a foreign
company than about a U.S. company. Securities of many foreign companies are less
liquid and more volatile than securities of comparable U.S. companies.
Commissions on foreign securities exchanges may be generally higher than those
on U.S. exchanges, although each Fund seeks the most favorable net results on
its portfolio transactions.
Foreign markets also have different clearance and settlement procedures than
those in U.S. markets. In certain markets there have been times when settlements
have been unable to keep pace with the volume of securities transactions, making
it difficult to conduct these transactions. Delays in settlement could result in
temporary periods when a portion of Fund assets is not invested and earning no
return. If a Fund is unable to make intended security purchases due to
settlement problems, the Fund may miss attractive investment opportunities. In
addition, a Fund may incur a loss as a result of a decline in the value of its
portfolio if it is unable to sell a security.
With respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments that could affect a Fund's investments in those
countries. In addition, a Fund may also suffer losses due to nationalization,
expropriation or differing accounting practices and treatments. Investments in
foreign securities are subject to laws of the foreign country that may limit the
amount and types of foreign investments. Changes of governments or of economic
or monetary policies, in the U.S. or abroad, changes in dealings between
nations, currency convertibility or exchange rates could result in investment
losses for a Fund. Finally, even though certain currencies may be convertible
into U.S. dollars, the conversion rates may be artificial relative to the actual
market values and may be unfavorable to Fund investors.
Foreign securities are often traded with less frequency and volume, and
therefore may have greater price volatility, than is the case with many U.S.
securities. Brokerage commissions, custodial services, and other costs relating
to investment in foreign countries are generally more expensive than in the U.S.
Though the Funds intend to acquire the securities of foreign issuers where there
are public trading markets, economic or political turmoil in a country in which
a Fund has a significant portion of its assets or deterioration of the
relationship between the U.S. and a foreign country may negatively impact the
liquidity of a Fund's portfolio. A Fund may have difficulty meeting a large
number of redemption requests. Furthermore, there may be difficulties in
obtaining or enforcing judgments against foreign issuers.
A Fund may choose to invest in a foreign company by purchasing depositary
receipts. Depositary receipts are certificates of ownership of shares in a
foreign based issuer held by a bank or other financial institution. They are
alternatives to purchasing the underlying security but are subject to the
foreign securities to which they relate.
Investments in companies of developing countries may be subject to higher risks
than investments in companies in more developed countries. These risks include:
o increased social, political and economic instability;
o a smaller market for these securities and low or nonexistent volume of
trading that results in a lack of liquidity and in greater price
volatility;
o lack of publicly available information, including reports of payments of
dividends or interest on outstanding securities;
o foreign government policies that may restrict opportunities, including
restrictions on investment in issuers or industries deemed sensitive to
national interests;
o relatively new capital market structure or market-oriented economy;
o the possibility that recent favorable economic developments may be slowed
or reversed by unanticipated political or social events in these countries;
o restrictions that may make it difficult or impossible for the Fund to vote
proxies, exercise shareholder rights, pursue legal remedies, and obtain
judgments in foreign courts; and
o possible losses through the holding of securities in domestic and foreign
custodial banks and depositories.
In addition, many developing countries have experienced substantial, and in some
periods, extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of those countries.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. A Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for
repatriation.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade.
Securities of Smaller Companies
The Funds may invest in securities of companies with small- or mid-sized market
capitalizations. Market capitalization is defined as total current market value
of a company's outstanding common stock. Investments in companies with smaller
market capitalizations may involve greater risks and price volatility (wide,
rapid fluctuations) than investments in larger, more mature companies. Smaller
companies may be less mature than larger companies. At this earlier stage of
development, the companies may have limited product lines, reduced market
liquidity for their shares, limited financial resources or less depth in
management than larger or more established companies. Small companies also may
be less significant within their industries and may be at a competitive
disadvantage relative to their larger competitors. While smaller companies may
be subject to these additional risks, they may also realize more substantial
growth than larger or more established companies.
Unseasoned Issuers
The Funds may invest in the securities of unseasoned issuers. Unseasoned issuers
are companies with a record of less than three years continuous operation,
including the operation of predecessors and parents. Unseasoned issuers by their
nature have only a limited operating history that can be used for evaluating the
company's growth prospects. As a result, investment decisions for these
securities may place a greater emphasis on current or planned product lines and
the reputation and experience of the company's management and less emphasis on
fundamental valuation factors than would be the case for more mature growth
companies. In addition, many unseasoned issuers also may be small companies and
involve the risks and price volatility associated with smaller companies.
Temporary Defensive Measures
For temporary defensive purposes in times of unusual or adverse market
conditions, the Funds may invest without limit in cash and cash equivalents. For
this purpose, cash equivalents include: bank notes, 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. In addition, a Fund may purchase U.S. Government securities,
preferred stocks and debt securities, whether or not convertible into or
carrying rights for common stock.
There is no limit on the extent to which the Funds may take temporary defensive
measures. In taking such measures, the Funds may fail to achieve their
investment objective.
Portfolio Turnover
"Portfolio Turnover" is the term used in the industry for measuring the amount
of trading that occurs in a Fund's portfolio during the year. For example, a
100% turnover rate means that on average every security in the portfolio has
been replaced once during the year.
Funds with high turnover rates (more than 100%) often have higher transaction
costs (which are paid by the Fund) and may generate short-term capital gains (on
which taxes may be imposed even if no shares of the Fund are sold during the
year). No turnover rate can be calculated for the Money Market Fund because of
the short maturities of the securities in which it invests. No turnover rates
are calculated for the other Funds as they have been in existence for less than
six months.
Please consider all the factors when you compare the turnover rates of different
funds. A fund with consistently higher total returns and higher turnover rates
than another fund may actually be achieving better performance precisely because
the managers are active traders.
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
The Manager
Principal Management Corporation serves as the Manager for the Fund. Through the
Management Agreement with the Fund, the Manager has agreed to handle the
investment advisory services and provide certain corporate administrative
services for the Fund. The Fund and the Manager have also entered into a Service
Agreement under which the Manager provides personal services to shareholders of
each Fund. Additionally, the Fund and the Manager have entered into an
Administrative Services Agreement under which the Manager has agreed to provide
transfer agency services and certain shareholder services for beneficial owners
of Advisors Select, Advisors Preferred, Select and Preferred Fund classes of
shares.
The Fund and the Manager have entered into a Portfolio Accounting Service
Agreement under which the Manager provides portfolio accounting services.
The Manager is an indirect subsidiary of Principal Financial Services, Inc. and
has managed mutual funds since 1969. As of October 31,2000, the mutual funds it
manages had assets of approximately $6.6 billion. The Manager's address is
Principal Financial Group, Des Moines, Iowa 50392-0200.
The Sub-Advisors
The Manager has signed contracts with various Sub-Advisors. Under the
Sub-Advisory agreements, the Sub-Advisor agrees to assume the obligations of the
Manager to provide investment advisory services for a specific Fund. For these
services, the Sub-Advisor is paid a fee by the Manager.
Funds: Balanced (equity securities portion), International I,
International Emerging Markets, International SmallCap,
LargeCap Blend, LargeCap Growth, LargeCap S&P 500 Index,
LargeCap Value, MidCap Blend, MidCap Growth, MidCap S&P 400
Index, MidCap Value, SmallCap Blend, SmallCap Growth,
SmallCap S&P 600 Index and SmallCap Value
Sub-Advisor: Invista Capital Management, LLC ("Invista"), an indirect
wholly-owned subsidiary of Principal Life Insurance Company
and an affiliate of the Manager, was founded in 1985. It
manages investments for institutional investors, including
Principal Life. Assets under management as of September 30,
2000, were approximately $29.7 billion. Invista's address is
1800 Hub Tower, 699 Walnut, Des Moines, Iowa 50309.
Funds: Balanced (fixed-income portion), Bond & Mortgage Securities,
Government Securities, High Quality Short-Term Bond, High
Quality Intermediate-Term Bond, High Quality Long-Term Bond
and Money Market
Sub-Advisor: Principal Capital Income Investors, LLC ("PCII"), an indirect
wholly-owned subsidiary of Principal Life Insurance Company
and an affiliate of the Manager, was founded in 2000. It
manages investments for institutional investors, including
Principal Life Insurance Company. Assets under management as
of September 30, 2000, were approximately $31.1 billion.
PCII's address is 1800 Hub Tower, 699 Walnut, Des Moines, Iowa
50309.
Fund: Real Estate
Sub-Advisor: Principal Capital Real Estate Investors, LLC ("PCREI"), an
indirect wholly-owned subsidiary of Principal Life Insurance
Company and an affiliate of the Manager, was founded in 2000.
It manages investments for institutional investors, including
Principal Life Insurance Company. Assets under management as
of September 30, 2000, were approximately $20.7 billion.
PCREI's address is 1800 Hub Tower, 699 Walnut, Des Moines,
Iowa 50309.
Funds: European, International II, Pacific Basin and Technology
Sub-Advisor: BT Fund Management (International) Limited ("BT") is a related
company of BT Funds Management Limited ("BTFM") and a member
of the Principal Financial Group. Its address is The Chifley
Tower, 2 Chifley Square, Sydney NSW 2000 Australia. As of
October 31, 2000 BT, together with BTFM, had approximately
$23.8 billion under management.
Fund: Partners LargeCap Growth I
Sub-Advisor: Morgan Stanley Asset Management ("Morgan Stanley"), with
principal offices at 1221 Avenue of the Americas, New York, NY
10020, conducts a worldwide portfolio management business and
provides a broad range of portfolio management services to
customers in the U.S. and abroad. As of September 30, 2000,
Morgan Stanley, together with its affiliated institutional
asset management companies, managed investments totaling
approximately $176.8 billion as named fiduciary or fiduciary
adviser. On December 1, 1998, Morgan Stanley Asset Management
Inc. changed its name to Morgan Stanley Dean Witter Investment
Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
Fund: Partners MidCap Growth
Sub-Advisor: Turner Investment Partners, Inc. ("Turner") was founded in
1990. Its address is 1235 Westlake Drive, Suite 350, Berwyn,
PA 19312. As of October 31, 2000, Turner had discretionary
management authority with respect to approximately $11.7
billion in assets.
Fund: Partners LargeCap Value
Sub-Advisor: Alliance Capital Management L.P. ("Alliance") through its
Bernstein Investment Research and Management unit
("Bernstein"). As of September 30, 2000, Alliance managed $470
billion in assets. Bernstein is located at 767 Fifth Avenue,
New York, NY 10153 and Alliance is located at 1345 Avenue of
the Americas, New York, NY 10105.
Funds: Partners MidCap Value and Partners SmallCap Growth I
Sub-Advisor: Neuberger Berman Management Inc. ("Neuberger Berman") is an
affiliate of Neuberger Berman, LLC. Neuberger Berman LLC is
located at 605 Third Avenue, 2nd Floor, New York, NY
10158-0180. Together with Neuberger Berman, the firms manage
more than $56.5 billion in total assets (as of September 30,
2000) and continue an asset management history that began in
1939.
Funds: Partners LargeCap Blend and Partners SmallCap Growth II
Sub-Advisor: Federated Investment Management Company ("Federated") is a
registered investment adviser and a wholly-owned subsidiary of
Federated Investors, Inc., which was founded in 1955.
Federated is located in the Federated Investors Tower at 1001
Liberty Avenue, Pittsburgh, PA 15222-3779. As of October 31,
2000, Federated managed $131 billion in assets.
Fund: Partners LargeCap Growth II
Sub-Advisor: American Century Investment Management, Inc. ("American
Century") was founded in 1958. Its office is located in the
American Century Tower at 4500 Main Street, Kansas City, KS
64111. As of October 31, 2000, American Century managed over
$109.7 billion in assets.
Duties of Manager and Sub-Advisors
The Manager or Sub-Advisor provides the Board of Directors of the Fund with a
recommended investment program. The program must be consistent with the Fund's
investment objective and policies. Within the scope of the approved investment
program, the Manager or Sub-Advisor advises the Fund on its investment policy
and determines which securities are bought and sold, and in what amounts.
The Manager is paid a fee by the Fund for its services, which includes any fee
paid to the Sub-Advisor.
Principal Investors Fund and the Manager, under an order received from the SEC,
may enter into and materially amend agreements with Sub-Advisors without
obtaining shareholder approval. For any Fund that is relying on that order, the
Manager may: o hire one or more Sub-Advisors; o change Sub-Advisors; and o
reallocate management fees between itself and Sub-Advisors. The Manager will
continue to have the ultimate responsibility for the investment performance of
these Funds due to its responsibility to oversee Sub-Advisors and recommend
their hiring, termination and replacement. No Fund will rely on the order until
it receives approval from its shareholders or, in the case of a new Fund, the
Fund's sole initial shareholder before the Fund is available to the public, and
the Fund states in its prospectus that it intends to rely on the order. The
Manager will not enter into an agreement with an affiliated Sub-Advisor for a
Fund that is relying on the order without that agreement, including the
compensation to be paid under it, being similarly approved. The Partners
LargeCap Blend Fund, Partners LargeCap Growth Fund I, Partners LargeCap Growth
Fund II, Partners LargeCap Value Fund, Partners MidCap Growth Fund, Partners
MidCap Value Fund, Partners SmallCap Growth Fund I and Partners SmallCap Growth
Fund II have received the necessary shareholder approval and intend to rely on
the order.
SHAREHOLDER INFORMATION
Pricing of Fund Shares
Each Fund's shares are bought and sold at the current NAV. The share price of
each class of each Fund is calculated each day the New York Stock Exchange
(NYSE) is open. The NAV is determined at the close of business of the Exchange
(normally 3:00 p.m. Central time). When an order to buy or sell shares is
received, the NAV used to fill the order is the next price calculated after the
order is received.
For all Funds except the Money Market Fund, the NAV is calculated by: o taking
the current market value of the total assets of the Fund o subtracting
liabilities of the Fund o dividing the remainder proportionately into the
classes of the Fund o subtracting the liabilities of each class o dividing the
remainder by the total number of shares owned in that class.
The securities of the Money Market Fund are valued at amortized cost. The
calculation procedure is described in the SAI. The Money Market Fund reserves
the right to determine a share price more than once each day.
NOTES:
o If current market values are not readily available for a security owned by
a Fund, its fair value is determined using a policy adopted by the Fund's
Board of Directors.
o A Fund's securities may be traded on foreign securities markets that
generally complete trading at various times during the day prior to the
close of the NYSE. The values of foreign securities used in computing share
price are determined at the time the foreign market closes. Occasionally,
events affecting the value of foreign securities occur when the foreign
market is closed and the NYSE is open. The NAV of a Fund investing in
foreign securities may change on days when shareholders are unable to
purchase or redeem shares. If the Sub-Advisor believes that the market
value is materially affected, the share price will be calculated using the
policy adopted by the Fund.
o Certain securities issued by companies in emerging market countries may
have more than one quoted valuation at any point in time. These may be
referred to as local price and premium price. The premium price is often a
negotiated price that may not consistently represent a price at which a
specific transaction can be effected. The European, International I,
International II, International Emerging Markets, International SmallCap
and Pacific Basin Funds each has a policy to value such securities at a
price at which the Sub-Advisor expects the securities may be sold.
Purchase of Fund Shares
Shares may be purchased:
o via the internet.
o standard method of accepting data for plans with fewer than 1,000
current and terminated (within the last five years) members.
o available 7 days a week (7 a.m. to 9 p.m. Central Time).
o using a modem.
o plan contributions transferred electronically.
o standard method of accepting data for plans with more than 1,000
current and terminated (within the last five years) members.
o available 24 hours a day, 7 days a week.
To eliminate the need for safekeeping, the Funds will not issue certificates for
shares. The Funds may periodically close to new purchases of shares or refuse
any order to buy shares if the Manager determines that doing so would be in the
best interests of the Fund and its shareholders.
Redemption of Fund Shares
Subject to any restrictions imposed by a plan, shares may be sold back to the
Fund any day the NYSE is open. For more information about how to sell shares of
the Fund, including any charges that a plan may impose, please consult the plan.
The Fund generally sends payment for shares sold the business day after the sell
order is received. Under unusual circumstances, the Fund may suspend
redemptions, or postpone payment for more than seven days, as permitted by
federal securities law.
Exchange of Fund Shares
An exchange between Funds is a sale of shares in one Fund and purchase of shares
of another Fund with the redemption proceeds. Subject to any restrictions a plan
imposes, shares in the Funds may be exchanged, without charge, for the same
class of any other Principal Investors Fund, provided that:
o the class shares of such other Fund are available in the plan member's state
of residence; and o shares of such other Fund are available through the plan.
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 under other circumstances where the Board of Directors of the Fund
or the Manager believes it is in the best interests of the Fund, the Fund
reserves the right to revise or terminate the exchange privilege, limit the
amount or number of exchanges, reject any exchange or close the account.
Notification of any such action will be given to the extent required by law.
Dividends and Distributions
The High Quality Short-Term Bond, Bond & Mortgage Securities, Government
Securities, High Quality Intermediate-Term Bond and High Quality Long-Term Bond
Funds pay most of their net dividend income on a monthly basis. Payments are
made to shareholders of record on the business day prior to the payment date.
The payment date is December 23 (or previous business day).
The other Funds (other than the Money Market Fund) pay most of their net
dividend income once each year. Payments are made to shareholders of record on
the business day prior to the payment date. The payment date is December 23 (or
previous business day).
Net realized capital gains, if any, are distributed annually. Generally the
distribution is made on the fourth business day of December. Payments are made
to shareholders of record on the business day prior to the payable date. Capital
gains may be taxable at different rates, depending on the length of time that
the Fund holds its assets.
The Money Market Fund declares dividends of all its daily net investment income
each day its shares are priced. The dividends are paid daily and are
automatically reinvested back into additional shares of the Money Market Fund.
Under normal circumstances, the Money Market Fund intends to hold portfolio
securities until maturity and value them at amortized cost. Therefore, the Money
Market Fund does not expect any capital gains or losses. Should there be any
gain, it could result in an increase in dividends. A capital loss could result
in a dividend decrease.
Dividend and capital gain distributions from a Fund are reinvested in additional
shares of the Fund making the distribution.
Generally, for federal income tax purposes, Fund distributions are taxable as
ordinary income, except that any distributions of long-term capital gains will
be taxed as such regardless of how long Fund shares have been held. However,
distributions by the Fund to retirement plans that qualify for tax-exempt
treatment under federal income tax laws will not be taxable. Special tax rules
apply to investments by such plans.
A tax advisor should be consulted to determine the suitability of the Fund as an
investment by such a plan and the tax treatment of distributions by the Fund. A
tax advisor can also provide information on the potential impact of possible
foreign, state and local taxes. A Fund's investments in foreign securities may
be subject to foreign withholding taxes. In that case, the Fund's yield on those
securities would be decreased.
A Fund's investments in certain debt obligations may cause the Fund to recognize
taxable income in excess of the cash generated by such obligations. Thus, the
Fund could be required at times to liquidate other investments in order to
satisfy its distribution requirement.
FUND ACCOUNT INFORMATION
Statements
Unless the plan elects to receive statements on a semiannual or annual basis,
statements are sent each calendar quarter. The statements provide the number and
value of shares owned by the plan, transactions during the quarter, dividends
declared or paid and other information.
This information may also be accessed by accessing www.principal.com.
Minimum Account Balance
The Principal Investors Fund reserves the right to set a minimum and redeem all
shares in the Fund if the value of a plan's investments in the Funds is less
than the minimum. Principal Investors Fund has set the minimum at $2.5 million.
The redemption proceeds would then be mailed to the plan sponsor. If the Fund
exercises this right, the plan sponsor will be notified that the redemption is
going to be made. The plan will have 30 days to make an additional investment
and bring plan assets up to the required minimum. The Fund reserves the right to
change the minimum
Reservation of Rights
The Principal Investors Fund reserves the right to amend or terminate the
special plans described in this prospectus. In addition, Principal Investors
Fund reserves the right to change the share classes described herein.
Shareholders will be notified of any such action to the extent required by law.
Financial Statements
Plans will receive annual financial statements for the Funds, examined by the
Funds' independent auditors, Ernst & Young LLP. Plans will also receive a
semiannual financial statement that is unaudited.
APPENDIX A
RELATED PERFORMANCE OF THE SUB-ADVISORS
The Funds started operation in December, 2000 and have no historical performance
data. The following tables set forth historical information about client
accounts managed by a Sub-Advisor that have investment objectives and strategies
similar to those of the corresponding Fund the Sub-Advisor manages. These client
accounts may consist of individuals, institutions and other mutual funds. This
composite data is provided to illustrate the past performance of each
Sub-Advisor in managing similar accounts and does not represent the performance
of any Fund.
On the following pages "composite performance" is shown for each Sub-Advisor
with regard to all of those similarly managed accounts. The composite
performance is computed based upon essentially the Sub-Advisor's asset weighted
"average" performance with regard to such accounts. The composite performance
information shown is based on a composite of all accounts of each Sub-Advisor
(and its predecessor, if any) having substantially similar investment
objectives, policies and strategies to the corresponding Fund. The composite
results reflect the deduction of all fees and expenses actually incurred by the
client accounts.
Portions of the information below are based on data supplied by the Sub-Advisors
and from statistical services, reports or other sources believed by the Manager
to be reliable. However, such information has not been verified or audited by
the Manager.
Some of the accounts included in the composites are not mutual funds registered
under the 1940 Act. Those accounts are not subject to investment limitations,
diversification requirements and other restrictions imposed by the 1940 Act and
the Internal Revenue Code. If such requirements were applicable to these
accounts, the performance shown may have been lower.
The performance data should not be considered as an indication of future
performance of any Fund or any Sub-Advisor. In addition, the effect of taxes is
not reflected in the information below as it will depend on the investor's tax
status.
Please note that 1999 was an exceptionally good year for the stocks of
technology companies and mutual funds that invest in them. It should not be
expected that those stocks and funds will perform as well every year. Stock
prices can change unpredictably and, in fact, they may lose value in some years.
PERFORMANCE RESULTS - STABLE FUNDS
<TABLE>
<CAPTION>
Average Annual Performance
(through September 30, 2000)
YTD 1 YR 3 YR 5 YR 10 YR
High Quality Short-Term Bond Fund Select*
High Quality Short-Term Bond Fund Preferred*
<S> <C> <C> <C> <C> <C>
PCII High Quality Short-Term Bond Composite 5.66 5.96 5.03
Lehman Brothers Mutual Fund 1-5 Gov't/Credit Index 0.93 6.10 5.76 6.04 6.95
Average Short-Term Bond Category (Morningstar) 5.25 5.98 5.05 5.41 6.47
</TABLE>
<TABLE>
<CAPTION>
Average Annual Performance
(year ended December 31)
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
High Quality Short-Term Bond Fund Select*
High Quality Short-Term Bond Fund Preferred*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PCII High Quality Short-Term Bond Composite 1.05 6.79 6.64
Lehman Brothers Mutual Fund 1-5 Gov't/Credit Index 2.09 7.63 7.13 4.67 12.88 -0.72 7.10 6.83 13.17 9.71
Average Short-Term Bond Category (Morningstar) 2.12 6.28 6.51 4.35 11.48 -0.86 6.86 6.15 13.43 7.98
</TABLE>
* Fund's inception 12/6/00.
PERFORMANCE RESULTS - CONSERVATIVE FUNDS
<TABLE>
<CAPTION>
Average Annual Performance
(through September 30, 2000)
YTD 1 YR 3 YR 5 YR 10 YR
Bond & Mortgage Securities Fund Select*
Bond & Mortgage Securities Fund Preferred*
<S> <C> <C> <C> <C> <C>
PCII Multi-Sector Composite 7.31 7.04 5.74 6.60 8.34
Lehman Brothers Aggregate Bond Index 0.63 6.99 5.93 6.47 8.05
Average Intermediate-Term Bond Category (Morningstar) 5.61 5.90 4.70 5.55 7.61
Government Securities Fund Select*
Government Securities Fund Preferred*
PCII Mortgage-Backed Broad Composite 6.94 7.05 5.75 6.47 7.90
Lehman Brothers Mortgage Backed Securities Index 1.04 7.42 6.07 6.80 7.93
Average Intermediate Government Category (Morningstar) 6.28 6.29 4.87 5.43 6.97
High Quality Intermediate-Term Bond Fund Select*
High Quality Intermediate-Term Bond Fund Preferred*
PCII High Quality Intermediate-Term Bond Composite 6.48 6.54 5.58
Lehman Brothers Aggregate Bond Index 0.63 6.99 5.93 6.47 8.05
Average Intermediate-Term Bond Category (Morningstar) 5.61 5.90 4.70 5.55 7.61
High Quality Long-Term Bond Fund Select*
High Quality Long-Term Bond Fund Preferred*
PCII High Quality Long-Term Bond Composite 4.42 3.61 3.82
Lehman Brothers Long Term Gov't./Corporate Bond Index -0.89 7.94 6.18 6.90 9.74
Average Long-Term Bond Category (Morningstar) 5.32 5.38 3.96 5.56 8.08
</TABLE>
PERFORMANCE RESULTS - CONSERVATIVE FUNDS
<TABLE>
<CAPTION>
Annual Performance
(year ended December 31)
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
Bond & Mortgage Securities Fund Select*
Bond & Mortgage Securities Fund Preferred*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PCII Multi-Sector Composite -0.57 7.97 10.16 3.94 18.41 -2.05 10.67 8.25 15.89 9.49
Lehman Brothers Aggregate Bond Index -0.82 8.69 9.65 3.63 18.47 -2.92 9.75 7.40 16.00 8.96
Average Intermediate-Term Bond Category (Morningstar) -1.22 7.42 8.76 3.30 17.35 -3.73 10.39 7.20 16.62 6.66
Government Securities Fund Select*
Government Securities Fund Preferred*
PCII Mortgage-Backed Broad Composite 0.22 7.62 9.97 3.90 19.10 -4.41
Lehman Brothers Mortgage Backed Securities Index 1.85 6.97 9.49 5.36 16.80 -1.61 6.84 6.96 15.72 10.72
Average Intermediate Government Category (Morningstar) -1.44 7.45 8.45 2.80 16.42 -4.02 8.03 6.39 14.67 8.89
High Quality Intermediate-Term Bond Fund Select*
High Quality Intermediate-Term Bond Fund Preferred*
PCII High Quality Intermediate-Term Bond Composite -0.57 8.28 9.32
Lehman Brothers Aggregate Bond Index -0.82 8.69 9.65 3.63 13.47 -2.92 9.75 7.40 16.00 8.96
Average Intermediate-Term Bond Category (Morningstar) -1.22 7.42 8.76 3.30 17.35 -3.73 10.39 7.20 16.62 6.66
High Quality Long-Term Bond Fund Select*
High Quality Long-Term Bond Fund Preferred*
PCII High Quality Long-Term Bond Composite -7.41 10.39 4.85
Lehman Brothers Long Term Gov't./Corporate Bond Index -7.64 11.76 14.52 0.13 29.93 -7.10 16.17 8.53 19.53 6.42
Average Long-Term Bond Category (Morningstar) -2.78 6.51 10.53 3.54 21.33 -6.13 13.34 7.98 17.15 5.74
</TABLE>
* Fund's inception 12/6/00.
PERFORMANCE RESULTS - MODERATE FUNDS
>
<TABLE>
<CAPTION>
Average Annual Performance
(through September 30, 2000)
YTD 1 YR 3 YR 5 YR 10 YR
Balanced Fund Select*
Balanced Fund Preferred*
<S> <C> <C> <C> <C> <C>
Invista Balanced Composite -0.01 5.50 6.81 14.89
PCII Multi-Sector Composite 7.31 7.04 5.74 6.60 8.34
S&P 500 Index -5.28 13.28 16.44 21.69 19.44
Lehman Brothers Aggregate Bond Index 0.63 6.99 5.93 6.47 8.05
Average Domestic Hybrid Category (Morningstar) 3.67 11.72 8.43 12.23 12.46
LargeCap Blend Fund Select*
LargeCap Blend Fund Preferred*
Invista Large Cap Composite -4.06 3.77 10.36 17.94
S&P 500 Index -5.28 13.28 16.44 21.69 19.44
Average LargeCap Blend Category (Morningstar) 0.77 17.07 14.25 18.74 17.40
Partners LargeCap Blend Fund Select*
Partners LargeCap Blend Fund Preferred*
Federated Capital Appreciation Composite 2.54 34.42 22.23 24.43 20.83
S&P 500 Index -5.28 13.28 16.44 21.69 19.44
Average LargeCap Blend Category (Morningstar) 0.77 17.07 14.25 18.74 17.40
LargeCap Growth Fund Select*
LargeCap Growth Fund Preferred*
Invista Large Cap Growth Composite 8.63
S&P/BARRA 500 Growth Index -9.76 12.04 20.87 24.98 20.94
Average LargeCap Growth Category (Morningstar) 2.80 31.95 22.86 22.63 20.05
Partners LargeCap Growth Fund I Select*
Partners LargeCap Growth Fund I Preferred*
Morgan Stanley Equity Growth Composite 3.95 26.74 2.07 27.60 23.75
S&P 500 Index -5.28 13.28 16.44 21.69 19.44
Average LargeCap Growth Category (Morningstar) 2.80 31.95 22.86 22.63 20.05
Partners LargeCap Growth Fund II Select*
Partners LargeCap Growth Fund II Preferred*
American Century Growth Composite 2.45 26.64 22.27 20.79 19.61
Russell 1000 Growth Index -9.46 23.43 23.97 25.07
Average LargeCap Growth Category (Morningstar) 2.80 31.95 22.86 22.63 20.05
LargeCap S&P 500 Index Fund Select*
LargeCap S&P 500 Index Fund Preferred*
Invista S&P 500 Index Composite -1.70 12.84 16.02 21.25
S&P 500 Index -5.28 13.28 16.44 21.69 19.44
Average LargeCap Blend Category (Morningstar) 0.77 17.07 14.25 18.74 17.40
LargeCap Value Fund Select*
LargeCap Value Fund Preferred*
Invista Large Cap Value Composite -0.22 -1.67 5.66 13.77
S&P/BARRA 500 Value Index -0.02 13.75 11.31 17.90 17.55
Average LargeCap Value Category (Morningstar) 2.83 10.78 7.41 14.67 15.19
Partners LargeCap Value Fund Select*
Partners LargeCap Value Fund Preferred*
Sanford C. Bernstein Diversified Value Composite 3.50 5.00
Russell 1000 Value Index 0.91 8.91 10.23 17.59
Average LargeCap Value Category (Morningstar) 2.83 10.78 7.41 14.67 15.19
MidCap Value Fund Select*
MidCap Value Fund Preferred*
Invista Mid Cap Value Composite 3.74 3.08 2.12 11.44
S&P/BARRA 400 Value Index 16.95 25.46 9.69 16.02
Average MidCap Value Category (Morningstar) 9.56 17.35 5.97 13.69 14.89
Partners MidCap Value Fund Select*
Partners MidCap Value Fund Preferred*
Neuberger Berman MidCap Value Composite 21.79 35.08 4.73 15.66 16.60
Russell Midcap Value Index 0.96 13.00 5.96 14.07 17.81
Average MidCap Value Category (Morningstar) 9.56 17.35 5.97 13.69 14.89
Real Estate Fund Select*
Real Estate Fund Preferred*
PCREI Real Estate Composite 26.58 24.32 3.24
Morgan Stanley REIT Index 3.08 21.25 -0.73 10.27
</TABLE>
PERFORMANCE RESULTS - MODERATE FUNDS
<TABLE>
<CAPTION>
Annual Performance
(year ended December 31)
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
Balanced Fund Select*
Balanced Fund Preferred*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Invista Balanced Composite 2.20 12.17 20.03 10.69 26.88 -1.63 14.25 10.73 27.19
PCII Multi-Sector Composite -0.57 7.97 10.16 3.94 18.41 -2.05 10.67 8.25 15.89 9.49
S&P 500 Index 21.04 28.58 33.36 22.96 37.58 1.32 10.08 7.62 30.47 -3.10
Lehman Brothers Aggregate Bond Index -0.82 8.69 9.65 3.63 18.47 -2.92 9.75 7.40 16.00 8.96
Average Domestic Hybrid Category (Morningstar) 8.24 12.50 18.24 13.07 24.87 -2.56 12.07 8.22 23.87 -0.09
LargeCap Blend Fund Select*
LargeCap Blend Fund Preferred*
Invista Large Cap Composite 9.57 24.70 29.66 24.35
S&P 500 Index 21.04 28.58 33.36 22.96 37.58 1.32 10.08 7.62 30.47 -3.10
Average LargeCap Blend Category (Morningstar) 19.72 21.95 27.43 20.37 31.99 -1.08 11.12 7.62 32.13 -3.34
Partners LargeCap Blend Fund Select*
Partners LargeCap Blend Fund Preferred*
Federated Capital Appreciation Composite 43.39 20.08 30.62 18.39 37.17 -0.30 11.31 11.37 27.43 -4.43
S&P 500 Index 21.04 28.58 33.36 22.96 37.58 1.32 10.08 7.62 30.47 -3.10
Average LargeCap Blend Category (Morningstar) 19.72 21.95 27.43 20.37 31.99 -1.08 11.12 7.62 32.13 -3.34
LargeCap Growth Fund Select*
LargeCap Growth Fund Preferred*
Invista Large Cap Growth Composite
S&P/BARRA 500 Growth Index 28.25 42.15 36.38 23.98 38.13 3.13 1.68 5.07 38.37 0.20
Average LargeCap Growth Category (Morningstar) 39.72 33.56 25.00 18.95 32.27 -2.32 10.31 5.83 43.69 -2.12
Partners LargeCap Growth Fund I Select*
Partners LargeCap Growth Fund I Preferred*
Morgan Stanley Equity Growth Composite 39.42 21.11 31.40 31.23 45.03 3.18 4.32 5.99 25.54 -2.92
S&P 500 Index 21.04 28.58 33.36 22.96 37.58 1.32 10.08 7.62 30.47 -3.10
Average LargeCap Growth Category (Morningstar) 39.72 33.56 25.00 18.95 32.27 -2.32 10.31 5.83 43.69 -2.12
Partners LargeCap Growth Fund II Select*
Partners LargeCap Growth Fund II Preferred*
American Century Growth Composite 34.68 36.77 29.28 14.92 20.35 -1.49 3.76 -4.29 69.02 -3.83
Russell 1000 Growth Index 33.16 38.71 30.49 23.12 37.19 2.66 2.90 5.00 41.16 -0.26
Average LargeCap Growth Category (Morningstar) 39.72 33.56 25.00 18.95 32.27 -2.32 10.31 5.83 43.69 -2.12
LargeCap S&P 500 Index Fund Select*
LargeCap S&P 500 Index Fund Preferred*
Invista S&P 500 Index Composite 20.62 28.16 32.89 22.51 37.07 1.05
S&P 500 Index 21.04 28.58 33.36 22.96 37.58 1.32 10.08 7.62 30.47 -3.10
Average LargeCap Blend Category (Morningstar) 19.72 21.95 27.43 20.37 31.99 -1.08 11.12 7.62 32.13 -3.34
LargeCap Value Fund Select*
LargeCap Value Fund Preferred*
Invista Large Cap Value Composite -7.12 18.04 28.94 22.18
S&P/BARRA 500 Value Index 12.72 14.68 29.99 21.99 37.00 -0.63 18.60 10.53 22.56 -6.85
Average LargeCap Value Category (Morningstar) 13.10 27.01 20.79 32.28 -0.81 13.25 9.89 28.51 -6.37
Partners LargeCap Value Fund Select*
Partners LargeCap Value Fund Preferred*
Sanford C. Bernstein Diversified Value Composite 7.80
Russell 1000 Value Index 7.35 15.63 35.18 21.64 38.35 -1.99 18.12 13.81 24.61 -8.08
Average LargeCap Value Category (Morningstar) 6.63 13.10 27.01 20.79 32.28 -0.81 13.25 9.89 28.51 -6.37
MidCap Value Fund Select*
MidCap Value Fund Preferred*
Invista Mid Cap Value Composite -7.36 3.25 35.49 16.03 41.18 0.98 11.43 7.57 33.54
S&P/BARRA 400 Value Index 2.33 4.67 34.32 19.40 34.04 -0.57 13.43 16.02
Average MidCap Value Category (Morningstar) 7.78 3.92 26.04 20.50 29.27 -1.11 17.11 13.54 29.65 -8.51
Partners MidCap Value Fund Select*
Partners MidCap Value Fund Preferred*
Neuberger Berman MidCap Value Composite 8.04 -10.66 32.66 28.08 35.23 -1.89 16.44 17.52 22.36 13.91
Russell Midcap Value Index -0.11 5.09 34.37 20.26 34.93 -2.13 15.62 21.68 37.92 -16.08
Average MidCap Value Category (Morningstar) 7.78 3.92 26.04 20.50 29.27 -1.11 17.11 13.54 29.65 -8.51
Real Estate Fund Select*
Real Estate Fund Preferred*
PCREI Real Estate Composite -3.01 -10.20 19.83
Morgan Stanley REIT Index -4.55 -16.90 18.58 35.89 12.90
</TABLE>
* Fund's inception 12/6/00.
PERFORMANCE RESULTS - AGGRESSIVE FUNDS
<TABLE>
<CAPTION>
Average Annual Performance
(through September 30, 2000)
YTD 1 YR 3 YR 5 YR 10 YR
MidCap Blend Fund Select*
MidCap Blend Fund Preferred*
<S> <C> <C> <C> <C> <C>
Invista Mid Cap Core Composite 11.55 34.01 9.05 16.08
S&P MidCap 400 Index -0.68 43.21 18.97 21.71
Average MidCap Blend Category (Morningstar) 7.19 24.94 8.81 15.11 16.30
MidCap Growth Fund Select*
MidCap Growth Fund Preferred*
Invista Mid Cap Growth Composite 14.47 51.66 22.95 24.76
Russell Midcap Growth Index -4.89 60.37 25.87 24.63 22.82
Average MidCap Growth Category (Morningstar) 15.15 65.48 27.62 23.23 21.28
MidCap S&P 400 Index Fund Select*
MidCap S&P 400 Index Fund Preferred*
Invista S&P 400 Index Composite 21.24 40.44
S&P MidCap 400 Index -0.68 43.21 18.97 21.71
Average MidCap Blend Category (Morningstar) 7.19 24.94 8.81 15.11 16.30
Partners MidCap Growth Fund Select*
Partners MidCap Growth Fund Preferred*
Turner Investment Partners Midcap Growth Composite 27.59 98.28 54.46
Russell Midcap Growth Index -4.89 60.37 25.87 24.63 22.82
Average MidCap Growth Category (Morningstar) 15.15 65.48 27.62 23.23 21.28
SmallCap Blend Fund Select*
SmallCap Blend Fund Preferred*
Invista Small Company Blend Composite 18.09 40.78 9.28 15.84
Russell 2000 Index -2.94 23.39 5.96 12.39 16.93
Average SmallCap Blend Category (Morningstar) 12.43 29.51 6.36 14.15 15.80
SmallCap Growth Fund Select*
SmallCap Growth Fund Preferred*
Invista Small Cap Growth Composite -5.30 25.50 13.43 19.84
Russell 2000 Growth Index -4.97 29.67 8.93 12.42
Average SmallCap Growth Category (Morningstar) 11.50 55.99 18.43 18.83 20.04
Partners SmallCap Growth Fund I Select*
Partners SmallCap Growth Fund I Preferred*
Neuberger Berman SmallCap Growth Composite -2.65 68.31
Russell 2000 Growth Index -4.97 29.67 8.93 12.42
Average SmallCap Growth Category (Morningstar) 11.50 55.99 18.43 18.83 20.04
Partners SmallCap Growth Fund II Select*
Partners SmallCap Growth Fund II Preferred*
Federated Aggressive Growth Composite -13.82 40.11 23.14
S&P/BARRA 600 Growth Index 7.52 29.77 7.24 11.99
Average SmallCap Growth Category (Morningstar) 11.50 55.99 18.43 18.83 20.04
SmallCap S&P 600 Index Fund Select*
SmallCap S&P 600 Index Fund Preferred*
Invista Small Cap S&P 600 Index Composite 9.54 22.11
S&P SmallCap 600 Index -2.72 24.17 5.88 13.39 17.65
Average SmallCap Blend Category (Morningstar) 12.43 29.51 6.36 14.15 15.80
SmallCap Value Fund Select*
SmallCap Value Fund Preferred*
Invista Small Cap Value Composite 4.68 3.14 -3.85 9.82
Russell 2000 Value Index -0.57 15.36 2.11 11.50
Average SmallCap Value Category (Morningstar) 12.43 19.92 1.33 12.12 14.16
Technology Fund Select*
Technology Fund Preferred*
Average Technology Category (Morningstar) 2.87 69.87 44.30 31.98 31.51
</TABLE>
PERFORMANCE RESULTS - AGGRESSIVE FUNDS
<TABLE>
<CAPTION>
Annual Performance
(year ended December 31)
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
MidCap Blend Fund Select*
MidCap Blend Fund Preferred*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Invista Mid Cap Core Composite 12.37 4.72 24.95 18.66 33.39 5.46 -0.26 9.01
S&P MidCap 400 Index 14.72 19.11 32.25 19.18 30.92 -3.59 13.93 11.90 50.07 -5.12
Average MidCap Blend Category (Morningstar) 18.70 6.77 26.45 20.44 28.71 -1.61 14.50 14.93 36.20 -8.16
MidCap Growth Fund Select*
MidCap Growth Fund Preferred*
Invista Mid Cap Growth Composite 69.96 2.48 26.15 13.40
Russell Midcap Growth Index 51.29 17.86 22.54 17.48 33.98 -2.16 11.19 8.71 47.03 -5.13
Average MidCap Growth Category (Morningstar) 63.90 17.51 17.05 16.99 34.79 -1.03 15.64 9.03 50.97 -7.35
MidCap S&P 400 Index Fund Select*
MidCap S&P 400 Index Fund Preferred*
Invista S&P 400 Index Composite
S&P MidCap 400 Index 14.72 19.11 32.25 19.20 30.95 -3.58 13.95 11.91 50.10 -5.12
Average MidCap Blend Category (Morningstar) 18.70 6.77 26.45 20.44 28.71 -1.61 14.50 14.93 36.20 -8.16
Partners MidCap Growth Fund Select*
Partners MidCap Growth Fund Preferred*
Turner Investment Partners Midcap Growth Composite 126.09 26.33 41.77 18.25
Russell Midcap Growth Index 51.29 17.86 22.54 17.48 33.98 -2.16 11.19 8.71 47.03 -5.13
Average MidCap Growth Category (Morningstar) 63.90 17.51 17.05 16.99 34.79 -1.03 15.64 9.03 50.97 -7.35
SmallCap Blend Fund Select*
SmallCap Blend Fund Preferred*
Invista Small Company Blend Composite 12.31 -9.59 21.15 18.01 29.44 3.05 21.32 26.90 24.82
Russell 2000 Index 21.26 -2.55 22.36 16.50 28.45 -1.82 18.88 18.41 46.04 -19.48
Average SmallCap Blend Category (Morningstar) 18.18 -3.64 26.12 19.66 25.51 -0.97 16.65 14.39 39.57 -12.24
SmallCap Growth Fund Select*
SmallCap Growth Fund Preferred*
Invista Small Cap Growth Composite 66.37 -2.47 34.77 14.19
Russell 2000 Growth Index 43.09 1.23 12.95 11.26 31.04 -2.43 13.36 7.77 51.19 -17.41
Average SmallCap Growth Category (Morningstar) 61.45 4.49 18.19 19.99 35.44 -0.28 16.70 11.99 53.64 -5.96
Partners SmallCap Growth Fund I Select*
Partners SmallCap Growth Fund I Preferred*
Neuberger Berman SmallCap Growth Composite 134.28
Russell 2000 Growth Index 43.09 1.23 12.95 11.26 31.04 -2.43 13.36 7.77 51.19 -17.14
Average SmallCap Growth Category (Morningstar) 61.45 4.49 18.19 19.99 35.44 -0.28 16.70 11.99 53.64 -5.96
Partners SmallCap Growth Fund II Select*
Partners SmallCap Growth Fund II Preferred*
Federated Aggressive Growth Composite -111.60 8.08 30.06
S&P/BARRA 600 Growth Index 12.41 -1.31 25.58 21.32 29.97 -4.78 18.79 21.05 48.48 -23.69
Average SmallCap Growth Category (Morningstar) 61.45 4.49 18.19 19.99 35.44 -0.28 16.70 11.99 53.64 -5.96
SmallCap S&P 600 Index Fund Select*
SmallCap S&P 600 Index Fund Preferred*
Invista Small Cap S&P 600 Index Composite
S&P SmallCap 600 Index 12.40 -1.31 25.58 21.32 29.97 -4.77 18.78 21.04 48.49 -23.69
Average SmallCap Blend Category (Morningstar) 18.18 -3.64 26.12 19.66 25.51 -0.97 16.65 14.39 39.57 -12.24
SmallCap Value Fund Select*
SmallCap Value Fund Preferred*
Invista Small Cap Value Composite -8.92 -6.03 33.65 26.44
Russell 2000 Value Index -1.49 -6.45 31.78 21.37 25.75 -1.27 23.84 29.14 41.70 -21.77
Average SmallCap Value Category (Morningstar) 4.49 -6.99 30.04 25.53 25.13 -0.81 16.72 20.29 37.19 -14.34
Technology Fund Select*
Technology Fund Preferred*
Average Technology Category (Morningstar) 136.50 52.41 9.58 20.31 42.89 13.18 24.07 13.03 46.92 0.54
</TABLE>
* Fund's inception 12/6/00.
PERFORMANCE RESULTS - DYNAMIC FUNDS
<TABLE>
<CAPTION>
Average Annual Performance
(through September 30, 2000)
YTD 1 YR 3 YR 5 YR 10 YR
European Fund Select*
European Fund Preferred*
<S> <C> <C> <C> <C> <C>
BT European Composite -14.43 11.15 18.84 22.29
MSCI Europe (15) Index--ND 4.68 5.46 10.22 15.71 14.14
Average Europe Category (Morningstar) -4.30 22.19 10.29 15.27 11.51
International Emerging Markets Fund Select*
International Emerging Markets Fund Preferred*
Invista International Emerging Markets Equity Composite -16.63 15.21 -1.16 10.28
MSCI - Emerging Markets Free--ID -8.73 0.41 -6.39 -1.66 9.48
Average Diversified Emerging Market
Category (Morningstar) -20.53 7.29 -7.12 0.12 5.83
International Fund I Select*
International Fund I Preferred*
Invista International Broad Markets Composite -7.31 9.88 7.56 13.92 14.95
MSCI EAFE (Europe, Australia, Far East) Index--ND -11.80 3.18 7.38 8.57 9.62
Average Foreign Category (Morningstar) -10.79 13.84 9.59 10.81 9.92
International Fund II Select*
International Fund II Preferred*
MSCI EAFE (Europe, Australia, Far East) Index--ND -11.80 3.18 7.38 8.57 9.62
Average Foreign Category (Morningstar) -10.79 13.84 9.59 10.81 9.92
International SmallCap Fund Select*
International SmallCap Fund Preferred*
Invista International Small Cap Equity Composite -0.70 36.20 26.53 27.71
MSCI EAFE (Europe, Australia, Far East) Index--ND -11.80 3.18 7.38 8.57 9.62
Average Foreign Category (Morningstar) -10.79 13.84 9.59 10.81 9.92
Pacific Basin Fund Select*
Pacific Basin Fund Preferred*
BT Pacific Basin Composite -15.52 10.75 16.52
MSCI Pacific Free Index--ND -15.08 -1.39 2.72 -0.55 4.16
Average Diversified Pacific/Asia Category (Morningstar) -25.00 0.98 -0.13 -0.06 6.53
</TABLE>
PERFORMANCE RESULTS - DYNAMIC FUNDS
<TABLE>
<CAPTION>
Annual Performance
(year ended December 31)
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
European Fund Select*
European Fund Preferred*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BT European Composite 33.95 30.86 26.33 41.31 9.36 8.49 43.12
MSCI Europe (15) Index--ND 15.89 28.53 23.80 21.09 21.62 2.28 29.28 -4.71 13.11 -3.85
Average Europe Category (Morningstar) 26.11 21.56 18.42 24.99 16.26 2.52 28.15 -6.82 7.47 -8.03
International Emerging Markets Fund Select*
International Emerging Markets Fund Preferred*
Invista International Emerging Markets Equity Composite 63.25 -17.59 11.38 25.57 7.46
MSCI - Emerging Markets Free--ID 58.89 -35.11 31.64 22.21 -12.83 0.64 53.92 13.41 149.65 -7.82
Average Diversified Emerging Market
Category (Morningstar) 71.86 -27.03 -3.68 13.35 -3.45 -9.27 73.26 0.26 18.10 -9.89
International Fund I Select*
International Fund I Preferred*
Invista International Broad Markets Composite 25.78 10.47 12.43 24.54 14.07 -2.39 44.83
MSCI EAFE (Europe, Australia, Far East) Index--ND 26.96 20.00 1.78 6.05 11.21 7.78 32.56 -12.17 12.13 -23.45
Average Foreign Category (Morningstar) 44.49 13.00 5.43 12.39 9.82 -0.40 36.71 -4.54 13.07 -10.90
International Fund II Select*
International Fund II Preferred*
MSCI EAFE (Europe, Australia, Far East) Index--ND 26.96 20.00 1.78 6.05 11.21 7.78 32.56 -12.17 12.13 -23.45
Average Foreign Category (Morningstar) 44.49 13.00 5.43 12.39 9.82 -0.40 36.71 -4.54 13.07 -10.90
International SmallCap Fund Select*
International SmallCap Fund Preferred*
Invista International Small Cap Equity Composite 86.79 13.24 15.62 40.53 3.61
MSCI EAFE (Europe, Australia, Far East) Index--ND 26.96 20.00 1.78 6.05 11.21 7.78 32.56 -12.17 12.13 -23.45
Average Foreign Category (Morningstar) 44.49 13.00 5.43 12.39 9.82 -0.40 36.71 -4.54 13.07 -10.90
Pacific Basin Fund Select*
Pacific Basin Fund Preferred*
BT Pacific Basin Composite 132.40 7.35 -27.91
MSCI Pacific Free Index--ND 56.65 2.72 -25.87 -8.30 2.95 12.76 36.21 -18.56 11.46 -34.57
Average Diversified Pacific/Asia Category (Morningstar) 92.50 -5.91 -27.90 4.02 2.39 -5.49 59.02 -3.03 15.05 -16.65
</TABLE>
* Fund's inception 12/6/00.
IMPORTANT NOTES TO THE APPENDIX
Lehman Brothers Aggregate Bond Index represents securities that are U.S.
domestic, taxable, and dollar denominated. The index covers the U.S. investment
grade fixed rate bond market, with index components for government and corporate
securities, mortgage pass-through securities, and asset-backed securities. These
major sectors are subdivided into more specific indices that are calculated and
reported on a regular basis.
Lehman Brothers Government/Corporate Bond Index is composed of all bonds that
are investment grade (rated BAA or higher by Moody's or BBB or higher by S&P, if
unrated by Moody's). Issues must have at least one year to maturity. Total
return comprises price appreciation/depreciation and income as a percentage of
the original investment. Indices are rebalanced monthly by market
capitalization.
Lehman Brothers Long Term Gov't./Corporate Bond Index is composed of all bonds
covered by the Lehman Brothers Government/Corporate Bond Index with maturities
of 10 years or greater. Total return comprises price appreciation/depreciation
and income as a percentage of the original investment. Indices are rebalanced
monthly by market capitalization.
Lehman Brothers Mortgage-Backed Securities Index is composed of all fixed-rate,
securitized mortgage pools by GNMA, FNMA, and the FHLMC, including GNMA
Graduated Payment Mortgages. The minimum principal amount required for inclusion
is $50 million. Total return comprises price appreciation/depreciation and
income as a percentage of the original investment. Indices are rebalanced
monthly by market capitalization.
Lehman Brothers Mutual Fund 1-5 Government/Credit Index is composed of treasury
notes, agencies, and credits rated BBB or better, and with maturities of 1 year
or greater and 5 years or less. It is a rolling mix of issues, as new issues are
added and issues becoming less than 1 year to maturity are deleted.
Morgan Stanley Capital International (MSCI) Europe (15) Index is a
capitalization-weighted index. The index is designed to track the broader MSCI
EMU Benchmark containing stocks in ten EMU member countries.
Morgan Stanley Capital International Pacific Free Index is a market
capitalization-weighted index representing all of the Morgan Stanley Capital
International developed markets in the Pacific. It comprises six of the
twenty-two countries that are included in the Morgan Stanley Capital
International World. This index is created by aggregating the six different
country indexes, all of which are created separately. This index is calculated
with gross dividends reinvested. The countries represented by this index are:
Australia, Hong Kong, Japan, Malaysia, New Zealand and Singapore. The "Free"
aspect indicates that this index includes only securities that are allowed to be
purchased by global investors.
Morgan Stanley REIT Index is a total-return index comprised of the most actively
traded real estate investment trusts, and is designed to be a measure of real
estate equity performance.
Morgan Stanley Capital International (MSCI) EAFE (Europe, Australia, Far East)
Index is a stock index designed to measure the investment returns of developed
economies outside of North America.
Russell 1000 Growth Index is an index that measures the performance of those
Russell 1000 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 1000 Value Index is an index that measures the performance of those
Russell 1000 companies with lower price to book ratios and lower forecasted
growth values.
Russell 2000 Growth Index measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth values.
Russell 2000 Index measures the performance of the 2,000 smallest companies in
the Russell 3000 Index, which represents approximately 8% of the total market
capitalization of the Russell 3000 Index. As of the latest reconstitution, the
average market capitalization was approximately $580 million; the median market
capitalization was approximately $466 million. The largest company in the index
had an approximate market capitalization of $1.5 billion.
Russell 2000 Value Index measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.
Russell Midcap Growth Index measures the performance of those Russell MidCap
companies with lower price-to-book ratios and higher forecasted growth values.
The stocks are also members of the Russell 1000 Value index.
Russell Midcap Value Index is an index that measures the performance of those
Russell MidCap companies with lower price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Value index.
S&P 500 Index is a market capitalization-weighted index of 500 widely held
stocks often used as a proxy for the stock market. It measures the movement of
the largest issues. Standard & Poor's chooses the member companies for the 500
based on market size, liquidity and industry group representation. Included are
the stocks of industrial, financial, utility and transportation companies.
S&P/BARRA 400 Value Index is a market capitalization-weighted index of all the
stocks in the S&P 400 that have low price-to-book ratios. The index is
rebalanced semi-annually on January 1 and July 1.
S&P/BARRA 500 Growth Index is a market capitalization-weighted index of all the
stocks in the S&P 500 that have high price-to-book ratios. It is designed so
that approximately 50% of the SPX market capitalization is in the Growth Index.
S&P/BARRA 500 Value Index is a market capitalization-weighted index of the
stocks in the S&P 500 Index having the highest book to price ratios. The index
consists of approximately half of the S&P 500 on a market capitalization basis.
S&P/BARRA 600 Growth Index is a market capitalization-weighted index of the
stocks in the S&P SmallCap 600 Index having the lowest book to price ratios. The
index consists of approximately half of the S&P SmallCap 600 on a market
capitalization basis.
S&P Midcap 400 Index includes approximately 10% of the capitalization of U.S.
equity securities. These are comprised of stocks in the middle capitalization
range. Any mid-sized stocks already included in the S&P 500 are excluded from
this index.
S&P SmallCap 600 Index consists of 600 domestic stocks chosen for market size,
liquidity and industry group representation. It is a market weighted index
(stock price x shares outstanding), with each stock affecting the index in
proportion to its market value.
PRINCIPAL INVESTORS FUND, INC.
This Prospectus describes a mutual fund organized by
Principal Life Insurance Company.
The date of this Prospectus is December 6, 2000.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that
this Prospectus is accurate or complete. It is a criminal offense to
represent otherwise.
TABLE OF CONTENTS
Fund Descriptions...............................................2
Moderate Funds
Partners LargeCap Blend Fund.............................4
Partners LargeCap Growth Fund I..........................6
Partners LargeCap Growth Fund II.........................8
Partners LargeCap Value Fund............................10
Partners MidCap Value Fund .............................12
Aggressive Funds
Partners SmallCap Growth Fund I.........................14
Partners SmallCap Growth Fund II........................16
Technology Fund.........................................18
Dynamic Fund
International Fund II...................................20
General Information
The Costs of Investing.....................................22
Certain Investment Strategies and Related Risks............22
Management, Organization and Capital Structure.............26
Shareholder Information....................................28
Fund Account Information ..................................29
Appendix.......................................................30
The Principal Investors Funds have been divided into risk categories. The
working definition of each category is shown below:
Moderate
In general, these are stocks of large U.S. companies. In the past, they have
been more volatile than corporate and government bonds. Balanced investments are
also considered to be moderate investment options.
Aggressive
Although there are exceptions, these investments are generally stocks of small
and medium-size U.S. companies. These investments can change in value very
quickly over short time periods.
Dynamic
In general, theses are stocks of foreign companies. These investments have
additional risks associated with foreign investing, such as currency risk, and
can change very quickly over short-term periods.
FUND DESCRIPTIONS
Class I shares of the Principal Investors Fund are offered via this prospectus.
Principal Management Corporation*, the "Manager" of each of the Funds, has
selected a Sub-Advisor for each Fund based on the Sub-Advisor's experience with
the investment strategy for which it was selected.
<TABLE>
<CAPTION>
Fund Sub-Advisor
<S><C> <C>
International II BT Funds Management (International) Limited ("BT")*
Partners LargeCap Blend Federated Management Corporation ("Federated")
Partners LargeCap Growth I Morgan Stanley Asset Management ("Morgan Stanley")
Partners LargeCap Growth II American Century Investment Management, Inc. ("American Century")
Partners LargeCap Value Alliance Capital Management L.P. through its Bernstein Investment
Research and Management unit ("Bernstein")
Partners MidCap Value Neuberger Berman Management Inc. ("Neuberger Berman")
Partners SmallCap Growth I Neuberger Berman Management Inc. ("Neuberger Berman")
Partners SmallCap Growth II Federated Management Corporation ("Federated")
Technology BT Funds Management (International) Limited ("BT")*
</TABLE>
*Principal Management Corporation and BT are members of the Principal Financial
Group(R).
Only eligible purchasers may buy Class I shares of the Funds. Eligible
purchasers are limited to separate accounts of Principal Life Insurance Company
and Principal Life Insurance Company or any of its subsidiaries or affiliates.
The Board of Directors reserves the right to broaden or limit this designation
of eligible purchaser.
In the description for each Fund, there is important information about the
Fund's:
Primary investment strategy
This section summarizes how each Fund intends to achieve its investment
objective. It identifies the Fund's primary investment strategy (including the
type or types of securities in which the Fund invests) and any policy to
concentrate in securities of issuers in a particular industry or group of
industries.
The Funds are each designed to be a portion of an investor's portfolio. None are
intended to be a complete investment program. Investors should consider the
risks of each Fund before making an investment and be prepared to maintain the
investment during periods of adverse market conditions.
Annual operating expenses
The annual operating expenses for each Fund are deducted from that Fund's assets
(stated as a percentage of Fund assets). A Fund's operating expenses are shown
with each Fund. A discussion of the fees is found in the section of the
Prospectus titled "The Costs of Investing."
The examples are intended to help investors compare the cost of investing in a
particular Fund with the cost of investing in other mutual funds. The examples
assume an investment of $10,000 in a Fund for the time periods indicated. The
examples also assume that the investment has a 5% total return each year and
that the Fund's operating expenses are the same as the expenses shown. Based on
these assumptions, the costs would be as shown.
Day-to-day Fund management
The investment professionals who manage the assets of each Fund are listed with
each Fund. Backed by their staffs of experienced securities analysts, they
provide the Funds with professional investment management.
Fund Performance
Because the Funds are new and have not completed a full calendar year of
operations, performance information for the Funds is not included in this
Prospectus. To obtain performance information of a Fund after its first full
calendar quarter of operations, contact us at www. principal.com or call
1-800-547-7754. Remember that a Fund's past performance is not necessarily an
indication of how the Fund will perform in the future.
NOTE:Investments in these Funds are not deposits of a bank and are not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
No salesperson, dealer or other person is authorized to give information or
make representations about a Fund other than those contained in this
Prospectus. Information or representations from unauthorized parties may
not be relied upon as having been made by the Principal Investors Fund, a
Fund, the Manager or any Sub-Advisor.
Moderate Funds
PARTNERS LARGECAP BLEND FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund pursues its investment objective by investing primarily in equity
securities of companies that the Sub-Advisor believes offers superior growth
prospects or of companies whose stock is undervalued. Under normal market
conditions, the Fund invests at least 65% of its assets in companies with large
market capitalizations. Market capitalization is defined as total current market
value of a company's outstanding common stock.
In selecting securities for investment, the Sub-Advisor, Federated, looks at
stocks with value and/or growth characteristics and constructs an investment
portfolio that has a "blend" of stocks with these characteristics. The value
orientation emphasizes buying stocks at less than their intrinsic investment
value and avoiding stocks whose price has been unjustifiably built up. The
growth orientation emphasizes buying stocks of companies whose potential for
growth of capital and earnings is expected to be above average. Federated
attempts to identify good long-term values through disciplined investing and
careful fundamental research.
Using its own quantitative process, Federated rates the future performance
potential of companies. Federated evaluates each company's earnings quality in
light of its current valuation to narrow the list of attractive companies.
Federated then evaluates product positioning, management quality and
sustainability of current growth trends of those companies. Using this type of
fundamental analysis, Federated selects the most promising companies for the
Fund's portfolio.
Companies with similar characteristics may be grouped together in broad
categories called sectors. In determining the amount to invest in a security,
Federated limits the Fund's exposure to each business sector that comprises the
S&P 500 Index. The Fund's allocation to a sector will not be less than 50% or
more than 200% of the Index's allocation to that sector. The Fund may invest up
to 25% of its assets in securities of foreign companies.
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate short-term gains (losses)
for its shareholders, which are taxed at a higher rate than long-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility, which
is the principal risk of investing in the Fund.
The Fund is also subject to sector risk which is the possibility that a certain
sector may underperform other sectors or the market as a whole. As Federated
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments that generally affect that sector.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization stocks, may underperform compared to other market segments
or to the equity markets as a whole. Because certain of the securities purchased
by the Fund present greater opportunities for growth, they may also involve
greater risks than securities that do not have the same potential. The value of
the Fund's equity securities may fluctuate on a daily basis. As with all mutual
funds, as the value of the Fund's assets rise and fall, the Fund's share price
changes. If the investor sells Fund shares when their value is less than the
price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks,
but who prefer investing in larger, established companies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Institutional
Class
Management Fees.................. 0.75%
Total Fund Operating Expenses 0.75%
Examples
The Examples assume that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Examples also assume that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Based on these
assumptions your cost would be:
1 Year 3 Years
Institutional Class $77 $240
Day-to-day Fund Management
Since December, 2000 Co-Manager: James E. Grefenstette, CFA. Mr.
(Fund's inception) Grefenstette joined Federated in 1992 and has been a
Portfolio Manager and a Vice President of Federated
Investment Management company since 1996. From 1994
until 1996, Mr. Grefenstette was a Portfolio Manager
and an Assistant Vice President of Federated
Investment Management Company. Mr. Grefenstette
received his MS in Industrial Administration from
Carnegie Mellon University. He has earned the right
to use the Chartered Financial Analyst designation.
Since December, 2000 Co-Manager: J. Thomas Madden, CFA. Mr. Madden joined
(Fund's inception) Federated as a Senior Portfolio Manager in 1977 and
has been an Executive Vice President of Federated
Investment Management Company since 1994. Mr. Madden
served as a Senior Vice President of Federated
Investment Management Company from 1989 to 1993. Mr.
Madden received his MBA with a concentration in
Finance from the University of Virginia. He has
earned the right to use the Chartered Financial
Analyst designation.
Since December, 2000 Co-Manager: Bernard J. Picchi, CFA. Mr. Picchi
(Fund's inception) joined Federated in 1999 as a Senior Vice
President/Director of U.S. Equity Research for
Federated Investment Management Company. From 1994
to 1999, Mr. Picchi was a Managing Director of
Lehman Brothers where he initially served as head of
the energy sector group. During 1995 and most of
1996, he served as U.S. Director of Stock Research
and in September 1996, he was named Growth Stock
Strategist. Mr. Picchi holds a BS in foreign service
from Georgetown University. He has earned the right
to use the Chartered Financial Analyst designation.
Since December, 2000 Co-Manager: David P. Gilmore. Mr. Gilmore joined
(Fund's inception) Federated in August 1997 as an Investment Analyst.
He was promoted to Senior Investment Analyst in July
1999 and became an Assistant Vice President of
Federated in July 2000. Mr. Gilmore was a Senior
Associate with Coopers & Lybrand from January 1992
to May 1995. He earned his M.B.A. from the
University of Virginia and has a B.S. from Liberty
University. He has earned the right to use the
Chartered Financial Analyst designation.
PARTNERS LARGECAP GROWTH FUND I
The Fund seeks long-term growth of capital.
Main Strategies
The Fund seeks to maximize long-term capital appreciation by investing primarily
in growth-oriented equity securities of U.S. and, to a limited extent, foreign
companies that exhibit strong or accelerating earnings growth. These companies
are generally characterized as "growth" companies. The Fund will invest
primarily in companies with market capitalizations of $10 billion or more. The
Sub-Advisor, Morgan Stanley, emphasizes individual security selection and may
focus the Fund's holdings within the limits permissible for a diversified fund.
The Fund's investments in foreign companies will be limited to 25% of its assets
and to securities listed on U.S. exchanges or traded in U.S. Markets.
Morgan Stanley follows a flexible investment program in looking for companies
with above average capital appreciation potential. Morgan Stanley focuses on
companies with consistent or rising earnings growth records and compelling
business strategies. Morgan Stanley continually and rigorously studies company
developments, including business strategy, management focus and financial
results to identify companies with earnings growth and business momentum. In
addition, Morgan Stanley closely monitors analysts' expectations to identify
issuers that have the potential for positive earnings surprises versus consensus
expectations. Valuation is of secondary importance and is viewed in the context
of prospects for sustainable earnings growth and the potential for positive
earnings surprises in relation to consensus expectations.
The Fund has a long-term investment approach. However, Morgan Stanley considers
selling securities of issuers that no longer meet its criteria. To the extent
that the Fund engages in short-term trading, it may have increased transaction
costs.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of the securities
issued by such companies may decline. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Foreign securities carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization growth-oriented stocks, may underperform compared to other
market segments or to the equity markets as a whole. The securities purchased by
the Fund present greater opportunities for growth because of high potential
earnings growth, but may also involve greater risks than securities that do not
have the same potential. The value of the Fund's securities may fluctuate on a
daily basis. As with all mutual funds, as the value of the Fund's assets rise
and fall, the Fund's share price changes. If the investor sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Institutional
Class
Management Fees.................. 0.75%
Total Fund Operating Expenses 0.75%
Examples
The Examples assume that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Examples also assume that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Based on these
assumptions your cost would be:
1 Year 3 Years
Institutional Class $77 $240
Day-to-day Fund Management
Since December, 2000 Co-Manager: William S. Auslander, Principal of
(Fund's inception) Morgan Stanley & Co. Incorporated and Morgan Stanley
Dean Witter Investment Management Inc. Mr. Auslander
joined Morgan Stanley in 1995 as an Equity Analyst
and currently is a Portfolio Manager in Morgan
Stanley's Institutional Equity Group. Prior thereto,
he was an Equity Analyst at Icahn & Co., 1986-1995.
He holds a BA in Economics from the University of
Wisconsin and an MBA from Columbia University.
Since December, 2000 Co-Manager: Philip W. Friedman, Managing Director of
(Fund's inception) Morgan Stanley & Co. Incorporated and Morgan Stanley
Dean Witter Investment Management Inc. He was a
member of Morgan Stanley & Co. Incorporated's Equity
Research team (1990-1995) before becoming Director
of North America Research (1995-1997). Currently Mr.
Friedman is head of Morgan Stanley's Institutional
Equity Group. He holds a BA from Rutgers University
and an MBA from the J.L. Kellogg School of
Management at Northwestern University.
PARTNERS LARGECAP GROWTH FUND II
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of large capitalization companies.
Market capitalization is defined as total current market value of a company's
outstanding common stock.
The Sub-Advisor, American Century, selects stocks for investment that it
believes will increase in value over time using a growth investment strategy it
developed. This strategy looks for companies whose earnings and revenues are not
only growing, but growing at a successively faster, or accelerating, pace.
Accelerating growth is shown, for example, by growth that is faster this quarter
than last or faster this year than the year before. The American Century
strategy is based on the premise that, over the long-term, the stocks of
companies with accelerating earnings and revenues have a greater than average
chance to increase in value.
Using its extensive computer database, American Century tracks financial
information for thousands of companies to research and select the stocks it
believes will be able to sustain accelerating growth. This information is used
to help American Century select or decide to continue to hold the stocks of
companies it believes will be able to sustain accelerating growth, and to sell
stocks of companies whose growth begins to slow down.
Under normal market conditions, American Century intends to keep the Fund
essentially fully invested in stocks regardless of the movement of stock prices
generally. When it considers it prudent, American Century may invest Fund assets
in non-leveraged futures and options. Non-leveraged means that the Fund may not
invest in futures and options where it would be possible to lose more than the
Fund invested. Futures and options can help the Fund's cash assets remain liquid
while performing more like stocks. In addition, up to 25% of Fund assets may be
invested in foreign securities.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization growth stocks, may underperform compared to other market
segments or to the equity markets as a whole. The securities purchased by the
Fund present greater opportunities for growth because of high potential earnings
growth, but may also involve greater risks than securities that do not have the
same potential. The value of the Fund's securities may fluctuate on a daily
basis. As with all mutual funds, as the value of the Fund's assets rise and
fall, the Fund's share price changes. If the investor sells Fund shares when
their value is less than the price the investor paid for them, the investor will
lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Institutional
Class
Management Fees.................. 1.00%
Total Fund Operating Expenses 1.00%
Examples
The Examples assume that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Examples also assume that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Based on these
assumptions your cost would be:
1 Year 3 Years
Institutional Class $102 $318
Day-to-day Fund Management
Since December, 2000 Co-Manager: Gregory Woodhams, CFA. Mr. Woodhams is a
(Fund's inception) Vice President and Portfolio Manager for American
Century Investments, Mr. Woodhams has worked in the
financial industry since 1992 and joined American
Century in 1997. Previously, he was Vice President
and Director of Equity Research at Texas Commerce
Bank. Mr. Woodhams holds a Bachelor's Degree in
Economics from Rice University and a Master's Degree
in Economics from the University of Wisconsin at
Madison. He has earned the right to use the
Chartered Financial Analyst designation.
Since December, 2000 Co-Manager: C. Kim Goodwin. Ms. Goodwin was named
(Fund's inception) Co-Chief Investment Officer for American Century's
domestic growth equity discipline in 2000.
Previously she was Senior Vice President and Senior
Portfolio Manager and has been a member of the team
that manages Growth since joining American Century
in 1997. Before joining American Century, she served
as Senior Vice President and Portfolio Manager at
Putnam Investments from 1996 to 1997, and Vice
President and Portfolio Manager at Prudential
Investments from 1993 to 1996. Ms. Goodwin holds a
Bachelor of Arts Degree from Princeton University,
an MBA in Finance and a Master's Degree in Public
Affairs from the University of Texas.
Since December, 2000 Co-Manager: Prescott LeGard, CFA. Mr. LeGard is a
(Fund's inception) Portfolio Manager for American Century Investments.
Mr. LeGard joined the company in 1999. Before
joining the company, he was an Equity Analyst for
USAA Investment Management where he analyzed
technology companies. He has worked in the
investment industry since 1993. Mr. LeGard holds a
BA Degree in Economics from DePauw University. He
has earned the right to use the Chartered Financial
Analyst designation.
PARTNERS LARGECAP VALUE FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in undervalued equity securities of companies among
the 750 largest by market capitalization that the Sub-Advisor, Bernstein,
believes offer above-average potential for growth in future earnings. Under
normal market conditions, the Fund generally invests at least 65% of its assets
in companies with a market capitalization of greater than $10 billion at the
time of purchase. Market capitalization is defined as total current market value
of a company's outstanding common stock. The Fund may invest up to 25% of its
assets in securities of foreign companies.
Bernstein employs an investment strategy, generally described as "value"
investing, that involves seeking securities that:
o exhibit low financial ratios (particularly stock price-to-book value, but
also stock price-to-earnings and stock price-to-cash flow);
o can be acquired for less than what Bernstein believes is the issuer's
intrinsic value; or
o appear attractive on a dividend discount model.
Value oriented investing entails a strong "sell discipline" in that it generally
requires the sale of securities that have reached their intrinsic value or a
target financial ratio. Value oriented investments may include securities of
companies in cyclical industries during periods when such securities appear to
Bernstein to have strong potential for capital appreciation or securities of
"special situation" companies. A special situation company is one that Bernstein
believes has potential for significant future earnings growth but has not
performed well in the recent past. These situations include companies with
management changes, corporate or asset restructuring or significantly
undervalued assets. For Bernstein, identifying special situation companies and
establishing an issuer's intrinsic value involves fundamental research about
such companies and issuers.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
large capitalization value stocks, may underperform compared to other market
segments or to the equity markets as a whole. The value of the Fund's securities
may fluctuate on a daily basis. As with all mutual funds, as the value of the
Fund's assets rise and fall, the Fund's share price changes. If the investor
sells Fund shares when their value is less than the price the investor paid for
them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
but prefer investing in companies that appear to be considered undervalued
relative to similar companies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Institutional
Class
Management Fees.................. 0.80%
Total Fund Operating Expenses 0.80%
Examples
The Examples assume that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Examples also assume that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Based on these
assumptions your cost would be:
1 Year 3 Years
Institutional Class $82 $255
Day-to-day Fund Management
Since December, 2000 Co-Manager: Marilyn G. Fedak. Ms. Fedak, Chief
(Fund's inception) Investment Officer of U.S. Value Equities and
Chairman of the U.S. Equity Investment Policy Group
of the Bernstein Investment Research and Management
unit of Alliance Capital Management L.P.
("Alliance") since October 2000 and prior to that at
Sanford C. Bernstein & Co., Inc. ("SCB Inc.") since
1993. She joined SCB Inc. in 1984 and has managed
portfolio investments since 1976. She has a BA from
Smith College and an MBA from Harvard Business
School.
Since December, 2000 Co-Manager: Steven Pisarkiewicz. Mr. Pisarkiewicz
(Fund's inception) has been with Alliance since October 2000 and prior
to that with SCB Inc. since 1989 and has been Senior
Portfolio Manager since 1997. He holds a BS from the
University of Missouri and an MBA from the
University of California at Berkeley.
PARTNERS MIDCAP VALUE FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks of medium capitalization companies.
Under normal market conditions, the Account invests at least 65% of its total
assets in companies with a market capitalization between $1 billion and $10
billion at the time of purchase. Market capitalization is defined as total
current market value of a company's outstanding common stock. Companies may
range from the well established and well known to the new and unseasoned. The
Fund may invest up to 25% of its assets in securities of foreign companies.
The stocks are selected using a value oriented investment approach by Neuberger
Berman, the Sub-Advisor. Neuberger Berman identifies value stocks in several
ways. Factors it considers in identifying value stocks may include: o strong
fundamentals, such as a company's financial, operational and competitive
positions; o consistent cash flow; and o a sound earnings record through all
phases of the market cycle.
Neuberger Berman may also look for other characteristics in a company, such as a
strong position relative to competitors, a high level of stock ownership among
management, and a recent sharp decline in stock price that appears to be the
result of a short-term market overreaction to negative news. Neuberger Berman
believes that, over time, securities that are undervalued are more likely to
appreciate in price and are subject to less risk of price decline than
securities whose market prices have already reached their perceived economic
value.
This approach also involves selling portfolio securities when Neuberger Berman
believes they have reached their potential, when the securities fail to perform
as expected or when other opportunities appear more attractive. It is
anticipated that the annual portfolio turnover rate may be greater than 100%.
Turnover rates in excess of 100% generally result in higher transaction costs
and a possible increase in short-term capital gains (or losses).
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of the securities
issued by such companies may decline. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these mid-sized companies may pose greater risk due to narrow
product lines, limited financial resources, less depth in management or a
limited trading market for their securities.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
medium capitalization value stocks, may underperform compared to other market
segments or to the equity markets as a whole. Because different types of stocks
tend to shift in and out of favor depending on market and economic conditions,
the Fund's performance may sometimes be lower or higher than that of other types
of funds. The value of the Fund's equity securities may fluctuate on a daily
basis. If the investor sells Fund shares when their value is less than the price
the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth and willing to accept short-term fluctuations in the value of
investments.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Institutional
Class
Management Fees.................. 1.00%
Total Fund Operating Expenses 1.00%
Examples
The Examples assume that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Examples also assume that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Based on these
assumptions your cost would be:
1 Year 3 Years
Institutional Class $102 $318
Day-to-day Fund Management
Since December, 2000 Robert I. Gendelman, Managing Director and Portfolio
(Fund's inception) Manager, Neuberger Berman Management, Inc., since
1994. He holds a BA from the University of Michigan
as well as a JD and an MBA from the University of
Chicago.
Aggressive Growth
PARTNERS SMALLCAP GROWTH FUND I
The Fund seeks long-term growth of capital.
Main Strategies
To pursue its goal, the Fund invests mainly in common stocks of
small-capitalization companies, which it defines as those with a total market
value of no more than $1.5 billion at the time the Fund first invests in them.
The Fund may continue to hold or add to a position in a stock after it has grown
beyond $1.5 billion. The Fund seeks to reduce risk by diversifying among many
companies and industries. The Fund may invest up to 25% of its assets in
securities of foreign companies.
The Sub-Advisor, Neuberger Berman, takes a growth approach to selecting stocks,
looking for new companies that are in the developmental stage as well as older
companies that appear poised to grow because of new products, markets or
management. Factors in identifying these firms may include financial strength, a
strong position relative to competitors and a stock price that is reasonable in
light of its growth rate.
Neuberger Berman follows a disciplined selling strategy and may eliminate a
stock from the portfolio when it reaches a target price, fails to perform as
expected, or appears substantially less desirable than another stock.
Through active trading, the Fund may have a high portfolio turnover rate. High
turnover rates can mean higher taxable distributions and lower performance due
to increased brokerage costs.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility, which
is the principal risk of investing in the Fund.
Investments in companies with smaller market capitalizations may involve greater
risks and price volatility (wide, rapid fluctuations) than investments in
larger, more mature companies. Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become established. While small, unseasoned companies may offer greater
opportunities for capital growth than larger, more established companies, they
also involve greater risks and should be considered speculative.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
small capitalization growth stocks, may underperform compared to the equity
markets as a whole. The securities purchased by the Fund present greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than securities that do not have the same potential. The
value of the Fund's equity securities may fluctuate on a daily basis. As with
all mutual funds, as the values of the Fund's assets rise and fall, the Fund's
share price changes. The Fund's share price may fluctuate more than that of
funds primarily invested in stocks of mid and large-sized companies and may
underperform as compared to the securities of larger companies. If the investor
sells Fund shares when their value is less than the price the investor paid for
them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Institutional
Class
Management Fees.................. 1.10%
Total Fund Operating Expenses 1.10%
Examples
The Examples assume that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Examples also assume that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Based on these
assumptions your cost would be:
1 Year 3 Years
Institutional Class $112 $350
Day-to-day Fund Management
Since December, 2000 Co-Manager: Michael F. Malouf. Mr. Malouf is a Vice
(Fund's inception) President of Neuberger Berman Management and
Managing Director of Neuberger Berman, LLC. Mr.
Malouf joined the firm in 1998. From 1991 to 1998,
he was a Portfolio Manager at another firm.
Since December, 2000 Co-Manager: Jennifer K. Silver. Ms. Silver is a Vice
(Fund's inception) President of Neuberger Berman Management and
Managing Director of Neuberger Berman, LLC. Ms.
Silver has been Director of the Growth Equity Group
since 1997 and was an Analyst and a Portfolio
Manager at another firm from 1981 to 1997.
PARTNERS SMALLCAP GROWTH FUND II
The Fund seeks long-term growth of capital.
Main Strategies
The Fund pursues its investment objective by investing primarily in equity
securities of companies offering superior prospects for earnings growth. These
companies are generally characterized as "growth" companies. Under normal market
conditions, the Fund invests at least 65% of its assets in companies with a
small market capitalization. Market capitalization is defined as total current
market value of a company's outstanding common stock. The Fund may invest up to
25% of its assets in securities of foreign companies.
Using its own quantitative process, the Sub-Advisor, Federated, rates the future
performance potential of companies. Federated evaluates each company's earnings
quality in light of their current valuation to narrow the list of attractive
companies. Federated then evaluates product positioning, management quality and
sustainability of current growth trends of those companies. Using this type of
fundamental analysis, Federated selects the most promising companies for the
Fund's portfolio.
Companies with similar characteristics may be grouped together in broad
categories called sectors. In determining the amount to invest in a security,
Federated limits the Fund's exposure to each business sector that comprises the
S&P 500 Index. The Fund considers its approach aggressive because its strategies
with respect to security analysis, market capitalization, and sector allocation
are designed to produce a portfolio of stocks whose long-term growth prospects
are significantly above those of the S&P 500 Index. Accordingly, the prices of
the stocks held by the Fund may, under certain market conditions, be more
volatile than the prices of stocks selected using a less aggressive approach.
The Fund may attempt to manage market risk by buying and selling financial
futures and options. This may include the purchase of index futures contracts as
a substitute for direct investments in stocks. It may also include the purchase
and sale of options to protect against general declines in small capitalization
stocks economically.
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate short-term gains (losses)
for its shareholders, which are taxed at a higher rate than long-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. In response, the price of securities issued by
such companies may decline. These factors contribute to price volatility, which
is the principal risk of investing in the Fund.
Investments in companies with smaller market capitalizations may involve greater
risks and price volatility (wide, rapid fluctuations) than investments in
larger, more mature companies. Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become established. While small, unseasoned companies may offer greater
opportunities for capital growth than larger, more established companies, they
also involve greater risks and should be considered speculative.
Federated may group companies with similar characteristics into broad categories
called sectors. Sector risk is the possibility that a certain sector may
underperform other sectors or the market as a whole. As Federated allocates more
of the Fund's portfolio holdings to a particular sector, the Fund's performance
will be more susceptible to any economic, business or other developments that
generally affect that sector.
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
In addition, the Fund is subject to the risk that its principal market segment,
small capitalization growth stocks, may underperform compared to the equity
markets as a whole. The securities purchased by the Fund present greater
opportunities for growth because of high potential earnings growth, but may also
involve greater risks than securities that do not have the same potential. The
value of the Fund's equity securities may fluctuate on a daily basis. As with
all mutual funds, as the values of the Fund's assets rise and fall, the Fund's
share price changes. The Fund's share price may fluctuate more than that of
funds primarily invested in stocks of mid and large-sized companies and may
underperform as compared to the securities of larger companies. If the investor
sells Fund shares when their value is less than the price the investor paid for
them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital and willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Institutional
Class
Management Fees.................. 1.00%
Total Fund Operating Expenses 1.00%
Examples
The Examples assume that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Examples also assume that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Based on these
assumptions your cost would be:
1 Year 3 Years
Institutional Class $102 $318
Day-to-day Fund Management
Since December, 2000 Co-Manager: Keith J. Sabol, CFA. Mr. Sabol joined
(Fund's inception) Federated in 1994. He has been a Porfolio Manager
since 1996 and served as an Assistant Vice President
of Federated Investment Management Company from 1997
to 1998. He has been a Vice President of Federated
Investment Management Company since 1998. Mr. Sabol
was an Investment Analyst, and then Equity Research
Coordinator for Federated Investment Management
Company from 1994 to 1996. Mr. Sabol earned his MS
in Industrial Administration from Carnegie Mellon
University. He has earned the right to use the
Chartered Financial Analyst designation.
Since December, 2000 Co-Manager: Aash M. Shah, CFA. Mr. Shah joined
(Fund's inception) Federated in 1993 and has been a Portfolio Manager
and a Vice President of Federated Investment
Management Company since 1997. Mr. Shah was a
Portfolio Manager and served as an Assistant Vice
President of Federated Investment Management Company
from 1995 through 1996, and as an Investment Analyst
from 1993 to 1995. Mr. Shah received his Masters in
Industrial Administration from Carnegie Mellon
University with a concentration in Finance and
Accounting. He has earned the right to use the
Chartered Financial Analyst designation.
TECHNOLOGY FUND
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests primarily in common stocks and other securities of technology
and telecommunications companies domiciled in any of the nations of the world.
The Sub-Advisor, BT believes that as markets are becoming increasingly
globalized, companies can no longer be researched on a purely regional basis.
Companies are increasingly influenced by global, not just local trends, and for
this reason BT believes that analysis and research needs to be conducted in a
global context. BT considers companies in a broad range of technology-related
industries, generally including: computers; software and peripheral products;
electronics; communications equipment and services; and information services.
The Sub-Advisor, BT, selects securities for the Fund based on its own global
investment research. The research program is focused on three key criteria:
o business franchise - considering factors such as the company's relationship
with its suppliers and customers, the degree of rivalry with competitors as
well as the exposure to regulatory and technological risk;
o quality of management - assessing the company's management on its ability
to execute current business plans, manage the capital invested in the
business as well as the level of transparency with respect to strategy and
operations; and
o business valuation - determining the private market or `true business
value' of the firm.
BT's qualitative analysis is complemented by disciplined valuation techniques.
These include proprietary models as well as conventional market measurements and
industry specific models of relative value. This analytical framework ensures
consistency and transparency throughout the research process. Portfolios are
constructed and managed within predetermined guidelines that are regularly
monitored by BT.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility.
In addition, foreign stocks carry risks that are not generally found in stocks
of U.S. companies. These include the risk that a foreign security could lose
value as a result of political, financial and economic events in foreign
countries. Foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
The Fund may invest in securities of companies with small to medium market
capitalizations. While small companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risk and should be considered speculative. Small to mid-sized companies
may pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.
The Fund is also subject to the risk that its principal market segment,
technology stocks, may underperform compared to other market segments or to the
equity markets as a whole. The competitive pressures of advancing technology and
the number of companies and product offerings which continue to expand could
cause technology companies to become increasingly sensitive to short product
cycles and aggressive pricing. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same industry, the Fund is
subject to legislative or regulatory changes, adverse market conditions and/or
increased competition affecting that industry.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions . In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. In the short-term, stock prices can fluctuate dramatically in
response to these factors. If the investor sells Fund shares when their value is
less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking long-term
growth of capital in the technology and telecommunications sector and who are
able to assume the increased risks of higher price volatility associated with
such investments. In addition, an investor must be able to assume the increased
risks of higher price volatility and currency fluctuations associated with
investments in international stocks which trade in non-U.S. currencies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Institutional
Class
Management Fees.................. 1.00%
Total Fund Operating Expenses 1.00%
Examples
The Examples assume that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Examples also assume that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Based on these
assumptions your cost would be:
1 Year 3 Years
Institutional Class $102 $318
Day-to-day Fund Management
Since December, 2000 David Mills is Executive Vice President of BT and
(Fund's inception) serves as its head of U.S. Equities. He joined BT's
retail unit trust team in January 1990 as an Analyst
in European equities. In July 1996, he assumed fund
management responsibility for all of the direct
European investment vehicles offered by BT.
Dynamic Fund
INTERNATIONAL II
The Fund seeks long-term growth of capital.
Main Strategies
The Fund invests in common stocks and other securities of companies domiciled in
any of the nations of the world. The Fund invests in securities listed on
foreign or domestic securities exchanges, securities traded in foreign or
domestic over-the-counter markets and depositary receipts. It purchases
securities of:
o companies with their principal place of business or principal offices
outside the U.S.;
o companies for which the principal securities trading market is outside the
U.S.; or
o companies, regardless of where their securities are traded, that derive 50%
or more of their total revenue from either goods or services produced or
sales made outside the U.S.
The Sub-Advisor, BT, selects securities for the Fund based on its own global
investment research. The research program is focused on three key criteria:
o business franchise - considering factors such as the company's relationship
with its suppliers and customers, the degree of rivalry with competitors as
well as the exposure to regulatory and technological risk;
o quality of management - assessing the company's management on its ability
to execute current business plans, manage the capital invested in the
business as well as the level of transparency with respect to strategy and
operations; and
o business valuation - determining the private market or `true business
value' of the firm.
BT's qualitative analysis is complemented by disciplined valuation techniques.
These include proprietary models as well as conventional market measurements and
industry specific models of relative value. This analytical framework ensures
consistency and transparency throughout the research process. Portfolios are
constructed and managed within predetermined guidelines that are regularly
monitored by BT.
Main Risks
Because it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility.
In addition, foreign stocks carry risks that are not generally found in stocks
of U.S. companies. These include the risk that a foreign security could lose
value as a result of political, financial and economic events in foreign
countries. Foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities and
portfolio liquidity may be affected.
The Fund may invest in securities of companies with small to medium market
capitalizations. While small companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risk and should be considered speculative. Small to mid-sized companies
may pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their securities.
Historically, these securities have fluctuated in price more than larger company
securities, especially over the short-term.
The net asset value of the Fund's shares is based on the values of the
securities it holds. The value of the stocks owned by the Fund changes on a
daily basis. In the short-term, stock prices can fluctuate dramatically in
response to these factors. If the investor sells Fund shares when their value is
less than the price the investor paid for them, the investor will lose money.
Investor Profile
The Fund is generally a suitable investment for investors seeking growth of
capital in markets outside of the U.S. who are able to assume the increased
risks of higher price volatility and currency fluctuations associated with
investments in international stocks which trade in non-U.S. currencies.
Because the inception date of the Fund is December 2000, historical performance
data is not available. Annual Fund operating expenses are as follows:
Fund Operating Expenses
Institutional
Class
Management Fees.................. 1.00%
Total Fund Operating Expenses 1.00%
Examples
The Examples assume that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Examples also assume that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Based on these
assumptions your cost would be:
1 Year 3 Years
Institutional Class $102 $318
Day-to-day Fund Management
Since December, 2000 Christopher Selth, Executive Vice President of BT,
(Fund's inception) was appointed its head of International Equities in
1998 and its joint head of Equities in 1999. He
joined BT in 1987 as an Investment Analyst in the
retail unit trust group. In 1988, he was assigned
the responsibility to cover European equities. Mr.
Selth was given responsibility for the European
component of all retail unit trusts in March 1994.
Since November 1996, he has been responsible for
institutional and retail European investments,
supervising all European activities, and the
European funds management group. Prior to joining
BT, Mr. Selth worked with QBE Insurance Limited in
investment management as an assistant to the Group
Treasurer. He holds a Bachelor's degree in Economics
(Honours) from the University of Sydney.
THE COSTS OF INVESTING
Fees and Expenses of the Funds
The shares of the Funds are sold without a front-end sales charge and do not
have a contingent deferred sales charge. There is no sales charge on shares of
the Funds purchased with reinvested dividends or other distributions. The Funds
do not pay any fees other than those described below and do not pay any other
expenses.
Ongoing Fees
Each Fund pays ongoing fees to the Manager and others who provide services to
the Fund. They reduce the value of each share. Because they are ongoing fees,
they increase the cost of investing in the Funds. These fees include:
o Management Fee - Through the Management Agreement with the Fund, the
Manager has agreed to provide investment advisory services and corporate
administrative services to the Funds.
o Portfolio Accounting Services - The Manager has entered into an agreement
with the Fund under which the Manager supplies portfolio accounting
services. Currently there is no charge for these services.
CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS
The Statement of Additional Information (SAI) contains additional information
about investment strategies and their related risks.
Securities and Investment Practices
Equity securities include common stocks, preferred stocks, convertible
securities, depositary receipts and warrants. Common stocks, the most familiar
type, represent an equity (ownership) interest in a corporation. Although equity
securities have a history of long-term growth in value, their prices fluctuate
based on changes in a company's financial condition and in overall market and
economic conditions. Smaller companies are especially sensitive to these
factors.
Fixed-income securities include bonds and other debt instruments that are used
by issuers to borrow money from investors. The issuer generally pays the
investor a fixed, variable or floating rate of interest. The amount borrowed
must be repaid at maturity. Some debt securities, such as zero coupon bonds, do
not pay current interest, but are sold at a discount from their face values.
Fixed-income securities are sensitive to changes in interest rates. In general,
fixed-income security prices rise when interest rates fall and fall when
interest rates rise. Longer term bonds and zero coupon bonds are generally more
sensitive to interest rate changes.
Fixed-income security prices are also affected by the credit quality of the
issuer. Investment grade debt securities are medium and high quality securities.
Some bonds, such as lower grade or "junk" bonds, may have speculative
characteristics and may be particularly sensitive to economic conditions and the
financial condition of the issuers.
Repurchase Agreements and Loaned Securities
Each of the Funds may invest a portion of its assets in repurchase agreements.
Repurchase agreements typically involve the purchase of debt securities from a
financial institution such as a bank, savings and loan association or
broker-dealer. A repurchase agreement provides that the Fund sells back to the
seller and that the seller repurchases the underlying securities at a specified
price on a specific date. Repurchase agreements may be viewed as loans by a Fund
collateralized by the underlying securities. This arrangement results in a fixed
rate of return that is not subject to market fluctuation while the Fund holds
the security. In the event of a default or bankruptcy by a selling financial
institution, the affected Fund bears a risk of loss. To minimize such risks, the
Fund enters into repurchase agreements only with large, well-capitalized and
well-established financial institutions. In addition, the value of the
collateral underlying the repurchase agreement is always at least equal to the
repurchase price, including accrued interest.
Each of the Funds may lend its portfolio securities to unaffiliated
broker-dealers and other unaffiliated qualified financial institutions.
Currency Contracts
The Funds may each enter into forward currency contracts, currency futures
contracts and options, and options on currencies for hedging and other
non-speculative purposes. A forward currency contract involves a privately
negotiated obligation to purchase or sell a specific currency at a future date
at a price set in the contract. A Fund will not hedge currency exposure to an
extent greater than the aggregate market value of the securities held or to be
purchased by the Fund (denominated or generally quoted or currently convertible
into the currency).
Hedging is a technique used in an attempt to reduce risk. If the Fund's
Sub-Advisor hedges market conditions incorrectly or employs a strategy that does
not correlate well with the Fund's investment, these techniques could result in
a loss. These techniques may increase the volatility of a Fund and may involve a
small investment of cash relative to the magnitude of the risk assumed. In
addition, these techniques could result in a loss if the other party to the
transaction does not perform as promised. Additionally, there is the risk of
government action through exchange controls that would restrict the ability of
the Fund to deliver or receive currency.
Forward Commitments
Each of the Funds may enter into forward commitment agreements. These agreements
call for the Fund to purchase or sell a security on a future date at a fixed
price. Each of these Funds may also enter into contracts to sell its investments
either on demand or at a specific interval.
Warrants
Each of the Funds may invest up to 5% of its assets in warrants. A warrant is a
certificate granting its owner the right to purchase securities from the issuer
at a specified price, normally higher than the current market price.
Derivatives
To the extent permitted by its investment objectives and policies, each of the
Funds may invest in securities that are commonly referred to as derivative
securities. Generally, a derivative is a financial arrangement, the value of
which is derived from, or based on, a traditional security, asset, or market
index. Certain derivative securities are described more accurately as
index/structured securities. Index/structured securities are derivative
securities whose value or performance is linked to other equity securities (such
as depositary receipts), currencies, interest rates, indices or other financial
indicators (reference indices).
Some derivatives, such as mortgage-related and other asset-backed securities,
are in many respects like any other investment, although they may be more
volatile or less liquid than more traditional debt securities.
There are many different types of derivatives and many different ways to use
them. Futures and options are commonly used for traditional hedging purposes to
attempt to protect a Fund from exposure to changing interest rates, securities
prices, or currency exchange rates and for cash management purposes as a
low-cost method of gaining exposure to a particular securities market without
investing directly in those securities.
No Fund may invest in a derivative security unless the reference index or the
instrument to which it relates is an eligible investment for the Fund. For
example, a security whose underlying value is linked to the price of oil would
not be a permissible investment because the Funds may not invest in oil leases
or futures.
The return on a derivative security may increase or decrease, depending upon
changes in the reference index or instrument to which it relates. The risks
associated with derivative investments include:
o the risk that the underlying security, interest rate, market index or other
financial asset will not move in the direction the Sub-Advisor anticipated;
o the possibility that there may be no liquid secondary market which may make
it difficult or impossible to close out a position when desired;
o the risk that adverse price movements in an instrument can result in a loss
substantially greater than a Fund's initial investment; and
o the counterparty may fail to perform its obligations.
Foreign Securities
Each of the following Funds may invest in securities of foreign companies. For
the purpose of this restriction, foreign companies are:
o companies with their principal place of business or principal office
outside the U.S.; and
o companies for which the principal securities trading market is outside the
U.S.
The International II and Technology Funds each may invest up to 100% of its
assets in foreign securities. The other Funds each may invest up to 25% of its
assets in foreign securities.
Foreign companies may not be subject to the same uniform accounting, auditing
and financial reporting practices as are required of U.S. companies. In
addition, there may be less publicly available information about a foreign
company than about a U.S. company. Securities of many foreign companies are less
liquid and more volatile than securities of comparable U.S. companies.
Commissions on foreign securities exchanges may be generally higher than those
on U.S. exchanges, although each Fund seeks the most favorable net results on
its portfolio transactions.
Foreign markets also have different clearance and settlement procedures than
those in U.S. markets. In certain markets there have been times when settlements
have been unable to keep pace with the volume of securities transactions, making
it difficult to conduct these transactions. Delays in settlement could result in
temporary periods when a portion of Fund assets is not invested and earning no
return. If a Fund is unable to make intended security purchases due to
settlement problems, the Fund may miss attractive investment opportunities. In
addition, a Fund may incur a loss as a result of a decline in the value of its
portfolio if it is unable to sell a security.
With respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments that could affect a Fund's investments in those
countries. In addition, a Fund may also suffer losses due to nationalization,
expropriation or differing accounting practices and treatments. Investments in
foreign securities are subject to laws of the foreign country that may limit the
amount and types of foreign investments. Changes of governments or of economic
or monetary policies, in the U.S. or abroad, changes in dealings between
nations, currency convertibility or exchange rates could result in investment
losses for a Fund. Finally, even though certain currencies may be convertible
into U.S. dollars, the conversion rates may be artificial relative to the actual
market values and may be unfavorable to Fund investors.
Foreign securities are often traded with less frequency and volume, and
therefore may have greater price volatility, than is the case with many U.S.
securities. Brokerage commissions, custodial services, and other costs relating
to investment in foreign countries are generally more expensive than in the U.S.
Though the Funds intend to acquire the securities of foreign issuers where there
are public trading markets, economic or political turmoil in a country in which
a Fund has a significant portion of its assets or deterioration of the
relationship between the U.S. and a foreign country may negatively impact the
liquidity of a Fund's portfolio. The Fund may have difficulty meeting a large
number of redemption requests. Furthermore, there may be difficulties in
obtaining or enforcing judgments against foreign issuers.
A Fund may choose to invest in a foreign company by purchasing depositary
receipts. Depositary receipts are certificates of ownership of shares in a
foreign based issuer held by a bank or other financial institution. They are
alternatives to purchasing the underlying security but are subject to the
foreign securities to which they relate.
Investments in companies of developing countries may be subject to higher risks
than investments in companies in more developed countries. These risks include:
o increased social, political and economic instability;
o a smaller market for these securities and low or nonexistent volume of
trading that results in a lack of liquidity and in greater price
volatility;
o lack of publicly available information, including reports of payments of
dividends or interest on outstanding securities;
o foreign government policies that may restrict opportunities, including
restrictions on investment in issuers or industries deemed sensitive to
national interests;
o relatively new capital market structure or market-oriented economy;
o the possibility that recent favorable economic developments may be slowed
or reversed by unanticipated political or social events in these countries;
o restrictions that may make it difficult or impossible for the Fund to vote
proxies, exercise shareholder rights, pursue legal remedies, and obtain
judgments in foreign courts; and
o possible losses through the holding of securities in domestic and foreign
custodial banks and depositories.
In addition, many developing countries have experienced substantial, and in some
periods, extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of those countries.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. A Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for
repatriation.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade.
Securities of Smaller Companies
The Funds may invest in securities of companies with small- or mid-sized market
capitalizations. Market capitalization is defined as total current market value
of a company's outstanding common stock. Investments in companies with smaller
market capitalizations may involve greater risks and price volatility (wide,
rapid fluctuations) than investments in larger, more mature companies. Smaller
companies may be less mature than larger companies. At this earlier stage of
development, the companies may have limited product lines, reduced market
liquidity for their shares, limited financial resources or less depth in
management than larger or more established companies. Small companies also may
be less significant within their industries and may be at a competitive
disadvantage relative to their larger competitors. While smaller companies may
be subject to these additional risks, they may also realize more substantial
growth than larger or more established companies.
Unseasoned Issuers
The Funds may invest in the securities of unseasoned issuers. Unseasoned issuers
are companies with a record of less than three years continuous operation,
including the operation of predecessors and parents. Unseasoned issuers by their
nature have only a limited operating history that can be used for evaluating the
company's growth prospects. As a result, investment decisions for these
securities may place a greater emphasis on current or planned product lines and
the reputation and experience of the company's management and less emphasis on
fundamental valuation factors than would be the case for more mature growth
companies. In addition, many unseasoned issuers also may be small companies and
involve the risks and price volatility associated with smaller companies.
Temporary Defensive Measures
For temporary defensive purposes in times of unusual or adverse market
conditions, the Funds may invest without limit in cash and cash equivalents. For
this purpose, cash equivalents include: bank notes, 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. In addition, a Fund may purchase U.S. Government securities,
preferred stocks and debt securities, whether or not convertible into or
carrying rights for common stock.
There is no limit on the extent to which the Funds may take temporary defensive
investment measures. In taking such measures, the Funds may fail to achieve
their investment objective.
Portfolio Turnover
"Portfolio Turnover" is the term used in the industry for measuring the amount
of trading that occurs in a Fund's portfolio during the year. For example, a
100% turnover rate means that on average every security in the portfolio has
been replaced once during the year. Funds with high turnover rates (more than
100%) often have higher transaction costs (which are paid by the Fund) and may
generate short-term capital gains (on which taxes may be imposed even if no
shares of the Fund are sold during the year. No turnover rates are calculated
for the Funds as they have been in existence for less than six months.
Please consider all the factors when you compare the turnover rates of different
funds. A fund with consistently higher total returns and higher turnover rates
than another fund may actually be achieving better performance precisely because
the managers are active traders.
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
The Manager
Principal Management Corporation serves as the Manager for the Fund. Through the
Management Agreement with the Fund, the Manager has agreed to handle the
investment advisory services and provide certain corporate administrative
services for the Fund. The Fund and the Manager have also entered into a Service
Agreement under which the Manager provides personal services to shareholders of
each Fund. Additionally, the Fund and the Manager have entered into a Transfer
Agency Agreement under which the Manager has agreed to provide transfer agency
services. The Fund and the Manager have entered into a Portfolio Accounting
Service Agreement under which the Manager provides portfolio accounting
services.
The Manager is an indirect subsidiary of Principal Financial Services, Inc. and
has managed mutual funds since 1969. As of October 31, 2000, the mutual funds it
manages had assets of approximately $6.6 billion. The Manager's address is
Principal Financial Group, Des Moines, Iowa.
The Sub-Advisors
The Manager has signed contracts with various Sub-Advisors. Under the
Sub-Advisory Agreements, the Sub-Advisor agrees to assume the obligations of the
Manager to provide investment advisory services for a specific Fund. For these
services, the Sub-Advisor is paid a fee by the Manager.
Fund: International II and Technology
Sub-Advisor: BT Funds Management (International) Limited ("BT") is a
related company of BT Funds Management Limited ("BTFM") and a
member of the Principal Financial Group. Its address is The
Chifley Tower, 2 Chifley Square, Sydney NSW 2000 Australia. As
of October 31, 2000, BT, together with BTFM, had approximately
$23.8 billion under management.
Fund: Partners LargeCap Blend and Partners SmallCap Growth II
Sub-Advisor: Federated Investment Management Company ("Federated") is a
registered investment adviser and a wholly-owned subsidiary of
Federated Investors, Inc., which was founded in 1955.
Federated is located in the Federated Investors Tower at 1001
Liberty Avenue, Pittsburgh, PA 15222-3779. As of October 31,
2000, Federated managed $131 billion in assets.
Fund: Partners LargeCap Growth I
Sub-Advisor: Morgan Stanley Asset Management ("Morgan Stanley"), with
principal offices at 1221 Avenue of the Americas, New York, NY
10020, conducts a worldwide portfolio management business and
provides a broad range of portfolio management services to
customers in the U.S. and abroad. As of September 30, 2000,
Morgan Stanley, together with its affiliated institutional
asset management companies, managed investments totaling
approximately $176.8 billion as named fiduciary or fiduciary
adviser. On December 1, 1998, Morgan Stanley Asset Management
Inc. changed its name to Morgan Stanley Dean Witter Investment
Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
Fund: Partners LargeCap Growth II
Sub-Advisor: American Century Investment Management ("American Century"),
Inc. was founded in 1958. Its office is located in the
American Century Tower at 4500 Main Street, Kansas City, KS
64111. As of October 31, 2000, American Century managed over
$109.7 billion in assets.
Fund: Partners LargeCap Value
Sub-Advisor: Alliance Capital Management L.P. ("Alliance") through its
Bernstein Investment Research and Management unit
("Bernstein"). As of September 30, 2000, Alliance managed $470
billion in assets. Bernstein is located at 767 Fifth Avenue,
New York, NY 10153 and Alliance is located at 1345 Avenue of
the Americas, New York, NY 10105.
Fund: Partners MidCap Value and Partners SmallCap Growth I
Sub-Advisor: Neuberger Berman Management Inc. ("Neuberger Berman") is an
affiliate of Neuberger Berman, LLC. Neuberger Berman LLC is
located at 605 Third Avenue, 2nd Floor, New York, NY
10158-0180. Together with Neuberger Berman, the firms manage
more than $56.5 billion in total assets (as of September 30,
2000) and continue an asset management history that began in
1939.
Duties of Manager and Sub-Advisors
The Manager or Sub-Advisor provides the Board of Directors of the Fund with a
recommended investment program. The program must be consistent with the Fund's
investment objective and policies. Within the scope of the approved investment
program, the Manager or Sub-Advisor advises the Fund on its investment policy
and determines which securities are bought and sold, and in what amounts.
The Manager is paid a fee by the Fund for its services, which includes any fee
paid to the Sub-Advisor.
Each Fund and the Manager, under an order received from the SEC, may enter into
and materially amend agreements with Sub-Advisors without obtaining shareholder
approval. For any Fund that is relying on that order, the Manager may:
o hire one or more Sub-Advisors;
o change Sub-Advisors; and
o reallocate management fees between itself and Sub-Advisors.
The Manager will continue to have the ultimate responsibility for the investment
performance of these Funds due to its responsibility to oversee Sub-Advisors and
recommend their, hiring, termination and replacement. No Fund will rely on the
order until it receives approval from the Fund's sole initial shareholder before
the Fund is available to the public, and the Fund states in its prospectus that
it intends to rely on the order. The Manager will not enter into an agreement
with an affiliated Sub-Advisor without that agreement, including the
compensation to be paid under it, being similarly approved. The Partners
LargeCap Blend, Partners LargeCap Growth I, Partners LargeCap Growth II,
Partners LargeCap Value, Partners SmallCap Blend, Partners SmallCap Growth I and
Partners SmallCap Growth II Funds have received the necessary shareholder
approval and intend to rely on the order.
SHAREHOLDER INFORMATION
Pricing of Fund Shares
Each Fund's shares are bought and sold at the current NAV. The share price of
each class of each Fund is calculated each day the New York Stock Exchange
(NYSE) is open. The NAV is determined at the close of business of the Exchange
(normally 3:00 p.m. Central time). When an order to buy or sell shares is
received, the NAV used to fill the order is the next price calculated after the
order is received.
The share price for Class I shares is calculated by:
o taking the current market value of the total assets of the Fund
o subtracting liabilities of the Fund
o dividing the remainder proportionately into the classes of the Fund
o subtracting the liabilities of Class I shares from its portion
o dividing the remainder by the total number of shares owned in Class I.
NOTES:
o If current market values are not readily available for a security owned by
a Fund, its fair value is determined using a policy adopted by the Fund's
Board of Directors.
o A Fund's securities may be traded on foreign securities markets that
generally complete trading at various times during the day prior to the
close of the NYSE. The values of foreign securities used in computing share
price are determined at the time the foreign market closes. Occasionally,
events affecting the value of foreign securities occur when the foreign
market is closed and the NYSE is open. The NAV of a Fund investing in
foreign securities may change on days when shareholders are unable to
purchase or redeem shares. If the Sub-Advisor believes that the market
value is materially affected, the share price will be calculated using the
policy adopted by the Fund.
o Certain securities issued by companies in emerging market countries may
have more than one quoted valuation at any point in time. These may be
referred to as local price and premium price. The premium price is often a
negotiated price that may not consistently represent a price at which a
specific transaction can be effected. The International II and Technology
Funds each has a policy to value such securities at a price at which the
Sub-Advisor expects the securities may be sold.
Purchase of Fund Shares
Shares are purchased from Princor Financial Services Corporation, the Fund's
principal underwriter. There are no sales charges on shares of the Funds. There
are no restrictions on amounts to be invested in Class I shares of the Funds.
Shareholder accounts for each Fund are maintained under an open account system.
Under this system, an account is opened and maintained for each investor. Each
investment is confirmed by sending the investor a statement of account showing
the current purchase or sale and the total number of shares owned. The statement
of account is treated by each Fund as evidence of ownership of Fund shares.
Share certificates are not issued.
Redemption of Fund Shares
Each Fund sells its shares upon request. There is no charge for the sale. Shares
are redeemed at the NAV per share next computed after the request is received by
the Fund in proper and complete form.
The Fund generally sends payment for shares sold the business day after the sell
order is received. Under unusual circumstances, the Fund may suspend
redemptions, or postpone payment for more than seven days, as permitted by
federal securities law.
Exchange of Fund Shares
Shares in the Funds may be exchanged, without charge, for the same class of any
other Principal Investors Fund. 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 under other circumstances where the Board
of Directors or the Manager believes it is in the best interest of the Fund, the
Fund reserves the right to review or terminate the exchange privilege, limit the
amount or number of exchanges, reject any exchange or close the account.
Notification of such action will be given to the extent required by law.
Dividends and Distributions
The Funds pay most of their net dividend income once each year. Payments are
made to shareholders of record on the business day prior to the payment date.
The payment date is December 23 (or previous business day).
Net realized capital gains, if any, are distributed annually. Generally the
distribution is made on the fourth business day of December. Payments are made
to shareholders of record on the business day prior to the payable date. Capital
gains may be taxable at different rates, depending on the length of time that
the Fund holds its assets.
Dividend and capital gain distributions from a Fund are reinvested in additional
shares of the Fund making the distribution.
Generally, for federal income tax purposes, Fund distributions are taxable as
ordinary income, except that any distributions of long-term capital gains will
be taxed as such regardless of how long the shares have been held. However,
distributions by the Fund to retirement plans that qualify for tax-exempt
treatment under federal income tax laws will not be taxable. Special tax rules
apply to investments through such plans.
A tax advisor should be consulted to determine the suitability of the Fund as an
investment through such a plan and the tax treatment of distributions (including
distributions of amounts attributable to an investment in the Fund) from such a
plan. A tax advisor can also provide information on the potential impact of
possible foreign, state and local taxes. A Fund's investments in foreign
securities may be subject to foreign withholding taxes. In that case, the Fund's
yield on those securities would be decreased.
A Fund's investments in certain debt obligations may cause the Fund to recognize
taxable income in excess of the cash generated by such obligations. Thus, the
Fund could be required at times to liquidate other investments in order to
satisfy its distribution requirement.
FUND ACCOUNT INFORMATION
Reservation of Rights
The Funds reserve the right to amend or terminate the special plans described in
this prospectus. In addition, the Funds reserve the right to change the share
class described herein. Shareholders will be notified of any such action to the
extent required by law.
Financial Statements
Shareholders will receive annual financial statements for the Funds, examined by
the Funds' independent auditors, Ernst & Young LLP. Shareholders will also
receive a semiannual financial statement that is unaudited.
APPENDIX A
RELATED PERFORMANCE OF THE SUB-ADVISORS
The Funds started operation in December 2000 and have no historical performance
data. The following tables set forth historical information about client
accounts managed by a Sub-Advisor that have investment objectives and strategies
similar to those of the corresponding Fund the Sub-Advisor manages. These client
accounts may consist of individuals, institutions and other mutual funds. This
composite data is provided to illustrate the past performance of each
Sub-Advisor in managing similar accounts and does not represent the performance
of any Fund.
On the following pages "composite performance" is shown for each Sub-Advisor
with regard to all of those similarly managed accounts. The composite
performance is computed based upon essentially the Sub-Advisor's asset weighted
"average" performance with regard to such accounts. The composite performance
information shown is based on a composite of all accounts of each Sub-Advisor
(and its predecessor, if any) having substantially similar investment
objectives, policies and strategies to the corresponding Fund. The composite
results reflect the deduction of all fees and expenses actually incurred by the
client accounts.
Portions of the information below are based on data supplied by the Sub-Advisors
and from statistical services, reports or other sources believed by the Manager
to be reliable. However, such information has not been verified or audited by
the Manager.
Some of the accounts included in the composites are not mutual funds registered
under the 1940 Act. Those accounts are not subject to investment limitations,
diversification requirements and other restrictions imposed by the 1940 Act and
the Internal Revenue Code. If such requirements were applicable to these
accounts, the performance shown may have been lower.
The performance data should not be considered as an indication of future
performance of any Fund or any Sub-Advisor. In addition, the effect of taxes is
not reflected in the information below as it will depend on the investor's tax
status.
Please note that 1999 was an exceptionally good year for the stocks of
technology companies and mutual funds that invest in them. It should not be
expected that those stocks and funds will perform as well every year. Stock
prices can change unpredictably and, in fact, they may lose value in some years.
Appendix A
PERFORMANCE RESULTS - MODERATE FUNDS
<TABLE>
<CAPTION>
Average Annual Performance
(through September 30, 2000)
YTD 1 YR 3 YR 5 YR 10 YR
Partners LargeCap Blend Fund Institutional*
<S> <C> <C> <C> <C> <C>
Federated Capital Appreciation Composite 2.54 34.42 22.23 24.43 20.83
S&P 500 Index -5.28 13.28 16.44 21.69 19.44
Average LargeCap Blend Category (Morningstar) -0.77 17.07 14.25 18.74 17.40
Partners LargeCap Growth Fund I Institutional*
Morgan Stanley Equity Growth Composite 6.33 28.60 27.33 29.45 19.89
S&P 500 Index -5.28 13.28 16.44 21.69 19.44
Average LargeCap Growth Category (Morningstar) 2.80 31.95 22.86 22.63 20.05
Partners LargeCap Growth Fund II Institutional*
American Century Growth Composite 2.45 26.64 22.27 20.79 19.61
Russell 1000 Growth Index -9.46 23.43 23.97 25.07
Average LargeCap Growth Category (Morningstar) 2.80 31.95 22.86 22.63 20.05
Partners LargeCap Value Fund Institutional*
Sanford C. Bernstein Diversified Value Composite 3.50 5.00
Russell 1000 Value Index 0.91 8.91 10.23 17.59
Average LargeCap Value Category (Morningstar) 2.83 10.78 7.41 14.67 15.19
Partners MidCap Value Fund Institutional*
Neuberger Berman MidCap Value Composite 21.79 35.08 4.73 15.66 16.60
Russell Midcap Value Index 0.96 13.00 5.96 14.07 17.81
Average MidCap Value Category (Morningstar) 9.56 17.35 5.97 13.69 14.89
</TABLE>
<TABLE>
<CAPTION>
Annual Performance
(year ended December 31)
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
Partners LargeCap Blend Fund Institutional*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federated Capital Appreciation Composite 43.39 20.08 30.62 18.39 37.17 -0.30 11.31 11.37 27.43 -4.43
S&P 500 Index 21.04 28.58 33.36 22.96 37.58 1.32 10.08 7.62 30.47 -3.10
Average LargeCap Blend Category (Morningstar) 19.72 21.95 27.43 20.37 31.99 -1.08 11.12 7.62 32.13 -3.34
Partners LargeCap Growth Fund I Institutional*
Morgan Stanley Equity Growth Composite 40.03 20.00 31.79 31.45 45.19 3.17 4.27 5.95 25.57 -2.92
S&P 500 Index 21.04 28.58 33.36 22.96 37.58 1.32 10.08 7.62 30.47 -3.10
Average LargeCap Growth Category (Morningstar) 39.72 33.56 25.00 18.95 32.27 -2.32 10.31 5.83 43.69 -2.12
Partners LargeCap Growth Fund II Institutional*
American Century Growth Composite 34.68 36.77 29.28 14.92 20.35 -1.49 3.76 -4.29 69.02 -3.83
Russell 1000 Growth Index 33.16 38.71 30.49 23.12 37.19 2.66 2.90 5.00 41.16 -0.26
Average LargeCap Growth Category (Morningstar) 39.72 33.56 25.00 18.95 32.27 -2.32 10.31 5.83 43.69 -2.12
Partners LargeCap Value Fund Institutional*
Sanford C. Bernstein Diversified Value Composite 7.80
Russell 1000 Value Index 7.35 15.63 35.18 21.64 38.35 -1.99 18.12 13.81 24.61 -8.08
Average LargeCap Value Category (Morningstar) 6.63 13.10 27.01 20.79 32.28 -0.81 13.25 9.89 28.51 -6.37
Partners MidCap Value Fund Institutional*
Neuberger Berman MidCap Value Composite 8.04 -10.66 32.66 28.08 35.23 -1.89 16.44 17.52 22.36 13.91
Russell Midcap Value Index -0.11 5.09 34.37 20.26 34.93 -2.13 15.62 21.68 37.92 -16.08
Average MidCap Value Category (Morningstar) 7.78 3.92 26.04 20.50 29.27 -1.11 17.11 13.54 29.65 -8.51
</TABLE>
* Fund's inception 12/6/00.
PERFORMANCE RESULTS - AGGRESSIVE FUNDS
<TABLE>
<CAPTION>
Average Annual Performance
(through September 30, 2000)
YTD 1 YR 3 YR 5 YR 10 YR
<S> <C> <C> <C> <C> <C>
Partners SmallCap Growth Fund I Institutional*
Neuberger Berman SmallCap Growth Composite -2.65 68.31
Russell 2000 Growth Index -4.97 29.67 8.93 12.42
Average SmallCap Growth Category (Morningstar) 11.50 55.99 18.43 18.83 20.04
Partners SmallCap Growth Fund II Institutional*
Federated Aggressive Growth Composite -13.82 40.11 23.14
S&P/BARRA 600 Growth Index 7.52 29.77 7.24 11.99
Average SmallCap Growth Category (Morningstar) 11.50 55.99 18.43 18.83 20.04
Technology Fund Institutional*
Average Technology Category (Morningstar) 2.87 69.87 44.30 31.98 31.51
</TABLE>
<TABLE>
<CAPTION>
Annual Performance
(year ended December 31)
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
Partners SmallCap Growth Fund I Institutional*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Neuberger Berman SmallCap Growth Composite 134.28
Russell 2000 Growth Index 43.09 1.23 12.95 11.26 31.04 -2.43 13.36 7.77 51.19 -17.14
Average SmallCap Growth Category (Morningstar) 61.45 4.49 18.19 19.99 35.44 -0.28 16.70 11.99 53.64 -5.96
Partners SmallCap Growth Fund II Institutional*
Federated Aggressive Growth Composite 111.60 8.08 30.06
S&P/BARRA 600 Growth Index 12.41 -1.31 25.58 21.32 29.97 -4.78 18.79 21.05 48.48 -23.69
Average SmallCap Growth Category (Morningstar) 61.45 4.49 18.19 19.99 35.44 -0.28 16.70 11.99 53.64 -5.96
Technology Fund Institutional*
Average Technology Category (Morningstar) 136.50 52.41 9.58 20.31 42.89 13.18 24.07 13.03 46.92 0.54
</TABLE>
* Fund's inception 12/6/00.
PERFORMANCE RESULTS - DYNAMIC FUNDS
<TABLE>
<CAPTION>
Average Annual Performance
(through September 30, 2000)
YTD 1 YR 3 YR 5 YR 10 YR
International Fund II Institutional*
<S> <C> <C> <C> <C> <C>
MSCI EAFE (Europe, Australia, Far East) Index--ND -11.80 3.18 7.38 8.57 9.62
Average Foreign Category (Morningstar) -10.79 13.84 9.59 10.81 9.92
</TABLE>
<TABLE>
<CAPTION>
Annual Performance
(year ended December 31)
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
International Fund II Institutional*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MSCI EAFE (Europe, Australia, Far East) Index--ND 26.96 20.00 1.78 6.05 11.21 7.78 32.56 -12.17 12.13 -23.45
Average Foreign Category (Morningstar) 44.49 13.00 5.43 12.39 9.82 -0.40 36.71 -4.54 13.07 -10.90
</TABLE>
* Fund's inception 12/6/00.
IMPORTANT NOTES TO THE APPENDIX
Morgan Stanley Capital International (MSCI) EAFE (Europe, Australia, Far East)
Index is a stock index designed to measure the investment returns of developed
economies outside of North America.
Russell 1000 Growth Index is an index that measures the performance of those
Russell 1000 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 1000 Value Index is an index that measures the performance of those
Russell 1000 companies with lower price to book ratios and lower forecasted
growth values.
Russell 2000 Growth Index measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth values.
Russell Midcap Value Index is an index that measures the performance of those
Russell Midcap companies with lower price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Value index.
S&P 500 Index is a market capitalization-weighted index of 500 widely held
stocks often used as a proxy for the stock market. It measures the movement of
the largest issues. Standard & Poor's chooses the member companies for the 500
based on market size, liquidity and industry group representation. Included are
the stocks of industrial, financial, utility and transportation companies.
S&P/BARRA 600 Growth Index is a market capitalization-weighted index of the
stocks in the S&P SmallCap 600 Index having the lowest book to price ratios. The
index consists of approximately half of the S&P SmallCap 600 on a market
capitalization basis.
PRINCIPAL INVESTORS FUND, INC.
(previously Principal Special Markets Fund, Inc.)
This Prospectus describes a mutual fund organized by
Principal Life Insurance Company.
The date of this Prospectus is April 3, 2000
as revised through December 6, 2000.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that
this Prospectus is accurate or complete. It is a criminal offense to
represent otherwise.
TABLE OF CONTENTS
Fund Description........................................................3
International Emerging Markets Portfolio................................4
International Securities Portfolio......................................6
International SmallCap Portfolio........................................8
Mortgage-Backed Securities Portfolio...................................10
The Costs of Investing.................................................12
Certain Investment Strategies and Related Risks........................12
Management, Organization and Capital Structure.........................15
Management Discussion of Fund Performance..............................16
Pricing of Fund Shares.................................................20
Dividend and Distributions.............................................20
Offering Price of Shares .......................22
To Sell Shares.........................................................22
General Information about a Fund Account...............................24
Financial Highlights...................................................26
FUND DESCRIPTION
The Principal Investors Fund, Inc. (previously Principal Special Markets Fund,
Inc.) (the "Fund") is an open-end management investment company. Four of its
Portfolios are described in this prospectus: International Emerging Markets
Portfolio, International Securities Portfolio, International SmallCap Portfolio
and Mortgage-Backed Securities Portfolio. As of December 6, 2000, shares of the
Portfolios are no longer available for purchase.
In the description for each Portfolio, you will find important information about
the Portfolio's:
Primary investment strategy
This section summarizes how the Portfolio intends to achieve its investment
objective. It identifies the Portfolio's primary investment strategy including
the type or types of securities in which the Portfolio invests.
Annual operating expenses
The annual operating expenses for each Portfolio are deducted from its assets
(stated as a percentage of the Portfolio's assets) and are shown as of the end
of the most recent fiscal year. The examples are intended to help you compare
the cost of investing in a particular Portfolio with the cost of investing in
other mutual funds. The examples assume you invest $10,000 in a Portfolio for
the time period indicated. The examples also assume that your investment had a
5% return each year and that the Portfolio's operating expenses are the same as
the most recent fiscal year expenses. Although your actual costs may be higher
or lower, based on these assumptions your costs would be as shown.
Day-to-day Portfolio management
The investment professionals who manage the assets of each Portfolio are listed
with each Portfolio. Backed by their staffs of experienced securities analysts,
they provide the Portfolios with professional investment management.
Principal Management Corporation serves as the manager for the Fund. It has
signed a contract with Invista Capital Management LLC ("Invista") to provide
investment advisory services for the International, International Emerging
Markets and International SmallCap Portfolios. The Manager has signed a contract
with Principal Capital Income Investors, LLC ("PCII") to provide investment
advisory services for the Mortgage-Backed Securities Portfolio.
Portfolio Performance
Included in each Portfolio's description is a set of tables and a bar chart.
The bar chart is included to provide you with an indication of the risks
involved when you invest. The chart shows changes in the Portfolio's performance
from year to year. One of the tables compares the Portfolio's average annual
returns with:
o a broad-based securities market index (An index measures the market price
of a specific group of securities in particular securities in a market
sector. You cannot invest directly in an index. An index does not have an
investment advisor and does not pay any commissions or expenses. If an
index had expenses, its performance would be lower.); and
o an average of mutual funds with a similar investment objective and
management style. The averages used are prepared by Lipper, Inc., an
independent statistical service.
The other table provides the highest and lowest quarterly rate of return for the
Portfolio's shares over the life of the Portfolio (through the end of the most
recent fiscal year).
A Portfolio's past performance is not necessarily an indication of how the
Portfolio will perform in the future.
NOTE:Investments in these Portfolios are not deposits of a bank and are not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
No salesperson, dealer or other person is authorized to give information or
to make representations about a Portfolio or the Fund other than those
contained in this Prospectus. Information or representations from
unauthorized parties may not be relied upon as having been made by a
Portfolio, the Fund, the Manager or any Sub-Advisor.
INTERNATIONAL EMERGING MARKETS PORTFOLIO
Main Strategies
The International Emerging Markets Portfolio seeks to achieve long-term growth
of capital by investing primarily in equity securities of issuers in emerging
market countries.
For this Portfolio, the term "emerging market country" means any country which
is considered to be an emerging country by the international financial community
(including the International Bank for Reconstruction and Development (also known
as the World Bank) and the International Financial Corporation). These countries
generally include every nation in the world except the United States, Canada,
Japan, Australia, New Zealand and most nations located in Western Europe.
Investing in many emerging market countries is not feasible or may involve
unacceptable political risk. Invista, the Sub-Advisor, focuses on those emerging
market countries that it believes have strongly developing economies and markets
which are becoming more sophisticated.
Under normal conditions, at least 65% of the Portfolio's assets are invested in
emerging market country equity securities. The Portfolio invests in securities
of:
o companies with their principal place of business or principal office in
emerging market countries;
o companies for which the principal securities trading market is an emerging
market country; or
o companies, regardless of where its securities are traded, that derive 50%
or more of their total revenue from either goods or services produced in
emerging market countries or sales made in emerging market countries.
Main Risks
Investments in emerging market countries involve special risks. Certain emerging
market countries have historically experienced, and may continue to experience,
certain economic problems. These may include: high rates of inflation, high
interest rates, exchange rate fluctuations, large amounts of debt, balance of
payments and trade difficulties, and extreme poverty and unemployment. In
addition, there are risks involved with any investment in foreign securities.
These include the risk that a foreign security could lose value as a result of
political, financial and economic events in foreign countries. In addition,
foreign securities may be subject to securities regulators with less stringent
accounting and disclosure standards than are required of U.S. companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities that may
affect portfolio liquidity.
Under unusual market or economic conditions, the Portfolio may invest in
securities issued by domestic corporations, governments or governmental
agencies, instrumentalities or political subdivisions. The securities may be
denominated in U.S. dollars or other currencies.
The Portfolio is generally a suitable investment for investors seeking long-term
growth who want to invest a portion of their assets in securities of companies
in emerging market countries. Because the values of the Portfolio's assets may
rise or fall dramatically, if you sell your shares when their value is less than
the price you paid, you will lose money. This Portfolio is not an appropriate
investment if you are seeking either preservation of capital or high current
income. You must be able to assume the increased risks of higher price
volatility and currency fluctuations associated with investments in
international stocks which trade in non-U.S. currencies.
Portfolio Performance Information
The Portfolio's past performance is not necessarily an indication of future
performance. The bar chart and tables provide some indication of the risks of
investing in the Portfolio by showing changes in share performance from year to
year.
Annual Total Returns
1998 -17.21% The year-to-date total return as of September 29,
1999 63.37% 2000 is -17.55%.
The portfolio's highest/lowest quarterly results
during the time period covered by the chart were:
Highest 38.53% (12/31/1999)
Lowest -19.25% (9/30/1998 )
Average annual total returns for the period ending December 31, 1999
This table shows how the Portfolio's average annual returns compare with
those of a broad-based securities market index and an index of funds with
similar investment objectives.
Past One Past Five
Portfolio Year Years
International Emerging
Markets 63.37% 16.26%*
* Period from November 26, 1997, date shares first offered to the public,
through December 31, 1999.
Past One Past Five Past Ten
Year Years Years
Morgan Stanley Capital International EMF
(Emerging Markets Free) Index 66.41% 2.00% 11.04%
Lipper Emerging Markets Fund Average 70.77 5.11 7.47
Portfolio Operating Expenses
Management Fees..................... 1.15%
Other Expenses*..................... 0.00
Total Portfolio Operating Expenses 1.15%
* In addition to brokerage and extraordinary expenses, a Portfolio will
pay only taxes and interest expenses, which it is anticipated to be
minimal or nonexistent under normal circumstances.
Examples
The Examples assume that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Examples also assume that your investment has a 5% return each
year and that the Portfolio's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your
cost would be:
1 Year 3 Years 5 Years 10 Years
$117 $365 $633 $1,398
Day-to-day Portfolio Management
Since November 1997 Manager: Kurtis D. Spieler, CFA. Mr. Spieler joined
(Portfolio's inception)Invista Capital Management in 1995.He holds an MBA
from Drake University and a BBA from Iowa State
University. He has earned the right to use the
Chartered Financial Analyst designation
INTERNATIONAL SECURITIES PORTFOLIO
Main Strategies
The International Securities Portfolio seeks long-term growth of capital by
investing in a portfolio of securities of companies domiciled in any of the
nations of the world.
The International Securities Portfolio invests in common stocks of companies
established outside of the U.S. The Portfolio has no limitation on the
percentage of assets that are invested in any one country or denominated in any
one currency. However under normal market conditions, the Portfolio intends to
have at least 65% of its assets invested in companies in at least three
different countries. One of those countries may be the U.S. though currently the
Portfolio does not intend to invest in equity securities of U.S. companies.
Investments may be made anywhere in the world. Primary consideration is given to
securities of corporations of Western Europe, North America and Australasia
(Australia, Japan and Far East Asia). Changes in investments are made as
prospects change for particular countries, industries or companies.
In choosing investments for the Portfolio, the Sub-Advisor, Invista pays
particular attention to the long-term earnings prospects of the various
companies under consideration. Invista then weighs those prospects relative to
the price of the security.
Main Risks
The values of the stocks owned by the Portfolio change on a daily basis. Stock
prices reflect the activities of individual companies as well as general market
and economic conditions. In the short term, stock prices and currencies can
fluctuate dramatically in response to these factors. In addition, there are
risks involved with any investment in foreign securities that are not generally
found in securities of U.S. companies. These include the risk that a foreign
security could lose value as a result of political, financial and economic
events in foreign countries. In addition, foreign securities may be subject to
securities regulators with less stringent accounting and disclosure standards
than are required of U.S. companies.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities that may
affect portfolio liquidity.
Under unusual market or economic conditions, the Portfolio may invest in
securities issued by domestic corporations, governments or governmental
agencies, instrumentalities or political subdivisions. The securities may be
denominated in U.S. dollars or other currencies.
The Portfolio is generally a suitable investment for investors who seek
long-term growth and who want to invest in non-U.S. companies. This Portfolio is
not an appropriate investment if you are seeking either preservation of capital
or high current income. Suitable investors must be able to assume the increased
risks of higher price volatility and currency fluctuations associated with
investments in international stocks which trade in non-U.S. currencies. As with
all mutual funds, the value of the Fund's assets may rise or fall. If you sell
your shares when their value is less than the price you paid, you will lose
money.
Portfolio Performance Information
The Portfolio's past performance is not necessarily an indication of future
performance. The bar chart and tables provide some indication of the risks of
investing in the Portfolio by showing changes in share performance from year to
year.
Annual Total Returns
1994 -6.45% The year-to-date total return as of September 29,
1995 12.02 2000 is -7.90%.
1996 24.12
1997 12.55 The portfolio's highest/lowest quarterly results
1998 9.55 during the time period covered by the chart were:
1999 27.89
Highest 18.06% (12/31/1999)
Lowest -17.48% (9/30/1998)
Average annual total returns for the period ending December 31, 1999
This table shows how the Portfolio's average annual returns compare with
those of a broad-based securities market index and an index of funds with
similar investment objectives.
Past One Past Five Past Ten
Portfolio Year Years Years
International Securities 27.89% 17.00% 15.88%*
* Period from May 7, 1993, date shares first offered to the public,
through December 31, 1999.
Past One Past Five Past Ten
Year Years Years
Morgan Stanley Capital International EAFE
(Europe, Australia and Far East) Index 26.96% 12.83% 7.01%
Lipper International Fund Average 40.80 15.37 10.54
Portfolio Operating Expenses
Management Fees.......................... 0.90%
Other Expenses*.......................... 0.00
Total Portfolio Operating Expenses 0.90%
* In addition to brokerage and extraordinary expenses, a Portfolio will
pay only taxes and interest expenses, which it is anticipated to be
minimal or nonexistent under normal circumstances.
Examples
The Examples assume that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Examples also assume that your investment has a 5% return each
year and that the Portfolio's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your
cost would be:
1 Year 3 Years 5 Years 10 Years
$92 $287 $498 $1,108
Day-to-day Portfolio Management
Since March 2000 Manager: Kurtis D. Spieler, CFA. Mr. Spieler joined
Invista Capital Management in 1995. He holds an MBA
from Drake University and a BBA from Iowa State
University. He has earned the right to use the
Chartered Financial Analyst designation.
INTERNATIONAL SMALLCAP PORTFOLIO
Main Strategies
The International SmallCap Portfolio seeks to achieve long-term growth of
capital by investing primarily in equity securities of non-United States
companies with comparatively smaller market capitalizations. Market
capitalization is defined as total current market value of a company's
outstanding common stock. Under normal market conditions, the Portfolio invests
at least 65% of its assets in securities of companies having market
capitalizations of $1.5 billion or less at the time of purchase.
In selecting securities for the Portfolio, Invista, the Sub-Advisor, diversifies
the investments geographically. There is no limitation of the percentage of
assets that may be invested in one country or denominated in any one currency.
However, under normal market circumstances, the Portfolio intends to have at
least 65% of its assets invested in securities of companies of at least three
countries.
Main Risks
Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.
Investments in companies with small market capitalizations carry their own
risks. Historically, small company securities have been more volatile in price
than larger company securities, especially over the short-term. While small,
unseasoned companies may offer greater opportunities for capital growth than
larger, more established companies, they also involve greater risks and should
be considered speculative.
Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Fund as measured in U.S. dollars will be affected
by changes in exchange rates. To protect against future uncertainties in foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. In addition, the Fund's foreign investments may
be less liquid and their price more volatile than comparable investments in U.S.
securities. Settlement periods may be longer for foreign securities that may
affect portfolio liquidity.
This Portfolio is not an appropriate investment if you are seeking either
preservation of capital or high current income. You must be able to assume the
increased risks of higher price volatility and currency fluctuations associated
with investments in international stocks which trade in non-U.S. currencies.
The Portfolio is generally a suitable investment for investors seeking long-term
growth who want to invest a portion of their assets in smaller, non-U.S.
companies. Because the values of the Portfolio's assets may rise or fall, when
shares of the Portfolio are sold they may be worth more or less than the amount
paid for them.
Portfolio Performance Information
The Portfolio's past performance is not necessarily an indication of future
performance. The bar chart and tables provide some indication of the risks of
investing in the Portfolio by showing changes in share performance from year to
year.
Annual Total Returns
1998 11.92% The year-to-date total return as of September 29,
1999 85.93 2000 is -0.21%.
The portfolio's highest/lowest quarterly results
during the time period covered by the chart were:
Highest 36.97% (12/31/1999)
Lowest -20.68% (9/30/1998)
Average annual total returns for the period ending December 31, 1999
This table shows how the Portfolio's average annual returns compare with
those of a broad-based securities market index and an index of funds with
similar investment objectives.
Past One Past Five
Portfolio Year Years
International SmallCap 85.93% 42.93%*
* Period from November 26, 1997, date first offered to the public, through
December 31, 1999.
Past One Past Five Past Ten
Year Years Years
Morgan Stanley Capital International EAFE
(Europe, Australia and Far East) Index 26.96% 12.83% 7.01%
Lipper International Small-Cap Fund Average 75.41 19.91 13.04
Portfolio Operating Expenses
Management Fees.......................... 1.00%
Other Expenses*.......................... 0.00
Total Portfolio Operating Expenses 1.00%
* In addition to brokerage and extraordinary expenses, a Portfolio will
pay only taxes and interest expenses, which it is anticipated to be
minimal or nonexistent under normal circumstances.
Examples
The Examples assume that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Examples also assume that your investment has a 5% return each
year and that the Portfolio's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your
cost would be:
1 Year 3 Years 5 Years 10 Years
$102 $318 $552 $1,225
Day-to-day Portfolio Management
Since November 1997 Manager: Darren K. Sleister, CFA. Mr.Sleister joined
(Portfolio's inception)Invista Capital Management as a Portfolio Strategist
in 1993. He holds an MBA from the University of
Iowa, and an undergraduate degree from Central
College. He has earned the right to use the
Chartered Financial Analyst designation.
MORTGAGE-BACKED SECURITIES PORTFOLIO
Main Strategies
The Mortgage-Backed Securities Portfolio seeks a high level of current income,
liquidity and safety of principal by purchasing obligations issued or guaranteed
by the United States Government or its agencies, with emphasis on Government
National Mortgage Association Certificates. The guarantees by the United States
Government extends only to principal and interest. There are certain risks
unique to GNMA Certificates.
The Mortgage-Backed Securities Portfolio invests in U.S. Government securities,
which include obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. The Portfolio may invest in securities supported
by:
o full faith and credit of the U.S. Government (e.g. GNMA certificates); or
o credit of the instrumentality (e.g. bonds issued by the Federal Home Loan
Mortgage Corp.).
In addition, the Portfolio may invest in money market investments.
Although some of the securities the Portfolio purchases are backed by the U.S.
government and its agencies, shares of the Portfolio are not guaranteed.
Generally, when interest rates fall, the value of the Portfolio's shares rises,
and when rates rise, the value declines. Because of the fluctuation in values of
the Portfolio's shares, when sold, shares of the Portfolio may be worth more or
less than the amount paid for them.
U.S. Government securities do not involve the degree of credit risk associated
with investments in lower quality fixed-income securities. As a result, the
yields available from U.S. Government securities are generally lower than the
yields available from many other fixed-income securities. Like other
fixed-income securities, the values of U.S. Government securities change as
interest rates fluctuate. Fluctuations in the value of the Portfolio's
securities do not effect interest income on securities already held by the
Portfolio, but are reflected in the Fund's price per share. Since the magnitude
of these fluctuation generally are greater at times when the Portfolio's average
maturity is longer, under certain market conditions the Portfolio may invest in
short term investments yielding lower current income rather than investing in
higher yielding longer term securities.
GNMA Certificates are mortgage backed securities representing an interest in a
pool of mortgage loans. Various lenders make the loans which are then insured
(by the Federal Housing Administration) or loans which are guaranteed (by
Veterans Administration or Farmers Home Administration). The lender or other
security issuer creates a pool of mortgages which it submits to GNMA for
approval.
The Portfolio invests in modified pass-through GNMA Certificates. Owners of
Certificates receive all interest and principal payments owed on the mortgages
in the pool, regardless of whether or not the mortgagor has made the payment.
Timely payment of interest and principal is guaranteed by the full faith and
credit of the U.S. Government.
Main Risks
Mortgage backed securities are subject to prepayment risk. Prepayments,
unscheduled principal payments, may result from voluntary prepayment,
refinancing or foreclosure of the underlying mortgage. When interest rates
decline, significant unscheduled prepayments may result. These prepayments must
then be reinvested at lower rates. Prepayments may also shorten the effective
maturities of these securities, especially during periods of declining interest
rates. On the other hand, during period of rising interest rates, a reduction in
prepayments may increase the effective maturities of these securities,
subjecting them to the risk of decline in market value in response to rising
interest and potentially increasing the volatility of the fund.
In addition, prepayments may cause losses on securities purchased at a premium
(dollar amount by which the price of the bond exceeds its face value). At times,
mortgage backed securities may have higher than market interest rates and are
purchased at a premium. Unscheduled prepayments are made at par and cause the
Portfolio to experience a loss of some or all of the premium.
The Mortgaged-Backed Securities Portfolio is generally a suitable investment for
investors who want monthly dividends to provide income or to be reinvested in
additional Portfolio shares to produce growth. Such investors prefer to have the
repayment of principal and interest on most of the securities in which the
Portfolio invests to be backed by the U.S. Government, its agencies or
instrumentalities.
Portfolio Performance Information
The Portfolio's past performance is not necessarily an indication of future
performance. The bar chart and tables provide some indication of the risks of
investing in the Portfolio by showing changes in share performance from year to
year.
Annual Total Returns
1994 -3.60% The year-to-date total return as of September 29,
1995 19.26 2000 is 6.91%.
1996 4.20
1997 10.18 The portfolio's highest/lowest quarterly results
1998 7.74 during the time period covered by the chart were:
1999 0.30
Highest 6.41% (6/30/1995)
Lowest -3.50% (3/30/1994)
Average annual total returns for the period ending December 31, 1999
This table shows how the Portfolio's average annual returns compare with
those of a broad-based securities market index and an index of funds with
similar investment objectives.
Past One Past Five Past Ten
Portfolio Year Years Years
Mortgage-Backed
Securities 0.30% 8.15% 6.17%*
* Period from May 7, 1993, date shares first offered to the public,
through December 31, 1999.
Past One Past Five Past Ten
Year Years Years
Lehman Brothers Mortgage Index 1.86% 7.98% 7.78%
Lipper U.S. Mortgage Fund Average 0.65 7.00 6.95
Portfolio Operating Expenses
Management Fees.......................... 0.45%
Other Expenses*.......................... 0.00
Total Portfolio Operating Expenses 0.45%
* In addition to brokerage and extraordinary expenses, a Portfolio will
pay only taxes and interest expenses, which it is anticipated to be
minimal or nonexistent under normal circumstances.
Examples
The Examples assume that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Examples also assume that your investment has a 5% return each
year and that the Portfolio's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your
cost would be:
1 Year 3 Years 5 Years 10 Years
$46 $144 $252 $567
Day-to-day Portfolio Management
Since May 1993 Martin J. Schafer. Mr. Schafer joined the Principal
(Portfolio's inception)in 1977 and has broad experience in residential
mortgage related securities. He served as Director
of Investment Securities at the Principal prior to
joining Invista Capital Management in 1992. He holds
a BBA in Accounting and Finance from the University
of Iowa.
THE COSTS OF INVESTING
The Fund pays ongoing fees to its Manager, Underwriter and others who provide
services to the Fund. They reduce the value of each share you own.
CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS
The Statement of Additional Information (SAI) contains additional information
about investment strategies and their related risks.
Securities and Investment Practices
Equity securities include common stocks, preferred stocks, convertible
securities and warrants. Common stocks, the most familiar type, represent an
equity (ownership) interest in a corporation. Although equity securities have a
history of long term growth in value, their prices fluctuate based on changes in
a company's financial condition and on overall market and economic conditions.
Smaller companies are especially sensitive to these factors.
Fixed-income securities include bonds and other debt instruments that are used
by issuers to borrow money from investors. The issuer generally pays the
investor a fixed, variable or floating rate of interest. The amount borrowed
must be repaid at maturity. Some debt securities, such as zero coupon bonds, do
not pay current interest, but are sold at a discount from their face values.
Fixed-income securities are sensitive to changes in interest rates. In general,
bond prices rise when interest rates fall and fall when interest rates rise.
Longer term bonds and zero coupon bonds are generally more sensitive to interest
rate changes.
Bond prices are also affected by the credit quality of the issuer. Investment
grade debt securities are medium and high quality securities. Some bonds may
have speculative characteristics and be particularly sensitive to economic
conditions and the financial condition of the issuers.
Repurchase Agreements and Loaned Securities
Each of the Fund's Portfolios may invest a portion of its assets in repurchase
agreements. Repurchase agreements typically involve the purchase of debt
securities from a financial institution such as a bank, savings and loan
association or broker-dealer. A repurchase agreement provides that the Portfolio
sells back to the seller and that the seller repurchases the underlying
securities at a specified price on a specific date. Repurchase agreements may be
viewed as loans by a Portfolio collateralized by the underlying securities. This
arrangement results in a fixed rate of return that is not subject to market
fluctuation while the Portfolio holds the security. In the event of a default or
bankruptcy by a selling financial institution, the affected Portfolio bears a
risk of loss. To minimize such risks, the Portfolio enters into repurchase
agreements only with large, well-capitalized and well-established financial
institutions. In addition, the value of the collateral underlying the repurchase
agreement is always at least equal to the repurchase price, including accrued
interest.
Each of the Fund's Portfolios may lend its portfolio securities to unaffiliated
broker-dealers and other unaffiliated qualified financial institutions.
Currency Contracts
The International Emerging Markets, International Securities and International
SmallCap Portfolios may each enter into forward currency contracts, currency
futures contracts and options, and options on currencies for hedging and other
non-speculative purposes. A forward currency contract involves a privately
negotiated obligation to purchase or sell a specific currency at a future date
at a price set in the contract. A Portfolio will not hedge currency exposure to
an extent greater than the aggregate market value of the securities held or to
be purchased by the Portfolio (denominated or generally quoted or currently
convertible into the currency).
Hedging is a technique used in an attempt to reduce risk. If a Portfolio's
Sub-Advisor hedges market conditions incorrectly or employs a strategy that does
not correlate well with the Portfolio's investment, these techniques could
result in a loss, regardless of whether the intent was to reduce risk or to
increase return. These techniques may increase the volatility of a Portfolio and
may involve a small investment of cash relative to the magnitude of the risk
assumed. In addition, these techniques could result in a loss if the other party
to the transaction does not perform as promised. Additionally, there is the risk
of government action through exchange controls that would restrict the ability
of the Portfolio to deliver or receive currency.
Warrants
Each of the Portfolios may invest up to 5% of its assets in warrants. Up to 2%
of a Portfolio's assets may be invested in warrants which are not listed on
either the New York or American Stock Exchanges. For the International,
International Emerging Markets and International SmallCap Funds, the 2%
limitation also applies to warrants not listed on the Toronto Stock and Chicago
Board Options Exchanges.
Options
Each of the Portfolios may buy and sell certain types of options. Each type is
more fully discussed in the SAI.
Foreign Securities
The International Emerging Markets, International Securities and International
SmallCap Portfolios each may invest in foreign securities. Investment in foreign
securities presents certain risks including: fluctuations in currency exchange
rates, revaluation of currencies, the imposition of foreign taxes, future
political and economic developments including war, expropriations,
nationalization, the possible imposition of currency exchange controls and other
foreign governmental laws or restrictions. In addition, there may be reduced
availability of public information concerning issuers compared to domestic
issuers. Foreign issuers are not generally subject to uniform accounting,
auditing and financial reporting standards or to other regulatory practices and
requirements that apply to domestic issuers. Transactions in foreign securities
may be subject to higher costs. Each Portfolio's investment in foreign
securities may also result in higher custodial costs and the costs associated
with currency conversions.
Securities of many foreign issuers may be less liquid and their prices more
volatile than those of comparable domestic issuers. Foreign securities markets,
particularly those in emerging market countries, are known to experience long
delays between the trade and settlement dates of securities purchased and sold.
Such delays may result in a lack of liquidity and greater volatility in the
price of securities on those markets. As a result of these factors, the Board of
Directors of the Fund has adopted Daily Pricing and Valuation Procedures for the
Portfolios. These procedures outline the steps to be followed by the Sub-Advisor
to establish a reliable market or fair value if a reliable market value is not
available through normal market quotations. The Executive Committee of the Board
of Directors oversees this process.
Securities of Smaller Companies
The Portfolios may invest in securities of companies with small- or mid-sized
market capitalizations. Market capitalization is defined as total current market
value of a company's outstanding common stock. Investments in companies with
smaller market capitalizations may involve greater risks and price volatility
(wide, rapid fluctuations) than investments in larger, more mature companies.
Smaller companies may be less mature than older companies. At this earlier stage
of development, the companies may have limited product lines, reduced market
liquidity for their shares, limited financial resources or less depth in
management than larger or more established companies. Small companies also may
be less significant within their industries and may be at a competitive
disadvantage relative to their larger competitors. While smaller companies may
be subject to these additional risks, they may also realize more substantial
growth than larger or more established companies.
Unseasoned Issuers
The Portfolios may invest in the securities of unseasoned issuers. Unseasoned
issuers are companies with a record of less than three years continuous
operation, including the operation of predecessors and parents. Unseasoned
issuers by their nature have only a limited operating history which can be used
for evaluating the companies growth prospects. As a result, investment decisions
for these securities may place a greater emphasis on current or planned product
lines and the reputation and experience of the companies management and less
emphasis on fundamental valuation factors than would be the case for more mature
growth companies. In addition, many unseasoned issuers also may be small
companies and involve the risks and price volatility associated with smaller
companies.
Temporary or Defensive Measures
For temporary or defensive purposes in times of unusual or adverse market
conditions, the Portfolios may invest without limit in cash and cash
equivalents. For this purpose, cash equivalents include: bank certificates of
deposit, bank acceptances, repurchase agreements, commercial paper, and
commercial paper master notes which are floating rate debt instruments without a
fixed maturity. In addition, a Portfolio may purchase U.S. Government
securities, preferred stocks and debt securities, whether or not convertible
into or carrying rights for common stock.
Portfolio Turnover
"Portfolio Turnover" is the term used in the industry for measuring the amount
of trading that occurs in a fund's portfolio during the year. For example, a
100% turnover rate means that on average every security in the portfolio has
been replaced once during the year.
Funds with high turnover rates (more than 100%) often have higher transaction
costs (which are paid by the fund) and may generate short-term capital gains (on
which you pay taxes even if you don't sell any of your shares during the year).
You can find the turnover rate for each Portfolio in the Portfolio's Financial
Highlights table.
Please consider all the factors when you compare the turnover rates of different
funds. A fund with consistently higher total returns and higher turnover rates
than another fund may actually be achieving better performance precisely because
the managers are active traders. You should also be aware that the "total
return" line in the Financial Highlights already includes portfolio turnover
costs.
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
The Manager
Principal Management Corporation (the "Manager") serves as the manager for the
Fund. In its handling of the business affairs of each Portfolio, the Manager
provides clerical, recordkeeping and bookkeeping services, and keeps the
financial and accounting records required for the Fund. The Manager has signed
sub-advisory agreements with Invista for portfolio management functions for the
International, International Emerging Markets and International SmallCap
Portfolios. It has entered into a Sub-Advisory agreement with PCII for the
Mortgage-Backed Securities Portfolio. The Manager compensates the Sub-Advisors
for their services as provided in the Sub-Advisory Agreements.
The Manager is an indirect subsidiary of Principal Financial Services, Inc. and
has managed mutual funds since 1969. As of October 31, 2000, the Funds it
managed had assets of approximately $6.6 billion. The Manager's address is
Principal Financial Group, Des Moines, Iowa 50392-0200.
Invista is an indirect wholly-owned subsidiary of Principal Life Insurance
Company and is an affiliate of the Manager. Invista has managed investments for
institutional investors, including Principal Life, since 1985. As of September
30, 2000, it managed assets of approximately $29.7 billion. Invista's address is
1800 Hub Tower, 699 Walnut, Des Moines, Iowa 50309.
PCII is an indirect wholly-owned subsidiary of Principal Life Insurance Company
and is an affiliate of the Manager. PCII has managed investments for
institutional investors, including Principal Life, since 1985. As of September
30, 2000, it managed assets of approximately $31.1 billion. PCII's address is
1800 Hub Tower, 699 Walnut, Des Moines, Iowa 50309.
The Manager provides the Board of Directors of the Fund a recommended investment
program for each of the Portfolios. Each program must be consistent with the
Portfolio's investment objective and policies. Within the scope of the approved
investment program, the Sub-Advisor advises each Portfolio on its investment
policies and determines which securities are bought and sold, and in what
amounts.
The Manager is paid a fee by each Portfolio for its services, which includes any
fee paid to the Sub-Advisor. The fee paid by each Portfolio (as a percentage of
the average daily net assets) is determined using the following rate:
<TABLE>
<CAPTION>
Fees Computed On Fees as a Percent of
Portfolio Net Asset Value of Portfolio Average Daily Net Assets
<S> <C> <C> <C>
International Emerging Markets Portfolio First $250 million 1.15%
Next $250 million 1.05%
Over $500 million 0.95%
International Securities Portfolio Entire Portfolio 0.90%
International SmallCap Portfolio First $250 million 1.00%
Next $250 million 0.90%
Over $500 million 0.80%
Mortgage-Backed Securities Portfolio Entire Portfolio 0.45%
</TABLE>
For the fiscal year ended December 31, 1999 the Management fee for each
Portfolio was:
International Emerging Markets Portfolio 1.15%
International Securities Portfolio 0.90%
International SmallCap Portfolio 1.00%
Mortgage-Backed Securities Portfolio 0.45%
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
International Emerging Markets Portfolio
Emerging markets had a strong run in 1999. EMEA (Eastern Europe, Middle East,
Africa) posted the largest gain as technology stocks soared and the region
finished up 79.6% for the year. Asia registered a gain of 79.6%, and Latin
America "lagged" the rest of the emerging world at 58.9%. The International
Emerging Markets Portfolio's total return of 65.14% barely under-performed the
MSCI EMF Index at 66.41%, with similar regional returns. For the year the
Portfolio's market selection was slightly negative, but a majority of the lost
ground was made up by selecting better stocks. The following paragraphs
highlight the most significant events from each emerging markets region.
Despite their big run early in 1999, Asian countries continued to show evidence
of solid economic recovery throughout the year. The Portfolio's managers were
cautious on entering the Asian region immediately after the markets tumbled in
late 1998 and by choosing to wait for evidence of structural change before
reinvesting ground was lost early in the year. Since the initial rebound had
been sparked by companies that were more speculative in nature, Portfolio
managers were able to capitalize on the turning economy by purchasing stocks of
companies with solid balance sheets and intriguing business prospects. This
strategy helped power the Portfolio's relative out-performance in the second
half of the year. Although by year-end many Asian current account surpluses had
peaked, management still feels there is excess capacity in some of the sectors
including manufacturing and property. Thus it is not expected Asia will
experience the level of investment activity that was typical before the
financial downturn, even though certain countries are still heavily leveraged.
The Portfolio's managers continue to favor companies in the technology sector as
well as look for global outsourcing opportunities that will benefit from
increased IT spending. Additionally, the Portfolio may now invest locally in
India, a country that is seeing explosive growth in the technology sector.
Latin America was the relative laggard in the emerging markets over the past
year, due to devaluation concerns in Brazil and a recession in Argentina. Brazil
continues to weigh heavily on the region as concerns regarding the fiscal
deficit and social security remain. Other factors that continue to weigh on the
Latin American economy include the Mexican elections and excess government
spending. On a positive note, Latin American companies continue to reduce their
cost structure in response to the region's weak economies. With the prospects of
economic recovery and cheap valuations, the region looks attractive from a
bottom up perspective. Latin American telecom and Internet-related businesses
are favored as the best ways to benefit from the region's growth.
EMEA (Eastern Europe, Middle East, Africa) faired well as Israeli technology
stocks kept pace with the NASDAQ, receiving an additional boost from favorable
governmental elections. The Greek stock market experienced a bubble as investors
were anticipating Greece would join the EU and the local retail investors
continued to provide a strong influx of capital. Toward the end of 1999 this
bubble gradually deflated, but the country's economic outlook is still
favorable. The devastating earthquake in Turkey only marginally shook investors
and was more than offset by political change. It is anticipated Turkey will
enter a cycle of lower interest rates and less inflation that will bode well for
equity investors. Managers are also looking to Egypt as the economy is
positioned well for growth, remaining cheap on a valuation level. It is felt the
best investment opportunities in the EMEA region will come from wireless
telecom, technology, and media.
Comparison of Change in Value of $1.0 Million Investment in the International
Emerging Markets Portfolio, Lipper Emerging Markets Fund Average and MSCI EMF
Index.
-------------------------------------
Average Annual Total Returns*
As of December 31, 1999
1 Year 5 Year 10 Year
63.37% 16.26** --
** - Since Inception Date 11/26/97
-------------------------------------
MSCI Lipper Emerging
EMF ID Markets
Year Ended December 31, IEP* INDEX Fund Avg.
1,000,000 1,000,000 1,000,000
1997 1,014,000 1,021,800 1,015,300
1998 839,491 740,601 742,895
1999 1,371,476 1,232,434 1,268,642
Note: Past performance is not predictive of future performance.
International Securities Portfolio
The return for the International Securities Portfolio in 1999 was 27.89%. This
performance outpaced the 26.96% return posted by the EAFE (Europe, Australia and
Far East) Index. The largest positive contributions came from the Portfolio's
exposure to emerging markets and the allocation of the European investments. The
Portfolio would have outperformed the benchmark by a larger amount if not for
the strength of the Japanese market and its currency. Positive equity returns
globally were driven by improving economies, low inflation and the strong
performance of the so-called `New Era' stocks in the telecommunications,
technology and media industries.
Emerging markets performed very strongly in 1999 as economic growth troughed and
began to move up early in the year and accelerated as 1999 progressed. This
specifically benefited the holdings in South Korea and South Africa where the
Portfolio held more cyclical companies. An additional benefit came when one of
the Portfolio's largest holdings, an oil company in Argentina, was taken over
early in the year.
Strong stock specific performance in Europe, especially in the UK and the
Netherlands, aided relative outperformance. Several of the companies held in the
Portfolio were taken over by competitors in 1999. These takeovers resulted in
the rapid realization of value for shareholders. The Portfolio's returns
benefited from this activity. 1999 was also characterized by sluggish European
markets in the first three quarters of the year because of worries about rising
interest rates. These worries impacted media, technology and telecommunications
stocks most severely. The Portfolio took advantage of the weakness in stock
prices in these industries to increase the weighting in these higher growth
areas of the economy. This strategy paid off handsomely in the fourth quarter,
as these growth sectors led the market rally. The Portfolio's overweight
positions in media and technology and underweight positions in insurance and
utilities were the main drivers of the positive relative performance.
The Portfolio increased its weighting in the Japanese market as the economy
began to show signs of improvement and companies in Japan began to announce
restructuring plans to raise profitability. The average weighting in Japan in
1999 was still only 8%, significantly below the benchmark. This hurt relative
returns because of the strong market performance, but also because the yen was
the strongest major currency in the world last year.
The Portfolio continues to be underweight Japan (50% of the benchmark) and
overweight Europe. Europe is expected to grow its economy faster than the rest
of the world this year and European equities still offer good value. Inflation
is expected to remain subdued, but the efforts of central banks in the US and
Europe to prevent inflation will mean rising short-term interest rates that may
cause market volatility. There is still good value in some media, technology and
telecommunications stocks. Select financials and cyclicals also offer good
value.
Comparison of Change in Value of $1.0 Million Investment in the International
Securities Portfolio, Lipper International Fund Average and MSCI EAFE Index.
--------------------------------------------
Average Annual Total Returns *
As of December 31, 1999
1 Year 5 Year 10 Year
27.89% 17.00% 15.88%**
** Since inception date 5/7/93
--------------------------------------------
ISP* Morgan Stanley Lipper
Total EAFE International
Year Ended December 31 Return Index Index
1,000,000 1,000,000 1,000,000
1993 1,298,152 1,058,800 1,225,000
1994 1,214,388 1,141,175 1,216,303
1995 1,360,336 1,269,100 1,330,757
1996 1,688,511 1,345,881 1,487,520
1997 1,900,456 1,369,838 1,568,441
1998 2,082,034 1,643,805 1,772,652
1999 2,662,622 2,086,975 2,495,894
Note: Past performance is not predictive of future performance.
International SmallCap Portfolio
The international small cap arena saw impressive returns that were unprecedented
previous to 1999. The Lipper International SmallCap Fund Average total return
was 75.41% for the year. The International SmallCap Portfolio's return exceeded
the Lipper average by 10.5% on a 1-year basis. Earlier in 1999 Japan was a
significant outperformer in the small cap world and the Portfolio's holdings
outpaced the index returning, on average, some 60%. The Portfolio went from a
zero weighting in Japan to one that more closely matched the benchmark at
mid-year, to lightening up during fourth quarter as the Portfolio's managers
felt much of the Japanese market had simply run out of steam. The fourth quarter
saw investors taking gains in the Japanese small cap stocks as the economy once
again came into question as to what could be delivered and how much
restructuring was actually occurring. 1999 was a good year for European start-up
companies. Many were technology-oriented that soon turned into mid-caps due to
massive price appreciation in a short time span. A fundamental change was seen
in the liquidity flows as capital began to pour into the European markets in the
fourth quarter. The top performing sectors included media, telecommunications
and technology as those companies that had exposure in these areas saw strong
price appreciation in the fourth quarter as investors scrambled to gain exposure
to these industries.
Portfolio managers continue to look for market leaders in their respective
fields with good growth characteristics, a solid business strategy and strong
barriers to entry. 1999 was a year of stellar performance for technology
companies as the internet and e-commerce began to demonstrate that they will
revolutionize the business world. Managers identified some promising companies
that are global leaders and should benefit from the explosion of growth in
e-commerce. The Portfolio has rotated out of many of the stronger performers and
continues to look for new opportunities whose growth opportunities are
undervalued relative to their stock price.
The International SmallCap Portfolio continues to benefit from themes such as
outsourcing of electronic components, increasing advertising expenditures,
market research companies and indirect e-commerce solutions. At the current
time, growth companies offer the most attractive investments from a risk/return
trade-off compared to the more traditional value stocks. Portfolio mangers
continue to look for companies that are at attractive valuations and also offer
long-term earnings growth potential.
Important Notes:
Lipper Emerging Markets Fund Average: This average consists of funds which
invest at least 65% of their total assets in emerging market equity securities,
where "emerging market" is defined by a country's GNP per capita or other
economic measures. The one-year average currently contains 180 funds.
Morgan Stanley Capital International EMF (Emerging Markets Free) Index: This
market capitalization weighted index is composed of companies representative of
the market structure of 26 emerging market countries in Europe, Latin America
and the Pacific Basin. The Index excludes closed markets and those shares in
otherwise free markets that are not purchasable by foreigners. These countries
include: Argentina, Brazil, Chile, China Free, Columbia, Czech Republic, Greece,
Hungary, India, Indonesia Free, Israel, Jordan, Korea, Malaysia (Free), Mexico
(Free), Pakistan, Peru, Philippines (Free), Poland, Russia, South Africa, Sri
Lanka, Taiwan (at 50%), Thailand (Free), Turkey and Venezuela.
Lipper International Small Cap Funds Average: This average consists of funds
which invest at least 65% of their assets in equity securities of non-United
States companies with market capitalizations less than U.S. $1 billion at the
time of purchase. The one-year average currently contains 70 funds.
Morgan Stanley Capital International EAFE (Europe, Australia and Far East)
Index: This market capitalization weighted index is composed of countries
representative of the market structure of 20 developed market countries in
Europe, Australasia and the Far East. The countries include: Australia, Austria,
Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland and United Kingdom.
Lipper International Fund Average: This average consists of funds which invest
in securities primarily traded in markets outside of the United States. The
one-year average currently contains 618 funds.
Comparison of Change in Value of $1.0 Million Investment in the International
SmallCap Portfolio, Lipper International SmallCap Fund Average and MSCI EAFE
Index.
-------------------------------------
Average Annual Total Returns*
As of December 31, 1999
1 Year 5 Year 10 Year
85.93% 42.93** --
** - Since Inception Date 11/26/97
-------------------------------------
Lipper
MSCI International
EAFE ND SmallCap
Year Ended December 31, ICP* INDEX Fund Avg.
1,000,000 1,000,000 1,000,000
1997 1,015,900 1,008,700 985,500
1998 1,136,995 1,210,440 1,113,812
1999 2,114,015 1,536,775 1,953,738
Note: Past performance is not predictive of future performance.
Mortgage-Backed Securities Portfolio
Over the last 15 months the Federal Reserve has lowered interest rates to
stabilize the global financial turmoil, only to reverse course and start raising
rates as markets stabilized and global growth resumed. Fund managers view these
Federal Reserve actions as the equivalent of a doctor prescribing aspirin to
treat the economic patient. These are mild treatments, needed to keep inflation
low and growth reasonable.
On an absolute basis, the returns for the Mortgage-Backed Securities Portfolio
for the year were poor. Fixed income securities had no momentum, especially with
the Fed raising interest rates. This was especially true during December as
investors poured money into fast moving growth stocks and out of fixed-income
securities.
The Portfolio underperformed both the Lipper U.S. Mortgage Fund Average and the
Lehman Brothers Mortgage Index, primarily due to its slightly longer duration.
Fund managers continue to believe the Portfolio will do well into the future.
Quality, liquidity, lack of credit volatility and the participation of certain
federal agencies are cited as the key drivers. Agency participation is a
significant factor. The Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC") are two major issuers of
mortgage-backed securities "MBS." As stock companies, they are driven by
stockholders and the price of their stock. In order to grow earnings in the face
of declining new issue MBS (typically they earn their income by issuing new
MBS), they are arbitraging more of the outstanding MBS. These agencies arbitrage
by issuing debt and buying MBS to earn the "spread" for their stockholders. FNMA
and FHLMC are expected to buy 60% of net MBS issuance in 2000, strengthening the
MBS market.
The Portfolio continues to hold more discount MBS securities than the Lehman MBS
index (this leads to a bias of longer duration) as managers believe the
homeowner's propensity to refinance and the mortgage banker's technology driven
inducement to refinance loans puts great risk on securities priced above par.
This is especially true in a market when overall volume is declining as higher
interest rates impact both new and existing home markets.
The Portfolio is expected to stay close to its duration benchmarks. Currently it
is a little long but is expected to be duration neutral soon, and fund managers
patiently wait for the opportunity to strategically lengthen maturities.
Important Notes:
Lehman Brothers Mortgage Index: an unmanaged index of 15- and 30-year fixed rate
securities backed by mortgage pools of the Government National Mortgage
Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), and Federal
National Mortgage Association (FNMA).
Lipper U.S. Mortgage Fund Average: this average consists of mutual funds
investing at least 65% of their assets in mortgages/securities issued or
guaranteed as to principal and interest by the U.S. Government and certain
federal agencies. The one-year average currently contains 62 mutual funds.
Note: Mutual fund data from Lipper Services, Inc.
Comparison of Change in Value of $1.0 Million Investment in the Mortgage-Backed
Securities Portfolio, Lipper U.S. Mortgage Fund Average and Lehman Brothers
Mortgage Index.
--------------------------------------------
Average Annual Total Returns*
As of December 31, 1999
1 Year 5 Year 10 Year
0.30% 8.15% 6.17%**
** Since Inception Date 5/7/93
--------------------------------------------
Lehman Brothers Lipper U.S.
MBS* Mortgage Mortgage Fund
Year Ended December 31, Value Index Average
1,000,000 1,000,000 1,000,000
1993 1,045,260 1,032,308 1,033,900
1994 1,007,869 1,015,688 990,786
1995 1,201,901 1,186,323 1,151,591
1996 1,252,353 1,249,791 1,196,158
1997 1,380,077 1,368,397 1,298,788
1998 1,486,863 1,463,637 1,377,754
1999 1,491,417 1,490,861 1,386,710
Note: Past performance is not predictive of future performance.
PRICING OF FUND SHARES
Each Portfolio's shares are bought and sold at the current share price. The
share price of each Portfolio is calculated each day the New York Stock Exchange
is open. The share price is determined at the close of business of the Exchange
(normally at 3:00 p.m. Central Time). When Princor receives your order to sell
shares, the share price used to fill the order is the next price calculated
after the order is placed.
For all Portfolios the share price is calculated by:
o taking the current market value of the total assets of the Portfolio
o subtracting liabilities of the Portfolio
o dividing the remainder by the total number of shares owned
NOTES:
o If current market values are not readily available for a security, its fair
value is determined using a policy adopted by the Fund's Board of
Directors.
o The Portfolio's securities may be traded on foreign securities markets
which generally complete trading at various times during the day prior to
the close of the New York Stock Exchange. The values of foreign securities
used in computing share price are determined at the time the foreign market
closes. Occasionally, events affecting the value of foreign securities
occur when the foreign market is closed and the New York Stock Exchange is
open. If the Manager believes the market value is materially affected, the
share price will be calculated using the policy adopted by the Fund.
o Foreign securities markets may trade on days when the New York Stock
Exchange is closed (such as customary U.S. holidays) and the Portfolio's
share price is not calculated. As a result, the value of a Portfolio's
assets may be significantly affected by such trading on days when you
cannot sell shares of the Portfolio.
DIVIDENDS AND DISTRIBUTIONS
The Portfolios pay most of their net dividend income to you every year. The
payment schedule is:
<TABLE>
<CAPTION>
Portfolios Record Date Payable Date
<S> <C> <C> <C>
International Emerging Markets, three business days before December 24
International Securities and each payable date (or previous business day)
International SmallCap
Mortgage-Backed Securities three business days before last business day of each
each payable date month
</TABLE>
Net realized capital gain for each of the Portfolios, if any, are distributed
annually, on the 24th of December (or the preceding business day if the 24th is
not a business day) to shareholders of record three business days before the
payable date. Payments are made to shareholders of record on the third business
day prior to the payable date. Capital gains may be taxable at different rates,
depending on the length of time that the Portfolio holds its assets.
You can authorize income dividend and capital gain distributions to be:
o invested in additional shares of the Portfolio you own; or
o paid in cash.
NOTE:Distributions from a Portfolio, whether received in cash or reinvested in
additional shares, may be subject to federal (and state) income tax.
You should consult your tax advisor as to the federal, state and local tax
consequences of Portfolio ownership.
OFFERING PRICE OF SHARES
Shares of the Portfolios are no longer available for purchase except to
accommodate reinvestment of distribution of dividends and/or capital gains.
TO SELL SHARES
After you place a sell order in proper form, shares are sold using the next
share price calculated. There is no charge for a sale. Generally, the sale
proceeds are sent out on the next business day after the sell order has been
placed. At your request, the check will be sent overnight (a $15 overnight fee
will be deducted from your account unless other arrangements are made). A sell
order from one owner is binding on all joint owners.
Payment for shares tendered for redemption is ordinarily made in cash. The Board
of Directors of the Fund may determine, however, that it would be detrimental to
the remaining shareholders to make payment of a redemption order wholly or
partly in cash. The Fund may, therefore, pay the redemption proceeds in whole or
in part by a distribution "in kind" of securities from the portfolio of the Fund
in lieu of cash. If the Fund pays the redemption proceeds in kind, the redeeming
shareholder might incur brokerage or other costs in selling the securities for
cash. The Fund will value securities used to pay redemptions in kind using the
same method the Fund uses to value its portfolio securities, describe above
under "Pricing of Fund Shares."
Selling shares may create a gain or a loss for federal (and state) income tax
purposes. You should maintain accurate records for use in preparing your income
tax returns.
Generally, sales proceeds checks are:
o payable to all owners on the account (as shown in the account registration)
and
o mailed to address on the account (if not changed within last month) or
previously authorized bank account.
For other payment arrangements, please call Principal Mutual Funds
(1-800-521-1502).
You should also call Principal Mutual Funds (1-800-521-1502) for special
instructions that may apply to sales from accounts:
o when an owner has died; or
o owned by corporations, partnerships, agents or fiduciaries.
Sell shares by mail
o Send a letter (signed by the owner of the account) to
Principal Mutual Funds
P. O. Box 10423
Des Moines Iowa 50306-9780
o Specify the Fund and account number.
o Specify the Portfolio(s).
o Specify the number of shares or the dollar amount to be sold.
o A signature guarantee* will be required if the:
o account address has been changed within one month of the sell order; or
o check is payable to a party other than the account shareholder(s) or
Principal Life Insurance Company.
* If required, the signature(s) must be guaranteed by a commercial
bank, trust company, credit union, savings and loan, national
securities exchange member or brokerage firm. A signature
guaranteed by a notary public or savings bank is not acceptable.
Sell shares by telephone* (1-800-521-1502)
o Address on account must not have been changed within the last month and
telephone privileges must apply to the account from which the shares are
being sold.
o If our phone lines are busy, you may need to send in a written sell order.
o To sell shares the same day, the order must be received before the close of
normal trading on the New York Stock Exchange (generally 3:00 p.m. Central
Time).
o If previously authorized, checks can be sent to a shareholder's U.S. bank
account.
* The Fund and transfer agent reserve the right to refuse telephone
orders to sell shares. The shareholder is liable for a loss resulting
from a fraudulent telephone order that the Fund reasonably believes is
genuine. The Fund will use reasonable procedures to assure instructions
are genuine. If the procedures are not followed, the Fund may be liable
for loss due to unauthorized or fraudulent transactions. The procedures
include: recording all telephone instructions, requesting personal
identification information (name, phone number, social security number,
birth date, etc.) and sending written confirmation to the address on
the account.
Periodic withdrawal plans
You may set up a periodic withdrawal plan on a monthly, quarterly, semiannual or
annual basis to:
o sell a fixed number of shares ($100 initial minimum amount), or
o sell enough shares to provide a fixed amount of money ($100 initial minimum
amount).
You can set up a periodic withdrawal plan by sending us your written
instructions (and share certificate, if any, issued for the account).
Your periodic withdrawal plan continues until:
o you instruct us to stop, or
o your Fund account balance is zero.
When you set up the withdrawal plan, you select which day you want the sale made
(if none selected, the sale will be made on the 15th of the month). If the
selected date is not a trading day, the sale will take place on the next trading
day (if that day falls in the month after your selected date, the transaction
will take place on the trading day before your selected date. If telephone
privileges apply to the account, you may change the date or amount by
telephoning us at 1-800-521-1502.
GENERAL INFORMATION ABOUT A FUND ACCOUNT
Statements
You will receive quarterly statements. The statements provide the number and
value of shares you own, transactions during the quarter, dividends declared or
paid and other information. The year end statement includes information for all
transactions that took place during the year. Please review your statement as
soon as your receive it. Keep your statements as you may need them for tax
reporting purposes.
Generally, each time you sell or exchange shares between Portfolios, you will
receive a confirmation in the mail shortly thereafter.
Certain sales are only included on your quarterly statement. These include
accounts when the only activity during the quarter is:
o purchase of shares from reinvested dividends and/or capital gains; or
o sales under a periodic withdrawal plan.
Signature Guarantees
Certain transactions require that your signature be guaranteed. If required, the
signature(s) must be guaranteed by a commercial bank, trust company, credit
union, savings and loan, national securities exchange member or brokerage firm.
A signature guaranteed by a notary public or savings bank is not acceptable.
Signature guarantees are required:
o if you sell more than $100,000 from any one Portfolio;
o if a sales proceeds check is payable to other than the account
shareholder(s), Principal Life Insurance Company or one of its affiliates;
o to change ownership of an account;
o to add telephone transaction services and/or wire privileges to an existing
account;
o to change bank account information designated under an existing telephone
withdrawal plan;
o to have a sales proceeds check mailed to an address other than the address
on the account or to the address on the account if it has been changed
within the preceding month; and
o to exchange or transfer among accounts with different ownership.
Special Plans
The Fund reserves the right to amend or terminate the special plans described in
this prospectus. Such plans include periodic withdrawal for certain purchasers.
You would be notified of any such action to the extent required by law.
Telephone Orders
The Fund reserves the right to refuse telephone instructions. You are liable for
a loss resulting from a fraudulent telephone instruction that we reasonably
believe is genuine. We will use reasonable procedures to assure instructions are
genuine. If the procedures are not followed, we may be liable for loss due to
unauthorized or fraudulent transactions. The procedures include: recording all
telephone instructions, requesting personal identification information (name,
phone number, social security number, birth date, etc.) and sending written
confirmation to the shareholder's address of record.
Financial Statements
You will receive annual financial statements for the Fund, examined by the
Fund's independent auditors, Ernst & Young LLP. That report is a part of this
prospectus. You will also receive a semiannual financial statement which is
unaudited. The following financial highlights are derived from financial
statements which were audited by Ernst & Young LLP, except for the financial
highlights for the six months ended June 30, 2000 which are unaudited.
FINANCIAL HIGHLIGHTS
Selected data for a share of Capital Stock outstanding throughout each year
ended December 31 (except as noted):
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING
MARKETS PORTFOLIO 2000* 1999 1998 1997(a)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....................... $13.23 $8.21 $10.14 $9.94
Income from Investment Operations:
Net Investment Income................................... .05 .09 .17 .01
Net Realized and Unrealized Gain (Loss) on Investments.. (.83) 5.10 (1.91) .21
Total from Investment Operations (.78) 5.19 (1.74) .22
Less Dividends and Distributions:
Dividends from Net Investment Income.................... (.08) (.09) (.17) (.02)
Excess Distributions from Net Investment Income......... -- (.08) -- --
Distributions from Capital Gains........................ -- -- (.02) --
Total Dividends and Distributions (.08) (.17) (.19) (.02)
Net Asset Value, End of Period............................. $12.37 $13.23 $8.21 $10.14
Total Return (5.91)%(b) 63.37% (17.21)% 1.40%(b)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)................ $121,821 $129,575 $79,481 $32,488
Ratio of Expenses to Average Net Assets................. 1.15%(c) 1.15% 1.15% 1.15%(c)
Ratio of Net Investment Income to Average Net Assets.... .53%(c) .94% 2.11% .91%(c)
Portfolio Turnover Rate................................. 128.3%(c) 107.5% 36.5% 12.3%(c)
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL SECURITIES PORTFOLIO 2000* 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....................... $16.64 $14.90 $14.45 $13.67 $11.70 $11.29
Income from Investment Operations:
Net Investment Income................................... .11 .40 .24 .24 .31 .19
Net Realized and Unrealized Gain on Investments......... .12 3.60 1.12 1.46 2.46 1.11
Total from Investment Operations .23 4.00 1.36 1.70 2.77 1.30
Less Dividends and Distributions:
Dividends from Net Investment Income.................... (.03) (.41) (.23) (.24) (.16) (.10)
Excess Distributions from Net Investment Income......... -- -- -- -- (.07) (.07)
Distributions from Capital Gains........................ -- (1.66) (.68) (.68) (.57) (.72)
Excess Distributions from Capital Gains................. -- (.19) -- -- -- --
Total Dividends and Distributions (.03) (2.26) (.91) (.92) (.80) (.89)
Net Asset Value, End of Period............................. $16.84 $16.64 $14.90 $14.45 $13.67 $11.70
Total Return............................................... 1.37%(b) 27.89% 9.55% 12.55% 24.12% 12.02%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)................ $57,956 $61,341 $47,912 $37,684 $28,161 $17,251
Ratio of Expenses to Average Net Assets................. .90%(c) .90% .90% .90% .90% .90%
Ratio of Net Investment Income to Average Net Assets 1.33%(c) 2.74% 1.60% 1.73% 1.90% 1.79%
Portfolio Turnover Rate................................. 102.3%(c) 71.4% 36.7% 30.8% 25.5% 46.0%
</TABLE>
* Six Months Ended June 30, 2000, unaudited
<TABLE>
<CAPTION>
INTERNATIONAL SMALLCAP PORTFOLIO 2000* 1999 1998 1997(a)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....................... $18.84 $11.06 $9.97 $9.86
Income from Investment Operations:
Net Investment Income (Operating Loss).................. .03 (.01) .07 .01
Net Realized and Unrealized Gain on Investments......... .13 9.25 1.11 .12
Total from Investment Operations .16 9.24 1.18 .13
Less Dividends and Distributions:
Dividends from Net Investment Income.................... -- -- (.07) (.02)
Distributions from Capital Gains........................ (1.88) (1.46) (.02) --
Total Dividends and Distributions (1.88) (1.46) (.09) (.02)
Net Asset Value, End of Period............................. $17.12 $18.84 $11.06 $9.97
Total Return............................................... .09%(b) 85.93% 11.92% 1.59%(b)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............... $155,077 $154,892 $83,330 $31,968
Ratio of Expenses to Average Net Assets................. 1.00%(c) 1.00% 1.00% 1.00%(c)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets................................. .34%(c) (.06)% .78% .91%(c)
Portfolio Turnover Rate................................. 370.1%(c) 236.3% 88.5% 30.3%(c)
</TABLE>
<TABLE>
MORTGAGE-BACKED SECURITIES PORTFOLIO 2000* 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....................... $9.79 $10.39 $10.27 $9.93 $10.17 $9.11
Income from Investment Operations:
Net Investment Income................................... .33 .63 .65 .64 .64 .65
Net Realized and Unrealized Gain (Loss) on Investments. .01 (.60) .12 .34 (.24) 1.06
Total from Investment Operations .34 .03 .77 .98 .40 1.71
Less Dividends from Net Investment Income ................. (.33) (.63) (.65) (.64) (.64) (.65)
Net Asset Value, End of Period............................. $9.80 $9.79 $10.39 $10.27 $9.93 $10.17
Total Return............................................... 3.51%(b) .30% 7.74% 10.18% 4.20% 19.26%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)................ $5,223 $5,045 $14,861 $13,796 $14,968 $14,253
Ratio of Expenses to Average Net Assets................. .45%(c) .45% .45% .45% .45% .45%
Ratio of Net Investment Income to Average Net Assets....... 6.81%(c) 6.24% 6.28% 6.37% 6.51% 6.66%
Portfolio Turnover Rate.................................... 20.51%(c) 17.0% 13.8% 15.5% 28.7% 41.8%
</TABLE>
* Six Months Ended June 30, 2000, unaudited
Notes to Financial Highlights
(a) Period from November 26, 1997, date shares first offered to the public,
through December 31, 1997. Net investment income, aggregating $.02 per
share for the International Emerging Markets Portfolio and $.01 per share
for the International SmallCap Portfolio for the period from the initial
purchase of shares on November 17, 1997 through November 25, 1997, was
recognized, none of which was distributed to the sole shareholder,
Principal Life Insurance Company. Additionally, the portfolios incurred
unrealized losses on investments of $.08 per share and $.15 per share
respectively, during the interim period. This represents activities of each
portfolio prior to the initial offering.
(b) Total return amounts have not been annualized.
(c) Computed on an annualized basis.
Additional information about the Fund is available in the Statement of
Additional Information dated April 3, 2000 as revised through December 6, 2000
and which is part of this prospectus. Information about the Fund's investments
is also available in the Fund's annual and semi-annual reports to shareholders.
The Statement of Additional Information and annual and semi-annual reports can
be obtained free of charge by writing or telephoning Princor Financial Services
Corporation, P.O. Box 10423, Des Moines, IA 50306. Telephone 1-800-451-5447.
Information about the Fund can be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. Information on
the operation of the public reference room may be obtained by calling the
Commission at 1-800-SEC-0330. Reports and other information about the Fund are
available on the Commission's internet site at http://www.sec.gov. Copies of
this information may be obtained, upon payment of a duplicating fee, by writing
the Public Reference Section of the Commission, Washington, D.C. 20549-6009.
The U.S. Government does not insure or guarantee an investment in the Fund.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any financial institution, nor are shares of the Fund federally insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
[/R]
Principal Investors Fund, Inc. SEC File 811-07572
>
PRINCIPAL INVESTORS FUND, INC.
(previously Principal Special Markets Fund, Inc.)
Statement of Additional Information
dated December 6, 2000
This Statement of Additional Information is not a prospectus, but contains
additional information that should be read in conjunction with the prospectuses
dated December 6, 2000 for the Fund listed above, as supplemented from time to
time. Additionally, this Statement of Additional Information incorporates, by
reference, the financial statements included in the shareholder report relating
to the Fund dated December 31, 1999. The prospectuses and financial statements,
including the independent accountants' report thereon, are available without
charge. Please call 1-800-547-7754 to request a copy of any of these documents.
The prospectus may also be viewed on our web site at www.principal.com.
TABLE OF CONTENTS
Fund History...................................................... 2
Description of the Funds' Investments and Risks................... 2
Management of the Fund............................................ 13
Control Persons and Principal Holders of Securities............... 14
Investment Advisory and Other Services............................ 16
Multiple Class Structure.......................................... 22
Brokerage Allocation and Other Practices.......................... 25
Purchase, Redemption and Pricing of Shares........................ 28
Taxation of the Fund.............................................. 30
Underwriter....................................................... 30
Calculation of Performance Data................................... 30
Financial Statements.............................................. 32
Appendix A........................................................ 32
FUND HISTORY
The Principal Investors Fund is a registered, open-end management investment
company, commonly called a mutual fund. It was organized as the Principal
Special Markets Fund, Inc. on January 28, 1993 as a Maryland corporation. The
Fund changed its name to Principal Investors Fund effective September 14, 2000.
The Fund consists of multiple investment portfolios some of which are referred
to as "Funds". Each Fund or Portfolio operates for many purposes as if it were
an independent mutual fund. Each Fund and Portfolio has its own investment
objective, strategy and management team.
The date of organization of each Portfolio is as follows:
International Emerging Markets Portfolio September 17, 1997
International Securities Portfolio January 28, 1993
International SmallCap Portfolio September 17, 1997
Mortgage-Backed Securities Portfolio January 28, 1993
The date of organization of the Funds is September 14, 2000.
The International Emerging Markets, International Securities, International
SmallCap and Mortgage-Backed Securities Portfolios offer only one share class.
Each Fund offers multiple classes of shares with different expenses. Because of
these different expenses, the investment performance of the classes will vary.
For more information, including your eligibility to purchase certain classes of
shares, call the Principal Investors Fund at 1-800-547-7754.
DESCRIPTION OF THE FUNDS' INVESTMENTS AND RISKS
Fund Policies
The investment objectives, principal investment policies and the main risks of
each Fund and Portfolio are described in the Prospectus. This Statement of
Additional Information ("SAI") contains supplemental information about those
policies and risks and the types of securities each Fund's/Portfolio's
Sub-Advisor can select. Additional information is also provided about the
strategies that the Fund/Portfolio may use to try to achieve its objective.
The composition of each Fund/Portfolio and the techniques and strategies that
the Fund's/Portfolio's Sub-Advisor may use in selecting securities will vary
over time. A Fund/Portfolio is not required to use all of the investment
techniques and strategies available to it in seeking its goals.
Unless otherwise indicated, with the exception of the percentage limitations on
borrowing, the restrictions apply at the time transactions are entered into.
Accordingly, any later increase or decrease beyond the specified limitation,
resulting from market fluctuations or in a rating by a rating service, does not
require elimination of any security from the portfolio.
Except as described below as "Fundamental Restrictions," the investment policies
described in this SAI and the prospectuses are not fundamental and may be
changed by the Board of Directors without shareholder approval. The Fundamental
Restrictions may not be changed without a vote of a majority of the outstanding
voting securities of the affected Fund/Portfolio. The Investment Company Act of
1940, as amended ("1940 Act") provides that "a vote of a majority of the
outstanding voting securities" of a Fund/Portfolio means the affirmative vote of
the lesser of (1) more than 50% of the outstanding shares, or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding
Fund/Portfolio shares are represented at the meeting in person or by proxy. Each
share has one vote, with fractional shares voting proportionately. Shares of all
classes of a Fund/Portfolio will vote together as a single class except when
otherwise required by law or as determined by the Board of Directors.
Fund Investment Limitations
Fundamental Restrictions
The following investment limitations of the Balanced, Bond & Mortgage
Securities, European, Government Securities, High Quality Intermediate-Term
Bond, High Quality Long-Term Bond, High Quality Short-Term Bond, International
I, International II, International Emerging Markets, International SmallCap,
LargeCap Blend, LargeCap Growth, LargeCap S&P 500 Index, LargeCap Value, MidCap
Blend, MidCap Growth, MidCap S&P 400 Index, MidCap Value, Money Market, Pacific
Basin, Partners LargeCap Blend, Partners LargeCap Growth I, Partners LargeCap
Growth II, Partners LargeCap Value, Partners MidCap Growth, Partners MidCap
Value, Partners SmallCap Growth I, Partners SmallCap Growth II, Real Estate,
SmallCap Blend, SmallCap Growth, SmallCap Value, SmallCap S&P 600 Index and
Technology Funds are the fundamental investment limitations. Each Fund may not:
(1) Issue any senior securities as defined in the 1940 Act. Purchasing and
selling securities and futures contracts and options thereon and borrowing
money in accordance with restrictions described below do not involve the
issuance of a senior security.
(2) Invest in physical commodities or commodity contracts (other than foreign
currencies), but it may purchase and sell financial futures contracts,
options on such contracts, swaps and securities backed by physical
commodities.
(3) Invest in real estate, although it may invest in securities that are
secured by real estate and securities of issuers that invest or deal in
real estate.
(4) Borrow money, except that it may (a) borrow from banks (as defined in the
1940 Act, as amended) or other financial institutions or through reverse
repurchase agreements in amounts up to 33 1/3% of its total assets
(including the amount borrowed); (b) to the extent permitted by applicable
law, borrow up to an additional 5% of its total assets for temporary
purposes; (c) obtain short-term credits as may be necessary for the
clearance of purchases and sales of portfolio securities; and (d) purchase
securities on margin to the extent permitted by applicable law (the deposit
or payment of margin in connection with transactions in options and
financial futures contracts is not considered purchase of securities on
margin).
(5) Make loans, except that the Fund may (a) purchase and hold debt obligations
in accordance with its investment objectives and policies; (b) enter into
repurchase agreements; and (c) lend its portfolio securities without
limitation against collateral (consisting of cash or liquid assets) equal
at all times to not less than 100% of the value of the securities loaned.
This limit does not apply to purchases of debt securities or commercial
paper.
(6) Invest more than 5% of its total assets in the securities of any one issuer
(other than obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities) or purchase more than 10%
of the outstanding voting securities of any one issuer, except that this
limitation shall apply only with respect to 75% of the total assets of the
Fund.
(7) Act as an underwriter of securities, except to the extent that the Fund may
be deemed to be an underwriter in connection with the sale of securities
held in its portfolio.
(8) Concentrate its investments in any particular industry, except that the
Fund may invest up to 25% of the value of its total assets in a single
industry, provided that, when the Fund has adopted a temporary defensive
posture, there shall be no limitation on the purchase of obligations issued
or guaranteed by the United States Government or its agencies or
instrumentalities. This restriction applies to the LargeCap S&P 500 Index,
MidCap S&P 400 Index and SmallCap S&P 600 Index Funds except to the extent
that the related Index also is so concentrated. This restriction does not
apply to the Real Estate or Technology Funds.
(9) Sell securities short (except where the Fund holds or has the right to
obtain at no added cost a long position in the securities sold that equals
or exceeds the securities sold short).
Non-Fundamental Restrictions
The following investment limitations for the Balanced, Bond & Mortgage
Securities, European, Government Securities, High Quality Intermediate-Term
Bond, High Quality Long-Term Bond, High Quality Short-Term Bond, International
I, International II, International Emerging Markets, International SmallCap,
LargeCap Blend, LargeCap Growth, LargeCap S&P 500 Index, LargeCap Value, MidCap
Blend, MidCap Growth, MidCap S&P 400 Index, MidCap Value, Money Market, Pacific
Basin, Partners LargeCap Blend, Partners LargeCap Growth I, Partners LargeCap
Growth II, Partners LargeCap Value, Partners MidCap Growth, Partners MidCap
Value, Partners SmallCap Growth Fund I, Partners SmallCap Growth Fund II, Real
Estate, SmallCap Blend, SmallCap Growth, SmallCap Value, SmallCap S&P 600 Index
and Technology Funds are not fundamental and may be changed, by the Board of
Directors, without shareholder approval. Each Fund may not:
(1) Invest more than 15% of its net assets in illiquid securities and in
repurchase agreements maturing in more than seven days except to the extent
permitted by applicable law.
(2) Pledge, mortgage or hypothecate its assets, except to secure permitted
borrowings. The deposit of underlying securities and other assets in escrow
and other collateral arrangements in connection with transactions in put or
call options, futures contracts and options on futures contracts are not
deemed to be pledges or other encumbrances.
(3) Invest in companies for the purpose of exercising control or management.
(4) Invest more than 25% of its assets in foreign securities, except that the
European, International I, International II, International Emerging
Markets, International SmallCap, Pacific Basin and Technology Funds each
may invest up to 100% of its assets in foreign securities, the LargeCap S&P
500 Index, MidCap S&P 400 Index and SmallCap S&P 600 Index Funds each may
invest in foreign securities to the extent that the relevant index is so
invested, and Government Securities may not invest in foreign securities.
(5) Enter into (a) any futures contracts and related options for non-bona fide
hedging purposes within the meaning of Commodity Futures Trading Commission
(CFTC) regulations if the aggregate initial margin and premiums required to
establish such positions will exceed 5% of the fair market value of the
Fund's net assets, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into; and (b) any
futures contracts if the aggregate amount of such Fund's commitments under
outstanding futures contracts positions would exceed the market value of
its total assets. This restriction does not apply to the Partners LargeCap
Blend and Partners SmallCap Growth II Funds.
(6) Invest more than 5% of its total assets in real estate limited partnership
interests or real estate investment trusts. This restriction does not apply
to the Partners LargeCap Blend, Partners SmallCap Growth II, Real Estate,
SmallCap Blend and SmallCap Value Funds.
(7) Acquire securities of other investment companies, except as permitted by
the 1940 Act, or any rule, order or interpretation thereunder, or in
connection with a merger, consolidation, reorganization, acquisition of
assets or an offer of exchange. The Fund may purchase securities of
closed-end investment companies in the open market where no underwriter or
dealer's commission or profit, other than a customary broker's commission,
is involved.
Portfolio Investment Limitations
Fundamental Restrictions
The following investment limitations of the International Emerging Markets,
International Securities, International SmallCap and Mortgage-Backed Securities
Portfolios are the fundamental investment limitations. Each Portfolio will not
(unless specifically excepted):
(1) With respect to 75% of its total assets, purchase the securities of any
issuer if the purchase would cause more than 5% of the total assets of the
Portfolio to be invested in the securities of any one issuer (other than
securities issued or guaranteed by the United States Government or its
agencies or instrumentalities) or cause more than 10% of the outstanding
voting securities of any one issuer to be held by the Portfolio.
(2) Borrow money, except (a) for temporary or emergency purposes in an amount
not to exceed 5% of the value of the Portfolio's total assets at the time
of the borrowing and (b) for any purpose from banks in an amount not to
exceed one-third of the Portfolio's total assets (including the amount
borrowed) less all liabilities and indebtedness other than borrowings
deemed to be senior securities.
(3) Issue any senior securities as defined in the 1940 Act. For purposes of
this restriction, purchasing and selling securities, currency and futures
contracts and options and borrowing money in accordance with restrictions
described herein do not involve the issuance of a senior security.
(4) Act as an underwriter of securities, except to the extent the Portfolio may
be deemed to be an underwriter in connection with the sale of securities
held in its portfolio.
(5) Concentrate its investments in any particular industry or industries,
except that the Portfolio may invest not more than 25% of the value of its
total assets in a single industry. For purposes of this restriction,
foreign government and supranational issuers are not considered members of
any industry.
(6) Invest in real estate, although it may invest in securities that are
secured by real estate and securities of issuers that invest or deal in
real estate.
(7) Invest in commodities or commodity contracts, but it may purchase and sell
currency and financial futures contracts and options on such contracts.
(8) Make loans, except that the Portfolio may (i) purchase and hold debt
obligations in accordance with its investment objectives and policies, (ii)
enter into repurchase agreements, and (iii) lend its portfolio securities
but not in excess of 33% of the value of its total assets. The deposit of
underlying securities and other assets in escrow and other collateral
arrangements in connection with options, currency and futures transactions
are not deemed to be the making of loans.
Non-Fundamental Restrictions
Each Portfolio will not (unless specifically excepted):
(1) Invest more than 15% of its total assets in securities not readily
marketable and in repurchase agreements maturing in more than seven days.
The value of any options purchased in the over-the-counter market are
included as part of this 15% limitation.
(2) Sell securities short (except where the Portfolio holds or has the right to
obtain at no added cost a long position in the securities sold that equals
or exceeds the securities sold short) or purchase any securities on margin,
except it may obtain such short-term credits as are necessary for the
clearance of transactions. The deposit or payment of margin in connection
with options, currency and futures transactions is not considered the
purchase of securities on margin.
(3) Invest in companies for the purpose of exercising control or management.
(4) Purchase puts, calls, straddles, spreads, or any combination thereof, if by
reason thereof the value of its aggregate investment in such classes of
securities will exceed 5% of its total assets. Options will be used solely
for hedging purposes, not for speculation.
(5) Invest more than 5% of its assets in initial margin and premiums on futures
contracts and options on such contracts.
(6 Acquire securities of other investment companies, except as permitted by
the 1940 Act, or any rule, order or interpretation thereunder, or in
connection with a merger, consolidation, reorganization, acquisition of
assets or an offer of exchange. The Portfolio may purchase securities of
closed-end investment companies in the open market where no underwriter or
dealer's commission or profit, other than a customary broker's commission,
is involved.
(7) Pledge, mortgage or hypothecate its assets, except to secure permitted
borrowings. The deposit of underlying securities and other assets in escrow
and other collateral arrangements in connection with options, currency and
futures transactions are not deemed to be pledges or other encumbrances.
(8) Purchase warrants in excess of 5% of its total assets, of which 2% may be
invested in warrants that are not listed on the New York, American or
Toronto Stock Exchanges or the Chicago Board Options Exchange. This
restriction does not apply to warrants included in units or attached to
other securities.
(9) Invest in interests in oil, gas or other mineral exploration or development
programs, although the Portfolio may invest in securities of issuers that
invest in or sponsor such programs.
(10) Purchase securities of any issuer having less than three years' continuous
operation (including operations of any predecessors) if such purchase would
cause the value of the Portfolio's investments in all such issuers to
exceed 5% of the value of its total assets (this restriction does not apply
to the Mortgage-Backed Securities Portfolio).
(11) Purchase or retain in its portfolio the securities of any issuer if those
officers or directors of the Fund or its Manager owning beneficially more
than one-half of 1% (0.5%) of the securities of the issuer together own
beneficially more than 5% of such securities.
(12) Invest in arbitrage transactions.
(13) Invest in mineral leases.
(14) Invest in real estate limited partnership interests.
(15) Invest more than 25% of the value of its total assets (i) in the securities
issued by a single foreign government; or (ii) in securities issued by
supranational issuers.
The Manager will waive its management fee on Portfolio assets invested in
securities of other open-end investment companies and will generally invest only
in those open-end investment companies that have investment policies requiring
investment in securities comparable to those in which the Portfolio invests.
Security Selection
The Sub-Advisor for the Partners MidCap Growth Fund, Turner Investment Partners,
Inc. ("Turner"), selects securities it believes to have strong earnings growth
potential. Turner seeks to purchase securities that are well diversified across
economic sectors and to maintain sector concentrations that approximate the
economic sector weightings comprising the Russell Midcap Growth Index (or such
other appropriate index selected by Turner). Any remaining assets may be
invested in securities issued by smaller capitalization companies and larger
capitalization companies, warrants and rights to purchase common stocks, and it
may invest up to 10% of its total assets in ADRs. Turner will only purchase
securities that are traded on registered exchanges or the over-the-counter
market in the U.S.
The Sub-Advisor for the LargeCap S&P 500 Index, MidCap S&P 400 Index and
SmallCap S&P 600 Index Funds, Invista Capital Management, LLC ("Invista"),
allocates Fund assets in approximately the same weight as the relevant index.
Invista may exclude or remove a stock from the Fund if extraordinary events or
financial conditions lead it to believe that such stock should not be part of
the Fund's assets. Fund assets may be invested in futures and options.
The Sub-Advisor for the European, International II, Pacific Basin and Technology
Funds, BT Funds Management (International) Limited ("BT"), uses a disciplined
active investment process. The cornerstone of this process is the belief that
investment markets are not always efficient and that investment outperformance
can be achieved with superior research and analysis. BT's proprietary research
process allows fund managers and analysts to identify quality investment
opportunities before they are widely recognized by the market, investments that
will potentially add value to portfolios, creating wealth for clients. It is a
global approach, developed over time to recognize the international
interdependence of markets.
Morgan Stanley Asset Management ("Morgan Stanley"), the Sub-Advisor for the
Partners LargeCap Growth Fund I follows a flexible investment program in looking
for companies with above average capital appreciation potential. The Sub-Advisor
focuses on companies with consistent or rising earnings growth records and
compelling business strategies. The Sub-Advisor continually and rigorously
studies company developments, including business strategy, management focus and
financial results, to identify companies with earnings growth and business
momentum. In addition, the Sub-Advisor closely monitors analysts' expectations
to identify issuers that have the potential for positive earnings surprises
versus consensus expectations. In its selection of securities for the Partners
LargeCap Growth Fund I, Morgan Stanley considers valuation to be of secondary
importance and viewed in the context of prospects for sustainable earnings
growth and the potential for positive earnings surprises in relation to
consensus expectations.
Neuberger Berman Management Inc. ("Neuberger Berman"), the Sub-Advisor for the
Partners MidCap Value Fund and the Partners SmallCap Growth Fund I, selects
equity securities using the same three basic steps but may utilize these same
steps in reverse order.
Selection of equity securities for the other Funds are made based upon an
approach described broadly as "company-by-company" fundamental analysis. The
steps involved in this analysis are:
o continuing study of basic economic factors in an effort to conclude what
the future general economic climate is likely to be over the next one to
two years;
o given some conviction as to the likely economic climate, the Sub-Advisor
attempts to identify the prospects for the major industrial, commercial and
financial segments of the economy. By looking at such factors as demand for
products, capacity to produce, operating costs, pricing structure,
marketing techniques, adequacy of raw materials and components, domestic
and foreign competition, and research productivity, the Sub-Advisor
evaluates the prospects for each industry for the near and intermediate
term; and
o determinations are made regarding earnings prospects for individual
companies within each industry by considering the same types of factors
described above. These earnings prospects are evaluated in relation to the
current price of the securities of each company.
The Investment Strategies and Risks
Restricted Securities
Generally, restricted securities are not readily marketable because they are
subject to legal or contractual restrictions upon resale. They are sold only in
a public offering with an effective registration statement or in a transaction
that is exempt from the registration requirements of the Securities Act of 1933.
When registration is required, a Fund/Portfolio may be obligated to pay all or
part of the registration expenses and a considerable period may elapse between
the time of the decision to sell and the time the Fund/Portfolio may be
permitted to sell a security. If, during such a period, adverse market
conditions were to develop, the Fund/Portfolio might obtain a less favorable
price than existed when it decided to sell. Restricted securities and other
securities not readily marketable are priced at fair value as determined in good
faith by, or under the direction, of the Board of Directors.
Each of the Funds/Portfolios has adopted an investment restriction that limits
its investment in illiquid securities to 15% of its net assets. The Board of
Directors has adopted procedures to determine the liquidity of Rule 4(2)
short-term paper and of restricted securities under Rule 144A. Securities
determined to be liquid under these procedures are excluded from this limit.
Foreign Securities
Foreign companies may not be subject to the same uniform accounting, auditing
and financial reporting practices as are required of U.S. companies. In
addition, there may be less publicly available information about a foreign
company than about a U.S. company. Securities of many foreign companies are less
liquid and more volatile than securities of comparable U.S. companies.
Commissions on foreign securities exchanges may be generally higher than those
on U.S. exchanges, although each Fund/Portfolio seeks the most favorable net
results on its portfolio transactions.
Foreign markets also have different clearance and settlement procedures than
those in U.S. markets. In certain markets there have been times when settlements
have been unable to keep pace with the volume of securities transactions, making
it difficult to conduct these transactions. Delays in settlement could result in
temporary periods when a portion of Fund/Portfolio assets is not invested and is
earning no return. If a Fund/Portfolio is unable to make intended security
purchases due to settlement problems, the Fund/Portfolio may miss attractive
investment opportunities. In addition, a Fund/Portfolio may incur a loss as a
result of a decline in the value of its portfolio if it is unable to sell a
security.
With respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments that could affect a Fund's/Portfolio's investments in
those countries. In addition, a Fund/Portfolio may also suffer losses due to
nationalization, expropriation or differing accounting practices and treatments.
Investments in foreign securities are subject to laws of the foreign country
that may limit the amount and types of foreign investments. Changes of
governments or of economic or monetary policies, in the U.S. or abroad, changes
in dealings between nations, currency convertibility or exchange rates could
result in investment losses for a Fund/Portfolio. Finally, even though certain
currencies may be convertible into U.S. dollars, the conversion rates may be
artificial relative to the actual market values and may be unfavorable to
investors.
Foreign securities are often traded with less frequency and volume, and
therefore may have greater price volatility, than is the case with many U.S.
securities. Brokerage commissions, custodial services, and other costs relating
to investment in foreign countries are generally more expensive than in the U.S.
Though the Funds/Portfolios intend to acquire the securities of foreign issuers
where there are public trading markets, economic or political turmoil in a
country in which a Fund/Portfolio has a significant portion of its assets or
deterioration of the relationship between the U.S. and a foreign country may
negatively impact the liquidity of a Fund's/Portfolio's securities holdings. The
Fund/Portfolio may have difficulty meeting a large number of redemption
requests. Furthermore, there may be difficulties in obtaining or enforcing
judgments against foreign issuers.
Investments in companies of developing countries may be subject to higher risks
than investments in companies in more developed countries. These risks include:
o increased social, political and economic instability;
o a smaller market for these securities and low or nonexistent volume of
trading that results in a lack of liquidity and in greater price
volatility;
o lack of publicly available information, including reports of payments of
dividends or interest on outstanding securities;
o foreign government policies that may restrict opportunities, including
restrictions on investment in issuers or industries deemed sensitive to
national interests;
o relatively new capital market structure or market-oriented economy;
o the possibility that recent favorable economic developments may be slowed
or reversed by unanticipated political or social events in these countries;
o restrictions that may make it difficult or impossible for the
Fund/Portfolio to vote proxies, exercise shareholder rights, pursue legal
remedies, and obtain judgments in foreign courts; and
o possible losses through the holding of securities in domestic and foreign
custodial banks and depositories.
In addition, many developing countries have experienced substantial, and in some
periods, extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of those countries.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. A Fund/Portfolio could be adversely affected by delays in,
or a refusal to grant, any required governmental registration or approval for
repatriation.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade.
Depositary Receipts
Depositary Receipts are generally subject to the same sort of risks as direct
investments in a foreign country, such as, currency risk, political and economic
risk, and market risk, because their values depend on the performance of a
foreign security denominated in its home currency. For purposes of a
Fund's/Portfolio's investment policies, investments in Depositary Receipts will
be considered to be investments in the underlying securities.
The Funds that may invest in foreign securities may invest in:
o American Depositary Receipts ("ADRs") - receipts issued by an American bank
or trust company evidencing ownership of underlying securities issued by a
foreign issuer. They are designed for use in U.S. securities markets.
o European Depositary Receipts ("EDRs") and Global Depositary Receipts
("GDRs") - receipts typically issued by a foreign financial institution to
evidence an arrangement similar to that of ADRs.
Depositary Receipts may be issued by sponsored or unsponsored programs. In
sponsored programs, an issuer has made arrangements to have its securities
traded in the form of Depositary Receipts. In unsponsored programs, the issuer
may not be directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, in some cases it may be easier to obtain financial information from an
issuer that has participated in the creation of a sponsored program.
Accordingly, there may be less information available regarding issuers of
securities of underlying unsponsored programs, and there may not be a
correlation between the availability of such information and the market value of
the Depositary Receipts.
Short-term investments
Each Fund/Portfolio may hold short-term investments consisting of foreign and
domestic:
o short-term obligations of sovereign governments, their agencies and
instrumentalities, or political subdivisions;
o other short-term debt securities;
o commercial paper;
o bank obligations, certificates of deposit, time deposits and bankers'
acceptances; and
o repurchase agreements.
Securities of Small Companies
The Funds/Portfolios may invest in securities of companies with small or medium
market capitalizations. Market capitalization is defined as total current market
value of a company's outstanding common stock. Investment in a company with a
smaller market capitalization may involve greater risks and price volatility
(wide, rapid fluctuations) than investment in a larger, more mature company.
Smaller companies may be less mature than older companies. At this earlier stage
of development, the companies may have limited product lines, reduced market
liquidity for their shares, limited financial resources or less depth in
management than larger or more established companies. Smaller companies also may
be less significant factors within their industries and may be at a competitive
disadvantage relative to their larger competitors. Small company stocks may, to
a degree, fluctuate independently of large company stocks. Small company stocks
may decline in price as large company stocks rise, or rise in price while large
company stocks decline. Investors should, therefore, expect the net asset value
of a Fund/Portfolio that invests a substantial portion of its net assets in
small company stocks may be more volatile than the shares of a Fund/Portfolio
that invests solely in large company stocks.
Unseasoned Issuers
Each of the Funds/Portfolios may invest in the securities of unseasoned issuers.
Unseasoned issuers are companies with a record of less than three years
continuous operations, including the operations of predecessors and parents.
Unseasoned issuers, by their nature, have only a limited operating history that
can be used for evaluating the company's growth prospects. As a result,
investment decisions for these securities may place a greater emphasis on
current or planned product lines and the reputation and experience of the
company's management and less emphasis on fundamental valuation factors than
would be the case for more mature growth companies. In addition, many unseasoned
issuers may also be small companies. Their securities may be subject to the
risks and price volatility associated with securities of smaller companies.
While smaller companies may be subject to these additional risks, they may also
realize more substantial growth than larger or more established companies.
High-Yield/High-Risk Bonds
The Balanced and Bond & Mortgage Securities Funds may invest up to 5% of its
assets in bonds that are rated below investment grade (e.g., bonds rated BB or
lower by Standard & Poor's Ratings Services or Ba or lower by Moody's Investors
Service, Inc.). Lower rated bonds involve a higher degree of credit risk, which
is the risk that the issuer will not make interest or principal payments when
due. In the event of an unanticipated default, a Fund would experience a
reduction in its income and could expect a decline in the market value of the
bonds so affected. The Balanced, Bond & Mortgage Securities, Government
Securities, High Quality Intermediate-Term Bond, High Quality Long-Term Bond and
High Quality Short-Term Bond Funds may also invest in unrated bonds of foreign
and domestic issuers. Unrated bonds, while not necessarily of lower quality than
rated bonds, may not have as broad a market. Because of the size and perceived
demand of the issue, among other factors, certain municipalities may not incur
the expense of obtaining a rating. The Sub-Advisor will analyze the
creditworthiness of the issuer, as well as any financial institution or other
party responsible for payments on the bond, in determining whether to purchase
unrated bonds. Unrated bonds will be included in the 35% limit of each Fund
unless the Sub-Advisor deems such securities to be the equivalent of investment
grade bonds.
Mortgage- and Asset-Backed Securities
The yield characteristics of the mortgage- and asset-backed securities in which
the Bond & Mortgage Securities, Government Securities, High Quality
Intermediate-Term Bond and High Quality Long-Term Bond Funds and the
Mortgage-Backed Securities Portfolio may invest differ from those of traditional
debt securities. Among the major differences are that the interest and principal
payments are made more frequently on mortgage- and asset-backed securities
(usually monthly) and that principal may be prepaid at any time because the
underlying mortgage loans or other assets generally may be prepaid at any time.
As a result, if the Fund/Portfolio purchases those securities at a premium, a
prepayment rate that is faster than expected will reduce their yield, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield. If the Fund/Portfolio purchases these securities at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce their yield. Amounts available for reinvestment
by the Fund/Portfolio are likely to be greater during a period of declining
interest rates and, as a result, are likely to be reinvested at lower interest
rates than during a period of rising interest rates.
In general, the prepayment rate for mortgage-backed securities decreases as
interest rates rise and increases as interest rates fall. However, rising
interest rates will tend to decrease the value of these securities. In addition,
an increase in interest rates may affect the volatility of these securities by
effectively changing a security that was considered a short-term security at the
time of purchase into a long-term security. Long-term securities generally
fluctuate more widely in response to changes in interest rates than short- or
medium-term securities.
The market for privately issued mortgage- and asset-backed securities is smaller
and less liquid than the market for U.S. government mortgage-backed securities.
A collateralized mortgage obligation ("CMO") may be structured in a manner that
provides a wide variety of investment characteristics (yield, effective maturity
and interest rate sensitivity). As market conditions change, and especially
during periods of rapid market interest rate changes, the ability of a CMO to
provide the anticipated investment characteristics may be greatly diminished.
Increased market volatility and/or reduced liquidity may result.
Zero-coupon securities
The Funds/Portfolios may invest in zero-coupon securities. Zero-coupon
securities are "stripped" U.S. Treasury notes and bonds. They usually trade at a
substantial discount from their face (par) value. Zero-coupon securities are
subject to greater market value fluctuations in response to changing interest
rates than debt obligations of comparable maturities that make distributions of
interest in cash.
Derivatives
The Funds/Portfolios may invest in various instruments commonly known as
"derivatives." Generally a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset or market
index. Some derivatives, such as mortgage-related or other asset-backed
securities, are in many respects like any other investment. However, they may be
more volatile or less liquid than more traditional debt securities.
There are many different types of derivatives and many different ways to use
them. There is a range of risks associated with those uses. Futures contracts
and options are commonly used for traditional hedging purposes to attempt to
protect an investor from exposure to changes in interest rates, securities
prices or currency exchange rates. They may also be used for cash management
purposes as a low cost method of gaining exposure to a particular securities
market without investing directly in those securities. However, some derivatives
are used for leverage which tends to magnify the effect of an instrument's price
changes as market conditions change. Leverage involves the use of a small amount
of money to control a large amount of financial assets. It can, in some
circumstances, lead to significant losses. The Sub-Advisor uses derivatives only
in circumstances in which it believes they offer the most economic means of
improving the risk/reward profile level of the Fund/Portfolio. Derivatives will
not be used to increase portfolio risk above the level that could be achieved
using only traditional investment securities or to acquire exposure to changes
in the value of assets or indices that by themselves would not be purchased for
the Fund/Portfolio. The use of derivatives for non-hedging purposes may be
considered speculative.
Securities Lending
The Funds/Portfolios may lend their portfolio securities. None of the
Funds/Portfolios will lend its portfolio securities if as a result the aggregate
of such loans made by the Fund/Portfolio would exceed the limits established by
the 1940 Act. Fund/Portfolio securities may be lent to unaffiliated
broker-dealers and other unaffiliated qualified financial institutions provided
that such loans are callable at any time on not more than five business days'
notice and that cash or liquid assets equal to at least 100% of the market value
of the securities loaned, determined daily, is deposited by the borrower with
the Fund/Portfolio and is maintained each business day. While such securities
are on loan, the borrower pays the Fund/Portfolio any income accruing thereon.
The Fund/Portfolio may invest any cash collateral thereby earning additional
income, and may receive an agreed-upon fee from the borrower. Borrowed
securities must be returned when the loan terminates. Any gain or loss in the
market value of the borrowed securities that occurs during the term of the loan
belongs to the Fund/Portfolio and its shareholders. A Fund/Portfolio pays
reasonable administrative, custodial and other fees in connection with such
loans and may pay a negotiated portion of the interest earned on the cash or
government securities pledged as collateral to the borrower or placing broker. A
Fund/Portfolio does not normally retain voting rights attendant to securities it
has lent, but may call a loan of securities in anticipation of an important
vote.
Short Sales
Each Fund/Portfolio may engage in "short sales against the box." This technique
involves selling either a security owned by the Fund/Portfolio, or a security
equivalent in kind and amount to the security sold short that the Fund/Portfolio
has the right to obtain, for delivery at a specified date in the future. A
Fund/Portfolio may enter into a short sale against the box to hedge against
anticipated declines in the market price of portfolio securities. If the value
of the securities sold short increases prior to the scheduled delivery date, a
Fund/Portfolio loses the opportunity to participate in the gain.
Repurchase and Reverse Repurchase Agreements
The Funds/Portfolios may invest in repurchase and reverse repurchase agreements.
In a repurchase agreement, a Fund/Portfolio purchases a security and
simultaneously commits to resell that security to the seller at an agreed upon
price on an agreed upon date within a number of days (usually not more than
seven) from the date of purchase. The resale price consists of the purchase
price plus an amount that is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the seller
to pay the agreed upon price, which obligation is in effect secured by the value
(at least equal to the amount of the agreed upon resale price and
marked-to-market daily) of the underlying security or "collateral." A risk
associated with repurchase agreements is the failure of the seller to repurchase
the securities as agreed, which may cause a Fund/Portfolio to suffer a loss if
the market value of such securities declines before they can be liquidated on
the open market. In the event of bankruptcy or insolvency of the seller, a
Fund/Portfolio may encounter delays and incur costs in liquidating the
underlying security. Repurchase agreements that mature in more than seven days
are subject to the 15% limit on illiquid investments. While it is not possible
to eliminate all risks from these transactions, it is the policy of the
Funds/Portfolios to limit repurchase agreements to those parties whose
creditworthiness has been reviewed and found satisfactory by the Sub-Advisor.
A Fund/Portfolio may use reverse repurchase agreements to obtain cash to satisfy
unusually heavy redemption requests or for other temporary or emergency purposes
without the necessity of selling portfolio securities, or to earn additional
income on portfolio securities, such as Treasury bills or notes. In a reverse
repurchase agreement, a Fund/Portfolio sells a portfolio security to another
party, such as a bank or broker-dealer, in return for cash and agrees to
repurchase the instrument at a particular price and time. While a reverse
repurchase agreement is outstanding, a Fund/Portfolio will maintain cash and
appropriate liquid assets in a custodial account to cover its obligation under
the agreement. The Funds/Portfolios will enter into reverse repurchase
agreements only with parties that the Sub-Advisor deems creditworthy. Using
reverse repurchase agreements to earn additional income involves the risk that
the interest earned on the invested proceeds is less than the expense of the
reverse repurchase agreement transaction. This technique may also have a
leveraging effect on the Fund/Portfolio, although the Fund's/Portfolio's intent
to segregate assets in the amount of the reverse repurchase agreement minimizes
this effect.
When-Issued Securities and Forward Commitments
Each Fund/Portfolio may purchase when-issued securities and enter into forward
commitments. These transactions involve a commitment by a Fund/Portfolio to
purchase or sell securities at a future date. The price of the underlying
securities (usually expressed in terms of yield) and the date when the
securities will be delivered and paid for (the settlement date) are fixed at the
time the transaction is negotiated. When-issued purchases and forward commitment
transactions are negotiated directly with the other party, and such commitments
are not traded on exchanges. A Fund/Portfolio will purchase securities on a
when-issued basis or purchase or sell securities on a forward commitment basis
only with the intention of completing the transaction and actually purchasing or
selling the securities. If deemed advisable as a matter of investment strategy,
however, a Fund/Portfolio may dispose of or negotiate a commitment after
entering into it. A Fund/Portfolio may realize a capital gain or loss in
connection with these transactions. For purposes of determining a
Fund's/Portfolio's duration, the maturity of when-issued or forward commitment
securities will be calculated from the commitment date. A Fund/Portfolio is
required to segregate, until three days prior to the settlement date, cash and
liquid assets in an amount sufficient to meet the purchase price. Alternatively,
a Fund/Portfolio may enter into offsetting contracts for the forward sale of
other securities that it owns. Securities purchased or sold on a when-issued or
forward commitment basis involve a risk of loss if the value of the security to
be purchased declines prior to the settlement date or if the value of the
security to be sold increases prior to the settlement date.
Temporary Defensive Position
The Money Market Fund invests all of its available assets in money market
instruments maturing in 397 days or less. In addition, each Fund/Portfolio may
make money market investments (cash equivalents), without limit, pending other
investment or settlement, for liquidity or in adverse market conditions. For
this purpose, money market instruments include:
(1) U.S. Government Securities - Securities issued or guaranteed by the U.S.
Government, including treasury bills, notes and bonds.
(2) U.S. Government Agency Securities - Obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government.
o U.S. agency obligations include, but are not limited to, the Bank for
Co-operatives, Federal Home Loan Banks and Federal Intermediate Credit
Banks.
o U.S. instrumentality obligations include, but are not limited to, the
Export-Import Bank, Farmers Home Administration, Federal Home Loan
Mortgage Corporation and Federal National Mortgage Association.
Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury. Others, such as those issued by the Federal National Mortgage
Association, are supported by discretionary authority of the U.S.
Government to purchase certain obligations of the agency or
instrumentality. Still others, such as those issued by the Student Loan
Marketing Association, are supported only by the credit of the agency or
instrumentality.
(3) bank obligations - Certificates of deposit, bank notes, time deposits and
bankers' acceptances of U.S. commercial banks having total assets of at
least one billion dollars and overseas branches of U.S. commercial banks
and foreign banks, which in the Sub-Advisor's opinion, are of comparable
quality. However, each such bank with its branches has total assets of at
least five billion dollars, and certificates, including time deposits of
domestic savings and loan associations having at least one billion dollars
in assets that are insured by the Federal Savings and Loan Insurance
Corporation. A Fund/Portfolio may acquire obligations of U.S. banks that
are not members of the Federal Reserve System or of the Federal Deposit
Insurance Corporation.
Obligations of foreign banks and obligations of overseas branches of U.S.
banks are subject to somewhat different regulations and risks than those of
U.S. domestic banks. For example, an issuing bank may be able to maintain
that the liability for an investment is solely that of the overseas branch
which could expose a Fund/Portfolio to a greater risk of loss. In addition,
obligations of foreign banks or of overseas branches of U.S. banks may be
affected by governmental action in the country of domicile of the branch or
parent bank. Examples of adverse foreign governmental actions include the
imposition of currency controls, the imposition of withholding taxes on
interest income payable on such obligations, interest limitations, seizure
or nationalization of assets, or the declaration of a moratorium. Deposits
in foreign banks or foreign branches of U.S. banks are not covered by the
Federal Deposit Insurance Corporation. A Fund/Portfolio only buys
short-term instruments where the risks of adverse governmental action are
believed by the Sub-Advisor to be minimal. A Fund/Portfolio considers these
factors, along with other appropriate factors, in making an investment
decision to acquire such obligations. It only acquires those which, in the
opinion of management, are of an investment quality comparable to other
debt securities bought by the Fund/Portfolio. A Fund/Portfolio may invest
in certificates of deposit of selected banks having less than one billion
dollars of assets providing the certificates do not exceed the level of
insurance (currently $100,000) provided by the applicable government
agency.
A certificate of deposit is issued against funds deposited in a bank or
savings and loan association for a definite period of time, at a specified
rate of return. Normally they are negotiable. However, a Fund/Portfolio
occasionally may invest in certificates of deposit which are not
negotiable. Such certificates may provide for interest penalties in the
event of withdrawal prior to their maturity. A bankers' acceptance is a
short-term credit instrument issued by corporations to finance the import,
export, transfer or storage of goods. They are termed "accepted" when a
bank guarantees their payment at maturity and reflect the obligation of
both the bank and drawer to pay the face amount of the instrument at
maturity.
(4) commercial paper - Short-term promissory notes issued by U.S. or foreign
corporations.
(5) short-term corporate debt - Corporate notes, bonds and debentures which at
the time of purchase have 397 days or less remaining to maturity.
(6) repurchase agreements - Instruments under which securities are purchased
from a bank or securities dealer with an agreement by the seller to
repurchase the securities at the same price plus interest at a specified
rate.
(7) taxable municipal obligations - Short-term obligations issued or guaranteed
by state and municipal issuers which generate taxable income.
The ratings of nationally recognized statistical rating organization (NRSRO),
such as Moody's Investor Services, Inc. ("Moody's") and Standard & Poor's
("S&P"), which are described in Appendix A, represent their opinions as to the
quality of the money market instruments which they undertake to rate. It should
be emphasized, however, that ratings are general and are not absolute standards
of quality. These ratings, including ratings of NRSROs other than Moody's and
S&P, are the initial criteria for selection of portfolio investments, but the
Sub-Advisor further evaluates these securities.
Portfolio Turnover
Portfolio turnover normally differs for each Fund/Portfolio, varies from year to
year (as well as within a year) and is affected by portfolio sales necessary to
meet cash requirements for redemption of Fund/Portfolio shares. This requirement
may in some cases limit the ability of a Fund/Portfolio to effect certain
portfolio transactions. A portfolio turnover rate of 100% indicates that the
equivalent of all of the Fund's/Portfolio's assets have been sold and reinvested
in a year. High turnover may result in correspondingly greater brokerage
commission expenses that are paid by the Fund/Portfolio.
A portfolio turnover rate can not be calculated for the Money Market Fund
because of the short maturities of the securities in which it invests.
Turnover rates are not calculated for the Funds that have been in existence for
less than a complete fiscal year. Turnover rates for the Portfolios for the most
recent and immediately preceding fiscal years, respectively, are as follows:
International Emerging Markets Portfolio 107.5% and 36.5%
International Securities Portfolio 71.4% and 36.7%
International SmallCap Portfolio 236.3% and 88.5%
Mortgage-Backed Securities Portfolio 17.0% and 13.8%
Industry Concentrations
Each of the Funds/Portfolios, except Real Estate and Technology, may not
concentrate (invest more than 25% of its assets) its investments in any
particular industry. The LargeCap S&P 500 Index, MidCap S&P 400 Index and
SmallCap S&P 600 Index Funds may concentrate their investments in a particular
industry only to the extent that the relevant indices are so concentrated. The
European, International II and Pacific Basin Funds use the industry groups of
Morgan Stanley Capital International - Global Industry Classification Standard.
The other Funds and the Portfolios use industry classifications based on the
"Directory of Companies Filing Annual Reports with the Securities and Exchange
Commission ("SEC")."
MANAGEMENT OF THE FUND
Board of Directors
The Board of Directors oversees the management of the Fund and meets at least
quarterly to review reports about Fund operations. Other than serving as
Directors, most of the Board members have no affiliation with the Fund or
service providers. The Board elects the officers of the Fund who are responsible
for administering the Fund's day-to-day operations.
Management Information
The name, age and address of the officers and Board members are shown below. All
Directors and Officers listed here also hold similar positions with each of the
other mutual funds sponsored by Principal Life Insurance Company. Unless an
address is shown, the individual's mailing address is the Principal Financial
Group, Des Moines, Iowa 50392.
James D. Davis, 66, Director. 4940 Center Court, Bettendorf, Iowa.
Attorney. Vice President, Deere and Company, Retired.
*& Ralph C. Eucher, 48, Director and President. Vice President, Principal Life
Insurance Company since 1999. Director and President, Princor Financial
Services Corporation and Principal Management Corporation since 1999. Prior
thereto, Second Vice President, Principal Life Insurance Company.
@ Pamela A. Ferguson, 57, Director. 4112 River Oaks Drive, Des Moines, Iowa.
Professor of Mathematics, Grinnell College since 1998. Prior thereto,
President, Grinnell College.
*& J. Barry Griswell, 51, Director and Chairman of the Board. President and
CEO, Principal Life Insurance Company since 2000; President, 1998-2000;
Executive Vice President, 1996-1998; prior thereto, Senior Vice President.
Director and Chairman of the Board, Principal Management Corporation and
Princor Financial Services Corporation.
@& Barbara A. Lukavsky, 60, Director. 13731 Bay Hill Court, Clive, Iowa.
President and CEO, Barbican Enterprises, Inc. since 1997. President and
CEO, Lu San ELITE USA, L.C. 1985-1998.
* Craig L. Bassett, 48, Treasurer. Second Vice President and Treasurer,
Principal Life Insurance Company since 1998. Director - Treasury 1996-1998.
Prior thereto, Associate Treasurer.
* Ronald L. Danilson, 50, Executive Vice President. Executive Vice President
and Chief Operating Officer, Princor Financial Services Corporation and
Principal Management Corporation since 2000. Prior thereto, Chief Executive
Officer and President, Delaware Charter Guarantee & Trust Company.
* Arthur S. Filean, 62, Senior Vice President and Secretary. Senior Vice
President, Princor Financial Services Corporation and Principal Management
Corporation, since 2000. Prior thereto, Vice President, Princor Financial
Services Corporation. Vice President, Principal Management Corporation,
1996-2000.
* Ernest H. Gillum, 45, Vice President and Assistant Secretary. Vice
President - Product Development, Princor Financial Services Corporation and
Principal Management Corporation, since 2000. Vice President - Compliance
and Product Development, Princor Financial Services Corporation and
Principal Management Corporation, 1998-2000. Prior thereto, Assistant Vice
President, Registered Products, 1995-1998.
* Jane E. Karli, 43, Assistant Treasurer. Assistant Treasurer, Principal Life
Insurance Company since 1998; Senior Accounting and Custody Administrator
1994-1998; Prior thereto, Senior Investment Cost Accountant.
* Layne A. Rasmussen, 42, Controller. Controller - Mutual Funds, Principal
Management Corporation since 1995.
* Michael D. Roughton, 49, Counsel. Vice President and Senior Securities
Counsel, Principal Life Insurance Company, since 1999. Counsel 1994-1999.
Counsel, Invista Capital Management, LLC, Princor Financial Services
Corporation and Principal Management Corporation.
* Jean B. Schustek, 48, Assistant Vice President and Assistant Secretary.
Assistant Vice President - Registered Products, Principal Management
Corporation since 2000. Prior thereto, Compliance Officer - Registered
Products.
* Kirk L. Tibbetts, 45, Senior Vice President and Chief Financial Officer.
Senior Vice President and Chief Financial Officer, Princor Financial
Services Corporation and Principal Management Corporation since 2000.
Partner, KPMG LLP, Des Moines, Iowa 1989-1999.
* Traci L. Weldon, 35, Assistant Counsel. Counsel, Principal Life Insurance
Company since 1999. Assistant Counsel 1998-1999. Assistant State Attorney
General, Iowa Attorney General's Office.
* Considered to be "Interested Persons," as defined in the 1940 Act, because
of current or former affiliation with the Manager or Principal Life.
@ Member of Audit and Nominating Committee
& Member of Executive Committee (which is selected by the Board and which may
exercise all the powers of the Board, with certain exceptions, when the
Board is not in session. The Committee must report its actions to the
Board.)
Compensation of Directors
The Directors also serve as Directors for all of the investment companies
sponsored by Principal Life Insurance Company. Each director who is not an
"interested person" as defined in the 1940 Act receives compensation for service
as a member of the Board of all such companies based on a schedule that takes
into account an annual retainer amount, the number of meetings attended and the
assets of the funds for which the meetings are held. These fees and expenses are
divided among the investment companies based upon their relative net assets.
COMPENSATION TABLE*
fiscal year ended December 31, 1999
Compensation
Director Compensation from the Fund from Fund Complex
James D. Davis $2,400 $55,050
Pamela A. Ferguson $2,400 $50,850
Richard W. Gilbert N/A $50,100
William C. Kimball N/A $19,500
Barbara A. Lukavsky $2,400 $50,250
* The Fund does not provide retirement benefits for any of the directors.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Control Persons, Principal Holders and Management Ownership
As of November 21, 2000, Principal Life Insurance Company, a life insurance
company organized in 1879 under the laws of Iowa, its subsidiaries and
affiliates owned of record and beneficially the following percentage of the
outstanding shares of each Portfolio:
Portfolio % of Outstanding Shares
International Emerging Markets Portfolio 84.4%
International Securities Portfolio 47.7%
International SmallCap Portfolio 100.0%
Mortgage-Backed Securities Portfolio 100.0%
As of November 21, 2000, the Officers and Directors as a group owned less than
1% of the outstanding shares of any Portfolio.
As of November 21, 2000, the following shareholders owned 5% or more of the
outstanding shares of any Portfolio:
<TABLE>
<CAPTION>
Name Address Percentage of Ownership
<S> <C> <C>
International Emerging Markets Portfolio
ConAgra Master Pension Trust 1 Enterprise Drive 15.5%
Quincy, MA 02171-2126
International Securities Portfolio
Centurion Life Insurance Company 206 8th Street 18.4%
Des Moines, IA 50309-3805
Norwest Financial Pension Trust 206 8th Street 8.1%
Des Moines, IA 50309-3805
Pigeon & Co. P.O. Box 2479 14.0%
San Antonio, TX 78298-2479
</TABLE>
As of December 4, 2000, Principal Life Insurance Company, its subsidiaries and
affiliates owned of record and beneficially the following percentage of the
outstanding shares of each Class of each Fund:
<TABLE>
<CAPTION>
% of Outstanding Shares
Advisors Advisors Preferred Select
Fund Preferred Class Select Class Class I Class Class
<S> <C> <C> <C> <C> <C> <C>
Balanced 100.00% 100.00% N/A 100.00% 100.00%
Bond & Mortgage Securities 100.00% 100.00% N/A 100.00% 100.00%
European 100.00% 100.00% N/A 100.00% 100.00%
Government Securities 100.00% 100.00% N/A 100.00% 100.00%
High Quality Intermediate-Term Bond 100.00% 100.00% N/A 100.00% 100.00%
High Quality Long-Term Bond 100.00% 100.00% N/A 100.00% 100.00%
High Quality Short-Term Bond 100.00% 100.00% N/A 100.00% 100.00%
International Emerging Markets 100.00% 100.00% N/A 100.00% 100.00%
International I 100.00% 100.00% N/A 100.00% 100.00%
International II 100.00% 100.00% 100.00% 100.00% 100.00%
International SmallCap 100.00% 100.00% N/A 100.00% 100.00%
LargeCap Blend 100.00% 100.00% N/A 100.00% 100.00%
LargeCap Growth 100.00% 100.00% N/A 100.00% 100.00%
LargeCap S&P 500 Index 100.00% 100.00% N/A 100.00% 100.00%
LargeCap Value 100.00% 100.00% N/A 100.00% 100.00%
MidCap Blend 100.00% 100.00% N/A 100.00% 100.00%
MidCap Growth 100.00% 100.00% N/A 100.00% 100.00%
MidCap S&P 400 Index 100.00% 100.00% N/A 100.00% 100.00%
MidCap Value 100.00% 100.00% N/A 100.00% 100.00%
Money Market 100.00% 100.00% N/A 100.00% 100.00%
Pacific Basin 100.00% 100.00% N/A 100.00% 100.00%
Partners LargeCap Blend 100.00% 100.00% 100.00% 100.00% 100.00%
Partners LargeCap Growth I 100.00% 100.00% 100.00% 100.00% 100.00%
Partners LargeCap Growth II 100.00% 100.00% 100.00% 100.00% 100.00%
Partners LargeCap Value 100.00% 100.00% 100.00% 100.00% 100.00%
Partners MidCap Growth 100.00% 100.00% N/A 100.00% 100.00%
Partners MidCap Value 100.00% 100.00% 100.00% 100.00% 100.00%
Partners SmallCap Growth I 100.00% 100.00% 100.00% 100.00% 100.00%
Partners SmallCap Growth II 100.00% 100.00% 100.00% 100.00% 100.00%
Real Estate 100.00% 100.00% N/A 100.00% 100.00%
SmallCap Blend 100.00% 100.00% N/A 100.00% 100.00%
SmallCap Growth 100.00% 100.00% N/A 100.00% 100.00%
SmallCap S&P 600 Index 100.00% 100.00% N/A 100.00% 100.00%
SmallCap Value 100.00% 100.00% N/A 100.00% 100.00%
Technology 100.00% 100.00% 100.00% 100.00% 100.00%
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Advisors
The Manager of each Fund/Portfolio is Principal Management Corporation (the
"Manager"), a wholly-owned subsidiary of Princor Financial Services Corporation
("Princor") which is a wholly-owned subsidiary of Principal Financial Services,
Inc. The Manager is an affiliate of Principal Life Insurance Company. The
address of both the Manager and Princor is the Principal Financial Group, Des
Moines, Iowa 50392-0200. The Manager was organized on January 10, 1969 and since
that time has managed various mutual funds sponsored by Principal Life Insurance
Company.
The Manager has executed agreements with various Sub-Advisors. Under those
Sub-Advisory agreements, the Sub-Advisor agrees to assume the obligations of the
Manager to provide investment advisory services for a specific Fund/Portfolio.
For these services, each Sub-Advisor is paid a fee by the Manager.
Portfolios: International, International Emerging Markets and
International SmallCap
Funds: Balanced (equity securities portion), International I,
International Emerging Markets, International SmallCap,
LargeCap Blend, LargeCap Growth, LargeCap S&P 500 Index,
LargeCap Value, MidCap Blend, MidCap Growth, MidCap S&P 400
Index, MidCap Value, SmallCap Blend, SmallCap Growth and
SmallCap S&P 600
Sub-Advisor: Invista Capital Management LLC ("Invista"), an indirect
wholly-owned subsidiary of Principal Life Insurance Company
and an affiliate of the Manager, was founded in 1985 and
manages investments for institutional investors, including
Principal Life Insurance Company. Assets under management at
September 30, 2000, were approximately $29.7 billion.
Invista's address is 1800 Hub Tower, 699 Walnut, Des Moines,
Iowa 50309.
Portfolio: Mortgage-Backed Securities
Funds: Balanced (fixed-income securities portion), Bond & Mortgage
Securities, Government Securities, High Quality
Intermediate-Term Bond, High Quality Long-Term Bond, High
Quality Short-Term Bond and Money Market
Sub-Advisor: Principal Capital Income Investors, LLC ("PCII"), an indirect
wholly-owned subsidiary of Principal Life Insurance Company
and an affiliate of the Manager, was founded in 2000. It
manages investments for institutional investors, including
Principal Life Insurance Company. Assets under management as
of September 30, 2000, were approximately $31.1 billion.
PCII's address is 1800 Hub Tower, 699 Walnut, Des Moines, Iowa
50309.
Fund: Real Estate
Sub-Advisor: Principal Capital Real Estate Investors ("PCREI"), an indirect
wholly-owned subsidiary of Principal Life Insurance Company
and an affiliate of the Manager, was founded in 2000. It
manages investments for institutional investors, including
Principal Life Insurance Company. Assets under management as
of September 30, 2000, were approximately $20.7 billion.
PCREI's address is 1800 Hub Tower, 699 Walnut, Des Moines,
Iowa 50309.
Funds: European, International II, Pacific Basin, and Technology
Sub-Advisor: BT Fund Management (International) Limited ("BT") is a related
company of BT Funds Management Limited ("BTFM") and a member
of the Principal Financial Group. Its address is The Chifley
Tower, 2 Chifley Square, Sydney NSW 2000 Australia. As of
October 31, 2000, BT, together with BTFM, had approximately
$23.8 billion under management.
Fund: Partners MidCap Growth
Sub-Advisor: Turner Investment Partners, Inc. ("Turner") was founded in
1990. Its address is 1235 Westlake Drive, Suite 350, Berwyn PA
19312. As of October 31, 2000, Turner had discretionary
management authority with respect to approximately $11.7
billion in assets.
Fund: Partners LargeCap Growth I
Sub-Advisor: Morgan Stanley Asset Management ("Morgan Stanley"), with
principal offices at 1221 Avenue of the Americas, New York, NY
10020, conducts a wordwide portfolio management business and
provides a broad range of portfolio management services to
customers in the U.S. and abroad. As of September 30, 2000,
Morgan Stanley, together with its affiliated institutional
asset management companies, managed assets totaling
approximately $176.8 billion as named fiduciary or fiduciary
adviser. On December 1, 1998, Morgan Stanley Asset Management
Inc. changed its name to Morgan Stanley Dean Witter Investment
Management Inc. but continues to do business in certain
instances using the name Morgan Stanley Asset Management.
Funds: Partners MidCap Value and Partners SmallCap Growth I
Sub-Advisor: Neuberger Berman Management Inc. ("Neuberger Berman") is an
affiliate of Neuberger Berman, LLC. Neuberger Berman LLC is
located at 605 Third Avenue, 2nd Floor, New York, NY
10158-0180. Together with Neuberger Berman, the firms manage
more than $56.5 billion in total assets (as of September 30,
2000) and continue an asset management history that began in
1939.
Funds: Partners LargeCap Blend and Partners SmallCap Growth II
Sub-Advisor: Federated Investment Management Company ("Federated") is a
registered investment advisor and a wholly-owned subsidiary of
Federated Investors, Inc., which was founded in 1955.
Federated is located in the Federated Investors Tower at 1001
Liberty Avenue, Pittsburgh, PA 15222-3779. As of October 31,
2000, Federated managed $131 billion in assets.
Fund: Partners LargeCap Growth II
Sub-Advisor American Century Investment Management Inc. ("American
Century"), was founded in 1958. Its office is located in the
American Century Tower at 4500 Main Street, Kansas City, KS
64111. As of October 31, 2000, American Century managed over
$109.7 billion in assets.
Fund: Partners LargeCap Value
Sub-Advisor: Alliance Capital Management L.P. ("Alliance") through its
Bernstein Investment Research and Management unit
("Bernstein"). As of September 30, 2000, Alliance managed $470
billion in assets. Bernstein is located at 767 Fifth Avenue,
New York, NY 10153 and Alliance is located at 1345 Avenue of
the Americas, New York, NY 10105.
The Manager has executed a Cash Management Sub-Advisory Agreement with PCII.
Under the Agreement, PCII agrees to assume the obligations of the Manager to
provide cash management investment advisory services for all Funds for which
Invista or PCREI serves as Sub-Advisor.
Each of the persons affiliated with the Fund who is also an affiliated person of
the Manager or a Sub-Advisor is named below, together with the capacities in
which such person is affiliated with the Fund, the Manager and the Sub-Advisor.
<TABLE>
<CAPTION>
Office Held Office Held With
Name With the Fund The Manager/Invista
<S> <C> <C> <C>
Craig L. Bassett Treasurer Treasurer (Manager)
Ralph C. Eucher Director and Director and President
President (Manager)
Arthur S. Filean Senior Vice President and Senior Vice President (Manager)
Secretary
Ernest H. Gillum Vice President and Vice President - Product
Assistant Secretary Development (Manager)
J. Barry Griswell Director and Chairman Director and Chairman of
of the Board the Board (Manager)
Layne Rasmussen Controller Controller - Mutual Funds (Manager)
Michael D. Roughton Counsel Counsel (Manager; Invista)
Jean B. Schustek Assistant Vice President and Assistant Vice President -
Assistant Secretary Registered Products (Manager)
</TABLE>
Codes of Ethics
The Fund, the Manager, each of the Sub-Advisors and Princor (as principal
underwriter of the Fund) have adopted Codes of Ethics ("Codes") under Rule 17j-1
of the 1940 Act. These Codes are designed to prevent persons with access to
information regarding the portfolio trading activity of the Funds/Portfolios
from using that information for their personal benefit. In certain
circumstances, personal securities trading is permitted in accordance with
procedures established by the Code. The Boards of Directors of the Manager, the
Fund, Princor and each of the Sub-Advisors periodically review their respective
Code of Ethics. The Codes of Ethics are on file with, and available from, the
SEC.
Management Services for the Portfolios
Management Agreement for the Portfolios
Under the terms of the Management Agreement, for providing investment advisory
services and specified other services for each Portfolio, the Manager is
entitled to receive a fee which is computed and accrued daily and payable
monthly. The annual rate of the fee is based on the net asset value of each
Portfolio as follows:
Net Asset Value of Portfolio
First Next Over
Portfolio $250,000,000 $250,000,000 $500,000,000
International Emerging Markets 1.15% 1.05% 0.95%
International SmallCap 1.00 0.90 0.80
Overall Fee
International Securities 0.90%
Mortgage-Backed Securities 0.45%
As of December 31, 1999, the net assets of the Portfolios and the rate of the
fee for those Portfolios for investment management services for the fiscal year
then ended were as follows:
Management Fee for
Net Assets as of Fiscal Year Ended
Portfolio December 31, 1999 December 31, 1999
International Emerging Markets $129,574,687 1.15%
International Securities 61,340,966 .90%
International SmallCap 154,892,162 1.00%
Mortgage-Backed Securities 5,044,844 .45%
Except for certain Portfolio expenses set out below, the Manager is responsible
for Portfolio expenses, administrative duties and services including the
following: expenses incurred in connection with the registration of the
Portfolio shares with the SEC and state securities commissions; office space,
facilities and costs of keeping the books of the Fund; compensation of personnel
and officers and any directors who are also affiliated with the Manager; fees
for auditors and legal counsel; preparing and printing prospectuses;
administration of shareholder accounts, including issuance, maintenance of open
account system, dividend disbursement, reports to shareholders, and redemption.
However, some or all of these expenses may be assumed by Principal Life
Insurance Company and some or all of the administrative duties and services may
be delegated by the Manager.
Each Portfolio pays for certain corporate expenses incurred in its operation.
Among such expenses, the Portfolio pays portfolio brokerage fees and incidental
brokerage expenses, taxes, interest and extraordinary expenses including
shareholder meeting expenses.
Sub-Advisory Agreements for the Portfolios
Under a Sub-Advisory Agreement between the Manager and Invista, Invista performs
all the investment advisory responsibilities of the Manager under the Management
Agreement for the International, International Emerging Markets and
International SmallCap Portfolios. The Manager pays Invista a fee based on the
net asset value of the each Portfolio at an annual rate that is accrued daily
and payable monthly.
First Next Over
Portfolio $250,000,000 $250,000,000 $500,000,000
International Emerging Markets 1.15% 1.05% 0.95%
International SmallCap 1.00 0.90 0.80
Overall Fee
International Securities 0.90%
Under a Sub-Advisory Agreement between the Manager and PCII, PCII performs all
the investment advisory responsibilities of the Manager under the Management
Agreement for the Mortgage-Backed Securities Portfolio. The Manager pays PCII a
fee at an annual rate of 0.45% of the net asset value of the Portfolio, accrued
daily and payable monthly.
Fees paid for investment management services during the periods indicated were
as follows:
Management Fees for Fiscal
Year Ended December 31, except as noted
Portfolio 1999 1998 1997
International Emerging Markets $1,092,430 $856,612 $ 43,775*
International Securities 463,180 413,285 311,027
International SmallCap 1,045,204 731,367 37,932*
Mortgage-Backed Securities 43,225 64,195 67,721
* Period beginning November 26, 1997 and ended December 31, 1997
Management Services for the Funds
Management Agreement for the Funds
Under the terms of the Management Agreement, for providing investment advisory
services and specified other services, the Manager is entitled to receive a fee
which is computed and accrued daily and payable monthly. The annual rate of the
fee is based on the net asset value of each Fund as follows:
<TABLE>
<CAPTION>
Management Fee Management Fee
as a Percentage of as a Percentage of
Fund Daily Average Net Assets Fund Daily Average Net Assets
<S> <C> <C> <C> <C>
Balanced 0.50% MidCap Value 0.65%
Bond & Mortgage Securities 0.55% Money Market 0.40%
European 1.00% Pacific Basin 1.00%
Government Securities 0.40% Partners LargeCap Blend 0.75%
High Quality Intermediate-Term Bond 0.40% Partners LargeCap Growth I 0.75%
High Quality Long-Term Bond 0.40% Partners LargeCap Growth II 1.00%
High Quality Short-Term Bond 0.40% Partners LargeCap Value 0.80%
International I 0.90% Partners MidCap Growth 1.00%
International II 1.00% Partners MidCap Value 1.00%
International Emerging Markets 1.35% Partners SmallCap Growth I 1.10%
International SmallCap 1.20% Partners SmallCap Growth II 1.00%
LargeCap Blend 0.45% Real Estate 0.85%
LargeCap Growth 0.55% SmallCap Blend 0.75%
LargeCap S&P 500 Index 0.15% SmallCap Growth 0.75%
LargeCap Value 0.45% SmallCap S&P 600 Index 0.15%
MidCap Blend 0.65% SmallCap Value 0.75%
MidCap Growth 0.65% Technology 1.00%
MidCap S&P 400 Index 0.15%
</TABLE>
Under the terms of the Management Agreement, the Manager is responsible for
paying the expenses associated with the organization of each Fund, including the
expenses incurred in the initial registration of the Funds with the SEC;
compensation of personnel, officers and directors who are also affiliated with
the Manager; and expenses and compensation associated with furnishing office
space, and all necessary office facilities and equipment, and personnel
necessary to perform the general corporate functions of the Fund. The Manager is
also responsible for providing portfolio accounting services and transfer agent
services, including qualifying shares of the Fund for sale in states and other
jurisdictions, for each Fund pursuant to additional agreements with the Fund and
currently provides these services at no charge.
Sub-Advisory Agreements for the Funds
Under a Sub-Advisory Agreement between the Manager and Invista, Invista performs
all the investment advisory responsibilities of the Manager under the Management
Agreement for the Balanced (equity securities portion), International I,
International Emerging Markets, International SmallCap, LargeCap Blend, LargeCap
Growth, LargeCap S&P 500 Index, LargeCap Value, MidCap Blend, MidCap Growth,
MidCap S&P 400 Index, MidCap Value, SmallCap Blend, SmallCap Growth and SmallCap
S&P 600 Index Funds. The Manager pays Invista a fee at an annual rate that is
accrued daily and payable monthly based on the net asset values of each Fund as
follows:
Sub-Advisor Fee
as a Percentage of
Fund Daily Net Assets
Balanced 0.0700%
International I 0.1100%
International Emerging Markets 0.6300%
International SmallCap 0.6100%
LargeCap Blend 0.0700%
LargeCap Growth 0.0700%
LargeCap S&P 500 Index 0.0275%
LargeCap Value 0.0700%
MidCap Blend 0.0950%
MidCap Growth 0.0950%
MidCap S&P 400 Index 0.0275%
MidCap Value 0.0950%
SmallCap Blend 0.2370%
SmallCap Growth 0.2370%
SmallCap S&P 600 Index 0.0275%
SmallCap Value 0.2370%
Under a Sub-Advisory Agreement between the Manager and PCII, PCII performs all
the investment advisory responsibilities of the Manager under the Management
Agreement for the Balanced (fixed-income securities portion), Bond & Mortgage
Securities, Government Securities, High Quality Intermediate-Term Bond, High
Quality Long-Term Bond, High Quality Short-Term Bond and Money Market Funds. The
Manager pays PCII a fee at an annual rate that is accrued daily and payable
monthly based on the net asset values of each Fund as follows:
Sub-Advisor Fee
as a Percentage of
Fund Daily Net Assets
Balanced 0.0860%
Bond & Mortgage Securities 0.1060%
Government Securities 0.0600%
High Quality Intermediate-Term Bond 0.0600%
High Quality Long-Term Bond 0.0600%
High Quality Short-Term Bond 0.0550%
Money Market 0.0550%
Under a Sub-Advisory Agreement between the Manager and PCREI, PCREI performs all
the investment advisory responsibilities of the Manager under the Management
Agreement for the Real Estate Fund. The Manager pays PCREI a fee, accrued daily
and payable monthly, based on the net asset value of the Fund at an annual rate
of 0.50%.
Under a Sub-Advisory Agreement between the Manager and BT, BT performs all the
investment advisory responsibilities of the Manager under the Management
Agreement for the European, International II, Pacific Basin and Technology
Funds. The Manager pays BT a fee at an annual rate that is accrued daily and
payable monthly based on the net asset value of each Fund as follows:
Sub-Advisor Fee
Fund as a Percentage of Daily Net Assets
European, International II and First $250,000,000 0.500%
Technology Next 250,000,000 0.475
Next 250,000,000 0.450
Next 250,000,000 0.425
Above $1,000,000,000 0.400
Sub-Advisor Fee
Fund as a Percentage of Daily Net Assets
Pacific Basin First $250,000,000 0.600%
Next 250,000,000 0.575
Next 250,000,000 0.550
Next 250,000,000 0.525
Above $1,000,000,000 0.500
Under a Sub-Advisory Agreement between the Manager and American Century,
American Century performs all the investment advisory responsibilities of the
Manager under the Management Agreement for the Partners LargeCap Growth Fund II.
The Manager pays American Century a fee at an annual rate that is accrued daily
and payable monthly based on the net asset value of the Fund.
Sub-Advisor Fee
Fund as a Percentage of Daily Net Assets
Partners LargeCap Growth II First $50,000,000 0.550%
Next 50,000,000 0.450
Next 150,000,000 0.400
Next 250,000,000 0.375
Above $500,000,000 0.320
Under a Sub-Advisory Agreement between the Manager and Federated, Federated
performs all the investment advisory responsibilities of the Manager under the
Management Agreement for the Partners LargeCap Blend Fund and the Partners
SmallCap Growth Fund II. The Manager pays Federated a fee at an annual rate that
is accrued daily and payable monthly based on the net asset value of each Fund
as follows:
Sub-Advisor Fee
Fund as a Percentage of Daily Net Assets
Partners LargeCap Blend First $75,000,000 0.350%
Next 200,000,000 0.250
Next 250,000,000 0.200
Above $525,000,000 0.150
Partners SmallCap Growth II First $100,000,000 0.500%
Next 300,000,000 0.450
Above $400,000,000 0.400
Under a Sub-Advisory Agreement between the Manager and Morgan Stanley, Morgan
Stanley performs all the investment advisory responsibilities of the Manager
under the Management Agreement for the Partners LargeCap Growth Fund I. The
Manager pays Morgan Stanley a fee at an annual rate that is accrued daily and
payable monthly based on the net asset value of the Fund.
Sub-Advisor Fee
Fund as a Percentage of Daily Net Assets
Partners LargeCap Growth I First $200,000,000 0.300%
Next 100,000,000 0.250
Above $300,000,000 0.200
Under a Sub-Advisory Agreement between the Manager and Neuberger Berman,
Neuberger Berman performs all the investment advisory responsibilities of the
Manager under the Management Agreement for the Partners MidCap Value Fund and
the Partners SmallCap Growth Fund I. The Manager pays Neuberger Berman a fee at
an annual rate that is accrued daily and payable monthly based on the net asset
value of each Fund.
Sub-Advisor Fee
Fund as a Percentage of Daily Net Assets
Partners MidCap Value First $100,000,000 0.500%
Next 150,000,000 0.475
Next 250,000,000 0.450
Next 250,000,000 0.425
Above $750,000,000 0.400
Partners SmallCap Growth I First $100,000,000 0.600%
Next 200,000,000 0.550
Above $300,000,000 0.450
Under a Sub-Advisory Agreement between the Manager and Bernstein, Bernstein
performs all the investment advisory responsibilities of the Manager under the
Management Agreement for the Partners LargeCap Value Fund. During the period
from December 6, 2000 (effective date of the Fund) through June 6, 2001,
Bernstein will be paid a fee accrued daily and payable monthly at an annual rate
of 0.47% of the Fund's net asset value. After that the Manager will pay
Bernstein a fee at an annual rate that is accrued daily and payable monthly
based on the net asset value of the Fund as follows:
Sub-Advisor Fee
Fund as a Percentage of Daily Net Assets
Partners LargeCap Value First $10,000,000 0.600%
Next 15,000,000 0.500
Next 25,000,000 0.400
Next 50,000,000 0.300
Next 50,000,000 0.250
Next 50,000,000 0.225
Above $200,000,000 0.200
Under a Sub-Advisory Agreement between the Manager and Turner, Turner performs
all the investment advisory responsibilities of the Manager under the Management
Agreement for the Partners MidCap Growth Fund. The Manager pays Turner a fee
accrued daily and payable monthly at an annual rate of 0.50% of the Fund's net
asset value.
Cash Management Sub-Advisory Agreement for the Funds
The Manager is entered into a Cash Management Sub-Advisory Agreement with PCII
pursuant to which PCII agrees to perform all of the Cash Management investment
advisory responsibilities of the Manager for each Fund that is sub-advised by
either Invista or PCREI. The Manager pays PCII an amount representing PCII's
actual cost providing such services and assuming such operations.
MULTIPLE CLASS STRUCTURE
The Board of Directors has adopted a multiple class plan (the Multiple Class
Plan) pursuant to SEC Rule 18f-3. Under this plan, each Fund offers up to five
classes of shares: Class I, Select Class, Preferred Class, Advisors Select Class
and Advisors Preferred Class. Not all Funds offer all five classes. The
Portfolios offer only Class D shares which are not available to new investors.
The Advisors Select, Advisors Preferred, I, Select and Preferred Classes are
available without any front-end sales charge or contingent deferred sales
charge. The Advisors Select and Advisors Preferred are subject to an asset based
sales charge (described below).
Currently, all of each Fund's operating expenses are absorbed by the Manager.
The Manager receives a fee for providing investment advisory and certain
corporate administrative services under the terms of the Management Agreement.
In addition to the management fee, the Fund's share classes, other than Class I
shares, pay the Manager a service fee and an administrative services fee under
the terms of a Service Agreement and an Administrative Services Agreement.
Service Agreement
The Service Agreement provides for the Manager to provide certain personal
services to shareholders (plan sponsors) and beneficial owners (plan members) of
those classes. These personal services include:
o responding to plan sponsor and plan member inquiries;
o providing information regarding plan sponsor and plan member investments;
and
o providing other similar personal services or services related to the
maintenance of shareholder accounts as contemplated by National Association
of Securities Dealers (NASD) Rule 2830 (or any successor thereto).
As compensation for these services, the Fund will pay the Manager service fees
equal to 0.17% of the average daily net assets attributable to each of the
Advisors Preferred Class and Preferred Class shares and 0.25% of the average
daily net assets attributable to each of the Advisors Select Class and Select
Class shares. The service fees are calculated and accrued daily and paid monthly
to the Manager (or at such other intervals as the Fund and Manager may agree).
Administrative Service Agreement
The Administrative Service Agreement provides for the Manager to provide
services to beneficial owners of fund shares. Such services include:
o receiving, aggregating and processing purchase, exchange and redemption
requests from plan shareholders;
o providing plan shareholders with a service that invests the assets of their
accounts in shares pursuant to pre-authorized instructions submitted by
plan members;
o processing dividend payments from the Funds on behalf of plan shareholders
and changing shareholder account designations;
o acting as shareholder of record and nominee for plans;
o maintaining account records for shareholders and/or other beneficial
owners;
o providing notification to plan shareholders of transactions affecting their
accounts;
o forwarding prospectuses, financial reports, tax information and other
communications from the Fund to beneficial owners;
o distributing, receiving, tabulating and transmitting proxy ballots of plan
shareholders; and
o other similar administrative services.
As compensation for these services, the Fund will pay the Manager service fees
equal to 0.09% of the average daily net assets attributable to each of the
Advisors Preferred Class and Preferred Class shares and 0.13% of the average
daily net assets attributable to each of the Advisors Select Class and Select
Class shares. The service fees are calculated and accrued daily and paid monthly
to the Manager (or at such other intervals as the Fund and Manager may agree).
The Manager may, at its discretion appoint (and may at any time remove), other
parties, including companies affiliated with the Manager, as its agent to carry
out the provisions of the Service Agreement and/or the Administrative Service
Agreement. However, the appointment of an agent shall not relieve the Manager of
any of its responsibilities or liabilities under those Agreements. Any fees paid
to agents under these Agreements shall be the sole responsibility of the
Manager.
In addition to the management and service fees, the Advisors Classes of shares
are subject to a Distribution Plan and Agreement (described below) sometimes
referred to as a Rule 12b-1 Plan. Rule 12b-1 permits a fund to pay expenses
associated with the distribution of its shares in accordance with a plan adopted
by the Board of Directors and approved by its shareholders. Pursuant to such
rule, the Board of Directors and initial shareholder of the Funds' Advisors
Classes have approved and entered into a Distribution Plan and Agreement for
each Advisors share class.
In adopting the Plans, the Board of Directors [including a majority of directors
who are not interested persons of the Fund (as defined in the 1940 Act),
hereafter referred to as the independent directors] determined that there was a
reasonable likelihood that the Plan would benefit the Funds and the shareholders
of the affected classes. Pursuant to Rule 12b-1, information about revenues and
expenses under the Plans is presented to the Board of Directors each quarter for
its consideration in continuing the Plans. Continuance of the Plans must be
approved by the Board of Directors, including a majority of the independent
directors, annually. The Plans may be amended by a vote of the Board of
Directors, including a majority of the independent directors, except that the
Plans may not be amended to materially increase the amount spent for
distribution without majority approval of the shareholders of the affected
class. The Plans terminate automatically in the event of an assignment and may
be terminated upon a vote of a majority of the independent directors or by vote
of a majority of the outstanding voting securities of the affected class.
Distribution Plan and Agreement
As described in the Prospectuses, the Funds' Advisors Classes of shares are made
available to employer-sponsored retirement or savings plans purchasing through
financial intermediaries such as banks and broker-dealers. The Funds'
Distributor enters into selling agreements with various banks, broker-dealers
and other financial intermediaries, with respect to the sale of the Advisors
Classes of shares.
To make the shares available through such banks, broker-dealers and financial
intermediaries, and to compensate them for these services, the Board of
Directors has adopted a Distribution Plan and Agreement for each of the Advisors
share classes. The Plans provide that each Fund makes payments from assets of
each Advisors Class to Princor pursuant to the Plan to compensate Princor and
other selling dealers for providing certain services to the Fund. Such services
may include:
o formulation and implementation of marketing and promotional activities;
o preparation, printing and distribution of sales literature;
o preparation, printing and distribution of prospectuses and the Fund reports
to other than existing shareholders;
o obtaining such information with respect to marketing and promotional
activities as the Princor deems advisable;
o making payments to dealers and others engaged in the sale of shares or who
engage in shareholder support services; and
o providing training, marketing and support with respect to the sale of
Shares.
The Fund pays Princor a fee after the end of each month at an annual rate of
0.31% of the daily net asset value of the Advisors Preferred shares and 0.37% of
the daily net asset value of the Advisors Select shares of each Fund. Princor
may remit on a continuous basis all of these sums to its registered
representatives and other selected dealers as a trail fee in recognition of
their services and assistance.
Currently, Princor makes quarterly payments to dealers on accounts for which
such dealer is designated dealer of record. Payments are based on the average
net asset value of the employer sponsored plans invested in either the Advisors
Preferred or Advisors Select Class of shares. No dealer reallowance is paid on
the Select, Preferred or Institutional classes.
The Agreements provide for continuation in effect from year to year only so long
as such continuation is specifically approved at least annually either by the
Board of Directors or by vote of a majority of the outstanding voting securities
of the applicable Fund/Portfolio. In either event, continuation shall be
approved by a vote of the majority of the Directors who are not "interested
persons" (as defined in the 1940 Act) of the Manager, Principal Life Insurance
Company or its subsidiaries or affiliates, or the Fund, and in the case of the
Sub-Advisory Agreement for the:
o International, International Emerging Markets and International SmallCap
Portfolios and Balanced, International I, International Emerging Markets,
International SmallCap, LargeCap Blend, LargeCap Growth, LargeCap S&P 500
Index, LargeCap Value, MidCap Blend, MidCap Growth, MidCap S&P 400 Index,
MidCap Value, SmallCap Blend, SmallCap Growth, SmallCap Value and SmallCap
S&P 600 Index Funds -- Invista;
o Mortgage-Backed Securities Portfolio and Balanced, Bond & Mortgage
Securities, Government Securities, High Quality Intermediate-Term Bond,
High Quality Long-Term Bond, High Quality Short-Term Bond and Money Market
Funds -- PCII;
o Real Estate Fund-- PCREI;
o European, International II, Pacific Basin and Technology Funds -- BT;
o Partners LargeCap Blend Fund and Partners SmallCap Growth Fund II --
Federated;
o Partners MidCap Growth Fund -- Turner;
o Partners LargeCap Growth Fund II -- American Century;
o Partners LargeCap Value Fund -- Bernstein;
o Partners LargeCap Growth Fund I -- Morgan Stanley;
o Partners MidCap Value Fund and Partners SmallCap Growth Fund I -- Neuberger
Berman.
The Agreements may be terminated at any time on 60 days written notice to the
applicable Sub-Advisor either by vote of the Board of Directors or by a vote of
the majority of the outstanding securities of the applicable Fund/Portfolio. The
Sub-Advisory Agreement may also be terminated by the Manager, the respective
Sub-Advisor, or Principal Life Insurance Company, as the case may be, on 60 days
written notice to the Fund/Portfolio and/or applicable Sub-Advisor. The
Agreements will terminate automatically in the event of their assignment.
The agreements for each Portfolio were last approved as follows:
<TABLE>
<CAPTION>
Approved by the Board of Directors Approved by Shareholders
Investment Service Management Sub-Advisory Management Sub-Advisory
Portfolios Agreement Agreement Agreement Agreement Agreement
<S> <C> <C> <C> <C> <C>
International Emerging Markets 9/11/00 9/11/00 9/11/00 11/24/97 11/24/97
International Securities 9/11/00 9/11/00 9/11/00 5/18/93 5/18/93
International SmallCap 9/11/00 9/11/00 9/11/00 11/24/97 11/24/97
Mortgage Based Securities 9/11/00 9/11/00 9/11/00 5/18/93 5/18/93
</TABLE>
The Agreements for each Fund were approved by the Board of Directors on
September 11, 2000 and by its shareholders on December 5, 2000.
Custodian
The Bank of New York, 100 Church Street, 10th Floor, New York, NY 10286 is
custodian of the portfolio securities and cash assets of the Mortgage-Backed
Securities Portfolio, Balanced, Bond & Mortgage Securities, Government
Securities, High Quality Intermediate-Term Bond, High Quality Long-Term Bond,
High Quality Short-Term Bond, International I, International Emerging Markets,
International SmallCap, LargeCap Blend, LargeCap Growth, LargeCap S&P 500 Index,
LargeCap Value, MidCap Blend, MidCap Growth, MidCap S&P 400 Index, MidCap Value,
Money Market, Partners LargeCap Blend, Partners LargeCap Growth I, Partners
LargeCap Growth II, Partners LargeCap Value, Partners MidCap Growth, Partners
MidCap Value, Partners SmallCap Growth I, Partners SmallCap Growth II, Real
Estate, SmallCap Blend, SmallCap Growth, SmallCap S&P 600 Index and SmallCap
Value Funds. The custodian for the International Emerging Markets, International
SmallCap and International Securities Portfolios and the European, International
II, Pacific Basin and Technology Funds is Chase Manhattan Bank, N.A., 4 Chase
Metro Tech Center, 18th Floor, Brooklyn, New York 11245. The custodians perform
no managerial or policymaking functions for the fund.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Brokerage on Purchases and Sales of Securities
In distributing brokerage business arising out of the placement of orders for
the purchase and sale of securities for any Fund/Portfolio, the objective of the
Fund's/Portfolio's Sub-Advisor is to obtain the best overall terms. In pursuing
this objective, the Sub-Advisor considers all matters it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and executing capability of the broker or dealer and the
reasonableness of the commission, if any (for the specific transaction and on a
continuing basis). This may mean in some instances that the Sub-Advisor will pay
a broker commissions that are in excess of the amount of commissions another
broker might have charged for executing the same transaction when the
Sub-Advisor believes that such commissions are reasonable in light of (a) the
size and difficulty of the transaction (b) the quality of the execution provided
and (c) the level of commissions paid relative to commissions paid by other
institutional investors. (Such factors are viewed both in terms of that
particular transaction and in terms of all transactions that broker executes for
accounts over which the Sub-Advisor exercises investment discretion. The
Sub-Advisor may purchase securities in the over-the-counter market, utilizing
the services of principal market makers unless better terms can be obtained by
purchases through brokers or dealers, and may purchase securities listed on the
New York Stock Exchange ("NYSE") from non-Exchange members in transactions off
the Exchange.)
The Sub-Advisor may give consideration in the allocation of business to services
performed by a broker (e.g., the furnishing of statistical data and research
generally consisting of, but not limited to, information of the following types:
analyses and reports concerning issuers, industries, economic factors and
trends, portfolio strategy and performance of client accounts). If any such
allocation is made, the primary criteria used will be to obtain the best overall
terms for such transactions. The Sub-Advisor may also pay additional commission
amounts for research services. Such statistical data and research information
received from brokers or dealers as described above may be useful in varying
degrees and the Sub-Advisor may use it in servicing some or all of the accounts
it manages. Some statistical data and research information obtained may not be
useful to the Sub-Advisor in managing the client account, brokerage for which
resulted in the Sub-Advisor's receipt of the statistical data and research
information. However, in the Sub-Advisor's opinion, the value thereof is not
determinable and it is not expected that the Sub-Advisor's expenses will be
significantly reduced since the receipt of such statistical data and research
information is only supplementary to the Sub-Advisor's own research efforts.
The Sub-Advisors allocated portfolio transactions to certain brokers due to
research services provided by such brokers for certain Funds/Portfolios. These
portfolio transactions resulted in commissions paid as indicated in the
following table:
Commissions paid for the fiscal year
ended December 31, 1999
Portfolios 1999 1998 1997
International Emerging Markets $4,210 N/A $1,100
International Securities 9,381 $3,362 $4,841
International SmallCap 2,690 N/A $317
Subject to the rules promulgated by the SEC, as well as other regulatory
requirements, a Sub-Advisor may also allocate orders on behalf of a
Fund/Portfolio to broker-dealers affiliated with the Sub-Advisor. The
Sub-Advisor shall determine the amounts and proportions of orders allocated to
its affiliated broker-dealers. The Boards of Directors will receive quarterly
reports on these transactions.
Purchases and sales of debt securities and money market instruments usually are
principal transactions; portfolio securities are normally purchased directly
from the issuer or from an underwriter or marketmaker for the securities. Such
transactions are usually conducted on a net basis with the Fund/Portfolio paying
no brokerage commissions. Purchases from underwriters include a commission or
concession paid by the issuer to the underwriter, and the purchases from dealers
serving as marketmakers include the spread between the bid and asked prices.
For the Funds/Portfolios for which Invista, PCREI or PCII serves as Sub-Advisor,
the following describes the allocation process used. If, in carrying out the
investment objectives of the Funds/Portfolios, occasions arise when purchases or
sales of the same equity securities are to be made for two or more of the
Funds/Portfolios at the same time (or, for two or more Funds/Portfolios and any
other accounts managed by the Sub-Advisor), the Sub-Advisor may submit the
orders to purchase or, whenever possible, to sell, to a broker/dealer for
execution on an aggregate or "bunched" basis (including orders for accounts in
which the Registrant, its affiliates and/or its personnel have beneficial
interests). The Sub-Advisor may create several aggregate or "bunched" orders
relating to a single security at different times during the same day. On such
occasions, the Sub-Advisor shall compose, before entering an aggregated order, a
written Allocation Statement as to how the order will be allocated among the
various accounts. Securities purchased or proceeds of sales received on each
trading day with respect to each such aggregate or "bunched" order shall be
allocated to the various Funds/Portfolios and other client accounts whose
individual orders for purchase or sale make up the aggregate or "bunched" order
by filling each Fund's or other client account's order in accordance with the
Allocation Statement. If the order is partially filled, it shall be allocated
pro rata based on the Allocation Statement. Securities purchased for
Funds/Portfolios and other client accounts participating in an aggregate or
"bunched" order will be placed into those Funds/Portfolios and, where
applicable, other client accounts at a price equal to the average of the prices
achieved in the course of filling that aggregate or "bunched" order.
If purchases or sales of the same debt securities are to be made for two or more
of the Funds/Portfolios at the same time, the securities will be purchased or
sold proportionately in accordance with the amount of such security sought to be
purchased or sold at that time for each Fund/Portfolio.
The Sub-Advisor expects aggregation or "bunching" of orders, on average, to
slightly reduce the cost of execution. The Sub-Advisor will not aggregate a
client's order if, in a particular instance, it believes that aggregation will
increase the client's cost of execution. In some cases, aggregation or
"bunching" of orders may increase the price a client pays or receives for a
security or reduce the amount of securities purchased or sold for a client
account.
The Sub-Advisor may enter aggregated orders for shares issued in an initial
public offering (IPO). In determining whether to enter an order for an IPO for
any client account, the Sub-Advisor considers the account's investment
restrictions, risk profile, asset composition and cash level. Accordingly, it is
unlikely that every client account will participate in every available IPO.
Partially filled orders for IPOs will be allocated to participating accounts in
accordance with the procedures set out above. Often, however, the amount of
shares designated by an underwriter for the Sub-Advisor's clients are
insufficient to provide a meaningful allocation to each participating account.
In such cases, the Sub-Advisor will employ an allocation system it feels treats
all participating accounts fairly and equitably over time.
The following describes the allocation process utilized by the Sub-Advisor for
the European, International II, Pacific Basin and Technology Funds:
Client monies are assigned to BT portfolio managers and are generally
grouped into product types. All portfolios within each product type will
have similar investment objectives, although individual portfolios may have
investment objectives and restrictions that differ to some extent from the
overall objectives for that product type.
The portfolio manager will decide, prior to trading, which products and
therefore, which portfolios will take part in the subsequent allocation.
All portfolios within a product managed by a particular portfolio manager
will participate in the allocation except in the following circumstances:
o where client cash flow means that a client's portfolio has to be
traded separately;
o where there are specific client restrictions which preclude an
allocation;
o where a nonstandard benchmark or target results in a security being
deemed unsuitable for that portfolio;
o where, in the case of sales, a particular portfolio does not hold the
security; and
o where the trade is partially filled, either for normal trading or for
an IPO.
In these cases, if there is no indication on the order form as to priority
of allocation then BT will allocate on a pro-rata basis. Priority of
allocation on the order forms may be set due to sensitivity to transaction
costs, tax status, tolerance for small holding, tolerance for large
holdings or specific exposures (proximity to limits) and turnover
considerations.
The following describes the allocation process utilized by the Sub-Advisor for
the Partners MidCap Growth Fund:
Turner has developed an allocation system for limited opportunities: block
orders that cannot be filled in one day and IPOs. Allocation of all
partially filled trades will be done pro-rata, unless the small size would
cause excessive ticket charges. In that case, allocation will begin with
the next account on the rotational account listing. Any directed brokerage
arrangement will result in the inability of Turner to, in all cases,
include trades for that particular client in block orders if the block
transaction is executed through a broker other than the one that has been
directed. The benefits of that kind of transaction, a sharing of reduced
cost and possibly more attractive prices, will not extend to the directed
client. Allocation exceptions may be made if documented and approved timely
by the firm's compliance officer. Turner's proprietary accounts may trade
in the same block with client accounts, if it is determined to be
advantageous to the client to do so.
The following describes the allocation process utilized by the Sub-Advisor for
the Partners LargeCap Blend and Partners SmallCap Growth II Funds. Federated has
developed allocation procedures for IPOs, secondary market transactions and
transactions for Funds with a common portfolio management.
With respect to IPOs, Federated combines all purchase orders made for each
Fund for which it serves as advisor and places a single purchase order on
such terms and at such time as Federated reasonably expects to maximize the
Funds' participation in the IPOs. Prior to entering the order, Federated
will prepare a record of which Funds will participate in the IPO and the
amount of securities they have been authorized to purchase. Upon
confirmation of the amount of securities received in the IPO, Federated
allocates such securities among the participating Funds in proportion to
their participation in the order and notifies the portfolio manager of each
participating Fund of that preliminary allocation. The portfolio manager
may request the purchase of additional securities up to a specified price,
or sell some or all the securities allocated to the Fund for which the
portfolio manager serves at or above a specified price. The portfolio
manager may also withdraw from the IPO if the size of the Fund's
participation in the order does not justify the administrative and
transactional expense of accepting and selling the securities, but
withdrawal will be permitted only to the extent that orders from Fund's
wishing to purchase the IPO securities exceed request to sell such
securities.
With respect to transactions among multiple Funds authorized to purchase or
sell the same equity securities on a securities exchange or in the
"over-the-counter" market, Federated will combine all purchase orders and
all sell orders and will attempt to sell or purchase sufficient equity
securities to fill all outstanding orders. The allocation of equity
securities purchased or sold is in proportion to each Fund's order.
Federated will not change the allocation unless all participating portfolio
managers or Federated's Chief Investment Officer authorizes another
allocation before the trade tickets are transmitted to the Fund's
custodian, and any such reallocation is reviewed by Federated's Director of
Compliance. If Federated is attempting to fill an order for an equity
security and a portfolio manager delivers a new order for the same security
during the trading day, the new order will be added to the combined order
if there has been no material change in the price of equity security from
any trade previously executed that day. If there has been a material change
(a change of 2 percent or more) the new order will be added to the
unexecuted balance of original orders.
With respect to transactions for Fund's with a common portfolio manager,
the portfolio manager must balance the competing interests of the Funds
when allocating securities. Typically, a portfolio manager will place
orders for equity securities on behalf of Funds with the same investment
objectives, strategies and policies in proportion to the market value of
their portfolios. However, among Funds with different investment
objectives, strategies or policies, a portfolio manager may give precedence
to the Funds for which an equity security is best suited. Factors that a
portfolio manager may consider when placing different proportion orders for
equity securities on behalf Funds include (but are limited to), with
respect to each Fund, current cash availability and anticipated cash flows,
available alternative investments, current exposure to the issuer, industry
or sector, whether the expected effect on strategy or performance would be
minimal or whether a proportionate allocation would result in an economic
order quantity.
The following describes the allocation process utilized by the Sub-Advisor for
the Partners LargeCap Growth Fund I:
Transactions for each portfolio account generally are completed
independently. The Sub-Advisor, however, may purchase or sell the same
securities or instruments for a number of portfolio accounts, including
portfolios of its affiliates, simultaneously. These accounts will include
pooled vehicles, including partnerships and investment companies for which
the Sub-Advisor and related persons of the Sub-Advisor act as investment
manager and administrator, and in which the Sub-Advisor, its officers,
employees and its related persons have a financial interest, and accounts
of pension plans covering employees of the Sub-Advisor and its affiliates.
When possible, orders for the same security are combined or "batched" to
facilitate test execution and to reduce brokerage commissions or other
costs. The Sub-Advisor effects batched transactions in a manner designed to
ensure that no participating portfolio, including any Proprietary Account,
is favored over any other portfolio. Specifically, each portfolio
(including the Portfolio) that participates in a batched transaction will
participate at the average share price for all of the Sub-Advisor's
transactions in that security on that business day, with respect to that
batched order. Securities purchased or sold in a batched transaction are
allocated pro-rata, when possible, to the participating portfolio accounts
in proportion to the size of the order placed for each account. The
Sub-Advisor may, however, increase or decrease the amount of securities
allocated to each account if necessary to avoid holding odd-lot or small
numbers of shares for particular portfolios. Additionally, if the
Sub-Advisor is unable to fully execute a batched transaction and the
Sub-Advisor determines that it would be impractical to allocate a small
number of securities among the accounts participating in the transaction on
a pro-rata basis, the Sub-Advisor may allocate such securities in a manner
determined in good faith to be a fair allocation.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Purchase of Shares
Shares of the Portfolios are no longer sold except to accommodate the
reinvestment of capital gains or dividends paid by a Portfolio.
Shares of the Funds can be purchased only by (i) the separate accounts of
participating insurance companies for the purpose of funding variable insurance
contracts (Class I shares), (ii) any Fund distributed by Princor, if the Fund
seeks to achieve its investment objective by investing primarily in shares of
Funds distributed by Princor, and (iii) certain employer sponsored retirement
plans (Advisors Preferred, Advisors Select, Preferred and Select Classes of
shares).
The Select and Preferred classes of shares are available only through certain
registered representatives of Princor Financial Services Corporation who are
also employees of Principal Life Insurance Company or fee-based financial
planners.
o Select shares are available to an employer's sponsored retirement plan(s)
(the "plan") through the Principal Investors Advantage (the service
contract (or through execution of a service contract offered through an
affiliate of Principal Life Insurance Company)) if the plan invests at
least $3 million (but less than $10 million) in the Principal Investors
Fund.
o Preferred shares are available to an employer's sponsored retirement
plan(s) (the "plan") through the Principal Investors Advantage (or through
execution of a service contract offered through an affiliate of Principal
Life Insurance Company)) if the plan invests at least $10 million in the
Principal Investors Fund.
The Advisors Select and Advisors Preferred classes of shares are available only
through registered representatives of dealers selected by Princor or financial
planners.
o Advisors Select shares are available to an employer's sponsored retirement
plan(s) (the "plan") through the Principal Investors Advantage (the
services contract (or through execution of a service contract offered
through an affiliate of Principal Life)) if the plan invests at least $3
million (but less than $10 million) in the Principal Investors Fund.
o Advisors Preferred shares are available to an employer's sponsored
retirement plan(s) (the "plan") through the Principal Investors Advantage
(the services contract (or through execution of a service contract offered
through an affiliate of Principal Life)) if the plan invests at least $10
million in the Principal Investors Fund.
Participating insurance companies and certain other designated organizations
are authorized to receive purchase orders on the Funds' behalf and those
organizations are authorized to designate their agents and affiliates as
intermediaries to receive purchase orders. Purchase orders are deemed received
by a Fund when authorized organizations, their agents or affiliates receive the
order. The Funds are not responsible for the failure of any designated
organization or its agents or affiliates to carry out its obligations to its
customers. Shares of the Funds are purchased at the net asset value ("NAV") per
share as determined at the close of the regular trading session of the NYSE next
occurring after a purchase order is received and accepted by an authorized agent
of a Fund. In order to receive a day's price, an order must be received by the
close of the regular trading session of the NYSE as described below in "Offering
Price."
Sales of Shares
Payment for shares tendered for redemption is ordinarily made in cash. The Board
of Directors may determine, however, that it would be detrimental to the
remaining shareholders to make payment of a redemption order wholly or partly in
cash. The Fund/Portfolio may, therefore, pay the redemption proceeds in whole or
in part by a distribution "in kind" of securities from the Fund's/Portfolio's
portfolio in lieu of cash. If the Fund/Portfolio pays the redemption proceeds in
kind, the redeeming shareholder might incur brokerage or other costs in selling
the securities for cash. The Fund/Portfolio will value securities used to pay
redemptions in kind using the same method the Fund/Portfolio uses to value its
portfolio securities as described below in "Offering Price."
Sales of shares, like purchases, may only be effected through the separate
accounts of participating insurance companies or an employer sponsored plan.
Certain designated organizations are authorized to receive sell orders on the
Funds' behalf and those organizations are authorized to designate their agents
and affiliates as intermediaries to receive redemption orders. Redemption orders
are deemed received by a Fund when authorized organizations, their agents or
affiliates receive the order. The Funds are not responsible for the failure of
any designated organization or its agents or affiliates to carry out its
obligations to its customers.
The right to require the Funds/Portfolios to redeem their shares may be
suspended, or the date of payment may be postponed, whenever: (1) trading on the
NYSE is restricted, as determined by the SEC, or the NYSE is closed except for
holidays and weekends, (2) the SEC permits such suspension and so orders; or (3)
an emergency exists as determined by the SEC so that disposal of securities or
determination of NAV is not reasonably practicable.
Offering Price
As stated in the Prospectuses, the NAV of each class of the Funds/Portfolios
(except Money Market Fund) is determined once each day on which the NYSE is
open, at the close of its regular trading session (normally 4:00 p.m., New York
time, Monday through Friday). As stated in the Prospectus, the NAV of
Fund/Portfolio shares is not determined on days the NYSE is closed (generally,
New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas).
The per share NAV of each class is determined by taking the total value of a
Fund's/Portfolio's securities and other assets less liabilities dividing the
remainder proportionately into the classes of the Fund, subtracting the
liabilities of each class, dividing the remainder by the total number of shares
of that class outstanding. In determining NAV, securities listed on an Exchange,
the NASDAQ National Market and foreign markets are valued at the closing prices
on such markets, or if such price is lacking for the trading period immediately
preceding the time of determination, such securities are valued at their current
bid price. Municipal securities held by the Funds/Portfolios are traded
primarily in the over-the-counter market. Valuations of such securities are
furnished by one or more pricing services employed by the Funds/Portfolios and
are based upon appraisals obtained by a pricing service, in reliance upon
information concerning market transactions and quotations from recognized
municipal securities dealers. Other securities that are traded on the
over-the-counter market are valued at their closing bid prices. Foreign
securities and currencies are converted to U.S. dollars using the exchange rate
in effect at the close of the NYSE. Each Fund/Portfolio will determine the
market value of individual securities held by it, by using prices provided by
one or more professional pricing services which may provide market prices to
other funds, or, as needed, by obtaining market quotations from independent
broker-dealers. Short-term securities maturing within 60 days are valued on an
amortized cost basis. Securities for which quotations are not readily available,
and other assets, are valued at fair value determined in good faith under
procedures established by and under the supervision of the Board of Directors.
Trading in securities on foreign securities exchanges and over-the-counter
markets is normally completed well before the close of business on each business
day in New York (i.e., a day on which the NYSE is open). In addition, foreign
securities trading generally or in a particular country or countries may not
take place on all business days in New York. Furthermore, trading may take place
in various foreign markets on days which are not business days in New York and
on which a Fund's/Portfolio's NAV is not calculated. A Fund/Portfolio calculates
its NAV per class per share, and therefore effects sales, redemptions and
repurchases of its shares, as of the close of the NYSE once on each day on which
the NYSE is open. Such calculation may not take place contemporaneously with the
determination of the prices of the foreign portfolio securities used in such
calculation.
Money Market Fund
The share price of each class of shares of the Money Market Fund is determined
at the same time and on the same days as the Funds/Portfolios described above.
The share price for each class of shares of the Fund is computed by dividing the
total value of the Fund's securities and other assets, less liabilities, class
proportion, then by the number of class shares outstanding.
All securities held by the Money Market Fund are valued on an amortized cost
basis. Under this method of valuation, a security is initially valued at cost;
thereafter, the Fund assumes a constant proportionate amortization in value
until maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price that
would be received upon sale of the security.
Use of the amortized cost valuation method by the Money Market Fund requires
maintenance of a dollar weighted average maturity of 90 days or less and to
purchase only obligations that have remaining maturities of 397 days or less or
have a variable or floating rate of interest. In addition, the Fund invests only
in obligations determined by the Board of Directors to be of high quality with
minimal credit risks.
The Board of Directors has established procedures designed to stabilize, to the
extent reasonably possible, the Money Market Fund's price per share as computed
for the purpose of sales and redemptions at $1.00. Such procedures include a
directive to the Manager to test price the portfolio or specific securities on a
weekly basis using a mark-to-market method of valuation to determine possible
deviations in the NAV from $1.00 per share. If such deviation exceeds 1/2 of 1%,
the Board promptly considers what action, if any, will be initiated. In the
event the Board determines that a deviation exists which may result in material
dilution or other unfair results to shareholders, the Board takes such
corrective action as it regards as appropriate, including: sale of portfolio
instruments prior to maturity; the withholding of dividends; redemptions of
shares in kind; the establishment of an NAV based upon available market
quotations; or splitting, combining or otherwise recapitalizing outstanding
shares. The Money Market Fund may also reduce the number of shares outstanding
by redeeming proportionately from shareholders, without the payment of any
monetary compensation, such number of full and fractional shares as is necessary
to maintain the NAV at $1.00 per share.
TAXATION OF THE FUND
It is a policy of the Funds/Portfolios to make distributions of substantially
all of their respective investment income and any net realized capital gains.
The Funds/Portfolios intend to qualify as regulated investment companies by
satisfying certain requirements prescribed by Subchapter M of the Internal
Revenue Code. If a Fund/Portfolio fails to qualify as a regulated investment
company, it will be liable for taxes, significantly reducing its distributions
to shareholders and eliminating shareholder's ability to treat distributions of
the Fund/Portfolio in the manner they were received by the Fund/Portfolio.
All income dividends and capital gains distributions, if any, on a
Fund's/Portfolio's shares are reinvested automatically in additional shares of
the same class of the same Fund/Portfolio at the NAV determined on the first
business day following the record date.
Certain Funds/Portfolios may purchase securities of certain foreign corporations
considered to be passive foreign investment companies by the IRS. In order to
avoid taxes and interest that must be paid by the Funds/Portfolios if these
instruments appreciate in value, the Funds/Portfolios may make various elections
permitted by the tax laws. However, these elections could require that the
Funds/Portfolios recognize taxable income, which in turn must be distributed.
Some foreign securities purchased by the Funds/Portfolios may be subject to
foreign taxes that could reduce the yield on such securities. The amount of such
foreign taxes is expected to be insignificant. The Funds/Portfolios may from
year to year make the election permitted under Section 853 of the Internal
Revenue Code to pass through such taxes to shareholders. If such election is not
made, any foreign taxes paid or accrued will represent an expense to each
affected Fund that will reduce its investment company taxable income.
UNDERWRITER
Shares of each Fund are offered on a continuous basis by Princor as principal
underwriter. Shares are sold at NAV. In certain circumstances, Princor
compensates its registered representatives or a dealer with which it has entered
into a selling agreement for their efforts in distributing shares.
Princor did not receive underwriting fees from the sale of Portfolio shares.
CALCULATION OF PERFORMANCE DATA
For all Funds/Portfolios except the Money Market Fund
A Fund may quote performance in various ways. All performance information
supplied by a Fund in advertising is historical and is not intended to indicate
future returns. Each class's share price and return fluctuate in response to
market conditions and other factors, and the value of Fund shares when redeemed
may be more or less than their original cost.
Return Calculations. Returns quoted in advertising reflect all aspects of a
class's return, including the effect of reinvesting dividends and capital gain
distributions, and any change in a class's NAV over a stated period. A
cumulative return reflects actual performance over a stated period of time.
Average annual returns are calculated by determining the growth or decline in
value of a hypothetical historical investment in a class over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period.
For example, a cumulative return of 100% over ten years would produce an average
annual return of 7.18%, which is the steady annual rate of return that would
equal 100% growth on a compounded basis in ten years. Average annual returns
covering periods of less than one year are calculated by determining a class's
return for the period, extending that return for a full year (assuming that
return remains constant over the year), and quoting the result as an annual
return. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that a class's performance is
not constant over time, but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of a class. In addition to average annual returns, a class may quote
unaveraged or cumulative returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative returns may be
quoted as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, or a series of redemptions, over any time
period. Returns may be broken down into their components of income and capital
(including capital gains and changes in share price) to illustrate the
relationship of these factors and their contributions to return. Returns may be
quoted on a before-tax or after-tax basis. Returns and other performance
information may be quoted numerically or in a table, graph or similar
illustration.
A Fund may also include in its advertisements comparisons of the performance of
the Fund to that of various market indices, such as:
<TABLE>
<CAPTION>
<S> <C> <C>
Lehman Brothers Aggregate Bond Index Russell 100 Growth Index
Lehman Brothers Long Term Government/Corporate Russell 1000 Value Index
Bond Index Russell 2000 Index
Lehman Brothers Government/Corporate Bond Index Russell 2000 Growth Index
Lehman Brothers Mortgage-Backed Securities Index Russell 2000 Value Index
Lehman Brother Mutual Fund 1-5 Government/Credit Index Russell MidCap Growth Index
Morgan Stanley Capital International EAFE S&P 500 Index
(Europe, Australia, Far East) Index S&P/Barra 400 Value Index
Morgan Stanley Capital International Emerging S&P/Barra 500 Growth Index
Markets Free Index S&P/Barra 500 Value Index
Morgan Stanley Capital International Europe (15) Index S&P/Barra 600 Growth Index
Morgan Stanley Capital International Pacific Free Index S&P MidCap 400 Index Morgan
Stanley REIT Index S&P SmallCap 600 Index
</TABLE>
Money Market Fund
The Money Market Fund advertises its yield and its effective yield.
Yield is computed by:
o determining the net change (excluding shareholder purchases and
redemptions) in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period
o dividing the difference by the value of the account at the beginning of the
base period to obtain the base period return
o multiplying the base period return by (365/7) with the resulting yield
figure carried to at least the nearest hundredth of one percent.
There may be a difference in the net investment income per share used to
calculate yield and the net investment income per share used for dividend
purposes. This is because the calculation for yield purposes does not include
net short-term realized gains or losses on the Fund's investment, which are
included in the calculation for dividend purposes.
Effective yield is computed by:
o determining the net change (excluding shareholder purchases and
redemptions) in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period
o dividing the difference by the value of the account at the beginning of the
base period to obtain the base period return compounding the base period
return by adding 1, raising the sum to a power equal to 365 divided by 7,
and subtracting 1 from the result.
The resulting effective yield figure is carried to at least the nearest
hundredth of one percent.
The yield quoted at any time for the Money Market Fund represents the amount
that has earned during a specific, recent seven-day period and is a function of:
o the quality of investments in the Money Market Fund's portfolio
o types of investments in the Money Market Fund's portfolio
o length of maturity of investments in the Money Market Fund's portfolio
o Money Market Fund's operating expenses.
The length of maturity for the Money Market Fund's portfolio is calculated using
the average dollar weighted maturity of all investments. This means that the
portfolio has an average maturity of a stated number of days for its
investments. The calculation is weighted by the relative value of each
investment.
The yield for the Money Market Fund will fluctuate daily as the income earned on
its investments fluctuates. There is no assurance the yield quoted on any given
occasion will remain in effect for any period of time. It should also be
emphasized that the Funds are open-end investment companies. There is no
guarantee that the NAV or any stated rate of return will remain constant. A
shareholder's investment in the Funds/Portfolios is not insured. Investors
comparing results of the Money Market Fund with investment results and yields
from other sources such as banks or savings and loan associations should
understand these distinctions. Historical and comparative yield information may
be presented by the Funds/Portfolios.
FINANCIAL STATEMENTS
The financial statements for the International Emerging Markets, International
Securities, International SmallCap and Mortgage-Backed Securities Portfolios for
the year ended December 31, 1999 are part of this Statement of Additional
Information. The financial statements appear in the Annual Reports to
Shareholders. Reports on those statements from Ernst & Young LLP, independent
auditors, are included in the Annual Report and are also a part of this
Statement of Additional Information. The Annual Reports are furnished, without
charge, to investors who request copies of the Statement of Additional
Information.
The semiannual financial statements for the Portfolios as of June 30, 2000 are
incorporated herein by reference. The unaudited interim financial statements
reflect all adjustments which are, in the opinion of management, necessary to a
fair statement for the results for the interim period presented.
Financial statements and financial highlights for the other Funds will be
included in the Annual Report when they have completed an annual period.
APPENDIX A
Description of Bond Ratings:
Moody's Investors Service, Inc. Bond Ratings
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
CONDITIONAL RATING: Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2 and 3 in each
generic rating classification from Aa through B in its bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and a modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
SHORT-TERM NOTES: The four ratings of Moody's for short-term notes are MIG 1,
MIG 2, MIG 3 and MIG 4; MIG 1 denotes "best quality, enjoying strong protection
from established cash flows"; MIG 2 denotes "high quality" with "ample margins
of protection"; MIG 3 notes are of "favorable quality...but lacking the
undeniable strength of the preceding grades"; MIG 4 notes are of "adequate
quality, carrying specific risk for having protection...and not distinctly or
predominantly speculative."
Description of Moody's Commercial Paper Ratings
Moody's Commercial Paper ratings are opinions of the ability to repay punctually
promissory obligations not having an original maturity in excess of nine months.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
Issuers rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
Description of Standard & Poor's Corporation's Debt Ratings:
A Standard & Poor's debt rating is a current assessment of the creditworthiness
of an obligor with respect to a specific obligation. This assessment may take
into consideration obligors such as guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by Standard & Poor's from other sources Standard & Poor's considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default -- capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
AAA: Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A: Debt rated "A" has a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than for debt in higher-rated categories.
BB, B, CCC, CC: Debt rated "BB", "B", "CCC" and "CC" is regarded, on
balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance
with the terms of the obligation. "BB" indicates the lowest
degree of speculation and "CC" the highest degree of
speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse
conditions.
C: The rating "C" is reserved for income bonds on which no interest is being
paid.
D: Debt rated "D" is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional Ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does
not rate a particular type of obligation as a matter of policy.
Standard & Poor's, Commercial Paper Ratings
A Standard & Poor's Commercial Paper Rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. Ratings are applicable to
both taxable and tax-exempt commercial paper. The four categories are as
follows:
A: Issues assigned the highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Issues that possess
overwhelming safety characteristics will be given a "+" designation.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1".
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the highest
designations.
B: Issues rated "B" are regarded as having only an adequate capacity for
timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: This rating indicates that the issue is either in default or is expected to
be in default upon maturity.
The Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in or unavailability of, such information.
Standard & Poor's rates notes with a maturity of less than three years as
follows:
SP-1:A very strong, or strong, capacity to pay principal and interest. Issues
that possess overwhelming safety characteristics will be given a "+"
designation.
SP-2: A satisfactory capacity to pay principal and interest.
SP-3: A speculative capacity to pay principal and interest.
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits.
-------- ---------
(a) (1) a. Articles of Amendment and Restatement (filed 4/12/96)
b. Articles of Amendment and Restatement (filed 9/22/00)
(2) Articles of Amendment (filed 9/12/97)
(3) Certificate of Correction (filed 9/22/00)
(b) By-laws (filed 9/22/00)
(c) N/A
(d) (1) a. Management Agreement (filed 9/12/97)
b. 1st Amendment to the Management Agreement (filed 9/22/00)
c. Management Agreement*
(2) a. Invista Sub-Advisory Agreement (filed 9/12/97)
b. 1st Amendment to the Invista Sub-Advisory
Agreement(filed 9/22/00)
(3) American Century Sub-Advisory Agreement*
(4) Bernstein Sub-Advisory Agreement*
(5) BT Sub-Advisory Agreement (filed 9/22/00)
(6) Federated Sub-Advisory Agreement*
(7) Neuberger Berman Sub-Advisory Agreement*
(8) Morgan Stanley Sub-Advisory Agreement*
(9) Principal Capital Income Investors Sub-Advisory Agreement**
(10) Principal Capital Real Estate Investors Sub-Advisory
Agreement**
(11) Turner Sub-Advisory Agreement*
(12) PCII Cash Management Sub-Advisory Agreement**
(e) (1) a. Distribution Agreement (filed 4/12/96)
b. 1st Amendment to the Distribution Agreement (filed 9/22/00)
c. Distribution Agreement (filed 9/22/00)
(2) Selling Agreement (filed 9/22/00)
(f) N/A
(g) (1) a. Domestic Portfolio Custodian Agreement with
Bank of New York (filed 4/12/96)
b. Domestic Funds Custodian Agreement with Bank of New York*
(2) a. Global Portfolio Custodian Agreement with
Chase Manhattan Bank (filed 4/12/96)
b. Global Funds Custodian Agreement with
Chase Manhattan Bank*
(h) (1) Transfer Agency Agreement for Class I shares (filed 9/22/00)
(2) Shareholder Services Agreement**
(3) a. Investment Service Agreement (filed 9/12/97)
b. 1st Amendment to the Investment Service
Agreement (filed 9/22/00)
(4) Accounting Services Agreement (filed 9/22/00)
(5) Administrative Services Agreement (filed 9/22/00)
(6) Service Agreement (filed 9/22/00)
(7) Service Sub-Agreement (filed 9/22/00)
(i) Legal Opinion (filed 4/12/96)
(j) Consents of Auditors*
(k) Financial Statements included in this Registration
Statement:
(1) Part A:
None
(2) Part B:
None
(3) Semi-Annual Report to Shareholders filed under Rule N-30D-1
on August 16, 2000**
(l) (1) Initial Capital Agreement-ISP & MBS (filed 4/12/96)
(2) Initial Capital Agreement-IEP (filed 9/22/00)
(3) Initial Capital Agreement-ICP (filed 9/22/00)
(4-38) Initial Capital Agreement*
(m) Rule 12b-1 Plan
(1) Advisors Preferred Plan (filed 9/22/00)
(2) Advisors Select Plan (filed 9/22/00)
(n) Financial Data Schedule
(1) International Emerging Markets Portfolio**
(2) International Securities Portfolio**
(3) International SmallCap Portfolio**
(4) Mortgage-Backed Securities Portfolio**
(o) Rule 18f-3 Plan (filed 9/22/00)
(p) Code of Ethics
(1) BT Funds Management (filed 9/22/00)
(2) Invista Capital Management (filed 9/22/00)
(3) Principal Capital Income Investors (filed 9/22/00)
(4) Principal Capital Real Estate Investors (filed 9/22/00)
(5) Turner Investment Partners (filed 9/22/00)
(6) Morgan Stanley Asset Management (filed 9/22/00)
(7) Neuberger Berman Management (filed 9/22/00)
(8) Bernstein Investment Research (filed 9/22/00)
(9) American Century Investment Management (filed 9/22/00)
(10) Federated Investment Management (filed 9/22/00)
* Filed herein.
** To be filed by amendment.
*** Incorporated herein by reference.
Item 24. Persons Controlled by or Under Common Control with Registrant
Principal Financial Services, Inc. (an Iowa corporation) an
intermediate holding company organized pursuant to Section 512A.14 of
the Iowa Code.
Subsidiaries wholly-owned by Principal Financial Services, Inc.
a. Principal Life Insurance Company (an Iowa corporation) a stock
life insurance company engaged in the business of insurance and
retirement services.
b. Princor Financial Services Corporation (an Iowa Corporation) a
registered broker-dealer.
c. PFG DO Brasil LTDA (Brazil) a Brazilian holding company.
d. Principal Financial Group (Mauritius) Ltd. a Mauritius holding
company.
e. Principal Pensions Co., Ltd. (Japan) a Japan company who engages
in the management, investment and administration of financial
assets and any services incident thereto.
f. Principal Financial Services (Australia), Inc. (an Iowa holding
company) formed to facilitate the acquisition of the Australian
business of BT Australia.
g. Principal Financial Services (NZ), Inc. (an Iowa holding company)
formed to facilitate the acquisition of the New Zealand business
of BT Australia.
h. Principal Capital Management (Singapore) Limited (a Singapore
corporation) a company engaging in funds management.
i. Principal Capital Management (Europe) Limited a United Kingdom
company that engages in European representation and distributor
of the Principal Investments Funds.
j. Principal Capital Management (Ireland) Limited an Ireland company
that engages in fund management.
k. Principal Financial Group Investments (Australia) Pty Limited an
Australia holding company.
Subsidiary wholly-owned by Princor Financial Services Corporation:
a. Principal Management Corporation (an Iowa Corporation) a
registered investment advisor.
Subsidiary 42% owned by PFG DO Brasil LTDA
a. Brasilprev Previdencia Privada S.A.(Brazil) a pension
fund company.
Subsidiary wholly-owned by Principal Financial Group (Mauritius) Ltd.
a. IDBI Principal Asset Management Company (India) a India asset
management company.
Subsidiary wholly-owned by Principal Financial Services (Australia),
Inc.:
a. Principal Financial Group (Australia) Holdings Pty Ltd. an
Australian holding company organized in connection with the
contemplated acquisition of BT Australia Funds Management.
Subsidiary wholly-owned by Principal Financial Group (Australia)
Holdings Pty Ltd:
a. BT Financial Group Pty Ltd. an Australia holding company.
Subsidiary wholly-owned by BT Financial Group Pty Ltd:
a. BT Investments (Australia) Limited a Delaware holding
company.
Subsidiary wholly-owned by BT Investments (Australia) Limited:
a. BT Australia (Holdings) Ltd an Australia commercial and
investment banking and asset management company.
Subsidiary wholly-owned by BT Australia (Holdings) Ltd:
a. BT Australia Limited an Australia company engaged in asset
management and trustee/administrative activites.
Subsidiaries wholly-owned by BT Australia Limited:
a. BT Life Limited an Australia company engaged in commercial and
investment linked life insurance policies.
b. BT Funds Management Limited an Australia company engaged in
institutional and retail money management.
c. BT Funds Management (International) Limited an Australia company
who manages international funds (New Zealand, Singapore, Asia,
North America and United Kingdom).
d. BT Securities Limited an Australia company that engages in loan
finance secured against share and managed fund portfolios.
e. BT Portfolio Services Limited an Australia company that engages
in processing and transaction services for financial planners and
financial intermediaries.
f. BT Australia Corporate Services Pty Limited an Australia holding
company for internal service companies.
g. QV1 Pty Limited an Australia company.
Subsidiaries wholly-owned by BT Portfolio Services Limited:
a. BT Custodial Services Pty Ltd an Australia custodian nominee for
investment management activities.
b. National Registry Services Pty Ltd. an Australia company that
engages in registry services.
c. National Registry Services (WA) Pty Limited an Australia company
that engages in registry services.
d. BT Finance & Investments Pty Ltd an Australia trustee of
wholesale cash management trust.
Subsidiaries organized and wholly-owned by BT Australia Corporate
Services Pty Limited:
a. BT Finance Pty Limited an Australia provider of finance by loans
and leases.
b. Chifley Services Pty Limited an Australia company that engages in
staff car leasing management.
c. BT Nominees Pty Limited an Australia company that operates as a
trustee of staff superannuation fund (pension plan).
Subsidiary organized and wholly-owned by BT Funds Management Limited:
a. BT Tactical Asset Management Pty Limited an Australia company
that engages in management of futures positions.
b. Oniston Pty Ltd an Australia company that is a financial services
investment vehicle.
Subsidiary organized and wholly-owned by BT Securities Limited:
a. BT (Queensland) Pty Limited an Australia trustee company.
Subsidiary organized and wholly-owned by BT Custodial Services Pty
Ltd:
a. BT Hotel Group Pty Ltd an Australia corporation - an inactive
shelf corporation to be wound up.
b. BT Custodians Ltd an Australia manager and trustee of various
unit trusts.
c. Dellarak Pty Ltd an Australia trustee company.
Subsidiary organized and wholly-owned by Principal Financial Services
(NZ), Inc.
a. BT Financial Group (NZ) Limited a New Zealand holding company.
Subsidiary organized and wholly-owned by BT Financial Group (NZ)
Limited:
a. BT Portfolio Service (NZ) Limited a New Zealand company that
provides third party administration and registry services.
b. BT New Zealand Nominees Limited a New Zealand company who acts as
a custodian for local assets.
c. BT Funds Management (NZ) Limited a New Zealand funds manager.
Subsidiary organized and wholly-owned by Principal Financial Group
Investments (Australia) Pty Limited:
a. Principal Hotels Holdings Pty Ltd. a holding company.
Subsidiary organized and wholly-owned by Principal Hotels Holdings
Pty Ltd.:
a. Principal Hotels Australia Pty Ltd. a holding company.
Subsidiary organized and wholly-owned by Principal Hotels Australia
Pty Ltd.:
a. BT Hotel Limited an Australia corporation, which is the hotel
operating/managing company of the BT Hotel Group.
Principal Life Insurance Company sponsored the organization of the
following mutual funds, some of which it controls by virtue of owning
voting securities:
Principal Balanced Fund, Inc.(a Maryland Corporation) 0.06% of
shares outstanding owned by Principal Life Insurance Company
(including subsidiaries and affiliates) on September 13, 2000.
Principal Blue Chip Fund, Inc.(a Maryland Corporation) 0.03% of
shares outstanding owned by Principal Life Insurance Company
(including subsidiaries and affiliates) on September 13, 2000.
Principal Bond Fund, Inc.(a Maryland Corporation) 0.63% of shares
outstanding owned by Principal Life Insurance Company (including
subsidiaries and affiliates) on September 13, 2000.
Principal Capital Value Fund, Inc. (a Maryland Corporation)
27.47% of outstanding shares owned by Principal Life Insurance
Company (including subsidiaries and affiliates)on September
13,2000
Principal Cash Management Fund, Inc. (a Maryland Corporation)
13.63% of outstanding shares owned by Principal Life Insurance
Company (including subsidiaries and affiliates) on September
13,2000
Principal European Equity Fund, Inc. (a Maryland Corporation)
77.96% of outstanding shares owned by Principal Life Insurance
Company (including subsidiaries and affiliates) on September
13, 2000.
Principal Government Securities Income Fund, Inc. (a Maryland
Corporation) 0.04% of shares outstanding owned by Principal Life
Insurance Company (including subsidiaries and affiliates) on
September 13, 2000.
Principal Growth Fund, Inc. (a Maryland Corporation) 0.01% of
outstanding shares owned by Principal Life Insurance Company
(including subsidiaries and affiliates) on September 13, 2000.
Principal High Yield Fund, Inc. (a Maryland Corporation) 8.13%
of shares outstanding owned by Principal Life Insurance Company
(including subsidiaries and affiliates) on September 13, 2000.
Principal International Emerging Markets Fund, Inc. (a Maryland
Corporation) 29.86% of shares outstanding owned by Principal Life
Insurance Company (including subsidiaries and affiliates) on
September 13, 2000.
Principal International Fund, Inc. (a Maryland Corporation)
24.18% of shares outstanding owned by Principal Life Insurance
Company (including subsidiaries and affiliates) on September
13, 2000.
Principal International SmallCap Fund, Inc. (a Maryland
Corporation) 10.89% of shares outstanding owned by Principal Life
Insurance Company (including subsidiaries and affiliates) on
September 13, 2000.
Principal Limited Term Bond Fund, Inc. (a Maryland Corporation)
16.58% of shares outstanding owned by Principal Life Insurance
Company (including subsidiaries and affiliates) on September 13,
2000.
Principal LargeCap Stock Index Fund, Inc. (a Maryland
Corporation) 18.37% of shares outstanding owned by Principal
Life Insurance Company (including subsidiaries and affiliates) on
September 13, 2000.
Principal MidCap Fund, Inc. (a Maryland Corporation) 0.02% of
shares outstanding owned by Principal Life Insurance Company
(including subsidiaries and affiliates) on September 13, 2000
Principal Pacific Basin Fund, Inc. (a Maryland Corporation)
84.43% of outstanding shares owned by Principal Life Insurance
Company (including subsidiaries and affiliates) on September 13,
2000.
Principal Partners Aggressive Growth Fund, Inc.(a Maryland
Corporation) 4.75% of shares outstanding owned by Principal Life
Insurance Company (including subsidiaries and affiliates) on
September 13, 2000
Principal Partners LargeCap Growth Fund, Inc.(a Maryland
Corporation) 28.03% of shares outstanding owned by Principal
Life Insurance Company (including subsidiaries and affiliates) on
September 13, 2000
Principal Partners MidCap Growth Fund, Inc.(a Maryland
Corporation) 22.41% of shares outstanding owned by Principal
Life Insurance Company (including subsidiaries and affiliates) on
September 13, 2000
Principal Real Estate Fund, Inc. (a Maryland Corporation) 56.26%
of shares outstanding owned by Principal Life Insurance Company
(including subsidiaries and affiliates) on September 13, 2000
Principal SmallCap Fund, Inc.(a Maryland Corporation) 5.50% of
shares outstanding owned by Principal Life Insurance Company
(including subsidiaries and affiliates) on September 13, 2000.
Principal Special Markets Fund, Inc. (a Maryland Corporation)
83.56% of shares outstanding of the International Emerging
Markets Portfolio, 46.62% of the shares outstanding of the
International Securities Portfolio, 98.66% of shares outstanding
of the International SmallCap Portfolio and 100% of the shares
outstanding of the Mortgage-Backed Securities Portfolio were
owned by Principal Life Insurance Company (including subsidiaries
and affiliates) on September 13, 2000
Principal Tax-Exempt Bond Fund, Inc. (a Maryland Corporation)
0.05% of shares outstanding owned by Principal Life Insurance
Company (including subsidiaries and affiliates) on September 13,
2000.
Principal Utilities Fund, Inc. (a Maryland Corporation) 0.08% of
shares outstanding owned by Principal Life Insurance Company
(including subsidiaries and affiliates) on September 13, 2000.
Principal Variable Contracts Fund, Inc. (a Maryland Corporation)
100% of shares outstanding of the following Accounts owned by
Principal Life Insurance Company and its Separate Accounts on
September 13, 2000: Aggressive Growth, Asset Allocation,
Balanced, Blue Chip, Bond, Capital Value, Government Securities,
Growth, High Yield, International, International Emerging
Markets, International SmallCap, LargeCap Growth, LargeCap Growth
Equity, LargeCap Stock Index (f/k/a Stock Index 500), MicroCap,
MidCap, MidCap Growth, MidCap Growth Equity, MidCap Value, Money
Market, Real Estate, SmallCap, SmallCap Growth, SmallCap Value,
and Utilities.
Subsidiaries organized and wholly-owned by Principal Life Insurance
Company:
a. Principal Holding Company (an Iowa Corporation) a downstream
holding company for Principal Life Insurance Company.
b. Principal Development Investors, LLC (a Delaware Corporation) a
limited liability company engaged in acquiring and improving real
property through development and redevelopment.
c. Principal Capital Management, LLC (a Delaware Corporation) a
limited liability company that provides private mortgage, real
estate & fixed-income securities services to institutional
clients.
d. Principal Net Lease Investors, LLC (a Delaware Corporation) a
limited liability company which operates as a buyer and seller of
net leased investments.
Subsidiaries organized and 90% owned by Principal Life Insurance
Company:
a. PT Asuransi Jiwa Principal Indonesia (an Indonesia Corporation) a
life insuranced corporation which offers group and individual
products.
Subsidiaries wholly-owned by Principal Capital Management, LLC:
a. Principal Structured Investments, LLC (a Delaware Corporation) a
limited liability company that provides product development
administration, marketing and asset management services
associated with stable value products together with other related
institutional financial services including derivatives,
asset-liability management, fixed income investment management
and ancillary money management products.
b. Principal Enterprise Capital, LLC (a Delaware Corporation) a
company engaged in portfolio management on behalf of
institutional clients for structuring, underwriting and
management of entity-level investments in real estate operating
companies (REOCs).
c. Principal Commercial Acceptance, LLC (a Delaware Corporation) a
limited liability company that provides private market bridge
financing and other secondary market opportunities.
d. Principal Capital Real Estate Investors, LLC (a Delaware
Corporation) a registered investment advisor.
e. Principal Commercial Funding, LLC (a Delaware Corporation) a
limited liability company engaged in the structuring,
warehousing, securitization and sale of commercial
mortgage-backed securities.
f. Principal Generation Plant, LLC an inactive Delaware limited
liability company.
g. Principal Capital Income Investors, LLC a Delaware limited
liability company which provides investment and financial
services.
h. Principal Capital Futures Trading Advisor, LLC a Delaware funds
management limited liability company.
Subsidiaries wholly-owned by Principal Holding Company:
a. Principal Bank (a Federal Corporation) a Federally chartered
direct delivery savings bank.
b. Patrician Associates, Inc. (a California Corporation) a real
estate development company.
c. Petula Associates, Ltd. (an Iowa Corporation) a real estate
development company.
d. Principal Development Associates, Inc. (a California Corporation)
a real estate development company.
e. Principal Spectrum Associates, Inc. (a California Corporation) a
real estate development company.
f. Principal FC, Ltd. (an Iowa Corporation) a limited purpose
investment corporation.
g. Equity FC, Ltd. (an Iowa Corporation) engaged in investment
transactions, including limited partnerships and limited
liability companies.
h. HealthRisk Resource Group, Inc. (an Iowa Corporation) a general
business corporation that engages in investment transactions,
including limited partnerships and limited liability companies
i. Invista Capital Management, LLC (an Delaware Corporation) a
limited liability company which is a registered investment
adviser.
j. Principal Residential Mortgage, Inc. (an Iowa Corporation) a full
service mortgage banking company that makes and services a wide
variety of loan types on a nationwide basis.
k. Principal Asset Markets, Inc. (an Iowa Corporation) a corporation
which is currently inactive.
l. Principal Portfolio Services, Inc. (an Iowa Corporation) a
corporation which is currently inactive.
m. The Admar Group, Inc. (a Florida Corporation) a national managed
care service organization that develops and manages preferred
provider organizations.
n. The Principal Financial Group, Inc. (a Delaware corporation) a
corporation which is currently inactive.
o. Principal Product Network, Inc. (a Delaware corporation) an
insurance broker.
p. Principal Health Care, Inc. (an Iowa Corporation) a managed care
company.
q. Dental-Net, Inc. (an Arizona Corporation) a managed dental care
services organization. HMO and dental group practice.
r. Principal Financial Advisors, Inc. (an Iowa Corporation) a
registered investment advisor.
s. Delaware Charter Guarantee & Trust Company, d/b/a Trustar
Retirement Services (a Delaware Corporation) a corporation that
administers individual and group retirement plans for stock
brokerage firm clients and mutual fund distributors.
t. Professional Pensions, Inc. (a Connecticut Corporation) a
corporation engaged in sales, marketing and administration of
group insurance plans and third-party administrator for defined
contribution plans.
u. Principal Investors Corporation (a New Jersey Corporation) a
corporation which is currently inactive.
v. Principal International, Inc. (an Iowa Corporation) a company
engaged in international business development.
Subsidiaries organized and wholly-owned by PT Asuransi Jiwa
Principal Indonesia:
a. PT Jasa Principal Indonesia an Indonesia pension company.
b. PT Principal Capital Management Indonesia an Indonesia funds
management company.
Subsidiary wholly-owned by Invista Capital Management, LLC:
a. Principal Capital Trust. (a Delaware Corporation) a business
trust and private investment company offering non-registered
units, initially, to tax-exempt entities.
Subsidiary wholly-owned by Principal Residential Mortgage, Inc.:
a. Principal Wholesale Mortgage, Inc. (an Iowa Corporation) a
brokerage and servicer of residential mortgages.
b. Principal Mortgage Reinsurance Company (a Vermont corporation)
a mortgage reinsurance company.
Subsidiaries wholly-owned by The Admar Group, Inc.:
a. Admar Corporation (a California Corporation) a managed care
services organization.
Subsidiaries wholly-owned by Dental-Net, Inc.
a. Employers Dental Services, Inc. (an Arizona corporation) a
prepaid dental plan organization.
Subsidiaries wholly-owned by Professional Pensions, Inc.:
a. Benefit Fiduciary Corporation (a Rhode Island corporation) serves
as a corporate trustee for retirement trusts.
b. PPI Employee Benefits Corporation (a Connecticut corporation) a
registered broker-dealer limited to the sale of open-end mutual
funds and variable insurance products.
c. Boston Insurance Trust, Inc. (a Massachusetts corporation) a
corporation which serves as a trustee and administrator of
insurance trusts and arrangements.
Subsidiaries wholly-owned by Principal International, Inc.:
a. Principal International Espana, S.A. de Seguros de Vida (Spain) a
life insurance, annuity, and accident and health company.
b. Zao Principal International (a Russia Corporation) inactive.
c. Principal International Argentina, S.A. (an Argentina
corporation) a holding company that owns Argentina corporations
offering annuities, group and individual insurance policies.
d. Principal Asset Management Company (Asia) Ltd. (Hong Kong) an
asset management company.
e. Principal International (Asia) Limited (Hong Kong) a corporation
operating as a regional headquarters for Asia.
f. Principal Trust Company (Asia) Limited (Hong Kong) (an Asia trust
company).
g. Principal International de Chile, S.A. (Chile) a holding company.
h. Principal Mexico Compania de Seguros, S.A. de C.V. (Mexico) a
life insurance company.
i. Principal Pensiones, S.A. de C.V. (Mexico) a pension company.
j. Principal Afore, S.A. de C.V. (Mexico), a pension company.
k. Principal Consulting (India) Private Limited (an India
corporation) an India consulting company.
Subsidiaries 88% owned by Principal International, Inc.:
a. Principal Insurance Company (Hong Kong) Limited (a Hong Kong
Corporation) a company that sells insurance and pension products.
Subsidiary wholly-owned by Principal International Espana, S.A. de
Seguros de Vida (Spain):
a. Princor International Espana S.A. de Agencia de Seguros (Spain)
an insurance agency.
Subsidiary wholly-owned by Principal International (Asia) Limited
(Hong Kong):
a. Principal Capital Management (Asia) Limited (Hong Kong) Asian
representative and distributor for the Principal Investment
Funds.
Subsidiaries wholly-owned by Principal International Argentina, S.A.
(Argentina):
a. Principal Retiro Compania de Seguros de Retiro, S.A. (Argentina)
an annuity company.
b. Principal Life Compania de Seguros, S.A. (Argentina) a life
insurance company.
Subsidiary wholly-owned by Principal International de Chile, S.A.:
a. Principal Compania de Seguros de Vida Chile S.A. (Chile) life
insurance company.
Subsidiary 60% owned by Principal Compania de Seguros de Vida Chile
S.A. (Chile):
a. Andueza & Principal Creditos Hipotecarios S.A. (Chile) a
residential mortgage company.
Subsidiary wholly-owned by Principal Afore, S.A. de C.V.:
a. Siefore Principal, S.A. de C.V. (Mexico) an investment fund
company.
Item 25. Indemnification
Under Section 2-418 of the Maryland General Corporation Law, with respect
to any proceedings against a present or former director, officer, agent or
employee (a "corporate representative") of the Registrant, the Registrant may
indemnify the corporate representative against judgments, fines, penalties, and
amounts paid in settlement, and against expenses, including attorneys' fees, if
such expenses were actually incurred by the corporate representative in
connection with the proceeding, unless it is established that:
(i) The act or omission of the corporate representative was
material to the matter giving rise to the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and deliberate dishonesty; or
(ii) The corporate representative actually received an improper
personal benefit in money, property, or services; or
(iii) In the case of any criminal proceeding, the corporate
representative had reasonable cause to believe that the act or
omission was unlawful.
If a proceeding is brought by or on behalf of the Registrant, however, the
Registrant may not indemnify a corporate representative who has been adjudged to
be liable to the Registrant. Under the Registrant's Articles of Incorporation
and Bylaws, directors and officers of Registrant are entitled to indemnification
by the Registrant to the fullest extent permitted under Maryland law and the
Investment Company Act of 1940. Reference is made to Article VI, Section 7 of
the Registrant's Articles of Incorporation, Article 12 of Registrant's Bylaws
and Section 2-418 of the Maryland General Corporation Law.
The Registrant has agreed to indemnify, defend and hold the Distributor,
its officers and directors, and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act of 1933, free and harmless from
and against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, directors or any such controlling person may incur under the
Securities Act of 1933, or under common law or otherwise, arising out of or
based upon any untrue statement of a material fact contained in the Registrant's
registration statement or prospectus or arising out of or based upon any alleged
omission to state a material fact required to be stated in either thereof or
necessary to make the statements in either thereof not misleading, except
insofar as such claims, demands, liabilities or expenses arise out of or are
based upon any such untrue statement or omission made in conformity with
information furnished in writing by the Distributor to the Registrant for use in
the Registrant's registration statement or prospectus: provided, however, that
this indemnity agreement, to the extent that it might require indemnity of any
person who is also an officer or director of the Registrant or who controls the
Registrant within the meaning of Section 15 of the Securities Act of 1933, shall
not inure to the benefit of such officer, director or controlling person unless
a court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent that such result would not be against public
policy as expressed in the Securities Act of 1933, and further provided, that in
no event shall anything contained herein be so construed as to protect the
Distributor against any liability to the Registrant or to its security holders
to which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence, in the performance of its duties,
or by reason of its reckless disregard of its obligations under this Agreement.
The Registrant's agreement to indemnify the Distributor, its officers and
directors and any such controlling person as aforesaid is expressly conditioned
upon the Registrant being promptly notified of any action brought against the
Distributor, its officers or directors, or any such controlling person, such
notification to be given by letter or telegram addressed to the Registrant.
Item 26. Business or Other Connection of Investment Adviser
A complete list of the officers and directors of the investment adviser,
Principal Management Corporation, are set out below. This list includes some of
the same people (designated by an *), who are serving as officers and directors
of the Registrant. For these people the information as set out in the Statement
of Additional Information (See Part B) under the caption "Directors and Officers
of the Fund" is incorporated by reference.
John E. Aschenbrenner Principal Executive Vice President
Director Financial Group Principal Life Insurance
Company
Patricia A. Barry Same Counsel
Assistant Corporate Principal Life Insurance
Secretary Company
*Craig L. Bassett Same See Part B
Treasurer
Michael T. Daley Same Executive Vice President
Director Principal Life Insurance
Company
*Ronald L. Danilson Same See Part B
Executive Vice President &
Chief Operating Officer
David J. Drury Same Chairman of the Board
Director Principal Life
Insurance Company
*Ralph C. Eucher Same See Part B
President and Director
*Arthur S. Filean Same See Part B
Sr. Vice President
Dennis P. Francis Same Senior Vice President
Director Principal Life
Insurance Company
Paul N. Germain Same Vice President -
Vice President - Mutual Fund Operations
Mutual Fund Operations Princor Financial Services
Corporation
*Ernest H. Gillum Same See Part B
Vice President - Product
Development
*J. Barry Griswell Same See Part B
Chairman of the Board
and Director
Joyce N. Hoffman Same Senior Vice President and
Vice President and Corporate Secretary
Corporate Secretary Principal Life
Insurance Company
John R. Lepley Same Senior Vice President -
Senior Vice President - Marketing & Distribution
Marketing & Distribution Princor Financial Services
Corporation
Kelly A. Paul Same Assistant Vice President -
Assistant Vice President - Business Systems & Technology
Business Systems & Princor Financial Services
Technology Corporation
Richard L. Prey Same Executive Vice President
Director Principal Life Insurance
Company
*Layne A. Rasmussen Same Controller
Controller - Princor Financial Services
Mutual Funds Corporation
Elizabeth R. Ring Same Controller
Controller Princor Financial Services
Corporation
*Michael D. Roughton Same See Part B
Counsel
James F. Sager Same Vice President
Vice President Princor Financial Services
Corporation
Karen E. Shaff Same Senior Vice President &
Director General Counsel
Principal Life Insurance
Company
*Jean B. Schustek Same See Part B
Assistant Vice President -
Registered Products
*Kirk L. Tibbetts Same See Part B
Senior Vice President &
Chief Financial Officer
Principal Management Corporation serves as investment adviser and dividend
disbursing and transfer agent for, Principal Balanced Fund, Inc., Principal Blue
Chip Fund, Inc., Principal Bond Fund, Inc., Principal Capital Value Fund, Inc.,
Principal Cash Management Fund, Inc., Principal Government Securities Income
Fund, Inc., Principal Growth Fund, Inc., Principal High Yield Fund, Inc.,
Principal International Emerging Markets Fund, Inc., Principal European Equity
Fund, Inc., Principal International Fund, Inc., Principal International SmallCap
Fund, Inc., Principal Investors Fund, Inc. (f/k/a Principal Special Markets
Fund, Inc.), Principal LargeCap Stock Index Fund, Inc., Principal Limited Term
Bond Fund, Inc., Principal Pacific Basin Fund, Inc., Principal MidCap Fund,
Inc., Principal Partners Aggressive Growth Fund, Inc., Principal Partners
LargeCap Blend Fund, Inc., Principal Partners LargeCap Growth Fund, Inc.,
Principal Partners LargeCap Value Fund, Inc. Principal Partners MidCap Growth
Fund, Inc., Principal Partners SmallCap Growth Fund, Inc., Principal Real Estate
Fund, Inc., Principal SmallCap Fund, Inc., Principal Tax-Exempt Bond Fund, Inc.,
Principal Utilities Fund, Inc., Principal Variable Contracts Fund, Inc. - funds
sponsored by Principal Life Insurance Company.
Item 27. Principal Underwriters
(a) Princor Financial Services Corporation, principal underwriter for
Registrant, acts as principal underwriter for, Principal Balanced Fund, Inc.,
Principal Blue Chip Fund, Inc., Principal Bond Fund, Inc., Principal Capital
Value Fund, Inc., Principal Cash Management Fund, Inc., Principal European
Equity Fund, Inc., Principal Government Securities Income Fund, Inc., Principal
Growth Fund, Inc., Principal High Yield Fund, Inc., Principal International
Emerging Markets Fund, Inc., Principal International Fund, Inc., Principal
International SmallCap Fund, Inc., Principal Investors Fund, Inc. (f/k/a
Principal Special Markets Fund, Inc.), Principal LargeCap Stock Index Fund,
Inc., Principal Limited Term Bond Fund, Inc., Principal MidCap Fund, Inc.,
Principal Pacific Basin Fund Inc., Principal Partners Aggressive Growth Fund,
Inc., Principal Partners LargeCap Blend Fund, Inc., Principal Partners LargeCap
Growth Fund, Inc., Principal Partners LargeCap Value Fund, Inc., Principal
Partners MidCap Growth Fund, Inc., Principal Partners SmallCap Growth Fund,
Inc., Principal Real Estate Fund, Inc., Principal SmallCap Fund, Inc., Principal
Tax-Exempt Bond Fund, Inc., Principal Utilities Fund, Inc., Principal Variable
Contracts Fund, Inc. and for variable annuity contracts participating in
Principal Life Insurance Company Separate Account B, a registered unit
investment trust for retirement plans adopted by public school systems or
certain tax-exempt organizations pursuant to Section 403(b) of the Internal
Revenue Code, Section 457 retirement plans, Section 401(a) retirement plans,
certain non-qualified deferred compensation plans and Individual Retirement
Annuity Plans adopted pursuant to Section 408 of the Internal Revenue Code, and
for variable life insurance contracts issued by Principal Life Insurance Company
Variable Life Separate Account, a registered unit investment trust.
(b) (1) (2)
Positions
and offices
Name and principal with principal
business address underwriter
Thomas E. Ackerman Regional Vice President -
The Principal Variable Annuities
Financial Group
Des Moines, IA 50392
Lindsay L. Amadeo Assistant Director -
The Principal Marketing Services
Financial Group
Des Moines, IA 50392
John E. Aschenbrenner Director
The Principal
Financial Group
Des Moines, IA 50392
Robert W. Baehr Marketing Services
The Principal Officer
Financial Group
Des Moines, IA 50392
Patricia A. Barry Assistant Corporate Secretary
The Principal
Financial Group
Des Moines, IA 50392
Craig L. Bassett Treasurer
The Principal
Financial Group
Des Moines, IA 50392
David J. Brown Vice President
The Principal
Financial Group
Des Moines, IA 50392
Michael T. Daley Director
The Principal
Financial Group
Des Moines, IA 50392
Ronald L. Danilson Executive Vice President and
The Principal Chief Operating Officer
Financial Group
Des Moines, IA 50392
Mark B. Davis Assistant Director - Compliance
The Principal
Financial Group
Des Moines, IA 50392
David J. Drury Director
The Principal
Financial Group
Des Moines, IA 50392
Ralph C. Eucher Director and
The Principal President
Financial Group
Des Moines, IA 50392
Arthur S. Filean Senior Vice President
The Principal
Financial Group
Des Moines, IA 50392
Dennis P. Francis Director
The Principal
Financial Group
Des Moines, IA 50392
Paul N. Germain Vice President -
The Principal Mutual Fund Operations
Financial Group
Des Moines, IA 50392
Ernest H. Gillum Vice President -
The Principal Product Development
Financial Group
Des Moines, IA 50392
Thomas D. Gualdoni Vice President - National Sales
The Principal Manager/Variable Annuities
Financial Group
Des Moines, IA 50392
J. Barry Griswell Director and
The Principal Chairman of the
Financial Group Board
Des Moines, IA 50392
Susan R. Haupts Marketing Officer
The Principal
Financial Group
Des Moines, IA 50392
Joyce N. Hoffman Vice President and
The Principal Corporate Secretary
Financial Group
Des Moines, IA 50392
Jeffrey L. Kane Marketing Officer
The Principal
Financial Group
Des Moines, IA 50392
Peter R. Kornweiss Vice President
The Principal
Financial Group
Des Moines, IA 50392
Kraig L. Kuhlers Regional Sales Director
The Principal
Financial Group
Des Moines, IA 50392
John R. Lepley Senior Vice
The Principal President - Marketing
Financial Group and Distribution
Des Moines, IA 50392
Kelly A. Paul Assistant Vice President -
The Principal Business Systems and Technology
Financial Group
Des Moines, IA 50392
Elise M. Pilkington Assistant Director -
The Principal Retirement Consulting
Financial Group
Des Moines, IA 50392
Richard L. Prey Director
The Principal
Financial Group
Des Moines, IA 50392
Martin R. Richardson Operations Officer -
The Principal Broker/Dealer Services
Financial Group
Des Moines, IA 50392
Elizabeth R. Ring Controller
The Principal
Financial Group
Des Moines, IA 50392
Michael D. Roughton Counsel
The Principal
Financial Group
Des Moines, IA 50392
James F. Sager Vice President
The Principal
Financial Group
Des Moines, IA 50392
Kyle R. Selberg Vice President-Marketing
The Principal
Financial Group
Des Moines, IA 50392
Karen E. Shaff Director
The Principal
Financial Group
Des Moines, IA 50392
Minoo Spellerberg Assistant Vice President and
The Principal Compliance Officer
Financial Group
Des Moines, IA 50392
Paul D. Steingreaber Director of National Sales
The Principal
Financial Group
Des Moines, IA 50392
Kirk L. Tibbetts Senior Vice President and
The Principal Chief Financial Officer
Financial Group
Des Moines, IA 50392
(c) Inapplicable.
Item 28. Location of Accounts and Records
All accounts, books or other documents of the Registrant are located at the
offices of the Registrant and its Investment Adviser in the Principal Life
Insurance Company home office building, The Principal Financial Group, Des
Moines, Iowa 50392.
Item 29. Management Services
Inapplicable.
Item 30. Undertakings
Indemnification
Reference is made to Item 27 above, which discusses circumstances under
which directors and officers of the Registrant shall be indemnified by the
Registrant against certain liabilities and expenses incurred by them by reason
of being a director or officer of the Registrant.
Notwithstanding the provisions of Registrant's Articles of Incorporation
and Bylaws, the Registrant hereby makes the following undertaking:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant, in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person of the Registrant, in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue
Shareholder Communications
Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a director or directors when
requested in writing to do so by the holders of at least 10% of the Registrant's
outstanding shares of common stock and in connection with such meeting to comply
with the provisions of Section 16(c) of the Investment Company Act of 1940
relating to shareholder communications
Delivery of Annual Report to Shareholders
The registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of the registrant's latest annual report to
shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Des Moines and State of Iowa, on the 5th day of
December, 2000.
PRINCIPAL INVESTORS FUND, INC.
(Registrant)
By /s/ R. C. Eucher
--------------------------------------
R. C. Eucher
President and Director
Attest:
/s/ A. S. Filean
--------------------------------------
A. S. Filean
Vice President and Secretary
Pursuant to the requirement of the Securities Act of 1933, this Amendment to the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ R. C. Eucher
_____________________________ President and Director 12/5/2000
R. C. Eucher (Principal Executive Officer) __________
(J. B. Griswell)*
_____________________________ Director and 12/5/2000
J. B. Griswell Chairman of the Board __________
/s/ K. L. Tibbetts
_____________________________ Senior Vice President and 12/5/2000
K. L. Tibbetts Chief Financial Officer __________
Princcipal Financial and
Accounting Officer)
(J. E. Aschenbrenner)*
_____________________________ Director 12/5/2000
J. E. Aschenbrenner __________
(J. D. Davis)*
_____________________________ Director 12/5/2000
J. D. Davis __________
(P. A. Ferguson)*
_____________________________ Director 12/5/2000
P. A. Ferguson __________
(R. W. Gilbert)*
_____________________________ Director 12/5/2000
R. W. Gilbert __________
(W. C. Kimball)*
_____________________________ Director 12/5/2000
W. C. Kimball __________
(B. A. Lukavsky)*
_____________________________ Director 12/5/2000
B. A. Lukavsky __________
*By /s/R. C. Eucher
_____________________________________
R. C. Eucher
President and Director
Pursuant to Powers of Attorney
Previously Filed or Included
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints R. C. Eucher, J. B. Griswell, M.
D. Roughton, E. H. Gillum and A. S. Filean and each of them (with full power to
each of them to act alone), the undersigned's true and lawful attorney-in-fact
and agent, with full power of substitution to each, for and on behalf and in the
name of the undersigned, to execute and file any documents relating to
registration under the Securities Act of 1933 and the Investment Company Act of
1940 with respect to open-end management investment companies currently
organized or to be organized in the future which are sponsored by Principal Life
Insurance Company, and any and all amendments thereto and reports thereunder
with all exhibits and all instruments necessary or appropriate in connection
therewith, each of said attorneys-in-fact and agents and his or their
substitutes being empowered to act with or without the others or other, and to
have full power and authority to do or cause to be done in the name and on
behalf of the undersigned each and every act and thing necessary or appropriate
to be done in order to effectuate the same, as fully to all intents and purposes
as the undersigned might or could do in person; hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 5th day of
December, 2000.
/s/J. E. Aschenbrenner
____________________________
J. E. Aschenbrenner
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints R. C. Eucher, J. B. Griswell, M.
D. Roughton, E. H. Gillum and A. S. Filean and each of them (with full power to
each of them to act alone), the undersigned's true and lawful attorney-in-fact
and agent, with full power of substitution to each, for and on behalf and in the
name of the undersigned, to execute and file any documents relating to
registration under the Securities Act of 1933 and the Investment Company Act of
1940 with respect to open-end management investment companies currently
organized or to be organized in the future which are sponsored by Principal Life
Insurance Company, and any and all amendments thereto and reports thereunder
with all exhibits and all instruments necessary or appropriate in connection
therewith, each of said attorneys-in-fact and agents and his or their
substitutes being empowered to act with or without the others or other, and to
have full power and authority to do or cause to be done in the name and on
behalf of the undersigned each and every act and thing necessary or appropriate
to be done in order to effectuate the same, as fully to all intents and purposes
as the undersigned might or could do in person; hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 5th day of
December, 2000.
/s/R. W. Gilbert
____________________________
R. W. Gilbert
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints R. C. Eucher, J. B. Griswell, M.
D. Roughton, E. H. Gillum and A. S. Filean and each of them (with full power to
each of them to act alone), the undersigned's true and lawful attorney-in-fact
and agent, with full power of substitution to each, for and on behalf and in the
name of the undersigned, to execute and file any documents relating to
registration under the Securities Act of 1933 and the Investment Company Act of
1940 with respect to open-end management investment companies currently
organized or to be organized in the future which are sponsored by Principal Life
Insurance Company, and any and all amendments thereto and reports thereunder
with all exhibits and all instruments necessary or appropriate in connection
therewith, each of said attorneys-in-fact and agents and his or their
substitutes being empowered to act with or without the others or other, and to
have full power and authority to do or cause to be done in the name and on
behalf of the undersigned each and every act and thing necessary or appropriate
to be done in order to effectuate the same, as fully to all intents and purposes
as the undersigned might or could do in person; hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 5th day of
December, 2000.
/s/W. C. Kimball
____________________________
W. C. Kimball
