ck0000012601-20231231
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PRINCIPAL
VARIABLE CONTRACTS FUNDS, INC. |
(“PVC”
or the “Registrant”) |
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Class
1 Shares |
Class
2 Shares |
Class
3 Shares |
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Statement
of Additional Information |
This
Statement of Additional Information (“SAI”) is not a prospectus. It contains
information in addition to the information in the Registrant’s Prospectus. The
Prospectus, which may be amended from time to time, contains the basic
information you should know before investing in a Fund. You
should read this SAI together with the Registrant’s Prospectus dated May 1,
2024.
Incorporation
by Reference:
The audited financial statements, schedules of investments, and auditor’s report
included in the Registrant’s Annual
Report to Shareholders,
for the fiscal year ended December 31, 2023, are hereby incorporated by
reference into and are legally a part of this SAI.
For
a free copy of the current Prospectus, Semi-Annual Report, or Annual Report,
call 1-800-222-5852 or write:
Principal
Variable Contracts Funds, Inc.
P.O.
Box 219971
Kansas
City, MO 64121-9971
The
Prospectus may be viewed at www.PrincipalAM.com/PVCProspectuses.
Effective
May 1, 2024, the Diversified Balanced Managed Volatility Account changed its
name to Diversified Balanced Strategic Allocation Account; the Diversified
Balanced Volatility Control Account changed its name to Diversified Balanced
Adaptive Allocation Account; the Diversified Growth Managed Volatility Account
changed its name to Diversified Growth Strategic Allocation Account; and the
Diversified Growth Volatility Control Account changed its name to Diversified
Growth Adaptive Allocation Account.
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TABLE
OF CONTENTS |
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HISTORY
OF THE FUNDS |
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DESCRIPTION
OF THE FUNDS' INVESTMENTS AND RISKS |
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LEADERSHIP
STRUCTURE AND BOARD |
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INVESTMENT
ADVISORY AND OTHER SERVICES |
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MULTIPLE
CLASS STRUCTURE |
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INTERMEDIARY
COMPENSATION |
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BROKERAGE
ALLOCATION AND OTHER PRACTICES |
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SHAREHOLDER
RIGHTS |
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PRICING
OF FUND SHARES |
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TAX
CONSIDERATIONS |
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PORTFOLIO
HOLDINGS DISCLOSURE |
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PROXY
VOTING POLICIES AND PROCEDURES |
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FINANCIAL
STATEMENTS |
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INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM |
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GENERAL
INFORMATION |
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CONTROL
PERSONS AND PRINCIPAL HOLDERS OF SECURITIES |
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PORTFOLIO
MANAGER DISCLOSURE |
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APPENDIX
A – DESCRIPTION OF BOND RATINGS |
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APPENDIX
B – PROXY VOTING POLICIES |
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HISTORY
OF THE FUNDS
Principal
Variable Contracts Funds, Inc. (“PVC” or the “Registrant”), a Maryland
corporation, was organized as Principal Variable Contracts Fund, Inc. on May 27,
1997. The Registrant changed its name to its current name, Principal Variable
Contracts Funds, Inc., effective May 17, 2008.
On
January 12, 2007, the Registrant acquired WM Trust I, WM Trust II, and WM
Strategic Asset Management Portfolios, LLC.
Classes
offered by each series of the Registrant (each, a “Fund” and, together, the
“Funds”) are shown in the following table.
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| Share
Class |
Account/Portfolio |
1 |
2 |
3 |
Blue
Chip |
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| X |
Bond
Market Index |
X |
| |
Core
Plus Bond |
X |
| |
Diversified
Balanced |
X |
X |
X |
Diversified
Balanced Adaptive Allocation |
| X |
X |
Diversified
Balanced Strategic Allocation |
| X |
X |
Diversified
Growth |
| X |
X |
Diversified
Growth Adaptive Allocation |
| X |
X |
Diversified
Growth Strategic Allocation |
| X |
X |
Diversified
Income |
| X |
X |
Diversified
International |
X |
| |
Equity
Income |
X |
X |
X |
Global
Emerging Markets |
X |
| |
Government
& High Quality Bond |
X |
| |
LargeCap
Growth I |
X |
| |
LargeCap
S&P 500 Index |
X |
X |
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LargeCap
S&P 500 Managed Volatility Index |
X |
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MidCap |
X |
X |
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Principal
Capital Appreciation |
X |
X |
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Principal
LifeTime Strategic Income |
X |
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Principal
LifeTime 2020 |
X |
| |
Principal
LifeTime 2030 |
X |
| |
Principal
LifeTime 2040 |
X |
| |
Principal
LifeTime 2050 |
X |
| |
Principal
LifeTime 2060 |
X |
| |
Real
Estate Securities |
X |
X |
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SAM
(Strategic Asset Management) Balanced |
X |
X |
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SAM
(Strategic Asset Management) Conservative Balanced |
X |
X |
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SAM
(Strategic Asset Management) Conservative Growth |
X |
X |
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SAM
(Strategic Asset Management) Flexible Income |
X |
X |
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SAM
(Strategic Asset Management) Strategic Growth |
X |
X |
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Short-Term
Income |
X |
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SmallCap
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X |
X |
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U.S.
LargeCap Buffer January |
| X |
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U.S.
LargeCap Buffer April |
| X |
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U.S.
LargeCap Buffer July |
| X |
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U.S.
LargeCap Buffer October |
| X |
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Each
class has different expenses. Because of these different expenses, the
investment performance of the classes will vary.
Principal
Global Investors, LLC (“PGI” or the “Manager”) may recommend to the Board of
Directors (the “Board”), and the Board may elect, to close certain Funds to new
investors or close certain Funds to new and existing investors. PGI may make
such a recommendation when a Fund approaches a size where additional investments
in the Fund have the potential to adversely impact Fund performance and make it
increasingly difficult to keep the Fund fully invested in a manner consistent
with its investment objective. PGI may also recommend to the Board, and the
Board may elect, to close certain share classes to new or new and existing
investors.
DESCRIPTION
OF THE FUNDS’ INVESTMENTS AND RISKS
The
Registrant is a registered, open-end management investment company, commonly
called a mutual fund. The Registrant consists of multiple investment portfolios,
which are referred to as “Funds.” Each Fund has its own investment objective,
strategies, and portfolio management team. As described below, each Fund has
adopted a fundamental policy regarding diversification, as that term is used in
the Investment Company Act of 1940, as amended (the “1940 Act”), and as
interpreted, modified, or otherwise permitted by regulatory authority having
jurisdiction, from time to time.
Fund
Policies
The
investment objective, principal investment strategies, and principal risks of
each Fund are described in the Prospectus. This SAI contains supplemental
information about those strategies and risks and the types of securities that
those managing the investments of each Fund can select. Additional information
is also provided about other strategies that each Fund may use to try to achieve
its objective.
The
composition of each Fund and the techniques and strategies that those managing a
Fund’s investments may use in selecting securities will vary over time. A Fund
is not required to use all of the investment techniques and strategies available
to it in seeking its goals.
Unless
otherwise indicated, with the exception of the percentage limitations on
borrowing, the restrictions apply at the time transactions are entered into.
Accordingly, any later increase or decrease beyond the specified limitation,
resulting from market fluctuations or in a rating by a rating service, does not
require elimination of any security from a Fund’s portfolio.
The
investment objective of each Fund and, except as described below as “fundamental
restrictions,” the investment strategies described in this SAI and the
Prospectus are not fundamental and may be changed by the Board without
shareholder approval.
With
the exception of the diversification test required by the Internal Revenue Code,
the Funds will not consider collateral held in connection with securities
lending activities when applying any of the following fundamental restrictions
or any other investment restriction set forth in the Prospectus or
SAI.
Fundamental
Restrictions
Except
as specifically noted, each Fund has adopted the following fundamental
restrictions. Each fundamental restriction is a matter of fundamental policy and
may not be changed without a vote of a majority of the outstanding voting
securities of the affected Fund, except as permitted by the 1940 Act or other
governing statute and the rules thereunder, the U.S. Securities and Exchange
Commission (the “SEC”), or other regulatory agency with authority over the
Funds. The 1940 Act provides that “a vote of a majority of the outstanding
voting securities” of a Fund means the affirmative vote of the lesser of (1)
more than 50% of the outstanding Fund shares or (2) 67% or more of the Fund
shares present at a meeting if more than 50% of the outstanding Fund shares are
represented at the meeting in person or by proxy. Each share has one vote, with
fractional shares voting proportionately. Shares of all classes of a Fund will
vote together as a single class, except when otherwise required by law or as
determined by the Board.
Each
Fund:
1)may
not issue senior securities, except as permitted under the 1940 Act, as amended,
and as interpreted, modified, or otherwise permitted by regulatory authority
having jurisdiction, from time to time.
2)may
not purchase or sell commodities, except as permitted by applicable law,
regulation, or regulatory authority having jurisdiction.
3)may
not purchase or sell real estate, which term does not include securities of
companies that deal in real estate or mortgages or investments secured by real
estate or interests therein, except that each Fund reserves freedom of action to
hold and to sell real estate acquired as a result of the Fund’s ownership of
securities.
4)may
not borrow money, except as permitted under the 1940 Act, as amended, and as
interpreted, modified, or otherwise permitted by regulatory authority having
jurisdiction, from time to time.
5)may
not make loans, except as permitted under the 1940 Act, as amended, and as
interpreted, modified, or otherwise permitted by regulatory authority having
jurisdiction, from time to time.
6)has
adopted a policy regarding diversification,
as
follows:
a)The
LargeCap
Growth
I
and
Real
Estate
Securities
Accounts
have
elected
to
be
non-diversified.
b)The
other
Funds
have
each
elected to be treated as a “diversified” investment company, as that term is
used in the 1940 Act, as amended, and as interpreted, modified, or otherwise
permitted by regulatory authority having jurisdiction, from time to
time.
7)may
not act as an underwriter of securities, except to the extent that the Fund may
be deemed to be an underwriter in connection with the sale of securities held in
its portfolio.
8)has
adopted a concentration policy, as follows:
a)The
Real Estate Securities Account will concentrate its investments in a particular
industry or group of industries as described in the Prospectus.
b)The
Bond Market Index, LargeCap S&P 500 Index, LargeCap S&P 500 Managed
Volatility Index, and U.S. LargeCap Buffer Accounts will not concentrate their
investments in a particular industry or group of industries except to the extent
that the related Index is also so concentrated.
c)The
remaining Funds may not concentrate, as that term is used in the 1940 Act, as
amended, and as interpreted, modified, or otherwise permitted by
regulatory
authority
having
jurisdiction,
from
time
to
time,
their
investments
in
a
particular
industry
or
group
of
industries.
Non-Fundamental
Restrictions
Except
as specifically noted, each Fund has also adopted the following non-fundamental
restrictions. Non-fundamental restrictions are not fundamental policies and may
be changed without shareholder approval. It is contrary to each Fund’s present
policy to:
1)Invest
more than 15% of its net assets in illiquid securities and in repurchase
agreements maturing in more than seven days, except to the extent permitted by
applicable law or regulatory authority having jurisdiction, from time to
time.
The
Principal LifeTime, Diversified Balanced, Diversified Balanced Adaptive
Allocation, Diversified Balanced Strategic Allocation, Diversified Growth,
Diversified Growth Adaptive Allocation, Diversified Growth Strategic Allocation,
and Diversified Income Accounts and the Strategic Asset Management (“SAM”)
Portfolios have not adopted this non-fundamental restriction.
2) Pledge,
mortgage, or hypothecate its assets, except to secure permitted
borrowings.
a)With
respect to the Principal LifeTime, Diversified Balanced, Diversified Balanced
Adaptive Allocation, Diversified Balanced Strategic Allocation, Diversified
Growth, Diversified Growth Adaptive Allocation, Diversified Growth Strategic
Allocation, and Diversified Income Accounts, U.S. LargeCap Buffer Accounts, and
SAM Portfolios,
the deposit of underlying securities and other assets in escrow and other
collateral arrangements in connection with transactions that involve any future
payment obligation, as permitted under the 1940 Act, as amended, and as
interpreted, modified, or otherwise permitted by any regulatory authority having
jurisdiction, from time to time, by the underlying funds are not deemed to be
pledges, mortgages, hypothecations, or other encumbrances.
b) For
all other Accounts, the deposit of underlying securities and other assets in
escrow and other collateral arrangements in connection with transactions that
involve any future payment obligation, as permitted under the 1940 Act, and as
interpreted, modified, or otherwise permitted by any regulatory authority having
jurisdiction, from time to time, are not deemed to be pledges, mortgages,
hypothecations, or other encumbrances.
3) Invest
in companies for the purpose of exercising control or management.
4) Invest
more than 25% of its assets in foreign securities, however:
a)the
Diversified International and Global Emerging Markets Accounts each may invest
up to 100% of its assets in foreign securities;
b)the
Bond Market Index, LargeCap S&P 500 Index, and LargeCap S&P 500 Managed
Volatility Index Accounts may invest in foreign securities to the extent that
the relevant index is so invested;
c)the
Government & High Quality Bond Account may not invest in foreign securities;
and
d)the
Principal LifeTime, Diversified Balanced, Diversified Balanced Adaptive
Allocation, Diversified Balanced Strategic Allocation, Diversified Growth,
Diversified Growth Adaptive Allocation, Diversified Growth Strategic Allocation,
and Diversified Income Accounts and SAM Portfolios have not adopted this
non‑fundamental restriction.
5) Invest
more than 5% of its total assets in real estate limited partnership
interests.
The
Real Estate Securities, Principal LifeTime, Diversified Balanced, Diversified
Balanced Adaptive Allocation, Diversified Balanced Strategic Allocation,
Diversified Growth, Diversified Growth Adaptive Allocation, Diversified Growth
Strategic Allocation, and Diversified Income Accounts
and SAM Portfolios have not adopted this non-fundamental
restriction.
6) Acquire
securities of other investment companies in reliance on Section 12(d)(1)(F) or
(G) of the 1940 Act, invest more than 10% of its total assets in securities of
other investment companies, invest more than 5% of its total assets in the
securities of any one investment company, or acquire more than 3% of the
outstanding voting securities of any one investment company, except in
connection with a merger, consolidation, or plan of reorganization and except as
permitted by the 1940 Act, SEC
rules adopted under the 1940 Act, or exemptions granted by the SEC. The Fund may
purchase securities of closed-end investment companies in the open market where
no underwriter or dealer’s commission or profit, other than a customary broker’s
commission, is involved.
The
Principal LifeTime, Diversified Balanced, Diversified Balanced Adaptive
Allocation, Diversified Balanced Strategic Allocation, Diversified Growth,
Diversified Growth Adaptive Allocation, Diversified Growth Strategic Allocation,
and Diversified Income Accounts and SAM Portfolios have not adopted this
non-fundamental restriction.
Non-Fundamental
Policy - Rule 35d-1 under the 1940 Act - Investment Company Names
Except
as specifically noted, each Fund has also adopted a non-fundamental policy,
pursuant to SEC Rule 35d-1, which requires it, under normal circumstances, to
invest at least 80% of its net assets, plus any borrowings for investment
purposes, in the type of investments, industry, or geographic region (as
described in the Prospectus) as suggested by the name of the Fund.
This
policy applies at the time of purchase. A Fund will provide 60 days’ notice to
shareholders prior to implementing a change in this policy for the Fund. For
purposes of this non-fundamental policy, each Fund tests market capitalization
ranges monthly.
For
purposes of testing this requirement with respect to:
•Forward
foreign currency contracts and other investments that have economic
characteristics similar to foreign currency:
the value of such contracts and investments may include the Fund’s investments
in cash and/or cash equivalents to the extent such cash and/or cash equivalents
are maintained with respect to the Fund’s exposure under its forward foreign
currency contracts and similar investments.
•Derivatives
instruments:
each Fund will typically count the mark-to-market value of such derivatives.
However, a Fund may use a derivative contract’s notional value when it
determines that notional value is an appropriate measure of the Fund’s exposure
to investments. For example, with respect to single-name equity swaps that are
“fully paid” (equity swaps in which cash and/or cash equivalents are posted as
collateral for the purpose of covering the full notional value of the swap),
each Fund will count the value of such cash and/or cash
equivalents.
•Investments
in underlying funds (including ETFs):
each Fund will count all investments in an underlying fund toward the
requirement as long as 80% of the value of such underlying fund’s holdings focus
on the particular type of investment suggested by the Fund name.
The
Diversified Balanced, Diversified Balanced Adaptive Allocation, Diversified
Balanced Strategic Allocation, Diversified Growth, Diversified Growth Adaptive
Allocation, Diversified Growth Strategic Allocation, Diversified Income,
Diversified International, Principal Capital Appreciation, and Short-Term Income
Accounts, the Principal LifeTime Accounts, and the SAM Portfolios have not
adopted this non-fundamental policy.
Investment
Strategies and Risks Related to Borrowing and Senior Securities,
Commodity-Related Investments, Industry Concentration, and Loans
Borrowing
and Senior Securities
Under
the 1940 Act, a fund that borrows money is required to maintain continuous asset
coverage (that is, total assets including borrowings, less liabilities exclusive
of borrowings) of 300% of the amount borrowed, with an exception for borrowings
not in excess of 5% of the fund’s total assets made for temporary or emergency
purposes. If a fund invests the proceeds of borrowing, borrowing will tend to
exaggerate the effect on net asset value of any increase or decrease in the
market value of a fund’s portfolio. If a fund invests the proceeds of borrowing,
money borrowed will be subject to interest costs that may or may not be
recovered by earnings on the securities purchased. A fund also may be required
to maintain minimum average balances in connection with a borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest
rate.
Commodity-Related
Investments
Under
the 1940 Act, a fund’s registration statement must recite the fund’s policy with
regard to investing in commodities. Each Fund may invest in commodities to the
extent permitted by applicable law and under its fundamental and non-fundamental
policies and restrictions. Pursuant to a claim for exclusion filed with the
Commodity Futures Trading Commission (“CFTC”) on behalf of each of the Funds
under Rule 4.5, PGI is not deemed to be a “commodity pool operator” under the
Commodity Exchange Act (“CEA”) as it specifically relates to PGI’s operations
with respect to the Funds, and the Funds, therefore, are not considered
regulated commodity pools and are not subject to registration or regulation
under the CEA.
The
CFTC amended Rule 4.5 exclusions for certain otherwise regulated persons from
the definition of the term “commodity pool operator.” Rule 4.5 provides that an
investment company does not meet the definition of “commodity pool operator” if
its use of futures contracts, options on futures contracts, and swaps is
sufficiently limited that the fund can fall within one of two exclusions set out
in Rule 4.5. Each Fund intends to limit its use of futures contracts, options on
futures contracts, and swaps to the degree necessary to fall within one of the
two exclusions. If a Fund is unable to do so, it may incur expenses that are
necessary to comply with the CEA and rules the CFTC has adopted under
it.
Industry
Concentration
"Concentration”
means a fund invests more than 25% of its net assets in a particular industry or
group of industries. To monitor compliance with the policy regarding industry
concentration, the Funds may use the industry classifications provided by
Bloomberg, L.P., the Morgan Stanley Capital International (MSCI)/Standard &
Poor’s Global Industry Classification Standard (GICS), the Directory of
Companies Filing Annual Reports with the SEC, or any other reasonable industry
classification system.
•Each
Fund interprets its policy with respect to concentration in a particular
industry to apply only to direct investments in the securities of issuers in a
particular industry. To the extent a Fund invests its assets in underlying
investment companies, 25% or more of such Fund’s total assets may be indirectly
exposed to a particular industry or group of related industries through its
investments in one or more underlying investment companies.
•For
purposes of this restriction, government securities (such as treasury securities
or mortgage-backed securities that are issued or guaranteed by the U.S.
government, its agencies, or instrumentalities) are not subject to the Funds’
industry concentration restrictions.
•Each
Fund views its investments in tax-exempt municipal securities as not
representing interests in any particular industry or group of industries. For
information about municipal securities, see the Municipal Obligations
section.
Loans
A
Fund may not make loans to other persons, except (i) as permitted by the 1940
Act and the Rules and Regulations thereunder, or other successor law governing
the regulation of registered investment companies, or interpretations or
modifications thereof by the SEC, SEC Staff, or other authority of competent
jurisdiction, or (ii) pursuant to exemptive or other relief or permission from
the SEC, SEC Staff, or other authority of competent jurisdiction. Generally,
this means the Funds are typically permitted to make loans but must take into
account potential issues such as liquidity, valuation, and avoidance of
impermissible transactions. Examples of permissible loans include (a) the
lending of its portfolio securities, (b) the purchase of debt securities, loan
participations, and/or engaging in direct corporate loans in accordance with the
Fund’s investment objective and policies, (c) the entry into a repurchase
agreement (to the extent such entry is deemed to be a loan), and (d) loans to
affiliated investment companies to the extent permitted by the 1940 Act or any
exemptions therefrom that may be granted by the SEC.
Other
Investment Strategies and Risks
Commodity
Index-Linked Notes
A
commodity index-linked note is a type of structured note that is a derivative
instrument. Over the long term, the returns on a fund’s investments in commodity
index-linked notes are expected to exhibit low or negative correlation with
stocks and bonds, which means the prices of commodity-linked notes may move in a
different direction than investments in traditional equity and debt securities.
As an example, during periods of rising inflation, debt securities have
historically tended to decrease in value and the prices of certain commodities,
such as oil and metals, have historically tended to increase. The reverse may be
true during “bull markets,” when the value of traditional securities such as
stocks and bonds is increasing. Under such economic conditions, a fund’s
investments in commodity index-linked notes may be expected not to perform as
well as investments in traditional securities. There can be no assurance,
however, that derivative instruments will perform in that manner in the future
and, at certain times in the past, the price movements of commodity-linked
investments have been parallel to debt and equity securities. If commodities
prices move in tandem with the prices of financial assets, they may not provide
overall portfolio diversification benefits.
Convertible
Securities
A
convertible security is a bond, debenture, note, preferred stock, or other
security that entitles the holder to acquire common stock or other equity
securities of the same or a different issuer. A convertible security generally
entitles the holder to receive interest paid or accrued until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to non-convertible debt or
preferred securities, as applicable. Convertible securities rank senior to
common stock in a corporation’s capital structure and, therefore, generally
entail less risk than the corporation’s common stock, although the extent to
which such risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security.
Convertible securities are subordinate in rank to any senior debt obligations of
the issuer, and, therefore, an issuer’s convertible securities entail more risk
than its debt obligations. Convertible securities generally offer lower interest
or dividend yields than non-convertible debt securities of similar credit
quality because of the potential for capital appreciation. In addition,
convertible securities are often lower-rated securities.
Because
of the conversion feature, the price of the convertible security will normally
fluctuate in some proportion to changes in the price of the underlying asset,
and as such is subject to risks relating to the activities of the issuer and/or
general market and economic conditions. The income component of a convertible
security may tend to cushion the security against declines in the price of the
underlying asset. However, the income component of convertible securities causes
fluctuations based upon changes in interest rates and the credit quality of the
issuer.
If
the conversion value of a convertible security increases to a point that
approximates or exceeds its investment value, the value of the security will be
principally influenced by its conversion value. A convertible security will sell
at a premium over its conversion value to the extent investors place value on
the right to acquire the underlying common stock while holding an
income-producing security.
A
convertible security may be subject to redemption at the option of the issuer at
a predetermined price. If a convertible security held by a fund is called for
redemption, the fund would be required to permit the issuer to redeem the
security and convert it to underlying common stock, or would sell the
convertible security to a third party, which may have an adverse effect on the
fund’s ability to achieve its investment objective.
Synthetic
Convertibles
A
“synthetic” convertible security may be created by combining separate securities
that possess the two principal characteristics of a traditional convertible
security, i.e., an income-producing security (“income-producing component”) and
the right to acquire an equity security (“convertible component”). The
income-producing component is achieved by investing in non-convertible,
income-producing securities such as bonds, preferred stocks and money market
instruments, which may be represented by derivative instruments. The convertible
component is achieved by investing in securities or instruments such as warrants
or options to buy common stock at a certain exercise price, or options on a
stock index. Unlike a traditional convertible security, which is a single
security having a single market value, a synthetic convertible comprises two or
more separate securities, each with its own market value. Therefore, the “market
value” of a synthetic convertible security is the sum of the values of its
income-producing component and its convertible component. For this reason, the
values of a synthetic convertible security and a traditional convertible
security may respond differently to market fluctuations.
More
flexibility is possible in the assembly of a synthetic convertible security than
in the purchase of a convertible security. Although synthetic convertible
securities may be selected where the two components are issued by a single
issuer, thus making the synthetic convertible security similar to the
traditional convertible security, the character of a synthetic convertible
security allows the combination of components representing distinct issuers,
when such a combination may better achieve a fund’s investment objective. A
synthetic convertible security also is a more flexible investment in that its
two components may be purchased separately. For example, a fund may purchase a
warrant for inclusion in a synthetic convertible security but temporarily hold
short-term investments while postponing the purchase of a corresponding bond
pending development of more favorable market conditions.
A
holder of a synthetic convertible security faces the risk of a decline in the
price of the security or the level of the index involved in the convertible
component, causing a decline in the value of the security or instrument, such as
a call option or warrant, purchased to create the synthetic convertible
security. Should the price of the stock fall below the exercise price and remain
there throughout the exercise period, the entire amount paid for the call option
or warrant would be lost. Because a synthetic convertible security includes the
income-producing component as well, the holder of a synthetic convertible
security also faces the risk that interest rates will rise, causing a decline in
the value of the income-producing instrument.
A
fund also may purchase synthetic convertible securities created by other
parties, including convertible structured notes. Convertible structured notes
are income-producing debentures linked to equity and are typically issued by
investment banks. Convertible structured notes have the attributes of a
convertible security; however, the investment bank that issues the convertible
note, rather than the issuer of the underlying common stock into which the note
is convertible, assumes credit risk associated with the underlying investment,
and the fund in turn assumes credit risk associated with the convertible
note.
Corporate
Reorganizations
Funds
may invest in securities for which a tender or exchange offer has been made or
announced and in securities of companies for which a merger, consolidation,
liquidation, or reorganization proposal has been announced if, in the judgment
of those managing the fund’s investments, there is a reasonable prospect of
capital appreciation significantly greater than the brokerage and other
transaction expenses involved. The primary risk of such investments is that if
the contemplated transaction is abandoned, revised, delayed, or becomes subject
to unanticipated uncertainties, including, for example, new or revised laws or
regulations, the market price of the securities may decline below the purchase
price paid by a fund.
In
general, securities that are the subject of such an offer or proposal sell at a
premium to their historic market price immediately prior to the announcement of
the offer or proposal. However, the increased market price of such securities
may discount what the stated or appraised value of the security would be if the
contemplated transaction were approved or consummated. Such investments may be
advantageous when the discount: significantly overstates the risk of the
contingencies involved; significantly undervalues the securities, assets, or
cash to be received by shareholders of the prospective company as a result of
the contemplated transaction; or fails adequately to recognize the possibility
that the offer or proposal may be replaced or superseded by an offer or proposal
of greater value. The evaluation of such contingencies requires unusually broad
knowledge and experience on the part of those managing the fund’s investments,
which must appraise not only the value of the issuer and its component
businesses, but also the financial resources and business motivation of the
offer or proposal as well as the dynamics of the business climate when the offer
or proposal is in process.
Cyber
Security Issues
Each
Fund and its service providers may be subject to cyber security risks. Those
risks include, among others, theft, misuse or corruption of data maintained
online or digitally; denial of service attacks on websites; the loss or
unauthorized release of confidential and proprietary information; operational
disruption; or various other forms of cyber security breaches. Cyber-attacks
against or security breakdowns of a Fund or its service providers may harm the
Fund and its shareholders, potentially resulting in, among other things,
financial losses, the inability of Fund shareholders to transact business,
inability to calculate a fund’s NAV, violations of applicable privacy and other
laws, regulatory fines, penalties, reputational damage, reimbursement or other
compensation costs, and/or additional compliance and remediation costs. Cyber
security risks may also affect issuers of securities in which a fund invests,
potentially causing the fund’s investment in such issuers to lose value. Despite
risk management processes, there can be no guarantee that a fund will avoid
losses relating to cyber security risks or other information security
breaches.
Derivatives
Options
on Securities and Securities Indices
Funds
may write (sell) and purchase call and put options on securities and on
securities indices. Funds may engage in these transactions to hedge against a
decline in the value of securities owned or an increase in the price of
securities that the Fund plans to purchase, or to generate additional
revenue.
•Exchange-Traded
Options. An exchange-traded option may be closed out only on an exchange that
generally provides a liquid secondary market for an option of the same series.
If a liquid secondary market for an exchange-traded option does not exist, it
might not be possible to effect a closing transaction with respect to a
particular option, with the result that a Fund would have to exercise the option
in order to consummate the transaction.
•Over
the Counter (“OTC”) Options. OTC options differ from exchange-traded options in
that they are two-party contracts, with price and other terms negotiated between
buyer and seller, and generally do not have as much market liquidity as
exchange-traded options. An OTC option (an option not traded on an established
exchange) may be closed out only by agreement with the other party to the
original option transaction. With OTC options, a Fund is at risk that the other
party to the transaction will default on its obligations or will not permit the
Fund to terminate the transaction before its scheduled maturity. While a Fund
will seek to enter into OTC options only with dealers who agree to or are
expected to be capable of entering into closing transactions with a Fund, there
can be no assurance that a Fund will be able to liquidate an OTC option at a
favorable price at any time prior to its expiration. OTC options are not subject
to the protections afforded purchasers of listed options by the Options Clearing
Corporation or other clearing organizations.
•FLexible
EXchange Options (“FLEX Options”). FLEX Options are customized options contracts
available through national securities exchanges that are guaranteed for
settlement by the Options Clearing Corporation (“OCC”), a market clearinghouse.
FLEX Options provide investors with the ability to customize terms of an option,
including exercise prices, exercise styles (European-style options, which are
exercisable only at the expiration date, versus American-style options, which
are exercisable any time prior to the expiration date), and expiration dates,
while achieving price discovery in competitive, transparent auction markets and
avoiding the counterparty exposure of the OTC option positions.
There
is no assurance that a liquid secondary market on an options exchange will exist
for any particular option, or at any particular time, and for some options no
secondary market on an exchange or elsewhere may exist. If a Fund is unable to
close out a call option on securities that it has written before the option is
exercised, the Fund may be required to purchase the optioned securities in order
to satisfy its obligation under the option to deliver such securities. If the
Fund is unable to effect a closing sale transaction with respect to options on
securities that it has purchased, it would have to exercise the option in order
to realize any profit and would incur transaction costs upon the purchase and
sale of the underlying securities. The writing and purchasing of options is a
highly specialized activity that involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
Imperfect correlation between the options and securities markets may detract
from the effectiveness of attempted hedging. Options transactions may result in
significantly higher transaction costs and portfolio turnover for a
Fund.
Writing
Call and Put Options. When
a Fund writes a call option, it gives the purchaser of the option the right to
buy a specific security at a specified price at any time before the option
expires. When a Fund writes a put option, it gives the purchaser of the option
the right to sell to the Fund a specific security at a specified price at any
time before the option expires. In both situations, the Fund receives a premium
from the purchaser of the option.
The
premium received by a Fund reflects, among other factors, the current market
price of the underlying security, the relationship of the exercise price to the
market price, the time period until the expiration of the option and interest
rates. The premium generates additional income for the Fund if the option
expires unexercised or is closed out at a profit. By writing a call, a Fund
limits its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option, but it retains the
risk of loss if the price of the security should decline. By writing a put, a
Fund assumes the risk that it may have to purchase the underlying security at a
price that may be higher than its market value at time of exercise.
A
Fund usually owns the underlying security covered by any outstanding call
option. With respect to an outstanding put option, a Fund deposits and maintains
with its custodian or segregates on the Fund’s records, cash, or other liquid
assets with a value at least equal to the market value of the option that was
written.
Once
a Fund has written an option, it may terminate its obligation before the option
is exercised. The Fund executes a closing transaction by purchasing an option of
the same series as the option previously written. The Fund has a gain or loss
depending on whether the premium received when the option was written exceeds
the closing purchase price plus related transaction costs.
Purchasing
Call and Put Options. When
a Fund purchases a call option, it receives, in return for the premium it pays,
the right to buy from the writer of the option the underlying security at a
specified price at any time before the option expires. A Fund purchases call
options in anticipation of an increase in the market value of securities that it
intends ultimately to buy. During the life of the call option, the Fund is able
to buy the underlying security at the exercise price regardless of any increase
in the market price of the underlying security. For a call option to result in a
gain, the market price of the underlying security must exceed the sum of the
exercise price, the premium paid, and transaction costs.
When
a Fund purchases a put option, it receives, in return for the premium it pays,
the right to sell to the writer of the option the underlying security at a
specified price at any time before the option expires. A Fund purchases put
options in anticipation of a decline in the market value of the underlying
security. During the life of the put option, the Fund is able to sell the
underlying security at the exercise price regardless of any decline in the
market price of the underlying security. In order for a put option to result in
a gain, the market price of the underlying security must decline, during the
option period, below the exercise price enough to cover the premium and
transaction costs.
Once
a Fund purchases an option, it may close out its position by selling an option
of the same series as the option previously purchased. The Fund has a gain or
loss depending on whether the closing sale price exceeds the initial purchase
price plus related transaction costs.
Options
on Securities Indices. Each
Fund may purchase and sell put and call options on any securities index based on
securities in which the Fund may invest. Securities index options are designed
to reflect price fluctuations in a group of securities or segment of the
securities market rather than price fluctuations in a single security. Options
on securities indices are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not involve
the actual purchase or sale of securities. Each Fund engages in transactions in
put and call options on securities indices for the same purposes as they engage
in transactions in options on securities. When a Fund writes call options on
securities indices, it holds in its portfolio underlying securities which, in
the judgment of those managing the fund’s investments, correlate closely with
the securities index and which have a value at least equal to the aggregate
amount of the securities index options.
Index
Warrants. A
Fund may purchase put warrants and call warrants whose values vary depending on
the change in the value of one or more specified securities indices (“index
warrants”). Index warrants are generally issued by banks or other financial
institutions and give the holder the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment from the issuer
based on the value of the underlying index at the time of exercise. In general,
if the value of the underlying index rises above the exercise price of the index
warrant, the holder of a call warrant will be entitled to receive a cash payment
from the issuer upon exercise based on the difference between the value of the
index and the exercise price of the warrant; if the value of the underlying
index falls, the holder of a put warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The holder of a
warrant would not be entitled to any payments from the issuer at a time when, in
the case of a call warrant, the exercise price is more than the value of the
underlying index, or in the case of a put warrant, the exercise price is less
than the value of the underlying index. If a Fund were not to exercise an index
warrant prior to its expiration, then a Fund would lose the amount of the
purchase price paid by it for the warrant. A Fund will normally use index
warrants in a manner similar to its use of options on securities
indices.
Risks
Associated with Option Transactions. An
option position may be closed out only on an exchange that provides a secondary
market for an option of the same series. A Fund generally purchases or writes
only those options for which there appears to be an active secondary market.
However, there is no assurance that a liquid secondary market on an exchange
exists for any particular option, or at any particular time. If a Fund is unable
to effect closing sale transactions in options it has purchased, it has to
exercise its options in order to realize any profit and may incur transaction
costs upon the purchase or sale of underlying securities. If the Fund is unable
to effect a closing purchase transaction for a covered option that it has
written, it is not able to sell the underlying securities until the option
expires or is exercised. A Fund’s ability to terminate option positions
established in the over-the-counter market may be more limited than for
exchange-traded options and may also involve the risk that broker-dealers
participating in such transactions might fail to meet their
obligations.
Futures
Contracts and Options on Futures Contracts
Funds
may purchase and sell futures contracts of many types, including for example,
futures contracts covering indexes, financial instruments, and foreign
currencies. Funds may purchase and sell financial futures contracts and options
on those contracts. Financial futures contracts are commodities contracts based
on financial instruments such as U.S. Treasury bonds or bills or on securities
indices such as the S&P 500 Index. The Commodity Futures Trading Commission
regulates futures contracts, options on futures contracts, and the commodity
exchanges on which they are traded. Through the purchase and sale of futures
contracts and related options, a Fund may seek to hedge against a decline in the
value of securities owned by the Fund or an increase in the price of securities
that the Fund plans to purchase. Funds may also purchase and sell futures
contracts and related options to maintain cash reserves while simulating full
investment in securities and to keep substantially all of its assets exposed to
the market. Funds may enter into futures contracts and related options
transactions both for hedging and non-hedging purposes.
Futures
Contracts. Funds
may purchase or sell a futures contract to gain exposure to a particular market
asset without directly purchasing that asset. When a Fund sells a futures
contract based on a financial instrument, the Fund is obligated to deliver that
kind of instrument at a specified future time for a specified price. When a Fund
purchases that kind of contract, it is obligated to take delivery of the
instrument at a specified time and to pay the specified price. In most
instances, these contracts are closed out by entering into an offsetting
transaction before the settlement date. The Fund realizes a gain or loss
depending on whether the price of an offsetting purchase plus transaction costs
are less or more than the price of the initial sale or on whether the price of
an offsetting sale is more or less than the price of the initial purchase plus
transaction costs. Although the Fund usually liquidates futures contracts on
financial instruments, by entering into an offsetting transaction before the
settlement date, they may make or take delivery of the underlying securities
when it appears economically advantageous to do so.
A
futures contract based on a securities index provides for the purchase or sale
of a group of securities at a specified future time for a specified price. These
contracts do not require actual delivery of securities but result in a cash
settlement. The amount of the settlement is based on the difference in value of
the index between the time the contract was entered into and the time it is
liquidated (at its expiration or earlier if it is closed out by entering into an
offsetting transaction).
When
a Fund purchases or sells a futures contract, it pays a commission to the
futures commission merchant through which the Fund executes the transaction.
When entering into a futures transaction, the Fund does not pay the execution
price, as it does when it purchases a security, or a premium, as it does when it
purchases an option. Instead, the Fund deposits an amount of cash or other
liquid assets (generally about 5% of the futures contract amount) with its
futures commission merchant. This amount is known as “initial margin.” In
contrast to the use of margin account to purchase securities, the Fund’s deposit
of initial margin does not constitute the borrowing of money to finance the
transaction in the futures contract. The initial margin represents a good faith
deposit that helps assure the Fund’s performance of the transaction. The futures
commission merchant returns the initial margin to the Fund upon termination of
the futures contract if the Fund has satisfied all its contractual
obligations.
Subsequent
payments to and from the futures commission merchant, known as “variation
margin,” are required to be made on a daily basis as the price of the futures
contract fluctuates, a process known as “marking to market.” The fluctuations
make the long or short positions in the futures contract more or less valuable.
If the position is closed out by taking an opposite position prior to the
settlement date of the futures contract, a final determination of variation
margin is made. Any additional cash is required to be paid to or released by the
broker and the Fund realizes a loss or gain.
In
using futures contracts, a Fund may seek to establish with more certainty than
would otherwise be possible the effective price of or rate of return on
portfolio securities or securities that the Fund proposes to acquire. A Fund,
for example, sells futures contracts in anticipation of a rise in interest rates
that would cause a decline in the value of its debt investments. When this kind
of hedging is successful, the futures contract increases in value when the
Fund’s debt securities decline in value and thereby keeps the Fund’s net asset
value from declining as much as it otherwise would. A Fund may also sell futures
contracts on securities indices in anticipation of or during a stock market
decline in an endeavor to offset a decrease in the market value of its equity
investments. When a Fund is not fully invested and anticipates an increase in
the cost of securities it intends to purchase, it may purchase financial futures
contracts.
When
increases in the prices of equities are expected, a Fund may purchase futures
contracts on securities indices in order to gain rapid market exposure that may
partially or entirely offset increases in the cost of the equity securities it
intends to purchase.
Options
on Futures Contracts. Funds
may also purchase and write call and put options on futures contracts. A call
option on a futures contract gives the purchaser the right, in return for the
premium paid, to purchase a futures contract (assume a long position) at a
specified exercise price at any time before the option expires. A put option
gives the purchaser the right, in return for the premium paid, to sell a futures
contract (assume a short position), for a specified exercise price, at any time
before the option expires.
Upon
the exercise of a call, the writer of the option is obligated to sell the
futures contract (to deliver a long position to the option holder) at the option
exercise price, which will presumably be lower than the current market price of
the contract in the futures market. Upon exercise of a put, the writer of the
option is obligated to purchase the futures contract (deliver a short position
to the option holder) at the option exercise price, which will presumably be
higher than the current market price of the contract in the futures market.
However, as with the trading of futures, most options are closed out prior to
their expiration by the purchase or sale of an offsetting option at a market
price that reflects an increase or a decrease from the premium originally paid.
Options on futures can be used to hedge substantially the same risks addressed
by the direct purchase or sale of the underlying futures contracts. For example,
if a Fund anticipates a rise in interest rates and a decline in the market value
of the debt securities in its portfolio, it might purchase put options or write
call options on futures contracts instead of selling futures
contracts.
If
a Fund purchases an option on a futures contract, it may obtain benefits similar
to those that would result if it held the futures position itself. But in
contrast to a futures transaction, the purchase of an option involves the
payment of a premium in addition to transaction costs. In the event of an
adverse market movement, however, the Fund is not subject to a risk of loss on
the option transaction beyond the price of the premium it paid plus its
transaction costs.
When
a Fund writes an option on a futures contract, the premium paid by the purchaser
is deposited with the Fund’s custodian. The Fund must maintain with its futures
commission merchant all or a portion of the initial margin requirement on the
underlying futures contract. It assumes a risk of adverse movement in the price
of the underlying futures contract comparable to that involved in holding a
futures position. Subsequent payments to and from the futures commission
merchant, similar to variation margin payments, are made as the premium and the
initial margin requirements are marked to market daily. The premium may
partially offset an unfavorable change in the value of portfolio securities, if
the option is not exercised, or it may reduce the amount of any loss incurred by
the Fund if the option is exercised.
Risks
Associated with Futures Transactions. There
are many risks associated with transactions in futures contracts and related
options. The value of the assets that are the subject of the futures contract
may not move in the anticipated direction. A Fund’s successful use of futures
contracts is subject to the ability of those managing the fund’s investments to
predict correctly the factors affecting the market values of the Fund’s
portfolio securities. For example, if a Fund is hedged against the possibility
of an increase in interest rates which would adversely affect debt securities
held by the Fund and the prices of those debt securities instead increases, the
Fund loses part or all of the benefit of the increased value of its securities
it hedged because it has offsetting losses in its futures positions. Other risks
include imperfect correlation between price movements in the financial
instrument or securities index underlying the futures contract, on the one hand,
and the price movements of either the futures contract itself or the securities
held by the Fund, on the other hand. If the prices do not move in the same
direction or to the same extent, the transaction may result in trading
losses.
Prior
to exercise or expiration, a position in futures may be terminated only by
entering into a closing purchase or sale transaction. This requires a secondary
market on the relevant contract market. A Fund enters into a futures contract or
related option only if there appears to be a liquid secondary market. There can
be no assurance, however, that such a liquid secondary market exists for any
particular futures contract or related option at any specific time. Thus, it may
not be possible to close out a futures position once it has been established.
Under such circumstances, the Fund continues to be required to make daily cash
payments of variation margin in the event of adverse price movements. In such
situations, if the Fund has insufficient cash, it may be required to sell
portfolio securities to meet daily variation margin requirements at a time when
it may be disadvantageous to do so. In addition, the Fund may be required to
perform under the terms of the futures contracts it holds. The inability to
close out futures positions also could have an adverse impact on the Fund’s
ability effectively to hedge its portfolio.
Most
United States futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. This daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day’s settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
Debt-Linked
and Equity-Linked Securities
Each
Fund may invest in debt-linked and equity-linked securities. The investment
results of such instruments are intended to correspond generally to the
performance of one or more specified equity or debt securities, or of a specific
index or analogous “basket” of equity or debt securities. Therefore, investing
in these instruments involves risks similar to the risks of investing in the
underlying stocks or bonds directly. In addition, a Fund bears the risk that the
issuer of an equity- or debt-linked security may default on its obligations
under the instrument. Equity- and debt-linked securities are often used for many
of the same purposes as, and share many of the same risks with, other derivative
instruments as well as structured notes. Like many derivatives and structured
notes, equity- and debt-linked securities may be considered illiquid,
potentially limiting a Fund’s ability to dispose of them.
Hybrid
Instruments
A
hybrid instrument is a type of derivative that combines a traditional stock or
bond with an option or forward contract. Generally, the principal amount, amount
payable upon maturity or redemption, or interest rate of a hybrid is tied
(positively or negatively) to the price of some currency or securities index or
another interest rate or some other economic factor (each a “benchmark”). The
interest rate or (unlike most fixed income securities) the principal amount
payable at maturity of a hybrid security may be increased or decreased,
depending on changes in the value of the benchmark. An example of a hybrid could
be a bond issued by an oil company that pays a small base level of interest with
additional interest that accrues in correlation to the extent to which oil
prices exceed a certain predetermined level. Such a hybrid instrument would be
economically similar to a combination of a bond and a call option on
oil.
Hybrids
can be used as an efficient means of pursuing a variety of investment goals,
including currency hedging, duration management and increased total return.
Hybrids may not bear interest or pay dividends. The value of a hybrid or its
interest rate may be a multiple of a benchmark and, as a result, may be
leveraged and move (up or down) more steeply and rapidly than the benchmark.
These benchmarks may be sensitive to economic and political events, such as
currency devaluations, which cannot be readily foreseen by the purchaser of a
hybrid. Under certain conditions, the redemption value of a hybrid could be
zero. Thus, an investment in a hybrid may entail significant market risks that
are not associated with a similar investment in a traditional, U.S.
dollar-denominated bond that has a fixed principal amount and pays a fixed rate
or floating rate of interest. The purchase of hybrids also exposes the Fund to
the credit risk of the issuer of the hybrids. These risks may cause significant
fluctuations in the NAV of a Fund.
Certain
hybrid instruments may provide exposure to the commodities markets. These are
derivative securities with one or more commodity-linked components that have
payment features similar to commodity futures contracts, commodity options or
similar instruments. Commodity-linked hybrid instruments may be either equity or
debt securities, leveraged or unleveraged, and are considered hybrid instruments
because they have both security and commodity-like characteristics. A portion of
the value of these instruments may be derived from the value of a commodity,
futures contract, index or other economic variable and therefore are subject to
many of the same risks as investments in those underlying securities,
instruments or commodities.
Certain
issuers of structured products such as hybrid instruments may be deemed to be
investment companies as defined in the 1940 Act. As a result, a Fund’s
investments in these products may be subject to limits applicable to investments
in investment companies and may be subject to restrictions contained in the 1940
Act.
Spread
Transactions
Funds
may engage in spread trades, which typically represent a simultaneous purchase
and sale of two different contracts designed to capture the change in the
relationship in price between the two contracts. Spread transactions are
typically accompanied by lower margin requirements and lower volatility than an
outright purchase. Funds may purchase spread options. The purchase of a covered
spread option gives the Fund the right to put, or sell, a security that it owns
at a fixed dollar spread or fixed yield spread in relationship to another
security that the Fund does not own, but which is used as a benchmark. The risk
to the Fund in purchasing covered spread options is the cost of the premium paid
for the spread option and any transaction costs. In addition, there is no
assurance that closing transactions will be available. The security covering the
spread option is maintained in segregated accounts either with the Fund’s
custodian or on the Fund’s records. The Funds do not consider a security covered
by a spread option to be “pledged” as that term is used in the Fund’s policy
limiting the pledging or mortgaging of assets. The purchase of spread options
can be used to protect Funds against adverse changes in prevailing credit
quality spreads, i.e., the yield spread between high quality and lower quality
securities.
Swap
Agreements and Options on Swap Agreements
Funds
may engage in swap transactions, including, but not limited to, swap agreements
on interest rates, security or commodity indexes, specific securities and
commodities, and credit and event-linked swaps, to the extent permitted by its
investment restrictions. To the extent a Fund may invest in foreign
currency-denominated securities, it may also invest in currency swap agreements
and currency exchange rate swap agreements. Funds may also enter into options on
swap agreements (“swap options”).
Funds
may enter into swap transactions for any legal purpose consistent with its
investment objectives and policies, such as for the purpose of attempting to
obtain or preserve a particular return or spread at a lower cost than obtaining
a return or spread through purchases and/or sales of instruments in other
markets; to protect against currency fluctuations; as a duration management
technique; to protect against any increase in the price of securities a Fund
anticipates purchasing at a later date; to gain exposure to one or more
securities, currencies, or interest rates; to take advantage of perceived
mispricing in the securities markets; or to gain exposure to certain markets in
the most economical way possible.
Swap
agreements are two party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard “swap” transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments, which may be adjusted for an interest factor. The
gross returns to be exchanged or “swapped” between the parties are generally
calculated with respect to a “notional amount,” i.e., the return on or increase
in value of a particular dollar amount invested at a particular interest rate,
in a particular foreign currency, or in a “basket” of securities or commodities
representing a particular index.
•Interest
Rate Swaps. Interest rate swaps involve the exchange by a Fund with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal). Forms of swap agreements also include interest
rate caps, under which, in return for a premium, one party agrees to make
payments to the other to the extent that interest rates exceed a specified rate,
or “cap”; interest rate floors, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates fall
below a specified rate, or “floor”; and interest rate collars, under which a
party sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding given minimum or maximum
levels.
•Currency
Swaps. A currency swap is an agreement to exchange cash flows on a notional
amount based on changes in the relative values of the specified
currencies.
•Index
Swaps. An index swap is an agreement to make or receive payments based on the
different returns that would be achieved if a notional amount were invested in a
specified basket of securities (such as the S&P 500 Index) or in some other
investment (such as U.S. Treasury Securities).
•Total
Return Swaps. A total return swap is an agreement to make payments of the total
return from a specified asset or instrument (or a basket of such instruments)
during the specified period, in return for payments equal to a fixed or floating
rate of interest or the total return from another specified asset or instrument.
Alternatively, a total return swap can be structured so that one party will make
payments to the other party if the value of the relevant asset or instrument
increases, but receive payments from the other party if the value of that asset
or instrument decreases.
•Commodity
Swap Agreements. Consistent with a Fund’s investment objectives and general
investment policies, certain of the Funds may invest in commodity swap
agreements. For example, an investment in a commodity swap agreement may involve
the exchange of floating-rate interest payments for the total return on a
commodity index. In a total return commodity swap, a Fund will receive the price
appreciation of a commodity index, a portion of the index, or a single commodity
in exchange for paying an agreed-upon fee. If the commodity swap is for one
period, a Fund may pay a fixed fee, established at the outset of the swap.
However, if the term of the commodity swap is for more than one period, with
interim swap payments, a Fund may pay an adjustable or floating fee. With a
“floating” rate, the fee may be pegged to a base rate, such as the Secured
Overnight Financing Rate (SOFR) or a similar reference rate, and is adjusted
each period. Therefore, if interest rates increase over the term of the swap
contract, a Fund may be required to pay a higher fee at each swap reset
date.
•Credit
Default Swap Agreements. The “buyer” in a credit default contract is obligated
to pay the “seller” a periodic stream of payments over the term of the contract
provided that no event of default on an underlying reference obligation has
occurred. If an event of default occurs, the seller must pay the buyer the full
notional value, or “par value,” of the reference obligation in exchange for the
reference obligation. A Fund may be either the buyer or seller in a credit
default swap transaction. If a Fund is a buyer and no event of default occurs,
the Fund will lose its investment and recover nothing. However, if an event of
default occurs, the Fund (if the buyer) will receive the full notional value of
the reference obligation that may have little or no value. As a seller, a Fund
receives a fixed rate of income throughout the term of the contract, which
typically is between six months and five years, provided that there is no
default event. If an event of default occurs, the seller must pay the buyer the
full notional value of the reference obligation. In addition, collateral posting
requirements are individually negotiated and there is no regulatory requirement
that a counterparty post collateral to secure its obligations or a specified
amount of cash, depending upon the terms of the swap, under a credit default
swap. Furthermore, there is no requirement that a party be informed in advance
when a credit default swap agreement is sold. Accordingly, a Fund may have
difficulty identifying the party responsible for payment of its claims. The
notional value of credit default swaps with respect to a particular investment
is often larger than the total par value of such investment outstanding and, in
event of a default, there may be difficulties in making the required deliveries
of the reference investments, possibly delaying payments.
Funds
may invest in derivative instruments that provide exposure to one or more credit
default swaps. For example, a Fund may invest in a derivative instrument known
as the Loan-Only Credit Default Swap Index (“LCDX”), a tradable index with 100
equally-weighted underlying single-name loan-only credit default swaps (“LCDS”).
Each underlying LCDS references an issuer whose loans trade in the secondary
leveraged loan market. A Fund can either buy the index (take on credit exposure)
or sell the index (pass credit exposure to a counterparty). While investing in
these types of derivatives will increase the universe of debt securities to
which a Fund is exposed, such investments entail additional risks that are not
typically associated with investments in other debt securities. Credit default
swaps and other derivative instruments related to loans are subject to the risks
associated with loans generally, as well as the risks of derivative
transactions.
•Investment
Pools. Funds may invest in publicly or privately issued interests in investment
pools whose underlying assets are credit default, credit-linked, interest rate,
currency exchange, equity-linked or other types of swap contracts and related
underlying securities or securities loan agreements. The pools’ investment
results may be designed to correspond generally to the performance of a
specified securities index or “basket” of securities, or sometimes a single
security. These types of pools are often used to gain exposure to multiple
securities with a smaller investment than would be required to invest directly
in the individual securities. They also may be used to gain exposure to foreign
securities markets without investing in the foreign securities themselves and/or
the relevant foreign market. To the extent that a Fund invests in pools of swaps
and related underlying securities or securities loan agreements whose return
corresponds to the performance of a foreign securities index or one or more
foreign securities, investing in such pools will involve risks similar to the
risks of investing in foreign securities. In addition to the risks associated
with investing in swaps generally, a Fund bears the risks and costs generally
associated with investing in pooled investment vehicles, such as paying the fees
and expenses of the pool and the risk that the pool or the operator of the pool
may default on its obligations to the holder of interests in the pool, such as a
Fund. Interests in privately offered investment pools of swaps may be considered
illiquid.
•Contracts
for Differences. “Contracts for differences” are swap arrangements in which a
Fund may agree with a counterparty that its return (or loss) will be based on
the relative performance of two different groups or “baskets” of securities. For
example, as to one of the baskets, a Fund’s return is based on theoretical long
futures positions in the securities comprising that basket, and as to the other
basket, a Fund’s return is based on theoretical short futures positions in the
securities comprising that other basket. The notional sizes of the baskets will
not necessarily be the same, which can give rise to investment leverage. Funds
may also use actual long and short futures positions to achieve the market
exposure(s) as contracts for differences. Funds may enter into swaps and
contracts for differences for investment return, hedging, risk management and
for investment leverage.
•Swaptions.
A swap option (also known as “swaptions”) is a contract that gives a
counterparty the right (but not the obligation) in return for payment of a
premium, to enter into a new swap agreement or to shorten, extend, cancel, or
otherwise modify an existing swap agreement, at some designated future time on
specified terms. The buyer and seller of the swap option agree on the strike
price, length of the option period, the term of the swap, notional amount,
amortization and frequency of settlement. Funds may engage in swap options for
hedging purposes or in an attempt to manage and mitigate credit and interest
rate risk. Funds may write (sell) and purchase put and call swap options. The
use of swap options involves risks, including, among others, imperfect
correlation between movements of the price of the swap options and the price of
the securities, indices or other assets serving as reference instruments for the
swap option, reducing the effectiveness of the instrument for hedging
or
investment
purposes.
Obligations
under Swap Agreements. The
swap agreements a Fund enters into settle in cash and, therefore, provide for
calculation of the obligations of the parties to the agreement on a “net basis.”
Consequently, a Fund's current obligations (or rights) under such a swap
agreement will generally be equal only to the net amount to be paid or received
under the agreement based on the relative values of the positions held by each
party to the agreement (the “net amount”). A Fund's current obligations under
such a swap agreement will be accrued daily (offset against any amounts owed to
the Fund).
Risks
Associated with Swap Agreements. Swaps
can be highly volatile and may have a considerable impact on a Fund’s
performance, as the potential gain or loss on any swap transaction is not
subject to any fixed limit. Whether a Fund’s use of swap agreements or swap
options will be successful in furthering its investment objective of total
return will depend on the ability of those managing the fund’s investments to
predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Because they are two party contracts and
because they may have terms of greater than seven days, swap agreements may be
considered to be illiquid. Moreover, a Fund bears the risk of loss of the amount
expected to be received under a swap agreement in the event of the default or
bankruptcy of a swap agreement counterparty. The Funds will enter into swap
agreements only with counterparties that present minimal credit risks, as
determined by those managing the fund’s investments. Certain restrictions
imposed on each Fund by the Internal Revenue Code may limit a Fund’s ability to
use swap agreements.
Depending
on the terms of the particular option agreement, a Fund will generally incur a
greater degree of risk when it writes a swap option than it will incur when it
purchases a swap option. When a Fund purchases a swap option, it risks losing
only the amount of the premium it has paid should it decide to let the option
expire unexercised. However, when a Fund writes a swap option, upon exercise of
the option the Fund will become obligated according to the terms of the
underlying agreement.
Liquidity
of Swap Agreements. Some
swap markets have grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, these swap markets have
become relatively liquid. The liquidity of swap agreements will be determined by
those managing the fund’s investments based on various factors,
including:
•the
frequency of trades and quotations,
•the
number of dealers and prospective purchasers in the marketplace,
•dealer
undertakings to make a market,
•the
nature of the security (including any demand or tender features),
and
•the
nature of the marketplace for trades (including the ability to assign or offset
a portfolio's rights and obligations relating to the investment).
Such
determination will govern whether a swap will be deemed to be within each Fund’s
restriction on investments in illiquid securities.
Valuing
Swap Agreements. For
purposes of applying a fund’s investment policies and restrictions (as stated in
the Prospectuses and this SAI) swap agreements are generally valued by the funds
at market value. In the case of a credit default swap, however, in applying
certain of the funds’ investment policies and restrictions the fund will value
the credit default swap at its notional value or its full exposure value (i.e.,
the sum of the notional amount for the contract plus the market value), but may
value the credit default swap at market value for purposes of applying certain
of the funds’ other investment policies and restrictions. For example, a fund
may value credit default swaps at full exposure value for purposes of the fund’s
credit quality guidelines because such value reflects the fund’s actual economic
exposure during the term of the credit default swap agreement. In this context,
both the notional amount and the market value may be positive or negative
depending on whether the fund is selling or buying protection through the credit
default swap. The manner in which certain securities or other instruments are
valued by a fund for purposes of applying investment policies and restrictions
may differ from the manner in which those investments are valued by other types
of investors.
Permissible
Uses of Futures and Options on Futures Contracts
Each
Fund may enter into futures contracts and related options transactions, for
hedging purposes and for other appropriate risk management purposes, and to
modify the Fund’s exposure to various currency, commodity, equity, or
fixed-income markets. Each Fund may engage in futures trading in an effort to
generate returns. When using futures contracts and options on futures contracts
for hedging or risk management purposes, each Fund determines that the price
fluctuations in the contracts and options are substantially related to price
fluctuations in securities held by the Fund or which it expects to purchase. In
pursuing traditional hedging activities, each Fund may sell futures contracts or
acquire puts to protect against a decline in the price of securities that the
Fund owns. Each Fund may purchase futures contracts or calls on futures
contracts to protect the Fund against an increase in the price of securities the
Fund intends to purchase before it is in a position to do so.
Limitations
on the Use of Futures, Options on Futures Contracts, and Swaps
CFTC
Rule 4.5 provides that an investment company does not meet the definition of
“commodity pool operator” under the CEA if its use of futures contracts, options
on futures contracts, and swaps is sufficiently limited that the fund can fall
within one of two exclusions set out in Rule 4.5. Each Fund intends to limit its
use of futures contracts, options on futures contracts, and swaps to the degree
necessary to fall within one of the two exclusions. If a Fund is unable to do
so, it may incur expenses that are necessary to comply with the CEA and the
rules the CFTC has adopted under it.
Risk
of Potential Government Regulation of Derivatives
It
is possible that additional government regulation of various types of derivative
instruments, including futures, options and swap agreements, may limit or
prevent a fund from using such instruments as a part of its investment strategy,
and could ultimately prevent a fund from being able to achieve its investment
objective. It is difficult to predict the effects future legislation and
regulation in this area, but the effects could be substantial and adverse. It is
possible that legislative and regulatory activity could limit or restrict the
ability of a fund to use certain instruments as a part of its investment
strategy.
Limits
or restrictions applicable to the counterparties with which the funds engage in
derivative transactions could also prevent the funds from using certain
instruments.
Environmental,
Social, and Governance Factors in the Selection of Portfolio
Securities
(Applicable
to all or a portion of the following Funds: Blue Chip Account, Core Plus Bond
Account, Diversified International Account, Equity Income Account, Global
Emerging Markets Account, LargeCap Growth Account I, MidCap Account, Principal
Capital Appreciation Account, Real Estate Securities Account, SAM Balanced
Portfolio, SAM Conservative Balanced Portfolio, SAM Conservative Growth
Portfolio, SAM Flexible Income Portfolio, SAM Strategic Growth Portfolio, and
SmallCap Account)
The
portfolio managers of the Funds consider one or more environmental, social,
and/or governance (“ESG”) factors along with other, non-ESG factors in making
investment decisions. The consideration of ESG factors is intended to further
the stated objective of the particular Funds. These ESG factors are generally no
more significant than other factors in the investment selection process, such
that ESG factors may not be determinative in deciding to include or exclude any
particular investment in the portfolio. By way of example, environmental factors
can include one or more of the following: climate change, natural resources,
pollution and waste, and environmental opportunities. Social factors can include
one or more of the following: human capital, product liability, stakeholder
opposition, and social opportunities. Governance factors can include corporate
governance and/or corporate behavior. Integration of ESG factors is qualitative
and subjective by nature. There is no guarantee that the criteria used, or
judgment exercised, will reflect the beliefs or values of any particular
investor. Further, there is no assurance that any strategy or integration of ESG
factors will be successful or profitable.
Fixed-Income
Securities
ETNs
Certain
funds may invest in, or sell short, exchange-traded notes (“ETNs”). ETNs are
typically senior, unsecured, unsubordinated debt securities whose returns are
linked to the performance of a particular market index less applicable fees and
expenses. ETNs are listed on an exchange and traded in the secondary market. The
fund may hold the ETN until maturity, at which time the issuer is obligated to
pay a return linked to the performance of the relevant market index. ETNs do not
make periodic interest payments and principal is not protected.
ETNs
are subject to credit risk and the value of the ETN may drop due to a downgrade
in the issuer’s credit rating, despite the underlying market benchmark or
strategy remaining unchanged. The value of an ETN may also be influenced by time
to maturity, level of supply and demand for the ETN, volatility and lack of
liquidity in underlying assets, changes in the applicable interest rates,
changes in the issuer’s credit rating, and economic, legal, political, or
geographic events that affect the referenced underlying asset. When a Fund
invests in ETNs, it will bear their proportionate share of any fees and expenses
borne by the ETN. The Fund’s decision to sell its ETN holdings may be limited by
the availability of a secondary market. ETNs are also subject to tax risk. The
Internal Revenue Service (“IRS”) and Congress are considering proposals that
would change the timing and character of income and gains from ETNs. There may
also be times when an ETN share trades at a premium or discount to its market
benchmark or strategy.
Funding
Agreements
Some
Funds may invest in Guaranteed Investment Contracts (“GICs”) and similar funding
agreements. In connection with these investments, a Fund makes cash
contributions to a deposit fund of an insurance company’s general account. The
insurance company then credits to a Fund on a monthly basis guaranteed interest,
which is based on an index (such as SOFR or a similar reference rate). The
funding agreements provide that this guaranteed interest will not be less than a
certain minimum rate. The purchase price paid for a funding agreement becomes
part of the general assets of the insurance company. GICs are considered
illiquid securities and will be subject to any limitations on such investments,
unless there is an active and substantial secondary market for the particular
instrument and market quotations are readily available.
Generally,
funding agreements are not assignable or transferable without the permission of
the issuing company, and an active secondary market in some funding agreements
does not currently exist. Investments in GICs are subject to the risks
associated with fixed-income instruments generally, and are specifically subject
to the credit risk associated with an investment in the issuing insurance
company.
Inflation-Indexed
Bonds
Some
Funds may invest in inflation-indexed bonds or inflation protected debt
securities, which are fixed income securities whose value is periodically
adjusted according to the rate of inflation. Two structures are common. The U.S.
Treasury and some other issuers utilize a structure that accrues inflation into
the principal value of the bond. Most other issuers pay out the Consumer Price
Index accruals as part of a semi-annual coupon. Inflation-indexed securities
issued by the U.S. Treasury (Treasury Inflation Protected Securities or TIPS)
have maturities of approximately five, ten or thirty years, although it is
possible that securities with other maturities will be issued in the future. The
U.S. Treasury securities pay interest on a semi-annual basis equal to a fixed
percentage of the inflation-adjusted principal amount. If the periodic
adjustment rate measuring inflation falls, the principal value of
inflation-indexed bonds will be adjusted downward, and consequently the interest
payable on these securities (calculated with respect to a smaller principal
amount) will be reduced. The value of inflation-indexed bonds is expected to
change in response to changes in real interest rates. Real interest rates in
turn are tied to the relationship between nominal interest rates and the rate of
inflation. Therefore, if the rate of inflation rises at a faster rate than
nominal interest rates, real interest rates might decline, leading to an
increase in value of inflation-indexed bonds. In contrast, if nominal interest
rates increase at a faster rate than inflation, real interest rates might rise,
leading to a decrease in value of inflation-indexed bonds. While these
securities are expected to be protected from long-term inflationary trends,
short-term increases in inflation may lead to a decline in value. If interest
rates rise due to reasons other than inflation (for example, due to changes in
currency exchange rates), investors in these securities may not be protected to
the extent that the increase is not reflected in the bond’s inflation
measure.
The
periodic adjustment of U.S. inflation-indexed bonds is tied to the Consumer
Price Index for Urban Consumers (CPI-U), which is calculated monthly by the U.S.
Bureau of Labor Statistics. The CPI-U is a measurement of changes in the cost of
living, made up of components such as housing, food, transportation and energy.
Inflation-indexed bonds issued by a foreign government are generally adjusted to
reflect a comparable inflation index calculated by that government. Any increase
in the principal amount of an inflation-indexed bond will be considered taxable
ordinary income, even though investors do not receive their principal until
maturity.
Step-Coupon
Securities
Each
Fund may invest in step-coupon securities. Step-coupon securities trade at a
discount from their face value and pay coupon interest. The coupon rate is low
for an initial period and then increases to a higher coupon rate thereafter.
Market values of these types of securities generally fluctuate in response to
changes in interest rates to a greater degree than conventional interest-paying
securities of comparable term and quality. Under many market conditions,
investments in such securities may be illiquid, making it difficult for a Fund
to dispose of them or determine their current value.
“Stripped”
Securities
Each
Fund may invest in stripped securities, which are usually structured with two or
more classes that receive different proportions of the interest and principal
distribution on a pool of U.S. government or foreign government securities or
mortgage assets. In some cases, one class will receive all of the interest (the
interest-only or “IO” class), while the other class will receive all of the
principal (the principal-only or “PO” class). Stripped securities commonly have
greater market volatility than other types of fixed-income securities. In the
case of stripped mortgage securities, if the underlying mortgage assets
experience greater than anticipated payments of principal, a Fund may fail to
recoup fully its investments in IOs. Stripped securities may be illiquid.
Stripped securities may be considered derivative securities.
Structured
Notes
Some
Funds may invest in a broad category of instruments known as “structured notes.”
These instruments are debt obligations issued by industrial corporations,
financial institutions or governmental or international agencies. Traditional
debt obligations typically obligate the issuer to repay the principal plus a
specified rate of interest. Structured notes, by contrast, obligate the issuer
to pay amounts of principal or interest that are determined by reference to
changes in some external factor or factors, or the principal and interest rate
may vary from the stated rate because of changes in these factors. For example,
the issuer’s obligations could be determined by reference to changes in the
value of a foreign currency, an index of securities (such as the S&P 500
Index) or an interest rate (such as the U.S. Treasury bill rate). In some cases,
the issuer’s obligations are determined by reference to changes over time in the
difference (or “spread”) between two or more external factors (such as the U.S.
prime lending rate and the total return of the stock market in a particular
country, as measured by a stock index). In some cases, the issuer’s obligations
may fluctuate inversely with changes in an external factor or factors (for
example, if the U.S. prime lending rate goes up, the issuer’s interest payment
obligations are reduced). In some cases, the issuer’s obligations may be
determined by some multiple of the change in an external factor or factors (for
example, three times the change in the U.S. Treasury bill rate). In some cases,
the issuer’s obligations remain fixed (as with a traditional debt instrument) so
long as an external factor or factors do not change by more than the specified
amount (for example, if the value of a stock index does not exceed some
specified maximum), but if the external factor or factors change by more than
the specified amount, the issuer’s obligations may be sharply
reduced.
Structured
notes can serve many different purposes in the management of a fund. For
example, they can be used to increase a fund’s exposure to changes in the value
of assets that a fund would not ordinarily purchase directly (such as stocks
traded in a market that is not open to U.S. investors). They also can be used to
hedge the risks associated with other investments a fund holds. For example, if
a structured note has an interest rate that fluctuates inversely with general
changes in a country’s stock market index, the value of the structured note
would generally move in the opposite direction to the value of holdings of
stocks in that market, thus moderating the effect of stock market movements on
the value of a fund’s portfolio as a whole. The cash flow on the underlying
instruments may be apportioned among the newly issued structured notes to create
securities with different investment characteristics such as varying maturities,
payment priorities or interest rate provisions; the extent of the payments made
with respect to structured notes is dependent on the extent of the cash flow on
the underlying instruments.
Structured
notes involve special risks. As with any debt obligation, structured notes
involve the risk that the issuer will become insolvent or otherwise default on
its payment obligations. This risk is in addition to the risk that the issuer’s
obligations (and thus the value of a fund’s investment) will be reduced because
of adverse changes in the external factor or factors to which the obligations
are linked. The value of structured notes will in many cases be more volatile
(that is, will change more rapidly or severely) than the value of traditional
debt instruments. Volatility will be especially high if the issuer’s obligations
are determined by reference to some multiple of the change in the external
factor or factors. Structured notes also may be more difficult to accurately
price than less complex securities and instruments or more traditional debt
securities. Many structured notes have limited or no liquidity, so that a fund
would be unable to dispose of the investment prior to maturity. As with all
investments, successful use of structured notes depends in significant part on
the accuracy of the analysis of those managing the fund’s investments of the
issuer’s creditworthiness and financial prospects, and of their forecast as to
changes in relevant economic and financial market conditions and factors. In
instances where the issuer of a structured note is a foreign entity, the usual
risks associated with investments in foreign securities apply. Structured notes
may be considered derivative securities.
Zero-Coupon
Securities
Each
Fund may invest in zero-coupon securities. Zero-coupon securities have no stated
interest rate and pay only the principal portion at a stated date in the future.
They usually trade at a substantial discount from their face (par) value.
Zero-coupon securities are subject to greater market value fluctuations in
response to changing interest rates than debt obligations of comparable
maturities that make distributions of interest in cash.
Foreign
Currency Transactions
Options
on Foreign Currencies
A
Fund may buy and write options on foreign currencies in a manner similar to that
in which futures or forward contracts on foreign currencies will be utilized.
Each Fund may use options on foreign currencies to hedge against adverse changes
in foreign currency conversion rates. For example, a decline in the U.S. dollar
value of a foreign currency in which portfolio securities are denominated will
reduce the U.S. dollar value of such securities, even if their value in the
foreign currency remains constant. In order to protect against such diminutions
in the value of the portfolio securities, a Fund may buy put options on the
foreign currency. If the value of the currency declines, a Fund will have the
right to sell such currency for a fixed amount in U.S. dollars, thereby
offsetting, in whole or in part, the adverse effect on its portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Fund may buy call options on the foreign currency.
The purchase of such options could offset, at least partially, the effects of
the adverse movements in exchange rates. As in the case of other types of
options, however, the benefit to a Fund from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, if currency exchange rates do not move in the direction or
to the extent desired, a Fund could sustain losses or lesser gains on
transactions in foreign currency options that would require a Fund to forgo a
portion or all of the benefits of advantageous changes in those
rates.
Each
Fund also may write options on foreign currencies. For example, to hedge against
a potential decline in the U.S. dollar due to adverse fluctuations in exchange
rates, a Fund could, instead of purchasing a put option, write a call option on
the relevant currency. If the decline expected by a Fund occurs, the option will
most likely not be exercised and the diminution in value of portfolio securities
will be offset at least in part by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a potential
increase in the U.S. dollar cost of securities to be acquired, a Fund could
write a put option on the relevant currency which, if rates move in the manner
projected by a Fund, will expire unexercised and allow a Fund to hedge the
increased cost up to the amount of the premium. If exchange rates do not move in
the expected direction, the option may be exercised and a Fund would be required
to buy or sell the underlying currency at a loss, which may not be fully offset
by the amount of the premium. Through the writing of options on foreign
currencies, a Fund also may lose all or a portion of the benefits that might
otherwise have been obtained from favorable movements in exchange
rates.
Futures
on Currency
A
foreign currency future provides for the future sale by one party and purchase
by another party of a specified quantity of foreign currency at a specified
price and time. A public market exists in futures contracts covering a number of
foreign currencies. Currency futures contracts are exchange-traded and change in
value to reflect movements of a currency or a basket of currencies. Settlement
must be made in a designated currency.
Forward
Foreign Currency Exchange Contracts
Each
Fund may, but is not obligated to, enter into forward foreign currency exchange
contracts. Currency transactions include forward currency contracts and exchange
listed or over-the-counter options on currencies. A forward currency contract
involves a privately negotiated obligation to purchase or sell a specific
currency at a specified future date at a price set at the time of the
contract.
The
typical use of a forward contract is to “lock in” the price of a security in
U.S. dollars or some other foreign currency which a Fund is holding in its
portfolio. By entering into a forward contract for the purchase or sale, for a
fixed amount of dollars or other currency, of the amount of foreign currency
involved in the underlying security transactions, a Fund may be able to protect
itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar or other currency which is being used for
the security purchase and the foreign currency in which the security is
denominated in or exposed to during the period between the date on which the
security is purchased or sold and the date on which payment is made or
received.
Those
managing the fund’s investments also may from time to time utilize forward
contracts for other purposes. For example, they may be used to hedge a foreign
security held in the portfolio or a security which pays out principal tied to an
exchange rate between the U.S. dollar and a foreign currency, against a decline
in value of the applicable foreign currency. They also may be used to lock in
the current exchange rate of the currency in which those securities anticipated
to be purchased are denominated in or exposed to. At times, each Fund may enter
into “cross-currency” hedging transactions involving currencies other than those
in which securities are held or proposed to be purchased are
denominated.
It
should be noted that the use of forward foreign currency exchange contracts does
not eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange between the currencies that can be achieved at
some future point in time. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
they also tend to limit any potential gain that might result if the value of the
currency increases.
Foreign
Securities
Investing
in foreign securities carries political and economic risks distinct from those
associated with investing in the United States. Investments in foreign
securities also involve the risk of possible adverse changes in investment or
exchange control regulations, expropriation or confiscatory taxation, limitation
on or delays in the removal of funds or other assets of a fund, political or
financial instability, or diplomatic and other developments that could affect
such investments. Foreign investments may be affected by actions of foreign
governments adverse to the interests of U.S. investors, including the
possibility of expropriation or nationalization of assets, confiscatory
taxation, restrictions on U.S. investment, or on the ability to repatriate
assets or to convert currency into U.S. dollars. There may be a greater
possibility of default by foreign governments or foreign-government sponsored
enterprises. Investments in foreign countries also involve a risk of local
political, economic, or social instability; military action or unrest; or
adverse diplomatic developments.
Asia-Pacific
Countries
In
addition to the risks of foreign investing and the risks of investing in
emerging markets, the developing market Asia-Pacific countries in which a Fund
may invest are subject to certain additional or specific risks. In the
Asia-Pacific markets, there is a high concentration of market capitalization and
trading volume in a small number of issuers representing a limited number of
industries, as well as a high concentration of investors and financial
intermediaries. Many of these markets also may be affected by developments with
respect to more established markets in the region, such as Japan and Hong Kong.
Brokers in developing market Asia-Pacific countries typically are fewer in
number and less well capitalized than brokers in the United States.
Many
of the developing market Asia-Pacific countries may be subject to a greater
degree of economic, political and social instability than is the case in the
United States and Western European countries. Such instability may result from,
among other things: (i) authoritarian governments or military involvement in
political and economic decision- making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; (iii) internal insurgencies;
(iv) hostile relations with neighboring countries; and/or (v) ethnic, religious
and racial disaffection. In addition, the governments of many of such countries,
such as Indonesia, have a heavy role in regulating and supervising the
economy.
An
additional risk common to most such countries is that the economy is heavily
export-oriented and, accordingly, is dependent upon international trade. The
existence of overburdened infrastructure and obsolete financial systems also
present risks in certain countries, as do environmental problems. Certain
economies also depend to a significant degree upon exports of primary
commodities and, therefore, are vulnerable to changes in commodity prices that,
in turn, may be affected by a variety of factors. The legal systems in certain
developing market Asia-Pacific countries also may have an adverse impact on a
Fund. The rights of investors in developing market Asia-Pacific companies may be
more limited than those of shareholders of U.S. corporations. It may be
difficult or impossible to obtain and/or enforce a judgment in a developing
market Asia-Pacific country.
China
Investing
in China involves special considerations, including: the risk of nationalization
or expropriation of assets or confiscatory taxation; greater governmental
involvement in and control over the economy, interest rates and currency
exchange rates; controls on foreign investment and limitations on repatriation
of invested capital; greater social, economic and political uncertainty;
dependency on exports and the corresponding importance of international trade;
and currency exchange rate fluctuations. The government of China maintains
strict currency controls in support of economic, trade and political objectives
and regularly intervenes in the currency market. The government’s actions in
this respect may not be transparent or predictable. Furthermore, it is difficult
for foreign investors to directly access money market securities in China
because of investment and trading restrictions. These and other factors may
decrease the value and liquidity of a fund’s investments.
A
fund may obtain exposure to companies based or operated in China by investing
through legal structures known as variable interest entities (“VIEs”). VIEs are
not formally recognized under Chinese law and are subject to risks, such as the
risk that China could cease to allow VIEs, could impose new restrictions on
VIEs, or could deem the contractual arrangements of VIEs unenforceable. These
risks could limit or eliminate the remedies and rights available to VIEs and
their investors, such as a fund. If these risks materialize, the value of a
fund’s investments in VIEs could be adversely affected, and a fund could incur
significant losses with no available recourse.
Investments
in Stock Connect and Bond Connect
Funds
may invest in China A shares, which are shares of certain Chinese companies
listed and traded through the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong
Kong Stock Connect programs (“Stock Connect”). Stock Connect is a securities
trading and clearing program established by Hong Kong Exchanges and Clearing
Limited, the Shanghai Stock Exchange (“SSE”), the Shenzhen Stock Exchange
(“SZSE”) and China Securities Depository and Clearing Corporation Limited, which
seeks to provide mutual stock market access between Mainland China and Hong
Kong. Trading through Stock Connect is subject to numerous restrictions and
risks that could impair the Fund’s ability to invest in or sell China A shares
and adversely affect the Fund’s performance, such as the following:
•China
A shares generally may not be sold, purchased or otherwise transferred other
than through Stock Connect in accordance with applicable rules, regulations, and
restrictions. Such securities may lose their eligibility, in which case they
presumably could be sold but could no longer be purchased through Stock Connect.
Market volatility and settlement difficulties in the China A share markets may
result in significant fluctuations in the prices and liquidity of the securities
traded on such markets. Further regulations or restrictions, such as limitations
on redemptions or suspension of trading, may adversely impact the
Fund.
•Stock
Connect is generally only available on business days when both the China and
Hong Kong markets are open and when banking services are available in both
markets on the corresponding settlement days. As a result, a Fund may not be
able trade when it would be otherwise attractive to do so, and the Fund may not
be able to dispose of its China A shares in a timely manner.
•Investing
in China A shares is subject to Stock Connect’s clearance and settlement
procedures, which could pose risks to the Fund. Certain requirements must be
completed before the market opening, or a Fund cannot sell the shares on that
trading day. Stock Connect also imposes quotas that limit aggregate net
purchases on an exchange on a particular day, and an investor cannot purchase
and sell the same security through Stock Connect on the same trading day. Once
the daily quota is reached, orders to purchase additional China A shares through
Stock Connect will be rejected. Such restrictions could limit a Fund’s ability
to sell its China A shares in a timely manner, or to sell them at
all.
•If
a Fund holds 5% or more of a China A share issuer’s total shares through Stock
Connect investments, the Fund must return any profits obtained from the purchase
and sale of those shares if both transactions occur within a six-month period.
All accounts managed by the Funds’ Advisor and/or its affiliates will be
aggregated for purposes of this 5% limitation, which makes it more likely that a
Fund’s profits may be subject to these limitations.
•Stock
Connect uses an omnibus clearing structure, and the Fund’s shares will be
registered in its custodian’s name on the Central Clearing and Settlement
System. This may limit the ability of the Fund’s advisor to effectively manage a
Fund, and may expose the Fund to the credit risk of its custodian or to greater
risk of expropriation. Investment in China A shares through Stock Connect may be
available only through a single broker that is an affiliate of the Fund’s
custodian, which may affect the quality of execution provided by such
broker.
•China
A shares purchased through Stock Connect will be held via a book entry omnibus
account in the name of Hong Kong Securities Clearing Company Limited (“HKSCC”),
Hong Kong’s clearing entity, and not the Fund’s name as the beneficial owner.
Therefore, a Fund’s ability to exercise its rights as a shareholder and to
pursue claims against the issuer of China A shares may be limited. While Chinese
regulations and the Hong Kong Stock Exchange have issued clarifications and
guidance supporting the concept of beneficial ownership through Stock Connect,
the interpretation of beneficial ownership in China by regulators and courts may
continue to evolve.
•The
Fund’s investments in China A shares through Stock Connect are generally subject
to Chinese securities regulations and listing rules, among other restrictions.
The Fund will not benefit from access to Hong Kong investor compensation funds,
which are set up to protect against defaults of trades, when investing through
Stock Connect. Investments in China A shares may not be covered by the
securities investor protection programs of the exchanges and, without the
protection of such programs, will be subject to the risk of default by the
broker. If the depository of the SSE and the SZSE defaulted, a Fund may not be
able to recover fully its losses from the depository or may be delayed in
receiving proceeds as part of any recovery process.
•Fees,
costs and taxes imposed on foreign investors (such as the Fund) may be higher
than comparable fees, costs and taxes imposed on owners of other securities that
provide similar investment exposure. Trades using Stock Connect may also be
subject to various fees, taxes and market charges imposed by Chinese market
participants and regulatory authorities. Uncertainties in China’s tax rules
related to the taxation of income and gains from investments in China A shares
could result in unexpected tax liabilities for the Fund, and the withholding tax
treatment of dividends and capital gains payable to overseas investors currently
is unsettled.
•Because
trades of eligible China A shares on Stock Connect must be settled in Renminbi
(RMB), the Chinese currency, Funds investing through Stock Connect will be
exposed to RMB currency risks. The ability to hedge RMB currency risks may be
limited. The RMB is subject to exchange control restrictions, and the Fund could
be adversely affected by delays in converting currencies into RMB and vice
versa.
•Because
Stock Connect is in its early stages, the effect on the market for trading China
A shares with the introduction of numerous foreign investors is currently
unknown. Stock Connect is relatively new and may be subject to further
interpretation and guidance. There can be no assurance as to Stock Connect’s
continued existence or whether future developments regarding the program may
restrict or adversely affect the Fund’s investments or returns.
Funds
may also invest in China Interbank bonds traded on the China Interbank Bond
Market (“CIBM”) through the China - Hong Kong Bond Connect program (“Bond
Connect”). In China, the Hong Kong Monetary Authority Central Money Markets Unit
holds Bond Connect securities on behalf of investors (such as the Fund) in
accounts maintained with maintained with a China-based custodian (either the
China Central Depository & Clearing Co. or the Shanghai Clearing House).
Investments using Bond Connect are subject to risks similar to those described
above with respect to Stock Connect.
Europe
The
economies and markets of European countries are often closely connected and
interdependent, and events in one European country can have an adverse impact on
other European countries. Certain funds may invest in securities of issuers that
are domiciled in, or have significant operations in, member countries of the
Economic and Monetary Union of the European Union (the “EU”), which requires
member countries to comply with restrictions on inflation rates, deficits,
interest rates, debt levels and fiscal and monetary controls. Decreasing imports
or exports, changes in governmental or EU regulations on trade, changes in the
exchange rate of the euro (the common currency of certain EU countries), the
default or threat of default by an EU member country on its sovereign debt,
and/or an economic recession in an EU member country may have a significant
adverse effect on the economies of EU member countries and their trading
partners, including some or all of the emerging markets countries. Although
certain European countries do not use the euro, many of these countries are
obliged to meet the criteria for joining the euro zone. Consequently, these
countries must comply with many of the restrictions noted above. The European
financial markets have experienced volatility and adverse trends in recent years
due to concerns about economic downturns, rising government debt levels and the
possible default of government debt in several European countries. Further
defaults or restructurings by governments and other entities of their debt could
have additional adverse effects on economies, financial markets and asset
valuations around the world. In addition, one or more countries may abandon the
euro and/or withdraw from the EU. The United Kingdom (the "UK") departed the EU
on January 31, 2020 (commonly referred to as "Brexit"). As a result of Brexit,
the UK may be less stable than it had been in prior years, and investments in
the UK may be more volatile due to economic uncertainty and currency exchange
rate fluctuations. The impact of these actions by European countries, especially
if they occur in a disorderly fashion, is not clear but could be significant and
far-reaching and could adversely impact the value of investments in the
region.
Japan
Japanese
investments may be significantly affected by events influencing Japan’s economy
and the exchange rate between the Japanese yen and the U.S. dollar. Japan’s
economy fell into a long recession in the 1990s. After a few years of mild
recovery in the mid-2000s, Japan’s economy fell into another recession as a
result of the recent global economic crisis. Japan is heavily dependent on
exports and foreign oil. Japan is located in a seismically active area, and in
2011 experienced an earthquake of a sizable magnitude and a tsunami that
significantly affected important elements of its infrastructure and resulted in
a nuclear crisis. Since these events, Japan’s financial markets have fluctuated
dramatically. The full extent of the impact of these events on Japan’s economy
and on foreign investment in Japan is difficult to estimate. Japan’s economic
prospects may be affected by the political and military situations of its near
neighbors, notably North and South Korea, China, and Russia.
Latin
America
Most
Latin American countries have experienced, at one time or another, severe and
persistent levels of inflation, including, in some cases, hyperinflation. This
has, in turn, led to high interest rates, extreme measures by governments to
keep inflation in check, and a generally debilitating effect on economic growth.
Although inflation in many countries has lessened, there is no guarantee it will
remain at lower levels. In addition, the political history of certain Latin
American countries has been characterized by political uncertainty, intervention
by the military in civilian and economic spheres, and political corruption. Such
developments, if they were to reoccur, could reverse favorable trends toward
market and economic reform, privatization, and removal of trade barriers, and
result in significant disruption in securities markets. Certain Latin American
countries may also have managed currencies, which are maintained at artificial
levels to the U.S. dollar rather than at levels determined by the market. This
type of system can lead to sudden and large adjustments in the currency which,
in turn, can have a disruptive and negative effect on foreign investors. There
is no significant foreign exchange market for many currencies and it would, as a
result, be difficult for the Fund to engage in foreign currency transactions
designed to protect the value of the Fund’s interests in securities denominated
in such currencies. Finally, a number of Latin American countries are among the
largest debtors of developing markets. There have been moratoria on, and
reschedulings of, repayment with respect to these debts. Such events can
restrict the flexibility of these debtor nations in the international markets
and result in the imposition of onerous conditions on their
economies.
High
Yield Securities
Each
Fund may invest a portion of its assets in bonds that are rated below investment
grade (sometimes called “high yield bonds” or “junk bonds”), which are rated at
the time of purchase Ba1 or lower by Moody’s and BB+ or lower by S&P Global
Ratings. If the bond has been rated by only one of the rating agencies, that
rating will determine the bond's rating; if the bond is rated differently by the
rating agencies, the highest rating will be used; and if the bond has not been
rated by either of the rating agencies, those selecting such investments will
determine the bond's quality. Lower-rated bonds involve a higher degree of
credit risk, which is the risk that the issuer will not make interest or
principal payments when due. In the event of an unanticipated default, a fund
would experience a reduction in its income and could expect a decline in the
market value of the bonds so affected. Issuers of high yield securities may be
involved in restructurings or bankruptcy proceedings that may not be successful.
If an issuer defaults, it may not be able to pay all or a portion of interest
and principal owed to the fund, it may exchange the high yield securities owned
by the fund for other securities, including equities, and/or the fund may incur
additional expenses while seeking recovery of its investment. Some funds may
also invest in unrated bonds of foreign and domestic issuers. Unrated bonds,
while not necessarily of lower quality than rated bonds, may not have as broad a
market. Because of the size and perceived demand of the issue, among other
factors, certain municipalities may not incur the expense of obtaining a rating.
Those managing the fund’s investments will analyze the creditworthiness of the
issuer, as well as any financial institution or other party responsible for
payments on the bond, in determining whether to purchase unrated bonds. Unrated
bonds will be included in the limitation each fund has with regard to high yield
bonds unless those managing the fund’s investments deem such securities to be
the equivalent of investment-grade bonds. Some of the high yield securities
consist of Rule 144A securities. High yield securities may contain any type of
interest rate payment or reset terms, including fixed rate, adjustable rate,
zero coupon, contingent, deferred, payment-in-kind, and those with auction rate
features.
Initial
Public Offerings (“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. 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. 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.
Interfund
Lending and Borrowing
The
SEC has granted an exemption permitting Principal Funds to borrow money from and
lend money to each other for temporary or emergency purposes. The loans are
subject to a number of conditions designed to ensure fair and equitable
treatment of all participating funds, including the following: (1) no fund may
borrow money through the program unless it receives a more favorable interest
rate than a rate approximating the lowest interest rate at which bank loans
would be available to any of the participating funds under a loan agreement; and
(2) no fund may lend money through the program unless it receives a more
favorable return than that available from an investment in overnight repurchase
agreements. In addition, a fund may participate in the program only if and to
the extent that such participation is consistent with a fund’s investment
objectives and policies. Interfund loans and borrowings have a maximum duration
of seven days. Loans may be called on one day’s notice. A fund may have to
borrow from a bank at a higher interest rate if an interfund loan is called or
not renewed. Any delay in repayment to a lending fund could result in a lost
investment opportunity or additional costs. The Board is responsible for
overseeing and periodically reviewing the interfund lending
program.
Inverse
Floating Rate and Other Variable and Floating Rate Instruments
Each
Fund may purchase variable and floating rate instruments. These instruments may
include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. These instruments may also include leveraged inverse floating
rate debt instruments, or “inverse floaters”. The interest rate of an inverse
floater resets in the opposite direction from the market rate of interest on a
security or interest to which it is related. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of interest
and is subject to many of the same risks as derivatives. The higher degree of
leverage inherent in inverse floaters is associated with greater volatility in
their market values. Certain of these investments may be illiquid. The absence
of an active secondary market with respect to these investments could make it
difficult for a Fund to dispose of a variable or floating rate note if the
issuer defaulted on its payment obligation or during periods that a Fund is not
entitled to exercise its demand rights, and a Fund could, for these or other
reasons, suffer a loss with respect to such instruments.
Investment
Company Securities
Securities
of other investment companies, including shares of closed-end investment
companies (including interval funds), unit investment trusts, various
exchange-traded funds (“ETFs”), and other open-end investment companies,
represent interests in professionally managed portfolios that may invest in a
variety of instruments. Certain types of investment companies, such as certain
closed-end investment companies, do not continuously offer their shares for sale
(like open-end investment companies) but instead issue a fixed number of shares
that trade on a stock exchange or over-the-counter at a premium or a discount to
their net asset value. An interval fund is a type of closed-end investment
company that is continuously offered at net asset value, is not listed on an
exchange, and only periodically offers to repurchase a limited amount of
outstanding shares from its shareholders. Investing in interval funds involves
liquidity risk, and the liquidity risk is even greater in interval funds that
invest in securities of companies with smaller market capitalizations,
derivatives, securities with substantial market and/or credit risk, or
securities that are themselves illiquid. Other types of investment companies,
such as ETFs, are continuously offered at net asset value but may also be traded
in the secondary market. ETFs are often structured to perform in a similar
fashion to a broad-based securities index. Investing in ETFs involves generally
the same risks as investing directly in the underlying instruments. Investing in
ETFs involves the risk that they will not perform in exactly the same fashion,
or in response to the same factors, as the index or underlying instruments.
Shares of ETFs may trade at prices other than NAV.
A
fund that invests in another investment company is subject to the risks
associated with direct ownership of the securities in which such investment
company invests. Fund shareholders indirectly bear their proportionate share of
the expenses of each such investment company, including its advisory and
administrative fees. The fund would also continue to pay its own advisory fees
and other expenses. Consequently, the fund and its shareholders would, in
effect, absorb two levels of fees with respect to investments in other
investment companies.
A
fund may invest in affiliated underlying funds, and those who manage such fund's
investments and their affiliates may earn different fees from different
underlying funds and may have an incentive to allocate more fund assets to
underlying funds from which they receive higher fees.
Master
Limited Partnerships (“MLPs”)
An
MLP is an entity that is generally taxed as a partnership for federal income tax
purposes and that derives each year at least 90% of its gross income from
“Qualifying Income”. Qualifying Income includes interest, dividends, real estate
rents, gain from the sale or disposition of real property, income and gain from
commodities or commodity futures, and income and gain from mineral or natural
resources activities that generate Qualifying Income. MLP interests (known as
units) are traded on securities exchanges or over-the-counter. An MLP’s
organization as a partnership and compliance with the Qualifying Income rules
generally eliminates federal tax at the entity level.
An
MLP has one or more general partners (who may be individuals, corporations, or
other partnerships) which manage the partnership, and limited partners, which
provide capital to the partnership but have no role in its management.
Typically, the general partner is owned by company management or another
publicly traded sponsoring corporation. When an investor buys units in an MLP,
the investor becomes a limited partner. Holders of MLP units have limited
control and voting rights on matters affecting the partnership and are exposed
to a remote possibility of liability for all of the obligations of that MLP in
the event that a court determines that the rights of the holders of MLP units to
vote to remove or replace the general partner of that MLP, to approve amendments
to that MLP’s partnership agreement, or to take other action under the
partnership agreement of that MLP would constitute “control” of the business of
that MLP, or a court or governmental agency determines that the MLP is
conducting business in a state without complying with the partnership statute of
that state. Holders of MLP units are also exposed to the risk that they will be
required to repay amounts to the MLP that are wrongfully distributed to
them.
The
business of certain MLPs is affected by supply and demand for energy commodities
because such MLPs derive revenue and income based upon the volume of the
underlying commodity produced, transported, processed, distributed, and/ or
marketed. Pipeline MLPs have indirect commodity exposure to oil and gas price
volatility because, although they do not own the underlying energy commodity,
the general level of commodity prices may affect the volume of the commodity the
MLP delivers to its customers and the cost of providing services such as
distributing natural gas liquids. The costs of natural gas pipeline MLPs to
perform services may exceed the negotiated rates under “negotiated rate”
contracts. Processing MLPs may be directly affected by energy commodity prices.
Propane MLPs own the underlying energy commodity, and therefore have direct
exposure to energy commodity prices. The MLP industry in general could be hurt
by market perception that MLP’s performance and valuation are directly tied to
commodity prices.
Pipeline
MLPs are common carrier transporters of natural gas, natural gas liquids
(primarily propane, ethane, butane and natural gasoline), crude oil or refined
petroleum products (gasoline, diesel fuel and jet fuel). Pipeline MLPs also may
operate ancillary businesses such as storage and marketing of such products.
Pipeline MLPs derive revenue from capacity and transportation fees.
Historically, pipeline output has been less exposed to cyclical economic forces
due to its low-cost structure and government-regulated nature. In addition, most
pipeline MLPs have limited direct commodity price exposure because they do not
own the product being shipped.
Processing
MLPs are gatherers and processors of natural gas as well as providers of
transportation, fractionation and storage of natural gas liquids (“NGLs”).
Processing MLPs derive revenue from providing services to natural gas producers,
which require treatment or processing before their natural gas commodity can be
marketed to utilities and other end user markets. Revenue for the processor is
fee based, although it is not uncommon to have some participation in the prices
of the natural gas and NGL commodities for a portion of revenue.
Propane
MLPs are distributors of propane to homeowners for space and water heating.
Propane MLPs derive revenue from the resale of the commodity on a margin over
wholesale cost. The ability to maintain margin is a key to profitability.
Propane serves approximately 3% of the household energy needs in the United
States, largely for homes beyond the geographic reach of natural gas
distribution pipelines. Approximately 70% of annual cash flow is earned during
the winter heating season (October through March). Accordingly, volumes are
weather dependent, but have utility type functions similar to electricity and
natural gas.
MLPs
operating interstate pipelines and storage facilities are subject to substantial
regulation by the Federal Energy Regulatory Commission (“FERC”), which regulates
interstate transportation rates, services and other matters regarding natural
gas pipelines including: the establishment of rates for service; regulation of
pipeline storage and liquified natural gas facility construction; issuing
certificates of need for companies intending to provide energy services or
constructing and operating interstate pipeline and storage facilities; and
certain other matters. FERC also regulates the interstate transportation of
crude oil, including: regulation of rates and practices of oil pipeline
companies; establishing equal service conditions to provide shippers with equal
access to pipeline transportation; and establishment of reasonable rates for
transporting petroleum and petroleum products by pipeline. Certain MLPs
regulated by the FERC have the right, but are not obligated, to redeem common
units held by an investor who is not subject to U.S. federal income taxation.
The financial condition and results of operations of an MLP that redeems its
common units could be adversely impacted.
MLPs
are subject to various federal, state and local environmental laws and health
and safety laws as well as laws and regulations specific to their particular
activities. These laws and regulations address: health and safety standards for
the operation of facilities, transportation systems and the handling of
materials; air and water pollution requirements and standards; solid waste
disposal requirements; land reclamation requirements; and requirements relating
to the handling and disposition of hazardous materials. MLPs are subject to the
costs of compliance with such laws applicable to them, and changes in such laws
and regulations may adversely affect their results of operations.
MLPs
may be subject to liability relating to the release of substances into the
environment, including liability under federal “Superfund” and similar state
laws for investigation and remediation of releases and threatened releases of
hazardous materials, as well as liability for injury and property damage for
accidental events, such as explosions or discharges of materials causing
personal injury and damage to property. Such potential liabilities could have a
material adverse effect upon the financial condition and results of operations
of MLPs.
MLPs
are subject to numerous business related risks, including: deterioration of
business fundamentals reducing profitability due to development of alternative
energy sources, consumer sentiment with respect to global warming, changing
demographics in the markets served, unexpectedly prolonged and precipitous
changes in commodity prices and increased competition that reduces the MLP’s
market share; the lack of growth of markets requiring growth through
acquisitions; disruptions in transportation systems; the dependence of certain
MLPs upon the energy exploration and development activities of unrelated third
parties; availability of capital for expansion and construction of needed
facilities; a significant decrease in natural gas production due to depressed
commodity prices or otherwise; the inability of MLPs to successfully integrate
recent or future acquisitions; and the general level of the
economy.
Municipal
Obligations and AMT-Subject Bonds
Municipal
Obligations are obligations issued by or on behalf of states, territories, and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, including municipal
utilities, or multi-state agencies or authorities. The interest on Municipal
Obligations is exempt from federal income tax in the opinion of bond counsel to
the issuer. Three major classifications of Municipal Obligations are: Municipal
Bonds, that generally have a maturity at the time of issue of one year or more;
Municipal Notes, that generally have a maturity at the time of issue of six
months to three years; and Municipal Commercial Paper, that generally has a
maturity at the time of issue of 30 to 270 days.
The
term “Municipal Obligations” includes debt obligations issued to obtain funds
for various public purposes, including the construction of a wide range of
public facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets, water and sewer works, and electric utilities.
Other public purposes for which Municipal Obligations are issued include
refunding outstanding obligations, obtaining funds for general operating
expenses, and lending such funds to other public institutions and facilities. To
the extent that a fund invests a significant portion of its assets in municipal
obligations issued in connection with a single project, the fund likely will be
affected by the economic, business or political environment of the
project.
AMT-Subject
Bonds are industrial development bonds issued by or on behalf of public
authorities to obtain funds to provide for the construction, equipment, repair
or improvement of privately operated housing facilities, sports facilities,
convention or trade show facilities, airport, mass transit, industrial, port or
parking facilities, air or water pollution control facilities, and certain local
facilities for water supply, gas, electricity, or sewage or solid waste
disposal. They are considered to be Municipal Obligations if the interest paid
thereon qualifies as exempt from federal income tax in the opinion of bond
counsel to the issuer, even though the interest may be subject to the federal
individual alternative minimum tax.
Municipal
Bonds
Municipal
Bonds may be either “general obligation” or “revenue” issues. General obligation
bonds are secured by the issuer’s pledge of its faith, credit, and taxing power
for the payment of principal and interest. Revenue bonds are payable from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source (e.g., the user of the facilities being financed), but not from the
general taxing power. Industrial development bonds and pollution control bonds
in most cases are revenue bonds and generally do not carry the pledge of the
credit of the issuing municipality. The payment of the principal and interest on
industrial revenue bonds depends solely on the ability of the user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment. Funds may also invest in “moral obligation” bonds that are normally
issued by special purpose public authorities. If an issuer of moral obligation
bonds is unable to meet its obligations, the repayment of the bonds becomes a
moral commitment but not a legal obligation of the state or municipality in
question.
Municipal
Commercial Paper
Municipal
Commercial Paper refers to short-term obligations of municipalities that may be
issued at a discount and may be referred to as Short-Term Discount Notes.
Municipal Commercial Paper is likely to be used to meet seasonal working capital
needs of a municipality or interim construction financing. Generally they are
repaid from general revenues of the municipality or refinanced with long-term
debt. In most cases Municipal Commercial Paper is backed by letters of credit,
lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or other institutions.
Municipal
Notes
Municipal
Notes usually are general obligations of the issuer and are sold in anticipation
of a bond sale, collection of taxes, or receipt of other revenues. Payment of
these notes is primarily dependent upon the issuer’s receipt of the anticipated
revenues. Other notes include “Construction Loan Notes” issued to provide
construction financing for specific projects, and “Bank Notes” issued by local
governmental bodies and agencies to commercial banks as evidence of borrowings.
Some notes (“Project Notes”) are issued by local agencies under a program
administered by the U.S. Department of Housing and Urban Development. Project
Notes are secured by the full faith and credit of the United
States.
•Bank
Notes are notes issued by local governmental bodies and agencies such as those
described above to commercial banks as evidence of borrowings. The purposes for
which the notes are issued are varied but they are frequently issued to meet
short-term working-capital or capital-project needs. These notes may have risks
similar to the risks associated with TANs and RANs.
•Bond
Anticipation Notes (“BANs”) are usually general obligations of state and local
governmental issuers which are sold to obtain interim financing for projects
that will eventually be funded through the sale of long-term debt obligations or
bonds. The ability of an issuer to meet its obligations on its BANs is primarily
dependent on the issuer’s access to the long-term municipal bond market and the
likelihood that the proceeds of such bond sales will be used to pay the
principal and interest on the BANs.
•Construction
Loan Notes are issued to provide construction financing for specific projects.
Permanent financing, the proceeds of which are applied to the payment of
construction loan notes, is sometimes provided by a commitment by the Government
National Mortgage Association (“GNMA”) to purchase the loan, accompanied by a
commitment by the Federal Housing Administration to insure mortgage advances
thereunder. In other instances, permanent financing is provided by commitments
of banks to purchase the loan.
•Revenue
Anticipation Notes (“RANs”) are issued by governments or governmental bodies
with the expectation that future revenues from a designated source will be used
to repay the notes. In general they also constitute general obligations of the
issuer. A decline in the receipt of projected revenues, such as anticipated
revenues from another level of government, could adversely affect an issuer’s
ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal and
interest on RANs.
•Tax
Anticipation Notes (“TANs”) are issued by state and local governments to finance
the current operations of such governments. Repayment is generally to be derived
from specific future tax revenues. TANs are usually general obligations of the
issuer. A weakness in an issuer’s capacity to raise taxes due to, among other
things, a decline in its tax base or a rise in delinquencies, could adversely
affect the issuer’s ability to meet its obligations on outstanding
TANs.
Other
Municipal Obligations
Other
kinds of Municipal Obligations are occasionally available in the marketplace,
and the fund may invest in such other kinds of obligations to the extent
consistent with its investment objective and limitations. Such obligations may
be issued for different purposes and with different security than those
mentioned.
Stand-By
Commitments
Funds
may acquire stand-by commitments with respect to municipal obligations held in
their respective portfolios. Under a stand-by commitment, a broker-dealer,
dealer, or bank would agree to purchase, at the relevant funds’ option, a
specified municipal security at a specified price. Thus, a stand-by commitment
may be viewed as the equivalent of a put option acquired by a fund with respect
to a particular municipal security held in the fund’s portfolio.
The
amount payable to a fund upon its exercise of a stand-by commitment normally
would be 1) the acquisition cost of the municipal security (excluding any
accrued interest that the fund paid on the acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the fund owned the security, plus, 2) all interest accrued on the
security since the last interest payment date during the period the security was
owned by the fund. Absent unusual circumstances, the fund would value the
underlying municipal security at amortized cost. As a result, the amount payable
by the broker-dealer, dealer or bank during the time a stand-by commitment is
exercisable would be substantially the same as the value of the underlying
municipal obligation.
A
fund’s right to exercise a stand-by commitment would be unconditional and
unqualified. Although a fund could not transfer a stand-by commitment, it could
sell the underlying municipal security to a third party at any time. It is
expected that stand-by commitments generally will be available to the funds
without the payment of any direct or indirect consideration. The funds may,
however, pay for stand-by commitments if such action is deemed necessary. In any
event, the total amount paid for outstanding stand-by commitments held in a
fund’s portfolio would not exceed 0.50% of the value of a fund’s total assets
calculated immediately after each stand-by commitment is acquired.
The
funds intend to enter into stand-by commitments only with broker-dealers,
dealers, or banks that those managing the fund’s investments believe present
minimum credit risks. A fund’s ability to exercise a stand-by commitment will
depend upon the ability of the issuing institution to pay for the underlying
securities at the time the stand-by commitment is exercised. The credit of each
institution issuing a stand-by commitment to a fund will be evaluated on an
ongoing basis by those managing the fund’s investments.
A
fund intends to acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its right thereunder for trading
purposes. The acquisition of a stand-by commitment would not affect the
valuation of the underlying municipal security. Each stand-by commitment will be
valued at zero in determining net asset value. Should a fund pay directly or
indirectly for a stand-by commitment, its costs will be reflected in realized
gain or loss when the commitment is exercised or expires. The maturity of a
municipal security purchased by a fund will not be considered shortened by any
stand-by commitment to which the obligation is subject. Thus, stand-by
commitments will not affect the dollar-weighted average maturity of a fund’s
portfolio.
Variable
and Floating Rate Obligations
Certain
Municipal Obligations, obligations issued or guaranteed by the U.S. government
or its agencies or instrumentalities, and debt instruments issued by domestic
banks or corporations may carry variable or floating rates of interest. Such
instruments bear interest at rates which are not fixed, but which vary with
changes in specified market rates or indices, such as a bank prime rate or
tax-exempt money market index. Variable rate notes are adjusted to current
interest rate levels at certain specified times, such as every 30 days. A
floating rate note adjusts automatically whenever there is a change in its base
interest rate adjustor, e.g., a change in the prime lending rate or specified
interest rate indices. Typically such instruments carry demand features
permitting the fund to redeem at par.
The
fund’s right to obtain payment at par on a demand instrument upon demand could
be affected by events occurring between the date the fund elects to redeem the
instrument and the date redemption proceeds are due which affects the ability of
the issuer to pay the instrument at par value. Those managing the fund’s
investments monitor on an ongoing basis the pricing, quality, and liquidity of
such instruments and similarly monitor the ability of an issuer of a demand
instrument, including those supported by bank letters of credit or guarantees,
to pay principal and interest on demand. Although the ultimate maturity of such
variable rate obligations may exceed one year, the fund treats the maturity of
each variable rate demand obligation as the longer of a) the notice period
required before the fund is entitled to payment of the principal amount through
demand or b) the period remaining until the next interest rate adjustment.
Floating rate instruments with demand features are deemed to have a maturity
equal to the period remaining until the principal amount can be recovered
through demand.
Funds
may purchase participation interests in variable rate Municipal Obligations
(such as industrial development bonds). A participation interest gives the
purchaser an undivided interest in the Municipal Obligation in the proportion
that its participation interest bears to the total principal amount of the
Municipal Obligation. A fund has the right to demand payment on seven days’
notice, for all or any part of the fund’s participation interest in the
Municipal Obligation, plus accrued interest. Each participation interest is
backed by an irrevocable letter of credit or guarantee of a bank. Banks will
retain a service and letter of credit fee and a fee for issuing repurchase
commitments in an amount equal to the excess of the interest paid on the
Municipal Obligations over the negotiated yield at which the instruments were
purchased by the fund.
Risks
of Municipal Obligations
The
yields on Municipal Obligations are dependent on a variety of factors, including
general economic and monetary conditions, money market factors, conditions in
the Municipal Obligations market, size of a particular offering, maturity of the
obligation, and rating of the issue. The fund’s ability to achieve its
investment objective also depends on the continuing ability of the issuers of
the Municipal Obligations in which it invests to meet their obligation for the
payment of interest and principal when due.
Municipal
Obligations are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Act. They are also subject to federal or state laws, if any, which
extend the time for payment of principal or interest, or both, or impose other
constraints upon enforcement of such obligations or upon municipalities to levy
taxes. The power or ability of issuers to pay, when due, principal of and
interest on Municipal Obligations may also be materially affected by the results
of litigation or other conditions.
From
time to time, proposals have been introduced before Congress for the purpose of
restricting or eliminating the federal income tax exemption for interest on
Municipal Obligations. It may be expected that similar proposals will be
introduced in the future. If such a proposal was enacted, the ability of the
fund to pay “exempt interest” dividends may be adversely affected. The fund
would reevaluate its investment objective and policies and consider changes in
its structure.
Pay-in-Kind
Securities
Each
Fund may invest in pay-in-kind securities. Pay-in-kind securities pay dividends
or interest in the form of additional securities of the issuer, rather than in
cash. These securities are usually issued and traded at a discount from their
face amounts. The amount of the discount varies depending on various factors,
such as the time remaining until maturity of the securities, prevailing interest
rates, the liquidity of the security, and the perceived credit quality of the
issuer. The market prices of pay-in-kind securities generally are more volatile
than the market prices of securities that pay interest periodically and are
likely to respond to changes in interest rates to a greater degree than are
other types of securities having similar maturities and credit
quality.
Portfolio
Turnover (Active Trading)
Portfolio
turnover is a measure of how frequently a portfolio’s securities are bought and
sold. The portfolio turnover rate is generally calculated as the dollar value of
the lesser of a portfolio’s purchases or sales of shares of securities during a
given year, divided by the monthly average value of the portfolio securities
during that year (excluding securities whose maturity or expiration at the time
of acquisition were less than one year). For example, a portfolio reporting a
100% portfolio turnover rate would have purchased and sold securities worth as
much as the monthly average value of its portfolio securities during the
year.
It
is not possible to predict future turnover rates with accuracy. Many variable
factors are outside the control of a portfolio manager. The investment outlook
for the securities in which a portfolio may invest may change as a result of
unexpected developments in securities markets, economic or monetary policies, or
political relationships. High market volatility may result in a portfolio
manager using a more active trading strategy than might otherwise be employed.
Each portfolio manager considers the economic effects of portfolio turnover but
generally does not treat the portfolio turnover rate as a limiting factor in
making investment decisions.
Sale
of shares by investors may require the liquidation of portfolio securities to
meet cash flow needs. In addition, changes in a particular portfolio’s holdings
may be made whenever the portfolio manager considers that a security is no
longer appropriate for the portfolio or that another security represents a
relatively greater opportunity. Such changes may be made without regard to the
length of time that a security has been held.
Higher
portfolio turnover rates generally increase transaction costs that are expenses
of the Fund. Active trading may generate short-term gains (losses) for taxable
shareholders.
The
following Funds had significant variation in portfolio turnover rates over the
two most recently completed fiscal years:
|
|
|
|
|
|
|
|
|
|
| |
Account/Portfolio |
2023 |
2022 |
Comments |
Blue
Chip |
8.8% |
91.9% |
Turnover
was higher in 2022 due to a large fund outflow. |
Bond
Market Index |
47.4 |
102.0 |
Turnover
decreased in 2023 due to lower volatility in client-driven cash
flows. |
Diversified
Balanced Adaptive Allocation |
35.7 |
104.9 |
Turnover
was higher in 2022 due to heightened equity market volatility.
|
Diversified
Growth Adaptive Allocation |
38.6 |
101.8 |
Turnover
was higher in 2022 due to heightened equity market
volatility. |
LargeCap
S&P 500 Index |
2.3 |
9.0 |
Turnover
decreased in 2023 due to smaller cash flows in 2023. |
Principal
LifeTime Strategic Income |
15.3 |
37.6 |
Turnover
was higher in 2022 due to heightened market volatility. |
SAM
Flexible Income |
24.8 |
54.1 |
Turnover
was higher in 2022 due to more active portfolio management and
repositioning. |
U.S.
LargeCap Buffer July |
69.3 |
20.0 |
Turnover
was higher in 2023 due to larger cash flows in 2023 and because the fund
had a full year of operations in 2023. |
U.S.
LargeCap Buffer October |
47.4 |
180.0 |
Turnover
decreased in 2023 due to smaller cash flows in
2023. |
Preferred
Securities
Preferred
securities can include: traditional preferred securities, hybrid-preferred
securities, $25 par hybrid preferred securities, baby bonds, U.S. dividend
received deduction (“DRD”) preferred stock, fixed rate and floating rate
adjustable preferred securities, step-up preferred securities, public and 144A
$1000 par capital securities including U.S. agency subordinated debt issues,
trust originated preferred securities, monthly income preferred securities,
quarterly income bond securities, quarterly income debt securities, quarterly
income preferred securities, corporate trust securities, public income notes,
and other trust preferred securities.
•Traditional
Preferred Securities. Traditional preferred securities may be issued by an
entity taxable as a corporation and pay fixed or floating rate dividends.
However, these claims are subordinated to more senior creditors, including
senior debt holders. “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. Preferred
securities share many investment characteristics with both common stock and
bonds.
•Hybrid
or Trust Preferred Securities. Hybrid-preferred securities are debt instruments
that have characteristics similar to those of traditional preferred securities
(characteristics of both subordinated debt and preferred stock). Hybrid
preferred securities may be issued by corporations, generally in the form of
interest-bearing instruments with preferred securities characteristics, or by an
affiliated trust or partnership of the corporation, generally in the form of
preferred interests in subordinated business trusts or similarly structured
securities. The hybrid-preferred securities market consists of both fixed and
adjustable coupon rate securities that are either perpetual in nature or have
stated maturity dates. Hybrid preferred holders generally have claims to assets
in a corporate liquidation that are senior to those of traditional preferred
securities but subordinate to those of senior debt holders. Certain subordinated
debt and senior debt issues that have preferred characteristics are also
considered to be part of the broader preferred securities market.
Preferred
securities may be issued by trusts (likely one that is wholly-owned by a
financial institution or other corporate entity, typically a bank holding
company) or other special purpose entities established by operating companies,
and are therefore not direct obligations of operating companies. The financial
institution creates the trust and owns the trust’s common securities. The trust
uses the sale proceeds of its preferred securities to purchase, for example,
subordinated debt issued by the financial institution. The financial institution
uses the proceeds from the subordinated debt sale to increase its capital while
the trust receives periodic interest payments from the financial institution for
holding the subordinated debt. The trust uses the funds received to make
dividend payments to the holders of the trust preferred securities. The primary
advantage of this structure may be that the trust preferred securities are
treated by the financial institution as debt securities for tax purposes and as
equity for the calculation of capital requirements.
Trust
preferred securities typically bear a market rate coupon comparable to interest
rates available on debt of a similarly rated issuer. Typical characteristics
include long-term maturities, early redemption by the issuer, periodic fixed or
variable interest payments, and maturities at face value. Holders of trust
preferred securities have limited voting rights to control the activities of the
trust and no voting rights with respect to the financial institution. The market
value of trust preferred securities may be more volatile than those of
conventional debt securities. Trust preferred securities may be issued in
reliance on Rule 144A under the 1933 Act and subject to restrictions on resale.
There can be no assurance as to the liquidity of trust preferred securities and
the ability of holders, such as a fund, to sell their holdings. The condition of
the financial institution can be looked to identify the risks of trust preferred
securities as the trust typically has no business operations other than to issue
the trust preferred securities. If the financial institution defaults on
interest payments to the trust, the trust will not be able to make dividend
payments to holders of its securities, such as a fund.
•Floating
Rate Preferred Securities. Floating rate preferred securities provide for a
periodic adjustment in the interest rate paid on the securities. The terms of
such securities provide that interest rates are adjusted periodically based upon
an interest rate adjustment index. The adjustment intervals may be regular, and
range from daily up to annually, or may be event-based, such as a change in the
short-term interest rate. Because of the interest rate reset feature, floating
rate securities provide the Fund with a certain degree of protection against
rising interest rates, although the interest rates of floating rate securities
will participate in any declines in interest rates as well.
If
a portion of a fund’s income consists of dividends paid by U.S. corporations, a
portion of the dividends paid by the fund may be eligible for the corporate
dividends-received deduction for corporate shareholders. In addition,
distributions reported by a fund as derived from qualified dividend income
(“QDI”) will be taxed in the hands of individuals at the reduced rates
applicable to net capital gains, provided certain holding period and other
requirements are met by both the shareholder and the fund. Dividend income that
a fund receives from REITs, if any, will generally not be treated as QDI and
will not qualify for the corporate dividends-received deduction. It is unclear
the extent to which distributions a fund receives from investments in certain
preferred securities will be eligible for treatment as QDI or for the corporate
dividends-received deduction. A fund cannot predict at this time what portion,
if any, of its dividends will qualify for the corporate dividends-received
deduction or be eligible for the reduced rates of taxation applicable to
QDI.
Real
Estate Investment Trusts (“REITs”)
REITs
are pooled investment vehicles that invest in income producing real estate, real
estate related loans, or other types of real estate interests. U.S. REITs are
allowed to eliminate corporate level federal tax so long as they meet certain
requirements of the Internal Revenue Code. Foreign REITs (“REIT-like”) entities
may have similar tax treatment in their respective countries. Equity real estate
investment trusts own real estate properties, while mortgage real estate
investment trusts make and/or invests in construction, development, and
long-term mortgage loans. Their value may be affected by changes in the
underlying property of the trusts, the creditworthiness of the issuer, property
taxes, interest rates, and tax and regulatory requirements, such as those
relating to the environment. Both types of trusts are not diversified, are
dependent upon management skill, are subject to heavy cash flow dependency,
defaults by borrowers, self-liquidation, and the possibility of failing to
qualify for tax-free status of income under the Internal Revenue Code and
failing to maintain exemption from the 1940 Act. In addition, foreign REIT-like
entities will be subject to foreign securities risks. (See “Foreign
Securities”).
Repurchase
and Reverse Repurchase Agreements, Mortgage Dollar Rolls and
Sale-Buybacks
Each
Fund may invest in repurchase and reverse 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 parties those managing the
fund’s investments deem creditworthy (those that are 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 acquisition
price the Funds pay to the seller of the securities.
In
a repurchase agreement, a Fund purchases a security and simultaneously commits
to resell that security to the seller at an agreed upon price on an agreed upon
date within a number of days (usually not more than seven) from the date of
purchase. The resale price consists of the purchase price plus an amount that is
unrelated to the coupon rate or maturity of the purchased security. A repurchase
agreement involves the obligation of the seller to pay the agreed upon price,
which obligation is in effect secured by the value (at least equal to the amount
of the agreed upon resale price and marked-to-market daily) of the underlying
security or “collateral.” A risk associated with repurchase agreements is the
failure of the seller to repurchase the securities as agreed, which may cause a
Fund to suffer a loss if the market value of such securities declines before
they can be liquidated on the open market. In the event of bankruptcy or
insolvency of the seller, a Fund may encounter delays and incur costs in
liquidating the underlying security. Repurchase agreements that mature in more
than seven days are subject to each Fund’s limit on illiquid investments. While
it is not possible to eliminate all risks from these transactions, it is the
policy of the Fund to limit repurchase agreements to those parties whose
creditworthiness has been reviewed and found satisfactory by those managing the
fund’s investments.
Each
Fund may use reverse repurchase agreements, mortgage dollar rolls, and
economically similar transactions 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. A Fund will enter into reverse repurchase agreements
only with parties that those managing the fund's investments deem 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.
A
“mortgage dollar roll” is similar to a reverse repurchase agreement in certain
respects. In a “dollar roll” transaction a Fund sells a mortgage-related
security, such as a security issued by the Government National Mortgage
Association, to a dealer and simultaneously agrees to repurchase a similar
security (but not the same security) in the future at a pre-determined price. A
dollar roll can be viewed, like a reverse repurchase agreement, as a
collateralized borrowing in which a Fund pledges a mortgage-related security to
a dealer to obtain cash. Unlike in the case of reverse repurchase agreements,
the dealer with which a Fund enters into a dollar roll transaction is not
obligated to return the same securities as those originally sold by the Fund,
but only securities which are “substantially identical.” To be considered
“substantially identical,” the securities returned to a Fund generally must: 1)
be collateralized by the same types of underlying mortgages; 2) be issued by the
same agency and be part of the same program; 3) have a similar original stated
maturity; 4) have identical net coupon rates; 5) have similar market yields (and
therefore price); and 6) satisfy “good delivery” requirements, meaning that the
aggregate principal amounts of the securities delivered and received back must
be within 0.01% of the initial amount delivered.
Each
Fund also may effect simultaneous purchase and sale transactions that are known
as “sale-buybacks.” A sale-buyback is similar to a reverse repurchase agreement,
except that in a sale-buyback, the counterparty who purchases the security is
entitled to receive any principal or interest payments made on the underlying
security pending settlement of the Fund’s repurchase of the underlying security.
Restricted
and Illiquid Securities
A
Fund may experience difficulty in valuing and selling illiquid securities and,
in some cases, may be unable to value or sell certain illiquid securities for an
indefinite period of time. Illiquid securities may include a wide variety of
investments, such as (1) repurchase agreements maturing in more than seven days
(unless the agreements have demand/redemption features), (2) OTC options
contracts and certain other derivatives (including certain swap agreements), (3)
fixed time deposits that are not subject to prepayment or do not provide for
withdrawal penalties upon prepayment (other than overnight deposits), (4) loan
interests and other direct debt instruments, (5) certain municipal lease
obligations, (6) commercial paper issued pursuant to Section 4(a)(2) of the 1933
Act, (7) thinly-traded securities, and (8) securities whose resale is restricted
under the federal securities laws or contractual provisions (including
restricted, privately placed securities that, under the federal securities laws,
generally may be resold only to qualified institutional buyers). Generally,
restricted securities may be sold only in a public offering for which a
registration statement has been filed and declared effective or in a transaction
that is exempt from the registration requirements of the Securities Act of 1933.
When registration is required, a Fund that owns restricted securities may be
obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the Fund
may be permitted to sell a restricted security. If adverse market conditions
were to develop during such a period, the Fund might obtain a less favorable
price than existed when it decided to sell.
Illiquid
and restricted securities are priced at fair value as determined in good faith
by PGI as the Funds’ valuation designee, subject to the Board’s oversight. As
described above, some of the Funds have adopted investment restrictions that
limit investments in illiquid securities.
Royalty
Trusts
A
royalty trust generally acquires an interest in natural resource or chemical
companies and distributes the income it receives to its investors. A sustained
decline in demand for natural resource and related products could adversely
affect royalty trust revenues and cash flows. Such a decline could result from a
recession or other adverse economic conditions, an increase in the market price
of the underlying commodity, higher taxes or other regulatory actions that
increase costs, or a shift in consumer demand. Rising interest rates could harm
the performance and limit the capital appreciation of royalty trusts because of
the increased availability of alternative investments at more competitive
yields. Fund shareholders will indirectly bear their proportionate share of the
royalty trusts’ expenses.
Securitized
Products - Mortgage- and Asset-Backed Securities
The
yield characteristics of the mortgage- and asset-backed securities in which a
Fund may invest differ from those of traditional debt securities. Among the
major differences are that the interest and principal payments are made more
frequently on mortgage- and asset-backed securities (usually monthly) and that
principal may be prepaid at any time because the underlying mortgage loans or
other assets generally may be prepaid at any time. As a result, if a Fund
purchases those securities at a premium, a prepayment rate that is faster than
expected will reduce their yield, while a prepayment rate that is slower than
expected will have the opposite effect of increasing yield. If the Fund
purchases these securities at a discount, faster than expected prepayments will
increase their yield, while slower than expected prepayments will reduce their
yield. Amounts available for reinvestment by a Fund are likely to be greater
during a period of declining interest rates and, as a result, are likely to be
reinvested at lower interest rates than during a period of rising interest
rates.
In
general, the prepayment rate for mortgage-backed securities decreases as
interest rates rise and increases as interest rates fall. However, rising
interest rates will tend to decrease the value of these securities. In addition,
an increase in interest rates may affect the volatility of these securities by
effectively changing a security that was considered a short-term security at the
time of purchase into a long-term security. Long-term securities generally
fluctuate more widely in response to changes in interest rates than short- or
medium-term securities.
The
market for privately issued mortgage- and asset-backed securities is smaller and
less liquid than the market for U.S. government mortgage-backed securities. A
collateralized mortgage obligation (“CMO”) may be structured in a manner that
provides a wide variety of investment characteristics (yield, effective
maturity, and interest rate sensitivity). As market conditions change, and
especially during periods of rapid market interest rate changes, the ability of
a CMO to provide the anticipated investment characteristics may be greatly
diminished. Increased market volatility and/or reduced liquidity may
result.
Each
Fund may invest in each of collateralized bond obligations (“CBOs”),
collateralized loan obligations (“CLOs”), other collateralized debt obligations
(“CDOs”), and other similarly structured securities. CBOs, CLOs, and other CDOs
are types of asset-backed securities. A CBO is a trust that is often backed by a
diversified pool of high risk, below-investment-grade fixed-income securities.
The collateral can be from many different types of fixed-income securities, such
as high yield debt, residential privately issued mortgage-related securities,
commercial privately issued mortgage-related securities, trust preferred
securities, and emerging market debt. A CLO is a trust typically collateralized
by a pool of loans, which may include, among others, domestic and foreign senior
secured loans, senior unsecured loans, and subordinate corporate loans,
including loans that may be rated below investment grade or equivalent unrated
loans. Other CDOs are trusts backed by other types of assets representing
obligations of various parties. CBOs, CLOs, and other CDOs may charge management
fees and administrative expenses.
Short
Sales
A
short sale involves the sale by a fund of a security that it does not own with
the expectation of covering settlement by purchasing the same security at a
later date at a lower price. A fund may also enter into a short position by
using a derivative instrument, such as a future, forward, or swap agreement. If
the price of the security or derivative increases prior to the time the fund is
required to replace the borrowed security, then the fund will incur a loss equal
to the increase in price from the time that the short sale was entered into plus
any premiums and interest paid to the broker. Therefore, short sales involve the
risk that losses may be exaggerated, potentially losing more money than the
value of the investment.
A
“short sale against the box” is a technique that involves selling either a
security owned by a fund, or a security equivalent in kind and amount to the
security sold short that the fund has the right to obtain, at no additional
cost, for delivery at a specified date in the future. Each fund may enter into a
short sale against the box to hedge against anticipated declines in the market
price of portfolio securities. If the value of the securities sold short against
the box increases prior to the scheduled delivery date, a fund will lose
money.
Special
Purpose Acquisition Companies (“SPACs”)
Each
Fund may invest in securities of special purpose acquisition companies (“SPACs”)
or similar special purpose entities that pool funds to seek potential
acquisition opportunities. Unless and until an acquisition is completed, a SPAC
or similar entity generally maintains assets (less a portion retained to cover
expenses) in a trust account comprised of U.S. government securities, money
market securities, and cash, and similar investments whose returns or yields may
be significantly lower than those of the Fund’s other investments. Because SPACs
and similar entities are in essence blank-check companies without an operating
history or ongoing business other than seeking acquisitions, the value of their
securities is particularly dependent on the ability of the entity’s management
to identify and complete a profitable acquisition, which may not occur. For
example, even if an acquisition or merger target is identified, the Fund may
elect not to participate in, or vote to approve, the proposed transaction.
Moreover, an acquisition or merger once effected may prove unsuccessful and an
investment in the SPAC may lose value.
SPACs
are also subject to the following additional risks:
•The
risk that, in the case of SPACs used as an opportunity for startups to go public
without going through the traditional IPO process, such startups may become
publicly traded with potentially less due diligence than what is typical in a
traditional IPO through an underwriter and may not be experienced in facing the
challenges, expenses and risks of being a public company, including the
increased regulatory and financial scrutiny and the need to comply with
applicable governance and accounting requirements.
•SPAC
sponsors may have a potential conflict of interest to complete a deal that may
be unfavorable for other investors in the SPAC. For example, SPAC sponsors often
own warrants to acquire additional shares of the company at a fixed price, and
the exercise by the SPAC sponsor of its warrants may dilute the value of the
equity interests of other investors in the SPAC.
•Some
SPACs may pursue acquisitions only within certain industries or regions, which
may increase the volatility of their prices.
•Only
a thinly traded market for shares of or interests in a SPAC may develop, or
there may be no market at all, leaving the Fund unable to sell its interest in a
SPAC or to sell its interest only at a lower price. Investments in SPACs may
include private placements, including PIPEs, and, accordingly, may be considered
illiquid and/or be subject to restrictions on resale.
•Values
of investments in SPACs may be highly volatile and may depreciate significantly
over time.
Supranational
Entities
Each
Fund may invest in obligations of supranational entities. A supranational entity
is an entity designated or supported by national governments to promote economic
reconstruction, development or trade amongst nations. Examples of supranational
entities include the International Bank for Reconstruction and Development (also
known as the World Bank) and the European Investment Bank. Obligations of
supranational entities are subject to the risk that the governments on whose
support the entity depends for its financial backing or repayment may be unable
or unwilling to provide that support. Obligations of a supranational entity that
are denominated in foreign currencies will also be subject to the risks
associated with investments in foreign currencies.
Synthetic
Securities
Incidental
to other transactions in fixed income securities and/or for investment purposes,
a Fund also may combine options on securities with cash, cash equivalent
investments or other fixed income securities in order to create “synthetic”
securities which approximate desired risk and return profiles. This may be done
where a “non-synthetic” security having the desired risk/return profile either
is unavailable (e.g., short-term securities of certain non-U.S. governments) or
possesses undesirable characteristics (e.g., interest payments on the security
would be subject to non-U.S. withholding taxes). A Fund also may purchase
forward non-U.S. exchange contracts in conjunction with U.S. dollar-denominated
securities in order to create a synthetic non-U.S. currency denominated security
which approximates desired risk and return characteristics where the
non-synthetic securities either are not available in non-U.S. markets or possess
undesirable characteristics. The use of synthetic bonds and other synthetic
securities may involve risks different from, or potentially greater than, risks
associated with direct investments in securities and other assets. Synthetic
securities may increase other Fund risks, including market risk, liquidity risk,
and credit risk, and their value may or may not correlate with the value of the
relevant underlying asset.
Temporary
Defensive Measures/Money Market Instruments
Each
Fund may make money market investments (cash equivalents), without limit,
pending other investment or settlement, for liquidity, or in adverse market
conditions. Following are descriptions of the types of money market instruments
that each Fund may purchase:
•U.S.
Government Securities - Securities issued or guaranteed by the U.S. government,
including treasury bills, notes, and bonds.
•U.S.
Government Agency Securities - Obligations issued or guaranteed by agencies or
instrumentalities of the U.S. government.
•U.S.
agency obligations include, but are not limited to, the Bank for Cooperatives,
Federal Home Loan Banks, and Federal Intermediate Credit Banks.
•U.S.
instrumentality obligations include, but are not limited to, the Export-Import
Bank, Federal Home Loan Mortgage Corporation, and Federal National Mortgage
Association.
Some
obligations issued or guaranteed by U.S. government agencies and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury. Others, such as those issued by the Federal National Mortgage
Association, are supported by discretionary authority of the U.S. government to
purchase certain obligations of the agency or instrumentality. Still others,
such as those issued by the Student Loan Marketing Association, are supported
only by the credit of the agency or instrumentality.
•Bank
Obligations - Certificates of deposit, time deposits and bankers’ acceptances of
U.S. commercial banks having total assets of at least one billion dollars and
overseas branches of U.S. commercial banks and foreign banks, which in the
opinion of those managing the fund’s investments, are of comparable quality. A
Fund may acquire obligations of U.S. banks that are not members of the Federal
Reserve System or of the Federal Deposit Insurance Corporation.
Certificates
of deposit are negotiable certificates issued against funds deposited in a
commercial bank for a definite period of time and earning a specified return.
Bankers’ acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are “accepted”
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Fixed time deposits are bank
obligations payable at a stated maturity date and bearing interest at a fixed
rate. Fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits.
Obligations
of foreign banks and obligations of overseas branches of U.S. banks are subject
to somewhat different regulations and risks than those of U.S. domestic banks.
For example, an issuing bank may be able to maintain that the liability for an
investment is solely that of the overseas branch which could expose a Fund to a
greater risk of loss. In addition, obligations of foreign banks or of overseas
branches of U.S. banks may be affected by governmental action in the country of
domicile of the branch or parent bank. Examples of adverse foreign governmental
actions include the imposition of currency controls, the imposition of
withholding taxes on interest income payable on such obligations, interest
limitations, seizure or nationalization of assets, or the declaration of a
moratorium. Deposits in foreign banks or foreign branches of U.S. banks are not
covered by the Federal Deposit Insurance Corporation and that the selection of
those obligations may be more difficult because there may be less publicly
available information concerning foreign banks or the accounting, auditing and
financial reporting standards, practices and requirements applicable to foreign
banks may differ from those applicable to United States banks. Foreign banks are
not generally subject to examination by any United States Government agency or
instrumentality. A Fund only buys short-term instruments where the risks of
adverse governmental action are believed by those managing the fund’s
investments to be minimal. A Fund considers these factors, along with other
appropriate factors, in making an investment decision to acquire such
obligations. It only acquires those which, in the opinion of management, are of
an investment quality comparable to other debt securities bought by the
Fund.
A
certificate of deposit is issued against funds deposited in a bank or savings
and loan association for a definite period of time, at a specified rate of
return. Normally they are negotiable. However, a Fund occasionally may invest in
certificates of deposit which are not negotiable. Such certificates may provide
for interest penalties in the event of withdrawal prior to their maturity. A
bankers’ acceptance is a short-term credit instrument issued by corporations to
finance the import, export, transfer, or storage of goods. They are termed
“accepted” when a bank guarantees their payment at maturity and reflect the
obligation of both the bank and drawer to pay the face amount of the instrument
at maturity.
•Commercial
Paper - Short-term promissory notes issued by U.S. or foreign
corporations.
•Short-term
Corporate Debt - Corporate notes, bonds, and debentures that at the time of
purchase have 397 days or less remaining to maturity, with certain exceptions
permitted by applicable regulations.
•Repurchase
Agreements - Instruments under which securities are purchased from a bank or
securities dealer with an agreement by the seller to repurchase the securities
at the same price plus interest at a specified rate.
•Taxable
Municipal Obligations - Short-term obligations issued or guaranteed by state and
municipal issuers which generate taxable income.
U.S.
Government and U.S. Government-Sponsored Securities
U.S.
government securities refers to a variety of debt securities issued by or
guaranteed by the U.S. Treasury, such as Treasury bills, notes, and bonds and
mortgage-backed securities guaranteed by the Government National Mortgage
Association (Ginnie Mae), and are supported by the full faith and credit of the
United States meaning that the U.S. government is required to repay the
principal in the event of default. Others are supported by the right of the
issuer to borrow from the U.S. Treasury; others are supported by the
discretionary authority of the U.S. government to purchase the agency’s
obligations; and still others are supported only by the credit of the issuing
agency, instrumentality, or enterprise. The U.S. government does not guarantee
the market price of any U.S. government security.
Although
U.S. government-sponsored enterprises such as the Federal Home Loan Mortgage
Corporation (Freddie Mac) and the Federal National Mortgage Association
(Fannie Mae) may be chartered or sponsored by Congress, they are not funded by
Congressional appropriations, and their securities are not issued by the U.S.
Treasury nor supported by the full faith and credit of the U.S.
government.
U.S.
government securities and U.S. government-sponsored securities may be adversely
impacted by changes in interest rates or a default by or decline in the credit
rating of the applicable government-sponsored entity. There is no assurance that
the U.S. government would provide financial support to its agencies and
instrumentalities if not required to do so. In addition, certain
governmental entities have been subject to regulatory scrutiny regarding their
accounting policies and practices and other concerns that may result in
legislation, changes in regulatory oversight, and/or other consequences that
could adversely affect the credit quality, availability, or investment character
of securities issued by these entities. The value and liquidity of U.S.
government securities may be affected adversely by changes in the ratings of
those securities.
Warrants
and Rights
The
Funds may invest in warrants and rights. A warrant is an instrument that gives
the holder a right to purchase a given number of shares of a particular security
at a specified price until a stated expiration date. Buying a warrant generally
can provide a greater potential for profit or loss than an investment of
equivalent amounts in the underlying common stock. The market value of a warrant
does not necessarily move with the value of the underlying securities. If a
holder does not sell the warrant, it risks the loss of its entire investment if
the market price of the underlying security does not, before the expiration
date, exceed the exercise price of the warrant. Investment in warrants is a
speculative activity. Warrants pay no dividends and confer no rights (other than
the right to purchase the underlying securities) with respect to the assets of
the issuer. A right is a privilege granted to existing shareholders of a
corporation to subscribe for shares of a new issue of common stock before it is
issued. Rights normally have a short life, usually two to four weeks, are freely
transferable and entitle the holder to buy the new common stock at a lower price
than the public offering price.
When-Issued,
Delayed Delivery, and Forward Commitment Transactions
Each
of the Funds may purchase or sell securities on a when-issued, delayed delivery,
or forward commitment basis. Typically, no income accrues on securities a Fund
has committed to purchase prior to the time delivery of the securities is
made.
When
purchasing a security on a when-issued, delayed delivery, or forward commitment
basis, the Fund assumes the rights and risks of ownership of the security,
including the risk of price and yield fluctuations, and takes such fluctuations
into account when determining its net asset value. Because the Fund is not
required to pay for the security until the delivery date, these risks are in
addition to the risks associated with the Fund’s other investments. If the Fund
remains substantially fully invested at a time when when-issued, delayed
delivery, or forward commitment purchases are outstanding, the purchases may
result in a form of leverage.
When
the Fund has sold a security on a when-issued, delayed delivery, or forward
commitment basis, the Fund does not participate in future gains or losses with
respect to the security. If the other party to a transaction fails to deliver or
pay for the securities, the Fund could miss a favorable price or yield
opportunity or could suffer a loss. A Fund may dispose of or renegotiate a
transaction after it is entered into, and may sell when-issued, delayed
delivery, or forward commitment securities before they are delivered, which may
result in a capital gain or loss. There is no percentage limitation on the
extent to which the Funds may purchase or sell securities on a when-issued,
delayed delivery, or forward commitment basis.
LEADERSHIP
STRUCTURE AND BOARD
PVC's
Board has overall responsibility for overseeing PVC's operations in accordance
with the 1940 Act, other applicable laws, and PVC's charter. Each Board Member
serves on the Boards of the following investment companies: Principal Funds,
Inc. (“PFI”), Principal Variable Contracts Funds, Inc. (“PVC”), Principal
Exchange-Traded Funds (“PETF”), and
Principal Real Asset Fund (“PRA”), which
are collectively referred to in this SAI as the “Fund Complex.” Board Members
who are affiliated persons of any investment advisor, the principal distributor,
or the principal underwriter of the Fund Complex are considered “interested
persons” of the Funds (as defined in the 1940 Act) and are referred to in this
SAI as “Interested Board Members.” Board Members who are not Interested Board
Members are referred to as “Independent Board Members.”
Each
Board Member generally serves until the next annual meeting of shareholders or
until such Board Member’s earlier death, resignation, or removal. Independent
Board Members have a 72-year age limit and, for Independent Board Members
elected on or after September 14, 2021, a 72-year age limit or a 15-year term
limit, whichever occurs first. The Board may waive the age or term limits in the
Board’s discretion. The Board elects officers to supervise the day-to-day
operations of the Fund Complex. Officers serve at the pleasure of the Board, and
each officer has the same position with each investment company in the Fund
Complex.
The
Board meets in regularly scheduled meetings eight times throughout the year.
Board meetings may occur in-person, by telephone, or virtually. In addition, the
Board holds special meetings or informal conference calls to discuss specific
matters that may arise or require action between regular meetings. Independent
Board Members also meet annually to consider renewal of advisory
contracts.
The
Chairman of the Board is an interested person of the Fund Complex. The
Independent Board Members have appointed a Lead Independent Board Member whose
role is to review and approve, with the Chairman, each Board meeting’s agenda
and to facilitate communication between and among the Independent Board Members,
management, and the full Board. The Board’s leadership structure is appropriate
for the Fund Complex given its characteristics and circumstances, including the
number of portfolios, variety of asset classes, net assets, and distribution
arrangements. The appropriateness of this structure is enhanced by the
establishment and allocation of responsibilities among the following Committees,
which report their activities to the Board on a regular basis.
|
|
|
|
|
|
|
| |
Committee
and Independent Board Members |
Primary
Purpose and Responsibilities |
Meetings
Held During the Last Fiscal Year |
15(c)
Committee Karen
McMillan, Chair
Katharin
S. Dyer Fritz S. Hirsch Padelford L. Lattimer |
The
Committee’s primary purpose is to assist the Board in performing the
annual review of the Funds’ advisory and sub-advisory agreements pursuant
to Section 15(c) of the 1940 Act. The Committee is responsible for
requesting and reviewing related materials. |
6 |
Audit
Committee Victor
L. Hymes, Chair
Craig
Damos Frances P. Grieb Elizabeth A. Nickels
|
The
Committee’s primary purpose is to assist the Board by serving as an
independent and objective party to monitor the Fund Complex’s accounting
policies, financial reporting, and internal control system, as well as the
work of the independent registered public accountants. The Audit Committee
assists Board oversight of 1) the integrity of the Fund Complex’s
financial statements; 2) the Fund Complex’s compliance with certain legal
and regulatory requirements; 3) the independent registered public
accountants’ qualifications and independence; and 4) the performance of
the Fund Complex’s independent registered public accountants. The Audit
Committee also facilitates communication among the independent registered
public accountants, PGI’s internal auditors, Fund Complex management, and
the Board. |
9 |
Executive
Committee Kamal
Bhatia, Chair Craig Damos Kenneth A. McCullum
|
The
Committee’s primary purpose is to exercise certain powers of the Board
when the Board is not in session. When the Board is not in session, the
Committee may exercise all powers of the Board in the management of the
Fund Complex’s business except the power to 1) issue stock, except as
permitted by law; 2) recommend to the shareholders any action that
requires shareholder approval; 3) amend the bylaws; or 4) approve any
merger or share exchange that does not require shareholder
approval. |
None |
Nominating
and
Governance
Committee Elizabeth
A. Nickels, Chair Craig Damos Fritz S. Hirsch Victor L.
Hymes
Karen
McMillan
|
The
Committee’s primary purpose is to oversee the structure and efficiency of
the Board and the committees. The Committee is responsible for evaluating
Board membership and functions, committee membership and functions,
insurance coverage, and legal matters. The Committee’s nominating
functions include selecting and nominating Independent Board Member
candidates for election to the Board. Generally, the Committee requests
nominee suggestions from Board Members and management. In addition, the
Committee considers candidates recommended by shareholders of the Fund
Complex. Recommendations should be submitted in writing to the Principal
Funds Complex Secretary, in care of the Principal Funds Complex, 711 High
Street, Des Moines, IA 50392. Such recommendations must include all
information specified in the Committee’s charter and must conform with the
procedures set forth in Appendix A thereto, which can be found at
https://secure02.principal.com/publicvsupply/GetFile?fm=MM13013&ty=VOP&EXT=.VOP.
Examples of such information include the nominee’s biographical
information; relevant educational and professional background of the
nominee; the number of shares of each Fund owned of record and
beneficially by the nominee and by the recommending shareholder; any other
information regarding the nominee that would be required to be disclosed
in a proxy statement or other filing required to be made in connection
with the solicitation of proxies for the election of board members;
whether the nominee is an “interested person” of the Funds as defined in
the 1940 Act; and the written consent of the nominee to be named as a
nominee and serve as a board member if elected. When evaluating a
potential nominee for Independent Board Member, the Committee may
consider, among other factors: educational background; relevant business
and industry experience; whether the person is an “interested person” of
the Funds as defined in the 1940 Act; and whether the person is willing to
serve, and willing and able to commit the time necessary to attend
meetings and perform the duties of an Independent Board Member. In
addition, the Committee may consider whether a candidate’s background,
experience, skills and views would complement the background, experience,
skills and views of other Board Members and would contribute to the
diversity of the Board. The final decision is based on a combination of
factors, including the strengths and the experience an individual may
bring to the Board. The Board does not regularly use the services of
professional search firms to identify or evaluate potential candidates or
nominees. |
5 |
Operations
Committee Padelford
L. Lattimer, Chair Katharin S. Dyer Karen McMillan
Thomas
A. Swank |
The
Committee’s primary purpose is to review and oversee the provision of
administrative and distribution services to the Fund Complex,
communications with the Fund Complex’s shareholders, and the Fund
Complex’s operations. |
4 |
Risk
oversight forms part of the Board’s general oversight of the Fund Complex. The
Board has appointed a Chief Compliance Officer who oversees the implementation
and testing of the Funds' compliance program and reports to the Board regarding
compliance matters for the Funds and principal service providers. As part of its
regular oversight functions, the Board, directly or through a committee,
interacts with and reviews reports from, among others: Fund Complex management,
sub-advisors, the Chief Compliance Officer, the independent registered public
accounting firm, and internal auditors for PGI or its affiliates, as
appropriate. The Board, with the assistance of management and PGI, reviews
investment policies and risks in connection with its review of Fund Complex
performance. In addition, as part of the Board’s periodic review of advisory,
sub-advisory, and other service provider agreements, the Board may consider risk
management aspects of their operations and the functions for which they are
responsible. With respect to valuation, the Board has designated PGI as the
Funds’ valuation designee, as permitted by SEC Rule 2a-5, where PGI is
responsible for the day-to-day valuation and oversight responsibilities of the
Funds, subject to the Board’s oversight. PGI has established a Valuation
Committee to fulfill its oversight responsibilities as the Funds’ valuation
designee.
Each
Board Member has significant prior senior management and/or board experience.
Board Members are selected and retained based upon their skills, experience,
judgment, analytical ability, diligence, and ability to work effectively with
other Board Members, a commitment to the interests of shareholders, and, for
each Independent Board Member, a demonstrated willingness to take an independent
and questioning view of management. In addition to these general qualifications,
the Board seeks members who build upon the Board’s diversity. Below is a brief
discussion of the specific education, experience, qualifications, or skills that
led to the conclusion that each person identified below should serve as a Board
Member. As required by rules adopted under the 1940 Act, the Independent Board
Members select and nominate all candidates for Independent Board Member
positions.
Independent
Board Members
Craig
Damos. Mr.
Damos has served as an Independent Board Member of the Fund Complex since 2008.
Since 2011, Mr. Damos has served as the President of C.P. Damos Consulting, LLC
(doing business as Craig Damos Consulting). He has also served as a Director of
the employees’ stock ownership plan of the Baker Group since 2020. Mr. Damos
served as President and Chief Executive Officer of Weitz Company from 2006 to
2010; Vertical Growth Officer of Weitz Company from 2004 to 2006; and Chief
Financial Officer of Weitz Company from 2000 to 2004. From 2005 to 2008, Mr.
Damos served as a Director of West Bank. Through his education, employment
experience, and experience as a board member, Mr. Damos is experienced with
financial, accounting, regulatory, and investment matters.
Katharin
S. Dyer. Ms.
Dyer has served as an Independent Board Member of the Fund Complex since 2023.
She is the Founder and Chief Executive Officer of PivotWise, a firm providing
strategic advice focused on digital transformation. Ms. Dyer currently serves as
a Director of Liquidity Services and the Grameen Foundation. She was formerly
employed by IBM Global Services as a Global Partner and a member of the senior
leadership team from 2016 to 2018. Ms. Dyer was a member of the Global
Management Team at American Express Company from 2013 to 2015. Through her
education, employment experience, and experience as a board member, Ms. Dyer is
experienced with financial, information and digital technology, investment, and
regulatory matters.
Frances
P. Grieb. Ms.
Grieb has served as an Independent Board Member of the Fund Complex since 2023.
Ms. Grieb currently serves as a Director of First Interstate BancSystem, Inc.
and the National Advisory Board of the College of Business at the University of
Nebraska at Omaha. She is a member of the American Institute of Certified Public
Accountants and the National Association of Corporate Directors. From 2014 to
2022, she served as a Director of Great Western Bancorp, Inc. Ms. Grieb is a
retired partner having served in various leadership roles at Deloitte LLP from
1982 to 2010. Ms. Grieb is a retired Certified Public Accountant. Through her
education, employment experience, and experience as a board member, Ms. Grieb is
experienced with financial, accounting, investment, and regulatory
matters.
Fritz
S. Hirsch. Mr.
Hirsch has served as an Independent Board Member of the Fund Complex since 2005.
From 2011 to 2015, Mr. Hirsch served as Chief Executive Officer of MAM USA. He
served as President and Chief Executive Officer of Sassy, Inc. from 1986 to
2009, and Chief Financial Officer of Sassy, Inc. from 1983 to 1985. Through his
education, employment experience, and experience as a board member, Mr. Hirsch
is experienced with financial, accounting, regulatory, and investment
matters.
Victor
L. Hymes. Mr.
Hymes has served as an Independent Board Member of the Fund Complex since 2020.
He currently serves as Founder, Chief Executive Officer, and Chief Investment
Officer of Legato Capital Management, LLC. Over the past thirty years, Mr. Hymes
has served in the roles of Chief Executive Officer, Chief Operating Officer,
Chief Investment Officer, portfolio manager, and other senior management
positions with investment management firms, including Zurich Scudder
Investments, Inc., Goldman, Sachs & Co., and Kidder, Peabody & Co. Mr.
Hymes has served on numerous boards and has chaired four investment committees
over the past two decades. Through his education, employment experience, and
experience as a board member, Mr. Hymes is experienced with financial,
accounting, regulatory, and investment matters.
Padelford
L. Lattimer. Mr.
Lattimer has served as an Independent Board Member of the Fund Complex since
2020. He currently serves as Managing Partner for TBA Management Consulting LLC.
For more than twenty years, Mr. Lattimer served in various capacities at
financial services companies, including as a senior managing director for TIAA
Cref Asset Management (2004-2010), First Vice President at Mellon Financial
Corporation (2002-2004), and in product management roles at Citibank
(2000-2002). Through his education, employment experience, and experience as a
board member, Mr. Lattimer is experienced with financial, regulatory, and
investment matters.
Karen
McMillan. Ms.
McMillan has served as an Independent Board Member of the Fund Complex since
2014. Ms. McMillan is the founder and owner of Tyche Consulting LLC. She served
as a Managing Director of Patomak Global Partners, LLC from 2014 to 2021. From
2007 to 2014, Ms. McMillan served as General Counsel to the Investment Company
Institute. Prior to that (from 1999-2007), she worked as an attorney in private
practice, specializing in the mutual fund industry. From 1991 to 1999, she
served in various roles as counsel at the SEC, Division of Investment
Management, including as Assistant Chief Counsel. Through her professional
education, experience as an attorney, and experience as a board member, Ms.
McMillan is experienced in financial, investment, and regulatory
matters.
Elizabeth
A. Nickels. Ms.
Nickels has served as an Independent Board Member of the Fund Complex since
2015. From 2000 to 2022, Ms. Nickels served as a Director of SpartanNash. From
2008 to 2017, she served as a Director of the not-for-profit Spectrum Health
System; from 2014 to 2016, she served as a Director of Charlotte Russe; from
2014 to 2015, she served as a Director of Follet Corporation; and from 2013 to
2015, she served as a Director of PetSmart. Ms. Nickels was formerly employed by
Herman Miller, Inc. in several capacities: from 2012 to 2014, as the Executive
Director of the Herman Miller Foundation; from 2007 to 2012, as President of
Herman Miller Healthcare; and from 2000 to 2007, as Chief Financial Officer.
Through her education, employment experience, and experience as a board member,
Ms. Nickels is experienced with financial, accounting, and regulatory matters.
Thomas
A. Swank.
Mr. Swank has served as an Independent Board Member of the Fund Complex since
March 2024. From 2015 to 2023, Mr. Swank served as the Chief Executive Officer
and President of Wellabe, formerly American Enterprise Group, Inc. He has served
as the Chairman of the Board for Wellabe since 2023 and as a Director since
2015. Mr. Swank has also served as a Director on the Director Forum 500 -
American Council of Life Insurers since 2015. Through his education, employment
experience, and experience as a board member, Mr. Swank is experienced with
financial, accounting, regulatory, and investment matters.
Interested
Board Members
Kamal
Bhatia. Mr.
Bhatia has served as Chair of the Fund Complex since 2023. He has also served as
President and Chief Executive Officer of the Fund Complex since 2019. Since
February 2024, Mr. Bhatia has served as the President and Chief Executive
Officer for Principal Asset ManagementSM.
He served as Senior Executive Managing Director - Global Head of Investments for
Principal Asset ManagementSM
in
2023 and a Senior Executive Director and Chief Operating Officer of Principal
Asset ManagementSM
from
2019 to 2023. Mr. Bhatia joined Principal®
in 2019 and serves as a director of numerous Principal®
affiliates.
From 2011 to 2019, he was a Senior Vice President for Oppenheimer Funds. Mr.
Bhatia is a CFA®
charter holder. Through his education and experience, Mr. Bhatia is experienced
with financial, marketing, regulatory, and investment matters.
Kenneth
A. McCullum. Mr.
McCullum has served as a Board Member of the Fund Complex since 2023. Mr.
McCullum has served as Executive Vice President and Chief Risk Officer for
Principal®
since 2023. Prior to that, he served as Senior Vice President and Chief Risk
Officer for Principal®
from 2020 to 2023 and Vice President and Chief Actuary for Principal®
from 2015 to 2020. From 2013 to 2015, Mr. McCullum was an Executive Vice
President responsible for business development at Delaware Life Insurance
Company. He served as a Senior Vice President for the life annuity business at
Sun Life from 2010 to 2013. Mr. McCullum is a Fellow of the Society of Actuaries
and is a Member of the American Academy of Actuaries. Through his education and
experience, Mr. McCullum is experienced with financial, accounting, regulatory,
and investment matters.
Additional
Information Regarding Board Members and Officers
The
following tables present additional information regarding the Board Members and
Fund Complex officers, including their principal occupations, which, unless
specific dates are shown, are of more than five years duration. For each Board
Member, the tables also include information concerning other directorships held
in reporting companies under the Securities Exchange Act of 1934 or registered
investment companies under the 1940 Act.
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INDEPENDENT
BOARD MEMBERS |
Name,
Address, and Year of Birth |
Board
Positions Held with Fund Complex |
Principal
Occupation(s) During Past 5 Years |
Number
of Portfolios Overseen in Fund Complex |
Other Directorships Held
During Past 5 Years |
Craig
Damos 711 High Street Des Moines, IA 50392 1954 |
Lead
Independent Board Member (since 2020) Director, PFI and
PVC (since 2008) Trustee, PETF (since 2014) Trustee, PRA (since
2019) |
President,
C.P. Damos Consulting, LLC (consulting services)
|
126 |
None |
Katharin
S. Dyer 711 High Street Des Moines, IA 50392 1957 |
Director,
PFI and PVC (since 2023) Trustee, PETF and PRA (since 2023) |
Founder
and Chief Executive Officer, PivotWise (consulting services)
|
126 |
Liquidity
Services, Inc. (2020-present) |
Frances
P. Grieb 711 High Street Des Moines, IA 50392 1960 |
Director,
PFI and PVC (since 2023) Trustee, PETF and PRA (since 2023) |
Retired |
126 |
First
Interstate BancSystem, Inc. (2022-present); Great
Western Bancorp, Inc. and Great Western Bank
(2014-2022) |
Fritz
S. Hirsch 711 High Street Des Moines, IA 50392 1951 |
Director,
PFI and PVC (since 2005) Trustee, PETF (since 2014) Trustee, PRA
(since 2019) |
Interim
CEO, MAM USA (manufacturer of infant and juvenile products) from February
2020-October 2020 |
126 |
MAM
USA (2011-present)
|
Victor
L. Hymes 711 High Street Des Moines, IA 50392 1957 |
Director,
PFI and PVC (since 2020) Trustee, PETF and PRA (since 2020) |
Founder,
CEO, CIO, Legato Capital Management, LLC (investment management
company) |
126 |
None |
Padelford
L. Lattimer 711 High Street Des Moines, IA 50392 1961 |
Director,
PFI and PVC (since 2020) Trustee, PETF and PRA (since 2020) |
Managing
Partner, TBA Management Consulting LLC (management consulting and staffing
company) |
126 |
None |
Karen
McMillan 711 High Street Des Moines, IA 50392 1961 |
Director,
PFI and PVC (since 2014) Trustee, PETF (since 2014) Trustee, PRA
(since 2019) |
Founder/Owner,
Tyche Consulting LLC (consulting services); Managing
Director, Patomak Global Partners, LLC (financial
services consulting) from 2014-2021 |
126 |
None |
Elizabeth
A. Nickels 711 High Street Des Moines, IA 50392 1962 |
Director,
PFI and PVC (since 2015) Trustee, PETF (since 2015) Trustee, PRA
(since 2019) |
Retired |
126 |
SpartanNash
(2000-2022) |
Thomas
A. Swank 711 High Street Des Moines, IA 50392 1960 |
Director,
PFI and PVC (since 2024) Trustee, PRA and PETF (since 2024) |
Chief
Executive Officer and President, Wellabe (formerly,
American Enterprise Group, Inc.) (life and health
insurance) from 2015-2023 |
126 |
Wellabe
(formerly, American Enterprise Group,
Inc.) (2015-present) |
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INTERESTED
BOARD MEMBERS |
Name,
Address, and Year of Birth |
Positions
Held with Fund Complex |
Principal
Occupation(s) During Past 5 Years |
Number
of Portfolios Overseen in Fund Complex |
Other Directorships Held
During Past 5 Years |
Kamal
Bhatia 711 High Street Des Moines, IA 50392 1972 |
Director
and Chair, PFI and PVC (since 2023) Trustee and Chair,
PETF and PRA (since 2023) Chief Executive Officer and
President (since 2019) |
Principal
Financial Group*
President
and Chief Executive Officer – Principal Asset ManagementSM
(since
2024)
Senior
Executive Managing Director - Global Head of Investments – Principal Asset
ManagementSM
(2023)
Senior
Executive Director and Chief
Operating
Officer – Principal Asset
ManagementSM
(2019-2023)
President
– Principal Funds (2019-2020)
OppenheimerFunds,
Inc.
Senior
Vice President (2011-2019) |
126 |
None |
Kenneth
A. McCullum 711 High Street Des Moines, IA 50392 1964 |
Director,
PFI and PVC (since 2023) Trustee, PETF and PRA (since 2023) |
Principal
Financial Group*
Executive
Vice President and Chief Risk
Officer
(since 2023)
Senior
Vice President and Chief Risk Officer (2020-2023)
Vice
President and Chief Actuary (2015-2020) |
126 |
None |
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FUND
COMPLEX OFFICERS |
Name,
Address, and Year of Birth |
Position(s)
Held with Fund Complex |
Principal
Occupation(s)
During
Past 5 Years |
George
Djurasovic
711
High Street Des Moines, IA 50392
1971 |
Vice
President and General Counsel (since 2023) |
Principal
Financial Group*
Vice
President and General Counsel – Principal Asset ManagementSM
(since 2022)
Artisan
Partners Limited Partnership
Global
Chief Compliance Officer (2013-2022) |
Calvin
Eib
711
High Street Des Moines, IA 50392
1963 |
Assistant
Tax Counsel (since 2023) |
Principal
Financial Group*
Counsel
(since 2021)
Transamerica
Tax
Counsel (2016-2021) |
Beth
Graff 711 High Street Des Moines, IA 50392 1968 |
Vice
President and Assistant Controller
(since
2021) |
Principal
Financial Group*
Senior
Director – Fund Accounting (since 2024)
Director
– Fund Accounting (2016-2024)
|
Gina
L. Graham 711 High Street Des Moines, IA
50392 1965 |
Treasurer
(since 2016) |
Principal
Financial Group*
Vice
President and Treasurer (since 2016)
|
Megan
Hoffmann 711 High Street Des Moines, IA
50392 1979 |
Vice
President and Controller (since 2021) |
Principal
Financial Group*
Senior
Director – Fund Administration (since 2024)
Director
– Accounting (2020-2024)
Assistant
Director – Accounting (2017-2020) |
Laura
B. Latham 711 High Street Des Moines, IA
50392 1986 |
Counsel
and Assistant Secretary (since 2023)
Assistant
Counsel and Assistant Secretary
(2018-2023) |
Principal
Financial Group*
Counsel
(since 2018) |
Diane
K. Nelson 711 High Street Des Moines, IA
50392 1965 |
AML
Officer (since 2016) |
Principal
Financial Group*
Director
– Compliance (since 2024)
Chief
Compliance Officer/AML Officer (2015-2024)
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FUND
COMPLEX OFFICERS |
Name,
Address, and Year of Birth |
Position(s)
Held with Fund Complex |
Principal
Occupation(s)
During
Past 5 Years |
Tara
Parks 711 High Street Des Moines, IA 50392 1983 |
Vice
President and Assistant Controller
(since
2021) |
Principal
Financial Group*
Senior
Director – Fund Tax (since 2024)
Director
– Accounting (2019-2024)
ALPS
Fund Services
Tax
Manager (2011-2019) |
Deanna
Y. Pellack 711 High Street Des Moines, IA
50392 1987 |
Counsel
and Assistant Secretary (since 2023)
Assistant
Counsel and Assistant Secretary
(2022-2023) |
Principal
Financial Group*
Counsel
(since 2022)
The
Northern Trust Company
Vice
President (2019-2022) |
Sara
L. Reece 711 High Street Des Moines, IA
50392 1975 |
Vice
President and Chief Operating Officer
(since
2021)
Vice
President and Controller (2016-2021) |
Principal
Financial Group*
Managing
Director – Global Fund Ops (since 2021)
Director
– Accounting (2015-2021) |
Teri
R. Root 711 High Street Des Moines, IA 50392 1979 |
Chief
Compliance Officer (since 2018)
|
Principal
Financial Group*
Chief
Compliance Officer – Funds (since 2018)
Vice
President (since 2015)
|
Michael
Scholten 711 High Street Des Moines, IA
50392 1979 |
Chief
Financial Officer (since 2021) |
Principal
Financial Group*
Assistant
Vice President and Actuary (since 2021)
Chief
Financial Officer – Funds/Platforms (2015-2021)
|
Adam
U. Shaikh
711
High Street
Des
Moines, IA 50392
1972 |
Vice
President and Assistant General Counsel
(since
2023)
Assistant
Secretary (since 2022)
Assistant
Counsel (2006-2023) |
Principal
Financial Group*
Assistant
General Counsel (since 2018) |
John
L. Sullivan 711 High Street
Des
Moines, IA 50392 1970 |
Counsel
and Assistant Secretary (since 2023)
Assistant
Counsel and Assistant Secretary
(2019-2023) |
Principal
Financial Group*
Assistant
General Counsel (since 2023)
Counsel
(2019-2023) |
Dan
L. Westholm 711 High Street Des Moines, IA
50392 1966 |
Assistant
Treasurer (since 2006) |
Principal
Financial Group*
Assistant
Vice President – Treasury (since 2013)
|
Beth
C. Wilson 711 High Street Des Moines, IA
50392 1956 |
Vice
President and Secretary (since 2007) |
Principal
Financial Group*
Director
and Secretary – Funds (since 2007)
|
Jared
A. Yepsen 711 High Street Des Moines, IA
50392 1981 |
Assistant
Tax Counsel (since 2017) |
Principal
Financial Group*
Assistant
General Counsel (since 2023)
Counsel
(2015-2023)
|
*The
reference to Principal Financial Group includes positions held by the Interested
Board Member / Fund Complex Officer, including as an officer, employee, and/or
director, with affiliates or subsidiaries of Principal Financial Group. The
titles set forth in this SAI are each Interested Board Member's / Fund Complex
Officer’s title with Principal Workforce, LLC.
Board
Member Ownership of Securities
The
following tables set forth the dollar range of the equity securities of Funds
included in this SAI, and aggregate dollar range of the equity securities of the
funds in the Fund Complex, that were beneficially owned by the Board Members as
of December 31, 2023. As of that date, Board Members did not own shares of the
Funds included in this SAI that are not listed.
For
the purpose of these tables, beneficial ownership means a direct or indirect
pecuniary interest. Only Interested Board Members are eligible to participate in
an employee benefit program that invests in the Fund Complex. Board Members who
beneficially owned shares of the series of PVC did so through variable life
insurance and variable annuity contracts. Please note that exact dollar amounts
of securities held are not listed. Rather, ownership is listed based on the
following dollar ranges:
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A |
$0 |
B |
$1
up to and including $10,000 |
C |
$10,001
up to and including $50,000 |
D |
$50,001
up to and including $100,000 |
E |
$100,001
or more |
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Independent
Board Members |
Account/Portfolio |
Damos |
Dyer(1) |
Grieb(1) |
Hirsch |
Hymes |
Lattimer |
McMillan |
Nickels |
Swank(2) |
Accounts/Portfolios
in this SAI |
A |
A |
A |
A |
A |
A |
A |
A |
A |
Total
Fund Complex |
E |
E |
A |
E |
E |
C |
E |
E |
A |
(1)Appointment
effective January 26, 2023.
(2)Appointment
effective March 13, 2024.
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|
Interested
Board Members |
Account/Portfolio |
Bhatia(1) |
McCullum(1) |
Accounts/Portfolios
in this SAI |
A |
A |
Total
Fund Complex |
E |
E |
(1)Appointment
effective January 26, 2023.
Board
Member and Officer Compensation
The
Fund Complex does not pay any remuneration to its officers or to any Board
Members listed above as Interested Board Members. The Board annually considers a
proposal to reimburse PGI for certain expenses, including a portion of the Chief
Compliance Officer’s compensation. If the proposal is adopted, these amounts are
allocated across all Funds based on relative net assets of each
portfolio.
Each
Independent Board Member received compensation for service as a member of the
Boards of all investment companies in the Fund Complex based on a schedule that
takes into account an annual retainer amount, the number of meetings attended,
and expenses incurred. Board Member compensation and related expenses are
allocated to each of the Funds based on the net assets of each relative to
combined net assets of the Fund Complex.
The
following table provides information regarding the compensation received by the
Independent Board Members from the Funds included in this SAI and from the Fund
Complex during the fiscal year ended December 31, 2023. On that date, there were
4 investment companies in the Fund Complex. The Fund Complex does not provide
retirement benefits or pensions to any of the Board Members.
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Board
Member |
Funds
in this SAI |
Fund
Complex |
Craig
Damos |
$33,818 |
$399,250 |
Katharin
S. Dyer(1) |
$33,280 |
$391,750 |
Frances
P. Grieb(1) |
$33,180 |
$390,500 |
Fritz
S. Hirsch |
$28,736 |
$339,250 |
Victor
L. Hymes |
$30,218 |
$356,750 |
Padelford
L. Lattimer |
$30,007 |
$354,250 |
Karen
McMillan |
$30,319 |
$358,000 |
Elizabeth
A. Nickels |
$30,218 |
$356,750 |
Thomas
A. Swank(2) |
$0 |
$0 |
(1)Ms.
Dyer and Ms. Grieb were both elected to the Board effective January 26,
2023.
(2)Mr.
Swank was elected to the Board effective March 13, 2024, and, therefore, did not
receive compensation from the Funds or the Fund Complex for the fiscal year
ended December 31, 2023.
INVESTMENT
ADVISORY AND OTHER SERVICES
Investment
Advisors
Principal
Global Investors, LLC (doing business as Principal Asset ManagementSM)
(“PGI”), an indirect subsidiary of Principal Financial Group, Inc.
(“Principal®”),
serves as the investment advisor for the Funds. Principal Management
Corporation, previously an affiliate of PGI, served as the investment advisor to
the Funds prior to its merger with and into PGI on May 1, 2017.
PGI
directly makes decisions to purchase or sell securities for each Fund, except
for those Funds or portions of Funds for which PGI has retained a sub-advisor to
provide such services, as described below.
Affiliated
Persons of the Registrant Who are Affiliated Persons of the Advisor
For
information about affiliated persons of the Registrant who are also affiliated
persons of PGI or affiliated advisors, see the Interested Board Members and Fund
Complex Officers tables in the “Leadership Structure and Board”
section.
Sub-Advisors
PGI
has executed agreements with various sub-advisors. Under those sub-advisory
agreements, the sub-advisor agrees to assume the obligations of PGI to provide
investment advisory services for a specific Fund. For these services, PGI pays
each sub-advisor a fee, which is set forth in greater detail below in the
"Sub-Advisory Agreements for the Funds" section.
Sub-Advisor: Brown
Advisory, LLC (“Brown”)
is a wholly-owned subsidiary of Brown Advisory Management, LLC.
Fund(s): a
portion of the assets of LargeCap Growth I
Sub-Advisor: Principal
Real Estate Investors, LLC (doing
business as Principal Real Estate)
(“Principal-REI”)
is an indirect subsidiary of Principal Financial Group, Inc.
Fund(s): Real
Estate Securities
Sub-Advisor: Spectrum
Asset Management, Inc. (“Spectrum”) is
an indirect subsidiary of Principal Financial Group, Inc.
Fund(s):
a portion of the assets of LargeCap S&P 500 Managed Volatility
Index
Sub-Advisor: T.
Rowe Price Associates, Inc. (“T. Rowe Price”) is
a wholly-owned subsidiary of T. Rowe Price Group, Inc., a financial services
holding company.
Fund(s): a
portion of the assets of LargeCap Growth I
Codes
of Ethics
The
Registrant, PGI, PFD, and each of the sub-advisors have adopted Codes of Ethics
(“Codes”) under Rule 17j-1 of the 1940 Act. PGI and the sub-advisors have each
also adopted such a Code under Rule 204A-1 of the Investment Advisers Act of
1940. These Codes are designed to prevent, among other things, persons with
access to information regarding the portfolio trading activity of the Funds from
using that information for their personal benefit. Except in limited
circumstances, the Code for PGI and the Registrant prohibits portfolio managers
from personally trading securities that are held or traded in the actively
managed portfolios for which they are responsible. Certain sub-advisors have
adopted Codes that do not permit personnel subject to such Code to invest in
securities that may be purchased or held by a Fund. However, other sub-advisors’
Codes do permit, subject to conditions, personnel subject to the Code to invest
in securities that may be purchased or held by a Fund. The Registrant’s Board
reviews reports at least annually regarding the operation of the Code of Ethics
of the Registrant, PGI, PFD, and each sub-advisor. A copy of the Registrant’s
Code will be provided upon request, which may be made by contacting the
Registrant.
Management
Agreement
Under
the terms of the Management Agreement with the Registrant, PGI, the investment
advisor, is entitled to receive a fee computed and accrued daily and payable
monthly, at the following annual rates, for providing investment advisory
services and specified other services. The management fee schedule for each Fund
is as follows (expressed as a percentage of average net assets).
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| Net
Asset Value of Account |
Account/Portfolio |
Overall
Fee |
Bond
Market Index |
0.14% |
Diversified
Balanced |
0.05% |
Diversified
Balanced Adaptive Allocation |
0.12% |
Diversified
Balanced Strategic Allocation |
0.05% |
Diversified
Growth Adaptive Allocation |
0.12% |
Diversified
Growth Strategic Allocation |
0.05% |
Diversified
Income |
0.05% |
LargeCap
S&P 500 Managed Volatility Index |
0.35% |
Principal
LifeTime Strategic Income |
0.00% |
Principal
LifeTime 2020 |
0.00% |
Principal
LifeTime 2030 |
0.00% |
Principal
LifeTime 2040 |
0.00% |
Principal
LifeTime 2050 |
0.00% |
Principal
LifeTime 2060 |
0.00% |
U.S.
LargeCap Buffer January |
0.69% |
U.S.
LargeCap Buffer April |
0.69% |
U.S.
LargeCap Buffer July |
0.69% |
U.S.
LargeCap Buffer October |
0.69% |
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| Net
Asset Value of Account |
Account/Portfolio |
First $100
million |
Next $100
million |
Next $100
million |
Next $100
million |
Thereafter |
Core
Plus Bond |
0.50% |
0.45% |
0.40% |
0.35% |
0.30% |
Government
& High Quality Bond |
0.50% |
0.48% |
0.46% |
0.45% |
0.44% |
LargeCap
Growth I |
0.80% |
0.75% |
0.70% |
0.65% |
0.60% |
Real
Estate Securities |
0.79% |
0.77% |
0.73% |
0.70% |
0.68% |
SmallCap |
0.85% |
0.80% |
0.75% |
0.70% |
0.65% |
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| |
| Net
Asset Value of Account |
Account/Portfolio |
First $100
million |
Next $100
million |
Next $100
million |
Next $100
million |
Next $300
million |
Next $300
million |
Over $1
billion |
Equity
Income |
0.60% |
0.55% |
0.50% |
0.45% |
0.40% |
0.39% |
0.38% |
MidCap |
0.65% |
0.60% |
0.55% |
0.50% |
0.45% |
0.44% |
0.43% |
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| |
| Net
Asset Value of Account |
Account/Portfolio |
First $250
million |
Next $250
million |
Next $250
million |
Next $250
million |
Thereafter |
Diversified
International |
0.81% |
0.78% |
0.75% |
0.70% |
0.65% |
Global
Emerging Markets |
1.00% |
0.98% |
0.96% |
0.95% |
0.90% |
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| |
| Net
Asset Value of Account |
Account/Portfolio |
First $500
million |
Over $500
million |
Blue
Chip |
0.60% |
0.55% |
Principal
Capital Appreciation |
0.625% |
0.500% |
Short-Term
Income |
0.40% |
0.39% |
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|
|
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|
| |
| Net
Asset Value of Account |
Account/Portfolio |
First $1
billion |
Over $1
billion |
SAM
Balanced* |
0.25% |
0.20% |
SAM
Conservative Balanced* |
0.25% |
0.20% |
SAM
Conservative Growth* |
0.25% |
0.20% |
SAM
Flexible Income* |
0.25% |
0.20% |
SAM
Strategic Growth* |
0.25% |
0.20% |
* Breakpoints
are based on aggregate SAM Portfolio net assets.
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| |
| Net
Asset Value of Account |
Account/Portfolio |
First $3
billion |
Over $3
billion |
Diversified
Growth |
0.05% |
0.04% |
LargeCap
S&P 500 Index |
0.20% |
0.18% |
Fund
Operating Expenses
Except
for certain Fund expenses set out below, PGI is responsible for expenses,
administrative duties, and services, including the following: expenses incurred
in connection with the registration of the Funds and the Funds’ shares with the
SEC; office space, facilities, and costs of keeping the Funds’ books;
compensation of all personnel who are officers and all Board Members who are
affiliated with PGI; fees for auditors and legal counsel; preparing and printing
Fund prospectuses; and administration of shareholder accounts, including
issuance, maintenance of the open account system, dividend disbursement, reports
to shareholders, and redemptions. However, some or all of these expenses may be
assumed by Principal Life, and some or all of the administrative duties and
services may be delegated by PGI to Principal Life or an affiliate
thereof.
Each
Fund pays for certain corporate expenses incurred in its operation. Among such
expenses, each Fund pays brokerage commissions on portfolio transactions;
transfer taxes and other charges and fees attributable to investment
transactions; any other local, state, or federal taxes; fees and expenses of all
Board Members who are not affiliated with PGI; interest; and fees for the Funds’
custodian.
Contractual
Limits on Total Annual Fund Operating Expenses
PGI
has contractually agreed to limit Fund expenses (excluding interest expense,
expenses related to fund investments, acquired fund fees and expenses, and tax
reclaim recovery expenses and other extraordinary expenses) on certain share
classes of certain of the Funds. The reductions and reimbursements are in
amounts that maintain total operating expenses at or below certain limits. The
limits are expressed as a percentage of average daily net assets attributable to
each respective class on an annualized basis. Subject to applicable expense
limits, the Funds may reimburse PGI for expenses incurred during the current
fiscal year.
The
operating expense limits and the agreement terms are as follows:
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Contractual
Limits on Total Annual Fund Operating Expenses |
Account |
Class
1 |
Class
2 |
Class
3 |
Expiration |
Blue
Chip |
N/A |
N/A |
1.05% |
04/30/2025 |
Diversified
Balanced |
N/A |
N/A |
0.48% |
04/30/2025 |
Diversified
Balanced Adaptive Allocation |
N/A |
N/A |
0.55% |
04/30/2025 |
Diversified
Balanced Strategic Allocation |
N/A |
0.31% |
0.48% |
04/30/2025 |
Diversified
Growth |
N/A |
N/A |
0.48% |
04/30/2025 |
Diversified
Growth Adaptive Allocation |
N/A |
N/A |
0.55% |
04/30/2025 |
Diversified
Growth Strategic Allocation |
N/A |
N/A |
0.48% |
04/30/2025 |
Diversified
Income |
N/A |
N/A |
0.48% |
04/30/2025 |
Equity
Income |
N/A |
N/A |
0.91% |
04/30/2025 |
LargeCap
Growth I |
0.69% |
N/A |
N/A |
04/30/2025 |
U.S.
LargeCap Buffer January |
N/A |
0.95% |
N/A |
04/30/2025 |
U.S.
LargeCap Buffer April |
N/A |
0.95% |
N/A |
04/30/2025 |
U.S.
LargeCap Buffer July |
N/A |
0.95% |
N/A |
04/30/2025 |
U.S.
LargeCap Buffer October |
N/A |
0.95% |
N/A |
04/30/2025 |
Contractual
Management Fee Waivers
PGI
has contractually agreed to waive a portion of certain Fund’s management fees.
The fee waiver will reduce the Fund’s management fees by the amounts listed
below:
|
|
|
|
|
|
|
| |
Contractual
Management Fee Waivers |
Account |
Waiver |
Expiration |
LargeCap
Growth I |
0.016% |
4/30/2025 |
Management
Fees Paid
Management
fees paid for investment management services (before any waivers/reimbursements
from PGI) during the periods indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Management
Fees Paid for Periods Ended December 31 (amounts in
thousands) |
Account/Portfolio |
2023 |
| 2022 |
| 2021 |
|
Blue
Chip |
$ |
72 |
|
| $ |
50 |
|
| $ |
47 |
| |
Bond
Market Index |
3,305 |
|
| 3,508 |
| 3,993 |
|
Core
Plus Bond |
917 |
|
| 965 |
|
| 1,117 |
|
Diversified
Balanced |
372 |
|
| 419 |
|
| 509 |
| |
Diversified
Balanced Adaptive Allocation |
267 |
|
(1) |
251 |
|
| 250 |
| |
Diversified
Balanced Strategic Allocation |
69 |
|
(1) |
79 |
|
| 93 |
| |
Diversified
Growth |
1,531 |
|
| 1,674 |
| 1,974 |
|
Diversified
Growth Adaptive Allocation |
1,565 |
|
(1) |
1,421 |
| 1,369 |
|
Diversified
Growth Strategic Allocation |
146 |
|
(1) |
163 |
|
| 195 |
| |
Diversified
Income |
126 |
|
| 138 |
|
| 165 |
| |
Diversified
International |
2,096 |
|
| 2,111 |
| 2,546 |
|
Equity
Income |
3,076 |
|
| 3,199 |
| 3,535 |
|
Global
Emerging Markets |
679 |
|
| 735 |
|
(3) |
1,069 |
|
Government
& High Quality Bond |
615 |
|
| 883 |
|
| 977 |
| |
LargeCap
Growth I |
3,568 |
|
| 3,583 |
| 4,507 |
|
LargeCap
S&P 500 Index |
5,355 |
|
| 6,600 |
| 7,719 |
|
LargeCap
S&P 500 Managed Volatility Index |
633 |
|
| 909 |
|
| 1,085 |
|
MidCap |
3,113 |
|
| 3,247 |
| 3,532 |
|
Principal
Capital Appreciation |
1,045 |
|
| 1,017 |
| 1,124 |
|
Principal
LifeTime 2020 |
— |
|
| — |
|
| — |
| |
Principal
LifeTime 2030 |
— |
|
| — |
|
| — |
| |
Principal
LifeTime 2040 |
— |
|
| — |
|
| — |
| |
Principal
LifeTime 2050 |
— |
|
| — |
|
| — |
| |
Principal
LifeTime 2060 |
— |
|
| — |
|
| — |
| |
Principal
LifeTime Strategic Income |
— |
|
| — |
|
| — |
| |
Real
Estate Securities |
1,093 |
|
| 1,208 |
| 1,296 |
|
SAM
Balanced |
1,330 |
|
| 1,431 |
| 1,660 |
|
SAM
Conservative Balanced |
376 |
|
| 410 |
|
| 457 |
| |
SAM
Conservative Growth |
842 |
|
| 852 |
|
| 944 |
| |
SAM
Flexible Income |
323 |
|
| 375 |
|
| 427 |
| |
SAM
Strategic Growth |
846 |
|
| 829 |
|
| 895 |
| |
Short-Term
Income |
549 |
|
| 632 |
|
| 670 |
| |
SmallCap |
1,401 |
|
| 1,521 |
| 1,850 |
|
U.S
LargeCap Buffer January |
126 |
|
| 1 |
|
(4) |
— |
|
U.S.
LargeCap Buffer April |
184 |
|
(2) |
— |
| — |
|
U.S
LargeCap Buffer July |
363 |
|
| 87 |
|
(5) |
— |
|
U.S
LargeCap Buffer October |
123 |
|
| 40 |
|
(6) |
— |
|
(1)
Effective May 1, 2024, the Diversified Balanced Managed Volatility Account
changed its name to Diversified Balanced Strategic Allocation Account; the
Diversified Balanced Volatility Control Account changed its name to Diversified
Balanced Adaptive Allocation Account; the Diversified Growth Managed Volatility
Account changed its name to Diversified Growth Strategic Allocation Account; and
the Diversified Growth Volatility Control Account changed its name to
Diversified Growth Adaptive Allocation Account.
(2)
Period
from March 29, 2023, date operations commenced, through December 31,
2023.
(3)
Effective
May 1, 2022, International Emerging Markets Account changed its name to Global
Emerging Markets Account.
(4)
Period
from December 28, 2022, date operations commenced, through December 31,
2022.
(5)
Period
from June 29, 2022, date operations commenced, through December 31,
2022.
(6)
Period
from September 29, 2022, date operations commenced, through December 31,
2022.
Management
Fees Waived
For
the following Funds, PGI waived a portion of the management fee during the
periods indicated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Management
Fees Waived for Periods Ended December 31 (amounts in
thousands) |
Account |
2023 |
| 2022 |
| 2021 |
|
LargeCap
Growth I |
$ |
82 |
|
| $ |
82 |
|
| $ |
107 |
| |
Expenses
Reimbursed
For
the following Funds, PGI reimbursed certain expenses during the periods
indicated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Expenses
Reimbursed for Periods Ended December 31 (amounts in
thousands) |
Account |
2023 |
| 2022 |
| 2021 |
|
Blue
Chip |
$ |
13 |
|
| $ |
8 |
|
| $ |
10 |
| |
Diversified
Balanced Strategic Allocation |
1 |
|
(1) |
— |
|
| — |
| |
LargeCap
Growth I |
11 |
|
| 1 |
|
| — |
| |
U.S.
LargeCap Buffer January |
10 |
|
| 4 |
(3) |
— |
| |
U.S.
LargeCap Buffer April |
5 |
|
(2) |
— |
|
| — |
| |
U.S.
LargeCap Buffer July |
12 |
|
| 4 |
(4) |
— |
| |
U.S.
LargeCap Buffer October |
13 |
|
| 6 |
(5) |
— |
| |
(1)
Effective
May 1, 2024, Diversified Balanced Managed Volatility changed its name to
Diversified Balanced Strategic Allocation.
(2)
Period
from March 29, 2023, date operations commenced through December 31,
2023.
(3)
Period
from December 28, 2022, date operations commenced, through December 31,
2022.
(4)
Period
from June 29, 2022, date operations commenced, through December 31,
2022.
(5)
Period
from September 29, 2022, date operations commenced, through December 31,
2022.
Sub-Advisory
Agreements for the Funds
PGI
(and not the Funds) pays the sub-advisors fees determined pursuant to a
sub-advisory agreement with each sub-advisor, including those sub-advisors that
are at least 95% owned, directly or indirectly, by PGI or its affiliates
(“Wholly-Owned Sub-Advisors”) and the sub-advisors for the Funds listed in the
tables below. Fees paid to sub-advisors are individually negotiated between PGI
and each sub-advisor and may vary.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Aggregate
Fees Paid to Sub-Advisors (other than Wholly-Owned Sub-Advisors) for
Fiscal Years Ended December 31 (dollar amounts in
thousands) |
Account |
2023 |
2022 |
2021 |
| Dollar Amount |
Percent
of Average Daily Net Assets |
Dollar Amount |
Percent
of Average Daily Net Assets |
Dollar Amount |
Percent
of Average Daily Net Assets |
LargeCap
Growth I |
$992 |
0.22% |
$1,053 |
0.23% |
$1,368 |
0.23% |
Distributor
Principal
Funds Distributor, Inc. (“PFD” or the “Distributor”), a Washington corporation,
serves as the distributor for the Funds’ Classes 1, 2, and 3 shares on a
continuous basis. PFD is a registered broker-dealer under the Securities and
Exchange Act of 1934, as amended, and is a member of the Financial Industry
Regulatory Authority, Inc. (“FINRA”). PFD is located at 711 High Street, Des
Moines, IA 50392.
PFD
serves as distributor to the Funds pursuant to a Distribution Agreement (the
“Distribution Agreement”), which provides that the Registrant will pay all fees
and expenses in connection with (1) the preparation and filing of registration
statements; (2) necessary state filings; (3) preparation and distribution of
prospectuses and shareholder reports to current shareholders, tax information,
notices, proxy statements, and proxies; (4) preparation and distribution of
dividend and capital gain payments to shareholders; (5) issuance, transfer,
registry, and maintenance of open account charges; and (6) communication with
shareholders concerning these items. The Registrant will also pay taxes,
including, in the case of redeemed shares, any initial transfer taxes unpaid.
PFD will assume responsibility for (or will enter into arrangements providing
for the payment of) the expense of printing prospectuses used for the
solicitation of new accounts of the Funds. PFD will also pay (or will enter into
arrangements providing for the payment of) the expenses of other sales
literature for the Funds, as well as other expenses in connection with the sale
and offering for sale of Fund shares.
Pursuant
to the Distribution Agreement, PFD acts as an agent of the Registrant with
respect to sales and repurchases of Fund shares in the various states PFD is
qualified as a broker-dealer. PFD accepts orders for Fund shares at net asset
value. Other than 12b-1 fees paid to PFD with respect to Classes 2 and 3 shares,
no compensation is paid to PFD.
Rule
12b-1 Fees/Distribution Plans and Agreements
Classes
2 and 3 shares of the Funds are subject to a Distribution Plan and Agreement
(described below), sometimes referred to as a Rule 12b-1 Plan. Rule 12b-1
permits a fund to pay expenses associated with the distribution of its shares
and for providing services to shareholders in accordance with a plan adopted by
the Board and approved by its shareholders. Pursuant to such rule, the Board and
initial shareholders of Classes 2 and 3 shares have approved and entered into a
Distribution Plan and Agreement (each, a “Plan” and together, the “Plans”). The
Registrant believes the Plans will be beneficial as they may position the Funds
to be able to build and retain assets, which will, in turn, have a beneficial
effect on total expense ratios and provide flexibility in the management of the
Funds by reducing the need to liquidate portfolio securities to meet
redemptions. The Registrant also believes the Plans will encourage registered
representatives to provide ongoing servicing to the shareholders.
In
adopting and annually approving continuation of the Plans, the Board (including
a majority of the Independent Board Members) determined that there was a
reasonable likelihood that the Plans would benefit the Funds and the
shareholders of the affected classes. Pursuant to Rule 12b-1, information about
revenues and expenses under the Plans is presented to the Board each quarter for
its consideration in continuing the Plans. Continuance of the Plans must be
approved by the Board, including a majority of the Independent Board Members,
annually. The Plans may be amended by a vote of the Board, including a majority
of the Independent Board Members, except that the Plans may not be amended to
materially increase the amount spent for distribution without majority approval
of the shareholders of the affected class. The Plans may be terminated upon a
vote of a majority of the Independent Board Members or by vote of a majority of
the outstanding voting securities of the affected class.
Payments
under the Plans will normally be made for accounts that are closed to new
investors.
The
Plans provide that each Fund makes payments to the Distributor from assets of
the Classes 2 and 3 shares to compensate the Distributor and other selling
dealers, various banks, broker-dealers, and other financial intermediaries, for
providing certain distribution services and shareholder services. Such services
may include, but are not limited to:
•formulation
and implementation of marketing and promotional activities;
•preparation,
printing, and distribution of sales literature;
•preparation,
printing, and distribution of prospectuses and the Fund reports to other than
existing shareholders;
•obtaining
such information with respect to marketing and promotional activities as the
Distributor deems advisable;
•making
payments to dealers and others engaged in the sale of shares or who engage in
shareholder support services; and
•providing
training, marketing, and support with respect to the sale of
shares.
Each
Fund pays the Distributor a fee after the end of each month at an annual rate of
0.25% of the respective daily net asset value of the assets attributable to the
Classes 2 and 3 shares.
The
Distributor may remit on a continuous basis up to 0.25% to its registered
representatives and other financial intermediaries as a trail fee in recognition
of their services and assistance.
If
the Distributor’s actual expenses are less than the Rule 12b-1 fee it receives,
the Distributor is entitled to retain the full amount of the fees.
For
the fiscal year ended December 31, 2023, each Fund made the following 12b-1
payments to PFD, and PFD, from these 12b-1 payments, made the following payments
to financial intermediaries that distribute and/or service the Fund’s shares.
The “Retained by PFD” column reflects the difference between the amount paid by
the Fund to PFD and the amount of that 12b-1 fee paid by PFD to financial
intermediaries. That difference/remainder is then used by PFD to pay for other
12b-1-eligible expenses. For the fiscal year ended December 31, 2023, the
12b-1-eligible expenses for each Fund were greater than the amount of the Fund’s
12b-1 payments to PFD.
|
|
|
|
|
|
|
|
|
|
| |
Account/Portfolio |
Paid
by Fund to PFD (amount in thousands) |
Paid
by PFD to Financial Intermediaries (amount in
thousands) |
Retained
by PFD (amounts in thousands) |
Blue
Chip |
$30 |
$30 |
$0 |
Bond
Market Index |
— |
— |
— |
Core
Plus Bond |
— |
— |
— |
Diversified
Balanced |
1,776 |
1,775 |
1 |
Diversified
Balanced Adaptive Allocation(1) |
555 |
555 |
0 |
Diversified
Balanced Strategic Allocation(1) |
345 |
345 |
0 |
Diversified
Growth |
7,658 |
7,656 |
2 |
Diversified
Growth Adaptive Allocation(1) |
3,262 |
3,262 |
0 |
Diversified
Growth Strategic Allocation(1) |
732 |
732 |
0 |
Diversified
Income |
627 |
627 |
0 |
Diversified
International |
— |
— |
— |
Equity
Income |
152 |
152 |
0 |
Global
Emerging Markets |
— |
— |
— |
Government
& High Quality Bond |
— |
— |
— |
LargeCap
Growth I |
— |
— |
— |
LargeCap
S&P 500 Index |
118 |
118 |
0 |
LargeCap
S&P 500 Managed Volatility Index |
— |
— |
— |
MidCap |
91 |
91 |
0 |
Principal
Capital Appreciation |
101 |
101 |
0 |
Principal
LifeTime 2020 |
— |
— |
— |
Principal
LifeTime 2030 |
— |
— |
— |
Principal
LifeTime 2040 |
— |
— |
— |
Principal
LifeTime 2050 |
— |
— |
— |
Principal
LifeTime 2060 |
— |
— |
— |
Principal
LifeTime Strategic Income |
— |
— |
— |
Real
Estate Securities |
24 |
24 |
0 |
SAM
Balanced |
336 |
336 |
0 |
SAM
Conservative Balanced |
75 |
75 |
0 |
SAM
Conservative Growth |
418 |
418 |
0 |
SAM
Flexible Income |
89 |
89 |
0 |
SAM
Strategic Growth |
448 |
448 |
0 |
Short-Term
Income |
— |
— |
— |
SmallCap |
22 |
22 |
0 |
U.S.
LargeCap Buffer January |
46 |
43 |
3 |
U.S.
LargeCap Buffer April(2) |
66 |
65 |
1 |
U.S.
LargeCap Buffer July |
132 |
131 |
1 |
U.S.
LargeCap Buffer October |
44 |
42 |
2 |
(1)
Effective May 1, 2024, the Diversified Balanced Managed Volatility Account
changed its name to Diversified Balanced Strategic Allocation Account; the
Diversified Balanced Volatility Control Account changed its name to Diversified
Balanced Adaptive Allocation Account; the Diversified Growth Managed Volatility
Account changed its name to Diversified Growth Strategic Allocation Account; and
the Diversified Growth Volatility Control Account changed its name to
Diversified Growth Adaptive Allocation Account.
(2)
Period
from March 29, 2023, the date operations commenced, through December 31,
2023.
Custodian
The
custodian of the portfolio securities and cash assets of the Funds is The Bank
of New York Mellon, One Wall Street, New York, NY 10286. The custodian performs
no managerial or policy-making functions for the Funds.
Administrative
Services Plan and Agreement
The
Funds’ Class 3 shares pay an administrative services fee under the terms of an
Administrative Services Plan and Agreement. The Administrative Services Plan and
Agreement provides for services to beneficial owners of Fund shares. Such
services include:
•teleservicing
support to contract owners in connection with the Funds;
•delivery
of current prospectuses, reports, notices, proxies and proxy statements, and
other informational materials to existing contract owners;
•facilitation
of the tabulation of contract owners’ votes in the event of a contract owner
vote; and receiving, tabulating, and transmitting proxies executed by or on
behalf of contract owners;
•maintenance
of contract owner records reflecting shares purchased and redeemed and share
balances, and the conveyance of that information to PVC or PGI as may be
reasonably requested;
•provision
of support services, including providing information about PVC and its Funds and
answering questions concerning PVC and its Funds, including questions respecting
contract owners’ interests in one or more Funds;
•provision
and administration of insurance features for the benefit of contract owners in
connection with the Funds, which may include fund transfers, dollar cost
averaging, asset allocation, portfolio rebalancing, earnings sweep, and
pre-authorized deposits and withdrawals;
•receiving,
aggregating, and forwarding purchase and redemption orders; acting as the
nominee for contract owners; maintaining account records and providing contract
owners with account statements; processing dividend payments; issuing contract
owners reports and transaction confirmations; and providing sub-accounting
services; and
•general
account administration activities and providing such similar services to
contract owners as PVC may reasonably request.
As
compensation for these services, PVC will pay service fees equal to 0.15% of the
average daily net assets attributable to the Class 3 shares. The service fees
are calculated and accrued daily and paid monthly to Principal Shareholder
Services (“PSS”) (or at such other intervals as PVC and PSS may agree). PSS will
generally, at its discretion, appoint (and may at any time remove) other
parties, including companies affiliated with PSS, as its agent to carry out the
provisions of the Administrative Services Plan and Agreement. However, the
appointment of an agent shall not relieve PSS of any of its responsibilities or
liabilities under such agreement. Any fees paid to agents under such agreement
shall be the sole responsibility of PSS.
Transfer
Agent
Principal
Shareholder Services, Inc. (“PSS”) (711 High Street, Des Moines, IA 50392)
provides transfer agency services for the Registrant. The Registrant currently
pays no fee for the services PSS provides to the Classes 1, 2, and 3 shares
pursuant to the Transfer Agency Agreement for Classes 1, 2, and 3
shares.
Securities
Lending Agent
The
Bank of New York Mellon serves as the securities lending agent for the Funds.
Information regarding securities lending during the Funds’ fiscal year ended
December 31, 2023 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Account |
Gross income (including from
cash collateral reinvestment) |
Fees
paid to securities lending agent from a revenue
split |
Fees
paid for any cash collateral management service that
are not included in revenue split |
Administrative fees
not included in revenue split |
Indemnification fees
not included in revenue split |
Net rebate paid
to borrower |
Other fees
not included in revenue split |
Aggregate fees/ compensation |
Net income from securities lending |
Bond
Market Index |
$572,514 |
$17,395 |
$— |
$— |
$— |
$398,490 |
$— |
$415,885 |
$156,629 |
Core
Plus Bond |
100,986 |
4,926 |
— |
— |
— |
51,711
|
— |
56,637
|
44,349 |
Diversified
International |
102,147 |
997 |
— |
— |
— |
92,178
|
— |
93,175
|
8,972 |
Equity
Income |
104,346 |
8,652 |
— |
— |
— |
17,821
|
— |
26,473
|
77,873 |
Global
Emerging Markets |
13,970 |
390 |
— |
— |
— |
10,068
|
— |
10,458
|
3,512 |
Government
& High Quality Bond |
23,432 |
1,460 |
— |
— |
— |
8,829
|
— |
10,289
|
13,143 |
LargeCap
Growth I |
12,176 |
2,730 |
— |
— |
— |
(15,139) |
— |
(12,409) |
24,585 |
LargeCap
S&P 500 Index |
15,080 |
2,925 |
— |
— |
— |
(14,174) |
— |
(11,249) |
26,329
|
LargeCap
S&P 500 Managed Volatility Index |
654 |
202 |
— |
— |
— |
(1,363) |
— |
(1,162) |
1,816
|
MidCap |
26,956 |
198 |
— |
— |
— |
24,978
|
— |
25,176
|
1,780
|
Principal
Capital Appreciation |
1,772 |
47 |
— |
— |
— |
1,305
|
— |
1,351
|
421
|
Short-Term
Income |
18,394 |
450 |
— |
— |
— |
13,888
|
— |
14,338
|
4,056
|
SmallCap |
41,911 |
1,369 |
— |
— |
— |
28,217
|
— |
29,586
|
12,325
|
The
services provided by The Bank of New York Mellon, as securities lending agent
for the Funds, include: coordinating, with the Funds, the selection of
securities to be loaned; negotiating loan terms; monitoring the value of
securities loaned and corresponding collateral, marking to market daily;
coordinating collateral movements; monitoring dividends; and transferring,
recalling, and arranging the return of loaned securities to the Funds upon loan
termination.
MULTIPLE
CLASS STRUCTURE
The
Board has adopted a multiple class plan (the "Multiple Class Plan") pursuant to
SEC Rule 18f-3. The share classes each Fund offers are identified in the chart
included under the heading “History of the Funds”. The share classes offered
under the Multiple Class Plan include Classes 1, 2, and 3 shares, which are
available without any front-end sales charge or contingent deferred sales
charge.
INTERMEDIARY
COMPENSATION
As
of the date of this SAI, the Distributor anticipates that the firms that will
receive additional payments for distribution of the applicable variable
annuities and variable life insurance contracts that include shares of the Funds
as investment options, or for the distribution of the Funds to retirement plans,
or for administrative services (other than Rule 12b-1 fees and the reimbursement
of costs, such as those associated with education, training and marketing
efforts, conferences, ticket charges, and other general marketing expenses)
include, but are not necessarily limited to, the following:
American
General Life Insurance Company
Equitable
Financial Life Insurance Company
Equitable
Financial Life Insurance Company of America
Midland
National Life Insurance Company
New
York Life Insurance and Annuity Corporation
Principal
Life Insurance Company
Principal
National Life Insurance Company
The
United States Life Insurance Company in the City of New York
Thrivent
Financial for Lutherans
The
preceding list is subject to change at any time without notice. Any additions,
modifications, or deletions to the financial intermediaries identified in this
list that have occurred since the date noted above are not reflected. To obtain
a current list, call 1-800-222-5852.
See
the Distribution Plans and Intermediary Compensation section of the Prospectus
for additional information.
BROKERAGE
ALLOCATION AND OTHER PRACTICES
Brokerage
on Purchases and Sales of Securities
All
orders for the purchase or sale of portfolio securities are placed on behalf of
a Fund by PGI or by the Fund’s sub-advisor pursuant to the terms of the
applicable sub-advisory agreement. In distributing brokerage business arising
out of the placement of orders for the purchase and sale of securities for any
Fund, the objective of PGI and of each Fund’s sub-advisor is to obtain the best
overall terms. In pursuing this objective, PGI or the sub-advisor considers all
matters it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and executing capability of
the broker or dealer, confidentiality, including trade anonymity, and the
reasonableness of the commission, if any (for the specific transaction and on a
continuing basis). This may mean in some instances that PGI or a sub-advisor
will pay a broker commissions that are in excess of the amount of commissions
another broker might have charged for executing the same transaction when PGI or
the sub-advisor believes that such commissions are reasonable in light of a) the
size and difficulty of the transaction, b) the quality of the execution
provided, and c) the level of commissions paid relative to commissions paid by
other institutional investors. Such factors are viewed both in terms of that
particular transaction and in terms of all transactions that broker executes for
accounts over which PGI or the sub-advisor exercises investment discretion. The
Board has also adopted a policy and procedure designed to prevent each of the
Funds from compensating a broker/dealer for promoting or selling Fund shares by
directing brokerage transactions to that broker/dealer for the purpose of
compensating the broker/dealer for promoting or selling Fund shares. Therefore,
PGI or a sub-advisor may not compensate a broker/dealer for promoting or selling
Fund shares by directing brokerage transactions to that broker/dealer for the
purpose of compensating the broker/dealer for promoting or selling Fund shares.
PGI or a sub-advisor may purchase securities in the over-the-counter market,
utilizing the services of principal market makers unless better terms can be
obtained by purchases through brokers or dealers, and may purchase securities
listed on the NYSE from non-Exchange members in transactions off the
Exchange.
PGI
or a sub-advisor may give consideration in the allocation of business to
services performed by a broker (e.g., the furnishing of statistical data and
research generally consisting of, but not limited to, information of the
following types: analyses and reports concerning issuers, industries, economic
factors, and trends; portfolio strategy; performance of client accounts; and
access to research analysts, corporate management personnel, and industry
experts). If any such allocation is made, the primary criteria used will be to
obtain the best overall terms for such transactions or terms that are reasonable
in relation to the research or brokerage services provided by the broker or
dealer when viewed in terms of either a particular transaction or a
sub-advisor’s overall responsibilities to the accounts under its management. PGI
or a sub-advisor generally pays additional commission amounts for such research
services. Statistical data and research information received from brokers or
dealers as described above may be useful in varying degrees and PGI or a
sub-advisor may use it in servicing some or all of the accounts it
manages.
PGI
and the sub-advisors allocated portfolio transactions for the Funds indicated in
the following table to certain brokers for the year ended December 31, 2023 due
to research services provided by such brokers. The table also indicates the
commissions paid to such brokers as a result of these portfolio
transactions.
|
|
|
|
|
|
|
| |
Account |
Amount
of Transactions Because of Research Services Provided |
Related Commissions
Paid |
Blue
Chip |
$4,337,765 |
$953 |
Diversified
International |
131,583,525 |
75,159 |
Equity
Income |
184,011,224 |
70,292 |
Global
Emerging Markets |
17,658,667 |
10,756 |
LargeCap
Growth I |
65,979,753 |
16,055 |
LargeCap
S&P 500 Index |
142,592,867 |
33,214 |
LargeCap
S&P 500 Managed Volatility Index |
23,499,385 |
3,965 |
MidCap |
127,629,570 |
38,882 |
Principal
Capital Appreciation |
111,398,389 |
32,156 |
Real
Estate Securities |
39,541,830 |
22,802 |
SmallCap |
59,592,536 |
43,145 |
Subject
to the rules promulgated by the SEC, as well as other regulatory requirements,
the Board has approved procedures whereby a Fund may purchase securities that
are offered in underwritings in which an affiliate of a sub‑advisor, or PGI,
participates. These procedures prohibit a Fund from directly or indirectly
benefiting a sub‑advisor affiliate or PGI affiliate in connection with such
underwritings. In addition, for underwritings where a sub-advisor affiliate or
PGI participates as a principal underwriter, certain restrictions may apply that
could, among other things, limit the amount of securities that a Fund could
purchase in the underwritings. The sub-advisor shall determine the amounts and
proportions of orders allocated to the sub-advisor or affiliate. The Board will
receive quarterly reports on these transactions.
The
Board has approved procedures that permit a Fund to effect a purchase or sale
transaction between the Fund and any other affiliated investment company or
between a Fund and affiliated persons of the Fund under limited circumstances
prescribed by SEC Rules. Any such transaction must be effected without any
payment other than a cash payment for the securities, for which a market
quotation is readily available, at the current market price; must be consistent
with the investment objective, investment strategy, and risk profile of the
Fund; and no brokerage commission or fee (except for customary transfer fees),
or other remuneration may be paid in connection with the transaction. The Board
will receive quarterly reports on these transactions.
The
Board has also approved procedures that permit a Fund’s sub-advisor(s) to place
portfolio trades with an affiliated broker under circumstances prescribed by SEC
Rules 17e-1 and 17a-10. The procedures require that total commissions, fees, or
other remuneration received or to be received by an affiliated broker must be
reasonable and fair compared to the commissions, fees, or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable time period. The Board will receive quarterly reports on these
transactions.
Purchases
and sales of debt securities and money market instruments usually are principal
transactions; portfolio securities are normally purchased directly from the
issuer or from an underwriter or marketmakers for the securities. Such
transactions are usually conducted on a net basis with a Fund paying no
brokerage commissions. Purchases from underwriters include a commission or
concession paid by the issuer to the underwriter, and the purchases from dealers
serving as marketmakers include the spread between the bid and asked
prices.
The
following table shows the brokerage commissions paid during the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
Brokerage Commissions Paid for Periods Ended December 31 |
Account/Portfolio |
2023 |
| 2022 |
| 2021 |
|
Blue
Chip |
$ |
1,411 |
|
| $
2,268 |
| $
775 |
|
Bond
Market Index |
7,400 |
|
| 7,300 |
| 6,650 |
|
Core
Plus Bond |
0 |
|
| 1,527 |
| 3,615 |
|
Diversified
Balanced |
— |
|
| — |
|
| — |
| |
Diversified
Balanced Adaptive Allocation |
6,982 |
|
(1) |
18,582 |
| 4,228 |
|
Diversified
Balanced Strategic Allocation |
— |
|
(1) |
— |
|
| — |
| |
Diversified
Growth |
— |
|
| — |
|
| — |
| |
Diversified
Growth Adaptive Allocation |
50,588 |
|
(1) |
94,105 |
| 27,768 |
|
Diversified
Growth Strategic Allocation |
— |
|
(1) |
— |
|
| — |
| |
Diversified
Income |
— |
|
| — |
|
| — |
| |
Diversified
International |
176,457 |
|
| 204,914 |
| 201,377 |
|
Equity
Income |
107,213 |
|
| 140,788 |
| 101,431 |
|
Global
Emerging Markets |
52,622 |
|
| 50,961 |
| 64,730 |
|
Government
& High Quality Bond |
— |
|
| — |
|
| — |
| |
LargeCap
Growth I |
52,978 |
|
| 47,330 |
| 40,392 |
|
LargeCap
S&P 500 Index |
58,610 |
|
| 94,680 |
| 58,598 |
|
LargeCap
S&P 500 Managed Volatility Index |
11,622 |
|
| 15,040 |
| 12,624 |
|
MidCap |
74,010 |
|
| 80,733 |
| 79,935 |
|
Principal
Capital Appreciation |
61,002 |
|
| 56,180 |
| 32,830 |
|
Principal
LifeTime 2020 |
— |
|
| — |
|
| — |
| |
Principal
LifeTime 2030 |
— |
|
| — |
|
| — |
| |
Principal
LifeTime 2040 |
— |
|
| — |
|
| — |
| |
Principal
LifeTime 2050 |
— |
|
| — |
|
| — |
| |
Principal
LifeTime 2060 |
— |
|
| — |
|
| — |
| |
Principal
LifeTime Strategic Income |
— |
|
| — |
|
| — |
| |
Real
Estate Securities |
38,247 |
|
| 40,599 |
| 31,243 |
|
SAM
Balanced |
7,690 |
|
| 20,150 |
| 19,170 |
|
SAM
Conservative Balanced |
1,622 |
|
| 4,747 |
| 5,060 |
|
SAM
Conservative Growth |
4,880 |
|
| 13,143 |
| 10,870 |
|
SAM
Flexible Income |
1,520 |
|
| 12,483 |
| 1,550 |
|
SAM
Strategic Growth |
5,620 |
|
| 8,275 |
| 8,940 |
|
Short-Term
Income |
— |
|
| — |
|
| — |
|
SmallCap |
84,807 |
|
| 75,255 |
| 130,531 |
|
U.S.
LargeCap Buffer January |
4,499 |
|
| 1,642 |
|
(3) |
— |
| |
U.S.
LargeCap Buffer April |
8,055 |
|
(2) |
— |
|
| — |
| |
U.S.
LargeCap Buffer July |
10,588 |
|
| 1,958 |
|
(4) |
— |
| |
U.S.
LargeCap Buffer October |
1,587 |
|
| 2,267 |
|
(5) |
— |
| |
(1)Effective
May 1, 2024, the Diversified Balanced Managed Volatility Account changed its
name to Diversified Balanced Strategic Allocation Account; the Diversified
Balanced Volatility Control Account changed its name to Diversified Balanced
Adaptive Allocation Account; the Diversified Growth Managed Volatility Account
changed its name to Diversified Growth Strategic Allocation Account; and the
Diversified Growth Volatility Control Account changed its name to Diversified
Growth Adaptive Allocation Account.
(2)Period
from March 29, 2023, the date operations commenced, through December 31,
2023.
(3)Period
from December 28, 2022, date operations commenced, through December 31,
2022.
(4)Period
from June 29, 2022, date operations commenced, through December 31,
2022.
(5)Period
from September 29, 2022, date operations commenced, through December 31,
2022.
Primary
reasons for changes in brokerage commissions for those Funds with relatively
greater variations for the three years were changes in commission rates; changes
in Fund size; changes in market conditions; changes in money managers of certain
Funds; and implementation of investment strategies. In some cases, such events
required substantial portfolio restructurings, resulting in increased securities
transactions and brokerage commissions.
None
of the Funds paid brokerage commissions to brokers affiliated with PGI or such
Fund’s sub-advisors for the three most recent fiscal years.
The
following table indicates the value of each Fund’s aggregate holdings of the
securities of its regular brokers or dealers for the fiscal year ended December
31, 2023.
|
|
|
|
|
|
|
| |
Holdings
of Securities of Principal Variable Contracts Funds, Inc. Regular Brokers
and Dealers |
Account |
Broker
or Dealer |
Holdings (in
thousands) |
Bond
Market Index |
Bank
of Montreal |
$ |
1,385 |
|
| Barclays
PLC |
4,213 |
|
| Citigroup
Inc |
9,582 |
|
| Goldman
Sachs Group Inc/The |
8,897 |
|
| Jefferies
Group LLC |
723 |
|
| JPMorgan
Chase & Co |
13,688 |
|
| Morgan
Stanley |
11,348 |
|
| Nomura
Holdings Inc |
1,571 |
|
| UBS
Group AG |
483 |
|
| Wells
Fargo & Co |
10,675 |
|
Core
Plus Bond |
Bank
of Montreal |
$ |
207 |
|
| Barclays
PLC |
968 |
|
| BNP
Paribas SA |
382 |
|
| Citigroup
Inc |
1,237 |
|
| Goldman
Sachs Group Inc/The |
966 |
|
| JPMorgan
Chase & Co |
1,758 |
|
| Morgan
Stanley |
3,571 |
|
| UBS
Group AG |
469 |
|
| Wells
Fargo & Co |
822 |
|
Equity
Income |
JPMorgan
Chase & Co |
$ |
22,551 |
|
| Morgan
Stanley |
19,555 |
|
LargeCap
S&P 500 Index |
Citigroup
Inc |
$ |
6,742 |
|
| Goldman
Sachs Group Inc/The |
8,615 |
|
| JPMorgan
Chase & Co |
33,675 |
|
| Morgan
Stanley |
8,070 |
|
| Wells
Fargo & Co |
12,241 |
|
LargeCap
S&P 500 Managed Volatility Index |
Citigroup
Inc |
$ |
407 |
|
| Goldman
Sachs Group Inc/The |
520 |
|
| JPMorgan
Chase & Co |
2,031 |
|
| Morgan
Stanley |
487 |
|
| Wells
Fargo & Co |
738 |
|
Principal
Capital Appreciation |
JPMorgan
Chase & Co |
$ |
4,509 |
|
| Morgan
Stanley |
1,954 |
|
Short-Term
Income |
Bank
of Montreal |
$ |
553 |
|
| Barclays
PLC |
957 |
|
| BNP
Paribas SA |
403 |
|
| Citigroup
Inc |
1,498 |
|
| Goldman
Sachs Group Inc/The |
1,363 |
|
| JPMorgan
Chase & Co |
1,940 |
|
| Morgan
Stanley |
1,758 |
|
| UBS
Group AG |
1,380 |
|
| Wells
Fargo & Co |
1,639 |
|
SmallCap
|
Stifel
Financial Corp |
$ |
1,404 |
|
Allocation
of Trades
By
the Manager (PGI).
PGI has its own trading platform and personnel that perform trade-related
functions. Where applicable, PGI trades on behalf of its own clients. Such
transactions are executed in accordance with PGI’s trading policies and
procedures, including, but not limited to, trade allocations and order
aggregation, purchase of new issues, and directed brokerage. PGI acts as
discretionary investment advisor for a variety of individual accounts, ERISA
accounts, registered investment companies, insurance company separate accounts,
and public employee retirement plans and places orders to trade portfolio
securities for each of these accounts. Managing multiple accounts may give rise
to potential conflicts of interest including, for example, conflicts among
investment strategies and conflicts in the allocation of investment
opportunities. PGI has adopted and implemented policies and procedures that it
believes address the potential conflicts associated with managing accounts for
multiple clients and are designed to ensure that all clients are treated fairly
and equitably. These procedures include allocation policies and procedures and
internal review processes.
If,
in carrying out the investment objectives of its respective clients, occasions
arise in which PGI deems it advisable to purchase or sell the same equity
securities for two or more client accounts at the same or approximately the same
time, PGI may submit the orders to purchase or sell to a broker/dealer for
execution on an aggregate or “bunched” basis. PGI will not aggregate orders
unless it believes that aggregation is consistent with (1) its duty to seek best
execution and (2) the terms of its investment advisory agreements. In
distributing the securities purchased or the proceeds of sale to the client
accounts participating in a bunched trade, no advisory account will be favored
over any other account and each account that participates in an aggregated order
will participate at the average share price for all transactions of PGI relating
to that aggregated order on a given business day, with all transaction costs
relating to that aggregated order shared on a pro rata basis.
Because
of PGI’s role as investment advisor to each of the Funds and discretionary
advisor to funds of funds and some underlying funds, conflicts may arise in
connection with the services PGI provides to funds of funds with respect to
asset class and target weights for each asset class and investments made in
underlying funds. PGI also provides advisory services to funds that have
multiple investment advisors (“Multi-Managed Funds”). These services include
determining the portion of a Multi-Managed Fund’s portfolio to be allocated to
an advisor. Conflicts may arise in connection with the services PGI provides to
the funds of funds that it manages, in connection with the services PGI provides
to other funds of funds and Multi-Managed Funds, for the following
reasons:
•PGI
serves as the investment advisor to the underlying funds in which the funds of
funds invest, sometimes as the discretionary advisor, and an affiliated
investment advisor may serve as sub-advisor to the funds in which a fund of
funds may invest. This raises a potential conflict because PGI’s or an
affiliated company’s profit margin may vary depending upon the underlying fund
in which the funds of funds invest.
•PGI
or an affiliated person may serve as investment advisor to a portion of a
Multi-Managed Fund. In addition, PGI might recommend that an affiliated person
serve as sub-advisor to a portion of a Multi-Managed Fund. This raises a
potential conflict because PGI’s or an affiliated investment advisor’s profit
margin may vary depending on the extent to which a Multi-Managed Fund’s assets
are managed by PGI or allocated to an affiliated advisor.
•A
sub-advisor may determine that the asset class PVC has hired it to manage (for
example, small capitalization growth stocks) can be managed effectively only by
limiting the amount of money devoted to the purchase of securities in the asset
class. In such a case, a sub-advisor may impose a limit on the amount of money
PVC may place with the sub-advisor for management. When a sub-advisor for two or
more PVC Funds imposes such a limit, PGI and/or the sub-advisor may need to
determine which Fund will be required to limit its investment in the asset class
and the degree to which the Fund will be so limited. PGI and the sub-advisor may
face a conflict of interest in making its determination.
PGI
implements the following in an effort to limit the appearance of conflicts of
interest and the opportunity for events that could trigger an actual conflict of
interest:
•PGI
implements a process for selecting underlying funds that emphasizes the
selection of funds within the Principal Funds Complex that are determined to be
consistent with the fund of fund’s objective and principal investment
strategies. However, PGI will select an unaffiliated underlying fund managed by
an unaffiliated sub-advisor when deemed necessary or appropriate based upon a
consideration of the Fund’s objective and investment strategies and available
expertise and resources within the Principal organization.
•PGI
uses a process to select investment advisors that emphasizes the selection of
PGI or Principal-affiliated sub-advisors that are determined to be qualified
under PGI’s due diligence process. However, PGI will select an unaffiliated
sub-advisor to manage all or a portion of a Fund’s portfolio when deemed
necessary or appropriate based upon a consideration of the Fund’s objective and
investment strategies and available expertise and resources within the Principal
organization.
•PGI
provides ongoing oversight of the Funds’ investments to monitor adherence to
their investment program.
By
the Sub-Advisors. The
portfolio managers of each sub-advisor manage a number of accounts other than
the Funds’ portfolios, including in some instances proprietary or personal
accounts. Managing multiple accounts may give rise to potential conflicts of
interest, including, for example, conflicts among investment strategies,
allocating time and attention to account management, allocation of investment
opportunities, knowledge of and timing of fund trades, selection of brokers and
dealers, and compensation for the account. Each has adopted and implemented
policies and procedures that it believes address the potential conflicts
associated with managing accounts for multiple clients and personal accounts and
are designed to ensure that all clients and client accounts are treated fairly
and equitably. These procedures include allocation policies and procedures,
personal trading policies and procedures, internal review processes, and, in
some cases, review by independent third parties.
Investments
the sub-advisor deems appropriate for a Fund’s portfolio may also be deemed
appropriate by it for other accounts. Therefore, the same security may be
purchased or sold at or about the same time for both the Fund’s portfolio and
other accounts. In such circumstances, the sub-advisor may determine that orders
for the purchase or sale of the same security for the Fund’s portfolio and one
or more other accounts should be combined. In this event, the transactions will
be priced and allocated in a manner deemed by the sub-advisor to be equitable
and in the best interests of the Fund’s portfolio and such other accounts. While
in some instances combined orders could adversely affect the price or volume of
a security, the Fund believes that its participation in such transactions on
balance will produce better overall results for the Fund.
SHAREHOLDER
RIGHTS
Each
Fund shareholder is eligible to vote, either in person or by proxy, at all
shareholder meetings for that Fund. This includes the right to vote on the
election of board members, selection of the independent registered public
accounting firm, and other matters submitted to meetings of shareholders of the
Fund. Each share has equal rights with every other share of the Fund as to
dividends, earnings, voting, assets, and redemption. Shares are fully paid,
non-assessable, and have no preemptive or appraisal rights. Shares of a Fund are
issued as full or fractional shares. Each fractional share has proportionately
the same rights including voting as are provided for a full share. Shareholders
of the Fund may remove any board member with or without cause by the vote of a
majority of the votes entitled to be cast at a meeting of all Fund
shareholders.
A
quorum must be present at a meeting of shareholders for business to be
transacted. PVC’s Bylaws state that a quorum is the presence in person or by
proxy of the holders of one-third of the shares of capital stock of PVC or, when
the meeting relates to a certain Fund, that Fund, issued and outstanding and
entitled to vote on the record date.
Certain
proposals presented to shareholders for approval require the vote of a “majority
of the outstanding voting securities,” which is a term defined in the 1940 Act
to mean, with respect to a Fund, the affirmative vote of the lesser of 1) 67% or
more of the voting securities of the Fund present at the meeting of that Fund,
if the holders of more than 50% of the outstanding voting securities of the Fund
are present in person or by proxy, or 2) more than 50% of the outstanding voting
securities of the Fund.
PVC’s
Bylaws provide that PVC does not need to hold an annual meeting of shareholders
unless required by applicable law, including under the 1940 Act if required for
the following actions: election of board members, approval of an investment
advisory agreement, ratification of the selection
of the independent registered public accounting firm, and approval of the
distribution agreement. PVC intends to hold shareholder meetings only when
required by law and at such other times when the Board deems it to be
appropriate.
See
the “Proxy Voting Policies and Procedures” section below for information
regarding Principal Life’s process for voting shares attributable to variable
products.
Shareholder
inquiries should be directed to: Principal Variable Contracts Funds, Inc., 711
High Street, Des Moines, IA 50392.
PRICING
OF FUND SHARES
Each
Fund’s shares are bought and sold at the current net asset value (“NAV”) per
share. Each Fund’s NAV for each class is calculated each day the New York Stock
Exchange (“NYSE”) is open, as of the close of business of the NYSE (normally
3:00 p.m. Central Time). The NAV of Fund shares is not determined on days the
NYSE is closed (generally, New Year’s Day; Martin Luther King, Jr. Day;
Washington’s Birthday/Presidents’ Day; Good Friday; Memorial Day; Juneteenth;
Independence Day; Labor Day; Thanksgiving Day; and Christmas). 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 proper form.
The
Funds will not treat an intraday unscheduled disruption in NYSE trading as a
closure of the NYSE and will price shares as of 3:00 p.m. Central Time, if the
particular disruption directly affects only the NYSE.
For
all Funds 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, and
•dividing
the remainder by the total number of shares owned in that class.
In
determining NAV, securities listed on an Exchange, the Nasdaq National Market,
and any foreign markets within the Western Hemisphere are valued at the closing
prices on such markets, or if such price is lacking for the trading period
immediately preceding the time of determination, such securities are valued at
their current bid price.
Municipal
securities held by the Funds are traded primarily in the over-the-counter
market. Valuations of such securities are furnished by one or more pricing
services employed by the Funds and are based upon appraisals obtained by a
pricing service, in reliance upon information concerning market transactions and
quotations from recognized municipal securities dealers.
Other
securities that are traded on the over-the-counter market are valued at their
closing bid prices. Each Fund will determine the market value of individual
securities held by it, by using prices provided by one or more professional
pricing services that may provide market prices to other funds, or, as needed,
by obtaining market quotations from independent broker-dealers. Debt securities
with remaining maturities of sixty days or less for which market quotations and
information furnished by a third-party pricing service are not readily available
will be valued at amortized cost, which approximates current value. Securities
for which quotations are not readily available, and other assets, are valued at
fair value determined in good faith under procedures established by and under
the supervision of the Board.
A
Fund’s securities may be traded on foreign securities markets that close each
day prior to the time the NYSE closes. In addition, foreign securities trading
generally or in a particular country or countries may not take place on all
business days in New York. The Fund has adopted policies and procedures to “fair
value” some or all securities held by a 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 values of
foreign securities used in computing share price are determined at the time the
foreign market closes. Foreign securities and currencies are 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 NAV of a Fund investing in
foreign securities may change on days when shareholders are unable to purchase
or redeem shares. If the Manager believes that the market value is materially
affected, the share price will be calculated using the policy adopted by the
Fund.
Certain
securities issued by companies in emerging markets may have more than one quoted
valuation at any point in time, sometimes referred to as a “local” price and a
“premium” price. The premium price is often a negotiated price that may not
consistently represent a price at which a specific transaction can be effected.
It is the policy of the Funds to value such securities at prices at which it is
expected those shares may be sold, and PGI is authorized to make such
determinations subject to the oversight of the Board as may from time to time be
necessary.
TAX
CONSIDERATIONS
Qualification
as a Regulated Investment Company
Each
Fund intends to qualify annually to be treated as a regulated investment company
(“RIC”) under the Internal Revenue Code of 1986, as amended (the “IRC”), by
satisfying certain requirements prescribed by Subchapter M of the IRC. To
qualify as a RIC, a Fund must invest in assets that produce types of income
specified in the IRC (“Qualifying Income”). Whether the income from derivatives,
swaps, commodity-linked derivatives, and other commodity/natural
resource-related securities is Qualifying Income is unclear under current law.
Accordingly, a Fund’s ability to invest in certain derivatives, swaps,
commodity-linked derivatives, and other commodity/natural resource-related
securities may be restricted. Further, if a Fund does invest in these types of
securities and the income is not determined to be Qualifying Income, it may
cause the Fund to fail to qualify as a RIC under the IRC for a given year. In
addition, a Fund must satisfy certain diversification tests under the IRC to
qualify as a RIC. If a Fund fails to qualify as a RIC, it will be liable for
taxes, significantly reducing its distributions to shareholders and eliminating
shareholders’ ability to treat distributions (as long- or short-term capital
gains or qualifying dividends) of the Fund in the manner they were received by
the Fund.
Futures
Contracts and Options
As
previously discussed, some of the Funds invest in futures contracts or options
thereon, index options, or options traded on qualified exchanges. For federal
income tax purposes, capital gains and losses on futures contracts or options
thereon, index options, or options traded on qualified exchanges are generally
treated as 60% long-term and 40% short-term. In addition, the Funds must
recognize any unrealized gains and losses on such positions held at the end of
the fiscal year. A Fund may elect out of such tax treatment, however, for a
futures or options position that is part of an “identified mixed straddle” such
as a put option purchased with respect to a portfolio security. Gains and losses
on futures and options included in an identified mixed straddle are considered
100% short-term, and unrealized gains or losses on such positions are not
realized at year-end. The straddle provisions of the IRC may require the
deferral of realized losses to the extent that a Fund has unrealized gains in
certain offsetting positions at the end of the fiscal year. The IRC may also
require recharacterization of all or a part of losses on certain offsetting
positions from short-term to long-term, as well as adjustment of the holding
periods of straddle positions.
International
Funds
Some
foreign securities purchased by the Funds may be subject to foreign withholding
taxes that could reduce the yield on such securities. The amount of such foreign
taxes is expected to be insignificant. Shareholders of the Funds that invest in
foreign securities may be entitled to claim a credit or deduction with respect
to foreign taxes. The Funds may from year to year make an election to pass
through such taxes to shareholders. If such election is not made, any foreign
taxes paid or accrued will represent an expense to each affected Fund that will
reduce its investment company taxable income. Certain Funds may purchase
securities of certain foreign corporations considered to be passive foreign
investment companies by the IRS. In order to avoid taxes and interest that must
be paid by the Funds if these instruments appreciate in value, the Funds may
make various elections permitted by the tax laws. However, these elections could
require that the Funds recognize additional taxable income, which in turn must
be distributed. In addition, the Fund’s investments in foreign securities or
foreign currencies may increase or accelerate the Fund’s recognition of ordinary
income and may affect the timing or amount of the Fund’s
distributions.
Under
the Foreign Account Tax Compliance Act (“FATCA”), a Fund may be required to
withhold a 30% tax on (a) dividends paid by the Fund, and (b) certain capital
gain distributions and/or the proceeds arising from the sale of Fund shares paid
by the Fund after December 31, 2018, to certain foreign entities, referred to as
foreign financial institutions or non-financial foreign entities, that fail to
comply (or be deemed compliant) with extensive new reporting and withholding
requirements designed to inform the U.S. Department of the Treasury of
U.S.-owned foreign investment accounts. The IRS recently issued proposed
regulations indicating its intent to eliminate the 30% withholding tax on gross
proceeds. A Fund may disclose the information that it receives from its
shareholders to the IRS, non-U.S. taxing authorities or other parties as
necessary to comply with FATCA. Withholding also may be required if a foreign
entity that is a shareholder of a Fund fails to provide the Fund with
appropriate certifications or other documentation concerning its status under
FATCA.
PORTFOLIO
HOLDINGS DISCLOSURE
The
portfolio holdings of any Fund that is a fund of funds are shares of underlying
mutual funds; holdings of any fund of funds may be made available upon request.
In
addition, the Funds may publish month-end portfolio holdings information for
each Fund’s portfolio on the www.PrincipalAM.com website on the thirteenth
business day of the following month. The
Funds may also occasionally publish information on the websites relating to
specific events, such as the impact of a natural disaster, corporate debt
default, or similar events on portfolio holdings. The Funds may also
occasionally publish information on the websites concerning the removal,
addition, or change in weightings of underlying funds in which the funds of
funds invest. It is the Funds’ policy to disclose only public information
regarding portfolio holdings (i.e., information published on the websites or
filed with the SEC), except as described below.
Non-Specific
Information. Under
the Portfolio Holdings Disclosure Policy, the Funds may distribute non-specific
information about the Funds and/or summary information about the Funds as
requested. Such information will not identify any specific portfolio holding,
but may reflect, among other things, the quality, character, or sector
distribution of a Fund’s holdings. This information may be made available at any
time (or without delay).
Policy.
The
Funds and PGI have adopted a policy of disclosing non-public portfolio holdings
information to third parties only to the extent required by federal law, and to
the following third parties, so long as such third party has agreed, or is
legally obligated, to maintain the confidentiality of the information and to
refrain from using such information to engage in securities
transactions:
1)Daily
to the Funds’ portfolio pricing services, Bloomberg LP, ICE Data Services, J.P.
Morgan PricingDirect, Inc., and IHS Markit Partners, to obtain prices for
portfolio securities;
2)Upon
proper request to government regulatory agencies or to self-regulatory
organizations;
3)As
needed to Ernst & Young LLP, the independent registered public accounting
firm, in connection with the performance of the services provided by Ernst &
Young LLP to the Funds;
4)To
the sub-advisors’ proxy service providers (Broadridge Financial Solutions, LLC,
Glass Lewis & Co., and Institutional Shareholder Services (ISS)) to
facilitate voting of proxies;
5)To
the Funds’ custodian, The Bank of New York Mellon, in connection with the
custodial services it provides to the Funds; and
6)Kessler,
Topaz,
Meltzer
&
Check,
LLP,
in
connection
with
legal
services
it
provides
to
the
Funds.
The
Funds are also permitted to enter into arrangements to disclose portfolio
holdings to other third parties in connection with the performance of a
legitimate business purpose if such third party agrees in writing to maintain
the confidentiality of the information prior to the information being disclosed.
Any such written agreement must be approved by an officer of the Funds, PGI, or
the Fund’s sub-advisor. Approval must be based on a reasonable belief that
disclosure to such other third party is in the best interests of the Fund’s
shareholders. If a conflict of interest is identified in connection with
disclosure to any such third party, the Fund’s or PGI’s Chief Compliance Officer
(“CCO”) must approve such disclosure, in writing, before it occurs. The Funds
currently have disclosure agreements with the following:
|
|
|
|
|
|
|
| |
Abacus
Group LLC |
Clearpar
(Markit) |
LiquidNet |
Abel
Noser |
Confluence
Technologies |
Loomis,
Sayles & Company, LP |
ACA
Compliance Alpha |
Deutsche
Bank |
Markit
WSO Services |
ACA
Market Abuse Surveillance Module |
DTCC
OASYS |
Microsoft
Azure |
Accenture |
Dynamo
Software |
Morgan
Stanley |
Advent
Axys |
Eagle |
Morningstar,
Inc. |
Advent
APX |
Eagle
Investment Systems Corp. |
MSCI |
Advent
Geneva |
Electra |
MSCI
ESG Risk Metrics |
Allvue
Systems |
Electra
Information Systems |
MSCI
- Risk Metrics |
Ashland
Partners |
Essentia
Analytics |
Natixis
Investment Managers |
Askia,
LLC |
Everest
(Allvue Systems) |
Northern
Trust |
Assette |
FactSet |
Northern
Trust Integrated Trading Solutions |
Bank
of America |
FactSet
Research Systems Inc. |
Omgeo
LLC |
Barra |
Financial
Recovery Technologies (FRT) |
PORTIA
(SS&C Technologies) |
BlackRock
Aladdin |
Financial
Tracking Technologies LLC |
Qontigo
(Axioma Risk System) |
BlackRock
Institutional Trust Company, N.A. |
FIS
Global Asset Management |
Russell
Investments Implementation |
Bloomberg
AIM |
FIS
PTA |
Services,
LLC |
Bloomberg
LP |
Global
Trading Analytics |
S3 |
Bloomberg
Port |
Goldman
Sachs |
SEI
Global Services, Inc. |
Bloomberg
Professional Services |
Gresham
Technologies |
SEI
Investments Co |
BNY
Mellon |
ICE
Data Pricing & Reference Data |
SS&C
Advent |
Broadridge
Business Process Outsourcing |
ICE
Liquidity |
SS&C
(Evare) |
Solutions,
LLC |
IHS
Markit LTD |
SS&C
Eze |
Broadridge
Financial Solutions Inc. / |
INDATA |
SS&C
Vision FI |
Proxy
Edge |
Indus
Valley Partners (IVP) |
State
Street Bank & Trust |
Brown
Brothers Harriman |
InvestCloud
Inc |
SWIFT |
Charles
River |
Investment
Company Institute (ICI) |
TSI
(Virtus) |
Charles
River Development |
JP
Morgan |
Virtu
Americas LLC |
Charles
River Trading System |
LexisNexis |
Virtus
Shared Services |
Any
agreement by which any Fund or any party acting on behalf of the Fund agrees to
provide Fund portfolio information to a third party, other than a third party
identified in the policy described above, must be approved prior to information
being provided to the third party, unless the third party is a regulator or has
a duty to maintain the confidentiality of such information and to refrain from
using such information to engage in securities transactions. A written record of
approval will be made by the person granting approval.
The
Funds’ non-public portfolio holdings information policy applies without
variation to individual investors, institutional investors, intermediaries that
distribute the Funds’ shares, third-party service providers, rating and ranking
organizations, and affiliated persons of the Funds. Neither the Funds nor PGI
nor any other party receives compensation in connection with the disclosure of
Fund portfolio information. The Funds’ CCO will periodically, but no less
frequently than annually, review the Funds’ portfolio holdings disclosure policy
and recommend changes the CCO believes are appropriate, if any, to the Board. In
addition, the Board must approve any change in the Funds’ portfolio holdings
disclosure policy that would expand the distribution of such
information.
PROXY
VOTING POLICIES AND PROCEDURES
The
Board has delegated responsibility for decisions regarding proxy voting for
securities held by each Fund to PGI or to the Fund’s sub-advisor, as
appropriate. PGI and each sub-advisor will vote such proxies in accordance with
its proxy policies and procedures, which have been reviewed by the Board,
and
which are found in Appendix B to this SAI. Any material changes to the proxy
policies and procedures will be submitted to the Board for
approval.
The
Funds that operate as funds of funds invest in shares of other Funds and shares
of funds of PFI or PETF. PGI is authorized to vote proxies related to the
underlying funds. If an underlying fund holds a shareholder meeting, in order to
avoid any potential conflict of interest, PGI will vote shares of such fund on
any proposal submitted to the fund’s shareholders in the same proportion as the
votes of other shareholders of the underlying fund.
For
Funds that participate in a securities lending program, the voting rights for
securities that are loaned are transferred to the borrower. Therefore, the
lender (i.e., a Fund) is not entitled to vote the loaned securities, unless it
recalls those securities. Those managing the Fund’s investments may recall
securities for voting purposes when they reasonably believe the ability to vote
such securities outweighs the additional revenue received if such securities
were not recalled.
Principal
Life votes each Fund’s shares allocated to each of its registered separate
accounts and attributable to variable annuity contracts or variable life
insurance policies participating in the separate accounts. The shares are voted
in accordance with instructions received from contract holders, policy owners,
participants, and annuitants. Other shares of each Fund held by each separate
account, including shares for which no timely voting instructions are received,
are voted in proportion to the instructions that are received with respect to
contracts or policies participating in that separate account. Principal Life
will vote the shares based upon the instructions received from contract owners,
regardless of the number of contract owners who provide such instructions. A
potential effect of this proportional voting is that a small number of contract
owners may determine the outcome of a shareholder vote if only a small number of
contract owners provide voting instructions. Shares of each of the Funds held in
the general account of Principal Life or in the unregistered separate accounts
are voted in proportion to the instructions that are received with respect to
contracts and policies participating in its registered and unregistered separate
accounts. If Principal Life determines, under applicable law, that a Fund’s
shares held in one or more separate accounts or in its general account need not
be voted according to the instructions that are received, it may vote those Fund
shares in its own right. Shares held by retirement plans are voted in accordance
with the governing documents of the plans.
Information
regarding how the Funds voted proxies relating to portfolio securities during
the most recent 12-month period ended June 30, 2023, is available, without
charge, upon request, by calling 1-800-222-5852 or by accessing the Funds’ most
recently filed Form N-PX on the SEC website at www.sec.gov.
FINANCIAL
STATEMENTS
The
financial statements of the Funds at December 31, 2023, are incorporated herein
by reference to the Registrant’s most recent Annual
Report to Shareholders
filed with the SEC on Form N-CSR.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Ernst
& Young LLP (700 Nicollet Mall, Suite 500, Minneapolis, MN 55402) is the
independent registered public accounting firm for the Fund Complex.
GENERAL
INFORMATION
LargeCap
S&P 500 Index and LargeCap S&P 500 Managed Volatility Index
Accounts
The
Funds are not sponsored, endorsed, sold, or promoted by S&P Global (“S&P
Global”). S&P Global makes no representation or warranty, express or
implied, to Fund shareholders or any member of the public regarding the
advisability of investing in securities generally or in these Funds particularly
or the ability of the S&P 500 Index to track general stock market
performance. S&P Global’s only relationship to Principal Life Insurance
Company and PGI is the licensing of certain trademarks and trade names of
S&P Global and the S&P 500 Index which are determined, composed, and
calculated by S&P Global without regard to Principal Life Insurance Company,
PGI, or the Funds. S&P Global has no obligation to take the needs of
Principal Life Insurance Company, PGI or Fund shareholders into consideration in
determining, composing or calculating the S&P 500 Index. S&P Global is
not responsible for and has not participated in the determination of the prices
of the Funds or the timing of the issuance or sale of the Funds or in the
determination or calculation of the equation by which the Funds are to be
converted into cash. S&P Global has no obligation or liability in connection
with the administration, marketing, or trading of the Funds.
S&P
GLOBAL DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA CONTAINED THEREIN AND S&P GLOBAL SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P GLOBAL
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY PRINCIPAL
LIFE INSURANCE COMPANY, PRINCIPAL, FUND SHAREHOLDERS, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
S&P GLOBAL MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE
WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P GLOBAL HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.
CONTROL
PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Effective
May 1, 2024, the Diversified Balanced Managed Volatility Account changed its
name to Diversified Balanced Strategic Allocation Account; the Diversified
Balanced Volatility Control Account changed its name to Diversified Balanced
Adaptive Allocation Account; the Diversified Growth Managed Volatility Account
changed its name to Diversified Growth Strategic Allocation Account; and the
Diversified Growth Volatility Control Account changed its name to Diversified
Growth Adaptive Allocation Account.
The
following list identifies shareholders who own more than 25% of the voting
securities of a Fund as of March 31, 2024. It is presumed that a person who owns
more than 25% of the voting securities of a Fund controls the Fund. A control
person could control the outcome of proposals presented to shareholders for
approval. The information is listed in alphabetical order by Fund.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Account/Portfolio
Name |
Percentage of
Voting Securities Owned of Each Account |
Control
Person – Name and Address |
Jurisdiction Under Which
the Company is Organized (when control person is
a company) |
Parent
of Control Person (when control person is a
company) |
BLUE
CHIP |
86.84% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
BOND
MARKET INDEX |
43.80% |
DIVERSIFIED
GROWTH ACCOUNT |
MARYLAND |
PRINCIPAL |
|
| ATTN
MUTUAL FUND ACCOUNTING H221 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
CORE
PLUS BOND |
97.75% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
DIVERSIFIED
BALANCED |
99.71% |
PRINCIPAL
LIFE INSURANCE CO |
IOWA |
PRINCIPAL |
|
| RIS
FIN MGMT B&C T-005-W40 |
| FINANCIAL
GROUP |
|
| THE
PRINCIPAL FINANCIAL GROUP |
| |
|
| DES
MOINES IA 50392-0001 |
| |
DIVERSIFIED
BALANCED |
99.99% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
ADAPTIVE
ALLOCATION |
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
DIVERSIFIED
BALANCED |
99.99% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
STRATEGIC
ALLOCATION |
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
DIVERSIFIED
GROWTH |
99.97% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
DIVERSIFIED
GROWTH |
99.99% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
ADAPTIVE
ALLOCATION |
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
DIVERSIFIED
GROWTH |
99.99% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
STRATEGIC
ALLOCATION |
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
DIVERSIFIED
INCOME |
99.96% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Account/Portfolio
Name |
Percentage of
Voting Securities Owned of Each Account |
Control
Person – Name and Address |
Jurisdiction Under Which
the Company is Organized (when control person is
a company) |
Parent
of Control Person (when control person is a
company) |
DIVERSIFIED
INTERNATIONAL |
98.93% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
EQUITY
INCOME |
51.81% |
PRINCIPAL
LIFE INSURANCE CO |
IOWA |
PRINCIPAL |
|
| RIS
FIN MGMT B&C T-005-W40 |
| FINANCIAL
GROUP |
|
| PRINCIPAL
FINANCIAL GROUP |
| |
|
| DES
MOINES IA 50392-0001 |
| |
GLOBAL
EMERGING |
100.00% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
MARKETS |
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
GOVERNMENT
& HIGH |
81.38% |
PRINCIPAL
LIFE INSURANCE CO |
IOWA |
PRINCIPAL |
QUALITY
BOND |
| RIS
FIN MGMT B&C T-005-W40 |
| FINANCIAL
GROUP |
|
| PRINCIPAL
FINANCIAL GROUP |
| |
|
| DES
MOINES IA 50392-0001 |
| |
LARGECAP
GROWTH I |
98.12% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
LARGECAP
S&P 500 INDEX |
48.16% |
DIVERSIFIED
GROWTH ACCOUNT |
MARYLAND |
PRINCIPAL |
|
| ATTN
MUTUAL FUND ACCOUNTING H221 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
LARGECAP
S&P 500 INDEX |
26.28% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
LARGECAP
S&P 500 |
73.38% |
DIVERSIFIED
GROWTH STRATEGIC |
MARYLAND |
PRINCIPAL |
MANAGED
VOLATILITY INDEX |
| ALLOCATION
ACCOUNT |
| FINANCIAL
GROUP |
|
| ATTN
MUTUAL FUND ACCOUNTING H221 |
| |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
LARGECAP
S&P 500 |
26.62% |
DIVERSIFIED
BALANCED STRATEGIC |
MARYLAND |
PRINCIPAL |
MANAGED
VOLATILITY INDEX |
| ALLOCATION
ACCOUNT |
| FINANCIAL
GROUP |
|
| ATTN
MUTUAL FUND ACCOUNTING H221 |
| |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
MIDCAP |
91.11% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
PRINCIPAL
CAPITAL |
68.73% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
APPRECIATION |
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
PRINCIPAL
LIFETIME 2020 |
100.00% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Account/Portfolio
Name |
Percentage of
Voting Securities Owned of Each Account |
Control
Person – Name and Address |
Jurisdiction Under Which
the Company is Organized (when control person is
a company) |
Parent
of Control Person (when control person is a
company) |
PRINCIPAL
LIFETIME 2030 |
100.00% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
PRINCIPAL
LIFETIME 2040 |
100.00% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
PRINCIPAL
LIFETIME 2050 |
100.00% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
PRINCIPAL
LIFETIME 2060 |
100.00% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
PRINCIPAL
LIFETIME |
100.00% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
STRATEGIC
INCOME |
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
REAL
ESTATE SECURITIES |
88.45% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
SAM
BALANCED |
77.69% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
SAM
CONSERVATIVE |
88.99% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
BALANCED |
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
SAM
CONSERVATIVE |
54.10% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
GROWTH |
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
SAM
CONSERVATIVE |
36.95% |
FARMERS
NEW WORLD LIFE INS CO |
CALIFORNIA |
FARMER'S
|
GROWTH |
| ATTN
SEGREGATED ASSETS |
| INSURANCE
GROUP |
|
| 3120
139TH AVE SW SUITE 300 |
| |
|
| BELLEVUE
WA 98005 |
| |
SAM
FLEXIBLE INCOME |
90.95% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
SAM
STRATEGIC GROWTH |
54.22% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Account/Portfolio
Name |
Percentage of
Voting Securities Owned of Each Account |
Control
Person – Name and Address |
Jurisdiction Under Which
the Company is Organized (when control person is
a company) |
Parent
of Control Person (when control person is a
company) |
SAM
STRATEGIC GROWTH |
42.64% |
FARMERS
NEW WORLD LIFE INS CO |
CALIFORNIA |
FARMER'S |
|
| ATTN
SEGREGATED ASSETS |
| INSURANCE
GROUP |
|
| 3120
139TH AVE SW SUITE 300 |
| |
|
| BELLEVUE
WA 98005 |
| |
SHORT-TERM
INCOME |
99.15% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
SMALLCAP |
95.58% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
US
LARGECAP BUFFER |
100.00% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
JANUARY
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
| |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
US
LARGECAP BUFFER APRIL |
100.00% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
US
LARGECAP BUFFER JULY |
100.00% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
|
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
US
LARGECAP BUFFER |
100.00% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL |
OCTOBER |
| ATTN
IND ACCTNG G-12-S41 |
| FINANCIAL
GROUP |
|
| 711
HIGH ST |
| |
|
| DES
MOINES IA 50392-0001 |
| |
Funds
that operate as funds of funds and Principal Life Insurance Company will vote in
the same proportion as shares of the Funds owned by other shareholders.
Therefore, neither the funds of funds nor Principal Life Insurance Company
exercise voting discretion.
Principal
Holders of Securities
The
Registrant is unaware of any persons who own beneficially (but are not
shareholders of record) 5% or more of any class of the Funds’ outstanding
shares. The following list identifies the shareholders of record who own 5% or
more of any class of the Funds’ outstanding shares as of March 31, 2024. The
list is presented in alphabetical order by Fund.
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
BLUE
CHIP, Class 3 |
65.41% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
BLUE
CHIP, Class 3 |
12.92% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
BLUE
CHIP, Class 3 |
7.20% |
MIDLAND
NATIONAL LIFE |
|
| 8300
MILLS CIVIC PKWY |
|
| WDM
IA 50266-3833 |
BLUE
CHIP, Class 3 |
5.74% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FLEX
VARIABLE ANNUITY |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
BOND
MARKET INDEX, Class 1 |
43.80% |
DIVERSIFIED
GROWTH ACCOUNT |
|
| ATTN
MUTUAL FUND ACCOUNTING H221 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
BOND
MARKET INDEX, Class 1 |
21.66% |
DIVERSIFIED
GROWTH ADAPTIVE |
|
| ALLOCATION
ACCOUNT |
|
| ATTN
MUTUAL FUND ACCOUNTING H221 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
BOND
MARKET INDEX, Class 1 |
14.87% |
DIVERSIFIED
BALANCED ACCOUNT |
|
| ATTN
MUTUAL FUND ACCOUNTING H221 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
BOND
MARKET INDEX, Class 1 |
6.47% |
DIVERSIFIED
INCOME ACCOUNT |
|
| ATTN
MUTUAL FUND ACCOUNTING H221 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
BOND
MARKET INDEX, Class 1 |
5.03% |
DIVERSIFIED
BALANCED ADAPTIVE |
|
| ALLOCATION
ACCOUNT |
|
| ATTN
MUTUAL FUND ACCOUNTING H221 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
CORE
PLUS BOND, Class 1 |
17.77% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
CORE
PLUS BOND, Class 1 |
14.89% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FLEX
VARIABLE ANNUITY |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
CORE
PLUS BOND, Class 1 |
13.93% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - |
|
| EXECUTIVE
VARIABLE UNIVERSAL LIFE |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
CORE
PLUS BOND, Class 1 |
13.41% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| VUL |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
CORE
PLUS BOND, Class 1 |
11.17% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
CORE
PLUS BOND, Class 1 |
5.98% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| PRINFLEX
LIFE |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
BALANCED ADAPTIVE ALLOCATION, |
100.00% |
PRINCIPAL
LIFE INSURANCE CO CUST |
Class
2 |
| FBO
PRINCIPAL LIFETIME INSURANCE |
|
| SOLUTIONS
II |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
BALANCED ADAPTIVE ALLOCATION, |
100.00% |
PRINCIPAL
GLOBAL INVESTORS LLC |
Class
3 |
| ATTN
SEAN CLINES 801-9A08 |
|
| 801
GRAND AVE |
|
| DES
MOINES IA 50309-8000 |
DIVERSIFIED
BALANCED STRATEGIC ALLOCATION, |
74.77% |
PRINCIPAL
LIFE INSURANCE CO CUST |
Class
2 |
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
BALANCED STRATEGIC ALLOCATION, |
11.68% |
PRINCIPAL
LIFE INSURANCE CO CUST |
Class
2 |
| FBO
PRINCIPAL LIFETIME INSURANCE |
|
| SOLUTIONS
II |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
BALANCED STRATEGIC ALLOCATION, |
10.95% |
PRINCIPAL
LIFE INSURANCE CO CUST |
Class
2 |
| FBO
PRINCIPAL LIFETIME INCOME |
|
| SOLUTIONS |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
DIVERSIFIED
BALANCED STRATEGIC ALLOCATION, |
100.00% |
PRINCIPAL
GLOBAL INVESTORS LLC |
Class
3 |
| ATTN
SEAN CLINES 801-9A08 |
|
| 801
GRAND AVE |
|
| DES
MOINES IA 50309-8000 |
DIVERSIFIED
BALANCED, Class 1 |
44.72% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - |
|
| PRINCIPAL
FLEXIBLE VARIABLE |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
BALANCED, Class 1 |
28.40% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - PRINFLEX |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
BALANCED, Class 1 |
5.62% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - |
|
| FLEXIBLE
VARIABLE LIFE INSURANCE |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
BALANCED, Class 1 |
5.30% |
PRINCIPAL
LIFE INSURANCE CO |
|
| SEPARATE
ACCOUNT B - PREMIER |
|
| RIS
FIN MGMT B&C T-005-W40 |
|
| THE
PRINCIPAL FINANCIAL GROUP |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
BALANCED, Class 2 |
93.73% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
BALANCED, Class 3 |
99.48% |
MIDLAND
NATIONAL LIFE |
|
| 8300
MILLS CIVIC PKWY |
|
| WDM
IA 50266-3833 |
DIVERSIFIED
GROWTH ADAPTIVE ALLOCATION, |
100.00% |
PRINCIPAL
LIFE INSURANCE CO CUST |
Class
2 |
| FBO
PRINCIPAL LIFETIME INSURANCE |
|
| SOLUTIONS
II |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
GROWTH ADAPTIVE ALLOCATION, |
100.00% |
PRINCIPAL
GLOBAL INVESTORS LLC |
Class
3 |
| ATTN
SEAN CLINES 801-9A08 |
|
| 801
GRAND AVE |
|
| DES
MOINES IA 50309-8000 |
DIVERSIFIED
GROWTH STRATEGIC ALLOCATION, |
80.67% |
PRINCIPAL
LIFE INSURANCE CO CUST |
Class
2 |
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
DIVERSIFIED
GROWTH STRATEGIC ALLOCATION, |
9.66% |
PRINCIPAL
LIFE INSURANCE CO CUST |
Class
2 |
| FBO
PRINCIPAL LIFETIME INSURANCE |
|
| SOLUTIONS
II |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
GROWTH STRATEGIC ALLOCATION, |
6.06% |
PRINCIPAL
LIFE INSURANCE CO CUST |
Class
2 |
| FBO
PRINCIPAL LIFETIME INCOME |
|
| SOLUTIONS |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
GROWTH STRATEGIC ALLOCATION, |
100.00% |
PRINCIPAL
GLOBAL INVESTORS LLC |
Class
3 |
| ATTN
SEAN CLINES 801-9A08 |
|
| 801
GRAND AVE |
|
| DES
MOINES IA 50309-8000 |
DIVERSIFIED
GROWTH, Class 2 |
92.85% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
GROWTH, Class 2 |
6.37% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL LIFETIME INSURANCE |
|
| SOLUTIONS
II |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
GROWTH, Class 3 |
98.65% |
MIDLAND
NATIONAL LIFE |
|
| 8300
MILLS CIVIC PKWY |
|
| WDM
IA 50266-3833 |
DIVERSIFIED
INCOME, Class 2 |
63.06% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
INCOME, Class 2 |
35.53% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL LIFETIME INSURANCE |
|
| SOLUTIONS
II |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
INCOME, Class 3 |
100.00% |
MIDLAND
NATIONAL LIFE |
|
| 8300
MILLS CIVIC PKWY |
|
| WDM
IA 50266-3833 |
DIVERSIFIED
INTERNATIONAL, Class 1 |
18.82% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FLEX
VARIABLE ANNUITY |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
INTERNATIONAL, Class 1 |
15.93% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| VUL |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
DIVERSIFIED
INTERNATIONAL, Class 1 |
14.42% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| PRINFLEX
LIFE |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
INTERNATIONAL, Class 1 |
10.50% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - |
|
| EXECUTIVE
VARIABLE UNIVERSAL LIFE |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
INTERNATIONAL, Class 1 |
8.18% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
INTERNATIONAL, Class 1 |
7.73% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
INTERNATIONAL, Class 1 |
6.27% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| VUL
INCOME |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
DIVERSIFIED
INTERNATIONAL, Class 1 |
6.07% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| VUL
II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
EQUITY
INCOME, Class 1 |
16.49% |
TIAA-CREF
LIFE SEPARATE ACCOUNT |
|
| VA-1
OF TIAA-CREF LIFE INS CO |
|
| 8500
ANDREW CARNEGIE BLVD |
|
| MAIL
CODE - E3/N6 |
|
| CHARLOTTE
NC 28262-8500 |
EQUITY
INCOME, Class 1 |
13.34% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
EQUITY
INCOME, Class 1 |
11.13% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FLEX
VARIABLE ANNUITY |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
EQUITY
INCOME, Class 1 |
8.30% |
SAM
STRATEGIC GROWTH PORTFOLIO PVC |
|
| ATTN
MUTUAL FUND ACCOUNTING-H221 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
EQUITY
INCOME, Class 1 |
6.99% |
SAM
CONS GROWTH PORTFOLIO PVC |
|
| ATTN
MUTUAL FUND ACCOUNTING-H221 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
EQUITY
INCOME, Class 1 |
6.84% |
SAM
BALANCED PORTFOLIO PVC |
|
| ATTN
MUTUAL FUND ACCOUNTING-H221 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
EQUITY
INCOME, Class 1 |
6.48% |
PRINCIPAL
LIFE INSURANCE CO |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| PRINCIPAL
FINANCIAL GROUP |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
EQUITY
INCOME, Class 1 |
5.95% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| PRINFLEX
LIFE |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
EQUITY
INCOME, Class 2 |
42.26% |
THRIVENT
FINANCIAL FOR LUTHERANS |
|
| 901
MARQUETTE AVE STE 2500 |
|
| MINNEAPOLIS
MN 55402-3211 |
EQUITY
INCOME, Class 2 |
21.17% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
EQUITY
INCOME, Class 2 |
13.46% |
FARMERS
NEW WORLD LIFE INS CO |
|
| ATTN
SEGREGATED ASSETS |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
EQUITY
INCOME, Class 2 |
8.53% |
SUNAMERICA
ANNUITY & LIFE ASSURANCE CO |
|
| VARIABLE
SEPARATE ACCOUNT |
|
| ATTN
LEGAL DEPARTMENT |
|
| 21650
OXNARD STREET STE 750 |
|
| WOODLAND
HILLS CA 91367-4997 |
EQUITY
INCOME, Class 2 |
7.04% |
FARMERS
NEW WORLD LIFE INS CO |
|
| ATTN
SEGREGATED ASSETS |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
EQUITY
INCOME, Class 3 |
32.31% |
EQUITABLE
LIFE SEPARATE ACCOUNT AR |
|
| U/A
DTD 01/10/2022 |
|
| 1290
AVE OF THE AMERICAS 16TH FL |
|
| NEW
YORK NY 10104-0101 |
EQUITY
INCOME, Class 3 |
31.75% |
MIDLAND
NATIONAL LIFE |
|
| 8300
MILLS CIVIC PKWY |
|
| WDM
IA 50266-3833 |
EQUITY
INCOME, Class 3 |
11.88% |
EQUITABLE
LIFE SEPARATE ACCOUNT A |
|
| U/A
DTD 01/10/2022 |
|
| 1290
AVE OF THE AMERICAS 16TH FL |
|
| NEW
YORK NY 10104-0101 |
EQUITY
INCOME, Class 3 |
11.74% |
EQUITABLE
AMERICA VARIABLE ACCOUNT |
|
| 70A
U/A DTD 01/10/2022 |
|
| 1290
AVENUE OF THE AMERICAS 16TH FL |
|
| NEW
YORK NY 10104-0101 |
EQUITY
INCOME, Class 3 |
11.36% |
EQUITABLE
LIFE SEPARATE ACCOUNT A G |
|
| U/A
DTD 01/10/2022 |
|
| 1290
AVE OF THE AMERICAS 16TH FL |
|
| NEW
YORK NY 10104-0101 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
GLOBAL
EMERGING MARKETS, Class 1 |
19.99% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
GLOBAL
EMERGING MARKETS, Class 1 |
16.09% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FLEX
VARIABLE ANNUITY |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
GLOBAL
EMERGING MARKETS, Class 1 |
10.72% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
GLOBAL
EMERGING MARKETS, Class 1 |
10.50% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| VUL
INCOME |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
GLOBAL
EMERGING MARKETS, Class 1 |
7.94% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - |
|
| EXECUTIVE
VARIABLE UNIVERSAL LIFE |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
GLOBAL
EMERGING MARKETS, Class 1 |
6.98% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| VUL
II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
GLOBAL
EMERGING MARKETS, Class 1 |
6.04% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| VARIABLE
UNIVERSAL LIFE INCOME II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
GLOBAL
EMERGING MARKETS, Class 1 |
6.00% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| PRINFLEX
LIFE |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
GLOBAL
EMERGING MARKETS, Class 1 |
5.63% |
PRINCIPAL
NATIONAL LIFE INS CO |
|
| FBO
VUL INCOME III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST G-012-S41 |
|
| DES
MOINES IA 50392-9992 |
GOVERNMENT
& HIGH QUALITY BOND, Class 1 |
19.55% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FLEX
VARIABLE ANNUITY |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
GOVERNMENT
& HIGH QUALITY BOND, Class 1 |
14.99% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
GOVERNMENT
& HIGH QUALITY BOND, Class 1 |
12.07% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - |
|
| EXECUTIVE
VARIABLE UNIVERSAL LIFE |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
GOVERNMENT
& HIGH QUALITY BOND, Class 1 |
9.12% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
GOVERNMENT
& HIGH QUALITY BOND, Class 1 |
6.77% |
SAM
BALANCED PORTFOLIO PVC |
|
| ATTN
MUTUAL FUND ACCOUNTING-H221 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
GOVERNMENT
& HIGH QUALITY BOND, Class 1 |
5.78% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| PRINFLEX
LIFE |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
LARGECAP
GROWTH I, Class 1 |
22.51% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
LARGECAP
GROWTH I, Class 1 |
22.29% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| PRINFLEX
LIFE |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
LARGECAP
GROWTH I, Class 1 |
18.51% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FLEX
VARIABLE ANNUITY |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
LARGECAP
GROWTH I, Class 1 |
10.93% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - |
|
| EXECUTIVE
VARIABLE UNIVERSAL LIFE |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
LARGECAP
S&P 500 INDEX, Class 1 |
49.16% |
DIVERSIFIED
GROWTH ACCOUNT |
|
| ATTN
MUTUAL FUND ACCOUNTING H221 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
LARGECAP
S&P 500 INDEX, Class 1 |
13.51% |
DIVERSIFIED
GROWTH ADAPTIVE |
|
| ALLOCATION
ACCOUNT |
|
| ATTN
MUTUAL FUND ACCOUNTING H221 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
LARGECAP
S&P 500 INDEX, Class 1 |
11.36% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
LARGECAP
S&P 500 INDEX, Class 1 |
9.09% |
DIVERSIFIED
BALANCED ACCOUNT |
|
| ATTN
MUTUAL FUND ACCOUNTING H221 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
LARGECAP
S&P 500 INDEX, Class 2 |
88.23% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
LARGECAP
S&P 500 INDEX, Class 2 |
8.57% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY V2 |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
LARGECAP
S&P 500 MANAGED VOLATILITY INDEX, |
26.62% |
DIVERSIFIED
BALANCED STRATEGIC |
Class
1 |
| ALLOCATION
ACCOUNT |
|
| ATTN
MUTUAL FUND ACCOUNTING H221 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
LARGECAP
S&P 500 MANAGED VOLATILITY INDEX, |
73.38% |
DIVERSIFIED
GROWTH STRATEGIC |
Class
2 |
| ALLOCATION
ACCOUNT |
|
| ATTN
MUTUAL FUND ACCOUNTING H221 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
MIDCAP,
Class 1 |
31.47% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FLEX
VARIABLE ANNUITY |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
MIDCAP,
Class 1 |
16.41% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| PRINFLEX
LIFE |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
MIDCAP,
Class 1 |
13.02% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
MIDCAP,
Class 2 |
46.12% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
MIDCAP,
Class 2 |
38.07% |
FARMERS
NEW WORLD LIFE INS CO |
|
| ATTN
SEGREGATED ASSETS |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
MIDCAP,
Class 2 |
8.47% |
FARMERS
NEW WORLD LIFE INS CO |
|
| ATTN
SEGREGATED ASSETS |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
PRINCIPAL
CAPITAL APPRECIATION, Class 1 |
33.59% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
CAPITAL APPRECIATION, Class 1 |
21.59% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FLEX
VARIABLE ANNUITY |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
CAPITAL APPRECIATION, Class 1 |
8.42% |
SUNAMERICA
ANNUITY & LIFE ASSURANCE CO |
|
| VARIABLE
SEPARATE ACCOUNT |
|
| ATTN
LEGAL DEPARTMENT |
|
| 21650
OXNARD STREET STE 750 |
|
| WOODLAND
HILLS CA 91367-4997 |
PRINCIPAL
CAPITAL APPRECIATION, Class 1 |
7.13% |
AMERICAN
GENERAL LIFE INSURANCE CO |
|
| VARIABLE
PRODUCTS DEPARTMENT |
|
| ATTN:
DEBORAH KERAI |
|
| PO
BOX 1591 |
|
| HOUSTON
TX 77251-1591 |
PRINCIPAL
CAPITAL APPRECIATION, Class 1 |
5.35% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| VUL
II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
CAPITAL APPRECIATION, Class 2 |
54.45% |
THRIVENT
FINANCIAL FOR LUTHERANS |
|
| 901
MARQUETTE AVE STE 2500 |
|
| MINNEAPOLIS
MN 55402-3211 |
PRINCIPAL
CAPITAL APPRECIATION, Class 2 |
25.22% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
CAPITAL APPRECIATION, Class 2 |
6.86% |
FARMERS
NEW WORLD LIFE INS CO |
|
| ATTN
SEGREGATED ASSETS |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
PRINCIPAL
LIFETIME 2020, Class 1 |
34.26% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2020, Class 1 |
28.32% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2020, Class 1 |
12.69% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - |
|
| EXECUTIVE
VARIABLE UNIVERSAL LIFE |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2020, Class 1 |
8.84% |
PRINCIPAL
NATIONAL LIFE INSURANCE CO |
|
| CUST
FBO VARIABLE UNIVERSAL LIFE III |
|
| ATTN
INDIVIDUAL ACCOUNT |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2030, Class 1 |
42.19% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2030, Class 1 |
15.19% |
PRINCIPAL
NATIONAL LIFE INSURANCE CO |
|
| CUST
FBO VARIABLE UNIVERSAL LIFE III |
|
| ATTN
INDIVIDUAL ACCOUNT |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2030, Class 1 |
12.91% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - |
|
| EXECUTIVE
VARIABLE UNIVERSAL LIFE |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2030, Class 1 |
12.07% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2040, Class 1 |
39.25% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2040, Class 1 |
15.29% |
PRINCIPAL
NATIONAL LIFE INSURANCE CO |
|
| CUST
FBO VARIABLE UNIVERSAL LIFE III |
|
| ATTN
INDIVIDUAL ACCOUNT |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
PRINCIPAL
LIFETIME 2040, Class 1 |
14.79% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - |
|
| EXECUTIVE
VARIABLE UNIVERSAL LIFE |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2040, Class 1 |
6.43% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2040, Class 1 |
5.32% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| VUL
INCOME |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2040, Class 1 |
5.17% |
PRINCIPAL
NATIONAL LIFE INSURANCE CO |
|
| CUST
FBO PRIVATE PLACEMENT VUL |
|
| ATTN
INDIVIDUAL ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2050, Class 1 |
31.83% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2050, Class 1 |
14.97% |
PRINCIPAL
NATIONAL LIFE INSURANCE CO |
|
| CUST
FBO VARIABLE UNIVERSAL LIFE III |
|
| ATTN
INDIVIDUAL ACCOUNT |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2050, Class 1 |
12.94% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - |
|
| EXECUTIVE
VARIABLE UNIVERSAL LIFE |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2050, Class 1 |
10.57% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| VUL
INCOME |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2050, Class 1 |
8.15% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2050, Class 1 |
5.04% |
PRINCIPAL
NATIONAL LIFE INS CO |
|
| FBO
VUL INCOME III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST G-012-S41 |
|
| DES
MOINES IA 50392-9992 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
PRINCIPAL
LIFETIME 2060, Class 1 |
36.14% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2060, Class 1 |
19.16% |
PRINCIPAL
NATIONAL LIFE INSURANCE CO |
|
| CUST
FBO VARIABLE UNIVERSAL LIFE III |
|
| ATTN
INDIVIDUAL ACCOUNT |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2060, Class 1 |
14.23% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - |
|
| EXECUTIVE
VARIABLE UNIVERSAL LIFE |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME 2060, Class 1 |
16.56% |
PRINCIPAL
NATIONAL LIFE INS CO |
|
| FBO
VUL INCOME III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST G-012-S41 |
|
| DES
MOINES IA 50392-9992 |
PRINCIPAL
LIFETIME STRATEGIC INCOME, Class 1 |
42.33% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME STRATEGIC INCOME, Class 1 |
23.80% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME STRATEGIC INCOME, Class 1 |
13.27% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - |
|
| EXECUTIVE
VARIABLE UNIVERSAL LIFE |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
PRINCIPAL
LIFETIME STRATEGIC INCOME, Class 1 |
9.88% |
PRINCIPAL
NATIONAL LIFE INSURANCE CO |
|
| CUST
FBO VARIABLE UNIVERSAL LIFE III |
|
| ATTN
INDIVIDUAL ACCOUNT |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
REAL
ESTATE SECURITIES, Class 1 |
16.01% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FLEX
VARIABLE ANNUITY |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
REAL
ESTATE SECURITIES, Class 1 |
13.56% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
REAL
ESTATE SECURITIES, Class 1 |
13.27% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
REAL
ESTATE SECURITIES, Class 1 |
10.22% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - |
|
| EXECUTIVE
VARIABLE UNIVERSAL LIFE |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
REAL
ESTATE SECURITIES, Class 1 |
6.27% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| PRINFLEX
LIFE |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
REAL
ESTATE SECURITIES, Class 1 |
5.01% |
PRINCIPAL
NATIONAL LIFE INS CO |
|
| FBO
VUL INCOME III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST G-012-S41 |
|
| DES
MOINES IA 50392-9992 |
REAL
ESTATE SECURITIES, Class 2 |
80.38% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
REAL
ESTATE SECURITIES, Class 2 |
10.07% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES VARIABLE |
|
| ANNUITY
V2 |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
REAL
ESTATE SECURITIES, Class 2 |
7.65% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
BALANCED, Class 1 |
58.59% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
BALANCED, Class 1 |
7.23% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FLEX
VARIABLE ANNUITY |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
BALANCED, Class 1 |
5.81% |
PRINCIPAL
NATIONAL LIFE INS CO |
|
| FBO
VUL INCOME III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST G-012-S41 |
|
| DES
MOINES IA 50392-9992 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
SAM
BALANCED, Class 1 |
5.27% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| VARIABLE
UNIVERSAL LIFE INCOME II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
BALANCED, Class 2 |
29.75% |
FARMERS
NEW WORLD LIFE INS CO |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
SAM
BALANCED, Class 2 |
21.91% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
BALANCED, Class 2 |
13.64% |
FARMERS
NEW WORLD LIFE INS CO |
|
| ATTN
SEGREGATED ASSETS |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
SAM
BALANCED, Class 2 |
12.40% |
SUNAMERICA
ANNUITY & LIFE ASSURANCE CO |
|
| VARIABLE
SEPARATE ACCOUNT |
|
| ATTN
LEGAL DEPARTMENT |
|
| 21650
OXNARD STREET STE 750 |
|
| WOODLAND
HILLS CA 91367-4997 |
SAM
BALANCED, Class 2 |
11.46% |
FARMERS
NEW WORLD LIFE INS CO |
|
| ATTN
SEGREGATED ASSETS |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
SAM
CONSERVATIVE BALANCED, Class 1 |
41.21% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
CONSERVATIVE BALANCED, Class 1 |
29.49% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
CONSERVATIVE BALANCED, Class 1 |
5.59% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FLEX
VARIABLE ANNUITY |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
CONSERVATIVE BALANCED, Class 1 |
5.35% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| VARIABLE
UNIVERSAL LIFE INCOME II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
CONSERVATIVE BALANCED, Class 2 |
39.67% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
SAM
CONSERVATIVE BALANCED, Class 2 |
24.86% |
FARMERS
NEW WORLD LIFE INS CO |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
SAM
CONSERVATIVE BALANCED, Class 2 |
10.87% |
FARMERS
NEW WORLD LIFE INS CO |
|
| ATTN
SEGREGATED ASSETS |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
SAM
CONSERVATIVE BALANCED, Class 2 |
8.19% |
FARMERS
NEW WORLD LIFE INS CO |
|
| ATTN
SEGREGATED ASSETS |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
SAM
CONSERVATIVE BALANCED, Class 2 |
5.37% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES VARIABLE |
|
| ANNUITY
V2 |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
CONSERVATIVE GROWTH, Class 1 |
23.30% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
CONSERVATIVE GROWTH, Class 1 |
17.31% |
PRINCIPAL
NATIONAL LIFE INS CO |
|
| FBO
VUL INCOME III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST G-012-S41 |
|
| DES
MOINES IA 50392-9992 |
SAM
CONSERVATIVE GROWTH, Class 1 |
13.14% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
CONSERVATIVE GROWTH, Class 1 |
12.05% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| VARIABLE
UNIVERSAL LIFE INCOME II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
CONSERVATIVE GROWTH, Class 1 |
6.38% |
AMERICAN
GENERAL LIFE INSURANCE CO |
|
| VARIABLE
PRODUCTS DEPARTMENT |
|
| ATTN:
DEBORAH KERAI |
|
| PO
BOX 1591 |
|
| HOUSTON
TX 77251-1591 |
SAM
CONSERVATIVE GROWTH, Class 1 |
5.31% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| VUL
INCOME |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
CONSERVATIVE GROWTH, Class 2 |
38.32% |
FARMERS
NEW WORLD LIFE INS CO |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
SAM
CONSERVATIVE GROWTH, Class 2 |
26.77% |
FARMERS
NEW WORLD LIFE INS CO |
|
| ATTN
SEGREGATED ASSETS |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
SAM
CONSERVATIVE GROWTH, Class 2 |
11.58% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
CONSERVATIVE GROWTH, Class 2 |
11.06% |
FARMERS
NEW WORLD LIFE INS CO |
|
| ATTN
SEGREGATED ASSETS |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
SAM
CONSERVATIVE GROWTH, Class 2 |
5.90% |
SUNAMERICA
ANNUITY & LIFE ASSURANCE CO |
|
| VARIABLE
SEPARATE ACCOUNT |
|
| ATTN
LEGAL DEPARTMENT |
|
| 21650
OXNARD STREET STE 750 |
|
| WOODLAND
HILLS CA 91367-4997 |
SAM
FLEXIBLE INCOME, Class 1 |
49.20% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
FLEXIBLE INCOME, Class 1 |
14.31% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FLEX
VARIABLE ANNUITY |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
FLEXIBLE INCOME, Class 1 |
12.13% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
FLEXIBLE INCOME, Class 2 |
60.97% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
FLEXIBLE INCOME, Class 2 |
11.50% |
FARMERS
NEW WORLD LIFE INS CO |
|
| ATTN
SEGREGATED ASSETS |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
SAM
FLEXIBLE INCOME, Class 2 |
7.30% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES VARIABLE |
|
| ANNUITY
V2 |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
FLEXIBLE INCOME, Class 2 |
7.11% |
SUNAMERICA
ANNUITY & LIFE ASSURANCE CO |
|
| VARIABLE
SEPARATE ACCOUNT |
|
| ATTN
LEGAL DEPARTMENT |
|
| 21650
OXNARD STREET STE 750 |
|
| WOODLAND
HILLS CA 91367-4997 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
SAM
FLEXIBLE INCOME, Class 2 |
5.98% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
STRATEGIC GROWTH, Class 1 |
29.56% |
PRINCIPAL
NATIONAL LIFE INS CO |
|
| FBO
VUL INCOME III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST G-012-S41 |
|
| DES
MOINES IA 50392-9992 |
SAM
STRATEGIC GROWTH, Class 1 |
15.27% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
STRATEGIC GROWTH, Class 1 |
13.63% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| VARIABLE
UNIVERSAL LIFE INCOME II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
STRATEGIC GROWTH, Class 1 |
7.54% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| VUL
INCOME |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
STRATEGIC GROWTH, Class 1 |
6.95% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
STRATEGIC GROWTH, Class 1 |
5.18% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - |
|
| EXECUTIVE
VARIABLE UNIVERSAL LIFE |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
STRATEGIC GROWTH, Class 2 |
44.78% |
FARMERS
NEW WORLD LIFE INS CO |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
SAM
STRATEGIC GROWTH, Class 2 |
30.44% |
FARMERS
NEW WORLD LIFE INS CO |
|
| ATTN
SEGREGATED ASSETS |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
SAM
STRATEGIC GROWTH, Class 2 |
9.48% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SAM
STRATEGIC GROWTH, Class 2 |
7.83% |
FARMERS
NEW WORLD LIFE INS CO |
|
| ATTN
SEGREGATED ASSETS |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
SHORT-TERM
INCOME, Class 1 |
38.70% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SHORT-TERM
INCOME, Class 1 |
24.09% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SHORT-TERM
INCOME, Class 1 |
11.70% |
PRINCIPAL
NATIONAL LIFE INSURANCE CO |
|
| CUST
FBO VARIABLE UNIVERSAL LIFE III |
|
| ATTN
INDIVIDUAL ACCOUNT |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SHORT-TERM
INCOME, Class 1 |
7.75% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - |
|
| EXECUTIVE
VARIABLE UNIVERSAL LIFE |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SHORT-TERM
INCOME, Class 1 |
5.51% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FLEX
VARIABLE ANNUITY |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SMALLCAP,
Class 1 |
23.35% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FLEX
VARIABLE ANNUITY |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SMALLCAP,
Class 1 |
18.62% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| PRINFLEX
LIFE |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SMALLCAP,
Class 1 |
15.45% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SMALLCAP,
Class 1 |
7.86% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INDIVIDUAL - |
|
| EXECUTIVE
VARIABLE UNIVERSAL LIFE |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SMALLCAP,
Class 1 |
6.79% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| EXEC
VAR UNIVERSAL LIFE II |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
SMALLCAP,
Class 2 |
45.68% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
SMALLCAP,
Class 2 |
26.68% |
FARMERS
NEW WORLD LIFE INS CO |
|
| ATTN
SEGREGATED ASSETS |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
SMALLCAP,
Class 2 |
14.89% |
FARMERS
NEW WORLD LIFE INS CO |
|
| ATTN
SEGREGATED ASSETS |
|
| 3120
139TH AVE SW SUITE 300 |
|
| BELLEVUE
WA 98005 |
US
LARGECAP BUFFER JANUARY, Class 2 |
71.41% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
US
LARGECAP BUFFER JANUARY, Class 2 |
12.60% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL LIFETIME INSURANCE |
|
| SOLUTIONS
II |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
US
LARGECAP BUFFER JANUARY, Class 2 |
9.08% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
US
LARGECAP BUFFER JANUARY, Class 2 |
5.49% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FLEX
VARIABLE ANNUITY |
|
| ATTN
IND ACCTNG G-12-S41 |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
US
LARGECAP BUFFER APRIL, Class 2 |
64.33% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
US
LARGECAP BUFFER APRIL, Class 2 |
26.62% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL LIFETIME INSURANCE |
|
| SOLUTIONS
II |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
US
LARGECAP BUFFER JULY, Class 2 |
69.06% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
| |
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
US
LARGECAP BUFFER JULY, Class 2 |
19.62% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL LIFETIME INSURANCE |
|
| SOLUTIONS
II |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
US
LARGECAP BUFFER JULY, Class 2 |
5.38% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL INVESTMENT PLUS |
|
| VARIABLE
ANNUITY |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
US
LARGECAP BUFFER OCTOBER, Class 2 |
61.14% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL PIVOT SERIES |
|
| VARIABLE
ANNUITY III |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
US
LARGECAP BUFFER OCTOBER, Class 2 |
34.27% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
| FBO
PRINCIPAL LIFETIME INSURANCE |
|
| SOLUTIONS
II |
|
| ATTN
INDIVIDUAL LIFE ACCOUNTING |
|
| 711
HIGH ST |
|
| DES
MOINES IA 50392-0001 |
Management
Ownership
As
of March 31, 2024, the Board Members and officers of the Funds, as a group,
owned less than 1% of the outstanding shares of any class of any of the
Funds.
PORTFOLIO
MANAGER DISCLOSURE
(as
provided by the Investment Advisors)
This
section contains information about portfolio managers and the other accounts
they manage, their compensation, and their ownership of securities. The
“Ownership of Securities” tables reflect the portfolio managers’ beneficial
ownership, which means a direct or indirect pecuniary interest. For some
portfolio managers, this includes beneficial ownership of Fund shares through
variable life insurance and variable annuity contracts. For information about
potential material conflicts of interest, see Brokerage Allocation and Other
Practices - Allocation of Trades.
This
section lists information about PGI’s portfolio managers first. Next, the
section includes information about the sub-advisors’ portfolio managers
alphabetically by sub-advisor.
Information
in this section is as of December 31, 2023, unless otherwise noted.
Advisor:
Principal Global Investors, LLC (Principal Asset Allocation Portfolio
Managers)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Other
Accounts Managed |
|
Total
Number
of
Accounts |
Total
Assets in the Accounts |
Number
of Accounts that base the Advisory Fee on Performance |
Total
Assets of the Accounts that base the Advisory Fee on
Performance |
Brody
Dass: Diversified
Balanced, Diversified Balanced Adaptive Allocation, Diversified Balanced
Strategic Allocation, Diversified Growth, Diversified Growth Adaptive
Allocation, Diversified Growth Strategic Allocation, and Diversified
Income Accounts; and SAM Balanced, SAM Conservative Balanced, SAM
Conservative Growth, SAM Flexible Income, and SAM Strategic Growth
Portfolios |
|
|
|
| |
Registered
investment companies |
0 |
$0 |
0 |
$0
|
Other
pooled investment vehicles |
5 |
$13.7
billion |
0 |
$0 |
Other
accounts |
3 |
$72.7
million |
0 |
$0
|
James
W. Fennessey:
LargeCap Growth I and Principal LifeTime Strategic Income, 2020, 2030,
2040, 2050, and 2060 Accounts |
|
|
|
| |
Registered
investment companies |
0 |
$0 |
0 |
$0
|
Other
pooled investment vehicles |
61 |
$100.5 billion |
0 |
$0
|
Other
accounts |
33 |
$3.4 billion |
0 |
$0
|
Todd
A. Jablonski: SAM
Balanced, SAM Conservative Balanced, SAM Conservative Growth, SAM Flexible
Income, and SAM Strategic Growth Portfolios |
|
|
|
| |
Registered
investment companies |
0 |
$0 |
0 |
$0
|
Other
pooled investment vehicles |
7 |
$13.9 billion |
0 |
$0
|
Other
accounts |
9 |
$173.7 million |
0 |
$0
|
Tyler
O'Donnell(1):
Diversified
Balanced Adaptive Allocation and Diversified Growth Adaptive Allocation
Accounts |
|
|
|
| |
Registered
investment companies |
0 |
$0 |
0 |
$0
|
Other
pooled investment vehicles |
23 |
$66.8
billion |
0 |
$0
|
Other
accounts |
3 |
$2.4
billion |
0 |
$0
|
Aaron
J. Siebel(1):
Diversified Balanced Adaptive Allocation and Diversified Growth Adaptive
Allocation Accounts |
|
|
|
| |
Registered
investment companies |
0 |
$0 |
0 |
$0
|
Other
pooled investment vehicles |
28 |
$69.5
billion |
0 |
$0
|
Other
accounts |
4 |
$3.2
billion |
0 |
$0
|
Scott
Smith: Principal
LifeTime Strategic Income, 2020, 2030, 2040, 2050, and 2060
Accounts |
|
|
|
| |
Registered
investment companies |
0 |
$0 |
0 |
$0
|
Other
pooled investment vehicles |
38 |
$82.6 billion |
0 |
$0
|
Other
accounts |
22 |
$3.4 billion |
0 |
$0
|
Yesim
Tokat-Acikel:
Diversified Balanced, Diversified Balanced Adaptive Allocation,
Diversified Balanced Strategic Allocation, Diversified Growth, Diversified
Growth Adaptive Allocation, Diversified Growth Strategic Allocation, and
Diversified Income Accounts; and SAM Balanced, SAM Conservative
Balanced, SAM Conservative Growth, SAM Flexible Income, and SAM Strategic
Growth Portfolios |
|
|
|
| |
Registered
investment companies |
0 |
$0 |
0 |
$0
|
Other
pooled investment vehicles |
6 |
$13.8 billion |
0 |
$0 |
Other
accounts |
3 |
$72.7
million |
0 |
$0
|
Randy
L. Welch:
LargeCap Growth I and Principal LifeTime Strategic Income, 2020, 2030,
2040, 2050, and 2060 Accounts |
|
|
|
| |
Registered
investment companies |
0 |
$0 |
0 |
$0
|
Other
pooled investment vehicles |
61 |
$100.5 billion |
0 |
$0
|
Other
accounts |
33 |
$3.4 billion |
0 |
$0 |
|
|
|
|
| |
(1) |
For
more information regarding Tyler O'Donnell’s and Aaron J. Siebel’s Other
Accounts Managed, see Advisor: Principal Global Investors, LLC (Principal
Equities Portfolio Managers). |
Compensation
PGI
offers the Funds’ investment team a competitive compensation structure that is
evaluated annually relative to other global asset management firms to ensure its
continued competitiveness and alignment with industry best practices. The
objective of the structure is to offer market competitive compensation that
aligns individual and team contributions with firm and client performance
objectives in a manner that is consistent with industry standards and business
results.
Compensation
for each Fund’s investment team is comprised of base salary and variable
incentive components. As team members advance in their careers, the variable
component increases in its proportion commensurate with responsibility levels.
The variable component is designed to reinforce investment performance, firm
performance, team collaboration, regulatory compliance, operational excellence,
client retention, and client satisfaction. Investment performance is measured on
a pre-tax basis against relative client benchmarks and peer groups over
one-year, three-year, and five-year periods, calculated quarterly, reinforcing a
longer-term orientation.
Payments
under the variable incentive plan may be in the form of cash or a combination of
cash and deferred compensation. The amount of variable compensation delivered in
the form of deferred compensation depends on the size of an individual’s
incentive award as it relates to a tiered deferral scale. Deferred compensation
is required to be invested into Principal Financial Group (“PFG”) restricted
stock units and funds managed by the team via a co-investment program. Both
payment vehicles are subject to a three-year vesting schedule. The overall
measurement framework and the deferred component are well aligned with our
desired focus on clients’ objectives (e.g., co-investment), alignment with PFG
stakeholders, and talent retention.
In
addition to deferred compensation obtained through their compensation
programming, team members have investments acquired through their participation
in the PFG employee stock purchase plan, retirement plans, and direct personal
investments. It should be noted that PFG’s retirement plans and deferred
compensation plans generally utilize its non-registered group separate accounts
or commingled vehicles rather than the traditional mutual funds. However, in
each instance these vehicles are managed in lockstep alignment with the mutual
funds (i.e., “clones”).
Ownership
of Securities
|
|
|
|
|
|
|
| |
Portfolio
Manager |
PVC
Accounts/Portfolios Managed by Portfolio Manager |
Dollar
Range of Securities Owned by the Portfolio Manager |
Brody
Dass |
Diversified
Balanced |
None |
Brody
Dass |
Diversified
Balanced Adaptive Allocation |
None |
Brody
Dass |
Diversified
Balanced Strategic Allocation |
None |
Brody
Dass |
Diversified
Growth |
None |
Brody
Dass |
Diversified
Growth Adaptive Allocation |
None |
Brody
Dass |
Diversified
Growth Strategic Allocation |
None |
Brody
Dass |
Diversified
Income |
None |
Brody
Dass |
SAM
Balanced |
None |
Brody
Dass |
SAM
Conservative Balanced |
None |
Brody
Dass |
SAM
Conservative Growth |
None |
Brody
Dass |
SAM
Flexible Income |
None |
Brody
Dass |
SAM
Strategic Growth |
None |
James
W. Fennessey |
LargeCap
Growth I |
None |
James
W. Fennessey |
Principal
LifeTime Strategic Income |
None |
James
W. Fennessey |
Principal
LifeTime 2020 |
None |
James
W. Fennessey |
Principal
LifeTime 2030 |
None |
James
W. Fennessey |
Principal
LifeTime 2040 |
None |
James
W. Fennessey |
Principal
LifeTime 2050 |
None |
James
W. Fennessey |
Principal
LifeTime 2060 |
None |
Todd
A. Jablonski |
SAM
Balanced |
None |
Todd
A. Jablonski |
SAM
Conservative Balanced |
None |
Todd
A. Jablonski |
SAM
Conservative Growth |
None |
Todd
A. Jablonski |
SAM
Flexible Income |
None |
Todd
A. Jablonski |
SAM
Strategic Growth |
None |
Tyler
O'Donnell(1) |
Diversified
Balanced Adaptive Allocation |
None |
Tyler
O'Donnell(1) |
Diversified
Growth Adaptive Allocation |
None |
|
|
|
|
|
|
|
| |
Portfolio
Manager |
PVC
Accounts/Portfolios Managed by Portfolio Manager |
Dollar
Range of Securities Owned by the Portfolio Manager |
Aaron
J. Siebel(1) |
Diversified
Balanced Adaptive Allocation |
None |
Aaron
J. Siebel(1) |
Diversified
Growth Adaptive Allocation |
None |
Scott
Smith |
Principal
LifeTime Strategic Income |
None |
Scott
Smith |
Principal
LifeTime 2020 |
None |
Scott
Smith |
Principal
LifeTime 2030 |
None |
Scott
Smith |
Principal
LifeTime 2040 |
None |
Scott
Smith |
Principal
LifeTime 2050 |
None |
Scott
Smith |
Principal
LifeTime 2060 |
None |
Yesim
Tokat-Acikel |
Diversified
Balanced |
None |
Yesim
Tokat-Acikel |
Diversified
Balanced Adaptive Allocation |
None |
Yesim
Tokat-Acikel |
Diversified
Balanced Strategic Allocation |
None |
Yesim
Tokat-Acikel |
Diversified
Growth |
None |
Yesim
Tokat-Acikel |
Diversified
Growth Adaptive Allocation |
None |
Yesim
Tokat-Acikel |
Diversified
Growth Strategic Allocation |
None |
Yesim
Tokat-Acikel |
Diversified
Income |
None |
Yesim
Tokat-Acikel |
SAM
Balanced |
None |
Yesim
Tokat-Acikel |
SAM
Conservative Balanced |
None |
Yesim
Tokat-Acikel |
SAM
Conservative Growth |
None |
Yesim
Tokat-Acikel |
SAM
Flexible Income |
None |
Yesim
Tokat-Acikel |
SAM
Strategic Growth |
None |
Randy
L. Welch |
LargeCap
Growth I |
None |
Randy
L. Welch |
Principal
LifeTime Strategic Income |
None |
Randy
L. Welch |
Principal
LifeTime 2020 |
None |
Randy
L. Welch |
Principal
LifeTime 2030 |
None |
Randy
L. Welch |
Principal
LifeTime 2040 |
None |
Randy
L. Welch |
Principal
LifeTime 2050 |
None |
Randy
L. Welch |
Principal
LifeTime 2060 |
None |
|
|
|
|
| |
(1) |
For
more information regarding Tyler O'Donnell's and Aaron J. Siebel’s
Ownership of Securities, see Advisor: Principal Global Investors, LLC
(Principal Equities Portfolio
Managers). |
Advisor:
Principal Global Investors, LLC (Principal Edge Portfolio Managers)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Other
Accounts Managed |
|
Total
Number
of
Accounts |
Total
Assets in the Accounts |
Number
of Accounts that base the Advisory Fee on Performance |
Total
Assets of the Accounts that base the Advisory Fee on
Performance |
Daniel
R. Coleman:
Equity Income and Principal Capital Appreciation
Accounts |
|
|
|
| |
Registered
investment companies |
5 |
$14.2 billion |
0 |
$0
|
Other
pooled investment vehicles |
2 |
$348.2 million |
0 |
$0
|
Other
accounts |
46 |
$3.6 billion |
0 |
$0
|
Theodore
Jayne:
Principal Capital Appreciation Account |
|
|
|
| |
Registered
investment companies |
2 |
$4.1 billion |
0 |
$0
|
Other
pooled investment vehicles |
0 |
$0 |
0 |
$0
|
Other
accounts |
9 |
$221.7 million |
0 |
$0
|
Sarah
E. Radecki:
Equity Income Account |
|
|
|
| |
Registered
investment companies |
3 |
$10.1 billion |
0 |
$0
|
Other
pooled investment vehicles |
2 |
$348.2 million |
0 |
$0
|
Other
accounts |
36 |
$3.3 billion |
0 |
$0
|
Nedret
Vidinli:
Equity Income Account |
|
|
|
| |
Registered
investment companies |
2 |
$8.8 billion |
0 |
$0
|
Other
pooled investment vehicles |
1 |
$235.9 million |
0 |
$0
|
Other
accounts |
10 |
$365.0 million |
0 |
$0 |
Compensation
PGI
offers the Funds’ investment team a competitive compensation structure that is
evaluated annually relative to other global asset management firms to ensure its
continued competitiveness and alignment with industry best practices. The
objective of the structure is to offer market competitive compensation that
aligns individual and team contributions with firm and client performance
objectives in a manner that is consistent with industry standards and business
results.
Compensation
for each Fund’s investment team is comprised of base salary and variable
incentive components. As team members advance in their careers, the variable
component increases in its proportion commensurate with responsibility levels.
The variable component is designed to reinforce delivery of investment
performance, firm performance, team collaboration, regulatory compliance,
operational excellence, client retention, and client satisfaction. Investment
performance is measured on a pre-tax basis against relative client benchmarks
and peer groups over one-year, three-year, and five-year periods, calculated
quarterly, reinforcing a longer-term orientation.
Payments
under the variable incentive plan may be in the form of cash or a combination of
cash and deferred compensation. The amount of variable compensation delivered in
the form of deferred compensation depends on the size of an individual’s
incentive award as it relates to a tiered deferral scale. Deferred compensation
is required to be invested into Principal Financial Group (“PFG”) restricted
stock units and funds managed by the team via a co-investment program. Both
payment vehicles are subject to a three-year vesting schedule. The overall
measurement framework and the deferred component are well aligned with our
desired focus on clients’ objectives (e.g., co-investment), alignment with PFG
stakeholders, and talent retention.
In
addition to deferred compensation obtained through their compensation
programming, team members have investments acquired through their participation
in the PFG employee stock purchase plan, retirement plans, and direct personal
investments. It should be noted that PFG’s retirement plans and deferred
compensation plans generally utilize its non-registered group separate accounts
or commingled vehicles rather than the traditional mutual funds. However, in
each instance these vehicles are managed in lockstep alignment with the mutual
funds (i.e., “clones”).
Ownership
of Securities
|
|
|
|
|
|
|
| |
Portfolio
Manager |
PVC
Accounts/Portfolios Managed by Portfolio Manager |
Dollar
Range of Securities Owned by the Portfolio Manager |
Daniel
R. Coleman |
Equity
Income |
None |
Daniel
R. Coleman |
Principal
Capital Appreciation |
None |
Theodore
Jayne |
Principal
Capital Appreciation |
None |
Sarah
E. Radecki |
Equity
Income |
None |
Nedret
Vidinli |
Equity
Income |
None |
On
July 31, 2024, in the Advisor:
Principal Global Investors, LLC (Principal Equities Portfolio Managers)
section,
remove all references to Juliet
Cohn.
Advisor:
Principal Global Investors, LLC (Principal Equities Portfolio
Managers)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Other
Accounts Managed |
|
Total
Number
of
Accounts |
Total
Assets in the Accounts |
Number
of Accounts that base the Advisory Fee on Performance |
Total
Assets of the Accounts that base the Advisory Fee on
Performance |
Paul
H. Blankenhagen:
Diversified International Account |
|
|
|
| |
Registered
investment companies |
3 |
$5.5 billion |
0 |
$0 |
Other
pooled investment vehicles |
3 |
$12.1 billion |
0 |
$0 |
Other
accounts |
11 |
$1.3 billion |
1 |
$328.3 million |
Juliet
Cohn: Diversified
International Account |
|
|
|
| |
Registered
investment companies |
3 |
$5.5 billion |
0 |
$0 |
Other
pooled investment vehicles |
3 |
$12.1 billion |
0 |
$0 |
Other
accounts |
11 |
$1.3 billion |
1 |
$328.3 million |
Jeffrey
Kilkenny:
Global Emerging Markets Account |
|
|
|
| |
Registered
investment companies |
1 |
$240.3 million |
0 |
$0 |
Other
pooled investment vehicles |
1 |
$196.5
million |
0 |
$0 |
Other
accounts |
0 |
$0 |
0 |
$0 |
George
Maris:
Diversified International Account |
|
|
|
| |
Registered
investment companies |
1 |
$5.1
billion |
0 |
$0 |
Other
pooled investment vehicles |
2 |
$11.9
billion |
0 |
$0 |
Other
accounts |
10 |
$936.2
million |
1 |
$328.3
million |
K.
William Nolin:
Blue Chip and MidCap Accounts |
|
|
|
| |
Registered
investment companies |
6 |
$33.2 billion |
0 |
$0 |
Other
pooled investment vehicles |
4 |
$3.1 billion |
0 |
$0 |
Other
accounts |
71 |
$14.4 billion |
0 |
$0 |
Phil
Nordhus:
SmallCap Account |
|
|
|
| |
Registered
investment companies |
5 |
$1.3 billion |
0 |
$0 |
Other
pooled investment vehicles |
1 |
$654.6 million |
0 |
$0 |
Other
accounts |
27 |
$3.2 billion |
2 |
$518.1 million |
Tyler
O'Donnell(1):
LargeCap
S&P 500 Index, LargeCap S&P 500 Managed Volatility Index, U.S.
LargeCap Buffer January, U.S. LargeCap Buffer April, U.S. LargeCap Buffer
July, and U.S. LargeCap Buffer October Accounts |
|
|
|
| |
Registered
investment companies |
16 |
$14.4
billion |
0 |
$0 |
Other
pooled investment vehicles |
3 |
$46.6
billion |
0 |
$0 |
Other
accounts |
2 |
$2.2
billion |
0 |
$0 |
Brian
W. Pattinson:
SmallCap Account |
|
|
|
| |
Registered
investment companies |
7 |
$2.0 billion |
0 |
$0 |
Other
pooled investment vehicles |
3 |
$2.3 billion |
0 |
$0 |
Other
accounts |
39 |
$4.7 billion |
2 |
$518.1 million |
Tom
Rozycki: Blue
Chip and MidCap Accounts |
|
|
|
| |
Registered
investment companies |
6 |
$33.2 billion |
0 |
$0 |
Other
pooled investment vehicles |
4 |
$3.1 billion |
0 |
$0 |
Other
accounts |
71 |
$14.4 billion |
0 |
$0 |
Aaron
J. Siebel(1):
LargeCap S&P 500 Index, LargeCap S&P 500 Managed Volatility Index,
U.S. LargeCap Buffer January, U.S. LargeCap Buffer April, U.S.
LargeCap Buffer July, and U.S. LargeCap Buffer October
Accounts |
|
|
|
| |
Registered
investment companies |
22 |
$17.8 billion |
0 |
$0 |
Other
pooled investment vehicles |
3 |
$46.6 billion |
0 |
$0 |
Other
accounts |
2 |
$2.2 billion |
0 |
$0 |
|
|
|
|
| |
(1) |
For
more information regarding Tyler O'Donnell’s and Aaron J. Siebel’s Other
Accounts Managed, see Advisor: Principal Global Investors, LLC (Principal
Asset Allocation Portfolio
Managers). |
Compensation
PGI
offers the Funds’ investment team a competitive compensation structure that is
evaluated annually relative to other global asset management firms to ensure its
continued competitiveness and alignment with industry best practices. The
objective of the structure is to offer market competitive compensation that
aligns individual and team contributions with firm and client performance
objectives in a manner that is consistent with industry standards and business
results.
Compensation
for each Fund’s investment team is comprised of base salary and variable
incentive components. As team members advance in their careers, the variable
component increases in its proportion commensurate with responsibility levels.
The variable component is designed to reinforce delivery of investment
performance, firm performance, team collaboration, regulatory compliance,
operational excellence, client retention, and client satisfaction. Investment
performance is measured on a pre-tax basis against relative client benchmarks
and peer groups over one-year, three-year, and five-year periods, calculated
quarterly, reinforcing a longer-term orientation.
Payments
under the variable incentive plan may be in the form of cash or a combination of
cash and deferred compensation. The amount of variable compensation delivered in
the form of deferred compensation depends on the size of an individual’s
incentive award as it relates to a tiered deferral scale. Deferred compensation
is required to be invested into Principal Financial Group (“PFG”) restricted
stock units and funds managed by the team via a co-investment program. Both
payment vehicles are subject to a three-year vesting schedule. The overall
measurement framework and the deferred component are well aligned with our
desired focus on clients’ objectives (e.g., co-investment), alignment with PFG
stakeholders, and talent retention.
In
addition to deferred compensation obtained through their compensation
programming, team members have investments acquired through their participation
in the PFG employee stock purchase plan, retirement plans, and direct personal
investments. It should be noted that PFG’s retirement plans and deferred
compensation plans generally utilize its non-registered group separate accounts
or commingled vehicles rather than the traditional mutual funds. However, in
each instance these vehicles are managed in lockstep alignment with the mutual
funds (i.e., “clones”).
Ownership
of Securities
|
|
|
|
|
|
|
| |
Portfolio
Manager |
PVC
Accounts/Portfolios Managed by Portfolio Manager |
Dollar
Range of Securities Owned by the Portfolio Manager |
Paul
H. Blankenhagen |
Diversified
International |
None |
Juliet
Cohn |
Diversified
International |
None |
Jeffrey
Kilkenny |
Global
Emerging Markets |
None |
George
Maris |
Diversified
International |
None |
K.
William Nolin |
Blue
Chip |
None |
K.
William Nolin |
MidCap
|
None |
Phil
Nordhus |
SmallCap
|
None |
Tyler
O’Donnell(1) |
LargeCap
S&P 500 Index |
None |
Tyler
O’Donnell(1) |
LargeCap
S&P 500 Managed Volatility Index |
None |
Tyler
O’Donnell(1) |
U.S.
LargeCap Buffer January |
None |
Tyler
O’Donnell(1) |
U.S.
LargeCap Buffer April |
None |
Tyler
O’Donnell(1) |
U.S.
LargeCap Buffer July |
None |
Tyler
O’Donnell(1) |
U.S.
LargeCap Buffer October |
None |
Brian
W. Pattinson |
SmallCap
|
None |
Tom
Rozycki |
Blue
Chip |
None |
Tom
Rozycki |
MidCap |
None |
Aaron
J. Siebel(1) |
LargeCap
S&P 500 Index |
None |
Aaron
J. Siebel(1) |
LargeCap
S&P 500 Managed Volatility Index |
None |
Aaron
J. Siebel(1) |
U.S.
LargeCap Buffer January |
None |
Aaron
J. Siebel(1) |
U.S.
LargeCap Buffer April |
None |
Aaron
J. Siebel(1) |
U.S.
LargeCap Buffer July |
None |
Aaron
J. Siebel(1) |
U.S.
LargeCap Buffer October |
None |
|
|
|
|
| |
(1) |
For
more information regarding Tyler O'Donnell’s and Aaron J. Siebel’s
Ownership of Securities, see Advisor: Principal Global Investors, LLC
(Principal Asset Allocation Portfolio
Managers). |
Advisor:
Principal Global Investors, LLC (Principal Fixed Income Portfolio
Managers)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Other
Accounts Managed |
|
Total
Number
of
Accounts |
Total
Assets in the Accounts |
Number
of Accounts that base the Advisory Fee on Performance |
Total
Assets of the Accounts that base the Advisory Fee on
Performance |
William
C. Armstrong:
Core Plus Bond Account |
|
|
|
| |
Registered
investment companies |
4 |
$2.0 billion |
0 |
$0 |
Other
pooled investment vehicles |
3 |
$3.1 billion |
0 |
$0 |
Other
accounts |
33 |
$1.4 billion |
2 |
$372.0
million |
Jeff
Callahan: Bond
Market Index Account |
|
|
|
| |
Registered
investment companies |
1 |
$2.1 billion |
0 |
$0 |
Other
pooled investment vehicles |
3 |
$11.7 billion |
0 |
$0 |
Other
accounts |
1 |
$3.6 billion |
0 |
$0 |
Bryan
C. Davis: Core
Plus Bond and Government & High Quality Bond
Accounts |
|
|
|
| |
Registered
investment companies |
10 |
$4.1 billion |
0 |
$0 |
Other
pooled investment vehicles |
10 |
$7.8 billion |
0 |
$0 |
Other
accounts |
14 |
$4.4 billion |
2 |
$8.5 million |
John
R. Friedl:
Short-Term Income Account |
|
|
|
| |
Registered
investment companies |
2 |
$13.4 billion |
0 |
$0 |
Other
pooled investment vehicles |
2 |
$1.7 billion |
0 |
$0 |
Other
accounts |
10 |
$220.8 million |
0 |
$0 |
Zach
Gassmann: Government
& High Quality Bond Account |
|
|
|
| |
Registered
investment companies |
9 |
$1.2 billion |
0 |
$0 |
Other
pooled investment vehicles |
8 |
$1.3 billion |
0 |
$0 |
Other
accounts |
10 |
$384.2 million |
3 |
$2.9 million |
Michael
Goosay:
Core Plus Bond and Short-Term Income Accounts |
|
|
|
| |
Registered
investment companies |
3 |
$14.0
billion |
0 |
$0 |
Other
pooled investment vehicles |
4 |
$4.7
billion |
0 |
$0 |
Other
accounts |
13 |
$1.3
billion |
2 |
$372.0
million |
Scott
J. Peterson: Short-Term
Income Account |
|
|
|
| |
Registered
investment companies |
2 |
$13.4 billion |
0 |
$0 |
Other
pooled investment vehicles |
2 |
$1.7 billion |
0 |
$0 |
Other
accounts |
10 |
$220.8 million |
0 |
$0 |
Darryl
Trunnel: Bond
Market Index Account |
|
|
|
| |
Registered
investment companies |
12 |
$3.2 billion |
1 |
$572.4 million |
Other
pooled investment vehicles |
19 |
$15.6 billion |
0 |
$0 |
Other
accounts |
31 |
$10.7 billion |
4 |
$1.1 billion |
Compensation
PGI
offers the Funds’ investment team a competitive compensation structure that is
evaluated annually relative to other global asset management firms to ensure its
continued competitiveness and alignment with industry best practices. The
objective of the structure is to offer market competitive compensation that
aligns individual and team contributions with firm and client performance
objectives in a manner that is consistent with industry standards and business
results.
Compensation
for each Fund’s investment team is comprised of base salary and variable
incentive components. As team members advance in their careers, the variable
component increases in its proportion commensurate with responsibility levels.
The variable component is designed to reinforce delivery of investment
performance, firm performance, team collaboration, regulatory compliance,
operational excellence, client retention, and client satisfaction. Investment
performance is measured on a pre-tax basis against relative client benchmarks
and peer groups over one-year, three-year, and five-year periods, calculated
quarterly, reinforcing a longer-term orientation.
Payments
under the variable incentive plan may be in the form of cash or a combination of
cash and deferred compensation. The amount of variable compensation delivered in
the form of deferred compensation depends on the size of an individual’s
incentive award as it relates to a tiered deferral scale. Deferred compensation
is required to be invested into Principal Financial Group (“PFG”) restricted
stock units and funds managed by the team via a co-investment program. Both
payment vehicles are subject to a three-year vesting schedule. The overall
measurement framework and the deferred component are well aligned with our
desired focus on clients’ objectives (e.g., co-investment), alignment with PFG
stakeholders, and talent retention.
In
addition to deferred compensation obtained through their compensation
programming, team members have investments acquired through their participation
in the PFG employee stock purchase plan, retirement plans, and direct personal
investments. It should be noted that PFG’s retirement plans and deferred
compensation plans generally utilize its non-registered group separate accounts
or commingled vehicles rather than the traditional mutual funds. However, in
each instance these vehicles are managed in lockstep alignment with the mutual
funds (i.e., “clones”).
Ownership
of Securities
|
|
|
|
|
|
|
| |
Portfolio
Manager |
PVC
Accounts/Portfolios Managed by Portfolio Manager |
Dollar
Range of Securities Owned by the Portfolio Manager |
William
C. Armstrong |
Core
Plus Bond |
None |
Jeff
Callahan |
Bond
Market Index |
None |
Bryan
C. Davis |
Core
Plus Bond |
None |
Bryan
C. Davis |
Government
& High Quality Bond |
None |
John
R. Friedl |
Short-Term
Income |
None |
Zach
Gassmann |
Government
& High Quality Bond |
None |
Michael
Goosay |
Core
Plus Bond |
None |
Michael
Goosay |
Short-Term
Income |
None |
Scott
J. Peterson |
Short-Term
Income |
None |
Darryl
Trunnel |
Bond
Market Index |
None |
Sub-Advisor:
Principal Real Estate Investors, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Other
Accounts Managed |
|
Total
Number
of
Accounts |
Total
Assets in the Accounts |
Number
of Accounts that base the Advisory Fee on Performance |
Total
Assets of the Accounts that base the Advisory Fee on
Performance |
Keith
Bokota:
Real Estate Securities Account |
|
|
|
| |
Registered
investment companies |
3 |
$6.5 billion |
0 |
$0 |
Other
pooled investment vehicles |
2 |
$1.4 billion |
0 |
$0 |
Other
accounts |
41 |
$3.3 billion |
1 |
$108.4 million |
Anthony
Kenkel:
Real Estate Securities Account |
|
|
|
| |
Registered
investment companies |
10 |
$9.7 billion |
0 |
$0 |
Other
pooled investment vehicles |
5 |
$2.8 billion |
0 |
$0 |
Other
accounts |
82 |
$9.4 billion |
5 |
$509.5 million |
Kelly
D. Rush:
Real Estate Securities Account |
|
|
|
| |
Registered
investment companies |
10 |
$9.7 billion |
0 |
$0 |
Other
pooled investment vehicles |
5 |
$2.8 billion |
0 |
$0 |
Other
accounts |
82 |
$9.4 billion |
5 |
$509.5 million |
Compensation
Principal
Real Estate Investors, LLC offers the Funds’ investment team a competitive
compensation structure that is evaluated annually relative to other global asset
management firms to ensure its continued competitiveness and alignment with
industry best practices. The objective of the structure is to offer market
competitive compensation that aligns individual and team contributions with firm
and client performance objectives in a manner that is consistent with industry
standards and business results.
Compensation
for each Fund’s investment team is comprised of base salary and variable
incentive components. As team members advance in their careers, the variable
component increases in its proportion commensurate with responsibility levels.
The variable component is designed to reinforce delivery of investment
performance, firm performance, team collaboration, regulatory compliance,
operational excellence, client retention, and client satisfaction. Investment
performance is measured on a pre-tax basis against relative client benchmarks
and peer groups over one-year, three-year, and five-year periods, calculated
quarterly, reinforcing a longer-term orientation.
Payments
under the variable incentive plan may be in the form of cash or a combination of
cash and deferred compensation. The amount of variable compensation delivered in
the form of deferred compensation depends on the size of an individual’s
incentive award as it relates to a tiered deferral scale. Deferred compensation
is required to be invested into Principal Financial Group (“PFG”) restricted
stock units and funds managed by the team via a co-investment program. Both
payment vehicles are subject to a three-year vesting schedule. The overall
measurement framework and the deferred component are well aligned with our
desired focus on clients’ objectives, alignment with PFG stakeholders, and
talent retention.
In
addition to deferred compensation obtained through their compensation
programming, team members have investments acquired through their participation
in PFG’s employee stock purchase plan, retirement plans, and direct personal
investments. It should be noted that PFG’s retirement plans and deferred
compensation plans generally utilize its non-registered group separate accounts
or commingled vehicles rather than the traditional mutual funds. However, in
each instance these vehicles are managed in lockstep alignment with the mutual
funds (i.e., “clones”).
Ownership
of Securities
|
|
|
|
|
|
|
| |
Portfolio
Manager |
PVC
Accounts/Portfolios Managed by Portfolio Manager |
Dollar
Range of Securities Owned by the Portfolio Manager |
Keith
Bokota |
Real
Estate Securities |
None |
Anthony
Kenkel |
Real
Estate Securities |
None |
Kelly
D. Rush |
Real
Estate Securities |
None |
Sub-Advisor:
Spectrum Asset Management, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Other
Accounts Managed |
|
Total
Number
of
Accounts |
Total
Assets in the Accounts |
Number
of Accounts that base the Advisory Fee on Performance |
Total
Assets of the Accounts that base the Advisory Fee on
Performance |
L.
Phillip Jacoby, IV: LargeCap
S&P 500 Managed Volatility Index Account |
|
|
|
| |
Registered
investment companies |
7 |
$8.1
billion |
0 |
$0
|
Other
pooled investment vehicles |
7 |
$4.3 billion |
0 |
$0
|
Other
accounts |
70 |
$7.6 billion |
0 |
$0
|
Manu
Krishnan:
LargeCap S&P 500 Managed Volatility Index Account |
|
|
|
| |
Registered
investment companies |
7 |
$8.1 billion |
0 |
$0
|
Other
pooled investment vehicles |
7 |
$4.3 billion |
0 |
$0
|
Other
accounts |
70 |
$7.6 billion |
0 |
$0
|
Kevin
Nugent:
LargeCap S&P 500 Managed Volatility Index Account |
|
|
|
| |
Registered
investment companies |
7 |
$8.1 billion |
0 |
$0
|
Other
pooled investment vehicles |
7 |
$4.3 billion |
0 |
$0
|
Other
accounts |
70 |
$7.6 billion |
0 |
$0 |
Compensation
Spectrum
Asset Management offers investment professionals a competitive compensation
structure that is evaluated relative to other asset management firms to ensure
the firm’s continued competitiveness and alignment with industry best practices.
The objective of the structure is to align individual and team contributions
with client performance objectives in a manner that is consistent with industry
standards and business results.
Compensation
for investment professionals at all levels is comprised of base salary and
variable incentive components. As team members advance in their careers, the
variable component increases in its proportion commensurate with responsibility
levels. The incentive component is aligned with the performance and goals of the
firm. Salaries are established based on a benchmark of salary levels of relevant
asset management firms, taking into account each portfolio manager’s position
and responsibilities, experience, contribution to client servicing, compliance
with firm policies and procedures and regulatory requirements, work ethic,
seniority and length of service, and contribution to the overall functioning of
the organization. Spectrum attempts to award all compensation in a manner that
promotes sound risk management principles. Base salaries are fixed, but are
subject to periodic adjustments, usually on an annual basis.
The
variable incentive is in the form of a discretionary bonus and may represent a
significant proportion of an individual’s total annual compensation.
Discretionary bonuses are determined quarterly and are based on a methodology
used by senior management that takes into consideration several factors,
including but not necessarily limited to those listed below:
•Changes
in overall firm assets under management. (Portfolio managers are not directly
incentivized to increase assets (“AUM”), although they are indirectly
compensated as a result of an increase in AUM.)
•Portfolio
performance (on a pre-tax basis) relative to benchmarks measured
annually.
•Contribution
to client servicing.
•Compliance
with firm policies and procedures and regulatory requirements.
•Work
ethic.
•Seniority
and length of service.
•Contribution
to overall functioning of organization.
Ownership
of Securities
|
|
|
|
|
|
|
| |
Portfolio
Manager |
PVC
Accounts/Portfolios Managed by Portfolio Manager |
Dollar
Range of Securities Owned by the Portfolio Manager |
L.
Phillip Jacoby, IV |
LargeCap
S&P 500 Managed Volatility Index |
None |
Manu
Krishnan |
LargeCap
S&P 500 Managed Volatility Index |
None |
Kevin
Nugent |
LargeCap
S&P 500 Managed Volatility Index |
None |
APPENDIX
A – DESCRIPTION OF BOND RATINGS
Moody’s
Investors Service, Inc. Rating Definitions:
Long-Term
Obligation Ratings
Ratings
assigned on Moody’s global long-term obligation rating scales are
forward-looking opinions of the relative credit risk of financial obligations
issued by non-financial corporates, financial institutions, structured finance
vehicles, project finance vehicles, and public sector entities. Long-term
ratings are assigned to issuers or obligations with an original maturity of one
year or more and reflect both on the likelihood of a default or impairment on
contractual financial obligations and the expected financial loss suffered in
the event of default or impairment.1
1
For
certain structured finance, preferred stock and hybrid securities in which
payment default events are either not defined or do not match investor’s
expectations for timely payment, the ratings reflect the likelihood of
impairment and the expected financial loss in the event of
impairment.
|
|
|
|
| |
Aaa: |
Obligations
rated Aaa are judged to be of the highest quality, subject to the lowest
level of credit risk. |
Aa: |
Obligations
rated Aa are judged to be of high quality and are subject to very low
credit risk. |
A: |
Obligations
rated A are considered upper-medium grade and are subject to low credit
risk. |
Baa: |
Obligations
rated Baa are subject to moderate credit risk. They are considered
medium-grade and as such may possess certain speculative
characteristics. |
Ba: |
Obligations
rated Ba are judged to be speculative and are subject to substantial
credit risk. |
B: |
Obligations
rated B are considered speculative and are subject to high credit
risk. |
Caa: |
Obligations
rated Caa are judged to be speculative of poor standing and are subject to
very high credit risk. |
Ca: |
Obligations
rated Ca are highly speculative and are likely in, or very near, default,
with some prospect of recovery of principal and
interest. |
C: |
Obligations
rated C are the lowest rated class of bonds and are typically in default,
with little prospect for recovery of principal or
interest. |
|
|
|
|
| |
NOTE: |
Moody’s
appends numerical modifiers, 1, 2, and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category, the
modifier 2 indicates a mid-range ranking, and the modifier 3 indicates a
ranking in the lower end of that generic rating category. Additionally, a
“(hyb)” indicator is appended to all ratings of hybrid securities issued
by banks, issuers, financial companies, and securities
firms.* |
*By
their terms, hybrid securities allow for the omission of scheduled dividends,
interest, or principal payments, which can potentially result in impairment if
such an omission occurs. Hybrid securities may also be subject to contractually
allowable write-downs of principal that could result in impairment. Together the
hybrid indicator, the long-term obligation rating assigned to a hybrid security
is an expression of the relative credit risk associated with that
security.
SHORT-TERM
NOTES: Short-term ratings are assigned to obligations with an original maturity
of thirteen months or less and reflect both on the likelihood of a default or
impairment on contractual financial obligations and the expected financial loss
suffered in the event of default. Moody’s employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment ability of rated issuers:
Issuers
rated Prime-1 (or related supporting institutions) have a superior ability to
repay short-term debt obligations.
Issuers
rated Prime-2 (or related supporting institutions) have a strong ability to
repay short-term debt obligations.
Issuers
rated Prime-3 (or related supporting institutions) have an acceptable ability to
repay short-term obligations.
Issuers
rated Not Prime do not fall within any of the Prime rating
categories.
US
MUNICIPAL SHORT-TERM DEBT: The Municipal Investment Grade (MIG) scale is used to
rate US municipal bonds of up to three years maturity. MIG ratings are divided
into three levels - MIG 1 through MIG 3 - while speculative grade short-term
obligations are designated SG.
MIG
1 denotes superior credit quality, afforded excellent protection from
established cash flows, highly reliable liquidity support, or demonstrated
broad-based access to the market for refinancing.
MIG
2 denotes strong credit quality with ample margins of protection, although not
as large as in the preceding group.
MIG
3 notes are of acceptable credit quality. Liquidity and cash-flow protection may
be narrow and market access for refinancing is likely to be less
well-established.
SG
denotes speculative-grade credit quality and may lack sufficient margins of
protection.
Description
of S&P Global Ratings’ Credit Rating Definitions:
S&P
Global’s credit rating, both long-term and short-term, is a forward-looking
opinion of the creditworthiness of an obligor with respect to a specific
obligation. This assessment takes into consideration the creditworthiness of
guarantors, insurers, or other forms of credit enhancement on the
obligation.
The
credit rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The
ratings are statements of opinion as of the date they are expressed furnished by
the issuer or obtained by S&P Global Ratings from other sources S&P
Global Ratings considers reliable. S&P Global Ratings does not perform an
audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or for other
circumstances.
The
ratings are based, in varying degrees, on the following
considerations:
•Likelihood
of payment - capacity and willingness of the obligor to meet its financial
commitment on an obligation in accordance with the terms of the
obligation;
•Nature
of and provisions of the financial obligation;
•Protection
afforded by, and relative position of, the financial obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditor’s rights.
LONG-TERM
CREDIT RATINGS:
|
|
|
|
| |
AAA: |
Obligations
rated ‘AAA’ have the highest rating assigned by S&P Global Ratings.
The obligor’s capacity to meet its financial commitment on the obligation
is extremely strong. |
AA: |
Obligations
rated ‘AA’ differ from the highest-rated issues only in small degree. The
obligor’s capacity to meet its financial commitment on the obligation is
very strong. |
A:
|
Obligations
rated ‘A’ have a strong capacity to meet financial commitment on the
obligation although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. |
BBB: |
Obligations
rated ‘BBB’ exhibit adequate protection parameters; however, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet financial commitment on the
obligation. |
BB,
B, CCC,
CC
and C: |
Obligations
rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded, on balance, as having
significant speculative characteristics. ‘BB’ indicates the lowest degree
of speculation and ‘C’ the highest degree of speculation. While such
obligations will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major risk exposures to
adverse conditions. |
BB: |
Obligations
rated ‘BB’ are less vulnerable to nonpayment than other speculative
issues. However it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
the obligor’s inadequate capacity to meet its financial commitment on the
obligation. |
B: |
Obligations
rated ‘B’ are more vulnerable to nonpayment than ‘BB’ but the obligor
currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic conditions will
likely impair this capacity. |
CCC: |
Obligations
rated ‘CCC’ are currently vulnerable to nonpayment and is dependent upon
favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. If adverse business,
financial, or economic conditions occur, the obligor is not likely to have
the capacity to meet its financial commitment on the
obligation. |
CC: |
Obligations
rated ‘CC’ are currently highly vulnerable to nonpayment. The ‘CC’ rating
is used when a default has not yet occurred but S&P Global Ratings
expects default to be a virtual certainty, regardless of anticipated time
to default. |
C:
|
The
rating ‘C’ is highly vulnerable to nonpayment, the obligation is expected
to have lower relative seniority or lower ultimate recovery compared to
higher rated obligations. |
D:
|
Obligations
rated ‘D’ are in default, or in breach of an imputed promise. For
non-hybrid capital instruments, the ‘D’ rating category is used when
payments on an obligation are not made on the date due, unless S&P
Global Ratings believes that such payments will be made within five
business days in the absence of a stated grace period or within the
earlier of the stated grace period or 30 calendar days. The rating will
also be used upon filing for bankruptcy petition or the taking of similar
action and where default is a virtual certainty. If an obligation is
subject to a distressed exchange offer the rating is lowered to
‘D’. |
Plus
(+) or Minus (-): The ratings from ‘AA’ to ‘CCC’ may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
|
|
|
|
| |
NR: |
Indicates
that no rating has been requested, that there is insufficient information
on which to base a rating or that S&P Global Ratings does not rate a
particular type of obligation as a matter of
policy. |
SHORT-TERM
CREDIT RATINGS: Ratings are graded into four categories, ranging from ‘A-1’ for
the highest quality obligations to ‘D’ for the lowest.
|
|
|
|
| |
A-1:
|
This
is the highest category. The obligor’s capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the
obligor’s capacity to meet its financial commitment on these obligations
is extremely strong. |
A-2:
|
Issues
carrying this designation are somewhat more susceptible to the adverse
effects of the changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor’s capacity
to meet its financial commitment on the obligation is
satisfactory. |
A-3:
|
Issues
carrying this designation exhibit adequate capacity to meet their
financial obligations. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet it financial commitment on the
obligation. |
B:
|
Issues
rated ‘B’ are regarded as vulnerable and have significant speculative
characteristics. The obligor has capacity to meet financial commitments;
however, it faces major ongoing uncertainties which could lead to
obligor’s inadequate capacity to meet its financial
obligations. |
C:
|
This
rating is assigned to short-term debt obligations that are currently
vulnerable to nonpayment and is dependent upon favorable business,
financial, and economic conditions to meet its financial commitment on the
obligation. |
D:
|
This
rating indicates that the issue is either in default or in breach of an
imputed promise. For non-hybrid capital instruments, the ‘D’ rating
category is used when payments on an obligation are not made on the date
due, unless S&P Global Ratings believes that such payments will be
made within any stated grace period. However, any stated grace period
longer than five business days will be treated as five business days. The
rating will also be used upon filing for bankruptcy petition or the taking
of similar action and where default is a virtual certainty. If an
obligation is subject to a distressed debt restructuring the rating is
lowered to ‘D’. |
MUNICIPAL
SHORT-TERM NOTE RATINGS: S&P Global Ratings rates U.S. municipal notes with
a maturity of less than three years as follows:
|
|
|
|
| |
SP-1:
|
A
strong capacity to pay principal and interest. Issues that possess a very
strong capacity to pay debt service is given a “+”
designation. |
SP-2:
|
A
satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the terms of
the notes. |
SP-3:
|
A
speculative capacity to pay principal and interest. |
D: |
Assigned
upon failure to pay the note when due, completion of a distressed debt
restructuring, or the filing of a bankruptcy petition or the taking of
similar action and where default on an obligation is a virtual certainty.
|
APPENDIX
B – PROXY VOTING POLICIES
The
proxy voting policies applicable to each Fund appear in the following
order:
The
proxy voting policy for the Fund Complex is first, followed by PGI’s proxy
voting policy, and followed by the proxy voting policies for the sub-advisors,
alphabetically.
Proxy
Voting Policies and Procedures For
Principal
Funds, Inc.
Principal
Variable Contracts Funds, Inc.
Principal
Exchange-Traded Funds
Principal
Real Asset Fund (and other Principal interval funds)
(each
a “Fund” and together “the Funds”)
(March
9, 2015)
Revised
February 12, 2024
It
is each Fund's policy to delegate authority to its advisor or sub-advisor, as
appropriate, to vote proxy ballots relating to the Fund's portfolio securities
in accordance with the adviser's or sub-adviser's voting policies and
procedures.
The
adviser or sub-adviser must provide, on a quarterly basis:
1.Written
affirmation that all proxies voted during the preceding calendar quarter, other
than those specifically identified by the adviser or sub-adviser, were voted in
a manner consistent with the adviser's or sub-adviser's voting policies and
procedures. In order to monitor the potential effect of conflicts of interest of
an adviser or sub-adviser, the adviser or sub-adviser will identify any proxies
the adviser or sub-adviser voted in a manner inconsistent with its policies and
procedures. The adviser or sub-adviser shall list each vote, explain why the
adviser or sub-adviser voted in a manner contrary to its policies and
procedures, state whether the adviser or sub-adviser’s vote was consistent with
the recommendation to the adviser or sub-adviser of a third-party and, if so,
identify the third-party; and
2.Written
notification of any material changes to the adviser's or sub-adviser's proxy
voting policies and procedures made during the preceding calendar
quarter.
The
adviser or sub-adviser must provide, no later than July 31 of each year, the
following information regarding each proxy vote cast during the 12-month period
ended June 30 for each Fund portfolio or portion of Fund portfolio for which it
serves as investment adviser, in a format acceptable to Fund
management:
1.Identification
of the issuer of the security;
2.Exchange
ticker symbol of the security;
3.CUSIP
number of the security;
4.The
date of the shareholder meeting;
5.A
brief description of the subject of the vote;
6.Whether
the proposal was put forward by the issuer or a shareholder;
7.Whether
and how the vote was cast; and
8.Whether
the vote was cast for or against management of the issuer.
PRINCIPAL
GLOBAL INVESTORS, LLC
Proxy
Voting Policies and Procedures
Introduction
Principal
Global Investors1
(“PGI”) is an investment adviser registered with the U.S. Securities and
Exchange Commission (“SEC”) pursuant to the Investment Advisers Act of 1940 (the
“Advisers Act”). As a registered investment adviser, PGI has a fiduciary duty to
act in the best interests of its clients. PGI recognizes that this duty requires
it to vote client securities, for which it has voting power on the applicable
record date, in a timely manner and make voting decisions that are in the best
interests of its clients. This document, Principal Global Investors’ Proxy
Voting Policies and Procedures (the “Policy”) is intended to comply with the
requirements of the Investment Advisers Act of 1940, the Investment Company Act
of 1940 and the Employee Retirement Income Security Act of 1974 applicable to
the voting of the proxies of both US and non-US issuers on behalf of PGI’s
clients who have delegated such authority and discretion.
Effective
January 1, 2021 Finisterre Investment Teams adopted the policies and procedures
in the Adviser’s compliance manual except for the following proxy policies and
procedures. Finisterre Investment Teams will continue to follow the previously
adopted proxy policies and procedures until amended. Please see the Appendix to
the compliance manual for Finisterre specific proxy policies and
procedures.
Relationship
between Investment Strategy, ESG and Proxy Voting
PGI
has a fiduciary duty to make investment decisions that are in its clients’ best
interests by maximizing the value of their shares. Proxy voting is an important
part of this process through which PGI can support strong corporate governance
structures, shareholder rights and transparency. PGI also believes a company’s
positive environmental, social and governance (“ESG”) practices may influence
the value of the company, leading to long-term shareholder value. PGI may take
these factors into considerations when voting proxies in its effort to seek the
best outcome for its clients. PGI believes that the integration of consideration
of ESG practices in PGI’s investment process helps identify sources of risk that
could erode the long-term investment results it seeks on behalf of its clients.
From time to time, PGI may work with various ESG-related organizations to engage
issuers or advocate for greater levels of disclosure.
Roles
and Responsibilities
Role
of the Proxy Voting Committee
PGI’s
Proxy Voting Committee (the “Proxy Voting Committee”) shall (i) oversee the
voting of proxies and the Proxy Advisory Firm, (ii) where necessary, make
determinations as to how to instruct the vote on certain specific proxies, (iii)
verify ongoing compliance with the Policy, (iv) review the business practices of
the Proxy Advisory Firm and (v) evaluate, maintain, and review the Policy on an
annual basis.
The
Proxy Voting Committee is comprised of representatives of each investment team
and a representative from PGI Risk, Legal, Operations, and Compliance will be
available to advise the Proxy Voting Committee but are non-voting members. The
Proxy Voting Committee may designate one or more of its members to oversee
specific, ongoing compliance with respect to the Policy and may designate
personnel to instruct the vote on proxies on behalf the PGI’s clients
(collectively, “Authorized Persons”).
The
Proxy Voting Committee shall meet at least four times per year, and as necessary
to address special situations.
1
These policies and procedures apply to Principal Global Investors, LLC,
Principal Real Estate Investors, LLC, Principal Global Investors (Hong Kong)
Limited and any affiliates which have entered into participating affiliate
agreements with the aforementioned managers.
Principal
Global Investors, LLC
Role
of Portfolio Management
While
the Proxy Voting Committee establishes the Guidelines and Procedures, the Proxy
Voting Committee does not direct votes for any client except in certain cases
where a conflict of interest exists. Each investment team is responsible for
determining how to vote proxies for those securities held in the portfolios
their team manages. While investment teams generally vote consistently with the
Guidelines, there may be instances where their vote deviates from the
Guidelines. In those circumstances, the investment team will work within the
Exception Process. In some instances, the same security may be held by more than
one investment team. In these cases, PGI may vote differently on the same matter
for different accounts as determined by each investment team.
Proxy
Voting Guidelines
The
Proxy Voting Committee, on an annual basis, or more frequently as needed, will
direct each investment team to review draft proxy voting guidelines recommended
by the Committee (“Draft Guidelines”). The Proxy Voting Committee will collect
the reviews of the Draft Guidelines to determine whether any investment teams
have positions on issues that deviate from the Draft Guidelines. Based on this
review, PGI will adopt proxy voting guidelines. Where an investment team has a
position which deviates from the Draft Guidelines, an alternative set of
guidelines for that investment team may be created. Collectively, these
guidelines will constitute PGI’s current Proxy Voting Guidelines and may change
from time to time (the “Guidelines”). The Proxy Voting Committee has the
obligation to determine that, in general, voting proxies pursuant to the
Guidelines is in the best interests of clients. Exhibit A (Base) and Exhibit B
(Sustainable) to the Policy sets forth the current Guidelines.
There
may be instances where proxy votes will not be in accordance with the
Guidelines. Clients may instruct PGI to utilize a different set of guidelines,
request specific deviations, or directly assume responsibility for the voting of
proxies. In addition, PGI may deviate from the Guidelines on an exception basis
if the investment team or PGI has determined that it is the best interest of
clients in a particular strategy to do so, or where the Guidelines do not direct
a particular response and instead list relevant factors. Any such a deviation
will comply with the Exception Process which shall include a written record
setting out the rationale for the deviation.
The
subject of the proxy vote may not be covered in the Guidelines. In situations
where the Guidelines do not provide a position, PGI will consider the relevant
facts and circumstances of a particular vote and then vote in a manner PGI
believes to be in the clients’ bests interests. In such circumstance, the
analysis will be documented in writing and periodically presented to the Proxy
Voting Committee. To the extent that the Guidelines do not cover potential
voting issues, PGI may consider the spirit of the Guidelines and instruct the
vote on such issues in a manner that PGI believes would be in the best interests
of the client.
Use
of Proxy Advisory Firms
PGI
has retained one or more third-party proxy service provider(s) (the “Proxy
Advisory Firm”) to provide recommendations for proxy voting guidelines,
information on shareholder meeting dates and proxy materials, translate proxy
materials printed in a foreign language, provide research on proxy proposals,
operationally process votes in accordance with the Guidelines on behalf of the
clients for whom PGI has proxy voting responsibility, and provide reports
concerning the proxies voted (“Proxy Voting Services”). Although PGI has
retained the Proxy Advisory Firm for Proxy Voting Services, PGI remains
responsible for proxy voting decisions. PGI has designed the Policy to oversee
and evaluate the Proxy Advisory Firm, including with respect to the matters
described below, to support the PGI’s voting in accordance with this Policy.
Principal
Global Investors, LLC
Oversight
of Proxy Advisory Firms
Prior
to the selection of any new Proxy Advisory Firm and annually thereafter or more
frequently if deemed necessary by PGI, the Proxy Voting Committee will consider
whether the Proxy Advisory Firm: (a) has the capacity and competency to
adequately analyze proxy issues and provide the Proxy Voting Services the Proxy
Advisory Firm has been engaged to provide and (b) can make its recommendations
in an impartial manner, in consideration of the best interests of PGI’s clients,
and consistent with the PGI’s voting policies. Such considerations may include,
depending on the Proxy Voting Services provided, the following: (i) periodic
sampling of votes pre-populated by the Proxy Advisory Firm’s systems as well as
votes cast by the Proxy Advisory Firm to review that the Guidelines adopted by
PGI are being followed; (ii) onsite visits to the Proxy Advisory Firm office
and/or discussions with the Proxy Advisory Firm to determine whether the Proxy
Advisory Firm continues to have the capacity and competency to carry out its
proxy obligations to PGI; (iii) a review of those aspects of the Proxy Advisory
Firm’s policies, procedures, and methodologies for formulating voting
recommendations that PGI consider material to Proxy Voting Services provided to
PGI, including factors considered, with a particular focus on those relating to
identifying, addressing and disclosing potential conflicts of interest
(including potential conflicts related to the provision of Proxy Voting
Services, activities other than Proxy Voting Services, and those presented by
affiliation such as a controlling shareholder of the Proxy Advisory Firm) and
monitoring that materially current, accurate, and complete information is used
in creating recommendations and research; (iv) requiring the Proxy Advisory Firm
to notify PGI if there is a substantive change in the Proxy Advisory Firm’s
policies and procedures or otherwise to business practices, including with
respect to conflicts, information gathering and creating voting recommendations
and research, and reviewing any such change(s); (v) a review of how and when the
Proxy Advisory Firm engages with, and receives and incorporates input from,
issuers, the Proxy Advisory Firm’s clients and other third-party information
sources; (vi) assessing how the Proxy Advisory Firm considers factors unique to
a specific issuer or proposal when evaluating a matter subject to a shareholder
vote; (vii) in case of an error made by the Proxy Advisory Firm, discussing the
error with the Proxy Advisory Firm and determining whether appropriate
corrective and preventive action is being taken; and (viii) assessing whether
the Proxy Advisory Firm appropriately updates its methodologies, guidelines, and
voting recommendations on an ongoing basis and incorporates input from issuers
and Proxy Advisory Firm clients in the update process. In evaluating the Proxy
Advisory Firm, PGI may also consider the adequacy and quality of the Proxy
Advisory Firm’s staffing, personnel, and/or technology.
Procedures
for Voting Proxies
To
increase the efficiency of the voting process, PGI utilizes the Proxy Advisory
Firm to act as its voting agent for its clients’ holdings. Issuers initially
send proxy information to the clients’ custodians. PGI instructs these
custodians to direct proxy related materials to the Proxy Advisory Firm. The
Proxy Advisory Firm provides PGI with research related to each resolution.
PGI
analyzes relevant proxy materials on behalf of their clients and seek to
instruct the vote (or refrain from voting) proxies in accordance with the
Guidelines. A client may direct PGI to vote for such client’s account
differently than what would occur in applying the Policy and the Guidelines. PGI
may also agree to follow a client’s individualized proxy voting guidelines or
otherwise agree with a client on particular voting considerations.
PGI
seeks to vote (or refrain from voting) proxies for its clients in a manner that
PGI determines is in the best interests of its clients, which may include both
considering both the effect on the value of the client’s investments and ESG
factors. In some cases, PGI may determine that it is in the best interests of
clients to refrain from exercising the clients’ proxy voting rights. PGI may
determine that voting is not in the best interests of a client and refrain from
voting if the costs, including the opportunity costs, of voting would, in the
view of PGI, exceed the expected benefits of voting to the client.
Principal
Global Investors, LLC
Procedures
for Proxy Issues within the Guidelines
Where
the Guidelines address the proxy matter being voted on, the Proxy Advisor Firm
will generally process all proxy votes in accordance with the Guidelines. The
applicable investment team may provide instructions to vote contrary to the
Guidelines in their discretion and with sufficient rationale documented in
writing to seek to maximize the value of the client’s investments or is
otherwise in the client’s best interest. This rationale will be submitted to PGI
Compliance to approve and once approved administered by PGI Operations. This
process will follow the Exception Process. The Proxy Voting Committee will
receive and review a quarterly report summarizing all proxy votes for securities
for which PGI exercises voting authority. In certain cases, a client may have
elected to have PGI administer a custom policy which is unique to the Client. If
PGI is also responsible for the administration of such a policy, in general,
except for the specific policy differences, the procedures documented here will
also be applicable, excluding reporting and disclosure procedures.
Procedures
for Proxy Issues Outside the Guidelines
To
the extent that the Guidelines do not cover potential voting issues, the Proxy
Advisory Firm will seek direction from PGI. PGI may consider the spirit of the
Guidelines and instruct the vote on such issues in a manner that PGI believes
would be in the best interests of the client. Although this not an exception to
the Guidelines, this process will also follow the Exception Process. The Proxy
Voting Committee will receive and review a quarterly report summarizing all
proxy votes for securities for which PGI exercises voting discretion, which
shall include instances where issues fall outside the Guidelines.
Securities
Lending
Some
clients may have entered into securities lending arrangements with agent lenders
to generate additional revenue. If a client participates in such lending, the
client will need to inform PGI as part of their contract with PGI if they
require PGI to take actions in regard to voting securities that have been lent.
If not commemorated in such agreement, PGI will not recall securities and as
such, they will not have an obligation to direct the proxy voting of lent
securities.
In
the case of lending, PGI maintains one share for each company security out on
loan by the client. PGI will vote the remaining share in these circumstances.
In
cases where PGI does not receive a solicitation or enough information within a
sufficient time (as reasonably determined by PGI) prior to the proxy-voting
deadline, PGI or the Proxy Advisory Firm may be unable to vote.
Regional
Variances in Proxy Voting
PGI
utilizes the Policy and Guidelines for both US and non-US clients, and there are
some significant differences between voting U.S. company proxies and voting
non-U.S. company proxies. For U.S. companies, it is usually relatively easy to
vote proxies, as the proxies are typically received automatically and may be
voted by mail or electronically. In most cases, the officers of a U.S. company
soliciting a proxy act as proxies for the company’s shareholders.
With
respect to non-U.S. companies, we make reasonable efforts to vote most proxies
and follow a similar process to those in the U.S. However, in some cases it may
be both difficult and costly to vote proxies due to local regulations, customs
or other requirements or restrictions, and such circumstances and expected costs
may outweigh any anticipated economic benefit of voting. The major difficulties
and costs may include: (i) appointing a proxy; (ii) obtaining reliable
information about the time and location of a meeting; (iii) obtaining relevant
information about voting procedures for foreign shareholders; (iv) restrictions
on trading securities that are subject to proxy votes (share-blocking periods);
(v) arranging for a proxy to vote locally in person; (vi) fees charged by
custody banks for providing certain services with regard to voting proxies; and
(vii) foregone income from securities lending programs. In certain instances, it
may be determined by PGI that the anticipated economic benefit outweighs the
expected cost of voting. PGI intends to make their determination on whether to
vote proxies of non-U.S. companies on a case-by-case basis. In doing so, PGI
shall evaluate market requirements and impediments, including the difficulties
set forth above, for voting proxies of companies in each country. PGI
periodically reviews voting logistics, including costs and other voting
difficulties, on a client by client and country by country basis, in order to
determine if there have been any material changes that would affect PGI’s
determinations and procedures.
Principal
Global Investors, LLC
Conflicts
of Interest
PGI
recognizes that, from time to time, potential conflicts of interest may exist.
In order to avoid any perceived or actual conflict of interest, the procedures
set forth below have been established for use when PGI encounters a potential
conflict to ensure that PGI’s voting decisions are based on maximizing
shareholder value and are not the product of a conflict.
Addressing
Conflicts of Interest – Exception Process
Prior
to voting contrary to the Guidelines, the relevant investment team must complete
and submit a report to PGI Compliance setting out the name of the security, the
issue up for vote, a summary of the Guidelines’ recommendation, the vote changes
requested and the rational for voting against the Guidelines’ recommendation.
The member of the investment team requesting the exception must attest to
compliance with Principal’s Code of Conduct and the has an affirmative
obligation to disclose any known personal or business relationship that could
affect the voting of the applicable proxy. PGI Compliance will approve or deny
the exception in consultation, if deemed necessary, with the Legal.
If
PGI Compliance determines that there is no potential material conflict exists,
the Guidelines may be overridden. If PGI Compliance determines that there exists
or may exist a material conflict, it will refer the issue to the Proxy Voting
Committee. The Proxy Voting Committee will consider the facts and circumstances
of the pending proxy vote and the potential or actual material conflict and
decide by a majority vote as to how to vote the proxy – i.e., whether to permit
or deny the exception.
In
considering the proxy vote and potential material conflict of interest, the
Proxy Voting Committee may review the following factors:
•The
percentage of outstanding securities of the issuer held on behalf of clients by
PGI;
•The
nature of the relationship of the issuer with the PGI, its affiliates or its
executive officers;
•Whether
there has been any attempt to directly or indirectly influence the investment
team’s decision;
•Whether
the direction of the proposed vote would appear to benefit PGI or a related
party; and/or
•Whether
an objective decision to vote in a certain way will still create a strong
appearance of a conflict.
In
the event that the Proxy Advisor Firm itself has a conflict and thus is unable
to provide a recommendation, the investment team may vote in accordance with the
recommendation of another independent service provider, if available. If a
recommendation from an independent service provider other than the Proxy Advisor
Firm is not available, the investment team will follow the Exception Process.
PGI Compliance will review the form and if it determines that there is no
potential material conflict mandating a voting recommendation from the Proxy
Voting Committee, the investment team may instruct the Proxy Advisory Firm to
vote the proxy issue as it determines is in the best interest of clients. If PGI
Compliance determines that there exists or may exist a material conflict, it
will refer the issue to the Proxy Voting Committee for consideration as outlined
above.
Principal
Global Investors, LLC
Availability
of Proxy Voting Information and Recordkeeping
Disclosure
On
a quarterly basis, PGI publicly discloses on our website https://www.principalglobal.com/eu/about-us/responsible-investing
a
voting report setting forth the manner in which votes were cast, including
details related to (i) votes against management, and (ii)
abstentions.
Form
more information, Clients may contact PGI for more information related to how
PGI has voted with respect to securities held in the Client’s
account.
On
request, PGI will provide clients with a summary of PGI’s proxy voting
guidelines, process and policies and will inform the clients how they can obtain
a copy of the complete Proxy Voting Policies and Procedures upon request. PGI
will also include such information described in the preceding two sentences in
Part 2A of its Form ADV.
Recordkeeping
PGI
will keep records of the following items: (i) the Guidelines, (ii) the Proxy
Voting Policies and Procedures; (iii) proxy statements received regarding client
securities (unless such statements are available on the SEC’s Electronic Data
Gathering, Analysis, and Retrieval (EDGAR) system); (iv) records of votes they
cast on behalf of clients, which may be maintained by a Proxy Advisory Firm if
it undertakes to provide copies of those records promptly upon request; (v)
records of written client requests for proxy voting information and PGI’s
responses (whether a client’s request was oral or in writing); (vi) any
documents prepared by PGI that were material to making a decision how to vote,
or that memorialized the basis for the decision; (vii) a record of any testing
conducted on any Proxy Advisory Firm’s votes; (viii) materials collected and
reviewed by PGI as part of its due diligence of the Proxy Advisory Firm; (ix) a
copy of each version of the Proxy Advisory Firm’s policies and procedures
provided to PGI; and (x) the minutes of the Proxy Voting Committee meetings. All
of the records referenced above will be kept in an easily accessible place for
at least the length of time required by local regulation and custom, and, if
such local regulation requires that records are kept for less than six years
from the end of the fiscal year during which the last entry was made on such
record, we will follow the US rule of six years. If the local regulation
requires that records are kept for more than six years, we will comply with the
local regulation. We maintain the vast majority of these records electronically.
Principal
Global Investors, LLC
Appendix
- Proxy Voting Policy and Procedures
I.STATEMENT
OF POLICY
Proxy
voting is an important right of investors and reasonable care and diligence must
be undertaken to ensure that such rights are properly and timely exercised. The
Firm generally retains proxy-voting authority with respect to securities
purchased for its clients. Under such circumstances, the Firm votes proxies in
the best interest of its clients and in accordance with these policies and
procedures.
II.USE
OF THIRD-PARTY PROXY VOTING SERVICE
The
Firm has entered into an agreement with Broadridge Investor Communication
Solutions, Inc. (referred to as “Broadridge” and the “Proxy Voting Service”)
acting with Glass Lewis & Co, to enable it to fulfill its proxy voting
obligations.
Broadridge
executes, monitors and records the proxies according to the instructions of the
Firm. The Firm relies on the recommendations of Glass Lewis & Co, LLC to
provide recommendations as to how any proxy should be voted in the best
interests of the Clients. These recommendations are integrated into the voting
platform set up by the Proxy Voting Service, and the Firm has instructed the
Proxy Voting Service to execute all proxies in accordance with such
recommendation unless instructed otherwise by the Firm.
The
SEC has expressed its view that although the voting of proxies remains the duty
of a registered adviser, an adviser may contract with service providers to
perform certain functions with respect to proxy voting so long as the adviser is
comfortable that the proxy voting service is independent from the issuer
companies on which it completes its proxy research. In assessing whether a proxy
voting service is independent (as defined by the SEC), the SEC counsels
investment advisers that they should not follow the recommendations of an
independent proxy voting service without first determining, among other things,
that the proxy voting service (a) has the capacity and competence to analyze
proxy issues and (b) is in fact independent and can make recommendations in an
impartial manner in the best interests of the adviser's clients.
At
a minimum annually, or more frequently as deemed necessary, Compliance will
ensure that a review of the independence and impartiality of the Proxy Voting
Service is carried out, including obtaining certification or other information
from the Proxy Voting Service to enable the Firm to make such an assessment.
Compliance will also monitor any new SEC interpretations regarding the voting of
proxies and the uses of third-party proxy voting services and revise the Firm’s
policies and procedures as necessary.
Proxies
relating to securities held in client accounts will be sent directly to the
Proxy Voting Service. If a proxy is received by anyone in the Firm, they must
immediately inform the Compliance and work with Compliance to ensure that it is
promptly forwarded to the Proxy Voting Service. In the event that the Proxy
Voting Service is unable to complete/provide its research regarding a security
on a timely basis or the Firm has made a determination that it is in the best
interests of the Firm’s clients for the Firm to vote the proxy, the Firm’s
general proxy-voting procedures are required to be followed, as follows.
Compliance
will require that:
1.the
recipient of the proxy will forward a copy to Compliance, who will keep a copy
of each proxy received;
2.if
the recipient is not the Portfolio Manager responsible for voting the proxy on
behalf of the Firm, s/he will forward a copy to such Portfolio
manager;
3.the
Portfolio Manager will determine how to vote the proxy promptly in order to
allow enough time for the completed proxy to be returned to the issuer prior to
the vote taking place; and provide evidence of such to Compliance;
4.Absent
material conflicts (see Section V), the Portfolio Manager will determine whether
the Firm will follow the Proxy Voting Service’s recommendation or vote the proxy
directly. The Portfolio Manager will send his/her decision on how the Firm
should vote a proxy to the Proxy Voting Service, in a timely and appropriate
manner. It is desirable to have the Proxy Voting Service complete the actual
voting so there exists one central source for the documentation of the Firm’s
proxy voting records.
Principal
Global Investors, LLC
III.VOTING
GUIDELINES
To
the extent that the Firm is voting a proxy itself and not utilizing the Proxy
Voting Service, the Firm will consider the proxy on a case by case basis and
require that the relevant investment professional vote the proxy in a manner
consistent with the Firm’s duty. Investment professionals of the Firm each have
the duty to vote proxies in a way that, in their best judgment, is in the best
interest of the Firm’s clients.
IV.DISCLOSURE
A.The
Firm will disclose in its Form ADV Part 2 that clients may contact the Chief
Compliance Officer via e-mail or telephone in order to obtain information on how
the Firm voted such client’s proxies, and to request a copy of these policies
and procedures. If a client requests this information, the Chief Compliance
Officer will prepare a written response to the client that lists, with respect
to each voted proxy that the client has inquired about, (1) the name of the
issuer; (2) the proposal voted upon and (3) how the Firm voted the client’s
proxy.
B.A
concise summary of these Proxy Voting Policies and Procedures will be included
in the Firm’s Form ADV Part 2 and will be updated whenever these policies and
procedures are updated. Compliance will arrange for a copy of this summary to be
sent to all existing clients.
V.POTENTIAL
CONFLICTS OF INTEREST
A.In
the event that the Firm is directly voting a proxy, Compliance will examine
conflicts that exist between the interests of the Firm and its clients. This
examination will include a review of the relationship of the Firm, its personnel
and its affiliates with the issuer of each security and any of the issuer’s
affiliates to determine if the issuer is a client of the Firm or an affiliate of
the Firm or has some other relationship with the Firm, its personnel or a client
of the Firm.
B.If,
as a result of Compliance’s examination, a determination is made that a material
conflict of interest exists, the Firm will determine whether voting in
accordance with the voting guidelines and factors described above is in the best
interests of the client. If the proxy involves a matter covered by the voting
guidelines and factors described above, the Firm will generally vote the proxy
as specified above. Alternatively, the Firm may vote the proxy in accordance
with the recommendation of the Proxy Voting Service.
The
Firm may disclose the conflict to the affected clients and, except in the case
of clients that are subject to the Employee Retirement Income Security Act of
1974, as amended (“ERISA”), give the clients the opportunity to vote their
proxies themselves In the case of ERISA clients, if the Investment Management
Agreement reserves to the ERISA client the authority to vote proxies when the
Firm determines it has a material conflict that affects its best judgment as an
ERISA fiduciary, the Firm will give the ERISA client the opportunity to vote the
proxies themselves.
Absent
the client reserving voting rights, the Firm will either vote the proxies in
accordance with the policies outlined in Section III “Voting Guidelines” above
or vote the proxies in accordance with the recommendation of the Proxy Voting
Service.
Principal
Global Investors, LLC
VI.PROXY
RECORDKEEPING
Compliance
will maintain files relating to the Firm’s proxy voting procedures in an easily
accessible place. (Under the services contract between the Firm and its Proxy
Voting Service, the Proxy Voting Service will maintain the Firm’s proxy-voting
records). Records will be maintained and preserved for five years from the end
of the fiscal year during which the last entry was made on a record, with
records for the most recent two years kept in the offices of the Firm. Records
of the following will be included in the files:
1.Copies
of these proxy voting policies and procedures, and any amendments
thereto;
2.A
copy of each proxy statement that the Firm receives regarding client securities
(the Firm may rely on third parties or EDGAR);
3.A
record of each vote that the Firm casts;
4.A
copy of any document the Firm created that was material to making a decision how
to vote proxies, or that memorializes that decision. (For votes that are
inconsistent with the Firm’s general proxy voting polices, the reason/rationale
for such an inconsistent vote is required to be briefly documented and
maintained); and
5.A
copy of each written client request for information on how the Firm voted such
client’s proxies, and a copy of any written response to any (written or oral)
client request for information on how the Firm voted its proxies.
Principal
Global Investors, LLC
BROWN
ADVISORY
Proxy
Voting Policy
March
2022
Discussion
of Brown Advisory’s proxy voting policies and procedures, including specific
approaches for integrating ESG principles into our voting decisions for
sustainable investment strategies
Proxy
voting is the process by which equity shareholders of a company vote, typically
on an annual basis, on various matters pertaining to the governance of that
company. Most proposals are submitted by management, and votes on management
proposals are binding—the equivalent of a binding referendum vote on a ballot
question in a statewide election. Additionally, a growing number of shareholder
proposals are submitted each year for consideration at annual general meetings,
many of which seek to address various environmental, social and governance
issues. These votes are nonbinding, but the vote totals on these proposals can
nonetheless influence corporate behavior.
As
a fiduciary and as a sustainable investor, Brown Advisory considers proxy voting
to be an important responsibility. It is an important mechanism for voicing our
preferences as owners and stakeholders in the companies we hold in our
strategies. This document contains an overview of the principles and processes
that guide our proxy voting on securities—including differences between our
process for institutional strategies and for advisory clients—followed by our
full Proxy Voting Policy, developed in consultation with Institutional
Shareholder Services Inc. (ISS).
Proxy
Voting Principles for Securities Held within our Institutional
Strategies
The
following principles serve as a foundation of our approach to proxy voting for
securities held within our institutional strategies. For these securities, Brown
Advisory’s equity research team has researched the company and generally is
well-informed of any issues material to the company’s business model and
practices. As such, we believe we are in a position to engage with companies on
these issues both through proxy voting and other engagement practices. Proxy
voting is a democratic process that offers shareholders the opportunity to have
their voice heard and express their sentiment as owners. For this reason, we
believe that the rights of shareholders with regard to these resolutions should
be protected by regulators to ensure that investors’ perspectives can always be
heard in a public forum. We seek to participate in industry-wide activities that
express support for these rights, such as sign-on letters and other initiatives
to communicate views to the SEC, FINRA and other regulatory bodies.
▪Proxy
voting is our fiduciary duty. We hold ourselves responsible for aligning our
investment decision-making process and our proxy voting, in order to be
consistent about what we seek from companies we hold in our institutional
portfolios. We seek investments that are building and protecting long-term
shareholder value, and we believe this is reflected in all of our proxy voting
decisions. Responsible management of ESG issues is one input to achieving
long-term shareholder value, and as such, we are likely to support those
shareholder proposals that encourage company action on what we believe are
material ESG risks or opportunities.
▪Transparency
is essential. Brown Advisory is committed to providing proxy reporting and
standardized disclosure of our voting history, as well as publishing N-PX
filings for our mutual funds as required by law. Transparency is an important
step in helping our clients evaluate whether we uphold our stated principles
within our Sustainable and ESG strategies.
▪Bottom-up
due diligence should inform voting decisions. We review each proposal that comes
up for vote. Our analysts seek to dive below the surface and fully understand
the implications of especially complex and material proposals. The
recommendations of our proxy voting partner, ISS, are taken into consideration
but do not determine our final decisions.
▪Collaboration
with other stakeholders can inform our voting choice and amplify the signal of
our vote. We collaborate on voting research, through dialogue between our
analysts and portfolio managers. Where additive and practicable, we also
collaborate with external stakeholders including company management, ISS, issue
experts, ESG research networks and other stakeholders. We believe this
collaboration leads to better-informed decisions, and in certain instances,
collaboration can help to send a stronger message to a company about how the
investment community views a given issue.
▪Proxy
voting can be a part of a larger program to encourage positive changes. Proxy
voting is just one way to communicate with companies on risks and opportunities.
To complement our proxy voting process, and sometimes as result of it, our
investment team might choose to pursue an extended engagement with a company as
it relates to any information found during the due-diligence process for
determining the vote.
Institutional
Proxy Voting Process
▪Proxy
voting for our institutional investment strategies is overseen by a Proxy Voting
Committee made up of equity research analysts, ESG research analysts, trading
operations team members, the Head of Sustainable Investing, our Director of
Equity Research and our General Counsel (among others).
▪The
Committee is responsible for overseeing the proxy voting process. Responsibility
for determining how a vote is cast, however, rests with our investment and ESG
research teams and, ultimately, with the portfolio managers for each Brown
Advisory equity investment strategy. While we use the recommendations of ISS as
a baseline for our voting, especially for routine management proposals, we vote
each proposal after consideration on a case-by-case basis.
▪Our
customized Proxy Voting Policy, developed in consultation with ISS, is reviewed
each year.
▪For
more detail on our Institutional Proxy Voting process, please see pp. 5-6 of
this document.
Advisory
Client Proxy Voting Process
▪Proxy
voting for our Advisory clients (meaning clients for whom we manage customized
accounts in a discretionary relationship according to their goals). is
facilitated and monitored by our Proxy Voting Operations team. The team is
responsible for arrangements with all custodial partners to have accounts set to
electronic omnibus ballot distribution to our proxy voting agency, ISS. When
omnibus ballot distribution is not supported, individualized account set up and
distribution will be arranged.
▪Unless
otherwise agreed with a client, Brown Advisory’s Proxy Voting Policy is assigned
by default to our Advisory client accounts.
▪For
more detail on our Advisory Client Proxy Voting process, please see pp. 6-7 of
this document.
General
Proxy Voting Positions
Below
is a summary of the general positions that guide our voting for clients and
accounts where we have discretion to cast proxy votes. While we approach each
vote proposal on a case-by-case basis, we have a baseline set of “for” and
“against” positions that serve as a starting point for our consideration of both
management and shareholder proposals. For more detail on these positions, please
see pp. 8-11 of this document.
We
consider this baseline framework to be especially important in the realm of
ESG-related shareholder proposals. There are a variety of ESG principles and
ESG-related actions that we believe, by default, can lead to better investment
performance and positive impact on society, and we generally encourage and
support proposals that encourage these principles and actions. As noted above,
there are often tradeoffs we need to consider when voting—for example, our
desire for management to pay attention broadly to a salient issue, vs. specific
details in a proposal that we may not support—to help ensure that our voting
decisions are thoughtful and reflect the interests of all relevant
stakeholders.
|
|
|
|
|
|
|
| |
We
broadly support environmental proposals that encourage |
We
broadly support social proposals that encourage |
We
broadly support governance proposals that encourage |
▪Climate
change and emissions reporting, goal setting, and action |
▪Social
justice |
▪Executive
compensation measures that are linked to ESG metrics |
▪Water
quality, accessibility, and management |
▪Human
rights and responsible labor management |
▪Diverse
and inclusive board composition |
▪Responsible
and effective waste management |
▪Data
privacy and AI ethics |
▪Transparency
with regard to political spending |
▪Energy
efficiency and renewable, lower-carbon energy sourcing |
| |
Reporting
and Transparency
Brown
Advisory publishes its proxy voting activity annually on its website at a
firmwide level, and for each of our mutual funds.
BROWN
ADVISORY PROXY VOTING POLICY ON SECURITIES
The
firm receives proxy ballots on behalf of clients and shall vote such proxies
consistent with this Policy, which sets forth the firm’s standard approach to
voting on common proxy questions. In general, this Policy is designed to ensure
that the firm votes proxies in the best interest of clients, so as to promote
the long-term economic value of the underlying securities. These votes are
informed by both financial and extra-financial data, including material ESG
factors.
Clients
may, at any time, opt to change their proxy voting authorization. Upon notice
that a client has revoked the firm’s authority to vote proxies, the firm will
have the client account removed from omnibus voting and have the proxy setting
updated accordingly. This update at the custodian routes all ballots and annual
reports to the legal address on record of the account holder.
To
facilitate the proxy voting process, the firm has engaged Institutional
Shareholder Services Inc. (“ISS”), an unaffiliated, third-party proxy voting
service, to provide proxy research and voting recommendations. In addition, the
firm subscribes to ISS’s proxy vote management system, which provides a means to
receive and vote proxies, as well as services for record-keeping, auditing,
reporting and disclosure regarding votes. However, securities held within
institutional equity strategies are voted on a case-by-case basis, meaning, we
do not rely exclusively on the proxy policy, and complement our proxy provider’s
research with our own proprietary research to arrive at independent decisions,
when needed. The firm will regularly review our relationship with ISS in order
to assess its capacity and competency to provide services to the firm and to
review certain of its significant policies and procedures, including those
governing conflicts of interests, error identification and correction and
processes to evaluate additional information received during the proxy
process.
On
a regular basis, a list of upcoming proxies issued for companies held within the
institutional strategies are provided to the institutional portfolio managers.
Except in situations identified as presenting material conflicts of interest,
the institutional portfolio manager responsible for the institutional strategy
that holds the security may make the final voting decision based on a variety of
considerations. In circumstances where the securities are not held within an
institutional strategy, proxies will be voted according to Brown Advisory’s
policy, unless the client-specific guidelines provided by Brown Advisory to ISS
specify otherwise. Generally, Brown Advisory’s proxy voting philosophy is
aligned with ISS recommendations.
In
keeping with its fiduciary obligations to clients, the firm considers each proxy
voting proposal related to holdings in the firm’s institutional strategies on
its own merits and an independent determination is made based on the relevant
facts and circumstances, including both fundamental and ESG factors. Proxy
proposals include a wide range of routine and non-routine matters. The firm
generally votes with management on routine matters and takes a more case-by-case
approach regarding non-routine matters.
Voting
preferences of clients may differ based on their values. The firm seeks to
provide clients with the opportunity to have proxies voted in line with these
values. From time to time, clients may prefer to select alternative voting
guidelines that better align with their values. In these cases, the firm will
work with ISS to identify an appropriate alternative policy. Where no
appropriate alternative policy is available, the firm will endeavor to work with
the client to set up appropriate guidelines and procedures to vote
case-by-case
Proxy
Voting Principles for Securities Held within our Institutional
Strategies
▪The
following principles serve as a foundation of our approach to proxy voting for
securities held within our institutional strategies. For these securities, Brown
Advisory’s equity research team has researched the company and generally is
well-informed of any issues material to the company’s business model and
practices. As such, we believe we are in a position to engage with companies on
these issues both through proxy voting and other engagement practices. Proxy
voting is a democratic process that offers shareholders the opportunity to have
their voice heard and express their sentiment as owners. For this reason, we
believe that the rights of shareholders with regard to these resolutions should
be protected by regulators to ensure that investors’ perspectives can always be
heard in a public forum. We seek to participate in industry-wide activities that
express support for these rights, such as sign-on letters and other initiatives
to communicate views to the SEC, FINRA and other regulatory bodies.
▪Proxy
voting is our fiduciary duty. We hold ourselves responsible for aligning our
investment decision-making process and our proxy voting, in order to be
consistent about what we seek from companies we hold in our institutional
portfolios. We seek investments that are building and protecting long-term
shareholder value, and we believe this is reflected in all of our proxy voting
decisions. Responsible management of ESG issues is one input to achieving
long-term shareholder value, and as such, we are likely to support those
shareholder proposals that encourage company action on what we believe are
material ESG risks or opportunities.
▪Transparency
is essential. Brown Advisory is committed to providing proxy reporting and
standardized disclosure of our voting history, as well as publishing N-PX
filings for our mutual funds as required by law. Transparency is an important
step in helping our clients evaluate whether we uphold our stated principles
within our Sustainable and ESG strategies.
▪Bottom-up
due diligence should inform voting decisions. We review each proposal that comes
up for vote. Our analysts seek to dive below the surface and fully understand
the implications of especially complex and material proposals. The
recommendations of our proxy voting partner, ISS, are taken into consideration
but do not determine our final decisions.
▪Collaboration
with other stakeholders can inform our voting choice and amplify the signal of
our vote. We collaborate on voting research, through dialogue between our
analysts and portfolio managers. Where additive and practicable, we also
collaborate with external stakeholders including company management, ISS, issue
experts, ESG research networks and other stakeholders. We believe this
collaboration leads to better-informed decisions, and in certain instances,
collaboration can help to send a stronger message to a company about how the
investment community views a given issue.
▪Proxy
voting can be a part of a larger program to encourage positive changes. Proxy
voting is just one way to communicate with companies on risks and opportunities.
To complement our proxy voting process, and sometimes as result of it, our
investment team might choose to pursue an extended engagement with a company as
it relates to any information found during the due-diligence process for
determining the vote.
Institutional
Proxy Voting Process
▪Proxy
voting for our institutional investment strategies is overseen by a Proxy Voting
Committee made up of equity research analysts, ESG research analysts, trading
operations team members, the Head of Sustainable Investing, our Director of
Equity Research and our General Counsel (among others).
▪The
Committee is responsible for overseeing the proxy voting process. Responsibility
for determining how a vote is cast, however, rests with our investment and ESG
research teams and, ultimately, with the portfolio managers for each Brown
Advisory equity investment strategy. While we use the recommendations of ISS as
a baseline for our voting, especially for routine management proposals, we vote
each proposal after consideration on a case-by-case basis.
▪Our
customized Proxy Voting Policy, developed in consultation with ISS, is reviewed
each year and aims to reflect our fundamental and ESG thinking, so as to achieve
as much alignment between recommendations and execution as possible, while still
enabling our case-by-case approach.
▪A
30-day outlook of upcoming proposals is circulated to our full equity investment
research team each week. Fundamental analysts guide vote recommendations on
management proposals, and ESG analysts guide vote recommendations on shareholder
proposals, with both groups working together to think through the relevant
issues.
▪Proposals
may require additional due diligence and benefit from collaborative
investigation, and this is determined on a case-by-case basis. Where necessary,
our analysts will conduct research on each proposal, which may include
information contained in public filings, policy recommendations and management
conversations. When additional proxy materials become available after a voting
determination is made, we will seek to consider such filings when they are made
sufficiently in advance and where we believe such information would reasonably
be expected to affect our voting determination. To enhance our analysis, we may
collaborate with our internal and external networks, the resolution filer and/or
associated coalition, ISS analysts about their recommendation, the company
itself and relevant industry experts. If our additional due diligence
uncovers factual errors, incompleteness or inaccuracies in the analysis or
recommendation underpinning our vote, the firm will bring this to the attention
of ISS.
▪The
majority of voting recommendations are in line with our Proxy Voting Policy, and
in these cases the vote is automatically cast accordingly.
▪When
our recommendation diverges from the Policy, the responsible analyst will
contact the portfolio managers who own the name and who have final
decision-making power. In most cases, the portfolio managers agree with the
analyst’s recommendation, in rare cases they may overrule. In either case, the
final recommendation is provided to Brown Advisory’s operations team, which
documents the rationale for the vote and ensures vote execution. All votes cast
against policy require approval from the firm’s General Counsel.
▪In
the event that portfolio managers of different strategies disagree on the vote
recommendation for a name they all own, a split vote may be conducted. In
general, this disagreement is due to portfolio managers having unique views on
an issue. A split vote divides all of the company’s shares held by Brown
Advisory and splits the vote in accordance with the strategy’s share ownership
to reflect the individual preferences of each strategy’s portfolio manager(s).
Split votes trigger a review from the Proxy Voting Committee, and such votes
must be approved by the firm’s General Counsel.
Advisory
Client Voting Process
▪Proxy
voting for our Advisory clients is facilitated and monitored by our Proxy Voting
Operations team. The team is responsible for arrangements with all custodial
partners to have accounts set to electronic omnibus ballot distribution to our
proxy voting agency, ISS. When omnibus ballot distribution is not supported,
individualized account set up and distribution will be arranged.
▪Unless
otherwise agreed with a client, Brown Advisory’s Proxy Voting Policy is assigned
by default to our Advisory client accounts.
▪The
following exceptions can apply to standard voting for Advisory
clients:
◦Client
Directed:
A client will always retain her or his authority to request verbally and confirm
in writing their request to:
•Attend
a meeting and vote
•Vote
in line with account owner request
•Request
a take no action or abstention
◦No
Voting:
A client, during on-boarding, will have the ability to request accounts to be
set to have voting ballots mailed directly to the account owner’s
address.
◦Holdings
in Mutual Funds:
All holdings owned by our Advisory client base also held in our mutual fund
complexes may be overseen and governed by the voting practices detailed in the
Institutional section.
◦Client-specific
Guidelines:
Whereas we have a standard policy default, we have the capability to provide our
Advisory clients with the option to customize their voting preferences. Should a
client desire a customized approach, the Brown Advisory client team will work
directly with the client, Brown Advisory Operations, and ISS to establish and
implement client-specific guidelines.
▪The
following voting practices are applied to separately managed
portfolios:
◦Brown
Advisory institutional strategies held in a separately managed account
(SMA):
Holdings within Brown Advisory SMAs are overseen and governed by the Proxy
Voting Committee and follow all protocols detailed in the Institutional
section.
◦Externally
managed strategies held in a SMA:
Holdings within an externally managed strategy held as a SMA are set up with the
delegated and/or appointed manager for voting. In other terms, Brown Advisory
yields voting authority to the appointed manager.
▪Please
note the following voting practices are applied to corporate action events
whereby the voting matter has a direct financial impact on the Advisory client
account holder:
◦Such
corporate action events with a direct financial impact on the Advisory client
account holder will default to a case-by-case determination within our voting
platform at ISS.
◦Customized
reporting and service alerts will be distributed to our Proxy Voting Operations
team.
◦The
Proxy Voting Operations team will identify the account holders and Portfolio
Management teams to take action on the event. A request with supporting detail
and documentation will be sent to the Portfolio Management team to review and
provide the voting recommendation.
◦When
appropriate, our Portfolio Management team may engage the client on specific
events, to discuss a proposed action.
GENERAL
POSITIONS
Below
is a summary of Brown Advisory’s general positions for voting on common proxy
questions when Brown Advisory is authorized to vote shares at its discretion
rather than by a client’s specific guidelines. Given the dynamic and
wide-ranging nature of corporate governance issues that may arise, this summary
is not intended to be exhaustive.
Management
Recommendations
Since
the quality and depth of management is a primary factor considered when
investing in an issuer, the recommendation of the issuer’s management on any
issue will be given substantial weight. Furthermore, Brown Advisory runs
concentrated equity portfolios which we believe generally results in holding
high quality companies that have strong and trustworthy management teams. This
quality bias results in our portfolio managers generally supporting management
proposals. Although proxies with respect to most issues are voted in line with
the recommendation of the issuer’s management, the firm will not blindly vote in
favor of management. The firm will not support proxy proposals or positions that
it believes compromise clients’ best interests or that the firm determines may
be detrimental to the underlying value of client positions.
Election
of Directors
Although
proxies will typically be voted for a management-proposed slate of directors,
the firm may vote against (or withhold votes for) such directors if there are
compelling corporate governance reasons for doing so. Some of these reasons may
include where a director: attends less than 75% of board and relevant committee
meetings; is the CEO of a company where a serious restatement occurred after the
CEO certified the financial statements; served at a time when a poison pill was
adopted without shareholder approval within the prior year; is the CFO of the
company; has an interlocking directorship; has a perceived conflict of interest
(or the director’s immediate family member has a perceived conflict of
interest); or serves on an excessive number of boards.
The
firm seeks to support independent boards of directors comprised of members with
diverse backgrounds (including gender and race), a breadth and depth of relevant
experience (including sustainability), and a track record of positive, long-term
performance. The firm may vote against any boards that do not have the following
levels of diversity (i.e. directors who are women or other underrepresented
groups):
▪For
boards consisting of six or fewer directors, the firm may vote against the
Nominating Committee Chair where the board does not have one diverse director by
2022, and two diverse directors by 2024.
▪For
boards consisting of more than six directors, the firm may vote against the
Nominating Committee Chair where the board does not have 20% diverse board
members by 2022, and 30% diverse directors by 2024.
▪In
cases where the Nominating Committee Chair is not up for re-election, the firm
may vote against other board members including the Chair of the
board
Separation
of the roles of Chairman and CEO is generally supported, but the firm will not
typically vote against a CEO who serves as chairman or director. In the absence
of an independent chairman, however, the firm generally supports the appointment
of a lead director with authority to conduct sessions outside the presence of
the insider chairman.
The
firm will typically vote against any inside director seeking appointment to a
key committee (audit, compensation, nominating or governance), since the firm
believes that the service of independent directors on such committees best
protects and enhances the interests of shareholders. Where insufficient
information is provided regarding performance metrics, or where pay is not tied
to performance (e.g., where management has excessive discretion to alter
performance terms or previously defined targets), the firm will typically vote
against the chair of the compensation committee.
Appointment
and Rotation of Auditors
Management
recommendations regarding selection of an auditor shall generally be supported,
but the firm will not support the ratification of an auditor when there appears
to be a hindrance on auditor independence, intentional accounting irregularity
or negligence by the auditor. Some examples include: when an auditing firm has
other relationships with the company that may suggest a conflict of interest;
when the auditor bears some responsibility for a restatement by the company;
when a company has aggressive accounting policies or lack of transparency in
financial statements; and when a company changes auditors as a result of
disagreement between the company and the auditor regarding accounting principles
or disclosure issues. The firm will generally support proposals for voluntary
auditor rotation with reasonable frequency and/or rationale.
Changes
in State of Incorporation or Capital Structure
Management
recommendations about reincorporation are generally supported unless the new
jurisdiction in which the issuer is reincorporating has laws that would dilute
the rights of shareholders of the issuer. The firm will generally vote against
reincorporation where it believes the financial benefits are minimal and there
is a decrease in shareholder rights. Shareholder proposals to change the
company’s place of incorporation generally will only be supported in exceptional
circumstances.
Proposals
to increase the number of authorized shares will be evaluated on a case-by-case
basis. Because adequate capital stock is important to the operation of a
company, the firm will generally support the authorization of additional shares,
unless the issuer has not disclosed a detailed plan for use of the shares, or
where the number of shares far exceeds those needed to accomplish a detailed
plan. Additionally, if the issuance of new shares will limit shareholder rights
or could excessively dilute the value of outstanding shares, then such proposals
will be supported only if they are in the best interest of the
client.
Corporate
Restructurings, Mergers and Acquisitions
These
proposals should be examined on a case-by-case basis, as they are an extension
of an investment decision.
Proposals
Affecting Shareholder Rights
The
firm generally favors proposals that are likely to promote shareholder rights
and/or increase shareholder value. Proposals that seek to limit shareholder
rights, such as the creation of dual classes of stock, generally will not be
supported.
Anti-takeover
Issues
Measures
that impede takeovers or entrench management will be evaluated on a case-by-case
basis, taking into account the rights of shareholders, since the financial
interest of shareholders regarding buyout offers is so substantial.
Although
the firm generally opposes anti-takeover measures because they tend to diminish
shareholder rights and reduce management accountability, the firm generally
supports proposals that allow shareholders to vote on whether to implement a
“poison pill” plan (shareholder rights plan). In certain circumstances, the firm
may support a limited poison pill to accomplish a particular objective, such as
the closing of an important merger, or a pill that contains a reasonable
‘qualifying offer’ provision. The firm generally supports anti-greenmail
proposals, which prevent companies from buying back company stock at significant
premiums from a large shareholder.
Shareholder
Action
The
firm generally supports proposals that allow shareholders to call special
meetings, with a minimum threshold of shareholders requesting such a meeting.
The firm believes that best practice for a minimum threshold of shareholders
required to call a special meeting is generally considered to be between 20-25%,
however the firm assesses this on a company-by-company basis. Proposals that
allow shareholders to act by written consent are also generally supported, if
there is a threshold of the minimum number of votes that would be necessary to
authorize the action at a meeting at which all shareholders entitled to vote
were present and voting. The firm believes that best practice for a minimum
threshold of shareholders required to act by written consent is generally
considered to be between 20-25%, however the firm assesses this on a
company-by-company basis. In order to assess the appropriateness of special
meeting and written consent provisions the firm would, for example, consider the
make-up of the existing investor base/ownership, to determine whether a small
number of investors could easily achieve the required threshold, as well as what
other mechanisms or governance provisions already exist for shareholders to
access management.
Proxy
Access
The
firm believes that shareholders should, under reasonable conditions, have the
right to nominate directors of a company. The firm believes that it is generally
in the best interest of shareholders for companies to provide shareholders with
reasonable opportunity to exercise this right, while also ensuring that
short-term investors or investors without substantial investment in the company
cannot abuse this right. In general, we believe that the appropriate threshold
for proxy access should permit up to 20 shareholders that collectively own 3% or
more of the company’s outstanding shares for 3 or more years to nominate the
greater of 2 directors or 20% of the board’s directors, however the firm
assesses this on a case-by-case basis.
Executive
Compensation
Although
management recommendations should be given substantial weight, proposals
relating to executive compensation plans, including stock option plans and other
equity-based compensation, should be examined on a case-by- case basis to ensure
that the long-term interests of management and shareholders are properly
aligned. This alignment includes assessing whether compensation is tied to both
ESG and financial KPIs. Share count and voting power dilution should be
limited.
The
firm generally favors the grant of restricted stock units (RSUs) to executives,
since RSUs are an important component of compensation packages that link
executives’ compensation with their performance and that of the company. The
firm typically opposes caps on executive stock RSUs, since tying an executive’s
compensation to the performance of the company provides incentive to maximize
share value. The firm also supports equity grants to directors, which help align
the interests of outside directors with those of shareholders, although such
awards should not be performance-based, so that directors are not incentivized
in the same manner as executives.
Proposals
to reprice or exchange RSUs are reviewed on a case-by-case basis, but are
generally opposed. The firm generally will support a repricing only in limited
circumstances, such as if the stock decline mirrors the market or industry price
decline in terms of timing and magnitude and the exchange is not value
destructive to shareholders.
Although
matters of executive compensation should generally be left to the board’s
compensation committee, proposals to limit executive compensation will be
evaluated on a case-by-case basis.
The
firm generally supports shareholder proposals to allow shareholders an advisory
vote on compensation. Absent a compelling reason, companies should submit
say-on-pay votes to shareholders every year, since such votes promote valuable
communication between the board and shareholders regarding compensation. Where
there is an issue involving egregious or excessive bonuses, equity awards or
severance payments (including golden parachutes), the firm will generally vote
against a say-on-pay proposal. The firm may oppose the election of compensation
committee members at companies that do not satisfactorily align executive
compensation with the interests of shareholders.
Environmental,
Social and Governance Issues
Shareholder
proposals regarding environmental, social and governance issues, in general, are
supported, especially when they would have a clear and direct positive financial
effect on shareholder value and would not be burdensome or impose unnecessary or
excessive costs on the issuer. The environmental, social and governance
proposals we generally support often result in increased reporting and
disclosure, which deepens our understanding of the risks and opportunities
pertaining to a specific company. Although policy decisions are typically better
left to management and the board, in cases where the firm believes a company has
not adequately mitigated significant ESG risks, the firm may vote against
directors.
Brown
Advisory broadly supports proposals that encourage the following considerations
that we believe are in the best long-term economic interest of our
clients:
Environment
▪Climate
change and emissions reporting, goal setting, and action
▪Water
quality, accessibility, and management
▪Responsible
and effective waste management
▪Energy
efficiency and renewable, lower-carbon energy sourcing
Social
▪Social
justice
▪Human
rights and responsible labor management
▪Data
privacy and AI ethics
Governance
▪Executive
compensation measures that are linked to ESG metrics
▪Diverse
and inclusive board composition
▪Transparency
with regard to political spending
Non-U.S.
Proxy Proposals
For
actively recommended issuers domiciled outside the United States, the firm may
follow ISS’s international proxy voting guidelines, including, in certain
circumstances, country-specific guidelines.
Conflicts
of Interest
A
“conflict of interest” means any circumstance when the firm or one of its
affiliates (including officers, directors and employees), or in the case where
the firm serves as investment adviser to a Brown Advisory Fund, when the Fund or
the principal underwriter, or one or more of their affiliates (including
officers, directors and employees), knowingly does a material amount of business
with, receives material compensation from, or sits on the board of, a particular
issuer or closely affiliated entity and, therefore, may appear to have a
conflict of interest between its own interests and the interests of clients or
Fund shareholders in how proxies of that issuer are voted. For example, a
perceived conflict of interest may exist if an employee of the firm serves as a
director of an actively recommended issuer, or if the firm is aware that a
client serves as an officer or director of an actively recommended issuer.
Conflicts of interest will be resolved in a manner the firm believes is in the
best interest of the client.
The
firm should vote proxies relating to such issuers in accordance with the
following procedures:
Routine
Matters and Immaterial Conflicts: The firm may vote proxies for routine matters,
and for non-routine matters that are considered immaterial conflicts of
interest, consistent with this Policy. A conflict of interest will be considered
material to the extent that it is determined that such conflict has the
potential to influence the firm’s decision-making in voting a proxy. Materiality
determinations will be made by the Chief Compliance Officer or designee based
upon an assessment of the particular facts and circumstances.
Material
Conflicts and Non-Routine Matters: If the firm believes that (a) it has a
material conflict and (b) that the issue to be voted upon is non-routine or is
not covered by this Policy, then to avoid any potential conflict of
interest:
▪In
the case of a Fund, the firm shall contact the Fund board for a review and
determination.
▪In
the case of all other conflicts or potential conflicts, the firm may “echo vote”
such shares, if possible, which means the firm will vote the shares in the same
proportion as the vote of all other holders of the issuer’s shares; OR in cases
when echo voting is not possible, the firm may defer to ISS recommendations,
abstain or vote in a manner that the firm, in consultation with the General
Counsel, believes to be in the best interest of the client.
▪If
the aforementioned options would not address or ameliorate the conflict or
potential conflict, then the firm may abstain from voting, as described
below.
Abstention
In
recognition of its fiduciary obligations, the firm generally endeavors to vote
the proxies it receives. However, the firm may abstain from voting proxies in
certain circumstances. For example, the firm may determine that abstaining from
voting is appropriate if voting is not in the best interest of the client. In
addition to abstentions due to material conflicts of interest, situations in
which we would not vote proxies might include:
▪Circumstances
where the cost of voting the proxy exceeds the expected benefits to the
client
▪Circumstances
where there are significant impediments to an efficient voting process,
including with respect to non-US issuers where the vote requires translations or
other burdensome conditions
▪Circumstances
where the vote would not reasonably be expected to have a material effect on the
value of the client’s investment.
Client-Specific
Guidelines
From
time to time, clients may prefer to elect alternative voting guidelines in cases
where the guidelines previously outlined in this document do not align with the
client’s investment or value objectives. The firm seeks to provide clients with
the opportunity to have proxies voted in line with their values and objectives.
Where a client desires to elect alternative voting guidelines, the firm will
work with the client and ISS to identify appropriate alternative voting
guidelines. Where no appropriate pre-defined alternative guidelines are
available, the firm will endeavor to work with the client to define and set up
guidelines to vote proxies on a case-by-case basis. If the firm has not
previously implemented the alternative guidelines, members of the firm’s proxy
voting committee will review the policy to ensure alignment with our fiduciary
duty. The firm may recommend a departure from specific aspects of the selected
policy’s guidelines when it deems such a departure to be in the client’s best
interest.
The
views expressed are those of the author and Brown Advisory as of the date
referenced and are subject to change at any time based on market or other
conditions. These views are not intended to be and should not be relied upon as
investment advice and are not intended to be a forecast of future events or a
guarantee of future results. Past performance is not a guarantee of future
performance and you may not get back the amount invested.
The
information provided in this material is not intended to be and should not be
considered to be a recommendation or suggestion to engage in or refrain from a
particular course of action or to make or hold a particular investment or pursue
a particular investment strategy, including whether or not to buy, sell, or hold
any of the securities mentioned. It should not be assumed that investments in
such securities have been or will be profitable. To the extent specific
securities are mentioned, they have been selected by the author on an objective
basis to illustrate views expressed in the commentary and do not represent all
of the securities purchased, sold or recommended for advisory clients. The
information contained herein has been prepared from sources believed reliable
but is not guaranteed by us as to its timeliness or accuracy, and is not a
complete summary or statement of all available data. This piece is intended
solely for our clients and prospective clients, is for informational purposes
only, and is not individually tailored for or directed to any particular client
or prospective client.
ESG
considerations that are material will vary by investment style, sector/industry,
market trends and client objectives. ESG strategies seek to identify companies
that they believe may have desirable ESG outcomes, but investors may differ in
their views of what constitutes positive or negative ESG outcomes. As a result,
the strategies may invest in companies that do not reflect the beliefs and
values of any particular investor. The strategies may also invest in companies
that would otherwise be screened out of other ESG oriented funds. Security
selection will be impacted by the combined focus on ESG assessments and
forecasts of return and risk.
The
strategies intend to invest in companies with measurable ESG outcomes, as
determined by Brown Advisory, and seeks to screen out particular companies and
industries. Brown Advisory relies on third parties to provide data and screening
tools. There is no assurance that this information will be accurate or complete
or that it will properly exclude all applicable securities. Investments selected
using these tools may perform differently than as forecasted due to the factors
incorporated into the screening process, changes from historical trends, and
issues in the construction and implementation of the screens (including, but not
limited to, software issues and other technological issues). There is no
guarantee that Brown Advisory’s use of these tools will result in effective
investment decisions.
www.brownadvisory.com
SPECTRUM
ASSET MANAGEMENT, INC.
Policy
on Proxy Voting
For
Investment Advisory Clients
2023
GENERAL
POLICY
Spectrum,
an investment adviser registered with the Securities and Exchange Commission,
acts as investment advisor for various types of client accounts (e.g. employee
benefit plans, governmental plans, mutual funds, insurance company separate
accounts, corporate pension plans, endowments and foundations). While
Spectrum receives few proxies for the preferred shares it manages, Spectrum
nonetheless will, when delegated the authority by a client, vote these shares
per the following policy voting standards and processes:
STANDARDS:
Spectrum’s
standards aim to ensure the following in keeping with the best interests of its
clients:
•That
Spectrum act solely in the interest of its clients in providing for ultimate
long-term stockholder value.
•That
Spectrum act without undue influence from individuals or groups who may have an
economic interest in the outcome of a proxy vote.
•That
the custodian bank is aware of our fiduciary duty to vote proxies on behalf of
others – Spectrum relies on the best efforts of the custodian bank to deliver
all proxies we are entitled to vote.
•That
Spectrum will exercise its right to vote all proxies on behalf of its clients
(or permit clients to vote their interest, as the case(s) may be).
•That
Spectrum will implement a reasonable and sound basis to vote
proxies.
PROCESSES:
A.Following
ISS’ Recommendations
Spectrum
has selected Institutional Shareholder Services (ISS) to assist it with its
proxy voting responsibilities. Spectrum follows ISS Standard Proxy
Voting guidelines (the “Guidelines”). The Guidelines embody the
positions and factors Spectrum generally considers important in casting proxy
votes. They address a wide variety of individual topics, including, among other
matters, shareholder voting rights, anti-takeover defenses, board structures,
the election of directors, executive and director compensation, reorganizations,
mergers, and various shareholder proposals. Recognizing the complexity and
fact-specific nature of many corporate governance issues, the Guidelines often
do not direct a particular voting outcome, but instead identify factors ISS
considers in determining how the vote should be cast.
In
connection with each proxy vote, ISS prepares a written analysis and
recommendation (an "ISS Recommendation") that reflects ISS's application of
Guidelines to the particular proxy issues. Where the Guidelines do not direct a
particular response and instead list relevant factors, the ISS Recommendation
will reflect ISS's own evaluation of the factors. Spectrum may on any particular
proxy vote decide to diverge from the Guidelines or an ISS Recommendation. In
such cases, our procedures require: (i) the requesting Portfolio Manager to set
forth the reasons for their decision; (ii) the approval of the Chief Investment
Officer; (iii) notification to the Compliance Department and other appropriate
Principal Global Investors personnel; (iv) a determination that the decision is
not influenced by any conflict of interest; and (v) the creation of a written
record reflecting the process.
Spectrum
generally votes proxies in accordance with ISS’ recommendations. When
Spectrum follows ISS’ recommendations, it need not follow the conflict of
interest procedures in Section B, below.
From
time to time ISS may have a business relationship or affiliation with one or
more issuers held in Spectrum client accounts, while also providing voting
recommendations on these issuers’ securities. Because this practice
may present a conflict of interest for ISS, Spectrum’s Chief Compliance Officer
will require from ISS at least annually additional information, or a
certification that ISS has adopted policies and procedures to detect and
mitigate such conflicts of interest in issuing voting
recommendations. Spectrum may obtain voting recommendations from two
proxy voting services as an additional check on the independence of the ISS’
voting recommendations.
B.Disregarding
ISS’ Recommendations
Should
Spectrum determine not to follow ISS’ recommendation for a particular proxy,
Spectrum will use the following procedures for identifying and resolving a
material conflict of interest and will use the Proxy Voting Guidelines (below)
in determining how to vote. The Report for Proxy Vote(s) against ISS
Recommendation(s), Exhibit A hereto, shall be completed in each such
instance.
Spectrum
will classify proxy vote issues into three broad categories: Routine
Administrative Items, Special Interest Issues, and Issues Having the Potential
for Significant Economic Impact. Once the Senior Portfolio Manager
has analyzed and identified each issue as belonging in a particular category and
disclosed the conflict of interests to affected clients and obtained their
consents prior to voting, Spectrum will cast the client’s vote(s) in accordance
with the philosophy and decision guidelines developed for that
category. New and unfamiliar issues are constantly appearing in the
proxy voting process. As new issues arise, we will make every effort
to classify them among the three categories below. If we believe it
would be informative to do so, we may revise this document to reflect how we
evaluate such issues.
Due
to timing delays, logistical hurdles and high costs associated with procuring
and voting international proxies, Spectrum has elected to approach international
proxy voting on the basis of achieving “best efforts at a reasonable
cost.”
As
a fiduciary, Spectrum owes its clients an undivided duty of
loyalty. We strive to avoid even the appearance of a conflict that
may compromise the trust our clients have placed in it. This is true
with respect to proxy voting and thus Spectrum has adopted the following
procedures for addressing potential or actual conflicts of
interest.
Identifying
a Conflict of Interest. There
may be a material conflict of interest when Spectrum votes a proxy solicited by
an issuer whose retirement plan or fund we manage or with whom Spectrum, an
affiliate, or an officer or director of Spectrum or of an affiliate has any
other material business or personal relationship that may affect how we vote the
issuer’s proxy. To avoid any perceived material conflict of interest,
the following procedures have been established for use when Spectrum encounters
a potential material conflict to ensure that voting decisions are based on a
clients’ best interest and are not the product of a material
conflict.
Monitoring
for Conflicts of Interest. All
employees of Spectrum are responsible for monitoring for conflicts of interest
and referring any that may be material to the CCO for resolution. At
least annually, the CCO will take reasonable steps to evaluate the nature of
Spectrum’s material business relationships (and those of its affiliates) with
any company whose preferred securities are held in client accounts (a “portfolio
company”) to assess which, if any, could give rise to a conflict of
interest. CCO’s review will focus on the following three
categories:
•Business
Relationships – The CCO will consider whether Spectrum (or an affiliate) has a
substantial business relationship with a portfolio company or a proponent of a
proxy proposal relating to the portfolio company (e.g., an employee group), such
that failure to vote in favor of management (or the proponent) could harm the
adviser’s relationship with the company (or proponent). For example,
if Spectrum manages money for the portfolio company or an employee group,
manages pension assets, leases office space from the company, or provides other
material services to the portfolio company, the CCO will review whether such
relationships may give rise to a conflict of interest.
•Personal
Relationships – The CCO will consider whether any senior executives or portfolio
managers (or similar persons at Spectrum’s affiliates) have a personal
relationship with other proponents of proxy proposals, participants in proxy
contests, corporate directors, or candidates for directorships that might give
rise to a conflict of interest.
•Familial
Relationships – The CCO will consider whether any senior executives or portfolio
managers (or similar persons at Spectrum’s affiliates) have a familial
relationship relating to a portfolio company (e.g., a spouse or other relative
who serves as a director of a portfolio company, is a candidate for such a
position, or is employed by a portfolio company in a senior
position).
Spectrum
Asset Management, Inc.
In
monitoring for conflicts of interest, the CCO will consider all information
reasonably available to it about any material business, personal, or familial
relationship involving Spectrum (and its affiliates) and a portfolio company,
including the following:
•A
list of clients that are also public companies, which is prepared and updated by
the Operations Department and retained in the Compliance
Department.
•Publicly
available information.
•Information
generally known within Spectrum.
•Information
actually known by senior executives or portfolio managers. When considering a
proxy proposal, investment professionals involved in the decision-making process
must disclose any potential material conflict that they are aware of to the CCO
prior to any substantive discussion of a proxy matter.
•Information
obtained periodically from those persons whom the CCO reasonably believes could
be affected by a conflict arising from a personal or familial relationship
(e.g., portfolio managers, senior management).
The
CCO may, at his discretion, assign day-to-day responsibility for monitoring for
conflicts to a designated person. With respect to monitoring of
affiliates, the CCO in conjunction with PGI’s CCO may rely on information
barriers between Spectrum and its affiliates in determining the scope of its
monitoring of conflicts involving affiliates.
Determining
Whether a Conflict of Interest is “Material”
– On a regular basis, CCO will monitor conflicts of interest to determine
whether any may be “material” and therefore should be referred to PGI for
resolution. The SEC has not provided any specific guidance as to what
types of conflicts may be “material” for purposes of proxy voting, so therefore
it would be appropriate to look to the traditional materiality analysis under
the federal securities laws, i.e., that a “material” matter is one that is
reasonably likely to be viewed as important by the average
shareholder.
Whether
a conflict may be material in any case will, of course, depend on the facts and
circumstances. However, in considering the materiality of a conflict, Spectrum
will use the following two-step approach:
1.Financial
Materiality – The most likely indicator of materiality in most cases will be the
dollar amount involved with the relationship in question. For
purposes of proxy voting, it will be presumed that a conflict is not material
unless it involves at least 5% of Spectrum’s annual revenues or a minimum dollar
amount of $1,000,000. Different percentages or dollar amounts may be
used depending on the nature and degree of the conflict (e.g., a higher number
if the conflict arises through an affiliate rather than directly with
Spectrum).
2.Non-Financial
Materiality – A non-financial conflict of interest might be material (e.g.,
conflicts involving personal or familial relationships) and should be evaluated
based on the facts and circumstances of each case.
If
the CCO has any question as to whether a particular conflict is material, it
should presume the conflict to be material and refer it to the PGI’s CCO for
resolution. As in the case of monitoring conflicts, the CCO may
appoint a designated person or subgroup of Spectrum’s investment team to
determine whether potential conflicts of interest may be material.
Resolving
a Material Conflict of Interest
– When an employee of Spectrum refers a potential material conflict of interest
to the CCO, the CCO will determine whether a material conflict of interest
exists based on the facts and circumstances of each particular
situation. If the CCO determines that no material conflict of
interest exists, no further action is necessary and the CCO will notify
management accordingly. If the CCO determines that a material
conflict exists, CCO must disclose the conflict to affected clients and obtain
consent from each as to the manner in which Spectrum proposes to
vote.
Clients
may obtain information about how we voted proxies on their behalf by contacting
Spectrum’s Compliance Department.
Spectrum
Asset Management, Inc.
PROXY
VOTING GUIDELINES
CATEGORY
I: Routine
Administrative Items
Philosophy: Spectrum
is willing to defer to management on matters of a routine administrative nature.
We feel management is best suited to make those decisions which are essential to
the ongoing operation of the company and which do not have a major economic
impact on the corporation and its shareholders. Examples of issues on which
we will normally defer to management’s recommendation
include:
1.selection
of auditors
2.increasing
the authorized number of common shares
3.election
of unopposed directors
CATEGORY
II: Special
Interest Issues
Philosophy: While
there are many social, political, environmental and other special interest
issues that are worthy of public attention, we do not believe the corporate
proxy process is the appropriate arena in which to achieve gains in these
areas. Our primary responsibility in voting proxies is to provide for
the greatest long-term value for Spectrum’s clients. We are opposed
to proposals which involve an economic cost to the corporation, or which
restrict the freedom of management to operate in the best interest of the
corporation and its shareholders. However, in general we will abstain
from voting on shareholder social, political and environmental proposals because
their long-term impact on share value cannot be calculated with any reasonable
degree of confidence.
CATEGORY
III: Issues
Having the Potential for Significant Economic Impact
Philosophy: Spectrum
is not willing to defer to management on proposals which have the potential for
major economic impact on the corporation and the value of its
shares. We believe such issues should be carefully analyzed and
decided by the owners of the corporation. Presented below are
examples of issues which we believe have the potential for significant economic
impact on shareholder value.
1.Classification
of Board of Directors.
Rather than electing all directors annually, these provisions
stagger a board, generally into three annual classes, and call for only
one-third to be elected each year. Staggered boards may help to
ensure leadership continuity, but they also serve as defensive
mechanisms. Classifying the board makes it more difficult to change
control of a company through a proxy contest involving election of
directors. In general, we vote on a case by case basis on proposals
for staggered boards, but generally favor annual elections of all
directors.
2.Cumulative
Voting of Directors. Most
corporations provide that shareholders are entitled to cast one vote for each
director for each share owned - the one share, one vote standard. The
process of cumulative voting, on the other hand, permits shareholders to
distribute the total number of votes they have in any manner they wish when
electing directors. Shareholders may possibly elect a minority
representative to a corporate board by this process, ensuring representation for
all sizes of shareholders. Outside shareholder involvement can
encourage management to maximize share value. We generally support
cumulative voting of directors.
3.Prevention
of Greenmail. These
proposals seek to prevent the practice of “greenmail”, or targeted share
repurchases by management of company stock from individuals or groups seeking
control of the company. Since only the hostile party receives
payment, usually at a substantial premium over the market value of its shares,
the practice discriminates against all other shareholders. By making
greenmail payments, management transfers significant sums of corporate cash to
one entity, most often for the primary purpose of saving their
jobs. Shareholders are left with an asset-depleted and often less
competitive company. We think that if a corporation offers to buy
back its stock, the offer should be made to all shareholders, not just to a
select group or individual. We are opposed to greenmail and will
support greenmail prevention proposals.
Spectrum
Asset Management, Inc.
4.Supermajority
Provisions. These
corporate charter amendments generally require that a very high percentage of
share votes (70-81%) be cast affirmatively to approve a merger, unless the board
of directors has approved it in advance. These provisions have the
potential to give management veto power over merging with another company, even
though a majority of shareholders favor the merger. In most cases we
believe requiring supermajority approval of mergers places too much veto power
in the hands of management and other minority shareholders, at the expense of
the majority shareholders, and we oppose such provisions.
5.Defensive
Strategies. These
proposals will be analyzed on a case by case basis to determine the effect on
shareholder value. Our decision will be based on whether the proposal
enhances long-term economic value.
6.Business
Combinations or Restructuring. These
proposals will be analyzed on a case by case basis to determine the effect on
shareholder value. Our decision will be based on whether the proposal
enhances long-term economic value.
7.Executive
and Director Compensation. These
proposals will be analyzed on a case by case basis to determine the effect on
shareholder value. Our decision will be based on whether the proposal
enhances long-term economic value.
Spectrum
Asset Management, Inc.
|
| |
Exhibit
A to Proxy Policy |
|
Report
for Proxy Vote(s) Against ISS Recommendation(s) |
|
This
form should be completed in instances in which Spectrum Portfolio
Manager(s) decide to vote against ISS recommendations. |
|
1.
Security Name / Symbol: |
|
|
| |
3.
Summary of ISS recommendation (see attached full ISS
recommendation: |
|
|
|
| |
4.
Reasons for voting against ISS recommendation (supporting documentation
may be attached): |
|
|
|
| |
5.
Determination of potential conflicts (if any): |
|
|
|
|
|
|
|
|
|
| |
6.
Contacted Compliance Department: Yes / No |
Name
of individual contacted: |
| |
Date: |
| |
|
|
|
|
|
|
|
| |
7.
Contacted other Spectrum portfolio managers who have position in same
security: Yes / No |
Name
of individual contacted: |
| |
Date: |
| |
|
|
|
|
|
|
|
|
|
|
| |
8.
Portfolio Manager Signature: |
|
Date: |
| |
Portfolio
Manager Name: |
| |
|
| |
Portfolio
Manager Signature*: |
| |
Date: |
| |
Portfolio
Manager Name: |
| |
*Note:
All Portfolio Managers who manage portfolios that hold relevant security must
sign.
Spectrum
Asset Management, Inc.
T.
ROWE
PRICE
ASSOCIATES,
INC.
AND
CERTAIN
OF
ITS
INVESTMENT ADVISER AFFILIATES
PROXY
VOTING
POLICIES
AND
PROCEDURES
RESPONSIBILITY
TO
VOTE
PROXIES
T.
Rowe
Price
Associates,
Inc.
and
certain
of
its
investment
adviser
affiliates1
(collectively,
“T.
Rowe Price”)
have adopted these Proxy Voting Policies and Procedures (“Policies
and Procedures”)
for the purpose of establishing formal policies and procedures for performing
and documenting their fiduciary duty with regard to the voting of client
proxies. This document is reviewed at least annually and updated as
necessary.
T.
Rowe
Price
recognizes
and
adheres
to
the
principle
that
one
of
the
privileges
of
owning
stock in a company is the right to vote in the election of the company’s
directors and on matters affecting
certain
important
aspects
of
the
company’s
structure
and
operations
that
are
submitted
to
shareholder vote. The U.S.-registered investment companies which T. Rowe Price
sponsors and serves
as
investment
adviser
(the
“Price
Funds”)
as
well
as
other
investment
advisory
clients
have
delegated
to
T.
Rowe
Price
certain
proxy
voting
powers.
As
an
investment
adviser,
T.
Rowe
Price
has a fiduciary responsibility to such clients when exercising its voting
authority with respect to securities held in their portfolios. T. Rowe Price
reserves the right to decline to vote proxies in accordance with client-specific
voting guidelines.
Fiduciary
Considerations.
It
is
the
policy
of
T.
Rowe
Price
that
decisions
with
respect
to
proxy issues will be made in light of the anticipated impact of the issue on the
desirability of investing in the portfolio company from the viewpoint of the
particular advisory client or Price Fund. Proxies are voted solely in the
interests of the client, Price Fund shareholders or, where employee benefit plan
assets are involved, in the interests of plan participants and beneficiaries.
Our intent has always been to vote proxies, where possible to do so, in a manner
consistent with our fiduciary obligations and responsibilities.
One
of the primary factors T. Rowe Price considers when determining the desirability
of investing
in
a
particular
company
is
the
quality
and
depth
of
its
management.
We
recognize
that
a
company’s
management
is
entrusted
with
the
day-to-day
operations
of
the
company,
as
well
as
its
long-term direction and strategic planning, subject to the oversight of the
company’s board of directors.
Accordingly,
our
proxy
voting
guidelines
are
not
intended
to
substitute
our
judgment
for
management’s with respect to the company’s day-to-day operations. Rather, our
proxy voting guidelines are designed to promote accountability of a company’s
management and board of directors
to
its
shareholders;
to
align
the
interests
of
management
with
those
of
shareholders;
and
1This
document is not applicable to T. Rowe Price Investment Management, Inc.
(“TRPIM”).
TRPIM
votes proxies
independently
from
the
other
T.
Rowe
Price-related
investment
advisers
and
has
adopted
its
own
proxy
voting policy.
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TRPA
2023
Proxy
Voting
Policies
and
Procedures.doc
Updated: February 2023 |
to
encourage companies to adopt best practices in terms of their corporate
governance and disclosure. In addition to our proxy voting guidelines, we rely
on a company’s public filings, its board recommendations, its track record,
country-specific best practices codes, our research providers and – most
importantly – our investment professionals’ views in making voting
decisions.
T.
Rowe
Price
investment
personnel
do
not
coordinate
with
investment
personnel
of
its
affiliated investment adviser, TRPIM, with respect to proxy voting
decisions.
T.
Rowe Price seeks to vote all of its clients’ proxies.
In
certain circumstances, T. Rowe Price
may
determine
that
refraining
from
voting
a
proxy
is
in
a
client’s
best
interest,
such
as
when
the
cost
of
voting
outweighs
the
expected
benefit
to
the
client.
For
example,
the
practicalities
and
costs involved with international investing may make it impossible at times, and
at other times disadvantageous, to vote proxies in every instance.
ADMINISTRATION
OF
POLICIES
AND
PROCEDURES
Environmental,
Social and Governance Investing Committee.
T. Rowe Price’s Environmental, Social and Governance Investing Committee
(“TRPA
ESG Investing Committee” or
the “Committee)
is responsible for establishing positions with respect to corporate governance
and other proxy issues. Certain delegated members of the Committee also
review
questions
and
respond
to
inquiries
from
clients
and
mutual
fund
shareholders
pertaining
to
proxy issues. While the Committee sets voting guidelines and serves as a
resource for T. Rowe Price
portfolio
management,
it
does
not
have
proxy
voting
authority
for
any
Price
Fund
or
advisory
client. Rather, voting authority and responsibility is held by the Chairperson
of the Price Fund’s Investment Advisory Committee or the advisory client’s
portfolio manager.
The
Committee is also responsible for the oversight of third-party proxy services
firms that T. Rowe Price engages to facilitate the proxy voting
process.
Global
Proxy Operations Team. The
Global Proxy Operations team is responsible for administering the proxy voting
process as set forth in the Policies and Procedures.
Governance
Team.
Our
Governance
team
is
responsible
for
reviewing
the
proxy
agendas
for
all
upcoming
meetings
and
making
company-specific
recommendations
to
our
global
industry
analysts and portfolio managers with regard to the voting decisions in their
portfolios.
Responsible
Investment Team.
Our Responsible Investment team oversees the integration
of
environmental
and
social
factors
into
our
investment
processes
across
asset
classes.
In formulating vote recommendations for matters of an environmental or social
nature, the Governance team frequently consults with the appropriate sector
analyst from the Responsible Investment team.
|
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TRPA
2023
Proxy
Voting
Policies
and
Procedures.doc
Updated: February 2023 |
HOW
PROXIES
ARE
REVIEWED,
PROCESSED
AND
VOTED
In
order to facilitate the proxy voting process, T. Rowe Price has retained
Institutional Shareholder
Services
(“ISS”)
as
an
expert
in
the
proxy
voting
and
corporate
governance
area.
ISS
specializes in providing a variety of fiduciary-level proxy advisory and voting
services. These services include
custom
vote
recommendations,
research, vote
execution,
and reporting. Services provided by ISS do not include automated processing of
votes on our behalf using the ISS Benchmark Policy recommendations. Instead, in
order to reflect T. Rowe Price’s issue-by-issue voting guidelines as approved
each year by the TRPA ESG Investing Committee, ISS maintains and implements
custom voting policies for the Price Funds and other advisory client
accounts.
Meeting
Notification
T.
Rowe Price utilizes ISS’ voting agent services to notify us of upcoming
shareholder meetings for portfolio companies held in client accounts and to
transmit votes to the various custodian banks of our clients. ISS tracks and
reconciles our clients’ holdings against incoming proxy ballots. If ballots do
not arrive on time, ISS procures them from the appropriate custodian
or
proxy
distribution
agent.
Meeting
and
record
date
information
is
updated
daily
and
transmitted
to T. Rowe Price through ProxyExchange, an ISS application.
Vote
Determination
Each
day, ISS delivers into T. Rowe Price’s customized ProxyExchange environment a
comprehensive summary of upcoming meetings, proxy proposals, publications
discussing key proxy voting issues, and custom vote recommendations to assist us
with proxy research and processing.
The
final
authority
and
responsibility
for
proxy
voting
decisions
remains
with
T.
Rowe
Price.
Decisions
with
respect
to
proxy
matters
are
made
primarily
in
light
of
the
anticipated
impact
of the issue on the desirability of investing in the company from the
perspective of our clients.
Portfolio
managers execute their responsibility to vote proxies in different ways. Some
have decided to vote their proxies generally in line with the guidelines as set
by the TRPA ESG Investing Committee. Others review the customized vote
recommendations and approve them before
the
votes
are
cast.
Portfolio
managers
have
access
to
current
reports
summarizing
all
proxy
votes
in
their
client
accounts.
Portfolio
managers
who
vote
their
proxies
inconsistent
with
T.
Rowe
Price guidelines are required to document the rationale for their votes. The
Global Proxy Operations
team
is
responsible
for
maintaining
this
documentation
and
assuring
that
it
adequately
reflects the basis for any vote which is contrary to our proxy voting
guidelines.
T.
Rowe
Price
Voting
Guidelines
Specific
proxy voting guidelines have been adopted by the TRPA ESG Investing
Committee
for
all
regularly
occurring
categories
of
management
and
shareholder
proposals.
A
detailed set of proxy voting guidelines is available on the T. Rowe Price
website, www.troweprice.com/esgpolicy.
|
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TRPA
2023
Proxy
Voting
Policies
and
Procedures.doc
Updated: February 2023 |
Global
Portfolio
Companies
The
TRPA ESG Investing Committee has developed custom international proxy voting
guidelines based on our proxy advisor’s general global policies, regional codes
of corporate governance, and our own views as investors in these
markets.
We
apply a two-tier approach to determining and applying global proxy voting
policies. The first tier establishes baseline policy guidelines
for
the
most
fundamental
issues,
which
span
the
corporate
governance
spectrum
without
regard to a company’s domicile. The second tier takes into account various
idiosyncrasies of different
countries,
making
allowances
for
standard
market
practices,
as
long
as
they
do
not
violate
the fundamental goals of good corporate governance. The goal is to enhance
shareholder value through effective use of the shareholder franchise,
recognizing that application of a single set of policies is not appropriate for
all markets.
Fixed
Income
and
Passively
Managed
Strategies
Proxy
voting for our fixed income and indexed portfolios is administered by the Global
Proxy Operations team using T.
Rowe
Price’s guidelines as set by the TRPA ESG Investing Committee. Indexed
strategies generally vote in line with the T. Rowe Price guidelines. Fixed
income
strategies
generally
follow
the
proxy
vote
determinations
on
security
holdings
held
by
our
equity
accounts
unless
the
matter
is
specific
to
a
particular
fixed
income
security
such
as
consents,
restructurings, or reorganization proposals.
Shareblocking
Shareblocking
is
the
practice
in
certain
countries
of
“freezing”
shares
for
trading
purposes
in order to vote proxies relating to those shares. In markets where
shareblocking applies, the custodian or sub-custodian automatically freezes
shares prior to a shareholder meeting once a proxy has been voted. T. Rowe
Price’s policy is generally to refrain from voting shares in shareblocking
countries unless the matter has compelling economic consequences that outweigh
the loss of liquidity in the blocked shares.
Securities
on
Loan
The
Price
Funds
and
our
institutional
clients
may
participate
in
securities
lending
programs
to
generate
income
for
their
portfolios.
Generally,
the
voting
rights
pass
with
the
securities
on
loan;
however, lending agreements give the lender the right to terminate the loan and
pull back the loaned
shares
provided
sufficient
notice
is
given
to
the
custodian
bank
in
advance
of
the
applicable
deadline. T. Rowe Price’s policy is generally not to vote securities on loan
unless we determine there is a material voting event that could affect the value
of the loaned securities. In this event, we have the discretion to pull back the
loaned securities in order to cast a vote at an upcoming shareholder meeting. A
monthly monitoring process is in place to review securities on loan and how they
may affect proxy voting.
|
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TRPA
2023
Proxy
Voting
Policies
and
Procedures.doc
Updated: February 2023 |
Monitoring
and
Resolving
Conflicts
of
Interest
The
TRPA ESG Investing Committee is also responsible for monitoring and resolving
potential material conflicts between the interests of T. Rowe Price and those of
its clients with respect to proxy voting. We have adopted safeguards to ensure
that our proxy voting is not influenced by interests other than those of our
fund shareholders and other investment advisory clients. While membership on the
Committee is diverse, it does not include individuals whose primary
duties
relate
to
client
relationship
management,
marketing,
or
sales.
Since
T.
Rowe
Price’s
voting guidelines are predetermined by the Committee, application of the
guidelines by portfolio managers
to
vote
client
proxies
should
in
most
instances
adequately
address
any
potential
conflicts
of interest. However, consistent with the terms of the Policies and Procedures,
which allow portfolio
managers
to
vote
proxies
opposite
our
general
voting
guidelines,
the
Committee
regularly
reviews all such proxy votes that are inconsistent with the proxy voting
guidelines to determine whether
the
portfolio
manager’s
voting
rationale
appears
reasonable.
The
Committee
also
assesses
whether any business or other material relationships between T. Rowe Price and a
portfolio company
(unrelated
to
the
ownership
of
the
portfolio
company’s
securities)
could
have
influenced
an inconsistent vote on that company’s proxy. Issues raising potential conflicts
of interest are referred to designated members of the Committee for immediate
resolution prior to the time T. Rowe Price casts its vote.
With
respect
to
personal
conflicts
of
interest,
T.
Rowe
Price’s
Code
of
Ethics
and
Conduct
requires all employees to avoid placing themselves in a “compromising position”
in which their interests
may
conflict
with
those
of
our
clients
and
restrict
their
ability
to
engage
in
certain
outside
business
activities.
Portfolio
managers
or
Committee
members
with
a
personal
conflict
of
interest
regarding
a
particular
proxy
vote
must
recuse
themselves
and
not
participate
in
the
voting
decisions
with respect to that proxy.
Specific
Conflict of Interest Situations - Voting
of T. Rowe Price Group, Inc. common stock (sym: TROW) by certain T. Rowe Price
Index Funds will be done in all instances in accordance with T. Rowe Price
voting guidelines and votes inconsistent with the guidelines will
not
be
permitted.
In
the
event
that
there
is
no
previously
established
guideline
for
a
specific
voting
issue appearing on the T. Rowe Price Group proxy, the Price Funds will abstain
on that voting item.
In
addition, T. Rowe Price has voting authority for proxies of the holdings of
certain Price Funds that invest in other Price Funds. In cases where the
underlying fund of an investing Price Fund,
including
a
fund-of-funds,
holds
a
proxy
vote,
T.
Rowe
Price
will
mirror
vote
the
fund
shares
held by the upper-tier fund in the same proportion as the votes cast by the
shareholders of the underlying funds (other than the T. Rowe Price Reserve
Investment Fund).
Limitations
on
Voting
Proxies
of
Banks
T.
Rowe
Price
has
obtained
relief
from
the
U.S.
Federal
Reserve
Board
(the
“FRB
Relief”)
which permits, subject to a number of conditions, T. Rowe Price to acquire in
the aggregate on behalf of its clients, 10% or more of the total voting stock of
a bank, bank holding company, savings
and
loan
holding
company
or
savings
association
(each
a
“Bank”),
not
to
exceed
a
15%
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TRPA
2023
Proxy
Voting
Policies
and
Procedures.doc
Updated: February 2023 |
aggregate
beneficial ownership maximum in such Bank.
One
such condition affects the manner in
which
T.
Rowe
Price
will
vote
its
clients’
shares
of
a
Bank
in
excess
of
10%
of
the
Bank’s
total
voting stock (“Excess
Shares”).
The
FRB Relief requires that T. Rowe Price use its best efforts to vote the Excess
Shares in the same proportion as all other shares voted, a practice generally
referred to as “mirror voting,” or in the event that such efforts to mirror vote
are unsuccessful, Excess
Shares
will
not
be
voted.
With
respect
to
a
shareholder
vote
for
a
Bank
of
which
T.
Rowe
Price has aggregate beneficial ownership of greater than 10% on behalf of its
clients, T. Rowe Price
will
determine
which
of
its
clients’
shares
are
Excess
Shares
on
a
pro
rata
basis
across
all
of
its clients’ portfolios for which T. Rowe Price has the power to vote
proxies.2
REPORTING,
RECORD
RETENTION
AND
OVERSIGHT
The
TRPA ESG Investing Committee, and certain personnel under the direction of the
Committee,
perform
the
following
oversight
and
assurance
functions,
among
others,
over
T.
Rowe
Price’s proxy voting: (1) periodically samples proxy votes to ensure that they
were cast in compliance with T.
Rowe
Price’s proxy voting guidelines; (2) reviews, no less frequently than annually,
the adequacy of the Policies and Procedures to make sure that they have been
implemented
effectively,
including
whether
they
continue
to
be
reasonably
designed
to
ensure
that
proxies are voted in the best interests of our clients; (3) performs due
diligence on whether a retained
proxy
advisory
firm
has
the
capacity
and
competency
to
adequately
analyze
proxy
issues,
including the adequacy and quality of the proxy advisory firm’s staffing and
personnel and its policies; and (4) oversees any retained proxy advisory firms
and their procedures regarding their capabilities
to
(i)
produce
proxy
research
that
is
based
on
current
and
accurate
information
and
(ii)
identify and address any conflicts of interest and any other considerations that
we believe would be
appropriate
in
considering
the
nature
and
quality
of
the
services
provided
by
the
proxy
advisory
firm.
T.
Rowe
Price
will
furnish
Vote
Summary
Reports,
upon
request,
to
its
institutional
clients
that
have
delegated
proxy
voting
authority.
The
report
specifies
the
portfolio
companies,
meeting
dates, proxy proposals, and votes which have been cast for the client during the
period and the position taken with respect to each issue. Reports normally
cover
quarterly
or annual periods and are provided to such clients upon request.
T.
Rowe Price retains proxy solicitation materials, memoranda regarding votes cast
in opposition to the position of a company’s management, and documentation on
shares voted differently.
In
addition,
any
document
which
is
material
to
a
proxy
voting
decision
such
as
the
T.
Rowe
Price
proxy
voting
guidelines,
Committee
meeting
materials,
and
other
internal
research
relating to voting decisions are maintained in accordance with applicable
requirements.
2The
FRB
Relief
and
the
process
for
voting
of
Excess
Shares
described
herein
apply
to
the
aggregate
beneficial
ownership of T. Rowe Price and TRPIM.
|
| |
TRPA
2023
Proxy
Voting
Policies
and
Procedures.doc
Updated: February 2023 |