-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P5ttWMpnHZjsNx2K8W4PvAvbcy3+sQBXbq7YgmAwMLjndb7yhxxtjOApBlaKHbTK 2DxF/g1K/uCu1E8Wk1V8lA== 0000811803-05-000115.txt : 20050421 0000811803-05-000115.hdr.sgml : 20050421 20050421115708 ACCESSION NUMBER: 0000811803-05-000115 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20050421 DATE AS OF CHANGE: 20050421 EFFECTIVENESS DATE: 20050421 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRINCIPAL CASH MANAGEMENT FUND INC /MD/ CENTRAL INDEX KEY: 0000707827 IRS NUMBER: 421193001 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-79791 FILM NUMBER: 05763744 BUSINESS ADDRESS: STREET 1: C/O PRINCIPAL FINANCIAL GROUP STREET 2: 711 HIGH STREET CITY: DES MOINES STATE: IA ZIP: 50392-2080 BUSINESS PHONE: 515-247-5476 MAIL ADDRESS: STREET 1: PRINCIPAL FINANCIAL GROUP STREET 2: 711 HIGH STREET CITY: DES MOINES STATE: IA ZIP: 50392-2080 FORMER COMPANY: FORMER CONFORMED NAME: PRINCOR CASH MANAGEMENT FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BLC CASH MANAGEMENT FUND INC DATE OF NAME CHANGE: 19861030 497 1 mmktproxydef.txt 497 FILING OF CASH MGMT N-14 PARTS A & B AND PROXY CARD PRINCIPAL CASH MANAGEMENT FUND, INC. 680 8th Street, Des Moines, Iowa 50392-2080 April 18, 2005 Dear Shareholder: A special meeting of shareholders of the Principal Cash Management Fund, Inc. will be held at 2:00 p.m., Central Daylight Time, on June 16, 2005, at the offices of Principal Management Corporation, 680 8th Street, Des Moines, Iowa 50392-2080, to consider a proposed reorganization providing for the combination of the Principal Cash Management Fund, Inc. (the "Acquired Fund"), one of the separate funds commonly and collectively known as the Principal Mutual Funds ("PMF"), into the Money Market Fund (the "Acquiring Fund"), a separate series of Principal Investors Fund, Inc. ("PIF") (the "Combination"). The Combination is described in detail in the enclosed Proxy Statement/Prospectus. The Combination is part of a larger proposed reorganization providing for the combination of each of the PMF funds into corresponding separate series of PIF (the "Reorganization"). The Board of Directors of each of the PMF funds has unanimously approved the Reorganization. All the PMF and PIF funds are sponsored by Principal Life Insurance Company and have the same investment advisor, Principal Management Corporation. The Board of each of the PMF funds believes the Reorganization will address the persistent distribution issues of the PMF funds by combining them into the PIF funds, which are experiencing significant net sales. Combining the PMF funds into PIF is intended to create a larger fund family that is expected to achieve economies of scale and operate with greater efficiency and lower overall costs. The Board of the Acquired Fund believes that the Combination of the Acquired and Acquiring Funds will also benefit you for other reasons. Both Funds are money market funds that have substantially similar investment objectives and strategies. The Acquiring Fund has a lower management fee and is expected to have lower overall expenses than the Acquired Fund, and the Acquiring Fund has generally performed better than the Acquired Fund during the period in which both have been operational. Combining the Funds will not result in any dilution of the interests of existing shareholders of the Acquired Fund. Enclosed you will find a Notice of Special Meeting of Shareholders, a Proxy Statement/Prospectus, and a proxy ballot for the shares of the Acquired Fund owned by you as of March 23, 2005, the record date for the meeting. Please read these materials carefully. In order for your shares to be voted at the meeting, you are urged promptly to complete and mail your proxy ballot(s) in the enclosed postage-paid envelope, allowing sufficient time for its receipt by June 15, 2005. We appreciate your taking the time to respond to this important matter. Your vote is important. If you have any questions regarding the Combination or need additional information, please call us toll-free at 1-888-999-5346. Sincerely, /s/ Ralph C. Eucher Ralph C. Eucher President and Chief Executive Officer PRINCIPAL CASH MANAGEMENT FUND, INC. 680 8th Street Des Moines, Iowa 50392-2080 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 16, 2005 To the Shareholders of the Principal Cash Management Fund, Inc.: Notice is hereby given that a Special Meeting of the Shareholders (the "Meeting") of the Principal Cash Management Fund, Inc. will be held at 2:00 p.m., Central Daylight Time, on June 16, 2005, at the offices of Principal Management Corporation, 680 8th Street, Des Moines, Iowa 50392-2080. The Meeting is being held to consider and vote on the following proposals as well as any other business that may properly come before the meeting or any adjournment thereof: Proposal 1 Approval of Agreement and Plan of Reorganization providing for the combination of the Principal Cash Management Fund, Inc. (the "Acquired Fund") into the Money Market Fund (the "Acquiring Fund"), a separate series of Principal Investors Fund, Inc. Proposal 2 Election of the Board of Directors of the Principal Cash Management Fund, Inc. The Board of Directors of the Principal Cash Management Fund, Inc. recommends that shareholders vote FOR Proposal 1 and FOR the election of all nominees for Director. Approval of the Proposal 1 will require the affirmative vote of the holders of at least a "Majority of the Outstanding Voting Securities" (as defined in the accompanying Proxy Statement/Prospectus) of the Acquired Fund. To be elected a Director of the Principal Cash Management Fund, Inc., a nominee must receive the affirmative vote of the holders of a plurality of the shares of the Fund voted in the election of Directors at the meeting. Each shareholder of record at the close of business on March 23, 2005 is entitled to receive notice of and to vote at the meeting. Please read the attached Proxy Statement/Prospectus. By order of the Boards of Directors A. S. Filean Senior Vice President and Secretary April 18, 2005 Des Moines, Iowa. Principal Cash Management Fund, Inc. Principal Investors Fund, Inc. 680 8th Street 680 8th Street Des Moines, Iowa 50392-2080 Des Moines, Iowa 50392-2080 ------------------------- PROXY STATEMENT/PROSPECTUS Relating to the Acquisition of All the Assets, Subject to All the Liabilities, of the Principal Cash Management Fund, Inc., by and in Exchange for Class A and Class B Shares of the Money Market Fund, a Separate Series of Principal Investors Fund, Inc. This Proxy Statement/Prospectus is furnished in connection with the solicitation by the Board of Directors of the Principal Cash Management Fund, Inc. (the "Acquired Fund"), of proxies to be used at a Special Meeting of Shareholders of the Acquired Fund to be held at 2:00 p.m., Central Daylight Time on June 16, 2005 at the offices of Principal Management Corporation, 680 8th Street, Des Moines, Iowa 50392-2080 (the "Meeting"). This Proxy Statement/Prospectus is first being mailed to shareholders on or about April 18, 2005. At the Meeting, shareholders of the Acquired Fund will be asked to consider and approve a proposed Agreement and Plan of Reorganization (the "Plan") providing for the combination of the Acquired Fund, one of the separate funds commonly and collectively known as the Principal Mutual Funds ("PMF"), into the Money Market Fund (the "Acquiring Fund"), a separate series of Principal Investors Fund, Inc. ("PIF") (the "Combination"). Under the Plan, (i) all the assets, subject to all of the liabilities, of the Acquired Fund will be transferred to the Acquiring Fund in exchange for Class A and Class B shares of the Acquiring Fund; (ii) holders of Class A shares of the Acquired Fund will receive that number of Class A shares of the Acquiring Fund equal in value at the time of the exchange to the value of the holder's Class A shares of the Acquired Fund at such time; (iii) holders of Class B shares of the Acquired Fund will receive that number of Class B shares of the Acquiring Fund equal in value at the time of the exchange to the value of the holder's Class B shares of the Acquired Fund at such time; and (iv) the Acquired Fund will be liquidated and dissolved. If approved by the shareholders, the Combination is expected to become effective as of the close of regularly scheduled trading on the New York Stock Exchange on June 30, 2005. The terms and conditions of the Combination are more fully described in this Proxy Statement/Prospectus and in the Agreement and Plan of Reorganization attached hereto as Appendix A. This Proxy Statement/Prospectus sets forth concisely the information you should know before voting on the proposed Combination. You should retain it for future reference. The Annual and Semi-Annual Reports to Shareholders of the Acquired Fund and PIF contain additional information about the investments of, respectively, the Acquired Fund and the Acquiring Fund. Copies of these reports, which contain discussions of the market conditions and investment strategies that significantly affected such Funds during their fiscal years ended October 31, 2004, may be obtained at no charge by calling the respective toll free numbers listed below for the Acquired Fund and PIF. The following documents have been filed with the Securities and Exchange Commission ("SEC") and are incorporated by reference into this Proxy Statement/Prospectus: o The Preliminary Prospectus of PIF A copy of the PIF Prospectus accompanies this Proxy Statement/ Prospectus. (relating to the Acquiring Fund) dated March 11, 2005 (the "PIF Prospectus"). o The Statement of Additional Information Copies of the Statement of Additional Information are available at no charge by dated April 18, 2005 relating to this writing to PIF at the above address or by calling toll free at 1-800-247-4123. Proxy Statement/Prospectus (the "Statement of Additional Information"). o The Prospectus of the Acquired Fund dated Copies of the PMF Prospectus and the PMF SAI are available at no charge by March 1, 2005 (the "PMF Prospectus"). writing to PMF at the above address or by calling toll free at 1-800-247-4123. o The Statement of Additional Information of the Acquired Fund dated March 1, 2005 (the "PMF SAI").
Shareholders who have questions about the Combination or this Proxy Statement/Prospectus may call toll-free at 1-888-999-5346. The Acquired Fund and PIF are subject to the informational requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940 and file reports, proxy materials and other information with the SEC. Such reports, proxy materials and other information may be inspected and copied at the Public Reference Room of the SEC at 450 Fifth Street, N.W. Washington, D.C. 20549-0102 (information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090). Such materials are also available on the SEC's EDGAR Database on its Internet site at www.sec.gov, and copies may be obtained, after paying a duplicating fee, by email request addressed to public info@sec.gov or by writing to the SEC's Public Reference Room. The SEC has not approved or disapproved these securities or passed upon the accuracy or adequacy of this Proxy Statement/Prospectus. Any representation to the contrary is a criminal offense. The date of this Proxy Statement/Prospectus is April 18, 2005. PROXY STATEMENT/PROSPECTUS Table of Contents Page Introduction .............................................................. 6 Proposal 1 Approval of Agreement and Plan of Reorganization providing for the Combination of the Principal Cash Management Fund, Inc. into the PIF Money Market Fund........ 9 Proposal 2 Election of the Board of Directors of the Principal Cash Management Fund, Inc. .................................19 Information About the Reorganization and the Combination .............30 Agreement and Plan of Reorganization...................................30 Reasons for the Reorganization and the Combination.....................31 Board Consideration of the Reorganization..............................32 Description of Securities to Be Issued.................................34 Federal Income Tax Consequences........................................35 Capitalization ............................................................36 Comparative Information About the Acquired and Acquiring Funds .....37 Multiple Classes of Shares.............................................37 Rule 12b-1 Fees........................................................38 Costs of Investing.....................................................38 Purchases, Redemptions and Exchanges of Shares.........................42 Frequent Trading and Market Timing (Abusive Trading Practices) ........43 Dividends and Distributions............................................44 Fundamental Investment Restrictions....................................45 Voting Information .......................................................46 Legal Matters ............................................................47 Financial Statements ....................................................47 Other ....................................................................48 Appendix A - Agreement and Plan of Reorganization..........................49 Appendix B - Comparison of Fundamental Investment Restrictions.............67 Appendix C - Certain Investment Strategies and Related Risks...............71 Appendix D - Debt Security Ratings.........................................77 Appendix E - Audit and Nominating Committee Charter........................80 Appendix F - Outstanding Shares and Share Ownership........................84 Appendix G - Additional Performance Information............................87 INTRODUCTION This Proxy Statement/Prospectus is furnished in connection with the solicitation by the Board of Directors of the Principal Cash Management Fund, Inc. of proxies to be used at a Special Meeting of Shareholders of the Acquired Fund to be held at 2:00 p.m., Central Daylight Time on June 16, 2005 at the offices of Principal Management Corporation, 680 8th Street, Des Moines, Iowa 50392-2080. The purpose of the Meeting is for the shareholders of the Acquired Fund to consider the proposed reorganization providing for the Combination of the Acquired Fund into the Acquiring Fund, a separate series of PIF. Each shareholder of record of the Acquired Fund at the close of business on March 23, 2005 (the "Record Date") is entitled to one vote at the Meeting for each share (and fractional votes for fractional shares) of the Acquired Fund held. Principal Cash Management Fund, Inc. and PIF. The Acquired Fund is a Maryland corporation and an open-end management investment company, commonly known as a mutual fund, registered under the Investment Company Act of 1940, as amended (the "1940 Act"). As stated above, it is one of the separate funds commonly and collectively known as the Principal Mutual Funds ("PMF" or the "PMF Funds"). The shares of the Acquired Fund are offered to the public in two classes: Class A shares and Class B shares. PIF is also a Maryland corporation and an open-end management investment company registered under the 1940 Act. PIF is a "series" mutual fund and currently offers 54 separate series, or portfolios, including the Acquiring Fund (the "PIF Funds"). The shares of the Acquiring Fund are currently offered mainly to retirement plans and individual retirement accounts. In connection with the Combination, the Acquiring Fund will issue two new classes of shares, Class A shares and Class B shares, and after the Combination, will offer these new shares to the public as well as continuing to sell its current classes of shares to retirement plans and individual retirement accounts. See "Comparative Information About the Acquired and Acquiring Funds - Multiple Classes of Shares" below. The sponsor of the PMF Funds and of PIF is Principal Life Insurance Company ("Principal Life"), the investment advisor to the PMF Funds and PIF is Principal Management Corporation (the "Manager") and the principal underwriter for the PMF Funds and for PIF is Princor Financial Services Corporation ("Princor"). Principal Global Investors LLC ("Principal Global") is the Sub-Advisor for the Acquiring Fund. Principal Life, an insurance company organized in 1879 under the laws of Iowa, the Manager, Princor and Principal Global are indirect, wholly-owned subsidiaries of Principal Financial Group, Inc. Their address is the Principal Financial Group, Des Moines, Iowa 50392-2080. Investment Management. The Manager has entered into a Management Agreement with the Acquired Fund and with PIF with respect to the Acquiring Fund. In the Management Agreement, the Manager agrees to provide investment advisory services and certain corporate administrative services to the Funds. As permitted by the Management Agreement, the Manager has entered into a Sub-Advisory Agreement with Principal Global with respect to the Acquiring Fund. Under the Sub-Advisory Agreement, the Sub-Advisor agrees to assume the obligations of the Manager to provide investment advisory services for the Fund. The Sub-Advisor is compensated by the Manager, not by the Fund. Each of the Manager and Principal Global is registered as an investment adviser under the Investment Advisers Act of 1940. The Combination and the Reorganization. At a meeting held on February 24, 2005, the Board of Directors of the Acquired Fund, including all the Directors who are not "interested persons" (as defined in the 1940 Act) of the Acquired Fund (the "Independent Directors"), unanimously approved an Agreement and Plan of Reorganization (the "Plan") providing for the Combination of the Acquired Fund into the Acquiring Fund. The Combination is part of a larger reorganization unanimously approved by the Board of Directors of each of the PMF Funds providing for the combination of all of the PMF Funds into corresponding PIF Funds (the "Reorganization"). Combining the PMF Funds into PIF is intended to address persistent distribution issues of the PMF Funds by combining them into PIF Funds, which are experiencing significant net sales, and to create a larger family of funds sponsored by Principal Life and managed by the Manager that is expected to achieve economies of scale and operate with greater efficiency and lower overall costs. The PMF Funds and the corresponding PIF Funds into which they are proposed to be combined are identified in the Plan which is attached hereto as Appendix A. Because you are one of many shareholders who invest in the Acquired Fund but not in other PMF Funds, you are receiving this Proxy Statement/Prospectus which relates only to the Combination of the Acquired into the Acquiring Fund and not also to the combinations of other PMF Funds into other PIF Funds. With respect to the Combination, the Board of Directors believes that the expected advantages to shareholders outweigh any disadvantages, that the Combination will be in the best interests of shareholders, and that the interests of existing shareholders of the Acquired Fund will not be diluted as a result of the Combination. Particular factors that the Board considered in approving the Combination are discussed in Proposal 1 below under "Board Consideration of the Combination." Factors that the Board considered in deciding to approve the Reorganization generally are discussed below under "Information About the Reorganization and the Combination - Board Consideration of the Reorganization." Election of Board of Directors of Acquired Fund. Although the Reorganization contemplates that the Acquired Fund will be combined into PIF and will thereafter no longer operate as a separate fund, it is possible that shareholders of the Acquired Fund will not approve the Reorganization and that it will consequently continue as a separate fund pending further action by its Board of Directors. The Board of Directors of the Acquired Fund has determined that, in view of such possibility and to avoid the expense of having another proxy solicitation and shareholders meeting following the Combination, the shareholders of the Acquired Fund will also be asked at the Meeting to elect the Board of Directors of the Fund. Each person who is a current Director and nominee for election to the Board of Directors of the Acquired Fund is also a Director of the other PMF Funds and of PIF. See Proposal 2 ("Election of the Board of Directors of the Principal Cash Management Fund, Inc."). PIF Shareholders Meeting. The Board of Directors of PIF, at a meeting held on February 24, 2005, called a meeting of shareholders of PIF for May 26, 2005 at which the shareholders of PIF will be asked to approve a number of matters (the "PIF Shareholders Meeting"). The matters relating to the Acquiring Fund include proposals to: (i) reclassify the investment objective of the Acquiring Fund from a "fundamental" investment policy, which may not be changed without shareholder approval, to a "non-fundamental" investment policy which may be changed by the Board without shareholder approval; (ii) amend the PIF Articles of Incorporation to permit the PIF Board of Directors, without shareholder approval: (a) to approve combinations involving the PIF Funds; (b) to liquidate the assets attributable to a PIF Fund or a class of shares thereof and terminate such Fund or class of shares; and (c) to designate a class of shares of a PIF Fund as a separate series or PIF Fund, all for purposes of facilitating future combinations of PIF Funds that the PIF Board determines are in the best interests of the affected shareholders (see "Information About the Reorganization and the Combination - Description of Securities to Be Issued"); (iii)amend the fundamental investment restriction of the Acquiring Fund with respect to borrowing to authorize the Acquiring Fund to borrow to the maximum extent permitted by the 1940 Act (see "Comparative Information About the Acquired and Acquiring Funds - Fundamental Investment Restrictions"); and (iv) permit the Manager to select and contract with Sub-Advisors (other than Sub-Advisors affiliated with the Manager), after approval by the PIF Board but without shareholder approval, for the Acquiring Fund (the shareholders of the Acquired Fund have previously authorized such procedures with respect to the Acquired Fund). The impact of certain of these proposals on the Combination is discussed under Proposal 1 below. The impact of other proposals is discussed as indicated above under "Information About the Reorganization and the Combination" and "Comparative Information About the Acquired and Acquiring Funds." PROPOSAL 1 APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION PROVIDING FOR THE COMBINATION OF THE PRINCIPAL CASH MANAGEMENT FUND, INC., INTO THE PIF MONEY MARKET FUND Shareholders of the Principal Cash Management Fund, Inc. (the "Acquired Fund") are being asked to approve the Combination of that Fund into the PIF Money Market Fund (the "Acquiring Fund"). Overview At a meeting held on February 24, 2005, the Board of Directors of the Acquired Fund, including all the Directors who are not "interested persons" (as defined in the 1940 Act) of the Acquired Fund (the "Independent Directors"), unanimously approved an Agreement and Plan of Reorganization (the "Plan") providing for the Combination of the Acquired Fund into the Acquiring Fund. Under the Plan, (i) all the assets, subject to all the liabilities, of the Acquired Fund will be transferred to the Acquiring Fund in exchange for Class A and Class B shares of the Acquiring Fund; (ii) holders of Class A shares of the Acquired Fund will receive that number of Class A shares of the Acquiring Fund equal in value at the time of the exchange to the value of the holder's Class A shares of the Acquired Fund at such time; (iii) holders of Class B shares of the Acquired Fund will receive that number of Class B shares of the Acquiring Fund equal in value at the time of the exchange to the value of the holder's Class B shares of the Acquired Fund at such time; and (iv) the Acquired Fund will be liquidated and dissolved. As a result of the Reorganization, shareholders of the Acquired Fund will become shareholders of the Acquiring Fund. If the Combination is approved by the shareholders of the Acquired Fund, the Combination is expected to become effective as of the close of trading on the New York Stock Exchange on the closing date of the Reorganization (the "Effective Time"). The closing date of the Reorganization is currently expected to be June 30, 2005 (the "Closing Date"). No gain or loss will be recognized by the Acquired Fund, Acquiring Fund or shareholders of the Acquired Fund for federal income tax purposes as a result of the Combination. See "Information About the Combination - Federal Income Tax Consequences." The Combination will not result in any material change in the purchase, redemption and exchange procedures followed with respect to shares. See "Comparative Information About the Acquired and Acquiring Funds - Purchases, Redemptions and Exchanges of Shares." The expenses of the Combination are expenses of the larger Reorganization involving all the PMF Funds. Under the Plan, the first $1,000,000 of the expenses relating to the proposed Reorganization will be allocated among the PMF Funds, including the Acquired Fund, based on the ratio of the open accounts of each PMF Fund to the open accounts of all the PMF Funds as of the close of business on February 28, 2005. With certain variations not affecting the Acquired Fund, the Manager will pay 50% of the balance of the expenses relating to the Reorganization, and the remaining 50% will be allocated among the Acquired Funds in the same manner as the first $1,000,000 of expenses. See "Information About the Reorganization and the Combination - Agreement and Plan of Reorganization." The impact of the Combination on the Acquiring Fund is reflected in the information provided under "Capitalization" below. Completion of the Combination is not contingent on approval by shareholders of the Acquiring Fund. Comparison of Acquired and Acquiring Funds Principal Cash Management Fund, Inc. PIF Money Market Fund (Acquired Fund) (Acquiring Fund) Business A separate fund. A separate series of PIF. Net assets as of 10/31/2004: $322,411,124 $218,717,812 Investment The Manager directly Principal Global is the Sub- Sub-Advisors: manages the Acquired Advisor to the Acquiring Fund. Fund. Portfolio The portfolio managers for both Funds are: Managers: o Tracy Reeg, Portfolio Manager, specializing in management and research for the short-term money market portfolios; and o Alice Robertson, Senior Trader and money market portfolio manager. Investment The Acquired Fund seeks as The Acquiring Fund seeks as Objectives: high a level of income available high a level of current income from short-term securities as is as is considered consistent considered consistent with with preservation of principal preservation of principal and and maintenance of liquidity. maintenance of liquidity by investing in a portfolio of money market instruments. Main Both Funds invest in high quality, short-term money market Investment instruments denominated in U.S. dollars which are believed to Strategies: present minimal credit risks. At the time of purchase, each security is an "eligible security" as defined in regulations issued under the 1940 Act. Both Funds maintain a dollar weighted average portfolio maturity of 90 days or less and generally hold investments until maturity. However, both Funds may sell a security before it matures: o to take advantage of market variations; o to generate cash to cover sales of shares by fund shareholders; or o upon revised credit opinions of the security's issuer. The sale of a security by either Fund before maturity may not be in the best interest of the Fund. The sale of portfolio securities is usually a taxable event. Both Funds may borrow money to cover the sale of their shares. It is the policy of both Funds to be as fully invested as possible to maximize current income. Securities in which both Funds invest include: o securities issued or guaranteed by the U.S. government, including treasury bills, notes and bonds; o securities issued or guaranteed by agencies or instrumentalities of the U.S. government. These are backed either by the full faith and credit of the U.S. government or by the credit of the particular agency or instrumentality; o bank obligations, including certificates of deposit which generally are negotiable certificates against funds deposited in a commercial bank or bankers acceptances which are time drafts drawn on a commercial bank, usually in connection with international commercial transactions; o commercial paper which is short-term promissory notes issued by U.S. or foreign corporations primarily to finance short-term credit needs; o corporate debt consisting of notes, bonds or debentures which at the time of purchase by the Funds has 397 days or less remaining to maturity; o repurchase agreements under which securities are purchased with an agreement by the seller to repurchase the security at the same price plus interest at a specified rate. Generally these have a short maturity (less than a week) but may also have a longer maturity; and o taxable municipal obligations which are short-term obligations issued or guaranteed by state and municipal issuers which generate taxable income. Among the certificates of deposit typically held by both Funds are Eurodollar and Yankee obligations, which are issued in U.S. dollars by foreign banks and foreign branches of U.S. banks. Fundamental Each of the Funds is subject to "fundamental" investment Investment restrictions which may not be changed without the approval of Restrictions: the shareholders of the Fund. These fundamental restrictions deal with such matters as the issuance of senior securities, purchasing or selling real estate or commodities, borrowing money, making loans, underwriting securities of other issuers, diversification or concentration of investments and short sales of securities. For a comparison of the fundamental restrictions of the Funds, see Appendix B to this Proxy Statement/Prospectus. See also "Comparative Information About the Acquired and Acquiring Funds - Fundamental Investment Restrictions." Temporary For temporary defensive purposes in times of unusual or Defensive adverse market conditions, both Funds may invest without limit Investing: in cash and cash equivalents (which include bank notes, bank certificates of deposit, bankers' acceptances, repurchase agreements, commercial paper and commercial paper master notes that are floating rate debt instruments without a fixed maturity). In addition, both Funds may purchase U.S. government securities, preferred stocks and debt securities, whether or not convertible into or carrying rights for common stock. In taking such defensive measures, either Fund may fail to achieve its investment objective. Because both of the Acquired and Acquiring Funds are money market funds that seek as high a level of current income as is considered consistent with a preservation of principal and maintenance of liquidity by investing in high quality, short-term money market instruments, they have substantially the same investment objectives and strategies. Additional information about the investment policies and strategies of the Funds and the types of securities in which they can invest is set forth in Appendix C to this Proxy Statement/Prospectus and, with respect to the Acquired and Acquiring Funds, respectively, in the PMF SAI and the Statement of Additional Information. For an explanation of debt security ratings, see Appendix D to this Proxy Statement/Prospectus. The investment objectives of the Acquired and Acquiring Funds are fundamental investment restrictions which may not be changed without shareholder approval. However, the Board of Directors of PIF has approved a proposal to reclassify the investment objectives of all the PIF Funds as non-fundamental investment restrictions which may be changed by the Board of Directors without shareholder approval. This proposal will be submitted for approval by the shareholders of the Acquiring Fund at the PIF Shareholders Meeting. For a comparison of the principal risks of investing in the Acquired and Acquiring Funds, see "Comparison of Principal Investment Risks" below. Fees and Expenses of the Funds Shareholder Fees (fees paid directly from your investment) The following is a summary of the fees and expenses you may pay if you buy and hold shares of the Funds. These fees and expenses are more fully described under "Comparative Information About the Acquired and Acquiring Funds - - Costs of Investing," below. Principal Cash PIF Money Management Fund Market Fund (Acquired Fund) (Acquiring Fund) Class A Class B Class A Class B Maximum sales charge imposed on purchases (as a % of offering price): None None None None Maximum Contingent Deferred Sales Charge (CDSC) (as a % of dollars subject to charge): 0.75%(1) 4.00%(2) 0.75%(1) 4.00%(2) Redemption or Exchange Fee (as a % of amount redeemed/exchanged): None None None None - ------------------ (1) A CDSC applies on certain redemptions made within 18 months following purchases of $1 million or more made without a sales charge. (2) CDSCs are reduced after 12 months and eliminated after 6 years. Fees and Expenses as a % of average daily net assets The following table shows: (a) the ratio of expenses to average net assets of the Acquired Fund (Class A and Class B shares) for the fiscal year ended October 31, 2004, and (b) the estimated ratio of expenses to average net assets of the Acquiring Fund (Class A and Class B shares) for the year ending October 31, 2005. The Class A and Class B shares of the Acquiring Fund are new share classes which the Acquiring Fund does not intend to sell prior to the Effective Date. Annual Fund Operating Expenses Total Fund Management 12b-1 Other Operating Fees Expenses Expenses Expenses Principal Cash Management Fund (Acquired Fund) Class A 0.44% None 0.24% 0.68% Class B 0.44% 0.22% 0.30% 0.96%* PIF Money Market Fund Class A 0.40% None 0.23% 0.63% (Acquiring Fund) Class B 0.40% 0.22% 0.30% 0.92% - ------------- * The Manager voluntarily agreed to limit the Acquired Fund's expenses and, if necessary, pay expenses normally payable by that Fund through the period ended October 31, 2004. If such expense limit were reflected in the table, the Acquired Fund's "Total Fund Operating Expenses" would be 0.89% for Class B shares. Examples: The following examples are intended to help you compare the costs of investing in Class A or Class B shares of the Acquired and Acquiring Funds. The examples assume that Fund expenses continue at the rates shown in the table above, that you invest $10,000 in the particular Fund for the time periods indicated and that all dividends and distributions are reinvested. The examples also assume that your investment has a 5% return each year. The examples should not be considered a representation of future expenses of the Acquired or Acquiring Fund. Actual expenses may be greater or less than those shown. 1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- If you sell your shares at the end of the period: Principal Cash Management Fund (Acquired Fund) Class A $69 $218 $379 $847 Class B $514 $644 $775 $1,062 PIF Money Market Fund (Acquiring Fund) Class A $64 $202 $351 $786 Class B $510 $632 $754 $1,010 If you do not sell your shares at the end of the period: Principal Cash Management Fund (Acquired Fund) Class A $69 $218 $379 $847 Class B $98 $306 $531 $1,062 PIF Money Market Fund (Acquiring Fund) Class A $64 $202 $351 $786 Class B $94 $293 $509 $1,010 Investment Management Fees/Sub-Advisory Arrangements Each of the Acquired Fund and the Acquiring Fund pays the Manager an investment management fee which is calculated as a percentage of each Fund's average daily net assets pursuant to the following fee schedule: Principal Cash PIF Money Management Fund Market Fund (Acquired Fund) (Acquiring Fund) 0.50% of the first $100 million; 0.40% of the first 500 million; 0.45% of the next $100 million; 0.39% of the next $500 million; 0.40% of the next $100 million; 0.38% of the next $500 million; and 0.35% of the next $100 million; and 0.37% of the excess over $1.5 billion 0.30% of the excess over $400 million of of average daily net assets. average daily net assets.
The Manager directly manages the Acquired Fund. Principal Global, the Sub-Advisor to the Acquiring Fund, is an indirect wholly-owned subsidiary of Principal Life and an affiliate of the Manager. Its principal offices are located at 801 Grand Avenue, Des Moines, Iowa 50392. For its services to the Acquiring Fund, the Sub-Advisor is paid a fee by the Manager, and not by the Fund. At the PIF Shareholders Meeting, shareholders of the Acquiring Fund will be asked to approve a proposal that will permit the Manager, pursuant to an SEC order, to select and contract with Sub-Advisors to the Acquiring Fund (other than Sub-Advisors affiliated with the Manager) after approval by the PIF Board of Directors but without shareholder approval. If approved by shareholders of the Acquiring Fund, the proposal will not be implemented until the PIF Board determines to manage the Acquiring Fund in reliance on the SEC order. The shareholders of the Acquired Fund have previously approved granting the Manager comparable authority to select and contract with Sub-Advisors to the Acquired Fund (other than Sub-Advisors affiliated with the Manager) after approval by the Board of Directors of the Acquired Fund but without shareholder approval. Comparison of Principal Investment Risks In deciding whether to approve the Reorganization, shareholders should consider the amount and character of investment risk involved in the respective investment objectives and strategies of the Acquired and Acquiring Funds. Because both of the Acquired and Acquiring Funds are money market funds that seek as high a level of current income as is considered consistent with a preservation of principal and maintenance of liquidity by investing in high quality, short-term money market instruments, they have substantially the same risks. The main risks include: Market Risk: As with all mutual funds, the value of each Fund's assets may rise or fall. Although both Funds seek to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in the Funds. Any investment in the Funds is not guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Credit Risk: Credit risk pertains to the issuer's ability to make scheduled principal or interest payments. This may reduce either Fund's stream of income and decrease its yield. Interest The value of both Funds' shares are directly impacted by trends Rate Risk: in interest rates. If interest rates rise, the value of debt securities generally will fall. Repurchase Both Funds may invest in repurchase agreements with Agreements commercial banks, brokers and dealers considered by the Risk: Manager for the Acquired Fund or the Sub-Advisor for the Acquiring Fund to be creditworthy. Default or insolvency of the other party is a potential risk to both Funds. U.S. Both Funds may invest in securities issued by government- Government sponsored enterprises. Although the issuing agency, Security instrumentality or corporation may be chartered or sponsored by Risk: the U.S. government, its securities are neither issued nor guaranteed by the U.S. Treasury. Eurodollar Eurodollar and Yankee obligations have risks similar to U.S. and Yankee money market instruments, such as income risk and credit risk. Obligations Other risks of Eurodollar and Yankee obligations include the Risk: possibilities that a foreign government will not let U.S. dollar- denominated assets leave the country, the banks that issue Eurodollar obligations may not be subject to the same regulations as U.S. banks, and adverse political or economic developments will affect investments in a foreign country.
The risks of investing in the Acquiring Fund are more fully described in the Statement of Additional Information. The risks of investing in the Acquired Fund are more fully described in the PMF Prospectus and the PMF SAI. Performance The following table shows, for the indicated periods ended December 31, 2004, (i) the annual total return of the Class A and Class B shares of the Acquired Fund and (ii) the annual total return of the Institutional Class shares of the Acquiring Fund adjusted to reflect the expenses of the new Class A and Class B share classes of the Acquiring Fund. The adjustments result in lower performance than the historical performance of the Institutional Class shares. The Class A and Class B shares of the Acquiring Fund will not become operational until the Effective Time of the Reorganization and will assume for periods prior to that time the historical performance of the Institutional Class shares adjusted to reflect the expenses of the new share classes. Average Annual Total Returns (%) for periods ended December 31, 2004 Past Past Past 10 Life of Inception 1 Year 5 Years Years Fund Date -------------------------------------------- Principal Cash Management Fund (Acquired Fund) Class A 0.74% 2.39% 3.71% N/A 03/02/1983 Class B 0.56% 1.91% 3.18% N/A 12/09/1994 PIF Money Market Fund (Acquiring Fund) Institutional Class 03/01/2001 Class A 0.78% N/A N/A 1.43% Class B 0.49% N/A N/A 1.13% Board Consideration of the Combination The Acquired Fund's Board of Directors unanimously recommends the proposed Combination as being in the best interests of shareholders of the Acquired Fund. Various factors considered by the Acquired Fund's Board of Directors in approving the larger Reorganization of all the PMF Funds into PIF at its February 24, 2005, meeting are described below under "Information About the Reorganization and the Combination - Board Consideration of the Reorganization." Particular factors considered by the Board in approving the Combination of the Acquired Fund into the Acquiring Fund include the following: o The Acquired Fund and the Acquiring Fund have substantially the same investment objectives, policies and risks, and their combination will offer shareholders of the Acquired Fund continuity of investment objectives and expectations; o It is in the best interests of the Acquired Fund to be a part of a fund family, and shareholders would likely be harmed if the Acquired Fund did not participate in the Combination (and the Reorganization); o The differences between the fundamental investment restrictions of the two Funds reflect the Acquired Fund's having adopted restrictions that reflect state securities law requirements that are no longer applicable and other differences that the Board does not believe are material in light of the other benefits of the Combination; o Principal Global, as the Sub-Advisor to the Acquiring Fund, may be expected to provide at least the same quality of investment advisory services and personnel (the Funds currently have some of the same portfolio managers) as have been provided by the Manager as the Advisor to the Acquired Fund; o The Acquiring Fund has a lower investment management fee and is expected to have lower overall expense ratios than the Acquired Fund; the Board considered the higher breakpoints and fees at breakpoints in the Management Agreement with the Acquiring Fund to be a negative factor but believed that this factor was outweighed by the slow rate of the Acquired Fund's asset growth, which meant there was small likelihood of its reaching a breakpoint any time soon, the prospects of the Acquiring Fund for a higher rate of asset growth and the other expected benefits of the Combination; o The Acquiring Fund has been operational for a shorter period than the Acquired Fund, but during their common period of existence has performed somewhat better than the Acquired Fund; and o The Combination will result in a combined Fund which will have a larger asset base and may be expected to operate more efficiently and have improved prospects for growth and attendant reductions in overall expenses. PROPOSAL 2 ELECTION OF THE BOARD OF DIRECTORS OF THE PRINCIPAL CASH MANAGEMENT FUND, INC. Shareholders of the Principal Cash Management Fund, Inc. are being asked to elect its Board of Directors. For convenience, references under this Proposal to the "Fund" are to the Principal Cash Management Fund, Inc. The Board has set the number of Directors at nine. Each Director will serve until the next meeting of shareholders or until a successor is elected and qualified. Unless you do not authorize it, your proxy ballot will be voted in favor of the nine nominees listed below. All of the nominees currently serve as Directors. Each nominee has agreed to be named in this Proxy Statement/Prospectus and to serve if elected. The Board has no reason to believe that any of the nominees will become unavailable for election as a Director. However, if that should occur before the meeting, your proxy ballot will be voted for the individuals recommended by the Board to fill the vacancies. The following table presents certain information regarding the current Directors of the Fund, including their principal occupations which, unless specific dates are shown, are of more than five years duration. In addition, the table includes information concerning other directorships held by each Director in reporting companies under the Securities Exchange Act of 1934 or registered investment companies under the 1940 Act. Information is listed separately for those nominees who are "interested persons" (as defined in the 1940 Act) of the Fund (the "Interested Directors") and those nominees who are not interested persons of the Fund (the "Independent Directors"). All Directors serve as directors for each of the 24 investment companies (with a total of 106 portfolios as of December 31, 2004) sponsored by Principal Life: the PMF Funds, including the Fund, PIF and Principal Variable Contracts Fund, Inc. ("PVC") (collectively, the "Fund Complex").
Independent Directors Other Name, Address Position(s) Principal Occupation(s) Directorships and Age Held with PIF During the Past 5 Years Held Elizabeth Ballantine Director (since 2004), Principal, EBA Associates The McClatchy 1113 Basil Road Member of Audit and (consulting and investments) Company McLean, VA Nominating Committee Age: 56 James D. Davis Director (since 1993), Retired. Formerly, Vice President, None 4940 Center Court Member of Audit and Deere & Company Bettendorf, IA Nominating Committee (machinery and equipment) Age: 71 Richard W. Gilbert Director (since 2000), President, Gilbert Communications, Inc. Calamos Asset, 5040 Arbor Lane, #302 Member of Audit and (management advisory services) Management, Inc. Northfield, IL Nominating Committee Age: 64 Mark A. Grimmett Director (since 2004), Executive Vice President and CFO, since 2000, None 6310 Deerfield Avenue Member of Audit and and prior thereto, Vice President and CFO, San Gabriel, CA Nominating Committee Merle Norman Cosmetics, Inc. Age: 45 (manufactures and distributes skin care William C. Kimball Director (since 1999), Retired. Formerly, Chairman and CEO, Casey's General 3094 104th Member of Audit and Medicap Pharmacies Inc. Stores, Inc. Urbandale, IA Nominating Committee (chain of retail pharmacies) Age: 57 Barbara A. Lukavsky Director (since 1993), President and CEO, Barbican Enterprises, Inc. None 100 Market Street Member of Audit and (holding company for franchises in the Des Moines, IA 50309 Nominating Committee, cosmetics industry) Age: 64 Member of Executive Committee
Interested Directors Positions with the Manager and Its Other Name, Address Position(s) Affiliates; Principal Occupation(s) Directorships and Age Held with PIF During the Past 5 Years Held John E. Aschenbrenner Director (since 1998) Director, the Manager and Princor since 1998. None 711 High Street President, Insurance and Financial Services, Des Moines, Iowa 50392 Principal Financial Group, Inc., since 2003. Age: 55 Executive Vice President, 2000-2003, and prior thereto, Senior Vice President, Principal Life Ralph C. Eucher Director, President and Director, President and Chief Executive Officer, None 711 High Street Chief Executive Officer, the Manager and Princor since 1999. Senior Vice Des Moines, Iowa 50392 Member of Executive President, since 2002, Vice President, 1999-2002, Age: 52 Committee (since 1999) and prior thereto, Second Vice President, Principal Larry D. Zimpleman Director, Chairman Life Chairman and Director, the Manager and Princor None 711 High Street of the Board, Member of since 2001. President, Retirement and Investor Des Moines, Iowa 50392 Executive Committee Services, Principal Financial Group, Inc. since 2003. Age: 53 (since 2001) Executive Vice President, 2001-2003, and prior thereto, Senior Vice President, Principal Life
During the last fiscal year of the Fund, the Board of Directors held seven meetings. Each of the Directors of the Fund attended 100% of the meetings of the Board and of the committees of which the Director was a member, except for two Directors who attended at least 85% of such meetings. Correspondence intended for the Board or for an individual Director may be sent to the attention of the Board or the individual Director at 680 8th Street, Des Moines, Iowa 50392-2080. All communications addressed to the Board or to an individual Director received by the Fund are forwarded to the full Board or to the individual Director. Officers of the Fund The following table presents certain information regarding the current officers of the Fund, including their principal occupations which, unless specific dates are shown, are of more than five years duration. Officers serve at the pleasure of the Board of Directors.
Officers Name, Address Position(s) Held Principal Occupation(s) and Age with PIF During the Past 5 Years Craig L Bassett Treasurer (since 1993) Vice President and Treasurer, Principal Life 711 High Street Des Moines, Iowa 50392 Age: 53 Michael J. Beer Executive Vice President, Executive Vice President and Chief Operating Officer, 711 High Street Principal Accounting Officer the Manager and Princor Des Moines, Iowa 50392 (since 1993) Age: 44 David J. Brown Chief Compliance Officer Vice President, Product & Distribution Compliance, 711 High Street (since 2004) Principal Life; Senior Vice President, the Manager, Des Moines, Iowa 50392 since 2004; Senior Vice President, Princor, since 2003, Age: 45 and prior thereto, Vice President, the Manager and Princor Jill R. Brown Vice President and Chief Vice President and Chief Financial Officer, Princor, 711 High Street Financial Officer (since 2003) since 2003, and prior thereto, Assistant Financial Des Moines, Iowa 50392 Controller, Principal Life Age: 37 Arthur S. Filean Senior Vice President and Senior Vice President, since 2000, and prior thereto, 711 High Street Secretary (since 1993) Vice President, the Manager and Princor Des Moines, Iowa 50392 Age: 66 Ernest H. Gillum Vice President and Assistant Vice President and Chief Compliance Officer, the Manager, 711 High Street Secretary (since 1993) since 2004, and prior thereto, Vice President, Compliance and Des Moines, Iowa 50392 Product Development, the Manager Age: 49 David W. Miles Senior Vice President Senior Vice President--Product Development, the Manager and 711 High Street (since 2005) Princor, and Second Vice President, Principal Financial Group, Inc., Des Moines, Iowa 50392 since 2005, and prior thereto, Executive Vice President, Amcore Age: 47 Financial, Inc. (banking) Layne A. Rasmussen Controller (since 1993) Vice President and Controller -- Mutual Funds, the Manager 711 High Street Des Moines, Iowa 50392 Age: 46 Michael D. Roughton Counsel (since 1993) Vice President and Senior Securities Counsel, Principal Financial 711 High Street Group, Inc.; Senior Vice President and Counsel, the Manager and Des Moines, Iowa 50392 Princor; and Counsel, Principal Global Age: 53
Board Committees Audit and Nominating Committee. The Fund has an Audit and Nominating Committee. Its members are identified above. All are Independent Directors. During the last fiscal year, the Committee met four times. The audit committee functions of the Committee include: (1) appointing, compensating, and conducting oversight of the work of the independent auditors; (2) reviewing the scope and approach of the proposed audit plan and the audit procedures to be performed; (3) ensuring the objectivity of the internal auditors and the independence of the independent auditors; and (4) establishing and maintaining procedures for the handling of complaints received regarding accounting, internal controls, and auditing. In addition, the Committee meets with the independent and internal auditors to discuss the results of the audits and reports to the full Board of the Fund. The Committee also receives reports about accounting and financial matters affecting the Fund. The nominating committee functions of the Committee include selecting and nominating all candidates who are not "interested persons" of the Fund (as defined in the 1940 Act) for election to the Board. Generally, the Committee requests director nominee suggestions from the Committee members and management. In addition, the Committee will consider director candidates recommended by the Fund shareholders. Recommendations should be submitted in writing to the Fund at 680 8th Street, Des Moines, Iowa 50392-2080. The Committee has not established any specific minimum qualifications for nominees. When evaluating a person as a potential nominee to serve as an independent director, the Committee will generally consider, among other factors: age; education; relevant business experience; geographical factors; whether the person is "independent" and otherwise qualified under applicable laws and regulations to serve as a director; and whether the person is willing to serve, and willing and able to commit the time necessary for attendance at meetings and the performance of the duties of an independent director. The Committee also meets personally with the nominees and conducts a reference check. The final decision is based on a combination of factors, including the individual strengths and the experience an individual may bring to the Board. The Board does not use regularly the services of any professional search firms to identify or evaluate or assist in identifying or evaluating potential candidates or nominees. The Board approved the Audit and Nominating Committee Charter on September 13, 2004. The Charter is not available on the Fund website. A copy of the Charter is attached as Appendix E to this Proxy Statement/Prospectus. Executive Committee. The Executive Committee is selected by the Board. It may exercise all the powers of the Board, with certain exceptions, when the Board is not in session. The Committee must report its actions to the Board. During the last fiscal year, the Committee did not meet. Compensation The Fund does not pay any remuneration to its Directors who are employed by the Manager or its affiliates or to its officers who are furnished to the Fund by the Manager and its affiliates pursuant to the Management Agreement. Each Director who is not an "interested person" received compensation for service as a member of the Boards of all investment companies sponsored by Principal Life based on a schedule that takes into account an annual retainer amount and the number of meetings attended. These fees and expenses are divided among the funds and portfolios based on their relative net assets. The following table provides information regarding the compensation received by the Independent Directors from the PMF Funds, including the Fund, and from the Fund Complex during the fiscal year ended October 31, 2004. The Fund does not provide retirement benefits to any of the Directors. Director PMF Funds Fund Complex - ------------------------------------------------------------------------ Elizabeth Ballantine* -- -- James D. Davis $20,241 $79,750 Richard W. Gilbert $20,241 $79,750 Mark A. Grimmett** $15,255 $64,093 William C. Kimball $20,241 $79,750 Barbara A. Lukavsky $20,241 $79,750 - --------------- * Ms. Ballantine did not become a Director until December 2004. ** Mr. Grimmett did not become a Director until March 2004. Share Ownership The following tables set forth the aggregate dollar range of the equity securities of the mutual funds within the Fund Complex which were beneficially owned by the Directors as of March 3, 2005. As indicated above, the Fund Complex includes the PMF Funds, the PIF Funds and the separate series of PVC. For the purpose of these tables, beneficial ownership means a direct or indirect pecuniary interest. Only the Directors who are "interested persons" are eligible to participate in an employee benefit program which invests in the PIF Funds. Directors who beneficially owned shares of the series of PVC did so through variable life insurance and variable annuity contracts issued by Principal Life. Please note that exact dollar amounts of securities held are not listed. Rather, ownership is listed based on the following dollar ranges: A - $0 D - $50,001 up to and including $100,000 B - $1 up to and including $10,000 E - $100,001 or more C - $10,001 up to and including $50,000 Independent Directors (Not Considered to be Interested Persons") Principal Mutual Funds Ballantine* Davis Gilbert Grimmett Kimball Lukavsky - ----------------------- ---------------------------------------------------- Balanced........................A........B......B........A........A........A Capital Value...................A........C......C........A........A........A Partners LargeCap Value.........C........A......A........A........A........A Equity Income...................A........E......B........A........E........A Partners Blue Chip..............A........D......B........A........A........A Partners LargeCap Blend.........A........A......A........A........A........A LargeCap Stock Index............A........A......A........A........A........A Growth Fund, Inc................A........C......D........A........A........A Partners Equity Growth..........A........A......A........A........A........A MidCap Fund, Inc................A........C......D........A........A........A Partners MidCap Growth..........A........A......A........A........A........A SmallCap........................A........A......A........A........A........A Partners SmallCap Growth........A........A......A........A........A........A Real Estate Securities..........C........A......A........A........C........A Bond............................A........C......D........C........A........E Government Securities Income....A........B......B........A........A........A Tax-Exempt Bond.................A........B......A........A........A........A International...................A........B......C........A........A........E International SmallCap..........C........C......A........A........A........A Limited Term Bond...............A........A......A........B........A........E Cash Management.................A........D......C........C........C........D International Emerging Markets..C........C......A........A........A........A TOTAL FUND COMPLEX.........D........E......E........D........E........E - --------------- * Information for Ms. Ballantine, who became a Director in December 2004, is as of March 4, 2005. Directors Considered to Be "Interested Persons" Principal Mutual Funds Aschenbrenner Eucher Zimpleman Balanced ...............................A............A............A Capital Value...........................A............A............A Partners LargeCap Value.................A............D............A Equity Income...........................A............C............A Partners Blue Chip......................A............C............A Partners LargeCap Blend.................A............D............A LargeCap Stock Index ...................A............A............A Growth ................................A............C............A Partners Equity Growth..................A............C............A MidCap ................................A............D............A Partners MidCap Growth..................A............A............A SmallCap ...............................A............A............A Partners SmallCap Growth ...............A............A............A Real Estate Securities..................A............A............A Bond .................................A............A............A Government Securities Income............A............C............A Tax-Exempt Bond.........................A............A............A International...........................A............A............A International SmallCap .................A............A............A Limited Term Bond.......................A............A............A Cash Management.........................A............B............A International Emerging Markets..........A............A............A TOTAL FUND COMPLEX........A............E............A Directors Considered to Be "Interested Persons" Principal Investors Fund, Inc.* Aschenbrenner Eucher Zimpleman Bond & Mortgage Securities Fund.........C............C............C Government Securities Fund..............A............C............A Diversified International Fund..........E............A............C International Emerging Markets Fund.....C............A............A LargeCap Growth Fund....................C............A............A LargeCap S&P 500 Index Fund.............C............D............A Mid Cap Blend Fund......................C............B............C Money Market Fund.......................C............A............A Partners LargeCap Blend Fund I..........B............A............A Partners LargeCap Growth Fund I.........C............A............A Partners LargeCap Value Fund............B............C............C Partners MidCap Growth Fund.............C............A............A Principal LifeTime Strategic Income Fund..................................C............A........... A Real Estate Securities Fund.............C............A............A SmallCap S&P 600 Index Fund.............D............A............A TOTAL FUND COMPLEX...............E............E............D - -------------- * Through participation in an employee benefit plan. Independent Directors (Not Considered to Be "Interested Persons") Principal Variable Contracts Fund, Inc. * Ballantine Davis Gilbert Grimmett Kimball Lukavsky Asset Allocation Account........A........A......A........A........A........A Balanced Account................A........A......A........A........A........A Bond Account....................A........A......A........A........C........A Capital Value Account...........A........A......A........A........A........A Equity Growth Account...........A........A......A........A........C........A Equity Income Account...........A........A......A........A........A........A Equity Value Account............A........A......A........A........A........A Government Securities Account...A........A......A........A........C........A Growth Account..................A........A......A........A........A........A International Account...........A........A......A........A........A........A International Emerging Markets Account.....................A........A......A........A........A........A International SmallCap Account..A........A......A........A........A........A LargeCap Blend Account..........A........A......A........A........A........A Large Growth Equity Account.....A........A......A........A........A........A LargeCap Stock Index Account....A........A......A........A........C........A LargeCap Value Account..........A........A......A........A........A........A Limited Term Bond Account.......A........A......A........A........A........A MidCap Account..................A........A......A........A........C........A MidCap Growth Account...........A........A......A........A........A........A MidCap Value Account............A........A......A........A........C........A Money Market Account............A........A......A........A........A........A Principal LifeTime 2010 Account.A........A......A........A........A........A Principal LifeTime 2020 Account.A........A......A........A........A........A Principal LifeTime 2030 Account.A........A......A........A........A........A Principal LifeTime 2040 Account.A........A......A........A........A........A Principal LifeTime 2050 Account.A........A......A........A........A........A Principal LifeTime Strategic Income Account.............A........A......A........A........A........A Real Estate Securities Account..A........A......A........A........C........A SmallCap Account................A........A......A........A........C........A SmallCap Growth Account.........A........A......A........A........A........A SmallCap Value Account..........A........A......A........A........A........A TOTAL FUND COMPLEX...........A........A......A........A........E........A - ------------------ * Through variable life insurance and variable annuity contracts issued by Principal Life. Directors Considered to Be "Interested Persons" Principal Variable Contracts Fund, Inc. * Aschenbrenner Eucher Zimpleman Asset Allocation Account................B............A............A Balanced Account........................B............A............A Bond Account............................A............A............A Capital Value Account...................C............A............A Equity Growth Account...................B............A............A Equity Income Account...................A............A............A Equity Value Account....................A............A............A Government Securities Account...........A............A............A Growth Account..........................B............A............A International Account...................C............A............A International Emerging Markets Account..A............A............A International SmallCap Account..........B............A............A LargeCap Blend Account..................A............A............A Large Growth Equity Account.............C............A............A LargeCap Stock Index Account............A............A............A LargeCap Value Account..................A............A............A Limited Term Bond Account...............A............A............A MidCap Account..........................B............A............A MidCap Growth Account...................A............A............A MidCap Value Account....................A............A............A Money Market Account....................A............A............A Principal LifeTime 2010 Account.........A............A............A Principal LifeTime 2020 Account.........A............A............A Principal LifeTime 2030 Account.........A............A............A Principal LifeTime 2040 Account.........A............A............A Principal LifeTime 2050 Account.........A............A............A Principal LifeTime Strategic Income Account........................A............A............A Real Estate Securities Account..........A............A............A SmallCap Account........................C............A............A SmallCap Growth Account.................B............A............A SmallCap Value Account..................A............A............A TOTAL FUND COMPLEX.................D............A............A - ------------------ * Through variable life insurance and variable annuity contracts issued by Principal Life. Required Vote The affirmative vote of the holders of a plurality of the shares voted at the meeting of the Fund is required for the election of a Director of the Fund. The Board of Directors unanimously recommends that the shareholders of the Fund vote "For" all the nominees. INFORMATION ABOUT THE REORGANIZATION AND THE COMBINATION Agreement and Plan of Reorganization The terms of the Plan are summarized below. The summary is qualified in its entirety by reference to the Plan, a copy of which is attached as Appendix A to this Proxy Statement/Prospectus. As described above, the Combination is part of the Reorganization providing for the combinations of all of the PMF Funds into corresponding PIF Funds. The description below of the Combination of the Acquired Fund into the Acquiring Fund applies as well to the other combinations of PMF Funds into PIF Funds. Under the Plan, the Acquiring Fund will acquire all the assets and assume all the liabilities of the Acquired Fund and in exchange will issue to the Acquired Fund Class A and Class B shares of the Acquiring Fund. Subject to the satisfaction of the conditions set forth below, the acquisition will take place on June 30, 2005 or on such other date as may be agreed upon by the Acquired Fund and PIF on behalf of the Acquiring Fund (the "Closing Date"). The net asset value per share of each class of shares of the Acquired Fund and the Acquiring Fund will be determined by dividing each Fund's assets, less liabilities, attributable to that share class, by the total number of outstanding shares of that class. The assets of each Fund will be valued in accordance with the valuation practices of that Fund, which practices will be the same as between the Acquired Fund and the Acquiring Fund. The number of full and fractional shares of the Acquiring Fund received by a shareholder of the Acquired Fund will be equal in value to the value of the shareholder's full and fractional shares of the Acquired Fund as of the close of regularly scheduled trading on the New York Stock Exchange on the Closing Date (the "Effective Time"). The Acquired Fund will distribute pro rata to its shareholders of record as of the Effective Time the Class A and Class B shares of the Acquiring Fund received by the Acquired Fund in the Reorganization. Holders of Class A and Class B shares of the Acquired Fund will receive, respectively, Class A and Class B shares of the Acquiring Fund. Such distributions will be accomplished by the transfer of the shares of the Acquiring Fund then credited to the account of the Acquired Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the names of the shareholders of the Acquired Fund, each account representing the respective pro rata number of shares of the Acquiring Fund due the shareholder. All issued and outstanding shares of the Acquired Fund will simultaneously be cancelled on the books of the Acquired Fund. As soon as practicable after the Closing Date, the Acquired Fund will take all necessary steps under its Articles of Incorporation, Maryland law and any other applicable law to effect its complete dissolution. The Board of Directors of the Acquired Fund has determined that the interests of the shareholders of the Acquired Fund will not be diluted as a result of the Combination and that participation in the Combination is in the best interests of the Acquired Fund and its shareholders. Similarly, the Board of Directors of PIF has determined that the Combination is in the best interests of the Acquiring Fund and its shareholders and that the interests of such shareholders will not be diluted as a result of the Combination. The consummation of the Combination is subject to the conditions set forth in the Plan, including that the affirmative vote of the holders of at least a Majority of the Outstanding Voting Securities (as defined under "Voting Information" below) of the Acquired Fund entitled to vote on the Combination. The Plan may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the Acquired Fund and PIF on behalf of the Acquiring Fund. However, following the meeting of the shareholders of the Acquired Fund, no such amendment may have the effect of changing the provisions for determining the number of Class A and Class B shares of the Acquiring Fund to be issued to the shareholders of the Acquired Fund under the Plan to their detriment, or otherwise have a material adverse effect on the interests or rights of the Acquired Fund or its shareholders, without the Acquired Fund obtaining further approval of its shareholders. The Plan may be terminated and the Combination abandoned at any time prior to the Closing Date by the Acquired Fund and PIF on behalf of the Acquiring Fund by (i) mutual agreement of the parties, or (ii) by either party if the closing has not occurred on or before June 30, 2005, unless such date is extended by mutual agreement of the parties, or (iii) by either party if the other party has materially breached its obligations under the Plan or made a material and intentional misrepresentation in or in connection with the Plan. Additionally, except as otherwise expressly provided in the Plan, the Acquired Fund and PIF on behalf of the Acquiring Fund may at any time prior to the closing: (i) waive any inaccuracies in the representations and warranties contained in the Plan and made for its benefit, and (ii) waive compliance with any of the covenants or conditions contained in the Plan and made for its benefit, except that any such waiver that would have a material adverse effect on the interests or rights of the Acquired Fund or its shareholders, or the Acquiring Fund or its shareholders, may be made only with the consent of the Board of Directors of, respectively, the Acquired Fund or PIF on behalf of the Acquiring Fund. The expenses of the Combination of the Acquired and Acquiring Funds are part of the expenses of the larger Reorganization. Under the Plan, the first $1,000,000 of the expenses relating to the Reorganization will be allocated among the PMF Funds, including the Acquired Fund, based on the ratio of the open accounts of each PMF Fund to the open accounts of all the PMF Funds as of the close of business on February 28, 2005. The Manager will pay 50% of the balance of the expenses relating to the Reorganization, and the remaining 50% will be allocated among the Acquired Funds in the same manner as the first $1,000,000 of expenses, except that the Manager will pay 100% of such expenses allocated to the certain PMF Funds, not including the Acquired Fund, which are not expected to experience reduced expense ratios as a result of the Reorganization. See Appendix A hereto. Reasons for the Reorganization and the Combination The Board of Directors of each the PMF Funds, including the Acquired Fund, has observed that the PMF Funds have generally been experiencing declining net assets, due in part to redemptions and in part to the level of new sales. The PIF Funds, in contrast, have generally been experiencing asset growth, which tends to result in decreasing expense ratios and to facilitate more efficient portfolio management. The purpose of the Reorganization is to combine the PMF and PIF Funds, which are all sponsored by Principal Life and managed by the Manager, into a larger fund family that is expected to achieve economies of scale and to operate with greater efficiency and lower overall costs while enabling shareholders of each Acquired Fund to continue their investments in an Acquiring Fund having substantially the same or similar investment objectives and policies. With respect to the Combination, the Acquired and Acquiring Funds are both money market funds that have substantially similar investment objectives and strategies. The Acquiring Fund has a lower management fee and is expected to have lower overall expenses than the Acquired Fund, and the Acquiring Fund has generally performed better than the Acquired Fund during the period in which both have been operational. Combining the Funds will not result in any dilution of the interests of existing shareholders of the Acquired Fund. Board Consideration of the Reorganization The Board of Directors of each PMF Fund (including the Acquired Fund), including the Directors who are not "interested persons" (as defined in the 1940 Act) of each PMF Fund (the "Independent Directors"), considered the Reorganization at Board meetings held on December 13, 2004, February 4, 2005 and February 24, 2005. The Board of each PMF Fund considered information about the Reorganization presented by the Manager, and the Independent Directors were assisted by independent legal counsel and an independent consultant. At the February 24, 2005 meeting, the Board of each PMF Fund unanimously approved the Reorganization as to each PMF Fund and its corresponding PIF Fund after concluding that the participation of the PMF Fund in the Reorganization is in the best interests of the PMF Fund, as well as in the best interest of its shareholders, and that the interests of such existing shareholders will not be diluted as a result of the Reorganization. In determining whether to approve the Reorganization and recommend its approval to shareholders, the Board of each PMF Fund made inquiry into a number of matters and considered the following factors, among others: (1) the compatibility of the investment objectives and policies, and the fundamental and non-fundamental investment restrictions, of the PMF Fund and its corresponding PIF Fund and any changes with respect thereto that will result from the Reorganization; (2) the cost associated with disposing of any portfolio securities that would not be compatible with the investment objectives and policies of the PIF Fund; (3) expense ratios and available information regarding the fees and expenses of the PMF Fund and its corresponding PIF Fund, and the applicability and impact of any voluntary or contractual fee waivers or expense reimbursements with respect to the PIF Fund; (4) comparative investment performance of the PMF Fund and its corresponding PIF Fund; (5) the effect on the PMF Fund's shareholders of investing in a larger asset pool with potentially greater diversification, and the effect on the portfolio management of the corresponding PIF Fund of such a larger asset base, where applicable; (6) the prospects for growth, and for achieving economies of scale, of the PMF Fund in combination with the corresponding PIF Fund and as combined into PIF; (7) projections with respect to asset growth or decline based upon distribution activities and market performance and the likely impact of these factors on expense ratios; (8) the financial strength, investment experience, personnel and resources of the Sub-Advisor or Sub-Advisors to the PMF Fund and its corresponding PIF Fund; (9) where applicable, the continued service of the Sub-Advisor to the PMF Fund as the Sub-Advisor to its corresponding PIF Fund; (10) the continuity of or changes in services to be provided to shareholders following the Reorganization; (11) PIF marketing efforts and distribution arrangements; (12) any direct or indirect fees or expenses to be incurred by the PMF Fund or its shareholders as a result of the Reorganization, and any benefits to be derived by the Manager and its affiliates from the Reorganization; (13) the direct or indirect federal income tax consequences of the Reorganization, including the impact of any federal income tax loss carryforward; (14) the terms and conditions of the Agreement and Plan of Reorganization and whether its implementation would result in dilution of shareholder interests; and (15) possible alternatives to the Reorganization. Each PMF Fund Board's decision to recommend approval of the Reorganization was based on a number of factors. Particular factors considered by the Acquired Fund's Board with respect to the Combination of the Acquired Fund into the Acquiring Fund are discussed under Proposal 1 (see "Board Consideration of the Combination"). The following is a general summary of factors which relate to the combinations of all the PMF Funds into their corresponding PIF Funds: 1. the PMF Funds, in general, have been experiencing declining assets, which has a negative impact on shareholders of the Funds, and this trend is expected to continue; 2. each PMF Fund in combination with its corresponding PIF Fund may expect to benefit from one or more of the following: (i) an immediately larger fund asset base to achieve economies of scale and enable greater flexibility in portfolio management and greater diversification in investments; (ii) the possibility of similar benefits from future growth of fund assets as a result of the combined PMF and PIF distribution networks; and (iii) certain efficiencies on an ongoing basis as a result of PIF's larger overall size, relative to the PMF Funds separately and collectively; 3. the investment objectives, policies and risks of the PIF Funds are the same or substantially similar to those of their corresponding PMF Funds and will afford shareholders of the PMF Funds continuity of investment objectives and expectations. 4. the Manager is the investment advisor for each PMF and PIF Fund and may be expected to continue to provide to the PIF Funds investment advisory and administrative services and personnel of at least the same quality as those currently provided to the PMF Funds; 5. most combinations (with certain exceptions not applicable to the Combination) involve a PIF Fund with expense ratios that are expected to be the same as or lower than those of the PMF Fund, as of the time of the Reorganization; 6. the Reorganization will not result in the dilution of the interests of existing shareholders; and 7. the Reorganization has been structured as a tax-free reorganization and therefore will not result in shareholders recognizing any gain or loss for federal income tax purposes. Description of the Securities to Be Issued PIF is a Maryland corporation that is authorized to issue its shares of common stock, par value $.01 per share, in separate series and separate classes of series. The Acquiring Fund is a separate series of PIF, and the Class A and Class B shares of the Acquiring Fund to be issued in connection with the Combination, along with the other classes of shares of the Acquiring Fund, represent interests in the assets belonging to that series and have identical dividend, liquidation and other rights, except that expenses allocated to the series or class are borne solely by that series or class and may cause differences in rights as described herein. Expenses related to the distribution of, and other identified expenses properly allocated to, the shares of the series or class are charged to and borne solely by that series or class, and the bearing of expenses by the series or class may be appropriately reflected in the net asset value attributable to, and the dividend and liquidation rights of, that series or class. All shares of PIF have equal voting rights and are voted in the aggregate and not by separate series or class of shares except that shares are voted by series or class: (i) when expressly required by Maryland law or the 1940 Act and (ii) on any matter submitted to shareholders which the Board of Directors has determined affects the interests of only a particular series or class. The Acquired Fund is also a Maryland corporation and is authorized to issue shares, par value $.01 per share, in separate classes. The Class A and Class B shares of the Acquired Fund represent interests in the assets belonging to the Fund and have substantially the same dividend, liquidation and other rights with respect to the Acquired Fund that the Class A and Class B shares of the Acquiring Fund have with respect to the Acquiring Fund as described above. Similarly, all shares of the Acquired Fund have equal voting rights and are voted in the aggregate and not by class of shares except that shares are voted by class: (i) when expressly required by Maryland law or the 1940 Act and (ii) on any matter submitted to shareholders which the Board of Directors has determined affects the interests of only a particular class. See "Comparative Information About the Acquired and Acquiring Funds - Multiple Classes of Shares" and "Rule 12b-1 fees" below. With respect to shares of both the Acquiring and Acquired Funds: there is no cumulative voting for Directors; shares are fully paid and non-assessable, have no preemptive or conversion rights and are freely transferable; and each fractional share has proportionately the same rights as are provided for a full share. At the PIF Shareholders Meeting, shareholders of the PIF Funds, including the Acquiring Fund, will be asked to approve proposed amendments to the PIF Articles of Incorporation that will permit the PIF Board of Directors, in each case without shareholder approval of an affected PIF Fund or class of shares thereof: (i) to approve combinations involving PIF Funds, including combinations of the PIF Funds (or other affiliated funds) consistent with recently amended Rule 17a-8 under the 1940 Act; (ii) to liquidate the assets attributable to a PIF Fund or a class of shares thereof and terminate such Fund or class of shares; and (iii) to designate a class of shares of a PIF Fund as a separate series or PIF Fund. Together, these amendments are intended to facilitate future combinations involving PIF Funds that the PIF Board determines are in the best interests of the affected shareholders. A combination of affiliated funds will still require shareholder approval if the combination would result in a material change in a fundamental investment policy, a material change to the terms of an advisory agreement or the institution of or an increase in Rule 12b-1 fees or when the Board of the surviving fund does not have a majority of independent trustees who were elected by its shareholders. If shareholders of the Acquiring Fund approve the proposed amendments, Acquired Fund shareholders after the Combination will no longer have the rights they currently have under the Articles of Incorporation of the Acquired Fund and under Maryland law to vote to approve a combination involving, and to vote with respect to the liquidation of, their Fund. Federal Income Tax Consequences The Reorganization will be a tax-free "reorganization," and no gain or loss will be recognized by either the Acquired Fund or Acquiring Fund or its shareholders in connection with the Combination. To be considered a tax-free "reorganization" under Section 368(a) of the Internal Revenue Code, a reorganization must exhibit a continuity of business enterprise. The Acquired Fund and PIF on behalf of the Acquiring Fund will have received opinions of tax counsel, in forms reasonably satisfactory to each, substantially to the effect that, based upon certain facts, assumptions, and representations of the Acquired Fund and of PIF on behalf of the Acquiring Fund, for federal income tax purposes: (1) the Reorganization will constitute a reorganization within the meaning of Section 368(a) of the Code with respect to the Acquired Fund and the Acquiring Fund; (2) no gain or loss will be recognized by the Acquired Fund or the Acquiring Fund upon the transfer of all of the assets and liabilities, if any, of the Acquired Fund to the Acquiring Fund solely in exchange for shares of the Acquiring Fund; (3) no gain or loss will be recognized by shareholders of the Acquired Fund upon the exchange of such Acquired Fund's shares solely for shares of the Acquiring Fund; (4) the holding period and tax basis of the shares of the Acquiring Fund received by each holder of shares of the Acquired Fund pursuant to the Reorganization will be the same as the holding period and tax basis of the shares of the Acquired Fund held by the shareholder (provided the shares of the Acquired Fund were held as a capital asset on the date of the Reorganization) immediately prior to the Reorganization; and (5) the holding period and tax basis of the assets of the Acquired Fund acquired by the Acquiring Fund will be the same as the holding period and tax basis of those assets to the Acquired Fund immediately prior to the Reorganization. The foregoing is only a summary of the principal federal income tax consequences of the Reorganization and should not be considered to be tax advice. There can be no assurance that the Internal Revenue Service will concur on all or any of the issues discussed above. You may wish to consult with your own tax advisers regarding the federal, state, and local tax consequences with respect to the foregoing matters and any other considerations which may apply in your particular circumstances. CAPITALIZATION The following table shows as of October 31, 2004: (i) the capitalization of the Acquired Fund; (ii) the capitalization of the Acquiring Fund; and (iii), the pro forma combined capitalization of the Acquiring Fund, adjusted to reflect the estimated expenses of the Reorganization, as if the Reorganization had occurred as of that date. As of October 31, 2004, the Acquired Fund had outstanding two classes of shares: Class A and Class B. As of October 31, 2004, the Acquiring Fund had outstanding the following six classes of shares: Institutional Class, Select Class, Preferred Class, Advisors Select Class, Advisors Preferred Class and Class J. The Acquiring Fund will first issue Class A and Class B shares in connection with the Reorganization. See "Comparative Information About the Acquired and Acquiring Funds - Multiple Classes of Shares" below. Net Asset Value Shares Net Assets Per Share Outstanding (1) Principal Cash Management Fund, Inc. (Acquired Fund) Class A $317,339,972 $1.00 317,339,972 Class B 5,071,152 1.00 5,071,152 (2) PIF Money Market Fund (Acquiring Fund) Class A -- -- -- Class B -- -- -- Institutional 56,277,419 1.00 56,277,419 Select 1,483,964 1.00 1,483,964 Preferred 14,598,771 1.00 14,598,771 Advisors Select 6,393,823 1.00 6,393,823 Advisors Signature -- 1.00 -- Advisors Preferred 7,413,337 1.00 7,413,337 Class J 132,550,498 1.00 132,550,498 Reduction in net assets and decrease in net asset values per share of the Acquired Fund to reflect the estimated expenses of the Reorganization. Class A 84,527 -- 317,339,972 Class B 1,260 -- 5,071,152 (3) PIF Money Market Fund (Acquiring Fund) (Pro forma assuming combination of (1) and (2)) Class A 317,255,445 1.00 317,339,972 Class B 5,069,892 1.00 5,071,152 Institutional 56,277,419 1.00 56,277,419 Select 1,483,964 1.00 1,483,964 Preferred 14,598,771 1.00 14,598,771 Advisors Select 6,393,823 1.00 6,393,823 Advisors Signature -- 1.00 -- Advisors Preferred 7,413,337 1.00 7,413,337 Class J 132,550,498 1.00 132,550,498 COMPARATIVE INFORMATION ABOUT THE ACQUIRED AND ACQUIRING FUNDS Multiple Classes of Shares The Board of Directors of the Acquired Fund has adopted a multiple class plan for the Fund pursuant to Rule 18f-3 (an "18f-3 Plan") under the 1940 Act. Under the plan, the Acquired Fund offers two classes of shares: Class A and Class B. The Class A and Class B shares are the same except for differences in class expenses, including Rule 12b-1 fees for Class B shares, and any applicable sales charges. See "Rule 12b-1 Fees" and "Costs of Investing" below. The Board of Directors of PIF has adopted an 18f-3 Plan for the Acquiring Fund. Under the plan, the Acquiring Fund may offer the following nine classes of shares: Institutional Class, Select Class, Preferred Class, Advisors Select Class, Advisors Signature Class, Advisors Preferred Class, Class J, Class A and Class B. The Acquiring Fund will first issue Class A and Class B shares in connection with the Reorganization. The Institutional Class, Select Class, Preferred Class, Advisors Select Class, Advisors Signature Class, Advisors Preferred Class, Class J, Class A and Class B shares are the same except for differences in class expenses, including any 12b-1 fees, and any applicable sales charges and redemption and other fees. With respect to Class A and Class B shares, see "Rule 12b-1 fees" and "Costs of Investing" below. The Class A and Class B shares of the Acquired and Acquiring Funds are generally sold without a sales charge. However, the Class A and Class B shares may be subject to a contingent deferred sales charge ("CDSC") on shares redeemed. See "Costs of Investing" below. The PIF Advisors Select, Advisors Signature, Advisors Preferred, Institutional, Select and Preferred Classes: o are available without any front-end sales charge or contingent deferred sales charge; o currently have all of their operating expenses absorbed by the Manager; and o are available through employer-sponsored retirement plans which may impose fees in addition to those charged by the Funds. The PIF Advisors Select, Advisors Signature, Advisors Preferred Select and J share classes are subject to 12b-1 fees, which are paid to Princor, as well as service fees and administrative service fees which are paid to the Manager. The PIF Class J shares are sold without any front-end sales charge and under certain circumstances may be subject to a contingent deferred sales charge ("CDSC") if redeemed within 18 months of purchase. See also "Information About the Reorganization and the Combination - Description of the Securities to be Issued" above. Rule 12b-1 Fees The Acquired Fund has adopted a Distribution Plan under Rule 12b-1 under the 1940 Act (a "12b-1 Plan") for the Class B shares of the Acquired Fund, and PIF has adopted a 12b-1 Plan for the Class B shares of the Acquiring Fund. The 12b-1 Plans for the Class B shares provide for payments by the Funds to Princor at the annual rate of up to 1.00% for the Acquired Fund and 0.25% for the Acquiring Fund of the respective Fund's average net assets attributable to Class B shares. Princor also receives the proceeds of any CDSC imposed on redemptions of Class B shares. Although Class B shares are sold without an initial sales charge, Princor pays a sales commission equal to 4.00% of the amount invested to dealers who sell such shares. These commissions are not paid on exchanges between PMF Funds or between PIF Funds. In addition, Princor may remit on a continuous basis up to 0.25% to the registered representatives and other selected dealers (including for this purpose, certain financial institutions) as a trail fee in recognition of their services and assistance. The 12b-1 Plan for Class B shares of the Acquiring Fund authorizes Princor to enter into service agreements with other selling dealers and with banks and other financial institutions to provide shareholder services to existing Class B shareholders, including services such as furnishing information as to the status of shareholder accounts, responding to shareholder written and telephone inquiries and assisting shareholders with tax information. Costs of Investing This section describes the contingent deferred sales charges ("CDSCs") that apply to the Class A and Class B shares of the Acquired and Acquiring Funds. Except as otherwise stated below, such charges are the same for the Class A shares of both the Acquired and Acquiring Funds and for the Class B shares of both the Acquired and Acquiring Funds. For purposes of the following description, the Acquired and Acquiring Funds are considered "Money Market Funds." Shareholder Fees (fees paid directly from your investment) The following table describes the fees and expenses you may pay if you buy and hold shares of the Acquired and Acquiring Funds: Acquired and Acquiring Funds Class A Class B Maximum sales charge imposed on purchases (as a % of offering price): Money Market Funds None None Maximum Contingent Deferred Sales Charge (CDSC) (as a % of dollars subject to charge): Money Market Funds 0.75%(1) 4.00%(2) Redemption or Exchange Fee (as a % of amount redeemed/exchanged): Money Market Funds None None (1) A CDSC applies on certain redemptions made within 18 months following purchases of $1 million or more made without a sales charge. (2) CDSCs are reduced after 12 months and eliminated after 6 years. Fees and expenses are important because they lower your earnings. However, low costs do not guarantee higher earnings. For example, a fund with no front-end sales charge may have higher ongoing expenses than a fund with such a sales charge. One -Time Fees o Class A and Class B shares of the Acquired and Acquiring Funds are not subject to an initial sales charge. However, a CDSC may apply. o Investments of $1 million or more of Class A shares of other Principal sponsored mutual funds are sold without an initial sales charge but may be subject to a CDSC at the time of redemption. Redemption of Class A shares of the Acquired and Acquiring Funds purchased through an exchange from Class A shares of other Principal sponsored mutual funds will be subject to a CDSC to the same extent as those shares from which the exchange was made. o Class B shares may be purchased only through an exchange and, therefore, have no initial sales charge but may be subject to a CDSC. If you sell (redeem) shares and the CDSC is imposed, it will reduce the amount of sales proceeds. Choosing a Share Class Class A shares of the Acquired and Acquiring Funds are available by either direct investment or by exchange from Class A shares of another Principal sponsored mutual fund. Class B shares of the Acquired and Acquiring Funds are available only by exchange from Class B shares of other Principal sponsored mutual funds. Class A Shares Sales Charge There is no sales charge on purchases of Class A shares of the Acquired and Acquiring Funds. However, there may be a CDSC on shares sold within 18 months of the purchase date if such shares were acquired as a result of an exchange from Class A shares of other Principal sponsored mutual funds. The CDSC does not apply to shares purchased with reinvested dividends or other distributions. The CDSC is calculated as 0.75% of the lesser of the market value at the time of the redemption or the initial purchase price of the shares sold. The CDSC is waived on shares sold to fund a PMF or PIF 401(a) or PMF or PIF 401(k) retirement plan, except redemptions which are the result of termination of the plan or transfer of all plan assets. The CDSC is also waived on shares sold: o to satisfy IRS minimum distribution rules; and o using a periodic withdrawal plan. (You may sell up to 10% of the value of the shares (as of December 31 of the prior year) subject to a CDSC without paying the CDSC.) Shares subject to the CDSC which are exchanged from one PMF Fund to another PMF Fund, or from one PIF Fund to another PIF Fund, continue to be subject to the CDSC until the CDSC expires. Class B shares Sales Charges There is no front end sales charge on purchases of Class B shares of the Acquired and Acquiring Funds. A CDSC may be imposed on Class B shares sold within six years of purchase. Class B shares automatically convert into Class A shares (based on share prices, not number of shares) seven years after purchase. Class B shares provide you the benefit of putting all your dollars to work from the time of investment, but (until conversion) have higher ongoing fees and lower dividends than Class A shares. The Class B share CDSC, if any, is determined by multiplying the lesser of the market value at the time of redemption or the initial purchase price of the shares sold by the appropriate percentage from the table below: CDSC as a % of Dollar Amount Years Since Purchase Payments Made Acquired and Acquiring Funds 2 years or less 4.00% More than 2 years, up to 4 years 3.00% More than 4 years, up to 5 years 2.00% More than 5 years, up to 6 years 1.00% More than 6 years None The CDSC is not charged on exchanges. However, the purchase date of the exchanged shares is used to determine if the newly acquired shares are subject to the CDSC when sold. The Fund from which the shares are sold is used to determine the percentage of CDSC, if any. The following table applies to Acquired or Acquiring Fund shares purchased through employer sponsored plans making initial plan contributions into the Acquired or Acquiring Funds after February 1, 1998 but before March 1, 2002 only. The CDSC table above applies to purchases made by plans making initial contributions into the Funds after March 1, 2002. CDSC as a % of Dollar Amount Years Since Purchase Payments Made Acquired and Acquiring Funds 2 years or less 3.00% More than 2 years, up to 4 years 2.00% More than 4 years, up to 5 years 1.00% More than 5 years, up to 6 years None More than 6 years None o The CDSC does not apply to shares purchased with reinvested dividends or other distributions. o The amount of the CDSC is a percentage based on the number of years you own the shares multiplied by the lesser of the market value at the time of the redemption or the initial purchase price of the shares sold. o In the case of selling some but not all of the shares in an account, the shares not subject to a sales charge are redeemed first. Other Class B shares are redeemed in the order purchased (first in, first out). Using a periodic withdrawal plan, you may sell up to 10% of the value of the shares (as of the last business day of December of the prior year) subject to a CDSC without paying the CDSC. o Shares subject to the CDSC that are exchanged into another PMF or PIF Fund continue to be subject to the CDSC until the CDSC expires. o Princor receives the proceeds of any CDSC. Waiver of the Sales Charge (Class B shares) The CDSC is waived on Class B shares which are sold: o due to a shareholder's death; o due to the shareholder's disability, as defined in the Internal Revenue Code; o from retirement plans to satisfy minimum distribution rules under the Code; o to pay surrender charges; o to pay retirement plan fees; o involuntarily from small balance accounts; o through a systematic withdrawal plan (certain limits apply); o from a retirement plan to assure the plan complies with Sections 401(k), 401(m), 408(k) or 415 of the Code; o from retirement plans qualified under Section 401(a) of the Code due to the plan participant's death, disability, retirement or separation from service after attaining age 55; o from a retirement plan meeting the requirements of Section 401 of the Code (401(k), Profit Sharing and Money Purchase Pension Plans) that has provided us with its notice of intent (on or before November 30, 2002) to transfer its assets to a group annuity contract distributed by Principal Life; or o from an account in a qualified plan administered by GWFS Equities, Inc. unless the sale is associated with the termination of the plan. Purchases, Redemptions and Exchanges of Shares The purchase, redemption and exchange procedures with respect to shares of the Acquired and Acquiring Funds are substantially the same. Purchases. Shares of the Acquired and Acquiring Funds are offered for sale through Princor, a broker-dealer that is also the principal underwriter for the Principal Cash Management Fund, Inc. and PIF, or other dealers which Princor selects. As described above under "Costs of Investing," Class A and Class B shares of the Funds are sold without a sales charge. However, the Class A and Class B shares of the Funds may be subject to a CDSC. Each Fund's shares are bought and sold at the current share price. The share price of each class of each Fund is calculated each day the New York Stock Exchange ("NYSE") is open (shares are not priced on the days on which the NYSE is closed for trading). The share price is determined at the close of business of the NYSE (normally 3:00 p.m. Central Daylight Time). When an order to buy or sell shares is received, the share price used to fill the order is the next price calculated after the order is received. The share price of each Class of shares of the Acquired and Acquiring Funds is computed by dividing the total value of each Fund's securities and other assets, less liabilities, by the number each Fund's shares outstanding. All securities held by the Acquired and Acquiring Funds are valued on an amortized cost basis. Under this method of valuation, a security is initially valued at cost; thereafter, each Fund assumes a constant proportionate amortization in value until maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the security. While this method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price that would be received upon sale of the security. Use of the amortized cost valuation method requires each Fund to maintain a dollar weighted average maturity of 90 days or less and to purchase only obligations that have remaining maturities of 397 days or less or have a variable or floating rate of interest. In addition, each Fund invests only in obligations determined by its Board of Directors to be of high quality with minimal credit risks. Redemptions. Shares of the Acquired and Acquiring Funds may be redeemed at a price equal to the net asset value of the shares next computed following the receipt of a request for redemption in proper form. The amount you receive will be reduced by any applicable CDSC or redemption fee. See "Costs of Investing" above. Generally, the sale proceeds are sent out on the next business day after the sell order has been placed. Payment for shares tendered for redemption is ordinarily made in cash. The Board of Directors of the Acquired Fund or of PIF may determine, however, that it would be detrimental to the remaining shareholders to make payment of a redemption order wholly or partly in cash. Each of the Funds may, therefore, pay the redemption proceeds in whole or in part by a distribution "in kind" of securities from the Fund's portfolio in lieu of cash. If the Fund pays the redemption proceeds in kind, the redeeming shareholder might incur brokerage or other costs in selling the securities for cash. Each Fund will value securities used to pay redemptions in kind using the same method the Fund uses to value its portfolio securities as described above. The right to require the Funds to redeem their shares may be suspended, or the date of payment may be postponed, whenever: (1) trading on the NYSE is restricted, as determined by the SEC, or the NYSE is closed except for holidays and weekends; (2) the SEC permits such suspension and so orders; or (3) an emergency exists as determined by the SEC so that disposal of securities or determination of NAV is not reasonably practicable. Exchanges. Shares of the Acquired and Acquiring Funds may be exchanged, without payment of a sales charge or a CDSC, for shares of the same class of, respectively, other PMF Funds or other PIF Funds. If Class B shares of the Acquired or Acquiring Fund are exchanged for Class B shares of, respectively, another PMF or another PIF Fund, the shares acquired will be subject to the applicable CDSC imposed by the new Fund; however, the holding period of the Class B shares exchanged is added to the holding period of the Class B shares acquired for purposes of determining the applicable charge. See "Costs of Investing" above. Frequent Trading and Market Timing (Abusive Trading Practices) The Acquired and Acquiring Funds are not designed for frequent trading or market timing activity. The Funds do not knowingly accommodate frequent purchases and redemptions of Fund shares by investors. If you intend to trade frequently and/or use market timing investment strategies, you should not purchase these Funds. The Funds consider frequent trading and market timing activities to be abusive trading practices because they: o Disrupt the management of the Funds by: (i) forcing the Fund to hold short-term (liquid) assets rather than investing for long term growth, which results in lost investment opportunities for the Fund; and (ii) causing unplanned portfolio turnover; o Hurt the portfolio performance of the Fund; and o Increase expenses of the Fund due to (i) increased broker-dealer commissions and (ii) increased recordkeeping and related costs. Certain Funds may be at greater risk for abusive trading practices. For example, those Funds that invest in foreign securities may appeal to investors attempting to take advantage of time-zone arbitrage. If the Funds are not able to identify such abusive trading practices, the abuses described above will negatively impact the Funds. Both the Acquired Fund and PIF with respect to the Acquiring Fund have adopted policies and procedures to help identify and prevent abusive trading practices. In addition, the Funds monitor trading activity to identify and take action against abuses. While these policies and procedures are designed to identify and protect against abusive trading practices, there can be no certainty that the Funds will identify and prevent abusive trading in all instances. When the Funds do identify abusive trading, they will apply their policies and procedures in a fair and uniform manner. If either Fund deems abusive trading practices to be occurring, it will take action that may include, but is not limited to: 1. Rejecting exchange instructions from shareholder or other person authorized by the shareholder to direct exchanges; 2. 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; 3. Limiting the dollar amount of an exchange and/or the number of exchanges during a year; 4. Requiring a holding period of a minimum of 30 days before permitting exchanges among the Funds where there is evidence of at least one round-trip exchange (exchange or redemption of shares that were purchased within 30 days of the exchange/redemption); and 5. Taking such other action as directed by the Fund. Both of the Funds have reserved the right to accept or reject, without prior written notice, any exchange requests. In some instances, an exchange may be completed prior to a determination of abusive trading. In those instances, the Funds will reverse exchange and return the account holdings to the positions held prior to the exchange. The Funds will give you notice in writing in this instance. Dividends and Distributions The dividends and distributions procedures with respect to the Acquired and Acquiring Funds are substantially the same. Each of the Acquired and Acquiring Funds declares dividends on all its daily net investment income each day its shares are priced. The dividends are paid daily and are automatically reinvested back into additional shares of the Fund. For both Funds, you may ask to have your dividends paid to you monthly in cash. These cash payments are made on the 20th of each month (or preceding business day). Immediately prior to the Combination, the Acquired Fund will pay a dividend or dividends which, together with all previous dividends, will have the effect of distributing to its shareholders all of its investment company taxable income for taxable years ending on or prior to the Effective Time of the Combination (computed without regard to any deduction for dividends paid) and all of its net capital gains, if any, realized in taxable years ending on or prior to the Effective Time of the Combination (after reduction for any available capital loss carryforward). Such dividends will be included in the taxable income of the Acquired Fund's respective shareholders. Fundamental Investment Restrictions The Acquired Fund and PIF on behalf of the Acquiring Fund have adopted "fundamental" investment restrictions regarding the investments of the respective Funds. A fundamental investment restriction may not be changed for either Fund without the approval of a Majority of the Outstanding Voting Securities (as defined under "Voting Information - Required Vote" ) of that Fund. These fundamental restrictions deal with such matters as the issuance of senior securities, purchasing or selling real estate or commodities, borrowing money, making loans, underwriting securities of other issuers, diversification or concentration of investments and short sales of securities. A comparison of the fundamental restrictions of the Acquired and Acquiring Funds is set forth in Appendix B to this Proxy Statement/Prospectus. The Acquired Fund adopted fundamental restrictions from time to time over a period of several years to reflect legal and regulatory requirements - particularly state securities law requirements -- that applied at that time but no longer do, as well as business and industry conditions that then prevailed. With changes in legal requirements and prevailing conditions, some of these fundamental investment restrictions are no longer necessary and others are more appropriately "non-fundamental" investment restrictions which may be changed by the Board of Directors without shareholder approval. The fundamental restrictions of the Acquiring Fund reflect updating changes that are intended to provide the Manager and the Sub-Advisor to the Acquiring Fund with greater flexibility in managing the Acquiring Fund while continuing to meet fully the requirements of the 1940 Act and the rules and regulations thereunder. Aside from such greater flexibility and the expanded borrowing authority described below, the differences in fundamental restrictions between the Acquired Fund and the Acquiring Fund as set forth in Appendix B are not expected to result in any material difference in the manner in which the Acquiring Fund is managed as compared to the Acquired Fund. The PIF Board of Directors has approved a proposal to amend the fundamental restriction of the Acquiring Fund with respect to borrowing and has directed that the proposal be submitted to shareholders of the Acquiring Fund for approval at the PIF Shareholders Meeting. If approved by shareholders, the amended fundamental restriction with respect to borrowing will permit the Acquiring Fund to borrow money to the maximum extent permitted by the 1940 Act. VOTING INFORMATION This Proxy Statement/Prospectus is furnished in connection with the solicitation by the Board of Directors of the Acquired Fund of proxies to be used at the Meeting. Voting procedures. If you complete and return the enclosed proxy ballot, the persons named as proxies will vote your shares as you indicate or for approval of each matter for which there is no indication. You may revoke your proxy at any time prior to the proxy's exercise; (i) by sending written notice to the Secretary of the Principal Mutual Funds at Principal Financial Group, Des Moines, Iowa 50392-2080 prior to the meeting; (ii) by subsequent execution and return of another proxy prior to the Meeting; or (iii) by being present and voting in person at the Meeting after giving oral notice of the revocation to the Chairman of the Meeting. Voting rights. Only shareholders of record at the close of business on March 23, 2005 (the "Record Date") are entitled to vote. The shareholders of the Class A and Class B shares of the Acquired Fund will vote together on each Proposal submitted to the shareholders of the Fund. You are entitled to one vote on each Proposal submitted to the shareholders of the Fund for each share of the Fund which you hold. The affirmative vote of the holders of a plurality of the shares of the Acquired Fund voted at the Meeting is required for the election of a Director of the Fund. All other proposals require for approval the vote of a "majority of the outstanding voting securities," which is a term defined in the 1940 Act to mean with respect to a Fund, the affirmative vote of the lesser of (1) 67% or more of the voting securities of the Fund present at the meeting of the Fund, if the holders of more than 50% of the outstanding voting securities of the Fund are present in person or by proxy, or (2) more than 50% of the outstanding voting securities of the Fund (a "Majority of the Outstanding Voting Securities"). The number of votes eligible to be cast at the Meeting as of the Record Date with respect to the Acquired Fund and other share ownership information are set forth in Appendix F to this Proxy Statement/Prospectus. Quorum requirements. A quorum must be present at the meeting for the transaction of business. The presence in person or by proxy of one-third of the shares of the Fund outstanding at the close of business on the Record Date constitutes a quorum for a meeting of the Fund. Abstentions and broker non-votes (proxies from brokers or nominees indicating that they have not received instructions from the beneficial owners on an item for which the broker or nominee does not have discretionary power) are counted toward a quorum but do not represent votes cast for any issue. Under the 1940 Act, the affirmative vote necessary to approve the Proposals may be determined with reference to a percentage of votes present at the meeting, which would have the effect of counting abstentions as if they were votes against a proposal. In the event the necessary quorum to transact business or the vote required to approve a Proposal is not obtained at the Meeting, the persons names as proxies or any shareholder present at the meeting may propose one or more adjournments of the Meeting in accordance with applicable law to permit further solicitation of proxies. Any such adjournment as to a Proposal will require the affirmative vote of the holders of a majority of the shares of the Fund cast at the Meeting. The persons named as proxies and any shareholder present at the meeting will vote for or against any adjournment in their discretion. Solicitation procedures. We intend to solicit proxies by mail. Officers or employees of the Acquired Fund, the Manager or their affiliates may make additional solicitations by telephone, internet, facsimile or personal contact. They will not be specially compensated for these services. Brokerage houses, banks and other fiduciaries may be requested to forward soliciting materials to their principals and to obtain authorization for the execution of proxies. For those services, they will be reimbursed by the Acquired Fund for their out-of-pocket expenses. The Acquired Fund and the other PMF Funds have retained the services of a professional proxy soliciting firm, Georgeson Shareholder Communications, Inc., to assist in soliciting proxies in connection with the Reorganization and estimate that the cost of such services will be approximately $750,000. The cost of such services will be treated as an expense related to the Reorganization and will be allocated between the PMF Funds, including the Acquired Fund, and the Manager in the manner described above under "Information About the Reorganization and the Combination - Agreement and Plan of Reorganization." Expenses of the meetings. The expenses of the Meeting for the Acquired Fund (and the shareholders meeting for the other PMF Funds) will be treated as an expense related to the Reorganization and will be allocated between the PMF Funds, including the Acquired Fund, and the Manager in the manner described above under "Information About the Reorganization and the Combination -- Agreement and Plan of Reorganization." FINANCIAL STATEMENTS The financial highlights of the Acquired Fund for the fiscal year ended October 31, 2004 incorporated by reference into this Proxy Statement/Prospectus, and the financial statements of the Acquired Fund for the fiscal year ended October 31, 2004 incorporated by reference into the related Statement of Additional Information, have been so incorporated by reference in reliance on the report of Ernst & Young LLP, Independent Registered Public Accounting Firm. The financial statements of PIF with respect to the Acquiring Fund for the fiscal year ended October 31, 2004 incorporated by reference into the related Statement of Additional Information, have been so incorporated by reference in reliance on the report of Ernst & Young LLP, Independent Registered Public Accounting Firm. LEGAL MATTERS Certain matters concerning the issuance of shares of the Acquiring Fund will be passed upon by Michael D. Roughton, Esq., Counsel to the Funds. Certain tax consequences of the Combination will be passed upon for PIF by Randy Lee Bergstrom, Esq., Assistant Tax Counsel to the Funds, and for the Acquired Fund by Carolyn Kolks, Esq., Assistant Tax Counsel to the Funds. OTHER MATTERS We do not know of any matters to be presented at the Meeting other than those mentioned in this Proxy Statement/Prospectus. If any other matters properly come before the Meeting, the shares represented by proxies will be voted in accordance with the best judgment of the person or persons voting the proxies. The Principal Mutual Funds are not required to hold annual meetings of shareholders and, therefore, it cannot be determined when the next meeting of shareholders will be held. Shareholder proposals to be presented at any future meeting of shareholders of the Acquired Fund must be received by the Acquired Fund a reasonable time before its solicitation of proxies for that meeting in order for such proposals to be considered for inclusion in the proxy materials related to that meeting. BY ORDER OF THE BOARD OF DIRECTORS OF THE ACQUIRED FUND April 18, 2005 Des Moines, Iowa It is important that proxies be returned promptly. Therefore, shareholders who do not expect to attend the Meeting in person are urged to complete, sign, date and return the proxy ballot in the enclosed envelope. Appendix A FORM OF AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of this [ ] day of ________, 2005, severally, by and among: each Acquired Fund listed below, each a Maryland corporation having its principal place of business at 680 8th Street, Des Moines, Iowa 50392-2080; Principal Investors Fund, Inc. ("PIF"), a Maryland corporation having its principal place of business at 680 8th Street, Des Moines, Iowa 50392-2080, on behalf of each corresponding Acquiring Fund listed below, each a separate series of PIF; and Principal Management Corporation, investment adviser for each Acquired Fund and its corresponding Acquiring Fund (for purposes of section 9.2 of this Agreement only): Corresponding Acquired Fund PIF Acquiring Fund Principal Balanced Fund, Inc..............PIF Disciplined LargeCap Blend Fund Principal Capital Value Fund, Inc.........PIF LargeCap Value Fund Principal Partners LargeCap Value.........PIF Partners LargeCap Value Fund Fund, Inc Principal Equity Income Fund, Inc.........PIF Equity Income Fund Principal Partners Blue Chip Fund, Inc....PIF Partners LargeCap Blend Fund I Principal Partners LargeCap Blend.........PIF Partners LargeCap Blend Fund Fund, Inc Principal LargeCap Stock Index Fund, Inc..PIF LargeCap S&P 500 Index Fund Principal Growth Fund, Inc................PIF LargeCap Growth Fund Principal Partners Equity Growth Fund, Inc...PIF Partners LargeCap Growth Fund I Principal MidCap Fund, Inc................PIF MidCap Blend Fund Principal Partners MidCap Growth Fund, Inc. PIF Partners MidCap Growth Fund Principal SmallCap Fund, Inc..............PIF SmallCap Blend Fund Principal Partners SmallCap Growth .......PIF Partners SmallCap Growth Fund II Fund, Inc. Principal Real Estate Securities Fund, Inc. PIF Real Estate Securities Fund Principal Bond Fund, Inc..................PIF Bond & Mortgage Securities Fund Principal Government Securities Income ...PIF Government Securities Fund Fund, Inc. Principal Tax-Exempt Bond Fund, Inc.......PIF Tax-Exempt Bond Fund Principal International Fund, Inc.........PIF Diversified International Fund Principal International SmallCap Fund, Inc....PIF Diversified International Fund Principal Limited Term Bond Fund, Inc.....PIF High Quality Short-Term Bond Fund Principal Cash Management Fund, Inc.......PIF Money Market Fund Principal International Emerging Markets.PIF International Emerging Markets Fund Fund, Inc. This Agreement shall be deemed to be a separate agreement between each Acquired Fund and PIF on behalf of the corresponding Acquiring Fund. As used herein, unless the context otherwise requires, each Acquired Fund and its corresponding Acquiring Funding are, respectively, the "Acquired Fund" and the "Acquiring Fund." This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of Section 368(a) of the United States Internal Revenue Code of 1986, as amended (the "Code"). The reorganization will consist of: (i) the transfer of all or substantially all of the assets of the Acquired Fund to the Acquiring Fund and the assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund in exchange solely for Class A and Class B voting shares of beneficial interest of the Acquiring Fund (the "Acquiring Fund Shares"); (ii) the distribution of the Acquiring Fund Shares to the shareholders of the Acquired Fund according to their respective interests in complete liquidation of the Acquired Fund; and (iii) the dissolution of the Acquired Fund as soon as practicable thereafter, all upon the terms and conditions hereinafter set forth (the Reorganization"). WHEREAS, the Acquired Fund is, and the Acquiring Fund is a separate series of, an open-end, management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), and the Acquired Fund owns securities which generally are assets of the character in which the Acquiring Fund is permitted to invest; WHEREAS, the Board of Directors of PIF has determined that the exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and the assumption of all liabilities of the Acquired Fund by the Acquiring Fund is in the best interests of the Acquiring Fund and its shareholders and that the interests of the existing shareholders of the Acquiring Fund would not be diluted as a result of this transaction; and WHEREAS, the Board of Directors of the Acquired Fund has determined that the exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and the assumption of all liabilities of the Acquired Fund by the Acquiring Fund is in the best interests of the Acquired Fund and its shareholders and that the interests of the existing shareholders of the Acquired Fund would not be diluted as a result of this transaction; NOW, THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows: 1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND LIABILITIES AND THE LIQUIDATION AND DISSOLUTION OF THE ACQUIRED FUND 1.1. Subject to the requisite approval of the shareholders of the Acquired Fund and the other terms and conditions herein set forth and on the basis of the representations and warranties contained herein, the Acquired Fund shall transfer all or substantially all of its assets, as set forth in section 1.2, to the Acquiring Fund, and the Acquiring Fund in exchange therefore shall: (i) deliver to the Acquired Fund the number of full and fractional Class A and Class B Acquiring Fund Shares determined by dividing the value of the Acquired Fund's net assets with respect to Class A and Class B Acquired Fund Shares, computed in the manner and as of the time and date set forth in section 2.1, by the net asset value of one Acquiring Fund Class A Share or Class B Share, respectively, computed in the manner and as of the time and date set forth in section 2.2; and (ii) assume all of the liabilities of the Acquired Fund as set forth in section 1.3. Such transactions shall take place at the closing provided for in section 3.1 (the "Closing"). 1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund shall consist of all assets and property, including, without limitation, all cash, securities, commodities and futures interests and dividends or interests receivable that are owned by the Acquired Fund, and any deferred or prepaid expenses shown as an asset on the books of the Acquired Fund, on the closing date provided for in section 3.1 (the "Closing Date") (collectively, "Assets"). 1.3. The Acquired Fund will endeavor to discharge all of its known liabilities and obligations prior to the Closing Date. The Acquiring Fund shall also assume all of the liabilities of the Acquired Fund, whether accrued or contingent, known or unknown, existing at the Valuation Date, as defined in section 2.1 (collectively, "Liabilities"). On or as soon as practicable prior to the Closing Date, the Acquired Fund will declare and pay to its shareholders of record one or more dividends and/or other distributions so that it will have distributed substantially all (and in no event less than 98%) of its investment company taxable income (computed without regard to any deduction for dividends paid) and realized net capital gain, if any, for the current taxable year through the Closing Date. 1.4. Immediately after the transfer of Assets provided for in section 1.1, the Acquired Fund will distribute to the shareholders of record of the Class A and Class B Acquired Fund Shares, determined as of the close of regular trading on the New York Stock Exchange ("NYSE") on the Closing Date (the "Acquired Fund Shareholders"), on a pro rata basis, the Acquiring Fund Shares of the same class received by the Acquired Fund pursuant to section 1.1, and will completely liquidate. Such distribution and liquidation will be accomplished, with respect to the Acquired Fund's shares, by the transfer of the Acquiring Fund Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the names of the Acquired Fund Shareholders. The aggregate net asset value of Class A and Class B Acquiring Fund Shares to be so credited to Class A and Class B Acquired Fund Shareholders shall be equal to the aggregate net asset value of the Acquired Fund shares of that same class owned by such shareholders on the Closing Date. All issued and outstanding shares of the Acquired Fund will simultaneously be canceled on the books of the Acquired Fund. The Acquiring Fund shall not issue certificates representing Class A and Class B Acquiring Fund Shares in connection with such exchange. 1.5. Ownership of Acquiring Fund Shares will be shown on the books of the Acquiring Fund's transfer agent. 1.6. As soon as practicable after the Closing Date, the Acquired Fund shall take all necessary steps under its Articles of Incorporation, Maryland law and any other applicable law to effect its complete dissolution. Any reporting responsibility of the Acquired Fund, including, but not limited to, the responsibility for filing of regulatory reports, tax returns, or other documents with the U.S. Securities and Exchange Commission (the "Commission"), any state securities commission, and any federal, state or local tax authorities or any other relevant regulatory authority, is and shall remain the responsibility of the Acquired Fund. 1.7 All books and records of the Acquired Fund, including all books and records required to be maintained under the 1940 Act and the rules and regulations thereunder, shall be available to PIF on behalf of the Acquiring Fund from and after the Closing Date and shall be turned over to PIF as soon as practicable after the Closing Date. 2. VALUATION 2.1. The value of the Assets to be transferred to the Acquiring Fund shall be computed as of the close of regular trading on the NYSE and after the declaration of any dividends on the Closing Date (such time and date being hereinafter called the "Valuation Date"), using the valuation procedures in the then-current prospectus and statement of additional information with respect to the Acquiring Fund, and valuation procedures established by the Acquiring Fund's Board of Directors. 2.2. The net asset value of a Class A and Class B Acquiring Fund Share shall be the net asset value per share computed with respect to that class as of the Valuation Date, using the valuation procedures set forth in the Acquiring Fund's then-current prospectus and statement of additional information and valuation procedures established by the PIF Board of Directors. 2.3. The number of the Class A and Class B Acquiring Fund Shares to be issued (including fractional shares, if any) in exchange for the Acquired Fund's Assets shall be determined with respect to each such class by dividing the value of the net assets with respect to the Class A and Class B shares of the Acquired Fund, as the case may be, determined using the same valuation procedures referred to in section 2.1, by the net asset value of an Acquiring Fund Share, determined in accordance with section 2.2. 2.4. All computations of value hereunder shall be made by or under the direction of each Fund's respective accounting agent, if applicable, in accordance with its regular practice and the requirements of the 1940 Act. 3. CLOSING AND CLOSING DATE 3.1. The Closing Date shall be June 30, 2005, or such other date as the parties may agree to in writing. All acts taking place at the Closing shall be deemed to take place simultaneously as of 3:00 p.m., Central Daylight Time on the Closing Date. The Closing shall be held at the offices of Principal Management Corporation, 680 8th Street, Des Moines, Iowa 50392 or at such other time and/or place as the parties may agree. 3.2 The Acquired Fund shall deliver to PIF, on behalf of the Acquiring Fund, on the Closing Date a schedule of Assets. 3.3. The Acquired Fund shall direct the custodian for the Acquired Fund to deliver, at the Closing, a certificate of an authorized officer stating that (i) the Assets shall have been delivered in proper form to the custodian for the Acquiring Fund, prior to or on the Closing Date, and (ii) all necessary taxes in connection with the delivery of the Assets, including all applicable federal and state stock transfer stamps, if any, have been paid or provision for payment has been made. The Acquired Fund's portfolio securities represented by a certificate or other written instrument shall be presented by the custodian for the Acquired Fund to the custodian for the Acquiring Fund for examination no later than five business days preceding the Closing Date, and shall be transferred and delivered by the Acquired Fund as of the Closing Date for the account of the Acquiring Fund duly endorsed in proper form for transfer in such condition as to constitute good delivery thereof. The Acquired Fund's portfolio securities and instruments deposited with a securities depository, as defined in Rule 17f-4 under the 1940 Act, shall be delivered as of the Closing Date by book entry, in accordance with the customary practices of such depositories and the custodian for the Acquiring Fund. The cash to be transferred by the Acquired Fund shall be delivered by wire transfer of federal funds on the Closing Date. 3.4. The Acquired Fund shall direct its transfer agent to deliver at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of the Acquired Fund Shareholders and the number and percentage ownership of outstanding Class A and Class B shares owned by each such shareholder immediately prior to the Closing. The Acquiring Fund shall issue and deliver a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date to the Acquired Fund, or provide evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's account on the books of the Acquiring Fund. At the Closing each party shall deliver to the other such bills of sale, checks, assignments, share certificates, if any, receipts or other documents as such other party or its counsel may reasonably request. 3.5. In the event that on the Valuation Date (a) the NYSE or another primary trading market for portfolio securities of the Acquiring Fund or the Acquired Fund shall be closed to trading or trading thereupon shall be restricted, or (b) trading or the reporting of trading on such Exchange or elsewhere shall be disrupted so that, in the judgment of the Board of Directors of the Acquired Fund or the Acquiring Fund, accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund, respectively, is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. 4. REPRESENTATIONS AND WARRANTIES 4.1. The Acquired Fund represents and warrants as follows: (a) The Acquired Fund is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland with power and authority under its Articles of Incorporation, as amended, to own all of its Assets and to carry on its business as it is now being conducted; (b) The Acquired Fund is a registered investment company classified as a management company of the open-end type, and its registration with the Commission as an investment company under the 1940 Act, and the registration of shares of the Acquired Fund under the Securities Act of 1933, as amended ("1933 Act"), are in full force and effect; (c) No consent, approval, authorization, or order of any court or governmental authority is required for the consummation by the Acquired Fund of the transactions contemplated herein, except such as have been obtained under the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1940 Act and such as may be required by state securities laws; (d) The current prospectus and statement of additional information of the Acquired Fund conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not materially misleading; (e) On the Closing Date, the Acquired Fund will have good and marketable title to the Assets and full right, power, and authority to sell, assign, transfer and deliver such Assets hereunder free of any liens or other encumbrances, and upon delivery and payment for such Assets, the Acquiring Fund will acquire good and marketable title thereto, subject to no restrictions on the full transfer thereof, including such restrictions as might arise under the 1933 Act, other than as disclosed to the Acquiring Fund; (f) The Acquired Fund is not currently engaged, and the execution, delivery and performance of this Agreement will not result, in (i) a material violation of Maryland law or the Acquired Fund's Articles of Incorporation or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquired Fund is a party or by which it is bound, or (ii) the acceleration of any obligation, or the imposition of any penalty, under any agreement, indenture, instrument, contract, lease, judgment or decree to which the Acquired Fund is a party or by which it is bound; (g) All material contracts or other commitments of the Acquired Fund (other than this Agreement and certain investment contracts, including options, futures, and forward contracts) will terminate without liability to the Acquired Fund on or prior to the Closing Date; (h) Except as otherwise disclosed in writing to and accepted by PIF on behalf of the Acquiring Fund, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or, to its knowledge, threatened against the Acquired Fund, or any of its properties or assets that, if adversely determined, would materially and adversely affect the Acquired Fund's financial condition or the conduct of its business. The Acquired Fund knows of no facts which might form the basis for the institution of such proceedings and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Acquired Fund's business or the Acquired Fund's ability to consummate the transactions herein contemplated; (i) The Statement of Assets and Liabilities, Statements of Operations and Changes in Net Assets, and Schedule of Investments of the Acquired Fund as of October 31, 2004 have been audited by Ernst & Young LLP, independent auditors, and are in accordance with generally accepted accounting principles in the United States ("GAAP") consistently applied, and such statements (copies of which have been furnished to PIF on behalf of the Acquiring Fund) present fairly, in all material respects, the financial condition of the Acquired Fund as of such date in accordance with GAAP, and there are no known contingent liabilities of the Acquired Fund required to be reflected on a balance sheet (including the notes thereto) in accordance with GAAP as of such date not disclosed therein; (j) Since October 31, 2004, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities or business, other than changes occurring in the ordinary course of business, or any incurrence by the Acquired Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to and accepted by PIF on behalf of the Acquiring Fund. For the purposes of this subsection (j), a decline in net asset value per share of the Acquired Fund due to declines in market values of portfolio securities of the Acquired Fund, the discharge of Acquired Fund liabilities as reflected in its Statement of Assets and Liabilities as of October 31, 2004 (including the notes thereto), or the redemption of Acquired Fund Shares by shareholders of the Acquired Fund shall not constitute a material adverse change; (k) On the Closing Date, all federal and other tax returns, dividend reporting forms, and other tax-related reports of the Acquired Fund required by law to have been filed by such date (including any extensions) shall have been filed and are or will be correct in all material respects, and all federal and other taxes shown as due or required to be shown as due on said returns and reports shall have been paid or provision shall have been made for the payment thereof, and to the best of the Acquired Fund's knowledge, no such return is currently under audit and no assessment has been asserted with respect to such returns; (l) For each taxable year of its operation (including the taxable year ending on the Closing Date), the Acquired Fund has met (or will meet) the requirements of Subchapter M of the Code for qualification as a regulated investment company, has complied (or will comply) with the applicable diversification requirements imposed by Subchapter L of the Code, has been (or will be) eligible to and has computed (or will compute) its federal income tax under Section 852 of the Code, and will have distributed all of its investment company taxable income and net capital gain (as defined in the Code) that has accrued through the Closing Date, and before the Closing Date will have declared dividends sufficient to distribute substantially all (and in no event less than 98%) of its investment company taxable income and net capital gain for the period ending on the Closing Date; (m) All issued and outstanding shares of the Acquired Fund (i) have been offered and sold in every state and the District of Columbia in compliance in all material respects with applicable registration requirements of the 1933 Act and state securities laws, and in other jurisdictions in compliance with applicable laws, (ii) are, and on the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable and not subject to preemptive or dissenter's rights, and (iii) will, at the time of Closing, be held by the persons and in the amounts set forth in the records of the transfer Agent for the Acquired Fund on its behalf, as provided in section 3.4. The Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the shares of the Acquired Fund, nor is there outstanding any security convertible into any of the Acquired Fund shares; (n) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action on the part of the Board of Directors of the Acquired Fund, and, subject to the approval of the shareholders of the Acquired Fund, this Agreement will constitute a valid and binding obligation of the Acquired Fund, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights and to general equity principles; (o) The information to be furnished by the Acquired Fund for use in registration statements, proxy materials and other documents filed or to be filed with any federal, state or local regulatory authority (including the National Association of Securities Dealers, Inc. (the "NASD")), which may be necessary in connection with the transactions contemplated hereby, shall be accurate and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations applicable thereto; and (p) The proxy statement of the Acquired Fund (the "Proxy Statement") to be included in the Registration Statement referred to in section 5.5 (including any amendment or supplement thereto), insofar as it relates to the Acquired Fund, will, on the effective date of the Registration Statement and on the Closing Date (i) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not materially misleading provided, however, that the representations and warranties in this subsection (p) shall not apply to statements in or omissions from the Proxy Statement and the Registration Statement made in reliance upon and in conformity with information that was furnished by the Acquiring Fund for use therein, and (ii) comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder. 4.2. PIF, on behalf of the Acquiring Fund, represents and warrants as follows: (a) The Acquiring Fund is duly organized as a series of PIF, which is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland with power and authority under its Articles of Incorporation, as amended, to own all of its properties and assets and to carry on its business as it is now being conducted; (b) PIF is a registered investment company classified as a management company of the open-end type, and its registration with the Commission as an investment company under the 1940 Act and the registration of shares of the Acquiring Fund under the 1933 Act are in full force and effect; (c) No consent, approval, authorization, or order of any court or governmental authority is required for the consummation by the Acquiring Fund of the transactions contemplated herein, except such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may be required by state securities laws; (d) The current prospectus and statement of additional information of the Acquiring Fund conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not materially misleading; (e) On the Closing Date, the Acquiring Fund will have good and marketable title to the Acquiring Fund's assets, free of any liens of other encumbrances, except those liens or encumbrances as to which the Acquired Fund has received notice and necessary documentation at or prior to the Closing; (f) PIF is not currently engaged, and the execution, delivery and performance of this Agreement will not result, in (i) a material violation of PIF's Articles of Incorporation or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which PIF, on behalf of the Acquiring Fund, is a party or by which it is bound, or (ii) the acceleration of any obligation, or the imposition of any penalty, under any agreement, indenture, instrument, contract, lease, judgment or decree to which PIF on behalf of the Acquiring Fund, is a party or by which it is bound; (g) Except as otherwise disclosed in writing to and accepted by the Acquired Fund, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or, to the knowledge of PIF, threatened against PIF, on behalf of the Acquiring Fund, or any of the Acquiring Fund's properties or assets that, if adversely determined, would materially and adversely affect the Acquiring Fund's financial condition or the conduct of its business. PIF, on behalf of the Acquiring Fund, knows of no facts which might form the basis for the institution of such proceedings and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Acquiring Fund's business or the Acquiring Fund's ability to consummate the transactions herein contemplated; (h) The Statement of Assets and Liabilities, Statements of Operations and Changes in Net Assets and Schedule of Investments of the Acquiring Fund as of October 31, 2004 have been audited by Ernst & Young LLP, independent auditors, and are in accordance with GAAP consistently applied, and such statements (copies of which have been furnished to the Acquired Fund) present fairly, in all material respects, the financial condition of the Acquiring Fund as of such date in accordance with GAAP, and there are no known contingent liabilities of the Acquiring Fund required to be reflected on a balance sheet (including the notes thereto) in accordance with GAAP as of such date not disclosed therein; (i) Since October 31, 2004, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business, other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to and accepted by the Acquired Fund. For purposes of this subsection (i), a decline in net asset value per share of the Acquiring Fund due to declines in market values of portfolio securities of the Acquiring Fund, the discharge of Acquiring Fund liabilities as reflected in its Statement of Assets and Liabilities as of October 31, 2004 (including the notes thereto), or the redemption of Acquiring Fund Shares by shareholders of the Acquiring Fund, shall not constitute a material adverse change; (j) On the Closing Date, all federal and other tax returns, dividend reporting forms, and other tax-related reports of the Acquiring Fund required by law to have been filed by such date (including any extensions) shall have been filed and are or will be correct in all material respects, and all federal and other taxes shown as due or required to be shown as due on said returns and reports shall have been paid or provision shall have been made for the payment thereof, and to the best of the knowledge of PIF, on behalf of the Acquiring Fund, no such return is currently under audit and no assessment has been asserted with respect to such returns; (k) For each taxable year of its operation (including the taxable year that includes the Closing Date), the Acquiring Fund has met (or will meet) the requirements of Subchapter M of the Code for qualification as a regulated investment company, has complied (or will comply) with the applicable diversification requirements imposed by Subchapter L of the Code, has been eligible to (or will be eligible to) and has computed (or will compute) its federal income tax under Section 852 of the Code; (l) All issued and outstanding Acquiring Fund Shares (i) have been offered and sold in every state and the District of Columbia in compliance in all material respects with applicable registration requirements of the 1933 Act and state securities laws, and in other jurisdictions in compliance with applicable laws, and (ii) are, and on the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable and not subject to preemptive or dissenter's rights. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any Acquiring Fund Shares, nor is there outstanding any security convertible into any Acquiring Fund Shares; (m) The execution, delivery and performance of this Agreement will have been fully authorized prior to the Closing Date by all necessary action on the part of the Board of Directors of PIF on behalf of the Acquiring Fund, and this Agreement will constitute a valid and binding obligation of PIF, on behalf of the Acquiring Fund, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights and to general equity principles; (n) The Acquiring Fund Shares to be issued and delivered to the Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant to the terms of this Agreement, will on the Closing Date have been duly authorized and, when so issued and delivered, will be duly and validly issued Acquiring Fund Shares, and will be fully paid and non-assessable; (o) The information to be furnished by PIF, on behalf of the Acquiring Fund, for use in registration statements, proxy materials and other documents filed or to be filed with any federal, state or local regulatory authority (including the NASD), which may be necessary in connection with the transactions contemplated hereby, shall be accurate and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations applicable thereto; and (p) The Proxy Statement to be included in the Registration Statement (including and any amendment or supplement thereto), insofar as it relates to the Acquiring Fund, will, on the effective date of the Registration Statement and on the Closing Date (i) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading provided, however, that the representations and warranties in this subsection (p) shall not apply to statements in or omissions from the Registration Statement made in reliance upon and in conformity with information that was furnished by the Acquired Fund for use therein, and (ii) comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder. 5. COVENANTS OF PIF, ON BEHALF OF THE ACQUIRING FUND, AND THE ACQUIRED FUND 5.1. PIF, on behalf of the Acquiring Fund, and the Acquired Fund each will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include the declaration and payment of customary dividends and distributions and such changes as are contemplated by the Funds' normal operations. 5.2. The Acquired Fund will call a meeting of the shareholders of the Acquired Fund to consider and act upon this Agreement and will take all other reasonable action necessary to obtain approval of the transactions contemplated herein. 5.3. The Acquired Fund covenants that the Class A and Class B Acquiring Fund Shares to be issued hereunder are not being acquired for the purpose of making any distribution thereof, other than in accordance with the terms of this Agreement. 5.4. Subject to the provisions of this Agreement, PIF, on behalf of the Acquiring Fund, and the Acquired Fund will each take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. 5.5. PIF, on behalf of the Acquiring Fund, and the Acquired Fund each covenants to prepare the Registration Statement on Form N-14 (the "Registration Statement"), in compliance with the 1933 Act, the 1934 Act and the 1940 Act in connection with the meeting of the Acquired Fund Shareholders to consider and act upon this Agreement and the transactions contemplated herein. PIF, on behalf of the Acquiring Fund, will file the Registration Statement, including the Proxy Statement, with the Commission. The Acquired Fund will provide PIF, on behalf of the Acquiring Fund, with the information reasonably necessary for preparation of a prospectus, which will include the Proxy Statement referred to in section 4.1(p), all to be included in the Registration Statement, in compliance in all material respects with the 1933 Act, the 1934 Act and the 1940 Act. 5.6. As soon as is reasonably practicable after the Closing, the Acquired Fund will make a liquidating distribution to its shareholders consisting of the Class A and Class B Acquiring Fund Shares received at the Closing. 5.7. PIF, on behalf of the Acquiring Fund, and the Acquired Fund will each use its reasonable best efforts to fulfill or obtain the fulfillment of the conditions precedent to effect the transactions contemplated by this Agreement as promptly as practicable. 5.8. The Acquired Fund covenants that it will, from time to time, as and when reasonably requested by PIF on behalf of the Acquiring Fund, execute and deliver or cause to be executed and delivered all such assignments and other instruments, and will take or cause to be taken such further action as PIF, on behalf of the Acquiring Fund, may reasonably deem necessary or desirable in order to vest in and confirm the Acquiring Fund's title to and possession of all the Assets and otherwise to carry out the intent and purpose of this Agreement. 5.9. PIF, on behalf of the Acquiring Fund, covenants that it will, from time to time, as and when reasonably requested by the Acquired Fund, execute and deliver or cause to be executed and delivered all such assignments, assumption agreements, releases and other instruments, and will take or cause to be taken such further action, as the Acquired Fund may reasonably deem necessary or desirable in order to (i) vest in and confirm to the Acquired Fund title to and possession of all Acquiring Fund shares to be transferred to the Acquired Fund pursuant to this Agreement and (ii) assume the liabilities of the Acquired Fund. 5.10. PIF, on behalf of the Acquiring Fund, will use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state securities laws as it deems appropriate in order to continue its operations after the Closing Date and to consummate the transactions contemplated herein. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND The obligations of the Acquired Fund to consummate the transactions provided for herein shall be subject, at its election, to the performance by PIF, on behalf of the Acquiring Fund, of all the obligations to be performed by it hereunder on or before the Closing Date, and, in addition thereto, the following further conditions: 6.1. All representations and warranties of PIF, on behalf of the Acquiring Fund, contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date, with the same force and effect as if made on and as of the Closing Date; 6.2. PIF, on behalf of the Acquiring Fund, shall have delivered to the Acquired Fund on the Closing Date a certificate executed in PIF's name by its President or a Vice President, in a form reasonably satisfactory to the Acquired Fund and dated as of the Closing Date, to the effect that the representations and warranties of the Acquiring Fund made in this Agreement are true and correct on and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquired Fund shall reasonably request; 6.3. PIF, on behalf of the Acquiring Fund, shall have performed all of the covenants and complied with all of the provisions required by this Agreement to be performed or complied with by PIF on behalf of the Acquiring Fund on or before the Closing Date; and 6.4. The Acquired Fund and PIF, on behalf of the Acquiring Fund, shall have agreed on the number of full and fractional Acquiring Fund Shares of Class A and Class B to be issued in connection with the Reorganization after such number has been calculated in accordance with section 1.1. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND The obligations of PIF, on behalf of the Acquiring Fund, to complete the transactions provided for herein shall be subject, at PIF's election, to the performance by the Acquired Fund of all of the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 7.1. All representations and warranties of the Acquired Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date, with the same force and effect as if made on and as of the Closing Date; 7.2. The Acquired Fund shall have delivered to the Acquiring Fund a statement of the Acquired Fund's assets and liabilities, as of the Closing Date, certified by the Treasurer of the Acquired Fund; 7.3 The Acquired Fund shall have delivered to PIF, on behalf of the Acquiring Fund, a certificate executed in the Acquired Fund's name by its President or a Vice President, in a form reasonably satisfactory to the Acquiring Fund and dated as of the Closing Date, to the effect that the representations and warranties of the Acquired Fund made in this Agreement are true and correct on and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquiring Fund shall reasonably request; 7.4. The Acquired Fund shall have performed all of the covenants and complied with all of the provisions required by this Agreement to be performed or complied with by it on or before the Closing Date; 7.5. The Acquired Fund and PIF, on behalf of the Acquiring Fund, shall have agreed on the number of full and fractional Acquiring Fund Shares of Class A and Class B to be issued in connection with the Reorganization after such number has been calculated in accordance with section 1.1; and 7.6. The Acquired Fund shall have declared and paid a distribution or distributions prior to the Closing that, together with all previous distributions, shall have the effect of distributing to its shareholders (i) substantially all (and in no event less than 98%) of its investment company taxable income and realized net capital gain, if any, for the period from the close of its last fiscal year through the Closing Date; and (ii) any undistributed investment company taxable income and net realized capital gains from any period to the extent not otherwise already distributed. 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF PIF, ON BEHALF OF THE ACQUIRING FUND, AND THE ACQUIRED FUND If any of the conditions set forth below has not been satisfied on or before the Closing Date with respect to the Acquired Fund or PIF, on behalf of the Acquiring Fund, either party to this Agreement may choose, at its option, not to consummate the transactions contemplated by this Agreement: 8.1. The Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Acquired Fund in accordance with the provisions of the Acquired Fund's Articles of Incorporation, By-Laws, applicable Maryland law and the 1940 Act, and certified copies of the resolutions evidencing such approval shall have been delivered to PIF, on behalf of the Acquiring Fund. Notwithstanding anything herein to the contrary, neither the Acquired Fund nor PIF, on behalf of the Acquiring Fund, may waive the conditions set forth in this section 8.1; 8.2. On the Closing Date no action, suit or other proceeding shall be pending or, to the knowledge of the Acquired Fund or of PIF, on behalf of the Acquiring Fund, threatened, before any court or governmental agency in which it is sought to restrain or prohibit, or obtain material damages or other relief in connection with, this Agreement or the transactions contemplated herein; 8.3. All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities deemed necessary by the Acquired Fund or PIF, on behalf of the Acquiring Fund, to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquired Fund or the Acquiring Fund, provided that either party hereto may for itself waive any of such conditions; 8.4. The Registration Statement shall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act; and 8.5. The parties shall have received the opinion of tax counsel satisfactory to each party, addressed to each of the Acquired Fund and PIF, in a form reasonably satisfactory to each such party to this Agreement, substantially to the effect that, based upon certain facts, assumptions, and representations of the parties, for federal income tax purposes: (1) the Reorganization will constitute a reorganization within the meaning of Section 368(a) of the Code with respect to the Acquired Fund and the Acquiring Fund; (2) no gain or loss will be recognized by the Acquired Fund or the Acquiring Fund upon the transfer of all of the assets and liabilities, if any, of the Acquired Fund to the Acquiring Fund solely in exchange for shares of the Acquiring Fund; (3) no gain or loss will be recognized by shareholders of the Acquired Fund upon the exchange of such Acquired Fund's shares solely for shares of the Acquiring Fund; (4) the holding period and tax basis of the shares of the Acquiring Fund received by each holder of shares of the Acquired Fund pursuant to the Reorganization will be the same as the holding period and tax basis of the shares of the Acquired Fund held by the shareholder (provided the shares of the Acquired Fund were held as a capital asset on the date of the Reorganization) immediately prior to the Reorganization; and (5) the holding period and tax basis of the assets of the Acquired Fund acquired by the Acquiring Fund will be the same as the holding period and tax basis of those assets to the Acquired Fund immediately prior to the Reorganization. The delivery of such opinion is conditioned upon receipt by tax counsel of representations it shall request from each of the Acquired Fund and PIF. Notwithstanding anything herein to the contrary, neither the Acquired Fund nor PIF, on behalf of the Acquiring Fund, may waive the conditions set forth in this section 8.5. 9. FEES AND EXPENSES 9.1. Each of PIF, on behalf of the Acquiring Fund, and the Acquired Fund represents and warrants to the other that it has no obligations to pay any brokers' or finders' fees in connection with the transactions provided for herein. 9.2. The first $1,000,000 of the expenses relating to the Reorganization will be allocated among the Acquired Funds based on the ratio of the open accounts of each Acquired Fund to the open accounts of all the Acquired Funds as of the close of business on February 28, 2005. The Manager will pay 50% of the balance of the expenses relating to the Reorganization, and the remaining 50% will be allocated among the Acquired Funds in the same manner as the first $1,000,000 of expenses, except that the Manager will pay 100% of such expenses allocated to the following Acquired Funds which are not expected to experience reduced expense ratios as a result of the Reorganization: the Principal Bond Fund, Principal MidCap Fund, Principal Tax-Exempt Bond Fund, Principal Partners LargeCap Value Fund, Principal Partners SmallCap Growth Fund, Principal International Fund and Principal Partners MidCap Growth Fund. In addition, with respect to each other Acquired Fund, the Manager will pay any portion of the remaining 50% of the balance of the expenses allocated to the Acquired Fund that exceeds an amount equal to the sum of (A) and (B), where (A) equals the result determined by multiplying the net assets attributable to the Class A shares of the Acquired Fund by the remainder of the Total Fund Operating Expense Ratio of the Class A shares of the Acquired Fund minus the Total Fund Operating Expense Ratio of the Class A shares of the Acquiring Fund and (B) equals the result determined by multiplying the net assets attributable to the Class B shares of the Acquired Fund by the remainder of the Total Fund Operating Expense Ratio of the Class B shares of the Acquired Fund minus the Total Fund Operating Expense Ratio of the Class B shares of the Acquiring Fund. For purposes of the preceding sentence, the net assets attributable to the Class A shares and the Class B shares of the Acquired Fund shall be determined as of the Effective Time or such other time to which the Manager and the Acquired Fund may agree, the Total Fund Operating Expense Ratios for the Class A shares and the Class B shares of the Acquired Fund shall be those for the fiscal year ended October 31, 2004 and the Total Fund Operating Expense Ratios for the Class A shares and the Class B shares of the Acquiring Fund shall be determined for the period beginning on November 1, 2004 and ending at the Effective Time or at such other time to which the Manager and the Acquired Fund may agree. The costs of the Reorganization shall include, but not be limited to, costs associated with preparation of the Registration Statement, printing and distribution of the Acquiring Fund's prospectus and the Acquired Fund's proxy materials, legal fees, accounting fees, securities registration fees, and expenses of holding the Acquired Fund Shareholders meeting. Notwithstanding any of the foregoing, expenses will in any event be paid by the party directly incurring such expenses if and to the extent that the payment by another person of such expenses would result in the disqualification of such party as a "regulated investment company" within the meaning of Section 851 of the Code. 10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES 10.1. The Acquired Fund and PIF, on behalf of the Acquiring Fund, agree that neither has made any representation, warranty or covenant not set forth herein and that this Agreement constitutes the entire agreement between the parties. 10.2. Except as specified in the next sentence, the representations, warranties and covenants contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall not survive the consummation of the transactions contemplated hereunder. The covenants to be performed after the Closing shall survive the Closing. 11. TERMINATION This Agreement may be terminated and the transactions contemplated hereby may be abandoned by either party by (i) mutual agreement of the parties, or (ii) by either party if the Closing shall not have occurred on or before June 30, 2005, unless such date is extended by mutual agreement of the parties, or (iii) by either party if the other party shall have materially breached its obligations under this Agreement or made a material and intentional misrepresentation herein or in connection herewith. In the event of any such termination, this Agreement shall become void and there shall be no liability hereunder on the part of any of the parties or their respective Board members or officers, except for any such material breach or intentional misrepresentation, as to each of which all remedies at law or in equity of the party adversely affected shall survive. 12. AMENDMENTS; WAIVERS 12.1 This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by any authorized officer of the Acquired Fund and any authorized officer of PIF, on behalf of the Acquiring Fund; provided, however, that, following the meeting of the shareholders of the Acquired Fund called by the Acquired Fund pursuant to section 5.2 of this Agreement, no such amendment may have the effect of changing the provisions for determining the number of the Class A and Class B Acquiring Fund Shares to be issued to the Acquired Fund Shareholders under this Agreement to the detriment of such shareholders, or otherwise have a material adverse effect on the interests or rights of the Acquired Fund or the Acquired Fund Shareholders, without the Acquired Fund obtaining further approval of the Acquired Fund Shareholders. 12.2. Except as otherwise expressly provided in this Agreement, each of the Acquired Fund and PIF, on behalf of the Acquiring Fund, may at any time prior to the Closing by written instrument signed by it: (i) waive any inaccuracies in the representations and warranties contained herein and made for its benefit; and (ii) waive compliance with any of the covenants or conditions contained herein and made for its benefit, except that any such waiver that would have a material adverse effect on the interests or rights of the Acquired Fund or the Acquired Fund Shareholders, or the Acquiring Fund or the Acquiring Fund Shareholders, shall be made only with the consent of the Board of Directors of, respectively, the Acquired Fund or the Acquiring Fund. 13. NOTICES Any notice, report, statement or demand required or permitted by any provisions of this Agreement shall be in writing and shall be deemed given upon receipt if delivered by hand (including by Federal Express or similar express courier) or transmitted by facsimile or three days after being mailed by prepaid registered or certified mail addressed to the Acquired Fund, 680 8th Street, Des Moines, Iowa 50392-2080, attn: Arthur S. Filean, or to PIF, on behalf of the Acquiring Fund, 680 8th Street, Des Moines, Iowa 50392-2080, attn: Arthur S. Filean; or to Principal Management Corporation, Principal Financial Group, Des Moines, Iowa 50392, attn: Arthur S. Filean. 14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY 14.1. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 14.2. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 14.3. This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland without regard to its principles of conflicts of laws. 14.4. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its President or Vice President as of the date first written above. PRINCIPAL BALANCED FUND, INC. PRINCIPAL INVESTORS FUND, INC. PRINCIPAL CAPITAL VALUE FUND, INC. on behalf of each of the following PRINCIPAL PARTNERS LARGECAP Acquiring Funds: VALUE FUND, INC. Disciplined LargeCap Blend Fund PRINCIPAL EQUITY INCOME FUND, INC. LargeCap Value Fund PRINCIPAL PARTNERS BLUE CHIP Partners LargeCap Value Fund FUND, INC. Equity Income Fund PRINCIPAL PARTNERS LARGECAP Partners LargeCap Blend Fund I BLEND FUND, INC. Partners LargeCap Blend Fund PRINCIPAL LARGECAP STOCK INDEX LargeCap S&P 500 Index Fund FUND, INC. LargeCap Growth Fund PRINCIPAL GROWTH FUND, INC. Partners LargeCap Growth Fund I PRINCIPAL PARTNERS EQUITY GROWTH MidCap Blend Fund FUND, INC. Partners MidCap Growth Fund PRINCIPAL MIDCAP FUND, INC. SmallCap Blend Fund PRINCIPAL PARTNERS MIDCAP GROWTH Partners SmallCap Growth Fund II FUND, INC. Real Estate Securities Fund PRINCIPAL SMALLCAP FUND, INC. Bond & Mortgage Securities Fund PRINCIPAL PARTNERS SMALLCAP Government Securities Fund GROWTH FUND, INC. Tax-Exempt Bond Fund PRINCIPAL REAL ESTATE SECURITIES Diversified International Fund FUND, INC. High Quality Short-Term Bond Fund RINCIPAL BOND FUND, INC. Money Market Fund PRINCIPAL GOVERNMENT SECURITIES International Emerging Markets Fund INCOME FUND, INC. PRINCIPAL TAX-EXEMPT BOND FUND, INC. PRINCIPAL INTERNATIONAL FUND, INC. PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC. PRINCIPAL LIMITED TERM BOND FUND, INC. PRINCIPAL CASH MANAGEMENT FUND, INC. PRINCIPAL INTERNATIONAL EMERGING MARKETS FUND, INC. By: _____________________________ By: _____________________________ Ralph C. Eucher Michael J. Beer President Executive Vice President PRINCIPAL MANAGEMENT CORPORATION By: _____________________________ Ralph C. Eucher President Appendix B COMPARISON OF FUNDAMENTAL INVESTMENT RESTRICTIONS The Acquired Fund and PIF on behalf of the Acquiring Fund have adopted "fundamental" investment restrictions that may not be changed for any Fund without the approval of a "majority of the outstanding voting securities" (as defined under "Voting Information - Voting Rights") of the Fund. These fundamental restrictions deal with such matters as the issuance of senior securities, purchasing or selling real estate or commodities, borrowing money, making loans, underwriting securities of other issuers, diversification or concentration of investments and short sales of securities. The table below compares the principal fundamental restrictions that apply to the Acquired and Acquiring Funds. Additional fundamental investment restrictions that apply only to the Acquired Fund and not the Acquiring Fund are set forth following the table.
Comparison of Principal Fundamental Investment Restrictions Applicable to Acquired Fund Applicable to Acquiring Fund Senior Securities: Senior Securities: The Fund may not issue any senior securities as defined in the 1940 Act. Purchasing and selling securities and futures contracts and options thereon and borrowing money in accordance with restrictions described below do not involve the issuance of a senior security. Commodities: Commodities: The Fund may not invest in physical commodities or commodity contracts (other than foreign currencies), but it may purchase and sell financial futures contracts, options on such contracts, swaps and securities backed by physical commodities. Real Estate: Real Estate: The Fund may not engage in the The Fund may not invest in real estate, purchase and sale of illiquid although it may invest in securities interests in real estate, that are secured by real estate and including interests in real estate securities of issuers that invest or investment trusts (although it may deal in real estate. invest in securities secured by real estate or interests therein) or invest in commodities or commodity contracts, oil and gas interests, or mineral exploration or development programs. Borrowing: Borrowing: The Fund may not borrow money The Fund may not borrow money, except except from banks for temporary or that it may a) borrow from banks (as emergency purposes, including the defined in the 1940 Act) or other meeting of redemption requests which financial institutions or through reverse might otherwise require the untimely repurchase agreements in amounts up to disposition of securities, in an amount 33 1/3% of its total assets (including not to exceed the lesser of a) 5% of the the amount borrowed); b) to the extent value of the Fund's assets, or b) 10% permitted by applicable law, borrow up to of the value of the Fund's net assets an additional 5% of its total assets taken at cost at the time such borrowing for temporary purposes; c) obtain is made. The Fund will not issue senior short-term credits as may be necessary securities except in connection with for the clearance of purchases and sales such borrowings. The Fund may not pledge, of portfolio securities; and d) purchase mortgage, or hypothecate its assets (at securities on margin to the extent value) to an extent greater than 10% of permitted by applicable law (the deposit the net assets. or payment of margin in connection with transactions in options and financial futures contracts is not considered purchase of securities on margin).* * The PIF Board of Directors has approved a proposal to amend this fundamental restriction and has directed that the proposal be submitted to shareholders of the Acquiring Fund for approval at the PIF Shareholders Meeting. If approved by shareholders, the amended fundamental restriction with respect to borrowing will provide as follows: The Fund may not borrow money, except as permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time. Making Loans: Making Loans: The Fund may not make loans, except The Fund may not make loans, except that the Fund may a) purchase and that the Fund may a) purchase and hold hold debt obligations in accordance debt obligations in accordance with its with its investment objective and investment objectives and policies; policies, b) enter into repurchase b) enter into repurchase agreements; agreements, and c) lend its portfolio and c) lend its portfolio securities securities without limitation against without limitation against collateral collateral (consisting of cash or (consisting of cash or liquid assets) equal securities issued or guaranteed by the at all times to not less than 100% of the U.S. Government or its agencies or value of the securities loaned. This limit instrumentalities) equal at all times does not apply to purchases of debt securities to not less than 100% of the value of or commercial paper. the securities loaned. Diversification: Diversification: The Fund may not invest more than 5% of its total assets in the securities of any one issuer (other than obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities) or purchase more than 10% of the outstanding voting securities of any one issuer, except that this limitation shall apply only with respect to 75% of the total assets of the Fund. Underwriting: Underwriting: The Fund may not act as an underwriter The Fund may not act as an underwriter except to the extent that, in connection of securities, except to the extent that with the disposition of portfolio the Fund may be deemed to be an underwriter securities, it may be deemed to be an in connection with the sale of underwriter under the federal securities securities held in its portfolio. laws. Concentration: Concentration: The Fund may not concentrate its investments The Fund may not concentrate its investments in any one industry. No more than 25% of the in any particular industry, except value of its total assets will be invested that the Fund may invest up to 25% in securities of issuers having their principal of the value of its total assets in a activities in any one industry, other than single industry, provided that, when the securities issued or guaranteed by the Fund has adopted a temporary defensive U.S. Government or its agencies or posture, there shall be no limitation on instrumentalities, or obligations of domestic the purchase of obligations issued or branches of U.S. banks and savings guaranteed by the U.S. government or its institutions. agencies or instrumentalities. Short Sales: Short Sales: The Fund may not purchase securities on The Fund may not sell securities margin, except it may obtain such short (except where the Fund holds short-term credits as are necessary for the or has the right to obtain at no clearance of transactions. The Fund added cost a long position in the will not effect a short sale of any security. securities sold that equals or exceeds The Fund will not issue or acquire the securities sold short). put and call options, straddles or spreads or any combination thereof.
Additional Fundamental Investment Restrictions Applicable to the Acquired Fund The Cash Management Fund may not: o purchase the securities of any issuer if the purchase will cause more than 5% of the value of its total assets to be invested in the securities of any one issuer (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities). o purchase the securities of any issuer if the purchase will cause more than 10% of the outstanding voting securities of the issuer to be held by the Fund (other than securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities). o purchase securities of any company with a record of less than 3 years continuous operation (including that of predecessors) if the purchase would cause the value of the Fund's aggregate investments in all such companies to exceed 5% of the value of the Fund's total assets. o purchase securities of other investment companies except in connection with a merger, consolidation, or plan of reorganization. o purchase or retain in its portfolio securities of any issuer if those officers and directors of the Fund or its Manager owning beneficially more than one-half of 1% (0.5%) of the securities of the issuer together own beneficially more than 5% of such securities. o invest in companies for the purpose of exercising control or management. o invest in time deposits maturing in more than seven days; time deposits maturing from two business days through seven calendar days may not exceed 10% of the value of the Fund's total assets. o invest more than 10% of its total assets in securities not readily marketable and in repurchase agreements maturing in more than seven days. Appendix C CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS Securities and Investment Practices Market Volatility. Fixed-income securities include bonds and other debt instruments that are used by issuers to borrow money from investors. The issuer generally pays the investor a fixed, variable or floating rate of interest. The amount borrowed must be repaid at maturity. Some debt securities, such as zero coupon bonds, do not pay current interest, but are sold at a discount from their face values. Interest Rate Changes. Fixed-income securities are sensitive to changes in interest rates. In general, fixed-income security prices rise when interest rates fall and fall when interest rates rise. Longer term bonds and zero coupon bonds are generally more sensitive to interest rate changes. Credit Risk. Fixed-income security prices are also affected by the credit quality of the issuer. Investment grade debt securities are medium and high quality securities. Some bonds, such as lower grade or "junk" bonds, may have speculative characteristics and may be particularly sensitive to economic conditions and the financial condition of the issuers. Repurchase Agreements And Loaned Securities Although not a principal investment strategy, each of the Funds may invest a portion of its assets in repurchase agreements. Repurchase agreements typically involve the purchase of debt securities from a financial institution such as a bank, savings and loan association or broker-dealer. A repurchase agreement provides that the Fund sells back to the seller and that the seller repurchases the underlying securities at a specified price on a specific date. Repurchase agreements may be viewed as loans by a Fund collateralized by the underlying securities. This arrangement results in a fixed rate of return that is not subject to market fluctuation while the Fund holds the security. In the event of a default or bankruptcy by a selling financial institution, the affected Fund bears a risk of loss. To minimize such risks, the Fund enters into repurchase agreements only with large, well-capitalized and well-established financial institutions. In addition, the value of the securities collateralizing the repurchase agreement is, and during the entire term of the repurchase agreement remains, at least equal to the repurchase price, including accrued interest. Each of the Funds may lend its portfolio securities to unaffiliated broker-dealers and other unaffiliated qualified financial institutions. Currency Contracts The Funds may each enter into forward currency contracts, currency futures contracts and options, and options on currencies for hedging purposes and not as a principal investment strategy. A forward currency contract involves a privately negotiated obligation to purchase or sell a specific currency at a future date at a price set in the contract. A Fund will not hedge currency exposure to an extent greater than the aggregate market value of the securities held or to be purchased by the Fund (denominated or generally quoted or currently convertible into the currency). Hedging is a technique used in an attempt to reduce risk. If a Fund's Sub-Advisor hedges market conditions incorrectly or employs a strategy that does not correlate well with the Fund's investment, these techniques could result in a loss. These techniques may increase the volatility of a Fund and may involve a small investment of cash relative to the magnitude of the risk assumed. In addition, these techniques could result in a loss if the other party to the transaction does not perform as promised. There is also a risk of government action through exchange controls that would restrict the ability of the Fund to deliver or receive currency. Forward Commitments Although not a principal investment strategy, each of the Funds may enter into forward commitment agreements. These agreements call for the Fund to purchase or sell a security on a future date at a fixed price. Each of these Funds may also enter into contracts to sell its investments either on demand or at a specific interval. Warrants Each of the Funds may invest up to 5% of its assets in warrants though none of the Funds use such investments as a principal investment strategy. A warrant is a certificate granting its owner the right to purchase securities from the issuer at a specified price, normally higher than the current market price. Derivatives To the extent permitted by its investment objectives and policies, each of the Funds may invest in securities that are commonly referred to as derivative securities. Generally, a derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. Certain derivative securities are described more accurately as index/structured securities. Index/structured securities are derivative securities whose value or performance is linked to other equity securities (such as depositary receipts), currencies, interest rates, indices or other financial indicators (reference indices). Some derivatives, such as mortgage-related and other asset-backed securities, are in many respects like any other investment, although they may be more volatile or less liquid than more traditional debt securities. There are many different types of derivatives and many different ways to use them. Futures and options are commonly used for traditional hedging purposes to attempt to protect a Fund from exposure to changing interest rates, securities prices, or currency exchange rates and for cash management purposes as a low-cost method of gaining exposure to a particular securities market without investing directly in those securities. The Funds may enter into put or call options, future contracts, options on futures contracts and over-the-counter swap contracts (e.g., interest rate swaps, total return swaps and credit default swaps) for both hedging and non-hedging purposes. Generally, no Fund may invest in a derivative security unless the reference index or the instrument to which it relates is an eligible investment for the Fund. The return on a derivative security may increase or decrease, depending upon changes in the reference index or instrument to which it relates. The risks associated with derivative investments include: o the risk that the underlying security, interest rate, market index or other financial asset will not move in the direction the Manager or Sub-Advisor anticipated; o the possibility that there may be no liquid secondary market which may make it difficult or impossible to close out a position when desired; o the risk that adverse price movements in an instrument can result in a loss substantially greater than a Fund's initial investment; and o the counterparty may fail to perform its obligations. Convertible Securities Convertible securities are fixed-income securities that a Fund has the right to exchange for equity securities at a specified conversion price. The option allows the Fund to realize additional returns if the market price of the equity securities exceeds the conversion price. For example, the Fund may hold fixed-income securities that are convertible into shares of common stock at a conversion price of $10 per share. If the market value of the shares of common stock reached $12, the Fund could realize an additional $2 per share by converting its fixed-income securities. Convertible securities have lower yields than comparable fixed-income securities. In addition, at the time a convertible security is issued the conversion price exceeds the market value of the underlying equity securities. Thus, convertible securities may provide lower returns than non-convertible fixed-income securities or equity securities depending upon changes in the price of the underlying equity securities. However, convertible securities permit the Fund to realize some of the potential appreciation of the underlying equity securities with less risk of losing its initial investment. The Funds treat convertible securities as both fixed-income and equity securities for purposes of investment policies and limitations because of their unique characteristics. The Funds may invest in convertible securities without regard to their ratings. Foreign Investing Each of the Funds may invest in securities of foreign companies but not as a principal investment strategy. For the purpose of this restriction, foreign companies are: o companies with their principal place of business or principal office outside the U.S.; and o companies for which the principal securities trading market is outside the U.S. Foreign companies may not be subject to the same uniform accounting, auditing and financial reporting practices as are required of U.S. companies. In addition, there may be less publicly available information about a foreign company than about a U.S. company. Securities of many foreign companies are less liquid and more volatile than securities of comparable U.S. companies. Commissions on foreign securities exchanges may be generally higher than those on U.S. exchanges, although each Fund seeks the most favorable net results on its portfolio transactions. Foreign markets also have different clearance and settlement procedures than those in U.S. markets. In certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct these transactions. Delays in settlement could result in temporary periods when a portion of Fund assets is not invested and earning no return. If a Fund is unable to make intended security purchases due to settlement problems, the Fund may miss attractive investment opportunities. In addition, a Fund may incur a loss as a result of a decline in the value of its portfolio if it is unable to sell a security. With respect to certain foreign countries, there is the possibility of expropriation or confiscatory taxation, political or social instability, or diplomatic developments that could affect a Fund's investments in those countries. In addition, a Fund may also suffer losses due to nationalization, expropriation or differing accounting practices and treatments. Investments in foreign securities are subject to laws of the foreign country that may limit the amount and types of foreign investments. Changes of governments or of economic or monetary policies, in the U.S. or abroad, changes in dealings between nations, currency convertibility or exchange rates could result in investment losses for a Fund. Finally, even though certain currencies may be convertible into U.S. dollars, the conversion rates may be artificial relative to the actual market values and may be unfavorable to Fund investors. Foreign securities are often traded with less frequency and volume, and therefore may have greater price volatility, than is the case with many U.S. securities. Brokerage commissions, custodial services, and other costs relating to investment in foreign countries are generally more expensive than in the U.S. Though the Funds intend to acquire the securities of foreign issuers where there are public trading markets, economic or political turmoil in a country in which a Fund has a significant portion of its assets or deterioration of the relationship between the U.S. and a foreign country may negatively impact the liquidity of a Fund's portfolio. A Fund may have difficulty meeting a large number of redemption requests. Furthermore, there may be difficulties in obtaining or enforcing judgments against foreign issuers. A Fund may choose to invest in a foreign company by purchasing depositary receipts. Depositary receipts are certificates of ownership of shares in a foreign-based issuer held by a bank or other financial institution. They are alternatives to purchasing the underlying security but are subject to the foreign securities to which they relate. Investments in companies of developing countries may be subject to higher risks than investments in companies in more developed countries. These risks include: o increased social, political and economic instability; o a smaller market for these securities and low or nonexistent volume of trading that results in a lack of liquidity and in greater price volatility; lack of publicly available information, including reports of payments of dividends or interest on outstanding securities; o foreign government policies that may restrict opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; o relatively new capital market structure or market-oriented economy; o the possibility that recent favorable economic developments may be slowed or reversed by unanticipated political or social events in these countries; o restrictions that may make it difficult or impossible for the Fund to vote proxies, exercise shareholder rights, pursue legal remedies, and obtain judgments in foreign courts; and possible losses through the holding of securities in domestic and foreign custodial banks and depositories. In addition, many developing countries have experienced substantial, and in some periods, extremely high rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies and securities markets of those countries. Repatriation of investment income, capital and proceeds of sales by foreign investors may require governmental registration and/or approval in some developing countries. A Fund could be adversely affected by delays in or a refusal to grant any required governmental registration or approval for repatriation. Further, the economies of developing countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. Small and Medium Capitalization Companies Each of the Funds may hold securities of small and medium capitalization companies but not as a principal investment strategy. Market capitalization is defined as total current market value of a company's outstanding common stock. Investments in companies with smaller market capitalizations may involve greater risks and price volatility (wide, rapid fluctuations) than investments in larger, more mature companies. Small companies may be less significant within their industries and may be at a competitive disadvantage relative to their larger competitors. While smaller companies may be subject to these additional risks, they may also realize more substantial growth than larger or more established companies. Smaller companies may be less mature than larger companies. At this earlier stage of development, the companies may have limited product lines, reduced market liquidity for their shares, limited financial resources or less depth in management than larger or more established companies. Unseasoned issuers are companies with a record of less than three years continuous operation, including the operation of predecessors and parents. Unseasoned issuers by their nature have only a limited operating history that can be used for evaluating the company's growth prospects. As a result, investment decisions for these securities may place a greater emphasis on current or planned product lines and the reputation and experience of the company's management and less emphasis on fundamental valuation factors than would be the case for more mature growth companies. Temporary Defensive Measures From time to time, as part of its investment strategy, each of the 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 the Fund is in a defensive position, it may lose the benefit of upswings and limit its ability to meet its investment objective. For this purpose, cash equivalents include: bank notes, bank certificates of deposit, bankers' acceptances, repurchase agreements, commercial paper, and commercial paper master notes which are floating rate debt instruments without a fixed maturity. In addition, a Fund may purchase U.S. government securities, preferred stocks and debt securities, whether or not convertible into or carrying rights for common stock. There is no limit on the extent to which the Funds may take temporary defensive measures. In taking such measures, the Fund may fail to achieve its investment objective. Appendix D DEBT SECURITY RATINGS Standard & Poor's Ratings Group ("S&P") Commercial Paper: A-1 The rating A-1 is the highest rating assigned by S&P to commercial paper. This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign designation. A-2 Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high for issuers designated "A-1." Bonds: AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB-B-CCC -CC Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligations. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. D Bonds rated D are in default. The D category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired. The D rating is also used upon the filing of a bankruptcy petition if debt service payments are jeopardized. The ratings set forth above may be modified by the addition of a plus or minus to show relative standing within the major rating categories. Moody's Investors Service, Inc. ("Moody's") Commercial Paper: P-1 The rating P-1 is the highest commercial paper rating assigned by Moody's. Issuers rated P-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-1 repayment capacity will normally be evidenced by the following characteristics: (1) leading market positions in established industries; (2) high rates of return on funds employed; (3) conservative capitalization structures with moderate reliance on debt and ample asset protection; (4) broad margins in earnings coverage of fixed financial charges and high internal cash generation; and (5) well established access to a range of financial markets and assured sources of alternate liquidity. P-2 Issuers rated P-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternative liquidity is maintained. Bonds: Aaa Bonds which are rated Aaa by Moody's are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds which are rated Aa by Moody's are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A Bonds which are rated A by Moody's possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa Bonds which are rated Baa by Moody's are considered as medium grade obligations, that is, they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. B Bonds which are rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or of maintenance and other terms of the contract over any long period of time may be small. Caa Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca Bonds which are rated Ca represent obligations which are speculative in high degree. Such issues are often in default or have other marked shortcomings. C Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Moody's applies numerical modifiers "1," "2" and "3" to certain of its rating classifications. The modifier "1" indicates that the security ranks in the higher end of its generic rating category; the modifier "2" indicates a mid-range ranking; and the modifier "3" indicates that the issue ranks in the lower end of its generic rating category. Appendix E PRINCIPAL MUTUAL FUNDS AUDIT AND NOMINATING COMMITTEE CHARTER Organization The Audit and Nominating Committee of the Board of Directors ("Board") shall be composed of directors who are not interested persons as defined in the Investment Company Act of 1940. Statement of Policy The function of the Audit and Nominating Committee is oversight; it is management's responsibility to maintain appropriate systems for accounting and internal control over financial reporting, and the auditor's responsibility to plan and carry out a proper audit. Specifically, Fund management is responsible for: (1) the preparation, presentation and integrity of the Fund's financial statements; (2) the maintenance of appropriate accounting and financial reporting principles and policies; and (3) the maintenance of internal control over financial reporting and other procedures designed to assure compliance with accounting standards and related laws and regulations. The independent auditors are responsible for planning and carrying out an audit consistent with applicable legal and professional standards and the terms of their engagement letter. Nothing in this Charter shall be construed to reduce the responsibilities or liabilities of the Fund's service providers, including the auditors. Although the Committee is expected to take a detached and questioning approach to the matters that come before it, the review of a Fund's financial statements by the Committee is not an audit, nor does the Committee's review substitute for the responsibilities of the Funds management for preparing; or the independent auditors for auditing, the financial statements. Members of the Committee are not full-time employees of the Fund and, in serving on this Committee, are not, and do not hold themselves out to be, acting as accountants or auditors. As such, it is not the duty or responsibility of the Committee or its members to conduct "field work" or other types of auditing or accounting reviews or procedures. In discharging their duties the members of the Committee are entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by: (1) one or more officers of the Fund whom the director reasonably believes to be reliable and competent in the matters presented; (2) legal counsel, public accountants, or other persons as to matters the director reasonably believes are within the persons professional or expert competence; or (3) a Board committee of which the director is not a member. The Committee shall assist the directors in fulfilling their responsibilities to the shareholders, potential shareholders, and investment community relating to monitoring the integrity of the financial reporting processes and systems of internal accounting and financial controls, the compliance with legal and regulatory requirements, the independence and performance of internal and external auditors, and the effectiveness and efficiency of operations. The auditors for the Fund shall report directly to the Committee. Further, the Committee shall be responsible for maintaining free and open communication among the directors, the independent auditors, the internal auditors, and the management of the Fund. Responsibilities In carrying out its responsibilities, the Committee should be flexible so that it can best react to changing conditions to provide the directors and shareholders with reasonable assurance that the Fund accounting and reporting practices are in accordance with all requirements and are of the highest quality. The Committee shall have the authority to retain outside counsel or other consultants to advise the Committee as it deems appropriate to its duties. The Committee may request any officer or employee of the Fund or management company or the company's outside counsel or independent auditors to attend a meeting of the Committee or to meet with any members of, or consultants to the Committee. No member of the Committee shall receive any compensation from the Fund except for service as a member of the Fund's Board or a committee of the Board. The Committee shall meet not less than twice per year to review the Fund's financial statements and shall make regular reports to the Board addressing such matters as the quality and integrity of the Company's financial statements, the Company's compliance with legal and regulatory requirements and the performance of the independent and internal auditors. The chair of the Committee may call additional meetings as necessary. The Committee shall: 1. Appoint, compensate, and conduct oversight of the work of the independent auditors. 2. Meet with the independent auditors to review the scope and approach of the proposed audit plan and the audit procedures to be performed. 3. Confirm and ensure the objectivity of the internal auditors and the independence of the independent auditors. Pre-approve all engagements and compensation to be paid to the auditor consistent with the Fund's Policy on Auditor Independence and discuss independence issues with the independent auditor on an annual basis. If so determined by the Committee, recommend that the Board take appropriate action to satisfy itself of the independence of the auditor. No engagement of the independent auditor should: (a) create a mutual or conflicting interest between the audit firm and the Fund (b) place the audit firm in the position of auditing its own work (c) result in the audit firm acting in a management role for the Fund, or (d) place the audit firm in a position of being an advocate for the Fund. Annually, the independent auditor shall report all relationships that may bear on independence between the auditor and the Fund with respect to any services provided by the auditor, its subsidiaries or affiliates. 4. Review the adequacy and effectiveness of the Fund's internal controls, with the independent auditors, the organization's internal auditors, and its financial and accounting personnel, and consider their recommendations for improving the internal controls or particular areas where new or more detailed controls or procedures are desirable. Particular emphasis should be given to the adequacy of internal controls in exposing any payments, transactions, or procedures that might be deemed illegal or otherwise improper. Consider major changes to the Fund's auditing and accounting principles and practices as suggested by the independent auditors, internal auditor or management. 5. Request that management inform the Committee of all new or changed accounting principles and disclosure practices on a timely basis. Inquire of the auditors regarding their judgments and reasoning regarding the appropriateness of the changes or proposed changes, as well as the appropriateness of the accounting principles and disclosure practices management employs for new transactions or events. 6. Review legal and regulatory matters that may have a material effect on the financial statements, the Fund's compliance policies and ethical business practices programs, and any material related to regulatory examinations or reports received from regulators or government agencies. 7. Inquire of management, the internal auditors, and the independent auditors regarding significant risks or exposures, and assess the steps management has taken to minimize such risks and exposures to the organization. 8. Review the results of the Fund's monitoring of compliance with its Code of Ethics. 9. Review the Fund's policies and procedures with respect to officers' and directors' expense accounts and perquisites, including their use of the organization's assets, and consider the results of the internal or independent auditors' reviews of those areas. (Expenses of individuals serving in the role of a Fund officer are not charged to the Fund and there are no related perquisites. Fees and reimbursable expenses of the independent directors are the only expenses of Fund directors charged to the Fund). 10. Review the Fund's internal audit function, including its audit plans, staffing, explanations for any deviations from plans, and the coordination of such plans with those of the independent auditors. 11. Review the significant issues reported to management prepared by the internal auditor and management's responses. Receive a summary of findings from completed internal audits. Review with the internal auditors any difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to required information. 12. Meet with the independent auditors, at the conclusion of the audit, to review the results of the audit, including any comments or recommendations of the independent auditors. In addition, review with the independent auditors any major issues regarding accounting and auditing principles, practices and judgments as well as the adequacy of internal controls that could significantly affect the financial statements. Further, report the results of the annual audit to the Board of Directors. 13. Review the financial statements contained in the annual report to shareholders with management and the independent auditors. Inquire of the independent auditors regarding their qualitative judgments about the appropriateness, not just the acceptability, of the accounting principles and the clarity of the financial disclosures. Also, inquire of the independent auditors regarding their reasoning in accepting or questioning management's significant estimates. 14. Inquire of the independent auditors regarding their judgments about whether management's accounting principles and estimates are conservative, moderate, or extreme from the perspective of income, asset, and liability recognition, and whether those principles are common practices or minority practices. Also, discuss with the independent auditors how the Fund's choices of accounting principles and disclosure practices may affect shareholders' and the public's views and attitudes about the organization. 15. Discuss with the independent auditors other matters, if any, required to be discussed by Statements on Auditing Standards relating to the conduct of the audit such as audit adjustments, fraud and illegal acts, auditor retention issues, consultation with other auditors, disagreements with management and resolve any such disagreements, access to information, other difficulties encountered during the audit, etc. 16. Meet separately with the independent auditors and internal auditors without management. Among the items to be discussed in these meetings are the independent auditors' evaluation of the Fund's financial, accounting, and auditing personnel, and the cooperation that the independent auditors received during the audit. 17. Establish and maintain procedures for the handling of complaints received regarding accounting, internal controls, and auditing. 18. Submit the minutes of all the Committee's meetings to, or discuss the matters considered at each Committee meeting with, the Board of Directors. Review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval. 19. Select, review and nominate for consideration by the Board candidates for directors who are not interested persons as defined in the Investment Company Act of 1940. (adopted by the Board of Directors of each of the Principal Mutual Funds on September 13, 2004) Appendix F OUTSTANDING SHARES AND SHARE OWNERSHIP This Appendix sets forth information as to the number of shares outstanding and entitled to vote of each class of shares of the Acquired Fund, the number of outstanding shares of each class of shares of the Acquiring Fund and the percentage ownership by certain shareholders of such shares of the Acquired and Acquiring Funds. Acquired Fund The following table shows as of the Record Date the number of Class A and Class B shares of the Acquired Fund outstanding and entitled to vote. Number of Shares Acquired Fund Share Class Outstanding ------------------------------------------------------------------- Principal Cash Management Fund, Inc. Class A 342,171,939.931 Class B 3,909,050.424 The following table shows as of March 3, 2005 the percentage of the outstanding Class A and Class B shares of the Acquired Fund owned of record or beneficially by Principal Life, either directly or through subsidiaries. Principal Life and its subsidiaries own all of these shares both of record and beneficially, except as otherwise indicated. The ultimate parent of Principal Life is Principal Financial Group, Inc. Percentage Owned by Acquired Fund Share Class Principal Life -------------------------------------------------------------------- Principal Cash Management Fund, Inc. Class A 0.49% Class B 0.00% As of March 3, 2005, the Directors and officers of the Acquired Fund together owned less than 1% of its outstanding shares. As of March 3, 2005, the following persons owned of record, or were known by the Acquired Fund or the Acquiring Fund to own beneficially, 5% or more of the outstanding shares of any Class of the Acquired Fund: Name and Address Percentage of Acquired Fund/Share Class of Shareholder Ownership Principal Cash Management Princor Financial Services Corporation 5.0% Fund, Inc./Class A Principal Financial Group Attn: Valorie Hammen, N003-E20 Des Moines, IA 50392-0200 Principal Cash Management Delaware Charter Guarantee & Trust Co. 9.5% Fund, Inc./Class A Attn: Lori N. Richards P.O. Box 8738 Wilmington, DE 19899-8738 Acquiring Fund The following table shows as of the Record Date the number of shares outstanding of each Class of shares of the Acquiring Fund. Number of Shares Acquiring Fund Share Class Outstanding -------------------------------------------------------------------- PIF Money Market Fund Institutional 88,178,161.07 Select 3,486,900.00 Preferred 23,833,721.81 Advisors Select 7,481,366.80 Advisors Signature 10,038.11 Advisors Preferred 19,184,213.34 Class J 147,185,267.65 The following table shows as of March 3, 2005 the percentage of the outstanding shares of each class of the Acquiring Fund owned of record or beneficially by Principal Life, either directly or through subsidiaries. Principal Life and its subsidiaries own all of these shares both of record and beneficially, except as otherwise indicated. The ultimate parent of Principal Life is Principal Financial Group, Inc. Percentage Owned by Acquired Fund Share Class Principal Life -------------------------------------------------------------------- PIF Money Market Fund Institutional 0.00% Select 0.29% Preferred 0.00% Advisors Select 0.00% Advisors Signature 100.00% Advisors Preferred 0.00% Class J 0.00% As of March 3, 2005, the Directors and officers of PIF Fund together owned less than 1% of the outstanding shares of the Acquiring Fund. As of March 3, 2005, the persons identified below owned of record, or were known by the Acquiring Fund or the Acquired Fund to own beneficially, 5% or more of the outstanding shares of the Class of the Acquiring Fund indicated. Name and Address Percentage of Share Class of Shareholder Ownership - ----------------------------------------------------------------------------- Institutional Class LIFETIME 2010 FUND 47.2% ATTN JAMIE SCRIGNOLI N-002-E20 MUTUAL FUND ACCOUNTING 711 HIGH STREET DES MOINES, IA 50392-0200 LIFETIME STRATEGIC INCOME FUND 52.7% ATTN JAMIE SCRIGNOLI N-002-E20 MUTUAL FUND ACCOUNTING 711 HIGH STREET DES MOINES, IA 50392-0200 Select Class Bankers Trust Company NA 69.3% FBO Delora Williams 665 Locust Des Moines, IA 50304 Wachovia Bank NA 23.3% FBO Kewaunee Scientific Corp Exec Def Plan Tanya Whitaker One West Fourth Stre Winston-Salem, NC 27150 Preferred Class DELAWARE CHARTER GUAR & TRUST 9.1% FBO PRINCIPAL FINANCIAL GROUP ATTN: RIS NPIO TRADE DESK 711 HIGH STREET DES MOINES, IA 50392 INSURANCE SERVICES OFFICE, INC TTEE 7.9% ISO SUPPLEMENTAL EXEC SAVING PLAN 545 WASHINGTON BLVD JERSEY CITY, NJ 07310-1607 Trustar 10.0% FBO SOUTHWIRE BALANCED FUND RETIREMENT PLAN PO BOX 8963 WILMINGTON, DE 19899-8963 Delaware Charter Guarantee & Trust 40.4% FBO Various Qualified Plans FBO PRINCIPAL FINANCIAL GROUP ATTN RIS NPIO TRADE DESK 711 HIGH STREET DES MOINES, IA 50392 PRINCIPAL TRUST COMPANY NA TTEE 7.3% ATTN SUSAN SAGGIONE FBO PRIORITY HLTH SUPPL EX DEF PLN C/O DEBORAH PHILLIPS 1231 E BELTLINE AVE NE GRAND RAPIDS, MI 49525-7024 Advisors Select Class Delaware Charter Guarantee & Trust 94.9% FBO Various Qualified Plans FBO PRINCIPAL FINANCIAL GROUP ATTN RIS NPIO TRADE DESK 711 HIGH STREET DES MOINES, IA 50392 Advisors Preferred Class DELAWARE CHARTER GUAR & TRUST 22.4% FBO PRINCIPAL ADVANTAGE TRUST ATTN: RIS NPIO TRADE DESK 711 HIGH STREET DES MOINES, IA 50392 Delaware Charter Guarantee & Trust 57.1% FBO Various Qualified Plans FBO PRINCIPAL FINANCIAL GROUP ATTN RIS NPIO TRADE DESK 711 HIGH STREET DES MOINES, IA 50392 Appendix G ADDITIONAL PERFORMANCE INFORMATION Set forth below for each of the Acquired and Acquiring Funds is a bar chart which provides some indication of the risks of investing in the Fund by showing changes in performance from year to year. The bar chart for the Acquired Fund shows performance for Class A shares of that Fund. The bar chart for the Acquiring Fund, which has not yet issued Class A or Class B shares, shows performance of its Institutional Class Shares. The Class A and Class B shares of the Acquiring Fund will have higher expenses, and thus lower performance, than the Institutional Shares. YEAR-BY-YEAR TOTAL RETURN (%) AS OF 12/31 EACH YEAR
LOGO 1995 5.44 1996 4.96 1997 4.88 1998 5.15 1999 4.63 2000 5.89 2001 3.72 2002 1.20 2003 0.49 2004 0.74 The year-to-date return as of March 31, 2005 for Class A is 0.44% and for Class B is 0.33%.
YEAR-BY-YEAR TOTAL RETURN (%) AS OF 12/31 EACH YEAR
LOGO 2002 1.49 2003 0.80 2004 1.01 Year-to-date return as of March 31, 2005 for the Institutional Class is 0.52%.
(LOGO) Two Low-Cost Ways to Case Your Proxy Vote Save Time and Money Principal Mutual Funds - ------------------------------------------------ ----------------------------------------------- VOTING BY PHONE VOTING ON THE INTERNET o Read the Proxy Statement and have this card o Read the Proxy Statement and have this at hand. card at hand. o Call toll-free 1-888-221-0697 and follow the o Log on to www.proxyweb.com and follow the recorded instructions. on-screen instructions. o Do not return this paper ballot. o Do not return this paper ballot. - ------------------------------------------------ -----------------------------------------------
(CONTROL No.) VOTE YOUR PROXY TODAY PRINCIPAL MUTUAL FUNDS SPECIAL MEETING OF SHAREHOLDERS JUNE 16, 2005 THIS PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS PRINCIPAL CASH MANAGEMENT FUND, INC. REORGANIZATION PROPOSAL The undersigned shareholder appoints Arthur S. Filean, Ernest H. Gillum and Michael J. Beer , and each of them separately, Proxies, with power of substitution, and authorizes them to represent and to vote as designated on this ballot, at the meeting of shareholders to be held June 16, 2005 at 2:00 p.m., C.D.T., at the offices of Principal Management Corporation, 680 8th Street, Des Moines, Iowa 50392-0200 and at any adjournments thereof, all the shares of the Fund that the undersigned shareholder would be entitled to vote if personally present. Check the appropriate boxes on the ballot, date the ballot and sign exactly as your name appears. Your signature acknowledges receipt of Notice of the Special Meeting of Shareholders and Combined Prospectus/Proxy Statement. Shares will be voted as you instruct. If not direction is made, the proxy will be voted FOR the proposals listed. In their discretion the Proxies will also be authorized to vote upon such other matters that may properly come before the meeting PLEASE MARK, SIGN, DATE AND MAIL Name & YOUR PROXY BALLOT IN THE Address of Shareholder ENCLOSED POSTAGE-PAID ENVELOPE. Date__________________, 2005 (Signature Box) Signature of Sareholder(s) (if held joint) (Sign in the Box) NOTE: PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THIS BALLOT. If shares are held jointly, either party may sign. If executed by a corporation, an authorized officer must sign. Executors, administrators and trustees should so indicate when signing.
(Back of Card) Please fill in box(es) as shown using black or blue ink or number 2 pencil. [X] PLEASE DO NOT USE FINE POINT PENS.
The Board of Directors recommends that shareholders vote FOR the following proposals. FOR AGAINST ABSTAIN Approval of Agreement and Plan of Reorganization, as defined and described in the [ ] [ ] [ ] Combined Prospectus/Proxy Statement related to the Special Meeting of Shareholders to be held on June 16, 2005 FOR WITHHOLD FOR ALL ALL ALL Except* Election of the Board of Directors: (01) Elizabeth Ballantine (04) Mark A. Grimmett (07) John E. Aschenbrenner (02) James D. Davis (05) William C. Kimball (08) Ralph C. Eucher [ ] [ ] [ ] (03) Richard W. Gilbert (06) Barbara A. Lukavsky (09) Larry D. Zimpleman - --------------------------------------------------------------------------- *(NOTE: To withhold authority to vote for one or more of the nominees, write the number(s) of the nominee(s) on the line above.)
PLEASE SIGN AND DATE ON THE REVERSE SIDE.. PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION PRINCIPAL INVESTORS FUND, INC. 680 8th Street Des Moines, Iowa 50392-0200 STATEMENT OF ADDITIONAL INFORMATION Dated: April __, 2005 This Statement of Additional Information is available to the shareholders of the "Acquired Funds" listed below, each of which is a separate mutual fund and all of which are collectively and commonly known as the Principal Mutual Funds ("PMF"), in connection with the proposed Reorganization providing for the combination of each Acquired Fund into the corresponding "Acquiring Fund" listed below, each of which is a separate series of Principal Investors Fund, Inc. ("PIF").
Corresponding PMF Acquired Fund PIF Acquiring Fund Principal Balanced Fund, Inc. -- PIF Disciplined LargeCap Blend Fund Principal Capital Value Fund, Inc. -- PIF LargeCap Value Fund Principal Partners LargeCap Value Fund, Inc. -- PIF Partners LargeCap Value Fund Principal Equity Income Fund, Inc. -- PIF Equity Income Fund Principal Partners Blue Chip Fund, Inc. -- PIF Partners LargeCap Blend Fund I Principal Partners LargeCap Blend Fund, Inc. -- PIF Partners LargeCap Blend Fund Principal LargeCap Stock Index Fund, Inc. -- PIF LargeCap S&P 500 Index Fund Principal Growth Fund, Inc. -- PIF LargeCap Growth Fund Principal Partners Equity Growth Fund, Inc. -- PIF Partners LargeCap Growth Fund I Principal MidCap Fund, Inc. -- PIF MidCap Blend Fund Principal Partners MidCap Growth Fund, Inc. -- PIF Partners MidCap Growth Fund Principal SmallCap Fund, Inc. -- PIF SmallCap Blend Fund Principal Partners SmallCap Growth Fund, Inc. -- PIF Partners SmallCap Growth Fund II Principal Real Estate Securities Fund, Inc. -- PIF Real Estate Securities Fund Principal Bond Fund, Inc. -- PIF Bond & Mortgage Securities Fund Principal Government Securities Income Fund, Inc. -- PIF Government Securities Fund Principal Tax-Exempt Bond Fund, Inc. -- PIF Tax-Exempt Bond Fund Principal International Fund, Inc. -- PIF Diversified International Fund Principal International SmallCap Fund, Inc. -- PIF Diversified International Fund Principal Limited Term Bond Fund, Inc. -- PIF High Quality Short-Term Bond Fund Principal Cash Management Fund, Inc. -- PIF Money Market Fund Principal International Emerging Markets Fund, Inc. -- PIF International Emerging Markets Fund
This Statement of Additional Information is not a prospectus and should be read in conjunction with the Proxy Statement/Prospectus dated April __, 2005, relating to the Joint Special Meeting of Shareholders of the Acquired Funds to be held on May 26, 2005. The Proxy Statement/Prospectus, which describes the proposed Reorganization, may be obtained without charge by writing to Principal Management Corporation, 680 8th Street, Des Moines, Iowa 50392-2080, or by calling toll free at 1-800-247-4123. This Statement of Additional Information includes and is accompanied by the Statement of Additional Information of PIF dated March 1, 2005. This Statement of Additional Information incorporates by reference the following documents (or designated portions thereof) that have been filed with the Securities and Exchange Commission: (1) The Statement of Additional Information of PIF dated March 1, 2005, as filed on __________; (2) The financial statements of PIF included in its Annual Report to Shareholders for the fiscal year ended October 31, 2004, which have been audited by Ernst & Young LLP, Independent Registered Public Accounting Firm, as filed on ________, 2005, insofar as such financial statements relate to the Acquiring Funds; and the financial statements of each of the Acquired Funds included in their respective Annual Reports to Shareholders for the fiscal year ended October 31, 2004, which have been audited by Ernst & Young LLP, Independent Registered Public Accounting Firm, as filed on ________, 2005. The Annual and Semi-Annual Reports to Shareholders of PIF and each of the Acquired Funds are available upon request and without charge by calling toll-free at 1-800-247-4123. TABLE OF CONTENTS Explanatory Note to Pro Forma Financial Statements Pro Forma Financial Statements consisting of (i) Statement of Assets and Liabilities, (ii) Statement of Operations; (iii) Schedule of Portfolio Investments and (iv) Notes to Pro Forma Financial Statements (see below), for each of the following combinations of an Acquired Fund into an Acquiring Fund: - --Principal Balanced Fund, Inc. and PIF Disciplined LargeCap Blend Fund - --Principal Capital Value Fund, Inc. and PIF LargeCap Value Fund - --Principal Partners Blue Chip Fund, Inc. and PIF Partners LargeCap Blend Fund I - --Principal Partners LargeCap Blend Fund, Inc. and PIF Partners LargeCap Blend Fund - --Principal LargeCap Stock Index Fund, Inc. and PIF LargeCap S&P 500 Index Fund - --Principal Growth Fund, Inc. and PIF LargeCap Growth Fund - --Principal MidCap Fund, Inc. and PIF MidCap Blend Fund - --Principal Partners MidCap Growth Fund, Inc. and PIF Partners MidCap Growth Fund - --Principal SmallCap Fund, Inc. and PIF SmallCap Blend Fund - --Principal Real Estate Securities Fund, Inc. and PIF Real Estate Securities Fund - --Principal Bond Fund, Inc. and PIF Bond & Mortgage Securities Fund - --Principal Government Securities Income Fund, Inc. and PIF Government Securities Fund - --Principal International Fund, Inc. , Principal International SmallCap Fund, Inc. and PIF Diversified International Fund - --Principal Limited Term Bond Fund, Inc. and PIF High Quality Short-Term Bond Fund - --Principal Cash Management Fund, Inc. and PIF Money Market Fund - --Principal International Emerging Markets Fund, Inc. and PIF International Emerging Markets Fund - --Notes to Pro Forma Financial Statements
Explanatory Note to Pro Forma Financial Statements Pro forma combining financial statements for the Principal Partners LargeCap Value Fund, Inc./PIF Partners LargeCap Value Fund Reorganization are not included because as of February 28, 2005, the assets of Principal Partners LargeCap Value Fund, Inc. constituted less than 10% of the assets of the PIF Partners LargeCap Value Fund. Pro forma combining financial statements for the Principal Partners Equity Growth Fund, Inc./PIF Partners LargeCap Growth Fund I Reorganization are not included because as of February 28, 2005, the assets of Principal Partners Equity Growth Fund, Inc. constituted less than 10% of the assets of the PIF Partners LargeCap Growth Fund I. Pro forma combining financial statements for the Principal Partners SmallCap Growth Fund, Inc./PIF Partners SmallCap Growth Fund II Reorganization are not included because as of February 28, 2005, the assets of Principal Partners SmallCap Growth Fund, Inc. constituted less than 10% of the assets of the PIF Partners SmallCap Growth Fund II. Principal Equity Income Fund, Inc. and Principal Tax-Exempt Bond Fund, Inc. will be reorganized into PIF Equity Income Fund and PIF Tax-Exempt Bond Fund, respectively, two funds which currently have no assets or liabilities. Pro forma combining financial statements are not included because the only significant pro forma financial statement impact relates to the fees and expenses of the Funds, which are summarized in Proposal 4 and Proposal 17 of Part A of the Prospectus/Proxy statement. Shareholders of these two Principal Mutual Funds should review those proposals to compare the fees and expenses of the newly created Fund with those of their corresponding Principal Mutual Fund. STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004 (UNAUDITED) -------------------------------------------------------------------------------
PRINCIPAL DISCIPLINED DISCIPLINED BALANCED LARGECAP PRO FORMA LARGECAP FUND, INC. BLEND FUND/(D)/ ADJUSTMENTS/(E)/ BLEND FUND - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- INVESTMENT IN SECURITIES--AT COST.. $103,021,102 $242,096,087 $ -- $345,117,189 ============ ============ ========= ============ ASSETS Investment in securities--at value. $104,898,965/(c)/ $247,236,853 $ -- $352,135,818/(c)/ Cash.................. 19,964 9,751 -- 29,715 Receivables: Capital Shares sold.. 14,723 587,026 -- 601,749 Dividends and interest............ 437,140 117,836 -- 554,976 Investment securities sold................ 787,211 433,594 -- 1,220,805 Variation margin on futures contracts.... -- 3,270 -- 3,270 Other assets.......... 4,818 -- -- 4,818 Prepaid directors' expenses............. 51 -- -- 51 ------------ ------------ --------- ------------ Total Assets 106,162,872 248,388,330 -- 354,551,202 LIABILITIES Accrued management and investment advisory fees................. 11,503 28,156 -- 39,659 Accrued administrative service fees......... -- 1 -- 1 Accrued distribution fees................. 5,040 1 -- 5,041 Accrued service fees.. -- 1 -- 1 Accrued transfer and administrative fees.. 62,387 -- -- 62,387 Accrued other expenses 54,414 -- -- 54,414 Payables: Capital Shares reacquired.......... 64,548 -- -- 64,548 Investment securities purchased........... 4,178,275 343,433 -- 4,521,708 Reorganization costs. -- -- 52,133 52,133 Collateral obligation on securities loaned, at value............. 778,576 -- -- 778,576 ------------ ------------ --------- ------------ Total Liabilities 5,154,743 371,592 52,133 5,578,468 ------------ ------------ --------- ------------ NET ASSETS APPLICABLE TO OUTSTANDING SHARES $101,008,129 $248,016,738 $ (52,133) $348,972,734 ============ ============ ========= ============ NET ASSETS CONSIST OF: Capital Shares and additional paid-in-capital...... $110,701,478 $241,480,005 $ -- $352,181,483 Accumulated undistributed (overdistributed) net investment income (operating loss)..... 87,242 198,078 (52,133) 233,187 Accumulated undistributed (overdistributed) net realized gain (loss). (11,658,454) 1,119,941 -- (10,538,513) Net unrealized appreciation (depreciation) of investments.......... 1,877,863 5,218,714 -- 7,096,577 ------------ ------------ --------- ------------ Total Net Assets $101,008,129 $248,016,738 $ (52,133) $348,972,734 ============ ============ ========= ============ CAPITAL STOCK (PAR VALUE: $.01 A SHARE): Shares authorized..... 100,000,000 200,000,000 -- 200,000,000 NET ASSET VALUE PER SHARE: Advisors Preferred: Net Assets........... N/A $ 9,230 N/A $ 9,230 Shares issued and outstanding.......... 716 716 Net asset value per share................ $ 12.89 $ 12.89 ============ ============ Advisors Select: Net Assets............... N/A $ 10,042 N/A $ 10,042 Shares issued and outstanding.......... 780 780 Net asset value per share................ $ 12.87 $ 12.87 ============ ============ Class A: Net Assets... $ 85,881,686 N/A $ (43,269) $ 85,838,417 Shares issued and outstanding.......... 6,823,852 (195,403) 6,628,449 Net asset value per share................ $ 12.59 -- $ 12.95 Maximum offering price per share /(a)/ $ 13.36 -- $ 13.74 ============ == ============ Class B: Net Assets... $ 15,126,443 N/A $ (8,864) $ 15,117,579 Shares issued and outstanding.......... 1,208,875 (41,494) 1,167,381 Net asset value per share /(b)/.......... $ 12.51 -- $ 12.95 ============ == ============ Institutional: Net Assets............... N/A $247,978,493 N/A $247,978,493 Shares issued and outstanding.......... 19,149,187 19,149,187 Net asset value per share................ $ 12.95 $ 12.95 ============ ============ Preferred: Net Assets. N/A $ 9,539 N/A $ 9,539 Shares issued and outstanding.......... 738 738 Net asset value per share................ $ 12.93 $ 12.93 ============ ============ Select: Net Assets.... N/A $ 9,434 N/A $ 9,434 Shares issued and outstanding.......... 731 731 Net asset value per share................ $ 12.91 $ 12.91 ============ ============
/(a) /Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. /(b) /Maximum offering price equals net asset value plus a front-end sales charge of 5.75% of the offering price or 6.10% of the net asset value. /(c) /Includes fair market value of securities loaned, see "Securities Lending" in Notes to Financial Statements. /(d) /Effective March 1, 2005, LargeCap Blend Fund I changed its name to Disciplined LargeCap Blend Fund. /(e) /Reduction in net assets to reflect the estimated expenses of the Reorganization. See accompanying notes. 1 STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2004 (UNAUDITED) ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
COMBINED PRINCIPAL DISCIPLINED DISCIPLINED BALANCED LARGECAP PRO FORMA LARGECAP FUND, INC. BLEND FUND ADJUSTMENTS BLEND FUND - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NET INVESTMENT INCOME (OPERATING LOSS) Income: Dividends.............. $1,002,270 $ 331,531 $ -- $ 1,333,801 Interest............... 1,747,349 45,570 -- 1,792,919 Securities lending..... 2,889 -- -- 2,889 ---------- ---------- -------- ----------- Total Income 2,752,508 377,101 -- 3,129,609 Expenses: Management and investment advisory fees.................. 604,671 153,994 434/(A)/ 759,099 Distribution fees - Advisors Preferred.... -- 299 -- 299 Distribution fees - Advisors Select....... -- 358 -- 358 Distribution fees - Class A............... 168,458 -- -- 168,458 Distribution fees - Class B............... 144,277 -- -- 144,277 Distribution fees - Select................ -- 120 -- 120 Administrative service fees - Advisors Preferred............. -- 179 -- 179 Administrative service fees - Advisors Select -- 239 -- 239 Administrative service fees - Preferred...... -- 132 -- 132 Administrative service fees - Select......... -- 155 -- 155 Registration fees - Class A............... 8,074 -- -- 8,074 Registration fees - Class B............... 9,245 -- -- 9,245 Service fees - Advisors Preferred............. -- 203 -- 203 Service fees - Advisors Select................ -- 299 -- 299 Service fees - Preferred............. -- 180 -- 180 Service fees - Select.. -- 179 -- 179 Shareholder reports - Class A............... 15,413 -- -- 15,413 Shareholder reports - Class B............... 3,371 -- -- 3,371 Transfer and administrative fees - Class A............... 89,242 -- -- 89,242 Transfer and administrative fees - Class B............... 20,517 -- -- 20,517 Auditing and legal fees 9,538 -- (9,538)/(B)/ -- Custodian fees......... 50,166 -- (50,166)/(B)/ -- Directors' expenses.... 3,416 -- (3,416)/(B)/ -- Registration fees...... 30,886 -- -- 30,886 Transfer and administrative fees... 238,592 -- 2,033/(B)/ 240,625 Other expenses......... 5,873 -- (5,873)/(B)/ -- ---------- ---------- -------- ----------- Total Gross Expenses 1,401,739 156,337 (66,526) 1,491,550 Less: Fees paid indirectly............ 1,225 -- -- 1,225 ---------- ---------- -------- ----------- Total Net Expenses 1,400,514 156,337 (66,526) 1,490,325 ---------- ---------- -------- ----------- Net Investment Income (Operating Loss) 1,351,994 220,764 66,526 1,639,284 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gain (loss) from: Investment transactions 4,735,935 1,082,257 -- 5,818,192 Futures contracts...... -- 41,591 -- 41,591 Change in unrealized appreciation/depreciation of: Investments............ 947,601 3,377,162 -- 4,324,763 Futures contracts...... -- 77,948 -- 77,948 ---------- ---------- -------- ----------- Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies 5,683,536 4,578,958 -- 10,262,494 ---------- ---------- -------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations $7,035,530 $4,799,722 $ 66,526 $11,901,778 ========== ========== ======== ===========
/(a) /Management and investment advisory fees increased to reflect annual percentage rate of the Acquiring Fund. /(b) /Elimination of expenses due to expense structure of Acquiring Fund. Eliminated expenses are not paid by the Acquiring Fund. See accompanying notes. 17
SCHEDULE OF INVESTMENTS October 31, 2004 (unaudited) Principal Amount or Number of Shares Market Value - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined Disciplined Principal LargeCap Principal LargeCap Balanced Blend Balanced Blend Fund, Inc. Fund Combined Fund, Inc. Fund Combined - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (88.04%) ADVERTISING SALES (0.11%) 1,070 8,560 9,630 Lamar Advertising (1) $44,319 $354,555 $398,874 ADVERTISING SERVICES (0.02%) 1,233 - 1,233 WPP Group (9) 61,971 - 61,971 AEROSPACE & DEFENSE (0.45%) 1,050 4,700 5,750 Boeing 52,395 234,530 286,925 4,010 20,460 24,470 Northrop Grumman 207,517 1,058,805 1,266,322 AEROSPACE & DEFENSE EQUIPMENT (1.04%) 2,810 11,330 14,140 General Dynamics 286,957 1,157,019 1,443,976 407 - 407 Moog (1) (9) 15,275 - 15,275 1,020 - 1,020 Orbital Sciences (1) (2) (9) 10,557 - 10,557 333 - 333 United Defense Industries (1) (9) 13,367 - 13,367 5,200 17,940 23,140 United Technologies 482,664 1,665,191 2,147,855 AIRLINES (0.02%) 5,647 - 5,647 ExpressJet Holdings (1) (9) 62,795 - 62,795 1,115 - 1,115 Skywest (9) 19,044 - 19,044 APPAREL MANUFACTURERS (0.47%) 6,300 16,310 22,610 Coach (1) 293,769 760,536 1,054,305 2,540 13,010 15,550 Polo Ralph Lauren 93,802 480,459 574,261 603 - 603 Quiksilver (1) (9) 16,432 - 16,432 APPLICATIONS SOFTWARE (2.58%) 4,250 33,166 37,416 Citrix Systems (1) 102,553 800,296 902,849 51,250 236,985 288,235 Microsoft 1,434,487 6,633,210 8,067,697 1,456 - 1,456 Serena Software (1) (9) 25,829 - 25,829 873 - 873 SS&C Technologies (9) 20,638 - 20,638 ATHLETIC FOOTWEAR (0.53%) 5,360 16,890 22,250 Nike 435,822 1,373,326 1,809,148 835 - 835 Reebok International (9) 30,895 - 30,895 AUDIO & VIDEO PRODUCTS (0.04%) 4,650 - 4,650 Matsushita Electric Industrial (9) 67,471 - 67,471 1,400 - 1,400 Pioneer (9) 25,900 - 25,900 1,821 - 1,821 Polycom (1) (9) 37,604 - 37,604 AUTO-CARS & LIGHT TRUCKS (0.09%) 5,120 - 5,120 Ford Motor (9) 66,713 - 66,713 5,146 - 5,146 Nissan Motor (2) (9) 115,528 - 115,528 1,646 - 1,646 Toyota Motor (9) 127,713 - 127,713 AUTO-MEDIUM & HEAVY DUTY TRUCKS (0.42%) 794 - 794 Oshkosh Truck (9) 46,767 - 46,767 3,370 16,133 19,503 Paccar 233,575 1,118,178 1,351,753 2,096 - 2,096 Volvo (9) 79,438 - 79,438 AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL (0.03%) 450 - 450 American Axle & Manufacturing Holdings (9) 12,915 - 12,915 1,046 - 1,046 Dana (9) 15,596 - 15,596 620 - 620 Magna International (9) 45,229 - 45,229 2,374 - 2,374 Tenneco Automotive (1) (9) 30,245 - 30,245 BEVERAGES-NON-ALCOHOLIC (1.98%) 11,027 75,863 86,890 Coca-Cola 448,358 3,084,590 3,532,948 2,035 - 2,035 Cott (1) (9) 53,439 - 53,439 11,320 55,640 66,960 Pepsico 561,246 2,758,631 3,319,877 BEVERAGES-WINE & SPIRITS (0.02%) 1,424 - 1,424 Diageo (9) 76,583 - 76,583 BREWERY (0.01%) 1,626 - 1,626 SABMiller (9) 23,252 - 23,252 BROADCASTING SERVICES & PROGRAMMING (0.01%) 1,200 - 1,200 Fox Entertainment Group (1) (9) 35,592 - 35,592 BUILDING & CONSTRUCTION PRODUCTS- MISCELLANEOUS (0.22%) 2,959 - 2,959 CRH (9) 70,743 - 70,743 2,150 16,990 19,140 Masco 73,659 582,077 655,736 210 - 210 Simpson Manufacturing (9) 13,499 - 13,499 2,056 - 2,056 USG (1) (2) (9) 46,034 - 46,034 BUILDING PRODUCTS-CEMENT & AGGREGATE (0.01%) 557 - 557 Eagle Materials (9) 38,494 - 38,494 BUILDING PRODUCTS-LIGHT FIXTURES (0.01%) 281 - 281 Genlyte Group (1) (9) 20,670 - 20,670 BUILDING PRODUCTS-WOOD (0.01%) 664 - 664 Universal Forest Products (9) 24,352 - 24,352 BUILDING-HEAVY CONSTRUCTION (0.01%) 687 - 687 Washington Group International (1) (9) 23,956 - 23,956 BUILDING-MAINTENANCE & SERVICE (0.01%) 808 - 808 Rollins (9) 21,291 - 21,291 BUILDING-RESIDENTIAL & COMMERCIAL (0.24%) 987 - 987 Brookfield Homes (9) 25,563 - 25,563 152 - 152 Daiwa House Industry (9) 15,516 - 15,516 878 - 878 Hovnanian Enterprises (1) (9) 32,960 - 32,960 1,447 5,830 7,277 KB Home 119,016 479,518 598,534 579 - 579 M/I Schottenstein Homes (9) 24,897 - 24,897 1,130 - 1,130 MDC Holdings (9) 86,728 - 86,728 1,080 - 1,080 Pulte (9) 59,270 - 59,270 CABLE TV (0.62%) 10,630 61,909 72,539 Comcast (1) 313,585 1,826,315 2,139,900 2,400 - 2,400 Mediacom Communications (1) (9) 15,720 - 15,720 CASINO SERVICES (0.04%) 3,280 - 3,280 International Game Technology (9) 108,371 - 108,371 1,630 - 1,630 Scientific Games (1) (9) 34,524 - 34,524 CELLULAR TELECOMMUNICATIONS (0.11%) 1,010 - 1,010 Boston Communications Group (1) (9) 9,191 - 9,191 3,747 - 3,747 mmO2 (1) (9) 72,092 - 72,092 2,720 - 2,720 Nextel Partners (1) (9) 45,805 - 45,805 6,962 - 6,962 Vodafone Group (9) 179,550 - 179,550 2,640 - 2,640 Western Wireless (1) (9) 76,930 - 76,930 CHEMICALS-DIVERSIFIED (0.03%) 638 - 638 BASF (9) 40,086 - 40,086 1,339 - 1,339 FMC (1) (9) 58,715 - 58,715 CHEMICALS-SPECIALTY (0.04%) 537 - 537 Albemarle (9) 19,251 - 19,251 1,130 - 1,130 Lubrizol (9) 39,245 - 39,245 392 - 392 MacDermid (9) 12,372 - 12,372 1,420 - 1,420 Sigma-Aldrich (9) 79,009 - 79,009 CIRCUIT BOARDS (0.01%) 1,324 - 1,324 Benchmark Electronics (1) (9) 44,976 - 44,976 COAL (0.30%) 2,510 14,100 16,610 Peabody Energy 160,088 899,298 1,059,386 COATINGS & PAINT (0.25%) 2,290 18,260 20,550 Sherwin-Williams 97,829 780,067 877,896 COMMERCIAL BANKS (1.02%) 9,918 - 9,918 Banco Santander Central Hispano (2) (9) 110,883 - 110,883 1,240 - 1,240 Bank of Ireland (9) 68,076 - 68,076 3,340 - 3,340 Bank of Nova Scotia (9) 108,583 - 108,583 760 6,110 6,870 BB&T 31,244 251,182 282,426 400 - 400 City Holding (9) 13,860 - 13,860 2,972 7,680 10,652 City National 204,771 529,152 733,923 559 - 559 Columbia Banking Systems (9) 13,696 - 13,696 233 - 233 Cullen/Frost Bankers (9) 11,417 - 11,417 403 - 403 CVB Financial (9) 9,994 - 9,994 454 - 454 First Bancorp. (9) 24,757 - 24,757 407 - 407 First Midwest Bancorp (9) 14,208 - 14,208 1,500 - 1,500 Fremont General (9) 32,250 - 32,250 2,532 - 2,532 Hibernia (9) 73,428 - 73,428 1,220 - 1,220 Hudson United Bancorp (9) 48,556 - 48,556 857 - 857 Kookmin Bank (9) 28,821 - 28,821 4,040 12,050 16,090 Marshall & Ilsley 169,559 505,739 675,298 235 - 235 MB Financial (9) 10,044 - 10,044 6,934 - 6,934 National Bank of Greece (9) 39,524 - 39,524 336 - 336 Oriental Financial Group (9) 9,519 - 9,519 958 - 958 Pacific Capital Bancorp. (9) 30,493 - 30,493 1,837 - 1,837 R&G Financial (9) 69,108 - 69,108 1,974 - 1,974 Toronto-Dominion Bank (9) 79,315 - 79,315 900 - 900 UCBH Holdings (9) 38,781 - 38,781 3,610 13,420 17,030 UnionBanCal 219,307 815,265 1,034,572 COMMERCIAL SERVICES (0.26%) 2,380 18,140 20,520 Alliance Data Systems (1) 100,626 766,959 867,585 724 - 724 Magellan Health Services (1) (9) 27,078 - 27,078 COMMUNICATIONS SOFTWARE (0.09%) 610 5,060 5,670 Avid Technology (1) 32,318 268,079 300,397 COMPUTER AIDED DESIGN (0.36%) 404 - 404 ANSYS (1) (9) 11,151 - 11,151 3,875 19,520 23,395 Autodesk 204,406 1,029,680 1,234,086 COMPUTER SERVICES (0.29%) 3,466 - 3,466 Cognizant Technology Solutions (1) (9) 117,844 - 117,844 1,870 15,050 16,920 Computer Sciences (1) 92,883 747,533 840,416 1,187 - 1,187 Perot Systems (1) (9) 19,028 - 19,028 387 - 387 SRA International (1) (9) 20,805 - 20,805 COMPUTERS (1.46%) 5,040 15,630 20,670 Apple Computer (1) 264,751 821,044 1,085,795 3,290 26,381 29,671 Hewlett-Packard 61,392 492,270 553,662 4,580 33,875 38,455 International Business Machines 411,055 3,040,281 3,451,336 COMPUTERS-INTEGRATED SYSTEMS (0.89%) 8,350 - 8,350 Brocade Communications Systems (1) (9) 56,697 - 56,697 16,335 69,869 86,204 Dell (1) 572,705 2,449,607 3,022,312 1,193 - 1,193 RadiSys (1) (9) 15,843 - 15,843 COMPUTERS-MEMORY DEVICES (0.32%) 18,080 62,240 80,320 EMC (1) 232,689 801,029 1,033,718 561 - 561 Storage Technology (1) (9) 15,158 - 15,158 790 - 790 TDK (9) 54,779 - 54,779 COMPUTERS-PERIPHERAL EQUIPMENT (0.27%) 1,144 - 1,144 Electronics for Imaging (1) (9) 20,638 - 20,638 2,530 8,460 10,990 Lexmark International (1) 210,268 703,111 913,379 CONSULTING SERVICES (0.22%) 3,500 27,840 31,340 Accenture (1) 84,735 674,006 758,741 CONSUMER PRODUCTS-MISCELLANEOUS (0.01%) 348 - 348 Central Garden & Pet (1) (9) 12,431 - 12,431 470 - 470 Scotts (1) (9) 30,183 - 30,183 CONTAINERS-METAL & GLASS (0.28%) 5,300 18,630 23,930 Ball 211,205 742,405 953,610 313 - 313 Silgan Holdings (9) 14,853 - 14,853 COSMETICS & TOILETRIES (2.84%) 1,260 10,060 11,320 Alberto-Culver 56,524 451,292 507,816 9,660 26,060 35,720 Avon Products 382,053 1,030,673 1,412,726 482 - 482 Chattem (1) (9) 16,128 - 16,128 4,800 14,900 19,700 Estee Lauder 206,160 639,955 846,115 5,680 44,270 49,950 Gillette 235,606 1,836,320 2,071,926 930 7,320 8,250 Kimberly-Clark 55,493 436,784 492,277 17,430 71,546 88,976 Procter & Gamble 892,067 3,661,724 4,553,791 DATA PROCESSING & MANAGEMENT (0.28%) 470 - 470 First Data (9) 19,402 - 19,402 2,146 13,430 15,576 Global Payments 117,515 735,427 852,942 3,100 - 3,100 SEI Investments (9) 111,569 - 111,569 DECISION SUPPORT SOFTWARE (0.01%) 1,519 - 1,519 Wind River Systems (1) (9) 20,339 - 20,339 DENTAL SUPPLIES & EQUIPMENT (0.01%) 1,350 - 1,350 Sybron Dental Specialties (1) (9) 43,970 - 43,970 DIAGNOSTIC EQUIPMENT (0.07%) 995 6,070 7,065 Gen-Probe (1) 34,865 212,693 247,558 DIALYSIS CENTERS (0.01%) 819 - 819 DaVita (1) (9) 24,259 - 24,259 DIRECT MARKETING (0.28%) 843 - 843 Catalina Marketing (9) 21,589 - 21,589 6,870 29,750 36,620 Harte-Hanks 176,834 765,765 942,599 DISPOSABLE MEDICAL PRODUCTS (0.15%) 2,680 6,660 9,340 C.R. Bard 152,224 378,288 530,512 DISTRIBUTION-WHOLESALE (0.06%) 758 - 758 Aviall (1) (9) 16,411 - 16,411 1,330 - 1,330 Fastenal (9) 73,456 - 73,456 1,678 - 1,678 Hughes Supply (9) 47,672 - 47,672 1,021 - 1,021 Owens & Minor (9) 26,740 - 26,740 720 - 720 United Stationers (1) (9) 32,040 - 32,040 725 - 725 Watsco (9) 20,633 - 20,633 DIVERSIFIED MANUFACTURING OPERATIONS (4.04%) 4,210 9,106 13,316 3M 326,570 706,353 1,032,923 974 3,895 4,869 Carlisle 56,619 226,416 283,035 2,870 - 2,870 Danaher (9) 158,223 - 158,223 1,890 15,260 17,150 Eaton 120,865 975,877 1,096,742 38,754 211,875 250,629 General Electric (8) 1,322,286 7,229,175 8,551,461 1,290 - 1,290 Illinois Tool Works (9) 119,041 - 119,041 928 7,566 8,494 ITT Industries 75,298 613,905 689,203 1,305 - 1,305 Siemens (9) 97,536 - 97,536 7,540 59,139 66,679 Tyco International 234,871 1,842,180 2,077,051 DIVERSIFIED MINERALS (0.07%) 2,590 - 2,590 Anglo American (9) 57,602 - 57,602 4,750 - 4,750 BHP Billiton (9) 98,182 - 98,182 3,510 - 3,510 Cia Vale do Rio Doce (9) 74,272 - 74,272 DIVERSIFIED OPERATIONS (0.05%) 2,731 - 2,731 Brascan (9) 97,442 - 97,442 3,537 - 3,537 Tomkins (2) (9) 65,399 - 65,399 E-COMMERCE-SERVICES (0.32%) 2,285 9,298 11,583 eBay (1) 223,039 907,578 1,130,617 E-MARKETING-INFORMATION (0.01%) 226 - 226 Digital River (1) (9) 7,526 - 7,526 3,096 - 3,096 Digitas (1) (9) 27,864 - 27,864 E-SERVICES-CONSULTING (0.01%) 843 - 843 Websense (1) (9) 34,201 - 34,201 ELECTRIC PRODUCTS-MISCELLANEOUS (0.28%) 1,430 11,420 12,850 Emerson Electric 91,592 731,451 823,043 1,120 - 1,120 Hitachi (9) 70,168 - 70,168 787 - 787 Littelfuse (1) (9) 25,672 - 25,672 4,079 - 4,079 Sharp (9) 56,290 - 56,290 ELECTRIC-INTEGRATED (1.92%) 3,315 16,090 19,405 Constellation Energy Group 134,655 653,576 788,231 878 - 878 E.ON (9) 71,601 - 71,601 6,650 26,740 33,390 Edison International 202,825 815,570 1,018,395 1,820 - 1,820 Enel (9) 82,246 - 82,246 2,098 - 2,098 Exelon (9) 83,123 - 83,123 330 - 330 Great Plains Energy (9) 9,402 - 9,402 9,269 32,540 41,809 MDU Resources Group 237,750 834,651 1,072,401 868 - 868 OGE Energy (9) 22,021 - 22,021 3,360 19,630 22,990 PPL 174,720 1,020,760 1,195,480 731 - 731 RWE (9) 38,560 - 38,560 3,020 - 3,020 Scottish Power (9) 97,788 - 97,788 8,130 28,320 36,450 TXU 497,718 1,733,750 2,231,468 ELECTRIC-TRANSMISSION (0.03%) 2,611 - 2,611 National Grid Group (9) 115,145 - 115,145 ELECTRONIC COMPONENTS-MISCELLANEOUS (0.04%) 1,422 - 1,422 DSP Group (1) (9) 28,198 - 28,198 2,376 - 2,376 Koninklijke Philips Electronics (9) 56,597 - 56,597 1,263 - 1,263 Methode Electronics (9) 16,962 - 16,962 1,531 - 1,531 Omron (9) 34,674 - 34,674 ELECTRONIC COMPONENTS-SEMICONDUCTOR (1.54%) 4,150 17,970 22,120 Altera (1) 94,329 408,458 502,787 1,055 - 1,055 Cree (1) (9) 36,408 - 36,408 2,240 - 2,240 Fairchild Semiconductor International (1) (9) 32,189 - 32,189 30,873 147,648 178,521 Intel 687,233 3,286,645 3,973,878 1,350 10,500 11,850 International Rectifier (1) 53,663 417,375 471,038 2,349 - 2,349 Microsemi (1) (9) 36,503 - 36,503 1,011 - 1,011 PMC - Sierra (1) (9) 10,373 - 10,373 418 - 418 Silicon Laboratories (1) (9) 12,527 - 12,527 4,744 6,940 11,684 Texas Instruments 115,991 169,683 285,674 ELECTRONIC CONNECTORS (0.28%) 6,158 22,000 28,158 Amphenol (1) 211,404 755,260 966,664 ELECTRONIC FORMS (0.46%) 5,160 23,720 28,880 Adobe Systems 289,115 1,329,032 1,618,147 ELECTRONIC MEASUREMENT INSTRUMENTS (0.02%) 2,270 - 2,270 Tektronix (9) 68,849 - 68,849 ELECTRONIC PARTS DISTRIBUTION (0.01%) 1,818 - 1,818 Avnet (1) (9) 30,833 - 30,833 ELECTRONICS-MILITARY (0.01%) 1,036 - 1,036 Engineered Support Systems (9) 49,769 - 49,769 ENGINES-INTERNAL COMBUSTION (0.49%) 2,286 6,710 8,996 Briggs & Stratton 164,158 481,845 646,003 2,450 12,660 15,110 Cummins Engine 171,696 887,213 1,058,909 ENTERPRISE SOFTWARE & SERVICE (0.37%) 1,183 - 1,183 Hyperion Solutions (1) (9) 47,474 - 47,474 705 - 705 MicroStrategy (1) (9) 42,286 - 42,286 14,450 77,680 92,130 Oracle (1) 182,937 983,429 1,166,366 1,175 - 1,175 SAP (9) 50,113 - 50,113 FIDUCIARY BANKS (0.20%) 2,710 21,720 24,430 Mellon Financial 78,319 627,708 706,027 FILTRATION & SEPARATION PRODUCTS (0.01%) 662 - 662 CLARCOR (9) 32,637 - 32,637 FINANCE-AUTO LOANS (0.01%) 391 - 391 Westcorp (9) 15,609 - 15,609 835 - 835 WFS Financial (1) (9) 36,790 - 36,790 FINANCE-CONSUMER LOANS (0.02%) 749 - 749 Aiful (9) 18,656 - 18,656 902 - 902 Collegiate Funding Services (1) (9) 11,140 - 11,140 788 - 788 Portfolio Recovery Associates (1) (9) 26,571 - 26,571 FINANCE-CREDIT CARD (1.49%) 2,230 17,855 20,085 American Express 118,346 947,565 1,065,911 7,720 19,740 27,460 Capital One Financial 569,427 1,456,022 2,025,449 16,743 65,397 82,140 MBNA 429,123 1,676,125 2,105,248 FINANCE-INVESTMENT BANKER & BROKER (4.10%) 20,465 105,251 125,716 Citigroup (8) 908,032 4,669,987 5,578,019 5,370 22,009 27,379 Goldman Sachs Group 528,301 2,165,245 2,693,546 3,080 13,205 16,285 Legg Mason 196,227 841,291 1,037,518 3,856 17,670 21,526 Lehman Brothers Holdings 316,770 1,451,590 1,768,360 2,925 12,578 15,503 Merrill Lynch 157,774 678,457 836,231 7,200 38,574 45,774 Morgan Stanley 367,848 1,970,746 2,338,594 5,175 - 5,175 Nomura Holdings (9) 62,980 - 62,980 247 - 247 Raymond James Financial (9) 6,447 - 6,447 FINANCE-MORTGAGE LOAN/BANKER (0.52%) 1,192 - 1,192 American Home Mortgage Investment (9) 32,935 - 32,935 1,510 11,610 13,120 Doral Financial 63,390 487,388 550,778 1,080 8,690 9,770 Federal Home Loan Mortgage 71,928 578,754 650,682 1,430 6,832 8,262 Federal National Mortgage Association 100,314 479,265 579,579 FINANCIAL GUARANTEE INSURANCE (0.27%) 2,930 11,310 14,240 MGIC Investment 188,428 727,346 915,774 180 - 180 Triad Guaranty (1) (9) 9,812 - 9,812 FOOD-CONFECTIONERY (0.16%) 1,200 9,880 11,080 Hershey Foods 60,828 500,817 561,645 FOOD-FLOUR & GRAIN (0.48%) 15,800 71,280 87,080 Archer Daniels Midland 306,046 1,380,694 1,686,740 FOOD-MISCELLANEOUS/DIVERSIFIED (0.30%) 2,210 17,610 19,820 Kellogg 95,030 757,230 852,260 2,053 - 2,053 Nestle (9) 121,743 - 121,743 976 - 976 Unilever (9) 56,891 - 56,891 FOOD-RETAIL (0.03%) 6,162 - 6,162 Tesco (9) 98,900 - 98,900 FOOTWEAR & RELATED APPAREL (0.00%) 557 - 557 Wolverine World Wide (9) 16,955 - 16,955 GARDEN PRODUCTS (0.02%) 961 - 961 Toro (9) 65,588 - 65,588 GAS-DISTRIBUTION (0.43%) 1,072 - 1,072 AGL Resources (9) 33,446 - 33,446 5,547 20,750 26,297 Energen 298,318 1,115,935 1,414,253 1,157 - 1,157 ONEOK (9) 31,031 - 31,031 551 - 551 UGI (9) 21,285 - 21,285 HEALTH CARE COST CONTAINMENT (0.34%) 4,310 34,320 38,630 Caremark Rx (1) 129,171 1,028,570 1,157,741 1,684 - 1,684 First Health Group (1) (9) 26,809 - 26,809 HOTELS & MOTELS (0.04%) 274 - 274 Choice Hotels International (9) 13,672 - 13,672 4,987 - 4,987 InterContinental Hotels Group (9) 61,739 - 61,739 1,060 - 1,060 Starwood Hotels & Resorts Worldwide (9) 50,594 - 50,594 HUMAN RESOURCES (0.38%) 1,382 - 1,382 Korn/Ferry International (1) (9) 24,047 - 24,047 2,603 - 2,603 Labor Ready (1) (9) 37,353 - 37,353 6,463 41,010 47,473 Robert Half International 171,463 1,087,995 1,259,458 IMPORT & EXPORT (0.04%) 6,230 - 6,230 Mitsubishi (9) 136,437 - 136,437 INDEX FUND (0.02%) 505 - 505 Regional Bank HOLDRs Trust (9) 68,594 - 68,594 INSTRUMENTS-CONTROLS (0.19%) 1,040 8,300 9,340 Parker Hannifin 73,455 586,229 659,684 INSTRUMENTS-SCIENTIFIC (0.24%) 1,830 - 1,830 Applied Biosystems Group (9) 34,916 - 34,916 261 - 261 Dionex (1) (9) 14,616 - 14,616 1,950 15,510 17,460 Millipore (1) 89,681 713,305 802,986 INTERNET APPLICATION SOFTWARE (0.00%) 1,487 - 1,487 eResearch Technology (1) (9) 17,383 - 17,383 INTERNET BROKERS (0.21%) 8,260 - 8,260 Ameritrade Holding (1) (9) 107,545 - 107,545 5,240 42,210 47,450 E*trade Group (1) 67,596 544,509 612,105 INTERNET CONNECTIVE SERVICES (0.00%) 5,937 - 5,937 Hanaro Telecom (1) (9) 17,217 - 17,217 INTERNET FINANCIAL SERVICES (0.02%) 1,951 - 1,951 IndyMac Bancorp (9) 62,939 - 62,939 INTERNET SECURITY (0.59%) 1,194 - 1,194 RSA Security (1) (9) 24,429 - 24,429 7,100 28,610 35,710 Symantec (1) 404,274 1,629,053 2,033,327 INTERNET TELEPHONY (0.01%) 1,011 - 1,011 j2 Global Communications (1) (9) 30,482 - 30,482 INTIMATE APPAREL (0.00%) 622 - 622 Warnaco Group (1) (9) 12,689 - 12,689 LEISURE & RECREATION PRODUCTS (0.35%) 2,890 23,130 26,020 Brunswick 135,599 1,085,260 1,220,859 LIFE & HEALTH INSURANCE (0.71%) 2,280 11,680 13,960 AmerUs Group 95,258 487,991 583,249 2,040 - 2,040 Jefferson-Pilot (9) 98,512 - 98,512 870 990 1,860 Lincoln National 38,106 43,362 81,468 1,680 13,440 15,120 Nationwide Financial Services 58,128 465,024 523,152 770 6,230 7,000 Protective Life 30,261 244,839 275,100 420 - 420 Stancorp Financial Group (9) 31,660 - 31,660 940 - 940 Universal American Financial (1) (9) 11,430 - 11,430 10,510 52,470 62,980 UnumProvident 143,567 716,740 860,307 MACHINERY TOOLS & RELATED PRODUCTS (0.02%) 1,790 - 1,790 Lincoln Electric Holdings (9) 59,750 - 59,750 MACHINERY-CONSTRUCTION & MINING (0.52%) 2,270 19,620 21,890 Caterpillar 182,826 1,580,195 1,763,021 503 - 503 Joy Global (9) 16,996 - 16,996 924 - 924 Terex (1) (9) 35,112 - 35,112 MACHINERY-FARM (0.39%) 4,320 18,550 22,870 Deere 258,250 1,108,919 1,367,169 MACHINERY-GENERAL INDUSTRY (0.44%) 598 - 598 Gardner Denver (1) (9) 17,928 - 17,928 4,080 17,905 21,985 Ingersoll-Rand 279,235 1,225,418 1,504,653 MACHINERY-PUMPS (0.03%) 3,115 - 3,115 Graco (9) 107,156 - 107,156 MEDICAL INFORMATION SYSTEM (0.00%) 883 - 883 Dendrite International (1) (9) 12,936 - 12,936 MEDICAL INSTRUMENTS (0.35%) 585 - 585 dj Orthopedics (1) (9) 9,974 - 9,974 1,068 - 1,068 Kensey Nash (1) (9) 30,545 - 30,545 1,069 8,568 9,637 Medtronic 54,636 437,910 492,546 1,726 7,200 8,926 St. Jude Medical (1) 132,160 551,304 683,464 195 - 195 Techne (1) (9) 7,024 - 7,024 MEDICAL LASER SYSTEMS (0.01%) 2,848 - 2,848 Candela (1) (9) 28,978 - 28,978 MEDICAL PRODUCTS (2.25%) 2,410 1,880 4,290 Becton Dickinson 126,525 98,700 225,225 261 - 261 Cooper (9) 18,361 - 18,361 377 - 377 INAMED (1) (9) 20,038 - 20,038 17,550 78,851 96,401 Johnson & Johnson 1,024,569 4,603,321 5,627,890 3,790 17,890 21,680 Varian Medical Systems (1) 152,168 718,284 870,452 2,510 11,670 14,180 Zimmer Holdings (1) 194,751 905,475 1,100,226 MEDICAL-BIOMEDICAL/GENE (1.12%) 2,349 - 2,349 Affymetrix (1) (9) 71,645 - 71,645 7,890 40,399 48,289 Amgen (1) 448,152 2,294,663 2,742,815 1,131 - 1,131 Celera Genomics Group (1) (9) 14,499 - 14,499 1,370 10,780 12,150 Charles River Laboratories International (1) 64,102 504,396 568,498 1,562 - 1,562 deCODE genetics (1) (9) 10,934 - 10,934 3,430 7,370 10,800 Genentech (1) 156,168 335,556 491,724 2,136 - 2,136 Lexicon Genetics (1) (9) 13,905 - 13,905 3,149 - 3,149 Maxim Pharmaceuticals (1) (9) 7,873 - 7,873 MEDICAL-DRUGS (3.85%) 5,440 43,394 48,834 Abbott Laboratories 231,907 1,849,886 2,081,793 1,045 - 1,045 AstraZeneca (9) 43,054 - 43,054 - 10,366 10,366 Bristol-Myers Squibb - 242,875 242,875 1,650 13,270 14,920 Cephalon (1) 78,656 632,581 711,237 2,362 - 2,362 Eisai (9) 67,553 - 67,553 1,400 10,792 12,192 Eli Lilly 76,874 592,589 669,463 1,102 - 1,102 Endo Pharmaceuticals Holdings (1) (9) 24,024 - 24,024 842 - 842 First Horizon Pharmaceutical (1) (9) 20,696 - 20,696 5,684 27,160 32,844 Forest Laboratories (1) 253,506 1,211,336 1,464,842 1,556 - 1,556 GlaxoSmithKline (9) 65,974 - 65,974 500 - 500 Hi-Tech Pharmacal (1) (9) 8,105 - 8,105 928 - 928 Ligand Pharmaceuticals (1) (9) 8,273 - 8,273 1,720 13,387 15,107 Merck 53,853 419,147 473,000 2,159 - 2,159 Novartis (9) 103,654 - 103,654 705 - 705 Novo Nordisk (9) 35,215 - 35,215 39,702 192,238 231,940 Pfizer 1,149,373 5,565,290 6,714,663 450 - 450 Roche Holding (9) 46,170 - 46,170 548 - 548 Salix Pharmaceuticals (1) (9) 8,784 - 8,784 1,351 - 1,351 Sanofi-Synthelabo (9) 49,312 - 49,312 1,880 - 1,880 Teva Pharmaceutical Industries (9) 48,880 - 48,880 1,570 12,530 14,100 Wyeth 62,251 496,815 559,066 MEDICAL-GENERIC DRUGS (0.15%) 1,400 10,805 12,205 Barr Laboratories (1) 52,710 406,808 459,518 2,530 - 2,530 Eon Labs (1) (9) 62,263 - 62,263 MEDICAL-HMO (1.83%) 2,070 11,760 13,830 Aetna 196,650 1,117,200 1,313,850 1,710 13,818 15,528 Anthem (1) 137,484 1,110,967 1,248,451 1,034 - 1,034 Sierra Health Services (1) (9) 49,343 - 49,343 7,101 27,750 34,851 UnitedHealth Group 514,112 2,009,100 2,523,212 648 - 648 WellChoice (1) (9) 27,061 - 27,061 1,370 11,125 12,495 Wellpoint Health Networks (1) 133,794 1,086,468 1,220,262 MEDICAL-HOSPITALS (0.02%) 1,700 - 1,700 LifePoint Hospitals (1) (9) 55,114 - 55,114 668 - 668 VCA Antech (1) (9) 14,977 - 14,977 MEDICAL-OUTPATIENT & HOME MEDICAL CARE (0.01%) 673 - 673 Apria Healthcare Group (1) (9) 18,413 - 18,413 METAL PROCESSORS & FABRICATION (0.02%) 634 - 634 Commercial Metals (9) 22,919 - 22,919 610 - 610 Quanex (9) 30,927 - 30,927 METAL-ALUMINUM (0.03%) 4,483 - 4,483 Century Aluminum (1) (9) 103,737 - 103,737 METAL-COPPER (0.15%) 660 5,220 5,880 Phelps Dodge 57,776 456,959 514,735 METAL-DIVERSIFIED (0.01%) 1,025 - 1,025 Inco (1) (9) 36,285 - 36,285 METAL-IRON (0.01%) 564 - 564 Cleveland-Cliffs (1) (9) 41,115 - 41,115 263 - 263 Gibraltar Industries (9) 9,208 - 9,208 MISCELLANEOUS INVESTING (0.16%) 1,060 - 1,060 Archstone-Smith Trust (9) 35,563 - 35,563 705 - 705 CRT Properties (9) 15,623 - 15,623 868 - 868 Entertainment Properties Trust (9) 34,633 - 34,633 2,040 - 2,040 Equity Residential Properties Trust (9) 68,034 - 68,034 551 - 551 Federal Realty Investment Trust (9) 26,145 - 26,145 980 - 980 Gramercy Capital (1) (9) 15,974 - 15,974 618 - 618 Healthcare Realty Trust (2) (9) 24,936 - 24,936 1,480 - 1,480 Kimco Realty (9) 80,734 - 80,734 425 - 425 New Century Financial (9) 23,439 - 23,439 1,499 - 1,499 Newcastle Investment (9) 45,884 - 45,884 1,260 - 1,260 Prologis Trust (9) 49,115 - 49,115 317 - 317 PS Business Parks (9) 13,923 - 13,923 586 - 586 SL Green Realty (9) 32,125 - 32,125 969 - 969 Thornburg Mortgage (9) 27,684 - 27,684 2,895 - 2,895 Ventas (9) 77,875 - 77,875 MONEY CENTER BANKS (3.12%) 4,990 - 4,990 ABN AMRO Holding (9) 120,059 - 120,059 19,344 108,484 127,828 Bank of America 866,418 4,858,998 5,725,416 3,628 - 3,628 Barclays (9) 143,161 - 143,161 5,500 - 5,500 BNP Paribas (9) 187,825 - 187,825 3,710 - 3,710 Credit Suisse Group (1) (9) 127,142 - 127,142 810 - 810 HBOS (9) 32,481 - 32,481 427 - 427 HSBC Holdings (9) 34,600 - 34,600 18,349 94,001 112,350 JP Morgan Chase 708,271 3,628,439 4,336,710 7,655 - 7,655 Mitsubishi Tokyo Financial Group (9) 64,991 - 64,991 1,621 - 1,621 UBS (9) 117,506 - 117,506 MOTION PICTURES & SERVICES (0.01%) 1,176 - 1,176 Macrovision (1) (9) 31,799 - 31,799 253 - 253 Metro-Goldwyn-Mayer (1) (9) 2,991 - 2,991 MOTORCYCLE & MOTOR SCOOTER (0.10%) 3,500 2,570 6,070 Harley-Davidson 201,495 147,955 349,450 MULTI-LEVEL DIRECT SELLING (0.01%) 1,492 - 1,492 Nu Skin Enterprises (9) 28,855 - 28,855 MULTI-LINE INSURANCE (2.77%) 11,675 55,662 67,337 American International Group 708,789 3,379,240 4,088,029 3,146 - 3,146 AXA (9) 68,111 - 68,111 860 6,820 7,680 Cigna 54,576 432,797 487,373 3,635 19,130 22,765 Hartford Financial Services Group 212,575 1,118,722 1,331,297 2,883 - 2,883 ING Groep (9) 76,774 - 76,774 5,830 37,984 43,814 MetLife 223,580 1,456,687 1,680,267 4,440 35,640 40,080 Prudential Financial 206,327 1,656,191 1,862,518 4,900 - 4,900 Zurich Financial Services (9) 69,335 - 69,335 MULTIMEDIA (2.18%) 180 1,480 1,660 Gannett 14,931 122,766 137,697 512 - 512 Journal Communications (9) 8,254 - 8,254 2,420 13,660 16,080 McGraw-Hill 208,725 1,178,175 1,386,900 298 - 298 Media General (9) 17,373 - 17,373 5,122 - 5,122 News (2) (9) 165,236 - 165,236 30,610 169,017 199,627 Time Warner (1) 509,350 2,812,443 3,321,793 2,080 15,940 18,020 Viacom 75,899 581,650 657,549 2,759 - 2,759 Vivendi Universal (1) (9) 75,679 - 75,679 11,180 61,877 73,057 Walt Disney 281,960 1,560,538 1,842,498 NETWORKING PRODUCTS (1.37%) 41,150 169,331 210,481 Cisco Systems (1) 790,492 3,252,849 4,043,341 1,820 - 1,820 Juniper Networks (1) (9) 48,430 - 48,430 19,000 176,700 195,700 Lucent Technologies (1) 67,450 627,285 694,735 OFFICE AUTOMATION & EQUIPMENT (0.03%) 1,667 - 1,667 Canon (9) 82,516 - 82,516 630 - 630 Imagistics International (1) (9) 21,685 - 21,685 OFFICE FURNISHINGS-ORIGINAL (0.01%) 889 - 889 HNI (9) 35,916 - 35,916 OFFICE SUPPLIES & FORMS (0.01%) 848 - 848 John H. Harland (9) 27,331 - 27,331 OIL COMPANY-EXPLORATION & PRODUCTION (1.21%) 7,540 23,220 30,760 Apache 382,278 1,177,254 1,559,532 5,680 25,470 31,150 Burlington Resources 235,720 1,057,005 1,292,725 2,440 - 2,440 Canadian Natural Resources (9) 102,382 - 102,382 1,780 11,379 13,159 Devon Energy 131,667 841,705 973,372 513 - 513 Houston Exploration (1) (9) 30,062 - 30,062 1,151 - 1,151 KCS Energy (1) (9) 15,665 - 15,665 2,830 - 2,830 Meridian Resource (1) (9) 22,782 - 22,782 899 - 899 Noble Energy (9) 52,142 - 52,142 1,228 - 1,228 PetroKazakhstan (9) 45,313 - 45,313 1,346 - 1,346 Plains Exploration & Production (1) (9) 33,650 - 33,650 670 - 670 Pogo Producing (9) 30,719 - 30,719 1,890 - 1,890 Talisman Energy (9) 50,784 - 50,784 OIL COMPANY-INTEGRATED (4.66%) 550 - 550 Amerada Hess (9) 44,390 - 44,390 593 - 593 BP Amoco (9) 34,542 - 34,542 10,942 58,816 69,758 ChevronTexaco 580,583 3,120,777 3,701,360 4,100 19,510 23,610 ConocoPhillips 345,671 1,644,888 1,990,559 1,155 - 1,155 ENI (9) 132,167 - 132,167 27,108 139,145 166,253 Exxon Mobil 1,334,256 6,848,717 8,182,973 2,020 - 2,020 Marathon Oil (9) 76,982 - 76,982 6,176 25,307 31,483 Occidental Petroleum 344,806 1,412,890 1,757,696 592 - 592 Petro-Canada (9) 32,258 - 32,258 1,170 - 1,170 Petroleo Brasileiro (9) 41,547 - 41,547 5,290 - 5,290 Repsol YPF (9) 114,634 - 114,634 1,555 - 1,555 TotalFinaElf (9) 162,155 - 162,155 OIL FIELD MACHINERY & EQUIPMENT (0.16%) 646 - 646 FMC Technologies (1) (9) 19,528 - 19,528 2,830 22,680 25,510 Grant Prideco (1) 58,185 466,301 524,486 431 - 431 Universal Compression Holdings (1) (9) 14,904 - 14,904 OIL REFINING & MARKETING (0.34%) 6,200 - 6,200 Statoil (9) 90,396 - 90,396 2,305 - 2,305 Tesoro Petroleum (1) (9) 69,795 - 69,795 2,600 20,990 23,590 Valero Energy 111,722 901,940 1,013,662 OIL-FIELD SERVICES (0.48%) 2,380 - 2,380 BJ Services (9) 121,380 - 121,380 1,342 - 1,342 Cal Dive International (1) (9) 47,520 - 47,520 2,705 21,285 23,990 Schlumberger 170,253 1,339,678 1,509,931 OPTICAL SUPPLIES (0.24%) 706 - 706 Advanced Medical Optics (1) (9) 27,605 - 27,605 2,702 10,678 13,380 Bausch & Lomb 164,714 650,931 815,645 PAPER & RELATED PRODUCTS (1.01%) 5,700 27,170 32,870 Georgia-Pacific 197,163 939,810 1,136,973 6,747 14,414 21,161 Louisiana-Pacific 165,369 353,287 518,656 - 20,280 20,280 MeadWestvaco 639,428 639,428 540 4,090 4,630 Temple-Inland 31,925 241,801 273,726 2,396 - 2,396 UPM-Kymmene Oyj (9) 47,584 - 47,584 1,590 12,910 14,500 Weyerhaeuser 99,598 808,683 908,281 PIPELINES (0.54%) 5,160 17,180 22,340 National Fuel Gas 144,583 481,384 625,967 5,726 20,260 25,986 Questar 274,848 972,480 1,247,328 POULTRY (0.02%) 2,568 - 2,568 Pilgrims Pride (9) 69,439 - 69,439 PRINTING-COMMERCIAL (0.01%) 670 - 670 Banta (9) 27,256 - 27,256 479 - 479 Consolidated Graphics (1) (9) 20,453 - 20,453 PROPERTY & CASUALTY INSURANCE (0.68%) 772 - 772 Arch Capital Group (1) (9) 29,004 - 29,004 2,780 14,610 17,390 Chubb 200,521 1,053,819 1,254,340 609 - 609 First American (9) 18,995 - 18,995 1,207 - 1,207 Infinity Property & Casualty (9) 37,514 - 37,514 750 9,060 9,810 Progressive 70,162 847,563 917,725 400 - 400 Selective Insurance Group (9) 15,632 - 15,632 1,150 - 1,150 State Auto Financial (9) 32,718 - 32,718 1,237 - 1,237 W.R. Berkley (9) 52,869 - 52,869 PUBLICLY TRADED INVESTMENT FUND (0.11%) 12,431 - 12,431 iShares MSCI Japan Index Fund (9) 123,440 - 123,440 1,430 - 1,430 iShares Russell 1000 Value Index Fund (9) 88,016 - 88,016 1,475 - 1,475 iShares Russell 2000 Index Fund (9) 171,587 - 171,587 - 160 160 Standard & Poor's 500 Depository Receipts - 18,142 18,142 PUBLISHING-NEWSPAPERS (0.01%) 2,429 - 2,429 Journal Register (1) (9) 45,665 - 45,665 RACETRACKS (0.01%) 721 - 721 Penn National Gaming (1) (9) 29,943 - 29,943 RADIO (0.02%) 2,064 - 2,064 Emmis Communications (1) (9) 38,597 - 38,597 1,096 - 1,096 Radio One (1) (9) 16,100 - 16,100 RECYCLING (0.01%) 1,825 - 1,825 Metal Management (1) (9) 33,215 - 33,215 REGIONAL BANKS (2.61%) 560 - 560 Comerica (9) 34,446 - 34,446 7,480 29,490 36,970 Huntington Bancshares 179,146 706,285 885,431 4,000 - 4,000 KeyCorp (9) 134,360 - 134,360 2,180 - 2,180 National City (9) 84,955 - 84,955 4,225 24,755 28,980 PNC Financial Services Group 220,967 1,294,686 1,515,653 11,244 54,457 65,701 U.S. Bancorp 321,691 1,558,015 1,879,706 7,330 42,760 50,090 Wachovia 360,709 2,104,220 2,464,929 5,455 30,071 35,526 Wells Fargo 325,772 1,795,840 2,121,612 RENTAL-AUTO & EQUIPMENT (0.00%) 368 - 368 Rent-A-Center (1) (9) 8,828 - 8,828 RESPIRATORY PRODUCTS (0.01%) 628 - 628 Respironics (1) (9) 32,085 - 32,085 RETAIL-APPAREL & SHOE (0.65%) 2,010 15,900 17,910 American Eagle Outfitters 82,169 649,992 732,161 950 950 Chico's FAS (1) (9) 38,028 - 38,028 4,020 14,250 18,270 Claire's Stores 104,600 370,785 475,385 1,767 - 1,767 Foot Locker (9) 43,115 - 43,115 928 - 928 Kenneth Cole Productions (9) 24,592 - 24,592 5,730 15,800 21,530 Nordstrom 247,421 682,244 929,665 1,280 - 1,280 Stein Mart (1) (9) 21,274 - 21,274 RETAIL-AUTO PARTS (0.00%) 980 - 980 CSK Auto (1) (9) 14,347 - 14,347 RETAIL-BEDDING (0.20%) 4,935 12,550 17,485 Bed Bath & Beyond (1) 201,299 511,915 713,214 RETAIL-BOOKSTORE (0.02%) 1,716 - 1,716 Barnes & Noble (1) (9) 57,091 - 57,091 523 - 523 Borders Group (9) 11,919 - 11,919 RETAIL-BUILDING PRODUCTS (0.89%) 8,430 66,983 75,413 Home Depot 346,304 2,751,662 3,097,966 RETAIL-CATALOG SHOPPING (0.01%) 1,041 - 1,041 Coldwater Creek (1) (9) 23,964 - 23,964 RETAIL-CONSUMER ELECTRONICS (0.78%) 5,460 19,130 24,590 Best Buy 323,341 1,132,879 1,456,220 5,932 36,340 42,272 RadioShack 177,545 1,087,656 1,265,201 RETAIL-CONVENIENCE STORE (0.00%) 297 - 297 Pantry (1) (9) 6,828 - 6,828 RETAIL-DISCOUNT (1.94%) 2,360 18,900 21,260 BJ's Wholesale Club (1) 68,511 548,667 617,178 990 7,950 8,940 Target 49,520 397,659 447,179 14,775 91,203 105,978 Wal-Mart Stores 796,668 4,917,666 5,714,334 RETAIL-DRUG STORE (0.08%) 840 6,720 7,560 Walgreen 30,148 241,181 271,329 RETAIL-HAIR SALONS (0.01%) 1,092 - 1,092 Regis (9) 46,738 - 46,738 RETAIL-JEWELRY (0.01%) 1,845 - 1,845 Signet Group (9) 35,627 - 35,627 454 - 454 Zale (1) (9) 12,948 - 12,948 RETAIL-MISCELLANEOUS/DIVERSIFIED (0.01%) 1,077 - 1,077 Ito-Yokado (9) 38,540 - 38,540 RETAIL-OFFICE SUPPLIES (0.38%) 10,670 34,160 44,830 Staples 317,326 1,015,918 1,333,244 RETAIL-REGIONAL DEPARTMENT STORE (0.27%) 2,660 12,780 15,440 Neiman Marcus Group (2) 161,808 777,407 939,215 RETAIL-RESTAURANTS (1.48%) 1,277 - 1,277 CBRL Group (9) 46,304 - 46,304 421 - 421 CEC Entertainment (1) (9) 16,006 - 16,006 12,800 61,784 74,584 McDonald's 373,120 1,801,004 2,174,124 1,117 - 1,117 Ruby Tuesday (9) 27,590 27,590 2,320 18,980 21,300 Starbucks (1) 122,682 1,003,662 1,126,344 8,710 32,240 40,950 Yum! Brands 378,885 1,402,440 1,781,325 RUBBER-TIRES (0.01%) 862 - 862 Continental (9) 47,022 - 47,022 SAVINGS & LOANS-THRIFTS (0.02%) 555 - 555 Independence Community Bank (9) 20,885 - 20,885 489 - 489 PFF Bancorp (9) 19,291 - 19,291 419 - 419 Sterling Financial (1) (9) 15,742 - 15,742 SCHOOLS (0.17%) 2,370 6,420 8,790 Apollo Group (1) 156,420 423,720 580,140 SEMICONDUCTOR COMPONENT-INTEGRATED q CIRCUITS (0.36%) 2,390 18,980 21,370 Analog Devices 96,221 764,135 860,356 600 - 600 Exar (1) (9) 9,012 - 9,012 3,775 - 3,775 Linear Technology (9) 142,997 - 142,997 2,405 - 2,405 Maxim Integrated Products (9) 105,796 - 105,796 1,340 - 1,340 Micrel (1) (9) 15,048 - 15,048 7,840 - 7,840 Taiwan Semiconductor Manufacturing (2) (9) 59,349 - 59,349 14,800 - 14,800 United Microelectronics (1) (9) 51,800 - 51,800 SEMICONDUCTOR EQUIPMENT (0.59%) 7,150 53,440 60,590 Applied Materials (1) 115,115 860,384 975,499 343 - 343 Brooks Automation (1) (2) (9) 5,104 - 5,104 2,560 19,950 22,510 Kla-Tencor (1) 116,557 908,323 1,024,880 441 - 441 MKS Instruments (1) (9) 6,977 - 6,977 610 - 610 Mykrolis (1) (9) 6,411 - 6,411 955 - 955 Varian Semiconductor Equipment Associates (1) (9) 33,052 - 33,052 STEEL PRODUCERS (0.03%) 1,974 - 1,974 Arcelor (9) 36,717 - 36,717 646 - 646 POSCO (9) 24,154 - 24,154 2,077 - 2,077 Schnitzer Steel Industries (9) 58,675 - 58,675 TELECOMMUNICATION EQUIPMENT (0.89%) 291 - 291 Comtech Telecommunications (1) (9) 7,976 - 7,976 1,910 - 1,910 Ditech Communications (1) (9) 43,815 - 43,815 687 - 687 Plantronics (9) 29,885 - 29,885 5,250 41,910 47,160 Qualcomm 219,503 1,752,257 1,971,760 4,100 29,180 33,280 Scientific-Atlanta 112,299 799,240 911,539 1,160 - 1,160 Tekelec (1) (9) 25,891 - 25,891 3,830 - 3,830 Telefonaktiebolaget LM Ericsson (1) (9) 110,725 - 110,725 2,128 - 2,128 Westell Technologies (1) (9) 11,938 - 11,938 TELECOMMUNICATION EQUIPMENT-FIBER OPTICS (0.20%) 2,357 - 2,357 C-COR.net (1) (9) 17,725 - 17,725 6,680 53,550 60,230 Corning (1) 76,486 613,147 689,633 1,439 - 1,439 Sycamore Networks (1) (9) 5,281 - 5,281 TELECOMMUNICATION SERVICES (0.01%) 4,900 - 4,900 PTEK Holdings (1) (9) 48,804 - 48,804 TELEPHONE-INTEGRATED (2.88%) 1,420 11,440 12,860 ALLTEL 78,001 628,399 706,400 2,530 - 2,530 AT&T (9) 43,288 - 43,288 2,450 17,450 19,900 BellSouth 65,342 465,392 530,734 1,630 - 1,630 Nippon Telegraph & Telephone (9) 34,638 - 34,638 19,350 95,076 114,426 SBC Communications 488,781 2,401,620 2,890,401 10,350 81,230 91,580 Sprint 216,832 1,701,768 1,918,600 16,085 84,346 100,431 Verizon Communications 628,923 3,297,929 3,926,852 THEATERS (0.00%) 202 - 202 Carmike Cinemas (9) 7,232 - 7,232 THERAPEUTICS (0.23%) 1,634 - 1,634 Dyax (1) (9) 9,379 - 9,379 614 - 614 Eyetech Pharmaceuticals (1) (9) 26,058 - 26,058 6,300 14,580 20,880 Gilead Sciences (1) 218,169 504,905 723,074 1,045 - 1,045 Medicines (1) (9) 27,839 - 27,839 926 - 926 NeoPharm (1) (9) 6,728 - 6,728 TOBACCO (0.70%) 7,491 40,053 47,544 Altria Group 363,014 1,940,968 2,303,982 1,846 - 1,846 British American Tobacco (9) 55,565 - 55,565 1,810 - 1,810 Imperial Tobacco Group (9) 84,979 - 84,979 TOOLS-HAND HELD (0.13%) 640 4,850 5,490 Black & Decker 51,379 389,358 440,737 TRANSACTIONAL SOFTWARE (0.01%) 1,141 - 1,141 Transaction Systems Architects (1) (9) 18,707 - 18,707 TRANSPORT-AIR FREIGHT (0.16%) 3,680 9,220 12,900 CNF 161,110 403,652 564,762 TRANSPORT-RAIL (0.24%) 2,770 22,170 24,940 Norfolk Southern 94,042 752,671 846,713 TRANSPORT-SERVICES (0.51%) 100 750 850 FedEx 9,112 68,340 77,452 423 - 423 Offshore Logistics (1) (9) 15,295 - 15,295 2,410 19,109 21,519 United Parcel Service 190,824 1,513,051 1,703,875 TRANSPORT-TRUCK (0.01%) 469 - 469 J.B. Hunt Transport Services (9) 19,163 - 19,163 539 - 539 Yellow Roadway (1) (9) 25,867 - 25,867 TRAVEL SERVICES (0.09%) 1,600 12,770 14,370 Sabre Holdings 34,416 274,683 309,099 TRUCKING & LEASING (0.00%) 251 - 251 Ryder System (9) 12,575 - 12,575 VITAMINS & NUTRITION PRODUCTS (0.01%) 646 - 646 USANA Health Sciences (1) (2) (9) 19,270 - 19,270 WATER (0.01%) 1,696 - 1,696 Suez (9) 39,856 - 39,856 WEB PORTALS (0.39%) 1,964 - 1,964 United Online (1) (9) 18,442 - 18,442 4,392 32,925 37,317 Yahoo (1) 158,946 1,191,556 1,350,502 WIRELESS EQUIPMENT (0.51%) 24,430 79,240 103,670 Motorola 421,662 1,367,682 1,789,344 TOTAL COMMON STOCK 64,313,833 242,958,431 307,272,264 BONDS (6.00%) AEROSPACE & DEFENSE EQUIPMENT (0.01%) K&F Industries (9) 35,000 - 35,000 9.25%; 10/15/07 35,700 - 35,700 AGRICULTURAL OPERATIONS (0.04%) Bunge Limited Finance (9) 80,000 - 80,000 4.38%; 12/15/08 80,857 - 80,857 45,000 - 45,000 5.35%; 04/15/14 46,077 - 46,077 25,000 - 25,000 5.88%; 05/15/13 26,501 - 26,501 AIRLINES (0.04%) Southwest Airlines (9) 152,222 - 152,222 5.10%; 05/01/06 155,849 - 155,849 ASSET BACKED SECURITIES (0.16%) Chase Funding Mortgage Loan Asset Backed Certificates (3) (9) 100,000 - 100,000 2.22%; 09/25/33 99,995 - 99,995 Countrywide Asset Backed Certificates (3) (9) 196,429 - 196,429 2.43%; 02/25/34 196,420 - 196,420 180,000 180,000 3.00%; 01/25/34 180,318 - 180,318 Master Adjustable Rate Mortgages Trust (3) (9) 95,000 - 95,000 3.03%; 03/25/34 95,659 - 95,659 AUTO-CARS & LIGHT TRUCKS (0.06%) DaimlerChrysler Holding (9) 70,000 - 70,000 4.05%; 06/04/08 70,472 - 70,472 15,000 - 15,000 4.75%; 01/15/08 15,454 - 15,454 40,000 - 40,000 7.25%; 01/18/06 42,046 - 42,046 Ford Motor (9) 30,000 - 30,000 7.45%; 07/16/31 29,216 - 29,216 General Motors (9) 40,000 - 40,000 8.25%; 07/15/23 41,668 - 41,668 Hyundai Motor Manufacturing (4) (9) 25,000 - 25,000 5.30%; 12/19/08 26,012 - 26,012 AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL (0.02%) Lear (9) 45,000 - 45,000 7.96%; 05/15/05 46,188 - 46,188 Tenneco Automotive (9) 15,000 - 15,000 11.63%; 10/15/09 15,938 - 15,938 AUTOMOBILE SEQUENTIAL (0.04%) Ford Credit Auto Owner Trust (9) 132,368 - 132,368 4.72%; 12/15/05 132,743 - 132,743 BEVERAGES-WINE & SPIRITS (0.04%) Diageo Capital (3) (9) 150,000 - 150,000 2.17%; 04/20/07 150,056 - 150,056 BREWERY (0.04%) Cia Brasileira de Bebidas (9) 40,000 - 40,000 10.50%; 12/15/11 49,200 - 49,200 Coors Brewing (9) 50,000 - 50,000 6.38%; 05/15/12 55,458 - 55,458 SABMiller (4) (9) 30,000 - 30,000 6.63%; 08/15/33 33,761 - 33,761 BROADCASTING SERVICES & PROGRAMMING (0.04%) Clear Channel Communications (9) 65,000 - 65,000 5.75%; 01/15/13 67,317 - 67,317 Grupo Televisa (9) 20,000 - 20,000 8.50%; 03/11/32 22,850 - 22,850 Liberty Media (9) 60,000 - 60,000 3.50%; 09/25/06 60,059 - 60,059 BUILDING & CONSTRUCTION PRODUCTS- MISCELLANEOUS (0.06%) CRH America (9) 25,000 - 25,000 5.30%; 10/15/13 25,827 - 25,827 25,000 - 25,000 6.40%; 10/15/33 26,907 - 26,907 35,000 - 35,000 6.95%; 03/15/12 40,231 - 40,231 Masco (3) (4) (9) 110,000 - 110,000 2.11%; 03/09/07 110,185 - 110,185 BUILDING PRODUCTS-AIR & HEATING (0.02%) York International (9) 75,000 - 75,000 6.63%; 08/15/06 79,224 - 79,224 BUILDING PRODUCTS-WOOD (0.00%) Celulosa Arauco y Constitucion (9) 15,000 - 15,000 5.13%; 07/09/13 14,840 - 14,840 BUILDING-RESIDENTIAL & COMMERCIAL (0.03%) DR Horton (9) 50,000 - 50,000 8.50%; 04/15/12 56,375 - 56,375 KB Home (9) 45,000 - 45,000 7.75%; 02/01/10 49,050 - 49,050 CABLE TV (0.08%) Charter Communications (4) (9) 35,000 - 35,000 8.00%; 04/30/12 35,394 - 35,394 Comcast (9) 5,000 - 5,000 5.30%; 01/15/14 5,099 - 5,099 5,000 - 5,000 5.85%; 01/15/10 5,378 - 5,378 35,000 - 35,000 7.05%; 03/15/33 39,533 - 39,533 Comcast Cable Communications (9) 25,000 - 25,000 6.75%; 01/30/11 28,045 - 28,045 Cox Communications (9) 45,000 - 45,000 6.75%; 03/15/11 49,432 - 49,432 EchoStar DBS (4) (9) 60,000 - 60,000 6.63%; 10/01/14 61,350 - 61,350 Rogers Cablesystems (9) 40,000 - 40,000 10.00%; 03/15/05 41,000 - 41,000 CASINO HOTELS (0.06%) Aztar (9) 55,000 - 55,000 7.88%; 06/15/14 59,675 - 59,675 Harrah's Operating (9) 50,000 - 50,000 5.50%; 07/01/10 52,173 - 52,173 Mandalay Resort Group (9) 25,000 - 25,000 6.45%; 02/01/06 25,781 - 25,781 MGM Mirage (9) 35,000 - 35,000 7.25%; 10/15/06 37,275 - 37,275 Park Place Entertainment (9) 45,000 - 45,000 8.50%; 11/15/06 49,500 - 49,500 CELLULAR TELECOMMUNICATIONS (0.14%) AT&T Wireless Services (9) 65,000 - 65,000 7.88%; 03/01/11 77,435 - 77,435 65,000 - 65,000 8.13%; 05/01/12 79,299 - 79,299 Dobson Cellular Systems (1) (3) (4) (9) 55,000 - 55,000 0.00%; 11/01/11 56,512 - 56,512 PTC International Finance II (9) 75,000 - 75,000 11.25%; 12/01/09 79,500 - 79,500 Rural Cellular (4) (9) 20,000 - 20,000 8.25%; 03/15/12 21,000 - 21,000 Telus (9) 40,000 - 40,000 7.50%; 06/01/07 43,951 - 43,951 10,000 - 10,000 8.00%; 06/01/11 11,824 - 11,824 US Unwired (9) 60,000 - 60,000 5.79%; 06/15/10 61,650 - 61,650 Verizon Wireless Capital (9) 65,000 - 65,000 5.38%; 12/15/06 68,129 - 68,129 CHEMICALS-DIVERSIFIED (0.05%) Chevron Phillips Chemical(9) 50,000 - 50,000 7.00%; 03/15/11 56,710 - 56,710 FMC (9) 55,000 - 55,000 6.75%; 05/05/05 55,825 - 55,825 ICI Wilmington I (9) 30,000 - 30,000 5.63%; 12/01/13 31,044 - 31,044 Lyondell Chemical (9) 27,000 - 27,000 9.88%; 05/01/07 28,552 - 28,552 CHEMICALS-SPECIALTY (0.02%) Lubrizol (9) 45,000 - 45,000 4.63%; 10/01/09 45,441 - 45,441 20,000 - 20,000 6.50%; 10/01/34 20,156 - 20,156 COAL (0.01%) Massey Energy (9) 30,000 - 30,000 6.63%; 11/15/10 31,275 - 31,275 COATINGS & PAINT (0.01%) Valspar (9) 25,000 - 25,000 6.00%; 05/01/07 26,573 - 26,573 COMMERCIAL BANKS (0.02%) Union Planters Bank (9) 50,000 - 50,000 5.13%; 06/15/07 52,743 - 52,743 United Overseas Bank (4) (9) 20,000 - 20,000 4.50%; 07/02/13 19,692 - 19,692 COMMERCIAL SERVICE-FINANCE (0.02%) Dollar Financial Group (9) 50,000 - 50,000 9.75%; 11/15/11 53,375 - 53,375 COMMERCIAL SERVICES (0.02%) Iron Mountain (9) 55,000 - 55,000 8.25%; 07/01/11 57,475 - 57,475 COMPUTER SERVICES (0.03%) Unisys (9) 20,000 - 20,000 7.25%; 01/15/05 20,200 - 20,200 35,000 - 35,000 7.88%; 04/01/08 35,919 - 35,919 35,000 - 35,000 8.13%; 06/01/06 37,187 - 37,187 COMPUTERS-INTEGRATED SYSTEMS (0.00%) NCR (9) 15,000 - 15,000 7.13%; 06/15/09 16,730 - 16,730 COMPUTERS-MEMORY DEVICES (0.01%) Seagate Technology HDD Holdings (9) 45,000 - 45,000 8.00%; 05/15/09 48,656 - 48,656 CONSUMER PRODUCTS-MISCELLANEOUS (0.02%) Fortune Brands (4) (9) 75,000 - 75,000 7.13%; 11/01/04 75,000 - 75,000 CONTAINERS-PAPER & PLASTIC (0.01%) Norampac (9) 40,000 - 40,000 6.75%; 06/01/13 42,200 - 42,200 CREDIT CARD ASSET BACKED SECURITIES (0.23%) American Express Credit Account Master Trust (9) 500,000 - 500,000 5.53%; 10/15/08 519,155 - 519,155 Capital One Multi-Asset Execution Trust (3) (9) 95,000 - 95,000 2.09%; 12/15/09 95,059 - 95,059 Chase Credit Card Master Trust (3) (9) 100,000 - 100,000 2.07%; 05/15/09 99,994 - 99,994 MBNA Credit Card Master Note Trust (9) 100,000 - 100,000 3.90%; 11/15/07 100,911 - 100,911 DATA PROCESSING & MANAGEMENT (0.00%) Certegy (9) 15,000 - 15,000 4.75%; 09/15/08 15,447 - 15,447 DISTRIBUTION-WHOLESALE (0.02%) Ingram Micro (9) 50,000 - 50,000 9.88%; 08/15/08 54,875 - 54,875 DIVERSIFIED FINANCIAL SERVICES (0.04%) General Electric Capital (9) 65,000 - 65,000 6.75%; 03/15/32 75,804 - 75,804 John Deere Capital (9) 40,000 - 40,000 3.13%; 12/15/05 40,145 - 40,145 NiSource Finance (9) 40,000 - 40,000 3.20%; 11/01/06 39,946 - 39,946 DIVERSIFIED MANUFACTURING OPERATIONS (0.02%) Tyco International Group (9) 35,000 - 35,000 6.00%; 11/15/13 38,236 - 38,236 40,000 - 40,000 6.38%; 02/15/06 41,759 - 41,759 DIVERSIFIED MINERALS (0.01%) Corp. Nacional del Cobre de Chile (4) (9) 20,000 - 20,000 5.50%; 10/15/13 20,936 - 20,936 Vale Overseas (9) 25,000 - 25,000 9.00%; 08/15/13 28,125 - 28,125 DIVERSIFIED OPERATIONS (0.01%) Hutchison Whampoa International (4) (9) 25,000 - 25,000 6.50%; 02/13/13 26,609 - 26,609 E-COMMERCE-PRODUCTS (0.01%) FTD (9) 25,000 - 25,000 7.75%; 02/15/14 25,063 - 25,063 ELECTRIC-DISTRIBUTION (0.01%) Detroit Edison (9) 25,000 - 25,000 5.40%; 08/01/14 26,396 - 26,396 ELECTRIC-GENERATION (0.01%) Korea East-West Power (4) (9) 15,000 - 15,000 4.88%; 04/21/11 15,337 - 15,337 Tenaska Virginia Partners (4) (9) 29,822 - 29,822 6.12%; 03/30/24 31,567 - 31,567 ELECTRIC-INTEGRATED (0.34%) Alabama Power (9) 10,000 - 10,000 5.70%; 02/15/33 10,248 - 10,248 Arizona Public Service (9) 35,000 - 35,000 5.80%; 06/30/14 37,235 - 37,235 20,000 - 20,000 6.50%; 03/01/12 22,367 - 22,367 Carolina Power & Light (9) 40,000 - 40,000 6.65%; 04/01/08 43,547 - 43,547 Centerpoint Energy (9) 25,000 - 25,000 5.88%; 06/01/08 26,326 - 26,326 Cincinnati Gas & Electric (9) 15,000 - 15,000 5.40%; 06/15/33 13,978 - 13,978 Consumers Energy (9) 10,000 - 10,000 4.25%; 04/15/08 10,183 - 10,183 Dayton Power & Light (4) (9) 30,000 - 30,000 5.13%; 10/01/13 30,592 - 30,592 Duke Energy (3) (9) 130,000 - 130,000 2.42%; 01/15/05 130,027 - 130,027 Entergy Gulf States (9) 25,000 - 25,000 3.60%; 06/01/08 24,798 - 24,798 Exelon (9) 30,000 - 30,000 6.75%; 05/01/11 33,803 - 33,803 FirstEnergy (9) 55,000 - 55,000 6.45%; 11/15/11 60,262 - 60,262 FPL Group Capital (9) 25,000 - 25,000 3.25%; 04/11/06 25,170 - 25,170 Indianapolis Power & Light (9) 35,000 - 35,000 7.38%; 08/01/07 37,877 - 37,877 Jersey Central Power & Light (4) (9) 15,000 - 15,000 5.63%; 05/01/16 15,733 - 15,733 ELECTRIC-INTEGRATED (continued) MSW Energy Holdings II (9) 50,000 - 50,000 7.38%; 09/01/10 52,500 - 52,500 Northeast Utilities (9) 20,000 - 20,000 3.30%; 06/01/08 19,576 - 19,576 NorthWestern (4) (9) 55,000 - 55,000 5.88%; 11/01/14 56,719 - 56,719 Ohio Power (9) 20,000 - 20,000 4.85%; 01/15/14 20,103 - 20,103 Oncor Electric Delivery (9) 45,000 - 45,000 6.38%; 05/01/12 49,928 - 49,928 Pacific Gas & Electric (9) 25,000 - 25,000 3.60%; 03/01/09 24,821 - 24,821 85,000 - 85,000 6.05%; 03/01/34 87,544 - 87,544 Pepco Holdings (9) 80,000 - 80,000 3.75%; 02/15/06 80,773 - 80,773 10,000 - 10,000 4.00%; 05/15/10 9,774 - 9,774 Power Contract Financing (4) (9) 16,625 - 16,625 5.20%; 02/01/06 16,855 - 16,855 PPL Energy Supply (9) 35,000 - 35,000 5.40%; 08/15/14 35,882 - 35,882 PSEG Power (9) 50,000 - 50,000 6.95%; 06/01/12 56,323 - 56,323 Puget Energy (9) 25,000 - 25,000 3.36%; 06/01/08 24,803 - 24,803 Southern California Edison (9) 15,000 - 15,000 5.00%; 01/15/14 15,367 - 15,367 40,000 - 40,000 8.00%; 02/15/07 44,231 - 44,231 Southwestern Electric Power (9) 50,000 - 50,000 4.50%; 07/01/05 50,620 - 50,620 TXU Energy (9) 20,000 - 20,000 6.13%; 03/15/08 21,482 - 21,482 ELECTRONIC COMPONENTS-MISCELLANEOUS (0.01%) Flextronics International (9) 25,000 - 25,000 6.50%; 05/15/13 26,250 - 26,250 ELECTRONIC COMPONENTS-SEMICONDUCTOR (0.02%) Fairchild Semiconductor International (9) 60,000 - 60,000 10.50%; 02/01/09 64,200 - 64,200 ELECTRONICS-MILITARY (0.02%) L-3 Communications (9) 80,000 - 80,000 8.00%; 08/01/08 82,400 - 82,400 EXPORT/IMPORT BANK (0.01%) Export-Import Bank of Korea (9) 30,000 - 30,000 4.50%; 08/12/09 30,684 - 30,684 FEDERAL & FEDERALLY SPONSORED CREDIT (0.02%) Housing Urban Development (9) 60,000 - 60,000 2.99%; 08/01/05 60,294 - 60,294 FILTRATION & SEPARATION PRODUCTS (0.01%) Polypore (4) (9) 35,000 - 35,000 8.75%; 05/15/12 36,575 - 36,575 FINANCE-AUTO LOANS (0.07%) Ford Motor Credit (9) 35,000 - 35,000 6.13%; 01/09/06 36,164 - 36,164 20,000 - 20,000 6.50%; 01/25/07 21,013 - 21,013 125,000 - 125,000 6.88%; 02/01/06 129,959 - 129,959 25,000 - 25,000 7.88%; 06/15/10 27,741 - 27,741 General Motors Acceptance (9) 15,000 - 15,000 5.63%; 05/15/09 15,147 - 15,147 20,000 - 20,000 8.00%; 11/01/31 20,701 - 20,701 FINANCE-COMMERCIAL (0.01%) CIT Group (9) 35,000 - 35,000 5.13%; 09/30/14 35,220 - 35,220 FINANCE-CONSUMER LOANS (0.01%) Household Finance (9) 20,000 - 20,000 4.75%; 07/15/13 19,970 - 19,970 FINANCE-CREDIT CARD (0.04%) Capital One Bank (9) 30,000 - 30,000 5.00%; 06/15/09 31,170 - 31,170 100,000 - 100,000 6.88%; 02/01/06 104,953 - 104,953 FINANCE-INVESTMENT BANKER & BROKER (0.28%) BCP Caylux Holdings Luxembourg (4) (9) 40,000 - 40,000 9.63%; 06/15/14 44,800 - 44,800 Bear Stearns (9) 130,000 - 130,000 2.43%; 01/30/09 (3) 130,313 - 130,313 70,000 - 70,000 2.50%; 06/25/34 (3) 70,208 - 70,208 40,000 - 40,000 3.00%; 03/30/06 40,143 - 40,143 45,000 - 45,000 4.00%; 01/31/08 45,731 - 45,731 Citigroup (9) 20,000 - 20,000 5.88%; 02/22/33 20,261 - 20,261 50,000 - 50,000 6.63%; 06/15/32 55,790 - 55,790 E*Trade Financial (4) (9) 50,000 - 50,000 8.00%; 06/15/11 52,750 - 52,750 Goldman Sachs Group (9) 35,000 - 35,000 3.88%; 01/15/09 35,238 - 35,238 110,000 - 110,000 6.60%; 01/15/12 123,583 - 123,583 Lehman Brothers Holdings (9) 50,000 - 50,000 4.80%; 03/13/14 49,807 - 49,807 Merrill Lynch (9) 130,000 - 130,000 1.95%; 02/06/09 (3) 130,004 - 130,004 40,000 - 40,000 5.45%; 07/15/14 41,774 - 41,774 Morgan Stanley (9) 45,000 - 45,000 4.75%; 04/01/14 44,083 - 44,083 25,000 - 25,000 5.30%; 03/01/13 25,958 - 25,958 70,000 - 70,000 6.75%; 04/15/11 79,454 - 79,454 FINANCE-MORTGAGE LOAN/BANKER (0.52%) Countrywide Home Loan (9) 25,000 - 25,000 4.25%; 12/19/07 25,464 - 25,464 200,000 - 200,000 4.62%; 12/19/33 (3) 198,200 - 198,200 Federal Home Loan Mortgage (9) 225,000 - 225,000 3.25%; 02/25/08 223,759 - 223,759 375,000 - 375,000 4.50%; 07/15/13 379,117 - 379,117 45,000 - 45,000 4.63%; 05/28/13 44,956 - 44,956 80,000 - 80,000 4.75%; 10/11/12 79,930 - 79,930 75,000 - 75,000 4.75%; 05/06/13 74,309 - 74,309 20,000 - 20,000 5.13%; 11/07/13 20,158 - 20,158 256,000 - 256,000 6.75%; 03/15/31 310,055 - 310,055 Federal National Mortgage Association (9) 50,000 - 50,000 2.88%; 05/19/08 49,151 - 49,151 230,000 - 230,000 3.70%; 11/01/07 231,899 - 231,899 90,000 - 90,000 4.32%; 07/26/07 91,215 - 91,215 75,000 - 75,000 4.75%; 02/21/13 74,917 - 74,917 FOOD-MISCELLANEOUS/DIVERSIFIED (0.08%) Chiquita Brands International (4) (9) 45,000 - 45,000 7.50%; 11/01/14 46,125 - 46,125 ConAgra Foods (9) 75,000 - 75,000 7.50%; 09/15/05 77,808 - 77,808 Corn Products International (9) 40,000 - 40,000 8.45%; 08/15/09 45,800 - 45,800 Kraft Foods (9) 85,000 - 85,000 4.63%; 11/01/06 87,486 - 87,486 35,000 - 35,000 6.25%; 06/01/12 38,522 - 38,522 FOOD-RETAIL (0.03%) Delhaize America (9) 45,000 - 45,000 7.38%; 04/15/06 47,527 - 47,527 Kroger (9) 25,000 - 25,000 6.20%; 06/15/12 27,389 - 27,389 20,000 - 20,000 7.50%; 04/01/31 23,502 - 23,502 GAS-DISTRIBUTION (0.03%) Colorado Interstate Gas (9) 50,000 - 50,000 10.00%; 06/15/05 52,375 - 52,375 Sempra Energy (9) 35,000 - 35,000 4.75%; 05/15/09 35,947 - 35,947 HOME DECORATION PRODUCTS (0.01%) Newell Rubbermaid (9) 10,000 - 10,000 4.00%; 05/01/10 9,785 - 9,785 15,000 - 15,000 4.63%; 12/15/09 15,377 - 15,377 HOME EQUITY-OTHER (0.15%) Asset Backed Funding Certificates (3) (9) 45,000 - 45,000 2.12%; 02/25/30 44,998 - 44,998 Long Beach Mortgage Loan Trust (3) (9) 25,000 - 25,000 2.46%; 06/25/34 24,978 - 24,978 30,000 - 30,000 3.01%; 06/25/34 30,036 - 30,036 New Century Home Equity Loan Trust (3) (9) 115,000 - 115,000 2.65%; 01/25/34 115,337 - 115,337 Option One Mortgage Loan Trust (3) (9) 70,000 - 70,000 2.46%; 05/25/34 69,911 - 69,911 70,000 - 70,000 2.98%; 05/25/34 69,997 - 69,997 Specialty Underwriting & Residential Finance (3) (9) 65,000 - 65,000 2.44%; 02/25/35 64,997 - 64,997 Wells Fargo Home Equity Trust (3) (9) 90,000 - 90,000 2.43%; 04/25/34 89,997 - 89,997 HOME EQUITY-SEQUENTIAL (0.03%) Ameriquest Mortgage Securities (3) (9) 75,000 - 75,000 2.13%; 04/25/34 74,996 - 74,996 Residential Asset Securities (9) 13,531 - 13,531 4.59%; 10/25/26 13,541 - 13,541 HOTELS & MOTELS (0.01%) Host Marriott (9) 18,000 - 18,000 7.88%; 08/01/08 18,495 - 18,495 INVESTMENT COMPANIES (0.02%) Canadian Oil Sands (4) (9) 80,000 - 80,000 4.80%; 08/10/09 81,738 - 81,738 LIFE & HEALTH INSURANCE (0.00%) Nationwide Financial Services (9) 10,000 - 10,000 5.63%; 02/13/15 10,328 - 10,328 MACHINERY-FARM (0.03%) Case (9) 75,000 - 75,000 7.25%; 08/01/05 77,062 - 77,062 Case New Holland (4) (9) 40,000 - 40,000 6.00%; 06/01/09 40,000 - 40,000 MEDICAL INFORMATION SYSTEM (0.02%) NDCHealth (9) 50,000 - 50,000 10.50%; 12/01/12 53,000 - 53,000 MEDICAL PRODUCTS (0.01%) Medical Device Manufacturing (4) (9) 25,000 - 25,000 10.00%; 07/15/12 26,750 - 26,750 MEDICAL-DRUGS (0.04%) Biovail (9) 45,000 - 45,000 7.88%; 04/01/10 46,688 - 46,688 Eli Lilly (9) 60,000 - 60,000 5.50%; 07/15/06 62,685 - 62,685 Schering-Plough (9) 30,000 - 30,000 5.30%; 12/01/13 31,114 - 31,114 MEDICAL-HMO (0.06%) Anthem (9) 200,000 - 200,000 4.88%; 08/01/05 202,327 - 202,327 MEDICAL-HOSPITALS (0.02%) HCA (9) 50,000 - 50,000 6.95%; 05/01/12 52,720 - 52,720 10,000 - 10,000 7.13%; 06/01/06 10,490 - 10,490 MEDICAL-WHOLESALE DRUG DISTRIBUTION (0.01%) Bergen Brunswig (9) 35,000 - 35,000 7.25%; 06/01/05 35,700 - 35,700 METAL PROCESSORS & FABRICATION (0.01%) Mueller Group (9) 35,000 - 35,000 10.00%; 05/01/12 37,800 - 37,800 METAL-DIVERSIFIED (0.01%) Falconbridge (9) 10,000 - 10,000 5.38%; 06/01/15 10,077 - 10,077 15,000 - 15,000 7.35%; 06/05/12 17,224 - 17,224 MISCELLANEOUS INVESTING (0.02%) iStar Financial (9) 45,000 - 45,000 4.88%; 01/15/09 45,938 - 45,938 United Dominion Realty Trust (9) 30,000 - 30,000 6.50%; 06/15/09 32,810 - 32,810 MISCELLANEOUS MANUFACTURERS (0.02%) Samsonite (9) 55,000 - 55,000 8.88%; 06/01/11 58,575 - 58,575 MONEY CENTER BANKS (0.06%) Bank of America (9) 60,000 - 60,000 4.88%; 09/15/12 61,619 - 61,619 60,000 - 60,000 7.40%; 01/15/11 70,295 - 70,295 JP Morgan Chase (9) 75,000 - 75,000 5.13%; 09/15/14 76,206 - 76,206 MORTGAGE BACKED SECURITIES (0.58%) Bear Stearns Adjustable Rate Mortgage Trust(3)(4)(9) 50,000 - 50,000 3.52%; 06/25/34 49,365 - 49,365 Bear Stearns Commercial Mortgage Securities (9) 448,646 - 448,646 0.65%; 05/11/39 (3) (4) 12,707 - 12,707 110,000 - 110,000 5.47%; 06/11/41 116,289 - 116,289 Credit Suisse First Boston Mortgage Securities (3) (9) 50,000 - 50,000 2.53%; 05/25/34 49,712 - 49,712 CS First Boston Mortgage Securities (3) (9) 827,328 - 827,328 0.57%; 05/15/36 (4) 18,427 - 18,427 737,859 - 737,859 0.68%; 07/15/36 (4) 24,197 - 24,197 30,000 - 30,000 2.53%; 06/25/34 (4) 29,913 - 29,913 25,000 - 25,000 7.68%; 09/15/41 28,970 - 28,970 DLJ Commercial Mortgage (9) 700,000 - 700,000 6.59%; 02/18/31 764,236 - 764,236 DLJ Mortgage Acceptance (4) (9) 100,000 - 100,000 6.99%; 10/15/30 106,976 - 106,976 First Union National Bank Commercial Mortgage (9) 40,000 - 40,000 8.09%; 05/17/32 47,266 - 47,266 Greenwich Capital Commercial Funding (3) (4) (9) 1,483,000 - 1,483,000 0.39%; 06/10/36 27,422 - 27,422 JP Morgan Chase Commercial Mortgage Securities (9) 650,000 - 650,000 1.22%; 01/12/39 (3) (4) 34,041 - 34,041 150,000 - 150,000 6.04%; 11/15/35 161,353 - 161,353 LB-UBS Commercial Mortgage Trust (9) 357,668 - 357,668 0.14%; 03/15/36 (3) (4) 10,060 - 10,060 708,201 - 708,201 0.63%; 03/15/34 (3) (4) 15,399 - 15,399 565,325 - 565,325 0.75%; 08/15/36 (4) 19,621 - 19,621 422,905 - 422,905 1.23%; 03/15/36 (3) (4) 22,050 - 22,050 325,000 - 325,000 5.97%; 03/15/26 347,656 - 347,656 Merrill Lynch Mortgage Investors (3) (9) 90,000 - 90,000 2.49%; 01/25/35 89,996 - 89,996 Merrill Lynch Mortgage Trust (3) (9) 1,471,015 - 1,471,015 0.60%; 02/12/42 36,134 - 36,134 Morgan Stanley Capital I (3) (4) (9) 425,000 - 425,000 1.12%; 01/13/41 22,336 - 22,336 MOTION PICTURES & SERVICES (0.01%) Alliance Atlantis Communications (9) 20,000 - 20,000 13.00%; 12/15/09 21,500 - 21,500 MULTI-LINE INSURANCE (0.04%) Metropolitan Life Global Funding I (3) (4)(9) 130,000 - 130,000 2.04%; 03/17/09 129,811 - 129,811 MULTIMEDIA (0.10%) AOL Time Warner (9) 20,000 - 20,000 5.63%; 05/01/05 20,302 - 20,302 70,000 - 70,000 6.15%; 05/01/07 74,878 - 74,878 60,000 - 60,000 7.63%; 04/15/31 71,089 - 71,089 Gannett (9) 75,000 - 75,000 4.95%; 04/01/05 75,740 - 75,740 News America (9) 15,000 - 15,000 4.75%; 03/15/10 15,435 - 15,435 30,000 - 30,000 6.55%; 03/15/33 32,276 - 32,276 35,000 - 35,000 6.63%; 01/09/08 38,303 - 38,303 Viacom (9) 15,000 - 15,000 6.63%; 05/15/11 16,912 - 16,912 MUTUAL INSURANCE (0.02%) Liberty Mutual Group (4) (9) 35,000 - 35,000 5.75%; 03/15/14 34,304 - 34,304 25,000 - 25,000 7.00%; 03/15/34 25,184 - 25,184 NON-HAZARDOUS WASTE DISPOSAL (0.01%) Allied Waste North America (9) 20,000 - 20,000 5.75%; 02/15/11 18,450 - 18,450 Waste Management (9) 20,000 - 20,000 5.00%; 03/15/14 20,223 - 20,223 OFFICE AUTOMATION & EQUIPMENT (0.05%) Xerox (9) 55,000 - 55,000 6.88%; 08/15/11 58,713 - 58,713 OIL & GAS DRILLING (0.11%) Consolidated Natural Gas (9) 25,000 - 25,000 5.00%; 03/01/14 25,260 - 25,260 Nabors Holdings (9) 45,000 - 45,000 4.88%; 08/15/09 46,657 - 46,657 Precision Drilling (9) 40,000 - 40,000 5.63%; 06/01/14 42,228 - 42,228 OIL COMPANY-EXPLORATION & PRODUCTION (0.14%) Canadian Natural Resources (9) 25,000 - 25,000 7.20%; 01/15/32 29,545 - 29,545 Chesapeake Energy (9) 40,000 - 40,000 8.38%; 11/01/08 43,600 - 43,600 Devon Financing (9) 40,000 - 40,000 7.88%; 09/30/31 50,457 - 50,457 EnCana (9) 20,000 - 20,000 4.75%; 10/15/13 19,972 - 19,972 Husky Energy (9) 35,000 - 35,000 6.15%; 06/15/19 37,705 - 37,705 Nexen (9) 15,000 - 15,000 5.05%; 11/20/13 15,055 - 15,055 25,000 - 25,000 7.88%; 03/15/32 31,161 - 31,161 Pemex Project Funding Master Trust (9) 185,000 - 185,000 7.88%; 02/01/09 208,125 - 208,125 Swift Energy (9) 60,000 - 60,000 7.63%; 07/15/11 65,100 - 65,100 OIL COMPANY-INTEGRATED (0.05%) Occidental Petroleum (9) 25,000 - 25,000 4.00%; 11/30/07 25,474 - 25,474 PanCanadian Energy (9) 35,000 - 35,000 7.20%; 11/01/31 41,027 - 41,027 Petrobras International Finance (9) 40,000 - 40,000 8.38%; 12/10/18 40,200 - 40,200 30,000 - 30,000 9.13%; 07/02/13 32,700 - 32,700 Petronas Capital (4) (9) 20,000 - 20,000 7.88%; 05/22/22 24,645 - 24,645 OIL FIELD MACHINERY & EQUIPMENT (0.03%) Cooper Cameron (9) 50,000 - 50,000 2.65%; 04/15/07 49,135 - 49,135 Grant Prideco (9) 40,000 - 40,000 9.00%; 12/15/09 44,900 - 44,900 OIL REFINING & MARKETING (0.10%) CITGO Petroleum (4) (9) 40,000 - 40,000 6.00%; 10/15/11 40,700 - 40,700 Enterprise Products Operating (4) (9) 50,000 - 50,000 4.00%; 10/15/07 50,394 - 50,394 Enterprise Products Partners (9) 15,000 - 15,000 6.38%; 02/01/13 16,220 - 16,220 Frontier Oil (9) 75,000 - 75,000 11.75%; 11/15/09 79,687 - 79,687 Tesoro Petroleum (9) 40,000 - 40,000 8.00%; 04/15/08 43,500 - 43,500 35,000 - 35,000 9.63%; 11/01/08 38,588 - 38,588 Valero Energy (9) 55,000 - 55,000 6.88%; 04/15/12 62,600 - 62,600 PAPER & RELATED PRODUCTS (0.11%) Boise Cascade (4) (9) 45,000 - 45,000 5.01%; 10/15/12 46,012 - 46,012 International Paper (9) 80,000 - 80,000 3.80%; 04/01/08 80,145 - 80,145 25,000 - 25,000 6.75%; 09/01/11 28,100 - 28,100 Norske Skog (4) (9) 50,000 - 50,000 7.63%; 10/15/11 56,967 - 56,967 Sappi Papier Holding (4) (9) 20,000 - 20,000 6.75%; 06/15/12 22,154 - 22,154 Smurfit Capital Funding (9) 40,000 - 40,000 6.75%; 11/20/05 41,300 - 41,300 PAPER & RELATED PRODUCTS (continued) Weyerhaeuser (9) 60,000 - 60,000 6.13%; 03/15/07 63,978 - 63,978 30,000 - 30,000 6.75%; 03/15/12 33,953 - 33,953 PETROCHEMICALS (0.01%) Braskem (4) (9) 45,000 - 45,000 11.75%; 01/22/14 50,175 - 50,175 PHYSICAL THERAPY & REHABILITATION CENTERS (0.02%) HealthSouth (9) 80,000 - 80,000 6.88%; 06/15/05 80,400 - 80,400 PHYSICIAN PRACTICE MANAGEMENT (0.02%) US Oncology (4) (9) 55,000 - 55,000 9.00%; 08/15/12 59,400 - 59,400 PIPELINES (0.07%) Buckeye Partners (9) 35,000 - 35,000 4.63%; 07/15/13 34,250 - 34,250 Duke Capital (9) 25,000 - 25,000 4.37%; 03/01/09 25,349 - 25,349 Duke Energy Field Services (9) 20,000 - 20,000 7.88%; 08/16/10 23,654 - 23,654 Enbridge Energy Partners (9) 15,000 - 15,000 4.00%; 01/15/09 14,919 - 14,919 Equitable Resources (9) 25,000 - 25,000 5.15%; 11/15/12 26,121 - 26,121 National Fuel Gas (9) 25,000 - 25,000 5.25%; 03/01/13 25,752 - 25,752 TEPPCO Partners (9) 45,000 - 45,000 6.13%; 02/01/13 48,445 - 48,445 Texas Eastern Transmission (9) 50,000 - 50,000 5.25%; 07/15/07 52,353 - 52,353 PROPERTY & CASUALTY INSURANCE (0.18%) ACE (9) 70,000 - 70,000 6.00%; 04/01/07 73,478 - 73,478 ACE INA Holdings (9) 15,000 - 15,000 5.88%; 06/15/14 15,591 - 15,591 Arch Capital Group (9) 60,000 - 60,000 7.35%; 05/01/34 63,266 - 63,266 Infinity Property & Casualty (9) 55,000 - 55,000 5.50%; 02/18/14 54,876 - 54,876 Markel (9) 55,000 - 55,000 6.80%; 02/15/13 59,400 - 59,400 St. Paul (9) 80,000 - 80,000 5.75%; 03/15/07 83,839 - 83,839 W.R. Berkley (9) 90,000 - 90,000 5.13%; 09/30/10 91,642 - 91,642 20,000 - 20,000 5.88%; 02/15/13 20,590 - 20,590 XL Capital (9) 100,000 - 100,000 5.25%; 09/15/14 99,835 - 99,835 70,000 - 70,000 6.50%; 01/15/12 76,417 - 76,417 PUBLISHING-BOOKS (0.02%) Reed Elsevier Capital (9) 55,000 - 55,000 6.13%; 08/01/06 57,797 - 57,797 RECREATIONAL CENTERS (0.01%) AMF Bowling Worldwide (4) (9) 45,000 - 45,000 10.00%; 03/01/10 48,150 - 48,150 REGIONAL BANKS (0.17%) Bank One (9) 80,000 - 80,000 7.63%; 08/01/05 83,078 - 83,078 KeyCorp (9) 100,000 - 100,000 4.63%; 05/16/05 101,067 - 101,067 PNC Funding (9) 100,000 - 100,000 5.75%; 08/01/06 104,728 - 104,728 SunTrust Banks (9) 35,000 - 35,000 5.05%; 07/01/07 36,631 - 36,631 Wachovia (9) 40,000 - 40,000 5.25%; 08/01/14 41,321 - 41,321 100,000 - 100,000 5.63%; 12/15/08 107,744 - 107,744 Wells Fargo (9) 30,000 - 30,000 3.12%; 08/15/08 29,442 - 29,442 100,000 - 100,000 5.13%; 02/15/07 104,344 - 104,344 REINSURANCE (0.04%) Berkshire Hathaway Finance (9) 55,000 - 55,000 4.63%; 10/15/13 55,220 - 55,220 Endurance Specialty Holdings (9) 70,000 - 70,000 7.00%; 07/15/34 71,215 - 71,215 RENTAL-AUTO & EQUIPMENT (0.01%) United Rentals (9) 20,000 - 20,000 6.50%; 02/15/12 19,800 - 19,800 RETAIL-ARTS & CRAFTS (0.02%) Michaels Stores (9) 50,000 - 50,000 9.25%; 07/01/09 53,938 - 53,938 RETAIL-DRUG STORE (0.02%) Rite Aid (9) 50,000 - 50,000 12.50%; 09/15/06 56,750 - 56,750 RETAIL-MAJOR DEPARTMENT STORE (0.01%) J.C. Penney (9) 45,000 - 45,000 8.13%; 04/01/27 49,613 - 49,613 RETAIL-PROPANE DISTRIBUTION (0.01%) Ferrellgas (9) 35,000 - 35,000 6.75%; 05/01/14 36,225 - 36,225 RETAIL-VISION SERVICE CENTER (0.00%) Cole National Group (9) 15,000 - 15,000 8.63%; 08/15/07 15,216 - 15,216 SAVINGS & LOANS-THRIFTS (0.04%) Washington Mutual (9) 70,000 - 70,000 3.81%; 06/25/34 69,328 - 69,328 72,000 - 72,000 3.97%; 03/25/33 71,760 - 71,760 15,000 - 15,000 5.50%; 01/15/13 15,683 - 15,683 SOVEREIGN (0.09%) Mexico Government (9) 50,000 - 50,000 2.75%; 01/13/09 (3) 50,350 - 50,350 35,000 - 35,000 8.30%; 08/15/31 40,460 - 40,460 140,000 - 140,000 8.38%; 01/14/11 165,200 - 165,200 South Africa Government (9) 40,000 - 40,000 6.50%; 06/02/14 43,450 - 43,450 SPECIAL PURPOSE ENTITY (0.04%) Borden US Finance/Nova Scotia Finance (4) (9) 40,000 - 40,000 9.00%; 07/15/14 43,750 - 43,750 Fondo Latinoamericano de Reservas (4) (9) 45,000 - 45,000 3.00%; 08/01/06 45,132 - 45,132 Jostens (4) (9) 50,000 - 50,000 7.63%; 10/01/12 51,750 - 51,750 STEEL PRODUCERS (0.02%) International Steel Group (9) 75,000 - 75,000 6.50%; 04/15/14 80,250 - 80,250 STEEL-SPECIALTY (0.02%) CSN Islands VIII (4) (9) 60,000 - 60,000 9.75%; 12/16/13 60,900 - 60,900 SUPRANATIONAL BANK (0.03%) Corp Andina de Fomento (9) 65,000 - 65,000 6.75%; 03/15/05 65,938 - 65,938 45,000 - 45,000 6.88%; 03/15/12 50,470 - 50,470 TELEPHONE-INTEGRATED (0.33%) British Telecommunications (3) (9) 230,000 - 230,000 7.88%; 12/15/05 242,959 - 242,959 Deutsche Telekom International Finance (9) 35,000 - 35,000 5.25%; 07/22/13 36,187 - 36,187 30,000 - 30,000 8.50%; 06/15/10 (3) 36,143 - 36,143 France Telecom (3) (9) 70,000 - 70,000 8.50%; 03/01/11 84,072 - 84,072 MCI (9) 70,000 - 70,000 5.91%; 05/01/07 69,825 - 69,825 Qwest (4) (9) 50,000 - 50,000 7.88%; 09/01/11 53,250 - 53,250 SBC Communications (9) 35,000 - 35,000 4.13%; 09/15/09 35,175 - 35,175 20,000 - 20,000 6.15%; 09/15/34 20,204 - 20,204 Sprint Capital (9) 40,000 - 40,000 6.00%; 01/15/07 42,298 - 42,298 35,000 - 35,000 6.13%; 11/15/08 37,921 - 37,921 75,000 - 75,000 6.88%; 11/15/28 80,544 - 80,544 30,000 - 30,000 6.90%; 05/01/19 33,585 - 33,585 Telecom Italia Capital (9) 190,000 - 190,000 4.00%; 01/15/10 (4) 188,232 - 188,232 50,000 - 50,000 5.25%; 11/15/13 51,194 - 51,194 20,000 - 20,000 6.38%; 11/15/33 20,757 - 20,757 TELEPHONE-INTEGRATED (continued) Telefonos de Mexico (9) 10,000 - 10,000 4.50%; 11/19/08 10,088 - 10,088 100,000 - 100,000 8.25%; 01/26/06 106,325 - 106,325 TEXTILE-HOME FURNISHINGS (0.01%) Mohawk Industries (9) 30,000 - 30,000 6.50%; 04/15/07 32,079 - 32,079 THEATERS (0.01%) Cinemark (1) (3) (9) 50,000 - 50,000 0.00%; 03/15/14 35,375 - 35,375 TRANSPORT-RAIL (0.02%) Canadian National Railway (9) 40,000 - 40,000 4.25%; 08/01/09 40,703 - 40,703 Union Pacific (9) 15,000 - 15,000 4.70%; 01/02/24 14,601 - 14,601 TRANSPORT-SERVICES (0.01%) FedEx (9) 30,000 - 30,000 1.88%; 04/01/05 30,017 - 30,017 20,000 - 20,000 3.50%; 04/01/09 19,742 - 19,742 VENTURE CAPITAL (0.01%) Arch Western Finance (9) 35,000 - 35,000 6.75%; 07/01/13 37,188 - 37,188 VITAMINS & NUTRITION PRODUCTS (0.02%) NBTY (9) 30,000 - 30,000 8.63%; 09/15/07 30,300 - 30,300 WH Holdings/WH Capital (9) 25,000 - 25,000 9.50%; 04/01/11 27,375 - 27,375 WIRE & CABLE PRODUCTS (0.01%) Superior Essex Communications (9) 40,000 - 40,000 9.00%; 04/15/12 40,600 - 40,600 TOTAL BONDS 20,936,173 - 20,936,173 FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) CERTIFICATES (1.43%) (9) 119,400 - 119,400 5.00%; 12/01/17 121,909 - 121,909 150,292 - 150,292 5.00%; 03/01/18 153,463 - 153,463 897,309 - 897,309 5.00%; 05/01/18 916,244 - 916,244 20,338 - 20,338 5.00%; 06/01/34 20,301 - 20,301 925,001 - 925,001 5.00%; 06/01/34 923,329 - 923,329 900,000 - 900,000 5.00%; 11/01/34 (5) 897,187 - 897,187 187,720 - 187,720 5.50%; 03/01/33 191,537 - 191,537 613,028 - 613,028 5.50%; 05/01/33 625,492 - 625,492 172,911 - 172,911 5.50%; 10/01/33 176,426 - 176,426 250,000 - 250,000 5.50%; 11/01/34 (5) 254,610 - 254,610 127,799 - 127,799 6.00%; 01/01/29 132,650 - 132,650 40,361 - 40,361 6.50%; 12/01/20 42,647 - 42,647 71,838 - 71,838 6.50%; 05/01/31 75,627 - 75,627 95,977 - 95,977 6.50%; 06/01/31 101,039 - 101,039 106,339 - 106,339 7.00%; 12/01/27 113,206 - 113,206 38,401 - 38,401 7.00%; 09/01/31 40,797 - 40,797 FHLMC (continued) - 26,048 - 26,048 7.50%; 11/01/30 27,975 - 27,975 21,612 - 21,612 7.50%; 11/01/30 23,211 - 23,211 24,499 - 24,499 7.50%; 01/01/31 26,312 - 26,312 107,648 - 107,648 8.00%; 12/01/30 116,909 - 116,909 TOTAL FHLMC CERTIFICATES 4,980,871 - 4,980,871 FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) CERTIFICATES (1.34%) (9) 233,540 - 233,540 4.50%; 05/01/10 236,843 - 236,843 225,000 - 225,000 4.50%; 11/01/34 (5) 218,390 - 218,390 98,193 - 98,193 5.00%; 03/01/18 100,349 - 100,349 300,000 - 300,000 5.00%; 11/01/34 (5) 298,875 - 298,875 398,313 - 398,313 5.50%; 01/01/33 406,752 - 406,752 467,885 - 467,885 5.50%; 07/01/33 477,328 - 477,328 446,216 - 446,216 5.50%; 09/01/33 455,222 - 455,222 1,750,000 - 1,750,000 5.50%; 11/01/34 (5) 1,781,719 - 1,781,719 9,458 - 9,458 6.00%; 06/01/06 9,654 - 9,654 77,576 - 77,576 6.00%; 04/01/08 81,512 - 81,512 1,454 - 1,454 6.00%; 03/01/09 1,535 - 1,535 61,943 - 61,943 6.00%; 05/01/09 65,412 - 65,412 31,956 - 31,956 6.00%; 05/01/09 33,745 - 33,745 2,058 - 2,058 6.00%; 11/01/09 2,174 - 2,174 45,074 - 45,074 6.00%; 11/01/09 47,598 - 47,598 8,791 - 8,791 6.00%; 12/01/09 9,246 - 9,246 31,038 - 31,038 6.00%; 05/01/10 32,775 - 32,775 257,514 - 257,514 6.00%; 12/01/33 267,369 - 267,369 98,877 - 98,877 6.50%; 05/01/06 101,510 - 101,510 64,083 - 64,083 6.50%; 03/01/08 67,709 - 67,709 TOTAL FNMA CERTIFICATES 4,695,717 - 4,695,717 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES (0.38%) (9) 145,532 - 145,532 6.00%; 06/20/26 151,920 - 151,920 98,453 - 98,453 6.00%; 09/20/26 102,741 - 102,741 52,325 - 52,325 6.00%; 06/20/27 54,621 - 54,621 53,601 - 53,601 6.00%; 06/15/32 55,867 - 55,867 155,752 - 155,752 6.00%; 12/15/33 162,183 - 162,183 230,600 - 230,600 6.50%; 10/20/31 243,544 - 243,544 326,431 - 326,431 6.50%; 05/15/32 345,777 - 345,777 62,963 - 62,963 7.00%; 05/15/31 67,237 - 67,237 121,291 - 121,291 7.00%; 02/15/32 129,493 - 129,493 TOTAL GNMA CERTIFICATES 1,313,383 - 1,313,383 TREASURY BONDS (1.51%) (9) U.S. Treasury 300,000 - 300,000 3.63%; 07/15/09 304,793 - 304,793 200,000 - 200,000 3.88%; 02/15/13 200,062 - 200,062 175,000 - 175,000 4.00%; 02/15/14 175,007 - 175,007 325,000 - 325,000 4.75%; 05/15/14 343,637 - 343,637 450,000 - 450,000 5.00%; 02/15/11 485,930 - 485,930 275,000 - 275,000 5.38%; 02/15/31 298,687 - 298,687 225,000 - 225,000 6.25%; 05/15/30 270,562 - 270,562 240,000 - 240,000 7.13%; 02/15/23 309,234 - 309,234 50,000 - 50,000 7.25%; 05/15/16 63,430 - 63,430 135,000 - 135,000 7.50%; 11/15/16 174,841 - 174,841 285,000 - 285,000 8.00%; 11/15/21 395,493 - 395,493 U.S. Treasury Inflation-Indexed Obligations 179,477 - 179,477 2.00%; 01/15/14 186,046 - 186,046 598,035 - 598,035 3.38%; 01/15/07 640,879 - 640,879 439,868 - 439,868 3.63%; 01/15/08 485,195 - 485,195 433,309 - 433,309 3.88%; 01/15/09 491,619 - 491,619 225,266 - 225,266 4.25%; 01/15/10 264,036 - 264,036 U.S. Treasury Strip (1) 300,000 - 300,000 0.00%; 02/15/15 193,065 - 193,065 TOTAL TREASURY BONDS 5,282,516 - 5,282,516 COMMERCIAL PAPER (1.97%) FINANCE-CONSUMER LOANS (1.97%) 2,597,896 - 2,597,896 Investment in Joint Trading Account; 2,597,896 - 2,597,89 Household Finance 1.84; 11/01/04 - 4,278,422 4,278,422 Investment in Joint Trading Account; - 4,278,422 4,278,422 Federal Home Loan Bank 1.69%; 11/01/04 TOTAL COMMERCIAL PAPER 2,597,896 4,278,422 6,876,318 REPURCHASE AGREEMENTS (0.22%) Bear Stearns; 1.85%; dated 10/29/04 maturing 11/01/04 778,696 - 778,696 (collateralized by FNMA; $794,148; 11/17/11) (6) 778,576 - 778,576 TOTAL REPURCHASE AGREEMENTS 778,576 - 778,576 TOTAL PORTFOLIO INVESTMENTS (100.89%) 104,898,965 247,236,853 352,135,818 Liabilities, net of cash, receivables and other assets (-0.89%) (3,890,836) 779,885 3,110,951) TOTAL NET ASSETS (100.00%) $101,008,129 $248,016,738 $349,024,867 =========================================== (1) Non-income producing security. (2) Security or a portion of the security was on loan at the end of the period (3) Variable rate. (4) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At the end of the period, the value of these securities totaled $2,405,416 or 0.69% of net assets (5) Security or a portion of the security was purchased in a "to-be-announced" ("TBA") transaction. See Notes to Financial Statements. (6) Security was purchased with the cash proceeds from securities loans. (7) Affiliated securities. (8) Security or a portion of the security was pledged to cover margin requirements for futures contracts. (9) Security will be disposed of prior to the Reorganization to comply with the Acquiring Fund's investment restrictions. As of October 31, 2004, disposition of securities would result in a realized gain of aproximately $2,650,000.
UNREALIZED APPRECIATION (DEPRECIATION) The net federal income tax unrealized appreciation (depreciation) and federal tax cost of investments held by the fund as of the period end were as follows. - - Unrealized Appreciation $ 7,219,777 $ 7,597,000 $ 14,816,777 Unrealized Depreciation $ (5,678,514) (2,539,845) (8,218,359) Net Unrealized Appreciation (Depreciation) $ 1,541,263 5,057,155 6,598,418 Cost for federal income tax purposes $103,357,702 $242,179,698 $345,537,400
Contract Type Commitment Opening Current Unrealized Market Value Market Value Gain(Loss) FUTURES CONTRACTS Disciplined LargeCap Blend Fund 3 Russell 1000 December 2004 Futures Buy $ 899,650 $ 907,050 $ 7,400 Disciplined LargeCap Blend Fund 6 Russell 2000 December 2004 Futures Buy 1,709,000 1,753,500 44,500 Disciplined LargeCap Blend Fund 27 S&P 500 eMini December 2004 Futures Buy 1,499,857 1,525,905 26,048
INVESTMENTS BY SECTOR (UNAUDITED) 19.46% 19.17% 19.25% Financial $20,411,458 $ 48,194,775 $ 68,606,233 13.44 20.73 18.58 Consumer, Non-cyclical 14,094,373 52,111,723 66,206,096 9.15 11.87 11.07 Communications 9,597,830 29,837,963 39,435,793 7.60 10.94 9.96 Industrial 7,973,721 27,517,536 35,491,257 6.90 11.00 9.79 Technology 7,235,416 27,649,029 34,884,445 8.49 9.95 9.52 Consumer, Cyclical 8,904,199 25,012,650 33,916,849 6.77 8.42 7.93 Energy 7,100,454 21,164,316 28,264,770 12.68 - 3.73 Mortgage Securities 13,298,167 - 13,298,167 7.19 2.12 3.62 Government 7,541,070 5,336,441 12,877,511 3.41 2.45 2.74 Utilities 3,582,505 6,174,242 9,756,747 2.29 1.68 1.86 Basic Materials 2,405,304 4,220,035 6,625,339 - 1.66 1.18 Futures Contracts - 4,186,455 4,186,455 2.01 - 0.59 Asset Backed Securities 2,113,380 - 2,113,380 0.43 0.01 0.13 Funds 451,637 18,143 469,780 0.18 - 0.05 Diversified 189,451 - 189,451 TOTAL $104,896,965 $251,423,308 $356,322,273 Percentages are adjusted to reflect the impact of currency contracts, futures contracts, and swap agreements, if applicable. See accompanying notes.
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004 (UNAUDITED) -------------------------------------------------------------------------------
PRINCIPAL COMBINED CAPITAL VALUE LARGECAP PRO FORMA LARGECAP FUND, INC. VALUE FUND ADJUSTMENTS/(D)/ VALUE FUND - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- INVESTMENT IN SECURITIES--AT COST.. $326,177,289 $115,728,918 $ -- $441,906,207 ============ ============ =========== ============ ASSETS Investment in securities--at value. $345,639,296/(c)/ $122,034,946 $ -- $467,674,242/(c)/ Cash.................. 79,878 32,699 -- 112,577 Receivables: Capital Shares sold.. 3,798 166,460 -- 170,258 Dividends and interest............ 358,335 122,757 -- 481,092 Investment securities sold................ 3,577,645 1,237,387 -- 4,815,032 Variation margin on futures contracts... 11,625 -- -- 11,625 Other assets.......... 28,459 -- -- 28,459 ------------ ------------ ----------- ------------ Total Assets 349,699,036 123,594,249 -- 473,293,285 LIABILITIES Accrued management and investment advisory fees................. 37,708 10,394 -- 48,102 Accrued administrative service fees......... -- 156 -- 156 Accrued distribution fees................. 4,870 1,858 -- 6,728 Accrued directors' expense.............. 360 -- -- 360 Accrued service fees.. -- 201 -- 201 Accrued transfer and administrative fees.. 130,188 11,440 -- 141,628 Accrued other expenses 39,764 4,039 -- 43,803 Payables: Capital Shares reacquired.......... 144,466 -- -- 144,466 Investment securities purchased........... 3,650,950 1,320,749 -- 4,971,699 Reorganization costs. -- -- 113,461 113,461 Collateral obligation on securities loaned, at value............. 6,895,000 -- -- 6,895,000 ------------ ------------ ----------- ------------ Total Liabilities 10,903,306 1,348,837 113,461 12,365,604 ------------ ------------ ----------- ------------ NET ASSETS APPLICABLE TO OUTSTANDING SHARES $338,795,730 $122,245,412 $ (113,461) $460,927,681 ============ ============ =========== ============ NET ASSETS CONSIST OF: Capital Shares and additional paid-in-capital...... $321,209,498 $110,297,761 $ -- $431,507,259 Accumulated undistributed (overdistributed) net investment income (operating loss)..... 2,561,515 1,110,714 (113,461) 3,558,768 Accumulated undistributed (overdistributed) net realized gain (loss). (4,401,296) 4,530,909 -- 129,613 Net unrealized appreciation (depreciation) of investments.......... 19,426,013 6,306,028 -- 25,732,041 ------------ ------------ ----------- ------------ Total Net Assets $338,795,730 $122,245,412 $ (113,461) $460,927,681 ============ ============ =========== ============ CAPITAL STOCK (PAR VALUE: $.01 A SHARE): Shares authorized..... 100,000,000 225,000,000 -- 225,000,000 NET ASSET VALUE PER SHARE: Advisors Preferred: Net Assets........... N/A $ 911,485 N/A $ 911,485 Shares issued and outstanding.......... 85,603 85,603 Net asset value per share................ $ 10.65 $ 10.65 ============ ============ Advisors Select: Net Assets............... N/A $ 1,387,526 N/A $ 1,387,526 Shares issued and outstanding.......... 130,030 130,030 Net asset value per share................ $ 10.67 $ 10.67 ============ ============ Class A: Net Assets... $311,582,761 N/A $ (95,986) $311,486,775 Shares issued and outstanding.......... 13,198,050 15,994,712 29,192,762 Net asset value per share................ $ 23.61 -- $ 10.67 Maximum offering price per share /(a)/ $ 25.05 -- $ 11.32 ============ == ============ Class B: Net Assets... $ 27,212,969 N/A $ (17,475) $ 27,195,494 Shares issued and outstanding.......... 1,164,337 1,384,444 2,548,781 Net asset value per share /(b)/.......... $ 23.37 -- $ 10.67 ============ == ============ Class J: Net Assets... N/A $ 18,334,328 N/A $ 18,334,328 Shares issued and outstanding.......... 1,728,575 1,728,575 Net asset value per share /(b)/.......... $ 10.61 $ 10.61 ============ ============ Institutional: Net Assets............... N/A $ 97,880,620 N/A $ 97,880,620 Shares issued and outstanding.......... 9,169,377 9,169,377 Net asset value per share................ $ 10.67 $ 10.67 ============ ============ Preferred: Net Assets. N/A $ 3,716,277 N/A $ 3,716,277 Shares issued and outstanding.......... 347,510 347,510 Net asset value per share................ $ 10.69 $ 10.69 ============ ============ Select: Net Assets.... N/A $ 15,176 N/A $ 15,176 Shares issued and outstanding.......... 1,426 1,426 Net asset value per share................ $ 10.64 $ 10.64 ============ ============
/(a) /Maximum offering price equals net asset value plus a front-end sales charge of 5.75% of the offering price or 6.10% of the net asset value. /(b) /Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. /(c) /Includes fair market value of securities loaned, see "Securities Lending" in Notes to Financial Statements /(d) /Reduction in net assets to reflect the estimated expenses of the Reorganization.. See accompanying notes. 1 STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2004 (UNAUDITED) ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
PRINCIPAL COMBINED CAPITAL VALUE LARGECAP PRO FORMA LARGECAP FUND, INC. VALUE FUND ADJUSTMENTS VALUE FUND - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- NET INVESTMENT INCOME (OPERATING LOSS) Income: Dividends............ $ 6,943,010 $ 1,991,419 $ -- $ 8,934,429 Interest............. 66,613 17,101 -- 83,714 Securities lending... 16,596 -- -- 16,596 ------------ ----------- --------- ------------ Total Income 7,026,219 2,008,520 -- 9,034,739 Expenses: Management and investment advisory fees................ 2,075,121 460,338 (479,761)/(A)/ 2,055,698 Distribution fees - Advisors Preferred.. -- 370 -- 370 Distribution fees - Advisors Select..... -- 5,184 -- 5,184 Distribution fees - Class A............. 469,600 -- -- 469,600 Distribution fees - Class B............. 210,113 -- -- 210,113 Distribution fees - Class J............. -- 76,001 -- 76,001 Distribution fees - Select.............. -- 13 -- 13 Administrative service fees - Advisors Preferred.. -- 222 -- 222 Administrative service fees - Advisors Select..... -- 3,456 -- 3,456 Administrative service fees - Preferred........... -- 4,461 -- 4,461 Administrative service fees - Select.............. -- 17 -- 17 Registration fees - Class A............. 13,195 -- -- 13,195 Registration fees - Class B............. 8,299 -- -- 8,299 Registration fees - Class J............. -- 9,997 -- 9,997 Service fees - Advisors Preferred.. -- 252 -- 252 Service fees - Advisors Select..... -- 4,320 -- 4,320 Service fees - Preferred........... -- 6,084 -- 6,084 Service fees - Select -- 20 -- 20 Shareholder reports - Class A............. 34,315 -- -- 34,315 Shareholder reports - Class B............. 6,698 -- -- 6,698 Shareholder reports - Class J............. -- 4,752 -- 4,752 Transfer and administrative fees - Class A........... 183,834 -- -- 183,834 Transfer and administrative fees - Class B........... 36,667 -- -- 36,667 Transfer and administrative fees - Class J........... -- 49,670 -- 49,670 Auditing and legal fees................ 10,231 -- (10,231)/(B)/ -- Custodian fees....... 7,353 -- (7,353)/(B)/ -- Directors' expenses.. 12,470 -- (12,470)/(B)/ -- Registration fees.... 28,279 -- -- 28,279 Transfer and administrative fees. 456,262 -- 9,825/(B)/ 466,087 Other expenses....... 21,014 -- (21,014)/(B)/ -- Other expenses - Class J............. -- 8 -- 8 ------------ ----------- --------- ------------ Total Gross Expenses 3,573,451 625,165 (521,004) 3,677,612 Less: Fees paid indirectly.......... 34,250 7,217 -- 41,467 ------------ ----------- --------- ------------ Total Net Expenses 3,539,201 617,948 (521,004) 3,636,145 ------------ ----------- --------- ------------ Net Investment Income (Operating Loss) 3,487,018 1,390,572 521,004 5,398,594 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gain (loss) from: Investment transactions........ 42,415,114 8,761,205 -- 51,176,319 Futures contracts.... 207,479 -- -- 207,479 Other investment companies........... -- 20,729 -- 20,729 Change in unrealized appreciation/depreciation of: Investments........... (13,310,175) (1,369,610) -- (14,679,785) Futures contracts..... (105,745) -- -- (105,745) ------------ ----------- --------- ------------ Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies 29,206,673 7,412,324 -- 36,618,997 ------------ ----------- --------- ------------ Net Increase (Decrease) in Net Assets Resulting from Operations $ 32,693,691 $ 8,802,896 $ 521,004 $ 42,017,591 ============ =========== ========= ============
/(a) /Management and investment advisory fees decreased to reflect annual percentage rate of the Acquiring Fund. /(b) /Elimination of expenses due to expense structure of Acquiring Fund. Eliminated expenses are not paid by the Acquiring Fund. See accompanying notes. 19
SCHEDULE OF INVESTMENTS October 31, 2004 (unaudited) Principal Amount or Number of Shares Market Value - ----------------------------------------------------------------------------------------------------------------------------------- Principal Principal Capital LargeCap Capital LargeCap Value Value Value Value Fund, Inc Fund Combined Fund, Inc Fund Combined - ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (97.36%) AEROSPACE & DEFENSE (0.67%) 43,970 59,650 Northrop Grumman $ 2,275,447 $ 811,440 $ 3,086,887 15,680 AEROSPACE & DEFENSE EQUIPMENT (2.23%) 39,730 53,360 General Dynamics 4,057,228 5,449,124 13,630 1,391,896 38,750 51,950 United Technologies 3,596,775 4,821,999 13,200 1,225,224 AIRLINES (0.38%) 116,600 156,480 ExpressJet Holdings (1) (2) 1,296,592 1,740,058 39,880 443,466 APPAREL MANUFACTURERS (0.29%) 26,380 35,820 Polo Ralph Lauren 974,213 1,322,832 9,440 348,619 APPLICATIONS SOFTWARE (0.70%) 84,800 114,930 Microsoft 2,373,552 3,216,891 30,130 843,339 ATHLETIC FOOTWEAR (0.52%) 21,800 29,530 Nike 1,772,558 2,401,084 7,730 628,526 AUTO-CARS & LIGHT TRUCKS (0.57%) 149,040 202,190 Ford Motor 1,941,991 2,634,536 53,150 692,545 AUTO-MEDIUM & HEAVY DUTY TRUCKS (0.81%) 39,621 53,541 Paccar 2,746,132 3,710,927 13,920 964,795 BEVERAGES-NON-ALCOHOLIC (0.48%) 40,170 54,500 Coca-Cola 1,633,312 2,215,970 14,330 582,658 BROADCASTING SERVICES & PROGRAMMING(0.32%) 36,600 49,100 Fox Entertainment Group (1) 1,085,556 1,456,306 12,500 370,750 BUILDING-RESIDENTIAL & COMMERCIAL (1.26%) 33,170 44,810 MDC Holdings 2,545,798 3,439,168 11,640 893,370 31,480 42,780 Pulte 1,727,622 2,347,766 11,300 620,144 CABLE TV (0.83%) 85,660 116,260 Comcast (1) 2,526,970 3,429,670 30,600 902,700 42,700 57,305 Mediacom Communications (1) 279,685 375,348 14,605 95,663 CELLULAR TELECOMMUNICATIONS (1.07%) 82,300 111,570 Nextel Partners (1) (2) 1,385,932 1,878,839 29,270 492,907 77,800 104,760 Western Wireless (1) 2,267,092 3,052,706 26,960 785,614 CHEMICALS-SPECIALTY (1.06%) 34,300 46,520 Lubrizol 1,191,239 1,615,640 12,220 424,401 43,000 58,340 Sigma-Aldrich 2,392,520 3,246,037 15,340 853,517 COAL (0.43%) 22,900 31,070 Peabody Energy 1,460,562 1,981,645 8,170 521,083 COMMERCIAL BANKS (3.11%) 33,980 45,910 City National 2,341,222 3,163,199 11,930 821,977 43,650 59,250 Fremont General 938,475 1,273,875 15,600 335,400 75,650 102,200 Marshall & Ilsley 3,175,030 4,289,334 26,550 1,114,304 25,330 34,340 R&G Financial 952,915 1,291,871 9,010 338,956 53,580 71,419 UnionBanCal 3,254,985 4,338,704 17,839 1,083,719 COMPUTER AIDED DESIGN (0.66%) 42,850 57,780 Autodesk 2,260,338 3,047,895 14,930 787,557 COMPUTERS (0.69%) 26,200 35,510 International Business Machines 2,351,450 3,187,022 9,310 835,572 COMPUTERS-INTEGRATED SYSTEMS (0.49%) 242,900 329,630 Brocade Communications Systems (1) 1,649,291 2,238,188 86,730 588,897 CONTAINERS-METAL & GLASS (0.62%) 52,860 71,818 Ball 2,106,471 2,861,947 18,958 755,476 COSMETICS & TOILETRIES (1.68%) 56,760 77,040 Avon Products 2,244,858 3,046,932 20,280 802,074 67,880 91,370 Procter & Gamble 3,474,098 4,676,316 23,490 1,202,218 DIRECT MARKETING (0.70%) 92,890 125,990 Harte-Hanks 2,390,989 3,242,983 33,100 851,994 DIVERSIFIED MANUFACTURING OPERATIONS (3.72%) 371,288 503,134 General Electric 12,668,347 17,166,933 131,846 4,498,586 ELECTRIC-INTEGRATED (4.31%) 39,930 53,950 Constellation Energy Group 1,621,957 2,191,449 14,020 569,492 102,200 138,660 Edison International 3,117,100 4,229,130 36,460 1,112,030 60,560 82,950 Exelon 2,399,387 3,286,479 22,390 887,092 97,370 130,500 MDU Resources Group 2,497,541 3,347,325 33,130 849,784 27,600 37,390 PPL 1,435,200 1,944,280 9,790 509,080 58,720 79,710 TXU 3,594,838 4,879,846 20,990 1,285,008 ELECTRONIC CONNECTORS (0.61%) 60,630 82,310 Amphenol (1) 2,081,428 2,825,702 21,680 744,274 ELECTRONIC MEASUREMENT INSTRUMENTS (0.43%) 48,670 66,050 Tektronix 1,476,161 2,003,296 17,380 527,135 ENGINES-INTERNAL COMBUSTION (1.12%) 32,830 44,330 Briggs & Stratton 2,357,522 3,183,337 11,500 825,815 20,700 28,060 Cummins Engine 1,450,656 1,966,445 7,360 515,789 ENTERPRISE SOFTWARE & SERVICE (0.53%) 144,700 194,260 Oracle (1) 1,831,902 2,459,332 49,560 627,430 FINANCE-AUTO LOANS (0.26%) 20,400 27,700 WFS Financial (1) 898,824 1,220,462 7,300 321,638 FINANCE-CREDIT CARD (2.01%) 49,380 65,840 Capital One Financial 3,642,269 4,856,359 16,460 1,214,090 129,090 172,960 MBNA 3,308,576 4,432,964 43,870 1,124,388 FINANCE-INVESTMENT BANKER & BROKER (6.79%) 213,680 286,254 Citigroup (3) 9,480,982 12,701,090 72,574 3,220,108 40,620 53,862 Goldman Sachs Group 3,996,196 5,298,944 13,242 1,302,748 48,017 64,296 Lehman Brothers Holdings 3,944,596 5,281,916 16,279 1,337,320 42,120 57,090 Merrill Lynch 2,271,953 3,079,435 14,970 807,482 71,990 96,450 Morgan Stanley 3,677,969 4,927,630 24,460 1,249,661 FINANCIAL GUARANTEE INSURANCE (0.84%) 44,800 60,500 MGIC Investment 2,881,088 3,890,755 15,700 1,009,667 FOOD-FLOUR & GRAIN (1.07%) 191,340 255,000 Archer Daniels Midland 3,706,256 4,939,350 63,660 1,233,094 GARDEN PRODUCTS (0.37%) 18,650 25,200 Toro 1,272,863 1,719,901 6,550 447,038 GAS-DISTRIBUTION (0.77%) 48,670 66,140 Energen 2,617,473 3,557,010 17,470 939,537 HOTELS & MOTELS (0.45%) 32,100 43,520 Starwood Hotels & Resorts Worldwide 1,532,133 2,077,210 11,420 545,077 HUMAN RESOURCES (0.31%) 40,212 54,338 Robert Half International 1,066,824 1,441,587 14,126 374,763 INSTRUMENTS-SCIENTIFIC (0.30%) 53,130 72,180 Applied Biosystems Group 1,013,720 1,377,194 19,050 363,474 INTERNET FINANCIAL SERVICES (0.45%) 47,300 64,480 IndyMac Bancorp 1,525,898 2,080,125 17,180 554,227 LIFE & HEALTH INSURANCE (1.92%) 23,910 32,410 AmerUs Group (2) 998,960 1,354,090 8,500 355,130 59,250 80,420 Jefferson-Pilot 2,861,182 3,883,481 21,170 1,022,299 22,310 30,270 Lincoln National 977,178 1,325,826 7,960 348,648 121,700 165,700 UnumProvident 1,662,422 2,263,462 44,000 601,040 MACHINERY TOOLS & RELATED PRODUCTS (0.51%) 52,160 70,340 Lincoln Electric Holdings (2) 1,741,101 2,347,949 18,180 606,848 MACHINERY-FARM (1.02%) 59,210 78,960 Deere 3,539,574 4,720,229 19,750 1,180,655 MEDICAL PRODUCTS (0.67%) 29,320 39,620 Zimmer Holdings (1) 2,274,939 3,074,116 10,300 799,177 MEDICAL-BIOMEDICAL/GENE (0.30%) 33,820 45,380 Affymetrix (1) (2) 1,031,510 1,384,090 11,560 352,580 MEDICAL-GENERIC DRUGS (0.53%) 74,200 99,070 Eon Labs (1) (2) 1,826,062 2,438,113 24,870 612,051 MEDICAL-HMO (0.47%) 17,010 23,050 Aetna 1,615,950 2,189,750 6,040 573,800 METAL-ALUMINUM (0.65%) 94,870 128,810 Century Aluminum (1) (2) 2,195,292 2,980,664 33,940 785,372 MISCELLANEOUS INVESTING (2.56%) 30,910 41,430 Archstone-Smith Trust 1,037,031 1,389,977 10,520 352,946 61,870 83,870 Equity Residential Properties Trust 2,063,364 2,797,064 22,000 733,700 44,800 60,780 Kimco Realty 2,443,840 3,315,549 15,980 871,709 38,000 51,610 Prologis Trust 1,481,240 2,011,758 13,610 530,518 63,310 85,870 Ventas 1,703,039 2,309,903 22,560 606,864 MONEY CENTER BANKS (4.39%) 169,122 226,576 Bank of America 7,574,974 10,148,338 57,454 2,573,364 195,020 261,258 JP Morgan Chase 7,527,772 10,084,559 66,238 2,556,787 MULTI-LINE INSURANCE (1.94%) 51,600 70,180 American International Group 3,132,636 4,260,628 18,580 1,127,992 36,300 49,300 Hartford Financial Services Group 2,122,824 2,883,064 13,000 760,240 34,740 46,940 MetLife 1,332,279 1,800,149 12,200 467,870 MULTIMEDIA (2.63%) 21,060 28,560 McGraw-Hill 1,816,425 2,463,300 7,500 646,875 280,970 375,490 Time Warner (1) 4,675,341 6,248,154 94,520 1,572,813 100,300 135,540 Walt Disney 2,529,566 3,418,319 35,240 888,753 NETWORKING PRODUCTS (0.41%) 52,760 71,560 Juniper Networks (1) 1,403,944 1,904,212 18,800 500,268 OIL COMPANY-EXPLORATION & PRODUCTION (2.50%) 66,730 90,440 Apache 3,383,211 4,585,308 23,710 1,202,097 70,500 95,580 Burlington Resources 2,925,750 3,966,570 25,080 1,040,820 29,520 40,010 Devon Energy 2,183,594 2,959,539 10,490 775,945 OIL COMPANY-INTEGRATED (9.67%) 16,600 22,530 Amerada Hess 1,339,786 1,818,396 5,930 478,610 107,440 145,034 ChevronTexaco 5,700,766 7,695,504 37,594 1,994,738 51,750 70,119 ConocoPhillips 4,363,042 5,911,732 18,369 1,548,690 290,203 393,212 Exxon Mobil (3) 14,283,792 19,353,895 103,009 5,070,103 58,860 80,060 Marathon Oil 2,243,155 3,051,087 21,200 807,932 89,549 121,342 Occidental Petroleum 4,999,521 6,774,524 31,793 1,775,003 OPTICAL SUPPLIES (0.62%) 34,910 47,200 Bausch & Lomb 2,128,114 2,877,312 12,290 749,198 PAPER & RELATED PRODUCTS (1.40%) 66,470 89,050 Georgia-Pacific 2,299,197 3,080,239 22,580 781,042 100,900 137,130 Louisiana-Pacific 2,473,059 3,361,056 36,230 887,997 PIPELINES (1.47%) 87,860 119,290 National Fuel Gas 2,461,837 3,342,506 31,430 880,669 52,975 71,896 Questar 2,542,800 3,451,008 18,921 908,208 POULTRY (0.28%) 34,920 47,450 Pilgrims Pride (2) 944,237 1,283,048 12,530 338,811 PROPERTY & CASUALTY INSURANCE (0.88%) 28,300 38,490 Chubb 2,041,279 2,776,284 10,190 735,005 33,300 45,160 State Auto Financial 947,385 1,284,802 11,860 337,417 PUBLICALY TRADED INVESTMENT FUND (1.28%) 96,100 iShares Russell 1000 Value Index Fund 5,914,955 - 96,100 - 5,914,955 PUBLISHING-NEWSPAPERS (0.29%) 53,800 72,250 Journal Register (1) 1,011,440 1,358,300 18,450 346,860 RECYCLING (0.30%) 55,426 75,005 Metal Management (1) (2) 1,008,753 1,365,091 19,579 356,338 REGIONAL BANKS (6.64%) 16,160 21,930 Comerica 994,002 1,348,915 5,770 354,913 110,440 148,930 Huntington Bancshares 2,645,038 3,566,874 38,490 921,836 120,140 161,000 KeyCorp 4,035,502 5,407,989 40,860 1,372,487 65,900 89,600 National City 2,568,123 3,491,712 23,700 923,589 30,450 41,330 PNC Financial Services Group 1,592,535 2,161,559 10,880 569,024 130,120 175,470 U.S. Bancorp 3,722,733 5,020,196 45,350 1,297,463 57,020 77,254 Wachovia 2,805,954 3,801,669 20,234 995,715 71,490 97,040 Wells Fargo 4,269,383 5,795,229 25,550 1,525,846 RETAIL-CONSUMER ELECTRONICS (0.37%) 41,566 56,532 RadioShack 1,244,070 1,692,002 14,966 447,932 RETAIL-REGIONAL DEPARTMENT STORE (0.61%) 33,780 45,880 Neiman Marcus Group 2,054,837 2,790,880 12,100 736,043 RETAIL-RESTAURANTS (1.84%) 143,560 192,390 McDonald's 4,184,774 5,608,168 48,830 1,423,394 48,670 65,770 Yum! Brands 2,117,145 2,860,995 17,100 743,850 STEEL PRODUCERS (0.27%) 32,540 44,034 Schnitzer Steel Industries 919,255 1,243,961 11,494 324,706 TELECOMMUNICATION SERVICES (0.43%) 148,500 200,570 PTEK Holdings (1) 1,479,060 1,997,677 52,070 518,617 TELEPHONE-INTEGRATED (3.77%) 76,700 104,040 AT&T 1,312,337 1,780,125 27,340 467,788 207,430 277,900 SBC Communications 5,239,682 7,019,754 70,470 1,780,072 161,392 218,893 Verizon Communications 6,310,427 8,558,716 57,501 2,248,289 TOBACCO (1.07%) 75,150 102,030 Altria Group 3,641,769 4,944,374 26,880 1,302,605 TRANSPORT-AIR FREIGHT (0.96%) 75,780 101,610 CNF 3,317,648 4,448,485 25,830 1,130,837 WIRELESS EQUIPMENT (0.80%) 158,750 213,810 Motorola 2,740,025 3,690,361 55,060 950,336 TOTAL COMMON STOCKS 328,084,019 448,884,726 120,800,707 COMMERCIAL PAPER (2.58%) FINANCE-CONSUMER LOANS (2.31%) 10,660,277 10,660,277 Investment in Joint Trading Account; Household Finance 1.84%; 11/01/04 10,660,277 10,660,277 - - FINANCE-MORTGAGE LOAN/BANKER (.27%) Investment in Joint Trading Account; Federal Home Loan Bank 1.69%; 11/01/04 - 1,234,239 1,234,239 - 1,234,239 1,234,239 TOTAL COMMERCIAL PAPER 10,660,277 1,234,239 11,894,516 REPURCHASE AGREEMENTS (1.50%) Goldman Sachs; 1.75%, 11/01/04 (collateralized by U.S. Treasuries; $6,954,716; 11/18/04 - 01/15/12) (4) 6,896,006 - 6,896,006 6,895,000 - 6,895,000 TOTAL REPURCHASE AGREEMENTS 6,895,000 - 6,895,000 TOTAL PORTFOLIO INVESTMENTS (101.44%) 345,639,296 467,674,242 122,034,946 Liabilities, net of cash, receivables and other assets (-1.44%) (6,843,566) (6,633,100) 210,466 TOTAL NET ASSETS (100.00%) $ 338,795,730 $ 122,245,412 $ 461,041,142 ================================================ (1) Non-income producing security. (2) Security or a portion of the security was on loan at the end of the period. (3) Security or a portion of the security was pledged to cover margin requirements for futures contracts (4) Security was purchased with the cash proceeds from securities loans.
UNREALIZED APPRECIATION (DEPRECIATION) The net federal income tax unrealized appreciation (depreciation) and federal tax cost of investments held by the fund as of the period end were as follows: Unrealized Appreciation $24,737,789 $8,062,913 $32,800,702 Unrealized Depreciation (6,115,573) (1,894,950) (8,010,523) ------------------------------------------------------------ Net Unrealized Appreciation (Depreciation) 18,622,216 6,167,963 24,790,179 Cost for federal income tax purposes $327,017,080 $115,866,983 $442,884,063
- ------------------------------------------------------------------------------------------------------------------------------------ Opening Current Unrealized Contract Type Commitment Market Value Market Value Gain(Loss) - ------------------------------------------------------------------------------------------------------------------------------------ FUTURES CONTRACTS Principal Capital Value Fund, Inc. 31 Russell 1000 December 2004 Futures Buy $ 9,408,844 $ 9,372,850 $ (35,994)
INVESTMENTS BY SECTOR (UNAUDITED) Percentage of Total Value Sector Value - ------------------------------------------------------------------------------------------------------------------------------------ 35.60% 30.96% 34.41% Financial $126,386,931 $37,778,087 $164,165,018 13.49 13.93 13.60 Energy 47,887,816 17,003,898 57,624,620 12.02 12.24 12.08 Industrial 42,690,832 14,933,788 51,874,768 10.83 11.00 10.87 Communications 38,454,470 13,420,298 34,510,958 7.21 7.31 7.24 Consumer, Non-cyclical 25,587,929 8,923,029 34,345,527 7.16 7.32 7.20 Consumer, Cyclical 25,410,728 8,934,799 23,435,518 4.87 5.04 4.92 Utilities 17,283,495 6,152,023 15,527,597 3.23 3.32 3.25 Basic Materials 11,470,562 4,057,035 14,149,328 2.95 3.02 2.97 Technology 10,466,533 3,682,795 9,372,850 2.64 0.00 1.96 Futures Contracts 9,372,850 - 5,914,955 0.00 4.85 1.24 Funds - 5,914,955 5,914,955 0.00 1.01 0.26 Government - 1,234,239 1,234,239 TOTAL $355,012,146 $122,034,946 $477,047,092 ==================================================== Percentages are adjusted to reflect the impact of currency contracts, futures contracts, and swap agreements, if applicable. See accompanying notes. As of October 31, 2004, all securities held by the Acquired Fund would comply with the investment restrictions of the Acquiring Fund.
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004 (UNAUDITED) -------------------------------------------------------------------------------
COMBINED PRINCIPAL PARTNERS PARTNERS PARTNERS LARGECAP PRO FORMA LARGECAP BLUE CHIP FUND, INC. BLEND FUND I ADJUSTMENTS/(D)/ BLEND FUND I - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- INVESTMENT IN SECURITIES--AT COST.. $145,612,509 $ 28,978,962 $ -- $174,591,471 ============ ============ ========== ============ ASSETS Investment in securities--at value. $150,584,126/(c)/ $ 31,197,018 $ -- $181,781,144/(c)/ Cash.................. 1,033,605 456,747 -- 1,490,352 Receivables: Capital Shares sold.. 7,544 51,119 -- 58,663 Dividends and interest............ 133,031 30,980 -- 164,011 Other assets.......... 2,366 -- -- 2,366 Prepaid directors' expenses............. 41 -- -- 41 ------------ ------------ ---------- ------------ Total Assets 151,760,713 31,735,864 -- 183,496,577 LIABILITIES Accrued management and investment advisory fees................. 16,991 2,690 -- 19,681 Accrued administrative service fees......... -- 185 -- 185 Accrued distribution fees................. 7,028 2,575 -- 9,603 Accrued service fees.. -- 231 -- 231 Accrued transfer and administrative fees.. 95,844 9,946 -- 105,790 Accrued other expenses 43,337 3,312 -- 46,649 Payables: Capital Shares reacquired.......... 38,210 40,236 -- 78,446 Investment securities purchased........... 129,418 15,743 -- 145,161 Reorganization costs. -- -- 96,035 96,035 Collateral obligation on securities loaned, at value............. 1,727,000 -- -- 1,727,000 ------------ ------------ ---------- ------------ Total Liabilities 2,057,828 74,918 96,035 2,228,781 ------------ ------------ ---------- ------------ NET ASSETS APPLICABLE TO OUTSTANDING SHARES $149,702,885 $ 31,660,946 $ (96,035) $181,267,796 ============ ============ ========== ============ NET ASSETS CONSIST OF: Capital Shares and additional paid-in-capital...... $171,538,033 $ 30,989,191 $ -- $202,527,224 Accumulated undistributed (overdistributed) net investment income (operating loss)..... 215,732 83,259 (96,035) 202,956 Accumulated undistributed (overdistributed) net realized gain (loss). (27,026,889) (1,632,137) -- (28,659,026) Net unrealized appreciation (depreciation) of investments.......... 4,976,009 2,220,633 -- 7,196,642 ------------ ------------ ---------- ------------ Total Net Assets $149,702,885 $ 31,660,946 $ (96,035) $181,267,796 ============ ============ ========== ============ CAPITAL STOCK (PAR VALUE: $.01 A SHARE): Shares authorized..... 100,000,000 225,000,000 -- 225,000,000 NET ASSET VALUE PER SHARE: Advisors Preferred: Net Assets........... N/A $ 1,325,282 N/A $ 1,325,282 Shares issued and outstanding.......... 170,876 170,876 Net asset value per share................ $ 7.76 $ 7.76 ============ ============ Advisors Select: Net Assets............... N/A $ 2,271,966 N/A $ 2,271,966 Shares issued and outstanding.......... 293,604 293,604 Net asset value per share................ $ 7.74 $ 7.74 ============ ============ Class A: Net Assets... $123,303,668 N/A $ (76,022) $123,227,646 Shares issued and outstanding.......... 7,017,035 8,945,095 15,962,130 Net asset value per share................ $ 17.57 -- $ 7.72 Maximum offering price per share /(a)/ $ 18.64 -- $ 8.19 ============ == ============ Class B: Net Assets... $ 26,399,217 N/A $ (20,013) $ 26,379,204 Shares issued and outstanding.......... 1,568,898 1,848,097 3,416,995 Net asset value per share /(b)/.......... $ 16.83 -- $ 7.72 ============ == ============ Class J: Net Assets... N/A $ 25,188,745 N/A $ 25,188,745 Shares issued and outstanding.......... 3,282,334 3,282,334 Net asset value per share /(b)/.......... $ 7.67 $ 7.67 ============ ============ Institutional: Net Assets............... N/A $ 8,583 N/A $ 8,583 Shares issued and outstanding.......... 1,112 1,112 Net asset value per share................ $ 7.72 $ 7.72 ============ ============ Preferred: Net Assets. N/A $ 2,518,552 N/A $ 2,518,552 Shares issued and outstanding.......... 323,853 323,853 Net asset value per share................ $ 7.78 $ 7.78 ============ ============ Select: Net Assets.... N/A $ 347,818 N/A $ 347,818 Shares issued and outstanding.......... 44,823 44,823 Net asset value per share................ $ 7.76 $ 7.76 ============ ============
/(a) /Maximum offering price equals net asset value plus a front-end sales charge of 5.75% of the offering price or 6.10% of the net asset value. /(b) /Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. /(c) /Includes fair market value of securities loaned, see "Securities Lending" in Notes to Financial Statements. /(d) /Reduction in net assets to reflect the estimated expenses of the Reorganization. See accompanying notes. 1 STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2004 (UNAUDITED) ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
COMBINED PRINCIPAL PARTNERS PARTNERS PARTNERS LARGECAP PRO FORMA LARGECAP BLUE CHIP FUND, INC. BLEND FUND I ADJUSTMENTS BLEND FUND I - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ NET INVESTMENT INCOME (OPERATING LOSS) Income: Dividends............ $ 2,360,422 $ 443,594 $ -- $ 2,804,016 Interest............. 933 663 -- 1,596 Securities lending... 4,383 -- -- 4,383 ----------- ---------- --------- ----------- Total Income 2,365,738 444,257 -- 2,809,995 Expenses: Management and investment advisory fees................ 917,369 129,570 (229,512)/(A)/ 817,427 Distribution fees - Advisors Preferred.. -- 4,263 -- 4,263 Distribution fees - Advisors Select..... -- 6,293 -- 6,293 Distribution fees - Class A............. 230,870 -- -- 230,870 Distribution fees - Class B............. 265,247 -- -- 265,247 Distribution fees - Class J............. -- 107,639 -- 107,639 Distribution fees - Select.............. -- 602 -- 602 Administrative service fees - Advisors Preferred.. -- 2,558 -- 2,558 Administrative service fees - Advisors Select..... -- 4,195 -- 4,195 Administrative service fees - Preferred........... -- 3,138 -- 3,138 Administrative service fees - Select.............. -- 782 -- 782 Registration fees - Class A............. 10,928 -- -- 10,928 Registration fees - Class B............. 5,673 -- -- 5,673 Registration fees - Class J............. -- 14,148 -- 14,148 Service fees - Advisors Preferred.. -- 2,899 -- 2,899 Service fees - Advisors Select..... -- 5,244 -- 5,244 Service fees - Preferred........... -- 4,280 -- 4,280 Service fees - Select -- 902 -- 902 Shareholder reports - Class A............. 28,845 -- -- 28,845 Shareholder reports - Class B............. 8,172 -- -- 8,172 Shareholder reports - Class J............. -- 4,703 -- 4,703 Transfer and administrative fees - Class A........... 154,721 -- -- 154,721 Transfer and administrative fees - Class B........... 47,641 -- -- 47,641 Transfer and administrative fees - Class J........... -- 48,677 -- 48,677 Auditing and legal fees................ 9,212 -- (9,212)/(B)/ -- Custodian fees....... 19,790 -- (19,790)/(B)/ -- Directors' expenses.. 5,170 -- (5,170)/(B)/ -- Registration fees.... 25,485 -- -- 25,485 Transfer and administrative fees. 411,861 -- 3,374/(B)/ 415,235 Other expenses....... 9,022 -- (9,022)/(B)/ -- Other expenses - Class J............. -- 151 -- 151 ----------- ---------- --------- ----------- Total Gross Expenses 2,150,006 340,044 (269,332) 2,220,718 Less: Fees paid indirectly.......... 8,538 1,509 -- 10,047 ----------- ---------- --------- ----------- Total Net Expenses 2,141,468 338,535 (269,332) 2,210,671 ----------- ---------- --------- ----------- Net Investment Income (Operating Loss) 224,270 105,722 269,332 599,324 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gain (loss) from: Investment transactions........ 11,502,956 1,590,588 -- 13,093,544 Futures contracts.... 26,591 23,960 -- 50,551 Change in unrealized appreciation/depreciation of: Investments........... 711,594 466,772 -- 1,178,366 Futures contracts..... (2,880) (3,663) -- (6,543) ----------- ---------- --------- ----------- Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies 12,238,261 2,077,657 -- 14,315,918 ----------- ---------- --------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations $12,462,531 $2,183,379 $ 269,332 $14,915,242 =========== ========== ========= ===========
/(a) /Management and investment advisory fees decreased to reflect annual percentage rate of the Acquiring Fund. /(b) /Elimination of expenses due to expense structure of Acquiring Fund. Eliminated expenses are not paid by the Acquiring Fund. See accompanying notes. 28
SCHEDULE OF INVESTMENTS October 31, 2004 (unaudited) Principal Amount or Number of Shares Market Value - ----------------------------------------------------------------------------------------------------------------------------------- Principal Partners Principal Partners Partners Blue LargeCap Blend Partners Blue LargeCap Blend Chip Fund, Inc. Fund I Combined Chip Fund, Inc. Fund I Combined - ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (99.28%) AEROSPACE & DEFENSE (1.76%) Boeing 25,200 5,300 30,500 $1,257,480 $ 264,470 $ 1,521,950 Northrop Grumman 11,200 1,200 12,400 579,600 62,100 641,700 Raytheon 23,800 4,500 28,300 868,224 164,160 1,032,384 AEROSPACE & DEFENSE EQUIPMENT (0.80%) General Dynamics 3,800 800 4,600 388,056 81,696 469,752 United Technologies 8,800 1,800 10,600 816,816 167,076 983,892 AGRICULTURAL OPERATIONS (0.38%) Monsanto 13,600 2,500 16,100 581,400 106,875 688,275 APPLICATIONS SOFTWARE (3.97%) Microsoft 212,244 44,898 257,142 5,940,710 1,256,695 7,197,405 ATHLETIC FOOTWEAR (0.23%) Nike 4,244 819 5,063 345,080 66,593 411,673 AUDIO & VIDEO PRODUCTS (0.62%) Harman International Industries 7,800 1,600 9,400 937,404 192,288 1,129,692 AUTO-CARS & LIGHT TRUCKS (0.72%) Ford Motor 82,400 17,300 99,700 1,073,672 225,419 1,299,091 BEVERAGES-NON-ALCOHOLIC (1.14%) Coca-Cola 5,250 4,900 10,150 927,048 199,234 1,126,282 Pepsico 15,472 3,390 18,862 767,102 168,076 935,178 BEVERAGES-WINE & SPIRITS (0.05%) Brown-Forman 2,200 - 2,200 98,780 - 98,780 BREWERY (0.13%) Anheuser-Busch 4,000 700 4,700 199,800 34,965 234,765 BUILDING & CONSTRUCTION PRODUCTS- MISCELLANEOUS (0.10%) Masco 5,400 - 5,400 185,004 - 185,004 CABLE TV (0.60%) Comcast (1) 22,500 4,200 26,700 663,750 123,900 787,650 Liberty Media International (1) 4,200 4,200 8,400 151,410 151,410 302,820 CELLULAR TELECOMMUNICATIONS (0.44%) Nextel Communications (1) 18,500 3,900 22,400 490,065 103,311 593,376 U.S. Cellular (1) 4,600 500 5,100 191,590 20,825 212,415 CHEMICALS-DIVERSIFIED (0.38%) E. I. Du Pont de Nemours 12,900 2,700 15,600 553,023 115,749 668,772 Rohm & Haas - - 500 500 - 21,195 21,195 CHEMICALS-SPECIALTY (0.32%) Lubrizol 13,800 2,900 16,700 479,274 100,717 579,991 COMMERCIAL BANKS (0.59%) Bank of Hawaii 12,700 800 13,500 606,425 38,200 644,625 UnionBanCal 4,200 2,900 7,100 255,150 176,175 431,325 COMMERCIAL SERVICE-FINANCE (0.73%) Deluxe 2,700 - 2,700 102,843 - 102,843 Moody's 12,900 2,700 15,600 1,003,749 210,087 1,213,836 COMPUTER AIDED DESIGN (0.57%) Autodesk 17,800 1,900 19,700 938,950 100,225 1,039,175 COMPUTER SERVICES (0.30%) Computer Sciences (1) 9,100 1,900 11,000 451,997 94,373 546,370 COMPUTERS (2.11%) Hewlett-Packard 42,900 8,400 51,300 800,514 156,744 957,258 International Business Machines 26,400 5,500 31,900 2,369,400 493,625 2,863,025 COMPUTERS-INTEGRATED SYSTEMS (0.98%) Dell (1) 38,600 6,700 45,300 1,353,316 234,902 1,588,218 NCR (1) 3,300 - 3,300 185,955 - 185,955 CONSULTING SERVICES (0.30%) Accenture (1) 18,606 3,726 22,332 450,451 90,207 540,658 CONSUMER PRODUCTS-MISCELLANEOUS (0.13%) American Greetings (1) 9,000 - 9,000 238,050 - 238,050 COSMETICS & TOILETRIES (3.50%) Avon Products 8,400 1,400 9,800 332,220 55,370 387,590 Gillette 48,127 10,354 58,481 1,996,308 429,484 2,425,792 Procter & Gamble 56,690 12,304 68,994 2,901,394 629,719 3,531,113 CRUISE LINES (0.24%) Carnival 5,900 500 6,400 298,304 25,280 323,584 Royal Caribbean Cruises 2,500 - 2,500 116,500 - 116,500 DATA PROCESSING & MANAGEMENT (0.53%) Axciom - - 1,400 1,400 - 35,000 35,000 First Data 18,600 4,000 22,600 767,808 165,120 932,928 DISTRIBUTION-WHOLESALE (0.23%) Tech Data (1) 9,400 800 10,200 379,666 32,312 411,978 DIVERSIFIED MANUFACTURING OPERATIONS (5.78%) 3M 11,500 3,000 14,500 892,055 232,710 1,124,765 General Electric 142,283 28,580 170,863 4,854,696 975,150 5,829,846 ITT Industries 6,900 1,700 8,600 559,866 137,938 697,804 Tyco International 75,900 15,100 91,000 2,364,285 470,365 2,834,650 DIVERSIFIED OPERATORS-COMMERCIAL SERVICES (0.72%) Cendant 52,500 11,000 63,500 1,080,975 226,490 1,307,465 E-COMMERCE-SERVICES (0.72%) eBay (1) 11,100 2,300 13,400 1,083,471 224,503 1,307,974 ELECTRIC PRODUCTS-MISCELLANEOUS (0.04%) Emerson Electric - - 1,200 1,200 - 76,860 76,860 ELECTRIC-INTEGRATED (1.45%) Alliant Energy - - 3,000 3,000 - 79,140 79,140 Dominion Resources 3,200 600 3,800 205,824 38,592 244,416 Edison International 28,900 6,400 35,300 881,450 195,200 1,076,650 Northeast Utilities 14,800 4,000 18,800 286,084 77,320 363,404 PG&E (1) 19,100 3,700 22,800 611,964 118,548 730,512 Sierra Pacific Resources (1) 11,400 2,600 14,000 109,440 24,960 134,400 ELECTRONIC COMPONENTS- SEMICONDUCTOR (2.29%) Freescale Semiconductor (1) (2) 28,500 8,800 37,300 442,890 136,752 579,642 Intel 97,668 21,753 119,421 2,174,090 484,222 2,658,312 Micron Technology (1) 19,900 6,000 25,900 242,382 73,080 315,462 Texas Instruments 20,500 4,300 24,800 501,225 105,135 606,360 ENTERPRISE SOFTWARE & SERVICE (0.20%) BMC Software (1) 13,200 6,400 19,600 249,744 121,088 370,832 FINANCE-AUTO LOANS (0.33%) AmeriCredit (1) 26,500 4,000 30,500 514,100 77,600 591,700 FINANCE-COMMERCIAL (0.47%) CIT Group 20,300 700 21,000 820,120 28,280 848,400 FINANCE-CREDIT CARD (0.20%) American Express 5,600 1,100 6,700 297,192 58,377 355,569 FINANCE-INVESTMENT BANKER & BROKER(4.42%) Bear Stearns - - 1,000 1,000 - 94,750 94,750 Citigroup 75,690 15,092 90,782 3,358,365 669,632 4,027,997 Lehman Brothers Holdings 13,300 2,800 16,100 1,092,595 230,020 1,322,615 Merrill Lynch 39,098 8,516 47,614 2,108,946 459,353 2,568,299 FINANCE-MORTGAGE LOAN/BANKER (1.91%) Countrywide Credit Industries 28,200 5,800 34,000 900,426 185,194 1,085,620 Federal Home Loan Mortgage 19,700 4,100 23,800 1,312,020 273,060 1,585,080 Federal National Mortgage Association 9,311 2,088 11,399 653,167 146,473 799,640 FINANCIAL GUARANTEE INSURANCE (0.63%) MBIA 16,400 3,200 19,600 948,904 185,152 1,134,056 FOOD-FLOUR & GRAIN (0.59%) Archer Daniels Midland 48,700 6,100 54,800 943,319 118,157 1,061,476 FOOD-MEAT PRODUCTS (0.43%) Tyson Foods 45,400 8,700 54,100 658,300 126,150 784,450 FOOD-MISCELLANEOUS/DIVERSIFIED (0.57%) Kraft Foods 25,500 5,300 30,800 849,405 176,543 1,025,948 FOOD-RETAIL (0.58%) Albertson's 38,300 8,200 46,500 873,623 187,042 1,060,665 FOOD-WHOLESALE & DISTRIBUTION (0.36%) Supervalu 19,000 3,100 22,100 560,310 91,419 651,729 GOLD MINING (0.07%) Newmont Mining 2,200 500 2,700 104,544 23,760 128,304 HEALTH CARE COST CONTAINMENT (0.46%) Caremark Rx (1) 22,900 4,700 27,600 686,313 140,859 827,172 HOTELS & MOTELS (0.06%) Choice Hotels International - - 2,300 2,300 - 114,770 114,770 INDEPENDENT POWER PRODUCER (0.32%) NRG Energy (1) 16,400 4,300 20,700 454,936 119,282 574,218 INDUSTRIAL GASES (0.33%) Air Products & Chemicals 9,400 1,900 11,300 499,892 101,042 600,934 INTERNET SECURITY (0.66%) Symantec (1) 17,300 3,600 20,900 985,062 204,984 1,190,046 INVESTMENT MANAGEMENT & ADVISORY SERVICES (0.31%) Franklin Resources 7,700 1,500 9,200 466,774 90,930 557,704 LEISURE & RECREATION PRODUCTS (0.01%) Brunswick - - 500 500 - 23,460 23,460 LIFE & HEALTH INSURANCE (0.03%) Lincoln National - - 1,300 1,300 - 56,940 56,940 LOTTERY SERVICES (0.14%) GTECH Holdings 9,100 1,700 10,800 215,397 40,239 255,636 MACHINERY-CONSTRUCTION & MINING (0.27%) Caterpillar 5,260 760 6,020 423,640 61,210 484,850 MACHINERY-FARM (0.01%) AGCO (1) - - 1,100 1,100 - 21,362 21,362 MACHINERY-GENERAL INDUSTRY (0.23%) Ingersoll-Rand 5,000 1,000 6,000 342,200 68,440 410,640 MACHINERY-PUMPS (0.10%) Graco 5,200 - 5,200 178,880 - 178,880 MEDICAL INFORMATION SYSTEM (0.02%) IMS Health - - 1,300 1,300 - 27,534 27,534 MEDICAL INSTRUMENTS (0.61%) Guidant 6,451 1,165 7,616 429,766 77,612 507,378 Medtronic 9,800 2,000 11,800 500,878 102,220 603,098 MEDICAL PRODUCTS (2.70%) Becton Dickinson 8,900 2,400 11,300 467,250 126,000 593,250 Johnson & Johnson 44,500 9,300 53,800 2,597,910 542,934 3,140,844 Zimmer Holdings (1) 12,700 2,300 15,000 985,393 178,457 1,163,850 MEDICAL-BIOMEDICAL/GENE (1.94%) Amgen (1) 11,626 2,346 13,972 660,357 133,253 793,610 Biogen Idec (1) 18,000 3,800 21,800 1,046,880 221,008 1,267,888 Genentech (1) 16,700 3,500 20,200 760,351 159,355 919,706 Genzyme (1) 8,900 1,500 10,400 466,983 78,705 545,688 MEDICAL-DRUGS (6.49%) Abbott Laboratories 17,333 3,771 21,104 738,906 160,758 899,664 Allergan 11,000 1,900 12,900 787,160 135,964 923,124 Elan (1) 1,500 300 1,800 38,700 7,740 46,440 Eli Lilly 12,233 7,849 20,082 2,006,027 430,988 2,437,015 Merck 14,200 4,000 18,200 444,602 125,240 569,842 Pfizer 157,850 32,845 190,695 4,569,757 950,863 5,520,620 Schering-Plough 32,200 6,800 39,000 583,142 123,148 706,290 Wyeth 13,732 3,134 16,866 544,474 124,263 668,737 MEDICAL-HMO (1.03%) Aetna 7,400 2,400 9,800 703,000 228,000 931,000 UnitedHealth Group 11,200 1,700 12,900 810,880 123,080 933,960 METAL-ALUMINUM (0.44%) Alcoa 20,281 4,302 24,583 659,133 139,815 798,948 METAL-DIVERSIFIED (0.52%) Rio Tinto 7,300 1,500 8,800 775,990 159,450 935,440 MISCELLANEOUS INVESTING (0.41%) Equity Office Properties Trust 21,800 4,600 26,400 613,016 129,352 742,368 MONEY CENTER BANKS (3.46%) Bank of America 101,418 21,274 122,692 4,542,512 952,863 5,495,375 JP Morgan Chase 17,160 3,020 20,180 662,376 116,572 778,948 MULTI-LINE INSURANCE (3.50%) American International Group 34,587 5,699 40,286 2,099,777 345,986 2,445,763 Loews 16,500 3,500 20,000 988,350 209,650 1,198,000 MetLife 29,500 5,800 35,300 1,131,325 222,430 1,353,755 Prudential Financial 24,000 5,000 29,000 1,115,280 232,350 1,347,630 MULTIMEDIA (3.74%) Time Warner (1) 172,219 36,175 208,394 2,865,724 601,952 3,467,676 Viacom 61,090 12,925 74,015 2,229,174 471,633 2,700,807 Walt Disney 17,900 6,400 24,300 451,438 161,408 612,846 NETWORKING PRODUCTS (1.20%) Cisco Systems (1) 93,219 19,921 113,140 1,790,737 382,682 2,173,419 NON-HAZARDOUS WASTE DISPOSAL (0.49%) Republic Services 9,700 1,300 11,000 298,760 40,040 338,800 Waste Management 15,200 4,100 19,300 432,896 116,768 549,664 OIL & GAS DRILLING (0.29%) GlobalSantaFe 13,900 3,000 16,900 410,050 88,500 498,550 Transocean Sedco Forex (1) - - 600 600 - 21,150 21,150 OIL COMPANY-EXPLORATION & PRODUCTION (1.62%) Anadarko Petroleum 27,800 5,100 32,900 1,875,110 343,995 2,219,105 Apache 4,800 2,000 6,800 243,360 101,400 344,760 Devon Energy 1,500 2,800 4,300 110,955 207,116 318,071 EOG Resources - - 800 800 - 53,248 53,248 OIL COMPANY-INTEGRATED (4.78%) ChevronTexaco 14,600 3,000 17,600 774,676 159,180 933,856 ConocoPhillips 23,300 5,100 28,400 1,964,423 429,981 2,394,404 Exxon Mobil 73,291 14,758 88,049 3,607,383 726,389 4,333,772 Occidental Petroleum 16,600 1,600 18,200 926,778 89,328 1,016,106 OIL FIELD MACHINERY & EQUIPMENT (0.05%) FMC Technologies (1) 3,100 - 3,100 93,713 - 93,713 OIL REFINING & MARKETING (0.53%) Sunoco 2,800 1,000 3,800 208,208 74,360 282,568 Valero Energy 16,000 - 16,000 687,520 - 687,520 OIL-FIELD SERVICES (0.36%) Schlumberger 8,619 1,747 10,366 542,480 109,956 652,436 PAPER & RELATED PRODUCTS (0.63%) International Paper 10,146 2,214 12,360 390,722 85,261 475,983 Louisiana-Pacific 23,100 3,800 26,900 566,181 93,138 659,319 PHOTO EQUIPMENT & SUPPLIES (0.54%) Eastman Kodak 28,900 3,500 32,400 875,092 105,980 981,072 POULTRY (0.05%) Pilgrims Pride - - 3,200 3,200 - 86,528 86,528 PROPERTY & CASUALTY INSURANCE (0.35%) St. Paul 15,003 3,768 18,771 509,502 127,961 637,463 REGIONAL BANKS (2.86%) Comerica 2,200 400 2,600 135,322 24,604 159,926 National City 3,200 1,100 4,300 124,704 42,867 167,571 U.S. Bancorp 40,200 9,400 49,600 1,150,122 268,934 1,419,056 Wachovia 30,900 6,500 37,400 1,520,589 319,865 1,840,454 Wells Fargo 23,500 3,400 26,900 1,403,420 203,048 1,606,468 RETAIL-APPAREL & SHOE (0.15%) Gap 11,400 2,400 13,800 227,772 47,952 275,724 RETAIL-AUTOMOBILE (0.34%) AutoNation (1) 31,800 4,000 35,800 547,914 68,920 616,834 RETAIL-BUILDING PRODUCTS (0.67%) Home Depot 2,700 3,100 5,800 110,916 127,348 238,264 Lowe's 14,600 2,800 17,400 821,688 157,584 979,272 RETAIL-CONSUMER ELECTRONICS (0.14%) Circuit City Stores 13,300 2,600 15,900 216,125 42,250 258,375 RETAIL-DISCOUNT (2.48%) Costco Wholesale 9,100 2,200 11,300 436,254 105,468 541,722 Kmart Holding (1) (2) 9,300 1,900 11,200 855,972 174,876 1,030,848 Target 6,400 1,300 7,700 320,128 65,026 385,154 Wal-Mart Stores 38,570 8,493 47,063 2,079,694 457,943 2,537,637 RETAIL-OFFICE SUPPLIES (0.08%) Staples 4,300 - 4,300 127,882 - 127,882 RETAIL-REGIONAL DEPARTMENT STORE (0.52%) Federated Department Stores 18,100 700 18,800 913,145 35,315 948,460 RETAIL-TOY STORE (0.39%) Toys R Us (1) 33,500 5,700 39,200 603,335 102,657 705,992 SAVINGS & LOANS-THRIFTS (0.01%) Golden West Financial - - 200 200 - 23,384 23,384 SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (0.16%) Analog Devices 6,200 1,200 7,400 249,612 48,312 297,924 SEMICONDUCTOR EQUIPMENT (0.31%) Applied Materials (1) 29,100 6,300 35,400 468,510 101,430 569,940 STEEL PRODUCERS (0.49%) Nucor 16,800 4,000 20,800 709,464 168,920 878,384 TELECOMMUNICATION EQUIPMENT (1.01%) Qualcomm 36,200 7,600 43,800 1,513,522 317,756 1,831,278 TELECOMMUNICATION EQUIPMENT-FIBER OPTICS (0.17%) Corning (1) 21,600 4,600 26,200 247,320 52,670 299,990 TELEPHONE-INTEGRATED (3.02%) BellSouth 49,000 9,600 58,600 1,306,830 256,032 1,562,862 CenturyTel 26,100 - 26,100 837,549 - 837,549 SBC Communications 12,700 6,700 19,400 320,802 169,242 490,044 Sprint 74,600 15,500 90,100 1,562,870 324,725 1,887,595 Telephone & Data Systems 1,300 - 1,300 97,370 - 97,370 Verizon Communications 9,800 5,700 15,500 383,180 222,870 606,050 TELEVISION (0.13%) Hearst-Argyle Television 7,700 1,300 9,000 200,662 33,878 234,540 THERAPEUTICS (0.22%) ImClone Systems (1) (2) 8,300 1,000 9,300 363,540 43,800 407,340 TOBACCO (0.82%) Altria Group 5,700 1,100 6,800 276,222 53,306 329,528 Reynolds American 13,500 2,500 16,000 929,610 172,150 1,101,760 UST - - 1,300 1,300 - 53,508 53,508 TOOLS-HAND HELD (0.04%) Black & Decker - - 800 800 - 64,224 64,224 TRANSPORT-RAIL (0.78%) Burlington Northern Santa Fe 13,300 700 14,000 556,073 29,267 585,340 CSX 18,000 3,900 21,900 657,000 142,350 799,350 - - 1,100 1,100 Norfolk Southern 37,345 37,345 TRANSPORT-SERVICES (0.49%) FedEx 6,945 1,357 8,302 632,828 123,650 756,478 United Parcel Service 1,400 300 1,700 110,852 23,754 134,606 TRANSPORT-TRUCK (0.17%) J.B. Hunt Transport Services 3,300 4,300 7,600 134,838 175,698 310,536 WEB PORTALS (0.44%) Yahoo (1) 17,600 4,400 22,000 636,944 159,236 796,180 WIRELESS EQUIPMENT (1.10%) Motorola 95,500 20,000 115,500 1,648,330 345,200 1,993,530 ----------------------------------------------- TOTAL COMMON STOCKS 148,857,126 31,197,018 180,054,144 REPURCHASE AGREEMENTS (0.95%) Goldman Sachs; 1.75%; dated 10/29/04 maturing 11/01/04 (collateralized by U.S. Treasuries; $1,741,957; 11/18/04 - 01/15/12) (3) 1,727,252 - 1,727,252 1,727,000 - 1,727,000 ----------------------------------------------- TOTAL REPURCHASE AGREEMENTS 1,727,000 - 1,727,000 ----------------------------------------------- TOTAL PORTFOLIO INVESTMENTS (100.23%) 150,584,126 31,197,018 181,781,144 Liabilities, net of cash, receivables, and other assets (-0.23%) (881,241) 463,928 (417,313) ----------------------------------------------- TOTAL NET ASSETS (100.00%) $ 149,702,885 $31,660,946 181,363,831 =============================================== (1) Non-income producing security. (2) Security or a portion of the security was on loan at the end of the period. (3) Security was purchased with the cash proceeds from securities loans.
UNREALIZED APPRECIATION (DEPRECIATION) The net federal income tax unrealized appreciation (depreciation) and federal tax cost of investments held by the fund as of the period end were as follows: Unrealized Appreciation $17,860,096 $ 3,215,612 $ 21,075,708 Unrealized Depreciation (14,368,644) (1,105,629) (15,474,273) -------------------------------------------- Net Unrealized Appreciation (Depreciation) 3,491,452 2,109,983 5,601,435 Cost for federal income tax purposes $147,092,674 29,087,035 176,179,709
- ------------------------------------------------------------------------------------------------------------------------------------ Opening Current Unrealized Contract Type Commitment Market Value Market Value Gain(Loss) - ------------------------------------------------------------------------------------------------------------------------------------ FUTURES CONTRACTS Principal Partners Blue Chip 10 S&P 500 eMini December 2004 Futures Buy $560,758 $565,150 $4,392 Fund, Inc. Partners LargeCap Blend Fund I 4 S&P 500 eMini December 2004 Futures Buy 223,483 226,060 2,577 - ------------------------------------------------------------------------------------------------------------------------------------ 14 S&P 500 eMini December 2004 Futures $784,241 $791,210 $6,969
INVESTMENTS BY SECTOR (UNAUDITED) Percentage of Total Value Sector Value - ----------------------------------------------------------------------------------------------------------------------------------- 23.79% 23.64% 23.77% Consumer, Non-cyclical $ 35,963,178 $ 7,429,557 $ 43,392,735 Financial 19.25 17.73 18.99 29,092,292 5,570,469 34,662,761 Communications 13.01 13.77 13.14 19,657,800 4,328,218 23,986,018 Industrial 11.52 11.59 11.53 17,409,142 3,642,613 21,051,755 Technology 11.34 11.57 11.38 17,137,102 3,634,237 20,771,339 Energy 7.57 7.65 7.58 11,444,656 2,404,603 13,849,259 Consumer, Cyclical 7.03 6.7 6.97 10,626,848 2,105,699 12,732,547 Basic Materials 3.13 3.21 3.15 4,738,223 1,009,047 5,747,270 Utilities 1.69 2.08 1.75 2,549,698 653,042 3,202,740 Government 1.30 1.34 1.31 1,965,187 419,533 2,384,720 Futures Contracts 0.37 0.72 0.43 565,150 226,060 791,210 ---------------------------------------------- TOTAL $151,149,276 $31,423,078 $182,572,354 ============================================== Percentages are adjusted to reflect the impact of currency contracts, futures contracts, and swap agreements, if applicable. See accompanying notes. As of October 31, 204, all securities held by the Acquired Fund would comply with the investment restrictions of the Acquiring Fund.
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004 (UNAUDITED) -------------------------------------------------------------------------------
COMBINED PRINCIPAL PARTNERS PARTNERS PARTNERS LARGECAP LARGECAP PRO FORMA LARGECAP BLEND FUND, INC. BLEND FUND ADJUSTMENTS/(C)/ BLEND FUND - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- INVESTMENT IN SECURITIES--AT COST.. $ 57,265,706 $556,425,167 $ -- $613,690,873 ============ ============ ========= ============ ASSETS Investment in securities--at value. $ 60,364,359 $582,151,087 $ -- $642,515,446 Cash.................. 1,045,488 7,716,631 -- 8,762,119 Receivables: Capital Shares sold.. 15,513 299,442 -- 314,955 Dividends and interest............ 56,422 544,468 -- 600,890 Investment securities sold................ 400,005 3,839,058 -- 4,239,063 Variation margin on futures contracts... 945 9,450 -- 10,395 Other assets.......... 66 -- -- 66 Prepaid expenses...... 33 -- -- 33 ------------ ------------ --------- ------------ Total Assets 61,882,831 594,560,136 -- 656,442,967 LIABILITIES Accrued management and investment advisory fees................. 8,736 84,019 -- 92,755 Accrued administrative service fees......... -- 2,318 -- 2,318 Accrued distribution fees................. 5,422 6,516 -- 11,938 Accrued service fees.. -- 2,888 -- 2,888 Accrued transfer and administrative fees.. 35,537 14,816 -- 50,353 Accrued other expenses 28,978 7,060 -- 36,038 Payables: Capital Shares reacquired.......... 21,571 16,516 -- 38,087 Investment securities purchased........... 135,087 1,254,221 -- 1,389,308 Reorganization costs. -- -- 29,375 29,375 ------------ ------------ --------- ------------ Total Liabilities 235,331 1,388,354 29,375 1,653,060 ------------ ------------ --------- ------------ NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 61,647,500 $593,171,782 $ (29,375) $654,789,907 ============ ============ ========= ============ NET ASSETS CONSIST OF: Capital Shares and additional paid-in-capital...... $ 56,555,777 $531,589,364 $ -- $588,145,141 Accumulated undistributed (overdistributed) net investment income (operating loss)..... -- 2,953,047 (29,375) 2,923,672 Accumulated undistributed (overdistributed) net realized gain (loss). 1,986,970 32,859,376 -- 34,846,346 Net unrealized appreciation (depreciation) of investments.......... 3,104,753 25,769,995 -- 28,874,748 ------------ ------------ --------- ------------ Total Net Assets $ 61,647,500 $593,171,782 $ (29,375) $654,789,907 ============ ============ ========= ============ CAPITAL STOCK (PAR VALUE: $.01 A SHARE): Shares authorized..... 100,000,000 290,000,000 -- 290,000,000 NET ASSET VALUE PER SHARE: Advisors Preferred: Net Assets........... N/A $ 23,025,673 N/A $ 23,025,673 Shares issued and outstanding.......... 2,279,337 2,279,337 Net asset value per share................ $ 10.10 $ 10.10 ============ ============ Advisors Select: Net Assets............... N/A $ 22,390,274 N/A $ 22,390,274 Shares issued and outstanding.......... 2,224,860 2,224,860 Net asset value per share................ $ 10.06 $ 10.06 ============ ============ Class A: Net Assets... $ 43,209,784 N/A $ (20,203) $ 43,189,581 Shares issued and outstanding.......... 4,368,684 (109,356) 4,259,328 Net asset value per share................ $ 9.89 -- $ 10.14 Maximum offering price per share /(a)/ $ 10.49 -- $ 10.76 ============ == ============ Class B: Net Assets... $ 18,437,716 N/A $ (9,172) $ 18,428,544 Shares issued and outstanding.......... 1,917,403 (99,992) 1,817,411 Net asset value per share /(b)/.......... $ 9.62 -- $ 10.14 ============ == ============ Class J: Net Assets... N/A $ 43,662,259 N/A $ 43,662,259 Shares issued and outstanding.......... 4,386,721 4,386,721 Net asset value per share /(b)/.......... $ 9.95 $ 9.95 ============ ============ Institutional: Net Assets............... N/A $464,034,476 N/A $464,034,476 Shares issued and outstanding.......... 45,741,745 45,741,745 Net asset value per share................ $ 10.14 $ 10.14 ============ ============ Preferred: Net Assets. N/A $ 34,283,220 N/A $ 34,283,220 Shares issued and outstanding.......... 3,389,896 3,389,896 Net asset value per share................ $ 10.11 $ 10.11 ============ ============ Select: Net Assets.... N/A $ 5,775,880 N/A $ 5,775,880 Shares issued and outstanding.......... 569,540 569,540 Net asset value per share................ $ 10.14 $ 10.14 ============ ============
/(a) /Maximum offering price equals net asset value plus a front-end sales charge of 5.75% of the offering price or 6.10% of the net asset value. /(b) /Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. /(c) /Reduction in net assets to reflect the estimated expenses of the Reorganization. See accompanying notes. 1 STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2004 (UNAUDITED) ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
COMBINED PRINCIPAL PARTNERS PARTNERS PARTNERS LARGECAP LARGECAP PRO FORMA LARGECAP BLEND FUND, INC. BLEND FUND ADJUSTMENTS BLEND FUND - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- NET INVESTMENT INCOME (OPERATING LOSS) Income: Dividends............ $ 882,046 $ 8,013,624 $ -- $ 8,895,670 Interest............. 1,288 13,787 -- 15,075 ---------- ----------- -------- ----------- Total Income 883,334 8,027,411 -- 8,910,745 Expenses: Management and investment advisory fees................ 417,573 3,816,625 (18,539)/(A)/ 4,215,659 Distribution fees - Advisors Preferred.. -- 46,318 -- 46,318 Distribution fees - Advisors Select..... -- 47,202 -- 47,202 Distribution fees - Class A............. 96,860 -- -- 96,860 Distribution fees - Class B............. 157,652 -- -- 157,652 Distribution fees - Class J............. -- 163,536 -- 163,536 Distribution fees - Select.............. -- 3,943 -- 3,943 Administrative service fees - Advisors Preferred.. -- 27,791 -- 27,791 Administrative service fees - Advisors Select..... -- 31,468 -- 31,468 Administrative service fees - Preferred........... -- 32,865 -- 32,865 Administrative service fees - Select.............. -- 5,126 -- 5,126 Registration fees - Class A............. 8,084 -- -- 8,084 Registration fees - Class B............. 9,374 -- -- 9,374 Registration fees - Class J............. -- 14,083 -- 14,083 Service fees - Advisors Preferred.. -- 31,496 -- 31,496 Service fees - Advisors Select..... -- 39,335 -- 39,335 Service fees - Preferred........... -- 44,816 -- 44,816 Service fees - Select -- 5,914 -- 5,914 Shareholder reports - Class A............. 6,395 -- -- 6,395 Shareholder reports - Class B............. 2,909 -- -- 2,909 Shareholder reports - Class J............. -- 7,514 -- 7,514 Transfer and administrative fees - Class A........... 40,192 -- -- 40,192 Transfer and administrative fees - Class B........... 18,438 -- -- 18,438 Transfer and administrative fees - Class J........... -- 78,428 -- 78,428 Auditing and legal fees................ 6,616 -- (6,616)/(B)/ -- Custodian fees....... 16,787 -- (16,787)/(B)/ -- Directors' expenses.. 1,879 -- (1,879)/(B)/ -- Registration fees.... 24,294 -- -- 24,294 Transfer and administrative fees. 161,416 -- 1,030/(B)/ 162,446 Other expenses....... 2,969 -- (2,969)/(B)/ -- Other expenses - Class J............. -- 201 -- 201 ---------- ----------- -------- ----------- Total Gross Expenses 971,438 4,396,661 (45,760) 5,322,339 Less: Fees paid indirectly.......... 6,291 124,607 -- 130,898 Less: Reimbursement from Manager - Class A................... 14,404 -- (14,404)/(C)/ -- Less: Reimbursement from Manager - Class B................... 3,315 -- (3,315)/(C)/ -- ---------- ----------- -------- ----------- Total Net Expenses 947,428 4,272,054 (28,041) 5,191,441 ---------- ----------- -------- ----------- Net Investment Income (Operating Loss) (64,094) 3,755,357 28,041 3,719,304 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gain (loss) from: Investment transactions........ 4,200,025 41,932,634 -- 46,132,659 Futures contracts.... (1,520) (9,297) -- (10,817) Change in unrealized appreciation/depreciation of: Investments........... 40,615 (8,973,438) -- (8,932,823) Futures contracts..... 6,100 44,075 -- 50,175 ---------- ----------- -------- ----------- Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies 4,245,220 32,993,974 -- 37,239,194 ---------- ----------- -------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations $4,181,126 $36,749,331 $ 28,041 $40,958,498 ========== =========== ======== ===========
/(a) /Management and investment advisory fees decreased to reflect annual percentage rate of the Acquiring Fund. /(b) /Elimination of expenses due to expense structure of Acquiring Fund. Eliminated expenses are not paid by the Acquiring Fund. /(c) /Elimination of Manager's voluntary reimbursement. Total operating expenses are below expense limit. See accompanying notes. 29
SCHEDULE OF INVESTMENTS October 31, 2004 (unaudited) Principal Amount or Number of Shares Market Value - ---------------------------------------------------------------------------------------------------------------------------------- Principal Principal Partners Partners Partners Partners LargeCap LargeCap LargeCap LargeCap Blend Blend Blend Blend Fund, Inc. Fund Combined Fund, Inc. Fund Combined - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (97.81%) AEROSPACE & DEFENSE (0.56%) 3,000 32,000 Boeing $ 149,700 $ 1,447,100 $1,596,800 29,000 1,900 19,400 Raytheon 69,312 707,712 17,500 638,400 3,600 39,000 Rockwell Collins 127,692 1,383,330 35,400 1,255,638 AEROSPACE & DEFENSE EQUIPMENT (1.09%) 1,500 15,700 General Dynamics 153,180 1,603,284 14,200 1,450,104 5,400 53,500 Lockheed Martin 297,486 2,947,315 48,100 2,649,829 2,400 28,100 United Technologies 222,768 2,608,242 25,700 2,385,474 AGRICULTURAL CHEMICALS (0.54%) 5,200 75,400 Agrium 86,268 1,250,886 70,200 1,164,618 3,700 40,000 Mosaic (1) 55,648 601,600 36,300 545,952 2,300 25,100 Potash Corp. of Saskatchewan 153,617 1,676,429 22,800 1,522,812 AIRLINES (0.11%) 4,500 46,200 Southwest Airlines 70,965 728,574 41,700 657,609 APPLIANCES (0.18%) 1,600 17,500 Maytag 27,840 304,500 15,900 276,660 1,400 15,300 Whirlpool 82,250 898,875 13,900 816,625 APPLICATIONS SOFTWARE (3.45%) 2,500 27,100 Intuit (1) 113,400 1,229,256 24,600 1,115,856 900 8,900 Mercury Interactive (1) 39,087 386,527 8,000 347,440 66,100 709,600 Microsoft 1,850,139 19,861,704 643,500 18,011,565 7,800 71,400 Red Hat (1) 100,152 916,776 63,600 816,624 2,100 21,000 Siebel Systems (1) 19,950 199,500 18,900 179,550 AUDIO & VIDEO PRODUCTS (0.06%) 2,000 23,300 Digital Theater Systems (1) 34,020 396,333 21,300 362,313 AUTO-CARS & LIGHT TRUCKS (0.30%) 4,700 50,400 General Motors 181,185 1,942,920 45,700 1,761,735 AUTO-MEDIUM & HEAVY DUTY TRUCKS (0.15%) 1,300 14,500 Paccar 90,103 1,004,995 13,200 914,892 AUTO/TRUCK PARTS & EQUIPMENT- ORIGINAL (0.25%) 1,200 12,200 Lear 64,704 657,824 11,000 593,120 6,000 51,700 TRW Automotive Holdings (1) 110,160 949,212 45,700 839,052 BEVERAGES-NON-ALCOHOLIC (2.10%) 15,700 165,400 Coca-Cola 638,362 6,725,164 149,700 6,086,802 4,000 41,900 Cott (1) 105,040 1,100,294 37,900 995,254 11,300 119,700 Pepsico 560,254 5,934,726 108,400 5,374,472 BREWERY (0.26%) 3,200 33,800 Anheuser-Busch 159,840 1,688,310 30,600 1,528,470 BROADCASTING SERVICES & PROGRAMMING (0.25%) 16,800 182,800 Liberty Media (1) 149,856 1,630,576 166,000 1,480,720 CABLE TV (0.10%) 2,700 28,600 Rogers Communications 62,208 658,944 25,900 596,736 CASINO HOTELS (0.07%) 900 8,800 Station Casinos 45,855 448,360 7,900 402,505 CASINO SERVICES (0.27%) 4,700 52,400 International Game Technology 155,288 1,731,296 47,700 1,576,008 CELLULAR TELECOMMUNICATIONS (0.48%) 8,100 85,400 Nextel Communications (1) 214,569 2,262,246 77,300 2,047,677 4,600 50,300 Nextel Partners (1) 77,464 847,052 45,700 769,588 CHEMICALS-DIVERSIFIED (0.63%) 7,200 75,500 Dow Chemical 323,568 3,392,970 68,300 3,069,402 1,600 17,200 E. I. Du Pont de Nemours 68,592 737,364 15,600 668,772 CHEMICALS-SPECIALTY (0.36%) 1,600 16,000 Cabot 54,528 545,280 14,400 490,752 1,500 15,800 Ferro 31,605 332,906 14,300 301,301 600 13,000 Great Lakes Chemical 15,372 333,060 12,400 317,688 4,100 41,400 Millennium Chemicals (1) 88,068 889,272 37,300 801,204 400 4,600 Minerals Technologies 24,040 276,460 4,200 252,420 CIRCUIT BOARDS (0.16%) 4,000 44,300 Jabil Circuit (1) 97,240 1,076,933 40,300 979,693 COMMERCIAL BANKS (0.39%) 2,800 29,900 First Horizon National 121,184 1,294,072 27,100 1,172,888 4,400 46,800 Synovus Financial 119,636 1,272,492 42,400 1,152,856 COMMERCIAL SERVICE-FINANCE (0.11%) 900 9,200 Moody's 70,029 715,852 8,300 645,823 COMPUTERS (1.45%) 4,000 44,100 Gateway (1) 23,400 257,985 40,100 234,585 11,900 124,700 Hewlett-Packard 222,054 2,326,902 112,800 2,104,848 7,400 77,200 International Business Machines 664,150 6,928,700 69,800 6,264,550 COMPUTERS-INTEGRATED SYSTEMS (1.47%) 26,000 275,000 Dell (1) 911,560 9,641,500 249,000 8,729,940 COMPUTERS-MEMORY DEVICES (0.07%) 2,000 21,900 Veritas Software (1) 43,760 479,172 19,900 435,412 COMPUTERS-PERIPHERAL EQUIPMENT (0.17%) 1,200 13,300 Lexmark International (1) 99,732 1,105,363 12,100 1,005,631 CONSULTING SERVICES (0.32%) 2,700 28,900 Accenture (1) 65,367 699,669 26,200 634,302 4,100 43,800 Advisory Board (1) 133,578 1,427,004 39,700 1,293,426 CONSUMER PRODUCTS-MISCELLANEOUS (0.30%) 1,700 23,200 Clorox 92,820 1,266,720 21,500 1,173,900 900 9,300 Fortune Brands 65,538 677,226 8,400 611,688 COSMETICS & TOILETRIES (2.36%) 3,000 32,000 Colgate-Palmolive 133,860 1,427,840 29,000 1,293,980 5,700 60,200 Gillette 236,436 2,497,096 54,500 2,260,660 2,500 26,700 Kimberly-Clark 149,175 1,593,189 24,200 1,444,014 18,400 194,700 Procter & Gamble 941,712 9,964,746 176,300 9,023,034 CRUISE LINES (0.46%) 4,300 47,200 Carnival 217,408 2,386,432 42,900 2,169,024 1,400 14,000 Royal Caribbean Cruises 65,240 652,400 12,600 587,160 DATA PROCESSING & MANAGEMENT (0.82%) 6,100 65,200 Automatic Data Processing 264,679 2,829,028 59,100 2,564,349 4,800 46,700 First Data 198,144 1,927,776 41,900 1,729,632 1,600 16,600 Fiserv (1) 56,864 589,964 15,000 533,100 DECISION SUPPORT SOFTWARE (0.14%) 5,900 73,000 NetIQ (1) 74,812 925,640 67,100 850,828 DISPOSABLE MEDICAL PRODUCTS (0.09%) 1,200 10,000 C.R. Bard 68,160 568,000 8,800 499,840 DISTRIBUTION-WHOLESALE (0.21%) 2,300 21,900 CDW 142,669 1,358,457 19,600 1,215,788 DIVERSIFIED MANUFACTURING OPERATIONS (6.38%) 3,000 32,000 Danaher 165,390 1,764,160 29,000 1,598,770 75,500 808,500 General Electric 2,576,060 27,586,020 733,000 25,009,960 9,700 101,000 Honeywell International 326,696 3,401,680 91,300 3,074,984 500 5,400 Illinois Tool Works 46,140 498,312 4,900 452,172 500 5,100 ITT Industries 40,570 413,814 4,600 373,244 1,000 7,100 Roper Industries 61,660 437,786 6,100 376,126 23,100 247,400 Tyco International 719,565 7,706,510 224,300 6,986,945 DIVERSIFIED MINERALS (0.20%) 5,700 62,400 BHP Billiton 117,819 1,289,808 56,700 1,171,989 DIVERSIFIED OPERATORS-COMMERCIAL SERVICES (0.19%) 5,700 60,900 Cendant 117,363 1,253,931 55,200 1,136,568 E-COMMERCE-SERVICES (0.95%) 4,200 40,900 eBay (1) 409,962 3,992,249 36,700 3,582,287 7,000 73,900 InterActiveCorp (1) 151,340 1,597,718 66,900 1,446,378 1,300 21,500 Monster Worldwide (1) 36,465 603,075 20,200 566,610 ELECTRIC-INTEGRATED (3.13%) 3,200 21,500 American Electric Power 105,376 707,995 18,300 602,619 2,000 20,900 CMS Energy (1) 18,720 195,624 18,900 176,904 1,200 19,900 Constellation Energy Group 48,744 808,338 18,700 759,594 10,700 112,100 Duke Energy 262,471 2,749,813 101,400 2,487,342 3,200 32,900 Edison International 97,600 1,003,450 29,700 905,850 2,800 48,900 El Paso Electric (1) 46,620 814,185 46,100 767,565 1,600 16,900 Entergy 104,576 1,104,584 15,300 1,000,008 4,200 44,500 Exelon 166,404 1,763,090 40,300 1,596,686 5,000 58,000 FirstEnergy 206,650 2,397,140 53,000 2,190,490 4,000 42,300 NiSource 85,800 907,335 38,300 821,535 3,400 45,200 PG&E (1) 108,936 1,448,208 41,800 1,339,272 2,700 26,800 Pinnacle West Capital 115,074 1,142,216 24,100 1,027,142 3,100 29,900 PPL 161,200 1,554,800 26,800 1,393,600 2,100 21,700 Southern 66,339 685,503 19,600 619,164 3,700 39,400 TECO Energy 51,800 551,600 35,700 499,800 3,700 43,300 TXU 226,514 2,650,826 39,600 2,424,312 ELECTRONIC COMPONENTS-SEMICONDUCTOR (2.21%) 38,200 410,300 Intel 850,332 9,133,278 372,100 8,282,946 4,500 49,000 QLogic (1) 146,250 1,592,500 44,500 1,446,250 8,100 88,900 Texas Instruments 198,045 2,173,605 80,800 1,975,560 4,800 51,200 Xilinx 146,880 1,566,720 46,400 1,419,840 ENTERPRISE SOFTWARE & SERVICE (0.73%) 34,000 375,700 Oracle (1) 430,440 4,756,362 341,700 4,325,922 FIDUCIARY BANKS (0.81%) 3,700 40,200 Investors Financial Services 142,413 1,547,298 36,500 1,404,885 8,200 84,000 State Street 369,410 3,784,200 75,800 3,414,790 FILTRATION & SEPARATION PRODUCTS (0.15%) 2,400 37,100 Pall 62,064 959,406 34,700 897,342 FINANCE-COMMERCIAL (0.17%) 4,700 49,800 CapitalSource (1) 105,280 1,115,520 45,100 1,010,240 FINANCE-CONSUMER LOANS (0.25%) 3,300 35,800 SLM 149,358 1,620,308 32,500 1,470,950 FINANCE-CREDIT CARD (0.82%) 7,500 78,600 American Express 398,025 4,171,302 71,100 3,773,277 4,400 47,000 MBNA 112,772 1,204,610 42,600 1,091,838 FINANCE-INVESTMENT BANKER & BROKER (4.09%) 8,600 94,800 Charles Schwab 78,690 867,420 86,200 788,730 29,300 310,500 Citigroup 1,300,041 13,776,885 281,200 12,476,844 3,000 29,600 Goldman Sachs Group 295,140 2,912,048 26,600 2,616,908 750 5,850 Legg Mason 47,782 372,703 5,100 324,921 1,900 20,200 Lehman Brothers Holdings 156,085 1,659,430 18,300 1,503,345 6,300 68,900 Merrill Lynch 339,822 3,716,466 62,600 3,376,644 6,600 67,900 Morgan Stanley 337,194 3,469,011 61,300 3,131,817 FINANCE-MORTGAGE LOAN/BANKER (1.05%) 2,100 21,900 Countrywide Credit Industries 67,053 699,267 19,800 632,214 4,100 43,800 Federal Home Loan Mortgage 273,060 2,917,080 39,700 2,644,020 4,600 46,500 Federal National Mortgage Association 322,690 3,261,975 41,900 2,939,285 FINANCIAL GUARANTEE INSURANCE (0.32%) 1,500 15,500 MGIC Investment 96,465 996,805 14,000 900,340 2,400 22,300 Radian Group 115,032 1,068,839 19,900 953,807 FOOD-CONFECTIONERY (0.17%) 1,400 21,400 Hershey Foods 70,966 1,084,766 20,000 1,013,800 FOOD-MISCELLANEOUS/DIVERSIFIED (0.67%) 3,900 43,200 Campbell Soup 104,676 1,159,488 39,300 1,054,812 3,500 36,900 General Mills 154,875 1,632,825 33,400 1,477,950 800 10,300 H.J. Heinz 29,080 374,405 9,500 345,325 2,100 28,000 Kellogg 90,300 1,204,000 25,900 1,113,700 FOOD-WHOLESALE & DISTRIBUTION (0.23%) 4,300 46,200 Sysco 138,761 1,490,874 41,900 1,352,113 GAS-DISTRIBUTION (0.04%) 700 7,700 Sempra Energy 23,478 258,258 7,000 234,780 GOLD MINING (0.55%) 7,100 75,300 Newmont Mining 337,392 3,578,256 68,200 3,240,864 HEALTH CARE COST CONTAINMENT (0.13%) 2,800 27,300 Caremark Rx (1) 83,916 818,181 24,500 734,265 HOME DECORATION PRODUCTS (0.16%) 4,600 49,700 Newell Rubbermaid 99,176 1,071,532 45,100 972,356 HOTELS & MOTELS (0.18%) 800 8,600 Fairmont Hotels & Resorts 22,704 244,068 7,800 221,364 1,600 17,000 Marriott International 87,184 926,330 15,400 839,146 HUMAN RESOURCES (0.17%) 1,100 11,200 Manpower 49,775 506,800 10,100 457,025 1,500 23,300 Robert Half International 39,795 618,149 21,800 578,354 INSURANCE BROKERS (0.44%) 9,800 104,200 Marsh & McLennan 271,068 2,882,172 94,400 2,611,104 INTERNET APPLICATION SOFTWARE (0.18%) 7,500 76,000 MatrixOne (1) 42,750 433,200 68,500 390,450 5,400 58,100 Verity (1) 69,768 750,652 52,700 680,884 INTERNET BROKERS (0.48%) 22,400 241,600 Ameritrade Holding (1) 291,648 3,145,632 219,200 2,853,984 INTERNET CONTENT-INFORMATION & NEWS (0.09%) 7,200 76,100 CNET Networks (1) 58,824 621,737 68,900 562,913 INVESTMENT MANAGEMENT & ADVISORY SERVICES (0.19%) 2,000 20,400 Franklin Resources 121,240 1,236,648 18,400 1,115,408 LEISURE & RECREATION PRODUCTS (0.23%) 2,200 22,700 Brunswick 103,224 1,065,084 20,500 961,860 2,300 15,900 WMS Industries (1) 67,275 465,075 13,600 397,800 LIFE & HEALTH INSURANCE (0.15%) 3,500 40,700 Genworth Financial 83,510 971,102 37,200 887,592 MACHINERY-FARM (0.33%) 3,400 36,100 Deere 203,252 2,158,058 32,700 1,954,806 MEDICAL INSTRUMENTS (1.41%) 1,800 16,400 Biomet 84,024 765,552 14,600 681,528 5,200 53,200 Boston Scientific (1) 183,560 1,877,960 48,000 1,694,400 2,200 25,200 Guidant 146,564 1,678,824 23,000 1,532,260 7,700 75,900 Medtronic 393,547 3,879,249 68,200 3,485,702 1,300 13,400 St. Jude Medical (1) 99,541 1,026,038 12,100 926,497 MEDICAL LABORATORY & TESTING SERVICE (0.13%) 1,700 18,800 Laboratory Corp. of America Holdings (1) 77,860 861,040 17,100 783,180 MEDICAL PRODUCTS (2.34%) 3,600 35,400 Baxter International 110,736 1,088,904 31,800 978,168 1,300 19,200 Becton Dickinson 68,250 1,008,000 17,900 939,750 17,600 188,000 Johnson & Johnson 1,027,488 10,975,440 170,400 9,947,952 2,700 24,700 Stryker 116,343 1,064,323 22,000 947,980 1,500 15,400 Zimmer Holdings (1) 116,385 1,194,886 13,900 1,078,501 MEDICAL-BIOMEDICAL/GENE (1.17%) 8,700 89,700 Amgen (1) 494,160 5,094,960 81,000 4,600,800 2,800 23,600 Biogen Idec (1) 162,848 1,372,576 20,800 1,209,728 1,300 14,200 Chiron (1) 42,146 460,364 12,900 418,218 1,200 16,600 Genentech (1) 54,636 755,798 15,400 701,162 MEDICAL-DRUGS (4.79%) 8,000 80,300 Abbott Laboratories 341,040 3,423,189 72,300 3,082,149 600 6,400 Cephalon (1) 28,602 305,088 5,800 276,486 7,200 75,200 Eli Lilly 395,352 4,129,232 68,000 3,733,880 2,800 30,400 Forest Laboratories (1) 124,880 1,355,840 27,600 1,230,960 1,300 13,300 Medimmune (1) 36,946 377,986 12,000 341,040 12,000 127,800 Merck 375,720 4,001,418 115,800 3,625,698 42,800 461,000 Pfizer 1,239,060 13,345,950 418,200 12,106,890 3,300 33,400 Schering-Plough 59,763 604,874 30,100 545,111 8,800 96,200 Wyeth 348,920 3,814,330 87,400 3,465,410 MEDICAL-GENERIC DRUGS (0.08%) 1,100 18,900 Watson Pharmaceutical (1) 30,833 529,767 17,800 498,934 MEDICAL-HMO (0.91%) 1,300 14,000 Anthem (1) 104,520 1,125,600 12,700 1,021,080 6,100 66,900 UnitedHealth Group 441,640 4,843,560 60,800 4,401,920 MEDICAL-HOSPITALS (0.14%) 2,800 24,500 HCA 102,844 899,885 21,700 797,041 MEDICAL-WHOLESALE DRUG DISTRIBUTION (0.30%) 900 11,100 AmerisourceBergen 49,536 610,944 10,200 561,408 2,900 29,600 Cardinal Health 135,575 1,383,800 26,700 1,248,225 METAL-ALUMINUM (0.31%) 5,000 61,700 Alcoa 162,500 2,005,250 56,700 1,842,750 METAL-DIVERSIFIED (0.06%) 1,100 11,400 Freeport-McMoran Copper & Gold 39,842 412,908 10,300 373,066 MISCELLANEOUS INVESTING (0.35%) 2,600 26,900 Duke-Weeks Realty 88,660 917,290 24,300 828,630 1,000 11,500 Simon Property Group 58,320 670,680 10,500 612,360 3,400 34,700 United Dominion Realty Trust 71,672 731,476 31,300 659,804 MONEY CENTER BANKS (3.08%) 18,242 198,670 Bank of America 817,059 8,898,429 180,428 8,081,370 27,588 291,828 JP Morgan Chase 1,064,897 11,264,561 264,240 10,199,664 MOTORCYCLE & MOTOR SCOOTER (0.06%) 600 6,500 Harley-Davidson 34,542 374,205 5,900 339,663 MULTI-LINE INSURANCE (2.42%) 16,400 170,700 American International Group 995,644 10,363,197 154,300 9,367,553 3,400 36,400 Hartford Financial Services Group 198,832 2,128,672 33,000 1,929,840 4,300 44,000 Prudential Financial 199,821 2,044,680 39,700 1,844,859 2,600 28,700 Safeco 120,224 1,327,088 26,100 1,206,864 MULTIMEDIA (2.21%) 800 7,800 E.W. Scripps 38,176 372,216 7,000 334,040 1,900 19,700 Gannett 157,605 1,634,115 17,800 1,476,510 1,100 13,800 McGraw-Hill 94,875 1,190,250 12,700 1,095,375 400 4,300 Meredith 19,600 210,700 3,900 191,100 37,100 370,800 Time Warner (1) 617,344 6,170,112 333,700 5,552,768 11,900 123,300 Viacom 434,231 4,499,217 111,400 4,064,986 1,300 14,900 Walt Disney 32,786 375,778 13,600 342,992 NETWORKING PRODUCTS (1.48%) 39,400 429,800 Cisco Systems (1) 756,874 8,256,458 390,400 7,499,584 3,300 35,200 Emulex (1) 34,683 369,952 31,900 335,269 2,100 22,000 Juniper Networks (1) 55,881 585,420 19,900 529,539 18,000 127,200 Lucent Technologies (1) 63,900 451,560 109,200 387,660 NON-HAZARDOUS WASTE DISPOSAL (0.11%) 100 1,000 Republic Services 3,080 30,800 900 27,720 2,200 23,400 Waste Management 62,656 666,432 21,200 603,776 OFFICE AUTOMATION & EQUIPMENT (0.09%) 1,300 14,100 Pitney Bowes 56,875 616,875 12,800 560,000 OIL & GAS DRILLING (0.31%) 500 5,500 Nabors Industries (1) 24,560 270,160 5,000 245,600 3,800 49,300 Transocean Sedco Forex (1) 133,950 1,737,825 45,500 1,603,875 OIL COMPANY-EXPLORATION & PRODUCTION (0.57%) 1,500 20,600 Anadarko Petroleum 101,175 1,389,470 19,100 1,288,295 500 5,500 Devon Energy 36,985 406,835 5,000 369,850 700 7,400 EOG Resources 46,592 492,544 6,700 445,952 1,800 18,200 Murphy Oil 144,036 1,456,364 16,400 1,312,328 OIL COMPANY-INTEGRATED (5.37%) 14,000 148,800 ChevronTexaco 742,840 7,895,328 134,800 7,152,488 4,900 50,100 ConocoPhillips 413,119 4,223,931 45,200 3,810,812 39,800 428,300 Exxon Mobil 1,958,956 21,080,926 388,500 19,121,970 1,100 10,900 Occidental Petroleum 61,413 608,547 9,800 547,134 1,300 12,900 TotalFinaElf 135,564 1,345,212 11,600 1,209,648 OIL FIELD MACHINERY & EQUIPMENT (0.20%) 1,700 19,800 FMC Technologies (1) 51,391 598,554 18,100 547,163 3,200 36,100 Grant Prideco (1) 65,792 742,216 32,900 676,424 OIL-FIELD SERVICES (0.72%) 2,600 26,200 Baker Hughes 111,358 1,122,146 23,600 1,010,788 900 6,500 BJ Services 45,900 331,500 5,600 285,600 4,900 51,500 Schlumberger 308,406 3,241,410 46,600 2,933,004 OPTICAL SUPPLIES (0.03%) 300 3,000 Bausch & Lomb 18,288 182,880 2,700 164,592 PAPER & RELATED PRODUCTS (0.69%) 700 14,200 Bowater 25,788 523,128 13,500 497,340 3,800 40,700 International Paper 146,338 1,567,357 36,900 1,421,019 2,200 33,600 MeadWestvaco 69,366 1,059,408 31,400 990,042 1,900 18,400 Potlatch 89,471 866,456 16,500 776,985 800 8,300 Weyerhaeuser 50,112 519,912 7,500 469,800 PHARMACY SERVICES (0.09%) 800 16,700 Medco Health Solutions (1) 27,128 566,297 15,900 539,169 PIPELINES (0.08%) 6,800 74,500 Dynegy (1) 33,524 367,285 67,700 333,761 1,100 11,600 Williams 13,761 145,116 10,500 131,355 PROPERTY & CASUALTY INSURANCE (1.30%) 1,200 12,900 Progressive 112,260 1,206,795 11,700 1,094,535 15,302 161,371 St. Paul 519,656 5,480,159 146,069 4,960,503 2,300 25,300 XL Capital 166,750 1,834,250 23,000 1,667,500 PUBLISHING-NEWSPAPERS (0.20%) 1,700 16,800 New York Times 68,085 672,840 15,100 604,755 100 700 Washington Post 91,500 640,500 600 549,000 REGIONAL BANKS (3.80%) 10,100 111,800 Comerica 621,251 6,876,818 101,700 6,255,567 1,700 18,800 SunTrust Banks 119,646 1,323,144 17,100 1,203,498 30,300 322,900 U.S. Bancorp 866,883 9,238,169 292,600 8,371,286 6,800 77,500 Wachovia 334,628 3,813,775 70,700 3,479,147 6,000 61,100 Wells Fargo 358,320 3,648,892 55,100 3,290,572 REINSURANCE (0.15%) 3,700 39,700 AXIS Capital Holdings 92,722 994,882 36,000 902,160 RETAIL-APPAREL & SHOE (0.68%) 3,200 33,400 Abercrombie & Fitch 125,376 1,308,612 30,200 1,183,236 3,100 32,900 Christopher & Banks 50,375 534,625 29,800 484,250 5,400 59,400 Hot Topic (1) 111,024 1,221,264 54,000 1,110,240 4,700 52,400 Ross Stores 123,469 1,376,548 47,700 1,253,079 RETAIL-AUTO PARTS (0.10%) 1,500 15,100 O'Reilly Automotive (1) 64,590 650,206 13,600 585,616 RETAIL-BUILDING PRODUCTS (1.26%) 12,900 134,700 Home Depot 529,932 5,533,476 121,800 5,003,544 4,900 48,700 Lowe's 275,772 2,740,836 43,800 2,465,064 RETAIL-CONSUMER ELECTRONICS (0.21%) 2,200 23,600 Best Buy 130,284 1,397,592 21,400 1,267,308 RETAIL-DISCOUNT (3.23%) 2,100 22,200 Dollar Tree Stores (1) 60,690 641,580 20,100 580,890 5,300 57,700 Family Dollar Stores 156,615 1,705,035 52,400 1,548,420 9,900 103,100 Target 495,198 5,157,062 93,200 4,661,864 3,700 42,400 TJX 88,726 1,016,752 38,700 928,026 22,200 234,400 Wal-Mart Stores 1,197,024 12,638,848 212,200 11,441,824 RETAIL-DRUG STORE (0.69%) 2,600 34,400 CVS 112,996 1,495,024 31,800 1,382,028 7,300 84,200 Walgreen 261,997 3,021,938 76,900 2,759,941 RETAIL-OFFICE SUPPLIES (0.11%) 2,500 25,100 Staples 74,350 746,474 22,600 672,124 RETAIL-PET FOOD & SUPPLIES (0.04%) 800 8,100 PETsMART 25,584 259,038 7,300 233,454 RETAIL-REGIONAL DEPARTMENT STORE (0.40%) 5,100 52,100 Kohl's (1) 258,876 2,644,596 47,000 2,385,720 RETAIL-RESTAURANTS (0.92%) 5,100 56,300 McDonald's 148,665 1,641,145 51,200 1,492,480 3,500 31,600 Panera Bread (1) 122,255 1,103,788 28,100 981,533 3,400 36,300 RARE Hospitality International (1) 94,214 1,005,873 32,900 911,659 2,100 23,300 Starbucks (1) 111,048 1,232,104 21,200 1,121,056 1,600 23,300 Yum! Brands 69,600 1,013,550 21,700 943,950 SATELLITE TELECOM (0.23%) 4,400 47,900 EchoStar Communications (1) 139,128 1,514,598 43,500 1,375,470 SCHOOLS (0.13%) 1,000 12,800 Apollo Group (1) 66,000 844,800 11,800 778,800 SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (0.66%) 3,800 35,800 Analog Devices 152,988 1,441,308 32,000 1,288,320 3,200 35,500 Linear Technology 121,216 1,344,740 32,300 1,223,524 3,200 34,600 Maxim Integrated Products 140,768 1,522,054 31,400 1,381,286 SEMICONDUCTOR EQUIPMENT (0.50%) 9,900 105,400 Applied Materials (1) 159,390 1,696,940 95,500 1,537,550 2,100 22,700 Kla-Tencor (1) 95,613 1,033,531 20,600 937,918 1,900 20,800 Novellus Systems (1) 49,229 538,928 18,900 489,699 STEEL PRODUCERS (0.40%) 5,800 62,200 Nucor 244,934 2,626,706 56,400 2,381,772 TELECOMMUNICATION EQUIPMENT (0.71%) 900 9,300 Andrew (1) 12,582 130,014 8,400 117,432 1,100 11,200 Comverse Technology (1) 22,704 231,168 10,100 208,464 9,600 102,200 Qualcomm 401,376 4,272,982 92,600 3,871,606 TELECOMMUNICATION EQUIPMENT-FIBER OPTICS (0.18%) 10,000 103,800 Corning (1) 114,500 1,188,510 93,800 1,074,010 TELEPHONE-INTEGRATED (2.69%) 21,900 232,100 SBC Communications 553,194 5,862,846 210,200 5,309,652 16,800 168,900 Sprint 351,960 3,538,455 152,100 3,186,495 19,900 210,100 Verizon Communications 778,090 8,214,910 190,200 7,436,820 THERAPEUTICS (0.21%) 3,800 38,800 Gilead Sciences (1) 131,594 1,343,644 35,000 1,212,050 TOBACCO (1.22%) 16,200 165,000 Altria Group 785,052 7,995,900 148,800 7,210,848 TOYS (0.14%) 4,200 42,900 Hasbro 74,298 758,901 38,700 684,603 1,000 10,700 Mattel 17,510 187,357 9,700 169,847 TRANSPORT-RAIL (0.50%) 4,600 49,400 CSX 167,900 1,803,100 44,800 1,635,200 2,100 23,000 Union Pacific 132,237 1,448,310 20,900 1,316,073 TRANSPORT-SERVICES (0.95%) 7,400 78,700 United Parcel Service 585,932 6,231,466 71,300 5,645,534 WEB PORTALS (0.65%) 700 6,600 Google (1) 133,494 1,258,654 5,900 1,125,160 8,000 82,500 Yahoo (1) 289,520 2,985,675 74,500 2,696,155 WIRELESS EQUIPMENT (0.48%) 14,500 149,300 Motorola 250,270 2,576,918 134,800 2,326,648 1,000 10,600 Spectrasite (1) 51,300 543,780 9,600 492,480 TOTAL COMMON STOCKS 60,173,007 580,291,015 640,464,022 PREFERRED STOCKS (0.23%) MULTIMEDIA (0.23%) 4,500 47,800 News 141,480 1,361,352 1,502,832 43,300 TOTAL PREFERRED STOCKS 141,480 1,361,352 1,502,832 TREASURY BONDS (0.08%) U.S. Treasury (2) 50,000 550,000 1.67%; 12/23/04 49,872 548,592 500,000 498,720 TOTAL TREASURY BONDS 49,872 548,592 498,720 TOTAL PORTFOLIO INVESTMENTS (98.12%) 60,364,359 582,151,087 642,515,446 Cash, receivables and other assets, net of liabilities (1.88%) 1,283,141 11,020,695 12,303,836 TOTAL NET ASSETS (100.00%) $61,647,500 $ 593,171,782 $ 654,819,282 =============================================== (1) Non-income producing security. (2) Security or a portion of the security was pledged to cover margin requirements for futures contracts.
UNREALIZED APPRECIATION (DEPRECIATION) The net federal income tax unrealized appreciation (depreciation) and federal tax cost of investments held by the fund as of the period end were as follows: Unrealized Appreciation $ 5,718,091 $ 49,969,383 $ 55,687,474 Unrealized Depreciation (2,630,539) (25,398,733) (28,029,272) Net Unrealized Appreciation (Depreciation) 3,087,552 24,570,650 27,658,202 Cost for federal income tax purposes $57,276,807 $ 557,580,437 $ 614,857,244
Opening Current Unrealized Contract Type Commitment Market Value Market Value Gain (Loss) FUTURES CONTRACTS Principal Partners LargeCap Blend 7 S&P 500 eMini December 2004 Futures Buy $ 389,505 $ 395,605 $ 6,100 Fund, Inc. Partners LargeCap Blend Fund 14 S&P 500 December 2004 Futures Buy $3,911,975 $ 3,956,050 $ 44,075
INVESTMENTS BY SECTOR (UNAUDITED) Percentage of Total Value Sector Value - ---------------------------------------------------------------------------------------------------------------------- 20.28% 20.29% 20.29% Consumer, Non-cyclical $ 12,321,059 $ 118,897,094 $ 131,218,153 19.63 19.56 19.56 Financial 11,926,093 126,547,187 114,621,094 11.96 11.96 11.96 Technology 7,264,592 77,392,586 70,127,994 11.43 11.15 11.17 Communications 6,943,661 72,277,957 65,334,296 10.67 10.6 10.61 Consumer, Cyclical 6,482,260 68,638,696 62,156,436 10.32 10.37 10.36 Industrial 6,270,580 67,029,470 60,758,890 7.29 7.34 7.34 Energy 4,429,322 47,455,369 43,026,047 3.59 3.8 3.79 Basic Materials 2,184,868 24,485,416 22,300,548 3.12 3.22 3.21 Utilities 1,896,302 20,742,965 18,846,663 1.06 1.04 1.04 Government 645,622 6,727,647 6,082,025 0.65 0.67 0.67 Futures Contracts 395,605 4,351,655 3,956,050 TOTAL $ 60,759,964 $ 586,107,137 $ 646,867,101 ===================================================== Percentages are adjusted to reflect the impact of currency contracts, futures contracts, and swap agreements, if applicable. See accompanying notes. As of October 31, 2004, all securities held by the Acquired Fund would comply with the investment restrictions of the Acquiring Fund.
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004 (UNAUDITED) -------------------------------------------------------------------------------
PRINCIPAL COMBINED LARGECAP LARGECAP LARGECAP STOCK INDEX S&P 500 PRO FORMA S&P 500 FUND, INC. INDEX FUND ADJUSTMENTS/(D)/ INDEX FUND - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Investment in affiliated securities--at cost.. $ 54,798 $ 490,837 $ -- $ 545,635 Investment in securities--at cost.. 71,579,926 488,596,162 -- 560,176,088 ------------ ------------ --------- ------------ TOTAL INVESTMENTS--AT COST ................ $ 71,634,724 $489,086,999 $ -- $560,721,723 ============ ============ ========= ============ ASSETS Investment in affiliated securities--at value. $ 71,140 $ 560,472 $ -- $ 631,612 Investment in securities--at value. 67,148,994/(c)/ 518,733,704 -- 585,882,698/(c)/ Cash.................. 17,950 100,480 -- 118,430 Receivables: Capital Shares sold.. 17,007 1,482,859 -- 1,499,866 Dividends and interest............ 73,921 686,967 -- 760,888 Expense reimbursement from Manager........ 239 -- -- 239 Investment securities sold................ 39,542 225,955 -- 265,497 Variation margin on futures contracts.... 4,725 43,875 -- 48,600 Other assets.......... 308 -- -- 308 Prepaid expenses...... 39 -- -- 39 ------------ ------------ --------- ------------ Total Assets 67,373,865 521,834,312 -- 589,208,177 LIABILITIES Accrued management and investment advisory fees................. 4,374 14,723 -- 19,097 Accrued administrative service fees......... -- 7,236 -- 7,236 Accrued distribution fees................. 2,693 30,585 -- 33,278 Accrued service fees.. -- 9,006 -- 9,006 Accrued transfer and administrative fees.. 38,162 94,846 -- 133,008 Accrued other expenses 30,516 21,471 -- 51,987 Payables: Capital Shares reacquired.......... 25,146 231,143 -- 256,289 Investment securities purchased........... -- 326,720 -- 326,720 Reorganization costs. -- -- 25,137 25,137 Collateral obligation on securities loaned, at value............. 1,130,000 -- -- 1,130,000 ------------ ------------ --------- ------------ Total Liabilities 1,230,891 735,730 25,137 1,991,758 ------------ ------------ --------- ------------ NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 66,142,974 $521,098,582 $ (25,137) $587,216,419 ============ ============ ========= ============ NET ASSETS CONSIST OF: Capital Shares and additional paid-in-capital...... $ 72,729,385 $454,205,405 $ -- $526,934,790 Accumulated undistributed (overdistributed) net investment income (operating loss)..... 354,642 5,673,190 (25,137) 6,002,695 Accumulated undistributed (overdistributed) net realized gain (loss). (2,533,588) 30,852,795 -- 28,319,207 Net unrealized appreciation (depreciation) of investments.......... (4,407,465) 30,367,192 -- 25,959,727 ------------ ------------ --------- ------------ Total Net Assets $ 66,142,974 $521,098,582 $ (25,137) $587,216,419 ============ ============ ========= ============ CAPITAL STOCK (PAR VALUE: $.01 A SHARE): Shares authorized..... 100,000,000 278,000,000 -- 278,000,000 NET ASSET VALUE PER SHARE: Advisors Preferred: Net Assets........... N/A $ 91,854,400 N/A $ 91,854,400 Shares issued and outstanding.......... 10,559,987 10,559,987 Net asset value per share................ $ 8.70 $ 8.70 ============ ============ Advisors Select: Net Assets............... N/A $ 50,013,468 N/A $ 50,013,468 Shares issued and outstanding.......... 5,755,211 5,755,211 Net asset value per share................ $ 8.69 $ 8.69 ============ ============ Class A: Net Assets... $ 53,384,398 N/A $ (25,137) $ 53,359,261 Shares issued and outstanding.......... 6,363,291 (208,820) 6,154,471 Net asset value per share................ $ 8.39 -- $ 8.67 Maximum offering price per share /(a)/ $ 8.52 -- $ 8.80 ============ == ============ Class B: Net Assets... $ 12,758,576 N/A -- $ 12,758,576 Shares issued and outstanding.......... 1,521,918 (50,111) 1,471,807 Net asset value per share /(b)/.......... $ 8.38 -- $ 8.67 ============ == ============ Class J: Net Assets... N/A $247,010,310 N/A $247,010,310 Shares issued and outstanding.......... 28,646,150 28,646,150 Net asset value per share /(b)/.......... $ 8.62 $ 8.62 ============ ============ Institutional: Net Assets............... N/A $ 10,203 N/A $ 10,203 Shares issued and outstanding.......... 1,177 1,177 Net asset value per share................ $ 8.67 $ 8.67 ============ ============ Preferred: Net Assets. N/A $122,210,003 N/A $122,210,003 Shares issued and outstanding.......... 13,960,517 13,960,517 Net asset value per share................ $ 8.75 $ 8.75 ============ ============ Select: Net Assets.... N/A $ 10,000,198 N/A $ 10,000,198 Shares issued and outstanding.......... 1,147,016 1,147,016 Net asset value per share................ $ 8.72 $ 8.72 ============ ============
/(a) /Maximum offering price equals net asset value plus a front-end sales charge of 1.50% of the offering price or 1.52% of the net asset value. /(b) /Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. /(c) /Includes fair market value of securities loaned, see "Securities Lending" in Notes to Financial Statements. /(d) /Reduction in net assets to reflect the estimated expenses of the Reorganization. See accompanying notes. 1 STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2004 (UNAUDITED) ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
PRINCIPAL COMBINED LARGECAP LARGECAP LARGECAP STOCK INDEX S&P 500 PRO FORMA S&P 500 FUND, INC. INDEX FUND ADJUSTMENTS INDEX FUND - --------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- NET INVESTMENT INCOME (OPERATING LOSS) Income: Dividends from affiliates.......... $ 713 $ 5,817 $ -- $ 6,530 Dividends............ 1,010,972 9,809,424 -- 10,820,396 Interest............. 24,346 276,642 -- 300,988 Securities lending... 933 -- -- 933 ---------- ----------- --------- ----------- Total Income 1,036,964 10,091,883 -- 11,128,847 Expenses: Management and investment advisory fees................ 216,322 899,740 (123,692)/(A)/ 992,370 Distribution fees - Advisors Preferred.. -- 174,854 -- 174,854 Distribution fees - Advisors Select..... -- 105,244 -- 105,244 Distribution fees - Class A............. 75,010 -- -- 75,010 Distribution fees - Class B............. 54,092 -- -- 54,092 Distribution fees - Class J............. -- 1,037,666 -- 1,037,666 Distribution fees - Select.............. -- 7,360 -- 7,360 Administrative service fees - Advisors Preferred.. -- 104,914 -- 104,914 Administrative service fees - Advisors Select..... -- 70,163 -- 70,163 Administrative service fees - Preferred........... -- 120,801 -- 120,801 Administrative service fees - Select.............. -- 9,569 -- 9,569 Registration fees - Class A............. 11,499 -- -- 11,499 Registration fees - Class B............. 11,750 -- -- 11,750 Registration fees - Class J............. -- 29,472 -- 29,472 Service fees - Advisors Preferred.. -- 118,901 -- 118,901 Service fees - Advisors Select..... -- 87,703 -- 87,703 Service fees - Preferred........... -- 164,728 -- 164,728 Service fees - Select -- 11,041 -- 11,041 Shareholder reports - Class A............. 8,419 -- -- 8,419 Shareholder reports - Class B............. 2,468 -- -- 2,468 Shareholder reports - Class J............. -- 51,654 -- 51,654 Transfer and administrative fees - Class A........... 52,281 -- -- 52,281 Transfer and administrative fees - Class B........... 14,758 -- -- 14,758 Transfer and administrative fees - Class J........... -- 436,669 -- 436,669 Auditing and legal fees................ 7,803 -- (7,803)/(B)/ -- Custodian fees....... 22,326 -- (22,326)/(B)/ -- Directors' expenses.. 1,971 -- (1,971)/(B)/ -- Registration fees.... 20,825 -- -- 20,825 Transfer and administrative fees. 170,697 -- 1,129/(B)/ 171,826 Other expenses....... 4,023 -- (4,023)/(B)/ -- Other expenses - Class J............. -- 1 -- 1 ---------- ----------- --------- ----------- Total Gross Expenses. 674,244 3,430,480 (158,686) 3,946,038 Less: Reimbursement from Manager - Class A................... 56,476 -- (56,476)/(C)/ -- Less: Reimbursement from Manager - Class B................... 20,337 -- (20,337)/(C)/ -- ---------- ----------- --------- ----------- Total Net Expenses 597,431 3,430,480 (81,873) 3,946,038 ---------- ----------- --------- ----------- Net Investment Income (Operating Loss) 439,533 6,661,403 81,873 7,182,809 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gain (loss) from: Investment transactions........ 72,450 32,655,099 -- 32,727,549 Investment transactions in affiliates.......... 60 54,896 -- 54,956 Futures contracts.... 118,071 (767,802) -- (649,731) Change in unrealized appreciation/depreciation of: Investments........... 3,742,706 (1,386,829) -- 2,355,877 Investments in affiliates........... 11,205 44,977 -- 56,182 Futures contracts..... (30,450) (100,992) -- (131,442) ---------- ----------- --------- ----------- Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies 3,914,042 30,499,349 -- 34,413,391 ---------- ----------- --------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations $4,353,575 $37,160,752 $ 81,873 $41,596,200 ========== =========== ========= ===========
/(a) /Management and investment advisory fees decreased to reflect annual percentage rate of the Acquiring Fund. /(b) /Elimination of expenses due to expense structure of Acquiring Fund. Eliminated expenses are not paid by the Acquiring Fund. /(c) /Elimination of Manager's voluntary reimbursement. Total operating expenses are below expense limit. See accompanying notes. 25
SCHEDULE OF INVESTMENTS October 31, 2004 (unaudited) Principal Amount or Number of Shares Market Value - ------------------------------------------------------------------------------------------------------------------------------------ Principal LargeCap Principal LargeCap LargeCap S&P 500 LargeCap S&P 500 Stock Index Index Stock Index Index Fund, Inc. Fund Combined Fund, Inc. Fund Combined - ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS (96.20%) ADVERTISING AGENCIES (0.18%) 2,539 19,992 22,531 Interpublic Group (1) $31,128 $245,102 $276,230 1,125 8,868 9,993 Omnicom Group 88,763 699,685 788,448 AEROSPACE & DEFENSE (0.76%) 5,047 39,756 44,803 Boeing 251,845 1,983,824 2,235,669 2,156 16,979 19,135 Northrop Grumman 111,573 878,663 990,236 2,712 21,363 24,075 Raytheon 98,934 779,322 878,256 1,065 8,384 9,449 Rockwell Collins 37,776 297,381 335,157 AEROSPACE & DEFENSE EQUIPMENT (0.87%) 1,203 9,468 10,671 General Dynamics 122,850 966,872 1,089,722 717 5,622 6,339 Goodrich 22,105 173,326 195,431 2,674 21,070 23,744 Lockheed Martin 147,311 1,160,746 1,308,057 3,076 24,231 27,307 United Technologies 285,514 2,249,122 2,534,636 AGRICULTURAL OPERATIONS (0.10%) 1,606 12,646 14,252 Monsanto 68,657 540,616 609,273 AIRLINES (0.12%) 758 5,948 6,706 Delta Air Lines (1) (2) 4,131 32,417 36,548 4,751 37,424 42,175 Southwest Airlines 74,923 590,176 665,099 APPAREL MANUFACTURERS (0.21%) 1,132 8,912 10,044 Coach (1) 52,785 415,567 468,352 749 5,905 6,654 Jones Apparel Group 26,440 208,446 234,886 647 5,101 5,748 Liz Claiborne 26,449 208,529 234,978 664 5,221 5,885 VF 35,743 281,046 316,789 APPLIANCES (0.05%) 475 3,737 4,212 Maytag (2) 8,265 65,024 73,289 399 3,145 3,544 Whirlpool 23,441 184,769 208,210 APPLICATIONS SOFTWARE (2.99%) 1,018 8,010 9,028 Citrix Systems (1) 24,564 193,281 217,845 2,322 18,290 20,612 Compuware (1) 13,444 105,899 119,343 1,152 9,071 10,223 Intuit (1) 52,255 411,461 463,716 562 4,411 4,973 Mercury Interactive (1) 24,408 191,570 215,978 65,364 514,953 580,317 Microsoft 1,829,538 14,413,534 16,243,072 1,634 12,746 14,380 Parametric Technology (1) 8,480 66,152 74,632 3,039 23,941 26,980 Siebel Systems (1) 28,871 227,439 256,310 ATHLETIC FOOTWEAR (0.21%) 1,584 12,472 14,056 Nike 128,795 1,014,098 1,142,893 355 2,801 3,156 Reebok International 13,135 103,637 116,772 AUTO-CARS & LIGHT TRUCKS (0.41%) 11,001 86,662 97,663 Ford Motor 143,343 1,129,206 1,272,549 3,395 26,747 30,142 General Motors 130,877 1,031,097 1,161,974 AUTO-MEDIUM & HEAVY DUTY TRUCKS (0.13%) 420 3,305 3,725 Navistar International (1) 14,511 114,188 128,699 1,043 8,220 9,263 Paccar 72,290 569,728 642,018 AUTO/TRUCK PARTS & EQUIPMENT- ORIGINAL (0.07%) 899 7,072 7,971 Dana 13,404 105,444 118,848 3,374 26,579 29,953 Delphi Automotive Systems 28,375 223,529 251,904 790 6,136 6,926 Visteon 5,617 43,627 49,244 BEVERAGES-NON-ALCOHOLIC (1.80%) 14,587 114,914 129,501 Coca-Cola 593,108 4,672,403 5,265,511 2,820 22,212 25,032 Coca-Cola Enterprises 58,966 464,453 523,419 1,528 12,046 13,574 Pepsi Bottling Group 42,845 337,770 380,615 10,183 80,232 90,415 Pepsico 504,873 3,977,903 4,482,776 BEVERAGES-WINE & SPIRITS (0.05%) 731 5,752 6,483 Brown-Forman 32,822 258,265 291,087 BREWERY (0.39%) 227 1,769 1,996 Adolph Coors 15,141 117,992 133,133 4,816 37,936 42,752 Anheuser-Busch 240,559 1,894,903 2,135,462 BROADCASTING SERVICES & PROGRAMMING (0.18%) 3,547 27,944 31,491 Clear Channel Communications 118,470 933,330 1,051,800 BUILDING & CONSTRUCTION PRODUCTS- MISCELLANEOUS (0.18%) 2,605 20,520 23,125 Masco 89,247 703,015 792,262 616 4,842 5,458 Vulcan Materials 30,665 241,035 271,700 BUILDING PRODUCTS-AIR & HEATING (0.07%) 1,286 10,130 11,416 American Standard (1) 47,029 370,454 417,483 BUILDING-MAINTENANCE & SERVICE (0.08%) 1,548 12,192 13,740 Ecolab 52,400 412,699 465,099 BUILDING-RESIDENTIAL & COMMERCIAL (0.16%) 743 5,852 6,595 Centex 38,591 303,953 342,544 278 2,192 2,470 KB Home 22,866 180,292 203,158 763 6,010 6,773 Pulte 41,873 329,829 371,702 CABLE TV (0.60%) 13,435 105,846 119,281 Comcast (1) 396,332 3,122,457 3,518,789 CASINO HOTELS (0.06%) 672 5,301 5,973 Harrah's Entertainment 39,325 310,215 349,540 CASINO SERVICES (0.10%) 2,071 16,322 18,393 International Game Technology 68,426 539,279 607,705 CELLULAR TELECOMMUNICATIONS (0.27%) 6,694 52,739 59,433 Nextel Communications (1) 177,324 1,397,056 1,574,380 CHEMICALS-DIVERSIFIED (0.96%) 5,648 44,493 50,141 Dow Chemical 253,821 1,999,515 2,253,336 6,000 47,261 53,261 E. I. Du Pont de Nemours 257,220 2,026,079 2,283,299 1,033 8,135 9,168 PPG Industries 65,854 518,606 584,460 1,350 10,625 11,975 Rohm & Haas 57,226 450,394 507,620 CHEMICALS-SPECIALTY (0.13%) 472 3,687 4,159 Eastman Chemical 22,406 175,022 197,428 748 5,890 6,638 Engelhard 21,168 166,687 187,855 309 2,405 2,714 Great Lakes Chemical 7,917 61,616 69,533 670 5,293 5,963 Hercules (1) 9,568 75,584 85,152 416 3,272 3,688 Sigma-Aldrich 23,146 182,054 205,200 CIRCUIT BOARDS (0.04%) 1,209 9,517 10,726 Jabil Circuit (1) 29,391 231,358 260,749 COATINGS & PAINT (0.06%) 856 6,742 7,598 Sherwin-Williams 36,568 288,018 324,586 COMMERCIAL BANKS (1.06%) 2,127 16,753 18,880 AmSouth Bancorp 56,131 442,112 498,243 3,333 26,258 29,591 BB&T 137,020 1,079,466 1,216,486 743 5,848 6,591 First Horizon National 32,157 253,101 285,258 704 5,545 6,249 M&T Bank 72,512 571,135 643,647 1,340 10,553 11,893 Marshall & Ilsley 56,240 442,909 499,149 1,873 14,755 16,628 North Fork Bancorp 82,599 650,696 733,295 2,778 21,885 24,663 Regions Financial 97,452 767,726 865,178 2,001 15,764 17,765 SouthTrust 87,184 686,837 774,021 1,858 14,653 16,511 Synovus Financial 50,519 398,415 448,934 539 4,239 4,778 Zions Bancorp 35,666 280,495 316,161 COMMERCIAL SERVICE-FINANCE (0.34%) 304 2,368 2,672 Deluxe 11,579 90,197 101,776 819 6,451 7,270 Equifax 21,417 168,694 190,111 991 7,808 8,799 H&R Block 47,122 371,271 418,393 889 7,009 7,898 Moody's 69,173 545,370 614,543 2,274 17,907 20,181 Paychex 74,574 587,242 661,816 COMMERCIAL SERVICES (0.02%) 857 6,750 7,607 Convergys (1) 11,150 87,818 98,968 COMPUTER AIDED DESIGN (0.05%) 683 5,375 6,058 Autodesk 36,028 283,531 319,559 COMPUTER SERVICES (0.35%) 769 6,060 6,829 Affiliated Computer Services (1) 41,949 330,573 372,522 1,135 8,937 10,072 Computer Sciences (1) 56,375 443,901 500,276 3,081 24,266 27,347 Electronic Data Systems 65,533 516,138 581,671 1,734 13,658 15,392 Sungard Data Systems (1) 45,934 361,800 407,734 2,014 15,858 17,872 Unisys (1) 21,389 168,412 189,801 COMPUTERS (2.22%) 2,331 18,373 20,704 Apple Computer (1) 122,447 965,134 1,087,581 2,241 17,651 19,892 Gateway (1) 13,110 103,258 116,368 18,154 143,028 161,182 Hewlett-Packard 338,754 2,668,903 3,007,657 10,071 79,340 89,411 International Business Machines 903,872 7,120,765 8,024,637 19,996 157,529 177,525 Sun Microsystems (1) 90,582 713,606 804,188 COMPUTERS-INTEGRATED SYSTEMS (0.84%) 15,008 118,244 133,252 Dell (1) 526,181 4,145,635 4,671,816 567 4,461 5,028 NCR (1) 31,950 251,377 283,327 COMPUTERS-MEMORY DEVICES (0.37%) 14,455 113,890 128,345 EMC (1) 186,036 1,465,765 1,651,801 2,603 20,498 23,101 Veritas Software (1) 56,953 448,496 505,449 COMPUTERS-PERIPHERAL EQUIPMENT (0.10%) 779 6,133 6,912 Lexmark International (1) 64,743 509,714 574,457 CONSUMER PRODUCTS-MISCELLANEOUS (0.20%) 1,282 10,089 11,371 Clorox 69,997 550,860 620,857 865 6,821 7,686 Fortune Brands 62,990 496,705 559,695 CONTAINERS-METAL & GLASS (0.04%) 676 5,321 5,997 Ball 26,939 212,042 238,981 CONTAINERS-PAPER & PLASTIC (0.10%) 643 5,063 5,706 Bemis 17,020 134,017 151,037 903 7,117 8,020 Pactiv (1) 21,392 168,602 189,994 505 3,976 4,481 Sealed Air (1) 25,018 196,971 221,989 COSMETICS & TOILETRIES (2.28%) 546 4,295 4,841 Alberto-Culver 24,494 192,674 217,168 2,844 22,395 25,239 Avon Products 112,480 885,722 998,202 3,193 25,152 28,345 Colgate-Palmolive 142,472 1,122,282 1,264,754 6,024 47,449 53,473 Gillette 249,875 1,968,185 2,218,060 567 4,462 5,029 International Flavors & Fragrances 22,141 174,241 196,382 2,972 23,420 26,392 Kimberly-Clark 177,339 1,397,471 1,574,810 15,282 120,404 135,686 Procter & Gamble 782,133 6,162,277 6,944,410 CRUISE LINES (0.29%) 3,806 29,983 33,789 Carnival 192,431 1,515,940 1,708,371 DATA PROCESSING & MANAGEMENT (0.62%) 3,511 27,666 31,177 Automatic Data Processing 152,342 1,200,428 1,352,770 5,154 40,611 45,765 First Data 212,757 1,676,422 1,889,179 1,174 9,248 10,422 Fiserv (1) 41,724 328,674 370,398 DISPOSABLE MEDICAL PRODUCTS (0.05%) 631 4,964 5,595 C.R. Bard 35,841 281,955 317,796 DISTRIBUTION-WHOLESALE (0.11%) 1,052 8,287 9,339 Genuine Parts 41,964 330,568 372,532 547 4,310 4,857 W.W. Grainger 32,049 252,523 284,572 DIVERSIFIED MANUFACTURING OPERATIONS (5.45%) 4,706 37,069 41,775 3M 365,044 2,875,442 3,240,486 569 4,484 5,053 Cooper Industries 36,359 286,528 322,887 355 2,794 3,149 Crane 9,894 77,869 87,763 1,853 14,599 16,452 Danaher 102,156 804,843 906,999 1,223 9,629 10,852 Dover 48,027 378,131 426,158 911 7,174 8,085 Eaton 58,258 458,777 517,035 63,473 500,060 563,533 General Electric (3) 2,165,699 17,062,047 19,227,746 5,168 40,710 45,878 Honeywell International 174,058 1,371,113 1,545,171 1,817 14,315 16,132 Illinois Tool Works 167,673 1,320,988 1,488,661 555 4,370 4,925 ITT Industries 45,033 354,582 399,615 833 6,564 7,397 Textron 56,769 447,336 504,105 12,077 95,140 107,217 Tyco International 376,199 2,963,611 3,339,810 DIVERSIFIED OPERATORS-COMMERCIAL SERVICES (0.20%) 6,346 49,999 56,345 Cendant 130,664 1,029,479 1,160,143 DRUG DELIVERY SYSTEMS (0.05%) 939 7,390 8,329 Hospira (1) 29,963 235,815 265,778 E-COMMERCE-SERVICES (0.62%) 3,974 31,306 35,280 eBay (1) 387,902 3,055,779 3,443,681 714 5,617 6,331 Monster Worldwide (1) 20,028 157,557 177,585 ELECTRIC PRODUCTS-MISCELLANEOUS (0.30%) 2,526 19,898 22,424 Emerson Electric 161,790 1,274,467 1,436,257 1,140 8,981 10,121 Molex 33,710 265,568 299,278 ELECTRIC-GENERATION (0.06%) 3,884 30,615 34,499 AES (1) 42,336 333,704 376,040 ELECTRIC-INTEGRATED (2.61%) 824 6,493 7,317 Allegheny Energy (1) (2) 15,087 118,887 133,974 1,168 9,201 10,369 Ameren 56,064 441,648 497,712 2,379 18,738 21,117 American Electric Power 78,340 617,042 695,382 1,850 14,565 16,415 CenterPoint Energy (2) 19,444 153,078 172,522 1,086 8,552 9,638 Cinergy 42,919 337,975 380,894 1,141 8,987 10,128 CMS Energy (1) 10,680 84,118 94,798 1,452 11,435 12,887 Consolidated Edison 63,089 496,851 559,940 1,054 8,309 9,363 Constellation Energy Group 42,814 337,512 380,326 1,986 15,639 17,625 Dominion Resources 127,740 1,005,901 1,133,641 1,044 8,227 9,271 DTE Energy 44,589 351,375 395,964 5,637 44,414 50,051 Duke Energy 138,276 1,089,475 1,227,751 1,959 15,430 17,389 Edison International 59,750 470,615 530,365 1,364 10,746 12,110 Entergy 89,151 702,359 791,510 3,969 31,265 35,234 Exelon 157,252 1,238,719 1,395,971 1,983 15,621 17,604 FirstEnergy 81,957 645,616 727,573 1,115 8,773 9,888 FPL Group 76,824 604,460 681,284 1,585 12,478 14,063 NiSource 33,998 267,653 301,651 2,410 18,987 21,397 PG&E (1) 77,216 608,343 685,559 549 4,324 4,873 Pinnacle West Capital 23,398 184,289 207,687 1,137 8,946 10,083 PPL 59,124 465,192 524,316 1,484 11,688 13,172 Progress Energy 61,289 482,714 544,003 1,426 11,235 12,661 Public Service Enterprise Group 60,733 478,499 539,232 4,438 34,961 39,399 Southern 140,196 1,104,418 1,244,614 1,195 9,414 10,609 TECO Energy 16,730 131,796 148,526 1,784 14,056 15,840 TXU 109,217 860,508 969,725 2,404 18,936 21,340 XCEL Energy 41,108 323,806 364,914 ELECTRICAL COMPONENTS & EQUIPMENT (0.01%) 510 3,970 4,480 Power-One (1) 3,580 27,869 31,449 ELECTRONIC COMPONENTS-MISCELLANEOUS (0.08% 3,133 24,682 27,815 Sanmina (1) 25,064 197,456 222,520 5,782 45,546 51,328 Solectron (1) 30,182 237,750 267,932 ELECTRONIC COMPONENTS- SEMICONDUCTOR (2.20%) 2,135 16,809 18,944 Advanced Micro Devices (1) 35,911 282,727 318,638 2,234 17,606 19,840 Altera (1) 50,779 400,184 450,963 1,901 14,830 16,731 Applied Micro Circuits (1) 6,920 53,981 60,901 1,936 15,253 17,189 Broadcom (1) 52,369 412,594 464,963 38,564 303,827 342,391 Intel 858,435 6,763,189 7,621,624 2,330 18,229 20,559 LSI Logic (1) 10,601 82,942 93,543 3,677 28,960 32,637 Micron Technology (1) (2) 44,786 352,733 397,519 2,154 16,959 19,113 National Semiconductor (1) 35,972 283,215 319,187 1,001 7,887 8,888 Nvidia (1) 14,484 114,125 128,609 1,065 8,380 9,445 PMC - Sierra (1) 10,927 85,979 96,906 555 4,374 4,929 QLogic (1) 18,037 142,155 160,192 10,407 81,987 92,394 Texas Instruments 254,451 2,004,582 2,259,033 2,087 16,438 18,525 Xilinx 63,862 503,003 566,865 ELECTRONIC FORMS (0.12%) 1,442 11,356 12,798 Adobe Systems 80,795 636,277 717,072 ELECTRONIC MEASUREMENT INSTRUMENTS (0.14%) 2,919 22,999 25,918 Agilent Technologies (1) 73,150 576,355 649,505 551 4,339 4,890 Tektronix 16,712 131,602 148,314 ENGINEERING-RESEARCH & DEVELOPMENT SERVICES (0.04%) 502 3,950 4,452 Fluor 23,313 183,438 206,751 ENGINES-INTERNAL COMBUSTION (0.03%) 266 2,097 2,363 Cummins Engine 18,641 146,958 165,599 ENTERPRISE SOFTWARE & SERVICE (0.88%) 1,342 10,565 11,907 BMC Software (1) 25,391 199,890 225,281 3,519 27,722 31,241 Computer Associates International 97,512 768,176 865,688 2,326 18,313 20,639 Novell (1) 16,724 131,670 148,394 31,085 244,898 275,983 Oracle (1) 393,536 3,100,409 3,493,945 2,207 17,375 19,582 Peoplesoft (1) 45,839 360,879 406,718 ENTERTAINMENT SOFTWARE (0.12%) 1,827 14,382 16,209 Electronic Arts (1) 82,069 646,039 728,108 FIDUCIARY BANKS (0.56%) 4,677 36,848 41,525 Bank of New York 151,815 1,196,086 1,347,901 2,549 20,081 22,630 Mellon Financial 73,666 580,341 654,007 1,322 10,410 11,732 Northern Trust 56,238 442,842 499,080 2,022 15,925 17,947 State Street 91,091 717,421 808,512 FILTRATION & SEPARATION PRODUCTS (0.03%) 753 5,924 6,677 Pall 19,473 153,195 172,668 FINANCE-COMMERCIAL (0.08%) 1,271 10,016 11,287 CIT Group 51,348 404,646 455,994 FINANCE-CONSUMER LOANS (0.18%) 2,620 20,648 23,268 SLM 118,581 934,528 1,053,109 FINANCE-CREDIT CARD (1.11%) 7,621 60,045 67,666 American Express 404,446 3,186,588 3,591,034 1,452 11,438 12,890 Capital One Financial 107,100 843,667 950,767 7,682 60,512 68,194 MBNA 196,890 1,550,923 1,747,813 1,760 13,862 15,622 Providian Financial (1) 27,368 215,554 242,922 FINANCE-INVESTMENT BANKER & BROKER (3.90%) 619 4,881 5,500 Bear Stearns 58,650 462,475 521,125 8,215 64,719 72,934 Charles Schwab 75,167 592,179 667,346 31,142 245,348 276,490 Citigroup 1,381,771 10,886,091 12,267,862 2,922 23,015 25,937 Goldman Sachs Group 287,466 2,264,216 2,551,682 1,631 12,850 14,481 Lehman Brothers Holdings 133,987 1,055,627 1,189,614 5,647 44,494 50,141 Merrill Lynch 304,599 2,400,006 2,704,605 6,604 52,023 58,627 Morgan Stanley 337,399 2,657,855 2,995,254 FINANCE-MORTGAGE LOAN/BANKER (1.20%) 3,386 26,669 30,055 Countrywide Credit Industries 108,115 851,541 959,656 4,130 32,537 36,667 Federal Home Loan Mortgage 275,058 2,166,965 2,442,023 5,819 45,841 51,660 Federal National Mortgage Association 408,203 3,215,746 3,623,949 FINANCIAL GUARANTEE INSURANCE (0.21%) 652 5,136 5,788 Ambac Financial Group 50,895 400,916 451,811 860 6,783 7,643 MBIA 49,760 392,464 442,224 593 4,666 5,259 MGIC Investment 38,136 300,071 338,207 FOOD-CONFECTIONERY (0.25%) 1,480 11,663 13,143 Hershey Foods 75,021 591,197 666,218 1,352 10,644 11,996 Wm. Wrigley Jr. 88,421 696,118 784,539 FOOD-FLOUR & GRAIN (0.11%) 3,914 30,829 34,743 Archer Daniels Midland 75,814 597,158 672,972 FOOD-MISCELLANEOUS/DIVERSIFIED (0.87%) 2,468 19,440 21,908 Campbell Soup 66,241 521,770 588,011 3,178 25,026 28,204 ConAgra Foods 83,899 660,686 744,585 2,286 18,006 20,292 General Mills 101,155 796,765 897,920 2,100 16,550 18,650 H.J. Heinz 76,335 601,593 677,928 2,486 19,579 22,065 Kellogg 106,898 841,897 948,795 825 6,491 7,316 McCormick 29,230 229,976 259,206 4,770 37,570 42,340 Sara Lee 111,046 874,630 985,676 FOOD-RETAIL (0.26%) 2,211 17,419 19,630 Albertson's 50,433 397,327 447,760 4,444 35,005 39,449 Kroger (1) 67,149 528,926 596,075 2,687 21,166 23,853 Safeway (1) 49,011 386,068 435,079 866 6,727 7,593 Winn-Dixie Stores (2) 2,979 23,141 26,120 FOOD-WHOLESALE & DISTRIBUTION (0.22%) 822 6,439 7,261 Supervalu 24,241 189,886 214,127 3,844 30,284 34,128 Sysco 124,046 977,265 1,101,311 FORESTRY (0.06%) 1,103 8,681 9,784 Plum Creek Timber 40,028 315,033 355,061 GAS-DISTRIBUTION (0.16%) 964 7,586 8,550 KeySpan 38,512 303,060 341,572 265 2,086 2,351 Nicor (2) 9,943 78,267 88,210 229 1,782 2,011 Peoples Energy (2) 9,796 76,234 86,030 1,394 10,978 12,372 Sempra Energy 46,755 368,202 414,957 GOLD MINING (0.19%) 2,666 20,998 23,664 Newmont Mining 126,688 997,825 1,124,513 HEALTH CARE COST CONTAINMENT (0.20%) 2,800 22,069 24,869 Caremark Rx (1) 83,916 661,408 745,324 1,765 13,904 15,669 McKesson 47,055 370,681 417,736 HOME DECORATION PRODUCTS (0.05%) 1,653 13,019 14,672 Newell Rubbermaid 35,639 280,690 316,329 1,153 9,078 10,231 HOME FURNISHINGS (0.05%) Leggett & Platt 32,434 255,364 287,798 HOTELS & MOTELS (0.27%) 2,315 18,231 20,546 Hilton Hotels 46,069 362,797 408,866 1,378 10,840 12,218 Marriott International 75,087 590,672 665,759 1,252 9,858 11,110 Starwood Hotels & Resorts Worldwide 59,758 470,522 530,280 HUMAN RESOURCES (0.04%) 1,036 8,160 9,196 Robert Half International 27,485 216,485 243,970 IDENTIFICATION SYSTEM-DEVELOPMENT (0.03%) 1,439 11,335 12,774 Symbol Technologies 21,139 166,511 187,650 INDEPENDENT POWER PRODUCER (0.01%) 3,203 25,234 28,437 Calpine (1) 7,975 62,833 70,808 INDUSTRIAL AUTOMATION & ROBOTS (0.07%) 1,108 8,729 9,837 Rockwell International 46,193 363,912 410,105 INDUSTRIAL GASES (0.23%) 1,367 10,764 12,131 Air Products & Chemicals 72,697 572,429 645,126 1,954 15,388 17,342 Praxair 82,459 649,374 731,833 INSTRUMENTS-CONTROLS (0.22%) 1,144 9,010 10,154 Johnson Controls 65,609 516,724 582,333 718 5,656 6,374 Parker Hannifin 50,712 399,483 450,195 981 7,732 8,713 Thermo Electron (1) 28,449 224,228 252,677 INSTRUMENTS-SCIENTIFIC (0.18%) 1,214 9,558 10,772 Applied Biosystems Group 23,163 182,367 205,530 691 5,443 6,134 Fisher Scientific International (1) 39,636 312,210 351,846 301 2,348 2,649 Millipore (1) 13,843 107,985 121,828 771 6,068 6,839 PerkinElmer 15,836 124,637 140,473 711 5,598 6,309 Waters (1) 29,357 231,141 260,498 INSURANCE BROKERS (0.19%) 1,899 14,958 16,857 Aon 38,759 305,293 344,052 3,131 24,657 27,788 Marsh & McLennan 86,603 682,012 768,615 INTERNET BROKERS (0.04%) 2,244 17,678 19,922 E*trade Group (1) 28,948 228,046 256,994 INTERNET SECURITY (0.16%) 1,895 14,926 16,821 Symantec (1) 107,901 849,886 957,787 INVESTMENT MANAGEMENT & ADVISORY SERVICES (0.26%) 652 5,133 5,785 Federated Investors 18,902 148,806 167,708 1,499 11,810 13,309 Franklin Resources 90,869 715,922 806,791 1,440 11,336 12,776 Janus Capital Group 21,960 172,874 194,834 765 6,027 6,792 T. Rowe Price Group 42,664 336,126 378,790 LEISURE & RECREATION PRODUCTS (0.04%) 577 4,527 5,104 Brunswick 27,073 212,407 239,480 LIFE & HEALTH INSURANCE (0.49%) 3,049 24,019 27,068 Aflac 109,398 861,802 971,200 820 6,463 7,283 Jefferson-Pilot 39,598 312,098 351,696 1,058 8,334 9,392 Lincoln National 46,340 365,029 411,369 1,884 14,843 16,727 Principal Financial Group (4) 71,140 560,472 631,612 659 5,194 5,853 Torchmark 35,599 280,580 316,179 1,782 14,038 15,820 UnumProvident 24,342 191,759 216,101 LINEN SUPPLY & RELATED ITEMS (0.07%) 1,029 8,107 9,136 Cintas 44,391 349,736 394,127 MACHINERY-CONSTRUCTION & MINING (0.25%) 2,061 16,232 18,293 Caterpillar 165,993 1,307,325 1,473,318 MACHINERY-FARM (0.14%) 1,493 11,752 13,245 Deere 89,252 702,535 791,787 MACHINERY-GENERAL INDUSTRY (0.11%) 1,043 8,208 9,251 Ingersoll-Rand 71,383 561,756 633,139 MEDICAL INFORMATION SYSTEM (0.05%) 1,406 11,075 12,481 IMS Health 29,779 234,569 264,348 MEDICAL INSTRUMENTS (1.25%) 1,527 12,030 13,557 Biomet 71,280 561,560 632,840 5,063 39,886 44,949 Boston Scientific (1) 178,724 1,407,976 1,586,700 1,892 14,898 16,790 Guidant 126,045 992,505 1,118,550 7,271 57,280 64,551 Medtronic 371,621 2,927,581 3,299,202 1,065 8,382 9,447 St. Jude Medical (1) 81,547 641,809 723,356 MEDICAL LABORATORY & TESTING SERVICE (0.08%) 612 4,825 5,437 Quest Diagnostics 53,574 422,381 475,955 MEDICAL PRODUCTS (2.20%) 3,697 29,117 32,814 Baxter International 113,720 895,639 1,009,359 1,506 11,866 13,372 Becton Dickinson 79,065 622,965 702,030 17,843 140,576 158,419 Johnson & Johnson 1,041,674 8,206,827 9,248,501 2,413 19,003 21,416 Stryker 103,976 818,839 922,815 1,473 11,605 13,078 Zimmer Holdings (1) 114,290 900,432 1,014,722 MEDICAL-BIOMEDICAL/GENE (1.00%) 7,612 59,961 67,573 Amgen (1) 432,362 3,405,785 3,838,147 2,035 16,026 18,061 Biogen Idec (1) 118,356 932,072 1,050,428 1,129 8,890 10,019 Chiron (1) 36,602 288,214 324,816 1,371 10,797 12,168 Genzyme (1) 71,936 566,518 638,454 MEDICAL-DRUGS (5.25%) 9,386 73,939 83,325 Abbott Laboratories 400,125 3,152,019 3,552,144 792 6,238 7,030 Allergan 56,676 446,391 503,067 11,695 92,127 103,822 Bristol-Myers Squibb 274,014 2,158,536 2,432,550 6,797 53,546 60,343 Eli Lilly 373,223 2,940,211 3,313,434 2,227 17,536 19,763 Forest Laboratories (1) 99,324 782,106 881,430 1,452 11,440 12,892 King Pharmaceuticals (1) 15,841 124,810 140,651 1,499 11,804 13,303 Medimmune (1) 42,602 335,470 378,072 13,338 105,082 118,420 Merck 417,613 3,290,117 3,707,730 45,392 357,620 403,012 Pfizer 1,314,098 10,353,099 11,667,197 8,851 69,734 78,585 Schering-Plough 160,292 1,262,883 1,423,175 8,019 63,171 71,190 Wyeth 317,953 2,504,730 2,822,683 MEDICAL-GENERIC DRUGS (0.07%) 1,616 12,727 14,343 Mylan Laboratories (2) 27,827 219,159 246,986 659 5,183 5,842 Watson Pharmaceutical (1) 18,472 145,279 163,751 MEDICAL-HMO (0.84%) 924 7,272 8,196 Aetna 87,780 690,840 778,620 840 6,611 7,451 Anthem (1) 67,536 531,524 599,060 958 7,548 8,506 Humana (1) 18,346 144,544 162,890 3,996 31,481 35,477 UnitedHealth Group 289,310 2,279,225 2,568,535 945 7,438 8,383 Wellpoint Health Networks (1) 92,289 726,395 818,684 MEDICAL-HOSPITALS (0.25%) 2,902 22,859 25,761 HCA 106,591 839,611 946,202 1,464 11,527 12,991 Health Management Associates 30,246 238,148 268,394 2,802 22,076 24,878 Tenet Healthcare (1) 30,037 236,655 266,692 MEDICAL-NURSING HOMES (0.03%) 525 4,141 4,666 Manor Care 17,189 135,576 152,765 MEDICAL-WHOLESALE DRUG DISTRIBUTION (0.24%) 676 5,324 6,000 AmerisourceBergen 37,207 293,033 330,240 2,587 20,384 22,971 Cardinal Health 120,942 952,952 1,073,894 METAL PROCESSORS & FABRICATION (0.02%) 529 4,134 4,663 Worthington Industries 10,501 82,060 92,561 METAL-ALUMINUM (0.26%) 5,230 41,196 46,426 Alcoa 169,975 1,338,870 1,508,845 METAL-COPPER (0.08%) 566 4,451 5,017 Phelps Dodge 49,548 389,641 439,189 METAL-DIVERSIFIED (0.06%) 1,065 8,384 9,449 Freeport-McMoran Copper & Gold 38,574 303,668 342,242 MISCELLANEOUS INVESTING (0.40%) 573 4,482 5,055 Apartment Investment & Management 21,023 164,444 185,467 2,422 19,082 21,504 Equity Office Properties Trust 68,107 536,586 604,693 1,687 13,292 14,979 Equity Residential Properties Trust 56,262 443,288 499,550 1,093 8,610 9,703 Prologis Trust 42,605 335,618 378,223 1,329 10,471 11,800 Simon Property Group 77,507 610,669 688,176 MONEY CENTER BANKS (2.91%) 24,454 192,650 217,104 Bank of America 1,095,295 8,628,794 9,724,089 21,414 168,704 190,118 JP Morgan Chase 826,580 6,511,974 7,338,554 MOTORCYCLE & MOTOR SCOOTER (0.15%) 1,775 13,975 15,750 Harley-Davidson 102,187 804,541 906,728 MULTI-LINE INSURANCE (2.67%) 4,166 32,820 36,986 Allstate 200,343 1,578,314 1,778,657 15,663 123,396 139,059 American International Group 950,901 7,491,371 8,442,272 827 6,513 7,340 Cigna 52,482 413,315 465,797 1,012 7,971 8,983 Cincinnati Financial 42,251 332,789 375,040 1,763 13,885 15,648 Hartford Financial Services Group 103,100 811,995 915,095 1,116 8,784 9,900 Loews 66,848 526,162 593,010 4,509 35,527 40,036 MetLife 172,920 1,362,460 1,535,380 3,120 24,580 27,700 Prudential Financial 144,986 1,142,233 1,287,219 757 5,963 6,720 Safeco 35,004 275,729 310,733 MULTIMEDIA (2.11%) 1,599 12,603 14,202 Gannett 132,637 1,045,419 1,178,056 1,142 8,998 10,140 McGraw-Hill 98,498 776,078 874,576 303 2,379 2,682 Meredith 14,847 116,571 131,418 27,489 216,560 244,049 Time Warner (1) 457,417 3,603,558 4,060,975 10,430 82,167 92,597 Viacom 380,591 2,998,274 3,378,865 12,352 97,309 109,661 Walt Disney 311,517 2,454,133 2,765,650 NETWORKING PRODUCTS (1.40%) 40,648 320,238 360,886 Cisco Systems (1) 780,848 6,151,772 6,932,620 25,908 204,105 230,013 Lucent Technologies (1) (2) 91,973 724,573 816,546 2,150 16,939 19,089 Network Appliance (1) 52,611 414,497 467,108 NON-HAZARDOUS WASTE DISPOSAL (0.17%) 1,914 15,070 16,984 Allied Waste Industries (1) 15,618 122,971 138,589 3,487 27,463 30,950 Waste Management 99,310 782,146 881,456 OFFICE AUTOMATION & EQUIPMENT (0.20%) 1,390 10,946 12,336 Pitney Bowes 60,812 478,887 539,699 5,044 39,741 44,785 Xerox (1) 74,500 586,975 661,475 OFFICE SUPPLIES & FORMS (0.06%) 665 5,231 5,896 Avery Dennison 40,459 318,254 358,713 OIL & GAS DRILLING (0.25%) 895 7,045 7,940 Nabors Industries (1) 43,963 346,050 390,013 806 6,341 7,147 Noble (1) 36,818 289,657 326,475 645 5,058 5,703 Rowan (1) 16,467 129,131 145,598 1,929 15,195 17,124 Transocean Sedco Forex (1) 67,997 535,624 603,621 OIL COMPANY-EXPLORATION & PRODUCTION (0.77%) 1,505 11,850 13,355 Anadarko Petroleum 101,512 799,283 900,795 1,960 15,439 17,399 Apache 99,372 782,757 882,129 2,373 18,696 21,069 Burlington Resources 98,479 775,884 874,363 1,454 11,449 12,903 Devon Energy 107,552 846,883 954,435 710 5,581 6,291 EOG Resources 47,258 371,471 418,729 908 7,151 8,059 Kerr-McGee 53,772 423,482 477,254 OIL COMPANY-INTEGRATED (4.95%) 549 4,316 4,865 Amerada Hess 44,310 348,344 392,654 12,806 100,888 113,694 ChevronTexaco 679,486 5,353,117 6,032,603 4,141 32,619 36,760 ConocoPhillips 349,128 2,750,108 3,099,236 39,109 308,114 347,223 Exxon Mobil 1,924,945 15,165,371 17,090,316 2,081 16,389 18,470 Marathon Oil 79,307 624,585 703,892 2,355 18,551 20,906 Occidental Petroleum 131,479 1,035,702 1,167,181 1,592 12,538 14,130 Unocal 66,466 523,462 589,928 OIL REFINING & MARKETING (0.19%) 429 3,365 3,794 Ashland 24,719 193,891 218,610 453 3,567 4,020 Sunoco 33,685 265,242 298,927 1,536 12,109 13,645 Valero Energy 66,002 520,324 586,326 OIL-FIELD SERVICES (0.69%) 2,007 15,806 17,813 Baker Hughes 85,960 676,971 762,931 972 7,649 8,621 BJ Services 49,572 390,099 439,671 2,655 20,911 23,566 Halliburton 98,341 774,543 872,884 3,551 27,967 31,518 Schlumberger 223,500 1,760,243 1,983,743 OPTICAL SUPPLIES (0.03%) 320 2,518 2,838 Bausch & Lomb 19,507 153,497 173,004 PAPER & RELATED PRODUCTS (0.52%) 530 4,169 4,699 Boise Cascade 15,646 123,069 138,715 1,554 12,226 13,780 Georgia-Pacific 53,753 422,897 476,650 2,924 23,030 25,954 International Paper 112,603 886,885 999,488 658 5,174 5,832 Louisiana-Pacific 16,127 126,815 142,942 1,213 9,557 10,770 MeadWestvaco 38,246 301,332 339,578 338 2,638 2,976 Temple-Inland 19,982 155,959 175,941 1,440 11,340 12,780 Weyerhaeuser 90,202 710,338 800,540 PHARMACY SERVICES (0.13%) 467 3,674 4,141 Express Scripts (1) 29,888 235,136 265,024 1,638 12,887 14,525 Medco Health Solutions (1) 55,545 436,998 492,543 PHOTO EQUIPMENT & SUPPLIES (0.08%) 1,724 13,573 15,297 Eastman Kodak 52,203 410,990 463,193 PIPELINES (0.20%) 2,282 17,975 20,257 Dynegy (1) 11,250 88,617 99,867 3,854 30,358 34,212 El Paso 34,455 271,401 305,856 743 5,850 6,593 Kinder Morgan 47,827 376,564 424,391 3,340 26,306 29,646 Williams 41,783 329,088 370,871 POWER CONVERTER & SUPPLY EQUIPMENT (0.04%) 1,205 9,490 10,695 American Power Conversion 23,232 182,967 206,199 PRINTING-COMMERCIAL (0.06%) 1,318 10,376 11,694 R.R. Donnelley & Sons 41,451 326,325 367,776 PROPERTY & CASUALTY INSURANCE (0.69%) 1,708 13,451 15,159 ACE 65,007 511,945 576,952 1,149 9,045 10,194 Chubb 82,877 652,416 735,293 1,203 9,480 10,683 Progressive 112,541 886,854 999,395 4,021 31,674 35,695 St. Paul 136,553 1,075,649 1,212,202 832 6,553 7,385 XL Capital 60,320 475,092 535,412 PUBLICLY TRADED INVESTMENT FUND (0.56%) 7,940 20,860 28,800 iShares S&P 500 Index Fund (2) 899,761 2,363,855 3,263,616 PUBLISHING-NEWSPAPERS (0.26%) 493 3,877 4,370 Dow Jones 21,815 171,557 193,372 465 3,666 4,131 Knight Ridder 31,866 251,231 283,097 882 6,953 7,835 New York Times 35,324 278,468 313,792 1,913 15,073 16,986 Tribune 82,642 651,153 733,795 REGIONAL BANKS (3.11%) 1,030 8,117 9,147 Comerica 63,355 499,277 562,632 3,427 26,992 30,419 Fifth Third Bancorp 168,574 1,327,736 1,496,310 1,381 10,878 12,259 Huntington Bancshares 33,075 260,528 293,603 2,445 19,266 21,711 KeyCorp 82,128 647,145 729,273 3,984 31,388 35,372 National City 155,257 1,223,190 1,378,447 1,698 13,373 15,071 PNC Financial Services Group 88,805 699,408 788,213 2,151 16,945 19,096 SunTrust Banks 151,387 1,192,589 1,343,976 11,297 89,006 100,303 U.S. Bancorp 323,207 2,546,462 2,869,669 7,872 62,014 69,886 Wachovia 387,381 3,051,709 3,439,090 10,152 79,978 90,130 Wells Fargo 606,278 4,776,286 5,382,564 RETAIL-APPAREL & SHOE (0.33%) 5,434 42,803 48,237 Gap 108,571 855,204 963,775 2,842 22,381 25,223 Limited 70,425 554,601 625,026 848 6,650 7,498 Nordstrom 36,617 287,147 323,764 RETAIL-AUTO PARTS (0.06%) 500 3,937 4,437 Autozone (1) 40,905 322,086 362,991 RETAIL-AUTOMOBILE (0.04%) 1,603 12,626 14,229 AutoNation (1) 27,620 217,546 245,166 RETAIL-BEDDING (0.11%) 1,807 14,235 16,042 Bed Bath & Beyond (1) 73,708 580,646 654,354 RETAIL-BUILDING PRODUCTS (1.22%) 13,198 103,980 117,178 Home Depot 542,174 4,271,498 4,813,672 4,686 36,925 41,611 Lowe's 263,728 2,078,139 2,341,867 RETAIL-CONSUMER ELECTRONICS (0.25%) 1,954 15,392 17,346 Best Buy 115,716 911,514 1,027,230 1,195 9,414 10,609 Circuit City Stores 19,418 152,978 172,396 959 7,560 8,519 RadioShack 28,703 226,271 254,974 RETAIL-DISCOUNT (2.91%) 693 5,455 6,148 Big Lots (1) 8,586 67,587 76,173 2,773 21,842 24,615 Costco Wholesale 132,938 1,047,106 1,180,044 1,974 15,553 17,527 Dollar General 37,999 299,395 337,394 1,011 7,969 8,980 Family Dollar Stores 29,875 235,484 265,359 RETAIL-DISCOUNT (continued) 5,430 42,783 48,213 Target 271,609 2,140,006 2,411,615 2,938 23,148 26,086 TJX 70,453 555,089 625,542 25,504 200,934 226,438 Wal-Mart Stores 1,375,176 10,834,361 12,209,537 RETAIL-DRUG STORE (0.49%) 2,401 18,916 21,317 CVS 104,348 822,089 926,437 6,160 48,523 54,683 Walgreen 221,082 1,741,491 1,962,573 RETAIL-JEWELRY (0.04%) 878 6,920 7,798 Tiffany 25,752 202,964 228,716 RETAIL-MAJOR DEPARTMENT STORE (0.23%) 1,732 13,649 15,381 J.C. Penney 59,910 472,119 532,029 1,753 13,802 15,555 May Department Stores 45,683 359,680 405,363 1,275 10,041 11,316 Sears Roebuck 44,625 351,435 396,060 RETAIL-OFFICE SUPPLIES (0.18%) 1,884 14,836 16,720 Office Depot (1) 30,502 240,195 270,697 2,991 23,565 26,556 Staples 88,952 700,823 789,775 RETAIL-REGIONAL DEPARTMENT STORE (0.26%) 502 3,954 4,456 Dillards 10,286 81,018 91,304 1,081 8,515 9,596 Federated Department Stores 54,536 429,582 484,118 2,055 16,182 18,237 Kohl's (1) 104,312 821,398 925,710 RETAIL-RESTAURANTS (0.71%) 949 7,473 8,422 Darden Restaurants 23,251 183,089 206,340 7,552 59,497 67,049 McDonald's 220,141 1,734,338 1,954,479 2,390 18,824 21,214 Starbucks (1) 126,383 995,413 1,121,796 684 5,378 6,062 Wendy's International 22,825 179,464 202,289 1,747 13,761 15,508 Yum! Brands 75,994 598,603 674,597 RETAIL-TOY STORE (0.04%) 1,287 10,133 11,420 Toys R Us (1) 23,179 182,495 205,674 RUBBER-TIRES (0.03%) 452 3,543 3,995 Cooper Tire & Rubber 8,805 69,018 77,823 1,055 8,304 9,359 Goodyear Tire & Rubber (1) (2) 10,634 83,704 94,338 SAVINGS & LOANS-THRIFTS (0.54%) 919 7,235 8,154 Golden West Financial 107,449 845,916 953,365 2,064 16,256 18,320 Sovereign Bancorp 44,686 351,942 396,628 5,246 41,325 46,571 Washington Mutual 203,073 1,599,691 1,802,764 SCHOOLS (0.12%) 1,159 9,134 10,293 Apollo Group (1) 76,494 602,844 679,338 SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (0.37%) 2,276 17,920 20,196 Analog Devices 91,632 721,459 813,091 1,850 14,563 16,413 Linear Technology 70,078 551,647 621,725 1,953 15,379 17,332 Maxim Integrated Products 85,912 676,522 762,434 SEMICONDUCTOR EQUIPMENT (0.39%) 10,209 80,431 90,640 Applied Materials (1) 164,365 1,294,939 1,459,304 1,181 9,299 10,480 Kla-Tencor (1) 53,771 423,383 477,154 857 6,761 7,618 Novellus Systems (1) 22,205 175,178 197,383 1,167 9,193 10,360 Teradyne (1) 19,325 152,236 171,561 STEEL PRODUCERS (0.10%) 954 7,506 8,460 Nucor 40,287 316,978 357,265 682 5,369 6,051 United States Steel 25,043 197,150 222,193 STEEL-SPECIALTY (0.02%) 572 4,512 5,084 Allegheny Technologies 9,615 75,847 85,462 TELECOMMUNICATION EQUIPMENT (0.76%) 4,864 38,311 43,175 ADC Telecommunications (1) 10,749 84,667 95,416 967 7,615 8,582 Andrew (1) 13,519 106,458 119,977 1,177 9,265 10,442 Comverse Technology (1) 24,293 191,230 215,523 9,786 77,093 86,879 Qualcomm 409,153 3,223,258 3,632,411 922 7,253 8,175 Scientific-Atlanta 25,254 198,660 223,914 2,503 19,712 22,215 Tellabs (1) 20,024 157,696 177,720 TELECOMMUNICATION EQUIPMENT-FIBER OPTICS (0.20%) 3,461 26,956 30,417 CIENA (1) 8,549 66,581 75,130 8,377 66,005 74,382 Corning (1) 95,916 755,757 851,673 8,659 68,208 76,867 JDS Uniphase (1) 27,449 216,220 243,669 TELECOMMUNICATION SERVICES (0.06%) 2,721 21,437 24,158 Avaya (1) 39,182 308,693 347,875 TELEPHONE-INTEGRATED (2.88%) 1,853 14,599 16,452 ALLTEL 101,785 801,923 903,708 4,778 37,639 42,417 AT&T 81,752 644,003 725,755 11,007 86,707 97,714 BellSouth 293,557 2,312,476 2,606,033 811 6,394 7,205 CenturyTel 26,025 205,183 231,208 1,998 15,703 17,701 Citizens Communications 26,773 210,420 237,193 10,912 85,966 96,878 Qwest Communications International (1) 37,319 294,004 331,323 19,921 156,941 176,862 SBC Communications 503,205 3,964,330 4,467,535 8,732 68,796 77,528 Sprint 182,935 1,441,276 1,624,211 16,644 131,120 147,764 Verizon Communications 650,780 5,126,792 5,777,572 TELEVISION (0.09%) 1,940 15,277 17,217 Univision Communications (1) 60,062 472,976 533,038 THERAPEUTICS (0.14%) 2,589 20,392 22,981 Gilead Sciences (1) 89,657 706,175 795,832 TOBACCO (1.06%) 12,335 97,176 109,511 Altria Group 597,754 4,709,149 5,306,903 889 7,009 7,898 Reynolds American 61,217 482,640 543,857 994 7,825 8,819 UST 40,913 322,077 362,990 TOOLS-HAND HELD (0.11%) 482 3,795 4,277 Black & Decker 38,695 304,663 343,358 348 2,737 3,085 Snap-On 10,224 80,413 90,637 493 3,878 4,371 Stanley Works 21,949 172,648 194,597 TOYS (0.09%) 1,064 8,375 9,439 Hasbro 18,822 148,154 166,976 2,489 19,612 22,101 Mattel 43,583 343,406 386,989 TRANSPORT-RAIL (0.48%) 2,239 17,637 19,876 Burlington Northern Santa Fe 93,612 737,403 831,015 1,292 10,173 11,465 CSX 47,158 371,314 418,472 2,367 18,645 21,012 Norfolk Southern 80,360 632,998 713,358 1,559 12,277 13,836 Union Pacific 98,170 773,083 871,253 TRANSPORT-SERVICES (1.06%) 1,806 14,227 16,033 FedEx 164,563 1,296,364 1,460,927 6,760 53,252 60,012 United Parcel Service 535,257 4,216,494 4,751,751 TRAVEL SERVICES (0.03%) 825 6,500 7,325 Sabre Holdings 17,746 139,815 157,561 TRUCKING & LEASING (0.03%) 386 3,049 3,435 Ryder System 19,339 152,755 172,094 WEB PORTALS (0.45%) 8,180 64,439 72,619 Yahoo (1) 296,034 2,332,047 2,628,081 WIRELESS EQUIPMENT (0.37%) 14,203 111,894 126,097 Motorola 245,144 1,931,290 2,176,434 TOTAL COMMON STOCKS 64,166,992 500,728,421 564,895,413 COMMERCIAL PAPER (3.49%) FINANCE-MORTGAGE LOAN/BANKER (3.49%) 1,923,142 18,565,756 20,488,898 Investment in Joint Trading Account; Federal Home Loan Bank 1.69%; 11/01/04 1,923,142 18,565,755 20,488,897 TOTAL COMMERCIAL PAPER 1,923,142 18,565,755 20,488,897 REPURCHASE AGREEMENTS (0.19%) 1,130,165 - 1,130,165 Goldman Sachs; 1.75%; dated 10/29/04 maturing 11/01/04 (collateralized by U.S. Treasu1,130,000,139,787; 11/18-04 - 01/15/12) (1,130,000 TOTAL REPURCHASE AGREEMENTS 1,130,000 - 1,130,000 TOTAL PORTFOLIO INVESTMENTS (99.88%) 67,220,134 519,294,176 586,514,310 Liabilities, net of cash, receivables and other assets (0.12%) (1,077,160) 1,804,406 727,246 TOTAL NET ASSETS (100.00%) $66,142,974 $521,098,582 $587,241,556 -============================================ (1) Non-income producing security. (2) Security or a portion of the security was on loan at the end of the period. (3) Security or a portion of the security was pledged to cover margin requirements for futures contracts. (4) Affiliated security. (5) Security was purchased with the cash proceeds from securities loans.
UNREALIZED APPRECIATION (DEPRECIATION) The net federal income tax unrealized appreciation (depreciation) and federal tax cost of investments held by the fund as of the period end were as follows: Unrealized Appreciation $ 9,484,094 $ 50,363,495 $ 59,847,589 Unrealized Depreciation (13,920,231) (25,182,819) (39,103,050) Net Unrealized Appreciation (Depreciation) (4,436,137) 25,180,676 20,744,539 Cost for federal income tax purposes $ 71,656,271 $494,113,500 $ 565,769,771
Opening Current Unrealized Contract Type Commitment Market Value Market Value Gain(Loss) - ----------------------------------------------------------------------------------------------------------------------------------- FUTURES CONTRACTS Principal LargeCap Stock 7 S&P 500 December 2004 Futures Buy $ 1,970,900 $ 1,978,025 $ 7,125 Index Fund, Inc. LargeCap S&P 500 Index Fund 65 S&P 500 December 2004 Futures Buy $18,207,360 $ 18,367,375 $ 160,015 - -------------------------------- ------------------------------------------------------------------------------------------------- 72 S&P 500 December 2004 Futures $20,178,260 $ 20,345,400 $ 167,140
INVESTMENTS BY SECTOR (UNAUDITED) Percentage of Total Value Sector Value - ----------------------------------------------------------------------------------------------------------------------------------- 19.40% 19.59% 19.56% Financial $ 13,425,256 $105,305,848 $ 118,731,104 19.32 18.01 18.16 Consumer, Non-cyclical 13,368,691 96,859,326 $110,228,017 11.44 11.6 11.58 Technology 7,914,610 62,346,909 $70,261,519 10.50 10.64 10.63 Industrial 7,266,695 57,238,051 $64,504,746 10.04 10.18 10.16 Communications 6,947,283 54,729,579 $61,676,862 9.27 9.39 9.38 Consumer, Cyclical 6,412,818 50,514,473 $56,927,291 6.70 6.80 6.79 Energy 4,640,687 36,554,003 $41,194,690 3.77 4.45 4.38 Government 2,606,402 23,948,466 $26,554,868 2.86 3.42 3.35 Futures Contracts 1,978,025 18,367,375 $20,345,400 2.72 2.76 2.76 Utilities 1,882,302 14,825,149 $16,707,451 2.68 2.72 2.71 Basic Materials 1,855,629 14,608,517 $16,464,146 1.30 0.44 0.54 Funds 899,761 2,363,855 $3,263,616 $ 69,198,159 $537,661,551 $ 606,859,710 ==================================================== Percentages are adjusted to reflect the impact of currency contracts, futures contracts, and swap agreements, if applicable. See accompanying notes. As of October 31, 2004, all securities held by the Acquired Fund would comply with the investment restrictions of the Acquiring Fund.
------------------------------------------------------------------------------------------------------ Affiliated Securities ------------------------------------------------------------------------------------------------------ Realized October 31, 2003 Purchases Sales October 31, 2004 Gain/Loss Shares Cost Shares Cost Shares Proceeds Shares Cost Dividends on Investments ------------------------------------------------------------------------------------------------------ LargeCap S&P 500 Index Fund Principal Financial Group 12,927 $380,604 8,635 $299,365 6,719 $244,028 14,843 $490,837 $5,817 $54,896 Principal LargeCap Stock Index Fund, Inc. Principal Financial Group 1,584 44,522 363 12,491 1,884 54,798 1,884 54,798 713 60 ------------------------------------------------------------------------------------------------------ 14,511 $425,126 8,998 $311,856 8,603 $298,826 16,727 $545,635 $6,530 $54,956
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004 (UNAUDITED) -------------------------------------------------------------------------------
PRINCIPAL COMBINED GROWTH LARGECAP PRO FORMA LARGECAP FUND, INC. GROWTH FUND ADJUSTMENTS/(D)/ GROWTH FUND - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- INVESTMENT IN SECURITIES--AT COST.. $ 304,895,250 $132,914,801 $ -- $ 437,810,051 ============= ============ =========== ============= ASSETS Investment in securities--at value. $295,548,113/(c)/ $140,532,811 $ -- $436,080,924/(c)/ Cash.................. 10,001 10,131 -- 20,132 Receivables: Capital Shares sold.. 20,672 243,873 -- 264,545 Dividends and interest............ 98,246 45,147 -- 143,393 Other assets.......... 12,492 -- -- 12,492 Prepaid expenses...... 116 -- -- 116 ------------- ------------ ----------- ------------- Total Assets 295,689,640 140,831,962 -- 436,521,602 LIABILITIES Accrued management and investment advisory fees................. 32,924 14,587 -- 47,511 Accrued administrative service fees......... -- 66 -- 66 Accrued distribution fees................. 10,740 1,529 -- 12,269 Accrued service fees.. -- 87 -- 87 Accrued transfer and administrative fees.. 209,047 11,521 -- 220,568 Accrued other expenses 44,997 4,068 -- 49,065 Payables: Capital Shares reacquired.......... 209,010 -- -- 209,010 Investment securities purchased........... 265,425 124,834 -- 390,259 Reorganization costs. -- -- 178,005 178,005 Collateral obligation on securities loaned, at value............. 1,754,000 -- -- 1,754,000 ------------- ------------ ----------- ------------- Total Liabilities 2,526,143 156,692 178,005 2,860,840 ------------- ------------ ----------- ------------- NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 293,163,497 $140,675,270 $ (178,005) $ 433,660,762 ============= ============ =========== ============= NET ASSETS CONSIST OF: Capital Shares and additional paid-in-capital...... $ 472,118,232 $136,426,105 $ -- $ 608,544,337 Accumulated undistributed (overdistributed) net investment income (operating loss)..... -- 194,686 (178,005) 16,681 Accumulated undistributed (overdistributed) net realized gain (loss). (169,637,598) (3,563,531) -- (173,201,129) Net unrealized appreciation (depreciation) of investments.......... (9,317,137) 7,618,010 -- (1,699,127) ------------- ------------ ----------- ------------- Total Net Assets $ 293,163,497 $140,675,270 $ (178,005) $ 433,660,762 ============= ============ =========== ============= CAPITAL STOCK (PAR VALUE: $.01 A SHARE): Shares authorized..... 200,000,000 330,000,000 -- 330,000,000 NET ASSET VALUE PER SHARE: Advisors Preferred: Net Assets........... N/A $ 512,899 N/A $ 512,899 Shares issued and outstanding.......... 80,885 80,885 Net asset value per share................ $ 6.34 $ 6.34 ============ ============= Advisors Select: Net Assets............... N/A $ 71,871 N/A $ 71,871 Shares issued and outstanding.......... 11,801 11,801 Net asset value per share................ $ 6.09 $ 6.09 ============ ============= Class A: Net Assets... $ 252,693,971 N/A $ (146,012) $ 252,547,959 Shares issued and outstanding.......... 9,605,221 31,864,066 41,469,287 Net asset value per share................ $ 26.31 -- $ 6.09 Maximum offering price per share /(a)/ $ 27.92 -- $ 6.46 ============= == ============= Class B: Net Assets... $ 40,469,526 N/A $ (31,993) $ 40,437,533 Shares issued and outstanding.......... 1,610,993 5,028,996 6,639,989 Net asset value per share /(b)/.......... $ 25.12 -- $ 6.09 ============= == ============= Class J: Net Assets... N/A $ 15,897,448 N/A $ 15,897,448 Shares issued and outstanding.......... 2,696,917 2,696,917 Net asset value per share /(b)/.......... $ 5.89 $ 5.89 ============ ============= Institutional: Net Assets............... N/A $121,840,399 N/A $ 121,840,399 Shares issued and outstanding.......... 19,998,536 19,998,536 Net asset value per share................ $ 6.09 $ 6.09 ============ ============= Preferred: Net Assets. N/A $ 2,299,446 N/A $ 2,299,446 Shares issued and outstanding.......... 372,320 372,320 Net asset value per share................ $ 6.18 $ 6.18 ============ ============= Select: Net Assets.... N/A $ 53,207 N/A $ 53,207 Shares issued and outstanding.......... 8,482 8,482 Net asset value per share................ $ 6.27 $ 6.27 ============ =============
/(a) /Maximum offering price equals net asset value plus a front-end sales charge of 5.75% of the offering price or 6.10% of the net asset value. /(b) /Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. /(c) /Includes fair market value of securities loaned, see "Securities Lending" in Notes to Financial Statements. /(d) /Reduction in net assets to reflect the estimated expenses of the Reorganization. See accompanying notes. 1 STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2004 (UNAUDITED) ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
PRINCIPAL COMBINED GROWTH LARGECAP PRO FORMA LARGECAP FUND, INC. GROWTH FUND ADJUSTMENTS GROWTH FUND - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ NET INVESTMENT INCOME (OPERATING LOSS) Income: Dividends............ $ 2,563,869 $ 928,378 $ -- $ 3,492,247 Interest............. 60,401 52,232 -- 112,633 Securities lending... 5,081 -- -- 5,081 ------------ ----------- --------- ------------ Total Income 2,629,351 980,610 -- 3,609,961 Expenses: Management and investment advisory fees................ 1,828,265 604,743 (125,400)/(A)/ 2,307,608 Distribution fees - Advisors Preferred.. -- 1,650 -- 1,650 Distribution fees - Advisors Select..... -- 156 -- 156 Distribution fees - Class A............. 501,357 -- -- 501,357 Distribution fees - Class B............. 411,774 -- -- 411,774 Distribution fees - Class J............. -- 73,989 -- 73,989 Distribution fees - Select.............. -- 45 -- 45 Administrative service fees - Advisors Preferred.. -- 990 -- 990 Administrative service fees - Advisors Select..... -- 104 -- 104 Administrative service fees - Preferred........... -- 2,314 -- 2,314 Administrative service fees - Select.............. -- 59 -- 59 Registration fees - Class A............. 11,835 -- -- 11,835 Registration fees - Class B............. 6,491 -- -- 6,491 Registration fees - Class J............. -- 10,990 -- 10,990 Service fees - Advisors Preferred.. -- 1,122 -- 1,122 Service fees - Advisors Select..... -- 130 -- 130 Service fees - Preferred........... -- 3,156 -- 3,156 Service fees - Select -- 67 -- 67 Shareholder reports - Class A............. 51,928 -- -- 51,928 Shareholder reports - Class B............. 12,528 -- -- 12,528 Shareholder reports - Class J............. -- 5,756 -- 5,756 Transfer and administrative fees - Class A........... 303,316 -- -- 303,316 Transfer and administrative fees - Class B........... 75,956 -- -- 75,956 Transfer and administrative fees - Class J........... -- 54,158 -- 54,158 Auditing and legal fees................ 10,030 -- (10,030)/(B)/ -- Custodian fees....... 1,515 -- (1,515)/(B)/ -- Directors' expenses.. 10,242 -- (10,242)/(B)/ -- Registration fees.... 31,327 -- -- 31,327 Transfer and administrative fees. 650,251 -- 6,480/(B)/ 656,731 Other expenses....... 16,802 -- (16,802)/(B)/ -- ------------ ----------- --------- ------------ Total Gross Expenses 3,923,617 759,429 (157,509) 4,525,537 Less: Fees paid indirectly.......... 3,477 625 -- 4,102 ------------ ----------- --------- ------------ Total Net Expenses 3,920,140 758,804 (157,509) 4,521,435 ------------ ----------- --------- ------------ Net Investment Income (Operating Loss) (1,290,789) 221,806 157,509 (911,474) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gain (loss) from: Investment transactions........ (14,806,416) 4,477,317 -- (10,329,099) Change in unrealized appreciation/depreciation of: Investments........... 26,195,529 (1,726,383) -- 24,469,146 ------------ ----------- --------- ------------ Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies 11,389,113 2,750,934 -- 14,140,047 ------------ ----------- --------- ------------ Net Increase (Decrease) in Net Assets Resulting from Operations $ 10,098,324 $ 2,972,740 $ 157,509 $ 13,228,573 ============ =========== ========= ============
/(a) /Management and investment advisory fees decreased to reflect annual percentage rate of the Acquiring Fund. /(b) /Elimination of expenses due to expense structure of Acquiring Fund. Eliminated expenses are not paid by the Acquiring Fund. See accompanying notes. 22
SCHEDULE OF INVESTMENTS October 31, 2004 (unaudited) Principal Amount or Number of Shares Market Value - ------------------------------------------------------------------------------------------------------------------------------------ Principal Principal Growth LargeCap Growth LargeCap Fund, Growth Fund, Growth Inc. Fund Combined Inc. Fund Combined - ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS (99.83%) AEROSPACE & DEFENSE EQUIPMENT (1.46%) 46,630 21,590 68,220 United Technologies $ 4,328,197 $ 2,003,984 $ 6,332,181 APPAREL MANUFACTURERS (1.97%) 124,600 58,700 183,300 Coach (1) 5,810,098 2,737,181 8,547,279 APPLICATIONS SOFTWARE (5.13%) 551,280 243,038 794,318 Microsoft 15,430,327 6,802,634 22,232,961 ATHLETIC FOOTWEAR (2.10%) 72,730 39,230 111,960 Nike 5,913,676 3,189,791 9,103,467 BEVERAGES-NON-ALCOHOLIC (2.07%) 123,830 57,650 181,480 Pepsico 6,139,491 2,858,287 8,997,778 CASINO SERVICES (1.06%) 96,920 42,720 139,640 International Game Technology 3,202,237 1,411,469 4,613,706 COMPUTER SERVICES (0.89%) 77,950 35,930 113,880 Cognizant Technology Solutions (1) 2,650,300 1,221,620 3,871,920 COMPUTERS (1.71%) 90,970 50,590 141,560 Apple Computer (1) 4,778,654 2,657,493 7,436,147 COMPUTERS-INTEGRATED SYSTEMS (2.62%) 220,808 102,802 323,610 Dell (1) 7,741,528 3,604,238 11,345,766 COMPUTERS-MEMORY DEVICES (1.33%) 311,030 137,080 448,110 EMC (1) 4,002,956 1,764,220 5,767,176 COMPUTERS-PERIPHERAL EQUIPMENT (1.22%) 43,260 20,140 63,400 Lexmark International (1) 3,595,339 1,673,835 5,269,174 COSMETICS & TOILETRIES (6.08%) 129,140 65,460 194,600 Avon Products 5,107,487 2,588,943 7,696,430 85,140 40,260 125,400 Estee Lauder 3,656,763 1,729,167 5,385,930 180,630 79,450 260,080 Procter & Gamble 9,244,643 4,066,251 13,310,894 DATA PROCESSING & MANAGEMENT (1.29%) 13,720 6,160 19,880 First Data 566,361 254,285 820,646 91,120 41,480 132,600 SEI Investments 3,279,409 1,492,865 4,772,274 DISPOSABLE MEDICAL PRODUCTS (1.21%) 54,870 37,160 92,030 C.R. Bard 3,116,616 2,110,688 5,227,304 DISTRIBUTION-WHOLESALE (0.72%) 39,300 17,910 57,210 Fastenal (2) 2,170,539 989,169 3,159,708 DIVERSIFIED MANUFACTURING OPERATIONS (4.90%) 83,436 37,604 121,040 3M 6,472,130 2,916,942 9,389,072 83,860 38,650 122,510 Danaher 4,623,202 2,130,775 6,753,977 37,770 17,790 55,560 Illinois Tool Works 3,485,416 1,641,661 5,127,077 E-COMMERCE-SERVICES (1.02%) 31,170 13,990 45,160 eBay (1) 3,042,504 1,365,564 4,408,068 ELECTRIC-INTEGRATED (1.58%) 71,690 40,410 112,100 TXU 4,388,862 2,473,900 6,862,762 ELECTRONIC COMPONENTS- SEMICONDUCTOR (3.89%) 54,230 24,990 79,220 Altera (1) 1,232,648 568,023 1,800,671 337,522 157,361 494,883 Intel 7,513,240 3,502,856 11,016,096 114,163 51,965 166,128 Texas Instruments 2,791,285 1,270,544 4,061,829 ELECTRONIC FORMS (1.03%) 49,030 30,790 79,820 Adobe Systems 2,747,151 1,725,164 4,472,315 FINANCE-CREDIT CARD (3.70%) 106,540 50,100 156,640 Capital One Financial 7,858,391 3,695,376 11,553,767 119,510 56,520 176,030 MBNA 3,063,041 1,448,608 4,511,649 FINANCE-INVESTMENT BANKER & BROKER (2.07%) 27,580 17,300 44,880 Goldman Sachs Group 2,713,320 1,701,974 4,415,294 44,340 27,335 71,675 Legg Mason 2,824,902 1,741,513 4,566,415 FINANCE-MORTGAGE LOAN/BANKER (0.46%) 19,580 8,870 28,450 Federal National Mortgage Association 1,373,537 622,231 1,995,768 INTERNET BROKERS (1.06%) 242,280 109,580 351,860 Ameritrade Holding (1) 3,154,486 1,426,732 4,581,218 INTERNET SECURITY (2.17%) 108,310 57,070 165,380 Symantec (1) 6,167,171 3,249,566 9,416,737 MACHINERY-GENERAL INDUSTRY (1.28%) 52,850 28,520 81,370 Ingersoll-Rand 3,617,054 1,951,909 5,568,963 MACHINERY-PUMPS (1.05%) 91,035 41,950 132,985 Graco 3,131,604 1,443,080 4,574,684 MEDICAL INSTRUMENTS (1.30%) 50,731 22,950 73,681 St. Jude Medical (1) 3,884,473 1,757,281 5,641,754 MEDICAL PRODUCTS (6.07%) 64,250 28,100 92,350 Becton Dickinson 3,373,125 1,475,250 4,848,375 222,300 101,190 323,490 Johnson & Johnson 12,977,874 5,907,472 18,885,346 44,520 20,520 65,040 Varian Medical Systems (1) 1,787,478 823,878 2,611,356 MEDICAL-BIOMEDICAL/GENE (2.80%) 84,480 36,050 120,530 Amgen (1) 4,798,464 2,047,640 6,846,104 73,410 42,730 116,140 Genentech (1) 3,342,357 1,945,497 5,287,854 MEDICAL-DRUGS (5.41%) 66,430 30,040 96,470 Forest Laboratories (1) 2,962,778 1,339,784 4,302,562 464,595 198,115 662,710 Pfizer 13,450,025 5,735,429 19,185,454 MEDICAL-HMO (2.57%) 107,290 46,830 154,120 UnitedHealth Group 7,767,796 3,390,492 11,158,288 MOTORCYCLE & MOTOR SCOOTER (1.79%) 92,690 42,550 135,240 Harley-Davidson 5,336,163 2,449,603 7,785,766 MULTI-LINE INSURANCE (1.75%) 86,070 39,040 125,110 American International Group 5,225,310 2,370,118 7,595,428 NETWORKING PRODUCTS (3.77%) 579,890 270,353 850,243 Cisco Systems (1) 11,139,687 5,193,481 16,333,168 OIL COMPANY-EXPLORATION & PRODUCTION (1.28%) 68,530 41,380 109,910 Apache 3,474,471 2,097,966 5,572,437 OIL-FIELD SERVICES (1.03%) 55,320 32,700 88,020 BJ Services 2,821,320 1,667,700 4,489,020 RETAIL-APPAREL & SHOE (1.95%) 27,790 12,300 40,090 Chico's FAS (1) 1,112,434 492,369 1,604,803 107,480 50,830 158,310 Nordstrom 4,640,986 2,194,839 6,835,825 RETAIL-BEDDING (1.35%) 99,148 44,843 143,991 Bed Bath & Beyond (1) 4,044,247 1,829,146 5,873,393 RETAIL-CONSUMER ELECTRONICS (1.78%) 90,110 40,020 130,130 Best Buy 5,336,314 2,369,984 7,706,298 RETAIL-DISCOUNT (2.07%) 115,100 51,420 166,520 Wal-Mart Stores 6,206,192 2,772,566 8,978,758 RETAIL-OFFICE SUPPLIES (1.96%) 190,000 95,124 285,124 Staples 5,650,600 2,828,988 8,479,588 RETAIL-RESTAURANTS (1.38%) 89,850 47,400 137,250 Yum! Brands 3,908,475 2,061,900 5,970,375 SCHOOLS (1.01%) 45,460 20,950 66,410 Apollo Group (1) 3,000,360 1,382,700 4,383,060 SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (2.47) 112,399 50,514 162,913 Linear Technology 4,257,674 1,913,471 6,171,145 70,721 32,070 102,791 Maxim Integrated Products 3,111,017 1,410,759 4,521,776 THERAPEUTICS (1.53%) 131,640 59,540 191,180 Gilead Sciences (1) 4,558,693 2,061,870 6,620,563 WIRELESS EQUIPMENT (1.49%) 254,030 120,130 374,160 Motorola 4,384,558 2,073,444 6,458,002 TOTAL COMMON STOCKS 293,487,436 139,626,165 433,113,601 COMMERCIAL PAPER (0.28%) FINANCE-CONSUMER LOANS (0.07%) Investment in Joint Trading Account; 306,677 - 306,677 Household Finance 1.84%; 11/01/04 306,677 - 306,677 FINANCE-MORTGAGE LOAN/BANKER (0.21%) Investment in Joint Trading Account; - 906,646 906,646 Federal Home Loan Bank 1.69%; 11/01/04 - 906,646 906,646 TOTAL COMMERCIAL PAPER 306,677 906,646 1,213,323 REPURCHASE AGREEMENTS (0.41%) Goldman Sachs; 1.75%; dated 10/29/04 maturing 11/01/04 (collateralized by 1,754,256 - 1,754,256 U.S. Treasuries; $1,769,191; 11/18/04 - 01/15/12) (3) 1,754,000 - 1,754,000 TOTAL REPURCHASE AGREEMENTS 1,754,000 - 1,754,000 TOTAL PORTFOLIO INVESTMENTS (100.52%) 295,548,113 140,532,811 436,080,924 Liabilities, net of cash, receivable and other assets (-0.52%) (2,384,616) 142,459 (2,242,157) TOTAL NET ASSETS (100.00%)$293,163,497 $140,675,270 $433,838,767 ============================================= (1) Non-income producing security. (2) Security or a portion of the security was on loan at the end of the period. (3) Security was purchased with the cash proceeds from securities loans.
UNREALIZED APPRECIATION (DEPRECIATION) The net federal income tax unrealized appreciation (depreciation) and federal tax cost of investments held by the fund as of the period end were as follows: Unrealized Appreciation $32,569,555 $12,314,087 $ 44,883,642 Unrealized Depreciation (42,157,428) (5,011,675) (47,169,103) ----------------------------------------------- Net Unrealized Appreciation (Depreciation) (9,587,873) 7,302,412 (2,285,461) Cost for federal income tax purposes $305,135,986 $133,230,399 $438,366,385
Percentage of Total Value Sector Value - ---------------------------------------------------------------------------------------------------------------- 30.17% 29.33% 29.90% Consumer, Non-cyclical $89,168,424 $41,220,630 $130,389,054 21.55 21.25 21.45 Technology 63,697,890 29,862,006 93,559,896 18.05 18.02 18.03 Consumer, Cyclical 53,331,961 25,327,007 78,658,968 9.1 8.81 9.01 Financial 26,900,126 12,384,320 39,284,446 8.68 8.6 8.66 Industrial 25,657,602 12,088,351 37,745,953 8.37 8.46 8.40 Communications 24,733,920 11,882,055 36,615,975 2.13 2.68 2.31 Energy 6,295,791 3,765,666 10,061,457 1.49 1.76 1.57 Utilities 4,388,862 2,473,900 6,862,762 0.46 1.09 0.67 Government 1,373,537 1,528,876 2,902,413 TOTAL $295,548,113 $140,532,811 $436,080,924 =============================================== Percentages are adjusted to reflect the impact of currency contracts, futures contracts, and swap agreements, if applicable. See accompanying notes. As of October 31, 2004, all securities held by the Acquired Fund would comply with the investment restrictions of the Acquiring Fund.
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004 (UNAUDITED) -------------------------------------------------------------------------------
PRINCIPAL COMBINED MIDCAP MIDCAP PRO FORMA MIDCAP FUND, INC. BLEND FUND ADJUSTMENTS/(D)/ BLEND FUND - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- INVESTMENT IN SECURITIES--AT COST.. $443,024,233 $ 77,229,274 $ -- $520,253,507 ============ ============ =========== ============ ASSETS Investment in securities--at value. $542,366,018/(c)/ $ 86,143,063 $ -- $628,509,081/(c)/ Cash.................. 10,000 10,562 -- 20,562 Receivables: Capital Shares sold.. 161,283 118,855 -- 280,138 Dividends and interest............ 268,040 41,826 -- 309,866 Investment securities sold................ 1,842,158 378,513 -- 2,220,671 Other assets.......... 5,905 -- -- 5,905 Prepaid expenses...... 291 -- -- 291 ------------ ------------ ----------- ------------ Total Assets 544,653,695 86,692,819 -- 631,346,514 LIABILITIES Accrued management and investment advisory fees................. 54,810 10,527 -- 65,337 Accrued administrative service fees......... -- 266 -- 266 Accrued distribution fees................. 22,155 7,306 -- 29,461 Accrued service fees.. -- 334 -- 334 Accrued transfer and administrative fees.. 223,349 32,173 -- 255,522 Accrued other expenses 58,937 9,399 -- 68,336 Payables: Capital Shares reacquired.......... 142,173 59,576 -- 201,749 Investment securities purchased........... 1,584,780 363,756 -- 1,948,536 Reorganization costs. -- -- 146,338 146,338 Collateral obligation on securities loaned, at value............. 10,614,000 -- -- 10,614,000 ------------ ------------ ----------- ------------ Total Liabilities 12,700,204 483,337 146,338 13,329,879 ------------ ------------ ----------- ------------ NET ASSETS APPLICABLE TO OUTSTANDING SHARES $531,953,491 $ 86,209,482 $ (146,338) $618,016,635 ============ ============ =========== ============ NET ASSETS CONSIST OF: Capital Shares and additional paid-in-capital...... $381,764,604 $ 70,761,975 $ -- $452,526,579 Accumulated undistributed (overdistributed) net investment income (operating loss)..... 2,058,004 154,609 (146,338) 2,066,275 Accumulated undistributed (overdistributed) net realized gain (loss). 48,789,098 6,379,109 -- 55,168,207 Net unrealized appreciation (depreciation) of investments.......... 99,341,785 8,913,789 -- 108,255,574 ------------ ------------ ----------- ------------ Total Net Assets $531,953,491 $ 86,209,482 $ (146,338) $618,016,635 ============ ============ =========== ============ CAPITAL STOCK (PAR VALUE: $.01 A SHARE): Shares authorized..... 100,000,000 225,000,000 -- 225,000,000 NET ASSET VALUE PER SHARE: Advisors Preferred: Net Assets........... N/A $ 3,083,909 N/A $ 3,083,909 Shares issued and outstanding.......... 239,052 239,052 Net asset value per share................ $ 12.90 $ 12.90 ============ ============ Advisors Select: Net Assets............... N/A $ 934,491 N/A $ 934,491 Shares issued and outstanding.......... 72,719 72,719 Net asset value per share................ $ 12.85 $ 12.85 ============ ============ Class A: Net Assets... $459,207,477 N/A $ (118,237) $459,089,240 Shares issued and outstanding.......... 10,710,542 24,877,771 35,588,313 Net asset value per share................ $ 42.87 -- $ 12.90 Maximum offering price per share /(a)/ $ 45.49 -- $ 13.69 ============ == ============ Class B: Net Assets... $ 72,746,014 N/A $ (28,101) $ 72,717,913 Shares issued and outstanding.......... 1,782,062 3,854,986 5,637,048 Net asset value per share /(b)/.......... $ 40.82 -- $ 12.90 ============ == ============ Class J: Net Assets... N/A $ 75,489,811 N/A $ 75,489,811 Shares issued and outstanding.......... 5,922,441 5,922,441 Net asset value per share /(b)/.......... $ 12.75 $ 12.75 ============ ============ Institutional: Net Assets............... N/A $ 11,375 N/A $ 11,375 Shares issued and outstanding.......... 882 882 Net asset value per share................ $ 12.90 $ 12.90 ============ ============ Preferred: Net Assets. N/A $ 5,514,296 N/A $ 5,514,296 Shares issued and outstanding.......... 426,843 426,843 Net asset value per share................ $ 12.92 $ 12.92 ============ ============ Select: Net Assets.... N/A $ 1,175,600 N/A $ 1,175,600 Shares issued and outstanding.......... 90,153 90,153 Net asset value per share................ $ 13.04 $ 13.04 ============ ============
/(a) /Maximum offering price equals net asset value plus a front-end sales charge of 5.75% of the offering price or 6.10% of the net asset value. /(b) /Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. /(c) /Includes fair market value of securities loaned, see "Securities Lending" in Notes to Financial Statements. /(d) /Reduction in net assets to reflect the estimated expenses of the Reorganization. See accompanying notes. 1 STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2004 (UNAUDITED) ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
PRINCIPAL COMBINED MIDCAP MIDCAP PRO FORMA MIDCAP FUND, INC. BLEND FUND ADJUSTMENTS BLEND FUND - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NET INVESTMENT INCOME (OPERATING LOSS) Income: Dividends.............. $ 9,111,960 $1,189,231 $ -- $10,301,191 Interest............... 83,446 22,826 -- 106,272 Securities lending..... 10,465 -- -- 10,465 ----------- ---------- --------- ----------- Total Income 9,205,871 1,212,057 -- 10,417,928 Expenses: Management and investment advisory fees.................. 2,795,240 452,794 67,692/(A)/ 3,315,726 Distribution fees - Advisors Preferred.... -- 15,039 -- 15,039 Distribution fees - Advisors Select....... -- 1,082 -- 1,082 Distribution fees - Class A............... 883,699 -- -- 883,699 Distribution fees - Class B............... 325,766 -- -- 325,766 Distribution fees - Class J............... -- 291,195 -- 291,195 Distribution fees - Select................ -- 269 -- 269 Administrative service fees - Advisors Preferred............. -- 9,023 -- 9,023 Administrative service fees - Advisors Select -- 722 -- 722 Administrative service fees - Preferred...... -- 5,215 -- 5,215 Administrative service fees - Select......... -- 350 -- 350 Registration fees - Class A............... 20,833 -- -- 20,833 Registration fees - Class B............... 9,648 -- -- 9,648 Registration fees - Class J............... -- 14,798 -- 14,798 Service fees - Advisors Preferred............. -- 10,226 -- 10,226 Service fees - Advisors Select................ -- 902 -- 902 Service fees - Preferred............. -- 7,112 -- 7,112 Service fees - Select.. -- 404 -- 404 Shareholder reports - Class A............... 55,193 -- -- 55,193 Shareholder reports - Class B............... 14,090 -- -- 14,090 Shareholder reports - Class J............... -- 18,374 -- 18,374 Transfer and administrative fees - Class A............... 314,251 -- -- 314,251 Transfer and administrative fees - Class B............... 83,317 -- -- 83,317 Transfer and administrative fees - Class J............... -- 163,222 -- 163,222 Auditing and legal fees 9,932 -- (9,932)/(B)/ -- Custodian fees......... 11,083 -- (11,083)/(B)/ -- Directors' expenses.... 16,737 -- (16,737)/(B)/ -- Registration fees...... 30,530 -- -- 30,530 Transfer and administrative fees... 832,535 -- 9,747/(B)/ 842,282 Other expenses......... 25,750 -- (25,750)/(B)/ -- Other expenses - Class J..................... -- 2,050 -- 2,050 ----------- ---------- --------- ----------- Total Gross Expenses 5,428,604 992,777 13,937 6,435,318 Less: Fees paid indirectly............ 6,734 641 (7,375)/(C)/ -- Less: Reimbursement from Manager - Class A -- -- 393,092/(D)/ 393,092 Less: Reimbursement from Manager - Class B -- -- 72,968/(D)/ 72,968 ----------- ---------- --------- ----------- Total Net Expenses 5,421,870 992,136 (444,748) 5,969,258 ----------- ---------- --------- ----------- Net Investment Income (Operating Loss) 3,784,001 219,921 444,748 4,448,670 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gain (loss) from: Investment transactions 49,046,329 7,268,618 -- 56,314,947 Change in unrealized appreciation/depreciation of: Investments............ 17,165,463 1,390,580 -- 18,556,043 ----------- ---------- --------- ----------- Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies 66,211,792 8,659,198 -- 74,870,990 ----------- ---------- --------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations $69,995,793 $8,879,119 $ 444,748 $79,319,660 =========== ========== ========= ===========
/(a) /Management and investment advisory fees increased to reflect annual percentage rate of the Acquiring Fund. /(b) /Elimination of expenses due to expense structure of Acquiring Fund. Eliminated expenses are not paid by the Acquiring Fund. /(c) /Elimination of Fees paid indirectly due to Manager's agreement to contractually cap expenses. /(d) /The Manager has agreed to contractually cap expenses in order to reduce total operating expenses of the Acquiring Fund. See accompanying notes. 27
SCHEDULE OF INVESTMENTS October 31, 2004 (unaudited) Principal Amount or Number of Shares Market Value - ---------------------------------------------------------------------------------------------------------------------------- Principal MidCap Principal MidCap MidCap Blend MidCap Blend Fund, Inc. Fund Combined Fund, Inc. Fund Combined - ---------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (96.95%) ADVERTISING AGENCIES (0.79%) 343,760 56,651 400,411 Interpublic Group (1) $4,214,498 $694,541 $4,909,039 AEROSPACE & DEFENSE (1.21%) 110,702 16,980 127,682 Raytheon 4,038,409 619,430 4,657,839 69,243 9,650 78,893 Rockwell Collins 2,456,049 342,286 2,798,335 AEROSPACE & DEFENSE EQUIPMENT (1.24%) 115,553 17,333 132,886 Alliant Techsystems (1) 6,643,142 996,474 7,639,616 AGRICULTURAL OPERATIONS (0.64%) 129,633 20,225 149,858 Delta & Pine Land 3,411,941 532,322 3,944,263 APPAREL MANUFACTURERS (0.83%) 122,100 17,491 139,591 Polo Ralph Lauren 4,509,153 645,943 5,155,096 APPLICATIONS SOFTWARE (0.97%) 113,698 18,308 132,006 Intuit (1) 5,157,341 830,451 5,987,792 AUDIO & VIDEO PRODUCTS (0.36%) 92,444 14,693 107,137 Polycom (1) 1,908,969 303,410 2,212,379 BEVERAGES-NON-ALCOHOLIC (0.44%) 111,453 19,004 130,457 Coca-Cola Enterprises 2,330,482 397,374 2,727,856 BROADCASTING SERVICES & PROGRAMMING (1.44%) 858,634 140,200 998,834 Liberty Media (1) 7,659,015 1,250,584 8,909,599 BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS (0.95%) 101,265 17,026 118,291 Vulcan Materials 5,040,972 847,554 5,888,526 BUILDING PRODUCTS-WOOD (0.54%) 60,836 9,781 70,617 Rayonier 2,883,626 463,619 3,347,245 CABLE TV (0.24%) 35,956 5,005 40,961 Liberty Media International (1) 1,296,214 180,430 1,476,644 CASINO HOTELS (1.45%) 132,020 21,323 153,343 Harrah's Entertainment 7,725,810 1,247,822 8,973,632 CASINO SERVICES (0.64%) 102,992 16,383 119,375 International Game Technology 3,402,856 541,294 3,944,150 COMMERCIAL BANKS (5.68%) 65,181 10,111 75,292 M&T Bank 6,713,643 1,041,433 7,755,076 77,127 12,819 89,946 Marshall & Ilsley 3,237,020 538,013 3,775,033 140,894 22,835 163,729 North Fork Bancorp 6,213,426 1,007,024 7,220,450 446,985 72,758 519,743 TCF Financial 14,088,967 2,293,332 16,382,299 COMMERCIAL SERVICE-FINANCE (2.20%) 89,913 13,128 103,041 Dun & Bradstreet (1) 5,085,479 742,520 5,827,999 131,096 18,267 149,363 MoneyGram International 2,438,386 339,766 2,778,152 130,526 22,245 152,771 Paychex 4,280,470 729,502 5,009,972 COMMERCIAL SERVICES (3.81%) 188,085 30,303 218,388 Arbitron (1) 6,803,035 1,096,060 7,899,095 85,126 12,472 97,598 Magellan Health Services (1) (2) 3,183,712 466,453 3,650,165 306,513 43,643 350,156 ServiceMaster 3,935,627 560,376 4,496,003 180,508 28,921 209,429 Weight Watchers International (1)2/ 6,483,847 1,038,842 7,522,689 COMPUTER SERVICES (3.01%) 260,136 39,811 299,947 Ceridian (1) 4,487,346 686,740 5,174,086 146,815 23,618 170,433 DST Systems (1) 6,584,653 1,059,267 7,643,920 88,618 13,977 102,595 Sungard Data Systems (1) 2,347,491 370,251 2,717,742 251,144 36,949 288,093 Unisys (1) 2,667,149 392,398 3,059,547 COMPUTERS-INTEGRATED SYSTEMS (2.69%) 148,594 24,749 173,343 Diebold 7,110,223 1,184,240 8,294,463 127,087 21,013 148,100 NCR (1) 7,161,352 1,184,082 8,345,434 COMPUTERS-MEMORY DEVICES (1.72%) 337,341 55,233 392,574 Storage Technology (1) 9,114,954 1,492,396 10,607,350 COMPUTERS-PERIPHERAL EQUIPMENT (0.98%) 62,275 10,617 72,892 Lexmark International (1) 5,175,675 882,379 6,058,054 COSMETICS & TOILETRIES (0.36%) 48,969 8,295 57,264 International Flavors & Fragrances 1,912,239 323,920 2,236,159 DATA PROCESSING & MANAGEMENT (1.29%) 57,180 8,979 66,159 Certegy 2,021,313 317,408 2,338,721 138,191 16,384 154,575 Reynolds & Reynolds 3,400,881 403,210 3,804,091 44,182 7,097 51,279 SEI Investments 1,590,110 255,421 1,845,531 DENTAL SUPPLIES & EQUIPMENT (0.89%) 91,599 14,118 105,717 Dentsply International 4,764,064 734,277 5,498,341 DIVERSIFIED MANUFACTURING OPERATIONS (1.00%) 72,226 11,536 83,762 Dover 2,836,315 453,019 3,289,334 58,418 8,300 66,718 Lancaster Colony 2,510,806 356,734 2,867,540 ELECTRIC-INTEGRATED (1.97%) 130,218 20,320 150,538 Ameren 6,250,464 975,360 7,225,824 67,955 10,426 78,381 Duquesne Light Holdings 1,166,108 178,910 1,345,018 84,097 13,300 97,397 Scana 3,119,998 493,430 3,613,428 ELECTRONIC COMPONENTS-MISCELLANEOUS (2.09%) 338,169 54,073 392,242 Gentex 11,162,959 1,784,950 12,947,909 FOOD-CANNED (0.95%) 472,362 77,903 550,265 Del Monte Foods (1) 5,044,826 832,004 5,876,830 FOOD-DAIRY PRODUCTS (0.43%) 76,978 12,693 89,671 Dean Foods (1) 2,297,793 378,886 2,676,679 FOOD-MISCELLANEOUS/DIVERSIFIED (0.84%) 126,359 20,347 146,706 McCormick 4,476,899 720,894 5,197,793 HEALTH CARE COST CONTAINMENT (0.72%) 242,840 38,494 281,334 First Health Group (1) 3,866,013 612,824 4,478,837 HOME FURNISHINGS (0.75%) 104,056 16,983 121,039 Ethan Allen Interiors (2) 3,963,493 646,882 4,610,375 HOSPITAL BEDS & EQUIPMENT (0.93%) 99,750 16,161 115,911 Hillenbrand Industries 4,965,555 804,495 5,770,050 INSURANCE BROKERS (1.57%) 246,094 38,956 285,050 Aon 5,022,778 795,092 5,817,870 120,989 18,303 139,292 Arthur J. Gallagher (2) 3,399,791 514,314 3,914,105 INVESTMENT MANAGEMENT & ADVISORY SERVICES (1.69%) 73,217 10,817 84,034 Eaton Vance 3,193,725 471,838 3,665,563 115,022 17,912 132,934 Federated Investors 3,334,488 519,269 3,853,757 79,826 13,092 92,918 Nuveen Investments 2,522,502 413,707 2,936,209 LIFE & HEALTH INSURANCE (1.54%) 99,916 16,269 116,185 Aflac 3,584,986 583,732 4,168,718 85,231 13,654 98,885 Torchmark 4,604,179 737,589 5,341,768 LINEN SUPPLY & RELATED ITEMS (0.93%) 114,562 19,132 133,694 Cintas 4,942,205 825,355 5,767,560 LOTTERY SERVICES (0.94%) 212,258 34,223 246,481 GTECH Holdings (2) 5,024,147 810,058 5,834,205 MEDICAL INFORMATION SYSTEM (1.55%) 390,323 62,661 452,984 IMS Health 8,267,041 1,327,160 9,594,201 MEDICAL INSTRUMENTS (3.54%) 92,458 14,722 107,180 Beckman Coulter 5,501,251 875,959 6,377,210 92,117 14,064 106,181 Biomet 4,300,022 656,508 4,956,530 73,264 12,240 85,504 Edwards Lifesciences (1) 2,504,163 418,363 2,922,526 98,839 16,029 114,868 Guidant 6,584,654 1,067,852 7,652,506 MEDICAL LABORATORY & TESTING SERVICE (1.39%) 161,357 26,650 188,007 Laboratory Corp. of America Holdings (1) 7,390,151 1,220,570 8,610,721 MEDICAL PRODUCTS (1.46%) 92,892 13,393 106,285 Becton Dickinson 4,876,830 703,133 5,579,963 72,629 12,562 85,191 Varian Medical Systems (1) 2,916,054 504,364 3,420,418 MEDICAL-DRUGS (1.39%) 260,333 41,495 301,828 Medimmune (1) 7,398,664 1,179,288 8,577,952 MEDICAL-HMO (0.33%) 21,990 3,198 25,188 Anthem (1) 1,767,996 257,119 2,025,115 MEDICAL-HOSPITALS (0.44%) 114,300 15,877 130,177 Health Management Associates 2,361,438 328,019 2,689,457 METAL-DIVERSIFIED (0.93%) 136,755 22,043 158,798 Freeport-McMoran Copper & Gold 4,953,266 798,397 5,751,663 MISCELLANEOUS INVESTING (3.05%) 99,708 16,806 116,514 AMB Property 3,739,050 630,225 4,369,275 74,917 11,806 86,723 Federal Realty Investment Trust 3,554,811 560,195 4,115,006 102,234 16,377 118,611 Kimco Realty 5,576,865 893,365 6,470,230 85,710 14,303 100,013 Prologis Trust 3,340,976 557,531 3,898,507 MULTI-LINE INSURANCE (0.89%) 79,186 12,309 91,495 Loews 4,743,241 737,309 5,480,550 MULTIMEDIA (1.12%) 141,098 23,249 164,347 Belo 3,280,528 540,539 3,821,067 57,012 8,636 65,648 E.W. Scripps 2,720,613 412,110 3,132,723 NETWORKING PRODUCTS (0.35%) 459,889 68,054 527,943 3Com (1) 1,903,940 281,744 2,185,684 NON-HAZARDOUS WASTE DISPOSAL (2.81%) 337,825 53,695 391,520 Republic Services 10,405,010 1,653,806 12,058,816 159,491 26,059 185,550 Waste Management 4,542,304 742,160 5,284,464 OFFICE AUTOMATION & EQUIPMENT (0.61%) 74,769 11,814 86,583 Pitney Bowes 3,271,144 516,863 3,788,007 OIL COMPANY-EXPLORATION & PRODUCTION (2.88%) 93,023 14,257 107,280 Apache 4,716,266 722,830 5,439,096 19,553 3,898 23,451 Burlington Resources 811,450 161,767 973,217 124,642 20,573 145,215 Pioneer Natural Resources 4,038,401 666,565 4,704,966 172,767 26,473 199,240 XTO Energy 5,766,962 883,669 6,650,631 OIL COMPANY-INTEGRATED (0.93%) 131,259 18,845 150,104 Marathon Oil 5,002,280 718,183 5,720,463 OIL-FIELD SERVICES (1.60%) 105,072 16,073 121,145 BJ Services 5,358,672 819,723 6,178,395 61,247 9,870 71,117 Weatherford International (1) 3,200,768 515,806 3,716,574 PHOTO EQUIPMENT & SUPPLIES (0.74%) 130,844 20,964 151,808 Eastman Kodak 3,961,956 634,790 4,596,746 PIPELINES (2.05%) 75,703 12,177 87,880 Equitable Resources 4,186,376 673,388 4,859,764 139,549 22,063 161,612 Questar 6,698,352 1,059,024 7,757,376 POWER CONVERTER & SUPPLY EQUIPMENT (0.84%) 231,775 36,840 268,615 American Power Conversion 4,468,622 710,275 5,178,897 PROPERTY & CASUALTY INSURANCE (3.50%) 212,641 35,503 248,144 Fidelity National Financial 8,025,071 1,339,883 9,364,954 86,923 14,174 101,097 Leucadia National 5,141,496 838,392 5,979,888 104,707 17,517 122,224 Mercury General 5,385,081 900,900 6,285,981 PUBLISHING-NEWSPAPERS (0.08%) 6,766 466 7,232 Knight Ridder 463,674 31,935 495,609 REAL ESTATE OPERATOR & DEVELOPER (0.95%) 126,776 20,266 147,042 Catellus Development 3,656,220 584,472 4,240,692 25,534 4,299 29,833 Forest City Enterprises 1,403,093 236,230 1,639,323 REINSURANCE (1.61%) 107,807 16,868 124,675 Everest Re Group 8,556,642 1,338,813 9,895,455 RETAIL-APPAREL & SHOE (0.70%) 141,969 22,496 164,465 Ross Stores 3,729,526 590,970 4,320,496 RETAIL-DISCOUNT (1.21%) 266,423 45,054 311,477 TJX 6,388,824 1,080,395 7,469,219 RETAIL-JEWELRY (0.60%) 109,218 17,958 127,176 Tiffany 3,203,364 526,708 3,730,072 RETAIL-REGIONAL DEPARTMENT STORE (0.80%) 70,927 10,714 81,641 Neiman Marcus Group 4,314,489 651,733 4,966,222 RETAIL-RESTAURANTS (1.48%) 180,613 30,120 210,733 Yum! Brands 7,856,666 1,310,220 9,166,886 TELEPHONE-INTEGRATED (2.29%) 673,658 108,987 782,645 Citizens Communications 9,027,017 1,460,426 10,487,443 90,441 14,424 104,865 IDT (1) (2) 1,249,895 199,339 1,449,234 25,500 4,331 29,831 Telephone & Data Systems 1,909,950 324,392 2,234,342 TEXTILE-HOME FURNISHINGS (1.25%) 77,973 12,339 90,312 Mohawk Industries (1) 6,633,943 1,049,802 7,683,745 TOBACCO (1.48%) 193,252 29,302 222,554 UST 7,954,252 1,206,070 9,160,322 TOYS (0.71%) 215,596 35,322 250,918 Mattel 3,775,086 618,488 4,393,574 TRANSPORT-TRUCK (0.67%) 172,842 28,469 201,311 Heartland Express 3,536,347 582,476 4,118,823 TOTAL COMMON STOCKS 517,090,322 82,242,429 599,332,751 COMMERCIAL PAPER (3.00%) FINANCE-CONSUMER LOANS (2.37%) 14,661,696 - 14,661,696 Investment in Joint Trading Account; 14,661,696 - 14,661,696 Household Finance 1.84%; 11/01/04 FINANCEMORTGAGE LOAN/BANKER (0.63%) - 3,900,634 3,900,634 Investment in Joint Trading Account; - 3,900,634 3,900,634 Federal Home Loan Bank 1.69%; 11/01/04 TOTAL COMMERCIAL PAPER 14,661,696 3,900,634 18,562,330 REPURCHASE AGREEMENTS (1.72%) 10,615,548 - 10,615,548 Goldman Sachs; 1.75%; 10/24/04 10,614,000 - 10,614,000 (collateralized by U.S. Treasuries; $10,705,925; 11/18/04-01/15/12)(3) TOTAL REPURCHASE AGREEMENTS 10,614,000 - 10,614,000 TOTAL PORTFOLIO INVESTMENTS (101.67%) 542,366,018 86,143,063 628,509,081 Liabilities, net of cash, receivables and other assets (-1.67%) (10,412,527) 66,419 (10,346,108) TOTAL NET ASSETS $531,953,491 $86,209,482 $618,162,973 ==================================================== (1) Non-income producing security. (2) Security or a portion of the security was on loan at the end of the period. (3) Security was purchased with the cash proceeds from securities loans.
UNREALIZED APPRECIATION (DEPRECIATION) The net federal income tax unrealized appreciation (depreciation) and federal tax cost of investments held by the fund as of the period end were as follows. Unrealized Appreciation $108,932,692 $10,935,228 $119,867,920 Unrealized Depreciation (9,815,847) (2,151,751) (11,967,598) Net Unrealized Appreciation (Depreciation) 99,116,845 8,783,477 107,900,322 Cost for federal income tax purposes $443,249,173 $77,359,586 $520,608,759
INVESTMENTS BY SECTOR (UNAUDITED) Percentage of Total Value Sector Value ------------------------- ------ -------------------------------------------- 23.82% 19.38% 23.21% Financial $129,172,251 $16,694,265 $145,866,516 7.33 7.22 7.32 Energy 39,779,527 6,220,955 46,000,482 11.36 11.29 11.35 Industrial 61,602,891 9,723,954 71,326,845 6.57 6.59 6.57 Communications 35,634,313 5,679,451 41,313,764 20.62 20.50 20.61 Consumer, Non-cyclical 111,838,125 17,661,320 129,499,445 12.07 12.24 12.09 Consumer, Cyclical 65,469,561 10,545,670 76,015,231 1.94 1.91 1.94 Utilities 10,536,571 1,647,700 12,184,271 1.80 1.84 1.80 Basic Materials 9,749,132 1,585,937 11,335,069 13.54 13.52 13.54 Technology 73,442,152 11,644,785 85,086,937 0.95 0.98 0.95 Diversified 5,141,495 838,392 5,979,887 - 4.53 0.62 Government - 3,900,634 3,900,634 -------------------------------------------- TOTAL $542,366,018 $86,143,063 $628,509,081 ============================================= Percentages are adjusted to reflect the impact of currency contracts, futures contracts, and swap agreements, if applicable. See accompanying notes. As of October 31, 2004, all securities held by the Acquired Fund would comply with the investment restrictions of the Acquiring Fund.
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004 (UNAUDITED) -------------------------------------------------------------------------------
PRINCIPAL COMBINED PARTNERS PARTNERS PARTNERS MIDCAP GROWTH MIDCAP PRO FORMA MIDCAP FUND, INC. GROWTH FUND ADJUSTMENTS/(C)/ GROWTH FUND - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- INVESTMENT IN SECURITIES--AT COST.. $ 28,453,700 $ 39,370,692 $ -- $ 67,824,392 ============ ============ =========== ============ ASSETS Investment in securities--at value. $ 32,204,834 $ 44,291,857 $ -- $ 76,496,691 Cash.................. 419,919 892,071 -- 1,311,990 Receivables: Capital Shares sold.. 1,034 9,193 -- 10,227 Dividends and interest............ 5,225 7,368 -- 12,593 Expense reimbursement from Manager........ 545 -- -- 545 Investment securities sold................ 679,469 999,854 -- 1,679,323 Other assets.......... 147 -- -- 147 Prepaid expenses...... 6 -- -- 6 ------------ ------------ ----------- ------------ Total Assets 33,311,179 46,200,343 -- 79,511,522 LIABILITIES Accrued management and investment advisory fees................. 5,444 8,399 -- 13,843 Accrued administrative service fees......... -- 824 -- 824 Accrued distribution fees................. 2,833 2,490 -- 5,323 Accrued service fees.. -- 1,005 -- 1,005 Accrued transfer and administrative fees.. 30,872 10,883 -- 41,755 Accrued other expenses 26,701 6,417 -- 33,118 Payables: Capital Shares reacquired.......... 45,763 19,075 -- 64,838 Investment securities purchased........... 1,170,817 1,645,376 -- 2,816,193 Reorganization Costs. -- -- 16,665 16,665 ------------ ------------ ----------- ------------ Total Liabilities 1,282,430 1,694,469 16,665 2,993,564 ------------ ------------ ----------- ------------ NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 32,028,749 $ 44,505,874 $ (16,665) $ 76,517,958 ============ ============ =========== ============ NET ASSETS CONSIST OF: Capital Shares and additional paid-in-capital...... $ 40,269,526 $ 42,258,347 $ -- $ 82,527,873 Accumulated undistributed (overdistributed) net investment income (operating loss)..... -- -- (16,665) (16,665) Accumulated undistributed (overdistributed) net realized gain (loss). (11,991,911) (2,673,638) -- (14,665,549) Net unrealized appreciation (depreciation) of investments.......... 3,751,134 4,921,165 -- 8,672,299 ------------ ------------ ----------- ------------ Total Net Assets $ 32,028,749 $ 44,505,874 $ (16,665) $ 76,517,958 ============ ============ =========== ============ CAPITAL STOCK (PAR VALUE: $.01 A SHARE): Shares authorized..... 100,000,000 225,000,000 -- 225,000,000 NET ASSET VALUE PER SHARE: Advisors Preferred: Net Assets........... N/A $ 13,412,816 N/A $ 13,412,816 Shares issued and outstanding.......... 1,751,132 1,751,132 Net asset value per share................ $ 7.66 $ 7.66 ============ ============ Advisors Select: Net Assets............... N/A $ 6,991,117 N/A $ 6,991,117 Shares issued and outstanding.......... 932,953 932,953 Net asset value per share................ $ 7.49 $ 7.49 ============ ============ Class A: Net Assets... $ 22,677,674 N/A $ (11,870) $ 22,665,804 Shares issued and outstanding.......... 4,402,514 (1,360,124) 3,042,390 Net asset value per share................ $ 5.15 -- $ 7.45 Maximum offering price per share /(a)/ $ 5.46 -- $ 7.90 ============ == ============ Class B: Net Assets... $ 9,351,075 N/A $ (4,795) $ 9,346,280 Shares issued and outstanding.......... 1,864,930 (610,396) 1,254,534 Net asset value per share /(b)/.......... $ 5.01 -- $ 7.45 ============ == ============ Class J: Net Assets... N/A $ 15,435,946 N/A $ 15,435,946 Shares issued and outstanding.......... 2,144,812 2,144,812 Net asset value per share /(b)/.......... $ 7.20 $ 7.20 ============ ============ Institutional: Net Assets............... N/A $ 8,754 N/A $ 8,754 Shares issued and outstanding.......... 1,175 1,175 Net asset value per share................ $ 7.45 $ 7.45 ============ ============ Preferred: Net Assets. N/A $ 8,532,644 N/A $ 8,532,644 Shares issued and outstanding.......... 1,112,762 1,112,762 Net asset value per share................ $ 7.67 $ 7.67 ============ ============ Select: Net Assets.... N/A $ 124,597 N/A $ 124,597 Shares issued and outstanding.......... 16,372 16,372 Net asset value per share................ $ 7.61 $ 7.61 ============ ============
/(a) /Maximum offering price equals net asset value plus a front-end sales charge of 5.75% of the offering price or 6.10% of the net asset value. /(b) /Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. /(c) /Reduction in net assets to reflect the estimated expenses of the Reorganization. See accompanying notes. 1 STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2004 (UNAUDITED) ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
COMBINED PRINCIPAL PARTNERS PARTNERS PARTNERS MIDCAP MIDCAP PRO FORMA MIDCAP GROWTH FUND, INC. GROWTH FUND ADJUSTMENTS GROWTH FUND - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- NET INVESTMENT INCOME (OPERATING LOSS) Income: Dividends............ $ 93,533 $ 106,090 $ -- $ 199,623 Interest............. 537 1,982 -- 2,519 ----------- ---------- -------- ----------- Total Income 94,070 108,072 -- 202,142 Expenses: Management and investment advisory fees................ 294,085 366,292 32,512/(A)/ 692,889 Distribution fees - Advisors Preferred.. -- 25,374 -- 25,374 Distribution fees - Advisors Select..... -- 14,998 -- 14,998 Distribution fees - Class A............. 58,322 -- -- 58,322 Distribution fees - Class B............. 86,288 -- -- 86,288 Distribution fees - Class J............. -- 65,713 -- 65,713 Distribution fees - Select.............. -- 224 -- 224 Administrative service fees - Advisors Preferred.. -- 15,225 -- 15,225 Administrative service fees - Advisors Select..... -- 9,998 -- 9,998 Administrative service fees - Preferred........... -- 8,916 -- 8,916 Administrative service fees - Select.............. -- 291 -- 291 Registration fees - Class A............. 11,302 -- -- 11,302 Registration fees - Class B............. 10,511 -- -- 10,511 Registration fees - Class J............. -- 11,699 -- 11,699 Service fees - Advisors Preferred.. -- 17,254 -- 17,254 Service fees - Advisors Select..... -- 12,498 -- 12,498 Service fees - Preferred........... -- 12,158 -- 12,158 Service fees - Select -- 336 -- 336 Shareholder reports - Class A............. 5,825 -- -- 5,825 Shareholder reports - Class B............. 2,340 -- -- 2,340 Shareholder reports - Class J............. -- 4,790 -- 4,790 Transfer and administrative fees - Class A........... 34,754 -- -- 34,754 Transfer and administrative fees - Class B........... 14,190 -- -- 14,190 Transfer and administrative fees - Class J........... -- 52,593 -- 52,593 Auditing and legal fees................ 6,491 -- (6,491)/(B)/ -- Custodian fees....... 20,191 -- (20,191)/(B)/ -- Directors' expenses.. 1,217 -- (1,217)/(B)/ -- Registration fees.... 20,862 -- -- 20,862 Transfer and administrative fees. 131,208 -- 587/(B)/ 131,795 Other expenses....... 2,180 -- (2,180)/(B)/ -- ----------- ---------- -------- ----------- Total Gross Expenses 699,766 618,359 3,020 1,321,145 Less: Fees paid indirectly.......... 24,151 37,644 (61,795)/(C)/ -- Less: Reimbursement from Manager - Class A................... 17,594 -- 26,711/(D)/ 44,305 Less: Reimbursement from Manager - Class B................... 7,104 -- 9,711/(D)/ 16,815 ----------- ---------- -------- ----------- Total Net Expenses 650,917 580,715 28,393 1,260,025 ----------- ---------- -------- ----------- Net Investment Income (Operating Loss) (556,847) (472,643) (28,393) (1,057,883) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gain (loss) from: Investment transactions........ 2,923,337 (257,608) -- 2,665,729 Change in unrealized appreciation/depreciation of: Investments........... (2,050,663) 1,130,960 -- (919,703) ----------- ---------- -------- ----------- Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies 872,674 873,352 -- 1,746,026 ----------- ---------- -------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations $ 315,827 $ 400,709 $(28,393) $ 688,143 =========== ========== ======== ===========
/(a) /Management and investment advisory fees increased to reflect annual percentage rate of the Acquiring Fund. /(b) /Elimination of expenses due to expense structure of Acquiring Fund. Eliminated expenses are not paid by the Acquiring Fund. /(c) /Elimination of Fees paid indirectly due to Manager's agreement to contractually cap expenses. /(d) /The Manager has agreed to contractually cap expenses in order to reduce total operating expenses of the Acquiring Fund. See accompanying notes. 30
SCHEDULE OF INVESTMENTS October 31, 2004 (unaudited) Principal Amount or Number of Shares Market Value - ------------------------------------------------------------------------------------------------------------------------------------ Principal Partners Principal Partners Partners MidCap MidCap Partners MidCap MidCap Growth Fund, Inc. Growth Fund Combined Growth Fund, Inc. Growth Fund Combined - ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS (99.95%) AIRLINES (1.06%) 24,210 Southwest Airlines $381,792 $430,206 $811,998 27,280 51,490 APPAREL MANUFACTURERS (1.47%) 10,250 Coach (1) 477,958 13,880 24,130 647,224 1,125,182 APPLICATIONS SOFTWARE (1.01%) 13,070 Citrix Systems (1) 315,379 19,110 32,180 461,124 776,503 AUDIO & VIDEO PRODUCTS (2.11%) 2,410 Harman International Industries 289,634 3,290 5,700 395,392 685,026 18,810 Polycom (1) 388,426 26,170 44,980 540,411 928,837 BEVERAGES-WINE & SPIRITS (0.65%) 5,360 Constellation Brands (1) 210,273 7,300 12,660 286,379 496,652 BUILDING PRODUCTS-AIR & HEATING (0.73%) 7,980 American Standard (1) 291,829 7,290 15,270 266,595 558,424 BUILDING-RESIDENTIAL & COMMERCIAL (0.82%) 5,070 DR Horton 152,100 7,010 12,080 210,300 362,400 1,180 Ryland Group 112,560 1,640 2,820 156,440 269,000 CASINO HOTELS (3.07%) 5,240 MGM Mirage (1) 281,912 7,250 12,490 390,050 671,962 7,700 Station Casinos 392,315 10,250 17,950 522,237 914,552 5,300 Wynn Resorts (1) 308,195 7,900 13,200 459,385 767,580 CASINO SERVICES (0.62%) 9,370 Scientific Games (1) 198,457 12,970 22,340 274,705 473,162 CELLULAR TELECOMMUNICATIONS (1.67%) 4,960 NII Holdings (1) 219,579 6,260 11,220 277,130 496,709 10,640 Western Wireless (1) 310,050 16,200 26,840 472,068 782,118 CHEMICALS-DIVERSIFIED (0.80%) 11,220 Lyondell Chemical 257,836 15,510 26,730 356,420 614,256 CHEMICALS-SPECIALTY (0.44%) 2,940 Eastman Chemical 139,562 4,100 7,040 194,627 334,189 CIRCUIT BOARDS (0.39%) 3,690 Benchmark Electronics (1) 125,349 5,100 8,790 173,247 298,596 COAL (0.50%) 2,540 Peabody Energy 162,001 3,500 6,040 223,230 385,231 COMMERCIAL BANKS (1.86%) 2,830 City National 194,987 3,930 6,760 270,777 465,764 4,260 Silicon Valley Bancshares (1) 170,443 5,880 10,140 235,259 405,702 5,670 UCBH Holdings 244,320 7,190 12,860 309,817 554,137 COMMERCIAL SERVICES (0.81%) 6,460 Alliance Data Systems (1) 273,129 8,140 14,600 344,159 617,288 COMMUNICATIONS SOFTWARE (0.67%) 4,080 Avid Technology (1) 216,158 5,610 9,690 297,218 513,376 COMPUTER SERVICES (1.01%) 10,050 Cognizant Technology Solutions (1) 341,700 12,760 22,810 433,840 775,540 COMPUTERS (2.55%) 8,230 Apple Computer (1) 432,322 11,370 19,600 597,266 1,029,588 4,450 Research In Motion (1) 392,490 6,000 10,450 529,200 921,690 COMPUTERS-PERIPHERAL EQUIPMENT (0.41%) 1,590 Lexmark International (1) 132,145 2,210 3,800 183,673 315,818 CONSUMER PRODUCTS- MISCELLANEOUS (0.87%) 5,170 Clorox 282,282 7,050 12,220 384,930 667,212 CONTAINERS-METAL & GLASS (0.56%) 4,720 Ball 188,092 5,960 10,680 237,506 425,598 DATA PROCESSING & MANAGEMENT (2.47%) 7,260 Choicepoint (1) 302,234 9,190 16,450 382,580 684,814 3,610 Fiserv (1) 128,299 5,010 8,620 178,055 306,354 4,510 Global Payments 246,968 6,250 10,760 342,250 589,218 3,650 SEI Investments 131,363 5,060 8,710 182,109 313,472 DENTAL SUPPLIES & EQUIPMENT (0.70%) 6,180 Patterson (1) 231,750 8,200 14,380 307,500 539,250 DIAGNOSTIC KITS (0.59%) 3,360 Dade Behring Holdings (1) 189,134 4,650 8,010 261,749 450,883 DISPOSABLE MEDICAL PRODUCTS (1.58%) 8,910 C.R. Bard 506,088 12,390 21,300 703,752 1,209,840 DISTRIBUTION-WHOLESALE (1.00%) 5,180 CDW 321,315 7,110 12,290 441,033 762,348 DIVERSIFIED MANUFACTURING OPERATIONS (1.56%) 4,000 Eaton 255,800 5,250 9,250 335,737 591,537 6,780 Pentair 253,436 9,400 16,180 351,372 604,808 E-COMMERCE-SERVICES (1.61%) 18,790 Monster Worldwide (1) 527,059 25,240 44,030 707,982 1,235,041 ELECTRONIC COMPONENTS- MISCELLANEOUS (0.88%) 35,340 Sanmina (1) 282,720 48,970 84,310 391,760 674,480 ELECTRONIC COMPONENTS- SEMICONDUCTOR (2.93%) 10,880 Advanced Micro Devices (1) 183,002 15,070 25,950 253,477 436,479 11,500 Micron Technology (1) 140,070 15,920 27,420 193,906 333,976 10,850 National Semiconductor (1) 181,195 15,040 25,890 251,168 432,363 42,840 PMC - Sierra (1) 439,538 58,870 101,710 604,006 1,043,544 ENTERPRISE SOFTWARE & SERVICE (0.72%) 25,360 BEA Systems (1) 205,923 42,500 67,860 345,100 551,023 32 MicroStrategy (1) 4 - 32 - 4 ENTERTAINMENT SOFTWARE (0.58%) 5,740 Take-Two Interactive Software (1) 189,190 7,740 13,480 255,110 444,300 FINANCE-INVESTMENT BANKER & BROKER (0.76%) 2,580 Bear Stearns 244,455 3,580 6,160 339,205 583,660 FINANCE-MORTGAGE LOAN/BANKER (0.72%) 5,480 Doral Financial 230,050 7,600 13,080 319,048 549,098 FINANCIAL GUARANTEE INSURANCE (0.72%) 3,600 MGIC Investment 231,516 4,970 8,570 319,621 551,137 FOOD-MISCELLANEOUS/DIVERSIFIED (0.72%) 6,660 McCormick 235,964 8,810 15,470 312,138 548,102 FOOD-RETAIL (0.81%) 2,710 Whole Foods Market 220,675 4,860 7,570 395,750 616,425 HOTELS & MOTELS (2.42%) 10,500 Marriott International 572,145 13,290 23,790 724,172 1,296,317 4,960 Starwood Hotels & Resorts Worldwide 236,741 6,690 11,650 319,314 556,055 HUMAN RESOURCES (0.73%) 8,840 Robert Half International 234,525 12,220 21,060 324,197 558,722 INDUSTRIAL AUTOMATION & ROBOTS (1.32%) 10,190 Rockwell International 424,821 14,090 24,280 587,412 1,012,233 INSTRUMENTS-SCIENTIFIC (2.29%) 8,330 Fisher Scientific International (1) 477,809 10,740 19,070 616,047 1,093,856 6,800 Waters (1) 280,772 9,060 15,860 374,087 654,859 INTERNET BROKERS (1.17%) 29,150 E*trade Group (1) 376,035 40,460 69,610 521,934 897,969 INTERNET CONTENT-INFORMATION & NEWS (1.22%) 4,430 Ask Jeeves (1) 114,205 6,150 10,580 158,547 272,752 34,570 CNET Networks (1) 282,437 46,040 80,610 376,147 658,584 INTERNET INFRASTRUCTURE SOFTWARE (2.42%) 14,140 Akamai Technologies (1) 195,839 19,270 33,410 266,890 462,729 8,540 F5 Networks (1) 341,173 11,640 20,180 465,018 806,191 25,550 TIBCO Software (1) 248,346 35,260 60,810 342,727 591,073 INTERNET SECURITY (2.62%) 10,070 CheckFree (1) 312,170 13,544 23,614 419,864 732,034 19,830 VeriSign (1) 532,039 27,410 47,240 735,410 1,267,449 INVESTMENT MANAGEMENT & ADVISORY SERVICES (2.21%) 4,965 Affiliated Managers Group (1) 277,246 6,475 11,440 361,564 638,810 8,350 T. Rowe Price Group 465,679 10,520 18,870 586,700 1,052,379 LASERS-SYSTEMS & COMPONENTS (0.75%) 8,410 Cymer (1) 239,853 11,670 20,080 332,828 572,681 LEISURE & RECREATION PRODUCTS (1.34%) 4,450 Brunswick 208,794 5,970 10,420 280,112 488,906 7,810 WMS Industries (1) 228,443 10,570 18,380 309,173 537,616 MACHINERY-PRINT TRADE (0.59%) 3,570 Zebra Technologies (1) 189,174 4,955 8,525 262,565 451,739 MEDICAL INSTRUMENTS (1.15%) 7,930 Biomet 370,172 10,960 18,890 511,613 881,785 MEDICAL LABORATORY & TESTING SERVICE (0.73%) 5,170 Laboratory Corp. of America Holdings (1) 236,786 7,100 12,270 325,180 561,966 MEDICAL PRODUCTS (2.70%) 3,240 Cooper 227,934 4,490 7,730 315,872 543,806 4,020 Henry Schein (1) 254,185 5,590 9,610 353,456 607,641 7,380 INAMED (1) 392,247 9,850 17,230 523,527 915,774 MEDICAL-BIOMEDICAL/GENE (1.02%) 7,020 Charles River Laboratories International 328,466 9,630 16,650 (1) 450,588 779,054 MEDICAL-DRUGS (2.86%) 6,250 Elan (1) 161,250 8,660 14,910 223,428 384,678 8,590 Medimmune (1) 244,128 11,870 20,460 337,345 581,473 5,370 OSI Pharmaceuticals (1) 348,942 7,320 12,690 475,654 824,596 3,600 Sepracor (1) 165,348 4,990 8,590 229,191 394,539 MEDICAL-HMO (0.97%) 2,090 AMERIGROUP (1) 125,400 2,900 4,990 174,000 299,400 5,360 Pacificare Health Systems (1) 190,923 7,140 12,500 254,327 445,250 MEDICAL-NURSING HOMES (0.47%) 5,190 Manor Care 169,921 5,890 11,080 192,839 362,760 METAL-COPPER (0.48%) 1,760 Phelps Dodge 154,070 2,420 4,180 211,847 365,917 MISCELLANEOUS INVESTING (0.54%) 12,170 Host Marriott (1) 177,074 16,300 28,470 237,165 414,239 MOTION PICTURES & SERVICES (0.73%) 5,980 DreamWorks Animation (1) 233,519 8,290 14,270 323,725 557,244 NETWORKING PRODUCTS (3.20%) 28,290 Juniper Networks (1) 752,797 39,330 67,620 1,046,571 1,799,368 11,230 Network Appliance (1) 274,798 15,430 26,660 377,572 652,370 OIL & GAS DRILLING (0.30%) - Transocean Sedco Forex (1) - 6,380 6,380 - 224,895 224,895 OIL COMPANY-EXPLORATION & PRODUCTION (1.80%) 11,620 Range Resources 182,434 15,010 26,630 235,657 418,091 1,990 Ultra Petroleum (1) 96,714 2,740 4,730 133,164 229,878 9,335 XTO Energy 311,602 12,407 21,742 414,146 725,748 OIL FIELD MACHINERY & EQUIPMENT (0.67%) 3,770 Smith International (1) 218,962 5,010 8,780 290,981 509,943 OIL REFINING & MARKETING (0.66%) 3,680 Ashland 212,042 5,090 8,770 293,286 505,328 OIL-FIELD SERVICES (0.92%) 6,970 Baker Hughes 298,525 9,400 16,370 402,602 701,127 OPTICAL SUPPLIES (1.11%) 5,860 Bausch & Lomb 357,226 8,100 13,960 493,776 851,002 PIPELINES (0.35%) 3,800 Western Gas Resources 111,302 5,220 9,020 152,894 264,196 RADIO (0.38%) 31,070 Sirius Satellite Radio (1) 121,173 42,910 73,980 167,349 288,522 RETAIL-APPAREL & SHOE (2.52%) 5,060 American Eagle Outfitters 206,853 6,960 12,020 284,525 491,378 9,260 Chico's FAS (1) 370,678 12,490 21,750 499,974 870,652 5,850 Urban Outfitters (1) 239,850 8,040 13,890 329,640 569,490 RETAIL-BEDDING (1.54%) 12,110 Bed Bath & Beyond (1) 493,967 16,670 28,780 679,969 1,173,936 RETAIL-CONSUMER ELECTRONICS (0.35%) RadioShack - 8,880 8,880 - 265,778 265,778 RETAIL-MAIL ORDER (1.29%) 11,160 Williams-Sonoma (1) 425,977 14,700 25,860 561,099 987,076 RETAIL-RESTAURANTS (2.09%) 4,010 P.F. Chang's China Bistro (1) 203,868 5,380 9,390 273,519 477,387 10,780 Yum! Brands 468,930 14,900 25,680 648,150 1,117,080 SAVINGS & LOANS-THRIFTS (0.62%) 9,760 Sovereign Bancorp 211,304 12,290 22,050 266,079 477,383 SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (1.10%) 12,390 Marvell Technology Group (1) 353,982 17,120 29,510 489,118 843,100 SEMICONDUCTOR EQUIPMENT (1.77%) 3,270 Kla-Tencor (1) 148,883 4,520 7,790 205,796 354,679 16,530 Lam Research (1) 430,276 22,040 38,570 573,701 1,003,977 STEEL-SPECIALTY (0.66%) 12,520 Allegheny Technologies 210,461 17,190 29,710 288,964 499,425 TELECOMMUNICATION EQUIPMENT (1.00%) 15,590 Comverse Technology (1) 321,778 21,660 37,250 447,062 768,840 TELECOMMUNICATION SERVICES (0.45%) 5,760 Amdocs (1) 144,864 7,990 13,750 200,949 345,813 THERAPEUTICS (1.62%) 1,800 Eyetech Pharmaceuticals (1) 76,392 2,490 4,290 105,676 182,068 7,780 MGI Pharma (1) 207,493 10,820 18,600 288,569 496,062 5,080 Neurocrine Biosciences (1) 236,474 6,850 11,930 318,867 555,341 TRANSPORT-MARINE (0.78%) 5,430 Teekay Shipping 250,866 7,520 12,950 347,424 598,290 TRANSPORT-SERVICES (0.77%) 3,790 Expeditors International of Washington 216,409 6,520 10,310 372,292 588,701 TRANSPORT-TRUCK (0.53%) 3,510 Yellow Roadway (1) 168,445 4,870 8,380 233,711 402,156 WEB HOSTING & DESIGN (0.31%) 3,680 Macromedia (1) 99,875 5,100 8,780 138,414 238,289 TOTAL COMMON STOCKS 32,204,834 44,291,857 76,496,691 TOTAL PORTFOLIO INVESTMENTS (99.95%) 32,204,834 44,291,857 76,496,691 Cash, receivables and other assets, net of liabilities (0.05%) (176,085) 214,017 37,932 TOTAL NET ASSETS (100.00%) $32,028,749 $44,505,874 $76,534,623 =============================================== (1) Non-income producing security.
UNREALIZED APPRECIATION (DEPRECIATION) The net federal income tax unrealized appreciation (depreciation) and federal tax cost of investments held by the fund as of the period end were as follows: Unrealized Appreciation $4,385,140 $5,601,251 $9,986,391 Unrealized Depreciation (674,095) (771,131) (1,445,226) Net Unrealized Appreciation (Depreciation) 3,711,045 4,830,120 8,541,165 Cost for federal income tax purposes $28,493,789 $39,461,737 $67,955,526
INVESTMENTS BY SECTOR (UNAUDITED) Percentage of Total Value Sector Value - ----------------------------------------------------------------------------------------------------------------------------------- 21.13% 21.28% 21.22% Consumer, Cyclical $6,806,001 $9,426,122 $16,232,123 21.05 20.94 20.99 Consumer, Non-cyclical 6,779,340 9,277,040 16,056,380 15.25 15.27 15.26 Communications 4,911,811 6,762,539 11,674,350 15.17 15.25 15.21 Technology 4,883,686 6,753,691 11,637,377 11.32 11.02 11.15 Industrial 3,645,376 4,882,585 8,527,961 8.77 8.51 8.62 Financial 2,823,109 3,767,169 6,590,278 4.29 4.69 4.52 Energy 1,381,540 2,077,568 3,459,108 3.02 3.04 3.03 Basic Materials 973,971 1,345,143 2,319,114 TOTAL $32,204,834 $44,291,857 $76,496,691 ============================================== Percentages are adjusted to reflect the impact of currency contracts, futures contracts, and swap agreements, if applicable. See accompanying notes. As of October 31, 2004, all securities held by the Acquired Fund would comply with the investment restrictions of the Acquiring Fund.
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004 (UNAUDITED) -------------------------------------------------------------------------------
PRINCIPAL COMBINED SMALLCAP SMALLCAP PRO FORMA SMALLCAP FUND, INC. BLEND FUND ADJUSTMENTS/(D)/ BLEND FUND - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- INVESTMENT IN SECURITIES--AT COST.. $113,314,514 $ 95,256,243 $ -- $208,570,757 ============ ============ =========== ============ ASSETS Investment in securities--at value. $119,160,124/(c)/ $104,577,803 $ -- $223,737,927/(c)/ Cash.................. 28,882 16,768 -- 45,650 Receivables: Capital Shares sold.. 17,758 109,419 -- 127,177 Dividends and interest............ 28,227 17,465 -- 45,692 Investment securities sold................ 387,374 975,429 -- 1,362,803 Other assets.......... 767 -- -- 767 ------------ ------------ ----------- ------------ Total Assets 119,623,132 105,696,884 -- 225,320,016 LIABILITIES Accrued management and investment advisory fees................. 17,172 14,549 -- 31,721 Accrued administrative service fees......... -- 246 -- 246 Accrued distribution fees................. 8,360 7,511 -- 15,871 Accrued directors' expense.............. 75 -- -- 75 Accrued service fees.. -- 312 -- 312 Accrued transfer and administrative fees.. 79,769 37,168 -- 116,937 Accrued other expenses 31,716 11,339 -- 43,055 Payables: Capital Shares reacquired.......... 59,060 17,360 -- 76,420 Investment securities purchased........... 2,371,890 2,903,946 -- 5,275,836 Variation margin on futures contracts... -- 3,500 -- 3,500 Reorganization costs. -- -- 69,959 69,959 Collateral obligation on securities loaned, at value............. 10,207,000 -- -- 10,207,000 ------------ ------------ ----------- ------------ Total Liabilities 12,775,042 2,995,931 69,959 15,840,932 ------------ ------------ ----------- ------------ NET ASSETS APPLICABLE TO OUTSTANDING SHARES $106,848,090 $102,700,953 $ (69,959) $209,479,084 ============ ============ =========== ============ NET ASSETS CONSIST OF: Capital Shares and additional paid-in-capital...... $117,892,520 $ 87,034,717 $ -- $204,927,237 Accumulated undistributed (overdistributed) net investment income (operating loss)..... -- -- (69,959) (69,959) Accumulated undistributed (overdistributed) net realized gain (loss). (16,890,040) 6,242,023 -- (10,648,017) Net unrealized appreciation (depreciation) of investments.......... 5,845,610 9,424,213 -- 15,269,823 ------------ ------------ ----------- ------------ Total Net Assets $106,848,090 $102,700,953 $ (69,959) $209,479,084 ============ ============ =========== ============ CAPITAL STOCK (PAR VALUE: $.01 A SHARE): Shares authorized..... 100,000,000 225,000,000 -- 225,000,000 NET ASSET VALUE PER SHARE: Advisors Preferred: Net Assets........... N/A $ 2,563,339 N/A $ 2,563,339 Shares issued and outstanding.......... 178,529 178,529 Net asset value per share................ $ 14.36 $ 14.36 ============ ============ Advisors Select: Net Assets............... N/A $ 1,568,048 N/A $ 1,568,048 Shares issued and outstanding.......... 109,729 109,729 Net asset value per share................ $ 14.29 $ 14.29 ============ ============ Class A: Net Assets... $ 82,730,657 N/A $ (53,002) $ 82,677,655 Shares issued and outstanding.......... 9,018,226 (3,268,737) 5,749,489 Net asset value per share................ $ 9.17 -- $ 14.38 Maximum offering price per share /(a)/ $ 9.73 -- $ 15.26 ============ == ============ Class B: Net Assets... $ 24,117,433 N/A $ (16,957) $ 24,100,476 Shares issued and outstanding.......... 2,777,782 (1,101,810) 1,675,972 Net asset value per share /(b)/.......... $ 8.68 -- $ 14.38 ============ == ============ Class J: Net Assets... N/A $ 77,396,158 N/A $ 77,396,158 Shares issued and outstanding.......... 5,530,234 5,530,234 Net asset value per share /(b)/.......... $ 14.00 $ 14.00 ============ ============ Institutional: Net Assets............... N/A $ 15,701,438 N/A $ 15,701,438 Shares issued and outstanding.......... 1,091,900 1,091,900 Net asset value per share................ $ 14.38 $ 14.38 ============ ============ Preferred: Net Assets. N/A $ 5,455,808 N/A $ 5,455,808 Shares issued and outstanding.......... 375,998 375,998 Net asset value per share................ $ 14.51 $ 14.51 ============ ============ Select: Net Assets.... N/A $ 16,162 N/A $ 16,162 Shares issued and outstanding.......... 1,122 1,122 Net asset value per share................ $ 14.40 $ 14.40 ============ ============
/(a) /Maximum offering price equals net asset value plus a front-end sales charge of 5.75% of the offering price or 6.10% of the net asset value. /(b) /Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. /(c) /Includes fair market value of securities loaned, see "Securities Lending" in Notes to Financial Statements. /(d) /Reduction in net assets to reflect the estimated expenses of the Reorganization. See accompanying notes. 1 STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2004 (UNAUDITED) ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
PRINCIPAL COMBINED SMALLCAP SMALLCAP PRO FORMA SMALLCAP FUND, INC. BLEND FUND ADJUSTMENTS BLEND FUND - --------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- NET INVESTMENT INCOME (OPERATING LOSS) Income: Dividends............ $ 768,499 $ 963,418 $ -- $ 1,731,917 Interest............. 37,816 85,549 -- 123,365 Securities lending... 29,859 -- -- 29,859 ----------- ---------- --------- ----------- Total Income 836,174 1,048,967 -- 1,885,141 Expenses: Management and investment advisory fees................ 879,267 640,271 (102,010)/(A)/ 1,417,528 Distribution fees - Advisors Preferred.. -- 5,477 -- 5,477 Distribution fees - Advisors Select..... -- 3,953 -- 3,953 Distribution fees - Class A............. 177,732 -- -- 177,732 Distribution fees - Class B............. 219,573 -- -- 219,573 Distribution fees - Class J............. -- 319,436 -- 319,436 Distribution fees - Select.............. -- 15 -- 15 Administrative service fees - Advisors Preferred.. -- 3,287 -- 3,287 Administrative service fees - Advisors Select..... -- 2,636 -- 2,636 Administrative service fees - Preferred........... -- 5,900 -- 5,900 Administrative service fees - Select.............. -- 21 -- 21 Registration fees - Class A............. 10,605 -- -- 10,605 Registration fees - Class B............. 6,354 -- -- 6,354 Registration fees - Class J............. -- 19,416 -- 19,416 Service fees - Advisors Preferred.. -- 3,725 -- 3,725 Service fees - Advisors Select..... -- 3,294 -- 3,294 Service fees - Preferred........... -- 8,046 -- 8,046 Service fees - Select -- 24 -- 24 Shareholder reports - Class A............. 18,254 -- -- 18,254 Shareholder reports - Class B............. 5,893 -- -- 5,893 Shareholder reports - Class J............. -- 18,783 -- 18,783 Transfer and administrative fees - Class A........... 108,989 -- -- 108,989 Transfer and administrative fees - Class B........... 35,605 -- -- 35,605 Transfer and administrative fees - Class J........... -- 171,759 -- 171,759 Auditing and legal fees................ 7,466 -- (7,466)/(B)/ -- Custodian fees....... 12,210 -- (12,210)/(B)/ -- Directors' expenses.. 3,248 -- (3,248)/(B)/ -- Registration fees.... 26,173 -- -- 26,173 Transfer and administrative fees. 289,406 -- 1,865/(B)/ 291,271 Other expenses....... 6,255 -- (6,255)/(B)/ -- Other expenses - Class J............. -- 37 -- 37 ----------- ---------- --------- ----------- Total Gross Expenses 1,807,030 1,206,080 (129,324) 2,883,786 Less: Fees paid indirectly.......... 4,709 1,105 -- 5,814 ----------- ---------- --------- ----------- Total Net Expenses 1,802,321 1,204,975 (129,324) 2,877,972 ----------- ---------- --------- ----------- Net Investment Income (Operating Loss) (966,147) (156,008) 129,324 (992,831) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gain (loss) from: Investment transactions........ 19,381,225 6,657,144 -- 26,038,369 Futures contracts.... -- (37,041) -- (37,041) Change in unrealized appreciation/depreciation of: Investments........... (8,345,060) (186,740) -- (8,531,800) Futures contracts..... -- (65,993) -- (65,993) ----------- ---------- --------- ----------- Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies 11,036,165 6,367,370 -- 17,403,535 ----------- ---------- --------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations $10,070,018 $6,211,362 $ 129,324 $16,410,704 =========== ========== ========= ===========
/(a) /Management and investment advisory fees decreased to reflect annual percentage rate of the Acquiring Fund. /(b) /Elimination of expenses due to expense structure of Acquiring Fund. Eliminated expenses are not paid the by the Acquiring Fund. See accompanying notes. 32
SCHEDULE OF INVESTMENTS October 31, 2004 (unaudited) Principal Amount or Number of Shares Market Value - ----------------------------------------------------------------------------------------------------------------------------------- Principal Principal SmallCap SmallCap SmallCap SmallCap Fund Blend Fund Blend Inc. Fund Combined Inc. Fund Combined - ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (94.84%) AEROSPACE & DEFENSE EQUIPMENT (1.01%) Moog (1) $ 480,759 $ 255,879 $ 736,638 12,810 6,818 19,628 Orbital Sciences (1) (2) 97,180 15,225 112,405 1,005,813 157,579 1,163,392 United Defense Industries (1) - 5,140 5,140 - 206,320 206,320 AIRLINES (0.63%) ExpressJet Holdings (1) 63,532 27,867 91,399 706,476 309,881 1,016,357 Skywest - 17,604 17,604 - 300,676 300,676 APPAREL MANUFACTURERS (1.18%) Guess? (1) 48,350 - 48,350 807,445 - 807,445 Kellwood 22,832 - 22,832 718,295 - 718,295 Oxford Industries 18,722 - 18,722 694,399 - 694,399 Quiksilver (1) - 9,300 9,300 - 253,425 253,425 APPLICATIONS SOFTWARE (0.56%) Embarcadero Technologies (1) 58,107 - 58,107 472,410 - 472,410 Serena Software (1) - 22,509 22,509 - 399,310 399,310 SS&C Technologies - 12,466 12,466 - 294,696 294,696 ATHLETIC FOOTWEAR (0.24%) Reebok International - 13,580 13,580 - 502,460 502,460 AUDIO & VIDEO PRODUCTS (0.27%) Polycom (1) - 27,238 27,238 - 562,465 562,465 AUTO-MEDIUM & HEAVY DUTY TRUCKS (0.34%) Oshkosh Truck - 12,178 12,178 - 717,284 717,284 AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL (0.63%) American Axle & Manufacturing Holdings - 7,090 7,090 - 203,483 203,483 Dana - 16,631 16,631 - 247,968 247,968 Tenneco Automotive (1) 31,601 36,601 68,202 402,597 466,297 868,894 BATTERIES & BATTERY SYSTEMS (0.66%) Rayovac (1) 55,829 - 55,829 1,390,700 - 1,390,700 BUILDING & CONSTRUCTION PRODUCTS- MISCELLANEOUS (0.45%) Simpson Manufacturing - 3,298 3,298 - 211,995 211,995 USG (1) - 32,887 32,887 - 736,340 736,340 BUILDING PRODUCTS-CEMENT & AGGREGATE (1.01%) Eagle Materials 21,840 8,667 30,507 1,509,362 598,976 2,108,338 BUILDING PRODUCTS-LIGHT FIXTURES (0.14%) Genlyte Group (1) - 4,117 4,117 - 302,846 302,846 BUILDING PRODUCTS-WOOD (0.60%) Universal Forest Products 24,317 9,904 34,221 891,826 363,229 1,255,055 BUILDING-HEAVY CONSTRUCTION (0.16%) Washington Group International (1) - 9,898 9,898 - 345,143 345,143 BUILDING-MAINTENANCE & SERVICE (0.15%) Rollins - 12,204 12,204 - 321,575 321,575 BUILDING-RESIDENTIAL & COMMERCIAL (1.07%) Brookfield Homes - 15,209 15,209 - 393,913 393,913 Hovnanian Enterprises (1) - 13,860 13,860 - 520,304 520,304 KB Home - 11,215 11,215 - 922,434 922,434 M/I Schottenstein Homes - 9,554 9,554 - 410,822 410,822 CABLE TV (0.05%) Mediacom Communications (1) - 15,908 15,908 - 104,197 104,197 CASINO SERVICES (0.27%) Scientific Games (1) - 26,821 26,821 - 568,069 568,069 CELLULAR TELECOMMUNICATIONS (0.06%) Boston Communications Group (1) - 15,023 15,023 - 136,709 136,709 CHEMICALS-DIVERSIFIED (0.80%) FMC (1) 17,464 20,821 38,285 765,796 913,001 1,678,797 CHEMICALS-SPECIALTY (0.81%) Albermarle - 8,354 8,354 - 299,491 299,491 MacDermid 38,221 5,990 44,211 1,206,255 189,044 1,395,299 CIRCUIT BOARDS (1.27%) Benchmark Electronics (1) 24,174 20,784 44,958 821,191 706,032 1,527,223 SBS Technologies (1) 55,763 - 55,763 743,321 - 743,321 TTM Technologies (1) 42,181 - 42,181 395,025 - 395,025 COMMERCIAL BANKS (6.99%) Capital Corp of the West 19,109 - 19,109 879,970 - 879,970 City Holding 34,614 5,950 40,564 1,199,375 206,168 1,405,543 City National - 12,855 12,855 - 885,709 885,709 Columbia Banking Systems 46,408 8,511 54,919 1,136,996 208,519 1,345,515 Commerce Bancshares 16,829 - 16,829 826,304 - 826,304 Community Trust Bancorp 8,732 - 8,732 288,156 - 288,156 Cullen/Frost Bankers - 3,482 3,482 - 170,618 170,618 CVB Financial - 6,240 6,240 - 154,752 154,752 First Bancorp. - 6,301 6,301 - 343,594 343,594 First Midwest Bancorp - 6,622 6,622 - 231,174 231,174 Frontier Financial 15,116 - 15,116 581,890 - 581,890 Hibernia - 39,046 39,046 - 1,132,334 1,132,334 Hudson United Bancorp - 19,968 19,968 - 794,726 794,726 IBERIABANK 8,732 - 8,732 532,827 - 532,827 MB Financial - 3,640 3,640 - 155,574 155,574 Oriental Financial Group - 5,200 5,200 - 147,316 147,316 Pacific Capital Bancorp. 27,705 15,991 43,696 881,850 508,994 1,390,844 R&G Financial - 15,865 15,865 - 596,841 596,841 Signature Bank (1) 18,889 18,889 556,659 - 556,659 UCBH Holdings - 14,500 14,500 - 624,805 624,805 Vineyard National Bancorp (1) (3) (4) 4,738 - 4,738 19,994 - 19,994 Vineyard National Bancorp. 23,686 - 23,686 692,105 - 692,105 Virginia Commerce Bancorp. (1) (2) 30,453 - 30,453 895,318 - 895,318 COMMERCIAL SERVICE-FINANCE (0.72%) iPayment (1) (2) 19,104 19,104 856,050 - 856,050 NCO Group (1) 24,459 24,459 654,278 - 654,278 COMMERCIAL SERVICES (0.20%) Magellan Health Services (1) - 11,224 11,224 - 419,778 419,778 COMPUTER AIDED DESIGN (0.59%) ANSYS (1) 38,286 6,364 44,650 1,056,694 175,646 1,232,340 COMPUTER SERVICES (1.14%) CACI International (1) 12,296 - 12,296 749,687 - 749,687 Cognizant Technology Solutions (1) 12,332 12,332 - 419,288 419,288 Perot Systems (1) 39,696 18,616 58,312 636,327 298,415 934,742 SRA International (1) - 5,183 5,183 - 278,638 278,638 COMPUTERS (0.22%) palmOne (1) (2) 15,912 - 15,912 460,971 - 460,971 COMPUTERS-INTEGRATED SYSTEMS (0.11%) RadiSys (1) - 17,410 17,410 - 231,205 231,205 COMPUTERS-MEMORY DEVICES (0.11%) Storage Technology (1) - 8,740 8,740 - 236,155 236,155 COMPUTERS-PERIPHERAL EQUIPMENT (0.13%) Electronics for Imaging (1) - 15,339 15,339 - 276,716 276,716 CONSUMER PRODUCTS-MISCELLANEOUS (0.31%) Central Garden & Pet (1) - 5,250 5,250 - 187,530 187,530 Scotts (1) - 7,310 7,310 - 469,448 469,448 CONTAINERS-METAL & GLASS (1.39%) Ball - 17,657 17,657 - 703,632 703,632 Greif Brothers 26,887 - 26,887 1,117,155 - 1,117,155 Silgan Holdings 18,109 5,091 23,200 859,362 241,593 1,100,955 COSMETICS & TOILETRIES (0.12%) Chattem (1) - 7,456 7,456 - 249,478 249,478 DATA PROCESSING & MANAGEMENT (0.45%) Global Payments 11,171 6,235 17,406 611,724 341,429 953,153 DECISION SUPPORT SOFTWARE (0.15%) Wind River Systems - 23,972 23,972 - 320,985 320,985 DENTAL SUPPLIES & EQUIPMENT (0.74%) Sybron Dental Specialties (1) 26,559 21,354 47,913 865,027 695,500 1,560,527 DIAGNOSTIC EQUIPMENT (0.06%) Gen-Probe (1) - 3,467 3,467 - 121,484 121,484 DIALYSIS CENTERS (0.17%) DaVita (1) - 12,376 12,376 - 366,577 366,577 DIRECT MARKETING (0.16%) Catalina Marketing - 12,995 12,995 - 332,802 332,802 DISTRIBUTION-WHOLESALE (1.81%) Aviall (1) - 11,939 11,939 - 258,479 258,479 Hiughes Supply - 26,106 26,106 - 741,671 741,671 Owens & Minor - 15,888 15,888 - 416,107 416,107 United Stationers (1) 12,491 11,501 23,992 555,850 511,795 1,067,645 Watsco 33,924 12,061 45,985 965,477 343,256 1,308,733 DIVERSIFIED MANUFACTURING OPERATIONS (0.21%) Caslisle - 7,630 7,630 - 443,532 443,532 E-MARKETING-INFORMATION (0.88%) Digital River (1) 16,553 3,736 20,289 551,215 124,409 675,624 Digitas (1) 81,141 49,461 130,602 730,269 445,149 1,175,418 E-SERVICES-CONSULTING (0.26%) Websense (1) - 13,619 13,619 - 552,523 552,523 ELECTRIC PRODUCTS-MISCELLANEOUS (0.19%) Littelfuse (1) - 12,139 12,139 - 395,974 395,974 ELECTRIC-INTEGRATED (0.93%) Great Plains Energy - 4,966 4,966 - 141,481 141,481 MDU Resources Group - 29,640 29,640 - 760,266 760,266 OGE Energy - 14,047 14,047 - 356,373 356,373 Sierra Pacific Resources (1) (2) 70,988 - 70,988 681,485 - 681,485 ELECTRONIC COMPONENTS-MISCELLANEOUS (0.32%) DSP Group (1) - 20,934 20,934 - 415,121 415,121 Methode Electronics - 19,047 19,047 - 255,801 255,801 ELECTRONIC COMPONENTS-SEMICONDUCTOR (1.88%) Cree (1) - 16,517 16,517 - 570,002 570,002 Fairchild Semiconductor International (1) - 34,522 34,522 - 496,081 496,081 Microsemi (1) 71,380 36,208 107,588 1,109,245 562,672 1,671,917 PMC - Sierra (1) - 15,277 15,277 - 156,742 156,742 Semtech (1) 23,246 - 23,246 485,377 - 485,377 Silicon Laboratories (1) - 6,285 6,285 - 188,362 188,362 SiRF Technology Holdings (1) 31,180 - 31,180 369,171 - 369,171 ELECTRONIC CONNECTORS (0.31%) Amphenol (1) - 18,747 18,747 - 643,584 643,584 ELECTRONIC MEASUREMENT INSTRUMENTS (0.13%) Tektronix - 9,113 9,113 - 276,397 276,397 ELECTRONIC PARTS DISTRIBUTION (0.23%) Avent (1) - 28,033 28,033 - 475,440 475,440 ELECTRONICS-MILITARY (0.92%) Engineered Support Systems 23,988 15,971 39,959 1,152,384 767,247 1,919,631 ENGINES-INTERNAL COMBUSTION (0.50%) Briggs & Stratton 9,232 5,238 14,470 662,950 376,141 1,039,091 ENTERPRISE SOFTWARE & SERVICE (1.02%) Hyperion Solutions (1) - 18,409 18,409 - 738,753 738,753 MicroStrategy (1) (2) 12,319 10,965 23,284 738,894 657,681 1,396,575 ENTERTAINMENT SOFTWARE (0.30%) Activision (1) 42,861 - 42,861 620,627 - 620,627 FILTRATION & SEPARATION PRODUCTS (0.24%) CLARCOR - 10,203 10,203 - 503,008 503,008 FINANCE-AUTO LOANS (0.17%) Westcorp - 6,325 6,325 - 252,494 252,494 WFS Financial (1) - 2,179 2,179 - 96,007 96,007 FINANCE-CONSUMER LOANS (0.46%) Collegiate Funding Services (1) 30,810 14,021 44,831 380,504 173,159 553,663 Portfolio Recovery Associates (1) - 12,216 12,216 - 411,924 411,924 FINANCE-INVESTMENT BANKER & BROKER (0.05%) Raymond James Financial - 4,137 4,137 - 107,976 107,976 FINANCE-MORTGAGE LOAN/BANKER (0.24%) American Home Mortgage Investment - 18,387 18,387 - 508,033 508,033 FINANCIAL GUARANTEE INSURANCE (0.08%) Triad Guaranty (1) - 3,000 3,000 - 163,530 163,530 FOOD-WHOLESALE & DISTRIBUTION (0.53%) Nash Finch 35,783 - 35,783 1,104,263 - 1,104,263 FOOTWEAR & RELATED APPAREL (0.63%) Wolverine World Wide 35,295 8,070 43,365 1,074,380 245,651 1,320,031 GARDEN PRODUCTS (0.16%) Toro - 4,963 4,963 - 338,725 338,725 GAS-DISTRIBUTION (2.13%) AGL Resources - 16,789 16,789 - 523,817 523,817 Energen 22,049 20,069 42,118 1,185,795 1,079,311 2,265,106 ONEOK - 17,836 17,836 - 478,361 478,361 UGI (6) 21,844 8,981 30,825 843,834 346,936 1,190,770 HEALTH CARE COST CONTAINMENT (0.21%) First Health Group (1) - 27,197 27,197 - 432,976 432,976 HOTELS & MOTELS (0.10%) Choice Hotels International - 4,156 4,156 - 207,384 207,384 HOME FURNISHINGS (0.29%) Hooker Furniture 27,127 - 27,127 601,134 - 601,134 HUMAN RESOURCES (1.61%) Heidrick & Struggles (1) 39,660 - 39,660 1,135,664 - 1,135,664 Korn/Ferry International (1) - 21,312 21,312 - 370,829 370,829 Labor Ready (1) 89,225 40,407 129,632 1,280,379 579,840 1,860,219 INDEX FUND (0.53%) Regional Bank HOLDRs Trust - 8,109 8,109 - 1,101,445 1,101,445 INSTRUMENTS-SCIENTIFIC (0.35%) Dionex (1) 8,934 4,065 12,999 500,304 227,640 727,944 INTERNET APPLICATION SOFTWARE (0.65%) eResearch Technology (1) - 23,140 23,140 - 270,507 270,507 Motive (1) 72,006 - 72,006 1,098,091 - 1,098,091 INTERNET FINANCIAL SERVICES (0.10%) IndyMac Bancorp - 6,754 6,754 - 217,884 217,884 INTERNET SECURITY (0.58%) RSA Security (1) 41,222 18,571 59,793 843,402 379,963 1,223,365 INTERNET TELEPHONY (0.24%) j2 Global Communications (1) - 16,343 16,343 - 492,741 492,741 INTIMATE APPAREL (0.09%) Warnaco Group (1) - 9,353 9,353 - 190,801 190,801 INVESTMENT COMPANIES (0.66%) Apollo Investment (1) 101,365 - 101,365 1,378,564 - 1,378,564 INVESTMENT MANAGEMENT & ADVISORY SERVICES (1.07%) Calamos Asset Management (1) 115,300 - 115,300 2,248,350 - 2,248,350 LIFE & HEALTH INSURANCE (0.32%) Stancorp Financial Group - 6,521 6,521 - 491,553 491,553 Universal American Financial (1) - 15,566 15,566 - 189,282 189,282 MACHINERY TOOLS & RELATED PRODUCTS (0.39%) Kennametal 17,464 - 17,464 812,600 - 812,600 MACHINERY-CONSTRUCTION & MINING (0.81%) Joy Global - 8,024 8,024 - 271,131 271,131 Terex (1) 22,691 14,582 37,273 862,258 554,116 1,416,374 MACHINERY-GENERAL INDUSTRY (0.80%) Gardner Denver (1) 47,137 8,998 56,135 1,413,167 269,760 1,682,927 MEDICAL INFORMATION SYSTEM (0.48%) Dendrite International (1) 54,728 13,669 68,397 801,765 200,251 1,002,016 MEDICAL INSTRUMENTS (1.39%) dj Orthopedics (1) 57,380 10,457 67,837 978,329 178,292 1,156,621 Kensey Nash (1) (2) 41,059 16,530 57,589 1,174,287 472,758 1,647,045 Techne (1) - 2,993 2,993 - 107,808 107,808 MEDICAL LASER SYSTEMS (0.36%) Candela (1) - 45,491 45,491 - 462,871 462,871 IntraLase (1) 15,454 - 15,454 297,180 - 297,180 MEDICAL PRODUCTS (0.89%) Cooper 5,458 3,921 9,379 383,971 275,842 659,813 INAMED (1) 15,108 5,898 21,006 802,990 313,479 1,116,469 VNUS Medical Technologies (1) 6,404 - 6,404 96,252 - 96,252 MEDICAL-BIOMEDICAL/GENE (1.67%) Affymetrix (1) - 19,466 19,466 - 593,713 593,713 Celera Genomics Group (1) - 18,641 18,641 - 238,978 238,978 Cell Genesys (1) (2) 61,577 - 61,577 403,945 - 403,945 deCODE genetics (1) (2) 68,236 24,182 92,418 477,652 169,274 646,926 Lexicon Genetics (1) (2) 75,536 33,902 109,438 491,740 220,702 712,442 Maxim Pharmaceuticals (1) (2) 62,146 49,076 111,222 155,365 122,690 278,055 Regeneron Pharmaceutical (1) (2) 85,189 - 85,189 619,324 - 619,324 MEDICAL-DRUGS (1.06%) Array BioPharma (1) (2) 55,890 - 55,890 390,671 - 390,671 Endo Pharmaceuticals Holdings (1) - 17,257 17,257 - 376,203 376,203 First Horizon Pharmaceutical (1) - 13,047 13,047 - 320,695 320,695 Hi-Tech Parmacal (1) - 8,610 8,610 - 139,568 139,568 Ligand Pharmaceuticals (1) - 14,225 14,225 - 126,816 126,816 Salix Pharmaceuticals (1) - 8,843 8,843 - 141,753 141,753 Santarus (1) (2) 72,883 - 72,883 715,711 - 715,711 MEDICAL-HMO (1.10%) Sierra Health Services (1) 23,618 16,097 39,715 1,127,051 768,149 1,895,200 WellChoice (1) - 9,999 9,999 - 417,558 417,558 MEDICAL-HOSPITALS (0.51%) LifePoint Hospitals (1) - 26,323 26,323 - 853,392 853,392 VCA Antech (1) - 9,845 9,845 - 220,725 220,725 MEDICAL-OUTPATIENT & HOME MEDICAL CARE (0.86%) Apria Healthcare Group (1) (6) 29,053 10,320 39,373 794,890 282,355 1,077,245 Select Medical 41,760 - 41,760 717,854 - 717,854 METAL PROCESSORS & FABRICATION (1.37%) Commercial Metals 34,344 10,011 44,355 1,241,536 361,897 1,603,433 Metals USA (1) 46,571 - 46,571 794,501 - 794,501 Quanex - 9,251 9,251 - 469,026 469,026 METAL-ALUMINUM (0.21%) Century Aluminum (1) - 18,799 18,799 - 435,009 435,009 METAL-IRON (0.38%) Cleveland-Cliffs (1) - 8,744 8,744 - 637,438 637,438 Gibraltar Industries - 4,308 4,308 - 150,823 150,823 MISCELLANEOUS INVESTING (5.52%) Brandywine Realty Trust 22,081 - 22,081 649,623 - 649,623 CRT Properties 59,942 10,927 70,869 1,328,315 242,142 1,570,457 Entertainment Properties Trust 21,105 13,371 34,476 842,089 533,503 1,375,592 Federal Realty Investment Trust - 8,618 8,618 - 408,924 408,924 Gramercy Capital (1) 41,694 15,282 56,976 679,612 249,097 928,709 Healthcare Realty Trust - 9,588 9,588 - 386,876 386,876 New Century Financial - 6,704 6,704 - 369,725 369,725 Newcastle Investment (2) 48,014 23,108 71,122 1,469,708 707,336 2,177,044 PS Business Parks 21,092 4,899 25,991 926,361 215,164 1,141,525 Redwood Trust 21,135 21,135 1,271,482 1,271,482 SL Green Realty - 9,141 9,141 - 501,110 501,110 Thornburg Mortgage - 15,721 15,721 - 449,149 449,149 Ventas - 12,706 12,706 - 341,791 341,791 MOTION PICTURES & SERVICES (0.26%) Macrovision (1) - 18,559 18,559 - 501,835 501,835 Metro-Goldwyn-Mayer (1) - 4,086 4,086 - 48,297 48,297 MULTI-LEVEL DIRECT SELLING (0.21%) Nu Skin Enterprises - 23,094 23,094 - 446,638 446,638 MULTIMEDIA (0.46%) Journal Communications 35,950 7,750 43,700 579,514 124,930 704,444 Media General - 4,490 4,490 - 261,767 261,767 OFFICE AUTOMATION & EQUIPMENT (0.16%) Imagistics International (1) - 9,725 9,725 - 334,734 334,734 OFFICE FURNISHINGS-ORIGINAL (0.27%) HNI - 13,701 13,701 - 553,520 553,520 OFFICE SUPPLIES & FORMS (0.20%) John H. Harland - 13,005 13,005 - 419,151 419,151 OIL COMPANY-EXPLORATION & PRODUCTION (2.37%) Houston Exploration (1) 20,617 7,970 28,587 1,208,156 467,042 1,675,198 KCS Energy (1) 18,964 17,863 36,827 258,100 243,115 501,215 Meridian Resource (1) 76,841 45,550 122,391 618,570 366,678 985,248 Noble Energy - 13,780 13,780 - 799,240 799,240 Plains Exploration & Production - 21,597 21,597 - 539,925 539,925 Pogo Producing - 10,108 10,108 - 463,452 463,452 OIL FIELD MACHINERY & EQUIPMENT (0.24%) FMC Technologies (1) - 9,799 9,799 - 296,224 296,224 Universal Compression Holdings (1) - 6,231 6,231 - 215,468 215,468 OIL REFINING & MARKETING (0.52%) Tesoro Petroleum (1) - 35,875 35,875 - 1,086,295 1,086,295 OIL-FIELD SERVICES (0.35%) Cal Dive International (1) - 20,885 20,885 - 739,538 739,538 OPTICAL SUPPLIES (0.53%) Advanced Medical Optics (1) - 11,596 11,596 - 453,404 453,404 Bausch & Lomb - 10,591 10,591 - 645,627 645,627 PAPER & RELATED PRODUCTS (0.28%) Louisiana-Pacific - 23,958 23,958 - 587,211 587,211 PIPELINES (0.45%) Equitable Resources - 7 7 - 387 387 Questar - 19,695 19,695 - 945,360 945,360 POULTRY (0.27%) Pilgrims Pride - 21,183 21,183 - 572,788 572,788 PRINTING-COMMERCIAL (0.35%) Banta - 10,319 10,319 - 419,777 419,777 Consolidated Graphics (1) - 7,209 7,209 - 307,824 307,824 PRIVATE CORRECTIONS (0.31%) GEO Group (1) 31,989 - 31,989 640,100 - 640,100 PROPERTY & CASUALTY INSURANCE (2.41%) Arch Capital Group (1) 18,132 12,251 30,383 681,219 460,270 1,141,489 First American - 9,074 9,074 - 283,018 283,018 Infinity Property & Casualty 43,087 18,898 61,985 1,339,144 587,350 1,926,494 Selective Insurance Group - 6,215 6,215 - 242,882 242,882 Stewart Information Services 14,871 - 14,871 630,828 - 630,828 W.R. Berkley - 19,208 19,208 - 820,950 820,950 PUBLISHING-NEWSPAPERS (0.10%) Journal Register (1) - 10,764 10,764 - 202,363 202,363 RACETRACKS (0.71%) Penn National Gaming (1) 24,677 11,034 35,711 1,024,836 458,242 1,483,078 RADIO (0.62%) Emmis Communications (1) 23,562 32,112 55,674 440,609 600,494 1,041,103 Radio One (1) - 17,705 17,705 - 260,087 260,087 RECREATIONAL VEHICLES (0.31%) Thor Industries 23,270 - 23,270 647,139 - 647,139 REINSURANCE (0.70%) Max Re Capital 32,330 - 32,330 610,067 - 610,067 PXRE Group 34,654 - 34,654 850,409 - 850,409 RENTAL-AUTO & EQUIPMENT (0.31%) Aaron Rents 24,084 - 24,084 522,623 - 522,623 Rent-A-Center (1) - 5,354 5,354 - 128,442 128,442 RESORTS & THEME PARKS (0.35%) Vail Resorts (1) 36,438 - 36,438 730,946 - 730,946 RESPIRATORY PRODUCTS (0.70%) Respironics (1) 18,814 9,795 28,609 961,207 500,426 1,461,633 RETAIL-APPAREL & SHOE (1.71%) Claire's Stores (6) - 34,344 34,344 - 893,631 893,631 Foot Locker - 27,238 27,238 - 664,607 664,607 Genesco (1) 23,798 - 23,798 609,229 - 609,229 Kenneth Cole Productions - 14,231 14,231 - 377,121 377,121 Stein Mart (1) 42,024 20,406 62,430 698,439 339,148 1,037,587 RETAIL-AUTO PARTS (0.10%) CSK Auto (1) - 14,792 14,792 - 216,555 216,555 RETAIL-BOOKSTORE (0.51%) Barnes & Noble (1) - 26,451 26,451 - 880,025 880,025 Borders Group - 8,189 8,189 - 186,627 186,627 RETAIL-CATALOG SHOPPING (0.18%) Coldwater Creek (1) - 16,301 16,301 - 375,249 375,249 RETAIL-COMPUTER EQUIPMENT (0.25%) Insight Enterprises (1) 28,214 - 28,214 523,511 - 523,511 RETAIL-CONVENIENCE STORE (0.05%) Pantry (1) - 4,597 4,597 - 105,685 105,685 RETAIL-HAIR SALONS (0.36%) Regis - 17,619 17,619 - 754,093 754,093 RETAIL-JEWELRY (0.10%) Zale (1) - 7,703 7,703 - 219,690 219,690 RETAIL-MUSIC STORE (0.37%) Guitar Center (1) 17,432 - 17,432 777,990 - 777,990 RETAIL-RESTAURANTS (1.27%) CBRL Group - 20,442 20,442 - 741,227 741,227 CEC Entertainment (1) - 6,810 6,810 - 258,916 258,916 McCormick & Schmick's Seafood Restaurants (1) 42,011 - 42,011 584,373 - 584,373 Ruby Tuesday 26,177 17,378 43,555 646,572 429,237 1,075,809 RETAIL-SPORTING GOODS (0.41%) Big 5 Sporting Goods (1) 33,777 - 33,777 857,598 - 857,598 SAVINGS & LOANS-THRIFTS (1.27%) Hudson River Bancorp. 39,228 - 39,228 769,261 - 769,261 Independence Community Bank 27,254 8,867 36,121 1,025,568 333,665 1,359,233 PFF Bancorp - 7,418 7,418 - 292,640 292,640 Sterling Financial (1) - 6,180 6,180 - 232,183 232,183 SEISMIC DATA COLLECTION (0.53%) Veritas DGC (1) (2) 52,363 - 52,363 1,104,859 - 1,104,859 SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (0.39%) Exar (1) - 8,927 8,927 - 134,084 134,084 Micrel (1) 39,838 22,036 61,874 447,381 247,464 694,845 SEMICONDUCTOR EQUIPMENT (0.90%) Brooks Automation (1) - 4,919 4,919 - 73,195 73,195 MKS Instruments (1) - 6,950 6,950 - 109,949 109,949 Mykrolis (1) 56,373 8,707 65,080 592,480 91,510 683,990 Varian Semiconductor Equipment Associates (1) 14,967 14,733 29,700 518,008 509,909 1,027,917 STEEL PIPE & TUBE (0.41%) Maverick Tube (1) 32,291 - 32,291 851,514 - 851,514 STEEL PRODUCERS (0.52%) Schnitzer Steel Industries 22,212 16,375 38,587 627,489 462,594 1,090,083 TELECOMMUNICATION EQUIPMENT (1.40%) Comtech Telecommunications (1) (2) 39,012 5,328 44,340 1,069,319 146,040 1,215,359 Ditech Communications (1) - 29,445 29,445 - 675,468 675,468 Plantronics - 11,145 11,145 - 484,808 484,808 Tekelec (1) - 16,984 16,984 - 379,083 379,083 Westell Technologies (1) - 32,073 32,073 - 179,930 179,930 TELECOMMUNICATION EQUIPMENT-FIBER OPTICS (0.77%) C-COR.net (1) 166,437 35,939 202,376 1,251,606 270,261 1,521,867 Sycamore Networks (1) - 24,244 24,244 - 88,976 88,976 THEATERS (0.45%) Carmike Cinemas 22,951 3,182 26,133 821,646 113,916 935,562 THERAPEUTICS (1.47%) Dyax (1) 73,135 25,457 98,592 419,795 146,123 565,918 Eyetech Pharmaceuticals (1) (2) 15,902 9,200 25,102 674,881 390,448 1,065,329 Medicines (1) - 16,887 16,887 - 449,870 449,870 NeoPharm (1) (2) 63,376 14,433 77,809 460,427 104,856 565,283 Onyx Pharmaceuticals (1) (2) 15,719 - 15,719 441,075 - 441,075 TRANSACTIONAL SOFTWARE (0.50%) Transaction Systems Architects (1) 46,015 17,579 63,594 754,416 288,208 1,042,624 TRANSPORT-SERVICES (0.86%) Laidlaw International (1) 43,683 - 43,683 728,195 - 728,195 Offshore Logistics (1) 22,974 6,927 29,901 830,740 250,480 1,081,220 TRANSPORT-TRUCK (0.62%) J.B. Hunt Transport Services - 6,833 6,833 - 279,196 279,196 USF 17,473 - 17,473 626,232 - 626,232 Yellow Roadway (1) - 8,247 8,247 - 395,774 395,774 TRUCKING & LEASING (0.11%) Ryder System (6) - 4,696 4,696 - 235,270 235,270 VITAMINS & NUTRITION PRODUCTS (0.14%) USANA Health Sciences (1) - 10,073 10,073 - 300,478 300,478 WEB PORTALS (0.14%) United Online (1) - 30,273 30,273 - 284,263 284,263 WIRE & CABLE PRODUCTS (0.31%) Encore Wire (1) 52,393 - 52,393 644,958 - 644,958 105,489,255 93,237,174 198,726,429 COMMERCIAL PAPER (7.06%) FINANCE-CONSUMER LOANS (1.65%) Investment in Joint Trading Account; 3,463,869 Household Finance 1.84%; 11/01/04 - 3,463,869 3,463,869 - 3,463,869 FINANCE-MORTGAGE LOAN/BANKER (5.41%) Investment in Joint Trading Account; Federal Home Loan Bank 1.69%; 11/01/04 - 11,340,629 11,340,629 - 11,340,629 11,340,629 TOTAL COMMERCIAL PAPER 3,463,869 11,340,629 14,804,498 REPURCHASE AGREEMENTS (4.87%) Goldman Sachs; 1.75%; dated 10/29/04 maturing 11/01/04 (collateralized by U.S. Treasuries; $10,295,400; 11/18/04 - 01/15/12)(5) 10,208,489 - 10,208,489 10,207,000 - 10,207,000 TOTAL REPURCHASE AGREEMENTS 10,207,000 - 10,207,000 TOTAL PORTFOLIO INVESTMENTS (106.77%) 119,160,124 104,577,803 223,737,927 Liabilities, net of cash, receivables and other assets (-6.77%) (12,312,034) (1,876,850) (14,188,884) TOTAL NET ASSETS (100.00%) $106,848,090 $102,700,953 $209,549,043 =============================================== (1) Non-income producing security. (2) Security or a portion of the security was on loan at the end of the period. (3) Restricted Security - The fund held securities, which were purchased in private placement transactions and may require registration, or an exemption therefrom, in order to effect their sale in the ordinary course of business. At the end of the period, restricted securities totaled $19,994 or 0.01% of net assets. (4) Market value is determined in accordance with procedures established in good faith by the Board of Directors. At the end of the period, the value of these securities totaled $19,994 or 0.01% of net assets. (5) Security was purchased with the cash proceeds from securities loans. (6) Security or a portion of the security was pledged to cover margin requirements for futures contracts.
UNREALIZED APPRECIATION (DEPRECIATION) The net federal income tax unrealized appreciation (depreciation) and federal tax cost of investments held by the fund as of the period end were as follows: Unrealized Appreciation $ 10,932,247 $ 12,792,816 $ 23,725,063 Unrealized Depreciation (5,132,921) (3,481,169) (8,614,090) ------------------------------------------------- Net Unrealized Appreciation (Depreciation) 5,799,326 9,311,647 15,110,973 Cost for federal income tax purposes $ 113,360,798 $ 95,266,156 $208,626,954
Opening Current Unrealized Contract Type Commitment Market Value Market Value Gain(Loss) - ----------------------------------------------------------------------------------------------------------------------------------- FUTURES CONTRACTS SmallCap Blend Fund 14 Russell 2000 December 2004 Futures Buy $ 3,988,847 $ 4,091,500 $ 102,653
INVESTMENTS BY SECTOR (UNAUDITED) Percentage of Total Value Sector Value - ------------------------------------------------------------------------------------------------------------------------------------ 32.93% 15.12% 24.44% Financial $39,243,417 $16,430,741 $55,674,158 16.48 14.59 15.58 Consumer, Non-cyclical 19,642,982 15,857,850 35,500,832 12.13 16.23 14.08 Consumer, Cyclical 14,448,330 17,635,144 32,083,474 16.35 11.3 13.94 Industrial 19,484,340 12,280,980 31,765,320 8.75 8.33 8.55 Technology 10,425,176 9,047,200 19,472,376 5.51 6.77 6.11 Communications 6,564,026 7,359,935 13,923,961 - 10.44 4.98 Government - 11,340,629 11,340,629 3.39 5.67 4.48 Energy 4,041,199 6,162,723 10,203,922 2.28 3.39 2.81 Utilities 2,711,114 3,686,545 6,397,659 2.18 3.38 2.75 Basic Materials 2,599,540 3,674,610 6,274,150 - 3.77 1.80 Futures Contracts - 4,091,500 4,091,500 - 1.01 0.48 Funds - 1,101,446 1,101,446 TOTAL $119,160,124 $108,669,303 $227,829,427 ================================================ Percentages are adjusted to reflect the impact of currency contracts, futures contracts, and swap agreements, if applicable. See accompanying notes. As of October 31, 2004, all securities held by the Acquired Fund would comply with the investment restrictions of the Acquiring Fund.
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004 (UNAUDITED) -------------------------------------------------------------------------------
PRINCIPAL REAL ESTATE COMBINED SECURITIES REAL ESTATE PRO FORMA REAL ESTATE FUND, INC. /(C)/ SECURITIES FUND ADJUSTMENTS/(D)/ SECURITIES FUND - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- INVESTMENT IN SECURITIES--AT COST.. $ 62,953,462 $344,712,934 $ -- $407,666,396 ============ ============ ========= ============ ASSETS Investment in securities--at value. $ 81,449,149 $418,867,089 $ -- $500,316,238 Cash.................. 20,765 91,921 -- 112,686 Receivables: Capital Shares sold.. 130,175 548,205 -- 678,380 Dividends and interest............ 108,707 526,259 -- 634,966 Other assets.......... 199 -- -- 199 Prepaid expenses...... 61 -- -- 61 ------------ ------------ --------- ------------ Total Assets 81,709,056 420,033,474 -- 501,742,530 LIABILITIES Accrued management and investment advisory fees................. 13,909 67,538 -- 81,447 Accrued administrative service fees......... -- 1,865 -- 1,865 Accrued distribution fees................. 6,509 10,981 -- 17,490 Accrued service fees.. -- 2,318 -- 2,318 Accrued transfer and administrative fees.. 36,400 37,788 -- 74,188 Accrued other expenses 20,493 10,769 -- 31,262 Payables: Capital Shares reacquired.......... 18,281 22,870 -- 41,151 Investment securities purchased........... 149,680 804,066 -- 953,746 Reorganization costs. -- -- 35,058 35,058 ------------ ------------ --------- ------------ Total Liabilities 245,272 958,195 35,058 1,238,525 ------------ ------------ --------- ------------ NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 81,463,784 $419,075,279 $ (35,058) $500,504,005 ============ ============ ========= ============ NET ASSETS CONSIST OF: Capital Shares and additional paid-in-capital...... $ 52,314,244 $315,279,476 $ -- $367,593,720 Accumulated undistributed (overdistributed) net investment income (operating loss)..... 64,950 4,989,581 (35,058) 5,019,473 Accumulated undistributed (overdistributed) net realized gain (loss). 10,588,903 24,652,067 -- 35,240,970 Net unrealized appreciation (depreciation) of investments.......... 18,495,687 74,154,155 -- 92,649,842 ------------ ------------ --------- ------------ Total Net Assets $ 81,463,784 $419,075,279 $ (35,058) $500,504,005 ============ ============ ========= ============ CAPITAL STOCK (PAR VALUE: $.01 A SHARE): Shares authorized..... 100,000,000 285,000,000 -- 285,000,000 NET ASSET VALUE PER SHARE: Advisors Preferred: Net Assets........... N/A $ 24,621,054 N/A $ 24,621,054 Shares issued and outstanding.......... 1,345,396 1,345,396 Net asset value per share................ $ 18.30 $ 18.30 ============ ============ Advisors Select: Net Assets............... N/A $ 12,660,317 N/A $ 12,660,317 Shares issued and outstanding.......... 697,424 697,424 Net asset value per share................ $ 18.15 $ 18.15 ============ ============ Class A: Net Assets... $ 62,361,557 N/A $ (25,433) $ 62,336,124 Shares issued and outstanding.......... 3,783,350 (402,866) 3,380,484 Net asset value per share................ $ 16.48 -- $ 18.44 Maximum offering price per share /(a)/ $ 17.49 -- $ 19.56 ============ == ============ Class B: Net Assets... $ 19,102,227 N/A $ (9,625) $ 19,092,602 Shares issued and outstanding.......... 1,166,474 (131,083) 1,035,391 Net asset value per share /(b)/.......... $ 16.38 -- $ 18.44 ============ == ============ Class J: Net Assets... N/A $ 95,695,905 N/A $ 95,695,905 Shares issued and outstanding.......... 5,236,438 5,236,438 Net asset value per share /(b)/.......... $ 18.28 $ 18.28 ============ ============ Institutional: Net Assets............... N/A $253,838,212 N/A $253,838,212 Shares issued and outstanding.......... 13,769,054 13,769,054 Net asset value per share................ $ 18.44 $ 18.44 ============ ============ Preferred: Net Assets. N/A $ 30,865,050 N/A $ 30,865,050 Shares issued and outstanding.......... 1,694,764 1,694,764 Net asset value per share................ $ 18.21 $ 18.21 ============ ============ Select: Net Assets.... N/A $ 1,394,741 N/A $ 1,394,741 Shares issued and outstanding.......... 76,613 76,613 Net asset value per share................ $ 18.21 $ 18.21 ============ ============
/(a) /Maximum offering price equals net asset value plus a front-end sales charge of 5.75% of the offering price or 6.10% of the net asset value. /(b) /Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. /(c) /Effective March 1, 2004, Principal Real Estate Fund, Inc. changed its name to Principal Real Estate Securities Fund, Inc. /(d) /Reduction in net assets to reflect the estimated expenses of the Reorganization. See accompanying notes. 1 STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2004 (UNAUDITED) ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
PRINCIPAL REAL ESTATE COMBINED SECURITIES REAL ESTATE PRO FORMA REAL ESTATE FUND, INC. SECURITIES FUND ADJUSTMENTS SECURITIES FUND - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- NET INVESTMENT INCOME (OPERATING LOSS) Income: Dividends............ $ 2,197,747 $ 9,667,005 $ -- $11,864,752 Interest............. 14,982 96,979 -- 111,961 ----------- ----------- -------- ----------- Total Income 2,212,729 9,763,984 -- 11,976,713 Expenses: Management and investment advisory fees................ 598,397 2,459,268 (33,586)/(A)/ 3,024,079 Distribution fees - Advisors Preferred.. -- 43,349 -- 43,349 Distribution fees - Advisors Select..... -- 24,673 -- 24,673 Distribution fees - Class A............. 127,274 -- -- 127,274 Distribution fees - Class B............. 142,069 -- -- 142,069 Distribution fees - Class J............. -- 352,456 -- 352,456 Distribution fees - Select.............. -- 620 -- 620 Administrative service fees - Advisors Preferred.. -- 26,010 -- 26,010 Administrative service fees - Advisors Select..... -- 16,449 -- 16,449 Administrative service fees - Preferred........... -- 27,560 -- 27,560 Administrative service fees - Select.............. -- 806 -- 806 Registration fees - Class A............. 11,708 -- -- 11,708 Registration fees - Class B............. 7,547 -- -- 7,547 Registration fees - Class J............. -- 17,643 -- 17,643 Service fees - Advisors Preferred.. -- 29,478 -- 29,478 Service fees - Advisors Select..... -- 20,561 -- 20,561 Service fees - Preferred........... -- 37,582 -- 37,582 Service fees - Select -- 930 -- 930 Shareholder reports - Class A............. 7,619 -- -- 7,619 Shareholder reports - Class B............. 2,841 -- -- 2,841 Shareholder reports - Class J............. -- 23,069 -- 23,069 Transfer and administrative fees - Class A........... 48,823 -- -- 48,823 Transfer and administrative fees - Class B........... 18,299 -- -- 18,299 Transfer and administrative fees - Class J........... -- 192,830 -- 192,830 Auditing and legal fees................ 6,831 -- (6,831)/(B)/ -- Custodian fees....... 2,412 -- (2,412)/(B)/ -- Directors' expenses.. 2,231 -- (2,231)/(B)/ -- Registration fees.... 29,818 -- -- 29,818 Transfer and administrative fees. 194,760 -- 1,362/(B)/ 196,122 Other expenses....... 3,684 -- (3,684)/(B)/ -- Other expenses - Class J............. -- 766 -- 766 ----------- ----------- -------- ----------- Total Gross Expenses 1,204,313 3,274,050 (47,382) 4,430,981 Less: Fees paid indirectly.......... 3,761 11,108 -- 14,869 ----------- ----------- -------- ----------- Total Net Expenses 1,200,552 3,262,942 (47,382) 4,416,112 ----------- ----------- -------- ----------- Net Investment Income (Operating Loss) 1,012,177 6,501,042 47,382 7,560,601 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gain (loss) from: Investment transactions........ 10,586,325 24,695,274 -- 35,281,599 Change in unrealized appreciation/depreciation of: Investments........... 6,462,427 48,591,086 -- 55,053,513 ----------- ----------- -------- ----------- Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies 17,048,752 73,286,360 -- 90,335,112 ----------- ----------- -------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations $18,060,929 $79,787,402 $ 47,382 $97,895,713 =========== =========== ======== ===========
/(a) /Management and investment advisory fees decreased to reflect annual percentage rate of the Acquiring Fund. /(b) /Elimination of expenses due to expense structure of Acquiring Fund. Eliminated expenses are not paid by the Acquiring Fund. See accompanying notes. 31
SCHEDULE OF INVESTMENTS October 31, 2004 (unaudited) Principal Amount or Number of Shares Market Value - ----------------------------------------------------------------------------------------------------------------------------------- Principal Principal Real Estate Real Estate Real Estate Real Estate Securities Securities Securities Securities Fund, Inc. Fund Combined Fund, Inc. Fund Combined - ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (96.12%) PUBLICLY TRADED INVESTMENT FUND (4.56%) 15,835 124,971 iShares Cohen & Steers Realty Majors Index $ 1,997,585 $ 13,767,506 $ 15,765,091 109,136 Fund 10,300 62,105 iShares Dow Jones US Real Estate Index Fund 51,805 1,169,153 5,880,386 7,049,539 REAL ESTATE INVESTMENT TRUSTS (91.56%) 37,603 227,729 Acadia Realty Trust 190,126 579,086 2,927,940 3,507,026 41,509 250,735 AMB Property 209,226 1,556,588 7,845,975 9,402,563 64,300 392,900 Archstone-Smith Trust 328,600 2,157,265 11,024,530 13,181,795 9,900 60,400 Arden Realty 50,500 337,392 1,721,040 2,058,432 35,900 219,600 AvalonBay Communities 183,700 2,350,373 12,026,839 14,377,212 46,841 282,517 BioMed Realty Trust 235,676 851,569 4,284,590 5,136,159 85,276 508,231 Boston Properties 422,955 5,092,683 25,258,872 30,351,555 11,700 70,400 BRE Properties 58,700 466,830 2,342,130 2,808,960 93,300 557,200 Brookfield Properties 463,900 3,169,401 15,758,683 18,928,084 20,985 126,780 Camden Property Trust 105,795 952,719 4,803,093 5,755,812 29,540 178,100 Capital Automotive 148,560 952,960 4,792,546 5,745,506 19,652 120,303 Catellus Development 100,651 566,764 2,902,775 3,469,539 39,390 233,428 CBL & Associates Properties 194,038 2,582,014 12,719,191 15,301,205 59,436 363,076 CenterPoint Properties Trust 303,640 2,751,887 14,058,532 16,810,419 54,395 333,149 Corporate Office Properties Trust 278,754 1,491,511 7,643,435 9,134,946 75,219 448,519 Developers Diversified Realty 373,300 3,144,154 15,603,940 18,748,094 14,514 77,658 Entertainment Properties Trust 63,144 579,109 2,519,446 3,098,555 75,801 449,039 Equity Office Properties Trust 373,238 2,131,524 10,495,452 12,626,976 65,400 393,900 Equity Residential Properties Trust 328,500 2,181,090 10,955,475 13,136,565 17,100 103,900 Essex Property Trust 86,800 1,341,666 6,810,328 8,151,994 29,673 179,176 Extra Space Storage 149,503 411,268 2,072,111 2,483,379 7,314 41,346 Federal Realty Investment Trust 34,032 347,049 1,614,818 1,961,867 45,196 271,998 General Growth Properties 226,802 1,491,016 7,482,198 8,973,214 36,949 212,273 Highland Hospitality 175,324 421,219 1,998,694 2,419,913 86,400 526,100 Host Marriott (1) 439,700 1,257,120 6,397,635 7,654,755 3,800 23,400 Kilroy Realty 19,600 151,050 779,100 930,150 66,400 406,000 Kimco Realty 339,600 3,622,120 18,525,180 22,147,300 46,596 282,637 LaSalle Hotel Properties 236,041 1,338,237 6,779,097 8,117,334 27,600 163,600 Macerich 136,000 1,649,100 8,126,000 9,775,100 18,400 110,100 Mid-America Apartment Communities 91,700 723,672 3,606,561 4,330,233 39,242 236,899 Mills 197,657 2,175,969 10,960,081 13,136,050 40,870 249,969 Pan Pacific Retail Properties 209,099 2,315,285 11,845,458 14,160,743 78,150 471,450 Prologis Trust 393,300 3,046,287 15,330,834 18,377,121 42,300 258,400 Public Storage 216,100 2,210,175 11,291,225 13,501,400 11,115 66,325 Regency Centers 55,210 543,079 2,697,561 3,240,640 86,460 528,475 Simon Property Group 442,015 5,042,347 25,778,315 30,820,662 48,938 296,945 SL Green Realty 248,007 2,682,781 13,595,744 16,278,525 66,200 395,500 Starwood Hotels & Resorts Worldwide 329,300 3,159,726 15,717,489 18,877,215 10,948 66,165 Summit Properties 55,217 332,053 1,674,732 2,006,785 14,224 84,641 Tanger Factory Outlet Centers 70,417 672,084 3,327,203 3,999,287 32,695 193,138 Taubman Centers 160,443 938,347 4,604,714 5,543,061 47,007 284,915 United Dominion Realty Trust 237,908 990,908 5,015,101 6,006,009 92,176 550,686 Ventas 458,510 2,479,534 12,333,919 14,813,453 41,400 252,900 Vornado Realty Trust 211,500 2,782,080 14,212,800 16,994,880 TOTAL COMMON STOCKS 79,185,829 401,909,274 481,095,103 PREFERRED STOCKS (0.82%) REAL ESTATE INVESTMENT TRUSTS (0.82%) 9,360 75,180 Simon Property Group (1) 65,820 508,903 3,578,633 4,087,536 TOTAL PREFERRED STOCKS 508,903 3,578,633 4,087,536 COMMERCIAL PAPER (3.02%) FINANCE-CONSUMER LOANS (.35%) Investment in Joint Trading Account; Household Finance 1.84%; 11/01/04 1,754,417 - 1,754,417 1,754,417 - 1,754,417 FINANCE-MORTGAGE LOAN/BANKER (2.67%) Investment in Joint Trading Account; Federal Home Loan Bank - 13,379,182 13,379,182 1.69%; 11/01/2004 - 13,379,182 13,379,182 TOTAL COMMERCIAL PAPER 1,754,417 13,379,182 15,133,599 TOTAL PORTFOLIO INVESTMENTS (99.96%) 81,449,149 418,867,089 500,316,238 Cash, receivables and other assets, net of liabilities (0.04%) 14,635 208,190 222,825 TOTAL NET ASSETS (100.00%) $ 81,463,784 $419,075,279 $500,539,063 ==================================================== (1) Non-income producing security.
UNREALIZED APPRECIATION (DEPRECIATION) The net federal income tax unrealized appreciation (depreciation) and federal tax cost of investments held by the fund as of the period end were as follows: Unrealized Appreciation $ 18,526,520 $ 74,501,804 $ 93,028,324 Unrealized Depreciation (92,592) (515,317) (607,909) - ----------------------------------------------------------------------------------------------------------------------------------- Net Unrealized Appreciation (Depreciation) 18,433,928 73,986,487 92,420,415 Cost for federal income tax purposes $ 63,015,221 $ 344,880,602 $ 407,895,823
INVESTMENTS BY REIT TYPE (UNAUDITED) Percentage of Total Value REIT Type Value - ----------------------------------------------------------------------------------------------------------------------------------- 24.67% 24.12% 24.21% Office & Industrial REITs $20,093,272 $101,013,574 $121,106,846 18.49 18.28 18.32 Mall REITs 15,059,780 76,576,335 91,636,115 14.12 13.91 13.94 Apartment REITs 11,496,576 58,258,788 69,755,364 12.95 12.7 12.75 Shopping Center REITs 10,550,774 53,214,898 63,765,672 9.88 9.59 9.64 Diversified REITs 8,050,314 40,186,249 48,236,563 6.04 7.88 7.58 Other Investments 4,921,154 33,027,074 37,948,228 7.58 7.38 7.41 Hotel REITs 6,176,302 30,892,915 37,069,217 3.22 3.19 3.19 Self Storage REITs 2,621,443 13,363,337 15,984,780 3.05 2.95 2.96 Healthcare REITs 2,479,534 12,333,919 14,813,453 TOTAL $81,449,149 $418,867,089 $500,316,238 ================================================== Percentages are adjusted to reflect the impact of currency contracts, futures contracts, and swap agreements, if applicable. See accompanying notes. As of October 31, 2004, all securities held by the Acquired Fund would comply with the investment restrictions of the Acquiring Fund.
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004 (UNAUDITED) -------------------------------------------------------------------------------
PRINCIPAL BOND & MORTGAGE COMBINED BOND SECURITIES PRO FORMA BOND & MORTGAGE FUND, INC. FUND ADJUSTMENTS/(D)/ SECURITIES FUND - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- INVESTMENT IN SECURITIES--AT COST.. $221,865,574 $746,792,111 $ -- $ 968,657,685 ============ ============ ======== ============== ASSETS Investment in securities--at value. $227,040,360/(c)/ $755,829,429 $ -- $ 982,869,789/(c)/ Cash.................. 861,531 2,255,366 -- 3,116,897 Receivables: Capital Shares sold.. 54,364 2,009,173 -- 2,063,537 Dividends and interest............ 2,179,721 6,071,274 -- 8,250,995 Investment securities sold................ 2,112,673 2,126,641 -- 4,239,314 Unrealized gain on swap agreements..... 57,560 111,922 -- 169,482 Other assets.......... 7,164 -- -- 7,164 ------------ ------------ -------- -------------- Total Assets 232,313,373 768,403,805 -- 1,000,717,178 LIABILITIES Accrued management and investment advisory fees................. 18,951 66,904 -- 85,855 Accrued administrative service fees......... -- 2,964 -- 2,964 Accrued distribution fees................. 2,090 18,384 -- 20,474 Accrued directors' expense.............. 186 -- -- 186 Accrued service fees.. -- 3,708 -- 3,708 Accrued transfer and administrative fees.. 94,353 67,807 -- 162,160 Accrued other expenses 43,923 19,585 -- 63,508 Payables: Capital Shares reacquired.......... 197,130 46 -- 197,176 Investment securities purchased........... 21,213,760 82,662,185 -- 103,875,945 Reverse repurchase agreements.......... -- 45,838,394 -- 45,838,394 Reorganization costs. -- -- 49,101 49,101 Collateral obligation on securities loaned, at value............. 505,890 -- -- 505,890 ------------ ------------ -------- -------------- Total Liabilities 22,076,283 128,679,977 49,101 150,805,361 ------------ ------------ -------- -------------- NET ASSETS APPLICABLE TO OUTSTANDING SHARES $210,237,090 $639,723,828 $(49,101) $ 849,911,817 ============ ============ ======== ============== NET ASSETS CONSIST OF: Capital Shares and additional paid-in-capital...... $215,728,303 $629,086,367 $ -- $ 844,814,670 Accumulated undistributed (overdistributed) net investment income (operating loss)..... 96,778 1,032,801 (49,101) 1,080,478 Accumulated undistributed (overdistributed) net realized gain (loss). (10,820,337) 455,420 -- (10,364,917) Net unrealized appreciation (depreciation) of investments.......... 5,232,346 9,149,240 -- 14,381,586 ------------ ------------ -------- -------------- Total Net Assets $210,237,090 $639,723,828 $(49,101) $ 849,911,817 ============ ============ ======== ============== CAPITAL STOCK (PAR VALUE: $.01 A SHARE): Shares authorized..... 200,000,000 258,000,000 -- 258,000,000 NET ASSET VALUE PER SHARE: Advisors Preferred: Net Assets........... N/A $ 28,547,207 N/A $ 28,547,207 Shares issued and outstanding.......... 2,628,019 2,628,019 Net asset value per share................ $ 10.86 $ 10.86 ============ ============== Advisors Select: Net Assets............... N/A $ 31,801,128 N/A $ 31,801,128 Shares issued and outstanding.......... 2,934,881 2,934,881 Net asset value per share................ $ 10.84 $ 10.84 ============ ============== Class A: Net Assets... $178,911,422 N/A $(37,953) $ 178,873,469 Shares issued and outstanding.......... 16,051,354 359,056 16,410,410 Net asset value per share................ $ 11.15 -- $ 10.90 Maximum offering price per share /(a)/ $ 11.71 -- $ 11.44 ============ == ============== Class B: Net Assets... $ 31,325,668 N/A $(11,148) $ 31,314,520 Shares issued and outstanding.......... 2,810,736 62,156 2,872,892 Net asset value per share /(b)/.......... $ 11.15 -- $ 10.90 ============ == ============== Class J: Net Assets... N/A $159,801,323 N/A $ 159,801,323 Shares issued and outstanding.......... 14,603,315 14,603,315 Net asset value per share /(b)/.......... $ 10.94 $ 10.94 ============ ============== Institutional: Net Assets............... N/A $373,879,935 N/A $ 373,879,935 Shares issued and outstanding.......... 34,288,456 34,288,456 Net asset value per share................ $ 10.90 $ 10.90 ============ ============== Preferred: Net Assets. N/A $ 43,419,981 N/A $ 43,419,981 Shares issued and outstanding.......... 3,993,860 3,993,860 Net asset value per share................ $ 10.87 $ 10.87 ============ ============== Select: Net Assets.... N/A $ 2,274,254 N/A $ 2,274,254 Shares issued and outstanding.......... 206,902 206,902 Net asset value per share................ $ 10.99 $ 10.99 ============ ==============
/(a) /Maximum offering price equals net asset value plus a front-end sales charge of 4.75% of the offering price or 4.99% of the net asset value. /(b) /Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. /(c) /Includes fair market value of securities loaned, see "Securities Lending" in Notes to Financial Statements. /(d) /Reduction in net assets to reflect the estimated expenses of the Reorganization. See accompanying notes. 1 SCHEDULE OF INVESTMENTS October 31, 2004 (unaudited)
Principal Amount or Number of Shares Market Value - ------------------------------------------------------------------------------------------------------------------------------------ Principal Bond & Mortgage Principal Bond & Mortgage Bond Securities Bond Securities Fund, Inc. Fund Combined Fund, Inc. Fund Combined - ------------------------------------------------------------------------------------------------------------------------------------ BONDS (54.44%) ADVANCED MATERIALS & PRODUCTS (0.07%) Hexcel 250,000 350,000 600,000 9.75%; 01/15/09 $263,125 $368,375 $631,500 AEROSPACE & DEFENSE (0.01%) Northrop Grumman - 100,000 100,000 7.75%; 02/15/31 - 125,265 125,265 AEROSPACE & DEFENSE EQUIPMENT (0.24%) GenCorp - 350,000 350,000 9.50%; 08/15/03 - 375,375 375,375 K&F Industries 225,000 594,000 819,000 9.25%; 10/15/07 229,500 605,880 835,380 Lockheed Martin - 250,000 250,000 7.65%; 05/01/16 - 306,030 306,030 TransDigm - 500,000 500,000 8.38%; 07/15/11 - 537,500 537,500 AGRICULTURAL OPERATIONS (0.53%) Bunge Limited Finance 430,000 2,790,000 3,220,000 4.38%; 12/15/08 434,610 2,819,915 3,254,525 270,000 600,000 870,000 5.35%; 04/15/14 276,461 614,357 890,818 160,000 145,000 305,000 5.88%; 05/15/13 169,606 153,705 323,311 AIRLINES (0.11%) Southwest Airlines 194,844 60,889 255,733 5.10%; 05/01/06 199,486 62,340 261,826 - 650,000 650,000 5.50%; 11/01/06 - 677,129 677,129 APPAREL MANUFACTURERS (0.07%) Phillips Van-Heusen 125,000 350,000 475,000 7.75%; 11/15/23 125,625 351,750 477,375 Russell - 100,000 100,000 9.25%; 05/01/10 - 107,500 107,500 ASSET BACKED SECURITIES (1.61%) Adjustable Rate Mortgage Trust (1)7) - 2,000,000 2,000,000 2.52%; 11/25/34 - 2,000,000 2,000,000 Bear Stearns Asset Backed Securities (1) 515,000 1,000,000 1,515,000 2.53%; 03/25/34 514,976 999,953 1,514,929 Chase Funding Mortgage Loan Asset Backed Certificates (1) 400,000 1,550,000 1,950,000 2.22%; 09/25/33 399,982 1,549,929 1,949,911 420,000 795,000 1,215,000 2.43%; 09/25/33 419,981 794,963 1,214,944 Countrywide Asset Backed Certificates - 2,000,000 2,000,000 2.33%; 10/25/32 (1) (7) - 2,000,000 2,000,000 - 2,285,713 2,285,713 2.43%; 02/25/34 (1) - 2,285,606 2,285,606 490,000 590,000 1,080,000 3.61%; 04/25/30 492,107 592,538 1,084,645 Master Adjustable Rate Mortgages Trust (1) 545,000 1,100,000 1,645,000 3.03%; 03/25/34 548,778 1,107,626 1,656,404 AUTO-CARS & LIGHT TRUCKS (0.73%) DaimlerChrysler Holding 650,000 1,250,000 1,900,000 2.71%; 08/08/06 (1) 657,833 1,265,064 1,922,897 400,000 1,485,000 1,885,000 4.05%; 06/04/08 402,697 1,495,013 1,897,710 75,000 - 75,000 4.75%; 01/15/08 77,270 - 77,270 225,000 550,000 775,000 7.25%; 01/18/06 236,509 578,133 814,642 Ford Motor - 235,000 235,000 7.45%; 07/16/31 - 228,863 228,863 General Motors 275,000 560,000 835,000 8.25%; 07/15/23 286,467 583,350 869,817 Hyundai Motor Manufacturing (2) 130,000 225,000 355,000 5.30%; 12/19/08 135,261 234,106 369,367 AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL (0.49%) Collins & Aikman Products 125,000 250,000 375,000 10.75%; 12/31/11 124,688 249,375 374,063 Delco Remy International 250,000 400,000 650,000 8.63%; 12/15/07 255,000 408,000 663,000 Delphi (1) (2) 325,000 625,000 950,000 2.44%; 12/01/04 325,000 625,000 950,000 Lear 320,000 285,000 605,000 7.96%; 05/15/05 328,450 292,526 620,976 Stanadyne (2) 150,000 225,000 375,000 10.00%; 08/15/14 157,500 236,250 393,750 Tenneco Automotive 515,000 575,000 1,090,000 11.63%; 10/15/09 547,187 610,937 1,158,124 AUTOMOBILE SEQUENTIAL (0.58%) Capital Auto Receivables Asset Trust 950,000 680,000 1,630,000 4.50%; 10/15/07 959,334 686,681 1,646,015 DaimlerChrysler Auto Trust - 289,636 289,636 5.32%; 09/06/06 - 292,036 292,036 Ford Credit Auto Owner Trust - 496,381 496,381 4.72%; 12/15/05 - 497,787 497,787 Honda Auto Receivables Owner Trust - 1,500,000 1,500,000 4.22%; 04/16/07 - 1,509,285 1,509,285 M&I Auto Loan Trust - 250,000 250,000 3.04%; 10/20/08 - 251,159 251,159 Toyota Auto Receivables Owner Trust 555,614 555,614 2.65%; 11/15/06 556,204 556,204 - 218,765 218,765 4.72%; 09/15/08 219,482 219,482 BEVERAGES- NON-ALCOHOLIC (0.06%) Bottling Group - 110,000 110,000 4.63%; 11/15/12 - 112,031 112,031 Coca-Cola HBC Finance - 345,000 345,000 5.13%; 09/17/13 - 355,771 355,771 BEVERAGES- WINE & SPIRITS (0.26%) Diageo Capital - 1,975,000 1,975,000 2.17%; 04/20/07 (1) - 1,975,735 1,975,735 - 200,000 200,000 3.38%; 03/20/08 - 199,891 199,891 BREWERY (0.36%) Cia Brasileira de Bebidas - 220,000 220,000 8.75%; 09/15/13 - 249,700 249,700 300,000 405,000 705,000 10.50%; 12/15/11 369,000 498,150 867,150 Coors Brewing 245,000 830,000 1,075,000 6.38%; 05/15/12 271,747 920,612 1,192,359 Miller Brewing - 320,000 320,000 5.50%; 08/15/13 (2) - 335,875 335,875 SABMiller (2) 150,000 250,000 400,000 6.63%; 08/15/33 168,804 281,340 450,144 BROADCASTING SERVICES & PROGRAMMING (0.34%) Clear Channel Communications 415,000 1,000,000 1,415,000 5.75%; 01/15/13 429,792 1,035,644 1,465,436 Fisher Communications (2) - 160,000 160,000 8.63%; 09/15/14 - 168,800 168,800 Grupo Televisa 100,000 160,000 260,000 8.50%; 03/11/32 114,250 182,800 297,050 Liberty Media 385,000 550,000 935,000 3.50%; 09/25/06 385,383 550,547 935,930 BUILDING & CONSTRUCTION PRODUCTS- MISCELLANEOUS (0.45%) CRH America - 135,000 135,000 5.30%; 10/15/13 - 139,464 139,464 155,000 250,000 405,000 6.40%; 10/15/33 166,821 269,066 435,887 229,000 816,000 1,045,000 6.95%; 03/15/12 263,227 937,963 1,201,190 Masco (1) (2) 675,000 1,400,000 2,075,000 2.11%; 03/09/07 676,138 1,402,360 2,078,498 BUILDING PRODUCTS-AIR & HEATING (0.03%) York International 200,000 35,000 235,000 6.63%; 08/15/06 211,265 36,971 248,236 BUILDING PRODUCTS- CEMENT AND AGGREGATE(0.05%) Hanson Overseas - 450,000 450,000 6.75%; 09/15/05 - 465,331 465,331 BUILDING PRODUCTS-WOOD (0.05%) Ainsworth Lumber - 250,000 250,000 6.75%; 03/15/14 - 240,000 240,000 Celulosa Arauco y Constitucion 90,000 115,000 205,000 5.13%; 07/09/13 89,038 113,770 202,808 BUILDING-RESIDENTIAL & COMMERCIAL (0.30%) Beazer Homes - 600,000 600,000 8.38%; 04/15/12 - 661,500 661,500 DR Horton 250,000 700,000 950,000 5.63%; 09/15/14 247,812 693,875 941,687 KB Home - 340,000 340,000 7.75%; 02/01/10 - 370,600 370,600 Schuler Homes - 500,000 500,000 9.38%; 07/15/09 - 542,500 542,500 CABLE TV (0.79%) Charter Communications (2) - 250,000 250,000 8.38%; 04/30/14 - 252,188 252,188 Comcast 50,000 220,000 270,000 5.30%; 01/15/14 50,984 224,331 275,315 30,000 520,000 550,000 5.85%; 01/15/10 32,266 559,268 591,534 230,000 500,000 730,000 7.05%; 03/15/33 259,790 564,761 824,551 Comcast Cable Communications 220,000 250,000 470,000 6.75%; 01/30/11 246,797 280,451 527,248 500,000 500,000 8.38%; 05/01/07 - 559,264 559,264 Cox Communications - 355,000 355,000 4.63%; 06/01/13 - 338,404 338,404 - 165,000 165,000 5.50%; 10/01/15 - 163,525 163,525 305,000 - 305,000 6.75%; 03/15/11 335,042 - 335,042 EchoStar DBS (2) 350,000 1,000,000 1,350,000 6.63%; 10/01/14 357,875 1,022,500 1,380,375 Kabel Deutschland (2) 150,000 350,000 500,000 10.63%; 07/01/14 168,000 392,000 560,000 Rogers Cablesystems 250,000 650,000 900,000 10.00%; 03/15/05 256,250 666,250 922,500 CASINO HOTELS (0.18%) Aztar 150,000 250,000 400,000 7.88%; 06/15/14 162,750 271,250 434,000 Harrah's Operating 290,000 770,000 1,060,000 5.50%; 07/01/10 302,603 803,463 1,106,066 CELLULAR TELECOMMUNICATIONS (1.30%) 360 Communications (1) (2) - 125,000 125,000 7.50%; 03/01/06 - 132,794 132,794 AirGate PCS - 300,000 300,000 5.85%; 10/15/11 - 307,500 307,500 America Movil (2) 435,000 910,000 1,345,000 5.50%; 03/01/14 427,502 894,314 1,321,816 AT&T Wireless Services - 140,000 140,000 6.88%; 04/15/05 - 142,763 142,763 295,000 915,000 1,210,000 7.88%; 03/01/11 351,435 1,090,046 1,441,481 480,000 625,000 1,105,000 8.13%; 05/01/12 585,589 762,486 1,348,075 125,000 125,000 8.75%: 03/01/31 167,815 167,815 Nextel Communications 150,000 250,000 400,000 6.88%; 10/31/13 162,750 271,250 434,000 PTC International Finance II 420,000 1,130,000 1,550,000 11.25%; 12/01/09 445,200 1,197,800 1,643,000 Rural Cellular (2) 120,000 255,000 375,000 8.25%; 03/15/12 126,000 267,750 393,750 Telus 445,000 1,415,000 1,860,000 7.50%; 06/01/07 488,955 1,554,768 2,043,723 40,000 110,000 150,000 8.00%; 06/01/11 47,296 130,063 177,359 Verizon Wireless Capital 480,000 915,000 1,395,000 5.38%; 12/15/06 503,104 959,042 1,462,146 CHEMICALS-DIVERSIFIED (0.51%) Chevron Phillips Chemical 240,000 - 240,000 5.38%; 06/15/07 251,532 - 251,532 265,000 655,000 920,000 7.00%; 03/15/11 300,562 742,899 1,043,461 FMC 315,000 850,000 1,165,000 6.75%; 05/05/05 319,725 862,750 1,182,475 ICI Wilmington I 220,000 655,000 875,000 5.63%; 12/01/13 227,653 677,785 905,438 Lyondell Chemical 156,000 420,000 576,000 9.88%; 05/01/07 164,970 444,150 609,120 Phibro Animal Health 125,000 250,000 375,000 9.88%; 06/01/08 112,500 225,000 337,500 CHEMICALS-SPECIALTY (0.30%) Hercules 200,000 300,000 500,000 6.75%; 10/15/29 204,000 306,000 510,000 Lubrizol 265,000 750,000 1,015,000 4.63%; 10/01/09 267,596 757,348 1,024,944 125,000 375,000 500,000 6.50%; 10/01/34 125,979 377,936 503,915 Rhodia 175,000 - 175,000 10.25%; 06/01/10 189,875 - 189,875 Westlake Chemical 88,000 177,000 265,000 8.75%; 07/15/11 99,220 199,567 298,787 COAL (0.04%) Massey Energy 120,000 180,000 300,000 6.63%; 11/15/10 125,100 187,650 312,750 COATINGS & PAINT (0.11%) Resolution Performance Products 150,000 250,000 400,000 8.00%; 12/15/09 155,250 258,750 414,000 Valspar 160,000 305,000 465,000 6.00%; 05/01/07 170,064 324,185 494,249 COMMERCIAL BANKS (0.22%) Marshall & Ilsley Bank - 200,000 200,000 4.13%; 09/04/07 - 204,463 204,463 U.S. Bank - 275,000 275,000 6.38%; 08/01/11 - 308,316 308,316 Union Planters Bank 240,000 310,000 550,000 5.13%; 06/15/07 253,168 327,008 580,176 United Overseas Bank (2) 150,000 175,000 325,000 4.50%; 07/02/13 147,688 172,302 319,990 Wachovia Bank - 385,000 385,000 7.80%; 08/18/10 - 455,721 455,721 COMMERCIAL SERVICES (0.24%) Iron Mountain 150,000 350,000 500,000 6.63%; 01/01/16 149,250 348,250 497,500 315,000 860,000 1,175,000 8.25%; 07/01/11 329,175 898,700 1,227,875 Quintiles Transnational - 250,000 250,000 10.00%; 10/01/13 - 272,500 272,500 COMPUTER SERVICES (0.18%) Unisys 125,000 350,000 475,000 7.25%; 01/15/05 126,250 353,500 479,750 220,000 830,000 1,050,000 7.88%; 04/01/08 225,775 851,787 1,077,562 COMPUTERS-INTEGRATED SYSTEMS (0.01%) NCR 75,000 25,000 100,000 7.13%; 06/15/09 83,649 27,883 111,532 COMPUTERS- MEMORY DEVICES (0.05%) Seagate Technology HDD Holdings - 400,000 400,000 8.00%; 05/19/09 - 432,500 432,500 CONSUMER PRODUCTS- MISCELLANEOUS (0.02%) Fortune Brands (2) - 140,000 140,000 7.13%; 10/01/04 - 140,000 140,000 CONTAINERS-METAL & GLASS (0.22%) Crown European Holdings 250,000 400,000 650,000 10.88%; 03/01/13 296,875 475,000 771,875 Owens-Brockway 200,000 600,000 800,000 8.75%; 11/15/12 225,500 676,500 902,000 Silgan Holdings 150,000 - 150,000 6.75%; 11/15/13 154,500 - 154,500 CONTAINERS-PAPER & PLASTIC (0.19%) Intertape Polymer Group (2) 200,000 300,000 500,000 8.50%; 08/01/14 198,750 298,125 496,875 Norampac 275,000 340,000 615,000 6.75%; 06/01/13 290,125 358,700 648,825 Sonoco Products - 500,000 500,000 7.00%; 11/15/04 - 500,813 500,813 COPPER ORES (0.03%) Codelco (2) - 200,000 200,000 6.38%; 11/30/12 - 221,592 221,592 CREDIT CARD ASSET BACKED SECURITIES (1.50%) American Express Credit Account Master Trust (1) 200,000 400,000 600,000 2.12%; 09/15/11 200,403 400,807 601,210 - 375,000 375,000 5.53%; 10/15/08 - 389,367 389,367 Bank One Issuance Trust - 1,000,000 1,000,000 3.59%; 05/17/10 - 1,010,281 1,010,281 Capital One Multi-Asset Execution Trust (1) 550,000 1,140,000 1,690,000 2.09%; 12/15/09 550,340 1,140,706 1,691,046 Chase Credit Card Master Trust (1) 750,000 1,500,000 2,250,000 2.07%; 05/15/09 749,954 1,499,907 2,249,861 Citibank Credit Card Issuance Trust - 1,000,000 1,000,000 2.70%; 01/15/08 - 1,000,535 1,000,535 - 500,000 500,000 4.10%; 12/07/06 - 501,130 501,130 Discover Card Master Trust I - 1,000,000 1,000,000 5.75%; 12/15/08 - 1,047,290 1,047,290 - 400,000 400,000 6.85%; 07/17/07 - 404,012 404,012 MBNA Credit Card Master Note Trust - 1,600,000 1,600,000 2.25%; 10/15/09 (1) - 1,607,110 1,607,110 - 425,000 425,000 3.90%; 11/15/07 - 428,872 428,872 MBNA Master Credit Card Trust 300,000 300,000 6.60%; 04/16/07 - 300,625 300,625 1,500,000 - 1,500,000 6.90%; 01/15/08 1,551,911 - 1,551,911 DATA PROCESSING & MANAGEMENT (0.04%) Certegy 135,000 190,000 325,000 4.75%; 09/15/08 139,026 195,666 334,692 DIAGNOSTIC KITS (0.03%) Dade Behring Holding - 245,514 245,514 11.91%; 10/03/10 - 278,045 278,045 DISTRIBUTION-WHOLESALE (0.18%) Ingram Micro 225,000 1,190,000 1,415,000 9.88%; 08/15/08 246,937 1,306,025 1,552,962 DIVERSIFIED FINANCIAL SERVICES (0.76%) General Electric Capital 7,521,673 16,517,253 24,038,926 0.70%; 03/10/40 (1) (2) 230,697 506,601 737,298 775,000 1,500,000 2,275,000 1.84%; 02/02/09 (1) 776,632 1,503,157 2,279,789 - 975,000 975,000 4.25%; 12/01/10 - 984,279 984,279 - 285,000 285,000 4.63%; 09/15/09 - 296,245 296,245 - 140,000 140,000 6.00%; 06/15/12 - 153,713 153,713 300,000 - 300,000 6.75%; 03/15/32 349,866 - 349,866 John Deere Capital 160,000 135,000 295,000 3.13%; 12/15/05 160,581 135,490 296,071 NiSource Finance 120,000 445,000 565,000 3.20%; 11/01/06 119,837 444,397 564,234 - 730,000 730,000 7.63%; 11/15/05 - 765,141 765,141 DIVERSIFIED MANUFACTURING OPERATIONS (0.54%) General Electric 125,000 2,195,000 2,320,000 5.00%; 02/01/13 129,572 2,275,289 2,404,861 Invensys (2) 250,000 - 250,000 9.88%; 03/15/11 261,250 - 261,250 J.B. Poindexter (2) 200,000 300,000 500,000 8.75%; 03/15/14 214,000 321,000 535,000 Tyco International Group 200,000 325,000 525,000 6.00%; 11/15/13 218,493 355,052 573,545 300,000 365,000 665,000 6.38%; 02/15/06 313,191 381,048 694,239 - 125,000 125,000 6.38%; 10/15/11 - 139,145 139,145 DIVERSIFIED MINERALS (0.09%) Corp. Nacional del Cobre de Chile(2) 125,000 180,000 305,000 5.50%; 10/15/13 130,848 188,422 319,270 Vale Overseas 185,000 235,000 420,000 9.00%; 08/15/13 208,125 264,375 472,500 DIVERSIFIED OPERATIONS (0.11%) Hutchison Whampoa International (2) - 300,000 300,000 5.45%; 11/24/10 - 308,866 308,866 150,000 425,000 575,000 6.50%; 02/13/13 159,657 452,360 612,017 E-COMMERCE-PRODUCTS (0.04%) FTD 130,000 245,000 375,000 7.75%; 02/15/14 130,325 245,613 375,938 ELECTRIC-DISTRIBUTION (0.07%) Detroit Edison 145,000 410,000 555,000 5.40%; 08/01/14 153,095 432,890 585,985 ELECTRIC-GENERATION (0.16%) CE Casecnan Water & Energy 123,125 363,779 486,904 11.45%; 11/15/05 124,356 367,416 491,772 Korea East-West Power (2) 85,000 195,000 280,000 4.88%; 04/21/11 86,914 199,390 286,304 Tenaska Virginia Partners (2) 159,048 357,859 516,907 6.12%; 03/30/24 168,356 378,801 547,157 ELECTRIC-INTEGRATED (3.46%) Arizona Public Service 130,000 425,000 555,000 5.80%; 06/30/14 138,300 452,136 590,436 205,000 395,000 600,000 6.50%; 03/01/12 229,265 441,754 671,019 Carolina Power & Light - 200,000 200,000 6.50%; 07/15/12 - 222,893 222,893 - 200,000 200,000 6.65%; 04/01/08 - 217,733 217,733 - 750,000 750,000 7.50%; 04/01/05 - 765,391 765,391 Centerpoint Energy 180,000 175,000 355,000 5.88%; 06/01/08 189,546 184,280 373,826 Cincinnati Gas & Electric - 145,000 145,000 5.40%; 06/15/33 - 135,123 135,123 Columbus Southern Power - 355,000 355,000 6.85%; 10/03/05 - 369,106 369,106 Commonwealth Edison - 265,000 265,000 6.40%; 10/15/05 - 274,123 274,123 Consumers Energy 70,000 70,000 140,000 4.25%; 04/15/08 71,281 71,280 142,561 Dayton Power & Light (2) 200,000 400,000 600,000 5.13%; 10/01/13 203,947 407,894 611,841 Dominion Resources (1) 550,000 1,795,000 2,345,000 2.01%; 05/15/06 551,184 1,798,865 2,350,049 Duke Energy (1) - 1,600,000 1,600,000 2.42%; 01/15/05 - 1,600,333 1,600,333 Entergy Gulf States 180,000 165,000 345,000 3.60%; 06/01/08 178,548 163,669 342,217 Exelon 200,000 155,000 355,000 6.75%; 05/01/11 225,350 174,647 399,997 FirstEnergy - 400,000 400,000 5.50%; 11/15/06 - 416,211 416,211 325,000 600,000 925,000 6.45%; 11/15/11 356,095 657,406 1,013,501 FPL Energy Wind Funding (2) 245,960 416,240 662,200 6.88%; 06/27/17 253,954 429,768 683,722 FPL Group Capital 170,000 390,000 560,000 3.25%; 04/11/06 171,156 392,651 563,807 Georgia Power (1) 900,000 1,750,000 2,650,000 1.90%; 02/17/09 899,766 1,749,545 2,649,311 Indianapolis Power & Light 230,000 390,000 620,000 7.38%; 08/01/07 248,909 422,062 670,971 Jersey Central Power & Light (2) 80,000 180,000 260,000 5.63%; 05/01/16 83,910 188,797 272,707 MidAmerican Energy Holdings - 975,000 975,000 3.50%; 05/15/08 - 964,134 964,134 200,000 180,000 380,000 4.63%; 10/01/07 204,939 184,445 389,384 MSW Energy Holdings II 225,000 350,000 575,000 7.38%; 09/01/10 236,250 367,500 603,750 Northeast Utilities 145,000 140,000 285,000 3.30%; 06/01/08 141,928 137,034 278,962 Ohio Power 185,000 325,000 510,000 4.85%; 01/15/14 185,956 326,679 512,635 Oncor Electric Delivery 275,000 225,000 500,000 6.38%; 05/01/12 305,114 249,639 554,753 115,000 115,000 7.25%; 01/15/33 138,094 138,094 Pacific Gas & Electric 150,000 395,000 545,000 3.60%; 03/01/09 148,926 392,171 541,097 265,000 1,145,000 1,410,000 6.05%; 03/01/34 272,931 1,179,268 1,452,199 Pepco Holdings 565,000 505,000 1,070,000 3.75%; 02/15/06 570,461 509,881 1,080,342 70,000 100,000 170,000 4.00%; 05/15/10 68,415 97,736 166,151 Power Contract Financing (2) 116,373 142,973 259,346 5.20%; 02/01/06 117,988 144,957 262,945 PPL Energy Supply 200,000 535,000 735,000 5.40%; 08/15/14 205,040 548,483 753,523 - 50,000 50,000 6.40%; 11/01/11 - 55,177 55,177 - Progress Energy - 534,000 534,000 6.75%; 03/01/06 - 559,960 559,960 PSEG Power 300,000 1,000,000 1,300,000 6.95%; 06/01/12 337,938 1,126,461 1,464,399 - PSI Energy - 325,000 325,000 5.00%; 09/15/13 - 327,784 327,784 Puget Energy 175,000 175,000 350,000 3.36%; 06/01/08 173,624 173,624 347,248 - SCANA - 1,450,000 1,450,000 2.16%; 11/15/06 (1) - 1,453,078 1,453,078 Southern California Edison 85,000 160,000 245,000 5.00%; 01/15/14 87,079 163,913 250,992 290,000 340,000 630,000 8.00%; 02/15/07 320,671 375,959 696,630 Southwestern Electric Power 240,000 80,000 320,000 4.50%; 07/01/05 242,978 80,993 323,971 TXU Energy 140,000 370,000 510,000 6.13%; 03/15/08 150,371 397,410 547,781 - Virginia Electric & Power - 325,000 325,000 4.50%; 12/15/10 - 328,624 328,624 ELECTRONIC COMPONENTS-MISCELLANEOUS (0.06%) Flextronics International 150,000 300,000 450,000 6.50%; 05/15/13 157,500 315,000 472,500 ELECTRONIC COMPONENTS-SEMICONDUCTOR (0.30%) AMI Semiconductor - 300,000 300,000 10.75%; 02/01/13 - 351,750 351,750 Fairchild Semiconductor International 325,000 1,100,000 1,425,000 10.50%; 02/01/09 347,750 1,177,000 1,524,750 Freescale Semiconductor (2) 200,000 400,000 600,000 6.88%; 07/15/11 212,000 424,000 636,000 ELECTRONICS-MILITARY (0.17%) L-3 Communications 480,000 935,000 1,415,000 8.00%; 08/01/08 494,400 963,050 1,457,450 EXPORT/IMPORT BANK (0.09%) Export-Import Bank of Korea 240,000 500,000 740,000 4.50%; 08/12/09 245,470 511,396 756,866 FEDERAL & FEDERALLY SPONSORED CREDIT (0.08%) Federal Farm Credit Bank - 180,000 180,000 7.25%; 06/12/07 - 198,980 198,980 Housing Urban Development 325,000 125,000 450,000 2.99%; 08/01/05 326,594 125,613 452,207 FIDUCIARY BANKS (0.23%) State Street Capital Trust II (1) 725,000 1,250,000 1,975,000 2.21%; 02/15/08 728,840 1,256,620 1,985,460 FILTRATION & SEPARATION PRODUCTS (0.05%) Polypore (2) 125,000 250,000 375,000 8.75%; 05/15/12 130,625 261,250 391,875 FINANCE-AUTO LOANS (1.13%) American Honda Finance (1) (2) 900,000 1,750,000 2,650,000 1.86%; 02/20/07 900,326 1,750,633 2,650,959 Ford Motor Credit - 225,000 225,000 5.80%; 01/12/09 - 232,121 232,121 225,000 400,000 625,000 6.13%; 01/09/06 232,480 413,298 645,778 - 705,000 705,000 6.50%; 01/25/07 - 740,711 740,711 160,000 - 160,000 6.88%; 02/01/06 166,348 - 166,348 450,000 - 450,000 7.25%; 10/25/11 484,967 - 484,967 - 165,000 165,000 7.38%; 02/01/11 - 178,991 178,991 160,000 850,000 1,010,000 7.88%; 06/15/10 177,545 943,208 1,120,753 General Motors Acceptance 550,000 1,000,000 1,550,000 3.33%; 10/20/05 (1) 552,261 1,004,111 1,556,372 - 700,000 700,000 5.63%; 05/15/09 - 706,853 706,853 - 140,000 140,000 6.13%; 08/28/07 - 146,028 146,028 - 65,000 65,000 6.88%; 09/15/11 - 67,664 67,664 175,000 490,000 665,000 6.88%; 08/28/12 182,183 510,114 692,297 Toyota Motor Credit - 250,000 250,000 2.80%; 01/18/06 - 250,564 250,564 FINANCE-COMMERCIAL (0.48%) CIT Group 450,000 875,000 1,325,000 1.91%; 02/15/07 (1) 449,935 874,874 1,324,809 190,000 525,000 715,000 5.13%; 09/30/14 191,193 528,296 719,489 Textron Financial (1) - 2,000,000 2,000,000 2.38%; 10/06/06 - 2,006,320 2,006,320 FINANCE-CONSUMER LOANS (0.74%) Household Finance 775,000 1,500,000 2,275,000 1.86%; 02/09/07 (1) 775,924 1,501,790 2,277,714 95,000 - 95,000 3.38%; 02/21/06 95,752 - 95,752 200,000 700,000 900,000 4.13%; 12/15/08 203,030 710,605 913,635 - 100,000 100,000 4.63%; 01/15/08 - 103,518 103,518 155,000 275,000 430,000 4.75%; 07/15/13 154,769 274,590 429,359 - 700,000 700,000 5.75%; 01/30/07 - 739,892 739,892 125,000 510,000 635,000 7.00%; 05/15/12 144,412 589,200 733,612 SLM (1) - 1,000,000 1,000,000 2.23%; 01/25/07 - 1,000,232 1,000,232 FINANCE-CREDIT CARD (0.28%) Capital One Bank 240,000 620,000 860,000 5.00%; 06/15/09 249,358 644,174 893,532 435,000 1,000,000 1,435,000 6.88%; 02/01/06 456,546 1,049,531 1,506,077 FINANCE-INVESTMENT BANKER & BROKER (2.86%) BCP Caylux Holdings Luxembourg (2) - 250,000 250,000 9.63%; 06/15/14 - 280,000 280,000 Bear Stearns 575,000 1,000,000 1,575,000 2.43%; 01/30/09 (1) 576,383 1,002,405 1,578,788 425,000 1,225,000 1,650,000 2.50%; 06/25/34 (1) 426,262 1,228,638 1,654,900 165,000 615,000 780,000 3.00%; 03/30/06 165,590 617,199 782,789 210,000 160,000 370,000 4.00%; 01/31/08 213,410 162,598 376,008 Citigroup - 375,000 375,000 5.13%; 05/05/14 - 388,061 388,061 750,000 - 750,000 5.75%; 05/10/06 783,476 - 783,476 215,000 810,000 1,025,000 6.63%; 06/15/32 239,898 903,801 1,143,699 - 820,000 820,000 6.75%; 12/01/05 - 855,809 855,809 E*Trade Financial (2) - 500,000 500,000 8.00%; 06/15/11 - 527,500 527,500 Goldman Sachs Group 100,000 500,000 600,000 3.88%; 01/15/09 100,679 503,397 604,076 130,000 175,000 305,000 5.15%; 01/15/14 131,901 177,559 309,460 - 690,000 690,000 5.25%; 04/01/13 - 709,477 709,477 - 175,000 175,000 5.25%; 10/15/13 - 179,155 179,155 615,000 830,000 1,445,000 6.60%; 01/15/12 690,944 932,493 1,623,437 - 75,000 75,000 6.65%; 05/15/09 - 83,657 83,657 Lehman Brothers Holdings - 1,700,000 1,700,000 2.20%; 04/20/07 (1) - 1,700,204 1,700,204 - 1,000,000 1,000,000 2.35%; 11/10/09 - 998,326 998,326 315,000 625,000 940,000 4.80%; 03/13/14 313,783 622,585 936,368 Merrill Lynch 775,000 1,500,000 2,275,000 1.95%; 02/06/09 (1) 775,026 1,500,051 2,275,077 215,000 785,000 1,000,000 5.45%; 07/15/14 224,534 819,810 1,044,344 Morgan Stanley 4,670,060 4,670,060 0.91%; 04/15/34 (1) (2) 109,391 - 109,391 500,000 1,150,000 1,650,000 1.84%; 02/15/07 (1) 500,194 1,150,445 1,650,639 270,000 1,500,000 1,770,000 4.75%; 04/01/14 264,501 1,469,448 1,733,949 165,000 290,000 455,000 5.30%; 03/01/13 171,321 301,109 472,430 225,000 465,000 690,000 6.75%; 04/15/11 255,389 527,804 783,193 275,000 275,000 7.75%; 06/15/05 283,957 283,957 Refco Finance Holdings (2) 150,000 225,000 375,000 9.00%; 08/01/12 162,000 243,000 405,000 - FINANCE- LEASING COMPANY (0.02%) - Boeing Capital - 200,000 200,000 5.65%; 05/15/06 - 208,631 208,631 FINANCE-MORTGAGE LOAN/BANKER (4.29%) Countrywide Home Loan 125,000 250,000 375,000 1.87%; 02/17/06 (1) 124,964 249,927 374,891 775,000 1,500,000 2,275,000 2.28%; 06/02/06 (1) 778,267 1,506,324 2,284,591 120,000 120,000 240,000 4.25%; 12/19/07 122,227 122,227 244,454 - 157,034 157,034 4.50%; 01/25/33 - 157,111 157,111 1,000,000 1,000,000 4.62%; 12/19/33 (1) 991,000 991,000 - 255,000 255,000 5.50%; 02/01/07 - 267,040 267,040 Federal Home Loan Bank System - 550,000 550,000 3.88%; 06/14/13 - 534,550 534,550 Federal Home Loan Mortgage 275,000 1,750,000 2,025,000 2.65%; 05/30/08 269,680 1,716,146 1,985,826 1,675,000 1,250,000 2,925,000 3.25%; 02/25/08 1,665,762 1,243,106 2,908,868 1,400,000 6,100,000 7,500,000 4.50%; 07/15/13 (8) 1,415,371 6,166,972 7,582,343 250,000 675,000 925,000 4.63%; 05/28/13 249,757 674,343 924,100 550,000 300,000 850,000 4.75%; 10/11/12 549,522 299,739 849,261 575,000 575,000 1,150,000 4.75%; 05/06/13 569,699 569,698 1,139,397 - 600,000 600,000 5.13%; 11/07/13 - 604,734 604,734 125,000 1,425,000 1,550,000 6.25%; 07/15/32 143,275 1,633,334 1,776,609 541,000 762,000 1,303,000 6.75%; 03/15/31 655,233 922,898 1,578,131 Federal National Mortgage Association - 675,000 675,000 2.30%; 03/28/06 672,273 672,273 275,000 550,000 825,000 2.88%; 05/19/08 270,331 540,662 810,993 1,430,000 440,000 1,870,000 3.70%; 11/01/07 1,441,809 443,634 1,885,443 - 1,275,000 1,275,000 3.88%; 11/17/08 - 1,278,018 1,278,018 530,000 175,000 705,000 4.32%; 07/26/07 537,153 177,362 714,515 550,000 800,000 1,350,000 4.75%; 02/21/13 549,388 799,110 1,348,498 350,000 350,000 5.25%; 01/15/09 - 374,108 374,108 - 75,000 75,000 6.00%; 05/15/11 - 83,472 83,472 1,000,000 - 1,000,000 6.25%; 05/15/29 1,134,042 - 1,134,042 - 250,000 250,000 7.25%; 01/15/10 - 291,281 291,281 - 2,900,000 2,900,000 7.25%; 05/15/30 - 3,696,018 3,696,018 FINANCE-OTHER SERVICES (0.13%) Newcourt Credit Group - 75,000 75,000 6.88%; 02/16/05 - 75,969 75,969 Verizon Global Funding (3) 1,000,000 - 1,000,000 6.75%; 12/01/05 1,044,409 - 1,044,409 FOOD- DAIRY PRODUCTS (0.05%) Dean Foods - 450,000 450,000 6.75%; 06/15/05 - 457,875 457,875 FOOD-MISCELLANEOUS/DIVERSIFIED (0.49%) Chiquita Brands International (2) - 250,000 250,000 7.50%; 11/01/14 - 256,250 256,250 ConAgra Foods 675,000 675,000 7.50%; 09/15/05 - 700,274 700,274 Corn Products International 265,000 205,000 470,000 8.45%; 08/15/09 303,425 234,725 538,150 Kellogg - 285,000 285,000 6.00%; 04/01/06 - 297,564 297,564 Kraft Foods - 300,000 300,000 4.00%; 10/01/08 - 303,348 303,348 325,000 1,200,000 1,525,000 4.63%; 11/01/06 334,505 1,235,095 1,569,600 65,000 125,000 190,000 5.63%; 11/01/11 69,257 133,187 202,444 20,000 20,000 6.25%; 06/01/12 22,013 22,013 125,000 130,000 255,000 6.50%; 11/01/31 136,681 142,148 278,829 FOOD-RETAIL (0.32%) Delhaize America 360,000 325,000 685,000 7.38%; 04/15/06 380,217 343,252 723,469 Kroger 200,000 865,000 1,065,000 6.20%; 06/15/12 219,114 947,665 1,166,779 - 275,000 275,000 6.75%; 04/15/12 - 309,890 309,890 Safeway - 440,000 440,000 7.00%; 09/15/07 - 481,042 481,042 FOOD- WHOLESALE & DISTRIBUTION (0.01%) Sysco International - 100,000 100,000 6.10%; 06/01/12 - 110,783 110,783 GAS-DISTRIBUTION (0.19%) Colorado Interstate Gas 250,000 650,000 900,000 10.00%; 06/15/05 261,875 680,875 942,750 Sempra Energy 200,000 475,000 675,000 4.75%; 05/15/09 205,409 487,846 693,255 HOME DECORATION PRODUCTS (0.04%) Newell Rubbermaid 100,000 95,000 195,000 4.00%; 05/01/10 97,848 92,956 190,804 85,000 95,000 180,000 4.63%; 12/15/09 87,139 97,391 184,530 HOME EQUITY-OTHER (1.58%) Argent Securities (1) 400,000 750,000 1,150,000 2.15%; 02/25/34 399,187 748,475 1,147,662 Assett Backed Funding Certificates (1) - 545,000 545,000 2.12%; 02/25/30 - 544,976 544,976 CDC Mortgage Capital Trust (1) - 700,000 700,000 2.50%; 06/25/34 - 698,781 698,781 Long Beach Mortgage Loan Trust (1) 140,000 310,000 450,000 2.46%; 06/25/34 139,874 309,721 449,595 165,000 370,000 535,000 3.01%; 06/25/34 165,199 370,445 535,644 New Century Home Equity Loan (1) - 1,500,000 1,500,000 2.65%, 01/25/34 - 1,504,398 1,504,398 Option One Mortgage Loan Trust (1) 400,000 850,000 1,250,000 2.46%; 05/25/34 399,493 848,923 1,248,416 400,000 850,000 1,250,000 2.98%; 05/25/34 399,981 849,960 1,249,941 Saxon Asset Securities Trust (1) - 2,000,000 2,000,000 2.29%; 10/27/34 (7) - 2,000,000 2,000,000 675,000 1,125,000 1,800,000 3.06%; 03/25/35 674,752 1,124,587 1,799,339 Specialty Underwriting & Residential Finance (1) 385,000 750,000 1,135,000 2.44%; 02/25/35 384,982 749,965 1,134,947 Wells Fargo Home Wquity Trust (1) - 1,140,000 1,140,000 2.43%; 04/25/34 - 1,139,967 1,139,967 HOME EQUITY-SEQUENTIAL (0.83%) Ameriquest Mortgage Securities 460,000 965,000 1,425,000 2.13%; 04/25/34 (1) 459,979 964,957 1,424,936 1,500,000 1,500,000 4.37%; 10/25/33 1,511,076 1,511,076 Residential Asset Securities - 1,700,000 1,700,000 2.37%; 10/25/33 - 1,705,457 1,705,457 550,000 225,000 775,000 3.28%; 08/25/29 548,612 224,432 773,044 64,274 23,680 87,954 4.59%; 10/25/26 64,319 23,696 88,015 - 1,500,000 1,500,000 4.70%; 10/25/31 - 1,537,121 1,537,121 HOTELS & MOTELS (0.08%) Host Marriott 116,000 562,000 678,000 7.88%; 08/01/08 119,190 577,455 696,645 INDUSTRIAL AUTOMATION & ROBOTS (0.11%) Rockwell International - 75,000 75,000 6.63%; 06/01/05 - 76,612 76,612 UNOVA 150,000 400,000 550,000 6.88%; 03/15/05 151,875 405,000 556,875 - 300,000 300,000 7.00%; 03/15/08 309,000 309,000 INDUSTRIAL GASES (0.04%) Praxair - 80,000 80,000 4.75%; 07/15/07 - 82,972 82,972 - 235,000 235,000 6.50%; 03/01/08 - 257,595 257,595 INVESTMENT COMPANIES (0.20%) Canadian Oil Sands (2) 450,000 1,250,000 1,700,000 4.80%; 08/10/09 459,776 1,277,155 1,736,931 LIFE & HEALTH INSURANCE (0.38%) John Hancock Global Funding II (1) (2) 800,000 1,750,000 2,550,000 2.19%; 04/03/09 799,392 1,748,670 2,548,062 Nationwide Financial Services 60,000 45,000 105,000 5.63%; 02/13/15 61,969 46,477 108,446 Torchmark - 500,000 500,000 6.25%; 12/15/06 - 532,636 532,636 LINEN SUPPLY & RELATED ITEMS (0.02%) Cintas - 175,000 175,000 5.13%; 06/01/07 - 184,323 184,323 MACHINERY-CONSTRUCTION & MINING (0.08%) Terex 200,000 400,000 600,000 9.25%; 07/15/11 224,000 448,000 672,000 MACHINERY-FARM (0.04%) Case - 300,000 300,000 7.25%; 01/15/16 - 298,500 298,500 MEDICAL INFORMATION SYSTEM (0.06%) NDCHealth 125,000 350,000 475,000 10.50%; 12/01/12 132,500 371,000 503,500 MEDICAL PRODUCTS (0.05%) Medical Device Manufacturing (2) 150,000 250,000 400,000 10.00%; 07/15/12 160,500 267,500 428,000 MEDICAL-DRUGS (0.13%) Biovail - 250,000 250,000 7.88%; 04/01/10 - 259,375 259,375 Eli Lilly - 200,000 200,000 6.00%; 03/15/12 - 221,573 221,573 Schering-Plough 185,000 385,000 570,000 5.30%; 12/01/13 191,872 399,302 591,174 MEDICAL-GENERIC DRUGS (0.05%) Alpharma (2) 150,000 250,000 400,000 8.63%; 05/01/11 156,000 260,000 416,000 MEDICAL-HMO (0.15%) Anthem 500,000 430,000 930,000 4.88%; 08/01/05 505,817 435,003 940,820 UnitedHealth Group - 350,000 350,000 3.30%; 01/30/08 - 347,320 347,320 MEDICAL-HOSPITALS (0.25%) HCA 210,000 330,000 540,000 5.25%; 11/06/08 211,582 332,485 544,067 120,000 465,000 585,000 6.95%; 05/01/12 126,529 490,300 616,829 225,000 210,000 435,000 7.13%; 06/01/06 236,013 220,279 456,292 200,000 200,000 9.00%; 12/15/14 - 238,267 238,267 - United Surgical Partners International - 225,000 225,000 10.00%; 12/15/11 - 258,188 258,188 MEDICAL-WHOLESALE DRUG DISTRIBUTION (0.09%) Bergen Brunswig 210,000 570,000 780,000 7.25%; 06/01/05 214,200 581,400 795,600 METAL PROCESSORS & FABRICATION (0.11%) Mueller Group 225,000 300,000 525,000 10.00%; 05/01/12 243,000 324,000 567,000 Trimas 125,000 250,000 375,000 9.88%; 06/15/12 128,125 256,250 384,375 METAL-DIVERSIFIED (0.13%) Falconbridge 115,000 100,000 215,000 5.38%; 06/01/15 115,881 100,766 216,647 65,000 205,000 270,000 7.35%; 06/05/12 74,637 235,394 310,031 Rio Tinto Finance - 550,000 550,000 5.75%; 07/03/06 - 575,813 575,813 MISCELLANEOUS INVESTING (0.15%) iStar Financial 280,000 515,000 795,000 4.88%; 01/15/09 285,840 525,741 811,581 United Dominion Realty Trust 240,000 155,000 395,000 6.50%; 06/15/09 262,479 169,518 431,997 MISCELLANEOUS MANUFACTURERS (0.06%) Borden - 250,000 250,000 9.20%; 03/15/21 - 231,250 231,250 Samsonite - 250,000 250,000 8.88%; 06/01/11 - 266,250 266,250 MONEY CENTER BANKS (0.89%) Bank of America - 1,675,000 1,675,000 4.75%; 10/15/06 - 1,733,846 1,733,846 685,000 680,000 1,365,000 4.88%; 09/15/12 703,487 698,352 1,401,839 - 345,000 345,000 7.40%; 01/15/11 - 404,197 404,197 HSBC Holdings - 100,000 100,000 5.25%; 12/12/12 - 104,451 104,451 JP Morgan Chase - 2,000,000 2,000,000 2.04%; 03/09/09 (1) 2,005,948 2,005,948 425,000 1,200,000 1,625,000 5.13%; 09/15/14 431,833 1,219,294 1,651,127 Royal Bank of Scotland Group - 220,000 220,000 5.00%; 10/01/14 - 224,192 224,192 MORTGAGE BACKED SECURITIES (1.46%) Banc of America Commercial Mortgage (1) (2) 3,113,716 6,793,562 9,907,278 0.04%; 11/10/38 58,410 127,440 185,850 Bear Stearns Adjustable Rate Mortgage Trust (1) (2) 245,000 610,000 855,000 3.52%; 06/25/34 241,887 602,249 844,136 Bear Stearns Commercial Mortgage Securities (1) (2) 2,550,199 5,383,753 7,933,952 0.65%; 05/11/39 72,232 152,489 224,721 Chase Commercial Mortgage Securities - 194,200 194,200 7.03%; 01/15/32 - 208,837 208,837 Chase Manhattan Bank-First Union National Bank Commercial Mortgage Trust - 263,839 263,839 7.13%; 08/15/31 - 281,439 281,439 Credit Suisse First Boston Mortgage Securities - 725,000 725,000 2.53%; 05/25/34 (1) - 720,820 720,820 CS First Boston Mortgage Securities (1) 4,136,639 10,755,262 14,891,901 0.57%; 05/15/36 (2) 92,135 239,552 331,687 4,099,216 10,493,993 14,593,209 0.68%; 07/15/36 (2) 134,430 344,140 478,570 180,000 445,000 625,000 2.53%; 06/25/34 (2) 179,480 443,715 623,195 125,000 345,000 470,000 7.68%; 09/15/41 144,850 399,785 544,635 First Union National Bank Commercial Mortgage - 150,000 150,000 6.14%; 02/12/34 - 165,920 165,920 200,000 500,000 700,000 8.09%; 05/17/32 236,328 590,821 827,149 GMAC Commercial Mortgage Securities (1) (2) 3,769,474 7,748,362 11,517,836 0.97%; 03/10/38 158,179 325,145 483,324 Greenwich Capital Commercial Funding (1) (2) 8,700,000 19,774,000 28,474,000 0.39%; 06/10/36 160,872 365,641 526,513 JP Morgan Chase Commercial Mortgage Securities (1) (2) 3,700,000 8,250,000 11,950,000 1.22%; 01/12/39 193,769 432,053 625,822 LB-UBS Commercial Mortgage Trust (2) 2,323,729 4,998,801 7,322,530 0.14%; 03/15/36 (1) 65,357 140,596 205,953 3,257,726 1,416,403 4,674,129 0.63%; 03/15/34 (1) 70,836 30,798 101,634 3,140,695 8,040,179 11,180,874 0.75%; 08/15/36 109,004 279,050 388,054 2,283,684 4,651,950 6,935,634 1.23%; 03/15/36 (1) 119,071 242,553 361,624 490,000 490,000 4.90%; 06/15/26 509,610 509,610 Merrill Lynch Mortgage Investors (1) 540,000 1,260,000 1,800,000 2.49%; 01/25/35 539,975 1,259,941 1,799,916 Merrill Lynch Mortgage Trust (1) 9,193,847 21,145,848 30,339,695 0.60%; 02/12/42 225,838 519,427 745,265 Morgan Stanley Capital I (2) 2,500,000 5,100,000 7,600,000 1.12%; 01/13/41 (1) 131,390 268,036 399,426 - 76,899 76,899 4.57%; 12/18/32 - 78,076 78,076 - 400,000 400,000 6.20%; 07/15/33 - 432,573 432,573 - 50,000 50,000 6.54%; 02/15/31 - 54,605 54,605 100,000 - 100,000 7.11%; 04/15/33 (1) 113,034 - 113,034 - 49,087 49,087 7.71%; 11/15/28 (1) - 50,990 50,990 NationsLink Funding - 115,000 115,000 7.23%; 06/20/31 - 128,402 128,402 MOTION PICTURES & SERVICES (0.04%) Alliance Atlantis Communications 75,000 250,000 325,000 13.00%; 12/15/09 80,625 268,750 349,375 MULTI-LINE INSURANCE (0.37%) MetLife - 1,500,000 1,500,000 5.25%; 12/01/06 - 1,562,718 1,562,718 Metropolitan Life Global Funding I (1) (2) - 1,625,000 1,625,000 2.04%; 03/17/09 - 1,622,640 1,622,640 MULTIMEDIA (0.99%) AOL Time Warner - 630,000 630,000 5.63%; 05/01/05 - 639,513 639,513 - 1,910,000 1,910,000 6.13%; 04/15/06 - 1,996,701 1,996,701 - 590,000 590,000 6.15%; 05/01/07 - 631,116 631,116 445,000 605,000 1,050,000 7.63%; 04/15/31 527,240 716,810 1,244,050 Gannett - 100,000 100,000 4.95%; 04/01/05 - 100,987 100,987 News America 90,000 70,000 160,000 4.75%; 03/15/10 92,609 72,029 164,638 225,000 290,000 515,000 6.55%; 03/15/33 242,070 312,002 554,072 250,000 1,625,000 1,875,000 6.63%; 01/09/08 273,597 1,778,379 2,051,976 Viacom - 420,000 420,000 6.63%; 05/15/11 - 473,535 473,535 Walt Disney 175,000 345,000 520,000 5.38%; 06/01/07 183,556 361,867 545,423 MUSIC (0.05%) Warner Music Group (2) 150,000 250,000 400,000 7.38%; 04/15/14 154,125 256,875 411,000 MUTUAL INSURANCE (0.12%) Liberty Mutual Group (2) 195,000 430,000 625,000 5.75%; 03/15/14 191,120 421,443 612,563 130,000 290,000 420,000 7.00%; 03/15/34 130,957 292,135 423,092 NON-HAZARDOUS WASTE DISPOSAL (0.22%) Allied Waste 150,000 - 150,000 8.50%; 12/01/08 157,500 - 157,500 - 250,000 250,000 8.88%; 04/01/08 - 265,000 265,000 - 300,000 300,000 10.00%; 08/01/09 - 315,000 315,000 Casella Waste Systems 125,000 - 125,000 9.75%; 02/01/13 137,500 - 137,500 Waste Management 125,000 260,000 385,000 5.00%; 03/15/14 126,391 262,893 389,284 - 565,000 565,000 7.00%; 07/15/28 - 630,511 630,511 OFFICE AUTOMATION & EQUIPMENT (0.07%) Xerox 125,000 400,000 525,000 7.63%; 06/15/13 137,500 440,000 577,500 OIL & GAS DRILLING (0.22%) Consolidated Natural Gas - 250,000 250,000 5.00%; 03/01/14 - 252,602 252,602 Nabors Holdings 270,000 100,000 370,000 4.88%; 08/15/09 279,939 103,681 383,620 Nabors Industries - 385,000 385,000 5.38%; 08/15/12 - 404,976 404,976 Precision Drilling 225,000 600,000 825,000 5.63%; 06/01/14 237,535 633,427 870,962 OIL COMPANY-EXPLORATION & PRODUCTION (1.46%) Alberta Energy - 425,000 425,000 7.38%; 11/01/31 - 508,153 508,153 Anadarko Finance 275,000 275,000 550,000 6.75%; 05/01/11 312,985 312,985 625,970 Callon Petroleum 150,000 350,000 500,000 9.75%; 12/08/10 157,500 367,500 525,000 Canadian Natural Resources - 75,000 75,000 6.45%; 06/30/33 - 80,936 80,936 - 210,000 210,000 7.20%; 01/15/32 - 248,175 248,175 Devon Financing 165,000 600,000 765,000 7.88%; 09/30/31 208,137 756,862 964,999 Energy Partners 150,000 250,000 400,000 8.75%; 08/01/10 162,750 271,250 434,000 Husky Energy 200,000 500,000 700,000 6.15%; 06/15/19 215,457 538,642 754,099 Ker-McGee - 1,000,000 1,000,000 6.95%; 07/01/24 - 1,101,341 1,101,341 Nexen 105,000 800,000 905,000 5.05%; 11/20/13 105,383 802,919 908,302 125,000 100,000 225,000 7.88%; 03/15/32 155,806 124,645 280,451 Pemex Project Funding Master Trust 315,000 1,410,000 1,725,000 6.13%; 08/15/08 333,900 1,494,600 1,828,500 150,000 150,000 7.38%; 12/15/14 166,200 166,200 350,000 685,000 1,035,000 7.88%; 02/01/09 393,750 770,625 1,164,375 320,000 320,000 8.00%; 11/15/11 368,000 368,000 Petroleos Mexicanos 600,000 700,000 1,300,000 6.50%; 02/01/05 606,000 707,000 1,313,000 Union Pacific Resources Group - 465,000 465,000 6.50%; 05/15/05 - 474,063 474,063 Woodside Finance (2) - 150,000 150,000 6.70%; 08/01/11 - 171,873 171,873 XTO Energy 250,000 250,000 4.90%; 02/01/14 250,904 250,904 50,000 185,000 235,000 6.25%; 04/15/13 55,242 204,395 259,637 OIL COMPANY-INTEGRATED (0.32%) Conoco - 100,000 100,000 6.95%; 04/15/29 - 116,965 116,965 Occidental Petroleum 175,000 285,000 460,000 4.00%; 11/30/07 178,315 290,398 468,713 PanCanadian Energy 125,000 125,000 7.20%; 11/01/31 146,525 146,525 Petrobras International Finance 225,000 375,000 600,000 8.38%; 12/10/18 226,125 376,875 603,000 225,000 100,000 325,000 9.13%; 02/01/07 246,937 109,750 356,687 290,000 290,000 9.13%; 07/02/13 316,100 316,100 Petronas Capital (2) 125,000 420,000 545,000 7.88%; 05/22/22 154,031 517,544 671,575 OIL FIELD MACHINERY & EQUIPMENT (0.11%) Cooper Cameron 290,000 650,000 940,000 2.65%; 04/15/07 284,981 638,750 923,731 OIL REFINING & MARKETING (0.76%) Enterprise Products Operating (2) 280,000 815,000 1,095,000 4.00%; 10/15/07 282,205 821,419 1,103,624 Enterprise Products Partners 110,000 320,000 430,000 6.38%; 02/01/13 118,949 346,033 464,982 Frontier Oil 570,000 1,250,000 1,820,000 11.75%; 11/15/09 605,625 1,328,125 1,933,750 Tesoro Petroleum 440,000 1,020,000 1,460,000 9.63%; 11/01/08 485,100 1,124,550 1,609,650 Valero Energy 225,000 425,000 650,000 6.88%; 04/15/12 256,089 483,724 739,813 - 600,000 600,000 7.38%; 03/15/06 - 636,191 636,191 OIL-FIELD SERVICES (0.54%) Halliburton - 1,000,000 1,000,000 2.86%; 01/26/07 (1) (2) - 1,000,334 1,000,334 775,000 500,000 1,275,000 3.57%; 10/17/05 (1) 781,302 504,066 1,285,368 - 1,660,000 1,660,000 5.50%; 10/15/10 - 1,755,307 1,755,307 - 525,000 525,000 6.00%; 08/01/06 - 547,835 547,835 PAPER & RELATED PRODUCTS (0.74%) International Paper 550,000 500,000 1,050,000 3.80%; 04/01/08 550,998 500,907 1,051,905 55,000 100,000 155,000 5.85%; 10/30/12 58,720 106,764 165,484 50,000 530,000 580,000 6.75%; 09/01/11 56,199 595,714 651,913 Norske Skog (2) 500,000 310,000 810,000 7.63%; 10/15/11 569,666 353,193 922,859 Sappi Papier Holding (2) 140,000 135,000 275,000 6.75%; 06/15/12 155,080 149,541 304,621 Smurfit Capital Funding 330,000 800,000 1,130,000 6.75%; 11/20/05 340,725 826,000 1,166,725 Stora Enso Oyj - 15,000 15,000 7.38%; 05/15/11 - 17,391 17,391 Weyerhaeuser - 95,000 95,000 5.50%; 03/15/05 - 95,992 95,992 - 1,100,000 1,100,000 6.13%; 03/15/07 - 1,172,934 1,172,934 100,000 410,000 510,000 6.75%; 03/15/12 113,177 464,024 577,201 75,000 50,000 125,000 7.38%; 03/15/32 87,487 58,325 145,812 PETROCHEMICALS (0.11%) Braskem (2) 265,000 540,000 805,000 11.75%; 01/22/14 295,475 602,100 897,575 PHYSICAL THERAPY & REHABILITATION CENTERS (0.05%) HealthSouth 150,000 300,000 450,000 7.63%; 06/01/12 145,500 291,000 436,500 PHYSICIAN PRACTICE MANAGEMENT (0.05%) US Oncology (2) 125,000 250,000 375,000 9.00%; 08/15/12 135,000 270,000 405,000 PIPELINES (0.63%) Buckeye Partners 275,000 400,000 675,000 4.63%; 07/15/13 269,106 391,426 660,532 Duke Capital 140,000 280,000 420,000 4.37%; 03/01/09 141,957 283,914 425,871 Duke Energy Field Services 1,335,000 1,335,000 7.50%; 08/16/05 1,384,431 1,384,431 260,000 410,000 670,000 7.88%; 08/16/10 307,507 484,915 792,422 Enbridge Energy Partners 90,000 165,000 255,000 4.00%; 01/15/09 89,514 164,109 253,623 Equitable Resources 130,000 100,000 230,000 5.15%; 11/15/12 135,829 104,484 240,313 Kinder Morgan Energy Partners 170,000 - 170,000 5.35%; 08/15/07 178,212 - 178,212 National Fuel Gas 175,000 175,000 350,000 5.25%; 03/01/13 180,261 180,261 360,522 PG&E Gas Transmission 200,000 - 200,000 7.10%; 06/01/05 204,750 - 204,750 TEPPCO Partners 45,000 220,000 265,000 6.13%; 02/01/13 48,445 236,843 285,288 185,000 185,000 7.63%; 02/15/12 216,170 216,170 Texas Eastern Transmission 245,000 90,000 335,000 5.25%; 07/15/07 256,527 94,234 350,761 PRINGING-COMMERCIAL (0.05%) Sheridan Group (2) - 400,000 400,000 10.25%; 08/15/11 - 434,000 434,000 PRIVATE CORRECTIONS (0.03%) Corrections Corporation of America - 250,000 250,000 9.88%; 05/01/09 - 281,250 281,250 PROPERTY & CASUALTY INSURANCE (1.81%) ACE 150,000 2,175,000 2,325,000 6.00%; 04/01/07 157,453 2,283,076 2,440,529 ACE INA Holdings 145,000 225,000 370,000 5.88%; 06/15/14 150,709 233,858 384,567 Arch Capital Group 365,000 875,000 1,240,000 7.35%; 05/01/34 384,867 922,625 1,307,492 Infinity Property & Casualty 335,000 650,000 985,000 5.50%; 02/18/14 334,247 648,539 982,786 Markel 330,000 650,000 980,000 6.80%; 02/15/13 356,400 702,000 1,058,400 St. Paul 475,000 650,000 1,125,000 5.75%; 03/15/07 497,793 681,190 1,178,983 - 757,000 757,000 7.88%; 04/15/05 - 774,462 774,462 Travelers Property Casualty - 160,000 160,000 6.38%; 03/15/33 - 164,570 164,570 W.R. Berkley 575,000 1,750,000 2,325,000 5.13%; 09/30/10 585,493 1,781,936 2,367,429 155,000 275,000 430,000 5.88%; 02/15/13 159,572 283,112 442,684 XL Capital 655,000 2,020,000 2,675,000 5.25%; 09/15/14 653,919 2,016,665 2,670,584 450,000 990,000 1,440,000 6.50%; 01/15/12 491,254 1,080,759 1,572,013 PUBLISHING-BOOKS (0.06%) Reed Elsevier Capital 350,000 150,000 500,000 6.13%; 08/01/06 367,799 157,628 525,427 PUBLISHING-PERIODICALS (0.07%) Dex Media West 123,000 196,000 319,000 9.88%; 08/15/13 145,447 231,770 377,217 PEI Holdings - 200,000 200,000 11.00%; 03/15/10 - 232,250 232,250 QUARRYING (0.04%) Compass Minerals International (1) (8) 200,000 250,000 450,000 0.00%; 06/01/13 158,000 197,500 355,500 RACETRACKS (0.13%) Penn National Gaming 250,000 750,000 1,000,000 11.13%; 03/01/08 270,312 810,937 1,081,249 RECREATIONAL CENTERS (0.13%) AMF Bowling Worldwide (2) 200,000 425,000 625,000 10.00%; 03/01/10 214,000 454,750 668,750 Town Sports International 150,000 250,000 400,000 9.63%; 04/15/11 158,250 263,750 422,000 REGIONAL AUTHORITY (0.02%) Province of Ontario - 175,000 175,000 2.63%; 12/15/05 - 174,975 174,975 Province of Quebec - 20,000 20,000 5.75%; 02/15/09 - 21,683 21,683 REGIONAL BANKS (1.03%) Bank One 725,000 1,235,000 1,960,000 7.63%; 08/01/05 752,891 1,282,510 2,035,401 Fifth Third Bancorp - 350,000 350,000 3.38%; 08/15/08 - 348,033 348,033 KeyCorp 475,000 455,000 930,000 4.63%; 05/16/05 480,066 459,853 939,919 Korea Development Bank (1) - 760,000 760,000 2.48%; 10/20/09 - 758,828 758,828 - 25,000 25,000 4.25%; 11/13/07 - 25,560 25,560 PNC Funding 650,000 530,000 1,180,000 5.75%; 08/01/06 680,731 555,058 1,235,789 SunTrust Banks - 55,000 55,000 5.05%; 07/01/07 - 57,563 57,563 - 150,000 150,000 7.38%; 07/01/06 - 160,926 160,926 Wachovia - 750,000 750,000 5.25%; 08/01/14 774,774 774,774 600,000 265,000 865,000 5.63%; 12/15/08 646,467 285,523 931,990 100,000 265,000 365,000 6.38%; 02/01/09 109,384 289,866 399,250 Wells Fargo 200,000 275,000 475,000 3.12%; 08/15/08 196,282 269,888 466,170 610,000 610,000 5.13%; 02/15/07 636,500 636,500 REINSURANCE (0.21%) Berkshire Hathaway Finance - 475,000 475,000 4.63%; 10/15/13 - 476,904 476,904 Endurance Specialty Holdings 210,000 1,080,000 1,290,000 7.00%; 07/15/34 213,644 1,098,741 1,312,385 RENTAL-AUTO & EQUIPMENT (0.17%) NationsRent 315,000 600,000 915,000 9.50%; 10/15/10 348,075 663,000 1,011,075 United Rentals 125,000 340,000 465,000 6.50%; 02/15/12 123,750 336,600 460,350 RESEARCH & DEVELOPMENT (0.05%) Science Applications International - 275,000 275,000 5.50%; 07/01/33 - 261,184 261,184 - 130,000 130,000 7.13%; 07/01/32 - 151,902 151,902 RESORTS & THEME PARKS (0.02%) Intrawest (2) 150,000 - 150,000 7.50%; 10/15/13 160,500 - 160,500 RETAIL-APPAREL & SHOE (0.08%) Foot Locker - 250,000 250,000 8.50%; 01/15/22 267,500 267,500 Mothers Work 200,000 250,000 450,000 11.25%; 08/01/10 192,000 240,000 432,000 RETAIL-ARTS & CRAFTS (0.13%) Michaels Stores 250,000 750,000 1,000,000 9.25%; 07/01/09 269,687 809,062 1,078,749 RETAIL- AUTO PARTS (0.06%) CSK Auto - 500,000 500,000 7.00%; 01/15/14 - 490,000 490,000 RETAIL-AUTOMOBILE (0.10%) Asbury Automotive Group 100,000 275,000 375,000 9.00%; 06/15/12 105,500 290,125 395,625 Group 1 Automotive - 400,000 400,000 8.25%; 08/15/13 - 423,000 423,000 RETAIL- DISCOUNT (0.08%) Target - 80,000 80,000 5.38%; 06/15/09 - 85,560 85,560 - 280,000 280,000 5.88%; 03/01/12 - 307,178 307,178 Wal-Mart Stores - 290,000 290,000 4.38%; 07/12/07 - 299,786 299,786 RETAIL-DRUG STORE (0.16%) Duane Reade (2) 150,000 250,000 400,000 9.75%; 08/01/11 144,000 240,000 384,000 Jean Coutu Group (2) - 400,000 400,000 7.63%; 08/01/12 423,000 423,000 Rite Aid 150,000 300,000 450,000 12.50%; 09/15/06 170,250 340,500 510,750 RETAIL-JEWELRY (0.05%) Finlay Fine Jewelry 125,000 240,000 365,000 8.38%; 06/01/12 136,563 262,200 398,763 RETAIL-PROPANE DISTRIBUTION (0.07%) AmeriGas Partners 150,000 - 150,000 8.88%; 05/20/11 164,250 - 164,250 Star Gas Partners (2) 170,000 250,000 420,000 10.25%; 02/15/13 163,625 240,625 404,250 RETAIL-RESTAURANTS (0.06%) VICORP Restaurants 200,000 300,000 500,000 10.50%; 04/15/11 200,000 300,000 500,000 RETAIL-TOY STORE (0.05%) Toys R Us 250,000 250,000 7.38%; 10/15/18 - 232,500 232,500 200,000 - 200,000 8.75%; 09/01/21 200,000 - 200,000 RETAIL-VIDEO RENTAL (0.06%) Blockbuster (2) 125,000 350,000 475,000 9.00%; 09/01/12 128,125 358,750 486,875 RETAIL-VISION SERVICE CENTER (0.03%) Cole National Group 75,000 200,000 275,000 8.63%; 08/15/07 76,078 202,875 278,953 SATELLITE TELECOM (0.04%) Intelsat 150,000 250,000 400,000 5.25%; 11/01/08 141,256 235,427 376,683 SAVINGS & LOANS-THRIFTS (0.28%) Washington Mutual 410,000 935,000 1,345,000 3.81%; 06/25/34 406,062 926,019 1,332,081 528,000 336,000 864,000 3.97%; 03/25/33 526,242 334,882 861,124 100,000 95,000 195,000 5.50%; 01/15/13 104,554 99,326 203,880 SEMICONDUCTOR EQUIPMENT (0.04%) Amkor Technology 200,000 200,000 7.75%; 05/15/13 172,500 172,500 150,000 150,000 10.50%; 05/01/09 132,750 132,750 SOVEREIGN (0.79%) Chile Government (1) - 1,000,000 1,000,000 2.52%; 01/28/08 - 1,003,800 1,003,800 Mexico Government 300,000 835,000 1,135,000 2.75%; 01/13/09 (1) 302,100 840,845 1,142,945 780,000 780,000 8.00%; 09/24/22 895,050 895,050 260,000 490,000 750,000 8.30%; 08/15/31 300,560 566,440 867,000 690,000 985,000 1,675,000 8.38%; 01/14/11 814,200 1,162,300 1,976,500 South Africa Government 220,000 545,000 765,000 6.50%; 06/02/14 238,975 592,006 830,981 SPECIAL PURPOSE ENTITY (0.60%) Borden US Finance/Nova Scotia Finance (2) - 250,000 250,000 6.82%; 07/15/10 (1) - 260,625 260,625 100,000 - 100,000 9.00%; 07/15/14 109,375 - 109,375 Crystal US Holdings (1) (2) (4) - 250,000 250,000 0.00%; 10/01/14 - 158,125 158,125 - 250,000 250,000 0.00%; 10/01/14 - 157,500 157,500 Da-Lite Screen 150,000 225,000 375,000 9.50%; 05/15/11 159,000 238,500 397,500 Farmers Exchange Capital (2) 225,000 500,000 725,000 7.05%; 07/15/28 227,863 506,363 734,226 Fondo Latinoamericano de Reservas (2) 270,000 2,350,000 2,620,000 3.00%; 08/01/06 270,792 2,356,890 2,627,682 Interactive Health (2) - 450,000 450,000 7.25%; 04/01/11 - 391,500 391,500 Sheridan Acquisition (2) - 250,000 250,000 10.25%; 08/15/11 - 271,250 271,250 SPECIFIED PURPOSE ACQUISITION (0.05%) Poster Financial Group - 392,813 392,813 - 375,000 375,000 8.75%; 12/01/11 STEEL PRODUCERS (0.06%) International Steel Group 200,000 300,000 500,000 6.50%; 04/15/14 214,000 321,000 535,000 STEEL-SPECIALTY (0.12%) CSN Islands VIII (2) 375,000 645,000 1,020,000 9.75%; 12/16/13 380,625 654,675 1,035,300 SUPRANATIONAL BANK (0.31%) Corp Andina de Fomento 1,165,000 1,165,000 2.46%; 01/26/07 (1) 1,167,042 1,167,042 190,000 340,000 530,000 6.75%; 03/15/05 192,742 344,908 537,650 230,000 575,000 805,000 6.88%; 03/15/12 257,955 644,887 902,842 TELECOMMUNICATION EQUIPTMENT- FIBER OPTICS (0.17%) Corning - 900,000 900,000 8.30%; 04/04/25 - 936,801 936,801 Corning Glass - 500,000 500,000 7.00%; 03/15/07 - 500,000 500,000 TELEPHONE COMMUNICATION (0.02%) Telstra - 125,000 125,000 6.38%; 04/01/12 - 138,554 138,554 TELEPHONE-INTEGRATED (2.87%) British Telecommunications (1) 940,000 2,285,000 3,225,000 7.88%; 12/15/05 992,962 2,413,744 3,406,706 Deutsche Telekom International Finance - 300,000 300,000 5.25%; 07/22/13 310,173 310,173 - 250,000 250,000 8.25%; 06/15/05 (1) 258,571 258,571 440,000 910,000 1,350,000 8.50%; 06/15/10 (1) 530,094 1,096,331 1,626,425 France Telecom (1) 505,000 2,490,000 2,995,000 8.50%; 03/01/11 606,517 2,990,552 3,597,069 MCI - 250,000 250,000 6.69%; 05/01/09 246,562 246,562 Northwestern Bell Telephone 250,000 - 250,000 6.25%; 01/01/07 250,000 - 250,000 Qwest (2) - 250,000 250,000 7.88%; 09/01/11 - 266,250 266,250 - 500,000 500,000 9.13%; 03/15/12 (1) - 563,750 563,750 SBC Communications 215,000 665,000 880,000 4.13%; 09/15/09 216,075 668,324 884,399 100,000 300,000 400,000 6.15%; 09/15/34 101,019 303,057 404,076 Sprint Capital - 65,000 65,000 6.00%; 01/15/07 100,000 250,000 350,000 6.13%; 11/15/08 108,345 68,734 177,079 325,000 1,430,000 1,755,000 6.88%; 11/15/28 349,026 270,862 619,888 100,000 350,000 450,000 6.90%; 05/01/19 111,951 1,535,713 1,647,664 230,000 - 230,000 8.75%; 03/15/32 301,372 391,829 693,201 Telecom Italia Capital 1,025,000 3,550,000 4,575,000 4.00%; 01/15/10 (2) 1,015,461 3,516,964 4,532,425 280,000 825,000 1,105,000 5.25%; 11/15/13 286,689 844,707 1,131,396 130,000 240,000 370,000 6.38%; 11/15/33 134,923 249,089 384,012 Telefonica Europe - 615,000 615,000 7.75%; 09/15/10 - 729,018 729,018 Telefonos de Mexico 135,000 630,000 765,000 4.50%; 11/19/08 136,189 635,551 771,740 385,000 805,000 1,190,000 8.25%; 01/26/06 409,351 855,915 1,265,266 Verizon Florida 90,000 525,000 615,000 6.13%; 01/15/13 97,181 566,889 664,070 TEXTILE-HOME FURNISHINGS (0.06%) Mohawk Industries 145,000 310,000 455,000 6.50%; 04/15/07 155,048 331,483 486,531 THEATERS (0.08%) Cinemark 270,000 700,000 970,000 0.00%; 03/15/14 (1) (4) 191,025 495,250 686,275 TRANSPORT-RAIL (0.14%) Canadian National Railway 215,000 500,000 715,000 4.25%; 08/01/09 218,779 508,789 727,568 Union Pacific 100,000 90,000 190,000 4.70%; 01/02/24 97,341 87,607 184,948 - 45,000 45,000 6.63%; 02/01/29 - 49,284 49,284 - 200,000 200,000 7.60%; 05/01/05 - 204,859 204,859 TRANSPORT-SERVICES (0.19%) CHC Helicopter 150,000 200,000 350,000 7.38%; 05/01/14 159,750 213,000 372,750 FedEx 190,000 820,000 1,010,000 1.88%; 04/01/05 190,106 820,458 1,010,564 - 260,000 260,000 3.50%; 04/01/09 256,645 256,645 TRANSPORT-TRUCK (0.03%) Quality Distribution (2) - 255,000 255,000 9.00%; 11/15/10 - 237,469 237,469 VITAMINS & NUTRITION PRODUCTS (0.14%) NBTY 200,000 580,000 780,000 8.63%; 09/15/07 202,000 585,800 787,800 WH Holdings/WH Capital 125,000 250,000 375,000 9.50%; 04/01/11 136,875 273,750 410,625 WIRE & CABLE PRODUCTS (0.05%) Superior Essex Communications 200,000 250,000 450,000 9.00%; 04/15/12 203,000 253,750 456,750 WIRELESS EQUIPMENT (0.14%) Crown Castle International - 700,000 700,000 10.75%; 08/01/11 - 775,250 775,250 SBA Telecom/SBA Communications (1) (8) 200,000 350,000 550,000 0.00%; 12/15/11 168,500 294,875 463,375 TOTAL BONDS 115,954,951 346,729,276 462,684,227 FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) CERTIFICATES (16.06%) - 3,984,022 3,984,022 4.00%; 09/01/10 - 3,983,480 3,983,480 1,441,258 - 1,441,258 4.50%; 12/01/09 1,462,637 - 1,462,637 - 715,307 715,307 4.50%; 02/01/10 - 726,081 726,081 - 4,649,369 4,649,369 4.50%; 04/01/11 - 4,720,462 4,720,462 - 1,942,936 1,942,936 4.50%; 05/01/11 - 1,972,645 1,972,645 - 799,918 799,918 4.50%; 07/01/18 - 804,154 804,154 2,288,581 - 2,288,581 4.50%; 11/01/18 2,300,701 - 2,300,701 596,998 596,998 5.00%; 12/01/17 - 609,546 609,546 3,609,898 - 3,609,898 5.00%; 01/01/18 3,685,774 - 3,685,774 1,898,958 - 1,898,958 5.00%; 05/01/18 1,939,029 - 1,939,029 - 3,344,491 3,344,491 5.00%; 10/01/18 - 3,415,066 3,415,066 - 6,592,916 6,592,916 5.00%; 12/01/18 - 6,732,040 6,732,040 - 6,250,000 6,250,000 5.00%; 11/01/19 (6) - 6,373,050 6,373,050 - 862,203 862,203 5.00%; 08/01/33 - 862,067 862,067 6,766,626 5,970,554 12,737,180 5.00%; 06/01/34 6,754,399 5,959,765 12,714,164 - 15,000,000 15,000,000 5.00%; 11/01/34 (6) - 14,953,125 14,953,125 - 69,278 69,278 5.50%; 04/01/09 - 71,253 71,253 - 178,009 178,009 5.50%; 08/01/09 - 183,085 183,085 - 506,810 506,810 5.50%; 12/01/16 - 525,503 525,503 - 1,341,702 1,341,702 5.50%; 02/01/17 - 1,391,188 1,391,188 1,416,005 - 1,416,005 5.50%; 05/01/17 1,467,859 - 1,467,859 - 138,213 138,213 5.50%; 09/01/17 - 143,274 143,274 - 1,652,616 1,652,616 5.50%; 12/01/17 - 1,713,135 1,713,135 - 682,726 682,726 5.50%; 03/01/18 - 707,663 707,663 - 4,565,110 4,565,110 5.50%; 04/01/18 - 4,731,851 4,731,851 - 57,165 57,165 5.50%; 12/01/18 - 58,320 58,320 4,890,622 - 4,890,622 5.50%; 06/01/24 5,023,921 - 5,023,921 1,577,788 - 1,577,788 5.50%; 04/01/33 1,609,870 - 1,609,870 - 1,685,827 1,685,827 5.50%; 05/01/33 - 1,720,105 1,720,105 - 1,534,581 1,534,581 5.50%; 10/01/33 - 1,565,783 1,565,783 - 6,651,163 6,651,163 5.50%; 12/01/33 - 6,786,401 6,786,401 5,700,001 5,700,001 5.50%; 09/01/34 - 5,812,610 5,812,610 2,000,000 10,000,000 12,000,000 5.50%; 11/01/34 (6) 2,036,876 10,184,380 12,221,256 - 29,991 29,991 6.00%; 12/01/16 - 31,489 31,489 - 46,701 46,701 6.00%; 12/01/16 - 49,032 49,032 - 15,328 15,328 6.00%; 12/01/16 - 16,094 16,094 - 133,326 133,326 6.00%; 02/01/17 - 139,993 139,993 - 124,348 124,348 6.00%; 02/01/17 - 130,557 130,557 - 91,803 91,803 6.00%; 03/01/17 - 96,387 96,387 - 228,601 228,601 6.00%; 04/01/17 - 240,032 240,032 1,020,832 - 1,020,832 6.00%; 03/01/22 1,063,743 - 1,063,743 - 3,107,403 3,107,403 6.00%; 07/01/23 - 3,237,535 3,237,535 - 71,580 71,580 6.00%; 06/01/28 - 74,297 74,297 - 25,469 25,469 6.00%; 01/01/29 - 26,436 26,436 230,746 - 230,746 6.00%; 03/01/31 239,218 - 239,218 52,740 - 52,740 6.00%; 04/01/31 54,676 - 54,676 1,054,807 - 1,054,807 6.00%; 12/01/31 1,093,537 - 1,093,537 - 70,614 70,614 6.00%; 02/01/32 - 73,207 73,207 - 1,004,293 1,004,293 6.00%; 12/01/32 - 1,041,226 1,041,226 - 1,687,426 1,687,426 6.00%; 02/01/33 - 1,749,182 1,749,182 - 1,832,685 1,832,685 6.00%; 12/01/33 - 1,899,757 1,899,757 2,800,000 3,500,000 6,300,000 6.00%; 11/01/34 (6) 2,898,874 3,623,592 6,522,466 1,096,368 - 1,096,368 6.50%; 06/01/17 1,161,764 - 1,161,764 606,895 - 606,895 6.50%; 03/01/19 641,441 - 641,441 - 41,007 41,007 6.50%; 07/01/19 - 43,341 43,341 132,369 16,718 149,087 6.50%; 03/01/29 139,456 17,608 157,064 198,686 - 198,686 6.50%; 05/01/29 209,265 - 209,265 126,329 9,358 135,687 6.50%; 04/01/31 132,992 9,851 142,843 - 7,998 7,998 6.50%; 06/01/31 - 8,420 8,420 - 107,483 107,483 6.50%; 09/01/31 - 113,153 113,153 - 74,241 74,241 6.50%; 02/01/32 - 78,131 78,131 - 72,373 72,373 6.50%; 02/01/32 - 76,190 76,190 - 258,797 258,797 6.50%; 05/01/32 - 272,357 272,357 - 1,084,654 1,084,654 6.50%; 09/01/32 - 1,141,483 1,141,483 - 109,704 109,704 7.00%; 08/01/16 - 116,398 116,398 125,827 - 125,827 7.00%; 12/01/29 133,787 - 133,787 90,931 - 90,931 7.00%; 06/01/30 96,634 - 96,634 89,627 - 89,627 7.00%; 12/01/30 95,248 - 95,248 - 4,039 4,039 7.00%; 06/01/31 - 4,291 4,291 - 34,957 34,957 7.00%; 09/01/31 - 37,149 37,149 - 422,125 422,125 7.00%; 04/01/32 - 448,597 448,597 39,768 - 39,768 7.50%; 11/01/29 42,734 - 42,734 31,745 - 31,745 7.50%; 09/01/30 34,093 - 34,093 45,544 - 45,544 7.50%; 09/01/30 48,912 - 48,912 - 5,489 5,489 7.50%; 12/01/30 - 5,895 5,895 165,038 - 165,038 7.50%; 01/01/31 177,245 - 177,245 47,591 - 47,591 7.50%; 03/01/31 51,111 - 51,111 - 89,050 89,050 7.50%; 02/01/32 - 95,582 95,582 248,291 - 248,291 8.00%; 09/01/30 269,652 - 269,652 - 6,525 6,525 8.00%; 11/01/30 - 7,087 7,087 TOTAL FHLMC CERTIFICATES 34,865,448 101,610,381 136,475,829 FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) CERTIFICATES (12.03%) - 1,875,815 1,875,815 4.50%; 06/01/18 - 1,885,767 1,885,767 3,150,000 - 3,150,000 4.50%; 11/01/34 (6) 3,057,469 - 3,057,469 - 1,272,678 1,272,678 5.00%; 03/01/10 - 1,300,298 1,300,298 - 1,623,951 1,623,951 5.00%; 09/01/17 - 1,659,471 1,659,471 2,356,642 - 2,356,642 5.00%; 03/01/18 2,408,365 - 2,408,365 1,377,311 2,430,549 3,807,860 5.00%; 06/01/18 1,407,540 2,483,895 3,891,435 - 6,375,000 6,375,000 5.00%; 12/01/19 (6) - 6,490,547 6,490,547 3,800,000 10,000,000 13,800,000 5.00%; 11/01/34 (6) 3,785,750 9,962,500 13,748,250 - 372,886 372,886 5.50%; 09/01/17 - 386,822 386,822 - 597,600 597,600 5.50%; 10/01/17 - 619,933 619,933 - 1,166,204 1,166,204 5.50%; 02/01/23 - 1,198,099 1,198,099 - 4,263,491 4,263,491 5.50%; 06/01/23 - 4,380,098 4,380,098 - 76,167 76,167 5.50%; 07/01/23 - 78,250 78,250 2,339,422 - 2,339,422 5.50%; 07/01/33 2,386,638 - 2,386,638 1,460,345 2,738,147 4,198,492 5.50%; 09/01/33 1,489,819 2,793,411 4,283,230 6,500,000 21,000,000 27,500,000 5.50%; 11/01/34 (6) 6,617,812 21,380,625 27,998,437 265,249 85,765 351,014 6.00%; 05/01/09 278,705 90,568 369,273 447,793 - 447,793 6.00%; 07/01/09 472,870 - 472,870 318,712 - 318,712 6.00%; 07/01/09 334,881 - 334,881 - 455,618 455,618 6.00%; 02/01/23 - 475,259 475,259 268,795 - 268,795 6.00%; 05/01/32 279,136 - 279,136 - 1,889,057 1,889,057 6.00%; 03/01/33 - 1,961,727 1,961,727 - 897,101 897,101 6.00%; 10/01/33 - 931,434 931,434 - 3,374,489 3,374,489 6.00%; 11/01/33 - 3,503,634 3,503,634 - 3,044,744 3,044,744 6.00%; 12/01/33 - 3,161,269 3,161,269 - 2,130,823 2,130,823 6.00%; 02/01/34 - 2,212,371 2,212,371 - 44,603 44,603 6.50%; 04/01/10 - 47,390 47,390 161,992 - 161,992 6.50%; 01/01/11 171,156 - 171,156 195,592 - 195,592 6.50%; 02/01/11 207,810 - 207,810 213,404 - 213,404 6.50%; 02/01/11 226,718 - 226,718 399,042 - 399,042 6.50%; 03/01/11 423,938 - 423,938 - 77,470 77,470 6.50%; 07/01/16 - 82,202 82,202 - 185,457 185,457 6.50%; 02/01/17 - 196,786 196,786 - 75,525 75,525 6.50%; 03/01/17 - 80,140 80,140 - 67,626 67,626 6.50%; 04/01/17 - 71,758 71,758 - 1,498,737 1,498,737 6.50%; 08/01/17 - 1,590,310 1,590,310 - 55,283 55,283 6.50%; 05/01/22 - 58,414 58,414 - 97,996 97,996 6.50%; 12/01/31 - 103,242 103,242 - 60,067 60,067 6.50%; 02/01/32 - 63,282 63,282 - 115,313 115,313 6.50%; 02/01/32 - 121,452 121,452 - 43,102 43,102 6.50%; 04/01/32 - 45,396 45,396 - 208,170 208,170 6.50%; 06/01/32 - 219,254 219,254 - 274,972 274,972 6.50%; 08/01/32 - 289,612 289,612 741,481 - 741,481 6.50%; 09/01/32 780,960 - 780,960 - 6,526,499 6,526,499 6.50%; 02/01/33 - 6,873,989 6,873,989 30,779 - 30,779 7.00%; 08/01/29 32,736 - 32,736 - 71,417 71,417 7.00%; 09/01/31 - 75,896 75,896 182,277 - 182,277 7.00%; 02/01/32 193,642 - 193,642 - 414,202 414,202 7.00%; 03/01/32 - 440,178 440,178 - 320,796 320,796 7.50%; 08/01/32 - 343,654 343,654 TOTAL FNMA CERTIFICATES 24,555,945 77,658,933 102,214,878 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES (3.33%) - 3,172,741 3,172,741 5.00%; 07/15/33 - 3,191,112 3,191,112 - 1,526,783 1,526,783 5.50%; 06/15/33 - 1,565,313 1,565,313 - 5,364,449 5,364,449 5.50%; 12/20/33 - 5,489,741 5,489,741 550,293 - 550,293 6.00%; 07/20/28 573,977 - 573,977 539,055 - 539,055 6.00%; 11/20/28 562,254 - 562,254 572,153 - 572,153 6.00%; 01/20/29 596,362 - 596,362 147,167 - 147,167 6.00%; 07/20/29 153,393 - 153,393 - 171,576 171,576 6.00%; 08/15/31 - 178,913 178,913 - 65,166 65,166 6.00%; 01/15/32 - 67,920 67,920 - 924,214 924,214 6.00%; 02/15/32 - 963,276 963,276 - 592,943 592,943 6.00%; 02/15/33 - 617,428 617,428 - 7,018,558 7,018,558 6.00%; 11/20/33 - 7,299,609 7,299,609 545,131 - 545,131 6.00%; 12/15/33 567,641 - 567,641 - 80,542 80,542 6.50%; 01/15/27 - 85,503 85,503 114,294 - 114,294 6.50%; 03/20/28 120,860 - 120,860 98,058 - 98,058 6.50%; 05/20/29 103,642 - 103,642 - 23,537 23,537 6.50%; 07/15/31 - 24,931 24,931 - 1,153,000 1,153,000 6.50%; 10/20/31 - 1,217,719 1,217,719 - 62,433 62,433 6.50%; 02/20/32 - 65,938 65,938 - 395,486 395,486 6.50%; 10/15/32 - 418,924 418,924 2,778,195 - 2,778,195 6.50%; 12/15/32 2,942,840 - 2,942,840 - 11,401 11,401 7.00%; 04/15/31 - 12,173 12,173 - 195,640 195,640 7.00%; 06/15/31 - 208,912 208,912 - 38,244 38,244 7.00%; 07/15/31 - 40,835 40,835 756,616 - 756,616 7.00%; 06/15/32 807,778 - 807,778 - 37,204 37,204 7.50%; 10/15/29 - 40,074 40,074 - 23,474 23,474 7.50%; 10/20/30 - 25,164 25,164 - 26,476 26,476 7.50%; 01/15/31 - 28,516 28,516 267,876 - 267,876 7.50%; 10/15/31 288,513 - 288,513 - 77,150 77,150 8.00%; 01/20/31 - 83,734 83,734 TOTAL GNMA CERTIFICATES 6,717,260 21,625,735 28,342,995 TREASURY BONDS (13.97%) U.S. Treasury 2,100,000 5,750,000 7,850,000 3.63%; 07/15/09 (8) 2,133,552 5,841,868 7,975,420 - 7,150,000 7,150,000 3.88%; 02/15/13 - 7,152,231 7,152,231 1,100,000 5,200,000 6,300,000 4.00%; 02/15/14 (8) 1,100,043 5,200,203 6,300,246 1,000,000 6,500,000 7,500,000 4.75%; 05/15/14 (8) 1,057,344 6,872,736 7,930,080 - 4,000,000 4,000,000 4.88%; 02/15/12 - 4,286,720 4,286,720 1,500,000 3,750,000 5,250,000 5.00%; 02/15/11 1,619,766 4,049,415 5,669,181 2,505,000 7,965,000 10,470,000 5.38%; 02/15/31 2,720,763 8,651,049 11,371,812 - 2,750,000 2,750,000 6.00%; 02/15/26 - 3,173,995 3,173,995 25,000 - 25,000 6.13%; 08/15/29 29,520 - 29,520 1,850,000 3,760,000 5,610,000 6.25%; 08/15/23 2,185,313 4,441,500 6,626,813 1,310,000 2,945,000 4,255,000 6.25%; 05/15/30 1,575,275 3,541,362 5,116,637 1,000,000 2,000,000 3,000,000 6.75%; 08/15/26 1,256,797 2,513,594 3,770,391 1,770,000 1,990,000 3,760,000 7.50%; 11/15/16 (8) 2,292,357 2,577,283 4,869,640 760,000 2,600,000 3,360,000 8.00%; 11/15/21 1,054,648 3,608,007 4,662,655 U.S. Treasury Inflation-Indexed Obligations 1,128,138 2,563,950 3,692,088 2.00%; 01/15/14 (8) 1,169,430 2,657,796 3,827,226 3,827,424 7,834,259 11,661,683 3.38%; 01/15/07 (8) 4,101,624 8,395,512 12,497,136 - 2,395,360 2,395,360 3.50%; 01/15/11 - 2,740,347 2,740,347 - 8,328,158 8,328,158 3.63%; 01/15/08 - 9,186,350 9,186,350 2,542,078 5,199,705 7,741,783 3.88%; 01/15/09 2,884,165 5,899,429 8,783,594 2,365,293 - 2,365,293 4.25%; 01/15/10 2,772,381 - 2,772,381 TOTAL TREASURY BONDS 27,952,978 90,789,397 118,742,375 COMMON STOCKS (0.00%) COMPUTER SERVICES (0.00%) 3,500 - 3,500 Decisionone (4) (7) - - - 2,054 - 2,054 Decisionone (4) (7) - - - 3,540 - 3,540 Decisionone (4) (7) - - - 2,100 - 2,100 Decisionone (4) (7) - - - TOTAL COMMON STOCKS - - - COMMERCIAL PAPER (15.75%) AEROSPACE & DEFENSE EQUIPMENT (0.65%) United Technologies 5,500,000 - 5,500,000 1.85%; 11/01/04 5,500,000 - 5,500,000 FINANCE-CONSUMER LOANS (1.29%) Investment in Joint Trading Account; Household Finance 10,987,888 - 10,987,888 1.84%; 11/01/04 10,987,888 - 10,987,888 FINANCE- MORTGAGE LOAN/BANKER (13.81%) Investment in Joint Trading Account; Federal Home Loan Bank - 117,415,707 117,415,707 1.69%; 11/01/04 - 117,415,707 117,415,707 TOTAL COMMOERCIAL PAPER 16,487,888 117,415,707 133,903,595 REPURCHASE AGREEMENTS (0.06%) 505,968 - 505,968 Bear Stearns; 1.85%; dated 10/29/04 maturing 11/01/04 (collateralized bu FNMA; $516,008 11/17/11) (5) 505,890 - 505,890 TOTAL REPURCHASE AGREEMENTS 505,890 - 505,890 TOTAL PORTFOLIO INVESTMENTS (115.64%) 227,040,360 755,829,429 982,869,789 Liabilities, net of cash, receivables and other assets (-15.64%) (16,803,270) (116,105,601) (132,908,871) TOTAL NET ASSETS (100.00%) $ 210,237,090 $ 639,723,828 $ 849,960,918 ================================================ (1) Variable rate. (2) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At the end of the period, the value of these securities totaled $55,724,836 or 6.56% of net assets. (3) Security or a portion of the security was on loan at the end of the period. (4) Non-income producing security. (5) Security was purchased with the cash proceeds from securities loans. (6) Security or a portion of the security was purchased in a "to-be-announced" ("TBA") transaction. See Notes to Financial Statements. (7) Market value is determined in accordance with procedures established in good faith by the Board of Directors. At the end of the period, the value of these securities totaled $6,000,000 or 0.71% of net assets. (8) Security or a portion of the security was pledged as collateral for reverse repurchase agreements. At the end of the period, the value of these securities totaled $51,800,966 or 6.09% of net assets.
UNREALIZED APPRECIATION (DEPRECIATION) The net federal income tax unrealized appreciation (depreciation) and federal tax cost of investments held by the fund as of the period end were as follows: Unrealized Appreciation $ 5,271,484 $ 10,355,215 $ 15,626,699 Unrealized Depreciation (817,370) (1,317,897) (2,135,267) Net Unrealized Appreciation (Depreciation) 4,454,114 9,037,318 13,491,432 Cost for federal income tax purposes $ 222,586,246 $ 746,792,111 $ 969,378,357
Principal Bond & Mortgage Principal Bond & Mortgage Bond Securities Bond Securities Fund, Inc. Fund Combined Contract Type Fund, Inc. Fund Combined - ---------------------------------------------------------------------------------------------------------------------------------- Notional Amount SWAP AGREEMENTS Unrealized Gain(Loss) 9,000,000 17,500,000 26,500,000 TOTAL RETURN SWAPS $ 57,560 $111,922 $169,482 Receive monthly a return equal to the Lehman ERISA Eligible CMBS Index and pay monthly a floating rate based on 1-month LIBOR less 45 basis points with Morgan Stanley. Expires November 2004.
INVESTMENTS BY SECTOR (UNAUDITED) Percentage of Total Value Sector Value - ------------------------------------------------------------------------------------------------------------------------------------ 17.65% 31.74% 28.49% Government $ 40,082,597 $ 239,960,875 $ 280,043,472 31.09 28.25 28.90 Mortgage Securities 70,611,795 213,523,187 284,134,982 17.02 10.91 12.32 Financial 38,643,197 82,457,475 121,100,672 6.49 5.88 6.02 Communications 14,738,224 44,452,816 59,191,040 4.66 5.23 5.10 Asset Backed Securities 10,571,543 39,526,937 50,098,480 3.74 3.41 3.49 Energy 8,501,312 25,801,002 34,302,314 3.83 3.38 3.49 Utilities 8,691,662 25,575,427 34,267,089 5.47 2.63 3.28 Industrial 12,432,224 19,849,679 32,281,903 2.87 3.21 3.13 Consumer, Non-Cyclical 6,505,565 24,289,164 30,794,729 3.67 2.87 3.06 Consumer, Cyclical 8,338,028 21,723,676 30,061,704 2.72 1.69 1.93 Basic Materials 6,187,607 12,757,316 18,944,923 0.69 0.63 0.64 Technology 1,576,949 4,757,836 6,334,785 0.07 0.15 0.13 Diversified 159,657 1,154,039 1,313,696 0.03 0.02 0.02 Swap Agreements 57,560 111,922 169,482 TOTAL $ 227,097,920 $ 755,941,351 $ 983,039,271 =================================================== Percentages are adjusted to reflect the impact of currency contracts, futures contracts, and swap agreements, if applicable. See accompanying notes. As of October 31, 2004, all securities held by the Acquired Fund would comply with the investment restrictions of the Acquiring Fund.
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004 (UNAUDITED) -------------------------------------------------------------------------------
PRINCIPAL GOVERNMENT GOVERNMENT COMBINED SECURITIES SECURITIES PRO FORMA GOVERNMENT INCOME FUND, INC. FUND ADJUSTMENTS/(D)/ SECURITIES FUND - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- INVESTMENT IN SECURITIES--AT COST.. $366,237,346 $137,869,916 $ -- $504,107,262 ============ ============ ========== ============ ASSETS Investment in securities--at value. $371,154,743/(c)/ $138,696,274 $ -- $509,851,017/(c)/ Cash.................. 10,609 868,873 -- 879,482 Receivables: Capital Shares sold.. 125,406 109,060 -- 234,466 Dividends and interest............ 1,520,045 514,606 -- 2,034,651 Investment securities sold................ -- 23,544 -- 23,544 Other assets.......... 19,084 -- -- 19,084 ------------ ------------ ---------- ------------ Total Assets 372,829,887 140,212,357 -- 513,042,244 LIABILITIES Accrued management and investment advisory fees................. 27,750 9,108 -- 36,858 Accrued administrative service fees......... -- 497 -- 497 Accrued distribution fees................. 10,634 10,245 -- 20,879 Accrued directors' expense.............. 331 -- -- 331 Accrued service fees.. -- 625 -- 625 Accrued transfer and administrative fees.. 106,117 51,060 -- 157,177 Accrued other expenses 40,409 13,401 -- 53,810 Payables: Capital Shares reacquired.......... 200,161 34,166 -- 234,327 Investment securities purchased........... 32,396,406 20,846,625 -- 53,243,031 Reorganization costs. -- -- 81,378 81,378 Collateral obligation on securities loaned, at value............. 11,271,000 -- -- 11,271,000 ------------ ------------ ---------- ------------ Total Liabilities 44,052,808 20,965,727 81,378 65,099,913 ------------ ------------ ---------- ------------ NET ASSETS APPLICABLE TO OUTSTANDING SHARES $328,777,079 $119,246,630 $ (81,378) $447,942,331 ============ ============ ========== ============ NET ASSETS CONSIST OF: Capital Shares and additional paid-in-capital...... $331,623,698 $119,521,309 $ -- $451,145,007 Accumulated undistributed (overdistributed) net investment income (operating loss)..... 231,304 47,822 (81,378) 197,748 Accumulated undistributed (overdistributed) net realized gain (loss). (7,995,320) (1,148,859) -- (9,144,179) Net unrealized appreciation (depreciation) of investments.......... 4,917,397 826,358 -- 5,743,755 ------------ ------------ ---------- ------------ Total Net Assets $328,777,079 $119,246,630 $ (81,378) $447,942,331 ============ ============ ========== ============ CAPITAL STOCK (PAR VALUE: $.01 A SHARE): Shares authorized..... 125,000,000 225,000,000 -- 225,000,000 NET ASSET VALUE PER SHARE: Advisors Preferred: Net Assets........... N/A $ 2,979,374 N/A $ 2,979,374 Shares issued and outstanding.......... 288,431 288,431 Net asset value per share................ $ 10.33 $ 10.33 ============ ============ Advisors Select: Net Assets............... N/A $ 6,095,759 N/A $ 6,095,759 Shares issued and outstanding.......... 590,247 590,247 Net asset value per share................ $ 10.33 $ 10.33 ============ ============ Class A: Net Assets... $274,875,978 N/A $ (62,563) $274,813,415 Shares issued and outstanding.......... 24,173,959 2,326,852 26,500,811 Net asset value per share................ $ 11.37 -- $ 10.37 Maximum offering price per share /(a)/ $ 11.94 -- $ 10.89 ============ == ============ Class B: Net Assets... $ 53,901,101 N/A $ (18,815) $ 53,882,286 Shares issued and outstanding.......... 4,768,574 427,403 5,195,977 Net asset value per share /(b)/.......... $ 11.30 -- $ 10.37 ============ == ============ Class J: Net Assets... N/A $101,936,674 N/A $101,936,674 Shares issued and outstanding.......... 9,800,360 9,800,360 Net asset value per share /(b)/.......... $ 10.40 $ 10.40 ============ ============ Institutional: Net Assets............... N/A $ 10,119 N/A $ 10,119 Shares issued and outstanding.......... 976 976 Net asset value per share................ $ 10.37 $ 10.37 ============ ============ Preferred: Net Assets. N/A $ 7,084,334 N/A $ 7,084,334 Shares issued and outstanding.......... 684,413 684,413 Net asset value per share................ $ 10.35 $ 10.35 ============ ============ Select: Net Assets.... N/A $ 1,140,370 N/A $ 1,140,370 Shares issued and outstanding.......... 110,187 110,187 Net asset value per share................ $ 10.35 $ 10.35 ============ ============
/(a) /Maximum offering price equals net asset value plus a front-end sales charge of 4.75% of the offering price or 4.99% of the net asset value. /(b) /Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. /(c) /Includes fair market value of securities loaned, see "Securities Lending" in Notes to Financial Statements. /(d) /Reduction in net assets to reflect the estimated expenses of the Reorganization. See accompanying notes. 1 STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2004 (UNAUDITED) ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
PRINCIPAL GOVERNMENT GOVERNMENT COMBINED SECURITIES SECURITIES PRO FORMA GOVERNMENT INCOME FUND, INC. FUND ADJUSTMENTS SECURITIES FUND - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ NET INVESTMENT INCOME (OPERATING LOSS) Income: Interest............. $15,917,314 $4,303,266 $ -- $20,220,580 Securities lending... 23,421 -- -- 23,421 ----------- ---------- --------- ----------- Total Income 15,940,735 4,303,266 -- 20,244,001 Expenses: Management and investment advisory fees................ 1,507,744 438,596 (127,916)/(A)/ 1,818,424 Distribution fees - Advisors Preferred.. -- 5,871 -- 5,871 Distribution fees - Advisors Select..... -- 13,699 -- 13,699 Distribution fees - Class A............. 531,775 -- -- 531,775 Distribution fees - Class B............. 530,491 -- -- 530,491 Distribution fees - Class J............. -- 477,854 -- 477,854 Distribution fees - Select.............. -- 926 -- 926 Administrative service fees - Advisors Preferred.. -- 3,523 -- 3,523 Administrative service fees - Advisors Select..... -- 9,133 -- 9,133 Administrative service fees - Preferred........... -- 6,850 -- 6,850 Administrative service fees - Select.............. -- 1,203 -- 1,203 Registration fees - Class A............. 16,002 -- -- 16,002 Registration fees - Class B............. 9,958 -- -- 9,958 Registration fees - Class J............. -- 22,998 -- 22,998 Service fees - Advisors Preferred.. -- 3,992 -- 3,992 Service fees - Advisors Select..... -- 11,416 -- 11,416 Service fees - Preferred........... -- 9,341 -- 9,341 Service fees - Select -- 1,389 -- 1,389 Shareholder reports - Class A............. 24,077 -- -- 24,077 Shareholder reports - Class B............. 7,237 -- -- 7,237 Shareholder reports - Class J............. -- 27,129 -- 27,129 Transfer and administrative fees - Class A........... 137,258 -- -- 137,258 Transfer and administrative fees - Class B........... 42,562 -- -- 42,562 Transfer and administrative fees - Class J........... -- 222,344 -- 222,344 Auditing and legal fees................ 13,121 -- (13,121)/(B)/ -- Custodian fees....... 14,743 -- (14,743)/(B)/ -- Directors' expenses.. 10,930 -- (10,930)/(B)/ -- Registration fees.... 31,000 -- -- 31,000 Transfer and administrative fees. 386,509 -- 9,828/(B)/ 396,337 Other expenses....... 20,090 -- (20,090)/(B)/ -- Other expenses - Class J............. -- 243 -- 243 ----------- ---------- --------- ----------- Total Expenses 3,283,497 1,256,507 (176,972) 4,363,032 ----------- ---------- --------- ----------- Net Investment Income (Operating Loss) 12,657,238 3,046,759 176,972 15,880,969 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gain (loss) from: Investment transactions........ (1,150,972) (26,231) -- (1,177,203) Change in unrealized appreciation/depreciation of: Investments........... 1,182,444 930,294 -- 2,112,738 ----------- ---------- --------- ----------- Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies 31,472 904,063 -- 935,535 ----------- ---------- --------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations $12,688,710 $3,950,822 $ 176,972 $16,816,504 =========== ========== ========= ===========
/(a) /Management and investment advisory fees decreased to reflect annual percentage rate of the Acquiring Fund. /(b) /Elimination of expenses due to expense structure of Acquiring Fund. Eliminated expenses are not paid by the Acquiring Fund. See accompanying notes. 21
SCHEDULE OF INVESTMENTS October 31, 2004 (unaudited) Principal Amount or Number of Shares Market Value - ------------------------------------------------------------------------------------------------------------------------------------ Principal Principal Government Government Securities Government Securities Government Income Fund, Securities Income Fund, Securities Inc. Fund Combined Inc. Fund Combined - ------------------------------------------------------------------------------------------------------------------------------------ BONDS (18.09%) FEDERAL & FEDERALLY SPONSORED CREDIT(1.46%) Federal Farm Credit Bank 2.63%; 9/17/07 $ - $ 1,481,808 $ 1,481,808 - - 1,500,000 1,500,000 3.00%; 12/15/06 - - 1,000,000 1,000,000 - 1,000,415 1,000,415 4.48%; 3,000,000 1,000,000 4,000,000 08/24/12 3,047,637 1,015,879 4,063,516 FINANCE-MORTGAGE LOAN/BANKER (15.74%) Federal Home Loan Bank System 1.88%; 4,000,000 3,000,000 7,000,000 06/15/06 3,950,080 2,962,560 6,912,640 2.45%; 6,000,000 3,000,000 9,000,000 03/23/07 5,932,086 2,966,043 8,898,129 2.50%; 6,000,000 - 6,000,000 03/15/06 5,994,096 - 5,994,096 3.75%; 6,000,000 - 6,000,000 08/15/08 6,070,674 - 6,070,674 5.80%; 09(2)08 - - 2,500,000 2,500,000 - 2,714,360 2,714,360 Federal Home Loan Mortgage 4.50%; 8,000,000 - 8,000,000 01/15/13 8,113,592 - 8,113,592 4.63%; 3,000,000 1,000,000 4,000,000 05/28/13 2,997,078 999,026 3,996,104 6.63%; 6,000,000 - 6,000,000 09/15/09 6,792,348 - 6,792,348 Federal National Mortgage Association 2.13%; 04/15/06 6,000,000 - 6,000,000 (1) 5,963,376 - 5,963,376 2.25%; 05/15/06 - - 1,000,000 1,000,000 - 994,837 994,837 2.63%; 4,000,000 - 4,000,000 11/15/06 3,986,700 - 3,986,700 3.00%; 12/15/06 - - 4,000,000 4,000,000 - 3,982,020 3,982,020 4.13%; 02/17/09 4,000,000 2,000,000 6,000,000 (2) 4,075,760 2,037,880 6,113,640 FINANCE-OTHER SERVICES (0.89%) Private Export Funding 3.38%; 3,000,000 1,000,000 4,000,000 02/15/09 2,988,453 996,151 3,984,604 ------------------------------------------ TOTAL BONDS 59,911,880 21,150,979 81,062,859 FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) CERTIFICATES (31.66%) 3.50%; 09/15/07 5,000,000 4,000,000 9,000,000 (1) 5,065,350 4,052,280 9,117,630 4.00%; 07/01/10 - - 1,668,385 1,668,385 - 1,668,158 1,668,158 4.50%; 11/01/09 - - 416,851 416,851 - 423,034 423,034 4.50%; 02/01/10 - - 1,666,305 1,666,305 - 1,691,404 1,691,404 4.50%; 06/01/11 2,926,089 975,363 3,901,452 2,968,383 989,461 3,957,844 4.50%; 06/01/18 - - 4,482,894 4,482,894 - 4,506,636 4,506,636 4.50%; 3,500,000 - 3,500,000 04/01/19 3,513,342 - 3,513,342 4.50%; 11/01/19 10,000,000 - 10,000,000 (3) 10,025,000 - 10,025,000 4.60%; 10/01/33 (2) - - 1,361,972 1,361,972 - 1,352,533 1,352,533 5.00%; 13,405,932 - 13,405,932 10/01/10 13,713,692 - 13,713,692 5.00%; 9,422,105 - 9,422,105 05/01/11 9,636,844 - 9,636,844 5.00%; 7,962,949 2,388,885 10,351,834 05/01/18 8,130,983 2,439,295 10,570,278 5.00%; 12/01/18 - - 3,402,795 3,402,795 - 3,474,601 3,474,601 5.00%; 12/01/32 - - 1,528,225 1,528,225 - 1,528,783 1,528,783 5.00%; 08/01/33 - - 4,623,495 4,623,495 - 4,622,765 4,622,765 5.00%; 9,990,299 2,997,090 12,987,389 09/01/34 9,972,247 2,991,674 12,963,921 5.00%; 11/01/34 (3) - - 5,000,000 5,000,000 - 4,984,375 4,984,375 5.00%; 12/01/34 (3) - - 3,000,000 3,000,000 - 2,983,125 2,983,125 5.50%; 05/01/17 - - 321,819 321,819 - 333,605 333,605 5.50%; 09/01/17 - - 580,494 580,494 - 601,751 601,751 5.50%; 02/01/18 - - 679,408 679,408 - 704,288 704,288 5.50%; 12/01/18 - - 19,473 19,473 - 19,867 19,867 5.50%; 01/01/29 - - 48,284 48,284 - 49,355 49,355 5.50%; 03/01/29 - - 20,405 20,405 - 20,863 20,863 5.50%; 05/01/33 - - 989,163 989,163 - 1,009,276 1,009,276 5.50%; 10/01/33 - - 482,094 482,094 - 491,896 491,896 5.50%; 8,863,852 - 8,863,852 12/01/33 9,044,081 - 9,044,081 5.50%; 11/01/34 5,500,000 6,000,000 11,500,000 (3) 5,601,409 6,110,628 11,712,037 5.50%; 12/01/34 6,500,000 2,500,000 9,000,000 (3) 6,603,597 2,539,845 9,143,442 6.00%; 12/01/16 - - 84,910 84,910 - 89,150 89,150 6.00%; 03/01/17 - - 240,316 240,316 - 252,333 252,333 6.00%; 06/01/28 - - 189,288 189,288 - 196,474 196,474 6.00%; 10/01/31 - - 96,266 96,266 - 99,801 99,801 6.00%; 02/01/32 - - 231,925 231,925 - 240,440 240,440 6.00%; 01/01/33 - - 1,754,681 1,754,681 - 1,819,210 1,819,210 6.00%; 02/01/33 - - 1,508,781 1,508,781 - 1,563,999 1,563,999 6.50%; 06/01/17 - - 546,160 546,160 - 578,737 578,737 6.50%; 07/01/19 - - 25,328 25,328 - 26,770 26,770 6.50%; 08/01/22 - - 869,923 869,923 - 918,733 918,733 6.50%; 03/01/29 - - 116,553 116,553 - 122,759 122,759 6.50%; 06/01/31 - - 16,434 16,434 - 17,300 17,300 6.50%; 02/01/32 - - 130,075 130,075 - 136,890 136,890 6.50%; 02/01/32 - - 261,347 261,347 - 275,132 275,132 6.50%; 04/01/32 - - 200,012 200,012 - 210,491 210,491 6.50%; 08/01/32 - - 632,468 632,468 - 665,606 665,606 6.50%; 08/01/32 - - 267,230 267,230 - 281,231 281,231 7.00%; 01/01/31 - - 35,698 35,698 - 37,937 37,937 7.50%; 12/01/30 - - 47,335 47,335 - 50,836 50,836 7.50%; 02/01/31 - - 36,215 36,215 - 38,894 38,894 7.50%; 04/01/32 - - 270,263 270,263 - 289,916 289,916 8.00%; 08/01/30 - - 10,757 10,757 - 11,683 11,683 8.00%; 11/01/30 - - 32,634 32,634 - 35,442 35,442 ------------------------------------------ TOTAL FHLMC CERTIFICATES 84,274,928 57,549,262 141,824,190 FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) CERTIFICATES (14.21%) 4.00%; 09/01/18 - - 1,794,689 1,794,689 - 1,765,869 1,765,869 4.50%; 08/01/09 - - 587,796 587,796 - 595,978 595,978 4.50%; 03/01/10 - - 234,160 234,160 - 237,472 237,472 4.59%; 02/01/33 (2) - - 5,990,164 5,990,164 - 6,122,468 6,122,468 4.73%; 12/01/33 (2) - - 928,242 928,242 - 933,147 933,147 5.00%; 01/01/18 - - 1,143,782 1,143,782 - 1,168,800 1,168,800 5.00%; 04/01/19 - - 2,884,315 2,884,315 - 2,947,228 2,947,228 5.00%; 6,348,369 - 6,348,369 12/01/10 6,486,142 - 6,486,142 5.00%; 10/01/33 (2) - - 806,539 806,539 - 816,599 816,599 5.20%; 12/01/33 (2) - - 1,636,950 1,636,950 - 1,659,052 1,659,052 5.50%; 09/01/17 - - 870,069 870,069 - 902,584 902,584 5.50%; 09/01/17 - - 203,176 203,176 - 210,769 210,769 5.50%; 03/01/18 - - 759,219 759,219 - 787,591 787,591 5.50%; 06/01/19 - - 283,754 283,754 - 294,200 294,200 5.50%; 06/01/19 - - 262,658 262,658 - 272,327 272,327 5.50%; 07/01/19 - - 764,610 764,610 - 792,757 792,757 5.50%; 07/01/19 - - 554,981 554,981 - 575,412 575,412 5.50%; 07/01/19 - - 112,475 112,475 - 116,615 116,615 5.50%; 07/01/19 - - 278,050 278,050 - 288,286 288,286 5.50%; 07/01/19 - - 314,736 314,736 - 326,323 326,323 5.50%; 08/01/19 - - 1,305,526 1,305,526 - 1,353,586 1,353,586 5.50%; 08/01/19 - - 122,816 122,816 - 127,338 127,338 5.50%; 09/01/19 - - 1,000,100 1,000,100 - 1,036,916 1,036,916 5.50%; 09/01/33 - - 4,516,286 4,516,286 - 4,607,438 4,607,438 5.50%; 6,855,292 2,937,982 9,793,274 06/01/34 6,989,587 2,995,537 9,985,124 6.00%; 04/01/09 - - 45,153 45,153 - 47,681 47,681 6.00%; 05/01/09 - - 208,984 208,984 - 220,666 220,666 6.00%; 01/01/17 - - 236,794 236,794 - 248,617 248,617 6.00%; 04/01/17 - - 246,767 246,767 - 259,116 259,116 6.00%; 12/01/22 - - 423,716 423,716 - 441,982 441,982 6.00%; 12/01/31 - - 101,525 101,525 - 105,431 105,431 6.00%; 12/01/31 - - 268,246 268,246 - 278,566 278,566 6.00%; 11/01/32 - - 342,580 342,580 - 355,759 355,759 6.00%; 11/01/34 10,000,000 4,200,000 14,200,000 (3) 10,365,620 4,353,560 14,719,180 6.50%; 04/01/10 - - 43,669 43,669 - 46,396 46,396 6.50%; 06/01/16 - - 83,484 83,484 - 88,584 88,584 6.50%; 09/01/31 - - 239,745 239,745 - 252,578 252,578 6.50%; 12/01/31 - - 72,322 72,322 - 76,193 76,193 6.50%; 04/01/32 - - 126,431 126,431 - 133,163 133,163 6.50%; 06/01/32 - - 489,809 489,809 - 515,888 515,888 7.00%; 05/01/22 - - 273,019 273,019 - 291,129 291,129 7.00%; 02/01/32 - - 72,956 72,956 - 77,531 77,531 7.00%; 02/01/32 - - 73,647 73,647 - 78,239 78,239 7.00%; 02/01/32 - - 142,485 142,485 - 151,422 151,422 7.00%; 04/01/32 - - 291,057 291,057 - 309,204 309,204 7.50%; 01/01/31 - - 26,370 26,370 - 28,281 28,281 7.50%; 05/01/31 - - 48,945 48,945 - 52,493 52,493 7.50%; 08/01/32 - - 427,728 427,728 - 458,205 458,205 ------------------------------------------ TOTAL FNMA CERTIFICATES 23,841,349 39,804,976 63,646,325 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES (38.44%) 2.88%; 10/20/30 7,611,865 - 7,611,865 (2) 7,619,439 - 7,619,439 5.00%; 17,276,047 - 17,276,047 05/20/33 17,332,885 - 17,332,885 5.00%; 4,789,465 - 4,789,465 08/15/33 4,817,197 - 4,817,197 5.00%; 8,133,506 - 8,133,506 08/15/33 8,180,599 - 8,180,599 5.50%; 87,449 - 87,449 12/15/13 91,536 - 91,536 5.50%; 399,429 - 399,429 01/15/14 417,860 - 417,860 5.50%; 329,218 - 329,218 01/15/14 344,408 - 344,408 5.50%; 227,056 - 227,056 02/15/14 237,533 - 237,533 5.50%; 388,388 - 388,388 03/15/14 406,309 - 406,309 5.50%; 285,631 - 285,631 07/20/14 297,922 - 297,922 5.50%; 3,570,542 - 3,570,542 03/15/33 3,660,649 - 3,660,649 5.50%; 3,321,474 664,295 3,985,769 04/15/33 3,405,294 681,059 4,086,353 5.50%; 5,832,800 1,296,178 7,128,978 04/15/33 5,983,193 1,329,598 7,312,791 5.50%; 23,749,590 - 23,749,590 05/15/33 24,348,934 - 24,348,934 5.50%; 06/15/33 - - 727,039 727,039 - 745,387 745,387 5.50%; 21,068,045 - 21,068,045 07/20/33 21,560,110 - 21,560,110 6.00%; 2,025,453 - 2,025,453 03/15/17 2,136,091 - 2,136,091 6.00%; 895,845 - 895,845 10/15/23 939,004 - 939,004 6.00%; 7,421,983 - 7,421,983 10/15/23 7,779,552 - 7,779,552 6.00%; 414,482 - 414,482 11/15/23 434,450 - 434,450 6.00%; 196,660 - 196,660 11/15/23 206,134 - 206,134 6.00%; 178,754 - 178,754 12/15/23 187,366 - 187,366 6.00%; 164,876 - 164,876 12/15/23 172,819 - 172,819 6.00%; 15,660 - 15,660 12/15/23 16,415 - 16,415 6.00%; 301,921 - 301,921 01/15/24 316,144 - 316,144 6.00%; 186,837 - 186,837 01/15/24 195,639 - 195,639 6.00%; 300,196 - 300,196 01/15/24 314,338 - 314,338 6.00%; 115,321 - 115,321 01/20/24 120,610 - 120,610 6.00%; 153,379 - 153,379 02/15/24 160,605 - 160,605 6.00%; 220,381 - 220,381 02/15/24 230,763 - 230,763 6.00%; 208,289 - 208,289 02/15/24 218,102 - 218,102 6.00%; 166,699 - 166,699 03/15/24 174,552 - 174,552 6.00%; 104,617 - 104,617 04/15/24 109,545 - 109,545 6.00%; 185,641 - 185,641 04/20/24 194,154 - 194,154 6.00%; 222,865 - 222,865 05/20/24 233,085 - 233,085 6.00%; 116,166 - 116,166 05/20/24 121,493 - 121,493 6.00%; 97,949 - 97,949 10/20/24 102,441 - 102,441 6.00%; 165,547 - 165,547 09/20/25 173,001 - 173,001 6.00%; 89,898 - 89,898 11/20/25 93,945 - 93,945 6.00%; 215,727 - 215,727 03/20/26 225,196 - 225,196 6.00%; 1,746,732 - 1,746,732 04/20/26 1,823,397 - 1,823,397 6.00%; 131,944 - 131,944 05/20/26 137,735 - 137,735 6.00%; 186,053 - 186,053 06/20/26 194,220 - 194,220 6.00%; 10/20/28 - - 137,210 137,210 - 143,116 143,116 6.00%; 3,400,006 - 3,400,006 12/15/31 3,545,401 - 3,545,401 6.00%; 5,070,640 - 5,070,640 07/15/32 5,284,950 - 5,284,950 6.00%; 815,639 - 815,639 08/15/32 850,112 - 850,112 6.00%; 759,942 - 759,942 09/15/32 792,061 - 792,061 6.00%; 2,707,077 - 2,707,077 10/15/32 2,821,491 - 2,821,491 6.00%; 02/15/33 - - 336,001 336,001 - 349,876 349,876 6.50%; 81,989 - 81,989 07/15/08 86,856 - 86,856 6.50%; 55,986 - 55,986 07/15/08 59,310 - 59,310 6.50%; 72,939 - 72,939 07/15/08 77,269 - 77,269 6.50%; 121,620 - 121,620 10/15/08 128,841 - 128,841 6.50%; 66,786 - 66,786 01/15/09 71,037 - 71,037 6.50%; 99,759 - 99,759 03/15/09 105,681 - 105,681 6.50%; 1,208,583 - 1,208,583 07/15/16 1,289,062 - 1,289,062 6.50%; 500,397 - 500,397 07/15/16 533,718 - 533,718 6.50%; 91,400 - 91,400 09/15/23 97,358 - 97,358 6.50%; 129,809 - 129,809 09/15/23 138,271 - 138,271 6.50%; 108,550 - 108,550 09/15/23 115,626 - 115,626 6.50%; 127,262 - 127,262 09/15/23 135,558 - 135,558 6.50%; 134,135 - 134,135 10/15/23 142,878 - 142,878 6.50%; 166,157 - 166,157 10/15/23 176,988 - 176,988 6.50%; 215,263 - 215,263 10/15/23 229,296 - 229,296 6.50%; 84,731 - 84,731 10/15/23 90,254 - 90,254 6.50%; 104,807 - 104,807 10/15/23 111,639 - 111,639 6.50%; 89,849 - 89,849 10/15/23 95,706 - 95,706 6.50%; 88,627 - 88,627 11/15/23 94,405 - 94,405 6.50%; 105,157 - 105,157 11/15/23 112,011 - 112,011 6.50%; 315,691 - 315,691 12/15/23 336,271 - 336,271 6.50%; 330,428 - 330,428 12/15/23 351,968 - 351,968 6.50%; 174,408 - 174,408 12/15/23 185,777 - 185,777 6.50%; 101,891 - 101,891 12/15/23 108,533 - 108,533 6.50%; 18,137 - 18,137 12/15/23 19,320 - 19,320 6.50%; 99,280 - 99,280 12/15/23 105,752 - 105,752 6.50%; 158,270 - 158,270 01/15/24 168,439 - 168,439 6.50%; 82,726 - 82,726 01/15/24 88,041 - 88,041 6.50%; 197,181 - 197,181 01/15/24 209,850 - 209,850 6.50%; 98,576 - 98,576 01/15/24 104,909 - 104,909 6.50%; 155,115 - 155,115 01/15/24 165,082 - 165,082 6.50%; 142,048 - 142,048 01/15/24 151,174 - 151,174 6.50%; 93,168 - 93,168 01/15/24 99,154 - 99,154 6.50%; 381,951 - 381,951 01/15/24 406,492 - 406,492 6.50%; 87,944 - 87,944 01/15/24 93,595 - 93,595 6.50%; 148,958 - 148,958 01/15/24 158,529 - 158,529 6.50%; 117,265 - 117,265 01/15/24 124,800 - 124,800 6.50%; 116,471 - 116,471 03/15/24 123,954 - 123,954 6.50%; 181,190 - 181,190 04/15/24 192,832 - 192,832 6.50%; 90,393 - 90,393 04/15/24 96,201 - 96,201 6.50%; 113,195 - 113,195 04/20/24 120,115 - 120,115 6.50%; 471,742 - 471,742 07/15/24 502,494 - 502,494 6.50%; 77,684 - 77,684 09/20/25 82,355 - 82,355 6.50%; 157,681 - 157,681 10/15/25 167,654 - 167,654 6.50%; 462,501 - 462,501 12/20/25 490,308 - 490,308 6.50%; 103,153 - 103,153 01/15/26 109,583 - 109,583 6.50%; 170,798 - 170,798 02/20/26 180,912 - 180,912 6.50%; 109,235 - 109,235 03/15/26 116,044 - 116,044 6.50%; 113,217 - 113,217 03/15/26 120,274 - 120,274 6.50%; 175,719 - 175,719 03/20/26 186,124 - 186,124 6.50%; 87,341 - 87,341 07/20/26 92,513 - 92,513 6.50%; 141,300 - 141,300 08/20/26 149,667 - 149,667 6.50%; 64,642 - 64,642 03/20/27 68,423 - 68,423 6.50%; 144,673 - 144,673 02/15/28 153,435 - 153,435 6.50%; 295,071 - 295,071 02/15/28 312,942 - 312,942 6.50%; 10/20/28 - - 125,174 125,174 - 132,365 132,365 6.50%; 06/15/31 - - 24,284 24,284 - 25,723 25,723 6.50%; 525,787 35,052 560,839 07/15/31 556,941 37,129 594,070 6.50%; 10/15/31 - - 163,400 163,400 - 173,082 173,082 6.50%; 10/15/31 - - 178,636 178,636 - 189,220 189,220 6.50%; 1,619,557 - 1,619,557 04/15/32 1,715,537 - 1,715,537 6.50%; 07/15/32 - - 313,586 313,586 - 332,170 332,170 6.50%; 1,322,114 - 1,322,114 08/20/33 1,395,126 - 1,395,126 7.00%; 270,592 - 270,592 10/15/22 290,530 - 290,530 7.00%; 50,397 - 50,397 10/15/22 54,110 - 54,110 7.00%; 117,157 - 117,157 11/15/22 125,790 - 125,790 7.00%; 75,036 - 75,036 11/15/22 80,565 - 80,565 7.00%; 281,248 - 281,248 11/15/22 301,971 - 301,971 7.00%; 170,196 - 170,196 11/15/22 182,736 - 182,736 7.00%; 227,221 - 227,221 11/15/22 243,963 - 243,963 7.00%; 101,321 - 101,321 12/15/22 108,786 - 108,786 7.00%; 308,611 - 308,611 12/15/22 331,351 - 331,351 7.00%; 153,973 - 153,973 12/15/22 165,319 - 165,319 7.00%; 62,443 - 62,443 01/15/23 67,024 - 67,024 7.00%; 111,561 - 111,561 01/15/23 119,746 - 119,746 7.00%; 54,494 - 54,494 01/15/23 58,493 - 58,493 7.00%; 127,608 - 127,608 01/15/23 136,971 - 136,971 7.00%; 77,790 - 77,790 01/15/23 83,497 - 83,497 7.00%; 102,523 - 102,523 01/15/23 110,046 - 110,046 7.00%; 75,908 - 75,908 01/15/23 81,478 - 81,478 7.00%; 620,907 - 620,907 02/15/23 666,465 - 666,465 7.00%; 108,269 - 108,269 03/15/23 116,213 - 116,213 7.00%; 60,255 - 60,255 04/15/23 64,676 - 64,676 7.00%; 49,726 - 49,726 07/15/23 53,375 - 53,375 7.00%; 79,808 - 79,808 07/15/23 85,664 - 85,664 7.00%; 54,932 - 54,932 07/15/23 58,962 - 58,962 7.00%; 208,375 - 208,375 07/15/23 223,665 - 223,665 7.00%; 130,691 - 130,691 07/15/23 140,280 - 140,280 7.00%; 37,857 - 37,857 08/15/23 40,635 - 40,635 7.00%; 123,301 - 123,301 08/15/23 132,348 - 132,348 7.00%; 71,115 - 71,115 08/15/23 76,333 - 76,333 7.00%; 83,625 - 83,625 09/15/23 89,761 - 89,761 7.00%; 99,122 - 99,122 10/15/23 106,395 - 106,395 7.00%; 100,569 - 100,569 12/15/23 107,948 - 107,948 7.00%; 118,129 - 118,129 12/15/23 126,796 - 126,796 7.00%; 88,882 - 88,882 01/15/26 95,208 - 95,208 7.00%; 67,901 - 67,901 04/15/26 72,734 - 72,734 7.00%; 97,328 - 97,328 05/15/26 104,255 - 104,255 7.00%; 173,512 - 173,512 12/15/26 185,943 - 185,943 7.00%; 85,528 - 85,528 01/15/27 91,503 - 91,503 7.00%; 43,421 - 43,421 03/15/27 46,455 - 46,455 7.00%; 250,184 - 250,184 11/15/27 267,663 - 267,663 7.00%; 240,345 - 240,345 12/15/27 257,137 - 257,137 7.00%; 196,938 - 196,938 12/15/27 210,697 - 210,697 7.00%; 195,918 - 195,918 12/15/27 209,606 - 209,606 7.00%; 77,365 - 77,365 03/15/28 82,685 - 82,685 7.00%; 103,351 - 103,351 04/15/28 110,459 - 110,459 7.00%; 138,041 - 138,041 04/15/28 147,535 - 147,535 7.00%; 249,774 - 249,774 04/15/28 266,952 - 266,952 7.00%; 279,467 - 279,467 05/15/28 298,687 - 298,687 7.00%; 433,902 - 433,902 02/15/29 463,454 - 463,454 7.00%; 499,981 - 499,981 04/15/29 534,034 - 534,034 7.00%; 759,129 - 759,129 05/15/31 810,550 - 810,550 7.00%; 378,248 - 378,248 05/15/31 403,869 - 403,869 7.00%; 922,043 120,590 1,042,633 05/15/31 984,632 128,776 1,113,408 7.00%; 1,676,912 - 1,676,912 06/15/31 1,790,671 - 1,790,671 7.00%; 07/15/31 - - 4,728 4,728 - 5,049 5,049 7.00%; 07/15/31 - - 31,870 31,870 - 34,029 34,029 7.00%; 1,352,444 - 1,352,444 09/15/31 1,444,279 - 1,444,279 7.00%; 09/15/31 - - 46,038 46,038 - 49,156 49,156 7.00%; 02/15/32 - - 32,391 32,391 - 34,582 34,582 7.25%; 290,770 - 290,770 09/15/25 312,726 - 312,726 7.25%; 39,480 - 39,480 09/15/25 42,461 - 42,461 7.25%; 25,969 - 25,969 09/15/25 27,930 - 27,930 7.25%; 96,554 - 96,554 10/15/25 103,845 - 103,845 7.50%; 21,200 - 21,200 04/15/17 22,938 - 22,938 7.50%; 156,160 - 156,160 04/15/17 168,961 - 168,961 7.50%; 103,325 - 103,325 04/15/17 111,795 - 111,795 7.50%; 35,807 - 35,807 05/15/17 38,743 - 38,743 7.50%; 19,424 - 19,424 05/15/17 21,017 - 21,017 7.50%; 47,142 - 47,142 07/15/18 51,030 - 51,030 7.50%; 40,390 - 40,390 12/15/21 43,780 - 43,780 7.50%; 46,397 - 46,397 12/15/21 50,290 - 50,290 7.50%; 51,314 - 51,314 12/15/21 55,621 - 55,621 7.50%; 79,652 - 79,652 02/15/22 86,413 - 86,413 7.50%; 27,071 - 27,071 03/15/22 29,369 - 29,369 7.50%; 25,455 - 25,455 03/15/22 27,615 - 27,615 7.50%; 38,618 - 38,618 03/15/22 41,896 - 41,896 7.50%; 27,908 - 27,908 04/15/22 30,277 - 30,277 7.50%; 41,597 - 41,597 04/15/22 45,127 - 45,127 7.50%; 45,307 - 45,307 04/15/22 49,152 - 49,152 7.50%; 44,718 - 44,718 04/15/22 48,514 - 48,514 7.50%; 44,589 - 44,589 04/15/22 48,374 - 48,374 7.50%; 16,516 - 16,516 04/15/22 17,917 - 17,917 7.50%; 115,958 - 115,958 05/15/22 125,800 - 125,800 7.50%; 28,457 - 28,457 07/15/22 30,872 - 30,872 7.50%; 144,480 - 144,480 07/15/22 156,743 - 156,743 7.50%; 13,619 - 13,619 08/15/22 14,775 - 14,775 7.50%; 27,259 - 27,259 08/15/22 29,573 - 29,573 7.50%; 40,860 - 40,860 08/15/22 44,328 - 44,328 7.50%; 76,586 - 76,586 08/15/22 83,087 - 83,087 7.50%; 41,323 - 41,323 08/15/22 44,830 - 44,830 7.50%; 59,761 - 59,761 08/15/22 64,834 - 64,834 7.50%; 40,742 - 40,742 08/15/22 44,200 - 44,200 7.50%; 39,037 - 39,037 08/15/22 42,350 - 42,350 7.50%; 181,142 - 181,142 08/15/22 196,517 - 196,517 7.50%; 78,652 - 78,652 08/15/22 85,328 - 85,328 7.50%; 120,366 - 120,366 08/15/22 130,582 - 130,582 7.50%; 10,192 - 10,192 08/15/22 11,058 - 11,058 7.50%; 86,415 - 86,415 11/15/22 93,749 - 93,749 7.50%; 46,613 - 46,613 02/15/23 50,548 - 50,548 7.50%; 62,386 - 62,386 02/15/23 67,653 - 67,653 7.50%; 21,012 - 21,012 02/15/23 22,786 - 22,786 7.50%; 65,353 - 65,353 05/15/23 70,870 - 70,870 7.50%; 72,746 - 72,746 05/15/23 78,888 - 78,888 7.50%; 23,409 - 23,409 05/15/23 25,385 - 25,385 7.50%; 10,952 - 10,952 05/15/23 11,876 - 11,876 7.50%; 93,153 - 93,153 05/15/23 101,018 - 101,018 7.50%; 49,720 - 49,720 06/15/23 53,918 - 53,918 7.50%; 46,221 - 46,221 08/15/23 50,123 - 50,123 7.50%; 39,385 - 39,385 09/15/23 42,710 - 42,710 7.50%; 47,257 - 47,257 10/15/23 51,246 - 51,246 7.50%; 212,549 - 212,549 11/15/23 230,493 - 230,493 7.50%; 57,071 - 57,071 01/15/24 61,746 - 61,746 7.50%; 12,734 - 12,734 06/15/24 13,777 - 13,777 7.50%; 29,552 - 29,552 08/15/24 31,973 - 31,973 7.50%; 122,423 - 122,423 12/15/25 132,286 - 132,286 7.50%; 29,407 - 29,407 02/15/27 31,742 - 31,742 7.50%; 171,351 - 171,351 03/15/27 184,957 - 184,957 7.50%; 69,456 - 69,456 04/15/27 74,971 - 74,971 7.50%; 176,221 - 176,221 05/15/27 190,214 - 190,214 7.50%; 60,081 - 60,081 05/15/27 64,851 - 64,851 7.50%; 41,447 - 41,447 06/15/27 44,738 - 44,738 7.50%; 80,482 - 80,482 06/15/27 86,873 - 86,873 7.50%; 574,575 - 574,575 08/15/29 618,890 - 618,890 7.50%; 391,887 - 391,887 09/15/29 422,112 - 422,112 7.50%; 1,229,908 - 1,229,908 08/15/30 1,324,710 - 1,324,710 7.50%; 335,210 - 335,210 10/15/30 361,018 - 361,018 7.50%; 11/15/30 - - 57,974 57,974 - 62,438 62,438 7.50%; 763,811 - 763,811 12/15/30 822,619 - 822,619 7.50%; 365,894 - 365,894 12/15/30 394,065 - 394,065 7.50%; 01/15/31 - - 11,820 11,820 - 12,730 12,730 7.50%; 384,114 - 384,114 05/15/31 413,705 - 413,705 8.00%; 124,174 - 124,174 08/15/16 136,122 - 136,122 8.00%; 12,172 - 12,172 09/15/16 13,344 - 13,344 8.00%; 34,639 - 34,639 11/15/16 37,973 - 37,973 8.00%; 36,654 - 36,654 12/15/16 40,181 - 40,181 8.00%; 95,717 - 95,717 04/15/17 105,448 - 105,448 8.00%; 203,457 - 203,457 04/15/17 224,140 - 224,140 8.00%; 19,200 - 19,200 04/15/17 21,152 - 21,152 8.00%; 32,106 - 32,106 04/15/17 35,370 - 35,370 8.00%; 56,069 - 56,069 04/15/17 61,770 - 61,770 8.00%; 78,483 - 78,483 04/15/17 86,462 - 86,462 8.00%; 45,890 - 45,890 05/15/17 50,556 - 50,556 8.00%; 25,738 - 25,738 05/15/17 28,354 - 28,354 8.00%; 32,792 - 32,792 06/15/17 36,126 - 36,126 8.00%; 38,632 - 38,632 06/15/17 42,559 - 42,559 8.00%; 63,832 - 63,832 06/15/17 70,322 - 70,322 8.00%; 59,830 - 59,830 06/15/17 65,913 - 65,913 8.00%; 31,137 - 31,137 07/15/17 34,303 - 34,303 8.00%; 31,761 - 31,761 04/15/21 34,979 - 34,979 8.00%; 7,078 - 7,078 11/15/21 7,795 - 7,795 8.00%; 131,127 - 131,127 02/15/22 144,381 - 144,381 8.00%; 351,651 - 351,651 12/15/29 383,558 - 383,558 8.00%; 243,060 - 243,060 10/15/30 265,070 - 265,070 8.00%; 579,408 96,568 675,976 12/15/30 631,876 105,313 737,189 8.00%; 59,971 - 59,971 04/15/31 65,389 - 65,389 ---------------------------------------------- TOTAL GNMA CERTIFICATES 167,652,784 4,570,798 172,223,582 COMMERCIAL PAPER (8.88%) FINANCE-MORTGAGE LOAN/BANKER (8.88%) Federal Home Loan Mortgage 1.53%; 10,000,000 4,000,000 14,000,000 11/08/04 9,997,025 3,998,810 13,995,835 Federal National Mortgage Association 1.75%; 5,000,000 4,000,000 9,000,000 11/15/04 4,996,597 3,997,278 8,993,875 1.79%; 5,000,000 5,000,000 10,000,000 11/19/04 4,995,525 4,995,525 9,991,050 Investment in Joint Trading Account; Federal Home Loan Bank 1.69%; 4,213,655 2,628,646 6,842,301 11/01/04 4,213,655 2,628,646 6,842,301 ---------------------------------------------- TOTAL COMMERCIAL PAPER 24,202,802 15,620,259 39,823,061 REPURCHASE AGREEMENTS (2.52%) Goldman Sachs; 1.75%; dated 10/29/04 maturing 11/01/04 11,282,644 - 11,282,644 (collateralized by U.S. Treasuries; $11,368,615; 11/18/04 - 01/15/12)(4) 11,271,000 - 11,271,000 ---------------------------------------------- TOTAL REPURCHASE AGREEMENTS 11,271,000 - 11,271,000 TOTAL PORTFOLIO INVESTMENTS (113.80%) 371,154,743 138,696,274 509,851,017 Liabilities, net of cash, receivables and other assets (-13.80%) (42,377,664) (19,449,644) (61,827,308) ---------------------------------------------- TOTAL NET ASSETS (100.00%) $328,777,079 $119,246,630 $448,023,709 ============================================== (1) Security or a portion of the security was on loan at the end of the period. (2) Variable rate. (3) Security or a portion of the security was purchased in a "to-be-announced" ("TBA") transaction. See Notes to Financial Statements. (4) Security was purchased with the cash proceeds from securities loans.
UNREALIZED APPRECIATION (DEPRECIATION) The net federal income tax unrealized appreciation (depreciation) and federal tax cost of investments held by the fund as of the period end were as follows: Unrealized Appreciation $5,653,756 $ 1,135,092 $ 6,788,848 Unrealized Depreciation (736,359) (308,734) (1,045,093) ---------------------------------------------- Net Unrealized Appreciation (Depreciation) 4,917,397 826,358 5,743,755 Cost for federal income tax purposes $366,237,346 $137,869,916 $ 504,107,262
Coupon Distribution (unaudited) Percentage of Total Value Sector Value - ----------------------------------------------------------------------------------------------------------------------------------- 22.37% 24.56% 22.97% Less than 4% $ 83,044,057 34,056,374 $117,100,431 4.00-4.99% 9.36 17.55 11.59 4.00-4.99% 34,740,792 24,338,945 59,079,737 5.00-5.99% 45.07 44.45 44.90 5.00-5.99% 167,263,010 61,655,755 228,918,765 6.00-6.99% 16.48 11.75 15.19 6.00-6.99% 61,165,666 16,301,917 77,467,583 7.00-7.99% 6.01 1.58 4.81 7.00-7.99% 22,318,078 2,190,846 24,508,924 8.00% and over 0.71 0.11 0.54 8.00% and over 2,623,140 152,437 2,775,577 -------------------------------------------------- TOTAL $371,154,743 $138,696,274 $509,851,017 ================================================== Percentages are adjusted to reflect the impact of currency contracts, futures contracts, and swap agreements, if applicable. See accompanying notes. As of October 31, 2004, all securities held by the Acquired Fund would comply with the investment restrictions of the Acquiring Fund.
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004 (UNAUDITED) -------------------------------------------------------------------------------
COMBINED PRINCIPAL PRINCIPAL DIVERSIFIED DIVERSIFIED INTERNATIONAL INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL FUND, INC. SMALLCAP FUND, INC. FUND/(D)/ ADJUSTMENTS/(E)/ FUND - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- INVESTMENT IN SECURITIES--AT COST ... $239,656,951 $ 55,546,231 $ 95,988,689 $ -- $391,191,871 ============ ============ ============ =========== ============ FOREIGN CURRENCY--AT COST ........... $ 151,354 $ -- $ 114,016 $ -- $ 265,370 ============ ============ ============ =========== ============ ASSETS Investment in securities--at value... $262,650,479/(c)/ $65,896,401/(c)/ $105,105,412 $ -- $433,652,292/(c)/ Foreign currency--at value........... 151,947 -- 114,347 -- 266,294 Cash................................. 12,877 24,607 24,022 -- 61,506 Receivables: Capital Shares sold................. 15,924 54,806 94,851 -- 165,581 Dividends and interest.............. 385,383 97,337 155,129 -- 637,849 Expense reimbursement from Manager.. -- 791 -- -- 791 Investment securities sold.......... 777,406 922,622 317,639 -- 2,017,667 Other assets......................... 4,454 394 -- -- 4,848 Prepaid expenses..................... 75 25 -- -- 100 ------------ ------------ ------------ ----------- ------------ Total Assets 263,998,545 66,996,983 105,811,400 -- 436,806,928 LIABILITIES Accrued management and investment advisory fees....................... 38,848 13,962 17,864 -- 70,674 Accrued administrative service fees.. -- -- 693 -- 693 Accrued distribution fees............ 4,431 4,715 6,745 -- 15,891 Accrued service fees................. -- -- 859 -- 859 Accrued transfer and administrative fees................................ 128,973 50,351 32,362 -- 211,686 Accrued other expenses............... 122,654 36,931 10,214 -- 169,799 Payables: Capital Shares reacquired........... 145,893 40,503 -- -- 186,396 Investment securities purchased..... 2,626,058 687,716 1,251,291 -- 4,565,065 Reorganization costs................ -- -- -- 145,519 145,519 Collateral obligation on securities loaned, at value.................... 21,397,848 5,088,215 -- -- 26,486,063 ------------ ------------ ------------ ----------- ------------ Total Liabilities 24,464,705 5,922,393 1,320,028 145,519 31,852,645 ------------ ------------ ------------ ----------- ------------ NET ASSETS APPLICABLE TO OUTSTANDING SHARES ............................. $239,533,840 $ 61,074,590 $104,491,372 $ (145,519) $404,954,283 ============ ============ ============ =========== ============ NET ASSETS CONSIST OF: Capital Shares and additional paid-in-capital..................... $289,721,297 $ 54,238,949 $ 95,342,363 $ -- $439,302,609 Accumulated undistributed (overdistributed) net investment income (operating loss)............. 1,665,403 (66,566) 466,782 (145,519) 1,920,100 Accumulated undistributed (overdistributed) net realized gain (loss).............................. (74,835,513) (3,447,766) (442,902) -- (78,726,181) Net unrealized appreciation (depreciation) of investments....... 22,993,528 10,350,170 9,116,723 -- 42,460,421 Net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.......................... (10,875) (197) 8,406 -- (2,666) ------------ ------------ ------------ ----------- ------------ Total Net Assets $239,533,840 $ 61,074,590 $104,491,372 $ (145,519) $404,954,283 ============ ============ ============ =========== ============ CAPITAL STOCK (PAR VALUE: $.01 A SHARE): Shares authorized.................... 325,000,000 100,000,000 465,000,000 -- 465,000,000 NET ASSET VALUE PER SHARE: Advisors Preferred: Net Assets....... N/A N/A $ 8,156,551 N/A $ 8,156,551 Shares issued and outstanding...... 876,205 876,205 Net asset value per share.......... $ 9.31 $ 9.31 ============ ============ Advisors Select: Net Assets.......... N/A N/A $ 5,572,585 N/A $ 5,572,585 Shares issued and outstanding...... 602,167 602,167 Net asset value per share.......... $ 9.25 $ 9.25 ============ ============ Class A: Net Assets.................. $212,752,278 $ 47,716,565 N/A $ (115,271) $260,353,572 Shares issued and outstanding...... 29,623,397 3,202,418 (4,890,882) 27,934,933 Net asset value per share.......... $ 7.18 $ 14.90 -- $ 9.32 Maximum offering price per share /(a)/ .............................. $ 7.62 $ 15.81 -- $ 9.89 ============ ============ == ============ Class B: Net Assets.................. $ 26,781,562 $ 13,358,025 N/A $ (30,248) $ 40,109,339 Shares issued and outstanding...... 3,804,914 945,417 (446,754) 4,303,577 Net asset value per share /(b)/ ... $ 7.04 $ 14.13 -- $ 9.32 ============ ============ == ============ Class J: Net Assets.................. N/A N/A $ 63,380,482 N/A $ 63,380,482 Shares issued and outstanding...... 6,837,443 6,837,443 Net asset value per share /(b)/ ... $ 9.27 $ 9.27 ============ ============ Institutional: Net Assets............ N/A N/A $ 15,830,592 N/A $ 15,830,592 Shares issued and outstanding...... 1,698,991 1,698,991 Net asset value per share.......... $ 9.32 $ 9.32 ============ ============ Preferred: Net Assets................ N/A N/A $ 10,120,430 N/A $ 10,120,430 Shares issued and outstanding...... 1,085,412 1,085,412 Net asset value per share.......... $ 9.32 $ 9.32 ============ ============ Select: Net Assets................... N/A N/A $ 1,430,732 N/A $ 1,430,732 Shares issued and outstanding...... 151,769 151,769 Net asset value per share.......... $ 9.43 $ 9.43 ============ ============
/(a) /Maximum offering price equals net asset value plus a front-end sales charge of 5.75% of the offering price or 6.10% of the net asset value. /(b) /Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. /(c) /Includes fair market value of securities loaned, see "Securities Lending" in Notes to Financial Statements. /(d) /Effective March 1, 2005, International Fund I changed its name to Diversified International Fund. /(e) /Reduction in net assets to reflect the estimated expenses of the Reorganization. See accompanying notes. 1 STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2004 (UNAUDITED) ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
PRINCIPAL COMBINED PRINCIPAL INTERNATIONAL DIVERSIFIED DIVERSIFIED INTERNATIONAL SMALLCAP INTERNATIONAL PROFORMA INTERNATIONAL FUND, INC. FUND, INC. FUND ADJUSTMENTS FUND - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ NET INVESTMENT INCOME (OPERATING LOSS) Income: Dividends............ $ 5,745,636 $ 1,209,101 $ 2,000,491 $ -- $ 8,955,228 Withholding tax on foreign dividends... (685,911) (116,644) (247,905) -- (1,050,460) Interest............. 29,017 4,217 33,767 -- 67,001 Securities lending... 194,272 46,443 -- -- 240,715 ----------- ----------- ----------- --------- ----------- Total Income 5,283,014 1,143,117 1,786,353 -- 8,212,484 Expenses: Management and investment advisory fees................ 2,023,299 656,321 745,729 (47,347)/(A)/ 3,378,002 Distribution fees - Advisors Preferred.. -- -- 16,810 -- 16,810 Distribution fees - Advisors Select..... -- -- 15,327 -- 15,327 Distribution fees - Class A............. 359,610 106,391 -- (34,084)/(B)/ 431,917 Distribution fees - Class B............. 157,067 112,817 -- (44,881)/(B)/ 225,003 Distribution fees - Class J............. -- -- 241,922 -- 241,922 Distribution fees - Select.............. -- -- 1,184 -- 1,184 Administrative service fees - Advisors Preferred.. -- -- 10,086 -- 10,086 Administrative service fees - Advisors Select..... -- -- 10,218 -- 10,218 Administrative service fees - Preferred........... -- -- 10,059 -- 10,059 Administrative service fees - Select.............. -- -- 1,539 -- 1,539 Registration fees - Class A............. 5,418 4,533 -- (4,533)/(B)/ 5,418 Registration fees - Class B............. 9,223 6,393 -- (6,393)/(B)/ 9,223 Registration fees - Class J............. -- -- 16,838 -- 16,838 Service fees - Advisors Preferred.. -- -- 11,430 -- 11,430 Service fees - Advisors Select..... -- -- 12,772 -- 12,772 Service fees - Preferred........... -- -- 13,716 -- 13,716 Service fees - Select -- -- 1,776 -- 1,776 Shareholder reports - Class A............. 32,756 7,879 -- -- 40,635 Shareholder reports - Class B............. 6,749 3,253 -- -- 10,002 Shareholder reports - Class J............. -- -- 17,362 -- 17,362 Transfer and administrative fees - Class A........... 191,490 50,960 -- (450)/(B)/ 242,000 Transfer and administrative fees - Class B........... 45,773 20,358 -- (450)/(B)/ 65,681 Transfer and administrative fees - Class J........... -- -- 155,648 -- 155,648 Auditing and legal fees................ 12,155 9,941 -- (22,096)/(B)/ -- Custodian fees....... 215,650 71,517 -- (287,167)/(B)/ -- Directors' expenses.. 8,064 1,785 -- (9,849)/(B)/ -- Registration fees.... 23,986 26,671 -- (26,671)/(B)/ 23,986 Transfer and administrative fees. 422,817 182,052 -- 6,233/(B)/ 611,102 Other expenses....... 14,605 3,392 -- (17,997)/(B)/ -- Other expenses - Class J............. -- -- 824 -- 824 ----------- ----------- ----------- --------- ----------- Total Gross Expenses 3,528,662 1,264,263 1,283,240 (495,685) 5,580,480 Less: Fees paid indirectly.......... 26,557 9,566 5,806 (6,928)/(B)/ 35,001 Less: Reimbursement from Manager - Class A................... -- 20,303 -- (20,303)/(C)/ -- Less: Reimbursement from Manager - Class B................... -- 8,022 -- (8,022)/(C)/ -- ----------- ----------- ----------- --------- ----------- Total Net Expenses 3,502,105 1,226,372 1,277,434 (460,432) 5,545,479 ----------- ----------- ----------- --------- ----------- Net Investment Income (Operating Loss) 1,780,909 (83,255) 508,919 460,432 2,667,005 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gain (loss) from: Investment transactions........ 39,436,940 13,301,320 11,858,385 -- 64,596,645 Foreign currency transactions........ (90,617) (12,447) (39,299) -- (142,363) Change in unrealized appreciation/depreciation of: Investments........... (4,432,625) (1,147,175) (804,737) -- (6,384,537) Translation of assets and liabilities in foreign currencies... (2,561) 578 (2,788) -- (4,771) ----------- ----------- ----------- --------- ----------- Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies 34,911,137 12,142,276 11,011,561 -- 58,064,974 ----------- ----------- ----------- --------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations $36,692,046 $12,059,021 $11,520,480 $ 460,432 $60,731,979 =========== =========== =========== ========= ===========
/(a) /Management and investment advisory fees decreased to reflect annual percentage rate of the Acquiring Fund. /(b) /Elimination of expenses due to expense structure of Acquiring Fund. Eliminated expenses are not paid by the Acquiring Fund. /(c) /Elimination of Manager's voluntary reimbursement. Total operating expenses are below expense limit. See accompanying notes. 24
SCHEDULE OF INVESTMENTS October 31, 2004 (unaudited) Principal Amount or Number of Shares Market Value - ----------------------------------------------------------------------------------------------------------------------------------- Principal Principal Principal Int'l Principal Int'l Int'l SmallCap Diversified Int'l SmallCap Diversified Fund, Fund, Int'l Fund, Fund, Int'l Inc. Inc. Fund Combined Inc. Inc. Fund Combined - ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (97.68%) ADVERTISING AGENCIES (0.11%) 3,787 9,653 1,528 14,968 Asatsu-DK $ 107,344 $ 273,618 $ 43,312 $ 424,274 ADVERTISING SALES (0.16%) 25,014 50,302 10,364 85,680 Telefonica Publicidad e Informacion 183,596 369,203 76,069 628,868 AEROSPACE & DEFENSE-EQUIPMENT (0.44%) 43,553 - 18,828 62,381 European Aeronautic Defense & Space (1) 1,238,225 - 535,286 1,773,511 AGRICULTURAL OPERATIONS (0.16%) 284,751 708,054 114,847 1,107,652 Chaoda Modern Agriculture (1) 96,949 241,070 39,102 377,121 80,000 32,846 112,846 IOI Berhad 200,000 82,115 282,115 - AIRLINES (0.07%) 5,496 13,785 2,277 21,558 Austrian Airlines (2) 74,526 186,925 30,876 292,327 AIRPORT DEVELOPMENT & MAINTENANCE (0.13%) 805 2,027 333 3,165 Kobenhavns Lufthavne 134,642 339,031 55,697 529,370 APPLICATIONS SOFTWARE (0.05%) 3,235 - 1,067 4,302 Infosys Technologies 135,946 - 70,955 206,901 APPLICATIONS SOFTWAREN (0.02%) 2,576 - - 2,576 TATA Consultancy Services (2) 65,548 - - 65,548 ATHLETIC FOOTWEAR (0.26%) 1,060 2,678 436 4,174 Puma (1) 264,632 668,569 108,848 1,042,049 AUDIO & VIDEO PRODUCTS (0.16%) 1,209 3,059 487 4,755 Bang & Olufsen 71,613 181,195 28,847 281,655 23,000 66,333 9,293 98,626 Sansui Electric (2) 6,931 19,989 2,800 29,720 232,779 586,597 93,359 912,735 Skyworth Digital Holdings 80,002 201,602 32,086 313,690 AUTO-CARS & LIGHT TRUCKS (2.05%) 3,555 - 1,454 5,009 Hyundai Motor 172,431 - 70,525 242,956 21,810 - 8,897 30,707 Renault 1,819,967 - 742,423 2,562,390 - 9,768 9,768 Tata Motors (2) 90,354 90,354 97,207 - 42,101 139,308 Toyota Motor 3,780,628 - 1,637,415 5,418,043 AUTO-MEDIUM & HEAVY DUTY TRUCKS (0.45%) 34,318 - 14,225 48,543 Volvo (1) 1,295,401 - 536,951 1,832,352 AUTO/TRUCK PARTS & EQUIPMENT- ORIGINAL (0.20%) 4,998 12,658 2,014 19,670 Exedy 84,202 213,252 33,930 331,384 7,103 18,145 2,975 28,223 Keihin 117,257 299,540 49,112 465,909 BEVERAGES-NON-ALCOHOLIC (0.34%) 3,275 8,230 1,320 12,825 Asahi Soft Drinks 27,880 70,062 11,237 109,179 5,548 14,052 2,234 21,834 Calpis 34,221 86,676 13,780 134,677 33,375 17,069 50,444 Coca-Cola Hellenic Bottling 740,409 - 378,668 1,119,077 BICYCLE MANUFACTURING (0.01%) 8,000 - 7,000 15,000 Giant Manufacturing 11,639 - 10,184 21,823 BREWERY (0.55%) 3,044 - 1,263 4,307 Efes Breweries International (2) 84,471 - 35,048 119,519 1,735 - - 1,735 Quilmes Industrial 28,385 - 28,385 78,145 - 36,292 114,437 SABMiller 1,125,435 - 522,673 1,648,108 BREWERY (continued) 6,018 15,158 2,492 23,668 Wolverhampton & Dudley Breweries 100,674 253,577 41,689 395,940 BUILDING & CONSTRUCTION PRODUCTS- MISCELLANEOUS (0.60%) 658 680 259 1,597 Geberit 427,184 441,466 168,147 1,036,797 26,244 66,903 10,873 104,020 Kingspan Group 205,309 523,389 85,061 813,759 235 589 97 921 Sika 144,155 361,308 59,502 564,965 BUILDING & CONSTRUCTION- MISCELLANEOUS (0.13%) 4,957 12,834 2,054 19,845 Abengoa 45,905 118,849 19,021 183,775 21,798 54,902 9,027 85,727 Carillion 86,371 217,541 35,768 339,680 BUILDING PRODUCTS-CEMENT & AGGREGATE (1.03%) 167,603 429,415 70,417 667,435 Adelaide Brighton 206,565 529,240 86,787 822,592 104,735 - 48,785 153,520 BPB 805,526 375,209 1,180,735 17,152 43,337 7,106 67,595 Cementir 76,146 192,393 31,547 300,086 18,842 - - 18,842 Gujarat Ambuja Cements Ltd. (2) 142,026 142,026 34,048 36,499 15,168 85,715 Italcementi 521,461 558,999 232,305 1,312,765 29,818 - 12,552 42,370 Italcementi 307,991 - 129,650 437,641 BUILDING PRODUCTS-DOORS & WINDOWS (0.24%) 76,091 - 30,714 106,805 Asahi Glass 697,925 - 281,716 979,641 BUILDING-HEAVY CONSTRUCTION (1.58%) 65,430 - 27,465 92,895 Actividades de Construccion y Servicios (1) 1,264,267 - 530,691 1,794,958 4,180 10,492 1,730 16,402 Daelim Industrial 179,223 449,858 74,176 703,257 77,194 - 31,698 108,892 IJM 95,477 - 39,205 134,682 17,347 7,573 7,281 32,201 Vinci (1) 2,059,883 899,262 864,588 3,823,733 BUILDING-RESIDENTIAL & COMMERCIAL (1.55%) 94,565 - 39,177 133,742 Corporacion GEO (2) 147,594 - 61,147 208,741 82,027 - 33,691 115,718 Daiwa House Industry 837,341 - 343,922 1,181,263 16,590 - 6,810 23,400 Hyundai Development 222,287 - 91,246 313,533 17,653 44,601 7,218 69,472 McCarthy & Stone 187,766 474,398 76,774 738,938 163,193 63,394 70,379 296,966 Persimmon 1,844,945 716,688 795,655 3,357,288 2,651 6,675 1,098 10,424 Token (2) 118,333 297,952 49,011 465,296 CASINO SERVICES (0.19%) 29,840 75,949 12,363 118,152 Aristocrat Leisure (1) 191,462 487,312 79,325 758,099 CELLULAR TELECOMMUNICATIONS (2.34%) 43,696 - 17,898 61,594 Advanced Info Service Public (3) 99,490 - 40,751 140,241 172,246 - 70,675 242,921 America Telecom (2) 418,191 - 171,590 589,781 225,700 - 92,300 318,000 Far EasTone Telecommunications 241,206 - 98,641 339,847 108,197 - 44,398 152,595 Maxis Communications 244,867 - 100,480 345,347 1,117,271 - 459,666 1,576,937 mm02 (2) 2,154,653 - 886,464 3,041,117 2,447 6,109 1,014 9,570 Mobistar (2) 183,027 456,932 75,844 715,803 2,207 - 840 3,047 Vimpel Communications (2) 251,598 - 95,760 347,358 1,076,751 - 459,666 1,536,417 Vodafone Group 2,757,172 - 1,177,039 3,934,211 CHEMICALS-DIVERSIFIED (1.94%) 25,424 - 10,702 36,126 BASF 1,586,306 - 667,741 2,254,047 343,296 173,859 148,037 665,192 Mitsubishi Gas Chemical 1,467,713 743,309 632,911 2,843,933 3,517 8,883 7,740 20,140 NOF 12,122 30,617 26,677 69,416 204,378 - 93,632 298,010 Sumitomo Chemical (1) 989,267 - 453,214 1,442,481 201,167 - 83,344 284,511 Tosoh 850,588 - 352,401 1,202,989 CHEMICALS-SPECIALTY (1.07%) 76,241 57,868 32,411 166,520 Clariant 1,028,011 780,275 437,020 2,245,306 58,421 43,418 32,914 134,753 Methanex 917,206 681,660 516,748 2,115,614 CIRCUIT BOARDS (0.04%) 182,000 - 76,000 258,000 Unimicron Technology 117,683 - 49,142 166,825 COAL (0.04%) 93,779 - 37,913 131,692 Yanzhou Coal Mining 123,498 - 49,928 173,426 COATINGS & PAINT (0.20%) 35,419 90,938 14,912 141,269 Kansai Paint (1) 203,128 521,530 85,520 810,178 COMMERCIAL BANKS (6.88%) 35,979 - 13,862 49,841 ABSA Group 391,489 - 150,833 542,322 511 1,287 212 2,010 Amagerbanken 63,073 158,856 26,167 248,096 122,628 - 51,161 173,789 Anglo Irish Bank 2,324,234 - 969,682 3,293,916 77,293 53,069 33,011 163,373 Banca Popolare di Lodi 832,775 571,779 355,669 1,760,223 25,715 - 10,581 36,296 Banco do Brasil 257,510 - 105,958 363,468 16,012 - 7,009 23,021 Bank Austria Creditanstalt 1,181,551 - 517,205 1,698,756 127,850 - 52,458 180,308 Bank Leumi Le-Israel 266,680 - 109,421 376,101 30,463 78,618 12,753 121,834 Bank of Kyoto (1) (2) 223,761 577,475 93,675 894,911 8,472 20,710 3,417 32,599 Bank of Piraeus 109,492 267,656 44,161 421,309 1,077,500 - 442,000 1,519,500 Bank Rakyat 230,893 - 94,714 325,607 9,303 - 3,862 13,165 BBVA Banco Frances 60,469 - 25,103 85,572 124,000 - 54,000 178,000 Chiba Bank 795,216 - 346,304 1,141,520 142,887 - 58,788 201,675 Chinatrust Financial Holding 162,969 - 67,051 230,020 4,000 - 1,944 5,944 CorpBanca (3) (4) 105,820 - 51,429 157,249 8,240 - 3,373 11,613 Credicorp 118,656 - 48,571 167,227 36,200 - 14,850 51,050 Daegu Bank 216,650 - 88,875 305,525 14,164 35,845 5,899 55,908 Dah Sing Financial 101,907 257,898 42,442 402,247 201,660 - 96,016 297,676 DnB Holding (1) 1,703,676 - 811,168 2,514,844 1,883 - 773 2,656 E.Sun Financial Holding (2) (4) 32,130 - 13,190 45,320 207,000 - 85,000 292,000 E.Sun Financial Holding 141,284 - 58,015 199,299 88,190 - 36,200 124,390 EON Capital 139,247 - 57,158 196,405 7,640 - 3,170 10,810 Hana Bank 190,744 - 79,144 269,888 14,243 - 5,844 20,087 Hansabank 143,131 - 58,727 201,858 369,562 - 168,400 537,962 IntesaBci 1,509,025 - 687,624 2,196,649 16,059 9,434 6,877 32,370 Jyske Bank (2) 516,853 303,630 221,334 1,041,817 528 1,331 219 2,078 Natexis Banques Populaires 63,034 158,897 26,145 248,076 51,465 - 20,768 72,233 National Bank of Greece 1,432,396 - 578,030 2,010,426 219,376 - 95,707 315,083 Nordea 1,889,006 - 824,115 2,713,121 6,254 - 2,566 8,820 OTP Bank 157,626 - 64,673 222,299 11 29 5 45 Sapporo Hokuyo Holdings 71,890 189,528 32,677 294,095 126,218 - 55,207 181,425 Shinsei Bank (1) 820,138 - 358,723 1,178,861 94,803 - 41,412 136,215 Shizuoka Bank 789,207 - 344,743 1,133,950 - - 8,787 8,787 Toronto-Dominion Bank - - 352,849 352,849 - - 28,332,532 8,332,532 Turkiye Garanti Bankasi (2) - - 75,707 75,707 - - 28,272,120 8,272,120 Turkiye Is Bankasi - - 116,962 116,962 17,222 43,376 7,133 67,731 Wing Hang Bank 117,824 296,756 48,800 463,380 COMMUNICATIONS SOFTWARE (0.08%) 38,475 96,905 15,933 151,313 Telelogic (2) 81,676 205,713 33,823 321,212 COMPUTER SERVICES (0.08%) 2,116 5,395 877 8,388 ALTEN (1) (2) 45,758 116,666 18,965 181,389 5,066 13,018 2,042 20,126 EDB Business Partner (1) (2) 33,764 86,762 13,609 134,135 COMPUTERS (0.07%) 46,000 - 18,000 64,000 High Tech Computer 191,408 - 74,899 266,307 COMPUTERS-INTEGRATED SYSTEMS (0.55%) 22,500 - 9,803 32,303 Itochu Techno-Science 906,865 - 395,111 1,301,976 92 233 98,795 99,120 NIWS 233,054 590,235 98,795 922,084 COMPUTERS-PERIPHERAL EQUIPMENT(0.71%) 198,000 - 72,348 270,348 Lite-On Technology 176,632 - 72,348 248,980 25,675 9,069 529,862 564,606 Logitech International (2) 1,328,146 469,132 529,862 2,327,140 1,684 4,222 34,509 40,415 Roland (1) 83,257 208,734 34,509 326,500 CONSULTING SERVICES (0.31%) 8,384 21,053 26,138 55,575 Savills 63,099 158,448 26,138 247,685 20,593 52,721 104,625 177,939 WS Atkins 249,224 638,048 104,625 991,897 CONTAINERS-METAL & GLASS (0.27%) 98,231 - 335,005 433,236 Rexam 776,201 - 335,005 1,111,206 COSMETICS & TOILETRIES (0.40%) 23,985 61,089 30,361 115,435 Body Shop International 73,283 186,649 30,361 290,293 240 - 19,563 19,803 Pacific 46,950 - 19,563 66,513 18,251 - 351,966 370,217 Uni-Charm (1) 921,229 - 351,966 1,273,195 CRUISE LINES (0.57%) 30,577 - 706,907 737,484 Carnival 1,615,237 - 706,907 2,322,144 DISTRIBUTION-WHOLESALE (0.73%) 2,900 7,250 38,817 48,967 Doshisha (1) 96,130 240,324 38,817 375,271 4,207 10,602 47,203 62,012 Inchcape 113,931 287,117 47,203 448,251 88,399 - 631,757 720,156 Wolseley 1,527,410 - 631,757 2,159,167 DIVERSIFIED FINANCIAL SERVICES(0.50%) 62,271 - 78,012 140,283 RMB Holdings 190,125 - 78,012 268,137 94,836 - 484,279 579,115 Sampo Ojy (1) 1,126,741 - 484,279 1,611,020 4,500 - 36,635 41,135 Shinhan Financial Group 88,633 - 36,635 125,268 DIVERSIFIED MANUFACTURING OPERATIONS (0.22%) 22,611 57,734 33,718 114,063 Charter (2) 81,410 207,869 33,718 322,997 12,940 - 75,789 88,729 Cheil Industries 182,628 - 75,789 258,417 3,249 8,342 30,748 42,339 NKT Holding 76,201 195,651 30,748 302,600 DIVERSIFIED MINERALS (1.66%) 23,206 - 186,297 209,503 Anglo American 504,634 - 186,297 690,931 10,745 - 83,240 93,985 Antofagasta 196,487 - 83,240 279,727 190,251 - 832,742 1,022,993 BHP Billiton 1,929,484 - 832,742 2,762,226 11,225 28,376 71,876 111,477 Inmet Mining (2) 173,471 438,522 71,876 683,869 34,273 - 356,560 390,833 Teck Cominco 818,787 - 356,560 1,175,347 50,848 - 338,768 389,616 Xstrata 784,947 - 338,768 1,123,715 DIVERSIFIED OPERATIONS (1.22%) 57,285 - 92,315 149,600 Alfa 222,777 - 92,315 315,092 13,693 - 78,054 91,747 Barloworld 190,245 - 78,054 268,299 47,661 - 780,467 828,128 Brascan (1) 1,695,047 - 780,467 2,475,514 China Merchants Holdings 85,882 - 53,103 138,985 International 126,891 - 53,103 179,994 30,000 - 30,681 60,681 Citic Pacific 76,702 - 30,681 107,383 13,220 - 119,375 132,595 Imperial Holdings (2) 196,556 - 119,375 315,931 3,879 9,798 18,766 32,443 Ordina 45,297 114,415 18,766 178,478 233,000 - 101,000 334,000 Wharf Holdings 766,349 - 332,194 1,098,543 ELECTRIC PRODUCTS- MISCELLANEOUS (1.09%) 92,528 - 39,865 132,393 Casio Computer (1) 1,097,022 - 472,643 1,569,665 308,856 - 124,735 433,591 Hitachi 1,939,984 - 783,485 2,723,469 1,580 - 650 2,230 LG Electronics 89,197 - 36,695 125,892 ELECTRIC-GENERATION (0.39%) 101,000 - 42,000 143,000 China Power International Holding(2) 39,578 - 16,458 56,036 36,351 - 15,730 52,081 Electric Power Development (2) 948,227 - 410,322 1,358,549 63,553 - 25,340 88,893 Electricity Generating Public (3) 102,143 - 40,727 142,870 ELECTRIC-INTEGRATED (3.83%) 32,636 82,408 13,516 128,560 ASM Brescia 99,220 250,536 41,091 390,847 29,773 - 12,997 42,770 E.ON 2,423,855 - 1,058,101 3,481,956 133,269 - 59,033 192,302 Enel (1) 1,201,930 - 532,409 1,734,339 127,177 - 51,493 178,670 Fortum 1,941,305 - 786,020 2,727,325 71,275 180,222 29,529 281,026 International Power (2) 210,915 533,307 87,381 831,603 48,339 - 20,295 68,634 RWE 2,551,818 - 1,071,374 3,623,192 238,762 - 100,246 339,008 Scottish Power 1,922,741 - 807,277 2,730,018 ELECTRONIC COMPONENTS- MISCELLANEOUS (0.67%) 1,048 2,640 434 4,122 Funkwerk 45,059 113,507 18,660 177,226 2,192 5,521 908 8,621 LG Micron 100,642 253,488 41,689 395,819 4,090 10,377 1,651 16,118 Nihon Dempa Kogyo 86,468 219,384 34,904 340,756 2,640 - 1,090 3,730 Samsung Electronics 1,036,427 - 427,919 1,464,346 1,090 - 440 1,530 Samsung SDI 98,339 - 39,696 138,035 7,182 18,088 2,974 28,244 Star Micronics (1) 58,773 148,022 24,338 231,133 ELECTRONIC COMPONENTS- SEMICONDUCTOR (0.14%) 21,980 - 9,020 31,000 Hynix Semiconductor (2) 249,349 102,326 351,675 5,324 13,992 2,206 21,522 Kontron (2) 48,558 127,615 20,120 196,293 ELECTRONIC MEASUREMENT INSTRUMENTS (0.10%) 3,277 8,396 1,358 13,031 Techem (2) 103,796 265,935 43,013 412,744 ENERGY-ALTERNATE SOURCES (0.05%) 764 1,930 316 3,010 SolarWorld 46,649 117,843 19,294 183,786 ENTERPRISE SOFTWARE & SERVICE (0.03%) 2,380 6,160 986 9,526 Unit 4 Agresso (2) 34,816 90,112 14,424 139,352 EXTENDED SERVICE CONTRACTS (0.09%) 202,335 509,901 83,794 796,030 Accord Customer Care Solutions (1)(2) 93,558 235,775 38,746 368,079 FINANCE-CONSUMER LOANS (0.79%) 14,321 - 6,067 20,388 Aiful 1,426,841 - 604,472 2,031,313 13,755 34,074 5,851 53,680 Lopro (1) 88,859 220,122 37,798 346,779 8,919 - 5,611 14,530 Sanyo Shinpan Finance 498,906 - 313,865 812,771 FINANCE-CREDIT CARD (0.25%) 22,757 - 9,226 31,983 Credit Saison (1) 726,492 - 294,530 1,021,022 FINANCE-INVESTMENT BANKER & BROKER (0.81%) 196,833 - 86,223 283,056 Daiwa Securities Group 1,204,835 - 527,780 1,732,615 13,561 33,045 5,470 52,076 Ichiyoshi Securities 101,653 247,705 41,003 390,361 57,733 - 24,240 81,973 Mediobanca 797,550 - 334,862 1,132,412 FINANCE-LEASING COMPANY (0.24%) 3,938 9,930 1,589 15,457 Ricoh Leasing (1) 96,420 243,130 38,906 378,456 3,987 10,246 1,680 15,913 Sumisho Lease 153,938 395,599 64,865 614,402 FINANCE-OTHER SERVICES (0.32%) 7,806 19,093 3,163 30,062 Aktiv Kapital (1) 130,673 319,618 52,949 503,240 224,000 - 92,000 316,000 Fubon Financial Holding 211,226 - 86,754 297,980 21,664 55,436 8,976 86,076 SFE (1) (2) 133,986 342,858 55,514 532,358 FINANCIAL GUARANTEE INSURANCE (0.16%) 2,691 6,830 1,115 10,636 Euler Hermes (2) 165,369 419,722 68,520 653,611 FOOD-CONFECTIONERY (0.06%) 5 12 2 19 Lindt & Spruengli 64,505 154,813 25,802 245,120 FOOD-DAIRY PRODUCTS (0.07%) 16,889 42,495 6,929 66,313 Morinaga Milk Industry 67,276 169,276 27,601 264,153 FOOD-FLOUR & GRAIN (0.49%) 92,651 67,318 38,038 198,007 Nisshin Seifun Group 923,980 671,342 379,341 1,974,663 FOOD-MISCELLANEOUS/DIVERSIFIED(1.12%) Global Bio-Chem Technology 89,048 - 30,865 119,913 Group - warrants (2) 6,178 - 2,141 8,319 6,440 16,603 2,668 25,711 IAWS Group 85,279 219,857 35,330 340,466 17,104 43,203 7,084 67,391 J-Oil Mills 64,267 162,332 26,618 253,217 64,441 - 26,276 90,717 Kikkoman (1) 565,581 - 230,617 796,198 37,090 - 14,968 52,058 Orkla 1,053,190 - 425,024 1,478,214 31,116 - 14,761 45,877 Royal Numico (2) 1,045,732 - 496,081 1,541,813 6,861 - 2,814 9,675 Tiger Brands 96,606 - 39,622 136,228 FOOD-RETAIL (1.13%) 5,100 2,100 7,200 Cencosud (2) (4) 113,333 - 46,667 160,000 2,119 5,290 870 8,279 Colruyt 306,206 764,430 125,719 1,196,355 987 2,493 409 3,889 Groupe Bourbon 48,337 122,092 20,030 190,459 6,861 - 2,814 9,675 SPAR Group (2) 23,065 - 9,460 32,525 391,006 - 170,779 561,785 Tesco 2,057,975 - 898,858 2,956,833 FOOTWEAR & RELATED APPAREL (0.04%) 10,041 - 4,147 14,188 Grendene (2) 121,680 - 50,255 171,935 FORESTRY (0.18%) 33,082 84,267 13,706 131,055 Great Southern Plantations (1) 83,522 212,748 34,603 330,873 2,597 6,558 1,076 10,231 West Fraser Timber 102,198 258,073 42,343 402,614 GAS-DISTRIBUTION (0.13%) 3,600 - 1,490 5,090 Korea Gas 109,656 - 45,385 155,041 7,153 - 2,968 10,121 OAO Gazprom 267,022 - 110,796 377,818 HOME FURNISHINGS (0.07%) 37,200 - 15,500 52,700 Lewis Group (2) 193,023 - 80,426 273,449 HOTELS & MOTELS (0.63%) 146,191 - 60,869 207,060 InterContinental Hotels Group 1,786,665 - 743,907 2,530,572 HOUSEWARES (0.02%) - - - 28,542,000 8,542,000 Turk Sise ve Cam Fabrikalari - - 69,685 69,685 HUMAN RESOURCES (0.52%) 37,711 95,356 15,624 148,691 Capita Group 243,224 615,017 100,770 959,011 38,704 97,865 16,035 152,604 Michael Page International 122,155 308,875 50,609 481,639 4,821 12,181 1,997 18,999 Ranstad Holding 161,961 409,219 67,089 638,269 IMPORT & EXPORT (0.48%) 113,042 - 46,606 159,648 Mitsubishi (1) 1,246,560 - 513,943 1,760,503 247,722 - 101,282 349,004 Testrite International 137,932 - 56,394 194,326 INDUSTRIAL AUTOMATION & ROBOTS(0.13%) 23,615 59,648 9,780 93,043 CKD 136,544 344,890 56,549 537,983 INSTRUMENTS-SCIENTIFIC (0.04%) 1,277 3,226 515 5,018 As One (1) 36,919 93,265 14,889 145,073 INTERNET SECURITY (0.08%) 9,654 - 3,988 13,642 Check Point Software Technologies(2) 218,383 - 90,213 308,596 INVESTMENT COMPANIES (0.12%) 58,848 148,688 24,382 231,918 Macquarie Airports 124,397 314,307 51,540 490,244 INVESTMENT MANAGEMENT & ADVISORY SERVICES (0.15%) 2,151 5,402 891 8,444 Muenchmeyer Petersen Capital 149,943 376,564 62,110 588,617 LEISURE & RECREATION PRODUCTS (0.12%) 3,218 8,128 1,333 12,679 Mars Engineering 120,611 304,637 49,961 475,209 LIFE & HEALTH INSURANCE (0.05%) 97,742 - 40,535 138,277 New Africa Capital 140,482 - 58,260 198,742 MACHINERY-ELECTRICAL (0.54%) 5,500 - 2,400 7,900 Nidec 594,595 - 259,460 854,055 14,424 - 5,739 20,163 Schneider Electric 952,263 - 378,885 1,331,148 MACHINERY-FARM (0.44%) 278,351 - 117,023 395,374 Kubota 1,266,066 - 532,273 1,798,339 MACHINERY-GENERAL INDUSTRY (1.00%) 6 15 2 23 Harmonic Drive Systems 39,552 98,880 13,184 151,616 48,818 21,658 19,846 90,322 MAN 1,690,332 749,912 687,171 3,127,415 33,358 84,010 13,821 131,189 Okuma (2) 126,282 318,034 52,322 496,638 1,429 3,600 592 5,621 Saurer (2) 75,527 190,270 31,289 297,086 MEDICAL INSTRUMENTS (0.19%) 3,331 8,426 1,377 13,134 Sysmex 129,865 328,502 53,685 512,052 5,249 13,211 2,115 20,575 Topcon (2) 66,088 166,335 26,629 259,052 MEDICAL PRODUCTS (1.02%) 26,646 12,979 14,078 53,703 Phonak Holding (1) 831,683 405,104 439,407 1,676,194 3,421 2,171 2,002 7,594 Straumann Holding 706,153 448,132 413,247 1,567,532 25,134 10,577 35,711 Terumo (1) 624,859 262,956 887,815 MEDICAL-BIOMEDICAL/GENE (0.18%) 6,703 17,115 2,777 26,595 Crucell (2) 65,910 168,291 27,306 261,507 3,758 8,993 1,517 14,268 Genmab (2) 53,076 127,013 21,425 201,514 5,744 14,654 2,380 22,778 GPC Biotech (2) 71,971 183,610 29,821 285,402 MEDICAL-DRUGS (4.05%) 20,606 - 8,458 29,064 AstraZeneca 842,345 - 345,751 1,188,096 5,109 12,890 2,054 20,053 Axcan Pharmaceuticals 76,860 193,918 30,900 301,678 21,030 - 8,848 29,878 Eisai 604,026 - 254,133 858,159 4,201 10,689 1,693 16,583 Fujirebio 53,091 135,085 21,396 209,572 31,403 - 11,332 42,735 GlaxoSmithKline 660,556 - 238,366 898,922 21,224 - 8,556 29,780 Merck 1,179,812 - 475,616 1,655,428 31,507 - 13,550 45,057 Novartis 1,497,399 - 643,976 2,141,375 17,957 - 7,956 25,913 Ono Pharmaceutical 840,440 - 372,364 1,212,804 12,807 32,255 5,304 50,366 Orion OYJ 182,786 460,356 75,701 718,843 23,370 - 9,601 32,971 Roche Holding 2,380,863 - 978,120 3,358,983 31,500 - 13,300 44,800 Sankyo 652,604 - 275,544 928,148 28,733 - 11,699 40,432 Sanofi-Synthelabo (1) 2,094,303 - 852,722 2,947,025 MEDICAL-NURSING HOMES (0.10%) 7,571 19,090 3,170 29,831 Extendicare (2) 104,029 262,307 43,557 409,893 MEDICAL-WHOLESALE DRUG DISTRIBUTION (0.34%) 75,503 - 35,867 111,370 Alliance Unichem 920,681 - 437,361 1,358,042 METAL PROCESSORS & FABRICATION(0.20%) 36,156 91,064 14,974 142,194 KITZ 207,355 522,252 85,876 815,483 METAL-ALUMINUM (0.01%) - - - 2,160 2,160 Hindalco Industries - - 55,728 55,728 METAL-IRON (0.09%) 49,654 126,612 20,572 196,838 Portman 90,126 229,812 37,340 357,278 MISCELLANEOUS MANUFACTURERS (0.08%) 4,098 10,452 1,698 16,248 Balda 42,120 107,427 17,453 167,000 167,730 424,080 67,551 659,361 IDT International 39,436 99,708 15,882 155,026 MONEY CENTER BANKS (6.70%) 190,126 - 79,237 269,363 Banco Bilbao Vizcaya Argentaria (1) 2,974,751 - 1,239,759 4,214,510 161,670 - 63,923 225,593 Barclays 1,580,377 - 624,868 2,205,245 54,314 - 23,496 77,810 BNP Paribas (1) 3,685,956 - 1,594,529 5,280,485 139,816 - 58,302 198,118 DBS Group Holdings 1,309,791 - 546,171 1,855,962 127,631 - 52,839 180,470 HSBC Holdings 2,056,784 - 851,505 2,908,289 16,788 - 7,309 24,097 KBC Bancassurance Holding 1,226,854 - 534,136 1,760,990 257 - 112 369 Mitsubishi Tokyo Financial Group 2,178,171 - 949,242 3,127,413 MONEY CENTER BANKS (continued) 83,437 - 35,578 119,015 Standard Chartered 1,491,361 - 635,924 2,127,285 35,920 - 14,704 50,624 UBS 2,580,129 - 1,056,186 3,636,315 MORTGAGE BANKS (1.27%) 5,254 13,363 2,191 20,808 Home Capital Group (2) 115,224 293,060 48,050 456,334 59,565 20,398 25,905 105,868 Hypo Real Estate Holding (2) 2,223,838 761,552 967,154 3,952,544 13,237 33,470 5,484 52,191 Northern Rock 179,845 454,741 74,509 709,095 MULTI-LINE INSURANCE (1.81%) 44,441 - 18,707 63,148 AXA 953,681 - 401,442 1,355,123 33,874 - 13,667 47,541 Fondiaria-SAI 776,902 - 313,453 1,090,355 46,096 - 20,042 66,138 ING Groep 1,216,705 - 529,009 1,745,714 148,214 - 64,311 212,525 Storebrand 1,124,616 - 487,978 1,612,594 10,681 6,906 4,427 22,014 Topdanmark (2) 750,612 485,322 311,110 1,547,044 MULTIMEDIA (1.27%) 2,561 6,676 1,061 10,298 NRJ Group 52,905 137,913 21,918 212,736 183,673 - 76,358 260,031 Publishing & Broadcasting 2,007,156 - 834,431 2,841,587 54,250 - 23,543 77,793 Vivendi Universal (2) 1,477,476 - 641,184 2,118,660 NON-FERROUS METALS (0.09%) 59,911 - 24,582 84,493 Grupo Mexico (2) 246,756 - 101,246 348,002 NON-HOTEL GAMBLING (0.69%) Greek Organisation of Football 40,270 - 16,202 56,472 Prognostics 818,582 - 329,344 1,147,926 11,095 28,353 4,597 44,045 Paddy Power 146,638 374,730 60,756 582,124 31,398 79,102 13,004 123,504 William Hill 281,037 708,025 116,396 1,105,458 OFFICE AUTOMATION & EQUIPMENT (1.10%) 56,521 24,242 80,763 Canon 2,783,735 - 1,193,951 3,977,686 1,795 4,526 744 7,065 Neopost (1) 124,213 313,197 51,484 488,894 OIL COMPANY-EXPLORATION & PRODUCTION (2.20%) 1,954 4,937 809 7,700 Acclaim Energy Trust (2) 22,828 57,678 9,451 89,957 62,837 - 25,056 87,893 Canadian Natural Resources 2,641,756 - 1,053,389 3,695,145 6,049 - 6,049 Oil & Natural Gas 105,093 - 105,093 67,809 171,329 28,094 267,232 Paladin Resources 204,385 516,409 84,679 805,473 27,666 - 12,206 39,872 Petrokazakhstan 1,020,676 - 450,314 1,470,990 57,799 - 23,699 81,498 PTT Public (3) 239,275 - 98,109 337,384 49,789 125,967 20,628 196,384 TAP OIL (2) 62,851 159,014 26,040 247,905 458,338 198,820 190,804 847,962 Tullow Oil 1,182,037 512,749 492,076 2,186,862 OIL COMPANY-INTEGRATED (5.77%) 304,130 - 132,661 436,791 BP Amoco 2,939,534 - 1,282,220 4,221,754 859,937 - 353,971 1,213,908 China Petroleum & Chemical 325,926 - 134,159 460,085 109,956 - 46,003 155,959 ENI 2,489,676 - 1,041,622 3,531,298 3,627 - 1,506 5,133 LUKOIL 453,375 - 188,250 641,625 2,958 - 1,214 4,172 MOL Magyar Olaj-es Gazipari 165,028 - 67,729 232,757 19,277 - 8,028 27,305 Petro-Canada 1,050,654 - 437,550 1,488,204 499,982 - 205,991 705,973 PetroChina 261,766 - 107,847 369,613 15,186 - 6,288 21,474 Petroleo Brasileiro 539,255 - 223,287 762,542 91,634 - 39,421 131,055 Repsol YPF (1) 1,980,405 - 851,971 2,832,376 11,445 - 4,696 16,141 Sasol 225,833 - 92,662 318,495 132,152 - 55,073 187,225 Shell Transport & Trading 1,038,790 - 432,905 1,471,695 3,891 - 1,631 5,522 Surgutneftegaz 153,694 - 64,424 218,118 23,343 - 9,618 32,961 TotalFinaElf 4,840,032 - 1,994,235 6,834,267 OIL REFINING & MARKETING (0.78%) 25,595 - 10,502 36,097 Polski Koncern Naftowy Orlen 275,624 - 113,093 388,717 129,252 - 60,178 189,430 Statoil 1,865,422 - 868,515 2,733,937 OIL-FIELD SERVICES (0.24%) 35,687 90,185 15,922 141,794 Stolt Offshore (2) 176,429 445,856 78,715 701,000 4,445 - 1,792 6,237 Tenaris 199,003 - 80,228 279,231 OPTICAL SUPPLIES (0.44%) 12,000 - 5,200 17,200 HOYA 1,229,494 - 532,781 1,762,275 PAPER & RELATED PRODUCTS (0.04%) 36,684 - 15,231 51,915 Kimberly-Clark de Mexico 109,771 - 45,576 155,347 PETROCHEMICALS (0.16%) 7,600 - 3,120 10,720 Honam Petrochemical 297,347 - 122,069 419,416 500,060 - 205,328 705,388 SINOPEC Shanghai Petrochemical 175,073 - 71,886 246,959 PHOTOGRAPHIC EQUIPMENT & SUPPLIES (0.07%) 2,119 5,360 854 8,333 Tamron (1) 74,232 187,769 29,917 291,918 PROPERTY & CASUALTY INSURANCE (1.11%) 7,537 18,980 3,120 29,637 Admiral Group (2) 40,498 101,984 16,764 159,246 47,339 120,996 19,613 187,948 Amlin 126,856 324,238 52,558 503,652 8,750 22,600 3,630 34,980 Dongbu Insurance 50,022 129,200 20,752 199,974 1,823 4,608 737 7,168 Northbridge Financial 36,468 92,179 14,743 143,390 46,661 116,564 19,332 182,557 Promina Group 158,235 395,286 65,558 619,079 132,901 - 57,052 189,953 QBE Insurance Group (1) 1,362,982 - 585,104 1,948,086 76,708 - 32,198 108,906 Sompo Japan Insurance 667,466 - 280,167 947,633 PROPERTY TRUST (0.20%) 207,196 528,731 85,844 821,771 Commonwealth Property Office Fund 201,195 513,416 83,357 797,968 PUBLIC THOROUGHFARES (0.17%) 7,615 19,369 3,155 30,139 Autostrada Torino 173,875 442,258 72,039 688,172 PUBLISHING-BOOKS (0.05%) 10,127 25,148 4,196 39,471 Bloomsbury Publishing 47,688 118,422 19,759 185,869 PUBLISHING-NEWSPAPERS (0.27%) 22,866 57,756 9,470 90,092 Gruppo Editoriale L'Espresso (1) 122,164 308,568 50,595 481,327 234 589 97 920 Spir Communication 41,762 105,118 17,311 164,191 10,010 25,211 4,146 39,367 Trinity Mirror 118,118 297,490 48,923 464,531 PUBLISHING-PERIODICALS (0.84%) 233,144 60,794 93,286 387,224 United Business Media 2,038,764 531,623 815,754 3,386,141 QUARRYING (0.12%) 1,619 4,093 671 6,383 Eramet 124,597 314,993 51,639 491,229 REAL ESTATE MANAGEMENT & SERVICES (0.69%) 6,839 17,275 2,832 26,946 Corio 340,761 860,747 141,107 1,342,615 1,907 4,802 790 7,499 Goldcrest 118,705 298,910 49,175 466,790 2,677 6,862 1,080 10,619 Iida Home Max 65,041 166,719 26,240 258,000 418,283 1,056,536 173,231 1,648,050 Midland Realty Holdings 185,404 468,311 76,785 730,500 REAL ESTATE OPERATOR & DEVELOPER (2.43%) 25,468 16,151 10,173 51,792 Inmobiliaria Colonial (1) 880,862 558,615 351,854 1,791,331 10,990 27,223 4,553 42,766 Inmobiliaria Urbis (1) 129,873 321,703 53,804 505,380 1,499 - 592 2,091 IRSA Inversiones y Representaciones (2) 14,255 - 5,630 19,885 154,619 148,279 63,872 366,770 Kerry Properties 297,978 285,760 123,093 706,831 55,179 - 24,653 79,832 Land Securities Group 1,206,177 - 538,899 1,745,076 52,093 - 20,797 72,890 Liberty International 821,347 - 327,905 1,149,252 120,230 - 49,704 169,934 Mitsui Fudosan 1,273,743 - 526,575 1,800,318 34,866 88,093 14,445 137,404 NHP 154,123 389,409 63,853 607,385 1,308,999 - 506,777 1,815,776 Sino Land (1) 1,118,386 - 432,981 1,551,367 REINSURANCE (0.36%) 16,740 - 7,047 23,787 Swiss Reinsurance 1,024,088 - 431,108 1,455,196 RENTAL-AUTO & EQUIPMENT (0.10%) 7,214 18,398 2,989 28,601 Northgate 98,344 250,807 40,747 389,898 RETAIL-APPAREL & SHOE (1.43%) 4,056 10,407 1,636 16,099 Aoki International 45,453 116,624 18,333 180,410 11,228 4,606 15,834 Edgars Consolidated Stores 390,222 160,079 550,301 89,654 30,364 37,198 157,216 Next 2,743,360 929,121 1,138,237 4,810,718 1,992 5,037 803 7,832 Right On 59,841 151,307 24,115 235,263 RETAIL-AUTOMOBILE (0.05%) 152,460 - 62,482 214,942 Astra International 131,518 - 53,899 185,417 RETAIL-BUILDING PRODUCTS (0.22%) 24,580 62,475 10,184 97,239 Grafton Group (2) 222,777 566,233 92,301 881,311 RETAIL-CONSUMER ELECTRONICS (0.32%) 87,920 222,561 36,850 347,331 Carphone Warehouse 269,030 681,024 112,759 1,062,813 22,820 57,735 9,455 90,010 JB Hi-Fi 61,023 154,388 25,283 240,694 RETAIL-DISCOUNT (0.04%) 94,700 - 38,900 133,600 Siam Makro (3) 102,621 - 42,154 144,775 RETAIL-DRUG STORE (0.05%) 1,987 5,038 802 7,827 Tsuruha 49,025 124,301 19,788 193,114 RETAIL-HYPERMARKETS (0.06%) 50,068 - 20,579 70,647 Organizacion Soriana 160,674 - 66,041 226,715 RETAIL-MAJOR DEPARTMENT STORE (0.37%) 21,812 - 9,449 31,261 Metro 1,036,311 - 448,932 1,485,243 RETAIL-MISCELLANEOUS/ DIVERSIFIED (0.61%) 114,015 - 47,999 162,014 Coles Myer 812,460 - 342,036 1,154,496 18,050 - 7,469 25,519 Massmart Holdings 125,463 - 51,916 177,379 12,400 9,475 4,604 26,479 Ryohin Keikaku 553,498 422,935 205,509 1,181,942 RETAIL-MUSIC STORE (0.29%) 185,146 - 77,935 263,081 HMV Group 815,032 343,078 1,158,110 RETAIL-PUBS (0.53%) - 129,106 31,477 51,054 211,637 Punch Taverns 1,308,774 319,089 517,545 2,145,408 RETAIL-SPORTING GOODS (0.02%) 2,909 7,180 1,205 11,294 Blacks Leisure Group 23,453 57,886 9,715 91,054 RUBBER & PLASTIC PRODUCTS (0.02%) 18,000 - 7,000 25,000 Taiwan Green Point Enterprises 49,573 - 19,279 68,852 RUBBER-TIRES (1.27%) 48,047 14,026 19,585 81,658 Continental 2,615,857 763,627 1,066,280 4,445,764 20,323 51,008 8,420 79,751 Sumitomo Rubber Industries (1) 172,819 433,753 71,601 678,173 SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (0.09%) 75,000 - 31,000 106,000 Realtek Semiconductor 74,764 - 30,903 105,667 179,000 - 73,000 252,000 Taiwan Semiconductor Manufacturing 234,702 - 95,716 330,418 SHIP BUILDING (0.06%) 32,120 - 13,180 45,300 Samsung Heavy Industries 173,870 - 71,345 245,215 SOAP & CLEANING PRODUCTS (0.45%) 64,775 164,501 26,837 256,113 McBride 182,185 462,672 75,481 720,338 27,292 - 12,676 39,968 Reckitt Benckiser 746,607 - 346,768 1,093,375 STEEL PRODUCERS (1.83%) 68,133 - 29,359 97,492 Arcelor (1) 1,268,828 - 546,747 1,815,575 2,601 - 1,079 3,680 Cherepovets MK Severstal (2) (3) 104,221 - 43,235 147,456 108,265 - 44,280 152,545 China Steel 108,897 - 44,538 153,435 8,410 21,258 3,480 33,148 Dongkuk Steel Mill 101,040 255,400 41,810 398,250 13,260 33,566 5,474 52,300 Gerdau AmeriSteel (2) 64,031 162,085 26,433 252,549 8,470 21,420 3,510 33,400 INI Steel 89,656 226,733 37,154 353,543 STEEL PRODUCERS (continued) 6,717 16,981 2,783 26,481 IPSCO 179,304 453,291 74,289 706,884 27,097 - 11,246 38,343 Iscor 237,635 - 98,625 336,260 29,500 - 12,900 42,400 JFE Holdings 790,352 - 345,612 1,135,964 301,426 - 131,402 432,828 Nippon Steel 703,961 - 306,881 1,010,842 26,658 67,388 11,045 105,091 OneSteel 52,369 132,382 21,698 206,449 7,524 - 2,653 10,177 POSCO 281,322 - 99,196 380,518 9,706 24,559 3,967 38,232 Russel Metals 103,923 262,956 42,475 409,354 16,741 - 16,741 Tata Iron & Steel 106,151 - 106,151 STORAGE & WAREHOUSING (0.05%) 6,855 17,267 2,839 26,961 Westshore Terminals 53,952 135,899 22,344 212,195 TELECOMMUNICATION EQUIPMENT (0.73%) 17,845 44,941 7,394 70,180 GN Store Nord 180,243 453,926 74,683 708,852 1,423 2,481 590 4,494 Option (2) 38,646 67,380 16,023 122,049 517,015 - 225,264 742,279 Telefonaktiebolaget LM Ericsson (2) 1,497,299 - 652,375 2,149,674 TELECOMMUNICATION SERVICES (1.12%) 323,789 - 131,906 455,695 China Telecom 104,000 - 42,368 146,368 17,084 - 8,442 25,526 Mahanagar Telephone 134,963 - 66,692 201,655 15,689 - 6,465 22,154 SK Telecom 309,544 - 127,554 437,098 35,995 - 14,798 50,793 Telekom Malaysia 108,932 - 44,783 153,715 366,966 - 150,968 517,934 Telekomunikasi Indonesia 175,418 - 72,166 247,584 292,373 - 124,540 416,913 Telenor 2,321,383 - 988,823 3,310,206 TELEPHONE-INTEGRATED (0.14%) 91,500 - 37,500 129,000 Carso Global Telecom (2) 140,827 - 57,716 198,543 13,877 - 5,773 19,650 Philippine Long Distance Telephone (2) 348,313 - 144,902 493,215 TELEVISION (0.87%) 2,758 6,969 1,143 10,870 Antena 3 Television (2) 176,644 446,348 73,206 696,198 176,553 - 74,577 251,130 Mediaset 2,007,782 - 848,099 2,855,881 TOBACCO (1.10%) 86,637 - 38,366 125,003 Imperial Tobacco Group 2,017,649 - 893,488 2,911,137 39,253 - 15,878 55,131 Korea Tobacco & Ginseng 1,086,952 - 439,677 1,526,629 TRANSPORT-MARINE (1.36%) 155,699 - 63,880 219,579 China Shipping Development (1) 130,026 - 53,347 183,373 5,473 13,458 2,268 21,199 Dampskibsselskabet Torm 174,741 429,685 72,412 676,838 26,197 66,189 10,854 103,240 Kawasaki Kisen Kaisha 174,416 440,678 72,265 687,359 31,890 - 13,096 44,986 Malaysia International Shipping 111,615 - 45,836 157,451 211,542 - 90,875 302,417 Mitsui O.S.K. Lines 1,251,044 - 537,428 1,788,472 170,366 - 66,770 237,136 Nippon Yusen Kabushiki Kaisha 855,119 - 335,139 1,190,258 32,710 82,647 13,552 128,909 Orient Overseas International 118,932 300,500 49,274 468,706 252,500 - 103,600 356,100 Wan Hai Lines 242,636 - 99,553 342,189 TRANSPORT-RAIL (0.48%) 261 - 110 371 East Japan Railway 1,369,027 - 576,985 1,946,012 TRANSPORT-SERVICES (0.18%) 21,661 54,090 8,975 84,726 Toll Holdings 191,244 477,558 79,240 748,042 VENTURE CAPITAL (0.04%) 10,887 28,550 4,837 44,274 Japan Asia Investment 40,804 107,005 18,129 165,938 WATER (0.87%) 179,944 88,685 75,349 343,978 Kelda Group 1,841,439 907,549 771,076 3,520,064 WEB PORTALS (0.15%) 97 245 40 382 eAccess (1) (2) 85,956 217,106 35,446 338,508 2,559 6,520 1,060 10,139 Iliad 72,786 185,449 30,150 288,385 WIRELESS EQUIPMENT (0.72%) 107,000 - 44,000 151,000 Gemtek Technology 251,444 103,398 354,842 7,500 19,519 3,026 30,045 Hitachi Kokusai Electric 51,912 135,102 20,945 207,959 63,564 - 27,695 91,259 Nokia 977,555 425,923 1,403,478 10,795 27,333 4,409 42,537 Uniden 233,304 590,726 95,288 919,318 TOTAL COMMON STOCKS 235,813,687 59,309,499 100,590,378 395,713,564 PREFERRED STOCKS (0.70%) AIRLINES (0.06%) 16,206 - 6,642 22,848 Gol Linhas Aereas Inteligentes (2) 167,394 - 68,606 236,000 COMMERCIAL BANKS (0.08%) 3,694 - 1,532 5,226 Banco Bradesco 223,373 - 92,639 316,012 DIVERSIFIED MINERALS (0.14%) 671,724 - 278,287 950,011 Caemi Mineracao e Metalurgica (2) 402,188 - 166,621 568,809 FOOD-MEAT PRODUCTS (0.07%) 113,879 - 47,199 161,078 Sadia 206,146 - 85,441 291,587 MACHINERY-GENERAL INDUSTRY (0.05%) 60,872 - 25,000 85,872 WEG 158,148 - 64,951 223,099 PETROCHEMICALS (0.04%) 2,603,684 - 1,078,947 3,682,631 Braskem (2) 95,724 - 39,667 135,391 STEEL PRODUCERS (0.08%) 2,636,255 - 1,073,544 3,709,799 Cia Siderurgica de Tubarao 106,429 - 43,340 149,769 7,400 - 3,000 10,400 Usinas Siderurgicas de Minas Gerais 112,062 - 45,431 157,493 TELEVISION (0.18%) 10,490 26,504 4,346 41,340 ProSiebenSat.1 Media (1) 187,480 473,687 77,673 738,840 TOTAL PREFERRED STOCKS 1,658,944 473,687 684,369 2,817,000 COMMERCIAL PAPER (2.13%) AEROSPACE & DEFENSE EQUIPMENT (1.19%) United Technologies 3,780,000 1,025,000 - 4,805,000 1.85%; 11/01/04 3,780,000 1,025,000 - 4,805,000 FINANCE-MORTGAGE LOAN/BANKER (0.94%) Investment in Joint Trading Account; Federal Home Loan Bank - - 3,830,665 3,830,665 1.69%; 11/01/04 - - 3,830,665 3,830,665 TOTAL COMMERCIAL PAPER 3,780,000 1,025,000 3,830,665 8,635,665 REPURCHASE AGREEMENTS (6.54%) Washington Mutual Capital; 1.95%; date 10/29/04 maturing 11/01/04 21,401,325 5,089,042 - 26,490,367 (collateralized by U.S. Government Agency Securities; $27,015,784; 08/01/19 - 11/01/34) (5) 21,397,848 5,088,215 26,486,063 TOTAL REPURCHASE AGREEMENTS 21,397,848 5,088,215 - 26,486,063 TOTAL PORTFOLIO INVESTMENTS (107.05%) 262,650,479 65,896,401 105,105,412 433,652,292 Liabilities, net of cash, receivables and other assets (-7.05%) (23,116,639) (4,821,811) (614,040)(28,552,490) TOTAL NET ASSETS (100.00%) $239,533,840 $ 61,074,590$104,491,372$405,099,802 ================================================== (1) Security of a portion of the security was on loan at the end of the period. (2) Non-income producing security. (3) Market value is determined in accordance with procedures established in good faith by the Board of Directors. At the end of the period, the value of these securities totaled $1,069,975 or 2.49% of net assets. (4) Security exempt from registration uner Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At the end of the period, the value of these securities totaled $362,569 or 0.09% of net assets. (5) Security was purchased with the cash proceeds from securities loans.
UNREALIZED APPRECIATION (DEPRECIATION) The net federal income tax unrealized appreciation (depreciation) and federal tax cost of investments held by the fund as of the period end were as follows. Unrealized Appreciation $27,311,096 $11,100,458 $10,038,396 $48,449,950 Unrealized Depreciation (4,485,129) (827,212) (1,126,526) (6,438,867) Net Unrealized Appreciation (Depreciation) 22,825,967 10,273,246 8,911,870 42,011,083 Cost for federal income tax purposes $239,824,512 $55,623,155 $96,193,542 $391,641,209
INVESTMENTS BY COUNTRY (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------- Percentage of Total Value Country Value - ------------------------------------------------------------------------------------------------------------------------------- 0.11% - 0.10% 0.09% Argentina $ 287,857 $ - $ 105,331 $ 393,188 2.19 5.99 2.29 2.7893 Australia 5,739,572 3,948,320 2,407,856 12,095,748 0.48 0.28 0.52 0.4591 Austria 1,256,077 186,925 548,081 1,991,083 0.67 1.95 0.71 0.8752 Belgium 1,754,733 1,288,742 751,722 3,795,197 0.07 0.71 0.07 0.1685 Bermuda 185,404 468,311 76,785 730,500 0.91 - 0.94 0.7785 Brazil 2,389,909 - 986,196 3,376,105 3.49 4.99 4.16 3.8838 Canada 9,176,414 3,291,628 4,374,340 16,842,382 0.04 0.37 0.04 0.0870 Cayman Islands 96,949 241,070 39,102 377,121 0.08 - 0.09 0.0732 Chile 219,153 - 98,095 317,248 0.34 - 0.35 0.2906 China 892,791 - 367,239 1,260,030 0.77 4.06 0.80 1.2770 Denmark 2,021,055 2,674,308 842,422 5,537,785 1.61 0.70 1.69 1.4898 Finland 4,228,388 460,356 1,771,923 6,460,667 7.09 4.21 7.40 6.7270 France 18,622,322 2,773,309 7,776,171 29,171,802 6.19 7.15 6.51 6.4147 Germany 16,268,335 4,709,851 6,839,361 27,817,547 1.18 0.41 1.27 1.0835 Greece 3,100,880 267,656 1,330,203 4,698,739 1.19 2.19 1.21 1.3447 Hong Kong 3,117,660 1,442,223 1,271,432 5,831,315 0.12 - 0.13 0.1149 Hungary 322,653 - 132,403 455,056 0.26 - 0.27 0.2245 India 689,728 - 283,729 973,457 0.21 - 0.21 0.1849 Indonesia 537,828 - 220,780 758,608 1.14 2.56 1.18 1.3632 Ireland 2,984,238 1,684,210 1,243,130 5,911,578 0.18 - 0.19 0.1579 Israel 485,064 - 199,634 684,698 4.16 3.53 4.44 4.1305 Italy 10,916,498 2,324,533 4,670,965 17,911,996 17.48 19.04 18.59 17.9831 Japan 45,897,723 12,544,567 19,542,039 77,984,329 2.05 1.99 2.08 2.0470 Korea 5,372,909 1,314,678 2,189,218 8,876,805 0.55 0.68 0.59 0.5803 Luxemburg 1,445,257 445,856 625,462 2,516,575 0.34 - 0.35 0.2928 Malaysia 900,138 - 369,577 1,269,715 0.55 - 0.57 0.4709 Mexico 1,446,591 - 595,630 2,042,221 1.61 2.49 1.77 1.7850 Netherlands 4,233,878 1,642,784 1,864,116 7,740,778 3.13 0.62 3.47 2.8334 Norway 8,232,724 406,380 3,648,067 12,287,171 0.05 - 0.05 0.0386 Peru 118,656 - 48,571 167,227 0.13 - 0.14 0.1137 Phillipines 348,313 - 144,902 493,215 0.11 - 0.11 0.0896 Poland 275,624 - 113,092 388,716 0.30 - 0.30 0.2515 Russia 776,535 - 314,215 1,090,750 0.53 - 0.56 0.5129 Singapore 1,403,349 235,775 584,917 2,224,041 0.91 0.36 0.97 0.7882 South Africa 2,400,744 - 1,017,325 3,418,069 2.96 - 3.10 2.9630 Spain 7,779,432 1,814,719 3,255,103 12,849,254 1.81 2.75 1.95 1.6180 Sweden 4,763,381 205,713 2,047,264 7,016,358 4.90 0.31 5.28 4.9984 Switzerland 12,872,790 3,250,500 5,552,434 21,675,724 0.91 4.93 0.93 0.7762 Taiwan 2,386,127 - 980,004 3,366,131 0.21 - 0.21 0.1765 Thailand 543,530 - 221,741 765,271 - - 0.25 0.0605 Turkey - - 262,354 262,354 19.23 18.45 20.33 19.3802 United Kingdom 50,513,792 12,160,772 21,367,936 84,042,500 9.76 9.28 3.83 8.2516 United States 25,645,478 6,113,215 4,024,545 35,783,238 $262,650,479 $ 65,896,401 $105,105,412 $433,652,292 =============================================================== As of October 31, 2004, all securities held by the Acquired Fund would comply with the investment restrictions of the Acquiring Fund.
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004 (UNAUDITED) -------------------------------------------------------------------------------
COMBINED PRINCIPAL HIGH QUALITY HIGH QUALITY LIMITED TERM SHORT-TERM PRO FORMA SHORT-TERM BOND FUND, INC. BOND FUND ADJUSTMENTS/(D)/ BOND FUND - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- INVESTMENT IN SECURITIES--AT COST.. $140,647,221 $ 51,781,529 $ -- $192,428,750 ============ ============ ========= ============ ASSETS Investment in securities--at value. $141,368,101/(c)/ $ 51,815,540 $ -- $193,183,641/(c)/ Cash.................. 13,038 20,873 -- 33,911 Receivables: Capital Shares sold.. 457,572 22,490 -- 480,062 Dividends and interest............ 1,191,843 448,583 -- 1,640,426 Investment securities sold................ 2,751 -- -- 2,751 Other assets.......... 362 -- -- 362 Prepaid expenses...... 135 -- -- 135 ------------ ------------ --------- ------------ Total Assets 143,033,802 52,307,486 -- 195,341,288 LIABILITIES Accrued management and investment advisory fees................. 13,015 3,953 -- 16,968 Accrued administrative service fees......... -- 144 -- 144 Accrued distribution fees................. 5,059 4,377 -- 9,436 Accrued service fees.. -- 189 -- 189 Accrued transfer and administrative fees.. 30,530 17,645 -- 48,175 Accrued other expenses 22,819 7,155 -- 29,974 Payables: Capital Shares reacquired.......... 243,349 66 -- 243,415 Investment securities purchased........... 2,512,542 523,600 -- 3,036,142 Reorganization costs. -- -- 16,766 16,766 Collateral obligation on securities loaned, at value............. 241,600 -- -- 241,600 ------------ ------------ --------- ------------ Total Liabilities 3,068,914 557,129 16,766 3,642,809 ------------ ------------ --------- ------------ NET ASSETS APPLICABLE TO OUTSTANDING SHARES $139,964,888 $ 51,750,357 $ (16,766) $191,698,479 ============ ============ ========= ============ NET ASSETS CONSIST OF: Capital Shares and additional paid-in-capital...... $143,773,864 $ 51,722,032 $ -- $195,495,896 Accumulated undistributed (overdistributed) net investment income (operating loss)..... (1,540,809) 44,212 (16,766) (1,513,363) Accumulated undistributed (overdistributed) net realized gain (loss). (2,989,047) (49,898) -- (3,038,945) Net unrealized appreciation (depreciation) of investments.......... 720,880 34,011 -- 754,891 ------------ ------------ --------- ------------ Total Net Assets $139,964,888 $ 51,750,357 $ (16,766) $191,698,479 ============ ============ ========= ============ CAPITAL STOCK (PAR VALUE: $.01 A SHARE): Shares authorized..... 100,000,000 225,000,000 -- 225,000,000 NET ASSET VALUE PER SHARE: Advisors Preferred: Net Assets........... N/A $ 959,506 N/A $ 959,506 Shares issued and outstanding.......... 93,320 93,320 Net asset value per share................ $ 10.28 $ 10.28 ============ ============ Advisors Select: Net Assets............... N/A $ 88,757 N/A $ 88,757 Shares issued and outstanding.......... 8,700 8,700 Net asset value per share................ $ 10.20 $ 10.20 ============ ============ Class A: Net Assets... $122,451,392 N/A $ (16,766) $122,434,626 Shares issued and outstanding.......... 12,888,188 (919,994) 11,968,194 Net asset value per share................ $ 9.50 -- $ 10.23 Maximum offering price per share /(a)/ $ 9.64 -- $ 10.39 ============ == ============ Class B: Net Assets... $ 17,513,496 N/A -- $ 17,513,496 Shares issued and outstanding.......... 1,814,500 (102,747) 1,711,753 Net asset value per share /(b)/.......... $ 9.65 -- $ 10.23 ============ == ============ Class J: Net Assets... N/A $ 45,293,791 N/A $ 45,293,791 Shares issued and outstanding.......... 4,423,841 4,423,841 Net asset value per share /(b)/.......... $ 10.24 $ 10.24 ============ ============ Institutional: Net Assets............... N/A $ 9,996 N/A $ 9,996 Shares issued and outstanding.......... 977 977 Net asset value per share................ $ 10.23 $ 10.23 ============ ============ Preferred: Net Assets. N/A $ 5,387,114 N/A $ 5,387,114 Shares issued and outstanding.......... 527,077 527,077 Net asset value per share................ $ 10.22 $ 10.22 ============ ============ Select: Net Assets.... N/A $ 11,193 N/A $ 11,193 Shares issued and outstanding.......... 1,104 1,104 Net asset value per share................ $ 10.14 $ 10.14 ============ ============
/(a) /Maximum offering price equals net asset value plus a front-end sales charge of 1.50% of the offering price or 1.52% of the net asset value. /(b) /Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. /(c) /Includes fair market value of securities loaned, see "Securities Lending" in Notes to Financial Statements. /(d) /Reduction in net assets to reflect the estimated expenses of the Reorganization. See accompanying notes. 1 STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2004 (UNAUDITED) ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
COMBINED PRINCIPAL HIGH QUALITY HIGH QUALITY LIMITED TERM SHORT-TERM PRO FORMA SHORT-TERM BOND FUND, INC. BOND FUND ADJUSTMENTS BOND FUND - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- NET INVESTMENT INCOME (OPERATING LOSS) Income: Interest............. $ 4,397,705 $1,655,370 $ -- $ 6,053,075 Securities lending... 2,586 -- -- 2,586 ----------- ---------- --------- ----------- Total Income 4,400,291 1,655,370 -- 6,055,661 Expenses: Management and investment advisory fees................ 604,169 199,011 (112,146)/(A)/ 691,034 Distribution fees - Advisors Preferred.. -- 8,863 -- 8,863 Distribution fees - Advisors Select..... -- 651 -- 651 Distribution fees - Class A............. 158,247 -- -- 158,247 Distribution fees - Class B............. 80,745 -- -- 80,745 Distribution fees - Class J............. -- 209,083 -- 209,083 Distribution fees - Select.............. -- 11 -- 11 Administrative service fees - Advisors Preferred.. -- 5,318 -- 5,318 Administrative service fees - Advisors Select..... -- 434 -- 434 Administrative service fees - Preferred........... -- 4,568 -- 4,568 Administrative service fees - Select.............. -- 15 -- 15 Registration fees - Class A............. 16,946 -- -- 16,946 Registration fees - Class B............. 8,497 -- -- 8,497 Registration fees - Class J............. -- 19,452 -- 19,452 Service fees - Advisors Preferred.. -- 6,026 -- 6,026 Service fees - Advisors Select..... -- 543 -- 543 Service fees - Preferred........... -- 6,229 -- 6,229 Service fees - Select -- 18 -- 18 Shareholder reports - Class A............. 5,546 -- -- 5,546 Shareholder reports - Class B............. 1,556 -- -- 1,556 Shareholder reports - Class J............. -- 8,478 -- 8,478 Transfer and administrative fees - Class A........... 38,970 -- -- 38,970 Transfer and administrative fees - Class B........... 10,378 -- -- 10,378 Transfer and administrative fees - Class J........... -- 88,126 -- 88,126 Auditing and legal fees................ 10,126 -- (10,126)/(B)/ -- Custodian fees....... 7,547 -- (7,547)/(B)/ -- Directors' expenses.. 4,088 -- (4,088)/(B)/ -- Registration fees.... 31,101 -- -- 31,101 Transfer and administrative fees. 135,714 -- 8,908/(B)/ 144,622 Other expenses....... 6,715 -- (6,715)/(B)/ -- Other expenses - Class J............. -- 893 -- 893 ----------- ---------- --------- ----------- Total Expenses 1,120,345 557,719 (131,714) 1,546,350 ----------- ---------- --------- ----------- Net Investment Income (Operating Loss) 3,279,946 1,097,651 131,714 4,509,311 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gain (loss) from: Investment transactions........ (119,536) 50,179 -- (69,357) Change in unrealized appreciation/depreciation of: Investments........... (1,145,154) (396,544) -- (1,541,698) ----------- ---------- --------- ----------- Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies (1,264,690) (346,365) -- (1,611,055) ----------- ---------- --------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations $ 2,015,256 $ 751,286 $ 131,714 $ 2,898,256 =========== ========== ========= ===========
/(a) /Management and investment advisory fees decreased to reflect annual percentage rate of the Acquiring Fund. /(b) /Elimination of expenses due to expense structure of Acquiring Fund. Eliminated expenses are not paid by the Acquiring Fund. See accompanying notes. 26
SCHEDULE OF INVESTMENTS October 31, 2004 (unaudited) Principal Amount or Number of Shares Market Value - ----------------------------------------------------------------------------------------------------------------------------------- Principal High Quality Principal High Quality Limited Term Short-Term Limited Term Short-Term Bond Bond Fund, Inc. Bond Fund Combined Bond Fund, Inc. Fund Combined - ---------------------------------------------------------------------------------------------------------------------------------- BONDS (89.94%) AEROSPACE & DEFENSE (0.22%) Northrop Grumman 4.08%; 11/16/06 $ 132,304 $ 40,709 $ 173,013 130,000 40,000 170,000 Raytheon 6.75%; 08/15/07 125,000 100,000 225,000 136,535 109,228 245,763 AEROSPACE & DEFENSE EQUIPMENT (0.20%) General Dynamics 3.00%; 05/15/08 155,000 30,000 185,000 152,883 29,590 182,473 United Technologies 4.88%; 11/01/06 150,000 40,000 190,000 155,929 41,581 197,510 AGRICULTURAL OPERATIONS (0.12%) Bunge Limited Finance 4.38%; 12/15/08 160,000 70,000 230,000 161,716 70,751 232,467 AIRLINES (0.12%) Southwest Airlines 5.50%; 11/01/06 125,000 50,000 175,000 130,217 52,087 182,304 8.00%; 03/01/05 - 50,000 50,000 - 50,779 50,779 ASSET BACKED SECURITIES (0.67%) Bear Stearns Asset Backed Securities (1) 2.53%; 03/25/34 400,000 165,000 565,000 399,981 164,992 564,973 Chase Funding Mortgage Loan 4.88%; 08/25/28 - 130,000 130,000 - 131,502 131,502 Countrywide Asset Backed Certificates 3.61%; 04/25/30 590,000 - 590,000 592,538 - 592,538 AUTO-CARS & LIGHT TRUCKS (0.36%) Daimler Chrysler Holding 2.34%; 05/24/06 (1) 370,000 50,000 420,000 371,914 50,259 422,173 7.25%; 01/18/06 125,000 125,000 250,000 131,394 131,394 262,788 AUTOMOBILE SEQUENTIAL (7.52%) BMW Vehicle Owner Trust 1.88%; 10/25/06 125,000 - 125,000 124,666 - 124,666 Capital Auto Receivables Asset Trust 2.64%; 03/17/08 850,000 250,000 1,100,000 850,218 250,064 1,100,282 3.05%; 09/15/05 22,136 22,136 44,272 22,157 22,157 44,314 3.58%; 10/16/06 1,125,000 900,000 2,025,000 1,133,742 906,994 2,040,736 3.82%; 07/15/05 5,134 1,483 6,617 5,138 1,484 6,622 4.16%; 07/16/07 639,709 119,946 759,655 643,774 120,708 764,482 Chase Manhattan Auto Owner Trust 2.06%; 12/15/09 725,000 700,000 1,425,000 711,400 686,869 1,398,269 4.21%; 01/15/09 1,050,000 - 1,050,000 1,063,537 - 1,063,537 4.24%; 09/15/08 167,869 - 167,869 169,505 - 169,505 DaimlerChrysler Auto Trust 2.88%; 10/08/09 200,000 - 200,000 199,963 - 199,963 3.09%; 01/08/08 100,000 250,000 350,000 100,498 251,244 351,742 6.70%; 03/08/06 460,431 236,688 697,119 460,972 236,966 697,938 Ford Credit Auto Owner Trust 2.70%; 06/15/07 450,000 475,000 925,000 450,278 475,293 925,571 4.01%; 03/15/06 334,645 113,872 448,517 335,972 114,324 450,296 4.72%; 12/15/05 850,466 373,940 1,224,406 852,874 374,999 1,227,873 Honda Auto Receivables Owner Trust 2.70%; 03/17/08 475,000 - 475,000 474,870 - 474,870 4.49%; 09/17/07 500,000 100,000 600,000 506,337 101,267 607,604 M&I Auto Loan Trust 3.04%; 10/20/08 500,000 - 500,000 502,318 - 502,318 Nissan Auto Receivables Owner Trust 1.89%; 12/15/06 109,274 72,850 182,124 109,032 72,688 181,720 2.70%; 12/17/07 1,000,000 - 1,000,000 998,348 - 998,348 3.33%; 01/15/08 200,000 350,000 550,000 201,527 352,673 554,200 Toyota Auto Receivables Owner Trust 4.72%; 09/15/08 408,361 116,675 525,036 409,700 117,057 526,757 BEVERAGES-NON-ALCOHOLIC (0.11%) Coca-Cola Enterprises 5.25%; 05/15/07 150,000 50,000 200,000 157,776 52,592 210,368 BEVERAGES-WINE & SPIRITS (0.15%) Diageo Capital 3.38%; 03/20/08 100,000 15,000 115,000 99,945 14,992 114,937 Diageo Finance 3.00%; 12/15/06 115,000 65,000 180,000 114,995 64,997 179,992 BROADCASTING SERVICES & PROGRAMMING (0.10%) Liberty Media 3.50%; 09/25/06 160,000 40,000 200,000 160,159 40,040 200,199 BUILDING PRODUCTS-CEMENT & AGGREGATE(0.19%) Hanson Overseas 6.75%; 09/15/05 250,000 100,000 350,000 258,517 103,407 361,924 CABLE TV (0.38%) Comcast Cable Communications 6.38%; 01/30/06 295,000 115,000 410,000 307,714 119,956 427,670 Cox Communications 6.88%; 06/15/05 120,000 30,000 150,000 122,866 30,717 153,583 TCI Communications 7.61%; 10/04/05 100,000 50,000 150,000 103,615 51,807 155,422 CELLULAR TELECOMMUNICATIONS (0.89%) 360 Communications 7.50%; 03/01/06 140,000 90,000 230,000 148,729 95,612 244,341 AT&T Wireless Services 6.88%; 04/18/05 25,000 50,000 75,000 25,494 50,987 76,481 7.35%; 03/01/06 180,000 65,000 245,000 190,655 68,848 259,503 Cingular Wireless 5.63%; 12/15/06 125,000 45,000 170,000 131,425 47,313 178,738 Telus 7.50%; 06/01/07 210,000 60,000 270,000 230,743 65,926 296,669 Verizon Wireless Capital 5.38%; 12/15/06 325,000 130,000 455,000 340,643 136,257 476,900 Vodafone Group 7.63%; 02/15/05 105,000 70,000 175,000 106,551 71,034 177,585 CHEMICALS-DIVERSIFIED (0.30%) Chevron Phillips Chemical 5.38%; 06/15/07 110,000 35,000 145,000 115,285 36,682 151,967 Dow Chemical 7.00%; 08/15/05 140,000 50,000 190,000 144,626 51,652 196,278 E. I. Du Pont de Nemours 3.38%; 11/15/07 150,000 75,000 225,000 151,245 75,622 226,867 COATINGS & PAINT (0.13%) Valspar 6.00%; 05/01/07 175,000 60,000 235,000 186,008 63,774 249,782 COMMERCIAL BANKS (0.33%) AmSouth Bank 2.82%; 11/03/06 115,000 50,000 165,000 114,571 49,814 164,385 Crestar Financial 8.75%; 11/15/04 - 75,000 75,000 - 75,166 75,166 Marshall & Ilsley Bank 4.13%; 09/04/07 150,000 50,000 200,000 153,347 51,116 204,463 Union Planters Bank 5.13%; 06/15/07 120,000 65,000 185,000 126,584 68,566 195,150 COMMERCIAL SERVICE-FINANCE (0.05%) Equifax 4.95%; 11/01/07 65,000 25,000 90,000 68,101 26,193 94,294 COMPUTER SERVICES (0.10%) Computer Sciences 7.50%; 08/08/05 130,000 50,000 180,000 134,324 51,663 185,987 COMPUTERS (0.26%) Hewlett-Packard 5.50%; 07/01/07 185,000 110,000 295,000 195,745 116,389 312,134 International Business Machines 4.25%; 09/15/09 135,000 45,000 180,000 138,516 46,172 184,688 COSMETICS & TOILETRIES (0.19%) Gillette 2.50%; 06/01/08 55,000 - 55,000 53,927 - 53,927 4.00%; 06/30/05 110,000 45,000 155,000 111,031 45,422 156,453 Procter & Gamble 4.75%; 06/15/07 125,000 25,000 150,000 130,406 26,081 156,487 CREDIT CARD ASSET BACKED SECURITIES (7.85%) Bank One Issuance Trust 2.94%; 06/16/08 1,350,000 450,000 1,800,000 1,354,736 451,579 1,806,315 3.35%; 03/15/11 1,100,000 245,000 1,345,000 1,097,789 244,507 1,342,296 3.86%; 06/15/11 100,000 - 100,000 101,375 - 101,375 CREDIT CARD ASSET BACKED SECURITIES (con Capital One Master Trust 5.30%; 06/15/09 700,000 220,000 920,000 729,311 229,212 958,523 5.45%; 03/16/09 750,000 150,000 900,000 775,468 155,094 930,562 Capital One Multi-Asset Execution Trust(1) 2.09%; 12/15/09 255,000 150,000 405,000 255,158 150,093 405,251 Chase Credit Card Master Trust 2.07%; 05/15/09 (1) 300,000 150,000 450,000 299,981 149,991 449,972 5.50%; 11/17/08 100,000 700,000 800,000 104,384 730,687 835,071 Citibank Credit Card Issuance Trust 2.70%; 01/15/08 400,000 675,000 1,075,000 400,214 675,361 1,075,575 6.90%; 10/15/07 1,550,000 - 1,550,000 1,613,383 - 1,613,383 Citibank Credit Card Master Trust I 5.88%; 03/10/11 500,000 200,000 700,000 545,145 218,058 763,203 Discover Card Master Trust I 5.15%; 10/15/09 923,000 - 923,000 968,574 - 968,574 6.05%; 08/18/08 855,000 230,000 1,085,000 891,419 239,797 1,131,216 MBNA Credit Card Master Note Trust 3.65%; 03/15/11 1,200,000 400,000 1,600,000 1,206,976 402,325 1,609,301 MBNA Master Credit Card Trust 6.90%; 01/15/08 700,000 330,000 1,030,000 724,225 341,420 1,065,645 DATA PROCESSING & MANAGEMENT (0.10%) First Data 3.38%; 08/01/08 155,000 35,000 190,000 154,179 34,815 188,994 DIVERSIFIED FINANCIAL SERVICES (1.35%) General Electric Capital 0.70%; 03/10/40 (1) (2) 3,300,140 - 3,300,140 101,218 - 101,218 1.84%; 02/02/09 (1) 120,000 55,000 175,000 120,253 55,116 175,369 3.75%; 12/15/09 150,000 - 150,000 149,320 - 149,320 4.25%; 01/15/08 950,000 150,000 1,100,000 976,685 154,213 1,130,898 5.00%; 06/15/07 130,000 290,000 420,000 136,107 303,623 439,730 John Deere Capital 3.63%; 05/25/07 50,000 25,000 75,000 50,512 25,256 75,768 4.50%; 08/22/07 95,000 25,000 120,000 98,234 25,851 124,085 NiSource Finance 3.20%; 11/01/06 135,000 20,000 155,000 134,817 19,973 154,790 7.63%; 11/15/05 150,000 75,000 225,000 157,221 78,610 235,831 DIVERSIFIED MANUFACTURING OPERATIONS(0.33%) Cooper Industries 5.25%; 07/01/07 80,000 60,000 140,000 83,994 62,996 146,990 Dover 6.45%; 11/15/05 100,000 - 100,000 103,595 - 103,595 Honeywell International 6.13%; 07/01/05 175,000 50,000 225,000 178,880 51,109 229,989 Tyco International Group (3) 6.13%; 01/15/09 125,000 15,000 140,000 136,378 16,365 152,743 ELECTRIC-DISTRIBUTION (0.06%) Detroit Edison 5.05%; 10/01/05 75,000 40,000 115,000 76,640 40,875 117,515 ELECTRIC-INTEGRATED (2.08%) Alabama Power 2.80%; 12/01/06 60,000 25,000 85,000 59,790 24,913 84,703 Appalachian Power 4.80%; 06/15/05 140,000 60,000 200,000 141,970 60,844 202,814 Commonwealth Edison 6.40%; 10/15/05 230,000 120,000 350,000 237,918 124,131 362,049 Conectiv 5.30%; 06/01/05 45,000 55,000 100,000 45,589 55,720 101,309 Consolidated Edison 3.63%; 08/01/08 110,000 45,000 155,000 109,824 44,928 154,752 Dominion Resources 2.01%; 05/15/06 (1) 120,000 55,000 175,000 120,258 55,118 175,376 7.63%; 07/15/05 105,000 70,000 175,000 108,638 72,425 181,063 Duke Energy 3.75%; 03/05/08 85,000 - 85,000 85,661 - 85,661 FPL Group Capital 1.88%; 03/30/05 75,000 - 75,000 74,851 - 74,851 3.25%; 04/11/06 125,000 60,000 185,000 125,850 60,408 186,258 Georgia Power (1) 1.90%; 02/17/09 130,000 65,000 195,000 129,966 64,983 194,949 MidAmerican Energy Holdings 4.63%; 10/01/07 245,000 70,000 315,000 251,050 71,729 322,779 Niagara Mohawk Power 7.75%; 05/15/06 160,000 45,000 205,000 171,469 48,226 219,695 Oncor Electric Delivery 5.00%; 09/01/07 95,000 - 95,000 99,009 - 99,009 Pacific Gas & Electric 3.60%; 03/01/09 185,000 60,000 245,000 183,675 59,570 243,245 Pepco Holdings 5.50%; 08/15/07 105,000 25,000 130,000 110,318 26,266 136,584 Potomac Electric Power 6.50%; 09/15/05 150,000 - 150,000 155,015 - 155,015 Progress Energy 6.75%; 03/01/06 290,000 100,000 390,000 304,098 104,862 408,960 Public Service Company of Colorado 4.38%; 10/01/08 155,000 35,000 190,000 158,830 35,865 194,695 SCANA (1) 2.16%; 11/15/06 125,000 50,000 175,000 125,265 50,106 175,371 Tennessee Valley Authority 6.38%; 06/15/05 175,000 55,000 230,000 179,539 56,427 235,966 FEDERAL & FEDERALLY SPONSORED CREDIT(1.98%) Federal Farm Credit Bank 3.00%; 04/15/08 2,775,000 1,040,000 3,815,000 2,759,599 1,034,228 3,793,827 FIDUCIARY BANKS (0.15%) Bank of New York 4.14%; 08/02/07 100,000 30,000 130,000 101,349 30,405 131,754 5.20%; 07/01/07 70,000 85,000 155,000 73,612 89,385 162,997 FINANCE-AUTO LOANS (2.16%) American Honda Finance (1) (2) 1.86%; 02/20/07 120,000 55,000 175,000 120,043 55,020 175,063 Ford Motor Credit 6.13%; 01/09/06 340,000 325,000 665,000 351,303 335,804 687,107 6.50%; 01/25/07 550,000 200,000 750,000 577,860 210,131 787,991 7.50%; 03/15/05 500,000 - 500,000 508,861 - 508,861 General Motors Acceptance 3.33%; 10/20/05 (1) 220,000 55,000 275,000 220,904 55,226 276,130 4.38%; 12/10/07 95,000 75,000 170,000 95,060 75,047 170,107 5.13%; 05/09/08 (3) 135,000 - 135,000 137,085 137,085 6.13%; 08/28/07 160,000 85,000 245,000 166,889 88,660 255,549 6.75%; 01/15/06 670,000 250,000 920,000 693,404 258,733 952,137 Toyota Motor Credit 2.80%; 01/18/06 150,000 35,000 185,000 150,339 35,079 185,418 FINANCE-COMMERCIAL (0.55%) CIT Group 1.91%; 02/15/07 (1) 130,000 65,000 195,000 129,981 64,990 194,971 7.38%; 04/02/07 470,000 165,000 635,000 514,776 180,719 695,495 Textron Financial 5.88%; 06/01/07 125,000 25,000 150,000 133,164 26,633 159,797 FINANCE-CONSUMER LOANS (1.40%) American General Finance 5.88%; 07/14/06 495,000 195,000 690,000 518,934 204,428 723,362 Household Finance 1.86%; 02/09/07 (1) 170,000 55,000 225,000 170,203 55,066 225,269 3.38%; 02/21/06 210,000 120,000 330,000 211,662 120,950 332,612 6.50%; 01/24/06 695,000 190,000 885,000 726,453 198,599 925,052 SLM (1) 4.19%; 03/02/09 350,000 125,000 475,000 356,104 127,180 483,284 FINANCE-CREDIT CARD (0.26%) American Express 3.75%; 11/20/07 150,000 60,000 210,000 152,103 60,841 212,944 Capital One Bank 6.88%; 02/01/06 175,000 90,000 265,000 183,668 94,458 278,126 FINANCE-INVESTMENT BANKER & BROKER (3.68%) Banque Paribas 8.35%; 06/15/07 140,000 70,000 210,000 157,922 78,961 236,883 Bear Stearns 3.00%; 03/30/06 130,000 135,000 265,000 130,465 135,483 265,948 6.50%; 05/01/06 325,000 45,000 370,000 342,665 47,446 390,111 Citigroup 6.75%; 12/01/05 1,315,000 520,000 1,835,000 1,372,425 542,708 1,915,133 Credit Suisse First Boston 5.75%; 04/15/07 365,000 185,000 550,000 387,370 196,338 583,708 Goldman Sachs Group 1.98%; 07/23/09 (1) 125,000 50,000 175,000 125,198 50,079 175,277 7.63%; 08/17/05 400,000 150,000 550,000 416,164 156,061 572,225 FINANCE-INVESTMENT BANKER & BROKER (conued) Lehman Brothers Holdings 6.25%; 05/15/06 530,000 225,000 755,000 556,801 236,378 793,179 Merrill Lynch 1.95%; 02/06/09 (1) 120,000 55,000 175,000 120,004 55,002 175,006 4.15%; 03/02/09 (1) 130,000 65,000 195,000 131,201 65,601 196,802 6.00%; 11/15/04 400,000 130,000 530,000 400,512 130,166 530,678 6.15%; 01/26/06 - 80,000 80,000 - 83,365 83,365 Morgan Stanley 1.84%; 02/15/07 (1) 130,000 65,000 195,000 130,050 65,025 195,075 7.75%; 06/15/05 595,000 315,000 910,000 614,380 325,260 939,640 FINANCE-LEASING COMPANY (0.39%) Boeing Capital 5.75%; 02/15/07 260,000 100,000 360,000 275,261 105,869 381,130 International Lease Finance 2.41%; 01/15/10 (1) 150,000 50,000 200,000 149,462 49,821 199,283 5.80%; 08/15/07 140,000 25,000 165,000 149,059 26,618 175,677 FINANCE-MORTGAGE LOAN/BANKER (24.42%) Countrywide Home Loan 1.87%; 02/17/06 (1) 320,000 65,000 385,000 319,906 64,981 384,887 2.88%; 02/15/07 120,000 130,000 250,000 118,782 128,680 247,462 4.50%; 01/25/33 140,790 93,860 234,650 140,858 93,905 234,763 Federal Home Loan Bank 2.88%; 09/15/06 8,300,000 3,075,000 1,375,000 8,323,755 3,083,801 11,407,556 Federal Home Loan Mortgage 1.50%; 08/15/05 2,850,000 1,050,000 3,900,000 2,831,341 1,043,126 3,874,467 5.25%; 01/15/06 5,225,000 1,950,000 7,175,000 5,393,705 2,012,961 7,406,666 5.75%; 03/15/09 2,600,000 900,000 3,500,000 2,838,446 982,539 3,820,985 Federal National Mortgage Association 4.13%; 02/17/09 (1) 400,000 190,000 590,000 407,576 193,599 601,175 4.25%; 05/15/09 2,700,000 1,000,000 3,700,000 2,779,399 1,029,407 3,808,806 5.25%; 04/15/07 5,200,000 1,950,000 7,150,000 5,481,528 2,055,573 7,537,101 7.00%; 07/15/05 5,300,000 1,950,000 7,250,000 5,472,891 2,013,611 7,486,502 FINANCE-OTHER SERVICES (0.74%) Caterpillar Financial Services 3.00%; 02/15/07 170,000 60,000 230,000 169,656 59,878 229,534 4.69%; 04/25/05 80,000 50,000 130,000 80,967 50,605 131,572 Mellon Funding 4.88%; 06/15/07 120,000 80,000 200,000 125,133 83,422 208,555 National Rural Utilities 6.00%; 05/15/06 255,000 70,000 325,000 267,106 73,323 340,429 Verizon Global Funding 6.75%; 12/01/05 355,000 125,000 480,000 370,765 130,551 501,316 FOOD-MEAT PRODUCTS (0.16%) Tyson Foods 6.75%; 06/01/05 150,000 50,000 200,000 152,627 50,876 203,503 7.25%; 10/01/06 100,000 - 100,000 107,326 - 107,326 FOOD-MISCELLANEOUS/DIVERSIFIED (0.77%) Campbell Soup 5.50%; 03/15/07 265,000 100,000 365,000 278,436 105,070 383,506 General Mills 5.13%; 02/15/07 85,000 30,000 115,000 88,496 31,234 119,730 Kellogg 6.00%; 04/01/06 165,000 55,000 220,000 172,274 57,425 229,699 Kraft Foods 4.63%; 11/01/06 220,000 70,000 290,000 226,434 72,047 298,481 Sara Lee 2.75%; 06/15/08 60,000 20,000 80,000 59,049 19,683 78,732 5.95%; 01/20/05 125,000 40,000 165,000 125,828 40,265 166,093 Unilever Capital 6.88%; 11/01/05 155,000 35,000 190,000 161,482 36,463 197,945 FOOD-RETAIL (0.19%) Safeway 2.50%; 11/01/05 105,000 100,000 205,000 104,665 99,681 204,346 3.80%; 08/15/05 150,000 - 150,000 151,172 - 151,172 GAS-DISTRIBUTION (0.08%) Sempra Energy 4.75%; 05/15/09 135,000 15,000 150,000 138,651 15,406 154,057 HOME EQUITY-OTHER (0.15%) Argent Securities (1) 2.15%; 02/25/34 130,000 65,000 195,000 129,736 64,868 194,604 Specialty Underwriting & Residential Finance (1) 2.44%; 02/25/35 60,000 25,000 85,000 59,997 24,999 84,996 HOME EQUITY-SEQUENTIAL (0.96%) Ameriquest Mortgage Securities 2.13%; 04/25/34 (1) 300,000 150,000 450,000 299,987 149,993 449,980 3.02%; 10/25/33 75,000 - 75,000 74,642 - 74,642 3.64%; 01/25/34 750,000 - 750,000 754,769 - 754,769 New Century Home Equity Loan Trust 3.56%; 11/25/33 400,000 160,000 560,000 401,094 160,438 561,532 INDUSTRIAL GASES (0.14%) Praxair 4.75%; 07/15/07 115,000 45,000 160,000 119,271 46,671 165,942 6.85%; 06/15/05 50,000 50,000 100,000 51,265 51,265 102,530 INSURANCE BROKERS (0.28%) Aon 6.70%; 01/15/07 (1) 110,000 60,000 170,000 115,492 62,996 178,488 8.65%; 05/15/05 140,000 - 140,000 143,042 - 143,042 Marsh & McLennan 3.63%; 02/15/08 145,000 75,000 220,000 140,347 72,593 212,940 INVESTMENT MANAGEMENT & ADVISORY SERVICES (0.08%) AMVESCAP 6.60%; 05/15/05 105,000 50,000 155,000 107,082 50,991 158,073 LIFE & HEALTH INSURANCE (0.32%) Lincoln National 5.25%; 06/15/07 110,000 50,000 160,000 115,246 52,384 167,630 ReliaStar Financial 8.63%; 02/15/05 115,000 60,000 175,000 116,909 60,996 177,905 Torchmark 6.25%; 12/15/06 160,000 85,000 245,000 170,443 90,548 260,991 MEDICAL PRODUCTS (0.08%) Baxter International 5.25%; 05/01/07 130,000 20,000 150,000 136,021 20,926 156,947 MEDICAL-DRUGS (0.20%) Eli Lilly 5.50%; 07/15/06 116,000 60,000 176,000 121,192 62,685 183,877 GlaxoSmithKline Capital 2.38%; 04/16/07 130,000 65,000 195,000 128,206 64,103 192,309 MEDICAL-HMO (0.42%) Anthem 3.50%; 09/01/07 150,000 50,000 200,000 148,977 49,659 198,636 4.88%; 08/01/05 165,000 40,000 205,000 166,920 40,465 207,385 UnitedHealth Group 3.30%; 01/30/08 175,000 65,000 240,000 173,660 64,502 238,162 3.38%; 08/15/07 130,000 40,000 170,000 129,531 39,856 169,387 METAL-ALUMINUM (0.21%) Alcan 6.25%; 11/01/08 95,000 25,000 120,000 103,440 27,221 130,661 Alcoa 4.25%; 08/15/07 195,000 75,000 270,000 200,503 77,117 277,620 METAL-DIVERSIFIED (0.09%) Rio Tinto Finance 2.63%; 09/30/08 150,000 35,000 185,000 144,869 33,803 178,672 MISCELLANEOUS INVESTING (0.65%) Archstone-Smith Operating Trust 3.00%; 06/15/08 150,000 30,000 180,000 146,271 29,254 175,525 Camden Property Trust 5.88%; 06/01/07 120,000 25,000 145,000 127,203 26,501 153,704 Developers Diversified Realty 3.88%; 01/30/09 120,000 65,000 185,000 118,204 64,027 182,231 Duke Realty 3.35%; 01/15/08 115,000 60,000 175,000 113,868 59,409 173,277 HRPT Properties Trust 6.70%; 02/23/05 150,000 - 150,000 151,853 - 151,853 New Plan Excel Realty Trust 5.88%; 06/15/07 125,000 50,000 175,000 131,892 52,757 184,649 Simon Property Group 3.75%; 01/30/09 165,000 60,000 225,000 162,929 59,247 222,176 MONEY CENTER BANKS (1.06%) Bank of America 4.75%; 10/15/06 640,000 215,000 855,000 662,485 222,553 885,038 JP Morgan Chase 3.13%; 12/11/06 130,000 160,000 290,000 130,393 160,484 290,877 5.25%; 05/30/07 385,000 105,000 490,000 403,779 110,121 513,900 5.35%; 03/01/07 180,000 - 180,000 188,934 - 188,934 6.50%; 08/01/05 150,000 - 150,000 154,308 - 154,308 MORTGAGE BACKED SECURITIES (9.99%) Banc of America Commercial Mortgage 7.11%; 11/15/31 - 506,314 506,314 - 547,656 547,656 Bear Stearns Commercial Mortgage Securities 0.65%; 05/11/39 (1) (2) 2,550,199 1,275,099 3,825,298 72,232 36,116 108,348 3.97%; 11/11/35 422,502 - 422,502 425,740 - 425,740 6.08%; 02/15/35 426,554 - 426,554 452,321 - 452,321 7.64%; 02/15/32 526,592 126,158 652,750 567,447 135,945 703,392 Chase Commercial Mortgage Securities 7.03%; 01/15/32 301,552 150,776 452,328 324,282 162,141 486,423 7.56%; 10/15/32 500,000 - 500,000 581,390 - 581,390 Chase Manhattan Bank-First Union National ` Bank Commercial Mortgage Trust 7.13%; 08/15/31 1,126,135 215,576 1,341,711 1,201,259 229,957 1,431,216 Commercial Mortgage Acceptance 6.79%; 06/15/31 48,964 - 48,964 52,158 - 52,158 Commercial Mortgage Pass-Through Cert (2) 3.25%; 06/10/38 93,594 187,189 280,783 91,018 182,037 273,055 CS First Boston Mortgage Securities 4.39%; 07/15/06 24,826 9,800 34,626 24,849 9,809 34,658 6.25%; 12/16/35 400,000 100,000 500,000 432,110 108,027 540,137 6.38%; 12/16/35 100,000 - 100,000 111,378 - 111,378 DLJ Commercial Mortgage 6.14%; 02/18/31 111,111 - 111,111 111,776 - 111,776 First Union Commercial Mortgage Securities 7.38%; 04/18/29 493,204 164,401 657,605 531,407 177,136 708,543 First Union Nat'l Bank Commercial Mortgage 5.59%; 02/12/34 - 42,308 42,308 - 44,842 44,842 First Union - Lehman Brothers - Bank of America Commercial Mortgage Trust 6.56%; 11/18/35 - 150,000 150,000 - 163,192 163,192 GE Capital Commercial Mortgage 3.35%; 08/11/36 275,765 81,708 357,473 276,789 82,011 358,800 5.99%; 12/10/35 130,000 - 130,000 141,052 - 141,052 6.32%; 01/15/33 93,219 - 93,219 97,953 - 97,953 GMAC Commercial Mortgage Securities 4.32%; 10/15/38 113,675 - 113,675 115,712 - 115,712 6.57%; 09/15/33 149,941 41,234 191,175 153,352 42,172 195,524 JP Morgan Chase Commercial Mortgage Sec. 3.48%; 06/12/41 765,610 - 765,610 765,065 - 765,065 4.37%; 10/12/37 461,505 184,602 646,107 471,182 188,473 659,655 4.47%; 11/15/35 197,802 153,846 351,648 200,550 155,984 356,534 4.55%; 05/12/34 405,112 144,683 549,795 413,003 147,501 560,504 6.04%; 11/15/35 - 550,000 550,000 - 591,627 591,627 JP Morgan Commercial Mortgage Finance 7.16%; 09/15/29 - 155,000 155,000 - 169,717 169,717 LB-UBS Commercial Mortgage Trust 1.23%; 03/15/36 (1) (2) 1,691,618 676,647 2,368,265 88,201 35,280 123,481 2.60%; 05/15/27 85,724 85,724 - 84,051 84,051 3.63%; 10/15/29 1,200,000 200,000 1,400,000 1,205,906 200,984 1,406,890 4.19%; 08/15/29 220,000 - 220,000 223,363 - 223,363 4.90%; 06/15/26 (2) 1,235,000 370,000 1,605,000 1,284,425 384,807 1,669,232 5.40%; 03/15/26 385,139 157,557 542,696 397,330 162,544 559,874 5.97%; 03/15/26 295,000 295,000 - 315,565 315,565 6.06%; 06/15/20 595,318 176,391 771,709 635,451 188,282 823,733 Merrill Lynch Mortgage Investors 7.12%; 06/18/29 289,432 - 289,432 309,430 - 309,430 7.80%; 12/26/25 (1) 200,000 50,000 250,000 206,440 51,610 258,050 Midland Realty Acceptance 7.23%; 01/25/29 - 35,832 35,832 - 38,028 38,028 Morgan Stanley Capital I 4.57%; 12/18/32 (2) 505,339 87,885 593,224 513,068 89,229 602,297 5.33%; 12/18/32 500,000 75,000 575,000 522,552 78,383 600,935 6.54%; 02/15/31 (2) 185,000 95,000 280,000 202,038 103,749 305,787 NationsLink Funding 7.03%; 06/20/31 45,329 62,328 107,657 48,310 66,427 114,737 7.23%; 06/20/31 100,000 230,000 330,000 111,654 256,805 368,459 PNC Mortgage Acceptance 7.11%; 12/10/32 241,518 - 241,518 260,390 - 260,390 Wachovia Bank Commercial Mortgage Trust(1)(2) 0.33%; 01/15/41 23,363,978 - 3,363,978 308,007 - 308,007 MULTI-LINE INSURANCE (0.46%) Allstate 5.38%; 12/01/06 135,000 45,000 180,000 141,316 47,105 188,421 7.88%; 05/01/05 90,000 25,000 115,000 92,366 25,657 118,023 Hartford Financial Services Group 4.70%; 09/01/07 155,000 55,000 210,000 158,877 56,376 215,253 MetLife 3.91%; 05/15/05 150,000 - 150,000 151,197 - 151,197 5.25%; 12/01/06 150,000 50,000 200,000 156,272 52,091 208,363 MULTIMEDIA (0.86%) AOL Time Warner 6.13%; 04/15/06 305,000 120,000 425,000 318,845 125,447 444,292 Gannett 5.50%; 04/01/07 120,000 25,000 145,000 126,827 26,422 153,249 Thomson 5.75%; 02/01/08 145,000 40,000 185,000 154,823 42,710 197,533 Viacom 7.15%; 05/20/05 80,000 - 80,000 82,059 - 82,059 7.75%; 06/01/05 260,000 170,000 430,000 268,225 175,378 443,603 Walt Disney 7.30%; 02/08/05 235,000 80,000 315,000 238,080 81,049 319,129 OIL COMPANY-EXPLORATION & PRODUCTION (0.47%) Kerr-McGee 5.38%; 04/15/05 170,000 70,000 240,000 172,035 70,838 242,873 PennzEnergy 10.25%; 11/01/05 175,000 60,000 235,000 186,255 63,859 250,114 Petroleos Mexicanos 6.50%; 02/01/05 260,000 140,000 400,000 262,600 141,400 404,000 OIL COMPANY-INTEGRATED (0.38%) BP Canada Finance 3.63%; 01/15/09 145,000 70,000 215,000 144,910 69,957 214,867 ChevronTexaco Capital 3.38%; 02/15/08 125,000 30,000 155,000 125,611 30,146 155,757 Marathon Oil 5.38%; 06/01/07 125,000 25,000 150,000 131,471 26,294 157,765 Occidental Petroleum 4.00%; 11/30/07 150,000 40,000 190,000 152,841 40,758 193,599 OIL FIELD MACHINERY & EQUIPMENT (0.12%) Cooper Cameron 2.65%; 04/15/07 165,000 60,000 225,000 162,144 58,962 221,106 OIL REFINING & MARKETING (0.08%) Valero Energy 6.13%; 04/15/07 120,000 20,000 140,000 128,164 21,361 149,525 OIL-FIELD SERVICES (0.09%) Halliburton (1) 3.57%; 10/17/05 120,000 55,000 175,000 120,976 55,447 176,423 PAPER & RELATED PRODUCTS (0.34%) Champion International 7.10%; 09/01/05 125,000 50,000 175,000 128,888 51,555 180,443 Union Camp 7.00%; 08/15/06 179,000 70,000 249,000 190,876 74,644 265,520 Weyerhaeuser 5.50%; 03/15/05 31,000 21,000 52,000 31,324 21,219 52,543 6.13%; 03/15/07 125,000 25,000 150,000 133,288 26,658 159,946 PHOTO EQUIPMENT & SUPPLIES (0.10%) Eastman Kodak 3.63%; 05/15/08 160,000 35,000 195,000 157,040 34,353 191,393 PIPELINES (0.63%) Duke Energy Field Services 7.50%; 08/16/05 240,000 110,000 350,000 248,886 114,073 362,959 Enbridge Energy Partners 4.00%; 01/15/09 150,000 50,000 200,000 149,191 49,730 198,921 Kinder Morgan 6.65%; 03/01/05 375,000 100,000 475,000 379,888 101,303 481,191 Kinder Morgan Energy Partners 5.35%; 08/15/07 100,000 25,000 125,000 104,831 26,208 131,039 8.00%; 03/15/05 25,000 - 25,000 25,472 - 25,472 PROPERTY & CASUALTY INSURANCE (0.37%) ACE 6.00%; 04/01/07 150,000 50,000 200,000 157,454 52,485 209,939 Chubb 6.15%; 08/15/05 50,000 - 50,000 51,219 - 51,219 St. Paul 6.74%; 07/18/05 - 25,000 25,000 - 25,608 25,608 7.88%; 04/15/05 200,000 105,000 305,000 204,613 107,422 312,035 Travelers Property Casualty 3.75%; 03/15/08 105,000 - 105,000 104,510 - 104,510 PUBLISHING-BOOKS (0.20%) Reed Elsevier Capital 6.13%; 08/01/06 115,000 50,000 165,000 120,848 52,543 173,391 7.00%; 05/15/05 150,000 50,000 200,000 153,580 51,193 204,773 REAL ESTATE OPERATOR & DEVELOPER (0.19%) EOP Operating 7.75%; 11/15/07 175,000 65,000 240,000 195,664 72,675 268,339 ERP Operating 4.75%; 06/15/09 80,000 15,000 95,000 82,408 15,452 97,860 REGIONAL AUTHORITY (0.72%) New Brunswick 3.50%; 10/23/07 40,000 40,000 80,000 40,461 40,461 80,922 Province of Manitoba 2.75%; 01/17/06 155,000 50,000 205,000 155,707 50,228 205,935 Province of Ontario 3.50%; 09/17/07 435,000 225,000 660,000 438,662 226,894 665,556 Province of Quebec 5.50%; 04/11/06 315,000 90,000 405,000 327,582 93,595 421,177 REGIONAL BANKS (2.57%) Bank One 7.63%; 08/01/05 625,000 310,000 935,000 649,044 321,926 970,970 Fifth Third Bancorp 3.38%; 08/15/08 130,000 15,000 145,000 129,270 14,916 144,186 First Union 7.55%; 08/18/05 565,000 250,000 815,000 587,373 259,899 847,272 FleetBoston Financial 7.25%; 09/15/05 350,000 155,000 505,000 363,758 161,093 524,851 KeyCorp 4.63%; 05/16/05 160,000 45,000 205,000 161,706 45,480 207,186 Korea Development Bank 3.88%; 03/02/09 120,000 55,000 175,000 120,019 55,009 175,028 7.25%; 05/15/06 160,000 40,000 200,000 170,731 42,683 213,414 PNC Funding 5.75%; 08/01/06 220,000 100,000 320,000 230,401 104,728 335,129 SunTrust Banks 2.50%; 11/01/06 55,000 - 55,000 54,543 - 54,543 5.05%; 07/01/07 70,000 - 70,000 73,261 - 73,261 U.S. Bancorp 6.75%; 10/15/05 202,000 115,000 317,000 209,364 119,192 328,556 Wells Fargo 5.90%; 05/21/06 730,000 275,000 1,005,000 766,498 288,749 1,055,247 REINSURANCE (0.07%) Berkshire Hathaway 3.38%; 10/15/08 100,000 40,000 140,000 99,656 39,862 139,518 RENTAL-AUTO & EQUIPMENT (0.08%) Hertz 4.70%; 10/02/06 100,000 50,000 150,000 101,641 50,820 152,461 RETAIL-DISCOUNT (0.42%) Costco Wholesale 5.50%; 03/15/07 140,000 50,000 190,000 147,524 52,687 200,211 Target 5.40%; 10/01/08 150,000 70,000 220,000 159,979 74,657 234,636 Wal-Mart Stores 4.38%; 07/12/07 260,000 100,000 360,000 268,774 103,375 372,149 RETAIL-DRUG STORE (0.10%) CVS 3.88%; 11/01/07 150,000 45,000 195,000 152,516 45,755 198,271 RETAIL-MAJOR DEPARTMENT STORE (0.09%) May Department Stores (2) 3.95%; 07/15/07 130,000 50,000 180,000 131,342 50,516 181,858 RETAIL-RESTAURANTS (0.08%) McDonald's 5.38%; 04/30/07 113,000 30,000 143,000 118,952 31,580 150,532 SAVINGS & LOANS-THRIFTS (0.32%) Golden West Financial 4.13%; 08/15/07 150,000 50,000 200,000 153,712 51,238 204,950 Washington Mutual 1.97%; 11/03/05 (1) 140,000 60,000 200,000 140,246 60,105 200,351 4.00%; 01/15/09 140,000 60,000 200,000 140,766 60,328 201,094 SOVEREIGN (1.31%) Finland Government 4.75%; 03/06/07 150,000 45,000 195,000 156,272 46,882 203,154 Italy Government 4.38%; 10/25/06 1,195,000 430,000 1,625,000 1,228,774 442,153 1,670,927 Mexico Government 8.50%; 02/01/06 435,000 165,000 600,000 464,580 176,220 640,800 SPECIAL PURPOSE BANKS (0.26%) Kreditanstalt fuer Wiederaufbau 2.38%; 09/25/06 250,000 245,000 495,000 249,495 244,505 494,000 SPECIAL PURPOSE ENTITY (0.09%) Fondo Latinoamericano de Reservas (2) 3.00%; 08/01/06 115,000 60,000 175,000 115,337 60,176 175,513 SUPRANATIONAL BANK (1.46%) Asian Development Bank 2.38%; 03/15/06 345,000 130,000 475,000 344,806 129,927 474,733 Corp Andina de Fomento 6.75%; 03/15/05 180,000 100,000 280,000 182,598 101,443 284,041 8.88%; 06/01/05 75,000 - 75,000 77,669 - 77,669 European Investment Bank 4.63%; 03/01/07 1,370,000 525,000 1,895,000 1,422,752 545,215 1,967,967 TELEPHONE-INTEGRATED (1.50%) ALLTEL 6.75%; 09/15/05 130,000 - 130,000 134,725 - 134,725 BellSouth 5.00%; 10/15/06 225,000 100,000 325,000 233,714 103,873 337,587 British Telecommunications (1) 7.88%; 12/15/05 345,000 145,000 490,000 364,439 153,170 517,609 Deutsche Telekom International Finance (1) 8.25%; 06/15/05 170,000 95,000 265,000 175,828 98,257 274,085 France Telecom (1) 7.95%; 03/01/06 175,000 50,000 225,000 186,173 53,192 239,365 NYNEX Capital Funding 8.75%; 12/01/04 25,000 - 25,000 25,118 - 25,118 SBC Communications 5.75%; 05/02/06 325,000 120,000 445,000 339,186 125,238 464,424 Sprint Capital 7.13%; 01/30/06 335,000 200,000 535,000 352,354 210,361 562,715 Telecom Italia Capital 4.00%; 11/15/08 260,000 60,000 320,000 261,731 60,399 322,130 TEXTILE-HOME FURNISHINGS (0.10%) Mohawk Industries 6.50%; 04/15/07 125,000 55,000 180,000 133,663 58,812 192,475 TOOLS-HAND HELD (0.09%) Stanley Works 3.50%; 11/01/07 150,000 25,000 175,000 151,052 25,175 176,227 TRANSPORT-RAIL (0.60%) Burlington Northern Santa Fe 6.38%; 12/15/05 230,000 80,000 310,000 238,295 82,885 321,180 CSX 6.25%; 10/15/08 120,000 55,000 175,000 130,640 59,877 190,517 Norfolk Southern 8.38%; 05/15/05 325,000 75,000 400,000 334,781 77,257 412,038 Union Pacific 7.60%; 05/01/05 175,000 50,000 225,000 179,251 51,215 230,466 TRANSPORT-SERVICES (0.07%) FedEx 1.88%; 04/01/05 85,000 45,000 130,000 85,047 45,025 130,072 TOTAL BONDS 125,554,075 46,878,708 172,432,783 FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) CERTIFICATES (4.29%) 4.50%; 10/01/09 250,127 100,051 350,178 253,837 101,535 355,372 4.50%; 11/01/09 - 234,479 234,479 - 237,957 237,957 4.50%; 12/01/09 388,031 166,299 554,330 393,787 168,766 562,553 4.50%; 01/01/10 145,325 87,195 232,520 147,514 88,508 236,022 4.50%; 02/01/10 774,915 - 774,915 786,588 - 786,588 4.50%; 04/01/10 321,921 - 321,921 326,770 - 326,770 4.50%; 09/01/10 285,531 224,346 509,877 289,832 227,725 517,557 4.50%; 10/01/10 664,883 300,008 964,891 674,898 304,527 979,425 4.50%; 11/01/10 333,468 1,042,087 1,375,555 338,491 1,057,784 1,396,275 4.50%; 04/01/11 232,468 - 232,468 236,023 - 236,023 4.50%; 06/01/11 682,754 - 682,754 692,623 - 692,623 4.50%; 07/01/11 246,039 - 246,039 249,801 - 249,801 4.50%; 10/01/11 300,000 100,000 400,000 304,587 101,529 406,116 5.00%; 09/01/09 151,580 - 151,580 155,047 - 155,047 5.50%; 12/01/08 44,793 14,931 59,724 46,069 15,356 61,425 5.50%; 02/01/09 93,662 31,107 124,769 96,332 31,994 128,326 5.50%; 03/01/09 52,992 17,664 70,656 54,502 18,168 72,670 5.50%; 04/01/09 118,762 19,794 138,556 122,148 20,358 142,506 6.00%; 08/01/06 - 139,634 139,634 - 143,121 143,121 6.50%; 04/01/09 33,170 - 33,170 35,183 - 35,183 6.50%; 04/01/15 13,775 83,265 97,040 14,687 88,255 102,942 7.00%; 12/01/22 178,559 - 178,559 190,805 - 190,805 7.25%; 12/01/07 39,157 - 39,157 40,563 - 40,563 7.50%; 12/01/29 5,905 - 5,905 6,345 - 6,345 8.00%; 12/01/11 18,142 - 18,142 19,079 - 19,079 8.00%; 10/01/22 73,468 - 73,468 80,716 - 80,716 8.25%; 01/01/12 7,293 - 7,293 7,889 - 7,889 9.00%; 09/01/09 50,430 - 50,430 52,566 - 52,566 TOTAL FHLMC CERTIFICATES 5,616,682 2,605,583 8,222,265 FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) CERTIFICATES (2.28%) 4.00%; 05/01/10 554,043 200,197 754,240 553,323 199,937 753,260 4.00%; 06/01/10 254,882 109,509 364,391 254,551 109,366 363,917 4.00%; 07/01/10 359,637 119,878 479,515 359,169 119,723 478,892 4.00%; 08/01/10 245,385 81,795 327,180 245,066 81,689 326,755 4.50%; 12/01/09 - 51,161 51,161 - 51,873 51,873 4.50%; 03/01/10 352,523 - 352,523 357,510 - 357,510 4.50%; 05/01/10 - 158,115 158,115 - 160,351 160,351 4.50%; 08/01/11 631,450 - 631,450 640,513 - 640,513 4.50%; 09/01/11 297,932 - 297,932 302,208 - 302,208 5.50%; 02/01/09 291,622 101,406 393,028 299,542 104,160 403,702 5.50%; 05/01/09 - 16,708 16,708 - 17,162 17,162 5.50%; 10/01/09 189,501 - 189,501 194,648 - 194,648 6.00%; 07/01/28 115,936 - 115,936 120,523 - 120,523 7.50%; 10/01/29 48,298 - 48,298 51,831 - 51,831 8.00%; 10/01/06 6,204 - 6,204 6,361 - 6,361 8.00%; 05/01/27 21,311 - 21,311 23,240 - 23,240 8.50%; 05/01/22 96,410 - 96,410 106,770 - 106,770 9.00%; 02/01/25 14,105 - 14,105 15,828 - 15,828 TOTAL FNMA CERTIFICATES 3,531,083 844,261 4,375,344 TREASURY BONDS (1.96%) U.S. Treasury Inflation-Indexed Obligations 3.38%; 01/15/07 1,315,677 478,428 1,794,105 1,409,933 512,703 1,922,636 U.S. Treasury Strip 0.00%; 08/15/09 (4) 1,550,000 600,000 2,150,000 1,323,260 512,229 1,835,489 TOTAL TREASURY BONDS 2,733,193 1,024,932 3,758,125 COMMERCIAL PAPER (2.17%) FINANCE-CONSUMER LOANS (2.17%) Investment in Joint Trading Account; Household Finance 1.84%; 3,691,468 - 3,691,468 11/01/04 3,691,468 - 3,691,468 Investment in Joint Trading Account; Federal home Loan Bank 1.69%; 11/01/04 - 462,056 462,056 462,056 462,056 TOTAL COMMERCIAL PAPER 3,691,468 462,056 4,153,524 REPURCHASE AGREEMENTS (0.13%) Bear Stearns; 1.85%; dated 10/29/04 maturing 11/01/04 241,637 - 241,637 (collateralized by FNMA; $246,432; 11/17/11) (5) 241,600 - 241,600 TOTAL REPURCHASE AGREEMENTS 241,600 - 241,600 TOTAL PORTFOLIO INVESTMENTS (101.77%) 141,368,101 51,815,540 193,183,641 Liabilities, net of cash and receivables (-0.77%) (1,403,213) (65,183) (1,468,396) TOTAL NET ASSETS (100.00%) $139,964,888 $51,750,357 $191,715,245 =================================================== (1) Variable rate. (2) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At the end of the period, the value of these securities totaled $4,023,859 or 2.10% of net assets. (3) Security or a portion of the security was on loan at the end of the period. (4) Non-income producing security. (5) Security was purchased with the cash proceeds from securities loans.
UNREALIZED APPRECIATION (DEPRECIATION) The net federal income tax unrealized appreciation (depreciation) and federal tax cost of investments held by the fund as of the period end were as follows: Unrealized Appreciation $ 794,090 $ 258,041 $ 1,052,131 Unrealized Depreciation (1,655,645) (224,030) (1,879,675) -------------------------------------------------- Net Unrealized Appreciation (Depreciation) (861,555) 34,011 (827,544) Cost for federal income tax purposes $ 142,229,656 $ 51,781,529 $ 194,011,185
INVESTMENTS BY SECTOR (UNAUDITED) Percentage of Total Value Sector Value - ---------------------------------------------------------------------------------------------------------------------------------- 31.36% 32.70% 31.72% Government $ 44,331,585 $ 16,942,969 $ 61,274,554 19.78 18.30 19.38 Financial 27,960,020 9,482,879 37,442,899 17.05 16.93 17.02 Asset Backed Securities 24,107,708 8,773,836 32,881,544 16.42 16.93 16.56 Mortgage Securities 23,219,213 8,769,703 31,988,916 4.09 4.38 4.17 Communications 5,775,915 2,268,280 8,044,195 2.57 2.33 2.50 Consumer, Non-cyclical 3,631,833 1,206,789 4,838,622 2.34 2.15 2.29 Utilities 3,306,372 1,114,958 4,421,330 1.85 1.68 1.80 Industrial 2,615,122 870,336 3,485,458 1.76 1.60 1.72 Energy 2,495,275 830,771 3,326,046 1.24 1.35 1.27 Consumer, Cyclical 1,746,275 701,900 2,448,175 1.10 1.17 1.12 Basic Materials 1,556,018 604,080 2,160,098 0.44 0.48 0.45 Technology 622,765 249,039 871,804 $ 141,368,101 $ 51,815,540 $ 193,183,641 ================================================= Percentages are adjusted to reflect the impact of currency contracts, futures contracts, and swap agreements, if applicable. See accompanying notes. As of October 31, 2004, all securities held by the Acquired Fund would comply with the investment restrictions of the Acquiring Fund.
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004 (UNAUDITED) -------------------------------------------------------------------------------
PRINCIPAL CASH MONEY PRO FORMA COMBINED MONEY MANAGEMENT FUND, INC. MARKET FUND ADJUSTMENTS/(B)/ MARKET FUND - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- INVESTMENT IN SECURITIES--AT COST.. $ 321,030,366 $224,105,649 $ -- $545,136,015 ============== ============ ======== ============ ASSETS Investment in securities--at value. $ 321,030,366 $224,105,649 $ -- $545,136,015 Cash.................. 3,483 7,145 -- 10,628 Receivables: Capital Shares sold.. 1,406,509 -- -- 1,406,509 Dividends and interest............ 182,459 50,593 -- 233,052 Expense reimbursement from Manager........ -- 1,426 -- 1,426 Other assets.......... 26,439 -- -- 26,439 Prepaid expenses...... 254 -- -- 254 -------------- ------------ -------- ------------ Total Assets 322,649,510 224,164,813 -- 546,814,323 LIABILITIES Accrued management and investment advisory fees................. 27,280 16,857 -- 44,137 Accrued administrative service fees......... -- 894 -- 894 Accrued distribution fees................. 135 13,518 -- 13,653 Accrued service fees.. -- 1,124 -- 1,124 Accrued transfer and administrative fees.. 151,614 95,576 -- 247,190 Accrued other expenses 53,071 35,356 -- 88,427 Payables: Capital Shares reacquired.......... 6,286 5,283,676 -- 5,289,962 Reorganization costs. -- -- 85,787 85,787 -------------- ------------ -------- ------------ Total Liabilities 238,386 5,447,001 85,787 5,771,174 -------------- ------------ -------- ------------ NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 322,411,124 $218,717,812 $(85,787) $541,043,149 ============== ============ ======== ============ NET ASSETS CONSIST OF: Capital Shares and additional paid-in-capital...... $ 322,411,124 $218,717,812 $ -- $541,128,936 Accumulated undistributed (overdistributed) net investment income (operating loss)..... -- -- (85,787) (85,787) -------------- ------------ -------- ------------ Total Net Assets $ 322,411,124 $218,717,812 $(85,787) $541,043,149 ============== ============ ======== ============ CAPITAL STOCK (PAR VALUE: $.01 A SHARE): Shares authorized..... 2,000,000,000 765,000,000 -- 765,000,000 NET ASSET VALUE PER SHARE: Advisors Preferred: Net Assets........... N/A $ 7,413,337 N/A $ 7,413,337 Shares issued and outstanding.......... 7,413,337 7,413,337 Net asset value per share................ $ 1.00 $ 1.00 ============ ============ Advisors Select: Net Assets............... N/A $ 6,393,823 N/A $ 6,393,823 Shares issued and outstanding.......... 6,393,823 6,393,823 Net asset value per share................ $ 1.00 $ 1.00 ============ ============ Class A: Net Assets... $ 317,339,972 N/A $(84,527) $317,255,445 Shares issued and outstanding.......... 317,339,972 (84,527) 317,255,445 Net asset value per share................ $ 1.00 -- $ 1.00 Maximum offering price per share...... $ 1.00 -- $ 1.00 ============== == ============ Class B: Net Assets... $ 5,071,152 N/A $ (1,260) $ 5,069,892 Shares issued and outstanding.......... 5,071,152 (1,260) 5,069,892 Net asset value per share /(a)/.......... $ 1.00 -- $ 1.00 ============== == ============ Class J: Net Assets... N/A $132,550,498 N/A $132,550,498 Shares issued and outstanding.......... 132,550,498 132,550,498 Net asset value per share /(a)/.......... $ 1.00 $ 1.00 ============ ============ Institutional: Net Assets............... N/A $ 56,277,419 N/A $ 56,277,419 Shares issued and outstanding.......... 56,277,419 56,277,419 Net asset value per share................ $ 1.00 $ 1.00 ============ ============ Preferred: Net Assets. N/A $ 14,598,771 N/A $ 14,598,771 Shares issued and outstanding.......... 14,598,771 14,598,771 Net asset value per share................ $ 1.00 $ 1.00 ============ ============ Select: Net Assets.... N/A $ 1,483,964 N/A $ 1,483,964 Shares issued and outstanding.......... 1,483,964 1,483,964 Net asset value per share................ $ 1.00 $ 1.00 ============ ============
/(a) /Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. /(b) /Reduction in net assets to reflect the estimated expenses of the Reorganization. See accompanying notes. 1 STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2004 (UNAUDITED) ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
PRINCIPAL CASH MONEY PRO FORMA COMBINED MONEY MANAGEMENT FUND, INC. MARKET FUND ADJUSTMENTS MARKET FUND - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (OPERATING LOSS) Income: Interest............. $4,215,226 $2,269,582 $ -- $6,484,808 Expenses: Management and investment advisory fees................ 1,481,866 715,144 (136,031)/(A)/ 2,060,979 Distribution fees - Advisors Preferred.. -- 16,360 -- 16,360 Distribution fees - Advisors Select..... -- 26,849 -- 26,849 Distribution fees - Class B............. 13,088 -- -- 13,088 Distribution fees - Class J............. -- 559,299 -- 559,299 Distribution fees - Select.............. -- 890 -- 890 Administrative service fees - Advisors Preferred.. -- 9,816 -- 9,816 Administrative service fees - Advisors Select..... -- 17,899 -- 17,899 Administrative service fees - Preferred........... -- 13,072 -- 13,072 Administrative service fees - Select.............. -- 1,158 -- 1,158 Registration fees - Class A............. 33,840 -- -- 33,840 Registration fees - Class B............. 5,156 -- -- 5,156 Registration fees - Class J............. -- 30,857 -- 30,857 Service fees - Advisors Preferred.. -- 11,124 -- 11,124 Service fees - Advisors Select..... -- 22,374 -- 22,374 Service fees - Preferred........... -- 17,825 -- 17,825 Service fees - Select -- 1,335 -- 1,335 Shareholder reports - Class A............. 28,787 -- -- 28,787 Shareholder reports - Class B............. 516 -- -- 516 Shareholder reports - Class J............. -- 48,202 -- 48,202 Transfer and administrative fees - Class A........... 317,435 -- -- 317,435 Transfer and administrative fees - Class B........... 4,628 -- -- 4,628 Transfer and administrative fees - Class J........... -- 516,831 -- 516,831 Auditing and legal fees................ 9,597 -- (9,597)/(B)/ -- Custodian fees....... 10,444 -- (10,444)/(B)/ -- Directors' expenses.. 10,571 -- (10,571)/(B)/ -- Registration fees.... 43,383 -- -- 43,383 Transfer and administrative fees. 356,740 -- 21,000/(B)/ 377,740 Other expenses....... 18,993 -- (18,993)/(B)/ -- Other expenses - Class J............. -- 49 -- 49 ---------- ---------- --------- ---------- Total Gross Expenses 2,335,044 2,009,084 (164,636) 4,179,492 Less: Reimbursement from Manager - Advisors Select..... -- 3,054 -- 3,054 Less: Reimbursement from Manager - Class B................... 4,543 -- (4,543)/(C)/ -- Less: Reimbursement from Manager - Class J................... -- 293,260 -- 293,260 ---------- ---------- --------- ---------- Total Net Expenses 2,330,501 1,712,770 (160,093) 3,883,178 ---------- ---------- --------- ---------- Net Investment Income (Operating Loss) $1,884,725 $ 556,812 $ 169,093 2,601,630 ========== ========== ========= ==========
/(a) /Management and investment advisory fees decreased to reflect annual percentage rate of the Acquiring Fund. /(b) /Elimination of expenses due to expense structure of Acquiring Fund. Eliminated expenses are not paid by the Acquiring Fund. /(c) /Elimination of Manager's voluntary reimbursement. Total operating expenses are below expense limit. See accompanying notes. 20
SCHEDULE OF INVESTMENTS October 31, 2004 (unaudited) Principal Amount or Number of Shares Market Value - ------------------------------------------------------------------------------------------------------------------------------------ Principal Cash Principal Cash Management Money Market Management Money Market Fund, Inc. Fund Combined Fund, Inc. Fund Combined - ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL PAPER (97.64%) ASSET BACKED SECURITIES (10.45%) CAFCO 1.58%; 11/05/04 - - 900,000 900,000 $ - $ 899,842 $ 899,842 1.66%; 11/18/04 - - 1,000,000 1,000,000 - 999,216 999,216 1.83%; 12/06/04 - - 1,300,000 1,300,000 - 1,297,687 1,297,687 1.89%; 12/16/04 2,600,000 - 2,600,000 2,593,857 - 2,593,857 1.90%; 12/17/04 1,045,000 - 1,045,000 1,042,463 - 1,042,463 2.02%; 01/07/05 3,500,000 1,300,000 4,800,000 3,486,842 1,295,113 4,781,955 CXC 1.45%; 11/15/04 2,600,000 1,000,000 3,600,000 2,598,534 999,436 3,597,970 1.61%; 11/04/04 - - 1,000,000 1,000,000 - 999,866 999,866 1.85%; 12/16/04 2,000,000 1,300,000 3,300,000 1,995,375 1,296,994 3,292,369 1.90%; 02/25/05 2,300,000 - 2,300,000 2,285,919 - 2,285,919 1.98%; 01/10/05 - - 1,400,000 1,400,000 - 1,394,610 1,394,610 FCAR Owner Trust I 1.63%; 11/02/04 2,700,000 - 2,700,000 2,699,878 - 2,699,878 1.66%; 11/16/04 - - 1,100,000 1,100,000 - 1,099,239 1,099,239 1.70%; 11/03/04 - - 100,000 100,000 - 99,991 99,991 1.73%; 12/03/04 2,000,000 1,000,000 3,000,000 1,996,924 998,462 2,995,386 1.79%; 12/08/04 - - 885,000 885,000 - 883,372 883,372 1.81%; 12/09/04 1,280,000 1,280,000 - 1,277,554 1,277,554 1.83%; 12/10/04 2,600,000 1,200,000 3,800,000 2,594,845 1,197,621 3,792,466 1.89%; 01/06/05 2,400,000 1,300,000 3,700,000 2,391,684 1,295,496 3,687,180 1.90%; 12/16/04 - - 1,200,000 1,200,000 - 1,197,150 1,197,150 2.05%; 01/19/05 960,000 - 960,000 955,681 - 955,681 Windmill Funding 1.60%; 11/03/04 - - 900,000 900,000 - 899,920 899,920 1.71%; 11/24/04 2,000,000 1,100,000 3,100,000 1,997,815 1,098,798 3,096,613 1.78%; 12/01/04 2,200,000 - 2,200,000 2,196,737 - 2,196,737 1.86%; 12/22/04 - - 1,500,000 1,500,000 - 1,496,048 1,496,048 1.87%; 12/15/04 1,945,000 1,095,000 3,040,000 1,940,555 1,092,497 3,033,052 1.97%; 01/05/05 - - 1,450,000 1,450,000 - 1,444,842 1,444,842 2.00%; 01/12/05 2,500,000 2,500,000 2,490,000 - 2,490,000 BREWERY (0.70%) Anheuser-Busch 1.77%; 11/22/04 2,500,000 1,300,000 3,800,000 2,497,419 1,298,658 3,796,077 CHEMICALS-DIVERSIFIED (2.04%) E. I. Du Pont de Nemours 1.75%; 11/05/04 - - 1,500,000 1,500,000 - 1,499,708 1,499,708 1.87%; 12/27/04 2,700,000 1,400,000 4,100,000 2,692,146 1,395,928 4,088,074 1.90%; 12/28/04 2,800,000 2,611,000 5,411,000 2,791,577 2,603,145 5,394,722 COATINGS & PAINT (0.22%) Sherwin-Williams 1.80%; 12/13/04 - - 1,200,000 1,200,000 - 1,197,480 1,197,480 COMMERCIAL BANKS (7.16%) Calyon North America 1.78%; 12/08/04 2,100,000 - 2,100,000 2,096,169 - 2,096,169 Nordea North America 1.63%; 11/12/04 2,000,000 900,000 2,900,000 1,999,004 899,552 2,898,556 1.72%; 11/29/04 3,130,000 1,100,000 4,230,000 3,125,667 1,098,528 4,224,195 1.74%; 11/18/04 2,205,000 - 2,205,000 2,203,188 - 2,203,188 1.78%; 11/29/04 - - 490,000 490,000 - 489,322 489,322 1.80%; 11/30/04 1,445,000 1,560,000 3,005,000 1,442,858 1,557,738 3,000,596 1.88%; 12/29/04 - - 1,300,000 1,300,000 - 1,296,062 1,296,062 1.97%; 01/31/05 2,000,000 1,400,000 3,400,000 1,990,041 1,393,028 3,383,069 1.99%; 01/31/05 - - 1,500,000 1,500,000 - 1,492,455 1,492,455 Svenska Handelsbanken 1.60%; 11/04/04 2,000,000 900,000 2,900,000 1,999,733 899,640 2,899,373 1.60%; 11/10/04 2,200,000 - 2,200,000 2,199,021 - 2,199,021 1.62%; 11/04/04 2,200,000 - 2,200,000 2,199,703 - 2,199,703 1.65%; 11/22/04 2,000,000 - 2,000,000 1,998,081 - 1,998,081 1.69%; 11/10/04 1,100,000 - 1,100,000 1,099,535 1,099,535 1.82%; 12/03/04 1,200,000 1,200,000 - 1,198,059 1,198,059 1.85%; 12/08/04 2,525,000 - 2,525,000 2,520,199 - 2,520,199 1.86%; 12/13/04 - - 1,400,000 1,400,000 - 1,396,962 1,396,962 2.04%; 01/31/05 995,000 1,000,000 1,995,000 989,869 994,843 1,984,712 CONSUMER PRODUCTS-MISCELLANEOUS (0.44%) Fortune Brands 1.87%; 11/17/04 2,390,000 - 2,390,000 2,388,088 - 2,388,088 DIVERSIFIED FINANCIAL SERVICES (5.35%) Amstel Funding 1.76%; 12/27/04 - - 1,000,000 1,000,000 - 997,262 997,262 1.92%; 12/29/04 3,000,000 1,500,000 4,500,000 2,990,720 1,495,360 4,486,080 2.05%; 02/17/05 1,500,000 1,500,000 - 1,490,775 1,490,775 2.11%; 02/22/05 1,700,000 1,200,000 2,900,000 1,688,741 1,192,052 2,880,793 General Electric Capital 1.60%; 11/01/04 2,055,000 795,000 2,850,000 2,055,000 795,000 2,850,000 1.62%; 11/05/04 - - 900,000 900,000 - 899,838 899,838 1.65%; 11/02/04 - - 1,000,000 1,000,000 - 999,954 999,954 1.65%; 11/17/04 2,100,000 1,000,000 3,100,000 2,098,460 999,267 3,097,727 1.72%; 11/09/04 1,400,000 - 1,400,000 1,399,465 - 1,399,465 1.73%; 12/07/04 1,915,000 - 1,915,000 1,911,687 - 1,911,687 1.73%; 12/20/04 2,200,000 - 2,200,000 2,194,819 - 2,194,819 1.75%; 12/06/04 1,500,000 1,100,000 2,600,000 1,497,448 1,098,129 2,595,577 - - 1,500,000 1,500,000 1.92%; 12/31/04 1,495,200 1,495,200 - - 1,600,000 1,600,000 2.05%; 01/07/05 1,592,073 1,592,073 FINANCE-AUTO LOANS (3.97%) Paccar Financial 1.62%; 11/04/04 - - 800,000 800,000 - 799,892 799,892 1.63%; 11/15/04 - - 1,100,000 1,100,000 - 1,099,303 1,099,303 1.63%; 11/18/04 2,600,000 1,000,000 3,600,000 2,597,999 999,230 3,597,229 1.95%; 01/07/05 1,355,000 1,355,000 - 1,350,083 1,350,083 Toyota Motor Credit 1.66%; 11/15/04 - - 1,155,000 1,155,000 - 1,154,254 1,154,254 1.77%; 11/03/04 1,550,000 - 1,550,000 1,549,848 - 1,549,848 1.77%; 11/05/04 - - 1,200,000 1,200,000 - 1,199,764 1,199,764 1.77%; 11/08/04 1,655,000 - 1,655,000 1,654,430 - 1,654,430 1.77%; 11/19/04 2,800,000 1,450,000 4,250,000 2,797,438 1,448,710 4,246,148 1.80%; 12/07/04 - - 1,460,000 1,460,000 - 1,457,372 1,457,372 2.08%; 01/28/05 1,900,000 1,500,000 3,400,000 1,890,339 1,492,373 3,382,712 FINANCE-COMMERCIAL (3.49%) CIT Group 1.62%; 11/10/04 2,000,000 1,000,000 3,000,000 1,999,190 999,595 2,998,785 1.67%; 11/12/04 2,000,000 900,000 2,900,000 1,998,980 899,541 2,898,521 1.71%; 12/02/04 - - 1,000,000 1,000,000 - 998,528 998,528 1.80%; 12/02/04 - - 805,000 805,000 - 803,752 803,752 1.87%; 12/17/04 - - 1,000,000 1,000,000 - 997,611 997,611 2.00%; 01/04/05 2,100,000 1,400,000 3,500,000 2,092,533 1,395,022 3,487,555 2.04%; 01/13/05 2,700,000 - 2,700,000 2,688,831 - 2,688,831 2.10%; 03/02/05 2,600,000 1,500,000 4,100,000 2,581,648 1,489,412 4,071,060 FINANCE-CONSUMER LOANS (3.62%) American General Finance 1.74%; 11/19/04 - - 1,000,000 1,000,000 - 999,130 999,130 1.76%; 11/09/04 2,540,000 2,540,000 2,539,007 - 2,539,007 1.95%; 12/21/04 - - 1,600,000 1,600,000 - 1,595,667 1,595,667 2.07%; 02/02/05 - - 1,500,000 1,500,000 - 1,491,979 1,491,979 Household Finance 1.63%; 11/02/04 - - 900,000 900,000 - 899,959 899,959 1.65%; 11/04/04 2,000,000 - 2,000,000 1,999,725 - 1,999,725 1.66%; 11/29/04 - - 645,000 645,000 - 644,167 644,167 1.71%; 11/30/04 - - 1,000,000 1,000,000 - 998,622 998,622 1.73%; 11/16/04 3,000,000 775,000 3,775,000 2,997,837 774,441 3,772,278 1.81%; 11/22/04 2,200,000 - 2,200,000 2,197,677 - 2,197,677 1.86%; 12/09/04 - - 1,480,000 1,480,000 - 1,477,094 1,477,094 2.04%; 01/27/05 950,000 950,000 - 945,317 945,317 FINANCE-INVESTMENT BANKER & BROKER (12.09%) Bear Stearns 1.79%; 12/10/04 - - 1,300,000 1,300,000 - 1,297,479 1,297,479 1.80%; 12/07/04 3,000,000 1,300,000 4,300,000 2,994,600 1,297,660 4,292,260 1.81%; 11/30/04 2,000,000 1,300,000 3,300,000 1,997,084 1,298,105 3,295,189 1.83%; 12/03/04 2,500,000 1,300,000 3,800,000 2,495,933 1,297,885 3,793,818 2.04%; 01/21/05 2,200,000 1,400,000 3,600,000 2,189,902 1,393,574 3,583,476 2.07%; 02/03/05 1,700,000 1,300,000 3,000,000 1,690,812 1,292,974 2,983,786 Citigroup Global Markets Holdings 1.62%; 11/03/04 - - 1,075,000 1,075,000 - 1,074,903 1,074,903 1.67%; 12/07/04 - - 1,000,000 1,000,000 - 998,330 998,330 1.69%; 11/18/04 - - 1,000,000 1,000,000 - 999,202 999,202 1.69%; 11/23/04 2,000,000 1,025,000 3,025,000 1,997,935 1,023,866 3,021,801 1.72%; 11/08/04 1,790,000 - 1,790,000 1,789,401 - 1,789,401 1.76%; 11/04/04 - - 1,500,000 1,500,000 - 1,499,780 1,499,780 1.76%; 11/12/04 - - 1,200,000 1,200,000 - 1,199,355 1,199,355 1.76%; 11/15/04 4,500,000 - 4,500,000 4,496,920 - 4,496,920 1.79%; 11/17/04 2,335,000 - 2,335,000 2,333,142 - 2,333,142 2.05%; 01/11/05 1,500,000 - 1,500,000 1,493,935 - 1,493,935 2.05%; 01/25/05 - - 1,000,000 1,000,000 - 995,160 995,160 Goldman Sachs Group 1.60%; 11/08/04 - - 2,975,000 2,975,000 - 2,974,074 2,974,074 1.60%; 11/09/04 - - 870,000 870,000 - 869,691 869,691 1.62%; 11/16/04 2,600,000 - 2,600,000 2,598,245 - 2,598,245 1.62%; 11/19/04 2,500,000 900,000 3,400,000 2,497,975 899,271 3,397,246 1.64%; 11/23/04 1,000,000 1,000,000 2,000,000 998,998 998,992 1,997,990 ING U.S. Funding 1.65%; 11/04/04 - - 1,100,000 1,100,000 - 1,099,849 1,099,849 1.70%; 11/22/04 - - 970,000 970,000 - 969,038 969,038 1.80%; 12/14/04 1,900,000 1,000,000 2,900,000 1,895,926 997,856 2,893,782 1.83%; 11/24/04 2,350,000 - 2,350,000 2,347,253 - 2,347,253 1.83%; 12/01/04 - - 1,000,000 1,000,000 - 998,475 998,475 1.84%; 12/15/04 - - 1,300,000 1,300,000 - 1,297,076 1,297,076 1.97%; 01/06/05 - - 1,525,000 1,525,000 - 1,519,492 1,519,492 Morgan Stanley 1.94%; 12/03/04 - - 1,500,000 1,500,000 - 1,497,413 1,497,413 1.95%; 12/07/04 - - 1,950,000 1,950,000 - 1,946,198 1,946,198 FINANCE-LEASING COMPANY (1.73%) International Lease Finance 1.65%; 11/10/04 - - 1,000,000 1,000,000 - 999,588 999,588 1.66%; 11/16/04 - - 1,100,000 1,100,000 - 1,099,239 1,099,239 1.71%; 11/05/04 2,770,000 - 2,770,000 2,769,474 - 2,769,474 1.89%; 12/09/04 2,200,000 - 2,200,000 2,195,611 - 2,195,611 1.91%; 12/14/04 2,335,000 - 2,335,000 2,329,673 - 2,329,673 FINANCE-MORTGAGE LOAN/BANKER (6.56%) Federal Home Loan Mortgage 1.51%; 11/01/04 3,000,000 1,000,000 4,000,000 3,000,000 1,000,000 4,000,000 1.60%; 11/04/04 - - 900,000 900,000 - 899,880 899,880 1.63%; 12/06/04 475,000 995,000 1,470,000 474,247 993,423 1,467,670 1.68%; 11/23/04 - - 1,000,000 1,000,000 - 998,973 998,973 1.86%; 12/14/04 - - 2,200,000 2,200,000 - 2,195,112 2,195,112 1.87%; 12/21/04 2,645,000 1,250,000 3,895,000 2,638,130 1,246,754 3,884,884 Federal National Mortgage Association 1.52%; 11/03/04 2,045,000 955,000 3,000,000 2,044,827 954,919 2,999,746 1.58%; 11/03/04 1,100,000 1,100,000 2,200,000 1,099,904 1,099,904 2,199,808 1.67%; 11/17/04 - - 1,100,000 1,100,000 - 1,099,184 1,099,184 1.68%; 12/13/04 2,600,000 700,000 3,300,000 2,594,904 698,628 3,293,532 1.70%; 11/17/04 - - 1,000,000 1,000,000 - 999,244 999,244 1.81%; 11/24/04 2,600,000 1,300,000 3,900,000 2,596,994 1,298,497 3,895,491 1.81%; 11/24/04 - - 1,060,000 1,060,000 - 1,058,862 1,058,862 1.90%; 12/31/04 2,035,000 - 2,035,000 2,028,556 - 2,028,556 1.91%; 12/29/04 - - 1,000,000 1,000,000 - 996,923 996,923 1.98%; 01/24/05 2,090,000 1,400,000 3,490,000 2,080,344 1,393,532 3,473,876 FINANCE-OTHER SERVICES (9.15%) ABN-AMRO North America Finance 2.00%; 01/31/05 2,000,000 - 2,000,000 1,989,383 - 1,989,383 FINANCE-OTHER SERVICES (continued) Caterpillar Financial Services 1.46%; 11/08/04 2,310,000 - 2,310,000 2,309,344 - 2,309,344 Commoloco 1.68%; 11/08/04 - - 1,225,000 1,225,000 - 1,224,600 1,224,600 1.79%; 11/19/04 - - 1,305,000 1,305,000 - 1,303,832 1,303,832 1.81%; 12/01/04 - - 1,300,000 1,300,000 - 1,298,039 1,298,039 1.82%; 11/22/04 - - 1,400,000 1,400,000 - 1,398,514 1,398,514 1.83%; 11/29/04 - - 1,300,000 1,300,000 - 1,298,150 1,298,150 1.83%; 12/07/04 1,815,000 - 1,815,000 1,811,570 - 1,811,570 1.90%; 12/10/04 2,200,000 - 2,200,000 2,195,472 - 2,195,472 1.90%; 12/20/04 2,665,000 1,500,000 4,165,000 2,658,108 1,496,121 4,154,229 CRC Funding 1.75%; 12/02/04 - - 1,000,000 1,000,000 - 998,493 998,493 1.78%; 12/02/04 - - 1,200,000 1,200,000 - 1,198,161 1,198,161 1.97%; 01/10/05 2,300,000 1,100,000 3,400,000 2,291,190 1,095,786 3,386,976 2.00%; 01/19/05 2,400,000 1,400,000 3,800,000 2,389,467 1,393,855 3,783,322 2.03%; 01/06/05 3,000,000 1,400,000 4,400,000 2,988,835 1,394,790 4,383,625 2.05%; 01/20/05 2,700,000 1,400,000 4,100,000 2,687,700 1,393,622 4,081,322 2.08%; 01/06/05 1,340,000 - 1,340,000 1,334,890 - 1,334,890 Private Export Funding 1.68%; 11/18/04 - - 990,000 990,000 - 989,214 989,214 1.70%; 12/09/04 1,825,000 700,000 2,525,000 1,821,725 698,744 2,520,469 1.88%; 12/28/04 2,500,000 - 2,500,000 2,492,558 - 2,492,558 2.10%; 03/09/05 2,320,000 1,455,000 3,775,000 2,302,677 1,444,136 3,746,813 2.10%; 04/05/05 1,590,000 - 1,590,000 1,575,624 - 1,575,624 FOOD-MISCELLANEOUS/DIVERSIFIED(0.28%) Unilever Capital 1.77%; 11/16/04 - - 1,500,000 1,500,000 - 1,498,894 1,498,894 INSURANCE BROKERS (1.24%) Marsh & McLennan 1.81%; 11/23/04 2,830,000 1,500,000 4,330,000 2,826,870 1,498,341 4,325,211 1.89%; 12/21/04 2,400,000 - 2,400,000 2,393,700 - 2,393,700 MEDICAL-DRUGS (0.22%) Pfizer 1.64%; 11/17/04 - - 1,200,000 1,200,000 - 1,199,125 1,199,125 MONEY CENTER BANKS (9.31%) Bank of America 1.71%; 12/01/04 2,000,000 1,000,000 3,000,000 1,997,150 998,575 2,995,725 1.75%; 12/22/04 2,400,000 1,300,000 3,700,000 2,393,642 1,296,556 3,690,198 1.83%; 12/15/04 1,700,000 1,400,000 3,100,000 1,696,198 1,396,868 3,093,066 1.85%; 12/10/04 2,200,000 1,500,000 3,700,000 2,195,591 1,496,994 3,692,585 2.04%; 02/04/05 2,500,000 - 2,500,000 2,486,542 - 2,486,542 4.00%; 11/01/04 - - 1,000,000 1,000,000 - 1,000,000 1,000,000 BNP Paribas Finance 1.80%; 12/02/04 2,000,000 - 2,000,000 1,996,891 - 1,996,891 1.87%; 12/28/04 - - 1,200,000 1,200,000 - 1,196,447 1,196,447 1.90%; 12/30/04 2,200,000 - 2,200,000 2,193,164 2,193,164 Citicorp 1.66%; 11/22/04 - - 1,000,000 1,000,000 - 999,032 999,032 1.90%; 12/22/04 - - 1,330,000 1,330,000 - 1,326,420 1,326,420 2.04%; 01/25/05 2,900,000 1,400,000 4,300,000 2,886,032 1,395,650 4,281,682 HBOS Treasury Services 1.60%; 11/05/04 2,350,000 - 2,350,000 2,349,582 - 2,349,582 1.63%; 11/09/04 - - 1,000,000 1,000,000 - 999,638 999,638 1.69%; 11/09/04 - - 1,100,000 1,100,000 - 1,099,587 1,099,587 1.70%; 12/09/04 1,400,000 1,000,000 2,400,000 1,397,488 998,205 2,395,693 1.75%; 12/02/04 2,000,000 - 2,000,000 1,996,986 - 1,996,986 1.83%; 11/30/04 1,965,000 - 1,965,000 1,962,040 - 1,962,040 1.84%; 12/03/04 1,905,000 - 1,905,000 1,901,884 - 1,901,884 1.87%; 12/08/04 - - 1,200,000 1,200,000 - 1,197,694 1,197,694 1.88%; 12/14/04 - - 1,500,000 1,500,000 - 1,496,631 1,496,631 2.00%; 02/02/05 680,000 - 680,000 676,486 - 676,486 2.03%; 02/01/05 - - 1,300,000 1,300,000 - 1,293,256 1,293,256 2.05%; 01/24/05 - - 1,400,000 1,400,000 - 1,393,320 1,393,320 2.05%; 02/02/05 2,700,000 - 2,700,000 2,685,701 - 2,685,701 OIL COMPANY-INTEGRATED (1.62%) Shell Finance 1.77%; 12/06/04 1,590,000 1,400,000 2,990,000 1,587,264 1,397,591 2,984,855 1.78%; 12/08/04 2,000,000 1,205,000 3,205,000 1,996,300 1,202,796 3,199,096 1.97%; 01/28/05 1,335,000 1,265,000 2,600,000 1,328,571 1,258,908 2,587,479 REGIONAL BANKS (0.26%) Wells Fargo Bank 2.02%; 01/18/05 - - 1,400,000 1,400,000 - 1,400,000 1,400,000 RETAIL-DISCOUNT (1.18%) Wal-Mart Stores 1.59%; 11/02/04 4,300,000 2,100,000 6,400,000 4,299,810 2,099,907 6,399,717 SPECIAL PURPOSE BANKS (1.51%) KFW International Finance 1.66%; 12/02/04 2,600,000 - 2,600,000 2,596,283 2,596,283 - - 1,500,000 1,500,000 1.75%; 11/01/04 1,500,000 1,500,000 1.97%; 01/24/05 2,700,000 1,400,000 4,100,000 2,687,589 1,393,565 4,081,154 SPECIAL PURPOSE ENTITY (10.74%) Barclays U.S. Funding 1.81%; 12/08/04 - - 1,200,000 1,200,000 - 1,197,768 1,197,768 1.92%; 12/20/04 - - 1,500,000 1,500,000 - 1,496,080 1,496,080 1.95%; 01/27/05 1,600,000 - 1,600,000 1,592,460 - 1,592,460 - - 1,900,000 1,900,000 1.96%; 12/17/04 1,895,242 1,895,242 1.96%; 12/27/04 2,000,000 - 2,000,000 1,993,918 1,993,918 Compass Securitization 1.81%; 12/15/04 - - 960,000 960,000 - 957,876 957,876 1.82%; 11/26/04 2,555,000 1,200,000 3,755,000 2,551,771 1,198,483 3,750,254 2.02%; 01/18/05 - - 1,620,000 1,620,000 - 1,612,910 1,612,910 Grampian Funding 1.71%; 11/29/04 2,000,000 1,000,000 3,000,000 1,997,340 998,670 2,996,010 1.84%; 12/21/04 1,900,000 1,200,000 3,100,000 1,895,144 1,196,933 3,092,077 1.85%; 12/06/04 5,175,000 - 5,175,000 5,165,692 - 5,165,692 1.89%; 12/23/04 2,000,000 1,200,000 3,200,000 1,994,540 1,196,724 3,191,264 - - 1,420,000 1,420,000 2.05%; 01/26/05 1,413,046 1,413,046 Ranger Funding 1.72%; 12/01/04 2,100,000 1,100,000 3,200,000 2,096,990 1,098,423 3,195,413 1.81%; 11/18/04 2,400,000 - 2,400,000 2,397,949 - 2,397,949 1.97%; 01/03/05 - - 1,400,000 1,400,000 - 1,395,174 1,395,174 1.99%; 01/12/05 2,800,000 1,300,000 4,100,000 2,788,856 1,294,826 4,083,682 Receivables Capital 1.62%; 11/01/04 - - 670,000 670,000 - 670,000 670,000 Sheffield Receivables 2.07%; 01/06/05 - - 1,500,000 1,500,000 - 1,494,308 1,494,308 Tulip Funding 1.81%; 11/19/04 2,700,000 - 2,700,000 2,697,557 - 2,697,557 1.95%; 01/04/05 - - 1,485,000 1,485,000 - 1,479,852 1,479,852 Yorktown Capital 1.81%; 12/13/04 - - 1,330,000 1,330,000 - 1,327,191 1,327,191 1.85%; 01/18/05 2,000,000 1,400,000 3,400,000 1,991,333 1,393,933 3,385,266 2.00%; 12/17/04 4,380,000 1,325,000 5,705,000 4,369,646 1,321,868 5,691,514 SUPRANATIONAL BANK (2.26%) Corp Andina de Fomento 1.77%; 11/09/04 2,000,000 1,200,000 3,200,000 1,999,214 1,199,528 3,198,742 1.78%; 11/12/04 2,000,000 1,000,000 3,000,000 1,998,912 999,456 2,998,368 1.80%; 11/03/04 1,800,000 - 1,800,000 1,799,820 - 1,799,820 1.80%; 11/05/04 2,880,000 - 2,880,000 2,879,424 - 2,879,424 1.91%; 12/16/04 1,400,000 - 1,396,657 1,396,657 TELEPHONE COMMUNICATION (0.70%) Telstra 1.95%; 12/30/04 2,600,000 1,190,000 3,790,000 2,591,691 1,186,197 3,777,888 TELEPHONE-INTEGRATED (1.35%) BellSouth 1.93%; 12/20/04 - - 1,400,000 1,400,000 - 1,396,322 1,396,322 1.95%; 12/23/04 2,000,000 - 2,000,000 1,994,367 1,994,367 SBC Communications 2.04%; 01/10/05 2,400,000 1,500,000 3,900,000 2,390,480 1,494,050 3,884,530 ----------------------------------------------------- TOTAL COMMERCIAL PAPER 307,159,365 221,180,524 528,339,889 BONDS (3.10%) AEROSPACE & DEFENSE EQUIPMENT (0.43%) United Technologies 6.63%; 11/15/04 2,000,000 300,000 2,300,000 2,003,844 300,576 2,304,420 FINANCE-INVESTMENT BANKER & BROKER (0.85%) Bear Stearns 6.65%; 12/01/04 1,292,000 500,000 1,792,000 1,297,644 502,184 1,799,828 Goldman Sachs Group 7.50%; 01/28/05 - - 175,000 175,000 - 177,316 177,316 Lehman Brothers Holdings 7.75%; 01/15/05 2,000,000 600,000 2,600,000 2,026,140 607,842 2,633,982 FINANCE-MORTGAGE LOAN/BANKER (0.29%) Federal Home Loan Bank 1.66%; 05/16/05 1,300,000 300,000 1,600,000 1,300,000 300,000 1,600,000 FINANCE-OTHER SERVICES (2.06%) Newcourt Credit Group 6.88%; 02/16/05 1,300,000 500,000 1,800,000 1,320,737 507,976 1,828,713 Verizon Global Funding 1.98%; 12/15/04 4,000,000 - 4,000,000 4,000,000 - 4,000,000 MULTIMEDIA (0.45%) Gannett 4.95%; 04/01/05 1,900,000 523,000 2,423,000 1,922,636 529,231 2,451,867 ----------------------------------------------- TOTAL BONDS 13,871,001 2,925,125 16,796,126 ----------------------------------------------- TOTAL PORTFOLIO INVESTMENTS (100.74%) 321,030,366 224,105,649 545,136,015 Cash, receivables and other assets, net of liabilities (-0.74%) 1,380,758 (5,387,837) (4,007,079) ----------------------------------------------- TOTAL NET ASSETS (100.00%) 322,411,124 218,717,812 541,128,936 ===============================================
INVESTMENTS BY SECTOR (UNAUDITED) Percentage of Total Value Sector Value - --------------------------------------------------------------------------------------------------------------------- 71.25% 70.71% 71.03% Financial $228,743,789 $158,453,902 $387,197,691 10.36 10.38 10.37 Asset Backed Securities 33,267,109 23,263,754 56,530,863 8.89 9.29 9.06 Government 28,535,275 20,829,476 49,364,751 2.77 2.06 2.86 Communications 8,899,174 6,696,261 15,595,435 1.71 2.99 1.85 Basic Materials 5,483,723 4,605,800 10,089,523 1.53 1.72 1.63 Energy 4,912,135 3,996,677 8,908,812 1.52 1.78 1.60 Consumer, Non-cyclical 4,885,507 3,859,295 8,744,802 1.34 0.94 1.17 Consumer, Cyclical 4,299,810 2,099,907 6,399,717 0.63 0.13 0.43 Industrial 2,003,844 300,577 2,304,421 ------------------------------------------------- TOTAL $321,030,366 $224,105,649 $545,136,015 ================================================= Percentages are adjusted to reflect the impact of currency contracts, futures contracts, and swap agreements, if applicable. See accompanying notes. As of October 31, 2004, all securities held by the Acquired Fund would comply with the investment restrictions of the Acquiring Fund.
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004 (UNAUDITED) -------------------------------------------------------------------------------
PRINCIPAL COMBINED INTERNATIONAL INTERNATIONAL INTERNATIONAL EMERGING EMERGING EMERGING MARKETS MARKETS PRO FORMA MARKETS FUND, INC. FUND ADJUSTMENTS/(D)/ FUND - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- INVESTMENT IN SECURITIES--AT COST.. $ 37,571,539 $ 31,670,456 $ -- $ 69,241,995 ============ ============ ========= ============ FOREIGN CURRENCY--AT COST ................ $ 623,552 $ 497,789 $ -- $ 1,121,341 ============ ============ ========= ============ ASSETS Investment in securities--at value. $43,928,742/(c)/ $ 35,730,678 $ -- $79,659,420/(c)/ Foreign currency--at value................ 626,739 499,573 -- 1,126,312 Cash.................. 17,487 129,365 -- 146,852 Receivables: Capital Shares sold.. 2,422 75,506 -- 77,928 Dividends and interest............ 80,055 56,768 -- 136,823 Investment securities sold................ 601,534 475,788 -- 1,077,322 Other assets.......... 215 -- -- 215 ------------ ------------ --------- ------------ Total Assets 45,257,194 36,967,678 -- 82,224,872 LIABILITIES Accrued management and investment advisory fees................. 10,422 9,183 -- 19,605 Accrued administrative service fees......... -- 280 -- 280 Accrued distribution fees................. 2,830 2,713 -- 5,543 Accrued directors' expense.............. 3 -- -- 3 Accrued service fees.. -- 343 -- 343 Accrued transfer and administrative fees.. 29,458 15,422 -- 44,880 Accrued other expenses 41,187 4,848 -- 46,035 Payables: Capital Shares reacquired.......... 51,577 -- -- 51,577 Indebtedness......... 217,000 -- -- 217,000 Investment securities purchased........... 702,923 891,901 -- 1,594,824 Reorganization costs. -- -- 47,174 47,174 Collateral obligation on securities loaned, at value............. 250,000 -- -- 250,000 ------------ ------------ --------- ------------ Total Liabilities 1,305,400 924,690 47,174 2,277,264 ------------ ------------ --------- ------------ NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 43,951,794 $ 36,042,988 $ (47,174) $ 79,947,608 ============ ============ ========= ============ NET ASSETS CONSIST OF: Capital Shares and additional paid-in-capital...... $ 34,969,354 $ 29,404,704 $ -- $ 64,374,058 Accumulated undistributed (overdistributed) net investment income (operating loss)..... -- -- (47,174) (47,174) Accumulated undistributed (overdistributed) net realized gain (loss). 2,625,527 2,577,150 -- 5,202,677 Net unrealized appreciation (depreciation) of investments.......... 6,357,203 4,060,222 -- 10,417,425 Net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies... (290) 912 -- 622 ------------ ------------ --------- ------------ Total Net Assets $ 43,951,794 $ 36,042,988 $ (47,174) $ 79,947,608 ============ ============ ========= ============ CAPITAL STOCK (PAR VALUE: $.01 A SHARE): Shares authorized..... 100,000,000 225,000,000 -- 225,000,000 NET ASSET VALUE PER SHARE: Advisors Preferred: Net Assets........... N/A $ 3,142,557 N/A $ 3,142,557 Shares issued and outstanding.......... 208,213 208,213 Net asset value per share................ $ 15.09 $ 15.09 ============ ============ Advisors Select: Net Assets............... N/A $ 1,928,447 N/A $ 1,928,447 Shares issued and outstanding.......... 128,165 128,165 Net asset value per share................ $ 15.05 $ 15.05 ============ ============ Class A: Net Assets... $ 37,803,720 N/A $ (35,765) $ 37,767,955 Shares issued and outstanding.......... 3,173,817 (682,527) 2,491,290 Net asset value per share................ $ 11.91 -- $ 15.16 Maximum offering price per share /(a)/ $ 12.64 -- $ 16.08 ============ == ============ Class B: Net Assets... $ 6,148,074 N/A $ (11,409) $ 6,136,665 Shares issued and outstanding.......... 541,202 (136,409) 404,793 Net asset value per share /(b)/.......... $ 11.36 -- $ 15.16 ============ == ============ Class J: Net Assets... N/A $ 25,631,162 N/A $ 25,631,162 Shares issued and outstanding.......... 1,719,930 1,719,930 Net asset value per share /(b)/.......... $ 14.90 $ 14.90 ============ ============ Institutional: Net Assets............... N/A $ 14,646 N/A $ 14,646 Shares issued and outstanding.......... 966 966 Net asset value per share................ $ 15.16 $ 15.16 ============ ============ Preferred: Net Assets. N/A $ 3,430,030 N/A $ 3,430,030 Shares issued and outstanding.......... 226,056 226,056 Net asset value per share................ $ 15.17 $ 15.17 ============ ============ Select: Net Assets.... N/A $ 1,896,146 N/A $ 1,896,146 Shares issued and outstanding.......... 125,109 125,109 Net asset value per share................ $ 15.16 $ 15.16 ============ ============
/(a) /Maximum offering price equals net asset value plus a front-end sales charge of 5.75% of the offering price or 6.10% of the net asset value. /(b) /Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. /c) /Includes fair market value of securities loaned, see "Securities Lending" in Notes to Financial Statements. /(d) /Reduction in net assets to reflect the estimated expenses of the Reorganization. See accompanying notes. 1 STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2004 (UNAUDITED) ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
PRINCIPAL COMBINED INTERNATIONAL INTERNATIONAL INTERNATIONAL EMERGING EMERGING EMERGING MARKETS MARKETS PRO FORMA MARKETS FUND, INC. FUND ADJUSTMENTS FUND - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- NET INVESTMENT INCOME (OPERATING LOSS) Income: Dividends............ $ 1,155,332 $ 727,432 $ -- $ 1,882,764 Withholding tax on foreign dividends... (122,573) (74,186) -- (196,759) Interest............. 249 9,051 -- 9,300 Securities lending... 12,877 -- -- 12,877 ----------- ---------- --------- ----------- Total Income 1,045,885 662,297 -- 1,708,182 Expenses: Management and investment advisory fees................ 499,421 357,526 39,619/(A)/ 896,566 Distribution fees - Advisors Preferred.. -- 6,899 -- 6,899 Distribution fees - Advisors Select..... -- 5,325 -- 5,325 Distribution fees - Class A............. 79,579 -- -- 79,579 Distribution fees - Class B............. 67,420 -- -- 67,420 Distribution fees - Class J............. -- 85,997 -- 85,997 Distribution fees - Select.............. -- 1,761 -- 1,761 Administrative service fees - Advisors Preferred.. -- 4,139 -- 4,139 Administrative service fees - Advisors Select..... -- 3,550 -- 3,550 Administrative service fees - Preferred........... -- 3,273 -- 3,273 Administrative service fees - Select.............. -- 2,289 -- 2,289 Registration fees - Class A............. 8,527 -- -- 8,527 Registration fees - Class B............. 7,337 -- -- 7,337 Registration fees - Class J............. -- 10,919 -- 10,919 Service fees - Advisors Preferred.. -- 4,691 -- 4,691 Service fees - Advisors Select..... -- 4,437 -- 4,437 Service fees - Preferred........... -- 4,463 -- 4,463 Service fees - Select -- 2,641 -- 2,641 Shareholder reports - Class A............. 5,316 -- -- 5,316 Shareholder reports - Class B............. 1,729 -- -- 1,729 Shareholder reports - Class J............. -- 6,801 -- 6,801 Transfer and administrative fees - Class A........... 29,362 -- -- 29,362 Transfer and administrative fees - Class B........... 10,154 -- -- 10,154 Transfer and administrative fees - Class J........... -- 76,985 -- 76,985 Auditing and legal fees................ 9,875 -- (9,875)/(B)/ -- Custodian fees....... 118,392 -- (118,392)/(B)/ -- Directors' expenses.. 1,408 -- (1,408)/(B)/ -- Registration fees.... 24,377 -- -- 24,377 Transfer and administrative fees. 121,787 -- 521/(B)/ 122,308 Other expenses....... 3,408 -- (3,408)/(B)/ -- Other expenses - Class J............. -- 198 -- 198 ----------- ---------- --------- ----------- Total Gross Expenses 988,092 581,894 (92,943) 1,477,043 Less: Fees paid indirectly.......... 8,423 1,931 (4,462)/(B)/ 5,892 ----------- ---------- --------- ----------- Total Net Expenses 979,669 579,963 (88,481) 1,471,151 ----------- ---------- --------- ----------- Net Investment Income (Operating Loss) 66,216 82,334 88,481 237,031 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gain (loss) from: Investment transactions........ 7,899,968 3,361,475 -- 11,261,443 Foreign currency transactions........ (87,911) (48,935) -- (136,846) Change in unrealized appreciation/depreciation of: Investments........... (1,903,719) 145,798 -- (1,757,921) Translation of assets and liabilities in foreign currencies... 4,688 2,475 -- 7,163 ----------- ---------- --------- ----------- Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies 5,913,026 3,460,813 -- 9,373,839 ----------- ---------- --------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations $ 5,979,242 $3,543,147 $ 88,481 $ 9,610,870 =========== ========== ========= ===========
/(a) /Management and investment advisory fees increased to reflect annual percentage rate of the Acquiring Fund. /(b) /Elimination of expenses due to expense structure of Acquiring Fund. Eliminated expenses are not paid by the Acquiring Fund. See accompanying notes. 23
SCHEDULE OF INVESTMENTS October 31, 2004 (unaudited) Principal Amount or Number of Shares Market Value - ------------------------------------------------------------------------------------------------------------------------------------ Principal Principal International International International International Emerging Emerging Emerging Emerging Markets Fund, Markets Markets Fund, Markets Inc. Fund Combined Inc. Fund Combined - ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS (91.49%) AGRICULTURAL OPERATIONS (0.91%) 165,677 292,474 IOI Berhad $414,192 $316,993 $731,185 126,797 APPLICATIONS SOFTWARE (0.63%) 6,624 12,011 Infosys Technologies 278,364 504,745 5,387 226,381 APPLICATIONS SOFTWAREN (0.28%) 5,085 8,887 TATA Consultancy Services (1) 129,392 226,137 3,802 96,745 AUTO-CARS & LIGHT TRUCKS (0.77%) 7,180 12,720 Hyundai Motor 348,257 616,968 5,540 268,711 AUTO/TRUCK PARTS & EQUIPMENT- REPLACEMENT (0.00%) 0 5 Hyundai Mobis 256 - 5 - 256 BICYCLE MANUFACTURING (0.03%) 7,000 19,000 Giant Manufacturing 10,184 27,642 12,000 17,458 BREWERY (0.52%) 6,240 11,240 Efes Breweries International (1) 173,160 311,910 5,000 138,750 3,346 6,184 Quilmes Industrial 54,741 101,171 2,838 46,430 BUILDING PRODUCTS-CEMENT & AGGREGATE (0.70%) 42,469 74,492 Gujarat Ambuja Cements Ltd. (1) 320,121 561,502 32,023 241,381 BUILDING-HEAVY CONSTRUCTION (0.46%) 159,956 296,793 IJM 197,840 367,086 136,837 169,246 BUILDING-RESIDENTIAL & COMMERCIAL (1.76%) 192,743 345,980 Corporacion GEO (1) 300,828 539,996 153,237 239,168 36,680 64,547 Hyundai Development 491,469 864,855 27,867 373,386 CELLULAR TELECOMMUNICATIONS (5.74%) 90,174 169,190 Advanced Info Service Public (2) (3) 205,315 385,225 79,016 179,910 351,695 629,629 America Telecom (1) 853,869 1,528,656 277,934 674,787 458,700 844,500 Far EasTone Telecommunications 490,214 902,519 385,800 412,305 222,196 386,559 Maxis Communications 502,865 874,845 164,363 371,980 4,416 7,919 Vimpel Communications (1) 503,424 902,766 3,503 399,342 CIRCUIT BOARDS (0.55%) 373,000 674,000 Unimicron Technology 241,185 435,815 301,000 194,630 COAL (0.51%) 144,132 308,381 Yanzhou Coal Mining 189,808 406,108 164,249 216,300 COMMERCIAL BANKS (14.00%) 68,519 123,519 ABSA Group 745,558 1,344,015 55,000 598,457 52,137 92,137 Banco do Brasil 522,100 922,660 40,000 400,560 260,609 470,328 Bank Leumi Le-Israel 543,600 981,050 209,719 437,450 2,362,542 4,264,204 Bank Rakyat 506,259 913,758 1,901,662 407,499 19,027 34,420 BBVA Banco Frances 123,676 223,730 15,393 100,054 291,390 539,489 Chinatrust Financial Holding 332,344 615,313 248,099 282,969 8,194 14,001 CorpBanca (2) (3) 216,772 370,396 5,807 153,624 16,162 29,494 Credicorp 232,733 424,714 13,332 191,981 73,610 133,010 Daegu Bank 440,542 796,040 59,400 355,498 3,811 6,736 E.Sun Financial Holding (1) (2) 65,028 114,938 2,925 49,910 419,000 740,000 E.Sun Financial Holding 285,981 505,074 321,000 219,093 178,196 314,793 EON Capital 281,362 497,041 136,597 215,679 15,670 28,220 Hana Bank 391,225 704,555 12,550 313,330 24,308 44,290 Hansabank 244,276 445,079 19,982 200,803 12,687 22,465 OTP Bank 319,763 566,207 9,778 246,444 154,646,091 268,121,043 Turkiye Garanti Bankasi (1) 413,229 716,445 113,474,952 303,216 141,594,083 256,514,412 Turkiye Is Bankasi 585,774 1,061,199 114,920,329 475,425 COMPUTERS (0.87%) 94,000 168,000 High Tech Computer 391,139 699,057 74,000 307,918 COMPUTERS-PERIPHERAL EQUIPMENT (0.81%) 407,000 723,800 Lite-On Technology 363,077 645,689 316,800 282,612 COSMETICS & TOILETRIES (0.22%) 490 880 Pacific 95,855 172,148 390 76,293 DIVERSIFIED FINANCIAL SERVICES (1.27%) 127,013 225,578 RMB Holdings 387,794 688,731 98,565 300,937 9,214 16,591 Shinhan Financial Group 181,482 326,782 7,377 145,300 DIVERSIFIED MANUFACTURING OPERATIONS (0.84%) 26,520 47,770 Cheil Industries 374,289 674,200 21,250 299,911 DIVERSIFIED MINERALS (3.13%) 45,498 82,098 Anglo American 989,392 1,785,290 36,600 795,898 22,003 39,483 Antofagasta 402,355 722,000 17,480 319,645 DIVERSIFIED OPERATIONS (3.80%) 116,705 208,839 Alfa 453,857 812,159 92,134 358,302 27,942 50,827 Barloworld 388,216 706,172 22,885 317,956 174,266 318,117 China Merchants Holdings International 257,478 470,019 143,851 (4) 212,541 79,980 137,966 Citic Pacific 204,487 352,741 57,986 148,254 26,868 47,222 Imperial Holdings (1) 399,475 702,099 20,354 302,624 ELECTRIC PRODUCTS-MISCELLANEOUS (0.36%) 3,022 5,061 LG Electronics 170,603 285,712 2,039 115,109 ELECTRIC-GENERATION (0.57%) 121,800 212,800 Electricity Generating 195,758 342,014 91,000 146,256 83,500 83,500 National Thermal Power (1) (3) 114,119 114,119 - - ELECTRONIC COMPONENTS- MISCELLANEOUS (5.18%) 5,400 9,653 Samsung Electronics 2,119,964 3,789,632 4,253 1,669,668 2,150 3,950 Samsung SDI 193,971 356,365 1,800 162,394 ELECTRONIC COMPONENTS- SEMICONDUCTOR (1.16%) 44,750 81,480 Hynix Semiconductor (1) 507,660 924,338 36,730 416,678 FINANCE-OTHER SERVICES (0.95%) 455,000 803,000 Fubon Financial Holding 429,053 757,207 348,000 328,154 FOOD-MISCELLANEOUS/DIVERSIFIED (0.47%) 44,296 73,093 Global Bio-Chem Technology Group - warrants 3,073 5,071 28,797 (1) 1,998 14,070 26,358 Tiger Brands 198,111 371,131 12,288 173,020 FOOD-RETAIL (0.53%) 7,832 15,212 Cencosud (1) (2) 174,044 338,044 7,380 164,000 14,070 26,358 SPAR Group (1) 47,300 88,609 12,288 41,309 FOOTWEAR & RELATED APPAREL (0.57%) 20,628 37,392 Grendene (1) 249,977 453,129 16,764 203,152 GAS-DISTRIBUTION (1.74%) 7,360 13,310 Korea Gas 224,186 405,423 5,950 181,237 14,626 26,415 OAO Gazprom (2)(3) 545,988 986,072 11,789 440,084 HOME FURNISHINGS (0.89%) 76,100 136,600 Lewis Group (1) 394,867 708,789 60,500 313,922 HOUSEWARES (0.78%) 140,614,000 254,370,000 Turk Sise ve Cam Fabrikalari 343,310 621,046 113,756,000 277,736 IMPORT & EXPORT (0.65%) 507,257 931,869 Testrite International 282,442 518,867 424,612 236,425 INTERNET SECURITY (1.03%) 19,930 36,502 Check Point Software Technologies (1) 450,837 825,712 16,572 374,875 LIFE & HEALTH INSURANCE (0.65%) 200,095 359,935 New Africa Capital 287,591 517,325 159,840 229,734 NON-FERROUS METALS (1.14%) 122,358 222,270 Grupo Mexico (1) 503,957 915,465 99,912 411,508 OIL COMPANY-EXPLORATION & PRODUCTION (1.67%) 15,217 28,350 Oil & Natural Gas 264,373 492,540 13,133 228,167 118,316 202,852 PTT Public (3) 489,802 839,762 84,536 349,960 OIL COMPANY-INTEGRATED (9.72%) 1,738,058 3,097,975 China Petroleum & Chemical 658,744 1,174,169 1,359,917 515,425 7,250 13,143 LUKOIL 906,250 1,642,875 5,893 736,625 5,997 11,313 MOL Magyar Olaj-es Gazipari 334,575 631,156 5,316 296,581 1,134,992 1,915,651 PetroChina 594,225 1,002,939 780,659 408,714 30,932 55,719 Petroleo Brasileiro 1,098,395 1,978,581 24,787 880,186 23,220 41,005 Sasol 458,178 809,112 17,785 350,934 7,900 13,600 Surgutneftegaz 312,050 537,200 5,700 225,150 OIL REFINING & MARKETING (1.56%) 52,520 92,557 Polski Koncern Naftowy Orlen 565,570 996,715 40,037 431,145 141,000 254,300 Thai Oil Public (1) (3) 139,060 250,801 113,300 111,741 OIL-FIELD SERVICES (0.91%) 9,396 16,273 Tenaris 420,659 728,542 6,877 307,883 PAPER & RELATED PRODUCTS (0.51%) 75,115 135,933 Kimberly-Clark de Mexico 224,770 406,759 60,818 181,989 PETROCHEMICALS (2.00%) 14,610 26,670 Honam Petrochemical 571,611 1,043,454 12,060 471,843 831,210 1,584,753 SINOPEC Shanghai Petrochemical 291,010 554,828 753,543 263,818 REAL ESTATE OPERATOR & DEVELOPER (1.05%) 10,280 18,395 IRSA Inversiones y Representaciones 97,763 174,937 8,115 (1) 77,174 196,242 345,030 Kerry Properties 378,193 664,934 148,788 286,741 RETAIL-APPAREL & SHOE (1.78%) 23,158 41,009 Edgars Consolidated Stores 804,842 1,425,242 17,851 620,400 RETAIL-AUTOMOBILE (0.63%) 311,427 584,452 Astra International 268,649 504,171 273,025 235,522 RETAIL-DISCOUNT (0.52%) 199,560 384,330 Siam Makro (3) 216,253 416,479 184,770 200,226 RETAIL-HYPERMARKETS (0.73%) 102,922 182,986 Organizacion Soriana 330,289 587,224 80,064 256,935 RETAIL-MISCELLANEOUS/DIVERSIFIED (0.57%) 36,856 65,652 Massmart Holdings 256,181 456,338 28,796 200,157 RUBBER & PLASTIC PRODUCTS (0.22%) 36,000 64,000 Taiwan Green Point Enterprises 99,147 176,261 28,000 77,114 SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (1.38%) 152,000 269,000 Realtek Semiconductor 151,522 268,154 117,000 116,632 364,097 635,494 Taiwan Semiconductor 477,397 833,248 271,397 Manufacturing 355,851 SHIP BUILDING (0.81%) 65,950 119,830 Samsung Heavy Industries 356,996 648,655 53,880 291,659 STEEL PRODUCERS (3.61%) 5,325 9,611 Cherepovets MK Severstal (1) (3) 213,370 385,108 4,286 171,738 219,000 383,000 China Steel 220,278 385,235 164,000 164,957 55,465 100,233 Iscor 486,417 879,023 44,768 392,606 12,679 22,966 POSCO 474,068 858,699 10,287 384,631 34,103 60,161 Tata Iron & Steel 216,240 381,469 26,058 165,229 TELECOMMUNICATION SERVICES (3.83%) 698,204 1,296,326 China Telecom 224,261 416,375 598,122 192,114 87,829 157,691 Mahanagar Telephone Nigam 266,982 479,348 69,862 212,366 32,096 56,934 SK Telecom 633,254 1,123,308 24,838 490,054 74,100 137,200 Telekom Malaysia 224,250 415,210 63,100 190,960 742,000 1,318,000 Telekomunikasi Indonesia 354,692 630,033 576,000 275,341 TELEPHONE-INTEGRATED (2.19%) 185,497 334,190 Carso Global Telecom (1) 285,498 514,351 148,693 228,853 27,143 49,751 Philippine Long Distance Telephone 677,009 1,240,904 22,608 (1) 563,895 TOBACCO (0.19%) 2,850 5,610 Korea Tobacco & Ginseng 78,919 155,346 2,760 76,427 TRANSPORT-MARINE (1.96%) 228,983 501,649 China Shipping Development (4) 191,226 418,932 272,666 227,706 657 1,165 Evergreen Marine 566 1,004 508 438 61,442 110,600 Malaysia International Shipping 215,047 387,100 49,158 172,053 429,950 788,850 Wan Hai Lines 413,154 758,033 358,900 344,879 WIRELESS EQUIPMENT (1.18%) 218,827 401,077 Gemtek Technology 514,232 942,510 182,250 428,278 TOTAL COMMON STOCKS 40,737,124 73,189,822 32,452,698 PREFERRED STOCKS (6.67%) AIRLINES (0.79%) 33,195 61,096 Gol Linhas Aereas Inteligentes 342,876 631,069 27,901 (1) 288,193 COMMERCIAL BANKS (1.03%) 7,562 13,603 Banco Bradesco 457,268 822,563 6,041 365,295 DIVERSIFIED MINERALS (1.78%) 1,276,434 2,394,017 Caemi Mineracao e Metalurgica (1) 764,251 1,433,392 1,117,583 669,141 FOOD-MEAT PRODUCTS (0.94%) 232,667 413,477 Sadia 421,179 748,486 180,810 327,307 MACHINERY-GENERAL INDUSTRY (0.72%) 123,028 217,759 WEG 319,632 565,747 94,731 246,115 PETROCHEMICALS (0.44%) 5,325,790 9,514,211 Braskem 195,801 349,787 4,188,421 153,986 STEEL PRODUCERS (0.97%) 5,283,248 9,573,426 Cia Siderurgica de Tubarao 213,291 386,490 4,290,178 173,199 15,011 25,960 Usinas Siderurgicas de Minas 227,320 393,127 10,949 Gerais 165,807 TOTAL PREFERRED STOCKS 2,941,618 5,330,661 2,389,043 COMMERCIAL PAPER (1.11%) FINANCE-MORTGAGE LOAN/BANKER (1.11%) 888,937 Investment in Joint Trading Account; Federal Home Loan Bank 888,937 - 888,937 1.69%; 11/01/04 - 888,937 TOTAL COMMERCIAL PAPER 888,937 - 888,937 REPURCHASE AGREEMENTS (0.31%) Washington Mutual Capital; 1.95%; dated 10/29/04 maturing 11/01/04 250,041 (collateralized by U.S.Government Agency Securities; $255,000; 250,000 250,041 - 08/01/19 - 11/01/34) (5) 250,000 - TOTAL REPURCHASE AGREEMENTS 250,000 250,000 - TOTAL PORTFOLIO INVESTMENTS (99.58%) 43,928,742 79,659,420 35,730,678 Cash, receivables and other assets, net of liabilities (0.42%) 23,052 312,310 335,362 TOTAL NET ASSETS (100.00%) $43,951,794 $36,042,988 $79,994,782 =============================================== (1) Non-income producing security. (2) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At the end of the period, the value of these securities totaled $2,194,675 or 2.74% of net assets. (3) Market value is determined in accordance with procedures established in good faith by the Board of Directors. At the end of the period, the value of these securities totaled 3,747,962 or 4.69% of net assets (4) Security or a portion of the security was on loan at the end of the period (5) Security was purchased with the cash proceeds from securities loans.
UNREALIZED APPRECIATION (DEPRECIATION) The net federal income tax unrealized appreciation (depreciation) and federal tax cost of investments held by the fund as of the period end were as follows. Unrealized Appreciation $6,784,451 $4,430,475 $11,214,926 Unrealized Depreciation (459,519) (397,001) (856,520) --------------------------------------------- Net Unrealized Appreciation (Depreciation) 6,324,932 4,033,474 10,358,406 Cost for federal income tax purposes $37,603,810 $31,697,204 $69,301,014
INVESTMENTS BY COUNTRY (UNAUDITED) Percentage of Total Value Country Value - ------------------------------------------------------------------------------------------------------------------------------------ 1.36% 1.27% 1.32% Argentina $599,075 $454,367 $1,053,442 10.95 10.84 10.90 Brazil 4,812,090 3,872,941 8,685,031 0.89 0.89 0.89 Chilie 390,817 317,624 708,441 3.95 3.96 3.96 China 1,735,206 1,415,664 3,150,870 2.86 2.96 2.91 Hong Kong 1,257,301 1,057,948 2,315,249 1.49 1.52 1.50 Hungary 654,337 543,026 1,197,363 3.62 3.27 3.46 India 1,589,590 1,170,268 2,759,858 2.57 2.57 2.57 Indonesia 1,129,600 918,361 2,047,961 2.26 2.27 2.27 Israel 994,437 812,325 1,806,762 17.42 17.05 17.26 Korea 7,654,350 6,092,384 13,746,734 4.18 4.02 4.11 Malaysia 1,835,556 1,436,911 3,272,467 6.72 6.58 6.66 Mexico 2,953,068 2,351,542 5,304,610 0.39 0.39 0.39 Netherlands 173,160 138,750 311,910 0.53 0.54 0.53 Peru 232,733 191,981 424,714 1.54 1.58 1.56 Philippines 677,009 563,896 1,240,905 1.29 1.21 1.25 Poland 565,570 431,145 996,715 3.59 3.46 3.53 Russia 1,574,833 1,236,313 2,811,146 11.05 10.75 10.92 South Africa 4,854,529 3,842,057 8,696,586 0.56 0.56 0.56 Spain 244,276 200,803 445,079 10.85 10.69 10.78 Taiwan 4,766,944 3,819,624 8,586,568 2.84 2.77 2.80 Thailand 1,246,188 988,093 2,234,281 3.06 2.96 3.01 Turkey 1,342,313 1,056,376 2,398,689 3.17 3.12 3.15 United Kingdom 1,391,747 1,115,543 2,507,290 2.86 4.77 3.71 United States 1,254,013 1,702,736 2,956,749 TOTAL $43,928,742 $35,730,678 $79,659,420 ============================================= Percentages are adjusted to reflect the impact of currency contracts, futures contracts, and swap agreements, if applicable. See accompanying notes. As of October 31, 2004, all securities held by the Acquired Fund would comply with the investment restrictions of the Acquiring Fund.
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) ------------------------------------------------------------------------------- 1. DESCRIPTION OF THE FUNDS Bond & Mortgage Securities Fund, Disciplined LargeCap Blend Fund, Diversified International Fund, Government Securities Fund, High Quality Short-Term Bond Fund, International Emerging Markets Fund, LargeCap Growth Fund, LargeCap S&P 500 Index Fund, LargeCap Value Fund, MidCap Blend Fund, Money Market Fund, Partners LargeCap Blend Fund, Partners LargeCap Blend Fund I, Partners MidCap Growth Fund, Real Estate Securities Fund and SmallCap Blend Fund (the "Acquiring Funds"), are series of Principal Investors Fund, Inc. (the "Fund"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. 2. BASIS OF COMBINATION On February 24, 2005, the Board of Directors of Principal Balanced Fund, Inc., Principal Bond Fund, Inc., Principal Capital Value Fund, Inc., Principal Cash Management Fund, Inc., Principal Government Securities Income Fund, Inc., Principal Growth Fund, Inc., Principal International Emerging Markets Fund, Inc., Principal International Fund, Inc., Principal International SmallCap Fund, Inc. Principal LargeCap Stock Index Fund, Inc., Principal Limited Term Bond Fund, Inc., Principal MidCap Fund, Inc., Principal Partners Blue Chip Fund, Inc., Principal Partners LargeCap Blend Fund, Inc., Principal Partners MidCap Growth Fund, Inc., Principal Real Estate Securities Fund, Inc. and Principal SmallCap Fund, Inc. (the "Acquired Funds") each approved an Agreement and Plan of Reorganization whereby, subject to approval by the shareholders of each Acquired Fund, Principal Investors Fund, Inc. will acquire all the assets of each Acquired Fund subject to the liabilities of such Acquired Fund, in exchange for a number of shares equal to the pro rata net assets of shares of the Acquiring Funds (the "Reorganization"), as set forth below.
ACQUIRED FUND ACQUIRING FUND Principal Balanced Fund, Inc. Disciplined LargeCap Blend Fund Principal Bond Fund, Inc. Bond & Mortgage Securities Fund Principal Capital Value Fund, Inc. LargeCap Value Fund Principal Cash Management Fund, Inc. Money Market Fund Principal Government Securities Income Fund, Government Securities Fund Inc. Principal Growth Fund, Inc. LargeCap Growth Fund Principal International Emerging Markets International Emerging Markets Fund, Inc. Fund Principal International Fund, Inc. Diversified International Fund Principal International SmallCap Fund, Inc. Diversified International Fund Principal LargeCap Stock Index Fund, Inc. LargeCap S&P 500 Index Fund Principal Limited Term Bond Fund, Inc. High Quality Short-Term Bond Fund Principal MidCap Fund, Inc. MidCap Blend Fund Principal Partners Blue Chip Fund, Inc. Partners LargeCap Blend Fund I Principal Partners LargeCap Blend Fund, Inc. Partners LargeCap Blend Fund Principal Partners MidCap Growth Fund, Inc. Partners MidCap Growth Fund Principal Real Estate Securities Fund, Inc. Real Estate Securities Fund Principal SmallCap Fund, Inc. SmallCap Blend Fund
The Reorganization will be accounted for as a tax-free reorganization of investment companies. The pro forma combined financial statements are presented for the information of the reader and may not necessarily be representative of what the actual combined financial statements would have been had the Reorganization occurred at October 31, 2004. The unaudited pro forma schedules of investments and statements of assets and liabilities reflect the financial position of the Acquired Funds and the Acquiring Funds at October 31, 2004. The unaudited pro forma statements of operations reflect the results of operations of the Acquired Funds and the Acquiring Funds for the twelve months ended October 31, 2004. The statements have been derived from the Funds' respective books and records utilized in calculating daily net asset value at the dates indicated above for the Acquired Funds and the Acquiring Funds under U.S. generally accepted accounting principles. The historical cost of investment securities will be carried forward to the surviving entity and results of operations of the Acquiring Funds for pre-combination periods will not be restated. The pro forma schedules of investments and statements of assets and liabilities and operations should be read in conjunction with the historical financial statements of the Funds incorporated by reference in the Statements of Additional Information. 3. SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 4. SECURITY VALUATION The Acquired and Acquiring Funds (with the exception of Principal Cash Management Fund, Inc. and Money Market Fund) value securities for which market quotations are readily available at market value, which is determined using the last reported sale price. If no sales are reported, as is regularly the case for some securities traded over-the-counter, securities are valued using the last reported bid price or an evaluated bid price provided by a pricing service. Pricing services use electronic modeling techniques that incorporate security characteristics, market conditions and dealer-supplied valuations to determine an evaluated bid price. When reliable market quotations are not considered to be readily available, which may be the case, for example, with respect to restricted securities, certain debt securities, preferred stocks and foreign securities, the investments are valued at their fair value as determined in good faith by the Manager under procedures established and periodically reviewed by each Fund's Board of Directors. 33 (UNAUDITED) ------------------------------------------------------------------------------- 4. SECURITY VALUATION (CONTINUED) The value of foreign securities used in computing the net asset value per share is generally determined as of the close of the foreign exchange where the security is principally traded. Events that occur after the close of the applicable foreign market or exchange but prior to the calculation of the fund's net asset value are ordinarily not reflected in the fund's net asset value. If events that occur after the close of the applicable foreign market or exchange but prior to the calculation of the fund's net asset value are determined to materially affect the value of a foreign security, then the security is valued at its fair value as determined in good faith by Principal Management Corporation under procedures established and periodically reviewed by each Fund's Board of Directors. Many factors are reviewed in the course of making a good faith determination of a security's fair value, including, but not limited to, price movements in ADRs, futures contracts, industry indices, general indices and foreign currencies. To the extent each fund invests in foreign securities listed on foreign exchanges which trade on days on which the fund does not determine its net asset value, for example weekends and other customary national U.S. holidays, each fund's net asset value could be significantly affected on days when shareholders cannot purchase or redeem shares. Certain securities issued by companies in emerging market countries may have more than one quoted valuation at any given point in time, sometimes referred to as a "local" price and a "premium" price. The premium price is often a negotiated price, which may not consistently represent a price at which a specific transaction can be effected. It is the policy of the Funds to value such securities at prices at which it is expected those shares may be sold, and the Manager or any sub-advisor is authorized to make such determinations subject to such oversight by each Fund's Board of Directors as may occasionally be necessary. Short-term securities are valued at amortized cost, which approximates market. Principal Cash Management Fund, Inc. and Money Market Fund value their securities at amortized cost as permitted under Rule 2a-7 of the Investment Company Act of 1940. Under the amortized cost method, a security is valued by applying a constant yield to maturity of the difference between the principal amount due at maturity and the cost of the security to the fund. 5. FUTURES CONTRACTS The Acquired and Acquiring Funds may enter into futures contracts for both hedging and non-hedging purposes. Initial margin deposits are made by cash deposits or segregation of specific securities as may be required by the exchange on which the transaction was conducted. Pursuant to the contracts, a fund agrees to receive from or pay to the broker, an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as "variation margin" and are recorded by the fund as a variation margin receivable or payable on futures contracts. During the period the futures contracts are open, daily changes in the value of the contracts are recognized as unrealized gains or losses. These unrealized gains or losses are included as a component of net unrealized appreciation (depreciation) of investments on the statements of assets and liabilities. When the contracts are closed, the fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the fund's cost basis in the contract. 6. REPURCHASE AGREEMENTS The Acquired and Acquiring Funds may invest in repurchase agreements that are fully collateralized, typically by U.S. government or U.S. government agency securities. The value of the collateral is maintained, at a minimum, in an amount equal to the principal amount plus accrued interest of each repurchase agreement. In the event the seller of a repurchase agreement defaults, the fund could experience delays in the realization of the collateral. 7. REVERSE REPURCHASE AGREEMENTS Certain of the Acquired and Acquiring Funds may enter into reverse repurchase agreements. Under a reverse repurchase agreement, a fund sells securities and agrees to repurchase them at a specified date and price. Reverse repurchase agreements are considered to be borrowings by the fund, and are subject to the fund's restrictions on borrowing. Reverse repurchase agreements may increase the volatility of the fund and involve the risk that interest costs on money borrowed may exceed the return on securities purchased with the borrowed money. 8. SECURITIES LENDING Certain of the Acquired and Acquiring Funds may lend portfolio securities to approved brokerage firms to earn additional income. Each applicable fund receives collateral (in the form of U.S. government securities, U.S. government agency securities, letters of credit, and/or cash) against the loaned securities and maintains collateral in an amount not less than 100% of the market value of the loaned securities during the period of the loan. Cash collateral is usually invested in short-term securities. The market value of loaned securities is determined at the close of business of the Funds and any additional required collateral is delivered to the fund on the next business day. Although risk is mitigated by the collateral, the fund could experience a delay in recovering its securities and possible loss of income or value if the borrower fails to return them. 9. SWAP AGREEMENTS Certain of the Acquired and Acquiring Funds may invest in swaps for the purpose of managing their exposure to interest rate, credit or market risk. Swaps are marked-to-market daily based on an evaluated price provided by a pricing service; changes in value are recorded as unrealized gain or loss. These unrealized gains or losses are included as a component of net unrealized appreciation (depreciation) of investments on the statements of assets and liabilities. Periodic payments received or made at the end of each measurement period are recorded as realized gain or loss on the statement of operations. Upon termination of the swap agreement, the fund recognizes a realized gain or loss. Notional principal amounts are used to express the extent of involvement in these contracts, but the potential amounts subject to loss are much lower. Risks may exceed amounts shown on the statement of assets and liabilities. These risks include changes in the returns of the underlying instruments, unfavorable interest rate fluctuation, failure of the counterparties to perform under the contracts' terms and the possible lack of liquidity with respect to the swap agreements. Details of swap agreements open at period end are included in the funds' schedules of investments. 34 (UNAUDITED) ------------------------------------------------------------------------------- 10. CAPITAL SHARES The pro forma net asset value per share assumes issuance of shares of the Acquiring Funds that would have been issued at October 31, 2004, in connection with the Reorganization. The number of shares assumed to be issued is equal to the net assets of the Acquired Funds, as of October 31, 2004, divided by the net asset value per share of the Acquiring Funds as of October 31, 2004. The pro forma number of shares outstanding, by class, for the combined fund can be found on the statements of assets and liabilities. 11. PRO FORMA ADJUSTMENTS The accompanying pro forma financial statements reflect changes in fund shares as if the Reorganization had taken place on October 31, 2004. The expenses of the Acquired Funds were adjusted assuming the fee structure of the Acquiring Funds was in effect for the twelve months ended October 31, 2004. 12. DISTRIBUTIONS No provision for federal income taxes is considered necessary because each fund is qualified as a "regulated investment company" under the Internal Revenue Code and intends to distribute each year substantially all of its net investment income and realized capital gains to shareholders. The Acquired Funds will distribute substantially all of their net investment income and any realized gains prior to the reorganization date. 13. SUBSEQUENT EVENTS Effective November 1, 2004, initial purchases of Advisors Signature shares of the Acquiring Funds were made by Principal Life Insurance Company. The pro forma financial statements do not reflect the addition of Advisors Signature shares. Effective January 1, 2005, certain of the Acquiring Funds implemented management and investment advisory fee schedules as follows:
NET ASSETS OF FUNDS (IN MILLIONS) ---------------------------------- FIRST NEXT NEXT OVER $500 $500 $500 $1.5 BILLION ------ ------ ------ -------------- Bond & Mortgage Securities Fund .55% .53% .51% .50% Disciplined LargeCap Blend Fund .60 .58 .56 .55 Diversified International Fund .90 .88 .86 .85 Government Securities Fund .40 .38 .36 .35 High Quality Short-Term Bond Fund .40 .38 .36 .35 International Emerging Markets Fund 1.35 1.33 1.31 1.30 LargeCap Growth Fund .55 .53 .51 .50 LargeCap Value Fund .45 .43 .41 .40 MidCap Blend Fund .65 .63 .61 .60 Money Market Fund .40 .38 .37 .36 Partners LargeCap Blend Fund .75 .73 .71 .70 Partners LargeCap Blend Fund I .45 .43 .41 .40 Partners MidCap Growth Fund 1.00 .98 .96 .95 Real Estate Securities Fund .85 .83 .81 .80 SmallCap Blend Fund .75 .73 .71 .70
The fee schedule described above is reflected in the pro forma statements of operations. Effective February 28, 2005, Principal LargeCap Stock Index Fund, Inc. and Principal Limited Term Bond Fund, Inc. exchanged all Class B shares into Class A shares. The pro forma financial statements do not reflect the discontinuation of Class B shares. Effective March 1, 2005, International Fund I and LargeCap Blend Fund I changed their names to Diversified International Fund and Disciplined LargeCap Blend Fund, respectively. 35 -----END PRIVACY-ENHANCED MESSAGE-----