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Principal Mutual Funds

The Judith Curran et. al. v. Principal Management Corporation et. al. Complaint was filed in the United States District Court for the Southern District of Iowa on October 28, 2010, on behalf of shareholders of the Principal SAM Balanced Portfolio mutual fund (SABPX), and an Amended Complaint was filed on January 15, 2010 to add claims on behalf of shareholders of the Principal SAM Strategic Growth Portfolio mutual fund (SACAX). The Amended Complaint alleges that Defendants Principal Management Corporation, Principal Global Investors, LLC, and Principal Funds Distributor, Inc., (hereinafter “Principal”) improperly charged shareholders excessive investment management and distribution fees. Plaintiffs seek to recover, on behalf of the SAM Balanced Portfolio, the SAM Strategic Growth Portfolio, and the underlying funds of each Portfolio, any improper compensation retained by Principal in breach of their fiduciary duty under Section 36(b) of the Investment Company Act of 1940.

The Principal SAM Balanced and Strategic Growth Portfolios are fund of funds, which are mutual funds that invest in other Principal funds, including the following:

Principal Capital Appreciation Fund (CMNWX)
Principal Disciplined LargeCap Blend Fund (PRMGX)
Principal Diversified International Fund (PRWLX)
Principal Equity Income Fund (PQIAX)
Principal High Yield Fund (CPHYX)
Principal Income Fund (CMPIX) (SAM Balanced only)
Principal International Emerging Markets Fund (PRIAX)
Principal LargeCap Growth Fund (PRGWX)
Principal LargeCap Growth Fund II (PLNAX)
Principal LargeCap Value Fund III (PPVAX)
Principal MidCap Stock Fund (WMCAX)
Principal Money Market Fund (PCSXX)
Principal Government & High Quality Bond Fund, (CMPGX) (formerly Principal Mortgage Securities Fund) (SAM Balanced only)
Principal Preferred Securities Fund (PPSAX) (SAM Balanced only)
Principal Real Estate Securities Fund (PRRAX)
Principal Short Term Income Fund (SRHQX)
Principal SmallCap Growth Fund (PMAAX)

The Complaint alleges that shareholders of the SAM Balanced and Strategic Growth Portfolios actually pay four layers of advisory fees because Principal hires sub-advisors for the SAM funds as well as each underlying fund. For example, in 2008, Defendant Principal Management Corporation paid its sub-advisor, Edge, $2.8 million to perform the investment advisory service for these two SAM funds, and then charged shareholders an additional $17.8 million for investment advisory services that it retained for itself even though it actually performed very few additional advisory services.

On June 8, 2010, the Honorable Robert W. Pratt issued an order in which he granted in part and denied in part Defendants’ Motion to Dismiss Plaintiffs’ Amended Complaint. Notably, the Judge ruled that Plaintiffs may pursue claims on behalf of shareholders in both of the SAM Funds and each of the underlying funds identified above. The Judge dismissed Plaintiffs’ Count II and the claims against Principal Global Investors, LLC but allowed the remainder of Plaintiffs’ claims to move forward against Defendants Principal Management Corporation and Principal Funds Distributor, Inc. A copy of the Order and Plaintiffs’ Amended Complaint are available via Case Documents.

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Case Documents