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pif-instlprosp.txt
PIF INSTITUTIONAL PROSPECTUS SUPPLEMENT DATED 7/3/307
SUPPLEMENT DATED JULY 3, 2007
TO THE PROSPECTUS FOR PRINCIPAL INVESTORS FUND, INC.
INSTITUTIONAL CLASS SHARES
DATED MAY 29, 2007
The following information is an addition to the prospectus or a replacement of
information currently in the prospectus.
On page 123, below the heading "SmallCap Blend Fund," add the following:
(Closed to new investors as of September 1, 2007)
On page 206, after the third paragraph under "Purchase of Fund Shares," add the
following paragraph:
Effective the close of business of September 1, 2007, the SmallCap Blend Fund
(the "fund") will close to new investors. Those who are fund shareholders on
September 1, 2007 may, however, continue to purchase shares in fund accounts in
existence at that time.
On page 207, replace the first paragraph and bulleted list under "Dividends and
Distributions" with the following:
The Funds pay their net investment income to shareholders of record on the
business day prior to the payment date. The payment schedule is as follows:
. The Preferred Securities Fund pays its net investment income on a monthly
basis. The payment date is the last business day of each month. The Preferred
Securities Fund previously paid its net investment income on a quarterly
basis; the last quarterly payment will occur on the last business day in
September 2007. Monthly payments for the Preferred Securities Fund will take
place on the last business day of each month following that.
. The SAM Flexible Income, SAM Conservative Balanced, and SAM Balanced
Portfolios and the Real Estate Securities Fund each pay their net investment
income on a quarterly basis. The payment date is the last business day of
March, June, September, and December.
. The other Funds (except Bond & Mortgage Securities, Government & High Quality
Bond, High Yield II, Inflation Protection, Income, Money Market, Mortgage
Securities, Short-Term Bond, Short-Term Income, and Ultra Short Bond) pay
their net investment income on an annual basis. The payment date is the last
business day of the year. The SAM Conservative Growth Portfolio previously
paid its net investment income on a quarterly basis. Annual payments for the
SAM Conservative Growth Portfolio will commence on the last business day of
December 2007. The Bond & Mortgage Securities, Government & High Quality Bond,
Inflation Protection, and Short-Term Bond Funds previously paid their net
investment income on a monthly basis. This change is effective October 1,
2007.
On page 208, replace the third paragraph with the following:
The Bond & Mortgage Securities, Government & High Quality Bond, High Yield II,
Inflation Protection, Income, Mortgage Securities, Short-Term Income, and Ultra
Short Bond Fund declares dividends of all its daily net investment income each
day its shares are priced. Dividends are based on estimates of income,
expenses, and shareholder activity for the Fund. Actual income, expenses, and
shareholder activity may differ from estimates, consequently, differences, if
any, will be included in the calculation of subsequent dividends. On the last
business day of each month (or the previous business day) the Fund will pay out
its accumulated declared dividends.
FV 199 S-30
HIGH YIELD FUND
Effective July 19, 2007 J.P. Morgan Investment Management, Inc. ("J.P. Morgan")
and Lehman Brothers Asset Management LLC ("Lehman Brothers") are additional
sub-advisors for the High Yield Fund.
SUB-ADVISOR: JP Morgan, 245 Park Avenue, New York, NY 10167, is an indirect
wholly owned subsidiary of JPMorgan Chase & Co. ("JPMorgan"), a bank
holding company. Morgan offers a wide range of services to
governmental, institutional, corporate, and individual customers and
acts as investment advisor to individual and institutional clients.
Day-to-day portfolio management is performed by an investment management team at
J.P. Morgan. The portfolio management team for the High Yield Fund is comprised
of William J. Morgan, Managing Director and James P. Shanahan, Managing
Director. An employee of JPMIA and/or affiliated firms since 1998, Mr. Shanahan
is a high yield co-portfolio manager for general high yield mandates,
responsible for distressed and special situation investments, and CBO
portfolios. James E. Gibson is one of the principal high yield traders in the
U.S. Fixed Income Group and has been an employee of JPMIA and/or affiliated
firms since 1998.
JAMES E. GIBSON. . Mr. Gibson is Vice President, Head Trader and co-Portfolio
Manager for all high yield mandates. Mr. Gibson has 19 years of experience in
high yield and distressed investments. He became an employee of JPMorgan
Investment Management in March 2005 and prior to that time held the multiple
high yield management roles at Banc One High Yield Partners, LLC and Pacholder
Associates, Inc. since 1988. Mr. Gibson is a member of the High Yield
Management Review Committee, which oversees all investment functions, includes
the determination and execution of investment strategy for each high yield
client account. Mr. Gibson holds a B.S. in Finance from the University of
Cincinnati College of Business Administration.
WILLIAM J. MORGAN. . Mr. Morgan, Managing Director, is the Senior Portfolio
Manager and team leader for the High Yield Team. He has been actively involved
in the management of high yield portfolios as a portfolio manager and as a
member of the High Yield Team's Management Review Committee since 1984. The High
Yield Management Review Committee, which oversees all investment functions,
includes the determination and execution of investment strategy for each high
yield client account. Mr. Morgan has 25 years of investment experience. He
became an employee of JPMorgan Investment Management in March 2005 and prior to
that time held the same role at Banc One High Yield Partners, LLC and Pacholder
Associates, Inc. Mr. Morgan holds a B.A. in History from Kenyon College and a
Masters in Business Administration from Xavier University.
JAMES P. SHANAHAN, JR. . Mr. Shanahan is Managing Director and Portfolio Manager
for distressed and special situations and CBO portfolios and focuses on higher
risk credits, including distressed and special situations investments, in high
yield mandates. Mr. Shanahan has 21 years of experience in high yield and
distressed investments. He became an employee of JPMorgan Investment Management
in March 2005 and prior to that time held the same role at Banc One High Yield
Partners, LLC and Pacholder Associates, Inc. Mr. Shanahan holds a B.A. from
Xavier University and a J.D. from the University of Cincinnati College of Law.
SUB-ADVISOR: Lehman Brothers, 190 South LaSalle Street, Chicago, IL 60603, is a
wholly-owned subsidiary of Lehman Brothers Holdings, Inc., a
publicly-owned holding company. Lehman Brothers offers a wide range of
investment advisory services to meet the needs of clients with diverse
investment objectives.
The portfolio managers for the segment of the High Yield Fund managed by Lehman
Brothers are Ann H. Benjamin and Thomas P. O'Reilly. Ms. Benjamin is the chief
investment officer and lead portfolio manager for high yield portfolios at
Lehman Brothers. An employee of the firm since 1997, Ms. Benjamin has over 20
years of investment experience. Thomas O'Reilly is a Senior Vice President and
portfolio manager for high yield portfolios at Lehman Brothers. Mr. O'Reilly
joined the firm in 1997 and has over 15 years of investment experience. High
yield portfolios at Lehman Brothers are managed utilizing a team approach.
Portfolio managers are supported by the other Lehman Brothers' investment
professionals who are organized into specialty teams. Team members provide
research support, identify and evaluate opportunities and support the portfolio
managers in all activities.
FV 199 S-30
ANN H. BENJAMIN. . Ms. Benjamin is a Managing Director and joined the Firm in
1997. Ms. Benjamin is the Chief Investment Officer and lead portfolio manager
for high yield portfolios and blended credit strategies. She directs all aspects
of the high yield business including research, trading and portfolio management.
Ms. Benjamin serves on the Advisory Committee to the Firm's Board of Directors,
the Steering Committee, and is a member of the investment team setting overall
portfolio strategy. She came to the Firm with 16 years of experience in the
investment business, including eight years at Stein Roe. Other experience
includes Allstate Insurance Company, where she co-managed high yield assets and
Westinghouse Credit Corporation, where she managed high yield, mezzanine debt
and equity securities. She is a graduate of Chatham College, earning a BA degree
in Economics, and Carnegie Mellon University where she earned a Master's degree
in Finance.
THOMAS P. O'REILLY. . Mr. O'Reilly is a Senior Vice President and joined the
Firm in 1997. Mr. O'Reilly serves as a portfolio manager for high yield and
blended credit portfolios. He is a member of the investment team setting overall
portfolio strategy. Mr. O'Reilly had previously been a high yield analyst for
Stein Roe and for BankAmerica. He has a BS in Finance from Indiana University,
an MBA from Loyola University, and has been awarded the Chartered Financial
Analyst designation.
Replace the Risk/Return Summary for the High Yield Fund beginning on page 40
with the following:
HIGH YIELD FUND
SUB-ADVISOR(S): Post Advisory Group, LLC ("Post"), J.P. Morgan Investment
Management, Inc. ("J.P. Morgan"), and Lehman Brothers Asset Management
LLC ("Lehman Brothers")
OBJECTIVE: The Fund seeks high current income.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking asset class diversification by investing in a fixed-income
mutual fund and who are willing to accept the risks associated with
investing in "junk bonds."
MAIN STRATEGIES AND RISKS
Under normal market conditions, the Fund invests at least 80% of its assets in
high yield, below investment grade quality debt and other income-producing
securities including, corporate bonds, corporate loan participations and
assignments, convertible securities, preferred securities, asset-backed
securities, credit default swaps, and securities of companies in bankruptcy
proceedings or otherwise in the process of debt restructuring. The "high yield"
securities in which the Fund invests are common known as "junk bonds." These
securities offer a higher yield than other, higher rated securities, but they
carry a greater degree of risk and are considered speculative with respect to
the issuer's ability to pay interest and to repay principal.
The Fund may lend its portfolio securities to brokers, dealers and other
financial institutions. In connection with such loans, the Fund remains the
owner of the loaned securities and continues to be entitled to payments in
amounts equal to the interest, dividends or other distributions payable on the
loaned securities. Loans of portfolio securities may not exceed 33 1/3% of the
value of the Fund's total assets (including the value of all assets received as
collateral for loan). In connection with such loans the Fund will receive
collateral from the borrower equal to at least 100% of the value of the loaned
securities.
The Fund primarily invests its assets in securities rated Ba1 or lower by
Moody's Investor Service, Inc. ("Moody's") or BB+ or lower by Standard & Poor's
Rating Service ("S&P"). The Fund may also invest in unrated securities which the
Manager believes to be of comparable quality. The Statement of Additional
Information contains descriptions of the securities rating categories
Post applies its investment process based on the belief that superior
performance is achieved by identifying three specific attributes:
. value identification - seeking complex, not closely followed and/or
misunderstood credits which have the highest probability of being mispriced by
the consensus view. Post looks for what it believes are inefficiencies between
the actual value and market price of securities.
. downside protection based on qualitative analysis - analyzing the potential
downside risk of each investment and continuous monitoring of the investment
portfolio to attempt to keep unexpected negatives to a minimum.
. portfolio diversification - maintaining exposure and diversification limits by
issue, issuer, security type, duration, maturity and credit rating.
FV 199 S-30
Sub-Advisor, Lehman Brothers, believes that superior high yield investment
results can be achieved throughout all market cycles using a proactive
investment process that incorporates experience and investment judgment
supported by risk management techniques. Lehman Brothers believes that
successful high yield investing is driven by strict discipline that seeks to
avoid credit deterioration, select securities in which the spread is attractive
on a relative value basis, and rotate
During the fiscal year ended October 31, 2006, the average ratings of the Fund's
assets, based on market value at each month-end, were as follows (all ratings
are by Moody's):
0.00% in securities 0.41% in securities 7.83% in securities rated
rated Aaa rated Baa Caa
0.00% in securities 32.96% in securities 1.23% in securities rated
rated Aa rated Ba Ca
0.30% in securities 57.04% in securities
rated A rated B 0.23% in securities rated C
Among the principal risks of investing in the Fund are:
.Fixed-Income .Portfolio Duration
Securities Risk . Derivatives Risk Risk
.
High Yield Securities .Municipal Securities
Risk Risk . Prepayment Risk
.U.S. Government .U.S. Government
Sponsored Securities Securities Risk . Underlying Fund Risk
Risk
Post has been the Fund's sub-advisor since December 29, 2004. Effective July 19,
2007, J.P. Morgan and Lehman Brothers became sub-advisors to the Fund.
FV 199 S-30
PRINCIPAL INVESTORS FUND, INC.
INSTITUTIONAL CLASS SHARES
The date of this Prospectus is May 29, 2007.
As with all mutual funds, neither the Securities and Exchange Commission ("SEC")
nor any State Securities Commission has approved or disapproved these securities
or determined whether this prospectus is accurate or complete. It is a criminal
offense to represent otherwise.
TABLE OF CONTENTS
Risk/Return Summary .....................................................5
Fixed Income Funds
Money Market Fund.....................................................9
Short-Term Bond Fund ..................................................11
Short-Term Income Fund................................................14
Ultra Short Bond Fund .................................................16
Conservative Funds
Bond & Mortgage Securities Fund.......................................19
Government & High Quality Bond Fund ...................................21
High Quality Intermediate-Term Bond Fund..............................23
Income Fund...........................................................26
Inflation Protection Fund .............................................28
Preferred Securities Fund.............................................31
Mortgage Securities Fund..............................................34
Moderate Funds
Disciplined LargeCap Blend Fund.......................................36
Equity Income Fund I..................................................38
High Yield Fund.......................................................40
High Yield Fund II....................................................43
LargeCap Growth Fund..................................................45
LargeCap S&P 500 Index Fund...........................................47
LargeCap Value Fund...................................................50
MidCap Value Fund.....................................................53
Partners LargeCap Blend Fund..........................................56
Partners LargeCap Blend Fund I........................................59
Partners LargeCap Growth Fund I.......................................61
Partners LargeCap Growth Fund II......................................64
Partners LargeCap Value Fund..........................................67
Partners LargeCap Value Fund I........................................69
Partners LargeCap Value Fund II.......................................72
Partners MidCap Value Fund............................................75
Partners MidCap Value Fund I..........................................78
Aggressive Funds
MidCap Blend Fund.....................................................81
MidCap Growth Fund....................................................84
MidCap Stock Fund.....................................................86
MidCap S&P 400 Index Fund.............................................88
Partners MidCap Growth Fund...........................................91
Partners MidCap Growth Fund I.........................................94
Partners MidCap Growth Fund II........................................97
Partners SmallCap Blend Fund..........................................100
Partners SmallCap Growth Fund I.......................................103
Partners SmallCap Growth Fund II......................................106
Partners SmallCap Growth Fund III.....................................109
Partners SmallCap Value Fund..........................................112
Partners SmallCap Value Fund I........................................115
Partners SmallCap Value Fund II.......................................118
Real Estate Securities Fund...........................................121
SmallCap Blend Fund...................................................123
SmallCap Growth Fund..................................................126
SmallCap S&P 600 Index Fund...........................................129
SmallCap Value Fund...................................................132
West Coast Equity Fund................................................135
Dynamic Funds
Diversified International Fund........................................137
International Emerging Markets Fund...................................140
International Growth Fund .............................................143
Partners Global Equity Fund...........................................145
Partners International Fund...........................................147
Principal LifeTime Funds
Principal LifeTime 2010 Fund..........................................152
Principal LifeTime 2020 Fund..........................................153
Principal LifeTime 2030 Fund..........................................154
Principal LifeTime 2040 Fund..........................................155
Principal LifeTime 2050 Fund..........................................156
Principal LifeTime Strategic Income Fund..............................157
Strategic Asset Management Portfolios..................................
Flexible Income Portfolio.............................................162
Conservative Balanced Portfolio.......................................163
Balanced Portfolio....................................................164
Conservative Growth Portfolio.........................................166
Strategic Growth Portfolio............................................167
The Costs of Investing..................................................170
Certain Investment Strategies and Related Risks.........................171
Management of the Funds .................................................177
Pricing of Fund Shares..................................................204
Purchase of Fund Shares.................................................205
Redemption of Fund Shares...............................................205
Exchange of Fund Shares.................................................206
Dividends and Distributions.............................................206
Fund Account Information................................................207
Portfolio Holdings Information..........................................208
Financial Highlights....................................................209
Appendix A - Principal Risk Summary .....................................244
Appendix B - Definitions of the Indices Used in this Prospectus.........250
Appendix C - Related Performance of the Sub-Advisors....................254
Additional Information..................................................266
The Principal Investors Funds have been divided into 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
(that include both stocks and bonds) 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.
ASSET ALLOCATION
The Principal LifeTime Funds are designed to meet the needs of an investor who
wants an investment option that is suited to the investor's particular
investment time horizon and who tends to be more accepting of risk in the early
years of his or her time horizon and becomes more risk-averse as he or she nears
the investment goal (for example, retirement or saving for college).
Professional investment advisers manage the Funds to align, over time,
underlying investments with the changing risk tolerance of the investor. These
Funds are sometime referred as "target date funds." The target date Funds
offered by the Fund are: Principal LifeTime 2010, Principal LifeTime 2020,
Principal LifeTime 2030, Principal LifeTime 2040, Principal LifeTime 2050, and
Principal LifeTime Strategic Income (the "LifeTime Funds").
Principal Investors Fund also provides a broad selection of asset allocation
strategies available through the Strategic Asset Management ("SAM") Flexible
Income, Conservative Balanced, Balanced, Conservative Growth, and Strategic
Growth Portfolios (each a "Portfolio," collectively the ''Portfolios''). The SAM
Portfolios offer you the opportunity to pursue a variety of specially
constructed asset allocation strategies. The Flexible Income Portfolio is
designed to provide income. The other Portfolios are designed for long-term
investors seeking total return or long-term capital appreciation.
RISK/RETURN SUMMARY
Principal Investors Fund, Inc. is comprised of many investment portfolios
("Funds"). The Fund's Distributor is Princor Financial Services Corp. (the
"Distributor").* Principal Management Corporation (Principal)*, the Manager of
each of the Funds, seeks to provide a broad range of investment approaches
through the Principal Investors Funds. Principal has selected a Sub-Advisor for
the Funds based on the Sub-Advisor's experience with the investment strategy for
which it was selected.
Principal has selected a Sub-Advisor or Sub-Advisors for each Fund based on the
Sub-Advisors' experience with the investment strategy for which it was selected.
The Sub-Advisors and the Funds each sub-advise are:
SUB-ADVISOR FUND(S)
----------- -------
Partners LargeCap Value
AllianceBernstein L.P. Partners SmallCap Growth
I
Partners LargeCap Growth
II
American Century Investment Management, Inc. Partners LargeCap Value
II
Ark Asset Management Co., Inc. Partners SmallCap Value
Barrow, Hanley, Mewhinney & Strauss, Inc. MidCap Value
Partners LargeCap Growth
BNY Investment Advisors II
Partners LargeCap Value
LargeCap Growth
Columbus Circle Investors * MidCap Growth
Partners SmallCap Growth
III
Partners SmallCap Value
Dimensional Fund Advisors II
Edge Asset Management, Inc. (formerly known as WM High Yield II
Advisors, Inc.) Income
MidCap Stock
Mortgage Securities
Short-Term Income
Strategic Asset
Management Portfolios
West Coast Equity
Partners SmallCap Growth
Emerald Advisers, Inc. II
Partners SmallCap Growth
Essex Investment Management Company, LLC II
Goldman Sachs Asset Management, L.P. Partners LargeCap Blend I
Partners MidCap Value I
J.P. Morgan Investment Management, Inc. Partners Global Equity
Partners SmallCap Value I
Jacobs Levy Equity Management, Inc. Partners MidCap Value
Los Angeles Capital Management and Equity
Research, Inc. Partners MidCap Value I
Partners SmallCap Value
Partners SmallCap Growth
Mazama Capital Management, Inc. III
Mellon Equity Associates, LLP Partners MidCap Growth I
Partners SmallCap Blend
Neuberger Berman Management Inc. Partners MidCap Value
Post Advisory Group, LLC * High Yield
Bond & Mortgage
Securities
Disciplined LargeCap
Blend
Diversified International
Principal Global Investors, LLC * Government & High Quality
Bond
High Quality
Intermediate-Term Bond
Inflation Protection
International Emerging
Markets
International Growth
LargeCap S&P 500 Index
LargeCap Value
MidCap Blend
MidCap S&P 400 Index
MidCap Value
Money Market
Principal LifeTime Funds
Short-Term Bond
SmallCap Blend
SmallCap Growth
SmallCap S&P 600 Index
SmallCap Value
Ultra Short Bond
Principal Real Estate Investors, LLC * Real Estate Securities
Pyramis Global Advisors, LLC
(formerly known as Fidelity Management & Research Partners International
Company) Partners MidCap Growth II
Spectrum Asset Management, Inc. * Preferred Securities
Partners LargeCap Blend
T. Rowe Price Associates, Inc. Partners LargeCap Growth
I
Turner Investment Partners, Inc. Partners MidCap Growth
Partners LargeCap Value I
UBS Global Asset Management (Americas) Inc. Partners SmallCap Growth
II
Partners SmallCap Value
Vaughan Nelson Investment Management, LP II
*Principal Management Corporation, Columbus Circle Investors, Edge Asset
Management, Inc., Princor Financial Services Corp., Principal Funds
Distributor, Inc., Principal Global Investors, LLC, Principal Real Estate
Investors, LLC, and Spectrum Asset Management, Inc. are affiliates of
Principal Life Insurance Company and with it are subsidiaries of Principal
Financial Group, Inc. and members of the Principal Financial Group/(R)/.
INSTITUTIONAL CLASS SHARES
Only eligible purchasers may buy Institutional Class shares of the Funds. At the
present time, eligible purchasers include but are not limited to:
. separate accounts of Principal Life;
. Principal Life or any of its subsidiaries or affiliates;
. any fund distributed by Principal Funds Distributor, Inc.* and/or Princor
Financial Services Corporation. ("Princor") (together, the "Distributors")
if the Fund seeks to achieve its investment objective by investing primarily
in shares of mutual funds;
. clients of Principal Global Investors, LLC.;
. sponsors, recordkeepers, or administrators of wrap account or mutual fund
asset allocation programs or participants in those programs;
. certain pension plans;
. certain retirement account investment vehicles administered by foreign or
domestic pension plans;
. an investor who buys shares through an omnibus account with certain
intermediaries, such as a broker-dealer, bank, or other financial
institution, pursuant to a written agreement; and
. certain institutional clients that have been approved by Principal Life
Insurance Company for purposes of providing plan record keeping.
Principal reserves the right to broaden or limit the designation of eligible
purchasers. Not all of the Funds are offered in every state. Please check with
your financial advisor or our home office for state availability.
MAIN STRATEGIES AND RISKS
Each Fund's investment objective is described in the summary description of each
Fund. The Board of Directors may change a Fund's objective or the investment
strategies without a shareholder vote if it determines such a change is in the
best interests of the Fund. If there is a material change to the Fund's
investment objective or investment strategies, you should consider whether the
Fund remains an appropriate investment for you. There is no guarantee that a
Fund will meet its objective.
The summary of each Fund also describes each Fund's primary investment
strategies (including the type or types of securities in which the Fund
invests), any policy of the Fund to concentrate in securities of issuers in a
particular industry or group of industries and the main risks associated with an
investment in the Fund. A fuller discussion of risks appears later in the
Prospectus under the caption "Certain Investment Strategies and Related Risks."
Each Fund may invest up to 100% of its assets in cash and cash equivalents for
temporary defensive purposes in response to adverse market, economic, or
political conditions as more fully described under the caption "Certain
Investment Strategies and Related Risks-Temporary Defensive Measures."
Each Fund is designed to be a portion of an investor's portfolio. None of the
Funds 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. The value
of your investment in a Fund changes with the value of the investments held by
that Fund. Many factors affect that value, and it is possible that you may lose
money by investing in the Funds. There can be no assurance that any Fund will
achieve its investment objective. An investment in a Fund is not a deposit in a
bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. Although the Money Market Fund seeks
to preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in the Money Market Fund.
Factors that may adversely affect a particular Fund as a whole are called
"principal risks." The principal risks of investing in the Funds are stated as
to each Fund in the Fund's description. In addition to the risks identified in
each Fund's description, each of the Funds is also subject to credit and
counterparty risk, liquidity risk, market risk, and management risk (except the
LargeCap S&P 500 Index Fund, MidCap S&P 400 Index Fund, and Small Cap S&P 600
Index Fund). These risks, and each of the other principal risks, are more fully
explained in Appendix A to this prospectus.
INVESTMENT RESULTS
A bar chart and a table are included with the description of each Fund that has
annual returns for a full calendar year. They show the Fund's annual returns and
its long-term performance. The chart shows how the Fund's performance has varied
from year-to-year. The table compares the Fund's performance over time to that
of:
. a broad-based securities market index (An index measures the market price of a
specific group of securities in a particular market or 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
. an average of mutual funds with a similar investment objective and management
style (the averages used are prepared by independent statistical services).
Performance of the Institutional Class Shares shares of Equity Income Fund I,
High Yield Fund II, Income Fund, Mortgage Securities, West Coast Equity, and
each of the SAM Portfolios is based on the historical performance of the Class A
shares of the predecessor fund adjusted to reflect the lack of initial sales
charges and lower fund operating expenses for the Institutional Class Shares
shares. The adjustment results in performance for the Institutional Class Shares
shares that is likely to be different, but no higher than the historical
performance of the Class A shares.
Call the Principal Investors Fund at 1-800-547-7754 to get the current 7-day
yield for the Money Market Fund.
FEES AND 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. Your actual costs may be higher
or lower.
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, Principal, any Sub-Advisor, or the Distributor.
MONEY MARKET FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks as high a level of current income as is considered
consistent with preservation of principal and maintenance of
liquidity.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking monthly dividends without incurring much principal risk. 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. An investment in the Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
MAIN STRATEGIES AND RISKS
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
PGI 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, 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:
. to take advantage of market variations;
. to generate cash to cover sales of Fund shares by its shareholders; or
. 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 sale of portfolio securities is usually a taxable
event. The Fund does have an ability to borrow money to cover the redemption of
Fund shares.
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:
. securities issued or guaranteed by the U.S. government, including Treasury
bills, notes and bonds;
. 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;
. bank obligations including:
. certificates of deposit which generally are negotiable certificates against
funds deposited in a commercial bank; or,
. bankers acceptances which are time drafts drawn on a commercial bank,
usually in connection with international commercial transactions.
. commercial paper which is short-term promissory notes issued by U.S. or
foreign corporations primarily to finance short-term credit needs;
. 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;
. 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
. 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 Fund are Eurodollar and
Yankee obligations which are issued in U.S. dollars by foreign banks and foreign
branches of U.S. banks. Before the Sub-Advisor selects a Eurodollar or Yankee
obligation, however, the foreign issuer undergoes the same credit-quality
analysis and tests of financial strength as an issuer of domestic securities.
Among the principal risks of investing in the Fund are:
.
Municipal Securities
Risk .U.S. Government
.Fixed-Income .Eurodollar and Yankee Sponsored Securities
Securities Risk Obligations Risk Risk
PGI has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
2001 3.96
"2002"1.49
"2003"0.8
"2004"1.01
"2005"2.93
2006 4.77
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q1 '01 1.31%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q1 '04 0.17%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS................................................................ 4.77
Lehman Brothers U.S. Treasury Bellwethers 3 Month Index ........................... 4.86
Index performance does not reflect deductions for fees, expenses or taxes.
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
To obtain the Fund's current yield, call 1-800-547-7754.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 5 YEARS
INSTITUTIONAL CLASS................................................................ 2.19
Lehman Brothers U.S. Treasury Bellwethers 3 Month Index ........................... 2.42
Index performance does not reflect deductions for fees, expenses or taxes.
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
To obtain the Fund's current yield, call 1-800-547-7754.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 LIFE OF FUND
INSTITUTIONAL CLASS................................................................ 2.52
Lehman Brothers U.S. Treasury Bellwethers 3 Month Index ........................... 4.17
Index performance does not reflect deductions for fees, expenses or taxes.
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
To obtain the Fund's current yield, call 1-800-547-7754.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
FOR THE PERIOD ENDED OCTOBER 31, INSTITUTIONAL
2006 CLASS
Management Fees...................... 0.40%
Other Expenses/(1)...................
/.................................... 0.01%
-------------
TOTAL ANNUAL FUND OPERATING EXPENSES 0.41%
///(1)
/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $42 $132 $230 $518
SHORT-TERM BOND FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks to provide current income.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking diversification by investing in a fixed-income mutual fund.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in short-term fixed-income securities. Under normal
circumstances, the Fund maintains an effective maturity of four years or less
and a dollar-weighted effective maturity of not more than three years. In
determining the average effective maturity of the Fund's assets, the maturity
date of a callable security or prepayable securities may be adjusted to reflect
the judgment of PGI regarding the likelihood of the security being called or
prepaid. The Fund considers the term "bond" to mean any debt security. Under
normal circumstances, it invests at least 80% of its net assets (plus any
borrowings for investment purposes) in:
. securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities;
. debt securities of U.S. issuers rated in the four highest grades by Standard &
Poor's Rating Service or Moody's Investors Service, Inc. or, if unrated, in
the opinion of PGI of comparable quality; and
. mortgage-backed securities representing an interest in a pool of mortgage
loans.
The Fund may invest up to 15% of its assets in below-investment-grade
fixed-income securities ("junk bonds") into reverse repurchase agreements and
lend its portfolio securities to brokers, dealers and other financial
institutions. 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.
PGI may, but is not required to, use derivative instruments ("derivatives") for
risk management purposes or as part of the Fund's investment strategies.
Generally, derivatives are financial contracts whose value depends upon, or is
derived from, the value of an underlying asset, reference rate, or index, and
may relate to stocks, bonds, interest rates, currencies or currency exchange
rates, and related indexes. Examples of derivatives include options, futures,
swaps, and forward currency agreements. The Fund may use derivatives to earn
income and enhance returns, to manage or adjust the risk profile of the Fund, to
replace more traditional direct investments, or to obtain exposure to certain
markets.
Among the principal risks of investing in the Fund are:
. Fixed-Income Securities Risk . Derivatives Risk . Active Trading Risk
. High Yield Securities Risk . Portfolio Duration Risk . Prepayment Risk
.
.U.S. Government Real Estate Securities
Securities Risk Risk
. U.S. Government Sponsored Securities Risk
PGI has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
2001 7.21
"2002"7.67
"2003"2.87
"2004"1.22
"2005"2.18
2006 4.54
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '01 3.86%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '04 -1.58%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)/ //(1)/
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS ............................... 4.54 3.67 4.39
(AFTER TAXES ON DISTRIBUTIONS) /(2)/ .......... 2.71 2.18 2.68
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES) /(2)/.................................. 2.92 2.26 2.72
Lehman Brothers MF (1-3) US Government Credit Index
/(3)//(4)/ ........................................ 4.25 3.27 4.17
Lehman Brothers Mutual Fund 1-5 Gov't/Credit Index
/(3)/ ............................................. 4.22 3.77 4.61
Morningstar Short-Term Bond Category Average ...... 4.01 3.15 3.80
/(1)/
Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
///(//4)/
This index is now the benchmark against which the Fund measures its performance. The Manager and portfolio manager believe it
better represents the universe of investment choices open to the Fund under its investment philosophy. The index formerly used
is also shown.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE YEAR ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.40%
Other Expenses/(1).................................
/.................................................. 0.02
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.42%
Expense Reimbursement/(2)..........................
/.................................................. 0.02
----
NET EXPENSES 0.40%
///(1)
/Expense information has been restated to reflect current fees and to exclude interest expense paid on the borrowings through
reverse repurchase agreements. Certain other operating expenses of the fund have increased effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $41 $133 $233 $528
SHORT-TERM INCOME FUND
SUB-ADVISOR(S): Edge Asset Management, Inc. (formerly known as WM Advisors,
Inc.) ("Edge")
OBJECTIVE: The Fund seeks to provide as high a level of current income as is
consistent with prudent investment management and stability of
principal.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking diversification by investing in a fixed-income mutual fund.
MAIN STRATEGIES AND RISKS
The Fund invests in high quality short-term bonds and other fixed-income
securities that, at the time of purchase, are rated in one of the top four
rating categories by one or more nationally recognized statistical rating
organizations (''NRSRO'') or, in the opinion of Edge, are of comparable quality
(''investment-grade''). Under normal circumstances, the Fund maintains an
effective maturity of five years or less and a dollar-weighted average duration
of three years or less. The Fund's investments may also include corporate
securities, U.S. and foreign government securities, repurchase agreements,
mortgage-backed and asset-backed securities, and real estate investment trust
securities.
The Fund may invest up to 10% of its assets in foreign fixed-income securities,
primarily bonds of foreign governments or their political subdivisions, foreign
companies and supranational organizations, including non-U.S. dollar-denominated
securities and U.S. dollar-denominated fixed-income securities issued by foreign
issuers and foreign branches of U.S. banks. The Fund may invest up to 5% of its
assets in preferred stock. The Fund may engage in certain options transactions,
enter into financial futures contracts and related options for the purpose of
portfolio hedging, and enter into currency forwards or futures contracts and
related options for the purpose of currency hedging. The Fund may invest in
certain illiquid investments, such as privately placed securities, including
restricted securities. The Fund may borrow money, enter into reverse repurchase
agreements, and/or dollar roll transactions in aggregate of up to 33 1/3% of its
total assets. The Fund may invest up to 25% of its total assets in asset-backed
securities, which represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets, most often a pool of
similar assets.
Among the principal risks of investing in the Fund are:
.Fixed-Income Securities
Risk . Derivatives Risk . Underlying Fund Risk
.U.S. Government .Portfolio Duration
Securities Risk Risk . Prepayment Risk
.Real Estate Securities
. Foreign Securities Risk . Exchange Rate Risk Risk
.U.S. Government
Sponsored Securities
Risk
Edge has provided investment advice to the Fund since the Fund's inception.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR /(1)/
1997 5.98
1998 6.56
1999 3.08
2000 8.33
2001 8.52
2002 5.98
2003 4.86
2004 1.87
2005 2.10
2006 4.18
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '01 3.25%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '04 -1.62%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIOD ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS 10 YEARS
INSTITUTIONAL CLASS (BEFORE TAXES) ............ 4.18 3.79 5.12
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ....... 2.70 2.26 3.13
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/ .............................. 2.70 2.32 3.14
Citigroup Broad Investment-Grade Credit 1-3
Years Index/(3)/............................... 4.88 4.12 5.61
Morningstar Short-Term Bond Category Average .. 4.01 3.15 4.59
///(1)/
The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods
prior to that date is based on the performance of the predecessor fund which commenced operations on November 1, 1993.
///(//2//)//
/After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(//3//)/
Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS
A PERCENTAGE OF AVERAGE DAILY NET ASSETS (ESTIMATED).
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.49%
Other Expenses..................................... 0.06
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.55%
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes 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 expenses shown below would not
change, however, if you continued to hold all of your shares at the end of the
periods shown. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your cost would
be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $56 $176 $307 $689
ULTRA SHORT BOND FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks to provide current income while seeking capital
preservation.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking diversification by investing in a fixed-income mutual fund.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in high quality, short-term fixed-income securities.
Under normal circumstances, the Fund maintains a dollar-weighted effective
maturity of not more than 2.5 years. In determining the average effective
maturity of the Fund's assets, the maturity date of a callable security or
prepayable securities may be adjusted to reflect PGI's judgment regarding the
likelihood of the security being called or prepaid. The Fund considers the term
"bond" to mean any debt security. Under normal circumstances, it invests at
least 80% of its assets in:
. securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities;
. debt securities of U.S. issuers rated in the four highest grades by Standard &
Poor's Rating Service ("S&P) or Moody's Investors Service, Inc. ("Moody's")
or, if unrated, in the opinion of the PGI of comparable quality; and
. mortgage-backed securities representing an interest in a pool of mortgage
loans.
The rest of the Fund's assets may be invested in a variety of financial
instruments, including 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.
The Fund may invest up to 15% of its assets in below-investment grade
fixed-income securities ("junk bonds") and may enter into reverse purchase
agreements and lend its portfolio securities to brokers, dealers, and other
financial institutions. 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.
Under unusual market or economic conditions, the Fund may invest up to 100% of
its assets in cash and cash equivalents.
PGI may, but is not required to, use derivative instruments ("derivatives") for
risk management purposes or as part of the Fund's investment strategies.
Generally, derivatives are financial contracts whose value depends upon, or is
derived from, the value of an underlying asset, reference rate, or index, and
may relate to stocks, bonds, interest rates, currencies or currency exchange
rates, and related indexes. Examples of derivatives include options, futures,
swaps, and forward currency agreements. The Fund may use derivatives to earn
income and enhance returns, to manage or adjust the risk profile of the Fund, to
replace more traditional direct investments, or to obtain exposure to certain
markets.
During the fiscal year ended October 31, 2006, the average ratings of the Fund's
assets, based on market value at each month-end, were as follows (all ratings
are by Moody's):
48.07% in securities 15.32% in securities 0.01% in securities rated
rated Aaa rated Baa Caa
9.97% in securities 4.02% in securities rated 0.01% in securities rated
rated Aa Ba Ca
21.02% in securities 1.57% in securities rated 0.01% in securities rated
rated A B C
The above percentages for Aaa, A, Baa and B rated securities include unrated
securities in the amount of 0.19%, 0.02%, 0.02% and 0.01%, respectively, which
have been determined by PGI to be of comparable quality.
Among the principal risks of investing in the Fund are:
. Fixed-Income Securities Risk . Derivatives Risk . Prepayment Risk
. High Yield Securities Risk . Portfolio Duration Risk . Active Trading Risk
.U.S. Government
Securities Risk . Underlying Fund Risk
. U.S. Government Sponsored Securities Risk
Principal has been the Fund's Sub-Advisor since June 15, 2001.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR /(1)/
"2002"4.15
"2003"3.11
"2004"2.5
"2005"3.77(2)
2006 5.19
LOGO
On July 29, 2004, the Fund converted to a money market fund. On May 27, 2005,
the Fund converted to an ultra short term bond fund.
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '05 1.77%/(2)/
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q4 '04
0.40%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS ............................. 5.19 3.74/(2)/ 3.82/(2)/
(AFTER TAXES ON DISTRIBUTIONS)/(3)/ ......... 3.42 2.43/(2)/ 2.46/(2)/
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(3)/ ................................ 3.35 2.41/(2)/ 2.45/(2)/
6-Month LIBOR Index /(4)/ ....................... 5.20 2.66 2.78
Morningstar Ultrashort Bond Category Average .... 4.69 2.55 2.73
/(1)/ Institutional Class shares were first sold on June 15, 2001.
///(//2//)/
During 2005, the Class experienced a significant withdrawal of monies by an affiliate. As the remaining shareholders held
relatively small positions, the total return amounts expressed herein are greater than those that would have been experienced
without the withdrawal.
///(3)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(4)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE YEAR ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.40%
Other Expenses/(1).................................
/.................................................. 0.01
----
TOTAL FUND OPERATING EXPENSES 0.41%
Expense Reimbursement/(2)..........................
/.................................................. 0.01
----
NET EXPENSES 0.40%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $41 $131 $230 $518
BOND & MORTGAGE SECURITIES FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks to provide current income.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking diversification by investing in a fixed-income mutual fund.
MAIN STRATEGIES AND RISKS
Under normal circumstances, the Fund invests at least 80% of its net assets
(plus any borrowings for investment purposes) in intermediate maturity
fixed-income or debt securities rated BBB or higher by Standard & Poor's Rating
Service ("S&P") or Baa or higher by Moody's Investors Service, Inc. ("Moody's").
The Fund considers the term "bond" to mean any debt security. Under normal
circumstances, the Fund invests in:
. securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities;
. mortgage-backed securities representing an interest in a pool of mortgage
loans;
. 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 PGI of comparable quality; and
. 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:
. common 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
. securities rated less than the four highest grades of S&P or Moody's (i.e.
less than investment grade (commonly known as "junk bonds")) but not lower
than CCC- (S&P) or Caa (Moody's).
The Fund may also enter into reverse repurchase agreements to attempt to enhance
portfolio return and income and may lend its portfolio securities to brokers,
dealers and other financial institutions. PGI may, but is not required to, use
derivative instruments ("derivatives") for risk management purposes or as part
of the Fund's investment strategies. Examples of derivatives include options,
futures, swaps, and forward currency agreements. The Fund may use derivatives to
earn income and enhance returns, to manage or adjust the risk profile of the
Fund, to replace more traditional direct investments, or to obtain exposure to
certain markets.
The Fund may actively trade securities in an attempt to achieve its investment
objective.
During the fiscal year ended October 31, 2006, the average ratings of the Fund's
assets, based on market value at each month-end, were as follows (all ratings
are by Moody's):
68.43% in securities 11.85% in securities 0.25% in securities rated
rated Aaa rated Baa Caa
4.97% in securities 3.08% in securities rated 0.02% in securities rated
rated Aa Ba Ca
8.90% in securities 2.50% in securities rated
rated A B
Among the principal risks of investing in the Fund are:
.Fixed-Income .U.S. Government Securities
Securities . Prepayment Risk Risk
. Active Trading Risk . Derivatives Risk . Portfolio Duration Risk
.
Municipal Securities .High Yield
Risk Securities Risk . Underlying Fund Risk
.U.S. Government
Sponsored Securities
Risk
PGI has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
2001 7.32
"2002"9.27
"2003"4.04
"2004"4.75
"2005"2.48
2006 4.51
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '01 4.20%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q2 '04
-2.30%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIOD ENDED DECEMBER 31, 2006 PAST 1 YEAR PAST 5YEARS LIFE OF FUND
INSTITUTIONAL CLASS ............................ 4.51 4.99 5.53
(AFTER TAXES ON DISTRIBUTIONS)/(2)//........
/........................................... 2.75 3.40 3.78
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/................................ 2.90 3.32 3.68
Lehman Brothers Aggregate Bond Index/(3)........
/............................................... 4.33 5.06 5.62
Morningstar Intermediate-Term Bond Category
Average......................................... 4.11 4.61 5.19
/(1)/
Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE YEAR ENDED OCTOBER 31, 2006 CLASS
Management Fees.......................... 0.53%
----
TOTAL ANNUAL FUND OPERATING EXPENSES
/(1)/ 0.53%
///(1)/
Expense information has been restated to exclude interest expense paid on borrowings through reverse repurchase agreements. As
of October 31, 2006, the fund discontinued its use of reverse repurchase agreements.
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $54 $170 $296 $665
GOVERNMENT & HIGH QUALITY BOND FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks to provide current income.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking diversification by investing in a fixed-income mutual fund.
MAIN STRATEGIES AND RISKS
The Fund seeks to achieve its investment objective by investing primarily (at
least 80% of its net assets, plus any borrowings for investment purposes) in
securities that are AAA rated or 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 PGI to be of equivalent quality.
PGI seeks undervalued securities that represent good long-term investment
opportunities. Securities may be sold when PGI believes they no longer represent
good long-term value.
The Fund may lend its portfolio securities to brokers, dealers and other
financial institutions.PGI may, but is not required to, use derivative
instruments ("derivatives") for risk management purposes or as part of the
Fund's investment strategies. Generally, derivatives are financial contracts
whose value depends upon, or is derived from, the value of an underlying asset,
reference rate, or index, and may relate to stocks, bonds, interest rates,
currencies or currency exchange rates, and related indexes. Examples of
derivatives include options, futures, swaps, and forward currency agreements.
The Fund may use derivatives to earn income and enhance returns, to manage or
adjust the risk profile of the Fund, to replace more traditional direct
investments, or to obtain exposure to certain markets.
Among the principal risks of investing in the Fund are:
.Fixed-Income Securities .Portfolio Duration
Risk . Derivatives Risk Risk
.U.S. Government
Securities Risk . Active Trading Risk . Prepayment Risk
.
U.S. Government Sponsored
Securities Risk
PGI has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
2001 7.03
"2002"8.77
"2003"1.7
"2004"3.55
"2005"2.16
2006 4.19
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '06 3.26%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q2 '04
-1.55%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIOD ENDED DECEMBER 31, 2006 PAST 1 YEAR PAST 5YEARS LIFE OF FUND
INSTITUTIONAL CLASS ......................... 4.19 4.04 4.65
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ..... 2.50 2.44 2.91
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/ ............................ 2.70 2.50 2.92
Lehman Brothers Government/Mortgage Index/(3)
/............................................ 4.33 4.73 5.23
Morningstar Intermediate Government Category
Average ..................................... 3.44 3.90 4.40
/(1)/
Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/I
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees............................... 0.40%
Other Expenses/(1)............................
/............................................. 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.41%
Expense Reimbursement/(2).....................
/............................................. 0.01
----
NET EXPENSES 0.40%
///(1)
/Expense information has been restated to reflect current fees and to exclude interest expense paid on the borrowings through
reverse repurchase agreements. Certain other operating expenses of the fund have increased effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor
fees, legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by
the Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors
and officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $41 $131 $229 $516
HIGH QUALITY INTERMEDIATE-TERM BOND FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks to provide current income.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking diversification by investing in a fixed-income mutual fund.
MAIN STRATEGIES AND RISKS
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"). Under normal circumstances, the Fund maintains an
effective maturity of four years or less and a dollar-weighted effective
maturity of greater than three and less than ten years. In determining the
average effective maturity of the Fund's assets, the maturity date of a callable
security or prepayable securities may be adjusted to reflect PGI's judgment
regarding the likelihood of the security being called or prepaid. The Fund
considers the term "bond" to mean any debt security. Under normal circumstances,
the Fund invests at least 80% of its assets in:
. securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities;
. mortgage-backed securities representing an interest in a pool of mortgage
loans;
. 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 PGI's
opinion, of comparable quality; and
. 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:
. 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
. 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.
PGI may, but is not required to, use derivative instruments ("derivatives") for
risk management purposes or as part of the Fund's investment strategies.
Generally, derivatives are financial contracts whose value depends upon, or is
derived from, the value of an underlying asset, reference rate, or index, and
may relate to stocks, bonds, interest rates, currencies or currency exchange
rates, and related indexes. Examples of derivatives include options, futures,
swaps, and forward currency agreements. The Fund may use derivatives to earn
income and enhance returns, to manage or adjust the risk profile of the Fund, to
replace more traditional direct investments, or to obtain exposure to certain
markets.
The Fund may enter into reverse repurchase agreements to attempt to enhance
portfolio return and income. Under a reverse repurchase agreement, the Fund
sells securities and agrees to repurchase them at a specified date and price.
Reverse repurchase agreements are considered to be borrowings by the Fund and
are subject to the Fund's restrictions on borrowing. The Fund pays interest on
this "secured financing" and attempts to make money on the difference between
the financing rate and the interest earned.
Among the principal risks of investing in the Fund are:
.
Fixed-Income Securities .
Risk . Derivatives Risk Portfolio Duration Risk
.U.S. Government
Sponsored Securities . Active Trading Risk . Prepayment Risk
Risk
PGI has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
2001 7.69
"2002"9.91
"2003"3.75
"2004"4.33
"2005"2.57
2006 4.30
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '02 4.68%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q2 '04
-2.22%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIOD ENDED DECEMBER 31, 2006 PAST 1 YEAR PAST 5YEARS LIFE OF FUND
INSTITUTIONAL CLASS ............................ 4.30 4.94 5.55
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ........ 2.83 3.34 3.75
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/ ............................... 2.80 3.29 3.68
Lehman Brothers Aggregate Bond Index/(3)/ ...... 4.33 5.06 5.62
Morningstar Intermediate-Term Bond Category
Average ........................................ 4.11 4.61 5.19
/(1)/
Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.40%
Other Expenses/(1).................................
/.................................................. 0.02
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.42%
Expense Reimbursement/(2)..........................
/.................................................. 0.02
----
NET EXPENSES 0.40%
///(1)
/Expense information has been restated to reflect current fees and to exclude interest expense paid on the borrowings through
reverse repurchase agreements. Certain other operating expenses of the fund have increased effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $41 $133 $233 $528
INCOME FUND
SUB-ADVISOR(S): Edge Asset Management, Inc. (formerly known as WM Advisors,
Inc.) ("Edge")
OBJECTIVE: The Fund seeks to provide a high level of current income consistent
with preservation of capital.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking diversification by investing in a fixed-income mutual fund,
and who are willing to accept the risks associated with investing in
"junk bonds," foreign securities, and REIT securities.
MAIN STRATEGIES AND RISKS
Under normal circumstances, the Fund invests primarily in a diversified pool of
fixed-income securities including corporate securities, U.S. government
securities, and mortgage-backed securities (including collateralized mortgage
obligations), up to 35% of which may be in below investment-grade fixed-income
securities (sometimes called "junk bonds"). The Fund may also invest in
convertible securities and REIT securities.
The Fund may also invest in securities denominated in foreign currencies and
receive interest, dividends and sale proceeds in foreign currencies. The Fund
may engage in foreign currency exchange transactions for hedging or non-hedging
purposes and may purchase and sell currencies on a spot (i.e. cash) basis, enter
into forward contracts to purchase or sell foreign currencies at a future date,
and buy and sell foreign currency futures contracts. The Fund may enter into
dollar roll transactions, which may involve leverage and purchase and sell
interest rate futures and options.
The Fund may lend its portfolio securities to brokers, dealers and other
financial institutions. The Fund may use futures, options, swaps and derivative
instruments to "hedge" or protect its portfolio from adverse movements in
securities prices and interest rates. The Fund may also use a variety of
currency hedging techniques, including forward currency contracts, to manage
exchange rate risk.
Among the principal risks of investing in the Fund are:
.Fixed-Income .Real Estate Securities
Securities Risk . Derivatives Risk Risk
.
. Exchange Rate Risk Underlying Fund Risk . Foreign Securities Risk
.
.High Yield U.S. Government Securities
. Prepayment Risk Securities Risk Risk
.U.S. Government .Portfolio Duration
Sponsored Securities Risk
Risk
Edge has provided investment advice to the Fund since the Fund's inception.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
1997 10.49
1998 7.36
1999 0.41
2000 9.61
2001 8.42
2002 8.65
2003 9.35
2004 5.53
2005 2.05
2006 5.42
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 4.71%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '04 -2.77%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS 10 YEARS
INSTITUTIONAL CLASS (BEFORE TAXES) ............................................. 5.42 6.18 6.68
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ........................................ 3.30 3.89 4.08
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ..................... 3.48 3.91 4.10
Citigroup Broad Investment-Grade Bond Index/(3)/ ............................... 4.33 5.10 6.26
Morningstar Intermediate-Term Bond Category Average ............................ 4.11 4.61 5.51
///(1)/
The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods
prior to that date is based on the performance of the predecessor fund which commenced operations on December 15, 1975.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(//3)/
Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return
Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS (ESTIMATED).
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees....................... 0.50%
Other Expenses........................ 0.02
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.52%
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes 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 expenses shown below would not
change, however, if you continued to hold all of your shares at the end of the
periods shown. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your cost would
be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $53 $167 $291 $653
INFLATION PROTECTION FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks to provide current income and real (after-inflation)
total returns.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors who
want their income and principal investments to keep pace with
inflation over time.
MAIN STRATEGIES AND RISKS
Under normal circumstances, the Fund invests primarily in inflation protected
debt securities. Inflation protected debt securities are designed to provide a
"real rate of return" - a return after adjusting for the impact of inflation.
Inflation - a rise in the general price level - erodes the purchasing power of
an investor's portfolio. For example, if an investment provides a "nominal"
total return of 8% in a given year and inflation is 3% during that period, the
inflation-adjusted, or real, return is 5%. The investment's inflation adjustment
is based on a designated inflation index (such as the Consumer Price Index for
Urban Consumers) and typically is applied monthly to the principal of the
security. The fixed coupon rate of the security is based on the adjusted
principal so that as inflation increases, both the principal value and the
interest payments increase. Because this inflation adjustment feature is
designed to mitigate a major risk, inflation protected debt securities typically
have lower nominal yields than conventional fixed-rate debt securities.
The Fund may invest in:
. inflation protected debt securities issued by the U.S. Treasury and U.S.
Government sponsored entities as well as inflation protected debt securities
issued by corporations;
. inflation protected debt securities issued by foreign governments and
corporations that are linked to a non-U.S. inflation rate;
. floating rate notes;
. adjustable rate mortgages;
. derivative instruments, such as options, futures contracts or swap agreements,
or in mortgage- or asset-backed securities; and
. commodity-linked derivative instruments, including swap agreements, commodity
options, futures and options on futures.
The Fund may invest up to 15% of assets in high yield securities ("junk bonds")
but not in securities rated lower than CCC- or Caa3 by S&P or Moody's or, if
unrated, determined by PGI to be of comparable quality.
The Fund may invest up to 20% of its assets in securities denominated in foreign
currencies. The Fund will normally hedge at least 75% of its exposure to foreign
currency to reduce the risk of loss due to fluctuations in currency exchange
rates.
The Fund may also enter into reverse repurchase agreements and may lend its
portfolio securities to brokers, dealers and other financial institutions.
PGI may, but is not required to, use derivative instruments ("derivatives") for
risk management purposes or as part of the Fund's investment strategies.
Generally, derivatives are financial contracts whose value depends upon, or is
derived from, the value of an underlying asset, reference rate, or index, and
may relate to stocks, bonds, interest rates, currencies or currency exchange
rates, and related indexes. Examples of derivatives include options, futures,
swaps, and forward currency agreements. The Fund may use derivatives to earn
income and enhance returns, to manage or adjust the risk profile of the Fund, to
replace more traditional direct investments, or to obtain exposure to certain
markets.
During the fiscal year ended October 31, 2006, the average ratings of the Fund's
assets, based on market value at each month-end, were as follows (all ratings
are by Moody's):
88.50% in securities 3.79% in securities 0.01% in securities rated
rated Aaa rated Baa Caa
0.65% in securities rated 4.07% in securities 0.03% in securities rated
Aa rated Ba Ca
1.48% in securities rated 1.45% in securities 0.02% in securities rated
A rated B C
Among the principal risks of investing in the Fund are:
.Fixed-Income .Foreign Securities
Securities Risk Risk . Exchange Rate Risk
.
High Yield Securities
Risk . Derivatives Risk . Prepayment Risk
.
.Portfolio Duration U.S. Government Securities
. Underlying Fund Risk Risk Risk
.U.S. Government
Sponsored Securities
Risk
Principal has been the Fund's Sub-Advisor since December 29, 2004.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2005"2.43
2006 0.43
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '06 3.40%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q1 '06 -2.11%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR LIFE OF FUND
INSTITUTIONAL CLASS ......................................... 0.43 1.57
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ..................... -0.92 0.01
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .. 0.28 0.45
Lehman Brothers US Treasury TIPS Index/(3)...................
/............................................................ 0.41 1.66
Morningstar Inflation-Protected Bond Category Average ....... 0.09 1.04
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (December 29, 2004).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS
a Percentage of Average Daily Net Assets
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.40%
Other Expenses /(1)/ .............................. 0.02
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.42%
Expense Reimbursement/(2)..........................
/.................................................. 0.02
----
NET EXPENSES 0.40%
///(1)
/Expense information has been restated to reflect current fees and to exclude interest expense paid on the borrowings through
reverse repurchase agreements. Certain other operating expenses of the fund have increased effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $41 $133 $233 $528
PREFERRED SECURITIES
SUB-ADVISOR(S): Spectrum Asset Management, Inc. ("Spectrum")
OBJECTIVE: The Fund seeks to provide current income.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors who
are seeking dividends to generate income or to be reinvested for
growth and are willing to accept fluctuations in the value of the
investment.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in preferred securities of U.S. companies rated BBB
or higher by Standard & Poor's Rating Service ("S&P") or Moody's Investor
Service, Inc. ("Moody's") or, if unrated, of comparable quality in the opinion
of the Sub-Advisor, Spectrum. Under normal circumstances, the Fund invests at
least 80% of its net assets (plus any borrowings for investment purposes) in
preferred securities. The Fund focuses primarily on the financial services
(i.e., banking, insurance and commercial finance), Real Estate Investment Trust
(i.e. REIT) and utility industries. The rest of the Fund's assets may be
invested in common stocks, debt securities, and securities issued or guaranteed
by the U.S. government or its agencies or instrumentalities.
Preferred securities generally pay fixed rate dividends (though some are
adjustable rate) and typically have "preference" over common stock in the
payment of dividends and the liquidation of a company's assets - preference
means that a company must pay dividends on its preferred securities before
paying any dividends on its common stock, and the claims of preferred securities
holders are ahead of common stockholders' claims on assets in a corporate
liquidation. Holders of preferred securities usually have no right to vote for
corporate directors or on other matters. The market value of preferred
securities is sensitive to changes in interest rates as they are typically
fixed-income securities - the fixed-income payments are expected to be the
primary source of long-term investment return. Preferred securities share many
investment characteristics with bonds; therefore, the risks and potential
rewards of investing in the Fund are more similar to those associated with a
bond fund than a stock fund.
Spectrum seeks to build a portfolio within the context of the eligible universe
of preferred securities. For a security to be considered for the Fund, Spectrum
will assess the credit risk within the context of the yield available on the
preferred. The yield needs to be attractive in comparison to the rating,
expected credit trend and senior debt spread of the same issuer. Spectrum
considers features such as call protection, subordination and option adjusted
spreads to ensure that the selected issue provides a sufficient yield to justify
its inclusion in the portfolio.
The Fund is considered non-diversified and can invest a higher percentage of
assets in securities of individual issuers than a diversified fund. As a result,
changes in the value of a single investment could cause greater fluctuations in
the Fund's share price than would occur in a more diversified fund.
Among the principal risks of investing in the Fund are:
.Fixed-Income
Securities Risk . Derivatives Risk . Sector Risk
.
.Non-Diversification Real Estate Securities
Risk . Equity Securities Risk Risk
.U.S. Government .U.S. Government
Sponsored Securities Securities Risk . Underlying Fund Risk
Risk
Spectrum has been the Fund's Sub-Advisor since May 1, 2002.The Fund's past
performance (before and after taxes) is not necessarily an indication of how the
Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2003"10.72
"2004"4.36
"2005"1.62
2006 6.94
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 5.55%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q2 '04
-5.26%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIOD ENDED DECEMBER 31, 2006 PAST 1 YEAR LIFE OF FUND
INSTITUTIONAL CLASS ...................................... 6.94 6.09
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ .................. 5.25 4.55
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ 4.76 4.35
Merrill Lynch Preferred Stock Hybrid Index/(3)/ .......... 7.67 6.63
Morningstar Intermediate-Term Bond Category Average ...... 4.11 4.12
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (May 1, 2002).
///(2)
/After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)// /
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
FOR THE YEAR ENDED OCTOBER 31, INSTITUTIONAL
2006 CLASS
Management Fees................. 0.75%
Other Expenses/(1)..............
/............................... 0.01
----
TOTAL ANNUAL FUND OPERATING
EXPENSES 0.76%
Expense Reimbursement/(2).......
/............................... 0.01
----
NET EXPENSES 0.75%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $77 $242 $421 $941
MORTGAGE SECURITES FUND
SUB-ADVISOR(S): Edge Asset Management, Inc. (formerly known as WM Advisors,
Inc.) ("Edge")
OBJECTIVE: The Fund seeks to provide a high level of current income consistent
with safety and liquidity.
INVESTOR PROFILE: The Fund may be appropriate for investors seeking
diversification by investing in a fixed-income mutual fund.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in mortgage-backed securities, including
collateralized mortgage obligations. The Fund may also invest in dollar rolls,
which may involve leverage.
Under normal circumstances, the Fund invests at least 80% of its net assets
(plus any borrowings for investment purposes) in mortgage-backed securities,
including collateralized mortgage obligations, and in other obligations that are
secured by mortgages or mortgage-backed securities, including repurchase
agreements. The Fund may also invest in U.S. government securities. Certain
issuers of U.S. government securities are sponsored or chartered by Congress but
their securities are neither issued or guaranteed by the U.S. Treasury.
The Fund invests in mortgage securities which represent good longer term value,
taking into account potential returns, prepayment and credit risk as well as
deal-structure where appropriate. The Fund also invests in Treasury and Agency
securities primarily for duration and liquidity management purposes.
Among the principal risks of investing in the Fund are:
.Fixed-Income
Securities Risk . Derivatives Risk . Prepayment Risk
.Portfolio Duration .U.S. Government
Risk Securities Risk . Underlying Fund Risk
.U.S. Government
Sponsored Securities
Risk
Edge has provided investment advice to the Fund since the Fund's inception.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURN (%) AS OF 12/31 EACH YEAR
1997 9.90
1998 7.51
1999 0.31
2000 10.69
2001 7.48
2002 8.87
2003 2.21
2004 3.95
2005 2.31
2006 4.67
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '01 4.31%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q1 '97 -1.10%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS (BEFORE TAXES) .................................................. 4.67
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. 2.88
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .......................... 3.00
Citigroup Mortgage Index/(3)/ ....................................................... 5.17
Morningstar Short Government Category Average ....................................... 3.66
///(1)
/The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods
prior to that date is based on the performance of the predecessor fund which commenced operations on May 4, 1984.
/(//2)
/After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
/(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 5 YEARS
INSTITUTIONAL CLASS (BEFORE TAXES) .................................................. 4.38
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. 2.54
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .......................... 2.65
Citigroup Mortgage Index/(3)/ ....................................................... 4.90
Morningstar Short Government Category Average ....................................... 2.93
///(1)
/The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods
prior to that date is based on the performance of the predecessor fund which commenced operations on May 4, 1984.
/(//2)
/After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
/(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 10 YEARS
INSTITUTIONAL CLASS (BEFORE TAXES) .................................................. 5.73
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. 3.55
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .......................... 3.55
Citigroup Mortgage Index/(3)/ ....................................................... 6.18
Morningstar Short Government Category Average ....................................... 4.46
///(1)
/The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods
prior to that date is based on the performance of the predecessor fund which commenced operations on May 4, 1984.
/(//2)
/After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
/(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS (ESTIMATED).
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees......................... 0.50%
Other Expenses.......................... 0.02
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.52%
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes 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 expenses shown below would not
change, however, if you continued to hold all of your shares at the end of the
periods shown. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your cost would
be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $53 $167 $291 $653
DISCIPLINED LARGECAP BLEND FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in common stocks of large capitalization companies.
Under normal market conditions, the Fund invests at least 80% of its assets in
common stocks of companies with large market capitalizations (those with market
capitalizations similar to companies in the Standard & Poor's ("S&P") 500 Index
(as of December 31, 2006 this range was between approximately $1.4 billion and
$446.9 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, PGI, 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, PGI does not have a policy of preferring one of these categories to
the other. The value orientation emphasizes buying stocks at less than their
expected 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.
PGI believes that changes in market expectations drive stock prices. Early
identification of improving business fundamentals, early identification of
positive change in expectations regarding future profitability of companies and
paying prices that are below "fair value" for these stocks will result in
investment management success. PGI's investment process seeks to systematically
identify stocks with desirable characteristics and combine these stocks in a
risk-managed portfolio to maximize return potential by controlling risk.
Among the principal risks of investing in the Fund are:
.Market Segment (LargeCap)
. Equity Securities Risk . Derivatives Risk Risk
. Underlying Fund Risk . Growth Stock Risk . Value Stock Risk
. Active Trading Risk
PGI has been the Fund's Sub-Advisor since December 30, 2002.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2003"28.32
"2004"12.84
"2005"7.16
2006 14.03
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 14.99%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q1 '03
-3.30%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 PAST 1 YEAR LIFE OF FUND*
INSTITUTIONAL CLASS ..................................... 14.03 15.32
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ................. 13.45 14.74
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/ ........................................ 9.90 13.18
S&P 500 Index/(3)/ ...................................... 15.79 14.74
Morningstar Large Blend Category Average ................ 14.12 14.31
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (December 30, 2002).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees....................... 0.59%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.59%
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $60 $189 $329 $738
EQUITY INCOME FUND I
SUB-ADVISOR(S): Edge Asset Management, Inc. (formerly known as WM Advisors,
Inc.) ("Edge")
OBJECTIVE: The Fund seeks to provide a relatively high level of current income
and long-term growth of income and capital.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors who
seek dividends to generate income orto be reinvested for growth and
who can accept fluctuations in the value of investments and the risks
of investing in REIT securities, below-investment grade bonds, or
foreign securities.
MAIN STRATEGIES AND RISKS
The Fund invests primarily (normally at least 80% of its net assets (plus any
borrowings for investment purposes)) in dividend-paying common stocks and
preferred stocks. The Fund may invest in fixed-income securities of any
maturity, including mortgage-backed securities, U.S. government securities, and
asset-backed securities. The Fund may also invest up to 20% of its assets in
below-investment-grade fixed-income securities (sometimes called "junk bonds").
The Fund may purchase or sell U.S. government securities or collateralized
mortgage obligations on a "when-issued" or "delayed-delivery" basis in an
aggregate of up to 20% of the market value of its total net assets. The Fund may
invest up to 20% of its assets in real estate investment trust ("REIT")
securities. The Fund may write (sell) and purchase covered call options. The
Fund may invest up to 25% of its assets in securities of foreign issuers.
The Fund's investments may also include convertible securities, repurchase
agreements, American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs") and European Depositary Receipts ("EDRs").
In selecting investments for the Fund, Edge looks for investments that provide
regular income in addition to some opportunity for capital appreciation. Equity
investments are typically made in "value" stocks currently selling for less than
Edge believes they are worth.
Among the principal risks of investing in the Fund are:
.
.Real Estate U.S. Government Securities
. Equity Securities Risk Securities Risk Risk
. Fixed-Income Securities Risk . Value Stock Risk . Derivatives Risk
.Foreign Securities
. Underlying Fund Risk Risk . Exchange Rate Risk
.High Yield
Securities Risk . Prepayment Risk
. U.S. Government Sponsored Securities Risk
Edge has provided investment advice to the Fund since the Fund's inception.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR /(1)/
1997 19.89
1998 6.93
1999 4.83
2000 14.74
2001 7.78
2002 -12.53
2003 29.66
2004 19.09
2005 9.84
2006 18.09
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 15.82%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '02 -14.77%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIOD ENDED DECEMBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS (BEFORE TAXES) .................................................. 18.09
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. 16.86
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES /(2)/) ......................... 13.35
S&P 500 Index /(3)/ ................................................................. 15.79
S&P 500/Citigroup Value Index /(3) (4)/ ............................................. 20.80
Morningstar Large Value Category Average /(3)/ 18.18
///(1)/
The Fund commenced operations after succeeding to the operations of another fund on Janaury 12, 2007. Performance for periods
prior to that date is based on the performance of the predecessor fund which commenced operations on May 31, 1939.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
///(4)/
Unitl December 16, 2005, when Standard & Poor's changed the name of the index and its calculation methodology, the index was
called the S&P 500/Barra Value Index.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIOD ENDED DECEMBER 31, 2006 5 YEARS
INSTITUTIONAL CLASS (BEFORE TAXES) .................................................. 11.87
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. 11.04
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES /(2)/) ......................... 10.10
S&P 500 Index /(3)/ ................................................................. 6.19
S&P 500/Citigroup Value Index /(3) (4)/ ............................................. 10.43
Morningstar Large Value Category Average /(3)/ 8.38
///(1)/
The Fund commenced operations after succeeding to the operations of another fund on Janaury 12, 2007. Performance for periods
prior to that date is based on the performance of the predecessor fund which commenced operations on May 31, 1939.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
///(4)/
Unitl December 16, 2005, when Standard & Poor's changed the name of the index and its calculation methodology, the index was
called the S&P 500/Barra Value Index.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIOD ENDED DECEMBER 31, 2006 10 YEARS
INSTITUTIONAL CLASS (BEFORE TAXES) .................................................. 11.28
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. 9.44
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES /(2)/) ......................... 8.91
S&P 500 Index /(3)/ ................................................................. 8.42
S&P 500/Citigroup Value Index /(3) (4)/ ............................................. 9.45
Morningstar Large Value Category Average /(3)/ 8.80
///(1)/
The Fund commenced operations after succeeding to the operations of another fund on Janaury 12, 2007. Performance for periods
prior to that date is based on the performance of the predecessor fund which commenced operations on May 31, 1939.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
///(4)/
Unitl December 16, 2005, when Standard & Poor's changed the name of the index and its calculation methodology, the index was
called the S&P 500/Barra Value Index.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS. (ESTIMATED)
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees....................... 0.51%
Other Expenses........................ 0.04
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.55%
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes 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 expenses shown below would not
change, however, if you continued to hold all of your shares at the end of the
periods shown. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your cost would
be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $56 $176 $307 $689
HIGH YIELD FUND
SUB-ADVISOR(S): Post Advisory Group, LLC ("Post")
OBJECTIVE: The Fund seeks high current income.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking diversification by investing in a fixed-income mutual fund.
MAIN STRATEGIES AND RISKS
Under normal market conditions, the Fund invests at least 80% of its assets in
high yield, below investment grade quality debt and other income-producing
securities including, corporate bonds, convertible securities, preferred
securities, asset-backed securities and securities of companies in bankruptcy
proceedings or otherwise in the process of debt restructuring. The "high yield"
securities in which the Fund invests are common known as "junk bonds." These
securities offer a higher yield than other, higher rated securities, but they
carry a greater degree of risk and are considered speculative with respect to
the issuer's ability to pay interest and to repay principal.
The Fund may lend its portfolio securities to brokers, dealers and other
financial institutions. In connection with such loans, the Fund remains the
owner of the loaned securities and continues to be entitled to payments in
amounts equal to the interest, dividends or other distributions payable on the
loaned securities. Loans of portfolio securities may not exceed 33 1/3% of the
value of the Fund's total assets (including the value of all assets received as
collateral for loan). In connection with such loans the Fund will receive
collateral from the borrower equal to at least 100% of the value of the loaned
securities.
The Fund invests its assets in securities rated Ba1 or lower by Moody's Investor
Service, Inc. ("Moody's") or BB+ or lower by Standard & Poor's Rating Service
("S&P"). The Fund may also invest in unrated securities which the Manager
believes to be of comparable quality. The Fund does not invest in securities
rated below Caa3 (Moody's) or below CCC- (S&P) at the time of purchase. The
Statement of Additional Information contains descriptions of the securities
rating categories
The Sub-Advisor, Post, applies its investment process based on the belief that
superior performance is achieved by identifying three specific attributes:
. value identification - seeking complex, not closely followed and/or
misunderstood credits which have the highest probability of being mispriced by
the consensus view. Post looks for what it believes are inefficiencies between
the actual value and market price of securities.
. downside protection based on qualitative analysis - analyzing the potential
downside risk of each investment and continuous monitoring of the investment
portfolio to attempt to keep unexpected negatives to a minimum.
. portfolio diversification - maintaining exposure and diversification limits by
issue, issuer, security type, duration, maturity and credit rating.
During the fiscal year ended October 31, 2006, the average ratings of the Fund's
assets, based on market value at each month-end, were as follows (all ratings
are by Moody's):
0.00% in securities 0.41% in securities 7.83% in securities rated
rated Aaa rated Baa Caa
0.00% in securities 32.96% in securities 1.23% in securities rated
rated Aa rated Ba Ca
0.30% in securities 57.04% in securities
rated A rated B 0.23% in securities rated C
Among the principal risks of investing in the Fund are:
.Fixed-Income .Portfolio Duration
Securities Risk . Derivatives Risk Risk
.
High Yield Securities .Municipal Securities
Risk Risk . Prepayment Risk
.U.S. Government .U.S. Government
Sponsored Securities Securities Risk . Underlying Fund Risk
Risk
Post has been the Fund's Sub-Advisor since December 29, 2004.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURN (%) AS OF 12/31 EACH YEAR
"2005"4.08
2006 8.89
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '06 3.48%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q1 '05
-0.40%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIOD ENDED DECEMBER 31, 2006 PAST 1 YEAR LIFE OF FUND*
INSTITUTIONAL CLASS ..................................... 8.89 6.44
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ................. 6.51 4.48
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/ ........................................ 5.78 4.35
Lehman Brothers High Yield Composite Bond Index/(3)/ .... 11.85 7.19
Morningstar High Yield Bond Category .................... 10.13 6.25
/(1)/// Lifetime results are measured from the date the Institutional Class shares were first sold (December 29, 2004).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)// /
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.65%
Other Expenses/(1)/ ............................... 0.02
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.67%
Expense Reimbursement/(2)/ ........................ 0.02
----
NET EXPENSES 0.65%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $66 $212 $371 $833
HIGH YIELD FUND II
SUB-ADVISOR(S): Edge Asset Management, Inc. (formerly known as WM Advisors,
Inc.) ("Edge")
OBJECTIVE: The Fund seeks to provide a relatively high level of current income.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking diversification by investing in a fixed-income mutual fund,
and who are willing to accept the risks associated with investing in
"junk bonds," foreign securities and emerging markets.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in high-yield, high-risk, below-investment grade
fixed-income securities (sometimes called "junk bonds"), which may include
foreign investments. The Fund invests, under normal market conditions, at least
80% of its net assets (plus any borrowings for investment purposes) in a
diversified portfolio of fixed-income securities (including convertible
securities and preferred stocks) rated lower than BBB by S&P or Fitch or rated
lower than Baa by Moody's or of equivalent quality as determined by Edge. The
remainder of the Fund's assets may be invested in any other securities Edge
believes are consistent with the Fund's objective, including higher rated
fixed-income securities, common stocks, real estate investment trusts and other
equity securities. The Fund may also invest in securities of foreign issuers,
including those located in developing or emerging countries, and engage in
hedging strategies involving options.
Among the principal risks of investing in the Fund are:
.Fixed-Income
Securities Risk . Derivatives Risk . Underlying Fund Risk
.High Yield Securities .Foreign Securities .Real Estate Securities
Risk Risk Risk
.
Equity Securities Risk . Small Company Risk . Exchange Rate Risk
.Portfolio Duration
Risk . Emerging Market Risk
Edge has provided investment advice to the Fund since the Fund's inception.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
1999 12.27
2000 -1.20
2001 3.66
2002 4.02
2003 28.39
2004 11.92
2005 6.94
2006 14.71
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 11.11%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '00 -5.45%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIOD ENDED DECEMBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS (BEFORE TAXES) ................................................... 14.76
(AFTER TAXES ON DISTRIBUTIONS)/(2)//..............................................
/................................................................................. 11.33
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)//...........................
/................................................................................. 9.89
Citigroup US High Yield Market Capped Index/(3).......................................
/..................................................................................... 10.21
Morningstar High Yield Bond Category ................................................. 10.13
///(1)
/The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for perods
prior to that date is based on the performance of the predecessor fund which commenced operations on April 8, 1998.
///(2)
/After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
/(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIOD ENDED DECEMBER 31, 2006 5 YEARS
INSTITUTIONAL CLASS (BEFORE TAXES) ................................................... 12.93
(AFTER TAXES ON DISTRIBUTIONS)/(2)//.............................................. 9.43
/.................................................................................
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)//........................... 8.99
/.................................................................................
Citigroup US High Yield Market Capped Index/(3)....................................... N/A
/.....................................................................................
Morningstar High Yield Bond Category ................................................. 8.93
///(1)
/The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for perods
prior to that date is based on the performance of the predecessor fund which commenced operations on April 8, 1998.
///(2)
/After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
/(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIOD ENDED DECEMBER 31, 2006 LIFE OF FUND
INSTITUTIONAL CLASS (BEFORE TAXES) ................................................... 8.51
(AFTER TAXES ON DISTRIBUTIONS)/(2)//.............................................. 4.67
/.................................................................................
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)//........................... 4.78
/.................................................................................
Citigroup US High Yield Market Capped Index/(3)....................................... 10.44
/.....................................................................................
Morningstar High Yield Bond Category ................................................. 4.51
///(1)
/The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for perods
prior to that date is based on the performance of the predecessor fund which commenced operations on April 8, 1998.
///(2)
/After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
/(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS (ESTIMATED).
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees....................... 0.53%
Other Expenses........................ 0.04
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.57%
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes 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 expenses shown below would not
change, however, if you continued to hold all of your shares at the end of the
periods shown. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your cost would
be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $58 $183 $318 $714
LARGECAP GROWTH FUND
SUB-ADVISOR(S): Columbus Circle Investors ("CCI")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
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 80% of its assets in common stocks
of companies with large market capitalizations (those with market
capitalizations similar to companies in the Russell 1000/(R)/ Growth Index (as
of December 31, 2006 this range was between approximately $1.2 billion and
$446.9 billion)) at the time of purchase. Market capitalization is defined as
total current market value of a company's outstanding common stock. To meet its
investment objective, the Fund may invest in initial public offerings.
CCI uses a bottom-up approach (focusing on individual stock selection rather
than forecasting market trends) in its selection of individual securities that
it believes have an above average potential for earnings growth. Selection is
based on the premise that companies doing better than expected will have rising
securities prices, while companies producing less than expected results will
not. CCI refers to its discipline as positive momentum and positive surprise.
Through in depth analysis of company fundamentals in the context of the
prevailing economic environment, CCI's team of investment professionals selects
companies that meet the criteria of positive momentum in a company's progress
and positive surprise in reported results.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment (LargeCap)
Risk . Derivatives Risk Risk
.
Underlying Fund Risk . Active Trading Risk . Growth Stock Risk
.Foreign Securities .Initial Public Offerings
. Exchange Rate Risk Risk Risk
CCI became the Fund's Sub-Advisor on January 5, 2005.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
2001 -24.35
"2002"-28.3
"2003"24.89
"2004"9.35
"2005"11.84
2006 9.86
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '01 10.63%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q1 '01 -23.56%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS ................................................................ 9.86
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ 9.54
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... 6.83
Russell 1000 Growth Index/(3)/ ..................................................... 9.07
Morningstar Large Growth Category Average .......................................... 6.93
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 5 YEAR
INSTITUTIONAL CLASS ................................................................ 3.76
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ 3.67
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... 3.23
Russell 1000 Growth Index/(3)/ ..................................................... 2.69
Morningstar Large Growth Category Average .......................................... 2.88
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 LIFE OF FUND
INSTITUTIONAL CLASS ................................................................ -2.65
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ -2.73
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... -2.24
Russell 1000 Growth Index/(3)/ ..................................................... -1.58
Morningstar Large Growth Category Average .......................................... -1.26
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
FOR THE PERIOD ENDED OCTOBER 31, INSTITUTIONAL
2006 CLASS
Management Fees /(1)/ ............... 0.64%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.64%
///(1)/
Expense information has been restated to reflect current fees. The Fund's management fees were increased effective January 16,
2007.
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $65 $205 $357 $798
LARGECAP S&P 500 INDEX FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
Under normal market conditions, the Fund invests at least 80% of its net assets
(plus any borrowings for investment purposes) in common stocks of companies that
compose the S&P 500 Index. PGI 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 larger companies have greater representation in the Index than
smaller ones. As of December 31, 2006, the market capitalization range of the
Index was between approximately $1.4 billion and $446.9 billion. Over the
long-term, PGI 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
judgment. Instead, the Fund uses a passive investment approach. Rather than
judging the merits of a particular stock in selecting investments, PGI focuses
on tracking the S&P 500. PGI 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.
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.
PGI 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 PGI to believe that it should not be a part of the Fund's
assets. PGI may also elect to omit any S&P 500 stocks from the Fund if such
stocks are issued by an affiliated company.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment
Risk (LargeCap) Risk . Underlying Fund Risk
NOTE: "Standard & Poor's 500" and "S&P 500/(R)/" are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed by Principal. The Fund
is not sponsored, endorsed, sold, or promoted by Standard & Poor's and
Standard & Poor's makes no representation regarding the advisability of
investing in the Fund.
PGI has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
2001 -12.07
"2002"-22.27
"2003"28.06
"2004"10.67
"2005"4.71
2006 15.67
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 15.22%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-17.29%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)
1 YEAR
FOR THE PERIODS ENDED DECEMBER 31, 2006
INSTITUTIONAL CLASS ................ ............... 15.67
(AFTER TAXES ON DISTRIBUTIONS).................................................... 15.32
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)................................. 10.64
S&P 500 Index ........................................................................ 15.79
Morningstar Large Blend Category Average ............................................. 14.12
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
5 YEA RS
FOR THE PERIODS ENDED DECEMBER 31, 2006
INSTITUTIONAL CLASS ................ ............... 5.94
(AFTER TAXES ON DISTRIBUTIONS).................................................... 5.43
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)................................. 5.00
S&P 500 Index ........................................................................ 6.19
Morningstar Large Blend Category Average ............................................. 5.92
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 LIFE OF FUND
INSTITUTIONAL CLASS ................ ............... 2.28
(AFTER TAXES ON DISTRIBUTIONS).................................................... 1.79
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)................................. 1.80
S&P 500 Index ........................................................................ 2.94
Morningstar Large Blend Category Average ............................................. 3.10
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.15%
Other Expenses/(1)/ ............................... 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.16%
Expense Reimbursement/(2)/ ........................ 0.01
----
NET EXPENSES 0.15%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $15 $51 $89 $204
LARGECAP VALUE FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in common stock and other equity securities of large
capitalization companies. Under normal market conditions, the Fund invests at
least 80% of its assets in common stocks of companies with large market
capitalizations (those with market capitalizations similar to companies in the
Russell 1000/(R)// /Value Index, which as of December 31, 2006 ranged between
approximately $1.3 billion and $446.9 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 PGI, are undervalued in the
marketplace at the time of purchase. Value stocks are often characterized by
below average price/earnings ratios (P/E) and above average dividend yields
relative to the overall market. Securities for the Fund are selected by
consideration of the quality and price of individual issuers rather than
forecasting stock market trends. The selection process focuses on four key
elements:
. determination that a stock is selling below its fair market value;
. early recognition of changes in a company's underlying fundamentals;
. evaluation of the sustainability of fundamental changes; and
. monitoring a stock's behavior in the market to assess the timeliness of the
investment.
The equity investment philosophy of PGI, the Sub-Advisor, is based on the belief
that superior stock selection and disciplined risk management provide consistent
outperformance. PGI focuses on companies with improving and sustainable business
fundamentals, rising investor expectations, and attractive relative valuation.
To maximize stock selection skills as the primary driver of relative
performance, PGI leverages technology in its research-driven approach and
neutralizes unintended portfolio risks.
PGI focuses its stock selections on established companies that it believes have
improving business fundamentals. PGI 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.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment (LargeCap)
Risk . Derivatives Risk Risk
.
Underlying Fund Risk . Active Trading Risk . Value Stock Risk
.Foreign Securities
. Exchange Rate Risk Risk
PGI has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
2001 -7.30
"2002"-12.92
"2003"25.48
"2004"12.4
"2005"6.82
2006 20.06
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 15.31%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-15.10%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED OCTOBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS ................ ....... 20.06
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ 18.94
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... 14.51
Russell 1000 Value Index/(3)........................................................
/................................................................................... 22.25
Morningstar Large Value Category Average ........................................... 18.18
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED OCTOBER 31, 2006 5 YEARS
INSTITUTIONAL CLASS ................ ....... 9.51
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ 8.86
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... 8.11
Russell 1000 Value Index/(3)........................................................ 10.86
/...................................................................................
Morningstar Large Value Category Average ........................................... 8.38
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED OCTOBER 31, 2006 LIFE OF FUND
INSTITUTIONAL CLASS ................ ....... 6.98
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ 6.38
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... 5.88
Russell 1000 Value Index/(3)........................................................ 7.93
/...................................................................................
Morningstar Large Value Category Average ........................................... 6.38
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results"
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.45%
Other Expenses /(1)/ .............................. 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.46%
Expense Reimbursement/(2)/ ........................ 0.01
----
NET EXPENSES 0.45%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $46 $147 $257 $578
MIDCAP VALUE FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI") and Barrow, Hanley,
Mewhinney & Strauss, Inc. ("BHMS")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking long-term growth of capital and willing to accept the
potential for short-term fluctuations in the value of investments.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in common stocks of medium capitalization companies.
Under normal market conditions, the Fund invests at least 80% of its assets in
common stocks of companies with medium market capitalizations (those with market
capitalizations similar to companies in the Russell Midcap Value Index (as of
December 31, 2006, this range was between approximately $1.3 billion and $19.3
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 may purchase securities
issued as part of, or a short period after, companies' initial public offerings
and may at times dispose of those shares shortly after their acquisition.
The portion of Fund assets managed by PGI is invested in stocks that, in the
opinion of PGI, 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.
The equity investment philosophy of PGI, the Sub-Advisor, is based on the belief
that superior stock selection and disciplined risk management provide consistent
outperformance. PGI focuses on companies with improving and sustainable business
fundamentals, rising investor expectations, and attractive relative valuation.
To maximize stock selection skills as the primary driver of relative
performance, PGI leverages technology in its research-driven approach and
neutralizes unintended portfolio risks.
PGI focuses its stock selections on established companies that it believes have
improving business fundamentals. PGI 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.
The BHMS investment strategy emphasizes low P/E ratios, low price to book ratios
and high dividend yields, which should offer protection in a declining market
environment. In a rising market environment, BHMS expects these securities to
benefit from growth in profitability and earnings. The firm conducts its own
market research and believes that individual stock selection is more important
than sector weightings. BHMS normally does not time the market for short-term
gains.
Principal determines the portion of the Fund's assets to be managed by the
Sub-Advisors and may, from time-to-time, reallocate Fund assets among the
Sub-Advisors. The decision to do so may be based on a variety of factors,
including but not limited to: the investment capacity of each Sub-Advisor,
portfolio diversification, volume of net cash flows, fund liquidity, investment
performance, investment strategies, changes in each Sub-Advisor's firm or
investment professionals, or changes in the number of Sub-Advisors. Ordinarily,
reallocations of fund assets among Sub-Advisors will generally occur as a
Sub-Advisor liquidates assets in the normal course of portfolio management and
with net new cash flows; however, at times existing Fund assets may be
reallocated among Sub-Advisors.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment (MidCap)
Risk . Derivatives Risk Risk
.Foreign Securities
Risk . Value Stock Risk . Active Trading Risk
.Initial Public
. Exchange Rate Risk Offerings Risk . MidCap Stock Risk
. Small Company Risk
PGI has been the Fund's Sub-advisor since December 6, 2000. BHMS was added as an
additional Sub-Advisor on July 12, 2005.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
2001 3.39
"2002"-8.01
"2003"28.21
"2004"16.58
"2005"15.61
2006 16.12
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 14.96%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-12.69%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS ............................................................... 16.12
(AFTER TAXES ON DISTRIBUTIONS)/(3)/ ........................................... 14.95
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(3)/ ........................ 11.97
Russell Midcap Value Index/(4)/ .. ................................................ 20.22
Morningstar Mid-Cap Value Category Average ........................................ 15.89
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
/(2)/During 2005, the Class experienced a significant withdrawal of monies. As the remaining shareholder held relatively small
positions, the total return amounts expressed herein are greater than those that would have been experienced without the
withdrawal. In addition, the Class experienced a reimbursement from the Manager relating to a prior period expense adjustment. The
total return amounts expressed herein are greater than those that would have been experienced without the reimbursement.
///(3)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(4) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 5 YEARS
INSTITUTIONAL CLASS ............................................................... 13.04/(2)/
(AFTER TAXES ON DISTRIBUTIONS)/(3)/ ........................................... 11.49/(2)/
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(3)/ ........................ 10.74/(2)/
Russell Midcap Value Index/(4)/ .. ................................................ 15.88
Morningstar Mid-Cap Value Category Average ........................................ 11.55
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
/(2)/During 2005, the Class experienced a significant withdrawal of monies. As the remaining shareholder held relatively small
positions, the total return amounts expressed herein are greater than those that would have been experienced without the
withdrawal. In addition, the Class experienced a reimbursement from the Manager relating to a prior period expense adjustment. The
total return amounts expressed herein are greater than those that would have been experienced without the reimbursement.
///(3)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(4) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 LIFE OF FUND
INSTITUTIONAL CLASS ............................................................... 12.22/(2)/
(AFTER TAXES ON DISTRIBUTIONS)/(3)/ ........................................... 10.69/(2)/
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(3)/ ........................ 10.00/(2)/
Russell Midcap Value Index/(4)/ .. ................................................ 13.51
Morningstar Mid-Cap Value Category Average ........................................ 11.11
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
/(2)/During 2005, the Class experienced a significant withdrawal of monies. As the remaining shareholder held relatively small
positions, the total return amounts expressed herein are greater than those that would have been experienced without the
withdrawal. In addition, the Class experienced a reimbursement from the Manager relating to a prior period expense adjustment. The
total return amounts expressed herein are greater than those that would have been experienced without the reimbursement.
///(3)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(4) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Resul
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
FOR THE YEAR ENDED OCTOBER INSTITUTIONAL
31, 2006 CLASS
Management Fees............ 0.65%
Other Expenses/(1).........
/.......................... 0.02
----
TOTAL ANNUAL FUND
OPERATING EXPENSES 0.67%
Expense Reimbursement/(2)..
/.......................... 0.02
----
NET EXPENSES 0.65%
///(1)
/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor
fees, legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by
the Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors
and officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLES
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $67 $213 $373 $837
PARTNERS LARGECAP BLEND FUND
SUB-ADVISOR(S): T. Rowe Price Associates, Inc. ("T. Rowe Price")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking long-term growth of capital and willing to accept the risks of
investing in an aggressively managed portfolio of common stocks, but
who prefer investing in larger, established companies.
MAIN STRATEGIES AND RISKS
The Fund pursues its investment objective by investing primarily in equity
securities of U.S. companies. Under normal market conditions, the Fund invests
at least 80% of its net assets (plus borrowings for investment purposes) in
common stocks of companies with large market capitalizations (those with market
capitalizations within the range of companies in the S&P 500 Index (as of
December 31, 2006 this range was between approximately $1.4 billion and $446.9
billion)) at the time of purchase. Market capitalization is defined as total
current market value of a company's outstanding common stock.
The Fund will generally remain fully invested (less than 5% cash reserves) and
will have approximately the same industry weightings as compared to the S&P 500
Index. While the majority of assets will be invested in large-capitalization
U.S. common stocks, small- and mid-capitalization stocks and foreign stocks (up
to 25% of total assets) may also be purchased in keeping with Fund objectives.
Securities may be sold for a variety of reasons, such as to secure gains, limit
losses, or redeploy assets into more promising opportunities.
The market capitalization of companies in the Fund's portfolio and the S&P 500
Index will change over time, and the Fund will not automatically sell or cease
to purchase a stock of a company it already owns just because the company's
market capitalization grows or falls outside of the index range. In addition,
the Fund has the ability to purchase stocks whose market capitalization falls
below the range of companies in the S&P 500 Index.
T. Rowe Price uses a disciplined portfolio construction process whereby it
weights each sector approximately the same as the S&P 500 Index. Individual
holdings within each sector, and their weights within the portfolio, can vary
substantially from the S&P 500 Index. T. Rowe Price generally purchases for the
Fund securities issued by companies in the S&P 500 Index, and therefore, its
stock selection process will result in the purchase of both growth and value
stocks.
A team of T. Rowe Price equity analysts is directly responsible for selecting
stocks for the Fund. Analysts select stocks from the industries they cover based
on rigorous fundamental analysis that assesses the quality of the business
franchise, earnings growth potential for the company, and stock valuation. The
Fund seeks to take full advantage of the analysts' focused expertise in their
industries. A team of portfolio managers supervises the analysts and has the
responsibility for the overall structure of the Fund and coordinating Fund
investments. They also oversee the quantitative analysis that helps the analysts
manage their industry-specific portfolios.
In pursuing its investment objective, the Fund's management has the discretion
to purchase some securities that do not meet its normal investment criteria, as
described above, when it perceives an unusual opportunity for gain. These
special situations might arise when T. Rowe Price believes a security could
increase in value for a variety of reasons, including a change in management, an
extraordinary corporate event, or a temporary imbalance in the supply of or
demand for the securities.
Futures and options contracts may be bought or sold for any number of reasons,
including: to manage exposure to changes in interest rates and foreign
currencies; as an efficient means of increasing or decreasing fund overall
exposure to a specific part or broad segment of the U.S. or a foreign market; in
an effort to enhance income; to protect the value of portfolio securities; and
to serve as a cash management tool. Call or put options may be purchased or sold
on securities, financial indices, and foreign currencies.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment (LargeCap)
Risk . Derivatives Risk Risk
.Foreign Securities
Risk . Value Stock Risk . Growth Stock Risk
. Exchange Rate Risk
T. Rowe Price became Sub-Advisor to the Fund effective March 9, 2004.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2001"-7.13
"2002"-16.28
"2003"23.93
"2004"10.38
"2005"4.79
2006 15.94
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 14.21%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-15.44%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS ................................................................ 15.94
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ 14.69
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... 11.49
S&P 500 Index/(3)/ ................................................................. 15.79
Morningstar Large Blend Category Average ........................................... 14.12
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 5 YEARS
INSTITUTIONAL CLASS ................................................................ 6.83
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ 6.10
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... 5.71
S&P 500 Index/(3)/ ................................................................. 6.19
Morningstar Large Blend Category Average ........................................... 5.92
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 LIFE OF FUND
INSTITUTIONAL CLASS ................................................................ 4.64
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ 3.99
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... 3.80
S&P 500 Index/(3)/ ................................................................. 2.94
Morningstar Large Blend Category Average ........................................... 3.10
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results"
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.74%
Other Expenses/(1)/ ............................... 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.75%
Expense Reimbursement/(2)/ ........................ 0.01
----
NET EXPENSES 0.74%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $76 $239 $416 $929
PARTNERS LARGECAP BLEND FUND I
SUB-ADVISOR(S): Goldman Sachs Asset Management, L.P. ("Goldman Sachs")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
The Fund seeks its objective through investment in a broadly diversified
portfolio of large cap and blue chip equity investments representing all major
sectors of the U.S. economy. Under normal market conditions, the Fund invests at
least 80% of its assets (not including securities lending collateral and any
investment of that collateral) in common stocks of companies with large market
capitalizations (those with market capitalizations similar to companies in the
S&P 500 Index (as of December 31, 2006, the range was between approximately $1.4
billion and $446.9 billion)) measured 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.
Goldman Sachs seeks to outperform the S&P 500 Index by overweighting stocks that
it believes are more likely to outperform the benchmark while underweighting
stocks that it believes will lag the Index. Goldman Sachs seeks to add value
from stock selection rather than sector rotation strategies or market timing.
Its approach is to combine traditional fundamental analysis with sophisticated
quantitative modeling and to carefully construct and manage the risk in the
portfolio.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment (LargeCap)
Risk . Derivatives Risk Risk
. Active Trading Risk . Value Stock Risk . Growth Stock Risk
.
Underlying Fund Risk . Exchange Rate Risk . Foreign Securities Risk
Goldman Sachs became Sub-Advisor to the Fund on December 16, 2002.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
2001 -16.80
"2002"-24.89
"2003"27.98
"2004"11.05
"2005"6.16
2006 13.67
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 14.26%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-17.56%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS ................................................................ 13.67
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ 13.55
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... 9.05
S&P 500 Index/(3)/ ................................................................. 15.79
Morningstar Large Blend Category Average ........................................... 14.12
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 5 YEARS
INSTITUTIONAL CLASS ................................................................ 5.20
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ 4.97
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... 4.40
S&P 500 Index/(3)/ ................................................................. 6.19
Morningstar Large Blend Category Average ........................................... 5.92
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 LIFE OF FUND
INSTITUTIONAL CLASS ................................................................ 0.83
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ 0.58
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... 0.59
S&P 500 Index/(3)/ ................................................................. 2.94
Morningstar Large Blend Category Average ........................................... 3.10
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results"
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.45%
Other Expenses/(1).................................
/.................................................. 0.02
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.47%
Expense Reimbursement/(2)..........................
/.................................................. 0.02
----
NET EXPENSES 0.45%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $46 $149 $261 $590
PARTNERS LARGECAP GROWTH FUND I
SUB-ADVISOR(S): T. Rowe Price Associates, Inc. ("T. Rowe Price")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
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 with large market capitalizations that exhibit strong growth and free
cash flow potential. These companies are generally characterized as "growth"
companies. Under normal market conditions, the Fund invests at least 80% of its
net assets (plus any borrowings for investment purposes) in equity securities of
companies with market capitalizations within the range of companies in the
Russell 1000/(R)// /Growth Index (as of December 31, 2006, this range was
between approximately $1.2 billion and $446.9 billion) at the time of purchase.
The Fund's investments in foreign companies will be limited to 25% of its total
assets. The Fund may also purchase futures and options, in keeping with Fund
objectives.
The market capitalization of companies in the Fund's portfolio and the Russell
index will change over time, and the Fund will not automatically sell or cease
to purchase the stock of a company it already owns just because the company's
market capitalization grows or falls outside of the index range.
T. Rowe Price generally looks for companies with an above-average rate of
earnings and cash flow growth and a lucrative niche in the economy that gives
them the ability to sustain earnings momentum even during times of slow economic
growth. As a growth investor, T. Rowe Price believes that when a company
increases its earnings faster than both inflation and the overall economy, the
market will eventually reward it with a higher stock price.
In pursuing its investment objective, T. Rowe Price has the discretion to
purchase some securities that do not meet its normal investment criteria, as
described above, when it perceives an unusual opportunity for gain. These
special situations might arise when T. Rowe Price believes a security could
increase in value for a variety of reasons, including a change in management, an
extraordinary corporate event, or a temporary imbalance in the supply of or
demand for the securities.
The Fund may sell securities for a variety of reasons, such as to secure gains,
limit losses, or redeploy assets into more promising opportunities. The Fund may
actively trade securities in an attempt to achieve its investment objective.
Futures and options contracts may be bought or sold for any number of reasons,
including: to manage exposure to changes in interest rates and foreign
currencies; as an efficient means of increasing or decreasing overall fund
exposure to a specific part or broad segment of the U.S. or a foreign market; in
an effort to enhance income; to protect the value of portfolio securities; and
to serve as a cash management tool. Call or put options may be purchased or sold
on securities, financial indices and foreign currencies.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment (LargeCap)
Risk . Derivatives Risk Risk
. Exchange Rate Risk . Growth Stock Risk . Active Trading Risk
.Foreign Securities .
Risk Underlying Fund Risk
T. Rowe Price became Sub-Advisor to the Fund on August 24, 2004.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2001"-14.32
"2002"-27.76
"2003"24.01
"2004"9.25
"2005"7.61
2006 6.10
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '01 12.90%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q1 '01
-18.00%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS ................................................................. 6.10
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. 5.33
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .......................... 4.95
Russell 1000 Growth Index/(3).../.................................................... 9.07
Morningstar Large Growth Category Average ........................................... 6.93
/(1)/// Lifetime results are measured from the date the Institutional Class shares were first sold (December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 5 YEARS
INSTITUTIONAL CLASS ................................................................. 2.24
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. 1.91
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .......................... 1.86
Russell 1000 Growth Index/(3).../.................................................... 2.69
Morningstar Large Growth Category Average ........................................... 2.88
/(1)/// Lifetime results are measured from the date the Institutional Class shares were first sold (December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 LIFE OF FUND
INSTITUTIONAL CLASS ................................................................. -1.69
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. -1.96
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .......................... -1.47
Russell 1000 Growth Index/(3).../.................................................... -1.58
Morningstar Large Growth Category Average ........................................... -1.26
/(1)/// Lifetime results are measured from the date the Institutional Class shares were first sold (December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.74%
Other Expenses/(1).................................
/.................................................. 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.75%
Expense Reimbursement/(2)..........................
/.................................................. 0.01
----
NET EXPENSES 0.74%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $76 $239 $416 $929
PARTNERS LARGECAP GROWTH FUND II
SUB-ADVISOR(S): American Century Investment Management, Inc. ("American
Century") and BNY Investment Advisors ("BNY") (for the Fund's "cash
buffer")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
Under normal market conditions, the Fund invests at least 80% of its assets in
equity securities of companies with large market capitalizations (those with
market capitalizations similar to companies in the Russell 1000 Growth Index (as
of December 31, 2006, the range was between approximately $1.2 billion and
$446.9 billion)) at the time of purchase. Market capitalization is defined as
total current market value of a company's outstanding common stock.
American Century selects stocks of larger-sized companies it believes will
increase in value over time using a growth investment strategy it developed. In
implementing this strategy, American Century uses a bottom-up approach to stock
selection. This means that American Century makes investment decisions based
primarily on its analysis of individual companies, rather than on broad economic
forecasts. Management of the Fund is based on the belief that, over the long
term, stock price movements follow growth in earnings, revenues and/or cash
flow.
Using its extensive computer database, as well as other primary analytical
research tools, American Century tracks financial information for individual
companies to identify and evaluate trends in earnings, revenues, and other
business fundamentals. Under normal market conditions, the Fund's portfolio will
primarily consist of securities of companies whose earnings and revenues are not
only growing, but growing at an accelerating pace. This includes companies whose
growth rates, although still negative, are less negative than prior periods, and
companies whose growth rates are expected to accelerate. Other analytical
techniques help identify additional signs of business improvement, such as
increasing cash flows, or other indications of the relative strength of a
company's business. These techniques help American Century buy or hold the
stocks of companies it believes have favorable growth prospects and sell the
stocks of companies whose characteristics no longer meet their criteria.
Although American Century intends to invest the Fund's assets primarily in U.S.
stocks, the Fund may invest up to 25% of its assets in securities of foreign
companies. Most of the Fund's foreign investments are in companies located and
doing business in developed countries.
American Century does not attempt to time the market. Instead, under normal
market conditions, it intends to keep the Fund essentially fully invested in
stocks regardless of the movement of stock prices generally. When American
Century believes it is prudent, the Fund may invest a portion of its assets in
debt securities, options, preferred stock and equity equivalent securities, such
as convertible securities, stock futures contracts or stock index futures
contracts. Futures contracts, a type of derivative security, 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.
Principal has selected BNY as Sub-Advisor for the Fund's "cash buffer." The cash
buffer is the receptacle for daily cash flows received as a direct result of
transactions (purchases and redemptions) placed by shareholders. BNY will invest
the Fund's cash buffer in S&P 500 Index futures contracts with a nominal value
equal to the underlying cash buffer account (i.e., no leverage employed).
Principal believes that, over the long term, this strategy will enhance the
investment performance of the Fund.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment (LargeCap)
Risk . Derivatives Risk Risk
.
Underlying Fund Risk . Growth Stock Risk . Foreign Securities Risk
. Exchange Rate Risk
American Century has been the Fund's Sub-Advisor since December 6, 2000. BNY was
added as an additional Sub-Advisor on March 1, 2006.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2001"-17.88
"2002"-25.95
"2003"26.08
"2004"9.31
"2005"4.75
2006 7.70
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '01 14.51%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q1 '01
-19.60%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS ................................................................. 7.70
(AFTER TAXES ON DISTRIBUTIONS)/(2)//.............................................
/................................................................................ 5.71
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)............................
/................................................................................ 6.07
Russell 1000 Growth Index/(3)........................................................
/.................................................................................... 9.07
Morningstar Large Growth Category Average ........................................... 6.93
/(1)/// Lifetime results are measured from the date the Institutional Class shares were first sold (December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 5 YEARS
INSTITUTIONAL CLASS ................................................................. 2.86
(AFTER TAXES ON DISTRIBUTIONS)/(2)//............................................. 2.38
/................................................................................
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)............................ 2.31
/................................................................................
Russell 1000 Growth Index/(3)........................................................ 2.69
/....................................................................................
Morningstar Large Growth Category Average ........................................... 2.88
/(1)/// Lifetime results are measured from the date the Institutional Class shares were first sold (December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 LIFE OF FUND
INSTITUTIONAL CLASS ................................................................. -1.88
(AFTER TAXES ON DISTRIBUTIONS)/(2)//............................................. -2.26
/................................................................................
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)............................ -1.70
/................................................................................
Russell 1000 Growth Index/(3)........................................................ -1.58
/....................................................................................
Morningstar Large Growth Category Average ........................................... -1.26
/(1)/// Lifetime results are measured from the date the Institutional Class shares were first sold (December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
FOR THE YEAR ENDED OCTOBER INSTITUTIONAL
31, 2006 CLASS
Management Fees............ 0.99%
Other Expenses/(1).........
/.......................... 0.01
----
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.00%
Expense Reimbursement/(2)..
/.......................... 0.01
----
NET EXPENSES 0.99%
///(1)
/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor
fees, legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by
the Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors
and officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $101 $317 $551 $1,224
PARTNERS LARGECAP VALUE FUND
SUB-ADVISOR(S): AllianceBernstein L.P. ("AllianceBernstein") and BNY Investment
Advisors ("BNY") (for the Fund's "cash buffer")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in undervalued equity securities of companies among
the 750 largest by market capitalization that the Sub-Advisor,
AllianceBernstein, believes offer above-average potential for growth in future
earnings. Under normal market conditions, the Fund generally invests at least
80% of its assets in companies with large market capitalizations (those with
market capitalizations similar to companies in the Russell 1000/(R)/ Value Index
(as of December 31, 2006, this range was between approximately $1.3 billion and
$446.9 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.
AllianceBernstein employs an investment strategy, generally described as "value"
investing. The firm seeks securities that exhibit low financial ratios, can be
acquired for less than what AllianceBernstein believes is the issuer's intrinsic
value, or whose price appears attractive relative to the value of the dividends
expected to be paid by the issuer in the future.
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
AllianceBernstein to have strong potential for capital appreciation or
securities of "special situation" companies. A special situation company is one
that AllianceBernstein 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 AllianceBernstein, identifying special
situation companies and establishing an issuer's intrinsic value involves
fundamental research about such companies and issuers.
Principal has selected BNY as Sub-Advisor for the Fund's "cash buffer." The cash
buffer is the receptacle for daily cash flows received as a direct result of
transactions (purchases and redemptions) placed by shareholders. BNY will invest
the Fund's cash buffer in S&P 500 Index futures contracts with a nominal value
equal to the underlying cash buffer account (i.e., no leverage employed).
Principal believes that, over the long term, this strategy will enhance the
investment performance of the Fund.
Among the principal risks of investing in the Fund are:
.Market Segment (LargeCap)
. Equity Securities Risk . Derivatives Risk Risk
. Underlying Fund Risk . Value Stock Risk . Foreign Securities Risk
. Exchange Rate Risk
AllianceBernstein has been the Fund's Sub-Advisor since December 6, 2000. BNY
was added as an additional Sub-Advisor on March 1, 2006.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2001"5.53
"2002"-13.58
"2003"27.48
"2004"13.32
"2005"5.34
2006 21.91
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 15.59%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-18.45%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS ................................................................. 21.91
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. 20.82
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .......................... 15.67
Russell 1000 Value Index /(3)/ ...................................................... 22.25
Morningstar Large Value Category Average ............................................ 18.18
/(1)/// Lifetime results are measured from the date the Institutional Class shares were first sold (December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 5 YEARS
INSTITUTIONAL CLASS ................................................................. 9.90
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. 9.34
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .......................... 8.51
Russell 1000 Value Index /(3)/ ...................................................... 10.86
Morningstar Large Value Category Average ............................................ 8.38
/(1)/// Lifetime results are measured from the date the Institutional Class shares were first sold (December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 LIFE OF FUND
INSTITUTIONAL CLASS ................................................................. 9.91
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. 9.36
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .......................... 8.53
Russell 1000 Value Index /(3)/ ...................................................... 7.93
Morningstar Large Value Category Average ............................................ 6.38
/(1)/// Lifetime results are measured from the date the Institutional Class shares were first sold (December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE YEAR ENDED OCTOBER 31, 2006 CLASS
Management Fees...................... 0.77%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.77%
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $79 $246 $428 $954
PARTNERS LARGECAP VALUE FUND I
SUB-ADVISOR(S): UBS Global Asset Management (Americas) Inc. ("UBS Global AM")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in common stocks and other equity securities of large
capitalization companies. Under normal market conditions, the Fund invests at
least 80% of its net assets in securities of companies with large market
capitalizations (those with market capitalizations similar to companies in the
Russell 1000 Value Index (as of December 31, 2006 this range was between
approximately $1.3 billion and $446.9 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.
In selecting securities, UBS Global AM focuses on, among other things,
identifying discrepancies between a security's fundamental value and its market
price. In this context, the fundamental value of a given security is the
assessment of UBS Global AM of what a security is worth. UBS Global AM seeks to
select securities with fundamental values that it estimates to be greater than
its market value at any given time. For each stock under analysis, UBS Global AM
bases its estimates of fundamental value upon economic, industry and company
analysis, as well as upon a company's management team, competitive advantage and
core competencies. UBS Global AM then compares its assessment of a security's
value against the prevailing market prices with the aim of constructing a
portfolio of stocks with attractive relative price/value characteristics. UBS
Global AM derives investment value and organizes collective investment insights
with an emphasis on primary research and company visits.
Among the principal risks of investing in the Fund are:
. Exchange Rate Risk . Foreign Securities Risk . Value Stock Risk
.Market Segment
. Derivatives Risk (LargeCap) Risk . Equity Securities Risk
. Underlying Fund Risk
UBS Global AM has been the Fund's Sub-Advisor since June 1, 2004.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2005"9.92
2006 18.20
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '06 7.63%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q1 '05
-0.53%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR LIFE OF FUND
INSTITUTIONAL CLASS ......................................... 18.20 15.88
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ..................... 17.69 15.48
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .. 12.51 13.63
Russell 1000 Value Index/(3)/ ............................... 22.25 17.04
Morningstar Large Value Category Average .................... 18.18 13.95
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (June 1, 2004).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE YEAR ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.80%
Other Expenses/(1).................................
/.................................................. 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.81%
Expense Reimbursement/(2)..........................
/.................................................. 0.01
----
NET EXPENSES 0.80%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $82 $258 $449 $1,001
PARTNERS LARGECAP VALUE FUND II
SUB-ADVISOR(S): American Century Investment Management, Inc. ("American
Century")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES
The Fund invests primarily in common stocks and other equity securities of large
capitalization companies. Equity securities include common stock, preferred
stock, and equity-equivalent securities, such as securities convertible into
common stock, stock futures contracts or stock index futures contracts. Under
normal market conditions, the Fund invests at least 80% of its net assets (plus
any borrowings for investment purposes) in securities of companies with market
capitalizations similar to companies in the Russell 1000/(R)/ Index (as of
December 31, 2006, this range was between approximately $1.2 billion and $446.9
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.
The Sub-Advisor, American Century, uses a value investment strategy that looks
for companies that are temporarily out of favor in the market. American Century
attempts to purchase the stocks of these undervalued companies and hold the
stocks until they have returned to favor in the market and their price has
increased to, or is higher than, a level American Century believes more
accurately reflects the fair value of the company. American Century may sell
stocks from the Fund's portfolio if it believes a stock no longer meets its
valuation criteria. American Century does not attempt to time the market.
Companies may be undervalued due to market declines, poor economic conditions,
actual or anticipated bad news regarding the issuer or its industry, or because
they have been overlooked by the market. To identify these companies, American
Century looks for companies with earnings, cash flows and/or assets that may not
be reflected accurately in the companies' stock prices or may be outside the
companies' historical ranges. American Century also may consider whether the
companies' securities have a favorable income-paying history and whether income
payments are expected to continue or increase. Futures contracts, a type of
derivative security, can help the Fund's cash assets remain liquid while
performing more like stocks. American Century/ /has a policy governing futures
contracts and similar derivative securities to help manage the risk of these
types of investments.
When American Century believes it is prudent, the Fund may invest a portion of
its assets in foreign securities, debt securities of companies, debt obligations
of governments and their agencies, and other similar securities.
In the event of exceptional market or economic conditions, the Fund may as a
temporary defensive measure, invest all or a substantial portion of its assets
in cash, cash-equivalent securities, or short-term debt securities. To the
extent the Fund assumes a defensive position, it will not be pursuing its
objective of capital growth.
Among the principal risks of investing in the Fund are:
.Equity Securities
Risk . Active Trading Risk . Exchange Rate Risk
.Foreign Securities .Market Segment (LargeCap)
. Derivatives Risk Risk Risk
.U.S. Government .U.S. Government Securities
Sponsored Securities . Value Stock Risk Risk
Risk
American Century has been the Fund's Sub-Advisor since December 29, 2004.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2005"4.19
2006 19.90
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '06 7.47%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q1 '05
-1.00%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR LIFE OF FUND
INARUTIONAL CLASS.......................... 19.90 11.79
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ... 19.33 11.26
(AFTER TAXES ON DISTRIBUTIONS AND SALE
OF SHARES)/(2)/........................ 13.57 9.97
Russell 1000 Value Index /(3)/ ............ 22.25 14.40
Morningstar Large Value Category Average .. 18.18 11.86
/(1) / Lifetime results are measured from the date the Institutional Class was first sold (December 29, 2004).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE YEAR ENDED OCTOBER 31, 2006 CLASS
Management Fees.................. 0.85%
Other Expenses /(1)............./.. 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES
0.86%
Expense Reimbursement /(2)....../.. 0.01
----
NET EXPENSES
0.85%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $87 $273 $476 $1,060
PARTNERS MIDCAP VALUE FUND
SUB-ADVISOR(S): Neuberger Berman Management, Inc. ("Neuberger Berman") and
Jacobs Levy Equity Management, Inc. ("Jacobs Levy")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking long-term growth and willing to accept short-term fluctuations
in the value of investments.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in common stocks of medium capitalization companies.
Under normal market conditions, the Fund invests at least 80% of its net assets
(plus any borrowings for investment purposes) in common stocks of companies with
a medium market capitalization (those with market capitalizations similar to
companies in the Russell Midcap/(R)/ Value Index (as of December 31, 2006, this
range was between approximately $1.3 billion and $19.3 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.
Each of the Sub-Advisors selects stocks using a value oriented investment
approach. Neuberger Berman identifies value stocks in several ways. Factors it
considers in identifying value stocks may include:
. strong fundamentals, such as a company's financial, operational, and
competitive positions;
. consistent cash flow; and
. 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.
Jacobs Levy selects stocks by using proprietary research that attempts to detect
and take advantage of market inefficiencies. Its approach combines human insight
and intuition, finance and behavioral theory, and quantitative and statistical
methods in a proprietary process it refers to as "disentangling." The
disentangling process evaluates various market inefficiencies simultaneously,
isolating each potential source of return.
Jacobs Levy believes that disentangling provides more reliable predictions of
future stock price behavior than simple single-factor analyses. Security
valuation entails sophisticated modeling of large numbers of stocks and
proprietary factors based on reasonable, intuitive relationships. The firm
examines a wide range of data, including balance sheets and income statements,
analyst forecasts, corporate management signals, economic releases, and security
prices.
The Fund may purchase securities issued as part of, or a short period after,
companies' initial public offerings and may at times dispose of those shares
shortly after their acquisition.
Principal determines the portion of the Fund's assets to be managed by the
Sub-Advisors and may, from time-to-time, reallocate Fund assets among the
Sub-Advisors. The decision to do so may be based on a variety of factors,
including but not limited to: the investment capacity of each Sub-Advisor,
portfolio diversification, volume of net cash flows, fund liquidity, investment
performance, investment stategies, changes in each Sub-Advisor's firm or
investment professionals, or changes in the number of Sub-Advisors. Ordinarily,
reallocations of fund assets among Sub-Advisors will generally occur as a
Sub-Advisor liquidates assets in the normal course of portfolio management and
with net new cash flows; however, at times existing Fund assets may be
reallocated among Sub-Advisors.
Among the principal risks of investing in the Fund are:
.Market Segment (MidCap)
. Equity Securities Risk . Value Stock Risk Risk
. Small Company Risk . MidCap Stock Risk . Underlying Fund Risk
.Initial Public
Offerings Risk
Neuberger Berman has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2001"-1.78
"2002"-9.91
"2003"35.96
"2004"22.56
"2005"10.86
2006 13.61
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '03 14.72%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-14.42%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS ................ ....... 13.61
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. 11.67
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .......................... 10.26
Russell Midcap Value Index/(3).......................................................
/.................................................................................... 20.22
Morningstar Mid-Cap Value Category Average .......................................... 15.89
/(1)// /Lifetime results are measured from the date the Institutional Class shares were first sold (December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)// /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 5 YEARS
INSTITUTIONAL CLASS ................ ....... 13.59
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. 12.50
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .......................... 11.60
Russell Midcap Value Index/(3)....................................................... 15.88
/....................................................................................
Morningstar Mid-Cap Value Category Average .......................................... 11.55
/(1)// /Lifetime results are measured from the date the Institutional Class shares were first sold (December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)// /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 LIFE OF FUND
INSTITUTIONAL CLASS ................ ....... 11.88
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. 10.98
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .......................... 10.18
Russell Midcap Value Index/(3)....................................................... 13.51
/....................................................................................
Morningstar Mid-Cap Value Category Average .......................................... 11.11
/(1)// /Lifetime results are measured from the date the Institutional Class shares were first sold (December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)// /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
FOR THE YEAR ENDED OCTOBER INSTITUTIONAL
31, 2006 CLASS
Management Fees............ 1.00%
Other Expenses/(1)/ ....... 0.01
----
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.01%
Expense Reimbursement/
//(//2)/................... 0.01
----
NET EXPENSES 1.00%
///(1)
/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor
fees, legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by
the Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors
and officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $102 $321 $557 $1,235
PARTNERS MIDCAP VALUE FUND I
SUB-ADVISOR(S): Goldman Sachs Asset Management, L.P. ("Goldman Sachs") and Los
Angeles Capital Management and Equity Research, Inc. ("LA Capital")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking long-term growth and willing to accept short-term fluctuations
in the value of investments.
MAIN STRATEGIES AND RISKS
Under normal market circumstances, the Fund invests at least 80% of its net
assets (plus any borrowings for investment purposes) in a diversified portfolio
of equity investments in mid-cap issuers with a medium market capitalization
(those with market capitalizations similar to companies in the Russell MidCap
Value Index (as of December 31, 2006, the range was between approximately $1.3
billion and $19.3 billion)) at the time of purchase. Market capitalization is
defined as total current market value of a company's outstanding common stock.
If the market capitalization of a company held by the Fund moves outside this
range, the Fund may, but is not required to, sell the securities. The Fund may
invest up to 25% of its net assets in securities of foreign companies, including
securities of issuers in emerging countries and securities quoted in foreign
currencies.
Goldman Sachs selects stocks using a value oriented investment approach. Goldman
Sachs evaluates securities using fundamental analysis and intends to purchase
equity investments that are, in its view, underpriced relative to a combination
of such company's long-term earnings prospects, growth rate, free cash flow
and/or dividend-paying ability. Consideration will be given to the business
quality of the issuer. Factors positively affecting Goldman Sachs's view of that
quality include the competitiveness and degree of regulation in the markets in
which the company operates, the existence of a management team with a record of
success, the position of the company in the markets in which it operates, the
level of the company's financial leverage and the sustainable return on capital
invested in the business. The Fund may also purchase securities of companies
that have experienced difficulties and that, in the opinion of Goldman Sachs,
are available at attractive prices.
LA Capital employs a quantitative approach for selecting securities it believes
are favored in the current market environment. The firm's proprietary Dynamic
Alpha Model seeks to identify investor preferences for specific risk
characteristics by analyzing valuation, income statement, balance sheet,
industry and market-based factors. Expected returns are calculated for a
universe of medium capitalization securities based on a security's exposure and
the Model's expected return for each factor.
The portion of the Fund's assets managed by LA Capital are diversified across
industries, common risk factors and companies. Through an optimization process,
LA Capital seeks to control portfolio risks and implementation costs while
striving to generate consistent results versus the Russell MidCap Value Index.
Portfolio returns and risks are monitored daily by the investment team. Each
month, the firm's Portfolio Review Committee formally reviews the portfolio for
compliance with investment objectives and guidelines.
Principal determines the portion of the Fund's assets to be managed by the
Sub-Advisors and may, from time-to-time, reallocate Fund assets among the
Sub-Advisors. The decision to do so may be based on a variety of factors,
including but not limited to: the investment capacity of each Sub-Advisor,
portfolio diversification, volume of net cash flows, fund liquidity, investment
performance, investment strategies, changes in each Sub-Advisor's firm or
investment professionals, or changes in the number of Sub-Advisors. Ordinarily,
reallocations of fund assets among Sub-Advisors will generally occur as a
Sub-Advisor liquidates assets in the normal course of portfolio management and
with net new cash flows; however, at times existing Fund assets may be
reallocated among Sub-Advisors.
Among the principal risks of investing in the Fund are:
.Emerging Markets .Market Segment (MidCap)
Risk . Derivatives Risk Risk
.Foreign Securities .Initial Public Offerings
Risk . Value Stock Risk Risk
. Exchange Rate Risk . MidCap Stock Risk . Sector Risk
.Equity Securities
. Small Company Risk Risk . Underlying Fund Risk
Goldman Sachs has been the Fund's Sub-Advisor since December 29, 2003. LA
Capital was added as an additional Sub-Advisor on October 3, 2005.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2004"25.69
"2005"12.5
2006 15.81
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '04 12.82%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '06 -1.41%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR LIFE OF FUND
INSTITUTIONAL CLASS ......................................... 15.81 17.80
(AFTER TAXES ON DISTRIBUTIONS)/(2).......................
/........................................................ 14.81 16.56
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)....
/........................................................ 11.40 15.04
Russell Midcap Value Index/(3)...............................
/............................................................ 20.22 18.77
Morningstar Mid-Cap Value Category Average .................. 15.89 14.18
/(1)/// Lifetime results are measured from the date the Institutional Class shares were first sold ( December 29, 2003).
///(2)///
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1) /
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
FOR THE YEAR ENDED OCTOBER INSTITUTIONAL
31, 2006 CLASS
Management Fees............ 1.00%
Other Expenses/(1).........
/.......................... 0.01
----
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.01%
Expense Reimbursement/(2)..
/.......................... 0.01
----
NET EXPENSES 1.00%
///(1)
/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor
fees, legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by
the Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors
and officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $102 $321 $557 $1,235
MIDCAP BLEND FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking long-term growth of capital and willing to accept the
potential for short-term fluctuations in the value of investments.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in common stocks and other equity securities of
medium capitalization companies. Under normal market conditions, the Fund
invests at least 80% of its assets in common stocks of companies with medium
market capitalizations (those with market capitalizations similar to companies
in the Russell MidCap/(R)/ Index (as of December 31, 2006, this range was
between approximately $1.2 billion and $20.3 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.
In selecting securities for investment, PGI 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, PGI
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.
PGI believes that superior stock selection is the key to consistent
out-performance. PGI seeks to achieve superior stock selection by systematically
evaluating company fundamentals and in-depth original research.
PGI focuses its stock selections on established companies that it believes have
a sustainable competitive advantage. PGI 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.
The Fund may purchase securities issued as part of, or a short period after,
companies' initial public offerings and may at times dispose of those shares
shortly after their acquisition.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment (MidCap)
Risk . Derivatives Risk Risk
.Foreign Securities
Risk . Growth Stock Risk . Value Stock Risk
.Initial Public
. Exchange Rate Risk Offerings Risk . Active Trading Risk
. MidCap Stock Risk
PGI has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
2001 -3.29
"2002"-8.47
"2003"32.67
"2004"17.65
"2005"9.31
2006 14.05
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 14.30%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '01 -10.63%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS ................................................................ 14.05
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ 12.23
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... 11.20
Russell Midcap Index/(3)......../................................................... 15.26
Morningstar Mid-Cap Blend Category Average ......................................... 13.92
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 5 YEARS
INSTITUTIONAL CLASS ................................................................ 12.24
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ 11.34
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... 10.55
Russell Midcap Index/(3)......../................................................... 12.88
Morningstar Mid-Cap Blend Category Average ......................................... 10.51
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 LIFE OF FUND
INSTITUTIONAL CLASS ................................................................ 10.14
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ 9.35
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... 8.70
Russell Midcap Index/(3)......../................................................... 9.56
Morningstar Mid-Cap Blend Category Average ......................................... 8.86
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.64%
Other Expenses/(1) ................................
/ ................................................. 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.65%
Expense Reimbursement/(2) .........................
/.................................................. 0.01
----
NET EXPENSES 0.64%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $65 $207 $361 $809
MIDCAP GROWTH FUND
SUB-ADVISOR(S): Columbus Circle Investors ("CCI")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
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 80% of its assets in common stocks of companies with medium
market capitalizations (those with market capitalizations similar to companies
in the Russell Midcap Growth Index (as of December 31, 2006, this range was
between approximately $1.2 billion and $20.3 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, CCI, uses a bottom-up approach (focusing on individual stock
selection rather than forecasting stock market trends) in its selection of
individual securities that it believes have an above average potential for
earnings growth. Selection is based on the premise that companies doing better
than expected will have rising securities prices, while companies producing less
than expected results will not. CCI refers to its discipline as positive
momentum and positive surprise.
Through in-depth analysis of company fundamentals in the context of the
prevailing economic environment, CCI's team of investment professionals seeks to
select companies that meet the criteria of positive momentum in a company's
progress and positive surprise in reported results.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment (MidCap)
Risk . Derivatives Risk Risk
.Foreign Securities
Risk . Growth Stock Risk . Active Trading Risk
.Initial Public
. Exchange Rate Risk Offerings Risk . MidCap Stock Risk
. Small Company Risk
CCI became the Fund's Sub-Advisor on January 5, 2005.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
2001 -24.80
"2002"-40.47
"2003"32.75
"2004"10.47
"2005"13.37
2006 2.24
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q1 '01 35.67%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '01 -36.43%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS ................................................................ 2.24
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ 2.24
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... 1.46
Russell Midcap Growth Index ........................................................ 10.66
Morningstar Mid-Cap Growth Category Average ........................................ 9.01
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 5 YEARS
INSTITUTIONAL CLASS ................................................................ 0.24
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ 0.24
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... 0.20
Russell Midcap Growth Index ........................................................ 8.22
Morningstar Mid-Cap Growth Category Average ........................................ 6.48
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 LIFE OF FUND
INSTITUTIONAL CLASS ................................................................ -4.99
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................ -4.99
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ......................... -4.15
Russell Midcap Growth Index ........................................................ 2.87
Morningstar Mid-Cap Growth Category Average ........................................ 2.13
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.65%
Other Expenses/(1).................................
/.................................................. 0.06
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.71%
Expense Reimbursement/(2)..........................
/.................................................. 0.06
----
NET EXPENSES 0.65%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $66 $221 $389 $877
MIDCAP STOCK FUND
SUB-ADVISOR(S): Edge Asset Management, Inc. (formerly known as WM Advisors,
Inc.) ("Edge")
OBJECTIVE: The Fund seeks to provide long-term capital appreciation.
INVESTOR PROFILE: The Fund may be an appropriate 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 and the risk of
investing in REIT and foreign securities.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in common stocks of U.S. companies. Under normal
market conditions, the Fund invests at least 80% of its net assets (plus any
borrowings for investment purposes) in common stocks of companies with medium
market capitalizations (those with market capitalizations similar to companies
in the S&P MidCap 400 Index, which as of December 31, 2006 ranged between
approximately $522 million and $10.6 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 20% of its assets in real estate investment trust
("REIT") securities. The Fund may invest in fixed-income securities of any
maturity, including mortgage-backed securities, and may invest up to 20% of its
assets in below-investment-grade fixed-income securities (sometimes called "junk
bonds"). The Fund may also invest in money market instruments for temporary or
defensive purposes.
The Fund may purchase or sell U.S. government securities and collateralized
mortgage obligations on a "when-issued" or "delayed-delivery" basis in an
aggregate of up to 20% of the market value of its total assets. The Fund may
invest up to 25% of its assets in the securities of foreign issuers.
In selecting investments for the Fund, Edge looks for equity investments in
companies that have solid management, a competitive advantage, and the resources
to maintain superior cash flow and profitability over the long run. In
determining whether securities should be sold, Edge considers factors such as
high valuations relative to other investment opportunities and deteriorating
short- or long-term business fundamentals or future growth prospects. The Fund
will not necessarily dispose of a security merely because its issuer's market
capitalization is no longer in the range represented by the S&P MidCap 400
Index.
Among the principal risks of investing in the Fund are:
.
.Foreign Securities Market Segment (MidCap)
. Equity Securities Risk Risk Risk
.Real Estate
. Small Company Risk Securities Risk . Derivatives Risk
.
Fixed-Income Securities
. Underlying Fund Risk . Exchange Rate Risk Risk
.High Yield
. MidCap Stock Risk Securities Risk . Prepayment Risk
.U.S. Government
Securities Risk
Edge has provided investment advice to the Fund since the Fund's inception.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
2001 11.38
2002 -10.07
2003 27.23
2004 14.24
2005 13.31
2006 16.98
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '01 14.01%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '02 -13.46%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS (BEFORE TAXES) ................................................... 16.98
(AFTER TAXES ON DISTRIBUTIONS)/(2)//..............................................
/................................................................................. 16.09
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)//...........................
/................................................................................. 12.25
S&P MidCap 400 Index/(3)..............................................................
/..................................................................................... 10.32
Morningstar Mid-Cap Blend Category Average ........................................... 13.92
///(1)
/The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods
prior to that date is based on the performance of the predecessor fund which commenced operations on March 1, 2000.
/(2)
/After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
/(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 5 YEARS
INSTITUTIONAL CLASS (BEFORE TAXES) ................................................... 11.62
(AFTER TAXES ON DISTRIBUTIONS)/(2)//.............................................. 11.01
/.................................................................................
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)//........................... 10.07
/.................................................................................
S&P MidCap 400 Index/(3).............................................................. 10.89
/.....................................................................................
Morningstar Mid-Cap Blend Category Average ........................................... 13.92
///(1)
/The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods
prior to that date is based on the performance of the predecessor fund which commenced operations on March 1, 2000.
/(2)
/After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
/(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 LIFE OF FUND
INSTITUTIONAL CLASS (BEFORE TAXES) ................................................... 15.03
(AFTER TAXES ON DISTRIBUTIONS)/(2)//.............................................. 14.32
/.................................................................................
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)//........................... 13.14
/.................................................................................
S&P MidCap 400 Index/(3).............................................................. 9.71
/.....................................................................................
Morningstar Mid-Cap Blend Category Average ........................................... 8.78
///(1)
/The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods
prior to that date is based on the performance of the predecessor fund which commenced operations on March 1, 2000.
/(2)
/After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
/(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS.
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees......................... 0.75%
----
Other Expenses.......................... 0.03
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.78%
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes 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 expenses shown below would not
change, however, if you continued to hold all of your shares at the end of the
periods shown. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your cost would
be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $80 $249 $433 $966
MIDCAP S&P 400 INDEX FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
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, PGI, 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. As of December 31, 2006, the
market capitalization range of the Index was between approximately $522 million
and $10.6 billion. Over the long-term, PGI 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
judgment. Instead, the Fund uses a passive investment approach. Rather than
judging the merits of a particular stock in selecting investments, PGI focuses
on tracking the S&P MidCap 400. PGI 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.
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 is managed to attempt to minimize such effects.
PGI 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 PGI to believe that it should not be a part
of the Fund's assets.
Among the principal risks of investing in the Fund are:
. Equity Securities Risk . Market Segment (MidCap) Risk
. MidCap Stock Risk . Derivatives Risk
NOTE: "Standard & Poor's MidCap 400" and "S&P MidCap 400" are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed by Principal. The Fund
is not sponsored, endorsed, sold or promoted by Standard & Poor's and
Standard & Poor's makes no representation regarding the advisability of
investing in the Fund.
PGI has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
2001 -0.75
"2002"-15.26
"2003"35.15
"2004"16.18
"2005"12.22
2006 10.16
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '01 17.77%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-16.70%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS ................................................................. 10.16
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. 9.32
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .......................... 7.47
S&P MidCap 400 Index/(3)/ ........................................................... 10.32
Morningstar Mid-Cap Blend Category Average .......................................... 13.92
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 5 YEARS
INSTITUTIONAL CLASS ................................................................. 10.46
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. 9.85
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .......................... 8.96
S&P MidCap 400 Index/(3)/ ........................................................... 10.89
Morningstar Mid-Cap Blend Category Average .......................................... 10.51
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 LIFE OF FUND
INSTITUTIONAL CLASS ................................................................. 8.99
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................. 8.37
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .......................... 7.63
S&P MidCap 400 Index/(3)/ ........................................................... 8.89
Morningstar Mid-Cap Blend Category Average .......................................... 8.86
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSET
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.15%
Other Expenses/(1).................................
/.................................................. 0.02
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.17%
Expense Reimbursement/(2)..........................
/.................................................. 0.02
----
NET EXPENSES 0.15%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $15 $53 $94 $215
PARTNERS MIDCAP GROWTH FUND
SUB-ADVISOR(S): Turner Investment Partners, Inc. ("Turner")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
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 80% of its net assets (plus any borrowings for
investment purposes) in common stocks of companies with medium market
capitalizations (those with market capitalizations similar to companies in the
Russell Midcap Growth Index (as of December 31, 2006 this range was between
approximately $1.2 billion and $20.3 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 purchase securities issued as part of, or
a short period after, companies' initial public offerings and may at times
dispose of those shares shortly after their acquisition.
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.
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.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment (MidCap)
Risk . Derivatives Risk Risk
.Foreign Securities
Risk . Growth Stock Risk . Active Trading Risk
.Initial Public
. Exchange Rate Risk Offerings Risk . MidCap Stock Risk
. Small Company Risk . Underlying Fund Risk
Turner has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
2001 -27.52
"2002"-31.87
"2003"48.59
"2004"12.3
"2005"12.11
2006 6.43
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '01 24.96%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '01 -31.34%
/(1)/
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR
INSTITUTIONAL CLASS ................................................................... 6.43
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................... 5.99
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ............................ 4.80
Russell Midcap Growth Index/(3)........................................................
/...................................................................................... 10.66
Morningstar Mid-Cap Growth Category Average ........................................... 9.01
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)///
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 5 YEAR
INSTITUTIONAL CLASS ................................................................... 6.29
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................... 6.17
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ............................ 5.44
Russell Midcap Growth Index/(3)........................................................ 8.22
/......................................................................................
Morningstar Mid-Cap Growth Category Average ........................................... 6.48
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)///
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FOR THE PERIODS ENDED DECEMBER 31, 2006 LIFE OF FUND
INSTITUTIONAL CLASS ................................................................... -1.03
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ............................................... -1.12
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ ............................ -0.87
Russell Midcap Growth Index/(3)........................................................ 2.87
/......................................................................................
Morningstar Mid-Cap Growth Category Average ........................................... 2.13
/(1)/Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performaance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)///
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown.
The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 1.00%
Other Expenses/(1).................................
/.................................................. 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.01%
Expense Reimbursement/(2)..........................
/.................................................. 0.01
----
NET EXPENSES 1.00%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $102 $321 $557 $1,235
PARTNERS MIDCAP GROWTH FUND I
SUB-ADVISOR(S): Mellon Equity Associates, LLP ("Mellon Equity")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking long-term growth and willing to accept the potential for
short-term fluctuations in the value of their investments.
MAIN STRATEGIES AND RISKS
Under normal market conditions, the Fund invests at least 80% of its net assets
(plus any borrowings for investment purposes) in common stocks of companies with
medium market capitalization (those with market capitalizations similar to
companies in the Russell Midcap/(R)/ Growth Index (as of December 31, 2006, this
range was between approximately $1.2 billion and $20.3 billion)) at the time of
purchase. In the view of the Mellon Equity, many medium-sized companies:
. are in fast growing industries,
. offer superior earnings growth potential, and
. are characterized by strong balance sheets and high returns on equity.
The Fund may also hold investments in large and small capitalization companies,
including emerging and cyclical growth companies. The Fund may invest up to 25%
of its net assets in securities of foreign companies, including securities of
issuers in emerging countries and securities quoted in foreign currencies.
Mellon Equity uses valuation models designed to identify common stocks of
companies that have demonstrated consistent earnings momentum and delivered
superior results relative to market analyst expectations. Other considerations
include profit margins, growth in cash flow and other standard balance sheet
measures. The securities held are generally characterized by strong earnings
momentum measures and higher expected earnings per share growth.
The valuation model incorporates information about the relevant criteria as of
the most recent period for which data are available. Once ranked, the securities
are categorized under the headings "buy," "sell," or "hold." The decision to
buy, sell or hold is made by Mellon Equity based primarily on output of the
valuation model. However, that decision may be modified due to subsequently
available or other specific relevant information about the security. In
addition, Mellon Equity manages risk by diversifying across companies and
industries, limiting the potential adverse impact from any one stock or
industry.
The Fund may purchase securities issued as part of, or a short period after,
companies' initial public offerings and may at times dispose of those shares
shortly after their acquisition.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment (MidCap)
Risk . Derivatives Risk Risk
.Foreign Securities .Initial Public Offerings
Risk . Growth Stock Risk Risk
. Exchange Rate Risk . MidCap Stock Risk . Emerging Market Risk
Effective December 31, 2004, the Fund's Sub-Advisor was changed from The Dreyfus
Corporation to Mellon Equity Associates, LLP. Both Dreyfus and Mellon Equity are
wholly-owned subsidiaries of Mellon Financial Corporation. This change will have
no impact on either the investment philosophy currently used in the portfolio or
the investment team responsible for day-to-day portfolio management.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2004"11.99
"2005"13.61
2006 9.25
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '04 12.89%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '06 -4.12%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR LIFE OF FUND
INSTITUTIONAL CLASS ......................................... 9.25 11.62
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ..................... 6.63 10.19
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .. 7.98 9.56
Russell Midcap Growth Index/(3)/ ............................ 10.66 12.73
Morningstar Mid-Cap Growth Category Average ................. 9.01 10.91
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (December 29, 2003).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE YEAR ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 1.00%
Other Expenses/(1).................................
/.................................................. 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.01%
Expense Reimbursement/(2)..........................
/.................................................. 0.01
----
NET EXPENSES 1.00%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $102 $321 $557 $1,235
PARTNERS MIDCAP GROWTH FUND II
SUB-ADVISOR(S): Pyramis Global Advisors, LLC (formerly known as Fidelity
Management & Research Co.) ("Pyramis")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
The Sub-Advisor, Pyramis, normally invests the Fund's assets primarily in common
stocks. Pyramis normally invests at least 80% of the Fund's assets in securities
of companies with medium market capitalizations (those with market
capitalizations similar to the market capitalizations of companies in the
Russell Midcap Growth Index and the Standard & Poor's MidCap 400 Index (S&P
MidCap 400). A company's market capitalization is based on its current market
capitalization or its market capitalization at the time of the Fund's
investment. Companies whose capitalization no longer meets this definition after
purchase continue to be considered to have a medium market capitalization for
purposes of the 80% policy. The size of the companies in the Index changes with
market conditions and the composition of the Index (as of December 31, 2006,
this range was between approximately $1.2 billion and $20.3 billion for the
Russell Midcap Growth Index and between approximately $522 million and $10.6
billion for the S&P MidCap 400).
Pyramis may also invest the Fund's assets in companies with smaller or larger
market capitalizations. Pyramis invests the Fund's assets in companies it
believes have above-average growth potential. Growth may be measured by factors
such as earnings or revenue. Companies with high growth potential tend to be
companies with higher than average price-to-earnings or price-to-book ratios.
Companies with strong growth potential often have new products, technologies,
distribution channels, or other opportunities, or have a strong industry or
market position. The stocks of these companies are often called "growth" stocks.
Pyramis uses the Russell Midcap Growth Index as a guide in structuring the Fund
and selecting its investments. Pyramis considers the Fund's security, industry,
and market capitalization weightings relative to the Index.
Pyramis may invest the Fund's assets in securities of foreign issuers in
addition to securities of domestic issuers. Pyramis relies on fundamental
analysis of each issuer and its potential for success in light of its current
financial condition, its industry position, and economic and market conditions.
Factors considered include growth potential, earnings estimates, and management.
These securities may then be analyzed using statistical models to further
evaluate growth potential, valuation, liquidity, and investment risk. In buying
and selling securities for the Fund, Pyramis invests for the long term and
selects those securities it believes offer strong opportunities for long-term
growth of capital and are attractively valued.
In addition to the principal investment strategies discussed above, Pyramis may
lend the Fund's securities to broker-dealers or other institutions to earn
income for the Fund. Pyramis may also use various techniques, such as buying and
selling futures contracts and exchange traded funds, to increase or decrease the
Fund's exposure to changing security prices or other factors that affect
security values. If Pyramis's strategies do not work as intended, the Fund may
not achieve its objective.
Among the principal risks of investing in the Fund are:
.Market Segment (Mid Cap)
. Growth Stock Risk . Derivatives Risk Risk
.Foreign Securities .Initial Public Offerings
Risk . Active Trading Risk Risk
. Exchange Rate Risk . Mid Cap Stock Risk
Pyramis has been the Fund's Sub-Advisor since December 29, 2004.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2005"14.64
2006 8.24
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q1 '06 10.87%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '06 -6.56%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR LIFE OF FUND
INSTITUTIONAL CLASS ......................................... 8.24 11.31
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ..................... 5.32 9.76
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .. 6.05 8.96
Russell Midcap Growth Index/(3)/ ............................ 10.66 11.38
Morningstar Mid-Cap Growth Category Average ................. 9.01 9.51
/(1)// /Lifetime results are measured from the date the Institutional Class shares were first sold (December 29, 2004).
///(2)///
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 1.00%
Other Expenses/(1).................................
/.................................................. 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.01%
Expense Reimbursement/(2)..........................
/.................................................. 0.01
----
NET EXPENSES 1.00%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $102 $321 $557 $1,235
PARTNERS SMALLCAP BLEND FUND
SUB-ADVISOR(S): Mellon Equity Associates, LLP ("Mellon Equity")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking long-term growth of capital and willing to accept the
potential for volatile fluctuations in the value of investments.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in common stocks of small capitalization companies.
Under normal market conditions, the Fund invests at least 80% of its assets in
common stocks of companies with small market capitalizations (those with market
capitalizations similar to companies in the Standard and Poor's SmallCap 600
Index (as of December 31, 2006, this range was between approximately $65 million
and $3.7 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.
In selecting investments for the Fund, the Sub-Advisor, Mellon Equity, uses a
disciplined investment process that combines fundamental analysis and risk
management with a multi-factor model that searches for undervalued stocks. A
common definition of an undervalued stock is one selling at a low price relative
to its profits and prospective earnings growth. The stock evaluation process
uses several different characteristics, including changes in earnings estimates
and change in price-to-earnings ratios, in an attempt to identify value among
individual stocks.
Rather than using broad economic or market trends, stocks are selected on a
company by company basis. To ensure ample diversification, the portfolio's
assets are allocated among industries and economic sectors in similar
proportions to those of the Index. The portfolio is generally kept broadly
diversified in an attempt to capture opportunities that may be realized quickly
during periods of above-average market volatility. By maintaining such a
diversified stance, stock selection drives the Fund's performance.
Among the principal risks of investing in the Fund are:
. Growth Stock Risk . Active Trading Risk . MidCap Stock Risk
.
. Initial Public Offerings
Foreign Securities Risk . Value Stock Risk Risk
.Market Segment (Small . Exchange Rate Risk . Small Company Risk
Cap and Mid Cap) Risk
Effective December 31, 2004, the Fund's Sub-Advisor was changed from The Dreyfus
Corporation to Mellon Equity Associates, LLP. Both Dreyfus and Mellon Equity are
wholly-owned subsidiaries of Mellon Financial Corporation. This change will have
no impact on either the investment philosophy currently used in the portfolio or
the investment team responsible for day-to-day portfolio management.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2003"44.41
"2004"22.46
"2005"3.81
2006 8.90
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 22.12%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '06 -5.01%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR LIFE OF FUND
INSTITUTIONAL CLASS ......................................... 8.90 18.92
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ..................... 6.73 17.07
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .. 7.37 15.73
S&P SmallCap 600 Index/(3)/ ................................. 15.12 20.53
Morningstar Small Blend Category Average .................... 15.06 20.36
/(1)/// Lifetime results are measured from the date the Institutional Class shares were first sold (December 30, 2002).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
FOR THE YEAR ENDED OCTOBER 31, INSTITUTIONAL
2006 CLASS
Management Fees................. 1.00%
Other Expenses/(1)..............
/............................... 0.01
----
TOTAL ANNUAL FUND OPERATING
EXPENSES 1.01%
Expense Reimbursement/(2).......
/............................... 0.01
----
NET EXPENSES 1.00%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $102 $321 $557 $1,235
PARTNERS SMALLCAP GROWTH FUND I
SUB-ADVISOR(S): AllianceBernstein L.P. ("AllianceBernstein")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
Under normal market conditions, the Fund invests at least 80% of its assets in
common stocks of companies with small market capitalizations (those with market
capitalizations equal to or smaller than the greater of: 1) $2.5 billion or 2)
the highest market capitalization of the companies in the Russell 2000 Growth
Index (as of December 31, 2006, the range was between approximately $39 million
and $3.1 billion)) at the time of purchase. 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 Fund may
purchase securities issued as part of, or a short period after, companies'
initial public offerings and may at times dispose of those shares shortly after
their acquisition.
The Sub-Advisor, AllianceBernstein, employs a disciplined investment strategy
when selecting growth stocks. Using fundamental research and quantitative
analysis, it looks for fast-growing companies with above average sales growth
and competitive returns on equity relative to their peers. In doing so,
AllianceBernstein analyzes such factors as:
. Earnings growth potential relative to competitors
. Market share and competitive leadership of the company's products
. Quality of management
. Financial condition (such as debt to equity ratio)
. Valuation in comparison to a stock's own historical norms and the stocks of
other small-cap companies
AllianceBernstein follows a disciplined selling strategy and may sell a stock
when it fails to perform as expected or when other opportunities appear more
attractive.
Among the principal risks of investing in the Fund are:
. .Initial Public Offerings
Equity Securities Risk . Derivatives Risk Risk
.Foreign Securities
Risk . Growth Stock Risk . MidCap Stock Risk
. Exchange Rate Risk . Small Company Risk . Underlying Fund Risk
.Market Segment (Mid
Cap and Small Cap)
Risk
AllianceBernstein became Sub-Advisor to the Fund on March 29, 2003..
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2001"-13.93
"2002"-40.51
"2003"47.36
"2004"14.61
"2005"5.56
2006 10.44
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '01 27.26%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '01
-26.55%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEAR LIFE OF FUND
INSTITUTIONAL CLASS .............................. 10.44 3.21 0.79
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ .......... 9.78 3.09 0.69
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/ ................................. 7.67 2.75 0.68
Russell 2000 Growth Index /(3)/ .................. 13.35 6.93 4.05
Morningstar Small Growth Category Average ........ 10.50 6.12 3.61
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE YEAR ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 1.10%
Other Expenses/(1).................................
/.................................................. 0.03
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.13%
Expense Reimbursement/(2)..........................
/.................................................. 0.03
----
NET EXPENSES 1.10%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $112 $356 $619 $1,372
PARTNERS SMALLCAP GROWTH FUND II
SUB-ADVISOR(S): UBS Global Asset Management (Americas) Inc. ("UBS Global AM"),
Emerald Advisers, Inc. ("Emerald"), and Essex Investment Management
Company, LLC ("Essex")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
The Fund pursues its investment objective by investing primarily in equity
securities. Under normal market conditions, the Fund invests at least 80% of its
net assets (plus any borrowings for investment purposes) in equity securities of
companies with small market capitalizations (those with market capitalizations
equal to or smaller than the greater of 1) $2.5 billion or 2) the highest market
capitalization of the companies in the Russell 2000 Growth Index (as of December
31, 2006, this range was between approximately $39 million and $3.1 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. The Fund may purchase securities
issued as part of, or a short period after, companies' initial public offerings
and may at times dispose of those shares shortly after their acquisition.
UBS Global AM seeks to invest in companies that possess dominant market
positions or franchises, a major technical edge, or a unique competitive
advantage. To this end, UBS Global AM considers earnings revision trends,
positive stock price momentum, and sales acceleration when selecting securities.
The Fund may also invest in securities of emerging growth companies which are
companies that UBS Global AM expects to experience above average earnings or
cash flow growth or meaningful changes in underlying asset values. Investments
in equity securities may include common stock and preferred stock.
UBS Global AM may, but is not required to, use derivative instruments
("derivatives") for risk management purposes or as part of the Fund's investment
strategies. Generally, derivatives are financial contracts whose value depends
upon, or is derived from, the value of an underlying asset, reference rate, or
index, and may relate to stocks, bonds, interest rates, currencies or currency
exchange rates, and related indexes. Examples of derivatives include options,
futures and forward currency agreements. The Fund may use derivatives to earn
income and enhance returns, to manage or adjust the risk profile of the Fund, to
replace more traditional direct investments, or to obtain exposure to certain
markets.
Utilizing fundamental analysis, Emerald seeks to invest in the common stock of
companies with distinct competitive advantages, strong management teams,
leadership positions, high revenue and earnings growth rates versus peers,
differentiated growth drivers and limited sell-side research.
Essex selects stocks of companies that are exhibiting accelerating growth in
earnings and that Essex believes are undervalued relative to each company's
future growth potential. Ordinarily, the Fund will invest in companies from all
sectors of the market based on Essex's fundamental research and analysis of
various characteristics, including financial statements, sales and expense
trends, earnings estimates, market position of the company and industry outlook.
Essex uses earnings models to value a company against its own history, the
industry and the market to identify securities that are undervalued relative to
their future growth potential. Ordinarily, the Fund will sell a stock if the
earnings growth decelerates, or if the valuation is no longer attractive
relative to Essex's long-term growth expectations.
Principal determines the portion of the Fund's assets to be managed by the
Sub-Advisors and may, from tim-to-time, reallocate Fund assets among the
Sub-Advisors. The decision to do so may be based on a variety of factors,
including but not limited to: the investment capacity of each Sub-Advisor,
portfolio diversification, volume of net cash flows, fund liquidity, investment
performance, investment stategies, changes in each Sub-Advisor's firm or
investment professionals, or changes in the number of Sub-Advisors. Ordinarily,
reallocations of fund assets among Sub-Advisors will generally occur as a
Sub-Advisor liquidates assets in the normal course of portfolio management and
with net new cash flows; however, at times existing Fund assets may be
reallocated among Sub-Advisors.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment (SmallCap)
Risk . Derivatives Risk Risk
.Foreign Securities .Initial Public Offerings
Risk . Growth Stock Risk Risk
. Exchange Rate Risk . Small Company Risk . MidCap Stock Risk
UBS Global AM became the Fund's Sub-Advisor on April 22, 2002. Emerald was added
as an additional Sub-Advisor on September 1, 2004. Essex was added as an
additional Sub-Advisor on June 30, 2006.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2001"-20.45
"2002"-24.63
"2003"45.09
"2004"11.08
"2005"7.11
2006 8.97
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '01 29.90%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '01
-31.17%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS .............................. 8.97 7.23 -0.16
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ .......... 7.81 6.72 -0.55
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(//2)/ ............................... 7.43 6.22 -0.16
Russell 2000 Growth Index /(3)/ .................. 13.35 6.93 4.05
Morningstar Small Growth Category Average ........ 10.50 6.12 3.61
/(1)/// Lifetime results are measured from the date the Institutional Class shares were first sold ( December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE YEAR ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 1.00%
Other Expenses/(1).................................
/.................................................. 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.01%
Expense Reimbursement/(2)..........................
/.................................................. 0.01
----
NET EXPENSES 1.00%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $102 $321 $557 $1,235
PARTNERS SMALLCAP GROWTH FUND III
SUB-ADVISOR(S): Mazama Capital Management, Inc. ("Mazama") and Columbus Circle
Investors ("CCI")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
The Fund pursues its investment objective by investing primarily in equity
securities. Under normal market conditions, the Fund invests at least 80% of its
assets in equity securities of companies with small market capitalizations, the
highest market capitalization of the companies in the Russell 2500 Growth Index
(as of December 31, 2006, the range was between approximately $56 million and
$7.4 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.
Mazama, utilizes a fundamental, bottom-up approach to security selection. In
selecting securities for the Fund, Mazama performs a detailed analysis of
company financials using a proprietary Price/Performance Model. The Model
focuses on two main valuation components: estimates of a company's
return-on-equity versus the forward price-to-earnings ratio as a measure of a
current value and on a company's earnings growth versus the forward
price-to-earnings ratio. Mazama also conducts ongoing discussions with company
executives and key employees as well as visits to evaluate company operations
first hand. Though Mazama does not incorporate top-down analysis in its
investment process, it does incorporate knowledge of broad economic themes and
trends to provide a backdrop for its bottom-up research. After identifying
interesting investment opportunities, Mazama looks at other top companies in
that sector to evaluate the overall attractiveness of the specific company as
well as other companies in that sector.
Mazama's determination to sell a security from the Fund's portfolio is based on
either a deterioration in the company's fundamentals or by a reduction in
ranking due to price appreciation which is then reflected in a lower Price/
Performance Model score.
The Sub-Advisor, CCI, uses a bottom-up approach (focusing on individual stock
selection rather than forecasting stock market trends) in its selection of
individual securities that it believes have an above average potential for
earnings growth. Selection is based on the premise that companies doing better
than expected will have rising securities prices, while companies producing less
than expected results will not. CCI refers to its discipline as positive
momentum and positive surprise.
Through in-depth analysis of company fundamentals in the context of the
prevailing economic environment, CCI's team of investment professionals selects
companies that meet the criteria of positive momentum in a company's progress
and positive surprise in reported results.
Principal determines the portion of the Fund's assets to be managed by the
Sub-Advisors and may, from time-to-time, reallocate Fund assets among the
Sub-Advisors. The decision to do so may be based on a variety of factors,
including but not limited to: the investment capacity of each Sub-Advisor,
portfolio diversification, volume of net cash flows, fund liquidity, investment
performance, investment strategies, changes in each Sub-Advisor's firm or
investment professionals, or changes in the number of Sub-Advisors. Ordinarily,
reallocations of fund assets among Sub-Advisors will generally occur as a
Sub-Advisor liquidates assets in the normal course of portfolio management and
with net new cash flows; however, at times existing Fund assets may be
reallocated among Sub-Advisors.
Among the principal risks of investing in the Fund are:
. Growth Stock Risk . MidCap Stock Risk . Exchange Rate Risk
.Foreign Securities .Initial Public Offerings
Risk . Small Company Risk Risk
.Market Segment .
(SmallCap and MidCap) Underlying Fund Risk
Risk
Mazama has been the Fund's Sub-Advisor since June 1, 2004. CCI was added as an
additional Sub-Advisor on December 15, 2006.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2005"12.68
2006 10.68
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q1 '06 11.92%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '06 -11.11%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIOD ENDED DECEMBER 31, 2006 1 YEAR LIFE OF FUND
INSTITUTIONAL CLASS ......................................... 10.68 12.30
(AFTER TAXES ON DISTRIBUTIONS)/(//2).....................
/........................................................ 7.51 10.39
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)....
/........................................................ 7.39 9.54
Russell 2500 Growth Index/(3)................................
/............................................................ 12.26 12.30
Morningstar Small Growth Category Average ................... 10.50 10.61
/(1)/// Lifetime results are measured from the date the Institutional Class shares were first sold (June 1, 2004).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3) /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1) /
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
FOR THE YEAR ENDED OCTOBER 31,
2006
Management Fees.................... 1.10%
Other Expenses/(1).................
/.................................. 0.01
----
TOTAL ANNUAL FUND OPERATING
EXPENSES 1.11%
Expense Reimbursement/(2)..........
/.................................. 0.01
----
NET EXPENSES 1.10%
///(1)
/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor
fees, legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by
the Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors
and officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Examples also assume that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $112 $352 $611 $1,351
PARTNERS SMALLCAP VALUE FUND
SUB-ADVISOR(S): Ark Asset Management Co., Inc. ("Ark Asset") and Los Angeles
Capital Management and Equity Research, Inc. ("LA Capital")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking long-term growth of capital and willing to accept the
potential for volatile fluctuations in the value of investments.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in common stocks of small capitalization companies.
Under normal market conditions, the Fund invests at least 80% of its assets in
companies with small market capitalizations (those with market capitalizations
similar to companies in the Russell 2000 Value Index (as of December 31, 2006,
this range was between approximately $39 million and $3.1 billion) or $2
billion, whichever is greater,) 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
corporations. The Fund may purchase securities issued as part of, or a short
period after, companies' initial public offerings and may at times dispose of
those shares shortly after their acquisition.
Ark Asset purchases securities for the Fund that it considers to be attractive
equity investments that are consistent with its investment philosophy of
maintaining a diversified investment portfolio. Ark Asset seeks to minimize risk
by generally allocating Fund assets among economic or industry sectors to within
5 percentage points of that economic sector's percentage weighting (on an
absolute basis) of the Russell 2000 Index.
In selecting securities for the Fund, Ark Asset combines a systematic
quantitative approach with traditional fundamental analysis. Ark Asset uses
proprietary computer models that incorporate data from several sources to
identify those companies whose securities present what it believes to be
favorable investment opportunities relative to the securities of other
companies. Ark Asset uses both a "Valuation Model" as well as an "Earnings Trend
Model" in analyzing potential securities in which to invest. Ratings from both
models are combined to develop an overall rating for each security under review.
Stocks with the highest overall rating are considered for inclusion in the
Fund's portfolio and undergo a thorough fundamental analysis. Ark Asset
considers selling a stock in the Fund's portfolio if it becomes less attractive
because of deteriorating current fundamentals or declining earnings
expectations.
LA Capital employs a quantitative approach in selecting securities it believes
are favored in the current market environment. The firm's proprietary Dynamic
Alpha Model seeks to identify investor preferences for specific risk
characteristics by analyzing valuation, income statement, balance sheet,
industry and market-based factors. Expected returns are calculated for a
universe of small capitalization securities based on a security's exposure, and
the Model's expected return for each factor.
The portion of the Fund's assets managed by LA Capital are diversified across
industries, common risk factors and companies. Through an optimization process,
LA Capital seeks to control portfolio risks and implementation costs while
striving to generate consistent results versus the Russell 2000 Value Index.
Portfolio returns and risks are monitored daily by the investment team. Each
month, the firm's Portfolio Review Committee formally reviews the portfolio for
compliance with investment objectives and guidelines.
Principal determines the portion of the Fund's assets to be managed by the
Sub-Advisors and may, from time-to-time, reallocate Fund assets among the
Sub-Advisors. The decision to do so may be based on a variety of factors,
including but not limited to: the investment capacity of each Sub-Advisor,
portfolio diversification, volume of net cash flows, fund liquidity, investment
performance, investment strategies, changes in each Sub-Advisor's firm or
investment professionals, or changes in the number of Sub-Advisors. Ordinarily,
reallocations of fund assets among Sub-Advisors will generally occur as a
Sub-Advisor liquidates assets in the normal course of portfolio management and
with net new cash flows; however, at times existing Fund assets may be
reallocated among Sub-Advisors.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment (SmallCap)
Risk . Value Stock Risk Risk
.Initial Public Offerings
. MidCap Stock Risk . Small Company Risk Risk
Ark Asset has been Sub-Advisor to the Fund since its inception on March 1, 2001.
LA Capital was added as an additional Sub-Advisor on September 1, 2004.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2002"-10.16
"2003"37.88
"2004"17.92
"2005"7.69
2006 14.10
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 19.42%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-20.90%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)// /
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS ............................... 14.10 12.41 13.29
(AFTER TAXES ON DISTRIBUTIONS) /(2)/ .......... 11.08 11.51 12.42
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES) /(2)/.................................. 13.07 10.81 11.60
Russell 2000 Value Index /(3)/ .................... 23.48 15.38 15.10
Morningstar Small Value Category Average .......... 16.27 13.85 13.99
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (March 1, 2001).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE YEAR ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 1.00%
Other Expenses/(1).................................
/.................................................. 0.02
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.02%
Expense Reimbursement/(2)..........................
/.................................................. 0.02
----
NET EXPENSES 1.00%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
---------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $102 $323 $561 $1,246
PARTNERS SMALLCAP VALUE FUND I
SUB-ADVISOR(S): Mellon Equity Associates, LLP ("Mellon Equity") and J.P. Morgan
Investment Management, Inc. ("J.P. Morgan")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking long-term growth and willing to accept volatile fluctuations
in the value of their investment.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in a diversified group of equity securities of U.S.
companies with small market capitalizations (those with market capitalizations
similar to companies in the Russell 2000/(R)/ Value Index (as of December 31,
2006, this range was between approximately $39 million and $3.1 billion)) at the
time of purchase. Under normal market conditions, the Fund invests at least 80%
of its assets in equity securities of such companies. Emphasis is given to those
companies that exhibit value characteristics. Value securities generally have
above average dividend yield and below average price to earnings (P/E) ratios.
Up to 25 of the Fund's assets may be invested in foreign securities. The Fund
may also purchase securities issued as part of, or a short period after,
companies' initial public offerings ("IPOs"), and may at times dispose of those
shares shortly after their acquisition.
The J.P. Morgan investment process starts with a disciplined quantitative
ranking methodology that identifies stocks in each economic sector that have
positive trends with attractive relative valuations. We then use a quadratic
optimization to create a portfolio of well-diversified, compensated bets that
seeks to deliver consistent returns with style characteristics similar to the
Russell 2000 Value Index. For each trade suggested by the optimization, the
portfolio managers do in-depth fundamental research to ensure that the trade
meets our original investment thesis (strong trends with attractive relative
valuation). Finally, sophisticated trading techniques ensure that the trades are
executed in a cost-effective manner, ensuring that the alpha of the strategy is
not unduly encumbered by trading costs.
The J.P. Morgan process seeks to generate excess returns purely through stock
selection. As a result, the portfolio tends to be largely sector neutral.
The portion of the Fund managed by J.P. Morgan seeks to provide full exposure to
the equity market by investing in derivative securities such as index futures
that reduce the impact of cash positions on performance relative to the
benchmark.
In selecting investments for the Fund, Mellon Equity uses a disciplined
investment process that combines fundamental analysis and risk management with a
multi-factor model that searches for undervalued stocks. Undervalued stocks are
those selling at a low price relative to their profits and prospective earnings
growth. The stock evaluation process uses several different characteristics,
including changes in earnings estimates and change in price-to-earnings ratios,
in an attempt to identify value among individual stocks.
Rather than using broad economic or market trends, Mellon Equity selects stocks
on a company-by-company basis. To ensure ample diversification, the portion of
the Fund's assets managed by Mellon Equity are allocated among industries and
economic sectors in similar proportions to those of the Index. The portfolio is
generally kept broadly diversified in an attempt to capture opportunities that
may be realized quickly during periods of above-average market volatility. By
maintaining such a diversified stance, stock selection drives performance.
Since the Fund has a long-term investment perspective, Mellon Equity does not
intend to respond to short-term market fluctuations or to acquire securities for
the purpose of short-term trading.
Principal determines the portion of the Fund's assets to be managed by the
Sub-Advisors and may, from time-to-time, reallocate Fund assets among the
Sub-Advisors. The decision to do so may be based on a variety of factors,
including but not limited to: the investment capacity of each Sub-Advisor,
portfolio diversification, volume of net cash flows, fund liquidity, investment
performance, investment strategies, changes in each Sub-Advisor's firm or
investment professionals, or changes in the number of Sub-Advisors. Ordinarily,
reallocations of fund assets among Sub-Advisors will generally occur as a
Sub-Advisor liquidates assets in the normal course of portfolio management and
with net new cash flows; however, at times existing Fund assets may be
reallocated among Sub-Advisors.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment (SmallCap)
Risk . Derivatives Risk Risk
.Foreign Securities .Initial Public Offerings
Risk . Value Stock Risk Risk
. Exchange Rate Risk . Small Company Risk . Sector Risk
.
. MidCap Stock Risk Underlying Fund Risk
Morgan has been the Fund's Sub-Advisor since December 30, 2002. Mellon Equity
was added as an additional Sub-Advisor on August 8, 2005.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2003"50.27
"2004"23.18
"2005"6.49
2006 18.38
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 23.26%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q1 '03
-4.37%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR LIFE OF FUND
INSTITUTIONAL CLASS ......................................... 18.38 23.79
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ..................... 17.17 22.27
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .. 13.15 20.42
Russell 2000 Value Index/(3)/ ............................... 23.48 23.26
Morningstar Small Value Category Average .................... 16.27 20.61
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (December 30, 2002).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
FOR THE YEAR ENDED OCTOBER 31, INSTITUTIONAL
2006 CLASS
Management Fees................. 1.00%
Other Expenses/(1)..............
/............................... 0.02
----
TOTAL ANNUAL FUND OPERATING
EXPENSES 1.02%
Expense Reimbursement/(2).......
/............................... 0.02
----
NET EXPENSES 1.00%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(//2//)
/Principal has contractually agreed to pay, through Februrary 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest, (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/error and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $102 $323 $561 $1,246
PARTNERS SMALLCAP VALUE FUND II
SUB-ADVISOR(S): Dimensional Fund Advisors ("Dimensional") and Vaughan Nelson
Investment Management, LP ("Vaughan Nelson")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking long-term growth and willing to accept volatile fluctuations
in the value of their investment.
MAIN STRATEGIES AND RISKS
As a non-fundamental policy, under normal market conditions, the Fund invests at
least 80% of its net assets in equity securities of small market capitalization
companies. Up to 25% of the Fund's assets may be invested in foreign securities.
Dimensional invests Fund assets primarily in a diversified group of equity
securities of small U.S. companies which Dimensional believes to be value stocks
at the time of purchase. As of the date of this Prospectus, Dimensional
considers companies whose market capitalizations typically are in the lowest 10%
of the domestic market universe of operating companies at the time of purchase
to be small companies. Dimensional uses a disciplined approach to constructing
the Fund's portfolio. Dimensional typically divides the universe into size and
style categories and then analyzes the securities themselves to evaluate their
fit in Dimensional's universe.
Dimensional considers a security to be a value stock primarily because the
company's shares have a high book value in relation to their market value (a
"book to market ratio"). In assessing value, Dimensional may consider additional
factors such as price to cash flow or price-to-earnings ratios, as well as
economic conditions and developments in the issuer's industry. The criteria
Dimensional uses for assessing value are subject to change from time-to-time.
Dimensional uses a market capitalization weighted approach in determining
individual security weights. Market capitalization weighting means each security
is generally purchased based on the issuer's relative market capitalization.
Market capitalization weighting will be adjusted by Dimensional for a variety of
factors. Dimensional may consider such factors as free float, momentum, trading
strategies, liquidity management and other factors determined to be appropriate
by Dimensional given market conditions. Dimensional may exclude the stock of a
company that meets applicable market capitalization criterion if adjustments
will result in a deviation from traditional market capitalization weighting.
Vaughan Nelson considers U.S. companies with small market capitalizations (those
with market capitalizations similar to companies in the Russell 2000 Value Index
(as of December 31, 2006, this range was between approximately $39 million and
$3.1 billion)) at the time of purchase. Under normal market conditions, the
portion of the Fund sub-advised by Vaughan Nelson invests at least 80% of its
assets in equity securities of such companies.
Vaughan Nelson invests in small capitalization companies with a focus on
absolute return using a bottom-up value oriented investment process. Vaughan
Nelson seeks companies with the following characteristics, although not all of
the companies it selects will have these attributes:
^""companies earning a positive economic margin with stable-to-improving
returns;
^""companies valued at a discount to their asset value; and
^""companies with an attractive dividend yield and minimal basis risk.
In selecting investments, Vaughan Nelson generally employs the following
strategy:
^""value driven investment philosophy that selects stocks selling at attractive
values based upon anticipated fundamentals of the business. Vaughan Nelson
selects companies that it believes are out-of-favor or misunderstood.
^""Vaughan Nelson starts with an investment universe of 5,000 securities, then,
using value-driven screens, creates a research universe of companies with
market capitalizations of at least $100 million;
^""uses fundamental analysis to construct a portfolio of securities that Vaughan
Nelson believes has an attractive return potential.
Vaughan Nelson will generally sell a stock when it reaches Vaughan Nelson's
price target, when the issuer shows a deteriorating financial condition, or when
it has repeated negative earnings surprises.
Principal determines the portion of the Fund's assets to be managed by the
Sub-Advisors and may, from time-to-time, reallocate Fund assets among the
Sub-Advisors. The decision to do so may be based on a variety of factors,
including but not limited to: the investment capacity of each Sub-Advisor,
portfolio diversification, volume of net cash flows, fund liquidity, investment
performance, investment strategies, changes in each Sub-Advisor's firm or
investment professionals, or changes in the number of Sub-Advisors. Ordinarily,
reallocations of fund assets among Sub-Advisors will generally occur as a
Sub-Advisor liquidates assets in the normal course of portfolio management and
with net new cash flows; however, at times existing Fund assets may be
reallocated among Sub-Advisors.
Among the principal risks of investing in the Fund are:
. Value Stock Risk . MidCap Stock Risk . Equity Securities Risk
.Foreign Securities .Initial Public Offerings
Risk . Small Company Risk Risk
.Market Segment
(SmallCap and MidCap) . Exchange Rate Risk
Risk
Dimensional has been the Fund's Sub-Advisor since June 1, 2004. Vaughan Nelson
was added as an additional Sub-Advisor as of October 3, 2005.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2005"7.7
2006 20.56
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q1 '06 13.94%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '06 -4.01%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIOD S ENDED DECEMBER 31, 2006 1 YEAR LIFE OF FUND
INSTITUTIONAL CLASS ......................................... 20.56 17.74
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ..................... 17.55 15.95
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .. 14.36 14.47
Russell 2000 Value Index/(3)/ ............................... 23.48 18.20
Morningstar Small Value Category Average .................... 16.27 15.20
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (June 1, 2004).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE YEAR ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 1.00%
Other Expenses/(1)/ ............................... 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.01%
Expense Reimbursement/(2)/ ........................ 0.01
----
NET EXPENSES 1.00%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(2)/
Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/errors and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $102 $321 $557 $1,235
REAL ESTATE SECURITIES FUND
SUB-ADVISOR(S): Principal Real Estate Investors, LLC ("Principal - REI")
OBJECTIVE: The Fund seeks to generate a total return.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors who
seek a total return, want to invest in companies engaged in the real
estate industry and can accept the potential for volatile fluctuations
in the value of investments.
MAIN STRATEGIES AND RISKS
Under normal market conditions, the Fund invests at least 80% of its net assets
(plus any borrowings for investment purposes) 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. The Fund may invest in smaller capitalization
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. REITs are characterized as:
. equity REITs, which primarily own property and generate revenue from rental
income;
. mortgage REITs, which invest in real estate mortgages; and
. hybrid REITs, which combine the characteristics of both equity and mortgage
REITs.
In selecting securities for the Fund, the Sub-Advisor focuses on equity REITs.
The Fund may invest up to 25% of its assets in securities of foreign real estate
companies. The Fund is "non-diversified," which means that it may invest more of
its assets in the securities of fewer issuers than diversified mutual funds.
Thus, the Fund is subject to non-diversification risk.
Among the principal risks of investing in the Fund are:
.Equity Securities
Risk . Derivatives Risk . Small Company Risk
.Foreign Securities .Real Estate Securities
Risk . Exchange Rate Risk Risk
. Sector Risk . Underlying Fund Risk . Active Trading Risk
.Non-Diversification
. Prepayment Risk Risk
Principal-REI has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR /(1)/
"2002"7.86
"2003"38.38
"2004"34.11
"2005"15.6
2006 36.44
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '04 17.53%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q2 '04
-7.28%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS .............................. 36.44 25.85 23.19
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ .......... 34.46 24.20 21.50
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/ ................................. 25.63 22.23 19.83
MSCI US REIT Index /(3)/ ......................... 35.92 23.22 21.42
Morningstar Specialty - Real Estate Category
Average .......................................... 33.61 22.98 20.90
/(1)///
Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class Shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE YEAR ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.84%
Other Expenses /(1)/ .............................. 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.85%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
FOR THE YEAR ENDED OCTOBER 31, 2006
Management Fees....................................
Other Expenses /(1)/ ..............................
TOTAL ANNUAL FUND OPERATING EXPENSES
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $87 $271 $471 $1,049
SMALLCAP BLEND FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking long-term growth of capital and willing to accept the
potential for volatile fluctuations in the value of investments.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in common stocks of small capitalization companies.
Under normal market conditions, the Fund invests at least 80% of its net assets
(plus any borrowings for investment purposes) in common stocks of companies with
small market capitalizations (those with market capitalizations similar to
companies in the Russell 2000/(R)/ Index (as of December 31, 2006, this range
was between approximately $39 million and $3.1 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.
In selecting securities for investment, PGI 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, PGI
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.
The equity investment philosophy of PGI, the Sub-Advisor, is based on the belief
that superior stock selection and disciplined risk management provide consistent
out-performance. PGI focuses on companies with improving and sustainable
business fundamentals, rising investor expectations, and attractive relative
valuation. To maximize stock selection skills as the primary driver of relative
performance, PGI leverages technology in its research-driven approach and
neutralizes unintended portfolio risks.
PGI focuses its stock selections on established companies that it believes have
improving business fundamentals. PGI 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.
PGI may purchase securities issued as part of, or a short period after,
companies' initial public offerings ("IPOs"), and may at times dispose of those
shares shortly after their acquisition.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment (SmallCap)
Risks . Derivatives Risk Risk
.Foreign Securities
Risk . Growth Stock Risk . Value Stock Risk
.Initial Public Offerings
. Exchange Rate Risk . Active Trading Risk Risk
. Small Company Risk
PGI has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR /(//1//)/
2001 7.47
"2002"-17.07
"2003"42.91
"2004"16.46
"2005"9.76
2006 14.24
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 19.83%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-16.14%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS .............................. 14.24 11.59 11.83
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ .......... 12.92 10.92 11.21
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/ ................................. 11.04 10.05 10.30
Russell 2000 Index /(3)/ ......................... 18.37 11.39 9.85
Morningstar Small Blend Category Average ......... 15.06 11.72 11.21
/(1)///
Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performance of the Advisors Preferred Class shares adjusted to reflect the fees and expense of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSE THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE YEAR ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.75%
Other Expenses /(1)/ .............................. 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.76%
Expense Reimbursement /(2)/ ....................... 0.01
----
NET EXPENSES 0.75%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(2)/
Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/errors and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $77 $242 $421 $941
SMALLCAP GROWTH FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in common stocks of small capitalization companies.
Under normal market conditions, the Fund invests at least 80% of its net assets
(plus borrowings for investment purposes) in common stocks of companies with
small market capitalizations (those with market capitalizations similar to
companies in the Russell 2000 Growth Index (as of December 31, 2006, the range
was between approximately $39 million and $3.1 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.
The equity investment philosophy of PGI, the Sub-Advisor, is based on the belief
that superior stock selection and disciplined risk management provide consistent
out-performance. PGI focuses on companies with improving and sustainable
business fundamentals, rising investor expectations, and attractive relative
valuation. To maximize stock selection skills as the primary driver of relative
performance, PGI leverages technology in its research-driven approach and
neutralizes unintended portfolio risks.
PGI focuses its stock selections on established companies that it believes have
improving business fundamentals. PGI 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.
The Fund may invest in foreign securities, including securities of companies
that are located or do business in emerging markets, and in initial public
offerings.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment (SmallCap)
Risk . Derivatives Risk Risk
.Foreign Securities
Risk . Growth Stock Risk . Small Company Risk
.Initial Public Offerings
. Exchange Rate Risk . Active Trading Risk Risk
. .
Underlying Fund Risk Emerging Market Risk
PGI has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR /(//1//)/
2001 1.52
"2002"-39.19
"2003"48.44
"2004"14.7
"2005"4.44
2006 11.59
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '01 33.67%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '01 -33.10%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS .............................. 11.59 3.83 2.67
(AFTER TAXES ON DISTRIBUTIONS)/(//2)/ ........ 10.89 3.33 2.00
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(//2)/ ............................... 8.47 3.21 2.05
Russell 2000 Growth Index /(3)/ .................. 13.35 6.93 4.05
Morningstar Small Growth Category Average ........ 10.50 6.12 3.61
/(1)///
Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE YEAR ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.75%
Other Expenses /(1)/ .............................. 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.76%
Expense Reimbursement /(//2//)/ ................... 0.01
----
NET EXPENSES 0.75%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(2)/
Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/errors and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $77 $242 $421 $941
SMALLCAP S&P 600 INDEX FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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
MAIN STRATEGIES AND RISKS
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, PGI, 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 Index. 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. As of December 31, 2006, the market capitalization range of the Index was
between approximately $65 million and $3.7 billion. Over the long-term, PGI
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
judgment. Instead, the Fund uses a passive investment approach. Rather than
judging the merits of a particular stock in selecting investments, PGI focuses
on tracking the S&P SmallCap 600. PGI 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.
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 is managed to attempt to minimize such
effects.
PGI 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 PGI to believe that it should not be a part
of the Fund's assets.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment
Risk (SmallCap) Risk . Derivatives Risk
. Small Company Risk . Underlying Fund Risk
NOTE: "Standard & Poor's SmallCap 600" and "S&P SmallCap 600" are trademarks of
The McGraw-Hill Companies, Inc. and have been licensed by Principal. The
Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's and
Standard & Poor's makes no representation regarding the advisability of
investing in the Fund.
PGI has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR /(//1//)/
2001 6.40
"2002"-14.9
"2003"38.24
"2004"22.34
"2005"7.37
2006 14.97
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '01 20.55%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-18.65%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS ..............................
14.97 12.18 12.29
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ .......... 13.69 11.63 11.70
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/ ................................. 11.08 10.51 10.61
S&P SmallCap 600 Index /(3)/ ..................... 15.12 12.49 11.48
Morningstar Small Blend Category Average ......... 15.06 11.72 11.21
/(1)/
Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE YEAR ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.15%
Other Expenses /(1)/ .............................. 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.16%
Expense Reimbursement /(1)/ ....................... 0.01
----
NET EXPENSES 0.15%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(2)/
Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/errors and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $15 $51 $89 $204
SMALLCAP VALUE FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking long-term growth of capital and willing to accept the
potential for volatile fluctuations in the value of investments.
MAIN STRATEGIES AND RISKS
The Fund invests primarily in common stocks of small capitalization companies.
Under normal market conditions, the Fund invests at least 80% of its net assets
(plus any borrowings for investment purposes) in common stocks of companies with
small market capitalizations (those with market capitalizations similar to
companies in the Russell 2000 Value Index (as of December 31, 2006, this range
was between approximately $39 million and $3.1 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.
The equity investment philosophy of PGI, the Sub-Advisor, is based on the belief
that superior stock selection and disciplined risk management provide consistent
outperformance. PGI focuses on companies with improving and sustainable business
fundamentals, rising investor expectations, and attractive relative valuation.
To maximize stock selection skills as the primary driver of relative
performance, PGI leverages technology in its research-driven approach and
neutralizes unintended portfolio risks.
PGI focuses its stock selections on established companies that it believes have
improving business fundamentals. PGI 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.
The Fund may invest in initial public offerings.
Among the principal risks of investing in the Fund are:
.Equity Securities .Market Segment (SmallCap)
Risk . Derivatives Risk Risk
.Foreign Securities .Initial Public Offerings
Risk . Value Stock Risk Risk
. Exchange Rate Risk . Active Trading Risk . Underlying Fund Risk
. Small Company Risk
PGI has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR /(//1//)/
2001 10.14
"2002"-2.63
"2003"43.64
"2004"19.96
"2005"9.2
2006 18.83
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 23.22%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-16.10%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS .............. ............... 18.83 16.84 16.72
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ .......... 17.37 15.34 15.10
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/ ................................. 12.92 14.07 13.91
Russell 2000 Value Index/(3)/ .... ............... 23.48 15.38 15.15
Morningstar Small Value Category Average ......... 16.27 13.85 14.18
/(1)/
Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class Shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE YEAR ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.75%
Other Expenses /(1)/ .............................. 0.01
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.76%
Expense Reimbursement /(//2//)/ ................... 0.01
----
NET EXPENSES 0.75%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(2)/
Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/errors and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $77 $242 $421 $941
WEST COAST EQUITY FUND
SUB-ADVISOR(S): Edge Asset Management, Inc. (formerly known as WM Advisors,
Inc.) ("Edge")
OBJECTIVE: The Fund seeks to provide long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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, as well as the
risks of investing in below-investment grade bonds and REIT
securities.
MAIN STRATEGIES AND RISKS
Under normal circumstances, at least 80% of the Fund's net assets (plus any
borrowings for investment purposes) will be invested in the common stocks of
small, medium, and large capitalization West Coast companies. The Sub-Advisor,
Edge, defines West Coast companies to include those with: (i) principal
executive offices located in the region, which includes Alaska, California,
Oregon and Washington; (ii) over 50% of their work force employed in the region;
or (iii) over 50% of their sales within the region. While no individual fund is
intended as a complete investment program, this is particularly true of the West
Coast Equity Fund which could be adversely impacted by economic trends within
this four-state area.
The Fund may invest up to 20% of its assets in both REIT securities and
below-investment-grade fixed-income securities (sometimes called "junk bonds").
The Fund may invest up to 25% of its net assets in U.S. dollar denominated
securities of foreign issuers.
In selecting investments for the Fund, Edge selects equity securities based upon
rigorous fundamental analysis that assesses the quality of each company's
business, earnings growth potential, and stock valuation. Edge seeks to invest
in good businesses that are well-managed, hold competitive advantages and that
generate high returns on invested capital. Also taken into consideration is the
industry in which a company operates, its position in the marketplace and the
barriers to entry to prevent further competition. Edge seeks to buy companies at
attractive prices compared to their business value.
Among the principal risks of investing in the Fund are:
.
. Equity Securities Risk . Exchange Rate Risk Foreign Securities Risk
.Geographic .Real Estate
Concentration Risk Securities Risk . MidCap Stock Risk
.High Yield Securities
Risk . Small Company Risk . Underlying Fund Risk
. Prepayment Risk
Edge has provided investment advice to the Fund since the Fund's inception.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR /(//1//)/
1997 32.88
1998 22.98
1999 42.35
2000 6.99
2001 6.69
2002 -22.19
2003 41.87
2004 13.63
2005 8.49
2006 12.17
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '98 45.26%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '01 -25.10%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS 10 YEARS
INSTITUTIONAL CLASS (BEFORE TAXES) ............... 12.17 8.83 15.02
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ .......... 11.69 8.57 13.52
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/.................................. 8.57 7.66 12.71
Russell 3000 Index /(3)/ ......................... 15.72 7.17 8.64
Morningstar Mid-Cap Blend Category Average ....... 13.92 10.51 10.99
/(1)/
The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods
prior to that date is based on the performance of the predecessor fund which commenced operations on November 24,1986.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
/(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS (ESTIMATED).
FOR THE YEAR ENDED OCTOBER 31, INSTITUTIONAL
2006 CLASS
Management Fees.................. 0.48%
Other Expenses................... 0.05
----
TOTAL ANNUAL FUND OPERATING
EXPENSES 0.53%
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes 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 expenses shown below would not
change, however, if you continued to hold all of your shares at the end of the
periods shown. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your cost would
be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-----------------------------------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $54 $170 $296 $665
DIVERSIFIED INTERNATIONAL FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
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 companies:
with their principal place of business or principal office outside the U.S.;
companies for which the principal securities trading market is outside the U.S.;
and 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. Primary consideration is given to securities of corporations of
Western Europe, Canada, Australia, New Zealand, and the Pacific Islands. Changes
in investments are made as prospects change for particular countries, industries
or companies. The Fund may invest in smaller capitalization companies.
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 80% of its net assets (plus any
borrowings for investment purposes) 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.
The equity management philosophy of PGI, the Sub-Advisor, is based on the belief
that superior stock selection and disciplined risk management provide consistent
outperformance. PGI focuses on companies with improving and sustainable business
fundamentals, rising investor expectations, and attractive relative valuation.
To maximize stock selection skills as the primary driver of relative
performance, PGI leverages technology in its research-driven approach and
neutralizes unintended portfolio risks.
PGI focuses its stock selection on established companies that it believes have
improving business fundamentals. PGI 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.
In choosing investments for the Fund, PGI pays particular attention to the
long-term earnings prospects of the various companies under consideration. PGI
then weighs those prospects relative to the price of the security.
The Fund may actively trade securities in an attempt to achieve its investment
objective. The Fund may engage in certain options transactions, enter into
financial futures contracts and related options for the purpose of portfolio
hedging, and enter into currency forwards or futures contracts and related
options for the purpose of currency hedging.
Among the principal risks of investing in the Fund are:
.Equity Securities
Risk . Derivatives Risk . Market Segment Risk
.Foreign Securities
Risk . Exchange Rate Risk . Active Trading Risk
. Small Company Risk
PGI has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR /(1)/
2001 -24.37
"2002"-16.38
"2003"33.98
"2004"20.23
"2005"23.73
2006 27.74
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '03 17.71%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-18.68%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS ............................ 27.74 16.32 8.82
(AFTER TAXES ON DISTRIBUTIONS).............. 25.69 15.55 8.18
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)..................................... 20.34 14.19 7.52
Citigroup BMI Global ex-US Index ............... 27.28 18.08 10.90
Morningstar Foreign Large Blend Category Average 24.80 13.19 6.61
/(1)/
Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.90%
Other Expenses /(1)/ .............................. 0.06
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.96%
Expense Reimbursement /(//2//)/ ................... 0.06
----
NET EXPENSES 0.90%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(2)/
Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/errors and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $92 $299 $524 $1,172
INTERNATIONAL EMERGING MARKETS FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
The Fund seeks to achieve its objective by investing in common stocks of
companies in emerging market countries. Under normal conditions, at least 80% of
the Fund's net assets (plus any borrowings for investment purposes) are invested
in emerging market country equity securities. 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. PGI
focuses on those emerging market countries that it believes have strongly
developing economies and markets which are becoming more sophisticated.
The equity management philosophy of PGI, the Sub-Advisor, is based on the belief
that superior stock selection and disciplined risk management provide consistent
outperformance. PGI focuses on companies with improving and sustainable business
fundamentals, rising investor expectations, and attractive relative valuation.
To maximize stock selection skills as the primary driver of relative
performance, PGI leverages technology in its research-driven approach and
neutralizes unintended portfolio risks.
PGI focuses its stock selection on established companies that it believes have
improving business fundamentals. PGI 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.
The Fund invests in securities of:
. companies with their principal place of business or principal office in
emerging market countries;
. companies for which the principal securities trading market is an emerging
market country; or
. 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.
The Fund may invest assets in smaller or mid capitalization companies. PGI
defines a smaller capitalization company as having a market capitalization
between approximately $39 million and $3.1 billion. PGI defines a mid
capitalization company as having a market capitalization between approximately
$1.2 billion and $20.3 billion.
The Fund may engage in certain options transactions, enter into financial
futures contracts and related options for the purpose of portfolio hedging, and
enter into currency forwards or futures contracts and related options for the
purpose of currency hedging.
Among the principal risks of investing in the Fund are:
. Equity Securities Risk . Derivatives Risk . Small Company Risk
.
Foreign Securities Risk . Exchange Rate Risk . Active Trading Risk
.Market Segment
(SmallCap and MidCap) . Emerging Market Risk . Underlying Fund Risk
Risk
PGI has been the Fund's Sub-Advisor since December 6, 2000.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR /(1)/
2001 -3.55
"2002"-6.82
"2003"56.95
"2004"25.91
"2005"35.87
2006 37.30
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '01 26.86%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '02 -23.81%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS ............................ 37.30 27.99 21.61
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ........ 34.84 26.51 20.35
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/ ............................... 25.31 24.36 18.72
MSCI Emerging Markets Free Index - NDTR/(3)/ ... 32.17 26.59 21.11
Morningstar Diversified Emerging Markets
Category Average................................ 32.36 25.98 20.58
/(1)/
Institutional Class shares were first sold on March 1, 2001. The returns for the periods prior to that date are based on the
performance of the Advisors Preferred Class shares adjusted to reflect the fees and expenses of Institutional Class shares. The
adjustments result in performance for such periods that is no higher than the historical performance of the Advisors Preferred
Class shares. Advisors Preferred Class shares were first sold on December 6, 2000.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
FOR THE PERIOD ENDED OCTOBER 31,
2006
Management Fees.................... 1.20%
Other Expenses /(1)/ .............. 0.15
----
TOTAL ANNUAL FUND OPERATING
EXPENSES 1.35%
Expense Reimbursement /(2)/ ....... 0.15
----
NET EXPENSES 1.20%
///(1)/
Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(2)/
Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest (excluding interest the Fund incurs in connection with an investment it makes), independent auditor
fees, legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by
the Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors
and officers/errors and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
a Percentage of Average Daily Net Assets
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $122 $413 $725 $1,611
INTERNATIONAL GROWTH FUND
SUB-ADVISOR(S): Principal Global Investors, LLC ("PGI")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
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:
. companies with their principal place of business or principal offices outside
the U.S.;
. companies for which the principal securities trading market is outside the
U.S.; or
. 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 equity management philosophy of PGI, the Sub-Advisor, is based on the belief
that superior stock selection and disciplined risk management provide consistent
outperformance. PGI focuses on companies with improving and sustainable business
fundamentals, rising investor expectations, and attractive relative valuation.
To maximize stock selection skills as the primary driver of relative
performance, PGI leverages technology in its research-driven approach and
neutralizes unintended portfolio risks.
PGI focuses its stock selection on established companies that it believes have
improving business fundamentals. PGI 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.
Among the principal risks of investing in the Fund are:
.Equity Securities
Risk . Derivatives Risk . Market Segment Risk
.Foreign Securities
Risk . Exchange Rate Risk . Underlying Fund Risk
. Small Company Risk . Growth Stock Risk
PGI became the Sub-Advisor to the Fund on November 1, 2002.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2001"-21.06
"2002"-16.18
"2003"38.97
"2004"22.78
"2005"22.33
2006 24.35
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 18.41%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-21.38%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS ................ ....... 24.35 16.82 9.25
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ........ 21.85 15.34 8.03
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/ ............................... 17.64 14.21 7.54
CITI World Ex-US BMI Growth Index/(3)/ ......... 23.69 14.72 6.78
Morningstar Foreign Large Growth Category
Average ........................................ 23.78 12.54 5.70
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (December 6, 2000).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 0.99%
Other Expenses /(1)/ .............................. 0.03
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.02%
Expense Reimbursement /(2)/ ....................... 0.03
----
NET EXPENSES 0.99%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(2)/
Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/errors and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $101 $322 $560 $1,245
PARTNERS GLOBAL EQUITY FUND
SUB-ADVISOR(S): J.P. Morgan Investment Management, Inc. ("Morgan")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate investment for investors
seeking growth of capital 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.
MAIN STRATEGIES AND RISKS
The Fund invests, under normal circumstances, at least 80% of the value of its
assets in equity securities. The Fund invests in a diversified portfolio of
equity securities of companies located or operating in developed countries and
emerging markets of the world. The equity securities will ordinarily be traded
on a recognized foreign securities exchange or traded in a foreign
over-the-counter market in the country where the issuer is principally based,
but may also be traded in other countries including the United States.
The Sub-Advisor, Morgan, selects companies on the basis of fundamental, thematic
and quantitative analysis. The analysis is performed by:
. the locally based regional specialists who provide local market insights,
including an assessment of:
. Business characteristics: recurring demand for product and identifiable
competitive advantage;
. Financial characteristics: cash flow generation and improving returns on
capital;
. Management factors: focus on shareholder return and long-term strategic
planning; and
. Valuation: earnings and return based.
. the global sector specialists who provide global industry insights and build
upon the local market analysis by seeking to determine which are the best
stock ideas in each industry globally; and
. the portfolio construction team which captures the analysis done by the local
and global teams and constructs a portfolio.
The Sub-Advisor may sell a stock for the following reasons:
. the global sector specialist downgrades a company (e.g. relative
outperformance leads to a less attractive valuation); or
. portfolio construction issues in terms of stock, sector or country weightings.
Among the principal risks of investing in the Fund are:
. Small Company Risk . Derivatives Risk . Emerging Markets Risk
.
Foreign Securities Risk . Exchange Rate Risk . MidCap Stock Risk
.Market Segment
(SmallCap and MidCap)
Risk
Morgan has been the Fund's Sub-Advisor since March 1, 2005.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2006"16.37
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '06 7.87%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '06 -1.63%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR LIFE OF FUND
INSTITUTIONAL CLASS ................ ...... 16.37 14.33
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ... 15.79 13.97
(AFTER TAXES ON DISTRIBUTIONS AND SALE
OF SHARES)/(2)/........................ 11.56 12.31
MSCI World Index - ND/(3)/ ................
I ......................................... 20.07 15.56
Morningstar World Stock Category Average .. 19.52 16.48
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (March 1, 2005).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
FOR THE PERIOD ENDED INSTITUTIONAL
OCTOBER 31, 2006 CLASS
Management Fees............ 0.95%
Other Expenses /(1)/ ...... 0.15
----
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.10%
Expense Reimbursement /(2)/ 0.15
----
NET EXPENSES 0.95%
///(1)/
Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(2)/
Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest (excluding interest the Fund incurs in connection with an investment it makes), independent auditor
fees, legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by
the Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors
and officers/errors and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLES
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
----------------------------------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $97 $335 $592 $1,327
PARTNERS INTERNATIONAL FUND
SUB-ADVISOR(S): Pyramis Global Advisors, LLC (formerly known as Fidelity
Management & Research Company) ("Pyramis")
OBJECTIVE: The Fund seeks long-term growth of capital.
INVESTOR PROFILE: The Fund may be an appropriate 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.
MAIN STRATEGIES AND RISKS
The Sub-Advisor, Pyramis, normally invests the Fund's assets primarily in
non-U.S. securities. Pyramis normally invests the Fund's assets primarily in
common stocks. Pyramis normally diversifies the Fund's investments across
different countries and regions. In allocating the investments across countries
and regions, Pyramis will consider the size of the market in each country and
region relative to the size of the international market as a whole.
In buying and selling securities for the Fund, Pyramis relies on fundamental
analysis of each issuer and its potential for success in light of its current
financial condition, its industry position, and economic and market conditions.
Factors considered include growth potential, earnings estimates and management.
These securities may then be analyzed using statistical models to further
evaluate growth potential, valuation, liquidity and investment risk. In buying
and selling securities for the Fund, Pyramis invests for the long term and
selects those securities it believes offer strong opportunities for long-term
growth of capital and are attractively valued.
Pyramis may use various techniques, such as buying and selling futures contracts
and exchange traded funds, to increase or decrease the Fund's exposure to
changing security prices or other factors that affect security values. If
Pyramis's strategies do not work as intended, the Fund may not achieve its
objective.
Among the principal risks of investing in the Fund are:
. Small Company Risk . Derivatives Risk . Underlying Fund Risk
. Foreign Securities Risk . Exchange Rate Risk . Mid Cap Stock Risk
.Market Segment (Small
Cap and Mid Cap) Risk
Pyramis has been the Fund's Sub-Advisor since December 29, 2003.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2004"20.49
"2005"13.58
2006 26.56
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '04 14.66%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q2 '05
-0.42%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR LIFE OF FUND
INSTITUTIONAL CLASS ......................................... 26.56 20.21
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ..................... 25.03 19.29
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ .. 18.68 17.31
MSCI EAFE (Europe, Australia, Far East) Index - ND/(3).......
/............................................................ 26.34 19.83
Morningstar Foreign Large Blend Category Average ............ 24.80 18.97
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (December 29, 2003).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)// /Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS
INSTITUTIONAL
FOR THE PERIOD ENDED OCTOBER 31, 2006 CLASS
Management Fees.................................... 1.09%
Other Expenses /(1)/ .............................. 0.04
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.13%
Expense Reimbursement /(2)/ ....................... 0.04
----
NET EXPENSES 1.09%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(2)/
Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/errors and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The Example assumes 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
expenses shown below would not change, however, if you continued to hold all of
your shares at the end of the periods shown. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
NUMBER OF YEARS YOU OWN YOUR SHARES
-------------------------------------------------------------------------------------------------------
1 3 5 10
INSTITUTIONAL CLASS $111 $355 $618 $1,371
PRINCIPAL LIFETIME FUNDS
Principal Investors Fund, Inc. offers Funds that are designed to meet the needs
of an investor who wants an investment option that is suited to the investor's
particular investment time horizon and who tends to be more accepting of risk in
the early years of his or her time horizon and becomes more risk-averse as he or
she nears the investment goal (for example, retirement or saving for college).
Professional investment advisers manage the Funds to align, over time,
underlying investments with the changing risk tolerance of the investor. These
Funds are sometime referred as "target date funds." The target date Funds
offered by the Fund are: Principal LifeTime 2010, Principal LifeTime 2020,
Principal LifeTime 2030, Principal LifeTime 2040, Principal LifeTime 2050, and
Principal LifeTime Strategic Income (the "Principal LifeTime Funds").
OBJECTIVE: The investment objective of each of the Principal LifeTime 2010,
2020, 2030, 2040, and 2050 Funds is to seek a total return consisting
of long-term growth of capital and current income.
The investment objective of the Principal LifeTime Strategic Income
Fund is to seek current income.
MAIN STRATEGIES AND RISKS
To pursue its goal, each Principal LifeTime Fund invests in other Principal
Funds (the "underlying funds") that Principal Management Corporation
("Principal"), the manager of the Funds, and Principal Global Investors, LLC
("PGI"), the Funds' Sub-Advisor, consider appropriate based on the remaining
time horizon of a particular Principal LifeTime Fund and the expected risk
tolerance of those investors who have chosen that time horizon. The underlying
funds provide each Fund with exposure to a broad range of asset classes,
including domestic and foreign equity and fixed-income securities. In the case
of Principal LifeTime Strategic Income Fund, most of the Fund's assets are
invested in underlying funds which are intended primarily to give the Fund broad
exposure to income-producing securities through their investments in
fixed-income securities, "hybrid" securities - such as real estate securities
and preferred securities, which may produce current income as well as capital
gains - and dividend generating domestic and foreign stocks.
Both Principal and PGI provide investment advisory services to the Principal
LifeTime Funds. Principal has hired PGI to develop, implement, and monitor the
strategic or long-term asset class targets and target ranges for each Principal
LifeTime Fund. PGI is also responsible for employing an active rebalancing
strategy which is designed to identify asset classes that appear attractive or
unattractive over the short term.
After PGI sets the percentage of Fund assets to be allocated to a particular
asset class, Principal selects the underlying funds for each asset class and the
target weights for each underlying fund. Shifts in asset class targets or
underlying funds may occur in response to the normal evaluative processes of PGI
and Principal, the shortening time horizon of a Fund or market forces or Fund
circumstances which indicate that changes in allocations may be appropriate.
Principal may, at any time, add, remove, or substitute underlying funds in which
a Principal LifeTime Fund invests.
In selecting underlying funds and target weights, Principal considers, among
other things, quantitative measures, such as past performance, expected levels
of risk and returns, expense levels, diversification of existing funds, and
style consistency. In addition, qualitative factors such as organizational
stability, investment experience, consistency of investment process, risk
management processes, and information, trading, and compliance systems of the
underlying fund's Sub-Advisor are also evaluated. There are no minimum or
maximum percentages of assets that a Principal LifeTime Fund must invest in a
specific asset class or underlying fund. Principal determines whether to use
cash flows or asset transfers or both to achieve the target weights established
from time to time for underlying funds. Principal monitors the performance of
the Sub-Advisor of each underlying fund relative to that fund's appropriate
benchmark and peer group.
Over time, PGI intends to gradually shift the asset allocation targets of each
Principal LifeTime Fund (other than the Principal LifeTime Strategic Income
Fund) to accommodate investors progressing from asset accumulation years to
income-generation years. It is expected that, within 10 to 15 years after its
target year, a Principal LifeTime Fund's underlying fund allocation will match
that of the Principal LifeTime Strategic Income Fund. At that time the Principal
LifeTime Fund may be combined with the Principal LifeTime Strategic Fund if the
Board of Directors determines that the combination is in the best interests of
Fund shareholders.
There can be no assurance that any Principal LifeTime Fund will achieve its
investment objective. The net asset value of each of the Principal LifeTime
Fund's shares is affected by changes in the value of the securities it owns. The
Fund's performance is directly related to the performance of the underlying
funds. The ability of each Principal LifeTime Fund to meet its investment
objective depends on the ability of the underlying fund to achieve their
investment objectives.
The broad diversification of each Principal LifeTime Fund is designed to cushion
severe losses in any one investment sector and moderate the Fund's overall price
swings. However, the Fund's share prices will fluctuate as the prices of the
underlying funds rise or fall with changing market conditions. As with all
mutual funds, as the values of a Principal LifeTime Fund's assets rise or fall,
the Fund's share price changes. If you sell your shares when their value is less
than the price you paid, you will lose money.
Each Principal LifeTime Fund is subject to the particular risks of the
underlying funds in the proportions in which the Fund invests in them. The
primary risks associated with investing in the underlying funds are identified
in the summary of each underlying funds in this prospectus.
The greater the investment by each Principal LifeTime Fund in Funds that invest
primarily in stocks, the greater the potential exposure to the following risks:
.Equity Securities
Risk . Growth Stock Risk . Value Stock Risk
.Market Segment
. Derivatives Risk (LargeCap) Risk . Exchange Rate Risk
. Active Trading Risk . Underlying Fund Risk
The greater the investment by each Principal LifeTime Fund in Funds that invest
primarily in bonds or other forms of fixed-income securities, the greater the
potential exposure to the following risks:
.
Municipal Securities
. Fixed-Income Risk Risk . Portfolio Duration Risk
.U.S. Government .High Yield .U.S. Government Securities
Sponsored Securities Securities Risk Risk
Risk
The greater the investment by each Principal LifeTime Fund in Funds that invest
in foreign investments, the greater the potential exposure to the following
risks:
.Foreign Securities
Risk . Exchange Rate Risk . Small Company Risk
. Market Segment Risk . Derivatives Risk
Each Principal LifeTime Fund is also subject to the following risks:
PAYMENT IN KIND LIQUIDITY RISK . Under certain circumstances, an underlying fund
may determine to pay a redemption request by a Principal LifeTime Fund wholly or
partly by a distribution-in-kind of securities from its portfolio, instead of
cash. In such cases, the Principal LifeTime Funds may hold portfolio securities
until Principal determines that it is appropriate to dispose of such securities.
CONFLICT OF INTEREST RISK . The officers, directors, Principal, Sub-Advisor,
Distributors, and transfer agent of the Principal LifeTime Funds serve in the
same capacities for the underlying funds. Conflicts may arise as these persons
and companies seek to fulfill their responsibilities to the Principal LifeTime
Funds and the underlying funds. Because Principal and its affiliated companies
earn different fees from the underlying funds in which the Principal LifeTime
Funds invest, there may be a conflict between the interests of the Principal
LifeTime Funds and the economic interests of Principal and its affiliates.
PGI has provided investment advice to each Principal LifeTime Fund since its
inception.
As of October 31, 2006, each Principal LifeTime Fund's assets were allocated
among the underlying funds as identified in the table below
PRINCIPAL
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL LIFETIME
LIFETIME LIFETIME LIFETIME LIFETIME LIFETIME STRATEGIC
2010 2020 2030 2040 2050 INCOME
UNDERLYING FUND FUND FUND FUND FUND FUND FUND
Bond & Mortgage Securities 31.96% 24.33% 17.17% 11.85% 6.65% 38.47%
Disciplined LargeCap Blend 10.37 15.43 17.31 18.94 21.09 5.33
Inflation Protection 0.82 1.31
International Emerging Markets 0.69 0.99 1.16 1.10 1.11
International Growth 5.93 9.55 12.12 12.61 14.91 3.71
Large Cap Growth 4.13 5.63 6.78 8.05 8.72 2.33
LargeCap Value 3.03 4.15 5.12 6.13 6.37 1.73
Partners International 1.36 1.54 1.82 2.10 2.23 0.62
Partners LargeCap Blend I 0.97 1.67 1.68 1.84 2.01 0.60
Partners LargeCap Growth I 1.17 1.22 1.64 2.15 2.15 0.56
Partners LargeCap Growth II 2.77 3.84 4.62 5.54 5.81 1.43
Partners LargeCap Value 4.90 6.44 7.82 9.14 10.26 2.75
Partners LargeCap Value I 0.76 0.98 1.19 1.26 1.37
Partners MidCap Growth 0.42 0.63 0.70 0.86
Partners MidCap Value I 0.43 0.64 0.71 0.87
Partners SmallCap Growth I 0.45 0.71 0.88
Partners SmallCap Growth III 0.52 1.62 1.97 2.44 2.89
Partners SmallCap Value I 0.45 0.71 0.98
Preferred Securities 9.14 9.25 6.13 4.05 2.72 10.04
Real Estate Securities 8.73 8.66 7.16 4.89 2.67 6.97
SmallCap S&P 600 Index 3.61 2.24 2.15 2.62 2.52 2.14
SmallCap Value 0.56 1.61 1.99 2.46 2.93
Ultra Short Bond 8.58 22.01
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
HISTORICAL PERFORMANCE
The following bar charts and tables show the historical investment performance
of each Principal LifeTime Fund. The bar chart for each Fund shows how the
Fund's total return has varied year-by-year, and the table for the Fund shows
the performance of its shares over time (along with the returns of a broad-based
market index and an index of funds with similar investment objectives for
reference). This information may help provide an indication of the risks of
investing in the Fund. A Fund's past performance is not necessarily an
indication of how the Fund will perform in the future. Each Fund's investment
return is net of the operating expenses of each of the underlying funds.
PRINCIPAL LIFETIME 2010 FUND
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests in underlying Principal domestic and foreign equity, hybrid,
and fixed-income Funds according to an asset allocation strategy designed for
investors having an investment time horizon comparable to that of the Fund. The
Fund's asset allocation will become more conservative over time.
PERFORMANCE
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2002"-4.45
"2003"18.79
"2004"11.76
"2005"5.57
2006 12.02
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 8.72%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-5.44%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS ............................ 12.02 8.45 7.38
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ........ 10.80 7.61 6.56
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/ ............................... 8.01 6.87 5.93
S&P 500 Index/(3)/ ............................. 15.79 6.19 4.10
Lehman Brothers Aggregate Bond Index/(3)/ ...... 4.33 5.06 5.33
Morningstar Conservative Allocation Category
Average......................................... 8.17 5.66 4.29
Morningstar Target-Date 2000-2014 Category
Average/(//4//)/................................ 8.60 5.39 4.99
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (March 1, 2001).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
///(//4//)/
Effective with the February 2006 month end, Morningstar added a new category. The new category allows for a more refined
comparison of Lifecycle funds to their respective peers. The category formerly used is also shown.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
PRINCIPAL LIFETIME 2020 FUND
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests in underlying Principal domestic and foreign equity, hybrid,
and fixed-income Funds according to an asset allocation strategy designed for
investors having an investment time horizon comparable to that of the Fund. The
Fund's asset allocation will become more conservative over time.
PERFORMANCE
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2002"-7
"2003"21.58
"2004"12.32
"2005"7.66
2006 14.21
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 10.34%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-7.56%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS ............................ 14.21 9.32 8.06
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ........ 13.06 8.51 7.27
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/ ............................... 9.50 7.66 6.57
S&P 500 Index/(3)/ ............................. 15.79 6.19 4.10
Lehman Brothers Aggregate Bond Index/(3)/ ...... 4.33 5.06 5.33
Morningstar Moderate Allocation Category Average 11.26 6.09 4.88
Morningstar Target-Date 2015-2029 Category
Average/(//4//)/ ................... ........... 12.41 6.88 5.67
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (March 1, 2001).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
///(//4//)/
Effective with the February 2006 month end, Morningstar added a new category. The new category allows for a more refined
comparison of Lifecycle funds to their respective peers. The category formerly used is also shown.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
PRINCIPAL LIFETIME 2030 FUND
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests in underlying Principal domestic and foreign equity, hybrid,
and fixed-income Funds according to an asset allocation strategy designed for
investors having an investment time horizon comparable to that of the Fund. The
Fund's asset allocation will become more conservative over time.
PERFORMANCE
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2002"-10.05
"2003"23.31
"2004"12.83
"2005"8.37
2006 15.31
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 11.44%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-9.97%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS ............................ 15.31 9.35 7.91
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ........ 14.23 8.61 7.18
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/ ............................... 10.25 7.74 6.48
S&P 500 Index/(3)/ ............................. 15.79 6.19 4.10
Lehman Brothers Aggregate Bond Index/(3)/ ...... 4.33 5.06 5.33
Morningstar Moderate Allocation Category Average 11.26 6.09 4.88
Morningstar Target-Date 2030+ Category
Average/(//4//)/ ............................... 14.40 7.60 5.84
///(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (March 1, 2001).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
///(//4//)/
Effective with the February 2006 month end, Morningstar added a new category. The new category allows for a more refined
comparison of Lifecycle funds to their respective peers. The category formerly used is also shown.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
PRINCIPAL LIFETIME 2040 FUND
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests in underlying Principal domestic and foreign equity, hybrid,
and fixed-income Funds according to an asset allocation strategy designed for
investors having an investment time horizon comparable to that of the Fund. The
Fund's asset allocation will become more conservative over time.
PERFORMANCE
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2002"-12.61
"2003"24.48
"2004"13
"2005"8.82
2006 15.61
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 12.49%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-12.08%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS ............................ 15.61 9.11 8.06
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ........ 14.59 8.47 7.41
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/................................ 10.44 7.59 6.66
S&P 500 Index/(3)/ ............................. 15.79 6.19 4.10
Lehman Brothers Aggregate Bond Index/(3)/ ...... 4.33 5.06 5.33
Morningstar Moderate Allocation Category
Average*......................... .............. 11.26 6.09 4.88
Morningstar Target-Date 2030+ Category
Average/(//4//)/ ............................... 14.40 7.60 5.84
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (March 1, 2001).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
///(//4//)/
Effective with the February 2006 month end, Morningstar added a new category. The new category allows for a more refined
comparison of Lifecycle funds to their respective peers. The category formerly used is also shown.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
PRINCIPAL LIFETIME 2050 FUND
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests in underlying Principal domestic and foreign equity, hybrid,
and fixed-income Funds according to an asset allocation strategy designed for
investors having an investment time horizon comparable to that of the Fund. The
Fund's asset allocation will become more conservative over time.
PERFORMANCE
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2002"-15.72
"2003"26.44
"2004"13.29
"2005"9.34
2006 16.14
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 13.63%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-14.68%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIOD ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS ............................ 16.14 8.92 7.37
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ........ 15.19 8.36 6.80
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/ ............................... 10.83 7.49 6.11
S&P 500 Index/(3)/ ............................. 15.79 6.19 4.10
Lehman Brothers Aggregate Bond Index/(3)/ ...... 4.33 5.06 5.33
Morningstar Large Blend Category Average ....... 14.12 5.92 4.10
Morningstar Target-Date 2030+ Category
Average/(1)/.................................... 14.40 7.60 5.84
/(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (March 1, 2001).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
///(//4//)/
Effective with the February 2006 month end, Morningstar added a new category. The new category allows for a more refined
comparison of Lifecycle funds to their respective peers. The category formerly used is also shown.
/(1)/
PRINCIPAL LIFETIME STRATEGIC INCOME FUND
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests in underlying fixed-income funds, but also invests in
underlying equity and hybrid funds according to an asset allocation strategy
designed for investors seeking current income from their investment.
PERFORMANCE
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
"2002"-1.69
"2003"15.29
"2004"11.06
"2005"4.12
2006 9.13
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 7.04%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:Q3 '02
-3.33%
AVERAGE ANNUAL TOTAL RETURNS (%)
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS LIFE OF FUND
INSTITUTIONAL CLASS ............................ 9.13 7.42 6.65
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ ........ 7.76 6.47 5.72
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/ ............................... 6.08 5.89 5.22
S&P 500 Index/(3)/ ............................. 15.79 6.19 4.10
Lehman Brothers Aggregate Bond Index/(3)/ ...... 4.33 5.06 5.33
Morningstar Conservative Allocation Category
Average........................... ............. 8.17 5.66 4.29
Morningstar Target-Date 2000-2014 Category
Average/(//4//)/ ............................... 8.60 5.39 4.99
///(1)/ Lifetime results are measured from the date the Institutional Class shares were first sold (March 1, 2001).
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3)/ Index performance does not reflect deductions for fees, expenses or taxes.
///(//4//)/
Effective with the February 2006 month end, Morningstar added a new category. The new category allows for a more refined
comparison of Lifecycle funds to their respective peers. The category formerly used is also shown.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
/(1)/
FEES AND EXPENSES OF THE PRINCIPAL LIFETIME FUNDS
The following table shows the operating expenses (expressed as a percentage of
average daily net assets) incurred by the Institutional Class shares of the
Principal LifeTime Funds during the fiscal year ended October 31, 2006. The
table also shows the estimated amount of expenses (expressed as a percentage of
average daily net assets) indirectly incurred by the Principal LifeTime Funds
through their investments in the underlying funds based on expenses of the
underlying funds for the fiscal year ended October 31, 2006.
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS*
INSTITUTIONAL CLASS SHARES
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
LIFETIME LIFETIME LIFETIME LIFETIME
2010 2020 2030 2040
FOR THE YEAR ENDED OCTOBER 31, 2006 FUND FUND FUND FUND
Management Fees......................................... 0.1225% 0.1225% 0.1225% 0.1225%
12b-1 Fees.............................................. 0.0000 0.0000 0.0000 0.0000
Other Expenses/(1)/ .................................... 0.0000 0.0000 0.0000 0.0100
------ ------ ------ ------
TOTAL ANNUAL FUND OPERATING EXPENSES 0.1225% 0.1225% 0.1225% 0.1325%
Fee Reduction and/or Expense Reimbursement at
Principal LifeTime Fund level /(//2//)/ ................ 0.0000 0.0000 0.0000 0.0100
------ ------ ------ ------
NET EXPENSES 0.1225% 0.1225% 0.1225% 0.1225%
Acquired Fund ("Underlying Fund") Fees and Expenses 0.6000 0.6800 0.6900 0.6900
------ ------ ------ ------
TOTAL ANNUAL FUND OPERATING EXPENSES 0.7225% 0.8025% 0.8125% 0.8125%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(2)/
Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/errors and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
INSTITUTIONAL CLASS SHARES
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
PRINCIPAL LIFETIME
LIFETIME STRATEGIC
2050 INCOME
FOR THE YEAR ENDED OCTOBER 31, 2006 FUND FUND
Management Fees......................................... 0.1225% 0.1225%
12b-1 Fees.............................................. 0.0000 0.0000
Other Expenses/(1)/ .................................... 0.0100 0.0100
------ ------
TOTAL ANNUAL FUND OPERATING EXPENSES 0.1325% 0.1325%
Fee Reduction and/or Expense Reimbursement at
Principal LifeTime Fund level /(//2//)/ ................ 0.0100 0.0100
------ ------
NET EXPENSES 0.1225% 0.1225%
Acquired Fund ("Underlying Fund") Fees and Expenses 0.7100 0.5600
------ ------
TOTAL ANNUAL FUND OPERATING EXPENSES 0.8325% 0.6825%
///(1)/Expense information has been restated to reflect current fees. Certain other operating expenses of the fund have increased
effective January 1, 2007.
///(2)/
Principal has contractually agreed to pay, through February 28, 2008, certain operating expenses of the Fund. These expenses
include taxes, interest (excluding interest the Fund incurs in connection with an investment it makes), independent auditor fees,
legal fees, custodian fees, fees and expenses of directors who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940, the cost of the Fund's line of credit, premiums for the fidelity bond and for the directors and
officers/errors and omissions policy, trade association dues, and securities lending fees (excluding rebates paid to broker
borrowers or the portion of gross securities lending revenue that is retained by the lending agent).
EXAMPLE
The examples are intended to help you compare the cost of investing in a Fund
with the cost of investing in other mutual funds. The examples assume that you
invest $10,000 in a Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses,
including the operating expenses of the underlying funds, remain the same. If
the separate Fund expenses and contract level expenses were included, expenses
would be higher. Although your actual costs may be higher or lower, based on
these assumptions your cost would be:
:
INSTITUTIONAL CLASS SHARES
------------------------------------------------------------------------------
NUMBER OF YEARS YOU OWN YOUR SHARES
------------------------------------------------------------------------------
1 3 5 10
PRINCIPAL LIFETIME 2010
FUND $74 $231 $402 $ 897
PRINCIPAL LIFETIME 2020
FUND 82 256 446 993
PRINCIPAL LIFETIME 2030
FUND 83 259 451 1,005
PRINCIPAL LIFETIME 2040
FUND 83 261 455 1,015
PRINCIPAL LIFETIME 2050
FUND 85 267 465 1,036
PRINCIPAL LIFETIME
STRATEGIC INCOME FUND 70 220 384 860
STRATEGIC ASSET MANAGEMENT ("SAM") PORTFOLIOS
Principal Investors Fund provides a broad selection of investment choices,
including asset allocation strategies available through the Flexible Income,
Conservative Balanced, Balanced, Conservative Growth, and Strategic Growth
Portfolios (each a "Portfolio," collectively the ''Portfolios''). The SAM
Portfolios offer you the opportunity to pursue a variety of specially
constructed asset allocation strategies. The Portfolios are designed for
long-term investors seeking total return or long-term capital appreciation. The
SAM Portfolios currently invest principally in Institutional Class shares of the
Equity Funds and Fixed-Income Funds identified below and the Money Market Fund
("Underlying Funds"). The "Equity Funds" include the Real Estate Securities,
Equity Income I, Disciplined LargeCap Blend, West Coast Equity, MidCap Stock,
LargeCap Growth, SmallCap Value, SmallCap Growth, and Diversified International
Funds. The "Fixed-Income Funds" include the Short-Term Income, Mortgage
Securities, Income, and High Yield II Funds. Each of the SAM Portfolios may also
invest in the Institutional Class shares of other equity funds or fixed-income
funds of Principal Investors Fund, at the Sub-Advisor's discretion. Each of the
Underlying Funds is a series of Principal Investors Fund. The Sub-Advisor for
the Portfolios is Edge Asset Management, Inc. ("Edge").
MAIN STRATEGIES FOR THE PORTFOLIOS
In pursuing its investment objective, each Portfolio typically allocates its
assets, within predetermined percentage ranges, among certain of the Underlying
Funds described in this prospectus. The Portfolios may temporarily exceed one or
more of the applicable percentage limits for short periods. The percentages
reflect the extent to which each Portfolio will normally invest in the
particular market segment represented by each Underlying Fund, and the varying
degrees of potential investment risk and reward represented by each Portfolio's
investments in those market segments and their corresponding Underlying Funds.
Edge may alter these percentage ranges when it deems appropriate. The assets of
each Portfolio will be allocated among the Underlying Funds in accordance with
its investment objective, Edge's outlook for the economy and the financial
markets, and the relative market valuations of the Underlying Funds.
In addition, in order to meet liquidity needs or for temporary defensive
purposes, each Portfolio may invest, without limit, directly in stock or bond
index futures and options thereon and the following short-term instruments:
. short-term securities issued by the U.S. government, its agencies,
instrumentalities, authorities, or political subdivisions;
. other short-term fixed-income securities rated A or higher by Moody's
Investors Services, Inc. (''Moody's''), Fitch Ratings (''Fitch''), or Standard
& Poor's (''S&P'') or, if unrated, of comparable quality in the opinion of
Edge;
. commercial paper, including master notes;
. bank obligations, including negotiable certificates of deposit, time deposits,
and bankers' acceptances; and
. repurchase agreements.
At the time a Portfolio invests in any commercial paper, bank obligations, or
repurchase agreements, the issuer must have outstanding debt rated A or higher
by Moody's or the issuer's parent corporation, if any, must have outstanding
commercial paper rated Prime-1 by Moody's or A-1 by S&P or equivalent ratings by
Fitch; if no such ratings are available, the investment must be of comparable
quality in the opinion of Edge. In addition to purchasing shares of the Funds, a
Portfolio may use futures contracts and options in order to remain effectively
fully invested in proportions consistent with Edge's current asset allocation
strategy for the Portfolio. Specifically, each Portfolio may enter into futures
contracts and options thereon, provided that the aggregate deposits required on
these contracts do not exceed 5% of the Portfolio's total assets. A Portfolio
may also use futures contracts and options for bona fide hedging purposes.
Futures contracts and options may also be used to reallocate the Portfolio's
assets among asset categories while minimizing transaction costs, to maintain
cash reserves while simulating full investment, to facilitate trading, to seek
higher investment returns, or to simulate full investment when a futures
contract is priced attractively or is otherwise considered more advantageous
than the underlying security or index.
The principal investment strategies for each Portfolio are further described
below in the description of each of the Portfolios, but there are some general
principles Edge applies in making investment decisions. When making decisions
about how to allocate a Portfolio's assets, Edge will generally consider, among
other things, the following factors:
Federal Reserve Government budget State and federal fiscal
monetary policy deficits policies
Consumer debt Tax policy Trade pacts
Corporate profits Demographic trends Interest rate changes
Governmental
Elections Mortgage demand Business confidence
Employment trends Business spending Geopolitical risks
Inflationary
Consumer spending pressures Wage and payroll trends
Currency flows Housing trends Investment flows
Commodity prices GDP growth Import prices
Historical financial
Yield spreads market returns Factory capacity utilization
Market capitalization relative
Stock market volume Inventories values
Capital goods
expenditures Investor psychology Productivity growth
Historical asset
class returns Technology trends Asset class correlations
Cyclical and secular Risk/return
economic trends characteristics Business activity
Performance attribution by
Volatility analysis Stock valuations allocation and sector
Consumer confidence
The discussion of each Portfolio's and Underlying Fund's principal investment
strategies includes some of the principal risks of investing in such a portfolio
or fund. You can find a more detailed description of these and other principal
risks of an investment in each Portfolio or Underlying Fund under ''Certain
Investment Strategies and Related Risks.''
MAIN RISKS
There can be no assurance that any Portfolio will achieve its investment
objective. The net asset value of each Portfolio's shares is affected by changes
in the value of the shares of the Underlying Funds it owns. Each Portfolio's
investments are invested in the Underlying Funds and, as a result, the
Portfolio's performance is directly related to their performance. A Portfolio's
ability to meet its investment objective depends on the ability of the
Underlying Funds to achieve their investment objectives.
Each Portfolio's broad diversification is designed to help cushion severe losses
in any one investment sector and moderate the Portfolio's overall price swings.
However, the Portfolio's share price will fluctuate as the prices of the
Underlying Funds rise or fall with changing market conditions.
Each Portfolio is subject to the particular risks of the Underlying Funds in the
proportions in which the Portfolio invests in them. The greater the investment
by each Portfolio in Underlying Funds that invest primarily in stocks, the
greater the potential exposure to the following risks:
. Equity Securities Risk . Growth Stock Risk . Value Stock Risk
.Market Segment
. Derivatives Risk (LargeCap) Risk . Exchange Rate Risk
. Active Trading Risk . Underlying Fund Risk
The greater the investment by each Portfolio in Underlying Funds that invest
primarily in bonds, or other forms of fixed-income securities, the greater the
potential exposure to the following risks:
.
Municipal Securities
. Fixed-Income Risk Risk . Portfolio Duration Risk
.U.S. Government .
Securities Risk . Prepayment Risk High Yield Securities Risk
.U.S. Government .Real Estate
Sponsored Securities Securities Risk .Eurodollar and Yankee
Risk Obligations Risk
The greater the investment by each Portfolio in Underlying Funds that invest in
foreign investments, the greater the exposure to the following risks:
.Foreign Securities
Risk . Exchange Rate Risk . Small Company Risk
. Market Segment Risk . Derivatives Risk
Each Portfolio is also subject to the following risks:
PAYMENT IN KIND LIQUIDITY RISK . Under certain circumstances, an Underlying Fund
may determine to pay a redemption request by a Portfolio wholly or partly by a
distribution-in-kind of securities from its portfolio, instead of cash. In such
cases, the Portfolios may hold portfolio securities until Edge determines that
it is appropriate to dispose of such securities.
CONFLICT OF INTEREST RISK . The officers, directors, Principal, Sub-Advisor,
Distributors, and transfer agent of the Portfolios serve in the same capacities
for the Underlying Funds. Conflicts may arise as these persons and companies
seek to fulfill their responsibilities to the Portfolios and the Underlying
Funds. Because Edge and its affiliated companies earn different fees from the
Underlying Funds in which the Portfolios invest, there may be a conflict between
the interests of the Portfolios and the economic interests of Edge and its
affiliates.
Edge has provided investment advice to each SAM Portfolio since the inception of
the Portfolios.
As of October 31, 2006, the Portfolios' assets were allocated among the
Underlying Funds as follows:
FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC
INCOME BALANCED BALANCED GROWTH GROWTH
UNDERLYING FUND /(1)/ PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
REIT Fund 1.07% 2.19% 3.27% 4.33% 4.33%
Equity Income Fund 4.59 9.15 12.18 16.13 17.09
Growth & Income Fund 6.16 8.10 12.12 16.04 17.03
West Coast Equity Fund 1.32 4.00 6.01 7.84 8.88
MidCap Stock Fund 2.88 3.43 5.10 6.57 8.04
Growth Fund 7.35 9.93 15.87 19.66 23.02
SmallCap Value Fund 1.13 1.23 2.05 2.82 3.03
SmallCap Growth Fund 1.08 1.13 1.87 2.61 2.81
International Growth Fund 5.40 8.25 10.21 11.70
Short Term Income Fund 11.72 5.56 0.94
U.S. Government Securities
Fund 31.06 26.06 17.04 7.30
Income Fund 24.76 17.72 10.26 3.88
High Yield Fund 6.56 5.75 4.55 2.52 4.03
Other Assets 0.32 0.35 0.49 0.09 0.04
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00%
///(1)/
As of October 31, 2006, each of the Underlying Funds was a series of WM Group of Funds ("WMA"). Each of those WMA Underlying
Funds has been combined into a series of Principal Investors Fund ("PIF") as follows:
WMA ACQUIRED FUNDS PIF ACQUIRING FUNDS
Equity Income Fund Equity Income Fund I
Growth Fund LargeCap Growth Fund
Growth & Income Fund Disciplined LargeCap Blend Fund
High Yield Fund High Yield Fund II
Income Fund Income Fund
International Growth Fund Diversified International Fund
Mid Cap Stock Fund MidCap Stock Fund
Money Market Fund Money Market Fund
REIT Fund Real Estate Securities Fund
Short-Term Income Fund Short-Term Income Fund
Small Cap Growth Fund SmallCap Growth Fund
Small Cap Value Fund SmallCap Value Fund
U.S. Government Securities Fund Mortgage Securities Fund
West Coast Equity Fund West Coast Equity Fund
OTHER COMMON RISKS . Each of the Portfolios may also invest in U.S. government
securities, fixed-income securities rated A or higher, commercial paper
(including master notes), bank obligations, repurchase agreements, and strategic
transactions (derivatives) such as futures contracts and options. Therefore, the
Portfolios are subject to the risks associated with such investments including:
.Fixed-Income .U.S. Government
Securities Risk Securities Risk . Derivatives Risk
HISTORICAL PERFORMANCE
A bar chart and table showing the historical investment performance of each SAM
Portfolio are provided with the description of each Portfolio. The bar chart for
each Portfolio shows how the Portfolio's total return has varied year-by-year,
and the table for the Portfolio shows the performance of its shares over time
(along with the returns of a broad-based market index and an index of funds with
similar investment objectives for reference). This information may help provide
an indication of the risks of investing in the Portfolio. A Portfolio's past
performance is not necessarily an indication of how the Portfolio will perform
in the future. Each Portfolio's investment return is net of the operating
expenses of each of the Underlying Funds.
FLEXIBLE INCOME PORTFOLIO
OBJECTIVE . The Portfolio seeks to provide a high level of total return
(consisting of reinvestment of income with some capital appreciation). In
general, relative to the other Portfolios, the Flexible Income Portfolio should
offer you the potential for a high level of income and a low level of capital
growth, while exposing you to a low level of principal risk.
PRINCIPAL INVESTMENT STRATEGIES . All of the Portfolios allocate their assets
among certain of the Funds in pursuing their objectives. The Flexible Income
Portfolio generally invests no more than 30% of its net assets in the Equity
Funds.
The Portfolio may invest up to 40% of its assets in each of the Short Term
Income, Mortgage Securities, Income, High Yield II, and Money Market Funds.
Subject to the limits in the prior paragraph, the Portfolio may also invest up
to 30% of its assets in each of the Real Estate Securities, Equity Income I,
Disciplined LargeCap Blend, West Coast Equity, MidCap Stock, LargeCap Growth,
SmallCap Value, and SmallCap Growth Funds.
The Portfolio may also invest in U.S. government securities, fixed-income
securities rated A or higher, commercial paper (including master notes), bank
obligations, repurchase agreements, and strategic transactions (derivatives)
such as futures contracts and options.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR /(//1//)/
1997 10.19
1998 9.23
1999 8.58
2000 5.11
2001 4.35
2002 1.04
2003 12.08
2004 5.73
2005 2.66
2006 6.70
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 6.13%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '02 -2.01%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIOD ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS 10 YEARS
INSTITUTIONAL CLASS (BEFORE TAXES) ..................... 6.70 5.57 6.52
(AFTER TAXES ON DISTRIBUTIONS)/ //(2)/ ............. 5.32 4.25 4.58
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)
/(2)/............................................... 4.43 4.00 4.44
Lehman Brothers Aggregate Bond Index /(//3//)/ ......... 4.33 5.06 6.24
S&P 500 Index /(//3//)/ ................................ 15.79 6.19 8.42
20% S&P Index and 80% Lehman Brothers Aggregate Bond
Index /(//3//)/......................................... 6.62 5.44 6.89
Morningstar Conservative Allocation Category Average 8.17 5.66 5.91
///(1)/
The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods
prior to that date is based on the performance of the predecessor fund which commenced operations on July 25, 1996. The
Portfolio's performance between 1996 and 1999 benefited from the agreement of the Portfolio's previous adviser and its
affiliates to limit the Portfolio's expenses.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(3//)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
CONSERVATIVE BALANCED PORTFOLIO
OBJECTIVE . The Portfolio seeks to provide a high level of total return
(consisting of reinvestment of income and capital appreciation), consistent with
a moderate degree of principal risk. In general, relative to the other
Portfolios, the Conservative Balanced Portfolio should offer you the potential
for a medium to high level of income and a medium to low level of capital
growth, while exposing you to a medium to low level of principal risk.
PRINCIPAL INVESTMENT STRATEGIES . All of the Portfolios allocate their assets
among certain of the Funds in pursuing their objectives. The Conservative
Balanced Portfolio invests between 40% and 80% of its net assets in a
combination of the Fixed-Income Funds and the Money Market Fund and between 20%
and 60% of its net assets in the Equity Funds.
Subject to the limits in the prior paragraph, the Portfolio may invest up to 40%
of its assets in each of the Short Term Income, Mortgage Securities, Income,
High Yield II, and Money Market Funds. Subject to the limits in the prior
paragraph, the Portfolio may also invest up to 30% of its assets in each of the
Real Estate Securities, Equity Income I, Diversified LargeCap Blend, West Coast
Equity, MidCap Stock, LargeCap Growth, SmallCap Value, SmallCap Growth, and
Diversified International Funds.
The Portfolio may also invest in U.S. government securities, fixed-income
securities rated A or higher, commercial paper (including master notes), bank
obligations, repurchase agreements, and strategic transactions (derivatives)
such as futures contracts and options.
The Portfolio shares the principal risks of each Fund in which it invests as
well as the risks associated with direct investments in the instruments listed
in the foregoing paragraph, including derivatives risk and portfolio risk.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR /(//1//)/
1997 8.26
1998 5.29
1999 1.98
2000 4.01
2001 2.21
2002 -2.98
2003 15.98
2004 7.38
2005 3.80
2006 8.66
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q2 '03 8.00%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '02 -4.84%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS 10 YEARS
INSTITUTIONAL CLASS(BEFORE TAXES) .. 8.66 6.39 5.35
(AFTER TAXES ON DISTRIBUTIONS) /(2)/ .................. 7.54 5.35 3.70
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES) /(2)/ 5.85 4.91 3.56
Lehman Brothers Aggregate Bond Index /(//3//)/ ............ 4.33 5.06 6.24
S&P 500 Index /(//3//)/ ................................... 15.79 6.19 8.42
40% S&P 500 Index and 60% Lehman Brothers Aggregate Bond
Index/(//3//)/............................................. 8.91 5.75 7.45
Morningstar Conservative Allocation Category Average ...... 8.17 5.66 5.91
///(1)/
The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods
prior to that date is based on the performance of the predecessor fund which commenced operations on July 25, 1996. The
Portfolio's performance between 1996 and 1999 benefited from the agreement of the Portfolio's previous adviser and its
affiliates to limit the Portfolio's expenses.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(//3//)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
BALANCED PORTFOLIO
OBJECTIVE . The Portfolio seeks to provide as high a level of total return
(consisting of reinvested income and capital appreciation) as is consistent with
reasonable risk. In general, relative to the other Portfolios, the Balanced
Portfolio should offer you the potential for a medium level of income and a
medium level of capital growth, while exposing you to a medium level of
principal risk.
PRINCIPAL INVESTMENT STRATEGIES . All of the Portfolios allocate their
investments among certain of the Funds in pursuing their objectives. The
Balanced Portfolio invests at least 30% and no more than 70% of its net assets
in the Equity Funds and at least 30% and no more than 70% of its net assets in
the Fixed-Income Funds.
Subject to the limits in the prior paragraph, the Portfolio may invest up to 40%
of its assets in each of the Short Term Income, Mortgage Securities, Income,
High Yield II, and Money Market Funds. Subject to the limits in the prior
paragraph, the Portfolio may also invest up to 30% of its assets in each of the
Real Estate Securities, Equity Income I, Disciplined LargeCap Blend, West Coast
Equity, MidCap Stock, LargeCap Growth, SmallCap Value, SmallCap Growth, and
Diversified International Funds.
The Portfolio may also invest in U.S. government securities, fixed-income
securities rated A or higher, commercial paper (including master notes), bank
obligations, repurchase agreements, and strategic transactions (derivatives)
such as futures contracts and options.
The Portfolio shares the principal risks of each Fund in which it invests as
well as the risks associated with direct investments in the instruments listed
in the foregoing paragraph, including derivatives risk and portfolio risk.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR /(//1//)/
1997 10.29
1998 16.13
1999 26.97
2000 0.20
2001 -0.50
2002 -9.41
2003 21.34
2004 9.23
2005 5.21
2006 10.36
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '99 15.44%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '02 -8.79%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS 10 YEARS
INSTITUTIONAL CLASS (BEFORE TAXES) . ..... 10.36 6.87 8.50
(AFTER TAXES ON DISTRIBUTIONS))/(2)/ .................. 9.67 6.21 6.95
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF SHARES)/(2)/ 7.01 5.57 6.51
Lehman Brothers Aggregate Bond Index /(//3//)/ ............ 4.33 5.06 6.24
S&P 500 Index /(//3//)/ ................................... 15.79 6.19 8.42
60% S&P 500 Index and 40% Lehman Brothers Aggregate Bond
Index /(//3//)/............................................ 11.20 5.98 7.88
Morningstar Moderate Allocation Category Average .......... 11.26 6.09 7.12
///(1)/
The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods
prior to that date is based on the performance of the predecessor fund which commenced operations on July 25, 1996. The
Portfolio's performance between 1996 and 1999 benefited from the agreement of the Portfolio's previous adviser and its
affiliates to limit the Portfolio's expenses.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(//3//)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
CONSERVATIVE GROWTH PORTFOLIO
OBJECTIVE . The Portfolio seeks to provide long-term capital appreciation. In
general, relative to the other Portfolios, the Conservative Growth Portfolio
should offer you the potential for a low to medium level of income and a medium
to high level of capital growth, while exposing you to a medium to high level of
principal risk.
PRINCIPAL INVESTMENT STRATEGIES . All of the Portfolios allocate their assets
among certain of the Funds in pursuing their objectives. The Conservative Growth
Portfolio generally invests at least 60% of its net assets in the Equity Funds.
The Portfolio may invest up to 30% of its assets in each of the Short Term
Income, Mortgage Securities, Income, High Yield II, and Money Market Funds.
Subject to the limits of the prior paragraph, the Portfolio may also invest up
to 40% of its assets in each of the Real Estate Securities, Equity Income I,
Disciplined LargeCap Blend, West Coast Equity, MidCap Stock, LargeCap Growth,
SmallCap Value, SmallCap Growth, and Diversified International Funds.
The Portfolio may also invest in U.S. government securities, fixed-income
securities rated A or higher, commercial paper (including master notes), bank
obligations, repurchase agreements, and strategic transactions (derivatives)
such as futures contracts and options.
The Portfolio shares the principal risks of each Fund in which it invests as
well as the risks associated with direct investments in the instruments listed
in the foregoing paragraph, including derivatives risk and portfolio risk.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR /(//1//)/
1997 8.68
1998 18.82
1999 40.28
2000 -2.96
2001 -4.20
2002 -15.70
2003 26.97
2004 10.88
2005 6.24
2006 11.89
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '99 22.16%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '02 AND Q3 '01 -12.69%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS 10 YEARS
INSTITUTIONAL CLASS (BEFORE TAXES) . 11.89 7.12 9.04
(AFTER TAXES ON DISTRIBUTIONS) /(2)/ .... 11.67 6.83 7.87
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES) /(2)/............................ 8.00 6.04 7.28
Lehman Brothers Aggregate Bond Index
/(//3//)/ ................................... 4.33 5.06 6.24
S&P 500 Index /(//3//)/ ..................... 15.79 6.19 8.42
80% S&P 500 Index and 20% Lehman Brothers
Aggregate Bond Index /(//3//)/ .............. 13.50 6.12 8.21
Morningstar Moderate Allocation Category
Average...................................... 11.26 6.09 7.12
///(1)/
The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods
prior to that date is based on the performance of the predecessor fund which commenced operations on July 25, 1996. The
Portfolio's performance between 1996 and 1999 benefited from the agreement of the Portfolio's previous adviser and its
affiliates to limit the Portfolio's expenses.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(4)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
STRATEGIC GROWTH PORTFOLIO
OBJECTIVE . The Portfolio seeks to provide long-term capital appreciation. In
general, relative to the other Portfolios, the Strategic Growth Portfolio should
offer you the potential for a high level of capital growth, and a corresponding
level of principal risk.
PRINCIPAL INVESTMENT STRATEGIES . All of the Portfolios allocate their assets
among certain of the Funds in pursuing their objectives. The Strategic Growth
Portfolio generally invests at least 75% of its net assets in the Equity Funds.
The Portfolio may invest up to 25% of its assets in each of the Short Term
Income, High Yield II, and Money Market Funds. Subject to the limits in the
prior paragraph, the Portfolio may also invest up to 50% of its assets in each
of the Real Estate Securities, Equity Income I, Disciplined LargeCap Blend, West
Coast Equity, MidCap Stock, LargeCap Growth, SmallCap Value, SmallCap Growth,
and Diversified International Funds.
The Portfolio may also invest in U.S. government securities, fixed-income
securities rated A or higher, commercial paper (including master notes), bank
obligations, repurchase agreements, and strategic transactions (derivatives)
such as futures contracts and options.
The Portfolio shares the principal risks of each Fund in which it invests as
well as the risks associated with direct investments in the instruments listed
in the foregoing paragraph, including derivatives risk and portfolio risk.
The Fund's past performance (before and after taxes) is not necessarily an
indication of how the Fund will perform in the future.
CALENDAR YEAR TOTAL RETURNS (%) AS OF 12/31 EACH YEAR /(//1//)/
1997 12.38
1998 22.63
1999 44.48
2000 -4.43
2001 -6.69
2002 -20.84
2003 31.27
2004 11.92
2005 6.98
2006 12.75
LOGO
HIGHEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q4 '99 25.23%
LOWEST RETURN FOR A QUARTER DURING THE PERIOD OF THE BAR CHART ABOVE:
Q3 '01 -16.73%
AVERAGE ANNUAL TOTAL RETURNS (%)/(1)/
FOR THE PERIODS ENDED DECEMBER 31, 2006 1 YEAR 5 YEARS 10 YEARS
INSTITUTIONAL CLASS (BEFORE TAXES) ............... 12.75 7.00 9.55
(AFTER TAXES ON DISTRIBUTIONS)/(2)/ .......... 12.55 6.91 8.48
(AFTER TAXES ON DISTRIBUTIONS AND SALE OF
SHARES)/(2)/.................................. 8.55 6.04 7.80
Lehman Brothers Aggregate Bond Index /(//3//)/ ... 4.33 5.06 6.24
S&P 500 Index /(//3//)/ .......................... 15.79 6.19 8.42
Russell 3000 Index /(//3//)/ ..................... 15.72 7.17 8.64
Morningstar Large Blend Category Average ......... 14.12 5.92 7.79
///(1)/
The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods
prior to that date is based on the performance of the predecessor fund which commenced operations on July 25, 1996. The
Portfolio's performance between 1996 and 1999 benefited from the agreement of the Portfolio's previous adviser and its
affiliates to limit the Portfolio's expenses.
///(2)/
After-tax returns are calculated using the historical highest individual federal marginal income-tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those
shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
///(//3//)/ Index performance does not reflect deductions for fees, expenses or taxes.
For further information about the Fund's performance, see "Risk/Return Summary-Investment Results".
FEES AND EXPENSES OF THE PORTFOLIOS
Each of the Portfolios offers the Institutional Class shares,. This section
describes the fees and expenses that you may pay if you invest in the
Institutional Class shares of a Portfolio. Estimated expenses of the underlying
funds in which the portfolios invest are included. The examples below are
intended to help you compare the cost of investing in the Portfolios with the
costs of investing in other mutual funds. The examples assume that your $10,000
investment in the noted class of shares has a 5% return each year, as required
for illustration purposes by the Securities and Exchange Commission (the
''SEC''), and that the Portfolio's operating expenses, including the operating
expenses of the underlying funds, remain the same. Your actual costs may be
higher or lower than those in the examples.
ANNUAL FUND OPERATING EXPENSES
10 YEARS (ESTIMATED)
(EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
ACQUIRED
FUND TOTAL
("UNDERLYING ANNUAL
GROSS NET FEES FUND") FUND
MANAGEMENT 12B-1 OTHER FEES AND EXPENSE AND FEES AND OPERATING
INSTITUTIONAL CLASS SHARES FEES FEES /1/ EXPENSES EXPENSES REIMBURSEMENT EXPENSE EXPENSES EXPENSES
Flexible Income Portfolio 0.31% 0.00% 0.00% 0.31% 0.00% 0.31% 0.56% 0.87%
Conservative Balanced Portfolio 0.31 0.00 0.00 0.31 0.00 0.31 0.59 0.90
Balanced Portfolio 0.31 0.00 0.00 0.31 0.00 0.31 0.62 0.93
Conservative Growth Portfolio 0.31 0.00 0.00 0.31 0.00 0.31 0.66 0.97
Strategic Growth Portfolio 0.31 0.00 0.00 0.31 0.00 0.31 0.68 0.99
EXAMPLE
The examples below are intended to help you compare the cost of investing in the
Portfolios with the costs of investing in other mutual funds. The examples
assume that your $10,000 investment in a Portfolio for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Portfolio's operating expenses, including the operating expenses of the
underlying funds, remain the same. Although your actual costs may be higher or
lower, based on these assumptions your cost would be:
INSTITUTIONAL CLASS SHARES
------------------------------------------------------------------------------
NUMBER OF YEARS YOU OWN YOUR SHARES
------------------------------------------------------------------------------
1 3 5 10
FLEXIBLE INCOME PORTFOLIO $ 89 $278 $482 $1,073
CONSERVATIVE BALANCED
PORTFOLIO 92 287 498 1,108
BALANCED PORTFOLIO 95 296 515 1,143
CONSERVATIVE GROWTH
PORTFOLIO 99 309 536 1,190
STRATEGIC GROWTH PORTFOLIO 101 315 547 1,213
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.
In addition to the ongoing fees listed below, the Institutional Class of the
Funds may pay a portion of investment related expenses (e.g., interest on
reverse repurchase agreements) that are allocated to all classes of the Funds.
ONGOING FEES
Ongoing Fees reduce the value of each share. Because they are ongoing, they
increase the cost of investing in the Funds.
Each Principal LifeTime Fund, as a shareholder in the underlying funds, bears
its pro rata share of the management fees incurred by each underlying fund. The
investment return of each Principal LifeTime Fund is net of the underlying
funds' management fee.
Each Fund pays ongoing fees to the Manager and others who provide services to
the Fund. These fees include:
. 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.
Princor is the Fund's principal underwriter for INstitutional Class Shares. It
may, from time-to-time, at its expense, pay a bonus or other consideration or
incentive to dealers who have sold or may sell significant amounts of shares.
Any such bonus or incentive program will not change the price paid by investors
for the purchase of the Funds' shares or the amount that any particular Fund
receives as the proceeds from such sales. In addition, Princor or its affiliates
may provide financial support to dealers that sell shares of the Funds. This
support is based primarily on the amount of sales of fund shares and/or total
assets in the Funds. The amount of support may be affected by total sales; net
sales; levels of redemptions; the dealers' support of, and participation in,
Princor's marketing programs and the extent of a dealer's marketing programs
relating to the Funds. Financial support to dealers may be made from payments
from Princor's resources and from its retention of underwriting concessions.
CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS
The information in this section does not directly apply to the Principal
LifeTime Funds. It does apply to the underlying funds in which the LifeTime
Funds invest.The Statement of Additional Information (SAI) contains additional
information about investment strategies and their related risks.
SECURITIES AND INVESTMENT PRACTICES
MARKET VOLATILITY . Equity securities include common stocks, preferred stocks,
convertible securities, depositary receipts, rights and warrants. Common stocks,
the most familiar type, represent an equity (ownership) interest in a
corporation. The value of a company's stock may fall as a result of factors
directly relating to that company, such as decisions made by its management or
lower demand for the company's products or services. A stock's value may also
fall because of factors affecting not just the company, but also companies in
the same industry or in a number of different industries, such as increases in
production costs. The value of a company's stock may also be affected by changes
in financial markets that are relatively unrelated to the company or its
industry, such as changes in interest rates or currency exchange rates. In
addition, a company's stock generally pays dividends only after the company
invests in its own business and makes required payments to holders of its bonds
and other debt. For this reason, the value of a company's stock will usually
react more strongly than its bonds and other debt to actual or perceived changes
in the company's financial condition or prospects. Stocks of smaller companies
may be more vulnerable to adverse developments than those of larger companies.
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.
INTEREST RATE CHANGES . 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.
CREDIT RISK . 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
Although not a principal investment strategy, 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 securities collateralizing the
repurchase agreement is, and during the entire term of the repurchase agreement
remains, 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.
REVERSE REPURCHASE AGREEMENTS
A Fund 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 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 will maintain
cash and appropriate liquid assets to cover its obligation under the agreement.
The Fund 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,
although the Fund's intent to segregate assets in the amount of the repurchase
agreement minimizes this effect.
CURRENCY CONTRACTS
The Funds may each enter into forward currency contracts, currency futures
contracts and options, and options on currencies. 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
Although not a principal investment strategy, 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 in warrants though none of the Funds use such
investments as a principal investment strategy. 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.
HIGH YIELD SECURITIES
The Bond & Mortgage Securities, High Yield, Inflation Protection, Short-Term
Bond, and Ultra Short Bond 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 Manager or 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 Manager or
Sub-Advisor thinks it is in the best interest of shareholders.
INITIAL PUBLIC OFFERINGS ("IPOS")
Certain of the Funds may invest in IPOs. An IPO is a company's first offering of
stock to the public. IPO risk is that the market value of IPO shares will
fluctuate considerably due to factors such as the absence of a prior public
market, unseasoned trading, the small number of shares available for trading and
limited information about the issuer. The purchase of IPO shares may involve
high transaction costs. IPO shares are subject to market risk and liquidity
risk. In addition, the market for IPO shares can be speculative and/or inactive
for extended periods of time. The limited number of shares available for trading
in some IPOs may make it more difficult for a Fund to buy or sell significant
amounts of shares without an unfavorable impact on prevailing prices. Investors
in IPO shares can be affected by substantial dilution in the value of their
shares by sales of additional shares and by concentration of control in existing
management and principal shareholders.
When a Fund's asset base is small, a significant portion of the Fund's
performance could be attributable to investments in IPOs because such
investments would have a magnified impact on the Fund. As the Fund's assets
grow, the effect of the Fund's investments in IPOs on the Fund's performance
probably will decline, which could reduce the Fund's performance. Because of the
price volatility of IPO shares, a Fund may choose to hold IPO shares for a very
short period of time. This may increase the turnover of the Fund's portfolio and
lead to increased expenses to the Fund, such as commissions and transaction
costs. By selling IPO shares, the Fund may realize taxable gains it will
subsequently distribute to 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. The Funds may enter into put or call
options, future contracts, options on futures contracts and over-the-counter
swap contracts (e.g., interest rate swaps, total return swaps and credit default
swaps) for both hedging and non-hedging purposes.
Generally, 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.
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:
. the risk that the underlying security, interest rate, market index, or other
financial asset will not move in the direction the Manager or Sub-Advisor
anticipated;
. the possibility that there may be no liquid secondary market which may make it
difficult or impossible to close out a position when desired;
. the risk that adverse price movements in an instrument can result in a loss
substantially greater than a Fund's initial investment; and
. the possibility that the counterparty may fail to perform its obligations.
EXCHANGE TRADED FUNDS (ETFS)
These are a type of index fund bought and sold on a securities exchange. An ETF
trades like common stock and represents a fixed portfolio of securities designed
to track a particular market index. The Funds could purchase shares issued by an
ETF to temporarily gain exposure to a portion of the U.S. or a foreign market
while awaiting purchase of underlying securities. The risks of owning an ETF
generally reflect the risks of owning the underlying securities they are
designed to track, although ETFs have management fees that increase their costs.
CONVERTIBLE SECURITIES
Convertible securities are fixed-income securities that a Fund has the right to
exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold
fixed-income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed-income securities.
Convertible securities have lower yields than comparable fixed-income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed-income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
The Funds treat convertible securities as both fixed-income and equity
securities for purposes of investment policies and limitations because of their
unique characteristics. The Funds may invest in convertible securities without
regard to their ratings.
FOREIGN INVESTING
As a principal investment strategy, the Diversified International,
International Emerging Markets, International Growth, Partners Global Equity and
Partners International Funds may invest Fund assets in securities of foreign
companies. The other Funds (except Government & High Quality Bond Fund) may
invest in securities of foreign companies but not as a principal investment
strategy. For the purpose of this restriction, foreign companies are:
. companies with their principal place of business or principal office outside
the U.S. and
. companies for which the principal securities trading market is outside the
U.S.
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:
. increased social, political, and economic instability;
. 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;
. lack of publicly available information, including reports of payments of
dividends or interest on outstanding securities;
. foreign government policies that may restrict opportunities, including
restrictions on investment in issuers or industries deemed sensitive to
national interests;
. relatively new capital market structure or market-oriented economy;
. the possibility that recent favorable economic developments may be slowed or
reversed by unanticipated political or social events in these countries;
. 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
. 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.
SMALL AND MEDIUM CAPITALIZATION COMPANIES
The Funds (except the Government & High Quality Bond Fund) may invest in
securities of companies with small- or mid-sized market capitalizations. The
Bond & Mortgage Securities, Disciplined LargeCap Blend, High Quality
Intermediate-Term Bond, High Yield, Inflation Protection, LargeCap Growth,
LargeCap S&P 500 Index, LargeCap Value, Partners LargeCap Blend, Money Market,
Partners LargeCap Blend I, Partners LargeCap Growth, Partners LargeCap Growth I,
Partners LargeCap Growth II, Partners LargeCap Value, Partners LargeCap Value I,
Partners LargeCap Value II, Preferred Securities, Real Estate Securities,
Short-Term Bond, and Ultra Short Bond Funds may hold securities of small and
medium capitalization companies but not as a principal investment strategy. The
international funds invest in the securities of foreign corporations without
regard to the market capitalizations of those companies. 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. Small companies 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.
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. 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.
TEMPORARY DEFENSIVE MEASURES
From time to time, as part of its investment strategy, each Fund (other than the
Money Market Fund which may invest in high-quality money market securities at
any time) may invest without limit in cash and cash equivalents for temporary
defensive purposes in response to adverse market, economic, or political
conditions. To the extent that the Fund is in a defensive position, it may lose
the benefit of upswings and limit its ability to meet its investment objective.
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 Fund may fail to achieve its investment
objective.
FUND OF FUNDS
The performance and risks of each Principal LifeTime Fund and Strategic Asset
Management ("SAM") Portfolio directly corresponds to the performance and risks
of the underlying funds in which the Fund or Portfolio invests. By investing in
many underlying funds, the Principal LifeTime Funds and the SAM Portfolios have
partial exposure to the risks of many different areas of the market. The more a
Principal LifeTime Fund or SAM Portfolio allocates to stock funds, the greater
the expected risk.
Each Principal LifeTime Fund and SAM Portfolio indirectly bears its pro-rata
share of the expenses of the Underlying Funds in which it invests, as well as
directly incurring expenses. Therefore, investment in a Principal LifeTime Fund
or SAM Portfolio is more costly than investing directly in shares of the
Underlying Funds. If you are considering investing in a Principal LifeTime Fund,
you should take into account your estimated retirement date and risk tolerance.
In general, each Principal LifeTime Fund is managed with the assumption that the
investor will invest in a Principal LifeTime Fund whose stated date is closest
to the date the shareholder retires. Choosing a Fund targeting an earlier date
represents a more conservative choice; targeting a Fund with a later date
represents a more aggressive choice. It is important to note that the retirement
year of the Fund you select should not necessarily represent the specific year
you intend to start drawing retirement assets. It should be a guide only.
Generally, the potential for higher returns over time is accompanied by the
higher risk of a decline in the value of your principal. Investors should
realize that the Principal LifeTime Funds are not a complete solution to their
retirement needs. Investors must weigh many factors when considering when to
retire, what their retirement needs will be, and what sources of income they may
have.
The risks associated with investing in an Underlying Fund of a fund of funds are
discussed in Appendix A under Underlying Fund Risk.
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 have an adverse impact on the Fund's
performance. No turnover rate can be calculated for the Money Market Fund
because of the short maturities of the securities in which it invests. Turnover
rates for each of the other Funds may be found in the Fund's Financial
Highlights table.
Please consider all the factors when you compare the turnover rates of different
funds. A fund with consistently higher total returns and higher turnover rates
than another fund may actually be achieving better performance precisely because
the managers are active traders. You should also be aware that the "total
return" line in the Financial Highlights section already includes portfolio
turnover costs.
MANAGEMENT OF THE FUNDS
THE MANAGER
Principal Management Corporation ("Principal") serves as the manager for the
Fund. Through the Management Agreement with the Fund, Principal provides
investment advisory services and certain corporate administrative services for
the Fund.
Principal is an indirect subsidiary of Principal Financial Group, Inc. and has
managed mutual funds since 1969. Principal's address is Principal Financial
Group, Des Moines, Iowa 50392-2080.
Principal provides a substantial part of the investment advisory services to
each of the Principal LifeTime Funds directly, while engaging PGI as a
sub-advisor to provide asset allocation services to the Funds. The portfolio
manager appointed by Principal for each Principal LifeTime Fund is Douglas A.
Loeffler. The portfolio manager appointed by PGI for each Principal LifeTime
Fund is Dirk Laschanzky. On behalf of PGI, Mr. Laschanzky develops, implements
and monitors the Fund's strategic or long-term asset class targets and target
ranges. On behalf of Principal, Mr. Loeffler implements the strategic asset
allocation Mr. Laschanzky sets.
DOUGLAS A. LOEFFLER, CFA . Mr. Loeffler is a Vice President of Principal. He is
the senior member of the Manager Research Team that is responsible for
analyzing, interpreting and coordinating investment performance data and
evaluation of the investment managers under the due diligence program. He is
responsible for preparing periodic evaluation reports including both qualitative
and quantitative analysis. Mr. Loeffler participates in the manager selection
process and portfolio reviews. Joining Principal in 2004, he has 16 years of
investment experience including 14 years in the mutual fund industry (Scudder
and Founders Asset Management). His background includes quantitative analysis,
fundamental analysis and portfolio management focusing on non-U.S. stocks. Mr.
Loeffler earned an MBA in Finance at the University of Chicago and a degree in
Economics from Washington State University. He has earned the right to use the
Chartered Financial Analyst designation.
THE SUB-ADVISORS
Principal has signed contracts with various Sub-Advisors. Under the sub-advisory
agreements, the Sub-Advisor agrees to assume the obligations of Principal to
provide investment advisory services for a specific Fund. For these services,
the Sub-Advisor is paid a fee by Principal. Information regarding the
Sub-Advisors and individual portfolio managers is set forth below. The Statement
of Additional Information provides additional information about each portfolio
manager's compensation, other accounts managed by the portfolio manager, and the
portfolio manager's ownership of securities in each of the Funds.
SUB-ADVISOR: AllianceBernstein L.P. ("AllianceBernstein"). AllianceBernstein is
located at 1345 Avenue of the Americas, New York, NY 10105.
The day-to day portfolio management is shared by two or more portfolio managers.
The portfolio managers operate as a team, sharing authority and responsibility
for research and the day-to-day management of the portfolio with no limitation
on the authority of one portfolio manager in relation to another.
The portfolio managers listed below for the Partners SmallCap Growth Fund I
operate as a team, sharing authority and responsibility for research and the
day-to-day management of the portfolio. The management of and investment
decisions for the Fund's portfolio are made by the US Value Investment Policy
Group, comprised of senior US Value Investment Team members. The US Value
Investment Policy Group relies heavily on the fundamental analysis and research
of the Adviser's large internal research staff. No one person is principally
responsible for making recommendations for the Fund's portfolio. The members of
the US Value Investment Policy Group with the most significant responsibility
for the day-to-day management of the Fund's portfolio are: Marilyn Fedak, John
Mahedy, John Phillips and Chris Marx.
DAY-TO-DAY
FUND FUND MANAGEMENT
---- ---------------
Partners LargeCap Value Marilyn G. Fedak
Mark R. Gordon
John Mahedy
Chris Marx
John D. Phillips, Jr.
Partners SmallCap Growth I Bruce K. Aronow
Michael W. Doherty
N. Kumar Kirpalani
Samantha S. Lau
James Russo
BRUCE K. ARONOW, CFA . Senior Vice President, Portfolio Manager/Research
Analyst. Mr. Aronow is team leader of the Small Cap Growth equity portfolio
management team. Prior to joining AllianceBernstein in 1999, Mr. Aronow was
responsible for research and portfolio management of the small cap consumer
sectors since early 1997 at INVESCO (NY) (formerly Chancellor Capital
Management). He joined Chancellor in 1994. Previously, Mr. Aronow was a Senior
Associate with Kidder, Peabody & Company. Mr. Aronow holds a BA from Colgate
University. Mr. Aronow is a member of both the New York Society of Security
Analysts and the Association of Investment Management & Research. He is a
Chartered Financial Analyst.
MICHAEL W. DOHERTY . Assistant Vice President, Quantitative Analyst. Mr. Doherty
is responsible for maintaining and updating the quantitative models used by the
small cap group. He also provides research assistance across all industries and
portfolio administration. Prior to joining AllianceBernstein in 1999, Mr.
Doherty worked as a small cap research assistant and portfolio administrator for
INVESCO (NY) (formerly Chancellor Capital Management). Mr. Doherty began his
career at Citicorp Investment Management in 1983 as a research assistant. He is
currently attending Mount Saint Mary's College working toward a BA in Business
Administration.
MARK R. GORDON, CFA . Mr. Gordon joined AllianceBernstein in 1983. In 2004, he
assumed the position of Executive Vice President and Director of Global
Quantitative Research. Mr. Gordon also serves on AllianceBernstein's Executive
Committee. He earned a BS from Brown University, and pursued graduate studies in
applied mathematics and statistics at Princeton University and New York
University. Mr. Gordon has earned the right to use the Chartered Financial
Analyst designation.
N. KUMAR KIRPALANI, CFA . Vice President, Portfolio Manager/Research Analyst.
Prior to joining AllianceBernstein in 1999, Mr. Kirpalani was responsible for
research and portfolio management of small cap industrial, financial and energy
sectors for INVESCO (NY) (formerly Chancellor Capital Management). Mr. Kirpalani
joined Chancellor in 1993. Previously, Mr. Kirpalani served as Vice President of
Investment Research at Scudder, Stevens & Clark. Mr. Kirpalani received a BTech
from the Indian Institute of Technology and an MBA from the University of
Chicago. Mr. Kirpalani is a member of both the New York Society of Security
Analysts and the Association for Investment Management and Research. He is a
Chartered Financial Analyst and has 22 years of investment experience.
SAMANTHA S. LAU, CFA . Vice President, Portfolio Manager/Research Analyst. Prior
to joining AllianceBernstein in 1999, Ms. Lau was responsible for covering small
cap technology companies for INVESCO (NY) (formerly Chancellor Capital
Management). She joined Chancellor LGT in 1997. Previously Ms. Lau worked for
three years in the investment research department of Goldman Sachs. Ms. Lau has
a BS, magna cum laude, in Finance and Accounting from the Wharton School of the
University of Pennsylvania. She is a Chartered Financial Analyst.
MARILYN G. FEDAK, CFA . Ms. Fedak joined AllianceBernstein in 1984 as a senior
portfolio manager. An Executive Vice President of AllianceBernstein since 2000,
she is Head of Global Value Equities and chair of the US Large Cap Value Equity
Investment Policy Group. Ms. Fedak serves on AllianceBernstein's Management
Executive Committee and is also a Director of SCB Inc. She earned a BA from
Smith College and an MBA from Harvard University. She has also earned the right
to use the Chartered Financial Analyst designation.
JOHN MAHEDY, CPA . Mr. Mahedy was named Co-CIO-US Value equities in 2003. He
continues to serve as director of research-US Value Equities, a position he has
held since 2001. Previously, Mr. Mahedy was a senior research analyst at
AllianceBernstein's institutional research and brokerage unit, covering the
domestic and international energy industry from 1995 to 2001. He earned a BS and
an MBA from New York University.
CHRISTOPHER W. MARX . Mr. Marx joined AllianceBernstein in 1997 as a research
analyst. He covered a variety of industries both domestically and
internationally, including chemicals, food, supermarkets, beverages and tobacco.
Mr. Marx earned an AB in Economics from Harvard, and an MBA from the Stanford
Graduate School of Business.
JOHN D. PHILLIPS, JR., CFA . Mr. Phillips joined AllianceBernstein in 1994 and
is a senior portfolio manager and member of the US Value Equities Investment
Policy Group. He is also chairman of AllianceBernstein's Proxy Voting Committee.
Mr. Phillips earned a BA from Hamilton College and an MBA from Harvard
University. He has also earned the right to use the Chartered Financial Analyst
designation.
JAMES RUSSO, CFA . Mr. Russo is Vice President and Senior Portfolio Manager. Mr.
Russo joined AllianceBernstein in 2006 to work on the Small and SMID Cap Growth
team. Prior to joining the firm, Mr. Russo spent 12 years at JPMorgan, a
financial services firm, where he held positions as an analyst and portfolio
manager in US Equity for nine years and in the Private Bank's Third Party
Program for three years, most recently as Director of Manager Research. Mr.
Russo holds a BBA in Finance from Hofstra University, an MBA from NYU's Stern
School of Business. Mr. Russo has earned the right to use the Chartered
Financial Analyst designation.
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, MO 64111.
The day-to-day portfolio management is shared by two or more portfolio managers.
In each such case, except where noted below, the portfolio managers operate as a
team, sharing authority and responsibility for research and the day-to-day
management of the portfolio with no limitation on the authority of one portfolio
manager in relation to another.
DAY-TO-DAY
FUND FUND MANAGEMENT
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Partners LargeCap Growth II Prescott LeGard
Gregory Woodhams
Partners LargeCap Value II Brendan Healy
Charles A. Ritter
BRENDAN HEALY, CFA . Mr. Healy, Vice President and Portfolio Manager, has been a
member of the team that manages Large Cap Value since he joined American Century
in April 2000 and has been a Portfolio Manager since February 2004. Before
joining American Century, he spent six years with USAA Investment Management
Company as an Equity Analyst. He has a Bachelor's degree in Mechanical
Engineering from the University of Arizona and an MBA from the University of
Texas-Austin. He has earned the right to use the Chartered Financial Analyst
designation.
E.A. PRESCOTT LEGARD, CFA . Mr. LeGard is a Vice President and Portfolio Manager
for American Century. 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.
CHARLES A. RITTER, CFA . Mr. Ritter, Vice President and Senior Portfolio
Manager, has been a member of the team that manages Large Cap Value since July
1999. He joined American Century in December 1998. Before joining American
Century, he spent 15 years with Federated Investors, most recently serving as a
Vice President and Portfolio Manager for the company. He has a Bachelor's degree
in Mathematics and a Master's degree in Economics from Carnegie Mellon
University as well as an MBA from the University of Chicago. He has earned the
right to use the Chartered Financial Analyst designation.
GREGORY J. WOODHAMS, CFA . Mr. Woodhams is a Vice President and Senior Portfolio
Manager for American Century. 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.
SUB-ADVISOR: Ark Asset Management Co., Inc. ("Ark Asset") is an independent,
100% employee owned investment management firm. Ark Asset's offices are
located at 125 Broad Street, New York, NY 10004.
The day-to day portfolio management is shared by two or more portfolio managers.
The portfolio managers operate as a team, sharing authority and responsibility
for research and the day-to-day management of the portfolio with no limitation
on the authority of one portfolio manager in relation to another.
DAY-TO-DAY
FUND FUND MANAGEMENT
---- ---------------
Partners SmallCap Value Coleman M. Brandt
William G. Charcalis
COLEMAN M. BRANDT . Vice Chairman, Ark Asset. Mr. Brandt joined Ark Asset in
1989. Prior to joining Ark Asset, he served as President of Lehman Management
Co., Inc. He earned an MBA from the Harvard Graduate School of Business
Administration and a BS from the Philadelphia Textile Institute.
WILLIAM G. CHARCALIS . Managing Director, Ark Asset. Mr. Charcalis joined Ark
Asset in 1994 as Senior Manager and has served in his current position since
1997. Prior to joining Ark Asset, he was Senior Manager at The IBM Retirement
Funds. He earned a BS from the University of Southern California.
SUB-ADVISOR: Barrow, Hanley, Mewhinney & Strauss ("BHMS") is an investment
advisory firm that was founded in 1979. It is registered as an
investment adviser under the Investment Advisers Act of 1940. BHMS
manages investments for institutional investors. It is a wholly owned
subsidiary of Old Mutual Asset Management (US), which is a wholly owned
subsidiary of Old Mutual plc. BHMS's address is 2200 Ross Avenue, 31st
Floor, Dallas, Texas 75201.
DAY-TO-DAY
FUND FUND MANAGEMENT
---- ---------------
MidCap Value James P. Barrow
Mark Giambrone
The Statement of Additional Information provides further information about the
portfolio manager's compensation, other accounts managed by the portfolio
manager, and the portfolio manager's ownership of shares of the Fund.
JAMES P. BARROW . During Mr. Barrow's investment career, he has worked as a
securities analyst and portfolio manager for several major institutions
including Citizens & Southern Bank of South Carolina, Atlantic Richfield and
Reliance Insurance. In 1973 joined Republic National Bank of Dallas as a
portfolio manager, where he worked with Tim Hanley and John Strauss. He later
was placed in charge of the Employee Benefit Portfolio Group and was a member of
the Trust Investment Committee until the founding of BHMS in 1979. Mr. Barrow is
the lead portfolio manager for the Vanguard Windsor II and Selected Value Funds.
He earned a BS from the University of South Carolina.
MARK GIAMBRONE, CPA . Mr. Giambrone joined BHMS in December 1998 and became a
principal in 2000. Prior to joining BHMS, Mr. Giambrone served as a portfolio
consultant at HOLT Value Associates. During his career, he has also served as a
senior auditor/tax specialist for KPMG Peat Marwick and Ernst & Young Kenneth
Leventhal. Mr. Giambrone is a member of the American Institute of Certified
Public Accountants. He graduated summa cum laude from Indiana University with a
BS in Accounting, and earned an MBA from the University of Chicago.
SUB-ADVISOR: BNY Investment Advisors ("BNY"), a separately identifiable division
of The Bank of New York, is located at 1633 Broadway, NY, NY 10019.
Founded by Alexander Hamilton in 1784, The Bank of New York is one of
the largest commercial banks in the United States. The Bank of New York
began offering investment services in the 1830s and manages investments
for institutions and individuals.
The Statement of Additional Information provides further information about the
portfolio manager's compensation, other accounts managed by the portfolio
manager, and the portfolio manager's ownership of shares of the Fund.
DAY-TO-DAY
FUND FUND MANAGEMENT
---- ---------------
Partners LargeCap Growth II James Boffa
Kurt Zyla
Partners LargeCap Value James Boffa
Kurt Zyla
JAMES BOFFA . Mr. Boffa is a Senior Short Term Portfolio Manager in the Short
Term Money Management Department of BNY. He began his career with The Bank of
New York in 1980 managing an Operations Group. Mr. Boffa specializes in the
management of overnight Short Term portfolios. He earned a Bachelor's degree in
Business and Psychology from Pace University.
KURT ZYLA . Mr. Zyla is the Managing Director and Division Head of Index Fund
Management at BNY. Prior to managing the Division in 1998, he was an index
portfolio manager and worked in the Special Investment Products area, focusing
on portfolio transitions/liquidations and equity derivative product strategies.
Before joining BNY in 1989, Mr. Zyla worked in the Specialty Chemical's Division
of Engelhard Corporation in the areas of technical sales and product management.
He earned a BS in Chemical Engineering from New Jersey Institute of Technology
and an MBA from New York University's Stern School of Business.
SUB-ADVISOR: Columbus Circle Investors ("CCI") is an affiliate of PGI and a
member of the Principal Financial Group. CCI was founded in 1975. Its
address is Metro Center, One Station Place, Stamford, CT 06902.
The Statement of Additional Information provides further information about the
portfolio manager's compensation, other accounts managed by the portfolio
manager, and the portfolio manager's ownership of shares of the Fund.
DAY-TO-DAY
FUND FUND MANAGEMENT
---- ---------------
LargeCap Growth Anthony Rizza
MidCap Growth Clifford G. Fox
Partners SmallCap Growth III Clifford G. Fox
CLIFFORD G. FOX, CFA . Mr. Fox, portfolio manager, joined CCI in 1992. He
received an MBA from the Stern School of Business, New York University and a BS
from the Wharton School, University of Pennsylvania. Mr. Fox has earned the
right to use the Chartered Financial Analyst designation and is a member of the
New York Society of Security Analysts.
ANTHONY RIZZA, CFA . Mr. Rizza, portfolio manager, joined CCI in 1991. He
received a BS in Business from the University of Connecticut. Mr. Rizza has
earned the right to use the Chartered Financial Analyst designation and is a
member of the Hartford Society of Security Analysts.
SUB-ADVISOR: Dimensional Fund Advisors Inc. ("Dimensional"), located at 1299
Ocean Avenue, Santa Monica, CA 90401, is a registered investment
advisor.
Dimensional uses a team approach in managing the Partners SmallCap Value Fund
II. The investment team includes the Investment Committee of Dimensional,
portfolio managers and all other trading personnel.
The Investment Committee is composed primarily of certain officers and directors
of Dimensional who are appointed annually. As of the date of this Prospectus the
Investment Committee has ten members. Investment decisions for the Portfolio are
made by the Investment Committee, which meets on a regular basis and also as
needed to consider investment issues. The Investment Committee also sets and
review all investment related policies and procedures and approves any changes
in regards to approved countries, security types and brokers.
In accordance with the team approach used to manage the Portfolio, the portfolio
managers and portfolio traders implement the policies and procedures established
by the Investment Committee. The portfolio managers and portfolio traders also
make daily decisions regarding the portfolios including running buy and sell
programs based on the parameters established by the Investment Committee. Robert
T. Deere coordinates the efforts of all other portfolio managers and trading
personnel with respect to domestic equity portfolios. For this reason,
Dimensional has identified Mr. Deere as primarily responsible for coordinating
the day-to-day management of the Fund.
Mr. Deere is a Portfolio Manager and Vice President of Dimensional and a member
of the Investment Committee. Mr. Deere received his MBA from the University of
California at Los Angeles in 1991. He also holds a B.S. and a B.A. from the
University of California at San Diego. Mr. Deere joined Dimensional in 1991 and
has been responsible for the domestic equity portfolios since 1994.
The statement of additional information provides information about Mr. Deere's
compensation, other accounts managed by Mr. Deere, and Mr. Deere's ownership of
Fund shares.
SUB-ADVISOR: Edge Asset Management, Inc. (formerly known as WM Advisors, Inc.)
("Edge") is an affiliate of Principal and a member of the Principal
Financial Group. Edge has been in the business of investment management
since 1944. Its address is 1201 Third Avenue, 8th Floor, Seattle, WA
98101.
DAY-TO-DAY
FUND FUND MANAGEMENT
---- ---------------
Equity Income I Joseph T. Suty
High Yield II Gary J. Pokrzywinski
Income John R. Friedl
Gary J. Pokrzywinski
MidCap Stock Daniel R. Coleman
Mortgage Securities Fund Craig V. Sosey
Short-Term Income Craig V. Sosey
Strategic Asset Management Portfolios Randall L. Yoakum
Balanced Portfolio Michael D. Meighan
Conservative Balanced Portfolio
Conservative Growth Portfolio
Flexible Income Portfolio
Strategic Growth Portfolio
West Coast Equity Philip M. Foreman
PHILIP M. FOREMAN, CFA . Mr. Foreman, Portfolio Manager of Edge, has been
responsible for the day-to-day management of the predecessor West Coast Equity
Fund since 2002. Mr. Foreman has been employed by Edge since January of 2002.
Prior to that, Mr. Foreman was Senior Vice President and Equity Mutual Fund
Manager at Evergreen Asset Management Co. from 1999 until 2002, and Vice
President and Senior Portfolio Manager at Edge from 1991 until 1999.
JOHN R. FRIEDL, CFA . Mr. Friedl, Portfolio Manager, has been co-manager of the
predecessor Income Fund with Gary J. Pokrzywinski since March 2005. He has been
employed as an investment professional at Edge since August 1998. He is
responsible for the day-to-day management of the Fund.
MICHAEL D. MEIGHAN, CFA . Mr. Meighan, Portfolio Manager-Asset Allocation of
Edge, was responsible for co-managing the predecessor SAM Portfolios with Mr.
Yoakum (see below) beginning March 2003. Mr. Meighan joined Edge in 1999.
Between 1993 and 1999, he was employed with Mr. Yoakum at D.A. Davidson & Co. as
a Portfolio Manager and Senior Analyst for its asset allocation product.
GARY J. POKRZYWINSKI, CFA . Mr. Pokrzywinski, Chief Investment Officer of Edge.
Since March 2005, he has been responsible for co-managing the predecessor Income
Fund with John Friedl. As co-manager, Mr. Pokrzywinski contributes to the
establishment of the philosophy and long term structure of the Fund. Between
1992 and March 2005 he had primary responsibility for the day-to-day management
of the Income Fund. Mr. Pokrzywinski has been employed by Edge since July 1992.
CRAIG V. SOSEY . Mr. Sosey, Portfolio Manager of Edge, has had primary
responsibility for the day-to-day management of the predecessor Short Term
Income and predecessor U.S. Government Securities Funds since January 2000 and
November 1998, respectively. He has been employed by Edge since May 1998. Prior
to that, he was the Assistant Treasurer of California Federal Bank, where he
worked for over eight years.
JOSEPH T. SUTY, CFA . Mr. Suty, Portfolio Manager of Edge, has been responsible
for the day-to-day management of the predecessor Equity Income Fund since
October 2005. Prior to joining Edge in September 2005, Mr. Suty managed personal
and foundation portfolios from January 2005 until August 2005. From December
1991 until December 2004, Mr. Suty was a portfolio manager of large-cap value
stocks at Washington Capital Management, Inc., where he was a principal and
director of the firm.
RANDALL L. YOAKUM, CFA . Mr. Yoakum, Chief Investment Strategist and Head of
Asset Allocation of Edge, led a team of investment professionals in managing the
predecessor SAM Portfolios beginning January 1999. Between 1997 and 1999, Mr.
Yoakum was Chief Investment Officer for D.A. Davidson & Co. Between 1994 and
1997, Mr. Yoakum was the Senior Vice President and Managing Director of
Portfolio Management for Boatmen's Trust Company, and, prior to that, Mr. Yoakum
was Senior Vice President and Chief Equity Officer for Composite Research &
Management Co. (the predecessor to WM Advisors) for eight years.
SUB-ADVISOR: Emerald Advisers, Inc. ("Emerald") is a wholly owned subsidiary of
Emerald Asset Management. Emerald provides professional investment
advisory services to institutional investors, high net worth
individuals and the general public. Emerald's offices are located at
1703 Oregon Pike Road, Suite 101, Lancaster, PA 17601.
The Statement of Additional Information provides further information about the
portfolio manager's compensation, other accounts managed by the portfolio
manager, and the portfolio manager's ownership of shares of the Fund.
DAY-TO-DAY
FUND FUND MANAGEMENT
---- ---------------
Partners SmallCap Growth II Joseph W. Garner
Kenneth G. Mertz II
Stacey L. Sears
The portfolio management and strategy team have long tenures at Emerald, with
Ms. Sears joining Emerald in 1991, Mr. Mertz in 1992 and Mr. Garner in 1994.
JOSEPH W. GARNER . Mr. Garner joined Emerald in 1994 and serves as Director of
Emerald Research and Portfolio Manager. Prior to joining Emerald, Mr. Garner was
the Program Manager of the Pennsylvania Economic Development Financing Authority
(PEDFA); an Economic Development Analyst with the PA Department of Commerce's
Office of Technology Development; and an Industry Research Analyst with the
Pittsburgh High Technology Council. Mr. Garner earned an MBA from the Katz
Graduate School of Business, University of Pittsburgh, and graduated magna cum
laude with a BA in Economics from Millersville University.
KENNETH G. MERTZ II, CFA. . Mr. Mertz joined Emerald in 1992 and serves as
President of Emerald Advisers, Inc. Formerly he served as Past Trustee, Vice
President of the Emerald Mutual Funds (1992-2005) and Chief Investment Officer
of the Pennsylvania State Employees' Retirement System (1985-1992). He earned a
BA in Economics from Millersville University.
Mr. Mertz supervises the entire portfolio management and trading process. As
Chief Investment Officer, he has full discretion over all portfolios. Mr. Mertz,
Ms. Sears and Mr. Garner work as a team developing strategy.
STACEY L. SEARS . Ms. Sears joined Emerald in 1991 and serves as Senior Vice
President and Portfolio Manager of Emerald Advisers, Inc. She is co-manager of
the Forward Emerald Growth Fund and a member of the Portfolio Management team.
Additionally, Ms. Sears maintains research coverage of retail, apparel, consumer
goods and consumer technology companies. Ms. Sears earned a BS in Business
Administration from Millersville University and an MBA from Villanova
University.
SUB-ADVISOR: Essex Investment Management Company, LLC ("Essex") is a
Boston-based management firm which specializes in growth equity
investments. Essex manages portfolios for corporations, endowments,
foundations, municipalities, public funds, Taft-Hartley accounts, and
private clients. Essex offers a range of growth equity strategies and
employs proprietary fundamental research combined with active portfolio
management. Its address is 125 High Street, 29th Floor, Boston, MA
02110.
The Statement of Additional Information provides further information about the
portfolio manager's compensation, other accounts managed by the portfolio
manager, and the portfolio manager's ownership of shares of the Fund.
DAY-TO-DAY
FUND FUND MANAGEMENT
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Partners SmallCap Growth Fund II Nancy B. Prial
NANCY B. PRIAL, CFA . Ms. Prial is a Portfolio Manager and Senior Principal on
the Essex Small-Micro Cap Growth and Small-Mid Cap Growth strategies. Prior to
joining the firm, she spent six years at The Burridge Group, LLC as Vice
President and Chief Investment Officer and four years at the Twentieth Century
Division of American Century Investors. She began her investment career in 1984
at Frontier Capital Management as a fundamental analyst and portfolio manager.
Ms. Prial graduated from Bucknell University with a BS in Electrical Engineering
and a BA in Mathematics. She also earned an MBA from Harvard Business School.
Ms. Prial has earned the right to use the Chartered Financial Analyst
designation.
SUB-ADVISOR: Goldman Sachs Asset Management, L.P. ("Goldman Sachs") is part of
the Investment Management Division ("IMD") of Goldman, Sachs & Co.
Goldman Sach's principal office is located at 32 Old Slip, New York, NY
10005.
The day-to-day portfolio management is shared by two or more portfolio managers.
In each such case, except where noted below, the portfolio managers operate as a
team, sharing authority and responsibility for research and the day-to-day
management of the portfolio with no limitation on the authority of one portfolio
manager in relation to another.
DAY-TO-DAY
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Partners LargeCap Blend I Melissa R. Brown
Robert C. Jones
Partners MidCap Value I Dolores Bamford
David L. Berdon
Andrew Braun
Scott Carroll
Sally Pope Davis
Kelly Flynn
Sean Gallagher
Lisa Parisi
Edward Perkin
Eileen Rominger
DOLORES BAMFORD . Ms. Bamford is a Vice President and Portfolio Manager at
Goldman Sachs. She joined Goldman Sachs as a portfolio manager for the Value
team in April 2002. Prior to that, Ms. Bamford was a portfolio manager at Putnam
Investments for various products since 1991.
DAVID L. BERDON . Mr. Berdon is a Vice President and Portfolio Manager at
Goldman Sachs. Mr. Berdon joined Goldman Sachs as a research analyst in March
2001 and became a portfolio manager in October 2002. From September 1999 to
March 2001, he was a Vice President for Business Development and Strategic
Alliances at Soliloquy Inc. From September 1997 to September 1999, he was a
principal consultant at Diamond Technology Partners.
ANDREW BRAUN . Mr. Braun is a Managing Director and Portfolio Manager at Goldman
Sachs. Mr. Braun joined Goldman Sachs as a mutual fund product development
analyst in July 1993. From January 1997 to April 2001, he was a research analyst
on the Value team. He became a portfolio manager in May 2001.
MELISSA R. BROWN, CFA . Ms. Brown is a senior portfolio manager responsible for
the US Portfolios for the Global Quantitative Equity ("GQE") group. A member of
the GQE Investment Policy Committee, she is involved with all aspects of the
portfolio management process. Ms. Brown joined Goldman Sachs as a portfolio
manager in 1998. From 1984 to 1998, she was the director of Quantitative Equity
Research and served on the Investment Policy Committee at Prudential Securities.
She earned an MBA from New York University. She has earned the right to use the
Chartered Financial Analyst designation.
SCOTT CARROLL . Mr. Carroll is a Vice President and Portfolio Manager at Goldman
Sachs. Mr. Carroll joined Goldman Sachs as a portfolio manager for the Value
team in May 2002. From 1996 to 2002, he worked at Van Kampen Funds where he had
portfolio management and analyst responsibilities for Growth and Income and
Equity Income funds.
SALLY POPE DAVIS . Ms. Pope Davis is a Vice President and Portfolio Manager at
Goldman Sachs. She joined Goldman Sachs as a portfolio manager in August 2001.
From December 1999 to July 2001, she was a relationship manager in Private
Wealth Management at Goldman Sachs. From August 1989 to November 1999, she was a
bank analyst in the Goldman Sachs Investment Research Department.
KELLY FLYNN . Mr. Flynn is a Vice President and a Portfolio Manager for the US
Value Team, where he has broad research responsibilities across value the
strategies. Prior to joining Goldman Sachs Asset Management in 2002, Mr. Flynn
spent 3 years at Lazard Asset Management as a Portfolio Manager for Small
Cap/SMID Cap Value products. He received a BA from Harvard and an MBA from the
Wharton School of Business at the University of Pennsylvania.
SEAN GALLAGHER . Mr. Gallagher is a Managing Director and Portfolio Manager at
Goldman Sachs. Mr. Gallagher joined Goldman Sachs as a research analyst in May
2000. He became a portfolio manager in December 2001. From October 1993 to May
2000, he was a research analyst at Merrill Lynch Asset Management.
ROBERT C. JONES, CFA . Mr. Jones is the Chief Investment Officer and a senior
portfolio manager for the GQE group. He brings 20 years of investment experience
to his work in managing the GQE group. Mr. Jones joined Goldman Sachs as a
portfolio manager in 1989. He earned an MBA from the University of Michigan. He
has earned the right to use the Chartered Financial Analyst designation.
LISA PARISI . Ms. Parisi is a Managing Director and Portfolio Manager at Goldman
Sachs. Ms. Parisi joined Goldman Sachs as a portfolio manager in August 2001.
From December 2000 to August 2001, she was a portfolio manager at John A. Levin
& Co. From March 1995 to December 2000, she was a portfolio manager and managing
director at Valenzuela Capital.
EDWARD PERKIN. . Mr. Perkin is a Vice President and Portfolio Manager at Goldman
Sachs. Mr. Perkin joined Goldman Sachs as a research analyst in June 2002. He
became a portfolio manager in June 2004. From August 2000 to May 2002, Mr.
Perkin earned his MBA at Columbia Business School, during which time he served
as a research intern for Fidelity Investments and Gabelli Asset Management. From
September 1997 to May 2000, Mr. Perkin was a senior research analyst for a
subsidiary of Fiserv, where he oversaw all matters related to compliance and
historical market data.
EILEEN ROMINGER . Ms. Rominger is a Managing Director, Chief Investment Officer
and Portfolio Manager at Goldman Sachs. Ms. Rominger joined GSAM as a portfolio
manager and Chief Investment Officer of the Value team in August 1999. From 1981
to 1999, she worked at Oppenheimer Capital, most recently as a senior portfolio
manager.
SUB-ADVISOR: J.P. Morgan Investment Management Inc. ("J.P. Morgan"), 245 Park
Avenue, New York, NY 10167 is an indirect wholly owned subsidiary of
JPMorgan Chase & Co. ("JPMorgan"), a bank holding company. Morgan
offers a wide range of services to governmental, institutional,
corporate, and individual customers and acts as investment advisor to
individual and institutional clients.
The day-to-day portfolio management is shared by two or more portfolio managers.
In each such case, except where noted below, the portfolio managers operate as a
team, sharing authority and responsibility for research and the day-to-day
management of the portfolio with no limitation on the authority of one portfolio
manager in relation to another.
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Partners Global Equity Matthew Beesley
Edward Walker
Howard Williams
Partners SmallCap Value I Christopher T. Blum
Dennis S. Ruhl
MATTHEW BEESLEY, CFA . Mr. Beesley is a portfolio manager in Morgan's Global
Portfolios Group, based in London. An employee since 2002, he was previously a
portfolio manager at Merrill Lynch Investment Managers, responsible for global
equity mandates. Prior to this, Mr. Beesley was a global and emerging markets
equity analyst. He holds a BA (Hons) in Politics and Modern History from the
University of Manchester and is a CFA Charterholder.
CHRISTOPHER T. BLUM, CFA . Managing Director of Morgan. Mr. Blum is a portfolio
manager in the U.S. Small Cap Equity Group. He rejoined the firm in 2001.
Previously, he spent two years as a research analyst responsible for the
valuation and acquisition of private equity assets at Pomona Capital. Prior to
that, Mr. Blum spent over three years with Morgan where he focused on structured
small-cap core and small-cap value accounts. He earned his BBA in Finance at the
Bernard M. Baruch School for Business and is a holder of the CFA designation.
DENNIS S. RUHL, CFA . Mr. Ruhl, Vice President of Morgan, joined the company in
1999. He is a portfolio manager in the U.S. Small Cap Equity Group. His current
responsibilities include managing structured small cap core and value accounts.
Previously, he worked on quantitative equity research (focusing on trading) as
well as business development. Mr. Ruhl earned Bachelor's degrees in Mathematics
and Computer Science and a Master's degree in Computer Science, all from MIT. He
has earned the right to use the Chartered Financial Analyst designation.
EDWARD WALKER, CFA . Mr. Walker is a portfolio manager in Morgan's Global
Portfolios Group, based on London. He is manager of the JP Morgan Fleming
Overseas Investment Trust, open-ended global retail funds and co-manages the
JPMorgan Total Return Fund. Previously Mr. Walker held a range of analyst
positions, most recently as the global sector specialist responsible for
technology. He joined the Global Portfolios group in 1997 as a graduate trainee
and holds an MA in Economics from Cambridge University. He has earned the right
to use the Chartered Financial Analyst designation.
HOWARD WILLIAMS . Mr. Williams is a managing director and head of Morgan's
Global Portfolios Group, based in London, responsible for multi-market
investment in JPMorgan Fleming. An employee since 1994, Mr. Williams was
previously employed at Shell Pensions in London as senior portfolio manager and
head of UK equities. Prior to this, he managed global invested offshore pension
funds. Mr. Williams also was with Kleinwort Benson Investment Management and
with James Capel & Co. He holds an MA in Geography from Cambridge University.
SUB-ADVISOR: Jacobs Levy Equity Management, Inc. ("Jacobs Levy") provides
investment advice based upon quantitative equity strategies. The firm
focuses on detecting opportunities in the U.S. equity market and
attempting to profit from them through engineered, risk-controlled
portfolios. Based in Florham Park, New Jersey, Jacobs Levy is focused
exclusively on the management of U.S. equity separate accounts for
institutional clients. Its address is 100 Campus Drive, Florham Park,
NJ 07932-0650.
The day-to day portfolio management is shared by two or more portfolio managers.
The portfolio managers operate as a team, sharing authority and responsibility
for research and the day-to-day management of the portfolio with no limitation
on the authority of one portfolio manager in relation to another.
DAY-TO-DAY
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Partners MidCap Value Bruce Jacobs
Ken Levy
BRUCE JACOBS, PH.D . Dr. Jacobs serves as co-chief investment officer, portfolio
manager, and co-director of research. Prior to co-founding Jacobs Levy in 1986,
Dr. Jacobs was Senior Managing Director of a quantitative equity management
affiliate of the Prudential Insurance Company of America. Dr. Jacobs earned a BA
from Columbia College, an MS in Operations Research and Computer Science from
Columbia University, an MSIA from Carnegie Mellon University, and an MA in
Applied Economics and a Ph.D. in Finance from the University of Pennsylvania's
Wharton School.
KEN LEVY, CFA . Mr. Levy serves as co-chief investment officer, portfolio
manager, and co-director of research. Prior to co-founding Jacobs Levy in 1986,
Mr. Levy was Managing Director of a quantitative equity management affiliate of
the Prudential Insurance Company of America. He earned a BA in Economics from
Cornell University and an MBA and an MA in Business Economics from the
University of Pennsylvania's Wharton School. He has earned the right to use the
Chartered Financial Analyst designation.
SUB-ADVISOR: Los Angeles Capital Management and Equity Research, Inc. ("LA
Capital") is an independent, employee-owned firm. It is located at
11150 Santa Monica Boulevard, Los Angeles, CA 90025.
Day-to-day portfolio management is performed by an investment management team.
Current members of the team include: Thomas D. Stevens, CFA, Chairman; Hal W.
Reynolds, CFA, Chief Investment Officer; David R. Borger, CFA, Director of
Research; Stuart K. Matsuda, Director of Trading; and Christine M. Kugler,
Director of Implementation.
DAY-TO-DAY
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Partners MidCap Value I David R. Borger
Christine M. Kugler
Stuart K. Matsuda
Hal W. Reynolds
Thomas D. Stevens
Partners SmallCap Value David R. Borger
Christine M. Kugler
Stuart K. Matsuda
Hal W. Reynolds
Thomas D. Stevens
DAVID R. BORGER, CFA . Director of Research and Principal, L.A. Capital. Mr.
Borger co-founded L.A. Capital in 2002 and is responsible for the development
and management of the Dynamic Alpha Model (the firm's proprietary stock
selection model). Prior to co-founding L.A. Capital, he was Managing Director
and Principal at Wilshire Associates. He earned a BS from the Wittenberg
University and an MA and MBA from the University of Michigan. He has earned the
right to use the Chartered Financial Analyst designation.
CHRISTINE M. KUGLER . Director of Implementation and Principal, L.A. Capital.
Ms. Kugler was with L.A. Capital at its founding and became a Principal in
January of 2004. Prior to joining L.A. Capital she worked at Wilshire
Associates. She earned a BA from the University of California, Santa Barbara.
STUART K. MATSUDA . Director of Trading and Principal, L.A. Capital. Mr. Matsuda
co-founded L.A. Capital in 2002. Prior to co-founding L.A. Capital, he was Vice
President and principal at Wilshire Associates where he also served as Wilshire
Asset Management's Director of Trading. He earned a BBA from the University of
Hawaii and an MBA from California State University Northridge.
HAL W. REYNOLDS, CFA . Chief Investment Officer and Principal, L.A. Capital. Mr.
Reynolds co-founded L.A. Capital in 2002. Prior to co-founding L.A. Capital, he
was Managing Director and Principal at Wilshire Associates. He joined the
consulting division of Wilshire Associates in 1989 where he served as a senior
consultant and also designed the Wilshire Compass (the firm's asset allocation
and manager optimization technology system). In 1989, he joined Wilshire Asset
Management as Chief Investment Officer. Mr. Reynolds earned a BA from the
University of Virginia and an MBA from the University of Pittsburgh. He has
earned the right to use the Chartered Financial Analyst designation.
THOMAS D. STEVENS, CFA . Chairman and Principal, L.A. Capital. Mr. Stevens
co-founded L.A. Capital in 2002. Prior to co-founding L.A. Capital, he was
Senior Managing Director and Principal at Wilshire Associates. He joined
Wilshire in 1980 and for six years directed its Equity Division, overseeing the
delivery of the Equity and Index Fund Management Services, In 1986, he assumed
responsibility for Wilshire Asset Management and for the next 16 years headed
that division. Mr. Stevens earned a BBA and MBA from the University of
Wisconsin. He has earned the right to use the Chartered Financial Analyst
designation.
SUB-ADVISOR: Mazama Capital Management, Inc. ("Mazama") is an independent
employee-owned money management firm specializing in small and mid cap
growth investing for institutional clients. The firm is headquartered
at One Southwest Columbia Street, Suite 1500, Portland Oregon 97258.
The day-to day portfolio management is shared by two or more portfolio managers.
The portfolio managers operate as a team, sharing authority and responsibility
for research and the day-to-day management of the portfolio with no limitation
on the authority of one portfolio manager in relation to another.
DAY-TO-DAY
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Partners SmallCap Growth III Stephen C. Brink
Timothy Butler
Michael Clulow
Gretchen Novak
Ronald A. Sauer
STEPHEN C. BRINK, CFA . Mr. Brink is a co-founder of Mazama and serves as
Director of Research. His primary responsibility is as portfolio manager on both
the Small Cap Growth and Small-Mid Cap Growth products, backing up lead
portfolio manager Ron Sauer. Mr. Brink has spent over 26 years in the investment
industry. He received his BS Business Administration from Oregon State
University in 1977 and has earned the right to use the Chartered Financial
Analyst designation.
TIMOTHY P. BUTLER . Mr. Butler is an equity analyst concentrating on financial
services and financial technology companies for all Mazama strategies. He works
closely with Steve Brink, the firm's Director of Research, in covering this
sector. Mr. Butler worked most recently at Pacific Crest Securities, where he
was Senior Research Analyst specializing in financial technology stocks. Prior
to this, he worked at Stifel, Nicolaus & Co., also as a Research Analyst focused
on specialty finance companies. Mr. Butler completed his MBA at the University
of Texas in 1990, graduating cum laude, and earned a BA in Business
Administration from Wichita State University in 1988, where he graduated summa
cum laude and was elected to the Beta Gamma Sigma honor society.
MICHAEL D. CLULOW, CFA . Mr. Clulow works out of the firm's New York research
office, specializing in research and analysis of small & mid cap healthcare
companies, including biotech and emerging pharmaceutical companies. He has been
an investment analyst since 1995, most recently as Senior Analyst, Healthcare IT
& Pharmaceutical Outsourcing Sectors with UBS Warburg in New York, NY.
Previously he worked as a healthcare analyst at CIBC World Markets. Mr. Clulow
earned a BS in Finance at Miami University and an MBA with honors in Finance and
Economics at New York University's Leonard N. Stern School of Business in 1996.
He has earned the right to use the Chartered Financial Analyst designation.
GRETCHEN NOVAK, CFA . Ms. Novak is responsible for researching consumer
discretionary and consumer staple companies for all Mazama strategies and is an
Associate Portfolio Manager, supporting Ron Sauer and Steve Brink in overseeing
the investment process. Formerly an Equity Analyst with Cramer Rosenthal
McGlynn, LLC, she specialized in small and mid-cap stocks with focus on consumer
discretionary companies and secondary emphasis on consumer staples and
utility/energy service companies. She earned her BA in Business Administration
with concentration in finance from the University of Washington in 1994,
graduating cum laude and elected to Phi Beta Kappa and Beta Gamma Sigma honor
society. She has earned the right to use the Chartered Financial Analyst
designation.
RONALD A. SAUER . Mr. Sauer is the founder of Mazama and serves as its Senior
Portfolio Manager and Chief Investment Officer. He has been active in small and
mid cap investing since 1980. As lead portfolio manager for Mazama, Mr. Sauer
developed a highly disciplined and successful investment process. He developed
the firm's Price Performance Model, a critical component and the underlying
discipline of Mazama's investment approach. Mr. Sauer received his BA Finance
from the University of Oregon in 1980.
SUB-ADVISOR: Mellon Equity Associates, LLP ("Mellon Equity"), 500 Grant Street,
Suite 4200, Pittsburgh, PA 15258. Mellon Equity is a wholly owned
subsidiary of Mellon Financial Corporation ("Mellon").
The day-to-day portfolio management is shared by two or more portfolio managers.
In each such case, except where noted below, the portfolio managers operate as a
team, sharing authority and responsibility for research and the day-to-day
management of the portfolio with no limitation on the authority of one portfolio
manager in relation to another.
DAY-TO-DAY
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Partners MidCap Growth I Adam T. Logan
John O'Toole
Partners SmallCap Blend Ronald P. Gala
Peter D. Goslin
Partners SmallCap Value I Ronald P. Gala
Peter D. Goslin
RONALD P. GALA, CFA . Mr. Gala is a Senior Vice President and principal of
Mellon Equity and joined the firm in 1993. Mr. Gala earned an MBA in Finance
from the University of Pittsburgh and a BS in Business Administration from
Duquesne University. He has earned the right to use the Chartered Financial
Analyst designation.
PETER D. GOSLIN, CFA . Mr. Goslin is a Vice President and Portfolio Manager with
Mellon Equity. Before joining Mellon Equity in 1999, Mr. Goslin spent over four
years with Merrill Lynch. During his tenure with Merrill, he worked as a NASDAQ
market maker and an equity index options proprietary trader. Prior to that, he
ran Merrill's S&P options desk at the Chicago Mercantile Exchange. Mr. Goslin
earned his MBA in Finance at the University of Notre Dame Graduate School of
Business following a BS in Finance from St. Vincent College. He has earned the
right to use the Chartered Financial Analyst designation.
ADAM T. LOGAN, CFA . Joining the company in 1998, Mr. Logan is a portfolio
manager and Vice President of Mellon Equity. Previously, he performed duties as
a financial analyst in Mellon Financial Corporation's corporate finance
department. He is currently responsible for the management of client portfolios
with a specific focus on mid and small capitalization securities. He earned a BA
in Finance from Westminster College and an MBA from the Katz Graduate School of
Business at the University of Pittsburgh. He has earned the right to use the
Chartered Financial Analyst designation.
JOHN O'TOOLE, CFA . Joining the company in 1990, Mr. O'Toole is a Senior Vice
President and a principal of Mellon Equity. Mr. O'Toole holds an MBA in Finance
from the University of Chicago and a BA in Economics from the University of
Pennsylvania. He has earned the right to use the Chartered Financial Analyst
designation.
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. The two firms
continue an asset management history that began in 1939. Neuberger
Berman is an indirect, wholly owned subsidiary of Lehman Brothers
Holdings, Inc. Lehman Brothers is located at 745 Seventh Avenue, New
York, NY 10019.
The Statement of Additional Information provides further information about the
portfolio manager's compensation, other accounts managed by the portfolio
manager, and the portfolio manager's ownership of shares of the Fund.
DAY-TO-DAY
FUND FUND MANAGEMENT
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Partners MidCap Value S. Basu Mullick
S. BASU MULLICK . Mr. Mullick, Managing Director, Portfolio Manager, joined
Neuberger Berman in 1998. Prior to joining the company, Mr. Mullick was a
portfolio manager at Ark Asset Management. He earned a BA in Economics from the
Presidency College, India. He also earned an MA in Economics and a Ph.D., ABD
Finance from Rutgers University.
SUB-ADVISOR: Post Advisory Group, LLC ("Post") is an affiliate of Principal
Global Investors LLC and a member of the Principal Financial Group.
Post was founded in April 1992. Its address is 11755 Wilshire
Boulevard, Los Angeles, CA 90025.
The day-to day portfolio management is shared by two or more portfolio managers.
The portfolio managers operate as a team, sharing authority and responsibility
for research and the day-to-day management of the portfolio with no limitation
on the authority of one portfolio manager in relation to another.
DAY-TO-DAY
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High Yield Lawrence A. Post
Allan Schweitzer
LAWRENCE A. POST . Mr. Post founded Post Advisory Group in 1992. Post was
purchased by Principal in 2004. Mr. Post has over 30 years of investment
experience. Prior to founding the Post Advisory Group in 1992, he founded the
high yield bond department at Smith Barney, and subsequently served as director
of high yield research at Salomon Brothers and co-director of research and
senior trader at Drexel Burnham Lambert. Mr. Post received an MBA in Business
Administration from the University of Pennsylvania's Wharton School of Business
and a Bachelor's degree from Lehigh University.
ALLAN SCHWEITZER . Mr. Schweitzer is a Managing Director at Post. Prior to
joining Post in 2000, he was a senior high yield analyst at Trust Company of the
West ("TCW"). Prior to TCW, he was a high yield research analyst at Putnam
Investments. Mr. Schweitzer earned a Bachelor's degree in Business
Administration from Washington University at St. Louis and a Master's in
Business Administration from the University of Chicago with a concentration in
analytical finance and international economics.
SUB-ADVISOR: Principal Global Investors, LLC ("PGI") is an indirect wholly owned
subsidiary of Principal Life Insurance Company, an affiliate of
Principal, and a member of the Principal Financial Group. PGI manages
equity, fixed-income, and real estate investments primarily for
institutional investors, including Principal Life. PGI's headquarters
address is 801 Grand Avenue, Des Moines, IA 50392. It has other primary
asset management offices in New York, London, Sydney, and Singapore.
The day-to-day portfolio management is shared by two or more portfolio managers.
In each such case, except where noted below, the portfolio managers operate as a
team, sharing authority and responsibility for research and the day-to-day
management of the portfolio with no limitation on the authority of one portfolio
manager in relation to another.
DAY-TO-DAY
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Bond & Mortgage Securities William C. Armstrong
Timothy R. Warrick
Disciplined LargeCap Blend Jeffrey A. Schwarte
Diversified International Paul H. Blankenhagen
Juliet Cohn
Chris Ibach
Government & High Quality Bond Brad Fredericks
Lisa A. Stange
High Quality Intermediate-Term Bond William C. Armstrong
Timothy R. Warrick
Inflation Protection Martin J. Schafer
Gwen Swanger
International Emerging Markets Michael Ade
Mihail Dobrinov
Michael L. Reynal
International Growth Steve Larson
John Pihlblad
LargeCap S&P 500 Index Dirk Laschanzky
LargeCap Value John Pihlblad
MidCap Blend K. William Nolin
MidCap S&P 400 Index Dirk Laschanzky
MidCap Value Jeffrey A. Schwarte
Money Market Tracy Reeg
Alice Robertson
Principal LifeTime 2010 Dirk Laschanzky
Principal LifeTime 2020 Dirk Laschanzky
Principal LifeTime 2030 Dirk Laschanzky
Principal LifeTime 2040 Dirk Laschanzky
Principal LifeTime 2050 Dirk Laschanzky
Principal LifeTime Strategic Income Dirk Laschanzky
Short-Term Bond Zeid Ayer
Craig Dawson
Martin J. Schafer
SmallCap Blend Thomas Morabito
Phil Nordhus
SmallCap Growth Mariateresa Monaco
SmallCap S&P 600 Index Dirk Laschanzky
SmallCap Value Thomas Morabito
Ultra Short Bond Zeid Ayer
Craig Dawson
MICHAEL ADE, CFA . Mr. Ade is a research analyst and serves as a co-portfolio
manager for Principal Global Investors. Based in Singapore, his company research
focus encompasses the consumer, health care and non-bank financial sectors. Mr.
Ade joined the firm in 2001. He received a bachelor's degree in finance from the
University of Wisconsin. He has earned the right to use the Chartered Financial
Analyst designation.
WILLIAM C. ARMSTRONG, CFA . Mr. Armstrong is a portfolio manager for PGI. He
manages multi-sector portfolios that invest in corporate bonds, mortgage-backed
securities, commercial mortgage-backed securities, asset-backed securities,
sovereigns, and agencies. He joined the firm in 1992. Previously he served as a
commissioned bank examiner at Federal Deposit Insurance Commission. He earned a
Master's degree from the University of Iowa and a Bachelor's degree from Kearney
State College. He has earned the right to use the Chartered Financial Analyst
designation.
ZEID AYER, PH.D., CFA . Mr. Ayer is a portfolio manager at PGI. He is a
co-manager of the ultra short and short-term bond portfolios. He is also head of
the Structured Debt group that covers asset-backed securities (ABS) and
non-agency mortgage-backed securities (MBS). He joined PGI in 2001 and is the
primary analyst responsible for mortgage-related ABS and non-agency MBS
investments. Previously, Mr. Ayer was an assistant vice president at PNC
Financial Services Group. He earned a doctorate in Physics from the University
of Notre Dame, a master's in Computational Finance from Carnegie Mellon
University and a Bachelor's degree in Physics from St. Xavier's College, Bombay
University. He has earned the right to use the Chartered Financial Analyst
designation.
PAUL H. BLANKENHAGEN, CFA . Mr. Blankenhagen joined the firm in 1992 and was
named a portfolio manager in 2000. He is responsible for developing portfolio
strategy and the ongoing management of core international equity portfolios. He
earned a Master's degree from Drake University and a Bachelor's degree in
Finance from Iowa State University. He has earned the right to use the Chartered
Financial Analyst designation, and is a member of the Association for Investment
Management and Research (AIMR) and the Iowa Society of Financial Analysts.
JULIET COHN . Ms. Cohn is a portfolio manager at PGI. She co-manages the core
international equity portfolios, with an emphasis on Europe and on the health
care sector. Prior to joining the firm in 2003, she served as a director and
senior portfolio manager at Allianz Dresdner Asset Management, managing both
retail and institutional European accounts. Prior to that, she was a fund
manager at London firms Capel Cure Myers and Robert Fleming. She earned a
Bachelor's degree in Mathematics from Trinity College, Cambridge England.
CRAIG DAWSON, CFA . Mr. Dawson is a portfolio manager at PGI. He is co-manager
of the ultra short and short term bond portfolios. He joined the firm in 1998 as
a research associate, then moved into a portfolio analyst role before moving
into a portfolio manager position in 2002. He earned an MBA and a Bachelor's
degree in Finance from the University of Iowa. Mr. Dawson has earned the right
to use the Chartered Financial Analyst designation.
MIHAIL DOBRINOV, CFA . Mr. Dobrinov is a research analyst and serves as a
co-portfolio manager for Principal Global Investors. He specializes primarily in
the analysis of companies in the industrial sector, and serves as co-manager for
diversified emerging markets portfolios. He joined the firm as an international
and emerging market debt and currency specialist in 1995 and joined the equities
team in 2002. Mr. Dobrinov received an MBA in finance from the University of
Iowa and a law degree from Sofia University, Bulgaria. Mr. Dobrinov has earned
the right to use the Chartered Financial Analyst designation. (Mihail does not
provide legal services on behalf of any of the member companies of the Principal
Financial Group.)
BRAD FREDERICKS. . Mr. Fredericks is a portfolio manager at PGI. He is
responsible for co-managing the government securities accounts. His
responsibilities include general portfolio overview and security analysis. He
joined the firm in 1998 as a financial accountant and was named a portfolio
manager in 2002. Previously, Mr. Fredericks was an assistant trader at Norwest
Mortgage. He earned a Bachelor's degree in Finance from Iowa State University.
Mr. Fredericks is a Fellow of the Life Management Institute (FLMI).
CHRISTOPHER IBACH, CFA . Mr. Ibach is an associate portfolio manager and equity
research analyst at PGI. He specializes primarily in the analysis of
international technology companies, with a particular emphasis on semi-conductor
research. Prior to joining PGI in 2000, he gained six years of related industry
experience with Motorola, Inc. Mr. Ibach earned an MBA in Finance and a
Bachelor's degree in Electrical Engineering from the University of Iowa. He has
earned the right to use the Chartered Financial Analyst designation.
STEVEN LARSON, CFA. . Mr. Larson is an portfolio manager for Principal. He is
responsible for co-managing Principal's international growth portfolio as well
as covering the utilities sector for core international portfolios. Prior to
joining the firm in 2001, he led the investment management review and portfolio
analysis process for the $80 billion Wells Fargo fund family. He earned an MBA
in Finance from the University of Minnesota and a Bachelor's degree from Drake
University. He has earned the right to use the Chartered Financial Analyst
designation.
DIRK LASCHANZKY, CFA . Mr. Laschanzky is a portfolio manager for PGI,
responsible for portfolio implementation strategies, asset allocation and
managing the midcap value and index portfolios. Prior to joining PGI in 1997, he
was a portfolio manager and analyst for over seven years at AMR Investment
Services. He earned an MBA and BA, both in Finance, from the University of Iowa.
He has earned the right to use the Chartered Financial Analyst designation.
MARIATERESA MONACO . Ms. Monaco is a portfolio manager and member of the
domestic small-cap equity team at PGI. She serves as lead portfolio manager for
the small-cap growth portfolios. Ms. Monaco joined PGI in 2005 with a decade of
prior equity investment experience with Fidelity Management and Research in
Boston where she supported a family of institutional equity funds with $2
billion in assets. Ms. Monaco earned an MBA from the Sloan School of Management
at the Massachusetts Institute of Technology and a Master's degree in Electrical
Engineering from Northeastern University. She also earned a Master's degree in
Electrical Engineering from Politecnico di Torino, Italy.
THOMAS MORABITO, CFA . Mr. Morabito leads the small-cap portfolio management
team for PGI and is the portfolio manager on the small-cap value portfolios.
Prior to joining PGI in 2000, he managed the Structured Small Cap Fund for
Invesco Management & Research. He earned an MBA in Finance from Northeastern
University and his BA in Economics from State University of New York. He has
earned the right to use the Chartered Financial Analyst designation.
K. WILLIAM NOLIN, CFA . Mr. Nolin is a portfolio manager for PGI. He serves as
the portfolio manager for the firm's international small-cap equity portfolios.
He joined the firm in 1994. He earned an MBA from the Yale School of Management
and a Bachelor's degree in Finance from the University of Iowa. He has earned
the right to use the Chartered Financial Analyst designation.
PHIL NORDHUS, CFA . Mr. Nordhus joined PGI in 1990 and was previously involved
in corporate acquisitions and divestitures before moving to the equity group in
2000. Most recently, he has been involved in managing the small-cap portfolios
and has responsibility for managing the small-cap analyst team. Mr. Nordhus
earned an MBA from Drake University and a Bachelor's degree in Economics from
Kansas State University. He has earned the right to use the Chartered Financial
Analyst designation.
JOHN PIHLBLAD, CFA . Mr. Pihlblad is a portfolio manager at PGI. He joined the
firm in 2000 and led the development of PGI's Global Research Platform. He has
over 25 years experience in creating and managing quantitative investment
systems. Prior to joining PGI, 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 earned a BA from Westminster College. He has earned the right to
use the Chartered Financial Analyst designation.
TRACY REEG. . Ms. Reeg is a portfolio manager at PGI. She is involved in the
portfolio management of money market portfolios. She joined the firm in 1993 and
began trading and portfolio management duties in 2000. Ms. Reeg earned a
Bachelor's degree in Finance from the University of Northern Iowa. She is a
member of the Life Office Management Association (LOMA) and is a Fellow of the
Life Management Institute (FLMI).
MICHAEL L. REYNAL . Mr. Reynal is a portfolio manager at PGI. He specializes in
the management of emerging markets portfolios, as well as regional Asian equity
portfolios. Prior to joining PGI in 2001, he was responsible for equity
investments in Latin America, the Mediterranean and the Balkans while at Wafra
Investment Advisory Group, Inc. in New York. Mr. Reynal earned an MBA from the
Amos Tuck School at Dartmouth College, an MA in History from Christ's College at
the University of Cambridge and a BA in History from Middlebury College.
ALICE ROBERTSON . Ms. Robertson is a trader for PGI 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.
MARTIN J. SCHAFER . Mr. Schafer is a portfolio manager for PGI. He specializes
in short-term and long duration portfolios, as well as the Inflation Protection
Fund and stable value mandates. He also has experience in managing
mortgage-backed securities. Mr. Schafer joined the firm in 1977 and in the early
1980s he developed the firm's secondary mortgage marketing operation. In 1984,
he assumed portfolio management responsibility for its residential mortgage
portfolio. He began managing mutual fund assets in 1985, institutional
portfolios in 1992 and stable value portfolios in 2000. He has earned a
Bachelor's degree in Accounting and Finance from the University of Iowa.
JEFFREY A. SCHWARTE, CFA, CPA . Mr. Schwarte is a portfolio manager at PGI. He
manages the large-cap core portfolios and is co-portfolio manager on the midcap
value strategies. He joined the firm in 1993 as a staff auditor and has held
various positions before moving to an equity research position in 2000. He
earned a Bachelor's degree in Accounting from the University of Northern Iowa.
He has earned the right to use the Chartered Financial Analyst designation and
is a Certified Public Accountant, a Certified Internal Auditor, and a Fellow of
the Life Management Institute (FLMI).
LISA A. STANGE, CFA . Ms. Stange is a portfolio manager and strategist for PGI.
She is responsible for managing the government securities portfolios and the
mortgage-backed securities (MBS) within the multi-sector portfolios. As a
strategist, Ms. Stange is involved in the formulation of broad investment
strategy, quantitative research and product development. Previously, she was
co-portfolio manager for U.S. multi-sector portfolios. She joined the firm in
1989. Ms. Stange earned an MBA and a Bachelor's degree from the University of
Iowa. She has earned the right to use the Chartered Financial Analyst
designation.
GWEN SWANGER, CFA . Ms. Swanger is a portfolio manager for PGI's global fixed
income and inflation protection portfolios. She has managed global fixed income
since 1997. She has been involved in international and U.S. investing for over
fifteen years. In addition to managing the international bond portfolios, she
has directed the international fixed income research effort overseeing sovereign
credit analysis of developed, developing countries and emerging markets. Ms.
Swanger joined the firm in 1989 as a private placement analyst. She earned an
MBA in Finance, a Bachelor's degree from Drake University and is a Fellow of the
Life Management Institute (FLMI). She has also earned the right to use the
Chartered Financial Analyst designation.
TIMOTHY R. WARRICK, CFA . Mr. Warrick is a portfolio manager at PGI with
responsibility for the corporate and U.S. multi-sector portfolios. He also
serves as portfolio management team leader with responsibility for overseeing
portfolio management function for all total return fixed income products. Prior
to his portfolio management responsibilities with the firm, Mr. Warrick was a
fixed income credit analyst and extensively involved in product development. He
joined the firm in 1990. He received an MBA in Finance from Drake University and
a Bachelor's degree in Accounting and Economics from Simpson College. He has
earned the right to use the Chartered Financial Analyst designation.
SUB-ADVISOR: Principal Real Estate Investors, LLC ("Principal - REI"), an
indirect wholly owned subsidiary of Principal Life, an affiliate of
Principal, and a member of the Principal Financial Group, was founded
in 2000. It manages investments for institutional investors, including
Principal Life. Principal - REI's address is 801 Grand Avenue, Des
Moines, IA 50392.
The Statement of Additional Information provides further information about the
portfolio manager's compensation, other accounts managed by the portfolio
manager, and the portfolio manager's ownership of shares of the Fund.
DAY-TO-DAY
FUND FUND MANAGEMENT
---- ---------------
Real Estate Securities Kelly D. Rush
KELLY D. RUSH, CFA . As portfolio manager, Mr. Rush directs the Real Estate
Investment Trust (REIT) activity for Principal - REI, the dedicated real estate
group of Principal. He has been managing the real estate stock portfolio since
1997. Previously, Mr. Rush participated in structuring commercial mortgage loans
for public real estate companies and the analysis of real estate investment
trust issued bonds. He has been with the real estate investment area of the firm
since 1987. He earned an MBA in Business Administration and a Bachelor's degree
in Finance from the University of Iowa. He has earned the right to use the
Chartered Financial Analyst designation.
SUB-ADVISOR: Pyramis Global Advisors, LLC (formerly known as Fidelity Management
& Research Company) ("Pyramis") is the Sub-Advisor. Pyramis's address
is 82 Devonshire Street, Boston, MA 02109.
The Statement of Additional Information provides further information about the
portfolio manager's compensation, other accounts managed by the portfolio
manager, and the portfolio manager's ownership of shares of the Fund.
DAY-TO-DAY
FUND FUND MANAGEMENT
---- ---------------
Partners International Cesar Hernandez
Partners MidCap Growth II Bahaa W. Fam
BAHAA W. FAM . Mr. Fam is a vice president and a portfolio manager for Pyramis.
Mr. Fam joined Pyramis in 1994 and served as the firm's director of quantitative
research from 1998-2004. Mr. Fam received a BS in electrical engineering/
computer science from John Hopkins University and an MS with a concentration in
optimization theory and economic systems, also from Johns Hopkins.
CESAR E. HERNANDEZ, CFA . Mr. Hernandez is a Senior Vice President and Portfolio
Manager at Pyramis. He developed the Select International discipline at Pyramis
and has been responsible for managing Select International portfolios on behalf
of institutional investors since the discipline's inception. Mr. Hernandez
earned his B.S from the Universidad Simon Bolivar and his M.B.A from Babson
College. He has earned the right to use the Chartered Finanical Analyst
designation and is a member of the Boston Security Analysts Society.
SUB-ADVISOR: Spectrum Asset Management, Inc. ("Spectrum") is an indirect
subsidiary of Principal Life, an affiliate of PGI and a member of the
Principal Financial Group. Spectrum was founded in 1987. Its address is
4 High Ridge Park, Stamford, CT 06905.
The day-to day portfolio management is shared by two or more portfolio managers.
The portfolio managers operate as a team, sharing authority and responsibility
for research and the day-to-day management of the portfolio with no limitation
on the authority of one portfolio manager in relation to another.
DAY-TO-DAY
FUND FUND MANAGEMENT
---- ---------------
Preferred Securities L. Phillip Jacoby
Bernard M. Sussman
L. PHILLIP JACOBY. . Mr. Jacoby is Sr. Vice President and Portfolio Manager for
Spectrum and chairman of Spectrum's Investment Committee. Prior to joining
Spectrum in 1995, he was a senior investment officer as USL Capital Corporation,
a subsidiary of Ford Motor Corporate, and co-managed a $600 million preferred
stock portfolio. He earned his BS in Finance from Boston University.
BERNARD M. SUSSMAN. . Mr. Sussman is Chief Investment Officer of Spectrum and
Chair of its Investment Committee. Prior to joining Spectrum in 1995, Mr.
Sussman was a general partner and head of the Preferred Stock area of Goldman
Sachs & Co. He was responsible for sales, trading and underwriting for all
preferred products and was instrumental in the development of the hybrid (MIPS)
market. He earned both an MBA in Finance and a Bachelor's degree in Industrial
Relations from Cornell University.
SUB-ADVISOR: T. Rowe Price Associates, Inc. ("T. Rowe Price"), a wholly owned
subsidiary of T. Rowe Price Group, Inc., a financial services holding
company, has over 69 years of investment management experience. T. Rowe
Price is located at 100 East Pratt Street, Baltimore, MD 21202.
The Statement of Additional Information provides further information about the
portfolio manager's compensation, other accounts managed by the portfolio
manager, and the portfolio manager's ownership of shares of the Fund.
DAY-TO-DAY
FUND FUND MANAGEMENT
---- ---------------
Partners LargeCap Blend Anna M. Dopkin
Richard T. Whitney
Partners LargeCap Growth I Robert W. Sharps
ANNA M. DOPKIN, CFA . Ms. Dopkin is a Vice President of T. Rowe Price Group,
Inc. and T. Rowe Price, Co-Director of U.S. Equity Research, and a member of the
firm's Equity Steering Committee. Prior to joining T. Rowe Price in 1996, she
worked at Goldman Sachs in it Mortgage SEcurities Department in New York and
London. Ms. Dopkin earned a B.S., magna cum laude, from The Wharton School of
the University of Pennsylvania. She has earned the right to use the Chartered
Financial Analyst designation.Ms. Dopkin serves as a portfolio coordinator for
the Fund. Instead of making stock selection decisions, she, along with Mr.
Whitney, is responsible for ensuring adherence to portfolio constraints and risk
controls, along with managing inter-analyst activity. As the lead portfolio
coordinator, Ms. Dopkin has ultimate accountability for the Fund.
ROBERT W. SHARPS, CFA, CPA . Mr. Sharps is a Vice President of T. Rowe Price
Group, Inc., and T. Rowe Price. He is also the lead Portfolio Manager with the
Large-Cap Growth Strategy Team in the Equity Division. Prior to joining the firm
in 1997, Mr. Sharps was a Senior Consultant at KPMG Peat Marwick. He earned a
BS, summa cum laude, in
Accounting from Towson University and an MBA in Finance from the Wharton School,
University of Pennsylvania. He has also earned the Chartered Financial Analyst
and Certified Public Accountant accreditations.
RICHARD T. WHITNEY, CFA . Mr. Whitney is a Vice President of T. Rowe Price
Group, Inc. and T. Rowe Price, Director of the firm's Quantitative Equity Group
and member of the Equity Steering Committee and Brokerage Control Committee.
Prior to joining the firm in 1985, Mr. Whitney was employed by the Chicago Board
of Trade and IBM. He earned a BS and an MEE in Electrical Engineering from Rice
University and an MBA from the University of Chicago. He has earned the right to
use the Chartered Financial Analyst designation.
Mr. Whitney serves as a portfolio coordinator for the Fund. Instead of making
stock selection decisions, he, along with Ms. Dopkin, is responsible for
ensuring adherence to portfolio constraints and risk controls, as well as
managing inter-analyst activity.
SUB-ADVISOR: Turner Investment Partners, Inc. ("Turner") was founded in 1990.
Its address is 1205 Westlakes Drive, Suite 100, Berwyn, PA 19312.
The day-to day portfolio management is shared by two or more portfolio managers.
The portfolio managers operate as a team, sharing authority and responsibility
for research and the day-to-day management of the portfolio with no limitation
on the authority of one portfolio manager in relation to another.
DAY-TO-DAY
FUND FUND MANAGEMENT
---- ---------------
Partners MidCap Growth Tara R. Hedlund
Christopher K. McHugh
Jason D. Schrotberger
TARA R. HEDLUND, CFA, CPA . Ms. Hedlund joined Turner in 2000. Previously, she
was an audit engagement senior at Arthur Andersen LLP. She has been in
investment management since 1995. She earned a BBS in Accountancy from Villanova
University. She has earned the right to use the Chartered Financial Analyst
designation.
CHRISTOPHER K. MCHUGH . Mr. McHugh, Vice President and Senior Portfolio Manager,
joined Turner in 1990. Prior to joining Turner, he was a performance specialist
at Provident Capital Management. He earned a BS in Accounting from Philadelphia
University and an MBA in Finance from St. Joseph's University.
JASON D. SCHROTBERGER, CFA . Mr. Schrotberger joined Turner in 2001. Previously,
he was an investment analyst at BlackRock Financial Management. He has been in
investment management since 1994. He earned a BA in Economics from Denison
University and an MBA in Finance from the University of Illinois. He has earned
the right to use the Chartered Financial Analyst designation.
SUB-ADVISOR: UBS Global Asset Management (Americas) Inc. ("UBS Global AM"), a
Delaware corporation located at One North Wacker, Chicago, IL 60606, is
a registered investment advisor. UBS Global AM, a subsidiary of UBS AG,
is a member of the UBS Global Asset Management business group (the
"Group") of UBS AG.
Investment decisions for the Partners LargeCap Value I Fund are made by
investment management teams at UBS Global AM, including Thomas M. Cole, Thomas
J. Digenan, John C. Leonard and Scott C. Hazen. No member of the investment
management team is primarily responsible for making recommendations for
portfolio purchases.
The day-to-day portfolio management for the Partners SmallCap Growth II Fund is
shared by two portfolio managers. The portfolio managers operate as a team,
sharing authority and responsibility for research and the day-to-day management
of the portfolio with no limitation on the authority of one portfolio manager in
relation to another.
DAY-TO-DAY
FUND FUND MANAGEMENT
---- ---------------
Partners LargeCap Value I Thomas M. Cole
Thomas J. Digenan
Scott C. Hazen
John C. Leonard
Partners SmallCap Growth II Paul A. Graham, Jr.
David N. Wabnik
THOMAS M. COLE, CFA . Mr. Cole joined UBS Global AM in 1985. Mr. Cole is
responsible for the direction and oversight of the research group of the North
American Core Equities Team. He is actively involved in security analysis and
the portfolio construction process. Mr. Cole's prior experience with the firm
includes Senior Analyst (responsible for the retail, food, household and
personal products, media, auto and auto parts sectors), managing the US Equity
Trading Desk and serving as a Portfolio Manager in the US Fixed Income Group. He
is a member of the Association of Investment Management and Research and the
Investment Analysts Society of Chicago. He received both his BBA and MBA from
the University of Wisconsin. He has earned the right to use the Chartered
Financial Analyst designation.
THOMAS J. DIGENAN, CFA, CPA . Mr. Digenan joined UBS Global AM in 1993. Mr.
Digenan participates in the analysis and development of US Equity portfolio. He
is responsible for communicating the firm's equity strategy to clients and
investment consultants. Mr. Digenan's prior experience with the firm includes
President of mutual funds and relationship funds organization. Prior to joining
the firm, Mr. Digenan was a senior manager in the tax department of KPMG Peat
Marwick working exclusively in the investment services industry. Mr. Digenan is
a member of the Association for Investment Management and Research, the
Investment Analysts Society of Chicago and the American Institute of Certified
Public Accounts.
PAUL A. GRAHAM, JR., CFA . Mr. Graham joined UBS Global AM in 1994 and has had
portfolio management responsibilities since 1994. Mr. Graham is Managing
Director, Head of Growth Investors and Co-Head of U.S. Small Cap Growth Equity.
For eight years prior to joining the firm, he served as a small cap portfolio
manager and research analyst at Value Line Asset Management. Mr. Graham received
his BA from Dartmouth College. He has earned the right to use the Chartered
Financial Analyst designation and is a member of the New York Society of
Security Analysts.
SCOTT C. HAZEN, CFA . Mr. Hazen joined UBS Global AM in 1992 and participates in
the analysis and development of U.S. Equity portfolios. Prior to joining the
portfolio management team in 2004, Mr. Hazen served as a member of the firm's
global investment team responsible for providing client service and relationship
management to the firm's clients. He earned a BBA from the University of Notre
Dame and an MBA from the University of Chicago. He has earned the right to use
the Chartered Financial Analyst designation and is a member of the Investment
Analysts Society of Chicago.
JOHN C. LEONARD, CFA . Mr. Leonard joined UBS Global AM in 1991. Mr. Leonard
Head of North American Equities and is responsible for the development of sector
and stock selection strategies within this market. In addition, as Deputy Head
of Equities, Mr. Leonard assumes management responsibilities for Japanese, Asian
and Australian Equities. Prior to joining UBS Global AM, he worked as an
investment analyst at a real estate management company and as a financial
advisor with two investment management firms. Mr. Leonard received his AB from
Dartmouth College and his MBA from the University of Chicago. He has earned the
right to use the Chartered Financial Analyst designation.
DAVID N. WABNIK . Mr. Wabnik joined UBS Global AM in 1995 and has been a
portfolio manager since 1995. Mr. Wabnik is Executive Director, Co-Head of U.S.
SmallCap Growth Equity. For four years prior to joining the firm, he served as a
small cap portfolio manager/senior research analyst at Value Line Asset
Management. Mr. Wabnik received his BS from Binghamton University and his MBA
from Columbia Business School.
SUB-ADVISOR: Vaughan Nelson Investment Management, LP ("Vaughan Nelson") is
located at 600 Travis Street, Suite 6300, Houston, Texas 77002. Founded
in 1970, Vaughan Nelson is a subsidiary of IXIS Asset Management US
Group, L.P.
The day-to day portfolio management is shared by two or more portfolio managers.
The portfolio managers operate as a team, sharing authority and responsibility
for research and the day-to-day management of the portfolio with no limitation
on the authority of one portfolio manager in relation to another.
DAY-TO-DAY
FUND FUND MANAGEMENT
---- ---------------
Partners SmallCap Value II Chris D. Wallis
Scott J. Weber
CHRIS D. WALLIS, CFA . Mr. Wallis, a Senior Portfolio Manager of Vaughan Nelson,
joined the firm in 1999. He received a B.B.A. fro Baylor University and an
M.B.A. from Harvard Business School. Mr. Wallis holds the designation of
Chartered Financial Analyst and has over 14 years of investment/financial
analysis and accounting experience.
SCOTT J. WEBER . Mr. Weber, a Portfolio Manager of Vaughan Nelson, joined the
firm in 2003. Prior to joining Vaughan Nelson, he was a vice president from 2001
to 2003 and a senior associated from 2000 to 2001 of RBC Capital Markets. Mr.
Weber received a B.S. from the University of the South and an M.B.A. from Tulane
University. Mr. Weber holds the designation of Chartered Financial Analyst and
has over nine years of investment management and financial analysis experience.
THE SUB-SUB-ADVISORS
Principal Global Investors, LLC ("PGI") has entered into sub-sub-advisory
agreements for various Funds. Under these agreements, each sub-sub-advisor has
agreed to assume the obligations of PGI for a certain portion of the Fund's
assets. The sub-sub-advisor is paid a fee by PGI.
Principal is the sub-advisor for the Bond & Mortgage Securities Fund. Day-to-day
management decisions concerning a portion of the Bond & Mortgage Securities
Fund's portfolio are made by Spectrum Asset Management, Inc. ("Spectrum"), and
Post Advisory Group, LLC ("Post") each of which serves as sub-sub-advisor.
Similar day-to-day management decisions concerning a portion of the High Quality
Intermediate-Term Bond Fund's portfolio are made by Spectrum and such decisions
for a portion of the Ultra Short Bond Fund's portfolio are made by Post.
See the discussion regarding Spectrum provided in connection with the Preferred
Securities Fund for a description of the firm and the individuals who serve as
portfolio managers.
See the discussion regarding Post provided in connection with the High Yield
Fund for a description of the firm and the individuals who serve as portfolio
managers.
DUTIES OF PRINCIPAL AND SUB-ADVISORS
Principal or the Sub-Advisor provides the 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 Sub-Advisor advises the Fund on its investment policy and
determines which securities are bought or sold, and in what amounts.
Several of the Funds have multiple Sub-Advisors. For those Funds, Principal
determines the portion of the Fund's assets to be managed by the Sub-Advisors
and may, from time-to-time, reallocate Fund assets among the Sub-Advisors. The
decision to do so may be based on a variety of factors, including but not
limited to: the investment capacity of each Sub-Advisor, portfolio
diversification, volume of net cash flows, fund liquidity, investment
performance, investment strategies, changes in each Sub-Advisor's firm or
investment professionals or changes in the number of Sub-Advisors. Ordinarily,
reallocations of Fund assets among Sub-Advisors will generally occur as a
Sub-Advisor liquidates assets in the normal course of portfolio management and
with net new cash flows; however, at times existing Fund assets may be
reallocated among Sub-Advisors.
FEES PAID TO THE MANAGER
The Manager is paid a fee by the Fund for its services, which includes any fee
paid to the Sub-Advisor. The fee paid by each Fund (as a percentage of the
average daily net assets) for the fiscal year ended October 31, 2006 was:
Bond & Mortgage Partners MidCap Growth
Securities 0.53% I 1.00%
Disciplined LargeCap Partners MidCap Growth
Blend 0.59% II 1.00%
Diversified
International 0.90% Partners MidCap Value 1.00%
Equity Income I N/A* Partners MidCap Value I 1.00%
Government & High
Quality Bond 0.40% Partners SmallCap Blend 1.00%
High Quality Partners SmallCap
Intermediate-Term Bond 0.40% Growth I 1.10%
Partners SmallCap
High Yield 0.65% Growth II 1.00%
Partners SmallCap
High Yield II N/A* Growth III 1.10%
Income N/A* Partners SmallCap Value 1.00%
Partners SmallCap Value
Inflation Protection 0.40% I 1.00%
International Emerging Partners SmallCap Value
Markets 1.35%/(1)/ II 1.00%
International Growth 0.99% Preferred Securities 0.75%
LargeCap Growth 0.54%/(2)/ Principal LifeTime 2010 0.1225%
LargeCap S&P 500 Index 0.15% Principal LifeTime 2020 0.1225%
LargeCap Value 0.45% Principal LifeTime 2030 0.1225%
MidCap Blend 0.64% Principal LifeTime 2040 0.1225%
MidCap Growth 0.65% Principal LifeTime 2050 0.1225%
Principal Lifetime
MidCap Stock N/A* Strategic Income 0.1225%
MidCap S&P 400 Index 0.15% Real Estate Securities 0.84%
MidCap Value 0.65% SAM Balanced N/A*
SAM Conservative
Money Market 0.40% Balanced N/A*
Mortgage Securities N/A* SAM Conservative Growth N/A*
Partners Global Equity 0.95% SAM Flexible Income N/A*
Partners International 1.09% SAM Strategic Growth N/A*
Partners LargeCap Blend 0.74% Short-Term Bond 0.40%
Partners LargeCap Blend
I 0.45% Short-Term Income N/A*
Partners LargeCap
Growth I 0.74% SmallCap Blend 0.75%
Partners LargeCap
Growth II 0.99% SmallCap Growth 0.75%
Partners LargeCap Value 0.77% SmallCap S&P 600 Index 0.15%
Partners LargeCap Value
I 0.80% SmallCap Value 0.75%
Partners LargeCap Value
II 0.85% Ultra Short Bond 0.40%
Partners MidCap Growth 1.00% West Coast Equity N/A*
/ //(1)/ The Fund's management fees have decreased effective October 1, 2006.
FIRST $500 NEXT $500 NEXT $500 OVER $1.5
FUND MILLION MILLION MILLION BILLION
---- ------- ------- ------- -------
International Emerging
Markets 1.20% 1.18% 1.16% 1.15%
/ //(2)/ The Fund's management fees have increased effective January 16, 2007.
FIRST $500 NEXT $500 NEXT $1 NEXT $1 OVER $3
FUND MILLION MILLION BILLION BILLION BILLION
---- ------- ------- ------- ------- -------
LargeCap Growth 0.68% 0.65% 0.62% 0.58% 0.55%
* Each of the Funds in the table below pays a fee to Principal (as a percentage
of the average daily net assets) as shown.
FIRST $250 NEXT $250 OVER $500
FUND MILLION MILLION MILLION
---- ------- ------- -------
Equity Income I 0.60% 0.55% 0.50%
FUND FIRST $250 MILLION OVER $250 MILLION
---- ------------------ -----------------
High Yield II 0.625% 0.500%
FUND FIRST $2 BILLION OVER $2 BILLION
---- ---------------- ---------------
Income 0.50% 0.45%
Mortgage Securities 0.50 0.45
FIRST $1 NEXT $1 NEXT $1 OVER $3
FUND BILLION BILLION BILLION BILLION
---- ------- ------- ------- -------
MidCap Stock 0.75% 0.70% 0.65% 0.60%
FIRST $200 NEXT $300 OVER $500
FUND MILLION MILLION MILLION
---- ------- ------- -------
Short-Term Income 0.50% 0.45% 0.40%
FIRST $500 NEXT $500 OVER $1
FUND MILLION MILLION BILLION
---- ------- ------- -------
West Coast Equity 0.625% 0.500% 0.375%
FIRST $500 NEXT $500 NEXT $1 NEXT $1 NEXT $1 NEXT $1 OVER $5
FUND MILLION MILLION BILLION BILLION BILLION BILLION BILLION
---- ------- ------- ------- ------- ------- ------- -------
SAM Balanced Portfolio
* 0.55% 0.50% 0.45% 0.40% 0.35% 0.30% 0.25%
SAM Conservative
Balanced Portfolio * 0.55 0.50 0.45 0.40 0.35 0.30 0.25
SAM Conservative
Growth Portfolio * 0.55 0.50 0.45 0.40 0.35 0.30 0.25
SAM Flexible Income
Portfolio * 0.55 0.50 0.45 0.40 0.35 0.30 0.25
SAM Strategic Growth
Portfolio * 0.55 0.50 0.45 0.40 0.35 0.30 0.25
* Breakpoints based on aggregate SAM Portfolio net assets
A discussion regarding the basis for the Board of Directors approving the
management agreement with Principal and the sub-advisory agreements with each
Sub-Advisor is available in the semi-annual report to shareholders for the
period ended April 30, 2006 and in the annual report to shareholders for the
fiscal year ended October 31, 2006.
The Fund and Principal, under an order received from the SEC, may enter into and
materially amend agreements with Sub-Advisors, other than those affiliated with
Principal, without obtaining shareholder approval. For any Fund that is relying
on that order, Principal may:
. hire one or more Sub-Advisors;
. change Sub-Advisors; and
. reallocate management fees between itself and Sub-Advisors.
Principal 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
other purchasers, and the Fund states in its prospectus that it intends to rely
on the order.
The shareholders of each of the Funds have approved the Fund's reliance on the
order; however, only the High Yield, Partners LargeCap Blend, Partners LargeCap
Blend I, Partners LargeCap Growth, Partners LargeCap Growth I, Partners LargeCap
Growth II, Partners LargeCap Value, Partners LargeCap Value I, Partners LargeCap
Value II, Partners MidCap Growth, Partners MidCap Growth I, Partners MidCap
Growth II, Partners MidCap Value, Partners MidCap Value I, Partners SmallCap
Blend, Partners SmallCap Growth I, Partners SmallCap Growth II, Partners
SmallCap Growth III, Partners SmallCap Value, Partners SmallCap Value I and
Partners SmallCap Value II Funds intend to rely on the order.
DISTRIBUTION AGREEMENTS
Principal may pay compensation, from its own resources, to certain financial
intermediaries for the distribution, promotion, and sale of Fund shares. If one
mutual fund sponsor makes greater distribution assistance payments than another,
your investment representative or his or her financial intermediary may have an
incentive to recommend one fund complex over another.
PRICING OF FUND SHARES
Each Fund's shares are bought and sold at the current share price. The share
price of each class of each Fund is calculated each day the New York Stock
Exchange ("NYSE") is open (shares are not priced on the days on which the NYSE
is closed for trading, generally New Year's Day, Martin Luther King, Jr. Day,
Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas). The share price is determined as of the close
of business of the NYSE (normally 3:00 p.m. Central Time). When an order to buy
or sell shares is received, the share price used to fill the order is the next
price calculated after the order is received in good order by us at our
transaction processing center. In order for us to process your purchase order on
the day it is received, we must receive the order (with complete information):
. on a day that the NYSE is open and
. prior to the close of trading on the NYSE (normally 3 p.m. Central Time).
Orders received after the close of the NYSE or on days that the NYSE is not open
will be processed on the next day that the NYSE is open for normal trading.
If we receive an application or purchase request for a new mutual fund account
or subsequent purchase into an existing account that is accompanied by a check
and the application or purchase request does not contain complete information,
we may hold the application (and check) for up to two business days while we
attempt to obtain the necessary information. If we receive the necessary
information within two business days, we will process the order using the next
share price calculated. If we do not receive the information within two business
days, the application and check will be returned to you.
For all Funds, except the Money Market Fund, the share price is calculated by:
. taking the current market value of the total assets of the Fund
. subtracting liabilities of the Fund
. dividing the remainder proportionately into the classes of the Fund
. subtracting the liability of each class
. 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 Statement of Additional Information.
NOTES:
. If market quotations are not readily available for a security owned by a Fund,
its fair value is determined using a policy adopted by the Directors.
. 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. Generally, the values of foreign securities used in computing a Fund's
Net Asset Value ("NAV") are the market quotations as of the close of the
foreign market. Foreign securities and currencies are also converted to U.S.
dollars using the exchange rate in effect at the close of the NYSE.
Occasionally, events affecting the value of foreign securities occur when the
foreign market is closed and the NYSE is open. The Fund has adopted policies
and procedures to "fair value" some or all securities held by a Fund if
significant events occur after the close of the market on which the foreign
securities are traded but before the Fund's NAV is calculated. Significant
events can be specific to a single security or can include events that affect
a particular foreign market or markets. A significant event can also include a
general market movement in the U.S. securities markets. If Principal believes
that the market value of any or all of the foreign securities is materially
affected by such an event, the securities will be valued, and the Fund's NAV
will be calculated, using the policy adopted by the Fund. These fair valuation
procedures are intended to discourage shareholders from investing in the Fund
for the purpose of engaging in market timing or arbitrage transactions.
The trading of foreign securities generally or in a particular country or
countries may not take place on all days the NYSE is open, or may trade on
days the NYSE is closed. Thus, the value of the foreign securities held by the
Fund may change on days when shareholders are unable to purchase or redeem
shares.
. 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 Fund 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 from Princor, the Fund's principal underwriter for
Institutional Class shares. There are no sales charges on Institutional Class
shares of the Fund. There are no restrictions on amounts to be invested in
Institutional Class shares of the Fund.
Shareholder accounts for the 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 the Fund as evidence of ownership of Fund shares. Share
certificates are not issued.
The Fund may reject or cancel any purchase orders for any reason. For example,
the Fund does not permit market timing because short-term or other excessive
trading into and out of the Funds may harm performance by disrupting portfolio
management strategies and by increasing expenses. Accordingly, the Fund may
reject any purchase orders from market timers or investors that, in Principal's
opinion, may be disruptive to the Fund. For these purposes, Principal may
consider an investor's trading history in the Fund or other Funds sponsored by
Principal Life and accounts under common ownership or control.
REDEMPTION OF FUND SHARES
You may redeem shares of the Fund upon request. There is no charge for the
redemption. 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.
DISTRIBUTIONS IN KIND . Payment for shares of the Funds tendered for redemption
is ordinarily made by check. However, the Funds may determine that it would be
detrimental to the remaining shareholders of a Fund to make payment of a
redemption order wholly or partly in cash. Under certain circumstances,
therefore, each of the Funds may pay the redemption proceeds in whole or in part
by a distribution "in kind" of securities from the Fund's portfolio in lieu of
cash. If a Fund pays the redemption proceeds in kind, the redeeming shareholder
might incur brokerage or other costs in selling the securities for cash. Each
Fund will value securities used to pay redemptions in kind using the same method
the Fund uses to value its portfolio securities as described in this prospectus.
REDEMPTION FEES . The Fund board of directors has determined that it is not
necessary to impose a fee upon the redemption of fund shares, because the Fund
has adopted transfer restrictions as described in "Exchange of Fund Shares."
EXCHANGE OF FUND SHARES
An exchange between Funds is a redemption of shares of one Fund and a concurrent
purchase of shares in another Fund with the redemption proceeds. A shareholder,
including a beneficial owner of shares held in nominee name or a participant in
a participant-directed employee benefit plan, may exchange Fund shares under
certain circumstances. In addition to any restrictions an intermediary or an
employee benefit plan imposes, Fund shares may be exchanged, without charge, for
shares of any other Fund of Principal Investors Fund, provided that:
. the shareholder has not exchanged shares of the Fund within 30 days preceding
the exchange, unless the shareholder is exchanging into the Money Market Fund,
. the share class of such other Fund is available through the plan, and
. the share class of such other Fund is available in the shareholder's state of
residence.
All exchanges completed on the same day are considered a single exchange for
purposes of this exchange limitation. In addition, the Fund will reject an order
to purchase shares of any Fund, except shares of the Money Market Fund, if the
shareholder redeemed shares from that Fund within the preceding 30-day period.
The 30-day exchange or purchase restriction does not apply to exchanges or
purchases made on a scheduled basis such as scheduled periodic portfolio
rebalancing transactions.
If Fund shares are purchased through an intermediary that is unable or unwilling
to impose the 30-day exchange restriction described above, Fund management may
waive this restriction in lieu of the exchange limitation that the intermediary
is able to impose if, in management's judgment, such limitation is reasonably
likely to prevent excessive trading in Fund shares. In order to prevent
excessive exchanges, and under other circumstances where the Fund Board of
Directors or the Manager believes it is in the best interests of the Fund, the
Fund reserves the right to revise or terminate this exchange privilege, limit
the amount or further limit the number of exchanges, reject any exchange or
close an account.
DIVIDENDS AND DISTRIBUTIONS
The Funds pay their net investment income to shareholders of record on the
business day prior to the payment date. The payment schedule is as follows:
. The Bond & Mortgage Securities, Government & High Quality Bond, Inflation
Protection, and Short-Term Bond Funds pay their net investment income on a
monthly basis. The payment date is the last business day of each month.
. The Preferred Securities, SAM Flexible Income, Conservative Balanced,
Conservative Growth, and Balanced Portfolios and the Real Estate Securities
Fund each pay their net investment income on a quarterly basis. The payment
date is the last business day of March, June, September, and December.
. The other Funds (except Money Market, High Yield II, Income, Mortgage
Securities, Short-Term Income, and Ultra Short Bond) pay their net investment
income on an annual basis. The payment date is the last business day of the
year.
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 will be reinvested, without a sales
charge, in shares of the Fund from which the distribution is paid.
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. Special tax
rules apply to Fund distributions to retirement 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.
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 Fund.
The Money Market Fund does not seek to realize any capital gains or losses. If
capital gains or losses were to occur, they could result in an increase or
decrease in dividends.
The High Yield II, Income, Mortgage Securities, Short-Term Income, and Ultra
Short Bond Fund declares dividends of all its daily net investment income each
day its shares are priced. Dividends are based on estimates of income, expenses,
and shareholder activity for the Fund. Actual income, expenses, and shareholder
activity may differ from estimates, consequently, differences, if any, will be
included in the calculation of subsequent dividends. On the last business day of
each month (or the previous business day) the Fund will pay out its accumulated
declared dividends.
FUND ACCOUNT INFORMATION
FREQUENT TRADING AND MARKET-TIMING (ABUSIVE TRADING PRACTICES)
The Funds are not designed for frequent trading or market timing activity. The
funds do not knowingly accommodate frequent purchases and redemptions of fund
shares by investors. If you intend to trade frequently and/or use market timing
investment strategies, you should not purchase these Funds.
We consider frequent trading and market timing activities to be abusive trading
practices because they:
. Disrupt the management of the Funds by
. forcing the Fund to hold short-term (liquid) assets rather than investing
for long term growth, which results in lost investment opportunities for the
Fund and
. causing unplanned portfolio turnover;
. Hurt the portfolio performance of the Fund; and
. Increase expenses of the Fund due to
. increased broker-dealer commissions and
. increased recordkeeping and related costs.
Certain Funds may be at greater risk for abusive trading practices. For example,
those Funds that invest in foreign securities may appeal to investors attempting
to take advantage of time-zone arbitrage. If we are not able to identify such
abusive trading practices, the abuses described above will negatively impact the
Fund. The potential negative impact and harms of undetected excessive trading in
shares of the underlying funds in which the Principal LifeTime Funds or
Strategic Asset Management Portfolios invest could flow through to the Principal
LifeTime Funds and Strategic Asset Management Portfolios as they would for any
fund shareholder.
We have adopted policies and procedures to help us identify and prevent abusive
trading practices. In addition, the Funds monitor trading activity to identify
and take action against abuses. While our policies and procedures are designed
to identify and protect against abusive trading practices, there can be no
certainty that we will identify and prevent abusive trading in all instances.
When we do identify abusive trading, we will apply our policies and procedures
in a fair and uniform manner.
If we, or a Fund, deem abusive trading practices to be occurring, we will take
action that may include, but is not limited to:
. Rejecting exchange instructions from shareholder or other person authorized by
the shareholder to direct exchanges;
. Restricting submission of exchange requests by, for example, allowing exchange
requests to be submitted by 1st class U.S. mail only and disallowing requests
made by facsimile, overnight courier, telephone or via the internet;
. Limiting the number of exchanges during a year;
. Requiring a holding period of a minimum of 30 days before permitting exchanges
among the Funds where there is evidence of at least one round-trip exchange
(exchange or redemption of shares that were purchased within 30 days of the
exchange/redemption); and
. Taking such other action as directed by the Fund.
The Funds have reserved the right to accept or reject, without prior written
notice, any exchange requests. In some instances, an exchange may be completed
prior to a determination of abusive trading. In those instances, we will reverse
the exchange. We will give you notice in writing in this instance.
ORDERS PLACED BY INTERMEDIARIES
Principal Investors Fund may have an agreement with your intermediary, such as a
broker-dealer, third party administrator, or trust company, that permits the
intermediary to accept orders on behalf of the Fund until 3 p.m. Central Time.
The agreement may include authorization for your intermediary to designate other
intermediaries ("sub-designees") to accept orders on behalf of the Fund on the
same terms that apply to the intermediary. In such cases, if your intermediary
or a sub-designee receives your order in correct form by 3 p.m. Central Time,
transmits it to the Fund, and pays for it in accordance with the agreement, the
Fund will price the order at the next NAV it computes after your intermediary or
sub-designee received your order. NOTE: The time at which the Fund prices orders
and the time until which the Fund or your intermediary or sub-designee will
accept orders may change in the case of an emergency or if the NYSE closes at a
time other than 3 p.m. Central Time.
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:
. if you sell more than $100,000 from any one Fund;
. if a sales proceeds check is payable to other than the account shareholder(s);
. to change ownership of an account;
. to add telephone transaction services and/or wire privileges to an existing
account;
. to change bank account information designated under an existing telephone
withdrawal plan;
. to exchange or transfer among accounts with different ownership; and
. 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 30 days.
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 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, audited by
the Funds' independent registered public accounting firm, Ernst & Young LLP.
Shareholders will also receive a semiannual financial statement that is
unaudited.
PORTFOLIO HOLDINGS INFORMATION
The Fund will publish month-end portfolio holdings information for the Funds
described in this Prospectus on the principal.com website and the
PrincipalFunds.com website on the last business day of the following month. The
information will include all of each Fund's holdings, and may include
information regarding the top ten holdings as well. The information will remain
on the website until the Fund files portfolio holding information with the SEC
for a period that includes the date on which the holdings are published on the
websites. Also, from time to time, information relating to the impact of
specific events, such as national disasters, corporate debt defaults, or similar
events, on a Fund's portfolio will be published on the website.
Third parties who need portfolio holdings information to provide services to the
Funds may be provided such information prior to its posting on the website,
solely for legitimate business purposes and subject to confidentiality
agreements. A description of the Funds' policies and procedures with respect to
the disclosure of the portfolio securities is available in the Funds' Statement
of Additional Information.
FINANCIAL HIGHLIGHTS
The following financial highlights tables are intended to help you understand
the Fund's financial performance for the periods shown. Certain information
reflects results for a single Fund share. The total returns in each table
represent the rate that an investor would have earned or lost each period on an
investment in the Fund (assuming reinvestment of all distributions). Except as
otherwise stated in the following paragraph, this information has been audited
by Ernst & Young LLP, Independent Registered Public Accounting Firm, whose
report, along with each Fund's financial statements, is included in Principal
Investors Fund's Annual Report to Shareholders for the fiscal year ended October
31, 2006, which is available upon request, and incorporated by reference into
the SAI.
The information for the Equity Income I, High Yield II, Income, MidCap Stock,
Mortgage Securities, Short-Term Income, SAM Balanced Portfolio, SAM Conservative
Balanced Portfolio, SAM Conservative Growth Portfolio, SAM Flexible Income
Portfolio, SAM Strategic Growth Portfolio, and West Coast Equity Funds has been
derived from the financial statements for their predecessor funds. The financial
statements for the predecessor funds were audited by Deloitte & Touche LLP,
Independent Registered Public Accounting Firm, whose report, along with each
predecessor fund's financial statements, is included in the predecessor funds'
Annual Report to Shareholders for the fiscal year ended October 31, 2006, which
is available upon request, and incorporated by reference into the SAI. To
request a free copy of the latest annual or semiannual report for the Fund or
the Predecessor Funds, you may telephone 1-800-247-4123. The following table is
a listing of Funds and their corresponding predecessor fund.
PRINCIPAL INVESTORS FUND PREDECESSOR FUND
Equity Income Fund I Equity Income Fund
High Yield Fund II High Yield Fund
Income Fund Income Fund
MidCap Stock Fund Mid Cap Stock Fund
Mortgage Securities Fund U.S. Government Securities Fund
Short-Term Income Fund Short Term Income Fund
West Coast Equity Fund West Coast Equity Fund
EQUITY INCOME FUND
For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------ ----------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS A SHARES
Year Ended:
10/31/06 $20.07 $0.33(5) $ 3.00 $ 3.33 $(0.34) $(0.63) $(0.97)
10/31/05 17.79 0.41(5) 2.25 2.66 (0.38) -- (0.38)
10/31/04 15.46 0.29(5) 2.33 2.62 (0.29) -- (0.29)
10/31/03 12.73 0.33(5) 2.73 3.06 (0.33) -- (0.33)
10/31/02 14.85 0.40(5) (1.85) (1.45) (0.35) (0.32) (0.67)
CLASS B SHARES
Year Ended:
10/31/06 $19.93 $0.15(5) $ 2.98 $ 3.13 $(0.17) $(0.63) $(0.80)
10/31/05 17.67 0.24(5) 2.24 2.48 (0.22) -- (0.22)
10/31/04 15.36 0.14(5) 2.30 2.44 (0.13) -- (0.13)
10/31/03 12.65 0.20(5) 2.71 2.91 (0.20) -- (0.20)
10/31/02 14.78 0.27(5) (1.85) (1.58) (0.23) (0.32) (0.55)
CLASS C SHARES
Year Ended:
10/31/06 $19.79 $0.16(5) $ 2.96 $ 3.12 $(0.20) $(0.63) $(0.83)
10/31/05 17.57 0.26(5) 2.22 2.48 (0.26) -- (0.26)
10/31/04 15.29 0.16(5) 2.30 2.46 (0.18) -- (0.18)
10/31/03 12.62 0.22(5) 2.68 2.90 (0.23) -- (0.23)
10/31/02(4) 15.09 0.18(5) (2.43) (2.25) (0.22) -- (0.22)
CLASS I SHARES
Year Ended:
10/31/06 $20.07 $0.40(5) $ 3.00 $ 3.40 $(0.41) $(0.63) $(1.04)
10/31/05 17.79 0.48(5) 2.24 2.72 (0.44) -- (0.44)
10/31/04 15.45 0.35(5) 2.33 2.68 (0.34) -- (0.34)
10/31/03 12.73 0.38(5) 2.72 3.10 (0.38) -- (0.38)
10/31/02 14.85 0.45(5) (1.85) (1.40) (0.40) (0.32) (0.72)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS A SHARES
Year Ended:
10/31/06 $22.43 17.16% $1,514,188 0.87% 0.87% 1.56% 81%(7)
10/31/05 20.07 15.06 887,828 0.90 0.90 2.13 32
10/31/04 17.79 17.06 438,776 0.91 0.91 1.74 20
10/31/03 15.46 24.43 268,489 0.95 0.95 2.43 18
10/31/02 12.73 (10.35) 198,756 0.97 0.97 2.77 16
CLASS B SHARES
Year Ended:
10/31/06 $22.26 16.16% $ 330,900 1.73% 1.73% 0.70% 81%(7)
10/31/05 19.93 14.07 226,390 1.78 1.78 1.25 32
10/31/04 17.67 16.04 144,144 1.81 1.81 0.84 20
10/31/03 15.36 23.19 103,888 1.89 1.89 1.49 18
10/31/02 12.65 (11.20) 82,330 1.88 1.88 1.86 16
CLASS C SHARES
Year Ended:
10/31/06 $22.08 16.28% $ 251,685 1.64% 1.64% 0.79% 81%(7)
10/31/05 19.79 14.16 128,523 1.68 1.68 1.35 32
10/31/04 17.57 16.16 33,770 1.70 1.70 0.95 20
10/31/03 15.29 23.29 5,973 1.78 1.78 1.60 18
10/31/02(4) 12.62 (15.07) 1,780 1.80(6) 1.80(6) 1.94(6) 16
CLASS I SHARES
Year Ended:
10/31/06 $22.43 17.53% $1,686,604 0.55% 0.55% 1.88% 81%(7)
10/31/05 20.07 15.39 1,294,804 0.58 0.58 2.45 32
10/31/04 17.79 17.51 908,925 0.59 0.59 2.06 20
10/31/03 15.45 24.77 529,665 0.61 0.61 2.77 18
10/31/02 12.73 (10.04) 350,185 0.63 0.63 3.11 16
(1) Total return is not annualized for periods of less than one year and does
not reflect any applicable sales charges.
The total returns would have been lower if certain fees had not been waived
and/or expenses reimbursed by the investment advisor or if fees had not
been reduced by drecits allowed by the custodian.
(2) Ratio of operating expenses to aveage net assets includes expenses paid
indirectly through custodian credits.
(3) The REIT Fund commenced operations on march 1, 2003.
(4) The Equity Income Fund commenced selling Class C shares on March 1, 2002.
(5) Per share numbers have been calculated using the average shares method.
(6) Annualized.
(7) The Equity Income Fund had unusually high portfolio turnover due to a
change in the portfolio manager.
Financial Highlights
WEST COAST EQUITY FUND
For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------ ----------------------------------------
NET REALIZED
NET AND
ASSET NET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE INVESTMENT GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INCOME/ ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD (LOSS) INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS A SHARES
Year Ended:
10/31/06 $38.99 $ 0.18 $ 5.02 $ 5.20 $(0.13) $(0.97) $(1.10)
10/31/05 35.04 0.25 4.33 4.58 (0.20) (0.43) (0.63)
10/31/04 32.14 0.06(4) 2.84 2.90 -- -- --
10/31/03 23.73 0.04(4) 8.37 8.41 -- -- --
10/31/02 28.89 0.02(4) (4.09) (4.07) (0.07) (1.02) (1.09)
CLASS B SHARES
Year Ended:
10/31/06 $34.84 $(0.18) $ 4.47 $ 4.29 $ -- $(0.97) $(0.97)
10/31/05 31.48 (0.09) 3.88 3.79 -- (0.43) (0.43)
10/31/04 29.14 (0.24)(4) 2.58 2.34 -- -- --
10/31/03 21.73 (0.20)(4) 7.61 7.41 -- -- --
10/31/02 26.71 (0.23)(4) (3.73) (3.96) (0.00)(5) (1.02) (1.02)
CLASS C SHARES
Year Ended:
10/31/06 $34.94 $(0.16) $ 4.50 $ 4.34 $ -- $(0.97) $(0.97)
10/31/05 31.56 (0.06) 3.88 3.82 (0.01) (0.43) (0.44)
10/31/04 29.20 (0.21)(4) 2.57 2.36 -- -- --
10/31/03 21.74 (0.18)(4) 7.64 7.46 -- -- --
10/31/02(3) 27.59 (0.14)(4) (5.71) (5.85) -- -- --
CLASS I SHARES
Year Ended:
10/31/06 $39.39 $ 0.32 $ 5.07 $ 5.39 $(0.25) $(0.97) $(1.22)
10/31/05 35.39 0.39 4.37 4.76 (0.33) (0.43) (0.76)
10/31/04 32.39 0.17(4) 2.87 3.04 (0.04) -- (0.04)
10/31/03 23.83 0.13(4) 8.43 8.56 -- -- --
10/31/02 29.00 0.12(4) (4.10) (3.98) (0.17) (1.02) (1.19)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES RATIO OF
TO AVERAGE TO AVERAGE NET
NET NET ASSETS NET ASSETS INVESTMENT
ASSET BEFORE AFTER INCOME/
VALUE NET ASSETS REIMBURSE- REIMBURSE- (LOSS) TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS A SHARES
Year Ended:
10/31/06 $43.09 13.50% $880,755 0.85% 0.85% 0.44% 15%
10/31/05 38.99 13.13 735,037 0.91 0.91 0.68 13
10/31/04 35.04 9.06 621,924 0.94 0.94 0.17 12
10/31/03 32.14 35.44 523,308 1.02 1.02 0.14 14
10/31/02 23.73 (14.94) 375,821 1.05 1.05 0.07 16
CLASS B SHARES
Year Ended:
10/31/06 $38.16 12.45% $184,340 1.78% 1.78% (0.49)% 15%
10/31/05 34.84 12.09 167,531 1.85 1.85 (0.26) 13
10/31/04 31.48 8.03 141,134 1.89 1.89 (0.78) 12
10/31/03 29.14 34.10 122,221 2.01 2.01 (0.85) 14
10/31/02 21.73 (15.73) 102,208 2.00 2.00 (0.88) 16
CLASS C SHARES
Year Ended:
10/31/06 $38.31 12.53% $ 21,039 1.69% 1.69% (0.40)% 15%
10/31/05 34.94 12.18 13,613 1.78 1.78 (0.19) 13
10/31/04 31.56 8.12 9,000 1.80 1.80 (0.69) 12
10/31/03 29.20 34.27 3,593 1.90 1.90 (0.74) 14
10/31/02(3) 21.74 (21.20) 1,341 1.96(6) 1.96(6) (0.84)(6) 16
CLASS I SHARES
Year Ended:
10/31/06 $43.56 13.88% $826,593 0.53% 0.53% 0.76% 15%
10/31/05 39.39 13.55 621,993 0.58 0.58 1.01 13
10/31/04 35.39 9.39 515,464 0.61 0.61 0.50 12
10/31/03 32.39 35.92 349,363 0.67 0.67 0.49 14
10/31/02 23.83 (14.65) 195,029 0.70 0.70 0.42 16
(1) Total return is not annualized for periods of less than one year and does
not reflect any applicable sales charges.
The total returns would have been lower if certain fees had not been waived
and/or expenses reimbursed by the investment advisor or if fees had not
been reduced by drecits allowed by the custodian.
(2) Ratio of operating expenses to aveage net assets includes expenses paid
indirectly through custodian credits.
(3) The Funds commenced selling Class C shares on March 1, 2002.
(4) Per share numbers have been calculated using the average shares method.
(5) Amount represents less than $0.01 per share.
(6) Annualized.
Financial Highlights
MID CAP STOCK FUND
For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------ ----------------------------------------
NET REALIZED
NET AND
ASSET NET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE INVESTMENT GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INCOME/ ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD (LOSS) INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS A SHARES
Year Ended:
10/31/06 $19.23 $ 0.10(4) $ 3.02 $ 3.12 $(0.26) $(1.23) $(1.49)
10/31/05 17.06 0.24(4) 2.56 2.80 (0.03) (0.60) (0.63)
10/31/04 15.34 0.02(4) 1.75 1.77 (0.01) (0.04) (0.05)
10/31/03 12.39 0.01(4) 2.94 2.95 -- -- --
10/31/02 13.50 (0.01)(4) (0.60) (0.61) -- (0.50) (0.50)
CLASS B SHARES
Year Ended:
10/31/06 $18.23 $(0.09)(4) $ 2.85 $ 2.76 $(0.10) $(1.23) $(1.33)
10/31/05 16.33 0.06(4) 2.44 2.50 -- (0.60) (0.60)
10/31/04 14.82 (0.14)(4) 1.69 1.55 -- (0.04) (0.04)
10/31/03 12.09 (0.13)(4) 2.86 2.73 -- -- --
10/31/02 13.31 (0.15)(4) (0.57) (0.72) -- (0.50) (0.50)
CLASS C SHARES
Year Ended:
10/31/06 $18.28 $(0.06)(4) $ 2.85 $ 2.79 $(0.18) $(1.23) $(1.41)
10/31/05 16.36 0.08(4) 2.44 2.52 -- (0.60) (0.60)
10/31/04 14.83 (0.13)(4) 1.70 1.57 -- (0.04) (0.04)
10/31/03 12.10 (0.12)(4) 2.85 2.73 -- -- --
10/31/02(3) 13.60 (0.10)(4) (1.40) (1.50) -- -- --
CLASS I SHARES
Year Ended:
10/31/06 $19.47 $ 0.17(4) $ 3.04 $ 3.21 $(0.31) $(1.23) $(1.54)
10/31/05 17.26 0.30(4) 2.59 2.89 (0.08) (0.60) (0.68)
10/31/04 15.50 0.08(4) 1.78 1.86 (0.06) (0.04) (0.10)
10/31/03 12.51 0.06(4) 2.97 3.03 (0.04) -- (0.04)
10/31/02 13.59 0.04(4) (0.60) (0.56) (0.02) (0.50) (0.52)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES RATIO OF
TO AVERAGE TO AVERAGE NET
NET NET ASSETS NET ASSETS INVESTMENT
ASSET BEFORE AFTER INCOME/
VALUE NET ASSETS REIMBURSE- REIMBURSE- (LOSS) TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS A SHARES
Year Ended:
10/31/06 $20.86 17.12% $215,201 1.09% 1.09% 0.53% 22%
10/31/05 19.23 16.75 93,180 1.12 1.12 1.32 28
10/31/04 17.06 11.57 59,491 1.14 1.14 0.12 23
10/31/03 15.34 23.81 38,676 1.16 1.16 0.07 28
10/31/02 12.39 (4.86) 28,248 1.25 1.25 (0.10) 27
CLASS B SHARES
Year Ended:
10/31/06 $19.66 15.95% $ 30,663 2.07% 2.07% (0.45)% 22%
10/31/05 18.23 15.63 24,218 2.11 2.11 0.33 28
10/31/04 16.33 10.54 19,958 2.12 2.12 (0.86) 23
10/31/03 14.82 22.50 17,405 2.24 2.24 (1.01) 28
10/31/02 12.09 (5.79) 13,229 2.26 2.26 (1.11) 27
CLASS C SHARES
Year Ended:
10/31/06 $19.66 16.09% $ 8,051 1.95% 1.95% (0.33)% 22%
10/31/05 18.28 15.73 4,303 1.99 1.99 0.45 28
10/31/04 16.36 10.60 1,769 2.04 2.04 (0.79) 23
10/31/03 14.83 22.56 550 2.15 2.15 (0.92) 28
10/31/02(3) 12.10 (11.03) 55 2.24(6) 2.24(6) (1.09)(6) 27
CLASS I SHARES
Year Ended:
10/31/06 $21.14 17.41% $725,604 0.78% 0.78% 0.84% 22%
10/31/05 19.47 17.11 766,698 0.80 0.80 1.64 28
10/31/04 17.26 12.02 616,052 0.80 0.80 0.45 23
10/31/03 15.50 24.27 369,772 0.81 0.81 0.42 28
10/31/02 12.51 (4.44) 231,409 0.83 0.83 0.32 27
(1) Total return is not annualized for periods of less than one year and does
not reflect any applicable sales charges. The total returns would have been
lower if certain fees had not been waived and/or expenses reimbursed by the
investment advisor or if fees had not been reduced by credits allowed by
the custodian.
(2) Ratio of operating expenses to average net assets includes expenses paid
indirectly through custodian credits.
(3) The Funds commenced selling Class C shares on March 1, 2002.
(4) Per share numbers have been calculated using the average shares method.
(5) Amount represents less than $0.01 per share.
(6) Annualized.
Financial Highlights
SHORT TERM INCOME FUND
For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------ ----------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS A SHARES
Year Ended:
10/31/06 $2.31 $0.08 $ 0.01 $ 0.09 $(0.08) $-- $(0.08)
10/31/05 2.38 0.08 (0.07) 0.01 (0.08) -- (0.08)
10/31/04 2.39 0.08 (0.01) 0.07 (0.08) -- (0.08)
10/31/03 2.34 0.09 0.06 0.15 (0.10) -- (0.10)
10/31/02 2.41 0.12 (0.07) 0.05 (0.12) -- (0.12)
CLASS B SHARES
Year Ended:
10/31/06 $2.31 $0.07 $ 0.01 $ 0.08 $(0.07) $-- $(0.07)
10/31/05 2.38 0.06 (0.07) (0.01) (0.06) -- (0.06)
10/31/04 2.39 0.06 (0.01) 0.05 (0.06) -- (0.06)
10/31/03 2.34 0.07 0.06 0.13 (0.08) -- (0.08)
10/31/02 2.41 0.10 (0.07) 0.03 (0.10) -- (0.10)
CLASS C SHARES
Year Ended:
10/31/06 $2.31 $0.07 $ 0.01 $ 0.08 $(0.07) $-- $(0.07)
10/31/05 2.38 0.06 (0.07) (0.01) (0.06) -- (0.06)
10/31/04 2.39 0.06 (0.01) 0.05 (0.06) -- (0.06)
10/31/03 2.34 0.07 0.06 0.13 (0.08) -- (0.08)
10/31/02(3) 2.37 0.07 (0.03) 0.04 (0.07) -- (0.07)
CLASS I SHARES
Year Ended:
10/31/06 $2.31 $0.09 $ 0.01 $ 0.10 $(0.09) $-- $(0.09)
10/31/05 2.38 0.09 (0.07) 0.02 (0.09) -- (0.09)
10/31/04 2.39 0.08 (0.01) 0.07 (0.08) -- (0.08)
10/31/03 2.34 0.09 0.06 0.15 (0.10) -- (0.10)
10/31/02 2.41 0.13 (0.07) 0.06 (0.13) -- (0.13)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS A SHARES
Year Ended:
10/31/06 $2.32 4.15% $ 32,081 0.95% 0.95% 3.54% 14%
10/31/05 2.31 0.49 36,287 0.93 0.81 3.36 13
10/31/04 2.38 2.87 54,082 0.92 0.83 3.23 14
10/31/03 2.39 6.28 71,920 0.97 0.84 3.58 33
10/31/02 2.34 2.18 28,106 1.09 0.96 5.03 28
CLASS B SHARES
Year Ended:
10/31/06 $2.32 3.36% $ 16,411 1.71% 1.71% 2.78% 14%
10/31/05 2.31 (0.26) 23,617 1.70 1.56 2.61 13
10/31/04 2.38 2.11 31,812 1.70 1.58 2.48 14
10/31/03 2.39 5.49 44,310 1.70 1.59 2.83 33
10/31/02 2.34 1.41 24,621 1.77 1.71 4.28 28
CLASS C SHARES
Year Ended:
10/31/06 $2.32 3.39% $ 6,980 1.68% 1.68% 2.81% 14%
10/31/05 2.31 (0.26) 13,477 1.65 1.56 2.61 13
10/31/04 2.38 2.10 18,970 1.66 1.58 2.48 14
10/31/03 2.39 5.48 17,843 1.65 1.59 2.83 33
10/31/02(3) 2.34 1.61 5,743 1.68(5) 1.68(5) 4.31(5) 28
CLASS I SHARES
Year Ended:
10/31/06 $2.32 4.57% $181,910 0.55% 0.55% 3.94% 14%
10/31/05 2.31 0.74 195,607 0.56 0.56 3.61 13
10/31/04 2.38 3.13 168,947 0.58 0.58 3.48 14
10/31/03 2.39 6.55 129,443 0.59 0.59 3.83 33
10/31/02 2.34 2.53 89,210 0.61 0.61 5.38 28
(1) Total return is not annualized for periods of less than one year and does
not reflect any applicable sales charges. The total returns would have been
lower if certain fees had not been waived and/or expenses reimbursed by the
investment advisor or if fees had not been reduced by credits allowed by
the custodian.
(2) Ratio of operating expenses to average net assets includes expenses paid
indirectly through custodian credits.
(3) The Funds commenced selling Class C shares on March 1, 2002.
(4) Per share numbers have been calculated using the average shares method.
(5) Annualized.
Financial Highlights
U.S. GOVERNMENT SECURITIES FUND
For a Fund share outstanding throughout each period.
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------ ----------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS A SHARES
Year Ended:
10/31/06 $10.53 $0.44 $ 0.04 $0.48 $(0.47) $-- $(0.47)
10/31/05 10.88 0.41(4) (0.30) 0.11 (0.46) -- (0.46)
10/31/04 10.89 0.40(4) 0.05 0.45 (0.46) -- (0.46)
10/31/03 11.19 0.40(4) (0.19) 0.21 (0.51) -- (0.51)
10/31/02 11.20 0.54 0.04 0.58 (0.59) -- (0.59)
CLASS B SHARES
Year Ended:
10/31/06 $10.52 $0.37 $ 0.05 $0.42 $(0.40) $-- $(0.40)
10/31/05 10.87 0.33(4) (0.30) 0.03 (0.38) -- (0.38)
10/31/04 10.88 0.32(4) 0.05 0.37 (0.38) -- (0.38)
10/31/03 11.18 0.32(4) (0.19) 0.13 (0.43) -- (0.43)
10/31/02 11.19 0.46 0.04 0.50 (0.51) -- (0.51)
CLASS C SHARES
Year Ended:
10/31/06 $10.51 $0.37 $ 0.05 $0.42 $(0.40) $-- $(0.40)
10/31/05 10.86 0.33(4) (0.30) 0.03 (0.38) -- (0.38)
10/31/04 10.87 0.32(4) 0.05 0.37 (0.38) -- (0.38)
10/31/03 11.18 0.32(4) (0.20) 0.12 (0.43) -- (0.43)
10/31/02(3) 11.00 0.33 0.18 0.51 (0.33) -- (0.33)
CLASS I SHARES
Year Ended:
10/31/06 $10.53 $0.49 $ 0.05 $0.54 $(0.52) $-- $(0.52)
10/31/05 10.88 0.45(4) (0.30) 0.15 (0.50) -- (0.50)
10/31/04 10.89 0.44(4) 0.05 0.49 (0.50) -- (0.50)
10/31/03 11.19 0.44(4) (0.19) 0.25 (0.55) -- (0.55)
10/31/02 11.20 0.58 0.04 0.62 (0.63) -- (0.63)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS A SHARES
Year Ended:
10/31/06 $10.54 4.74% $ 98,110 0.91% 0.91% 4.25% 13%
10/31/05 10.53 1.02 120,615 0.92 0.92 3.84 34
10/31/04 10.88 4.26 134,896 0.93 0.93 3.64 30
10/31/03 10.89 1.94 176,859 0.93 0.93 3.59 62
10/31/02 11.19 5.37 196,222 0.96 0.96 4.91 48
CLASS B SHARES
Year Ended:
10/31/06 $10.54 4.06% $ 85,761 1.66% 1.66% 3.50% 13%
10/31/05 10.52 0.28 122,147 1.65 1.65 3.11 34
10/31/04 10.87 3.50 157,900 1.65 1.65 2.92 30
10/31/03 10.88 1.20 251,153 1.66 1.66 2.86 62
10/31/02 11.18 4.62 271,440 1.68 1.68 4.19 48
CLASS C SHARES
Year Ended:
10/31/06 $10.53 4.00% $ 7,964 1.63% 1.63% 3.53% 13%
10/31/05 10.51 0.29 6,775 1.64 1.64 3.12 34
10/31/04 10.86 3.53 6,279 1.64 1.64 2.93 30
10/31/03 10.87 1.12 13,354 1.64 1.64 2.88 62
10/31/02(3) 11.18 4.74 11,634 1.63(5) 1.63(5) 4.24(5) 48
CLASS I SHARES
Year Ended:
10/31/06 $10.55 5.25% $1,521,330 0.52% 0.52% 4.64% 13%
10/31/05 10.53 1.41 1,642,617 0.54 0.54 4.22 34
10/31/04 10.88 4.65 1,260,104 0.55 0.55 4.02 30
10/31/03 10.89 2.32 658,676 0.57 0.57 3.95 62
10/31/02 11.19 5.77 365,912 0.58 0.58 5.29 48
(1) Total return is not annualized for periods of less than one year and does
not reflect any applicable sales charges.
The total returns would have been lower if certain fees had not been waived
and/or expenses reimbursed by the investment advisor or if fees had not
been reduced by credits allowed by the custodian.
(2) Ratio of operating expenses to average net assets includes expenses paid
indirectly through custodian credits.
(3) The Funds commenced selling Class C shares on March 1, 2002.
(4) Per share numbers have been calculated using the average shares method.
(5) Annualized.
Financial Highlights
INCOME FUND
For a Fund share outstanding throughout each period.
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------ ----------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS A SHARES
Year Ended:
10/31/06 $9.05 $0.48 $ 0.05 $0.53 $(0.49) $-- $(0.49)
10/31/05 9.46 0.45 (0.38) 0.07 (0.48) -- (0.48)
10/31/04 9.35 0.46 0.15 0.61 (0.50) -- (0.50)
10/31/03 9.02 0.51 0.38 0.89 (0.56) -- (0.56)
10/31/02 9.32 0.60 (0.28) 0.32 (0.62) -- (0.62)
CLASS B SHARES
Year Ended:
10/31/06 $9.08 $0.41 $ 0.05 $0.46 $(0.42) $-- $(0.42)
10/31/05 9.49 0.38 (0.38) 0.00 (0.41) -- (0.41)
10/31/04 9.37 0.39 0.16 0.55 (0.43) -- (0.43)
10/31/03 9.04 0.44 0.38 0.82 (0.49) -- (0.49)
10/31/02 9.35 0.54 (0.29) 0.25 (0.56) -- (0.56)
CLASS C SHARES
Year Ended:
10/31/06 $9.08 $0.41 $ 0.05 $0.46 $(0.42) $-- $(0.42)
10/31/05 9.49 0.38 (0.38) 0.00 (0.41) -- (0.41)
10/31/04 9.37 0.39 0.16 0.55 (0.43) -- (0.43)
10/31/03 9.04 0.45 0.38 0.83 (0.50) -- (0.50)
10/31/02(3) 9.21 0.37 (0.17) 0.20 (0.37) -- (0.37)
CLASS I SHARES
Year Ended:
10/31/06 $9.07 $0.51 $ 0.05 $0.56 $(0.52) $-- $(0.52)
10/31/05 9.48 0.49 (0.38) 0.11 (0.52) -- (0.52)
10/31/04 9.36 0.50 0.16 0.66 (0.54) -- (0.54)
10/31/03 9.03 0.55 0.38 0.93 (0.60) -- (0.60)
10/31/02 9.34 0.64 (0.29) 0.35 (0.66) -- (0.66)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS A SHARES
Year Ended:
10/31/06 $9.09 6.02% $143,590 0.89% 0.89% 5.27% 26%
10/31/05 9.05 0.75 147,521 0.91 0.91 4.83 20
10/31/04 9.46 6.68 147,695 0.92 0.92 4.90 24
10/31/03 9.35 10.10 153,654 0.94 0.94 5.42 33
10/31/02 9.02 3.63 130,512 0.97 0.97 6.61 20
CLASS B SHARES
Year Ended:
10/31/06 $9.12 5.23% $ 99,751 1.65% 1.65% 4.51% 26%
10/31/05 9.08 0.02 128,067 1.65 1.65 4.09 20
10/31/04 9.49 6.03 152,065 1.65 1.65 4.17 24
10/31/03 9.37 9.31 194,396 1.65 1.65 4.71 33
10/31/02 9.04 2.79 142,186 1.68 1.68 5.90 20
CLASS C SHARES
Year Ended:
10/31/06 $9.12 5.23% $ 10,412 1.64% 1.64% 4.52% 26%
10/31/05 9.08 0.01 10,761 1.66 1.66 4.08 20
10/31/04 9.49 6.02 11,580 1.65 1.65 4.17 24
10/31/03 9.37 9.33 15,274 1.63 1.63 4.73 33
10/31/02(3) 9.04 2.25 7,710 1.62(5) 1.62(5) 5.96(5) 20
CLASS I SHARES
Year Ended:
10/31/06 $9.11 6.41% $963,326 0.52% 0.52% 5.64% 26%
10/31/05 9.07 1.13 903,915 0.54 0.54 5.20 20
10/31/04 9.48 7.18 834,726 0.55 0.55 5.27 24
10/31/03 9.36 10.51 679,139 0.56 0.56 5.80 33
10/31/02 9.03 3.94 487,376 0.56 0.56 7.02 20
(1) Total return is not annualized for periods of less than one year and does
not reflect any applicable sales charges. The total returns would have been
lower if certain fees had not been waived and/or expenses reimbursed by the
investment advisor or if fees had not been reduced by credits allowed by
the custodian.
(2) Ratio of operating expenses to average net assets includes expenses paid
indirectly through custodian credits.
(3) The Funds commenced selling Class C shares on March 1, 2002.
(4) Per share numbers have been calculated using the average shares method.
(5) Annualized.
Financial Highlights
HIGH YIELD FUND
For a Fund share outstanding throughout each period.
INCOME/(LOSS) FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------ ----------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE NET GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
--------- ---------- ------------ ---------- ---------- ------------- -------------
CLASS A SHARES
Year Ended:
10/31/06 $8.23 $0.61 $ 0.55 $ 1.16 $(0.60) $-- $(0.60)
10/31/05 8.28 0.56 (0.03) 0.53 (0.58) -- (0.58)
10/31/04 7.88 0.58 0.43 1.01 (0.61) -- (0.61)
10/31/03 6.63 0.61(4) 1.31 1.92 (0.67) -- (0.67)
10/31/02 7.44 0.71 (0.72) (0.01) (0.80) -- (0.80)
CLASS B SHARES
Year Ended:
10/31/06 $8.27 $0.55 $ 0.55 $ 1.10 $(0.54) $-- $(0.54)
10/31/05 8.32 0.50 (0.03) 0.47 (0.52) -- (0.52)
10/31/04 7.91 0.52 0.44 0.96 (0.55) -- (0.55)
10/31/03 6.66 0.56(4) 1.31 1.87 (0.62) -- (0.62)
10/31/02 7.47 0.66 (0.72) (0.06) (0.75) -- (0.75)
CLASS C SHARES
Year Ended:
10/31/06 $8.27 $0.55 $ 0.55 $ 1.10 $(0.54) $-- $(0.54)
10/31/05 8.32 0.50 (0.03) 0.47 (0.52) -- (0.52)
10/31/04 7.91 0.52 0.44 0.96 (0.55) -- (0.55)
10/31/03 6.67 0.56(4) 1.30 1.86 (0.62) -- (0.62)
10/31/02(3) 7.55 0.46 (0.86) (0.40) (0.48) -- (0.48)
CLASS I SHARES
Year Ended:
10/31/06 $8.22 $0.64 $ 0.55 $ 1.19 $(0.63) $-- $(0.63)
10/31/05 8.27 0.58 (0.03) 0.55 (0.60) -- (0.60)
10/31/04 7.86 0.60 0.44 1.04 (0.63) -- (0.63)
10/31/03 6.62 0.63(4) 1.30 1.93 (0.69) -- (0.69)
10/31/02 7.43 0.73 (0.72) 0.01 (0.82) -- (0.82)
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA
------------------------------------------------------------
RATIO OF RATIO OF
EXPENSES EXPENSES
TO AVERAGE TO AVERAGE RATIO OF
NET NET ASSETS NET ASSETS NET
ASSET BEFORE AFTER INVESTMENT
VALUE NET ASSETS REIMBURSE- REIMBURSE- INCOME TO PORTFOLIO
END OF TOTAL END OF PERIOD MENTS/ MENTS/ AVERAGE TURNOVER
PERIOD RETURN(1) (IN 000S) WAIVERS WAIVERS(2) NET ASSETS RATE
------ --------- ------------- ---------- ---------- ---------- ---------
CLASS A SHARE
Year Ended:
10/31/06 $8.79 14.63% $ 422,747 0.90% 0.90% 7.31% 85%
10/31/05 8.23 6.56 111,164 0.92 0.92 6.76 94
10/31/04 8.28 13.23 85,190 0.93 0.93 7.11 82
10/31/03 7.88 30.13 48,618 0.97 0.97 8.24 61
10/31/02 6.63 (0.48) 13,563 1.03 1.03 9.72 60
CLASS B SHARE
Year Ended:
10/31/06 $8.83 13.72% $ 83,143 1.66% 1.66% 6.55% 85%
10/31/05 8.27 5.75 73,667 1.68 1.68 6.00 94
10/31/04 8.32 12.50 80,036 1.69 1.69 6.35 82
10/31/03 7.91 29.08 83,665 1.73 1.73 7.48 61
10/31/02 6.66 (1.17) 44,004 1.78 1.78 8.97 60
CLASS C SHARE
Year Ended:
10/31/06 $8.83 13.74% $ 76,883 1.65% 1.65% 6.56% 85%
10/31/05 8.27 5.77 38,475 1.66 1.66 6.02 94
10/31/04 8.32 12.51 33,318 1.68 1.68 6.36 82
10/31/03 7.91 29.08 24,540 1.71 1.71 7.50 61
10/31/02(3) 6.67 (5.66) 2,556 1.78(5) 1.78(5) 8.97(5) 60
CLASS I SHARE
Year Ended:
10/31/06 $8.78 15.01% $ 570,861 0.57% 0.57% 7.64% 85%
10/31/05 8.22 6.91 588,409 0.59 0.59 7.09 94
10/31/04 8.27 13.75 526,095 0.61 0.61 7.43 82
10/31/03 7.86 30.44 424,781 0.64 0.64 8.57 61
10/31/02 6.62 (0.15) 244,937 0.68 0.68 10.07 60
(1) Total return is not anualized for periods of less than year and does
not reflect any applicable sales charges.
The total returns would have been lower if certain fees had not been waived
and/or expenses reimbursed by the investment advisor or if fees had not
been reduced by credits allowed by the custodian.
(2) Ratio of operating expenses to average net assets includes expenses paid
indirectly through custodian credits.
(3) The Funds commenced selling Class C shares on March 1, 2002.
(4) Per share numbers have been calculated using the average shares method.
(5) Annualized.
FINANCIAL HIGHLIGHTS
PRINCIPAL INVESTORS FUND, INC.
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
BOND & MORTGAGE SECURITIES FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 10.62 $ 10.90 $ 10.70 $ 10.63 $ 10.71
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.51 0.44 0.40 0.38 0.50
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.03 (0.28) 0.20 0.11 (0.02)
Total From Investment Operations 0.54 0.16 0.60 0.49 0.48
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.49) (0.43) (0.40) (0.42) (0.50)
Distributions from Realized Gains.................... - (0.01) - - (0.06)
Total Dividends and Distributions (0.49) (0.44) (0.40) (0.42) (0.56)
Net Asset Value, End of Period $ 10.67 $ 10.62 $ 10.90 $ 10.70 $ 10.63
Total Return.............................................. 5.27% 1.45% 5.74% 4.63% 4.76%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $1,397,636 $771,847 $373,880 $165,504 $42,163
Ratio of Expenses to Average Net Assets.............. 0.56% 0.77% 0.59% 0.55% 0.55%
Ratio of Expenses to Average Net Assets (Excluding
Reverse Repurchase Agreement Expense)(b)............. 0.53% 0.55% 0.55% -% -%
Ratio of Net Investment Income to Average Net Assets. 4.85% 4.07% 3.71% 3.51% 4.72%
Portfolio Turnover Rate.............................. 274.5% 202.1%( c) 150.5% 91.0% 46.7%
2006 2005 2004 2003( d)
---- ---- ---- ----
DISCIPLINED LARGECAP BLEND FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 14.37 $ 12.95 $ 12.12 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.19 0.18 0.11 0.10
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.88 1.37 1.10 2.02
Total From Investment Operations 2.07 1.55 1.21 2.12
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.13) (0.07) (0.11) -
Distributions from Realized Gains.................... (0.20) (0.06) (0.27) -
Total Dividends and Distributions (0.33) (0.13) (0.38) -
Net Asset Value, End of Period $ 16.11 $ 14.37 $ 12.95 $ 12.12
Total Return.............................................. 14.61% 12.07% 10.22% 21.20%( e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $974,790 $523,512 $247,979 $11,910
Ratio of Expenses to Average Net Assets.............. 0.59% 0.60% 0.60% 0.60%( f)
Ratio of Net Investment Income to Average Net Assets. 1.27% 1.25% 0.89% 1.02%(f)
Portfolio Turnover Rate.............................. 92.4% 86.7%( g) 106.2% 109.2%(f)
(a) Calculated based on average shares outstanding during the period.
(b) Excludes interest expense paid on borrowings through reverse repurchase
agreements. See "Operating Policies" in notes to financial statements.
(c) Portfolio turnover rate excludes approximately $213,484,000 of securities
from the acquisition of Principal Bond Fund, Inc.
(d) Period from December 30, 2002, date operations commenced, through October
31, 2003.
(e) Total return amounts have not been annualized.
(f) Computed on an annualized basis.
(g) Portfolio turnover rate excludes approximately $102,898,000 of securities
from the acquisition of Principal Balanced Fund, Inc.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
DIVERSIFIED INTERNATIONAL FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 11.45 $ 9.32 $ 8.01 $ 6.52 $ 7.46
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.18 0.14 0.11 0.06 0.02
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 3.28 2.25 1.26 1.50 (0.88)
Total From Investment Operations 3.46 2.39 1.37 1.56 (0.86)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.09) (0.05) (0.06) (0.07) (0.08)
Distributions from Realized Gains.................... (0.46) (0.21) - - -
Total Dividends and Distributions (0.55) (0.26) (0.06) (0.07) (0.08)
Net Asset Value, End of Period $ 14.36 $ 11.45 $ 9.32 $ 8.01 $ 6.52
Total Return.............................................. 31.29% 26.07% 17.24% 24.09% (11.60)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $44,939 $31,357 $15,831 $8,611 $20,504
Ratio of Expenses to Average Net Assets.............. 0.90% 0.90% 0.89% 0.90% 0.90%
Ratio of Gross Expenses to Average Net Assets........ -% -% 0.90%( b) 0.90%(b) 0.90%(b)
Ratio of Net Investment Income to Average Net Assets. 1.35% 1.37% 1.23% 0.91% 1.15%
Portfolio Turnover Rate.............................. 107.5% 202.7%( c) 160.2%( d) 162.2%( e) 71.4%
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
GOVERNMENT & HIGH QUALITY BOND FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 10.10 $ 10.37 $ 10.35 $ 10.60 $ 10.55
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.45 0.39 0.37 0.36 0.50
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.03 (0.27) 0.08 (0.18) 0.09
Total From Investment Operations 0.48 0.12 0.45 0.18 0.59
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.46) (0.39) (0.43) (0.43) (0.54)
Total Dividends and Distributions (0.46) (0.39) (0.43) (0.43) (0.54)
Net Asset Value, End of Period $ 10.12 $ 10.10 $ 10.37 $ 10.35 $ 10.60
Total Return.............................................. 4.84% 1.14% 4.47% 1.70% 5.86%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $10 $10 $10 $10 $20,777
Ratio of Expenses to Average Net Assets.............. 0.52% 0.41% 0.40% 0.40% 0.40%
Ratio of Expenses to Average Net Assets (Excluding
Reverse Repurchase Agreement Expense)(f)............. 0.40% 0.40% -% -% -%
Ratio of Net Investment Income to Average Net Assets. 4.48% 3.84% 3.52% 3.45% 5.06%
Portfolio Turnover Rate.............................. 271.5% 542.3%( g) 95.2% 219.5% 49.9%
(a) Calculated based on average shares outstanding during the period.
(b) Expense ratio without commission rebates.
(c) Portfolio turnover rate excludes approximately $279,644,000 of securities
from the acquisition of Principal International Fund, Inc. and Principal
International SmallCap Fund, Inc. and $19,133,000 from portfolio
realignment.
(d) Portfolio turnover rate excludes approximately $7,549,000 from portfolio
realignment from the acquisition of International SmallCap Fund.
(e) Portfolio turnover rate excludes approximately $8,876,000 of securities
from the acquisitions of European Fund, Pacific Basin Fund, and
International SmallCap Fund and $5,654,000 from portfolio realignment.
(f) Excludes interest expense paid on borrowings through reverse repurchase
agreements. See "Operating Policies" in notes to financial statements.
(g) Portfolio turnover rate excludes approximately $343,164,000 of securities
from the acquisition of Principal Government Securities Fund Income, Inc.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
HIGH QUALITY INTERMEDIATE-TERM BOND FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 10.66 $ 10.71 $ 10.64 $ 10.62 $ 10.69
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.50 0.41 0.38 0.46 0.54
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.03 (0.26) 0.16 0.02 0.02
Total From Investment Operations 0.53 0.15 0.54 0.48 0.56
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.32) (0.14) (0.39) (0.46) (0.54)
Distributions from Realized Gains.................... (0.01) (0.06) (0.08) - (0.09)
Total Dividends and Distributions (0.33) (0.20) (0.47) (0.46) (0.63)
Net Asset Value, End of Period $ 10.86 $ 10.66 $ 10.71 $ 10.64 $ 10.62
Total Return.............................................. 5.12% 1.46% 5.23% 4.62% 5.56%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $13,377 $2,494 $10 $10 $10
Ratio of Expenses to Average Net Assets.............. 0.65% 0.72% 0.43% 0.40% 0.40%
Ratio of Expenses to Average Net Assets (Excluding
Reverse Repurchase Agreement Expense)(b)............. 0.40% 0.40% 0.40% -% -%
Ratio of Net Investment Income to Average Net Assets. 4.76% 3.90% 3.56% 4.32% 5.22%
Portfolio Turnover Rate.............................. 268.6% 177.4%( c) 152.5% 71.3% 60.8%
2006 2005( d)
---- ----
HIGH YIELD FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 10.24 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.73 0.54
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.09 (0.30)
Total From Investment Operations 0.82 0.24
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.45) -
Total Dividends and Distributions (0.45) -
Net Asset Value, End of Period $ 10.61 $ 10.24
Total Return.............................................. 8.27% 2.40%( e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $95,691 $71,355
Ratio of Expenses to Average Net Assets.............. 0.65% 0.65%( f)
Ratio of Net Investment Income to Average Net Assets. 7.13% 6.29%(f)
Portfolio Turnover Rate.............................. 104.3% 93.2%(f)
(a) Calculated based on average shares outstanding during the period.
(b) Excludes interest expense paid on borrowings through reverse repurchase
agreements. See "Operating Policies" in notes to financial statements.
(c) Portfolio turnover rate excludes approximately $15,223,000 of securities
from the acquisition of High Quality Long-Term Bond Fund.
(d) Period from December 29, 2004, date operations commenced, through October
31, 2005.
(e) Total return amounts have not been annualized.
(f) Computed on an annualized basis.
2006 2005( a)
---- ----
INFLATION PROTECTION FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 9.81 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(b)............ 0.50 0.45
Net Realized and Unrealized Gain (Loss) on
Investments............................................... (0.23) (0.30)
Total From Investment Operations 0.27 0.15
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.50) (0.34)
Distributions from Realized Gains.................... (0.01) -
Total Dividends and Distributions (0.51) (0.34)
Net Asset Value, End of Period $ 9.57 $ 9.81
Total Return.............................................. 2.77% 1.49%( c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $110,930 $70,984
Ratio of Expenses to Average Net Assets.............. 1.53% 1.36%( d)
Ratio of Expenses to Average Net Assets (Excluding
Reverse Repurchase Agreement Expense)(e)............. 0.40% 0.40%(d)
Ratio of Net Investment Income to Average Net Assets. 5.22% 5.32%(d)
Portfolio Turnover Rate.............................. 51.4% 45.5%(d)
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
INTERNATIONAL EMERGING MARKETS FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 19.46 $ 15.16 $ 13.06 $ 8.72 $ 8.31
Income from Investment Operations:
Net Investment Income (Operating Loss)(b)............ 0.24 0.28 0.16 0.03 0.09
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 7.09 5.18 2.10 4.31 0.42
Total From Investment Operations 7.33 5.46 2.26 4.34 0.51
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.17) - (0.16) - (0.10)
Distributions from Realized Gains.................... (1.93) (1.16) - - -
Total Dividends and Distributions (2.10) (1.16) (0.16) - (0.10)
Net Asset Value, End of Period $ 24.69 $ 19.46 $ 15.16 $ 13.06 $ 8.72
Total Return.............................................. 40.45% 37.88% 17.46% 49.77% 6.03%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $65,405 $1,507 $15 $13 $2,517
Ratio of Expenses to Average Net Assets.............. 1.34% 1.35% 1.34% 1.35% 1.35%
Ratio of Gross Expenses to Average Net Assets........ -% -% 1.35%( f) 1.35%(f) -%
Ratio of Net Investment Income to Average Net Assets. 1.01% 1.47% 1.16% 0.34% 0.73%
Portfolio Turnover Rate.............................. 134.0% 181.2%( g) 146.9% 144.7% 151.0%
(a) Period from December 29, 2004, date operations commenced, through October
31, 2005.
(b) Calculated based on average shares outstanding during the period.
(c) Total return amounts have not been annualized.
(d) Computed on an annualized basis.
(e) Excludes interest expense paid on borrowings through reverse repurchase
agreements. See "Operating Policies" in notes to financial statements.
(f) Expense ratio without commission rebates.
(g) Portfolio turnover rate excludes approximately $24,418,000 of securities
from the acquisition of Principal International Emerging Markets Fund, Inc.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
INTERNATIONAL GROWTH FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 11.44 $ 10.07 $ 8.38 $ 6.63 $ 7.58
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.12 0.14 0.13 0.10 (0.01)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 2.84 2.20 1.66 1.65 (0.86)
Total From Investment Operations 2.96 2.34 1.79 1.75 (0.87)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.11) (0.10) (0.10) - (0.08)
Distributions from Realized Gains.................... (0.99) (0.87) - - -
Total Dividends and Distributions (1.10) (0.97) (0.10) - (0.08)
Net Asset Value, End of Period $ 13.30 $ 11.44 $ 10.07 $ 8.38 $ 6.63
Total Return.............................................. 27.80% 24.71% 21.54% 26.40% (11.58)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $1,129,504 $644,994 $354,090 $208,785 $117,442
Ratio of Expenses to Average Net Assets.............. 0.99% 1.00% 1.00% 1.00% 0.99%
Ratio of Gross Expenses to Average Net Assets........ -% -% -% 1.00%( b) 1.00%(b)
Ratio of Net Investment Income to Average Net Assets. 0.99% 1.33% 1.42% 1.37% 0.93%
Portfolio Turnover Rate.............................. 134.7% 139.5% 156.2% 135.3% 96.9%
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
LARGECAP GROWTH FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 7.09 $ 6.09 $ 5.86 $ 5.09 $ 6.17
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.05 0.04 0.02 0.02 (0.03)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.70 1.00 0.22 0.75 (1.05)
Total From Investment Operations 0.75 1.04 0.24 0.77 (1.08)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.01) (0.04) (0.01) - -
Total Dividends and Distributions (0.01) (0.04) (0.01) - -
Net Asset Value, End of Period $ 7.83 $ 7.09 $ 6.09 $ 5.86 $ 5.09
Total Return.............................................. 10.57% 17.05% 4.05% 15.22% (17.50)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $487,805 $278,730 $121,840 $60,790 $23,787
Ratio of Expenses to Average Net Assets.............. 0.54% 0.55% 0.55% 0.55% 0.55%
Ratio of Gross Expenses to Average Net Assets........ -% -% 0.55%(b) 0.55%(b) -%
Ratio of Net Investment Income to Average Net Assets. 0.65% 0.63% 0.34% 0.38% 0.34%
Portfolio Turnover Rate.............................. 93.5% 169.0%( c) 59.8% 59.2%( d) 29.6%
(a) Calculated based on average shares outstanding during the period.
(b) Expense ratio without commission rebates.
(c) Portfolio turnover rate excludes approximately $289,113,000 of securities
from the acquisition of Principal Growth Fund, Inc.
(d) Portfolio turnover rate excludes approximately $2,976,000 of securities
from the acquisition of Technology Fund and $875,000 from portfolio
realignment.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
LARGECAP S&P 500 INDEX FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 8.67 $ 8.67 $ 8.04 $ 6.76 $ 8.09
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.16 0.13 0.13 0.12 0.11
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.23 0.59 0.60 1.24 (1.35)
Total From Investment Operations 1.39 0.72 0.73 1.36 (1.24)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.14) (0.13) (0.10) (0.08) (0.09)
Distributions from Realized Gains.................... (0.04) (0.59) - - -
Total Dividends and Distributions (0.18) (0.72) (0.10) (0.08) (0.09)
Net Asset Value, End of Period $ 9.88 $ 8.67 $ 8.67 $ 8.04 $ 6.76
Total Return.............................................. 16.22% 8.48% 9.10% 20.35% (15.54)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $30,128 $4,270 $10 $114,300 $7
Ratio of Expenses to Average Net Assets.............. 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Net Investment Income to Average Net Assets. 1.74% 1.65% 1.55% 1.54% 1.44%
Portfolio Turnover Rate.............................. 3.7% 11.5%( b) 67.3% 1.1% 67.9%
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
LARGECAP VALUE FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 11.36 $ 10.67 $ 9.82 $ 8.27 $ 9.14
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.23 0.20 0.16 0.14 0.13
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.98 1.00 0.81 1.50 (0.90)
Total From Investment Operations 2.21 1.20 0.97 1.64 (0.77)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.15) (0.13) (0.12) (0.09) (0.10)
Distributions from Realized Gains.................... (0.29) (0.38) - - -
Total Dividends and Distributions (0.44) (0.51) (0.12) (0.09) (0.10)
Net Asset Value, End of Period $ 13.13 $ 11.36 $ 10.67 $ 9.82 $ 8.27
Total Return.............................................. 19.99% 11.54% 9.97% 19.97% (8.54)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $354,854 $197,923 $97,881 $59,663 $27,086
Ratio of Expenses to Average Net Assets.............. 0.45% 0.45% 0.44% 0.45% 0.45%
Ratio of Gross Expenses to Average Net Assets........ -% -% 0.45%( c) 0.45%(c) 0.45%(c)
Ratio of Net Investment Income to Average Net Assets. 1.91% 1.77% 1.51% 1.59% 1.58%
Portfolio Turnover Rate.............................. 92.8% 181.1%( d) 228.4% 179.1% 128.9%
(a) Calculated based on average shares outstanding during the period.
(b) Portfolio turnover rate excludes approximately $71,356,000 of securities
from the acquisition of Principal LargeCap Stock Index Fund, Inc.
(c) Expense ratio without commission rebates.
(d) Portfolio turnover rate excludes approximately $329,124,000 of securities
from the acquisition of Principal Capital Value Fund, Inc.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
MIDCAP BLEND FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 13.79 $ 12.90 $ 11.28 $ 9.01 $ 9.29
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.09 0.15 0.02 0.01 0.08
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.83 1.64 1.76 2.35 (0.28)
Total From Investment Operations 1.92 1.79 1.78 2.36 (0.20)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.08) (0.03) (0.11) (0.04) (0.08)
Distributions from Realized Gains.................... (0.71) (0.87) (0.05) - -
Tax Return of Capital Distribution................... - - - (0.05) -
Total Dividends and Distributions (0.79) (0.90) (0.16) (0.09) (0.08)
Net Asset Value, End of Period $ 14.92 $ 13.79 $ 12.90 $ 11.28 $ 9.01
Total Return.............................................. 14.43% 14.42% 15.89% 26.42% (2.23)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $13 $12 $11 $697 $9
Ratio of Expenses to Average Net Assets.............. 0.64% 0.65% 0.64% 0.65% 0.65%
Ratio of Gross Expenses to Average Net Assets........ -% -% 0.65%( b) 0.65%(b) 0.65%(b)
Ratio of Net Investment Income to Average Net Assets. 0.65% 1.15% 1.71% 0.69% 0.86%
Portfolio Turnover Rate.............................. 43.4% 133.8%( c) 60.8%( d) 35.3%( e) 62.0%
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
MIDCAP GROWTH FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 6.24 $ 5.37 $ 5.21 $ 4.00 $ 5.72
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ (0.01) (0.01) (0.01) (0.02) (0.01)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.45 0.88 0.17 1.23 (1.71)
Total From Investment Operations 0.44 0.87 0.16 1.21 (1.72)
Less Dividends and Distributions:
Net Asset Value, End of Period $ 6.68 $ 6.24 $ 5.37 $ 5.21 $ 4.00
Total Return.............................................. 7.05% 16.20% 3.07% 30.25% (30.07)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $3,945 $11 $5,937 $5,861 $5
Ratio of Expenses to Average Net Assets.............. 0.65% 0.65% 0.65% 0.65% 0.65%
Ratio of Gross Expenses to Average Net Assets........ -% -% 0.65%(b) 0.65%(b) 0.65%(b)
Ratio of Net Investment Income to Average Net Assets. (0.18)% (0.18)% (0.13)% (0.39)% (0.28)%
Portfolio Turnover Rate.............................. 146.1% 233.8% 324.2% 290.7% 276.9%
(a) Calculated based on average shares outstanding during the period.
(b) Expense ratio without commission rebates.
(c) Portfolio turnover rate excludes approximately $574,898,000 of securities
from the acquisition of Principal MidCap Fund, Inc.
(d) Portfolio turnover rate excludes approximately $3,858,000 from portfolio
realignment from the acquisition of Partners MidCap Blend Fund.
(e) Portfolio turnover rate excludes approximately $6,912,000 of securities
from the acquisition of Partners MidCap Blend Fund and $2,567,000 from
portfolio realignment.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
MIDCAP S&P 400 INDEX FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 13.54 $ 11.90 $ 10.95 $ 8.48 $ 9.13
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.17 0.14 0.12 0.09 0.09
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.57 1.88 1.05 2.45 (0.58)
Total From Investment Operations 1.74 2.02 1.17 2.54 (0.49)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.14) (0.05) (0.10) (0.07) (0.09)
Distributions from Realized Gains.................... (0.55) (0.33) (0.12) - (0.07)
Total Dividends and Distributions (0.69) (0.38) (0.22) (0.07) (0.16)
Net Asset Value, End of Period $ 14.59 $ 13.54 $ 11.90 $ 10.95 $ 8.48
Total Return.............................................. 13.27% 17.25% 10.74% 30.23% (5.61)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $12,591 $1,305 $12 $11 $8
Ratio of Expenses to Average Net Assets.............. 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Net Investment Income to Average Net Assets. 1.22% 1.05% 1.01% 1.03% 0.95%
Portfolio Turnover Rate.............................. 31.7% 52.1% 55.9% 41.4% 48.5%
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
MIDCAP VALUE FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 14.79 $ 12.92 $ 11.77 $ 9.73 $ 9.96
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.20 0.19 0.13 0.08 0.11
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 2.03 2.53 1.15 2.07 0.04
Total From Investment Operations 2.23 2.72 1.28 2.15 0.15
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.15) (0.03) (0.13) (0.11) (0.11)
Distributions from Realized Gains.................... (2.08) (0.82) - - (0.27)
Total Dividends and Distributions (2.23) (0.85) (0.13) (0.11) (0.38)
Net Asset Value, End of Period $ 14.79 $ 14.79 $ 12.92 $ 11.77 $ 9.73
Total Return.............................................. 16.83% 22.00%( b) 10.98% 22.33% 1.19%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $5,893 $5,054 $806 $92 $9
Ratio of Expenses to Average Net Assets.............. 0.65% 0.65% 0.59% 0.65% 0.64%
Ratio of Gross Expenses to Average Net Assets........ -% -% 0.67%( c) 0.65%(c) 0.65%(c)
Ratio of Net Investment Income to Average Net Assets. 1.40% 1.31% 1.03% 0.86% 1.08%
Portfolio Turnover Rate.............................. 102.8% 167.8% 225.4% 186.5% 172.2%
(a) Calculated based on average shares outstanding during the period.
(b) During 2005, the Class experienced a significant withdrawal of monies. As
the remaining shareholders held relatively small positions, the total
return amounts expressed herein are greater than those that would have been
experienced without the withdrawal. In addition, the Class experienced a
reimbursement from the Manager relating to a prior period expense
adjustment.The total return amounts expressed herein are greater than those
that would have been experienced without the reimbursement.
(c) Expense ratio without commission rebates.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
MONEY MARKET FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.04 0.03 0.01 0.01 0.02
Total From Investment Operations 0.04 0.03 0.01 0.01 0.02
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.04) (0.03) (0.01) (0.01) (0.02)
Total Dividends and Distributions (0.04) (0.03) (0.01) (0.01) (0.02)
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return.............................................. 4.55% 2.56% 0.85% 0.89% 1.64%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $26,403 $140,592 $56,277 $23,684 $1,522
Ratio of Expenses to Average Net Assets.............. 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of Net Investment Income to Average Net Assets. 4.11% 2.67% 0.89% 0.78% 1.53%
2006 2005( b)
---- ----
PARTNERS GLOBAL EQUITY FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 10.25 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.12 0.07
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.86 0.18
Total From Investment Operations 1.98 0.25
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.07) -
Total Dividends and Distributions (0.07) -
Net Asset Value, End of Period $ 12.16 $ 10.25
Total Return.............................................. 19.39% 2.50%( c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $20,145 $11,184
Ratio of Expenses to Average Net Assets.............. 0.95% 0.95%( d)
Ratio of Net Investment Income to Average Net Assets. 1.02% 1.10%(d)
Portfolio Turnover Rate.............................. 61.2% 37.1%(d)
(a) Calculated based on average shares outstanding during the period.
(b) Period from March 1, 2005, date operations commenced, through October 31,
2005.
(c) Total return amounts have not been annualized.
(d) Computed on an annualized basis.
2006 2005 2004( a)
---- ---- ----
PARTNERS INTERNATIONAL FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 12.74 $ 10.89 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(b)............ 0.18 0.17 0.06
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 3.05 1.82 0.83
Total From Investment Operations 3.23 1.99 0.89
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.10) (0.05) -
Distributions from Realized Gains.................... (0.41) (0.09) -
Total Dividends and Distributions (0.51) (0.14) -
Net Asset Value, End of Period $ 15.46 $ 12.74 $ 10.89
Total Return.............................................. 26.22% 18.33% 8.90%( c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $874,559 $537,573 $193,488
Ratio of Expenses to Average Net Assets.............. 1.09% 1.10% 1.09%( d)
Ratio of Gross Expenses to Average Net Assets........ -% -% 1.10%(d),(e)
Ratio of Net Investment Income to Average Net Assets. 1.26% 1.31% 0.63%(d)
Portfolio Turnover Rate.............................. 66.1% 60.1% 78.8%(d)
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
PARTNERS LARGECAP BLEND FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 10.37 $ 10.14 $ 9.40 $ 8.17 $ 9.11
Income from Investment Operations:
Net Investment Income (Operating Loss)(b)............ 0.12 0.12 0.08 0.10 0.06
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.47 0.78 0.75 1.17 (0.93)
Total From Investment Operations 1.59 0.90 0.83 1.27 (0.87)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.09) (0.10) (0.09) (0.04) (0.07)
Distributions from Realized Gains.................... (0.44) (0.57) - - -
Total Dividends and Distributions (0.53) (0.67) (0.09) (0.04) (0.07)
Net Asset Value, End of Period $ 11.43 $ 10.37 $ 10.14 $ 9.40 $ 8.17
Total Return.............................................. 15.84% 9.03% 8.84% 15.68% (9.66)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $627,235 $557,357 $464,035 $289,273 $138,527
Ratio of Expenses to Average Net Assets.............. 0.74% 0.75% 0.72% 0.74% 0.73%
Ratio of Gross Expenses to Average Net Assets........ -% -% 0.75%(e) 0.75%(e) 0.75%(e)
Ratio of Net Investment Income to Average Net Assets. 1.11% 1.21% 0.85% 1.13% 1.23%
Portfolio Turnover Rate.............................. 52.1% 51.8%( f) 93.9% 41.7% 71.9%
(a) Period from December 29, 2003, date operations commenced, through October
31, 2004.
(b) Calculated based on average shares outstanding during the period.
(c) Total return amounts have not been annualized.
(d) Computed on an annualized basis.
(e) Expense ratio without commission rebates.
(f) Portfolio turnover rate excludes approximately $72,822,000 of securities
from the acquisition of Principal Partners LargeCap Blend Fund, Inc. and
$136,000 from portfolio realignment.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
PARTNERS LARGECAP BLEND FUND I
Institutional shares
Net Asset Value, Beginning of Period...................... $ 8.38 $ 7.72 $ 7.13 $ 6.03 $ 7.55
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.06 0.13 0.08 0.08 0.07
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.16 0.63 0.59 1.09 (1.51)
Total From Investment Operations 1.22 0.76 0.67 1.17 (1.44)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.09) (0.06) (0.08) (0.07) (0.08)
Distributions from Realized Gains.................... (0.03) (0.04) - - -
Total Dividends and Distributions (0.12) (0.10) (0.08) (0.07) (0.08)
Net Asset Value, End of Period $ 9.48 $ 8.38 $ 7.72 $ 7.13 $ 6.03
Total Return.............................................. 14.67% 9.86% 9.42% 19.52% (19.29)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $95,233 $9 $9 $8 $7
Ratio of Expenses to Average Net Assets.............. 0.45% 0.45% 0.45% 0.44% 0.45%
Ratio of Gross Expenses to Average Net Assets........ -% -% 0.45%( b) 0.45%(b) -%
Ratio of Net Investment Income to Average Net Assets. 0.65% 1.58% 1.10% 1.21% 1.05%
Portfolio Turnover Rate.............................. 65.1% 148.8%( c) 76.5% 82.9% 89.4%
(a) Calculated based on average shares outstanding during the period.
(b) Expense ratio without commission rebates.
(c) Portfolio turnover rate excludes approximately $149,848,000 of securities
from the acquisition of Principal Partners Blue Chip Fund, Inc. and
$268,000 from portfolio realignment.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
PARTNERS LARGECAP GROWTH FUND I
Institutional shares
Net Asset Value, Beginning of Period...................... $ 8.11 $ 7.28 $ 7.00 $ 6.09 $ 7.50
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.04 0.04 0.02 0.02 -
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.52 0.83 0.28 0.90 (1.41)
Total From Investment Operations 0.56 0.87 0.30 0.92 (1.41)
Less Dividends and Distributions:
Dividends from Net Investment Income................. - (0.04) (0.02) (0.01) -
Distributions from Realized Gains.................... (0.31) - - - -
Total Dividends and Distributions (0.31) (0.04) (0.02) (0.01) -
Net Asset Value, End of Period $ 8.36 $ 8.11 $ 7.28 $ 7.00 $ 6.09
Total Return.............................................. 6.86% 11.98% 4.28% 15.14% (18.80)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $926,591 $775,660 $625,707 $513,520 $289,691
Ratio of Expenses to Average Net Assets.............. 0.74% 0.74% 0.68% 0.75% 0.75%
Ratio of Gross Expenses to Average Net Assets........ -% -% 0.75%( b) 0.75%(b) -%
Ratio of Net Investment Income to Average Net Assets. 0.52% 0.48% 0.23% 0.39% 0.25%
Portfolio Turnover Rate.............................. 58.5% 66.5%( c) 157.8% 130.9% 182.9%
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
PARTNERS LARGECAP GROWTH FUND II
Institutional shares
Net Asset Value, Beginning of Period...................... $ 8.17 $ 7.76 $ 7.30 $ 6.19 $ 7.44
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.01 0.01 (0.01) - -
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.91 0.56 0.47 1.11 (1.25)
Total From Investment Operations 0.92 0.57 0.46 1.11 (1.25)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.01) (0.03) - - -
Distributions from Realized Gains.................... (0.09) (0.13) - - -
Total Dividends and Distributions (0.10) (0.16) - - -
Net Asset Value, End of Period $ 8.99 $ 8.17 $ 7.76 $ 7.30 $ 6.19
Total Return.............................................. 11.30% 7.31% 6.30% 17.93% (16.80)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $766,512 $715,195 $170,809 $56,784 $3,266
Ratio of Expenses to Average Net Assets.............. 0.99% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment Income to Average Net Assets. 0.11% 0.12% (0.10)% (0.05)% (0.07)%
Portfolio Turnover Rate.............................. 143.4% 95.2% 124.7% 193.9% 176.7%
(a) Calculated based on average shares outstanding during the period.
(b) Expense ratio without commission rebates.
(c) Portfolio turnover rate excludes approximately $62,466,000 of securities
from the acquisition of Principal Partners Equity Growth Fund, Inc.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
PARTNERS LARGECAP VALUE FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 13.54 $ 12.67 $ 11.42 $ 9.39 $ 10.45
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.25 0.21 0.18 0.18 0.11
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 2.51 0.94 1.24 1.95 (1.07)
Total From Investment Operations 2.76 1.15 1.42 2.13 (0.96)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.18) (0.18) (0.17) (0.10) (0.06)
Distributions from Realized Gains.................... (0.51) (0.10) - - (0.04)
Total Dividends and Distributions (0.69) (0.28) (0.17) (0.10) (0.10)
Net Asset Value, End of Period $ 15.61 $ 13.54 $ 12.67 $ 11.42 $ 9.39
Total Return.............................................. 21.18% 9.14% 12.56% 22.86% (9.32)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $2,028,156 $1,397,435 $1,170,226 $964,633 $441,889
Ratio of Expenses to Average Net Assets.............. 0.77% 0.78% 0.78% 0.77% 0.80%
Ratio of Gross Expenses to Average Net Assets........ -% -% 0.80%( b) 0.80%(b) 0.80%(b)
Ratio of Net Investment Income to Average Net Assets. 1.73% 1.58% 1.50% 1.79% 1.59%
Portfolio Turnover Rate.............................. 20.7% 28.1%( c) 26.4% 16.2% 7.8%
2006 2005 2004( d)
---- ---- ----
PARTNERS LARGECAP VALUE FUND I
Institutional shares
Net Asset Value, Beginning of Period...................... $ 11.80 $ 10.53 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.16 0.14 0.05
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 2.04 1.17 0.48
Total From Investment Operations 2.20 1.31 0.53
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.10) (0.04) -
Distributions from Realized Gains.................... (0.13) - -
Total Dividends and Distributions (0.23) (0.04) -
Net Asset Value, End of Period $ 13.77 $ 11.80 $ 10.53
Total Return.............................................. 18.85% 12.49% 5.30%( e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $563,868 $287,911 $5,225
Ratio of Expenses to Average Net Assets.............. 0.80% 0.80% 0.80%( f)
Ratio of Net Investment Income to Average Net Assets. 1.29% 1.26% 1.22%(f)
Portfolio Turnover Rate.............................. 41.3% 58.9% 32.7%(f)
(a) Calculated based on average shares outstanding during the period.
(b) Expense ratio without commission rebates.
(c) Portfolio turnover rate excludes approximately $72,312,000 of securities
from the acquisition of Principal Partners LargeCap Value Fund, Inc. and
$331,000 from portfolio realignment.
(d) Period from June 1, 2004, date operations commenced, through October 31,
2004.
(e) Total return amounts have not been annualized.
(f) Computed on an annualized basis.
2006 2005( a)
---- ----
PARTNERS LARGECAP VALUE FUND II
Institutional shares
Net Asset Value, Beginning of Period...................... $ 10.14 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(b)............ 0.18 0.12
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.62 0.02
Total From Investment Operations 1.80 0.14
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.11) -
Distributions from Realized Gains.................... (0.12) -
Total Dividends and Distributions (0.23) -
Net Asset Value, End of Period $ 11.71 $ 10.14
Total Return.............................................. 18.08% 1.40%( c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $242,210 $196,340
Ratio of Expenses to Average Net Assets.............. 0.85% 0.85%( d)
Ratio of Net Investment Income to Average Net Assets. 1.72% 1.46%(d)
Portfolio Turnover Rate.............................. 14.8% 19.8%(d)
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
PARTNERS MIDCAP GROWTH FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 8.80 $ 7.45 $ 7.20 $ 5.10 $ 6.31
Income from Investment Operations:
Net Investment Income (Operating Loss)(b)............ (0.02) (0.06) (0.04) (0.04) (0.05)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.85 1.41 0.29 2.14 (1.16)
Total From Investment Operations 0.83 1.35 0.25 2.10 (1.21)
Less Dividends and Distributions:
Distributions from Realized Gains.................... (0.07) - - - -
Total Dividends and Distributions (0.07) - - - -
Net Asset Value, End of Period $ 9.56 $ 8.80 $ 7.45 $ 7.20 $ 5.10
Total Return.............................................. 9.41% 18.12% 3.47% 41.18% (19.18)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $324,293 $275,439 $9 $8 $6
Ratio of Expenses to Average Net Assets.............. 1.00% 1.00% 0.89% 0.99% 1.00%
Ratio of Gross Expenses to Average Net Assets........ -% -% 1.00%( e) 1.00%(e) -%
Ratio of Net Investment Income to Average Net Assets. (0.22)% (0.65)% (0.60)% (0.76)% (0.78)%
Portfolio Turnover Rate.............................. 145.8% 185.7%( f) 163.7% 163.3% 225.6%
(a) Period from December 29, 2004, date operations commenced, through October
31, 2005.
(b) Calculated based on average shares outstanding during the period.
(c) Total return amounts have not been annualized.
(d) Computed on an annualized basis.
(e) Expense ratio without commission rebates.
(f) Portfolio turnover rate excludes approximately $34,689,000 of securities
from the acquisition of Principal Partners MidCap Growth Fund, Inc. and
$23,000 from portfolio realignment.
2006 2005 2004( a)
---- ---- ----
PARTNERS MIDCAP GROWTH FUND I
Institutional shares
Net Asset Value, Beginning of Period...................... $ 11.90 $ 10.18 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(b)............ - (0.03) (0.04)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.62 1.75 0.22
Total From Investment Operations 1.62 1.72 0.18
Less Dividends and Distributions:
Distributions from Realized Gains.................... (0.72) - -
Total Dividends and Distributions (0.72) - -
Net Asset Value, End of Period $ 12.80 $ 11.90 $ 10.18
Total Return.............................................. 13.97% 16.90% 1.80%( c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $249,162 $250,351 $128,884
Ratio of Expenses to Average Net Assets.............. 1.00% 1.00% 0.98%( d)
Ratio of Gross Expenses to Average Net Assets........ -% -% 1.00%(d),(e)
Ratio of Net Investment Income to Average Net Assets. 0.01% (0.30)% (0.49)%(d)
Portfolio Turnover Rate.............................. 133.4% 84.5% 91.1%(d)
2006 2005( f)
---- ----
PARTNERS MIDCAP GROWTH FUND II
Institutional shares
Net Asset Value, Beginning of Period...................... $ 10.80 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(b)............ (0.02) (0.03)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.16 0.83
Total From Investment Operations 1.14 0.80
Less Dividends and Distributions:
Distributions from Realized Gains.................... (0.04) -
Total Dividends and Distributions (0.04) -
Net Asset Value, End of Period $ 11.90 $ 10.80
Total Return.............................................. 10.60% 8.00%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $538,894 $445,559
Ratio of Expenses to Average Net Assets.............. 1.00% 1.00%(d)
Ratio of Net Investment Income to Average Net Assets. (0.14)% (0.29)%(d)
Portfolio Turnover Rate.............................. 160.5% 126.4%(d)
(a) Period from December 29, 2003, date operations commenced, through October
31, 2004.
(b) Calculated based on average shares outstanding during the period.
(c) Total return amounts have not been annualized.
(d) Computed on an annualized basis.
(e) Expense ratio without commission rebates.
(f) Period from December 29, 2004, date operations commenced, through October
31, 2005.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
PARTNERS MIDCAP VALUE FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 15.12 $ 13.92 $ 12.04 $ 9.34 $ 9.43
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.11 0.03 0.02 0.01 (0.02)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 2.19 2.15 2.03 2.69 (0.04)
Total From Investment Operations 2.30 2.18 2.05 2.70 (0.06)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.04) - (0.01) - (0.01)
Distributions from Realized Gains.................... (1.33) (0.98) (0.16) - -
Tax Return of Capital Distribution................... - - - - (0.02)
Total Dividends and Distributions (1.37) (0.98) (0.17) - (0.03)
Net Asset Value, End of Period $ 16.05 $ 15.12 $ 13.92 $ 12.04 $ 9.34
Total Return.............................................. 16.01% 16.18% 17.15% 28.91% (0.67)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $466,928 $390,104 $215,174 $78,679 $21,210
Ratio of Expenses to Average Net Assets.............. 1.00% 1.00% 0.97% 0.98% 1.00%
Ratio of Gross Expenses to Average Net Assets........ -% -% 1.00%( b) 1.00%(b) -%
Ratio of Net Investment Income to Average Net Assets. 0.73% 0.23% 0.19% 0.07% -%
Portfolio Turnover Rate.............................. 151.4% 87.9% 49.9% 49.7% 80.0%
2006 2005 2004( c)
---- ---- ----
PARTNERS MIDCAP VALUE FUND I
Institutional shares
Net Asset Value, Beginning of Period...................... $ 13.34 $ 11.46 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.09 0.06 0.05
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.96 2.00 1.41
Total From Investment Operations 2.05 2.06 1.46
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.05) (0.05) -
Distributions from Realized Gains.................... (1.12) (0.13) -
Total Dividends and Distributions (1.17) (0.18) -
Net Asset Value, End of Period $ 14.22 $ 13.34 $ 11.46
Total Return.............................................. 16.44% 18.16% 14.60%( d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $729,727 $515,611 $302,583
Ratio of Expenses to Average Net Assets.............. 1.00% 1.00% 1.00%( e)
Ratio of Net Investment Income to Average Net Assets. 0.68% 0.49% 0.57%(e)
Portfolio Turnover Rate.............................. 52.4% 59.4% 66.0%(e)
(a) Calculated based on average shares outstanding during the period.
(b) Expense ratio without commission rebates.
(c) Period from December 29, 2003, date operations commenced, through October
31, 2004.
(d) Total return amounts have not been annualized.
(e) Computed on an annualized basis.
2006 2005 2004 2003( a)
---- ---- ---- ----
PARTNERS SMALLCAP BLEND FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 16.54 $ 14.95 $ 13.62 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(b)............ 0.01 - 0.07 -
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.47 1.87 2.07 3.62
Total From Investment Operations 1.48 1.87 2.14 3.62
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.01) (0.03) - -
Distributions from Realized Gains.................... (1.15) (0.25) (0.81) -
Total Dividends and Distributions (1.16) (0.28) (0.81) -
Net Asset Value, End of Period $ 16.86 $ 16.54 $ 14.95 $ 13.62
Total Return.............................................. 9.14% 12.59% 16.50% 36.20%( c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $220,551 $235,767 $159,678 $4,868
Ratio of Expenses to Average Net Assets.............. 1.00% 1.00% 0.94% 0.97%( d)
Ratio of Gross Expenses to Average Net Assets........ -% -% 1.00%( e) 1.00%(d),(e)
Ratio of Net Investment Income to Average Net Assets. 0.08% 0.01% 0.53% (0.04)%(d)
Portfolio Turnover Rate.............................. 109.8% 110.2% 117.5% 111.5%(d)
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
PARTNERS SMALLCAP GROWTH FUND I
Institutional shares
Net Asset Value, Beginning of Period...................... $ 8.59 $ 7.78 $ 7.10 $ 5.12 $ 7.35
Income from Investment Operations:
Net Investment Income (Operating Loss)(b)............ (0.08) (0.07) (0.07) (0.05) (0.04)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.04 0.88 0.75 2.03 (2.19)
Total From Investment Operations 0.96 0.81 0.68 1.98 (2.23)
Net Asset Value, End of Period $ 9.55 $ 8.59 $ 7.78 $ 7.10 $ 5.12
Total Return.............................................. 11.18% 10.41% 9.58% 38.67% (30.34)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $95,185 $122,265 $71,754 $60,637 $91,760
Ratio of Expenses to Average Net Assets.............. 1.10% 1.10% 1.10% 1.09% 1.10%
Ratio of Gross Expenses to Average Net Assets........ -% -% 1.10%(e) 1.10%(e) -%
Ratio of Net Investment Income to Average Net Assets. (0.82)% (0.85)% (0.92)% (0.89)% (0.90)%
Portfolio Turnover Rate.............................. 100.3% 91.5% 94.6% 333.6% 110.9%
(a) Period from December 30, 2002, date operations commenced, through October
31, 2003.
(b) Calculated based on average shares outstanding during the period.
(c) Total return amounts have not been annualized.
(d) Computed on an annualized basis.
(e) Expense ratio without commission rebates.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
PARTNERS SMALLCAP GROWTH FUND II
Institutional shares
Net Asset Value, Beginning of Period...................... $ 8.88 $ 8.08 $ 7.88 $ 5.72 $ 6.27
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ (0.06) (0.06) (0.05) (0.04) (0.12)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.20 1.08 0.29 2.20 (0.43)
Total From Investment Operations 1.14 1.02 0.24 2.16 (0.55)
Less Dividends and Distributions:
Distributions from Realized Gains.................... (0.48) (0.22) (0.04) - -
Total Dividends and Distributions (0.48) (0.22) (0.04) - -
Net Asset Value, End of Period $ 9.54 $ 8.88 $ 8.08 $ 7.88 $ 5.72
Total Return.............................................. 13.13% 12.73% 3.11% 37.76% (8.77)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $524,636 $387,864 $264,397 $162,128 $7,077
Ratio of Expenses to Average Net Assets.............. 1.00% 1.00% 0.96% 0.95% 0.99%
Ratio of Gross Expenses to Average Net Assets........ -% -% 1.00%( b) 1.00%(b) 1.00%(b)
Ratio of Net Investment Income to Average Net Assets. (0.62)% (0.72)% (0.66)% (0.57)% (0.70)%
Portfolio Turnover Rate.............................. 80.7% 53.4%( c) 69.4% 115.9% 120.1%
2006 2005 2004( d)
---- ---- ----
PARTNERS SMALLCAP GROWTH FUND III
Institutional shares
Net Asset Value, Beginning of Period...................... $ 10.99 $ 9.62 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ (0.07) (0.09) (0.03)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 2.33 1.46 (0.35)
Total From Investment Operations 2.26 1.37 (0.38)
Less Dividends and Distributions:
Distributions from Realized Gains.................... (0.52) - -
Total Dividends and Distributions (0.52) - -
Net Asset Value, End of Period $ 12.73 $ 10.99 $ 9.62
Total Return.............................................. 21.12% 14.24% (3.80)%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $233,207 $130,356 $4,770
Ratio of Expenses to Average Net Assets.............. 1.10% 1.10% 0.98%( f)
Ratio of Gross Expenses to Average Net Assets........ -% -% 1.10%(b),(f)
Ratio of Net Investment Income to Average Net Assets. (0.59)% (0.82)% (0.68)%(f)
Portfolio Turnover Rate.............................. 88.3% 84.0% 51.3%(f)
(a) Calculated based on average shares outstanding during the period.
(b) Expense ratio without commission rebates.
(c) Portfolio turnover rate excludes approximately $21,459,000 of securities
from the acquisition of Principal Partners SmallCap Growth Fund, Inc. and
$84,000 from portfolio realignment.
(d) Period from June 1, 2004, date operations commenced, through October 31,
2004.
(e) Total return amounts have not been annualized.
(f) Computed on an annualized basis.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
PARTNERS SMALLCAP VALUE FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 17.22 $ 15.03 $ 13.21 $ 9.60 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ - 0.02 0.01 - (0.04)
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 2.24 2.17 1.81 3.70 (0.21)
Total From Investment Operations 2.24 2.19 1.82 3.70 (0.25)
Less Dividends and Distributions:
Dividends from Net Investment Income................. - - - - -
Distributions from Realized Gains.................... (1.32) - - (0.09) (0.15)
Total Dividends and Distributions (1.32) - - (0.09) (0.15)
Net Asset Value, End of Period $ 18.14 $ 17.22 $ 15.03 $ 13.21 $ 9.60
Total Return.............................................. 13.65% 14.60% 13.79% 38.87% (2.72)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $237,056 $287,753 $231,413 $174,262 $133,400
Ratio of Expenses to Average Net Assets.............. 1.00% 1.00% 0.97% 1.00% 1.00%
Ratio of Gross Expenses to Average Net Assets........ -% -% 1.00%( b) -% -%
Ratio of Net Investment Income to Average Net Assets. 0.00% 0.09% 0.07% (0.04)% (0.20)%
Portfolio Turnover Rate.............................. 36.2% 51.3% 26.3% 44.1% 27.9%
2006 2005 2004 2003( c)
---- ---- ---- ----
PARTNERS SMALLCAP VALUE FUND I
Institutional shares
Net Asset Value, Beginning of Period...................... $ 17.37 $ 15.95 $ 13.99 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.10 0.09 0.05 0.08
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 2.90 2.26 2.57 3.91
Total From Investment Operations 3.00 2.35 2.62 3.99
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.07) (0.03) (0.06) -
Distributions from Realized Gains.................... (1.31) (0.90) (0.60) -
Total Dividends and Distributions (1.38) (0.93) (0.66) -
Net Asset Value, End of Period $ 18.99 $ 17.37 $ 15.95 $ 13.99
Total Return.............................................. 18.31% 15.04% 19.39% 39.90%( d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $357,882 $202,697 $104,765 $51,198
Ratio of Expenses to Average Net Assets.............. 1.00% 1.00% 1.00% 1.00%( e)
Ratio of Gross Expenses to Average Net Assets........ -% -% 1.00%(b) 1.00%(b),(e)
Ratio of Net Investment Income to Average Net Assets. 0.57% 0.52% 0.32% 0.73%(e)
Portfolio Turnover Rate.............................. 60.4% 43.1% 46.7% 67.2%(e)
(a) Calculated based on average shares outstanding during the period.
(b) Expense ratio without commission rebates.
(c) Period from December 30, 2002, date operations commenced, through October
31, 2003.
(d) Total return amounts have not been annualized.
(e) Computed on an annualized basis.
2006 2005 2004( a)
---- ---- ----
PARTNERS SMALLCAP VALUE FUND II
Institutional shares
Net Asset Value, Beginning of Period...................... $ 12.12 $ 10.35 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(b)............ 0.06 - -
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 2.36 1.81 0.35
Total From Investment Operations 2.42 1.81 0.35
Less Dividends and Distributions:
Distributions from Realized Gains.................... (0.56) (0.04) -
Total Dividends and Distributions (0.56) (0.04) -
Net Asset Value, End of Period $ 13.98 $ 12.12 $ 10.35
Total Return.............................................. 20.61% 17.55% 3.50%( c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $359,928 $293,375 $20,666
Ratio of Expenses to Average Net Assets.............. 1.00% 1.00% 1.00%( d)
Ratio of Net Investment Income to Average Net Assets. 0.49% (0.03)% -%(d)
Portfolio Turnover Rate.............................. 40.4% 50.8% 4.8%(d)
2006 2005 2004 2003 2002( e)
---- ---- ---- ---- ----
PREFERRED SECURITIES FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 10.58 $ 11.34 $ 11.21 $ 10.30 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(b)............ 0.61 0.62 0.65 0.61 0.24
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.09 (0.39) (0.07) 0.40 0.06
Total From Investment Operations 0.70 0.23 0.58 1.01 0.30
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.55) (0.99) (0.45) (0.10) -
Total Dividends and Distributions (0.55) (0.99) (0.45) (0.10) -
Net Asset Value, End of Period $ 10.73 $ 10.58 $ 11.34 $ 11.21 $ 10.30
Total Return.............................................. 6.88% 2.07% 5.32% 9.84% 3.00%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $580,507 $330,862 $202,386 $121,828 $12,849
Ratio of Expenses to Average Net Assets.............. 0.75% 0.75% 0.75% 0.75% 0.75%(d)
Ratio of Net Investment Income to Average Net Assets. 5.77% 5.68% 5.83% 5.68% 7.04%(d)
Portfolio Turnover Rate.............................. 22.4% 17.8% 14.0% 31.1% 11.3%(d)
(a) Period from June 1, 2004, date operations commenced, through October 31,
2004.
(b) Calculated based on average shares outstanding during the period.
(c) Total return amounts have not been annualized.
(d) Computed on an annualized basis.
(e) Period from May 1, 2002, date operations commenced, through October 31,
2002.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
PRINCIPAL LIFETIME 2010 FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 12.15 $ 11.61 $ 10.63 $ 9.40 $ 9.87
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.41 0.36 0.20 0.14 0.20
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.09 0.53 0.95 1.25 (0.51)
Total From Investment Operations 1.50 0.89 1.15 1.39 (0.31)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.30) (0.25) (0.17) (0.16) (0.16)
Distributions from Realized Gains.................... (0.08) (0.10) - - -
Total Dividends and Distributions (0.38) (0.35) (0.17) (0.16) (0.16)
Net Asset Value, End of Period $ 13.27 $ 12.15 $ 11.61 $ 10.63 $ 9.40
Total Return.............................................. 12.64% 7.78% 10.97% 15.00% (3.25)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $668,274 $408,886 $226,885 $112,143 $35,188
Ratio of Expenses to Average Net Assets(b)........... 0.12% 0.12% 0.12% 0.12% 0.12%
Ratio of Net Investment Income to Average Net Assets. 3.24% 3.05% 1.80% 1.41% 2.84%
Portfolio Turnover Rate.............................. 16.6% 10.2% 34.3% 47.8% 17.6%
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
PRINCIPAL LIFETIME 2020 FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 12.32 $ 11.49 $ 10.55 $ 9.14 $ 9.72
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.36 0.31 0.18 0.12 0.19
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.47 0.85 0.95 1.42 (0.63)
Total From Investment Operations 1.83 1.16 1.13 1.54 (0.44)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.32) (0.24) (0.19) (0.13) (0.14)
Distributions from Realized Gains.................... (0.10) (0.09) - - -
Total Dividends and Distributions (0.42) (0.33) (0.19) (0.13) (0.14)
Net Asset Value, End of Period $ 13.73 $ 12.32 $ 11.49 $ 10.55 $ 9.14
Total Return.............................................. 15.23% 10.20% 10.85% 17.14% (4.67)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $1,243,217 $668,863 $322,168 $145,767 $42,265
Ratio of Expenses to Average Net Assets(b)........... 0.12% 0.12% 0.12% 0.12% 0.12%
Ratio of Net Investment Income to Average Net Assets. 2.78% 2.59% 1.63% 1.25% 2.34%
Portfolio Turnover Rate.............................. 7.4% 5.5% 27.0% 41.1% 12.3%
(a) Calculated based on average shares outstanding during the period.
(b) Does not include expenses of the investment companies in which the Fund
invests.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
PRINCIPAL LIFETIME 2030 FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 12.12 $ 11.17 $ 10.21 $ 8.77 $ 9.53
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.31 0.26 0.15 0.09 0.17
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.62 0.98 0.96 1.48 (0.79)
Total From Investment Operations 1.93 1.24 1.11 1.57 (0.62)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.31) (0.21) (0.15) (0.13) (0.14)
Distributions from Realized Gains.................... (0.12) (0.08) - - -
Total Dividends and Distributions (0.43) (0.29) (0.15) (0.13) (0.14)
Net Asset Value, End of Period $ 13.62 $ 12.12 $ 11.17 $ 10.21 $ 8.77
Total Return.............................................. 16.29% 11.29% 10.98% 18.16% (6.63)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $1,017,369 $525,906 $282,813 $147,968 $31,841
Ratio of Expenses to Average Net Assets(b)........... 0.12% 0.12% 0.12% 0.12% 0.12%
Ratio of Net Investment Income to Average Net Assets. 2.46% 2.19% 1.42% 0.97% 1.91%
Portfolio Turnover Rate.............................. 9.4% 4.8% 30.7% 52.4%( c) 19.9%
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
PRINCIPAL LIFETIME 2040 FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 12.24 $ 11.17 $ 10.22 $ 8.68 $ 9.58
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.28 0.21 0.12 0.07 0.16
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.71 1.13 0.98 1.56 (0.92)
Total From Investment Operations 1.99 1.34 1.10 1.63 (0.76)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.29) (0.19) (0.15) (0.09) (0.13)
Distributions from Realized Gains.................... (0.11) (0.08) - - (0.01)
Total Dividends and Distributions (0.40) (0.27) (0.15) (0.09) (0.14)
Net Asset Value, End of Period $ 13.83 $ 12.24 $ 11.17 $ 10.22 $ 8.68
Total Return.............................................. 16.60% 12.11% 10.84% 19.06% (8.12)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $503,092 $243,275 $108,127 $47,706 $15,314
Ratio of Expenses to Average Net Assets(b)........... 0.12% 0.12% 0.12% 0.12% 0.12%
Ratio of Net Investment Income to Average Net Assets. 2.17% 1.73% 1.07% 0.78% 1.53%
Portfolio Turnover Rate.............................. 13.1% 7.1% 40.0% 46.0% 19.6%
(a) Calculated based on average shares outstanding during the period.
(b) Does not include expenses of the investment companies in which the Fund
invests.
(c) Portfolio turnover rate excludes approximately $22,287,000 of securities
from the acquisition of Balanced Fund and $22,287,000 from portfolio
realignment.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
PRINCIPAL LIFETIME 2050 FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 11.80 $ 10.66 $ 9.73 $ 8.14 $ 9.22
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.25 0.16 0.09 0.04 0.15
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.73 1.22 0.95 1.62 (1.09)
Total From Investment Operations 1.98 1.38 1.04 1.66 (0.94)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.28) (0.17) (0.11) (0.07) (0.14)
Distributions from Realized Gains.................... (0.11) (0.07) - - -
Total Dividends and Distributions (0.39) (0.24) (0.11) (0.07) (0.14)
Net Asset Value, End of Period $ 13.39 $ 11.80 $ 10.66 $ 9.73 $ 8.14
Total Return.............................................. 17.13% 13.07% 10.77% 20.54% (10.45)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $266,710 $130,966 $58,284 $30,633 $6,045
Ratio of Expenses to Average Net Assets(b)........... 0.12% 0.12% 0.12% 0.12% 0.12%
Ratio of Net Investment Income to Average Net Assets. 1.95% 1.39% 0.90% 0.43% 1.19%
Portfolio Turnover Rate.............................. 15.9% 7.5% 44.9% 45.7% 25.4%
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
PRINCIPAL LIFETIME STRATEGIC INCOME FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 12.03 $ 11.73 $ 10.77 $ 9.72 $ 10.03
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.47 0.41 0.22 0.16 0.19
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 0.69 0.26 0.94 1.04 (0.32)
Total From Investment Operations 1.16 0.67 1.16 1.20 (0.13)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.34) (0.24) (0.20) (0.14) (0.18)
Distributions from Realized Gains.................... (0.12) (0.13) - (0.01) -
Total Dividends and Distributions (0.46) (0.37) (0.20) (0.15) (0.18)
Net Asset Value, End of Period $ 12.73 $ 12.03 $ 11.73 $ 10.77 $ 9.72
Total Return.............................................. 9.90% 5.79% 10.92% 12.41% (1.36)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $250,395 $182,132 $109,104 $51,310 $16,909
Ratio of Expenses to Average Net Assets(b)........... 0.12% 0.12% 0.12% 0.12% 0.12%
Ratio of Net Investment Income to Average Net Assets. 3.85% 3.44% 1.95% 1.50% 2.97%
Portfolio Turnover Rate.............................. 48.9% 43.8% 34.1% 43.9% 46.2%
(a) Calculated based on average shares outstanding during the period.
(b) Does not include expenses of the investment companies in which the Fund
invests.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
REAL ESTATE SECURITIES FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 20.41 $ 18.44 $ 14.56 $ 11.17 $ 10.50
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.28 0.42 0.41 0.54 0.45
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 7.78 3.18 4.01 3.20 0.63
Total From Investment Operations 8.06 3.60 4.42 3.74 1.08
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.29) (0.58) (0.40) (0.35) (0.41)
Distributions from Realized Gains.................... (0.62) (1.05) (0.14) - -
Total Dividends and Distributions (0.91) (1.63) (0.54) (0.35) (0.41)
Net Asset Value, End of Period $ 27.56 $ 20.41 $ 18.44 $ 14.56 $ 11.17
Total Return.............................................. 40.85% 20.41% 31.21% 34.31% 10.38%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $770,259 $405,696 $253,838 $97,960 $11
Ratio of Expenses to Average Net Assets.............. 0.84% 0.85% 0.85% 0.85% 0.85%
Ratio of Gross Expenses to Average Net Assets........ -% -% 0.85%( b) -% -%
Ratio of Net Investment Income to Average Net Assets. 1.20% 2.19% 2.53% 4.08% 3.91%
Portfolio Turnover Rate.............................. 37.8% 26.7%( c) 67.9% 35.4% 46.3%
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
SHORT-TERM BOND FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 9.97 $ 10.23 $ 10.38 $ 10.39 $ 10.54
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.45 0.35 0.30 0.39 0.47
Net Realized and Unrealized Gain (Loss) on
Investments............................................... - (0.23) (0.09) (0.02) (0.04)
Total From Investment Operations 0.45 0.12 0.21 0.37 0.43
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.49) (0.38) (0.32) (0.38) (0.47)
Distributions from Realized Gains.................... - - (0.04) - (0.11)
Total Dividends and Distributions (0.49) (0.38) (0.36) (0.38) (0.58)
Net Asset Value, End of Period $ 9.93 $ 9.97 $ 10.23 $ 10.38 $ 10.39
Total Return.............................................. 4.61% 1.16% 2.06% 3.62% 4.29%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $62,186 $12,276 $10 $10 $9,450
Ratio of Expenses to Average Net Assets.............. 0.60% 0.53% 0.40% 0.40% 0.40%
Ratio of Expenses to Average Net Assets (Excluding
Reverse Repurchase Agreement Expense)(d)............. 0.40% 0.40% -% -% -%
Ratio of Net Investment Income to Average Net Assets. 4.53% 3.57% 2.92% 3.73% 4.54%
Portfolio Turnover Rate.............................. 49.1% 110.8%( e) 61.5% 72.3% 105.8%
(a) Calculated based on average shares outstanding during the period.
(b) Expense ratio without commission rebates.
(c) Portfolio turnover rate excludes approximately $101,379,000 of securities
from the acquisition of Principal Real Estate Securities Fund, Inc.
(d) Excludes interest expense paid on borrowings through reverse repurchase
agreements. See "Operating Policies" in notes to financial statements.
(e) Portfolio turnover rate excludes approximately $117,013,000 of securities
from the acquisition of Principal Limited Term Bond Fund, Inc.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
SMALLCAP BLEND FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 15.97 $ 14.38 $ 13.21 $ 9.60 $ 10.44
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.08 0.05 0.07 0.05 0.03
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 2.34 2.39 1.13 3.56 (0.78)
Total From Investment Operations 2.42 2.44 1.20 3.61 (0.75)
Less Dividends and Distributions:
Dividends from Net Investment Income................. - - - - (0.06)
Distributions from Realized Gains.................... (0.94) (0.85) (0.03) - (0.02)
Tax Return of Capital Distribution................... - - - - (0.01)
Total Dividends and Distributions (0.94) (0.85) (0.03) - (0.09)
Net Asset Value, End of Period $ 17.45 $ 15.97 $ 14.38 $ 13.21 $ 9.60
Total Return.............................................. 15.66% 17.42% 9.09% 37.60% (7.34)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $39,492 $31,109 $15,702 $9,318 $4,681
Ratio of Expenses to Average Net Assets.............. 0.75% 0.75% 0.75% 0.75% 0.74%
Ratio of Gross Expenses to Average Net Assets........ -% -% 0.75%( b) 0.75%(b) 0.75%(b)
Ratio of Net Investment Income to Average Net Assets. 0.50% 0.34% 0.47% 0.48% 0.66%
Portfolio Turnover Rate.............................. 103.0% 137.4%( c) 98.5% 113.2% 108.8%
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
SMALLCAP GROWTH FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 8.22 $ 7.79 $ 7.48 $ 4.91 $ 7.35
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ (0.01) 0.01 (0.01) - -
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 1.18 0.82 0.32 2.57 (2.08)
Total From Investment Operations 1.17 0.83 0.31 2.57 (2.08)
Less Dividends and Distributions:
Distributions from Realized Gains.................... (0.50) (0.40) - - (0.36)
Total Dividends and Distributions (0.50) (0.40) - - (0.36)
Net Asset Value, End of Period $ 8.89 $ 8.22 $ 7.79 $ 7.48 $ 4.91
Total Return.............................................. 14.60% 10.69% 4.14% 52.34% (30.33)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $8,368 $1,502 $8 $8 $4,344
Ratio of Expenses to Average Net Assets.............. 0.75% 0.75% 0.73% 0.75% 0.75%
Ratio of Gross Expenses to Average Net Assets........ -% -% 0.75%(b) -% 0.75%(b)
Ratio of Net Investment Income to Average Net Assets. (0.08)% 0.13% (0.12)% (0.08)% (0.31)%
Portfolio Turnover Rate.............................. 109.9% 181.7% 194.9% 270.1% 255.3%
(a) Calculated based on average shares outstanding during the period.
(b) Expense ratio without commission rebates.
(c) Portfolio turnover rate excludes approximately $118,621,000 of securities
from the acquisition of Principal SmallCap Fund, Inc. and $60,235,000 from
portfolio realignment.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
SMALLCAP S&P 600 INDEX FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 16.50 $ 14.73 $ 12.70 $ 9.59 $ 10.19
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.15 0.14 0.13 0.08 0.07
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 2.44 2.05 1.95 3.07 (0.47)
Total From Investment Operations 2.59 2.19 2.08 3.15 (0.40)
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.13) (0.06) (0.05) (0.04) (0.06)
Distributions from Realized Gains.................... (0.38) (0.36) - - (0.14)
Total Dividends and Distributions (0.51) (0.42) (0.05) (0.04) (0.20)
Net Asset Value, End of Period $ 18.58 $ 16.50 $ 14.73 $ 12.70 $ 9.59
Total Return.............................................. 15.95% 15.00% 16.41% 33.04% (4.19)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $165,346 $99,202 $48,472 $18,585 $9
Ratio of Expenses to Average Net Assets.............. 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Net Investment Income to Average Net Assets. 0.87% 0.86% 0.94% 0.74% 0.66%
Portfolio Turnover Rate.............................. 56.2% 43.2% 54.5% 44.6% 61.0%
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
SMALLCAP VALUE FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 17.54 $ 16.20 $ 14.68 $ 10.48 $ 10.54
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.14 0.11 0.04 0.07 0.12
Net Realized and Unrealized Gain (Loss) on
Investments............................................... 3.01 2.63 1.95 4.20 0.39
Total From Investment Operations 3.15 2.74 1.99 4.27 0.51
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.09) - - (0.07) (0.10)
Distributions from Realized Gains.................... (1.28) (1.40) (0.47) - (0.47)
Total Dividends and Distributions (1.37) (1.40) (0.47) (0.07) (0.57)
Net Asset Value, End of Period $ 19.32 $ 17.54 $ 16.20 $ 14.68 $ 10.48
Total Return.............................................. 18.99% 17.61% 13.86% 40.94% 4.60%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $105,863 $46,908 $20,973 $10,493 $9,641
Ratio of Expenses to Average Net Assets.............. 0.75% 0.75% 0.75% 0.75% 0.74%
Ratio of Gross Expenses to Average Net Assets........ -% -% 0.75%( b) 0.75%(b) 0.75%(b)
Ratio of Net Investment Income to Average Net Assets. 0.79% 0.64% 0.28% 0.62% 0.88%
Portfolio Turnover Rate.............................. 97.9% 133.7% 163.5% 221.7% 134.3%
(a) Calculated based on average shares outstanding during the period.
(b) Expense ratio without commission rebates.
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
ULTRA SHORT BOND FUND
Institutional shares
Net Asset Value, Beginning of Period...................... $ 10.05 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from Investment Operations:
Net Investment Income (Operating Loss)(a)............ 0.50 0.25 0.26 0.32 0.42
Net Realized and Unrealized Gain (Loss) on
Investments............................................... (0.01) 0.09 (0.11) - -
Net Increase from Payments by Affiliates - - 0.11 - -
Total From Investment Operations 0.49 0.34 0.26 0.32 0.42
Less Dividends and Distributions:
Dividends from Net Investment Income................. (0.48) (0.29) (0.26) (0.32) (0.42)
Total Dividends and Distributions (0.48) (0.29) (0.26) (0.32) (0.42)
Net Asset Value, End of Period $ 10.06 $ 10.05 $ 10.00 $ 10.00 $ 10.00
Total Return.............................................. 4.98% 3.40%( b) 2.66%( c) 3.30% 4.27%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $192,510 $13 $1,968 $1,917 $1,856
Ratio of Expenses to Average Net Assets.............. 0.40% 0.40% 0.55% 0.60% 0.60%
Ratio of Net Investment Income to Average Net Assets. 4.97% 2.52% 2.62% 3.24% 4.18%
Portfolio Turnover Rate.............................. 49.0% 54.9% 105.5% 20.7% 13.6%
(a) Calculated based on average shares outstanding during the period.
(b) During 2005, the Class experienced a significant withdrawal of monies by an
affiliate. As the remaining shareholders held relatively small positions,
the total return amounts expressed herein are greater than those that would
have been experienced without the withdrawal.
(c) In 2004, 1.02% of the total return consists of an increase from a payment
by Principal Life Insurance Company. Excluding this payment, the total
return for Institutional shares would have been 1.64%.
APPENDIX A
SUMMARY OF PRINCIPAL RISKS
The value of your investment in a Fund changes with the value of the investments
held by that Fund. Many factors affect that value, and it is possible that you
may lose money by investing in the Funds. Factors that may adversely affect a
particular Fund as a whole are called "principal risks." The principal risks of
investing in the Funds are stated above as to each Fund in the Fund's
description. Each of these risks is summarized below. The first four risks
described below - credit and counterparty risk, liquidity risk, market risk, and
management risk (except the LargeCap S&P 500 Index, MidCap S&P 400 Index, and
SmallCap S&P 600 Index Funds) - apply to all the Funds. The remaining risks
apply to certain of the Funds as described previously. Additional information
about the Funds, their investments, and the related risks is located under
"Certain Investment Strategies and Related Risks" and in the Statement of
Additional Information.
RISKS COMMON TO ALL OF THE FUNDS
--------------------------------
CREDIT AND COUNTERPARTY RISK
Each of the funds is subject to the risk that the issuer or guarantor of a
fixed-income security or other obligation, the counterparty to a derivatives
contract or repurchase agreement, or the borrower of a portfolio's securities
will be unable or unwilling to make timely principal, interest, or settlement
payments, or otherwise to honor its obligations.
LIQUIDITY RISK
A fund is exposed to liquidity risk when trading volume, lack of a market maker,
or legal restrictions impair the fund's ability to sell particular securities or
close derivative positions at an advantageous price. Funds with principal
investment strategies that involve securities of companies with smaller market
capitalizations, foreign securities, derivatives, or securities with substantial
market and/or credit risk tend to have the greatest exposure to liquidity risk.
MARKET RISK
The value of a fund's portfolio securities may go down in response to overall
stock or bond market movements. Markets tend to move in cycles, with periods of
rising prices and periods of falling prices. Stocks tend to go up and down in
value more than bonds. If the fund's investments are concentrated in certain
sectors, its performance could be worse than the overall market. It is possible
to lose money when investing in the fund.
MANAGEMENT RISK
Each of the funds is actively managed by its investment advisor or
sub-advisor(s). The performance of a fund that is actively managed will reflect
in part the ability of the advisor or sub-advisor(s) to make investment
decisions that are suited to achieving the fund's investment objective. If the
advisor's or sub-advisor(s)' strategies do not perform as expected, a fund could
underperform other mutual funds with similar investment objectives or lose
money.
ADDITIONAL RISKS APPLICABLE TO CERTAIN FUNDS
--------------------------------------------
ACTIVE TRADING RISK
A fund that actively trades portfolio securities in an attempt to achieve its
investment objective may have high portfolio turnover rates that may increase
the fund's brokerage costs, accelerate the realization of taxable gains, and
adversely impact fund performance.
DERIVATIVES RISK
Derivatives are investments whose values depend on or are derived from other
securities or indexes. A fund's use of certain derivative instruments (such as
options, futures, and swaps) could produce disproportionate gains or losses.
Derivatives are generally considered more risky than direct investments and, in
a down market, could become harder to value or sell at a fair price.
EMERGING MARKET RISK
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.
EQUITY SECURITIES RISK
Equity securities include common, preferred, and convertible preferred stocks
and securities the values of which are tied to the price of stocks, such as
rights, warrants, and convertible debt securities. Common and preferred stocks
represent equity ownership in a company. Stock markets are volatile, and the
price of equity securities (and their equivalents) will fluctuate. The value of
equity securities purchased by a fund could decline if the financial condition
of the companies in which the fund invests decline or if overall market and
economic conditions deteriorate.
EURODOLLAR AND YANKEE OBLIGATIONS RISK
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.
EXCHANGE RATE RISK
Because foreign securities are generally denominated in foreign currencies, the
value of the net assets of a 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 funds are authorized to enter into certain foreign
currency exchange transactions. In addition, the funds' 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.
FIXED-INCOME SECURITIES RISK
Fixed-income securities are generally subject to two principal types of risks:
interest rate risk and credit quality risk.
Interest Rate Risk. Fixed-income securities are affected by changes in interest
rates. When interest rates decline, the market value of the fixed-income
securities generally can be expected to rise. Conversely, when interest rates
rise, the market value of fixed-income securities generally can be expected to
decline.
Credit Quality Risk. Fixed-income securities are subject to the risk that the
issuer of the security will not repay all or a portion of the principal borrowed
and will not make all interest payments. If the credit quality of a fixed income
security deteriorates after a fund has purchased the security, the market value
of the security may decrease and lead to a decrease in the value of the fund's
investments. Lower quality and longer maturity bonds will be subject to greater
credit risk and price fluctuations than higher quality and shorter maturity
bonds. Bonds held by a fund may be affected by unfavorable political, economic,
or government developments that could affect the repayment of principal or the
payment of interest.
FOREIGN SECURITIES RISK
Foreign securities carry risks that are not generally found in securities of
U.S. companies. These risks include the loss of value as a result of political
instability and financial and economic events in foreign countries. In addition,
nationalization, expropriation or confiscatory taxation, and foreign exchange
restrictions could adversely affect a fund's investments in a foreign country.
Foreign securities may be subject to less stringent reporting, accounting, and
disclosure standards than are required of U.S. companies, and foreign countries
may also have problems associated with and causing delays in the settlement of
sales.
GEOGRAPHIC CONCENTRATION RISK
Funds that invest significant portions of their assets in concentrated
geographic areas such as a particular state or region of the U.S. have more
exposure to local or regional economic risks than funds that invest more
broadly.
GROWTH STOCK RISK
Growth stocks typically trade at higher multiples of current earnings than other
securities. Growth stocks are often more sensitive to market fluctuations than
other securities because their market prices are highly sensitive to future
earnings expectations. Similarly, because growth securities typically do not
make dividend payments to shareholders, investment returns are based on capital
appreciation, making returns more dependent on market increases and decreases.
Growth stocks may therefore be more volatile than non-growth stocks. A fund's
strategy of investing in growth stocks also carries the risk that in certain
markets growth stocks will underperform value stocks.
HIGH YIELD SECURITIES RISK
Fixed-income securities that are not investment grade are commonly referred to
as high yield securities or "junk bonds." While these securities generally
provide greater income potential than investments in higher rated fixed-income
securities, there is a greater risk that principal and interest payments will
not be made. Issuers of these securities may even go into default or become
bankrupt. High yield securities generally involve greater price volatility and
may be less liquid than higher rated fixed-income securities. High yield
securities are considered speculative by the major credit rating agencies.
INITIAL PUBLIC OFFERINGS ("IPOS") RISK
There are risks associated with the purchase of shares issued in IPOs by
companies that have little operating history as public companies, as well as
risks inherent in those sectors of the market where these new issuers operate.
The market for IPO issuers has been volatile and share prices of certain
newly-public companies have fluctuated in significant amounts over short periods
of time. A fund cannot guarantee continued access to IPO offerings and may at
times dispose of IPO shares shortly after their acquisition.
INVESTMENT COMPANY SECURITIES RISK
Certain funds invest in securities of other investment companies. The total
return on such investments will be reduced by the operating expenses and fees of
such other investment companies, including investment advisory fees. Investments
in closed-end funds may involve the payment of substantial premiums above the
value of such investment companies' portfolio securities.
MARKET SEGMENT RISK
Funds are subject to the risk that their principal market segment, such as large
capitalization, mid capitalization, or small capitalization stocks, or growth or
value stocks, may underperform compared to other market segments or to the
equity markets as a whole. Thus:
. MidCap: A fund's strategy of investing in mid cap stocks carries the risk
that in certain markets mid cap stocks will underperform small cap or large
cap stocks.
. LargeCap: A fund's strategy of investing in large cap stocks carries the
risk that in certain markets large cap stocks will underperform small cap or
mid cap stocks.
. SmallCap: A fund's strategy of investing in small cap stocks carries the
risk that in certain markets small cap stocks will underperform mid cap or
large cap stocks.
MID CAP STOCK RISK
Medium capitalization companies may be more vulnerable to adverse business or
economic events than larger, more established companies. In particular, 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.
MUNICIPAL SECURITIES RISK
Principal and interest payments of municipal securities may not be guaranteed by
the issuing body and may be payable only from a particular source. If the source
does not perform as expected, principal and income payments may not be made on
time or at all. In addition, the market for municipal securities is often thin
and may be temporarily affected by large purchases and sales, including those of
funds investing in such securities. Funds that invest in municipal securities
are also subject to the risk that some or all of the interest they receive from
such securities might become taxable by law or determined by the Internal
Revenue Service (or the relevant state's tax authority) to be taxable, in which
event the value of such funds' investments would likely decline.
NON-DIVERSIFICATION RISK
A fund that is non-diversified may invest a high percentage of its assets in the
securities of a small number of companies. This may result in more volatile
performance relative to more diversified funds. The less diversified a fund's
holdings are, the more a specific stock's poor performance is likely to affect
the fund's performance.
PORTFOLIO DURATION RISK
Portfolio 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. 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.
PREPAYMENT RISK
Mortgage-backed and asset-backed securities are subject to prepayment risk. When
interest rates decline, significant unscheduled payments 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 a fund.
REAL ESTATE SECURITIES RISK
Real estate investment trusts ("REITs") or other real estate-related securities
are subject to the risks associated with direct ownership of real estate,
including declines in the value of real estate, risks related to general and
local economic conditions, increases in property taxes and operating expenses,
changes in zoning laws, changes in interest rates, and liabilities resulting
from environmental problems. Equity and mortgage REITs are dependent on
management skills and generally are not diversified. 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:
. may not be diversified with regard to the types of tenants (thus subject to
business developments of the tenant(s));
. may not be diversified with regard to the geographic locations of the
properties (thus subject to regional economic developments);
. are subject to cash flow dependency and defaults by borrowers; and
. could fail to qualify for tax-free pass-through of income under the Internal
Revenue Code.
SECTOR RISK
When a fund's investments are concentrated in a particular industry or sector of
the economy (e.g., real estate, technology, financial services), they are not as
diversified as the investments of most mutual funds and are far less diversified
than the broad securities markets. Funds concentrating in a particular industry
sector tend to be more volatile than other mutual funds, and the values of their
investments tend to go up and down more rapidly. A fund that invests in a
particular industry or sector is particularly susceptible to the impact of
market, economic, regulatory, and other factors affecting that industry or
sector.
SMALL COMPANY RISK
Investments in companies with smaller capitalizations may involve greater risk
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.
UNDERLYING FUND RISK
The LifeTime Funds and the Strategic Asset Management ("SAM") Portfolios operate
as funds of funds and invest principally in underlying funds. From time to time,
an underlying fund may experience relatively large investments or redemptions by
a fund of funds due to the reallocation or rebalancing of its assets. These
transactions may have adverse effects on underlying fund performance to the
extent an underlying fund is required to sell portfolio securities to meet such
redemptions, or to invest cash from such investments, at times it would not
otherwise do so. This may be particularly important when a fund of funds owns a
significant portion of an underlying fund. These transactions may also
accelerate the realization of taxable income if sales of portfolio securities
result in gains, and could increase
transaction costs. In addition, when a fund of funds reallocates or redeems
significant assets away from an underlying fund, the loss of assets to the
underlying fund could result in increased expenses for that fund.
Principal is the Manager of the Principal LifeTime Funds, SAM Portfolios, and
each of the Underlying Funds. Principal Global Investors, LLC ("PGI") is
Sub-Advisor to the Principal LifeTime Funds and Edge Asset Management, Inc.
("Edge") is the Sub-Advisor to the SAM Portfolios. Either PGI or Edge also serve
as Sub-Advisor to some or all of the Underlying Funds. Principal, PGI, and Edge
are committed to minimizing the potential impact of underlying fund risk on
underlying funds to the extent consistent with pursuing the investment
objectives of the fund of funds which it manages. Each may face conflicts of
interest in fulfilling its responsibilities to all such funds.
The following table shows the percentage of the outstanding shares of underlying
funds owned by the LifeTime Funds as of October 31, 2006.
PRINCIPAL LIFETIME FUNDS
PRINCIPAL
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL LIFETIME
LIFETIME LIFETIME LIFETIME LIFETIME LIFETIME STRATEGIC
UNDERLYING FUND 2010 2020 2030 2040 2050 INCOME TOTAL
--------------- --------- --------- --------- --------- --------- --------- -----
Bond & Mortgage Securities 16.87% 23.70% 13.86% 4.38% 1.11% 7.61% 67.54%
Disciplined LargeCap Blend 10.16 27.92 25.91 12.99 6.55 1.96 85.49
Inflation Protection 7.23 4.32 11.55
International Emerging Markets 2.21 5.82 5.67 2.45 1.12 17.28
International Growth 5.01 14.89 15.65 7.46 4.00 1.17 48.18
Large Cap Growth 4.66 11.72 11.69 6.35 3.12 0.99 38.53
LargeCap Value 4.38 11.09 11.32 6.21 2.92 0.94 36.85
Partners International 1.55 3.26 3.18 1.68 0.81 0.27 10.75
Partners LargeCap Blend I 3.30 10.50 8.72 4.39 2.17 0.76 29.84
Partners LargeCap Growth I 1.13 2.17 2.42 1.46 0.66 0.20 8.05
Partners LargeCap Growth II 3.54 9.07 9.05 4.97 2.36 0.68 29.68
Partners LargeCap Value 2.08 5.03 5.06 2.71 1.38 0.44 16.69
Partners LargeCap Value I 1.40 3.31 3.33 1.62 0.80 10.45
Partners MidCap Growth 1.75 2.18 1.10 0.61 5.64
Partners MidCap Value I 1.12 1.39 0.70 0.39 3.60
Partners SmallCap Growth I 6.45 4.66 2.60 13.71
Partners SmallCap Growth III 2.36 13.51 13.60 7.71 4.14 41.33
Partners SmallCap Value I 1.74 1.26 0.78 3.78
Preferred Securities 16.04 29.94 16.44 4.98 1.51 6.60 75.51
Real Estate Securities 6.82 12.50 8.56 2.68 0.66 2.04 33.26
SmallCap S&P 600 Index 10.03 11.45 9.11 5.08 2.22 2.22 40.11
SmallCap Value 2.66 14.16 14.47 8.18 4.41 43.89
Ultra Short Bond 31.81 30.57 62.38
The SAM Portfolios commenced operations on January 12, 2007, as successor
portfolios for the WM Group of Funds ("WMA") SAM Portfolios. The predecessor
portfolios invested in shares of funds that have been combined with various
Funds of Principal Investors Fund ("PIF") as follows:
WMA ACQUIRED FUNDS PIF ACQUIRING FUNDS
Equity Income Fund Equity Income Fund I
Growth Fund LargeCap Growth Fund
Growth & Income Fund Disciplined LargeCap Blend Fund
High Yield Fund High Yield Fund II
Income Fund Income Fund
International Growth Fund Diversified International Fund
Mid Cap Stock Fund MidCap Stock Fund
Money Market Fund Money Market Fund
REIT Fund Real Estate Securities Fund
Short-Term Income Fund Short-Term Income Fund
Small Cap Growth Fund SmallCap Growth Fund
Small Cap Value Fund SmallCap Value Fund
U.S. Government Securities Fund Mortgage Securities Fund
West Coast Equity Fund West Coast Equity Fund
The following table shows the percentage of the outstanding shares of the
predecessor Underlying Funds owned by the predecessor Portfolios as of October
31, 2006.
STRATEGIC ASSET MANAGEMENT PORTFOLIOS/(1)/
FLEXIBLE CONSERVATIVE CONSERVATIVE STRATEGIC
UNDERLYING FUND INCOME BALANCED BALANCED GROWTH GROWTH
--------------- -------- ------------ -------- ------------ ---------
REIT Fund 1.87% 2.85% 30.86% 33.33% 20.35%
Equity Income Fund 1.05 1.56 15.06 16.28 10.55
Growth & Income Fund 2.29 2.25 24.33 26.28 17.08
West Coast Equity
Fund 0.59 1.33 14.44 15.36 10.65
Mid Cap Stock Fund 2.53 2.25 24.25 25.50 19.09
Growth Fund 2.65 2.68 30.98 31.32 22.45
Smal Cap Value Fund 3.17 2.58 31.01 34.95 22.92
Small Cap Growth Fund 2.40 1.87 22.60 25.72 16.91
International Growth
Fund 2.85 31.54 31.83 22.33
Short Term Income
Fund 42.88 15.20 18.55
U.S. Government
Securities Fund 15.77 9.88 46.79 16.36
Income Fund 17.72 9.47 39.71 12.24
High Yield Fund 4.97 3.25 18.66 8.43 8.25
///(1)/
Each of the Strategic Asset Management Portfolios and each of the underlying funds in the table below began operations on January
12, 2007. Each is a successor fund to a portfolio managed by WM Advisors prior to that date.
STRATEGIC ASSET MANAGEMENT PORTFOLIOS/(1)/
UNDERLYING FUND TOTAL
--------------- -----
REIT Fund 89.26%
Equity Income Fund 44.50
Growth & Income Fund 72.23
West Coast Equity 42.37
Fund
Mid Cap Stock Fund 73.62
Growth Fund 90.08
Smal Cap Value Fund 94.63
Small Cap Growth Fund 69.50
International Growth 88.55
Fund
Short Term Income 76.63
Fund
U.S. Government 88.80
Securities Fund
Income Fund 79.14
High Yield Fund 43.56
///(1)/
Each of the Strategic Asset Management Portfolios and each of the underlying funds in the table below began operations on January
12, 2007. Each is a successor fund to a portfolio managed by WM Advisors prior to that date.
One or more of the SAM Portfolios intend to invest in the Diversified
International, Disciplined LargeCap Blend, Equity Income I, LargeCap Growth,
SmallCap Growth, and SmallCap Value Funds, and may acquire a significant
percentage of the underlying funds' outstanding shares.
U.S. GOVERNMENT SECURITIES RISK
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 a 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 a fund's average maturity is
longer, under certain market conditions a fund may invest in short-term
investments yielding lower current income rather than investing in higher
yielding longer term securities.
U.S. GOVERNMENT SPONSORED SECURITIES RISK
A fund may invest in debt and mortgage-backed securities issued by
government-sponsored enterprises such as the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, and the Federal Home
Loan Banks. Although the issuing agency, instrumentality, or corporation may be
chartered or sponsored by the U.S. government, its securities are not issued or
guaranteed by the U.S. Treasury.
VALUE STOCK RISK
A fund's investments in value stocks carries the risk that the market will not
recognize a security's intrinsic value for a long time or that a stock judged to
be undervalued may actually be appropriately priced. A value stock may not
increase in price if other investors fail to recognize the company's value and
bid up the price or invest in markets favoring faster growing companies. A
fund's strategy of investing in value stocks also carries the risk that in
certain markets value stocks will underperform growth stocks.
APPENDIX B
DEFINITIONS OF THE INDICES REFERENCED IN THIS PROSPECTUS
The performance table included in the prospectus provides performance
information of various indices. These indices are described in this appendix. An
investment cannot be made directly in the indices and the indices' performance
figures do not include any commissions or sales charges that would be paid by
investors purchasing the securities represented by the indices.
6 MONTH LIBOR (LONDON INTERBANK OFFERED RATE) INDEX is an average of the
interest rate of U.S. dollar deposits, known as Eurodollars, of a stated
maturity.
CITIGROUP BROAD MARKET (BMI) GLOBAL EX-US INDEX is a float-weighted, rules-based
benchmark of the institutionally investable universe of all companies (excluding
companies domiciled in the U.S.) with an available free float market cap of US
$100 million and above.
CITIGROUP BROAD INVESTMENT-GRADE BOND INDEX measures the performance of bonds,
including U.S. and non-U.S. corporate securities and non-U.S. sovereign and
provincial securities, and includes institutionally traded U.S. Treasury,
government-sponsored, mortgage-backed, asset-backed, and investment-grade
securities.
CITIGROUP U.S. HIGH YIELD MARKET CAPPED INDEX uses the U.S. High Yield Market
Index as its foundation, imposing a cap on the par amount of each issuer at US
$5 billion.
CITIGROUP MORTGAGE INDEX represents the mortgage-backed securities component of
Citigroup's Broad Investment-Grade Bond Index. It consists of 30- and 15-year
agency-issued (Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC")) pass-through securities as well as FNMA and FHLMC balloon
mortgages.
CITIGROUP WORLD EX-US BROAD MARKET (BMI) GROWTH INDEX is a float-weighted,
rules-based benchmark of the institutionally investable universe of all
companies (excluding companies domiciled in the U.S.) with growth
characteristics and an available free float market cap of US $100 million and
above.
LEHMAN BROTHERS AGGREGATE BOND INDEX is an unmanaged index of domestic, taxable
fixed-income securities. The index covers the U.S. investment-grade bond market,
with components for government and corporate securities, mortgage pass-through
securities, and asset-backed securities.
LEHMAN BROTHERS GOVERNMENT/MORTGAGE INDEX is a combination of the unmanaged
Lehman Government Index and the unmanaged Lehman Mortgage Backed Securities
(MBS) Index. The Lehman Government Index includes all Government Bonds
including, but not limited to, U.S. Treasury bonds and government-sponsored
agency securities, with no maturity restrictions. The MBS Index includes all
securitized mortgage pools by GNMA, FNMA, and FHLMC.
LEHMAN BROTHERS HIGH YIELD COMPOSITE BOND INDEX is an unmanaged index of all
publicly issued fixed, dollar-denominated, SEC-registered corporate debt rated
Ba1 or lower with at least $100 million outstanding and one year or more to
maturity.
LEHMAN BROTHERS 1-3 GOVERNMENT/CREDIT BOND INDEX represents a combination of the
Government and Corporate Bond indices with maturities between one and three
years.
LEHMAN BROTHERS U.S. TREASURY BELLWETHERS 3 MONTH INDEX is composed of public
obligations of the U.S. Treasury with a maturity of three months.
LEHMAN BROTHERS MUNICIPAL BOND INDEX is an unmanaged index of investment-grade,
tax-exempt bonds which have been issued within the last five years and which
have at least one year to maturity.
LEHMAN BROTHERS U.S. TREASURY TIPS (TREASURY INFLATION PROTECTION SECURITIES)
INDEX is an unmanaged index of inflation-protected U.S. Treasury securities that
will mature in one year or longer.
MERRILL LYNCH PREFERRED HYBRID INDEX is an unmanaged index of investment grade,
exchange-traded preferred stocks with outstanding market values of at least $30
million and at least one year to maturity.
MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE (EUROPE, AUSTRALIA, AND FAR
EAST) INDEX is an unmanaged index that measures the stock returns of companies
in developed economies outside of North America.
MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EMF (EMERGING MARKETS FREE) INDEX is
an unmanaged index that measures the stock returns of companies in 26 developing
countries.
MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) US 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) WORLD INDEX is a free float-adjusted
market capitalization index that is designed to measure global developed market
equity performance.
MORNINGSTAR CONSERVATIVE ALLOCATION CATEGORY AVERAGE is an average of the net
asset value (NAV) returns of domestic mutual funds with 20-50% invested in
equities and 50-80% invested in fixed income and cash.
MORNINGSTAR DIVERSIFIED EMERGING MARKETS CATEGORY AVERAGE is an average of the
net asset value (NAV) returns of diversified emerging-markets mutual funds which
invest in companies in developing nations.
MORNINGSTAR FOREIGN LARGE BLEND CATEGORY AVERAGE is an average of the net asset
value (NAV) returns of mutual funds that seek capital appreciation by investing
in a variety of large international stocks. Large-cap foreign stocks have market
capitalizations greater than $5 billion. The blend style is assigned to funds
where neither growth nor value characteristics predominate.
MORNINGSTAR FOREIGN LARGE GROWTH CATEGORY AVERAGE is an average of the net asset
value (NAV) returns of mutual funds that seek capital appreciation by investing
in large international stocks that are growth-oriented. Large-cap foreign stocks
have market capitalizations greater than $5 billion. Growth is defined based on
high price-to-book and price-to-cash flow ratios, relative to the MSCI EAFE
index.
MORNINGSTAR HIGH YIELD BOND CATEGORY consists of High-Yield bond funds which
concentrate on lower-quality bonds. These funds generally offer higher yields
than other types of funds - but they are also more vulnerable to economic and
credit risk.
MORNINGSTAR INTERMEDIATE GOVERNMENT CATEGORY AVERAGE is an average of net asset
value (NAV) returns of mutual funds that devote at least 90% of their bond
holdings to government issues. These mutual funds have, on average, durations
between 3.5 and 6 years.
MORNINGSTAR INTERMEDIATE-TERM BOND CATEGORY AVERAGE is an average of net asset
value (NAV) returns of bond mutual funds that have average durations that are
greater than 3.5 years and less than 6 years.
MORNINGSTAR LARGE BLEND CATEGORY AVERAGE is an average of net asset value (NAV)
returns of mutual funds that focus on large companies that are fairly
representative of the overall stock market in terms of valuation. They tend to
invest across the spectrum of U.S. industries.
MORNINGSTAR LARGE GROWTH CATEGORY AVERAGE is an average of net asset value (NAV)
returns of mutual funds that invest in large companies that are projected to
grow faster than average. Most of these mutual funds focus on companies in
rapidly-expanding industries.
MORNINGSTAR LARGE VALUE CATEGORY AVERAGE is an average of net asset value (NAV)
returns of mutual funds that focus on large companies that are less expensive
than the market as a whole. They often come from the utilities, energy,
financial, and cyclical sectors, and many pay above-average dividends. They also
generally have more stable stock prices.
MORNINGSTAR LONG-TERM GOVERNMENT CATEGORY AVERAGE is an average of net asset
value (NAV) returns of mutual funds that devote at least 90% of their bond
holdings to government issues. These mutual funds have, on average, durations of
greater than or equal to 10 years.
MORNINGSTAR MID-CAP BLEND CATEGORY AVERAGE is an average of net asset value
(NAV) returns of mutual funds that focus on mid-size companies that are fairly
representative of the overall stock market in terms of valuation. They tend to
invest across the spectrum of U.S. industries.
MORNINGSTAR MID-CAP GROWTH CATEGORY AVERAGE is an average of net asset value
(NAV) returns of mutual funds that typically focus on mid-size companies that
are projected to grow faster than average. Many of these mutual funds focus on
companies in rapidly-expanding industries.
MORNINGSTAR MID-CAP VALUE CATEGORY AVERAGE is an average of net asset value
(NAV) returns of mid-cap value mutual funds that buy stocks mainly of
medium-size companies that are cheap relative to their earnings potential.
MORNINGSTAR MODERATE ALLOCATION CATEGORY AVERAGE is an average of the net asset
value (NAV) returns of mutual funds with 50-70% invested in equities and the
remainder invested in fixed income and cash.
MORNINGSTAR SHORT-TERM BOND CATEGORY AVERAGE is an average of net asset value
(NAV) returns of mutual funds that invest in a variety of bonds, from the most
creditworthy, such as Treasury bonds, to mortgages and corporates, and on rare
occasions, even more speculative high-yield and emerging markets debt which have
durations between 1 and 3.5 years.
MORNINGSTAR SMALL BLEND CATEGORY AVERAGE is an average of net asset value (NAV)
returns of mutual funds that focus on small companies that are fairly
representative of the overall stock market in terms of valuations.
MORNINGSTAR SMALL GROWTH CATEGORY AVERAGE is an average of net asset value (NAV)
returns of mutual funds that invest in small companies that are projected to
grow faster than average. Most of these mutual funds focus on companies in
rapidly-expanding industries.
MORNINGSTAR SMALL VALUE CATEGORY AVERAGE is an average of net asset value (NAV)
returns of small-cap value mutual funds that invest in less-popular companies at
the smaller end of the size range and may focus on finding temporarily depressed
stocks of companies working through business problems.
MORNINGSTAR SPECIALTY - REAL ESTATE CATEGORY AVERAGE is an average of net asset
value (NAV) returns of mutual funds that invest primarily in real estate
investment trusts (REITs) of various types. The performance of these mutual
funds is less connected to the overall market than most other types of stock
funds.
MORNINGSTAR TARGET DATE CATEGORY portfolios provide diversified exposure to
stocks, bonds, and cash for those investors who have a specific date in mind for
retirement or another goal. These portfolios aim to provide investors with an
optimal level of return and risk, based solely on the target date. These
portfolios get more conservative as the goal date approaches by investing more
in bonds and cash. Investment managers structure these portfolios differently;
two funds with the same goal year may have different allocations to equities and
therefore different levels of return and risk.
MORNINGSTAR ULTRA-SHORT BOND CATEGORY AVERAGE is an average of the net asset
value (NAV) returns of bond mutual funds that invest primarily in
investment-grade U.S. fixed-income issues and have durations of less than one
year.
MORNINGSTAR WORLD STOCK CATEGORY AVERAGE invests the majority of its assets in
the U.S., Europe, and Japan, with the remainder divided among the globe's
smaller markets. These portfolios typically have 20%-60% of assets in U.S.
stocks.
RUSSELL 1000 GROWTH INDEX is an unmanaged index that measures the investment
returns of stocks in the Russell 1000 Index with higher price-to-book ratios and
higher forecasted growth values. Companies included are large.
RUSSELL 1000 VALUE INDEX is an unmanaged index that measures the investment
returns of stocks in the Russell 1000 Index with lower price-to-book ratios and
lower forecasted growth values. Companies included are large.
RUSSELL 2000 GROWTH INDEX is an unmanaged index that measures the investment
returns of stocks in the Russell 2000 Index with higher price-to-book ratios and
higher forecasted growth values. Companies included are medium-size to small.
RUSSELL 2000 INDEX is an unmanaged index that measures the investment returns of
the 2,000 smallest stocks in the Russell 3000 Index. Companies included are
medium-size to small.
RUSSELL 2000 VALUE INDEX is an unmanaged index that measures the performance of
those Russell 2000 companies with lower price-to-book ratios and lower
forecasted growth values.
RUSSELL 2500 GROWTH INDEX is an unmanaged index that measures the performance of
the 2,500 smallest companies in the Russell 3000 Growth Index with higher
price-to-book ratios and higher forecasted growth values.
RUSSELL 3000 INDEX is an unmanaged index that is the combination of Russell 1000
Index and the Russell 2000 Index.
RUSSELL MIDCAP INDEX is an unmanaged index that measures the investment returns
of the 800 smallest stocks in the Russell 1000 Index.
RUSSELL MIDCAP GROWTH INDEX is an unmanaged index that measures the investment
returns of stocks in the Russell MidCap Index with higher price-to-book ratios
and higher forecasted growth rates.
RUSSELL MIDCAP VALUE INDEX is an unmanaged market-capitalization-weighted index
that measures the performance of those Russell Midcap companies with lower
price-to-book value ratios and lower forecasted growth values.
S&P 500 STOCK INDEX (S&P 500) is an unmanaged index of 500 widely-held stocks
often used as a proxy for the domestic stock market. Included are the stocks of
industrial, financial, utility, and transportation companies.
S&P 500/CITIGROUP VALUE INDEX is a float-adjusted market-capitalization-weighted
index comprised of stocks representing approximately half the market
capitalization of the S&P 500 that have been identified as being on the value
end of the growth-value spectrum. Until December 16, 2005, when Standard &
Poor's changed the name of the index and its calculation methodology, the index
was called the S&P 500/Barra Value Index.
S&P MIDCAP 400 INDEX is an unmanaged index that 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 is an unmanaged index that 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.
APPENDIX C
RELATED PERFORMANCE OF THE SUB-ADVISORS
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. If the composite results had been adjusted to reflect fees and
expenses of the Principal Investors Fund, Inc., performance numbers shown would
differ. Although the Principal Investors Fund, Inc. and client accounts
comprising the composite indices (Related Accounts) have substantially similar
investment objectives and policies in all material respects, you should not
assume that the Principal Investors Fund, Inc. will have the same performance as
the Related Accounts. For example, a Fund's future performance may be better or
worse than the performance of its Related Accounts due to, among other things,
differences in sales charge, expenses, asset sizes and cash flows between the
Fund and its Related 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 following pages contain information on the historical performance of each of
the Fund's. The date that these shares were first offered for sale is shown. 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.
On January 12, 2007, under a Plan of Reorganization, the following funds were
merged into newly organized Principal Investors Funds which were organized for
the purpose of receiving the assets of the WM Funds at the time of merger:
Equity Income Fund I, High Yield Fund II, Income Fund, MidCap Stock Fund,
Mortgage Securities Fund, Strategic Asset Management Balanced Portfolio,
Strategic Asset Management Conservative Balanced Portfolio, Strategic Asset
Management Conservative Growth Portfolio, Strategic Asset Management Flexible
Income Portfolio, Strategic Asset Management Strategic Growth Portfolio,
Short-Term Income Fund, and West Coast Equity Fund.
In each of these cases, the performance of the older WM Fund will serve as the
historical performance record for the new Principal Investors Fund post-merger.
Current performance may be lower or higher than the performance data shown.
PERFORMANCE RESULTS - FIXED INCOME FUNDS
AVERAGE ANNUAL TOTAL RETURN
(THROUGH MARCH 31, 2007)
YTD 1 YR 3 YR 5 YR 10 YR
---------------------------------------------------
MONEY MARKET FUND INSTITUTIONAL (03/01/01) 1.19 4.95 3.24 2.35 N/A
Principal Global Investors Money Market Composite 3.76
Lehman Brothers U.S. Treasury Bellwethers 3 Month Index 1.26 5.10 3.42 2.59 3.84
SHORT-TERM BOND FUND INSTITUTIONAL (03/01/01) 1.49 5.69 2.66 4.01 N/A
Principal Global Investors Limited Duration Fixed Income Composite 5.10
Lehman Brothers MF (1-3) US Government Credit Index 1.40 5.15 2.40 3.26 4.87
Morningstar Short-Term Bond Category Average 1.32 5.04 2.35 3.42 4.70
SHORT-TERM INCOME FUND INSTITUTIONAL (07/25/1996) 1.47 5.58 2.63 4.07 5.21
Citigroup Broad Investment-Grade Credit 1-3 Years Index 1.51 5.80 2.97 4.42 5.69
Morningstar Short-Term Bond Category Average 1.32 5.04 2.35 3.42 4.70
/
ULTRA SHORT BOND INSTITUTIONAL (06/15/01) 1.05 5.07 3.95/(1)/ 3.74/(1)/ N/A
6-Month LIBOR Index 1.35 5.44 3.67 2.84 4.22
Morningstar Ultrashort Bond Category Average 1.20 5.01 2.95 2.70 4.05
---------------------------------------------------
///(//1//)/
During 2005, the class experienced a significant withdrawal of monies by an affiliate. As the remaining shareholders held
relatively small positions, the total return amounts expressed herein are greater than those that would have been experienced
without the withdrawal.
ANNUAL TOTAL RETURN
(YEAR ENDED DECEMBER 31)
LIFE OF
FUND 2006 2005 2004
----------------- -----------------------------
MONEY MARKET FUND INSTITUTIONAL (03/01/01) 2.62 4.77 2.93 1.01
Principal Global Investors Money Market Composite
Lehman Brothers U.S. Treasury Bellwethers 3 Month Index 2.76 4.86 3.08 1.30
SHORT-TERM BOND FUND INSTITUTIONAL (03/01/01) 4.46 4.54 2.18 1.22
Principal Global Investors Limited Duration Fixed Income Composite
Lehman Brothers MF (1-3) US Government Credit Index 3.99 4.25 1.76 1.28
Morningstar Short-Term Bond Category Average 3.61 4.01 1.43 1.60
SHORT-TERM INCOME FUND INSTITUTIONAL (07/25/1996) N/A 4.18 2.10 1.87
Citigroup Broad Investment-Grade Credit 1-3 Years Index 5.72 4.33 2.02 1.96
Morningstar Short-Term Bond Category Average 4.61 4.01 1.43 1.60
ULTRA SHORT BOND INSTITUTIONAL (06/15/01) 3.84/(//1//)/ 5.19 3.77/(1)/ 2.50
6-Month LIBOR Index 2.89 5.20 3.33 1.47
Morningstar Ultrashort Bond Category Average 2.90 4.69 2.49 1.24
----------------- -----------------------------
///(//1//)/
During 2005, the class experienced a significant withdrawal of monies by an affiliate. As the remaining shareholders held
relatively small positions, the total return amounts expressed herein are greater than those that would have been experienced
without the withdrawal.
2003 2002 2001 2000 1999 1998 1997
--------------------------------------------------------
MONEY MARKET FUND INSTITUTIONAL (03/01/01) 0.80 1.49 3.96
Principal Global Investors Money Market Composite
Lehman Brothers U.S. Treasury Bellwethers 3 Month Index 1.15 1.78 4.45 6.20 4.91 5.33 5.53
SHORT-TERM BOND FUND INSTITUTIONAL (03/01/01) 2.87 7.67 7.21
Principal Global Investors Limited Duration Fixed Income Composite
Lehman Brothers MF (1-3) US Government Credit Index 2.82 6.29 8.79 8.07 3.16 6.99 6.66
Morningstar Short-Term Bond Category Average 2.39 5.24 7.32 8.14 2.12 6.28 6.51
SHORT-TERM INCOME FUND INSTITUTIONAL (07/25/1996) 4.86 5.98 8.52 8.33 3.08 6.56 5.98
Citigroup Broad Investment-Grade Credit 1-3 Years Index 5.17 6.69 9.80 7.99 4.01 7.09 6.86
Morningstar Short-Term Bond Category Average 2.39 5.24 7.32 8.14 2.12 6.28 6.51
ULTRA SHORT BOND INSTITUTIONAL (06/15/01) 3.11 4.15
6-Month LIBOR Index 1.32 2.06 5.00 6.76 5.44 5.89 5.94
Morningstar Ultrashort Bond Category Average 1.56 2.73 5.77 6.72 4.45 5.08 6.18
--------------------------------------------------------
///(//1//)/
During 2005, the class experienced a significant withdrawal of monies by an affiliate. As the remaining shareholders held
relatively small positions, the total return amounts expressed herein are greater than those that would have been experienced
without the withdrawal.
PERFORMANCE RESULTS - CONSERVATIVE FUNDS
AVERAGE ANNUAL TOTAL RETURN
(THROUGH MARCH 31, 2007)
LIFE OF
YTD 1 YR 3 YR 5 YR 10 YR FUND 2006
------------------------------------------- -------
BOND & MORTGAGE
SECURITIES FUND
INSTITUTIONAL
(03/01/01) 1.57 6.74 3.54 5.31 N/A 5.56 4.51
Principal Global
Investors Multi Sector
Fixed Income Composite 6.78
Lehman Brothers
Aggregate Bond Index 1.50 6.59 3.31 5.35 6.46 5.36 4.33
Morningstar
Intermediate-Term
Bond Category Average 1.45 6.17 3.00 4.99 5.75 4.90 4.11
GOVERNMENT & HIGH
QUALITY BOND FUND
INSTITUTIONAL(03/01/01) 1.38 6.05 3.14 4.14 N/A 4.69 4.19
Lehman Brothers
Government/Mortgage
Index 1.50 6.43 3.37 5.00 6.29 5.04 4.33
Morningstar
Intermediate
Government Category
Average 1.33 5.48 2.59 4.13 5.37 4.22 3.44
HIGH QUALITY
INTERMEDIATE-TERM BOND
FUND INSTITUTIONAL
(03/01/01) 1.43 6.41 3.34 5.28 N/A 5.57 4.30
Lehman Brothers
Aggregate Bond Index 1.50 6.59 3.31 5.35 6.46 5.36 4.33
Morningstar
Intermediate-Term
Bond Category Average 1.45 6.17 3.00 4.99 5.75 4.90 4.11
HIGH YIELD FUND
INSTITUTIONAL
(12/29/04) 2.65 9.15 N/A N/A N/A 6.95 8.89
Post High Yield
Traditional Composite 7.47 9.12 8.35
Lehman Brothers High
Yield Composite Bond
Index 2.64 11.58 8.59 10.39 6.75 7.61 11.85
Morningstar High
Yield Bond Category 2.62 10.15 7.81 9.27 5.56 6.77 10.13
HIGH YIELD FUND II
INSTITUTIONAL
(07/28/1998) 2.99 14.13 10.58 12.48 N/A 8.63 14.71
Citigroup High Yield
Market Index N/A N/A N/A N/A N/A 10.31 10.21
Morningstar High
Yield Bond Category 2.62 10.15 7.81 9.27 5.56 4.51 10.13
INCOME FUND
INSTITUTIONAL
(03/23/1998) 1.78 7.21 3.90 6.30 6.96 8.33 5.42
Citigroup Broad
Investment-Grade
Credit 1-3 Years
Index 1.51 5.80 2.97 4.42 5.69 9.40 4.33
Morningstar
Intermediate-Term
Bond Category Average 1.45 6.17 3.00 4.99 5.75 8.14 4.11
INFLATION PROTECTION
INSTITUTIONAL
(12/29/04) 2.25 4.91 N/A N/A N/A 2.41 0.43
Lehman Brothers US
Treasury TIPS Index 2.51 5.30 2.98 7.41 6.92 2.59 0.41
Morningstar
Inflation-Protected
Bond Category Average 2.22 4.49 2.24 6.56 6.37 1.90 0.09
MORTGAGE SECURITIES
FUND INSTITUTIONAL
(03/23/1998) 1.54 6.50 3.57 4.52 6.01 7.56 4.67
Citigroup Mortgage
Index 1.57 6.97 4.10 4.98 6.33 9.22 5.17
Morningstar Short
Government Category
Average 1.30 4.88 2.09 3.15 4.58 6.79 3.66
PREFERRED SECURITIES
FUND INSTITUTIONAL
(05/01/02) 0.95 7.40 3.54 N/A N/A 5.98 6.94
Spectrum Preferred
Securities Composite 7.92 8.10
Merrill Lynch
Preferred Stock
Hybrid Index 1.67 8.35 4.15 6.30 6.90 6.31 7.67
Morningstar
Intermediate-Term 1.45 6.17 3.00 4.99 5.75 4.76 4.11
Bond Category Average
------------------------------------------- -------
ANNUAL TOTAL RETURN
(YEAR ENDED DECEMBER 31)
2005 2004 2003 2002 2001 2000 1999 1998 1997
------------------------------------------------------------
BOND & MORTGAGE 2.48 4.75 4.04 9.27 7.32
SECURITIES FUND
INSTITUTIONAL
(03/01/01)
Principal Global
Investors Multi Sector
Fixed Income Composite
Lehman Brothers 2.43 4.34 4.11 10.26 8.42 11.63 -0.82 8.69 9.65
Aggregate Bond Index
Morningstar 1.79 3.81 4.92 7.88 7.36 9.45 -1.22 7.42 8.76
Intermediate-Term
Bond Category Average
GOVERNMENT & HIGH 2.16 3.55 1.70 8.77 7.03
QUALITY BOND FUND
INSTITUTIONAL(03/01/01)
Lehman Brothers 2.63 4.08 2.73 10.06 7.71 12.29 -0.54 8.72 9.54
Government/Mortgage
Index
Morningstar 1.90 3.39 2.15 9.07 6.84 10.76 -1.44 7.45 8.45
Intermediate
Government Category
Average
HIGH QUALITY 2.57 4.33 3.75 9.91 7.69
INTERMEDIATE-TERM BOND
FUND INSTITUTIONAL
(03/01/01)
Lehman Brothers 2.43 4.34 4.11 10.26 8.42 11.63 -0.82 8.69 9.65
Aggregate Bond Index
Morningstar 1.79 3.81 4.92 7.88 7.36 9.45 -1.22 7.42 8.76
Intermediate-Term
Bond Category Average
HIGH YIELD FUND 4.08
INSTITUTIONAL
(12/29/04)
Post High Yield
Traditional Composite
Lehman Brothers High 2.74 11.13 28.97 -1.40 5.28 -5.86 2.39 1.87 12.76
Yield Composite Bond
Index
Morningstar High 2.53 5.18 24.36 -1.59 2.13 -7.50 4.60 0.09 13.10
Yield Bond Category
HIGH YIELD FUND II 6.94 11.92 28.39 4.02 3.66 -1.20 12.27
INSTITUTIONAL
(07/28/1998)
Citigroup High Yield 2.65 10.63 28.67 1.17
Market Index
Morningstar High 2.53 5.18 24.36 -1.59 2.13 -7.50 4.60 0.09 13.10
Yield Bond Category
INCOME FUND 2.05 5.53 9.35 8.65 8.42 9.61 7.36 10.49
INSTITUTIONAL
(03/23/1998)
Citigroup Broad 2.02 1.96 5.17 6.69 9.80 7.99 4.01 7.09 6.86
Investment-Grade
Credit 1-3 Years
Index
Morningstar 1.79 3.81 4.92 7.88 7.36 9.45 -1.22 7.42 8.76
Intermediate-Term
Bond Category Average
INFLATION PROTECTION 2.43
INSTITUTIONAL
(12/29/04)
Lehman Brothers US 2.84 8.46 8.39 16.56 7.89 13.18 2.63 3.95
Treasury TIPS Index
Morningstar 1.97 7.61 7.63 15.72 7.83 13.16 3.18 4.85 3.76
Inflation-Protected
Bond Category Average
MORTGAGE SECURITIES 2.31 3.95 2.21 8.87 7.48 10.69 0.31 7.51 9.90
FUND INSTITUTIONAL
(03/23/1998)
Citigroup Mortgage 2.73 4.82 3.09 8.86 8.19 11.29 1.83 6.98 9.26
Index
Morningstar Short 1.24 1.37 1.42 6.77 7.25 8.33 1.24 6.52 6.84
Government Category
Average
PREFERRED SECURITIES 1.62 4.36 10.72
FUND INSTITUTIONAL
(05/01/02)
Spectrum Preferred
Securities Composite
Merrill Lynch 0.46 5.51 9.51 6.63 8.99 17.75 -4.68 7.37
Preferred Stock
Hybrid Index
Morningstar 1.79 3.81 4.92 7.88 7.36 9.45 -1.22 7.42 8.76
Intermediate-Term
Bond Category Average ------------------------------------------------------------
PERFORMANCE RESULTS - MODERATE FUNDS
AVERAGE ANNUAL TOTAL RETURN
(THROUGH MARCH 31, 2007)
LIFE OF
YTD 1 YR 3 YR 5 YR 10 YR FUND
--------------------------------------------------------
DISCIPLINED LARGECAP BLEND FUND INSTITUTIONAL (12/30/02) 1.06 10.54 10.93 N/A N/A 14.66
Principal Global Investors Diversified Large Cap Equity Composite 7.20 N/A
S&P 500 Index 0.64 11.83 10.06 6.27 8.20 13.99
Morningstar Large Blend Category Average 1.07 10.25 9.78 6.12 7.80 13.77
EQUITY INCOME FUND I INSTITUTIONAL (08/01/2000) 1.47 13.67 14.12 11.34 11.25 9.22
S&P 500 Index 0.64 11.83 10.06 6.27 8.20 13.37
S&P 500/Citigroup Value Index 1.34 15.63 14.31 9.74 9.34 9.97
Morningstar Large Value Category Average 1.13 13.95 11.77 8.04 8.86 13.30
LARGECAP GROWTH FUND INSTITUTIONAL (03/01/01) 1.01 5.92 10.11 4.79 N/A -2.40
Columbus Circle Investors Large Cap Growth Composite /(//1)/ 10.06 5.86 9.33
Russell 1000 Growth Index 1.19 7.06 7.01 3.48 5.51 0.58
Morningstar Large Growth Category Average 1.30 4.46 7.09 3.69 6.26 0.90
LARGECAP S&P 500 INDEX FUND INSTITUTIONAL (03/01/01) 0.60 11.68 9.87 6.04 N/A 2.28
Principal Global Investors Large Cap Stock Index Composite 7.82
S&P 500 Index 0.64 11.83 10.06 6.27 8.20 4.04
Morningstar Large Blend Category Average 1.07 10.25 9.78 6.12 7.80 4.16
LARGECAP VALUE FUND INSTITUTIONAL (03/01/01) 0.94 14.15 11.78 8.80 N/A 6.86
Principal Global Investors Diversified Large Cap Value Equity
Composite 8.86
Russell 1000 Value Index 1.24 16.83 14.42 10.25 10.85 8.47
Morningstar Large Value Category Average 1.13 13.95 11.77 8.04 8.86 6.77
MIDCAP VALUE FUND INSTITUTIONAL (03/01/01)/ / 4.58 16.02 16.56/(2)/ 12.85/(2)/ N/A 12.51/(2)/
Principal Global Investors Mid Cap Value Equity Composite 10.42
Russell Midcap Value Index 4.86 17.13 18.58 15.22 14.00 14.34
Morningstar Mid-Cap Value Category Average 3.97 13.28 13.74 11.00 11.26 11.62
PARTNERS LARGECAP BLEND FUND INSTITUTIONAL (12/06/00) 0.72 11.95 10.17 6.42 N/A 4.57
T. Rowe Price U.S. Structured Research Strategy /(//3)(//4)/ 10.48 7.27 N/A
S&P 500 Index 0.64 11.83 10.06 6.27 8.20 2.92
Morningstar Large Blend Category Average 1.07 10.25 9.78 6.12 7.80 3.19
PARTNERS LARGECAP BLEND FUND I INSTITUTIONAL (03/01/01) 0.62 10.03 9.75 5.92 N/A 0.89
Goldman Sachs Enhanced Large Cap Composite /(//5)/ 7.43 8.86
S&P 500 Index 0.64 11.83 10.06 6.27 8.20 4.04
Morningstar Large Blend Category Average 1.07 10.25 9.78 6.12 7.80 4.16
--------------------------------------------------------
2006
-------
DISCIPLINED LARGECAP BLEND FUND INSTITUTIONAL (12/30/02) 14.03
Principal Global Investors Diversified Large Cap Equity Composite
S&P 500 Index 15.79
Morningstar Large Blend Category Average 14.12
EQUITY INCOME FUND I INSTITUTIONAL (08/01/2000) 18.09
S&P 500 Index 15.79
S&P 500/Citigroup Value Index 20.80
Morningstar Large Value Category Average 18.18
LARGECAP GROWTH FUND INSTITUTIONAL (03/01/01) 9.86
Columbus Circle Investors Large Cap Growth Composite /(//1)/
Russell 1000 Growth Index 9.07
Morningstar Large Growth Category Average 6.93
LARGECAP S&P 500 INDEX FUND INSTITUTIONAL (03/01/01) 15.67
Principal Global Investors Large Cap Stock Index Composite
S&P 500 Index 15.79
Morningstar Large Blend Category Average 14.12
LARGECAP VALUE FUND INSTITUTIONAL (03/01/01) 20.06
Principal Global Investors Diversified Large Cap Value Equity
Composite
Russell 1000 Value Index 22.25
Morningstar Large Value Category Average 18.18
MIDCAP VALUE FUND INSTITUTIONAL (03/01/01)/ / 16.12
Principal Global Investors Mid Cap Value Equity Composite
Russell Midcap Value Index 20.22
Morningstar Mid-Cap Value Category Average 15.89
PARTNERS LARGECAP BLEND FUND INSTITUTIONAL (12/06/00) 15.94
T. Rowe Price U.S. Structured Research Strategy /(//3)(//4)/
S&P 500 Index 15.79
Morningstar Large Blend Category Average 14.12
PARTNERS LARGECAP BLEND FUND I INSTITUTIONAL (03/01/01) 13.67
Goldman Sachs Enhanced Large Cap Composite /(//5)/
S&P 500 Index 15.79
Morningstar Large Blend Category Average 14.12
-------
ANNUAL TOTAL RETURN
(YEAR ENDED DECEMBER 31)
2005 2004 2003 2002 2001 2000 1999 1998
----------------------------------------------------------------
DISCIPLINED LARGECAP BLEND FUND INSTITUTIONAL (12/30/02) 7.16 12.84 28.32
Principal Global Investors Diversified Large Cap Equity Composite
S&P 500 Index 4.91 10.87 28.67 -11.88 -9.11 21.04 28.58 33.36
Morningstar Large Blend Category Average 5.77 9.96 26.72 -13.68 -6.97 19.72 21.95 27.43
EQUITY INCOME FUND I INSTITUTIONAL (08/01/2000) 9.84 19.09 29.66 -12.53 7.78 14.74 4.83 6.93
S&P 500 Index 4.91 10.87 28.67 -11.88 -9.11 21.04 28.58 33.36
S&P 500/Citigroup Value Index 8.71 15.02 30.35 -16.61 -8.18 -0.52 4.87 18.91
Morningstar Large Value Category Average 5.88 12.91 28.40 -18.92 -5.37 5.47 6.63 13.10
LARGECAP GROWTH FUND INSTITUTIONAL (03/01/01) 11.84 9.35 24.89 -28.30 -24.35
Columbus Circle Investors Large Cap Growth Composite /(//1)/
Russell 1000 Growth Index 5.26 6.30 29.76 -27.88 -20.42 -22.42 33.16 38.71
Morningstar Large Growth Category Average 6.46 7.64 28.55 -27.73 -23.63 -14.09 39.72 33.56
LARGECAP S&P 500 INDEX FUND INSTITUTIONAL (03/01/01) 4.71 10.67 28.06 -22.27 -12.07
Principal Global Investors Large Cap Stock Index Composite
S&P 500 Index 4.91 10.87 28.67 -22.11 -11.88 -9.11 21.04 28.58
Morningstar Large Blend Category Average 5.77 9.96 26.72 -22.02 -13.68 -6.97 19.72 21.95
LARGECAP VALUE FUND INSTITUTIONAL (03/01/01) 6.82 12.40 25.48 -12.92 -7.30
Principal Global Investors Diversified Large Cap Value Equity
Composite
Russell 1000 Value Index 7.05 16.49 30.03 -15.52 -5.59 7.02 7.35 15.63
Morningstar Large Value Category Average 5.88 12.91 28.40 -18.92 -5.37 5.47 6.63 13.10
MIDCAP VALUE FUND INSTITUTIONAL (03/01/01)/ / 15.61/(2)/ 16.58 28.21 -8.01 3.39
Principal Global Investors Mid Cap Value Equity Composite
Russell Midcap Value Index 12.65 23.71 38.06 -9.65 2.34 19.18 -0.11 5.09
Morningstar Mid-Cap Value Category Average 8.41 17.90 34.38 -12.91 6.40 16.82 7.78 3.92
PARTNERS LARGECAP BLEND FUND INSTITUTIONAL (12/06/00) 4.79 10.38 23.93 -16.28 -7.13
T. Rowe Price U.S. Structured Research Strategy /(//3)(//4)/
S&P 500 Index 4.91 10.87 28.67 -22.11 -11.88 -9.11 21.04 28.58
Morningstar Large Blend Category Average 5.77 9.96 26.72 -22.02 -13.68 -6.97 19.72 21.95
PARTNERS LARGECAP BLEND FUND I INSTITUTIONAL (03/01/01) 6.16 11.05 27.98 -24.89 -16.80
Goldman Sachs Enhanced Large Cap Composite /(//5)/
S&P 500 Index 4.91 10.87 28.67 -22.11 -11.88 -9.11 21.04 28.58
Morningstar Large Blend Category Average 5.77 9.96 26.72 -22.02 -13.68 -6.97 19.72 21.95
----------------------------------------------------------------
1997
-------
DISCIPLINED LARGECAP BLEND FUND INSTITUTIONAL (12/30/02)
Principal Global Investors Diversified Large Cap Equity Composite
S&P 500 Index 22.96
Morningstar Large Blend Category Average 20.37
EQUITY INCOME FUND I INSTITUTIONAL (08/01/2000) 19.89
S&P 500 Index 22.96
S&P 500/Citigroup Value Index 31.87
Morningstar Large Value Category Average 27.01
LARGECAP GROWTH FUND INSTITUTIONAL (03/01/01)
Columbus Circle Investors Large Cap Growth Composite /(//1)/
Russell 1000 Growth Index 30.49
Morningstar Large Growth Category Average 25.00
LARGECAP S&P 500 INDEX FUND INSTITUTIONAL (03/01/01)
Principal Global Investors Large Cap Stock Index Composite
S&P 500 Index 33.36
Morningstar Large Blend Category Average 27.43
LARGECAP VALUE FUND INSTITUTIONAL (03/01/01)
Principal Global Investors Diversified Large Cap Value Equity
Composite
Russell 1000 Value Index 35.18
Morningstar Large Value Category Average 27.01
MIDCAP VALUE FUND INSTITUTIONAL (03/01/01)/ /
Principal Global Investors Mid Cap Value Equity Composite
Russell Midcap Value Index 34.37
Morningstar Mid-Cap Value Category Average 26.04
PARTNERS LARGECAP BLEND FUND INSTITUTIONAL (12/06/00)
T. Rowe Price U.S. Structured Research Strategy /(//3)(//4)/
S&P 500 Index 33.36
Morningstar Large Blend Category Average 27.43
PARTNERS LARGECAP BLEND FUND I INSTITUTIONAL (03/01/01)
Goldman Sachs Enhanced Large Cap Composite /(//5)/
S&P 500 Index 33.36
Morningstar Large Blend Category Average 27.43
-------
/ //(//1)
/CCI began sub-advising the Fund on 01/05/05. The performance of the accounts represented in this composite does not reflect CCI's
use of "estimated tracking error" in controlling investment risk, a tool CCI will use with the Fund under certain circumstances.
Tracking error is a statistical estimate of the difference over the next twelve months between the Fund's return and the return of
the Fund's benchmark or index. When employed, this risk control tool could increase or decrease, depending on market conditions,
the return the Fund might otherwise achieve.
/ //(//2)
/During 2005, the Institutional Class experienced a significant redemption of shares. Because the remaining shareholders had
relatively small positions, the returns shown are greater than they would have been without the redemption. In addition, the Class
experienced a reimbursement from the Manager relating to a prior period expense adjustment. The total return amounts expressed
herein are greater than those that would have been expressed without the reimbursement.
/ //(//3) /T. Rowe Price began sub-advising the Fund on 03/09/04
//
/(//4)
/The performance information provided by T. Rowe Associates, Inc. ("T. Rowe") is not that of a composite, but is the total return
performance of the T. Rowe Price Capital Opportunity Fund (the "T. Rowe Fund"), which is managed in a substantially similar fashion
to the Partners LargeCap Blend Fund T. Rowe Price believes the T. Rowe Fund's prior performance is the most appropriate measure of
its investment record in the strategy. The T. Rowe Fund's investment performance prior to May 1, 1999 reflects the T. Rowe Fund's
prior investment program. It does not represent the historical performance of the Principal Partners LargeCap Blend Fund and should
not be interpreted as indicative of its future performance.
/ //(//5) /Goldman Sachs began sub-advising the Fund on 12/16/02
PERFORMANCE RESULTS - MODERATE FUNDS
AVERAGE ANNUAL TOTAL RETURN
(THROUGH MARCH 31, 2007)
LIFE OF
YTD 1 YR 3 YR 5 YR 10 YR FUND 2006
-------------------------------------------- -------
PARTNERS LARGECAP
GROWTH FUND I
INSTITUTIONAL
(12/06/00) 0.24 4.69 7.48 2.99 N/A -1.59 6.10
T. Rowe Price
Institutional Large
Cap Growth Strategy
Composite/
(//1//)(//2//)/ 7.86 N/A N/A
Russell 1000 Growth
Index 1.19 7.06 7.01 3.48 5.51 -1.33 9.07
Morningstar Large
Growth Category
Average 1.30 4.46 7.09 3.69 6.26 -0.93 6.93
PARTNERS LARGECAP
GROWTH FUND II
INSTITUTIONAL
(12/06/00) 0.84 6.09 7.02 3.26 N/A -1.68 7.70
American Century Large
Cap Growth Equity
Composite 6.83
Russell 1000 Growth
Index 1.19 7.06 7.01 3.48 5.51 -1.33 9.07
Morningstar Large
Growth Category
Average 1.30 4.46 7.09 3.69 6.26 -0.93 6.93
PARTNERS LARGECAP
VALUE FUND
INSTITUTIONAL
(12/06/00) 0.46 16.30 12.36 9.16 N/A 9.58 21.91
Russell 1000 Value
Index 1.24 16.83 14.42 10.25 10.85 7.82 22.25
Morningstar Large
Value Category
Average 1.13 13.95 11.77 8.04 8.86 6.39 18.18
PARTNERS LARGECAP
VALUE FUND I
INSTITUTIONAL
(06/01/04) 1.15 14.19 N/A N/A N/A 14.86 18.20
UBS U.S. Large Cap
Value Equity Composite 13.88 9.87 N/A
Russell 1000 Value
Index 1.24 16.83 14.42 10.25 10.85 15.93 22.25
Morningstar Large
Value Category
Average 1.13 13.95 11.77 8.04 8.86 13.10 18.18
PARTNERS LARGECAP
VALUE FUND II
INSTITUTIONAL
(12/29/04) -0.08 15.39 N/A N/A N/A 10.39 19.90
American Century Large
Cap Value Equity
Composite 11.88 8.93 N/A
Russell 1000 Value
Index 1.24 16.83 14.42 10.25 10.85 13.32 22.25
Morningstar Large
Value Category 1.13 13.95 11.77 8.04 8.86 11.05 18.18
Average
-------------------------------------------- -------
ANNUAL TOTAL RETURN
(YEAR ENDED DECEMBER 31)
2005 2004 2003 2002 2001 2000 1999 1998 1997
-----------------------------------------------------------------
PARTNERS LARGECAP 7.61 9.25 24.01 -27.76 -14.32
GROWTH FUND I
INSTITUTIONAL
(12/06/00)
T. Rowe Price
Institutional Large
Cap Growth Strategy
Composite/
(//1//)(//2//)/
Russell 1000 Growth 5.26 6.30 29.76 -27.88 -20.42 -22.42 33.16 38.71 30.49
Index
Morningstar Large 6.46 7.64 28.55 -27.73 -23.63 -14.09 39.72 33.58 25.00
Growth Category
Average
PARTNERS LARGECAP 4.75 9.31 26.08 -25.95 -17.88
GROWTH FUND II
INSTITUTIONAL
(12/06/00)
American Century Large
Cap Growth Equity
Composite
Russell 1000 Growth 5.26 6.30 29.76 -27.88 -20.42 -22.42 33.16 38.71 30.49
Index
Morningstar Large 6.46 7.64 28.55 -27.73 -23.63 -14.09 39.72 33.58 25.00
Growth Category
Average
PARTNERS LARGECAP 5.34 13.32 27.48 -13.58 5.53
VALUE FUND
INSTITUTIONAL
(12/06/00)
Russell 1000 Value 7.05 16.49 30.03 -15.52 -5.59 7.02 7.35 15.63 35.18
Index
Morningstar Large 5.88 12.91 28.40 -18.92 -5.37 5.47 6.63 13.10 27.01
Value Category
Average
PARTNERS LARGECAP 9.92
VALUE FUND I
INSTITUTIONAL
(06/01/04)
UBS U.S. Large Cap
Value Equity Composite
Russell 1000 Value 7.05 16.49 30.03 -15.52 -5.59 7.02 7.35 15.63 35.18
Index
Morningstar Large 5.88 12.91 28.40 -18.92 -5.37 5.47 6.63 13.10 27.01
Value Category
Average
PARTNERS LARGECAP 4.19
VALUE FUND II
INSTITUTIONAL
(12/29/04)
American Century Large
Cap Value Equity
Composite
Russell 1000 Value 7.05 16.49 30.03 -15.52 -5.59 7.02 7.35 15.63 35.18
Index
Morningstar Large 5.88 12.91 28.40 -18.92 -5.37 5.47 6.63 13.10 27.01
Value Category
Average -----------------------------------------------------------------
/ //(//1//) /T. Rowe Price began sub-advising the Fund on 08/24/2004.
/ //(//2//)
/The performance information provided by T. Rowe Price Associates, Inc. ("T. Rowe Price") is not that of a composite, but is the
total return performance of the T. Rowe Price Institutional Large Cap Growth Fund ("T. Rowe Fund"), which is managed in a
substantially similar fashion to the Partners LargeCap Growth Fund I T. Rowe Price believes the T. Rowe Fund's prior performance is
the most appropriate measure of its investment record in the strategy. It does not represent the historical performance of the
Principal Partners Equity Growth Fund and should not be interpreted as indicative of its future performance.
PERFORMANCE RESULTS - MODERATE FUNDS
AVERAGE ANNUAL PERFORMANCE
(THROUGH MARCH 31, 2007)
LIFE OF
YTD 1 YR 3 YR 5 YR 10 YR FUND 2006
------------------------------------------- -------
PARTNERS MIDCAP VALUE
FUND INSTITUTIONAL
(12/06/00) 3.84 12.55 14.96 13.36 N/A 12.06 13.61
Neuberger Berman
MidCap Value Composite 11.92
Russell Midcap Value
Index 4.86 17.13 18.58 15.22 14.00 13.79 20.22
Morningstar Mid-Cap
Value Category
Average 3.97 13.28 13.74 11.00 11.26 11.32 15.89
PARTNERS MIDCAP VALUE
FUND I INSTITUTIONAL
(12/29/03) 5.08 14.67 17.01 N/A N/A 18.11 15.81
Goldman Sachs Mid
Value Composite 17.13 14.48 14.41
Russell Midcap Value
Index 4.86 17.13 18.58 15.22 14.00 18.93 20.22
Morningstar Mid-Cap
Value Category 3.97 13.28 13.74 11.00 11.26 14.38 15.89
Average
------------------------------------------- -------
ANNUAL PERFORMANCE
(YEAR ENDED DECEMBER 31)
2005 2004 2003 2002 2001 2000 1999 1998 1997
---------------------------------------------------------------
PARTNERS MIDCAP VALUE 10.86 22.56 35.96 -9.91 -1.78
FUND INSTITUTIONAL
(12/06/00)
Neuberger Berman
MidCap Value Composite
Russell Midcap Value 12.65 23.71 38.06 -9.65 2.34 19.18 -0.11 5.09 34.37
Index
Morningstar Mid-Cap 8.41 17.90 34.38 -12.91 6.40 16.82 7.78 3.92 26.04
Value Category
Average
PARTNERS MIDCAP VALUE 12.50 25.69
FUND I INSTITUTIONAL
(12/29/03)
Goldman Sachs Mid
Value Composite
Russell Midcap Value 12.65 23.71 38.06 -9.65 2.34 19.18 -0.11 5.09 34.37
Index
Morningstar Mid-Cap 8.41 17.90 34.38 -12.91 6.40 16.82 7.78 3.92 26.04
Value Category
Average ---------------------------------------------------------------
PERFORMANCE RESULTS - AGGRESSIVE FUNDS
AVERAGE ANNUAL TOTAL RETURN
(THROUGH MARCH 31, 2007)
LIFE OF
YTD 1 YR 3 YR 5 YR 10 YR FUND
-------------------------------------------------------------
MIDCAP BLEND FUND INSTITUTIONAL (03/01/01) 3.30 12.73 12.99 12.09 N/A 10.29
Principal Global Investors Mid Cap Equity Composite 11.38
Russell Midcap Index 4.38 11.79 15.72 12.91 12.71 11.05
Morningstar Mid-Cap Blend Category Average 4.06 10.11 12.70 10.44 11.70 9.81
MIDCAP GROWTH FUND INSTITUTIONAL (03/01/01) 3.21 -3.02 8.80 2.79 N/A -4.32
Columbus Circle Investors Mid Cap Growth Composite/ (//1)/ 10.04 9.04 13.05
Russell Midcap Growth Index 3.96 6.90 12.41 9.45 9.44 5.80
Morningstar Mid-Cap Growth Category Average 4.08 4.09 10.74 7.65 9.47 4.73
MIDCAP STOCK FUND INSTITUTIONAL (03/01/2000) 3.87 12.17 15.16 11.92 N/A 15.10
S&P MidCap 400 Index 5.80 8.44 13.35 10.70 14.28 9.18
Morningstar Mid-Cap Blend Category Average 4.06 10.11 12.70 10.44 11.70 10.22
MIDCAP S&P 400 INDEX FUND INSTITUTIONAL (03/01/01) 5.79 8.33 13.12 10.40 N/A 9.60
S&P MidCap 400 Index 5.80 8.44 13.35 10.70 14.28 10.44
Morningstar Mid-Cap Blend Category Average 4.06 10.11 12.70 10.44 11.70 9.81
PARTNERS MIDCAP GROWTH FUND INSTITUTIONAL (03/01/01) 3.55 -1.60 10.35 7.93 N/A -0.44
Turner Midcap Growth Composite 14.52
Russell Midcap Growth Index 3.96 6.90 12.41 9.45 9.44 5.80
Morningstar Mid-Cap Growth Category Average 4.08 4.09 10.74 7.65 9.47 4.73
PARTNERS MIDCAP GROWTH FUND I INSTITUTIONAL (12/29/03) 4.66 6.79 11.66 N/A N/A 12.24
Mellon Mid Cap Growth Composite 11.95 8.99 N/A
Russell Midcap Growth Index 3.96 6.90 12.41 9.45 9.44 13.04
Morningstar Mid-Cap Growth Category Average 4.08 4.09 10.74 7.65 9.47 11.42
PARTNERS MIDCAP GROWTH FUND II INSTITUTIONAL (12/29/04) 1.70 -0.71 N/A N/A N/A 10.83
Fidelity Mid Cap Growth Composite 11.81 7.85 N/A
Russell Midcap Growth Index 3.96 6.90 12.41 9.45 9.44 11.97
Morningstar Mid-Cap Growth Category Average 4.08 4.09 10.74 7.65 9.47 10.41
PARTNERS SMALLCAP BLEND FUND INSTITUTIONAL (12/30/02) 3.52 2.07 10.39 N/A N/A 18.70
Mellon SmallCap Blend Composite 11.32 N/A
S&P SmallCap 600 Index 3.21 5.29 13.89 11.69 12.57 20.10
Morningstar Small Blend Category Average 2.89 5.78 12.34 11.05 11.64 19.87
PARTNERS SMALLCAP GROWTH FUND I INSTITUTIONAL (12/06/00) 4.14 -0.50 9.82 5.13 N/A 1.41
Alliance Capital Small Cap Growth Composite /(//2)/ 8.19 9.60
Russell 2000 Growth Index 2.48 1.56 9.41 7.88 6.31 4.29
Morningstar Small Growth Category Average 3.03 1.14 9.04 7.26 9.50 4.30
-------------------------------------------------------------
/ //(//1)
/CCI began sub-advising the Fund on 01/05/05. The performance of the accounts represented in this composite does not reflect CCI's
use of "estimated tracking error" in controlling investment risk, a tool CCI will use with the Fund under certain circumstances.
Tracking error is a statistical estimate of the difference over the next twelve months between the Fund's return and the return of
the Fund's benchmark or index. When employed, this risk control tool could increase or decrease, depending on market conditions,
the return the Fund might otherwise achieve.
///(//2) /Alliance began sub-advising the Fund on 03/31/03
ANNUAL TOTAL RETURN
(YEAR ENDED DECEMBER 31)
2006 2005 2004 2003 2002
---------------------------------------------------
MIDCAP BLEND FUND INSTITUTIONAL (03/01/01) 14.05 9.31 17.65 32.67 -8.47
Principal Global Investors Mid Cap Equity Composite -
Russell Midcap Index 15.26 12.65 20.22 40.08 -16.19
Morningstar Mid-Cap Blend Category Average 13.92 9.21 16.00 36.42 -17.08
MIDCAP GROWTH FUND INSTITUTIONAL (03/01/01) 2.24 13.37 10.47 32.75 -40.47
Columbus Circle Investors Mid Cap Growth Composite/ (//1)/
Russell Midcap Growth Index 10.66 12.10 15.48 42.72 -27.40
Morningstar Mid-Cap Growth Category Average 9.01 9.70 12.93 36.09 -27.53
MIDCAP STOCK FUND INSTITUTIONAL (03/01/2000) 16.98 12.31 14.24 27.23 -10.07
S&P MidCap 400 Index 10.32 12.56 16.48 35.62 -14.53
Morningstar Mid-Cap Blend Category Average 13.92 9.21 16.00 36.42 -17.08
MIDCAP S&P 400 INDEX FUND INSTITUTIONAL (03/01/01) 10.16 12.22 16.18 35.15 -15.26
S&P MidCap 400 Index 10.32 12.55 16.47 35.59 -14.53
Morningstar Mid-Cap Blend Category Average 13.92 9.21 16.00 36.42 -17.08
PARTNERS MIDCAP GROWTH FUND INSTITUTIONAL (03/01/01) 6.43 12.11 12.30 48.59 -31.87
Turner Midcap Growth Composite
Russell Midcap Growth Index 10.66 12.10 15.48 42.72 -27.40
Morningstar Mid-Cap Growth Category Average 9.01 9.70 12.93 36.09 -27.53
PARTNERS MIDCAP GROWTH FUND I INSTITUTIONAL (12/29/03) 9.25 13.61 11.99
Mellon Mid Cap Growth Composite
Russell Midcap Growth Index 10.66 12.10 15.48 42.72 -27.40
Morningstar Mid-Cap Growth Category Average 9.01 9.70 12.93 36.09 -27.53
PARTNERS MIDCAP GROWTH FUND II INSTITUTIONAL (12/29/04) 8.24 14.64
Fidelity Mid Cap Growth Composite
Russell Midcap Growth Index 10.66 12.10 15.48 42.72 -27.40
Morningstar Mid-Cap Growth Category Average 9.01 9.70 12.93 36.09 -27.53
PARTNERS SMALLCAP BLEND FUND INSTITUTIONAL (12/30/02) 8.90 3.81 22.46 44.41
Mellon SmallCap Blend Composite -
S&P SmallCap 600 Index 15.12 7.67 22.64 38.77 -14.63
Morningstar Small Blend Category Average 15.06 6.62 18.86 42.77 -16.17
PARTNERS SMALLCAP GROWTH FUND I INSTITUTIONAL (12/06/00) 10.44 5.56 14.61 47.36 -40.51
Alliance Capital Small Cap Growth Composite /(//2)/
Russell 2000 Growth Index 18.37 4.15 14.31 48.53 -30.25
Morningstar Small Growth Category Average 10.50 5.74 12.09 45.00 -28.42
---------------------------------------------------
/ //(//1)
/CCI began sub-advising the Fund on 01/05/05. The performance of the accounts represented in this composite does not reflect CCI's
use of "estimated tracking error" in controlling investment risk, a tool CCI will use with the Fund under certain circumstances.
Tracking error is a statistical estimate of the difference over the next twelve months between the Fund's return and the return of
the Fund's benchmark or index. When employed, this risk control tool could increase or decrease, depending on market conditions,
the return the Fund might otherwise achieve.
///(//2) /Alliance began sub-advising the Fund on 03/31/03
2001 2000 1999 1998 1997
----------------------------------------------------
MIDCAP BLEND FUND INSTITUTIONAL (03/01/01) -3.29
Principal Global Investors Mid Cap Equity Composite
Russell Midcap Index -5.63 8.25 18.23 10.09 29.01
Morningstar Mid-Cap Blend Category Average -4.96 3.37 18.70 6.77 26.45
MIDCAP GROWTH FUND INSTITUTIONAL (03/01/01) -24.80
Columbus Circle Investors Mid Cap Growth Composite/ (//1)/
Russell Midcap Growth Index -20.16 -11.74 51.29 17.86 22.54
Morningstar Mid-Cap Growth Category Average -21.28 -6.90 63.90 17.51 17.05
MIDCAP STOCK FUND INSTITUTIONAL (03/01/2000) 11.38
S&P MidCap 400 Index -0.61 17.51 14.72 19.12 32.25
Morningstar Mid-Cap Blend Category Average -4.96 3.37 18.70 6.77 26.45
MIDCAP S&P 400 INDEX FUND INSTITUTIONAL (03/01/01) -0.75
S&P MidCap 400 Index -0.60 17.51 14.72 19.11 32.25
Morningstar Mid-Cap Blend Category Average -4.96 3.37 18.70 6.77 26.45
PARTNERS MIDCAP GROWTH FUND INSTITUTIONAL (03/01/01) -27.52
Turner Midcap Growth Composite
Russell Midcap Growth Index -20.16 -11.74 51.29 17.86 22.54
Morningstar Mid-Cap Growth Category Average -21.28 -6.90 63.90 17.51 17.05
PARTNERS MIDCAP GROWTH FUND I INSTITUTIONAL (12/29/03)
Mellon Mid Cap Growth Composite
Russell Midcap Growth Index -20.16 -11.74 51.29 17.86 22.54
Morningstar Mid-Cap Growth Category Average -21.28 -6.90 63.90 17.51 17.05
PARTNERS MIDCAP GROWTH FUND II INSTITUTIONAL (12/29/04)
Fidelity Mid Cap Growth Composite
Russell Midcap Growth Index -20.16 -11.74 51.29 17.86 22.54
Morningstar Mid-Cap Growth Category Average -21.28 -6.90 63.90 17.51 17.05
PARTNERS SMALLCAP BLEND FUND INSTITUTIONAL (12/30/02)
Mellon SmallCap Blend Composite
S&P SmallCap 600 Index 6.54 11.80 12.40 -1.31 25.58
Morningstar Small Blend Category Average 8.41 12.84 18.18 -3.64 26.12
PARTNERS SMALLCAP GROWTH FUND I INSTITUTIONAL (12/06/00) -13.93
Alliance Capital Small Cap Growth Composite /(//2)/
Russell 2000 Growth Index -9.23 -22.43 43.09 1.23 12.95
Morningstar Small Growth Category Average -9.02 -5.71 61.45 4.49 18.19
----------------------------------------------------
/ //(//1)
/CCI began sub-advising the Fund on 01/05/05. The performance of the accounts represented in this composite does not reflect CCI's
use of "estimated tracking error" in controlling investment risk, a tool CCI will use with the Fund under certain circumstances.
Tracking error is a statistical estimate of the difference over the next twelve months between the Fund's return and the return of
the Fund's benchmark or index. When employed, this risk control tool could increase or decrease, depending on market conditions,
the return the Fund might otherwise achieve.
///(//2) /Alliance began sub-advising the Fund on 03/31/03
PERFORMANCE RESULTS - AGGRESSIVE FUNDS
AVERAGE ANNUAL TOTAL RETURN
(THROUGH MARCH 31, 2007)
LIFE OF
YTD 1 YR 3 YR 5 YR 10 YR FUND
-------------------------------------------------------
PARTNERS SMALLCAP GROWTH FUND II INSTITUTIONAL (12/06/00) 4.44 0.38 10.59 8.97 N/A 0.54
Emerald Diversified Small Cap Growth Composite /(//2)/ 7.09 8.91
Essex Small/Micro Cap Growth Composite
/(3)/ 14.68 N/A
UBS U.S. Small Capitalization Growth Equity Composite /(//1)/ 9.32 11.72
Russell 2000 Growth Index 2.48 1.56 9.41 7.88 6.31 4.29
Morningstar Small Growth Category Average 3.03 1.14 9.04 7.26 9.50 4.30
PARTNERS SMALLCAP GROWTH FUND III INSTITUTIONAL (06/01/04) 0.85 -0.27 N/A N/A N/A 11.50
CCI Small Cap Growth Composite
/(4)/ 19.55 10.97 7.48
Mazama Small-Mid Cap Growth Composite 8.40 11.42 N/A
Russell 2500 Growth Index 4.03 4.44 11.12 9.13 8.43 12.72
Morningstar Small Growth Category Average 3.03 1.14 9.04 7.26 9.50 11.05
-------------------------------------------------------
/(//1) /UBS began sub-advising the Fund on 04/22/02
/(//2)/ Emerald Advisers Inc. began as co-sub-advisor of the Fund on 09/01/04
/(//3//)/ Essex Investment Management Company, LLC began as co-sub-advisor of the Fund on 6/30/06
/(//4//)/ Columbus Circle Investors began as sub-advisor of the Fund on 12/15/06
ANNUAL TOTAL RETURN
(YEAR ENDED DECEMBER 31)
2006 2005 2004 2003 2002 2001 2000 1999 1998
-----------------------------------------------------------------
PARTNERS SMALLCAP GROWTH FUND II INSTITUTIONAL (12/06/00) 8.97 7.11 11.08 45.09 -24.63 -20.45
Emerald Diversified Small Cap Growth Composite /(//2)/
Essex Small/Micro Cap Growth Composite
/(3)/
UBS U.S. Small Capitalization Growth Equity Composite /(//1)/
Russell 2000 Growth Index 18.37 4.15 14.31 48.53 -30.25 -9.23 -22.43 43.09 1.23
Morningstar Small Growth Category Average 10.50 5.74 12.09 45.00 -28.42 -9.02 -5.71 61.45 4.49
PARTNERS SMALLCAP GROWTH FUND III INSTITUTIONAL (06/01/04) 10.68 12.68
CCI Small Cap Growth Composite
/(4)/
Mazama Small-Mid Cap Growth Composite
Russell 2500 Growth Index 12.26 8.17 14.59 46.32 -29.09 -10.83 -16.09 55.48 3.10
Morningstar Small Growth Category Average 10.50 5.74 12.09 45.00 -28.42 -9.02 -5.71 61.45 4.49
-----------------------------------------------------------------
/(//1) /UBS began sub-advising the Fund on 04/22/02
/(//2)/ Emerald Advisers Inc. began as co-sub-advisor of the Fund 9/
/(//3//)/ Essex Investment Management Company, LLC began as co-sub-advisor of the Fund on 6/30/06
/(//4//)/ Columbus Circle Investors began as sub-advisor of the F n /0
1997
-------
PARTNERS SMALLCAP GROWTH FUND II INSTITUTIONAL (12/06/00)
Emerald Diversified Small Cap Growth Composite /(//2)/
Essex Small/Micro Cap Growth Composite
/(3)/
UBS U.S. Small Capitalization Growth Equity Composite /(//1)/
Russell 2000 Growth Index 12.95
Morningstar Small Growth Category Average 18.19
PARTNERS SMALLCAP GROWTH FUND III INSTITUTIONAL (06/01/04)
CCI Small Cap Growth Composite
/(4)/
Mazama Small-Mid Cap Growth Composite
Russell 2500 Growth Index 14.76
Morningstar Small Growth Category Average 18.19
-------
/(//1) /UBS began sub-advising the Fund on 04/22/02
/(//2)/ Emerald Advisers Inc. began as co-sub-advisor of the Fund /01/04
/(//3//)/ Essex Investment Management Company, LLC began as co-sub-advisor of the Fund on 6/30/06
/(//4//)/ Columbus Circle Investors began as sub-advisor of the Fu 12/15/06
PERFORMANCE RESULTS - AGGRESSIVE FUNDS
AVERAGE ANNUAL TOTAL RETURN
(THROUGH MARCH 31, 2007)
LIFE OF
YTD 1 YR 3 YR 5 YR 10 YR FUND 2006
-------------------------------------------- -------
PARTNERS SMALLCAP
VALUE INSTITUTIONAL
(03/01/01) 2.84 6.29 11.84 10.94 N/A 13.24 14.10
Ark Asset Small Cap -
Value Composite 15.59
Russell 2000 Value
Index 1.46 10.38 14.47 13.61 13.46 14.71 23.48
Morningstar Small
Value Category
Average 2.49 7.69 12.75 12.35 12.78 13.84 16.27
PARTNERS SMALLCAP
VALUE FUND I
INSTITUTIONAL
(12/30/02) 2.06 6.78 13.87 N/A N/A 22.85 18.38
JPMorgan Program US
Structured Small Cap
Value Equity Composite 15.05 N/A
Mellon Equity SmallCap
Value Composite/(1)/ 14.35 N/A
Russell 2000 Value
Index 1.46 10.38 14.47 13.61 13.46 22.17 23.48
Morningstar Small
Value Category
Average 2.49 7.69 12.75 12.35 12.78 19.98 16.27
PARTNERS SMALLCAP
VALUE FUND II
INSTITUTIONAL
(06/01/04) 2.59 8.54 N/A N/A N/A 17.13 20.56
Dimensional US Small
Cap Value Composite 16.40 17.07 16.22
Vaughan Nelson Small
Capitalization Value
Composite/(2)/ 14.70 15.00 N/A
Russell 2000 Value
Index 1.46 10.38 14.47 13.61 13.46 17.07 23.48
Morningstar Small
Value Category
Average 2.49 7.69 12.75 12.35 12.78 14.74 16.27
REAL ESTATE SECURITIES
FUND INSTITUTIONAL
(03/01/01) 2.14 19.85 23.90 24.31 N/A 22.60 36.44
Principal Capital -
REI Real Estate
Composite 24.80 N/A
MSCI US REIT Index 3.45 22.10 22.76 22.09 14.71 22.03 35.92
Morningstar Specialty
- Real Estate
Category Average 3.56 21.56 21.87 22.12 14.68 21.63 33.61
SMALLCAP BLEND FUND
INSTITUTIONAL
(03/01/01) 3.73 5.33 12.76 11.75 N/A 11.99 14.24
Principal Global
Investors US Small Cap
Equity Composite 11.75 11.00
Russell 2000 Index 1.95 5.91 12.00 10.95 10.23 10.37 13.35
Morningstar Small
Blend Category
Average 2.89 5.78 12.34 11.05 11.64 11.71 15.06
SMALLCAP GROWTH FUND
INSTITUTIONAL
(03/01/01) 3.54 2.52 10.25 5.39 N/A 3.13 11.59
Principal Global
Investors Small Cap
Growth Equity
Composite 6.54
Russell 2000 Growth
Index 2.48 1.56 9.41 7.88 6.31 5.61 18.37
Morningstar Small
Growth Category
Average 3.03 1.14 9.04 7.26 9.50 6.09 10.50
SMALLCAP S&P 600 INDEX
FUND INSTITUTIONAL
(03/01/01) 3.19 5.20 13.68 11.41 N/A 12.34 14.97
S&P SmallCap 600
Index 3.21 5.29 13.89 11.69 12.57 12.28 15.12
Morningstar Small
Blend Category
Average 2.89 5.78 12.34 11.05 11.64 6.09 15.06
SMALLCAP VALUE FUND
INSTITUTIONAL
(03/01/01) -0.58 6.37 13.81 14.57 N/A 15.91 18.83
Principal Global
Investors Small Cap
Equity Composite 11.79
Russell 2000 Value
Index 1.46 10.38 14.47 13.61 13.46 14.71 23.48
Morningstar Small
Value Category
Average 2.49 7.69 12.75 12.35 12.78 13.84 16.27
WEST COAST EQUITY FUND
INSTITUTIONAL
(06/07/1999) 1.24 6.10 11.05 8.67 14.95 14.65 12.17
Russell 3000 Index 1.28 11.28 10.84 7.23 8.69 11.43 15.72
Morningstar Mid-Cap
Blend Category 4.06 10.11 12.70 10.44 11.70 13.15 13.92
Average
-------------------------------------------- -------
//
/(1)/
Mellon Equity became co-sub-advisor
of the Fund on 09/01/05
//
/(//2//)/ Vaughan Nelson became
co-sub-advisor of the Fund on
10/03/05
ANNUAL TOTAL RETURN
(YEAR ENDED DECEMBER 31)
2005 2004 2003 2002 2001 2000 1999 1998 1997
-------------------------------------------------------------------
PARTNERS SMALLCAP 7.69 17.92 37.88 -10.16
VALUE INSTITUTIONAL
(03/01/01)
Ark Asset Small Cap
Value Composite
Russell 2000 Value 4.71 22.25 46.02 -11.42 14.02 22.83 -1.49 -6.45 31.78
Index
Morningstar Small 6.13 20.58 42.71 -10.25 17.31 16.98 4.49 -6.99 30.04
Value Category
Average
PARTNERS SMALLCAP 6.49 23.18 50.27
VALUE FUND I
INSTITUTIONAL
(12/30/02)
JPMorgan Program US
Structured Small Cap
Value Equity Composite
Mellon Equity SmallCap
Value Composite/(1)/
Russell 2000 Value 4.71 22.25 46.02 -11.42 14.02 22.83 -1.49 -6.45 31.78
Index
Morningstar Small 6.13 20.58 42.71 -10.25 17.31 16.98 4.49 -6.99 30.04
Value Category
Average
PARTNERS SMALLCAP 7.70
VALUE FUND II
INSTITUTIONAL
(06/01/04)
Dimensional US Small
Cap Value Composite
Vaughan Nelson Small
Capitalization Value
Composite/(2)/
Russell 2000 Value 4.71 22.25 46.02 -11.42 14.02 22.83 -1.49 -6.45 31.78
Index
Morningstar Small 6.13 20.58 42.71 -10.25 17.31 16.98 4.49 -6.99 30.04
Value Category
Average
REAL ESTATE SECURITIES 15.60 34.11 38.38 7.86 8.52
FUND INSTITUTIONAL
(03/01/01)
Principal Capital -
REI Real Estate
Composite
MSCI US REIT Index 12.52 31.49 36.74 3.64 12.83 26.81 -4.55 -16.90 18.58
Morningstar Specialty 11.59 31.88 36.89 4.10 8.93 25.83 -3.35 -15.79 23.05
- Real Estate
Category Average
SMALLCAP BLEND FUND 9.76 16.46 42.91 -17.07 7.47
INSTITUTIONAL
(03/01/01)
Principal Global
Investors US Small Cap
Equity Composite
Russell 2000 Index 4.55 18.33 47.25 -20.48 2.49 -3.02 21.26 -2.55 22.36
Morningstar Small 6.62 18.86 42.77 -16.17 8.41 12.84 18.18 -3.64 26.12
Blend Category
Average
SMALLCAP GROWTH FUND 4.44 14.70 48.44 -39.19 1.52
INSTITUTIONAL
(03/01/01)
Principal Global
Investors Small Cap
Growth Equity
Composite
Russell 2000 Growth 4.15 14.31 48.53 -30.25 -9.23 -22.43 43.09 1.23 12.95
Index
Morningstar Small 5.74 12.09 45.00 -28.42 -9.02 -5.71 61.45 4.49 18.19
Growth Category
Average
SMALLCAP S&P 600 INDEX 7.37 22.34 38.24 -14.90 6.40
FUND INSTITUTIONAL
(03/01/01)
S&P SmallCap 600 7.67 22.64 38.77 -14.63 6.54 11.80 12.40 -1.31 25.58
Index
Morningstar Small 6.62 18.86 42.77 -16.17 8.41 12.84 18.18 -3.64 26.12
Blend Category
Average
SMALLCAP VALUE FUND 9.20 19.96 43.64 -2.63 10.14
INSTITUTIONAL
(03/01/01)
Principal Global
Investors Small Cap
Equity Composite
Russell 2000 Value 4.71 22.25 46.02 -11.42 14.02 22.83 -1.49 -6.45 31.78
Index
Morningstar Small 6.13 20.58 42.71 -10.25 17.31 16.98 4.49 -6.99 30.04
Value Category
Average
WEST COAST EQUITY FUND 8.49 13.63 41.87 -22.19 6.69 6.99 42.35 22.98 32.88
INSTITUTIONAL
(06/07/1999)
Russell 3000 Index 6.12 11.95 31.06 -21.54 -11.46 -7.46 20.90 24.14 31.78
Morningstar Mid-Cap 9.11 16.03 36.51 -16.22 0.40 10.44 21.38 10.17 24.92
Blend Category
Average -------------------------------------------------------------------
//
/(1)/
Mellon Equity became co-sub-advisor
of the Fund on 09/01/05
//
/(//2//)/ Vaughan Nelson became
co-sub-advisor of the Fund on
10/03/05
PERFORMANCE RESULTS - DYNAMIC FUNDS
AVERAGE ANNUAL TOTAL RETURN
(THROUGH MARCH 31, 2007)
LIFE OF
YTD 1 YR 3 YR 5 YR 10 YR FUND 2006 2005
------------------------------------------- --------------
DIVERSIFIED
INTERNATIONAL FUND
INSTITUTIONAL
(03/01/01) 3.32 17.78 23.76 17.35 N/A 9.02 27.74 23.73
Principal Global
Investors Diversified
International Equity
Composite 9.37
Citigroup BMI Global
ex-US Index 4.26 20.61 22.12 18.6 9.94 12.70 27.28 19.59
Morningstar Foreign
Large Blend Category
Average 3.45 17.61 18.60 13.69 7.60 8.42 24.80 14.55
INTERNATIONAL EMERGING
MKTS. FUND
INSTITUTIONAL
(03/01/01) 4.10 23.91 31.19 26.12 N/A 21.45 37.30 35.87
Principal Global
Investors Emerging
Markets Equity
Composite 12.51
MSCI Emerging Markets
Free Index - NDTR 2.25 20.65 27.54 24.44 N/A 20.29 32.17 34.00
Morningstar
Diversified Emerging
Markets Category
Average 2.36 20.61 26.58 23.57 9.45 20.10 32.36 31.64
INTERNATIONAL GROWTH
FUND INSTITUTIONAL
(12/06/00) 4.25 17.70 22.50 17.07 N/A 9.59 24.35 22.33
CITI World Ex-US BMI
Growth Index 3.96 17.73 19.74 15.66 8.24 6.99 23.69 17.18
Morningstar Specialty
- Foreign Large
Growth Category 3.33 16.47 17.45 13.10 6.98 6.14 23.78 15.27
PARTNERS GLOBAL EQUITY
FUND INSTITUTIONAL
(03/01/05) 0.98 9.77 N/A N/A N/A 13.06 16.37
JP Morgan Global
Equity (Segment)
Composite 12.68 9.73 6.97
MSCI World Index - ND 2.50 15.44 14.63 10.39 7.88 14.92 20.07 9.49
Morningstar World
Stock Category
Average 2.85 13.97 15.11 11.38 8.93 16.02 19.52 11.74
PARTNERS INTERNATIONAL
FUND INSTITUTIONAL
(12/29/03) 4.41 20.43 20.06 N/A N/A 20.11 26.56 13.58
Fidelity International
Composite 20.22 16.37 9.85
MSCI EAFE (Europe,
Australia, Far East)
Index - ND 4.08 20.20 19.83 15.68 8.31 19.72 26.34 13.54
Morningstar Foreign
Large Blend Category 3.45 17.61 18.60 13.69 7.60 18.63 24.80 14.55
Average
------------------------------------------- --------------
ANNUAL TOTAL RETURN
(YEAR ENDED DECEMBER 31)
2004 2003 2002 2001 2000 1999 1998 1997
------------------------------------------------------------
DIVERSIFIED 20.23 33.98 -16.38 -24.37
INTERNATIONAL FUND
INSTITUTIONAL
(03/01/01)
Principal Global
Investors Diversified
International Equity
Composite
Citigroup BMI Global 22.23 42.15 -13.81 -20.08 -12.04 28.75 17.27 2.62
ex-US Index
Morningstar Foreign 17.59 33.32 -16.91 -21.83 -16.02 40.08 13.55 5.99
Large Blend Category
Average
INTERNATIONAL EMERGING 25.91 56.95 -6.82 -3.55
MKTS. FUND
INSTITUTIONAL
(03/01/01)
Principal Global
Investors Emerging
Markets Equity
Composite
MSCI Emerging Markets 25.56 55.82 -6.18 -2.61
Free Index - NDTR
Morningstar 23.75 55.30 -5.90 -3.73 -31.11 71.86 -27.03 -3.68
Diversified Emerging
Markets Category
Average
INTERNATIONAL GROWTH 22.78 38.97 -16.18 -21.06
FUND INSTITUTIONAL
(12/06/00)
CITI World Ex-US BMI 19.34 38.42 -16.97 -24.13 -17.97 36.58 19.63 3.91
Growth Index
Morningstar Specialty 15.58 33.15 -19.15 -24.36 -20.88 52.48 14.80 6.99
- Foreign Large
Growth Category
PARTNERS GLOBAL EQUITY
FUND INSTITUTIONAL
(03/01/05)
JP Morgan Global
Equity (Segment)
Composite
MSCI World Index - ND 14.72 33.11 -19.89 -16.89 -13.18 24.93 24.34 15.76
Morningstar World 15.06 34.82 -18.57 -15.95 -8.24 40.38 13.56 13.91
Stock Category
Average
PARTNERS INTERNATIONAL 20.49
FUND INSTITUTIONAL
(12/29/03)
Fidelity International
Composite
MSCI EAFE (Europe, 20.25 38.59 -15.94 -21.44 -14.17 26.96 20.00 1.78
Australia, Far East)
Index - ND
Morningstar Foreign 17.59 33.32 -19.15 -24.36 -20.88 52.48 14.80 6.99
Large Blend Category
Average ------------------------------------------------------------
PERFORMANCE RESULTS - PRINCIPAL LIFETIME FUNDS
AVERAGE ANNUAL TOTAL RETURN
(THROUGH MARCH 31, 2007)
LIFE
YTD 1 YR 3 YR 5 YR 10 YR OF FUND 2006 2005
------------------------------------------ -------------
PRINCIPAL LIFETIME
2010 FUND
INSTITUTIONAL
(03/01/01) 1.68 9.91 9.04 8.72 N/A 7.36 12.02 5.57
S&P 500 Index 0.64 11.83 10.06 6.27 8.20 4.04 15.79 4.91
Lehman Brothers
Aggregate Bond Index 1.50 6.59 3.31 5.35 6.46 5.36 4.33 2.43
Morningstar
Target-Date 2000-2014
Category Average 1.68 7.86 5.86 5.69 6.20 5.07 8.60 3.88
PRINCIPAL LIFETIME
2020 FUND
INSTITUTIONAL
(03/01/01) 1.91 11.09 10.66 9.54 0.00 8.06 14.21 7.66
S&P 500 Index 0.64 11.83 10.06 6.27 8.20 4.04 15.79 4.91
Lehman Brothers
Aggregate Bond Index 1.50 6.59 3.31 5.35 6.46 5.36 4.33 2.43
Morningstar
Target-Date 2015-2029
Category Average 1.91 9.74 8.62 7.17 7.25 5.76 12.41 6.21
PRINCIPAL LIFETIME
2030 FUND
INSTITUTIONAL
(03/01/01) 1.84 11.49 11.46 9.55 N/A 7.90 15.31 8.37
S&P 500 Index 0.64 11.83 10.06 6.27 8.20 4.04 15.79 4.91
Lehman Brothers
Aggregate Bond Index 1.50 6.59 3.31 5.35 6.46 5.36 4.33 2.43
Morningstar
Target-Date 2030+
Category Average 2.13 10.59 10.42 7.88 7.63 5.96 14.40 7.53
PRINCIPAL LIFETIME
2040 FUND
INSTITUTIONAL
(03/01/01) 1.95 11.64 11.95 9.25 N/A 8.06 15.61 8.82
S&P 500 Index 0.64 11.83 10.06 6.27 8.20 4.04 15.79 4.91
Lehman Brothers
Aggregate Bond Index 1.50 6.59 3.31 5.35 6.46 5.36 4.33 2.43
Morningstar
Target-Date 2030+
Category Average 2.13 10.59 10.42 7.88 7.63 5.96 14.40 7.53
PRINCIPAL LIFETIME
2050 FUND
INSTITUTIONAL
(03/01/01) 1.86 11.67 12.38 9.01 N/A 7.39 16.14 9.34
S&P 500 Index 0.64 11.83 10.06 6.27 8.20 4.04 15.79 4.91
Lehman Brothers
Aggregate Bond Index 1.50 6.59 3.31 5.35 6.46 5.36 4.33 2.43
Morningstar
Target-Date 2030+
Category Average 2.13 10.59 10.42 7.88 7.63 5.96 14.40 7.53
PRINCIPAL LIFETIME
STRATEGIC INCOME FUND
INSTITUTIONAL
(03/01/01) 1.45 8.07 7.33 7.64 N/A 6.62 9.13 4.12
S&P 500 Index 0.64 11.83 10.06 6.27 8.20 4.04 15.79 4.91
Lehman Brothers
Aggregate Bond Index 1.50 6.59 3.31 5.35 6.46 5.36 4.33 2.43
Morningstar
Target-Date 2000-2014 1.68 7.86 5.86 5.69 6.20 5.07 8.60 3.88
Category Average
------------------------------------------ -------------
ANNUAL TOTAL RETURN
(YEAR ENDED DECEMBER 31)
2004 2003 2002 2001 2000 1999 1998 1997
----------------------------------------------------------
PRINCIPAL LIFETIME 11.76 18.79 -4.45
2010 FUND
INSTITUTIONAL
(03/01/01)
S&P 500 Index 10.87 28.67 -22.11 -11.88 -9.11 21.04 28.58 33.36
Lehman Brothers 4.34 4.11 10.26 8.42 11.63 -0.82 8.69 9.65
Aggregate Bond Index
Morningstar 6.78 13.47 -3.92 -0.39 2.73 8.72 13.31 14.71
Target-Date 2000-2014
Category Average
PRINCIPAL LIFETIME 12.32 21.58 -7.00
2020 FUND
INSTITUTIONAL
(03/01/01)
S&P 500 Index 10.87 28.67 -22.11 -11.88 -9.11 21.04 28.58 33.36
Lehman Brothers 4.34 4.11 10.26 8.42 11.63 -0.82 8.69 9.65
Aggregate Bond Index
Morningstar 9.44 21.08 -11.01 -5.88 -3.93 15.14 20.01 20.86
Target-Date 2015-2029
Category Average
PRINCIPAL LIFETIME 12.83 23.31 -10.05
2030 FUND
INSTITUTIONAL
(03/01/01)
S&P 500 Index 10.87 28.67 -22.11 -11.88 -9.11 21.04 28.58 33.36
Lehman Brothers 4.34 4.11 10.26 8.42 11.63 -0.82 8.69 9.65
Aggregate Bond Index
Morningstar 11.36 25.38 -15.61 -9.54 -8.02 19.26 23.59 24.80
Target-Date 2030+
Category Average
PRINCIPAL LIFETIME 13.00 24.48 -12.61
2040 FUND
INSTITUTIONAL
(03/01/01)
S&P 500 Index 10.87 28.67 -22.11 -11.88 -9.11 21.04 28.58 33.36
Lehman Brothers 4.34 4.11 10.26 8.42 11.63 -0.82 8.69 9.65
Aggregate Bond Index
Morningstar 11.36 25.38 -15.61 -9.54 -8.02 19.26 23.59 24.80
Target-Date 2030+
Category Average
PRINCIPAL LIFETIME 13.29 26.44 -15.72
2050 FUND
INSTITUTIONAL
(03/01/01)
S&P 500 Index 10.87 28.67 -22.11 -11.88 -9.11 21.04 28.58 33.36
Lehman Brothers 4.34 4.11 10.26 8.42 11.63 -0.82 8.69 9.65
Aggregate Bond Index
Morningstar 11.36 25.38 -15.61 -9.54 -8.02 19.26 23.59 24.80
Target-Date 2030+
Category Average
PRINCIPAL LIFETIME 11.06 15.29 -1.69
STRATEGIC INCOME FUND
INSTITUTIONAL
(03/01/01)
S&P 500 Index 10.87 28.67 -22.11 -11.88 -9.11 21.04 28.58 33.36
Lehman Brothers 4.34 4.11 10.26 8.42 11.63 -0.82 8.69 9.65
Aggregate Bond Index
Morningstar 6.78 13.47 -3.92 -0.39 2.73 8.72 13.31 14.71
Target-Date 2000-2014
Category Average ----------------------------------------------------------
PERFORMANCE RESULTS - STRATEGIC ASSET MANAGEMENT PORTFOLIOS
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH MARCH 31, 2007)
LIFE
YTD 1 YR 3 YR 5 YR 10 YR OF FUND 2006
------------------------------------------ -------
SAM BALANCED PORTFOLIO
INSTITUTIONAL
(01/16/2007) 1.55 8.42 7.78 7.22 8.82 8.81 10.36
S&P 500 Index 0.64 11.83 10.06 6.27 8.20 9.53 15.79
Lehman Brothers
Aggregate Bond Index 1.50 6.59 3.31 5.35 6.46 6.43 4.33
60% S&P 500 Index/40%
Lehman Brothers
Aggregate Bond Index 1.03 9.86 7.46 6.27 7.91 8.62 11.20
Morningstar Moderate
Allocation Category
Average 1.52 9.14 8.08 6.45 7.27 7.93 11.26
SAM CONSERVATIVE
BALANCED PORTFOLIO
INSTITUTIONAL
(01/16/2007) 1.62 7.93 6.24 6.63 5.58 5.60 8.66
S&P 500 Index 0.64 11.83 10.06 6.27 8.20 9.53 15.79
Lehman Brothers
Aggregate Bond Index 1.50 6.59 3.31 5.35 6.46 6.43 4.33
40% S&P Index and 60%
Lehman Brothers
Aggregate Bond Index 1.21 8.81 6.10 6.09 7.56 7.99 8.91
Morningstar
Conservative
Allocation Category
Average 1.45 7.61 5.45 5.69 6.01 6.17 8.17
SAM CONSERVATIVE
GROWTH PORTFOLIO
INSTITUTIONAL
(01/16/2007) 1.68 9.01 9.12 7.60 9.70 9.32 11.89
S&P 500 Index 0.64 11.83 10.06 6.27 8.20 9.53 15.79
Lehman Brothers
Aggregate Bond Index 1.50 6.59 3.31 5.35 6.46 6.43 4.33
80% S&P 500 Index and
20% Lehman Brothers
Aggregate Bond Index 0.84 10.86 8.77 6.33 8.13 9.13 13.50
Morningstar Moderate
Allocation Category
Average 1.52 9.14 8.08 6.45 7.27 7.93 11.26
SAM FLEXIBLE INCOME
PORTFOLIO
INSTITUTIONAL
(01/16/2007) 1.48 6.99 4.66 5.76 6.66 6.90 6.70
S&P 500 Index 0.64 11.83 10.06 6.27 8.20 9.53 15.79
Lehman Brothers
Aggregate Bond Index 1.50 6.59 3.31 5.35 6.46 6.43 4.33
20% S&P Index and 80%
Lehman Brothers
Aggregate Bond Index 1.36 7.72 4.72 5.78 7.07 7.26 6.62
Morningstar
Conservative
Allocation Category
Average 1.45 7.61 5.45 5.69 6.01 6.17 8.17
SAM STRATEGIC GROWTH
PORTFOLIO
INSTITUTIONAL
(01/16/2007) 1.68 9.18 9.96 7.56 10.10 10.06 12.75
S&P 500 Index 0.64 11.83 10.06 6.27 8.20 9.53 15.79
Lehman Brothers
Aggregate Bond Index 1.50 6.59 3.31 5.35 6.46 6.43 4.33
Russell 3000 Index 1.28 11.28 10.84 7.23 8.69 9.81 15.72
Morningstar Large
Blend Category 1.07 10.25 9.78 6.12 7.80 9.13 14.12
Average
------------------------------------------ -------
ANNUAL TOTAL RETURNS
(YEAR ENDED DECEMBER 31)
2005 2004 2003 2002 2001 2000 1999 1998 1997
----------------------------------------------------------------
SAM BALANCED PORTFOLIO 5.21 9.23 21.34 -9.41 -0.51 0.20 26.97 16.13 10.29
INSTITUTIONAL
(01/16/2007)
S&P 500 Index 4.91 10.87 28.67 -22.11 -11.88 -9.11 21.04 28.58 33.36
Lehman Brothers 2.43 4.34 4.11 10.26 8.42 11.63 -0.82 8.69 9.65
Aggregate Bond Index
60% S&P 500 Index/40% 4.00 8.35 18.47 -9.95 -3.75 -0.85 11.97 21.01 23.61
Lehman Brothers
Aggregate Bond Index
Morningstar Moderate 5.29 8.62 20.06 -11.48 -4.63 1.66 10.34 13.20 19.35
Allocation Category
Average
SAM CONSERVATIVE 3.80 7.38 15.98 -2.98 2.21 4.01 1.98 5.29 8.26
BALANCED PORTFOLIO
INSTITUTIONAL
(01/16/2007)
S&P 500 Index 4.91 10.87 28.67 -22.11 -11.88 -9.11 21.04 28.58 33.36
Lehman Brothers 2.43 4.34 4.11 10.26 8.42 11.63 -0.82 8.69 9.65
Aggregate Bond Index
40% S&P Index and 60% 3.50 7.03 13.56 -3.47 0.30 3.31 7.61 16.97 18.86
Lehman Brothers
Aggregate Bond Index
Morningstar 3.05 5.71 12.79 -3.15 -0.81 4.40 7.15 11.63 14.86
Conservative
Allocation Category
Average
SAM CONSERVATIVE 6.24 10.88 26.97 -15.70 -4.20 -2.96 40.28 18.82 8.68
GROWTH PORTFOLIO
INSTITUTIONAL
(01/16/2007)
S&P 500 Index 4.91 10.87 28.67 -22.11 -11.88 -9.11 21.04 28.58 33.36
Lehman Brothers 2.43 4.34 4.11 10.26 8.42 11.63 -0.82 8.69 9.65
Aggregate Bond Index
80% S&P 500 Index and 4.47 9.62 23.52 -16.16 -7.81 -4.97 16.47 24.85 28.45
20% Lehman Brothers
Aggregate Bond Index
Morningstar Moderate 5.29 8.62 20.06 -11.48 -4.63 1.66 10.34 13.20 19.35
Allocation Category
Average
SAM FLEXIBLE INCOME 2.66 5.73 12.08 1.04 4.35 5.11 8.58 9.23 10.19
PORTFOLIO
INSTITUTIONAL
(01/16/2007)
S&P 500 Index 4.91 10.87 28.67 -22.11 -11.88 -9.11 21.04 28.58 33.36
Lehman Brothers 2.43 4.34 4.11 10.26 8.42 11.63 -0.82 8.69 9.65
Aggregate Bond Index
20% S&P Index and 80% 2.98 5.69 8.78 3.26 4.40 7.46 3.34 12.86 14.21
Lehman Brothers
Aggregate Bond Index
Morningstar 3.05 5.71 12.79 -3.15 -0.81 4.40 7.15 11.63 14.86
Conservative
Allocation Category
Average
SAM STRATEGIC GROWTH 6.98 11.92 31.27 -20.84 -6.69 -4.43 44.48 22.63 12.38
PORTFOLIO
INSTITUTIONAL
(01/16/2007)
S&P 500 Index 4.91 10.87 28.67 -11.88 -11.88 -9.11 21.04 28.58 33.36
Lehman Brothers 2.43 4.34 4.11 8.42 8.42 11.63 -0.82 8.69 9.65
Aggregate Bond Index
Russell 3000 Index 4.91 10.88 28.68 -22.10 -11.89 -9.10 21.04 28.58 33.36
Morningstar Large 5.77 9.96 26.72 -22.02 -13.68 -6.97 19.72 21.95 27.43
Blend Category
Average ----------------------------------------------------------------
(C) 2004 Morningstar, Inc. All Rights Reserved. Part of the mutual fund data
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted to be
accurate, complete, or timely. Neither Morningstar nor its content providers are
responsible for any damages or losses arising from any use of this information.
ADDITIONAL INFORMATION
Additional information about the Fund (including the Fund's policy regarding the
disclosure of portfolio securities) is available in the Statement of Additional
Information dated May 29, 2007, which is incorporated by reference into this
prospectus. Additional information about the Funds' investments is available in
the Fund's annual and semiannual reports to shareholders. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the last
fiscal year. The Statement of Additional Information and the Fund's annual and
semi-annual reports can be obtained free of charge by writing Principal Funds
Distributor, P.O. Box 10423, Des Moines, IA 50306. In addition, the Fund makes
its Statement of Additional Information and annual and semi-annual reports
available, free of charge, on our website PrincipalFunds.com. To request this
and other information about the Fund and to make shareholder inquiries,
telephone 1-800-547-7754.
Information about the Fund (including the Statement of Additional Information)
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 1-202-551-8090.
Reports and other information about the Fund are available on the EDGAR Database
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 electronic
request at the following e-mail address: publicinfo@sec.gov, or by writing the
Commission's Public Reference Section, Washington, D.C. 20549-0102.
The U.S. government does not insure or guarantee an investment in any of the
Funds. There can be no assurance that the Money Market Fund will be able to
maintain a stable share price of $1.00 per share.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, nor are shares of the Funds federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other agency.
Principal Investors Fund, Inc. SEC File 811-07572