PRINCIPAL
VARIABLE CONTRACTS FUNDS, INC.
Class 1 and Class
2 Shares
("PVC" or “the
Fund”)
The date of this Prospectus is
__________________.
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ACCOUNTS OF
THE FUND |
Equity
Accounts |
Asset
Allocation Accounts |
Diversified International
Account (Class 1 & 2) |
Balanced Account (Class
1) |
Equity Income Account (Class 1
& 2) |
Diversified Balanced Account
(Class 2) |
International Emerging Markets
Account (Class 1 & 2) |
Diversified Balanced Managed
Volatility Account (Class 2) |
LargeCap Blend Account II
(Class 1 & 2) |
Diversified Growth Account
(Class 2) |
LargeCap Growth Account (Class
1 & 2) |
Diversified Growth Managed
Volatility Account (Class 2) |
LargeCap Growth Account I
(Class 1 & 2) |
Diversified Income Account
(Class 2) |
LargeCap S&P 500 Index
Account (Class 1 & 2) |
Principal LifeTime
Accounts |
LargeCap S&P 500 Managed
Volatility Index Account (Class 1) |
Strategic Income Account (Class
1) |
LargeCap Value Account (Class 1
& 2) |
2010 Account (Class
1) |
MidCap Account (Class 1 &
2) |
2020 Account (Class 1 &
2) |
Principal Capital Appreciation
Account (Class 1 & 2) |
2030 Account (Class 1 &
2) |
Real Estate Securities Account
(Class 1 & 2) |
2040 Account (Class 1 &
2) |
SmallCap Blend Account (Class 1
& 2) |
2050 Account (Class 1 &
2) |
SmallCap Growth Account II
(Class 1 & 2) |
2060 Account (Class
1) |
SmallCap Value Account I (Class
1 & 2) |
Strategic Asset Management
Portfolios |
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SAM Balanced Portfolio (Class 1
& 2) |
Fixed-Income
Accounts |
SAM Conservative Balanced
Portfolio (Class 1 & 2) |
Bond & Mortgage Securities
Account (Class 1 & 2) |
SAM Conservative Growth
Portfolio (Class 1 & 2) |
Bond Market Index Account
(Class 1) |
SAM Flexible Income Portfolio
(Class 1 & 2) |
Government & High Quality
Bond Account (Class 1 & 2) |
SAM Strategic Growth Portfolio
(Class 1 & 2) |
Income Account (Class 1 &
2) |
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Money Market Account (Class 1
& 2) |
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Short-Term Income Account
(Class 1 & 2) |
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This prospectus describes a mutual
fund organized by Principal Life Insurance Company® (“Principal Life”). The Fund
provides a choice of investment objectives through the Accounts listed
above.
The Securities and Exchange
Commission has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
This page left blank
intentionally.
TABLE OF
CONTENTS
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ACCOUNT
SUMMARIES |
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Balanced
Account |
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Bond & Mortgage Securities
Account |
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Bond Market Index
Account |
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Diversified Balanced
Account |
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Diversified Balanced Managed
Volatility Account |
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Diversified Growth
Account |
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Diversified Growth Managed
Volatility Account |
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Diversified Income
Account |
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Diversified International
Account |
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Equity Income
Account |
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Government & High Quality
Bond Account |
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Income Account |
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International Emerging Markets
Account |
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LargeCap Blend Account
II |
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LargeCap Growth
Account |
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LargeCap Growth Account
I |
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LargeCap S&P 500 Index
Account |
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LargeCap S&P 500 Managed
Volatility Index Account |
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LargeCap Value
Account |
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MidCap Account |
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Money Market
Account |
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Principal Capital Appreciation
Account |
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Principal LifeTime Strategic
Income Account |
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Principal LifeTime 2010
Account |
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Principal LifeTime 2020
Account |
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Principal LifeTime 2030
Account |
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Principal LifeTime 2040
Account |
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Principal LifeTime 2050
Account |
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Principal LifeTime 2060
Account |
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Real Estate Securities
Account |
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SAM (Strategic Asset
Management) Balanced Portfolio |
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SAM (Strategic Asset
Management) Conservative Balanced Portfolio |
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SAM (Strategic Asset
Management) Conservative Growth Portfolio |
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SAM (Strategic Asset
Management) Flexible Income Portfolio |
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SAM (Strategic Asset
Management) Strategic Growth Portfolio |
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Short-Term Income
Account |
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SmallCap Blend
Account |
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SmallCap Growth Account
II |
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SmallCap Value Account
I |
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ADDITIONAL INFORMATION ABOUT
INVESTMENT STRATEGIES AND RISKS |
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PORTFOLIO HOLDINGS
INFORMATION |
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MANAGEMENT OF THE
FUND |
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PRICING OF ACCOUNT
SHARES |
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DIVIDENDS AND
DISTRIBUTIONS |
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TAX
CONSIDERATIONS |
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DISTRIBUTION PLAN AND
ADDITIONAL INFORMATION REGARDING INTERMEDIARY COMPENSATION |
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ONGOING FEES |
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GENERAL INFORMATION ABOUT AN
ACCOUNT |
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Frequent Trading and Market
Timing (Abusive Trading Practices) |
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Eligible
Purchasers |
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Shareholder
Rights |
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Purchase of Account
Shares |
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Sale of Account
Shares |
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Restricted
Transfers |
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Financial
Statements |
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FINANCIAL
HIGHLIGHTS |
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APPENDIX A – INDEX
ABBREVIATIONS |
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APPENDIX B – DESCRIPTION OF
BOND RATINGS |
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ADDITIONAL
INFORMATION |
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BALANCED
ACCOUNT
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Objective: |
The Account seeks to generate
a total return consisting of current income and capital
appreciation. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
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Class
1 |
Management Fees |
0.60% |
Other Expenses |
0.06% |
Total Annual
Account Operating Expenses |
0.66% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
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Number of
years you own your shares |
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1 |
3 |
5 |
10 |
Balanced
Account – Class 1 |
$67 |
$211 |
$368 |
$822 |
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account’s portfolio turnover rate was 147.3% of the average value of its
portfolio.
Principal
Investment Strategies
The Account invests primarily in a
diversified portfolio of equity securities and bonds. Though the percentages in
each category are not fixed, equity securities generally represent 50% to 70% of
the Account's assets. The remainder of the Account's assets is invested in bonds
and cash. The Account utilizes an asset allocation approach that primarily
focuses on asset class allocation (equity versus fixed income) and secondarily
growth versus value, domestic versus foreign, and market capitalization size.
The Account invests in equity securities of small, medium, and large market
capitalization companies. The Account actively trades portfolio
securities.
The Account invests in intermediate
maturity fixed-income securities, rated BBB- or higher by S&P or Baa3 or
higher by Moody's, which includes securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities; corporate bonds, asset-backed
securities, mortgage backed securities, and securities issued by or guaranteed
by foreign governments payable in U.S. dollars. The Account also invests in
foreign securities and in below investment grade bonds (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 (if the bond has been rated by only
one of those agencies, that rating will determine whether the bond is below
investment grade; if the bond has not been rated by either of those agencies the
Sub-Advisor will determine whether the bond is of a quality comparable to those
rated below investment grade). As of December 31, 2014, the average portfolio
duration of the fixed-income portion of the Account was 5.25 years .
During the fiscal year ended
December 31, 2013, the average ratings of the Account's fixed-income assets,
based on market value at each month-end, were as follows (all ratings are by
Moody's):
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54.01% in securities rated
Aaa |
4.24% in securities rated
Ba |
0.00% in securities rated
C |
2.58% in securities rated
Aa |
3.09% in securities rated
B |
0.00% in securities rated
D |
11.56% in securities rated
A |
2.35% in securities rated
Caa |
0.62% in securities not
rated |
21.36% in securities rated
Baa |
0.19% in securities rated
Ca |
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Principal
Risks
The value of your investment in the
Account changes with the value of the Account's investments. Many factors affect
that value, and it is possible to lose money by investing in the Account. An
investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Active Trading
Risk. A fund that has a
portfolio turnover rate over 100% is considered actively traded. Actively
trading portfolio securities may accelerate realization of taxable gains and
losses, lower fund performance and may result in high portfolio turnover rates
and increased brokerage costs.
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange
restrictions.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
High Yield
Securities Risk. High
yield fixed-income securities (commonly referred to as "junk bonds") are subject
to greater credit quality risk than higher rated fixed-income securities and
should be considered speculative.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Prepayment Risk.
Unscheduled prepayments
on mortgage-backed and asset-backed securities may have to be reinvested at
lower rates. A reduction in prepayments may increase the effective maturities of
these securities, exposing them to the risk of decline in market value over time
(extension risk).
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Total Returns as
of December 31 (Class 1 Shares)
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Highest
return for a quarter during the period of the bar chart
above: |
Q3
‘09 |
12.74 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(17.87 |
)% |
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Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
Balanced
Account - Class 1 |
8.81% |
11.69% |
6.19% |
S&P 500 Index (reflects no
deduction for fees, expenses, or taxes) |
13.69% |
15.45% |
7.67% |
Barclays U.S. Aggregate Bond
Index (reflects no deduction for fees, expenses, or taxes) |
5.97% |
4.45% |
4.71% |
60% S&P 500 Index/40%
Barclays Aggregate Bond Index (reflects no deduction for fees, expenses,
or taxes) |
10.62% |
11.18% |
6.77% |
The Barclays U.S. Aggregate Bond
Index is used to show performance of domestic, taxable fixed-income securities.
The blended index (as described in the table) is used to show the performance of
the various asset classes used by the Account.
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Manager:
Principal Global Investors,
LLC
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• |
Matthew Annenberg (since
2014), Managing Director, Asset Allocation
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• |
Scott Smith (since 2014),
Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
BOND &
MORTGAGE SECURITIES ACCOUNT
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Objective: |
The Account seeks to provide
current income. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
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Class
1 |
Class
2 |
Management Fees |
0.44% |
0.44% |
Distribution and/or Service
(12b-1) Fees
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N/A |
0.25% |
Other Expenses
(1) |
0.01% |
0.01% |
Total Annual
Account Operating Expenses |
0.45% |
0.70% |
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(1) Based on estimated amounts
for the current fiscal year (Class
2). |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
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Number of
years you own your shares |
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1 |
3 |
5 |
10 |
Bond &
Mortgage Securities Account - Class 1 |
$46 |
$144 |
$252 |
$567 |
Bond &
Mortgage Securities Account - Class 2 |
72 |
224 |
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Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account’s portfolio turnover rate was 204.8% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the
Account invests at least 80% of its net assets, plus any borrowings for
investment purposes, in intermediate maturity fixed-income securities rated BBB-
or higher by Standard & Poor's Rating Service ("S&P") or Baa3 or higher
by Moody's Investors Service, Inc. ("Moody's") at the time of each purchase. The
fixed-income securities in which the Fund invests include securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities
(including collateralized mortgage obligations); asset-backed securities or
mortgage-backed securities representing an interest in a pool of mortgage loans
or other assets; corporate bonds; and securities issued or guaranteed by foreign
governments payable in U.S. dollars. The Fund also invests in foreign
securities, and up to 20% of its assets in below investment grade bonds
(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 (if the
bond has been rated by only one of those agencies, that rating will determine
whether the bond is below investment grade; if the bond has not been rated by
either of those agencies, the Sub-Advisor will determine whether the bond is of
a quality comparable to those rated below investment grade). Under normal
circumstances, the Fund maintains an average portfolio duration that is within
±25% of the duration of the Barclays U.S. Aggregate Bond Index, which as of
December 31,
2014 was 5.55 years .
The Account actively trades
portfolio securities and enters into dollar roll transactions which may involve
leverage. The Account utilizes derivative strategies for hedging or managing
fixed income exposure. A derivative is a financial
arrangement, the value of which is
derived from, or based on, a traditional security, asset, or market index.
Specifically, the Account invests in Treasury futures or interest rate swaps to
manage the fixed-income exposure (including for hedging purposes) and credit
default swaps to increase or decrease, in an efficient manner, exposures to
certain sectors or individual issuers. The Account uses forwards to manage its
foreign currency exposure.
During the fiscal year ended
December 31, 2013, the average ratings of the Account's fixed-income assets,
based on market value at each month-end, were as follows (all ratings are by
Moody's):
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52.35% in securities rated
Aaa |
5.67% in securities rated
Ba |
0.02% in securities rated
C |
2.62% in securities rated
Aa |
5.41% in securities rated
B |
0.00% in securities rated
D |
10.73% in securities rated
A |
1.81% in securities rated
Caa |
0.95% in securities not
rated |
20.38% in securities rated
Baa |
0.06% in securities rated
Ca |
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Principal
Risks
The value of your investment in the
Account changes with the value of the Account's investments. Many factors affect
that value, and it is possible to lose money by investing in the Account. An
investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Active Trading
Risk. A fund that has a
portfolio turnover rate over 100% is considered actively traded. Actively
trading portfolio securities may accelerate realization of taxable gains and
losses, lower fund performance and may result in high portfolio turnover rates
and increased brokerage costs.
Basis
Risk. A hedge using
derivatives and/or securities could expose the fund to basis risk. Basis risk
can arise when a change in the value of a hedge does not match a change in the
value of the asset it hedges. In other words, the change in value of the hedge
could move in a direction that does not match the change in value of the
underlying asset resulting in a risk of loss to the fund.
Counterparty
Risk. Counterparty risk
is the risk that the counterparty to a derivatives contract or repurchase
agreement, the borrower of a portfolio’s securities, or other obligation, will
be unable or unwilling to make timely principal, interest, or settlement
payments, or otherwise to honor its obligations.
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange
restrictions.
Derivatives
Risk. Transactions in
derivatives may increase volatility, cause the liquidation of portfolio
positions when not advantageous to do so and produce disproportionate
losses.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
High Yield
Securities Risk. High
yield fixed-income securities (commonly referred to as "junk bonds") are subject
to greater credit quality risk than higher rated fixed-income securities and
should be considered speculative.
Leverage
Risk.
Leverage created by
borrowing or certain types of transactions or investments may impair the fund’s
liquidity, cause it to liquidate positions at an unfavorable time, increase
volatility of the fund’s net asset value, or diminish the fund’s
performance.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Prepayment Risk.
Unscheduled prepayments
on mortgage-backed and asset-backed securities may have to be reinvested at
lower rates. A reduction in prepayments may increase the effective maturities of
these securities, exposing them to the risk of decline in market value over time
(extension risk).
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Account do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Account would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (______________), performance shown in the table for
Class 2 shares is based on the performance of the Account's Class 1 shares
adjusted to reflect the fees and expenses of the Class 2 shares. The adjustments
result in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on December 18,
1987.
Total Returns as
of December 31 (Class 1 Shares)
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Highest
return for a quarter during the period of the bar chart
above: |
Q3
‘09 |
9.32 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(8.24 |
)% |
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Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
Bond &
Mortgage Securities Account - Class 1 |
5.24% |
6.05% |
4.08% |
Bond &
Mortgage Securities Account - Class 2 |
4.97% |
5.79% |
3.78% |
Barclays U.S. Aggregate Bond
Index (reflects no deduction for fees, expenses, or taxes) |
5.97% |
4.45% |
4.71% |
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Principal Global Investors,
LLC
|
|
• |
William C. Armstrong (since
2000), Portfolio Manager |
|
|
• |
Timothy R. Warrick (since
2000), Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
BOND MARKET INDEX
ACCOUNT
Objective:
The Account seeks to
provide current income.
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
Class
1 |
Management Fees |
0.25% |
Other Expenses |
0.01% |
Total Annual
Account Operating Expenses |
0.26% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account's operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Bond Market
Index Account - Class 1 |
$27 |
$84 |
$146 |
$331 |
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account's portfolio turnover rate was 225.8% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the
Account invests at least 80% of its net assets, plus any borrowings for
investment purposes, in investments designed to replicate the Barclays U.S.
Aggregate Bond Index (the "Index") at the time of each purchase. The Index is
composed of investment grade, fixed rate debt issues, including government,
corporate, asset-backed, and mortgage-backed securities, with maturities of one
year or more. The Account employs a passive investment approach designed to
attempt to track the performance of the Index. Under normal circumstances, the
Account maintains an average portfolio duration that is in line with the
duration of the Index, which as of December 31, 2014 was 5.55 years . The Account actively trades
portfolio securities.
Principal
Risks
The value of your investment in the
Account changes with the value of the Account 's investments. Many factors
affect that value, and it is possible to lose money by investing in the Account.
An investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Active Trading
Risk. A fund that has a
portfolio turnover rate over 100% is considered actively traded. Actively
trading portfolio securities may accelerate realization of taxable gains and
losses, lower fund performance and may result in high portfolio turnover rates
and increased brokerage costs.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Index Fund
Investment Risk. More
likely than not, an index fund will underperform the index due to cashflows and
the fees and expenses of the fund.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Prepayment Risk.
Unscheduled prepayments
on mortgage-backed and asset-backed securities may have to be reinvested at
lower rates. A reduction in prepayments may increase the effective maturities of
these securities, exposing them to the risk of decline in market value over time
(extension risk).
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Life of Account results are measured
from the date the Account's shares were first sold (May 15, 2012).
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'14 |
1.99 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q2
'13 |
(2.46 |
)% |
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Life of
Account |
Bond Market
Index Account - Class 1 |
5.75% |
1.95% |
Barclays U.S. Aggregate Bond
Index (reflects no deduction for fees, expenses, or taxes) |
5.97% |
2.32% |
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Mellon Capital Management
Corporation
|
|
• |
David C. Kwan (since 2012),
Managing Director, Head of Fixed Income Management
|
|
|
• |
Gregg Lee (since 2012), Vice
President, Senior Portfolio Manager, Fixed Income
|
|
|
• |
Zandra Zelaya (since 2012),
Managing Director, Senior Portfolio Manager, Fixed-Income
|
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
DIVERSIFIED
BALANCED ACCOUNT
|
|
Objective: |
The Account seeks to provide
as high a level of total return (consisting of reinvested income and
capital appreciation) as is consistent with reasonable
risk. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
Class
2 |
Management Fees |
0.05% |
Distribution and/or Service
(12b-1) Fees |
0.25% |
Other Expenses |
—% |
Acquired Fund Fees and
Expenses |
0.26% |
Total Annual
Account Operating Expenses |
0.56% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account's operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Diversified
Balanced Account - Class 2 |
$57 |
$179 |
$313 |
$701 |
Portfolio
Turnover
As a fund of funds, the Account does
not pay transaction costs, such as commissions, when it buys and sells shares of
underlying funds (or “turns over” its portfolio). An underlying fund does pay
transaction costs when it buys and sells portfolio securities, and a higher
portfolio turnover may indicate higher transaction costs. These costs, which are
not reflected in annual account operating expenses or in the examples, affect
the performance of the underlying fund and the Account. During its most recent
fiscal year, the Account's portfolio turnover rate was 10.1% of the average value of its
portfolio.
Principal
Investment Strategies
The Account operates as a fund of
funds and invests in underlying funds. In pursuing its investment objective, the
Account typically allocates its assets, within predetermined percentage ranges,
among the “underlying funds”: Funds of Principal Funds, Inc. ("PFI")
(Institutional class shares) - the International Equity Index, MidCap S&P
400 Index, and SmallCap S&P 600 Index Funds - and Accounts of Principal
Variable Contracts Funds, Inc. ("PVC") (Class 1 Shares) - the Bond Market Index
and LargeCap S&P 500 Index Accounts. The Account generally allocates
approximately 50% of its assets to the equity index funds to gain broad market
capitalization exposure to both U.S. and non-U.S investments and approximately
50% to the Bond Market Index Account for intermediate duration fixed-income
exposure. The percentages reflect the extent to which the Account normally
invests in the particular market segment represented by the underlying funds,
and the asset allocation strategy influences the potential investment risk and
reward of the Account.
Without shareholder approval,
Principal Management Corporation ("Principal"), the manager for PVC and PFI, may
alter the percentage ranges and/or substitute or remove underlying funds
(including investing in other investment companies) when it deems appropriate in
order to achieve the Account’s investment objective. The assets of the Account
are allocated among underlying funds in accordance with its investment
objective, while considering Principal's outlook for the economy, the financial
markets, and the relative market valuations of the underlying
funds.
In selecting underlying funds and
their target weights, Principal considers, among other things, quantitative
measures, such as past performance, expected levels of risk and returns, expense
levels, diversification of existing funds, and style consistency. The Account is
re-balanced monthly.
The net asset value of the Account's
shares is affected by changes in the value of the shares of the underlying funds
it owns. The Account's investments are invested in the underlying funds and, as
a result, the Account's performance is directly related to their performance.
The Account's ability to meet its investment objective depends on the ability of
the underlying funds to achieve their investment objectives.
The Account’s underlying funds
utilize derivative strategies. A derivative is a financial arrangement, the
value of which is derived from, or based on, a traditional security, asset, or
market index. Specifically, the underlying funds invest in equity index futures
and exchange-traded funds (ETFs) to manage the equity exposure and Treasury
futures to manage the fixed-income exposure.
Principal
Risks
The diversification of the Account
is designed to cushion losses in any one investment sector and moderate overall
price volatility. However, the Account is subject to the particular risks of the
underlying funds in the proportions in which the Account invests in them, and
its share prices will fluctuate as the prices of underlying fund shares rise or
fall with changing market conditions. If you sell your shares when their value
is less than the price you paid, you will lose money. The Account operates as a
fund of funds and thus bears both its own expenses and, indirectly, its
proportionate share of the expenses of the underlying funds in which it invests.
An investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account that are inherent in the
fund of funds, in alphabetical order, are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Conflict of
Interest Risk. The
Advisor and its affiliates earn different fees from different underlying funds
and may have an incentive to allocate more fund-of-fund assets to underlying
funds from which they receive higher fees.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
The principal risks of investing in
the Account that are inherent in the underlying funds, in alphabetical order,
are:
Derivatives
Risk. Transactions in
derivatives may increase volatility, cause the liquidation of portfolio
positions when not advantageous to do so and produce disproportionate
losses.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Exchange-Traded
Funds ("ETFs") Risk. An
ETF is subject to the risks associated with direct ownership of the securities
comprising the index on which the ETF is based. Fund shareholders indirectly
bear their proportionate share of the expenses of the ETFs in which the fund
invests.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Index Fund
Investment Risk. More
likely than not, an index fund will underperform the index due to cashflows and
the fees and expenses of the fund.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Prepayment Risk.
Unscheduled prepayments
on mortgage-backed and asset-backed securities may have to be reinvested at
lower rates. A reduction in prepayments may increase the effective maturities of
these securities, exposing them to the risk of decline in market value over time
(extension risk).
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Life of Account results are measured
from the date the Account's shares were first sold (December 30, 2009).
Total Returns as
of December 31 (Class 2 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
'10 |
6.79 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q3
'11 |
(6.34 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Year |
Life of
Account |
Diversified
Balanced Account - Class 2 |
7.41% |
8.73% |
8.73% |
Barclays U.S. Aggregate Bond
Index (reflects no deduction for fees, expenses, or taxes) |
5.97% |
4.45% |
4.41% |
S&P 500 Index (reflects no
deduction for fees, expenses, or taxes) |
13.69% |
15.45% |
15.21% |
MSCI EAFE Index NDTR D
(reflects no deduction for fees, expenses, or taxes) |
(4.90)% |
5.33% |
5.43% |
S&P Midcap 400 Index
(reflects no deduction for fees, expenses, or taxes) |
9.77% |
16.54% |
16.23% |
S&P Smallcap 600 Index
(reflects no deduction for fees, expenses, or taxes) |
5.76% |
17.27% |
16.94% |
Diversified Balanced Custom
Index (reflects no deduction for fees, expenses, or taxes) |
8.06% |
9.55% |
9.44% |
The S&P 500 Index is used to
show large cap U.S. equity market performance. The MSCI EAFE Index NDTR D is
used to show international stock performance. The S&P Midcap 400 Index is
used to show mid cap U.S. equity market performance. The S&P Smallcap 600
Index is used to show small cap U.S. equity market performance. The custom index
(as defined below) is used to show the performance of the various asset classes
used by the Account, and the Average Annual Total Returns table shows
performance of the components of the custom index. The weightings for the
Diversified Balanced Custom Index are 50% Barclays U.S. Aggregate Bond Index,
35% S&P 500 Index, 7% MSCI EAFE Index NDTR D, 4% S&P Midcap 400 Index,
and 4% S&P Smallcap 600 Index.
Management
Investment
Advisor and Portfolio Managers:
Principal Management
Corporation
|
|
• |
James W. Fennessey (since
2009), Portfolio Manager |
|
|
• |
Randy L. Welch (since 2009),
Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
DIVERSIFIED
BALANCED MANAGED VOLATILITY ACCOUNT
|
|
Objective: |
The Account seeks to provide
as high a level of total return (consisting of reinvested income and
capital appreciation) as is consistent with reasonable risk, with an
emphasis on managing volatility. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
2 |
|
Management Fees |
0.05% |
|
Distribution and/or Service
(12b-1) Fees |
0.25% |
|
Other Expenses
(1) |
0.01% |
|
Acquired Fund Fees and Expenses
|
0.34% |
|
Total Annual
Account Operating Expenses |
0.65% |
|
Expense Reimbursement
(2) |
—% |
|
Total Annual
Account Operating Expenses after Expense Reimbursement |
0.65% |
|
|
|
|
(1) Based on estimated expenses
for the current fiscal year. |
|
(2) Principal Management
Corporation ("Principal"), the investment advisor, has contractually
agreed to limit the Account’s expenses by paying, if necessary, expenses
normally payable by the Account, (excluding interest expense, expenses
related to fund investments, acquired fund fees and expenses, and other
extraordinary expenses) to maintain a total level of operating expenses
(expressed as a percent of average net assets on an annualized basis) not
to exceed 0.31% for Class 2 shares. It is expected that the expense limit
will continue through the period ending April 30, 2015; however, Principal
Variable Contracts Funds, Inc. and Principal, the parties to the
agreement, may agree to terminate the expense limit prior to the end of
the period. |
|
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
Diversified
Balanced Managed Volatility Account - Class 2 |
$66 |
$208 |
Portfolio
Turnover
As a fund of funds, the Account does
not pay transaction costs, such as commissions, when it buys and sells shares of
underlying funds (or “turns over” its portfolio). An underlying fund
does pay transaction costs when it buys and sells portfolio securities, and a
higher portfolio turnover may indicate higher transaction costs. These costs,
which are not reflected in annual account operating expenses or in the examples,
affect the performance of the underlying fund and the Account. From October 31,
2013, date operations commenced, through December 31, 2013, the Account's
annualized portfolio turnover rate was 6.6% of the average value of its
portfolio.
Principal
Investment Strategies
The Account operates as a fund of
funds and invests in underlying funds. In pursuing its investment objective, the
Account typically allocates its assets, within predetermined percentage ranges,
among the “underlying funds”: Funds of Principal Funds, Inc. ("PFI")
(Institutional class shares) - the International Equity Index, MidCap S&P
400 Index, and SmallCap S&P 600 Index Funds - and Accounts of Principal
Variable Contracts Funds, Inc. ("PVC") (Class 1 Shares) - the Bond Market Index
and LargeCap S&P 500 Managed Volatility Index Accounts. The Account
generally allocates approximately 50% of its assets to the equity index funds to
gain broad market capitalization exposure to both U.S. and non-U.S investments
and approximately 50% to the Bond Market Index Account for intermediate
duration fixed-income exposure. The
percentages reflect the extent to which the Account normally invests in the
particular market segment represented by the underlying funds, and the asset
allocation strategy influences the potential investment risk and reward of the
Account.
Without shareholder approval,
Principal Management Corporation ("Principal"), the manager for PVC and PFI, may
alter the percentage ranges and/or substitute or remove underlying funds
(including investing in other investment companies) when it deems appropriate in
order to achieve the Account's investment objective. The assets of the Account
are allocated among underlying funds in accordance with its investment
objective, while considering Principal's outlook for the economy, the financial
markets, and the relative market valuations of the underlying funds. In
selecting underlying funds and their target weights, Principal considers, among
other things, quantitative measures, such as past performance, expected levels
of risk and returns, expense levels, diversification of existing funds, and
style consistency. The Account is re-balanced monthly.
The net asset value of the Account's
shares is affected by changes in the value of the shares of the underlying funds
it owns. The Account's investments are invested in the underlying funds and, as
a result, the Account's performance is directly related to their performance.
The Account's ability to meet its investment objective depends on the ability of
the underlying funds to achieve their investment objectives.
The Account's underlying funds
utilize derivative strategies. A derivative is a financial arrangement, the
value of which is derived from, or based on, a traditional security, asset, or
market index. Specifically, the underlying funds invest in equity index futures
and exchange-traded funds (ETFs) to manage the equity exposure and Treasury
futures to manage the fixed-income exposure. An underlying fund also buys
vertical call spreads and vertical put spreads as part of an active strategy
intended to reduce volatility. Vertical spreads are the simultaneous
purchase and sale of two options of the same type with the same expiration date
but two different strike prices. The strike price is the fixed price at which
the owner of the option can buy (in the case of a call), or sell (in the case of
a put), the underlying security.
Principal
Risks
The diversification of the Account
is designed to cushion losses in any one investment sector and moderate overall
price volatility. However, the Account is subject to the particular risks of the
underlying funds in the proportions in which the Account invests in them, and
its share prices will fluctuate as the prices of underlying fund shares rise or
fall with changing market conditions. If you sell your shares when their value
is less than the price you paid, you will lose money. The Account operates as a
fund of funds and thus bears both its own expenses and, indirectly, its
proportionate share of the expenses of the underlying funds in which it invests.
An investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account that are inherent in the
fund of funds, in alphabetical order, are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Conflict of
Interest Risk. The
Advisor and its affiliates earn different fees from different underlying funds
and may have an incentive to allocate more fund-of-fund assets to underlying
funds from which they receive higher fees.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
The principal risks of investing in
the Account that are inherent in the underlying funds, in alphabetical order,
are:
Basis
Risk. A hedge using derivatives and/or
securities could expose the fund to basis risk. Basis risk can arise when a
change in the value of a hedge does not match a change in the value of the asset
it hedges. In other words, the change in value of the hedge could move in a
direction that does not match the change in value of the underlying asset
resulting in a risk of loss to the fund.
Derivatives
Risk. Transactions in
derivatives may increase volatility, cause the liquidation of portfolio
positions when not advantageous to do so and produce disproportionate
losses.
Equity Securities
Risk. The value of
equity securities could decline if the issuer's financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Exchange-Traded
Funds ("ETFs") Risk. An
ETF is subject to the risks associated with direct ownership of the securities
comprising the index on which the ETF is based. Fund shareholders indirectly
bear their proportionate share of the expenses of the ETFs in which the fund
invests.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Index Fund
Investment Risk. More
likely than not, an index fund will underperform the index due to cashflows and
the fees and expenses of the fund.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Prepayment Risk.
Unscheduled prepayments
on mortgage-backed and asset-backed securities may have to be reinvested at
lower rates. A reduction in prepayments may increase the effective maturities of
these securities, exposing them to the risk of decline in market value over time
(extension risk).
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Volatility
Mitigation Risk.
Volatility mitigation strategies may increase fund transaction costs, which
could increase losses or reduce gains. These strategies may not protect
the fund from market declines and may reduce the fund's participation in market
gains.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Life of Account results are measured
from the date the Account's shares were first sold (October 31, 2013).
To tal Returns as of
December 31 (Class 2 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q4
'14 |
2.93 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q3
'14 |
(0.55 |
)% |
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Life of
Account |
Diversified
Balanced Managed Volatility Account - Class 2 |
6.89% |
7.51% |
Barclays U.S. Aggregate Bond
Index (reflects no deduction for fees, expenses, or taxes) |
5.97% |
4.25% |
S&P 500 Index (reflects no
deduction for fees, expenses, or taxes) |
13.69% |
17.02% |
MSCI EAFE Index NDTR D
(reflects no deduction for fees, expenses, or taxes) |
(4.90)% |
(2.35)% |
S&P Midcap 400 Index
(reflects no deduction for fees, expenses, or taxes) |
9.77% |
12.44% |
S&P Smallcap 600 Index
(reflects no deduction for fees, expenses, or taxes) |
5.76% |
10.30% |
Diversified Balanced Managed
Volatility Custom Index (reflects no deduction for fees, expenses, or
taxes) |
8.06% |
8.76% |
The S&P 500 Index is used to
show large cap U.S. equity market performance. The MSCI EAFE Index NDTR D is
used to show international stock performance. The S&P Midcap 400 Index is
used to show mid cap U.S. equity market performance. The S&P Smallcap 600
Index is used to show small cap U.S. equity market performance. The custom index
(as defined below) is used to show the performance of the various asset classes
used by the Account, and the Average Annual Total Returns table shows
performance of the components of the custom index. The weightings for the
Diversified Balanced Managed Volatility Custom Index are 50% Barclays U.S.
Aggregate Bond Index, 35% S&P 500 Index, 7% MSCI EAFE Index NDTR D, 4%
S&P Midcap 400 Index, and 4% S&P Smallcap 600 Index.
Management
Investment
Advisor and Portfolio Managers:
Principal Management
Corporation
|
|
• |
James W. Fennessey (since
2013), Portfolio Manager |
|
|
• |
Randy L. Welch (since 2013),
Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
DIVERSIFIED
GROWTH ACCOUNT
|
|
Objective: |
The Account seeks to provide
long-term capital appreciation. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
Class
2 |
Management Fees |
0.05% |
Distribution and/or Service
(12b-1) Fees |
0.25% |
Other Expenses |
—% |
Acquired Fund Fees and
Expenses |
0.26% |
Total Annual
Account Operating Expenses |
0.56% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Diversified
Growth Account - Class 2 |
$57 |
$179 |
$313 |
$701 |
Portfolio
Turnover
As a fund of funds, the Account does
not pay transaction costs, such as commissions, when it buys and sells shares of
underlying funds (or “turns over” its portfolio). An underlying fund does pay
transaction costs when it buys and sells portfolio securities, and a higher
portfolio turnover may indicate higher transaction costs. These costs, which are
not reflected in annual account operating expenses or in the examples, affect
the performance of the underlying fund and the Account. During its most recent
fiscal year, the Account's portfolio turnover rate was 7.7% of the average value of its
portfolio.
Principal
Investment Strategies
The Account operates as a fund of
funds and invests in underlying funds. In pursuing its investment objective, the
Account typically allocates its assets, within predetermined percentage ranges,
among the “underlying funds”: Funds of Principal Funds, Inc. ("PFI")
(Institutional class shares) - the International Equity Index, MidCap S&P
400 Index, and SmallCap S&P 600 Index Funds - and Accounts of Principal
Variable Contracts Funds, Inc. ("PVC") (Class 1 Shares) – the Bond Market Index
and LargeCap S&P 500 Index Accounts. The Account generally allocates
approximately 65% of its assets to the equity index funds to gain broad market
capitalization exposure to both U.S. and non-U.S investments and approximately
35% to the Bond Market Index Account for intermediate duration fixed-income
exposure. The percentages reflect the extent to which the Account normally
invests in the particular market segment represented by the underlying funds,
and the asset allocation strategy influences the potential investment risk and
reward of the Account.
Without shareholder approval,
Principal Management Corporation ("Principal"), the manager for PVC and PFI, may
alter the percentage ranges and/or substitute or remove underlying funds
(including investing in other investment companies) when it deems appropriate in
order to achieve the Account’s investment objective. The assets of the Account
are allocated among underlying funds in accordance with its investment
objective, while considering Principal's outlook for the economy, the financial
markets, and the relative market valuations of the underlying funds. In
selecting underlying funds and their target weights, Principal considers, among
other things, quantitative measures, such as past performance, expected levels
of risk and returns, expense levels, diversification of existing funds, and
style consistency. The Account is re-balanced monthly.
The net asset value of the Account's
shares is affected by changes in the value of the shares of the underlying funds
it owns. The Account's investments are invested in the underlying funds and, as
a result, the Account's performance is directly related to their performance.
The Account's ability to meet its investment objective depends on the ability of
the underlying funds to achieve their investment objectives.
The Account’s underlying funds
utilize derivative strategies. A derivative is a financial arrangement, the
value of which is derived from, or based on, a traditional security, asset, or
market index. Specifically, the underlying funds invest in equity index futures
and exchange-traded funds (ETFs) to manage the equity exposure and Treasury
futures to manage the fixed-income exposure.
Principal
Risks
The diversification of the Account
is designed to cushion losses in any one investment sector and moderate overall
price volatility. However, the Account is subject to the particular risks of the
underlying funds in the proportions in which the Account invests in them, and
its share prices will fluctuate as the prices of underlying fund shares rise or
fall with changing market conditions. If you sell your shares when their value
is less than the price you paid, you will lose money. The Account operates as a
fund of funds and thus bears both its own expenses and, indirectly, its
proportionate share of the expenses of the underlying funds in which it invests.
An investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account that are inherent in the
fund of funds, in alphabetical order, are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Conflict of
Interest Risk. The
Advisor and its affiliates earn different fees from different underlying funds
and may have an incentive to allocate more fund-of-fund assets to underlying
funds from which they receive higher fees.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
The principal risks of investing in
the Account that are inherent in the underlying funds, in alphabetical order,
are:
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange
restrictions.
Derivatives
Risk. Transactions in
derivatives may increase volatility, cause the liquidation of portfolio
positions when not advantageous to do so and produce disproportionate
losses.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Exchange-Traded
Funds ("ETFs") Risk. An
ETF is subject to the risks associated with direct ownership of the securities
comprising the index on which the ETF is based. Fund shareholders indirectly
bear their proportionate share of the expenses of the ETFs in which the fund
invests.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Index Fund
Investment Risk. More
likely than not, an index fund will underperform the index due to cashflows and
the fees and expenses of the fund.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Prepayment Risk.
Unscheduled prepayments
on mortgage-backed and asset-backed securities may have to be reinvested at
lower rates. A reduction in prepayments may increase the effective maturities of
these securities, exposing them to the risk of decline in market value over time
(extension risk).
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Life of Account results are measured
from the date the Account's shares were first sold (December 30, 2009).
Total Returns as
of December 31 (Class 2 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
'10 |
8.57 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q3
'11 |
(9.31 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Life of
Account |
Diversified
Growth Account - Class 2 |
7.83% |
10.15% |
10.15% |
S&P 500 Index (reflects no
deduction for fees, expenses, or taxes) |
13.69% |
15.45% |
15.21% |
Barclays U.S. Aggregate Bond
Index (reflects no deduction for fees, expenses, or taxes) |
5.97% |
4.45% |
4.41% |
MSCI EAFE Index NDTR D
(reflects no deduction for fees, expenses, or taxes) |
(4.90)% |
5.33% |
5.43% |
S&P Midcap 400 Index
(reflects no deduction for fees, expenses, or taxes) |
9.77% |
16.54% |
16.23% |
S&P Smallcap 600 Index
(reflects no deduction for fees, expenses, or taxes) |
5.76% |
17.27% |
16.94% |
Diversified Growth Custom Index
(reflects no deduction for fees, expenses, or taxes) |
8.51% |
10.92% |
10.78% |
The Barclays U.S. Aggregate Bond
Index is used to show performance of domestic, taxable fixed-income securities
performance. The MSCI EAFE Index NDTR D is used to show international stock
performance. The S&P Midcap 400 Index is used to show mid cap U.S. equity
market performance. The S&P Smallcap 600 Index is used to show small cap
U.S. equity market performance. The custom index (as defined below) is used to
show the performance of the various asset classes used by the Account, and the
Average Annual Total Returns table shows performance of the components of the
custom index. The weightings for the Diversified Growth Custom Index are 45%
S&P 500 Index, 35% Barclays U.S. Aggregate Bond Index, 10% MSCI EAFE Index
NDTR D, 5% S&P Midcap 400 Index, and 5% S&P Smallcap 600 Index.
Management
Investment
Advisor and Portfolio Managers:
Principal Management
Corporation
|
|
• |
James W. Fennessey (since
2009), Portfolio Manager |
|
|
• |
Randy L. Welch (since 2009),
Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
DIVERSIFIED
GROWTH MANAGED VOLATILITY ACCOUNT
|
|
Objective: |
The Account seeks to provide
long-term capital appreciation, with an emphasis on managing
volatility. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
2 |
|
Management Fees |
0.05% |
|
Distribution and/or Service
(12b-1) Fees |
0.25% |
|
Other Expenses
(1) |
—% |
|
Acquired Fund Fees and
Expenses |
0.36% |
|
Total Annual
Account Operating Expenses |
0.66% |
|
Expense Reimbursement
(2) |
—% |
|
Total Annual
Account Operating Expenses after Expense Reimbursement |
0.66% |
|
|
|
(1) Based on estimated expenses
for the current fiscal year. |
|
(2) Principal Management
Corporation ("Principal"), the investment advisor, has contractually
agreed to limit the Account’s expenses by paying, if necessary, expenses
normally payable by the Account, (excluding interest expense, expenses
related to fund investments, acquired fund fees and expenses, and other
extraordinary expenses) to maintain a total level of operating expenses
(expressed as a percent of average net assets on an annualized basis) not
to exceed 0.31% for Class 2 shares. It is expected that the expense limit
will continue through the period ending April 30, 2015; however, Principal
Variable Contracts Funds, Inc. and Principal, the parties to the
agreement, may agree to terminate the expense limit prior to the end of
the period. |
|
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
Diversified
Growth Managed Volatility Account - Class 2 |
$67 |
$211 |
Portfolio
Turnover
As a fund of funds, the Account does
not pay transaction costs, such as commissions, when it buys and sells shares of
underlying funds (or “turns over” its portfolio). An underlying fund
does pay transaction costs when it buys and sells portfolio securities, and a
higher portfolio turnover may indicate higher transaction costs. These costs,
which are not reflected in annual account operating expenses or in the examples,
affect the performance of the underlying fund and the Account. From October 31,
2013, date operations commenced, through December 31, 2013, the Account's
annualized portfolio turnover rate was 127.3% of the average value of its
portfolio.
Principal
Investment Strategies
The Account operates as a fund of
funds and invests in underlying funds. In pursuing its investment objective, the
Account typically allocates its assets, within predetermined percentage ranges,
among the “underlying funds”: Funds of Principal Funds, Inc. ("PFI")
(Institutional class shares) - the International Equity Index, MidCap S&P
400 Index, and SmallCap S&P 600 Index Funds - and Accounts of Principal
Variable Contracts Funds, Inc. ("PVC") (Class 1 Shares) - the Bond Market Index
and LargeCap S&P 500 Managed Volatility Index Accounts. The Account
generally allocates approximately 65% of its assets to the equity index funds to
gain broad market capitalization exposure to both U.S. and non-U.S investments
and approximately 35% to the Bond Market Index Account for intermediate duration
fixed-income exposure. The percentages reflect the extent to which the Account
normally invests in the
particular market segment
represented by the underlying funds, and the asset allocation strategy
influences the potential investment risk and reward of the Account.
Without shareholder approval,
Principal Management Corporation ("Principal"), the manager for PVC and PFI, may
alter the percentage ranges and/or substitute or remove underlying funds
(including investing in other investment companies) when it deems appropriate in
order to achieve the Account's investment objective. The assets of the Account
are allocated among underlying funds in accordance with its investment
objective, while considering Principal's outlook for the economy, the financial
markets, and the relative market valuations of the underlying funds. In
selecting underlying funds and their target weights, Principal considers, among
other things, quantitative measures, such as past performance, expected levels
of risk and returns, expense levels, diversification of existing funds, and
style consistency. The Account is re-balanced monthly. The Account actively
trades portfolio securities.
The net asset value of the Account's
shares is affected by changes in the value of the shares of the underlying funds
it owns. The Account's investments are invested in the underlying funds and, as
a result, the Account's performance is directly related to their performance.
The Account's ability to meet its investment objective depends on the ability of
the underlying funds to achieve their investment objectives.
The Account's underlying funds
utilize derivative strategies. A derivative is a financial arrangement, the
value of which is derived from, or based on, a traditional security, asset, or
market index. Specifically, the underlying funds invest in equity index futures
and exchange-traded funds (ETFs) to manage the equity exposure and Treasury
futures to manage the fixed-income exposure. An underlying fund also buys
vertical call spreads and vertical put spreads as part of an active strategy
intended to reduce volatility. Vertical spreads are the simultaneous
purchase and sale of two options of the same type with the same expiration date
but two different strike prices. The strike price is the fixed price at which
the owner of the option can buy (in the case of a call), or sell (in the case of
a put), the underlying security.
Principal
Risks
The diversification of the Account
is designed to cushion losses in any one investment sector and moderate overall
price volatility. However, the Account is subject to the particular risks of the
underlying funds in the proportions in which the Account invests in them, and
its share prices will fluctuate as the prices of underlying fund shares rise or
fall with changing market conditions. If you sell your shares when their value
is less than the price you paid, you will lose money. The Account operates as a
fund of funds and thus bears both its own expenses and, indirectly, its
proportionate share of the expenses of the underlying funds in which it invests.
An investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account that are inherent in the
fund of funds, in alphabetical order, are:
Active Trading
Risk. A fund that has a
portfolio turnover rate over 100% is considered actively traded. Actively
trading portfolio securities may accelerate realization of taxable gains and
losses, lower fund performance and may result in high portfolio turnover rates
and increased brokerage costs.
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Conflict of
Interest Risk. The
Advisor and its affiliates earn different fees from different underlying funds
and may have an incentive to allocate more fund-of-fund assets to underlying
funds from which they receive higher fees.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
The principal risks of investing in
the Account that are inherent in the underlying funds, in alphabetical order,
are:
Basis
Risk. A hedge using derivatives and/or
securities could expose the fund to basis risk. Basis risk can arise when a
change in the value of a hedge does not match a change in the value of the asset
it hedges. In other words, the change in value of the hedge could move in a
direction that does not match the change in value of the underlying asset
resulting in a risk of loss to the fund.
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange
restrictions.
Derivatives
Risk. Transactions in
derivatives may increase volatility, cause the liquidation of portfolio
positions when not advantageous to do so and produce disproportionate
losses.
Equity Securities
Risk. The value of
equity securities could decline if the issuer's financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Exchange-Traded
Funds ("ETFs") Risk. An
ETF is subject to the risks associated with direct ownership of the securities
comprising the index on which the ETF is based. Fund shareholders indirectly
bear their proportionate share of the expenses of the ETFs in which the fund
invests.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Index Fund
Investment Risk. More
likely than not, an index fund will underperform the index due to cashflows and
the fees and expenses of the fund.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Prepayment Risk.
Unscheduled prepayments
on mortgage-backed and asset-backed securities may have to be reinvested at
lower rates. A reduction in prepayments may increase the effective maturities of
these securities, exposing them to the risk of decline in market value over time
(extension risk).
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Volatility
Mitigation Risk.
Volatility mitigation strategies may increase fund transaction costs, which
could increase losses or reduce gains. These strategies may not protect
the fund from market declines and may reduce the fund's participation in market
gains.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Life of Account results are measured
from the date the Account's shares were first sold (October 31, 2013).
Total Returns as
of December 31 (Class 2 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'14 |
3.27 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q3
'14 |
(0.70 |
)% |
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Life of
Account |
Diversified
Growth Managed Volatility Account - Class 2 |
7.06% |
8.47% |
S&P 500 Index (reflects no
deduction for fees, expenses, or taxes) |
13.69% |
17.02% |
Barclays U.S. Aggregate Bond
Index (reflects no deduction for fees, expenses, or taxes) |
5.97% |
4.25% |
MSCI EAFE Index NDTR D
(reflects no deduction for fees, expenses, or taxes) |
(4.90)% |
(2.35)% |
S&P Midcap 400 Index
(reflects no deduction for fees, expenses, or taxes) |
9.77% |
12.44% |
S&P Smallcap 600 Index
(reflects no deduction for fees, expenses, or taxes) |
5.76% |
10.30% |
Diversified Growth Managed
Volatility Custom Index (reflects no deduction for fees, expenses, or
taxes) |
8.51% |
9.96% |
The Barclays U.S. Aggregate Bond
Index is used to show performance of domestic, taxable fixed-income securities
performance. The MSCI EAFE Index NDTR D is used to show international stock
performance. The S&P Midcap 400 Index is used to show mid cap U.S. equity
market performance. The S&P Smallcap 600 Index is used to show small cap
U.S. equity market performance. The custom index (as defined below) is used to
show the performance of the various asset classes used by the Account, and the
Average Annual Total Returns table shows performance of the components of the
custom index. The weightings for the Diversified Growth Managed Volatility
Custom Index are 45% S&P 500 Index, 35% Barclays U.S. Aggregate Bond Index,
10% MSCI EAFE Index NDTR D, 5% S&P Midcap 400 Index, and 5% S&P Smallcap
600 Index.
Management
Investment
Advisor and Portfolio Managers:
Principal Management
Corporation
|
|
• |
James W. Fennessey (since
2013), Portfolio Manager |
|
|
• |
Randy L. Welch (since 2013),
Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
DIVERSIFIED
INCOME ACCOUNT
|
|
Objective:
|
The Account seeks to provide a
high level of total return (consisting of reinvestment of income with some
capital appreciation). |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
Class
2 |
Management Fees |
0.05% |
Distribution and/or Service
(12b-1) Fees |
0.25% |
Other Expenses |
0.01% |
Acquired Fund Fees and Expenses
|
0.26% |
Total Annual
Account Operating Expenses |
0.57% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account's operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Diversified
Income Account - Class 2 |
$58 |
$183 |
$318 |
$714 |
Portfolio
Turnover
As a fund of funds, the Account does
not pay transaction costs, such as commissions, when it buys and sells shares of
underlying funds (or “turns over” its portfolio). An underlying fund does pay
transaction costs when it buys and sells portfolio securities, and a higher
portfolio turnover may indicate higher transaction costs. These costs, which are
not reflected in annual account operating expenses or in the examples, affect
the performance of the underlying fund and the Account. During its most recent
fiscal year, the Account's portfolio turnover rate was 27.0% of the average value of its
portfolio.
Principal
Investment Strategies
The Account operates as a fund of
funds and invests in underlying funds. In pursuing its investment objective, the
Account typically allocates its assets, within predetermined percentage ranges,
among the “underlying funds”: Funds of Principal Funds, Inc. ("PFI")
(Institutional class shares) - the International Equity Index, MidCap S&P
400 Index, and SmallCap S&P 600 Index Funds - and Accounts of Principal
Variable Contracts Funds, Inc. ("PVC") (Class 1 Shares) – the Bond Market Index
and LargeCap S&P 500 Index Accounts. The Account generally allocates
approximately 35% of its assets to the equity index funds to gain broad market
capitalization exposure to both U.S. and non-U.S investments and approximately
65% to the Bond Market Index Account for intermediate duration fixed-income
exposure. The percentages reflect the extent to which the Account normally
invests in the particular market segment represented by the underlying funds,
and the asset allocation strategy influences the potential investment risk and
reward of the Account.
Without shareholder approval,
Principal Management Corporation ("Principal"), the manager for PVC and PFI, may
alter the percentage ranges and/or substitute or remove underlying funds
(including investing in other investment companies) when it deems appropriate in
order to achieve the Account’s investment objective. The assets of the Account
are allocated among underlying funds in accordance with its investment
objective, while considering Principal's outlook for the economy, the financial
markets, and the relative market valuations of the underlying
funds.
In selecting underlying funds and
their target weights, Principal considers, among other things, quantitative
measures, such as past performance, expected levels of risk and returns, expense
levels, diversification of existing funds, and style consistency. The Account is
re-balanced monthly.
The net asset value of the Account's
shares is affected by changes in the value of the shares of the underlying funds
it owns. The Account's investments are invested in the underlying funds and, as
a result, the Account's performance is directly related to their performance.
The Account's ability to meet its investment objective depends on the ability of
the underlying funds to achieve their investment objectives.
The Account’s underlying funds
utilize derivative strategies. A derivative is a financial arrangement, the
value of which is derived from, or based on, a traditional security, asset, or
market index. Specifically, the underlying funds invest in equity index futures
and exchange-traded funds (ETFs) to manage the equity exposure and Treasury
futures to manage the fixed-income exposure.
Principal
Risks
The diversification of the Account
is designed to cushion losses in any one investment sector and moderate overall
price volatility. However, the Account is subject to the particular risks of the
underlying funds in the proportions in which the Account invests in them, and
its share prices will fluctuate as the prices of underlying fund shares rise or
fall with changing market conditions. If you sell your shares when their value
is less than the price you paid, you will lose money. The Account operates as a
fund of funds and thus bears both its own expenses and, indirectly, its
proportionate share of the expenses of the underlying funds in which it invests.
An investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account that are inherent in the
fund of funds, in alphabetical order, are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Conflict of
Interest Risk. The
Advisor and its affiliates earn different fees from different underlying funds
and may have an incentive to allocate more fund-of-fund assets to underlying
funds from which they receive higher fees.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
The principal risks of investing in
the Account that are inherent in the underlying funds, in alphabetical order,
are:
Derivatives
Risk. Transactions in
derivatives may increase volatility, cause the liquidation of portfolio
positions when not advantageous to do so and produce disproportionate
losses.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Exchange-Traded
Funds ("ETFs") Risk. An
ETF is subject to the risks associated with direct ownership of the securities
comprising the index on which the ETF is based. Fund shareholders indirectly
bear their proportionate share of the expenses of the ETFs in which the fund
invests.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Index Fund
Investment Risk. More
likely than not, an index fund will underperform the index due to cashflows and
the fees and expenses of the fund.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Prepayment Risk.
Unscheduled prepayments
on mortgage-backed and asset-backed securities may have to be reinvested at
lower rates. A reduction in prepayments may increase the effective maturities of
these securities, exposing them to the risk of decline in market value over time
(extension risk).
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Life of Account results are measured
from the date the Account's shares were first sold (May 15, 2012).
Total Returns as
of December 31 (Class 2 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q1
'13 |
3.23 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q2
'13 |
(0.83 |
)% |
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Life of
Account |
Diversified
Income Account - Class 2 |
6.89% |
7.80% |
Barclays U.S. Aggregate Bond
Index (reflects no deduction for fees, expenses, or taxes) |
5.97% |
2.32% |
S&P 500 Index (reflects no
deduction for fees, expenses, or taxes) |
13.69% |
20.63% |
MSCI EAFE Index NDTR D
(reflects no deduction for fees, expenses, or taxes) |
(4.90)% |
12.31% |
S&P Midcap 400 Index
(reflects no deduction for fees, expenses, or taxes) |
9.77% |
19.36% |
S&P Smallcap 600 Index
(reflects no deduction for fees, expenses, or taxes) |
5.76% |
20.60% |
Diversified Income Custom Index
(reflects no deduction for fees, expenses, or taxes) |
7.60% |
8.18% |
The S&P 500 Index is used to
show large cap U.S. equity market performance. The MSCI EAFE Index NDTR D is
used to show international stock performance. The S&P Midcap 400 Index is
used to show mid cap U.S. equity market performance. The S&P Smallcap 600
Index is used to show small cap U.S. equity market performance. The custom index
(as defined below) is used to show the performance of the various asset classes
used by the Account, and the Average Annual Total Returns table shows
performance of the components of the custom index. The weightings for the
Diversified Income Custom Index are 65% Barclays U.S. Aggregate Bond Index, 25%
S&P 500 Index, 4% MSCI EAFE Index NDTR D, 3% S&P Midcap 400 Index, and
3% S&P Smallcap 600 Index.
Management
Investment
Advisor and Portfolio Managers:
Principal Management
Corporation
|
|
• |
James W. Fennessey (since
2012), Portfolio Manager |
|
|
• |
Randy L. Welch (since 2012),
Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
DIVERSIFIED
INTERNATIONAL ACCOUNT
|
|
Objective: |
The
Account seeks
long-term growth of capital. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.83% |
0.83% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses |
0.04% |
0.04% |
Total Annual
Account Operating Expenses |
0.87% |
1.12% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Diversified
International Account - Class 1 |
$89 |
$278 |
$482 |
$1,073 |
Diversified
International Account - Class 2 |
114 |
356 |
617 |
1,363 |
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account’s portfolio turnover rate was 79.5% of the average value of its
portfolio.
Principal
Investment Strategies
The Account invests primarily in
foreign equity securities. The Account has no limitation on the percentage of
assets that are invested in any one country or denominated in any one currency,
but the Account typically invests in foreign securities of at least 30
countries. Primary consideration is given to securities of corporations of
developed areas, such as Japan, Western Europe, Canada, Australia, and New
Zealand; however, the Account also invests in emerging market securities. The
Account invests in equity securities of small, medium, and large market
capitalization companies.
Principal
Risks
The value of your investment in the
Account changes with the value of the Account 's investments. Many factors
affect that value, and it is possible to lose money by investing in the Account.
An investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange
restrictions.
Emerging Market
Risk. Investments in
emerging market countries may have more risk than those in developed market
countries because the emerging markets are less developed and more illiquid.
Emerging market countries can also be subject to increased social, economic,
regulatory, and political uncertainties and can be extremely
volatile.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (January 8, 2007), performance shown in the table for
Class 2 shares is based on the performance of the Account's Class 1 shares
adjusted to reflect the fees and expenses of the Class 2 shares. The adjustments
result in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on May 2, 1994.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
21.14 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q3
‘08 |
(24.01 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
Diversified
International - Class 1 |
(3.21)% |
6.41% |
5.56% |
Diversified
International - Class 2 |
(3.41)% |
6.16% |
5.30% |
MSCI ACWI Ex-U.S. Index
(reflects no deduction for fees, expenses, or taxes) |
(3.87)% |
4.43% |
5.13% |
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Principal Global Investors,
LLC
|
|
• |
Paul H. Blankenhagen (since
2003), Portfolio Manager |
|
|
• |
Juliet Cohn (since 2004),
Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
EQUITY INCOME
ACCOUNT
|
|
Objective:
|
The Account seeks to provide
current income and long-term growth of income and capital.
|
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.48% |
0.48% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses |
—% |
—% |
Total Annual
Account Operating Expenses |
0.48% |
0.73% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Equity
Income Account - Class 1 |
$49 |
$154 |
$269 |
$604 |
Equity
Income Account - Class 2 |
75 |
233 |
406 |
906 |
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account’s portfolio turnover rate was 18.0% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the
Account invests at least 80% of its net assets, plus any borrowings for
investment purposes, in dividend-paying equity securities at the time of each
purchase. The Account usually invests in equity securities of companies with
large market capitalizations. For this Account, companies with large market
capitalizations are those with market capitalizations within the range of
companies comprising the Russell 1000 ®
Value Index (as of
December 31,
2014 , this range was
between approximately $275.0
million and
$397.0 billion
). The Account invests in
value equity securities, an investment strategy that emphasizes buying equity
securities that appear to be undervalued. The Account also invests in real
estate investment trusts and securities of foreign issuers.
Principal
Risks
The value of your investment in the
Account changes with the value of the Account 's investments. Many factors
affect that value, and it is possible to lose money by investing in the Account.
An investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange
restrictions.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Real Estate
Investment Trusts (“REITs”) Risk. A REIT could fail to qualify for
tax-free pass-through of income under the Internal Revenue Code, and fund
shareholders will indirectly bear their proportionate share of the expenses of
REITs in which the fund invests.
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Performance reflects the performance
of the predecessor fund.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
‘09 |
13.88 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(19.89 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
Equity
Income Account - Class 1 |
12.80% |
14.73% |
8.01% |
Equity
Income Account - Class 2 |
12.46% |
14.43% |
7.74% |
Russell 1000 Value Index
(reflects no deduction for fees, expenses, or taxes) |
13.45% |
15.42% |
7.30% |
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Edge Asset Management, Inc.
|
|
• |
Daniel R. Coleman (since
2010), Head of Equities, Portfolio
Manager |
|
|
• |
David W. Simpson (since 2008),
Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
GOVERNMENT &
HIGH QUALITY BOND ACCOUNT
|
|
Objective: |
The Account seeks to provide a
high level of current income consistent with safety and
liquidity. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.50% |
0.50% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses |
0.01% |
0.01% |
Total Annual
Account Operating Expenses |
0.51% |
0.76% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Government &
High Quality Bond Account - Class 1 |
$52 |
$164 |
$285 |
$640 |
Government &
High Quality Bond Account - Class 2 |
78 |
243 |
422 |
942 |
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account’s portfolio turnover rate was 45.3% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the
Account invests at least 80% of its net assets, plus any borrowings for
investment purposes, in securities issued by the U.S. government, its agencies
or instrumentalities or securities that are rated AAA by S&P or Aaa by
Moody's, or, if unrated, in the opinion of the Sub-Advisor of comparable quality
including but not limited to mortgage securities such as agency and non-agency
collateralized mortgage obligations, and other obligations that are secured by
mortgages or mortgage-backed securities at the time of each purchase. Under
normal circumstances, the Account maintains an average portfolio duration that
is within ±25% of the duration of the Barclays Fixed-Rate MBS Index, which as of
December 31,
2014 was 4.37 years . The Account also invests in
mortgage-backed securities that are not issued by the U.S. government, its
agencies or instrumentalities or rated AAA by S&P, AAA by Fitch, or Aaa by
Moody's, including collateralized mortgage obligations, and in other obligations
that are secured by mortgages or mortgage-backed securities.
Principal
Risks
The value of your investment in the
Account changes with the value of the Account 's investments. Many factors
affect that value, and it is possible to lose money by investing in the Account.
An investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Prepayment Risk.
Unscheduled prepayments
on mortgage-backed and asset-backed securities may have to be reinvested at
lower rates. A reduction in prepayments may increase the effective maturities of
these securities, exposing them to the risk of decline in market value over time
(extension risk).
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Performance reflects the performance
of the predecessor fund.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
'06 |
3.42 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q2
'13 |
(1.92 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
Government
& High Quality Bond Account - Class 1 |
5.08% |
3.97% |
4.42% |
Government
& High Quality Bond Account - Class 2 |
4.75% |
3.71% |
4.15% |
Barclays MBS Fixed Rate Index
(reflects no deduction for fees, expenses, or taxes) |
6.15% |
3.78% |
4.78% |
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Edge Asset Management,
Inc.
|
|
• |
John R. Friedl (since 2010),
Portfolio Manager |
|
|
• |
Ryan P. McCann (since 2010),
Portfolio Manager |
|
|
• |
Scott J. Peterson (since
2010), Portfolio Manager |
|
|
• |
Greg L. Tornga (since 2011),
Head of Fixed Income and Portfolio
Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
INCOME
ACCOUNT
|
|
Objective: |
The Account seeks to provide a
high level of current income consistent with preservation of
capital. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.50% |
0.50% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses |
0.01% |
0.01% |
Total Annual
Account Operating Expenses |
0.51% |
0.76% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Income
Account - Class 1 |
$52 |
$164 |
$285 |
$640 |
Income
Account - Class 2 |
78 |
243 |
422 |
942 |
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account’s portfolio turnover rate was 12.8% of the average value of its
portfolio.
Principal
Investment Strategies
The Account invests primarily in a
diversified pool of fixed-income securities including corporate securities, U.S.
government securities, and mortgage-backed securities (including collateralized
mortgage obligations), up to 35% of which may be in below investment grade bonds
(sometimes called “high yield bonds” or "junk bonds") which are rated at the
time of each purchase Ba1 or lower by Moody's and BB+ or lower by S&P (if
the bond has been rated by only one of those agencies, that rating will
determine whether the bond is below investment grade; if the bond has not been
rated by either of those agencies, the Sub-Advisor will determine whether the
bond is of a quality comparable to those rated below investment grade). Under
normal circumstances, the Account maintains an average portfolio duration that
is within ±25% of the duration of the Barclays U.S. Aggregate Bond Index, which
as of December 31,
2014 was 5.55 years . The Account also invests in
foreign securities and real estate investment trust ("REIT") securities.
During the fiscal year ended
December 31, 2013, the average ratings of the Account's fixed-income assets,
based on market value at each month-end, were as follows (all ratings are by
Moody's):
|
|
|
|
26.18% in securities rated
Aaa |
4.20% in securities rated
Ba |
0.00% in securities rated
C |
1.99% in securities rated
Aa |
5.95% in securities rated
B |
0.00% in securities rated
D |
18.38% in securities rated
A |
1.89% in securities rated
Caa |
1.38% in securities not
rated |
40.03% in securities rated
Baa |
0.00% in securities rated
Ca |
|
Principal
Risks
The value of your investment in the
Account changes with the value of the Account 's investments. Many factors
affect that value, and it is possible to lose money by investing in the Account.
An investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange restrictions.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
High Yield
Securities Risk. High
yield fixed-income securities (commonly referred to as "junk bonds") are subject
to greater credit quality risk than higher rated fixed-income securities and
should be considered speculative.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Prepayment Risk.
Unscheduled prepayments
on mortgage-backed and asset-backed securities may have to be reinvested at
lower rates. A reduction in prepayments may increase the effective maturities of
these securities, exposing them to the risk of decline in market value over time
(extension risk).
Real Estate
Investment Trusts (“REITs”) Risk. A REIT could fail to qualify for
tax-free pass-through of income under the Internal Revenue Code, and fund
shareholders will indirectly bear their proportionate share of the expenses of
REITs in which the fund invests.
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S.
Treasury.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Performance reflects the performance
of the predecessor fund.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
7.98 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q3
'08 |
(4.21 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
Income
Account - Class 1 |
5.55% |
6.04% |
5.71% |
Income
Account - Class 2 |
5.26% |
5.74% |
5.43% |
Barclays U.S. Aggregate Bond
Index (reflects no deduction for fees, expenses, or taxes) |
5.97% |
4.45% |
4.71% |
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Edge Asset Management,
Inc.
|
|
• |
John R. Friedl (since 2005),
Portfolio Manager |
|
|
• |
Ryan P. McCann (since 2010),
Portfolio Manager |
|
|
• |
Scott J. Peterson (since
2010), Portfolio Manager |
|
|
• |
Greg L. Tornga (since 2011),
Head of Fixed Income and Portfolio
Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
INTERNATIONAL
EMERGING MARKETS ACCOUNT
|
|
Objective: |
The Account seeks long-term
growth of capital. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
1.25% |
1.25% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses
(1) |
0.14% |
0.14% |
Total Annual
Account Operating Expenses |
1.39% |
1.64% |
|
|
(1) Based on estimated amounts
for the current fiscal year (Class
2). |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
International
Emerging Markets Account - Class 1 |
$142 |
$440 |
$761 |
$1,669 |
International
Emerging Markets Account - Class 2 |
167 |
517 |
|
|
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account’s portfolio turnover rate was 118.2% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the
Account invests at least 80% of its net assets, plus any borrowings for
investment purposes, in equity securities of emerging market companies at the
time of each purchase. Emerging market companies are:
|
|
• |
companies with their principal
place of business or principal office in emerging market countries
or |
|
|
• |
companies whose principal
securities trading market is an emerging market
country. |
Here, "emerging market country"
means any country which is considered to be an emerging country by the
international financial community (including the MSCI Emerging Markets Index or
Barclays Emerging Markets USD Aggregate Bond Index). These countries generally
include every nation in the world except the United States, Canada, Japan,
Australia, and New Zealand, and most nations located in Western Europe. The
Account invests in equity securities of small, medium, and large market
capitalization companies. The Account actively trades portfolio
securities.
Principal
Risks
The value of your investment in the
Account changes with the value of the Account's investments. Many factors affect
that value, and it is possible to lose money by investing in the Account. An
investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Active Trading
Risk. A fund that has a
portfolio turnover rate over 100% is considered actively traded. Actively
trading portfolio securities may accelerate realization of taxable gains and
losses, lower fund performance and may result in high portfolio turnover rates
and increased brokerage costs.
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange
restrictions.
Emerging Market
Risk. Investments in
emerging market countries may have more risk than those in developed market
countries because the emerging markets are less developed and more illiquid.
Emerging market countries can also be subject to increased social, economic,
regulatory, and political uncertainties and can be extremely
volatile.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Account do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Account would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (______________), performance shown in the table for
Class 2 shares is based on the performance of the Account's Class 1 shares
adjusted to reflect the fees and expenses of the Class 2 shares. The adjustments
result in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on October 24,
2000.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
29.44 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q3
'08 |
(29.34 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
International
Emerging Markets - Class 1 |
(3.75)% |
1.49% |
8.02% |
International
Emerging Markets - Class 2 |
(3.93)% |
1.23% |
7.64% |
MSCI Emerging Markets NDTR D
Index (reflects no deduction for fees, expenses, or taxes) |
(2.19)% |
1.78% |
8.43% |
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Principal Global Investors, LLC
|
|
• |
Mihail Dobrinov (since 2007),
Portfolio Manager |
|
|
• |
Alan Wang (since 2014),
Portfolio Manager |
|
|
• |
Mohammed Zaidi (since 2012),
Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
LARGECAP BLEND
ACCOUNT II
On December 9, 2014, the Board of
Directors of Principal Variable Contracts Funds, Inc. approved the acquisition
of the assets of the LargeCap Blend Account II by the Principal Capital
Appreciation Account (the “Proposed Merger”). The Proposed Merger will be
submitted for shareholder vote at a Special Meeting of Shareholders of LargeCap
Blend Account II tentatively scheduled for April 10, 2015. Additional
information about the Proposed Merger will be provided in the Proxy
Statement/Prospectus that is expected to be mailed to record date shareholders
of LargeCap Blend Account II in March 2015. If shareholders approve, the
Proposed Merger is expected to occur on or about April 17, 2015.
|
|
Objective: |
The Account seeks long-term
growth of capital. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.75% |
0.75% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses |
0.02% |
0.02% |
Total Annual
Account Operating Expenses |
0.77% |
1.02% |
Fee Waiver (1) |
(0.02)% |
(0.02)% |
Total Annual
Account Operating Expenses after Fee Waiver |
0.75% |
1.00% |
|
(1) Principal Management
Corporation ("Principal"), the investment advisor, has contractually
agreed to limit the Account's Management Fees through the period ending
April 30, 2015. The fee waiver will reduce the Account's Management
Fees by 0.018% (expressed as a percent of average net assets on an
annualized basis). It is expected that the fee waiver will continue
through the period disclosed; however, Principal Variable Contracts Funds,
Inc. and Principal, the parties to the agreement, may agree to terminate
the fee waiver prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
LargeCap
Blend Account II - Class 1 |
$77 |
$243 |
$425 |
$952 |
LargeCap
Blend Account II - Class 2 |
102 |
322 |
561 |
1,245 |
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account’s portfolio turnover rate was 44.6% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the
Account invests at least 80% of its net assets, plus any borrowings for
investment purposes, in equity securities of companies with large market
capitalizations at the time of each purchase. For this Account, companies with
large market capitalizations are those with market capitalizations within the
range of companies comprising the S&P 500 Index (as of December 31, 2014 , this range was between
approximately $2.9
billion and
$647.4 billion
).
Employing a "blend" strategy, the
Account's assets are invested in equity securities with both growth and/or value
characteristics. Investing in value equity securities is an investment strategy
that emphasizes buying equity securities that appear to be undervalued. The
growth orientation selection emphasizes buying equity securities of companies
whose potential for growth of capital and earnings is expected to be above
average. The Account does not have a policy of preferring one of these
categories over the other.
Principal Management Corporation
invests between 10% and 35% of the Account's assets in equity securities in an
attempt to match or exceed the performance of the Account's benchmark index
(listed in the Average Annual Total Returns table) by purchasing securities in
the index while slightly overweighting and underweighting certain individual
equity securities relative to their weight in the index.
Principal
Risks
The value of your investment in the
Account changes with the value of the Account's investments. Many factors affect
that value, and it is possible to lose money by investing in the Account. An
investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The table shows changes in the
Account's performance from year to year. The bar chart shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (January 8, 2007), performance shown in the table for
Class 2 shares is based on the performance of the Account's Class 1 shares
adjusted to reflect the fees and expenses of the Class 2 shares. The adjustments
result in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on May 1, 2002.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
17.08 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(21.92 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2013 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
LargeCap
Blend Account II - Class 1 |
11.30% |
13.77% |
7.20% |
LargeCap
Blend Account II - Class 2 |
11.00% |
13.48% |
6.93% |
S&P 500 Index (reflects no
deduction for fees, expenses, or taxes) |
13.69% |
15.45% |
7.67% |
Management
Investment
Advisor and Portfolio Managers:
Principal Management
Corporation
|
|
• |
James W. Fennessey (since
2009), Portfolio Manager |
|
|
• |
Randy L. Welch (since 2009),
Portfolio Manager |
Sub-Advisors:
ClearBridge Investments,
LLC
T. Rowe Price Associates,
Inc.
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
LARGECAP GROWTH
ACCOUNT
|
|
Objective: |
The Account seeks long-term
growth of capital. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.68% |
0.68% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses |
0.01% |
0.01% |
Total Annual
Account Operating Expenses |
0.69% |
0.94% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
LargeCap
Growth Account - Class 1 |
$70 |
$221 |
$384 |
$859 |
LargeCap
Growth Account - Class 2 |
96 |
300 |
520 |
1,155 |
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account’s portfolio turnover rate was 70.1% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the
Account invests at least 80% of its net assets, plus any borrowings for
investment purposes, in equity securities of companies with large market
capitalizations at the time of each purchase. For this Account, companies with
large market capitalizations are those with market capitalizations within the
range of companies comprising the Russell 1000 ®
Growth Index (as of
December 31,
2014 , this range was
between approximately $275.0 million and $665.6 billion ). The Account invests in growth
equity securities; growth orientation emphasizes buying equity securities of
companies whose potential for growth of capital and earnings is expected to be
above average.
Principal
Risks
The value of your investment in the
Account changes with the value of the Account's investments. Many factors affect
that value, and it is possible to lose money by investing in the Account. An
investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future.You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (January 8, 2007), performance shown in the table for
Class 2 shares is based on the performance of the Account's Class 1 shares
adjusted to reflect the fees and expenses of the Class 2 shares. The adjustments
result in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on May 2, 1994.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q1
'12 |
17.54 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(25.99 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
LargeCap
Growth Account - Class 1 |
11.12% |
14.54% |
8.01% |
LargeCap
Growth Account - Class 2 |
10.85% |
14.25% |
7.74% |
Russell 1000 Growth Index
(reflects no deduction for fees, expenses, or taxes) |
13.05% |
15.81% |
8.49% |
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Columbus Circle Investors
|
|
• |
Thomas J. Bisighini (since
2009), Managing Director/Co-Portfolio
Manager |
|
|
• |
Anthony Rizza (since 2005),
Senior Managing Director/Portfolio Manager
|
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
LARGECAP GROWTH
ACCOUNT I
|
|
Objective: |
The Account seeks long-term
growth of capital. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.76% |
0.76% |
Distribution and/or Service
(12b-1) Fees
|
N/A |
0.25% |
Other Expenses
(1) |
0.01% |
0.01% |
Total Annual
Account Operating Expenses |
0.77% |
1.02% |
Fee Waiver (2) |
(0.02)% |
(0.02)% |
Total Annual
Account Operating Expenses after Fee Waiver |
0.75% |
1.00% |
|
|
|
(1) Based on estimated amounts
for the current fiscal year (Class 2). |
|
|
(2) Principal Management
Corporation ("Principal"), the investment advisor, has contractually
agreed to limit the Account's Management Fees through the period ending
April 30, 2016. The fee waiver will reduce the Account's Management
Fees by 0.016% (expressed as a percent of average net assets on an
annualized basis). It is expected that the fee waiver will continue
through the period disclosed; however, Principal Variable Contracts Funds,
Inc. and Principal, the parties to the agreement, may agree to terminate
the fee waiver prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
LargeCap
Growth Account I - Class 1 |
$77 |
$243 |
$425 |
$952 |
LargeCap
Growth Account I - Class 2 |
102 |
322 |
|
|
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account’s portfolio turnover rate was 36.9% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the
Account invests at least 80% of its net assets, plus any borrowings for
investment purposes, in equity securities of companies with large market
capitalizations at the time of each purchase. For this Account, companies with
large market capitalizations are those with market capitalizations within the
range of companies comprising the Russell 1000 ®
Growth Index (as of
December 31,
2014 , this range was
between approximately $275.0 million and $665.6 billion ). The Account invests in growth
equity securities; growth orientation emphasizes buying equity securities of
companies whose potential for growth of capital and earnings is expected to be
above average.
Principal Management Corporation
invests between 10% and 35% of the Account's assets in equity securities in an
attempt to match or exceed the performance of the Account's benchmark index
(listed in the Average Annual Total Returns table) by purchasing securities in
the index while slightly overweighting and underweighting certain individual
equity securities relative to their weight in the index.
Principal
Risks
The value of your investment in the
Account changes with the value of the Account's investments. Many factors affect
that value, and it is possible to lose money by investing in the Account. An
investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Account do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Account would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (______________), performance shown in the table for
Class 2 shares is based on the performance of the Account's Class 1 shares
adjusted to reflect the fees and expenses of the Class 2 shares. The adjustments
result in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on June 1, 1994
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
19.90 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(22.69 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
LargeCap
Growth I - Class 1 |
8.61% |
15.45% |
8.72% |
LargeCap
Growth I - Class 2 |
8.34% |
15.17% |
8.37% |
Russell 1000 Growth Index
(reflects no deduction for fees, expenses, or taxes) |
13.05% |
15.81% |
8.49% |
Management
Investment
Advisor and Portfolio Managers:
Principal Management
Corporation
|
|
• |
James W. Fennessey (since
2009), Portfolio Manager |
|
|
• |
Randy L. Welch (since 2009),
Portfolio Manager |
Sub-Advisors:
Brown Advisory, LLC
T. Rowe Price Associates,
Inc.
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
LARGECAP S&P
500 INDEX ACCOUNT
|
|
Objective: |
The Account seeks long-term
growth of capital. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.25% |
0.25% |
Distribution and/or Service
(12b-1) Fees
|
N/A |
0.25 |
Other Expenses
(1) |
—% |
—% |
Total Annual
Account Operating Expenses |
0.25% |
0.50% |
|
|
(1) Based on estimated amounts
for the current fiscal year (Class
2). |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
LargeCap
S&P 500 Index Account - Class 1 |
$26 |
$80 |
$141 |
$318 |
LargeCap
S&P 500 Index Account - Class 2 |
51 |
160 |
|
|
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account’s portfolio turnover rate was 7.4% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the
Account invests at least 80% of its net assets, plus any borrowings for
investment purposes, in equity securities of companies that compose the S&P
500 Index at the time of each purchase. The Index is designed to represent U.S
equities with risk/return characteristics of the large cap universe. As of
December 31,
2014 , the market
capitalization range of the companies comprising the Index was between
approximately $2.9
billion and
$647.4 billion
. The Account employs a
passive investment approach designed to attempt to track the performance of the
Index. The Account utilizes derivative strategies and exchange-traded funds
("ETFs"). A derivative is a financial arrangement, the value of which is derived
from, or based on, a traditional security, asset, or market index. Specifically,
the Account invests in index futures and equity ETFs on a daily basis to gain
exposure to the Index in an effort to minimize tracking error relative to the
benchmark.
|
|
Note: |
“Standard & Poor's 500"
and "S&P 500®" are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed by Principal. The
Account is not sponsored, endorsed, sold, or promoted by Standard &
Poor's and Standard & Poor's makes no representation regarding the
advisability of investing in the
Account. |
Principal
Risks
The value of your investment in the
Account changes with the value of the Account's investments. Many factors affect
that value, and it is possible to lose money by investing in the Account. An
investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Derivatives
Risk. Transactions in
derivatives may increase volatility, cause the liquidation of portfolio
positions when not advantageous to do so and produce disproportionate
losses.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Exchange-Traded
Funds ("ETFs") Risk. An
ETF is subject to the risks associated with direct ownership of the securities
comprising the index on which the ETF is based. Fund shareholders indirectly
bear their proportionate share of the expenses of the ETFs in which the fund
invests.
Index Fund
Investment Risk. More
likely than not, an index fund will underperform the index due to cashflows and
the fees and expenses of the fund.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Account do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Account would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (______________), performance shown in the table for
Class 2 shares is based on the performance of the Account's Class 1 shares
adjusted to reflect the fees and expenses of the Class 2 shares. The adjustments
result in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on May 3, 1999.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
15.69 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(22.01 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
LargeCap
S&P 500 Index - Class 1 |
13.29% |
15.05% |
7.35% |
LargeCap
S&P 500 Index - Class 2 |
13.01% |
14.77% |
7.08% |
S&P 500 Index (reflects no
deduction for fees, expenses, or taxes) |
13.69% |
15.45% |
7.67% |
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Manager:
Principal Global Investors,
LLC
|
|
• |
Thomas L. Kruchten (since
2011), Research Analyst and Portfolio
Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
LARGECAP S&P
500 MANAGED VOLATILITY INDEX ACCOUNT
|
|
Objective: |
The Account seeks long-term
growth of capital, with an emphasis on managing
volatility. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
|
Management Fees |
0.45% |
|
Other Expenses
(1) |
0.04% |
|
Total Annual
Account Operating Expenses |
0.49% |
|
Expense Reimbursement
(2) |
—% |
|
Total Annual
Account Operating Expenses after Expense Reimbursement |
0.49% |
|
|
|
|
(1) Based on estimated expenses
for the current fiscal year. |
|
|
(2) Principal Management
Corporation ("Principal"), the investment advisor, has contractually
agreed to limit the Account’s expenses by paying, if necessary, expenses
normally payable by the Account, (excluding interest expense, expenses
related to fund investments, acquired fund fees and expenses, and other
extraordinary expenses) to maintain a total level of operating expenses
(expressed as a percent of average net assets on an annualized basis) not
to exceed 0.49% for Class 1 shares. It is expected that the expense limit
will continue through the period ending April 30, 2015; however, Principal
Variable Contracts Funds, Inc. and Principal, the parties to the
agreement, may agree to terminate the expense limit prior to the end of
the period. |
|
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account's operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
LargeCap
S&P 500 Managed Volatility Index Account - Class 1 |
$50 |
$157 |
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs. These costs, which are not
reflected in annual Account operating expenses or in the example, affect the
Account's performance. From October 31,
2013, date operations commenced, through December 31, 2013, the Account's
annualized portfolio turnover rate was 74.7% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the
Account invests at least 80% of its net assets, plus any borrowings for
investment purposes, in equity securities of companies that compose the S&P
500 Index at the time of each purchase. The Index is designed to represent U.S.
equities with risk/return characteristics of the large cap universe. As of
December 31,
2014 , the market
capitalization range of the Index was between approximately $2.9 billion and $647.4 billion . The Account uses derivative
instruments. A derivative is a financial arrangement, the value of which is
derived from, or based on, a traditional security, asset, or market index. In
part, the Account employs a passive investment approach designed to attempt to
track the performance of the Index. This portion of the Account also invests in
index futures and exchange-traded funds ("ETFs") on a daily basis to gain
exposure to the Index in an effort to minimize tracking error relative to the
benchmark.
The Account also employs an active
volatility management strategy that buys vertical put spreads and vertical call
spreads on the S&P 500 Index, S&P 500 Index futures, and an S&P 500
Index ETF. Vertical spreads are the simultaneous purchase and sale of two
options of the same type with the same expiration date but two different strike
prices. The strike price is the fixed price at which the owner of the option can
buy (in the case of a call), or sell (in the case of a put), the underlying
security. This strategy seeks to produce gains regardless of the directional
movement of the S&P 500 Index and mitigate volatility.
|
|
Note: |
“Standard & Poor's 500"
and "S&P 500®" are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed by Principal. The
Account is not sponsored, endorsed, sold, or promoted by Standard &
Poor's and Standard & Poor's makes no representation regarding the
advisability of investing in the Account. |
Principal
Risks
The value of your investment in the
Account changes with the value of the Account's investments. Many factors affect
that value, and it is possible to lose money by investing in the Account. An
investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Basis
Risk. A hedge using derivatives and/or
securities could expose the fund to basis risk. Basis risk can arise when a
change in the value of a hedge does not match a change in the value of the asset
it hedges. In other words, the change in value of the hedge could move in a
direction that does not match the change in value of the underlying asset
resulting in a risk of loss to the fund.
Derivatives
Risk. Transactions in
derivatives may increase volatility, cause the liquidation of portfolio
positions when not advantageous to do so and produce disproportionate
losses.
Equity Securities
Risk. The value of
equity securities could decline if the issuer's financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Exchange-Traded
Funds ("ETFs") Risk. An
ETF is subject to the risks associated with direct ownership of the securities
comprising the index on which the ETF is based. Fund shareholders indirectly
bear their proportionate share of the expenses of the ETFs in which the fund
invests.
Index Fund
Investment Risk. More
likely than not, an index fund will underperform the index due to cashflows and
the fees and expenses of the fund.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
Volatility
Mitigation Risk. Volatility mitigation
strategies may increase fund transaction costs, which could increase losses or
reduce gains. These strategies may not protect the fund from market
declines and may reduce the fund's participation in market gains.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Life of Account results are measured
from the date the Account's shares were first sold (October 31, 2013).
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q4
'14 |
4.86 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q1
'14 |
1.05 |
% |
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Life of
Account |
LargeCap
S&P Managed Volatility 500 Index - Class 1 |
11.77% |
14.55% |
S&P 500 Index (reflects no
deduction for fees, expenses, or taxes) |
13.69% |
17.02% |
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisors and
Portfolio Manager:
Principal Global Investors,
LLC
|
|
• |
Thomas L. Kruchten (since
2013), Research Analyst and Portfolio
Manager |
Spectrum Asset Management,
Inc.
|
|
• |
L. Phillip Jacoby, IV (since
2013), Chief Investment Officer and Back-up Portfolio
Manager |
|
|
• |
Manu Krishnan (since 2013),
Vice President and Back-up Portfolio
Manager |
|
|
• |
Kevin Nugent (since 2013),
Vice President and Primary Portfolio
Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
LARGECAP VALUE
ACCOUNT
|
|
Objective: |
The Account seeks long-term
growth of capital. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.60% |
0.60% |
Distribution and/or Service
(12b-1) Fees
|
N/A |
0.25% |
Other Expenses
(1) |
0.01% |
0.01% |
Total Annual
Account Operating Expenses |
0.61% |
0.86% |
|
|
(1) Based on estimated amounts
for the current fiscal year (Class
2). |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
LargeCap
Value Account - Class 1 |
$62 |
$195 |
$340 |
$762 |
LargeCap
Value Account - Class 2 |
88 |
274 |
|
|
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account’s portfolio turnover rate was 140.8% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the
Account invests at least 80% of its net assets, plus any borrowings for
investment purposes, in equity securities of companies with large market
capitalizations at the time of each purchase. For this Account, companies with
large market capitalizations are those with market capitalizations within the
range of companies comprising the Russell 1000 ®
Value Index (which as of
December 31,
2014 ranged between
approximately $275.0
million and
$397.0 billion
). The Account invests in
value equity securities, an investment strategy that emphasizes buying equity
securities that appear to be undervalued. The Account actively trades portfolio
securities.
Principal
Risks
The value of your investment in the
Account changes with the value of the Account's investments. Many factors affect
that value, and it is possible to lose money by investing in the Account. An
investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Active Trading
Risk. A fund that has a
portfolio turnover rate over 100% is considered actively traded. Actively
trading portfolio securities may accelerate realization of taxable gains and
losses, lower fund performance and may result in high portfolio turnover rates
and increased brokerage costs.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Account do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Account would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (______________), performance shown in the table for
Class 2 shares is based on the performance of the Account's Class 1 shares
adjusted to reflect the fees and expenses of the Class 2 shares. The adjustments
result in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on May 13, 1970.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
‘09 |
15.93 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(21.55 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
LargeCap
Value Account - Class 1 |
11.17% |
14.76% |
6.75% |
LargeCap
Value Account - Class 2 |
10.89% |
14.48% |
6.42% |
Russell 1000 Value Index
(reflects no deduction for fees, expenses, or taxes) |
13.45% |
15.42% |
7.30% |
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Principal Global Investors,
LLC
|
|
• |
Arild Holm (since 2007),
Portfolio Manager |
|
|
• |
Jeffrey A. Schwarte (since
2010), Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
MIDCAP ACCOUNT
|
|
Objective: |
The Account seeks long-term
growth of capital. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.53% |
0.53% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses |
—% |
—% |
Total Annual
Account Operating Expenses |
0.53% |
0.78% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
MidCap
Account - Class 1 |
$54 |
$170 |
$296 |
$665 |
MidCap
Account - Class 2 |
80 |
249 |
433 |
966 |
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account’s portfolio turnover rate was 12.4% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the
Account invests at least 80% of its net assets, plus any borrowings for
investment purposes, in equity securities of companies with medium market
capitalizations at the time of each purchase. For this Account, companies with
medium market capitalizations are those with market capitalizations within the
range of companies comprising the Russell Midcap ®
Index (as of December 31, 2014 , this range was between
approximately $275.0
million and
$33.5 billion
). The Account invests in
foreign securities.
The Account invests in equity
securities with value and/or growth characteristics and constructs an investment
portfolio that has a "blend" of equity securities with these characteristics.
Investing in value equity securities is an investment strategy that emphasizes
buying equity securities that appear to be undervalued. The growth orientation
selection emphasizes buying equity securities of companies whose potential for
growth of capital and earnings is expected to be above average. The Account does
not have a policy of preferring one of these categories over the other.
Principal
Risks
The value of your investment in the
Account changes with the value of the Account's investments. Many factors affect
that value, and it is possible to lose money by investing in the Account. An
investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange
restrictions.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (September 9, 2009), performance shown in the table for
Class 2 shares is based on the performance of the Account's Class 1 shares
adjusted to reflect the fees and expenses of the Class 2 shares. The adjustments
result in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on December 18,
1987.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
18.19 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(23.92 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
MidCap
Account - Class 1 |
12.99% |
19.42% |
11.35% |
MidCap
Account - Class 2 |
12.70% |
19.13% |
11.06% |
Russell Midcap Index (reflects
no deduction for fees, expenses, or taxes) |
13.22% |
17.19% |
9.56% |
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Principal Global Investors, LLC
|
|
• |
K. William Nolin (since 2000),
Portfolio Manager |
|
|
• |
Tom Rozycki (since 2013),
Portfolio Manager |
Purchase and Sale
of Account Shares
Effective as of the close of the New
York Stock Exchange on August 15, 2013, the MidCap Account is no longer
available for purchase from new contractholders of variable products invested in
the MidCap Account. See the section General Information About an Account -
Purchase of Account Shares - MidCap Account for additional information.
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
MONEY MARKET
ACCOUNT
|
|
Objective: |
The Account seeks as high a
level of current income as is considered consistent with preservation of
principal and maintenance of liquidity. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.45% |
0.45% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses |
0.01% |
0.01% |
Acquired Fund Fees and
Expenses |
0.01% |
0.01% |
Total Annual
Account Operating Expenses |
0.47% |
0.72% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Money Market
Account - Class 1 |
$48 |
$151 |
$263 |
$591 |
Money Market
Account - Class 2 |
74 |
230 |
401 |
894 |
Principal
Investment Strategies
The Account seeks to maintain a
stable net asset value of $1.00 per share by investing its assets in a portfolio
of high quality, short-term money market instruments such as those issued by
banks, corporations (U.S. and non-U.S.), municipalities and the U.S. government.
Such instruments include certificates of deposit, bankers acceptances,
commercial paper, treasury bills, bonds, and shares of other money market funds.
The Account maintains a dollar weighted average portfolio maturity of 60 days or
less. As with all mutual funds, the value of the Account's assets may rise or
fall.
Principal
Risks
An investment in the Account is not
a deposit of a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Account seeks
to preserve the value of an investment at $1.00 per share, it is possible to
lose money by investing in the Account. The principal risks of investing in the
Account, in alphabetical order, are:
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (January 8, 2007), performance shown in the table for
Class 2 shares is based on the performance of the Account's Class 1 shares
adjusted to reflect the fees and expenses of the Class 2 shares. The adjustments
result in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on March 18,
1983.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
'07 |
1.24 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'14 |
0.00 |
% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
Money Market
Account - Class 1 |
0.00% |
0.00% |
1.49% |
Money Market
Account - Class 2 |
0.00% |
0.00% |
1.37% |
Barclays U.S. Treasury
Bellwethers 3 Month Index (reflects no deduction for fees, expenses, or
taxes) |
0.05% |
0.11% |
1.59% |
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Principal Global Investors,
LLC
|
|
• |
Tracy Reeg (since 2004),
Portfolio Manager |
|
|
• |
Alice Robertson (since 2000),
Trader and Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
PRINCIPAL CAPITAL
APPRECIATION ACCOUNT
|
|
Objective: |
The Account seeks to provide
long-term growth of capital. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.62% |
0.62% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses |
0.03% |
0.03% |
Total Annual
Account Operating Expenses |
0.65% |
0.90% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account's operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Principal
Capital Appreciation Account - Class 1 |
$66 |
$208 |
$362 |
$810 |
Principal
Capital Appreciation Account - Class 2 |
92 |
287 |
498 |
1,108 |
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account's performance. During the most recent
fiscal year, the Account's portfolio turnover rate was 6.7% of the average value of its
portfolio.
Principal
Investment Strategies
The Account invests primarily in
equity securities of companies with any market capitalization, but has a greater
exposure to large market capitalization companies than small or medium market
capitalization companies.
The Account invests in equity
securities with value and/or growth characteristics and constructs an investment
portfolio that has a "blend" of equity securities with these characteristics.
Investing in value equity securities is an investment strategy that emphasizes
buying equity securities that appear to be undervalued. The growth orientation
selection emphasizes buying equity securities of companies whose potential for
growth of capital and earnings is expected to be above average. The Account does
not have a policy of preferring one of these categories over the
other.
Principal
Risks
The value of your investment in the
Account changes with the value of the Account's investments. Many factors affect
that value, and it is possible to lose money by investing in the Account. An
investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Equity Securities
Risk. The value of
equity securities could decline if the issuer's financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Performance reflects the performance
of the predecessor fund.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
16.33 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(22.70 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
Principal
Capital Appreciation Account - Class 1 |
12.45% |
14.43% |
8.42% |
Principal
Capital Appreciation Account - Class 2 |
12.19% |
14.14% |
8.15% |
Russell 3000 Index (reflects no
deduction for fees, expenses, or taxes) |
12.56% |
15.63% |
7.94% |
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Edge Asset Management, Inc.
|
|
• |
Daniel R. Coleman (since
2010), Head of Equities, Portfolio Manager
|
|
|
• |
Philip M. Foreman (since
2002), Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
PRINCIPAL
LIFETIME STRATEGIC INCOME ACCOUNT
|
|
Objective: |
The
Account seeks
current income, and as a secondary objective, capital
appreciation. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
Class
1 |
Management Fees |
0.03% |
Other Expenses |
0.02% |
Acquired Fund Fees and
Expenses |
0.57% |
Total Annual
Account Operating Expenses |
0.62% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Principal
LifeTime Strategic Income Account – Class 1 |
$63 |
$199 |
$346 |
$774 |
Portfolio
Turnover
As a fund of funds, the Account does
not pay transaction costs, such as commissions, when it buys and sells shares of
underlying funds (or “turns over” its portfolio). An underlying fund does pay
transaction costs when it buys and sells portfolio securities, and a higher
portfolio turnover may indicate higher transaction costs. These costs, which are
not reflected in annual account operating expenses or in the examples, affect
the performance of the underlying fund and the Account. During its most recent
fiscal year, the Account's portfolio turnover rate was 25.1% of the average value of its
portfolio.
Principal
Investment Strategies
The Account invests according to an
asset allocation strategy designed for investors primarily seeking current
income and secondarily capital appreciation. The Account's asset allocation is
designed for investors who are approximately 15 years beyond the normal
retirement age of 65. The Account is a fund of funds that invests in Principal
Funds, Inc. ("PFI") Institutional Class shares and Principal Variable Contracts,
Inc. ("PVC") Class 1 shares. Its underlying funds consist of domestic and
foreign equity funds, fixed-income funds, real asset funds, and other funds that
aim to offer diversification beyond traditional equity and fixed-income
securities. The Account is managed by Principal Management Corporation
(“Principal”); Principal has hired a sub-advisor, Principal Global Investors,
LLC (“PGI”), to assist in managing the Account.
Principal, with assistance from PGI,
develops, implements and monitors the Account's strategic or long-term asset
class targets and target ranges, is also responsible for an active rebalancing
strategy designed to identify asset classes that appear attractive over the
short term and sets the percentage of Account assets to be allocated to a
particular asset class. Principal selects the underlying funds for each asset
class and the target weights for each underlying fund. Principal, with
assistance from PGI, may shift asset class targets in response to normal
evaluative processes, the shortening time horizon of the Account or changes in
market forces or Account circumstances. Principal may add, remove, or substitute
underlying funds at any time.
In selecting underlying funds and
target weights, Principal considers both quantitative measures (e.g., past
performance, expected levels of risk and returns, expense levels,
diversification and style consistency) and
qualitative factors (e.g.,
organizational stability, investment experience, investment and risk management
processes, and information, trading, and compliance systems). There are no
minimum or maximum percentages of assets that the Account must invest in a
specific asset class or underlying fund.
The underlying funds invest in
growth and value stocks of large market capitalization companies, fixed-income
securities (including high yield or “junk” bonds), domestic and foreign
securities, securities denominated in foreign currencies, investment companies
(including index funds), real estate securities, derivatives, mortgage-backed
securities, and U.S. government and U.S. government-sponsored securities. The
underlying funds engage in derivative transactions to gain exposure to a variety
of securities or asset classes or attempt to reduce risk. A derivative is a
financial arrangement, the value of which is derived from, or based on, a
traditional security, asset, or market index. The underlying funds principally
use futures, options, swaps (including, for example, credit default, interest
rate, and currency swaps) and forwards.
Principal
Risks
The broad diversification of the
Account is designed to cushion severe losses in any one investment sector and
moderate overall price volatility. However, the Account is subject to the
particular risks of the underlying funds in the proportions in which the Account
invests in them, and its share prices will fluctuate as the prices of underlying
fund shares rise or fall with changing market conditions. If you sell your
shares when their value is less than the price you paid, you will lose money.
The Account operates as a fund of funds and thus bears both its own expenses
and, indirectly, its proportionate share of the expenses of the underlying funds
in which it invests. An investment in the Account is not a deposit in a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Account that
are inherent in the fund of funds, in alphabetical order, are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Conflict of
Interest Risk. The
Advisor and its affiliates earn different fees from different underlying funds
and may have an incentive to allocate more fund-of-fund assets to underlying
funds from which they receive higher fees.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Target Date Fund
Risk. A target date
fund should not be selected based solely on age or retirement date because there
is no guarantee that this fund will provide adequate income at or through
retirement.
The principal risks of investing in
the Account that are inherent in the underlying funds, in alphabetical order,
are:
Counterparty
Risk. Counterparty risk
is the risk that the counterparty to a derivatives contract or repurchase
agreement, the borrower of a portfolio’s securities, or other obligation, will
be unable or unwilling to make timely principal, interest, or settlement
payments, or otherwise to honor its obligations.
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange
restrictions.
Derivatives
Risk. Transactions in
derivatives may increase volatility, cause the liquidation of portfolio
positions when not advantageous to do so and produce disproportionate
losses.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
High Yield
Securities Risk. High
yield fixed-income securities (commonly referred to as "junk bonds") are subject
to greater credit quality risk than higher rated fixed-income securities and
should be considered speculative.
Index Fund
Investment Risk. More
likely than not, an index fund will underperform the index due to cashflows and
the fees and expenses of the fund.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Prepayment Risk.
Unscheduled prepayments
on mortgage-backed and asset-backed securities may have to be reinvested at
lower rates. A reduction in prepayments may increase the effective maturities of
these securities, exposing them to the risk of decline in market value over time
(extension risk).
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
10.25 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(12.55 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past
1 Year |
Past
5 Years |
Past 10
Years |
Principal
LifeTime Strategic Income - Class 1 |
4.57% |
6.77% |
4.03% |
S&P Target Date Retirement
Income Index (reflects no deduction for fees, expenses, or
taxes) |
4.86% |
6.33% |
4.63% |
Management
Investment
Advisor and Portfolio Managers:
Principal Management
Corporation
|
|
• |
James W. Fennessey (since
2007), Portfolio Manager |
|
|
• |
Jeffrey R. Tyler (since 2011),
Portfolio Manager |
|
|
• |
Randy L. Welch (since 2007),
Portfolio Manager |
Sub-Advisor and
Portfolio Managers:
Principal Global Investors, LLC
|
|
• |
Matthew Annenberg (since
2013), Managing Director, Asset Allocation
|
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
PRINCIPAL
LIFETIME 2010 ACCOUNT
|
|
Objective: |
The Account seeks a total
return consisting of long-term growth of capital and current
income.
|
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
Class
1 |
Management Fees |
0.03% |
Other Expenses |
0.01% |
Acquired Fund Fees and
Expenses |
0.61% |
Total Annual
Account Operating Expenses |
0.65% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Principal
LifeTime 2010 Account - Class 1 |
$66 |
$208 |
$362 |
$810 |
Portfolio
Turnover
As a fund of funds, the Account does
not pay transaction costs, such as commissions, when it buys and sells shares of
underlying funds (or “turns over” its portfolio). An underlying fund does pay
transaction costs when it buys and sells portfolio securities, and a higher
portfolio turnover may indicate higher transaction costs. These costs, which are
not reflected in annual account operating expenses or in the examples, affect
the performance of the underlying fund and the Account. During its most recent
fiscal year, the Account's portfolio turnover rate was 36.5% of the average value of its
portfolio.
Principal
Investment Strategies
The Account operates as a “target
date fund” that invests according to an asset allocation strategy designed for
investors having a retirement investment goal close to the year in the Account’s
name. The Account's asset allocation will become more conservative over time as
investment goals near (for example, retirement, which is assumed to begin at age
65) and investors become more risk-averse. The Account is a fund of funds and
invests in Principal Funds, Inc. ("PFI") Institutional Class shares and
Principal Variable Contracts Funds, Inc. ("PVC") Class 1 shares. Its underlying
funds consist of domestic and foreign equity funds, fixed-income funds, real
asset funds, and other funds that aim to offer diversification beyond
traditional equity and fixed-income securities. The Account is managed by
Principal Management Corporation (“Principal”); Principal has hired a
sub-advisor, Principal Global Investors, LLC (“PGI”), to assist in managing the
Account.
Principal, with assistance from PGI,
develops, implements and monitors the Account's strategic or long-term asset
class targets and target ranges, is also responsible for an active rebalancing
strategy designed to identify asset classes that appear attractive over the
short term and sets the percentage of Account assets to be allocated to a
particular asset class. Principal selects the underlying funds for each asset
class and the target weights for each underlying fund. Principal, with
assistance from PGI, may shift asset class targets in response to normal
evaluative processes, the shortening time horizon of the Account or changes in
market forces or Account circumstances. Principal may add, remove, or substitute
underlying funds at any time.
In selecting underlying funds and
target weights, Principal considers both quantitative measures (e.g., past
performance, expected levels of risk and returns, expense levels,
diversification and style consistency) and qualitative factors (e.g.,
organizational stability, investment experience, investment and risk management
processes, and information, trading, and compliance systems). There are no
minimum or maximum percentages of assets that the Account must invest in a
specific asset class or underlying fund.
The underlying funds invest in
growth and value stocks of large market capitalization companies, fixed-income
securities (including high yield or “junk” bonds), domestic and foreign
securities, securities denominated in foreign currencies, investment companies
(including index funds), real estate securities, derivatives, mortgage-backed
and asset-backed securities, and U.S. government and U.S. government-sponsored
securities. The underlying funds engage in derivative transactions to gain
exposure to a variety of securities or asset classes or attempt to reduce risk.
A derivative is a financial arrangement, the value of which is derived from, or
based on, a traditional security, asset, or market index. The underlying funds
principally use futures, options, swaps (including, for example, credit default,
interest rate, and currency swaps) and forwards.
Within 10 to 15 years after its
target year, the Account's underlying fund allocation is expected to match that
of the Principal LifeTime Strategic Income Account. At that time, the Account
may be combined with the Principal LifeTime Strategic Income Account if the
Board of Directors determines that the combination is in the best interests of
Account shareholders. It is expected that at the target date in the Account’s
name, the shareholder will begin gradually withdrawing the account's
value.
Principal
Risks
The broad diversification of the
Account is designed to cushion severe losses in any one investment sector and
moderate overall price volatility. However, the Account is subject to the
particular risks of the underlying funds in the proportions in which the Account
invests in them, and its share prices will fluctuate as the prices of underlying
fund shares rise or fall with changing market conditions. If you sell your
shares when their value is less than the price you
paid, you will lose money. The
Account operates as a fund of funds and thus bears both its own expenses and,
indirectly, its proportionate share of the expenses of the underlying funds in
which it invests. An investment in the Account is not a deposit of a bank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Account that
are inherent in the fund of funds, in alphabetical order, are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Conflict of
Interest Risk. The
Advisor and its affiliates earn different fees from different underlying funds
and may have an incentive to allocate more fund-of-fund assets to underlying
funds from which they receive higher fees.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Target Date Fund
Risk. A target date
fund should not be selected based solely on age or retirement date because there
is no guarantee that this fund will provide adequate income at or through
retirement.
The principal risks of investing in
the Account that are inherent in the underlying funds, in alphabetical order,
are:
Counterparty
Risk. Counterparty risk
is the risk that the counterparty to a derivatives contract or repurchase
agreement, the borrower of a portfolio’s securities, or other obligation, will
be unable or unwilling to make timely principal, interest, or settlement
payments, or otherwise to honor its obligations.
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange
restrictions.
Derivatives
Risk. Transactions in
derivatives may increase volatility, cause the liquidation of portfolio
positions when not advantageous to do so and produce disproportionate
losses.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
High Yield
Securities Risk. High
yield fixed-income securities (commonly referred to as "junk bonds") are subject
to greater credit quality risk than higher rated fixed-income securities and
should be considered speculative.
Index Fund
Investment Risk. More
likely than not, an index fund will underperform the index due to cashflows and
the fees and expenses of the fund.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Prepayment Risk.
Unscheduled prepayments
on mortgage-backed and asset-backed securities may have to be reinvested at
lower rates. A reduction in prepayments may increase the effective maturities of
these securities, exposing them to the risk of decline in market value over time
(extension risk).
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
14.48 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(17.06 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
Principal
LifeTime 2010 - Class 1 |
4.81% |
8.45% |
4.79% |
S&P Target Date 2010 Index
(reflects no deduction for fees, expenses, or taxes) |
5.07% |
7.28% |
5.10% |
Management
Investment
Advisor and Portfolio Managers:
Principal Management
Corporation
|
|
• |
James W. Fennessey (since
2007), Portfolio Manager |
|
|
• |
Jeffrey R. Tyler (since 2011),
Portfolio Manager |
|
|
• |
Randy L. Welch (since 2007),
Portfolio Manager |
Sub-Advisor and
Portfolio Managers:
Principal Global Investors, LLC
|
|
• |
Matthew Annenberg (since
2013), Managing Director, Asset Allocation
|
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
PRINCIPAL
LIFETIME 2020 ACCOUNT
|
|
Objective: |
The Account seeks a total
return consisting of long-term growth of capital and current
income. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.03% |
0.03% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other
Expenses(1) |
—% |
—% |
Acquired Fund Fees and
Expenses |
0.64% |
0.64% |
Total Annual
Account Operating Expenses |
0.67% |
0.92% |
|
|
|
(1) Based on estimated amounts
for the current fiscal year (Class 2). |
|
|
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Principal
LifeTime 2020 Account - Class 1 |
$68 |
$214 |
$373 |
$835 |
Principal
LifeTime 2020 Account - Class 2 |
94 |
293 |
|
|
Portfolio
Turnover
As a fund of funds, the Account does
not pay transaction costs, such as commissions, when it buys and sells shares of
underlying funds (or “turns over” its portfolio). An underlying fund does pay
transaction costs when it buys and sells portfolio securities, and a higher
portfolio turnover may indicate higher transaction costs. These costs, which are
not reflected in annual account operating expenses or in the examples, affect
the performance of the underlying fund and the Account. During its most recent
fiscal year, the Account's portfolio turnover rate was 49.6% of the average value of its
portfolio.
Principal
Investment Strategies
The Account operates as a “target
date fund” that invests according to an asset allocation strategy designed for
investors having a retirement investment goal close to the year in the Account’s
name. The Account's asset allocation will become more conservative over time as
investment goals near (for example, retirement, which is assumed to begin at age
65) and investors become more risk-averse. The Account is a fund of funds and
invests in Principal Funds, Inc. ("PFI") Institutional Class shares and
Principal Variable Contracts Funds, Inc. ("PVC") Class 1 shares. Its underlying
funds consist of domestic and foreign equity funds, fixed-income funds, real
asset funds, and other funds that aim to offer diversification beyond
traditional equity and fixed-income securities. The Account is managed by
Principal Management Corporation (“Principal”); Principal has hired a
sub-advisor, Principal Global Investors, LLC (“PGI”), to assist in managing the
Account.
Principal, with assistance from PGI,
develops, implements and monitors the Account's strategic or long-term asset
class targets and target ranges, is also responsible for an active rebalancing
strategy designed to identify asset classes that appear attractive over the
short term and sets the percentage of Account assets to be allocated to a
particular asset class. Principal selects the underlying funds for each asset
class and the target weights for each underlying fund. Principal, with
assistance from PGI, may shift asset class targets in response to normal
evaluative
processes, the shortening time
horizon of the Account or changes in market forces or Account circumstances.
Principal may add, remove, or substitute underlying funds at any
time.
In selecting underlying funds and
target weights, Principal considers both quantitative measures (e.g., past
performance, expected levels of risk and returns, expense levels,
diversification and style consistency) and qualitative factors (e.g.,
organizational stability, investment experience, investment and risk management
processes, and information, trading, and compliance systems). There are no
minimum or maximum percentages of assets that the Account must invest in a
specific asset class or underlying fund.
The underlying funds invest in
growth and value stocks of small, medium, and large market capitalization
companies, fixed-income securities (including high yield or “junk” bonds),
domestic and foreign (including those in emerging markets) securities,
securities denominated in foreign currencies, investment companies (including
index funds), real estate securities, derivatives, and U.S. government and U.S.
government-sponsored securities. The underlying funds engage in derivative
transactions to gain exposure to a variety of securities or asset classes or
attempt to reduce risk. A derivative is a financial arrangement, the value of
which is derived from, or based on, a traditional security, asset, or market
index. The underlying funds principally use futures, options, swaps (including,
for example, credit default, interest rate, and currency swaps) and forwards.
Within 10 to 15 years after its
target year, the Account's underlying fund allocation is expected to match that
of the Principal LifeTime Strategic Income Account. At that time, the Account
may be combined with the Principal LifeTime Strategic Income Account if the
Board of Directors determines that the combination is in the best interests of
Account shareholders. It is expected that at the target date in the Account’s
name, the shareholder will begin gradually withdrawing the account's
value.
Principal
Risks
The broad diversification of the
Account is designed to cushion severe losses in any one investment sector and
moderate overall price volatility. However, the Account is subject to the
particular risks of the underlying funds in the proportions in which the Account
invests in them, and its share prices will fluctuate as the prices of underlying
fund shares rise or fall with changing market conditions. If you sell your
shares when their value is less than the price you paid, you will lose money.
The Account operates as a fund of funds and thus bears both its own expenses
and, indirectly, its proportionate share of the expenses of the underlying funds
in which it invests. An investment in the Account is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Account that
are inherent in the fund of funds, in alphabetical order, are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Conflict of
Interest Risk. The
Advisor and its affiliates earn different fees from different underlying funds
and may have an incentive to allocate more fund-of-fund assets to underlying
funds from which they receive higher fees.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Target Date Fund
Risk. A target date
fund should not be selected based solely on age or retirement date because there
is no guarantee that this fund will provide adequate income at or through
retirement.
The principal risks of investing in
the Account that are inherent in the underlying funds, in alphabetical order,
are:
Counterparty
Risk. Counterparty risk
is the risk that the counterparty to a derivatives contract or repurchase
agreement, the borrower of a portfolio’s securities, or other obligation, will
be unable or unwilling to make timely principal, interest, or settlement
payments, or otherwise to honor its obligations.
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange
restrictions.
Derivatives
Risk. Transactions in
derivatives may increase volatility, cause the liquidation of portfolio
positions when not advantageous to do so and produce disproportionate
losses.
Emerging Market
Risk. Investments in
emerging market countries may have more risk than those in developed market
countries because the emerging markets are less developed and more illiquid.
Emerging market countries can also be subject to increased social, economic,
regulatory, and political uncertainties and can be extremely
volatile.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
High Yield
Securities Risk. High
yield fixed-income securities (commonly referred to as "junk bonds") are subject
to greater credit quality risk than higher rated fixed-income securities and
should be considered speculative.
Index Fund
Investment Risk. More
likely than not, an index fund will underperform the index due to cashflows and
the fees and expenses of the fund.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (______________), performance shown in the table for
Class 2 shares is based on the performance of the Account's Class 1 shares
adjusted to reflect the fees and expenses of the Class 2 shares. The adjustments
result in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on August 30,
2004.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
16.15 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(18.82 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
Principal
LifeTime 2020 - Class 1 |
5.75% |
9.88% |
5.66% |
Principal
LifeTime 2020 - Class 2 |
5.48% |
9.61% |
5.44% |
S&P Target Date 2020 Index
(reflects no deduction for fees, expenses, or taxes) |
5.67% |
8.95% |
5.75% |
Management
Investment
Advisor and Portfolio Managers:
Principal Management
Corporation
|
|
• |
James W. Fennessey (since
2007), Portfolio Manager |
|
|
• |
Jeffrey R. Tyler (since 2011),
Portfolio Manager |
|
|
• |
Randy L. Welch (since 2007),
Portfolio Manager |
Sub-Advisor and
Portfolio Manager:
Principal Global Investors, LLC
|
|
• |
Matthew Annenberg (since
2013), Managing Director, Asset Allocation
|
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
PRINCIPAL
LIFETIME 2030 ACCOUNT
|
|
Objective: |
The Account seeks a total
return consisting of long-term growth of capital and current
income. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.03% |
0.03% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other
Expenses(1) |
0.01% |
0.01% |
Acquired Fund Fees and
Expenses |
0.68% |
0.68% |
Total Annual
Account Operating Expenses |
0.72% |
0.97% |
|
|
|
(1) Based on estimated amounts
for the current fiscal year (Class 2). |
|
|
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account's operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Principal
LifeTime 2030 Account - Class 1 |
$74 |
$230 |
$401 |
$894 |
Principal
LifeTime 2030 Account - Class 2 |
99 |
309 |
|
|
Portfolio
Turnover
As a fund of funds, the Account does
not pay transaction costs, such as commissions, when it buys and sells shares of
underlying funds (or “turns over” its portfolio). An underlying fund does pay
transaction costs when it buys and sells portfolio securities, and a higher
portfolio turnover may indicate higher transaction costs. These costs, which are
not reflected in annual account operating expenses or in the examples, affect
the performance of the underlying fund and the Account. During its most recent
fiscal year, the Account's portfolio turnover rate was 58.6% of the average value of its
portfolio.
Principal
Investment Strategies
The Account operates as a “target
date fund” that invests according to an asset allocation strategy designed for
investors having a retirement investment goal close to the year in the Account’s
name. The Account's asset allocation will become more conservative over time as
investment goals near (for example, retirement, which is assumed to begin at age
65) and investors become more risk-averse. The Account is a fund of funds and
invests in Principal Funds, Inc. ("PFI") Institutional Class shares and
Principal Variable Contracts Funds, Inc. ("PVC") Class 1 shares. Its underlying
funds consist of domestic and foreign equity funds, fixed-income funds, real
asset funds, and other funds that aim to offer diversification beyond
traditional equity and fixed-income securities. The Account is managed by
Principal Management Corporation (“Principal”); Principal has hired a
sub-advisor, Principal Global Investors, LLC (“PGI”), to assist in managing the
Account.
Principal, with assistance from PGI,
develops, implements and monitors the Account's strategic or long-term asset
class targets and target ranges, is also responsible for an active rebalancing
strategy designed to identify asset classes that appear attractive over the
short term and sets the percentage of Account assets to be allocated to a
particular asset class. Principal selects the underlying funds for each asset
class and the target weights for each underlying fund. Principal, with
assistance from PGI, may shift asset class targets in response to normal
evaluative
processes, the shortening time
horizon of the Account or changes in market forces or Account circumstances.
Principal may add, remove, or substitute underlying funds at any
time.
In selecting underlying funds and
target weights, Principal considers both quantitative measures (e.g., past
performance, expected levels of risk and returns, expense levels,
diversification and style consistency) and qualitative factors (e.g.,
organizational stability, investment experience, investment and risk management
processes, and information, trading, and compliance systems). There are no
minimum or maximum percentages of assets that the Account must invest in a
specific asset class or underlying fund.
The underlying funds invest in
growth and value stocks of small, medium, and large market capitalization
companies, fixed-income securities (including high yield or “junk” bonds),
domestic and foreign (including those in emerging markets) securities,
securities denominated in foreign currencies, investment companies (including
index funds), real estate securities, derivatives, and U.S. government and U.S.
government-sponsored securities. The underlying funds engage in derivative
transactions to gain exposure to a variety of securities or asset classes or
attempt to reduce risk. A derivative is a financial arrangement, the value of
which is derived from, or based on, a traditional security, asset, or market
index. The underlying funds principally use futures, options, swaps (including,
for example, credit default, interest rate, and currency swaps) and forwards.
Within 10 to 15 years after its
target year, the Account's underlying fund allocation is expected to match that
of the Principal LifeTime Strategic Income Account. At that time, the Account
may be combined with the Principal LifeTime Strategic Income Account if the
Board of Directors determines that the combination is in the best interests of
Account shareholders. It is expected that at the target date in the Account's
name, the shareholder will begin gradually withdrawing the account's
value.
Principal
Risks
The broad diversification of the
Account is designed to cushion severe losses in any one investment sector and
moderate overall price volatility. However, the Account is subject to the
particular risks of the underlying funds in the proportions in which the Account
invests in them, and its share prices will fluctuate as the prices of underlying
fund shares rise or fall with changing market conditions. If you sell your
shares when their value is less than the price you paid, you will lose money.
The Account operates as a fund of funds and thus bears both its own expenses
and, indirectly, its proportionate share of the expenses of the underlying funds
in which it invests. An investment in the Account is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Account that
are inherent in the fund of funds, in alphabetical order, are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Conflict of
Interest Risk. The
Advisor and its affiliates earn different fees from different underlying funds
and may have an incentive to allocate more fund-of-fund assets to underlying
funds from which they receive higher fees.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Target Date Fund
Risk. A target date
fund should not be selected based solely on age or retirement date because there
is no guarantee that this fund will provide adequate income at or through
retirement.
The principal risks of investing in
the Account that are inherent in the underlying funds, in alphabetical order,
are:
Counterparty
Risk. Counterparty risk
is the risk that the counterparty to a derivatives contract or repurchase
agreement, the borrower of a portfolio's securities, or other obligation, will
be unable or unwilling to make timely principal, interest, or settlement
payments, or otherwise to honor its obligations.
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange
restrictions.
Derivatives
Risk. Transactions in
derivatives may increase volatility, cause the liquidation of portfolio
positions when not advantageous to do so and produce disproportionate
losses.
Emerging Market
Risk. Investments in
emerging market countries may have more risk than those in developed market
countries because the emerging markets are less developed and more illiquid.
Emerging market countries can also be subject to increased social, economic,
regulatory, and political uncertainties and can be extremely
volatile.
Equity Securities
Risk. The value of
equity securities could decline if the issuer's financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
High Yield
Securities Risk. High
yield fixed-income securities (commonly referred to as "junk bonds") are subject
to greater credit quality risk than higher rated fixed-income securities and
should be considered speculative.
Index Fund
Investment Risk. More
likely than not, an index fund will underperform the index due to cashflows and
the fees and expenses of the fund.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (______________), performance shown in the table for
Class 2 shares is based on the performance of the Account's Class 1 shares
adjusted to reflect the fees and expenses of the Class 2 shares. The adjustments
result in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on August 30,
2004.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
16.66 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(20.20 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
Principal
LifeTime 2030 - Class 1 |
6.06% |
10.47% |
5.71% |
Principal
LifeTime 2030 - Class 2 |
5.80% |
10.20% |
5.49% |
S&P Target Date 2030 Index
(reflects no deduction for fees, expenses, or taxes) |
5.64% |
10.07% |
6.08% |
Management
Investment
Advisor and Portfolio Managers:
Principal Management
Corporation
|
|
• |
James W. Fennessey (since
2007), Portfolio Manager |
|
|
• |
Jeffrey R. Tyler (since 2011),
Portfolio Manager |
|
|
• |
Randy L. Welch (since 2007),
Portfolio Manager |
Sub-Advisor and
Portfolio Manager:
Principal Global Investors, LLC
|
|
• |
Matthew Annenberg (since
2013), Managing Director, Asset Allocation
|
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
PRINCIPAL
LIFETIME 2040 ACCOUNT
|
|
Objective: |
The Account seeks a total
return consisting of long-term growth of capital and current
income. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.03% |
0.03% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other
Expenses(1) |
0.02% |
0.02% |
Acquired Fund Fees and
Expenses |
0.69% |
0.69% |
Total Annual
Account Operating Expenses |
0.74% |
0.99% |
|
|
|
(1) Based on estimated amounts
for the current fiscal year (Class 2). |
|
|
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Principal
LifeTime 2040 Account - Class 1 |
$76 |
$237 |
$411 |
$918 |
Principal
LifeTime 2040 Account - Class 2 |
101 |
315 |
|
|
Portfolio
Turnover
As a fund of funds, the Account does
not pay transaction costs, such as commissions, when it buys and sells shares of
underlying funds (or “turns over” its portfolio). An underlying fund does pay
transaction costs when it buys and sells portfolio securities, and a higher
portfolio turnover may indicate higher transaction costs. These costs, which are
not reflected in annual account operating expenses or in the examples, affect
the performance of the underlying fund and the Account. During its most recent
fiscal year, the Account's portfolio turnover rate was 67.2% of the average value of its
portfolio.
Principal
Investment Strategies
The Account operates as a “target
date fund” that invests according to an asset allocation strategy designed for
investors having a retirement investment goal close to the year in the Account’s
name. The Account's asset allocation will become more conservative over time as
investment goals near (for example, retirement, which is assumed to begin at age
65) and investors become more risk-averse. The Account is a fund of funds and
invests in Principal Funds, Inc. ("PFI") Institutional Class shares and
Principal Variable Contracts Funds, Inc. ("PVC") Class 1 shares. Its underlying
funds consist of domestic and foreign equity funds, fixed-income funds, real
asset funds, and other funds that aim to offer diversification beyond
traditional equity and fixed-income securities. The Account is managed by
Principal Management Corporation (“Principal”); Principal has hired a
sub-advisor, Principal Global Investors, LLC (“PGI”), to assist in managing the
Account.
Principal, with assistance from PGI,
develops, implements and monitors the Account's strategic or long-term asset
class targets and target ranges, is also responsible for an active rebalancing
strategy designed to identify asset classes that appear attractive over the
short term and sets the percentage of Account assets to be allocated to a
particular asset class. Principal selects the underlying funds for each asset
class and the target weights for each underlying fund. Principal, with
assistance from PGI, may shift asset class targets in response to normal
evaluative
processes, the shortening time
horizon of the Account or changes in market forces or Account circumstances.
Principal may add, remove, or substitute underlying funds at any
time.
In selecting underlying funds and
target weights, Principal considers both quantitative measures (e.g., past
performance, expected levels of risk and returns, expense levels,
diversification and style consistency) and qualitative factors (e.g.,
organizational stability, investment experience, investment and risk management
processes, and information, trading, and compliance systems). There are no
minimum or maximum percentages of assets that the Account must invest in a
specific asset class or underlying fund.
The underlying funds invest in
growth and value stocks of small, medium, and large market capitalization
companies, fixed-income securities, domestic and foreign (including those in
emerging markets) securities, securities denominated in foreign currencies,
investment companies (including index funds), and derivatives. A derivative is a
financial arrangement, the value of which is derived from, or based on, a
traditional security, asset, or market index. The underlying funds principally
use equity index futures and options to manage equity exposure.
Within 10 to 15 years after its
target year, the Account's underlying fund allocation is expected to match that
of the Principal LifeTime Strategic Income Account. At that time, the Account
may be combined with the Principal LifeTime Strategic Income Account if the
Board of Directors determines that the combination is in the best interests of
Account shareholders. It is expected that at the target date in the Account’s
name, the shareholder will begin gradually withdrawing the account's
value.
Principal
Risks
The broad diversification of the
Account is designed to cushion severe losses in any one investment sector and
moderate overall price volatility. However, the Account is subject to the
particular risks of the underlying funds in the proportions in which the Account
invests in them, and its share prices will fluctuate as the prices of underlying
fund shares rise or fall with changing market conditions. If you sell your
shares when their value is less than the price you paid, you will lose money.
The Account operates as a fund of funds and thus bears both its own expenses
and, indirectly, its proportionate share of the expenses of the underlying funds
in which it invests. An investment in the Account is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Account that
are inherent in the fund of funds, in alphabetical order, are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Conflict of
Interest Risk. The
Advisor and its affiliates earn different fees from different underlying funds
and may have an incentive to allocate more fund-of-fund assets to underlying
funds from which they receive higher fees.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Target Date Fund
Risk. A target date
fund should not be selected based solely on age or retirement date because there
is no guarantee that this fund will provide adequate income at or through
retirement.
The principal risks of investing in
the Account that are inherent in the underlying funds, in alphabetical order,
are:
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange
restrictions.
Derivatives
Risk. Transactions in
derivatives may increase volatility, cause the liquidation of portfolio
positions when not advantageous to do so and produce disproportionate
losses.
Emerging Market
Risk. Investments in
emerging market countries may have more risk than those in developed market
countries because the emerging markets are less developed and more illiquid.
Emerging market countries can also be subject to increased social, economic,
regulatory, and political uncertainties and can be extremely
volatile.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
Index Fund
Investment Risk. More
likely than not, an index fund will underperform the index due to cashflows and
the fees and expenses of the fund.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (______________), performance shown in the table for
Class 2 shares is based on the performance of the Account's Class 1 shares
adjusted to reflect the fees and expenses of the Class 2 shares. The adjustments
result in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on August 30,
2004.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
17.52 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(21.31 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
Principal
LifeTime 2040 - Class 1 |
6.21% |
11.21% |
6.01% |
Principal
LifeTime 2040 - Class 2 |
5.94% |
10.94% |
5.78% |
S&P Target Date 2040 Index
(reflects no deduction for fees, expenses, or taxes) |
5.69% |
10.81% |
6.25% |
Management
Investment
Advisor and Portfolio Managers:
Principal Management
Corporation
|
|
• |
James W. Fennessey (since
2007), Portfolio Manager |
|
|
• |
Jeffrey R. Tyler (since 2011),
Portfolio Manager |
|
|
• |
Randy L. Welch (since 2007),
Portfolio Manager |
Sub-Advisor and
Portfolio Manager:
Principal Global Investors, LLC
|
|
• |
Matthew Annenberg (since
2013), Managing Director, Asset Allocation
|
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
PRINCIPAL
LIFETIME 2050 ACCOUNT
|
|
Objective: |
The Account seeks a total
return consisting of long-term growth of capital and current
income. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.03% |
0.03% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other
Expenses(1) |
0.03% |
0.03% |
Acquired Fund Fees and
Expenses |
0.72% |
0.72% |
Total Annual
Account Operating Expenses |
0.78% |
1.03% |
|
|
|
(1) Based on estimated amounts
for the current fiscal year (Class 2). |
|
|
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Principal
LifeTime 2050 Account - Class 1 |
$80 |
$249 |
$433 |
$966 |
Principal
LifeTime 2050 Account - Class 2 |
105 |
328 |
|
|
Portfolio
Turnover
As a fund of funds, the Account does
not pay transaction costs, such as commissions, when it buys and sells shares of
underlying funds (or “turns over” its portfolio). An underlying fund does pay
transaction costs when it buys and sells portfolio securities, and a higher
portfolio turnover may indicate higher transaction costs. These costs, which are
not reflected in annual account operating expenses or in the examples, affect
the performance of the underlying fund and the Account. During its most recent
fiscal year, the Account's portfolio turnover rate was 68.0% of the average value of its
portfolio.
Principal
Investment Strategies
The Account operates as a “target
date fund” that invests according to an asset allocation strategy designed for
investors having a retirement investment goal close to the year in the Account’s
name. The Account's asset allocation will become more conservative over time as
investment goals near (for example, retirement, which is assumed to begin at age
65) and investors become more risk-averse. The Account is a fund of funds and
invests in Principal Funds, Inc. ("PFI") Institutional Class shares and
Principal Variable Contracts Funds, Inc. ("PVC") Class 1 shares. Its underlying
funds consist of domestic and foreign equity funds, fixed-income funds, real
asset funds, and other funds that aim to offer diversification beyond
traditional equity and fixed-income securities. The Account is managed by
Principal Management Corporation (“Principal”); Principal has hired a
sub-advisor, Principal Global Investors, LLC (“PGI”), to assist in managing the
Account.
Principal, with assistance from PGI,
develops, implements and monitors the Account's strategic or long-term asset
class targets and target ranges, is also responsible for an active rebalancing
strategy designed to identify asset classes that appear attractive over the
short term and sets the percentage of Account assets to be allocated to a
particular asset class. Principal selects the underlying funds for each asset
class and the target weights for each
underlying fund. Principal, with
assistance from PGI, may shift asset class targets in response to normal
evaluative processes, the shortening time horizon of the Account or changes in
market forces or Account circumstances. Principal may add, remove, or substitute
underlying funds at any time.
In selecting underlying funds and
target weights, Principal considers both quantitative measures (e.g., past
performance, expected levels of risk and returns, expense levels,
diversification and style consistency) and qualitative factors (e.g.,
organizational stability, investment experience, investment and risk management
processes, and information, trading, and compliance systems). There are no
minimum or maximum percentages of assets that the Account must invest in a
specific asset class or underlying fund.
The underlying funds invest in
growth and value stocks of small, medium, and large market capitalization
companies, fixed-income securities, domestic and foreign (including those in
emerging markets) securities, securities denominated in foreign currencies,
investment companies (including index funds), and derivatives. A derivative is a
financial arrangement, the value of which is derived from, or based on, a
traditional security, asset, or market index. The underlying funds principally
use equity index futures and options to manage equity exposure.
Within 10 to 15 years after its
target year, the Account's underlying fund allocation is expected to match that
of the Principal LifeTime Strategic Income Account. At that time, the Account
may be combined with the Principal LifeTime Strategic Income Account if the
Board of Directors determines that the combination is in the best interests of
Account shareholders. It is expected that at the target date in the Account’s
name, the shareholder will begin gradually withdrawing the account's
value.
Principal
Risks
The broad diversification of the
Account is designed to cushion severe losses in any one investment sector and
moderate overall price volatility. However, the Account is subject to the
particular risks of the underlying funds in the proportions in which the Account
invests in them, and its share prices will fluctuate as the prices of underlying
fund
shares rise or fall with changing
market conditions. If you sell your shares when their value is less than the
price you paid, you will lose money. The Account operates as a fund of funds and
thus bears both its own expenses and, indirectly, its proportionate share of the
expenses of the underlying funds in which it invests. An investment in the
Account is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Account that are inherent in the fund of
funds, in alphabetical order, are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Conflict of
Interest Risk. The
Advisor and its affiliates earn different fees from different underlying funds
and may have an incentive to allocate more fund-of-fund assets to underlying
funds from which they receive higher fees.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Target Date Fund
Risk. A target date
fund should not be selected based solely on age or retirement date because there
is no guarantee that this fund will provide adequate income at or through
retirement.
The principal risks of investing in
the Account that are inherent in the underlying funds, in alphabetical order,
are:
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange
restrictions.
Derivatives
Risk. Transactions in
derivatives may increase volatility, cause the liquidation of portfolio
positions when not advantageous to do so and produce disproportionate
losses.
Emerging Market
Risk. Investments in
emerging market countries may have more risk than those in developed market
countries because the emerging markets are less developed and more illiquid.
Emerging market countries can also be subject to increased social, economic,
regulatory, and political uncertainties and can be extremely
volatile.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
Index Fund
Investment Risk. More
likely than not, an index fund will underperform the index due to cashflows and
the fees and expenses of the fund.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio
securities to meet such redemptions, or to invest cash from such investments, at
times it would not otherwise do so, and may as a result increase transaction
costs and adversely affect underlying fund performance.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (______________), performance shown in the table for
Class 2 shares is based on the performance of the Account's Class 1 shares
adjusted to reflect the fees and expenses of the Class 2 shares. The adjustments
result in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on August 30,
2004.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
17.92 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(22.08 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
Principal
LifeTime 2050 - Class 1 |
6.21% |
11.42% |
6.07% |
Principal
LifeTime 2050 - Class 2 |
5.94% |
11.16% |
5.83% |
S&P Target Date 2050 Index
(reflects no deduction for fees, expenses, or taxes) |
5.69% |
11.22% |
N/A |
Management
Investment
Advisor and Portfolio Managers:
Principal Management
Corporation
|
|
• |
James W. Fennessey (since
2007), Portfolio Manager |
|
|
• |
Jeffrey R. Tyler (since 2011),
Portfolio Manager |
|
|
• |
Randy L. Welch (since 2007),
Portfolio Manager |
Sub-Advisor and
Portfolio Manager:
Principal Global Investors, LLC
|
|
• |
Matthew Annenberg (since
2013), Managing Director, Asset Allocation
|
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
PRINCIPAL
LIFETIME 2060 ACCOUNT
|
|
Objective: |
The Account seeks a total
return consisting of long-term growth of capital and current
income. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
|
Management Fees |
0.03% |
|
Other Expenses |
40.97% |
|
Acquired Fund Fees and
Expenses |
0.82% |
|
Total Annual
Account Operating Expenses |
41.82% |
|
Expense
Reimbursement(1) |
(40.87)% |
|
Total Annual
Account Operating Expenses after Expense Reimbursement |
0.95% |
|
|
|
(1) Principal
Management Corporation ("Principal"), the investment advisor, has
contractually agreed to limit the Account’s expenses by paying, if
necessary, expenses normally payable by the Account, (excluding interest
expense, expenses related to fund investments, acquired fund fees and
expenses, and other extraordinary expenses) to maintain a total level of
operating expenses (expressed as a percent of average net assets on an
annualized basis) not to exceed 0.13% for Class 1 shares. It is expected
that the expense limit will continue through the period ending April 30,
2015; however, Principal Variable Contracts, Inc. and Principal, the
parties to the agreement, may agree to terminate the expense limit prior
to the end of the period. |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Principal
LifeTime 2060 Account - Class 1 |
$97 |
$5,425 |
$8,229 |
$9,905 |
Portfolio
Turnover
As a fund of funds, the Account does
not pay transaction costs, such as commissions, when it buys and sells shares of
underlying funds (or “turns over” its portfolio). An underlying fund does pay
transaction costs when it buys and sells portfolio securities, and a higher
portfolio turnover may indicate higher transaction costs. These costs, which are
not reflected in annual account operating expenses or in the examples, affect
the performance of the underlying fund and the Account. From May 1, 2013, date
operations commenced, through December 31, 2013, the Account's annualized
portfolio turnover rate was 79.4% of the average value of its
portfolio.
Principal
Investment Strategies
The Account operates as a “target
date fund” that invests according to an asset allocation strategy designed for
investors having a retirement investment goal close to the year in the Account’s
name. The Account's asset allocation will become more conservative over time as
investment goals near (for example, retirement, which is assumed to begin at age
65) and investors become more risk-averse. The Account is a fund of funds and
invests in Principal Funds, Inc. ("PFI") Institutional Class shares and
Principal Variable Contracts Funds, Inc. ("PVC") Class 1 shares. Its underlying
funds consist of domestic and foreign equity funds, fixed-income funds, real
asset funds, and other funds that aim to offer diversification beyond
traditional equity and fixed-income securities. The Account is managed by
Principal Management Corporation (“Principal”); Principal has hired a
sub-advisor, Principal Global Investors, LLC (“PGI”), to assist in managing the
Account.
Principal, with assistance from PGI,
develops, implements and monitors the Account's strategic or long-term asset
class targets and target ranges, is also responsible for an active rebalancing
strategy designed to identify asset classes that appear attractive over the
short term and sets the percentage of Account assets to be allocated to a
particular asset class. Principal selects the underlying funds for each asset
class and the target weights for each underlying fund. Principal, with
assistance from PGI, may shift asset class targets in response to normal
evaluative processes, the shortening time horizon of the Account or changes in
market forces or Account circumstances. Principal may add, remove, or substitute
underlying funds at any time.
In selecting underlying funds and
target weights, Principal considers both quantitative measures (e.g., past
performance, expected levels of risk and returns, expense levels,
diversification and style consistency) and qualitative factors (e.g.,
organizational stability, investment experience, investment and risk management
processes, and information, trading, and compliance systems). There are no
minimum or maximum percentages of assets that the Account must invest in a
specific asset class or underlying fund.
The underlying funds invest in
growth and value stocks of small, medium, and large market capitalization
companies, fixed-income securities, domestic and foreign (including those in
emerging markets) securities, securities denominated in foreign currencies,
investment companies (including index funds), and derivatives. A derivative is a
financial arrangement, the value of which is derived from, or based on, a
traditional security, asset, or market index. The underlying funds principally
use equity index futures and options to manage equity exposure.
Within 10 to 15 years after its
target year, the Account's underlying fund allocation is expected to match that
of the Principal LifeTime Strategic Income Account. At that time, the Account
may be combined with the Principal LifeTime Strategic Income Account if the
Board of Directors determines that the combination is in the best interests of
Account shareholders. It is expected that at the target date in the Account’s
name, the shareholder will begin gradually withdrawing the account's
value.
Principal
Risks
The broad diversification of the
Account is designed to cushion severe losses in any one investment sector and
moderate overall price volatility. However, the Account is subject to the
particular risks of the underlying funds in the proportions in which the Account
invests in them, and its share prices will fluctuate as the prices of underlying
fund shares rise or fall with changing market conditions. If you sell your
shares when their value is less than the price you paid, you will lose money.
The Account operates as a fund of funds and thus bears both its own expenses
and, indirectly, its proportionate share of the expenses of the underlying funds
in which it invests. An investment in the Account is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The principal risks of investing in the Account that
are inherent in the fund of funds, in alphabetical order, are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Conflict of
Interest Risk. The
Advisor and its affiliates earn different fees from different underlying funds
and may have an incentive to allocate more fund-of-fund assets to underlying
funds from which they receive higher fees.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Target Date Fund
Risk. A target date
fund should not be selected based solely on age or retirement date because there
is no guarantee that this fund will provide adequate income at or through
retirement.
The principal risks of investing in
the Account that are inherent in the underlying funds, in alphabetical order,
are:
Currency
Risk. Risks of
investing in securities denominated in, or that trade in, foreign (non-U.S.)
currencies include changes in foreign exchange rates and foreign exchange
restrictions.
Derivatives
Risk. Transactions in
derivatives may increase volatility, cause the liquidation of portfolio
positions when not advantageous to do so and produce disproportionate
losses.
Emerging Market
Risk. Investments in
emerging market countries may have more risk than those in developed market
countries because the emerging markets are less developed and more illiquid.
Emerging market countries can also be subject to increased social, economic,
regulatory, and political uncertainties and can be extremely
volatile.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
Index Fund
Investment Risk. More
likely than not, an index fund will underperform the index due to cashflows and
the fees and expenses of the fund.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Life of Account results are measured
from the date the Account's shares were first sold (May 1, 2013).
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'14 |
4.11 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q3
'14 |
(1.76 |
)% |
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past
1 Year |
Life of
Account |
Principal
LifeTime 2060 - Class 1 |
5.58% |
12.80% |
S&P Target Date 2055+ Index
(reflects no deduction for fees, expenses, or taxes) |
5.64% |
12.06% |
Management
Investment
Advisor and Portfolio Managers:
Principal Management
Corporation
|
|
• |
James W. Fennessey (since
2013), Portfolio Manager |
|
|
• |
Jeffrey R. Tyler (since 2013),
Portfolio Manager |
|
|
• |
Randy L. Welch (since 2013),
Portfolio Manager |
Sub-Advisor and
Portfolio Manager:
Principal Global Investors, LLC
|
|
• |
Matthew Annenberg (since
2013), Managing Director, Asset Allocatio n
|
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
REAL ESTATE
SECURITIES ACCOUNT
|
|
Objective: |
The Account seeks to generate
a total return. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.89% |
0.89% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses |
—% |
—% |
Total Annual
Account Operating Expenses |
0.89% |
1.14% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Real Estate
Securities Account - Class 1 |
$91 |
$284 |
$493 |
$1,096 |
Real Estate
Securities Account - Class 2 |
116 |
362 |
628 |
1,386 |
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account’s portfolio turnover rate was 22.1% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the
Account invests at least 80% of its net assets, plus any borrowings for
investment purposes, in equity securities of companies principally engaged in
the real estate industry at the time of each purchase. A real estate company has
at least 50% of its assets, income or profits derived from products or services
related to the real estate industry. Real estate companies include real estate
investment trusts ("REITs") and companies with substantial real estate holdings
such as paper, lumber, hotel and entertainment companies as well as those whose
products and services relate to the real estate industry include building supply
manufacturers, mortgage lenders and mortgage servicing companies. The Account
invests in equity securities of small, medium, and large market capitalization
companies.
REITs are pooled investment vehicles
that invest in income producing real estate, real estate related loans, or other
types of real estate interests. REITs are corporations or business trusts that
are permitted to eliminate corporate level federal income taxes by meeting
certain requirements of the Internal Revenue Code.
The Account concentrates its
investments (invest more than 25% of its net assets) in securities in the real
estate industry.
The Account is considered
non-diversified, which means it can invest a higher percentage of assets in
securities of individual issuers than a diversified fund. As a result, changes
in the value of a single investment could cause greater fluctuations in the
Account's share price than would occur in a more diversified
fund.
Principal
Risks
The value of your investment in the
Account changes with the value of the Account's investments. Many factors affect
that value, and it is possible to lose money by investing in the Account. An
investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Industry
Concentration Risk (Real Estate). A fund that concentrates investments
in a particular industry or group of industries has greater exposure than other
funds to market, economic and other factors affecting that industry or group of
industries. A fund concentrating in the real estate industry can be subject to
the risks associated with direct ownership of real estate, securities of
companies in the real estate industry, and/or real estate investment
trusts.
Non-Diversification
Risk. A non-diversified
fund may invest a high percentage of its assets in the securities of a small
number of issuers and is more likely than diversified funds to be significantly
affected by a specific security’s poor performance.
Real Estate
Investment Trusts (“REITs”) Risk. A REIT could fail to qualify for
tax-free pass-through of income under the Internal Revenue Code, and fund
shareholders will indirectly bear their proportionate share of the expenses of
REITs in which the fund invests.
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (January 8, 2007), performance shown in the table for
Class 2 shares is based on the performance of the Account's Class 1 shares
adjusted to reflect the fees and expenses of the Class 2 shares. The adjustments
result in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on May 1, 1998.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
‘09 |
33.51 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(34.16 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
Real Estate
Securities Account - Class 1 |
32.82% |
17.28% |
9.60% |
Real Estate
Securities Account - Class 2 |
32.44% |
16.97% |
9.33% |
MSCI US REIT Index (reflects no
deduction for fees, expenses, or taxes) |
30.38% |
17.05% |
8.31% |
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Principal Real Estate Investors,
LLC
|
|
• |
Keith Bokota (since 2013),
Portfolio Manager |
|
|
• |
Anthony Kenkel (since 2012),
Portfolio Manager |
|
|
• |
Kelly D. Rush (since 2000),
Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
SAM (STRATEGIC
ASSET MANAGEMENT) BALANCED PORTFOLIO
|
|
Objective: |
The Portfolio seeks to provide
as high a level of total return (consisting of reinvested income and
capital appreciation) as is consistent with reasonable
risk. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.23% |
0.23% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses |
—% |
—% |
Acquired Fund Fees and
Expenses |
0.67% |
0.67% |
Total Annual
Account Operating Expenses |
0.90% |
1.15% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
SAM Balanced
Portfolio - Class 1 |
$92 |
$287 |
$498 |
$1,108 |
SAM Balanced
Portfolio - Class 2 |
117 |
365 |
633 |
1,398 |
Portfolio
Turnover
As a fund of funds, the Account does
not pay transaction costs, such as commissions, when it buys and sells shares of
underlying funds (or “turns over” its portfolio). An underlying fund does pay
transaction costs when it buys and sells portfolio securities, and a higher
portfolio turnover may indicate higher transaction costs. These costs, which are
not reflected in annual account operating expenses or in the examples, affect
the performance of the underlying fund and the Account. During its most recent
fiscal year, the Account's portfolio turnover rate was 46.7% of the average value of its
portfolio.
Principal
Investment Strategies
The SAM Portfolios operate as funds
of funds and invest principally in Institutional Class shares of Principal
Funds, Inc. and Class 1 shares of Principal Variable Contracts Funds, Inc.
equity funds, fixed-income funds and specialty funds ("Underlying Funds"); the
Sub-Advisor generally categorizes the Underlying Fund based on the investment
profile of the Underlying Fund. Each SAM Portfolio typically allocates its
assets among Underlying Funds, and within predetermined percentage ranges, as
determined by the Sub-Advisor in accordance with its outlook for the economy,
the financial markets and the relative market valuations of the Underlying
Funds.
The Portfolio:
|
|
• |
Generally invests between 20%
and 60% of its assets in fixed-income funds, and less than 40% in any one
fixed-income fund (fixed-income funds that generally invest in fixed
income instruments such as real estate securities, mortgage-backed
securities, government and government-sponsored securities, and corporate
bonds) |
|
|
•
|
Generally invests between 40%
and 80% of its assets in equity funds that invest in small, medium, and
large market capitalization companies, and less than 30% in any one equity
fund (equity funds that generally invest in domestic and foreign equity
securities) and |
|
|
•
|
Generally invests less than
20% of its assets in specialty funds, and less than 20% in any one
specialty fund (specialty funds that generally offer unique combinations
of traditional equity securities and fixed-income securities or that use
alternative investment strategies that aim to offer diversification beyond
traditional equity and fixed-income securities and include investments in
such assets as infrastructure, commodities, currencies, and public timber
companies) |
The Portfolio may temporarily exceed
the applicable percentage ranges for short periods, and the Sub-Advisor may
alter the percentage ranges when it deems appropriate.
Principal
Risks
The broad diversification of the
Portfolio is designed to cushion severe losses in any one investment sector and
moderate overall price volatility. However, the Portfolio is subject to the
particular risks of the Underlying Funds in which it invests, and its share
prices and performance will fluctuate with the shares prices and performance of
the Underlying Funds. The Portfolio operates as a fund of funds and thus bears
both its own expenses and, indirectly, its proportionate share of the expenses
of the underlying funds in which it invests. An investment in the Portfolio is
not a deposit of a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. If you sell your shares
when their value is less than the price you paid, you will lose money.
The principal risks of investing in
the Portfolio that are inherent in the fund of funds, in alphabetical order,
are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Conflict of
Interest Risk. The
Advisor and its affiliates earn different fees from different underlying funds
and may have an incentive to allocate more fund-of-fund assets to underlying
funds from which they receive higher fees.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
The principal risks of investing in
the Portfolio that are inherent in the underlying funds, in alphabetical order,
are:
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange
restrictions.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Prepayment Risk.
Unscheduled prepayments
on mortgage-backed and asset-backed securities may have to be reinvested at
lower rates. A reduction in prepayments may increase the effective maturities of
these securities, exposing them to the risk of decline in market value over time
(extension risk).
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account’s performance from year to year. The table shows how the Account’s
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Performance reflects the performance
of the predecessor fund.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
13.21 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(14.58 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
SAM Balanced
Portfolio - Class 1 |
6.82% |
10.21% |
6.59% |
SAM Balanced
Portfolio - Class 2 |
6.59% |
9.93% |
6.33% |
Russell 3000 Index (reflects no
deduction for fees, expenses, or taxes) |
12.56% |
15.63% |
7.94% |
Barclays U.S. Aggregate Bond
Index (reflects no deduction for fees, expenses, or taxes) |
5.97% |
4.45% |
4.71% |
MSCI EAFE Index NDTR D
(reflects no deduction for fees, expenses, or taxes) |
-4.90% |
5.33% |
4.43% |
SAM Balanced Blended Index
(reflects no deduction for fees, expenses, or taxes) |
7.24% |
9.82% |
6.48% |
Performance of a blended index (as
defined below) shows how the Portfolio’s performance compares to a blend of
indices with similar investment objectives, and performance of the components of
the blended index are also shown. The weightings for SAM Balanced Blended Index
are 45% Russell 3000 ®
Index, 40% Barclays U.S.
Aggregate Bond Index, and 15% MSCI EAFE Index NDTR D. The custom or blended
index returns reflect the allocation in effect for the time period(s) for which
the fund returns are disclosed. Previous weightings or allocations of the custom
or blended index are not restated.
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Edge Asset Management, Inc.
|
|
• |
Charles D. Averill (since
2010), Portfolio Manager |
|
|
• |
Jill R. Cuniff (since 2010),
President and Portfolio Manager |
|
|
• |
Todd A. Jablonski (since
2010), Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
SAM (STRATEGIC
ASSET MANAGEMENT) CONSERVATIVE BALANCED PORTFOLIO
|
|
Objective: |
The Portfolio seeks to provide
a high level of total return (consisting of reinvestment of income and
capital appreciation), consistent with a moderate degree of principal
risk. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.23% |
0.23% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses |
—% |
—% |
Acquired Fund Fees and
Expenses |
0.63% |
0.63% |
Total Annual
Account Operating Expenses |
0.86% |
1.11% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
SAM
Conservative Balanced Portfolio - Class 1 |
$88 |
$274 |
$477 |
$1,061 |
SAM
Conservative Balanced Portfolio - Class 2 |
113 |
353 |
612 |
1,352 |
Portfolio
Turnover
As a fund of funds, the Account does
not pay transaction costs, such as commissions, when it buys and sells shares of
underlying funds (or “turns over” its portfolio). An underlying fund does pay
transaction costs when it buys and sells portfolio securities, and a higher
portfolio turnover may indicate higher transaction costs. These costs, which are
not reflected in annual account operating expenses or in the examples, affect
the performance of the underlying fund and the Account. During its most recent
fiscal year, the Account's portfolio turnover rate was 35.6% of the average value of its
portfolio.
Principal
Investment Strategies
The SAM Portfolios operate as funds
of funds and invest principally in Institutional Class shares of Principal
Funds, Inc. and Class 1 shares of Principal Variable Contracts Funds, Inc.
equity funds, fixed-income funds and specialty funds ("Underlying Funds"); the
Sub-Advisor generally categorizes the Underlying Fund based on the investment
profile of the Underlying Fund. Each SAM Portfolio typically allocates its
assets among Underlying Funds, and within predetermined percentage ranges, as
determined by the Sub-Advisor in accordance with its outlook for the economy,
the financial markets and the relative market valuations of the Underlying
Funds.
The Portfolio:
|
|
• |
Generally invests between 40%
and 80% of its assets in fixed-income funds, and less than 40% in any one
fixed-income fund (fixed-income funds that generally invest in fixed
income instruments such as high yield securities (or “junk” bonds), real
estate securities, mortgage-backed securities, government and
government-sponsored securities, and corporate
bonds) |
|
|
• |
Generally invests between 20%
and 60% of its assets in equity funds, and less than 30% in any one equity
fund (equity funds that generally invest in domestic and foreign equity
securities) and |
|
|
• |
Generally invests less than
20% of its assets in specialty funds, and less than 20% in any one
specialty fund (specialty funds that generally offer unique combinations
of traditional equity securities and fixed-income securities or that use
alternative investment strategies that aim to offer diversification beyond
traditional equity and fixed-income securities and include investments in
such assets as infrastructure, commodities, currencies, and public timber
companies) |
The Portfolio may temporarily exceed
these percentage ranges for short periods, and the Sub-Advisor may alter the
percentage ranges when it deems appropriate.
Principal
Risks
The broad diversification of the
Portfolio is designed to cushion severe losses in any one investment sector and
moderate overall price volatility. However, the Portfolio is subject to the
particular risks of the Underlying Funds in which it invests, and its share
prices and performance will fluctuate with the shares prices and performance of
the Underlying Funds. The Portfolio operates as a fund of funds and thus bears
both its own expenses and, indirectly, its proportionate share of the expenses
of the underlying funds in which it invests. An investment in the Portfolio is
not a deposit of a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. If you sell your shares
when their value is less than the price you paid, you will lose money.
The principal risks of investing in
the Portfolio that are inherent in the fund of funds, in alphabetical order,
are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Conflict of
Interest Risk. The
Advisor and its affiliates earn different fees from different underlying funds
and may have an incentive to allocate more fund-of-fund assets to underlying
funds from which they receive higher fees.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
The principal risks of investing in
the Portfolio that are inherent in the underlying funds, in alphabetical order,
are:
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange restrictions.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
High Yield
Securities Risk. High
yield fixed-income securities (commonly referred to as "junk bonds") are subject
to greater credit quality risk than higher rated fixed-income securities and
should be considered speculative.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Prepayment Risk.
Unscheduled prepayments
on mortgage-backed and asset-backed securities may have to be reinvested at
lower rates. A reduction in prepayments may increase the effective maturities of
these securities, exposing them to the risk of decline in market value over time
(extension risk).
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Performance reflects the performance
of the predecessor fund.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
11.00 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(10.39 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
SAM
Conservative Balanced Portfolio - Class 1 |
6.22% |
8.55% |
6.09% |
SAM
Conservative Balanced Portfolio - Class 2 |
5.92% |
8.29% |
5.82% |
Barclays U.S. Aggregate Bond
Index (reflects no deduction for fees, expenses, or taxes) |
5.97% |
4.45% |
4.71% |
Russell 3000 Index (reflects no deduction for
fees, expenses, or taxes) |
12.56% |
15.63% |
7.94% |
MSCI EAFE Index NDTR D
(reflects no deduction for fees, expenses, or taxes) |
-4.90% |
5.33% |
4.43% |
SAM Conservative Balanced
Blended Index (reflects no deduction for fees, expenses, or
taxes) |
6.84% |
8.09% |
5.99% |
Performance of a blended index (as
defined below) shows how the Portfolio’s performance compares to a blend of
indices with similar investment objectives, and performance of the components of
the blended index are also shown. The weightings for SAM Conservative Balanced
Blended Index are 60% Barclays U.S. Aggregate Bond Index, 30% Russell
3000 ®
Index, and 10% MSCI EAFE Index
NDTR D. The custom or blended index returns reflect the allocation in effect for
the time period(s) for which the fund returns are disclosed. Previous weightings
or allocations of the custom or blended index are not restated.
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Edge Asset Management, Inc.
|
|
• |
Charles D. Averill (since
2010), Portfolio Manager |
|
|
• |
Jill R. Cuniff (since 2010),
President and Portfolio Manager |
|
|
• |
Todd A. Jablonski (since
2010), Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
SAM (STRATEGIC
ASSET MANAGEMENT) CONSERVATIVE GROWTH PORTFOLIO
|
|
Objective: |
The Portfolio seeks to provide
long-term capital appreciation. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.23% |
0.23% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses |
—% |
—% |
Acquired Fund Fees and
Expenses |
0.72% |
0.72% |
Total Annual
Account Operating Expenses |
0.95% |
1.20% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
SAM
Conservative Growth Portfolio – Class 1 |
$97 |
$303 |
$525 |
$1,166 |
SAM
Conservative Growth Portfolio - Class 2 |
122 |
381 |
660 |
1,455 |
Portfolio
Turnover
As a fund of funds, the Account does
not pay transaction costs, such as commissions, when it buys and sells shares of
underlying funds (or “turns over” its portfolio). An underlying fund does pay
transaction costs when it buys and sells portfolio securities, and a higher
portfolio turnover may indicate higher transaction costs. These costs, which are
not reflected in annual account operating expenses or in the examples, affect
the performance of the underlying fund and the Account. During its most recent
fiscal year, the Account's portfolio turnover rate was 48.5% of the average value of its
portfolio.
Principal
Investment Strategies
The SAM Portfolios operate as funds
of funds and invest principally in Institutional Class shares of Principal
Funds, Inc. and Class 1 shares of Principal Variable Contracts Funds, Inc.
equity funds, fixed-income funds and specialty funds ("Underlying Funds"); the
Sub-Advisor generally categorizes the Underlying Fund based on the investment
profile of the Underlying Fund. Each SAM Portfolio typically allocates its
assets among Underlying Funds, and within predetermined percentage ranges, as
determined by the Sub-Advisor in accordance with its outlook for the economy,
the financial markets and the relative market valuations of the Underlying
Funds.
The Portfolio:
|
|
• |
Generally invests between 0%
and 40% of its assets in fixed-income funds, and less than 30% in any one
fixed-income fund (fixed-income funds that generally invest in
fixed-income instruments such as government and government-sponsored
securities and corporate bonds) |
|
|
• |
Generally invests between 60%
and 100% of its assets in equity funds that invest in small, medium, and
large market capitalization companies, and less than 40% in any one equity
fund (equity funds that generally invest in domestic and foreign equity
securities) and |
|
|
• |
Generally invests less than
20% of its assets in specialty funds, and less than 20% in any one
specialty fund (specialty funds that generally offer unique combinations
of traditional equity securities and fixed-income securities or that use
alternative investment strategies that aim to offer diversification beyond
traditional equity |
and fixed-income securities and
include investments in such assets as infrastructure, commodities, currencies,
and public timber companies)
The Portfolio may temporarily exceed
the applicable percentage ranges for short periods, and the Sub-Advisor may
alter the percentage ranges when it deems appropriate.
Principal
Risks
The broad diversification of the
Portfolio is designed to cushion severe losses in any one investment sector and
moderate overall price volatility. However, the Portfolio is subject to the
particular risks of the Underlying Funds in which it invests, and its share
prices and performance will fluctuate with the shares prices and performance of
the Underlying Funds. The Portfolio operates as a fund of funds and thus bears
both its own expenses and, indirectly, its proportionate share of the expenses
of the underlying funds in which it invests. An investment in the Portfolio is
not a deposit of a bank and is not insured or guaranteed by the Federal Deposit
Insurance Agency or any other government agency. If you sell your shares when
their value is less than the price you paid, you will lose money.
The principal risks of investing in
the Portfolio that are inherent in the fund of funds, in alphabetical order,
are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Conflict of
Interest Risk. The
Advisor and its affiliates earn different fees from different underlying funds
and may have an incentive to allocate more fund-of-fund assets to underlying
funds from which they receive higher fees.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
The principal risks of investing in
the Portfolio that are inherent in the underlying funds, in alphabetical order,
are:
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange restrictions.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account’s performance from year to year. The table shows how the Account’s
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market
performance.Performance figures for the Accounts do not include any separate
account expenses, cost of insurance, or other contract-level expenses; total
returns for the Accounts would be lower if such expenses were included.
Performance reflects the performance
of the predecessor fund.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
14.61 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(19.24 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
SAM
Conservative Growth Portfolio - Class 1 |
7.43% |
11.61% |
6.69% |
SAM
Conservative Growth Portfolio - Class 2 |
7.14% |
11.33% |
6.42% |
Russell 3000 Index (reflects no
deduction for fees, expenses, or taxes) |
12.56% |
15.63% |
7.94% |
Barclays U.S. Aggregate Bond
Index (reflects no deduction for fees, expenses, or taxes) |
5.97% |
4.45% |
4.71% |
MSCI EAFE Index NDTR D
(reflects no deduction for fees, expenses, or taxes) |
(4.90)% |
5.33% |
4.43% |
SAM Conservative Growth Blended
Index (reflects no deduction for fees, expenses, or taxes) |
7.62% |
11.47% |
6.86% |
Performance of a blended index (as
defined below) shows how the Portfolio’s performance compares to a blend of
indices with similar investment objectives, and performance of the components of
the blended index are also shown. The weightings for SAM Conservative Growth
Blended Index are 60% Russell 3000 ®
Index, 20% Barclays U.S.
Aggregate Bond Index and 20% MSCI EAFE Index NDTR D. The custom or blended index
returns reflect the allocation in effect for the time period(s) for which the
fund returns are disclosed. Previous weightings or allocations of the custom or
blended index are not restated.
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Edge Asset Management, Inc.
|
|
• |
Charles D. Averill (since
2010), Portfolio Manager |
|
|
• |
Jill R. Cuniff (since 2010),
President and Portfolio Manager |
|
|
• |
Todd A. Jablonski (since
2010), Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
SAM (STRATEGIC
ASSET MANAGEMENT) FLEXIBLE INCOME PORTFOLIO
|
|
Objective: |
The Portfolio seeks to provide
a high level of total return (consisting of reinvestment of income with
some capital appreciation). |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.23% |
0.23% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses |
—% |
—% |
Acquired Fund Fees and
Expenses |
0.58% |
0.58% |
Total Annual
Account Operating Expenses |
0.81% |
1.06% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
SAM Flexible
Income Portfolio - Class 1 |
$83 |
$259 |
$450 |
$1,002 |
SAM Flexible
Income Portfolio - Class 2 |
108 |
337 |
585 |
1,294 |
Portfolio
Turnover
As a fund of funds, the Account does
not pay transaction costs, such as commissions, when it buys and sells shares of
underlying funds (or “turns over” its portfolio). An underlying fund does pay
transaction costs when it buys and sells portfolio securities, and a higher
portfolio turnover may indicate higher transaction costs. These costs, which are
not reflected in annual account operating expenses or in the examples, affect
the performance of the underlying fund and the Account. During its most recent
fiscal year, the Account's portfolio turnover rate was 29.7% of the average value of its
portfolio.
Principal
Investment Strategies
The SAM Portfolios operate as funds
of funds and invest principally in Institutional Class shares of Principal
Funds, Inc. and Class 1 shares of Principal Variable Contracts Funds, Inc.
equity funds, fixed-income funds and specialty funds ("Underlying Funds"); the
Sub-Advisor generally categorizes the Underlying Fund based on the investment
profile of the Underlying Fund. Each SAM Portfolio typically allocates its
assets among Underlying Funds, and within predetermined percentage ranges, as
determined by the Sub-Advisor in accordance with its outlook for the economy,
the financial markets and the relative market valuations of the Underlying
Funds.
The Portfolio:
|
|
• |
Generally invests between 55%
and 95% of its assets in fixed-income funds, and less than 40% in any one
fixed-income fund (fixed-income funds that generally invest in fixed
income instruments such as high yield securities (or “junk” bonds), real
estate securities, mortgage-backed securities, government and
government-sponsored securities, and corporate
bonds) |
|
|
• |
Generally invests between 5%
and 45% of its assets in equity funds, and less than 30% in any one equity
fund (equity funds that generally invest in domestic and foreign equity
securities) and |
|
|
• |
Generally invests less than
20% of its assets in specialty funds, and less than 20% in any one
specialty fund (specialty funds that generally offer unique combinations
of traditional equity securities and fixed-income securities or that use
alternative investment strategies that aim to offer diversification beyond
traditional equity and fixed-income securities and include investments in
such assets as infrastructure, commodities, currencies, and public timber
companies) |
The Portfolio may temporarily exceed
these percentage ranges for short periods, and the Sub-Advisor may alter the
percentage ranges when it deems appropriate.
Principal
Risks
The broad diversification of the
Portfolio is designed to cushion severe losses in any one investment sector and
moderate overall price volatility. However, the Portfolio is subject to the
particular risks of the Underlying Funds in which it invests, and its share
prices and performance will fluctuate with the shares prices and performance of
the Underlying Funds. The Portfolio operates as a fund of funds and thus bears
both its own expenses and, indirectly, its proportionate share of the expenses
of the underlying funds in which it invests. An investment in the Portfolio is
not a deposit of a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. If you sell your shares
when their value is less than the price you paid, you will lose money.
The principal risks of investing in
the Portfolio that are inherent in the fund of funds, in alphabetical order,
are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Conflict of
Interest Risk. The
Advisor and its affiliates earn different fees from different underlying funds
and may have an incentive to allocate more fund-of-fund assets to underlying
funds from which they receive higher fees.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
The principal risks of investing in
the Portfolio that are inherent in the underlying funds, in alphabetical order,
are:
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange restrictions.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
High Yield
Securities Risk. High
yield fixed-income securities (commonly referred to as "junk bonds") are subject
to greater credit quality risk than higher rated fixed-income securities and
should be considered speculative.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Prepayment Risk.
Unscheduled prepayments
on mortgage-backed and asset-backed securities may have to be reinvested at
lower rates. A reduction in prepayments may increase the effective maturities of
these securities, exposing them to the risk of decline in market value over time
(extension risk).
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Performance reflects the performance
of the predecessor fund.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
10.44 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(6.95 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
SAM Flexible
Income Portfolio - Class 1 |
6.03% |
7.63% |
5.76% |
SAM Flexible
Income Portfolio - Class 2 |
5.80% |
7.36% |
5.49% |
Barclays U.S. Aggregate Bond
Index (reflects no deduction for fees, expenses, or taxes) |
5.97% |
4.45% |
4.71% |
Russell 3000 Index (reflects no deduction for
fees, expenses, or taxes) |
12.56% |
15.63% |
7.94% |
MSCI EAFE Index NDTR D
(reflects no deduction for fees, expenses, or taxes) |
-4.90% |
5.33% |
4.43% |
SAM Flexible Income Blended
Index (reflects no deduction for fees, expenses, or taxes) |
6.75% |
6.88% |
5.59% |
Performance of a blended index (as
defined below) shows how the Portfolio’s performance compares to a blend of
indices with similar investment objectives, and performance of the components of
the blended index are also shown. The weightings for SAM Flexible Income Blended
Index are 75% Barclays U.S. Aggregate Bond Index, 20% Russell 3000 ®
Index, and 5% MSCI EAFE Index
NDTR D. The custom or blended index returns reflect the allocation in effect for
the time period(s) for which the fund returns are disclosed. Previous weightings
or allocations of the custom or blended index are not restated.
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Edge Asset Management, Inc.
|
|
• |
Charles D. Averill (since
2010), Portfolio Manager |
|
|
• |
Jill R. Cuniff (since 2010),
President and Portfolio Manager |
|
|
• |
Todd A. Jablonski (since
2010), Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
SAM (STRATEGIC
ASSET MANAGEMENT) STRATEGIC GROWTH PORTFOLIO
|
|
Objective: |
The Portfolio seeks to provide
long-term capital appreciation. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.23% |
0.23% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses |
—% |
—% |
Acquired Fund Fees and
Expenses |
0.68% |
0.68% |
Total Annual
Account Operating Expenses |
0.91% |
1.16% |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
SAM
Strategic Growth Portfolio - Class 1 |
$93 |
$290 |
$504 |
$1,120 |
SAM
Strategic Growth Portfolio - Class 2 |
118 |
368 |
638 |
1,409 |
Portfolio
Turnover
As a fund of funds, the Account does
not pay transaction costs, such as commissions, when it buys and sells shares of
underlying funds (or “turns over” its portfolio). An underlying fund does pay
transaction costs when it buys and sells portfolio securities, and a higher
portfolio turnover may indicate higher transaction costs. These costs, which are
not reflected in annual account operating expenses or in the examples, affect
the performance of the underlying fund and the Account. During its most recent
fiscal year, the Account's portfolio turnover rate was 62.5% of the average value of its
portfolio.
Principal
Investment Strategies
The SAM Portfolios operate as funds
of funds and invest principally in Institutional Class shares of Principal
Funds, Inc. and Class 1 shares of Principal Variable Contracts Funds, Inc.
equity funds, fixed-income funds and specialty funds ("Underlying Funds"); the
Sub-Advisor generally categorizes the Underlying Fund based on the investment
profile of the Underlying Fund. Each SAM Portfolio typically allocates its
assets among Underlying Funds, and within predetermined percentage ranges, as
determined by the Sub-Advisor in accordance with its outlook for the economy,
the financial markets and the relative market valuations of the Underlying
Funds.
The Portfolio:
|
|
• |
Generally invests between 75%
and 100% of its assets in equity funds that invest in small, medium, and
large market capitalization companies, and less than 50% in any one equity
fund (equity funds that generally invest in domestic and foreign equity
securities) and |
|
|
• |
Generally invests less than
20% of its assets in specialty funds, and less than 20% in any one
specialty fund (specialty funds that generally offer unique combinations
of traditional equity securities and fixed-income securities or that use
alternative investment strategies that aim to offer diversification beyond
traditional equity and fixed-income securities and include investments in
such assets as infrastructure, commodities, currencies, and public timber
companies) |
The Portfolio may temporarily exceed
the applicable percentage ranges for short periods, and the Sub-Advisor may
alter the percentage ranges when it deems appropriate.
Principal
Risks
The broad diversification of the
Portfolio is designed to cushion severe losses in any one investment sector and
moderate overall price volatility. However, the Portfolio is subject to the
particular risks of the Underlying Funds in which it invests, and its share
prices and performance will fluctuate with the shares prices and performance of
the Underlying Funds. The Portfolio operates as a fund of funds and thus bears
both its own expenses and, indirectly, its proportionate share of the expenses
of the underlying funds in which it invests. An investment in the Portfolio is
not a deposit of a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. If you sell your shares
when their value is less than the price you paid, you will lose money.
The principal risks of investing in
the Portfolio that are inherent in the fund of funds, in alphabetical order,
are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes may cause it to underperform other
funds with a similar investment objective.
Conflict of
Interest Risk. The
Advisor and its affiliates earn different fees from different underlying funds
and may have an incentive to allocate more fund-of-fund assets to underlying
funds from which they receive higher fees.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
The principal risks of investing in
the Portfolio that are inherent in the underlying funds, in alphabetical order,
are:
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange restrictions.
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
Investment
Company Securities Risk. Fund shareholders bear indirectly
their proportionate share of the expenses of other investment companies in which
the fund invests.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account’s performance from year to year. The table shows how the Account’s
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Performance reflects the performance
of the predecessor fund.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
‘09 |
15.95 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(22.38 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
SAM
Strategic Growth Portfolio - Class 1 |
8.68% |
12.80% |
6.87% |
SAM
Strategic Growth Portfolio - Class 2 |
8.35% |
12.53% |
6.61% |
Russell 3000 Index (reflects no deduction for
fees, expenses, or taxes) |
12.56% |
15.63% |
7.94% |
MSCI EAFE Index NDTR D
(reflects no deduction for fees, expenses, or taxes) |
-4.90% |
5.33% |
4.43% |
Barclays U.S. Aggregate Bond
Index (reflects no deduction for fees, expenses, or taxes) |
5.97% |
4.45% |
4.71% |
SAM Strategic Growth Blended
Index (reflects no deduction for fees, expenses, or taxes) |
7.66% |
12.53% |
7.03% |
Performance of a blended index (as
defined below) shows how the Portfolio’s performance compares to a blend of
indices with similar investment objectives, and performance of the components of
the blended index are also shown. The weightings for SAM Strategic Growth
Blended Index are 70% Russell 3000 ®
Index, 25% MSCI EAFE Index
NDTR D and 5% Barclays U.S. Aggregate Bond Index. The custom or blended index
returns reflect the allocation in effect for the time period(s) for which the
fund returns are disclosed. Previous weightings or allocations of the custom or
blended index are not restated.
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Edge Asset Management, Inc.
|
|
• |
Charles D. Averill (since
2010), Portfolio Manager |
|
|
• |
Jill R. Cuniff (since 2010),
President and Portfolio Manager |
|
|
• |
Todd A. Jablonski (since
2010), Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
SHORT-TERM INCOME
ACCOUNT
|
|
Objective: |
The Account seeks to provide
as high a level of current income as is consistent with prudent investment
management and stability of principal. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.49% |
0.49% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses |
—% |
—% |
Total Annual
Account Operating Expenses |
0.49% |
0.74% |
Expense Reimbursement
(1) |
(0.01)% |
(0.01)% |
Total Annual
Account Operating Expenses after Expense Reimbursement |
0.48% |
0.73% |
|
(1) Principal
Management Corporation ("Principal"), the investment advisor, has
contractually agreed to reduce the Account's expenses by 0.01% through the
period ending April 30, 2015. It is expected that the expense
reimbursement will continue through the period disclosed; however,
Principal Variable Contracts Funds, Inc. and Principal, the parties to the
agreement, may agree to terminate the expense reimbursement prior to the
end of the period. |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account's operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
Short-Term
Income Account - Class 1 |
$49 |
$156 |
$273 |
$615 |
Short-Term
Income Account - Class 2 |
75 |
235 |
410 |
917 |
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account's performance. During the most recent
fiscal year, the Account's portfolio turnover rate was 54.7% of the average value of its
portfolio.
Principal
Investment Strategies
The Account invests primarily in
high quality short-term bonds and other fixed-income securities that, at the
time of purchase, are rated BBB- or higher by Standard & Poor's Rating
Service or Baa3 or higher by Moody's Investors Service, Inc. or, if unrated, in
the opinion of the Sub-Advisor of comparable quality. Under normal
circumstances, the Account maintains an effective maturity of five years or less
and an average portfolio duration that is within ±15% of the duration of the
Barclays Credit 1-3 Years Index which as of December 31, 2014 was 1.86 years . The Account's investments also
include corporate securities, U.S. and foreign government securities,
mortgage-backed and asset-backed securities, and real estate investment trust
("REIT") securities. The Account invests in securities denominated in foreign
currencies and in securities of foreign issuers.
Principal
Risks
The value of your investment in the
Account changes with the value of the Account's investments. Many factors affect
that value, and it is possible to lose money by investing in the Account. An
investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Currency Risk.
Risks of investing in
securities denominated in, or that trade in, foreign (non-U.S.) currencies
include changes in foreign exchange rates and foreign exchange restrictions.
Fixed-Income
Securities Risk.
Fixed-income securities are subject to interest rate risk and credit quality
risk. The market value of fixed-income securities generally declines when
interest rates rise, and an issuer of fixed-income securities could default on
its payment obligations.
Foreign
Securities Risk. The
risks of foreign securities include loss of value as a result of: political or
economic instability; nationalization, expropriation or confiscatory taxation;
settlement delays; and limited government regulation (including less stringent
reporting, accounting, and disclosure standards than are required of U.S.
companies).
Portfolio
Duration Risk. Portfolio duration is a measure of
the expected life of a fixed-income security and its sensitivity to changes in
interest rates. The longer a fund's average portfolio duration, the more
sensitive the fund will be to changes in interest rates.
Prepayment Risk.
Unscheduled prepayments
on mortgage-backed and asset-backed securities may have to be reinvested at
lower rates. A reduction in prepayments may increase the effective maturities of
these securities, exposing them to the risk of decline in market value over time
(extension risk).
Real Estate
Investment Trusts (“REITs”) Risk. A REIT could fail to qualify for
tax-free pass-through of income under the Internal Revenue Code, and fund
shareholders will indirectly bear their proportionate share of the expenses of
REITs in which the fund invests.
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Risk of Being an
Underlying Fund. A fund
is subject to the risk of being an underlying fund to the extent that a fund of
funds invests in the fund. An underlying fund of a fund of funds may experience
relatively large redemptions or investments as the fund of funds periodically
reallocates or rebalances its assets. These transactions may cause the
underlying fund to sell portfolio securities to meet such redemptions, or to
invest cash from such investments, at times it would not otherwise do so, and
may as a result increase transaction costs and adversely affect underlying fund
performance.
U.S. Government
Securities Risk. Yields
available from U.S. government securities are generally lower than yields from
many other fixed-income securities.
U.S. Government
Sponsored Securities Risk. Securities issued by U.S.
government-sponsored or -chartered enterprises such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the Federal
Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
Performance reflects the performance
of the predecessor fund.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
3.23 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(2.03 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
Short-Term
Income Account - Class 1 |
1.73% |
2.67% |
3.32% |
Short-Term
Income Account - Class 2 |
1.02% |
2.44% |
3.07% |
Barclays Credit 1-3 Years Index
(reflects no deduction for fees, expenses, or taxes) |
1.12% |
2.42% |
3.61% |
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Edge Asset Management,
Inc.
|
|
• |
John R. Friedl (since 2010),
Portfolio Manager |
|
|
• |
Ryan P. McCann (since 2010),
Portfolio Manager |
|
|
• |
Scott J. Peterson (since
2010), Portfolio Manager |
|
|
• |
Greg L. Tornga (since 2011),
Head of Fixed Income and Portfolio
Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
SMALLCAP BLEND
ACCOUNT
|
|
Objective: |
The Account seeks long-term
growth of capital. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
0.85% |
0.85% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses
(1) |
0.02% |
0.02% |
Acquired Fund Fees and
Expenses |
0.10% |
0.10% |
Total Annual
Account Operating Expenses |
0.97% |
1.22% |
(1) Based on estimated amounts
for the current fiscal year (Class
2). |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
SmallCap
Blend Account - Class 1 |
$99 |
$309 |
$536 |
$1,190 |
SmallCap
Blend Account - Class 2 |
124 |
387 |
|
|
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account’s portfolio turnover rate was 78.1% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the
Account invests at least 80% of its net assets, plus any borrowings for
investment purposes, in equity securities of companies with small market
capitalizations at the time of each purchase. For this Account, companies with
small market capitalizations are those with market capitalizations within the
range of companies comprising the Russell 2000 ®
Index (as of December 31, 2014 , this range was between
approximately $19.0
million and
$7.3 billion
).
The Account invests in equity
securities with value and/or growth characteristics and constructs an investment
portfolio that has a "blend" of equity securities with these characteristics.
Investing in value equity securities is an investment strategy that emphasizes
buying equity securities that appear to be undervalued. The growth orientation
selection emphasizes buying equity securities of companies whose potential for
growth of capital and earnings is expected to be above average. The Account does
not have a policy of preferring one of these categories over the other.
Principal
Risks
The value of your investment in the
Account changes with the value of the Account's investments. Many factors affect
that value, and it is possible to lose money by investing in the Account. An
investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (February 17, 2015), performance shown in the table for
Class 2 shares is based on the performance of the Fund's Class 1 shares adjusted
to reflect the fees and expenses of the Class 2 shares. The adjustments result
in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on May 1, 1998.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q4
'11 |
18.26 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(26.33 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2014 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
SmallCap
Blend Account - Class 1 |
4.89% |
16.84% |
7.51% |
SmallCap
Blend Account - Class 2 |
4.64% |
16.56% |
7.25% |
Russell 2000 Index (reflects no
deduction for fees, expenses, or taxes) |
4.89% |
15.55% |
7.77% |
Management
Investment
Advisor:
Principal Management
Corporation
Sub-Advisor and
Portfolio Managers:
Principal Global Investors,
LLC
|
|
• |
Phil Nordhus (since 2006),
Portfolio Manager |
|
|
• |
Brian Pattinson (since 2011),
Portfolio Manager |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
SMALLCAP GROWTH
ACCOUNT II
On December 9, 2014, the Board of
Directors of Principal Variable Contracts Funds, Inc. approved the acquisition
of the assets of the SmallCap Growth Account II by the SmallCap Blend Account
(the “Proposed Merger”). The Proposed Merger will be submitted for shareholder
vote at a Special Meeting of Shareholders of SmallCap Growth Account II
tentatively scheduled for April 10, 2015. Additional information about the
Proposed Merger will be provided in the Proxy Statement/Prospectus that is
expected to be mailed to record date shareholders of SmallCap Growth Account II
in March 2015. If shareholders approve, the Proposed Merger is expected to occur
on or about April 17, 2015.
|
|
Objective: |
The Account seeks long-term
growth of capital. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Class
1 |
Class
2 |
Management Fees |
1.00% |
1.00% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
Other Expenses |
0.05% |
0.05% |
Total Annual
Account Operating Expenses |
1.05% |
1.30% |
Fee Waiver (1) |
(0.10)% |
(0.10)% |
Total Annual
Account Operating Expenses after Fee Waiver |
0.95% |
1.20% |
|
(1) Principal
Management Corporation ("Principal"), the investment advisor, has
contractually agreed to limit the Account's Management Fees through the
period ending April 30, 2015. The fee waiver will reduce the Account's
Management Fees by 0.10% (expressed as a percent of average net assets on
an annualized basis). It is expected that the fee waiver will continue
through the period disclosed; however, Principal Variable Contracts Funds,
Inc. and Principal, the parties to the agreement, may agree to terminate
the fee waiver prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
SmallCap
Growth Account II - Class 1 |
$97 |
$321 |
$566 |
$1,270 |
SmallCap
Growth Account II - Class 2 |
122 |
399 |
700 |
1,556 |
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account’s portfolio turnover rate was 72.8% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the
Account invests at least 80% of its net assets, plus any borrowings for
investment purposes, in equity securities of companies with small market
capitalizations at the time of each purchase. For this Account, companies with
small market capitalizations are those with market capitalizations equal to or
smaller than the greater of 1) $2.5 billion or 2) the highest market
capitalization of the companies comprising the Russell 2000 ®
Growth Index (as of
December 31,
2014 , this range was
between approximately $31.0 million and $7.3 billion ). The
Account invests in growth equity
securities; growth orientation emphasizes buying equity securities of companies
whose potential for growth of capital and earnings is expected to be above
average.
Principal Management Corporation
invests between 10% and 35% of the Account's assets in equity securities in an
attempt to match or exceed the performance of the Account's benchmark index
(listed in the Average Annual Total Returns table) by purchasing securities in
the index while slightly overweighting and underweighting certain individual
equity securities relative to their weight in the index.
Principal
Risks
The value of your investment in the
Account changes with the value of the Account's investments. Many factors affect
that value, and it is possible to lose money by investing in the Account. An
investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Growth Stock
Risk. If growth
companies do not increase their earnings at a rate expected by investors, the
market price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market downturns.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (January 8, 2007), performance shown in the table for
Class 2 shares is based on the performance of the Fund's Class 1 shares adjusted
to reflect the fees and expenses of the Class 2 shares. The adjustments result
in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on May 1, 1998.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q1
'12 |
18.63 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(28.78 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2013 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
SmallCap
Growth Account II - Class 1 |
6.77% |
17.31% |
7.71% |
SmallCap
Growth Account II - Class 2 |
6.50% |
17.02% |
7.43% |
Russell 2000 Growth Index
(reflects no deduction for fees, expenses, or taxes) |
43.30% |
22.58% |
9.41% |
Management
Investment
Advisor and Portfolio Managers:
Principal Management
Corporation
|
|
• |
James W. Fennessey (since
2009), Portfolio Manager |
|
|
• |
Mariateresa Monaco (since
2009), Portfolio Manager |
|
|
• |
Randy L. Welch (since 2009),
Portfolio Manager |
Sub-Advisor and
Portfolio Managers:
Emerald Advisers, Inc.
|
|
• |
Joseph W. Garner (since 2005),
Portfolio Manager and Director of
Research |
|
|
• |
Kenneth G. Mertz II (since
1992), Portfolio Manager, Chief Investment Officer, and
President |
|
|
• |
Stacey L. Sears (since 2002),
Portfolio Manager and Senior Vice
President |
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
SMALLCAP VALUE
ACCOUNT I
On December 9, 2014, the Board of
Directors of Principal Variable Contracts Funds, Inc. approved the acquisition
of the assets of the SmallCap Value Account I by the SmallCap Blend Account (the
“Proposed Merger”). The Proposed Merger will be submitted for shareholder vote
at a Special Meeting of Shareholders of SmallCap Value Account I tentatively
scheduled for April 10, 2015. Additional information about the Proposed Merger
will be provided in the Proxy Statement/Prospectus that is expected to be mailed
to record date shareholders of SmallCap Value Account I in March 2015. If
shareholders approve, the Proposed Merger is expected to occur on or about April
17, 2015.
|
|
Objective: |
The Account seeks long-term
growth of capital. |
Fees and Expenses
of the Account
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not reflect the fees and expenses of any variable insurance
contract that may invest in the Account and would be higher if they
did.
Annual Account
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
|
Class
1 |
Class
2 |
|
Management Fees |
1.09% |
1.09% |
|
Distribution and/or Service
(12b-1) Fees |
N/A |
0.25% |
|
Other Expenses |
0.05% |
0.05% |
|
Acquired Fund Fees and
Expenses |
0.09% |
0.09% |
|
Total Annual
Account Operating Expenses |
1.23% |
1.48% |
|
Fee Waiver and Expense
Reimbursement(1)(2) |
(0.15)% |
(0.15)% |
|
Total Annual
Account Operating Expenses after Fee Waiver and Expense
Reimbursement |
1.08% |
1.33% |
|
|
|
(1)
Principal Management Corporation ("Principal"),
the investment advisor, has contractually agreed to limit the Account's
Management Fees through the period ending April 30, 2015. The fee waiver
will reduce the Account's Management Fees by 0.02% (expressed as a percent
of average net assets on an annualized basis). It is expected that the fee
waiver will continue through the period disclosed; however, Principal
Variable Contracts Funds, Inc. and Principal, the parties to the
agreement, may agree to terminate the fee waiver prior to the end of the
period. |
(2) Principal
Management Corporation ("Principal"), the investment advisor, has
contractually agreed to limit the Account’s expenses by paying, if
necessary, expenses normally payable by the Account, (excluding interest
expense, expenses related to fund investments, acquired fund fees and
expenses, and other extraordinary expenses) to maintain a total level of
operating expenses (expressed as a percent of average net assets on an
annualized basis) not to exceed 0.99% for Class 1 and 1.24% for Class 2
shares. It is expected that the expense limit will continue through the
period ending April 30, 2015; however, Principal Variable Contracts, Inc.
and Principal, the parties to the agreement, may agree to terminate the
expense limit prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Account with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Account for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Account’s operating expenses
remain the same. If separate account expenses and contract level expenses were
included, expenses would be higher. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
Number of
years you own your shares |
|
1 |
3 |
5 |
10 |
SmallCap
Value Account I - Class 1 |
$110 |
$370 |
$656 |
$1,471 |
SmallCap
Value Account I - Class 2 |
135 |
448 |
789 |
1,751 |
Portfolio
Turnover
The Account pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs. These costs, which are not reflected in annual Account operating expenses
or in the example, affect the Account’s performance. During the most recent
fiscal year, the Account’s portfolio turnover rate was 57.0% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the
Account invests at least 80% of its net assets, plus any borrowings for
investment purposes, in a diversified group of equity securities of U.S.
companies with small market capitalizations at the time of each purchase. For
this Account, companies with small market capitalizations are those with market
capitalizations within the range of companies comprising the Russell 2000
®
Value Index (as of
December 31,
2014 , this range was
between approximately $19.0 million and $5.0 billion ). The Account invests in value
equity securities, an investment strategy that emphasizes buying equity
securities that appear to be undervalued. The Account invests in real estate
investment trusts.
Principal Management Corporation
invests between 10% and 35% of the Account's assets in equity securities in an
attempt to match or exceed the performance of the Account's benchmark index
(listed in the Average Annual Total Returns table) by purchasing securities in
the index while slightly overweighting and underweighting certain individual
equity securities relative to their weight in the index.
Principal
Risks
The value of your investment in the
Account changes with the value of the Account's investments. Many factors affect
that value, and it is possible to lose money by investing in the Account. An
investment in the Account is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Account, in alphabetical order,
are:
Equity Securities
Risk. The value of
equity securities could decline if the issuer’s financial condition declines or
in response to overall market and economic conditions. A fund's principal market
segment(s), such as large cap, mid cap or small cap stocks, or growth or value
stocks, may underperform other market segments or the equity markets as a whole.
Investments in smaller companies and mid-size companies may involve greater risk
and price volatility than investments in larger, more mature companies.
Real Estate
Investment Trusts (“REITs”) Risk. A REIT could fail to qualify for
tax-free pass-through of income under the Internal Revenue Code, and fund
shareholders will indirectly bear their proportionate share of the expenses of
REITs in which the fund invests.
Real Estate
Securities Risk. Real
estate securities are subject to the risks associated with direct ownership of
real estate, including declines in value, adverse economic conditions, increases
in expenses, regulatory changes and environmental problems. Investing in
securities of companies in the real estate industry, subjects a fund to the
special risks associated with the real estate market including factors such as
loss to casualty or condemnation, changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer.
Value Stock Risk.
The market may not
recognize the intrinsic value of value stocks for a long time, or they may be
appropriately priced at the time of purchase.
Performance
The following information provides
some indication of the risks of investing in the Account. Past performance is
not necessarily an indication of how the Account will perform in the future. You
may get updated performance information online at
www.principal.com.
The bar chart shows changes in the
Account's performance from year to year. The table shows how the Account's
average annual returns for 1, 5, and 10 years (or, if shorter, the life of the
Account) compare with those of one or more broad measures of market performance.
Performance figures for the Accounts do not include any separate account
expenses, cost of insurance, or other contract-level expenses; total returns for
the Accounts would be lower if such expenses were included.
For periods prior to the inception
date of Class 2 Shares (January 8, 2007), performance shown in the table for
Class 2 shares is based on the performance of the Fund's Class 1 shares adjusted
to reflect the fees and expenses of the Class 2 shares. The adjustments result
in performance for such periods that is no higher than the historical
performance of the Class 1 shares, which were first sold on May 1, 1998.
Total Returns as
of December 31 (Class 1 Shares)
|
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
‘09 |
21.31 |
% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'08 |
(25.12 |
)% |
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2013 |
Past 1
Year |
Past 5
Years |
Past 10
Years |
SmallCap
Value Account I - Class 1 |
7.17% |
17.23% |
7.18% |
SmallCap
Value Account I - Class 2 |
6.90% |
16.96% |
6.93% |
Russell 2000 Value Index
(reflects no deduction for fees, expenses, or taxes) |
34.52% |
17.64% |
8.61% |
Management
Investment
Advisor and Portfolio Managers:
Principal Management
Corporation
|
|
• |
James W. Fennessey (since
2009), Portfolio Manager |
|
|
• |
Mariateresa Monaco (since
2009), Portfolio Manager |
|
|
• |
Randy L. Welch (since 2009),
Portfolio Manager |
Sub-Advisor and
Portfolio Managers:
J.P. Morgan Investment Management,
Inc.
|
|
• |
Phillip D. Hart (since 2012),
Executive Director, head of the U.S. Behavioral Finance Small Cap Equity
Group |
|
|
• |
Dennis S. Ruhl (since 2001),
Managing Director, CIO of the U.S. Behavioral Finance Group
|
Tax
Information
The Fund intends to comply with
applicable variable asset diversification regulations. Taxation to you will
depend on what you do with your variable life insurance or variable annuity
contract. See your variable product prospectus for information about the tax
implications of investing in the Accounts.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. These payments may also create a conflict of interest by influencing
the broker-dealer or other intermediary and your sales person to recommend one
share class of the Fund over another share class, or to recommend one variable
annuity, variable life insurance policy or mutual fund over another. Ask your
salesperson or visit your financial intermediary's website for more
information.
ADDITIONAL
INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Each Account's investment objective
is described in the summary section for each Account. The summary section also
describes each Account's principal investment strategies, including the types of
securities in which each Account invests, and the principal risks of investing
in each Account. The principal investment strategies are not the only investment
strategies available to each Account, but they are the ones each Account
primarily uses to achieve its investment objective.
The Board of Directors may change
each Account's objective or the investment strategies without a shareholder vote
if it determines such a change is in the best interests of the Account. If there
is a material change to an Account's investment objective or investment
strategies, you should consider whether the Account remains an appropriate
investment for you. There is no guarantee that each Account will meet its
objective.
The investment strategies identified
in this section provide specific information about each Account, but there are
some general principles that Principal Management Corporation (“Principal”)
and/or the sub-advisors apply in making investment decisions. When making
decisions about whether to buy or sell equity securities, Principal and/or the
sub-advisors may consider, among other things, a company's strength in
fundamentals, its potential for earnings growth over time, its ability to
navigate certain macroeconomic environments, the current price of its securities
relative to their perceived worth and relative to others in its industry, and
analysis from computer models. When making decisions about whether to buy or
sell fixed-income investments, Principal and/or the sub-advisors may consider,
among other things, the strength of certain sectors of the fixed-income market
relative to others, interest rates, the macroeconomic backdrop, the balance
between supply and demand for certain asset classes, other general market
conditions, and the credit quality of individual issuers.
Each Account is designed to be a
portion of an investor's portfolio. No Account is intended to be a complete
investment program. Investors should consider the risks of the Account before
making an investment and be prepared to maintain the investment during periods
of adverse market conditions. It is possible to lose money by investing in each
Account.
The following table lists each
Account and identifies whether the strategies and risks discussed in this
section (listed in alphabetical order) are principal, non-principal, or not
applicable for each Account. The risks described below for the Accounts that
operate as fund of funds - Principal LifeTime Accounts, the SAM (Strategic Asset
Management) Portfolios, Diversified Balanced Account, Diversified Balanced
Managed Volatility Account, Diversified Growth Account, Diversified Growth
Managed Volatility Account, and Diversified Income Account - are risks at both
the fund of funds level and underlying funds level. These Accounts are also
subject to the risks of the underlying funds in which they invest. An Account is
subject to Risk of Being an Underlying Fund to the extent that a fund of funds
invests in the Account. The Statement of Additional Information ("SAI") contains
additional information about investment strategies and their related risks. The
term “Account,” as used in this section, includes any of the underlying funds of
Principal Funds, Inc. in which the SAM Portfolios, Principal LifeTime Accounts,
Diversified Balanced Account, Diversified Balanced Managed Volatility Account,
Diversified Growth Account, Diversified Growth Managed Volatility Account, or
Diversified Income Account may invest from time to time, at the discretion of
Principal or the Sub-Advisor
|
|
|
|
|
|
|
INVESTMENT
STRATEGIES
AND RISKS |
BALANCED |
BOND &
MORTGAGE SECURITIES |
BOND MARKET
INDEX |
DIVERSIFIED
BALANCED |
DIVERSIFIED
BALANCED MANAGED VOLATILITY |
Bank Loans (also known as
Senior Floating Rate Interests) |
Non-Principal |
Non-Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Commodity Index-Linked
Notes |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Convertible
Securities |
Non-Principal |
Non-Principal |
Not Applicable |
Non-Principal |
Non-Principal |
Derivatives |
Non-Principal |
Principal |
Non-Principal |
Principal |
Principal |
Emerging
Markets |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Equity
Securities |
Principal |
Not Applicable |
Not Applicable |
Principal |
Principal |
Exchange Traded Funds
(ETFs) |
Non-Principal |
Not Applicable |
Not Applicable |
Principal |
Principal |
Fixed-Income
Securities |
Principal |
Principal |
Principal |
Principal |
Principal |
Foreign
Securities |
Non-Principal |
Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Fund of Funds |
Not Applicable |
Not Applicable |
Not Applicable |
Principal |
Principal |
Hedging |
Non-Principal |
Principal |
Not Applicable |
Non-Principal |
Principal |
High Yield
Securities |
Principal |
Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Index Funds |
Not Applicable |
Not Applicable |
Principal |
Principal |
Principal |
Industry
Concentration |
Not Applicable |
Not Applicable |
Not
Applicable(2) |
Not
Applicable |
Not
Applicable |
Initial Public Offerings
("IPOs") |
Non-Principal |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
Leverage |
Non-Principal |
Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Liquidity
Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Not Applicable |
Not
Applicable |
Management
Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Market
Volatility and Issuer Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Master Limited
Partnerships |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Municipal Obligations and
AMT-Subject Bonds |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Portfolio
Turnover |
Principal |
Principal |
Principal |
Non-Principal |
Non-Principal |
Preferred
Securities |
Non-Principal |
Non-Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Real Estate Investment
Trusts |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Real Estate
Securities |
Principal |
Principal |
Principal |
Principal |
Principal |
Repurchase
Agreements |
Non-Principal |
Non-Principal |
Not Applicable |
Non-Principal |
Non-Principal |
Royalty Trusts |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Securitized
Products |
Principal |
Principal |
Principal |
Principal |
Principal |
Short Sales |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Small and Medium Market
Capitalization Companies |
Principal |
Non-Principal |
Non-Principal |
Principal |
Principal |
Temporary Defensive
Measures |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Underlying
Funds |
Not Applicable |
Principal |
Principal |
Principal(3) |
Principal(3) |
|
|
(1) |
These risks are not deemed
principal for purposes of this table because they apply to almost all
funds; however, in certain circumstances, they could significantly affect
the net asset value, yield, and total
return. |
|
|
(2) |
The Index Account may
concentrate its investments in a particular industry only to the extent
that the relevant index is so
concentrated. |
|
|
(3) |
A fund of funds is subject to
the risks of the underlying funds in which it invests, and the underlying
funds are subject to the risk of being an underlying
fund. |
|
|
|
|
|
|
|
INVESTMENT
STRATEGIES
AND RISKS |
DIVERSIFIED
GROWTH |
DIVERSIFIED
GROWTH MANAGED VOLATILITY |
DIVERSIFIED
INCOME |
DIVERSIFIED
INTERNATIONAL |
EQUITY
INCOME |
Bank Loans (also known as
Senior Floating Rate Interests) |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Non-Principal |
Commodity Index-Linked
Notes |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Convertible
Securities |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Derivatives |
Principal |
Principal |
Principal |
Non-Principal |
Non-Principal |
Emerging
Markets |
Non-Principal |
Non-Principal |
Non-Principal |
Principal |
Non-Principal |
Equity
Securities |
Principal |
Principal |
Principal |
Principal |
Principal |
Exchange Traded Funds
(ETFs) |
Principal |
Principal |
Principal |
Non-Principal |
Non-Principal |
Fixed-Income
Securities |
Principal |
Principal |
Principal |
Non-Principal |
Non-Principal |
Foreign
Securities |
Principal |
Principal |
Non-Principal |
Principal |
Principal |
Fund of Funds |
Principal |
Principal |
Principal |
Not Applicable |
Not
Applicable |
Hedging |
Non-Principal |
Principal |
Non-Principal |
Non-Principal |
Non-Principal |
High Yield
Securities |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Non-Principal |
Index Funds |
Principal |
Principal |
Principal |
Not Applicable |
Not
Applicable |
Industry
Concentration |
Not
Applicable |
Not
Applicable |
Not
Applicable |
Not Applicable |
Not
Applicable |
Initial Public Offerings
("IPOs") |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Leverage |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Liquidity
Risk(1) |
Not Applicable |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
Management
Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Market
Volatility and Issuer Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Master Limited
Partnerships |
Not Applicable |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
Municipal Obligations and
AMT-Subject Bonds |
Non-Principal |
Non-Principal |
Non-Principal |
Not Applicable |
Non-Principal |
Portfolio
Turnover |
Non-Principal |
Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Preferred
Securities |
Not Applicable |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
Real Estate Investment
Trusts |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Principal |
Real Estate
Securities |
Principal |
Principal |
Principal |
Non-Principal |
Principal |
Repurchase
Agreements |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Royalty Trusts |
Not Applicable |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
Securitized
Products |
Principal |
Principal |
Principal |
Not Applicable |
Not
Applicable |
Short Sales |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Small and Medium Market
Capitalization Companies |
Principal |
Principal |
Principal |
Principal |
Non-Principal |
Temporary Defensive
Measures |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Underlying
Funds |
Principal(3) |
Principal(3) |
Principal(3) |
Principal |
Principal |
|
|
(1) |
These risks are not deemed
principal for purposes of this table because they apply to almost all
funds; however, in certain circumstances, they could significantly affect
the net asset value, yield, and total
return. |
|
|
(2) |
The Index Account may
concentrate its investments in a particular industry only to the extent
that the relevant index is so
concentrated. |
|
|
(3) |
A fund of funds is subject to
the risks of the underlying funds in which it invests, and the underlying
funds are subject to the risk of being an underlying
fund. |
|
|
|
|
|
|
|
INVESTMENT
STRATEGIES
AND RISKS |
GOVERNMENT
& HIGH QUALITY BOND |
INCOME |
INTERNATIONAL
EMERGING
MARKETS |
LARGECAP
BLEND
II |
LARGECAP
GROWTH |
Bank Loans (also known as
Senior Floating Rate Interests) |
Not Applicable |
Non-Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Commodity Index-Linked
Notes |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Convertible
Securities |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Derivatives |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Emerging
Markets |
Not Applicable |
Non-Principal |
Principal |
Not Applicable |
Non-Principal |
Equity
Securities |
Not Applicable |
Non-Principal |
Principal |
Principal |
Principal |
Exchange Traded Funds
(ETFs) |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Fixed-Income
Securities |
Principal |
Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Foreign
Securities |
Not Applicable |
Principal |
Principal |
Non-Principal |
Non-Principal |
Fund of Funds |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Hedging |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
High Yield
Securities |
Non-Principal |
Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Index Funds |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Industry
Concentration |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Initial Public Offerings
("IPOs") |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Leverage |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Liquidity
Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Management
Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Market
Volatility and Issuer Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Master Limited
Partnerships |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Municipal Obligations and
AMT-Subject Bonds |
Non-Principal |
Non-Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Portfolio
Turnover |
Non-Principal |
Non-Principal |
Principal |
Non-Principal |
Non-Principal |
Preferred
Securities |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Real Estate Investment
Trusts |
Non-Principal |
Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Real Estate
Securities |
Principal |
Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Repurchase
Agreements |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Royalty Trusts |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Securitized
Products |
Principal |
Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Short Sales |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Small and Medium Market
Capitalization Companies |
Non-Principal |
Non-Principal |
Principal |
Non-Principal |
Non-Principal |
Temporary Defensive
Measures |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Underlying
Funds |
Principal |
Principal |
Not Applicable |
Not Applicable |
Principal |
|
|
(1) |
These risks are not deemed
principal for purposes of this table because they apply to almost all
funds; however, in certain circumstances, they could significantly affect
the net asset value, yield, and total
return. |
|
|
|
|
|
|
|
INVESTMENT
STRATEGIES
AND RISKS |
LARGECAP
GROWTH I |
LARGECAP
S&P 500
INDEX |
LARGECAP
S&P 500 MANAGED VOLATILITY INDEX |
LARGECAP
VALUE |
MIDCAP |
Bank Loans (also known as
Senior Floating Rate Interests) |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Commodity Index-Linked
Notes |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Convertible
Securities |
Non-Principal |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
Derivatives |
Non-Principal |
Principal |
Principal |
Non-Principal |
Non-Principal |
Emerging
Markets |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Equity
Securities |
Principal |
Principal |
Principal |
Principal |
Principal |
Exchange Traded Funds
(ETFs) |
Non-Principal |
Principal |
Principal |
Non-Principal |
Non-Principal |
Fixed-Income
Securities |
Non-Principal |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
Foreign
Securities |
Non-Principal |
Not Applicable |
Not Applicable |
Non-Principal |
Principal |
Fund of Funds |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Hedging |
Non-Principal |
Non-Principal |
Principal |
Non-Principal |
Non-Principal |
High Yield
Securities |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Index Funds |
Not Applicable |
Principal |
Principal |
Not Applicable |
Not
Applicable |
Industry
Concentration |
Not Applicable |
Not
Applicable(2) |
Not
Applicable(2) |
Not Applicable |
Not
Applicable |
Initial Public Offerings
("IPOs") |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Leverage |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Liquidity
Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Management
Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Market
Volatility and Issuer Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Master Limited
Partnerships |
Non-Principal |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
Municipal Obligations and
AMT-Subject Bonds |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Portfolio
Turnover |
Non-Principal |
Non-Principal |
Non-Principal |
Principal |
Non-Principal |
Preferred
Securities |
Non-Principal |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
Real Estate Investment
Trusts |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Real Estate
Securities |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Repurchase
Agreements |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Royalty Trusts |
Non-Principal |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
Securitized
Products |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Short Sales |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Small and Medium Market
Capitalization Companies |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Principal |
Temporary Defensive
Measures |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Underlying
Funds |
Principal |
Principal |
Principal |
Not Applicable |
Principal |
|
|
(1) |
These risks are not deemed
principal for purposes of this table because they apply to almost all
funds; however, in certain circumstances, they could significantly affect
the net asset value, yield, and total
return. |
|
|
(2) |
The Index Account may
concentrate its investments in a particular industry only to the extent
that the relevant index is so
concentrated. |
|
|
|
|
|
|
|
INVESTMENT
STRATEGIES
AND RISKS |
MONEY
MARKET |
PRINCIPAL
CAPITAL APPRECIATION |
PRINCIPAL
LIFETIME
STRATEGIC
INCOME |
PRINCIPAL
LIFETIME
2010 |
PRINCIPAL
LIFETIME
2020 |
Bank Loans (also known as
Senior Floating Rate Interests) |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Commodity Index-Linked
Notes |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Convertible
Securities |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Derivatives |
Not Applicable |
Non-Principal |
Principal |
Principal |
Principal |
Emerging
Markets |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Principal |
Equity
Securities |
Not Applicable |
Principal |
Principal |
Principal |
Principal |
Exchange Traded Funds
(ETFs) |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Fixed-Income
Securities |
Principal |
Non-Principal |
Principal |
Principal |
Principal |
Foreign
Securities |
Principal |
Non-Principal |
Principal |
Principal |
Principal |
Fund of Funds |
Not Applicable |
Not Applicable |
Principal |
Principal |
Principal |
Hedging |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
High Yield
Securities |
Not Applicable |
Non-Principal |
Principal |
Principal |
Principal |
Index Funds |
Not Applicable |
Not Applicable |
Principal |
Principal |
Principal |
Industry
Concentration |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Initial Public Offerings
("IPOs") |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Leverage |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Liquidity
Risk(1) |
Non-Principal |
Non-Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Management
Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Market
Volatility and Issuer Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Master Limited
Partnerships |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Municipal Obligations and
AMT-Subject Bonds |
Non-Principal |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Portfolio
Turnover |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Preferred
Securities |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Real Estate Investment
Trusts |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Real Estate
Securities |
Not Applicable |
Non-Principal |
Principal |
Principal |
Principal |
Repurchase
Agreements |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Royalty Trusts |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Securitized
Products |
Non-Principal |
Not Applicable |
Principal |
Principal |
Principal |
Short Sales |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Small and Medium Market
Capitalization Companies |
Not Applicable |
Principal |
Non-Principal |
Non-Principal |
Principal |
Temporary Defensive
Measures |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Underlying
Funds |
Not Applicable |
Principal |
Principal(3) |
Principal(3) |
Principal(3) |
|
|
(1) |
These risks are not deemed
principal for purposes of this table because they apply to almost all
funds; however, in certain circumstances, they could significantly affect
the net asset value, yield, and total
return. |
|
|
(3) |
A fund of funds is subject to
the risks of the underlying funds in which it invests, and the underlying
funds are subject to the risk of being an underlying
fund. |
|
|
|
|
|
|
|
INVESTMENT
STRATEGIES
AND RISKS |
PRINCIPAL
LIFETIME
2030 |
PRINCIPAL
LIFETIME
2040 |
PRINCIPAL
LIFETIME
2050 |
PRINCIPAL
LIFETIME
2060 |
REAL
ESTATE SECURITIES |
Bank Loans (also known as
Senior Floating Rate Interests) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Not
Applicable |
Commodity Index-Linked
Notes |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Not
Applicable |
Convertible
Securities |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Derivatives |
Principal |
Principal |
Principal |
Principal |
Non-Principal |
Emerging
Markets |
Principal |
Principal |
Principal |
Principal |
Not
Applicable |
Equity
Securities |
Principal |
Principal |
Principal |
Principal |
Principal |
Exchange Traded Funds
(ETFs) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Fixed-Income
Securities |
Principal |
Principal |
Principal |
Principal |
Non-Principal |
Foreign
Securities |
Principal |
Principal |
Principal |
Principal |
Non-Principal |
Fund of Funds |
Principal |
Principal |
Principal |
Principal |
Not
Applicable |
Hedging |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
High Yield
Securities |
Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Index Funds |
Principal |
Principal |
Principal |
Principal |
Not
Applicable |
Industry
Concentration |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Principal |
Initial Public Offerings
("IPOs") |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Leverage |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Liquidity
Risk(1) |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Non-Principal |
Management
Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Market
Volatility and Issuer Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Master Limited
Partnerships |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Not
Applicable |
Municipal Obligations and
AMT-Subject Bonds |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Not
Applicable |
Portfolio
Turnover |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Preferred
Securities |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Real Estate Investment
Trusts |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Principal |
Real Estate
Securities |
Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Principal |
Repurchase
Agreements |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Royalty Trusts |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Not
Applicable |
Securitized
Products |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Short Sales |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Not
Applicable |
Small and Medium Market
Capitalization Companies |
Principal |
Principal |
Principal |
Principal |
Principal |
Temporary Defensive
Measures |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Underlying
Funds |
Principal(3) |
Principal(3) |
Principal(3) |
Principal(3) |
Not
Applicable |
|
|
(1) |
These risks are not deemed
principal for purposes of this table because they apply to almost all
funds; however, in certain circumstances, they could significantly affect
the net asset value, yield, and total
return. |
|
|
(3) |
A fund of funds is subject to
the risks of the underlying funds in which it invests, and the underlying
funds are subject to the risk of being an underlying
fund. |
|
|
|
|
|
|
|
INVESTMENT
STRATEGIES
AND RISKS |
SAM
FLEXIBLE
INCOME |
SAM
CONSERVATIVE BALANCED |
SAM
BALANCED |
SAM
CONSERVATIVE GROWTH |
SAM
STRATEGIC
GROWTH |
Bank Loans (also known as
Senior Floating Rate Interests) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Commodity Index-Linked
Notes |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Convertible
Securities |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Derivatives |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Emerging
Markets |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Equity
Securities |
Principal |
Principal |
Principal |
Principal |
Principal |
Exchange Traded Funds
(ETFs) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Fixed-Income
Securities |
Principal |
Principal |
Principal |
Principal |
Non-Principal |
Foreign
Securities |
Principal |
Principal |
Principal |
Principal |
Principal |
Fund of Funds |
Principal |
Principal |
Principal |
Principal |
Principal |
Hedging |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
High Yield
Securities |
Principal |
Principal |
Non-Principal |
Non-Principal |
Not
Applicable |
Index Funds |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Industry
Concentration |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Initial Public Offerings
("IPOs") |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Leverage |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Liquidity
Risk(1) |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Management
Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Market
Volatility and Issuer Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Master Limited
Partnerships |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Municipal Obligations and
AMT-Subject Bonds |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Portfolio
Turnover |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Preferred
Securities |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Real Estate Investment
Trusts |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Real Estate
Securities |
Principal |
Principal |
Principal |
Non-Principal |
Non-Principal |
Repurchase
Agreements |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Royalty Trusts |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Securitized
Products |
Principal |
Principal |
Principal |
Non-Principal |
Non-Principal |
Short Sales |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Small and Medium Market
Capitalization Companies |
Non-Principal |
Non-Principal |
Principal |
Principal |
Principal |
Temporary Defensive
Measures |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Underlying
Funds |
Principal(3) |
Principal(3) |
Principal(3) |
Principal(3) |
Principal(3) |
|
|
(1) |
These risks are not deemed
principal for purposes of this table because they apply to almost all
funds; however, in certain circumstances, they could significantly affect
the net asset value, yield, and total
return. |
|
|
(3) |
A fund of funds is subject to
the risks of the underlying funds in which it invests, and the underlying
funds are subject to the risk of being an underlying
fund. |
|
|
|
|
|
|
INVESTMENT
STRATEGIES
AND RISKS |
SHORT-TERM
INCOME |
SMALLCAP
BLEND |
SMALLCAP
GROWTH II |
SMALLCAP
VALUE I |
Bank Loans (also known as
Senior Floating Rate Interests) |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Commodity Index-Linked
Notes |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Convertible
Securities |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Derivatives |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Emerging
Markets |
Non-Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Equity
Securities |
Not Applicable |
Principal |
Principal |
Principal |
Exchange Traded Funds
(ETFs) |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Fixed-Income
Securities |
Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Foreign
Securities |
Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Fund of Funds |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Hedging |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
High Yield
Securities |
Non-Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Index Funds |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Industry
Concentration |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Initial Public Offerings
("IPOs") |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Leverage |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Liquidity
Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Management
Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Market
Volatility and Issuer Risk(1) |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Master Limited
Partnerships |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Municipal Obligations and
AMT-Subject Bonds |
Non-Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Portfolio
Turnover |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Preferred
Securities |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Real Estate Investment
Trusts |
Principal |
Non-Principal |
Non-Principal |
Principal |
Real Estate
Securities |
Principal |
Non-Principal |
Non-Principal |
Principal |
Repurchase
Agreements |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Royalty Trusts |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Securitized
Products |
Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Short Sales |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Small and Medium Market
Capitalization Companies |
Non-Principal |
Principal |
Principal |
Principal |
Temporary Defensive
Measures |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Underlying
Funds |
Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
|
|
(1) |
These risks are not deemed
principal for purposes of this table because they apply to almost all
funds; however, in certain circumstances, they could significantly affect
the net asset value, yield, and total
return. |
Bank Loans (also
known as Senior Floating Rate Interests)
Bank loans typically hold the most
senior position in the capital structure of a business entity (the "Borrower"),
are typically secured by specific collateral, and have a claim on the assets
and/or stock of the Borrower that is senior to that held by unsecured
subordinated debtholders and stockholders of the Borrower. The proceeds of bank
loans primarily are used to finance leveraged buyouts, recapitalizations,
mergers, acquisitions, stock repurchases, dividends, and, to a lesser extent, to
finance internal growth and for other corporate purposes. Bank loans are
typically structured and administered by a financial institution that acts as
the agent of the lenders participating in the bank loan. Most bank loans that
will be purchased by the fund are rated below-investment-grade (sometimes called
“junk”) or will be comparable if unrated, which means they are more likely to
default than investment-grade loans. A default could lead to non-payment of
income which would result in a reduction of income to the fund, and there can be
no assurance that the liquidation of any collateral would satisfy the Borrower's
obligation in the event of non-payment of scheduled interest or principal
payments or that such collateral could be readily liquidated. Most bank loans
are not traded on any national securities exchange. Bank loans generally have
less liquidity than investment-grade bonds and there may be less public
information available about them.
The primary and secondary market for
bank loans may be subject to irregular trading activity, wide bid/ask spreads
and extended trade settlement periods, which may cause the fund to be unable to
realize full value and thus cause a material decline in the fund's net asset
value.
Bank loans pay interest at rates
which are periodically reset by reference to a base lending rate plus a spread.
These base lending rates are generally the prime rate offered by a designated
U.S. bank or the London InterBank Offered Rate (LIBOR) or the prime rate offered
by one or more major U.S. banks.
Bank loans generally are subject to
mandatory and/or optional prepayment. Because of these mandatory prepayment
conditions and because there may be significant economic incentives for the
borrower to repay, prepayments of senior floating rate interests may
occur.
Commodity
Index-Linked Notes
Commodities are assets that have
tangible properties, such as oil, coal, natural gas, agricultural products,
industrial metals, livestock, and precious metals. The value of commodities may
be affected by overall market movements and other factors affecting the value of
a particular industry or commodity, such as weather, disease, embargoes, or
political and regulatory developments. Funds may seek exposure to commodity
markets through investments in commodity index-linked notes, which are
derivative debt instruments issued by U.S. and foreign banks, brokerage firms,
insurance companies and other corporations with principal and/or coupon payments
linked to the performance of commodity indices. These notes expose the fund to
movements in commodity prices. They are also subject to credit, counterparty,
and interest rate risk. Commodity index-linked notes are often leveraged,
increasing the volatility of each note's market value relative to changes in the
underlying commodity index. At the maturity of the note, the fund may receive
more or less principal than it originally invested. The fund may also receive
interest payments on the note that are less than the stated coupon interest
payments.
Convertible
Securities
Convertible securities are usually
fixed-income securities that a fund has the right to exchange for equity
securities at a specified conversion price. Convertible securities could also
include corporate bonds, notes, or preferred stocks of U.S. or foreign issuers.
The option allows the fund to realize additional returns if the market price of
the equity securities exceeds the conversion price. For example, the fund may
hold fixed-income securities that are convertible into shares of common stock at
a conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the fund could realize an additional $2 per share by
converting its fixed-income securities.
Convertible securities have lower
yields than comparable fixed-income securities. In addition, at the time a
convertible security is issued the conversion price exceeds the market value of
the underlying equity securities. Thus, convertible securities may provide lower
returns than non-convertible fixed-income securities or equity securities
depending upon changes in the price of the underlying equity securities.
However, convertible securities permit the fund to realize some of the potential
appreciation of the underlying equity securities with less risk of losing its
initial investment.
Depending on the features of the
convertible security, the fund will treat a convertible security as either a
fixed-income or equity security for purposes of investment policies and
limitations because of the unique characteristics of convertible securities.
Funds that invest in convertible securities may invest in convertible securities
that are below investment grade. Many convertible securities are relatively
illiquid.
Derivatives
A fund may invest in certain
derivative strategies to earn income, manage or adjust the risk profile of the
fund, replace more direct investments, or obtain exposure to certain markets.
Generally, a derivative is a financial arrangement, the value of which is
derived from, or based on, a traditional security, asset, or market index.
Certain derivative securities are described more accurately as index/structured
securities. Index/structured securities are derivative securities whose value or
performance is linked to other equity securities (such as depositary receipts),
currencies, interest rates, indices, or other financial indicators (reference
indices).
There are many different types of
derivatives and many different ways to use them. Futures, forward contracts, and
options are commonly used for traditional hedging purposes to attempt to protect
a fund from loss due to changing interest rates, securities prices, asset
values, or currency exchange rates and as a low-cost method of gaining exposure
to a particular market without investing directly in those securities or assets.
A fund may enter into put or call options, futures contracts, options on futures
contracts, over-the-counter swap contracts (e.g., interest rate swaps, total
return swaps and credit default swaps), currency futures contracts and options,
options on currencies, and forward currency contracts or currency swaps for both
hedging and non-hedging purposes. A fund also may use
foreign currency options and foreign
currency forward and swap contracts to increase exposure to a foreign currency
or to shift exposure to foreign currency fluctuations from one country to
another. A forward currency contract involves a privately negotiated obligation
to purchase or sell a specific currency at a future date at a price set in the
contract. A fund will not hedge currency exposure to an extent greater than the
approximate aggregate market value of the securities held or to be purchased by
the fund (denominated or generally quoted or currently convertible into the
currency). A fund may enter into forward commitment agreements, which call for
the fund to purchase or sell a security on a future date at a fixed price. A
fund may also enter into contracts to sell its investments either on demand or
at a specific interval.
Generally, a fund may not invest in
a derivative security unless the reference index or the instrument to which it
relates is an eligible investment for the fund or the reference currency relates
to an eligible investment for the fund.
The return on a derivative security
may increase or decrease, depending upon changes in the reference index or
instrument to which it relates. If a fund's Sub-Advisor hedges market conditions
incorrectly or employs a strategy that does not correlate well with the fund's
investment, these techniques could result in a loss. These techniques may
increase the volatility of a fund and may involve a small investment of cash
relative to the magnitude of the risk assumed.
The risks associated with derivative
investments include:
|
|
• |
the risk that the underlying
security, currency, interest rate, market index, or other financial asset
will not move in the direction Principal Management Corporation
(“Principal”) and/or Sub-Advisor
anticipated; |
|
|
• |
the possibility that there may
be no liquid secondary market which may make it difficult or impossible to
close out a position when desired; |
|
|
• |
the risk that adverse price
movements in an instrument can result in a loss substantially greater than
a fund's initial investment; |
|
|
• |
the possibility that the
counterparty may fail to perform its obligations;
and |
|
|
• |
the inability to close out
certain hedged positions to avoid adverse tax
consequences. |
Swap agreements involve the risk
that the party with whom the fund has entered into the swap will default on its
obligation to pay the fund and the risk that the fund will not be able to meet
its obligations to pay the other party to the agreement.
A fund may enter into credit default
swap agreements as a "buyer" or "seller" of credit protection. Credit default
swap agreements involve special risks because they may be difficult to value,
are highly susceptible to liquidity and credit risk, and generally pay a return
to the party that has paid the premium only in the event of an actual default by
the issuer of the underlying obligation (as opposed to a credit downgrade or
other indication of financial difficulty). Credit default swaps can increase
credit risk because the fund has exposure to both the issuer of the referenced
obligation and the counterparty to the credit default swap.
Forward, swap, and futures contracts
are subject to special risk considerations. The primary risks associated with
the use of these contracts are (a) the imperfect correlation between the change
in market value of the instruments held by the fund and the price of the forward
or futures contract; (b) possible lack of a liquid secondary market for a
forward, swap, or futures contract and the resulting inability to close a
forward, swap, or futures contract when desired; (c) losses caused by
unanticipated market movements, which are potentially unlimited; (d) the
sub-advisor’s inability to predict correctly the direction of securities prices,
interest rates, currency exchange rates, asset values, and other economic
factors; (e) the possibility that the counterparty will default in the
performance of its obligations; and (f) if the fund has insufficient cash, it
may have to sell securities from its portfolio to meet daily variation margin
requirements, and the fund may have to sell securities at a time when it may be
disadvantageous to do so.
For currency contracts, there is
also a risk of government action through exchange controls that would restrict
the ability of the fund to deliver or receive currency.
Some of the risks associated with
options include imperfect correlation, counterparty risk, difference in trading
hours for the options markets and the markets for the underlying securities
(rate movements can take place in the underlying markets that cannot be
reflected in the options markets), and an insufficient liquid secondary market
for particular options.
Emerging
Markets
Principal Management Corporation
("Principal") defines emerging market securities as those issued by:
|
|
• |
companies with their principal
place of business or principal office in emerging market countries
or |
|
|
• |
companies whose principal
securities trading market is an emerging market country.
|
Usually, the term "emerging market
country" means any country that is considered to be an emerging country by the
international financial community (including the MSCI Emerging Markets Index or
Barclays Emerging Markets USD Aggregate Bond). These countries generally include
every nation in the world except the U.S., Canada, Japan, Australia, New
Zealand, and most nations located in Western Europe.
Investments in companies of emerging
(also called "developing") countries are subject to higher risks than
investments in companies in more developed countries. These risks
include:
|
|
• |
increased social, political,
and economic instability; |
|
|
• |
a smaller market for these
securities and low or nonexistent volume of trading that results in a lack
of liquidity and in greater price
volatility; |
|
|
• |
lack of publicly available
information, including reports of payments of dividends or interest on
outstanding securities; |
|
|
• |
foreign government policies
that may restrict opportunities, including restrictions on investment in
issuers or industries deemed sensitive to national
interests; |
|
|
• |
relatively new capital market
structure or market-oriented economy; |
|
|
• |
the possibility that recent
favorable economic developments may be slowed or reversed by unanticipated
political or social events in these
countries; |
|
|
• |
restrictions that may make it
difficult or impossible for the fund to vote proxies, exercise shareholder
rights, pursue legal remedies, and obtain judgments in foreign courts;
and |
|
|
• |
possible losses through the
holding of securities in domestic and foreign custodial banks and
depositories. |
In addition, many developing
countries have experienced substantial and, in some periods, extremely high
rates of inflation for many years. Inflation and rapid fluctuations in inflation
rates have had and may continue to have negative effects on the economies,
currencies, interest rates, and securities markets of those
countries.
Repatriation of investment income,
capital, and proceeds of sales by foreign investors may require governmental
registration and/or approval in some developing countries. A fund could be
adversely affected by delays in or a refusal to grant any required governmental
registration or approval for repatriation.
Further, the economies of developing
countries generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by trade
barriers, exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with which
they trade.
Equity
Securities
Equity securities include common
stocks, convertible securities, depositary receipts, rights (a right is an
offering of common stock to investors who currently own shares which entitle
them to buy subsequent issues at a discount from the offering price), and
warrants (a warrant grants its owner the right to purchase securities from the
issuer at a specified price, normally higher than the current market price).
Common stocks, the most familiar type, represent an equity (ownership) interest
in a corporation. The value of a company's stock may fall as a result of factors
directly relating to that company, such as decisions made by its management or
lower demand for the company's products or services. A stock's value may also
fall because of factors affecting not just the company, but also companies in
the same industry or in a number of different industries, such as increases in
production costs. The value of a company's stock may also be affected by changes
in financial markets that are relatively unrelated to the company or its
industry, such as changes in interest rates or currency exchange rates. In
addition, a company's stock generally pays dividends only after the company
invests in its own business and makes required payments to holders of its bonds
and other debt. For this reason, the value of a company's stock will usually
react more strongly than its bonds and other debt to actual or perceived changes
in the company's financial condition or prospects. Some funds focus their
investments on certain market capitalization ranges. Market capitalization is
defined as total current market value of a company's outstanding equity
securities. The market capitalization of companies in the fund’s portfolios and
their related indexes will change over time and, the fund will not automatically
sell a security just because it falls outside of the market capitalization range
of its index(es). Stocks of smaller companies may be more vulnerable to adverse
developments than those of larger companies.
Exchange Traded
Funds ("ETFs")
Generally, ETFs invest in a
portfolio of stocks, bonds or other assets. Often ETFs are a type of index or
actively managed fund bought and sold on a securities exchange. An ETF trades
like common stock. Shares in an index ETF represent an interest in a fixed
portfolio of securities designed to track a particular market index. A fund
could purchase shares issued by an ETF to gain exposure to a portion of the U.S.
or a foreign market while awaiting purchase of underlying securities or for
other reasons. The risks of owning an ETF generally reflect the risks of owning
the underlying securities or other assets they are designed to track, although
ETFs have management fees that increase their costs. Fund shareholders
indirectly bear their proportionate share of the expenses of the ETFs in which
the fund invests.
Fixed-Income
Securities
Fixed-income securities include
bonds and other debt instruments that are used by issuers to borrow money from
investors (some examples include corporate bonds, convertible securities,
mortgage-backed securities, U.S. government securities and asset-backed
securities). The issuer generally pays the investor a fixed, variable, or
floating rate of interest. The amount borrowed must be repaid at maturity. Some
debt securities, such as zero coupon bonds, do not pay current interest, but are
sold at a discount from their face values.
|
|
• |
Interest Rate Changes:
Fixed-income securities are sensitive to changes in interest rates. In
general, fixed-income security prices rise when interest rates fall and
fall when interest rates rise. If interest rates fall, issuers of callable
bonds may call (repay) securities with high interest rates before their
maturity dates; this is known as call risk. In this case, a fund would
likely reinvest the proceeds from these securities at lower interest
rates, resulting in a decline in the fund's income. Floating rate
securities generally are less sensitive to interest rate changes but may
decline in value if their interest rates do not rise as much, or as
quickly, as interest rates in general. Conversely, floating rate
securities will not generally increase in value if interest rates decline.
Average duration is a mathematical calculation of the average life of a
bond (or bonds in a bond fund) that serves as a useful measure of its
price risk. Duration is an estimate of how much the value of the bonds
held by a fund will fluctuate in response to a change in interest rates.
For example, if a fund has an average duration of 4 years and interest
rates rise by 1%, the value of the bonds held by the fund will decline by
approximately 4%, and if the interest rates decline by 1%, the value of
the bonds held by the fund will increase by approximately 4%. Longer term
bonds and zero coupon bonds are generally more sensitive to interest rate
changes. Duration, which measures price sensitivity to interest rate
changes, is not necessarily equal to average
maturity. |
|
|
• |
Credit Risk:
Fixed-income security prices are also affected by the credit quality of
the issuer. Investment-grade debt securities are medium and high quality
securities. Some bonds, such as lower grade or "junk" bonds, may have
speculative characteristics and may be particularly sensitive to economic
conditions and the financial condition of the issuers. Credit risk refers
to the possibility that the issuer of the security will not be able to
make principal and interest payments when due.
|
Foreign
Securities
Principal defines foreign securities
as those issued by:
|
|
• |
companies with their principal
place of business or principal office outside the U.S.
or |
|
|
• |
companies whose principal
securities trading market is outside the
U.S. |
Foreign companies may not be subject
to the same uniform accounting, auditing, and financial reporting practices as
are required of U.S. companies. In addition, there may be less publicly
available information about a foreign company than about a U.S. company.
Securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Commissions on foreign securities
exchanges may be generally higher than those on U.S. exchanges.
Foreign markets also have different
clearance and settlement procedures than those in U.S. markets. In certain
markets there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct these
transactions. Delays in settlement could result in temporary periods when a
portion of fund assets is not invested and earning no return. If a fund is
unable to make intended security purchases due to settlement problems, the fund
may miss attractive investment opportunities. In addition, a fund may incur a
loss as a result of a decline in the value of its portfolio if it is unable to
sell a security.
With respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments that could affect a
fund's investments in those countries. In addition, a fund may also suffer
losses due to nationalization, expropriation, or differing accounting practices
and treatments. Investments in foreign securities are subject to laws of the
foreign country that may limit the amount and types of
foreign investments. Changes of
governments or of economic or monetary policies, in the U.S. or abroad, changes
in dealings between nations, currency convertibility or exchange rates could
result in investment losses for a fund. Finally, even though certain currencies
may be convertible into U.S. dollars, the conversion rates may be artificial
relative to the actual market values and may be unfavorable to fund investors.
To protect against future uncertainties in foreign currency exchange rates, the
funds are authorized to enter into certain foreign currency exchange
transactions.
Foreign securities are often traded
with less frequency and volume, and therefore may have greater price volatility,
than is the case with many U.S. securities. Brokerage commissions, custodial
services, and other costs relating to investment in foreign countries are
generally more expensive than in the U.S. Though the fund intends to acquire the
securities of foreign issuers where there are public trading markets, economic
or political turmoil in a country in which a fund has a significant portion of
its assets or deterioration of the relationship between the U.S. and a foreign
country may reduce the liquidity of a fund's portfolio. The fund may have
difficulty meeting a large number of redemption requests. Furthermore, there may
be difficulties in obtaining or enforcing judgments against foreign
issuers.
A fund may choose to invest in a
foreign company by purchasing depositary receipts. Depositary receipts are
certificates of ownership of shares in a foreign-based issuer held by a bank or
other financial institution. They are alternatives to purchasing the underlying
security but are subject to the foreign securities risks to which they
relate.
Fund of
Funds
The performance and risks of the
Diversified Balanced Account, Diversified Balanced Managed Volatility Account,
Diversified Growth Account, Diversified Growth Managed Volatility Account,
Diversified Income Account and each Principal LifeTime Account and Strategic
Asset Management ("SAM") Portfolio (singly, "a fund of funds" and collectively,
"the funds of funds") directly correspond to the performance and risks of the
underlying funds in which the Account or Portfolio invests. By investing in many
underlying funds, the funds of funds have partial exposure to the risks of many
different areas of the market. The more a fund of funds allocates to stock
funds, the greater the expected risk.
As of December 31, 2013, the assets
of the Diversified Balanced Account, Diversified Balanced Managed Volatility
Account, Diversified Growth Account, Diversified Growth Managed Volatility
Account, Diversified Income Account, Principal LifeTime Accounts and SAM
Portfolios were allocated among the underlying funds as identified in the tables
below.
|
|
|
|
|
|
|
Underlying
Fund |
Diversified
Balanced
Account |
Diversified
Balanced
Managed Volatility
Account |
Diversified
Growth
Account |
Diversified
Growth
Managed Volatility
Account |
Diversified
Income
Account |
Bond Market Index
Account |
49.7% |
49.7% |
34.7% |
34.8% |
64.7% |
International Equity Index
Fund |
7.1% |
7.1% |
10.1% |
10.1% |
4.1% |
LargeCap S&P 500 Index
Account |
35.2% |
— |
45.2% |
— |
25.2% |
LargeCap S&P 500 Managed
Volatility Index Account |
— |
35.2% |
— |
45.1% |
— |
MidCap S&P 400 Index
Fund |
4.0% |
4.0% |
5.0% |
5.0% |
3.0% |
SmallCap S&P 600 Index
Fund |
4.0% |
4.0% |
5.0% |
5.0% |
3.0% |
Total |
100% |
100% |
100% |
100% |
100% |
|
|
|
|
|
|
|
|
|
Underlying
Fund |
Principal
LifeTime
Strategic
Income
Account |
Principal
LifeTime
2010
Account |
Principal
LifeTime
2020
Account |
Principal
LifeTime
2030
Account |
Principal
LifeTime
2040
Account |
Principal
LifeTime
2050
Account |
Principal
LifeTime
2060
Account |
Bond & Mortgage Securities
Account |
14.5% |
10.8% |
8.4% |
5.2% |
2.6% |
1.3% |
1.1% |
Bond Market Index
Fund |
11.7% |
8.6% |
7.3% |
4.4% |
2.3% |
0.4% |
— |
Core Plus Bond Fund
I |
14.2% |
10.6% |
8.3% |
5.0% |
2.5% |
1.2% |
1.1% |
Diversified International
Fund |
2.3% |
5.0% |
5.9% |
7.2% |
8.5% |
9.2% |
9.4% |
Diversified Real Asset
Fund |
4.5% |
3.6% |
2.8% |
2.0% |
1.3% |
1.3% |
1.4% |
Equity Income
Fund |
6.5% |
4.7% |
3.2% |
— |
— |
— |
— |
Global Diversified Income
Fund |
6.7% |
4.6% |
2.0% |
— |
— |
— |
— |
Global Multi-Strategy
Fund |
2.7% |
2.7% |
2.3% |
2.4% |
2.0% |
1.7% |
1.9% |
Global Opportunities
Fund |
0.9% |
1.8% |
5.2% |
4.9% |
5.5% |
6.3% |
6.7% |
Global Real Estate Securities
Fund |
— |
— |
3.2% |
4.6% |
4.5% |
5.0% |
5.0% |
High Yield Fund
I |
3.6% |
2.9% |
1.8% |
2.1% |
2.0% |
1.9% |
1.9% |
Inflation Protection
Fund |
6.3% |
4.7% |
2.1% |
1.7% |
— |
— |
— |
International Emerging Markets
Fund |
0.7% |
1.6% |
2.6% |
3.0% |
3.4% |
3.9% |
4.6% |
LargeCap Growth
Fund |
— |
— |
— |
3.0% |
4.0% |
4.0% |
3.8% |
LargeCap Growth Fund
I |
3.8% |
6.7% |
9.4% |
12.4% |
13.9% |
14.0% |
14.3% |
LargeCap S&P 500 Index
Fund |
2.5% |
4.7% |
7.0% |
7.4% |
8.1% |
8.4% |
8.2% |
LargeCap Value
Fund |
— |
2.3% |
4.5% |
5.3% |
6.6% |
6.3% |
6.1% |
LargeCap Value Fund
III |
— |
4.1% |
7.5% |
9.2% |
10.4% |
11.3% |
11.3% |
MidCap Fund |
2.5% |
4.8% |
1.6% |
— |
— |
— |
— |
MidCap Growth Fund
III |
— |
— |
2.2% |
3.3% |
3.3% |
3.4% |
3.6% |
MidCap Value Fund
III |
— |
— |
2.1% |
2.8% |
3.5% |
3.6% |
3.6% |
Overseas Fund |
2.4% |
5.0% |
6.2% |
7.4% |
8.9% |
9.7% |
9.6% |
Preferred Securities
Fund |
— |
— |
— |
1.9% |
1.5% |
2.0% |
1.8% |
Short-Term Income
Account |
12.6% |
7.4% |
— |
— |
— |
— |
— |
SmallCap Growth Fund
I |
0.8% |
1.7% |
2.2% |
2.4% |
2.7% |
2.6% |
2.3% |
SmallCap Value Fund
II |
0.8% |
1.7% |
2.2% |
2.4% |
2.5% |
2.5% |
2.3% |
Total |
100% |
100% |
100% |
100% |
100% |
100% |
100% |
|
|
|
|
|
|
|
Underlying
Fund |
Balanced Portfolio |
Conservative
Balanced
Portfolio |
Conservative
Growth
Portfolio |
Flexible
Income
Portfolio |
Strategic
Growth
Portfolio |
Blue Chip Fund |
2.5% |
1.8% |
3.3% |
1.1% |
4.1% |
Bond & Mortgage Securities
Account |
1.2% |
2.4% |
— |
3.9% |
— |
Diversified International
Account |
9.3% |
6.3% |
12.0% |
2.9% |
10.1% |
Diversified Real Asset
Fund |
— |
— |
1.4% |
— |
— |
Equity Income
Account |
12.3% |
8.4% |
16.1% |
8.3% |
18.0% |
Global Diversified Income
Fund |
1.5% |
2.4% |
— |
4.5% |
— |
Global Multi-Strategy
Fund |
3.6% |
2.7% |
4.5% |
— |
— |
Global Real Estate Securities
Fund |
0.5% |
0.5% |
0.6% |
0.8% |
1.2% |
Government & High Quality
Bond Account |
9.3% |
15.6% |
3.2% |
15.7% |
— |
High Yield Fund |
2.0% |
3.4% |
0.6% |
5.1% |
— |
Income Account |
13.0% |
21.1% |
4.8% |
28.3% |
— |
International Emerging Markets
Fund |
2.2% |
1.5% |
2.8% |
1.1% |
4.7% |
LargeCap Growth
Fund |
7.7% |
5.3% |
10.1% |
4.1% |
17.0% |
LargeCap Growth Fund
II |
2.6% |
1.8% |
3.3% |
— |
4.1% |
LargeCap Value
Fund |
10.4% |
7.2% |
13.2% |
4.8% |
17.9% |
MidCap Account |
2.7% |
1.8% |
3.2% |
— |
1.5% |
Preferred Securities
Fund |
1.2% |
2.0% |
0.5% |
3.6% |
— |
Principal Capital Appreciation
Fund |
6.7% |
4.7% |
8.9% |
2.1% |
10.1% |
Short-Term Income
Account |
3.4% |
5.8% |
1.2% |
7.8% |
— |
SmallCap Growth Fund
I |
2.9% |
1.9% |
3.8% |
1.4% |
4.4% |
SmallCap Value Fund
II |
2.9% |
1.9% |
3.8% |
— |
4.1% |
Small-MidCap Dividend Income
Fund |
2.1% |
1.5% |
2.7% |
4.5% |
2.8% |
Total |
100% |
100% |
100% |
100% |
100% |
Each fund of funds indirectly bears
its pro-rata share of the expenses of the Underlying Funds in which it invests,
as well as directly incurring expenses. Therefore, investment in a fund of funds
is more costly than investing directly in shares of the Underlying Funds.
If you are considering investing in
a Principal LifeTime Account, you should take into account your estimated
retirement date and risk tolerance. In general, each Principal LifeTime Account
is managed with the assumption that the investor will invest in a Principal
LifeTime Account whose stated date is closest to the date the shareholder
retires. Choosing a fund targeting an earlier date represents a more
conservative choice; choosing a fund with a later date represents a more
aggressive choice. It is important to note that the retirement year of the fund
you select should not necessarily represent the specific year you intend to
start drawing retirement assets. It should be a guide only. Generally, the
potential for higher returns over time is accompanied by the higher risk of a
decline in the value of your principal. Investors should realize that the
Principal LifeTime Accounts are not a complete solution to their retirement
needs. Investors must weigh many factors when considering when to retire, what
their retirement needs will be, and what sources of income they may
have.
There are five SAM (Strategic Asset
Management) Portfolios: Flexible Income, Conservative Balanced, Balanced,
Conservative Growth and Strategic Growth. The SAM Portfolios offer long-term
investors different asset allocation strategies having different levels of
potential investment risk and reward. The SAM Portfolios share the same risks
but often with different levels of exposure. In general, relative to the other
Portfolios:
|
|
• |
the Balanced Portfolio should
offer investors the potential for a medium level of income and a medium
level of capital growth, while exposing them to a medium level of
principal risk, |
|
|
• |
the Conservative Balanced
Portfolio should offer investors the potential for a medium to high level
of income and a medium to low level of capital growth, while exposing them
to a medium to low level of principal
risk, |
|
|
• |
the Conservative Growth
Portfolio should offer investors the potential for a low to medium level
of income and a medium to high level of capital growth, while exposing
them to a medium to high level of principal
risk, |
|
|
• |
the Flexible Income Portfolio
should offer investors the potential for a high level of income and a low
level of capital growth, while exposing them to a low level of principal
risk, and |
|
|
• |
the Strategic Growth Portfolio
should offer investors the potential for a high level of capital growth,
and a corresponding level of principal
risk. |
Funds of funds can be subject to
payment in kind liquidity risk: If an underlying fund pays a redemption request
by the fund wholly or partly by a distribution-in-kind of portfolio securities
rather than in cash, the fund may hold such portfolio securities until its
sub-advisor determines that it is appropriate to dispose of them.
Hedging
Hedging is a strategy that can be
used to limit or offset investment risk. The success of a fund’s hedging
strategy will be subject to the Sub-Adviser’s ability to correctly assess the
degree of correlation between the performance of the instruments used in the
hedging strategy and the performance of the investments in the portfolio being
hedged. Since the characteristics of many securities change as markets change or
time passes, the success of a fund’s hedging strategy will also be subject to
the Sub-Adviser’s ability to continually recalculate, readjust, and execute
hedges in an efficient and timely manner. For a variety of reasons, the
Sub-Adviser may not seek to establish a perfect correlation between such hedging
instruments and the portfolio holdings being hedged. Such imperfect correlation
may prevent a fund from achieving the intended hedge or expose a fund to risk of
loss. In addition, it is not possible to hedge fully or perfectly against any
risk, and hedging entails its own costs.
High Yield
Securities
Below investment grade bonds, which
are rated at the time of purchase Ba1 or lower by Moody's and BB+ or lower by
S&P (if the bond has been rated by only one of those agencies, that rating
will determine if the bond is below investment grade; if the bond has not been
rated by either of those agencies, the Sub-Advisor will determine whether the
bond is of a quality comparable to those rated below investment grade), are
sometimes referred to as high yield or "junk bonds" and are considered
speculative. Such securities could be in default at time of purchase. Each of
the Principal LifeTime Accounts and Strategic Asset Management Portfolios may
invest in underlying funds that may invest in such securities.
Investment in high yield bonds
involves special risks in addition to the risks associated with investment in
highly rated debt securities. High yield bonds may be regarded as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest payments. Moreover, under certain circumstances, such securities
may be less liquid than higher rated debt securities.
Analysis of the creditworthiness of
issuers of high yield securities may be more complex than for issuers of higher
quality debt securities. The ability of a fund to achieve its investment
objective may, to the extent of its investment in high yield bonds, be more
dependent on such credit analysis than would be the case if the fund were
investing in higher quality bonds.
High yield bonds may be more
susceptible to real or perceived adverse economic and competitive industry
conditions than higher-grade bonds. The prices of high yield bonds have been
found to be less sensitive to interest rate changes than more highly rated
investments, but more sensitive to adverse economic downturns or individual
corporate developments. If the issuer of high yield bonds defaults, a fund may
incur additional expenses to seek recovery. To the extent that such high yield
issuers undergo a corporate restructuring, such high yield securities may become
exchanged for or converted into reorganized equity of the underlying issuer.
High yield bonds oftentimes include complex legal covenants that impose various
degrees of restriction on the issuer’s ability to take certain actions, such as
distribute cash to equity holders, incur additional indebtedness, and dispose of
assets. To the extent that a bond indenture or loan agreement does not contain
sufficiently protective covenants or otherwise permits the issuer to take
certain actions to the detriment of the holder of the fixed-income security, the
underlying value of such fixed-income security may decline.
The secondary market on which high
yield bonds are traded may be less liquid than the market for higher-grade
bonds. Less liquidity in the secondary trading market could adversely affect the
price at which a fund could sell a high yield bond and could adversely affect
and cause large fluctuations in the daily price of the fund's shares. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of high yield bonds, especially
in a thinly traded market.
The use of credit ratings for
evaluating high yield bonds also involves certain risks. For example, credit
ratings evaluate the safety of principal and interest payments, not the market
value risk of high yield bonds. Also, credit rating agencies may fail to change
credit ratings in a timely manner to reflect subsequent events. If a credit
rating agency changes the rating of a portfolio security held by a fund, the
fund may retain the security if Principal or Sub-Advisor thinks it is in the
best interest of shareholders.
Index
Funds
Index funds generally attempt to
mirror the investment performance of the index by allocating the fund's assets
in approximately the same weightings as the index. However, it is unlikely that
the fund's performance will perfectly correlate with the index performance for a
variety of reasons. The correlation between fund performance and index
performance may be affected by the fund's expenses, changes in securities
markets, changes in the composition of the index and the timing of purchases and
sales of fund shares. Because of the difficulty and expense of executing
relatively small securities trades, index funds may not always be invested in
the less heavily weighted securities and may at times be weighted differently
than the index.
Industry
Concentration
A fund that concentrates its
investments (invests more than 25% of its net assets) in a particular industry
(or group of industries) is more exposed to the overall condition of the
particular industry than a fund that invests in a wider variety of industries. A
particular industry could be affected by economic, business, supply-and-demand,
political, or regulatory factors. Companies within the same industry could react
similarly to such factors. As a result, a fund’s concentration in a particular
industry would increase the possibility that the fund’s performance will be
affected by such factors.
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.
Leverage
If a fund makes investments in
futures contracts, forward contracts, swaps and other derivative instruments,
these instruments provide the economic effect of financial leverage by creating
additional investment exposure, as well as the potential for greater loss. If a
fund uses leverage through activities such as borrowing, entering into short
sales, purchasing securities on margin or on a “when-issued” basis or purchasing
derivative instruments in an effort to increase its returns, the fund has the
risk of magnified capital losses that occur when losses affect an asset base,
enlarged by borrowings or the creation of liabilities, that exceeds the net
assets of the fund. The net asset value of a fund employing leverage will be
more volatile and sensitive to market movements. Leverage may involve the
creation of a liability that requires the fund to pay interest. Leveraging may
cause a fund to liquidate portfolio positions to satisfy its obligations or to
meet segregation requirements when it may not be advantageous to do so. To the
extent that a fund is not able to close out a leveraged position because of
market illiquidity, a fund’s liquidity may be impaired to the extent that it has
a substantial portion of liquid assets segregated or earmarked to cover
obligations.
Liquidity
Risk
A fund is exposed to liquidity risk
when trading volume, lack of a market maker, or legal restrictions impair the
fund's ability to sell particular securities or close derivative positions at an
advantageous price. Funds with principal investment strategies that involve
securities of companies with smaller market capitalizations, foreign securities,
derivatives, high yield bonds and bank loans or securities with substantial
market and/or credit risk tend to have the greatest exposure to liquidity
risk.
Management
Risk
If Principal's and/or a
Sub-Advisor's investment strategies do not perform as expected, the fund could
underperform other funds with similar investment objectives or lose
money.
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Active Management: The
performance of a fund that is actively managed will reflect in part the
ability of Principal and/or Sub-Advisor(s) to make investment decisions
that are suited to achieving the fund's investment objective. Actively
managed funds are prepared to invest in securities, sectors, or industries
differently from the benchmark. |
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Passive Management: Index
funds use a passive, or indexing, investment approach. Pure index funds do
not attempt to manage market volatility, use defensive strategies or
reduce the effect of any long-term periods of poor stock or bond
performance. Index funds attempt to replicate their relevant target index
by investing primarily in the securities held by the index in
approximately the same proportion of the weightings in the index. However,
because of the difficulty of executing some relatively small securities
trades, such funds may not always be invested in the less heavily weighted
securities held by the index. An index fund's ability to match the
performance of their relevant index may be affected by many factors, such
as fund expenses, the timing of cash flows into and out of the fund,
changes in securities markets, and changes in the composition of the
index. Some index funds may invest in index futures and/or exchange traded
funds on a daily basis to gain exposure to the Index in an effort to
minimize tracking error relative to the
benchmark. |
Market Volatility
and Issuer Risk
The value of a fund's portfolio
securities may go down in response to overall stock or bond market movements.
Markets tend to move in cycles, with periods of rising prices and periods of
falling prices. Stocks tend to go up and down in value more than bonds. If the
fund's investments are concentrated in certain sectors, its performance could be
worse than the overall market. The value of an individual security or particular
type of security can be more volatile than the market as a whole and can perform
differently from the value of the market as a whole. The value of a security may
decline for reasons directly related to the issuer, such as management
performance, financial leverage and reduced demand for the issuer’s goods or
services. It is possible to lose money when investing in a fund.
Master Limited
Partnerships
Master limited partnerships ("MLPs")
tend to pay relatively higher distributions than other types of companies. The
amount of cash that each individual MLP can distribute to its partners will
depend on the amount of cash it generates from operations, which will vary from
quarter to quarter depending on factors affecting the market generally and on
factors affecting the particular business lines of the MLP. Available cash will
also depend on the MLPs' level of
operating costs (including incentive
distributions to the general partner), level of capital expenditures, debt
service requirements, acquisition costs (if any), fluctuations in working
capital needs and other factors. The benefit derived from investment in MLPs
depends largely on the MLPs being treated as partnerships for federal income tax
purposes. As a partnership, an MLP has no federal income tax liability at the
entity level. If, as a result of a change in current law or a change in an MLP's
business, an MLP was treated as a corporation for federal income tax purposes,
the MLP would be obligated to pay federal income tax on its income at the
corporate tax rate. If an MLP was classified as a corporation for federal income
tax purposes, the amount of cash available for distribution would be reduced and
the distributions received might be taxed entirely as dividend income.
An MLP that invests in a particular
industry (e.g., oil and gas) will be harmed by detrimental economic events
within that industry. For example, 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. Many MLPs are also 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.
Municipal
Obligations and AMT-Subject Bonds
The term “municipal obligations”
generally is understood to include debt obligations issued by municipalities to
obtain funds for various public purposes. The two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith and credit, with
either limited or unlimited taxing power for the payment of principal and
interest. Revenue bonds are not supported by the issuer's full taxing authority.
Generally, they are payable only from the revenues of a particular facility, a
class of facilities, or the proceeds of another specific revenue
source.
"AMT-subject bonds" are municipal
obligations issued to finance certain "private activities," such as bonds used
to finance airports, housing projects, student loan programs, and water and
sewer projects. Interest on AMT-subject bonds is an item of tax preference for
purposes of the federal individual alternative minimum tax ("AMT") and will also
give rise to corporate alternative minimum taxes. See "Tax Considerations" for a
discussion of the tax consequences of investing in the fund.
Current federal income tax laws
limit the types and volume of bonds qualifying for the federal income tax
exemption of interest, which may have an effect upon the ability of the fund to
purchase sufficient amounts of tax-exempt securities.
Portfolio
Turnover
"Portfolio Turnover" is the term
used in the industry for measuring the amount of trading that occurs in a fund's
portfolio during the year. For example, a 100% turnover rate means that on
average every security in the portfolio has been replaced once during the year.
Funds that engage in active trading may have high portfolio turnover rates.
Funds with high turnover rates (more than 100%) often have higher transaction
costs (which are paid by the fund) and may lower the fund's performance. Please
consider all the factors when you compare the turnover rates of different funds.
You should also be aware that the "total return" line in the Financial
Highlights section reflects portfolio turnover costs.
No turnover rate can be calculated
for the Money Market Account because of the short maturities of the securities
in which it invests.
Preferred
Securities
Preferred securities generally pay
fixed rate dividends and/or interest (though some are adjustable rate) and
typically have "preference" over common stock in payment priority and the
liquidation of a company's assets - preference means that a company must pay on
its preferred securities before paying on its common stock, and the claims of
preferred securities holders are typically ahead of common stockholders' claims
on assets in a corporate liquidation. Holders of preferred securities usually
have no right to vote for corporate directors or on other matters. The market
value of preferred securities is sensitive to changes in interest rates as they
are typically fixed income securities - the fixed-income payments are expected
to be the primary source of long-term investment return. While some preferred
securities are issued with a final maturity date, others are perpetual in
nature. In certain instances, a final maturity date may be extended and/or the
final payment of principal may be deferred at the issuer’s option for a
specified time without triggering an event of default for the issuer. In
addition, an issuer of preferred securities may have the right to redeem the
securities before their stated maturity date. For instance, for certain types of
preferred securities, a redemption may be triggered by a change in federal
income tax or securities laws. As with call provisions, a redemption by the
issuer may reduce the return of the security held by the fund. Preferred
securities may be subject
to provisions that allow an issuer,
under certain circumstances to skip (indefinitely) or defer (possibly up to 10
years) distributions. If a fund owns a preferred security that is deferring its
distribution, the fund may be required to report income for tax purposes while
it is not receiving any income.
Preferred securities are typically
issued by corporations, generally in the form of interest or dividend bearing
instruments, or by an affiliated business trust of a corporation, generally in
the form of beneficial interests in subordinated debentures or similarly
structured securities. The preferred securities market is generally divided into
the $25 par “retail” and the $1,000 par “institutional” segments. The $25 par
segment includes securities that are listed on the New York Stock Exchange
(exchange traded), which trade and are quoted with accrued dividend or interest
income, and which are often callable at par value five years after their
original issuance date. The institutional segment includes $1,000 par value
securities that are not exchange-listed (over the counter), which trade and are
quoted on a “clean” price, i.e., without accrued dividend or interest income,
and which often have a minimum of 10 years of call protection from the date of
their original issuance. Preferred securities can also be issued by real estate
investment trusts and involve risks similar to those associated with investing
in real estate investment trust companies.
Real Estate
Investment Trusts
Real estate investment trust
securities ("REITs") involve certain unique risks in addition to those risks
associated with investing in the real estate industry in general (such as
possible declines in the value of real estate, lack of availability of mortgage
funds, or extended vacancies of property). REITs are characterized as: equity
REITs, which primarily own property and generate revenue from rental income;
mortgage REITs, which invest in real estate mortgages; and hybrid REITs, which
combine the characteristics of both equity and mortgage REITs. Equity REITs may
be affected by changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, and
are subject to heavy cash flow dependency, risks of default by borrowers, and
self-liquidation. As an investor in a REIT, the fund will be subject to the
REIT’s expenses, including management fees, and will remain subject to the
fund's advisory fees with respect to the assets so invested. REITs are also
subject to the possibilities of failing to qualify for the special tax treatment
accorded REITs under the Internal Revenue Code, and failing to maintain their
exemptions from registration under the 1940 Act.
Investment in REITs involves risks
similar to those associated with investing in small market capitalization
companies. REITs may have limited financial resources, may trade less frequently
and in a limited volume, and may be subject to more abrupt or erratic price
movements than larger company securities.
Real Estate
Securities
Investing in securities of companies
in the real estate industry subjects a fund to the special risks associated with
the real estate market and the real estate industry in general. Generally,
companies in the real estate industry are considered to be those that have
principal activity involving the development, ownership, construction,
management or sale of real estate; have significant real estate holdings, such
as hospitality companies, healthcare facilities, supermarkets, mining, lumber
and/or paper companies; and/or provide products or services related to the real
estate industry, such as financial institutions that make and/or service
mortgage loans and manufacturers or distributors of building supplies.
Securities of companies in the real estate industry are sensitive to factors
such as loss to casualty or condemnation, changes in real estate values,
property taxes, interest rates, cash flow of underlying real estate assets,
occupancy rates, government regulations affecting zoning, land use and rents,
and the management skill and creditworthiness of the issuer. Companies in the
real estate industry may also be subject to liabilities under environmental and
hazardous waste laws.
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 a Sub-Advisor deems 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 repurchase price, including accrued interest.
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
Securitized products are fixed
income instruments that represent interest in underlying pools of collateral or
assets. The value of the securitized product is derived from the performance,
value, and cash flows of the underlying
asset(s). The fund’s investments in
securitized products are subject to risks similar to traditional fixed income
securities, such as credit, interest rate, liquidity, prepayment, extension, and
default risk, as well as additional risks associated with the nature of the
assets and the servicing of those assets. Prepayment risk may make it difficult
to calculate the average life of a fund’s investment in securitized products.
Securitized products are generally issued as pass-through certificates, which
represent the right to receive principal and interest payments collected on the
underlying pool of assets, which are passed through to the security holder.
Therefore, repayment depends on the cash flows generated by the underlying pool
of assets. The securities may be rated as investment-grade or
below-investment-grade.
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Mortgage-backed
securities (“MBS”) represent an interest in a pool of underlying mortgage
loans secured by real property. Mortgage-backed securities are sensitive
to changes in interest rates, but may respond to these changes differently
from other fixed income securities due to the possibility of prepayment of
the underlying mortgage loans. If interest rates fall and the underlying
loans are prepaid faster than expected, the fund may have to reinvest the
prepaid principal in lower yielding securities, thus reducing the fund’s
income. Conversely, rising interest rates tend to discourage refinancings
and the underlying loans are prepaid more slowly than expected, reducing a
fund’s potential to reinvest the principal in higher yielding securities
and extending the duration of the underlying loans. In addition, when
market conditions result in an increase in default rates on the underlying
loans and the foreclosure values of the underlying real estate is less
than the outstanding amount due on the underlying loan, collection of the
full amount of accrued interest and principal on these investments may be
doubtful. The risk of such defaults is generally higher in the case of
underlying mortgage pools that include sub-prime mortgages (mortgages
granted to borrowers whose credit histories would not support conventional
mortgages). |
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Commercial
mortgage-backed securities (“CMBS”) represent an interest in a pool of
underlying commercial mortgage loans secured by real property such as
retail, office, hotel, multi-family, and industrial properties. Certain
CMBS are issued in several classes with different levels of yield and
credit protection, and the CMBS class in which a fund invests usually
influences the interest rate, credit, and prepayment
risks. |
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Asset-backed
securities (“ABS”) are backed by non-mortgage assets such as company
receivables, truck and auto loans, student loans, leases and credit card
receivables. Asset-backed securities entail credit risk. They also may
present a risk that, in the event of default, the liquidation value of the
underlying assets may be inadequate to pay any unpaid interest or
principal. |
Short
Sales
A fund enters into a short sale by
selling a security it has borrowed (typically from a broker or other
institution). If the market price of a security increases after a fund borrows
the security, the fund will suffer a (potentially unlimited) loss when it
replaces the borrowed security at the higher price. In certain cases, purchasing
a security to cover a short position can itself cause the price of the security
to rise further, thereby exacerbating the loss. In addition, a fund may not
always be able to borrow the security at a particular time or at an acceptable
price. Before a fund replaces a borrowed security, it is required to designate
on its books cash or liquid assets as collateral to cover the fund’s short
position, marking the collateral to market daily. This obligation limits a
fund’s investment flexibility, as well as its ability to meet redemption
requests or other current obligations. The fund may also take a short position
in a derivative instrument, such as a future, forward or swap. A short position
in a derivative instrument involves the risk of a theoretically unlimited
increase in the value of the underlying instrument. Short sales also involve
transaction and other costs that will reduce potential fund gains and increase
potential fund losses.
Small and Medium
Market Capitalization Companies
Funds may invest in securities of
companies with small- or mid-sized market capitalizations. Market capitalization
is defined as total current market value of a company's outstanding common
stock. Investments in companies with smaller market capitalizations may involve
greater risks and price volatility (wide, rapid fluctuations) than investments
in larger, more mature companies. Small companies may be less significant within
their industries and may be at a competitive disadvantage relative to their
larger competitors. While smaller companies may be subject to these additional
risks, they may also realize more substantial growth than larger or more
established companies.
Smaller companies may be less mature
than larger companies. At this earlier stage of development, the companies may
have limited product lines, reduced market liquidity for their shares, limited
financial resources, or less depth in management than larger or more established
companies. Unseasoned issuers are companies with a record of less than three
years continuous operation, including the operation of predecessors and parents.
Unseasoned issuers by their nature have only a limited operating history that
can be used for evaluating the company's growth prospects. As a result, these
securities may place a greater emphasis on current or planned product lines and
the reputation and experience of the company's management and less emphasis on
fundamental valuation factors than would be the case for more mature growth
companies.
Temporary
Defensive Measures
From time to time, as part of its
investment strategy, funds may invest without limit in cash and cash equivalents
for temporary defensive purposes in response to adverse market, economic, or
political conditions. To the extent that a fund is in a defensive position, it
may lose the benefit of upswings and limit its ability to meet its investment
objective. For this purpose, cash equivalents include: bank notes, bank
certificates of deposit, bankers' acceptances, repurchase agreements, commercial
paper, and commercial paper master notes, which are floating rate debt
instruments without a fixed maturity. In addition, the fund may purchase U.S.
government securities, preferred stocks, and debt securities, whether or not
convertible into or carrying rights for common stock.
There is no limit on the extent to
which a fund may take temporary defensive measures. In taking such measures, a
fund may fail to achieve its investment objective.
The Money Market Account may invest
in high-quality money market securities at any time.
Underlying
Funds
An underlying fund to a fund of
funds may experience relatively large redemptions or purchases as the fund of
funds periodically reallocates or rebalances its assets. These transactions may
accelerate the realization of taxable income if sales of portfolio securities
result in gains and could increase transaction costs. In addition, when a fund
of funds reallocates or redeems significant assets away from an underlying fund,
the loss of assets to the underlying fund could result in increased expense
ratios for that fund.
Principal is the advisor to the
Principal LifeTime Accounts, SAM (Strategic Asset Management) Portfolios,
Diversified Balanced Account, Diversified Balanced Managed Volatility Account,
Diversified Growth Account, Diversified Growth Managed Volatility Account,
Diversified Income Account, and each of the underlying funds. Principal Global
Investors, LLC ("PGI") is Sub-Advisor to the Principal LifeTime Accounts and
Edge Asset Management, Inc. ("Edge") is the Sub-Advisor to the SAM Portfolios.
PGI or Edge also serves as Sub-Advisor to some or all of the underlying funds.
Principal, PGI, and Edge are committed to minimizing the potential impact of
underlying fund risk on underlying funds to the extent consistent with pursuing
the investment objectives of the fund of funds that it manages. Each may face
conflicts of interest in fulfilling its responsibilities to all such
funds.
As of December 31, 2013, SAM
Portfolios, Principal LifeTime Accounts, Diversified Balanced Account,
Diversified Balanced Managed Volatility Account, Diversified Growth Account,
Diversified Growth Managed Volatility Account, and Diversified Income Account
owned the following percentages, in the aggregate, of the outstanding shares of
the underlying funds listed below:
|
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|
Account |
Total
Percentage of Outstanding Shares Owned |
Bond & Mortgage Securities
Account |
19.96% |
Bond Market Index
Account |
99.95% |
Diversified International
Account |
34.05% |
Equity Income
Account |
37.38% |
Government & High Quality
Bond Account |
46.58% |
Income Account |
95.36% |
LargeCap S&P 500 Index
Account |
88.96% |
LargeCap S&P 500 Managed
Volatility Index Account |
25.40% |
MidCap Account |
6.50% |
Short-Term Income
Account |
30.48% |
PORTFOLIO
HOLDINGS INFORMATION
A description of the Fund's policies
and procedures with respect to disclosure of the Fund's portfolio securities is
available in the Fund's Statement of Additional Information.
MANAGEMENT OF THE
FUND
The
Manager
Principal Management Corporation
(“Principal”) serves as the manager for the Fund. Through the Management
Agreement with the Fund, Principal provides investment advisory services and
certain corporate administrative services for the Fund.
Principal is an indirect subsidiary
of Principal Financial Group, Inc. and has managed mutual funds since 1969.
Principal’s address is 655 9th Street, Des Moines, IA 50392.
Principal provides investment
advisory services with respect to 10-35% of the assets of the following
Accounts: LargeCap Blend II, LargeCap Growth I, SmallCap Growth II, and SmallCap
Value I. The remaining assets in each of these Accounts will be managed by the
sub-advisor(s) named in the prospectus.
Principal provides these investment
advisory services through a portfolio manager who functions as a co-employee of
Principal and Principal Global Investors, LLC ("PGI") under an investment
service agreement. Through the agreement, the portfolio manager has access to
PGI's equity management processes, systems, staff, proprietary quantitative
model, portfolio construction disciplines, experienced portfolio management, and
quantitative research staff. This portfolio manager also has access to PGI's
trading staff and trade execution capabilities along with PGI's order management
system, pre- and post-trade compliance system, portfolio accounting system and
performance attribution and risk management system. Mariateresa Monaco is the
lead portfolio manager for the 10-35% of the assets to which Principal provides
investment advisory services.
Mariateresa
Monaco has worked as a
Portfolio Manager for Principal since 2009. Previously, she worked as a
Portfolio Manager for Principal Global Investors, LLC, where she worked as a
Portfolio Manager since 2005. She earned a master’s degree in Electrical
Engineering from Politecnico di Torino, Italy, a master’s degree in Electrical
Engineering from Northeastern University, and an M.B.A. from the Sloan School of
Management at the Massachusetts Institute of Technology.
Principal provides investment
advisory services to the Diversified Balanced, Diversified Balanced Managed
Volatility, Diversified Growth, Diversified Growth Managed Volatility, and
Diversified Income Accounts. The portfolio managers are James W. Fennessey and
Randy L. Welch. They operate as a team, sharing authority, with no limitation on
the authority of one portfolio manager in relation to another.
Principal provides a substantial
part of the investment advisory services to each of the Principal LifeTime
Accounts directly, while engaging PGI as a sub-advisor to assist in providing
those investment advisory services. The portfolio managers Principal has
appointed for each Principal LifeTime Account are James W. Fennessey, Jeffrey R.
Tyler, and Randy L. Welch. The portfolio manager PGI has appointed for each
Principal LifeTime Account is Matthew D. Annenberg. Messrs. Fennessey, Tyler,
Welch, and Annenberg work as a team, sharing day-to-day management of the
Principal LifeTime Accounts; however, Mr. Tyler has ultimate decision making
authority.
James W.
Fennessey joined the
Principal Financial Group in 2000. He is the Head of the Manager Research Team
that is responsible for analyzing, interpreting and coordinating investment
performance data and evaluation of the investment managers under the due
diligence program that monitors investment managers used by the Principal Funds
and is a member of the Principal Funds Investment Committee. Mr. Fennessey
earned a B.S. in Business Administration, with an emphasis in Finance, and a
minor in Economics from Truman State University. He has earned the right to use
the Chartered Financial Analyst designation.
Jeffrey R. Tyler
joined Principal in
2011. Prior to that, Mr. Tyler was the Chief Investment Officer at EXOS
Partners. From 1988-2009, Mr. Tyler was Senior Vice President, Senior Portfolio
Manager, and Manager of Taxable Fixed Income for American Century. He earned a
B.A. in Business Economics and Accounting from the University of California,
Santa Barbara and a Master of Management in Finance and Economics from the J.L.
Kellogg Graduate School of Management, Northwestern University. Mr. Tyler has
earned the right to use the Chartered Financial Analyst
designation.
Randy L. Welch
joined the Principal
Financial Group in 1989 and oversees the functions of the Investment Services
group, which includes investment manager research, investment consulting,
performance analysis, and investment communication. He is also responsible for
the due diligence program that monitors investment managers used by the
Principal Funds. Mr. Welch is an affiliate member of the Chartered
Financial Analysts (CFA) Institute. Mr. Welch earned a B.A. in Business/ Finance
from Grand View College and an M.B.A. from Drake University.
Cash Management
Program
The following Accounts have adopted
a special cash management program, which is executed by Principal: LargeCap
Blend II, LargeCap Growth I, SmallCap Growth II, and SmallCap Value I.
Each Account in the cash management
program has cash available in its portfolio to meet redemption requests and to
pay expenses. Additionally, each Account receives cash when shareholders
purchase shares. Each Account invests its cash in money market investments and
in stock index futures contracts reflecting the Account's market capitalization
to gain exposure to the market. Stock index futures provide returns similar to
those of common stocks. Principal believes that, over the long term, this
strategy will enhance the investment performance of the Accounts.
The
Sub-Advisors
Principal has signed contracts with
various Sub-Advisors. Under the sub-advisory agreements, the Sub-Advisor agrees
to assume the obligations of Principal to provide investment advisory services
to the portion of the assets of a specific Account allocated to it by Principal.
For these services, Principal pays the Sub-Advisor a fee.
Principal or the Sub-Advisor
provides the Directors of the Fund with a recommended investment program. The
program must be consistent with the Account’s investment objective and policies.
Within the scope of the approved investment program, the Sub-Advisor advises the
Account on its investment policy and determines which securities are bought or
sold, and in what amounts.
Some of the Sub-Advisors may enter
into co-employee agreements, investment service agreements, dual employee
agreements, or other similar agreements with advisers with which they are
affiliated. Through the agreements, the Sub-Advisor’s portfolio manager usually
is accorded access to the portfolio management processes, systems, staff,
proprietary quantitative model, portfolio construction disciplines, experienced
portfolio management, and quantitative research staff of the affiliated
investment advisory firm. Likewise, through the agreements, the portfolio
manager usually has access to the trading staff and trade execution capabilities
along with the order management system, pre- and post-trade compliance system,
portfolio accounting system and performance attribution and risk management
system of the affiliated investment advisory firm.
Several of the Accounts have
multiple Sub-Advisors. For those Accounts, a team at Principal, consisting of
James Fennessey and Randy Welch, determines the portion of the Account’s assets
each Sub-Advisor will manage and may, from time-to-time, reallocate Account
assets between the Sub-Advisors. The decision to do so may be based on a variety
of factors, including but not limited to: the investment capacity of each
Sub-Advisor, portfolio diversification, volume of net cash flows, fund
liquidity, investment performance, investment strategies, changes in each
Sub-Advisor’s firm or investment professionals or changes in the number of
Sub-Advisors. Ordinarily, reallocations of Account assets among Sub-Advisors
occur as a Sub-Advisor liquidates assets in the normal course of portfolio
management or with net new cash flows; however, at times existing Account assets
may be reallocated among Sub-Advisors. This team shares equally in the
day-to-day portfolio management responsibility and agrees on allocation
decisions.
The Account summaries identified the
portfolio managers and the Accounts they manage. Additional information about
the portfolio managers follows. The SAI provides additional information about
each portfolio manager’s compensation, other accounts managed by the portfolio
manager, and the portfolio manager’s ownership of securities in the
Account.
|
|
Sub-Advisor: |
Brown
Advisory, LLC (“Brown”), 901 South Bond Street, Suite
400, Baltimore, Maryland 21231, is a registered investment adviser that
works with institutions, corporations, nonprofits, families and
individuals. |
Brown is the sub-advisor for a
portion of the assets of the LargeCap Growth Account I.
|
|
Sub-Advisor: |
ClearBridge
Investments, LLC (“ClearBridge”), 620 8th Avenue, New York, NY
10018, formed in 2005, is a registered investment advisor offering a
variety of products and services to institutions and
individuals. |
ClearBridge is the sub-advisor for a
portion of the assets of the LargeCap Blend Account II.
|
|
Sub-Advisor:
|
Columbus
Circle Investors (“CCI”), Metro Center, One Station
Place, Stamford, CT 06902, founded in 1975, manages growth-oriented
portfolios in Large Cap, Mid Cap, SMID, and Small Cap categories for
domestic equities. CCI specializes in the management of discretionary
accounts for a variety of organizations. CCI also offers advisory services
for mutual funds and high net worth individuals.
|
CCI is the sub-advisor for the
LargeCap Growth Account.
Anthony Rizza is the lead Portfolio
Manager, and Thomas J. Bisighini, as Co-Portfolio Manager, has responsibility
for research and supports Mr. Rizza on the day-to-day management of the
Account.
Thomas J.
Bisighini has been with
CCI since 2004. He earned a B.S. from Bentley College and an M.B.A. in Finance
from Fordham University. Mr. Bisighini has earned the right to use the Chartered
Financial Analyst designation.
Anthony
Rizza has been with CCI
since 1991. He earned a B.S. in Business from the University of Connecticut. Mr.
Rizza has earned the right to use the Chartered Financial Analyst
designation.
|
|
Sub-Ad
v isor:
|
Edge Asset
Management, Inc. (“Edge”), 601 Union Street, Suite 2200,
Seattle, WA 98101-1377, has been in the business of investment management
since 1944. |
Edge is the sub-advisor for the
Equity Income, Government & High Quality Bond, Income, Principal Capital
Appreciation, and Short-Term Income Accounts and the SAM Balanced, SAM
Conservative Balanced, SAM Conservative Growth, SAM Flexible Income, and SAM
Strategic Growth Portfolios.
The portfolio managers operate as a
team, sharing authority, with no limitation on the authority of one portfolio
manager in relation to another.
Charles D.
Averill has been with
Edge since 1990 and previously was a Senior Quantitative Analyst and has worked
at Edge since 1990. He earned a bachelor’s degree in Economics from Reed College
and an M.A. in Economics from Princeton University. Mr. Averill has earned the
right to use the Chartered Financial Analyst designation.
Daniel R.
Coleman joined Edge in
2001 and has held various investment management roles on the equity team,
including Portfolio Manager and some senior management roles. He earned a
bachelor's degree in Finance from the University of Washington and an M.B.A.
from New York University.
Jill R.
Cuniff became President
of Edge in 2009 and became Portfolio Manager in 2010. She earned a bachelor’s
degree in Business Finance from Montana State University.
Philip M.
Foreman has been with
Edge since 2002. He earned a bachelor’s degree in Economics from the University
of Washington and an M.B.A. from the University of Puget Sound. Mr. Foreman has
earned the right to use the Chartered Financial Analyst
designation.
John R.
Friedl has been with
Edge since 1998. He earned a B.A. in Communications and History from the
University of Washington and a master's degree in Finance from Seattle
University. Mr. Friedl has earned the right to use the Chartered Financial
Analyst designation.
Todd A.
Jablonski has been with
Edge since 2010. He earned a bachelor’s degree in Economics from the University
of Virginia and an M.B.A. with an emphasis in Quantitative Finance from New York
University's Stern School of Business. Mr. Jablonski has earned the right to use
the Chartered Financial Analyst designation.
Ryan P.
McCann has been a
Portfolio Manager for Edge since 2010. He earned a B.A. in Business
Administration from Washington State University. Mr. McCann has earned the right
to use the Chartered Financial Analyst designation.
Scott J.
Peterson has been with
Edge since 2002. He earned a bachelor’s degree in Mathematics from Brigham Young
University and an M.B.A. from New York University’s Stern School of Business.
Mr. Peterson has earned the right to use the Chartered Financial Analyst
designation.
David W.
Simpson has been with
Edge since 2003. He earned a bachelor's degree from the University of Illinois
and an M.B.A. in Finance from the University of Wisconsin. Mr. Simpson has
earned the right to use the Chartered Financial Analyst
designation.
Greg L.
Tornga joined Edge in
2011. Previously, Mr. Tornga worked at Payden & Rygel Investment Management
in Los Angeles. He earned a bachelor’s degree from the University of Michigan
and an M.B.A. from the Argyros School of Business at Chapman University. Mr.
Tornga has earned the right to use the Chartered Financial Analyst
designation.
|
|
Sub-Advisor:
|
Emerald
Advisers, Inc. (“Emerald”), 3175 Oregon Pike, Leola, PA
17540, was incorporated in 1991 and manages institutional separate account
and mutual fund investment portfolios for corporations, public and private
pension funds, and for individual retail investors.
|
Emerald is the sub-advisor for a
portion of the assets of the SmallCap Growth Account II.
The portfolio managers work as a
team. For the portion of the assets allocated to this firm, each person has the
authority to make buy and sell decisions for the portfolio. Each also has
sector-specific research responsibilities as well.
Joseph W.
Garner has been with
Emerald since 1994. He earned a B.A. in Economics from Millersville University
and an M.B.A. from the Katz Graduate School of Business, University of
Pittsburgh.
Kenneth G. Mertz
II has been with
Emerald since 1992. He earned a B.A. in Economics from Millersville University.
Mr. Mertz has earned the right to use the Chartered Financial Analyst
designation.
Stacey L.
Sears has been with
Emerald since 1992. She earned a B.S. in Business Administration from
Millersville University and an M.B.A. from Villanova University.
|
|
Sub-Advisor:
|
J.P. Morgan
Investment Management Inc. (“J.P. Morgan”), 270 Park Avenue, New York, NY
10017, is an SEC registered investment advisor.
|
J.P. Morgan is the sub-advisor for a
portion of the assets of the SmallCap Value Account I.
For the portion of the assets
allocated to this firm, the portfolio managers operate as a team, sharing
authority and responsibility for research and the day-to-day management of the
portfolio with no limitation on the authority of one portfolio manager in
relation to another.
Phillip D.
Hart has been with J.P. Morgan since
2003. Mr. Hart earned a B.A. in Economics from Cornell University. He has earned
the right to use the Chartered Financial Analyst designation.
Dennis S.
Ruhl has been with J.P.
Morgan since 1999. He earned B.S. degrees in Mathematics and Computer Science
and an M.Eng. in Computer Science from Massachusetts Institute of Technology.
Mr. Ruhl has earned the right to use the Chartered Financial Analyst
designation.
|
|
Sub-Advisor:
|
Mellon
Capital Management Corporation (“Mellon Capital”), 50 Fremont Street, Suite 3900,
San Francisco, CA 94105, specializes in providing domestic and global
asset allocation strategies, traditional and enhanced indexing, active
equity and fixed income strategies, alternative investments, currency
strategies, active commodities, and overlay strategies.
|
Mellon Capital is the sub-advisor
for the Bond Market Index Account.
The day-to-day portfolio management
is shared by multiple portfolio managers who work as a team. Gregg Lee is the
lead portfolio manager.
David C. Kwan
joined Mellon Capital
in 1990. He earned a B.S. in Electrical Engineering and Computer Science from
the University of California at Berkeley and an M.B.A. from the University of
California at Berkeley. He has earned the right to use the Chartered Financial
Analyst designation.
Gregg Lee
joined Mellon Capital
in 1989. He earned a B.S. from the University of California at Davis in
Managerial Economics. He has earned the right to use the Chartered Financial
Analyst designation.
Zandra Zelaya
joined Mellon Capital
in 1997. She earned a B.S. at California State University Hayward in Finance.
She has earned the right to use the Chartered Financial Analyst
designation.
|
|
Sub-Advisor:
|
Principal
Global Investors, LLC (“PGI”), 801 Grand Avenue, Des Moines,
IA 50392, manages equity and fixed-income investments, primarily for
institutional investors. PGI's other primary asset management office is in
New York, with asset management offices of affiliate advisors in several
non-U.S. locations including London, Sydney and Singapore.
|
PGI is the sub-advisor for the
Balanced, Bond & Mortgage Securities, Diversified International,
International Emerging Markets, LargeCap S&P 500 Index, LargeCap Value,
MidCap, Money Market, Principal LifeTime 2010, Principal LifeTime 2020,
Principal LifeTime 2030, Principal LifeTime 2040, Principal LifeTime 2050,
Principal LifeTime 2060, Principal LifeTime Strategic Income, and SmallCap Blend
Accounts and the passive index strategy portion of the LargeCap S&P 500
Managed Volatility Index Account.
As reflected in the Account
summaries, the day-to-day portfolio management, for some Accounts, is shared by
multiple portfolio managers. In each such case, except the MidCap Account and
where noted in the Management of the Funds section describing the management of
the Principal LifeTime Accounts, the portfolio managers operate as a team,
sharing authority and responsibility for research and the day-to-day management
of the portfolio with no limitation on the authority of one portfolio manager in
relation to another. For the MidCap Account, Mr. Nolin and Mr. Rozycki work as a
team, sharing day-to-day management of the Account; however, Mr. Nolin has
ultimate decision making authority. Mr. Rozycki may execute trades in Mr.
Nolin’s absence.
Matthew D.
Annenberg has been with
PGI since 2012. Prior to PGI, he was Managing Director at K2 Advisors and at ABM
AMRO Bank. He earned a bachelor's degree in Finance from Harvard College. Mr.
Annenberg has earned the right to use the Chartered Financial Analyst
designation.
William C.
Armstrong has been with
PGI since 1992. He earned a bachelor’s degree from Kearney State College and an
M.B.A. from the University of Iowa. Mr. Armstrong has earned the right to use
the Chartered Financial Analyst designation.
Paul H.
Blankenhagen has been
with PGI since 1992. He earned a bachelor’s degree in Finance from Iowa State
University and a master’s degree from Drake University. Mr. Blankenhagen has
earned the right to use the Chartered Financial Analyst
designation.
Juliet Cohn
has been with PGI since
2003. As a co-employee of PGI and Principal Global Investors (Europe) Limited
(“PGI Europe”), Ms. Cohn manages Principal Fund assets as an employee of PGI.
She earned a bachelor's degree in Mathematics from Trinity College, Cambridge,
England.
Mihail
Dobrinov has been with
PGI since 1995. He earned an M.B.A. in Finance from the University of Iowa and a
law degree from Sofia University, Bulgaria. Mr. Dobrinov has earned the
right to use the Chartered Financial Analyst designation.
Arild
Holm has been with PGI
since 2002. He earned a bachelor’s degree in Management Sciences from the
University of Manchester Institute of Science and Technology (England) and an
M.B.A. in Finance from the University of Colorado. Mr. Holm has earned the right
to use the Chartered Financial Analyst designation.
Thomas L.
Kruchten has been with
PGI since 2005. He earned a B.A. in Finance from the University of Northern
Iowa. Mr. Kruchten has earned the right to use the Chartered Financial Analyst
designation and is a member of the CFA Society of Iowa.
K. William
Nolin has been with PGI
since 1993. He earned a bachelor’s degree in Finance from the University of Iowa
and an M.B.A. from the Yale School of Management. Mr. Nolin has earned the right
to use the Chartered Financial Analyst designation.
Phil
Nordhus has been with
PGI since 1990. He earned a bachelor’s degree in Economics from Kansas State
University and an M.B.A. from Drake University. Mr. Nordhus has earned the right
to use the Chartered Financial Analyst designation.
Brian W.
Pattinson has been with
PGI since 1994. He earned a bachelor's degree and an M.B.A. in Finance from the
University of Iowa. Mr. Pattinson has earned the right to use the Chartered
Financial Analyst designation.
Tracy
Reeg has been with PGI
since 1993. She earned a bachelor’s degree in Finance from the University of
Northern Iowa.
Alice Robertson
has been with the
Principal Financial Group since 1990. She earned a bachelor’s degree in
Economics from Northwestern University and a master’s degree in Finance and
Marketing from DePaul University.
Tom
Rozycki has been with
PGI since 2001. He earned a bachelor’s degree in Finance from Drake University.
Mr. Rozycki has earned the right to use the Chartered Financial Analyst
designation.
Jeffrey A.
Schwarte has been with
PGI since 1993. He earned a bachelor’s degree in Accounting from the University
of Northern Iowa. Mr. Schwarte is a CPA and has earned the right to use the
Chartered Financial Analyst designation.
Scott Smith
has been with PGI since
1999. He earned a bachelor’s degree in Finance from Iowa State
University.
Alan Wang
returned to PGI in 2012, where
he formerly worked from 2003 to 2008. As a co-employee of PGI and Principal
Global Investors (Hong Kong) Limited, Mr. Wang manages Principal Fund assets as
an employee of PGI. Previously, he was with Ping An of China Asset
Management (Hong Kong) and BlackRock Asia. He earned a bachelor’s degree in
Economics and International Finance from Renmin University of China and an
M.B.A. from the University of Iowa. Mr. Wang has earned the right to use
the Chartered Financial Analyst designation.
Timothy R.
Warrick has been with
PGI since 1990. He earned a bachelor’s degree in Accounting and Economics from
Simpson College and an M.B.A. in Finance from Drake University. Mr. Warrick has
earned the right to use the Chartered Financial Analyst designation.
Mohammed
Zaidi returned to PGI
in 2012, where he formerly worked from 2001 to 2006. As a co-employee of PGI and
Principal Global Investors (Singapore) Limited, Mr. Zaidi manages Principal Fund
assets as an employee of PGI. Previously, he was with Martin Currie Investment
Management and Scottish Widows Investment Partnership. He earned a bachelor’s
degree in Economics from the Wharton School of University of Pennsylvania and an
M.B.A. from Massachusetts Institute of Technology, Sloan School of
Management.
|
|
Sub-Advisor:
|
Principal
Real Estate Investors, LLC (“Principal - REI”), 801 Grand Avenue, Des Moines,
IA 50392, was founded in 2000 and manages commercial real estate across
the spectrum of public and private equity and debt investments, primarily
for institutional investors. |
Principal - REI is the sub-advisor
for the Real Estate Securities Account.
The portfolio managers operate as a
team, sharing authority and responsibility for research and the day-to-day
management of the portfolio with no limitation on the authority of one portfolio
manager in relation to another.
Keith Bokota
has been with Principal
- REI since 2007. He earned a bachelor’s degree in Finance and International
Business from Georgetown University. Mr. Bokota has earned the right to use the
Chartered Financial Analyst designation.
Anthony
Kenkel has been with
Principal - REI since 2005. He earned a bachelor’s degree in Finance from Drake
University and an M.B.A. from the University of Chicago Graduate School of
Business. Mr. Kenkel has earned the right to use the Chartered Financial Analyst
and Financial Risk Manager designations.
Kelly D.
Rush has been with
Principal - REI since 2000 and the predecessor firms since 1987. He earned a
B.A. in Finance and an M.B.A. in Business Administration from the University of
Iowa. Mr. Rush has earned the right to use the Chartered Financial Analyst
designation.
|
|
Sub-Advisor:
|
Spectrum
Asset Management, Inc. (“Spectrum”), 2 High Ridge Park, Stamford,
CT 06905, founded in 1987, manages portfolios of preferred securities for
corporate, pension fund, insurance and endowment clients, open-end and
closed-end mutual funds, and separately managed account programs for high
net worth individual investors as well as providing volatility mitigation
solutions for some client portfolios. |
Spectrum is the sub-advisor for the
active volatility mitigation strategy portion of the LargeCap S&P 500
Managed Volatility Index Account.
Mr. Nugent is the primary portfolio
manager and is responsible for the overall volatility mitigation strategy and
day-to-day portfolio management of this strategy.
L. Phillip
Jacoby, IV joined
Spectrum in 1995 and is Chief Investment Officer of Spectrum and Chairman of the
Investment Committee. Mr. Jacoby earned a B.S. in Finance from the Boston
University School of Management.
Manu Krishnan
joined Spectrum in
2004. Mr. Krishnan earned a B.S. in Mechanical Engineering from the College of
Engineering, Osmania University, India, an M.S. in Mechanical Engineering from
the University of Delaware, and an M.B.A. in Finance from Cornell University.
Mr. Krishnan has earned the right to use the Chartered Financial Analyst
designation.
Kevin
Nugent joined Spectrum
in 2012. Mr. Nugent was with Bishop Asset Management, LLC from 2010 to 2012.
Prior to that, he was with Nugent Investment Group, LLC. He earned a B.A. from
Ohio Wesleyan University.
|
|
Sub-Advisor:
|
T. Rowe
Price Associates, Inc. (“T. Rowe Price”), 100 East Pratt Street,
Baltimore, MD 21202, has over 75 years of investment management
experience. |
T. Rowe Price is the sub-advisor for
a portion of the assets of the LargeCap Blend Account II and a portion of the
assets of the LargeCap Growth Account I.
Fees Paid to
Principal
Each Account pays Principal a fee
for its services, which includes the fee Principal pays to the Sub-Advisor. The
management fee schedules (as a percentage of the average daily net assets) for
the Accounts that have not completed a full fiscal year are as
follows:
|
|
|
Diversified Balanced Managed
Volatility (1) |
0.05% |
Diversified Growth Managed
Volatility (1) |
0.05% |
LargeCap S&P 500 Managed
Volatility Index (1) |
0.45% |
Principal LifeTime 2060
(2) |
0.03% |
|
|
(1) The Account commenced
operations on October 31, 2013 |
(2) The Account commenced
operations on May 1, 2013. |
The fee the Accounts paid (as a
percentage of the Account’s average daily net assets) for the fiscal year ended
December 31, 2013 was:
|
|
|
|
|
Balanced |
0.60% |
Principal Capital
Appreciation |
0.62% |
Bond &
Mortgage |
0.44% |
Principal LifeTime
2010 |
0.03% |
Bond Market Index
|
0.25% |
Principal LifeTime
2020 |
0.03% |
Diversified
Balanced |
0.05% |
Principal LifeTime
2030 |
0.03% |
Diversified
Growth |
0.05% |
Principal LifeTime
2040 |
0.03% |
Diversified
Income |
0.05% |
Principal LifeTime
2050 |
0.03% |
Diversified
International |
0.83% |
Principal LifeTime Strategic
Income |
0.03% |
Equity Income |
0.48% |
Real Estate
Securities |
0.89% |
Government & High Quality
Bond |
0.50% |
SAM Balanced |
0.23% |
Income |
0.50% |
SAM Conservative
Balanced |
0.23% |
International Emerging
Markets |
1.25% |
SAM Conservative
Growth |
0.23% |
LargeCap Blend
II |
0.75% |
SAM Flexible
Income |
0.23% |
LargeCap Growth |
0.68% |
SAM Strategic
Growth |
0.23% |
LargeCap Growth
I |
0.76% |
Short-Term
Income |
0.49% |
LargeCap S&P 500
Index |
0.25% |
SmallCap Blend |
0.85% |
LargeCap Value |
0.60% |
SmallCap Growth
II |
1.00% |
MidCap |
0.53% |
SmallCap Value
I |
1.09% |
Money Market |
0.45% |
|
|
Availability of the discussions
regarding the the basis for the Board of Directors approval of various
management and sub-advisory agreements is as follows:
|
|
|
|
|
Annual
Report
to
Shareholders
for the
period ending
October 31,
2014 |
Fund |
Management
Agreement |
Sub-Advisory
Agreement |
All Accounts |
X |
X |
A discussion regarding the basis for
the Board of Directors approval of the management agreement with Principal and
the sub-advisory agreements with each sub-advisor is available in the annual
report to shareholders for the fiscal year ended December 31, 2013.
Voluntary
Waivers
Principal has voluntarily agreed to
limit the expenses of Diversified Balanced Account, Diversified Growth Account,
and Diversified Income Account by paying, if necessary, expenses normally
payable by the Account, (excluding interest expense, expenses related to fund
investments, acquired fund fees and expenses, and other extraordinary expenses).
The expense limits will maintain a total level of operating expenses (expressed
as a percent of average net assets on an annualized basis) not to exceed 0.31%
for all Accounts. The expense limits may be terminated at any time.
Money Market Account: The
Distributor has voluntarily agreed to limit the Account's Distribution and/or
Service
(12b-1) Fees normally payable by the
Account. The expense limit will maintain a level of Distribution and/or
Service
(12b-1) Fees (expressed as a percent
of average net assets on an annualized basis) not to exceed 0.00% for
Class 2 shares. Principal has also
voluntarily agreed to limit the Account's expenses to the extent necessary to
maintain a 0% yield. These voluntary expense limits may be terminated at any
time.
Manager
of Managers
The Fund operates as a Manager of
Managers. Under the conditions of an order previously received from the SEC (the
"unaffiliated order"), the Fund and Principal may enter into and materially
amend agreements with Sub-Advisors, other than those affiliated with Principal,
without obtaining shareholder approval. Principal may, without obtaining
shareholder approval:
|
|
• |
hire one or more Sub-Advisors;
|
|
|
• |
change Sub-Advisors; and
|
|
|
• |
reallocate management fees
between itself and Sub-Advisors. |
The SEC has granted an amended
exemptive order that expands the relief of the unaffiliated order to allow
Principal to enter into and materially amend agreements with wholly-owned
affiliated sub-advisors (affiliated sub-advisors which are at least 95% owned,
directly or indirectly, by Principal or an affiliated person of Principal) (the
"wholly-owned order").
Further, the Fund has applied to the
SEC for another amended e xemptive order, which if granted
would allow Principal to also enter into and materially amend agreements with
majority-owned affiliated sub-advisors (affiliated sub-advisors which are at
least 50% owned, directly or indirectly, by Principal or an affiliated person of
Principal) (the "majority-owned order"). There is no assurance, however, that
the SEC will grant the majority-owned order.
Principal has ultimate
responsibility for the investment performance of each Account that utilizes a
Sub-Advisor due to its responsibility to oversee Sub-Advisors and recommend
their hiring, termination, and replacement. No Account will rely on the
unaffiliated order, the wholly-owned order, the majority-owned order, or any
future order until it receives approval from its shareholders (or, in the case
of a new Account, the Account’s sole initial shareholder before the Account is
available to the other purchasers). The shareholders of each of the Accounts
have approved the Account's reliance on the unaffiliated order.
PRICING OF
ACCOUNT SHARES
Each Account’s shares are bought and
sold at the current net asset value (“NAV”) per share. Each Account’s NAV is
calculated each day the New York Stock Exchange (“NYSE”) is open (shares are not
priced on the days on which the NYSE is closed for trading). The NYSE is closed
on the following holidays: New Year’s Day, Martin Luther King, Jr. Day,
Washington’s Birthday/Presidents’ Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas. The NAV is determined at the
close of business of the NYSE (normally 3:00 p.m. Central Time). When an order
to buy or sell shares is received, the share price used to fill the order is the
next price calculated after we receive the order in proper form.
For all Accounts, except the Money
Market Account, the NAV is calculated by:
|
|
• |
taking the current market
value of the total assets of the Account |
|
|
• |
subtracting liabilities of the
Account |
|
|
• |
dividing the remainder
proportionately into the classes of the
Account |
|
|
• |
subtracting the liabilities of
each class |
|
|
• |
dividing the remainder by the
total number of shares owned in that
class. |
With respect to the Diversified
Balanced Account, Diversified Balanced Managed Volatility Account, Diversified
Growth Account, Diversified Growth Managed Volatility Account, Diversified
Income Account, Principal LifeTime Accounts, and SAM Portfolios, which invest in
other registered investment company Accounts and Funds, each Account’s or
Portfolio’s NAV is calculated based on the NAV of such other registered
investment company Accounts and Funds in which the Account or Portfolio
invests.
The securities of the Money Market
Account are valued at amortized cost. The calculation procedure is described in
the Statement of Additional Information.
Notes:
|
|
• |
If market quotations are not
readily available for a security owned by an Account, its fair value is
determined using a policy adopted by the Directors. Fair valuation pricing
is subjective and creates the possibility that the fair value determined
for a security may differ materially from the value that could be realized
upon the sale of the security. |
|
|
• |
An Account's securities may be
traded on foreign securities markets that generally complete trading at
various times during the day before the close of the NYSE. Foreign
securities and currencies are converted to U.S. dollars using the exchange
rate in effect at the close of the NYSE. Securities traded outside of the
Western Hemisphere are valued using a fair value policy adopted by the
Fund. These fair valuation procedures are intended to discourage
shareholders from investing in the Account for the purpose of engaging in
market timing or arbitrage transactions. |
|
|
• |
The trading of foreign
securities generally or in a particular country or countries may not take
place on all days the NYSE is open, or may trade on days the NYSE is
closed. Thus, the value of the foreign securities held by the Account may
change on days when shareholders are unable to purchase or redeem
shares. |
|
|
• |
Certain securities issued by
companies in emerging market countries may have more than one quoted
valuation at any point in time. These may be referred to as local price
and premium price. The premium price is often a negotiated price that may
not consistently represent a price at which a specific transaction can be
effected. The Fund has a policy to value such securities at a price at
which the Sub-Advisor expects the securities may be
sold. |
DIVIDENDS AND
DISTRIBUTIONS
The Accounts earn dividends,
interest, and other income from investments and distribute this income (less
expenses) as dividends. The Accounts also realize capital gains from investments
and distribute these gains (less any losses) as capital gain distributions. The
Accounts normally make dividends and capital gain distributions at least
annually, in August. Dividends and capital gain distributions are automatically
reinvested in additional shares of the Account making the
distribution.
TAX
CONSIDERATIONS
The Fund intends to comply with
applicable variable asset diversification regulations. If the Fund fails to
comply with such regulations, contracts invested in the Fund will not be treated
as annuity, endowment, or life insurance contracts under the Internal Revenue
Code.
Contract owners should review the
applicable contract prospectus for information concerning the federal income tax
treatment of their contracts and distributions from the Fund to the separate
accounts.
Contract owners are urged to consult
their tax advisors regarding the status of their contracts under state and local
tax laws.
DISTRIBUTION PLAN
AND ADDITIONAL INFORMATION REGARDING INTERMEDIARY COMPENSATION
Distribution
and/or Service (12b-1) Fees. Principal Funds Distributor, Inc.
("PFD" or the "Distributor") is the distributor for the shares of the Fund. The
Distributor is an affiliate of Principal Life Insurance Company and with it is a
subsidiary of Principal Financial Group, Inc. and member of the Principal
Financial Group ®
.
The Fund has adopted a distribution
plan pursuant to Rule 12b-1 under the Investment Company Act for the Class 2
shares of the Accounts. Under the 12b-1 Plan, each Account makes payments from
its assets attributable to the Class 2 shares to the Fund's Distributor for
distribution-related expenses and for providing services to shareholders of that
share class. Payments under the 12b-1 plan are made by the Fund to the
Distributor pursuant to the 12b-1 Plan regardless of the expenses incurred by
the Distributor.
When the Distributor receives Rule
12b-1 fees, it may pay some or all of them to financial intermediaries whose
customers are Class 2 shareholders for sales support services and for providing
services to shareholders of that share class. Financial intermediaries may
include, among others, broker-dealers, registered investment advisers, banks,
trust companies, pension plan consultants, retirement plan administrators, and
insurance companies.
Because Rule 12b-1 fees are paid out
of Account assets and are ongoing fees, over time they will increase the cost of
your investment in the Accounts and may cost you more than other types of sales
charges.
The maximum annualized Rule 12b-1
fee for distribution related expenses and/or for providing services to
shareholders (as a percentage of average daily net assets) for the Class 2
shares of each of the Accounts is 0.25%.
Payments under the 12b-1 Plan will
not automatically terminate for Accounts that are closed to new investors or to
additional purchases by existing shareholders. The Fund Board will determine
whether to terminate, modify, or leave unchanged the 12b-1 Plan if the Board
directs the closure of an Account.
Payments to
Financial Professionals and Their Firms. Financial intermediaries receive
compensation from the Distributor and its affiliates for marketing, selling,
and/or providing services to variable annuities and variable life insurance
contracts that invest in the Accounts. Financial intermediaries also receive
compensation for marketing, selling, and/or providing services to certain
retirement plans that offer the Accounts as investment options. Financial
intermediaries may include, among others, broker/dealers, registered investment
advisors, banks, trust companies, pension plan consultants, retirement plan
administrators, and insurance companies. Financial Professionals who deal with
investors on an individual basis are typically associated with a financial
intermediary. The Distributor and its affiliates may fund this compensation from
various sources, including any Rule 12b-1 Plan fee that the Accounts pay to the
Distributor. Individual Financial Professionals may receive some or all of the
amounts paid to the financial intermediary with which he or she is
associated.
Ongoing
Payments. In the case
of Class 2 shares, and pursuant to the Rule 12b-1 Plan applicable to the Class 2
shares, the Distributor generally makes ongoing payments to your financial
intermediary at an annual rate of 0.25% of average net assets attributable to
your indirect investment in the Accounts. In addition, the Distributor or
Principal may make from its own resources ongoing payments to an insurance
company, which payments will generally not exceed 0.27% of the average net
assets of the Accounts held by the insurance company in its separate accounts.
The payments are for distribution support and/or administrative services and may
be made with respect to either or both classes of shares of the
Accounts.
Other Payments to
Intermediaries. In
addition to any commissions that may be paid at the time of sale and ongoing
payments, the Distributor and its affiliates, at their expense, currently
provide additional payments to financial intermediaries that sell variable
annuities and variable life insurance contracts that may be funded by shares of
the Accounts, or may sell shares of the Accounts to retirement plans for
distribution services. Although payments made to each qualifying financial
intermediary in any given year may vary, such payments will generally not exceed
0.25% of the current year’s sales of applicable variable annuities and variable
life insurance contracts that may be funded by account shares, or 0.25% of the
current year’s sales of Account shares to retirement plans by that financial
intermediary.
Additionally, in some cases the
Distributor and its affiliates will provide payments or reimbursements in
connection with the costs of conferences, educational seminars, due diligence
trips, training and marketing efforts related to the Accounts for the financial
intermediary's personnel and/or their clients and potential clients. Such
activities may be sponsored by financial intermediaries or the Distributor. The
costs associated with such activities may include travel, lodging,
entertainment, and meals. In some cases the Distributor will also provide
payment or reimbursement for expenses associated with transactions ("ticket")
charges and general marketing expenses.
For more information, see the
Statement of Additional Information (SAI). See also the section titled "Certain
Information Common to All Accounts - Payments to Broker-Dealers and Other
Financial Intermediaries" in this Prospectus.
Your variable life insurance or
variable annuity contract or your retirement plan may impose other charges and
expenses, some of which may also be used in connection with the sale of such
contracts in addition to those described in the Prospectus. The amount and
applicability of any insurance contract fee are determined and disclosed
separately within the prospectus for your insurance contract.
The payments described in this
prospectus may create a conflict of interest by influencing your Financial
Professional or your financial intermediary to recommend one variable annuity,
variable life insurance policy or mutual fund over another, or to recommend one
Account or share class of the Fund over another Account or share class. Ask your
Financial Professional or visit your financial intermediary's website for more
information about the total amounts paid to them by Principal and its
affiliates, and by sponsors of other mutual funds your Financial Professional
may recommend to you.
Your financial intermediary may
charge you additional fees other than those disclosed in this prospectus. Ask
your Financial Professional about any fees and commissions they
charge.
ONGOING
FEES
Ongoing Fees reduce the value of
each share. Because they are ongoing, they increase the cost of investing in the
Accounts.
The Diversified Balanced Account,
Diversified Balanced Managed Volatility Account, Diversified Growth Account,
Diversified Growth Managed Volatility Account, Diversified Income Account, and
each Principal LifeTime Account and SAM Portfolio, as shareholders in the
underlying funds, bear their pro rata share of the operating expenses incurred
by each underlying fund. The investment return of the Diversified Balanced
Account, Diversified Balanced Managed Volatility Account, Diversified Growth
Account, Diversified Growth Managed Volatility Account, Diversified Income
Account, and each Principal LifeTime Account and SAM Portfolio is net of the
underlying funds’ operating expenses.
Each Account pays ongoing fees to
the Manager and others who provide services to the Account. These fees
include:
|
|
• |
Management Fee – Through
the Management Agreement with the Account, Principal has agreed to provide
investment advisory services and corporate administrative services to the
Account. |
|
|
• |
Distribution Fee— Each of the
Accounts with Class 2 shares has adopted a distribution plan under
Rule 12b-1 of the Investment Company Act of 1940 for its Class 2
shares. Under the plan, Class 2 shares of each Account pay a
distribution fee based on the average daily net asset value (NAV) of the
Account. These fees pay distribution and other expenses for sale of
Account shares and for services provided to shareholders. Because they are
ongoing fees, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
|
|
|
• |
Other Expenses – A
portion of expenses that are allocated to all classes of the Account.
|
|
|
• |
Acquired Fund Fees and
Expenses - fees and expenses charged by other investment companies in
which an Account invests a portion of its assets.
|
GENERAL
INFORMATION ABOUT AN ACCOUNT
Frequent Trading
and Market Timing (Abusive Trading Practices)
The Accounts are not designed for,
and do not knowingly accommodate, frequent purchases and redemptions (“excessive
trading”) of Account shares by investors. If you intend to trade frequently
and/or use market timing investment strategies, do not purchase shares of these
Accounts.
Frequent purchases and redemptions
pose a risk to the Accounts because they may:
|
|
• |
Disrupt the management of the
Accounts by: |
|
|
• |
forcing the Account to hold
short-term (liquid) assets rather than investing for long-term growth,
which results in lost investment opportunities for the Account
and |
|
|
• |
causing unplanned portfolio
turnover; |
|
|
• |
Hurt the portfolio performance
of the Account; and |
|
|
• |
Increase expenses of the
Account due to: |
|
|
• |
increased broker-dealer
commissions and |
|
|
• |
increased recordkeeping and
related costs. |
If we are not able to identify such
excessive trading practices, the Accounts and their shareholders may be harmed.
The harm of undetected excessive trading in shares of the underlying Accounts in
which the funds of funds (for example, Diversified Balanced Account, Diversified
Balanced Managed Volatility Account, Diversified Growth Account, Diversified
Growth Managed Volatility Account, Diversified Income Account, Principal
LifeTime Accounts or Strategic Asset Management Portfolios) invest could flow
through to the funds of funds as they would for any fund
shareholder.
Certain Accounts may be at greater
risk of harm due to frequent purchase and redemptions. For example, those
Accounts that invest in foreign securities may appeal to investors attempting to
take advantage of time-zone arbitrage. This risk is particularly relevant to the
Diversified International and International Emerging Market Accounts. The Fund
has adopted fair valuation procedures. These procedures are intended to
discourage market timing transactions in shares of the Accounts.
As the Accounts are only available
through variable annuity or variable life contracts or to qualified retirement
plans, the Fund must rely on the insurance company that issues the contract, or
the trustees or administrators of qualified retirement plans, (“intermediary”)
to monitor customer trading activity to identify and take action against
excessive trading. There can be no certainty that the intermediary will identify
and prevent excessive trading in all instances. When an intermediary identifies
excessive trading, it will act to curtail such trading in a fair and uniform
manner. If an intermediary is unable to identify such abusive trading practices,
the abuses described above may negatively impact the Accounts.
If an intermediary, or the Fund,
deems excessive trading practices to be occurring, it will take action that may
include, but is not limited to:
|
|
• |
Rejecting exchange
instructions from a shareholder or other person authorized by the
shareholder to direct exchanges; |
|
|
• |
Restricting submission of
exchange requests by, for example, allowing exchange requests to be
submitted by 1st class U.S. mail only and disallowing requests made via
the internet, by facsimile, by overnight courier, or by
telephone; |
|
|
• |
Limiting the dollar amount of
an exchange and/or the number of exchanges during a
year; |
|
|
• |
Requiring a holding period of
a minimum of 30 days before permitting exchanges among the Accounts where
there is evidence of at least one round-trip exchange (exchange or
redemption of shares that were purchased within 30 days of the
exchange/redemption); and |
|
|
• |
Taking such other action as
directed by the Fund. |
The Fund Board of Directors has
found the imposition of a redemption fee with respect to redemptions from Class
1 and Class 2 shares of the Accounts is neither necessary nor appropriate in
light of measures taken by intermediaries through which such shares are
currently available. Each intermediary’s excessive trading policies and
procedures will be reviewed by Fund management prior to making shares of the
Fund available through such intermediary to determine whether, in management’s
opinion, such procedures are reasonably designed to prevent excessive trading in
Fund shares.
In order to prevent excessive
trading, the Fund has reserved the right to accept or reject, without prior
written notice, any exchange requests (an exchange request is a redemption
request coupled with a request to purchase shares with the proceeds of the
redemption; such restriction applies to the purchase of fund shares in an
exchange request and does not restrict a shareholder from requesting a
redemption). In some instances, an exchange may be completed prior to a
determination of abusive trading. In those instances, the intermediary will
reverse an exchange (within one business day of the exchange) and return the
account holdings to the positions held prior to the exchange. The intermediary
will give you notice in writing in this instance.
Eligible
Purchasers
Only certain eligible purchasers may
buy shares of the Accounts. Eligible purchasers are limited to 1) separate
accounts of Principal Life or of other insurance companies, 2) Principal Life or
any of its subsidiaries or affiliates, 3) trustees of other managers of any
qualified profit sharing, incentive, or bonus plan established by Principal Life
or any subsidiary or affiliate of such company, for employees of such company,
subsidiary, or affiliate. Such trustees or managers may buy Account shares only
in their capacities as trustees or managers and not for their personal accounts.
The Board of Directors of the Fund reserves the right to broaden or limit the
designation of eligible purchaser.
Each Account serves as the
underlying investment vehicle for variable annuity contracts and variable life
insurance policies that are funded through separate accounts established by
Principal Life and by other insurance companies as well as for certain qualified
plans. It is possible that in the future, it may not be advantageous for
variable life insurance separate accounts, variable annuity separate accounts,
and qualified plan investors to invest in the Accounts at the same time.
Although neither Principal Life nor the Fund currently foresees any such
disadvantage, the Fund’s Board of Directors monitors events in order to identify
any material conflicts between such policy owners, contract holders, and
qualified plan investors. Material conflict could result from, for example, 1)
changes in state insurance laws, 2) changes in Federal income tax law, 3)
changes in the investment management of an Account, or 4) differences in voting
instructions between those given by policy owners, those given by contract
holders, and those given by qualified plan investors. Should it be necessary,
the Board would determine what action, if any, should be taken. Such action
could include the sale of Account shares by one or more of the separate accounts
or qualified plans, which could have adverse consequences.
Principal may recommend to the
Board, and the Board may elect, to close certain Accounts or share classes to
new investors or close certain Accounts or share classes to new and existing
investors.
Shareholder
Rights
Each shareholder of an Account is
eligible to vote, either in person or by proxy, at all shareholder meetings for
that Account. This includes the right to vote on the election of directors,
selection of independent auditors, and other matters submitted to meetings of
shareholders of the Account. Each share has equal rights with every other share
of the Account as to dividends, earnings, voting, assets, and redemption. Shares
are fully paid, non-assessable, and have no preemptive or appraisal rights.
Shares of an Account 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 director with or without
cause by the vote of a majority of the votes entitled to be cast at a meeting of
all Account shareholders.
The bylaws of the Fund also provide
that the Fund does not need to hold an annual meeting of shareholders unless one
of the following is required to be acted upon by shareholders under the 1940
Act: election of directors, approval of an investment advisory agreement,
ratification of the selection of independent auditors, and approval of the
distribution agreement. The Fund intends to hold shareholder meetings only when
required by law and at such other times when the Board of Directors deems it to
be appropriate.
Shareholder inquiries should be
directed to: Principal Variable Contracts Funds, Inc., 655 9th Street, Des
Moines, IA 50392.
Principal Life votes each Account’s
shares allocated to each of its separate accounts registered under the 1940 Act
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 Account 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 Accounts 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 an Account’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 Account shares in its own right. Shares held by
retirement plans are voted in accordance with the governing documents of the
plans.
Purchase of
Account Shares
Principal Variable Contracts Funds,
Inc. offers funds in two share classes: 1 and 2. Funds available in multiple
share classes have the same investments, but differing expenses. Classes 1 and 2
shares are available in this prospectus.
Shares are purchased from the Fund’s
principal underwriter (“Distributor”) on any business day (normally any day when
the New York Stock Exchange is open for regular trading) upon request through
the insurance company issuing the variable annuity, variable life contract, or
the trustees or administrators of the qualified retirement plan offering the
Account. There are no sales charges on shares of the Accounts; however, your
variable contract may impose a charge. There are no restrictions on amounts to
be invested in shares of the Accounts.
The Fund, at its discretion, may
permit the purchase of shares using securities as consideration (a purchase
in-kind) in accordance with procedures approved by the Fund’s Board of
Directors. Each Account will value securities used to purchase its shares using
the same method the Account uses to value its portfolio securities as described
in this prospectus.
Shareholder accounts for each
Account are maintained under an open account system. Under this system, an
account is opened and maintained for each investor. Each investment is confirmed
by sending the investor a statement of account showing the current purchase and
the total number of shares owned. The statement of account is treated by each
Account as evidence of ownership of Account shares. Share certificates are not
issued.
|
|
Note: |
No salesperson, broker-dealer
or other person is authorized to give information or make representations
about an Account other than those contained in
this Prospectus. Information or representations not contained in this
prospectus may not be relied upon as having been provided or made by the
Principal Variable Contracts Funds, Inc., an Account, Principal, any
Sub-Advisor, or PFD. |
MidCap
Account
Effective as of the close of the New
York Stock Exchange on August 15, 2013, the MidCap Account will no
longer
be available for purchases from new
contractholders of variable products invested in the MidCap
Account.
|
|
• |
Contractholders as of August
15, 2013, may continue to select this investment
option. |
|
|
• |
Funds of funds, such as the
SAM (Strategic Asset Management) Portfolios and Principal LifeTime
Accounts, |
may continue to invest in the MidCap
Account.
Sale of Account
Shares
Variable contracts owners should
refer to the variable contract product prospectus for details on how to allocate
policy or contract value. Qualified plan participants should refer to the
qualified plan documents.
Each Account sells its shares upon
request on any business day (normally any day when the New York Stock Exchange
is open for regular trading) upon request through the insurance company issuing
the variable annuity, variable life contract, or the trustees or administrators
of the qualified retirement plan offering the Account. There is no charge for
the redemption. Shares are redeemed at the NAV per share next computed after the
request is received by the Account in proper and complete form.
Sale proceeds are generally sent
within three business days after the request is received in proper form.
However, the right to sell shares may be suspended up to seven days, as
permitted by federal securities law, during any period when 1) trading on the
NYSE is restricted as determined by the SEC or when the NYSE is closed for
reasons other than weekends and holidays or 2) an emergency exists, as
determined by the SEC, as a result of which a) disposal by a fund of securities
owned by it is not reasonably practicable, b) it is not reasonably practicable
for a fund to fairly determine the value of its net assets, or c) the SEC
permits suspension for the protection of security holders.
If payments are delayed and the
instruction is not canceled by the shareholder’s written instruction, the amount
of the transaction is determined as of the first valuation date following the
expiration of the permitted delay. The transaction occurs within five days
thereafter.
In addition, payments on surrender
requests submitted before a related premium payment made by check has cleared
may be delayed up to seven days. This permits payment to be collected on the
check.
Distributions in
Kind. The Fund may
determine that it would be detrimental to the remaining shareholders of an
Account to make payment of a redemption order wholly or partly in cash. Under
certain circumstances, therefore, each of the accounts may pay the redemption
proceeds in whole or in part by a distribution “in kind” of securities from the
Account’s portfolio in lieu of cash. If an Account pays the redemption proceeds
in kind, the redeeming shareholder might incur brokerage or other costs in
selling the securities for cash. Each Account will value securities used to pay
redemptions in kind using the same method the Account uses to value its
portfolio securities as described in this prospectus.
Restricted
Transfers
Shares of each of the Accounts may
be transferred to an eligible purchaser. However, if an Account is requested to
transfer shares to other than an eligible purchaser, the Account has the right,
at its election, to purchase the shares at the net asset value next calculated
after the receipt of the transfer request. However, the Account must give
written notification to the transferee(s) of the shares of the election to buy
the shares within seven days of the request. Settlement for the shares shall be
made within the seven-day period.
Financial
Statements
Shareholders will receive an annual
financial statement for the Fund, audited by the Fund’s independent registered
public accounting firm. Shareholders will also receive a semiannual financial
statement that is unaudited.
FINANCIAL
HIGHLIGHTS
To be filed by amendment.
APPENDIX A –
INDEX ABBREVIATIONS
Some of the indices in the
prospectus are identified with abbreviations. The abbreviations for those
indices are spelled out below:
|
|
|
Index Name
shown in the
Average
Annual Total Returns Table |
Full Index
Name |
Barclays MBS Fixed Rate
Index |
Barclays Mortgage Backed
Securities Index |
MSCI Emerging Markets NDTR D
Index |
Morgan Stanley Capital
International Emerging Markets Net Dividend Total Return Dollar Index
|
MSCI EAFE Index NDTR
D |
Morgan Stanley Capital
International Europe, Australasia, and Far East Index Net Dividend Total
Return Dollar Index |
MSCI ACWI
Ex-U.S |
Morgan Stanley Capital
International All Country World Index Ex-U.S. |
MSCI US REIT
Index |
Morgan Stanley Capital
International United States Real Estate Investment Trust
Index |
APPENDIX B –
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 default on contractually promised payments and the expected
financial loss suffered in the event of default. 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 by 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 the likelihood of a default on contractually promised payments.
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
promissory 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 designed
SG.
MIG 1 denotes superior credit
quality, afforded excellent protection from established cash flows, reliable
liquidity support, or 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 Standard & Poor's Corporation's Credit Ratings:
A Standard & Poor'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 obligors such as guarantors, insurers, or
lessees.
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
Standard & Poor's from other sources Standard & Poor's considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying
degrees, on the following considerations:
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Likelihood of default -
capacity and willingness of the obligor to meet its financial commitment
on an obligation in accordance with the terms of the obligation;
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Nature of and provisions of
the obligation; |
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Protection afforded by, and
relative position of, the obligation in the event of bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and
other laws affecting creditor's rights. |
LONG-TERM CREDIT RATINGS:
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AAA: |
Obligations rated ‘AAA’ have
the highest rating assigned by Standard & Poor's. The obligor’s
capacity to meet its financial commitment on the obligation is extremely
strong. |
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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.
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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. |
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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.
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BB, B, CCC, |
Obligations rated ‘BB’, ‘B’,
‘CCC’, ‘CC’, and ‘C’ are regarded, on balance, as having
significant |
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CC, and C: |
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.
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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. |
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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. |
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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 meeting its financial commitment on the obligation.
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CC: |
Obligations rated ‘CC’ are
currently highly vulnerable to nonpayment. The ‘CC’ rating is used when a
default has not yet occurred but Standard & Poor’s expects default to
be a virtual certainty, regardless of anticipated time to default.
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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. |
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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 Standard & Poor’s
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. This rating will also be used upon filing for
bankruptcy petition or the taking or 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.
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NR: |
Indicates that no rating has
been requested, that there is insufficient information on which to base a
rating or that Standard & Poor’s does not rate a particular type of
obligation as a matter of policy. |
SHORT-TERM CREDIT RATINGS:
Short-Term credit ratings are forward-looking opinions of the likelihood of
timely payment of obligations having an original maturity of no more than 365
days. Ratings are graded into four categories, ranging from ‘A-1’ for the
highest quality obligations to ‘D’ for the lowest. Ratings are applicable to
both taxable and tax-exempt commercial paper. The four categories are as
follows:
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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.
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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.
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A-3: |
Issues carrying this
designation exhibit adequate protection parameters. 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. |
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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.
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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.
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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 Standard
& Poor’s 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. This rating will also be used
upon filing for bankruptcy petition or the taking or 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’.
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MUNICIPAL SHORT-TERM NOTE RATINGS:
Standard & Poor's rates U.S. municipal notes with a maturity of less than
three years as follows:
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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. |
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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.
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SP-3: |
A speculative capacity to pay
principal and interest. |
Fitch,
Inc. Rating Definitions :
Fitch’s credit ratings are forward
looking and typically attempt to assess the likelihood of repayment by the
obligor at “ultimate/final maturity” and thus material changes in economic
conditions and expectations (for a particular issuer) may result in a rating
change. Credit ratings are opinions on relative credit quality and not a
predictive measure of specific default probability.
Investment Grade
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AAA: |
Highest credit quality. ‘AAA’
ratings denote the lowest expectation of credit risk. They are assigned
only in case of exceptionally strong capacity for payment of financial
commitments. This capacity is highly unlikely to be adversely affected by
foreseeable events. |
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AA: |
Very high credit quality. ‘AA’
ratings denote expectations of very low credit risk. They indicate very
strong capacity for timely payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
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A: |
High credit quality. ‘A’
ratings denote low expectation of credit risk. The capacity for timely
payment of financial commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to adverse business or economic
conditions than is the case for higher ratings.
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BBB: |
Good credit quality. ‘BBB’
ratings indicate that expectations of credit risk are currently low. The
capacity for payment of financial commitments is considered adequate, but
adverse business or economic conditions are more likely to impair this
capacity. |
Speculative Grade
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BB: |
Speculative. ‘BB’ ratings
indicate an elevated vulnerability to credit risk, particularly in the
event of adverse changes in business or economic conditions over time;
however, business or financial alternatives may be available to allow
financial commitments to be met. |
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B: |
Highly speculative. ‘B’
ratings indicate that material credit risk is present.
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CCC: |
Substantial credit risk. ‘CCC’
ratings indicate that substantial credit risk is present.
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CC: |
Very high levels of credit
risk. ‘CC’ ratings indicate very high levels of credit risk.
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C: |
Exceptionally high levels of
credit risk. ‘C’ indicates exceptionally high levels of credit
risk. |
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D: |
Default. ‘D’ ratings indicate
an issuer has entered into bankruptcy filings, administration,
receivership, liquidation or which has otherwise ceased business.
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Note: The
modifiers “+” or “-“may be appended to a rating to denote relative status within
major rating categories. Such suffixes are not added to the ‘AAA’ obligation
rating category, or to corporate finance obligation ratings in the categories
below ‘B’.
Short-Term Credit Ratings
A short-term issuer or obligation
rating is based in all cases on the short-term vulnerability to default of the
rated entity or security stream, and relates to the capacity to meet financial
obligations in accordance with the documentation governing the relevant
obligation. Short-Term Ratings are assigned to obligations whose initial
maturity is viewed as “short term” based on market convention. Typically, this
means up to 13 months for corporate, structured and sovereign obligations, and
up to 36 months for obligations in US public finance markets.
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F1: |
Highest short-term credit
quality. Indicates the strongest intrinsic capacity for timely payment of
financial commitments; may have an added “+” to denote any exceptionally
strong credit feature. |
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F2: |
Good short-term credit
quality. Good intrinsic capacity for timely payment of financial
commitments. |
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F3: |
Fair short-term credit
quality. The intrinsic capacity for timely payment of financial
commitments is adequate. |
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B: |
Speculative short-term credit
quality. Minimal capacity for timely payment of financial commitments,
plus heightened vulnerability to near term adverse changes in financial
and economic conditions. |
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C: |
High short-term default risk.
Default is a real possibility. |
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RD: |
Restricted default. Indicates
an entity that has defaulted on one or more of its financial commitments,
although it continues to meet other financial obligations. Typically
applicable to entity ratings only. |
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D: |
Default. Indicates a
broad-based default event for an entity, or the default of a specific
short-term obligation. |
Recovery Ratings
Recovery Ratings are assigned to
selected individual securities and obligations, most frequently for individual
obligations of corporate issuers with speculative grade ratings.
Among the factors that affect
recovery rates for securities are the collateral, the seniority relative to
other obligations in the capital structure (where appropriate), and the expected
value of the company or underlying collateral in distress.
The Recovery Rating scale is based
upon the expected relative recovery characteristics of an obligation upon the
curing of a default, emergence from insolvency or following the liquidation or
termination of the obligor or its associated collateral. Recovery Ratings are an
ordinal scale and do not attempt to precisely predict a given level of recovery.
As a guideline in developing the rating assessments, the agency employs broad
theoretical recovery bands in its ratings approach based on historical averages,
but actual recoveries for a given security may deviate materially from
historical averages.
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RR1: |
Outstanding recovery prospects
given default. ‘RR1’ rated securities have characteristics consistent with
securities historically recovering 91%-100% of current principal and
related interest. |
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RR2: |
Superior recovery prospects
given default. ‘RR2’ rated securities have characteristics consistent with
securities historically recovering 71%-90% of current principal and
related interest. |
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RR3: |
Good recovery prospects given
default. ‘RR3’ rated securities have characteristics consistent with
securities historically recovering 51%-70% of current principal and
related interest. |
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RR4: |
Average recovery prospects
given default. ‘RR4’ rated securities have characteristics consistent with
securities historically recovering 31%-50% of current principal and
related interest. |
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RR5: |
Below average recovery
prospects given default. ‘RR5’ rated securities have characteristics
consistent with securities historically recovering 11%-30% of current
principal and related interest. |
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RR6: |
Poor recovery prospects given
default. ‘RR6’ rated securities have characteristics consistent with
securities historically recovering 0%-10% of current principal and related
interest. |
ADDITIONAL
INFORMATION
Additional information about the
Fund is available in the Statement of Additional Information dated
______________, which is incorporated by reference into this prospectus.
Additional information about the Fund's investments is available in the Fund’s
annual and semiannual reports to shareholders. In the Fund’s annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Funds’ performance during the last fiscal year. The
Statement of Additional Information and the Fund’s annual and semiannual reports
can be obtained free of charge by writing Principal Funds, P.O. Box 8024,
Boston, MA 02266-8024. In addition, the Fund makes its Statement of Additional
Information and annual and semiannual reports available, free of charge, on our
website www.principalfunds.com/pvcprospectus. To request this and other
information about the Fund and to make shareholder inquiries, telephone
1-800-222-5852.
Information about the Fund
(including the Statement of Additional Information) can be reviewed and copied
at the Securities and Exchange Commission’s Public Reference Room in Washington,
D.C. Information on the operation of the Public Reference Room may be obtained
by calling the Commission at 1-202-551-8090. Reports and other information about
the Fund are available on the EDGAR Database on the Commission’s internet site
at http://www.sec.gov. Copies of this information may be obtained, upon payment
of a duplicating fee, by electronic request at the following e-mail address:
[email protected], or by writing the Commission’s Public Reference Section, 100
F Street, N.E., Washington, D.C. 20549-1520.
The U.S. government does not insure
or guarantee an investment in any of the Accounts. There can be no assurance
that the Money Market Account will be able to maintain a stable share price of
$1.00 per share.
Shares of the Accounts are not
deposits or obligations of, or guaranteed or endorsed by, any financial
institution, nor are shares of the Accounts federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency.
Principal Variable Contracts Funds,
Inc. SEC File 811-01944