NOTICE-CUM-ADDENDUM. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Transcription

1 NOTICE-CUM-ADDENDUM Principal Pnb Asset Management Company Pvt. Ltd. Regd. Off.: Exchange Plaza, B Wing, Ground Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Toll Free: Fax: (022) customer@principalindia.com Visit us at: NOTICE-CUM-ADDENDUM TO THE SCHEME INFORMATION DOCUMENT (SID) AND KEY INFORMATION MEMORANDUM (KIM) OF PRINCIPAL SERVICES INDUSTRIES FUND (An open-ended Equity Scheme) (No. 18 /2012) NOTICE IS HEREBY GIVEN to the unitholders of Principal Services Industries Fund - an open-ended equity scheme of Principal Mutual Fund that the Board of Directors of Principal Pnb Asset Management Company Private Limited (PAMCL) and Principal Trustee Company Private Limited (Trustees) have approved and fully support the merger of Principal Services Industries Fund into Principal Growth Fund (Both of these being open-ended Equity Schemes). Securities and Exchange Board of India (SEBI) too has conveyed it s no objection to the same. Consequent to the proposed merger the Growth and Dividend Options under Principal Services Industries Fund shall merge with the respective Growth and Dividend Options under Principal Growth Fund. In this regard, individual communication has been dispatched to Unitholders of Principal Services Industries Fund, existing in the Register of Unitholders of our Registrar & Transfer Agents, M/s. Karvy Computershare Pvt. Ltd. (Registrar) Such of those unitholders who do not receive the communication can contact the Registrar. It is clarified that the proposed merger shall not in any manner change the investment objective, asset allocation pattern, recurring expenses and/or other fundamental attributes of Principal Growth Fund. Further the Unitholders are required to note that no new scheme/plan will emerge post the aforesaid merger. The Unitholders who may not be in agreement with the proposed merger can opt to exit/ redeem without payment of exit load, if any applicable, during the notice period indicated herein. The NAV applicable, should the unitholder choose to exit/redeem during the notice period, would be based on the date/time of receipt of the application for exit / redemption during business hours on a business day. Such redemption request should be submitted at any of the Official Points of Acceptance of transactions closest to you (list available at or call on ). The Notice period of this exit option shall commence from July 12, 2012 and conclude on August 10, 2012 up to 3.00 p.m. ( the Notice Period ) - both days inclusive. No action needs to be taken by Unitholders, who have no objection to the proposed Merger, and it would be deemed that such Unitholders have consented to the same. The continuing unitholders of Principal Services Industries Fund as at the end of business hours on August 10, 2012 will be allotted units (basis the NAV of August 10, 2012) of Principal Growth Fund, in lieu of the value of their existing units in the Principal Services Industries Fund and consequently terms, conditions and features of Principal Growth Fund shall prevail. An account statement reflecting the same shall be issued to the continuing unitholders. The said merger shall be effective post the closure of the business hours on August 10, (Assuming August 10, 2012 to be a business day) Brief note of tax impact on account of the Merger Unitholders of Principal Services Industries Fund who choose to exit /redeem during the notice period If the unitholder chooses to exit during the notice period, the transaction shall be treated as redemption of units in Principal Services Industries Fund and may result in capital gain/loss in the hands of the unitholder, and depending on the period of holding of investment (short/long term), there could be short/long term capital gain tax impact in the hands of the unitholder. Please note that AMC shall bear the Securities Transaction Tax (S.T.T) charges in respect of units in Principal Services Industries Fund which already exist as on July 12, 2012 and are redeemed during the notice period. Unitholders of Principal Services Industries Fund who agree with the proposed merger and choose to opt for units of Principal Growth Fund in lieu of units of Principal Services Industries Fund Unitholders of Principal Services Industries Fund may note that on August 10, 2012 there will be a fresh issue of units in Principal Growth Fund in lieu of units held in Principal Services Industries Fund. The transaction shall be treated as redemption of units in Principal Services Industries Fund and may result in capital gain/loss in the hands of the unitholder, and depending on the period of holding of investment (short/long term), there could be short/long term capital gain tax impact in the hands of the unitholder. Please note that AMC shall bear the Securities Transaction Tax (S.T.T) charges in respect of merger of those units in Principal Services Industries Fund which already exist as on August 10, Unitholder of Principal Growth Fund who chooses to continue will have no tax impact. Tax impact to unitholders of Principal Growth Fund who choose to exit would be as mentioned in the Scheme Information Document. The above briefly provides the tax impact on the unit holder on account of the Merger. The same should not be construed as tax advice from Principal Pnb Asset Management Company Private Limited. As such, unit holders are strongly advised to consult their Tax Advisors for a detailed tax implication, specific to their transaction. For further information/assistance in this regard you can also visit us at or us at customer@principalindia.com, or call on our Toll free no For Principal Pnb Asset Management Company Pvt. Ltd. Place : Mumbai Date : July 10, 2012 Sd/- Authorised Signatory Mutual Fund investments are subject to market risks, read all scheme related documents carefully. 25 cm x 4 colm

2 NOTICE-CUM-ADDENDUM Principal Pnb Asset Management Company Pvt. Ltd. Regd. Off.: Exchange Plaza, B Wing, Ground Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Toll Free: Fax: (022) customer@principalindia.com Visit us at: NOTICE-CUM-ADDENDUM TO THE SCHEME INFORMATION DOCUMENT (SID) AND KEY INFORMATION MEMORANDUM (KIM) [No.15/2012] NOTICE IS HEREBY GIVEN, that effective May 21, 2012, Principal Near-Term Fund (An open-ended Debt Scheme) shall stand renamed as Principal Debt Opportunities Fund. This addendum shall appropriately form an integral part of the SID /KIM of the said Scheme as amended from time to time and all other features/ terms and conditions [including name of the Plan(s)] as mentioned therein shall remain unchanged. For further information/assistance do visit us at or us at customer@principalindia.com or call on our Toll Free no For Principal Pnb Asset Management Company Pvt. Ltd. Place : Mumbai Date : May 15, 2012 Sd/- Authorised Signatory Mutual Fund investments are subject to market risks, read all scheme related documents carefully. 10 cm x 3 colm

3 NOTICE-CUM-ADDENDUM TO THE SCHEME INFORMATION DOCUMENTS (SID), KEY INFORMATION MEMORANDUMS (KIM) & THE STATEMENT OF ADDITIONAL INFORMATION (SAI) OF PRINCIPAL MUTUAL FUND (NO. 24/2011) NOTICE IS HEREBY GIVEN THAT, 1. Effective November 21, 2011, the Official Point of Acceptance situated at 1st Floor, Maker Bhavan-II, 18, Sir Vithaldas Thakersey Marg, New Marine Lines, Mumbai shall be shifted to Exchange Plaza, 'B' Wing, Ground Floor, National Stock Exchange Building, Bandra Kurla Complex, Bandra (East), Mumbai The Office of the Company situated at Shop No , Lalganga Shopping Mall, G.E. Road, Raipur , ceases to be the Official Point of Acceptance. This addendum forms an integral part of the SID/KIM and SAI of Principal Mutual Fund as amended from time to time and all other features, terms and conditions as mentioned therein remains unchanged. For further information/assistance do visit us at or us at customer@principalindia.com or call on our Toll Free no Place: Mumbai Date: November 18, 2011 Statutory Details: Principal Mutual Fund has been constituted as a trust with Principal Financial Group (Mauritius) Limited, Punjab National Bank and Vijaya Bank as the co-settlors. Sponsor: Principal Financial Services Inc., USA. [through its wholly owned subsidiary Principal Financial Group (Mauritius) Limited]. Trustee: Principal Trustee Company Private Limited. Investment Manager: Principal Pnb Asset Management Company Private Limited (AMC). Risk factors: Mutual funds and securities investments are subject to market risks and there can be no assurance and no guarantee that the scheme's objective can be achieved. As with any investment in securities, the NAV of the units issued under the Scheme can go up or down, depending upon the factors and forces affecting the capital markets. Past performance of the Sponsor and any of its associates, co-settlors and/or AMC/ Mutual Fund does not indicate or guarantee the future performance of the Schemes of Principal Mutual Fund. The name of the Scheme do not in any manner indicate either the quality of the Scheme or their future prospects or returns. The Sponsor and any of its associates including co-settlors are not responsible or liable for any loss resulting from the operations of the Mutual Fund beyond the initial contribution of an amount of Rs. 25 Lakhs towards setting up Principal Mutual Fund. Investors in the scheme are not being offered a guaranteed or assured rate of return or monthly or regular/periodical income distribution, and the actual returns and/or periodical income distribution of an investor will be based on the distributable surplus. Scheme specific risk factors are mentioned in the SID. Kindly refer to the SAI / SID & KIM carefully prior to investing. Copy of the SAI / SID & KIM is available at all our Investor Service Centres. Alternatively, investors can call us at to get a copy of the same.

4 NOTICE-CUM-ADDENDUM Principal Pnb Asset Management Company Pvt. Ltd. Regd. Off.: Exchange Plaza, B Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Toll Free: Fax: (022) customer@principalindia.com Visit us at: NOTICE-CUM-ADDENDUM (22/2011) NOTICE IS HEREBY GIVEN THAT, effective November 1, 2011, the following modifications are being carried out to the Scheme Information Document (SID) and Key Information Memorandum (KIM) [where applicable], of the Scheme(s) of Principal Mutual Fund: Transaction Charges In accordance with SEBI Circular No. Cir/ IMD/ DF/13/ 2011 dated August 22, 2011, Principal Pnb Asset Management Company Private Limited (PAMC) / Principal Mutual Fund (PMF) shall deduct Transaction Charges on purchase / subscription received from the Investors through Distributors/ Agents (who have opted to receive the transaction charges) as under: (i) First Time Mutual Fund Investor (across Mutual Funds): Transaction charge of ` 150/- for subscription of ` 10,000 and above will be deducted from the subscription amount and paid to the Distributor/Agent of the first time investor and the balance shall be invested. First time investor in this regard shall mean an Investor who invests for the first time ever in any Mutual Fund either by way of Subscription or Systematic Investment Plan. (ii) Investor other than First Time Mutual Fund Investor: Transaction charge of ` 100/- per subscription of ` 10,000 and above will be deducted from the subscription amount and paid to the Distributor/Agent of the investor and the balance shall be invested. (iii) Systematic Investment Plan (SIP): Transaction Charges in case of investments through SIP shall be deducted only if the total commitment (i.e. amount per SIP installment x No. of installments) amounts to ` 10,000/- or more. The Transaction Charges shall be deducted in 3-4 installments. (iv) Transaction charges shall not be deducted for: (a) purchases /subscriptions for an amount less than ` 10,000/-; (b) transaction other than purchases/ subscriptions relating to new inflows such as Switch / Systematic Transfer Plan / Sweep facility under the Dividend Option of the Scheme(s) etc.; (c) purchases/subscriptions made directly with PMF (i.e. not through any Distributor / Agent); (d) transactions routed through Stock Exchange route. Statement of Account issued to such Investors shall state the net investment as gross subscription less transaction charge and mention the number of units allotted against the net investment. Further, in accordance with SEBI Circular No. SEBI/IMD/CIR/No.4/168230/09 dated June 30, 2009, upfront commission to Distributors/ Agents shall continue to be paid by the Investor directly to the Distributor / Agent by a separate cheque based on his assessment of various factors including the service rendered by the Distributor / Agent. This Notice-cum-addendum shall form an integral part of the SID/KIM of the Scheme(s) as amended from time to time (where applicable) and all other features, terms and conditions as mentioned therein remain unchanged. For further information/assistance do visit us at or us at customer@principalindia.com or call on our Toll Free no For Principal Pnb Asset Management Company Pvt. Ltd. Place : Mumbai Date : October 31, 2011 Sd/- Authorised Signatory Statutory Details: Principal Mutual Fund has been constituted as a trust with Principal Financial Group (Mauritius) Limited, Punjab National Bank and Vijaya Bank as the co-settlors. Sponsor: Principal Financial Services Inc., USA. [through its wholly owned subsidiary Principal Financial Group (Mauritius) Limited]. Trustee: Principal Trustee Company Private Limited. Investment Manager: Principal Pnb Asset Management Company Private Limited (AMC). Risk factors: Mutual funds and securities investments are subject to market risks and there can be no assurance and no guarantee that the scheme's objective can be achieved. As with any investment in securities, the NAV of the units issued under the Scheme(s) can go up or down, depending upon the factors and forces affecting the capital markets. Past performance of the Sponsor and any of its associates, co-settlors and/or AMC/ Mutual Fund does not indicate or guarantee the future performance of the Schemes of Principal Mutual Fund. The name of the Scheme(s) do not in any manner indicate either the quality of the Scheme(s) or their future prospects or returns. The Sponsor and any of its associates including co-settlors are not responsible or liable for any loss resulting from the operations of the Mutual Fund beyond the initial contribution of an amount of ` 25 Lakhs towards setting up Principal Mutual Fund. Investors in the scheme(s) are not being offered a guaranteed or assured rate of return or monthly or regular/periodical income distribution, and the actual returns and/or periodical income distribution of an investor will be based on the distributable surplus. Investors are urged to read the Statement of Additional Information (SAI) / Scheme Information Document (SID) and Key Information Memorandum (KIM) carefully and consult with their legal/tax/investment advisor before they invest in the Scheme(s). Scheme specific risk factors are mentioned in the SID. Kindly refer to the SAI / SID & KIM carefully prior to investing. Copy of the SAI / SID & KIM is available at all our Investor Service Centres. Alternatively, investors can call us at to get a copy of the same. 22 x 4 clm

5 NOTICE-CUM-ADDENDUM Principal Pnb Asset Management Company Pvt. Ltd. Regd. Off.: Exchange Plaza, B Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Toll Free: Fax: (022) customer@principalindia.com Visit us at: NOTICE-CUM-ADDENDUM TO THE SCHEME INFORMATION DOCUMENT (SID) AND KEY INFORMATION MEMORANDUM (KIM) OF PRINCIPAL CONSERVATIVE GROWTH FUND (AN OPEN-ENDED BALANCED SCHEME) (21/2011) NOTICE IS HEREBY GIVEN to the Investors of Principal Conservative Growth Fund (the Scheme), that the Board of Directors of Principal Trustee Co. Pvt. Ltd. (Trustee) and Principal Pnb Asset Management Co. Pvt. Ltd. (PAMC), have approved the below mentioned revision to the features of the Scheme - 1) The Scheme shall stand renamed to Principal Retail Equity Savings Fund ; 2) Subscription applications (including Systematic Transfer Plan / Systematic Investment Plan) under the Scheme shall stand restricted only for individual investors (including HUFs, Association of Persons & where an individual is an ultimate beneficiary) [it is clarified that investment of the existing non-individual investors in the Scheme upto the effective date shall continue]; 3) Exit load shall stand revised to If redeemed on or before 91 days from the date of allotment - 1%. 4) Asset Allocation Pattern: The only modification to the Asset Allocation Pattern of the Scheme being, under normal circumstances, the Scheme shall invest in the range of 65% to 100% (as against the current range of 65% to 80%) in Equity and Equity related instruments and 0% to 35% (as against the current range of 20% to 35%) in Debt and Money Market Instruments (including units of Liquid/ Money Market/ Debt Mutual Fund Scheme(s) and Securitised Debt). All other conditions concerning Asset Allocation Pattern remains unchanged. Accordingly, the Asset Allocation Pattern of the Scheme shall read as follows: Under normal circumstances, the asset allocation will be as under: Type of Instrument Normal Allocation (% of Net Assets) Risk Profile Minimum Maximum Equity & Equity Related Instruments 65% 100% Medium to High Debt and Money Market Instruments 0% 35% Low to Medium (including units of Liquid / Money Market / Debt Mutual Fund Scheme(s) and Securitised Debt) Investment in Securitised Debt may be up to 20% of the net assets of the Scheme. The Asset Management Company reserves the right to invest in derivatives as follows: Particulars Normal Allocation (% of Net Assets) Derivatives Upto 50% Investment in Overseas Financial Instruments are as follows: Particulars Normal Allocation (% of Net Assets) ADRs/GDRs Upto 15% Overseas Financial Debt Instruments including Overseas Mutual Funds Upto 25% Subject to the SEBI Regulations, the Mutual Fund may deploy up to 50% of its total net assets of the Scheme in Stock Lending. 5) Scheme shall accordingly be categorized as An open-ended Equity Scheme ; 6) Scheme shall be benchmarked against BSE 100 Index (the benchmark more effectively reflects the investment objective and revised asset allocation pattern of the scheme and would enable the Investors to arrive at a more informed judgement on scheme performance). 7) Fresh subscriptions in any mode (including Systematic Investment Plan [SIP] / Systematic Transfer Plan [STP]) shall not be accepted under the Dividend Option of the Scheme. Investment of Existing investors under the Dividend Option will continue and likewise such investors who may have registered for SIP & STP on or before the effective date, their SIP/STP transactions shall continue. Other than what is mentioned above, all other features/terms and conditions of the current SID/KIM of the Scheme shall continue to prevail. In this regard, individual communication has been dispatched to Unitholders of the Scheme, as existing on October 21, 2011 in the Register of Unitholders of our Registrar & Transfer Agents, M/s. Karvy Computershare Pvt. Ltd. (Karvy). Such of those unitholders who do not receive the communication sent by us / who need further clarification can contact the Registrar - # M/s. Karvy Computershare Private Limited. No action needs to be taken by Unitholders, who have no objection to the proposed restructure, and it would be deemed that that such Unitholders have consented to the same. The Unitholders who may not be in agreement with the proposed restructure can opt to exit/redeem from the Scheme, during the period from October 24, 2011 to November 25, 2011 up to 3.00 p.m. ( notice period ) - both days inclusive and no load (if any applicable) shall be charged on such exit/redemption. Such unitholders are also advised to consult their Tax Advisors for a detailed tax implication, specific to their transactions. The NAV applicable, should you choose to exit / redeem during the notice period would be based on the date/time of receipt of your application for exit / redemption during business hours on a business day. Redemption requests may be submitted at any of the Official Points of Acceptance, closest to you. The Restructure of the Scheme shall be effective on business day immediately following November 25, the last day of the notice period (Effective Date). Further, the Unitholder whose name exists in the records of Karvy, as on October 21, 2011, and who opts to exit during the notice period may note that the Securities Transaction Tax (STT) arising out of such transaction shall be borne by AMC. This addendum shall form an integral part of the respective SID / KIM of the Scheme as amended from time to time and all other features, terms and conditions as mentioned therein remain unchanged. For further information/assistance do visit at or us at customer@principalindia.com or call on our Toll Free No.: # Karvy Computershare Pvt. Ltd. (Unit: Principal Mutual Fund): Madhura Estates, Municipal No.1-9/13/C, Plot No.13 & 13-C, Survey No. 74 & 75, Madhapur Village, Ranga Reddy District, Hyderabad For Principal Pnb Asset Management Company Pvt. Ltd. Place : Mumbai Date : October 21, 2011 Sd/- Authorised Signatory Statutory Details: Principal Mutual Fund has been constituted as a trust with Principal Financial Group (Mauritius) Limited, Punjab National Bank and Vijaya Bank as the co-settlors. Sponsor: Principal Financial Services Inc., USA [acting through its wholly owned subsidiary Principal Financial Group (Mauritius) Limited]. Trustee: Principal Trustee Company Private Limited. Investment Manager: Principal Pnb Asset Management Company Private Limited (AMC). Risk Factors: Mutual funds and securities investments are subject to market risks and there can be no assurance and no guarantee that the scheme's objective can be achieved. As with any investment in securities, the NAV of the units issued under the scheme can go up or down, depending upon the factors and forces affecting the capital markets. Past performance of the Sponsor and any of its associates, co-settlors and/or AMC/ Mutual Fund does not indicate or guarantee the future performance of the Schemes of Principal Mutual Fund. Principal Conservative Growth Fund (An Open-ended Balanced Scheme; Investment Objective: To provide long term capital appreciation and regular income by investing in equity and equity related instruments and also in debt and money market instruments.) is only the name of the Scheme and do not in any manner indicate either the quality of the Scheme or the future prospects or returns. The Sponsor and any of its associates including co-settlors is not responsible or liable for any loss resulting from the operations of the Mutual Fund beyond the initial contribution of an amount of ` 25 Lakhs towards setting up Principal Mutual Fund. Investors in the scheme is not being offered a guaranteed or assured rate of return or monthly or regular/periodical income distribution, and the actual returns and/or periodical income distribution of an investor will be based on the distributable surplus. Investors are urged to read the Statement of Additional Information (SAI) / Scheme Information Document (SID) and Key Information Memorandum (KIM) carefully and consult with their legal/tax/investment advisor before they invest in the Scheme. Scheme specific risk factors are mentioned in the SID. Kindly refer to the SAI / SID & KIM carefully prior to investing. Copy of the SID is available at all our Investor Service Centres. Alternatively, investors can call us at to get a copy of the same. 33 x 4 clm

6 NOTICE-CUM-ADDENDUM Principal Pnb Asset Management Company Pvt. Ltd. Regd. Off.: Exchange Plaza, B Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Toll Free: Fax: (022) customer@principalindia.com Visit us at: NOTICE-CUM-ADDENDUM TO THE SCHEME INFORMATION DOCUMENT (SID) AND KEY INFORMATION MEMORANDUM (KIM) NOTICE IS HEREBY GIVEN to the Investors of the following Scheme(s), that the Board of Directors of Principal Trustee Co. Pvt. Ltd. (Trustee) and Principal Pnb Asset Management Co. Pvt. Ltd. (PAMC), have approved the below mentioned modifications to the said Scheme(s) effective 3.00 p.m. of October 21, 2011 (effective date) - I. PRINCIPAL MONTHLY INCOME PLAN (An Open- Ended Fund. Monthly Income is not assured and is subject to availability of distributable surplus) (18/2011) 1) The said Scheme and a Plan there under currently named as Principal Monthly Income Plan - MIP Plus shall stand renamed to Principal Debt Savings Fund (An open-ended Income Fund) and Retail Plan respectively; 2) Subscription Applications (including Systematic Transfer Plan / Systematic Investment Plan) under the said Retail Plan shall be restricted only for individual investors (including HUFs, Association of Persons & where an individual is an ultimate beneficiary) [it is clarified that investment of the existing non-individual investors in the plan shall continue]; 3) Exit load shall stand revised to If redeemed on or before 91 days from the date of allotment % ; 4) From the effective date, fresh subscriptions in any mode (including Systematic Investment Plan [SIP] / Systematic Transfer Plan [STP]) shall not be accepted under the Dividend Option to the Retail Plan. Investment of the existing investors under the said Option will continue and likewise such investors who may have registered for SIP & STP on or before the effective date, their SIP / STP transactions shall continue. There is no change to any of the features of the other Plan under this Scheme, viz. Principal Monthly Income Plan (An Open-Ended Fund. Monthly Income is not assured and is subject to availability of distributable surplus). II. PRINCIPAL MONEY MANAGER FUND (An Open-Ended Liquid Fund) (19/2011) 1) The Scheme shall stand renamed to Principal Retail Money Manager Fund ; 2) Subscription applications (including Systematic Transfer Plan / Systematic Investment Plan) under the Scheme shall stand restricted only for individual investors (including HUFs, Association of Persons & where an individual is an ultimate beneficiary) [it is clarified that investment of the existing non-individual investors in the Scheme shall continue]; 3) From the effective date, fresh subscriptions in any mode (including Systematic Investment Plan [SIP] / Systematic Transfer Plan [STP]) shall not be accepted under the Daily & Weekly Dividend Option and under the Payout & Sweep facility to Monthly Dividend Option, of the Scheme. Investment of existing investors under the said option(s) / facility(ies) will continue and likewise such investors who may have registered for SIP & STP on or before the effective date, their SIP / STP transactions shall continue. In respect to I & II above, other than what is stated herein, all other features of the said Scheme(s) / Plan(s), its/their terms of offer and all other conditions remain unchanged. This Notice-cum-addendum shall form an integral part of the SID/KIM of the Scheme(s) / Plan(s) [where applicable] as amended from time to time and all other features, terms and conditions as mentioned therein remain unchanged. For further information/assistance do visit at or us at customer@principalindia.com or call on our Toll Free No NOTICE-CUM-ADDENDUM TO STATEMENT OF ADDITIONAL INFORMATION (SAI), SCHEME INFORMATION DOCUMENT (SID) AND KEY INFORMATION MEMORANDUM (KIM) OF PRINCIPAL MUTUAL FUND (20/2011) NOTICE IS HEREBY GIVEN THAT, the Official Point of Acceptance for Transactions situated at 1st Floor, Shreenath Plaza, Dnyaneshwar Paduka Chowk, F.C. Road, Pune has been shifted to Unit No.103 &104, 1st Floor, Rainbow Plaza, Opp. Modern High School, Jangali Maharaj Road, Shivaji Nagar, Pune This addendum forms an integral part of SAI, SID & KIM of Principal Mutual Fund as amended from time to time and all other features, terms and conditions as mentioned therein remains unchanged. For further information/assistance do visit at or us at customer@principalindia.com or call on our Toll Free No For Principal Pnb Asset Management Company Pvt. Ltd. Place : Mumbai Date : October 18, 2011 Sd/- Authorised Signatory Statutory Details: Principal Mutual Fund has been constituted as a trust with Principal Financial Group (Mauritius) Limited, Punjab National Bank and Vijaya Bank as the co-settlors. Sponsor: Principal Financial Services Inc., USA [acting through its wholly owned subsidiary Principal Financial Group (Mauritius) Limited]. Trustee: Principal Trustee Company Private Limited. Investment Manager: Principal Pnb Asset Management Company Private Limited (AMC). Risk Factors: Mutual funds and securities investments are subject to market risks and there can be no assurance and no guarantee that the scheme's objective can be achieved. As with any investment in securities, the NAV of the units issued under the scheme can go up or down, depending upon the factors and forces affecting the capital markets. Past performance of the Sponsor and any of its associates, co-settlors and/or AMC/ Mutual Fund does not indicate or guarantee the future performance of the Schemes of Principal Mutual Fund. Principal Monthly Income Plan (An Openended Fund. Monthly income is not assured and is subject to availability of distributable surplus; Investment Objective: To generate regular income through investments in fixed income securities so as to make periodical income distribution to the Unitholders and also to generate long-term capital appreciation by investing a portion of the Scheme s assets in equity and equity related instruments.); Principal Monthly Income Plan - MIP Plus (An Open-ended Fund. Monthly income is not assured and is subject to availability of distributable surplus; Investment Objective: Investment objective of Principal Monthly Income Plan - MIP Plus is same as Principal Monthly Income Plan, however Principal Monthly Income Plan - MIP Plus has been designed to cater to investors seeking a slightly more aggressive exposure to equity markets.) and Principal Money Manager Fund (An Open-ended Liquid Scheme; Investment Objective: To generate steady return by investing in debt and money market securities.) are only the name of the Scheme(s) and do not in any manner indicate either the quality of the Scheme(s) or the future prospects or returns. The Sponsor and any of its associates including co-settlors is not responsible or liable for any loss resulting from the operations of the Mutual Fund beyond the initial contribution of an amount of ` 25 Lakhs towards setting up Principal Mutual Fund. Investors in the scheme(s) are not being offered a guaranteed or assured rate of return or monthly or regular/periodical income distribution, and the actual returns and/or periodical income distribution of an investor will be based on the distributable surplus. Investors are urged to read the Statement of Additional Information (SAI) / Scheme Information Document (SID) and Key Information Memorandum (KIM) carefully and consult with their legal/tax/investment advisor before they invest in the Scheme(s). Scheme specific risk factors are mentioned in the SID. Kindly refer to the SAI / SID & KIM carefully prior to investing. Copy of the SID is available at all our Investor Service Centres. Alternatively, investors can call us at to get a copy of the same. 27 x 4 clm

7 NOTICE Principal Pnb Asset Management Company Pvt. Ltd. Regd. Off.: Exchange Plaza, B Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Toll Free: Fax: (022) customer@principalindia.com Visit us at: NOTICE-CUM-ADDENDUM TO THE SCHEME INFORMATION DOCUMENT AND KEY INFORMATION MEMORANDUM OF PRINCIPAL INCOME FUND - LONG TERM PLAN (NO. 17/2011) NOTICE IS HEREBY GIVEN THAT, the exit load for Principal Income Fund - Long Term Plan (An open-ended Income Scheme) of Principal Mutual Fund has been revised as mentioned hereafter and shall be in force till further notice: Existing Load Structure Revised Load Structure Nil If redeemed on or before 1 year from the date of allotment - 1% Revised exit load as mentioned herein shall be applicable prospectively in respect of subscriptions in the Scheme post 3.00 p.m. effective Friday, October 7, All prior investments shall continue to be subject to the load structure as may have been applicable at the time of their original investments. Contents hereof shall form an integral part of the SID / KIM of Principal Income Fund - Long Term Plan as amended from time to time and all other features / terms and conditions as mentioned therein remain unchanged. For further information/assistance do visit us at or us at customer@principalindia.com or call on our Toll Free No.: For Principal Pnb Asset Management Company Pvt. Ltd. Place : Mumbai Date : October 5, 2011 Sd/- Authorised Signatory Statutory Details: Principal Mutual Fund has been constituted as a trust with Principal Financial Group (Mauritius) Limited, Punjab National Bank and Vijaya Bank as the co-settlors. Sponsor: Principal Financial Services Inc., USA. [through its wholly owned subsidiary Principal Financial Group (Mauritius) Limited]. Trustee: Principal Trustee Company Private Limited. Investment Manager: Principal Pnb Asset Management Company Private Limited (AMC). Risk factors: Mutual funds and securities investments are subject to market risks and there can be no assurance and no guarantee that the scheme's objectives can be achieved. As with any investment in securities, the NAV of the units issued under the scheme can go up or down, depending upon the factors and forces affecting the capital markets. Past performance of the Sponsor/ AMC/ Principal Mutual Fund/Punjab National Bank/ Vijaya Bank does not indicate or guarantee the future performance of the Schemes of Principal Mutual Fund. Principal Income Fund - Long Term Plan (An open-ended Income Scheme); {Investment Objective: To generate regular income and capital appreciation/accretion through investment in debt instruments and related securities besides preservation of capital.} is only the name of the scheme and does not in any manner indicate either the quality of the scheme or the future prospects or returns. The Sponsor and any of its associates including co-settlors are not responsible or liable for any loss resulting from the operations of the Mutual Fund beyond the initial contribution of an amount of ` 25 Lakhs towards setting up Principal Mutual Fund. Investors in the scheme are not being offered a guaranteed or assured rate of return or monthly or regular/periodical income distribution, and the actual returns and/or periodical income distribution of an investor will be based on the distributable surplus. Investors are urged to read the Statement of Additional Information (SAI) / Scheme Information Document (SID) and Key Information Memorandum (KIM) carefully and consult with their legal/tax/investment advisor before they invest in the Scheme(s). Scheme specific risk factors are mentioned in the SID. Kindly refer to the SAI / SID & KIM carefully prior to investing. Copy of the SID is available at all our Investor Service Centres. Alternatively, investors can call us at to get a copy of the same. 18 x 3clm

8 NOTICE Principal Pnb Asset Management Company Pvt. Ltd. Regd. Off.: Exchange Plaza, B Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Toll Free: Fax: (022) customer@principalindia.com Visit us at: NOTICE-CUM-ADDENDUM TO THE SCHEME INFORMATION DOCUMENT (SID) AND KEY INFORMATION MEMORANDUM (KIM) OF PRINCIPAL TAX SAVINGS FUND (AN OPEN - ENDED EQUITY LINKED SAVINGS SCHEME) (15/2011) NOTICE IS HEREBY GIVEN to the investors / unitholders of Principal Tax Savings Fund (the Scheme) - an Open- Ended Equity Linked Savings Scheme, that pursuant to the approval of the Board of Directors of Principal Trustee Co. Pvt. Ltd. (Trustee) and Principal Pnb Asset Management Co. Pvt. Ltd. (PAMC) and in terms of the enabling provisions of the SID, post 3.00 p.m. of September 02, 2011 (Friday), till further notice, fresh sale of units (by way of purchase or Switch-ins / registration of fresh SIPs) under the Scheme will stand suspended. However, redemptions, including Switch out/ Systematic Transfer Plan/Systematic Withdrawal Plan etc. would continue to be permitted at NAV based prices in terms of the SID. In view of such suspension, the Scheme shall also not be available for transactions through the Online Transaction Platform of National Stock Exchange i.e. NEAT MFSS. Applications for Redemptions may be preferred at Principal Mutual Fund or any of our Official Points of Acceptance of Transactions nearest to you. This Notice-cum-addendum shall form an integral part of the SID/KIM of the Scheme as amended from time to time and all other features, terms and conditions as mentioned therein remain unchanged. For further information/assistance do visit us at or us at customer@principalindia.com or call on our Toll Free no For Principal Pnb Asset Management Company Pvt. Ltd. Place : Mumbai Date : August 30, 2011 Sd/- Authorised Signatory Statutory Details: Principal Mutual Fund has been constituted as a trust with Principal Financial Group (Mauritius) Limited, Punjab National Bank and Vijaya Bank as the co-settlors. Sponsor: Principal Financial Services Inc., USA [acting through its wholly owned subsidiary Principal Financial Group (Mauritius) Limited]. Trustee: Principal Trustee Company Private Limited. Investment Manager: Principal Pnb Asset Management Company Private Limited (AMC). Risk Factors: Mutual funds and securities investments are subject to market risks and there can be no assurance and no guarantee that the scheme's objective can be achieved. As with any investment in securities, the NAVs of the units issued under the scheme can go up or down, depending upon the factors and forces affecting the capital markets. Past performance of the Sponsor and any of its associates, co-settlors and/or AMC/ Mutual Fund do not indicate or guarantee the future performance of the Schemes of Principal Mutual Fund. Principal Tax Savings Fund (An Open - Ended Equity Linked Savings Scheme; Investment Objective: To build a high quality growth-oriented portfolio to provide long-term capital gains to the investors. The scheme aims at providing returns through capital appreciation.) is only the name of the Scheme and does not in any manner indicate either the quality of the Scheme or the future prospects or returns. The Sponsor and any of its associates including co-settlors are not responsible or liable for any loss resulting from the operations of the Mutual Fund beyond the initial contribution of an amount of ` 25 Lakhs towards setting up Principal Mutual Fund. Investors in the scheme are not being offered a guaranteed or assured rate of return or monthly or regular/periodical income distribution, and the actual returns and/or periodical income distribution of an investor will be based on the distributable surplus. Scheme specific risk factors are mentioned in the Scheme Information Document. Please read the Statement of Additional Information (SAI) / Scheme Information Document (SID) and Key Information Memorandum (KIM) carefully before investing. Copy of the SID is available at all our Investor Service Centres. Alternatively, investors can call us at to get a copy of the same. 18 x 3clm

9 NOTICE Principal Pnb Asset Management Company Pvt. Ltd. Regd. Off.: Exchange Plaza, B Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Toll Free: Fax: (022) customer@principalindia.com Visit us at: NOTICE-CUM-ADDENDUM TO THE SCHEME INFORMATION DOCUMENT (SID) AND KEY INFORMATION MEMORANDUM (KIM) OF PRINCIPAL INCOME FUND - SHORT TERM PLAN (NO. 12/2011) NOTICE IS HEREBY GIVEN THAT, the exit load for the Principal Income Fund - Short Term Plan, an Open-Ended Income Scheme of Principal Mutual Fund, has been revised, as mentioned hereafter and shall be in force till further notice: Existing Exit Load Revised Exit Load Nil If redeemed on or before 15 days from the date of allotment % Revised exit load as mentioned herein shall be applicable prospectively in respect of all investment transactions in the Scheme post 3.00 p.m. effective Friday, July 15, All prior investments shall continue to be subject to the load structure as may have been applicable at the time of their original investments. Contents hereof shall form an integral part of the SID/KIM of Principal Income Fund - Short Term Plan as amended from time to time and all other features, terms and conditions as mentioned therein remain unchanged. For further information/assistance do visit us at or us at customer@principalindia.com or call on our Toll free no For Principal Pnb Asset Management Company Pvt. Ltd. Place : Mumbai Date : July 13, 2011 Sd/- Authorised Signatory Statutory Details: Principal Mutual Fund has been constituted as a trust with Principal Financial Group (Mauritius) Limited, Punjab National Bank and Vijaya Bank as the co-settlors. Sponsor: Principal Financial Services Inc., USA [acting through its wholly owned subsidiary Principal Financial Group (Mauritius) Limited]. Trustee: Principal Trustee Company Private Limited. Investment Manager: Principal Pnb Asset Management Company Private Limited (AMC). Risk Factors: Mutual funds and securities investments are subject to market risks and there can be no assurance and no guarantee that the scheme's objective can be achieved. As with any investment in securities, the NAVs of the units issued under the scheme can go up or down, depending upon the factors and forces affecting the capital markets. Past performance of the Sponsor and any of its associates, co-settlors and/or AMC/ Mutual Fund do not indicate or guarantee the future performance of the Schemes of Principal Mutual Fund. Principal Income Fund - Short Term Plan (An open-ended income scheme; Investment Objective: To generate regular income and capital appreciation/ accretion through investment in debt instruments and related securities besides preservation of capital and has been designed to achieve stable returns over shorter-term investment horizons.) is only the name of the Scheme and does not in any manner indicate either the quality of the Scheme or the future prospects or returns. The Sponsor and any of its associates including co-settlors are not responsible or liable for any loss resulting from the operations of the Mutual Fund beyond the initial contribution of an amount of ` 25 Lakhs towards setting up Principal Mutual Fund. Investors in the scheme are not being offered a guaranteed or assured rate of return or monthly or regular/periodical income distribution, and the actual returns and/or periodical income distribution of an investor will be based on the distributable surplus. Scheme specific risk factors are mentioned in the Scheme Information Document. Please read the Statement of Additional Information (SAI) / Scheme Information Document (SID) and Key Information Memorandum (KIM) carefully before investing. Copy of the SID is available at all our Investor Service Centres. Alternatively, investors can call us at to get a copy of the same. 17 x 3clm

10 NOTICE Principal Pnb Asset Management Company Pvt. Ltd. Regd. Off.: Exchange Plaza, B Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Toll Free: Fax: (022) customer@principalindia.com Visit us at: NOTICE-CUM-ADDENDUM TO THE SCHEME INFORMATION DOCUMENT (SID) AND KEY INFORMATION MEMORANDUM (KIM) OF PRINCIPAL PNB LONG TERM EQUITY FUND (An open ended Equity Scheme) (06/2011) NOTICE IS HEREBY GIVEN to the unitholders of Principal Pnb Long Term Equity Fund - an open ended equity scheme of Principal Mutual Fund that the Board of Directors of Principal Pnb Asset Management Company Private Limited (PAMCL) and Principal Trustee Company Private Limited, (Trustees) have approved and fully support the proposal for merger of Growth and Divided Options under Principal Pnb Long term Equity Fund with respective Growth and Dividend Options under Principal Emerging Bluechip Fund. Securities and Exchange Board of India (SEBI) too has conveyed its no objection to the same. In this regard, individual communication has been dispatched to Unitholders of Principal Pnb Long term Equity Fund, existing in the Register of Unitholders of our Registrar & Transfer Agents, *M/s. Karvy Computershare Pvt. Ltd. Such of those unitholders who do not receive the communication can contact the Registrar - M/s. Karvy Computershare Private Limited. It is clarified that the proposed merger shall not in any manner change the investment objective, asset allocation pattern, recurring expenses and/or other fundamental attributes of Principal Emerging Bluechip Fund. Further the Unit holders are required to note that no new scheme/plan will emerge post the aforesaid merger. No action needs to be taken by Unitholders, who have no objection to the proposed Merger, and it would be deemed that such Unitholders have consented to the same. The Unitholders who may not be in agreement with the proposed merger can opt to exit/redeem without payment of load, if any applicable, during the notice period indicated herein. The NAV applicable, should the unitholder choose to exit / redeem during the notice period, would be based on the date/time of receipt of his/her application for exit / redemption during business hours on a business day. Where there may be a change in the bank mandate since last registered with the AMC; investors are advised to request the AMC to take on record such change in the bank mandate prior to exercising their option to exit/redeem their investment. Accordingly investors requesting such a change in their bank mandate (which is not part of the multiple bank accounts registered with the AMC) should ensure that any one of the following documents as indicated below concerning the new bank mandate are forwarded along with the duly completed Bank Account Registration Form:- (a)cancelled cheque leaf of the bank account which has to be registered [the account number and name of the first unitholder should be printed on the cheque leaf]; OR (b) Bank Statement / Pass Book with the account number, name of the Unitholder and Address; OR (c) Bank letter / certificate on its letter head certifying the account holder's name, account number and branch address [Such letter / certification should be certified by the Bank Manager with his/ her full name, signature, employee code]. Such Bank Account Registration Form can be downloaded from or can be procured from any of our investor service centers nearest to you). The first /sole unitholder in the folio should be one of the holders of the bank account being registered. In the event of failure to furnish such documents, the request shall be considered invalid and shall not be processed and the redemption proceeds shall accordingly be released in favour of the default bank account registered with the AMC. Where the change in the Bank Mandate request (with the specified documents) is received along with the redemption request, the redemption proceeds on the basis of applicable NAV as mentioned above; shall be released subsequent to registering the change in the bank mandate. The Account Statement and the payment proceeds shall appropriately reflect the updated bank mandate. Redemption request should be submitted at the following address: Principal Pnb Asset Management Company Private Limited, 1st Floor, Maker Bhavan II, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai or at any of the Official Points of Acceptance closest to you. The Notice period of this exit option shall commence from April 21, 2011 and conclude on May 20, 2011 up to 3.00 p.m. ( the Notice Period ). The continuing unitholders of Principal Pnb Long Term Equity Fund as at the end of business hours on May 20, 2011, will be allotted units (basis the NAV of May 20, 2011) of Principal Emerging Bluechip Fund, in lieu of the value of their existing units in the Principal Pnb Long Term Equity Fund. An account statement reflecting the same shall be issued to the continuing unitholders. The said merger shall be effective post the closure of the business hours on May 20, 2011 (Assuming May 20, 2011 to be a business day). Brief note of tax impact on account of the Merger: Unitholders of Principal Pnb Long Term Equity Fund who choose to exit/redeem during the notice period If the unitholder chooses to exit during the notice period, the transaction shall be treated as redemption of units in Principal Pnb Long Term Equity Fund and may result in capital gain/loss in the hands of the unitholder, and depending on the period of holding of investment (short/long term), there could be short/long term capital gain tax impact in the hands of the unitholder. Please note that AMC shall bear the Securities Transaction Tax (S.T.T.) charges in respect of units in Principal Pnb Long Term Equity Fund which already exist as on close of business hours on April 20, 2011 and are redeemed during the notice period. Unitholders of Principal Pnb Long Term Equity Fund who agree with the proposed merger and choose to opt for units of Principal Emerging Bluechip Fund in lieu of units of Principal Pnb Long Term Equity Fund Unitholders of Principal Pnb Long Term Equity Fund may note that on May 20, 2011 there will be a fresh issue of units in Principal Emerging Bluechip Fund in lieu of units held in Principal Pnb Long Term Equity Fund. The transaction shall be treated as redemption of units in Principal Pnb Long Term Equity Fund and may result in capital gain/loss in the hands of the unitholder, and depending on the period of holding of investment (short/long term), there could be short/long term capital gain tax impact in the hands of the unitholder. Please note that AMC shall bear the Securities Transaction Tax (S.T.T) charges in respect of merger of those units in Principal Pnb Long Term Equity Fund which already exist as on close of business hours on April 20, The above briefly provides the tax impact on the unit holder on account of the Merger. The same should not be construed as tax advice from Principal Pnb Asset Management Company Private Limited. As such, unit holders are strongly advised to consult their Tax Advisors for a detailed tax implication, specific to their transaction. For further information/assistance in this regard you can also visit us at or us at customer@principalindia.com, or call on our Toll Free no * Karvy Computershare Pvt. Ltd. (Unit: Principal Mutual Fund): Madhura Estates', Municipal No. 1-9/13/C, Plot No. 13 & 13 C, Survey No. 74 & 75, Madhapur Village, Serilingampally Mandal & Municipality, Ranga Reddy District, Hyderabad Place : Mumbai Date : April 19, 2011 For Principal Pnb Asset Management Company Pvt. Ltd. Sd/- Authorised Signatory Statutory Details: Principal Mutual Fund has been constituted as a trust with Principal Financial Group (Mauritius) Limited, Punjab National Bank and Vijaya Bank as the cosettlors. Sponsor: Principal Financial Services Inc., USA [acting through its wholly owned subsidiary Principal Financial Group (Mauritius) Limited]. Trustee: Principal Trustee Company Private Limited. Investment Manager: Principal Pnb Asset Management Company Private Limited (AMC). Risk Factors: Mutual funds and securities investments are subject to market risks and there can be no assurance and no guarantee that the scheme's objective can be achieved. As with any investment in securities, the NAV of the units issued under the scheme can go up or down, depending upon the factors and forces affecting the capital markets. Past performance of the Sponsor and any of its associates, co-settlors and/or AMC/ Mutual Fund does not indicate or guarantee the future performance of the Schemes of Principal Mutual Fund. Principal Pnb Long Term Equity Fund (An open-ended equity scheme; Investment Objective: The primary objective of the Scheme is to achieve long-term capital appreciation by investing in equity and equity related instruments.); and Principal Emerging Bluechip Fund (An open-ended equity scheme; Investment Objective: To achieve long-term capital appreciation by investing in equity & equity related instruments of Mid Cap & Small Cap companies.) are only the name of the Scheme(s) and do not in any manner indicate either the quality of the Scheme(s) or the future prospects or returns. The Sponsor and any of its associates including co-settlors is not responsible or liable for any loss resulting from the operations of the Mutual Fund beyond the initial contribution of an amount of ` 25 Lakhs towards setting up Principal Mutual Fund. Investors in the scheme is not being offered a guaranteed or assured rate of return or monthly or regular/periodical income distribution, and the actual returns and/or periodical income distribution of an investor will be based on the distributable surplus. Scheme specific risk factors are mentioned in the Scheme Information Document. Please read the Scheme Information Document (SID) / Statement of Additional Information (SAI) and Key Information Memorandum (KIM) carefully before investing. Copy of the SID is available at all our Investor Service Centres. Alternatively, investors can call us at to get a copy of the same. 30 x 4 clm

11 NOTICE-CUM-ADDENDUM NOTICE-CUM-ADDENDUM TO THE SCHEME INFORMATION DOCUMENT (SID) AND KEY INFORMATION MEMORANDUM (KIM) OF THE WITHIN MENTIONED SCHEME(S) OF PRINCIPAL MUTUAL FUND NOTICE IS HEREBY GIVEN THAT, the Board of Directors of Principal Pnb Asset Management Company Private Limited and Principal Trustee Company Private Limited have approved the below mentioned Restructure of the Scheme(s) of Principal Mutual Fund : I. RESTRUCTURE OF PRINCIPAL BALANCED FUND (An open-ended Balanced Scheme) (No.30/2010) The only change in the Fundamental Attribute of the Scheme is to the Asset Allocation pattern. The revised Asset Allocation pattern is stated herebelow. Under normal circumstances, the asset allocation would be as follows: Type of Instrument Normal Allocation (% of Net Assets) Risk Profile Minimum Maximum Equity & Equity Related Instruments 60% 70% Medium to High Debt and Money Market Instruments (including Units of Liquid / Money Market / 30% 40% Low to Medium Debt Mutual Fund Schemes and Securitised Debt*) * Investment in Securitised Debt may be up to 20% of the net assets of the Scheme. The Asset Management Company reserves the right to invest in derivatives as follows: Particulars Normal Allocation (% of Net Assets) Derivatives Upto 50% of the net assets of the Scheme Principal Pnb Asset Management Company Pvt. Ltd. Regd. Off.: Exchange Plaza, B Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Toll Free: Fax: (022) customer@principalindia.com Visit us at: Investment in Overseas Financial Instruments are as follows: Particulars ADRs / GDRs Overseas Financial Debt Instruments including overseas Mutual Funds Normal Allocation (% of Net Assets) Not exceeding 15% of the Scheme's Assets Not exceeding 25% of the Scheme's Assets Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. II. RESTRUCTURE OF PRINCIPAL FLOATING RATE FUND (An open-ended Income Scheme) (No. 31/2010) 1. The name of the Scheme would be Principal Near-Term Fund and both the plans under the Scheme viz. Flexible Maturity Plan and Short Maturity Plan would be renamed as Conservative Plan and Moderate Plan respectively. 2. The Scheme would be an open-ended Debt Scheme. Further, Short Maturity Plan would cease to be a Liquid Plan effective the date of restructure and consequently the SEBI requirements concerning Liquid Plans/Schemes would no longer be applicable. 3. The Investment objective of the Scheme would be as follows:- To generate regular income & Capital appreciation through investments in debt securities and money market instruments. 4. Under normal circumstances, asset allocation would be as follows: Type of Instrument Normal Allocation (% of Net Assets) Risk Profile Debt & Money Market Instruments (including cash & CBLO) Up to 100% Low to Medium Investment in Securitised Debt may be up to 50% of the net assets of the Scheme. The Scheme may also invest up to 50% of net assets of the Scheme in such derivative instruments as may be introduced from time to time for the purpose of hedging and portfolio balancing and other uses as may be permitted under the SEBI (Mutual Funds) Regulations, Subject to the SEBI Regulations, the Mutual Fund may deploy up to 50% of its total net assets of the Scheme in Stock Lending. The Scheme will have an average maturity of upto 120 days under Conservative Plan and upto 180 days under Moderate Plan. 5. Investment strategy of the Scheme would be as provided below: The net assets of the scheme will be invested in money market and debt instruments. The fund will seek to optimize the risk return proposition for the benefit of investors. The investment process will focus on macro economic research, credit risk and liquidity management. The fund will maintain a judicious mix of cash, short term and medium term instruments based on the mandates of the respective plans. As part of credit risk assessment, the fund will also apply its credit evaluation process besides taking guidance from ratings of rating agencies. In order to maintain liquidity, the fund will maintain a reasonable proportion of the scheme s investments in relatively liquid investments. Other than what is mentioned above, all other features/terms and conditions of the current SID/KIM of the Scheme(s) shall continue to prevail. In this regard, individual communication has been dispatched to Unitholders of the above mentioned Scheme(s), as existing in the Register of Unitholders of our Registrar & Transfer Agents, M/s. Karvy Computershare Pvt. Ltd. Such of those unitholders who do not receive the communication can contact the Registrar - # M/s. Karvy Computershare Private Limited. No action needs to be taken by Unitholders, who have no objection to the proposed Restructure, and it would be deemed that that such Unitholders have consented to the same. The Unitholders who may not be in agreement with the proposed Restructure can opt to exit/redeem from the Scheme(s), during the period from October 28, 2010 to November 26, 2010 up to 3.00 p.m. ( notice period ) - both days inclusive, at applicable NAV, and no load (if any applicable) shall be charged on such exit/redemption. Redemption requests may be submitted to ^Principal Pnb Asset Management Company Private Limited or at any of the Official Points of Acceptance, closest to you. The Restructure of the above Scheme(s) shall be effective on business day immediately following the last day of the notice period. Unitholders are advised to consult their Tax Advisors for a detailed tax implication, specific to their transactions. This addendum shall, form an integral part of the respective SID / KIM of the above mentioned Scheme(s) of Principal Mutual Fund as amended from time to time and all other features, terms and conditions as mentioned therein remain unchanged. ^ Principal Pnb Asset Management Company Private Limited: Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai # Karvy Computershare Pvt. Ltd. (Unit: Principal Mutual Fund): KARVY HOUSE, 46, Avenue- 4, Street No. 1, Banjara Hills, Hyderabad Place : Mumbai Date : October 26, 2010 For Principal Pnb Asset Management Company Pvt. Ltd. Sd/- Authorised Signatory Statutory Details: Principal Mutual Fund has been constituted as a trust with Principal Financial Group (Mauritius) Limited, Punjab National Bank and Vijaya Bank as the co-settlors. Sponsor: Principal Financial Services Inc., USA. [through its wholly owned subsidiary Principal Financial Group (Mauritius) Limited]. Trustee: Principal Trustee Company Private Limited. Investment Manager: Principal Pnb Asset Management Company Private Limited (AMC). Risk factors: Mutual funds and securities investments are subject to market risks and there can be no assurance and no guarantee that the scheme's objective can be achieved. As with any investment in securities, the NAV of the units issued under the scheme(s) can go up or down, depending upon the factors and forces affecting the capital markets. Past performance of the Sponsor and any of its associates, co-settlors and/or AMC/ Mutual Fund does not indicate or guarantee the future performance of the Schemes of Principal Mutual Fund. Principal Balanced Fund (An open-ended balanced scheme; Investment Objective: To provide long term appreciation and current income by investing in a portfolio of equity & equity related securities and fixed income securities.); Principal Floating Rate Fund - Flexible Maturity Plan (An open-ended income scheme; and Principal Floating Rate Fund - Short Maturity Plan - Liquid Plan; Investment Objective: To generate income consistent with the prudent risk from a portfolio comprising substantially of floating rate debt instruments, fixed rate debt instruments swapped for floating rate return, and also fixed rate instruments and money market instruments) are only the name of the Scheme(s) and do not in any manner indicate either the quality of the Scheme(s) or their future prospects or returns. The Sponsor and any of its associates including co-settlors are not responsible or liable for any loss resulting from the operations of the Mutual Fund beyond the initial contribution of an amount of ` 25 Lakhs towards setting up Principal Mutual Fund. Investors in the scheme(s) are not being offered a guaranteed or assured rate of return or monthly or regular/periodical income distribution, and the actual returns and/or periodical income distribution of an investor will be based on the distributable surplus. Investors are urged to read the Scheme Information Document (SID) / Statement of Additional Information (SAI) and Key Information Memorandum (KIM) carefully and consult with their legal/tax/ investment advisor before they invest in the Scheme(s). Scheme specific risk factors are mentioned in the SID. Kindly refer to the SID / SAI & KIM carefully prior to investing. Copy of the SID is available at all our Investor Service Centres. Alternatively, investors can call us at to get a copy of the same. 34 x 4 column

12 Principal Personal Tax Saver Fund SCHEME INFORMATION DOCUMENT Principal Tax Savings Fund Open Ended Equity Linked Savings Schemes Continuous Offer for Units at NAV based Prices (subject to applicable load) Name of Mutual Fund : Name of Asset Management Company : Name of Trustee Company : Principal Mutual Fund Principal Pnb Asset Management Company Private Limited Principal Trustee Company Private Limited Address, Website of the Entities: Principal Mutual Fund Exchange Plaza, 'B' Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Principal Pnb Asset Management Company Private Limited Exchange Plaza, 'B' Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Principal Trustee Company Private Limited 1st Floor, Maker Bhavan II, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai Website: customer@principalindia.com Tel. No.: Fax: The particulars of the Scheme(s) have been prepared in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations 1996, (herein after referred to as SEBI (MF) Regulations) as amended till date, and filed with SEBI, along with a Due Diligence Certificate from Principal Pnb Asset Management Company Pvt. Ltd. The units being offered for public subscription have not been approved or recommended by SEBI nor has SEBI certified the accuracy or adequacy of the Scheme Information Document. The Scheme Information Document sets forth concisely the information about the scheme(s) that a prospective investor ought to know before investing. Before investing, investors should also ascertain about any further changes to this Scheme Information Document after the date of this Document from the Mutual Fund / Investor Service Centres / Website / Distributors or Brokers. The investors are advised to refer to the Statement of Additional Information (SAI) for details of Principal Mutual Fund, Tax and Legal issues and general information on SAI is incorporated by reference and is legally a part of the Scheme Information Document. For a free copy of the current SAI, please contact your nearest Investor Service Centre or log on to our website. The Scheme Information Document should be read in conjunction with the SAI and not in isolation. This Scheme Information Document is dated May 21, Page 1 of 40

13 Table of Contents Contents SECTION I HIGHLIGHTS/ SUMMARY OF SCHEME(S) 3 Page Nos SECTION II INTRODUCTION 5 A. RISK FACTORS 5 B. REQUIREMENT OF MINIMUM NUMBER OF INVESTORS IN THE SCHEME(S) 8 C. SPECIAL CONSIDERATION 8 D. DEFINITIONS 10 E. DUE DILIGENCE BY THE ASSET MANAGEMENT COMPANY 13 SECTION III INFORMATION ABOUT THE SCHEME(S) 14 A. TYPE OF THE SCHEME(S) 14 B. WHAT ARE THE INVESTMENT OBJECTIVES OF THE SCHEME(S) 14 C. HOW WILL THE SCHEME(S)/PLAN(S) ALLOCATE ITS ASSETS 14 D. WHERE WILL THE SCHEME(S)/PLAN(S) INVEST 15 E. WHAT ARE THE INVESTMENT STRATEGIES 16 F. FUNDAMENTAL ATTRIBUTES 19 G. HOW WILL THE SCHEME BENCHMARK ITS PERFORMANCE 19 H. WHO MANAGES THE SCHEME 19 I. WHAT ARE THE INVESTMENT RESTRICTIONS 20 J. HOW HAS THE SCHEME PERFORMED 21 K. INVESTMENT BY AMC 22 L INCOME TAX BENEFIT 22 M. LOCK-IN PERIOD 22 N. SPECIAL BENEFIT - PERSONAL ACCIDENTAL DEATH INSURANCE 22 SECTION IV- UNITS AND OFFER 23 A. NFO DETAILS 23 B. ONGOING OFFER DETAILS 23 C. PERIODIC DISCLOSURES 35 D. COMPUTATION OF NAV 36 SECTION V- FEES AND EXPENSES 36 A. ANNUAL SCHEME RECURRING EXPENSES 36 B. LOAD STRUCTURE 36 C. WAIVER OF LOAD FOR DIRECT APPLICATION 38 SECTION VI- RIGHT OF UNITHOLDERS 38 SECTION VII- PENALTIES, PENDING LITIGATION OR PROCEEDINGS, FINDINGS OF INSPECTIONS OR INVESTIGATIONS FOR WHICH ACTION MAY HAVE BEEN TAKEN OR IS IN THE PROCESS OF BEING TAKEN BY ANY REGULATORY AUTHORITY 38 Page 2 of 40

14 Section I- Highlights / Summary of the Scheme(s) Name of Scheme(s)/Plan Principal Personal Tax Saver Fund Principal Tax Savings Fund Investment Objective To provide long term growth of capital. The Investment Manager will aim to achieve a return on assets in excess of the performance of BSE 100 Index. To build a high quality growth-oriented portfolio to provide long-term capital gains to the investors. The scheme aims at providing returns through capital appreciation. Liquidity Unitholders can subscribe to and get their units repurchased after expiry of lock-in period on all business days at NAV related prices. Unitholders can subscribe to and get their units repurchased after expiry of lock-in period on all business days at NAV related prices. Benchmark Transparency / NAV Disclosure Loads (including Systematic Investment Plans / Systematic Transfer Plan / Systematic Withdrawal Plan if available) Units issued under the scheme will be locked-in for a period of three years from the date of allotment. As per SEBI Regulations, the Mutual Fund shall dispatch Redemption proceeds within 10 Business Days of receiving the Redemption request. A penal interest of 15% or such other rate as may be prescribed by SEBI from time to time will be paid in case the redemption proceeds are not dispatched within 10 Business Days of the date of Redemption request. However, under normal circumstances, the Mutual Fund will endeavor to dispatch the Redemption proceeds well before 10 Business Days from the acceptance of the duly completed Redemption request BSE 100 Index The NAV of the scheme will be calculated by the AMC for each Business Day and released to the Press, News Agencies and the Association of Mutual Funds of India (AMFI). The AMC shall update the NAVs on the website of the Mutual Fund (www. principalindia.com) and on the website of Association of Mutual Funds in India - AMFI ( by 9.00 p.m. every Business Day. In case of any delay, the reasons for such delay would be explained to AMFI in writing. If the NAVs are not available before commencement of business hours on the following day due to any reasons, a press release shall be issued giving reasons and explaining when the AMC would be able to publish the NAVs. The AMC shall, before the expiry of one month from the close of each half year, that is March and September, publish its unaudited financial results in one national English daily newspaper circulating in the whole of India and in a newspaper published in the language of the region where the Head office of the Fund is situated. These shall also be displayed on the website of the Mutual Fund and that of AMFI. Full portfolio in the prescribed format shall also be disclosed either by publishing it in the newspapers or by sending to the Unit Holders within one month from the end of each half-year and it shall also be displayed on the website of the Fund. Entry Load: For Direct Investment - Nil For Investment amount less than or equal to Rs.1 crore %. For Investment amount greater than Rs. 1 crore - Nil Exit Load: Nil Where the date of redemption is a holiday / non business day, the deemed date for such redemption will be the next business day. There is no entry load on switches between all equity and balanced schemes of Principal Mutual Fund, excluding Principal Child Benefit Fund. Units issued under the scheme will be locked-in for a period of three years from the date of allotment. As per SEBI Regulations, the Mutual Fund shall dispatch Redemption proceeds within 10 Business Days of receiving the Redemption request. A penal interest of 15% or such other rate as may be prescribed by SEBI from time to time will be paid in case the redemption proceeds are not dispatched within 10 Business Days of the date of Redemption request. However, under normal circumstances, the Mutual Fund will endeavor to dispatch the Redemption proceeds well before 10 Business Days from the acceptance of the duly completed Redemption request BSE 200 Index The NAV of the scheme will be calculated by the AMC for each Business Day and released to the Press, News Agencies and the Association of Mutual Funds of India (AMFI). The AMC shall update the NAVs on the website of the Mutual Fund (www. principalindia.com) and on the website of Association of Mutual Funds in India - AMFI ( by 9.00 p.m. every Business Day. In case of any delay, the reasons for such delay would be explained to AMFI in writing. If the NAVs are not available before commencement of business hours on the following day due to any reasons, a press release shall be issued giving reasons and explaining when the AMC would be able to publish the NAVs. The AMC shall, before the expiry of one month from the close of each half year, that is March and September, publish its unaudited financial results in one national English daily newspaper circulating in the whole of India and in a newspaper published in the language of the region where the Head office of the Fund is situated. These shall also be displayed on the website of the Mutual Fund and that of AMFI. Full portfolio in the prescribed format shall also be disclosed either by publishing it in the newspapers or by sending to the Unit Holders within one month from the end of each half-year and it shall also be displayed on the website of the Fund. Entry Load: For Direct Investment - Nil For Investment amount less than or equal to Rs.1 crore %. For Investment amount greater than Rs. 1 crore - Nil Exit Load: Nil Where the date of redemption is a holiday / non business day, the deemed date for such redemption will be the next business day. There is no entry load on switches between all equity and balanced schemes of Principal Mutual Fund, excluding Principal Child Benefit Fund. Page 3 of 40

15 Minimum Application Amount Minimum Repurchase/Redemption Amount Investment Plans (s) / Option(s) Asset Allocation Pattern Minimum application amount will be Rs. 500 and any amount thereafter. Subsequent investment amount shall be Rs 500 and any amount thereafter. Systematic Investment Plan: Minimum 6 installments of Rs. 500 each. Rs. 500 or 50 units There are no investment plans or options. Under normal circumstances, the asset allocation would be as follows: Types of Instruments Normal Risk Allocation (% Profile of Net Assets) Not less than High 80% Low to Medium Up to 20% Equity and Equity Linked Instruments Debt securities (*Including Securitised Debt) and Money market instruments The Scheme may invest up to 50% of the net assets of the Scheme in derivatives * Investment in Securitised Debt may be up to 20% of the net assets of the Scheme. The AMC further reserves the right to invest in foreign securities and derivatives subject to SEBI/RBI or any other Regulatory Authorities permitted from time to time. Minimum application amount will be Rs. 500 and any amount thereafter. Subsequent investment amount shall be Rs 500 and any amount thereafter. Systematic Investment Plan: Minimum 6 installments of Rs. 500 each. Rs. 500 or 50 units There are no investment plans or options. Under normal circumstances, the asset allocation would be as follows: Types of Instruments Equity and Equity Linked Instruments Debt securities (*including securitised debt) and Money market instruments Normal Allocation (% of Net Assets) Not less than 80% Upto 20% Risk Profile High Low to Medium The Scheme may invest upto 50% of the net assets of the Scheme in derivatives. * Investment in Securitised Debt may be up to 20% of the net assets of the Scheme. The AMC further reserves the right to invest in foreign securities and derivatives subject to SEBI/RBI or any other Regulatory Authorities permitted from time to time. Investment Strategy Subject to the SEBI Regulations, the Mutual Fund may deploy upto 40% of its total net assets of the Scheme in Stock Lending. The strategy will be to allocate the assets of the Scheme between permissible securities in line with the portfolio profile described above, with the objective of achieving capital appreciation. The actual percentage of investment in various securities will be decided by the Fund Manager(s) within the limits specified in the Investment Pattern after considering the macroeconomic conditions including the prevailing political conditions, the economic environment (including interest rates and inflation) and to adhere to the need for a diversified portfolio in accordance with the applicable guidelines. The Fund Managers will follow an active investment strategy depending on the market situation and opportunities available at various points of time. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. The scheme will invest its assets in a portfolio of equity and equity related instruments. The focus of the investment strategy would be to identify stocks which can provide capital appreciation in the long term. The aim will be to build a diversified portfolio across major industries and economic sectors by using fundamental analysis as its selection process. Fund Manager Mr. Pankaj Tibrewal Mr. Shyam Bhat Date of Inception March 31, 1996 Income Tax Benefit The scheme is an Equity Linked Savings Schemes and intends to meet the requirements of other notifications / regulations that may be prescribed by the Government / Regulatory Bodies from time to time. Specified Investors can invest and claim benefit by investing in the units of the Scheme, subject to a maximum of Rs. 1,00,000 under and in terms of Section 80(C)(2) of the Income Tax Act, Following category of investors who are entitled to claim income tax benefit under section 80(C) (2) of the Income Tax Act, 1961 by investing in the units of the scheme: (i) an individual; or (ii) a Hindu undivided family, and (iii) such others as may be specified by the prevailing provisions of Income Tax Act, 1961 including any amendment thereof/thereto. Page 4 of 40

16 SECTION II. INTRODUCTION A. RISK FACTORS Standard Risk Factors: Investment in Mutual Fund Units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal. As the price / value / interest rates of the securities in which the scheme(s) invests fluctuates, the value of your investment in the scheme may go up or down. As with any investment in stocks, shares and securities, the NAV of the Units under the Scheme(s) can go up or down, depending on the factors and forces affecting the capital markets. Past performance of the Sponsor/AMC/Mutual Fund does not guarantee future performance of the scheme(s). Principal Personal Tax Saver Fund and Principal Tax Savings Fund are only the names of the scheme(s) and does not in any manner indicate either the quality of the scheme(s) or its future prospects and returns. The sponsor or any of its associates including co-settlors are not responsible or liable for any loss resulting from the operation of the scheme(s) beyond the initial contribution of 25 lakhs made towards setting up the Fund. The present scheme(s) are not a guaranteed or assured return scheme(s). Specific Risk Factors: Risk Associated with Investing in Equities The value of Scheme s investments may be affected by factors affecting the Securities markets and price and volume volatility in the capital markets, interest rates, currency exchange rates, changes in law/policies if the Government, taxation laws and political, economic or other developments which may have an adverse bearing on individual securities, a specific sector or all sectors. Consequently, the NAV of the units of the Scheme may be affected. Equity & Equity related securities are volatile and prone to price fluctuations on a daily basis. The liquidity of investments made in the Scheme(s) may be restricted by trading volumes and settlement periods. Settlement periods may be extended significantly by unforeseen circumstances. The inability of the Scheme(s) to make intended securities purchases due to settlement problems could cause the Scheme(s) to miss certain investment opportunities. Similarly, the inability to sell securities held in the Schemes portfolio may result, at times, in potential losses to the Scheme(s), should there be a subsequent decline in the value of securities held in the Schemes portfolio. The liquidity and valuation of the Schemes investments due to the holdings of unlisted securities may be affected if they have to be sold prior to the target date of disinvestment. Securities which are not quoted on the stock exchanges are inherently illiquid in nature and carry a larger liquidity risk in comparison with securities that are listed on the exchanges or offer other exit options to the investors, including put options. The liquidity of the scheme(s) are inherently restricted by trading volumes in securities in which it invests. Investment decisions made by the Investment Manager may not always be profitable. Risk Associated with Investing in Debt and / or Money Market Instruments- Price-Risk or Interest-Rate Risk: Fixed income securities such as bonds, debentures and money market instruments run pricerisk or interest-rate risk. Generally, when interest rates rise, prices of existing fixed income securities fall and when interest rates drop, such prices increase. The extent of fall or rise in the prices is a function of the existing coupon, days to maturity and the increase or decrease in the level of interest rates. Credit Risk: In simple terms this risk means that the issuer of a debenture/ bond or a money market instrument may default on interest payment or even in paying back the principal amount on maturity. Even where no default occurs, the price of a security may go down because the credit rating of an issuer goes down. It must, however, be noted that where the Scheme(s) has invested in Government Securities, there is no credit risk to that extent. Re-investment Risk: Investments in fixed income securities may carry re-investment risk as interest rates prevailing on the interest or maturity due dates may differ from the original coupon of the bond. Consequently, the proceeds may get invested at a lower rate. Interest Rate Movement (Basis Risk): The changes in the prevailing rates of interest will likely affect the value of the Schemes holdings until the next reset date and thus the value of the Schemes' Units will be affected. Increased rates of interest, which frequently accompany inflation and/ or a growing economy, are likely to have a negative effect on the value of the Units. The value of securities held by the Scheme(s) generally will vary inversely with changes in prevailing interest rates. The fund could be exposed to the interest rate risk (i) to the extent of time gap in resetting of the benchmark rates, and (ii) to the extent the benchmark index fails to capture the interest rate movement. Prepayments and Charge Offs Risk: In the event of prepayments, investors may be exposed to changes in tenor and yield. Also, any Charge Offs would result in the reduction in the tenor of the Pass Through Certificates (PTCs). Spread Risk: In a floating rate security the coupon is expressed in terms of a spread or mark up over the benchmark rate. However depending upon the market conditions the spreads may move adversely or favourably leading to fluctuation in NAV. Page 5 of 40

17 Risks associated with Investing in Foreign Securities Subject to necessary approvals and within the investment objectives, the Scheme may invest in overseas markets which carry risks related to fluctuations in the foreign exchange rates, the nature of the securities market of the country, repatriation of capital due to exchange controls and political circumstances. It is the AMC s belief that investment in foreign securities offers new investment and portfolio diversification opportunities into multimarket and multi-currency products. However, such investments also entail additional risks. Such investment opportunities may be pursued by the AMC provided they are considered appropriate in terms of the overall investment objectives of the Scheme(s). Since the Scheme would invest only partially in foreign securities, there may not be readily available and widely accepted benchmarks to measure performance of the Scheme. To manage risks associated with foreign currency and interest rate exposure, the Fund may use derivatives for efficient portfolio management including hedging and in accordance with conditions as may be stipulated under the Regulations or by RBI from time to time. The Scheme may invest in ADR/GDR/Foreign Securities and / or other securities as may be permissible and described in SEBI Circular Reference No. SEBI/IMD/CIR NO. 7/104753/07 dated September 26, 2007 as may be amended from time to time, within the overall applicable limits and within the scheme(s) specific asset allocation pattern. Overseas investments will be made subject to any/all approvals, conditions thereof as may be stipulated under the Regulations or by RBI and provided such investments do not result in expenses to the Scheme(s) in excess of the ceiling on expenses prescribed by and consistent with costs and expenses attendant to international investing. The Fund may, where necessary, may appoint other intermediaries of repute as advisors, custodian/sub custodians etc. for managing and administering such investments. The appointment of such intermediaries shall be in accordance with the applicable requirements of SEBI and within the permissible ceilings of expenses. The fees and expenses would illustratively include, besides the investment management fees, custody fees and costs, fees of appointed advisors and sub-managers, transaction costs and overseas regulatory costs. To the extent that the assets of the Scheme(s) will be invested in securities denominated in foreign currencies, the Indian Rupee equivalent of the net assets, distributions and income may be adversely affected by changes in the value of certain foreign currencies relative to the Indian Rupee. The repatriation of capital to India may also be hampered by changes in regulations concerning exchange controls or political circumstances as well as the application to it of other restrictions on investment Risks associated with Investing in Derivatives Derivative products are leveraged instruments and can provide disproportionate gains as well as disproportionate losses to the investor. Execution of such strategies depends upon the ability of the fund manager to identify such opportunities. Identification and execution of the strategies to be pursued by the fund manager involve uncertainty and decision of fund manager may not always be profitable. No assurance can be given that the fund manager will be able to identify or execute such strategies. The risks associated with the use of derivatives are different from or possibly greater than, the risks associated with investing directly in securities and other traditional investments. The AMC may use various derivative products, as permitted by SEBI and the RBI from time to time, in an attempt to optimize the value of the portfolio and enhance Unit holder s interest/value of the Scheme(s). As and when the Scheme(s) trades in the derivatives market, there are risk factors and issues concerning the use of derivatives that investors should understand. Derivative products are specialized instruments that require investment techniques and risk analyses different from those associated with stocks and bonds. The use of a derivative requires an understanding not only of the underlying instrument but also of the derivative itself. Derivatives require the maintenance of adequate controls to monitor the transactions entered into, the ability to assess the risk that a derivative adds to the portfolio and the ability to forecast price or interest rate movements correctly. There is the possibility that a loss may be sustained by the portfolio as a result of the failure of another party (usually referred to as the counter party ) to comply with the terms of the derivatives contract. The Scheme(s) bears a risk that it may not be able to correctly forecast future market trends or the value of assets, indices or other financial or economic factors in establishing derivative positions for the Scheme(s). Other risks in using derivatives include the risk of mispricing or improper valuation of derivatives and the inability of derivatives to correlate in line with underlying assets, rates and indices. Also, the market for derivative instruments is relatively nascent in India and does not have the volumes which may be seen in other developed markets, which may result in volatility to the values. Derivatives require the maintenance of adequate controls to monitor the transactions and the embedded market risks that a derivative adds to the portfolio. Besides the price of the underlying asset, the volatility, tenor and interest rates affect the pricing of derivatives. Other risks in using derivatives include but are not limited to: (a) Credit Risk this occurs when a counterparty defaults on a transaction before settlement and therefore, the Scheme(s) is compelled to negotiate with another counter party, at the then prevailing (possibly unfavorable) market price, in order to maintain the validity of the hedge. For exchange traded derivatives, the risk is mitigated as the exchange provides a guaranteed settlement but one takes the performance risk on the exchange. (b) Market Liquidity risk where the derivatives cannot be sold (unwound) at prices that reflect the underlying assets, rates and indices. (c) Model Risk, the risk of mis pricing or improper valuation of derivatives. d) Basis Risk This risk arises when the instrument used as a hedge does not match the movement in the instrument/ underlying asset being hedged. The risks may be inter-related also; for e.g. interest rate movements can affect equity prices, which could influence specific issuer/industry assets. Trading in derivatives carry a high degree of risk although they are traded at a relatively small amount of margin which provides the possibility of great profit or loss in comparison with the principal investment amount. The Scheme(s) may find it difficult or impossible to execute derivative transactions in certain circumstances. For example, when there are insufficient bids or suspension of trading due to price limit or circuit breakers, the Scheme(s) may face a liquidity issue. Page 6 of 40

18 Interest Rate Swaps (IRS) are highly specialized instruments that require investment technique and risk analysis different from those associated with equity shares and other traditional securities. The use of a IRS requires not only an understanding of the referenced asset, reference rate, or index but also of the swap itself, without the benefit of observing the performance of the swap under all possible market conditions. Swap agreements are also subject to liquidity risk, which exists when a particular swap is difficult to purchase or sell. Swap agreements may be subject to pricing risk, which exists when a particular swap becomes extraordinarily expensive (or cheap) relative to historical prices or the prices of corresponding cash market instruments. IRS agreements are also subject to counterparty risk on account of insolvency or bankruptcy or failure of the counterparty to make required payments or otherwise comply with the terms of the agreement. Risks associated with investing in Securitised Debt The Scheme(s) may invest in domestic securitised debt such as Asset Backed Securities (ABS) or Mortgage Backed Securities (MBS). Asset Backed Securities (ABS) are securitised debts where the underlying assets are receivables arising from various loans including automobile loans, personal loans, loans against consumer durables, etc. Mortgage Backed Securities (MBS) are securitised debts where the underlying assets are receivables arising from loans backed by mortgage of residential / commercial properties. ABS/ MBS instruments reflect the undivided interest in the underlying pool of assets and do not represent the obligation of the issuer of ABS/MBS or the originator of the underlying receivables. The ABS/MBS holders have a limited recourse to the extent of credit enhancement provided. If the delinquencies and credit losses in the underlying pool exceed the credit enhancement provided, ABS/MBS holders will suffer credit losses. ABS/MBS are also normally exposed to a higher level of reinvestment risk as compared to the normal corporate or sovereign debt. At present in Indian market, following types of loans are securitised: Auto Loans (cars / commercial vehicles / two wheelers) Residential Mortgages or Housing Loans Consumer Durable Loans Personal Loans Corporate Loans The main risks pertaining to each of the asset classes above are described below: Auto Loans (cars / commercial vehicles /two wheelers) The underlying assets (cars etc) are susceptible to depreciation in value whereas the loans are given at high loan to value ratios. Thus, after a few months, the value of asset becomes lower than the loan outstanding. The borrowers, therefore, may sometimes tend to default on loans and allow the vehicle to be repossessed. These loans are also subject to model risk. ie if a particular automobile model does not become popular, loans given for financing that model have a much higher likelihood of turning bad. In such cases, loss on sale of repossession vehicles is higher than usual. Commercial vehicle loans are susceptible to the cyclicality in the economy. In a downturn in economy, freight rates drop leading to higher defaults in commercial vehicle loans. Further, the second hand prices of these vehicles also decline in such economic environment. Housing Loans Housing loans in India have shown very low default rates historically. However, in recent years, loans have been given at high loan to value ratios and to a much younger borrower classes. The loans have not yet gone through the full economic cycle and have not yet seen a period of declining property prices. Thus the performance of these housing loans is yet to be tested and it need not conform to the historical experience of low default rates. Consumer Durable Loans The underlying security for such loans is easily transferable without the bank s knowledge and hence repossession is difficult. The underlying security for such loans is also susceptible to quick depreciation in value. This gives the borrowers a high incentive to default. Personal Loans These are unsecured loans. In case of a default, the bank has no security to fall back on. The lender has no control over how the borrower has used the borrowed money. Further, all the above categories of loans have the following common risks: All the above loans are retail, relatively small value loans. There is a possibility that the borrower takes different loans using the same income proof and thus the income is not sufficient to meet the debt service obligations of all these loans. In India, there is no ready database available regarding past credit record of borrowers. Thus, loans may be given to borrowers with poor credit record. In retail loans, the risks due to frauds are high. Corporate Loans These are loans given to single or multiple corporates. The receivables from a pool of loans to corporates are assigned to a trust that issues Pass through certificates in turn. The credit risk in such PTCs is on the underlying pool of loans to corporates. The credit risk of the underlying loans to the corporates would in turn depend of economic cycles. Further, all the above categories of loans have the following common risks: All the above loans are retail, relatively small value loans. There is a possibility that the borrower takes different loans using the same income proof and thus the income is not sufficient to meet the debt service obligations of all these loans. In India, there is no ready database available regarding past credit record of borrowers. Thus, loans may be given to borrowers with poor credit record. In retail loans, the risks due to frauds are high. Page 7 of 40

19 Risks associated with Short Selling and Securities Lending Short selling: Short-selling is the sale of shares that the seller does not own at the time of trading. Instead, he borrows it from someone who already owns it. Later, the short seller buys back the stock he shorted and returns the stock to close out the loan. If the price of the stock has fallen, he can buy the stock back for less than he received for selling it and profits from it (the difference between higher short sale price and the lower purchase price). However, Short positions carry the risk of losing money and these losses may grow theoretically unlimited if the price increases without limit and shall result into major losses in the portfolio. In addition, the short selling will also have the risk of inability to borrow the securities by the seller. Then, it might be possible that the short seller will be required to purchase the securities sold short to cover the short even if the price of the security is higher at the time of the short sale. If a stock starts to rise and a large number of short sellers try to cover their positions at the same time, it can quickly drive up the price even further. This phenomenon is known as a short squeeze. This might result in major losses in the portfolio. Securities Lending : It may be noted that Securities Lending activity would have the inherent probability of collateral value drastically falling in times of strong downward market trends or due to it being comprised of tainted/forged securities, resulting in inadequate value of collateral until such time as that diminution in value is replenished by additional security. It is also possible that the borrowing party and /or the approved intermediary may suddenly suffer severe business setback and become unable to honor its commitments. This alongwith a simultaneous fall in value of collateral would render potential loss to the Scheme(s). Besides, there can also be temporary illiquidity of the securities that are lent out and the Scheme(s) may not be able to sell such lent out securities. Risk factors specific to Principal Personal Tax Saver Fund and Principal Tax Savings Fund Principal Personal Tax Saver Fund Principal Tax Savings Fund Prices of equity securities rise and fall in response to a Prices of equity securities rise and fall in response to a number of number of factors including events that impact entire factors including events that impact entire financial markets or financial markets or industries (for example, changes in industries (for example, changes in inflation or consumer demand) inflation or consumer demand) as well as events as well as events impacting a particular issuer (for example, news impacting a particular issuer (for example, news about the about the success or failure of a new product). The Securities success or failure of a new product). The Securities purchased by the Scheme present greater opportunities for growth purchased by the Scheme present greater opportunities for because of high potential earnings growth, but may also involve growth because of high potential earnings growth, but greater risks than securities that do not have the same potential. may also involve greater risks than securities that do not The Scheme may invest in companies with limited product lines, have the same potential. The Scheme may invest in markets or financial resources. As a result, these securities may companies with limited product lines, markets or financial change in value more than those of larger, more established resources. As a result, these securities may change in companies. As the value of the securities owned by the Scheme value more than those of larger, more established changes, the Scheme unit price changes. In the short-term, the price companies. As the value of the securities owned by the can fluctuate dramatically. As with all Mutual Funds, as the value Scheme changes, the Scheme unit price changes. In the of the scheme s assets rise and fall, the Scheme unit price changes. short-term, the price can fluctuate dramatically. As with If the units are redeemed when their value is less than the price all Mutual Funds, as the value of the scheme s assets rise paid for, money may be lost by the unitholder. and fall, the Scheme unit price changes. If the units are redeemed when their value is less than the price paid for, money may be lost by the unitholder. B. REQUIREMENT OF MINIMUM INVESTORS IN THE SCHEME The Scheme shall have a minimum of 20 investors and no single investor shall account for more than 25% of the corpus of the Scheme. The two conditions mentioned above shall be complied in each calendar quarter, on an average basis, as specified by SEBI. In case the Scheme does not have a minimum of 20 investors, the provisions of Regulation 39(2)(c) of the SEBI (MF) Regulations would become applicable automatically without any reference from SEBI and accordingly the Scheme shall be wound up and the units would be redeemed at applicable NAV. If there is a breach of the 25% limit by any investor over the quarter, a rebalancing period of one month would be allowed and thereafter the investor who is in breach of the rule shall be given 15 days notice to redeem his exposure over the 25 % limit. Failure on the part of the said investor to redeem his exposure over the 25 % limit within the aforesaid 15 days would lead to automatic redemption by the Mutual Fund on the applicable Net Asset Value on the 15th day of the notice period. The Fund shall adhere to the requirements prescribed by SEBI from time to time in this regard. C. SPECIAL CONSIDERATIONS Investment in the Scheme(s) should be viewed by an investor/unit holder as a medium to long term investment as mutual funds carry normal market risks and there can be no assurance and no guarantee that the Scheme(s) will achieve its objective. It is recommended that an investment in the Scheme(s) should not constitute a substantial proportion of an investment portfolio and may not be appropriate for all, as investment decisions made by the AMC will not always be profitable or prove to have been correct. As with any investment in stocks, shares and securities, the NAV of the Units under the Scheme(s) can go up or down, depending on the factors and forces affecting the capital markets. Past performance of the schemes of Principal Mutual Fund, the Sponsor or its Group affiliates is not indicative of and does not guarantee the future performance of the scheme(s). The name of the Scheme(s) does not in any manner indicate the quality of the Scheme(s), its future prospects or the returns. The Scheme(s) is not intended as a complete investment program. Investors, therefore, are urged to study the terms of this offer carefully and consult their Investment Advisor before they invest in the Scheme(s). Investors /unit holders attention is drawn to the risk factors set out in the beginning of this Scheme Information Document and also to the following specific risks: Page 8 of 40

20 Regulatory Risks: Neither this SID nor the Units have been registered in any jurisdiction. The distribution of this SID in certain jurisdictions may be restricted or subject to registration requirements and, accordingly, persons who come into possession of this SID are required to inform themselves about, and to observe, any such restrictions. No person receiving a copy of this SID or any accompanying application form in such jurisdiction may treat this SID or such application form as constituting an invitation to them to subscribe for Units, nor should they in any event use any such application form, unless in the relevant jurisdiction such an invitation could lawfully be made to them and such application form could lawfully be used without compliance with any registration or other legal requirements. Accordingly, this SID does not constitute an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not lawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. It is the responsibility of any persons in possession of this SID and any persons wishing to apply for Units pursuant to this SID to inform themselves of and to observe, all applicable laws and Regulations of such relevant jurisdiction. Prospective investors should review/study this SID alongwith SAI carefully and in its entirety and shall not construe the contents hereof or regard the summaries contained herein as advice relating to legal, taxation, or financial/investment matters and are advised to consult their own professional advisor(s) as to the legal or any other requirements or restrictions relating to the subscription, gifting, acquisition, holding, disposal (sale, transfer, switch or redemption or conversion into money) of Units and to the treatment of income (if any), capitalization, capital gains, any distribution, and other tax consequences relevant to their subscription, acquisition, holding, capitalization, disposal (sale, transfer, switch or redemption or conversion into money) of Units within their jurisdiction/of nationality, residence, domicile etc. or under the laws of any jurisdiction to which they or any managed Funds to be used to purchase/gift Units are subject, and (also) to determine possible legal, tax, financial or other consequences of subscribing/gifting to, purchasing or holding Units before making an application for Units. No person has been authorized to give any information or to make any representations not confirmed in this SID in connection with the Offer of Units, and any information or representations not contained herein must not be relied upon as having been authorized by the Mutual Fund or the AMC or the Trustee. Statements made in this SID are based on the law and practice currently in force in India and are subject to change therein. Neither the delivery of this SID nor any sale made hereunder shall, under any circumstances, create any impression that the information herein is correct as of any time subsequent to the date hereof. Performance Risk: The value of (and income from) an investment in the Scheme(s) can decrease as well as increase, depending on a variety of factors, which may affect the values and income generated by a Scheme s portfolio of securities. The returns of a Scheme s investments are based on the current yields of the securities, which may be affected generally by factors affecting capital markets such as price and volume, volatility in the stock markets, interest rates, currency exchange rates, changes in government and Reserve Bank of India policy, taxation, political, economic or other developments and closure of the stock exchanges. Investors should understand that the investment composition indicated for the Scheme(s), in line with prevailing market conditions, is only a hypothetical example as all investments involve risk and there can be no assurance that the Scheme s investment objective will be attained nor will the Scheme(s) be in a position to maintain the model percentage of investment pattern/composition particularly under exceptional circumstances such that the interest of the unit holders are protected. The AMC will endeavor to invest in highly researched growth companies, however the growth associated with equities is generally high as also the erosion in the value of the investments/portfolio in the case of the capital markets passing through a bearish phase is a distinct possibility. Changes in the prevailing rates of interest are likely to affect the value of the Scheme(s) investments and thus the value of the Scheme s Units. The value of money market/debt instruments held by the Scheme(s) generally will vary inversely with the changes in prevailing interest rates. The AMC, while investing in fixed income instruments like debt, etc., shall consider and evaluate the risk of an issuer s ability to meet principal and interest payments (credit risk) and also the price volatility due to such factors as interest sensitivity, market perception or the creditworthiness of the issuer and general market liquidity (market risk). While it is the intent of the AMC to invest primarily in more highly rated debt securities and highly researched growth companies, the Scheme(s) may from time to time invest in high yielding/growth, lower rated and/or privately placed/unlisted/securitised securities. Lower rated or unrated securities are more likely to react to developments affecting market and credit risk than highly rated securities. The credit risk factors pertaining to lower rated securities also apply to lower rated zero coupon, deferred interest bonds. Techniques Risk: The Scheme(s) may use techniques (including derivatives, futures and options, warrants, etc.) and instruments that may be permitted and/or that may become permissible under SEBI/RBI Regulations and/or Regulations and/or statutory modification or re-enactment thereof for efficient portfolio management and to attempt to hedge or reduce the risk of such fluctuation. However, these techniques and instruments, if imperfectly used have the risk of the scheme(s) incurring losses due to mismatches particularly in a volatile market. The Fund s ability to use these techniques may be limited by market conditions, regulatory limits and tax considerations (if any). The use of these techniques is dependent on the ability to predict movements in the prices of securities being hedged and movements in interest rates. There exists an imperfect correlation between the hedging instruments and the securities or market sectors being hedged. Besides, the fact that skills needed to use these instruments are different from those needed to select the Fund s/scheme s securities. There is a possible absence of a liquid market for any particular instrument at any particular time even though the futures and options may be bought and sold on an organized stock exchange. The use of these techniques involves possible impediments to effective portfolio management or the ability to meet repurchase/redemption requests or other short-term obligations because of the percentage of the Scheme s assets segregated to cover its obligations. Political Risk: Whereas the Indian market was formerly restrictive, a process of deregulation has been taking place over recent years. This process has involved the removal of trade barriers and other protectionist measures, which could adversely affect the value of investments. It is possible that future changes in the Indian political situation, including political, social, or economic instability, diplomatic developments and changes in laws or regulations could have an effect on the value of investments. Expropriation, confiscatory taxation, or other relevant developments could also affect the value of investments. Forex Risk: The scheme(s) may also invest in overseas financial assets in accordance with the guidelines issued by the concerned regulatory authorities in India. To the extent that the assets of the Scheme(s) will be invested in securities denominated in foreign currencies, the Indian Rupee equivalent of the net assets, distribution and income may be adversely affected by changes in the value of respective foreign currencies relative to the Indian rupee. The repatriation of capital to India may also be hampered by changes in regulations concerning exchange controls or political circumstances as well as the application to it of Page 9 of 40

21 other restrictions on investment. In addition, country risks would include events such as introduction of extraordinary exchange controls, economic deterioration and bi-lateral conflict leading to immobilisation of the overseas financial assets. Liquidity and Settlement Risks: The liquidity of the Scheme s investments may be inherently restricted by trading volumes, transfer procedures and settlement periods. From time to time, the Scheme(s) will invest in certain securities of certain companies, industries, sectors; etc based on certain investment parameters as adopted internally by AMC. While at all times the Trustees and the AMC will endeavor that excessive holding/investment in certain securities of industries, sectors, etc. by the Scheme(s) be avoided, the assets invested by the Scheme(s) in certain securities of industries, sectors, etc. may acquire a substantial portion of the Scheme s investment portfolio and collectively may constitute a risk associated with non-diversification and thus could affect the value of investments. The Scheme(s) may have difficulty in disposing of certain securities because the security may be unlisted, due to greater price fluctuations there may be a thin trading market, different settlement periods and transfer procedures for a particular security at any given time. Settlement if accomplished through physical delivery of stock certificates is labour and paper intensive and may affect the liquidity. It should be noted that the Fund bears the risk of purchasing fraudulent or tainted papers. The secondary market for money market/debt securities does exist, but is generally not as liquid as the secondary market for other securities. Reduced liquidity in the secondary market may have an adverse impact on market price and the Scheme s ability to dispose of particular securities, when necessary, to meet the Scheme s liquidity needs or in response to a specific economic event, such as the deterioration in the creditworthiness of the issuer, etc. or during restructuring of the Scheme s investment portfolio. Furthermore, from time to time, the AMC, the Custodian, the Registrar, any Associate, any distributor, dealer, any company, corporate body, trust, any scheme/mutual Fund managed by the AMC or by any other AMC may invest in the Scheme(s). While at all times the Trustees and the AMC will endeavor that excessive holding of Units in the Scheme(s) among a few unit holders is avoided, however, the amounts invested by these aforesaid persons may acquire a substantial portion of the Scheme s outstanding Units and collectively may constitute a majority unit holder in the Scheme(s). Accordingly, redemption of Units held by such persons may have an adverse impact on the value of the redemption and may impact the ability of the unit holders to redeem their respective Units. D. DEFINITIONS ABBREVIATION & DEFINITIONS ADRs and GDRs : American Depository Receipts (ADR) are negotiable certificates issued to represent a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars. Global Depository Receipts (GDRs) are negotiable certificates held in the bank of one country representing a specific number of shares of a stock traded on an exchange of another country. AMC/Asset Management Company/Investment Manager/Principal : Principal Pnb Asset Management Company Private Limited Applicable NAV: The NAV applicable for subscription / redemption/ switch in or switch out based on the time of the business day on which the application is accepted. Business Day : A day other than : (i) Saturday and Sunday, (ii) a day on which the Banks in Mumbai and/or RBI are closed for business/ clearing, (iii) a day on which the Bombay Stock Exchange Limited and/or National Stock Exchange are closed, (iv) a day which is a public and/or bank holiday at a Investor Service Centre where the application is received, (v) a day on which sale and repurchase of units is suspended by the AMC, (vi) a day on which normal business could not be transacted due to storms, floods, bandhs, strikes etc. Notwithstanding the above, the AMC reserves the right to declare any day as a Business Day or otherwise at any or all Investor Service Centres. Calendar Year / Year: A Calendar Year shall be full English Calendar months viz. 12 months commencing from 1st January and ending on 31st December. CBLO : Collateralized Borrowing and Lending Obligations is a Money Market Instruments approved by RBI, (developed by Clearing Corporation of India Limited ). CBLO is a discounted instrument issued in an electronic book entry form for maturity ranging from one day to one year Co-Settlors: Principal Financial Group (Mauritius) Limited, Punjab National Bank and Vijaya Bank, the co-settlors to the Principal Mutual Fund. Credit Risk : Risk of default in payment of principal or interest or both. Custodian : An entity (for the time being Citi Bank NA) appointed for holding the securities and other assets of the Fund. CDSC : Contingent Deferred Sales Charge permitted under the Regulations to be borne by the Unit Holder upon exiting (whether by way of redemption or Inter-scheme switching) based on the amount of investment (if applicable) and period of holding of Units. Day : Any day (including Saturday, Sunday and holiday) as per English Calendar viz 365 days in a year. Debt Instruments : Government securities, corporate debentures, bonds, promissory notes, money market instruments, passthrough obligations, asset backed securities/securitised debt and other possible similar securities. Depository : Depository as defined in the Depository Act, 1996 (22 of 1996). Page 10 of 40

22 Dividend : Income distributed by the Mutual Fund on the units. ELSS : Equity Linked Savings Scheme Entry Load : Load on sale/switch in of units. Equity related instruments: Equity related instruments include convertible debentures, bonds, warrants, ADR/GDR s and equity derivatives. Equity Related Instruments: Equity related instruments include convertible debentures, bonds, warrants, ADRs/GDRs and equity derivatives and other possible similar securities. Exit Load : Load on repurchase/switch out of units. FII(s) : Foreign Institutional Investor(s), registered with SEBI under Securities and Exchange Board of India (Foreign Institutional Investors) Regulation, Financial Year : A Financial Year shall be full English Calendar months viz. 12 months commencing from 1st April and ending on 31st March. Fund/Mutual Fund : Principal Mutual Fund, a trust set up under the provisions of the Indian Trust Act, 1882 and registered with SEBI bearing Registration No. MF/019/94/0 dated December 13, Fixed Income Securities : Debt Securities created and issued by, inter alia, Central Government, State Government, Local Authorities, Municipal Corporations, PSUs, Public Companies, Private Companies, Bodies Corporate, Unincorporated Special Purpose Vehicles (SPVs) and any other entities which may be recognised/permitted which yield at fixed or variable rate by way of interest, premium, discount or a combination of any of them. Floating Rate Debt instruments: Floating rate debt instruments are debt instruments issued by Central and / or State Government, corporates, banks (including deposits), PSUs or in a securitisation form with interest rates that are reset periodically. The periodicity of the interest reset could be daily, monthly, quarterly, half-yearly, annually or any other periodicity that may be mutually agreed with the issuer and the fund. They would also include short term fixed rate assets that have a maturity or put option within 6 months. Gilts/Government Securities : As defined under Section 2(b) of the Securities Contract (Regulation) Act, 1956, Government Security means a security created and issued, whether before or after the commencement of the Act, by the Central Government and/or a State Government and having one of the forms specified in clause (2) of Section 2 of the Public Debt Act, 1944 (18 of 1944) including any amendments thereto or any replacement or re-enactment thereof/clarification and guidelines in the form of notes or circulars etc. issued from time to time; Treasury Bills, such other instruments as may be declared by Government of India and/or SEBI and/or RBI and/or any other regulatory authority to be securities; and rights or interest in the securities. GOI : Government of India. Group : As defined in clause (ef) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969). IISL : India Index Services & Products Limited Investor : Any resident or non-resident person whether individual or not (legal entity), who is eligible to subscribe for units under the laws of his/her/ their state/country of incorporation, establishment, citizenship, residence or domicile and under the Income Tax Act, 1961 including amendments thereto from time to time and who has made an application for subscribing units under the Scheme(s). Under normal circumstances, a Unitholder shall be deemed to be the investor. Investment Management Agreement/IMA : Investment Management Agreement dated 25/11/94 as amended from time to time, between the Trustee and AMC. ISC : Offices of AMC and such other centres / offices as may be designated by the AMC from time to time as its Investor Service Centre. It shall also include the Official Points of Acceptance as mentioned on the last / back cover page of this SID. Load : A sum of money deducted from the value received or paid to the unitholder towards Sale/Repurchase of units. Money Market Instruments: Includes Commercial Papers, Commercial Bills, Treasury Bills, Government securities having an unexpired maturity up to one year Call or Notice Money, Certificate of Deposit, Usance Bill and any other like instrument as specified by RBI from time to time. NAV: Net Asset Value of the units of the Scheme calculated in the manner provided in this Scheme Information Document by dividing the net assets by the number of outstanding units (on any valuation day) or as may be prescribed by the SEBI Regulations from time to time. The NAV will be computed upto two decimal places. Net Assets : Net Assets of the Scheme at any time shall be the total value of the Schemes assets, less its liabilities taking into consideration the accruals and the provision. NFO: New Fund Offer. Non Resident/NRI : Non resident is any person who is not a resident in India. Page 11 of 40

23 Official Points of Acceptance: Offices as specified by AMC from time to time where application for subscription / redemption / switch will be accepted on an ongoing basis. OCB : Overseas Corporate Bodies, partnership firms and societies which are held directly or indirectly but ultimately to the extent of at least 60% by non-resident individuals of Indian nationality or origin, as also an overseas trust in which at least 60% of the beneficial interest is irrevocably held by such persons. Person of Indian Origin : A person (not being a citizen of Pakistan or Bangladesh or Sri Lanka) shall be deemed to be of Indian origin, if i) He (She), at any time, held an Indian Passport; ii) He (She) or either of his (her) parents or any of his (her) grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); iii) The person is the spouse of an Indian citizen or of a person of Indian origin (not being a citizen of Pakistan or Bangladesh or Sri Lanka). Permissible Investments or Investments : Collective or group investments made on account of the unitholders of the scheme(s) in Securities and other assets in accordance with the SEBI/RBI Regulations and amendments thereto. Portfolio : Portfolio at any time shall include all Permissible Investments and Cash. RBI : Reserve Bank of India, established under the Reserve Bank of India Act, 1934, as amended from time to time. Registrars/Registrar and Transfer Agent : Registrar for the time being of the Mutual Fund which, at present, is Karvy Computershare Pvt. Ltd., or such agency appointed by the AMC. Regulations : Regulations imply SEBI Regulations and the relevant rules and provisions of the Securities and Exchange Board of India (Depositories and Participants) Regulations 1996; Public Debt Act, 1944; The Income Tax Act, 1961; Wealth Tax Act, 1957; Gift Tax Act, 1958, the Foreign Exchange Management Act, 1999, the Indian Trusts Act, 1882 as amended from time to time and shall also include any Circulars, Press releases or Notifications that may be issued by SEBI or the Government of India or the Reserve Bank of India. Repo/Reverse Repo : Sale/Purchase of Securities as may be allowed by RBI from time to time with simultaneous agreement to repurchase/resell them at a later date. Repurchase/Redemption : The units of the Scheme(s) which will be bought back by the Fund on an ongoing basis, subsequent to the expiry of the applicable lock in period. Resident : A resident means any person resident in India under the Foreign Exchange Management Act, and under the Income Tax Act, 1961 including amendments thereto from time to time. SAI : Statement of Additional Information of Principal Mutual Fund Sale/ Subscription: The units of this scheme(s) which will be offered for sale to the unit holders on an ongoing basis. Schemes/Plans : Would mean Principal Personal Tax Saver Fund and Principal Tax Savings Fund. Scheme Information Document/SID: This document issued by Principal Mutual Fund, inviting to subscribe to the units of the schemes of the Mutual Fund. SEBI : Securities and Exchange Board of India, established under the Securities and Exchange Board of India Act, 1992, as amended from time to time. SEBI Regulations/Mutual Fund Regulations: The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, or such other Regulation in force from time to time including any amendment thereto or any replacement or re-enactment thereof/clarification and guidelines in the form of notes or circulars etc. issued from time to time for regulating Mutual Funds in India, by SEBI. Securities : Include shares, scrips, stocks etc., Debt instruments like notes bonds, debentures, debenture stock, warrants, etc., futures, options, derivatives etc or other transferable securities of a like nature in or of any incorporated company or other body corporate, Gilts/Government securities, Mutual Fund units, Money Market Instruments like Call Deposit, Commercial Paper, Treasury Bills etc. such other instruments as may be declared by GOI and/or SEBI and/or RBI and/or any other regulatory authority to be securities; and rights or interest in securities, mortgage/asset backed securities, securitized receivable auto loans, etc. Sponsor : Principal Financial Services Inc., USA acting through its wholly owned subsidiary Principal Financial Group (Mauritius) Limited. Switch : Transfer of units of one Scheme of Principal Mutual Fund to another Scheme of Principal Mutual Fund. Valid applications for switch out shall be treated as redemptions and for switch in shall be treated as purchases and the cut-off timings shall be applicable, accordingly. Systematic Investment Plan(s): A plan enabling the investors to systematically save and invest in the Scheme on monthly/quarterly (such other defined periodicity) basis by submitting post dated cheques / payment instructions Page 12 of 40

24 Systematic Transfer/Switch Plan(s): A Plan enabling the investors to transfer sums on a monthly, quarterly, semi-annually or annual basis from the Schemes to the other Schemes of the Mutual Fund existing or launched in future from time to time, by giving a simple instruction. Systematic Withdrawal Plan(s): A Plan enabling the investors to withdraw amounts from the Scheme on a monthly, quarterly, semi-annually or annual basis by giving a simple instruction. Tax Act : Income Tax Act, 1961, Wealth Tax Act 1957 and Gift Act, 1958, or such other legislation in force from time to time including any amendment thereto or any replacement or re-enactment thereof/rules, regulations any clarification and guidelines issued from time to time by the GOI. Total Assets: Total Assets of the Scheme at any time shall be the total value of the Scheme s assets, taking into consideration the accruals. Trust Deed: The Trust Deed of the Mutual Fund dated November 25,1994 made by and between the Sponsor and the Trustee as amended from time to time or any replacement or substitution thereof. Trustee : Principal Trustee Company Private Limited incorporated under the Companies Act, Unitholder : A unitholder means any resident or non-resident person whether individual or not (legal entity), who being eligible to subscribe in the scheme has been allotted units under the Scheme based on a valid application and thus hold units in the Scheme. Units : Undivided Share of a unitholder in the assets of the Scheme (and of the option(s),if any) as evidenced by any letter/advice or any other statement/ certificate/instrument. Interpretation For all purposes of this Scheme Information Document, except as otherwise expressly provided or unless the context otherwise requires: The terms defined in this Scheme Information Document include the plural as well as the singular. Pronouns having a masculine or feminine gender shall be deemed to include the other. Reference to Scheme / Scheme(s) would mean and include all the Schemes under this Scheme Information Document unless specified otherwise. In this Scheme Information Document, all references to "dollars" or "$" refers to United States dollars, and "Rs" refers to Indian Rupees. A "crore" means "ten million" and a "lakh" means a "hundred thousand". E. DUE DILIGENCE BY THE ASSET MANAGEMENT COMPANY It is confirmed that: 1. the Scheme Information Document forwarded to SEBI for the following scheme(s) is in accordance with the SEBI (Mutual Funds) Regulations, 1996 and the guidelines and directives issued by SEBI from time to time: a. Principal Personal Tax Saver Fund b. Principal Tax Savings Fund 2. all legal requirements connected with the launching of the scheme(s) as also the guidelines, instructions, etc., issued by the Government and any other competent authority in this behalf, have been duly complied with. 3. the disclosures made in the Scheme Information Document are true, fair and adequate to enable the investors to make a well informed decision regarding investment in the scheme. 4. the intermediaries named in the Scheme Information Document and Statement of Additional Information are registered with SEBI and their registration is valid, as on date. For Principal Pnb Asset Management Company Private Limited Place: Mumbai Date: May 20, 2009 Sd/- Sujata Punjabi Head Legal & Compliance Note: The Due Diligence Certificate as stated above was submitted to Securities and Exchange Board of India. Page 13 of 40

25 SECTION III. INFORMATION ABOUT THE SCHEME(s) A. TYPE OF THE SCHEME(S) Open ended Equity Linked Savings Scheme(s) B. WHAT IS THE INVESTMENT OBJECTIVE OF THE SCHEME(s)? Principal Personal Tax Saver Fund To provide long term growth of capital. The Investment Manager will aim to achieve a return on assets in excess of the performance of BSE 100 Index. Principal Tax Savings Fund To build a high quality growth-oriented portfolio to provide long-term capital gains to the investors. The scheme aims at providing returns through capital appreciation. C. HOW WILL THE SCHEME ALLOCATE ITS ASSETS? Principal Personal Tax Saver Fund Under normal circumstances, the asset allocation would be as follows: Types of Instruments Normal Allocation (% of Net Assets) Risk Profile High Equity and Equity Linked Instruments Not less than 80% Debt securities (*Including Low to Securitised Debt) and Money Up to 20% Medium market instruments The Scheme may invest up to 50% of the net assets of the Scheme in derivatives * Investment in Securitised Debt may be up to 20% of the net assets of the Scheme. The AMC further reserves the right to invest in foreign securities and derivatives subject to SEBI/RBI or any other Regulatory Authorities permitted from time to time. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 40% of its total net assets of the Scheme in Stock Lending. Principal Tax Savings Fund Under normal circumstances, the asset allocation would be as follows: Types of Instruments Equity and Equity Linked Instruments Debt securities (*including securitised debt) and Money market instruments Normal Allocation (% of Net Assets) Not less than 80% Upto 20% Risk Profile High Low to Medium The Scheme may invest upto 50% of the net assets of the Scheme in derivatives. * Investment in Securitised Debt may be up to 20% of the net assets of the Scheme. The AMC further reserves the right to invest in foreign securities and derivatives subject to SEBI/RBI or any other Regulatory Authorities permitted from time to time. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. The Scheme(s) may also invest a part of its assets in financial derivatives such as options and futures that are permitted or may become permissible under SEBI/RBI Regulations. The proportion of assets to be so invested would be decided by the AMC at the appropriate time and would be done in accordance with the relevant guidelines to be issued by SEBI and other authorities. The Scheme(s) may also invest a part of its assets in overseas markets in American Depository Receipts (ADRs), Global Depository Receipts (GDRs), overseas Equity, Bonds, Mutual Funds and the like instruments. Such investments would be made as and when approvals for the same are received from appropriate authorities and proportion of moneys to be so invested within the investment composition would also be decided by the AMC at the appropriate time. There is no assurance that the objective of the Scheme(s) may be achieved. Subject to SEBI Regulations, the asset allocation pattern indicated above may change from time to time, keeping in view market conditions, market opportunities, applicable regulations and political and economic factors. Percentages stated above are only indicative and not absolute. These proportions may vary substantially depending upon the perception of the AMC, the intention being at all times to seek to protect the NAV od the Scheme(s) and interests of the Unit holders. Such changes in the investment pattern will be for short term and only for defensive considerations. Any change in the investment composition of the Scheme(s) and amounting to a change in the fundamental attributes of the Scheme(s) will be in accordance with sub regulation 15A of regulation 18 of SEBI Regulations. Short-term surpluses, pending deployment can be deployed in the inter-bank call money market, repurchase obligations (repos) or short term corporate papers. The Scheme(s) may also invest a part of its assets in financial derivatives such as options and futures that are permitted or may become permissible under SEBI/RBI Regulations. STOCK LENDING BY THE MUTUAL FUND To augment revenue generation the Scheme(s), may lend the securities held by it to eligible brokers, dealers, financial institutions through approved intermediaries, in amounts up to 50% (in case of Principal Personal Tax Saver Fund such limit would be 40%) of its total net assets at the time of lending, in accordance with the terms of the Securities Lending Scheme announced by SEBI. Page 14 of 40

26 The Fund may enter into an agreement with the approved intermediary for depositing the securities for the purpose of lending through the approved intermediary on satisfactory terms as to security. The Scheme(s) would limit its exposure, with regard to securities lending, for a single intermediary, to the extent of 10% of the total net assets of the Scheme(s) at the time of lending. Where an intermediary is National Securities Clearing Corporation Ltd (NSCCL) such exposure limit would be up to 50% (in case of Principal Personal Tax Saver Fund such limit would be 40%)of the total net assets of the Scheme. Collateral must be obtained by the approved intermediary for the lending transactions and this collateral must exceed in value of the Securities lent. The collateral can be in the form of cash, bank guarantee, government securities, certificate of deposits or other securities as may be agreed upon with the approved intermediary. It should be noted that any default/delay by the parties to return the securities lent to them may have an adverse impact on the net assets (and consequently the performance) of the scheme(s). INVESTMENT PROCESS There is separate team for investment in fixed income instruments & equities. The team works under the supervision of Chief Investment Officer (CIO). CIO is overall in charge for the Fund's investment. The Investment Manager will carry out the daily investment activities within the framework of SEBI guidelines in accordance with the investment objective as per the Offer Document. The Board of AMC and Trustee will review the performance of the Scheme(s) in comparison to corresponding schemes of other mutual funds with similar investment objective and asset profile generally. The performance of the Scheme(s) will be compared with benchmark. The AMC has been recording investment decisions since the receipt of instructions from SEBI. Review by Board of AMC and Trustees A detailed review of the schemes of the Fund including its performance vis-à-vis benchmark index, assets size, rankings/ratings received, if any is placed before the Board of Directors of AMC and to the Trustee on a quarterly basis. D. WHERE WILL THE SCHEME(S) INVEST? a) The funds collected under the Scheme(s) will be invested in equities, cumulative convertible preference shares and fully convertible debentures and bonds of companies. Investments may also be made in partly convertible issues of debentures and bonds including those issued on a rights basis subject to the condition that, as far as possible, the non-convertible portion of the debentures so acquired or subscribed, shall be disinvested within a period of 12 months. b) It shall be ensured that funds will remain invested to the extent of at least 80% in securities specified in clause (a) in order to protect the interest of the Unitholders, in exceptional circumstances, this requirement may be dispensed with. c) Pending investment of funds in the above required manner, the Investment Manager may invest the funds in short term money market instruments or other liquid instruments or both. d) The Investment Manager may hold up to 20% of the net assets of the Scheme(s) in debt securities and money market instruments and other liquid instruments to enable the Scheme(s) to redeem investment of those unitholders who would seek to tender the units for repurchase after the lock in period of three years has been completed, as permitted by Regulations. e) Investments from the Scheme(s) corpus will only be in transferable securities. f) Investment in money market instruments and other liquid instruments will be made in accordance with the prevailing SEBI guidelines for money market operations for mutual funds and in general as permitted by the Regulations. g) The Scheme(s) may also consider investment in other securities and financial instruments as may be permitted by the Central Government and SEBI for ELSS funds from time to time. h) The securities mentioned above could be listed, unlisted, privately placed, secured, unsecured, rated or unrated and of any maturity. i) The securities may be acquired through Initial Public Offerings (IPOs), secondary market operations, private placement, right offers or negotiated deals. Securities shall be purchased in public offerings, primary/ reissues/ Open Market Operations (OMO) auctions / OMO sales, private placement, right offers, negotiated deals or any other mode of investment made available in the market from time to time. j) At present Mutual Funds are not permitted to participate in Inter Bank Calls. The Scheme(s) will participate in Inter Bank Calls only when Mutual Funds are permitted to do so. k) The Scheme(s) may also invest in another schemes managed by the same AMC or by the AMC of any other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations. l) The Asset Management Company further reserves the right to invest in derivatives and foreign securities subject to SEBI / RBI or any other Regulatory Authorities permitted from time to time. Depository Securities of the Scheme(s) will be held in dematerialized form. In case the securities are held in dematerialized (electronic) mode, the rules of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996, would apply. The service charges payable to the Depository Participant will form a part of the annual recurring expenses. Page 15 of 40

27 E. WHAT ARE THE INVESTMENT STRATEGIES? The scheme(s) will invest its assets in a portfolio of equity and equity related instruments. The focus of the investment strategy would be to identify stocks which can provide capital appreciation in the long term. The aim will be to build a diversified portfolio across major industries and economic sectors by using fundamental analysis as its selection process. The three basic steps of fundamental analysis are: 1) Research - consideration of economic prospects over the next one to two years rather than focusing on near term expectations. This approach is designed to provide insight into a company s real growth potential. 2) Valuation - use of the research to allow the Investment Manager to identify segments of the market for investment. The Investment Manager would consider various factors including sustainable, superior earnings growth and above average or accelerating rates of growth. 3) Securities selection - The Investment Manager would buy and sell securities using its research and valuation as the basis. It attempts to identify the individual issuers that it considers to have high growth potential, that are market share leaders and/ or have high quality management with consistent track records and solid balance sheets. RISK CONTROL Since investing requires disciplined risk management, the AMC would incorporate adequate safeguards for controlling risks in the portfolio construction process. The risk control process involves reducing risks through portfolio diversification, taking care however not to dilute returns in the process. The AMC believes that this diversification would help achieve the desired level of consistency in returns. The AMC may also implement certain internal control procedures / risk & exposure limits etc., which may be varied from time to time. The AMC aims to identify securities, which offer superior levels of yield at lower levels of risks. With the aim of controlling risks, rigorous in-depth credit evaluation of the securities proposed to be invested in will be carried out by the investment team of the AMC. The Scheme(s) may also use various derivatives and hedging products from time to time, as would be available and permitted by SEBI/RBI, in an attempt to protect the value of the portfolio and enhance Unitholders interest. Trading in Derivatives The Scheme may take derivatives position based on the opportunities available subject to the guidelines provided by SEBI from time to time and in line with the overall investment objective of the Scheme. SEBI has vide its Circulars inter alia, DNPD/Cir- 29/2005 dated September 14, 2005 and DNPD/Cir-30/2006 dated January 20, 2006, specified the guidelines pertaining to trading by Mutual Fund in Exchange traded derivatives and SEBI Circular DNPD/Cir-31/2006 dated September 22, 2006 modifying the position limits for Index derivative contracts. A derivative is an instrument whose value is derived from the value of one or more of the underlying assets which can be commodities, precious metals, bonds, currency, etc. Common examples of Derivative instruments are Interest Rate Swaps, Forward Rate Agreements, Futures, Options, etc. In case of equity derivatives, the Scheme may transact in exchange traded equity derivatives only and these instruments may take the form of Index Futures, Index Options, Futures and Options on individual equities/securities and such other derivative instruments as may be appropriate and permitted under the SEBI Regulations and guidelines from time to time. Derivative positions taken would be guided by the following principles: Exposure to Equity Derivatives The net derivatives position in the Scheme may be up to the limit as set forth in the asset allocation pattern of the Scheme(s), subject to the following regulatory limits: i. Position limit for the Mutual Fund in index options contracts: a. The Mutual Fund position limit in all index options contracts on a particular underlying index shall be Rs. 500 crore or 15% of the total open interest in the market in index options, whichever is higher, per Stock Exchange. b. This limit would be applicable on open positions in all options contracts on a particular underlying index. ii. Position limit for the Mutual Fund in index futures contracts: a. The Mutual Fund position limit in all index futures contracts on a particular underlying index shall be Rs. 500 crore or 15% of the total open interest in the market in index futures, whichever is higher, per Stock Exchange. b. This limit would be applicable on open positions in all futures contracts on a particular underlying index. iii. Additional position limit for hedging: In addition to the position limits at point (i) and (ii) above, Fund may take exposure in equity index derivatives subject to the following limits: a. Short positions in index derivatives (short futures, short calls and long puts) shall not exceed (in notional value) the Mutual Fund s holding of stocks. b. Long positions in index derivatives (long futures, long calls and short puts) shall not exceed (in notional value) the Mutual Fund s holding of cash, government securities, T-Bills and similar instruments. iv. Position limit for the Mutual Fund for stock based derivative contracts: The Mutual Fund position limit in a derivative contract on a particular underlying stock, i.e. stock option contracts and stock futures contracts: Page 16 of 40

28 a. For stocks having applicable market-wise position limit (MWPL) of Rs. 500 crores or more, the combined futures and options position limit shall be 20% of applicable MWPL or Rs.300 crores, whichever is lower and within which stock futures position cannot exceed 10% of applicable MWPL or Rs. 150 crores, whichever is lower. b. For stocks having applicable market-wise position limit (MWPL) less than Rs. 500 crores, the combined futures and options position limit would be 20% of applicable MWPL and futures position cannot exceed 20% of applicable MWPL or Rs. 50 crore which ever is lower. v. Position limit for the Scheme: The position limits for the Scheme and disclosure requirements are as follows: a. For stock option and stock futures contracts, the gross open position across all derivative contracts on a particular underlying stock of a scheme of a Fund shall not exceed the higher of :1% of free float market capitalization (in terms of number of shares). Or 5% of the open interest in the derivative contracts on a particular underlying stock (in terms of number of contracts). b. This position limit shall be applicable on the combined position in all derivative contracts on a underlying stock at a Stock Exchange. c. For index based contracts, the Mutual Fund shall disclose the total open interest held by its scheme or all schemes put together in a particular underlying index, if such open interest equals to or exceeds 15% of the open interest of all derivative contracts on that underlying index. As and when SEBI notifies amended limits in position limits for exchange traded derivative contracts in future, the aforesaid position limits, to the extent relevant, shall be read as if they were substituted with the SEBI amended limits. The Scheme may write (sell) and purchase call and put options in securities in which it invests and on securities indices. Through the sale and purchase of futures contracts the Fund would seek to hedge against a decline in securities owned by the Fund or an increase in the prices of securities which the Fund plans to purchase. The Fund would sell futures contracts on securities indices in anticipation of a fall in stock prices, to offset a decline in the value of its equity portfolio. When this type of hedging is successful, the futures contract increase in value while the Fund's investment portfolio declines in value and thereby keep the Fund's net asset value from declining as much as it otherwise would. Similarly, when the Fund is not fully invested, and an increase in the price of equities is expected, the Fund would purchase futures contracts to gain rapid market exposure that may partially or entirely offset increase in the cost of the equity securities it intends to purchase. In certain cases the Fund might invest in futures contracts as against underlying cash stocks for reasons of liquidity and lower impact costs. Stock and Index Futures Hedging against an anticipated rise in equity prices:- The scheme has a corpus of Rs.100 crores and has cash of Rs.15 crores available to invest. The Fund may buy index/stock futures of a value of Rs.15 crores. The scheme may reduce the exposure to the future contract by taking an offsetting position as investments are made in the equities; the scheme wants to invest in. Here, if the market rises, the scheme gains by having invested in the index futures. Hedging against anticipated fall in equity prices:- If the Fund has a negative view on the market and would not like to sell stocks as the market might be weak, the scheme of the Fund can go short on index/stock futures. Later, the scheme can unwind the future positions. A short position in the future would offset the long position in the underlying stocks and this can curtail potential loss in the portfolio. The Fund's successful use of futures contracts is subject to the Fund Manager's ability to predict correctly the market factor affecting the market value of the Fund's portfolio securities. For example if a Fund is hedged against a fall in the securities using a short position in index futures, and the market instead rises, the Fund loses part or all of the benefit of the increase in securities prices on account of the offset losses in index futures. Imperfect co-relation between the price movements in the securities index on the one hand and the stocks held by the Fund or the futures contracts itself on the other hand may result in trading losses. The Fund may not be able to close an open futures position due to insufficient liquidity in the futures market. Under such circumstances, the Fund would be required to make daily cash payments of variation margin in the event of adverse price movements. If the Fund has insufficient cash, the Fund may be required to sell portfolio securities to meet daily variation margin requirement at a time when it may be disadvantageous to do so. A hedge is designed to offset a loss on a portfolio with a gain in the hedge position. At the same time, however, a properly correlated hedge will result in a gain in the portfolio position being offset by a loss in the hedge position. As a result the use of derivatives could limit any potential gain from an increase in value of the position hedged. In addition, an exposure to derivatives in excess of the hedging requirement can lead to losses. Stock and Index Options: Option contracts are of two types - Call and Put; the former being the right, but not obligation, to purchase a prescribed number of shares at a specified price before or on a specific expiration date and the latter being the right, but not obligation, to sell a prescribed number of shares at a specified price before or on a specific expiration date. The price at which the shares are contracted to be purchased or sold is called the strike price. Options that can be exercised on or before the expiration date are called American Options, while those that can be exercised only on the expiration date are called European Options. In India, all individual stock options are American Options, whereas all index options are European Options. Option contracts are designated by the type of option, name of the underlying, expiry month and the strike price. Example for Options: Buying a Call Option: Let us assume that the Fund buys a call option of XYZ Ltd. with strike price of Rs. 1000, at a premium of Rs. 25. If the market price of ABC Ltd on the expiration date is more than Rs. 1000, the option will be exercised. The Fund will earn profits once the share price crosses Rs (Strike Price + Premium i.e ). Suppose the price of the stock is Rs. 1100, the option will be exercised and the Fund will buy 1 share of XYZ Ltd. from the seller of the option at Rs 1000 and sell it in the market at Rs. 1100, making a profit of Rs. 75. In another scenario, if on the expiration date the stock price falls below Rs. 1000, say it touches Rs.900, the Fund will choose not to exercise the option. In this case the Fund loses the premium (Rs.25), which will be the profit earned by the seller of the call option. Page 17 of 40

29 Buying a Put Option. Let us assume the Fund owns the shares of XYZ Ltd, which is trading at Rs The fund wishes to hedge this position in the short-term as it perceives some downside to the stock in the short-term. It can buy a Put Option at Rs. 500 by paying a premium of say Rs, 10/- In case the stock goes down to Rs. 450/- the fund has protected its downside to only the premium i.e Rs 10 instead of Rs. 50. On the contrary if the stock moves up to say Rs. 550/- the fund may let the Option expire and forego the premium thereby capturing Rs. 40/- upside. The strategy is useful for downside protection at cost of foregoing some upside. Writing a Call Option: Let us assume that the Fund owns shares of XYZ Ltd., which are trading at Rs The Fund wishes to sell these shares at Rs It can write call option at Rs and earn a premium of, say, Rs. 20. If the option is not exercised, the Fund earns a premium and if the stock price does reach Rs. 1100, the premium adds to the profits that the Fund would have booked by selling at that price. In this case, if the stock price of XYZ Ltd. is less then Rs. 1100, the Fund earns Rs 20 and if it closes above Rs and the option gets exercised by the buyer, the Fund gets the strike price of Rs plus a premium of Rs. 20, i.e. effectively Rs Any loss because of stock price movement beyond Rs is an opportunity loss, as the Fund would otherwise have sold the shares at Rs Writing a Put Option : Let us assume that the fund wants to buy a share of 100, the current price of the stock being Rs. 120/- The fund can choose to write a Put Option with the strike Rs. 100/- and earn a small premium of say Rs. 2/- In case the stock comes below Rs. 100/- the buyer of the Put option will exercise it and the fund can enter the stock at its desired price (In this case Rs Rs. 1 = Rs 99). In case the stock Rs. 120/- the option-holder will not exercise the option and let it expire. In this case the fund will earn the premium income of Rs. 2/- For an option buyer, loss is limited to the premium that he has paid and gains are unlimited. The risk of an option writer i.e. the seller of the option, is unlimited while his gains are limited to the premiums earned. However, the loss in case of a covered call writing is limited as the Fund already has the relevant stocks in the portfolio. The above example is hypothetical in nature and all figures are assumed for the purpose of illustrating the use of call options in individual stocks. Similar analogy can be used for Index Options too when the fund wishes to hedge a part of the total portfolio or cash. The following section describes some of the more common debt derivatives transactions along with their benefits: Interest Rate Swap (IRS) An IRS is an agreement between two parties to exchange stated interest obligations for an agreed period in respect of a notional principal amount. The most common form is a fixed to floating rate swap where one party receives a fixed (pre-determined) rate of interest while other receives a floating (variable) rate of interest. Forward Rate Agreement (FRA) A FRA is basically a forward starting IRS. It is an agreement between two parties to pay or receive the difference between an agreed fixed rate (the FRA rate) and the interest rate (reference rate) prevailing on a stipulated future date, based on a notional principal amount for an agreed period. The only cash flow is the difference between the FRA rate and the reference rate. As is the case with IRS, the notional amounts are not exchanged in FRAs. Example Let us assume that a scheme has an investment of Rs.10 crore in an instrument which pays interest linked to NSE Mibor. Since the NSE Mibor would vary daily, the scheme is running an interest rate risk on its investment and would stand to lose if rates go down. To hedge itself against this risk, the scheme could do an IRS where it receives a fixed rate (assume 10%) for the next 5 days on the notional amount of Rs. 10 crore and pay a floating rate (NSE Mibor). In doing this, the scheme would effectively lock itself into a fixed rate of 10% for the next five days. The steps would be. 1. The scheme enters into an IRS on Rs. 10 crore from December 1, 2008 to December 6, It receives a fixed rate of interest at 10% and the counter party receives the floating rate (NSE Mibor). The Scheme and the counter party exchange a contract of having entered into this IRS. 2. On a daily basis, the NSE Mibor will be tracked by the counterparties to determine the floating rate payable by the scheme. 3. On December 6, 2008, the counterparty will calculate the following; The scheme will receive interest on Rs. 10 crore at 10% p.a. for 5 days i.e. Rs. 1,36,986/- The scheme will pay the compounded NSE Mibor for 5 days Effectively, the scheme has earned interest at 10% p.a. for 5 days by converting its floating rate asset into a fixed rate through the IRS. If the total interest on the compounded NSE Mibor rate is lower than Rs. 1,36,986/-, the scheme will receive the difference from the counterparty and vice-versa. In case the interest on compounded NSE Mibor is higher, the scheme would make a lower return than what it would have made had it not undertaken IRS. Portfolio Turnover Rate The Portfolio Turnover Rate (PTR) means the lower of aggregate sales or purchases made during a particular year/period divided by the Average Asset under Management (average of Assets under Management on last day of month) for the relevant year/period. "Portfolio Turnover" is the term used by any Mutual Fund for measuring the amount of trading that occurs in a Scheme's portfolio during the year. The Scheme(s) are open-ended scheme(s). It is expected that there may be a number of subscriptions and repurchases (after completion lock in period) on a daily basis. Moreover, portfolio turnover in the Schemes will be a function of market opportunities. The economic environment changes on a continuous basis and exposes portfolio to systematic as well as non-systematic risk. Consequently, it is difficult to estimate with any reasonable measure of accuracy, the likely turnover in Page 18 of 40

30 the portfolio. However, a high turnover would significantly affect the brokerage and transaction costs. This will exclude the turnover caused on account of: - Investing the initial subscription, - Subscriptions and redemption undertaken by the unit holders. The AMC will endeavor to balance the increased cost on account of higher portfolio turnover with the benefits derived therefrom. A high portfolio turnover rate is not necessarily a drag on portfolio performance and may be representative of arbitrage opportunities that exist for scrips/securities held in the portfolio rather than an indication of a change in AMC's view on a scrip, etc. F FUNDAMENTAL ATTRIBUTES Following are the Fundamental Attributes of the Scheme(s), in terms of Regulation 18 (15A) of the SEBI (MF) Regulations: (i) Type of a scheme Open ended Scheme(s) Equity Linked Savings Scheme(s) (ii) Investment Objective Main Objective - Please refer Investment Objective of respective Scheme(s) as mentioned above. Investment pattern Please refer the Section on How will the Scheme(s) allocate its assets. (iii) Terms of Issue Liquidity provisions such as listing, repurchase, redemption Please refer the Section on Ongoing offer Details Aggregate fees and expenses charged to the scheme(s) : Please refer the Section on Fees and Expenses Any safety net or guarantee provided : Not applicable In accordance with Regulation 18(15A) of the SEBI (MF) Regulations, the Trustees shall ensure that no change in the fundamental attributes of the Scheme(s) and the Plan(s) / Option(s) thereunder or the trust or fee and expenses payable or any other change which would modify the Scheme(s) and the Plan(s) / Option(s) thereunder and affect the interests of Unit holders is carried out unless: A written communication about the proposed change is sent to each Unit holder and an advertisement is given in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of the region where the Head Office of the Mutual Fund is situated; and The Unit holders are given an option for a period of 30 days to exit at the prevailing Net Asset Value without any exit load. G. HOW WILL THE SCHEME BENCHMARK ITS PERFORMANCE? Principal Personal Tax Saver Fund and Principal Tax Savings Fund would benchmark the performance to BSE 100 Index and BSE 200 Index respectively. The composition of the aforesaid benchmark(s) is such that it is most suited for comparing performance of the respective Scheme. The Fund reserves the right to change the said benchmark and/or adopt one/more other benchmarks to compare the performance of the Scheme(s), subject to SEBI Regulations. H. WHO MANAGES THE SCHEME(S)? Principal Tax Savings Fund Name of the Fund Manager Mr. Shyam Bhat Designation: AVP- Investments Age & Qualification 38 Years / B.E, MMS Brief Experience Mr. Shyam Bhat joined Principal Pnb Asset Management Company Pvt. Ltd as Fund Manager in the year He has over 14 years experience in equity research and fund management. In his previous assignment he worked with Tata Mutual Fund as General Manager (Investments), where he was a member of the fund management team, managing equity and balanced funds. He has completed his Masters in Management Studies from NMIMS (Mumbai University) and holds a degree in Electrical Engineering from VJTI (Mumbai University). Name of Schemes under his management (a) Principal Resurgent India Equity Fund (b) Principal Services Industries Fund (c) Principal Dividend Yield Fund (d) Principal Growth Fund (e) Principal Index Fund (f) Principal Tax Savings Fund (g) Principal Fixed Duration Fund 3 year Plan Series I Principal Personal Tax Saver Fund Name of the Fund Designation: Manager Mr. Pankaj Tibrewal Fund Manager Age & Qualification 29 years / B com (H), Master in Finance Brief Experience Mr. Pankaj Tibrewal is the Fund Manager at Principal Pnb Asset Management Co. Pvt. Ltd. Mr. Tibrewal is a graduate in commerce Name of Schemes under his management (a) Principal Emerging Bluechip Fund (b) Principal Child Benefit Fund Page 19 of 40

31 from St.Xavier s College, Kolkatta and holds a Masters Degree in Finance from Manchester University, U.K. He has over 6 years of experience in managing funds. (c) Principal Balanced Fund (d) Principal Monthly Income Plan (e) Principal Monthly Income Plan MIP Plus (f) Principal PNB Long Term Equity Fund 3 Year Plan - Series I (g) Principal PNB Long Term Equity Fund 3 Year Plan - Series II (h) Principal Personal Tax Saver Fund I. WHAT ARE THE INVESTMENT RESTRICTIONS? Following Investment limitations/restrictions are specific to these Scheme(s):- The Fund under all its Schemes should not own more than 10% of any company s paid up capital carrying voting rights. Transfers of investments from one scheme to another scheme of Principal Mutual Fund shall be allowed only if: - Such transfers are done at the prevailing market price for quoted instruments on spot basis. [Explanation - Spot basis shall have same meaning as specified by stock exchange for spot transactions.] The securities so transferred shall be in conformity with the investment objective of the scheme to which such transfer has been made. A scheme may invest in another scheme under the same asset management company or any other mutual fund without charging any fees, provided that aggregate interscheme investment made by all schemes under the same management or in schemes under the management of any other asset management company shall not exceed 5% of the net asset value of the mutual fund. The Mutual Fund shall buy and sell securities on the basis of deliveries and shall in all cases of purchases, take delivery of relative securities and in all cases of sale, deliver the securities. Provided that the Scheme may engage in short selling of securities in accordance with the framework relating to short selling and securities lending and borrowing specified by SEBI. Provided further that the Scheme may also enter into derivatives transactions in a recognised stock exchange, subject to the framework specified by the Board. Provided further that sale of government security already contracted for purchase shall be permitted in accordance with the guidelines issued by the Reserve Bank of India in this regard. The Mutual Fund shall get the securities purchased or transferred in the name of the Mutual Fund on account of the concerned scheme, wherever investments are intended to be of long-term nature. Pending deployment of Funds of the scheme in terms of investment objective, Mutual Fund may invest them in short term deposits of scheduled commercial banks, subject to the following: - The scheme shall not park more than 15% of the net assets in Short term deposit(s) of all the scheduled commercial banks put together. However, it may be raised to 20% with prior approval of the trustees. Also, parking of funds in short term deposits of associate and sponsor scheduled commercial banks together shall not exceed 20% of total deployment by the mutual fund in short term deposits. - The scheme shall not park more than 10% of the net assets in short term deposit(s), with any one scheduled commercial bank including its subsidiaries. - No funds of the scheme may be parked in short term deposit of a bank which has invested in that scheme. - Short Term for such parking of fund by Mutual Fund shall be treated as a period not exceeding 91 days. The scheme shall not make any investment in: - any unlisted security of an associate or group company of the sponsor; or - any security issued by way of private placement by an associate or group company of the sponsor; or - the listed securities of group companies of the sponsor which is in excess of 25% of the net assets The Scheme shall not invest in any Fund of Funds Scheme The Scheme shall not invest more than 10% if its NAV in the equity shares or equity related instruments of any Company. The Scheme shall not invest more than 5% of its net assets in the unlisted equity shares or equity related instruments. Aggregate value of Illiquid Securities of the Scheme, which are defined as non-traded, thinly traded and unlisted equity share, shall not exceed 15% of the total assets of the Scheme, Investment in foreign Securities: In accordance with RBI Circular A.P. (DIR) Series Circular No. 3 dated July 26, 2006 read with SEBI Circular SEBI/IMD/CIR No.7/104753/07 dated September 26, 2007, the Fund is permitted to invest only up to US$ 300 million in identified overseas securities. Such limit and/or identified securities may be Page 20 of 40

32 revised at the discretion of the Fund in alignment with the provision that may be prescribed in this regard by SEBI/RBI from time to time. Since the Scheme may invest a part of its corpus in debt oriented and money market securities/instruments/funds, to manage its liquidity requirements, the investment restrictions specific to debt securities have been provided here below:- The scheme shall not invest more than 15% of its NAV in debt instruments (of any residual maturity period) issued by a single issuer which are rated not below investment grade by a credit rating agency authorized to carry out such activity under the Act. Such investment limit may be extended to 20% of the NAV of the scheme with the prior approval of the Board of Trustees and the Board of the AMC. Provided that such limit shall not be applicable for investments in government securities and money market instruments (other than debentures). Provided further that the debentures irrespective of any residual maturity period (above or below one year), shall attract restriction as applicable under clause 1 and 1A of Seventh Schedule to the SEBI (Mutual Funds) Regulations, 1996 Provided further that the restrictions for investments made in securitised debt (mortgage backed securities/asset backed securities) would be applicable as mentioned in Seventh Schedule and per the clarification made by SEBI vide circular no. SEBI/IMD/CIR No.6/63715/06, dated March 29, The scheme shall not invest more than 10% of its NAV in unrated debt instruments (of any residual maturity period) issued by a single issuer and the total investment in such instruments shall not exceed 25% of the NAV of the scheme. All such investments shall be made with the prior approval of the Board of Trustees and the Board of the AMC. These investment limitations/parameters (as expressed/linked to the net asset/nav/capital) shall in the ordinary course apply as of the date of the most recent transaction or commitment to invest, and changes do not have to be effected merely because, owing to appreciation or depreciation in value, or by reason of the receipt of any rights, bonuses or benefits in the nature of capital, or of any scheme of arrangement, or for amalgamation, reconstruction or exchange, or at any repayment or repurchase or other reason outside the control of the Fund, any such limits would thereby be breached. If these limits are exceeded for reasons beyond its control, the AMC shall adopt as a priority objective the remedying of that situation, taking due account of the interests of the unit holders. In addition, certain investment parameters (like limits on exposure to sectors, industries, issuers, etc.) may be adopted internally by the AMC, as amended from time to time, to ensure appropriate diversification/security for the Fund. The AMC may alter these above stated limitations from time to time, and also to the extent the SEBI Regulations change, so as to permit the Fund to make its investments in the full spectrum of permitted investments for Mutual Funds to achieve its investment objective. As such all investments of the Fund will be made in accordance with SEBI Regulations including Schedule VII thereof. J. HOW HAS THE SCHEME PERFORMED? Principal Tax Savings Fund Returns (%) as at April 29, 2009 Period Returns (%) BSE 200 (%) Last 1 Year Last 3 Years Last 5 Years Since Inception* The past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *March 31, Principal Personal Tax Saver Fund Returns (%) as at April 29, 2009 Period Returns (%) BSE 100 (%) Last 1 Year Last 3 Years Last 5 Years Since Inception* Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *March 31, Page 21 of 40

33 K. INVESTMENT BY AMC? The AMC and investment companies managed by the Sponsor, its affiliates, its associate companies and subsidiaries may invest either directly or indirectly in the Scheme(s). The money managed by these affiliates, associates, the Sponsor, subsidiaries of the Sponsor and/or the AMC may acquire a substantial portion of a Scheme's units and collectively constitute a major investment a Scheme(s). Accordingly, repurchase of units held by such affiliates/associates and Sponsor may have an adverse impact on the units of a Scheme(s), because the timing of such repurchase may impact the ability of other unit holders to repurchase their units. The AMC reserves the right to invest its own funds in the Scheme(s) as may be decided by the AMC from time to time and in accordance with SEBI Circular no. SEBI/IMD/CIR No. 10/22701/03 dated December 12, 2003 and SEBI/IMB/CIR No.1/42529/05 dated June 14, 2005 regarding minimum number of investors in the Scheme/ Plan. The AMC shall not charge any fees on investment by the AMC in the units of the Scheme(s) in accordance with Sub Regulation 3 of Regulation 24 of the Regulations and shall charge fees on such amounts in future only if the SEBI Regulations so permit. L INCOME TAX BENEFIT Scheme(s) are an Equity Linked Savings Scheme(s) as per the Notifications dated 3 November, 2005 and 13 December, 2005 issued by the Department of Economic Affairs, Ministry of Finance Government of India or such other scheme(s) as the Central Government may, by notification in the Official Gazette, specify under section 80C of the Income Tax Act, Investors in the Scheme(s) are entitled to deductions of the amount invested in Units of the Scheme(s), subject to a maximum of Rs.1,00,000, under and in terms of Section 80C (2) of the Income Tax Act, Following category of investors who are entitled to claim income tax benefit under section 80(C) (2) of the Income Tax Act, 1961 by investing in the units of the scheme: (i) an individual; or (ii) a Hindu undivided family, and (iii) such others as may be specified by the prevailing provisions of Income Tax Act, 1961 including any amendment thereof/thereto. The tax benefit shall be available only to the applicant or to the first applicant in case of joint holding. M. LOCK-IN PERIOD Units issued under the Scheme(s) will be locked-in for a period of three years from the date of allotment. Such units can not be repurchased /switched /pledged /transferred /gifted before the expiry of lock-in period. However, in the event of the death of the sole applicant or the first applicant in case of joint holding, the nominee or legal heir or the applicant stated next in the order (in case of joint holding) as the case may be, may encash the units after the completion of one year from the date of allotment. N. SPECIAL BENEFIT - PERSONAL ACCIDENTAL DEATH INSURANCE Following category of resident investors under the Scheme(s) will be covered under an accident insurance cover for death by accident till the units are transferred (under the circumstances stated in this SID) or are repurchased by the Fund whichever is earlier; 1. Sole / First applicant only, in case of individual applicant 2. Karta in case of HUF 3. First applicant in case of Association of Persons (AOP) / Body of Individuals (BOI) Limit of Insurance Cover The Insurance arrangement(s) currently is with United India Assurance Company Limited. The insurance cover will be available not later than three months from the date of allotment of units in the Scheme(s). Hence during first three months from the date of allotment, benefit of personal accident insurance may not be available to the investors. However the Fund will endeavor to cover the investor under the insurance policy within three months from the date of allotment. The details of the Personal Accidental Death Insurance covered under the Scheme(s) are as follows: I. Principal Personal Tax Saver Fund 1. Eligibility - Investor s Age - Minimum 3 years - Maximum 65 years; 2. The cover will be applicable to the first holder of the investment and cannot be transferred; 3. Cover/Claim event - Maximum of Rs. 1 lac, on Death arising solely and directly from an accident caused by external, violent & visible means. 4. The insurance cover will be 150 times multiplied by the no. of units held by the investor on the date of his / her death or Rs. 1 lac which ever is lower. Illustration :- Where an investor is holding 100 units as on the date of his / her death, the insurance benefit will be 150 x 100(units) = Rs.15000/-, AND where an investor holds 1000 units as on the date of his / her death, the insurance benefit will be Rs.1, 00,000/- II. Principal Tax Savings Fund 1. Eligibility - Investor s Age - Minimum 5 years - Maximum 70 years 2. The cover will be applicable to the first holder of the investment and cannot be transferred. Page 22 of 40

34 3. Claim event - On Death arising solely and directly from an accident caused by external, violent & visible means. 4. The Insurance Cover will be as follows: Total Maximum Level of Investment at NAV Related Prices* Rs Rs. 6,000 Rs. 6,001 - Rs. 11,000 Rs. 11,001 & above Level of Cover Rs.1,00,000 Rs.3,00,000 Rs.5,00,000 * The insurance cover will be available to eligible resident investors (as stated above) based on their total maximum level of investment (at NAV related price) whether invested through one application or more on the date of investment or on subsequent dates. Illustration: Investor A applies with subscription amount of Rs 10,000/- at the NAV of Rs.20 per unit, against which on April 1, 2009 he was allotted 500 units. Assuming he dies on April 1, 2010 and the value of investment as on April 1, 2010 is Rs. 15,000/-. For the purpose of Insurance benefit, Rs. 10,000/- being the Total Maximum Level of Investment (i.e. the amount which Mr. A has subscribed/invested) will be considered and accordingly Insurance Cover in the event of Mr. A s death will be Rs. 3,00,000/- Other Terms of the Insurance Cover As per the requirement of the Insurance Company, a written notice of the death must, unless reasonable cause is shown, be given to the Insurance Company before interment / cremation and in any case, within one calendar month after the date of the death. The insurance cover is worldwide on 24 hour basis All insurance claims will be settled in India and shall be payable in Indian Rupees only. The insurance will cover only accidental death. Insurance will not cover natural death, suicide, accidental injuries, loss of limbs and other normal exclusions as stipulated in standard accident insurance policies. Insurance will be available for individuals of the age as mentioned for the respective Scheme above. The cover will be over and above other insurances against accidental deaths held by the unitholder. The insurance premium in respect of this cover will be borne by the Scheme and will form part of its annual recurring expenses which are subject to ceiling of 2.50% of weekly average net assets of the scheme. The rules and regulations of the insurance company regarding insurance cover and claims shall be binding on the unitholders. IMPORTANT NOTE Fund reserves right to review the level of insurance cover or remove the insurance cover offered to investors under the scheme. However any change in the level of insurance cover or removal of insurance cover will be on the prospective basis and will be applicable to new investors only subsequent to the date of change. Insurance cover is a fundamental attribute of the scheme. Insurance cover will be provided to eligible resident investors for a minimum period of three years from the date of allotment. Assignee for Insurance To facilitate settlement of insurance claims, applicant must nominate a person for claiming the insurance proceeds. Settlement procedures will be as stipulated by the insurance company. IT IS COMPULSORY FOR THE APPLICANTS TO FURNISH DETAILS OF THE ASSIGNEE FOR THIS INSURANCE COVER IN THE SPACE PROVIDED FOR IN THE APPLICATION FORM. INVESTOR MAY NOT GET COVERED UNDER INSURANCE IF THE ASSIGNEE IS NOT APPOINTED. SECTION IV. UNITS AND OFFER This section provides details you need to know for investing in the scheme(s). A. NFO Details This section does not apply to the scheme(s) covered in this Scheme Information Document, as the ongoing offer of the scheme(s) has commenced after the NFO, and the units are available for continuous subscription and redemption (after the prescribed lock-in-period). B. ONGOING OFFER DETAILS: Ongoing Offer Period This is the date from which the scheme will reopen for subscriptions/redemptions after the closure of the NFO period Ongoing price for subscription (purchase)/switch-in (from other The date of inception of Principal Tax Saver Fund and Principal Tax Savings Fund is March 31, Being an open ended scheme, investors can subscribe to the units of the scheme on an ongoing basis To provide liquidity to the investors, after the expiry of lock-in period, the Scheme will offer for Redemption / Switch-out of Units at NAV based prices on every Business Day on an ongoing basis. There is no entry load on switches between all equity and balanced schemes of Principal Mutual Fund, excluding Principal Child Benefit Fund. At applicable NAV subject to prevailing entry load. Page 23 of 40

35 schemes/plans of the mutual fund) by investors. This is the price you need to pay for purchase/switch-in. Example: If the applicable NAV is Rs. 10, entry load is 2% then sales price will be: Rs.10*(1+0.02)=Rs Ongoing price for redemption (sale) /switch outs (to other schemes/plans of the Mutual Fund) by investors. This is the price you will receive for redemptions/switch outs. Example: If the applicable NAV is Rs. 10, exit load is 2% then redemption price will be: Rs. 10* (1-0.02) = Rs Plans / Options Offered Allotment Refunds Who can invest This is an indicative list and you are requested to consult your financial advisor to ascertain whether the scheme is suitable to your risk profile There is no entry load on switches between all equity and balanced schemes of Principal Mutual Fund, excluding Principal Child Benefit Fund. At the applicable NAV subject to prevailing exit loads. No Plans or Options at present. The allotment will be made to all applicants provided the applications received are complete in all respects. An offer to purchase units is not binding on, and may be rejected by AMC, until it has been confirmed through an Account/Transaction Statement and payment has been received. Refund of subscription money to investors whose application is invalid for any reason whatsoever, or whose application has not been accepted in full will be without incurring any liability whatsoever for interest or other sum. The following persons (subject wherever relevant to, purchase of Units being permitted under their respective constitutions and relevant State Regulations) are eligible to apply for purchase of units under the Scheme(s): (i) Resident Indian Nationals who are: - Adult individuals as sole holder, - Adult individuals not exceeding three jointly or on an either/anyone or survivor basis. - Parents/Lawful guardians on behalf of Minors. - Partnership Firms - Hindu Undivided Families(HUF), through their Karta - Institutions, Companies, Bodies Corporate, Public Sector Undertakings, Societies registered - under the Societies Registration Act 1860, or Co-operative Societies, subject to their byelaws permitting them to invest in the units of the mutual fund, - Banks (including Co-operative Banks and Regional Rural Banks), Funds, Financial and Investment Institutions - Religious and Charitable Trusts, drafts or endowments and Private Trusts, under the provisions of Section 11(5) of Income tax Act, 1961 read with Rule 17(C) of Income tax Rules 1962 registered under the Societies Registration Act/Indian Trusts Act, Trustees of Private Trusts authorized to invest in mutual fund schemes under their trust deeds - Scientific and Industrial Research Organizations - Association of Persons/Body of Individuals, whether incorporated or not - Army/Air Force/Navy, other paramilitary units and bodies created by such institutions besides other eligible institutions - Mutual Funds registered with SEBI (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) Multilateral Funding Agencies/Bodies Corporate incorporated outside India with the permission of Government of India/Reserve Bank of India. Overseas Financial Organizations which have entered into an arrangement for investment in India, inter-alia with a Mutual Fund registered with SEBI and which arrangement is approved by the Central Government. Non-Resident Indians (NRIs)/ Persons of Indian origin residing abroad, on a full repatriation basis or non-repatriation basis. Presently OCBs cannot invest in domestic mutual funds pursuant to RBI A.P.(DIR Series) Circular No.14 dated September 16, Foreign Institutional Investors (FIIs). Such other individuals/institutions/body corporate, etc. as may be decided by the Fund from time to time, so long as wherever applicable they are in conformity with regulations. Other Schemes of Principal Mutual Fund subject to the conditions and limits prescribed by applicable SEBI Regulations. The Trustees/Trust, AMC or Sponsor or its affiliates, its associate companies and subsidiaries may also subscribe to the units under this Fund. Provident/Pension/Gratuity/Superannuation Funds and such other retirement and employee benefit and other similar Funds. The Trustees may accept an application from an unincorporated body of persons/trusts. The Trustees may from time to time add and review the persons eligible for making application for purchase of Page 24 of 40

36 units under the Scheme(s). If a person who is a resident of India at the time of subscription becomes a resident outside India subsequently, he/she shall have the option to either be paid repurchase value of Units, only after expiry of relevant lock-in period or continue into the Scheme(s) if he/she so desires and is otherwise eligible. However, the person who desires to continue in the Scheme(s) shall not be entitled to any interest or any compensation during the period it takes for the Fund to record the change in Address and the Residential Status. Notwithstanding the aforesaid, the Trustees reserve the right to close such a unit holder s account after expiry of relevant lock in period and to pay the repurchase value of Units, subsequent to his becoming a person resident outside India, should the reasons of expediency, cost, interest of unit holders and other circumstances make it necessary for the Fund to do so. In such an event, no resident unit holders who have subsequently become residents outside India shall have a right to claim the growth in capital and/or income distribution. The Scheme(s) have not been and will not be registered in any country outside India. To ensure compliance with any Laws, Acts, Enactment, etc. including by way of Circulars, Press Releases, or Notifications of Government of India, the Fund may require/give verification of identity/any special/additional subscription-related information from/ of the unit holders (which may result in delay in dealing with the applications, Units, benefits, distribution, etc./giving subscription details, etc.). Each unit holder must represent and warrant to the Trustees/AMC that, among other things, he is able to acquire Units without violating applicable laws. The Trustees will not knowingly offer or sell Units to any person to whom such offer or sale would be unlawful, or might result in the Fund incurring any liability or suffering any other pecuniary disadvantages which the Fund might not otherwise incur or suffer. Units may not be held by any person in breach of the law or requirements of any governmental, statutory authority including, without limitation, exchange control regulations. The Trustees may compulsorily redeem any Units held directly or beneficially in contravention of these prohibitions. In view of the individual nature of investment portfolio and its consequence, each unit holder is advised to consult his/her own professional advisor concerning possible consequences of purchasing, holding, selling, converting or otherwise disposing of the Units under the laws of his/her state/country of incorporation, establishment, citizenship, residence or domicile. Where can you submit the filled up applications. How to Apply Listing Cut off timing for subscriptions redemptions/ switches This is the time before which your application (complete in all respects) should reach the Official Points of Acceptance Kindly note that neither the Statement of Additional Information; nor this Scheme Information Document, nor the Application for the Units, nor the Units ( these Documents ) has been registered in any jurisdiction. The distribution of these Documents in certain jurisdictions may be prohibited or restricted or subject to registration requirements and accordingly, persons who come into possession of any of these Documents are required to inform themselves about and to observe, any such restrictions. No person receiving a copy of any of these Documents in such jurisdiction may act or treat these Document or any part/portion thereof as constituting an invitation to him to subscribe for Units, nor should he in any event use any such Documents, unless in the relevant jurisdiction such an invitation could lawfully be made to him and such Documents could lawfully be used without compliance with any registration or other legal requirements. Accordingly, none of these Documents (including or any part/portion thereof) constitute an offer or solicitation by any one in any jurisdiction in which such offer or solicitation is not lawful or in which the person making such offer or solicitation is not qualified to do so or to any one to whom it is unlawful to make such offer or solicitation. It is the responsibility of any persons in possession of any of these Documents and any persons wishing to apply for Units pursuant to these Documents to inform themselves of and to observe, all applicable laws and Regulations of such relevant jurisdiction. Karvy Computershare Private Limited, KARVY HOUSE, 46, Avenue 4, Street No. 1, Banjara Hills, Hyderabad , India has been appointed as Registrar & Transfer Agent (R&T) for the Scheme(s). The applications filled up and duly signed by the applicants should be submitted at the office of the ISCs/Official Points of Acceptance, whose names and addresses are mentioned on the last / back cover page of this SID. Investors can also subscribe and redeem units from the official website of AMC i.e. Please refer to the SAI and Application form for the instructions. Being an open ended scheme, the units of the Scheme will not be listed Cut Off Time For Subscriptions/ Switch in In respect of valid applications received upto 3.00 pm with a local cheque or demand draft payable at par at the Official Points of Acceptance of Transactions where it is received, the closing NAV of the day of receipt of application shall be applicable; In respect of valid applications received after 3.00 pm with a local cheque or demand draft payable at par at the Official Points of Acceptance of Transactions where it is received, the closing NAV of the next business day shall be applicable; and In respect of the valid applications received with an outstation cheque or demand draft not payable on par at the Official Points of Acceptance of Transactions where the application is received, the closing NAV of day on which the cheque or demand draft is credited shall be applicable. Cut Off Time For Redemptions / Switch out After the expiry of lock in period: in respect of valid applications received upto 3.00 p.m. at the Official Points of Acceptance of Transactions, same day s closing NAV will be applicable in respect of valid applications received after 3.00 p.m. at the Official Points of Acceptance of Transactions, the closing NAV of the next business day shall be applicable Page 25 of 40

37 Cut off time as mentioned above shall be reckoned at the Official Points of Acceptance of transactions as disclosed in the SID and the website Where can the applications for Purchase/Redemption switches be submitted? Minimum amount for purchase/redemption/switches Purchase/Redemption switch requests may be submitted at any of the Official Points of Acceptance nearest to you. Please refer the last / back cover page of this Scheme Information Document for name, address, contact no. and website address of the R&T. Also provided along with are the contact details of the official points of acceptance and Investor Service Centres. Minimum application amount will be Rs. 500 and any amount thereafter with subsequent investment of Rs. 500/- & any amount thereafter. Systematic Investment Plan : Minimum 6 installments of Rs. 500 each. After the expiry of lock in period, minimum repurchase amount will be Rs. 500 or 50 units. Minimum balance to be maintained and consequences of non maintenance Special facilities for Investors/Unit holders At present investor are not required to maintain minimum balance in their respective folios, however the AMC/Trustees reserves the right to change it at any future date by giving advance notice. The Fund reserves the right to amend or terminate or introduce special facilities in the SID. The current special facilities offered are as follows: 1. Switching Option Switching will be allowed into/from other select open ended scheme(s) managed under the Fund, either currently in existence or the scheme(s) that may be launched in the future at NAV based prices. In the case of NRIs, FIIs, etc. this will be subject to necessary approval (if any) from the Reserve Bank of India and any other approval as applicable. Tax deduction at source, if any, will be effected at the appropriate rate in case of a switch and the balance amount would be utilized to exchange units to the other Scheme. Switching from the Scheme(s) into other existing schemes would be available, after expiry of lock-in period, on a continuous basis, subject to the loads, as may be applicable. However, there is no entry load on switches between all equity and balanced schemes of Principal Mutual Fund, excluding Principal Child Benefit Fund. A request for switch may be specified either in terms of amount or in terms of the number of units of the scheme/plan/option from which the switch is sought. Such instructions may be provided in writing by completing the switch form or using the relevant tear off section of the Transaction Slip that may be enclosed with the Account Statement and lodging the same on any business day at any of the designated Official Points of Acceptance. The switch will be effected by redeeming units from the scheme in which the units are held and investing the net proceeds in the other Scheme, subject to the minimum balance applicable for the respective Scheme. 2. Systematic Investment Plan Systematic Investment Plan (SIP) is available for planned and regular investments. Under SIP, unit holders can benefit by investing specified rupee amounts periodically for a continuous period. This concept is called Rupee Cost Averaging. This program allows unit holders to save a fixed amount of rupees every month/quarterly by purchasing additional units of the Scheme. Example Let us take an example of a unit holder who invests Rs per month Month NAV Amount (Rs) Units April May June July August September October November December January February March TOTAL Note: The figures of NAV are hypothetical and are for illustrative purposes only. At the end of one year the unitholder would have units. Rupee Cost Averaging does not guarantee a profit nor protect against a loss. Rupee Cost Averaging can smooth out the market s ups and downs and reduce the risk of investing in volatile markets. Features of the SIP Page 26 of 40

38 1. SIP Applications will be accepted on any working day of the month: Accordingly the units will be allotted on the date of receipt of valid SIP Application along with a SIP investment cheque dated not beyond the date of the Application. Thereafter the date for the first SIP installment shall be 1st, 5th, 15th or 25 th of a particular month ("specified dates for SIP investments") as selected by the Investor OR the nearest date amongst the Specified Date subsequent to receipt of the application, as the case may be after completing a minimum time gap of 30 days from the date of the first SIP investment cheque. E.g. If a duly completed SIP enrolment is received within the applicable cut-off timings on January 27, 2009 along with a valid cheque dated not beyond January 27, 2009, for a SIP investment of Rs.500/- per month (together with 5 or more post dated cheques each for a minimum of Rs.500/-), the units will be allotted on January 27, 2009 with the scheme applicable NAV, and the next SIP date [first SIP Installment date] will be March 1, 2009 or immediately following business day if March 1, 2009 is a non-business day OR such other date amongst the Specified Dates as per the application form. 2. Investors, who wish to opt for ECS (debit clearing) facility available with select banks, should ensure that there is a minimum time gap of 30 days between the first cheque for SIP enrolment and first installment of SIP through ECS or Direct Debit. Dishonoured cheque(s) may not be presented again for collection. 3. Unit holders need not submit a copy of cancelled cheque provided the SIP Auto Debit Facility Enrolment Form is attested by the Bank from which SIP installments will be debited. 4. Unit holders have the right to discontinue the SIP facility at any time by sending a written request to any of the designated Investor Service Centers (ISCs) of Principal Mutual Fund. Please also note that notice of such discontinuation should be received at least 18 working days (as against the existing provision of 7 working days) prior to the due date of the next SIP installment. 5. SIP enrolment will be discontinued by Principal Pnb Asset Management Company Pvt. Ltd. [AMC] in case [a] the SIP installment is not honored consecutively for three SIP installments, [b] the Bank account [for ECS (Debit Clearing) and/or Standing Instruction for direct debit] is closed and the request for change in bank account is not submitted by the concerned unit holder at least 18 working days before the due date of next SIP installment. Further, in such cases the balance cheques, if any, will be returned to the unit holder. Systematic Investment Plan (SIP) for Corporate Employees. With a view to encourage employees of Corporate to invest their savings into the various Schemes of our Mutual Fund, Principal Mutual Fund provides a no - entry load investment facility to the employees of Corporate under the Employee Savings Plan (ESP). This feature will be guided by the terms and conditions as laid down below: 1. Under this feature the employees can submit application vide the normal application and/or ESP Forms. The employee is required to fill the details in the normal application/ ESP form providing the details of amount and duration of such SIP installments and the details of such investment should also be provided to the Human Resources Department of such Corporate (HRD). 2. The employees should instruct the HRD to deduct the amount of Investment every month / quarter from their salary for such period as indicated by him / her. Such periodicity shall be monthly or quarterly. 3. The minimum amount and periodicity, to be contributed to open an account under this option is as per the minimum scheme requirements as prescribed under Systematic Investment Plan/additional subscription of the Scheme. 4. The periodic employee contribution should be the minimum application amount and the same should be higher than that of SIP. The employee has an option to select either 1 st of 5 th of every month for such investment. 5. The employee can seek redemption independently. 6. The applicable NAV for application received under such plan, will be as per the date and time (refer to section on cut off timing) on which the request / payment instrument and sheet detailing the list of Investment of such employees, is received from HRD of such Employees at the Official Points of Acceptance of AMC. 3. Systematic Withdrawal Plan After expiry of lock-in period, a unitholder may avail of the Systematic Withdrawal Plan and receive regular payments from the account. The unitholder has an option to select 1st, 11 th or 21 st day of the month on which the Systematic Withdrawal is to be made. Page 27 of 40

39 The unitholder may set up a Systematic Withdrawal Plan on a monthly, quarterly or semi-annual or annual basis as follows: Redeem a fixed number of units Redeem a fixed amount Once the unitholder sets up a Systematic Withdrawal Facility the plan would continue until: - The unitholder instructs the Fund to stop periodic withdrawal in writing; or - The unitholder s account balance is zero - On expiry of the time/period specified by the unitholder Withdrawal payments will be endeavoured to be sent within 3 Business Days after the repurchase date. The minimum balance amount needed for the Systematic Withdrawal Plan may be altered from time to time at the discretion of the AMC. 4. Systematic Transfer/Switch Plan After expiry of lock-in period, the unitholder may set up a Systematic Switching Plan on a monthly, quarterly, semi-annual or annual basis to exchange a fixed number of units and /or amount in one scheme to another scheme or one plan/option to another. Once the unitholder sets up a Systematic Switching Plan the plan would continue until: - the unitholder instructs the Fund to stop periodic switching in writing; or - the unitholder s account balance is zero. The unitholder has an option to select 1st, 11 th or 21 st day of the month on which the Systematic Switch is to be made. If the selected date is not a business day, the switch will take place on the next business day. All switches are subject to the minimum investment and eligibility requirements of the switch in scheme The amount thus switched shall be converted into the respective scheme units at the applicable NAV, subject to an exit load, if any (on which date the payment/switch is scheduled), and such units will be subtracted from the unit balance of that unitholder. However, there is no entry load on switches between all equity and balanced schemes of Principal Mutual Fund, excluding Principal Child Benefit Fund. The minimum balance amount needed for the Systematic Switch Plan may be altered from time to time at the discretion of the AMC Unitholders may change the amount of systematic withdrawal/switch but not below the specified minimum amount of repurchase for a particular Scheme by giving 30 days written notice to the Registrars/AMC. The various triggers for activating a systematic withdrawal and/or switch facility can also be used for activating a normal repurchase and/or switch facility. (Available after expiry of the lock-in period.) 5. TRIGGERS Under this facility, the unit holders, after expiry of relevant lock-in period may opt for withdrawal and/or switch in the normal manner based on the value of investment either reaching upto or below or above/beyond a specified particular value; the capital appreciation/gains realization either equals to or becomes more/lower than a specified particular amount or percentage on happening of a particular event, on a particular date etc (with or without lock in for a particular period). Trigger thus acts as a financial planning tool for information and the unit holder may subsequently continue in the scheme or otherwise withdraw/switch. For e.g. an account may be monitored and the unit holder either informed or account redeemed (no redemption will be permitted if under lock-in) as and when the balance reaches or crosses (rise or fall) a desired value or after a certain period of time etc. This helps the unit holders to minimise the loss and/or book timely profits. In case of triggers linked with events/dates, on realisation of gains (equal to/beyond/lower than), a specified amount/full amount/gains/appreciation etc would be redeemed and paid either when the investment reaches upto and/or beyond (above or below) a particular value or after a particular period of time. In case of triggers linked with gains/appreciation, at the option of the unit holder, either the amount equivalent to gains/appreciation would be redeemed or the full original investment amount would be redeemed and the gain/appreciation component paid to the unit holder/switched into other scheme/plan, and the original investment amount would be reinvested either in the same scheme/plan or any other scheme/plan. ACTIVATION OF TRIGGER Unit holders shall note that NAV of a scheme is determined on close of the business day taking into consideration closing prices of the securities on the primary stock exchange (please refer to clause on Valuation Policy in the SAI & Determination of Net Asset Value in the SID). Intra day prices are not considered for valuing the scheme s portfolio. Value of the unit holder s unit balance at the end of a relevant business day based on that day s NAV and closing value of a relevant index of a stock exchange would be used as a base for activating the triggers. However all Page 28 of 40

40 prices of the day on which the event occurs. Please also note that the trigger is an additional facility provided to the unit holders to save time on completing the redemption/switch formalities on happening of a particular predetermined event. Trigger is not an assurance on part of AMC/Fund to the investor that he/she will receive a particular amount of money/appreciation and/or a percentage on redemption or will get a particular amount of capital appreciation or will minimise the loss to investor to a particular amount or percentage. Trigger is an event on happening of which the Fund will automatically redeem and/or switch the units on behalf of the investors on the date of happening of the event. In actual parlance, a trigger will activate a transaction/alert when the event selected for has reached a value greater or less than the specified particular value (trigger point). Unit holders can opt from any one of the following event under trigger option; 1. When value of investment of the unit holder reaches or crosses a particular value Eg. Investment Value reaches or crosses Rs /- Trigger Activation If investment value at NAV based price is less than Rs.11,000/-, trigger will be activated when value of the units at NAV held by unit holders rises to Rs.11000/- or more on close of any business day. If investment value at NAV based price is more than Rs.11,000/-, trigger will be activated when value of the units at NAV held by unit holders falls to Rs 11000/- or below on close of any business day. All transactions linked with trigger will be on the basis of NAV of the business day on which value of units held by unit holders reaches or crosses or falls below Rs.11,000/-. 2. Capital appreciation of a particular amount Eg. Capital appreciation by Rs.1000/- Trigger Activation Trigger will be activated when value of units invested at NAV based price appreciates by Rs.1000/- or more at NAV on close of any business day. All transactions linked with trigger will be on the basis of NAV of the business day on which value of investment held by unit holders increase at least by Rs 1000/-. 3. NAV reaches or crosses a particular value Eg. NAV reaches or crosses Rs.11/- Trigger Activation If NAV on the date of allotment of investment is less than Rs.11/-, trigger will be activated when NAV rises to Rs.11/- or more on close of any business day. If NAV on the date of allotment of investment is more than Rs.11/-, trigger will be activated when NAV falls to Rs.11/- or below on close of any business day. All transactions linked with trigger will be on the basis of NAV of the business day on which NAV reaches or crosses or falls below Rs.11/-. 4. BSE Sensex reaches or crosses a particular value Eg. BSE Sensex reaches or crosses Trigger Activation If BSE Sensex on the date of allotment of investment is less than 16000, then trigger will be activated when BSE Sensex rises to or more on close of any business day If BSE Sensex at the time of investment is more than 16000, then trigger will be activated when BSE Sensex falls to or below on close of any business day. All transactions linked with trigger will be on the basis of NAV of the business day on which close of day the BSE Sensex reaches or crosses or falls below mark. 5. NSE Nifty reaches or crosses a particular value Eg. NSE Nifty reaches or crosses 5000 Trigger Activation If NSE Nifty on the date of allotment of investment is less than 5000, then trigger will be activated when NSE Nifty rises to 5000 or more on close of any business day. If NSE Nifty on the date of allotment of investment is more than 5000, trigger will be activated when NSE Nifty falls to 5000 or below on close of any business day. All transactions linked with trigger will be on the basis of NAV of the business day on which close of day the NSE Nifty reaches or crosses or falls below 5000 mark. 6. On a particular day or date Eg. On 31/1/2009 Trigger Activation Trigger will be activated on 31/1/2009. All transactions linked with trigger will be on the basis of NAV of 31/1/2009 or on 1/2/2009 if 31/1/2009 is not a business day. 7. Change in the value of units (held by unit holders) at least by certain percentage Eg Change in Investment Value at least by (+ or or +) 10% Trigger Activation Trigger will be activated when value of the units at NAV based price invested by unit holders rises to 10% or more at NAV on close of any business day; or Trigger will be activated when value of the units at NAV based price invested by unit holders falls by 10% or more at NAV on close of any business day; or Trigger will be activated when value of the units at NAV based price invested by unit holders either rises by 10% or more at NAV or falls by 10% or more on close of any business day. Page 29 of 40

41 Percentage rise or fall in value of units will be calculated on the amount invested by the unit holders. 8. Capital appreciation of at least a certain percentage Eg. Capital appreciation of at least (+ or or +) 10% Trigger Activation Trigger will be activated when value of the units at NAV based price invested by unit holders appreciate to 10% or more at NAV on close of any business day; or Trigger will be activated when value of the units at NAV based price invested by unit holders depreciates by 10% or more at NAV on close of any business day; or Trigger will be activated when value of the units at NAV based price invested by unit holders either appreciates by 10% or more at NAV or depreciates by 10% or more at NAV on close of any business day. Difference between the value of units on close of a business day (at NAV) and amount invested (at NAV based price) will be used as a base for calculating percentage of capital appreciation. 9. Change in the NAV at least by a certain percentage Eg. Change in NAV at least by (+ or or +) 10% Trigger Activation Trigger will be activated when the NAV of the units rises by 10% or more on close of any business day compared with the NAV on the date of allotment of investment; or Trigger will be activated when the NAV of the units falls by 10% or more on close of any business day compared with the NAV on the date of allotment of investment; or Trigger will be activated when the NAV of the units either rises by 10% or more or falls by 10% or more on close of any business day compared with the NAV on the date of allotment of investment Percentage rise or fall in NAV will be calculated comparing NAV on a particular business day with the NAV on the date of allotment of investment. 10. Change in the BSE Sensex at least by a certain percentage Eg. Change in BSE Sensex at least by (+ or or +) 10% Trigger Activation Trigger will be activated when the BSE Sensex rises by 10% or more on close of any business day compared with the BSE Sensex on the date of allotment of investment; or Trigger will be activated when the BSE Sensex falls by 10% or more on close of any business day compared with the BSE Sensex on the date of allotment of investment; or Trigger will be activated when the BSE Sensex either rises by 10% or more or falls by 10% or more on close of any business day compared with the BSE Sensex on the date of allotment of investment. Percentage rise or fall in BSE Sensex will be calculated comparing BSE Sensex on a particular business day with the BSE Sensex on the date of allotment of investment. 11. Change in the NSE Nifty at least by a certain percentage Eg. Change NSE Nifty at least by (+ or or +) 10% Trigger Activation Trigger will be activated when the NSE Nifty rises by 10% or more on close of any business day compared with the NSE Nifty on the date of allotment of investment; or Trigger will be activated when the NSE Nifty falls by 10% or more on close of any business day compared with the NSE Nifty on the date of allotment of investment; or Trigger will be activated when the NSE Nifty either rises by 10% or more or falls by 10% or more on close of any business day compared with the NSE Nifty on the date of allotment of investment. Percentage rise or fall in NSE Nifty will be calculated comparing NSE Nifty on a particular business day with the NSE Nifty on the date of allotment of investment; On happening of any of the above mentioned events, the Unit holder can opt for the following action on the date of happening of the relevant event; Full redemption Redemption of gains only Full switch into other Scheme/Plan / Option of Principal Mutual Fund Switch of only gains into other Scheme / Plan/Option of Principal Mutual Fund Full Redemption:Original investment amount reinvested in any scheme of Principal Mutual Fund and gains paid to unit holder Full redemption: Gains reinvested in any Scheme/Plan/Option of Principal Mutual Fund and investment amount paid to unit holder Redemption of certain number of units Redemption of certain amount Transactions linked with the triggers will be at the applicable NAV based price of the business day on which the event takes place. Further all the predetermined events i.e. the value of the unit balance, capital appreciation, NAV, BSE Sensex, NSE Nifty will be compared with the value of units, NAV, BSE Sensex and NSE Nifty prevailing on the date of investment (i.e. date of allotment) irrespective of the fact whether the trigger is opted on the date of allotment of investment or subsequently. The request for sweep of any dividend declared under the Scheme(s) can be preferred at any time during the tenure of the investment including the lock-in period. Further, the triggers registered for dividend sweep, the triggers will be activated on declaration of dividend unless cancelled by the Investor. For eg an investor has invested at Rs. 11/- and opted for full redemption if NAV appreciates at least by 10%. Trigger will be activated on the business day when NAV moves to (i.e. 10% more than Page 30 of 40

42 Rs. 11/-) or more. Additionally, in case of sweep or switch into another Scheme(s) of AMC pursuant to election of a Trigger Option, the same shall be subject to the terms / features, including load structure / tax impact etc. of such other elected Scheme(s). Triggers(s) linked to BSE Sensex or NSE Nifty will always compare the value of BSE Sensex or NSE Nifty on close of business day. In case BSE or NSE is open on a non-business day, its value will not be considered even if it reaches or crosses a trigger value, and on any subsequent business day if the value of BSE or NSE is reached, the same would be considered for trigger purposes. For eg. A unit holder has opted for full redemption if NSE Nifty reaches or crosses 5000 mark. If NSE is open on January 1, 2009, but it is not a business for the Fund, trigger will not be activated (i.e. redemption will not take place) even though closing value of Nifty as on January 1, 2009, is 5000 or more. Accounts Statements The closing value of BSE Sensex/NSE Nifty on non business day will be ignored for trigger activation. A trigger once activated will not be reactivated in any other scheme where the switch/reinvestment happens or in the same scheme which retains part of the value or in case of normal redemption/switch before trigger activation. Triggers will be deactivated on redemption and/or switch and/ore pledge of units except in case where only Gains are to be redeemed or switched and opted for the same in the trigger form. For normal transactions during ongoing sales and repurchase: The AMC shall issue to the investor whose application has been accepted, an account statement specifying the number of units allotted. The Account Statement shall normally be dispatched within ten business days on an ongoing basis. For those unit holders who have provided an address, the AMC will send the account statement by . The unit holder may request for a physical account statement by writing and submitting it to AMC / ISC / R & T. Accordingly, on receipt of such request Account Statement shall be provided to the investors within five working days from date of such receipt. Such Account Statement shall reflect the latest closing balance and value of units prior to the date of generation of Account Statement. Further in case of physical copy a soft copy of account statement shall be ed to such investor whose id is provided. For SIP/STP transactions: Account Statement for SIP and STP will be dispatched once every quarter ending March, June, September and December within 10 working days of the end of the respective quarter A soft copy of the Account Statement shall be mailed to investors under SIP/STP to their address on a monthly basis, if so mandated. However, the first Account Statement under SIP/STP shall be issued within 10 working days of the initial investment / transfer In case of specific request received from investors / Mutual Funds shall provide the account statement (SIP/STP) to the investors within five working days from the receipt of such request without any charges. Annual Account Statement: The Mutual Funds shall provide the Account Statement to the Unit holders who have not transacted during the last six months prior to the date of generation of account statements. The Account Statement shall reflect the latest closing balance and value of the Units prior to the date of generation of the account statement, The account statements in such cases may be generated and issued along with the Portfolio Statement or Annual Report of the Scheme. Alternately, soft copy of the account statements shall be mailed to the investors address, instead of physical statement, if so mandated. Account Number: Each unit holder will have an account number. The number of units allotted to a unit holder or repurchased by a unit holder will be reflected in his or her account and a statement/advice to this effect will be issued to the unit holder. Common Account Number: As a unit holder friendly measure, (unless otherwise requested by the unit holder), one Common Account Number will be assigned for one entity/investor investing in different schemes of the Fund. In such a case, one consolidated account statement will be provided. The AMC reserves the right to assign the existing Common Account Number against multiple applications and/or subsequent purchases under a new application form by an existing unit holder, with identical mode of holding and address Account Statement An Account or Transaction Statement reflecting the unit balance of the unitholder will be mailed to the unitholder by ordinary post, after every financial transaction is effected. The Account Statement shall not be construed as a proof of title and is only a computer-printed statement indicating the details of transactions under the scheme and is a non-transferable document. The Account Statement shall normally be dispatched within three business days on an ongoing basis. Unit Certificates Normally no unit certificates will be issued under the Scheme. However, if the unit holder so desires, Page 31 of 40

43 the AMC shall issue a non-transferable unit certificate to the unit holder within 30 days of the receipt of request for the certificate. The cost of stamp duty paid for issuing the unit certificate will form part of the annual on-going expenses and/or may be recovered from the unit holder. Units With Depository Units of the Scheme may, if decided by the AMC, be held with a depository. Under such circumstances, units will be dematted in accordance with the provisions of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996, as may be amended from time to time. If the units of the Scheme is admitted for dematerialization with the Depository(ies), the unit holders will have the option to convert their existing units into dematerialized mode, accordingly an existing unitholder having an account statement who may wish to seek dematerialization of their Units, would have to submit a request with his/her Depository Participant alongwith the account statement issued by the Fund. The same number of Units held in the physical mode shall be continued in the demat mode. Requests for dematerialisation shall be processed within the thirty days or such other days as may be stipulated under SEBI Regulations from the date of receipt of such a request, provided it is complete and valid in all respects. The expenses incurred by the AMC in dematting of the referred units may be recovered from unitholders or may be charged to the scheme as per annual recurring expenses. Dividend Dividend Policy Rematerialisation of Demat Units. The unitholders who converted their units in demat mode may also rematerialize their units. The request for rematerialising the demat Units may be given to the respective Depository Participant (DP) of the investor. On receiving the confirmation of Remat Units balance, account statement for the physical Units shall be issued. The same number of Units held in the demat mode shall be continued in the physical mode. Rematerialisation of demat Units shall be processed within the thirty days or such other days as may be stipulated under SEBI Regulations from the date of receipt of such a request, provided it is complete and valid in all respects. The dividend warrants shall be dispatched to the unitholders within 30 days of the date of declaration of the dividend. Efforts are being made to directly credit the dividend to the Unitholders account. In the interest of the Scheme(s) and the unit holders the AMC/Trustees may consider providing returns to the unit holders at appropriate times by way of periodic declaration of dividend and /or bonus units under the Scheme(s) after providing for all necessary recurring and other expenses. Distribution of dividend is subject to availability and adequacy of distributable surplus and approval of the Trustees. Quantum of dividend and the record date will be fixed by the Trustee and dividend so decided shall be paid, subject to availability of distributable surplus. Only those unit holders whose names appear in the register of unit holders as on the record date will be entitled for dividend and/or bonus units. The dividend warrants and/or fresh Account Statement with the bonus units shall be dispatched/credited to the unit holders within 30 days or such stipulated period of the declaration of dividend/bonus units. Dividends will be paid net of taxes as may be applicable, and payments will be in favour of the Unit holder s registered name or, if there is more than one registered holder, of the first named registered holder on the original application form. The Trustees may not declare a dividend at all in the event of inadequacy of distributable income. There is no assurance or guarantee to unit holders as to the periodicity of dividend and rate of dividends distribution. All benefits accruing/earned/received under the Scheme(s) in respect of income (not included in NAV), capital reserves and surpluses, if any, at the time of its/their declaration or otherwise under the Scheme shall be available only to the Unit holders who hold units at the time of its/their declaration. Since distribution of dividend and /or bonus units shall be paid from the distributable surplus, the NAV of the Scheme(s) shall be adjusted to the extent of dividend paid and/or bonus issued. Redemption Repurchase Procedure After the expiry of lock-in period, the units of the Scheme(s) can be repurchased (sold back to the Fund) on any business day. The repurchase request can be made on Application Form/Common Transaction form or by using the relevant tear off section of the Transaction Slip that may be enclosed with the Account Statement, which should be submitted at any of the Official Point of Acceptance. Where the date of redemption is a holiday / non business day, the deemed date for such redemption will be the next business day. In case the units are standing in the names of more than one unit holder, where mode of holding is specified as jointly, repurchase requests will have to be signed by all the joint holders. However, in cases of holding specified as either/anyone or survivor, any one of the joint holders (in case of either/anyone or survivor) will have the power to make repurchase request. However, in all cases, the repurchase proceeds will be paid to the sole/first named holder only. In case a unit holder has subscribed to units on more than one Business Day (either through continuation in case of existing unit holder, or through subsequent subscriptions), the units subscribed to prior in time (that is those units which have been held for the longest period of time), will be deemed to have been repurchased first, that is on a First -In -First-Out basis. However, a unit holder Page 32 of 40

44 may request the Fund to repurchase units subscribed by him/her at different dates, by indicating the specific date of subscription of the units, which is offered for repurchase. The repurchase request can be made by specifying the Rupee amount or by specifying the number of units to be repurchased. If a repurchase request is for both a specified Rupee amount and a specified number of units, the specified rupee amount will be considered the definitive request. If only the repurchase amount is specified by the unit holder, the AMC will divide the repurchase amount so specified by the applicable NAV based price to arrive at the number of units. The request for repurchase of units could also be in fractions, up to three decimal places. If the number of Units held by the Investor as per the records maintained by AMC and/or the Registrar is less than the number of Units requested to be redeemed then, all the Units held by the Unit holder in such folio / Scheme / plan for which application for Redemption is made, shall be redeemed. Provided that, where redeem all is specified in the request, all Unit holdings in that Scheme shall be redeemed. The AMC reserves the right to change the minimum repurchase amount on a prospective basis subject to SEBI Regulations. Unit holders may also request for repurchase of their entire holding and close the account by indicating the same at the appropriate place in the Transaction Slip/Repurchase form. Repurchase Price The repurchase price will be calculated using the following formula: Repurchase Price = Applicable NAV*(1 Exit Load, if any). Example for calculation of Repurchase Price If the Applicable NAV is Rs and a 1.00% exit load is charged the repurchase price will be calculated as follows: Repurchase Price = Rs x (1-1.00% of Rs ) = Rs Re = Rs per unit The repurchase price shall not be lower than 93% of the NAV. The AMC reserves the right to modify the exit load or levy a different exit load for any individual(s) or group of investors. However, any such change in the load structure shall be only on a prospective basis. The unit holder is requested to confirm the applicable exit load at the time of investment from the AMC/OPT. Repurchase by NRI s/ FIIs Credit balances in the account of an NRI/FII will be subject to any procedures laid down by the RBI. Such repurchase proceeds will be paid by means of a rupee cheque payable to the designated NRE/ NRO account of the unit holder or by a US dollar (or any other currency) draft drawn at the exchange rates prevailing at that time and subject to RBI procedures and approvals and subject to deduction of tax at source, as applicable. All bank charges in connection with such payment will have to be borne by the unit holder and/or the Scheme(s) by way of ongoing expenses. The Fund will not be liable for any delays or for any loss on account of exchange fluctuations, while converting the rupee amount in US Dollar or any other currency. Payment of Repurchase Proceeds The time limit set for dispatch of repurchase proceeds will be from the Business Day when the request is accepted at the Official Point of Acceptance. As per the SEBI Regulations, the Fund shall mail the repurchase proceeds within ten Business Days from the date of acceptance of valid request at any of the Official Point of Acceptance, in case of a repurchase request being sent by post. In the event of failure to dispatch the repurchase or repurchase proceeds within the statutory period specified above as per the SEBI Regulations, the AMC shall be liable to pay interest to the unit holders at such rate (currently 15% per annum) as may be specified by SEBI for the period of such delay. Electronic Credit Clearing Services (ECS) Identified Banks ECS is a facility offered by RBI for facilitating better customer service by direct credit of dividend or repurchase amount to a unit holder s bank account through electronic credit. This helps in avoiding loss of dividend or repurchases warrant in transit or fraudulent encashment. The Fund will endeavour to arrange such facility for payment of dividend/repurchase proceeds to the unit holders. However, this facility is optional for the unit holders. Repurchase proceeds may be released through the ECS facility to unit holders residing in any of the cities where such a facility is available. In order to avail the above facility, the unit holder will have to give a written request to the Registrar. If the unit holder has opted for the ECS facility his/her bank branch will directly credit the amount due to them in their account whenever the payment is through ECS. The Registrar will send a separate advice to the unit holder informing them of the direct credit. It may be noted that there is no commitment from the Fund that this facility will be made available to the unit holders for payment of dividend/repurchase proceeds. While the Fund will endeavour in arranging the facility it will be dependent on various factors including sufficient demand for the facility from unit holders at any centre, as required by the authorities. In places where such a facility is not available or if the facility is discontinued by the Fund for any reason the repurchase warrants will be mailed to the unit holder. Unit holder's Bank Account Details Unit holders are on a mandatory basis required to mention their bank account details in their Page 33 of 40

45 applications/ requests for redemption. Redemption Cheques and/or any other instruments will then be made out in favour of the Bank for crediting the respective unit holder's account so specified. The normal processing time may not be applicable in situations where such details are not provided by unit holders. The AMC will not be responsible for any loss arising out of fraudulent encashment of cheques and delay/loss in transit. Delay in payment of redemption / repurchase proceeds The policy regarding reissue of repurchased units, including the maximum extent, the manner of reissue, the entity (the scheme or the AMC) involved in the same. Restrictions, if any, on the right to freely retain or dispose of units being offered. Closure of Unit holder s Account Unit holders may note that the AMC at its sole discretion may close a unit holder s account after giving notice of 45 days, if at the time of any part repurchase, the value of units (represented by the units in the unit holder s account if such repurchase were to take place, valued at the applicable NAV related price), falls below the minimum investment/balance required for each scheme(s) (or such other amount as the AMC may decide from time to time) or where the units are held by a unit holder in breach of any Regulation. The Asset Management Company shall be liable to pay interest to the unitholders at such rate as repurchase proceeds may be specified by SEBI for the period of such delay 15% per annum). Presently the AMC does not intend to reissue the repurchased units. The trustee reserves the right to reissue the repurchased units at a later date after issuing adequate public notices and taking approvals, if any, from SEBI. The Units of the Scheme are not transferable. In view of the same, additions/ deletion of names will not be allowed under any folio of the Scheme. The above provisions in respect of deletion of names will not be applicable in case of death of unit holder (in respect of joint holdings) as this is treated as transmission of units and not transfer. RIGHT TO LIMIT REPURCHASES The AMC may, in the general interest of the unit holders of the Scheme(s), keeping in view the unforeseen circumstances/unsure conditions, limit the total number of units which may be repurchased on any Business Day to 15% of the total number of units of the Scheme(s) (or such higher percentage as the AMC may decide in any particular case). Any units which by virtue of these limitations are not repurchased on a particular Business Day will be carried forward for repurchase to the next Business Day, in order of receipt. Repurchases so carried forward will be priced on the basis of the Repurchase Price of the Business Day on which repurchase is made. Under such circumstances, to the extent multiple repurchase requests are received at the same time on a single Business Day, repurchase will be made on pro-rata basis, based on the size of each repurchase request, the balance amount being carried forward for repurchase to the next Business Day(s). POSSIBLE DEFERRAL OF REDEMPTION/ REPURCHASE REQUESTS Whilst every effort will be made to ensure that the Scheme will have sufficient liquidity to enable the repurchase cheques to be collected/dispatched within the deadline stated in the foregoing clause, unit holders should note that where the Scheme is obliged to arrange for the disposal of the underlying securities/borrow, in order to satisfy redemption/repurchase requests, unit holders may experience some delays in receiving repurchase cheques, reflecting the time involved in settling the underlying sales of securities/borrowing. However in any case, the Fund will ensure that the collection/dispatch of repurchase cheques is not delayed beyond ten working days (when Principal Mutual Fund is open for business) from the date of receipt of the repurchase request in accordance with Regulation 53(b) of the Securities and Exchange Board of India (Mutual Funds) Regulations, SUSPENSION OF SALE/REPURCHASE/SWITCH OPTIONS OF THE UNITS The Fund at its sole discretion reserves the right to withdraw sale, repurchase and/or switch of the units under the scheme(s), temporarily or indefinitely, if in the opinion of the AMC the general market conditions are not favourable. However, the suspension of sale/repurchase/switch either temporarily or indefinitely will be made applicable only after the approval of the Board of Directors of the AMC and Trustee. The approval from the AMC Board and the Trustees giving details of circumstances and justification for the proposed action shall also be informed to SEBI in advance. The sale, repurchase and switch of the units may be temporarily suspended under any or all of the following conditions : - If the stock/money markets stop functioning or trading is restricted - Under uncertain conditions when the market (capital/stock/money etc become extremely volatile and the AMC so decides in the best interest of the unit holders) - Declaration of war or occurrence of insurrection, civil commotion or any other serious or sustained financial, political or industrial emergency or disturbance or any natural calamity - In extreme cases or complete breakdown or dislocation of business in the financial markets. - Breakdown in the means of communication used for the valuation of investments in the Scheme(s), without which the value of the securities held in the Scheme(s) cannot be accurately calculated. Page 34 of 40

46 - In the event of any force majeure or disaster that affects the normal functioning of the AMC or the ISC - SEBI by order so permits - During the period of Book Closure/Record Date - On a requisition made by three-fourth s of the unit holders. - If AMC views that enhancement in the size of the corpus further may prove detrimental to the existing unit holders of the Scheme(s). C. PERIODIC DISCLOSURES Net Asset Value This is the value per unit of the scheme on a particular day. You can ascertain the value of your investments by multiplying the NAV with your unit balance. Half yearly Disclosures: Portfolio / Financial Results This is a list of securities where the corpus the scheme is currently invested. The market value of these investments is also stated in the language of the region where the head office of the mutual fund is located. portfolio disclosures. Half Yearly Results Annual Report Associate Transactions Taxation The information is provided for general information only. However, in view of the individual nature of the implications, each investor is advised to consult his or her own tax advisors/authorised dealers with respect to the specific amount of tax and other implications arising out of his or her participation in the schemes. The Mutual Fund shall declare the Net asset value of the scheme(s) on every business day on AMFI s website by 9.00 p.m. (time limit for uploading NAV as per applicable guidelines) and also on their website. In case of delay, the reasons for such delay would be explained to AMFI in writing. NAVs would however be endeavoured to be made available before commencement of business hours of the following business day, failing which a press release explaining the material reasons for nonavailability would be released. In the event NAV cannot be calculated and/or published because of suspension of trading on the BSE/NSE/RBI, during the existence of a state of emergency and/or a breakdown in communications, the AMC may suspend calculation and/or publication of NAV, etc of the units. The Mutual fund shall publish a complete statement of the scheme portfolio and the unaudited financial results, within one month from the close of each half year (i.e. 31st March and 30th September), by way of an advertisement at least, in one National English daily and one regional newspaper in the language of the region where the head office of the mutual fund is located. The mutual fund may opt to send the portfolio statement to all unit holders in lieu of the advertisement (if applicable). The fund shall before the expiry of one month from the close of each half year that is on 31st March and on 30th September, publish its unaudited financial results in one national English daily newspaper and in a regional newspaper published in the language of the region where the Head Office of the mutual fund is situated. In addition the Fund shall mail / (if any address is provided with the consent of the unit holder) or publish the complete portfolio to the investors before the expiry of one month from 31st March and 30th September each year. These shall also be displayed on the website of the Mutual Fund and that of AMFI. The Fund will mail / (if an address is provided with the consent of the unit holder) within four months from the date of closure of the relevant accounts year i.e. 31st March each year, an abridged scheme wise annual report of the Fund. The Full Annual Report will be available on written request from the unit holder and will be available at the Corporate Office of the AMC for inspection. Please refer to Statement of Additional Information (SAI). Particulars Resident Investors Mutual Funds Tax on Dividend Nil Nil Capital Gain: Long Term Short Term Nil 15% + applicable surcharge, education cess and secondary & higher education cess Nil Nil Where the Fund receives any income from investments made in overseas jurisdiction, the same may be subject to withholding tax (or any other tax) in the relevant jurisdiction from which the income is received. As the fund is exempted from its entire income (including foreign income) in India, credit/refund in respect of such foreign taxes withheld/paid by the fund will not be available. The Schemes being Equity oriented schemes shall be subject to the Securities Transaction Tax (STT) at applicable rates. Investor services For Further details on taxation please refer to the clause of Taxation in the SAI. For any enquiries and/or queries or complaints in respect of any terms and conditions of/investments in this Scheme, the investors are advised to address a suitable communication to AMC and marked to the attention of Head Customer Services - Ms. Kashmira Kalwachwala at customer@principalindia.com. Written communications may also be forwarded to Principal Mutual Fund at Maker Bhavan II, 1 st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai , India and/or alternatively faxed at The Investors can also call us at our Toll Free No Page 35 of 40

47 D. COMPUTATION OF NAV The NAV of the Scheme(s) at any time shall be determined by dividing the net assets of the Scheme by the number of outstanding units on the valuation date. NAV per unit = (Market / Fair Value of Securities + Accrued Income + Receivables + other assets+ unamortised issue expenses - Accrued Expenses payables-other liabilities) No. of units outstanding of the scheme / option The NAV will be calculated up to two decimals. The NAVs will be declared on every Business Day by 9.00 p.m. The computation of Net Asset Value, valuation of assets, computation of applicable Net Asset Value (related price) for repurchase, switch and their frequency of disclosure shall be based upon a formula in accordance with the Regulations and as amended from time to time including by way of Circulars, Press Releases, or Notifications issued by SEBI or the Government of India to regulate the activities and growth of Mutual Funds. The dividend paid on units of the Scheme(s) Fund shall be deducted in computing the NAV of the Scheme(s), each time a dividend is declared and till it is distributed. The valuation of the Scheme s assets and calculation of the Scheme s NAV shall be subject to audit on an annual basis and such regulations as may be prescribed by SEBI from time to time. SECTION V FEES AND EXPENSES This section outlines the expenses that will be charged to the Schemes ` A. ANNUAL SCHEME RECURRING EXPENSES The AMC has estimated the below mentioned expenses expressed as a percentage to the daily average net assets of the Scheme(s) which will be charged to the Scheme(s) as expenses. For the actual current expenses being charged, the investor should refer to the website of the mutual fund. The estimated expenses under the Scheme, is as per the table below: Nature of Expenses % of average daily net assets Investment Management and Advisory Fees 1.25 Trustee Fees 0.01 Custodian Fees/Depository Charges 0.10 Registrar and Transfer Agent Fees 0.11 Costs related to investor communications, costs of Fund transfer from one 0.18 location to another, cost of providing account statements and dividend repurchase cheques and warrants, costs of statutory advertisements. Marketing and Selling Expenses 0.75 Audit Fees 0.10 Total Annual Recurring Expenses 2.50 These estimates have been made in good faith by the AMC as per the information available to AMC the investment manager, based on the past experience and are subject to change inter-se. The expenses may be more than as specified in the table above, but the total recurring expenses that can be charged to the Scheme(s) will be subject to limits prescribed from time to time under the SEBI Regulations. Expenses over and above the permissible limits will be borne by the AMC and/or the Trust and/ or the sponsor. The purpose of the above table is to assist the unitholder in understanding the various costs and expenses that a unitholder in the Scheme(s) will bear directly or indirectly. Expenses over and above the limits prescribed under the SEBI Regulations shall be borne by the AMC. As per the SEBI Regulations, the maximum recurring expenses including the investment management and advisory fee that can be charged to the Scheme(s), shall be subject to a percentage limit of Average Weekly net assets as given in the table below. First Rs.100 Crs Next Rs. 300 Crs Next Rs. 300 Crs Balance Assets As per the SEBI Regulations, the AMC is entitled to an Investment Management and Advisory fee at the rate of 1.25% per annum of the Weekly average net assets outstanding in each accounting year for the Scheme(s), as long as the net assets do not exceed Rs. 100 crore and 1.00% of the excess amount over Rs. 100 crore, where net assets so calculated exceed Rs. 100 crore. Subject to the SEBI Regulations and this Document, expenses over and above the prescribed ceiling will be borne by the AMC and/or by Sponsor and/or Trust. The Fund shall strive to reduce the level of these expenses so as to keep them well within the maximum limits currently allowed by SEBI and any revision in the said expenses limits by SEBI would be applicable. Page 36 of 40

48 B. LOAD STRUCTURE Load is an amount which is paid by the investor to subscribe to the units or to redeem the units from the scheme(s). This amount is used by the AMC to pay commissions to the distributor and to take care of other marketing and selling expenses. Bonus Units and units issued on reinvestment of dividends shall not be subject to entry load & exit load. Load amounts are variable and are subject to change from time to time. The AMC shall issue an addendum for any change in the load structure and also display the same on the website / Investor service centre. For the current applicable structure, please refer to the website of the AMC or may call at ( ) or your distributor. TYPE OF LOAD: LOAD CHARGEABLE (AS %AGE OF NAV) (INCLUDING SIP) Entry Load: Exit Load For Direct Investment Nil For investments less than or equal to Rs. 1 crore % For investment amount greater than Rs. 1 crore and above - Nil. Nil There is no entry load on switches between all equity and balanced schemes of Principal Mutual Fund, excluding Principal Child Benefit Fund. The same will also be applicable on all Equity Schemes launched in future, unless otherwise specified. In case if the date of redemption is a holiday / non business day, the deemed date will be the next business day. E.g. Repurchase Price = Applicable NAV(*1-Exit Load, if any). Therefore, the Repurchase Price would be Rs x (1-1.00% of Rs ) = Rs All loads including Contingent Deferred Sales Charge (CDSC) for the Scheme(s) shall be maintained in a separate account and may be utilized towards meeting the selling & distribution expenses. Any surplus in this account may be credited to the Scheme(s), whenever felt appropriate by the AMC. The AMC reserves the right to change/modify entry / exit / switchover load / CDSC, depending upon the circumstances prevailing at any given time on the prospective investments as permissible under the SEBI Regulations. The repurchase price shall not be lower than 93% of the NAV and the sale price shall not be higher than 107% of the NAV. However, the difference between the repurchase price and sale price shall not exceed 7% on the sale price, without any discrimination to any specific group of unit holders. However, any change at a later stage shall not affect the existing unit holders adversely. The AMC reserves the right to change/modify entry/exit/switchover load (including zero load), depending upon the circumstances prevailing at any given time. A load structure when introduced by the AMC may comprise of an entry load and/or exit load and/or switchover load as may be permissible under the SEBI Regulations. The load may also be changed from time to time and in the case of an exit load this may be linked to the period of holding, while in case of entry load this may be linked to the amount of investment. The switchover load may be different for different plans/options and the switchover load may be different from the entry and/or exit load charged for sale and/or repurchase units. The load charged could also be different as regards the amount/tenor of investment, etc. However, any imposition/enhancement or change in load structure shall be applicable on prospective investment only. The addendum shall be circulated to all the distributors/brokers so that the same can be attached to all Scheme Information Documents and abridged Scheme Information Documents already in stock. The addendum will be circulated to unit holders along with/included in the newsletter sent to unit holders. Further arrangement will be made to make available the changes in the load structure in the form of a notice/any other manner in/at all the investor service centers/distributors/brokers office. Applicable load will be disclosed in the account statement/transaction confirmation statement. The introduction of the exit load/ CDSC alongwith the details may be stamped in the acknowledgement slip issued to the investors on submission of the application form and may also be disclosed in the statement of accounts issued after the introduction of such load/cdsc. The Load, if levied, will be retained in the Scheme(s) in a separate account and used by the Fund/AMC to cover the cost of raising/redeeming units on a continuous basis by way of providing redemption/distribution related services to the Fund relating to the Sale, promotion, advertising and marketing of the units of the Scheme(s) and costs associated with liquidating the Fund s investment Securities, including payments for postage and also payments to brokers for their services in connection with the redemption/distribution of the units. Any surplus in this account may be credited to the scheme(s), whenever felt appropriate by the AMC No load (entry or exit) shall be chargeable on any transaction/s made by any Fund of Funds Scheme/s managed by Principal Pnb Asset Management Company Pvt. Ltd. or managed by any other Asset Management Company, in any of the existing schemes (or any scheme/s launched from time to time unless specified otherwise) of Principal Mutual Fund. The investor is requested to check the prevailing load structure of the scheme(s) before investing. The same is also hosted/updated on the Principal website - or an investor may call at ( ) or his/her distributor. For any change in load structure AMC will issue an addendum detailing the changes and will display it on the website. A public notice shall be given in respect of such changes in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of region where the Head Office of the Mutual Fund is situated. The AMC may also: (i) Attach the Addendum to Scheme Information Documents and Key Information Memorandum or circulate the same to distributors/brokers so that the same can be attached to all Scheme Information Documents and key information memoranda already in stock. Page 37 of 40

49 (ii) Arrange to display the addendum in the Scheme Information Document in the form of a notice in all the investor service centres and distributors/brokers office. (iii) Stamp Introduction of exit load/ CDSC alongwith the details in the acknowledgement slip issued to the investors on submission of the application form and may disclose it in the statement of accounts issued after the introduction of such load/cdsc. (iv) take other measures which it may feel necessary. There is no entry load and/or exit load on units of a Scheme(s) subscribed with reinvested and/or swept dividends or other distributions. C. WAIVER OF LOAD FOR DIRECT APPLICATION In line with the SEBI circular dated December 31, 2007, no entry load shall be charged in case of direct applications received by the AMC, i.e. applications received through internet, submitted to AMC or collection centre / Investor Service Centre that are not routed through any distributor / agent / broker. This shall be applicable for investments in all the existing schemes with effect from January 4, 2008 and also for additional purchases done directly by an investor under the same folio and switch-in to a scheme from other schemes if such a transaction is done directly by the investor. Any application for purchase (fresh/additional) not bearing the broker / ARN details would be treated as a DIRECT application. SECTION VI RIGHTS OF UNITHOLDERS Please refer to Statement of Additional Information for details. SECTION VII. PENALTIES, PENDING LITIGATION OR PROCEEDINGS, FINDINGS OF INSPECTIONS OR INVESTIGATIONS FOR WHICH ACTION MAY HAVE BEEN TAKEN OR IS IN THE PROCESS OF BEING TAKEN BY ANY REGULATORY AUTHORITY. This section shall contain the details of penalties, pending litigation, and action taken by SEBI and other regulatory and Govt. Agencies. 1. Penalties and action(s) taken against foreign Sponsor(s) may be limited to the jurisdiction of the country where the principal activities (in terms of income / revenue) of the Sponsor(s) are carried out or where the headquarters of the Sponsor(s) is situated. Further, only top 10 monetary penalties during the last three years shall be disclosed. Nil 2. In case of Indian Sponsor(s), details of all monetary penalties imposed and/ or action taken during the last three years or pending with any financial regulatory body or governmental authority, against Sponsor(s) and/ or the AMC and/ or the Board of Trustees /Trustee Company; for irregularities or for violations in the financial services sector, or for defaults with respect to share holders or debenture holders and depositors, or for economic offences, or for violation of securities law. Details of settlement, if any, arrived at with the aforesaid authorities during the last three years shall also be disclosed. 3. Details of all enforcement actions taken by SEBI in the last three years and/ or pending with SEBI for the violation of SEBI Act, 1992 and Rules and Regulations framed there under including debarment and/ or suspension and/ or cancellation and/ or imposition of monetary penalty/adjudication/enquiry proceedings, if any, to which the Sponsor(s) and/ or the AMC and/ or the Board of Trustees /Trustee Company and/ or any of the directors and/ or key personnel (especially the fund managers) of the AMC and Trustee Company were/ are a party. The details of the violation shall also be disclosed. 4. Any pending material civil or criminal litigation incidental to the business of the Mutual Fund to which the Sponsor(s) and/ or the AMC and/ or the Board of Trustees /Trustee Company and/ or any of the directors and/ or key personnel are a party should also be disclosed separately. 5. Any deficiency in the systems and operations of the Sponsor(s) and/ or the AMC and/ or the Board of Trustees/Trustee Company which SEBI has specifically advised to be disclosed in the SID, or which has been notified by any other regulatory agency, shall be disclosed. Nil Nil *As mentioned below Nil * There is a legal case pending against Mr. Rajat Jain, Chief Investment Officer of Principal Pnb Asset Management Company Pvt. Ltd. in the Court of Sessions of Greater Bombay. The case was filed at the instance of CBI, Economic Offences Wing, Mumbai pertaining to a matter alleged during Mr. Jain s previous employment with SBI Mutual Fund, prior to his joining Principal Pnb Asset Management Company Pvt. Ltd. The case pertains to the purchase of certain shares at SBI Mutual Fund where Mr. Rajat Jain was, at that time, Chief Investment Officer. Notwithstanding anything contained in this Scheme Information Document, the provisions of the SEBI (Mutual Funds) Regulations, 1996 and the guidelines there under shall be applicable. Page 38 of 40

50 Offices of AMC Identified as Official Point of Acceptance / Investor Service Centres Principal Pnb Asset Management Company Private Limited - Official Point of Acceptance: Mumbai: Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai Agra: C/o. PNB - Integrated Zonal Off., 2/3, Raghunath Nagar, M.G. Road, Agra Ahmedabad: 401, Broadway Business Centre, Opp. Samartheshwar Mahadev Temple, Law Garden Cross Road, Ellisbridge, Ahmedabad Ajmer: 55, Ajmer Tower, 1st Floor, Kuchehry Road, Ajmer, Rajasthan Allahabad*: 43/1, Sardar Patel Marg, Civil Lines, Near HDFC Bank, Allahabad Amritsar: SCO 30-31,1st Floor Deep Complex, Court Road, Opp. Doaba Automobiles, Amritsar Asansol: Safe Savings, Street No.1, House No.2, Hindustan Park, Asansol Bangalore: Raheja Paramount, Unit No. 001 / 1, Gr. Floor, 138, Residency Road, Bangalore Bhubaneshwar: Gr. Floor, O.C.H.C Building, Near Ram Mandir, Janpath, Kharavel Nagar, Bhubaneswar Burdwan: Aykantik, 495, B.C. Road, Beside Proyozone, Burdwan Chandigarh: SCO , 2nd Floor, Sector-35 C, Chandigarh Chennai: 305, Challamal Complex, 3rd Floor, 11 Thiyagaraya Road, Chennai Cochin: 2nd Flr., Mayur Business Center, Pullepady Junction, Chittor Road, Cochin Coimbatore: No. 9, Gowtham Center Annexe, 1054, Avinashi Road, Coimbatore Dehradun: Below Digvijay Cinema, Clock Tower, Dehradun Durgapur: Aykantik, C-SO-10, Central Market, City Centre, Durgapur Goa*: C/o Advani Business Center, Neelkamal Arcade, CL -13, Atmaram Borkar Road, Panjim, Goa Guwahati: 4th Floor, Ganpati Enclave, Bora Service, G.S. Road, Guwahati Hyderabad: White House, 503, 5th Floor, Block No. 1, Begumpet, Hyderabad Indore: 406, City Center, 570, M.G. Road, Indore Jaipur: 305-B, 3rd Floor, Shyam Anukampa Complex, Ashok Marg, C-Scheme, Jaipur Jalandhar: C/o. Punjab National Bank, Nakodar Road, Near Jyoti Chowk, Jalandhar Jamshedpur: 109, Kamani Centre, 3rd Floor, Bistupur, Jamshedpur Jodhpur: Gang Towers, 1st Floor, Upper Chopasani Road, Opp. Arora Motors, Jodhpur Kanpur: , Kan Chambers, Near Stock Exchange Building, 13/114 Civil Lines, Kanpur Kolkata: Block No. 503, SHUBHAM, 5th Floor, 1, Sarojini Naidu Sarani, Kolkata Lucknow: Sky Hi Chambers, S-205, 2nd Floor, 11/5, Park Road, Lucknow Ludhiana: 302, SCO-18, Opp. Ludhiana Stock Exchange, Feroze Gandhi Market, Ludhiana Mangalore*: 1st Floor, Immanuel Building, Near HDFC Bank, Mallikatte, Kadri, Mangalore Nagpur*: Block No.105, 1st Floor, Bhagwaghar Complex, Opposite Ajit Bakery, Dharampeth, Nagpur Nasik*: Dhanlakshmi Business Point, Cabin No. 14/15, 7 Sathye Baug, M.G. Road, Nasik New Delhi: Alps Building,1st Floor, 56 Janpath, New Delhi Patna: 610, Ashiana Hariniwas, Dak Bungalow Road, Patna Pune: 1st Floor, Shreenath Plaza, Dnyaneshwar Paduka Chowk, F. C. Road, Pune Raipur: Shop No , Lalganga Shopping Mall, G.E. Road, Raipur Rajkot: 315, Star Chambers, Harihar Chowk, Panchnath Road, Rajkot Ranchi: Shop No. 11, A C Market, G.E.L. Church Complex, Main Road, Ranchi Siliguri: Nanak Complex, 3rd Floor, Sevoke Road, Siliguri Surat: 206 Jolly Plaza, Athwagate, Surat Udaipur: 301, 3rd Floor, Madhav Tower, Opp. G. P. O., Chetak Circle, Madhuban, Udaipur Vadodara: 103, Paradise Complex, Sayajigunj, Vadodara Visakhapatnam: D.No , 1st Floor-3, Rednam Regency, Near Diomond Park, Dwarkanagar, Visakhapatnam *Note: These locations are not Official Point of Acceptance. Centres of Karvy Computershare Private Limited (R&T to Principal Mutual Fund) which have been identified as Official Point of Acceptance: Agra: Deepak Wasan Plaza, Behind Holiday Inn, Opp. Megdoot Furnitures, Sanjay Place, Agra Ahmedabad: , Shail Buildings, Opp. Madhusudhan House, Off. C. G. Road, Nr. Navrangpura, Telephone Exchange, Ahmedabad Ajmer: 1, 2nd Floor, Ajmer Tower, Kutchary Road, Ajmer Allahabad: RSA Towers, 2nd Floor, Above Sony TV Showroom, 57, S.P. Marg, Civil Lines, Allahabad Amritsar: 72-A, Taylor's Road, Aga Heritage Gandhi Ground, Amritsar Anand: F-6, Chitrangana Complex, Opp. Motikaka Chawl, V.V. Nagar, Anand Aurangabad: Shop No. 214/215, Tapadiya City Centre, Nirala Bazar, Aurangabad Bangalore: No. 51/25, 1st Floor, Surya Building, Ratna Avenue, Richmond Road, Bangalore Bareilly: 1st Floor, 165, Civil Lines, Opp. Hotel Bareilly Palace, Near Rly. Station Road, Bareilly Bhavnagar: 1st Floor, Corporate House, Above Canara Bank, Waghawadi Road, Bhavnagar Bhilai: No.138, New Civic Centre, Bhilai Bhopal: Kay Kay Business Centre, 133, Zone 1, M.P. Nagar, Bhopal Bhubaneshwar: 624, Sahid Nagar, 1st Floor, Bhubaneswar Bokaro: B-1, 1st Floor, Near Sona Chandi Jewellers, City Centre, Sector-4, Bokaro Steel City, Bokaro Burdwan: 63, G.T. Road, Birhata, Halder Complex, 1st Floor, Burdwan Calicut: 2nd Floor, Sowbhagya Shoping Complex, Mavoor Road, Calicut Chandigarh: SCO , 1st Floor, Above HDFC Bank, Sector 35-B, Chandigarh Chennai: Flat No. F11, 1st Floor, Akshya Plaza, Erstwhile Harris Road, Opp. Chief City Metropolitan Court, # 108, Adhithanar Salai, Egmore, Chennai Cochin: Shop No. II, 2nd Floor, Jewel Arcade, (Above Oriental Insurance Ltd), Layam Road, Cochin Coimbatore: 29/1, 1st Floor, Chinthamani Nagar, Opp. Indian Overseas Bank, N.S.R. Road, Saibaba Colony, Coimbatore Cuttack: Dargha Bazar, Opp. Dargha Bazar Police Station, Buxibazar, Cuttack Dalhousie: 19, R.N. Mukherjee Road, 2nd Floor, Dalhousie, Kolkatta Dehradun: Kaulagarh Road, Near Sirmaur Marg, Above Reliance Webworld, Dehradun Dhanbad: 208, New Market, 2nd Floor, Katras Road, Bank More, Dhanbad Durgapur: Old Dutta Automobiles Building, 1st Floor, Nachan Road, Benachity, Durgapur Gorakhpur: Above V.I.P. House, Ajdacent A.D. Girls Inter College, Bank Road, Gorakpur Gurgaon: Shop No. 18, Gr. Floor, Sector-14, Opp. AKD Tower, Near Huda Office, Gurgaon Guwahati: 54 Sagarika Bhawan, R. G. Baruah Road, Guwahati Gwalior: Shindi Ki Chawani, Nadi Gate Pul, M.L.B. Road, Gwalior Hubli: 8 & 9, Upper Gr. Floor, C Block, Akshaya Park, Gokul Road, Hubli Indore: LG - 3, Bombay Trade Centre, Lower Gr. Floor, Grand Hotel, Opp. Bombay Hospital, Scheme No. 54, Indore Jaipur: S-16 A, 3rd Floor, Land mark, Opposite Jaipur Club, Mahavir Marg, C-Scheme, Jaipur Jalandhar: Lower Gr. Floor, Office No. 3, Arora Prime Tower, Plot No : 28, G.T. Road, Jalandhar Jammu: 29 D/C, Near Service Selection Commission Office, Gandhi Nagar, Jammu Jamnagar: 108 Madhav Plaza, Opp. SBI Bank, Near Lal Bangalow, Jamnagar Jamshedpur: Kanchan Tower, 3rd Floor, Chhaganlal Sons, 3-S B Shop Area, Main Road, Bistupur, Jamshedpur Jodhpur: 203, Modi Arcade, Chupasni Road, Jodhpur Kanpur: 15/46, Opp. Muir Mills, Civil Lines, Kanpur Kolkata: 16, Jatin Bagchi Road, Kolkata Kolhapur: 610-A A.K. Vardhaman Chambers, 2nd Lane, Shahupuri, Kolhapur Kottayam: 1st Floor, CSI Ascension Church Complex, Kottayam Lucknow: 94, Mahatma Gandhi Marg, Opp. Governor House, Hazratganj, Lucknow Ludhiana: SCO-3, Bawa Building, Feroze Gandhi Market, Ludhiana Madurai: Rakesh Towers, 30-C, Bye Pass Road, 1st Floor, Opp. Nagappa Motors, Madurai Mangalore: Mahendra Arcade, Gr. Floor, Karangalapani, Kodialbail, Managalore Mehsana: 14-15, Prabhu Complex, Near HDFC Bank, Mehsana Highway, Mehsana Moradabad: Om Arcade, Parker Road, Above Syndicate Bank, Tari Khana Chowk, Moradabad Mumbai: Fort: DAS Chambers, Gr. Floor, Opp. BSE & next to Corporation Bank, Dalal Street, Fort, Mumbai Borivali: Gr. Floor, Himanshu Bldg., Sodawala Lane, Chandawarkar Road, Borivali (West), Mumbai Thane: Page 39 of 40

51 1st Floor, Jeevan Chaya Bldg, Near Adidas Show Room, Ram Maruti Road, Thana (W) Mysore: L-350, Silver Tower, Clock Tower, Ashoka Road, Mysore Nagpur: Sadoday Arcade, Above Top N Town, Dharampeth, Nagpur Nasik: S-12, 2nd Floor, Suyojit Sankul, Sharanpur Road, Nasik Navsari: 1st Floor, Chinmay Arcade, Opp. Sattapir, Tower Road, Navsari New Delhi: 2E / 23, Jhandewalan Extn., New Delhi Noida: 307 Jaipuria Plaza, D-68- A, 2nd Floor, Opp. Delhi Public School, Sector 26, Noida Panjim: No.7 & 8, El. Dorado Plaza, Heliodoro Salgado Road, Panjim Patiala: SCO 27-D, Chhoti Baradari, Patiala Patna: 3A, 3rd Floor, Anand Tower, Beside Chankya Cinema Hall, Exhibition Road, Patna Pondicherry: 1st Floor, No.7, Thiayagaraja Street, Pondicherry Pune: Srinath Plaza, C Wing, Office No , 3rd Floor, Dyaneshwar Paduka Chowk, F. C. Road, Pune Raipur: Room No.12 & 13, Gr. Floor, Millennium Plaza, Behind Indian Coffee House, G.E. Road, Raipur Rajkot: 104, Siddhi Vinayak Complex, Dr. Yagnik Road, Opp. Ramkrishna Ashram, Rajkot Ranchi: Commerce Towers, 3rd Floor, Room No. 307, Beside Mahabir Towers, Main Road, Ranchi Salem: 49 / 50, Fort Main Road Old No.17, 1st Floor, Shevapet, Salem Siliguri: Nanak Complex, Near Church Road, Sevoke Road, Siliguri Surat: G-16, Empire State Building, Nr. Udhna Darwaja, Ring Road, Surat Tirunelveli: Jeney Building, 55/18, S. N. Road, Near Arvind Eye Hospital, Tirunelveli Trichur: 2'nd Floor, Brother's Complex, Near Dhana Laxmi Bank Head Office, Naikkanal Junction, Trichur Trichy: 60 Srikrishna Arcade, 1st Floor, Thennur High Road, Trichy Trivandrum: 2nd Floor, Akshaya Towers, Sasthamangalam, Trivandrum Udaipur: , Madhav Chambers, Opp. G. P. O., Chetak Circle, Madhuban, Udaipur Vadodara: Piccadilly, Office # 5, 1st Floor, Opp. Adani Super Market, Jetalpur Road, Vadodara Valsad: Shop No. 2, Phiroza Corner, ICICI Bank Char Rasta, Tithal Road, Valsad Vapi: Shop No. 5, Phikhaji Residency, Opp. DCB Bank, Vapi Silvassa Road, Vapi Varanasi: D-64/132, KA, 1st Floor, Anant Complex, Sigra, Varanasi Vellore: No.1, M.N.R. Arcade, Officer's Line, Krishna Nagar, Vellore Vijayawada: Opp. Municipal Water Tank, Labbipet, Vijayawada Visakhapatnam: /1 Eswar Paradise, Dwaraka Nagar, Main Road, Visakhapatnam Name, Address and Website of Registrar: Karvy Computershare Pvt. Ltd., KARVY HOUSE, 46, Avenue- 4, Street No. 1, Banjara Hills, Hyderabad Tel.: (040) Page 40 of 40

52 STATEMENT OF ADDITIONAL INFORMATION (SAI) This Statement of Additional Information (SAI) contains details of Principal Mutual Fund, its constitution, and certain tax, legal and general information. It is incorporated by reference in and is legally a part of the Scheme Information Document. This SAI is dated June 24, Name of Mutual Fund : Name of Asset Management Company : Name of Trustee Company : Address, Website of the entities : Principal Mutual Fund Exchange Plaza, 'B' Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Principal Mutual Fund Principal Pnb Asset Management Company Private Limited Principal Trustee Company Private Limited Principal Pnb Asset Management Company Private Limited Exchange Plaza, 'B' Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Principal Trustee Company Private Limited Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai Website: customer@principalindia.com Toll Free: Fax:

53 TABLE OF CONTENTS I. INFORMATION ABOUT SPONSOR, AMC AND TRUSTEE COMPANIES... 3 A. Constitution of the Mutual Fund... 3 B. Sponsor... 3 C. Trustee... 3 Directors of the Trustee Company... 4 Duties and Responsibilities of Trustees... 4 General Due Diligence... 5 Specific Due Diligence... 5 D. Asset Management Company (AMC)... 5 Directors of the AMC Company... 6 Duties and Responsibilities of the AMC... 6 Key Personnel of AMC... 7 E. Service Providers... 8 Custodian... 8 Registrar and Transfer Agent... 8 Statutory Auditors... 8 Legal counsel... 8 Fund Accountant... 8 Collection Banker... 8 II. CONDENSED FINANCIAL INFORMATION... 9 III. HOW TO APPLY Subscription by Residents Subscription by NRIs Subscription by FIIs Mode of Payment on Repatriation basis Mode of payment on Non-Repatriation basis Unitholder s Bank Account Details Unitholder s Permanent Account Number Know Your Customer Requirement Documents to be submitted alongwith application IV RIGHTS OF UNITHOLDERS OF THE SCHEME V INVESTMENT VALUATION NORMS FOR SECURITIES AND OTHER ASSETS Traded Securities Thinly Traded Securities Valuation of Non-Traded/Thinly Traded Securities Valuation of Unlisted Equity Securities Valuation of securities with Put/Call Options Government Securities Treasury Bills Valuation of Derivative Products Expense and Income Accrual Recording of Changes in the Securities and Units Determination of NAV Accounting Policies and Standards VI. TAX, LEGAL & GENERAL INFORMATION A. Taxation on investing in Mutual Funds B. Legal Information Mode of Holding Nomination facility Pledge of Units Unclaimed Distribution Amount Scheme Amendments Prevention of Money Laundering Transfer Transmission Listing Duration of the Scheme and Winding Up C. General Information Underwriting Borrowing by the Mutual Fund Investor Services Facilitating Enquiries and Transactions Signature Verification/Indemnity Register of Unitholders Securities Lending and Borrowing Associate Transactions Documents available for Inspection Investor Grievance Redressal Mechanism Jurisdiction Non Traded Securities

54 I. INFORMATION ABOUT SPONSOR, AMC AND TRUSTEE COMPANIES A. Constitution of the Mutual Fund Principal Mutual Fund (formerly known as IDBI-PRINCIPAL Mutual Fund and herein referred to as the Mutual Fund ) has been constituted as a trust on November 25, 1994 in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882). The Fund was initially set up by Industrial Development Bank of India (IDBI) in 1994 by execution of the afore-referred Trust Deed, under which IDBI was the sole Settlor, Sponsor and Principal Trustee and an initial amount of Rs.1 lakh and additional amount of Rs crore was settled as the trust corpus. Accordingly the Board of Trustees were vested with all the rights, duties and responsibilities vis-à-vis functioning of the Mutual Fund. The said Trust Deed has been registered under the Indian Registration Act, 1908 and the Mutual Fund was registered with SEBI on December 13, 1994 under Registration Code MF/019/94/0 Subsequently, on March 31, 2000, Principal Financial Services Inc., USA became the deemed sponsor (along with the IDBI) by acquiring 50% stake in IDBI-PRINCIPAL Asset Management Company Limited, where after and pursuant to the SEBI letter dated October 18, 2002 all rights, responsibilities and duties of the Board of Trustees were transferred in favour of IDBI- Principal Trustee Company Ltd. On June 23, 2003, Principal Financial Services Inc. USA became the sole sponsor by acquiring 100% stake in IDBI-PRINCIPAL Asset Management Company Limited, through its wholly owned subsidiary Principal Financial Group (Mauritius) Limited (Principal Mauritius). Principal Mauritius thus became the sole settlor of the Fund and the name of the Asset Management Company and of the Trustee Company was changed respectively to Principal Asset Management Company Private Limited and Principal Trustee Company Pvt. Ltd. to reflect the change in ownership. In tune with the industry standards and practices, Principal Mauritius, the Settlor, maintains a corpus of Rs.25 lakh in the Trust in place of the original contribution of Rs. 1 lakh and additional contribution of Rs crore vide execution of a supplemental trust deed dated April 16, On May 5, 2004, Punjab National Bank (PNB) and Vijaya Bank (VB) became equity shareholders and they hold equity shares to the extent of 30% and 5% respectively of the equity capital of both Principal Pnb Asset Management Company Private Limited (earlier name - Principal Asset Management Company Private Limited) and Principal Trustee Company Private Limited. Pursuant to this change in ownership, certain amendments have been made to the Principal Mutual Fund vide Supplemental Trust Deed dated 5th May 2004, to reflect, amongst other amendments, the addition of Punjab National Bank and Vijaya Bank as the co-settlors to the Fund. Accordingly, Principal Mauritius, Punjab National Bank and Vijaya Bank have 65%, 30% and 5% rights, title, interest and obligations respectively as co-settlors to Principal Mutual Fund. B. Sponsor Principal Mutual Fund is sponsored by Principal Financial Services Inc., USA [acting through its wholly owned subsidiary Principal Financial Group (Mauritius) Ltd.]. The Sponsor is the Settlor of the Mutual Fund Trust with Punjab National Bank and Vijaya Bank as co-settlors. The Sponsor and co-settlors have entrusted a sum of Rs. 25 lakhs to the Trustee as the initial contribution towards the corpus of the Mutual Fund. Principal Financial Services Inc. is a member of the Principal Financial Group - a leading provider of financial products and services globally to businesses and individuals including retirement and investment services, Mutual Funds, life and health insurance, annuities and mortgage banking. Established in 1879, the Principal Financial Group has more than $236.6 billion in assets under management and serves over 18.8 million customers worldwide through operations in the United States, Asia, Australia, Europe and Latin America (as on March 31, 2009). The business of Principal Financial Group (Mauritius) Limited, is to carry out business activities which are not prohibited under the Laws of Mauritius and the laws of the countries where the Company is transacting business and to do all such things as are incidental or conducive to the attainment of the above objects. Financial Performance of the Sponsor (past three years): Condensed Financial Position of Principal Financial Group, Inc. (holding Company of Principal Financial Services Inc., USA) (In Millions USD) Particulars Dec '08 Dec '07 Dec '06 Net Worth 2,473 7,422 7,861 Total Income 9,936 10,907 9,873 Profit after tax ,064 Assets Under Management 247, , ,900 Both Punjab National Bank (PNB) and Vijaya Bank (VB) are Scheduled Commercial Banks. PNB has a network of over 4,600 branches and 200 extension counters throughout India and offers a wide variety of banking services. VB has built a network of over 1000 branches that span all 28 states and 4 union territories in the country. With the said infrastructure, Principal Pnb Asset Management Company Private Limited has been in a position to leverage the combined and far-reaching distribution networks of PNB and VB, including more than 5,500 combined retail and commercial banking branches throughout India, along with Principal s international expertise and its position as a recognized manager of mutual funds in India. C. The Trustee Principal Trustee Company Private Limited (the Trustee ), through its Board of Directors, shall discharge its obligations as Trustee of the Principal Mutual Fund. The Trustee ensures that the transactions entered into by the Principal Pnb Asset Management Company Private Limited (AMC) are in accordance with the SEBI (Mutual Funds) Regulations, 1996 and will also review the activities carried on by the AMC. Principal Trustee Company Private Limited (formerly IDBI-PRINCIPAL Trustee Company Limited), a company incorporated under the Companies Act, 1956 is the Trustee to the Fund with effect from October 18, Prior to October 18, 2002, Board of Trustees discharged the Trusteeship function of the Fund. The Trustee has the exclusive ownership of the Trust Fund and is vested with the general powers of superintendence, direction and management of the affairs of the Trust. On June 23, 2003, Principal Financial Services Inc. USA acquired 100% stake in IDBI-PRINCIPAL Trustee Company Limited, through its wholly owned subsidiary Principal Financial Group (Mauritius) Limited. Name of the Trustee Company was changed to Principal Trustee Company Private Limited, to reflect the change in ownership. On May 5, 2004, Punjab National Bank and Vijaya Bank became equity shareholders of the Trustee Company and post this, Principal Financial Group (Mauritius) Limited, Punjab National Bank and Vijaya Bank hold 65%, 30% and 5% respectively of the paid up equity capital of the Trustee Company. The Trustees have appointed Citibank NA as the Custodian and Karvy Computershare Pvt. Ltd. as the Registrar & Transfer Agent for all the schemes, existing as well as schemes to be launched from time to time. The Trustee discharges the supervisory role by having a number of checks and balances besides having continuous feedback from the AMC on matters of importance and a review of the Mutual Fund s operations at the periodical meetings of the Board of Directors of the Trustee Company which are required to be held at least once in two calendar months as per the Regulations. The Trustees shall also discharge the supervisory role by reviewing the internal audit report/compliance reports on a regular basis. Six Board Meetings of the Trustee Company were held during the period April 1, 2009 to March 31, 2009 and one Board Meeting of the Trustee Company was held during the period ended April 1, 2009 to June 24,

55 Details of Trustee Directors: Name Age / Qualification Brief Experience MR. B.G. DESHMUKH 80 years Mr. Deshmukh, IAS was Cabinet Secretary, Government of India and has over B. Sc. (Hons), M.A. (Econ.) 55 years of experience in different functions. He is presently the Chairman of the Board of Director of Siporex India Limited and Director on the Boards of Venkateshwara Hatcheries Pvt. Ltd., Finolex Cables Ltd., Venky's (India) Ltd., Five Stars Bulkcarriers Ltd. MR. NED BURMEISTER* 50 years Mr. Burmeister is Vice President, Chief Financial Officer and Risk Manager at Bachelor's degree from Principal International, Inc. He has been associated with the Principal Group for the Drake University past 30 years. He is a Director on the Board of various Principal Group Companies. He is also a member of Society of Actuaries and the American Academy of Actuaries. MR. H. M. SINGH 76 years Mr. Singh is an Ex-Civil Servant. In his career spanning 35 years with the Government M.A. (Political Science) of India he was posted in various functions. He is currently with Arya Offshore Services Private Ltd. - as an advisor for Shipping and Port Companies. He is also a Maritime Arbitrator. MR. V. S. MATHUR 63 years Mr. Mathur, was Director General, Systems - Income Tax Dept., in charge for setting M.A. up comprehensive nation wide computerization in the Income Tax Department. Currently he is on the Board of Emmson's International Ltd., BCL Consortium Ltd. and Bindal Papers Ltd. MR. PRAMOD H. LELE 59 years Mr. Lele is currently the Chief Executive Officer of P. D. Hinduja National Hospital B.Com, LLB (Gen.), & Medical Research Centre. He is on the Board of SICOM Ltd., SICOM Reality ACA, AICWA Private Ltd., Maharashtra Safe Chemists & Distributors Alliance Ltd., Renaissance Jewellery Ltd. and as a Trustee of Brihad Bharatiya Samaj. MR. RANJAN DHAWAN* 53 years Mr. Dhawan is currently the Chief General Manager, Punjab National Bank in charge MBA (Finance), of International Banking Division. In his career spanning 31 years, he has been Cost & Management associated with Punjab National Bank for the past 25 years handling various positions. Accountant (U.K), CIA - USA He is presently on the Board of Joint Venture Companies of Principal with PNB. * Associate Directors in terms of SEBI Regulations. Duties and Responsibilities of Trustees 1. The Trustees and the AMC shall, with the prior approval of SEBI, enter into an Investment Management Agreement. 2. The Investment Management Agreement shall contain such clauses as are mentioned in the Fourth Schedule of SEBI (Mutual Funds) Regulations, 1996 and such other clauses as are necessary for the purpose of making investments. 3. The Trustees shall have a right to obtain from the AMC such information as is considered necessary by the Trustees. 4. The Trustees shall ensure before the launch of any scheme that the AMC has - - systems in place for its back office, dealing room and accounting; - appointed all key personnel including Fund manager(s) for the scheme(s) and submitted their bio-data which shall contain the educational qualifications, past experience in the securities market with the Trustees, within 15 days of their appointment; - appointed auditors to audit its accounts; - appointed a Compliance Officer to comply with regulatory requirements and for redressal of investors grievances; - appointed registrars and laid down parameters for their supervision; - prepared a compliance manual and designed internal control mechanisms including internal audit systems; - specified norms for empanelment of brokers and marketing agents. - Obtained wherever required under the regulations prior in-principle approval from the Stock Exchange(s) where units are proposed to be listed. 4(A). The Trustees shall ensure that the Compliance officer appointed immediately and independently reports to SEBI any non-compliance observed by him. 5. The Trustees shall ensure that an AMC has been diligent in empanelling the brokers, in monitoring securities transactions with brokers and avoiding undue concentration of business with any broker. 6. The Trustees shall ensure that the AMC has not given any undue or unfair advantage to any associates or dealt with any of the associates of the AMC in any manner detrimental to interest of the unitholders. 7. The Trustees shall ensure that the transactions entered into by the AMC are in accordance with the SEBI (Mutual Funds) Regulations, 1996 and the scheme. 8. The Trustees shall ensure that the AMC has been managing the Mutual Fund schemes independently of other activities and have taken adequate steps to ensure that the interest of investors of one scheme are not being compromised with those of any other scheme or of other activities of the AMC. 9. The Trustees shall ensure that all the activities of the AMC are in accordance with the provisions of the SEBI (Mutual Funds) Regulations, Where the Trustees have reason to believe that the conduct of business of the Mutual Fund is not in accordance with the SEBI (Mutual Funds) Regulations, 1996 and the scheme, they shall forthwith take such remedial steps as are necessary by them, and shall immediately inform SEBI of the violation and the action taken by them. 11. Each Trustee shall file the details of his transactions (exceeding Rs. 1 lac) of dealing in securities with the Mutual Fund on a quarterly basis. 12. The Trustees shall be accountable for, and be the custodian of, the Funds and property of the respective schemes and shall hold the same in trust for the benefit of the unitholders in accordance with the SEBI (Mutual Funds) Regulations, 1996 and the provisions of trust deed. 13. The Trustees shall take steps to ensure that the transactions of the Mutual Fund are in accordance with the provisions of the trust deed and SEBI Regulations. 14. The Trustees shall be responsible for the calculation of any income due to be paid to the Mutual Fund and also of any income received in the Mutual Fund for the holders of the units of any scheme in accordance with the SEBI (Mutual Funds) Regulations, 1996 and the trust deed. 15. The Trustees shall obtain the consent of the unitholders - a) whenever required to do so by SEBI in the interest of the unitholders; or b) whenever required to do so on the requisition made by three-fourths of the unitholders of any scheme; or c) when the majority of the Trustees decide to wind up or prematurely redeem the units; 15(A) The trustees shall ensure that no change in the fundamental attributes of any scheme or the trust or fees and expenses payable or any other change which would modify the scheme and affects the interest of unitholders, shall be carried out unless, a) a written communication about the proposed change is sent to each unitholder and an advertisement is given in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of the region where the Head Office of the Mutual Fund is situated; and b) the unitholders are given an option to exit at the prevailing Net Asset Value without any exit load. 16. The Trustees shall call for the details of transactions in securities by the Key Personnel of the AMC in his own name or on behalf of the AMC and shall report to SEBI, as and when required. 17. The Trustees shall quarterly review all transactions carried out between the Mutual Fund, AMC and its associates. 18. The Trustees shall review the net worth of the AMC on a quarterly basis and in case of any shortfall, ensure that the AMC make up for the shortfall as per clause (f) of sub-regulation (1) of regulation 21 of SEBI (Mutual Funds) Regulations,

56 19. The Trustees shall periodically review all service contracts such as custody arrangements, transfer agency of the securities and verify it that such contracts are executed in the interest of the unitholders. 20. The Trustees shall ensure that there is no conflict of interest between the manner of deployment of its networth by the AMC and the interest of the unitholders. 21. The Trustees shall periodically review the investor complaints received and the redressal of the same by the AMC. 22. The Trustees shall abide by the Code of Conduct as specified in the Fifth Schedule of SEBI (Mutual Funds) Regulations, The Trustees shall furnish to SEBI on a half yearly basis - a) a report on the activities of the Mutual Fund; b) a certificate stating that the Trustees have satisfied themselves that there have been no instances of self dealing or front running by any of the Trustees, Directors and Key Personnel of the AMC; c) a certificate to the effect that the AMC has been managing the schemes independently of any other activities and in case any activities of the nature referred to in sub-regulation (2) of regulation 24 of SEBI (Mutual Funds) Regulations, 1996 have been undertaken by the AMC and has taken adequate steps to ensure that the interest of the unitholders are protected. 24. The independent Trustees referred to in sub-regulation (5) of regulation 16 of SEBI (Mutual Funds) Regulations, 1996 shall give their comments on the report received from the AMC regarding the investments by the Mutual Fund in the securities of group companies of the Sponsor. 25. The Trustees shall not acquire nor allow the AMC to acquire any assets out of the Trust Fund and/or unit capital, which involves the assumption of unlimited liability or results in the encumbrances of Trust Fund, and/ or Unit Capital in any way. 26. The Trustees shall maintain arms length relationship with companies, institutions, financial intermediaries or bodies corporate with which the Trustees may be associated in any capacity in carrying out their responsibilities as the Trustees of the Mutual Fund. 27. The Trustees shall not participate in any decision-making process/ resolution of its Board for any investment in which they may be interested. 28. All of the Trustees shall furnish to SEBI, the interest which they may have in any other company, or institution or financial intermediary or any corporate by virtue of his/her position as Director, partner or with which he/she may be associated in any other capacity. 29. No amendments to the trust deed shall be carried out without the prior approval of SEBI and unitholder s approval / consent would be obtained where it affects the interests of unitholders as per the procedure / provisions laid down in the Regulations. Trustees shall exercise due diligence as under: General Due Diligence a) The Trustees shall be discerning in the appointment of the Board of Directors of the AMC. b) The Trustees shall review the desirability of continuance of AMC if substantial irregularities are observed in any of the schemes and shall not allow the AMC to float new schemes. c) The Trustees shall ensure that the trust property is properly protected, held and administered by proper persons and by a proper number of such persons. d) The Trustees shall ensure that all service providers are holding appropriate registrations from SEBI or concerned regulatory authority. e) The Trustees shall arrange for test checks of service contracts. f) The Trustees shall immediately report to SEBI of any special developments in the Mutual Fund. Specific Due Diligence The Trustees shall a) Obtain internal audit reports at regular intervals from independent auditors appointed by the Trustees b) Obtain compliance certificates at regular intervals from the AMC. c) Hold meeting of Trustees more frequently. d) Consider the reports of the independent auditor and compliance reports of AMC at the meetings of Trustees for appropriate action. e) Maintain records of the decisions of the Trustees at their meetings and of the minutes of the meetings. f) Prescribe and adhere to a code of ethics by the Trustees, AMC and its personnel. g) Communicate in writing to the AMC of the deficiencies and checking the removal of deficiencies. 30. Notwithstanding anything contained herein above from points (1) to (29) the Trustees shall not be held liable for acts done in good faith if they have exercised adequate due diligence honestly. 31. The Trustees shall pay specific attention to the following as may be applicable, namely - a) The Investment Management Agreement and the compensation paid under the agreement. b) Service contracts with affiliates - whether the AMC has charged higher fees than outside contractors for the same services. c) Selection of the AMC's independent directors. d) Securities transactions involving affiliates to the extent such transactions are permitted. e) Selecting and nominating individuals to fill independent directors vacancies. f) Code of ethics must be designed to prevent fraudulent, deceptive or manipulative practices by insiders in connection with personal securities transactions, g) The reasonableness of the fees paid to the sponsors, AMC and any other for services provided. h) Principal underwriting contracts and the renewals. i) Any service contract with the associates of the AMC. D. Asset Management Company Principal Pnb Asset Management Company Private Limited (AMC) is a private limited company incorporated under the Companies Act, 1956 on November 20, 1991 having its Registered Office at Exchange Plaza, B Wing, 2 nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai , India. Principal Pnb Asset Management Company Private Limited has been appointed as the Asset Management Company of the Principal Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated November 25, 1994 executed between Trustee and AMC. AMC has been granted approval by SEBI to function as an Asset Management Company of Principal Mutual Fund, and shall be responsible, inter alia, for the following: 1. Launching and operating various schemes of the Mutual Fund 2. Performing Investment Management functions for various schemes of the Mutual Fund. 3. Ensuring that the investment of the assets pertaining to any scheme is made in accordance with the provisions of the SEBI Regulations and the Trust Deed including Supplemental Trust Deed thereto. 4. Ensuring that adequate disclosures are made to the unitholders and to SEBI. Besides the offering and management of Schemes offered by Principal Mutual Fund, the AMC may undertake activities in the nature of management and advisory services to offshore funds, pension funds, provident funds, venture capital funds, management of insurance funds, financial consultancy and exchange of research on commercial basis if any of such activities are not in conflict with the activities of the mutual fund in line with SEBI (Mutual Funds) Regulations, AMC has been registered as a Portfolio Manager under the provisions of SEBI (Portfolio Manager) Regulations, 1993 vide SEBI Registration no. INP dated April 18, AMC has ensured that the key personnel of the AMC, the systems, back office, bank and securities accounts have been segregated activity wise and there exists systems to prohibit access to inside information of various activities. Further, the AMC has ensured that it meets with the capital adequacy requirements as mentioned in the Regulations separately for each of the activities. SEBI has vide letter No. IMD/MHS/37746/2005 dated April 5, 2005 has granted no objection to AMC for undertaking activities which are in the nature of advisory services to offshore funds, venture capital funds, financial consultancy and exchange of research pertaining to securities. The AMC can be terminated by a majority of the Trustees or 75% of the unitholders in the Fund opting so, subject to scrutiny and approval of SEBI. The present share holding pattern of the AMC is as follows: Name of the share holder % of equity capital Principal Financial Group (Mauritius) Limited 65 Punjab National Bank 30 Vijaya Bank 5 5

57 Details of AMC Directors: Name Age / Qualification Brief Experience MR. MUKUND M. CHITALE 59 years Mr. Chitale, is a practicing Chartered Accountant since 1972 and is a partner with B. Com, Mukund M. Chitale & Co. - Chartered Accountants. He is on Board of various Chartered Accountant companies i.e. Larsen & Toubro Ltd., Ram Ratna Wires Limited, Shriram Transport Finance Company Ltd., ONGC Mangalore Petrochemicals Ltd. etc. MR. RAJAN GHOTGALKAR* 51 years Mr. Ghotgalkar is the Country Head - India at Principal International and also the B. Com (Honours), Managing Director of Principal Pnb Asset Management Co. Pvt. Ltd. He has over Chartered Accountant 26 years of experience in Banking Sector viz. branch banking, offshore banking, finance, strategy and re-engineering. He is also on Board of various Principal Group Companies. MR. RUSTAM GAGRAT 49 years Mr. Gagrat is a Partner in Gagrats, a leading law Firm in Mumbai and Gagrat & Co., M.A., Advocate, Solicitor, Notary New Delhi. He has over 25 years of experience as an Advocate and Solicitor. He is on Board of various companies i.e. Indo-Aden Salt Manufacturing & Trading Co. Pvt. Ltd., Potash Fertilisers (India) Pvt. Ltd., Aristo Realty Developers Ltd, Blue Rose Properties Pvt. Ltd., and is a member of the Supervisory Board of Forbes Marshall Private Ltd. MR. S.K. DUBEY* 57 years Mr. Dubey is currently the General Manager, Punjab National Bank in charge MSc (Physics), C.A.I.I.B. of the Treasury division and international banking division since May In his career spanning 31 years with Punjab National Bank he has experience in various areas i.e. General Banking, Credit, Foreign Exchange assignment in branches and well as in administrative offices. MR. ASHOK VIJ 54 years Mr. Vij is a practicing Chartered Accountant since 1979 and is a partner with Lamba B. Com, Chartered Accountant Vij & Co. - Chartered Accountants. He is associated with various companies as Director i.e. Dedicated Digital Machines Private Ltd., India Professional Services & Investment Ltd., Dewanchand Ramsaran Industries Pvt Ltd, etc. MR. REX AUYEUNG* 57 years Mr. Auyeung is currently Vice President, Principal Financial Group and Senior Vice Graduate (Ying Wa College, President and Chief Executive - Asia for Principal International Inc. based in Hongkong. Hongkong) He has been associated with the Principal Group for the past 15 years and is a BES majoring in Director on the board of various Principal Group Companies. He is the a member of Urban and Regional Planning the Council of City University of Hongkong and a member of the Corporate Advisory Board of the Finance Department of the Hongkong University of Science and Technology. * Associate Directors in terms of SEBI Regulations. Duties and Responsibilities of the AMC 1. The AMC shall take all reasonable steps and exercise due diligence to ensure that the investment of funds pertaining to any scheme is not contrary to the provisions of the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. 2. The AMC shall exercise due diligence and care in all its investment decisions as would be exercised by other persons engaged in the same business. 2A. The AMC shall obtain wherever required under the regulation, prior in principle approval from recognised Stock Exchange(s) where units are proposed to be listed. 3. The AMC shall be responsible for the acts of commissions or omissions by its employees or the persons whose services have been procured by the AMC. 4. The AMC shall submit to the Trustees quarterly reports of each year on its activities and the compliance with SEBI (Mutual Funds) Regulations, The Trustees at the request of the AMC may terminate the assignment of the AMC at any time. Provided that such termination shall become effective only after the Trustees have accepted the termination of assignment and communicated their decision in writing to the AMC. 6. Notwithstanding anything contained in any contract or agreement of termination, the AMC or its Directors or other officers shall not be absolved of liability to the Mutual Fund for their acts of commission or omission, while holding such position or office. (a) The Managing Director of the asset management company shall ensure that the mutual fund complies with all the provisions of SEBI (Mutual Funds) Regulations, 1996 and that the investments made by the fund managers are in the interest of the unitholders and shall also be responsible for the overall risk management function of the mutual fund. (b) The fund manager/s shall ensure that the funds of the schemes are invested to achieve the objectives of the scheme and in the interest of the unitholders. 7 (a) The AMC shall not through any broker associated with the Sponsor, purchase or sell securities, which on an average is 5% or more of the aggregate purchases and sale of securities made by the Mutual Fund in all its schemes. Provided that for the purpose of this provision, aggregate purchase and sale shall exclude sale and distribution of units issued by the Mutual Fund. Provided further that the aforesaid limit of 5% shall apply for a block of any three months. (b) The AMC shall not purchase or sell securities through any broker (other than a broker referred to in clause (a) of (7) above) which is on an average of 5% or more of the aggregate purchase and sale of securities made by the Mutual Fund in all its Schemes, unless the AMC has recorded in writing the justification for exceeding the limit of 5% and reports of all such Investments are sent to the Trustees on a quarterly basis. Provided that the aforesaid limit of 5% shall apply for a block of 3 months. 8. The AMC shall not utilize the services of the Sponsor or any of its associates, employees or their relatives, for the purpose of any securities transaction and distribution and sale of securities. Provided that an AMC 6 may utilize such services if disclosure to that effect is made to the unitholders and the brokerage or commission paid is also disclosed in the half yearly and annual accounts of the Mutual Fund. Provided further that the Mutual Fund shall disclose at the time of declaring half-yearly and yearly results: - any underwriting obligations undertaken by the schemes of the Mutual Fund with respect to issue of securities of associate of companies, - devolvement, if any, - subscription by the schemes in the issues lead managed by associate companies. - Subscription to any issue of equity or debt on private placement basis where the sponsor or its associate companies has acted as arranger or manager. 9. The AMC shall file with the Trustees the details of transactions in securities by the key personnel of the AMC in their own name or on behalf of the AMC and shall also report to SEBI, as and when required by SEBI. 10. In case the AMC enters into any Securities transactions with any of its associates a report to that effect shall be sent to the Trustees at its next meeting. 11. In case any company has invested more than 5 percent of the NAV of a scheme, the investment made by that scheme or by any other scheme of the Mutual Fund in that company or its subsidiaries shall be brought to the notice of the Trustees by the AMC and be disclosed in the half yearly and annual accounts of the respective schemes with justification for such investment, provided the latter investment has been made within one year of the date of the former investment calculated on either side. 12. The AMC shall file with the Trustees and SEBI : - Detailed bio-data of all its directors along with their interest in other companies within fifteen days of their appointment; and - Any change in the interest of Directors every six months. - A quarterly report to the Trustees giving details and adequate justification about the purchase and sale of the Securities of the group companies of the sponsor or the AMC as the case may be, by the Mutual Fund during the said quarter. 13. A statement of holdings in securities of the Directors of the AMC shall be filed with the Trustees with dates of acquisitions of such Securities at the end of each financial year. 14. The AMC shall not appoint any person as key personnel who has been found guilty of any economic offence or involved in violation of securities laws. 15. The AMC shall appoint Registrars and Share Transfer Agents who are registered with SEBI. Provided if the work relating to the transfer of units is processed in-house, the charges at competitive market rates may be debited to the scheme and for rate higher than the competitive market rates, prior approval of the Trustees shall be obtained and reasons for charging higher rates shall be disclosed in the annual accounts. 16. The AMC shall abide by the Code of Conduct as specified in the Fifth Schedule of SEBI (Mutual Funds) Regulations, 1996.

58 Information on Key Personnel: Name / Designation Age / Qualification Brief Experience Mr. Rajan Ghotgalkar 51 years Mr. Ghotgalkar is the Country Head - India at Principal International and also the Managing Director B.Com (Hons), Managing Director of Principal Pnb Asset Management Co. Pvt. Ltd. He has over Chartered Accountant 26 years of experience in Banking Sector viz. branch banking, offshore banking, finance, strategy and re-engineering. Prior to this he has been associated with IDBI Bank, National Bank of Dubai, Standard Chartered Bank, ANZ Grindlays Bank plc. Mr. Sudipto Roy 43 years Mr. Roy is Business Head - Asset Management Company. He has over 18 years of Business Head B.Com (Hons), A.C.A., experience in various areas out which the last two and half years being associated A.I.C.W.A. with Principal as Business Head for Insurance Broking and Financial Planning Business. In his previous assignment he was associated with Kotak Life Insurance as the Vice President - Alternate Channel. Prior to the same he has been also associated with Birla Life Insurance Company Limited, Kotak Securities Limited and Special Steels Limited (a subsidiary of TATA Steel). Mr. Ritesh Jain 36 years Mr. Jain is Chief Financial Officer -AMC. He has over 14 years of experience in the Chief Financial Officer B.Com, A.C.A., areas of finance, treasury, tax, audit, regulatory compliances and general administration C.W.A., C.S. out which the last 8 years being with Principal. In his previous assignment he was associated with Morgan Stanley for their asset management and custody business as Financial Controller and with JM Morgan Stanley for their securities business as Treasurer. Mr. Rajat Jain 46 years Mr. Jain is Chief Investment Officer at AMC. In his current role he oversees Chief Investment Officer B.E. (Mech), PGDM investments of Principal Mutual Fund and the overall portfolio strategy. He has over 19 years of experience in Investment Management at Mutual Funds out which last 7 years being associated with Principal Mutual Fund. In his previous assignment he was associated with SBI Mutual Fund as the Chief Investment Officer. Mr. Sudhinchandra Padhye 46 years Mr. Padhye is the Head -Operations Control & Risk at AMC. He has over Head - Operation Control B.Com., A.C.A., 19 years experience in the fields of operations, finance, accounts, audit and & Risk Grad. C.W.A., CISA administration. In his previous assignment he associated with BNP Paribas and Peregrine Capital as Head - Operations for their equity broking business. Ms. Sujata Punjabi 42 years Ms. Punjabi is Head - Legal & Compliance at AMC. She has over 16 years of Head - Legal & Compliance B. A., L.L.B. experience in the area of Compliance, Corporate Secretarial and legal function. In her previous assignment she was associated with Kotak Mahindra Old Mutual Life Insurance Limited as Vice President - Legal & Compliance. Prior to that she was also associated with companies like Ion Exchange (India) Limited, UTV Software Communications Ltd. and JKM Group of Companies. Ms. Kashmira Kalwachwala 43 years Ms. Kalwachwala is Head -Customer Service at AMC. She has over 21 years of Head - Customer Service M.Com and Diploma in experience in the areas of share registry and mutual fund operations. Computers In her previous assignment she was associated with TATA Share Registry Ltd. responsible for the Registry Business viz. Client servicing, shares, share transfer operations, quality control, banking and interest / dividend departments. Mr. Shyamsunder Bhat 38 years Mr. Bhat has over 13 years experience in equity research and fund management. AVP - Investments B.E., M.M.S. In his previous assignment, he was associated with Tata Mutual Fund, as General Manager (Investments), as member of the fund management team, managing equity and balanced funds. Mr. Badrish Kulhalli 36 years Mr. Kulhalli has over 10 years of experience in Fixed Income Markets, sales, Sr. Fund Manager B.E. (Mech), P.G.D.M Trading and Fund Management. In his previous assignment he was associated as a Fund Manager with ING Investment Mgmt India Pvt Ltd - Optimix Division, Alliance Capital Asset Mgmt India Pvt Ltd. Mr. Pankaj Tibrewal 30 years Mr. Tibrewal has over 6 years experience in Fund Management, Credit Risk analyzing. Fund Manager B.Com (Hons), In his previous assignment he was associated with Global Stint Finance. Master in Finance Mr. Pramod Gupta 36 years Mr. Gupta has over 10 years of experience in Equity Research and Fund Management Fund Manager B.Tech (Hons), In his previous assignments he was associated with HSBC Securities & Capital PGDM, CFA Market India Ltd, ABN Amro Asia Equities (India) Ltd, Enam securities, Dresdner Kleinwort Wasserstein Securities (India) Limited, SBI Funds Management Ltd The research team comprising of the following members supports the Fund Manager(s) Sr. Name Experience No. 1. Abhijit Mukherjee Over 9 years experience in Corporate Finance and Equity Research Function 2. Gurvinder Singh Wasan Over 4 years experience in Banking and Structured Finance 3. Raj Gandhi Over 4 years experience in Equity Research 4. Arjun Khanna Over a years experience as a Technical Associate and over a years experience as a Research Analyst with Principal Mutual Fund 7

59 Procedure followed for Investment decisions There is separate team for investment in fixed income instruments & equities. The team works under the supervision of Chief Investment Officer (CIO). CIO is overall in charge for the Fund s investment. Debt Decision making process : The debt team comprises of the Fund Manager, Credit Analyst & Dealer. The Fund Manager holds charge of the schemes under his management. He is responsible for the performance of the schemes under him. Role of Credit Analysts is to study all companies in which the fund is investing for credit quality. The dealer executes the trading mandates that are passed onto him with a view to getting the best execution in terms of price and quantity. A Credit Committee (CC) comprising of Managing Director, Chief Investment Officer (CIO) and the Debt Fund Manager has been constituted to approve the investment in Securities having credit risks. The decision making in the committee is by majority vote, one of them being Managing Director. The investment proposals in specified format are put up before the committee for their approval. The fund manager can invest only in those credits that have been approved by the committee. Such approvals are kept to record the decision taken at the credit committee meeting. In case of unrated papers, same are circulated to AMC board and Board of Trustees for their approval before making an investment. No specific approval is required for investment in government securities and Treasury Bills. The AMC has been recording investment decisions since the receipt of instructions from SEBI. Equities Decision making process : Equity team comprises of Fund Manager, Equity Analysts & Dealer. The Fund Manager holds charge of the schemes under his management. He is responsible for the performance of the schemes under him. Analysts have responsibilities for specific sectors and it is their duty to provide the fund managers with well researched opinions on the companies and the sectors they track. The dealer executes the trading mandates that are passed onto him with a view to getting the best execution in terms of price and quantity. The analysts/fund managers meet companies, if possible at one on one meetings or at analyst/fund manager meets. Equity group meets once a week to discuss the following; 1. Presentations on all the companies met during the past week; 2. Review of the portfolio and action to be taken 3. Review of the sectors by the analysts. The analysts/fund managers prepares a report (research report) on the companies they have covered. The AMC has been recording investment decisions since the receipt of instructions from SEBI E. Service providers Custodian Name: Citibank NA Address: Ramnord House, 77 Dr. Annie Besant Road, Worli, Mumbai , India. SEBI registration number: IN/CUS/004 dated April 7, 1998 The Custodian shall hold the custody and possession of the securities and investments of the scheme and will discharge all functions as are ordinarily discharged by a depository institution. It does not have any power or authority to sell or dispose of or deal with the securities/investments held by it on behalf of the Fund except as instructed by the AMC. The AMC reserves the right to change the custodian, if required. The salient features of the Custodian Agreement with Citibank are as under: Keeping in safe custody all the securities and such other instruments belonging to the Scheme segregated from the other assets of the custodian and from the assets of other clients of the Custodian and shall be held in the name of the Trustee(s) a/c., or in such other manner as may be mutually agreed. Ensuring the smooth inflow/outflow of securities and such other instruments as and when necessary, in the best interests of the unitholders. Ensuring that the benefits due to the holdings are recovered. Responsibility for loss of /or damage to the securities due to fraud, bad faith, negligence, willful neglect, default or willful default on its part or on the part of its approved agents. The Custodian will charge the Fund a fee in accordance with the terms of the Custodian Service Agreement entered into between the Custodian and the Mutual Fund. Transfer agent (Dividend Paying Agent) Name: Karvy Computershare Pvt. Ltd Address: KARVY HOUSE (Unit: PMF), 46, Avenue- 4, Street No. 1, Banjara Hills, Hyderabad India. SEBI registration number: INR The Board of the Trustees and the AMC have ensured that the Registrar has adequate capacity to discharge responsibilities with regard to processing of applications and dispatching unit certificates to unitholders within the time limit prescribed in the Regulations and also has sufficient capacity to handle investor complaints. As Registrar to the Scheme, the Registrar will accept and process unitholders applications and advise the AMC as to the amounts received for subscriptions (duly reconciled) during the New Fund Offer period and also during the ongoing subscription period. They will also handle communications with unitholders, unitholder s grievances, perform data entry services and dispatch Account Statement, or any instrument, received on processing redemption/repurchase/switch requests after the close of the initial offer. They will also maintain an updated, accurate form for the register of unitholders of the Fund and other records as may be required by SEBI Regulations and the laws of India. The Registrar is thus responsible for carrying out the functioning of Registrar and Transfer Agent set out in the agreement entered into with it and as per any modifications from time to time. The Registrar will be entitled to remuneration for its services as per the terms of the Registrar s Agreement. The AMC has the right to change the Registrar and Transfer Agent for any or all of the schemes that may be floated by the Fund. The unitholders will then be informed accordingly. STATUTORY AUDITOR FOR MUTUAL FUND Haribhakti and Co., Chartered Accountants Address :42 Free Press House, 4th Floor, 215 Nariman Point, Mumbai , India Haribhakti & Co., Chartered Accountants, have been appointed as the auditors for all the schemes of Principal Mutual Fund. The Trustees have the right to appoint, or change the Auditors for any or all of the Schemes that may be floated by the Fund. Legal Counsel The Fund has an in-house Legal function. However, as and when required opinion or advice is sought from external legal counsel/law firm. Fund Accountant Fund Accounting function is in-house and not outsourced. Collecting Bankers Name, Address and SEBI Registration Number Name of Collecting Address SEBI Banker Registration No. Punjab National Bank PNB House, P.M. Road, INBI Fort, Mumbai IDBI Bank Limited Mittal Tower, 'C' Wing, INBI Gr. Floor, Nariman Point, Mumbai Axis Bank Limited Universal Insurance Bldg. INBI Gr. Floor, Sir P. M. Road, Fort, Mumbai Kotak Mahindra 5C/II Mittal Court, INBI Bank Limited 224, Nariman Point, Mumbai Standard Chartered 270, D N Road, INBI Bank Fort, Mumbai Citibank N.A. Fort House, 4th Floor, INBI Unit No. 1, 224, Dr. D.N. Road, Fort, Mumbai HDFC Bank Ltd. Maneckjiwadia Building, INBI Nanik Motwani Marg, Mumbai The AMC may appoint or remove any Collection Banker for any of the schemes of Principal Mutual Fund. 8

60 F. Condensed financial information (CFI) for all the schemes launched by MF during the last three fiscal years (excluding redeemed schemes) in the format given below: 1. Principal Services Industries Fund Date of Inception : 6 th March, 2006 Fiscal Year Fiscal year Fiscal year Dividend Plan Growth Plan Dividend Plan Growth Plan Dividend Plan Growth Plan NAV at the beginning of the year (as on April 1) Dividends - Net Dividend - Corporate (Rs. Per Unit) Net Dividend - Non-Corporate (Rs. Per Unit) NAV at the end of the year (as on March 31) Annualised return** Net Assets at the end of period (Rs. Crs.) Ratio of Recurring Expenses to net assets 2.41% 2.29% 2.23% 2. Principal Emerging Bluechip Fund Date of Inception : 12 th November, 2008 Fiscal Year Dividend Plan NAV at the beginning of the year (as on April 1) Dividends - Net Dividend - Corporate (Rs. Per Unit) Net Dividend - Non-Corporate (Rs. Per Unit) Growth Plan NAV at the end of the year (as on March 31) Annualised return** Net Assets at the end of period (Rs. Crs.) Ratio of Recurring Expenses to net assets 2.33% 3. Principal Pnb Fixed Duration Fund - 3 year Plan - Series I Date of Inception : 6 th July, 2006 Fiscal Year Fiscal year Fiscal year Dividend Plan Growth Plan Dividend Plan Growth Plan Dividend Plan Growth Plan NAV at the beginning of the year (as on April 1) Dividends - Net Dividend - Corporate (Rs. Per Unit) Net Dividend - Non-Corporate (Rs. Per Unit) NAV at the end of the year (as on March 31) Annualised return** Net Assets at the end of period (Rs. Crs.) Ratio of Recurring Expenses to net assets 1.53% 0.82% 0.83% 4. Principal Pnb Long Term Equity Fund - 3 year Plan - Series I Date of Inception : 23 rd March, 2007 Fiscal Year Fiscal year Fiscal year Dividend Plan Growth Plan Dividend Plan Growth Plan Dividend Plan Growth Plan NAV at the beginning of the year (as on April 1) Dividends - Net Dividend - Corporate (Rs. Per Unit) Net Dividend - Non-Corporate (Rs. Per Unit) NAV at the end of the year (as on March 31) Annualised return** Net Assets at the end of period (Rs. Crs.) Ratio of Recurring Expenses to net assets 2.33% 2.26% 1.44% 9

61 5. Principal Pnb Long Term Equity Fund - 3 year Plan - Series II Date of Inception : 28 rd September, 2007 Fiscal Year Fiscal year Dividend Plan Growth Plan Dividend Plan Growth Plan NAV at the beginning of the year (as on April 1) Dividends - Net Dividend - Corporate (Rs. Per Unit) Net Dividend - Non-Corporate (Rs. Per Unit) NAV at the end of the year (as on March 31) Annualised return** Net Assets at the end of period (Rs. Crs.) Ratio of Recurring Expenses to net assets 2.25% 2.11% 6. Principal Ultra Short Term Fund Date of Inception : 6 th November, 2007 Fiscal Year Fiscal year Regular Regular Regular Regular Regular Regular Regular Regular Growth Dividend Weekly Monthly Growth Dividend Weekly Monthly Plan Plan Dividend Dividend Plan Plan Dividend Dividend Plan Plan Plan Plan NAV at the beginning of the year (as on April 1) Dividends - Net Dividend - Corporate (Rs. Per Unit) Net Dividend - Non-Corporate (Rs. Per Unit) NAV at the end of the year (as on March 31) Annualised return** Net Assets at the end of period (Rs. Crs.) Ratio of Recurring Expenses to net assets 0.25% 0.27% 7. Principal Money Manager Fund Date of Inception : 28 th December, 2007 Fiscal Year Fiscal year Regular Option Institutional Option Regular Option Institutional Option Daily Growth Weekly Monthly Growth Daily Weekly Monthly Daily Growth Weekly Monthly Growth Daily Weekly Monthly Dividend Dividend Dividend Dividend Dividend Dividend Dividend Dividend Dividend Dividend Dividend Dividend NAV at the beginning of the year (as on April 1) Dividends - Net Dividend Corporate (Rs. Per Unit) - Net Dividend Non-Corporate (Rs. Per Unit) NAV at the end of the year (as on March 31) Annualised return** Net Assets end of period (Rs. Crs.) Ratio of 0.06% 0.67% 0.37% 0.33% Recurring Expenses to net assets 10

62 8. Principal Pnb Fixed Maturity Plan Days - Series IV Date of Inception : 5 th March, 2008 Fiscal Year Fiscal Year Regular Option Institutional Option Regular Option Institutional Option Dividend Growth Dividend Growth Dividend Growth Dividend Growth NAV at the beginning of the year (as on April 1) Dividends - Net Dividend - Corporate (Rs. Per Unit) Net Dividend - Non-Corporate (Rs. Per Unit) NAV at the end of the year (as on March 31) Annualised return** Net Assets at the end of period (Rs. Crs.) Ratio of Recurring Expenses to net assets 0.54% 0.09% 0.43% 0.08% 9. Principal Pnb Fixed Maturity Plan Days - Series II Date of Inception : 25 th March, 2008 Fiscal Year Fiscal Year Regular Option Institutional Option Regular Option Institutional Option Dividend Growth Dividend Growth Dividend Growth Dividend Growth NAV at the beginning of the year (as on April 1) N.A. N.A. N.A. N.A. Dividends - Net Dividend - Corporate (Rs. Per Unit) Net Dividend - Non-Corporate (Rs. Per Unit) NAV at the end of the year (as on March 31) Annualised return** Net Assets at the end of period (Rs. Crs.) Ratio of Recurring Expenses to net assets 0.56% 0.12% 0.48% 0.11% 10. Principal Pnb Fixed Maturity Plan Days - Series VII Date of Inception : 20 th June, 2008 Fiscal Year Regular Option Institutional Option Dividend Growth Dividend Growth NAV at the beginning of the year (as on April 1) Dividends - Net Dividend - Corporate (Rs. Per Unit) Net Dividend - Non-Corporate (Rs. Per Unit) NAV at the end of the year (as on March 31) Annualised return** Net Assets at the end of period (Rs. Crs.) Ratio of Recurring Expenses to net assets 0.67% 0.23% 11. Principal Pnb Fixed Maturity Plan Days - Series VIII Date of Inception : 8 th July, 2008 Fiscal Year Regular Option Institutional Option Dividend Growth Dividend Growth NAV at the beginning of the year (as on April 1) Dividends - Net Dividend - Corporate (Rs. Per Unit) Net Dividend - Non-Corporate (Rs. Per Unit) NAV at the end of the year (as on March 31) Annualised return** Net Assets at the end of period (Rs. Crs.) Ratio of Recurring Expenses to net assets 0.80% 0.16% 11

63 12. Principal Pnb Fixed Maturity Plan Days - Series IX Date of Inception : 14 th August, 2008 Fiscal Year Regular Option Institutional Option Dividend Growth Dividend Growth NAV at the beginning of the year (as on April 1) Dividends - Net Dividend - Corporate (Rs. Per Unit) Net Dividend - Non-Corporate (Rs. Per Unit) NAV at the end of the year (as on March 31) Annualised return** Net Assets at the end of period (Rs. Crs.) Ratio of Recurring Expenses to net assets 0.49% 0.03% 13. Principal Pnb Fixed Maturity Plan Days - Series XI Date of Inception : 25 th March, 2009 Regular Option Fiscal Year Institutional Option Dividend Growth Dividend Growth NAV at the beginning of the year (as on April 1) Dividends - Net Dividend - Corporate (Rs. Per Unit) Net Dividend - Non-Corporate (Rs. Per Unit) NAV at the end of the year (as on March 31) Annualised return** Net Assets at the end of period (Rs. Crs.) Ratio of Recurring Expenses to net assets 0.06% 0.06% ** For Growth option. Returns less than one year are calculated on absolute basis and more than one year calculated on compounded annualized basis on the face value of Rs. 10/- per unit. 12

64 III. HOW TO APPLY? There is only one application form for Residents, Non-Resident Investors and FIIs on repatriable/non-repatriable basis. However, if for reasons of expediency, interest of unitholders and other circumstances make it necessary for the Fund, separate application forms may be made for Residents and for Non-Resident Investors (based on repatriation parameters). Applicants should clearly specify their status and indicate the Scheme(s), Plan(s) and Option(s), for which the subscription is made by marking the appropriate choice provided for such purpose in the Application Form. Unless the applicant has ticked the appropriate NRI box, the application shall be treated under Resident category. No receipt will be issued for the application money. The Official Point of Acceptance which receives the application form shall stamp and return the Acknowledgement Slip of the application form, thereby acknowledging receipt of the application form. KINDLY RETAIN THE ACKNOWLEDGEMENT SLIP OF THE APPLICATION FORM/STAMPED BY THE OFFICIAL POINT OF ACCEPTANCE. THIS SUBSCRITION SHALL BE SUBJECT TO FINAL VERIFICATION AND SCRUTINY BY THE BANKERS/TRUSTEES/AMC THAT THE CHEQUE AND APPLICATION FORM ARE IN ORDER/VALID. Subscription by Residents - The application form for the sale of units of the Scheme(s) will be available at Official Point of Acceptance/ISC/Office of the AMC etc. Unitholders under any of the existing scheme(s) can also switch from one scheme to another during the relevant NFO or otherwise as applicable. - Applications must be completed in Block Letters in English. - Signatures should be in English or in any Indian Language. A Magistrate/ Notary Public under his/her official seal must attest Thumb impressions. - Payment should be made in cheque or bank draft on any bank, which is situated at and is a member of the Bankers Clearing House, located at the place where the Application is submitted. In respect of valid applications with outstation cheques/ demand drafts not payable at par at the place where the application is received, closing NAV of the day on which cheque/demand draft is credited shall be applicable. - All cheques, bank drafts and payorders must be drawn in favour of the Name of the Scheme of Principal Mutual Fund and crossed Account Payee only. A separate cheque or bank draft must accompany each application. In case the Fund has separate application forms for Resident & Non-Resident Investors, the cheques may be drawn in the above manner and the Non-Residential status may be added on the cheque. - Applications not complete in any respect are liable to be rejected. - Applicants located in a place where there is no designated Official Point of Acceptance / Investor Service Centre, may send their application, accompanied with a separate bank draft crossed Account Payee only in favour of the Name of the Scheme of Principal Mutual Fund to the office of the AMC/Investor Service Centre/Official Point of Acceptance super scribing the envelope with the Name of the Scheme of Principal Mutual Fund. Bank charges for outstation demand drafts will be borne by the AMC and will be limited to those stipulated by the Indian Banks Association. The Mutual Fund will not entertain any request for refund of demand draft charges. - Please state the application form number and name on the reverse of the cheque/bank draft/payorder. Subscription by NRIs In terms of Schedule 5 of Notification No. FEMA 20/2000 dated May 3, 2000, RBI has granted general permission to NRIs to purchase, on a repatriation basis units of domestic mutual funds. Further, the general permission is also granted to NRIs to sell the units to the mutual funds for repurchase or for the payment of maturity proceeds, provided that the units have been purchased in accordance with the conditions set out in the aforesaid notification. For the purpose of this section, the term Mutual Funds is as referred to in Clause (23D) of Section 10 of Income-Tax Act However, NRI investors, if so desired, also have the option to make their investment on a non-repatriable basis. Pursuant to A.P.(DIR Series ) Circular No.14 dated September 16, 2003 issued by Exchange Control Depatment, Reserve Bank of India, OCBs shall not undertake purchase of Government dated securities or treasury bills or units of domestic mutual funds or units of Money Market Mutual Funds in India or National Plan / Savings Certificates both on repatriation and nonrepatriation basis. However, the OCBs may continue to hold these securities till they are sold. Subscription by FIIs In terms of Schedule 5 of Notification No. FEMA 20/2000 dated May 3, 2000, RBI has granted general permission to a registered FII to purchase on a repatriation basis units of domestic mutual funds subject to the conditions set out in the aforesaid notification. Further, the general permission is also granted to FIIs to sell the units to the mutual funds for repurchase or for the payment of maturity proceeds, provided that the units have been purchased in accordance with the conditions set out in the aforesaid notification. For the purpose of this section, the term Mutual Funds is as referred to in Clause (23D) of Section 10 of Income-Tax Act Mode of Payment on Repatriation basis NRIs In case of NRIs and persons of Indian origin, payment may be made by way of Indian Rupee drafts purchased abroad and payable at Mumbai or by way of cheques drawn on Non-Resident (External) (NRE) Accounts payable at par at Mumbai. Payments can also be made by means of rupee drafts payable at Mumbai and purchased out of funds held in NRE/FCNR Accounts. In case Indian rupee drafts are purchased abroad or from Foreign Currency Accounts or Non-resident Rupee Accounts an account debit certificate from the Bank issuing the draft confirming the debit shall also be enclosed. FIIs FIIs may pay their subscription amounts either by way of inward remittance through normal banking channels or out of funds held in Foreign Currency Account or Non-resident Rupee Account maintained by the FII with a designated branch of an authorized dealer with the approval of the RBI subject to the terms and conditions set out in the aforesaid notification. All cheques/drafts should be made out in favour of the Name of the Scheme of Principal Mutual Fund and crossed Account Payee Only. In case Indian Rupee drafts are purchased abroad or from FCNR/NRE A/c, an account debit certificate from the Bank issuing the draft confirming the debit shall also be enclosed. Mode of payment on Non-Repatriation basis In case of NRIs/ Persons of Indian origin seeking to apply for Units on a nonrepatriation basis, payments may be made by cheques/demand drafts drawn out of Non-Resident Ordinary (NRO) accounts/non-resident Special Rupee (NRSR) accounts and Non Resident Non-Repatriable (NRNR) accounts payable at the city where the Application Form is accepted. Refunds, interest and other distribution (if any) and maturity proceeds/ repurchase price and/or income earned (if any) will be payable in Indian Rupees only. The maturity proceeds/repurchase value of units issued on repatriation basis, income earned thereon, net of taxes may be credited to NRE/FCNR account (details of which should be furnished in the space provided for this purpose in the Application Form) of the non-resident investor or remitted to the non-resident investor. Such payments in Indian Rupees will be converted into US dollars or into any other currency, as may be permitted by the RBI, at the rate of exchange prevailing at the time of remittance and will be dispatched through Registered Post at the unitholders risk. The Fund will not be liable for any loss on account of exchange fluctuations, while converting the rupee amount in US dollar or any other currency. Credit of such proceeds to NRE/FCNR account or remittance thereof may be permitted by authorized dealer only on production of a certificate from the Fund that the investment was made out of inward remittance or from the Funds held in NRE/FCNR account of the investor maintained with an authorized dealer in India. However, there is no objection to credit of such proceeds to NRO/NRSR account of the investor if he so desires. Subscription by Multilateral Funding Agencies, on full repatriation basis, is subject to approval by the Foreign Investment Promotion Board. Kindly note that neither this Statement of Additional Information; nor the Scheme Information Document, nor the Application for the Units, nor the Units ( these Documents ) have been registered in any jurisdiction. The distribution of these Documents in certain jurisdictions may be prohibited or restricted or subject to registration requirements and accordingly, persons who come into possession of any of these Documents are required to inform themselves about and to observe, any such restrictions. No person receiving a copy of any of these Documents in such jurisdiction may act or treat these Documents as constituting an invitation to him to subscribe for Units, nor should he in any event use any such Documents, unless in the relevant jurisdiction such an invitation could lawfully be made to him and such Documents could lawfully be used without compliance with any registration or other legal requirements. Accordingly, none of these Documents constitute an offer or solicitation by any one in any jurisdiction in which such offer or solicitation is not lawful or in which the person making such offer or solicitation is not qualified to do so or to any one to whom it is unlawful to make such offer or solicitation. It is the responsibility of any persons in possession of any of these Documents and any persons wishing to apply for Units pursuant to these Documents to inform themselves of and to observe, all applicable laws and Regulations of such relevant jurisdiction. 13

65 Any suspension or restriction of repurchase/redemption facility under any scheme of the mutual fund shall be made applicable only after the approval from the Board of Directors of the AMC and the Trustees. Unitholder s Bank Account Details Unitholders are on a mandatory basis required to mention their bank account details in their applications/requests for redemption. Redemption Cheques and/or any other instruments will then be made out in favour of the Bank for crediting the respective unitholder s account so specified. The normal processing time may not be applicable in situations where such details are not provided by unitholders. The AMC will not be responsible for any loss arising out of fraudulent encashment of cheques and delay/loss in transit. Unitholder s Permanent Account Number As per SEBI directive, effective from July 2, 2007, Permanent Account Number [PAN] issued by Income Tax Authorities has been made the sole identification number for all participants transacting in the securities market, including Mutual Funds, irrespective of the amount of transaction. Consequently, it is mandatory for all existing as well as prospective investors [including Non Residents Indians, joint applicants and guardians] to furnish a copy of their PAN card while investing in Mutual Funds. In view of the above, with effect from July 2, 2007, investors are required to submit a copy of PAN card along with the application form. Original PAN card has to be offered for verification at the point of such investment [which will be immediately returned across the counter] or alternatively, certified* copy of PAN card can be submitted. Investors are advised to register their PAN with the AMC by providing their certified* PAN card copy along with a list of their folio numbers for verification and update. Further, as directed by SEBI, on submission of sufficient documentary evidence, submission of PAN shall not be insisted in case of Central Government, State Government and the officials appointed by the Courts e.g. official liquidator, court receiver etc. (under the category of Government) while investing in Mutual Funds. Further, subject to submission of sufficient documentary evidence submission of PAN shall not be insisted for residents of Sikkim. * A copy of PAN card can be certified by any of the distributors of Principal Mutual Fund holding ARN, the identified officials of AMC across all branches, Investor Service Centers, Bank Managers, or Notary. Know Your Customer Requirement In terms of the Prevention of Money Laundering Act, 2002, the Rules issued there under and the guidelines/circulars issued by SEBI regarding the Anti Money Laundering (AML Laws), all intermediaries, including Mutual Funds, have to formulate and implement a client identification programme, verify and maintain the record of identity and address(es) of investors. In order to make the data capture and document submission easy and convenient for the investors, Mutual Fund Industry has collectively entrusted the responsibility of collection of documents relating to identity and address of the investor(s) to an independent agency [presently CDSL Ventures Limited ( CVL )] which will act as central record keeping agency ( Central Agency ). As a token of having verified the identity and address of the investor(s) and for efficient retrieval of records, the Central Agency will issue a KYC Acknowledgement Letter (KYC Letter) to each investor who submits an application and the prescribed documents to the Central Agency. Investors should note that it is mandatory for all applications for subscription of value of Rs.50,000/- and above to quote the KYC Compliance Status of each applicant (guardian in case of minor) in the application for subscription and attach proof of KYC Compliance viz. KYC Acknowledgement Letter / Printout of KYC Compliance Status downloaded from CVL website ( using the PAN Number. Applicants intending to apply for units through a Power of Attorney (PoA) must ensure that the issuer of the PoA and the holder of the PoA must mention their KYC Compliance Status and attach proof of KYC Compliance at the time of investment above the threshold. Investors who wish to obtain a KYC Acknowledgement Letter have to submit a completed Application Form for Know Your Customer ('KYC Form') along with all the prescribed documents listed in the KYC Form, at any of the Point of Service ('POS'). The KYC Form is available at our website - and AMFI website - POS are the designated centres appointed by the Central Agency for receiving application forms, processing the same and issuance of KYC Acknowledgement Letter. List and location of POS is available at our website and On submission of KYC Form, documents and information to the satisfaction of the POS, the investor will be issued a provisional KYC Acknowledgement Letter across the counter. Subsequently, the Central Agency will verify the information and documents submitted by the investor. The verification process will be completed within 10 working days from the date of provisional KYC Acknowledgment Letter. In case of any deficiency/ insufficiency in documentation, intimation will be sent to the investors. However, the Central Agency may cancel the KYC Acknowledgement Letter within 10 working days from the date of issue of provisional KYC Acknowledgement Letter, in case of any deficiency in the document/ information. Intimation of cancellation of KYC Acknowledgement Letter will be despatched by the Central Agency to the investor immediately. No communication will be sent to the investor if the KYC documents are in order. The KYC Acknowledgement Letter is presently being issued free of cost. The KYC status will be validated with the records of the Central Agency before allotting units. Principal Mutual Fund will not be held responsible and /or liable for rejection of KYC Form, if any, by the Central Agency. Applications for subscriptions of value of Rs. 50,000 and above without a valid KYC compliance may be rejected. Provided further, where it is not possible to verify the KYC compliance status of the investor at the time of allotment of units, the Trustee / AMC shall verify the KYC compliance status of the investor within a reasonable time after the allotment of units. In the event of non compliance of KYC requirements, Trustee / AMC reserves the right to freeze the folio of the investor(s) and affect mandatory redemption of unit holdings of the investors at the applicable NAV, subject to payment of exit load, if any. All investors (both individual and non-individual) can apply for KYC compliance. However, applicants should note that minors cannot apply for KYC compliance and any investment in the name of minors should be through a Guardian, who should be KYC compliant for the purpose of investing with a Mutual Fund. Also, applicants / unit holders intending to apply for units / currently holding units and operating their Mutual Fund folios through a Power of Attorney (PoA) must ensure that the issuer of the PoA and the holder of the PoA must mention their KYC compliance status at the time of investment, if such investment(s) are above the prescribed threshold limit. PoA holders are not permitted to apply for KYC compliance on behalf of the issuer of the PoA. Separate procedures are prescribed for change in name, address and other KYC related details, should the applicant desire to change such information. POS will extend the services for effecting such changes. Documents to be submitted alongwith application In addition to documents specified under the section titled 'Unitholder s Permanent Account Number and KYC Requirement', below mentioned documents should be submitted. In case of applications under Power of Attorney. If any application or any request for transmission is signed by a person holding a valid Power of Attorney, the original Power of Attorney or a certified copy duly notarized should be submitted with the application or the transmission request, as the case may be unless the Power of Attorney has already been registered with the Fund/Registrar. In the case of applications by limited Company, a corporate body, an eligible institution, a registered society, a Trust, a Fund, or an FII etc.in the case of applications by limited company, a corporate body, an eligible institution, a registered society, a trust, a Fund, or a FII, a certified true copy of the Board resolution of the Managing Body authorizing investments in Units including authority granted in favour of the officials signing the application of Units and their specimen signature etc. along with a certified copy of the Memorandum and Articles of Association and/or bylaws and/or trust deed and/or partnership deed and Certificate or Registration should be submitted. The officials should sign the application under the official designation. In the case of a trust/fund, it shall produce a resolution from the Trustee(s) authorizing purchases. The above mentioned documents or duly certified copy thereof must be lodged with the Official Point of Acceptance where the application form has been submitted simultaneously with the submission of the Application form. All NRI applications by mail should be sent to the address(es) of the AMC/Investor Services Centres/Official Point of Acceptance along with the relevant foreign inward remittance certificates to indicate the status of the Account debited and the relevant approvals if required. In case of non submission of the above mentioned documents, the AMC is entitled, in its sole and absolute discretion, to reject or accept any application. Besides the normal processing time may not be applicable in situations where such documents/details are not provided by unitholders. The AMC will not be responsible for any loss arising out of non-allotment/ rejection of such application. It is expressly understood that the investor/ unitholder has the express authority from the relevant constitution to invest in units of the Fund and the AMC/Trustee/Fund would not be responsible if the investment is ultravires the relevant constitution. Micro-SIPs exempt from PAN requirement: Pursuant to SEBI's letter dated June 19, 2009 addressed to AMFI; and subsequent guidelines issued by AMFI in this regard, Systematic Investment Plans up to Rs.50,000/- per year per investor i.e. aggregate of investments in a rolling 12 months period or in a financial year (hereinafter referred to as 'Micro SIP') shall be exempt from requirement of PAN. This exemption shall be applicable only to investments by individual (including NRI but not PIOs), minors and sole proprietary firms. HUF and other category of investors are not eligible for this exemption. 14

66 Any one of the following photo identification documents can be submitted along with Micro SIP applications as proof of identification in lieu of PAN :- (1) Voter Identity Card (2) Driving License (3) Government / Defense Identification Card (4) Passport (5) Photo Ration Card (6) Photo Debit Card (7) Employee ID Cards issued by companies registered with Registrar of Companies (8) Photo Identification issued by Bank Managers of Scheduled Commercial Banks / Gazetted Officer / Elected Representatives to the Legislative Assembly / Parliament (9) ID card issued to employees of Scheduled Commercial / State / District Co-operative Banks (10) Senior Citizen / Freedom Fighter ID card issued by Government (11) Cards issued by Universities / deemed Universities or institutes under statutes like ICAI, ICWA, ICSI (12) Permanent Retirement Account No (PRAN) card is issued to New Pension System (NPS) subscribers by CRA (NSDL) (13) Any other photo ID card issued by Central Government / State Governments / Municipal Authorities / Government Organizations like ESIC / EPFO. Such photo-identification document(s) must be current and valid and the photo copy of the same should be self attested by the investor(s)/attested by the ARN holder mentioning the ARN number. IV. RIGHTS OF UNITHOLDERS OF THE SCHEME 1. Unit holders of the Scheme have a proportionate right in the beneficial ownership of the assets of the Scheme. 2. If the Mutual Fund declares a dividend under the Scheme, the dividend warrants shall be despatched within 30 days of the declaration of the dividend. Account Statement reflecting the new or additional subscription as well as Redemption / Switch of Units shall be despatched to the Unit holder within 10 business days of the Specified Redemption Date/ Subscription Date. Provided if a Unit holder so desires the Mutual Fund shall issue a Unit certificate (non- transferable) within 30 days of the receipt of request for the certificate. 3. The Mutual Fund shall dispatch Redemption proceeds within 10 Business Days of receiving the duly completed Redemption request. 4. The Trustee is bound to make such disclosures to the Unit holders as are essential in order to keep the unitholders informed about any information known to the Trustee which may have a material adverse bearing on their investments. 5. The appointment of the AMC for the Mutual Fund can be terminated by majority of the Directors of the Trustee Board or by 75% of the Unit holders of the Scheme % of the Unit holders of a Scheme can pass a resolution to wind- up a Scheme. 7. The Trustee shall obtain the consent of the Unit holders: - whenever required to do so by SEBI, in the interest of the Unit holders. - whenever required to do so if a requisition is made by three- fourths of the Unit holders of the Scheme. - when the Trustee decides to wind up the Scheme or prematurely redeem the Units. 8. The Trustee shall ensure that no change in the fundamental attributes of any Scheme or the trust or fees and expenses payable or any other change which would modify the Scheme and affects the interest of Unit holders, shall be carried out unless : (i) a written communication about the proposed change is sent to each Unit holder and an advertisement is given in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of the region where the Head Office of the Mutual Fund is situated; and (ii) the Unit holders are given an option to exit at the prevailing Net Asset Value without any Exit Load. 9. In specific circumstances, where the approval of unitholders is sought on any matter, the same shall be obtained by way of a postal ballot or such other means as may be approved by SEBI. Unitholders are entitled to one vote per unit held on all matters to be voted upon by unitholders. V. VALUATION POLICY AND DETERMINATION OF NET ASSET VALUE (NAV) The Investments of the Scheme will be valued according to the following valuation norms, as specified in Schedule VIII of the Regulations or such other norms as may be prescribed by SEBI from time to time. The broad valuation norms pertaining to the scheme are detailed below. 1. Traded Securities: 1. The securities shall be valued at the closing price on the principal stock exchange. 2. When the securities are traded on more than one recognized stock exchange, the securities shall be valued at the closing price on the stock exchange where the security is actively traded. It would be left to the AMC to select the appropriate stock exchange, but the reasons for the selection should be recorded in writing. There should however be no objection for all scrips being valued at the prices quoted on the stock exchange where majorities in value of the investments are principally traded such as the National Stock Exchange (NSE) or The Stock Exchange, Mumbai (BSE). 3. Once a stock exchange has been selected for valuation of a particular security, reasons for change of the exchange shall be recorded in writing by the AMC. 4. When on a particular valuation day, a security has not been traded on the selected stock exchange; the value at which it is traded on another stock exchange may be used. 5. When a security (other than Debt securities) is not traded on any stock exchange on a particular valuation day, the value at which it was traded on the selected stock exchange or any other stock exchange, as the case may be, on the earliest previous day may be used provided such date is not more than 30 days prior to the valuation date. 6. Presently the AMC is valuing the securities of the scheme based on the quotations of the NSE, since the price quotations of all securities listed on most of the Stock Exchanges are available on NSE. However, in case a particular equity security is not listed on NSE, the same is valued on the basis of price prevailing in any other recognized stock exchange wherever it is listed. Further, the AMC reserves the right to change the basis of valuation to BSE, or any other stock exchange, if it is found to be more appropriate. 2. Thinly Traded Securities: (i) Thinly Traded Equity/Equity Related Securities: When trading in an equity/equity related security (such as convertible debentures, equity warrants, etc.) in a month is both less than Rs. 5 lacs (Rupees Five Lakhs only) and the total volume is less than 50,000 (Fifty Thousand only) shares, it shall be considered as a thinly traded security and valued accordingly. For example, if the volume of trade is 100,000 and value is Rs. 400,000 the share does not qualify as thinly traded. Also if the volume traded is 40,000, but the value of trades is Rs. 600,000, the share does not qualify as thinly traded. In order to determine whether a security is thinly traded or not, the volumes traded in all recognised stock exchanges in India may be taken into account. Where a stock exchange identifies the thinly traded securities by applying the above parameters for the preceding calendar month and publishes/provides the required information along with the daily quotations, the same can be used by the Fund. If the share is not listed on the stock exchanges which provide such information, then it will be obligatory on the part of the Fund to make its own analysis in line with the above criteria to check whether such securities are thinly traded which would then be valued accordingly. In case trading in an equity security is suspended upto 30 days, then the last traded price would be considered for valuation of that security. If an equity security is suspended for more than 30 days, then the Asset Management Company/Trustees will decide the valuation norms to be followed in good faith and such norms would be documented and recorded. (ii) Thinly Traded Debt Securities: A debt security (other than Government Securities) shall be considered as a thinly traded security if on the valuation date, there are no individual trades in that security in marketable lots (currently Rs 5 crore) on the principal stock exchange or any other stock exchange. A thinly traded debt security as defined above would be valued as per the norms set for non-traded debt security. 3. Non Traded Securities: When a security is not traded on any stock exchange for a period of thirty days prior to the valuation date, the scrip must be treated as a non traded security. 4. Valuation of Non-Traded/Thinly Traded Securities Non traded/ thinly traded securities shall be valued in good faith by the Asset Management Company on the basis of appropriate valuation methods based on the principles laid down below and approved by the AMC. Such decision of the AMC must be documented and the supporting data in respect of each security so valued must be preserved. The methods used to arrive at the values in good faith shall be periodically reviewed by the Trustees and reported upon by the Auditors as Fair and Reasonable in their report on the 15

67 annual accounts of the Fund. For the purpose of valuation of Non traded/ Thinly traded securities, the following principles will be adopted; (i) Non Traded/Thinly Traded Equity/Equity Related Securities: Based on the latest available Balance Sheet, net worth shall be calculated as follows: Net Worth per share = [share capital + reserves (excluding revaluation reserves) - miscellaneous expenditure and debit balance in P&L A/ c] divided by number of paid up shares. Average capitalisation rate (P/E ratio) for the industry based upon either BSE or NSE data (which should be followed consistently and changes, if any noted with proper justification thereof) shall be taken and discounted by 75% i.e. only 25% of the industry average P/E shall be taken as capitalisation rate (P/E ratio). Earnings per share of the latest audited annual accounts will be considered for this purpose. The value as per the net worth value per share and the capital earning value calculated as above shall be averaged and further discounted by 10% for ill-liquidity so as to arrive at the fair value per share. In case the EPS is negative, EPS value for that year shall be taken as zero for arriving at capitalised earning. In case where the latest balance sheet of the company is not available within 9 months from the close of the year, unless the accounting year is changed, the shares of such companies shall be valued at zero. In case an individual security accounts for more than 5% of the total assets of the Scheme, an independent valuer shall be appointed for the valuation of the said security. To determine if a security accounts for more than 5% of the total assets of the Scheme, it should be valued by the procedure above and the proportion which it bears to the total net assets of the Scheme to which it belongs would be compared on the date of valuation. (ii) Non Traded/Thinly Traded Debt Securities (Other than Government Securities): Non traded debt instruments in the Fund shall generally be valued on an yield to maturity basis, the capitalization factor being determined for comparable traded securities and with appropriate discount for lower liquidity. (a) Non Traded/Thinly Traded Debt Securities of Upto 182 Days to Maturity : As the non-traded money market securities are valued on the basis of amortization (cost plus accrued interest till the beginning of the day plus the difference between the redemption value and the cost spread uniformly over the remaining maturity period of the instruments) the same process should be adopted for non-traded debt securities with residual maturity of upto 182 days, in the absence of any other standard benchmarks in the market. All other non traded Non Government debt instruments should be valued using the method suggested in (ii)(b) hereof. (b) Non Traded/Thinly Traded Debt Securities of Over 182 Days to Maturity. For the purpose of valuation, all Non Traded Debt Securities would be classified into Investment grade and Non Investment grade securities based on their credit ratings. The non-investment grade securities would further be classified as Performing and Non Performing assets All Non Government investment grade debt securities, classified as not traded, shall be valued on yield to maturity basis as described below. All Non Government non investment grade performing debt securities would be valued at a discount of 25% to the face value All Non Government non investment grade non performing debt securities would be valued based on the provisioning norms. The approach in valuation of non traded debt securities is based on the concept of using spreads over the benchmark rate to arrive at the yields for pricing the non traded security. The Yields for pricing the non traded debt security would be arrived at using the process as defined below. Step A A Risk Free Benchmark Yield is built using the government securities (GOI Sec) as the base. GOI Secs are used as the benchmarks as they are traded regularly; free of credit risk; and traded across different maturity spectrums every week. Step B A Matrix of spreads(based on the credit risk) are built for marking up the benchmark yields. The matrix is built based on traded corporate paper on the wholesale debt segment of an appropriate stock exchange and the primary market issuances. The matrix is restricted only to investment grade corporate paper. Step C The yields as calculated above are Marked-up/Marked-down for ill-liquidity risk Step D The Yields so arrived are used to price the portfolio METHODOLOGY A. Construction of Risk Free Benchmark Using Government of India dated securities, the Benchmark shall be constructed as below : Government of India Dated securities will be grouped into the following duration buckets viz., years, 1-2 years, 2-3 years, 3-4 years, 4-5 years, 5-6 years and over 6 years and the volume weighted yield would be computed for each bucket. Accordingly, there will be a benchmark YTM for each duration bucket. The benchmark as calculated above will be set weekly, and in the event of any change in the Reserve Bank of India (RBI) policies affecting interest rates during the week, the benchmark will be reset to reflect any change in the market conditions. Note : The concept of duration over tenor has been chosen in order to capture the reinvestment risk. It is intended to gradually move towards a methodology that incorporates the continuous curve approach for valuation of such securities. However, in view of the current lack of liquidity in the corporate bond markets, a continuous curve approach to valuation would be necessarily based on limited data points, and this would result in out of line valuations. As an interim methodology therefore it is proposed that the Duration Bucket approach be adopted and continuously tracked in order to fine tune the duration buckets on a periodic basis. Over the next few years it is expected that with the deepening of the secondary market trading, it would be possible to make a gradual move from the Duration Bucket approach towards a continuous curve approach. B. Building a Matrix of Spreads for Marking-up the Benchmark Yield Mark up for credit risk over the risk free benchmark YTM as calculated in step A, will be determined using the trades of corporate debentures/bonds of different ratings. All trades on appropriate stock exchange during the fortnight prior to the benchmark date will be used in building the corporate YTM and spread matrices. Initially these matrices will be built only for corporate securities of investment grade. The matrices are dynamic and the spreads will be computed every week. The matrix will be built for all duration buckets for which the benchmark GOI matrix is built to effectively link the corporate matrix with the GOI securities matrix. Accordingly: All traded paper (with minimum traded value of Rs. 1 crore) will be classified by their ratings and grouped into 7 duration buckets; for rated securities, the most conservative publicly available rating will be used; For each rating category, average volume weighted yield will be obtained both from trades on the appropriate stock exchange and from the primary market issuances Where there are no secondary trades on the appropriate stock exchange in a particular rating category and no primary market issuances during the fortnight under consideration, then trades on appropriate stock exchange during the 30 day period prior to the benchmark date will be considered for computing the average YTM for such rating category; If the matrix cannot be populated using any or all of the above steps, then credit spreads from trades on appropriate stock exchange of the relevant rating category over the AAA trades will be used to populate the matrix; In each rating category, all outliers will be removed for smoothening the YTM matrix; Spreads will be obtained by deducting the YTM in each duration category from the respective YTM of the GOI securities; In the event of lack of trades in the secondary market and the primary market the gaps in the matrix would be filled by extrapolation. If the spreads cannot be extrapolated for the reason of practicality, the gaps in the matrix will be filled by carrying the spreads from the last matrix. C. Mark-up/Mark-down Yield The Yields calculated would be marked-up/marked-down to account for the illiquidity risk, promoter background, finance company risk and the issuer class risk. As the level of illiquidity risk would be higher for non rated securities the marking process for rated and non rated securities would be differentiated as follows: 16

68 C(I) Adjustments for Securities rated by External Rating Agencies The Yields so derived out of the above methodology could be adjusted to account for risk mentioned above by an appropriate discount or premium as may be required. The range of the markups for both discount as well as premium is given below: Premium A Discretionary premium of up to -50 Basis Points for securities having duration of up to 2 years and up to -25 Basis Points for securities having duration higher than 2 years will be permitted to be provided for the above mentioned types of risks. The rationale for the above discount structure is to take cognizance of the differential interest rate risk of the securities. This structure will be reviewed periodically. Discount SEBI has revised the discretionary discount limits as below: Category Discretionary discount over benchmark yield in basis points Rated Instruments with Discretionary Discount of up to +100 duration up to 2 years Rated Instruments with Discretionary Discount of up to +75 duration over 2 years C(II) Adjustments for Internally Rated Securities To value an unrated security, the fund manager has to assign an internal credit rating, which will be used for valuation. Since unrated instruments tend to be more illiquid than rated securities, the yields would be mandatorily marked up by adding +50 basis point for securities having a duration of up to two years and +25 basis point for securities having duration of higher than two years to account for the illiquidity risk. The yields derived from the above methodology could be adjusted to account for risk mentioned above. SEBI has revised the discretionary discount limits as below: Category Discretionary discount over benchmark yield in basis points Unrated Instruments Discretionary Discount of up to +50 over with duration up to 2 years and above the mandatory Discount of +50 Unrated Instruments Discretionary Discount of up to +50 over with duration over 2 years and above the mandatory Discount of Valuation of Unlisted Equity Securities Unlisted equity shares of a company shall be valued in good faith on the basis of the valuation principles laid down below: a) Based on the latest available audited balance sheet, net worth shall be calculated as lower of (i) and (ii) below: i. Net worth per share = [share capital plus free reserves (excluding revaluation reserves) minus Miscellaneous expenditure not written off or deferred revenue expenditure, intangible assets and accumulated losses] divided by Number of Paid up Shares. ii. After taking into account the outstanding warrants and options, Net worth per share shall again be calculated and shall be = [share capital plus consideration on exercise of Option/Warrants received/receivable by the Company plus free reserves(excluding revaluation reserves) minus Miscellaneous expenditure not written off or deferred revenue expenditure, intangible assets and accumulated losses] divided by {Number of Paid up Shares plus Number of Shares that would be obtained on conversion/exercise of Outstanding Warrants and Options} The lower of (i) and (ii) above shall be used for calculation of net worth per share and for further calculation in (c) below. (b) Average capitalisation rate (P/E ratio) for the industry based upon either BSE or NSE data (which should be followed consistently and changes, if any, noted with proper justification thereof) shall be taken and discounted by 75% i.e. only 25% of the Industry average P/E shall be taken as capitalisation rate (P/E ratio). Earnings per share of the latest audited annual accounts will be considered for this purpose. (c) The value as per the net worth value per share and the capital earning value calculated as above shall be averaged and further discounted by 15% for illiquidity so as to arrive at the fair value per share. The above methodology for valuation shall be subject to the following conditions: i. All calculations as aforesaid shall be based on audited accounts. ii. In case where the latest balance sheet of the company is not available within nine months from the close of the year, unless the accounting year is changed, the shares of such companies shall be valued at zero. iii. If the net worth of the company is negative, the share would be marked down to zero. iv. In case the EPS is negative, EPS value for that year shall be taken as zero for arriving at capitalised earning. v. In case an individual security accounts for more than 5% of the total assets of the scheme, an independent valuer shall be appointed for the valuation of the said security. To determine if a security accounts for more than 5% of the total assets of the scheme, it should be valued in accordance with the procedure as mentioned above on the date of valuation. At the discretion of the AMC and with the approval of the trustees, an unlisted equity share may be valued at a price lower than the value derived using the aforesaid methodology. 6. Valuation of securities with Put/Call Options The option embedded securities would be valued as follows: Securities with call option : The securities with call option shall be valued at the lower of the value as obtained by valuing the security to final maturity and valuing the security to call option. In case there are multiple call options, the lowest value obtained by valuing to the various call dates and valuing to the maturity date is to be taken as the value of the instrument. Securities with Put option : The securities with put option shall be valued at the higher of the value as obtained by valuing the security to final maturity and valuing the security to put option. In case there are multiple put options, the highest value obtained by valuing to the various put dates and valuing to the maturity date is to be taken as the value of the instruments. Securities with both Put and Call option on the same day. The securities with both Put and Call option on the same day would be deemed to mature on the Put/Call day and would be valued accordingly. 7. Government bonds: All Government bonds are to be valued at the prices released by agency/ies (as notified by AMFI) on a daily basis. The agencies so notified by AMFI is CRISIL and ICRA. In the event of non availability of the CRISIL and ICRA prices for any reason whatsoever prices released by FIMMDA will be used. When prices from both the aforesaid sources are not available, Reuters or Bloomberg price quotes (bid price quotes) will be used, failing which the average of the indicative bid price quotes obtained from two Government securities brokers will be used. 8. Treasury Bills: As the non-traded money market securities are valued on the basis of amortization (cost plus accrued interest till the beginning of the day plus the difference between the redemption value and the cost spread uniformly over the remaining maturity period of the instruments) the same process should be adopted for non-traded Treasury Bills Traded Treasury Bills (T-Bills) are to be valued at last traded yield to maturity (YTM) and are to be amortized at YTM from that level upon them getting qualified as a thinly traded security. 9. Illiquid Securities : (a) Aggregate value of illiquid securities of the scheme, which are defined as non-traded, thinly traded and unlisted equity shares, shall not exceed 15% of the total assets of the scheme and any illiquid securities held above 15% of the total assets shall be assigned zero value. (b) The Fund shall disclose as on March 31 and September 30 the schemewise total illiquid securities in value and percentage of the net assets while making disclosures of half yearly portfolios to the unitholders. In the list of investments, an asterisk mark shall also be given against all such investments which are recognised as illiquid securities. (c) The Fund shall not transfer illiquid securities among its schemes w.e.f. October 1, (d) In respect of closed ended funds, for the purposes of valuation of illiquid securities, the limits of 15% and 20% applicable to openended funds should be increased to 20% and 25% respectively. 10) In respect of convertible debentures and bonds, the non-convertible and convertible components will be valued separately. The non-convertible component is valued on the same basis as would be applicable to a debt instrument. The convertible component is valued on the same basis as would be applicable to an equity instrument. If, after conversion the resultant equity instrument would be traded pari-passu with an existing instrument, which is traded, the value of the latter instrument is adopted after appropriately discounting for the non-tradability of the instrument during the period preceding the conversion. While valuing such instruments, the fact whether the conversion is optional will be factored in. 17

69 11) In respect of warrants to subscribe for shares attached to instruments, the warrants are valued at the value of the share which would be obtained on exercise of the warrant as reduced by the amount which would be payable on exercise of the warrant. A discount similar to the discount to be determined in respect of convertible debentures (as referred to above) is deducted to account for the period that must elapse before the warrant can be exercised. 12) Where instruments have been bought on repo basis, the instrument will be valued at the resale price after deduction of applicable interest up to date of resale. Where an instrument has been sold on a repo basis, adjustment must be made for the difference between the repurchase price (after deduction of applicable interest up to date of repurchase) and the value of the instrument. If the repurchase price exceeds the value, the depreciation must be provided for and if the repurchase price is lower than the value, credit must be taken for the appreciation. 13) While investments in call money, bills purchased under rediscounting scheme and short term deposits with bank shall be valued at cost plus accrual, other money market instruments shall be valued at the yield at which they are currently traded. For this purpose, non-traded instruments (instruments not traded for a period of seven days) will be valued at cost plus interest accrued till the beginning of the day plus the difference between the repurchase value and the cost spread uniformly over the remaining maturity period of the instruments. 14) Until they are traded, the value of rights shares shall be calculated as: Vr = n m x (Pex - Pof) Where Vr = Value of rights n = no. of rights offered m = no. of original shares held Pex = Ex-rights price Pof = Rights Offer Price Where the rights are not treated pari passu with the existing shares, suitable adjustments shall be made to the value of the rights. Where it is decided not to subscribe for the rights but to renounce them and renunciations are being traded, the rights can be valued at the renunciation value. 15) Valuation of Derivative Products The traded derivatives shall be valued at market price in conformity with the stipulations of sub clauses (i) to (v) of clause 1 of the Eighth Schedule to the Regulations. The valuation of untraded derivatives shall be done in accordance with the valuation method for untraded investments prescribed in sub clauses (i) and (ii) of clause 2 of the Eighth Schedule to the Regulations. ACCRUAL OF EXPENSES AND INCOME All expenses and incomes accrued up to the valuation date shall be considered for computation of NAV. For this purpose, while major expenses like management fees and other periodic expenses should be accrued on a day to day basis, other minor expenses and income need not be so accrued, provided the non-accrual does not affect the NAV calculations by more than 1%. RECORDING OF CHANGES IN THE SECURITIES AND UNITS Any changes in securities and in the number of units are recorded in the books not later than the first valuation date following the date of transaction. If this is not possible given the frequency of NAV disclosure, the recording may be delayed up to a period of seven days following the date of the transaction, provided that as a result of the non-recording, the NAV calculations shall not be affected by more than 1%. In case the Net Asset Value of a scheme differs by more than 1%, due to non - recording of the transactions, the investors or scheme/s as the case may be, shall be paid the difference in amount as follows:- (i) If the investors are allotted units at a price higher than Net Asset Value or are given a price lower than Net Asset Value at the time of sale of their units, they shall be paid the difference in amount by the scheme. (ii) If the investors are charged lower Net Asset Value at the time of purchase of their units or are given higher Net Asset Value at the time of sale of their units, asset management company shall pay the difference in amount to the scheme. The asset management company may recover the difference from the investors. All other assets (if any) are taken at fair value as determined in-good faith in accordance with the appropriate valuation methods based on the principles approved/adopted by the AMC, and amended from time to time, to ensure appropriate fair valuation of assets for the Fund. The Trustees/AMC may alter these above stated investment valuation norms from time to time, and also to the extent the SEBI (Mutual Funds) Regulations, 1996 change, so as to permit the Scheme to make valuation of its investments in the full spectrum of permitted valuation norms for Mutual Funds to determine NAV. As such valuation of all investments of the Scheme will be made in accordance with SEBI (Mutual Funds) Regulations, 1996 including Schedule VIII thereof. DETERMINATION OF NAV The NAV of the Scheme for each option at any time shall be determined by dividing the net assets of the Scheme by the number of outstanding units on the valuation date The NAV of the Scheme will be calculated on a daily basis as shown below: NAV per unit = (Market / Fair Value of Securities + Accrued Income + Receivables+other assets+ unamortised issue expenses - Accrued Expenses payables - other liabilities) No. of units outstanding of the scheme / option The NAV will be calculated up to two or four decimals as prescribed by SEBI. The NAVs will be calculated as of the close of every Business Day. The computation of Net Asset Value, valuation of assets, computation of applicable Net Asset Value (related price) for repurchase, switch and their frequency of disclosure shall be based upon a formula in accordance with the Regulations and as amended from time to time including by way of Circulars, Press Releases, or Notifications issued by SEBI or the Government of India to regulate the activities and growth of Mutual Funds. The dividend paid on units under the Dividend Option of the Fund shall be deducted in computing the NAV of the units under the Dividend Option, each time a dividend is declared and till it is distributed. Consequently, once the dividend is distributed, the NAV of the units will always remain lower than the NAV of the units under the Growth Option. The income earned and profits realized attributable to the units under the Growth Option shall remain invested and shall be deemed to have remained invested in the Growth Option (exclusive of the units under the Dividend Option) and would be reflected in the NAV of the units under the Growth Option. The valuation of the Scheme's assets and calculation of the Scheme's NAV shall be subject to audit on an annual basis and such regulations as may be prescribed by SEBI from time to time. The first NAV will be calculated and announced within a period of 30 days after the close of the NFO Period. Subsequently, the NAV shall be calculated on all Business Days. ACCOUNTING POLICIES AND STANDARDS The AMC, for the Scheme(s) and its Plan(s), shall keep and maintain proper books of account, records and documents, so as to explain its transactions and to disclose at any point of time the financial position of the Scheme(s) and, in particular, give a true and fair view of the state of affairs of the Fund. In keeping and maintaining proper books of accounts, the AMC will follow the accounting policies and standards as outlined below which are as per the existing Regulations and are subject to change as per changes in the Regulations. 1. All investments will be marked to market and will be carried in the balance sheet at market value. However, since the unrealised gain arising out of appreciation can not be distributed, provision will be made for exclusion of this item when arriving at distributable income. 2. Dividend income earned by the scheme will be recognised; not on the date the dividend is declared, but on the date the share is quoted on an ex-dividend basis. For investments that are not quoted on the stock exchange, dividend income shall be recognised on the date of declaration. 3. Bonus shares to which the Scheme becomes entitled shall be recognised only when the original shares to which the bonus entitlement accrues are traded on the stock exchange on an ex-bonus basis. Similarly, rights entitlements shall be recognised only when the original shares on which the rights entitlement accrues are traded on the stock exchange on an ex-rights basis. 4. In respect of all interest bearing investments, income will be accrued on a day to day basis as it is earned. Therefore, when such investments are purchased, interest paid for the period from the last interest due date up to the date of purchase shall not be treated as a cost of purchase but shall be debited to Interest Recoverable Account. Similarly, interest received at the time of sale for the period from the last interest due date up to the date of sale shall not be treated as an addition to sale value but shall be credited to Interest Recoverable Account. 5. In determining the holding cost of investments and the gains or loss on sale of investments, the average cost method shall be followed. 6. Transactions for purchase or sale of investments would be recognized as of the trade date and not as of the settlement date so that the effect of all investments traded during the financial year are recorded and reflected in the financial statements for that year. When investment transactions take place outside the stock market, e.g. acquisition through private placement or purchase or sales through private treaty, the transaction would be recorded, in the event of a purchase, as of the date on which the scheme obtains an enforceable obligation to pay the price or, in the event of a sale, 18

70 when the scheme obtains an enforceable right to collect the proceeds of sale or an enforceable obligation to deliver the instruments sold. 7. Where income receivable on investments has been accrued and has not been received for a period beyond the due date as specified in the guidelines for identification and provisioning of NPA issues by SEBI, provision shall be made by debit to the revenue account for the income so accrued and no further accrual of income shall be made in respect of such investment in accordance with the aforesaid guidelines issued by SEBI in this behalf. In so far as provision for the principal amount is concerned, the same shall be provided for as specified in the aforementioned guidelines. 8. When Units are sold in the Scheme(s) and its Plans, an appropriate part of the sale proceeds shall be credited or debited to an Equalisation Account and when Units are repurchased an appropriate amount shall be credited or debited to Equalisation Account. The net balance on this account shall be credited or debited to the Revenue Account. The balance on the Equalisation Account debited or credited to the Revenue Account shall not decrease or increase the net income of the Fund but is only an adjustment to the distributable surplus. It shall therefore be reflected in the Revenue Account only after the net income of the Fund is determined. 9. When Units are sold, after considering the equalisation as above, the difference between the sale price and the face value of the Unit, if positive, shall be credited to reserves and if negative, shall be debited to reserve, the face value being credited to Capital Account. Similarly, when the Units are repurchased, after considering the equalisation as above, the difference between the purchase price and face value of the Unit, if positive, shall be debited to reserves and, if negative, shall be credited to reserves, the face value being debited to the Capital Account. 10. The cost of investment acquired or purchased would include brokerage, stamp charges and any charge customarily included in the brokers bought note. In respect of privately placed debt instrument, any front-end discount offered shall be reduced from the cost of the investment. 11. Underwriting commission, if any, shall be recognised as revenue only when there is no devolvement on the Scheme. Where there is devolvement on the Scheme, the full underwriting commission received and not merely the portion applicable to the devolvement shall be reduced from the cost of the investment. GUIDELINES FOR IDENTIFICATION AND PROVISIONING FOR NON PERFORMING ASSETS (DEBT SECURITIES) (i) Definition of a Non Performing Asset (NPA) An asset shall be classified as non performing, if the interest and/or principal amount has not been received or remained outstanding for one quarter from the day such income / installment has fallen due. (ii) Effective date for classification and provisioning of NPAs : The definition of NPA may be applied after a quarter following the due date of interest. For e.g. if the due date for interest is it will be classified as NPA from (iii) Treatment of income accrued on the NPA and further accruals After the expiry of the 1st quarter from the date the income has fallen due, there will be no further interest accrual on the asset i.e. if the due date for interest falls on and if the interest is not received, accrual will continue till after which there will be no further accrual of income. In short, taking the above example, from the beginning of the 2nd quarter, there will be no further accrual on income. On classification of the asset as NPA from a quarter following the due date of interest, all interest accrued and recognized in the books of accounts of the Fund till the date, should be provided for. For e.g. if interest income falls due on , accrual will continue till even if the income as on has not been received. Further, no accrual will be done from onwards. Full provision will also be made for interest accrued and outstanding as on (iv) Provision for NPAs Both secured and unsecured investments, once recognized as NPAs, call for provisioning in the same manner and where these are related to close ended scheme the phasing would be such to ensure full provisioning prior to the closure of the scheme or the scheduled phasing, whichever is earlier. The value of the asset must be provided in the following manner or earlier at the discretion of the fund. The Fund will not have the discretion to extend the period of provisioning. The provisioning against the principal amount or instalments should be made at the following rates irrespective of whether the principal is due for repayment or not. 10% of the book value of the asset should be provided for after 6 months following the due date of interest i.e. 3 months from the date of classification of the asset as NPA. 20% of the book value of the asset should be provided for after 9 months following the due date of interest i.e 6 months from the date of classification of the asset as NPA. Another 20% of the book value of the assets should be provided for after 12 months following the due date of interest i.e 9 months from the date of classification of the asset as NPA. Another 25% of the book value of the assets should be provided for after 15 months following the due date of interest i.e. 12 months from the date of classification of the asset as NPA. The balance 25% of the book value of the asset should be provided for after 18 months following the due date of interest i.e 15 months from the date of classification of the assets as NPA. Book value for the purpose of provisioning for NPAs shall be taken as a value determined as per the prescribed valuation method. If any installment is fallen due, during the period of interest default, the amount of provision should be installment amount or above provision amount, whichever is higher. (v) Reclassification of assets: Upon reclassification of assets as performing assets : 1. In case an issuer has fully cleared all the arrears of interest, the interest provisions can be written back in full. 2. The asset will be reclassified as performing on clearance of all interest arrears and if the debt is regularly serviced over the next two quarters. 3. In case the issuer has fully cleared all the arrears of interest, the interest not credited on accrual basis would be credited at the time of receipt. 4. The provision made for the principal amount can be written back in the following manner :- 100% of the asset provided for in the books will be written back at the end of the 2nd quarter where the provision of principal was made due to the interest defaults only. 50% of the asset provided for in the books will be written back at the end of the 2nd quarter and 25% after every subsequent quarter where both installments and interest were in default earlier. 5. An asset is reclassified as standard asset only when both overdue interest and overdue installments are paid in full and there is satisfactory performance for a subsequent period of 6 months. (vi) Receipt of past dues : When the fund has received income/principal amount after their classification as NPAs ; For the next 2 quarters, income should be recognized on cash basis and thereafter on accrual basis. The asset will continue to be classified as NPA for these two quarters. During this period (2 quarters), although the asset is classified as NPA no provision needs to be made for the principal if the same is not due and outstanding. If part payment is received towards principal, the asset continues to be classified as NPA and provisions are continued as per the norms set at (iv) above. Any excess provision will be written back. (vii) Classification of Deep Discount Bonds as NPAs : Investments in Deep Discount Bonds can be classified as NPAs, if any two of the following conditions are satisfied: If the rating of the Bond comes down to grade BB or below. If the company is defaulting in their commitments in respect of other assets, if available. Full Net worth erosion. Provision should be made as per the norms set at (iv) above as soon as the asset is classified as NPA. Full provision can be made if the rating comes down to grade D. (viii) Reschedulement of an asset : In case any company defaults either interest or principal amount and the Fund has accepted a reschedulement of the schedule of payments, then the following practice may be adhered to : (a) In case it is a first reschedulement and only interest is in default, the status of the asset, namely, NPA may be continued and existing provisions should not be written back. This practice should be continued for two quarters of regular servicing of the debt. Thereafter, this be classified as performing asset and the interest provided may be written back. (b) If the reschedulement is done due to default in interest and principal amount, the asset should be continued as non performing for a period of 4 quarters, even though the asset continues to be serviced during these 4 quarters regularly. Thereafter, this can be classified as performing asset and all the interest provided till such date should be written back. 19

71 (c) If the reschedulement is done for a second/third time or thereafter, the characteristic of NPA should be continued for eight quarters of regular servicing of the debt. The provision should be written back only after it is reclassified as performing asset. To provide appropriate details of the Scheme wise deployment of the assets of the Fund, certain accounting policies and standards in accordance with the appropriate guidance notes issued by the Institute of Chartered Accountants of India may be adopted by AMC and amended from time to time. The Trustees/AMC may alter these above stated accounting policies and standards from time to time, and also to the extent the guidance notes issued by the Institute of Chartered Accountants of India, and the SEBI (Mutual Funds) Regulations, 1996 change, so as to permit the Scheme to give a true and fair view of its state of affairs. As such the accounting policies and standards, and the preparation of the annual report and annual statement of account of the Scheme will be in accordance with SEBI (Mutual Funds) Regulations, 1996, including Schedule IX and XI thereof. V. TAX & LEGAL & GENERAL INFORMATION A. TAXATION ON INVESTING IN MUTUAL FUNDS The following tax implications are provided for general information purposes based on the law prevalent as on the date of this document. Such implications would have to be determined taking into account the specific facts of each individual case. Further, in the event of amendments to legislation pertaining to taxation from time to time, the nature and / or quantum of such benefits / implications is subject to change. Accordingly, it is recommended that each Unit holder appropriately consult his / her tax consultant with respect to the specific tax implications arising out of their participation in the Scheme. I. To the Mutual Fund: Income in the hands of the Mutual fund The entire income of the Mutual Fund registered under Securities and Exchange Board of India Act, 1992 or any regulations made thereunder is exempt from income-tax in accordance with the provisions of section 10(23D) of the Income-tax Act, 1961 ("the Act"). The income received by such Mutual Fund is not liable for deduction of income tax at source as per the provisions of Section 196(iv) of the Act. Where the Fund receives any income from investments made in overseas jurisdiction, the same may be subject to withholding in the relevant jurisdiction from which the income is received. As the income of the fund is exempt from tax in India, credit/ refund in respect of such foreign taxes may not be available in India. Tax on distribution of income by the Mutual Fund to the Unit holders Under section 115R of the Act, income distribution, if any, made by the Mutual Fund to the unit holders will attract distribution tax at the following rates: In case of Money Market Mutual Fund or Liquid 25% plus surcharge on such 10% and education cess and secondary and higher education 3% on the amount of tax and surcharge. In case of Other than Equity Oriented Fund, not being a Money Market Mutual Fund or a Liquid Fund 12.5% plus surcharge on such 10% and education cess and secondary and higher education 3% on the amount of tax and surcharge, in case income is distributed to individuals and HUFs; and 20% plus surcharge on such 10% and education cess and secondary and higher education 3 % on the amount of tax and surcharge, in case of income distributed to persons other than individuals and HUFs. Proviso (b) to Section 115R (2) of the Act provides exemption to equity oriented mutual funds from paying distribution tax on income distributed. The expression "money market mutual fund" has been defined under Explanation (d) to Section 115T which means a scheme of a mutual fund which has been set up with the objective of investing exclusively in money market instruments as defined in sub-clause (p) of clause (2) of the Securities and Exchange Board of India (Mutual Funds) Regulations,1996. The expression" liquid fund" has been defined under Explanation (e) to Section 115T which means a scheme or plan of a mutual fund which is classified by the Securities and Exchange Board of India as a liquid fund in accordance with the guidelines issued by it in this behalf under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulations made thereunder. The expression "equity oriented fund" has been defined under Explanation (b) to Section 115T of the Act to include a fund where the investible funds are invested by way of equity shares in domestic companies to the extent of more than sixty-five per cent of the total proceeds of such fund. II. To the Unit Holders: Deduction from total income Under section 80C of the Act, an assessee, being an individual or HUF, is eligible to claim a deduction upto an aggregate of Rs. 1 lacs on account of sums paid as subscription to units of an Equity Linked Savings Scheme. The expression "Equity Linked Savings Scheme " refers to Equity Linked Savings Scheme, 2005 as notified by the Central Board of Direct Taxes, Ministry of Finance vide notification dated November 3, 2005 as amended vide notification dated December 13, Securities Transaction Tax Under Chapter VII of Finance (No. 2) Act, 2004 the unit holder is liable to pay Securities Transaction Tax ("STT") in respect of "taxable securities transaction" at the applicable rates. Taxable securities transactions include purchase or sale of units of an equity oriented fund, entered into on the stock exchange or sale of units of an equity oriented fund to the mutual fund. The purchaser and seller of units of an equity oriented fund are liable to pay % each where the purchase and sale is entered into on a recognized stock exchange and the contract for the purchase and sale of such units is settled by actual delivery or transfer of such units. Further, the seller of units is also liable to pay % in case of sale of units of an equity oriented fund where the transaction of such sale is entered into on a recognized stock exchange and the contract for the sale of such units is settled otherwise than by the actual delivery or transfer of such units. At the time of sale of units of equity oriented fund to the mutual fund, the seller is required to pay an 0.25%. The securities transaction tax paid by the assessee during the year in respect of taxable securities transactions entered in the course of business shall be allowed as deduction under section 36 of the Act subject to the condition that such income from taxable securities transactions is included under the head 'profits and gains of business or profession'. Incomes from Units Under the provisions of section 10(35) of the Act, any income (other than income arising from transfer of units) received by any person in respect of the units of the mutual fund is exempt from income tax. Further, in case of distribution of income already paid by the Scheme, the Trustee / AMC reserves the right to recover the additional income-tax on distribution of income so paid from the unit holders of respective Plan/option. # Including applicable surcharge, education cess and secondary and higher education cess. Gains on transfer / redemption of Units Gains arising on transfer / redemption of Units as well as switching between schemes will be chargeable to tax under the Act. The characterization of income from investment in securities as 'business income' or 'capital gains' will have to be examined on a case-to-case basis. Business Income Where the units are regarded as Business Asset, then any gain arising from transfer / redemption of Units would be taxed under the head "Profits and Gains of Business or Profession" under section 28 of the Act. The gain / loss is to be computed under the head "Profits and Gains of Business or Profession" after allowing normal business expenses (inclusive of the expenses incurred on transfer). Business Income is chargeable to tax at the following rates: Assessee % of Income Tax Individuals, HUF, Association of Persons Applicable Slab Rates Partnership Firms [including Limited Liability Partnerships (LLPs)] & Indian Corporates 30% Foreign Company 40% The income tax rates specified above and elsewhere in this document are exclusive of the applicable surcharge, education cess and secondary and higher education cess. The Finance Bill (No.2), 2009 has proposed the following changes in the applicable rates for surcharge: Assessee % of Income Tax Individual (including proprietorships), HUF, Association of Persons and Partnership Firms (including LLPs) Nil Indian Corporates (if income exceeds Rs. 1 crore) 10% Foreign Company (if income exceeds Rs. 1 crore) 2.5% 20

72 Additionally, education cess and secondary and higher education cess is 3% on the income tax and surcharge as computed above. Capital Gains The mode of computation of capital gains would be as follows: Sale Consideration xxx Less: Cost of Acquisition (Note 1) (xxx) Expenses on Transfer (Note 2) (xxx) Capital Gains xxx Note 1: In case of the computation of long-term capital gains, option of indexation of cost is available. Note 2: This would include only expenses relating to transfer of units. Normal business expenses would not be allowable. Capital gain arising on transfer or redemption of units held for a period of more than 12 months is regarded as "Long-term Capital Gain" which otherwise would be "Short-term Capital Gain". In case of ELSS, the units are subject to a lock-in of 3 years. Accordingly, any sale of units after such lock-in will qualify as Long-term Capital Gain. Long term capital gains In case of Other than Equity Oriented Fund, including Money Market Mutual Fund or a Liquid Fund As per section 112 of the Act, tax on income on long term capital gains arising from the transfer of units shall be lower of the following amount: (i) 10% plus applicable surcharge and education cess at the rate of 3% on the amount of tax and surcharge, on the Long-term Capital Gains computed without substituting indexed cost of acquisition in place of the cost of acquisition; or (ii) 20% plus applicable surcharge and education cess at the rate of 3% on the amount of tax and surcharge, on the Long-term Capital Gain computed after substituting indexed cost of acquisition in place of the cost of acquisition. The benefit of indexation will, however, not be available to specified Offshore Fund which are 10% plus applicable surcharge and education cess at the rate of 3% on the amount of tax and surcharge in terms of section 115AB of the Act. The benefit of indexation will, also, not be available to Foreign Institutional Investors who are taxed under section 115AD of the 10% plus applicable surcharge and education cess at the rate of 3% on the amount of tax and surcharge. The income by way of long term capital gains of a company would be taken into account in computing the book profits and Minimum Alternate Tax payable, if any, under Section 115JB of the Act (irrespective of whether or not it is exempt under Section 10(38) of the Act). In case where the taxable income as reduced by Long-term Capital Gains of a resident individual and Hindu Undivided family is below the taxable limit, the Long-term Capital gain will be reduced to the extent of such shortfall and only the balance Long-term Capital Gain is chargeable to Income-tax. The following deductions are available from Long-term Capital Gains arising on sale of Mutual Fund units, if the sale proceeds are invested in eligible avenues: Section 54 EC Section 54F Eligible persons All assesses Individual and HUFs Asset to be Specified Bonds of Residential house purchased to National Highways property claim exemption Authority of India and Rural Electrification Corporation Limited (cap of Rs. fifty lakhs in a financial year) Time-limit for 6 months Purchase: 1 year purchase from backward / 2 years date of sale of forward & MF units Construction: 3 years forward Amount Exempt Investment in the new Capital gains proportionate asset or capital gain to the investment made whichever is lower from the sale proceeds (subject to other conditions of owning / purchasing residential house mentioned in the section) Lock-in period 3 years 3 years The investment under section 54EC on account of which exemption has been claimed from long-term capital gains, will not be available for deduction under section 80C of the Act. In case of Equity Oriented Fund including ELSS Units of Equity Oriented fund including ELSS being subjected to STT. Long Term capital Gains arising from transfer of such units are exempt under section 10(38) of the Act. The mutual fund would recover STT from the unit holder as per the applicable rates. Short-term Capital Gain In case of Other than Equity Oriented Fund, including Money Market Mutual Fund or a Liquid Fund Short term capital gains arising from the transfer of units of funds other than equity oriented scheme would be chargeable to tax as under: Short term capital gains are taxed at the normal rates applicable to each unitholder. In case where the taxable income as reduced by Short-term Capital Gains of a resident individual and Hindu Undivided family is below the taxable limit, the Short-term Capital gain will be reduced to the extent of such shortfall and only the balance Short-term Capital Gain is chargeable to Income-tax. In case of Equity Oriented Fund Short Term Capital Gains arising from transfer of units of an Equity Oriented scheme (as defined u/s 115T of the Income Tax Act, 1961), being subjected to STT would be charged to tax u/s 111-A of the Income Tax Act, 15% (plus applicable surcharge, education cess and secondary and higher education cess). The mutual fund would recover STT from the unit holder at the applicable rates when the units are re-purchased by the mutual fund/ redeemed by the investor. In case where the taxable income as reduced by Short-term Capital Gains of a resident individual and Hindu Undivided family is below the taxable limit, the Short-term Capital Gain will be reduced to the extent of such shortfall and only the balance Short-term Capital Gain is chargeable to Income-tax. Deduction of income tax at Source From Capital Gains Resident Unit holders No income tax is required to be deducted at source from capital gains arising on transfer of units by resident unit holders. Non-Resident unit holders In case of Other than Equity Oriented Fund (Other than Offshore Fund) Income-tax is required to be deducted at source from the capital gains under section 195 of the Act at the applicable rates. Under the Act, the following rates have been prescribed for deduction of tax at source from capital gains: On income by way of long-term capital 20% (plus surcharge and education cess, if applicable) On income by way of short-term capital gains at normal rates as applicable under Business Income. In the case of an assessee of a country with which a DTAA is in force, the tax should be withheld as per provisions in the Act or as per the provisions in the DTAA which ever is more beneficial to the non-resident holder. However, such a non-resident unit holder will be required to provide appropriate documents to the Fund, to be entitled to a beneficial rate under such DTAA. Offshore Fund Under Section 196B of the Act, tax shall be deducted at source from the long term capital 10% plus applicable surcharge, education cess and secondary and higher education cess at the rate of 3% on the amount of tax and surcharge. Income-tax is required to be deducted at source from the short-term capital gains under section 195 of the Act at the applicable rates. In the case of an assessee of a country with which a DTAA is in force, the tax should be withheld as per the provisions of the Act or the provisions in the DTAA which ever is more beneficial to the assessee. However, the Unit holder will be required to provide appropriate documents to the Fund, to be entitled to a beneficial rate under such DTAA. In case of Equity Oriented Fund (including Offshore Fund) Income-tax is required to be deducted at source from the capital gains under section 195 of the Act at the applicable rates. In the case of an assessee of a country with which a DTAA is in force, the tax should be withheld as per provisions in the Act or as per the provisions in the DTAA which ever is more beneficial to the non-resident holder. However, such a non-resident unit holder will be required to provide appropriate documents to the Fund, to be entitled to a beneficial rate under such DTAA. Foreign Institutional Investors As per the provisions of section 196D of the Act, no deduction of tax shall be made from any income, by way of capital gains arising from the transfer of securities referred to in section 115AD, payable to a Foreign Institutional Investor. Default in furnishing the PAN The Finance Bill (No.2), 2009 has proposed an amendment, where the 21

73 deductee is required to mandatorily furnish his PAN to the deductor failing which the deductor shall deduct tax at source at higher of the following rates: 1. the rate prescribed in the Act; 2. at the rate in force i.e., the rate mentioned in the Finance Act; or 3. at the rate of 20%. The amendment is effective from April 1, Dividend Stripping As per Section 94(7) of the Act, loss arising on sale of units, which are bought within 3 months of the record date and sold within 9 months after the record date, shall be ignored for the purpose of computing income chargeable to tax to the extent of exempt income received or receivable on such Units. Bonus Stripping As per Section 94 (8) of the Act, units purchased within a period of 3 months prior to record date of entitlement of bonus and sold within a period of 9 months after such date, the loss arising on transfer of original units shall be ignored for the purpose of computing the income chargeable to tax. The amount of loss so ignored shall be deemed to be the cost of purchase / acquisition of the bonus units. III. Religious and Charitable Trust Investments in Units of the Mutual Fund will rank as an eligible form of investment under section 11(5) of the Act read with Rule 17C of the Income tax Rules, 1962 for Religious and Charitable Trust. IV. Wealth-tax Units held under the Scheme of the Fund are not treated as assets within the meaning of section 2(EA) of the Wealth-tax Act, 1957 and are, therefore, not liable to Wealth-tax. V. Gift-tax The Gift -Tax Act, 1958 has been repealed since October 1, Gift of units of Mutual fund units would be subject to income-tax in the hands of the donor. The Finance (No.2) Bill, 2009 has proposed an amendment to section 56(2) and section 2(24) treating the receipts of securities, fair market value of which exceeds fifty thousand rupees, without consideration or without adequate consideration as income in the hands of individuals / HUFs. Further the amendment shall not apply to any units received by the donee - (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer or donor, as the case may be; or (e) from any local authority as defined in the Explanation to clause (20) of section 10 of the Act; or (f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10 of the Act; or (g) from any trust or institution registered under section 12AA of the Act. Relative shall mean: (i) spouse of the individual; (ii) brother or sister of the individual; (iii) brother or sister of the spouse of the individual; (iv) brother or sister of either of the parents of the individual; (v) any lineal ascendant or descendant of the individual; (vi) any lineal ascendant or descendant of the spouse of the individual; (vii) spouse of the person referred to in clauses (ii) to (vi);] B. LEGAL INFORMATION MODE OF HOLDING The mode of holding may be single, joint or either/anyone or survivor. When units are held singly, all notices, correspondences, distributions, redemptions, etc would be sent to the single holder. Where Units are jointly held, the person first-named in the Application Form will receive all notices and correspondences with respect to the Account, as well as any distributions through dividends, redemptions or otherwise. Such person shall hold the voting right, if any, associated with the Units. However, all documentation/ purchase applications/redemption requests/enrollment forms shall necessarily be signed by all the holders. All payments and settlements, etc made to such first named holder shall be a valid discharge by the Fund and the liability of the Mutual Fund in this regard shall be only to the first-named holder. When Units are held as either/anyone or survivor, the person first-named in the Application Form will receive all notices and correspondences with respect to the Account, as well as any distributions through dividends, redemptions or otherwise. Any one of the Joint holders (in case of either/ anyone or survivor) shall hold the voting right, if any, associated with the Units and all documentation/purchase applications/redemption requests/ enrolment forms may be signed by any one of the joint holders (in case of either/anyone or survivor) and the Mutual Fund will act on the instructions of the first holder/anyone of the joint account holders. However under all the cases ( joint or either/anyone or survivor and without percentage allocation of investment amongst joint holders), the Fund shall recognise the first named joint holder as the unit holder and all payments and settlements, etc. made to such first-named holder shall be a valid discharge by the Fund and the Fund shall not be liable to any other joint applicants in this regard. In case the joint holder/s want to nominate nominees, all joint-holders should jointly indicate the nominees. NOMINATION FACILITY If an application is made in the name of a single individual holder or jointly not exceeding three individuals (under any mode of holding) the unitholders can request a Nomination Form to nominate beneficiary(s)/successor(s) (upto three) to receive the Units upon his/her/their death, to the extent provided in the Regulations. Unitholders can nominate individuals not exceeding three (jointly) as beneficiary(s)/successor(s) to receive the units either on first holder basis or in a particular percentage allocation upon his/her/their death. Notwithstanding anything contained in any other law for the time being in force or in any disposition, whether testamentary or otherwise, in respect of such units of the Scheme, where a nomination made in the prescribed manner purports to confer on any person(s) the right to vest the units of the scheme, the nominee(s) shall, on the death of the unitholders (single holder or all the joint holders) of the scheme become entitled to all the rights in the units of the Scheme (as an agent & trustee) to the exclusion of all other persons, unless the nomination is varied or cancelled in the prescribed manner. In case of 3 joint nominee(s) without any percentage allocation the first named nominee alone has the right to receive the amount due in respect of units in the event of death of the unitholder(s). In case of 3 joint nominee(s) with a particular percentage allocation, all payouts and settlements would be made to all successors in the particular percentage as stated by the unitholder(s). If no percentage is stated for allocation amongst nominees and if the first named nominee predeceases the unitholder(s) and the unitholder(s) has/have not cancelled or substituted the nomination, second named nominee shall be entitled to receive the amount due in respect of the units of the deceased unitholder(s). However, the nomination will cease to be valid on units repurchased/ by the original unitholder in full or being transferred by operation of law or upon enforecement of a pledge/charge. All payments and settlements made to such nominee(s) (as agent & trustee) and a receipt thereof shall be a valid discharge by the Fund. Unitholders being either parent or lawful guardian on behalf of a minor and power of attorney holder of an eligible institution, societies, Funds, bodies corporate, partnership firms and HUF shall have no right to make any nomination. Nomination in favor of Nonresidents will be governed by the rules formulated by Reserve Bank of India from time to time. Nomination can also be made for units which are pledged and offered as security in favour of any entity/body for any purpose but only after approval / no objection clearance from such entity/body. Notwithstanding anything contained in any other law for the time being in force or in disposition, whether testamentary or otherwise, in respect of such pledge units of the scheme, where a nomination made in the prescribed manner purports to confer on any person(s) the right to vest the pledged units of the scheme, the nominee(s) shall, on the death of the unitholder(s) (single holder or all the joint holders) of the scheme become entitled to all the rights in the pledged units of the scheme to the exclusion of all other persons except the entity/body in whose favour the units are pledged by way of lieu, unless the nomination is cancelled or varied. The provisions for nomination with regard to Mutual Funds would be as per Section 56 and Section 69 (regarding the right of the beneficiary to transfer possession) of the Indian Trust Act, 1882 since the Mutual Fund is formed as a Trust under the said Act. However, acceptance of such nomination/ appointment of beneficiary would be at the entire discretion of the Fund taking into consideration the provisions of the Indian Trust Act and the Mutual Fund assumes no responsibility therefor, and the unitholder(s) would be liable for the loss resulting from a fraudulent nomination/appointment of beneficiary based on the unitholder(s) (single holder or joint-holders) instructions, that the Fund reasonably believed as genuine. By provision of this facility the AMC is not in any way attempting to grant any rights other than those granted by law to the nominee. A nomination in respect of the Units does not create an interest in the property after the death of the Unitholder. The nominee shall receive the Units only as an agent and trustee for the legal heirs or legatees as the case may be. It is hereby clarified that the nominees under the nomination facility provided herein shall not necessarily acquire any title or beneficial interest in the property by virtue of 22

74 this nomination and the transmission of units would normally be governed as per succession certificate/probate of the will. The nomination can be made only by individuals applying for / holding units on their own behalf singly or jointly. Non-individuals including society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family, holder of Power of Attorney cannot nominate. If the units are held jointly, all joint holders will sign the nomination form. A minor can be nominated and in that event, the name and address of the guardian of the minor nominee shall be provided by the unit holder. Nomination can also be in favour of the Central Government, State Government, a local authority, any person designated by virtue of his office or a religious or charitable trust. The Nominee shall not be a trust other than religious or charitable trust, society, body corporate, partnership firm, Karta of Hindu Undivided Family or a Power of Attorney holder. A non-resident Indian can be a Nominee subject to the exchange controls in force, from time to time. Nomination in respect of the units stands rescinded upon the transfer of units. Transfer of units in favour of a Nominee shall be valid discharge by the asset management company against the legal heir. The cancellation of nomination can be made only by those individuals who hold units on their own behalf singly or jointly and who made the original nomination. On cancellation of the nomination, the nomination shall stand rescinded and the asset management company shall not be under any obligation to transfer the units in favour of the Nominee. PLEDGE OF UNITS In conformity with the guidelines and notification issued by SEBI/Government of India/any other regulatory body from time to time and/or any statutory modification or re-enactment thereof, the units under the Scheme may be offered as security by way of a pledge/charge in favor of scheduled banks, financial institutions, NBFC, or any other body. The AMC and/or the Registrar will note and record such pledged units. Appropriate documentation has been drafted for this purpose and is available on request. However, disbursement of such loans will be at the entire discretion of the bank/financial institution/nbfc, any other regulatory body concerned and the Mutual Fund assumes no responsibility thereof. Unclaimed Distribution Amount As per SEBI guidelines Ref: MFD/CIR/9/120/2000 dated November 24, 2000, unclaimed redemption and dividend amounts shall be deployed by the Fund in call money market or money market instruments only and the investors who claim these amounts during a period of three years from the due date shall be paid at the prevailing Net Asset Value. After a period of three years, this amount can be transferred to a pool account and the investors can claim the amount at NAV prevailing at the end of the third year. The income earned on such amount can be used for the purpose of investor education. The AMC shall make continuous efforts to remind the investors to take their unclaimed amounts. Further, the investment management fee charged by the AMC for managing unclaimed amounts shall not exceed 50 basis points. Scheme Amendments The AMC may add to or otherwise amend either all or any of the terms of the Scheme, by duly complying with the guidelines of and notifications issued by SEBI/GOI/any other regulatory body, that may be issued from time to time subject to the prior approval of SEBI, wherever required. Till the time the Scheme Information Document is revised and reprinted, an addendum giving details of each of the changes shall be attached to Scheme Information Document. The addendum shall be circulated to all the distributors/brokers so that the same can be attached to all Scheme Information Document already in stock. Further, arrangements will be made to provide changes in the Scheme Information Document in the form of a notice/any other manner in/at all the investor service centers/distributors/brokers office. Prevention of Money Laundering Prevention of Money Laundering Act, 2002 (hereinafter referred o as Act ) came into effect from July 1, 2005 vide Notification No. GSR 436(E) dated July 1, 2005 issued by Department of Revenue, Ministry of Finance, Government of India. Further, SEBI vide its circular reference number ISD/ CIR/RR/AML/1/06 dated January 18, 2006 mandated that all intermediaries including Mutual Funds should formulate and implement a proper policy framework as per the guidelines on anti money laundering measures and also to adopt a Know Your Customer (KYC) policy. The intermediaries may, according to their requirements specify additional disclosures to be made by clients for the purpose of identifying, monitoring and reporting incidents of money laundering and suspicious transactions undertaken by clients. SEBI also issued another circular reference no. ISD/CIR/RR/AML/2/06 dated March 20, 2006 advising all intermediaries to take necessary steps to ensure compliance with the requirement of section 12 of the Act inter-alia maintenance and preservation of records and reporting of information relating to cash and suspicious transactions to Financial Intelligence Unit-India (FIU- IND), New Delhi. The investor(s) should ensure that the amount invested in the scheme is through legitimate sources only and does not involve and is not designated for the purpose of any contravention or evasion of the provisions of the Income Tax Act, Prevention of Money Laundering Act, Prevention of Corruption Act and / or any other applicable law in force and also any laws enacted by the Government of India from time to time or any rules, regulations, notifications or directions issued thereunder. To ensure appropriate identification of the investor(s) under its KYC policy and with a view to monitor transactions for the prevention of money laundering, Principal Mutual Fund reserves the right to seek information, record investor s telephonic calls and / or obtain and retain documentation for establishing the identity of the investor, proof of residence, source of funds, etc. It may re-verify identity and obtain any incomplete or additional information for this purpose. The investor(s) and their attorney, if any, shall produce reliable, independent source documents such as photographs, certified copies of ration card/ passport/ driving license/pan card, etc. and/or such documents or produce such information as may be required from time to time for verification of the identity, residential address and financial information of the investor(s) by the AMC/Mutual Fund. If the investor(s) or the person making payment on behalf of the investor(s), refuses / fails to provide the required documents/ information within the period specified in the communication(s) sent by the AMC to the investor(s) then the AMC, after applying appropriate due diligence measures, believes that the transaction is suspicious in nature within the purview of the Act and SEBI circulars issued from time to time and/or on account of deficiencies in the documentation, shall have absolute discretion to report suspicious transactions to FIU-IND and / or to freeze the folios of the investor(s), reject any application(s) / allotment of units and effect mandatory redemption of unit holdings of the investor(s) at the applicable NAV subject to payment of exit load, if any, in terms of the said communication sent by the AMC to the investor(s) in this regard. The KYC documentation shall also be mandatorily complied with by the holders entering the Register of Members by virtue of operation of law e.g. transmission, etc. The Mutual Fund, AMC, Principal Trustee Company Pvt. Limited and their Directors, employees and agents shall not be liable in any manner for any claims arising whatsoever on account of freezing the folios / rejection of any application / allotment of units or mandatory redemption of units due to non-compliance with the provisions of the Act, SEBI circular(s) and KYC policy and / or where the AMC believes that transaction is suspicious in nature within the purview of the Act and SEBI circular(s) and reporting the same to FIU-IND. Investors should note that it is mandatory for all applications for subscription of value of Rs.50,000/- and above to quote the KYC Compliance Status of each applicant (guardian in case of minor) in the application for subscription and attach proof of KYC Compliance viz. KYC Acknowledgement Letter / Printout of KYC Compliance Status downloaded from CVL website ( using the PAN Number. TRANSFER The Mutual Fund will be repurchasing units and hence the transfer facility is found redundant. However, if a transferee becomes a holder of the Units by operation of law or upon enforcement of a pledge, then the AMC shall, subject to production of such evidence and submission of such documents, which in their opinion is sufficient, proceed to effect the transfer, if the intended transferee is otherwise eligible to hold the Units. Any addition / deletion of name from the folio of the Unit holder is deemed as transfer of Units. In view of the same, additions / deletions of names will not be allowed under any folio of the Scheme. The said provisions in respect of deletion of names will not be applicable in case of death of a Unit holder (in respect of joint holdings) as this is treated as transmission of Units and not transfer. TRANSMISSION The scheme s units can be transmitted after completion of necessary formalities to the entitled person(s) in the event of death of unitholder. All the restrictions and limitations specified herein including those relating to lock-in period and creation of charge, will be binding also on the successors, legal heirs, pledgee or assigns of the investor. LISTING: In case of a close ended Scheme listed on the Stock Exchange(s), the procedure for transfer of Units will be similar to that for listed equity share. The trading will be as per settlement cycle. Buying or selling of units by investor can be made from the secondary market on National Stock Exchange at market prices through demat mode. DURATION OF THE SCHEME AND WINDING UP The Closed ended Scheme will come to an end as per specified period/duration of the Scheme. On maturity of the scheme, the outstanding units shall be redeemed and proceeds will be paid to the unitholders unless rolled over as per SEBI guidelines. In case the due date of maturity falls on a non-business day, the maturity date will be deemed to be the immediately following business day. The open ended schemes have a perpetual life. The AMC, the Fund and Trustees reserve the right to make such changes/alterations to the Scheme (including charging of fees and expenses) to the extent permitted by the SEBI Regulations. 23

75 However, in terms of the SEBI Regulations, the Scheme may be wound up: a) On the happening of any event which, in the opinion of the Trustees, requires the Scheme to be wound up; or b) Seventy five percent of the unitholders of the Scheme(s) pass a resolution that the Scheme be wound up; or c) SEBI directs the Scheme to be wound up in the interest of the unitholders. Where a Scheme is to be wound up pursuant to the above/sebi Regulations, the Trustees shall give notice of the circumstances leading to the winding up of the Scheme to SEBI; and in two daily newspapers having circulation all over India and also in a vernacular newspaper circulating at the place where the Mutual Fund is established. Effect of Winding Up On and from the date of the publication of the notice as stated above, the Trustee or the AMC as the case maybe, shall - - Cease to carry on any business activities in respect of the Scheme so wound up; - Cease to create or cancel units in the Scheme; - Cease to issue or redeem units in the Scheme. Procedure and Manner of Winding Up In the event of the Scheme being wound up, the AMC shall proceed as follows: - The Trustee shall call a meeting of the unitholders to consider and pass necessary resolutions by simple majority of unitholders present and voting at the meeting for authorising the AMC or any other person/agency to take the steps for winding up of the Scheme - The AMC or the person authorised as above shall dispose of the assets of the Scheme(s) concerned in the best interests of the unitholders of that Scheme. - The proceeds of the sale made in pursuance of the above, shall in the first instance be utilised towards discharge of such liabilities as are properly due under the Scheme and after making appropriate provision for meeting the expenses connected with such winding up, the balance shall be paid to the unitholders in proportion to their respective interests in the assets of the Scheme as on the date when the decision for the winding up was taken. - On the completion of the winding up, the AMC shall forward to SEBI and the unitholders, a report on the winding up containing particulars such as circumstances leading to the winding up, the steps taken for disposal of assets of the Scheme before winding up, expenses of the Scheme for winding up, net assets available for distribution to the unitholders and a certificate from the Auditors of the Fund. Notwithstanding anything contained herein, the application of the provisions of SEBI Regulations in respect of disclosures of half-yearly reports and annual reports shall continue to be applicable until the winding up is completed or the Scheme ceases to exist. After the receipt of report referred to in the above, if SEBI is satisfied that all measures for winding up of the Scheme have been completed, the Scheme shall cease to exist. C. General Information UNDERWRITING The Scheme may also undertake underwriting and sub-underwriting activities in order to augment its income, after complying with the approval and compliance process specified in the SEBI (Underwriters) Rules and Regulations, 1993 and/or Reserve Bank of India and further subject to the following norms: The capital adequacy of the Mutual Fund for the purposes of SEBI (Underwriters) Rules and Regulations, 1993 shall be the net assets of the Scheme. The total underwriting obligation of the Scheme shall not exceed 50% of the total net asset value of the Scheme, or such limit as may be stipulated by the AMC and/or Trustees from time to time. The decision to take up any underwriting commitment shall be made as if the Scheme is actually investing in that particular security. As such, all investment restrictions and prudential guidelines relating to investments, individually and as far as may be applicable, apply to underwriting commitments, which may be undertaken under the Scheme. reconstruction or exchange, or at any repayment or redemption or other reason outside the control of the Fund, any such limits would thereby be breached. If these limits are exceeded for reasons beyond its control, AMC shall adopt as a priority objective the remedying of that situation, taking due account of the interests of the unitholders. As such all underwriting and sub-underwriting activities of the Fund will be undertaken in accordance with SEBI (Underwriters) Rules and Regulations, 1993, and the norms as laid down by SEBI Circular dated June 30, 1994, and as amended from time to time. BORROWING BY THE MUTUAL FUND In terms of Regulations as presently prevailing, a Scheme shall have the power to borrow up to 20% of its net assets outstanding as on the date of borrowing for a period of up to six months or as may be permitted by the prevailing regulations. This borrowing shall be used only for the purpose of paying repurchase proceeds or payment of interest or dividend to the unitholders. The Mutual Fund may tie up with various banks/institutions for the above mentioned facility for which it may have to give a guarantee or the delivery of the shares/other securities held by it as collateral. The limit of 20% may be revised by the Fund and to the extent the Regulations hereafter permit. Borrowing by the Fund on account of the Scheme will tend to increase the impact of investment gains and losses on the NAV of the Scheme. The borrowing limitations/parameters (as expressed/limited to the net assets/ NAV/Capital) shall in the ordinary course apply as of the date of the most recent transaction or commitment to borrow and changes do not have to effected merely because, owing to appreciation or depreciation in value or at any repayment or repurchase or other reason beyond the control of the Fund, any such limit would thereby be breached. If the limit is exceeded for reasons beyond its control, the AMC shall adopt as a priority objective the remedying of that situation, taking due account of the interests of the unitholders. SERVICES TO UNITHOLDERS Investor Services It is the endeavour of the Fund to provide consistently high quality service to its unitholders. This would encompass all interactions by the unitholders with the Fund. The Fund will strive to upgrade the quality of service through implementation of appropriate technology and through ensuring quality consciousness amongst its service personnel and agencies associated with it. The Fund will endeavour to provide a high degree of convenience for the unitholders dealing with it. The Fund will strive to constantly increase this level of convenience. Facilitating Enquiries and Transactions a) It will be the endeavour of the Fund to extensively use technological tools in rendering unitholder service. The Fund will endeavour to send the Account Statements (on account of financial and/or non-financial transactions) e.g., allotment of units in lieu of distribution of periodic dividend, besides periodic information etc by way of , which is speedier and economical. Other financial transactions (subscription of units) can also be conveyed to the unitholders by way of , wherever requested, subject to such safeguards the Fund may deem necessary. b) Investor Service centres in select cities The AMC shall provide unitholder service through its centers. Unitholders enquiries and transactions during business hours will be entertained at the AMC s centres at the addresses listed at the end of the Scheme Information Document. Unitholders/investors can also write/ /contact them at the AMC s corporate office at Mumbai. In addition, unitholders may also contact the AMC at its corporate office for any additional service. The AMC will, in course of time, be setting up its own service centres at other major locations to handle unitholder enquiries and transactions, besides providing a high degree of convenience to the unitholders. c) Meeting in Person An Investor Relations personnel of the AMC will be available every business day between normal official hours of the AMC for personal meeting with any unitholder. The purpose of this facility is to attend to any query related to investment needs of a unitholder, resolve any unitholder service related queries through the Registrar and to provide such other services that the unitholder desires. These underwriting norms/parameters (as expressed/linked to the net asset/ net asset value/capital) shall in the ordinary course apply as at the date of the most recent transaction of commitment to underwrite, and changes do not have to be effected merely because, owing to appreciation or depreciation in value or by reason of the receipt of any rights, bonuses or benefits in the nature of capital or of any scheme of arrangement or for amalgamation, 24

76 d) Service Standards The Fund will follow the below mentioned statutory time schedules on an ongoing basis provided the unitholder furnishes the Mutual Fund with all the required correct and complete supporting legal /other documents. SERVICE Repurchase Cheque Mailing Purchase intimation Updated Account Statement on a/c of allotment of units in lieu of dividend Address Change Ownership Transmission Despatch of Dividend Proceeds TIME SCHEDULE Within 10 Business Days Within 30 Days Within 30 Days Within 10 Business Days Within 30 Days Within 30 Days The Fund shall endeavour to meet the service standard well within the above time schedule The above mentioned time schedule does not include postal transit time. SIGNATURE VERIFICATION/INDEMNITY Certain transactions may require that the unitholder s signature be verified by a bank manager, or a notary public or a magistrate or any other party acceptable to the Fund for the following:- - To change ownership of a folio/account in case of transmission. - To add telephone transaction services or other privileges that would be added from time to time. - To change bank account information designated under an existing plan. - To have a redemption cheque mailed to an address other than the addresses on the folio/account or to the address on the folio/account if it has been changed within the preceding month. - To issue duplicate unit certificate. - To excercise redemption request or introduce nomination. The above is an indication of transactions, that may require signature verification that the AMC may insist upon. REGISTER OF UNITHOLDERS A register of unitholders shall be maintained electronically or in any other mode at the office of the Registrar and Transfer Agent and also at such other places as the AMC may decide and such register shall be conclusive evidence of ownership. The register may be closed for such time and for such period as the AMC may determine. In the event of closure of the register for a period or periods, appropriate notice shall be given by way of publication in newspaper(s) or other media. Requests for fresh/ongoing sales, repurchase, switching will not be accepted during the period the register is closed and no NAV would be determined/declared. SECURITIES LENDING AND BORROWING The Fund may engage in short selling of securities in accordance with the framework relating to short selling and securities lending and borrowing specified by the SEBI. Inter-Scheme Transfer of Investments: Transfers of investments from one scheme to another scheme in the same mutual fund shall be allowed only if - (a) such transfers are done at the prevailing market price for quoted instruments on spot basis. Explanation : spot basis shall have same meaning as specified by stock exchange for spot transactions. (b) the securities so transferred shall be in conformity with the investment objective of the scheme to which such transfer has been made. 25

77 ASSOCIATE TRANSACTIONS : I. UNDERWRITING OBLIGATION UNDERTAKEN / SUBSCRIPTION BY PRINCIPAL MUTUAL FUND IN ISSUES OF ASSOCIATES During last three fiscal years i.e , & the Fund has not undertaken any underwriting obligations with respect to issues of associate companies and have not subscribed to the issues lead managed by associate companies. II. DETAILS OF TRANSACTIONS WITH ASSOCIATES IN LAST THREE FISCAL YEARS : A. Transactions with Associates acting as Brokers IDBI CAPITAL MARKET SERVICES LIMITED (ICMSL)* being a registered broker, its services were utilized for investing in securities. The details of brokerage paid to ICMSL up to the date it was an associate is as below : (All volume figures in Rs lacs and brokerage is a % of volume) Period Principal Principal Principal Equity Fund$ Tax Savings Fund Child Benefit Fund Volume Brokerage% Volume Brokerage% Volume Brokerage% 1/4/2006 to 15/3/ Period Principal Principal Principal Index Fund Monthly Income Plan Monthly Income Plan MIP Plus Volume Brokerage% Volume Brokerage% Volume Brokerage% 1/4/2006 to 15/3/ Period Principal Principal Principal Growth Fund^ Balanced Fund Personal Tax Saver Fund Volume Brokerage% Volume Brokerage% Volume Brokerage% 1/4/2006 to 15/3/ Period Principal Principal Principal Resurgent India Equity Fund Dividend Yield Fund$ Focused Advantage Fund^ Volume Brokerage% Volume Brokerage% Volume Brokerage% 1/4/2006 to 15/3/ Period Principal Principal Principal Junior Cap Fund Infrastructure & Services Pnb Fixed Duration Fund - Industries Fund# 3 Year Plan - Series I Volume Brokerage% Volume Brokerage% Volume Brokerage% 1/4/2006 to 15/3/ Note : * Ceased to be Associate w.e.f March 15, $ Effective August 4, 2006, Principal Equity Fund has merged with Principal Dividend Yield Fund. Hence the data for Principal Equity Fund regarding payment to IDBI Capital Market Services Limited is from period April 1, 2006 to August 4, ^ Effective November 3, 2007, Principal Focussed Advantage Fund has merged with Principal Growth Fund. # Effective August 25, 2008, Principal Infrastructure and Services Industries Fund has been restructured and renamed as Principal Services Industries Fund. B. Transactions with Associates for Distribution of Mutual Fund Units : The AMC enters into arrangements with various distributors for distribution of mutual fund units. In this connection, the commission paid for amount mobilized by Distributors (for last three fiscal years) who are / were associates of AMC is detailed below : (Rs. in Lacs) Name of the Associate 1/4/2006 to 1/4/2007 to 1/4/2008 to 31/3/ /3/ /3/2009 Punjab National bank PNB Gilts Limited Pnb Principal Financial Planners Private Limited Quantum Information Services Limited* Corporation Bank@ IDBI Capital Market Services Limited* * Ceased to be Associate w.e.f March 15, Ceased to be Associate w.e.f. December 18, 2006 C. Transactions with Associates for availing Investor Communication Services: AMC had availed the services of Principal Consulting (India) Private Ltd., for investor communication services. In this connection the fees paid (for last three fiscal years) is as follows : Financial Year Fees Paid (Rs. In lacs) D. Transaction with Associates for Banking and Other Services Particulars Name of the Associate Bank charges Punjab National Bank Interest Paid on borrowings Punjab National Bank Note : The entire cost on the borrowings during the financial year has been borne by Principal Pnb Asset Management Company Private Limited (investment Manager to Principal Mutual Fund) 26

78 III. POLICY FOR INVESTMENT IN ASSOCIATES Such investments if any made, will be done on a pure commercial consideration for the benefit and interest of PMF and in accordance with the SEBI (Mutual Funds) Regulations, 1996, and any other regulations in this regard. The Scheme shall not make investment in : any unlisted security of an Associate or Group Company of the Sponsor any security issued by way of private placement by an Associate or Group Company of the Sponsor the listed securities of Group Companies of the Sponsor which is in excess of 25% of the net assets of the Scheme. Investment in Associate Companies as on 31st March, 2007 AUM in Lacs as on March 31, 2007: 928, in Rs. Lacs Scheme Larsen and % to AUM Punjab % to AUM Shriram Transport % to AUM Total % to AUM Tubro as on National as on Finance Co. Ltd. as on as on Ltd. 31-Mar-07 Bank 31-Mar Mar Mar-07 FDF FMP FMP-35 4, , FMP-38 1, , FOCUS FR-FMP FR-SMP 2, , , GROWTH INDEX INFRA LCAP LIQUID 2, , , PBF PDYF RIF Grand Total 7, , , , Investment in Associate Companies as on 31st March, 2008 AUM in Lacs as on March 31, 2008: 1,178, in Rs. Lacs Scheme Larsen and % to AUM Punjab % to AUM Shriram Transport % to AUM Total % to AUM Tubro as on National as on Finance Co. Ltd. as on as on Ltd. 31-Mar-08 Bank 31-Mar Mar Mar-08 FR-FMP , FR-SMP 1, , GROWTH INCOME 2, , INDEX LIQUID MIPPL PTSF , , RIF STP FMP-36 2, , INFRA LCAP 1, , Investment in Associate Companies as on 31st March, 2009 AUM in Lacs as on March 31, 2009: 543, in Rs. Lacs Scheme Larsen and % to AUM Punjab % to AUM Shriram Transport % to AUM Total % to AUM Tubro as on National as on Finance Co. Ltd. as on as on Ltd. 31-Mar-09 Bank 31-Mar Mar Mar-09 CHILD FR-FMP 2, , GROWTH INDEX LCAP MINCOM MIPPL PBF PEBF PTSF 1, , RIF TAX Grand Total 3, , ,

79 SCHEME CODE FDF FMP-34 FMP-35 FMP-38 FMP-36 FOCUS FR-FMP FR-SMP GROWTH INDEX INFRA LCAP LIQUID PBF PDYF RIF CHILD1 MINCOM MIPPL PEBF PTSF TAX96 INCOME STP SCHEME NAME Principal Pnb Fixed Duration Fund - 3 Year Plan Series I Principal Pnb Fixed Maturity Plan - 91 days - Series VII Principal Pnb Fixed Maturity Plan - 91 Days - Series VIII Principal Pnb Fixed Maturity Plan - 91 days - Series IX Principal Pnb Fixed Maturity Plan Days - Series III Principal Focussed Advantage Fund Principal Floating Rate Fund - Flexible Maturity Plan Principal Floating Rate Fund - Short Maturity Plan Principal Growth Fund Principal Index Fund Principal Services Industries Fund Principal Large Cap Fund Principal Cash Management Fund -Liquid Option Principal Balanced Fund Principal Dividend Yield Fund Principal Resurgent India Equity Fund Principal Child Benefit Fund Principal Monthly Income Plan Principal Monthly Income Plan-MIP Plus Principal Emerging Bluechip Fund Principal Personal Tax Saver Fund Principal Tax Saving Fund Principal Income Fund Principal Income Fund - Short Term Plan IV. INVESTMENT OF MORE THAN 25% OF FUNDS NET ASSETS IN ASSOCIATES None of the Schemes of the Fund has invested more than 25% of its Net Assets in the Associates. V. NAMES OF ASSOCIATES WITH WHICH FUND PROPOSES TO HAVE DEALINGS Under the normal circumstances, the Fund, may have dealing with and/or do transactions with or utilise the services of associates of sponsors/amc, which shall include associates as mentioned below : Sr. No. Name of the Associate 1 Punjab National Bank 2 PNB Gilts Limited 3 Principal Consulting (India) Private Limited 4 Pnb Principal Financial Planners Private Limited The details of payment made to Associates (if any) is also disclosed in the Unaudited Half Yearly Financial results and the Annual Accounts of the Scheme(s). Documents Available for Inspection The following documents will be available for inspection at the office of the Mutual Fund at Exchange Plaza, B Wing, 2 nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai during business hours on any day (excluding Saturdays, Sundays and public holidays): Memorandum and Articles of Association of the AMC Investment Management Agreement Trust Deed and amendments thereto, if any Mutual Fund Registration Certificate Agreement between the Mutual Fund and the Custodian Agreement with Registrar and Share Transfer Agents Consent of Auditors to act in the said capacity Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments from time to time thereto. Indian Trusts Act, Investor Grievances Redressal Mechanism Investors may contact the ISCs or the office of the AMC for any queries / clarifications. The Corporate Office of the AMC will follow up with the respective ISC to ensure timely redressal and prompt investor services. Ms. Kashmira Kalwachwala, Head - Customer Services can be contacted at Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai customer@principalindia.com Toll Free: Fax:

80 INVESTOR COMPLAINTS AND REDRESSAL The basic objective of the Fund is to set high standards with regard to unitholder servicing as stated in the earlier clauses. To achieve this end, the Fund has attempted to handle unitholder grievances efficiently and resolve any problems relating to its unitholders. Unitholder grievances are normally received at AMC s corporate office /Centres. The complaint/query history given as below: Particulars Principal Principal Principal Principal Principal Principal Principal Principal Principal Principal Equity Tax Savings Deposit Child Benefit Index Growth Balanced Income Cash Management Government Fund$ Fund Fund$ Fund Fund Fund Fund Fund Fund Securities Fund Direct 01/04/2006 to 31/03/2007 Received Redressed Pending as on 31/03/ /04/2007 to 31/03/2008 Received Redressed Pending as on 31/03/ /04/2008 to 31/03/2009 Received Redressed Pending as on 31/03/ /04/2009 to 31/07/2009 Received Redressed Pending as on 31/07/ Forwarded by SEBI 01/04/2006 to 31/03/2007 Received Redressed Pending as on 31/03/ /04/2007 to 31/03/2008 Received Redressed Pending as on 31/03/ /04/2008 to 31/03/2009 Received Redressed Pending as on 31/03/ /04/2009 to 31/07/2009 Received Redressed Pending as on 31/07/ Particulars Principal Principal Principal Principal Principal Principal Principal Principal Principal Principal Monthly Monthly Trust Benefit Global PNB Debt Personal Tax Resurgent Money Value Floating Rate Floating Rate Income Income Plan - Fund$ Opportunities Fund$ Saver Fund India Bond Fund$ Fund - Short Fund - Flexible Plan MIP Plus Fund Equity Fund Maturity Plan Maturity Plan Direct 01/04/2006 to 31/03/2007 Received Redressed Pending as on 31/03/ /04/2007 to 31/03/2008 Received Redressed Pending as on 31/03/ /04/2008 to 31/03/2009 Received Redressed Pending as on 31/03/ /04/2009 to 31/07/2009 Received Redressed Pending as on 31/07/ Forwarded by SEBI 01/04/2006 to 31/03/2007 Received Redressed Pending as on 31/03/ /04/2007 to 31/03/2008 Received Redressed Pending as on 31/03/ /04/2008 to 31/03/2009 Received Redressed Pending as on 31/03/ /04/2009 to 31/07/2009 Received Redressed Pending as on 31/07/

81 Particulars Principal Principal Principal Principal Principal Principal Pnb Principal Pnb Principal Pnb Dividend Yield Focussed Advantage Junior Cap Large Cap Services Industries Fixed Duration Fund - Fixed Maturity Plan - Fixed Maturity Plan - Fund Fund Fund ++ Fund ## Fund^ 3 Year Plan - Series I 91 days - Series VIII$ 385 days - Series III $ Direct 01/04/2006 to 31/03/2007 Received Redressed Pending as on 31/03/ /04/2007 to 31/03/2008 Received Redressed Pending as on 31/03/ /04/2008 to 31/03/2009 Received Redressed Pending as on 31/03/ /04/2009 to 31/07/2009 Received Redressed Pending as on 31/07/ Forwarded by SEBI 01/04/2006 to 31/03/2007 Received Redressed Pending as on 31/03/ /04/2007 to 31/03/2008 Received Redressed Pending as on 31/03/ /04/2008 to 31/03/2009 Received Redressed Pending as on 31/03/ /04/2009 to 31/07/2009 Received Redressed Pending as on 31/07/ Particulars Principal Pnb Long Principal Pnb Long Principal Principal Pnb Fixed Principal Pnb Fixed Principal Pnb Fixed Principal Pnb Fixed Principal Pnb Fixed Term Equity Fund - Term Equity Fund - Ultra Short Term Maturity Plan - Maturity Plan - Maturity Plan - Maturity Plan - Maturity Plan - 3 Year Plan - 3 Year Plan - Fund 385 days - 91 days - 91 days - 91 days days - Series I Series II Series IV$ Series XVI$ Series XII$ Series XVII$ Series I$ Direct 01/04/2006 to 31/03/2007 Received Redressed Pending as on 31/03/ /04/2007 to 31/03/2008 Received Redressed Pending as on 31/03/ /04/2008 to 31/03/2009 Received Redressed Pending as on 31/03/ /04/2009 to 31/07/2009 Received Redressed Pending as on 31/07/ Forwarded by SEBI 01/04/2006 to 31/03/2007 Received Redressed Pending as on 31/03/ /04/2007 to 31/03/2008 Received Redressed Pending as on 31/03/ /04/2008 to 31/03/2009 Received Redressed Pending as on 31/03/ /04/2009 to 31/07/2009 Received Redressed Pending as on 31/07/ The Scheme was launched on May 12, ## The Scheme was launched on September 23, ^ The Scheme was launched on January 9,

82 Particulars Principal Principal Principal Principal Principal Principal Principal Principal Fixed Maturity Fixed Maturity Fixed Maturity Fixed Maturity Fixed Maturity Plan - Emerging Fixed Maturity Fixed Maturity Plan - 30 days - Plan days - Plan - 91 days - Plan - 91 days - Plan - 91 days - Bluechip Fund Plan days - Plan days - Series III$ Series VII Series XVIII$ Series XIX$ Series XV$ Series VIII Series II Direct 01/04/2006 to 31/03/2007 Received Redressed Pending as on 31/03/ /04/2007 to 31/03/2008 Received Redressed Pending as on 31/03/ /04/2008 to 31/03/2009 Received Redressed Pending as on 31/03/ /04/2009 to 31/07/2009 Received Redressed Pending as on 31/07/ Forwarded by SEBI 01/04/2006 to 31/03/2007 Received Redressed Pending as on 31/03/ /04/2007 to 31/03/2008 Received Redressed Pending as on 31/03/ /04/2008 to 31/03/2009 Received Redressed Pending as on 31/03/ /04/2009 to 31/07/2009 Received Redressed Pending as on 31/07/ $ - Redeemed/Merged Schemes JURISDICTION Any dispute arising under each Scheme of Principal Mutual Fund shall be subject to the exclusive jurisdiction of the Courts in India. Notwithstanding anything contained in this Statement of Additional Information, the provisions of the SEBI (Mutual Funds) Regulations, 1996 and the guidelines thereunder shall be applicable. 31

83 Offices of AMC Identified as Official Point of Acceptance / Investor Service Centres Principal Pnb Asset Management Company Private Limited - Official Point of Acceptance: Mumbai: Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai Ahmedabad: 401, Broadway Business Centre, Opp. Samartheshwar Mahadev Temple, Law Garden Cross Road, Ellisbridge, Ahmedabad Ajmer: 55, Ajmer Tower, 1st Floor, Kuchehry Road, Ajmer, Rajasthan Allahabad: 43/1, Sardar Patel Marg, Civil Lines, Near Yatrik Hotel, Allahabad Amritsar: SCO 30-31,1st Floor Deep Complex, Court Road, Opp. Doaba Automobiles, Amritsar Asansol: Safe Savings, Street No.1, House No.2, Hindustan Park, Asansol Bangalore: Raheja Paramount, Unit No. 001 / 1, Gr. Floor, 138, Residency Road, Bangalore Bhubaneshwar: Gr. Floor, O.C.H.C Building, Near Ram Mandir, Janpath, Kharavel Nagar, Bhubaneswar Burdwan: Aykantik, 495, B.C. Road, Beside Proyozone, Burdwan Chandigarh: SCO , 2nd Floor, Sector-35 C, Chandigarh Chennai: 305, Challamal Complex, 3rd Floor, 11 Thiyagaraya Road, Chennai Cochin: 2nd Flr., Mayur Business Center, Pullepady Junction, Chittor Road, Cochin Coimbatore: No. 9, Gowtham Center Annexe, 1054, Avinashi Road, Coimbatore Durgapur: 5/42, Suhatta, 5th Floor, City Centre, Durgapur Goa*: C/o Advani Business Center, Neelkamal Arcade, CL -13, Atmaram Borkar Road, Panjim, Goa Guwahati: 4th Floor, Ganpati Enclave, Bora Service, G.S. Road, Guwahati Hyderabad: White House, 503, 5th Floor, Block No. 1, Begumpet, Hyderabad Indore: 406, City Center, 570, M.G. Road, Indore Jaipur: 305-B, 3rd Floor, Shyam Anukampa Complex, Ashok Marg, C-Scheme, Jaipur Jalandhar: C/o. Punjab National Bank, Nakodar Road, Near Jyoti Chowk, Jalandhar Jamshedpur: 109, Kamani Centre, 3rd Floor, Bistupur, Jamshedpur Jodhpur: Gang Towers, 1 st Floor, Upper Chopasani Road, Opp. Arora Motors, Jodhpur Kanpur: , Kan Chambers, Near Stock Exchange Building, 13/114 Civil Lines, Kanpur Kolkata: Block No. 503, SHUBHAM, 5th Floor, 1, Sarojini Naidu Sarani, Kolkata Lucknow: Sky Hi Chambers, S-205, 2nd Floor, 11/5, Park Road, Lucknow Ludhiana: 302, SCO-18, Opp. Ludhiana Stock Exchange, Feroze Gandhi Market, Ludhiana Mangalore*: Flat No. A, Gr. Floor, Anand Building, Opp. Petrol Pump, Near To HDFC Bank, Kadri, Mangalore Nagpur*: Block No.105, 1st Floor, Bhagwaghar Complex, Opposite Ajit Bakery, Dharampeth, Nagpur Nasik*: Dhanlakshmi Business Point, Cabin No. 14/15, 7 Sathye Baug, M.G. Road, Nasik New Delhi: Alps Building,1st Floor, 56 Janpath, New Delhi Patna: 610, Ashiana Hariniwas, Dak Bungalow Road, Patna Pune: 1st Floor, Shreenath Plaza, Dnyaneshwar Paduka Chowk, F. C. Road, Pune Raipur: Shop No , Lalganga Shopping Mall, G.E. Road, Raipur Rajkot: 315, Star Chambers, Harihar Chowk, Panchnath Road, Rajkot Ranchi: Shop No. 11, A C Market, G.E.L. Church Complex, Main Road, Ranchi Siliguri: Nanak Complex, 3rd Floor, Sevoke Road, Siliguri Surat: 206 Jolly Plaza, Athwagate, Surat Udaipur: 301, 3rd Floor, Madhav Tower, Opp. G. P. O., Chetak Circle, Madhuban, Udaipur Vadodara: 103, Paradise Complex, Sayajigunj, Vadodara Visakhapatnam: D.No , 1st Floor-3, Rednam Regency, Near Diomond Park, Dwarkanagar, Visakhapatnam *Note: These locations are not Official Point of Acceptance. Centres of Karvy Computershare Private Limited (R&T to Principal Mutual Fund) which have been identified as Official Point of Acceptance: Agra: Deepak Wasan Plaza, Behind Holiday Inn, Opp. Megdoot Furnitures, Sanjay Place, Agra Ahmedabad: , Shail Buildings, Opp. Madhusudhan House, Off. C. G. Road, Nr. Navrangpura, Telephone Exchange, Ahmedabad Ajmer: 1, 2nd Floor, Ajmer Tower, Kutchary Road, Ajmer Allahabad: RSA Towers, 2nd Floor, Above Sony TV Showroom, 57, S.P. Marg, Civil Lines, Allahabad Amritsar: 72-A, Taylor's Road, Aga Heritage Gandhi Ground, Amritsar Anand: F-6, Chitrangana Complex, Opp. Motikaka Chawl, V.V. Nagar, Anand Aurangabad: Shop No. 214/215, Tapadiya City Centre, Nirala Bazar, Aurangabad Bangalore: No. 51/25, 1st Floor, Surya Building, Ratna Avenue, Richmond Road, Bangalore Bareilly: 1st Floor, 165, Civil Lines, Opp. Hotel Bareilly Palace, Near Rly. Station Road, Bareilly Bhavnagar: Surabhi Mall, 301, 3rd Floor, Waghawadi Road, Bhavnagar Bhilai: No.138, New Civic Centre, Bhilai Bhopal: Kay Kay Business Centre, 133, Zone 1, M.P. Nagar, Bhopal Bhubaneshwar: Plot No- 104/105(P), Jaydev Vihar, Besides Hotel Pal Heights, Bhubaneswar Bokaro: B-1, 1st Floor, Near Sona Chandi Jewellers, City Centre, Sector-4, Bokaro Steel City, Bokaro Burdwan: 63, G.T. Road, Birhata, Halder Complex, 1st Floor, Burdwan Calicut: 2nd Floor, Sowbhagya Shoping Complex, Mavoor Road, Calicut Chandigarh: SCO , 1st Floor, Above HDFC Bank, Sector 35-B, Chandigarh Chennai: Flat No. F11, 1st Floor, Akshya Plaza, Erstwhile Harris Road, Opp. Chief City Metropolitan Court, # 108, Adhithanar Salai, Egmore, Chennai Cochin: Shop No. II, 2nd Floor, Jewel Arcade, (Above Oriental Insurance Ltd), Layam Road, Cochin Coimbatore: 29/1, 1st Floor, Chinthamani Nagar, Opp. Indian Overseas Bank, N.S.R. Road, Saibaba Colony, Coimbatore Cuttack: Dargha Bazar, Opp. Dargha Bazar Police Station, Buxibazar, Cuttack Dalhousie: 19, R.N. Mukherjee Road, 2nd Floor, Dalhousie, Kolkatta Dehradun: Kaulagarh Road, Near Sirmaur Marg, Above Reliance Webworld, Dehradun Dhanbad: 208, New Market, 2nd Floor, Katras Road, Bank More, Dhanbad Durgapur: Old Dutta Automobiles Building, 1st Floor, Nachan Road, Benachity, Durgapur Gorakhpur: Above V.I.P. House, Ajdacent A.D. Girls Inter College, Bank Road, Gorakpur Gurgaon: Shop No. 18, Gr. Floor, Sector-14, Opp. AKD Tower, Near Huda Office, Gurgaon Guwahati: 54 Sagarika Bhawan, R. G. Baruah Road, Guwahati Gwalior: Shindi Ki Chawani, Nadi Gate Pul, M.L.B. Road, Gwalior Hubli: 8 & 9, Upper Gr. Floor, C Block, Akshaya Park, Gokul Road, Hubli Hyderabad: Karvy Plaza, Avenue 4, Street No.1,Banjara Hills, Hyderabad Indore: LG - 3, Bombay Trade Centre, Lower Gr. Floor, Grand Hotel, Opp. Bombay Hospital, Scheme No. 54, Indore Jaipur: S-16 A, 3rd Floor, Land mark, Opposite Jaipur Club, Mahavir Marg, C-Scheme, Jaipur Jalandhar: Lower Gr. Floor, Office No. 3, Arora Prime Tower, Plot No : 28, G.T. Road, Jalandhar Jammu: 29 D/C, Near Service Selection Commission Office, Gandhi Nagar, Jammu Jamnagar: 108 Madhav Plaza, Opp. SBI Bank, Near Lal Bangalow, Jamnagar Jamshedpur: Kanchan Tower, 3rd Floor, Chhaganlal Sons, 3-S B Shop Area, Main Road, Bistupur, Jamshedpur Jodhpur: 203, Modi Arcade, Chupasni Road, Jodhpur Kanpur: 15/46, Opp. Muir Mills, Civil Lines, Kanpur Kolkata: 16, Jatin Bagchi Road, Kolkata Kolhapur: 610-A A.K. Vardhaman Chambers, 2nd Lane, Shahupuri, Kolhapur Kottayam: 1st Floor, CSI Ascension Church Complex, Kottayam Lucknow: Usha Sadan, 24, Prem Nagar, Ashok Marg, Lucknow Ludhiana: SCO-3, Bawa Building, Feroze Gandhi Market, Ludhiana Madurai: Rakesh Towers, 30-C, Bye Pass Road, 1st Floor, Opp. Nagappa Motors, Madurai Mangalore: Mahendra Arcade, Gr. Floor, Karangalapani, Kodialbail, Managalore Mehsana: U L 47 Apollo Enclave, Opp. Simandhar Temple, Modhera Cross Road, Mehsana Moradabad: Om Arcade, Parker Road, Above Syndicate Bank, Tari Khana Chowk, Moradabad Mumbai: Fort: DAS Chambers, Gr. Floor, Opp. BSE & next to Corporation Bank, Dalal Street, Fort, Mumbai Borivali: Gr. Floor, Himanshu Bldg., Sodawala Lane, Chandawarkar Road, Borivali (West), Mumbai Thane: 1st Floor, Jeevan Chaya Bldg, Near Adidas Show Room, Ram Maruti Road, Thane (W) Mysore: L-350, Silver Tower, Clock Tower, Ashoka Road, Mysore Nagpur: Sadoday Arcade, Above Top N Town, Dharampeth, Nagpur Nasik: S-12, 2nd Floor, Suyojit Sankul, Sharanpur Road, Nasik Navsari: 1st Floor, Chinmay Arcade, Opp. Sattapir, Tower Road, Navsari New Delhi: 2E / 23, Jhandewalan Extn., New Delhi Noida: 307 Jaipuria Plaza, D-68-A, 2nd Floor, Opp. Delhi Public School, Sector 26, Noida Panjim: City Business Centre, Coelho Pereira Building, Room Nos. 18, 19 and 20, Dada Vaidya Road, Panjim Patiala: SCO 27-D, Chhoti Baradari, Patiala Patna: 3A, 3rd Floor, Anand Tower, Beside Chankya Cinema Hall, Exhibition Road, Patna Pondicherry: 1st Floor, No.7, Thiayagaraja Street, Pondicherry Pune: Srinath Plaza, C Wing, Office No , 3rd Floor, Dyaneshwar Paduka Chowk, F. C. Road, Pune Raipur: Room No: TF-31, 3rd Floor, Millennium Plaza, Behind Indian Coffee House, G.E Road, Raipur Rajkot: 104, Siddhi Vinayak Complex, Dr. Yagnik Road, Opp. Ramkrishna Ashram, Rajkot Ranchi: Commerce Towers, 3rd Floor, Room No. 307, Beside Mahabir Towers, Main Road, Ranchi Salem: 49 / 50, Fort Main Road Old No.17, 1st Floor, Shevapet, Salem Siliguri: Nanak Complex, Near Church Road, Sevoke Road, Siliguri Surat: G-16, Empire State Building, Nr. Udhna Darwaja,Ring Road, Surat Tirunelveli: Jeney Building, 55/18, S. N. Road, Near Arvind Eye Hospital, Tirunelveli Trichur: 2'nd Floor, Brother's Complex, Near Dhana Laxmi Bank Head Office, Naikkanal Junction, Trichur Trichy: 60 Srikrishna Arcade, 1st Floor, Thennur High Road, Trichy Trivandrum: 2nd Floor, Akshaya Towers, Sasthamangalam, Trivandrum Udaipur: , Madhav Chambers, Opp. G. P. O., Chetak Circle, Madhuban, Udaipur Vadodara: Piccadilly, Office # 5, 1st Floor, Opp. Adani Super Market, Jetalpur Road, Vadodara Valsad: Shop No. 2, Phiroza Corner, ICICI Bank Char Rasta, Tithal Road, Valsad Vapi: Shop No. 5, Phikhaji Residency, Opp. DCB Bank, Vapi Silvassa Road, Vapi Varanasi: D-64/132, KA, 1st Floor, Anant Complex, Sigra, Varanasi Vellore: No.1, M.N.R. Arcade, Officer's Line, Krishna Nagar, Vellore Vijayawada: Opp. Municipal Water Tank, Labbipet, Vijayawada Visakhapatnam: /1 Eswar Paradise, Dwaraka Nagar, Main Road, Visakhapatnam Name, Address and Website of Registrar: Karvy Computershare Pvt. Ltd. (Unit: Principal Mutual Fund), KARVY HOUSE, 46, Avenue- 4, Street No. 1, Banjara Hills, Hyderabad Tel.: (040) For any enquiries and / or queries, investors are advised to address a suitable communication to AMC at: 32

84 KEY INFORMATION MEMORANDUM & APPLICATION FORMS Offer of units at applicable NAV based price Principal Growth Fund Principal Income Fund Equity / Balanced & Fund of Funds Principal Dividend Yield Fund Principal Global Opportunities Fund Principal Large Cap Fund Principal Services Industries Fund Principal Index Fund Principal Resurgent India Equity Fund Principal Emerging Bluechip Fund Principal Balanced Fund Principal Child Benefit Fund ELSS Debt / Liquid Funds Principal Floating Rate Fund Principal Monthly Income Plan Principal Cash Management Fund - Liquid Option Principal Government Securities Fund Principal Ultra Short Term Fund Principal Money Manager Fund Principal Tax Savings Fund Principal Personal Tax Saver Fund INVESTMENT MANAGER Principal Pnb Asset Management Company Private Limited Exchange Plaza, B Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (E), Mumbai Principal Mutual Fund Exchange Plaza, B Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (E), Mumbai This Key Information Memorandum (KIM) sets forth the information, which a prospective investor ought to know before investing. For further details of the scheme/mutual Fund, due diligence certificate by the AMC, Key Personnel, investors rights & services, risk factors, penalties & pending litigations etc. investors should, before investment, refer to the Scheme Information Document (SID) of the respective schemes and Statement of Additional Information (SAI) available free of cost at any of the Investor Service Centres or distributors or from the website The aforesaid SID & SAI are to be read with the addendums, if any issued by the Fund from time to time. The Scheme particulars have been prepared in accordance with Securities and Exchange Board of India (Mutual Funds) Regulations 1996, as amended till date, and filed with Securities and Exchange Board of India (SEBI). The units being offered for public subscription have not been approved or disapproved by SEBI, nor has SEBI certified the accuracy or adequacy of this KIM. This KIM is dated September 15, (Not an Official Point of Acceptance)

85 Contents Page No. Principal Growth Fund 1 Principal Dividend Yield Fund 2 Principal Global Opportunities Fund 3 Principal Large Cap Fund 4 Principal Services Industries Fund 5 Principal Index Fund 6 Principal Resurgent India Equity Fund 7 Principal Emerging Bluechip Fund 8 Principal Balanced Fund 9 Principal Child Benefit Fund 10 Principal Income Fund 11 Principal Floating Rate Fund 12 Principal Monthly Income Plan 13 Principal Cash Management Fund - Liquid Option 14 Principal Government Securities Fund 15 Principal Ultra Short Term Fund 16 Principal Money Manager Fund 17 Principal Tax Savings Fund 18 Principal Personal Tax Saver Fund 19 Information Common To Schemes 20 Application Forms 27

86 Principal Growth Fund (An open ended Equity Scheme) Investment Objective To achieve long term capital appreciation. Asset Allocation Pattern of the Scheme Under normal circumstances, the asset allocation would be as follows: Types of Instruments % of Net Assets of the scheme Risk Min. Max. Profile Equity and Equity related instruments 65% 100% High Debt (including Securitized Debt*) and Money Market instruments - 0% 35% Low to Medium * Investment in Securitized Debt may be up to 35% of the net assets of the Scheme. The Asset Management Company (AMC) reserves the right to invest in Derivatives upto 50% of the net assets of the Scheme. The AMC further reserves the right to invest in ADRs / GDRs and / or Overseas Financial debt instruments including units of Overseas Mutual Funds not exceeding 15% of the net assets of the Scheme. Investment in Derivatives / ADRs / GDRs / Overseas Financial debt instruments shall be subject to restrictions imposed by SEBI / RBI or any other regulatory authority from time to time. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Risk Profile of the Scheme Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized on Page No. 25 Investment Plans & Options Dividend and Growth Plans. The Dividend Plan offers the facility of Payout, Reinvestment and Sweep. Applicable NAV Please Refer to Page No. 24 Minimum Application Amount / Number of Units Despatch of Repurchase (Redemption) Request Benchmark Index Purchase Additional Purchase Repurchase Rs. 5,000 and any amount thereafter Subsequent investment of Rs. 500 and Rs 500 or 50 units under each plan any amount thereafter under each plan Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. The Fund would benchmark its performance to the BSE 200 Index The fund reserves the right to change the said benchmark and / or adopt one / more other benchmarks to compare the performance of the Scheme. Dividend Policy Under Dividend Plan, dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain in the Plan and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Name of the Fund Manager Mr. Shyam Bhat Name of the Trustee Company Principal Trustee Company Private Limited Performance of the Scheme Returns (%) of Growth Plan as at August 31, Period Returns (%) BSE 200 (%) Last 1 Year Last 3 Years Last 5 Years Since Inception* Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *October 25, Returns (%) Year-wise Returns Principal Growth Fund - Growth BSE 200 Expenses of the Scheme (i) Load Structure Exit Load : If redeemed on or before 1 Year from the date of allotment - 1%. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication (ii) Recurring expenses as a percentage of average weekly Net Assets l First Rs. 100 crores : 2.50 l Next Rs. 300 crores : 2.25 l Next Rs. 300 crores : 2.00 l Balance : 1.75 (iii) Actual expenses for the previous financial year : 2.36% Please Refer to Page No. 26 Please Refer to Page No. 20 For Investor Grievances Please Refer to Page No. 26 please contact Unitholders Information Please Refer to Page No. 26 The NAV of the Fund will be calculated on all Business Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. on all business days. The NAV can also be viewed on the website of the Mutual Fund i.e. Key Information Memorandum 1

87 Principal Dividend Yield Fund (An open ended Equity Scheme) Investment Objective Asset Allocation Pattern of the Scheme Risk Profile of the Scheme Investment Plans & Options To provide capital appreciation and / or dividend distribution by investing predominantly in a well-diversified portfolio of companies that have a relatively high dividend yield. Please Refer to Page No. 22 Applicable NAV Please Refer to Page No. 24 Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized on Page No. 25 Growth Plan and Dividend Plan. Dividend Plan will have the facility of Payout, Reinvestment and Sweep. Minimum Application Amount / Number of Units Despatch of Repurchase (Redemption) Request Purchase Additional Purchase Repurchase Rs. 5,000 and any amount thereafter Subsequent investment of Rs. 500 and Rs. 500 or 50 units under each plan any amount thereafter under each plan Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. Benchmark Index S&P CNX 500 index. The Fund reserves the right to change the said benchmark and / or adopt one / more other benchmarks to compare the performance of the Scheme. Dividend Policy Under Dividend Plan, dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain in the Plan and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Name of the Fund Manager Mr. Shyam Bhat Name of the Trustee Company Principal Trustee Company Private Limited Performance of the Scheme Returns (%) of Growth Plan as at August 31, Period Returns S&P CNX 500 Index (%) (%) Last 1 Year Last 3 Years Since Inception* Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *October 15, Year-wise Returns Returns (%) Principal Dividend Yield Fund - Growth S&P CNX 500 Expenses of the Scheme (i) Load Structure Exit Load : If redeemed on or before 1 Year from the date of allotment - 1%. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) (ii) Recurring expenses as a percentage of average weekly Net Assets l First Rs. 100 crores : 2.50 l Next Rs. 300 crores : 2.25 l Next Rs. 300 crores : 2.00 l Balance : 1.75 (iii) Actual expenses for the previous financial year : 2.40% Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication For Investor Grievances please contact Please Refer to Page No. 26 Please Refer to Page No. 20 The NAV of the Fund will be calculated on all Business Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. on all business days. The NAV can also be viewed on the website of the Mutual Fund i.e. Please Refer to Page No. 26 Unitholders Information Please Refer to Page No Key Information Memorandum

88 Principal Global Opportunities Fund (An open ended Fund of Funds Scheme) Investment Objective Asset Allocation Pattern of the Scheme Risk Profile of the Scheme Investment Plans & Options To provide long term capital appreciation by predominantly investing in overseas mutual fund schemes, and a certain portion of its corpus in Money Market Securities and/or units of Money Market / Liquid Schemes of Principal Mutual Fund. Under normal circumstances, the asset allocation would be as follows: Types of Instruments % of Net Assets Risk Profile Min. Max. Units of *overseas mutual fund scheme(s) High Money market securities and/or units of money market/ 0 15 Low to liquid schemes of Principal Mutual Fund Medium * Currently Principal Global Investors Funds - Emerging Market Equity Fund - a fund advised by Principal Global Investors - LLC (USA) has been identified as the portfolio for the purpose. Trustees, at their discretion, may decide to shift full or part of the investments to any other similar overseas mutual fund scheme(s). Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized on Page No. 25 Dividend and Growth options. The Dividend option offers the facility of Payout, Reinvestment and Sweep. Applicable NAV Please Refer to Page No. 24 Minimum Application Amount / Number of Units Despatch of Repurchase (Redemption) Request Benchmark Index Purchase Additional Purchase Repurchase Rs. 10,000 and any amount thereafter Subsequent investment of Rs. 5,000 and Rs. 1,000 or 100 units under each option any amount thereafter under each option Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. MSCI World Index The fund reserves the right to change the said benchmark and / or adopt one / more other benchmarks to compare the performance of the Scheme. Dividend Policy Under Dividend Option, dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain in the Option and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Name of the Fund Manager Name of the Trustee Company Mr. Rajat Jain Principal Trustee Company Private Limited Performance of the Scheme Returns (%) of Growth Option as at August 31, Period Returns (%) MSCI World Index (%) Last 1 Year Last 3 Years Last 5 Years Since Inception* Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *March 29, Returns (%) Year-wise Returns Principal Global Opportunities Fund - Growth MSCI World Index Expenses of the Scheme (i) Load Structure Exit Load : If redeemed on or before 1 Year from the date of allotment - 1%. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) (ii) Total expenses of the scheme including the management fees not to exceed 0.75% of average weekly Net Assets. (iii) Actual expenses for the previous financial year : 0.81% Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication For Investor Grievances please contact Please Refer to Page No. 26 Please Refer to Page No. 20 The NAV of the Fund will be calculated on all Business Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. on all business days. NAV shall be published with one day time lag which would be indicated with an asterix (*) and would be updated on AMFI website by a.m. NAV can also be viewed on the website of the Mutual Fund i.e. Please Refer to Page No. 26 Unitholders Information Please Refer to Page No. 26 Key Information Memorandum 3

89 Principal Large Cap Fund (An open ended Equity Scheme) Investment Objective Asset Allocation Pattern of the scheme The Investment Objective of the scheme would be to provide capital appreciation and / or dividend distribution by predominantly investing in companies having a large market capitalization. For the purpose of this Fund, Large Cap Companies are defined as those having market capitalization greater than Rs. 750 crores as on the date of investment (or any such amount as may be specified by India Index Services and Products Ltd. (IISL) from time to time) being the upper limit of market capitalisation as a criteria for inclusion of a company in CNX Midcap 200 Index. However, should IISL come out with a definition of Large Cap companies, the same will be utilized. Please Refer to Page No. 22 Risk Profile of the Scheme Investment Plans & Options Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized below: The scheme would have majority of its assets in companies with a large market capitalization. During the time periods when companies having small or mid sized market capitalization do well, this scheme will underperform. Growth Option and Dividend Option. Dividend Option will have the facility of Payout, Re-investment and Sweep. Applicable NAV Please Refer to Page No. 24 Minimum Application Amount / Number of Units Despatch of Repurchase (Redemption) Request Benchmark Index Purchase Additional Purchase Repurchase Rs. 5,000 and any amount thereafter Subsequent investment of Rs. 500 and Rs. 500 or 50 units under each option any amount thereafter under each option Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. The Fund would benchmark its performance to the BSE 100 Index The Fund reserves the right to change the said benchmark and / or adopt one / more other benchmarks to compare the performance of the Scheme. Dividend Policy Under Dividend Option, dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain in the Option and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Name of the Fund Manager Mr. Pramod Gupta Name of the Trustee Company Principal Trustee Company Private Limited Performance of the Scheme Returns (%) of Growth Option as at August 31, Period Returns (%) BSE 100 (%) Last 1 Year Last 3 Years Since Inception* Returns (%) Year-wise Returns Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *November 11, Principal Large Cap Fund - Growth BSE 100 Expenses of the Scheme (i) Load Structure Exit Load : If redeemed on or before 1 Year from the date of allotment - 1%. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication (ii) Annual Recurring expenses as a percentage of average weekly Net Assets l First Rs. 100 crores : 2.50 l Next Rs. 300 crores : 2.25 l Next Rs. 300 crores : 2.00 l Balance : 1.75 (iii) Actual expenses for the previous financial year : 2.33% Please Refer to Page No. 26 Please Refer to Page No. 20 For Investor Grievances Please Refer to Page No. 26 please contact Unitholders Information Please Refer to Page No. 26 The NAV of the Fund will be calculated on all Business Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. on all business days. The NAV can also be viewed on the website of the Mutual Fund i.e. 4 Key Information Memorandum

90 Principal Services Industries Fund (An open ended Equity Scheme) Investment Objective Asset Allocation Pattern of the Scheme The Investment Objective of the scheme is to provide capital appreciation and income distribution to the unit holders by investing predominantly in equity / equity related securities of the companies belonging to the services industries and the balance in debt securities and money market instruments including call money. Please Refer to Page No. 22 Risk Profile of the Scheme Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized below: The investments under the Scheme are oriented towards equity/equity related securities of the Companies belonging to the service industries and hence will be affected by the risks associated with these industries. As the Scheme may hold securities that are not in the CNX Services Sector Index and may invest in limited number of industries with higher concentration to certain industries, it may perform differently from the general stock market. Further Scheme's performance may differ from the benchmark index to the extent of the investments held in the debt segment, as per the investment pattern indicated under normal circumstances. Investment Options Growth Option and Dividend Option. Dividend Option will have the facility of Payout, Re-investment and Sweep. Applicable NAV Please Refer to Page No. 24 Minimum Application Purchase Additional Purchase Repurchase Amount / Number of Units Rs. 5,000 for Dividend Option and Subsequent investment amount shall Rs. 500 or 50 units Growth Option and any amount be Rs. 500 and any amount thereafter thereafter under each Option. under each Option. Despatch of Repurchase (Redemption) Request Benchmark Index Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. The Fund would benchmark its performance to the CNX Services Sector Index The Fund reserves the right to change the said benchmark and / or adopt one / more other benchmarks to compare the performance of the Scheme. Dividend Policy Under Dividend Option, dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain in the Option and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Name of the Fund Manager Name of the Trustee Company Mr. Shyam Bhat Principal Trustee Company Private Limited Performance of the scheme Returns (%) of Growth Option as at August 31, Period Returns (%) CNX Services Sector Index (%) Last 1 Year Last 3 Years Since Inception* Returns (%) Year-wise Returns Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *March 6, Principal Services Industries Fund - Growth CNX Services Sector Index Expenses of the Scheme (i) Load Structure Exit Load : If redeemed on or before 1 Year from the date of allotment - 1%. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication (ii) Annual Recurring expenses as a percentage of average weekly Net Assets l First Rs. 100 crores : 2.50 l Next Rs. 300 crores : 2.25 l Next Rs. 300 crores : 2.00 l Balance : 1.75 (iii) Actual expenses for the previous financial year : 2.41% Please Refer to Page No. 26 Please Refer to Page No. 20 For Investor Grievances Please Refer to Page No. 26 please contact Unitholders Information Please Refer to Page No. 26 The NAV of the Fund will be calculated on all Business Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. on all business days. The NAV can also be viewed on the website of the Mutual Fund i.e. Key Information Memorandum 5

91 Principal Index Fund (An open ended Index Scheme) Investment Objective Asset Allocation Pattern of the Scheme Risk Profile of the Scheme To invest principally in securities that comprise S&P CNX Nifty (NSE) and subject to tracking errors endeavour to attain results commensurate with the Nifty. Under normal circumstances, the asset allocation would be as follows: Types of Instruments % of Net Assets Risk Profile Minimum Maximum Nifty Stocks 0% 100% Medium to High Money Market Instruments 0% 10% Low The Asset Management Company reserves the right to invest in derivatives up to 50% of the net assets of the Scheme Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized on Page No. 25 Investment Plans & Options Dividend and Growth Plans. The Dividend Plan offers the facility of Payout, Reinvestment and Sweep. Applicable NAV Please Refer to Page No. 24 Minimum Application Amount / Number of Units Despatch of Repurchase (Redemption) Request Benchmark Index Purchase Additional Purchase Repurchase Rs. 5,000 and any amount thereafter Subsequent investment of Rs. 500 and Rs. 500 or 50 units under each plan. any amount thereafter under each plan. Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. S&P CNX Nifty Index The Fund reserves the right to change the said benchmark and / or adopt one / more other benchmarks to compare the performance of the Scheme. Dividend Policy Under Dividend Plan, dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain in the Plan and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Name of the Fund Manager Mr. Shyam Bhat Name of the Trustee Company Principal Trustee Company Private Limited Performance of the Scheme Returns (%) of Growth Plan as at August 31, Period Returns (%) S&P CNX Nifty (%) Last 1 Year Last 3 Years Last 5 Years Since Inception* Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *July 27, Returns (%) Year-wise Returns Principal Index Fund - Growth S&P CNX Nifty Expenses of the Scheme (i) Load Structure Exit Load : If redeemed on or before 30 Days from the date of allotment - 1%. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) (ii) Total expenses of the scheme including the investment and advisory fees shall not exceed 1.5% of average weekly Net Assets (iii) Actual expenses for the previous financial year : 1.49% Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication For Investor Grievances please contact Please Refer to Page No. 26 Please Refer to Page No. 20 The NAV of the Fund will be calculated on all Business Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. on all business days. The NAV can also be viewed on the website of the Mutual Fund i.e. Please Refer to Page No. 26 Unitholders Information Please Refer to Page No Key Information Memorandum

92 Principal Resurgent India Equity Fund (An open ended Equity Scheme) Investment Objective Asset Allocation Pattern of the Scheme Risk Profile of the Scheme Investment Plans & Options To generate long term capital appreciation by investing in equity and equity related securities of Indian Companies that are perceived to be potential growth stories. Under normal circumstances, the asset allocation would be as follows: Types of Instruments % of Net Assets Risk Profile Minimum Maximum Equity & Equity Related Securities* 65% 100% Medium to High Debt Securities and Money Market Instruments 0% 35% Low to Medium (including cash / call money)** * Equity Securities include debt securities convertible into shares and rights or warrants to purchase shares. ** Investment in Securitised Debt of up to 10% of the net assets of the Scheme. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized on Page No. 25 Dividend and Growth Plans. The Dividend Plan offers the facility of Payout, Reinvestment and Sweep. Applicable NAV Please Refer to Page No. 24 Minimum Application Amount / Number of Units Despatch of Repurchase (Redemption) Request Benchmark Index Purchase Additional Purchase Repurchase Rs. 5,000 and any amount thereafter Subsequent investment of Rs. 500 and Rs. 500 or 50 units under each plan any amount thereafter under each plan Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. BSE 200 Index The Fund reserves the right to change the said benchmark and / or adopt one / more other benchmarks to compare the performance of the Scheme. Dividend Policy Under Dividend Plan, dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain in the Plan and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Name of the Fund Manager Name of the Trustee Company Mr. Shyam Bhat Principal Trustee Company Private Limited Performance of the Scheme Returns (%) of Growth Plan as at August 31, Period Returns (%) BSE 200 (%) Last 1 Year Last 3 Years Last 5 Years Since Inception* Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *June 30, Year-wise Returns Returns (%) Principal Resurgent India BSE 200 Equity Fund - Growth Expenses of the Scheme (i) Load Structure Exit Load : If redeemed on or before 1 Year from the date of allotment - 1%. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) (ii) Annual Recurring expenses as a percentage of average weekly Net Assets l First Rs. 100 crores : 2.50 l Next Rs. 300 crores : 2.25 l Next Rs. 300 crores : 2.00 l Balance : 1.75 (iii) Actual expenses for the previous financial year : 2.43% Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication For Investor Grievances please contact Please Refer to Page No. 26 Please Refer to Page No. 20 The NAV of the Fund will be calculated on all Business Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. on all business days. The NAV can also be viewed on the website of the Mutual Fund i.e. Please Refer to Page No. 26 Unitholders Information Please Refer to Page No. 26 Key Information Memorandum 7

93 Principal Emerging Bluechip Fund (An open ended Equity Scheme) Investment Objective Asset Allocation Pattern of the Scheme Risk Profile of the Scheme Investment Plans & Options To achieve long-term capital appreciation by investing in equity & equity related instruments of Mid Cap & Small Cap companies. Please Refer to Page No. 22 Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized below: The investments under the Scheme will be concentrated in the Mid Cap segment and hence may perform differently than a broad market portfolio. Mid Cap & small cap stocks are generally more volatile and less liquid as compared to Large Cap stocks. Further Schemes performance may differ from the benchmark index to the extent of the investments held in the non midcap equities/debt segment, as per the investment pattern indicated under normal circumstances. Growth Option and Dividend Option. Dividend Option will have the facility of Pay-out, Re-investment and Sweep. Applicable NAV Please Refer to Page No. 24 Minimum Application Amount / Number of Units Purchase Additional Purchase Repurchase Rs. 5,000 and any amount Subsequent investment of Rs. 500 and Rs. 500 or 50 units thereafter under each option any amount thereafter under each option Despatch of Repurchase (Redemption) Request Benchmark Index Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. The Fund would benchmark its performance to the CNX Midcap Index. The Fund reserves the right to change the said benchmark and / or adopt one / more other benchmarks to compare the performance of the Scheme. Dividend Policy Under Dividend Option, dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain in the Option and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Name of the Fund Manager Name of the Trustee Company Performance of the Scheme Mr. Pankaj Tibrewal Principal Trustee Company Private Limited Returns (%) of Growth Option as at August 31, Period Returns CNX Midcap Index (%) (%) Since Inception* Past performance may or may not be sustained in the future. Note: Returns less than 1 year are calculated on absolute basis. *November 12, Year wise returns not available since the scheme has not completed a financial year. (Allotment date: November 12, 2008) Expenses of the Scheme (i) Load Structure Exit Load : If redeemed on or before 1 Year from the date of allotment - 1%. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) (ii) Annual Recurring expenses as a percentage of average weekly Net Assets l First Rs. 100 crores : 2.50 l Next Rs. 300 crores : 2.25 l Next Rs. 300 crores : 2.00 l Balance : 1.75 (iii) Actual expenses for the previous financial year : 2.33% Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication For Investor Grievances please contact Please Refer to Page No. 26 Please Refer to Page No. 20 The NAV of the Fund will be calculated on all Business Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. on all business days. The NAV can also be viewed on the website of the Mutual Fund i.e. Please Refer to Page No. 26 Unitholders Information Please Refer to Page No Key Information Memorandum

94 Principal Balanced Fund (An open ended Balanced Scheme) Investment Objective To provide long-term appreciation and current income by investing in a portfolio of equity, equity related securities and fixed income securities. Asset Allocation Pattern of the Scheme Risk Profile of the Scheme Investment Plans & Options Please Refer to Page No. 22 Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized below: The value of the equity securities owned by the Scheme changes on a daily basis. Equity Security prices reflect the activities of individual companies and general market and economic conditions. In the short term, equity security prices can fluctuate dramatically in response to these factors. Debt security values change daily. Their prices reflect interest rates, market conditions and announcements of other economic, political or financial information. When interest rates fall, the price of a debt security rises and when interest rate rise, the price declines. As with all Mutual Funds, the value of the Scheme's assets under this option may rise or fall. If units are redeemed when their value is less than the price paid for money may be lost by the Unitholder. Dividend and Growth Plans. The Dividend Plan offers the facility of Payout, Reinvestment and Sweep. Applicable NAV Please Refer to Page No. 24 Minimum Application Amount / Number of Units Despatch of Repurchase (Redemption) Request Benchmark Index Purchase Additional Purchase Repurchase Rs. 5,000 and any amount thereafter Subsequent investment of Rs. 500 and Rs. 500 or 50 units under each plan any amount thereafter under each plan Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. CRISIL Balanced Fund Index The Fund reserves the right to change the said benchmark and / or adopt one / more other benchmarks to compare the performance of the Scheme. Dividend Policy Under Dividend Plan, dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain in the Plan and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Name of the Fund Manager Mr. Pankaj Tibrewal Name of the Trustee Company Principal Trustee Company Private Limited Performance of the Scheme Returns (%) of Growth Plan as at August 31, Period Returns (%) CRISIL Balanced Fund Index (%) Last 1 Year Last 3 Years Last 5 Years Since Inception* N.A. Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *January 14, Returns (%) Year-wise Returns Principal Balanced Fund - Growth CRISIL Balanced Fund Index Expenses of the Scheme (i) Load Structure Exit Load : If redeemed on or before 1 Year from the date of allotment - 1%. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication For Investor Grievances please contact (ii) Recurring expenses as a percentage of average weekly Net Assets l First Rs. 100 crores : 2.50 l Next Rs. 300 crores : 2.25 l Next Rs. 300 crores : 2.00 l Balance : 1.75 (iii) Actual expenses for the previous financial year : 2.50% Please Refer to Page No. 26 Please Refer to Page No. 20 Unitholders Information Please Refer to Page No. 26 The NAV of the Fund will be calculated on all Business Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. on all business days. The NAV can also be viewed on the website of the Mutual Fund i.e. Please Refer to Page No. 26 Key Information Memorandum 9

95 Principal Child Benefit Fund (An open ended Balanced Scheme) Investment Objective Asset Allocation Pattern of the Scheme Risk Profile of the Scheme To generate regular returns and / or capital appreciation / accretion with the aim of giving lump sum capital growth to the Beneficiary. Please Refer to Page No. 23 Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized on Page No. 25 Investment Plans & Options Only one Plan available under the scheme. i.e. Career Builder Plan. No Option available under the Plan Applicable NAV Please Refer to Page No. 24 Minimum Application Amount / Number of Units Despatch of Repurchase (Redemption) Request Benchmark Index Dividend Policy Name of the Fund Manager Name of the Trustee Company Purchase Additional Purchase Repurchase Rs. 5,000 and any amount thereafter Subsequent investment of Rs. 500 and Rs. 500 or 50 units under each option any amount thereafter under each option Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. CRISIL Balanced Fund Index The Fund reserves the right to change the said benchmark and / or adopt one / more other benchmarks to compare the performance of the Scheme. Dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain in the Plan and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Mr. Pankaj Tibrewal Principal Trustee Company Private Limited Performance of the Scheme Returns (%) as at August 31, Period Returns CRISIL Balanced (%) Fund Index (%) Last 1 Year Last 3 Years Last 5 Years Since Inception N.A. Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *January 7, Returns (%) Year-wise Returns Principal Child Benefit Fund - CRISIL Balanced Fund Index Career Builder Plan Expenses of the Scheme (i) Load Structure Exit Load : If redeemed on or before 1 Year from the date of allotment - 1%. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) (ii) Recurring expenses as a percentage of average weekly Net Assets l First Rs. 100 crores : 2.50 l Next Rs. 300 crores : 2.25 l Next Rs. 300 crores : 2.00 l Balance : 1.75 (iii) Actual expenses for the previous financial year : 2.50% Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Please Refer to Page No. 26 Please Refer to Page No. 20 Daily Net Asset Value (NAV) Publication For Investor Grievances please contact The NAV of the Fund will be calculated on all Business Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. on all business days. The NAV can also be viewed on the website of the Mutual Fund i.e. Please Refer to Page No. 26 Unitholders Information Please Refer to Page No Key Information Memorandum

96 Principal Income Fund (An open ended Income Scheme) Investment Objective Asset Allocation Pattern of the Scheme Risk Profile of the Scheme Investment Plans & Options Applicable NAV Please Refer to Page No. 24 Minimum Application Amount / Number of Units Despatch of Repurchase (Redemption) Request Benchmark Index Dividend Policy Name of the Fund Manager Name of the Trustee Company To generate regular income and capital appreciation / accretion through investment in debt instruments and related securities besides preservation of capital. The investment objective of the Short Term Plan (STP) under Income Fund is the same as that of the Principal Income Fund. However, the STP has been designed to achieve stable returns over shorter-term investment horizons. Please Refer to Page No. 23 Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized on Page No. 25 Income Fund and Income Fund - Short Term Plan will have separate portfolios. Both Income Fund and Income Fund - Short Term Plan offer Regular & Institutional Plan which share a common portfolio. The Dividend Option offers Payout, Reinvestment and Sweep. In Income Fund and Income Fund - Short Term Plan the Growth Option offers Accumulation and Auto Earning Payout. Dividend frequency under Regular Plan of Income Fund - Quarterly, Half yearly & Annual and under Institutional Plan - Quarterly. Dividend frequency under Regular Plan of Income Fund - Short Term Plan - Monthly and under Institutional Plan - Weekly & Monthly. Please Refer to Page No. 26 Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. CRISIL Composite Bond Fund Index for Income Fund. CRISIL Short Term Bond Fund Index for Short Term Plan The Fund reserves the right to change the said benchmark and / or adopt one / more other benchmarks to compare the performance of the Scheme. Under Dividend Option, dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain in the Option and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Mr. Badrish Kulhalli Principal Trustee Company Private Limited Performance of the Scheme Returns (%) of Growth Option as at August 31, Period Returns (%) Benchmark Returns (%) Principal Income Fund - Regular Plan Last 1 Year Last 3 Years Last 5 Years Since Inception* 8.90 N.A. Institutional Plan Last 1 Year Last 3 Years Last 5 Years Since Inception** Period Returns (%) Benchmark Returns (%) Principal Income Fund - Short Term Plan - Regular Plan Last 1 Year Last 3 Years Last 5 Years Since Inception*** Institutional Plan Last 1 Year Last 3 Years Last 5 Years Since Inception** Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. CRISIL Composite Bond Fund Index CRISIL Short Term Bond Fund Index *October 25, **May 9, 2003 ***April 24, 2002 Expenses of the Scheme (i) Load Structure Exit Load : Nil. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) (ii) Recurring expenses as a percentage of average weekly Net Assets l First Rs. 100 crores : 2.25 l Next Rs. 300 crores : 2.00 l Next Rs. 300 crores : 1.75 l Balance : 1.50 (iii) Actual expenses for the previous financial year : Income Fund - Regular Plan : 1.71%, Income Fund - Institutional Plan : 1.24%, Income Fund - Short Term Plan - Regular Plan : 0.81%, Income Fund - Short Term Plan - Institutional Plan : 0.60% Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication For Investor Grievances please contact Please Refer to Page No. 26 Please Refer to Page No. 20 Unitholders Information Please Refer to Page No. 26 Returns (%) Returns (%) Year-wise Returns Principal Income Fund - Growth CRISIL Composite Bond Fund Index Year-wise Returns Principal Income Fund - STP - Growth CRISIL Short Term Bond Fund Index Year-wise Returns Principal Income Fund - IP - Growth CRISIL Composite Bond Fund Index The NAV of the Fund will be calculated on all Business Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. on all business days. The NAV can also be viewed on the website of the Mutual Fund i.e. Please Refer to Page No. 26 Returns (%) Returns (%) Year-wise Returns Principal Income Fund - STP - IP - Growth CRISIL Short Term Bond Fund Index Key Information Memorandum 11

97 Principal Floating Rate Fund (An open-ended Income Scheme) Flexible Maturity Plan and Short Maturity Plan (Liquid Plan) Investment Objective Asset Allocation Pattern of the Scheme Risk Profile of the Scheme Investment Plans & Options Applicable NAV Please Refer to Page No. 24 Minimum Application Please Refer to Page No. 26 Amount / Number of Units Despatch of Repurchase (Redemption) Request Benchmark Index Dividend Policy Name of the Fund Manager Name of the Trustee Company Performance of the Scheme Expenses of the Scheme Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication For Investor Grievances please contact The primary investment objective of the Floating Rate Fund will be to generate income consistent with the prudent risk from a portfolio comprising substantially of floating rate debt instruments, fixed rate debt instruments swapped for floating rate return, and also fixed rate instruments and money market instruments. Please Refer to Page No. 23 (i) Load Structure Exit Load : Nil. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) (ii) Recurring expenses as a percentage of average weekly Net Assets l First Rs. 100 crores : 2.25 l Next Rs. 300 crores : 2.00 l Next Rs. 300 crores : 1.75 l Balance : 1.50 (iii) Actual expenses for the previous financial year : Short Maturity Plan - Regular Plan : 0.39% Short Maturity Plan - Institutional Plan : 0.32%, Flexible Maturity Plan - Regular Plan : 0.34% Flexible Maturity Plan - Institutional Plan : 0.11% Please Refer to Page No. 20 Unitholders Information Please Refer to Page No. 26 Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized on Page No. 25 Floating Rate Fund offers two investment Plans Short Maturity Plan (SMP) and Flexible Maturity Plan (FMP), with separate Portfolios. Short Maturity Plan Flexible Maturity Plan Regular Plan Institutional Plan Regular Plan Institutional Plan Growth Option Growth Option Growth Option Growth Option Dividend Option Dividend Option Dividend Option Dividend Option - Daily, Weekly, Monthly - Daily, Weekly, Monthly - Daily, Weekly, Monthly - Daily, Weekly, Monthly The Dividend Option Offers - Payout, Reinvestment and Sweep. Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. CRISIL Liquid Fund Index. The Fund reserves the right to change the said benchmark and / or adopt one / more other benchmarks to compare the performance of the Scheme. Under Dividend option, dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain in the option and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Mr. Badrish Kulhalli Principal Trustee Company Private Limited Returns (%) of Short Maturity Plan - Growth Option as at August 31, Returns (%) of Flexible Maturity Plan - Growth Option as at August 31, Period Returns (%) Crisil Liquid Fund Index (%) Short Maturity Plan - Regular Plan Last 1 Year Last 3 Years Since Inception* Institutional Plan Last 1 Year Last 3 Years Since Inception* Flexible Maturity Plan - Regular Plan Last 1 Year Last 3 Years Since Inception* Institutional Plan Last 1 Year Last 3 Years Since Inception* Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *September 14, Please Refer to Page No. 26 Returns (%) Returns (%) Year-wise Returns Principal Floating Rate Fund - SMP - Growth Crisil Liquid Fund Index Year-wise Returns Principal Floating Rate Fund - FMP - Growth Crisil Liquid Fund Index Year-wise Returns Principal Floating Rate Fund - SMP - IP - Growth Crisil Liquid Fund Index Year-wise Returns Principal Floating Rate Fund - FMP - IP - Growth Crisil Liquid Fund Index The NAV of the Fund will be calculated on all Business Days (Calendar days in case of Short Maturity Plan). The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. The NAV can also be viewed on the website of the Mutual Fund i.e. Please Refer to Page No. 26 Returns (%) Returns (%) 12 Key Information Memorandum

98 Principal Monthly Income Plan (An open ended fund. Monthly income is not assured and is subject to the availability of distributable surplus) Investment Objective To generate regular income through investments in fixed income securities so as to make periodical income distribution to the Unitholders and also to generate long-term capital appreciation by investing a portion of the Scheme s assets in equity and equity related instruments. The investment objective of MIP Plus is the same as that of the Principal Monthly Income Plan. However, MIP Plus has been designed to cater to investors seeking a slightly more aggressive exposure to equity markets. Asset Allocation Pattern of the Scheme Please Refer to Page No. 23 Risk Profile of the Scheme Investment Plans & Options Applicable NAV Please Refer to Page No. 24 Minimum Application Amount / Number of Units Despatch of Repurchase (Redemption) Request Benchmark Index Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized on Page No. 25 Monthly Income Plan and Monthly Income Plan - MIP Plus are the two Investment Plans having separate portfolio. Both offer Dividend and Growth Options. The Dividend Option offers Payout, Reinvestment and Sweep facility. Growth Plan offers Accumulation and Auto Earnings Payout facility. Dividend frequency - Monthly & Quarterly. Purchase Additional Purchase Repurchase Dividend Plan / Growth Subsequent investment of Rs. 500 and Rs. 500 or 50 units Rs. 5,000 and any amount thereafter under each option any amount thereafter under each option Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. CRISIL MIP Blended Index The Fund reserves the right to change the said benchmark and / or adopt one / more other benchmarks to compare the performance of the Scheme. Dividend Policy Under Dividend Plan, dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain in the Plan and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Name of the Fund Manager Name of the Trustee Company Mr. Pankaj Tibrewal Principal Trustee Company Private Limited Performance of the Scheme Returns (%) of Growth Plan as at August 31, Period Returns CRISIL MIP (%) Blended Index (%) Principal Monthly Income Plan Last 1 Year Last 3 Years Last 5 Years Since Inception* MIP - MIP Plus Last 1 Year Last 3 Years Last 5 Years Since Inception** Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *May 23, **December 30, Returns (%) Year-wise Returns Principal MIP - Growth Crisil MIP Blended Index Returns (%) Year-wise Returns Principal MIP - MIP Plus - Growth Crisil MIP Blended Index Expenses of the Scheme (i) Load Structure Exit Load : If redeemed on or before 1 Year from the date of allotment - 1%. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication For Investor Grievances please contact (ii) Recurring expenses as a percentage of average weekly Net Assets l First Rs. 100 crores : 2.25 l Next Rs. 300 crores : 2.00 l Next Rs. 300 crores : 1.75 l Balance : 1.50 (iii) Actual expenses for the previous financial year : Monthly Income Plan : 2.03%, Monthly Income Plan - MIP Plus : 2.04% Please Refer to Page No. 26 Please Refer to Page No. 20 The NAV of the Fund will be calculated on all Business Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. on all business days. The NAV can also be viewed on the website of the Mutual Fund i.e. Please Refer to Page No. 26 Unitholders Information Please Refer to Page No. 26 Key Information Memorandum 13

99 Principal Cash Management Fund Liquid Option (An open ended Liquid Scheme) Investment Objective Asset Allocation Pattern of the Scheme Risk Profile of the Scheme Investment Plans & Options Applicable NAV Please Refer to Page No. 24 Minimum Application Amount / Number of Units Despatch of Repurchase (Redemption) Request Benchmark Index To provide investors with as high a level of income available from short-term investments as is considered consistent with preservation of capital and maintenance of liquidity, by investing in a portfolio of money market and investment grade debt instruments. Please Refer to Page No. 24 Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized below: As with all Mutual Funds, the value of the Scheme'(s) asset may rise or fall. Although the Scheme seeks to preserve the value of an investment at face value per unit (at least in case of Money-at-Call option), it is possible to lose money by investing in the Scheme(s) if the units are redeemed when their value is less than the price paid for. The investment of capital in the scheme is therefore not guaranteed. The scheme offers Regular, Institutional, Institutional Premium and Online Subscription Plan having common portfolio. Dividend and Growth Options are available under Regular, Institutional and Institutional Premium Plans. The Dividend Option offers Payout, Reinvestment and Sweep as Sub-Options. Dividend frequency under Regular Plan, Institutional Plan and Institutional Premium Plan - Daily, Weekly, Monthly. No investment options available under Online Subscription Plan. Please Refer to Page No. 26 Within 10 Business Days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. CRISIL Liquid Fund Index The Fund reserves the right to change the said benchmark and / or adopt one / more other benchmarks to compare the performance of the Scheme. Dividend Policy Under Dividend Option, dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain in the Option and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Name of the Fund Manager Mr. Badrish Kulhalli Name of the Trustee Company Principal Trustee Company Private Limited Performance of the Scheme Returns (%) of Growth Option as at August 31, Period Returns CRISIL Liquid Fund Index (%) (%) Principal Cash Management Fund - Liquid Option Last 1 Year Last 3 Years Last 5 Years Since Inception* 6.48 N.A. Institutional Plan Last 1 Year Last 3 Years Last 5 Years Since Inception** Institutional Premium Plan Last 1 Year Last 3 Years Since Inception*** Past performance may or may not be sustained in the future. Returns are calculated on compounded annualised basis. *October 25, **May 9, 2003 ***August 30, 2004 Expenses of the Scheme (i) Load Structure Exit Load : Nil. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication For Investor Grievances please contact (ii) Recurring expenses as a percentage of average weekly Net Assets l First Rs. 100 crores : 2.25 l Next Rs. 300 crores : 2.00 l Next Rs. 300 crores : 1.75 l Balance : 1.50 (iii) Actual expenses for the previous financial year : Liquid Option - Regular Plan : 0.68%, Liquid Option - Institutional Plan : 0.46%, Liquid Option - Institutional Premium Plan : 0.15% Please Refer to Page No. 26 Please Refer to Page No. 20 Unitholders Information Please Refer to Page No. 26 Returns (%) Returns (%) Year-wise Returns Principal Cash Management Fund - Growth Crisil Liquid Fund Index Year-wise Returns Principal Cash Management Fund - LO - Insti. Prem. Plan - Growth Crisil Liquid Fund Index Note: Returns for Online Subscription Plan is not provided, since this plan has no investors since its inception on April 6, Year-wise Returns Principal Cash Management Fund - LO - IP - Growth Crisil Liquid Fund Index The NAV of the Fund will be calculated on all Calendar Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. The NAV can also be viewed on the website of the Mutual Fund i.e. Please Refer to Page No. 26 Returns (%) 14 Key Information Memorandum

100 Principal Government Securities Fund (An open-ended dedicated Gilt Scheme investing in Government Securities) Investment Objective To generate returns through investment in sovereign securities and thus provide capital gains and income distribution to its Unitholders. Asset Allocation Pattern of the Scheme Risk Profile of the Scheme Investment Plans & Options Under normal circumstances, the asset allocation would be as follows: Types of Instruments Normal Allocation (% of Net Assets) Risk Profile Government Securities Upto 100% Low to Medium Investment in derivatives shall be upto 35% of the net assets of the Scheme. Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized on page 25. Only One Plan - Investment Plan. Investment Plan: Offers Dividend Option and Growth Option. Dividend Option offers Quarterly, Half Yearly and Annual Payout, Re-investment and sweep as sub-options. The Growth option offers Accumulation and Auto-earning payout as sub options. Applicable NAV Please Refer to Page No. 24 Minimum Application Amount / Number of Units Despatch of Repurchase (Redemption) Request Benchmark Index Purchase Additional Purchase Repurchase Rs. 5,000 and any amount thereafter Subsequent investment of Rs. 500 and Rs. 500 or 50 units under each option any amount thereafter under each option Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. I-Sec Composite Index The Fund reserves the right to change the said benchmark and / or adopt one / more other benchmarks to compare the performance of the Scheme. Dividend Policy Under Dividend Option, dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain in the Option and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Name of the Fund Manager Name of the Trustee Company Mr. Badrish Kulhalli Principal Trustee Company Private Limited Performance of the Scheme Returns (%) of Growth Option as at August 31, Period Returns I-Sec Composite (%) Index (%) Last 1 Year Last 3 Years Last 5 Years Since Inception* 8.50 N.A. Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *August 23, Returns (%) Year-wise Returns Principal G Sec - Investment - Growth I-Sec Composite Index Expenses of the Scheme (i) Load Structure Exit Load : 1% if redeemed on or before 365 days from the date of allotment. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) (ii) Recurring expenses as a percentage of average weekly Net Assets l First Rs. 100 crores : 2.25 l Next Rs. 300 crores : 2.00 l Next Rs. 300 crores : 1.75 l Balance : 1.50 (iii) Actual expenses for the previous financial year : Government Securities Fund - Investment Plan : 1.30% Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication For Investor Grievances please contact Please Refer to Page No. 26 Please Refer to Page No. 20 The NAV of the Fund will be calculated on all Business Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. on all business days. The NAV can also be viewed on the website of the Mutual Fund i.e. Please Refer to Page No. 26 Unitholders Information Please Refer to Page No. 26 Key Information Memorandum 15

101 Principal Ultra Short Term Fund (An open ended Debt Scheme) Investment Objective Asset Allocation Pattern of the Scheme Risk Profile of the Scheme To generate regular income through investments in debt securities and money market instruments. Under normal circumstances, the asset allocation would be as follows: Types of Instruments % of Net Assets Risk Profile Debt Instruments & Money Market Instruments Upto 100% Low to Medium (Including MIBOR linked instruments with daily put and call option) The scheme would invest in such instruments which have an average maturity of up to one year. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Investment in Securitised Debt may be up to 50% of the net assets of the Scheme. The Scheme may also invest up to 50% of net assets of the Scheme in such derivative instruments as may be introduced from time to time for the purpose of hedging and portfolio balancing and other uses as may be permitted under the SEBI (Mutual Funds) Regulations, Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized below: When interest rates fall, the price of a debt security rises and when interest rates rise, the price declines. In addition, the value of securities held by the Scheme may be affected by factors such as credit rating of the entity that issues the debt security and effective maturities of the debt securities. Lower quality and longer maturity debt securities will be subject to greater credit risk and price fluctuations than higher quality and shorter maturity debt securities. As with all mutual funds, if the units are redeemed when their value is less than the price paid for, money may be lost by the Unitholder. Investment Plans & Options Regular Plan, Institutional Plan and Institutional Premium Plan. As on date Institutional Plan and Institutional Premium Plan are not available. Growth Option and Dividend Option. Dividend Option will have a frequency of declaration of dividend on a Daily, Weekly and Monthly basis. Further, the aforesaid dividend option will have the facility of Re-investment, Pay-out and Sweep. Applicable NAV Refer to Page No. 24 Minimum Application Amount / Number of Units Despatch of Repurchase (Redemption) Request Benchmark Index Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. CRISIL Liquid Fund Index Dividend Policy Under Dividend Option, dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain in the Option and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Name of the Fund Manager Purchase Additional Purchase Repurchase Rs 5,000 and any amount Subsequent investment of Rs 1,000 and Rs 1,000 or thereafter under each option. any amount thereafter under each option. 100 units Mr. Badrish Kulhalli Name of the Trustee Company Performance of the Scheme Principal Trustee Company Private Limited Returns (%) of Growth Option as at August 31, Period Returns (%) CRISIL Liquid Fund Index (%) Last 1 Year Since Inception* Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *November 6, Returns (%) Year-wise Returns Principal Ultra Short Term Fund - Growth CRISIL Liquid Fund Index Expenses of the Scheme (i) Load Structure Exit Load : Nil (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) (ii) Recurring expenses as a percentage of average weekly Net Assets l First Rs. 100 crores : 2.25 l Next Rs. 300 crores : 2.00 l Next Rs. 300 crores : 1.75 l Balance : 1.50 (iii) Actual expenses for the previous financial year : 0.25% Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication For Investor Grievances please contact Please Refer to Page No. 26 Please Refer to Page No. 20 The NAV of the Fund will be calculated on all Business Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. on all business days. The NAV can also be viewed on the website of the Mutual Fund i.e. Please Refer to Page No. 26 Unitholders Information Please Refer to Page No Key Information Memorandum

102 Principal Money Manager Fund (An Open Ended Liquid Scheme) Investment Objective Asset Allocation Pattern of the Scheme Risk Profile of the Scheme Investment Plans & Options To generate steady return by investing in debt and money market securities. Please Refer to Page No. 23 Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized below: As with all Mutual Funds, the value of the Scheme(s) asset may rise or fall. Although the Scheme seeks to preserve the value of an investment at face value per unit it is possible to lose money by investing in the Scheme(s) if the units are redeemed when their value is less than the price paid for. The investment of capital in the scheme is therefore not guaranteed. Each of the plans (Regular Plan and Institutional Plan) will have a common portfolio. Both the plans offer Growth and Dividend. Dividend Option will have a frequency of declaration of dividend on a Daily, Weekly and Monthly basis having the facility of Re-investment, Pay-out and Sweep. Applicable NAV Please Refer to Page No. 24 Minimum Application Amount / Number of Units Despatch of Repurchase (Redemption) Request Benchmark Index Name of the Plan Purchase Additional Purchase Repurchase Regular Plan Rs 5,000 and any amount Subsequent investment of Rs 1,000 and Rs 1,000 or thereafter under each plan. any amount thereafter under each plan. 100 units Institutional Plan Rs 1 crore and any amount thereafter Subsequent investment of Rs. 1 lakh and Rs 1,000 or under the plan, with a minimum any amount thereafter under each plan. 100 units of 1 lakh in each option. Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. CRISIL Liquid Fund Index Dividend Policy Under Dividend Option, dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain in the Option and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Name of the Fund Manager Name of the Trustee Company Performance of the Scheme Mr. Badrish Kulhalli Principal Trustee Company Private Limited Returns (%) of Growth Option as at August 31, Period Returns (%) CRISIL Liquid Fund Index (%) Regular Plan Last 1 Year Since Inception* Institutional Plan Last 1 Year Since Inception* Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *December 28, Returns (%) Returns (%) Year-wise Returns Principal Money Manager Fund - Growth CRISIL Liquid Fund Index Year-wise Returns Principal Money Manager Fund - IP - Growth CRISIL Liquid Fund Index Expenses of the Scheme (i) Load Structure Exit Load: Nil. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) (ii) Recurring expenses as a percentage of average weekly Net Assets First Rs. 100 crores : 2.25% Next Rs. 300 crores : 2.00% Next Rs. 300 crores : 1.75% Balance : 1.50% (iii) Actual expenses for the previous financial year : Regular Plan : 0.67%, Institutional Plan : 0.06% Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication For Investor Grievances please contact Please Refer to Page No. 26 Please Refer to Page No. 20 The NAV of the Fund will be calculated on all Calendar Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. The NAV can also be viewed on the website of the Mutual Fund i.e. Please Refer to Page No. 26 Unitholders Information Please Refer to Page No. 26 Key Information Memorandum 17

103 Principal Tax Savings Fund (An open ended Equity Linked Savings Scheme) Free Personal Accident Death Insurance upto Rs. 5 lacs* (Details in the Scheme Information Document) Investment Objective Asset Allocation Pattern of the Scheme Risk Profile of the Scheme Investment Plans & Options To build a high quality growth-oriented portfolio to provide long-term capital gains to the investors. The scheme aims at providing returns through capital appreciation. Please Refer to Page No. 24 Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized on page 25. No Plans or Options at present Applicable NAV Please Refer to Page No. 24 Minimum Application Amount / Number of Units Despatch of Repurchase (Redemption) Request Benchmark Index Dividend Policy Name of the Fund Manager Name of the Trustee Company Purchase Additional Purchase Repurchase Rs. 500 and any amount thereafter Subsequent investment of Rs. 500 and Rs. 500 or 50 units any amount thereafter Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. BSE 200 Index The Fund reserves the right to change the said benchmark and / or adopt one / more other benchmarks to compare the performance of the Scheme. Dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Mr. Shyam Bhat Principal Trustee Company Private Limited Performance of the Scheme Returns (%) as at August 31, Period Returns (%) BSE 200 (%) Last 1 Year Year-wise Returns Last 3 Years Last 5 Years Since Inception* The past performance may or may not be sustained in the future. Returns (%) Note: Returns are calculated on compounded annualised basis. *March 31, Principal Tax Savings Fund BSE 200 Expenses of the Scheme (i) Load Structure Exit Load : Nil. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) (ii) Recurring expenses as a percentage of average weekly Net Assets l First Rs. 100 crores : 2.50 l Next Rs. 300 crores : 2.25 l Next Rs. 300 crores : 2.00 l Balance : 1.75 (iii) Actual expenses for the previous financial year : 2.37% Waiver of Load for Direct Applications Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication For Investor Grievances please contact Please Refer to Page No. 26 Please Refer to Page No. 20 The NAV of the Fund will be calculated on all Business Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. on all business days. The NAV can also be viewed on the website of the Mutual Fund i.e. Please Refer to Page No. 26 Unitholders Information Please Refer to Page No. 26 * Conditions Apply. 18 Key Information Memorandum

104 Principal Personal Tax Saver Fund (An open ended Equity Linked Savings Scheme) Investment Objective Asset Allocation Pattern of the Scheme The investment objective of the scheme is to provide long term growth of capital. The Investment Manager will aim to achieve a return on assets in excess of the performance of BSE 100 Index. Please Refer to Page No. 24 Free Accidental Death Insurance 150 times the No. of Units^ (Details in the Scheme Information Document) Risk Profile of the Scheme Mutual Fund Units involve investment risks including the possible loss of principal. Please read the Scheme Information Document carefully for details on risk factors before investment. Scheme specific risk factors are summarized on page 25. Investment Plans & Options No Plans or Options at present Applicable NAV Please Refer to Page No. 24 Minimum Application Amount / Number of Units Purchase Additional Purchase Repurchase Rs. 500 and any amount thereafter Subsequent investment of Rs. 500 and Rs. 500 or 50 units any amount thereafter Despatch of Repurchase (Redemption) Request Benchmark Index Dividend Policy Within 10 business days of the receipt of the redemption request at the Official Points of Acceptance of the Principal Mutual Fund. BSE 100 Index The Fund reserves the right to change the said benchmark and / or adopt one / more other benchmarks to compare the performance of the Scheme. Dividend will be declared subject to availability of distributable surplus and at discretion of AMC / Trustee. The undistributed portion of the income will remain and be reflected in the NAV, on an ongoing basis. The Trustee s decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Name of the Fund Manager Mr. Pankaj Tibrewal Name of the Trustee Company Principal Trustee Company Private Limited Performance of the Scheme Returns (%) as at August 31, Period Returns (%) BSE 100 (%) Year-wise Returns Last 1 Year Last 3 Years Last 5 Years Since Inception* Past performance may or may not be sustained in the future. Returns (%) Note: Returns are calculated on compounded annualised basis. *March 31, Principal Personal Tax Saver Fund BSE 100 Expenses of the Scheme (i) Load Structure Exit Load : Nil. (No load will be levied on Bonus units and units allotted on Reinvestment of Dividend) (ii) Recurring expenses as a percentage of average weekly Net Assets l First Rs. 100 crores : 2.50 l Next Rs. 300 crores : 2.25 l Next Rs. 300 crores : 2.00 l Balance : 1.75 (iii) Actual expenses for the previous financial year : 2.32% Waiver of Load for Direct Applications Please Refer to Page No. 26 Tax Treatment for the Investors (Unitholders) Daily Net Asset Value (NAV) Publication For Investor Grievances please contact Please Refer to Page No. 20 Unitholders Information Please Refer to Page No. 26 ^ Conditions Apply. Also subject to a maximum of Rs. 1 lakh. The NAV of the Fund will be calculated on all Business Days. The NAV will be published in 2 daily newspapers having nationwide circulation and will also be updated on the AMFI website i.e. by 9.00 P.M. on all business days. The NAV can also be viewed on the website of the Mutual Fund i.e. Please Refer to Page No. 26 Key Information Memorandum 19

105 TAX & LEGAL & GENERAL INFORMATION TAXATION ON INVESTING IN MUTUAL FUNDS The following tax implications are provided for general information purposes based on the law prevalent as on the date of this document. Such implications would have to be determined taking into account the specific facts of each individual case. Further, in the event of amendments to legislation pertaining to taxation from time to time, the nature and / or quantum of such benefits / implications is subject to change. Accordingly, it is recommended that each Unit holder appropriately consult his / her tax consultant with respect to the specific tax implications arising out of their participation in the Scheme. I. TO THE MUTUAL FUND: Income in the hands of the Mutual fund The entire income of the Mutual Fund registered under Securities and Exchange Board of India Act, 1992 or any regulations made thereunder is exempt from income-tax in accordance with the provisions of section 10(23D) of the Income-tax Act, 1961 ("the Act"). The income received by such Mutual Fund is not liable for deduction of income tax at source as per the provisions of Section 196(iv) of the Act. Where the Fund receives any income from investments made in overseas jurisdiction, the same may be subject to withholding in the relevant jurisdiction from which the income is received. As the income of the fund is exempt from tax in India, credit/ refund in respect of such foreign taxes may not be available in India. Tax on distribution of income by the Mutual Fund to the Unit holders Under section 115R of the Act, income distribution, if any, made by the Mutual Fund to the unit holders will attract distribution tax at the following rates: In case of Money Market Mutual Fund or Liquid 25% plus surcharge on such 10% and education cess and secondary and higher education 3% on the amount of tax and surcharge. In case of Other than Equity Oriented Fund, not being a Money Market Mutual Fund or a Liquid 12.5% plus surcharge on such 10% and education cess and secondary and higher education 3% on the amount of tax and surcharge, in case income is distributed to individuals and HUFs; 20% plus surcharge on such 10% and education cess and secondary and higher education 3 % on the amount of tax and surcharge, in case of income distributed to persons other than individuals and HUFs. Proviso (b) to Section 115R (2) of the Act provides exemption to equity oriented mutual funds from paying distribution tax on income distributed. The expression "money market mutual fund" has been defined under Explanation (d) to Section 115T which means a scheme of a mutual fund which has been set up with the objective of investing exclusively in money market instruments as defined in subclause (p) of clause (2) of the Securities and Exchange Board of India (Mutual Funds) Regulations,1996. The expression" liquid fund" has been defined under Explanation (e) to Section 115T which means a scheme or plan of a mutual fund which is classified by the Securities and Exchange Board of India as a liquid fund in accordance with the guidelines issued by it in this behalf under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulations made thereunder. The expression "equity oriented fund" has been defined under Explanation (b) to Section 115T of the Act to include a fund where the investible funds are invested by way of equity shares in domestic companies to the extent of more than sixty-five per cent of the total proceeds of such fund. II. TO THE UNIT HOLDERS: Deduction from total income Under section 80C of the Act, an assessee, being an individual or HUF, is eligible to claim a deduction upto an aggregate of Rs. 1 lacs on account of sums paid as subscription to units of an Equity Linked Savings Scheme. The expression "Equity Linked Savings Scheme " refers to Equity Linked Savings Scheme, 2005 as notified by the Central Board of Direct Taxes, Ministry of Finance vide notification dated November 3, 2005 as amended vide notification dated December 13, Securities Transaction Tax Under Chapter VII of Finance (No. 2) Act, 2004 the unit holder is liable to pay Securities Transaction Tax ("STT") in respect of "taxable securities transaction" at the applicable rates. Taxable securities transactions include purchase or sale of units of an equity oriented fund, entered into on the stock exchange or sale of units of an equity oriented fund to the mutual fund. The purchaser and seller of units of an equity oriented fund are liable to pay % each where the purchase and sale is entered into on a recognized stock exchange and the contract for the purchase and sale of such units is settled by actual delivery or transfer of such units. Further, the seller of units is also liable to pay % in case of sale of units of an equity oriented fund where the transaction of such sale is entered into on a recognized stock exchange and the contract for the sale of such units is settled otherwise than by the actual delivery or transfer of such units. At the time of sale of units of equity oriented fund to the mutual fund, the seller is required to pay an 0.25%. The securities transaction tax paid by the assessee during the year in respect of taxable securities transactions entered in the course of business shall be allowed as deduction under section 36 of the Act subject to the condition that such income from taxable securities transactions is included under the head 'profits and gains of business or profession'. Incomes from Units Under the provisions of section 10(35) of the Act, any income (other than income arising from transfer of units) received by any person in respect of the units of the mutual fund is exempt from income tax. Further, in case of distribution of income already paid by the Scheme, the Trustee / AMC reserves the right to recover the additional income-tax on distribution of income so paid from the unit holders of respective Plan/option. # Including applicable surcharge, education cess and secondary and higher education cess. Gains on transfer / redemption of Units Gains arising on transfer / redemption of Units as well as switching between schemes will be chargeable to tax under the Act. The characterization of income from investment in securities as 'business income' or 'capital gains' will have to be examined on a caseto-case basis. Business Income Where the units are regarded as Business Asset, then any gain arising from transfer / redemption of Units would be taxed under the head "Profits and Gains of Business or Profession" under section 28 of the Act. The gain / loss is to be computed under the head "Profits and Gains of Business or Profession" after allowing normal business expenses (inclusive of the expenses incurred on transfer). Business Income is chargeable to tax at the following rates: Assessee % of Income Tax Individuals, HUF, Association of Persons Applicable Slab Rates Partnership Firms [including Limited Liability 30% Partnerships (LLPs)] & Indian Corporates Foreign Company 40% The income tax rates specified above and elsewhere in this document are exclusive of the applicable surcharge, education cess and secondary and higher education cess. The Finance Bill (No.2), 2009 has proposed the following changes in the applicable rates for surcharge: Assessee % of Income Tax Individual (including proprietorships), HUF, Nil Association of Persons and Partnership Firms (including LLPs) Indian Corporates (if income exceeds Rs. 1 crore) 10% Foreign Company 2.5% (if income exceeds Rs. 1 crore) Additionally, education cess and secondary and higher education cess is 3% on the income tax and surcharge as computed above. Capital Gains The mode of computation of capital gains would be as follows: Sale Consideration xxx Less: Cost of Acquisition (Note 1) (xxx) Expenses on Transfer (Note 2) (xxx) Capital Gains xxx Note 1: In case of the computation of long-term capital gains, option of indexation of cost is available. Note 2: This would include only expenses relating to transfer of units. Normal business expenses would not be allowable. Capital gain arising on transfer or redemption of units held for a period of more than 12 months is regarded as "Long-term Capital Gain" which otherwise would be "Short-term Capital Gain". In case of ELSS, the units are subject to a lock-in of 3 years. Accordingly, any sale of units after such lock-in will qualify as Long-term Capital Gain. Long term capital gains In case of Other than Equity Oriented Fund, including Money Market Mutual Fund or a Liquid Fund As per section 112 of the Act, tax on income on long term capital gains arising from the transfer of units shall be lower of the following amount: (i) 10% plus applicable surcharge and education cess at the rate of 3% on the amount of tax and surcharge, on the Long-term Capital Gains computed without substituting indexed cost of acquisition in place of the cost of acquisition; or (ii) 20% plus applicable surcharge and education cess at the rate of 3% on the amount of tax and surcharge, on the Long-term Capital Gain computed after substituting indexed cost of acquisition in place of the cost of acquisition. The benefit of indexation will, however, not be available to specified Offshore Fund which are 10% plus applicable surcharge and education cess at the rate of 3% on the amount of tax and surcharge in terms of section 115AB of the Act. The benefit of indexation will, also, not be available to Foreign Institutional Investors who are taxed under section 115AD of the 10% plus applicable surcharge and education cess at the rate of 3% on the amount of tax and surcharge. The income by way of long term capital gains of a company would be taken into account in computing the book profits and Minimum Alternate Tax payable, if any, under Section 115JB of the Act (irrespective of whether or not it is exempt under Section 10(38) of the Act). 20 Key Information Memorandum

106 In case where the taxable income as reduced by Long-term Capital Gains of a resident individual and Hindu Undivided family is below the taxable limit, the Long-term Capital gain will be reduced to the extent of such shortfall and only the balance Long-term Capital Gain is chargeable to Income-tax. The following deductions are available from Long-term Capital Gains arising on sale of Mutual Fund units, if the sale proceeds are invested in eligible avenues: Section 54 EC Section 54F Eligible persons All assesses Individual and HUFs Asset to be Specified Bonds of Residential house purchased to claim National Highways property exemption Authority of India and Rural Electrification Corporation Limited (cap of Rs. fifty lakhs in a financial year) Time-limit for 6 months Purchase: 1 year purchase from backward / 2 years date of sale of forward & MF units Construction: 3 years forward Amount Exempt Investment in the new Capital gains proportionate asset or capital gain to the investment made whichever is lower from the sale proceeds (subject to other conditions of owning / purchasing residential house mentioned in the section) Lock-in period 3 years 3 years The investment under section 54EC on account of which exemption has been claimed from long-term capital gains, will not be available for deduction under section 80C of the Act. In case of Equity Oriented Fund including ELSS Units of Equity Oriented fund including ELSS being subjected to STT. Long Term capital Gains arising from transfer of such units are exempt under section 10(38) of the Act. The mutual fund would recover STT from the unit holder as per the applicable rates. Short-term Capital Gain In case of Other than Equity Oriented Fund, including Money Market Mutual Fund or a Liquid Fund Short term capital gains arising from the transfer of units of funds other than equity oriented scheme would be chargeable to tax as under: Short term capital gains are taxed at the normal rates applicable to each unitholder. In case where the taxable income as reduced by Short-term Capital Gains of a resident individual and Hindu Undivided family is below the taxable limit, the Short-term Capital gain will be reduced to the extent of such shortfall and only the balance Short-term Capital Gain is chargeable to Income-tax. In case of Equity Oriented Fund Short Term Capital Gains arising from transfer of units of an Equity Oriented scheme (as defined u/s 115T of the Income Tax Act, 1961), being subjected to STT would be charged to tax u/s 111-A of the Income Tax Act, 15% (plus applicable surcharge, education cess and secondary and higher education cess). The mutual fund would recover STT from the unit holder at the applicable rates when the units are repurchased by the mutual fund/ redeemed by the investor. In case where the taxable income as reduced by Short-term Capital Gains of a resident individual and Hindu Undivided family is below the taxable limit, the Short-term Capital Gain will be reduced to the extent of such shortfall and only the balance Short-term Capital Gain is chargeable to Income-tax. Deduction of income tax at Source From Capital Gains Resident Unit holders No income tax is required to be deducted at source from capital gains arising on transfer of units by resident unit holders. Non-Resident unit holders In case of Other than Equity Oriented Fund (Other than Offshore Fund) Income-tax is required to be deducted at source from the capital gains under section 195 of the Act at the applicable rates. Under the Act, the following rates have been prescribed for deduction of tax at source from capital gains: On income by way of long-term capital 20% (plus surcharge and education cess, if applicable) On income by way of short-term capital gains at normal rates as applicable under Business Income. In the case of an assessee of a country with which a DTAA is in force, the tax should be withheld as per provisions in the Act or as per the provisions in the DTAA which ever is more beneficial to the non-resident holder. However, such a non-resident unit holder will be required to provide appropriate documents to the Fund, to be entitled to a beneficial rate under such DTAA. Offshore Fund Under Section 196B of the Act, tax shall be deducted at source from the long term capital 10% plus applicable surcharge, education cess and secondary and higher education cess at the rate of 3% on the amount of tax and surcharge. Income-tax is required to be deducted at source from the short-term capital gains under section 195 of the Act at the applicable rates. In the case of an assessee of a country with which a DTAA is in force, the tax should be withheld as per the provisions of the Act or the provisions in the DTAA which ever is more beneficial to the assessee. However, the Unit holder will be required to provide appropriate documents to the Fund, to be entitled to a beneficial rate under such DTAA. In case of Equity Oriented Fund (including Offshore Fund) Income-tax is required to be deducted at source from the capital gains under section 195 of the Act at the applicable rates. In the case of an assessee of a country with which a DTAA is in force, the tax should be withheld as per provisions in the Act or as per the provisions in the DTAA which ever is more beneficial to the non-resident holder. However, such a non-resident unit holder will be required to provide appropriate documents to the Fund, to be entitled to a beneficial rate under such DTAA. Foreign Institutional Investors As per the provisions of section 196D of the Act, no deduction of tax shall be made from any income, by way of capital gains arising from the transfer of securities referred to in section 115AD, payable to a Foreign Institutional Investor. Default in furnishing the PAN The Finance Bill (No.2), 2009 has proposed an amendment, where the deductee is required to mandatorily furnish his PAN to the deductor failing which the deductor shall deduct tax at source at higher of the following rates: 1. the rate prescribed in the Act; 2. at the rate in force i.e., the rate mentioned in the Finance Act; or 3. at the rate of 20%. The amendment is effective from April 1, Dividend Stripping As per Section 94(7) of the Act, loss arising on sale of units, which are bought within 3 months of the record date and sold within 9 months after the record date, shall be ignored for the purpose of computing income chargeable to tax to the extent of exempt income received or receivable on such Units. Bonus Stripping As per Section 94 (8) of the Act, units purchased within a period of 3 months prior to record date of entitlement of bonus and sold within a period of 9 months after such date, the loss arising on transfer of original units shall be ignored for the purpose of computing the income chargeable to tax. The amount of loss so ignored shall be deemed to be the cost of purchase / acquisition of the bonus units. III. Religious and Charitable Trust Investments in Units of the Mutual Fund will rank as an eligible form of investment under section 11(5) of the Act read with Rule 17C of the Income tax Rules, 1962 for Religious and Charitable Trust. IV. Wealth-tax Units held under the Scheme of the Fund are not treated as assets within the meaning of section 2(EA) of the Wealth-tax Act, 1957 and are, therefore, not liable to Wealthtax. V. Gift-tax The Gift -Tax Act, 1958 has been repealed since October 1, Gift of units of Mutual fund units would be subject to income-tax in the hands of the donor. The Finance (No.2) Bill, 2009 has proposed an amendment to section 56(2) and section 2(24) treating the receipts of securities, fair market value of which exceeds fifty thousand rupees, without consideration or without adequate consideration as income in the hands of individuals / HUFs. Further the amendment shall not apply to any units received by the donee - (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer or donor, as the case may be; or (e) from any local authority as defined in the Explanation to clause (20) of section 10 of the Act; or (f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10 of the Act; or (g) from any trust or institution registered under section 12AA of the Act. Relative shall mean: (i) spouse of the individual; (ii) brother or sister of the individual; (iii) brother or sister of the spouse of the individual; (iv) brother or sister of either of the parents of the individual; (v) any lineal ascendant or descendant of the individual; (vi) any lineal ascendant or descendant of the spouse of the individual; (vii) spouse of the person referred to in clauses (ii) to (vi) Key Information Memorandum 21

107 ASSET ALLOCATION PATTERN FOR PRINCIPAL LARGE CAP FUND Under normal circumstances, the asset allocation would be as follows: Types of Instruments % of Net Assets Risk Minimum Maximum Profile 1) Large Cap Equity and Equity related instruments** 65% 100% High 2) Equity & Equity related instruments (other than in (1) above) 0% 35% High 3) Money Market Instruments 0% 30% Low to Medium ** For the purpose of this Fund, Large Cap Companies are defined as those having market capitalisation greater than Rs, 750 crore as on the date of investment (or any such amount as may be specified by India Index Services and Products Limited (IISL) from time to time) being the upper limit of market capitalisation as a criteria for inclusion of a company in CNX Midcap 200 Index. However, should IISL come out with a definition of 'Large Cap companies', the same will be utilised. The AMC reserves the right to invest in foreign securities and derivatives as follows:- Particulars % of Net Assets Investment in ADR/ GDR and Not exceeding 30% of the Net Assets of the scheme foreign securities (equity and (subject to a maximum limit of US $300 million) or equity related instruments) such other limit as specified by SEBI from time to time. Equity Derivatives Not exceeding 50% of the Net assets subject to limits as specified by SEBI from time to time. ASSET ALLOCATION PATTERN FOR PRINCIPAL SERVICES INDUSTRIES FUND Under normal circumstances, the asset allocation would be as follows: Types of Instruments % of Net Assets Risk Minimum Maximum Profile Equity and Equity Related Instruments of 70% 100% High Services Industries Debt (including securitised debt*) and 0% 30% Low to Money market instruments Medium * Investment in the securitised debt may be up to 30% of the net assets of the Scheme The Asset Management Company reserves the right to invest in foreign securities and derivatives as follows: Particulars % of Net Assets Investment in ADR/ GDR and Not exceeding 30% of the Net Assets of the scheme foreign securities (equity and (subject to a maximum limit of US $300 million) or equity related instruments) such other limit as specified by SEBI from time to time. Equity Derivatives Not exceeding 50% of the Net assets subject to limits as specified by SEBI from time to time. ASSET ALLOCATION PATTERN FOR PRINCIPAL BALANCED FUND Under normal circumstances, the asset allocation will be as under: Types of Instruments % of Net Assets Risk Minimum Maximum Profile Equity & Equity Related Instruments 51% 70% Medium to High Debt (including Securitised Debt upto 20%) 30% 49% Low to and Money Market Instruments Medium The Asset Management Company reserves the right to invest in derivatives as follows: Particulars % of Net Assets Derivatives Upto 50% of the net assets of the Scheme Investment in Overseas Financial Instruments are as follows: Particulars % of Net Assets ADRs / GDRs Not exceeding 15% of the Scheme's Assets Overseas Financial Debt Instruments Not exceeding 25% of the Scheme's Assets including overseas Mutual Funds Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. ASSET ALLOCATION PATTERN FOR PRINCIPAL DIVIDEND YIELD FUND Under normal circumstances, the asset allocation would be as follows: Types of Instruments % of Net Assets Risk Minimum Maximum Profile Equity and equity related instruments of high dividend-yield companies* High Other equity and equity-related instruments 0 35 High Cash and Money Market Instruments 0 20 Low to Medium * High dividend-yield companies are defined as those having a dividend-yield (i.e last declared dividend as a percentage of the market price at the time of investment) higher than 1.5 times that of the NSE Nifty on the earlier trading day. The scheme intends to use derivatives for purposes that may be permitted by SEBI (Mutual Funds) Regulations, 1996 from time to time. The scheme shall have a maximum net derivatives position up to 50% of the portfolio The Scheme may also invest in overseas financial debt instruments including units of overseas mutual funds, as detailed below:- Investments will only be made in instruments denominated in US Dollar, Singapore Dollar, Japanese Yen, Euro or Sterling Pound on in any other liquid currency as may be decided by the AMC from time to time and will be subject to following limits: Particulars % of Net Assets Investment in overseas financial Not exceeding 35% of the Scheme's assets subject to debt instruments including a maximum limit of US $300 million per mutual fund units of overseas mutual funds or such other limit as specified by SEBI from time to time. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. ASSET ALLOCATION PATTERN FOR PRINCIPAL EMERGING BLUECHIP FUND Under normal circumstances, the asset allocation would be as follows: Types of Instruments % of Net Assets Risk Minimum Maximum Profile Equity & Equity related instruments of 65% 95% High Mid Cap Companies Equity & Equity related instruments of 5% 15% High Small Cap Companies Equity & Equity related instruments of 0% 30% High Companies other than Mid & Small Cap Companies Total Equity 70% 100% High Cash and Money Market / 0% 30% Low to Fixed Income Securities Medium (including MIBOR Linked Short Term Papers & Securitised Debt*) * Investment in Securitised Debt may be up to 30% of the net assets of the Scheme. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Note: The Asset Management Company (AMC) reserves the right to invest in derivatives (Equity Derivatives) not exceeding 50 % of the Net Assets, subject to limits specified by SEBI from time to time. The AMC further reserves the right to invest in foreign securities and derivatives subject to SEBI/RBI or any other Regulatory Authorities permitted from time to time. 22 Key Information Memorandum

108 ASSET ALLOCATION PATTERN FOR PRINCIPAL CHILD BENEFIT FUND Under normal circumstances, the asset allocation would be as follows: Types of Instruments % of Net Assets Risk Minimum Maximum Profile Equity & Equity Related Instruments 65% 75% Medium to High Debt and Money Market Instruments 25% 35% Low to (including Securitised Debt) Medium Investment in Securitised Debt may be up to 25% of the net assets of the Scheme. The Asset Management Company reserves the right to invest in derivatives as follows: Particulars % of Net Assets Derivatives Upto 50% of the net assets of the Scheme Investment in Overseas Financial Instruments are as follows: Particulars % of Net Assets ADRs / GDRs Not exceeding 15% of the Scheme's Assets Overseas Financial Debt Instruments Not exceeding 25% of the Scheme's Assets including overseas Mutual Funds Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. ASSET ALLOCATION PATTERN FOR PRINCIPAL INCOME FUND Under normal circumstances, the asset allocation would be as follows: Principal Income Fund Types of Instruments Normal Allocation Risk (% of Net Assets) Profile Debt Securities Upto 100% Low to Medium Money Market Instruments Upto 100% Low Securitised Debt Upto 50% Low to Medium Investment in derivatives shall be upto 35% of the net assets of the Scheme. Investment in Overseas Financial Debt Instruments including units of Overseas Mutual Funds shall not be exceeding 25% of the Scheme's assets. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Principal Income Fund - Short Term Plan Types of Instruments Normal Allocation Risk (% of Net Assets) Profile Debt Securities Upto 100% Low to Medium (including securitised debt upto 50%) Money Market Instruments Upto 100% Low Investment in derivatives shall be upto 35% of the net assets of the Scheme. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. ASSET ALLOCATION PATTERN FOR PRINCIPAL MONEY MANAGER FUND Under normal circumstances, the asset allocation would be as follows: Types of Instruments Normal Allocation Risk (% of Net Assets) Profile Debt Instruments & Money Market Upto 100% Low to Medium Instruments (Including MIBOR linked instruments with daily put and call option) Investment in Securitised Debt may be up to 50% of the net assets of the Scheme. The Scheme may also invest up to 50% of net assets of the Scheme in such derivative instruments as may be introduced from time to time for the purpose of hedging and portfolio balancing and other uses as may be permitted under the SEBI (Mutual Funds) Regulations, Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Pursuant to the SEBI circular dated January 19, 2009 the Scheme can make investment in / purchase Debt and Money Market Instruments with the maturity of up to 91 days only. ASSET ALLOCATION PATTERN FOR PRINCIPAL MONTHLY INCOME PLAN AND PRINCIPAL MONTHLY INCOME PLAN - MIP PLUS Under normal circumstances, the asset allocation would be as follows: Principal Monthly Income Plan Types of Instruments Normal Allocation Risk (% of Net Assets) Profile Debt & Money Market Instruments Upto 100% Low to Medium (including Securitised Debt upto 50%) Equity / Related Instruments Upto 15% Medium to High Investment in derivatives shall be upto 35% of the net assets of the Scheme. Investment in ADRs / GDRs shall be not exceeding 15% of the Scheme's assets. Investment in Overseas Financial Debt Instruments including units of Overseas Mutual Funds shall not be exceeding 25% of the Scheme's assets. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Principal Monthly Income Plan - MIP Plus Types of Instruments Normal Allocation Risk (% of Net Assets) Profile Debt Securities Upto 100% Low to Medium (including Securitized Debt upto 50%) Equity and Equity Related Instruments Upto 25% Medium to High Investment in derivatives shall be upto 35% of the net assets of the Scheme. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. ASSET ALLOCATION PATTERN FOR PRINCIPAL FLOATING RATE FUND - FLEXIBLE MATURITY PLAN Under normal circumstances, the asset allocation would be as follows: Types of Instruments Normal Allocation Risk Profile (% of Net Assets) Floating Rate Debt Instruments* 65 to 100% Low to Medium Fixed Rate Debt Instruments 0 to 35% Low to Medium *Floating rate instruments include fixed rate instruments swapped for floating rate returns. Investment in Overseas Financial Debt Instruments including units of Overseas Mutual Funds not exceeding 75% of the Scheme's assets (subject to maximum of US $300 million) or such other limit as specified by SEBI from time to time. The scheme will not invest more than 50% of its assets in the purchase of Securitised Indices, Financial future contracts etc. The fund shall take exposure on a non-leveraged basis. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. ASSET ALLOCATION PATTERN FOR PRINCIPAL FLOATING RATE FUND - SHORT MATURITY PLAN Under normal circumstances, the asset allocation would be as follows: Types of Instruments Normal Allocation Risk Profile (% of Net Assets) Floating Rate Debt Instruments* 65 to 100% Low Fixed Rate Debt Instruments 0 to 35% Low *Floating rate instruments include fixed rate instruments swapped for floating rate returns. Investment in Overseas Financial Debt Instruments including units of Overseas Mutual Funds not exceeding 75% of the Scheme's assets (subject to maximum of US $300 million) or such other limit as specified by SEBI from time to time. The scheme will not invest more than 50% of its assets in the purchase of Securitised Indices, Financial future contracts etc. The fund shall take exposure on a non-leveraged basis. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Pursuant to the SEBI circular dated January 19, 2009 the Scheme can make investment in / purchase Debt and Money Market Instruments with the maturity of up to 91 days only. Key Information Memorandum 23

109 ASSET ALLOCATION PATTERN FOR PRINCIPAL CASH MANAGEMENT FUND - LIQUID OPTION Under normal circumstances, the asset allocation would be as follows: Types of Instruments Normal Allocation Risk Profile (% of Net Assets) Call / Term Money / Repos / Reverse Repos / Upto 100% Low to medium Deposits with Banks Bill Re-discounting Upto 50% Low to medium Other equivalent Money Market Instruments Upto 100% Very Low Debt (including Securitised Debt) Upto 50% Low to medium instruments other than those above The Scheme may upto 35% of the net assets of the Scheme invest in Derivatives. The Scheme may also invest Scheme in Overseas financial debt instruments including units of overseas mutual funds not exceeding than 25% of the net assets of the Scheme Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Pursuant to the SEBI circular dated January 19, 2009 the Scheme can make investment in / purchase Debt and Money Market Instruments with the maturity of up to 91 days only. ASSET ALLOCATION PATTERN FOR PRINCIPAL TAX SAVINGS FUND Under normal circumstances, the asset allocation would be as follows: Types of Instruments Normal Allocation Risk Profile (% of Net Assets) Equity and Equity Linked Instruments Not less than 80% High Debt securities (*including securitised debt) Upto 20% Low to Medium and Money market instruments The Scheme may invest upto 50% of the net assets of the Scheme in derivatives. * Investment in Securitised Debt may be up to 20% of the net assets of the Scheme. The AMC further reserves the right to invest in foreign securities and derivatives subject to SEBI/RBI or any other Regulatory Authorities permitted from time to time. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. ASSET ALLOCATION PATTERN FOR PRINCIPAL PERSONAL TAX SAVER FUND Under normal circumstances, the asset allocation would be as follows: Types of Instruments Normal Allocation Risk Profile (% of Net Assets) Equity and Equity Linked Instruments Not less than 80% High Debt securities (*including securitised debt) Upto 20% Low to Medium and Money market instruments The Scheme may invest up to 50% of the net assets of the Scheme in derivatives * Investment in Securitised Debt may be up to 20% of the net assets of the Scheme. The AMC further reserves the right to invest in foreign securities and derivatives subject to SEBI/RBI or any other Regulatory Authorities permitted from time to time. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 40% of its total net assets of the Scheme in Stock Lending. APPLICABLE NAV FOR ALL SCHEME(S) / PLAN(S) OF PRINCIPAL MUTUAL FUND EXCEPT LIQUID SCHEME(S) / PLAN(S) AND PRINCIPAL GLOBAL OPPORTUNITIES FUND: For Subscription / Switch in / Sweep: a. In respect of valid applications received upto 3.00 pm with a local cheque or demand draft payable at par at the Official Points of Acceptance of Transactions where it is received, the closing NAV of the day of receipt of application shall be applicable; b. In respect of valid applications received after 3.00 pm with a local cheque or demand draft payable at par at the Official Points of Acceptance of Transactions where it is received, the closing NAV of the next business day shall be applicable; and c. In respect of the valid applications received with an outstation cheque or demand draft not payable on par at the Official Points of Acceptance of Transactions where the application is received, the closing NAV of day on which the cheque or demand draft is credited shall be applicable. For Redemptions / Switch out: a. In respect of valid applications received upto 3.00 p.m. at the Official Points of Acceptance of Transactions, the closing NAV of the day of receipt of application shall be applicable; and b. In respect of valid applications received after 3.00 p.m. at the Official Points of Acceptance of Transactions, the closing NAV of the next business day shall be applicable. Applicable for Principal Monthly Income Plan, Principal Monthly Income Plan - MIP Plus, Principal Income Fund, Principal Income Fund - Short Term Plan, Principal Floating Rate Fund - Flexible Maturity Plan, Principal Ultra Short Term Fund and Principal Government Securities Fund: In respect of purchase / switch-in of units in any of the above mentioned schemes for an amount equal to or more than Rs.1 crore, irrespective of the time of receipt of application, the closing NAV (Net Asset Value) of the day on which the funds are available for utilization shall be applicable. APPLICABLE NAV FOR LIQUID SCHEMES / PLANS OF PRINCIPAL MUTUAL FUND: For Subscription / Switch in / Sweep: a. In respect of valid applications received upto noon on a day at the Official Points of Acceptance of Transactions and the funds are available for utilization on the same day, the closing NAV of the day immediately preceding the day of receipt of application shall be applicable; b. In respect of valid applications received after noon on a day at the Official Points of Acceptance of Transactions and the funds are available for utilization on the same day, the closing NAV of the day immediately preceding the next Business Day shall be applicable; and c. Irrespective of the time of receipt of application at the Official Points of Acceptance of Transaction, where the funds are not available for utilization on the day of the application, the closing NAV of the day immediately preceding the day on which the funds are available for utilization shall be applicable. For Redemptions / Switch out: a. In respect of valid applications received upto 3.00 p.m. at the Official Points of Acceptance of Transactions, the closing NAV of the day immediately preceding the next Business Day shall be applicable; and b. In respect of valid applications received after 3.00 p.m. at the Official Points of Acceptance of Transactions, the closing NAV of the next Business Day shall be applicable. APPLICABLE NAV FOR PRINCIPAL GLOBAL OPPORTUNITIES FUND For Subscriptions / Switch-in: a. In respect of valid applications received upto p.m. by the Fund along with a local cheque or a demand draft payable at par at the place where the application is received, the closing NAV of the day on which application is received shall be applicable. b. In respect of valid applications received after p.m. by the Fund along with a local cheque or a demand draft payable at par at the place where the application is received, the closing NAV of the next Business Day shall be applicable. For Redemptions / Switch-out: a. In respect of valid applications received upto p.m. by the Mutual Fund, same day's closing NAV shall be applicable. b. In respect of valid applications received after p.m. by the Mutual Fund, the closing NAV of the next Business Day shall be applicable. Cut off time as mentioned above shall be reckoned at the Official Points of Acceptance of transactions as disclosed in the Scheme Information Document, KIM and the web-site, 24 Key Information Memorandum

110 RISK PROFILE OF THE SCHEME: PRINCIPAL GROWTH FUND: Prices of equity securities rise and fall in response to a number of factors including events that impact entire financial markets or industries (for example, changes in inflation or consumer demand) as well as events impacting a particular issuer (for example, news about the success or failure of a new product). The Securities purchased by the Scheme present greater opportunities for growth because of high potential earnings growth, but may also involve greater risks than securities that do not have the same potential. The Scheme may invest in companies with limited product lines, markets or financial resources. As a result, these securities may change in value more than those of larger, more established companies. As the value of the securities owned by the Scheme changes, the Scheme unit price changes. In the shortterm, the price can fluctuate dramatically. As with all Mutual Funds, as the value of the Scheme's assets rise and fall, the Scheme unit price changes. If the units are redeemed when their value is less than the price paid for, money may be lost by the unitholder. PRINCIPAL GLOBAL OPPORTUNITIES FUND Mutual Fund Units involve investment risks including the possible loss of principal. Please read the SID carefully for details on risk factors before investment. Scheme specific Risk Factors are summarized below: The Scheme will predominantly invest in Principal Global Investors Funds Emerging Market Equity Fund (PGI-EMEF), a Fund advised by Principal Global Investors LLC USA. Scheme may also invest, at the discretion of the Trustee in the units of other similar overseas mutual fund schemes, which may constitute a significant part of its corpus. Hence all the risks associated with investment in PGI-EMEF or other similar overseas mutual funds including performance of their underlying units, stocks, off-shore investments etc., will be applicable. Any change in the investment policies or the fundamental attributes of PGI-EMEF or in underlying schemes of any other similar Overseas Mutual Fund where the Scheme may invest could impact the performance of the Scheme. Further a certain portion of the scheme corpus may also be invested in money market securities and /or units of money market/liquid schemes of Principal Mutual Fund and therefore value of such investments held by the scheme generally will vary inversely with changes in prevailing interest rates. PRINCIPAL DIVIDEND YIELD FUND: 1. Though the investments would be made in companies having a track record of dividend payments, the performance of the scheme would inter-alia depend on the ability of these companies to sustain dividends in future. 2. These stocks, at times, may be relatively less liquid as compared to growth stocks. 3. The securities in the fund would be predominantly characterized as those having a value style. There could be time periods when securities of this nature would under-perform relative to other stocks in the market. This could have an impact on the relative performance of the fund over differing time periods. PRINCIPAL INDEX FUND: The value of the equity securities owned by the Scheme changes on a daily basis. Equity Securities, prices reflect the activities of individual companies and general market and economic conditions. In the short term, equity security prices can fluctuate dramatically in response to these factors. Tracking Error: The performance of the Scheme may not be commensurate with the performance of the Nifty on any given day or over any given period. Such variation, referred to as tracking errors as defined elsewhere in this Scheme Information Document may result from a variety of factors including but not limited to: _ The Nifty reflects the prices of securities at close of business hours. However the Scheme may buy or off-load securities at different points of time during the trading session at the then prevailing prices which may not correspond to the closing prices on the NSE. _ IISL undertakes a periodical review of the scrips that comprise the Nifty and may either drop or include new securities. In such an event the Scheme will endeavour to reallocate its portfolio but the available investment opportunities may not permit precise mirroring of the Nifty. _ Dis-investments to meet exits of investors, recurring expenses, etc. as elsewhere indicated in this Scheme Information Document. As with all Mutual Funds, the value of the Scheme's assets under this option may rise or fall. If units are redeemed when their value is less than the price paid for money may be lost by the Unitholder. PRINCIPAL CHILD BENEFIT FUND: The value of the equity securities owned by the Scheme changes on a daily basis. Equity Securities, prices reflect the activities of individual companies and general market and economic conditions. In the short term, equity security prices can fluctuate dramatically in response to these factors. Debt security values change daily. Their prices reflect interest rates, market conditions and announcements of other economic, political or financial information. When interest rates fall, the price of a debt security rises and when interest rate rise, the price declines. As with all Mutual Funds, the value of the Scheme's assets may rise or fall. If units are redeemed when their value is less than the price paid for money may be lost by the Unitholder. PRINCIPAL RESURGENT INDIA EQUITY FUND: Prices of equity securities rise and fall in response to a number of factors including events that impact entire financial markets or industries (for example, changes in inflation or consumer demand) as well as events impacting a particular issuer (for example, news about the success or failure of a new product). The Securities purchased by the Scheme present greater opportunities for growth because of high potential earnings growth, but may also involve greater risks than securities that do not have the same potential. The Scheme may invest in companies with limited product lines, markets or financial resources. As a result, these securities may change in value more than those of larger, more established companies. As the value of the securities owned by the Scheme changes, the Scheme unit price changes. In the shortterm, the price can fluctuate dramatically. As with all Mutual Funds, as the value of the scheme s assets rise and fall, the Scheme unit price changes. If the units are redeemed when their value is less than the price paid for, money may be lost by the unitholder. PRINCIPAL INCOME FUND: When interest rates fall, the price of a debt security rises and when interest rates rise, the price declines. In addition, the value of securities held by the Scheme may be affected by factors such as credit rating of the entity that issues the debt security and effective maturities of the debt securities. Lower quality and longer maturity debt securities will be subject to greater credit risk and price fluctuations than higher quality and shorter maturity debt securities. As with all mutual funds, if the units are redeemed when their value is less than the price paid for, money may be lost by the Unitholder. PRINCIPAL FLOATING RATE FUND - FLEXIBLE MATURITY PLAN When interest rates fall, the price of a debt security rises and when interest rates rise, the price declines. In addition, the value of securities held by the Scheme may be affected by factors such as credit rating of the entity that issues the debt security and effective maturities of the debt securities. Lower quality and longer maturity debt securities will be subject to greater credit risk and price fluctuations than higher quality and shorter maturity debt securities. As with all mutual funds, if the units are redeemed when their value is less than the price paid for, money may be lost by the Unitholder. PRINCIPAL FLOATING RATE FUND - SHORT MATURITY PLAN As with all Mutual Funds, the value of the Scheme'(s) asset may rise or fall. Although the Scheme seeks to preserve the value of an investment at face value per unit it is possible to lose money by investing in the Scheme(s) if the units are redeemed when their value is less than the price paid for. The investment of capital in the scheme is therefore not guaranteed. PRINCIPAL MONTHLY INCOME PLAN When interest rates fall, the price of a debt security rises and when interest rates rise, the price declines. In addition, the value of securities held by the Scheme may be affected by factors such as credit rating of the entity that issues the debt security and effective maturities of the debt securities. Lower quality and longer maturity debt securities will be subject to greater credit risk and price fluctuations than higher quality and shorter maturity debt securities. As with all Mutual Funds, if the units are redeemed when their value is less than the price paid for, money may be lost by the Unitholder. The value of the equity securities owned by the Scheme changes on a daily basis. Equity security prices reflect the activities of individual companies and general market and economic conditions. In the short term, equity security prices can fluctuate dramatically in response to these factors. PRINCIPAL GOVERNMENT SECURITIES FUND Prices of government securities rise and fall in response to a number of factors including events that impact entire financial markets or industries (for example, changes in inflation or consumer demand). The Securities purchased by the Scheme present greater degree of safety in terms of credit risk but may also involve greater interest rate risks. As a result, these securities may change in value. As the value of the securities owned by the Scheme changes, the Scheme unit price changes. In the short-term, the price can fluctuate dramatically. As with all mutual funds, if the values of the scheme's assets rise and fall, the Scheme unit price changes. If the units are redeemed when their value is less than the price paid for, money may be lost by the unitholder. PRINCIPAL TAX SAVINGS FUND AND PRINCIPAL PERSONAL TAX SAVER FUND Prices of equity securities rise and fall in response to a number of factors including events that impact entire financial markets or industries (for example, changes in inflation or consumer demand) as well as events impacting a particular issuer (for example, news about the success or failure of a new product). The Securities purchased by the Scheme present greater opportunities for growth because of high potential earnings growth, but may also involve greater risks than securities that do not have the same potential. The Scheme may invest in companies with limited product lines, markets or financial resources. As a result, these securities may change in value more than those of larger, more established companies. As the value of the securities owned by the Scheme changes, the Scheme unit price changes. In the shortterm, the price can fluctuate dramatically. As with all Mutual Funds, as the value of the scheme's assets rise and fall, the Scheme unit price changes. If the units are redeemed when their value is less than the price paid for, money may be lost by the unitholder. Key Information Memorandum 25

111 MINIMUM APPLICATION AMOUNT / NUMBER OF UNITS FOR PRINCIPAL INCOME FUND AND PRINCIPAL INCOME FUND - SHORT TERM PLAN Purchase Additional Purchase Repurchase Rs and any Subsequent investment Rs. 500 or amount thereafter of Rs. 500 and any amount 50 units under each option thereafter under each option MINIMUM APPLICATION AMOUNT / NUMBER OF UNITS FOR PRINCIPAL INCOME FUND - INSTITUTIONAL PLAN Purchase Additional Purchase Repurchase Rs. 10 lakh and any Subsequent investment of Rs. 1,000 or amount thereafter Rs. 1 lakh and any amount 100 units under each option thereafter under each option MINIMUM APPLICATION AMOUNT / NUMBER OF UNITS FOR PRINCIPAL INCOME FUND - SHORT TERM PLAN - INSTITUTIONAL PLAN Purchase Additional Purchase Repurchase Rs. 10 lakhs and any amount Subsequent investment Rs. 1,000 or thereafter under the plan, of Rs. 1 lakh and any 100 units with a minimum of Rs.1 lakh amount thereafter in each option. under each option MINIMUM APPLICATION AMOUNT / NUMBER OF UNITS FOR PRINCIPAL CASH MANAGEMENT FUND - LIQUID OPTION - REGULAR PLAN Purchase Additional Purchase Repurchase Rs. 5,000 and any Subsequent investment of Rs. 1,000 or amount thereafter Rs. 1,000 and any amount 100 units under each option thereafter under each option MINIMUM APPLICATION AMOUNT / NUMBER OF UNITS FOR PRINCIPAL CASH MANAGEMENT FUND - LIQUID OPTION - INSTITUTIONAL PLAN Purchase Additional Purchase Repurchase Rs. 1 crore and any Subsequent investment of Rs. 1,000 or amount thereafter Rs. 1 lakh and any amount 100 units under the plan, with a thereafter under each option minimum of Rs.1 lakh in each option. WAIVER OF LOAD FOR DIRECT APPLICATIONS: Not applicable - Pursuant to SEBI circular no. SEBI/IMD/CIR No.4/ /09 dated June 30, 2009 no entry load shall be charged for all Mutual Fund Scheme(s). Therefore, the procedure for waiver of load for direct applications is no longer applicable. FOR INVESTOR GRIEVANCES PLEASE CONTACT: Registrar: Karvy Computershare Pvt. Ltd. (Unit: Principal Mutual Fund) KARVY HOUSE, 46, Avenue- 4, Street No. 1, Banjara Hills, Hyderabad Tel.: (040) Principal Mutual Fund: Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai TOLL FREE: Fax: customer@principalindia.com UNITHOLDERS INFORMATION: An Account statement or transaction statement reflecting the unit balance shall be dispatched to the unitholders after every transaction is effected. The Account Statement shall normally be dispatched within ten business days on an ongoing basis. The Annual financial results of the Schemes or an abridged summary thereof shall be mailed to all unitholders within 4 months from the date of the closure of the relevant accounts i.e. March 31 each year. The half yearly portfolio and unaudited financial results, shall be published within one month from the close of each half year (i.e. 31st March and 30th September), in at least in one National English daily and one regional newspaper in the region where the head office of the mutual fund is located. Date : September 15, MINIMUM APPLICATION AMOUNT / NUMBER OF UNITS FOR PRINCIPAL CASH MANAGEMENT FUND - LIQUID OPTION - INSTITUTIONAL PREMIUM PLAN Purchase Additional Purchase Repurchase Rs. 10 crores and any Subsequent investment of Rs. 1,000 or amount thereafter Rs. 1 lakh and any amount 100 units under the plan, with a thereafter under each option minimum of Rs.1 lakh in each option. MINIMUM APPLICATION AMOUNT/NUMBER OF UNITS FOR PRINCIPAL CASH MANAGEMENT FUND - LIQUID OPTION - ONLINE SUBSCRIPTION PLAN Purchase Additional Purchase Repurchase Rs. 1000/- and any Rs.1000/- and any Rs. 1000/- and amount thereafter amount thereafter any amount thereafter MINIMUM APPLICATION AMOUNT / NUMBER OF UNITS FOR PRINCIPAL FLOATING RATE FUND Purchase Additional Purchase Repurchase Regular Plan under Regular Plan under Rs. 500 or Short Maturity Plan & Short Maturity Plan & 50 units Flexible Maturity Plan - Flexible Maturity Plan - Rs. 5,000 and any Subsequent investment of amount thereafter Rs. 500 and any amount under each option thereafter under each option Institutional Plan under Institutional Plan under Short Maturity Plan and Short Maturity Plan and Flexible Maturity Plan - Flexible Maturity Plan - Rs. 1 crore and any Subsequent investment of Rs. 500 or amount thereafter Rs. 1 lakh and 50 units under the option, with a any amount thereafter minimum of Rs.1 lakh under each plan. in each option. 26 Key Information Memorandum

112 Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai Toll Free Fax: Website: customer@principalindia.com Application Form for Equity / Balanced & Fund of Funds Application No. Please read the instructions before filling the Application Form DISTRIBUTOR INFORMATION & APPLICATION RECEIPT DATE Broker Name & Code Sub-Broker Code I-Code Registrar Serial No. Bank Serial No. Date & Time of Receipt Upfront commission shall be paid directly by the investor to the AMFI registered Distributors based on the investor s assessment of various factors including the service rendered by the distributor. 1 EXISTING UNITHOLDERS DETAILS (Please note that the applicant details and mode of holding are as per the existing Folio Number) Common Account No. Name of Sole / First Unit Holder 2 NEW APPLICANT'S DETAILS (Please fill in BLOCK LETTERS with black/blue ink, use one box for one alphabet leaving one box blank between two words) NAME OF FIRST / SOLE APPLICANT Mr. Ms F I R S T N A M E M I D D L E N A M E L A S T N A M E Date of Birth D D M M Y Y Y Y PAN Please attach copy of Enclosed (please 3) NAME OF THE SECOND APPLICANT Mr. Ms KYC acknowledgement letter^ PAN copy F I R S T N A M E M I D D L E N A M E L A S T N A M E Date of Birth D D M M Y Y Y Y PAN Please attach copy of Enclosed (please 3) KYC acknowledgement letter^ PAN copy NAME OF THE THIRD APPLICANT Mr. Ms F I R S T N A M E M I D D L E N A M E L A S T N A M E Date of Birth D D M M Y Y Y Y PAN Please attach copy of Enclosed (please 3) KYC acknowledgement letter^ PAN copy Guardian Name Mr. Ms (if first applicant is a Minor) / Contact Person (DESIGNATION in case of non-individual Investors - PAN not required for contact person) F I R S T N A M E M I D D L E N A M E L A S T N A M E Date of Birth D D M M Y Y Y Y PAN Please attach copy of Enclosed (please 3) KYC acknowledgement letter^ PAN copy ^ In case the investments are Rs. 50,000 and above, it is mandatory to attach a copy of Know Your Customer (KYC) Acknowledgement letter issued by CDSL Ventures Limited / printout of KYC compliance status downloaded from CVL website alongwith the application form. ADDRESS OF FIRST / SOLE APPLICANT [P.O. Box Address is not sufficient] City State Country OVERSEAS ADDRESS (in case the First Applicant is NRI/FII/PIO) [P.O. Box Address is not sufficient] L A N D M A R K Pin Code City State CONTACT DETAILS OF FIRST / SOLE APPLICANT (Please ensure that you fill in the contact details for us to serve you better) Phone O R Fax Mobile I / We wish to receive updates via SMS on my mobile (Please 3) I N B L O C K L E T T E R S I/We wish to receive the following documents via in lieu of physical document(s) [Please 3] Account Statement Newsletter Annual Report All Statutory Returns / Information STATUS OF FIRST APPLICANT (Please 3) Resident Individual Partnership Firm AOP BOI Minor Bank / FII Society/Club Others (Please specify) HUF Trust Company IF APPLICANT IS A NON-RESIDENT NRI (Repatriable) FII (Repatriable) NRI Minor (Repatriable) PIO NRI (Non Repatriable) NRI Minor (Non Repatriable) OCCUPATION OF 1ST APPLICANT / GUARDIAN (Please 3) Business Service Profession Retired Agriculture House Wife Student Others (Please specify) MODE OF HOLDING (Please 3) Single Jointly Either / Anyone or Survivor (Default Option : Jointly) 3 PERSONAL IDENTIFICATION NUMBER (To serve you better) Do you want a PIN assigned? Yes No (In case you would want a PIN assigned; please submit a duly filled and signed PIN Form along with this Application. PIN form is available at request / can also be downloaded from our website.) 4 NOMINATION [Applicants can make multiple nomination (to the maximum of three) by filing nomination form available at our Investor Service Centres / I/We do hereby nominate the undermentioned Nominee to receive the Units allotted to my/our credit in my/our folio in the event of my/our death. I/We also understand that all payments and settlements made to such Nominee and Signature of the Nominee acknowledging receipt thereof, shall be valid discharge by the AMC/Mutual Fund/ Trustees. NOMINEE S NAME Mr. Ms NAME OF PARENT / LEGAL GUARDIAN (in case of minor) Mr. Ms ADDRESS OF NOMINEE / GUARDIAN Country Date of Birth (in case of minor) Zip Code D D M M Y Y Y Y City Pin Code Specimen Signature of Nominee / Guardian... continued overleaf ACKNOWLEDGEMENT SLIP (To be filled in by the Applicant) Received from Cheque/DD No. Dated: / / D D M M Y Y Y Y Drawn on Bank & Branch Scheme / Plan / Option / Sub-Option Amount Rs. Please Note : All purchases are subject to realisation of payment instrument ARN No: Signature, Stamp & Date

113 5 PAYMENT DETAILS (Mandatory) Investment Amount (Rs.) DD Charges (Rs.) Net Amount (Rs.) Dated D D M M Y Y Y Y Mode of Payment Cheque DD *Cheque / (Please 3) DD No. Account No. Account Type (Please 3) Savings Current NRE NRO FCNR NRSR Drawn on Bank & Branch City * Please mention the Application No. on the reverse of the Cheque/DD. All cheques/drafts should be made out in favour of the Name of the Scheme of Principal Mutual Fund and crossed Account Payee Only. 6 INVESTMENT DETAILS (Please 3 Choice of Scheme / Plan / Option) - Please ensure there is only one cheque/dd per application form Principal Growth Fund Principal Dividend Yield Fund Principal Global Opportunities Fund Growth Dividend Growth Dividend Growth Dividend Payout Reinvest Sweep Payout Reinvest Sweep Payout Reinvest Sweep Principal Index Fund Principal Large Cap Fund Principal Services Industries Fund Growth Dividend Payout Reinvest Sweep Principal Emerging Bluechip Fund Growth Dividend Payout Reinvest Sweep Sweep to Scheme Growth Dividend Payout Reinvest Sweep Principal Resurgent India Equity Fund Growth Dividend Payout Reinvest Sweep Growth Growth Dividend Payout Reinvest Sweep Principal Balanced Fund Dividend Payout Reinvest Sweep Plan Option (In case of Sweep, please ensure to fulfill the minimum investment criteria in the new Scheme) 7 BANK ACCOUNT DETAILS (Mandatory) Bank Name (Do not abbreviate) Account No. Branch / City (Please provide the full account number) Branch Address Pin Code Account Type (Please 3) For Residents Savings Current For Non-Resident NRO NRE Repatriable Non-Repatriable Others MICR Code This is a 9 digit number next to your Cheque No. Essential Enclosures : (For Direct Credit) Only for IFSC NEFT RTGS Code Code Blank cancelled cheque Copy of cheque Direct Credit Facility is currently available with : BNP Paribas Bank, Citibank, Deutsche Bank, ICICI Bank, IDBI Bank, HDFC Bank, HSBC Bank, Kotak Mahindra Bank, Punjab National Bank, Standard Chartered Bank, Axis Bank, Indusind Bank and Development Credit Bank (only for dividend). For an update in this list please contact any of our ISC at the contact details provided overleaf. Please verify and ensure the accuracy of the bank details provided above and as shall appear in your account statement which shall be issued to you should your application be accepted. Principal Mutual Fund shall not be held responsible for delays or errors in processing your request if the information provided is incomplete or inaccurate. 8 DOCUMENTS ENCLOSED (Please 3) Memorandum & Article of Association Trust Deed Bye-Laws Partnership Deed Resolution / Authorisation to invest List of Authorised Signatories with Specimen Signature(s) Power Of Attorney 9 DECLARATION AND SIGNATURES I/We have read and understood the contents of the Scheme Information Document/s to the Scheme(s) including the sections on Prevention of Money Laundering and Know Your Customers. I / We hereby apply to the Trustees of the Principal Mutual Fund (the Mutual Fund) for units of the Scheme as indicated above [ the Scheme ] and agree to abide by the terms and conditions, of the Scheme and such other scheme(s) of the Mutual Fund [Scheme(s)] into which my/our investment may be moved pursuant to any instruction received from me/us to sweep/switch the units as applicable to my / our investment including any further transaction under the Scheme(s). I / We have not received nor have been induced by any rebate or gifts, directly or indirectly, in making this investment. I/We further declare that the amount invested by me/us in the Scheme(s) is derived through legitimate sources and is not held or designed for the purpose of contravention of any act, rules, and regulations or any statute or legislation or any other applicable laws or any notifications, directions issued by any governmental or statutory authority from time to time. I/We further confirm that I/we have the express authority from the relevant constitution to invest in the units of the Scheme and the Principal Pnb Asset Management Company Pvt. Ltd. [AMC], its Trustee and the Mutual Fund would not be responsible if the investment is ultra vires the relevant constitution. I/We further confirm that the ARN holder (Broker/Sub-Broker) has disclosed to me/us all the commissions (in the form of trail commission or any other mode), payable to him for the different competing Schemes of various Mutual Funds from amongst which the Scheme(s) has been recommended to me/us. I / We authorize AMC to reject the application, reverse the units credited, restrain me/us from making any further investment in any of the Scheme/s of Principal Mutual Fund, recover / debit my/our folio(s) with the penal interest and take any appropriate action against me/us in case the cheque(s) / payment instrument is /are returned unpaid by my/our bank for any reason whatsoever. I/We hereby further agree that AMC can directly credit all the dividend payouts and redemption amount to my / our bank account, where AMC has such arrangement with my / our Bank. Applicable to NRIs only: I / We confirm that I am / we are Non- Residents of Indian Nationality / Origin and I / We hereby confirm that the funds for subscription have been remitted from abroad through approved banking channels or from funds in my/our Non Residents External / Ordinary Account /FCNR Account. Principal Mutual Fund Exchange Plaza, B Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (E), Mumbai (Not an Official Point of Acceptance) SIGNATURES Signature / Thumb Impression of Sole / 1st Applicant / POA Holder Signature / Thumb Impression of 2nd Applicant / POA Holder Signature / Thumb Impression of 3rd Applicant / POA Holder POA Details - Name PAN Enclosed (please 3) PAN copy (Attach copy of KYC aknowledgement letter^) APPLICANT SIGNATURE POA Details - Name PAN APPLICANT SIGNATURE POA HOLDER SIGNATURE Enclosed (please 3) PAN copy (Attach copy of KYC aknowledgement letter^) APPLICANT SIGNATURE POA Details - Name POA HOLDER SIGNATURE POA HOLDER SIGNATURE PAN Enclosed (please 3) PAN copy (Attach copy of KYC aknowledgement letter^) ^ In case the investments are Rs. 50,000 and above, it is mandatory to attach a copy of Know Your Customer (KYC) Acknowledgement letter issued by CDSL Ventures Limited / printout of KYC compliance status downloaded from CVL website alongwith the application form. For investment related enquiries, Investor Grievance please contact: Principal Mutual Fund Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai TOLL FREE: Fax: customer@principalindia.com Website : CHECK LIST : Please ensure the following : Application form is complete in all respects and signed by all Applicants Bank Account details are filled Copy of Know Your Customer (KYC) Acknowledgement letter issued by CDSL Ventures Ltd / printout of KYC compliance status downloaded from CVL website for investment of Rs. 50,000 & above Appropriate options are filled All cheques/drafts should be made out in favour of the Name of the Scheme of Principal Mutual Fund and crossed Account Payee Only If you are investing for the first time, please ensure that you fill in the contact details for us to serve you better.

114 Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai Toll Free Fax: Website: customer@principalindia.com Application Form for Principal Child Benefit Fund - Career Builder Plan Application No. Please read the instructions before filling the Application Form BROKER INFORMATION & APPLICATION RECEIPT DATE Broker Name & Code Sub-Broker Code I-Code Registrar Serial No. Bank Serial No. Date & Time of Receipt Upfront commission shall be paid directly by the investor to the AMFI registered Distributors based on the investor s assessment of various factors including the service rendered by the distributor. 1 EXISTING UNITHOLDERS DETAILS (Donor to fill in the Unit holder / Beneficiary) (Please note that the applicant details and mode of holding are as per the existing Folio Number) Common Account No. Name of Sole / First Unit Holder 2 DONOR INFORMATION (Please fill in BLOCK LETTERS with black/blue ink, use one box for one alphabet leaving one box blank between two words) NAME OF APPLICANT / DONOR Mr. Ms F I R S T N A M E M I D D L E N A M E L A S T N A M E PAN Please attach copy of KYC acknowledgement letter^ Enclosed (please 3) PAN copy Parent / Guardian Name Mr. Ms (if first applicant is a Minor)/ Contact Person (DESIGNATION in case of non-individual Investors - PAN not required for contact person) F I R S T N A M E M I D D L E N A M E L A S T N A M E Date of D D M M Y Y Y Y PAN Enclosed (please 3) Birth Please attach copy of KYC acknowledgement letter^ PAN copy ADDRESS OF APPLICANT / DONOR [P.O. Box Address is not sufficient] L A N D M A R K City Pin Code State Country OVERSEAS ADDRESS (in case the Applicant / Donor is NRI/FII/PIO) [P.O. Box Address is not sufficient] City State Country Zip Code CONTACT DETAILS OF APPLICANT / DONOR (Please ensure that you fill in the contact details for us to serve you better.) Phone O R Fax Mobile I / We wish to receive updates via SMS on my mobile (Please 3) I N B L O C K L E T T E R S I/We wish to receive the following documents via in lieu of physical document(s) [Please 3] Account Statement Newsletter Annual Report Other Statutory Returns / Information STATUS OF DONOR / APPLICANT (Please 3) Resident Individual Partnership Firm AOP BOI Minor Bank / FII Society/Club Others (Please specify) HUF Trust Company IF APPLICANT / DONOR IS A NON-RESIDENT NRI (Repatriable) FII (Repatriable) NRI Minor (Repatriable) PIO NRI (Non Repatriable) NRI Minor (Non Repatriable) OCCUPATION OF DONOR / APPLICANT (Please 3) Business Service Profession Retired Agriculture House Wife Student Others (Please specify) MODE OF HOLDING Single 3 UNITHOLDER / BENEFICIARY INFORMATION (Please fill in BLOCK LETTERS & with black/blue ink use one box for one alphabet leaving one box blank between two words) NAME OF UNITHOLDER / BENEFICIARY Mr. Ms F I R S T N A M E M I D D L E N A M E L A S T N A M E Date of D D M M Y Y Y Y PAN Enclosed (please 3) Birth Please attach copy of KYC acknowledgement letter^ PAN copy ^ In case the investments are Rs. 50,000 and above, it is mandatory to attach a copy of Know Your Customer (KYC) Acknowledgement letter issued by CDSL Ventures Limited / printout of KYC compliance status downloaded from CVL website alongwith the application form. ADDRESS OF UNITHOLDER / BENEFICIARY [P.O. Box Address is not sufficient] L A N D M A R K City Pin Code State Country OVERSEAS ADDRESS (in case the Unitholder / Beneficiary is NRI/FII/PIO) [P.O. Box Address is not sufficient] City State Country CONTACT DETAILS OF UNITHOLDER / BENEFICIARY (Please ensure that you fill in the contact details for us to serve you better.) Phone O R Fax Mobile I / We wish to receive updates via SMS on my mobile (Please 3) I N B L O C K L E T T E R S I/We wish to receive the following documents via in lieu of physical document(s) [Please 3] Account Statement Newsletter Annual Report All Statutory Returns / Information Zip Code ACKNOWLEDGEMENT SLIP (To be filled in by the Applicant) Received from Cheque/DD No. Dated: / / D D M M Y Y Y Y Drawn on Bank & Branch Scheme / Plan / Option Amount Rs. Please Note : All purchases are subject to realisation of payment instrument ARN No: Signature, Stamp & Date

115 STATUS OF UNITHOLDER / BENEFICIARY (Please 3) Resident Individual Partnership Firm AOP BOI Minor Bank / FII Society/Club Others (Please specify) HUF Trust Company IF UNITHOLDER / BENEFICIARY IS A NON-RESIDENT NRI (Repatriable) FII (Repatriable) NRI Minor (Repatriable) OCCUPATION OF UNITHOLDER / BENEFICIARY (Please 3) Business Service Profession Retired Agriculture House Wife Student Others (Please specify) MODE OF HOLDING PIO NRI (Non Repatriable) NRI Minor (Non Repatriable) Single NAME OF GUARDIAN (in case Unitholder / Beneficiary is a Minor) Mr. Ms F I R S T N A M E M I D D L E N A M E L A S T N A M E Minor s Relationship STATUS (Please 3) Individual Trust Others STATUS (Please 3) Resident Non-Resident 4 PERSONAL IDENTIFICATION NUMBER (To serve you better) Do you want a PIN assigned? Yes No (In case you would want a PIN assigned; please submit a duly filled and signed PIN Form along with this Application. PIN form is part of the application form / available at request / can also be downloaded from our website.) 5 PAYMENT DETAILS (Mandatory) - Please ensure there is only one cheque/dd per application form Investment DD Charges Net Amount Amount (Rs.) (Rs.) (Rs.) Mode of Payment Cheque DD *Cheque / (Please 3) DD No. Dated D D M M Y Y Y Y Account No. Account Type (Please 3) Savings Current NRE NRO FCNR NRSR Drawn on Bank & Branch City * Please mention the Application No. on the reverse of the Cheque/DD. All cheques/drafts should be made out in favour of the Name of the Scheme of Principal Mutual Fund and crossed Account Payee Only. 6 BANK ACCOUNT DETAILS (Mandatory) Bank Name (Do not abbreviate) Account No. Branch Address (Please provide the full account number) Branch / City Account Type (Please 3) For Residents Savings Current For Non-Resident NRO NRE Repatriable Non-Repatriable Others MICR Code This is a 9 digit number next to your Cheque No. Essential Enclosures : (For Direct Credit) Only for IFSC NEFT Blank cancelled cheque Copy of cheque RTGS Code Code Direct Credit Facility is currently available with : BNP Paribas Bank, Citibank, Deutsche Bank, ICICI Bank, IDBI Bank, HDFC Bank, HSBC Bank, Kotak Mahindra Bank, Punjab National Bank, Standard Chartered Bank, Axis Bank, Indusind Bank and Development Credit Bank (only for dividend). For an update in this list please contact any of our ISC at the contact details provided overleaf. Please verify and ensure the accuracy of the bank details provided above and as shall appear in your account statement which shall be issued to you should your application be accepted. Principal Mutual Fund shall not be held responsible for delays or errors in processing your request if the information provided is incomplete or inaccurate. 7 ALTERNATE BENEFICIARY INFORMATION Name of Alternate Beneficiary Mr/Ms/Mrs (ALL CAPITAL LETTERS) Date of Birth D D / M M / Y Y Y Y (First Name) (Middle Name) (Last Name) Name of Guardian (in case Alternate Beneficiary is a Minor) Minor s Relationship Pin Code 8 DOCUMENTS ENCLOSED (Please 3) Memorandum & Article of Association Trust Deed Bye-Laws Partnership Deed Resolution / Authorisation to invest List of Authorised Signatories with Specimen Signature(s) Power Of Attorney 9 DECLARATION AND SIGNATURES Signature / APPLICANT SIGNATURE POA HOLDER SIGNATURE I/We have read and understood the contents of the Scheme Information Document/s to the Scheme(s) Thumb including the sections on Prevention of Money Laundering and Know Your Customers. I / We hereby apply Impression of to the Trustees of the Principal Mutual Fund (the Mutual Fund) for units of the Scheme as indicated above Donor / POA Details - Name [ the Scheme ] and agree to abide by the terms and conditions, of the Scheme and such other scheme(s) of the Mutual Fund [Scheme(s)] into which my/our investment may be moved pursuant to any instruction Applicant / POA Holder PAN received from me/us to sweep/switch the units as applicable to my / our investment including any further Enclosed (please 3) PAN copy (Attach copy of KYC aknowledgement letter^) transaction under the Scheme(s). I / We have not received nor have been induced by any rebate or gifts, directly or indirectly, in making this investment. I/We further declare that the amount invested by me/us in the Scheme(s) is derived through legitimate sources and is not held or designed for the purpose of contravention Signature / APPLICANT SIGNATURE POA HOLDER SIGNATURE of any act, rules, and regulations or any statute or legislation or any other applicable laws or any notifications, directions issued by any governmental or statutory authority from time to time. Thumb I/We further confirm that I/we have the express authority from the relevant constitution to invest in the units Impression of POA Details - Name of the Scheme and the Principal Pnb Asset Management Company Pvt. Ltd. [AMC], its Trustee and the Unitholder / Mutual Fund would not be responsible if the investment is ultra vires the relevant constitution. Guardian PAN I/We further confirm that the ARN holder (Broker/Sub-Broker) has disclosed to me/us all the commissions (in Enclosed (please 3) PAN copy (Attach copy of KYC aknowledgement letter^) the form of trail commission or any other mode), payable to him for the different competing Schemes of various Mutual Funds from amongst which the Scheme(s) has been recommended to me/us. I / We authorize AMC to reject the application, reverse the units credited, restrain me/us from making any further investment in any of the Scheme/s of Principal Mutual Fund, recover / debit my/our folio(s) with the penal interest and take any appropriate action against me/us in case the cheque(s) / payment instrument is /are returned unpaid by my/our bank for any reason whatsoever. I/We hereby further agree that AMC can directly credit all the dividend payouts and redemption amount to my / our bank account, where AMC has such arrangement with my / our Bank. Applicable to NRIs only: I / We confirm that I am / we are Non- Residents of Indian Nationality / Origin and I / We hereby confirm that the funds for subscription have been remitted from abroad through approved banking channels or from funds in Applicant s Non Residents External / Ordinary Account /FCNR Account. ^ In case the investments are Rs. 50,000 and above, it is mandatory to attach a copy of Know Your Customer (KYC) Acknowledgement letter issued by CDSL Ventures Limited / printout of KYC compliance status downloaded from CVL website alongwith the application form. Principal Mutual Fund Exchange Plaza, B Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (E), Mumbai (Not an Official Point of Acceptance) SIGNATURES For investment related enquiries, Investor Grievance please contact: Principal Mutual Fund Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai TOLL FREE: Fax: customer@principalindia.com Website : CHECK LIST : Please ensure the following : Application form is complete in all respects and signed by all Applicants Bank Account details are filled Copy of Know Your Customer (KYC) Acknowledgement letter issued by CDSL Ventures Ltd / printout of KYC compliance status downloaded from CVL website for investment of Rs. 50,000 & above Appropriate options are filled All cheques/drafts should be made out in favour of the Name of the Scheme of Principal Mutual Fund and crossed Account Payee Only If you are investing for the first time, please ensure that you fill in the contact details for us to serve you better.

116 Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai Toll Free Fax: Website: customer@principalindia.com Application Form for Debt / Liquid Schemes Application No. Please read the instructions before filling the Application Form DISTRIBUTOR INFORMATION & APPLICATION RECEIPT DATE Broker Name & Code Sub-Broker Code I-Code Registrar Serial No. Bank Serial No. Date & Time of Receipt Upfront commission shall be paid directly by the investor to the AMFI registered Distributors based on the investor s assessment of various factors including the service rendered by the distributor. 1 EXISTING UNITHOLDERS DETAILS (Please note that the applicant details and mode of holding are as per the existing Folio Number) Common Account No. Name of Sole / First Unit Holder 2 NEW APPLICANT'S DETAILS (Please fill in BLOCK LETTERS with black/blue ink, use one box for one alphabet leaving one box blank between two words) NAME OF FIRST / SOLE APPLICANT Mr. Ms F I R S T N A M E M I D D L E N A M E L A S T N A M E Date of D D M M Y Y Y Y PAN Enclosed (please 3) Birth Please attach copy of KYC acknowledgement letter^ PAN copy NAME OF THE SECOND APPLICANT Mr. Ms F I R S T N A M E M I D D L E N A M E L A S T N A M E Date of D D M M Y Y Y Y PAN Enclosed (please 3) Birth Please attach copy of KYC acknowledgement letter^ PAN copy NAME OF THE THIRD APPLICANT Mr. Ms F I R S T N A M E M I D D L E N A M E L A S T N A M E Date of D D M M Y Y Y Y PAN Enclosed (please 3) Birth Please attach copy of KYC acknowledgement letter^ PAN copy Guardian Name Mr. Ms (if first applicant is a Minor) / Contact Person (DESIGNATION in case of non-individual Investors - PAN not required for contact person) F I R S T N A M E M I D D L E N A M E L A S T N A M E Date of D D M M Y Y Y Y PAN Enclosed (please 3) Birth Please attach copy of KYC acknowledgement letter^ PAN copy ^ In case the investments are Rs. 50,000 and above, it is mandatory to attach a copy of Know Your Customer (KYC) Acknowledgement letter issued by CDSL Ventures Limited / printout of KYC compliance status downloaded from CVL website alongwith the application form. ADDRESS OF FIRST / SOLE APPLICANT [P.O. Box Address is not sufficient] City State Country OVERSEAS ADDRESS (in case the First Applicant is NRI/FII/PIO) [P.O. Box Address is not sufficient] L A N D M A R K Pin Code City State CONTACT DETAILS OF FIRST / SOLE APPLICANT (Please ensure that you fill in the contact details for us to serve you better) Phone O R Fax Mobile I / We wish to receive updates via SMS on my mobile (Please 3) I N B L O C K L E T T E R S I/We wish to receive the following documents via in lieu of physical document(s) [Please 3] Account Statement Newsletter Annual Report All Statutory Returns / Information STATUS OF FIRST APPLICANT (Please 3) Resident Individual Partnership Firm AOP BOI Minor Bank / FII Society/Club Others (Please specify) HUF Trust Company IF APPLICANT IS A NON-RESIDENT NRI (Repatriable) FII (Repatriable) NRI Minor (Repatriable) PIO NRI (Non Repatriable) NRI Minor (Non Repatriable) Country 3 PERSONAL IDENTIFICATION NUMBER (To serve you better) Do you want a PIN assigned? Yes No (In case you would want a PIN assigned; please submit a duly filled and signed PIN Form along with this Application. PIN form is part of the application form / available at request / can also be downloaded from our website.) 4 NOMINATION [Applicants can make multiple nomination (to the maximum of three) by filing nomination form available at our Investor Service Centres / I/We do hereby nominate the undermentioned Nominee to receive the Units allotted to my/our credit in my/our folio in the event of my/our death. I/We also understand that all payments and settlements made to such Nominee and Signature of the Nominee acknowledging receipt thereof, shall be valid discharge by the AMC/Mutual Fund/ Trustees. NOMINEE S NAME Mr. Ms Date of Birth D D M M Y Y Y Y (in case of minor) NAME OF PARENT / LEGAL GUARDIAN (in case of minor) Mr. Ms ADDRESS OF NOMINEE / GUARDIAN Zip Code OCCUPATION OF 1ST APPLICANT / GUARDIAN (Please 3) Business Service Profession Retired Agriculture House Wife Student Others (Please specify) MODE OF HOLDING (Please 3) Single Jointly Either / Anyone or Survivor (Default Option : Jointly) City Pin Code Specimen Signature of Nominee / Guardian... continued overleaf ACKNOWLEDGEMENT SLIP (To be filled in by the Applicant) Received from Cheque/DD No. Dated: / / D D M M Y Y Y Y Drawn on Bank & Branch Scheme / Plan / Option / Sub-Option Amount Rs. Please Note : All purchases are subject to realisation of payment instrument ARN No: Signature, Stamp & Date

117 5 PAYMENT DETAILS (Mandatory) Investment DD Charges Net Amount Amount (Rs.) (Rs.) (Rs.) Mode of Payment Cheque DD *Cheque / (Please 3) DD No. Dated D D M M Y Y Y Y Account No. Account Type (Please 3) Savings Current NRE NRO FCNR NRSR Drawn on Bank & Branch City * Please mention the Application No. on the reverse of the Cheque/DD. All cheques/drafts should be made out in favour of the Name of the Scheme of Principal Mutual Fund and crossed Account Payee Only. 6 INVESTMENT DETAILS (Please 3 Choice of Scheme / Plan / Option) - Please ensure there is only one cheque/dd per application form Principal Income Fund Principal Income Fund - Short Term Plan Principal Floating Rate Fund - Short Maturity Plan Regular Plan Institutional Plan Regular Plan Institutional Plan Regular Plan Institutional Plan Growth - Accumulation Growth - Auto Earnings Payout Growth - Accumulation Growth - Auto Earnings Payout Growth Dividend Payout Reinvest Sweep Dividend Payout Reinvest Sweep Dividend Payout Reinvest Sweep Dividend Frequency - Regular Plan Quarterly Half Yearly Annual Dividend Frequency - STP-Regular Plan Monthly Dividend Frequency Daily Weekly Monthly Institutional Plan Quarterly STP-Insti Plan Weekly Monthly Principal Floating Rate Fund - Flexible Maturity Plan Principal Monthly Income Plan Principal Cash Management Fund - Liquid Option Regular Plan Institutional Plan MIP MIP Plus Regular Plan Institutional Plan Institutional Premium Plan Growth Growth - Accumulation Growth - Auto Earnings Payout Growth Dividend Payout Reinvest Sweep Dividend Payout Reinvest Sweep Dividend Payout Reinvest Sweep Dividend Frequency Daily Weekly Monthly Dividend Frequency Monthly Quarterly Dividend Frequency Daily Weekly Monthly Principal Government Securities Fund - Investment Plan Principal Money Manager Fund Principal Ultra Short Term Fund Growth - Accumulation Growth - Auto Earnings Payout Dividend Payout Reinvest Sweep Dividend Frequency Quarterly Half Yearly Annual Sweep to Scheme Plan Option (In case of Sweep, please ensure to fulfill the minimum investment criteria in the new Scheme) 7 BANK ACCOUNT DETAILS (Mandatory) Bank Name (Do not abbreviate) Account No. Branch / City (Please provide the full account number) Branch Address Pin Code Account Type (Please 3) For Residents Savings Current For Non-Resident NRO NRE Repatriable Non-Repatriable Others MICR Code This is a 9 digit number next to your Cheque No. Essential Enclosures : (For Direct Credit) Only for IFSC NEFT RTGS Code Code Blank cancelled cheque Copy of cheque Direct Credit Facility (Non Liquid Schemes) is currently available with : BNP Paribas Bank, Citibank, Deutsche Bank, ICICI Bank, IDBI Bank, HDFC Bank, HSBC Bank, Kotak Mahindra Bank, Punjab National Bank, Standard Chartered Bank, Axis Bank, Indusind Bank and Development Credit Bank (only for dividend). For an update in this list please contact any of our ISC at the contact details provided overleaf. Please verify and ensure the accuracy of the bank details provided above and as shall appear in your account statement which shall be issued to you should your application be accepted. Principal Mutual Fund shall not be held responsible for delays or errors in processing your request if the information provided is incomplete or inaccurate. 9 DECLARATION AND SIGNATURES I/We have read and understood the contents of the Scheme Information Document/s to the Scheme(s) including the sections on Prevention of Money Laundering and Know Your Customers. I / We hereby Signature / APPLICANT SIGNATURE POA HOLDER SIGNATURE apply to the Trustees of the Principal Mutual Fund (the Mutual Fund) for units of the Scheme(s) as Thumb indicated above [ the Scheme ] and agree to abide by the terms and conditions, of the Scheme and such other scheme(s) of the Mutual Fund [Scheme(s)] into which my/our investment may be moved Impression of POA Details - Name pursuant to any instruction received from me/us to sweep/switch the units as applicable to my / our Sole / 1st investment including any further transaction under the Scheme(s). I / We have not received nor have Applicant / PAN been induced by any rebate or gifts, directly or indirectly, in making this investment. I/We further declare that the amount invested by me/us in the Scheme(s) is derived through legitimate sources and is not POA Holder Enclosed (please 3) PAN copy (Attach copy of KYC aknowledgement letter^) held or designed for the purpose of contravention of any act, rules, and regulations or any statute or legislation or any other applicable laws or any notifications, directions issued by any governmental or statutory authority from time to time. Signature / APPLICANT SIGNATURE POA HOLDER SIGNATURE I/We further confirm that I/we have the express authority from the relevant constitution to invest in the Thumb units of the Scheme and the Principal Pnb Asset Management Company Pvt. Ltd. [AMC], its Trustee and the Mutual Fund would not be responsible if the investment is ultra vires the relevant constitution. Impression of POA Details - Name I/We further confirm that the ARN holder (Broker/Sub-Broker) has disclosed to me/us all the commissions 2nd (in the form of trail commission or any other mode), payable to him for the different competing Schemes Applicant / PAN of various Mutual Funds from amongst which the Scheme(s) has been recommended to me/us. POA Holder Enclosed (please 3) PAN copy (Attach copy of KYC aknowledgement letter^) I / We authorize AMC to reject the application, reverse the units credited, restrain me/us from making any further investment in any of the Scheme/s of Principal Mutual Fund, recover / debit my/our folio(s) with the penal interest and take any appropriate action against me/us in case the cheque(s) / payment Signature / APPLICANT SIGNATURE POA HOLDER SIGNATURE instrument is /are returned unpaid by my/our bank for any reason whatsoever. Thumb I/We hereby further agree that AMC can directly credit all the dividend payouts and redemption amount to my / our bank account, where AMC has such arrangement with my / our Bank. Impression of POA Details - Name 3rd Applicable to NRIs only: Applicant / PAN I / We confirm that I am / we are Non- Residents of Indian Nationality / Origin and I / We hereby confirm POA Holder that the funds for subscription have been remitted from abroad through approved banking channels or Enclosed (please 3) PAN copy (Attach copy of KYC aknowledgement letter^) from funds in my/our Non Residents External / Ordinary Account /FCNR Account. ^ In case the investments are Rs. 50,000 and above, it is mandatory to attach a copy of Know Your Customer (KYC) Acknowledgement letter issued by CDSL Ventures Limited / printout of KYC compliance status downloaded from CVL website alongwith the application form. Principal Mutual Fund Exchange Plaza, B Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (E), Mumbai (Not an Official Point of Acceptance) Regular Plan Institutional Plan Growth Dividend Payout Reinvest Sweep Dividend Frequency Daily Weekly Monthly 8 DOCUMENTS ENCLOSED (Please 3) Memorandum & Article of Association Trust Deed Bye-Laws Partnership Deed Resolution / Authorisation to invest List of Authorised Signatories with Specimen Signature(s) Power Of Attorney SIGNATURES Growth Dividend Payout Reinvest Sweep Dividend Frequency Daily Weekly Monthly For investment related enquiries, Investor Grievance please contact: Principal Mutual Fund Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai TOLL FREE: Fax: customer@principalindia.com Website : CHECK LIST : Please ensure the following : Application form is complete in all respects and signed by all Applicants Bank Account details are filled Copy of Know Your Customer (KYC) Acknowledgement letter issued by CDSL Ventures Ltd / printout of KYC compliance status downloaded from CVL website for investment of Rs. 50,000 & above Appropriate options are filled All cheques/drafts should be made out in favour of the Name of the Scheme of Principal Mutual Fund and crossed Account Payee Only If you are investing for the first time, please ensure that you fill in the contact details for us to serve you better.

118 Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai Toll Free Fax: Website: customer@principalindia.com Application Form for ELSS Application No. Please read the instructions before filling the Application Form DISTRIBUTOR INFORMATION & APPLICATION RECEIPT DATE Broker Name & Code Sub-Broker Code I-Code Registrar Serial No. Bank Serial No. Date & Time of Receipt Upfront commission shall be paid directly by the investor to the AMFI registered Distributors based on the investor s assessment of various factors including the service rendered by the distributor. 1 EXISTING UNITHOLDERS DETAILS (Please note that the applicant details and mode of holding are as per the existing Folio Number) Common Account No. Name of Sole / First Unit Holder 2 NEW APPLICANT'S DETAILS (Please fill in BLOCK LETTERS with black/blue ink, use one box for one alphabet leaving one box blank between two words) NAME OF FIRST / SOLE APPLICANT Mr. Ms F I R S T N A M E M I D D L E N A M E L A S T N A M E Date of D D M M Y Y Y Y PAN Enclosed (please 3) Birth Please attach copy of KYC acknowledgement letter^ PAN copy NAME OF THE SECOND APPLICANT Mr. Ms F I R S T N A M E M I D D L E N A M E L A S T N A M E Date of D D M M Y Y Y Y PAN Enclosed (please 3) Birth Please attach copy of KYC acknowledgement letter^ PAN copy NAME OF THE THIRD APPLICANT Mr. Ms F I R S T N A M E M I D D L E N A M E L A S T N A M E Date of D D M M Y Y Y Y PAN Enclosed (please 3) Birth Please attach copy of KYC acknowledgement letter^ PAN copy Parent / Guardian Name Mr. Ms (if first applicant is a Minor) F I R S T N A M E M I D D L E N A M E L A S T N A M E Date of D D M M Y Y Y Y PAN Enclosed (please 3) Birth Please attach copy of KYC acknowledgement letter^ PAN copy (to be filled compulsorily for insurance cover) ^ In case the investments are Rs. 50,000 and above, it is mandatory to attach a copy of Know Your Customer (KYC) Acknowledgement letter issued by CDSL Ventures Limited / printout of KYC compliance status downloaded from CVL website alongwith the application form. ADDRESS OF FIRST / SOLE APPLICANT [P.O. Box Address is not sufficient] City State Country OVERSEAS ADDRESS (in case the First Applicant is NRI/FII/PIO) [P.O. Box Address is not sufficient] L A N D M A R K Pin Code City Zip Code State Country CONTACT DETAILS OF FIRST / SOLE APPLICANT (Please ensure that you fill in the contact details for us to serve you better) Phone O R Fax Mobile I / We wish to receive updates via SMS on my mobile (Please 3) I N B L O C K L E T T E R S I/We wish to receive the following documents via in lieu of physical document(s) [Please 3] Account Statement Newsletter Annual Report All Statutory Returns / Information STATUS OF FIRST APPLICANT (Please 3) Resident Individual Partnership Firm AOP BOI Minor Bank / FII Society/Club Others (Please specify) HUF Trust Company IF APPLICANT IS A NON-RESIDENT NRI (Repatriable) FII (Repatriable) NRI Minor (Repatriable) PIO NRI (Non Repatriable) NRI Minor (Non Repatriable) 3 PERSONAL IDENTIFICATION NUMBER (To serve you better) Do you want a PIN assigned? Yes No (In case you would want a PIN assigned; please submit a duly filled and signed PIN Form along with this Application. PIN form is part of the application form / available at request / can also be downloaded from our website.) 4 NOMINATION [Applicants can make multiple nomination (to the maximum of three) by filing nomination form available at our Investor Service Centres / I/We do hereby nominate the undermentioned Nominee to receive the Units allotted to my/our credit in my/our folio in the event of my/our death. I/We also understand that all payments and settlements made to such Nominee and Signature of the Nominee acknowledging receipt thereof, shall be valid discharge by the AMC/Mutual Fund/ Trustees. NOMINEE S NAME Mr. Ms Date of Birth D D M M Y Y Y Y (in case of minor) NAME OF PARENT / LEGAL GUARDIAN (in case of minor) Mr. Ms ADDRESS OF NOMINEE / GUARDIAN OCCUPATION OF 1ST APPLICANT / GUARDIAN (Please 3) Business Service Profession Retired Agriculture House Wife Student Others (Please specify) MODE OF HOLDING (Please 3) Single Jointly Either / Anyone or Survivor (Default Option : Jointly) City Pin Code Specimen Signature of Nominee / Guardian... continued overleaf ACKNOWLEDGEMENT SLIP (To be filled in by the Applicant) ARN No: Received from Cheque/DD No. Dated: / / D D M M Y Y Y Y Drawn on Bank & Branch Scheme Amount Rs. Please Note : All purchases are subject to realisation of payment instrument Eligible for deduction under section 80(C) of the Income Tax Act, Signature, Stamp & Date

119 5 PAYMENT DETAILS (Mandatory) Investment DD Charges Net Amount Amount (Rs.) (Rs.) (Rs.) Mode of Payment Cheque DD *Cheque / (Please 3) DD No. Dated D D M M Y Y Y Y Account No. Account Type (Please 3) Savings Current NRE NRO FCNR NRSR Drawn on Bank & Branch City * Please mention the Application No. on the reverse of the Cheque/DD. All cheques/drafts should be made out in favour of the Name of the Scheme of Principal Mutual Fund and crossed Account Payee Only. 6 INVESTMENT DETAILS (Please 3 Choice of Scheme) - Please ensure there is only one cheque/dd per application form Principal Tax Savings Fund Principal Personal Tax Saver Fund 7 BANK ACCOUNT DETAILS (Mandatory) Bank Name (Do not abbreviate) Account No. Branch / City (Please provide the full account number) Branch Address Pin Code Account Type (Please 3) For Residents Savings Current For Non-Resident NRO NRE Repatriable Non-Repatriable Others MICR Code This is a 9 digit number next to your Cheque No. Essential Enclosures : (For Direct Credit) Only for IFSC NEFT RTGS Code Code Blank cancelled cheque Copy of cheque Direct Credit Facility is currently available with : BNP Paribas Bank, Citibank, Deutsche Bank, ICICI Bank, IDBI Bank, HDFC Bank, HSBC Bank, Kotak Mahindra Bank, Punjab National Bank, Standard Chartered Bank, Axis Bank, Indusind Bank and Development Credit Bank (only for dividend). For an update in this list please contact any of our ISC at the contact details provided overleaf. Please verify and ensure the accuracy of the bank details provided above and as shall appear in your account statement which shall be issued to you should your application be accepted. Principal Mutual Fund shall not be held responsible for delays or errors in processing your request if the information provided is incomplete or inaccurate. 8 ASSIGNMENT CLAUSE (Relevant for resident applicant of the Principal Tax Savings Fund and Principal Personal Tax Saver Fund) I* hereby assign all the benefits that may be payable in the event of my accidental death by the United India Insurance Co. Ltd. ["Insurer"] under the Insurance Policy arranged by the Company for the investors in Principal Tax Saving Fund / Principal Personal Tax Saver Fund; in favour of : Name of Assignee Mr/Ms/Mrs Date of Birth D D / M M / Y Y Y Y having his/her address at City Pin State Name of Guardian (where the Assignee is a Minor) I further declare that receipt of the benefits, if any, by the above named Assignee shall be sufficient discharge thereof to the Insurer/ Company. I also confirm having noted the key terms and conditions of the referred accidental death insurance cover as provided in the Scheme Information Document. The decision of the Insurer on any matter related to admissibility of a claim shall be final and binding. Date Place Witness Name Witness Address Witness Signature * Name of the - Sole/First Applicant only in case of an individual applicant, Karta in case of HUF and First Applicant in case of Association of Persons (AOP)/Body of Individuals. Minor's Relationship It is compulsory for the applicants to furnish details of the assignee for this insurance cover in the space provided for in the application form. Investor may not get covered under insurance if the assignee is not appointed. 9 DOCUMENTS ENCLOSED (Please 3) Memorandum & Article of Association Trust Deed Bye-Laws Partnership Deed Resolution / Authorisation to invest List of Authorised Signatories with Specimen Signature(s) Power Of Attorney 10 DECLARATION AND SIGNATURES APPLICANT SIGNATURE I/We have read and understood the contents of the Scheme Information Document/s to the Scheme(s) including the sections on Prevention of Money Laundering and Know Your Customers. I / We hereby apply to the Trustees of the Principal Mutual Fund (the Mutual Fund) for units of the Scheme as indicated above [ the Scheme ] and agree to abide by the terms and conditions, of the Scheme and such other scheme(s) of the Mutual Fund [Scheme(s)] into which my/ our investment may be moved pursuant to any instruction received from me/us to sweep/switch the units as applicable to my / our investment including any further transaction under the Scheme(s). I / We have not received nor have been induced by any rebate or gifts, directly or indirectly, in making this investment. I/We further declare that the amount invested by me/us in the Scheme(s) is derived through legitimate sources and is not held or designed for the purpose of contravention of any act, rules, and regulations or any statute or legislation or any other applicable laws or any notifications, directions issued by any governmental or statutory authority from time to time. I/We further confirm that I/we have the express authority from the relevant constitution to invest in the units of the Scheme and the Principal Pnb Asset Management Company Pvt. Ltd. [AMC], its Trustee and the Mutual Fund would not be responsible if the investment is ultra vires the relevant constitution. I/We further confirm that the ARN holder (Broker/Sub-Broker) has disclosed to me/us all the commissions (in the form of trail commission or any other mode), payable to him for the different competing Schemes of various Mutual Funds from amongst which the Scheme(s) has been recommended to me/us. I / We authorize AMC to reject the application, reverse the units credited, restrain me/us from making any further investment in any of the Scheme/s of Principal Mutual Fund, recover / debit my/our folio(s) with the penal interest and take any appropriate action against me/us in case the cheque(s) / payment instrument is /are returned unpaid by my/our bank for any reason whatsoever. I/We hereby further agree that AMC can directly credit all the dividend payouts and redemption amount to my / our bank account, where AMC has such arrangement with my / our Bank. Applicable to NRIs only: I / We confirm that I am / we are Non- Residents of Indian Nationality / Origin and I / We hereby confirm that the funds for subscription have been remitted from abroad through approved banking channels or from funds in my/ our Non Residents External / Ordinary Account /FCNR Account. Principal Mutual Fund Exchange Plaza, B Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (E), Mumbai (Not an Official Point of Acceptance) SIGNATURES Signature / Thumb Impression of Sole / 1st Applicant / POA Holder Signature / Thumb Impression of 2nd Applicant / POA Holder Signature / Thumb Impression of 3rd Applicant / POA Holder POA Details - Name POA HOLDER SIGNATURE PAN Enclosed (please 3) PAN copy (Attach copy of KYC aknowledgement letter^) POA Details - Name APPLICANT SIGNATURE POA HOLDER SIGNATURE PAN Enclosed (please 3) PAN copy (Attach copy of KYC aknowledgement letter^) APPLICANT SIGNATURE POA Details - Name POA HOLDER SIGNATURE PAN Enclosed (please 3) PAN copy (Attach copy of KYC aknowledgement letter^) ^ In case the investments are Rs. 50,000 and above, it is mandatory to attach a copy of Know Your Customer (KYC) Acknowledgement letter issued by CDSL Ventures Limited / printout of KYC compliance status downloaded from CVL website alongwith the application form. For investment related enquiries, Investor Grievance please contact: Principal Mutual Fund Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai TOLL FREE: Fax: customer@principalindia.com Website : CHECK LIST : Please ensure the following : Application form is complete in all respects and signed by all Applicants Bank Account details are filled Copy of Know Your Customer (KYC) Acknowledgement letter issued by CDSL Ventures Ltd / printout of KYC compliance status downloaded from CVL website for investment of Rs. 50,000 & above Appropriate options are filled All cheques/drafts should be made out in favour of the Name of the Scheme of Principal Mutual Fund and crossed Account Payee Only If you are investing for the first time, please ensure that you fill in the contact details for us to serve you better.

120 Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai Toll Free Fax: Website: customer@principalindia.com NOMINATION FORM First Holder : Second Holder : Third Holder : Please (3) Appointment of Nominee Change in Nominee Common Account No. : Date D D M M Y Y Y Y NOMINEE(S) I/We do hereby nominate the undermentioned Nominee(s) to receive the Units allotted to my/our credit in my/our folio in the event of my/our death. I/We also understand that all payments and settlements made to such Nominee(s) and Signature of the Nominee(s) acknowledging receipt thereof, shall be valid discharge by Principal Pnb Asset Management Co. Pvt. Ltd. (AMC) / Principal Mutual Fund (Fund) / Principal Trustee Company Pvt. Ltd. (TC). NAME OF FIRST NOMINEE Mr. Ms. Date of Birth (In case of minor) D D M M Y Y Y Y NAME OF PARENT / LEGAL GUARDIAN (in case of minor) Mr. Ms. ADDRESS OF FIRST NOMINEE / LEGAL GUARDIAN Specimen Signature of Nominee / Guardian City Pin Code Percentage of Investment Allocation (integer) % NAME OF SECOND NOMINEE Mr. Ms. Date of Birth (In case of minor) D D M M Y Y Y Y NAME OF PARENT / LEGAL GUARDIAN (in case of minor) Mr. Ms. ADDRESS OF SECOND NOMINEE / LEGAL GUARDIAN Specimen Signature of Nominee / Guardian City Pin Code Percentage of Investment Allocation (integer) % NAME OF THIRD NOMINEE Mr. Ms. Date of Birth (In case of minor) D D M M Y Y Y Y NAME OF PARENT / LEGAL GUARDIAN (in case of minor) Mr. Ms. ADDRESS OF THIRD NOMINEE / LEGAL GUARDIAN Specimen Signature of Nominee / Guardian City Pin Code Percentage of Investment Allocation (integer) %

121 The total percentage of investment allocation (across all Nominee/s) can not exceed 100%. UNIT HOLDER (S) WITNESS (ES) - (witness could be the same for all Unitholders) Name First Holder Signature and Date Name and Address 1. Signature and Date Second Holder 2. Third Holder 3. INSTRUCTIONS FOR NOMINATION (1) The nomination should be provided at Folio Level. For existing investors Folio No., is mandatory, in absence of which the form is liable to be rejected. (2) The nomination can be made only by individuals applying for / holding units on their own behalf singly or jointly. Non-individuals including society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family, holder of Power of Attorney cannot nominate. If the units are held jointly, all joint holders will sign the nomination form. (3) Minor(s) can be nominated and in that event, the name and address of the guardian of the minor nominee(s) shall be provided by the unit holder. Nomination can also be in favour of the Central Government, State Government, Local authority any person designated by virtue of his office or a religious or charitable trust. (4) The Nominee shall not be a trust other than religious/charitable trust, society, body corporate, partnership firm, Karta of Hindu Undivided Family or a Power of Attorney holder. A non-resident Indian can be a Nominee subject to the exchange controls in force, from time to time. (5) Nomination in respect of the units stands rescinded upon the transfer of units. (6) Nomination can be made for maximum number of three nominees. In case of multiple nominees, the percentage of allocation/share in favour of each of the nominees should be indicated against their name and their allocation/share should be in whole numbers without any decimals making a total of 100 percent. In the event of the Unitholders not indicating the percentage of allocation/share in favour of each of the nominees, Principal Mutual Fund / Principal Pnb Asset Management Company Private Limited (AMC), by invoking default option shall settle the claim equally amongst all the nominees. (7) Transfer of units in favour of a Nominee shall be valid discharge by the AMC against the legal heir. (8) The cancellation of nomination can be made only by those individuals who hold units on their own behalf singly or jointly and who made the original nomination. (9) On cancellation of the nomination, the nomination shall stand rescinded and the Asset Management Company shall not be under any obligation to transfer the units in favour of the Nominee(s). Principal Mutual Fund Exchange Plaza, B Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (E), Mumbai (Not an Official Point of Acceptance) For investment related enquiries, Investor Grievance please contact: Principal Mutual Fund Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai TOLL FREE: Fax: customer@principalindia.com Website :

122 INSTRUCTIONS FOR COMPLETING THE APPLICATION FORM This application form is for Resident Investors/NRIs etc., and should be completed in English in BLOCK LETTERS & BLACK/BLUE INK only. Please tick (4) in the appropriate box provided. Please read the terms of the Scheme Information Document of the Schemes carefully before filling in the application form. All applicants are deemed to have accepted the terms subject to which this offer is being made and bind themselves to the terms upon signing the Application Form for tendering the payment. Application should be for a minimum amount specified for each Scheme/Plan/Option. (A) PAYMENT PROCEDURE Resident Investor: Resident Investors may submit payment for units by cheque/demand draft, payable locally and drawn on any bank which is a member of the Bankers Clearing House located at the place where the application form is submitted. All cheques/drafts should be made out in favour of the Name of the Scheme of Principal Mutual Fund and crossed Account Payee Only. Payment Procedures for NRIs Repatriation Basis: Payments may be made through Indian Currency Cheques/Demand Drafts. NRI applications can also be made by submitting payments through demand drafts purchased from FCNR bank accounts or cheques drawn on NRE accounts. All cheques/drafts should be locally payable at any of the Official Point of Acceptance. All applications must be accompanied with a FIRC. Non-Repatriation Basis: In case of NRIs seeking to apply for units on a non-repatriation basis, payments shall be made by cheques/demand drafts drawn out of NRO (Non-Resident Ordinary) accounts. Payment Procedure - FIIs FIIs may pay their subscription amounts by direct remittance from abroad or out of their special Non-Resident Rupee Accounts maintained with a designated bank branch in India or as may be permitted under Law. All cheques/drafts should be payable in Mumbai. Applications by FIIs should be submitted only to the Official Point of Acceptance of the Asset Management Company in Mumbai. All cheques/drafts should be made out in favour of the Name of the Scheme of Principal Mutual Fund and crossed Account Payee Only. Payment Procedure - General The Asset Management Company will not accept cash / stockinvests for subscriptions. Bank charges for outstation demand drafts will be debited to the AMC and will be limited to those stipulated by the Indian Banks Association. The Mutual Fund will not entertain any request for refund of demand draft charges. In case an applicant is located in a place where there is no designated Official Point of Acceptance / Investor Service Centres, the completed application form with a Bank Draft/Pay Order for the investment amount (net of Demand Draft charges) may be forwarded to the nearest designated Official Point of Acceptance / Investor Service Centres. (B) APPLICATION DETAILS If the broker name & code is left blank, the application shall be treated as direct. Unit holders providing the common account number where the unit holders has / have not provided the documents as required mandatorily, such documents should then be provided along with this Application Form. Please write application serial number and name on the reverse of the cheque/demand draft. The applicants name and address including PIN Code number must be given in full (post box number alone is not sufficient). In case the investor is a NRI/FII, an overseas address should also be provided, along with the local address. However, all correspondence shall be at the local address. If the account has more than one (upto three) Unitholder, the account will be registered either as joint or either/anyone or survivor basis, as specified. If nothing is specified the default mode of holding will be joint. It is expressly understood that the investor/unitholder has the express authority from the relevant constitution to invest in units of the Fund and the AMC/Trustee/Fund would not be responsible if the investment is ultravires the relevant constitution. All communications and payments will be made to the first applicant or to the Karta in case of HUF (Where the HUF is the first applicant). Signatures should be in English or in any Indian language as specified in the Eighth Schedule of the Constitution of India. Thumb impressions must be attested by a Magistrate/Notary Public under his/her official seal. In case of HUF, the Karta should sign on behalf of the HUF. In case of Partnership firms, the authorised Partner will sign on behalf of the firm. Similarly, for the Association of Persons (AOP), the application must be signed by the Authorised Signatory. Applications on behalf of minors should be signed by their guardian. In case of an application under a Power of Attorney or by a limited company, body corporate, registered society, Trust or partnership, the relevant power of attorney or the relevant resolution of authority to make the application or the Trust Deed or Partnership Deed as the case may be, or duly certified copy thereof, alongwith a certified copy of the Memorandum and Articles of Association and/or bye-laws should be submitted along with the Application Form. (C) BANK DETAILS This requirement is mandatory and applications without complete bank details are liable to be rejected. The Mutual Fund/Asset Management Company will not be responsible for any loss arising out of fraudulent encashment of cheques and delay/loss in transit. Communication: Account Statements / Newsletters / Annual Reports / Other statutory information (as may be permitted under SEBI (Mutual Funds) Regulations, 1996) can be sent to each Unit holder by courier / post / . Unit holders who have opted to receive these documents by will be required to download and print the documents after receiving from the Mutual Fund. Should the Unit holder experience any difficulty in accessing the electronically delivered documents, the Unit holder shall promptly advise the Mutual Fund to enable the Mutual Fund to deliver such document through alternative means. It is deemed that the Unit holder is aware of all security risks including possible third party interception of the documents and contents of the documents becoming known to third parties. ECS/NEFT: Investors who have opted for the ECS/NEFT facility of RBI for dividend payment will receive a direct credit of the amount to them in their notified account whenever the payment is made through ECS/ NEFT. It should be noted that while the Mutual Fund will make all efforts, there is no commitment that this facility will be made available to all desirous Investors. Applicants in cities not covered under ECS/NEFT facility will receive dividend payments by cheques or demand drafts and the same will be mailed to the Unit holders. Please note that currently the ECS/NEFT facility is available only in respect of dividend payments and not in the case of Redemption of Units. In case an investor has been covered under Direct Credit facility with select banks then dividend payment through ECS/NEFT shall not be effected. (D) PAN & KYC DETAILS I. PAN Details: As per SEBI directive, the requirement for submitting PAN details for all investments of Mutual Funds is mandatory for all investors [including Non-Resident Indians] irrespective of the amount of transaction involved. Where the person making an application is minor and who does not have any income chargeable to income-tax, he shall quote the PAN of his/her father or mother or guardian, as the case may be. As directed by SEBI, on submission of sufficient documentary evidence, submission of PAN shall not be insisted in case of Central Government, State Government and the officials appointed by the Courts e.g. official liquidator, court receiver etc. (under the category of Government) while investing in Mutual Funds. The exemption from mandatory PAN requirement will apply to transactions undertaken on behalf of Central and State Government and not to the transactions of the employees of Central and State Government in their personal capacity. All applications without PAN proof and KYC requirements [where investment is Rs.50,000/- and above], are liable to be rejected. Micro SIP: In accordance with relevant SEBI/AMFI issued guidelines SIPs of upto Rs.50,000/- per year per investor ( Micro-SIP ) are exempt from requirement of PAN. For SIP/Micro-SIP investments please submit the SIP form that can be made available at request/downloaded from our website. Please refer instruction No. 16 of the SIP Form under SIP Facility Terms & Conditions for detailed requirements relating to Micro-SIPs. II. Know Your Customer Acknowledgement Letter (KYC letter) In accordance with the requirements of the Prevention of Money Laundering Act, 2002 read with SEBI guidelines regarding Anti Money Laundering, presently it is mandatory to attach the Know Your Customer Acknowledgement Letter (KYC letter) issued by CSDL Ventures limited /printout of KYC compliance status downloaded from CVL website, for all the applicants (guardian in case of minor), for all applications for subscription of Rs.50,000/- and above. Also, applicants/ unitholders intending to apply for units / currently holding units and operating their Mutual Fund folios through a Power of Attorney (PoA) must ensure that the issuer of the PoA and the holder of PoA must attach the KYC letter, at the time of applications for investment of Rs. 50,000/- and above. PoA holders shall not submit documents for KYC letter, on behalf of the issuer of the PoA. The KYC letter is one time and unique and can be used for transacting across the Mutual Funds. Instruction for Filling Nomination Form: Instructions : (1) The nomination can be made only by individuals applying for / holding units on their own behalf singly or jointly. Non-individuals including society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family, holder of Power of Attorney cannot nominate. If the units are held jointly, all joint holders will sign the nomination form. If there are more than one joint holder additional forms may be used for signatures of the holders of units and witnesses. (2) A minor can be nominated and in that event, the name and address of the guardian of the minor nominee shall be provided by the unit holder. Nomination can also be in favour of the Central Government, State Government, Local authority any person designated by virtue of his office or a religious or charitable trust. (3) The Nominee shall not be a trust other than religious/charitable trust, society, body corporate, partnership firm, Karta of Hindu Undivided Family or a Power of Attorney holder. A non-resident Indian can be a Nominee subject to the exchange controls in force, from time to time. (4) Nomination in respect of the units stands rescinded upon the transfer of units. (5) Transfer of units in favour of a Nominee shall be valid discharge by the Asset Management Company against the legal heir. (6) The cancellation of nomination can be made only by those individuals who hold units on their own behalf singly or jointly and who made the original nomination. (7) On cancellation of the nomination, the nomination shall stand rescinded and the Asset Management Company shall not be under any obligation to transfer the units in favour of the Nominee. CHECKLIST Please ensure that: All relevant particulars are filled in / ticked in the form Full name of each holder Full Address Resident Individual - Indian address or NRI / FII - Foreign address & Local Address Bank mandate PAN details & Proof of PAN Scheme / Plan / Option details Payment details Mode of holding Legal Status Effective January 1, 2008: PAN details mandatory for all investments as indicated in D(1). Your investment is not less than the minimum investment amount. Your application is completed and signed by all applicants. KYC acknowledgement letter is enclosed for all applications of Rs. 50,000/- & above*. Cheques are drawn in favour of Name of the Scheme of Principal Mutual Fund and crossed Account Payee Only, dated and signed. On the reverse of each cheque submitted write the First Applicant s name and the Application Form number. Accompanying documents Please submit the following documents with your application (where applicable). All documents should be true copies certified by a director / Trustee / Company Secretary / Authorised Signatory. * KYC acknowledgement letter is issued by CSDL Ventures Limited /Printout of KYC compliance status downloaded from CVL website. Documents Companies Societies Partnership Investments Trusts NRI FIIs Individual Firms through POA Resolution / Authorisation to invest List of Authorised Signatories with Specimen signature(s) Memorandum & Articles of Association Trust Deed Bye-laws Partnership Deed Overseas Auditors Certificate Notarised Power of Attorney Bank confirmation of Non-Resident Account Type / FIRC Copy of PAN Card for all investments (except for Micro SIP) KYC acknowledgement letter (for investments of Rs. 50,000/- & above)*

123 Offices of AMC Identified as Official Point of Acceptance / Investor Service Centres Principal Pnb Asset Management Company Private Limited - Official Point of Acceptance: Mumbai: Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai Ahmedabad: 401, Broadway Business Centre, Opp. Samartheshwar Mahadev Temple, Law Garden Cross Road, Ellisbridge, Ahmedabad Ajmer: 55, Ajmer Tower, 1st Floor, Kuchehry Road, Ajmer, Rajasthan Allahabad: 43/1, Sardar Patel Marg, Civil Lines, Near Yatrik Hotel, Allahabad Amritsar: SCO 30-31,1st Floor Deep Complex, Court Road, Opp. Doaba Automobiles, Amritsar Asansol: Safe Savings, Street No.1, House No.2, Hindustan Park, Asansol Bangalore: Raheja Paramount, Unit No. 001 / 1, Gr. Floor, 138, Residency Road, Bangalore Bhubaneshwar: Gr. Floor, O.C.H.C Building, Near Ram Mandir, Janpath, Kharavel Nagar, Bhubaneswar Burdwan: Aykantik, 495, B.C. Road, Beside Proyozone, Burdwan Chandigarh: SCO , 2nd Floor, Sector-35 C, Chandigarh Chennai: 305, Challamal Complex, 3rd Floor, 11 Thiyagaraya Road, Chennai Cochin: 2nd Flr., Mayur Business Center, Pullepady Junction, Chittor Road, Cochin Coimbatore: No. 9, Gowtham Center Annexe, 1054, Avinashi Road, Coimbatore Durgapur: 5/42, Suhatta, 5th Floor, City Centre, Durgapur Goa*: C/o Advani Business Center, Neelkamal Arcade, CL -13, Atmaram Borkar Road, Panjim, Goa Guwahati: 4th Floor, Ganpati Enclave, Bora Service, G.S. Road, Guwahati Hyderabad: White House, 503, 5th Floor, Block No. 1, Begumpet, Hyderabad Indore: 406, City Center, 570, M.G. Road, Indore Jaipur: 305-B, 3rd Floor, Shyam Anukampa Complex, Ashok Marg, C-Scheme, Jaipur Jalandhar: C/o. Punjab National Bank, Nakodar Road, Near Jyoti Chowk, Jalandhar Jamshedpur: 109, Kamani Centre, 3rd Floor, Bistupur, Jamshedpur Jodhpur: Gang Towers, 1 st Floor, Upper Chopasani Road, Opp. Arora Motors, Jodhpur Kanpur: , Kan Chambers, Near Stock Exchange Building, 13/114 Civil Lines, Kanpur Kolkata: Block No. 503, SHUBHAM, 5th Floor, 1, Sarojini Naidu Sarani, Kolkata Lucknow: Sky Hi Chambers, S-205, 2nd Floor, 11/5, Park Road, Lucknow Ludhiana: 302, SCO-18, Opp. Ludhiana Stock Exchange, Feroze Gandhi Market, Ludhiana Mangalore*: Flat No. A, Gr. Floor, Anand Building, Opp. Petrol Pump, Near To HDFC Bank, Kadri, Mangalore Nagpur*: Block No.105, 1st Floor, Bhagwaghar Complex, Opposite Ajit Bakery, Dharampeth, Nagpur Nasik*: Dhanlakshmi Business Point, Cabin No. 14/15, 7 Sathye Baug, M.G. Road, Nasik New Delhi: Alps Building,1st Floor, 56 Janpath, New Delhi Patna: 610, Ashiana Hariniwas, Dak Bungalow Road, Patna Pune: 1st Floor, Shreenath Plaza, Dnyaneshwar Paduka Chowk, F. C. Road, Pune Raipur: Shop No , Lalganga Shopping Mall, G.E. Road, Raipur Rajkot: 315, Star Chambers, Harihar Chowk, Panchnath Road, Rajkot Ranchi: Shop No. 11, A C Market, G.E.L. Church Complex, Main Road, Ranchi Siliguri: Nanak Complex, 3rd Floor, Sevoke Road, Siliguri Surat: 206 Jolly Plaza, Athwagate, Surat Udaipur: 301, 3rd Floor, Madhav Tower, Opp. G. P. O., Chetak Circle, Madhuban, Udaipur Vadodara: 103, Paradise Complex, Sayajigunj, Vadodara Visakhapatnam: D.No , 1st Floor-3, Rednam Regency, Near Diomond Park, Dwarkanagar, Visakhapatnam *Note: These locations are not Official Point of Acceptance. Centres of Karvy Computershare Private Limited (R&T to Principal Mutual Fund) which have been identified as Official Point of Acceptance: Agra: Deepak Wasan Plaza, Behind Holiday Inn, Opp. Megdoot Furnitures, Sanjay Place, Agra Ahmedabad: , Shail Buildings, Opp. Madhusudhan House, Off. C. G. Road, Nr. Navrangpura, Telephone Exchange, Ahmedabad Ajmer: 1, 2nd Floor, Ajmer Tower, Kutchary Road, Ajmer Allahabad: RSA Towers, 2nd Floor, Above Sony TV Showroom, 57, S.P. Marg, Civil Lines, Allahabad Amritsar: 72-A, Taylor's Road, Aga Heritage Gandhi Ground, Amritsar Anand: F-6, Chitrangana Complex, Opp. Motikaka Chawl, V.V. Nagar, Anand Aurangabad: Shop No. 214/215, Tapadiya City Centre, Nirala Bazar, Aurangabad Bangalore: No. 51/25, 1st Floor, Surya Building, Ratna Avenue, Richmond Road, Bangalore Bareilly: 1st Floor, 165, Civil Lines, Opp. Hotel Bareilly Palace, Near Rly. Station Road, Bareilly Bhavnagar: Surabhi Mall, 301, 3rd Floor, Waghawadi Road, Bhavnagar Bhilai: No.138, New Civic Centre, Bhilai Bhopal: Kay Kay Business Centre, 133, Zone 1, M.P. Nagar, Bhopal Bhubaneshwar: Plot No- 104/105(P), Jaydev Vihar, Besides Hotel Pal Heights, Bhubaneswar Bokaro: B-1, 1st Floor, Near Sona Chandi Jewellers, City Centre, Sector-4, Bokaro Steel City, Bokaro Burdwan: 63, G.T. Road, Birhata, Halder Complex, 1st Floor, Burdwan Calicut: 2nd Floor, Sowbhagya Shoping Complex, Mavoor Road, Calicut Chandigarh: SCO , 1st Floor, Above HDFC Bank, Sector 35-B, Chandigarh Chennai: Flat No. F11, 1st Floor, Akshya Plaza, Erstwhile Harris Road, Opp. Chief City Metropolitan Court, # 108, Adhithanar Salai, Egmore, Chennai Cochin: Shop No. II, 2nd Floor, Jewel Arcade, (Above Oriental Insurance Ltd), Layam Road, Cochin Coimbatore: 29/1, 1st Floor, Chinthamani Nagar, Opp. Indian Overseas Bank, N.S.R. Road, Saibaba Colony, Coimbatore Cuttack: Dargha Bazar, Opp. Dargha Bazar Police Station, Buxibazar, Cuttack Dalhousie: 19, R.N. Mukherjee Road, 2nd Floor, Dalhousie, Kolkatta Dehradun: Kaulagarh Road, Near Sirmaur Marg, Above Reliance Webworld, Dehradun Dhanbad: 208, New Market, 2nd Floor, Katras Road, Bank More, Dhanbad Durgapur: Old Dutta Automobiles Building, 1st Floor, Nachan Road, Benachity, Durgapur Gorakhpur: Above V.I.P. House, Ajdacent A.D. Girls Inter College, Bank Road, Gorakpur Gurgaon: Shop No. 18, Gr. Floor, Sector-14, Opp. AKD Tower, Near Huda Office, Gurgaon Guwahati: 54 Sagarika Bhawan, R. G. Baruah Road, Guwahati Gwalior: Shindi Ki Chawani, Nadi Gate Pul, M.L.B. Road, Gwalior Hubli: 8 & 9, Upper Gr. Floor, C Block, Akshaya Park, Gokul Road, Hubli Hyderabad: Karvy Plaza, Avenue 4, Street No.1,Banjara Hills, Hyderabad Indore: LG - 3, Bombay Trade Centre, Lower Gr. Floor, Grand Hotel, Opp. Bombay Hospital, Scheme No. 54, Indore Jaipur: S-16 A, 3rd Floor, Land mark, Opposite Jaipur Club, Mahavir Marg, C-Scheme, Jaipur Jalandhar: Lower Gr. Floor, Office No. 3, Arora Prime Tower, Plot No : 28, G.T. Road, Jalandhar Jammu: 29 D/C, Near Service Selection Commission Office, Gandhi Nagar, Jammu Jamnagar: 108 Madhav Plaza, Opp. SBI Bank, Near Lal Bangalow, Jamnagar Jamshedpur: Kanchan Tower, 3rd Floor, Chhaganlal Sons, 3-S B Shop Area, Main Road, Bistupur, Jamshedpur Jodhpur: 203, Modi Arcade, Chupasni Road, Jodhpur Kanpur: 15/46, Opp. Muir Mills, Civil Lines, Kanpur Kolkata: 16, Jatin Bagchi Road, Kolkata Kolhapur: 610-A A.K. Vardhaman Chambers, 2nd Lane, Shahupuri, Kolhapur Kottayam: 1st Floor, CSI Ascension Church Complex, Kottayam Lucknow: Usha Sadan, 24, Prem Nagar, Ashok Marg, Lucknow Ludhiana: SCO-3, Bawa Building, Feroze Gandhi Market, Ludhiana Madurai: Rakesh Towers, 30-C, Bye Pass Road, 1st Floor, Opp. Nagappa Motors, Madurai Mangalore: Mahendra Arcade, Gr. Floor, Karangalapani, Kodialbail, Managalore Mehsana: U L 47 Apollo Enclave, Opp. Simandhar Temple, Modhera Cross Road, Mehsana Moradabad: Om Arcade, Parker Road, Above Syndicate Bank, Tari Khana Chowk, Moradabad Mumbai: Fort: DAS Chambers, Gr. Floor, Opp. BSE & next to Corporation Bank, Dalal Street, Fort, Mumbai Borivali: Gr. Floor, Himanshu Bldg., Sodawala Lane, Chandawarkar Road, Borivali (West), Mumbai Thane: 1st Floor, Jeevan Chaya Bldg, Near Adidas Show Room, Ram Maruti Road, Thane (W) Mysore: L-350, Silver Tower, Clock Tower, Ashoka Road, Mysore Nagpur: Sadoday Arcade, Above Top N Town, Dharampeth, Nagpur Nasik: S-12, 2nd Floor, Suyojit Sankul, Sharanpur Road, Nasik Navsari: 1st Floor, Chinmay Arcade, Opp. Sattapir, Tower Road, Navsari New Delhi: 2E / 23, Jhandewalan Extn., New Delhi Noida: 307 Jaipuria Plaza, D-68-A, 2nd Floor, Opp. Delhi Public School, Sector 26, Noida Panjim: No.7 & 8, El. Dorado Plaza, Heliodoro Salgado Road, Panjim Patiala: SCO 27-D, Chhoti Baradari, Patiala Patna: 3A, 3rd Floor, Anand Tower, Beside Chankya Cinema Hall, Exhibition Road, Patna Pondicherry: 1st Floor, No.7, Thiayagaraja Street, Pondicherry Pune: Srinath Plaza, C Wing, Office No , 3rd Floor, Dyaneshwar Paduka Chowk, F. C. Road, Pune Raipur: Room No: TF-31, 3rd Floor, Millennium Plaza, Behind Indian Coffee House, G.E Road, Raipur Rajkot: 104, Siddhi Vinayak Complex, Dr. Yagnik Road, Opp. Ramkrishna Ashram, Rajkot Ranchi: Commerce Towers, 3rd Floor, Room No. 307, Beside Mahabir Towers, Main Road, Ranchi Salem: 49 / 50, Fort Main Road Old No.17, 1st Floor, Shevapet, Salem Siliguri: Nanak Complex, Near Church Road, Sevoke Road, Siliguri Surat: G-16, Empire State Building, Nr. Udhna Darwaja,Ring Road, Surat Tirunelveli: Jeney Building, 55/18, S. N. Road, Near Arvind Eye Hospital, Tirunelveli Trichur: 2'nd Floor, Brother's Complex, Near Dhana Laxmi Bank Head Office, Naikkanal Junction, Trichur Trichy: 60 Srikrishna Arcade, 1st Floor, Thennur High Road, Trichy Trivandrum: 2nd Floor, Akshaya Towers, Sasthamangalam, Trivandrum Udaipur: , Madhav Chambers, Opp. G. P. O., Chetak Circle, Madhuban, Udaipur Vadodara: Piccadilly, Office # 5, 1st Floor, Opp. Adani Super Market, Jetalpur Road, Vadodara Valsad: Shop No. 2, Phiroza Corner, ICICI Bank Char Rasta, Tithal Road, Valsad Vapi: Shop No. 5, Phikhaji Residency, Opp. DCB Bank, Vapi Silvassa Road, Vapi Varanasi: D-64/132, KA, 1st Floor, Anant Complex, Sigra, Varanasi Vellore: No.1, M.N.R. Arcade, Officer's Line, Krishna Nagar, Vellore Vijayawada: Opp. Municipal Water Tank, Labbipet, Vijayawada Visakhapatnam: /1 Eswar Paradise, Dwaraka Nagar, Main Road, Visakhapatnam Registrar: Karvy Computershare Pvt. Ltd. (Unit Principal Mutual Fund) KARVY HOUSE, 46, Avenue- 4, Street No. 1, Banjara Hills, Hyderabad Tel.: (040) For any enquiries and/or queries, investors are advised to address a suitable communication to AMC at: customer@principalindia.com

124 SCHEME INFORMATION DOCUMENT Principal Index Fund Principal Resurgent India Equity Fund Principal Growth Fund Principal Dividend Yield Fund Principal Large Cap Fund Principal Services Industries Fund Principal Emerging Bluechip Fund An Open Ended Index Scheme Open Ended Equity Scheme (s) Continuous Offer for Units at NAV based Prices (subject to applicable load) Name of Mutual Fund : Principal Mutual Fund Name of Asset Management Company: Principal Pnb Asset Management Company Private Limited Name of Trustee Company : Principal Trustee Company Private Limited Address, Website of the Entities: Principal Mutual Fund Exchange Plaza, 'B' Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Principal Pnb Asset Management Company Private Limited Exchange Plaza, 'B' Wing, 2nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Principal Trustee Company Private Limited 1st Floor, Maker Bhavan II, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai Website: customer@principalindia.com Tel. No.: Fax: The particulars of the Scheme(s) have been prepared in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations 1996, (herein after referred to as SEBI (MF) Regulations) as amended till date, and filed with SEBI, along with a Due Diligence Certificate from Principal Pnb Asset Management Company Pvt. Ltd. The units being offered for public subscription have not been approved or recommended by SEBI nor has SEBI certified the accuracy or adequacy of the Scheme Information Document. The Scheme Information Document sets forth concisely the information about the scheme(s) that a prospective investor ought to know before investing. Before investing, investors should also ascertain about any further changes to this Scheme Information Document after the date of this Document from the Mutual Fund / Investor Service Centres / Website / Distributors or Brokers. The investors are advised to refer to the Statement of Additional Information (SAI) for details of Principal Mutual Fund, Tax and Legal issues and general information on SAI is incorporated by reference and is legally a part of the Scheme Information Document. For a free copy of the current SAI, please contact your nearest Investor Service Centre or log on to our website. The Scheme Information Document should be read in conjunction with the SAI and not in isolation. This Scheme Information Document is dated August 14,

125 Table of Contents Contents Page Nos. SECTION I HIGHLIGHTS/ SUMMARY OF SCHEME(S) 3 SECTION II INTRODUCTION 11 A. RISK FACTORS 11 B. REQUIREMENT OF MINIMUM NUMBER OF INVESTORS IN THE SCHEME(S) 16 C. SPECIAL CONSIDERATION 16 D. DEFINITIONS 18 E. DUE DILIGENCE BY THE ASSET MANAGEMENT COMPANY 22 SECTION III INFORMATION ABOUT THE SCHEME(S) 23 A. TYPE OF THE SCHEME(S) 23 B. WHAT ARE THE INVESTMENT OBJECTIVES OF THE SCHEME(S) 23 C. HOW WILL THE SCHEME(S)/PLAN(S) ALLOCATE ITS ASSETS 24 D. WHERE WILL THE SCHEME(S) INVEST 27 E. WHAT ARE THE INVESTMENT STRATEGIES 31 F. FUNDAMENTAL ATTRIBUTES 37 G. HOW WILL THE SCHEME(S) BENCHMARK ITS PERFORMANCE 37 H. WHO MANAGES THE SCHEME(S) 38 I. WHAT ARE THE INVESTMENT RESTRICTIONS 39 J. HOW HAS THE SCHEME(S) PERFORMED 40 K. INVESTMENT BY AMC 42 SECTION IV- UNITS AND OFFER 42 A. NFO DETAILS 42 B. ONGOING OFFER DETAILS 43 C. PERIODIC DISCLOSURES 60 D. COMPUTATION OF NAV 61 SECTION V- FEES AND EXPENSES 61 A. ANNUAL SCHEME RECURRING EXPENSES 61 B. LOAD STRUCTURE 62 SECTION VI- RIGHT OF UNITHOLDERS 63 SECTION VII- PENALTIES, PENDING LITIGATION OR PROCEEDINGS, FINDINGS OF INSPECTIONS OR INVESTIGATIONS FOR WHICH ACTION MAY HAVE BEEN TAKEN OR IS IN THE PROCESS OF BEING TAKEN BY ANY REGULATORY AUTHORITY

126 Highlights / Summary of the Scheme(s) Name of Scheme/Plan Principal Index Fund Principal Resurgent India Equity Fund Investment Objective To invest principally in securities that comprise S&P CNX Nifty (NSE) and subject to tracking errors endeavour to attain results commensurate with the Nifty. To generate long term capital appreciation by investing in equity and equity related securities of Indian Companies that are perceived to be potential growth stories. Liquidity Liquidity will be available through sale and repurchase of units on all business days on an ongoing basis. Unitholders can subscribe to and get their units repurchased on all business days at NAV related prices (with exit load as mandated by AMC from time to time). As per SEBI Regulations, the Mutual Fund shall despatch Redemption proceeds within 10 Business Days of receiving the Redemption request. A penal interest of 15% or such other rate as may be prescribed by SEBI from time to time will be paid in case the redemption proceeds are not dispatched within 10 Business Days of the date of Redemption request. However, under normal circumstances, the Mutual Fund will endeavor to despatch the Redemption proceeds well before 10 Business Days from the acceptance of the duly completed Redemption request. Liquidity will be available through sale and repurchase of units on an ongoing basis. Unitholders can subscribe to and get their units repurchased on all business days at NAV related prices (with exit load as mandated by AMC from time to time). As per SEBI Regulations, the Mutual Fund shall despatch Redemption proceeds within 10 Business Days of receiving the Redemption request. A penal interest of 15% or such other rate as may be prescribed by SEBI from time to time will be paid in case the redemption proceeds are not dispatched within 10 Business Days of the date of Redemption request. However, under normal circumstances, the Mutual Fund will endeavor to despatch the Redemption proceeds well before 10 Business Days from the acceptance of the duly completed Redemption request. Benchmark S&P CNX Nifty Index BSE 200 Index Transparency / NAV Disclosure Loads (including Systematic Investment Plans / Systematic Transfer Plan / Systematic Withdrawal Plan if available) Minimum Application Amount The NAV will be calculated by the AMC for each business day and released to the Press, News Agencies and the Association of Mutual Funds of India (AMFI). The AMC shall update the NAVs on the website of the Mutual Fund (www. principalindia.com) and on the website of Association of Mutual Funds in India - AMFI ( by 9.00 p.m. every Business Day. In case of any delay, the reasons for such delay would be explained to AMFI in writing. If the NAVs are not available before the commencement of business hours on the following day due to any reasons, a press release shall be issued giving reasons and explaining when the AMC would be able to publish the NAVs. The AMC shall, before the expiry of one month from the close of each half year, that is March and September, publish its unaudited financial results in one national English daily newspaper circulating in the whole of India and in a newspaper published in the language of the region where the Head office of the Fund is situated. These shall also be displayed on the website of the Mutual Fund and that of AMFI. Full portfolio in the prescribed format shall also be disclosed either by publishing it in the newspapers or by sending to the Unit Holders within one month from the end of each half-year and it shall also be displayed on the website of the Fund. Entry Load : Nil Exit Load: For investment amount less than or equal to Rs. 5 Crores - if redeemed on or before 30 days from the date of allotment - 1% For investment amount greater than Rs 5 Crores - if redeemed on or before 10 days from the date of allotment % Rs. 5,000 and any amount thereafter under each plan. Subsequent investment of Rs.500 and any amount The NAV will be calculated by the AMC for each business day and released to the Press, News Agencies and the Association of Mutual Funds of India (AMFI). The AMC shall update the NAVs on the website of the Mutual Fund (www. principalindia.com) and on the website of Association of Mutual Funds in India - AMFI ( by 9.00 p.m. every Business Day. In case of any delay, the reasons for such delay would be explained to AMFI in writing. If the NAVs are not available before the commencement of business hours on the following day due to any reasons, a press release shall be issued giving reasons and explaining when the AMC would be able to publish the NAVs. The AMC shall, before the expiry of one month from the close of each half year, that is March and September, publish its unaudited financial results in one national English daily newspaper circulating in the whole of India and in a newspaper published in the language of the region where the Head office of the Fund is situated. These shall also be displayed on the website of the Mutual Fund and that of AMFI. Full portfolio in the prescribed format shall also be disclosed either by publishing it in the newspapers or by sending to the Unit Holders within one month from the end of each half-year and it shall also be displayed on the website of the Fund. Entry Load : Nil Exit Load: For investment amount less than or equal to Rs. 5 crores if redeemed on or before 3 years from the date of allotment 1% For investment amount greater than Rs. 5 crores if redeemed on or before 10 days from date of allotment 0.25%. Rs. 5,000 and any amount thereafter under each plan. Subsequent investment of Rs.500 and any amount thereafter - 3 -

127 Minimum Repurchase/Redempt ion Amount Investment Plans (s) / Option(s) Asset Allocation Pattern Investment Strategy thereafter under each plan. Systematic Investment Plan: Minimum Six installments of Rs.500/- each. Rs. 500/- or 50 units The Scheme has two Plans viz. Dividend and Growth Plan. Further the Dividend Plan has the facility of Payout, Reinvestment and Sweep. Under normal circumstances, the asset allocation would be as follows: Type of Normal Allocation (% of Risk Instrum Net Assets) Profile ent Minimum Maximum Nifty Medium Stocks to High Money 0 10 Low Market Instrume nts The Asset Management Company reserves the right to invest in derivatives up to 50% of the net assets of the Scheme Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Units of the scheme have been designed with the intention of tracking the movement of securities (from time to time) included in the Nifty. The Scheme plans to do this by investing the entire corpus in the stocks that comprise the Nifty in similar weights to the weightage given by Nifty so that the portfolio would appreciate or depreciate (subject to tracking errors) in more or less the same manner as the Nifty. Subject to the requirements of cash flows to meet the recurring expenses and to service investors who decide to exit from the Scheme or for distribution of income, if any, to investors, it is proposed that the corpus of the scheme will be invested in the Nifty securities. It is also proposed that disinvestment will take place only when investors exit from the Scheme or when any security ceases to be included in the Nifty or to meet the cash flow requirements. The Nifty is designed to reflect the perceptions of the investors about the Indian economy. This is sought to be achieved by IISL by including companies representing a cross-section of the various sectors of the Indian economy. By endeavoring to track the Nifty to the extent possible under the prevailing circumstances and environment objectives and the features of the Scheme, the Fund expects to generate returns in the Scheme approximating the performance of the Nifty. under each plan. Systematic Investment Plan: Minimum Six installments of Rs. 500/- each. Rs. 500/- or 50 units The Scheme has two Plans viz. Dividend and Growth Plan. Further the Dividend Plan has the facility of Payout, Reinvestment and Sweep. Under normal circumstances, the asset allocation would be as follows: Type of Instrument Normal Allocation (% of Net Assets) Risk Profile Minimum Maximum 65% 100% Medium to High Equity & Equity Related Securities* Debt 0% 35% Low to Securities Medium and Money Market Instruments (including cash / call money)** * Equity Securities include debt securities convertible into shares and rights or warrants to purchase shares. **Investment in Securitised Debt of up to 10% of the net assets of the Scheme. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. To achieve the objective of the Scheme, assets under the Scheme will be invested in equity and equity related instruments with emphasis on companies with potential growth stories. The balance will be invested in wide range of debt and money market instruments. The focus of Investment Strategy would be to identify stocks, which can provide capital appreciation in the long term. Within this, the Scheme will focus on Companies that are perceived as potential growth stories as a result of a turnaround, restructuring or acquisition strategy being followed by them. Fund Manager Mr. Shyam Bhat Mr. Shyam Bhat - 4 -

128 Name of Scheme/Plan Principal Growth Fund Principal Dividend Yield Fund Investment Objective To achieve long term capital appreciation. The investment objective of the scheme would be to provide capital appreciation and/or dividend distribution by investing predominantly in a well-diversified portfolio of companies that have a relatively high dividend yield. Liquidity Liquidity will be available through sale and repurchase of units on all business days. Unitholders can subscribe to and get their units repurchased on all business days at NAV related prices. As per SEBI Regulations, the Mutual Fund shall dispatch redemption proceeds within 10 Business Days of receiving the Redemption request. A penal interest of 15% or such other rate as may be prescribed by SEBI from time to time, will be paid in case the redemption proceeds are not dispatched within 10 Business Days of the date of Redemption request. However, under normal circumstances, the Mutual Fund will endeavor to dispatch the Redemption proceeds well before 10 Business Days from the acceptance of the duly completed Redemption request Liquidity will be available through sale and repurchase of units on all business days. Unit holders can subscribe to and get their units repurchased on all business days at NAV related prices. As per SEBI Regulations, the Mutual Fund shall dispatch redemption proceeds within 10 Business Days of receiving the Redemption request. A penal interest of 15% or such other rate as may be prescribed by SEBI from time to time will be paid in case the redemption proceeds are not dispatched within 10 Business Days of the date of Redemption request. However, under normal circumstances, the Mutual Fund will endeavor to dispatch the Redemption proceeds well before 10 Business Days from the acceptance of the duly completed Redemption request Benchmark Transparency / NAV Disclosure Loads (including Systematic Investment Plans / Systematic Transfer Plan / Systematic Withdrawal Plan if available) BSE 200 Index The NAV of the scheme will be calculated by the AMC for each Business Day and released to the Press, News Agencies and the Association of Mutual Funds of India (AMFI). The AMC shall update the NAVs on the website of the Mutual Fund (www. principalindia.com) and on the website of Association of Mutual Funds in India - AMFI ( by 9.00 p.m. every Business Day. In case of any delay, the reasons for such delay would be explained to AMFI in writing. If the NAVs are not available before commencement of business hours on the following day due to any reasons, a press release shall be issued giving reasons and explaining when the AMC would be able to publish the NAVs. The AMC shall, before the expiry of one month from the close of each half year, that is March and September, publish its unaudited financial results in one national English daily newspaper circulating in the whole of India and in a newspaper published in the language of the region where the Head office of the Fund is situated. These shall also be displayed on the website of the Mutual Fund and that of AMFI. Full portfolio in the prescribed format shall also be disclosed either by publishing it in the newspapers or by sending to the Unit Holders within one month from the end of each half-year and it shall also be displayed on the website of the Fund. Entry Load: Nil Exit Load: For investment amount less than or equal to Rs. 5 crores if redeemed on or before 3 years from the date of allotment 1% For investment amount greater than Rs. 5 crores if redeemed on or before 10 days from the date of allotment 0.25% S&P CNX 500 Index The NAV of the scheme will be calculated by the AMC for each Business Day and released to the Press, News Agencies and the Association of Mutual Funds of India (AMFI). The AMC shall update the NAVs on the website of the Mutual Fund (www. principalindia.com) and on the website of Association of Mutual Funds in India - AMFI ( by 9.00 p.m. every Business Day. In case of any delay, the reasons for such delay would be explained to AMFI in writing. If the NAVs are not available before commencement of business hours on the following day due to any reasons, a press release shall be issued giving reasons and explaining when the AMC would be able to publish the NAVs. The AMC shall, before the expiry of one month from the close of each half year, that is March and September, publish its unaudited financial results in one national English daily newspaper circulating in the whole of India and in a newspaper published in the language of the region where the Head office of the Fund is situated. These shall also be displayed on the website of the Mutual Fund and that of AMFI. Full portfolio in the prescribed format shall also be disclosed either by publishing it in the newspapers or by sending to the Unit Holders within one month from the end of each half-year and it shall also be displayed on the website of the Fund. Entry Load: Nil Exit Load: For investment amount less than or equal to Rs. 5 crores if redeemed on or before 3 years from the date of allotment 1% For investment amount greater than Rs. 5 crores - if redeemed on or before 10 days from the date of allotment 0.25% - 5 -

129 Minimum Application Amount Minimum Repurchase/Redemption Amount Investment Plans (s) / Option(s) Asset Allocation Pattern Where the date of redemption is a holiday / non business day, the deemed date for such redemption will be the next business day. Minimum application amount will be Rs for both Dividend and Growth Plan and any amount thereafter under each plan. Subsequent investment amount shall be Rs 500 and any amount thereafter under each option. Systematic Investment Plan: Minimum 6 installments of Rs. 500 each. Rs. 500/- or 50 units The Scheme has two Plans i.e Growth and Dividend. Further, the Dividend Plan has the facility of Payout, Reinvestment and Sweep Under normal circumstances, the asset allocation would be as follows: Where the date of redemption is a holiday / non business day, the deemed date for such redemption will be the next business day. Minimum application amount will be Rs for both Dividend and Growth Plan and any amount thereafter under each plan. Subsequent investment amount shall be Rs 500 and any amount thereafter under each plan. Systematic Investment Plan: minimum 6 installments of Rs. 500 each. Rs. 500/- or 50 units The Scheme has two plans i.e Growth and Dividend. Further, the Dividend Plan has the facility of Payout, Reinvestment and Sweep (into an open ended scheme). Both these plans will share a common Portfolio. Under normal circumstances, the asset allocation would be as follows: Types of Instruments Equity and Equity Related Instruments Debt (including securitised debt*) and Money market instruments Normal Allocation Risk (% of Net Assets) Profile Minimum Maximum High 65% 100% 0% 35% Low to Medium Type of Instrument Equity and equity related instruments of high dividendyield companies* Normal Allocation (% of Net Assets) Minimum Maximum Risk Profile High * Investment in Securitized Debt may be up to 35% of the net assets of the Scheme. The Asset Management Company (AMC) reserves the right to invest in Derivatives upto 50% of the net assets of the Scheme. The AMC further reserves the right to invest in ADRs / GDRs and / or Overseas Financial debt instruments including units of Overseas Mutual Funds not exceeding 15% of the net assets of the Scheme. Investment in Derivatives / ADRs / GDRs / Overseas Financial debt instruments shall be subject to restrictions imposed by SEBI / RBI or any other regulatory authority from time to time. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Other equity and equityrelated instruments Cash and Money Market Instruments 0 35 High 0 20 Low to Medium *High dividend-yield companies are defined as those having a dividend-yield (i.e last declared dividend as a percentage of the market price at the time of investment) higher than 1.5 times that of the NSE Nifty on the earlier trading day. The scheme intends to use derivatives for purposes that may be permitted by SEBI (Mutual Funds) Regulations, 1996 from time to time. The scheme shall have a maximum net derivatives position up to 50% of the portfolio. The Scheme may also invest in overseas financial debt instruments including units of overseas mutual funds, as detailed below:- Investments will only be made in instruments denominated in US Dollar, Singapore Dollar, Japanese Yen, Euro or Sterling Pound on in any other liquid currency as may be decided by the AMC from time to time and will be subject to following limits: - 6 -

130 Particulars % of Net Assets Investment in Not exceeding 35% of the overseas financial Scheme s assets subject to a debt instruments maximum limit of US $300 including units of million per mutual fund or overseas mutual such other limit as specified funds by SEBI from time to time. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Investment Strategy The scheme will invest its assets in a portfolio of equity and equity related instruments. The focus of the investment strategy would be to identify stocks which can provide capital appreciation in the long term. Companies selected for the portfolio which in the opinion of the AMC would possess some of the characteristics mentioned below: Superior management quality Distinct and sustainable competitive advantage Good growth prospects and Strong financial strength The scheme would invest predominantly (at least 65% of the net assets) in companies that have a relatively high dividend yield (i.e. last declared dividend divided by the current market price), at the time of making the investment. The Fund is defining dividend yield as high if it is in excess of 1.5 times that of the prevailing dividend yield of the NSE Nifty. The dividend yield of NSE Nifty as on May 20, 2009 is 1.30% The aim will be to build a diversified portfolio across major industries and economic sectors by using Fundamental Analysis approach as its selection process. Fund Manager Mr. Shyam Bhat Mr. Shyam Bhat Name of the Scheme Investment Objective Principal Large Cap Fund The Investment Objective of the scheme would be to provide capital appreciation and /or dividend distribution by predominantly investing in companies having a large market capitalization. For the purpose of this Fund, Large Cap Companies are defined as those having market capitalization greater than Rs.750 crores as on the date of investment (or any such amount as may be specified by India Index Services and Products Ltd. (IISL) from time to time) being the upper limit of market capitalisation as a criteria for inclusion of a company in CNX Midcap 200 Index. However, should IISL come out with a definition of Large Cap companies, the same will be utilized. Liquidity Liquidity will be available through sale and repurchase of units on all business days. Unit holders can subscribe to and get their units repurchased on all business days at NAV related prices. As per SEBI Regulations, the Mutual Fund shall dispatch Redemption proceeds within 10 Business Days of receiving the Redemption request. A penal interest of 15% or such other rate as may be prescribed by SEBI from time to time, will be paid in case the redemption proceeds are not dispatched within 10 Business Days of the date of Redemption request. However, under normal circumstances, the Mutual Fund will endeavor to dispatch the Redemption proceeds well before 10 Business Days from the acceptance of the duly completed Redemption request Benchmark Transparency / NAV Disclosure BSE 100 Index The NAV of the scheme will be calculated by the AMC for each Business Day and released to the Press, News Agencies and the Association of Mutual Funds of India (AMFI). The AMC shall update the NAVs on the website of the Mutual Fund (www. principalindia.com) and on the website of Association of Mutual Funds in India - AMFI ( by 9.00 p.m. every Business Day. In case of any delay, the reasons for such delay would be explained to AMFI in writing. If the NAVs are not available before commencement of business hours on the following day due to any reasons, a press release shall be issued giving reasons and explaining when the AMC would be able to publish the NAVs.. The AMC shall, before the expiry of one month from the close of each half year, that is March and September, publish its unaudited financial results in one national English daily newspaper circulating in the whole of India and in a newspaper published in the language of the region where the Head office of the Fund is situated. These shall also be - 7 -

131 displayed on the website of the Mutual Fund and that of AMFI. Full portfolio in the prescribed format shall also be disclosed either by publishing it in the newspapers or by sending to the Unit Holders within one month from the end of each half-year and it shall also be displayed on the website of the Fund. Loads (including Systematic Investment Plans / Systematic Transfer Plan / Systematic Withdrawal Plan if available) Minimum Application Amount Entry Load: Nil Exit Load: For investment amount less than or equal to Rs. 5 crores if redeemed on or before 3 years from the date of allotment 1% For investment amount greater than Rs. 5 crores if redeemed on or before 10 days from the date of allotment 0.25% Where the date of redemption is a holiday / non business day, the deemed date for such redemption will be the next business day. Minimum application amount will be Rs for both Dividend and Growth Option and any amount thereafter under each option. Subsequent investment amount shall be Rs 500 and any amount thereafter under each option. Systematic Investment Plan: minimum 6 installments of Rs. 500 each. Minimum Repurchase/Redemption Amount Investment Plans (s) / Option(s) Rs. 500/- or 50 units The Scheme has two options i.e Growth and Dividend. Further, the Dividend Option has the facility of Payout, Reinvestment and Sweep. Asset Allocation Pattern Under normal circumstances, the asset allocation would be as follows: (can broaden the table) Type of Instrument Normal Allocation (% of Net Assets) Risk Profile Minimum Maximum (1)Large Cap Equity and Equity related instruments** (2)Equity & Equity related instruments (other than in (1) above) 65% 100% High 0% 35% High (3)Money Market Instruments 0% 30% Low to Medium ** For the purpose of this Fund, Large Cap Companies are defined as those having market capitalisation greater than Rs, 750 crore as on the date of investment (or any such amount as may be specified by India Index Services and Products Limited (IISL) from time to time) being the upper limit of market capitalisation as a criteria for inclusion of a company in CNX Midcap 200 Index. However, should IISL come out with a definition of Large Cap companies, the same will be utilised. The AMC reserves the right to invest in foreign securities and derivatives as follows:- Particulars Normal Allocation (% of Net Assets) Investment in ADR/ GDR and foreign securities (equity and equity related instruments) Equity Derivatives Not exceeding 30% of the Net Assets of the scheme (subject to a maximum limit of US $300 million) or such other limit as specified by SEBI from time to time. Not exceeding 50% of the Net assets subject to limits as specified by SEBI from time to time. Investment Strategy Currently, more than 80% of market capitalization of the equity market is in large capitalization stocks and pursuant to the objectives of the scheme, the scheme would invest at least 65% of its assets in companies having a market capitalization greater than Rs.750 crores as on the date of investment (or any such amount as may be specified by India Index Services and Products Ltd. (IISL) from time to time) being the upper limit of market capitalisation as a criteria for - 8 -

132 Fund Manager inclusion of a company in CNX Midcap 200 Index. However, should IISL come out with a definition of Large Cap companies, the same will be utilized. The scheme may also invest upto 35% of its net assets in companies having a market capitalization less than Rs. 750 crores. Mr. Pramod Gupta Name of the Scheme Principal Services Industries Fund Principal Emerging Bluechip Fund To provide capital appreciation and income distribution to The primary objective of the Scheme is to achieve longterm Investment Objective the unit holders by investing predominantly in capital appreciation by investing in equity & equity equity/equity related securities of the companies related instruments of mid cap & small cap companies. belonging to the services industries and the balance in debt securities and money market instruments including call money. Liquidity Unitholders can subscribe to and get their units repurchased on all business days at NAV related prices. Unitholders can subscribe to and get their units repurchased on all business days at NAV related prices. As per SEBI Regulations, the Mutual Fund shall dispatch Redemption proceeds within 10 Business Days of receiving the Redemption request. A penal interest of 15% or such other rate as may be prescribed by SEBI from time to time will be paid in case the redemption proceeds are not dispatched within 10 Business Days of the date of Redemption request. However, under normal circumstances, the Mutual Fund will endeavor to dispatch the Redemption proceeds well before 10 Business Days from the acceptance of the duly completed Redemption request As per SEBI Regulations, the Mutual Fund shall dispatch Redemption proceeds within 10 Business Days of receiving the Redemption request. A penal interest of 15% or such other rate as may be prescribed by SEBI from time to time, will be paid in case the redemption proceeds are not dispatched within 10 Business Days of the date of Redemption request. However, under normal circumstances, the Mutual Fund will endeavor to dispatch the Redemption proceeds well before 10 Business Days from the acceptance of the duly completed Redemption request Benchmark Transparency / NAV Disclosure CNX Services Sector Index The NAV of the scheme will be calculated by the AMC for each Business Day and released to the Press, News Agencies and the Association of Mutual Funds of India (AMFI). The AMC shall update the NAVs on the website of the Mutual Fund (www. principalindia.com) and on the website of Association of Mutual Funds in India - AMFI ( by 9.00 p.m. every Business Day. In case of any delay, the reasons for such delay would be explained to AMFI in writing. If the NAVs are not available before commencement of business hours on the following day due to any reasons, a press release shall be issued giving reasons and explaining when the AMC would be able to publish the NAVs. The AMC shall, before the expiry of one month from the close of each half year, that is March and September, publish its unaudited financial results in one national English daily newspaper circulating in the whole of India and in a newspaper published in the language of the region where the Head office of the Fund is situated. These shall also be displayed on the website of the Mutual Fund and that of AMFI. Full portfolio in the prescribed format shall also be disclosed either by publishing it in the newspapers or by sending to the Unit Holders within one month from the end of each half-year and it shall also be displayed on the website of the Fund. CNX Midcap Index The NAV of the scheme will be calculated by the AMC for each Business Day and released to the Press, News Agencies and the Association of Mutual Funds of India (AMFI). The AMC shall update the NAVs on the website of the Mutual Fund (www. principalindia.com) and on the website of Association of Mutual Funds in India - AMFI ( by 9.00 p.m. every Business Day. In case of any delay, the reasons for such delay would be explained to AMFI in writing. If the NAVs are not available before commencement of business hours on the following day due to any reasons, a press release shall be issued giving reasons and explaining when the AMC would be able to publish the NAVs. The AMC shall, before the expiry of one month from the close of each half year, that is March and September, publish its unaudited financial results in one national English daily newspaper circulating in the whole of India and in a newspaper published in the language of the region where the Head office of the Fund is situated. These shall also be displayed on the website of the Mutual Fund and that of AMFI. Full portfolio in the prescribed format shall also be disclosed either by publishing it in the newspapers or by sending to the Unit Holders within one month from the end of each half-year and it shall also be displayed on the website of the Fund

133 Loads (including Systematic Investment Plans / Systematic Transfer Plan / Systematic Withdrawal Plan if available) Minimum Application Amount Minimum Repurchase/Redemption Amount Investment Plans (s) / Option(s) Asset Allocation Pattern Entry Load: Nil Exit Load: For investment amount less than or equal to Rs. 5 crores if redeemed on or before 3 years from the date of allotment 1% For investment amount greater than Rs. 5 crores if redeemed on or before 10 days from the date of allotment 0.25% Where the date of redemption is a holiday / non business day, the deemed date for such redemption will be the next business day. Minimum application amount will be Rs. 5000/- for both Dividend and Growth Option and any amount thereafter under each option. Subsequent investment amount shall be Rs 500/- and any amount thereafter under each option. Systematic Investment Plan: Minimum 6 installments of Rs. 500/- each. Rs. 500/- or 50 units The Scheme has two options i.e Growth and Dividend. Further, the Dividend Option has the facility of Payout, Reinvestment and Sweep Under normal circumstances, the asset allocation would be as follows: Types of Instruments Normal Allocation Risk (% of Net Assets) Profile Minimum Maximum High Equity and Equity Related Instruments of 70% 100% Services Industries Debt (including Low to securitised Medium debt*) and 0% 30% Money market instruments Investment in the securitised debt may be up to 30% of the net assets of the Scheme The Asset Management Company reserves the right to invest in foreign securities and derivatives as follows: Particulars Investment in ADR/ GDR and foreign securities (equity and equity related instruments) Equity Derivatives Normal Allocation (% of Net Assets) Not exceeding 30% of the Net Assets of the scheme (subject to a maximum limit of US $300 million) or such other limit as specified by SEBI from time to time. Not exceeding 50% of the Net assets subject to limits as specified by SEBI from time to time. Entry Load: Nil Exit Load: For investment amount less than or equal to Rs. 5 crores if redeemed on or before 3 years from the date of allotment 1% For investment amount greater than Rs. 5 crores - if redeemed on or before 10 days from the date of allotment 0.25% Where the date of redemption is a holiday / non business day, the deemed date for such redemption will be the next business day.. Minimum application amount will be Rs. 5000/- for both Dividend and Growth Option and any amount thereafter under each option. Subsequent investment amount shall be Rs 500/- and any amount thereafter under each option. Systematic Investment Plan: Minimum 6 installments of Rs. 500/- each. There is no minimum redemption amount. An investor can redeem any amount or any number of units to the extent of the credit balance in his account. The Scheme has two options i.e Growth and Dividend Option. Further, the Dividend Option has the facility of Payout, Reinvestment and Sweep Under normal circumstances, the asset allocation would be as follows: Types of Instruments Equity & equity related instruments of Mid Cap companies Equity & equity related instruments of Small Cap companies Equity & equity related instruments of Companies other than Mid & Small Cap companies Total Equity Cash & Money Market / Normal Allocation (% of Net Assets) Minimum Maximum High 5 15 High 0 30 High High Risk Profile 0 30 Low to Medium

134 Investment Strategy The scheme will inter-alia invests in companies, which are engaged in the following Service industries: Banks, Courier, Finance, Gas, Healthcare Services, Hotels, Industrial Services, Media & Entertainment, Power, Retailing, Software, Telecom-Services, Trading, Transportation, and Travel. The above list is only indicative and not exhaustive and this could undergo changes based on future reforms and developments. The Investment Manager may add such other sector/group of industries which broadly satisfy the category of services industries based on AMFI classification. Fixed Income Securities (including MIBOR Linked Short Term Papers & Securitised Debt*) *Investment in Securitised Debt may be up to 30% of the net assets of the Scheme. Note: The Asset Management Company (AMC) reserves the right to invest in derivatives (Equity Derivatives) not exceeding 50 % of the Net Assets, subject to limits specified by SEBI from time to time. The AMC further reserves the right to invest in foreign securities and derivatives subject to SEBI/RBI or any other Regulatory Authorities permitted from time to time. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. The investment strategy of the fund will be based on market cap of the stocks. The fund will predominantly invest in midcap stocks. This midcap range will be so determined taking into account the midcap range of the benchmark index at the end of every calendar quarter. Such midcap range once determined at quarter end will apply to all investment decisions made during the following quarter. The fund will also invest in small cap stocks to tap high growth opportunities offered by such stocks. For the purpose of maintaining liquidity or tap market opportunities; the fund may also invest in large cap stocks. Stocks selection will be primarily on bottom up approach on stock-by-stock basis. As part of its objective of maximizing investor's wealth creation potential over the longer duration, the fund may also invest in equity and equity related instruments of unlisted companies in line with SEBI regulations. A part of the portfolio will also tap arbitrage opportunities in the domestic markets like equity & equity related instruments, convertible preference shares, and convertible debentures. The Scheme intends to invest in derivatives not exceeding 50% of the net assets of the Schemes, subject to the limits as specified from time to time for hedging and rebalancing purposes or to undertake any other strategy as permitted under SEBI Regulations from time to time. Fund Manager Mr. Shyam Bhat Mr. Pankaj Tibrewal II. INTRODUCTION A. RISK FACTORS Standard Risk Factors: Investment in Mutual Fund Units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal. As the price / value / interest rates of the securities in which the scheme invests fluctuates, the value of your investment in the scheme may go up or down. As with any investment in stocks, shares and securities, the NAV of the Units under the Scheme can go up or down, depending on the factors and forces affecting the capital markets. Past performance of the Sponsor/AMC/Mutual Fund does not guarantee future performance of the scheme

135 Principal Index Fund, Principal Resurgent India Equity Fund, Principal Growth Fund, Principal Dividend Yield Fund, Principal Large Cap Fund, Principal Services Industries Fund and Principal Emerging Bluechip Fund are only the names of the scheme(s) and do not in any manner indicate either the quality of the scheme or its future prospects and returns. The sponsor or any of its associates including co-settlors are not responsible or liable for any loss resulting from the operation of the scheme beyond the initial contribution of 25 lakhs made towards setting up the Fund. The present scheme(s) are not a guaranteed or assured return scheme Specific Risk Factors: Applicable to all schemes:- Risk Associated with Investing in Equities The value of Scheme s investments may be affected by factors affecting the Securities markets and price and volume volatility in the capital markets, interest rates, currency exchange rates, changes in law/policies if the Government, taxation laws and political, economic or other developments which may have an adverse bearing on individual securities, a specific sector or all sectors. Consequently, the NAV of the units of the Scheme may be affected. Equity & Equity related securities are volatile and prone to price fluctuations on a daily basis. The liquidity of investments made in the Scheme may be restricted by trading volumes and settlement periods. Settlement periods may be extended significantly by unforeseen circumstances. The inability of the Scheme to make intended securities purchases due to settlement problems could cause the Scheme to miss certain investment opportunities. Similarly, the inability to sell securities held in the Scheme s portfolio may result, at times, in potential losses to the Scheme, should there be a subsequent decline in the value of securities held in the Scheme s portfolio. The liquidity and valuation of the Scheme s investments due to the holdings of unlisted securities may be affected if they have to be sold prior to the target date of disinvestment. Securities which are not quoted on the stock exchanges are inherently illiquid in nature and carry a larger liquidity risk in comparison with securities that are listed on the exchanges or offer other exit options to the investors, including put options. The liquidity of the scheme is inherently restricted by trading volumes in securities in which it invests. Investment decisions made by the Investment Manager may not always be profitable. Risk Associated with Investing in Debt and / or Money Market Instruments- Price-Risk or Interest-Rate Risk: Fixed income securities such as bonds, debentures and money market instruments run price-risk or interest-rate risk. Generally, when interest rates rise, prices of existing fixed income securities fall and when interest rates drop, such prices increase. The extent of fall or rise in the prices is a function of the existing coupon, days to maturity and the increase or decrease in the level of interest rates. Credit Risk: In simple terms this risk means that the issuer of a debenture/ bond or a money market instrument may default on interest payment or even in paying back the principal amount on maturity. Even where no default occurs, the price of a security may go down because the credit rating of an issuer goes down. It must, however, be noted that where the Scheme has invested in Government Securities, there is no credit risk to that extent. Re-investment Risk: Investments in fixed income securities may carry re-investment risk as interest rates prevailing on the interest or maturity due dates may differ from the original coupon of the bond. Consequently, the proceeds may get invested at a lower rate. Interest Rate Movement (Basis Risk): The changes in the prevailing rates of interest will likely affect the value of the Scheme's holdings until the next reset date and thus the value of the Schemes' Units will be affected. Increased rates of interest, which frequently accompany inflation and/ or a growing economy, are likely to have a negative effect on the value of the Units. The value of securities held by the Scheme generally will vary inversely with changes in prevailing interest rates. The fund could be exposed to the interest rate risk (i) to the extent of time gap in resetting of the benchmark rates, and (ii) to the extent the benchmark index fails to capture the interest rate movement. Prepayments and Charge Offs Risk: In the event of prepayments, investors may be exposed to changes in tenor and yield. Also, any Charge Offs would result in the reduction in the tenor of the Pass Through Certificates (PTCs). Spread Risk: In a floating rate security the coupon is expressed in terms of a spread or mark up over the benchmark rate. However depending upon the market conditions the spreads may move adversely or favourably leading to fluctuation in NAV. Risks associated with Investing in Foreign Securities (applicable where the asset allocation pattern of the Scheme(s) provides such investment.) Subject to necessary approvals and within the investment objectives, the Scheme may invest in overseas markets which carry risks related to fluctuations in the foreign exchange rates, the nature of the securities market of the country, repatriation of capital due to exchange controls and political circumstances

136 It is the AMC s belief that investment in foreign securities offers new investment and portfolio diversification opportunities into multimarket and multi-currency products. However, such investments also entail additional risks. Such investment opportunities may be pursued by the AMC provided they are considered appropriate in terms of the overall investment objectives of the Scheme(s). Since the Scheme would invest only partially in foreign securities, there may not be readily available and widely accepted benchmarks to measure performance of the Scheme. To manage risks associated with foreign currency and interest rate exposure, the Fund may use derivatives for efficient portfolio management including hedging and in accordance with conditions as may be stipulated under the Regulations or by RBI from time to time. The Scheme may invest in ADR/GDR/Foreign Securities and / or other securities as may be permissible and described in SEBI Circular Reference No. SEBI/IMD/CIR NO. 7/104753/07 dated September 26, 2007 as may be amended from time to time, within the overall applicable limits and within the scheme specific asset allocation pattern. Overseas investments will be made subject to any/all approvals, conditions thereof as may be stipulated under the Regulations or by RBI and provided such investments do not result in expenses to the Scheme in excess of the ceiling on expenses prescribed by and consistent with costs and expenses attendant to international investing. The Fund may, where necessary, may appoint other intermediaries of repute as advisors, custodian/sub custodians etc. for managing and administering such investments. The appointment of such intermediaries shall be in accordance with the applicable requirements of SEBI and within the permissible ceilings of expenses. The fees and expenses would illustratively include, besides the investment management fees, custody fees and costs, fees of appointed advisors and sub-managers, transaction costs and overseas regulatory costs. To the extent that the assets of the Scheme will be invested in securities denominated in foreign currencies, the Indian Rupee equivalent of the net assets, distributions and income may be adversely affected by changes in the value of certain foreign currencies relative to the Indian Rupee. The repatriation of capital to India may also be hampered by changes in regulations concerning exchange controls or political circumstances as well as the application to it of other restrictions on investment Risks associated with Investing in Derivatives (applicable where the asset allocation pattern of the Scheme(s) provides for such investment) Derivative products are leveraged instruments and can provide disproportionate gains as well as disproportionate losses to the investor. Execution of such strategies depends upon the ability of the fund manager to identify such opportunities. Identification and execution of the strategies to be pursued by the fund manager involve uncertainty and decision of fund manager may not always be profitable. No assurance can be given that the fund manager will be able to identify or execute such strategies. The risks associated with the use of derivatives are different from or possibly greater than, the risks associated with investing directly in securities and other traditional investments. The AMC may use various derivative products, as permitted by SEBI and the RBI from time to time, in an attempt to optimize the value of the portfolio and enhance Unit holder s interest/value of the Scheme. As and when the Scheme trades in the derivatives market, there are risk factors and issues concerning the use of derivatives that investors should understand. Derivative products are specialized instruments that require investment techniques and risk analyses different from those associated with stocks and bonds. The use of a derivative requires an understanding not only of the underlying instrument but also of the derivative itself. Derivatives require the maintenance of adequate controls to monitor the transactions entered into, the ability to assess the risk that a derivative adds to the portfolio and the ability to forecast price or interest rate movements correctly. There is the possibility that a loss may be sustained by the portfolio as a result of the failure of another party (usually referred to as the counter party ) to comply with the terms of the derivatives contract. The Scheme bears a risk that it may not be able to correctly forecast future market trends or the value of assets, indices or other financial or economic factors in establishing derivative positions for the Scheme. Other risks in using derivatives include the risk of mispricing or improper valuation of derivatives and the inability of derivatives to correlate in line with underlying assets, rates and indices. Also, the market for derivative instruments is relatively nascent in India and does not have the volumes which may be seen in other developed markets, which may result in volatility to the values. Derivatives require the maintenance of adequate controls to monitor the transactions and the embedded market risks that a derivative adds to the portfolio. Besides the price of the underlying asset, the volatility, tenor and interest rates affect the pricing of derivatives. Other risks in using derivatives include but are not limited to: (a) Credit Risk this occurs when a counterparty defaults on a transaction before settlement and therefore, the Scheme is compelled to negotiate with another counter party, at the then prevailing (possibly unfavorable) market price, in order to maintain the validity of the hedge. For exchange traded derivatives, the risk is mitigated as the exchange provides a guaranteed settlement but one takes the performance risk on the exchange. (b) Market Liquidity risk where the derivatives cannot be sold (unwound) at prices that reflect the underlying assets, rates and indices. (c) Model Risk, the risk of mis pricing or improper valuation of derivatives. d) Basis Risk This risk arises when the instrument used as a hedge does not match the movement in the instrument/ underlying asset being hedged. The risks may be inter-related also; for e.g. interest rate movements can affect equity prices, which could influence specific issuer/industry assets. Trading in derivatives carry a high degree of risk although they are traded at a relatively small amount of margin which provides the possibility of great profit or loss in comparison with the principal investment amount. The Scheme may find it difficult or impossible to execute derivative transactions in certain circumstances. For example, when there are insufficient bids or suspension of trading due to price limit or circuit breakers, the Scheme may face a liquidity issue

137 Interest Rate Swaps (IRS) are highly specialized instruments that require investment technique and risk analysis different from those associated with equity shares and other traditional securities. The use of a IRS requires not only an understanding of the referenced asset, reference rate, or index but also of the swap itself, without the benefit of observing the performance of the swap under all possible market conditions. Swap agreements are also subject to liquidity risk, which exists when a particular swap is difficult to purchase or sell. Swap agreements may be subject to pricing risk, which exists when a particular swap becomes extraordinarily expensive (or cheap) relative to historical prices or the prices of corresponding cash market instruments. IRS agreements are also subject to counterparty risk on account of insolvency or bankruptcy or failure of the counterparty to make required payments or otherwise comply with the terms of the agreement Risks associated with investing in Securitised Debt (applicable where the asset allocation pattern of the Scheme(s) provides for such investment). The Scheme(s) may invest in domestic securitised debt such as Asset Backed Securities (ABS) or Mortgage Backed Securities (MBS). Asset Backed Securities (ABS) are securitised debts where the underlying assets are receivables arising from various loans including automobile loans, personal loans, loans against consumer durables, etc. Mortgage Backed Securities (MBS) are securitised debts where the underlying assets are receivables arising from loans backed by mortgage of residential / commercial properties. ABS/ MBS instruments reflect the undivided interest in the underlying pool of assets and do not represent the obligation of the issuer of ABS/MBS or the originator of the underlying receivables. The ABS/MBS holders have a limited recourse to the extent of credit enhancement provided. If the delinquencies and credit losses in the underlying pool exceed the credit enhancement provided, ABS/MBS holders will suffer credit losses. ABS/MBS are also normally exposed to a higher level of reinvestment risk as compared to the normal corporate or sovereign debt. At present in Indian market, following types of loans are securitised: Auto Loans (cars / commercial vehicles / two wheelers) Residential Mortgages or Housing Loans Consumer Durable Loans Personal Loans Corporate Loans The main risks pertaining to each of the asset classes above are described below: Auto Loans (cars / commercial vehicles /two wheelers) The underlying assets (cars etc) are susceptible to depreciation in value whereas the loans are given at high loan to value ratios. Thus, after a few months, the value of asset becomes lower than the loan outstanding. The borrowers, therefore, may sometimes tend to default on loans and allow the vehicle to be repossessed. These loans are also subject to model risk. ie if a particular automobile model does not become popular, loans given for financing that model have a much higher likelihood of turning bad. In such cases, loss on sale of repossession vehicles is higher than usual. Commercial vehicle loans are susceptible to the cyclicality in the economy. In a downturn in economy, freight rates drop leading to higher defaults in commercial vehicle loans. Further, the second hand prices of these vehicles also decline in such economic environment. Housing Loans Housing loans in India have shown very low default rates historically. However, in recent years, loans have been given at high loan to value ratios and to a much younger borrower classes. The loans have not yet gone through the full economic cycle and have not yet seen a period of declining property prices. Thus the performance of these housing loans is yet to be tested and it need not conform to the historical experience of low default rates. Consumer Durable Loans The underlying security for such loans is easily transferable without the bank s knowledge and hence repossession is difficult. The underlying security for such loans is also susceptible to quick depreciation in value. This gives the borrowers a high incentive to default. Personal Loans These are unsecured loans. In case of a default, the bank has no security to fall back on. The lender has no control over how the borrower has used the borrowed money. Further, all the above categories of loans have the following common risks: All the above loans are retail, relatively small value loans. There is a possibility that the borrower takes different loans using the same income proof and thus the income is not sufficient to meet the debt service obligations of all these loans. In India, there is no ready database available regarding past credit record of borrowers. Thus, loans may be given to borrowers with poor credit record. In retail loans, the risks due to frauds are high. Corporate Loans These are loans given to single or multiple corporates. The receivables from a pool of loans to corporates are assigned to a trust that issues Pass through certificates in turn. The credit risk in such PTCs is on the underlying pool of loans to corporates. The credit risk of the underlying loans to the corporates would in turn depend of economic cycles. Further, all the above categories of loans have the following common risks: All the above loans are retail, relatively small value loans. There is a possibility that the borrower takes different loans using the same income proof and thus the income is not sufficient to meet

138 the debt service obligations of all these loans. In India, there is no ready database available regarding past credit record of borrowers. Thus, loans may be given to borrowers with poor credit record. In retail loans, the risks due to frauds are high. Risks associated with Short Selling and Securities Lending (applicable where the asset allocation pattern of the Scheme(s) provides for such investment). Short selling Short-selling is the sale of shares that the seller does not own at the time of trading. Instead, he borrows it from someone who already owns it. Later, the short seller buys back the stock he shorted and returns the stock to close out the loan. If the price of the stock has fallen, he can buy the stock back for less than he received for selling it and profits from it (the difference between higher short sale price and the lower purchase price). However, Short positions carry the risk of losing money and these losses may grow theoretically unlimited if the price increases without limit and shall result into major losses in the portfolio. In addition, the short selling will also have the risk of inability to borrow the securities by the seller. Then, it might be possible that the short seller will be required to purchase the securities sold short to cover the short even if the price of the security is higher at the time of the short sale. If a stock starts to rise and a large number of short sellers try to cover their positions at the same time, it can quickly drive up the price even further. This phenomenon is known as a short squeeze. This might result in major losses in the portfolio. Securities Lending : It may be noted that Securities Lending activity would have the inherent probability of collateral value drastically falling in times of strong downward market trends or due to it being comprised of tainted/forged securities, resulting in inadequate value of collateral until such time as that diminution in value is replenished by additional security. It is also possible that the borrowing party and /or the approved intermediary may suddenly suffer severe business setback and become unable to honor its commitments. This alongwith a simultaneous fall in value of collateral would render potential loss to the Scheme. Besides, there can also be temporary illiquidity of the securities that are lent out and the Scheme may not be able to sell such lent out securities. Risk factors specific to Principal Index Fund, Principal Resurgent India Equity Fund, Principal Growth Fund, Principal Dividend Yield Fund, Principal Large Cap Fund, Principal Services Industries Fund and Principal Emerging Bluechip Fund Principal Index Fund The value of the equity securities owned by the Scheme changes on a daily basis. Equity Securities, prices reflect the activities of individual companies and general market and economic conditions. In the short term, equity security prices can fluctuate dramatically in response to these factors. Tracking Error: The performance of the Scheme may not be commensurate with the performance of the Nifty on any given day or over any given period. Such variation, referred to as tracking errors as defined elsewhere in this Scheme Information Document may result from a variety of factors including but not limited to: - The Nifty reflects the prices of securities at close of business hours. However the Scheme may buy or off-load securities at different points of time during the trading session at the then prevailing prices which may not correspond to the closing prices on the NSE. Principal Resurgent India Equity Fund Prices of equity securities rise and fall in response to a number of factors including events that impact entire financial markets or industries (for example, changes in inflation or consumer demand) as well as events impacting a particular issuer (for example, news about the success or failure of a new product). The Securities purchased by the Scheme present greater opportunities for growth because of high potential earnings growth, but may also involve greater risks than securities that do not have the same potential. The Scheme may invest in companies with limited product lines, markets or financial resources. As a result, these securities may change in value more than those of larger, more established companies. As the value of the securities owned by the Scheme changes, the Scheme unit price changes. In the short-term, the price can fluctuate dramatically. As with all Mutual Funds, as the value of the scheme s assets rise and fall, the Scheme unit price changes. If the units Principal Growth Fund Principal Dividend Yield Fund Prices of equity securities rise 1. Though the investments and fall in response to a would be made in number of factors including companies having a track events that impact entire record of dividend financial markets or industries payments, the performance (for example, changes in of the scheme would interalia inflation or consumer demand) depend on the ability of as well as events impacting a these companies to sustain particular issuer (for example, dividends in future. news about the success or failure of a new product). The 2. These stocks, at times, may Securities purchased by the be relatively less liquid as Scheme present greater compared to growth stocks. opportunities for growth because of high potential 3. The securities in the fund earnings growth, but may also would be predominantly involve greater risks than characterized as those securities that do not have the having a value style. There same potential. The Scheme could be time periods when may invest in companies with securities of this nature limited product lines, markets would under-perform or financial resources. As a relative to other stocks in result, these securities may the market. This could have change in value more than an impact on the relative those of larger, more performance of the fund established companies. As the over differing time periods. value of the securities owned by the Scheme changes, the Scheme unit price changes. In the short-term, the price can fluctuate dramatically. As with all Mutual Funds, as the value of the Scheme s assets rise and fall, the Scheme unit price changes. If the units

139 - IISL undertakes a periodical review of the scrips that comprise the Nifty and may either drop or include new securities. In such an event the Scheme will endeavour to reallocate its portfolio but the available investment opportunities may not permit precise mirroring of the Nifty. Dis-investments to meet exits of investors, recurring expenses, etc. as elsewhere indicated in this Scheme Information Document. As with all Mutual Funds, the value of the Scheme s assets under this option may rise or fall. If units are redeemed when their value is less than the price paid for money may be lost by the Unitholder. are redeemed when their value is less than the price paid for, money may be lost by the unitholder. are redeemed when their value is less than the price paid for, money may be lost by the unitholder. Principal Large Cap Fund The scheme would have majority of its assets in companies with a large market capitalization. During the time periods when companies having small or mid sized market capitalization do well, this scheme will underperform. Principal Services Industries Fund The investments under the Scheme are oriented towards equity/equity related securities of the Companies belonging to the service industries and hence will be affected by the risks associated with these industries. As the Scheme may hold securities that are not in the CNX Services Sector Index and may invest in limited number of industries with higher concentration to certain industries, it may perform differently from the general stock market. Further Scheme s performance may differ from the benchmark index to the extent of the investments held in the debt segment, as per the investment pattern indicated under normal circumstances. Principal Emerging Bluechip Fund The investments under the Scheme will be concentrated in the Mid Cap segment and hence may perform differently than a broad market portfolio. Mid Cap & small cap stocks are generally more volatile and less liquid as compared to Large Cap stocks. Further Schemes' performance may differ from the benchmark index to the extent of the investments held in the non midcap equities/debt segment, as per the investment pattern indicated under normal circumstances. B. REQUIREMENT OF MINIMUM INVESTORS IN THE SCHEME(S) The Scheme(s) shall have a minimum of 20 investors and no single investor shall account for more than 25% of the corpus of the Scheme(s). The two conditions mentioned above shall be complied in each calendar quarter, on an average basis, as specified by SEBI. In case the Scheme(s) do not have a minimum of 20 investors, the provisions of Regulation 39(2)(c) of the SEBI (MF) Regulations would become applicable automatically without any reference from SEBI and accordingly the Scheme shall be wound up and the units would be redeemed at applicable NAV. If there is a breach of the 25% limit by any investor over the quarter, a rebalancing period of one month would be allowed and thereafter the investor who is in breach of the rule shall be given 15 days notice to redeem his exposure over the 25 % limit. Failure on the part of the said investor to redeem his exposure over the 25 % limit within the aforesaid 15 days would lead to automatic redemption by the Mutual Fund on the applicable Net Asset Value on the 15th day of the notice period. The Fund shall adhere to the requirements prescribed by SEBI from time to time in this regard. C. SPECIAL CONSIDERATIONS Investment in the Scheme should be viewed by an investor/unit holder as a medium to long term investment as mutual funds carry normal market risks and there can be no assurance and no guarantee that the Scheme will achieve its objective. It is recommended that an investment in the Scheme should not constitute a substantial proportion of an investment portfolio and may not be appropriate for all, as investment decisions made by the AMC will not always be profitable or prove to have been correct. As with any investment in

140 stocks, shares and securities, the NAV of the Units under the Scheme can go up or down, depending on the factors and forces affecting the capital markets. Past performance of the schemes of Principal Mutual Fund, the Sponsor or its Group affiliates is not indicative of and does not guarantee the future performance of the scheme. The name of the Scheme does not in any manner indicate the quality of the Scheme, its future prospects or the returns. The Scheme is not intended as a complete investment program. Investors, therefore, are urged to study the terms of this offer carefully and consult their Investment Advisor before they invest in the Scheme. Investors /unit holders attention is drawn to the risk factors set out in the beginning of this Scheme Information Document and also to the following specific risks: Regulatory Risks: Neither this SID nor the Units have been registered in any jurisdiction. The distribution of this SID in certain jurisdictions may be restricted or subject to registration requirements and, accordingly, persons who come into possession of this SID are required to inform themselves about, and to observe, any such restrictions. No person receiving a copy of this SID or any accompanying application form in such jurisdiction may treat this SID or such application form as constituting an invitation to them to subscribe for Units, nor should they in any event use any such application form, unless in the relevant jurisdiction such an invitation could lawfully be made to them and such application form could lawfully be used without compliance with any registration or other legal requirements. Accordingly, this SID does not constitute an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not lawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. It is the responsibility of any persons in possession of this SID and any persons wishing to apply for Units pursuant to this SID to inform themselves of and to observe, all applicable laws and Regulations of such relevant jurisdiction. Prospective investors should review/study this SID alongwith SAI carefully and in its entirety and shall not construe the contents hereof or regard the summaries contained herein as advice relating to legal, taxation, or financial/investment matters and are advised to consult their own professional advisor(s) as to the legal or any other requirements or restrictions relating to the subscription, gifting, acquisition, holding, disposal (sale, transfer, switch or redemption or conversion into money) of Units and to the treatment of income (if any), capitalization, capital gains, any distribution, and other tax consequences relevant to their subscription, acquisition, holding, capitalization, disposal (sale, transfer, switch or redemption or conversion into money) of Units within their jurisdiction/of nationality, residence, domicile etc. or under the laws of any jurisdiction to which they or any managed Funds to be used to purchase/gift Units are subject, and (also) to determine possible legal, tax, financial or other consequences of subscribing/gifting to, purchasing or holding Units before making an application for Units. No person has been authorized to give any information or to make any representations not confirmed in this SID in connection with the Offer of Units, and any information or representations not contained herein must not be relied upon as having been authorized by the Mutual Fund or the AMC or the Trustee. Statements made in this SID are based on the law and practice currently in force in India and are subject to change therein. Neither the delivery of this SID nor any sale made hereunder shall, under any circumstances, create any impression that the information herein is correct as of any time subsequent to the date hereof. Performance Risk: The value of (and income from) an investment in the Scheme can decrease as well as increase, depending on a variety of factors, which may affect the values and income generated by a Scheme s portfolio of securities. The returns of a Scheme s investments are based on the current yields of the securities, which may be affected generally by factors affecting capital markets such as price and volume, volatility in the stock markets, interest rates, currency exchange rates, changes in government and Reserve Bank of India policy, taxation, political, economic or other developments and closure of the stock exchanges. Investors should understand that the investment composition indicated for the Scheme(s), in line with prevailing market conditions, is only a hypothetical example as all investments involve risk and there can be no assurance that the Scheme s investment objective will be attained nor will the Scheme(s) be in a position to maintain the model percentage of investment pattern/composition particularly under exceptional circumstances such that the interest of the unit holders are protected. The AMC will endeavor to invest in highly researched growth companies, however the growth associated with equities is generally high as also the erosion in the value of the investments/portfolio in the case of the capital markets passing through a bearish phase is a distinct possibility. Changes in the prevailing rates of interest are likely to affect the value of the Scheme investments and thus the value of the Scheme s Units. The value of money market/debt instruments held by the Scheme generally will vary inversely with the changes in prevailing interest rates. The AMC, while investing in fixed income instruments like debt, etc., shall consider and evaluate the risk of an issuer s ability to meet principal and interest payments (credit risk) and also the price volatility due to such factors as interest sensitivity, market perception or the creditworthiness of the issuer and general market liquidity (market risk). While it is the intent of the AMC to invest primarily in more highly rated debt securities and highly researched growth companies, the Scheme may from time to time invest in high yielding/growth, lower rated and/or privately placed/unlisted/securitised securities. Lower rated or unrated securities are more likely to react to developments affecting market and credit risk than highly rated securities. The credit risk factors pertaining to lower rated securities also apply to lower rated zero coupon, deferred interest bonds. Techniques Risk: The Scheme may use techniques (including derivatives, futures and options, warrants, etc.) and instruments that may be permitted and/or that may become permissible under SEBI/RBI Regulations and/or Regulations and/or statutory modification or re-enactment thereof for efficient portfolio management and to attempt to hedge or reduce the risk of such fluctuation. However, these techniques and instruments, if imperfectly used have the risk of the scheme incurring losses due to mismatches particularly in a volatile market. The Fund s ability to use these techniques may be limited by market conditions, regulatory limits and tax considerations (if any). The use of these techniques is dependent on the ability to predict movements in the prices of securities being hedged and movements in interest rates. There exists an imperfect correlation between the hedging instruments and the securities or market sectors being hedged. Besides, the fact that skills needed to use these instruments are different from those needed to select the Fund s/scheme s securities. There is a possible absence of a liquid market for any particular instrument at any particular time even though the futures and options may be bought and sold on an organized stock exchange. The use of these techniques involves possible impediments to effective portfolio management or the ability to meet repurchase/redemption requests or other short-term obligations because of the percentage of the Scheme s assets segregated to cover its obligations

141 Political Risk: Whereas the Indian market was formerly restrictive, a process of deregulation has been taking place over recent years. This process has involved the removal of trade barriers and other protectionist measures, which could adversely affect the value of investments. It is possible that future changes in the Indian political situation, including political, social, or economic instability, diplomatic developments and changes in laws or regulations could have an effect on the value of investments. Expropriation, confiscatory taxation, or other relevant developments could also affect the value of investments. Forex Risk: The scheme may also invest in overseas financial assets in accordance with the guidelines issued by the concerned regulatory authorities in India. To the extent that the assets of the Scheme will be invested in securities denominated in foreign currencies, the Indian Rupee equivalent of the net assets, distribution and income may be adversely affected by changes in the value of respective foreign currencies relative to the Indian rupee. The repatriation of capital to India may also be hampered by changes in regulations concerning exchange controls or political circumstances as well as the application to it of other restrictions on investment. In addition, country risks would include events such as introduction of extraordinary exchange controls, economic deterioration and bi-lateral conflict leading to immobilisation of the overseas financial assets. Liquidity and Settlement Risks: The liquidity of the Scheme s investments may be inherently restricted by trading volumes, transfer procedures and settlement periods. From time to time, the Scheme will invest in certain securities of certain companies, industries, sectors; etc based on certain investment parameters as adopted internally by AMC. While at all times the Trustees and the AMC will endeavor that excessive holding/investment in certain securities of industries, sectors, etc. by the Scheme be avoided, the assets invested by the Scheme in certain securities of industries, sectors, etc. may acquire a substantial portion of the Scheme s investment portfolio and collectively may constitute a risk associated with non-diversification and thus could affect the value of investments. The Scheme may have difficulty in disposing of certain securities because the security may be unlisted, due to greater price fluctuations there may be a thin trading market, different settlement periods and transfer procedures for a particular security at any given time. Settlement if accomplished through physical delivery of stock certificates is labour and paper intensive and may affect the liquidity. It should be noted that the Fund bears the risk of purchasing fraudulent or tainted papers. The secondary market for money market/debt securities does exist, but is generally not as liquid as the secondary market for other securities. Reduced liquidity in the secondary market may have an adverse impact on market price and the Scheme s ability to dispose of particular securities, when necessary, to meet the Scheme s liquidity needs or in response to a specific economic event, such as the deterioration in the creditworthiness of the issuer, etc. or during restructuring of the Scheme s investment portfolio. Furthermore, from time to time, the AMC, the Custodian, the Registrar, any Associate, any distributor, dealer, any company, corporate body, trust, any scheme/mutual Fund managed by the AMC or by any other AMC may invest in the Scheme. While at all times the Trustees and the AMC will endeavor that excessive holding of Units in the Scheme(s) among a few unit holders is avoided, however, the amounts invested by these aforesaid persons may acquire a substantial portion of the Scheme s outstanding Units and collectively may constitute a majority unit holder in the Scheme. Accordingly, redemption of Units held by such persons may have an adverse impact on the value of the redemption and may impact the ability of the unit holders to redeem their respective Units. D. DEFINITIONS ABBREVIATION & DEFINITIONS ADRs and GDRs: American Depository Receipts (ADR) are negotiable certificates issued to represent a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars. Global Depository Receipts (GDRs) are negotiable certificates held in the bank of one country representing a specific number of shares of a stock traded on an exchange of another country. AMC/Asset Management Company/Investment Manager/Principal: Principal Pnb Asset Management Company Private Limited Applicable NAV: The NAV applicable for subscription / redemption / Switch-in or switch out based on the time of the business day on which the application is accepted. Business Day: A day other than: (i) Saturday and Sunday, (ii) a day on which the Banks in Mumbai and/or RBI are closed for business/ clearing, (iii) a day on which the Bombay Stock Exchange Limited and/or National Stock Exchange are closed, (iv) a day which is a public and/or bank holiday at a Investor Service Centre where the application is received, (v) a day on which sale and repurchase of units is suspended by the AMC, (vi) a day on which normal business could not be transacted due to storms, floods, bandhs, strikes etc. Notwithstanding the above, the AMC reserves the right to declare any day as a Business Day or otherwise at any or all Investor Service Centres. Calendar Year / Year: A Calendar Year shall be full English Calendar months viz. 12 months commencing from 1st January and ending on 31st December. CBLO: Collateralized Borrowing and Lending Obligations is a Money Market Instruments approved by RBI, (developed by Clearing Corporation of India Limited). CBLO is a discounted instrument issued in an electronic book entry form for maturity ranging from one day to one year Co-Settlors: Principal Financial Group (Mauritius) Limited, Punjab National Bank and Vijaya Bank, the co-settlors to the Principal Mutual Fund

142 Credit Risk: Risk of default in payment of principal or interest or both. Custodian: An entity (for the time being Citi Bank NA) appointed for holding the securities and other assets of the Fund. CDSC: Contingent Deferred Sales Charge permitted under the Regulations to be borne by the Unit Holder upon exiting (whether by way of redemption or Inter-scheme switching) based on the amount of investment (if applicable) and period of holding of Units. Day: Any day (including Saturday, Sunday and holiday) as per English Calendar viz 365 days in a year. Debt Instruments : Government securities, corporate debentures, bonds, promissory notes, money market instruments, pass-through obligations, asset backed securities/securitised debt and other possible similar securities. Depository: Depository as defined in the Depository Act, 1996 (22 of 1996). Dividend: Income distributed by the Mutual Fund on the units. Entry Load: Load, if any, on sale/switch in of units. Equity related instruments: Equity related instruments include convertible debentures, bonds, warrants, ADR/GDR s and equity derivatives. Exit Load: Load on repurchase/switch out of units. FII(s): Foreign Institutional Investor(s), registered with SEBI under Securities and Exchange Board of India (Foreign Institutional Investors) Regulation, Financial Year: A Financial Year shall be full English Calendar months viz. 12 months commencing from 1st April and ending on 31st March. Fund/Mutual Fund: Principal Mutual Fund, a trust set up under the provisions of the Indian Trust Act, 1882 and registered with SEBI bearing Registration No. MF/019/94/0 dated December 13, Fixed Income Securities : Debt Securities created and issued by, inter alia, Central Government, State Government, Local Authorities, Municipal Corporations, PSUs, Public Companies, Private Companies, Bodies Corporate, Unincorporated Special Purpose Vehicles (SPVs) and any other entities which may be recognised/permitted which yield at fixed or variable rate by way of interest, premium, discount or a combination of any of them. Floating Rate Debt instruments: Floating rate debt instruments are debt instruments issued by Central and / or State Government, corporates, banks (including deposits), PSUs or in a securitisation form with interest rates that are reset periodically. The periodicity of the interest reset could be daily, monthly, quarterly, half-yearly, annually or any other periodicity that may be mutually agreed with the issuer and the fund. They would also include short term fixed rate assets that have a maturity or put option within 6 months. Gilts/Government Securities : As defined under Section 2(b) of the Securities Contract (Regulation) Act, 1956, Government Security means a security created and issued, whether before or after the commencement of the Act, by the Central Government and/or a State Government and having one of the forms specified in clause (2) of Section 2 of the Public Debt Act, 1944 (18 of 1944) including any amendments thereto or any replacement or re-enactment thereof/clarification and guidelines in the form of notes or circulars etc. issued from time to time; Treasury Bills, such other instruments as may be declared by Government of India and/or SEBI and/or RBI and/or any other regulatory authority to be securities; and rights or interest in the securities. GOI: Government of India. Group: As defined in clause (ef) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969). IISL: India Index Services & Products Limited Investor: Any resident or non-resident person whether individual or not (legal entity), who is eligible to subscribe for units under the laws of his/her/ their state/country of incorporation, establishment, citizenship, residence or domicile and under the Income Tax Act, 1961 including amendments thereto from time to time and who has made an application for subscribing units under the Scheme. Under normal circumstances, a Unitholder shall be deemed to be the investor. Investment Management Agreement/IMA: Investment Management Agreement dated 25/11/94 as amended from time to time, between the Trustee and AMC. ISC: Offices of AMC and such other centres / offices as may be designated by the AMC from time to time as its Investor Service Centre. It shall also include the Official Points of Acceptance as mentioned on the last / back cover page of this SID. Load: A sum of money deducted from the value received or paid to the unitholder towards Sale/Repurchase of units

143 Midcap stocks: Midcap stocks are defined as stocks with the market cap in the range of the market cap of the benchmark CNX Midcap Index; and which may or may not be a constituent of the CNX Midcap Index; and which may or may not be a constituent of the CNX Midcap Index at the time of investment. The universe may also include Initial Public Offerings whose market capitalization would be as per the above-mentioned criteria. This midcap range will be so determined taking into account the midcap range of the benchmark index at the end of every calendar quarter; such mid cap range once determined at quarter end will apply to all investment decisions made during the following quarter. Money Market Instruments: Includes Commercial Papers, Commercial Bills, Treasury Bills, Government securities having an unexpired maturity up to one year Call or Notice Money, Certificate of Deposit, Usance Bill and any other like instrument as specified by RBI from time to time. NAV: Net Asset Value of the units of the Scheme (and Options therein) calculated in the manner provided in this Scheme Information Document by dividing the net assets by the number of outstanding units (on any valuation day) or as may be prescribed by the SEBI Regulations from time to time. The NAV will be computed up to two decimal places (in case of Principal Index Fund upto four decimal). Net Assets: Net Assets of the Scheme at any time shall be the total value of the Schemes assets, less its liabilities taking into consideration the accruals and the provision. NFO: New Fund Offer. Non Resident/NRI: Non resident is any person who is not a resident in India. Official Points of Acceptance: Offices as specified by AMC from time to time where application for subscription / redemption / switch will be accepted on an ongoing basis. OCB : Overseas Corporate Bodies, partnership firms and societies which are held directly or indirectly but ultimately to the extent of at least 60% by non-resident individuals of Indian nationality or origin, as also an overseas trust in which at least 60% of the beneficial interest is irrevocably held by such persons. Person of Indian Origin: A person (not being a citizen of Pakistan or Bangladesh or Sri Lanka) shall be deemed to be of Indian origin, if i) He (She), at any time, held an Indian Passport; ii) He (She) or either of his (her) parents or any of his (her) grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); iii) The person is the spouse of an Indian citizen or of a person of Indian origin (not being a citizen of Pakistan or Bangladesh or Sri Lanka). Permissible Investments or Investments : Collective or group investments made on account of the unitholders of the scheme(s) in Securities and other assets in accordance with the SEBI/RBI Regulations and amendments thereto. Portfolio: Portfolio at any time shall include all Permissible Investments and Cash. RBI: Reserve Bank of India, established under the Reserve Bank of India Act, 1934, as amended from time to time. Registrars/Registrar and Transfer Agent : Registrar for the time being of the Mutual Fund which, at present, is Karvy Computershare Pvt. Ltd., or such agency appointed by the AMC. Regulations : Regulations imply SEBI Regulations and the relevant rules and provisions of the Securities and Exchange Board of India (Depositories and Participants) Regulations 1996; Public Debt Act, 1944; The Income Tax Act, 1961; Wealth Tax Act, 1957; Gift Tax Act, 1958, the Foreign Exchange Management Act, 1999, the Indian Trusts Act, 1882 as amended from time to time and shall also include any Circulars, Press releases or Notifications that may be issued by SEBI or the Government of India or the Reserve Bank of India. Repo/Reverse Repo: Sale/Purchase of Securities as may be allowed by RBI from time to time with simultaneous agreement to repurchase/resell them at a later date. Repurchase/Redemption: The units of the Scheme(s) which will be bought back by the Fund on an ongoing basis. Resident: A resident means any person resident in India under the Foreign Exchange Management Act, and under the Income Tax Act, 1961 including amendments thereto from time to time. SAI: Statement of Additional Information of Principal Mutual Fund Sale/ Subscription: The units of the scheme(s) which will be offered for sale to the unit holders on an ongoing basis. Schemes/Plans: Would mean Principal Index Fund, Principal Resurgent India Equity Fund, Principal Growth Fund, Principal Dividend Yield Fund, Principal Large Cap Fund, Principal Services Industries Fund and Principal Emerging Bluechip Fund and Plans and Options there under offered by the Fund

144 Scheme Information Document/SID: This document issued by Principal Mutual Fund, inviting to subscribe to the units of the schemes of the Mutual Fund. SEBI: Securities and Exchange Board of India, established under the Securities and Exchange Board of India Act, 1992, as amended from time to time. SEBI Regulations/Mutual Fund Regulations: The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, or such other Regulation in force from time to time including any amendment thereto or any replacement or re-enactment thereof/clarification and guidelines in the form of notes or circulars etc. issued from time to time for regulating Mutual Funds in India, by SEBI. Securities : Include shares, scrips, stocks etc., Debt instruments like notes bonds, debentures, debenture stock, warrants, etc., futures, options, derivatives etc or other transferable securities of a like nature in or of any incorporated company or other body corporate, Gilts/Government securities, Mutual Fund units, Money Market Instruments like Call Deposit, Commercial Paper, Treasury Bills etc. such other instruments as may be declared by GOI and/or SEBI and/or RBI and/or any other regulatory authority to be securities; and rights or interest in securities, mortgage/asset backed securities, securitized receivable auto loans, etc. Small Cap Stocks: Small cap stocks are defined as stocks with market cap lower than market cap of the last stock of the CNX Midcap Index. The universe may also include Initial Public Offerings whose market capitalization would be as per the above-mentioned criteria. Sponsor: Principal Financial Services Inc., USA acting through its wholly owned subsidiary Principal Financial Group (Mauritius) Limited. Switch: Transfer of units of one Scheme of Principal Mutual Fund to another Scheme of Principal Mutual Fund. Valid applications for switch out shall be treated as redemptions and for switch in shall be treated as purchases and the cut-off timings shall be applicable, accordingly. Systematic Investment Plan(s): A plan enabling the investors to systematically save and invest in the Scheme on monthly/quarterly (such other defined periodicity) basis by submitting post dated cheques / payment instructions Systematic Transfer /Switch Plan(s): A Plan enabling the investors to transfer sums on a monthly, quarterly, semi-annually or annual basis from the Schemes to the other Schemes of the Mutual Fund existing or launched in future from time to time, by giving a simple instruction. Systematic Withdrawal Plan(s): A Plan enabling the investors to withdraw amounts from the Scheme on a monthly, quarterly, semiannually or annual basis by giving a simple instruction. Tax Act: Income Tax Act, 1961, Wealth Tax Act 1957 and Gift Act, 1958, or such other legislation in force from time to time including any amendment thereto or any replacement or re-enactment thereof/rules, regulations any clarification and guidelines issued from time to time by the GOI. Total Assets: Total Assets of the Scheme at any time shall be the total value of the Scheme s assets, taking into consideration the accruals. Tracking Error : To the extent which the NAV of Principal Index Fund moves in a manner inconsistent with the movements of its underlying Index on any given day or over any given period of time arising from any cause or reason whatsoever including but not limited to differences in the weightage of the investments in the securities and the weightage to such securities in the Index; time lags in deployment or realization of the funds under the Scheme as compared to the movement of or within such Index. Trust Deed: The Trust Deed of the Mutual Fund dated November 25, 1994 made by and between the Sponsor and the Trustee as amended from time to time or any replacement or substitution thereof. Trustee: Principal Trustee Company Private Limited incorporated under the Companies Act, Unitholder: A unitholder means any resident or non-resident person whether individual or not (legal entity), who being eligible to subscribe in the scheme has been allotted units under the Scheme based on a valid application and thus hold units in the Scheme. Units: Undivided Share of a unitholder in the assets of the Scheme (and of the option(s),if any) as evidenced by any letter/advice or any other statement/ certificate/instrument. Interpretation For all purposes of this Scheme Information Document, except as otherwise expressly provided or unless the context otherwise requires: The terms defined in this Scheme Information Document include the plural as well as the singular. Pronouns having a masculine or feminine gender shall be deemed to include the other. Reference to Scheme / Scheme(s) would mean and include all the Schemes under this Scheme Information Document unless specified otherwise

145 In this Scheme Information Document, all references to "dollars" or "$" refers to United States dollars, and "Rs" refers to Indian Rupees. A "crore" means "ten million" and a "lakh" means a "hundred thousand". E. DUE DILIGENCE BY THE ASSET MANAGEMENT COMPANY DUE DILIGENCE CERTIFICATE It is confirmed that: 1. the Scheme Information Document forwarded to SEBI for the following scheme(s) is in accordance with the SEBI (Mutual Funds) Regulations, 1996 and the guidelines and directives issued by SEBI from time to time: a. Principal Index Fund b. Principal Resurgent India Equity Fund c. Principal Growth Fund d. Principal Dividend Yield Fund e. Principal Large Cap Fund f. Principal Services Industries Fund g. Principal Emerging Bluechip Fund 2. all legal requirements connected with the launching of the scheme(s) as also the guidelines, instructions, etc., issued by the Government and any other competent authority in this behalf, have been duly complied with. 3. the disclosures made in the Scheme Information Document are true, fair and adequate to enable the investors to make a well informed decision regarding investment in the scheme. 4. the intermediaries named in the Scheme Information Document and Statement of Additional Information are registered with SEBI and their registration is valid, as on date. For Principal Pnb Asset Management Company Private Limited Place: Mumbai Date: May 20, 2009 Sd/- Sujata Punjabi Head Legal & Compliance Note: The Due Diligence Certificate as stated above was submitted to Securities and Exchange Board of India

146 III. INFORMATION ABOUT THE SCHEME(S) A. TYPE OF THE SCHEME(S) Principal Index Fund Principal Resurgent India Equity Fund Principal Growth Fund Principal Dividend Yield Fund Principal Large Cap Fund Principal Services Industries Fund Principal Emerging Bluechip Fund An Open Ended Index Scheme An Open Ended Equity Scheme An Open Ended Equity Scheme An Open Ended Equity Scheme An Open Ended Equity Scheme An Open Ended Equity Scheme An Open Ended Equity Scheme B. WHAT IS THE INVESTMENT OBJECTIVE OF THE SCHEME(S)? Principal Index Fund Principal Resurgent India Equity Fund Principal Growth Fund Principal Dividend Yield Fund Principal Large Cap Fund Principal Services Industries Fund Principal Emerging Bluechip Fund To invest principally in securities that comprise S&P CNX Nifty (NSE) and subject to tracking errors endeavour to attain results commensurate with the Nifty. To generate long term capital appreciation by investing in equity and equity related securities of Indian Companies that are perceived to be potential growth stories. To achieve long term capital appreciation. The investment objective of the scheme would be to provide capital appreciation and/or dividend distribution by investing predominantly in a well-diversified portfolio of companies that have a relatively high dividend yield. The Investment Objective of the scheme would be to provide capital appreciation and /or dividend distribution by predominantly investing in companies having a large market capitalization. For the purpose of this Fund, Large Cap Companies are defined as those having market capitalization greater than Rs.750 crores as on the date of investment (or any such amount as may be specified by India Index Services and Products Ltd. (IISL) from time to time) being the upper limit of market capitalisation as a criteria for inclusion of a company in CNX Midcap 200 Index. However, should IISL come out with a definition of Large Cap companies, the same will be utilized. To provide capital appreciation and income distribution to the unit holders by investing predominantly in equity/equity related securities of the companies belonging to the services industries and the balance in debt securities and money market instruments including call money. The primary objective of the Scheme is to achieve long-term capital appreciation by investing in equity & equity related instruments of mid cap & small cap companies

147 C. HOW WILL THE SCHEME(s) ALLOCATE ITS ASSETS? Under normal circumstances, the asset allocation pattern of the Scheme(s) would be as follows:- Principal Index Fund Type of Instrument Normal Allocation (% of Net Assets) Risk Profile Minimum Maximum Nifty Stocks Medium to High Money Market 0 10 Low Instruments The Asset Management Company reserves the right to invest in derivatives up to 50% of the net assets of the Scheme. Principal Resurgent India Equity Fund Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Type of Instrument Equity & Equity Related Securities* Debt Securities and Money Market Instruments (including cash / call money)** Normal Allocation (% of Net Assets) Risk Profile Minimum Maximum 65% 100% Medium to High 0% 35% Low to Medium *Equity Securities include debt securities convertible into shares and rights or warrants to purchase shares. Principal Growth Fund **Investment in Securitised Debt of up to 10% of the net assets of the Scheme. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Types of Instruments Normal Allocation (% of Net Assets) Risk Profile Minimum Maximum Equity and Equity Related Instruments 65% 100% High Debt (including securitised debt*) and Money market instruments 0% 35% Low to Medium * Investment in Securitized Debt may be up to 35% of the net assets of the Scheme. The Asset Management Company (AMC) reserves the right to invest in Derivatives upto 50% of the net assets of the Scheme. The AMC further reserves the right to invest in ADRs / GDRs and / or Overseas Financial debt instruments including units of Overseas Mutual Funds not exceeding 15% of the net assets of the Scheme. Investment in Derivatives / ADRs / GDRs / Overseas Financial debt instruments shall be subject to restrictions imposed by SEBI / RBI or any other regulatory authority from time to time. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Principal Dividend Yield Fund Type of Instrument Normal Allocation (% of Net Assets) Minimum Maximum Risk Profile Equity and equity related instruments of high dividendyield companies* High

148 Other equity and equity-related instruments Cash and Money Market Instruments 0 35 High 0 20 Low to Medium * High dividend-yield companies are defined as those having a dividend-yield (i.e last declared dividend as a percentage of the market price at the time of investment) higher than 1.5 times that of the NSE Nifty on the earlier trading day. The scheme intends to use derivatives for purposes that may be permitted by SEBI (Mutual Funds) Regulations, 1996 from time to time. The scheme shall have a maximum net derivatives position up to 50% of the portfolio The Scheme may also invest in overseas financial debt instruments including units of overseas mutual funds, as detailed below:- Investments will only be made in instruments denominated in US Dollar, Singapore Dollar, Japanese Yen, Euro or Sterling Pound on in any other liquid currency as may be decided by the AMC from time to time and will be subject to following limits: Particulars Investment in overseas financial debt instruments including units of overseas mutual funds Normal Allocation (% of Net Assets) Not exceeding 35% of the Scheme s assets subject to a maximum limit of US $300 million per mutual fund or such other limit as specified by SEBI from time to time. Principal Large Cap Fund Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Type of Instrument Normal Allocation (% of Net Assets) Risk Profile Minimum Maximum (1)Large Cap Equity and Equity related instruments** (2)Equity & Equity related instruments (other than in (1) above) 65% 100% High 0% 35% High (3)Money Market Instruments 0% 30% Low to Medium ** For the purpose of this Fund, Large Cap Companies are defined as those having market capitalisation greater than Rs, 750 crore as on the date of investment (or any such amount as may be specified by India Index Services and Products Limited (IISL) from time to time) being the upper limit of market capitalisation as a criteria for inclusion of a company in CNX Midcap 200 Index. However, should IISL come out with a definition of Large Cap companies, the same will be utilised. The AMC reserves the right to invest in foreign securities and derivatives as follows:- Particulars Investment in ADR/ GDR and foreign securities (equity and equity related instruments) Equity Derivatives Normal Allocation (% of Net Assets) Not exceeding 30% of the Net Assets of the scheme (subject to a maximum limit of US $300 million) or such other limit as specified by SEBI from time to time. Not exceeding 50% of the Net assets subject to limits as specified by SEBI from time to time

149 Principal Services Industries Fund Types of Instruments Equity and Equity Related Instruments of Services Industries Debt (including securitised debt*) and Money market instruments Normal Allocation (% of Net Assets) Minimum Maximum 70% 100% 0% 30% Risk Profile High Low to Medium *Investment in the securitised debt may be up to 30% of the net assets of the Scheme The Asset Management Company reserves the right to invest in foreign securities and derivatives as follows: Particulars Investment in ADR/ GDR and foreign securities (equity and equity related instruments) Normal Allocation (% of Net Assets) Not exceeding 30% of the Net Assets of the scheme (subject to a maximum limit of US $300 million) or such other limit as specified by SEBI from time to time. Equity Derivatives Not exceeding 50% of the Net assets subject to limits as specified by SEBI from time to time. Principal Emerging Bluechip Fund Types of Instruments Normal Allocation (% of Net Assets) Risk Profile Minimum Maximum Equity & equity related instruments of Mid Cap companies Equity & equity related instruments of Small Cap companies Equity & equity related instruments of Companies other than Mid & Small Cap companies High 5 15 High 0 30 High Total Equity High Cash & Money Market / Fixed Income Securities (including MIBOR Linked Short Term Papers & Securitised Debt*) 0 30 Low to Medium *Investment in Securitised Debt may be up to 30% of the net assets of the Scheme. Note: The Asset Management Company (AMC) reserves the right to invest in derivatives (Equity Derivatives) not exceeding 50 % of the Net Assets, subject to limits specified by SEBI from time to time. The AMC further reserves the right to invest in foreign securities and derivatives subject to SEBI/RBI or any other Regulatory Authorities permitted from time to time. Short-term surpluses/funds under the scheme pending deployment in terms of investment objective of the scheme can be deployed in the inter-bank call/notice money market. In longer-term assets, sovereign bonds (government securities and treasury bills) which are the most liquid instruments dominate the market. Banks, Institutions, Primary Dealers and Mutual Funds are the dominant participants in this market. Other instruments available for investment are commercial papers, certificates of deposit, promissory notes, nonconvertible debentures/floating rates bonds, securitised instruments etc. (subject to the asset allocation pattern of the Scheme(s),. Various factors such as interest rate movement, fluctuation in the bond markets, political instability, changes in the economic environment, changes in the rating, changes in the tax laws and/or Regulations and/or RBI policies, changes in the liquidity conditions in the money market, etc affect the prices of debt instruments. There is no assurance that the objective of the Scheme(s) may be achieved. Subject to SEBI Regulations, the asset allocation pattern indicated above may change from time to time, keeping in view market conditions, market opportunities, applicable regulations and political and economic factors. Percentages stated above are only indicative and not absolute. These proportions may vary substantially depending upon the perception of the AMC, the intention being at all times to seek to protect the NAV of the Scheme(s) and interests of the Unit holders. Such changes in the investment pattern will be for short term and only for defensive considerations

150 Any change in the investment composition of a Scheme and amounting to a change in the fundamental attributes of such Scheme will be in accordance with sub regulation 15A of regulation 18 of SEBI Regulations. However, the AMC may from time to time, for a short term, alter the asset composition on defensive consideration and may also invest the funds available in repos, bank deposits and/ or other scheme/s of the mutual funds in accordance with the provisions of SEBI (Mutual Funds) Regulations, 1996 and the circulars issued by SEBI from time to time. STOCK LENDING BY THE MUTUAL FUND To augment revenue generation the Scheme(s) (except Principal Large Cap Fund, Principal Services Industries Fund), may lend the securities held by it to eligible brokers, dealers, financial institutions through approved intermediaries, in amounts up to 50% of its total net assets at the time of lending, in accordance with the terms of the Securities Lending Scheme announced by SEBI. The Fund may enter into an agreement with the approved intermediary for depositing the securities for the purpose of lending through the approved intermediary on satisfactory terms as to security. The Scheme would limit its exposure, with regard to securities lending, for a single intermediary, other than the National Securities Clearing Corporation Ltd (NSCCL), to the extent of 10% of the total net assets of the Scheme at the time of lending. For NSCCL, such exposure limit would be up to 50% of the total net assets of the Scheme. Collateral must be obtained by the approved intermediary for the lending transactions and this collateral must exceed in value of the Securities lent. The collateral can be in the form of cash, bank guarantee, government securities, certificate of deposits or other securities as may be agreed upon with the approved intermediary. It should be noted that any default/delay by the parties to return the securities lent to them may have an adverse impact on the net assets (and consequently the performance) of the scheme. INVESTMENT PROCESS There is separate team for investment in fixed income instruments & equities. The team works under the supervision of Chief Investment Officer (CIO). CIO is overall in charge for the Fund's investment. The Investment Manager will carry out the daily investment activities within the framework of SEBI guidelines in accordance with the investment objective as per the Scheme Information Document. The Board of AMC and Trustee will review the performance of the Scheme(s) in comparison to corresponding schemes of other mutual funds with similar investment objective and asset profile generally. The performance of the Scheme(s) will be compared with benchmark. The AMC has been recording investment decisions since the receipt of instructions from SEBI. Review by Board of AMC and Trustees A detailed review of the schemes of the Fund including its performance vis-à-vis benchmark index, assets size, rankings/ratings received, if any is placed before the Board of Directors of AMC and to the Trustee on a quarterly basis. D. WHERE WILL THE SCHEME(S) INVEST? PRINCIPAL INDEX FUND Principal Index Fund is structured as an Index linked open ended equity scheme with the objective to invest principally in securities of companies whose securities are included in Nifty and subject to tracking errors endeavour to attain results commensurate with the Nifty. This would be done by investing in all the stocks comprising the S&P CNX Nifty Index in approximately the same weightage that they represent in S&P CNX Nifty Index. The scheme has been designed with the intention of tracking the movement of securities from time to time included in the Nifty. The fund plans to do this by investing the entire corpus in the stocks that comprise the Nifty in similar weights to the weightage given by Nifty so that the portfolio would appreciate or depreciate (subject to tracking errors) in more or less the same manner as the Nifty. Subject to the requirements of cash flows to meet the recurring expenses and to service investors who decide to exit from the Scheme or for distribution of income to investors, it is proposed that income (by way of dividend or otherwise) will be invested in the Nifty securities. It is also proposed that disinvestment will take place only on investors exiting from the Scheme or any security ceasing to be included in the Nifty or to meet the cash flow requirements. The Nifty is designed to reflect the perceptions of the investors about the Indian economy. This is sought to be achieved by IISL by including companies representing a cross-section of the various sectors of the Indian economy. By endeavouring to track the Nifty to the extent possible under the prevailing circumstances and environment objectives and the features of the Scheme, the Fund expects to generate returns approximating the performance of the Nifty. However, due to market conditions, the AMC may invest beyond the range set out above. Such deviations shall normally be for a short term defensive considerations, and the intention being at all times to protect the interests of the Unit Holder At present Mutual Funds are not permitted to participate in Inter Bank Calls. The Scheme will participate in Inter Bank Calls only when Mutual Funds are permitted to do so. The Scheme may participate in securities lending as permitted under the Regulations

151 The Scheme may also invest in another schemes managed by the same AMC or by the AMC of any other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations. The Asset Management Company further reserves the right to invest in foreign securities and derivatives subject to SEBI / RBI or any other Regulatory Authorities permitted from time to time. PRINCIPAL RESURGENT INDIA EQUITY FUND The corpus of the Scheme shall be predominantly invested in equity and equity related instruments. The Scheme may invest a part of its corpus in debt oriented and money market securities/instruments/funds, to manage its liquidity requirements. However, due to market conditions, the AMC may invest beyond the range set out above. Such deviations shall normally be for a short term defensive considerations, and the intention being at all times to protect the interests of the Unit Holder. However, due to market conditions, the AMC may invest beyond the range set out above. Such deviations shall normally be for a short term defensive considerations, and the intention being at all times to protect the interests of the Unit Holder. At present Mutual Funds are not permitted to participate in Inter Bank Calls. The Scheme will participate in Inter Bank Calls only when Mutual Funds are permitted to do so. The Scheme may participate in securities lending as permitted under the Regulations. The Scheme may also invest in another schemes managed by the same AMC or by the AMC of any other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations. PRINCIPAL LARGE CAP FUND The corpus of the Scheme shall be predominantly invested in equity and equity related instruments of Large Cap Companies. The Scheme may invest a part of its corpus in debt oriented and money market securities/instruments/funds, to manage its liquidity requirements. However, due to market conditions, the AMC may invest beyond the range set out above. Such deviations shall normally be for a short term defensive considerations, and the intention being at all times to protect the interests of the Unit Holder; At present Mutual Funds are not permitted to participate in Inter Bank Calls. The Scheme will participate in Inter Bank Calls only when Mutual Funds are permitted to do so. The Scheme may participate in securities lending as permitted under the Regulations. The Scheme may also invest in another schemes managed by the same AMC or by the AMC of any other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations; The Asset Management Company further reserves the right to invest in foreign securities and equity derivatives subject to SEBI / RBI or any other Regulatory Authorities permitted from time to time; The fund shall not make investments in foreign debt instruments including foreign securitized debt. Foreign / Overseas securities shall without limitation include:- ADRs/ GDRs issued by Indian or foreign companies Equity of overseas companies listed on recognized stock exchanges overseas Initial and follow on public offerings for listing at recognized stock exchanges overseas Derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying as securities Units/securities issued by overseas mutual funds or unit trusts registered with overseas regulators and investing in (a) aforesaid securities, (b) Real Estate Investment Trusts (REITs) listed in recognized stock exchanges overseas or (c) unlisted overseas securities (not exceeding 10% of their net assets). And such other Securities as may be prescribed by SEBI/RBI from time to time. PRINCIPAL GROWTH FUND The corpus of the Scheme shall be predominantly invested in equity and equity related instruments. The Scheme may invest a part of its corpus in debt oriented and money market securities/instruments/funds, to manage its liquidity requirements. However, due to market conditions, the AMC may invest beyond the range set out above. Such deviations shall normally be for a short term defensive considerations, and the intention being at all times to protect the interests of the Unit Holder; The Scheme may also invest in another schemes managed by the same AMC or by the AMC of any other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations;

152 The Scheme may participate in securities lending as permitted under the Regulations.; The Asset Management Company further reserves the right to invest in foreign securities and derivatives subject to SEBI / RBI or any other Regulatory Authorities permitted from time to time. Foreign / Overseas securities shall without limitation include:- ADRs/ GDRs issued by Indian or foreign companies Equity of overseas companies listed on recognized stock exchanges overseas Initial and follow on public offerings for listing at recognized stock exchanges overseas Derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying as securities Units/securities issued by overseas mutual funds or unit trusts registered with overseas regulators and investing in (a) aforesaid securities, (b) Real Estate Investment Trusts (REITs) listed in recognized stock exchanges overseas or (c) unlisted overseas securities (not exceeding 10% of their net assets). Foreign debt securities in the countries with fully convertible currencies, short term as well as long term debt instruments with rating not below investment grade by accredited/registered credit rating agencies Money market instruments rated not below investment grade Repos in the form of investment, where the counterparty is rated not below investment grade Government securities where the countries are rated not below investment grade Short term deposits with banks overseas where the issuer is rated not below investment grade And such other Securities as may be prescribed by SEBI/RBI from time to time. PRINCIPAL DIVIDEND YIELD FUND The corpus of the Scheme shall be predominantly invested in equity and equity related instruments of *high dividend yield companies. The overall portfolio structuring would aim at controlling risk at a moderate level. The Scheme shall invest a part of its corpus in equity / equity related instruments other than those mentioned above. Further the Scheme may also invest part of its corpus in money market securities/instruments/funds, to manage its liquidity requirements. However, due to market conditions, the AMC may invest beyond the range set out above. Such deviations shall normally be for a short term defensive considerations, and the intention being at all times to protect the interests of the Unit Holder; *High dividend-yield companies are defined as those having a dividend-yield (i.e last declared dividend as a percentage of the market price at the time of investment) higher than 1.5 times that of the NSE Nifty on the earlier trading day. While the criterion of high dividend-yields would be used to identify the investment universe from which the portfolio will be constructed, within this universe, there will be a strong focus on selecting companies with a consistent dividend trackrecord, strong business fundamentals, good quality of management, strong cash generation in excess of their capital expenditure requirements, strong balance sheets and attractive valuations At present Mutual Funds are not permitted to participate in Inter Bank Calls. The Scheme will participate in Inter Bank Calls only when Mutual Funds are permitted to do so. The Scheme may participate in securities lending as permitted under the Regulations. The Scheme may also invest in another schemes managed by the same AMC or by the AMC of any other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations; The Asset Management Company further reserves the right to invest in derivatives and Foreign debt securities subject to SEBI / RBI or any other Regulatory Authorities permitted from time to time. Foreign Debt securities shall without limitation include:- Foreign debt securities in the countries with fully convertible currencies, short term as well as long term debt instruments with rating not below investment grade by accredited/registered credit rating agencies Money market instruments rated not below investment grade Repos in the form of investment, where the counterparty is rated not below investment grade Government securities where the countries are rated not below investment grade Derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying as securities Short term deposits with banks overseas where the issuer is rated not below investment grade Units/securities issued by overseas mutual funds or unit trusts registered with overseas regulators and investing in (a) aforesaid securities, (b) Real Estate Investment Trusts (REITs) listed in recognized stock exchanges overseas or (c) unlisted overseas securities (not exceeding 10% of their net assets) And such other Securities as may be prescribed by SEBI/RBI from time to time

153 PRINCIPAL SERVICES INDUSTRIES FUND The corpus of the Scheme shall be predominantly invested in equity and equity related instruments of Services Industries. The Scheme may invest a part of its corpus in debt oriented and money market securities/instruments/funds, to manage its liquidity requirements. However, due to market conditions, the AMC may invest beyond the range set out above. Such deviations shall normally be for a short term defensive considerations, and the intention being at all times to protect the interests of the Unit Holder; At present Mutual Funds are not permitted to participate in Inter Bank Calls. The Scheme will participate in Inter Bank Calls only when Mutual Funds are permitted to do so. The Scheme may participate in securities lending as permitted under the Regulations.; The Scheme may also invest in another schemes managed by the same AMC or by the AMC of any other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations; The Asset Management Company further reserves the right to invest in foreign equity securities and equity derivatives subject to SEBI / RBI or any other Regulatory Authorities permitted from time to time; The fund shall not make investments in foreign debt instruments including foreign securitized debt. Foreign / Overseas securities shall without limitation include:- ADRs/ GDRs issued by Indian or foreign companies Equity of overseas companies listed on recognized stock exchanges overseas Initial and follow on public offerings for listing at recognized stock exchanges overseas Derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying as securities Units/securities issued by overseas mutual funds or unit trusts registered with overseas regulators and investing in (a) aforesaid securities, (b) Real Estate Investment Trusts (REITs) listed in recognized stock exchanges overseas or (c) unlisted overseas securities (not exceeding 10% of their net assets). And such other Securities as may be prescribed by SEBI/RBI from time to time. PRINCIPAL EMERGING BLUECHIP FUND The corpus of the Scheme shall be predominantly invested in equity and equity related instruments of Mid Cap Companies. The Scheme may invest a part of its corpus in equity and equity related instruments of small cap and companies other than Mid and Small Cap, Part of the Scheme corpus may also be invested in debt and money market securities/instruments/funds to manage its liquidity requirements. However, due to market conditions, the AMC may invest beyond the range set out above. Such deviations shall normally be for a short term defensive considerations, and the intention being at all times to protect the interests of the Unit Holder; At present Mutual Funds are not permitted to participate in Inter Bank Calls. The Scheme will participate in Inter Bank Calls only when Mutual Funds are permitted to do so.. The Scheme may participate in securities lending as permitted under the Regulations. The Scheme may also invest in another schemes managed by the same AMC or by the AMC of any other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations The Asset Management Company further reserves the right to invest in equity derivatives and Foreign securities subject to SEBI / RBI or any other Regulatory Authorities permitted from time to time. Foreign / Overseas securities shall without limitation include:- ADRs/ GDRs issued by Indian or foreign companies Equity of overseas companies listed on recognized stock exchanges overseas Initial and follow on public offerings for listing at recognized stock exchanges overseas Derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying as securities Units/securities issued by overseas mutual funds or unit trusts registered with overseas regulators and investing in (a) aforesaid securities, (b) Real Estate Investment Trusts (REITs) listed in recognized stock exchanges overseas or (c) unlisted overseas securities (not exceeding 10% of their net assets). Foreign debt securities in the countries with fully convertible currencies, short term as well as long term debt

154 instruments with rating not below investment grade by accredited/registered credit rating agencies Money market instruments rated not below investment grade Repos in the form of investment, where the counterparty is rated not below investment grade Government securities where the countries are rated not below investment grade Short term deposits with banks overseas where the issuer is rated not below investment grade And such other Securities as may be prescribed by SEBI/RBI from time to time. The securities may be acquired by the Scheme(s) through Initial Public Offerings (IPOs), secondary market operations, private placement, right offers or negotiated deals. Securities shall be purchased in public offerings, primary/ reissues/ Open Market Operations (OMO) auctions / OMO sales, private placement, right offers, negotiated deals or any other mode of investment made available in the market from time to time. The regulation and limits as applicable under the SEBI (Mutual Funds) Regulations, 1996 are specified under the Para of Investment Restrictions. Depository Securities of the scheme will be held in dematerialized form. In case the securities are held in demat (electronic) mode, the rules of the Securities an Exchange Board of India (Depositories and Participants) Regulations, 1996, would apply. The service charges payable to the Depository Participant will form a part of the annual recurring expenses. E. WHAT ARE THE INVESTMENT STRATEGIES? Principal Index Fund Units of the scheme have been designed with the intention of tracking the movement of securities (from time to time) included in the S&P CNX Nifty Index. The Scheme plans to do this by investing the entire corpus in the stocks that comprise the S&P CNX Nifty Index in similar weights to the weightage given by S&P CNX Nifty Index so that the portfolio would appreciate or depreciate (subject to tracking errors) in more or less the same manner as the S&P CNX Nifty Index. Subject to the requirements of cash flows to meet the recurring expenses and to service investors who decide to exit from the Scheme or for distribution of income, if any, to investors, it is proposed that the corpus of the scheme will be invested in the S&P CNX Nifty Index securities. It is also proposed that disinvestment will take place only when investors exit from the Scheme or when any security ceases to be included in the S&P CNX Nifty Index or to meet the cash flow requirements. The S&P CNX Nifty Index is designed to reflect the perceptions of the investors about the Indian economy. This is sought to be achieved by IISL by including companies representing a cross-section of the various sectors of the Indian economy. By endeavoring to track the S&P CNX Nifty Index to the extent possible under the prevailing circumstances and environment objectives and the features of the Scheme, the Fund expects to generate returns in the Scheme approximating the performance of the S&P CNX Nifty Index. The S&P CNX Nifty Index is at present being managed by IISL. IISL is a joint venture company promoted by the National Stock Exchange of India Ltd. ( NSE ) and the Credit Rating and Information Services of India Ltd. ( CRISIL ) for constructing, maintaining and disseminating data regarding various indices As on July 31, 2009, the scrips constituting S&P CNX Nifty and their weightages are as follows: Sr Name of Stock Weightage Sr Name of Stock Weightage 1 RELIANCE INDUSTRIES LTD WIPRO LTD INFOSYS TECHNOLOGIES LTD HERO HONDA MOTORS LTD LARSEN & TOUBRO LTD DLF LIMITED ICICI BANK LTD CIPLA LTD ITC LTD IDEA CELLULAR LIMITED HDFC LTD UNITECH LTD HDFC BANK LTD HINDALCO INDUSTRIES LTD BHARTI AIRTEL LIMITED STEEL AUTHORITY OF INDIA STATE BANK OF INDIA CAIRN INDIA LIMITED OIL AND NATURAL GAS CORP RELIANCE CAPITAL LTD BHEL TATA MOTORS LIMITED

155 12 HINDUSTAN UNILEVER LTD PUNJAB NATIONAL BANK TATA CONSULTANCY SERV LTD ACC LIMITED TATA STEEL LIMITED AMBUJA CEMENTS LTD TATA POWER CO LTD SUN PHARMACEUTICALS IND AXIS BANK LIMITED SIEMENS LTD GRASIM INDUSTRIES LTD ABB LTD JINDAL STEEL & POWER LTD POWER GRID CORP. LTD MARUTI SUZUKI INDIA LTD BHARAT PETROLEUM CORP LTD NTPC LTD RELIANCE POWER LTD RELIANCE COMMUNICATIONS LTD SUZLON ENERGY LIMITED STERLITE INDS (IND) LTD HCL TECHNOLOGIES LTD MAHINDRA & MAHINDRA LTD RANBAXY LABS LTD RELIANCE INFRASTRUCTU LTD TATA COMMUNICATIONS LTD GAIL (INDIA) LTD NATIONAL ALUMINIUM CO LTD 0.2 Principal Resurgent India Equity Fund The scheme will invest its assets in a portfolio of equity and equity related instruments. The focus of the investment strategy would be to identify stocks, which can provide capital appreciation in the long term. Companies selected for the portfolio would possess some of the characteristics mentioned below: - Superior management quality - Distinct and sustainable competitive advantage - Good growth prospects and - Strong financial strength Short-term surpluses/funds under the scheme pending deployment in terms of investment objective of the scheme can be deployed in the inter-bank call/notice money market/deposits and repurchase obligations (repos), as per the relevant provisions of the Regulations. In longer-term assets, sovereign bonds (government securities and treasury bills) which are the most liquid instruments dominate the market. Banks, Institutions, Primary Dealers and Mutual Funds are the dominant participants in this market. Other instruments available for investment are commercial papers, certificates of deposit, promissory notes, non-convertible debentures/floating rates bonds, securitised instruments, etc. Most of these instruments are listed on NSE by the issuers. Various factors such as interest rate movement, fluctuation in the bond markets, political instability, changes in the economic environment, changes in the rating, changes in the tax laws and/or Regulations and/or RBI policies, changes in the liquidity conditions in the money market, etc affect the prices of debt instruments. Principal Growth Fund The scheme will invest its assets in a portfolio of equity and equity related instruments. The focus of the investment strategy would be to identify stocks which can provide capital appreciation in the long term. Companies selected for the portfolio which in the opinion of the AMC would possess some of the characteristics mentioned below: Superior management quality Distinct and sustainable competitive advantage Good growth prospects and Strong financial strength The aim will be to build a diversified portfolio across major industries and economic sectors by using Fundamental Analysis approach as its selection process. The three basic steps of Fundamental Analysis are: 1) Research consideration of economic prospects over the next one to two years rather than focusing on near term expectations. This approach is designed to provide insight into a company s real growth potential. 2) Valuation use of the research to allow the Investment Manager to identify segments of the market for investment. The Investment Manager would consider various factors including sustainable, superior earnings growth and above average or accelerating rates of growth. 3) Securities selection The Investment Manager would buy and sell securities using its research and valuation as the basis. It attempts to identify the individual issuers that it considers to have high growth potential, that are market share leaders and/ or have high quality management with consistent track records and solid balance sheets

156 Short-term surpluses/funds under the scheme pending deployment in terms of investment objective of the scheme can be deployed in the inter-bank call/notice money market/deposits and repurchase obligations (repos), as per the relevant provisions of the Regulations. In longer-term assets, sovereign bonds (government securities and treasury bills) which are the most liquid instruments dominate the market. Banks, Institutions, Primary Dealers and Mutual Funds are the dominant participants in this market. Other instruments available for investment are commercial papers, certificates of deposit, promissory notes, non-convertible debentures/floating rates bonds, securitised instruments, etc. Most of these instruments are listed on NSE by the issuers. Various factors such as interest rate movement, fluctuation in the bond markets, political instability, changes in the economic environment, changes in the rating, changes in the tax laws and/or Regulations and/or RBI policies, changes in the liquidity conditions in the money market, etc affect the prices of debt instruments. Principal Dividend Yield Fund The scheme would invest predominantly (at least 65% of the net assets) in companies that have a relatively high dividend yield (i.e. last declared dividend divided by the current market price), at the time of making the investment. The Fund is defining dividend yield as high if it is in excess of 1.5 times that of the prevailing dividend yield of the NSE Nifty. The dividend yield of NSE Nifty as on July 31, 2009 is 1.11%. While the criterion of high dividend-yields would be used to identify the investment universe from which the portfolio will be constructed, within this universe, there will be a strong focus on selecting companies with a consistent dividend track-record, strong business fundamentals, good quality of management, strong cash generation in excess of their capital expenditure requirements, strong balance sheets and attractive valuations. The overall portfolio structuring would aim at controlling risk at a moderate level. Principal Large Cap Fund Currently, more than 80% of market capitalization of the equity market is in large capitalization stocks and pursuant to the objectives of the scheme, the scheme would invest at least 65% of its assets in companies having a market capitalization greater than Rs.750 crore as on the date of investment (or any such amount as may be specified by India Index Services and Products Ltd (IISL) from time to time) being the upper limit of market capitalisation as a criteria for inclusion of a company in CNX Midcap 200 Index. However, should IISL come out with a definition of Large Cap companies, the same will be utilized. The scheme may also invest upto 35% of its net assets in companies having a market capitalization less than Rs. 750 crores. Principal Services Industries Fund The scheme will inter-alia invests in companies, which are engaged in the following Service industries: BANKS COURIER FINANCE GAS HEALTHCARE SERVICES HOTELS INDUSTRIAL SERVICES MEDIA & ENTERTAINMENT POWER RETAILING SOFTWARE TELECOM-SERVICES TRADING TRANSPORTATION TRAVEL Please note that the list is only indicative and not exhaustive and this could undergo changes based on future reforms and developments. The Investment Manager may add such other sector/group of industries which broadly satisfy the category of services industries based on AMFI classification. Scenarios/Conditions when the Fund would invest in foreign equity and equity related instruments: Since the fund is oriented towards investment in stocks belonging to the services industries, the fund may invest in foreign equity and equity related securities of the companies belonging to services industries. The Fund would, subject to regulatory compliance, invest in equity of overseas companies listed on a recognized stock exchange and such other instruments as may be permitted by SEBI from time to time. The Fund will invest in foreign equity and equity related instruments where they are attractive in view of the fund manager and which is in accordance with the investment objectives of the scheme. The investment in foreign equity and equity related instruments will be subject to the regulation as laid down by SEBI/ RBI in this regard from time to time. The fund shall not make investments in foreign debt instruments including foreign securitized debt

157 Principal Emerging Bluechip Fund The investment strategy of the fund will be based on market cap of the stocks. The fund will predominantly invest in midcap stocks. Midcap stocks are defined as stocks with the market cap in the range of the market cap of the benchmark CNX Midcap Index; and which may or may not be a constituent of the CNX Midcap index at the time of investment. The universe may also include Initial Public Offerings whose market capitalization would be as per the above-mentioned criteria. This midcap range will be so determined taking into account the midcap range of the benchmark index at the end of every calendar quarter. Such midcap range once determined at quarter end will apply to all investment decisions made during the following quarter. The market cap range of CNX Midcap Index as on June 30, 2008 was Rs. 20,706 crore to Rs. 738 crore. The fund will also invest in small cap stocks to tap high growth opportunities offered by such stocks. Small cap stocks are defined as stocks with market cap lower than the market cap of the last stock of the CNX Midcap Index. For the purpose of maintaining liquidity or tap market opportunities; the fund may also invest in large cap stocks i.e. stocks other than mid or small cap stocks. Stocks selection will be primarily on bottom up approach on stock-by-stock basis. As part of its objective of maximizing investor's wealth creation potential over the longer duration, the fund may also invest in equity and equity related instruments of unlisted companies in line with SEBI regulations. The portfolio may also invest in foreign equity investments in the manner and to the extent permitted by the SEBI Regulations. A part of the portfolio will also tap arbitrage opportunities in the domestic markets like equity & equity related instruments, convertible preference shares, and convertible debentures. The Scheme intends to invest in derivatives not exceeding 50% of the net assets of the Schemes, subject to the limits as specified from time to time for hedging and rebalancing purposes or to undertake any other strategy as permitted under SEBI Regulations from time to time. RISK CONTROL Since investing requires disciplined risk management, the AMC would incorporate adequate safeguards for controlling risks in the portfolio construction process. The risk control process involves reducing risks through portfolio diversification, taking care however not to dilute returns in the process. The AMC believes that this diversification would help achieve the desired level of consistency in returns. The AMC may also implement certain internal control procedures / risk & exposure limits etc., which may be varied from time to time. The AMC aims to identify securities, which offer superior levels of yield at lower levels of risks. With the aim of controlling risks, rigorous in-depth credit evaluation of the securities proposed to be invested in will be carried out by the investment team of the AMC. The Scheme may also use various derivatives and hedging products from time to time, as would be available and permitted by SEBI/RBI, in an attempt to protect the value of the portfolio and enhance Unitholders interest. Trading in Derivatives (Applicable to all Schemes except Principal Resurgent India Equity Fund) The Scheme may take derivatives position based on the opportunities available subject to the guidelines provided by SEBI from time to time and in line with the overall investment objective of the Scheme. SEBI has vide its Circulars inter alia, DNPD/Cir-29/2005 dated September 14, 2005 and DNPD/Cir-30/2006 dated January 20, 2006, specified the guidelines pertaining to trading by Mutual Fund in Exchange traded derivatives and SEBI Circular DNPD/Cir-31/2006 dated September 22, 2006 modifying the position limits for Index derivative contracts. A derivative is an instrument whose value is derived from the value of one or more of the underlying assets which can be commodities, precious metals, bonds, currency, etc. Common examples of Derivative instruments are Interest Rate Swaps, Forward Rate Agreements, Futures, Options, etc. In case of equity derivatives, the Scheme may transact in exchange traded equity derivatives only and these instruments may take the form of Index Futures, Index Options, Futures and Options on individual equities/securities and such other derivative instruments as may be appropriate and permitted under the SEBI Regulations and guidelines from time to time. Derivative positions taken would be guided by the following principles: Exposure to Equity Derivatives The net derivatives position in the Scheme may be up to the limit as set forth in the asset allocation pattern of the Scheme(s), subject to the following regulatory limits: i. Position limit for the Mutual Fund in index options contracts: a. The Mutual Fund position limit in all index options contracts on a particular underlying index shall be Rs. 500 crore or 15% of the total open interest in the market in index options, whichever is higher, per Stock Exchange. b. This limit would be applicable on open positions in all options contracts on a particular underlying index. ii. Position limit for the Mutual Fund in index futures contracts: a. The Mutual Fund position limit in all index futures contracts on a particular underlying index shall be Rs. 500 crore or 15% of the total open interest in the market in index futures, whichever is higher, per Stock Exchange. b. This limit would be applicable on open positions in all futures contracts on a particular underlying index. iii. Additional position limit for hedging:

158 In addition to the position limits at point (i) and (ii) above, Fund may take exposure in equity index derivatives subject to the following limits: a. Short positions in index derivatives (short futures, short calls and long puts) shall not exceed (in notional value) the Mutual Fund s holding of stocks. b. Long positions in index derivatives (long futures, long calls and short puts) shall not exceed (in notional value) the Mutual Fund s holding of cash, government securities, T-Bills and similar instruments. iv. Position limit for the Mutual Fund for stock based derivative contracts: The Mutual Fund position limit in a derivative contract on a particular underlying stock, i.e. stock option contracts and stock futures contracts: a. For stocks having applicable market-wise position limit (MWPL) of Rs. 500 crores or more, the combined futures and options position limit shall be 20% of applicable MWPL or Rs.300 crores, whichever is lower and within which stock futures position cannot exceed 10% of applicable MWPL or Rs. 150 crores, whichever is lower. b. For stocks having applicable market-wise position limit (MWPL) less than Rs. 500 crores, the combined futures and options position limit would be 20% of applicable MWPL and futures position cannot exceed 20% of applicable MWPL or Rs. 50 crore which ever is lower. v. Position limit for the Scheme: The position limits for the Scheme and disclosure requirements are as follows: a. For stock option and stock futures contracts, the gross open position across all derivative contracts on a particular underlying stock of a scheme of a Fund shall not exceed the higher of :1% of free float market capitalization (in terms of number of shares). Or 5% of the open interest in the derivative contracts on a particular underlying stock (in terms of number of contracts). b. This position limit shall be applicable on the combined position in all derivative contracts on a underlying stock at a Stock Exchange. c. For index based contracts, the Mutual Fund shall disclose the total open interest held by its scheme or all schemes put together in a particular underlying index, if such open interest equals to or exceeds 15% of the open interest of all derivative contracts on that underlying index. As and when SEBI notifies amended limits in position limits for exchange traded derivative contracts in future, the aforesaid position limits, to the extent relevant, shall be read as if they were substituted with the SEBI amended limits. The Scheme may write (sell) and purchase call and put options in securities in which it invests and on securities indices. Through the sale and purchase of futures contracts the Fund would seek to hedge against a decline in securities owned by the Fund or an increase in the prices of securities which the Fund plans to purchase. The Fund would sell futures contracts on securities indices in anticipation of a fall in stock prices, to offset a decline in the value of its equity portfolio. When this type of hedging is successful, the futures contract increase in value while the Fund's investment portfolio declines in value and thereby keep the Fund's net asset value from declining as much as it otherwise would. Similarly, when the Fund is not fully invested, and an increase in the price of equities is expected, the Fund would purchase futures contracts to gain rapid market exposure that may partially or entirely offset increase in the cost of the equity securities it intends to purchase. In certain cases the Fund might invest in futures contracts as against underlying cash stocks for reasons of liquidity and lower impact costs. Stock and Index Futures Hedging against an anticipated rise in equity prices:- The scheme has a corpus of Rs.100 crores and has cash of Rs.15 crores available to invest. The Fund may buy index/stock futures of a value of Rs.15 crores. The scheme may reduce the exposure to the future contract by taking an offsetting position as investments are made in the equities; the scheme wants to invest in. Here, if the market rises, the scheme gains by having invested in the index futures. Hedging against anticipated fall in equity prices:- If the Fund has a negative view on the market and would not like to sell stocks as the market might be weak, the scheme of the Fund can go short on index/stock futures. Later, the scheme can unwind the future positions. A short position in the future would offset the long position in the underlying stocks and this can curtail potential loss in the portfolio. The Fund's successful use of futures contracts is subject to the Fund Manager's ability to predict correctly the market factor affecting the market value of the Fund's portfolio securities. For example if a Fund is hedged against a fall in the securities using a short position in index futures, and the market instead rises, the Fund loses part or all of the benefit of the increase in securities prices on account of the offset losses in index futures. Imperfect co-relation between the price movements in the securities index on the one hand and the stocks held by the Fund or the futures contracts itself on the other hand may result in trading losses. The Fund may not be able to close an open futures position due to insufficient liquidity in the futures market. Under such circumstances, the Fund would be required to make daily cash payments of variation margin in the event of adverse price movements. If the Fund has insufficient cash, the Fund may be required to sell portfolio securities to meet daily variation margin requirement at a time when it may be disadvantageous to do so. A hedge is designed to offset a loss on a portfolio with a gain in the hedge position. At the same time, however, a properly correlated hedge will result in a gain in the portfolio position being offset by a loss in the hedge position. As a result the use of derivatives could limit any potential gain from an increase in value of the position hedged. In addition, an exposure to derivatives in excess of the hedging requirement can lead to losses. Stock and Index Options: Option contracts are of two types - Call and Put; the former being the right, but not obligation, to purchase a prescribed number of shares at a specified price before or on a specific expiration date and the latter being the right, but not obligation, to sell a prescribed

159 number of shares at a specified price before or on a specific expiration date. The price at which the shares are contracted to be purchased or sold is called the strike price. Options that can be exercised on or before the expiration date are called American Options, while those that can be exercised only on the expiration date are called European Options. In India, all individual stock options are American Options, whereas all index options are European Options. Option contracts are designated by the type of option, name of the underlying, expiry month and the strike price. Example for Options: Buying a Call Option: Let us assume that the Fund buys a call option of XYZ Ltd. with strike price of Rs. 1000, at a premium of Rs. 25. If the market price of ABC Ltd on the expiration date is more than Rs. 1000, the option will be exercised. The Fund will earn profits once the share price crosses Rs (Strike Price + Premium i.e ). Suppose the price of the stock is Rs. 1100, the option will be exercised and the Fund will buy 1 share of XYZ Ltd. from the seller of the option at Rs 1000 and sell it in the market at Rs. 1100, making a profit of Rs. 75. In another scenario, if on the expiration date the stock price falls below Rs. 1000, say it touches Rs.900, the Fund will choose not to exercise the option. In this case the Fund loses the premium (Rs.25), which will be the profit earned by the seller of the call option. Buying a Put Option. Let us assume the Fund owns the shares of XYZ Ltd, which is trading at Rs The fund wishes to hedge this position in the short-term as it perceives some downside to the stock in the short-term. It can buy a Put Option at Rs. 500 by paying a premium of say Rs, 10/- In case the stock goes down to Rs. 450/- the fund has protected its downside to only the premium i.e Rs 10 instead of Rs. 50. On the contrary if the stock moves up to say Rs. 550/- the fund may let the Option expire and forego the premium thereby capturing Rs. 40/- upside. The strategy is useful for downside protection at cost of foregoing some upside. Writing a Call Option: Let us assume that the Fund owns shares of XYZ Ltd., which are trading at Rs The Fund wishes to sell these shares at Rs It can write call option at Rs and earn a premium of, say, Rs. 20. If the option is not exercised, the Fund earns a premium and if the stock price does reach Rs. 1100, the premium adds to the profits that the Fund would have booked by selling at that price. In this case, if the stock price of XYZ Ltd. is less then Rs. 1100, the Fund earns Rs 20 and if it closes above Rs and the option gets exercised by the buyer, the Fund gets the strike price of Rs plus a premium of Rs. 20, i.e. effectively Rs Any loss because of stock price movement beyond Rs is an opportunity loss, as the Fund would otherwise have sold the shares at Rs Writing a Put Option : Let us assume that the fund wants to buy a share of 100, the current price of the stock being Rs. 120/- The fund can choose to write a Put Option with the strike Rs. 100/- and earn a small premium of say Rs. 2/- In case the stock comes below Rs. 100/- the buyer of the Put option will exercise it and the fund can enter the stock at its desired price (In this case Rs Rs. 1 = Rs 99). In case the stock Rs. 120/- the option-holder will not exercise the option and let it expire. In this case the fund will earn the premium income of Rs. 2/- For an option buyer, loss is limited to the premium that he has paid and gains are unlimited. The risk of an option writer i.e. the seller of the option, is unlimited while his gains are limited to the premiums earned. However, the loss in case of a covered call writing is limited as the Fund already has the relevant stocks in the portfolio. The above example is hypothetical in nature and all figures are assumed for the purpose of illustrating the use of call options in individual stocks. Similar analogy can be used for Index Options too when the fund wishes to hedge a part of the total portfolio or cash. The following section describes some of the more common debt derivatives transactions along with their benefits: Interest Rate Swap (IRS) An IRS is an agreement between two parties to exchange stated interest obligations for an agreed period in respect of a notional principal amount. The most common form is a fixed to floating rate swap where one party receives a fixed (pre-determined) rate of interest while other receives a floating (variable) rate of interest. Forward Rate Agreement (FRA) A FRA is basically a forward starting IRS. It is an agreement between two parties to pay or receive the difference between an agreed fixed rate (the FRA rate) and the interest rate (reference rate) prevailing on a stipulated future date, based on a notional principal amount for an agreed period. The only cash flow is the difference between the FRA rate and the reference rate. As is the case with IRS, the notional amounts are not exchanged in FRAs. Example Let us assume that a scheme has an investment of Rs.10 crore in an instrument which pays interest linked to NSE Mibor. Since the NSE Mibor would vary daily, the scheme is running an interest rate risk on its investment and would stand to lose if rates go down. To hedge itself against this risk, the scheme could do an IRS where it receives a fixed rate (assume 10%) for the next 5 days on the notional amount of Rs. 10 crore and pay a floating rate (NSE Mibor). In doing this, the scheme would effectively lock itself into a fixed rate of 10% for the next five days. The steps would be. 1. The scheme enters into an IRS on Rs. 10 crore from December 1, 2008 to December 6, It receives a fixed rate of interest at 10% and the counter party receives the floating rate (NSE Mibor). The Scheme and the counter party exchange a contract of having entered into this IRS

160 2. On a daily basis, the NSE Mibor will be tracked by the counterparties to determine the floating rate payable by the scheme. 3. On December 6, 2008, the counterparty will calculate the following; The scheme will receive interest on Rs. 10 crore at 10% p.a. for 5 days i.e. Rs. 1,36,986/- The scheme will pay the compounded NSE Mibor for 5 days Effectively, the scheme has earned interest at 10% p.a. for 5 days by converting its floating rate asset into a fixed rate through the IRS. If the total interest on the compounded NSE Mibor rate is lower than Rs. 1,36,986/-, the scheme will receive the difference from the counterparty and vice-versa. In case the interest on compounded NSE Mibor is higher, the scheme would make a lower return than what it would have made had it not undertaken IRS. Portfolio Turnover Rate The Portfolio Turnover Rate (PTR) means the lower of aggregate sales or purchases made during a particular year/period divided by the Average Asset under Management (average of Assets under Management on last day of month) for the relevant year/period. "Portfolio Turnover" is the term used by any Mutual Fund for measuring the amount of trading that occurs in a Scheme's portfolio during the year. The Scheme(s) are open-ended scheme(s). It is expected that there may be a number of subscriptions and repurchases on a daily basis. Moreover, portfolio turnover in the Schemes will be a function of market opportunities. The economic environment changes on a continuous basis and exposes portfolio to systematic as well as non-systematic risk. Consequently, it is difficult to estimate with any reasonable measure of accuracy, the likely turnover in the portfolio. However, a high turnover would significantly affect the brokerage and transaction costs. This will exclude the turnover caused on account of: - Investing the initial subscription, - Subscriptions and redemption undertaken by the unit holders. The AMC will endeavor to balance the increased cost on account of higher portfolio turnover with the benefits derived therefrom. A high portfolio turnover rate is not necessarily a drag on portfolio performance and may be representative of arbitrage opportunities that exist for scrips/securities held in the portfolio rather than an indication of a change in AMC's view on a scrip, etc. F FUNDAMENTAL ATTRIBUTES Following are the Fundamental Attributes of the Scheme(s), in terms of Regulation 18 (15A) of the SEBI (MF) Regulations: (i) Type of a scheme Open ended Equity/Index Scheme(s) For details on which schemes are equity/index schemes, please refer the Section on Type of the Schemes (ii) Investment Objective Main Objective - Please refer Investment Objective of respective Scheme(s) as mentioned above. Investment pattern Please refer the Section on How will the Scheme(s) allocate its assets. (iii) Terms of Issue Liquidity provisions such as listing, repurchase, redemption Please refer the Section on Ongoing offer Details Aggregate fees and expenses charged to the scheme : Please refer the Section on Fees and Expenses Any safety net or guarantee provided : Not applicable In accordance with Regulation 18(15A) of the SEBI (MF) Regulations, the Trustees shall ensure that no change in the fundamental attributes of the Scheme(s) and the Plan(s) / Option(s) thereunder or the trust or fee and expenses payable or any other change which would modify the Scheme(s) and the Plan(s) / Option(s) thereunder and affect the interests of Unit holders is carried out unless: A written communication about the proposed change is sent to each Unit holder and an advertisement is given in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of the region where the Head Office of the Mutual Fund is situated; and The Unit holders are given an option for a period of 30 days to exit at the prevailing Net Asset Value without any exit load. G. HOW WILL THE SCHEME BENCHMARK ITS PERFORMANCE? The Benchmark for respective Schemes of Principal Mutual Fund are as follows: NAME OF THE SCHEME Principal Index Fund Principal Resurgent India Equity Fund Principal Growth Fund Principal Dividend Yield Fund Principal Large Cap Fund Principal Services Industries Fund Principal Emerging Bluechip Fund BENCHMARK S&P CNX Nifty Index BSE 200 Index BSE 200 Index S&P CNX 500 Index BSE 100 Index CNX Services Sector Index CNX Midcap Index

161 The compositions of the aforesaid benchmarks are such that it is most suited for comparing performance of the respective Scheme. The Fund reserves the right to change the said benchmarks and/or adopt one/more other benchmarks to compare the performance of the Scheme(s), subject to SEBI Regulations. H. WHO MANAGES THE SCHEME(S)? Name of the Fund Manager Mr. Shyam Bhat Designation: Age & Qualification Brief Experience Name of Schemes under his management AVP- Investments 38 Years / B.E, MMS Mr. Shyam Bhat joined Principal Pnb Asset Management Company Pvt. Ltd as Fund Manager in the year He has over 14 years experience in equity research and fund management. In his previous assignment he worked with Tata Mutual Fund as General Manager (Investments), where he was a member of the fund management team, managing equity and balanced funds. He has completed his Masters in Management Studies from NMIMS (Mumbai University) and holds a degree in Electrical Engineering from VJTI (Mumbai University). (a) Principal Resurgent India Equity Fund (b) Principal Services Industries Fund (c) Principal Dividend Yield Fund (d) Principal Growth Fund (e) Principal Index Fund (f) Principal Tax Savings Fund (g) Principal Fixed Duration Fund 3 year Plan Series I Mr. Pankaj Tibrewal Fund Manager 29 years / B com (H), Master in Finance Mr. Pramod Gupta Fund Manager 36 years / B. Tech (Hons), PGDM, CFA Mr. Pankaj Tibrewal is the Fund Manager at Principal Pnb Asset Management Co. Pvt. Ltd. Mr. Tibrewal is a graduate in commerce from St.Xavier s College, Kolkata and holds a Masters Degree in Finance from Manchester University, U.K. He has over 6 years of experience in managing funds. Mr. Pramod Gupta is the Fund Manager at Principal Pnb Asset Management Company Private Limited. Mr. Gupta has over 10 years of experience in Equity Research and Fund Management. In his previous assignments he was associated with HSBC Securities & Capital Market India Ltd, ABN Amro Asia Equities (India) Ltd, Enam securities, Dresdner Kleinwort Wasserstein Securities (India) Limited, SBI Funds Management Ltd. (a) Principal Emerging Bluechip Fund (b) Principal Child Benefit Fund (c) Principal Balanced Fund (d) Principal Monthly Income Plan (e) Principal Monthly Income Plan MIP Plus (f) Principal PNB Long Term Equity Fund 3 Year Plan - Series I (g) Principal PNB Long Term Equity Fund 3 Year Plan - Series II (h) Principal Personal Tax Saver Fund (a) Principal Large Cap Fund

162 I. WHAT ARE THE INVESTMENT RESTRICTIONS? Following Investment limitations/restrictions are specific to these Schemes:- The Fund under all its Schemes should not own more than 10% of any company s paid up capital carrying voting rights. Transfers of investments from one scheme to another scheme of Principal Mutual Fund shall be allowed only if: - Such transfers are done at the prevailing market price for quoted instruments on spot basis. [Explanation - Spot basis shall have same meaning as specified by stock exchange for spot transactions.] - The securities so transferred shall be in conformity with the investment objective of the scheme to which such transfer has been made. A scheme may invest in another scheme under the same asset management company or any other mutual fund without charging any fees, provided that aggregate interscheme investment made by all schemes under the same management or in schemes under the management of any other asset management company shall not exceed 5% of the net asset value of the mutual fund. The Mutual Fund shall buy and sell securities on the basis of deliveries and shall in all cases of purchases, take delivery of relative securities and in all cases of sale, deliver the securities. Provided that the Scheme may engage in short selling of securities in accordance with the framework relating to short selling and securities lending and borrowing specified by SEBI. Provided further that the Scheme may also enter into derivatives transactions in a recognized stock exchange, subject to the framework specified by the Board. Provided further that sale of government security already contracted for purchase shall be permitted in accordance with the guidelines issued by the Reserve Bank of India in this regard. The Mutual Fund shall get the securities purchased or transferred in the name of the Mutual Fund on account of the concerned scheme, wherever investments are intended to be of long-term nature. Pending deployment of Funds of the scheme in terms of investment objective, Mutual Fund may invest them in short term deposits of scheduled commercial banks, subject to the following: - The scheme shall not park more than 15% of the net assets in Short term deposit(s) of all the scheduled commercial banks put together. However, it may be raised to 20% with prior approval of the trustees. Also, parking of funds in short term deposits of associate and sponsor scheduled commercial banks together shall not exceed 20% of total deployment by the mutual fund in short term deposits. - The scheme shall not park more than 10% of the net assets in short term deposit(s), with any one scheduled commercial bank including its subsidiaries. - No funds of the scheme may be parked in short term deposit of a bank which has invested in that scheme. - Short Term for such parking of fund by Mutual Fund shall be treated as a period not exceeding 91 days. The scheme(s) shall not make any investment in: - any unlisted security of an associate or group company of the sponsor; or - any security issued by way of private placement by an associate or group company of the sponsor; or - the listed securities of group companies of the sponsor which is in excess of 25% of the net assets The Scheme(s) shall not invest in any Fund of Funds Scheme The Scheme(s) shall not invest more than 10% if its NAV in the equity shares or equity related instruments of any Company. The Scheme(s) shall not invest more than 5% of its net assets in the unlisted equity shares or equity related instruments. Aggregate value of Illiquid Securities of the Scheme, which are defined as non-traded, thinly traded and unlisted equity share, shall not exceed 15% of the total assets of the Scheme, Investment in foreign Securities:- - In accordance with RBI Circular A.P. (DIR) Series Circular No. 3 dated July 26, 2006 read with SEBI Circular SEBI/IMD/CIR No.7/104753/07 dated September 26, 2007, the Fund is permitted to invest only up to US$ 300 million in identified overseas securities. Such limit and/or identified securities may be revised at the discretion of the Fund in alignment with the provision that may be prescribed in this regard by SEBI/RBI from time to time. Where the Scheme(s) may invest a part of its corpus in debt oriented and money market securities/instruments/funds, to manage its liquidity requirements, the investment restrictions specific to debt securities have been provided here below:- The scheme(s) shall not invest more than 15% of its NAV in debt instruments (of any residual maturity period) issued by a single issuer which are rated not below investment grade by a credit rating agency authorized to carry out such activity under the Act. Such investment limit may be extended to 20% of the NAV of the scheme with the prior approval of the Board of Trustees and the Board of the AMC

163 Provided that such limit shall not be applicable for investments in government securities. Provided further that the debentures irrespective of any residual maturity period (above or below one year), shall attract restriction as applicable under clause 1 and 1A of Seventh Schedule to the SEBI (Mutual Funds) Regulations, Provided further that the restrictions for investments made in securitised debt (mortgage backed securities/asset backed securities) would be applicable as mentioned in Seventh Schedule and per the clarification made by SEBI vide circular no. SEBI/IMD/CIR No.6/63715/06, dated March 29, The scheme(s) shall not invest more than 10% of its NAV in unrated debt instruments (of any residual maturity period) issued by a single issuer and the total investment in such instruments shall not exceed 25% of the NAV of the scheme. All such investments shall be made with the prior approval of the Board of Trustees and the Board of the AMC. No mutual fund scheme shall invest more than 30% of its net assets in money market instruments of an issuer. Provided that such limit shall not be applicable for investments in Government Securities, Treasury Bills and Collateralized borrowing and Lending Obligations.. These investment limitations/parameters (as expressed/linked to the net asset/nav/capital) shall in the ordinary course apply as of the date of the most recent transaction or commitment to invest, and changes do not have to be effected merely because, owing to appreciation or depreciation in value, or by reason of the receipt of any rights, bonuses or benefits in the nature of capital, or of any scheme of arrangement, or for amalgamation, reconstruction or exchange, or at any repayment or repurchase or other reason outside the control of the Fund, any such limits would thereby be breached. If these limits are exceeded for reasons beyond its control, the AMC shall adopt as a priority objective the remedying of that situation, taking due account of the interests of the unit holders. In addition, certain investment parameters (like limits on exposure to sectors, industries, issuers, etc.) may be adopted internally by the AMC, as amended from time to time, to ensure appropriate diversification/security for the Fund. The AMC may alter these above stated limitations from time to time, and also to the extent the SEBI Regulations change, so as to permit the Fund to make its investments in the full spectrum of permitted investments for Mutual Funds to achieve its investment objective. As such all investments of the Fund will be made in accordance with SEBI Regulations including Schedule VII thereof. J. HOW HAS THE SCHEME PERFORMED? Principal Index Fund Returns (%) of Growth Option as at July 31, Period Returns (%) Last 1 Year S&P CNX Nifty (%) Last 3 Years Last 5 Years Since Inception* Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *July 27, Principal Resurgent India Equity Fund Returns (%) of Growth Option as at July 31, Period Returns BSE 200 (%) (%) Last 1 Year Last 3 Years Last 5 Years Since Inception* Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *June 30,

164 Principal Growth Fund Returns (%) of Growth Option as at July 31, Period Returns (%) BSE 200 (%) Last 1 Year Last 3 Years Last 5 Years Since Inception* Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *October 25, Principal Dividend Yield Fund Returns (%) of Growth Option as at July 31, Period Returns S&P CNX 500 Index (%) (%) Last 1 Year Last 3 Years Since Inception* Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *October 15, Principal Large Cap Fund Returns (%) of Growth Option as at July 31, Period Returns (%) BSE 100 (%) Last 1 Year Last 3 Years Since Inception* Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *November 11,

165 Principal Services Industries Fund Returns (%) of Growth Option as at July 31, Period Returns CNX Services Sector (%) Index (%) Last 1 Year Last 3 Years Since Inception* Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. *March 6, Principal Emerging Bluechip Fund Returns (%) of Growth Option as at July 31, Period Returns CNX Midcap Index (%) (%) Since Inception* Past performance may or may not be sustained in the future. Note: Returns less than 1 year are calculated on absolute basis. *November 12, K. INVESTMENT BY AMC? The AMC and investment companies managed by the Sponsor, its affiliates, its associate companies and subsidiaries may invest either directly or indirectly in the Scheme(s). The money managed by these affiliates, associates, the Sponsor, subsidiaries of the Sponsor and/or the AMC may acquire a substantial portion of a Scheme's units and collectively constitute a major investment a Scheme. Accordingly, repurchase of units held by such affiliates/associates and Sponsor may have an adverse impact on the units of a Scheme, because the timing of such repurchase may impact the ability of other unit holders to repurchase their units. The AMC reserves the right to invest its own funds in the Scheme(s) as may be decided by the AMC from time to time and in accordance with SEBI Circular no. SEBI/IMD/CIR No. 10/22701/03 dated December 12, 2003 and SEBI/IMB/CIR No.1/42529/05 dated June 14, 2005 regarding minimum number of investors in the Scheme/ Plan. The AMC shall not charge any fees on investment by the AMC in the units of the Scheme(s) in accordance with Sub Regulation 3 of Regulation 24 of the Regulations and shall charge fees on such amounts in future only if the SEBI Regulations so permit. IV. UNITS AND OFFER This section provides details you need to know for investing in the scheme. A. NFO DETAILS This section does not apply to the scheme(s) covered in this Scheme Information Document, as the ongoing offer of the scheme(s) has commenced after the NFO, and the units are available for continuous subscription and redemption

166 B. Ongoing Offer Details Ongoing Offer Period This is the date from which the scheme will reopen for subscriptions/redemptions after the closure of the NFO period The date of inception for the Scheme(s) are :- Principal Index Fund - July 27, 1999 Principal Resurgent India Equity Fund - June 30, 2000 Principal Growth Fund October 25, 2000 Principal Dividend Yield Fund - October 15, 2004 Principal Large Cap Fund - November 11, 2005 Principal Services Industries Fund March 6, 2006 Principal Emerging Bluechip Fund November 12, 2008 All these Schemes being open ended scheme(s), investors can subscribe to the units of the scheme(s) on an ongoing basis. To provide liquidity to the investors, the Scheme(s) will offer for Redemption / Switch-out of Units at NAV based prices on every Business Day on an ongoing basis.. Ongoing price for subscription (purchase)/switch-in (from other schemes/plans of the mutual fund) by investors. This is the price you need to pay for purchase/switch-in. Example: If the applicable NAV is Rs. 10, entry load is 2% then sales price will be: Rs.10*(1+0.02)=Rs Ongoing price for redemption (sale) /switch outs (to other schemes/plans of the Mutual Fund) by investors. This is the price you will receive for redemptions/switch outs. Example: If the applicable NAV is Rs. 10, exit load is 2% then redemption price will be: Rs. 10* (1-0.02) = Rs Plans / Options offered At applicable NAV At the applicable NAV subject to prevailing exit loads. Each Scheme offer two investment options/plans viz. Growth & Dividend Options/Plans. Both Dividend and Growth Option/Plans will share a common portfolio. Dividend option will have the facility of payout, reinvestment and sweep. Dividend Option/Plan: Under Dividend Option, dividend will be declared subject to availability of distributable surplus and at the discretion of AMC/Trustee. The undistributed portion of the income will remain in the Option and be reflected in the NAV, on an ongoing basis. The Trustee decision with regard to availability and adequacy, rate, timing and frequency of distribution of dividend shall be final. Further, the Dividend Option will have the facility of Re-investment, Payout and Sweep. Applicants should indicate the Option/Facility for which the subscription is made by indicating the choice in the appropriate box provided for this purpose in the Application Form. Applicants can allocate the investment in both the Options subject to a minimum investment amount of the Scheme. Dividend option will have the facility of Payout, Re-investment and Sweep. Dividend Payout Facility Under this Facility, the unit holders would receive payout of their dividend in the Option

167 Dividend Re-investment Facility Under this Facility, dividend declared will be re-invested in the Scheme/Option itself, at applicable NAV based prices Dividend Sweep Facility Under this facility, the unit holders may reinvest their dividend in any other open ended scheme of the Fund at the applicable NAV based prices, subject to the minimum investment and eligibility requirements of the scheme in which the dividend is being invested. The appropriate number of units shall be credited to unit holders account at the applicable NAV on the same date when the NAV is ex-dividend. Growth Option Under this Option, ordinarily no dividend shall be declared. All income earned and profits realized in respect of a Unit issued under the Option will continue to remain invested until repurchased and shall be deemed to have remained invested in the Option itself, which will be reflected in the NAV. However, the Trustees reserve the right to pay out dividends either based on a change in market conditions, tax regulations or any other situation that would make it more beneficial for Unit holders to receive dividends. In the interest of the Scheme and the unit holders the AMC may consider providing returns to the unit holders at appropriate times by way of periodic declaration of dividend and /or bonus units under the Scheme after providing for all necessary recurring and other expenses. Allotment Refunds Who can invest This is an indicative list and you are requested to consult your financial advisor to ascertain whether the scheme is suitable to your risk profile Default Option: Investors should indicate the Option for which the subscription is made by indicating the choice in the appropriate box provided for this purpose in the application form. In case of valid applications received without indicating any choice of Option, it will be considered as option for Growth option and processed accordingly. In case of valid application received without indicating any choice under Dividend option, it will be considered as option for Dividend Re-investment and processed accordingly. The allotment will be made where applications received are complete in all respects. However, an offer to purchase units is not binding on, and may be rejected by AMC, until it has been confirmed through an Account/Transaction Statement and payment has been received. Refund of subscription money to investors whose application is invalid for any reason whatsoever, or whose application has not been accepted in full will be without incurring any liability whatsoever for interest or other sum. The following persons (subject wherever relevant to, purchase of Units being permitted under their respective constitutions and relevant State Regulations) are eligible to apply for purchase of units under the Scheme: (i) Resident Indian Nationals who are: Adult individuals as sole holder, Adult individuals not exceeding three jointly or on an either/anyone or survivor basis. Parents/Lawful guardians on behalf of Minors. Partnership Firms Hindu Undivided Families(HUF), through their Karta acting or on behalf of the HUF Institutions, Companies, Bodies Corporate, Public Sector Undertakings Banks (including Co-operative Banks and Regional Rural Banks), Funds, Financial and Investment Institutions and Societies registered under the Societies Registration Act 1860, or Co-operative Societies, subject to their byelaws permitting them to invest in the units of the mutual fund Religious and Charitable Trusts, drafts or endowments and Private Trusts, under the provisions of Section 11(5) of Income tax Act, 1961 read with Rule 17(C) of Income tax Rules 1962 registered under the Societies Registration Act/Indian Trusts Act, Trustees of Private Trusts authorized to invest in mutual fund schemes under their trust deeds Scientific and Industrial Research Organizations Association of Persons/Body of Individuals, whether incorporated or not Army/Air Force/Navy, other paramilitary units and bodies created by such institutions besides other eligible institutions Mutual Funds registered with SEBI (ii) Multilateral Funding Agencies/Bodies Corporate incorporated outside India with the permission of Government of India/Reserve Bank of India. (iii) Overseas Financial Organizations which have entered into an arrangement for investment in India, inter-alia with a Mutual Fund registered with SEBI and which arrangement is approved by the Central Government. (iv) Non-Resident Indians (NRIs)/FIIs and Persons of Indian origin residing abroad, on a full

168 repatriation basis or non-repatriation basis. Presently OCBs cannot invest in domestic mutual funds pursuant to RBI A.P.(DIR Series) Circular No.14 dated September 16, (v) Such other individuals/institutions/body corporate, etc. as may be decided by the Fund from time to time, so long as wherever applicable they are in conformity with regulations. (vi) Other Schemes of Principal Mutual Fund subject to the conditions and limits prescribed by applicable SEBI Regulations. (vii) The Trustees/Trust, AMC or Sponsor or its affiliates, its associate companies and subsidiaries may also subscribe to the units under this Fund. (viii) Provident/Pension/Gratuity/Superannuation Fund(s) and such other retirement and employee benefit and other similar Funds. The Trustees may accept an application from an unincorporated body of persons/trusts. The Trustees may from time to time add and review the persons eligible for making application for purchase of units under the Scheme. If a person who is a resident of India at the time of subscription becomes a resident outside India subsequently, he/she shall have the option to either be paid repurchase value of Units, or continue into the Scheme if he/she so desires and is otherwise eligible. However, the person who desires to continue in the Scheme shall not be entitled to any interest or any compensation during the period it takes for the Fund to record the change in Address and the Residential Status. Notwithstanding the aforesaid, the Trustees reserve the right to close such a unitholder s account and to pay the repurchase value of Units, subsequent to his becoming a person resident outside India, should the reasons of expediency, cost, interest of unitholders and other circumstances make it necessary for the Fund to do so. In such an event, no resident unitholders who have subsequently become residents outside India shall have a right to claim the growth in capital and/or income distribution. The Scheme has not been and will not be registered in any country outside India. To ensure compliance with any Laws, Acts, Enactment, etc. including by way of Circulars, Press Releases, or Notifications of Government of India, the Fund may require/give verification of identity/any special/additional subscription-related information from/ of the unitholders (which may result in delay in dealing with the applications, Units, benefits, distribution, etc./giving subscription details, etc.). Each unitholder must represent and warrant to the Trustees/AMC that, among other things, he is able to acquire Units without violating applicable laws. The Trustees will not knowingly offer or sell Units to any person to whom such offer or sale would be unlawful, or might result in the Fund incurring any liability or suffering any other pecuniary disadvantages which the Fund might not otherwise incur or suffer. Units may not be held by any person in breach of the law or requirements of any governmental, statutory authority including, without limitation, exchange control regulations. The Trustees may compulsorily redeem any Units held directly or beneficially in contravention of these prohibitions. In view of the individual nature of investment portfolio and its consequence, each unitholder is advised to consult his/her own professional advisor concerning possible consequences of purchasing, holding, selling, converting or otherwise disposing of the Units under the laws of his/her state/country of incorporation, establishment, citizenship, residence or domicile. Kindly note that neither the Statement of Additional Information; nor this Scheme Information Document, nor the Application for the Units, nor the Units ( these Documents ) have been registered in any jurisdiction. The distribution of these Documents in certain jurisdictions may be prohibited or restricted or subject to registration requirements and accordingly, persons who come into possession of any of these Documents are required to inform themselves about and to observe, any such restrictions. No person receiving a copy of any of these Documents in such jurisdiction may act or treat these Document or any part/portion thereof as constituting an invitation to him to subscribe for Units, nor should he in any event use any such Documents, unless in the relevant jurisdiction such an invitation could lawfully be made to him and such Documents could lawfully be used without compliance with any registration or other legal requirements. Accordingly, none of these Documents (including or any part/portion thereof) constitute an offer or solicitation by any one in any jurisdiction in which such offer or solicitation is not lawful or in which the person making such offer or solicitation is not qualified to do so or to any one to whom it is unlawful to make such offer or solicitation. It is the responsibility of any persons in possession of any of these Documents and any persons wishing to apply for Units pursuant to these Documents to inform themselves of and to observe, all applicable laws and Regulations of such relevant jurisdiction. Where can you submit the filled up applications. The applications filled up and duly signed by the applicants should be submitted at the Official Points of Acceptance (OPT)/Investor Service Centers (ISC). The names and addresses of offices of AMC identified as OPT/ISC and offices of Registrar identified as OPT along with the name, address, contact details and the website of the Registrar are mentioned on the last / back cover page of this SID

169 How to Apply Listing Cut off timing for subscription/redemptions/ switches This is the time before which your application (complete in all respects) should reach the Official Points of Acceptance Please refer to the SAI and Application form for the instructions. Being open ended scheme(s), the units of the Scheme(s) will not be listed Cut Off Time For Subscriptions/ Switch in In respect of valid applications received upto 3.00 pm with a local cheque or demand draft payable at par at the Official Points of Acceptance of Transactions where it is received, the closing NAV of the day of receipt of application shall be applicable; In respect of valid applications received after 3.00 pm with a local cheque or demand draft payable at par at the Official Points of Acceptance of Transactions where it is received, the closing NAV of the next business day shall be applicable; and In respect of the valid applications received with an outstation cheque or demand draft not payable on par at the Official Points of Acceptance of Transactions where the application is received, the closing NAV of day on which the cheque or demand draft is credited shall be applicable. Cut Off Time For Redemptions / Switch out In respect of valid applications received upto 3.00 p.m. at the Official Points of Acceptance of Transactions, same day s closing NAV will be applicable In respect of valid applications received after 3.00 p.m. at the Official Points of Acceptance of Transactions, the closing NAV of the next business day shall be applicable. The above cut-off timings shall also be applicable to investments made through Sweep mode available in the Dividend Option. Cut off time as mentioned above shall be reckoned at the Official Points of Acceptance of transactions as disclosed in the SID and the website Where can the applications for Purchase/Redemption /switches be submitted? Minimum amount for purchase/redemption/switches Purchase/Redemption switch requests may be submitted at any of the Official Points of Acceptance nearest to you. Please refer the last/back cover page of this Scheme Information Document for name, address, contact no. and website address of the R&T. Also provided along with are the contact details of the official points of acceptance and Investor Service Centers. Minimum application amount will be Rs for Dividend Option and Growth Option and any amount thereafter under each option. Subsequent investment amount shall be Rs 500 and any amount thereafter under each option. Systematic Investment Plan: Minimum 6 installments of Rs.500 each. Minimum Redemption / Sale Amount Rs. 500 or 50 units. In case of Principal Emerging Bluechip Fund: There is no minimum redemption amount. An investor can redeem any amount or any number of units to the extent of the credit balance in his account. Minimum balance to be maintained and consequences of non maintenance At present investor are not required to maintain minimum balance in their respective folios, however the AMC/Trustees reserves the right to change it at any future date by giving advance notice. Special facilities for Investors/Unit holders The Fund reserves the right to amend or terminate or introduce special facilities in the SID. The current special facilities offered are as follows: 1. Switching Option Investors can opt to switch the units between Dividend Option and Growth Option at NAV based prices. Switching will also be allowed into/from other select open ended scheme(s) managed under the Fund, either currently in existence or the scheme(s) that may be launched in the future at NAV based prices. In the case of NRIs, FIIs, etc. this will be subject to necessary approval (if any) from the Reserve Bank of India and any other approval as applicable. Tax deduction at source, if any, will be effected at the appropriate rate in case of a switch and the balance amount would be utilized to exchange units to the other Scheme

170 basis, subject to the exit load, as may be applicable. A request for switch may be specified either in terms of amount or in terms of the number of units of the scheme/plan/option from which the switch is sought. Such instructions may be provided in writing by completing the switch form or using the relevant tear off section of the Transaction Slip that may be enclosed with the Account Statement and lodging the same on any business day at any of the designated Official Points of Acceptance. The switch will be effected by redeeming units from the scheme(s) in which the units are held and investing the net proceeds in the other Scheme, subject to the minimum balance applicable for the respective Scheme(s). 2. Systematic Investment Plan Systematic Investment Plan (SIP) is available for planned and regular investments. Under SIP, unit holders can benefit by investing specified rupee amounts periodically for a continuous period. This concept is called Rupee Cost Averaging. This program allows unit holders to save a fixed amount of rupees every month/quarterly by purchasing additional units of the Scheme(s). Example Let us take an example of a unit holder who invests Rs per month Month NAV Amount (Rs) Units April May June July August September October November December January February March TOTAL Note: The figures of NAV are hypothetical and are for illustrative purposes only. At the end of one year the unitholder would have units. Rupee Cost Averaging does not guarantee a profit nor protect against a loss. Rupee Cost Averaging can smooth out the market s ups and downs and reduce the risk of investing in volatile markets. Features of the SIP 1. SIP Applications will be accepted on any working day of the month: Accordingly the units will be allotted on the date of receipt of valid SIP Application along with a SIP investment cheque dated not beyond the date of the Application. Thereafter the date for the first SIP installment shall be 1st, 5th, 15th or 25 th of a particular month ("specified dates for SIP investments") as selected by the Investor OR the nearest date amongst the Specified Date subsequent to receipt of the application, as the case may be after completing a minimum time gap of 30 days from the date of the first SIP investment cheque. E.g. If a duly completed SIP enrolment is received within the applicable cut-off timings on January 27, 2009 along with a valid cheque dated not beyond January 27, 2009, for a SIP investment of Rs.500/- per month (together with 5 or more post dated cheques each for a minimum of Rs.500/-), units will be allotted on January 27, 2009 with the scheme applicable NAV, and the next SIP date [first SIP Installment date] will be March 1, 2009 or immediately following business day if March 1, 2009 is a non-business day OR such other date amongst the Specified Dates as per the application form. 2. Investors, who wish to opt for ECS (debit clearing) facility available with select banks, should ensure that there is a minimum time gap of 30 days between the first cheque for SIP enrolment and first installment of SIP through ECS or Direct Debit. Dishonoured cheque(s) may not be presented again for collection. 3. Unit holders need not submit a copy of cancelled cheque provided the SIP Auto Debit Facility Enrolment Form is attested by the Bank from which SIP installments will be debited. 4. Unit holders have the right to discontinue the SIP facility at any time by sending a written request to any of the designated Investor Service Centers (ISCs) of Principal Mutual Fund. Please

171 also note that notice of such discontinuation should be received at least 18 working days (as against the existing provision of 7 working days) prior to the due date of the next SIP installment. 5. SIP enrolment will be discontinued by Principal Pnb Asset Management Company Pvt. Ltd. [AMC] in case [a] the SIP installment is not honored consecutively for three SIP installments, [b] the Bank account [for ECS (Debit Clearing) and/or Standing Instruction for direct debit] is closed and the request for change in bank account is not submitted by the concerned unit holder at least 18 working days before the due date of next SIP installment. Further, in such cases the balance cheques, if any, will be returned to the unit holder. Micro SIP: Pursuant to SEBI s communication to AMFI vide its letter dated June 19, 2009; AMFI has issued guidelines for uniform implementation of the said SEBI letter. In accordance to the same, Systematic Investment Plans (SIP) up to Rs.50,000/- per year per investor ( Micro SIP ) shall be exempt from requirement of PAN. This exemption will be applicable ONLY to investments by individuals (including NRIs but not PIOs), Minors and Sole proprietary firms. HUFs and other categories will not be eligible for Micro SIPs. Details on Micro SIP are available in Statement of Additional Information. Systematic Investment Plan (SIP) for Corporate Employees. With a view to encourage employees of Corporate to invest their savings into the various Schemes of our Mutual Fund, Principal Mutual Fund provides a investment facility to the employees of Corporate under the Employee Savings Plan (ESP). This feature will be guided by the terms and conditions as laid down below: 1. Under this feature the employees can submit application vide the normal application and/or ESP Forms. The employee is required to fill the details in the normal application/ ESP form providing the details of amount and duration of such SIP installments and the details of such investment should also be provided to the Human Resources Department of such Corporate (HRD). 2. The employees should instruct the HRD to deduct the amount of Investment every month / quarter from their salary for such period as indicated by him / her. Such periodicity shall be monthly or quarterly. 3. The minimum amount and periodicity, to be contributed to open an account under this option is as per the minimum scheme requirements as prescribed under Systematic Investment Plan/additional subscription of the Scheme. 4. The periodic employee contribution should be the minimum application amount and the same should be higher than that of SIP. The employee has an option to select either 1 st of 5 th of every month for such investment. 5. The employee can seek redemption independently. 6. The applicable NAV for application received under such plan, will be as per the date and time (refer to section on cut off timing) on which the request / payment instrument and sheet detailing the list of Investment of such employees, is received from HRD of such Employees at the Official Points of Acceptance of AMC. 3. Systematic Withdrawal Plan A unitholder may avail of the Systematic Withdrawal Plan and receive regular payments from the account. The unitholder has an option to select 1st, 11 th or 21 st day of the month on which the Systematic Withdrawal is to be made. The unitholder may set up a Systematic Withdrawal Plan on a monthly, quarterly or semi-annual or annual basis as follows: Redeem a fixed number of units Redeem a fixed amount Once the unitholder sets up a Systematic Withdrawal Facility the plan would continue until: - The unitholder instructs the Fund to stop periodic withdrawal in writing; or - The unitholder s account balance is zero - On expiry of the time/period specified by the unitholder Withdrawal payments will be endeavoured to be sent within 3 Business Days after the repurchase

172 date. The minimum balance amount needed for the Systematic Withdrawal Plan may be altered from time to time at the discretion of the AMC. 4. Systematic Switch/Transfer Plan The unitholder may set up a Systematic Switching/Transfer Plan (STP) on a monthly, quarterly, semi-annual or annual basis to exchange a fixed number of units and /or amount in one scheme to another scheme or one plan/option to another. Once the unitholder sets up a Systematic Switching / Transfer Plan the plan would continue until: - the unitholder instructs the Fund to stop periodic switching in writing; or - the unitholder s account balance is zero. The unitholder has an option to select 1st, 11 th or 21 st day of the month on which the Systematic Switch is to be made. If the selected date is not a business day, the switch will take place on the next business day. All switches are subject to the minimum investment and eligibility requirements of the switch in scheme The amount thus switched shall be converted into the respective scheme units at the applicable NAV, subject to an exit load, if any (on which date the payment/switch is scheduled), and such units will be subtracted from the unit balance of that unitholder. The minimum balance amount needed for the Systematic Switch Plan may be altered from time to time at the discretion of the AMC. Unitholders may change the amount of systematic withdrawal/switch but not below the specified minimum amount of repurchase for a particular Scheme (except Principal Emerging Bluechip Fund where the minimum amount of systematic withdrawal/switch can not be changed to below Rs.1000/-), by giving 30 days written notice to the Registrars/AMC. The various triggers for activating a systematic withdrawal and/or switch facility can also be used for activating a normal repurchase and/or switch facility 5. TRIGGERS Under this facility, the unit holders may opt for withdrawal and/or switch in the normal manner based on the value of investment either reaching upto or below or above/beyond a specified particular value; the capital appreciation/gains realization either equals to or becomes more/lower than a specified particular amount or percentage on happening of a particular event, on a particular date etc (with or without lock in for a particular period). Trigger thus acts as a financial planning tool for information and the unit holder may subsequently continue in the scheme or otherwise withdraw/switch. For e.g. an account may be monitored and the unit holder either informed or account redeemed (no redemption will be permitted if under lock-in) as and when the balance reaches or crosses (rise or fall) a desired value or after a certain period of time etc. This helps the unit holders to minimise the loss and/or book timely profits. In case of triggers linked with events/dates, on realisation of gains (equal to/beyond/lower than), a specified amount/full amount/gains/appreciation etc would be redeemed and paid either when the investment reaches upto and/or beyond (above or below) a particular value or after a particular period of time. In case of triggers linked with gains/appreciation, at the option of the unit holder, either the amount equivalent to gains/appreciation would be redeemed or the full original investment amount would be redeemed and the gain/appreciation component paid to the unit holder/switched into other scheme/plan, and the original investment amount would be reinvested either in the same scheme/plan or any other scheme/plan. ACTIVATION OF TRIGGER Unit holders shall note that NAV of a scheme is determined on close of the business day taking into consideration closing prices of the securities on the primary stock exchange (please refer to clause on Valuation Policy in the SAI & Determination of Net Asset Value in the SID ). Intra day prices are not considered for valuing the scheme s portfolio. Value of the unit holder s unit balance at the end of a relevant business day based on that day s NAV and closing value of a relevant index of a stock exchange would be used as a base for activating the triggers. However all redemptions/switches/reinvestments etc. linked to triggers will always be at the applicable NAV based prices of the day on which the event occurs

173 Please also note that the trigger is an additional facility provided to the unit holders to save time on completing the redemption/switch formalities on happening of a particular predetermined event. Trigger is not an assurance on part of AMC/Fund to the investor that he/she will receive a particular amount of money/appreciation and/or a percentage on redemption or will get a particular amount of capital appreciation or will minimise the loss to investor to a particular amount or percentage. Trigger is an event on happening of which the Fund will automatically redeem and/or switch the units on behalf of the investors on the date of happening of the event. In actual parlance, a trigger will activate a transaction/alert when the event selected for has reached a value greater or less than the specified particular value (trigger point). Unit holders can opt from any one of the following event under trigger option; 1. When value of investment of the unit holder reaches or crosses a particular value Eg. Investment Value reaches or crosses Rs /- Trigger Activation If investment value at NAV based price is less than Rs.11,000/-, trigger will be activated when value of the units at NAV held by unit holders rises to Rs.11000/- or more on close of any business day. If investment value at NAV based price is more than Rs.11,000/-, trigger will be activated when value of the units at NAV held by unit holders falls to Rs 11000/- or below on close of any business day. All transactions linked with trigger will be on the basis of NAV of the business day on which value of units held by unit holders reaches or crosses or falls below Rs.11,000/-. 2. Capital appreciation of a particular amount Eg. Capital appreciation by Rs.1000/- Trigger Activation Trigger will be activated when value of units invested at NAV based price appreciate by Rs.1000/- or more at NAV on close of any business day. All transactions linked with trigger will be on the basis of NAV of the business day on which value of investment held by unit holders increase at least by Rs 1000/-. 3. NAV reaches or crosses a particular value Eg. NAV reaches or crosses Rs.11/- Trigger Activation If NAV on the date of allotment of investment is less than Rs.11/-, trigger will be activated when NAV rises to Rs.11/- or more on close of any business day. If NAV on the date of allotment of investment is more than Rs.11/-, trigger will be activated when NAV falls to Rs.11/- or below on close of any business day. All transactions linked with trigger will be on the basis of NAV of the business day on which NAV reaches or crosses or falls below Rs.11/-. 4. BSE Sensex reaches or crosses a particular value Eg. BSE Sensex reaches or crosses Trigger Activation If BSE Sensex on the date of allotment of investment is less than 16000, then trigger will be activated when BSE Sensex rises to or more on close of any business day If BSE Sensex at the time of investment is more than 16000, then trigger will be activated when BSE Sensex falls to or below on close of any business day. All transactions linked with trigger will be on the basis of NAV of the business day on which close of day the BSE Sensex reaches or crosses or falls below mark. 5. NSE Nifty reaches or crosses a particular value Eg. NSE Nifty reaches or crosses 5000 Trigger Activation If NSE Nifty on the date of allotment of investment is less than 5000, then trigger will be activated when NSE Nifty rises to 5000 or more on close of any business day. If NSE Nifty on the date of allotment of investment is more than 5000, trigger will be activated when NSE Nifty falls to 5000 or below on close of any business day. All transactions linked with trigger will be on the basis of NAV of the business day on which close of day the NSE Nifty reaches or crosses or falls below 5000 mark. 6. On a particular day or date Eg. On 31/1/2009 Trigger Activation Trigger will be activated on 31/1/2009. All transactions linked with trigger will be on the basis of NAV of 31/1/2009 or on 1/2/2009 if 31/1/2009 is not a business day. 7. Change in the value of units (held by unit holders) at least by certain percentage

174 Eg Change in Investment Value at least by (+ or or +) 10% Trigger Activation Trigger will be activated when value of the units at NAV based price invested by unit holders rises to 10% or more at NAV on close of any business day; or Trigger will be activated when value of the units at NAV based price invested by unit holders falls by 10% or more at NAV on close of any business day; or Trigger will be activated when value of the units at NAV based price invested by unit holders either rises by 10% or more at NAV or falls by 10% or more on close of any business day. Percentage rise or fall in value of units will be calculated on the amount invested by the unit holders. 8. Capital appreciation of at least a certain percentage Eg. Capital appreciation of at least (+ or or +) 10% Trigger Activation Trigger will be activated when value of the units at NAV based price invested by unit holders appreciate to 10% or more at NAV on close of any business day; or Trigger will be activated when value of the units at NAV based price invested by unit holders depreciates by 10% or more at NAV on close of any business day; or Trigger will be activated when value of the units at NAV based price invested by unit holders either appreciates by 10% or more at NAV or depreciates by 10% or more at NAV on close of any business day. Difference between the value of units on close of a business day (at NAV) and amount invested (at NAV based price) will be used as a base for calculating percentage of capital appreciation. 9. Change in the NAV at least by a certain percentage Eg. Change in NAV at least by (+ or or +) 10% Trigger Activation Trigger will be activated when the NAV of the units rises by 10% or more on close of any business day compared with the NAV on the date of allotment of investment; or Trigger will be activated when the NAV of the units falls by 10% or more on close of any business day compared with the NAV on the date of allotment of investment; or Trigger will be activated when the NAV of the units either rises by 10% or more or falls by 10% or more on close of any business day compared with the NAV on the date of allotment of investment Percentage rise or fall in NAV will be calculated comparing NAV on a particular business day with the NAV on the date of allotment of investment. 10. Change in the BSE Sensex at least by a certain percentage Eg. Change in BSE Sensex at least by (+ or or +) 10% Trigger Activation Trigger will be activated when the BSE Sensex rises by 10% or more on close of any business day compared with the BSE Sensex on the date of allotment of investment; or Trigger will be activated when the BSE Sensex falls by 10% or more on close of any business day compared with the BSE Sensex on the date of allotment of investment; or Trigger will be activated when the BSE Sensex either rises by 10% or more or falls by 10% or more on close of any business day compared with the BSE Sensex on the date of allotment of investment. Percentage rise or fall in BSE Sensex will be calculated comparing BSE Sensex on a particular business day with the BSE Sensex on the date of allotment of investment. 11. Change in the NSE Nifty at least by a certain percentage Eg. Change NSE Nifty at least by (+ or or +) 10% Trigger Activation Trigger will be activated when the NSE Nifty rises by 10% or more on close of any business day compared with the NSE Nifty on the date of allotment of investment; or Trigger will be activated when the NSE Nifty falls by 10% or more on close of any business day compared with the NSE Nifty on the date of allotment of investment; or Trigger will be activated when the NSE Nifty either rises by 10% or more or falls by 10% or more on close of any business day compared with the NSE Nifty on the date of allotment of investment. Percentage rise or fall in NSE Nifty will be calculated comparing NSE Nifty on a particular business day with the NSE Nifty on the date of allotment of investment; On happening of any of the above mentioned events, the Unit holder can opt for the following action on the date of happening of the relevant event; Full redemption Redemption of gains only Full switch into other Scheme/Plan / Option of Principal Mutual Fund Switch of only gains into other Scheme / Plan/Option of Principal Mutual Fund Full Redemption: Original investment amount reinvested in any scheme of Principal Mutual

175 Fund and gains paid to unit holder Full redemption: Gains reinvested in any Scheme/Plan/Option of Principal Mutual Fund and investment amount paid to unit holder Redemption of certain number of units Redemption of certain amount Transactions linked with the triggers will be at the applicable NAV based price of the business day on which the event takes place. Further all the predetermined events i.e. the value of the unit balance, capital appreciation, NAV, BSE Sensex, NSE Nifty will be compared with the value of units, NAV, BSE Sensex and NSE Nifty prevailing on the date of investment (i.e. date of allotment) irrespective of the fact whether the trigger is opted on the date of allotment of investment or subsequently.. For eg an investor has invested at Rs. 11/- and opted for full redemption if NAV appreciates at least by 10%. Trigger will be activated on the business day when NAV moves to (i.e. 10% more than Rs. 11/-) or more. Triggers(s) linked to BSE Sensex or NSE Nifty will always compare the value of BSE Sensex or NSE Nifty on close of business day. In case BSE or NSE is open on a non-business day, its value will not be considered even if it reaches or crosses a trigger value, and on any subsequent business day if the value of BSE or NSE is reached, the same would be considered for trigger purposes. For eg. A unit holder has opted for full redemption if NSE Nifty reaches or crosses 5000 mark. If NSE is open on January 1, 2009, but it is not a business for the Fund, trigger will not be activated (i.e. redemption will not take place) even though closing value of Nifty as on January 1, 2009, is 5000 or more. The closing value of BSE Sensex/NSE Nifty on non business day will be ignored for trigger activation. A trigger once activated will not be reactivated in any other scheme where the switch/reinvestment happens or in the same scheme which retains part of the value or in case of normal redemption/switch before trigger activation. Triggers will be deactivated on redemption and/or switch and/ore pledge of units except in case where Only Gains are to be redeemed or switched and opted for the same in the trigger form. 6. Future Goal Series The Future Goals Series is a carefully structured suite of scheme(s) designed to meet a wide range of investment needs. Not only do unit holders have a comprehensive choice of schemes(s) and plans within these scheme(s), but also it is easier for unit holders to move between Scheme(s) as their needs change. Initially four schemes namely Principal Growth Fund (open ended equity scheme), Principal Income Fund (open ended income scheme), Principal Balanced Fund (open ended balanced scheme) and Principal Cash Management Fund (open ended liquid scheme) were launched as part of Future Goals Series. Subsequently Principal Index Fund (open ended index scheme), and Principal Government Securities Fund (open ended dedicated Government Securities scheme investing in government securities), Principal Monthly Income Plan (open ended fund. Monthly income is not assured and is subject to the availability of distributable surplus), Principal Floating Rate Fund (open ended income scheme), Principal Dividend Yield Fund (open ended equity scheme), Principal Global Opportunities Fund (Open-ended fund of funds scheme), Principal Resurgent India Equity Fund (Open-ended equity scheme), Principal Large Cap Fund (Open - ended equity scheme), Principal Services Industries Fund (Open - ended equity scheme), Principal Ultra Short Term Fund (open ended debt scheme) and Principal Money Manager Fund (open ended liquid scheme), Principal Emerging Bluechip Fund (Open - ended equity scheme), launched by Principal Mutual Fund have been included as a part of Future Goal Series. ASSET ALLOCATION - THE CONCEPT EXPLAINED The investor has an option to invest in two or more of the eligible Scheme(s) under the Asset Allocation Programme to allocate his investment across different asset classes at the time of investment. The allocation would differ for different investor classes at different stages of their lifecycle for example a young investor may typically invest more in higher return higher risk assets like equities. Each investment type has a different level of risk and potential return associated with it. One way of reducing risk over short periods of time is to spread/allocate the investment into different investment types i.e. asset allocation between different asset classes i.e. different scheme(s). Different investment types tend to experience good performance at different times. By not having all the investment in one asset class, a unit holder can offset the higher returns expected in one investment to offset any poor performance that may occur from another asset class. A diversified programme such as The Future Goals Asset Allocation Programme attempts to overcome the

176 inherent volatility of any particular investment types and will typically enable the unit holder to invest across equity, fixed income products and short-term money market/cash products. Asset Allocation takes diversification one step further. It seeks to find what proportions of equity and debt investments work together most efficiently to achieve the highest return possible for a certain level of risk. While asset allocation cannot guarantee a profit, it is a way for most unitholders to increase potential returns and reduce risk. The asset allocation programme works on the following principles: Allocation of investment to different asset classes by the unit holder at the time of investment Rebalancing the portfolio at periodic intervals by the AMC to maintain the stated proportion in the same applicable ratio as stated by the unit holder at the time of original investment unless changed. The rebalancing mechanism at periodic intervals would ensure that if there are changes in the market value of assets under a certain class causing the proportion of investment in that asset class to increase/decrease from the originally stated allocation, on the rebalancing date, the AMC would add/ reduce assets in that class. Therefore, on all rebalancing dates, the asset proportion ratio would match those indicated by the unit holder at the time of original investment. Example: The concept of asset allocation is further clarified through an illustrative example. Investor A invests Rs 1,00,000 in the following proportion on January 1, 2009 and the reallocation date is on a half yearly basis: January 1, 2009 Proportion NAV per unit No. of units Amount (Rs) Growth Fund 50% Income Fund 30% Balanced 10% MIP Fund 10% Total 100% In the period between the date of which the investment is made and the date of rebalancing i.e. June 30, 2009, the markets react and the values of the Investment of Investor A are valued as follows: Reallocation date (before reallocation) Proportion NAV per unit No. of units Amount (Rs) Growth Fund 57% Income Fund 27% Balanced 8% MIP Fund 8% Total 100% The unit holder s assets will then be rebalanced i.e. assets in some scheme(s) will be bought by the sales proceeds of other scheme(s) by way of inter scheme switch, to bring the total investment of the unit holder back to the originally nominated proportion: Proportion NAV per unit No. of units Amount (Rs) Growth Fund 50% Income Fund 30% Balanced 10% MIP Fund 10% Total 100% The features of Future Goals - Asset Allocation Programme are as explained below:

177 Minimum Number Of Schemes In Which The Unitholder Must Invest Under the asset allocation programme, a unitholder must invest in and remain invested in at least two Scheme(s). At the discretion of the AMC it may introduce further schemes into the Future Goals - Asset Allocation Programme at a later date or may increase the minimum number of scheme(s) that the unitholder should invest in. Investment Direction The unitholder must at the time of investment indicate the investment direction that he/she wishes to opt for. This would mean that the unitholder must mark the percentage of the total investment that he/she would like to invest in each of the Scheme(s). Example: Mr. X, age 45 is a unitholder who wishes to have a regular income stream but also some possible upside. His choice may be as below: Growth Income Balanced MIP Total 25% 50% 15% 10% 100% Ms. Y, age 30 is a unitholder who is willing to take a larger risk but would like to have a high return that is also tax efficient. Her choice may be as follows: Growth Income Balanced MIP Total 60% 8% 30% 2% 100% Every unitholder must at the time of investment provide details about the investment direction that he/she wishes to follow. At any time (subject to 4 times in a Calendar year) during the investment period as stated in the switching clause the unitholder may change / alter the investment direction keeping the total at 100%. The unitholder may switch or simply instruct the new scheme wise percentage to the AMC for altering the investment direction. The Investment Manager would also be designing model portfolios representing different Scheme(s) of the Fund, containing debt and equity, and therefore the models would vary in their degree of return potential. The unitholder may select a model that matches his risk tolerance with his need for the income and growth potential. The unitholder must send any change in investment direction duly signed in writing to the Fund. It will be the endeavour of the AMC to process the change in investment direction as soon as possible. The maximum time that the AMC can take (under normal circumstances) to change the investment direction of the unitholder is 3 Business Days. Minimum Investment Amount The minimum investment amount for participating in the Future Goals - Asset Allocation Programme is Rs. 10,000 and in multiples of Re.1 with subsequent investment of Rs.1000 and in multiples of Re.1 thereafter. The minimum initial investment requirement for each Scheme would be waived. The AMC reserves the right to reduce or increase this amount at any time or for any group of investors. Switching And Loads The unitholder is allowed four switches (or as may be decided by the AMC) per calendar year between the various Schemes under the Future Goals - Asset Allocation Programme or between various plans within the same Schemes of the programme so as to enable him change the investment direction i.e. the asset proportion ratio. The exit load payable on switch/leaving Scheme (a) will be waived unless the unitholder chooses to withdraw his investment from a minimum of two or more Schemes or otherwise under/from the Programme of the Fund. Any switch would thus have the effect of changing the investment direction. Sales And Load The unitholder can at any time subscribe to the units of the Scheme(s) under the programme either for the first time or otherwise. If the subscription is subsequent to the initial investment, then the unit holder has to specify the investment direction (between two or more Scheme(s) or for a particular Scheme) The subscription would be at applicable NAV based price. If no investment direction is stated then, the original asset proportion direction would be used. Any subscription would thus have the effect of changing the investment direction till the time Automatic Rebalancing is done at the original asset proportion direction. Repurchase And Load The unitholder can at any time seek repurchase / redemption of units of the Scheme(s) under the

178 program either in full or in part for a particular Scheme or Scheme(s). The unitholder can also seek repurchase / redemption of that quantity/amount so as to maintain the same investment direction. The redemption would be at applicable NAV based price (with applicable loads). Any repurchase would thus have the effect of changing the investment direction till the time Automatic Rebalancing is done at the original asset proportion direction. Systematic withdrawals can be set up on a monthly, quarterly, semi annually or annual basis. Withdrawals are drawn from the portfolio in percentages which equate to the percentage of each Scheme held in the portfolio, unless requested otherwise. Automatic Re-balancing Based on the conditions and performance of different Scheme(s) in which the Unitholder has invested and also if he has done any fresh subscription and /or redemption, the proportion/percentage of his investment in different Scheme(s) may change between two dates when Automatic Re-balancing can happen. The AMC would at the end of each calendar half year, i.e., on June 30 and December 31 (immediate next business day in case these days are holidays) of each year or any other date as may be deemed fit and necessary by the AMC for the benefit of unitholders taking into account the market conditions, etc., automatically re-balance the investments of the unitholder in the proportion as stated by the unitholder at the time of original investment, unless changed (maximum upto 4 times in a calendar year) by the unitholder in writing. In alternative to the above, at the choice of the unitholder, rebalancing can be done at prefixed intervals i.e. quarterly, semiannually, annually or by request or any such period as the AMC may permit on specific request of the unitholder. Besides the unitholder also has the option to select the date on which the re-balancing is desired. If no date is selected the regular re-balancing would then be done at a date which would fall after the interval selected from the date of allotment of units. For example, if the period selected by the unitholder is quarterly and his date of allotment is say October 31, 2009, then the re-balancing would be done (if no date is selected) after 90 days on the 91st day from October 31 st,2009 i.e. January 29, If the period & date is not provided, automatic rebalancing will be completed on 30th day of June & 31st day of December, or the following business day if 30th June & 31st December is not a business day. The unitholder can also request no re-balancing of his investments. The re-balancing would be by way of switch between Schemes which may have tax consequences. Automatic Re-balancing assures that the risk/ return mix is within comfort zone. Accounts Statements For normal transactions (other than SIP/SWP) during ongoing sales and repurchase: The AMC shall issue to the investor whose application (other than SIP/STP) has been accepted, an account statement specifying the number of units allotted. The Account Statement shall normally be dispatched within ten business days on an ongoing basis, efforts shall be made to dispatch the Account statements before the regulatory prescribed timelines. For those unitholders who have provided an address, the AMC will send the Account Statement by . The unit holder may request for a physical account statement by writing and submitting it to AMC / ISC / R & T. Accordingly, on receipt of such request Account Statement shall be provided to the investors within five working days from date of such receipt. Account Statements shall reflect the latest closing balance and value of units prior to the date of generation of Account Statement. For SIP/ STP transactions: Account Statement for SIP and STPwill be dispatched once every quarter ending March, June, September and December within 10 working days of the end of the respective quarter A soft copy of the Account Statement shall be mailed to investors under SIP/STP to their address on a monthly basis, if so mandated by the Investor. However, the first Account Statement under SIP/STP shall be issued within 10 working days of the initial investment / transfer In case of specific request received from investors, Mutual Funds shall provide the account statement (SIP/STP) to the investors within 5 working days from the receipt of such request without any charges. Annual Account Statement: The Mutual Funds shall provide the Account Statement to the Unitholders who have not transacted during the last six months prior to the date of generation of account statements. The Account Statement shall reflect the latest closing balance and value of the Units prior to the date of generation of the account statement,

179 The account statements in such cases may be generated and issued along with the Portfolio Statement or Annual Report of the Scheme. Alternately, soft copy of the account statements shall be mailed to the investors address, instead of physical statement, if so mandated. Account Number: Each unit holder will have an account number. The number of units allotted to a unit holder or repurchased by a unit holder will be reflected in his or her account and a statement/advice to this effect will be issued to the unit holder. Common Account Number: As a unit holder friendly measure, (unless otherwise requested by the unit holder), one Common Account Number will be assigned for one entity/investor investing in different schemes of the Fund. In such a case, one consolidated account statement will be provided. The AMC reserves the right to assign the existing Common Account Number against multiple applications and/or subsequent purchases under a new application form by an existing unit holder, with identical mode of holding and address. Account Statement An Account or Transaction Statement reflecting the unit balance of the unitholder will be mailed to the unitholder by ordinary post, after every financial transaction is effected. The Account Statement shall not be construed as a proof of title and is only a computer-printed statement indicating the details of transactions under the scheme and is a non-transferable document. The Account Statement shall normally be dispatched within three business days on an ongoing basis. Unit Certificates Normally no unit certificates will be issued under the Scheme(s). However, if the unit holder so desires, the AMC shall issue a non-transferable unit certificate to the unit holder within 30 days of the receipt of request for the certificate. The cost of stamp duty paid for issuing the unit certificate will form part of the annual on-going expenses and/or may be recovered from the unit holder. Units With Depository Units of the Scheme(s) may, if decided by the AMC, be held with a depository. Under such circumstances, units will be dematted in accordance with the provisions of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996, as may be amended from time to time. If the units of the Scheme(s) is admitted for dematerialization with the Depositories, the unit holders will have the option to convert their existing units into dematerialized mode, accordingly an existing unitholder having an account statement who may wish to seek dematerialization of their Units, would have to submit a request with his/her Depository Participant alongwith the account statement issued by the Fund. The same number of Units held in the physical mode shall be continued in the demat mode. Requests for dematerialisation shall be processed within the thirty days or such other days as may be stipulated under SEBI Regulations from the date of receipt of such a request, provided it is complete and valid in all respects. The expenses incurred by the AMC in dematting of the referred units may be recovered from unitholders or may be charged to the scheme(s) as per annual recurring expenses. Dividend Policy Rematerialisation of Demat Units. The unitholders who converted their units in demat mode may also rematerialize their units. The request for rematerialising the demat Units may be given to the respective Depository Participant (DP) of the investor. On receiving the confirmation of demat Units balance, account statement for the physical Units shall be issued. The same number of Units held in the demat mode shall be continued in the physical mode. Rematerialisation of demat Units shall be processed within the thirty days or such other days as may be stipulated under SEBI Regulations from the date of receipt of such a request, provided it is complete and valid in all respects. In the interest of the Scheme(s) and the unit holders the AMC/Trustees may consider providing returns to the unit holders at appropriate times by way of periodic declaration of dividend and /or bonus units under the Scheme(s) after providing for all necessary recurring and other expenses. Distribution of dividend is subject to availability and adequacy of distributable surplus and approval of the Trustees. Quantum of dividend and the record date will be fixed by the Trustee and dividend so decided shall be paid, subject to availability of distributable surplus Only those unit holders whose names appear in the register of unit holders as on the record date

180 will be entitled for dividend and/or bonus units. This date will be fixed by the AMC/Trustees appropriately. The dividend warrants and/or fresh Account Statement with the bonus units shall be dispatched / credited to the unit holders within 30 days or such stipulated period of the declaration of dividend/bonus units. Dividends will be paid net of taxes as may be applicable, and payments will be in favour of the Unit holder s registered name or, if there is more than one registered holder, of the first named registered holder on the original application form. The Trustees may not declare a dividend at all in the event of inadequacy of distributable income. There is no assurance or guarantee to unit holders as to the periodicity of dividend and rate of dividends distribution. All benefits accruing/earned/received under the Scheme(s) in respect of income (not included in NAV), capital reserves and surpluses, if any, at the time of its/their declaration or otherwise under the Scheme(s) shall be available only to the Unit holders who hold units at the time of its/their declaration. Redemption Since distribution of dividend and /or bonus units shall be paid from the distributable surplus, the NAV of the Scheme(s) shall be adjusted to the extent of dividend paid and/or bonus issued. Repurchase Procedure The units of the Scheme(s) can be repurchased (sold back to the Fund) on any business day. The repurchase request can be made on Application Form/Common Transaction form or by using the relevant tear off section of the Transaction Slip that may be enclosed with the Account Statement, which should be submitted at any of the Official Point of Acceptance. Where the date of redemption is a holiday / non business day, the deemed date for such redemption will be the next business day. In case the units are standing in the names of more than one unit holder, where mode of holding is specified as jointly, repurchase requests will have to be signed by all the joint holders. However, in cases of holding specified as either/anyone or survivor, any one of the joint holders (in case of either/anyone or survivor) will have the power to make repurchase request. However, in all cases, the repurchase proceeds will be paid to the first named holder only. In case a unit holder has subscribed to units on more than one Business Day (either through continuation in case of existing unit holder, or through subsequent subscriptions), the units subscribed to prior in time (that is those units which have been held for the longest period of time), will be deemed to have been repurchased first, that is on a First -In -First-Out basis. However, a unit holder may request the Fund to repurchase units subscribed by him/her at different dates, by indicating the specific date of subscription of the units, which is offered for repurchase. The repurchase request can be made by specifying the Rupee amount or by specifying the number of units to be repurchased. If a repurchase request is for both a specified Rupee amount and a specified number of units, the specified rupee amount will be considered the definitive request. If only the repurchase amount is specified by the unit holder, the AMC will divide the repurchase amount so specified by the applicable NAV based price to arrive at the number of units. The request for repurchase of units could also be in fractions, up to three decimal places. If the number of Units held by the Investor as per the records maintained by AMC and/or the Registrar is less than the number of Units requested to be redeemed then, all the Units held by the Unit holder in such folio / Scheme / plan for which application for Redemption is made, shall be redeemed. Provided that, where redeem all is specified in the request, all Unit holdings in that Scheme shall be redeemed. The AMC reserves the right to change the minimum repurchase amount on a prospective basis subject to SEBI Regulations. Unit holders may also request for repurchase of their entire holding and close the account by indicating the same at the appropriate place in the Transaction Slip/Repurchase form. Repurchase Price The repurchase price will be calculated using the following formula: Repurchase Price = Applicable NAV*(1 Exit Load, if any). Example for calculation of Repurchase Price If the Applicable NAV is Rs and a 1.00% exit load is charged the repurchase price will be calculated as follows: Repurchase Price = Rs x (1-1.00% of Rs ) = Rs Re = Rs per unit The repurchase price shall not be lower than 93% of the NAV

181 The AMC reserves the right to modify the exit load or levy a different exit load for any individual(s) or group of investors. However, any such change in the load structure shall be only on a prospective basis. The unit holder is requested to confirm the applicable exit load at the time of investment from the AMC/OPT. Repurchase by NRI s/ FIIs Credit balances in the account of an NRI/FII will be subject to any procedures laid down by the RBI. Such repurchase proceeds will be paid by means of a rupee cheque payable to the designated NRE/ NRO account of the unit holder or by a US dollar (or any other currency) draft drawn at the exchange rates prevailing at that time and subject to RBI procedures and approvals and subject to deduction of tax at source, as applicable. All bank charges in connection with such payment will have to be borne by the unit holder and/or the Scheme(s) by way of ongoing expenses. The Fund will not be liable for any delays or for any loss on account of exchange fluctuations, while converting the rupee amount in US Dollar or any other currency. Payment of Repurchase Proceeds The time limit set for dispatch of repurchase proceeds will be from the Business Day when the request is accepted at the Official Point of Acceptance. As per the SEBI Regulations, the Fund shall mail the repurchase proceeds within ten Business Days from the date of acceptance of valid request at any of the Official Point of Acceptance, in case of a repurchase request being sent by post. In the event of failure to dispatch the repurchase or repurchase proceeds within the statutory period specified above as per the SEBI Regulations, the AMC shall be liable to pay interest to the unit holders at such rate (currently 15% per annum) as may be specified by SEBI for the period of such delay. Electronic Credit Clearing Services (ECS) Identified Banks ECS is a facility offered by RBI for facilitating better customer service by direct credit of dividend or repurchase amount to a unit holder s bank account through electronic credit. This helps in avoiding loss of dividend or repurchases warrant in transit or fraudulent encashment. The Fund will endeavour to arrange such facility for payment of dividend/repurchase proceeds to the unit holders. However, this facility is optional for the unit holders. Repurchase proceeds may be released through the ECS facility to unit holders residing in any of the cities where such a facility is available. In order to avail the above facility, the unit holder will have to give a written request to the Registrar. If the unit holder has opted for the ECS facility his/her bank branch will directly credit the amount due to them in their account whenever the payment is through ECS. The Registrar will send a separate advice to the unit holder informing them of the direct credit. It may be noted that there is no commitment from the Fund that this facility will be made available to the unit holders for payment of dividend/repurchase proceeds. While the Fund will endeavour in arranging the facility it will be dependent on various factors including sufficient demand for the facility from unit holders at any centre, as required by the authorities. In places where such a facility is not available or if the facility is discontinued by the Fund for any reason the repurchase warrants will be mailed to the unit holder. Unit holder's Bank Account Details Unit holders are on a mandatory basis required to mention their bank account details in their applications/ requests for redemption. Redemption Cheques and/or any other instruments will then be made out in favour of the Bank for crediting the respective unit holder's account so specified. The normal processing time may not be applicable in situations where such details are not provided by unit holders. The AMC will not be responsible for any loss arising out of fraudulent encashment of cheques and delay/loss in transit. Delay in payment of redemption / repurchase proceeds The policy regarding reissue of repurchased units, including the maximum extent, the manner of reissue, Closure of Unit holder s Account Unit holders may note that the AMC at its sole discretion may close a unit holder s account after giving notice of 45 days, if at the time of any part repurchase, the value of units (represented by the units in the unit holder s account if such repurchase were to take place, valued at the applicable NAV related price), falls below the minimum investment/balance required for each scheme (or such other amount as the AMC may decide from time to time) or where the units are held by a unit holder in breach of any Regulation. The Asset Management Company shall be liable to pay interest to the unit holders at such rate as repurchase proceeds may be specified by SEBI for the period of such delay 15% per annum). Presently the AMC does not intend to reissue the repurchased units. The trustee reserves the right to reissue the repurchased units at a later date after issuing adequate public notices and taking approvals, if any, from SEBI

182 the entity (the scheme(s) or the AMC) involved in the same. Restrictions, if any, on the right to freely retain or dispose of units being offered. The Units of the Scheme(s) are not transferable. In view of the same, additions/ deletion of names will not be allowed under any folio of the Scheme(s). The above provisions in respect of deletion of names will not be applicable in case of death of unit holder (in respect of joint holdings) as this is treated as transmission of units and not transfer. RIGHT TO LIMIT REPURCHASES The AMC may, in the general interest of the unit holders of the Scheme(s), keeping in view the unforeseen circumstances/unsure conditions, limit the total number of units which may be repurchased on any Business Day to 15% (5% in case of Principal Emerging Bluechip Fund) of the total number of units of the Scheme(s) (or such higher percentage as the AMC may decide in any particular case). Any units which by virtue of these limitations are not repurchased on a particular Business Day will be carried forward for repurchase to the next Business Day, in order of receipt. Repurchases so carried forward will be priced on the basis of the Repurchase Price of the Business Day on which repurchase is made. Under such circumstances, to the extent multiple repurchase requests are received at the same time on a single Business Day, repurchase will be made on pro-rata basis, based on the size of each repurchase request, the balance amount being carried forward for repurchase to the next Business Day(s). POSSIBLE DEFERRAL OF REDEMPTION/ REPURCHASE REQUESTS Whilst every effort will be made to ensure that the Scheme(s) will have sufficient liquidity to enable the repurchase cheques to be collected/dispatched within the deadline stated in the foregoing clause, unit holders should note that where the Scheme(s) is obliged to arrange for the disposal of the underlying securities/borrow, in order to satisfy redemption/repurchase requests, unit holders may experience some delays in receiving repurchase cheques, reflecting the time involved in settling the underlying sales of securities/borrowing. However in any case, the Fund will ensure that the collection/dispatch of repurchase cheques is not delayed beyond ten working days (when Principal Mutual Fund is open for business) from the date of receipt of the repurchase request in accordance with Regulation 53(b) of the Securities and Exchange Board of India (Mutual Funds) Regulations, SUSPENSION OF SALE/REPURCHASE/SWITCH OPTIONS OF THE UNITS The Fund at its sole discretion reserves the right to withdraw sale, repurchase and/or switch of the units under the scheme(s), temporarily or indefinitely, if in the opinion of the AMC the general market conditions are not favourable. However, the suspension of sale/repurchase/switch either temporarily or indefinitely will be made applicable only after the approval of the Board of Directors of the AMC and Trustee. The approval from the AMC Board and the Trustees giving details of circumstances and justification for the proposed action shall also be informed to SEBI in advance. The sale, repurchase and switch of the units may be temporarily suspended under any or all of the following conditions : - If the stock/money markets stop functioning or trading is restricted - Under uncertain conditions when the market (capital/stock/money etc become extremely volatile and the AMC so decides in the best interest of the unit holders) - Declaration of war or occurrence of insurrection, civil commotion or any other serious or sustained financial, political or industrial emergency or disturbance or any natural calamity - In extreme cases or complete breakdown or dislocation of business in the financial markets. - Breakdown in the means of communication used for the valuation of investments in the Scheme(s), without which the value of the securities held in the Scheme(s) cannot be accurately calculated. - In the event of any force majeure or disaster that affects the normal functioning of the AMC or the ISC - SEBI by order so permits - During the period of Book Closure/Record Date - On a requisition made by three-fourth s of the unit holders. - If AMC views that enhancement in the size of the corpus further may prove detrimental to the existing unit holders of the Scheme(s)

183 C. PERIODIC DISCLOSURES Net Asset Value This is the value per unit of the scheme(s) on a particular day. You can ascertain the value of your investments by multiplying the NAV with your unit balance. Half yearly Disclosures: Portfolio / Financial Results This is a list of securities where the corpus the scheme is currently invested. The market value of these investments is also stated in the language of the region where the head office of the mutual fund is located. Half Yearly Results Annual Report Associate Transactions The Mutual Fund shall declare the Net asset value of the scheme(s) on every business day on AMFI s website by 9.00 p.m. (time limit for uploading NAV as per applicable guidelines) and also on their website. In case of delay, the reasons for such delay would be explained to AMFI in writing. NAVs would however be endeavoured to be made available before commencement of business hours of the following business day, failing which a press release explaining the material reasons for nonavailability would be released. In the event NAV cannot be calculated and/or published because of suspension of trading on the BSE/NSE/RBI, during the existence of a state of emergency and/or a breakdown in communications, the AMC may suspend calculation and/or publication of NAV, etc of the units. The Mutual fund shall publish a complete statement of the scheme(s) portfolio and the unaudited financial results, within one month from the close of each half year (i.e. 31st March and 30th September), by way of an advertisement at least, in one National English daily and one regional newspaper in the language of the region where the head office of the mutual fund is located. The mutual fund may opt to send the portfolio statement to all unit holders in lieu of the advertisement (if applicable). The fund shall before the expiry of one month from the close of each half year that is on 31st March and on 30th September, publish its unaudited financial results in one national English daily newspaper and in a regional newspaper published in the language of the region where the Head Office of the mutual fund is situated. In addition the Fund shall mail / (if any address is provided with the consent of the unit holder) or publish the complete portfolio to the investors before the expiry of one month from 31st March and 30th September each year. These shall also be displayed on the website of the Mutual Fund and that of AMFI. The Fund will mail / (if an address is provided with the consent of the unit holder) within four months from the date of closure of the relevant accounts year i.e. 31st March each year, an abridged scheme wise annual report of the Fund. The Full Annual Report will be available on written request from the unit holder and will be available at the Corporate Office of the AMC for inspection. Please refer to Statement of Additional Information (SAI). Taxation The information is provided for general information only. However, in view of the individual nature of the implications, each investor is advised to consult his or her own tax advisors/authorised dealers with respect to the specific amount of tax and other implications arising out of his or her participation in the schemes. Particulars Resident Investors Mutual Funds Tax on Dividend Nil Nil Capital Gain: Long Term Nil Short Term 15% + applicable surcharge, Nil education cess and secondary & higher education cess Where the Fund receives any income from investments made in overseas jurisdiction, the same may be subject to withholding tax (or any other tax) in the relevant jurisdiction from which the income is received. As the fund is exempted from its entire income (including foreign income) in India, credit/refund in respect of such foreign taxes withheld/paid by the fund will not be available. Nil Upon redemption of the units, securities transaction tax would be payable by the unit applicable rates. Investor services For Further details on taxation please refer to the clause of Taxation in the SAI. For any enquiries and/or queries or complaints in respect of any terms and conditions of/investments in the scheme(s), the investors are advised to address a suitable communication to AMC and marked to the attention of Head Customer Services - Ms. Kashmira Kalwachwala at customer@principalindia.com. Written communications may also be forwarded to Principal Mutual Fund at Maker Bhawan 2, 1 st Floor, 18 Sir Vithaldas Thackersey Marg, New Marine Lines Mumbai India alternatively faxed at Our customer service executives can also be reached at the following contact:

184 D. COMPUTATION OF NAV The NAV of the Scheme(s) for each option at any time shall be determined by dividing the net assets of the Scheme(s) by the number of outstanding units on the valuation date. NAV per unit = expenses - (Market / Fair Value of Securities + Accrued Income + Receivables+ other assets+ unamortised issue Accrued Expenses payables-other liabilities) No. of units outstanding of the scheme / option The NAV will be calculated up to two decimals (in case of Principal Index Fund upto four decimals). The NAVs will be declared on every Business Day by 9.00 p.m. The computation of Net Asset Value, valuation of assets, computation of applicable Net Asset Value (related price) for repurchase, switch and their frequency of disclosure shall be based upon a formula in accordance with the Regulations and as amended from time to time including by way of Circulars, Press Releases, or Notifications issued by SEBI or the Government of India to regulate the activities and growth of Mutual Funds. The dividend paid on units under the Dividend Option of the Fund shall be deducted in computing the NAV of the units under the Dividend Option, each time a dividend is declared and till it is distributed. Consequently, once the dividend is distributed, the NAV of the units will always remain lower than the NAV of the units under the Growth Option. The income earned and profits realized attributable to the units under the Growth Option shall remain invested and shall be deemed to have remained invested in the Growth Option (exclusive of the units under the Dividend Option) and would be reflected in the NAV of the units under the Growth Option. The valuation of a Scheme s assets and calculation of a Scheme s NAV shall be subject to audit on an annual basis and such regulations as may be prescribed by SEBI from time to time. V. FEES AND EXPENSES A. Annual Scheme Recurring Expenses The AMC has estimated the below mentioned expenses expressed as a percentage to the daily average net assets of the Scheme(s) which will be charged to the Scheme(s) as expenses. For the actual current expenses being charged, the investor should refer to the website of the mutual fund. The estimated expenses under the Scheme(s), is as per the table below: Name of the Scheme(s) Principal Resurgent India Equity Fund, Principal Growth Fund, Principal Dividend Yield Fund, Principal Large Cap Fund, Principal Services Industries Fund, Principal Emerging Bluechip Fund Principal Index Fund Nature of Expenses % of average daily net assets % of average daily net assets Investment Management and Advisory Fees Trustee Fees Custodian Fees/Depository Charges Registrar and Transfer Agent Fees Costs related to investor communications, costs of Fund transfer from one location to another, cost of providing account statements and dividend repurchase cheques and warrants, costs of statutory advertisements. Marketing and Selling Expenses Audit Fees Total Annual Recurring Expenses These estimates have been made in good faith by the AMC as per the information available to AMC the investment manager, based on the past experience and are subject to change inter-se. The expenses may be more than as specified in the table above, but the total recurring expenses that can be charged to the Scheme will be subject to limits prescribed from time to time under the SEBI Regulations. Expenses over and above the permissible limits will be borne by the AMC and/or the Trust and/ or the sponsor. The purpose of the above table is to assist the unitholder in understanding the various costs and expenses that a unitholder in the Scheme will bear directly or indirectly. Expenses over and above the limits prescribed under the SEBI Regulations shall be borne by the AMC

185 As per the SEBI Regulations, the maximum recurring expenses including the investment management and advisory fee that can be charged to the Scheme(s), excluding Principal Index Fund, shall be subject to a percentage limit of Average Weekly net assets as given in the table below. First Rs.100 Crs Next Rs. 300 Crs Next Rs. 300 Crs Balance Assets As per the SEBI Regulations, the AMC is entitled to an Investment Management and Advisory fee at the rate of 1.25% per annum of the Weekly average net assets outstanding in each accounting year for the Scheme(s), as long as the net assets do not exceed Rs. 100 crore and 1.00% of the excess amount over Rs. 100 crore, where net assets so calculated exceed Rs. 100 crore. In case of Principal Index fund, pursuant to SEBI Circular SEBI/IMD/CIR No. 9/108562/07 dated November 16, 2007, the maximum recurring expenses including the Investment Management and Advisory Fees that can be charged to the Scheme shall not exceed one and one half percent (1.5%) of the weekly average net assets of the Scheme and the investment management and advisory fees shall not exceed three fourths of one percent (0.75%) of the weekly average net assets of the Scheme Subject to the SEBI Regulations and this Document, expenses over and above the prescribed ceiling will be borne by the AMC and/or by Sponsor and/or Trust. The Fund shall strive to reduce the level of these expenses so as to keep them well within the maximum limits currently allowed by SEBI and any revision in the said expenses limits by SEBI would be applicable. B. Load Structure TYPE OF LOAD: LOAD CHARGEABLE (AS %AGE OF NAV) Entry Load: Nil Exit Load: For All Scheme(s) excluding Principal Index Fund :- For investment amount less than or equal to Rs. 5 crores if redeemed on or before 3 years from the date of allotment 1% For investment amount greater than Rs. 5 crores if redeemed on or before 10 days from date of allotment 1% For Principal Index Fund:- For investment amount less than or equal to Rs. 5 Crores - if redeemed on or before 30 days from the date of allotment 1%. For investment amount greater than Rs 5 Crores - if redeemed on or before 10 days from the date of allotment 1% In case if the date of redemption is a holiday / non business day, the deemed redemption date will be the next business day. In accordance with the requirements specified by the SEBI circular no. SEBI/IMD/CIR No.4/168230/09 dated June 30, 2009 inter alia no entry load will be charged with respect to applications for registrations under Systematic Investment Plans / Systematic Transfer Plans accepted by the Fund with effect from August 01, Upfront commission on investment made by the investor, if any, shall be paid to the ARN Holder directly by the investor, based on the investor s assessment of various factors including service rendered by the ARN holder. Further, with effect from August 01, 2009, exit load/ CDSC (if any) up to 1% of the redemption value charged to the unit holder by the Fund on redemption of units shall be retained by each of these scheme(s) in a separate account and will be utilized for payment of commissions to the ARN Holder and to meet other marketing and selling expenses. Any amount in excess of 1% of the redemption value charged to the unit holder as exit load/ CDSC shall be credited to the respective scheme immediately. Load structure is variable and are subject to change from time to time, in alignment with provisions of the relevant SEBI Regulations/Guidelines. The investor is requested to check the prevailing load structure of the scheme(s) before investing. The same is also hosted/updated on the Principal website - or an investor may call at ( ) or his/her distributor. Bonus Units and units issued on reinvestment of dividends shall not be subject to exit load. Load on switch out will be same as exit load applicable to the respective schemes. E.g. Repurchase Price = Applicable NAV (*1- Exit Load, if any). Therefore, the Repurchase Price would be Rs x (1-1.00% of Rs ) = Rs The AMC reserves the right to change/modify exit / switchover load / CDSC, depending upon the circumstances prevailing at any given time on the prospective investments as permissible under the SEBI Regulations

186 The repurchase price shall not be lower than 93% of the NAV and the sale price shall not be higher than 107% of the NAV. However, the difference between the repurchase price and sale price shall not exceed 7% on the sale price, without any discrimination to any specific group of unit holders. However, any change at a later stage shall not affect the existing unit holders adversely. The AMC reserves the right to change/modify exit/switchover load (including zero load), depending upon the circumstances prevailing at any given time. A load structure when introduced by the AMC may comprise of an exit load and/or switchover load as may be permissible under the SEBI Regulations. The load may also be changed from time to time and in the case of an exit load this may be linked to the period of holding. The switchover load may be different for different plans/options and the switchover load may be different from the exit load charged for sale and/or repurchase units. The load charged could also be different as regards the amount/tenor of investment, etc. However, any imposition/enhancement or change in load structure shall be applicable on prospective investment only. The addendum shall be circulated to all the distributors/brokers so that the same can be attached to all Scheme Information Documents and abridged Scheme Information Documents already in stock. The addendum will be circulated to unit holders along with/included in the newsletter sent to unit holders. Further arrangement will be made to make available the changes in the load structure in the form of a notice/any other manner in/at all the investor service centers/distributors/brokers office. Applicable load will be disclosed in the account statement/transaction confirmation statement. The introduction of the exit load/ CDSC alongwith the details may be stamped in the acknowledgement slip issued to the investors on submission of the application form and may also be disclosed in the statement of accounts issued after the introduction of such load/cdsc. The Load, if levied, will be retained in the Scheme(s) in a separate account and used by the Fund/AMC to cover the cost of raising/redeeming units on a continuous basis by way of providing redemption/distribution related services to the Fund relating to the Sale, promotion, advertising and marketing of the units of the Scheme(s) and costs associated with liquidating the Fund s investment Securities, including payments for postage and also payments to brokers for their services in connection with the redemption/distribution of the units. Any surplus in this account may be credited to the scheme(s), whenever felt appropriate by the AMC No exit load shall be chargeable on any transaction/s made by any Fund of Funds Scheme/s managed by Principal Pnb Asset Management Company Pvt. Ltd. or managed by any other Asset Management Company, in any of the existing schemes (or any scheme/s launched from time to time unless specified otherwise) of Principal Mutual Fund. For any change in load structure AMC will issue an addendum detailing the changes and will display it on the website. A public notice shall be given in respect of such changes in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of region where the Head Office of the Mutual Fund is situated. The AMC may also: (i) Attach the Addendum to Scheme Information Documents and Key Information Memorandum or circulate the same to distributors/brokers so that the same can be attached to all Scheme Information Documents and key information memoranda already in stock. (ii) Arrange to display the addendum in the Scheme Information Document in the form of a notice in all the investor service centres and distributors/brokers office. (iii) Stamp Introduction of exit load/ CDSC alongwith the details in the acknowledgement slip issued to the investors on submission of the application form and may disclose it in the statement of accounts issued after the introduction of such load/cdsc. (iv) take other measures which it may feel necessary. IV. RIGHTS OF UNIT HOLDERS Please refer to Statement of Additional Information for details. VI. PENALTIES, PENDING LITIGATION OR PROCEEDINGS, FINDINGS OF INSPECTIONS OR INVESTIGATIONS FOR WHICH ACTION MAY HAVE BEEN TAKEN OR IS IN THE PROCESS OF BEING TAKEN BY ANY REGULATORY AUTHORITY. This section shall contain the details of penalties, pending litigation, and action taken by SEBI and other regulatory and Govt. Agencies. 1. Penalties and action(s) taken against foreign Sponsor(s) may be limited to the jurisdiction of the country Nil where the principal activities (in terms of income / revenue) of the Sponsor(s) are carried out or where the headquarters of the Sponsor(s) is situated. Further, only top 10 monetary penalties during the last three years shall be disclosed. 2. In case of Indian Sponsor(s), details of all monetary penalties imposed and/ or action taken during the last three years or pending with any financial regulatory body or governmental authority, against Sponsor(s) and/ or the AMC and/ or the Board of Trustees /Trustee Company; for irregularities or for violations in the financial services sector, or for defaults with respect to share holders or debenture holders and depositors, or for economic offences, or for violation of securities law. Details of settlement, if any, arrived at with the aforesaid authorities during the last three years shall also be disclosed. Nil

187 3. Details of all enforcement actions taken by SEBI in the last three years and/ or pending with SEBI for the violation of SEBI Act, 1992 and Rules and Regulations framed there under including debarment and/ or suspension and/ or cancellation and/ or imposition of monetary penalty/adjudication/enquiry proceedings, if any, to which the Sponsor(s) and/ or the AMC and/ or the Board of Trustees /Trustee Company and/ or any of the directors and/ or key personnel (especially the fund managers) of the AMC and Trustee Company were/ are a party. The details of the violation shall also be disclosed. 4. Any pending material civil or criminal litigation incidental to the business of the Mutual Fund to which the Sponsor(s) and/ or the AMC and/ or the Board of Trustees /Trustee Company and/ or any of the directors and/ or key personnel are a party should also be disclosed separately. 5. Any deficiency in the systems and operations of the Sponsor(s) and/ or the AMC and/ or the Board of Trustees/Trustee Company which SEBI has specifically advised to be disclosed in the SID, or which has been notified by any other regulatory agency, shall be disclosed. Nil *As mentioned below Nil * There is a legal case pending against Mr. Rajat Jain, Chief Investment Officer of Principal Pnb Asset Management Company Pvt. Ltd. in the Court of Sessions of Greater Bombay. The case was filed at the instance of CBI, Economic Offences Wing, Mumbai pertaining to a matter alleged during Mr. Jain s previous employment with SBI Mutual Fund, prior to his joining Principal Pnb Asset Management Company Pvt. Ltd. The case pertains to the purchase of certain shares at SBI Mutual Fund where Mr. Rajat Jain was, at that time, Chief Investment Officer. Notwithstanding anything contained in this Scheme Information Document, the provisions of the SEBI (Mutual Funds) Regulations, 1996 and the guidelines there under shall be applicable

188 Offices of AMC Identified as Official Point of Acceptance / Investor Service Centres Principal Pnb Asset Management Company Private Limited - Official Point of Acceptance: Mumbai: Maker Bhavan - II, 1st Floor, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai Agra: C/o. PNB - Integrated Zonal Off., 2/3, Raghunath Nagar, M.G. Road, Agra Ahmedabad: 401, Broadway Business Centre, Opp. Samartheshwar Mahadev Temple, Law Garden Cross Road, Ellisbridge, Ahmedabad Ajmer: 55, Ajmer Tower, 1st Floor, Kuchehry Road, Ajmer, Rajasthan Allahabad: 43/1, Sardar Patel Marg, Civil Lines, Near Yatrik Hotel, Allahabad Amritsar: SCO 30-31,1st Floor Deep Complex, Court Road, Opp. Doaba Automobiles, Amritsar Asansol: Safe Savings, Street No.1, House No.2, Hindustan Park, Asansol Bangalore: Raheja Paramount, Unit No. 001 / 1, Gr. Floor, 138, Residency Road, Bangalore Bhubaneshwar: Gr. Floor, O.C.H.C Building, Near Ram Mandir, Janpath, Kharavel Nagar, Bhubaneswar Burdwan: Aykantik, 495, B.C. Road, Beside Proyozone, Burdwan Chandigarh: SCO , 2nd Floor, Sector-35 C, Chandigarh Chennai: 305, Challamal Complex, 3rd Floor, 11 Thiyagaraya Road, Chennai Cochin: 2nd Flr., Mayur Business Center, Pullepady Junction, Chittor Road, Cochin Coimbatore: No. 9, Gowtham Center Annexe, 1054, Avinashi Road, Coimbatore Dehradun: Below Digvijay Cinema, Clock Tower, Dehradun Durgapur: Aykantik, C-SO-10, Central Market, City Centre, Durgapur Goa*: C/o Advani Business Center, Neelkamal Arcade, CL -13, Atmaram Borkar Road, Panjim, Goa Guwahati: 4th Floor, Ganpati Enclave, Bora Service, G.S. Road, Guwahati Hyderabad: White House, 503, 5th Floor, Block No. 1, Begumpet, Hyderabad Indore: 406, City Center, 570, M.G. Road, Indore Jaipur: 305-B, 3rd Floor, Shyam Anukampa Complex, Ashok Marg, C-Scheme, Jaipur Jalandhar: C/o. Punjab National Bank, Nakodar Road, Near Jyoti Chowk, Jalandhar Jamshedpur: 109, Kamani Centre, 3rd Floor, Bistupur, Jamshedpur Jodhpur: Gang Towers, 1st Floor, Upper Chopasani Road, Opp. Arora Motors, Jodhpur Kanpur: , Kan Chambers, Near Stock Exchange Building, 13/114 Civil Lines, Kanpur Kolkata: Block No. 503, SHUBHAM, 5th Floor, 1, Sarojini Naidu Sarani, Kolkata Lucknow: Sky Hi Chambers, S-205, 2nd Floor, 11/5, Park Road, Lucknow Ludhiana: 302, SCO-18, Opp. Ludhiana Stock Exchange, Feroze Gandhi Market, Ludhiana Mangalore*: 1st Floor, Immanuel Building, Near HDFC Bank, Mallikatte, Kadri, Mangalore Nagpur*: Block No.105, 1st Floor, Bhagwaghar Complex, Opposite Ajit Bakery, Dharampeth, Nagpur Nasik*: Dhanlakshmi Business Point, Cabin No. 14/15, 7 Sathye Baug, M.G. Road, Nasik New Delhi: Alps Building,1st Floor, 56 Janpath, New Delhi Patna: 610, Ashiana Hariniwas, Dak Bungalow Road, Patna Pune: 1st Floor, Shreenath Plaza, Dnyaneshwar Paduka Chowk, F. C. Road, Pune Raipur: Shop No , Lalganga Shopping Mall, G.E. Road, Raipur Rajkot: 315, Star Chambers, Harihar Chowk, Panchnath Road, Rajkot Ranchi: Shop No. 11, A C Market, G.E.L. Church Complex, Main Road, Ranchi Siliguri: Nanak Complex, 3rd Floor, Sevoke Road, Siliguri Surat: 206 Jolly Plaza, Athwagate, Surat Udaipur: 301, 3rd Floor, Madhav Tower, Opp. G. P. O., Chetak Circle, Madhuban, Udaipur Vadodara: 103, Paradise Complex, Sayajigunj, Vadodara Visakhapatnam: D.No , 1st Floor-3, Rednam Regency, Near Diomond Park, Dwarkanagar, Visakhapatnam *Note: These locations are not Official Point of Acceptance. Centres of Karvy Computershare Private Limited (R&T to Principal Mutual Fund) which have been identified as Official Point of Acceptance: Agra: Deepak Wasan Plaza, Behind Holiday Inn, Opp. Megdoot Furnitures, Sanjay Place, Agra Ahmedabad: , Shail Buildings, Opp. Madhusudhan House, Off. C. G. Road, Nr. Navrangpura, Telephone Exchange, Ahmedabad Ajmer: 1, 2nd Floor, Ajmer Tower, Kutchary Road, Ajmer Allahabad: RSA Towers, 2nd Floor, Above Sony TV Showroom, 57, S.P. Marg, Civil Lines, Allahabad Amritsar: 72-A, Taylor's Road, Aga Heritage Gandhi Ground, Amritsar Anand: F-6, Chitrangana Complex, Opp. Motikaka Chawl, V.V. Nagar, Anand Aurangabad: Shop No. 214/215, Tapadiya City Centre, Nirala Bazar, Aurangabad Bangalore: No. 51/25, 1st Floor, Surya Building, Ratna Avenue, Richmond Road, Bangalore Bareilly: 1st Floor, 165, Civil Lines, Opp. Hotel Bareilly Palace, Near Rly. Station Road, Bareilly Bhavnagar: 1st Floor, Corporate House, Above Canara Bank, Waghawadi Road, Bhavnagar Bhilai: No.138, New Civic Centre, Bhilai Bhopal: Kay Kay Business Centre, 133, Zone 1, M.P. Nagar, Bhopal Bhubaneshwar: 624, Sahid Nagar, 1st Floor, Bhubaneswar Bokaro: B-1, 1st Floor, Near Sona Chandi Jewellers, City Centre, Sector-4, Bokaro Steel City, Bokaro Burdwan: 63, G.T. Road, Birhata, Halder Complex, 1st Floor, Burdwan Calicut: 2nd Floor, Sowbhagya Shoping Complex, Mavoor Road, Calicut Chandigarh: SCO , 1st Floor, Above HDFC Bank, Sector 35-B, Chandigarh Chennai: Flat No. F11, 1st Floor, Akshya Plaza, Erstwhile Harris Road, Opp. Chief City Metropolitan Court, # 108, Adhithanar Salai, Egmore, Chennai Cochin: Shop No. II, 2nd Floor, Jewel Arcade, (Above Oriental Insurance Ltd), Layam Road, Cochin Coimbatore: 29/1, 1st Floor, Chinthamani Nagar, Opp. Indian Overseas Bank, N.S.R. Road, Saibaba Colony, Coimbatore Cuttack: Dargha Bazar, Opp. Dargha Bazar Police Station, Buxibazar, Cuttack Dalhousie: 19, R.N. Mukherjee Road, 2nd Floor, Dalhousie, Kolkatta Dehradun: Kaulagarh Road, Near Sirmaur Marg, Above Reliance Webworld, Dehradun Dhanbad: 208, New Market, 2nd Floor, Katras Road, Bank More, Dhanbad Durgapur: Old Dutta Automobiles Building, 1st Floor, Nachan Road, Benachity, Durgapur Gorakhpur: Above V.I.P. House, Ajdacent A.D. Girls Inter College, Bank Road, Gorakpur Gurgaon: Shop No. 18, Gr. Floor, Sector-14, Opp. AKD Tower, Near Huda Office, Gurgaon Guwahati: 54 Sagarika Bhawan, R. G. Baruah Road, Guwahati Gwalior: Shindi Ki Chawani, Nadi Gate Pul, M.L.B. Road, Gwalior Hubli: 8 & 9, Upper Gr. Floor, C Block, Akshaya Park, Gokul Road, Hubli Indore: LG - 3, Bombay Trade Centre, Lower Gr. Floor, Grand Hotel, Opp. Bombay Hospital, Scheme No. 54, Indore Jaipur: S-16 A, 3rd Floor, Land mark, Opposite Jaipur Club, Mahavir Marg, C-Scheme, Jaipur Jalandhar: Lower Gr. Floor, Office No. 3, Arora Prime Tower, Plot No : 28, G.T. Road, Jalandhar Jammu: 29 D/C, Near Service Selection Commission Office, Gandhi Nagar, Jammu Jamnagar: 108 Madhav Plaza, Opp. SBI Bank, Near Lal Bangalow, Jamnagar Jamshedpur: Kanchan Tower, 3rd Floor, Chhaganlal Sons, 3-S B Shop Area, Main Road, Bistupur, Jamshedpur Jodhpur: 203, Modi Arcade, Chupasni Road, Jodhpur Kanpur: 15/46, Opp. Muir Mills, Civil Lines, Kanpur Kolkata: 16, Jatin Bagchi Road, Kolkata Kolhapur: 610-A A.K. Vardhaman Chambers, 2nd Lane, Shahupuri, Kolhapur Kottayam: 1st Floor, CSI Ascension Church Complex, Kottayam Lucknow: 94, Mahatma Gandhi Marg, Opp. Governor House, Hazratganj, Lucknow Ludhiana: SCO-3, Bawa Building, Feroze Gandhi Market, Ludhiana Madurai: Rakesh Towers, 30-C, Bye Pass Road, 1st Floor, Opp. Nagappa Motors,

189 Madurai Mangalore: Mahendra Arcade, Gr. Floor, Karangalapani, Kodialbail, Managalore Mehsana: 14-15, Prabhu Complex, Near HDFC Bank, Mehsana Highway, Mehsana Moradabad: Om Arcade, Parker Road, Above Syndicate Bank, Tari Khana Chowk, Moradabad Mumbai: Fort: DAS Chambers, Gr. Floor, Opp. BSE & next to Corporation Bank, Dalal Street, Fort, Mumbai Borivali: Gr. Floor, Himanshu Bldg., Sodawala Lane, Chandawarkar Road, Borivali (West), Mumbai Thane: 1st Floor, Jeevan Chaya Bldg, Near Adidas Show Room, Ram Maruti Road, Thana (W) Mysore: L-350, Silver Tower, Clock Tower, Ashoka Road, Mysore Nagpur: Sadoday Arcade, Above Top N Town, Dharampeth, Nagpur Nasik: S-12, 2nd Floor, Suyojit Sankul, Sharanpur Road, Nasik Navsari: 1st Floor, Chinmay Arcade, Opp. Sattapir, Tower Road, Navsari New Delhi: 2E / 23, Jhandewalan Extn., New Delhi Noida: 307 Jaipuria Plaza, D-68-A, 2nd Floor, Opp. Delhi Public School, Sector 26, Noida Panjim: No.7 & 8, El. Dorado Plaza, Heliodoro Salgado Road, Panjim Patiala: SCO 27-D, Chhoti Baradari, Patiala Patna: 3A, 3rd Floor, Anand Tower, Beside Chankya Cinema Hall, Exhibition Road, Patna Pondicherry: 1st Floor, No.7, Thiayagaraja Street, Pondicherry Pune: Srinath Plaza, C Wing, Office No , 3rd Floor, Dyaneshwar Paduka Chowk, F. C. Road, Pune Raipur: Room No.12 & 13, Gr. Floor, Millennium Plaza, Behind Indian Coffee House, G.E. Road, Raipur Rajkot: 104, Siddhi Vinayak Complex, Dr. Yagnik Road, Opp. Ramkrishna Ashram, Rajkot Ranchi: Commerce Towers, 3rd Floor, Room No. 307, Beside Mahabir Towers, Main Road, Ranchi Salem: 49 / 50, Fort Main Road Old No.17, 1st Floor, Shevapet, Salem Siliguri: Nanak Complex, Near Church Road, Sevoke Road, Siliguri Surat: G-16, Empire State Building, Nr. Udhna Darwaja, Ring Road, Surat Tirunelveli: Jeney Building, 55/18, S. N. Road, Near Arvind Eye Hospital, Tirunelveli Trichur: 2'nd Floor, Brother's Complex, Near Dhana Laxmi Bank Head Office, Naikkanal Junction, Trichur Trichy: 60 Srikrishna Arcade, 1st Floor, Thennur High Road, Trichy Trivandrum: 2nd Floor, Akshaya Towers, Sasthamangalam, Trivandrum Udaipur: , Madhav Chambers, Opp. G. P. O., Chetak Circle, Madhuban, Udaipur Vadodara: Piccadilly, Office # 5, 1st Floor, Opp. Adani Super Market, Jetalpur Road, Vadodara Valsad: Shop No. 2, Phiroza Corner, ICICI Bank Char Rasta, Tithal Road, Valsad Vapi: Shop No. 5, Phikhaji Residency, Opp. DCB Bank, Vapi Silvassa Road, Vapi Varanasi: D-64/132, KA, 1st Floor, Anant Complex, Sigra, Varanasi Vellore: No.1, M.N.R. Arcade, Officer's Line, Krishna Nagar, Vellore Vijayawada: Opp. Municipal Water Tank, Labbipet, Vijayawada Visakhapatnam: /1 Eswar Paradise, Dwaraka Nagar, Main Road, Visakhapatnam Name, Address and Website of Registrar: Karvy Computershare Pvt. Ltd. (Unit: Principal Mutual Fund), KARVY HOUSE, 46, Avenue- 4, Street No. 1, Banjara Hills, Hyderabad Tel.: (040)

190 SCHEME INFORMATION DOCUMENT Principal Monthly Income Plan Principal Income Fund Principal Floating Rate Fund Principal Cash Management Fund Liquid Option Principal Ultra Short Term Fund Principal Money Manager Fund (An Open Ended Fund. Monthly income is not assured and subject to availability of distributable surplus) (An Open Ended Income Scheme) (An Open Ended Income Scheme) (An Open Ended Liquid Scheme) (An Open Ended Debt Scheme) (An Open Ended Liquid Scheme) Principal Government Securities Fund (An Open Ended dedicated Gilt Scheme investing in Government Securities) Continuous offer for Units at NAV based prices (subject to applicable load) Name of Mutual Fund: Name of Asset Management Company: Name of Trustee Company: Principal Mutual Fund Principal Pnb Asset Management Company Private Limited Principal Trustee Company Private Limited Address, Website of the Entities: Principal Mutual Fund Exchange Plaza, 'B' Wing, 2 nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Principal Pnb Asset Management Company Private Limited Exchange Plaza, 'B' Wing, 2 nd Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai Principal Trustee Company Private Limited 1st Floor, Maker Bhavan II, 18, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai Website: customer@principalindia.com Tel. No.: Fax: The particulars of the Scheme(s) have been prepared in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations 1996, (herein after referred to as SEBI (MF) Regulations) as amended till date, and filed with SEBI, along with a Due Diligence Certificate from Principal Pnb Asset Management Company Pvt. Ltd. The units being offered for public subscription have not been approved or recommended by SEBI nor has SEBI certified the accuracy or adequacy of the Scheme Information Document. The Scheme Information Document sets forth concisely the information about the scheme(s) that a prospective investor ought to know before investing. Before investing, investors should also ascertain about any further changes to this Scheme Information Document after the date of this Document from the Mutual Fund / Investor Service Centres / Website / Distributors or Brokers. The investors are advised to refer to the Statement of Additional Information (SAI) for details of Principal Mutual Fund, Tax and Legal issues and general information on SAI is incorporated by reference (is legally a part of the Scheme Information Document). For a free copy of the current SAI, please contact your nearest Investor Service Centre or log on to our website. The Scheme Information Document should be read in conjunction with the SAI and not in isolation. This Scheme Information Document is dated May 21, 2009 for all schemes listed herein excluding Principal Government Securities Fund. The SID for Principal Government Securities Fund has been updated on July 13, Page 1 of 65

191 Table of Contents PARTICULARS PAGE NO. SECTION I HIGHLIGHTS/ SUMMARY OF THE SCHEME(S) 3 SECTION II INTRODUCTION 11 A. RISK FACTORS 11 B. REQUIREMENT OF MINIMUM NUMBER OF INVESTORS IN THE SCHEME(S) 16 C. SPECIAL CONSIDERATIONS 16 D. DEFINITIONS 17 E. DUE DILIGENCE BY THE ASSET MANAGEMENT COMPANY 21 SECTION III INFORMATION ABOUT THE SCHEME(S) 22 A. TYPE OF THE SCHEME(S) 22 B. WHAT ARE THE INVESTMENT OBJECTIVES OF THE SCHEME(S) 22 C. HOW WILL THE SCHEME(S)/PLAN(S) ALLOCATE ITS ASSETS 22 D. WHERE WILL THE SCHEME(S)/PLAN(S) INVEST 25 E. WHAT ARE THE INVESTMENT STRATEGIES 29 F. FUNDAMENTAL ATTRIBUTES 33 G. HOW WILL THE SCHEME BENCHMARK ITS PERFORMANCE 33 H. WHO MANAGES THE SCHEME 33 I. WHAT ARE THE INVESTMENT RESTRICTIONS 34 J. HOW HAS THE SCHEME PERFORMED 35 K. INVESTMENT BY AMC 39 SECTION IV- UNITS AND OFFER 40 A. NFO DETAILS 40 B. ONGOING OFFER DETAILS 40 C. PERIODIC DISCLOSURES 58 D. COMPUTATION OF NAV 59 SECTION V- FEES AND EXPENSES 60 A. ANNUAL SCHEME RECURRING EXPENSES 60 B. LOAD STRUCTURE 61 C. WAIVER OF LOAD FOR DIRECT APPLICATION 62 SECTION VI- RIGHT OF UNITHOLDERS 63 SECTION VII- PENALTIES, PENDING LITIGATION OR PROCEEDINGS, FINDINGS OF INSPECTIONS OR INVESTIGATIONS FOR WHICH ACTION MAY HAVE BEEN TAKEN OR IS IN THE PROCESS OF BEING TAKEN BY ANY REGULATORY AUTHORITY 63 Page 2 of 65

192 SECTION I - HIGHLIGHTS/SUMMARY OF THE SCHEME(S) Principal Monthly Income Plan (An open ended fund. Monthly income is not assured and subject to availability of distributable surplus) Sr. No. Highlights/Summary of the Scheme(s) Principal Monthly Income Plan Principal Monthly Income Plan MIP Plus 1. Investment Objective To generate regular income through Investment objective of Principal Monthly investments in fixed income securities so as to make periodical income distribution to the Unitholders and also to generate long-term capital appreciation by investing a portion of Income Plan - MIP Plus is the same as Principal Monthly Income Plan, however Principal Monthly Income Plan MIP Plus has been designed to cater to investors the Scheme s assets in equity and equity seeking a slightly more aggressive related instruments. exposure to equity markets. 2. Investment Strategy To achieve the investment objective, assets under the Scheme will be invested in wide range of fixed income and money market instruments. The Scheme may also invest a small part of its assets in equity/equity related instruments. Further the Scheme may also invest in financial derivatives such as options and futures & IRS that are permitted or may become permissible under SEBI/RBI Regulations. The proportion of assets to be so invested would be decided by the AMC at the appropriate time, and would be done in accordance with the relevant guidelines to be issued by SEBI/RBI and other authorities. To achieve the investment objective, assets under the Scheme will be invested in wide range of fixed income and money market instruments. The Scheme may also invest a small part of its assets in equity/equity related instruments. Further the Scheme may also invest in financial derivatives such as options and futures & IRS that are permitted or may become permissible under SEBI/RBI Regulations. The proportion of assets to be so invested would be decided by the AMC at the appropriate time, and would be done in accordance with the relevant guidelines to be issued by SEBI/RBI and other authorities. The Monthly Income Plan-MIP Plus will have a separate portfolio from that of Principal Monthly Income Plan. However each of the investment options under the MIP Plus will share a common portfolio. 3. Liquidity Liquidity will be available through sale and repurchase of units on an ongoing basis. Unitholders can subscribe to and get their units repurchased on all business days at NAV related prices. As per SEBI Regulations, the Mutual Fund shall dispatch Redemption proceeds within 10 Business Days of receiving the Redemption request. A penal interest of 15% or such other rate as may be prescribed by SEBI from time to time will be paid in case the redemption proceeds are not dispatched within 10 Business Days of the date of Redemption request. However, under normal circumstances, the Mutual Fund will endeavour to dispatch the Redemption proceeds well before 10 Business Days from the acceptance of the duly completed Redemption request. The Scheme also provides switch facility to move from/to other open ended Schemes of Principal Mutual Fund and interse between Regular and Institutional Plan (if applicable); and the option(s) interse on an ongoing basis at applicable NAV based prices. 4. Benchmark CRISIL MIP Blended Index 5. Transparency / NAV Disclosure The NAV will be calculated by the AMC for each Business Day and released to the Press, News Agencies and the Association of Mutual Funds of India (AMFI). The AMC shall update the NAVs on the website of the Mutual Fund ( and on the website of Association of Mutual Funds in India - AMFI ( by 9.00 p.m. every Business Day. In case of any delay, the reasons for such delay would be explained to AMFI in writing. If the NAVs are not available before commencement of business hours on the following day due to any reasons, a press release shall be issued giving reasons and explaining when the AMC would be able to publish the NAVs. The AMC shall, before the expiry of one month from the close of each half year, i.e. March and September, publish its unaudited financial results in one national English daily newspaper circulating in the whole of India and in a newspaper published in the language of the region where the Head office of the Fund is situated. These shall also be displayed on the website of the Mutual Fund and that of AMFI. Full portfolio in the prescribed format shall also be disclosed either by publishing it in the newspapers or by sending to the Unit Holders within one month from the end of each half-year and it shall also be displayed on the website of the Fund. 6. Loads Entry Load: Nil (including Systematic Exit Load: For investment amount less than or equal to Rs. 10 lacs % if redeemed on Investment Plans / or before 540 Days from the date of allotment. For investment amount more than Rs. 10 Systematic Transfer Lacs and upto Rs 1 Crore - 1% if redeemed on or before 365 Days from the date of Plan / Systematic allotment. For investment amount greater than Rs 1 Crore - Nil. Withdrawal Plan if available) 7. Minimum Application Rs and amount thereafter under each plan/option Amount (New Investor) 8. Minimum Application Rs. 500 and amount thereafter under each plan/option Page 3 of 65

193 Amount (Existing Investor) 9. Minimum Amount under Systematic Investment Plan (SIP) 10. Minimum Redemption Amount 11. Investment Plan(s)/Option(s) 12. Asset Allocation Pattern Minimum six installments of Rs. 500 each Rs. 500 or 50 units The scheme has two plans i.e. Dividend and Growth. Further, Dividend Plan has the facility of Payout, Reinvestment and Sweep (into an open ended scheme), while Growth Option has facility of Auto Earning Payout and Accumulation. Both these plans will share a common Portfolio. Under normal circumstances, the asset allocation would be as follows: Under normal circumstances, the asset allocation would be as follows: Type of Instrument Debt & Money Market Instruments (including Securitised Debt upto 50%) Equity/Related Instruments Normal Allocation (% of Net Assets) Upto 100% Upto 15% Risk Profile Low to medium Medium to High Type of Instrument Debt Securities (including Securitized Debt upto 50%) Equity and Equity Related Instruments Normal Allocation (% of Net Assets) Upto 100% Upto 25% Risk Profile Low to medium Medium to High Investment in derivatives shall be upto 35% of the net assets of the Scheme. Investment in ADRs / GDRs shall be not exceeding 15% of the Scheme s assets. Investment in Overseas Financial Debt Instruments including units of Overseas Mutual Funds shall not be exceeding 25% of the Scheme s assets. Investment in derivatives shall be upto 35% of the net assets of the Scheme. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. 13. Fund Manager Pankaj Tibrewal Sr. Highlights/Summary No. of the Scheme(s) 1. Investment Objective Principal Income Fund (An open ended income scheme) Principal Income Fund Principal Income Fund Short Term Plan To generate regular income and capital appreciation/ accretion through investment in debt instruments and related securities besides preservation of capital. Investment objective of Principal Income Fund Short Term Plan is the same as Principal Income Fund. However Principal Income Fund Short Term Plan has been designed to achieve stable returns over shorter-term investment horizons. 2. Investment Strategy The scheme will aim to invest its assets in a portfolio of debt instruments and related securities of government, quasi-government, corporate issuers and money market instruments with varying risks rated investment grade or higher or otherwise comparable (if not rated). Page 4 of 65 The Short Term Plan aims to invest its assets in a portfolio of debt instruments and related securities of government, quasi-government, corporate issuers and money market instruments (rated investment grade or higher or other-wise comparable, if not rated) with average residual maturity of upto 36 months and varying risks. The Plan has a separate portfolio from Principal Income Fund. However each investment option under the Short Term Plan will have a common portfolio. 3. Liquidity Liquidity will be available through sale and repurchase of units on an ongoing basis. Unitholders can subscribe to and get their units repurchased on all business days at NAV related prices. As per SEBI Regulations, the Mutual Fund shall dispatch Redemption proceeds within 10 Business Days of receiving the Redemption request. A penal interest of 15% or such other rate as may be prescribed by SEBI from time to time will be paid in case the redemption proceeds are not dispatched within 10 Business Days of the date of Redemption request. However, under normal circumstances, the Mutual Fund will endeavour to dispatch the Redemption proceeds well before 10 Business Days from the acceptance of the duly completed Redemption request. The Scheme also provides switch facility to move from/to other open ended Schemes of Principal Mutual Fund and interse between Regular and Institutional Plan (if applicable); and the option(s) interse on an ongoing basis at applicable NAV based prices. 4. Benchmark CRISIL Composite Bond Fund Index CRISIL Short Term Bond Fund Index

194 5. Transparency / NAV Disclosure The NAV will be calculated by the AMC for each Business Day and released to the Press, News Agencies and the Association of Mutual Funds of India (AMFI). The AMC shall update the NAVs on the website of the Mutual Fund ( and on the website of Association of Mutual Funds in India - AMFI ( by 9.00 p.m. every Business Day. In case of any delay, the reasons for such delay would be explained to AMFI in writing. If the NAVs are not available before commencement of business hours on the following day due to any reasons, a press release shall be issued giving reasons and explaining when the AMC would be able to publish the NAVs. The AMC shall, before the expiry of one month from the close of each half year, i.e. March and September, publish its unaudited financial results in one national English daily newspaper circulating in the whole of India and in a newspaper published in the language of the region where the Head office of the Fund is situated. These shall also be displayed on the website of the Mutual Fund and that of AMFI. Full portfolio in the prescribed format shall also be disclosed either by publishing it in the newspapers or by sending to the Unit Holders within one month from the end of each half-year and it shall also be displayed on the website of the Fund. 6. Loads (including Systematic Investment Plans / Systematic Transfer Plan / Systematic Withdrawal Plan if available) Particulars Regular Plan Institutional Plan Entry Exit Load Load Nil 1.50% if redeemed on or before 365 days from date of allotment Nil Nil Particulars Regular Plan Institutional Plan Entry Exit Load Load Nil 0.25% if redeemed on or before 90 days from date of allotment Nil Nil 7. Minimum Application Amount (New Investor) 8. Minimum Application Amount (Existing Investor) Regular Plan Rs. 5,000 and any amount thereafter under each option Regular Plan Rs. 500 and any amount thereafter under each option Institutional Plan Rs. 10 lakh and any amount thereafter under each option Institutional Plan Rs. 1 lakh and any amount thereafter under each option Regular Plan Rs. 5,000 and any amount thereafter under each option Regular Plan Rs. 500 and any amount thereafter under each option Institutional Plan Rs. 10 lakhs and any amount thereafter under the plan, with a minimum of Rs.1 lakh in each option. Institutional Plan Rs. 1 lakh and any amount thereafter under each option 9. Minimum Amount under Systematic Investment Plan (SIP) 10. Minimum Redemption Amount 11. Investment Plan(s)/Option(s) 12. Asset Allocation Pattern Minimum Six installments of Rs.500/- each Regular Plan Rs. 500 or 50 units Institutional Plan Rs or 100 units It has two plans i.e Regular Plan and Institutional Plan. Both these plans will share a common Portfolio. Both plans have Dividend and Growth Option. The Dividend Option under Regular plan has the frequency of Quarterly, Half- Yearly & Annual dividend. The Dividend Option under Institutional plan has the frequency of Quarterly dividend. The Dividend Option has the facility of Payout, Reinvestment and Sweep, while Growth Option has facility of Auto Earning Payout and Accumulation. Under normal circumstances, the asset allocation would be as follows: Minimum Six installments of Rs.500/- each Regular Plan Rs. 500 or 50 units Institutional Plan Rs or 100 units It has two plans i.e Regular Plan and Institutional Plan. Both these plans will share a common Portfolio. Both Plans have Dividend and Growth Option. The Dividend Option under Institutional Plan has frequency of weekly and monthly dividend. The Dividend Option has the facility of Payout, Reinvestment and Sweep, while Growth Option has facility of Auto Earning Payout and Accumulation Under normal circumstances, the asset allocation would be as follows: Types of Instruments Debt Securities Money Market Instruments Normal Allocation (% of Net Assets) Upto 100% Upto 100% Risk Profile Low to Medium Low Types of Instruments Debt Securities (including securitised debt upto 50%) Normal Allocation (% of Net Assets) Upto 100% Risk Profile Low to Medium Page 5 of 65

195 Securitised Debt Upto 50% Low to Medium Money Market Instruments Upto 100% Low Investment in derivatives shall be upto 35% of the net assets of the Scheme. Investment in Overseas Financial Debt Instruments including units of Overseas Mutual Funds shall not be exceeding 25% of the Scheme s assets. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Investment in derivatives shall be upto 35% of the net assets of the Scheme. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. 13. Fund Manager Badrish Kulhalli Sr. No. Highlights/Summary of the Scheme(s) Principal Floating Rate Fund (an open ended income scheme) Principal Floating Rate Fund Flexible Maturity Plan Principal Floating Rate Fund Short Maturity Plan 1. Investment Objective To generate income consistent with the prudent risk from a portfolio comprising substantially of floating rate debt instruments, fixed rate debt instruments swapped for floating rate return, and also fixed rate instruments and money market instruments. 2. Investment Strategy The aim of the investment manager will be to allocate the assets of the scheme between various fixed rate securities and floating rate securities and use derivatives like swaps and FRAs with the objective of achieving stable returns. The scheme will endeavor to minimize interest rate risk. 3. Liquidity Liquidity will be available through sale and repurchase of units on an ongoing basis. Unitholders can subscribe to and get their units repurchased on all business days at NAV related prices. As per SEBI Regulations, the Mutual Fund shall dispatch Redemption proceeds within 10 Business Days of receiving the Redemption request. A penal interest of 15% or such other rate as may be prescribed by SEBI from time to time will be paid in case the redemption proceeds are not dispatched within 10 Business Days of the date of Redemption request. However, under normal circumstances, the Mutual Fund will endeavour to dispatch the Redemption proceeds well before 10 Business Days from the acceptance of the duly completed Redemption request. The Scheme also provides switch facility to move from/to other open ended Schemes of Principal Mutual Fund and interse between Regular and Institutional Plan (if applicable); and the option(s) interse on an ongoing basis at applicable NAV based prices. 4. Benchmark CRISIL Liquid Fund Index 5. Transparency / NAV Disclosure 6. Loads (including The NAV will be calculated by the AMC for each Business Day and released to the Press, News Agencies and the Association of Mutual Funds of India (AMFI). The AMC shall update the NAVs on the website of the Mutual Fund ( and on the website of Association of Mutual Funds in India - AMFI ( by 9.00 p.m. every Business Day. In case of any delay, the reasons for such delay would be explained to AMFI in writing. If the NAVs are not available before commencement of business hours on the following day due to any reasons, a press release shall be issued giving reasons and explaining when the AMC would be able to publish the NAVs. The AMC shall, before the expiry of one month from the close of each half year, i.e. March and September, publish its unaudited financial results in one national English daily newspaper circulating in the whole of India and in a newspaper published in the language of the region where the Head office of the Fund is situated. These shall also be displayed on the website of the Mutual Fund and that of AMFI. Full portfolio in the prescribed format shall also be disclosed either by publishing it in the newspapers or by sending to the Unit Holders within one month from the end of each half-year and it shall also be displayed on the website of the Fund. Page 6 of 65 The NAV will be calculated by the AMC for each Calendar Day and released to the Press, News Agencies and the Association of Mutual Funds of India (AMFI). The AMC shall update the NAVs on the website of the Mutual Fund ( and on the website of Association of Mutual Funds in India - AMFI ( by 9.00 p.m. In case of any delay, the reasons for such delay would be explained to AMFI in writing. If the NAVs are not available before commencement of business hours on the following day due to any reasons, a press release shall be issued giving reasons and explaining when the AMC would be able to publish the NAVs. The AMC shall, before the expiry of one month from the close of each half year, i.e. March and September, publish its unaudited financial results in one national English daily newspaper circulating in the whole of India and in a newspaper published in the language of the region where the Head office of the Fund is situated. These shall also be displayed on the website of the Mutual Fund and that of AMFI. Full portfolio in the prescribed format shall also be disclosed either by publishing it in the newspapers or by sending to the Unit Holders within one month from the end of each half-year and it shall also be displayed on the website of the Fund.

196 Systematic Investment Plans / Systematic Transfer Plan / Systematic Withdrawal Plan if available) Particulars Regular Plan Institutional Plan Entry Load Nil Nil Exit Load Nil Nil Particulars Regular Plan Institutional Plan Entry Load Nil Nil Exit Load Nil Nil 7. Minimum Application Amount (New Investor) Regular Plan Rs. 5,000 and any amount thereafter under each option Institutional Plan Rs. 1 crore and any amount thereafter under each option, with a minimum of Rs. 1 lakh in each option Regular Plan Rs. 5,000 and any amount thereafter under each option Institutional Plan Rs. 1 crore and any amount thereafter under each option, with a minimum of Rs. 1 lakh in each option 8. Minimum Application Amount (Existing Investor) Regular Plan Rs. 500 and any amount thereafter under each option Institutional Plan Rs. 1 lakh and any amount thereafter under each option Regular Plan Rs. 500 and any amount thereafter under each option Institutional Plan Rs. 1 lakh and any amount thereafter under each option 9. Minimum Amount under Systematic Investment Plan (SIP) 10. Minimum Redemption Amount 11. Investment Plan(s)/Option(s) Minimum Six installments of Rs.500/- each Regular and Institutional Plan Rs. 500 or 50 units It has two plans i.e Regular Plan and Institutional Plan. Both these plans will share a common Portfolio Both plans have Dividend and Growth Option. The Dividend Option under both Regular and Institutional Plans have the frequency of Daily, Weekly and Monthly. The Dividend Option has the facility of Payout, Reinvestment and Sweep. Minimum Six installments of Rs.500/- each Regular and Institutional Plan Rs. 500 or 50 units It has two plans i.e Regular Plan and Institutional Plan. Both these plans will share a common Portfolio. Both plans have Dividend and Growth Option. The Dividend Option under both Regular and Institutional Plans have the frequency of Daily, Weekly and Monthly. The Dividend Option has the facility of Payout, Reinvestment and Sweep. 12. Asset Allocation Pattern Under normal circumstances, the asset allocation would be as follows: Under normal circumstances, the asset allocation would be as follows: Types of Instruments Floating Rate Debt Instruments* Normal Allocation (% of Net Assets) 65 to 100% Risk Profile Low to Medium Types of Instruments Floating Rate Debt Instruments* Normal Allocation (% of Net Assets) 65 to 100% Risk Profile Low Fixed Rate Debt Instruments 0 to 35% Low to Medium Fixed Rate Debt Instruments 0 to 35% Low *Floating rate instruments include fixed rate instruments swapped for floating rate returns. Upto 100% of the net assets of the Scheme may be invested in Securitised Debt. Investment in Overseas Financial Debt Instruments including units of Overseas Mutual Funds not exceeding 75% of the Scheme s assets (subject to maximum of US $300 million) or such other limit as specified by SEBI from time to time. The scheme will not invest more than 50% of its assets in the purchase of Securitised Indices, Financial future contracts etc. The fund shall take exposure on a non-leveraged basis. Page 7 of 65 *Floating rate instruments include fixed rate instruments swapped for floating rate returns. Upto 100% of the net assets of the Scheme may be invested in Securitised Debt. Investment in Overseas Financial Debt Instruments including units of Overseas Mutual Funds not exceeding 75% of the Scheme s assets (subject to maximum of US $300 million) or such other limit as specified by SEBI from time to time. The scheme will not invest more than 50% of its assets in the purchase of Securitised Indices, Financial future contracts etc. The fund shall take exposure on a non-leveraged basis. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the

197 Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Scheme in Stock Lending. Pursuant to the SEBI circular dated January 19, 2009 the Scheme can make investment in / purchase Debt and Money Market Instruments with the maturity of up to 91 days only. 13. Fund Manager Badrish Kulhalli Sr. No. Highlights/Summary of the Scheme Principal Cash Management Fund Liquid Option (an open ended liquid scheme) Principal Money Manager Fund (an open ended liquid scheme) 1. Investment Objective To provide investors with as high a level of income available from short-term investments as is considered consistent with preservation of capital and maintenance of liquidity, by investing in a portfolio of money market and investment grade debt instruments To generate steady return by investing in debt and money market securities. 2. Investment Strategy The scheme will invest its assets in a portfolio of money market instruments. The investments will be in securities, which the Investment Manager believes present minimal liquidity and/or credit risks. The portfolio will be predominantly invested in overnight repo, CBLO, floating rate instruments and other fixed income instruments. 3. Liquidity Liquidity will be available through sale and repurchase of units on an ongoing basis. Unitholders can subscribe to and get their units repurchased on all business days at NAV related prices. As per SEBI Regulations, the Mutual Fund shall dispatch Redemption proceeds within 10 Business Days of receiving the Redemption request. A penal interest of 15% or such other rate as may be prescribed by SEBI from time to time will be paid in case the redemption proceeds are not dispatched within 10 Business Days of the date of Redemption request. However, under normal circumstances, the Mutual Fund will endeavour to dispatch the Redemption proceeds well before 10 Business Days from the acceptance of the duly completed Redemption request. The Scheme also provides switch facility to move from/to other open ended Schemes of Principal Mutual Fund and interse between Regular and Institutional Plan (if applicable); and the option(s) interse on an ongoing basis at applicable NAV based prices. 4. Benchmark CRISIL Liquid Fund Index 5. Transparency / NAV Disclosure The NAV will be calculated by the AMC for each Calendar Day and released to the Press, News Agencies and the Association of Mutual Funds of India (AMFI). The AMC shall update the NAVs on the website of the Mutual Fund ( and on the website of Association of Mutual Funds in India - AMFI ( by 9.00 p.m. In case of any delay, the reasons for such delay would be explained to AMFI in writing. If the NAVs are not available before commencement of business hours on the following day due to any reasons, a press release shall be issued giving reasons and explaining when the AMC would be able to publish the NAVs. 6. Loads (including Systematic Investment Plans / Systematic Transfer Plan / Systematic Withdrawal Plan if available) 7. Minimum Application Amount (New Investor) The AMC shall, before the expiry of one month from the close of each half year, i.e. March and September, publish its unaudited financial results in one national English daily newspaper circulating in the whole of India and in a newspaper published in the language of the region where the Head office of the Fund is situated. These shall also be displayed on the website of the Mutual Fund and that of AMFI. Full portfolio in the prescribed format shall also be disclosed either by publishing it in the newspapers or by sending to the Unit Holders within one month from the end of each half-year and it shall also be displayed on the website of the Fund. Particulars Entry Load Exit Load Regular Plan Nil Nil Institutional Nil Nil Plan Institutional Nil Nil Premium Plan Online Subscription Plan Nil Nil Regular Plan Rs. 5,000 and any amount thereafter under each option Institutional Plan Rs. 1 crore and any amount thereafter under the plan, with a minimum of Rs. 1 lakh in each option Institutional Premium Plan Rs. 10 crores and any amount thereafter under the plan, with a minimum of Rs. 1 lakh in each option Online subscription plan Rs. 1000/- and amount thereafter any Particulars Regular Plan Institutional Plan Regular Plan Rs. 5,000 and any amount thereafter under each option Entry Load Nil Nil Exit Load Nil Nil Institutional Plan Rs. 1 crore and any amount thereafter under the plan, with a minimum of Rs. 1 lakh in each option Page 8 of 65

198 8. Minimum Application Amount (Existing Investor) Regular Plan Rs and any amount thereafter under each option Institutional Plan Rs. 1 lakh and any amount thereafter under each plan Institutional Premium Plan Rs. 1 lakh and any amount thereafter under each plan Online subscription plan Rs. 1000/- and any amount thereafter Regular Plan Rs and any amount thereafter under each option Institutional Plan Rs. 1 lakh and any amount thereafter under each plan 9. Minimum Amount under Systematic Investment Plan (SIP) 10. Minimum Redemption Amount 11. Investment Plan(s)/Option(s) 12. Asset Allocation Pattern Minimum Six installments of Rs.500/- each Regular, Institutional and Institutional Premium Plan - Rs or 100 units. Under Online Subscription Plan Rs. 1000/- and any amount thereafter It has four plans i.e Regular Plan, Institutional Plan, Institutional Premium Plan and Online Subscription Plan. All these plans will share a common Portfolio. Regular, Institutional and Institutional Premium Plans have Dividend and Growth Option. The Dividend Option under the plans will have the frequency of Daily, Weekly and Monthly. The Dividend Option has the facility of Payout, Reinvestment and Sweep. No investment options available under Online Subscription Plan. Subject to availability of distributable surplus the Trustees may declare dividend on daily basis and the dividend so declared will be reinvested in the units of the Plan. Under normal circumstances, the asset allocation would be as follows: Types of Instruments Call / Term Money / Repos / Reverse Repos / Deposits with Banks Bill Rediscounting Other equivalent Money Market Instruments Debt (including Securitised Debt) instruments other than those above Normal Allocation (% of Net Assets) Upto 100% Upto 50% Upto 100% Upto 50% Risk Profile Low to medium Low to medium Very Low Low to medium The Scheme may upto 35% of the net assets of the Scheme invest in Derivatives. The Scheme may also invest in Overseas financial debt instruments including units of overseas mutual funds not exceeding than 25% of the net assets of the Scheme. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Pursuant to the SEBI circular dated January 19, 2009 the Scheme can make investment in / purchase Debt and Money Market Instruments with the maturity of up to 91 days only. Minimum Six installments of Rs.500/- each Regular and Institutional Plan Rs or 100 units It has two plans i.e Regular Plan and Institutional Plan. Both these plans will share a common Portfolio. Both plans have Dividend and Growth Option. The Dividend Option under both Regular and Institutional Plans have the frequency of Daily, Weekly and Monthly (28 th of each calendar month). The Dividend Option has the facility of Payout, Reinvestment and Sweep. Under normal circumstances, the asset allocation would be as follows: Type of instrument Debt Instruments & Money Market Instruments (Including MIBOR linked instruments with daily put and call option) Normal Allocation (% of Net Assets) Upto 100% Risk Profile Low to Medium Investment in Securitised Debt may be up to 50% of the net assets of the Scheme. The Scheme may also invest up to 50% of net assets of the Scheme in such derivative instruments as may be introduced from time to time for the purpose of hedging and portfolio balancing and other uses as may be permitted under the SEBI (Mutual Funds) Regulations, Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Pursuant to the SEBI circular dated January 19, 2009 the Scheme can make investment in / purchase Debt and Money Market Instruments with the maturity of up to 91 days only. 13. Fund Manager Badrish Kulhalli Page 9 of 65

199 Sr. No. Highlights/Summary of the Scheme(s) Principal Ultra Short Term Fund (an open ended debt scheme) Principal Government Securities Fund (an open ended dedicated gilt scheme investing in government securities) 1. Investment Objective To generate regular income through investments in debt securities and money market instruments. 2. Investment Strategy The net assets of the Scheme will be invested in debt securities and money market instruments. This Scheme is suitable for investors having a short-term investment horizon and seek high levels of liquidity for their investments. This Scheme would endeavor to preserve capital and offer relatively higher return and with relatively moderate liquidity. To generate returns through investment in sovereign securities and thus provide capital gains and income distribution to its Unit holders. To achieve the investment objective, assets under the Scheme will be invested solely in government securities. However to meet temporary liquidity needs the Scheme may invest in overnight call money /notice money/bank deposits and/or repos. The Scheme may also invest a part of its assets in financial derivatives such as options and futures & IRS (comprising of government securities) that are permitted or may become permissible under SEBI/RBI Regulations. The proportion of assets to be so invested would be decided by the AMC at the appropriate time, and would be done in accordance with the relevant guidelines to be issued by SEBI/RBI and other authorities. 3. Liquidity Liquidity will be available through sale and repurchase of units on an ongoing basis. Unitholders can subscribe to and get their units repurchased on all business days at NAV related prices. As per SEBI Regulations, the Mutual Fund shall dispatch Redemption proceeds within 10 Business Days of receiving the Redemption request. A penal interest of 15% or such other rate as may be prescribed by SEBI from time to time will be paid in case the redemption proceeds are not dispatched within 10 Business Days of the date of Redemption request. However, under normal circumstances, the Mutual Fund will endeavour to dispatch the Redemption proceeds well before 10 Business Days from the acceptance of the duly completed Redemption request. The Scheme also provides switch facility to move from/to other open ended Schemes of Principal Mutual Fund and interse between Regular and Institutional Plan (if applicable); and the option(s) interse on an ongoing basis at applicable NAV based prices. 4. Benchmark CRISIL Liquid Fund Index Investment Plan: I-Sec Composite Index 5. Transparency / NAV Disclosure The NAV will be calculated by the AMC for each Business Day and released to the Press, News Agencies and the Association of Mutual Funds of India (AMFI). The AMC shall update the NAVs on the website of the Mutual Fund ( and on the website of Association of Mutual Funds in India - AMFI ( by 9.00 p.m. every Business Day. In case of any delay, the reasons for such delay would be explained to AMFI in writing. If the NAVs are not available before commencement of business hours on the following day due to any reasons, a press release shall be issued giving reasons and explaining when the AMC would be able to publish the NAVs. The AMC shall, before the expiry of one month from the close of each half year, i.e. March and September, publish its unaudited financial results in one national English daily newspaper circulating in the whole of India and in a newspaper published in the language of the region where the Head office of the Fund is situated. These shall also be displayed on the website of the Mutual Fund and that of AMFI. Full portfolio in the prescribed format shall also be disclosed either by publishing it in the newspapers or by sending to the Unit Holders within one month from the end of each half-year and it shall also be displayed on the website of the Fund. 6. Loads (including Systematic Investment Plans / Systematic Transfer Plan / Systematic Withdrawal Plan if available) 7. Minimum Application Amount (New Investor) 8. Minimum Application Amount (Existing Investor) 9. Minimum Amount under Systematic Particulars Regular Plan Entry Load Nil Page 10 of 65 Exit Load Nil Rs and any amount thereafter under each plan Rs and any amount thereafter under each plan Minimum Six installments of Rs.500/- each Particulars Entry Load Exit Load Investment Nil 1% if Plan redeemed on or before 365 days from the date of allotment Rs. 5,000 and any amount thereafter under each option except Auto Earnings payout option where minimum is Rs Subsequent investment of Rs. 500 and any amount thereafter under each option Minimum Six installments of Rs.500/- each

200 Investment Plan (SIP) 10. Minimum Redemption Amount 11. Investment Plan(s)/Option(s) 12. Asset Allocation Pattern Rs or 100 units Regular Plan, Institutional Plan and Institutional Premium Plan As on date Institutional Plan and Institutional Premium Plan are not available. Under normal circumstances, the asset allocation would be as follows: Rs. 500 or 50 units Only one plan viz. Investment Plan. The said plan offers Dividend Option and Growth Option. The Dividend Option has the facility of Payout, Reinvestment and Sweep. The Growth Option offers Accumulation and Auto Earning Payout. Under normal circumstances, the asset allocation would be as follows: Type of Instrument Debt Instruments & Money Market Instruments (Including MIBOR linked instruments with daily put and call option) Normal Allocation (% of Net Assets) Up to 100% Risk Profile Low to Medium Type of Instrument Government Securities Normal Allocation (% of Net Assets) Upto 100% Risk Profile Low to Medium Investment in derivatives shall be upto 35% of the net assets of the Scheme. The scheme would invest in such instruments which have an average maturity of up to one year. Investment in Securitised Debt may be up to 50% of the net assets of the Scheme. The Scheme may also invest up to 50% of net assets of the Scheme in such derivative instruments as may be introduced from time to time for the purpose of hedging and portfolio balancing and other uses as may be permitted under the SEBI (Mutual Funds) Regulations, Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. 13. Fund Manager Badrish Kulhalli SECTION II. INTRODUCTION A. RISK FACTORS Standard Risk Factors: Investment in Mutual Fund Units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal. As the price / value / interest rates of the securities in which the scheme(s) invests fluctuates, the value of your investments in the scheme(s) may go up or down. As with any investment in stocks, shares and securities, the NAV of the Units under the Scheme(s) can go up or down, depending on the factors and forces affecting the capital markets. Past performance of the Sponsor/AMC/Mutual Fund does not guarantee future performance of the scheme(s). The name of the scheme(s) and does not in any manner indicates either the quality of the scheme(s) or its future prospects and returns. The sponsor or any of its associates including co-settlors are not responsible or liable for any loss resulting from the operation of the scheme(s) beyond the initial contribution of 25 lakhs made towards setting up the Fund. The present scheme(s) are not a guaranteed or assured return scheme(s). Page 11 of 65

201 Specific Risk Factors: Applicable to all scheme(s):- Risk Associated with Investing in Debt and/or Money Market Instruments- Price-Risk or Interest-Rate Risk: Fixed income securities such as bonds, debentures and money market instruments run pricerisk or interest-rate risk. Generally, when interest rates rise, prices of existing fixed income securities fall and when interest rates drop, such prices increase. The extent of fall or rise in the prices is a function of the existing coupon, days to maturity and the increase or decrease in the level of interest rates. Credit Risk: In simple terms this risk means that the issuer of a debenture/ bond or a money market instrument may default on interest payment or even in paying back the principal amount on maturity. Even where no default occurs, the price of a security may go down because the credit rating of an issuer goes down. It must, however, be noted that where the Scheme(s) has invested in Government Securities, there is no credit risk to that extent. Re-investment Risk: Investments in fixed income securities may carry re-investment risk as interest rates prevailing on the interest or maturity due dates may differ from the original coupon of the bond. Consequently, the proceeds may get invested at a lower rate. Interest Rate Movement (Basis Risk): The changes in the prevailing rates of interest will likely affect the value of the Schemes holdings until the next reset date and thus the value of the Schemes' Units will be affected. Increased rates of interest, which frequently accompany inflation and/ or a growing economy, are likely to have a negative effect on the value of the Units. The value of securities held by the Scheme(s) generally will vary inversely with changes in prevailing interest rates. The fund could be exposed to the interest rate risk (i) to the extent of time gap in resetting of the benchmark rates, and (ii) to the extent the benchmark index fails to capture the interest rate movement. Prepayments and Charge Offs Risk: In the event of prepayments, investors may be exposed to changes in tenor and yield. Also, any Charge Offs would result in the reduction in the tenor of the Pass Through Certificates (PTCs). Spread Risk: In a floating rate security the coupon is expressed in terms of a spread or mark up over the benchmark rate. However depending upon the market conditions the spreads may move adversely or favourably leading to fluctuation in NAV. Risk Associated with Investing in Equities (applicable where the asset allocation pattern of the Scheme(s) provides such investment) The value of Schemes investments may be affected by factors affecting the Securities markets and price and volume volatility in the capital markets, interest rates, currency exchange rates, changes in law/policies if the Government, taxation laws and political, economic or other developments which may have an adverse bearing on individual securities, a specific sector or all sectors. Consequently, the NAV of the units of the Scheme(s) may be affected. Equity & Equity related securities are volatile and prone to price fluctuations on a daily basis. The liquidity of investments made in the Scheme(s) may be restricted by trading volumes and settlement periods. Settlement periods may be extended significantly by unforeseen circumstances. The inability of the Scheme(s) to make intended securities purchases due to settlement problems could cause the Scheme(s) to miss certain investment opportunities. Similarly, the inability to sell securities held in the Schemes portfolio may result, at times, in potential losses to the Scheme(s), should there be a subsequent decline in the value of securities held in the Schemes portfolio. The liquidity and valuation of the Schemes investments due to the holdings of unlisted securities may be affected if they have to be sold prior to the target date of disinvestment. Securities which are not quoted on the stock exchanges are inherently illiquid in nature and carry a larger liquidity risk in comparison with securities that are listed on the exchanges or offer other exit options to the investors, including put options. The liquidity of the schemes is inherently restricted by trading volumes in securities in which it invests. Investment decisions made by the Investment Manager may not always be profitable. Risks associated with Investing in Foreign Securities (applicable where the asset allocation pattern of the Scheme(s) provides such investment) Subject to necessary approvals and within the investment objectives, the Scheme(s) may invest in overseas markets which carry risks related to fluctuations in the foreign exchange rates, the nature of the securities market of the country, repatriation of capital due to exchange controls and political circumstances. It is the AMC s belief that investment in foreign securities offers new investment and portfolio diversification opportunities into multimarket and multi-currency products. However, such investments also entail additional risks. Such investment opportunities may be pursued by the AMC provided they are considered appropriate in terms of the overall investment objectives of the Scheme(s). Since the Scheme(s) would invest only partially in foreign securities, there may not be readily available and widely accepted benchmarks to measure performance of the Scheme(s). To manage risks associated with foreign currency and interest rate exposure, the Fund may use derivatives for efficient portfolio management including hedging and in accordance with conditions as may be stipulated under the Regulations or by RBI from time to time. The Scheme(s) may invest in ADR/GDR/Foreign Securities/overseas financial debt instruments including units of overseas mutual funds and / or other securities as may be permissible and described in SEBI Circular Reference No. SEBI/IMD/CIR NO. 7/104753/07 dated September 26, 2007 as may be amended from time to time, within the overall applicable limits and within the Scheme(s) specific asset allocation pattern. Page 12 of 65

202 Overseas investments will be made subject to any/all approvals, conditions thereof as may be stipulated under the Regulations or by RBI and provided such investments do not result in expenses to the Scheme(s) in excess of the ceiling on expenses prescribed by and consistent with costs and expenses attendant to international investing. The Fund may, where necessary, may appoint other intermediaries of repute as advisors, custodian/sub custodians etc. for managing and administering such investments. The appointment of such intermediaries shall be in accordance with the applicable requirements of SEBI and within the permissible ceilings of expenses. The fees and expenses would illustratively include, besides the investment management fees, custody fees and costs, fees of appointed advisors and sub-managers, transaction costs and overseas regulatory costs. To the extent that the assets of the Scheme(s) will be invested in securities denominated in foreign currencies, the Indian Rupee equivalent of the net assets, distributions and income may be adversely affected by changes in the value of certain foreign currencies relative to the Indian Rupee. The repatriation of capital to India may also be hampered by changes in regulations concerning exchange controls or political circumstances as well as the application to it of other restrictions on investment. Risks associated with Investing in Derivatives (applicable where the asset allocation pattern of the Scheme(s) provides for such investment) Derivative products are leveraged instruments and can provide disproportionate gains as well as disproportionate losses to the investor. Execution of such strategies depends upon the ability of the fund manager to identify such opportunities. Identification and execution of the strategies to be pursued by the fund manager involve uncertainty and decision of fund manager may not always be profitable. No assurance can be given that the fund manager will be able to identify or execute such strategies. The risks associated with the use of derivatives are different from or possibly greater than, the risks associated with investing directly in securities and other traditional investments. The AMC may use various derivative products, as permitted by SEBI and the RBI from time to time, in an attempt to optimize the value of the portfolio and enhance Unit holder s interest/value of the Scheme(s). As and when the Scheme(s) trades in the derivatives market, there are risk factors and issues concerning the use of derivatives that investors should understand. Derivative products are specialized instruments that require investment techniques and risk analysis different from those associated with stocks and bonds. The use of a derivative requires an understanding not only of the underlying instrument but also of the derivative itself. Derivatives require the maintenance of adequate controls to monitor the transactions entered into, the ability to assess the risk that a derivative adds to the portfolio and the ability to forecast price or interest rate movements correctly. There is the possibility that a loss may be sustained by the portfolio as a result of the failure of another party (usually referred to as the counter party ) to comply with the terms of the derivatives contract. The Scheme(s) bears a risk that it may not be able to correctly forecast future market trends or the value of assets, indices or other financial or economic factors in establishing derivative positions for the Scheme(s). Other risks in using derivatives include the risk of mispricing or improper valuation of derivatives and the inability of derivatives to correlate in line with underlying assets, rates and indices. Also, the market for derivative instruments is relatively nascent in India and does not have the volumes which may be seen in other developed markets, which may result in volatility to the values. Derivatives require the maintenance of adequate controls to monitor the transactions and the embedded market risks that a derivative adds to the portfolio. Besides the price of the underlying asset, the volatility, tenor and interest rates affect the pricing of derivatives. Other risks in using derivatives include but are not limited to: (a) Credit Risk this occurs when a counterparty defaults on a transaction before settlement and therefore, the Scheme(s) is compelled to negotiate with another counter party, at the then prevailing (possibly unfavorable) market price, in order to maintain the validity of the hedge. For exchange traded derivatives, the risk is mitigated as the exchange provides a guaranteed settlement but one takes the performance risk on the exchange. (b) Market Liquidity risk where the derivatives cannot be sold (unwound) at prices that reflect the underlying assets, rates and indices. (c) Model Risk, the risk of mis pricing or improper valuation of derivatives. d) Basis Risk This risk arises when the instrument used as a hedge does not match the movement in the instrument/ underlying asset being hedged. The risks may be inter-related also; for e.g. interest rate movements can affect equity prices, which could influence specific issuer/industry assets. Trading in derivatives carry a high degree of risk although they are traded at a relatively small amount of margin which provides the possibility of great profit or loss in comparison with the principal investment amount. The Scheme(s) may find it difficult or impossible to execute derivative transactions in certain circumstances. For example, when there are insufficient bids or suspension of trading due to price limit or circuit breakers, the Scheme(s) may face a liquidity issue. Interest Rate Swaps (IRS) are highly specialized instruments that require investment technique and risk analysis different from those associated with equity shares and other traditional securities. The use of a IRS requires not only an understanding of the referenced asset, reference rate, or index but also of the swap itself, without the benefit of observing the performance of the swap under all possible market conditions. Swap agreements are also subject to liquidity risk, which exists when a particular swap is difficult to purchase or sell. Swap agreements may be subject to pricing risk, which exists when a particular swap becomes extraordinarily expensive (or cheap) relative to historical prices or the prices of corresponding cash market instruments. IRS agreements are also subject to counterparty risk on account of insolvency or bankruptcy or failure of the counterparty to make required payments or otherwise comply with the terms of the agreement. Risks associated with investing in Securitised Debt (applicable where the asset allocation pattern of the Scheme(s) provides for such investment). The Scheme(s) may invest in domestic securitised debt such as Asset Backed Securities (ABS) or Mortgage Backed Securities (MBS). Asset Backed Securities (ABS) are securitised debts where the underlying assets are receivables arising from various loans including automobile loans, personal loans, loans against consumer durables, etc. Mortgage Backed Securities (MBS) are securitised debts where the underlying assets are receivables arising from loans backed by mortgage of residential / commercial Page 13 of 65

203 properties. ABS/ MBS instruments reflect the undivided interest in the underlying pool of assets and do not represent the obligation of the issuer of ABS/MBS or the originator of the underlying receivables. The ABS/MBS holders have a limited recourse to the extent of credit enhancement provided. If the delinquencies and credit losses in the underlying pool exceed the credit enhancement provided, ABS/MBS holders will suffer credit losses. ABS/MBS are also normally exposed to a higher level of reinvestment risk as compared to the normal corporate or sovereign debt. At present in Indian market, following types of loans are securitised: Auto Loans (cars / commercial vehicles / two wheelers) Residential Mortgages or Housing Loans Consumer Durable Loans Personal Loans Corporate Loans The main risks pertaining to each of the asset classes above are described below: Auto Loans (cars / commercial vehicles /two wheelers) The underlying assets (cars etc) are susceptible to depreciation in value whereas the loans are given at high loan to value ratios. Thus, after a few months, the value of asset becomes lower than the loan outstanding. The borrowers, therefore, may sometimes tend to default on loans and allow the vehicle to be repossessed. These loans are also subject to model risk. ie if a particular automobile model does not become popular, loans given for financing that model have a much higher likelihood of turning bad. In such cases, loss on sale of repossession vehicles is higher than usual. Commercial vehicle loans are susceptible to the cyclicality in the economy. In a downturn in economy, freight rates drop leading to higher defaults in commercial vehicle loans. Further, the second hand prices of these vehicles also decline in such economic environment. Housing Loans Housing loans in India have shown very low default rates historically. However, in recent years, loans have been given at high loan to value ratios and to a much younger borrower classes. The loans have not yet gone through the full economic cycle and have not yet seen a period of declining property prices. Thus the performance of these housing loans is yet to be tested and it need not conform to the historical experience of low default rates. Consumer Durable Loans The underlying security for such loans is easily transferable without the bank s knowledge and hence repossession is difficult. The underlying security for such loans is also susceptible to quick depreciation in value. This gives the borrowers a high incentive to default. Personal Loans These are unsecured loans. In case of a default, the bank has no security to fall back on. The lender has no control over how the borrower has used the borrowed money. Further, all the above categories of loans have the following common risks: All the above loans are retail, relatively small value loans. There is a possibility that the borrower takes different loans using the same income proof and thus the income is not sufficient to meet the debt service obligations of all these loans. In India, there is no ready database available regarding past credit record of borrowers. Thus, loans may be given to borrowers with poor credit record. In retail loans, the risks due to frauds are high. Corporate Loans These are loans given to single or multiple corporates. The receivables from a pool of loans to corporates are assigned to a trust that issues Pass Through Certificates (PTCs) in turn. The credit risk in such PTCs is on the underlying pool of loans to corporates. The credit risk of the underlying loans to the corporates would in turn depend of economic cycles. Further, all the above categories of loans have the following common risks: All the above loans are retail, relatively small value loans. There is a possibility that the borrower takes different loans using the same income proof and thus the income is not sufficient to meet the debt service obligations of all these loans. In India, there is no ready database available regarding past credit record of borrowers. Thus, loans may be given to borrowers with poor credit record. In retail loans, the risks due to frauds are high. Risks associated with Short Selling and Securities Lending Debt (applicable where the asset allocation pattern of the Scheme(s) provides for such investment). Short selling Short-selling is the sale of shares that the seller does not own at the time of trading. Instead, he borrows it from someone who already owns it. Later, the short seller buys back the stock he shorted and returns the stock to close out the loan. If the price of the stock has fallen, he can buy the stock back for less than he received for selling it and profits from it (the difference between higher short sale price and the lower purchase price). However, Short positions carry the risk of losing money and these losses may grow theoretically unlimited if the price increases without limit and shall result into major losses in the portfolio. In addition, the short selling will also have the risk of inability to borrow the securities by the seller. Then, it might be possible that the short seller will be required to purchase the securities sold short to cover the short even if the price of the security is higher at the time of the short sale. If a stock starts to rise and a large number of short sellers try to cover their positions at the same time, it can quickly drive up the price even further. This phenomenon is known as a short squeeze. This might result in major losses in the portfolio. Securities Lending : It may be noted that Securities Lending activity would have the inherent probability of collateral value drastically falling in times of strong downward market trends or due to it being comprised of tainted/forged securities, resulting in inadequate value of collateral until such time as that diminution in value is replenished by additional security. It is also possible that the borrowing Page 14 of 65

204 party and /or the approved intermediary may suddenly suffer severe business setback and become unable to honor its commitments. This alongwith a simultaneous fall in value of collateral would render potential loss to the Scheme(s). Besides, there can also be temporary illiquidity of the securities that are lent out and the Scheme(s) may not be able to sell such lent out securities. Risk factors specific to Principal Monthly Income Plan, Principal Income Fund,, Principal Floating Rate Fund Flexible Maturity Plan, Principal Floating Rate Fund - Short Maturity Plan, Principal Cash Management Fund Liquid Option, Principal Ultra Short Term Fund, Principal Money Manager Fund, Principal Government Securities Fund Principal Monthly Income Plan When interest rates fall, the price of a debt security rises and when interest rates rise, the price declines. In addition, the value of securities held by the Scheme may be affected by factors such as credit rating of the entity that issues the debt security and effective maturities of the debt securities. Lower quality and longer maturity debt securities will be subject to greater credit risk and price fluctuations than higher quality and shorter maturity debt securities. As with all Mutual Funds, if the units are redeemed when their value is less than the price paid for, money may be lost by the Unitholder. The value of the equity securities owned by the Scheme changes on a daily basis. Equity security prices reflect the activities of individual companies and general market and economic conditions. In the short term, equity security prices can fluctuate dramatically in response to these factors. Principal Income Fund Principal Floating Rate Fund Flexible Maturity Plan When interest rates fall, the price of a debt security rises and when interest rates rise, the price declines. In addition, the value of securities held by the Scheme may be affected by factors such as credit rating of the entity that issues the debt security and effective maturities of the debt securities. Lower quality and longer maturity debt securities will be subject to greater credit risk and price fluctuations than higher quality and shorter maturity debt securities. As with all mutual funds, if the units are redeemed when their value is less than the price paid for, money may be lost by the Unitholder. When interest rates fall, the price of a debt security rises and when interest rates rise, the price declines. In addition, the value of securities held by the Scheme may be affected by factors such as credit rating of the entity that issues the debt security and effective maturities of the debt securities. Lower quality and longer maturity debt securities will be subject to greater credit risk and price fluctuations than higher quality and shorter maturity debt securities. As with all mutual funds, if the units are redeemed when their value is less than the price paid for, money may be lost by the Unitholder. Principal Floating Rate Fund - Short Maturity Plan As with all Mutual Funds, the value of the Scheme (s) asset may rise or fall. Although the Scheme seeks to preserve the value of an investment at face value per unit it is possible to lose money by investing in the Scheme(s) if the units are redeemed when their value is less than the price paid for. The investment of capital in the scheme is therefore not guaranteed. Principal Cash Management Fund Liquid Option As with all Mutual Funds, the value of the Scheme (s) asset may rise or fall. Although the Scheme seeks to preserve the value of an investment at face value per unit (at least in case of Money-at-Call option), it is possible to lose money by investing in the Scheme(s) if the units are redeemed when their value is less than the price paid for. The investment of capital in the scheme is therefore not guaranteed. Principal Ultra Short Term Fund When interest rates fall, the price of a debt security rises and when interest rates rise, the price declines. In addition, the value of securities held by the Scheme may be affected by factors such as credit rating of the entity that issues the debt security and effective maturities of the debt securities. Lower quality and longer maturity debt securities will be subject to greater credit risk and price fluctuations than higher quality and shorter maturity debt securities. As with all mutual funds, if the units are redeemed when their value is less than the price paid for, money may be lost by the Unitholder. Page 15 of 65 Principal Money Manager Fund As with all Mutual Funds, the value of the Scheme (s) asset may rise or fall. Although the Scheme seeks to preserve the value of an investment at face value per unit it is possible to lose money by investing in the Scheme(s) if the units are redeemed when their value is less than the price paid for. The investment of capital in the scheme is therefore not guaranteed. Principal Government Securities Fund Prices of government securities rise and fall in response to a number of factors including events that impact entire financial markets or industries (for example, changes in inflation or consumer demand). The Securities purchased by the Scheme present greater degree of safety in terms of credit risk but may also involve greater interest rate risks. As a result, these securities may change in value. As the value of the securities owned by the Scheme changes, the Scheme unit price changes. In the short-term, the price can fluctuate dramatically. As with all mutual funds, if the values of the scheme s assets rise and fall, the Scheme unit price changes. If the units are redeemed when their value is less than the price paid for, money may be lost by the

205 Unitholder. B. REQUIREMENT OF MINIMUM INVESTORS IN THE SCHEME(s) The Schemes/Plans shall have a minimum of 20 investors each and no single investor shall account for more than 25% of the corpus of the Scheme(s)/Plan(s). These conditions shall be complied with, in each calendar quarter on an average basis, as specified by SEBI. In case of non-fulfillment of the condition of 20 investors in a calendar quarter, the provisions of Regulation 39(2)(c) of the SEBI (MF) Regulations shall become applicable automatically without any reference from SEBI, and accordingly the Scheme(s) / Plan(s) shall be wound up and the units redeemed at the relevant applicable NAV. If there is breach of the 25% limit by any investor over the quarter, a rebalancing period of one month would be available and thereafter, the investor who is in breach of the rule, shall be given 15 days notice to redeem his exposure over the 25% limit. Failure on the part of the said investor to redeem his exposure over the 25 % limit within the aforesaid 15 days would lead to automatic redemption on the applicable Net Asset Value on the 15th day of the notice period. The Fund shall adhere to the requirements prescribed by SEBI from time to time in this regard. C. SPECIAL CONSIDERATIONS Investment in the Scheme(s) should be viewed by an investor/unit holder as a medium to long term investment as mutual funds carry normal market risks and there can be no assurance and no guarantee that the Scheme(s) will achieve its objective. It is recommended that an investment in the Scheme(s) should not constitute a substantial proportion of an investment portfolio and may not be appropriate for all, as investment decisions made by the AMC will not always be profitable or prove to have been correct. As with any investment in stocks, shares and securities, the NAV of the Units under the Scheme(s) can go up or down, depending on the factors and forces affecting the capital markets. Past performance of the schemes of Principal Mutual Fund, the Sponsor or its Group affiliates is not indicative of and does not guarantee the future performance of the scheme(s). The name of the Scheme(s) does not in any manner indicate the quality of the Scheme(s), its future prospects or the returns. The Scheme(s) is not intended as a complete investment program. Investors, therefore, are urged to study the terms of this offer carefully and consult their Investment Advisor before they invest in the Scheme(s). Investors /unit holders attention is drawn to the risk factors set out in the beginning of this Scheme Information Document and also to the following specific risks: Regulatory Risks: Neither this SID nor the Units have been registered in any jurisdiction. The distribution of this SID in certain jurisdictions may be restricted or subject to registration requirements and, accordingly, persons who come into possession of this SID are required to inform themselves about, and to observe, any such restrictions. No person receiving a copy of this SID or any accompanying application form in such jurisdiction may treat this SID or such application form as constituting an invitation to them to subscribe for Units, nor should they in any event use any such application form, unless in the relevant jurisdiction such an invitation could lawfully be made to them and such application form could lawfully be used without compliance with any registration or other legal requirements. Accordingly, this SID does not constitute an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not lawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. It is the responsibility of any persons in possession of this SID and any persons wishing to apply for Units pursuant to this SID to inform themselves of and to observe, all applicable laws and Regulations of such relevant jurisdiction. Prospective investors should review/study this SID alongwith SAI carefully and in its entirety and shall not construe the contents hereof or regard the summaries contained herein as advice relating to legal, taxation, or financial/investment matters and are advised to consult their own professional advisor(s) as to the legal or any other requirements or restrictions relating to the subscription, gifting, acquisition, holding, disposal (sale, transfer, switch or redemption or conversion into money) of Units and to the treatment of income (if any), capitalization, capital gains, any distribution, and other tax consequences relevant to their subscription, acquisition, holding, capitalization, disposal (sale, transfer, switch or redemption or conversion into money) of Units within their jurisdiction/of nationality, residence, domicile etc. or under the laws of any jurisdiction to which they or any managed Funds to be used to purchase/gift Units are subject, and (also) to determine possible legal, tax, financial or other consequences of subscribing/gifting to, purchasing or holding Units before making an application for Units. No person has been authorized to give any information or to make any representations not confirmed in this SID in connection with the Offer of Units, and any information or representations not contained herein must not be relied upon as having been authorized by the Mutual Fund or the AMC or the Trustee. Statements made in this SID are based on the law and practice currently in force in India and are subject to change therein. Neither the delivery of this SID nor any sale made hereunder shall, under any circumstances, create any impression that the information herein is correct as of any time subsequent to the date hereof. Performance Risk: The value of (and income from) an investment in the Scheme(s) can decrease as well as increase, depending on a variety of factors, which may affect the values and income generated by a Scheme s portfolio of securities. The returns of a Scheme s investments are based on the current yields of the securities, which may be affected generally by factors affecting capital markets such as price and volume, volatility in the stock markets, interest rates, currency exchange rates, changes in government and Reserve Bank of India policy, taxation, political, economic or other developments and closure of the stock exchanges. Investors should understand that the investment composition indicated for the Scheme(s), in line with prevailing market conditions, is only a hypothetical example as all investments involve risk and there can be no assurance that the Scheme s investment objective will be attained nor will the Scheme(s) be in a position to maintain the model percentage of investment pattern/composition particularly under exceptional circumstances such that the interest of the unit holders are protected. The AMC will endeavor to invest in highly researched growth companies, however the growth associated with equities is generally high as also the erosion in the value of the investments/portfolio in the case of the capital markets passing through a bearish phase is a distinct possibility. Changes in the prevailing rates of interest are likely to affect the value of the Scheme(s) investments and thus the value of the Scheme s Units. The value of money market/debt instruments held by the Scheme(s) generally will vary inversely with the changes in prevailing interest rates. The AMC, while investing in fixed income instruments like debt, etc., shall consider and evaluate the risk of an issuer s ability to meet principal and interest payments (credit risk) and also the price volatility due to such factors as interest sensitivity, market perception or the creditworthiness of the issuer and general market liquidity (market risk). While it is the intent of the AMC to invest primarily in more highly rated debt securities and highly researched growth companies, the Scheme(s) may from time to time invest in high yielding/growth, lower rated and/or privately placed/unlisted/securitised securities. Lower rated or unrated securities are more likely to react to developments Page 16 of 65

206 affecting market and credit risk than highly rated securities. The credit risk factors pertaining to lower rated securities also apply to lower rated zero coupon, deferred interest bonds. Techniques Risk: The Scheme(s) may use techniques (including derivatives, futures and options, warrants, etc.) and instruments that may be permitted and/or that may become permissible under SEBI/RBI Regulations and/or Regulations and/or statutory modification or re-enactment thereof for efficient portfolio management and to attempt to hedge or reduce the risk of such fluctuation. However, these techniques and instruments, if imperfectly used have the risk of the scheme(s) incurring losses due to mismatches particularly in a volatile market. The Fund s ability to use these techniques may be limited by market conditions, regulatory limits and tax considerations (if any). The use of these techniques is dependent on the ability to predict movements in the prices of securities being hedged and movements in interest rates. There exists an imperfect correlation between the hedging instruments and the securities or market sectors being hedged. Besides, the fact that skills needed to use these instruments are different from those needed to select the Fund s/scheme s securities. There is a possible absence of a liquid market for any particular instrument at any particular time even though the futures and options may be bought and sold on an organized stock exchange. The use of these techniques involves possible impediments to effective portfolio management or the ability to meet repurchase/redemption requests or other short-term obligations because of the percentage of the Scheme s assets segregated to cover its obligations. Political Risk: Whereas the Indian market was formerly restrictive, a process of deregulation has been taking place over recent years. This process has involved the removal of trade barriers and other protectionist measures, which could adversely affect the value of investments. It is possible that future changes in the Indian political situation, including political, social, or economic instability, diplomatic developments and changes in laws or regulations could have an effect on the value of investments. Expropriation, confiscatory taxation, or other relevant developments could also affect the value of investments. Forex Risk: The scheme(s) may also invest in overseas financial assets in accordance with the guidelines issued by the concerned regulatory authorities in India. To the extent that the assets of the Scheme(s) will be invested in securities denominated in foreign currencies, the Indian Rupee equivalent of the net assets, distribution and income may be adversely affected by changes in the value of respective foreign currencies relative to the Indian rupee. The repatriation of capital to India may also be hampered by changes in regulations concerning exchange controls or political circumstances as well as the application to it of other restrictions on investment. In addition, country risks would include events such as introduction of extraordinary exchange controls, economic deterioration and bi-lateral conflict leading to immobilisation of the overseas financial assets. Liquidity and Settlement Risks: The liquidity of the Scheme s investments may be inherently restricted by trading volumes, transfer procedures and settlement periods. From time to time, the Scheme(s) will invest in certain securities of certain companies, industries, sectors; etc based on certain investment parameters as adopted internally by AMC. While at all times the Trustees and the AMC will endeavor that excessive holding/investment in certain securities of industries, sectors, etc. by the Scheme(s) be avoided, the assets invested by the Scheme(s) in certain securities of industries, sectors, etc. may acquire a substantial portion of the Scheme s investment portfolio and collectively may constitute a risk associated with non-diversification and thus could affect the value of investments. The Scheme(s) may have difficulty in disposing of certain securities because the security may be unlisted, due to greater price fluctuations there may be a thin trading market, different settlement periods and transfer procedures for a particular security at any given time. Settlement if accomplished through physical delivery of stock certificates is labour and paper intensive and may affect the liquidity. It should be noted that the Fund bears the risk of purchasing fraudulent or tainted papers. The secondary market for money market/debt securities does exist, but is generally not as liquid as the secondary market for other securities. Reduced liquidity in the secondary market may have an adverse impact on market price and the Scheme s ability to dispose of particular securities, when necessary, to meet the Scheme s liquidity needs or in response to a specific economic event, such as the deterioration in the creditworthiness of the issuer, etc. or during restructuring of the Scheme s investment portfolio. Furthermore, from time to time, the AMC, the Custodian, the Registrar, any Associate, any distributor, dealer, any company, corporate body, trust, any scheme/mutual Fund managed by the AMC or by any other AMC may invest in the Scheme(s). While at all times the Trustees and the AMC will endeavor that excessive holding of Units in the Scheme(s) among a few unit holders is avoided, however, the amounts invested by these aforesaid persons may acquire a substantial portion of the Scheme s outstanding Units and collectively may constitute a majority unit holder in the Scheme(s). Accordingly, redemption of Units held by such persons may have an adverse impact on the value of the redemption and may impact the ability of the unit holders to redeem their respective Units. D. DEFINITIONS ABBREVIATION & DEFINITIONS Scheme(s) Abbreviations PMIP PMIP - Plus PIF PIF STP PFRF PFRF - FMP PFRF - SMP PCMF PUSTF PMMF Principal Monthly Income Plan Principal Monthly Income Plan MIP Plus Principal Income Fund Principal Income Fund Short Term Plan Principal Floating Rate Fund Principal Floating Rate Fund Flexible Maturity Plan Principal Floating Rate Fund - Short Maturity Plan Principal Cash Management Fund Liquid Option Principal Ultra Short Term Fund Principal Money Manager Fund Page 17 of 65

207 PGSF Principal Government Securities Fund ADRs and GDRs: American Depository Receipts (ADR) is negotiable certificates issued to represent a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars. Global Depository Receipts (GDRs) are negotiable certificates held in the bank of one country representing a specific number of shares of a stock traded on an exchange of another country. AMC/Asset Management Company/Investment Manager/Principal: Principal Pnb Asset Management Company Private Limited Applicable NAV: The NAV applicable for subscription / redemption / switch in or switch out based on the time of the business day on which the application is accepted. Business Day: A day other than: (i) Saturday and Sunday, (ii) a day on which the Banks in Mumbai and/or RBI are closed for business/ clearing, (iii) a day on which the Bombay Stock Exchange Limited and/or National Stock Exchange are closed, (iv) a day which is a public and/or bank holiday at a Investor Service Centre where the application is received, (v) a day on which sale and repurchase of units is suspended by the AMC, (vi) a day on which normal business could not be transacted due to storms, floods, bandhs, strikes etc. Notwithstanding the above, the AMC reserves the right to declare any day as a Business Day or otherwise at any or all Investor Service Centres. Calendar Year / Year: A Calendar Year shall be full English Calendar months viz. 12 months commencing from 1st January and ending on 31st December. CBLO: Collateralized Borrowing and Lending Obligations is a Money Market Instruments approved by RBI, (developed by Clearing Corporation of India Limited). CBLO is a discounted instrument issued in an electronic book entry form for maturity ranging from one day to one year Co-Settlors: Principal Financial Group (Mauritius) Limited, Punjab National Bank and Vijaya Bank, the co-settlors to the Principal Mutual Fund. Credit Risk: Risk of default in payment of principal or interest or both. Custodian: An entity (for the time being Citi Bank NA) appointed for holding the securities and other assets of the Fund. CDSC: Contingent Deferred Sales Charge permitted under the Regulations to be borne by the Unit Holder upon exiting (whether by way of redemption or Inter-scheme switching) based on the amount of investment (if applicable) and period of holding of Units. Day: Any day (including Saturday, Sunday and holiday) as per English Calendar viz 365 days in a year. Debt Instruments : Government securities, corporate debentures, bonds, promissory notes, money market instruments, passthrough obligations, asset backed securities/securitised debt and other possible similar securities. Depository: Depository as defined in the Depository Act, 1996 (22 of 1996). Dividend: Income distributed by the Mutual Fund on the units. Entry Load: Load on sale/switch in of units. Equity Related Instruments: Equity related instruments include convertible debentures, bonds, warrants, ADRs/GDRs and equity derivatives and other possible similar securities. Exit Load: Load on repurchase/switch out of units. FII(s): Foreign Institutional Investor(s), registered with SEBI under Securities and Exchange Board of India (Foreign Institutional Investors) Regulation, Financial Year: A Financial Year shall be full English Calendar months viz. 12 months commencing from 1st April and ending on 31st March. Fund/Mutual Fund: Principal Mutual Fund, a trust set up under the provisions of the Indian Trust Act, 1882 and registered with SEBI bearing Registration No. MF/019/94/0 dated December 13, Fixed Income Securities/Fixed Rate Debt Instruments: Debt Securities created and issued by, inter alia, Central Government, State Government, Local Authorities, Municipal Corporations, PSUs, Public Companies, Private Companies, Bodies Corporate, Unincorporated Special Purpose Vehicles (SPVs) and any other entities which may be recognised/permitted which yield at fixed or variable rate by way of interest, premium, discount or a combination of any of them. Floating Rate Debt instruments: Floating rate debt instruments are debt instruments issued by Central and / or State Government, corporates, banks (including deposits), PSUs or in a securitisation form with interest rates that are reset periodically. The periodicity of the interest reset could be daily, monthly, quarterly, half-yearly, annually or any other periodicity that may be mutually agreed with the issuer and the fund. They would also include short term fixed rate assets that have a maturity or put option within 6 months. Page 18 of 65

208 Gilts/Government Securities : As defined under Section 2(b) of the Securities Contract (Regulation) Act, 1956, Government Security means a security created and issued, whether before or after the commencement of the Act, by the Central Government and/or a State Government and having one of the forms specified in clause (2) of Section 2 of the Public Debt Act, 1944 (18 of 1944) including any amendments thereto or any replacement or re-enactment thereof/clarification and guidelines in the form of notes or circulars etc. issued from time to time; Treasury Bills, such other instruments as may be declared by Government of India and/or SEBI and/or RBI and/or any other regulatory authority to be securities; and rights or interest in the securities. GOI: Government of India. Group: As defined in clause (ef) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969). Investor: Any resident or non-resident person whether individual or not (legal entity), who is eligible to subscribe for units under the laws of his/her/ their state/country of incorporation, establishment, citizenship, residence or domicile and under the Income Tax Act, 1961 including amendments thereto from time to time and who has made an application for subscribing units under the Scheme(s). Under normal circumstances, a Unitholder shall be deemed to be the investor. Investment Management Agreement/IMA: Investment Management Agreement dated 25/11/94 as amended from time to time, between the Trustee and AMC. ISC: Offices of AMC and such other centres / offices as may be designated by the AMC from time to time as its Investor Service Centre. It shall also include the Official Points of Acceptance as mentioned on the last/back cover page of this SID. Load: A sum of money deducted from the value received or paid to the unitholder towards Sale/Repurchase of units. Money Market Instruments: Includes Commercial Papers, Commercial Bills, Treasury Bills, Government securities having an unexpired maturity up to one year Call or Notice Money, Certificate of Deposit, Usance Bill and any other like instrument as specified by RBI from time to time. NAV: Net Asset Value of the units of the Scheme(s) (and Options therein) calculated in the manner provided in this Scheme(s) Information Document by dividing the net assets by the number of outstanding units (on any valuation day) or as may be prescribed by the SEBI Regulations from time to time. The NAV will be computed upto four decimal places. Net Assets: Net Assets of the Scheme(s) at any time shall be the total value of the Schemes assets, less its liabilities taking into consideration the accruals and the provision. NFO: New Fund Offer. Non Resident/NRI: Non resident is any person who is not a resident in India. Official Points of Acceptance: Offices as specified by AMC from time to time where application for subscription / redemption / switch will be accepted on an ongoing basis. OCB : Overseas Corporate Bodies, partnership firms and societies which are held directly or indirectly but ultimately to the extent of at least 60% by non-resident individuals of Indian nationality or origin, as also an overseas trust in which at least 60% of the beneficial interest is irrevocably held by such persons. Overseas Money Market Instruments: Short term debt instruments in countries with fully convertible currencies subject to the instruments/issuers having the highest credit rating. Person of Indian Origin: A person (not being a citizen of Pakistan or Bangladesh or Sri Lanka) shall be deemed to be of Indian origin, if i) He (She), at any time, held an Indian Passport; ii) He (She) or either of his (her) parents or any of his (her) grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); iii) The person is the spouse of an Indian citizen or of a person of Indian origin (not being a citizen of Pakistan or Bangladesh or Sri Lanka). Permissible Investments or Investments : Collective or group investments made on account of the unitholders of the scheme(s) in Securities and other assets in accordance with the SEBI/RBI Regulations and amendments thereto. Portfolio: Portfolio at any time shall include all Permissible Investments and Cash. RBI: Reserve Bank of India established under the Reserve Bank of India Act, 1934, as amended from time to time. Registrars/Registrar and Transfer Agent : Registrar for the time being of the Mutual Fund which, at present, is Karvy Computershare Pvt. Ltd., or such agency appointed by the AMC. Regulations : Regulations imply SEBI Regulations and the relevant rules and provisions of the Securities and Exchange Board of India (Depositories and Participants) Regulations 1996; Public Debt Act, 1944; The Income Tax Act, 1961; Wealth Tax Act, 1957; Gift Tax Act, 1958, the Foreign Exchange Management Act, 1999, the Indian Trusts Act, 1882 as amended from time to time and shall also include any Circulars, Press releases or Notifications that may be issued by SEBI or the Government of India or the Reserve Bank of India. Repo/Reverse Repo: Sale/Purchase of Securities as may be allowed by RBI from time to time with simultaneous agreement to repurchase/resell them at a later date. Repurchase/Redemption: The units of all the schemes mentioned in the Scheme Information Document which will be bought back by the Fund on an ongoing basis. Page 19 of 65

209 Resident: A resident means any person resident in India under the Foreign Exchange Management Act, and under the Income Tax Act, 1961 including amendments thereto from time to time. SAI: Statement of Additional Information of Principal Mutual Fund Sale/ Subscription: The units of all the schemes mentioned in the Scheme Information Document which will be offered for sale to the unit holders on an ongoing basis. Schemes/Plans: Would mean PMIP, PMIP Plus, PIF, PIF STP, PFRF FMP, PFRF SMP, PCMF, PUSTF, PMMF and PGSF and Plans and Options there under offered by the Fund. Scheme Information Document/SID: This document issued by Principal Mutual Fund, inviting to subscribe to the units of the schemes of the Mutual Fund. SEBI: Securities and Exchange Board of India, established under the Securities and Exchange Board of India Act, 1992, as amended from time to time. SEBI Regulations/Mutual Fund Regulations: The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, or such other Regulation in force from time to time including any amendment thereto or any replacement or re-enactment thereof/clarification and guidelines in the form of notes or circulars etc. issued from time to time for regulating Mutual Funds in India, by SEBI. Securities : Include shares, scrips, stocks etc., Debt instruments like notes bonds, debentures, debenture stock, warrants, etc., futures, options, derivatives etc or other transferable securities of a like nature in or of any incorporated company or other body corporate, Gilts/Government securities, Mutual Fund units, Money Market Instruments like Call Deposit, Commercial Paper, Treasury Bills etc. such other instruments as may be declared by GOI and/or SEBI and/or RBI and/or any other regulatory authority to be securities; and rights or interest in securities, mortgage/asset backed securities, securitized receivable auto loans, etc. Sponsor: Principal Financial Services Inc., USA acting through its wholly owned subsidiary Principal Financial Group (Mauritius) Limited. Switch: Transfer of units of one Scheme of Principal Mutual Fund to another Scheme of Principal Mutual Fund. Valid applications for switch out shall be treated as redemptions and for switch in shall be treated as purchases and the cut-off timings shall be applicable, accordingly. Systematic Investment Plan(s): A plan enabling the investors to systematically save and invest in the Scheme on monthly/quarterly (such other defined periodicity) basis by submitting post dated cheques / payment instructions Systematic Transfer/Switch Plan(s): A Plan enabling the investors to transfer sums on a monthly, quarterly, semi-annually or annual basis from the Schemes to the other Schemes of the Mutual Fund existing or launched in future from time to time, by giving a simple instruction. Systematic Withdrawal Plan(s): A Plan enabling the investors to withdraw amounts from the Scheme on a monthly, quarterly, semi-annually or annual basis by giving a simple instruction. Tax Act: Income Tax Act, 1961, Wealth Tax Act 1957 and Gift Act, 1958, or such other legislation in force from time to time including any amendment thereto or any replacement or re-enactment thereof/rules, regulations any clarification and guidelines issued from time to time by the GOI. Total Assets: Total Assets of the Scheme at any time shall be the total value of the Scheme s assets, taking into consideration the accruals. Trust Deed: The Trust Deed of the Mutual Fund dated November 25,1994 made by and between the Sponsor and the Trustee as amended from time to time or any replacement or substitution thereof. Trustee: Principal Trustee Company Private Limited incorporated under the Companies Act, Unitholder: A unitholder means any resident or non-resident person whether individual or not (legal entity), who being eligible to subscribe in the scheme has been allotted units under the Scheme based on a valid application and thus hold units in the Scheme. Units: Undivided Share of a unitholder in the assets of the Scheme (and of the option(s),if any) as evidenced by any letter/advice or any other statement/ certificate/instrument. Year: A year shall be full English Calendar Months viz. 12 months. Interpretation For all purposes of this Scheme Information Document, except as otherwise expressly provided or unless the context otherwise requires: The terms defined in this Scheme Information Document include the plural as well as the singular. Pronouns having a masculine or feminine gender shall be deemed to include the other. Reference to Scheme / Scheme(s) would mean and include all the Schemes under this Scheme Information Document and all such Plan(s) that have different Portfolio(s) unless specified otherwise. In this Scheme Information Document, all references to "dollars" or "$" refers to United States dollars, and "Rs" refers to Indian Rupees. A "crore" means "ten million" and a "lakh" means a "hundred thousand". Page 20 of 65

210 E. DUE DILIGENCE BY THE ASSET MANAGEMENT COMPANY It is confirmed that: 1. the Scheme Information Document forwarded to SEBI for the following scheme(s) is in accordance with the SEBI (Mutual Funds) Regulations, 1996 and the guidelines and directives issued by SEBI from time to time: a. Principal Monthly Income Plan b. Principal Income Fund c. Principal Floating Rate Fund d. Principal Cash Management Fund Liquid Option e. Principal Ultra Short Term Fund f. Principal Large Cap Fund g. Principal Money Manager Fund h. Principal Government Securities Fund 2. all legal requirements connected with the launching of the scheme(s) as also the guidelines, instructions, etc., issued by the Government and any other competent authority in this behalf, have been duly complied with. 3. the disclosures made in the Scheme Information Document are true, fair and adequate to enable the investors to make a well informed decision regarding investment in the scheme. 4. the intermediaries named in the Scheme Information Document and Statement of Additional Information are registered with SEBI and their registration is valid, as on date. For Principal Pnb Asset Management Company Private Limited Place: Mumbai Date: May 20, 2009 Sd/- Sujata Punjabi Head Legal & Compliance Note: The Due Diligence Certificate as stated above was submitted to Securities and Exchange Board of India. Page 21 of 65

211 SECTION- III. INFORMATION ABOUT THE SCHEME(S) A. TYPE OF THE SCHEME(S) Scheme PMIP PIF PFRF PCMF PUSTF PMMF PGSF Type of Scheme An Open Ended Fund, monthly income is not assured and subject to availability of distributable surplus An Open Ended Income Scheme An Open Ended Income Scheme An Open Ended Liquid Scheme An Open Ended Debt Scheme An Open Ended Liquid Scheme An Open Ended Dedicated Gilt Scheme investing in Government Securities B. WHAT ARE THE INVESTMENT OBJECTIVES OF THE SCHEME(S)? Scheme PMIP Investment Objective To generate regular income through investments in fixed income securities so as to make periodical income distribution to the Unitholders and also to generate long-term capital appreciation by investing a portion of the Scheme s assets in equity and equity related instruments. PIF PFRF PCMF PMMF PUSTF PGSF Investment objective of PMIP Plus is the same as PMIP; however PMIP MIP Plus has been to cater to investors seeking a slightly more aggressive exposure to equity markets. To generate regular income and capital appreciation/ accretion through investment in debt instruments and related securities besides preservation of capital. Investment objective of PIF STP is the same as PIF. However PIF-STP has been designed to achieve stable returns over shorter-term investment horizons. To generate income consistent with the prudent risk from a portfolio comprising substantially of floating rate debt instruments, fixed rate debt instruments swapped for floating rate return, and also fixed rate instruments and money market instruments. To provide investors with as high a level of income available from short-term investments as is considered consistent with preservation of capital and maintenance of liquidity, by investing in a portfolio of money market and investment grade debt instruments. To generate steady return by investing in debt and money market securities. To generate regular income through investments in debt securities and money market instruments. To generate returns through investment in sovereign securities and thus provide capital gains and income distribution to its Unit holders. C. HOW WILL THE SCHEME(S)/PLAN(S) ALLOCATE ITS ASSETS? Under normal circumstances, the asset allocation pattern of the Schemes would be as follows: PMIP Type of Instrument Normal Allocation Risk Profile (% of Net Assets) Debt & Money Market Instruments (including Upto 100% Low to medium Securitised Debt upto 50%) Equity/Related Instruments Upto 15% Medium to High The Asset Allocation pattern under normal circumstances would clearly attempt to keep fixed income and money market components between 85% to 100% of the net assets and equity component upto 15% of the net assets. Investment in derivatives shall be upto 35% of the net assets of the Scheme. Investment in ADRs / GDRs shall be not exceeding 15% of the Scheme s assets. Investment in Overseas Financial Debt Instruments including units of Overseas Mutual Funds shall not be exceeding 25% of the Scheme s assets. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. PMIP-Plus Type of Instrument Normal Allocation Risk Profile (% of Net Assets) Debt Securities (including Securitized Debt upto Upto 100% Low to medium 50%) Equity and Equity Related Instruments Upto 25% Medium to High Investment in derivatives shall be upto 35% of the net assets of the Scheme. The Asset Allocation pattern under normal circumstances would clearly attempt to keep fixed income and money market components between 75% to 100% of the net assets and equity component upto 25% of the net assets. Page 22 of 65

212 PIF Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending Types of Instruments Normal Allocation Risk Profile (% of Net Assets) Debt Securities Upto 100% Low to Medium Money Market Instruments Upto 100% Low Securitised Debt Upto 50% Low to Medium Investment in derivatives shall be upto 35% of the net assets of the Scheme. Investment in Overseas Financial Debt Instruments including units of Overseas Mutual Funds shall not be exceeding 25% of the Scheme s assets. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. PIF STP Types of Instruments Normal Allocation Risk Profile (% of Net Assets) Debt Securities (including securitised debt upto 50%) Upto 100% Low to Medium Money Market Instruments Upto 100% Low Investment in derivatives shall be upto 35% of the net assets of the Scheme. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. PFRF PFRF FMP Types of Instruments Normal Allocation (% of Net Assets) Floating Rate Debt Instruments* 65 to 100% Fixed Rate Debt Instruments 0 to 35% Risk Profile Low to Medium Low to Medium *Floating rate instruments include fixed rate instruments swapped for floating rate returns. Upto 100% of the net assets of the Scheme may be invested in Securitised Debt. Investment in Overseas Financial Debt Instruments including units of Overseas Mutual Funds not exceeding 75% of the Scheme s assets (subject to maximum of US $300 million) or such other limit as specified by SEBI from time to time. The scheme will not invest more than 50% of its assets in the purchase of Securitised Indices, Financial future contracts etc. The fund shall take exposure on a non-leveraged basis. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. PFRF SMP Types of Instruments Normal Allocation (% of Net Assets) Floating Rate Debt Instruments* 65 to 100% Fixed Rate Debt Instruments 0 to 35% Risk Profile Low Low *Floating rate instruments include fixed rate instruments swapped for floating rate returns. Upto 100% of the net assets of the Scheme may be invested in Securitised Debt. Investment in Overseas Financial Debt Instruments including units of Overseas Mutual Funds not exceeding 75% of the Scheme s assets (subject to maximum of US $300 million) or such other limit as specified by SEBI from time to time.) The scheme will not invest more than 50% of its assets in the purchase of Securitised Indices, Financial future contracts etc. The fund shall take exposure on a non-leveraged basis. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Pursuant to the SEBI circular dated January 19, 2009: The scheme shall make investment in / purchase Debt and Money Market Instruments with the maturity of up to 91 days only. Inter Scheme transfers of securities in the Scheme having maturity upto 365 days and already held in any other Schemes of Principal Mutual Fund as on February 1, 2009 shall be permitted till October 31, 2009; Effective November 1, 2009, interscheme transfers in the Scheme shall be carried out in Debt and Money Market Instruments with the maturity of upto 91 days. Page 23 of 65

213 PCMF Types of Instruments Normal Allocation Risk Profile (% of Net Assets) Call / Term Money / Repos / Reverse Repos / Upto 100% Low to medium Deposits with Banks Bill Re-discounting Upto 50% Low to medium Other equivalent Money Market Instruments Upto 100% Very Low Debt (including Securitised Debt) instruments other Low to medium Upto 50% than those above The Scheme may upto 35% of the net assets of the Scheme invest in Derivatives. The Scheme may also invest Scheme in Overseas financial debt instruments including units of overseas mutual funds not exceeding than 25% of the net assets of the Scheme Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Pursuant to the SEBI circular dated January 19, 2009: The scheme shall make investment in / purchase Debt and Money Market Instruments with the maturity of up to 91 days only. Inter Scheme transfers of securities in the Scheme having maturity upto 365 days and already held in any other Schemes of Principal Mutual Fund as on February 1, 2009 shall be permitted till October 31, 2009; Effective November 1, 2009, interscheme transfers in the Scheme shall be carried out in Debt and Money Market Instruments with the maturity of upto 91 days. PMMF Type of instrument Debt Instruments & Money Market Instruments (Including MIBOR linked instruments with daily put and call option) Normal Allocation (% of Net Assets) Upto 100% Risk Profile Low to Medium Investment in Securitised Debt may be up to 50% of the net assets of the Scheme. The Scheme may also invest up to 50% of net assets of the Scheme in such derivative instruments as may be introduced from time to time for the purpose of hedging and portfolio balancing and other uses as may be permitted under the SEBI (Mutual Funds) Regulations, Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. Pursuant to the SEBI circular dated January 19, 2009: The scheme shall make investment in / purchase Debt and Money Market Instruments with the maturity of up to 91 days only. Inter Scheme transfers of securities in the Scheme having maturity upto 365 days and already held in any other Schemes of Principal Mutual Fund as on February 1, 2009 shall be permitted till October 31, 2009; Effective November 1, 2009, interscheme transfers in the Scheme shall be carried out in Debt and Money Market Instruments with the maturity of upto 91 days. PUSTF Type of Instrument Debt Instruments & Money Market Instruments (Including MIBOR linked instruments with daily put and call option) Normal Allocation (% of Net Assets) Up to 100% Risk Profile Low to Medium The scheme would invest in such instruments which have an average maturity of up to one year. Subject to the SEBI Regulations, the Mutual Fund may deploy upto 50% of its total net assets of the Scheme in Stock Lending. PGSF Investment in Securitised Debt may be up to 50% of the net assets of the Scheme. The Scheme may also invest up to 50% of net assets of the Scheme in such derivative instruments as may be introduced from time to time for the purpose of hedging and portfolio balancing and other uses as may be permitted under the SEBI (Mutual Funds) Regulations, Type of Instrument Normal Allocation Risk Profile (% of Net Assets) Government Securities Upto 100% Low to Medium Investment in derivatives shall be upto 35% of the net assets of the Scheme. Page 24 of 65

214 There is no assurance that the objective of the Scheme(s) may be achieved. Subject to SEBI Regulations, the asset allocation pattern indicated above may change from time to time, keeping in view market conditions, market opportunities, applicable regulations and political and economic factors. Percentages stated above are only indicative and not absolute. These proportions may vary substantially depending upon the perception of the AMC, the intention being at all times to seek to protect the NAV of the Scheme(s) and interests of the Unit holders. Such changes in the investment pattern will be for short term and only for defensive considerations. Any change in the investment composition of the Scheme and amounting to a change in the fundamental attributes of the Scheme will be in accordance with Sub Regulation 15A of Regulation 18 of SEBI Regulations. Further short-term surpluses/funds under the scheme pending deployment in terms of investment objective of the scheme can be deployed in the inter-bank call/notice money (as and when permitted under the regulations). In longer-term assets, sovereign bonds (government securities and treasury bills) which are the most liquid instruments dominate the market. Banks, Institutions, Primary Dealers and Mutual Funds are the dominant participants in this market. Other instruments available for investment are commercial papers, certificates of deposit, promissory notes, non-convertible debentures/floating rates bonds, securitised instruments etc. (subject to the asset allocation pattern of the Scheme(s). Various factors such as interest rate movement, fluctuation in the bond markets, political instability, changes in the economic environment, changes in the rating, changes in the tax laws and/or Regulations and/or RBI policies, changes in the liquidity conditions in the money market, etc affect the prices of debt instruments. Stock Lending by the Mutual Fund Stock Lending means the lending of stock to another person or entity for a fixed period of time, at a negotiated compensation in order to enhance returns of the portfolio. The securities lent are to be returned by the borrower on the expiry of the stipulated period. To augment revenue generation, the Scheme(s) (except PGSF) may lend the securities held by it to eligible brokers, dealers, financial institutions through approved intermediaries, in amounts up to 50% of its total net assets at the time of lending, in accordance with the terms of the Securities Lending Scheme announced by SEBI. The Fund may enter into an agreement with the approved intermediary for depositing the securities for the purpose of lending through the approved intermediary on satisfactory terms as to security. The Scheme(s) would limit its exposure, with regard to securities lending, for a single intermediary, other than the National Securities Clearing Corporation Ltd (NSCCL), to the extent of 10% of the total net assets of the Scheme at the time of lending. For NSCCL, such exposure limit would be up to 50% of the total net assets of the Scheme(s). Collateral must be obtained by the approved intermediary for the lending transactions and this collateral must exceed in value of the Securities lent. The collateral can be in the form of cash, bank guarantee, govt. securities, certificate of deposits or other securities as may be agreed upon with the approved intermediary. It should be noted that any default/delay by the parties to return the securities lent to them may have an adverse impact on the net assets (and consequently the performance) of the scheme. INVESTMENT PROCESS There is separate team for investment in fixed income instruments & equities. The team works under the supervision of Chief Investment Officer (CIO). CIO is overall in charge for the Fund's investment. The Investment Manager will carry out the daily investment activities within the framework of SEBI guidelines in accordance with the investment objective as per the Scheme Information Document. The Board of AMC and Trustee will review the performance of the Scheme(s) in comparison to corresponding schemes of other mutual funds with similar investment objective and asset profile generally. The performance of the Scheme will be compared with benchmark. The AMC has been recording investment decisions since the receipt of instructions from SEBI. Review by Board of AMC and Trustees A detailed review of the schemes of the Fund including its performance vis-à-vis benchmark index, assets size, rankings/ratings received, if any is placed before the Board of Directors of AMC and to the Trustee on a quarterly basis. D. WHERE WILL THE SCHEME(S)/PLANS INVEST? Scheme(s) PMIP Where will it invest The corpus of the Scheme will be predominantly invested in Debt and Money Market Instruments including securitised debt. The Scheme will invest part of its corpus in Equity/Related Instruments. At present Mutual Funds are not permitted to participate in Inter Bank Calls. The Scheme will participate in Inter Bank Calls only when Mutual Funds are permitted to do so. The Scheme may participate in securities lending as permitted under the Regulations. The Scheme may also invest in another schemes managed by the same AMC or by the AMC of any other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations. The Asset Management Company further reserves the right to invest in derivatives and foreign securities subject to SEBI / RBI or any other Regulatory Authorities permitted from time to time. Investment in foreign securities will only be made in instruments denominated in US Dollar, Singapore Dollar, Japanese Yen, Euro or Sterling Pound or any other liquid currency as may be decided by AMC from time to time. Foreign securities shall without limitation include:- ADRs/ GDRs issued by Indian or foreign companies Page 25 of 65

215 PMIP - Plus PIF Foreign debt securities in the countries with fully convertible currencies, short term as well as long term debt instruments with rating not below investment grade by accredited/registered credit rating agencies Money market instruments rated not below investment grade Repos in the form of investment, where the counterparty is rated not below investment grade Government securities where the countries are rated not below investment grade Derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying as securities Short term deposits with banks overseas where the issuer is rated not below investment grade Units/securities issued by overseas mutual funds or unit trusts registered with overseas regulators and investing in (a) aforesaid securities, (b) Real Estate Investment Trusts (REITs) listed in recognized stock exchanges overseas or (c) unlisted overseas securities (not exceeding 10% of their net assets) And such other Securities as may be prescribed by SEBI/RBI from time to time. The corpus of the PMIP - Plus will be predominantly invested in Debt Securities including securitised debt. Part of its corpus will also be invested in Equity/Related Instruments. The Asset Management Company further reserves the right to invest in derivatives subject to SEBI or any other Regulatory Authorities permitted from time to time. PMIP Plus may also invest in another schemes managed by the same AMC or by the AMC of any other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations. At present Mutual Funds are not permitted to participate in Inter Bank Calls. PMIP - Plus will participate in Inter Bank Calls only when Mutual Funds are permitted to do so. PMIP- Plus may participate in securities lending as permitted under the Regulations. The corpus of the Scheme will be predominantly invested in Debt and Money Market Instruments including securitised debt. The scheme may invest in a wide range of fixed income instruments having varied yields, listed or unlisted etc. including: Govt. of India securities (including treasury bills) Debt instruments issued by Indian state or local govt. Debt instruments issued by Govt. agencies, statutory bodies, public sector undertakings and financial institutions. Debt instruments issued by banks Debt instruments issued by corporations Money Market Instruments Other Debt instruments, listed or unlisted, as may be permitted The Asset Management Company further reserves the right to invest in derivatives Overseas Financial Debt Instruments including units of overseas mutual funds subject to of SEBI / RBI or any other Regulatory Authorities permitted from time to time. Investment in foreign securities will only be made in instruments denominated in US Dollar, Singapore Dollar, Japanese Yen, Euro or Sterling Pound or any other liquid currency as may be decided by AMC from time to time. Overseas Financial Debt Instruments including units of overseas mutual funds shall without limitation include:- Foreign debt securities in the countries with fully convertible currencies, short term as well as long term debt instruments with rating not below investment grade by accredited/registered credit rating agencies Money market instruments rated not below investment grade Repos in the form of investment, where the counterparty is rated not below investment grade Government securities where the countries are rated not below investment grade Derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying as securities Short term deposits with banks overseas where the issuer is rated not below investment grade Units/securities issued by overseas mutual funds or unit trusts registered with overseas regulators and investing in (a) aforesaid securities, (b) Real Estate Investment Trusts (REITs) listed in recognized stock exchanges overseas or (c) unlisted overseas securities (not exceeding 10% of their net assets) And such other Securities as may be prescribed by SEBI/RBI from time to time. PIF STP The Scheme may also invest in another schemes managed by the same AMC or by the AMC of any other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations. The Scheme may participate in securities lending as permitted under the Regulations. The corpus of PIF STP will be predominantly invested in Debt Securities including securitised debt and Money Market Instruments. PIF STP may also invest its assets in a portfolio of debt instruments and related securities of government, quasi-government, corporate issuers and money market instruments (rated investment grade or higher or other-wise comparable, if not rated) with average residual maturity of up to 36 months and varying risks. The Asset Management Company further reserves the right to invest in derivatives subject to SEBI or any other Regulatory Authorities permitted from time to time. PIF STP may also invest in another schemes managed by the same AMC or by the AMC of any Page 26 of 65

216 other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations. PIF-STP may participate in securities lending as permitted under the Regulations. PFRF PFRF FMP The corpus of PFRF-FMP will be invested in money market instruments and other debt instruments including Securitised Debt, bank deposits, repos, call/notice money and other permissible instruments. Under normal circumstances, atleast 65% of the assets will be floating rate assets or fixed rate assets swapped into floating using swaps/derivatives. PFRF-FMP may also invest its assets in the purchase of Securitised Indices, Financial future contracts etc. and Overseas Financial Debt Instruments including units of overseas mutual funds subject to SEBI / RBI or any other Regulatory Authorities permitted from time to time. Investment in foreign securities will only be made in instruments denominated in US Dollar, Singapore Dollar, Japanese Yen, Euro or Sterling Pound or any other liquid currency as may be decided by AMC from time to time. Overseas Financial Debt Instruments including units of overseas mutual funds shall without limitation include:- Foreign debt securities in the countries with fully convertible currencies, short term as well as long term debt instruments with rating not below investment grade by accredited/registered credit rating agencies Money market instruments rated not below investment grade Repos in the form of investment, where the counterparty is rated not below investment grade Government securities where the countries are rated not below investment grade Derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying as securities Short term deposits with banks overseas where the issuer is rated not below investment grade Units/securities issued by overseas mutual funds or unit trusts registered with overseas regulators and investing in (a) aforesaid securities, (b) Real Estate Investment Trusts (REITs) listed in recognized stock exchanges overseas or (c) unlisted overseas securities (not exceeding 10% of their net assets) And such other Securities as may be prescribed by SEBI/RBI from time to time. PFRF-FMP may also invest in another schemes managed by the same AMC or by the AMC of any other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations. At present Mutual Funds are not permitted to participate in Inter Bank Calls. PFRF-FMP will participate in Inter Bank Calls only when Mutual Funds are permitted to do so. PFRF-FMP may participate in securities lending as permitted under the Regulations. PFRF SMP The corpus of PFRF SMP will be invested in money market instruments and other debt instruments including Securitised Debt, bank deposits, repos, call/notice money and other permissible instruments. Under normal circumstances, atleast 65% of the assets will be floating rate assets or fixed rate assets swapped into floating using swaps/derivatives. Pursuant to the SEBI circular dated January 19, 2009, PFRF SMP will invest in the following manner: PFRF SMP shall make investment in / purchase Debt and Money Market Instruments with the maturity of up to 91 days only. Inter Scheme transfers of securities in PFRF SMP having maturity up to 365 days and already held in any other Schemes of Principal Mutual Fund as on February 1, 2009 shall be permitted till October 31, 2009; Effective November 1, 2009, interscheme transfers in PFRF SMP shall be carried out in Debt and Money Market Instruments with the maturity of upto 91 days. PFRF SMP will also invest its assets in the purchase of Securitised Indices, Financial future contracts etc. and Overseas Financial Debt Instruments including units of overseas mutual funds subject to SEBI / RBI or any other Regulatory Authorities permitted from time to time. Investment in foreign securities will only be made in instruments denominated in US Dollar, Singapore Dollar, Japanese Yen, Euro or Sterling Pound or any other liquid currency as may be decided by AMC from time to time. Overseas Financial Debt Instruments including units of overseas mutual funds shall without limitation include:- Foreign debt securities in the countries with fully convertible currencies, short term as well as long term debt instruments with rating not below investment grade by accredited/registered credit rating agencies Money market instruments rated not below investment grade Repos in the form of investment, where the counterparty is rated not below investment grade Government securities where the countries are rated not below investment grade Derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying as securities Short term deposits with banks overseas where the issuer is rated not below investment grade Page 27 of 65

217 Units/securities issued by overseas mutual funds or unit trusts registered with overseas regulators and investing in (a) aforesaid securities, (b) Real Estate Investment Trusts (REITs) listed in recognized stock exchanges overseas or (c) unlisted overseas securities (not exceeding 10% of their net assets) And such other Securities as may be prescribed by SEBI/RBI from time to time. The Scheme may also invest in another schemes managed by the same AMC or by the AMC of any other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations. At present Mutual Funds are not permitted to participate in Inter Bank Calls. PFRF-SMP will participate in Inter Bank Calls only when Mutual Funds are permitted to do so. PFRF-SMP may participate in securities lending as permitted under the Regulations. Difference between PFRF-FMP and PFRF SMP While both will carry a floating rate objective (i.e have a similar fixed /floating allocation profile), the key difference between them would lie in the following:- Feature PFRF- FMP PFRF- SMP Average marked-to-market 0-100% Pursuant to the SEBI circular component (excluding money dated January 19, 2009 the market instruments) Scheme shall make investment In case of interest rate swaps in / purchase Debt and Money Tenure of fixed rate leg Market Instruments with the Interest frequency of 0-10 years maturity of up to 91 days only. composite floating rate assets (fixed plus swap) In case of FRAs beginning and end dates of covered period 0-10 years PCMF The corpus of the Scheme will be invested in Debt securities (including securitised debt), Money Market Instruments, Bills Re-discounting and Call/Term Money/ Repos / Reverse Repos / Deposits with Banks. The investments will be in securities, which the investment manager believes present minimal liquidity and/or credit risks. The investment composition for each of the options would be in instruments having varied yields, either listed or unlisted. Pursuant to the SEBI circular dated January 19, 2009, the scheme will invest in the following manner: The scheme shall make investment in / purchase Debt and Money Market Instruments with the maturity of up to 91 days only. Inter Scheme transfers of securities in the Scheme having maturity upto 365 days and already held in any other Schemes of Principal Mutual Fund as on February 1, 2009 shall be permitted till October 31, 2009; Effective November 1, 2009, interscheme transfers in the Scheme shall be carried out in Debt and Money Market Instruments with the maturity of upto 91 days. The Asset Management Company further reserves the right to invest in derivatives and overseas financial debt instruments including units of overseas debt instruments subject to SEBI / RBI or any other Regulatory Authorities permitted from time to time. Investment in foreign securities will only be made in instruments denominated in US Dollar, Singapore Dollar, Japanese Yen, Euro or Sterling Pound or any other liquid currency as may be decided by AMC from time to time. Overseas Financial Debt Instruments including units of overseas debt instruments shall without limitation include:- Foreign debt securities in the countries with fully convertible currencies, short term as well as long term debt instruments with rating not below investment grade by accredited/registered credit rating agencies Money market instruments rated not below investment grade Repos in the form of investment, where the counterparty is rated not below investment grade Government securities where the countries are rated not below investment grade Derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying as securities Short term deposits with banks overseas where the issuer is rated not below investment grade Units/securities issued by overseas mutual funds or unit trusts registered with overseas regulators and investing in (a) aforesaid securities, (b) Real Estate Investment Trusts (REITs) listed in recognized stock exchanges overseas or (c) unlisted overseas securities (not exceeding 10% of their net assets) And such other Securities as may be prescribed by SEBI/RBI from time to time. The Scheme may also invest in another schemes managed by the same AMC or by the AMC of any other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations. At present Mutual Funds are not permitted to participate in Inter Bank Calls. The Scheme will participate in Inter Bank Calls only when Mutual Funds are permitted to do so. The Scheme may participate in securities lending as permitted under the Regulations The corpus of the scheme will be invested in Debt Instruments & Money Market Instruments Page 28 of 65

218 PMMF PUSTF PGSF (Including MIBOR linked instruments with daily put and call option) having a very short term maturity profile. The Scheme shall predominantly invest in Overnight repo, CBLO, floating rate debt instruments and other fixed income securities. The scheme will also invest in securitised debt. Pursuant to the SEBI circular dated January 19, 2009, the scheme will invest in the following manner: In case of securities where the principal is to be repaid in a single payout the maturity of the securities shall mean residual maturity. In case the principal is to be repaid in more than one payout then the maturity of the securities shall be calculated on the basis of weighted average maturity of security. In case of securities with put and call options (daily or otherwise) the residual maturity of the securities shall not be greater than 182 days w.e.f February 01, 2009 and 91 days w.e.f May 01, In case the maturity of the security falls on a non-business day then settlement of securities will take place on the next business day. The Scheme may also invest in another schemes managed by the same AMC or by the AMC of any other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations. At present Mutual Funds are not permitted to participate in Inter Bank Calls. The Scheme will participate in Inter Bank Calls only when Mutual Funds are permitted to do so. The Scheme may participate in securities lending as permitted under the Regulations. The Asset Management Company further reserves the right to invest in derivatives subject to SEBI or any other Regulatory Authorities permitted from time to time. The corpus of the scheme will be invested in Debt Instruments & Money Market Instruments (Including MIBOR linked instruments with daily put and call option) having an average maturity of up to one year. The scheme will also invest in securitised debt. The Asset Management Company further reserves the right to invest in derivatives subject to SEBI or any other Regulatory Authorities permitted from time to time. The Scheme may also invest in another schemes managed by the same AMC or by the AMC of any other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations. At present Mutual Funds are not permitted to participate in Inter Bank Calls. The Scheme will participate in Inter Bank Calls only when Mutual Funds are permitted to do so. The Scheme may participate in securities lending as permitted under the Regulations. The assets under the Scheme will be invested solely in Government Securities. Investment Plan will be managed with a portfolio of government securities of any maturity. However to meet temporary liquidity needs, the Scheme may invest in overnight call money/notice money/bank deposits and/or repos. The Scheme may also invest a part of its assets in financial derivatives such as options and futures & IRS (comprising of government securities) that are permitted or may become permissible under SEBI/RBI Regulations. The proportion of assets to be so invested would be decided by the AMC at the appropriate time, and would be done in accordance with the relevant guidelines to be issued by SEBI/RBI and other authorities. The Scheme may also invest in another schemes managed by the same AMC or by the AMC of any other mutual fund without charging any fees on such investments, within the limits specified under SEBI Regulations. At present Mutual Funds are not permitted to participate in Inter Bank Calls. The Scheme will participate in Inter Bank Calls only when Mutual Funds are permitted to do so. Being a scheme dedicated exclusively for investments in Government Securities, Principal Government Securities Fund is eligible to avail at any time liquidity support (from RBI) upto 20% (or such limits as may be permitted from time to time) of the outstanding value of its investments in government securities (as at the close of business on the previous working day), under its guidelines issued vide letter IDMC. No. 2741/ /95-96, dated April 20, Depository Securities of the Scheme will be held in dematerialised form. In case the securities are held in dematerialized (electronic) mode, the rules of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996, would apply. The service charges payable to the Depository Participant will form a part of the annual recurring expenses. E. WHAT ARE THE INVESTMENT STRATEGIES? Scheme(s)/Plan(s) PMIP PMIP Plus PIF Investment Strategies To achieve the investment objective, assets under the Scheme will be invested in wide range of fixed income and money market instruments. The Scheme may also invest a small part of its assets in equity/equity related instruments. Further the Scheme may also invest in financial derivatives such as options and futures & IRS that are permitted or may become permissible under SEBI/RBI Regulations. The proportion of assets to be so invested would be decided by the AMC at the appropriate time, and would be done in accordance with the relevant guidelines to be issued by SEBI/RBI and other authorities. To achieve the investment objective, assets under the Scheme will be invested in wide range of fixed income and money market instruments. The Scheme may also invest a small part of its assets in equity/equity related instruments. Further the Scheme may also invest in financial derivatives such as options and futures & IRS that are permitted or may become permissible under SEBI/RBI Regulations. The proportion of assets to be so invested would be decided by the AMC at the appropriate time, and would be done in accordance with the relevant guidelines to be issued by SEBI/RBI and other authorities. The MIP Plus will have a separate portfolio from that of Principal Monthly Income Plan. However each of the investment options under the MIP Plus will share a common portfolio. The scheme will aim to invest its assets in a portfolio of debt instruments and related securities of government, quasi-government, corporate issuers and money market instruments with varying Page 29 of 65

219 PIF STP PFRF ( including PFRF FMP and PFRF SMP) PCMF PMMF PUSTF PGSF risks rated investment grade or higher or otherwise comparable (if not rated). The Short Term Plan aims to invest its assets in a portfolio of debt instruments and related securities of government, quasi-government, corporate issuers and money market instruments (rated investment grade or higher or other-wise comparable, if not rated) with average residual maturity of upto 36 months and varying risks. The Plan has a separate portfolio from Principal Income Fund. However each investment option under the Short Term Plan will have a common portfolio. The aim of the investment manager will be to allocate the assets of the scheme between various fixed rate securities and floating rate securities and use derivatives like swaps and FRAs with the objective of achieving stable returns. The scheme will endeavor to minimize interest rate risk. The scheme will invest its assets in a portfolio of money market instruments. The investments will be in securities, which the Investment Manager believes present minimal liquidity and/or credit risks. The portfolio will be predominantly invested in overnight repo, CBLO, floating rate instruments and other fixed income instruments. The net assets of the Scheme will be invested in debt securities and money market instruments. This Scheme is suitable for investors having a short-term investment horizon and seek high levels of liquidity for their investments. This Scheme would endeavor to preserve capital and offer relatively higher return and with relatively moderate liquidity. To achieve the investment objective, assets under the Scheme will be invested solely in government securities. However to meet temporary liquidity needs the Scheme may invest in overnight call money/notice money/bank deposits and/or repos. The Scheme may also invest a part of its assets in financial derivatives such as options and futures & IRS (comprising of government securities) that are permitted or may become permissible under SEBI/RBI Regulations. The proportion of assets to be so invested would be decided by the AMC at the appropriate time, and would be done in accordance with the relevant guidelines to be issued by SEBI/RBI and other authorities. Risk Control Since investing requires disciplined risk management, the AMC would incorporate adequate safeguards for controlling risks in the portfolio construction process. The risk control process involves reducing risks through portfolio diversification, taking care however not to dilute returns in the process. The AMC believes that this diversification would help achieve the desired level of consistency in returns. The AMC may also implement certain internal control procedures / risk & exposure limits etc., which may be varied from time to time. The AMC aims to identify securities, which offer superior levels of yield at lower levels of risks. With the aim of controlling risks, rigorous in-depth credit evaluation of the securities proposed to be invested in will be carried out by the investment team of the AMC. The Scheme(s) may also use various derivatives and hedging products from time to time, as would be available and permitted by SEBI/RBI, in an attempt to protect the value of the portfolio and enhance Unitholders interest. Trading in Derivatives (applicable where the asset allocation pattern of the Scheme(s) provides such investment) The Scheme(s) may take derivatives position based on the opportunities available subject to the guidelines provided by SEBI from time to time and in line with the overall investment objective of the Scheme(s). SEBI has vide its Circulars inter alia, DNPD/Cir-29/2005 dated September 14, 2005 and DNPD/Cir-30/2006 dated January 20, 2006, specified the guidelines pertaining to trading by Mutual Fund in Exchange traded derivatives and SEBI Circular DNPD/Cir-31/2006 dated September 22, 2006 modifying the position limits for Index derivative contracts. A derivative is an instrument whose value is derived from the value of one or more of the underlying assets which can be commodities, precious metals, bonds, currency, etc. Common examples of Derivative instruments are Interest Rate Swaps, Forward Rate Agreements, Futures, Options, etc. In case of equity derivatives, the Scheme(s) may transact in exchange traded equity derivatives only and these instruments may take the form of Index Futures, Index Options, Futures and Options on individual equities/securities and such other derivative instruments as may be appropriate and permitted under the SEBI Regulations and guidelines from time to time. Derivative positions taken would be guided by the following principles: Exposure to Equity Derivatives The net derivatives position in the Scheme(s) may be up to the limit as set forth in the asset allocation pattern of the Scheme(s), subject to the following regulatory limits: i. Position limit for the Mutual Fund in index options contracts: a. The Mutual Fund position limit in all index options contracts on a particular underlying index shall be Rs. 500 crore or 15% of the total open interest in the market in index options, whichever is higher, per Stock Exchange. b. This limit would be applicable on open positions in all options contracts on a particular underlying index. ii. Position limit for the Mutual Fund in index futures contracts: a. The Mutual Fund position limit in all index futures contracts on a particular underlying index shall be Rs. 500 crore or 15% of the total open interest in the market in index futures, whichever is higher, per Stock Exchange. b. This limit would be applicable on open positions in all futures contracts on a particular underlying index. iii. Additional position limit for hedging: In addition to the position limits at point (i) and (ii) above, Fund may take exposure in equity index derivatives subject to the following limits: a. Short positions in index derivatives (short futures, short calls and long puts) shall not exceed (in notional value) the Mutual Fund s holding of stocks. Page 30 of 65

220 b. Long positions in index derivatives (long futures, long calls and short puts) shall not exceed (in notional value) the Mutual Fund s holding of cash, government securities, T-Bills and similar instruments. iv. Position limit for the Mutual Fund for stock based derivative contracts: The Mutual Fund position limit in a derivative contract on a particular underlying stock, i.e. stock option contracts and stock futures contracts: a. For stocks having applicable market-wise position limit (MWPL) of Rs. 500 crores or more, the combined futures and options position limit shall be 20% of applicable MWPL or Rs.300 crores, whichever is lower and within which stock futures position cannot exceed 10% of applicable MWPL or Rs. 150 crores, whichever is lower. b. For stocks having applicable market-wise position limit (MWPL) less than Rs. 500 crores, the combined futures and options position limit would be 20% of applicable MWPL and futures position cannot exceed 20% of applicable MWPL or Rs. 50 crore which ever is lower. v. Position limit for the Scheme(s): The position limits for the Scheme(s) and disclosure requirements are as follows: a. For stock option and stock futures contracts, the gross open position across all derivative contracts on a particular underlying stock of a scheme(s) of a Fund shall not exceed the higher of :1% of free float market capitalization (in terms of number of shares). Or 5% of the open interest in the derivative contracts on a particular underlying stock (in terms of number of contracts). b. This position limit shall be applicable on the combined position in all derivative contracts on a underlying stock at a Stock Exchange. c. For index based contracts, the Mutual Fund shall disclose the total open interest held by its scheme or all schemes put together in a particular underlying index, if such open interest equals to or exceeds 15% of the open interest of all derivative contracts on that underlying index. As and when SEBI notifies amended limits in position limits for exchange traded derivative contracts in future, the aforesaid position limits, to the extent relevant, shall be read as if they were substituted with the SEBI amended limits. The Scheme(s) may write (sell) and purchase call and put options in securities in which it invests and on securities indices. Through the sale and purchase of futures contracts the Fund would seek to hedge against a decline in securities owned by the Fund or an increase in the prices of securities which the Fund plans to purchase. The Fund would sell futures contracts on securities indices in anticipation of a fall in stock prices, to offset a decline in the value of its equity portfolio. When this type of hedging is successful, the futures contract increase in value while the Fund's investment portfolio declines in value and thereby keep the Fund's net asset value from declining as much as it otherwise would. Similarly, when the Fund is not fully invested, and an increase in the price of equities is expected, the Fund would purchase futures contracts to gain rapid market exposure that may partially or entirely offset increase in the cost of the equity securities it intends to purchase. In certain cases the Fund might invest in futures contracts as against underlying cash stocks for reasons of liquidity and lower impact costs. Stock and Index Futures Hedging against an anticipated rise in equity prices:- The scheme(s) has a corpus of Rs.100 crores and has cash of Rs.15 crores available to invest. The Fund may buy index/stock futures of a value of Rs.15 crores. The scheme(s) may reduce the exposure to the future contract by taking an offsetting position as investments are made in the equities; the scheme(s) wants to invest in. Here, if the market rises, the scheme(s) gains by having invested in the index futures. Hedging against anticipated fall in equity prices:- If the Fund has a negative view on the market and would not like to sell stocks as the market might be weak, the scheme(s) of the Fund can go short on index/stock futures. Later, the scheme(s) can unwind the future positions. A short position in the future would offset the long position in the underlying stocks and this can curtail potential loss in the portfolio. The Fund's successful use of futures contracts is subject to the Fund Manager's ability to predict correctly the market factor affecting the market value of the Fund's portfolio securities. For example if a Fund is hedged against a fall in the securities using a short position in index futures, and the market instead rises, the Fund loses part or all of the benefit of the increase in securities prices on account of the offset losses in index futures. Imperfect co-relation between the price movements in the securities index on the one hand and the stocks held by the Fund or the futures contracts itself on the other hand may result in trading losses. The Fund may not be able to close an open futures position due to insufficient liquidity in the futures market. Under such circumstances, the Fund would be required to make daily cash payments of variation margin in the event of adverse price movements. If the Fund has insufficient cash, the Fund may be required to sell portfolio securities to meet daily variation margin requirement at a time when it may be disadvantageous to do so. A hedge is designed to offset a loss on a portfolio with a gain in the hedge position. At the same time, however, a properly correlated hedge will result in a gain in the portfolio position being offset by a loss in the hedge position. As a result the use of derivatives could limit any potential gain from an increase in value of the position hedged. In addition, an exposure to derivatives in excess of the hedging requirement can lead to losses. Stock and Index Options: Option contracts are of two types - Call and Put; the former being the right, but not obligation, to purchase a prescribed number of shares at a specified price before or on a specific expiration date and the latter being the right, but not obligation, to sell a prescribed number of shares at a specified price before or on a specific expiration date. The price at which the shares are contracted to be purchased or sold is called the strike price. Options that can be exercised on or before the expiration date are called American Options, while those that can be exercised only on the expiration date are called European Options. In India, all individual stock options are American Options, whereas all index options are European Options. Option contracts are designated by the type of option, name of the underlying, expiry month and the strike price. Page 31 of 65

221 Example for Options: Buying a Call Option: Let us assume that the Fund buys a call option of XYZ Ltd. with strike price of Rs. 1000, at a premium of Rs. 25. If the market price of ABC Ltd on the expiration date is more than Rs. 1000, the option will be exercised. The Fund will earn profits once the share price crosses Rs (Strike Price + Premium i.e ). Suppose the price of the stock is Rs. 1100, the option will be exercised and the Fund will buy 1 share of XYZ Ltd. from the seller of the option at Rs 1000 and sell it in the market at Rs. 1100, making a profit of Rs. 75. In another scenario, if on the expiration date the stock price falls below Rs. 1000, say it touches Rs.900, the Fund will choose not to exercise the option. In this case the Fund loses the premium (Rs.25), which will be the profit earned by the seller of the call option. Buying a Put Option. Let us assume the Fund owns the shares of XYZ Ltd, which is trading at Rs The fund wishes to hedge this position in the short-term as it perceives some downside to the stock in the short-term. It can buy a Put Option at Rs. 500 by paying a premium of say Rs, 10/- In case the stock goes down to Rs. 450/- the fund has protected its downside to only the premium i.e Rs 10 instead of Rs. 50. On the contrary if the stock moves up to say Rs. 550/- the fund may let the Option expire and forego the premium thereby capturing Rs. 40/- upside. The strategy is useful for downside protection at cost of foregoing some upside. Writing a Call Option: Let us assume that the Fund owns shares of XYZ Ltd., which are trading at Rs The Fund wishes to sell these shares at Rs It can write call option at Rs and earn a premium of, say, Rs. 20. If the option is not exercised, the Fund earns a premium and if the stock price does reach Rs. 1100, the premium adds to the profits that the Fund would have booked by selling at that price. In this case, if the stock price of XYZ Ltd. is less then Rs. 1100, the Fund earns Rs 20 and if it closes above Rs and the option gets exercised by the buyer, the Fund gets the strike price of Rs plus a premium of Rs. 20, i.e. effectively Rs Any loss because of stock price movement beyond Rs is an opportunity loss, as the Fund would otherwise have sold the shares at Rs Writing a Put Option : Let us assume that the fund wants to buy a share of 100, the current price of the stock being Rs. 120/- The fund can choose to write a Put Option with the strike Rs. 100/- and earn a small premium of say Rs. 2/- In case the stock comes below Rs. 100/- the buyer of the Put option will exercise it and the fund can enter the stock at its desired price (In this case Rs Rs. 1 = Rs 99). In case the stock Rs. 120/- the option-holder will not exercise the option and let it expire. In this case the fund will earn the premium income of Rs. 2/- For an option buyer, loss is limited to the premium that he has paid and gains are unlimited. The risk of an option writer i.e. the seller of the option, is unlimited while his gains are limited to the premiums earned. However, the loss in case of a covered call writing is limited as the Fund already has the relevant stocks in the portfolio. The above example is hypothetical in nature and all figures are assumed for the purpose of illustrating the use of call options in individual stocks. Similar analogy can be used for Index Options too when the fund wishes to hedge a part of the total portfolio or cash. The following section describes some of the more common debt derivatives transactions along with their benefits: Interest Rate Swap (IRS) An IRS is an agreement between two parties to exchange stated interest obligations for an agreed period in respect of a notional principal amount. The most common form is a fixed to floating rate swap where one party receives a fixed (pre-determined) rate of interest while other receives a floating (variable) rate of interest. Forward Rate Agreement (FRA) A FRA is basically a forward starting IRS. It is an agreement between two parties to pay or receive the difference between an agreed fixed rate (the FRA rate) and the interest rate (reference rate) prevailing on a stipulated future date, based on a notional principal amount for an agreed period. The only cash flow is the difference between the FRA rate and the reference rate. As is the case with IRS, the notional amounts are not exchanged in FRAs. Example Let us assume that a scheme(s) has an investment of Rs.10 crore in an instrument which pays interest linked to NSE Mibor. Since the NSE Mibor would vary daily, the scheme(s) is running an interest rate risk on its investment and would stand to lose if rates go down. To hedge itself against this risk, the scheme could do an IRS where it receives a fixed rate (assume 10%) for the next 5 days on the notional amount of Rs. 10 crore and pay a floating rate (NSE Mibor). In doing this, the scheme would effectively lock itself into a fixed rate of 10% for the next five days. The steps would be. 1. The scheme enters into an IRS on Rs. 10 crore from December 1, 2008 to December 6, It receives a fixed rate of interest at 10% and the counter party receives the floating rate (NSE Mibor). The Scheme and the counter party exchange a contract of having entered into this IRS. 2. On a daily basis, the NSE Mibor will be tracked by the counterparties to determine the floating rate payable by the scheme. 3. On December 6, 2008, the counterparty will calculate the following; The scheme will receive interest on Rs. 10 crore at 10% p.a. for 5 days i.e. Rs. 1,36,986/- The scheme will pay the compounded NSE Mibor for 5 days Effectively, the scheme has earned interest at 10% p.a. for 5 days by converting its floating rate asset into a fixed rate through the IRS. If the total interest on the compounded NSE Mibor rate is lower than Rs. 1,36,986/-, the scheme will receive the difference from the counterparty and vice-versa. In case the interest on compounded NSE Mibor is higher, the scheme would make a lower return than what it would have made had it not undertaken IRS. Page 32 of 65

222 Portfolio Turnover Rate The Portfolio Turnover Rate (PTR) means the lower of aggregate sales or purchases made during a particular year/period divided by the Average Asset under Management (average of Assets under Management on last day of month) for the relevant year/period. "Portfolio Turnover" is the term used by any Mutual Fund for measuring the amount of trading that occurs in a Scheme's portfolio during the year. The Scheme(s) are open-ended scheme(s). It is expected that there may be a number of subscriptions and repurchases on a daily basis. Moreover, portfolio turnover in the Schemes will be a function of market opportunities. The economic environment changes on a continuous basis and exposes portfolio to systematic as well as non-systematic risk. Consequently, it is difficult to estimate with any reasonable measure of accuracy, the likely turnover in the portfolio. However, a high turnover would significantly affect the brokerage and transaction costs. This will exclude the turnover caused on account of: - Investing the initial subscription, - Subscriptions and redemption undertaken by the unit holders. The AMC will endeavor to balance the increased cost on account of higher portfolio turnover with the benefits derived therefrom. A high portfolio turnover rate is not necessarily a drag on portfolio performance and may be representative of arbitrage opportunities that exist for scrips/securities held in the portfolio rather than an indication of a change in AMC's view on a scrip, etc. F FUNDAMENTAL ATTRIBUTES Following are the Fundamental Attributes of the scheme, in terms of Regulation 18 (15A) of the SEBI (MF) Regulations: (i) Type of a scheme Open ended scheme(s) For details on which schemes are Debt/Liquid schemes, please refer the Section on Type of the Schemes (ii) Investment Objective Main Objective Please refer Investment Objective of respective Scheme(s) as mentioned above Investment pattern - Please refer the Section on How will the Scheme(s) allocate its assets (iii) Terms of Issue Liquidity provisions such as listing, repurchase, redemption. Please refer the section Section on Ongoing offer Details Aggregate fees and expenses charged to the scheme. Please refer the section Fees and Expenses Any safety net or guarantee provided. Not Applicable In accordance with Regulation 18(15A) of the SEBI (MF) Regulations, the Trustees shall ensure that no change in the fundamental attributes of the Scheme(s) and the Plan(s) / Option(s) thereunder or the trust or fee and expenses payable or any other change which would modify the Scheme(s) and the Plan(s) / Option(s) thereunder and affect the interests of Unitholders is carried out unless: A written communication about the proposed change is sent to each Unitholder and an advertisement is given in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of the region where the Head Office of the Mutual Fund is situated; and The Unitholders are given an option for a period of 30 days to exit at the prevailing Net Asset Value without any exit load. G. HOW WILL THE SCHEME BENCHMARK ITS PERFORMANCE? Scheme/Plan PMIP PMIP - Plus PIF PIF - STP PFRF FMP Benchmark CRISIL MIP Blended Index CRISIL Composite Bond Fund Index CRISIL Short Term Bond Fund Index CRISIL Liquid Fund Index PFRF - SMP PCMF PMMF PUSTF PGSF Investment Plan: I-Sec Composite Index The composition of the aforesaid benchmarks is such that they are most suited for comparing performance of the Scheme(s). The Fund reserves the right to change the said benchmark and/or adopt one/more other benchmarks to compare the performance of the Scheme(s), subject to SEBI Regulations. Page 33 of 65

223 H. WHO MANAGES THE SCHEME? Sr. No. Fund Manager Scheme Name Age and Qualification Brief Experience 1 Pankaj Tibrewal Principal Emerging Bluechip 29 years/ B Com (Hons), Over 6 years experience in Fund Fund, PMIP, PMIP Plus, Master in Finance Management, Credit Risk Principal Child Benefit Fund, analyzing. In his previous Principal Balanced Fund, assignment he was associated Principal Pnb Long Term Equity with Global Stint Finance. Fund 3 Year Plan - Series I, Principal PNB Long Term Equity Fund 3 Year Plan - Series II and Principal Personal Tax Saver Fund 2 Badrish Kulhalli PIF, PFRF PCMF, PMMF, PUSTF, PGSF, Principal Pnb Fixed Maturity Plan 385 Days - Series VIII, Series IX and Series XI, Principal Pnb Fixed Maturity Plan 540 Days - Series II 36 years / B.E. (Mech), P.G.D.M Over 10 years of experience in Fixed Income Market, sales, Trading and Fund Management In his previous assignment he was associated as a Fund Manager with ING Investment Mgmt India Pvt Ltd - Optimix Division, Alliance Capital Asset Mgmt India Pvt Ltd. I. WHAT ARE THE INVESTMENT RESTRICTIONS? Following are the Investment limitations/restrictions applicable where the asset allocation pattern of the Scheme(s) provides such investment):- Pursuant to the SEBI circular dated January 19, 2009 the Scheme(s)/Plan(s) shall make investment in / purchase Debt and Money Market Instruments with the maturity of up to 91 days only. Explanation: a. In case of securities where the principal is to be repaid in a single payout the maturity of the securities shall mean residual maturity. In case the principal is to be repaid in more than one payout then the maturity of the securities shall be calculated on the basis of weighted average maturity of security. b. In case of securities with put and call options (daily or otherwise) the residual maturity of the securities shall not be greater than 182 days w.e.f February 01, 2009 and 91 days w.e.f May 01, c. In case the maturity of the security falls on a non-business day then settlement of securities will take place on the next business day. The scheme(s)shall not invest more than 15% of its NAV in debt instruments (of any residual maturity period) issued by a single issuer which are rated not below investment grade by a credit rating agency authorized to carry out such activity under the Act. Such investment limit may be extended to 20% of the NAV of the scheme with the prior approval of the Board of Trustees and the Board of the AMC. Provided that such limit shall not be applicable for investments in government securities (other than debentures). Provided further that the debentures irrespective of any residual maturity period (above or below one year), shall attract restriction as applicable under clause 1 and 1A of Seventh Schedule to the SEBI (Mutual Funds) Regulations, 1996 Provided further that the restrictions for investments made in securitised debt (mortgage backed securities/asset backed securities) would be applicable as per the clarification made by SEBI vide circular no. SEBIIMD/CIR No.6/63715/06, dated March 29, The scheme shall not invest more than 10% of its NAV in unrated debt instruments (of any residual maturity period) issued by a single issuer and the total investment in such instruments shall not exceed 25% of the NAV of the scheme. All such investments shall be made with the prior approval of the Board of Trustees and the Board of the AMC. The Scheme shall not invest more than 30% of its net assets in money market instruments of an issuer. Provided that such limit shall not be applicable for investments in Government securities, treasury bills and collateralized borrowing and lending obligations Transfers of investments from one scheme to another scheme of Principal Mutual Fund shall be allowed only if: - Such transfers are done at the prevailing market price for quoted instruments on spot basis. [Explanation - Spot basis shall have same meaning as specified by stock exchange for spot transactions.] - The securities so transferred shall be in conformity with the investment objective of the scheme to which such transfer has been made. A scheme may invest in another scheme under the same asset management company or any other mutual fund without charging any fees, provided that aggregate interscheme investment made by all schemes under the same management or in schemes under the management of any other asset management company shall not exceed 5% of the net asset value of the mutual fund. The Scheme shall buy and sell securities on the basis of deliveries and shall in all cases of purchases, take delivery of relative securities and in all cases of sale, deliver the securities. Page 34 of 65

224 Provided that the Scheme may engage in short selling of securities in accordance with the framework relating to short selling and securities lending and borrowing specified by SEBI. Provided further that sale of Government securities already contracted for purchase shall be permitted in accordance with the Guidelines issued by RBI in this regard; Provided further the Scheme may also enter into derivatives transactions in a recognised stock exchange, subject to the framework specified by the Board. The Mutual Fund shall get the securities purchased or transferred in the name of the Mutual Fund on account of the concerned scheme, wherever investments are intended to be of long-term nature Pending deployment of Funds of the scheme in terms of investment objective, Mutual Fund may invest them in short term deposits of scheduled commercial banks, subject to the following: - The scheme shall not park more than 15% of the net assets in Short term deposit(s) of all the scheduled commercial banks put together. However, it may be raised to 20% with prior approval of the trustees. Also, parking of funds in short term deposits of associate and sponsor scheduled commercial banks together shall not exceed 20% of total deployment by the mutual fund in short term deposits. - The scheme shall not park more than 10% of the net assets in short term deposit(s), with any one scheduled commercial bank including its subsidiaries. - No funds of the scheme may be parked in short term deposit of a bank which has invested in that scheme. - Short Term for such parking of fund by Mutual Fund shall be treated as a period not exceeding 91 days read with the provisions of SEBI Circular dated December 11, 2008 bearing reference SEBI/IMD/CIR No. 12/147132/08. The scheme shall not make any investment in: - any unlisted security of an associate or group company of the sponsor; or - any security issued by way of private placement by an associate or group company of the sponsor; or - the listed securities of group companies of the sponsor which is in excess of 25% of the net assets The Scheme shall not invest in any Fund of Funds Scheme The Scheme shall not invest more than 10% of its NAV in the equity shares or equity related instruments of any Company. The Scheme shall not invest more than 5% of its net assets in the unlisted equity shares or equity related instruments. Aggregate value of Illiquid Securities of the Scheme, which are defined as non-traded, thinly traded and unlisted equity share, shall not exceed 15% of the total assets of the Scheme The Fund under all its Schemes should not own more than 10% of any company s paid up capital carrying voting rights. Investment in foreign Securities:- In accordance with RBI Circular A.P. (DIR) Series Circular No. 3 dated July 26, 2006 read with SEBI Circular SEBI/IMD/CIR No.7/104753/07 dated September 26, 2007, the Fund is permitted to invest only up to US$ 300 million in identified overseas securities. Such limit and/or identified securities may be revised at the discretion of the Fund in alignment with the provision that may be prescribed in this regard by SEBI/RBI from time to time. These investment limitations/parameters (as expressed/linked to the net asset/nav/capital) shall in the ordinary course apply as of the date of the most recent transaction or commitment to invest, and changes do not have to be effected merely because, owing to appreciation or depreciation in value, or by reason of the receipt of any rights, bonuses or benefits in the nature of capital, or of any scheme of arrangement, or for amalgamation, reconstruction or exchange, or at any repayment or repurchase or other reason outside the control of the Fund, any such limits would thereby be breached. If these limits are exceeded for reasons beyond its control, the AMC shall adopt as a priority objective the remedying of that situation, taking due account of the interests of the unitholders. In addition, certain investment parameters (like limits on exposure to sectors, industries, issuers, etc.) may be adopted internally by the AMC, as amended from time to time, to ensure appropriate diversification/security for the Fund. The AMC may alter these above stated limitations from time to time, and also to the extent the SEBI Regulations change, so as to permit the Fund to make its investments in the full spectrum of permitted investments for Mutual Funds to achieve its investment objective. As such all investments of the Fund will be made in accordance with SEBI Regulations including Schedule VII thereof. J. HOW HAS THE SCHEME PERFORMED? Principal Monthly Income Plan Period As On Last 1 Year Last 3 Years Last 5 Years Since Inception Date 29-April April April April May- 02 Appreciation NAV* (%) Crisil MIP Blended Index (%) Page 35 of 65

225 Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. * Growth Option. Principal Monthly Income Plan - MIP Plus Period Date As On 29- April-09 Last 1 Year 30- April-08 Last Years April-06 Last Years April-04 Since 30-Dec- Inception 03 NAV* (%) Appreciation Crisil MIP Blended Index (%) Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. * Growth Option. Principal Income Fund Period Date Last 1 Year Last 3 Years Last 5 Years Since Incepti on Since Incepti on As On 29- April April April April Oct- 00 (Regul ar Plan) 09- May- 03 (Institu tional Plan) NAV* (%) (Regular Plan) Appreciation Crisil Composite Bond Fund Index (%) NAV* (%) (Instituti onal Plan) Crisil Composit e Bond Fund Index (%) N.A Regular Plan Institutional Plan Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. * Growth Option. Page 36 of 65

226 Period As On Last 1 Year Last 3 Years Last 5 Years Since Inception Since Inception Date NAV* (%) (Regul ar Plan) Principal Income Fund Short Term Plan Appreciation Crisil NAV* Short (%) Term (Instituti Bond onal Fund Plan) Index (%) Crisil Short Term Bond Fund Index (%) 29-April April April April Apr-02 (Regular Plan) 09-May-03 (Institutional Plan) Regular Institutional Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. * Growth Option. Period Date NAV* (%) - Regular Plan Principal Floating Rate Fund Flexible Maturity Plan Regular Appreciation NAV* (%) Crisil Institutional Liquid Plan Fund Index (%) Last 1 Year Last 3 Years Since Inception As On 29- April April April Sep Institutional Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. * Growth Option. Principal Floating Rate Fund - Short Maturity Plan Regular Period Date Appreciation Last 1 Year Last 3 Years Since Inception As On 29- April April April Sep- 04 NAV* (%) - Regular Plan NAV* (%) Institutional Plan Crisil Liquid Fund Index (%) Institutional Past performance may or may not be sustained in the future. Page 37 of 65

227 Note: Returns are calculated on compounded annualised basis. * Growth Option. Principal Cash Management Fund Liquid Option Period Date As on April 30, 2009 Last 1 April 30, year 2008 Last 3 April 28, years 2006 Last 5 April 30, Years 2004 Since October Incepti 25, 2000 on (Regular Plan) Since Incepti on Since Incepti on May 09, 2003 (Institutio nal Plan) August 30, 2004 (Institutio nal Premium Plan) NAV* Regular Plan NAV* Institutio nal Plan Appreciation NAV* Institutional Premium Plan Crisil Liquid Fund Index N/A Regular Institutional Institutional Premium Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. * Growth Option. Principal Ultra Short Term Fund Period As On Last 1 Year Since Inception Date 29-April April Nov- 07 NAV* (%) Appreciation Crisil Liquid Fund Index (%) Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. * Growth Option. Page 38 of 65

228 Principal Money Manager Fund Period Date Last 1 Year Since Inception As On 30- April April Dec- 07 NAV* Regular Plan Appreciation NAV* Institutional Plan Crisil Liquid Fund Index Regular Institutional Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. * Growth Option. Principal Government Securities Fund Particular Date NAV* Investme nt Plan As On Last 1 Year Last 3 years Last 5 years Since Inception I-SEC Comp osite Index 30-June June June June Aug N.A Investment Plan Past performance may or may not be sustained in the future. Note: Returns are calculated on compounded annualised basis. * Growth Option. K. INVESTMENT BY AMC? The AMC and investment companies managed by the Sponsor, its affiliates, its associate companies and subsidiaries may invest either directly or indirectly in the Scheme(s). The money managed by these affiliates, associates, the Sponsor, subsidiaries of the Sponsor and/or the AMC may acquire a substantial portion of a Scheme's units and collectively constitute a major investment a Scheme. Accordingly, repurchase of units held by such affiliates/associates and Sponsor may have an adverse impact on the units of a Scheme, because the timing of such repurchase may impact the ability of other unit holders to repurchase their units. The AMC reserves the right to invest its own funds in the Scheme(s) as may be decided by the AMC from time to time and in accordance with SEBI Circular no. SEBI/IMD/CIR No. 10/22701/03 dated December 12, 2003 and SEBI/IMB/CIR No.1/42529/05 dated June 14, 2005 regarding minimum number of investors in the Scheme/ Plan. The AMC shall not charge any fees on investment by the AMC in the units of the Scheme(s) in accordance with Sub Regulation 3 of Regulation 24 of the Regulations and shall charge fees on such amounts in future only if the SEBI Regulations so permit. Page 39 of 65