annual report 2014-15 - principalindia.com...push towards road and rail infrastructure creation is...

ANNUAL REPORT 2014-15

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Particulars Page No.

Trustee Report 3 - 214

Independent Auditor’s Report 216 - 217

Balanced Sheet 218 - 222

Revenue Account 223 - 236

Schedules to the Financial Statements 237 - 300

Cash Flow Statement 301 - 314

Annexure(s)

Annexure I - Industrywise ‘Statement of Portfolio Holding’ 315 - 350

Annexure II - 5% Cross holding Report under Regulation 25(11) 351 - 358

Annexure III - Transactions with any of the related parties mentioned in (14),as defined under Accounting Standard 18 and Regulation 25(8)of the SEBI (Mutual Funds) Regulations, 1996 359 - 365

Annexure IV - Commission Paid to Associates / Related Parties / GroupCompanies of Sponsor AMC 366 - 376

Annexure V - Historical Per Unit Statistics 377 - 394

Annexure VI - Disclosure for Investments in Derivative Instruments 395 - 398

INDEX


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To the Unitholders,

Directors of Principal Trustee Company Private Limited havethe pleasure in presenting the Twenty First Annual Reportalong with the audited financial statements of the Schemesof Principal Mutual Fund for the Financial Year 2014-2015.

1. Scheme Performance, Future Outlook andOperations of the Scheme:

(a) Equity Schemes - Overview during Financial Year2014-2015

The dominant theme impacting the Indian equity marketsduring the past financial year was the election of the newgovernment in May 2014. The previous government, towardsthe end of its tenure had made efforts to revive the economy,particularly focusing on the stalled projects. With theformation of the new government, the markets expected theunclogging of the levers of the economy and general paceof reforms to accelerate. This expectation drew increasinginvestments into the markets, both from Foreign PortfolioInvestors (FPIs) and domestic investors. The equity markets,hence did well during the year. As is usual when marketsshow sustained, strong momentum, the mid cap and smallcap indices outperformed the narrower large cap indicesduring the year. Hence, while the CNX Nifty Index was upnearly 27% during the year, the BSE Mid cap was up nearly50% and the BSE Small Cap was up nearly 54% during thesame period. By way of comparison, the MSCI EM Index(Local Currency terms) was up 8.2% during the year. Asmentioned above, flows into equity remained strong. Hence,while the FIIs invested about ` 111,330 crores (about USD17.7 Billion), the Mutual Funds invested ` 40,700 crores inthe markets during the year. Insurance firms overall, however,remained sellers during the year.

Globally, the commodity markets were weak. The CRB Indexof commodities fell about 16% during the year. Crude oilprices fell sharply during the year, which was surprising giventhe uncertainty in West Asia. Brent Crude was down about49% during the year. The fall in crude prices was a big helpto the Indian economy, helping bring down both inflation andthe current account deficit. The CPI for March 2015 fell to5.2% from 8.3% a year ago. This was partly helped by lowerfuel prices, while prices of food items remained flat to weak.Lower inflation enabled the RBI to cut repo rates by 50 bpsoverall in the last quarter of the financial year.

As said earlier, the markets had lot of expectations from thenew government in terms of steps to kick start growth in theeconomy. The government has taken steps which will showresults over the medium term. In the economic sphere, thefocus of the government appears to be to work towardsremoving bottlenecks to industrial capacity creation,especially in the infrastructure sector; improving India'sposition as a place to do business; focusing public spendingfrom poorly targeted subsidies towards public investment,

TRUSTEE REPORT

tax reforms and a push to manufacturing in India etc. Thepush towards road and rail infrastructure creation issomething which can have immediate benefits to theeconomy. The demand conditions overall in the economyremained weak, and rural demand, which had hitherto heldup, also was impacted. Though work has started oninfrastructure projects, new projects haven't picked up in asignificant manner. As a result, bank lending growth wasweak too, while concerns on asset quality persistedthroughout the year. Towards the end of the year, asset qualityissued surfaced also in the private banks. Hence, brokerageanalysts, who earlier had built in assumptions of an economicrecovery in their projections for FY15, had to scale downtheir estimates in Q3 and Q4 of the year. This led to themarkets trading mostly sideways in the last quarter.

There have been strong capital flows in the debt and theequity markets through the year. While the RBI has beenbuying Dollars, the Rupee has been one of the strongestcurrencies in the world in the past year. It weakened by only4% during the year while the Dollar index was stronger bynearly 23% during the year. The relative strength of theRupee has had some impact on India's export performance,which was weak in the last quarter of 2014-15.

31-Mar-15

Index 1 Mth 3 Mth 6 Mth 1 Yr

Broad Markets

CNX Nifty Index 8491 -4.62 2.51 6.61 26.65

S&P BSE Sensex 27957 -4.78 1.67 4.98 24.89

S&P BSE 100 8607 -4.31 2.84 7.37 28.32

S&P BSE 200 3538 -3.73 3.19 8.79 31.93

S&P BSE 500 11049 -3.54 3.05 8.61 33.19

S&P BSE MID CAP 10592 -2.02 2.12 11.14 49.55

S&P BSE SMALL CAP 10890 -3.34 -1.77 1.96 53.99

Sectoral Performance

S&P BSE AUTO 19259 -3.62 3.37 8.52 45.02

S&P BSE Bankex 20865 -7.57 -2.76 18.45 43.18

S&P BSEConsumer Goods 17293 -2.74 11.99 21.20 43.97

S&P BSEConsumer Durables 10418 0.29 7.69 5.76 59.63

S&P BSE FMCG 7773 -5.46 0.09 1.87 11.51

S&P BSE METAL 9466 -10.45 -11.97 -17.04 -5.90

S&P BSE Oil & Gas 9312 -3.86 -5.89 -13.21 -1.83

S&P BSE PSU 7608 -6.10 -7.52 -2.24 19.72

S&P BSE Teck 6257 -2.60 7.10 5.71 27.57

S&P BSE Healthcare 17285 9.02 17.64 20.43 71.42

Source: Internal


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Performance of Equity / Balanced / Equity Linked SavingsScheme / Fund of Funds Schemes as on March 31, 2015:

EQUITY SCHEMES -

Principal Dividend Yield Fund (An open ended EquityScheme)

Period Date Appreciation(%)

NAV^ CNX DividendOpportunities

Index

Regular Plan

Last 1 Year 31-Mar-14 30.54 17.76

Last 3 Years 30-Mar-12 15.64 9.35

Last 5 Years 31-Mar-10 11.24 10.69

Since Inception 15-Oct-04 12.72 Not Available

Direct Plan

Last 1 Year 31-Mar- 14 31.25 17.76

Since Inception 02-Jan-13 13.50 5.94

Note: Past performance may or may not be sustained in the future.

During the Financial Year 2014-15, the Scheme outperformedits benchmark due to the outperformance of stocks boughtin Automobiles, Construction, Financials and Energy sectorswith the returns from these stocks being significantly highercompared to the benchmark.

The net assets of the Scheme amounted to ` 116.85 Crsas at March 31, 2015 as compared to ` 102.61 Crs as atMarch 31, 2014.

Principal Growth Fund - (An open ended Equity Scheme)


NAV^ S&P BSE 200Index

Regular Plan

Last 1 Year 31-Mar-14 42.77 31.93

Last 3 Years 30-Mar-12 25.71 17.89

Last 5 Years 31-Mar-10 13.33 9.96

Since Inception 25-Oct-00 16.85 16.14

Direct Plan

Last 1 Year 31-Mar-14 43.63 31.93



During the Financial Year 2014-15, the Scheme outperformedits benchmark due to the outperformance of stocks boughtin Automobiles, Pharmaceuticals, Construction, Consumerand Energy sectors with the returns from these stocks beingsignificantly higher compared to the benchmark.

The net assets of the Scheme amounted to ` 372.32 Crsas at March 31, 2015 as compared ` 277.66 Crs as atMarch 31, 2014.

Principal Large Cap Fund (An open ended Equity Scheme)


NAV^ S&P BSE 100Index

Regular Plan

Last 1 Year 31-Mar-14 35.02 28.32

Last 3 Years 30-Mar-12 20.97 17.41

Last 5 Years 31-Mar-10 12.52 9.79

Since Inception 11-Nov-05 17.90 13.63

Direct Plan

Last 1 Year 31-Mar-14 35.82 28.32



During the Financial Year 2014-15, the Scheme outperformedits benchmark due to the outperformance of stocks boughtin Automobiles, Energy, Cement, Construction and IT sectorswith the returns from these stocks being significantly highercompared to the benchmark.


Principal Index Fund - Nifty (An open ended Index Scheme)


NAV^ CNX Nifty Index

Regular Plan

Last 1 Year 31-Mar-14 26.61 26.65

Last 3 Years 30-Mar-12 17.18 17.03

Last 5 Years 30-Mar-10 10.24 10.09

Since Inception 27-Jul-99 11.90 12.65

Direct Plan

Last 1 Year 31-Mar-14 27.25 26.65



During the Financial Year 2014-15, the performance of theRegular Plan is in line with the index while that of the Directplan is slightly higher than that of the index. This wasessentially due to differences in the timing in inflows/outflowsand the corresponding purchases/sales of Nifty baskets,inclusions/exclusions of stocks in the Nifty (necessitatingmodifications in the portfolios accordingly).

The net asset of the Scheme is ` 14.67 Crs as at March 31,2015 as compared to ` 8.24 Crs as at March 31, 2014.


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Principal Index Fund - Midcap (An open ended Index Scheme)


NAV^ CNX MidcapIndex

Regular Plan

Since Inception 12-May-14 N.A N.A

Direct Plan

Since Inception 12-May-14 N.A N.A

Note: As the scheme has not completed one year, the performance/returns for this scheme is not provided.

Principal Emerging Bluechip Fund(An open ended Equity Scheme)


NAV^ CNX MidcapIndex

Regular Plan

Last 1 Year 31-Mar-14 71.37 50.96

Last 3 Year 30-Mar-12 35.98 19.00

Last 5 Years 31-Mar-10 18.42 11.02


Direct Plan

Last 1 Year 31-Mar-14 72.55 50.96



During the Financial Year 2014-15, the Scheme outperformedits benchmark due to the outperformance of stocks boughtin Construction, Consumer, Automobiles, Energy, Industrials,Cement and Services sectors with the returns from thesestocks being significantly higher compared to the benchmark.

The net assets of the Scheme amounted to ̀ 479.38 Crs asat March 31, 2015 as compared to to ` 263.26 Crs as atMarch 31, 2014.

Principal Smart Equity Fund (An open ended Equity Scheme)


NAV^ Crisil BalancedFund Index

Regular Plan

Last 1 Year 31-Mar-14 25.47 22.53

Last 3 Year 30-Mar-12 18.43 14.54

Since Inception 16-Dec-10 12.54 9.00

Direct Plan

Last 1 Year 31-Mar-14 26.33 22.53



The Scheme aims to provide the benefit of automatic assetallocation to investment based on market valuations and toprotect the investors from high volatility in the markets and

at the same time providing growth. During the Financial Year2014-15, the Scheme outperformed its benchmark due tothe outperformance of stocks bought in Automobiles, Energy,Cement, Construction and IT sectors with the returns fromthese stocks being significantly higher compared to thebenchmark.

The net assets of the Scheme amounted to ` 77.65 Crs asat March 31, 2015 as compared to ` 51.68 Crs as at March31, 2014.

EQUITY LINKED SAVINGS SCHEME(S) -

Principal Tax Savings Fund(An open ended Equity Linked Savings Scheme)


NAV## S&P BSE 200Index

Regular Plan

Last 1 Year 31-Mar-14 42.75 31.93

Last 3 Years 30-Mar-12 25.97 17.89

Last 5 Years 31-Mar-10 13.73 9.96

Since Inception 31-Mar-96 17.39 13.02

Direct Plan

Last 1 Year 31-Mar-14 43.43 31.93


Note: Past performance may or may not be sustained in the future.##Returns have been calculated assuming that the Dividend havebeen re-invested.



Principal Personal Tax Saver Fund(An open ended Equity Linked Savings Scheme)


NAV## S&P BSE 100Index

Regular Plan

Last 1 Year 31-Mar-14 35.27 28.32

Last 3 Years 30-Mar-12 21.25 17.41

Last 5 Years 31-Mar-10 11.34 9.79


Direct Plan

Last 1 Year 31-Mar-14 36.03 28.32


Note: Past performance may or may not be sustained in the future.##Returns have been calculated assuming that the Dividend havebeen re-invested.


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During the Financial Year 2014-15, the Scheme outperformedits benchmark due to the outperformance of stocks boughtin Automobiles, Enegy, Cement, Construction and IT sectorswith the returns from these stocks being significantly highercompared to the benchmark.


BALANCED SCHEME -

Principal Balanced Fund (An open ended Balanced Scheme)


NAV^ Crisil BalancedFund Index

Regular Plan

Last 1 Year 31-Mar-14 30.45 22.53

Last 3 Years 30-Mar-12 19.41 14.54

Last 5 Years 31-Mar-10 10.97 9.74

Since Inception 14-Jan-00 11.20 Not Available

Direct Plan

Last 1 Year 31-Mar-14 31.53 22.53





FUND OF FUNDS SCHEME -

Principal Global Opportunities Fund(An Open ended Fund of Funds Scheme)


NAV^ MSCI WorldIndex

Regular Plan

Last 1 Year 31-Mar-14 5.26 8.20

Last 3 Years 30-Mar-12 5.10 17.50

Last 5 Years 31-Mar-10 7.19 14.98


Direct Plan

Last 1 Year 31-Mar-14 5.74 8.20



During the Financial Year 2014-15, the Schemeunderperformed its benchmark. The developed markets haveperformed well in FY15 compared to the Emerging markets

which has led to the fund underperforming the MSCI WorldIndex, which is dominated by developed markets. The fundhas however, outperformed the MSCI Emerging Marketsbenchmark. The underlying fund continued to prefercompanies with positive fundamental change, earningsrevision and attractive valuations.


(b) Debt Schemes - Overview during Financial Year2014-2015

FY 2014-15 saw a sharp rally in debt markets with yieldscoming down across all the instruments, viz. GovernmentSecurities, Corporate Bonds and CP/CDs. During the year,RBI turned accommodative in its stance. After keeping thebenchmark rates steady in the first three quarters of thefiscal year, it reduced the benchmark rates twice by 25 bpseach in the final quarter of FY15. Currently the Repo Ratestands at 7.5%, compared to 8.00% in March 2014. Duringthe financial year, the Rupee remained stable in a range ofRs. 58-62 against USD. The 10 year benchmark G-Sec yieldfell by around 100 basis points to 7.76%, where as the yieldon corporate bonds fell by 120 bps, both in the 5 year and10 year segment to end the fiscal year at 8.40%. Yield onone year CDs came down by around 75 bps to close at8.45%. Large FII inflows were seen in fixed income markets,with net inflows being positive in 11 months of the fiscalyear! The total FII flows were in excess of Rs. 1.6 Lac Croresin Fixed income segment, highest in any single financial year.

Brent Crude fell sharply in the second half of the fiscal, afterhovering above USD 100 per barrel till September 2014.For the year the 50% fall in Brent Crude (from USD 108 toUSD 54 per barrel) led to dramatic improvement in the Indianmacroeconomy. The twin deficits came down, so did theinflation. The Fiscal Deficit is estimated to be contained to4.1% (from 4.6%) where as Current Account deficit isestimated to come down to 1.2% (from 1.7%). The inflationmeasures came down drastically. Annual CPI fell from 8.25%in March 2014 to 5.37% in Feb 2015, while WPI came downfrom 6.00% to -2.06%. IIP data too showed improvement,but it could not match the revised GDP estimates releasedby Government. IIP from April 2014-Jan 2015 was at 2.5%,compared to -0.1% in FY2013-14. Using new data sourcesand a revised base-year (from 2004-5 to 2011-12), thegovernment revised up FY14 (year ending March 2014)growth by a whopping 190 bps from 5% to 6.9%. Thegovernment's advance estimate pegged FY15 growth at7.4% oya - more than 150 bps higher than the previousgrowth estimates.


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Performance of Debt and Liquid Schemes / Plans as onMarch 31, 2015:

Principal Debt Opportunities Fund - Conservative Plan(An open ended Debt Scheme)


NAV^ CRISIL LiquidFund Index

Regular Plan

Last 1 Year 28-Mar-14 8.49 8.98

Last 3 Years 30-Mar-12 8.99 8.89

Last 5 Years 31-Mar-10 8.59 8.26

Since Inception 14-Sep-04 7.77 7.09

Direct Plan

Last 1 Year 28-Mar-14 9.54 8.98



The Direct Plan under the scheme, for the Financial Year2014-15 has outperformed the benchmark. The goodperformance was primarily on account of dynamicallymanaging the average maturity and opportunistic trading inCPs and CDs. In the light of the volatile environment wekept low average maturity for most of the year.

The net assets of the Plan under the Scheme accountedto ` 404.70 crs as at March 31, 2015 as compared to` 314.68 crs as at March 31, 2014.

Principal Debt Opportunities Fund - Corporate BondPlan (An open ended Debt Scheme)


NAV^ CRISIL CompositeBond Fund Index

Regular Plan

Last 1 Year 28-Mar-14 9.70 8.98

Last 3 Years 30-Mar-12 8.67 8.89

Last 5 Years 31-Mar-10 8.30 8.26


Direct Plan

Last 1 Year 28-Mar-14 10.20 8.98



During the Financial Year 2014-15, both Regular and DirectPlans under the Scheme outperformed its benchmark. It wasprimarily on account of dynamically managing the averagematurity and opportunistic trading in corporate bonds. In thelight of the volatile environment we kept low average maturityfor most of the year.

The net assets of Plan under the Scheme to ` 233.32 crsas at March 31, 2015 as compared to ` 3.79 crs as atMarch 31, 2014.

Principal Bank CD Fund (An open ended Debt Scheme)


NAV^ CRISIL LiquidFund Index

Regular Plan

Last 1 Year 28-Mar-14 8.80 8.98

Last 3 Years 30-Mar-12 9.19 8.89

Last 5 Years 31-Mar-10 8.63 8.26


Direct Plan

Last 1 Year 28-Mar-14 9.32 8.98



During the financial year 2014-15, the Direct Plans underthe Scheme out performed the benchmark. This wasessentially on account of deploying the funds in a judiciousmix of Certificates of Deposit, CBLOs and minimum exposureto NCDs. The fund was managed with optimum proportionof MTM Assets as mandated by the Scheme. The regularplan marginally underperformed the benchmark.


Principal Government Securities Fund (An open endeddedicated Gilt Scheme investing in Government Securities)


NAV^ I-Sec CompositeIndex

Regular Plan

Last 1 Year 28-Mar-14 16.49 15.58

Last 3 Years 30-Mar-12 9.23 10.30

Last 5 Years 31-Mar-10 7.38 8.81

Since Inception 23-Aug-01 7.83 Not Available

Direct Plan

Last 1 Year 28-Mar-14 17.06 15.58



During the Financial Year 2014-15, the Scheme outperformedits benchmark. It was primarily on account of dynamicallymanaging the average maturity and opportunistic trading ingovernment securities based on close tracking of macroeconomic parameters.

The net assets of the Scheme accounted to ` 45.55 Crsas at March 31, 2015 as compared ` 64.44 Crs as atMarch 31, 2014.


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Principal Income Fund - Long Term Plan(An open ended Income Scheme)


NAV^ Crisil CompositeBond Fund Index

Regular Plan

Last 1 Year 28-Mar- 14 14.41 14.54

Last 3 Years 30-Mar-12 9.26 9.32

Last 5 Years 31-Mar-10 8.77 8.13

Since Inception 9-May-03 7.63 6.30

Direct Plan

Last 1 Year 28-Mar-14 15.22 14.54



During the Financial Year 2014-2015, the Regular Plan underthe scheme marginally underperformed its benchmark.

The Direct Plan under the Scheme, for the Financial Year2014-2015 has outperformed the benchmark due to effectiveduration management and regular change of weightagesbetween corporate bonds and government securities basedon tracking macreconomic parameters and marketconditions.

The net assets of the Plan amounted to ` 73.51 Crs asat March 31, 2015 as compared to ` 105.85 Crs as atMarch 31, 2014.

Principal Income Fund - Short Term Plan(An open ended Income Scheme)


NAV^ Crisil Short TermBond Fund Index

Regular Plan

Last 1 Year 28-Mar-14 9.99 10.31

Last 3 Years 30-Mar-12 9.21 9.40

Last 5 Years 31-Mar-10 8.64 8.31


Direct Plan

Last 1 Year 28-Mar-14 10.77 10.31



During the Financial Year 2014-15, the Regular Plan underthe Scheme marginally underperformed its benchmark.

The Direct Plan under the scheme, for the Financial Year2014-15 has outperformed the benchmark due to effectiveduration management and regular change of weightagesbetween corporate bonds and government securities.

The net assets of the Plan accounted to ` 157.69 Crs asat March 31, 2015 as compared to ` 108.54 Crs as atMarch 31, 2014.

Principal Debt Savings Fund - Monthly Income Plan(An open-ended fund. Monthly Income is not assured andis subject to the availability of distributable surplus.)


NAV^ Crisil MIPBlended Index

Regular Plan

Last 1 Year 28-Mar-14 13.19 16.39

Last 3 Years 30-Mar-12 8.06 10.59

Last 5 Years 31-Mar-10 6.64 8.61


Direct Plan

Last 1 Year 28-Mar-14 14.04 16.39



During the Financial Year, the Scheme underperformed itsbenchmark. The underperformance was due to relatively lowexposure to the equity segment during part of the FinancialYear 2014-15. The moderate duration versus the benchmarkresulted in slight underperformance of the fund.

The net assets of the Plan amounted to ` 23.84 Crsas at March 31, 2015 as compared to ` 28.21 Crs as atMarch 31, 2014.

Principal Debt Savings Fund - Retail Plan(An open-ended income fund)


NAV^ Crisil CompositeBond Fund Index

Regular Plan

Last 1 Year 28-Mar-14 9.38 10.31

Last 3 Years 30-Mar-12 8.67 9.40

Last 5 Years 31-Mar-10 6.35 8.31


Direct Plan

Last 1 Year 28-Mar-14 10.20 10.31



During the Financial Year 2014-15, the Regular and DirectPlans under the Scheme underperformed its benchmark.This was mainly due to maintaining lower average maturityand exposure to Government Securities compared to thebenchmark.

The net assets of the Plan accounted to ` 25.35 Crsas at March 31, 2015 as compared to ` 25.95 Crs as atMarch 31, 2014.


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Principal Cash Management Fund(An open ended Liquid Scheme)


NAV^ Crisil LiquidFund Index

Regular Plan

Last 1 Year 28-Mar-14 9.01 8.98

Last 3 Years 30-Mar-12 9.22 8.89

Last 5 Years 31-Mar-10 8.68 8.26

Since Inception 30-Aug-04 7.61 7.08

Direct Plan

Last 1 Year 28-Mar-14 9.09 8.98



During the Financial Year 2014-15, the Regular and DirectPlans under the Scheme outperformed its benchmark. Thiswas mainly due to judicious mix of cash management throughprudent Asset Liability management, mix of higher yieldingcommercial papers and effective management of mark tomarket portion of the fund.

The net assets of the Scheme accounted to ` 1551.99 Crsas at March 31, 2015 as compared to ` 1081.44 Crs as atMarch 31, 2014.

Principal Retail Money Manager Fund(An open ended Debt Scheme)


NAV^ Crisil LiquidFund Index

Regular Plan

Last 1 Year 28-Mar-14 9.39 8.98

Last 3 Years 30-Mar-12 9.68 8.89

Last 5 Years 31-Mar-10 8.49 8.26


Direct Plan

Last 1 Year 28-Mar-14 9.49 8.98



During the Financial Year 2014-15, the Regular and DirectPlans under the Scheme out performed the benchmark. Thesame was essentially on account of prudent Asset Liabilitymanagement, the fund remaining invested in a mix ofCertificate of Deposits and Commercial Papers to generateoutperformance over the benchmark.

The net assets of the Scheme accounted to ` 27.20 crsas at March 31, 2015 as compared to ` 21.36 crs as atMarch 31, 2014.

Principal Pnb Fixed Maturity Plan - Series B2(A close ended debt Scheme offering Fixed Maturity Plan of 1098 days)


NAV^ Crisil Short TermBond Fund index

Last 1 Year 28-Mar-14 8.92 14.54



Principal Pnb Fixed Maturity Plan - Series B5A close ended debt Scheme offering Fixed Maturity Plan of 367 days(the Scheme has been further rolled - over for a period of 732 days)



Regular Plan

Last 1 Year 28-Mar-14 9.69 10.31


Direct Plan

Last 1 Year 28-Mar-14 9.75 10.31






Regular Plan

Last 1 Year 28-Mar-14 8.68 10.31


Direct Plan

Last 1 Year 28-Mar-14 9.22 10.31






Regular Plan

Last 1 Year 28-Mar-14 8.86 10.31


Direct Plan

Last 1 Year 28-Mar-14 9.39 10.31




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Regular Plan

Last 1 Year 28-Mar-14 9.03 10.31


Direct Plan

Last 1 Year 28-Mar-14 9.52 10.31






Regular Plan

Last 1 Year 28-Mar-14 9.10 10.31


Direct Plan

Last 1 Year 28-Mar-14 9.26 10.31






Regular Plan

Since Inception 30-Apr-14 N.A. N.A.

Direct Plan

Since Inception 30-Apr-14 N.A. N.A.





Regular Plan

Since Inception 13-May-14 N.A. N.A.

Direct Plan

Since Inception 13-May-14 N.A. N.A.


Most of the scheme(s) under the Fixed Maturity Plans sincetheir inception have been in line with their benchmarks, whereasPrincipal Pnb Fixed Maturity Plan - Series B2 has outperformedits benchmark significantly. The same has essentially been onaccount of the scheme(s) being Fixed Maturity Plan(s) whichrequired locking in investments till maturity of the Scheme(s)and better timing and stock selection.

^ Growth Option

Note: Returns less than one year are calculated on absolutebasis and returns for more than one year are calculated onCompounded Annualised basis.

Outlook and Operations of the Scheme:

a. Equity Market:

While the economy through FY15 generally remained weak,there are some signs of a pick up. The sales of CommercialVehicles, esp. Heavy CVs has shown an uptick in the pastfew months. Toll road operators say that traffic flow has pickedup meaningfully on some stretches, not only in areas wheremining is restarting, but even otherwise. There have been initialmoves towards transmission of lower interest rates by thebanks. However, it is key that the strength of corporate balancesheets improve as that is a necessary condition for a strongrecovery in the capital expenditure cycle. We have seen somesigns of that with asset sales in the infrastructure space.

Globally, the picture is mixed. The key event to watch out forwould be the Fed raising rates and the markets' reaction tothat as that can impact flows into EMs. Incrementally, stockmarkets in developed markets are doing better than thosein EMs. However, India in some ways is better placed, aswhile the macros have improved, the markets now expectthe micro (i.e. the company level) picture also to improve.This is not true of most EMs, which should benefit India asfar as relative fund flows are concerned.

b. Debt Market:

The key drivers for debt market in FY 2015-16 would be theRBI monetary policy stance, CPI Inflation trajectory, Bankingsystem liquidity conditions and demand supply dynamicsfor Government Securities (G-Sec).RBI is expected to keepCPI inflation as the nominal anchor of monetary policy. If thetrajectory of CPI inflation is in line with RBI projections(4% by Aug 15, and 5.8% by Mar 16), then we may seefurther rate cuts this year.

Global crude oil prices would continue to remain an importantindicator in terms of fuel inflation, oil import growth andsubsidy bill of government. Any fall in prices to below US$50per barrel on account of global growth concerns would bepositive for debt market. Banking system liquidity is expectedto remain in deficit mode in FY16 as well. Most of the deficit,though, would be financed through Term repo like FY15.

The supply of G-Sec in the first half of FY 2015-16 is 60% ofthe total dated G-sec borrowing programme of ` 6.00 lakhcrores (in turn higher than ̀ 5.92 Lac Cr of FY 2014-15). Thegovernment plans to conduct buyback (swap) of short tenorG-sec and issue fresh long dated G-sec of an equivalentamount this year as well, which may put pressure on longterm G-Sec yields. The broad range for 10 year benchmarkfor financial year 2015-16 is likely to be 7.00%-8.00%.


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Operations: Principal Mutual Fund (PMF) as at March 31,2015 offers twenty nine Schemes. These include nine EquitySchemes (including two Equity Linked Savings Schemes),one Balanced Scheme, one Hybrid Scheme, one Fund ofFund Scheme (Overseas), nine Debt Schemes/Plansincluding one Liquid Scheme, and eight Fixed Maturity Plans.The total assets under management across all theseSchemes as on March 31, 2015 was ` 5027.22 Crore.

The AMC operates out of 11 branches, including Mumbai.Increased use of technology coupled with optimum allocationand utilization of resources has helped us to enhanceoperational efficiency at PMF. During the year, SEBI hasintroduced significant changes to the MF regulations whichhas impacted the industry as a whole. PMF has continuedto modify its processes, wherever required, to remaincompliant with the said regulations at all times.

Brief background of Sponsors, Trust, Trustee Co. andAMC Co.a. Sponsor: Principal Mutual Fund is sponsored by

Principal Financial Services Inc., USA [acting throughits wholly owned subsidiary Principal Financial Group(Mauritius) Ltd.]. Established in 1879, the PrincipalFinancial Group has more than $519.3 billion in assetsunder management and serves over 19.6 millioncustomers worldwide through operations in the UnitedStates, Asia, Australia, Europe, Latin America and NorthAmerica (as on December 31, 2014). The business ofPrincipal Financial Group (Mauritius) Limited, is to carryout business activities which are not prohibited underthe Laws of Mauritius and the laws of the countries wherethe Company is transacting business and to do all suchthings as are incidental or conducive to the attainmentof the above objects. The Sponsor is the Settlor of theMutual Fund Trust with Punjab National Bank as co-settlor. Punjab National Bank (PNB) is a ScheduledCommercial Bank. PNB has a network of over 6,000branches throughout India and offers a wide variety ofbanking services.

b. Constitution of the Mutual Fund: Principal Mutual Fund(formerly known as IDBI-PRINCIPAL Mutual Fund andherein referred to as the "Mutual Fund") has beenconstituted as a trust on November 25, 1994 inaccordance with the provision of the Indian Trusts Act,1882 (2 of 1882).On March 31, 2000, Principal Financial ServicesInc.,USA, became the deemed sponsor (along with theIDBI) by acquiring 50% stake in IDBI-PRINCIPAL AssetManagement Company Limited, where after andpursuant to the SEBI letter dated October 18, 2002 allrights, responsibilities and duties of the Board of Trusteeswere transferred in favour of IDBI-Principal TrusteeCompany Ltd. On June 23, 2003, Principal FinancialServices Inc. USA became the sole sponsor by acquiring100% stake in IDBI-PRINCIPAL Asset ManagementCompany Limited, through its wholly owned subsidiaryPrincipal Financial Group (Mauritius) Limited (PrincipalMauritius). Principal Mauritius thus became the solesettlor of the Fund and the name of the Trustee Companyand of the Asset Management Company was changedrespectively to Principal Trustee Company Pvt. Ltd. andPrincipal Asset Management Company Private Limitedto reflect the change in ownership. In tune with theindustry standards and practices, Principal Mauritius, theSettlor, maintains a corpus of ` 25 lakh in the Trust in

place of the original contribution of ̀ 1 lakh and additionalcontribution of ` 24.99 crore vide execution of asupplemental trust deed dated April 16, 2004. On May5, 2004, Punjab National Bank (PNB) and Vijaya Bank(VB) became equity shareholders and they hold equityshares to the extent of 30% and 5% of the equity capitalof Principal Trustee Company Private Limited and 30%and 4.03% of the equity capital of Principal Pnb AssetManagement Company Private Limited (earlier name -Principal Asset Management Company Private Limited).On June 27, 2014, Principal Mauritius acquired VijayaBank’s 4.03% and 5% stake respectively in Principal PnbAsset Management Company Private Limited andPrincipal Trustee Company Private Limited. Pursuant tothis change, Principal Mauritius and Punjab National Bankhold 70% and 30% rights, title, interest and obligationsrespectively as co-settlors to Principal Mutual Fund.Further, on December 11, 2014, an offer of RightsEntitlement under the Rights Issue of equity shares wasmade to both the existing shareholders namely PrincipalMauritius and Punjab National Bank. However, PunjabNational Bank decided to renounce its rights in favor ofPrincipal Mauritius. Principal Mauritius has subscribed toall the equity shares issued under the said Rights Issue.Accordingly, Principal Mauritius and Punjab National Bankhold 78.6% and 21.4% % rights, title, interest and obligationsrespectively as co-settlors to Principal Mutual Fund.

c. Principal Trustee Company Private Limited (“theTrustee”): The Trustee is the exclusive owner of the TrustFund and holds the same in trust for the benefit of theUnitholders. The Trustee has been discharging its dutiesand carrying out its responsibilities as provided in theSEBI (Mutual Funds) Regulations, 1996 and the TrustDeed. The Trustee seeks to ensure that the Fund andthe Schemes floated there under are managed by theAMC in accordance with the Trust Deed, the Regulations,directions and guidelines issued by the SEBI, theAssociation of Mutual Funds in India and other regulatoryagencies.

d. Asset Management Company (AMC): Principal PnbAsset Management Company Private Limited (AMC) isa private limited company incorporated under theCompanies Act, 1956 on November 20, 1991 having itsRegistered Office at Exchange Plaza, 'B' Wing, GroundFloor, NSE Building, Bandra Kurla Complex, Bandra(East), Mumbai - 400 051, India. Principal Pnb AssetManagement Company Private Limited has beenappointed as the Asset Management Company of thePrincipal Mutual Fund by the Trustee vide InvestmentManagement Agreement (IMA) dated November 25,1994 executed between Trustee and AMC. The AMC hasalso been registered as a Portfolio Manager under theprovisions of SEBI (Portfolio Manager) Regulations, 1993vide SEBI Registration no. INP000000951. Further, theAMC has obtained No Objection from SEBI for undertakingactivities which are in the nature of advisory services tooffshore funds, venture capital funds, financial consultancyand exchange of research pertaining to securities.The present share holding pattern of the AMC is as follows:

Name of the Shareholder % of equity capital

Principal Financial Group (Mauritius) Limited 78.62

Punjab National Bank 21.38


12

2. Liabilities and Responsibilities of Trustee and Settlor

The key responsibility of the Trustee is to safeguard the interestof the Unit holders and inter-alia ensure that Principal PnbAsset Management Company Private Limited functions in theinterest of investors and as laid down under the Securitiesand Exchange Board of India (Mutual Funds) Regulations,1996, the provisions of the Investment ManagementAgreement, Statement of Additional Information and SchemeInformation Document of the respective Schemes. From theinformation provided to the Trustees and the reviews theTrustee has undertaken, the Trustee believes Principal AMChas operated in the interests of the Unit holders.

The Sponsor and any of its associates including co-settlorsis not responsible or liable for any loss resulting from theoperations of the Mutual Fund beyond the initial contributionof an amount of ` 25 lakhs towards setting up of PrincipalMutual Fund.

3. Investment Objectives and Policy of Investment of theCurrent Scheme(s)

EQUITY SCHEMES:

i. Principal Dividend Yield Fund (An open ended EquityScheme)

The Investment Objective of the Scheme would be to providecapital appreciation and / or dividend distribution by investingpredominantly in a well-diversified portfolio of companiesthat have a relatively high dividend yield.The scheme would invest predominantly (at least 65% ofthe net assets) in companies that have a relatively highdividend yield, at the time of making the investment. TheFund is defining dividend yield as "high" if the security iseither constituent of the CNX Dividend Opportunities Index,or, has a dividend yield higher than that of the NSE Nifty onthe earlier trading day, at the time of investment.

ii. Principal Growth Fund (An open ended Equity Scheme)The investment objective of the Scheme is to achieve long-term capital appreciation.

The scheme will invest its assets in a portfolio of equity andequity related instruments. The focus of the investmentstrategy would be to identify stocks which can provide capitalappreciation in the long term. Companies selected for theportfolio which in the opinion of the AMC would possesssome of the characteristics in the nature of superiormanagement quality, distinct and sustainable competitiveadvantage, good growth prospects and strong financialstrength. The aim will be to build a diversified portfolio acrossmajor industr ies and economic sectors by using“Fundamental Analysis” approach as its selection process.

iii. Principal Large Cap Fund (An open ended EquityScheme)

The investment objective of the Scheme is to provide capitalappreciation and /or dividend distribution by predominantlyinvesting in companies having a large market capitalization.

The Scheme would invest at least 65% of its assets incompanies having a market capitalization greater than` 750 crores as on the date of investment (or any such amountas may be specified by India Index Services and ProductsLtd. (IISL) from time to time) being the upper limit of marketcapitalisation as a criteria for inclusion of a company in CNXMidcap 200 Index. The scheme may also invest in companiesother than large cap upto the permissible limits.

iv. Principal Index Fund - Nifty (An open ended IndexScheme)

The investment objective of the scheme is to invest principallyin securities that comprise CNX Nifty (NSE) and subject totracking errors endeavour to attain results commensuratewith the Nifty.

The scheme has been designed with the intention of trackingthe movement of securities (from time to time) included inthe CNX Nifty Index. The Scheme plans to do this by investingthe entire corpus in the stocks that comprise the Nifty inweights similar to the weightage given by CNX Nifty Indexso that the portfolio would appreciate or depreciate (subjectto tracking errors) in more or less the same manner as theCNX Nifty Index.

v. Principal Index Fund - Midcap (An open ended IndexScheme)

To invest principally in securities that comprise CNX MidcapIndex and subject to tracking errors endevour to attain resultscommensurate with the CNX Midcap Index.

The Scheme will follow an index-based investment strategyby investing in the constituents of the CNX Midcap Index inthe same proportion as the Index.

Units of the Scheme have been designed with the intentionof tracking the movement of securities (from time to time)included in the CNX Midcap Index. The Scheme plans to dothis by investing the corpus in the stocks that comprise theCNX Midcap Index in similar weights to the weightage givenby the CNX Midcap Index so that the portfolio wouldappreciate or depreciate (subject to tracking errors) in moreor less the same manner as the CNX Midcap Index. Subjectto the requirements of cash flows to meet the recurringexpenses and to service investors who decide to exit fromthe Scheme or for distribution of income, if any, to investors,it is proposed that the corpus of the Scheme will be investedin the CNX Midcap securities. It is also proposed thatdisinvestment will take place only when investors exit fromthe Scheme or when any security ceases to be included inthe CNX Midcap Index or to meet the cash flow requirements.The primary objective of the CNX Midcap Index is to capturethe movement of the midcap segment of the market. CNXMidcap is computed using free float market capitalisationweighted method w.e.f. February 26, 2010, wherein the levelof the index reflects the total market value of all the stocks inthe index relative to a particular base period. The methodalso takes into account constituent changes in the index andcorporate actions such as stock splits, rights, etc withoutaffecting the index value. The CNX Midcap Index has a basedate of Jan 1, 2003 and a base value of 1000.

vi. Principal Emerging Bluechip Fund (An open endedEquity Scheme)

The primary objective of the Scheme is to achieve long termcapital appreciation by investing in equity & equity relatedinstruments of Mid Cap & Small Cap Companies.

The investment strategy of the fund will be based on marketcap of the stocks. The Scheme will predominantly invest inmidcap stocks and small cap stocks to tap high growthopportunities offered by such stocks. For the purpose ofmaintaining liquidity or tap market opportunities; the Schememay also invest in large cap stocks. Stocks selection will be


13

primarily on bottom up approach on stock-by-stock basis.As part of its objective of maximizing investor’s wealthcreation potential over the longer duration, the fund may alsoinvest in equity and equity related instruments of unlistedcompanies in line with SEBI regulations. A part of the portfoliowill also tap arbitrage opportunities in the domestic marketslike equity & equity related instruments, convertiblepreference shares, and convertible debentures.

vii. Principal Smart Equity Fund (An open ended EquityScheme)

The primary objective of the scheme is to seek to generatelong term capital appreciation with relatively lower volatilitythrough systematic allocation of funds into equity; and indebt /money market instruments for defensive purposes. TheScheme will decide on allocation of funds into equity assetsbased on equity market Price Earning Ratio (PE Ratio) levels.When the markets become expensive in terms of 'Price toEarnings' Ratio; the Scheme will reduce its allocation toequities and move assets into debt and/or money marketinstruments and vice versa.

The Scheme will decide on allocation of funds into equityassets based on equity market Price Earnings Ratio (PERatio) levels. The PE Ratio has traditionally been used as atool to assess whether the equity markets are cheap orexpensively priced. When the markets become expensivein terms of 'Price to Earnings' Ratio'; the Scheme will reduceits allocation to equities and move assets into debt and/ormoney market instruments and vice versa. Such a strategyis expected to optimize the risk-return proposition for thelong term investor.

EQUITY LINKED SAVINGS SCHEME:

viii. Principal Tax Savings Fund (An open ended EquityLinked Savings Scheme)

The investment objective is to build a high quality growth-oriented portfolio to provide long-term capital gains to theinvestors. The Scheme aims at providing returns throughcapital appreciation.

The Scheme will invest its assets in a portfolio of equity andequity related instruments. The focus of the investment strategywould be to identify stocks which can provide capital appreciationin the long term. The aim will be to build a diversified portfolioacross major industries and economic sectors by using"fundamental analysis" as its selection process.

ix. Principal Personal Tax Saver Fund (An open endedEquity Linked Savings Scheme)

The investment objective of the Scheme is to provide longterm growth of capital. The Investment Manager will aim toachieve a return on assets in excess of the performance ofS&P BSE 100 Index.

The strategy will be to allocate the assets of the Schemebetween permissible securities in line with the portfolio profiledescribed above, with the objective of achieving capitalappreciation. The Fund Managers will follow an active investmentstrategy depending on the market situation and after consideringthe macroeconomic conditions including the prevailing politicalconditions, the economic environment (including interest ratesand inflation) and to adhere to the need for a diversified portfolioin accordance with the applicable guidelines.

BALANCED SCHEMES:

x. Principal Balanced Fund (An open ended BalancedScheme)

The investment objective of the Scheme is to provide longterm appreciation and current income by investing in a portfolioof equity & equity related securities and fixed income securities.The Scheme will invest in equity and equity relatedinstruments as well as fixed income bearing instrumentsrated investment grade or higher or otherwise comparableincluding units of Liquid / Money Market / Debt Mutual FundSchemes. The Scheme shall not take high risks in managingequity portion of the portfolio. For the equity portion of theportfolio, companies would be selected after researchcovering areas such as quality of management, competitiveposition and financial analysis.

FUND OF FUND SCHEME:

xi. Principal Global Opportunities Fund (An Openended Fund of Funds Scheme)

The investment objective of the Scheme is to provide longterm capital appreciation by predominantly investing inoverseas mutual fund schemes, and a certain portion of itscorpus in Money Market Securities and/or units of MoneyMarket / Liquid Schemes of Principal Mutual Fund.

The Scheme will be predominantly investing in overseasmutual fund schemes. Currently Principal Global Investors -Emerging Market Equity Fund (PGI-EMEF) - a fund advisedby Principal Global Investors - LLC (USA) has been identifiedas the overseas mutual fund portfolio for the purpose.Trustees, at their discretion, may decide to shift full or partof the investments to any other similar overseas mutual fundScheme(s). The Scheme may also invest, in the units of othersimilar overseas mutual fund Schemes, which may constitutea significant part of its corpus, and a certain portion of itscorpus in Money Market Securities and/or units of MoneyMarket / Liquid Schemes of Principal Mutual Fund, in orderto meet liquidity requirement from time to time.

DEBT SCHEMES:

xii. Principal Debt Opportunities Fund - ConservativePlan (An open ended Debt Scheme)

The investment objective of the Scheme is to generateregular income & Capital appreciation through investmentsin debt securities and money market instruments.

The assets of the Plan will be invested in money market anddebt instruments. The Plan will seek to optimize the risk returnproposition for the benefit of investors. The investment processwill focus on macro - economic research, credit risk andliquidity management. The Plan will maintain a judicious mixof cash, short term and medium term instruments based onthe mandates of the plan. As part of credit risk assessment,the Plan will also apply its credit evaluation process besidestaking guidance from ratings of rating agencies. In order tomaintain liquidity, the fund will maintain a reasonable proportionof the Scheme's investments in relatively liquid investments.

Principal Debt Opportunities Fund - Corporate BondPlan (An open ended Debt Scheme)

The primary objective is to generate income and capital gainsthrough investments in a portfolio of securities issued byPrivate and Public Sector Companies.

The Plan will invest primarily in Debt & Money Market


14

securities issued by Private and Public sector companies.The Investment manager will be taking calls on interest ratesand credit while making investments in such securities. Theaverage maturity profile of the portfolio may reach up to 5years. The Investment Manager will take active strategic andtactical positions with key source of returns being InterestRates and Credit.

xiii. Principal Bank CD Fund (An open ended Debt Scheme)The objective is to generate returns by primarily investing inBank CDs. Bank CDs provide liquidity and a relatively lowercredit risk.The Scheme will primarily invest in Certificate of Depositsissued by Banks. Bank CDs tend to carry higher credit quality.Bank CDs help the investors who are seeking exposure tomoney market while taking relatively lower credit risk andaiming to generate reasonable returns.

xiv. Principal Government Securities Fund (An openended dedicated Gilt Scheme)

The investment objective of the Scheme is to generate returnthrough investment in sovereign securities and thus providecapital gains and income distribution to its Unitholders.To achieve the investment objective, assets under theScheme will be invested solely in government securities.However to meet temporary liquidity needs the Scheme mayinvest in overnight call money /notice money/bank depositsand/or repos. The Scheme may also invest a part of its assetsin financial derivatives such as options and futures & IRS(comprising of government securities) that are permitted ormay become permissible under SEBI/RBI Regulations.

xv. Principal Income Fund - Long Term Plan(An open ended Income Scheme)

The investment objective of the Scheme is to generateregular income and capital appreciation/ accretion throughinvestment in debt instruments and related securities besidespreservation of capital.The Scheme will aim to invest its assets in a portfolio of debtinstruments and related securities of government, quasi-government, corporate issuers and money marketinstruments with varying risks - rated investment grade orhigher or otherwise comparable (if not rated).

Principal Income Fund - Short Term Plan (An open endedIncome Scheme)The investment objective of the Scheme is to generateregular income and capital appreciation/ accretion throughinvestment in debt instruments and related securities besidespreservation of capital and has been designed to achievestable returns over short-term investment horizons.The Scheme aims to invest its assets in a portfolio of debtinstruments and related securities of government, quasi-government, corporate issuers and money marketinstruments (rated investment grade or higher or other-wisecomparable, if not rated) with average residual maturity ofupto 36 months and varying risks.

xvi. Principal Debt Savings Fund - Monthly Income Plan(An open-ended Income fund. Monthly Income is not assuredand is subject to the availability of distributable surplus.)

The Investment Objective of the scheme is to generateregular income through investments in fixed incomesecurities so as to make periodical income distribution tothe Unitholders and also to generate long-term capital

appreciation by investing a portion of the Scheme's assetsin equity and equity related instruments.The Scheme will invest in a wide range of fixed income andmoney market instruments and a small part of its assets inequity/equity related instruments including units of EquityMutual Fund Scheme(s). Further the Scheme may also investin financial derivatives such as options and futures & IRSthat are permitted or may become permissible under SEBI/RBI Regulations.

Principal Debt Savings Fund - Retail Plan (An open-endedIncome fund.)To seek to generate stable returns and capital appreciationthrough investment in Debt instruments and related securitiesover medium to long term investment horizon.The Scheme will invest in a wide range of fixed income andmoney market instruments and a small part of its assets inequity/equity related instruments including units of EquityMutual Fund Scheme(s). Further the Scheme may also investin financial derivatives such as options and futures & IRSthat are permitted or may become permissible under SEBI/RBI Regulations.

xvii. Principal Cash Management Fund (An open endedLiquid Scheme)

The investment objective of the Scheme is to provide investorswith as high a level of income available from short-terminvestments as is considered consistent with preservation ofcapital and maintenance of liquidity, by investing in a portfolioof money market and investment grade debt instruments.The Scheme will invest its assets in a portfolio of moneymarket instruments. The investments will be in securities,which the Investment Manager believes present minimalliquidity and/or credit risks.

xviii. Principal Retail Money Manager Fund(An open ended Debt Scheme)

The investment objective of the Scheme is to generate regularincome & capital appreciation through investments in debtsecurities and money market instruments.The net assets of the scheme will be invested in money marketand debt instruments. The scheme will seek to optimize therisk return proposition for the benefit of investors. Theinvestment process will focus on macro-economic research,credit risk and liquidity management. The scheme will maintaina judicious mix of cash, short term and medium terminstruments based on the mandates of the scheme. As partof credit risk assessment the scheme will also apply its creditevaluation process besides taking guidance from ratings ofrating agencies. In order to maintain liquidity the scheme willmaintain a reasonable proportion of scheme's investments inrelatively liquid investments.

xix. Principal Pnb Fixed Maturity Plan - Series B2(A close ended debt Scheme offering Fixed MaturityPlan of 1098 days)

Principal Pnb Fixed Maturity Plan - Series B5(A close ended debt Scheme offering Fixed MaturityPlan of 367 days) (the Scheme has been further rolled- over for a period of 732 days)

Principal Pnb Fixed Maturity Plan - Series B10(A close ended debt Scheme offering Fixed MaturityPlan of 476 days)


15

The investment objective of the Scheme(s) is to build anincome oriented portfolio and generate returns throughinvestment in Debt/Money Market Instruments andGovernment Securities.

The Scheme invests in a distinct portfolio of Debt/MoneyMarket and Government Securities maturing on or beforethe date of the maturity of the Scheme.






The investment objective of the Scheme(s) is to build an incomeoriented portfolio and generate returns through investment inDebt/Money Market Instruments and Government Securities.The Scheme invests in a portfolio of Debt/Money Marketand Government Securities maturing on or before the dateof the maturity of the Scheme.

4. Significant Accounting PoliciesThe Significant Accounting Policies form part of the Notes tothe Accounts annexed to the Balance Sheet of the Scheme.Accounting policies are in accordance with SecuritiesExchange Board of India (Mutual Fund) Regulations, 1996.

5. Unclaimed Dividends & Redemptions for the financialyear 2014-2015

Sr. Scheme(s) Unclaimed Dividends Unclaimed RedemptionsNo. Amount No. of Amount No. of

(`̀̀̀̀ in Lacs) Investors (`̀̀̀̀ in Lacs) Investors

1 Principal Income Fund - 14.81 3099 10.62 85Long Term Plan

2 Principal Debt Savings 13.29 1935 10.69 589Fund - MIP

3 Principal Bank CD Fund 0.08 51 0.10 11

4 Principal Debt Savings 16.47 4129 5.98 45Fund - Retail Plan

5 Principal Income Fund - 0.94 66 0.19 2Short Term Plan

6 Principal Government 0.24 125 0.91 3Securities Fund

7 Principal Growth Fund 129.66 6947 161.53 1139

8 Principal Cash 0.11 44 0.63 87Management Fund

9 Principal Dividend Yield Fund 117.96 9713 42.07 353

10 Principal Balanced Fund 14.70 267 12.86 37

11 Principal Retail Money - - 0.02 1Manager Fund

12 Principal Index Fund - Nifty 0.28 4 1.10 8

13 Principal Tax Savings Fund 339.77 21355 95.37 697

14 Principal Debt OpportunitiesFund - Conservative Plan 0.06 182 2.54 30

15 Principal Debt Opportunities 0.48 211 2.20 76Fund - Corporate Bond Plan

16 Principal Emerging 11.79 1595 60.25 378Bluechip Fund

17 Principal Global – – 21.25 47Opportunities Fund

18 Principal Personal Tax 196.57 9705 102.94 801Saver Fund

19 Principal Large Cap Fund 37.14 2391 66.08 345

20 Principal Smart Equity Fund – – 1.85 12

TOTAL 894.35 61819 599.18 4746

6. Investor GrievancesThe data on Investor Grievance as per the SEBI prescribedis enclosed herewith as Annexure I.

7. General Policies & Procedures for exercising thevoting rights & Exercise of Proxy Votes

As per the requirements of the SEBI Circular No. SEBI/IMD/CIRNo.18/198647/2010 dated March 15, 2010 and SEBI CircularNo. CIR/IMD/DF/05/2014 dated March 24, 2014 the Generalpolicies and procedures for exercising voting rights (along withthe relevant disclosures) in respect of the shares held by theSchemes of Principal Mutual Fund, is attached as Annexure IIand the Auditor's certification on the AMC voting reports on anannual basis is attached as Annexure III.

8. Statutory Informationi. The Sponsors/Co-Settlors are not responsible or

liable for any loss resulting from the operations ofthe Schemes of Principal Mutual Fund beyond theirinitial contribution of an amount of R25 lakhs towardssetting up Principal Mutual Fund, and such otheraccretions/ additions to the same;

ii. The price and redemption value of the units, and incomefrom them, can go up as well down with fluctuations inthe market value of its underlying investment;

iii. Full Annual Report shall be disclosed on the websitewww.principalindia.com and shall also be availablefor inspection at the Head Office of Principal MutualFund. Present and prospective unitholder can obtaincopy of the trust deed, the full Annual Report of theFund / AMC at a price.

AcknowledgementThe Trustee wish to thank Securities and Exchange Boardof India, Reserve Bank of India and Association of MutualFunds in India for their support and direction. The Trusteesalso wish to thank all the Unitholders for their strong support.

For Principal Trustee Company Private Limited

Sd/-V.S.MathurChairman

Date: April 24, 2015Place: Mumbai


16

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17

Proxy Voting Policy of Principal Mutual Fund

Principal Pnb Asset Management Company Pvt. Ltd (AMC)- the Investment Manager to Principal Mutual Fund (PMF)has put in place a Proxy Voting Policy. The objectivesunderlying casting a vote by proxy are:-

1) To favour such proposals that tend to maximize aCompany's shareholders' value; and

2) To ensure that the decision taken to cast a vote is notinfluenced by conflict of interest

The aforesaid objectives would help to create a frameworkwithin which a Company can be managed in the bestinterests of its shareholders. This in turn would help generatebetter returns for its unit holders under the various PMFSchemes. The said objectives may not direct a particularvoting outcome, but instead help identify factors which shouldbe considered in determining how the vote should be cast.

The principles and positions reflected in AMC's Proxy VotingPolicy are designed to guide AMC in voting proxies, and notnecessarily in making investment decisions. The InvestmentTeam basis their determinations of whether to invest in aparticular company on a variety of factors, and whilecorporate governance may be one such factor, it may not bethe only primary consideration.

In order to discharge its obligations under this policy, theAMC accesses and utilizes research on managementperformance and corporate governance issues, drawn interalia from its in house research team. As per the proxy votingguidelines, AMC would support resolutions that promote thefunctioning of boards in best interests of shareholders.Specific decision on a particular resolution i.e to support,oppose or abstain from voting, shall be taken on a case-to-case basis placing focus on the potential impact of the voteon shareholder value and interests of the unitholders of theSchemes at large. The AMC reserves the right to vote againstany resolution that goes against the interest of its unit holders.AMC may also at its discretion choose to abstain fromparticipating in any resolution and hold a neutral stance,should the concerning issue be of no major relevance forthe shareholder value and/or unitholder interest. The ultimatedecision as to the manner in which PMF's proxies will bevoted rests with AMC, keeping in view at all points of timethe best interest of unitholders of the schemes of PMF.

In line with the above objectives, the responsibility of castingproxy votes vests with the Chief Investment Officer (CIO).The CIO may base his decision on the recommendation ofthe Fund Manager to the concerning Scheme. Where adecision on a resolution is reached a suitable delegationshall be organized by the AMC in favour of any identifiedauthorized AMC official or in favour of an authorizedrepresentative from within the Custodian.

When considering investments in Group Companies /Company(ies) that have subscribed to the Units of theSchemes of PMF, the AMC inter alia ensures that (a)investments in such companies are line with the Schemespecified Investment Objective/ Asset allocation and theInvestment Policy in place; (b) such transactions are for purecommercial consideration; after having evaluated the sameon merits; (c) such transactions are at arm's length with noconsideration of any existing / consequent investments byan Investor/group of investors.

Further, when deciding on a stance (to vote for or against orabstain) vis-à-vis a proposal preferred by any such issuerbeing either a Group Company/Company that hassubscribed to the Units of the Schemes of PMF, theconcerning Fund Manager/CIO shall additionally confirm thatno special consideration has been accorded vis-à-vis suchproposals/issuers and that the decision on the concerningproposals have been arrived at in line with the processspecified in above clauses.

An update on instances, where a representation by Proxyhas been recommended and where necessary delegations/instructions have been issued, along with the details ofmandate given to such delegate; shall be placed at thefollowing Investment Committee Meetings for due review andnoting of the Investment Committee members.

As per the requirement of the SEBI Circular dated March15, 2010, this general policy and procedure for exercisingvoting rights in respect of shares held by the AMC is disclosedon www.principalindia.com. The same shall also be suitablyset forth in the annual report distributed to the unitholders.

Further as prescribed in the referred Circular; disclosure shallbe made on www.principalindia.com as well in the AnnualReport distributed to the unitholders, to indicate the actualexercise of the proxy votes in the AGMs/EGMs of the investeecompanies in respect of the following matters:-

a. Corporate governance matters, including changes in thestate of incorporation, merger and other corporaterestructuring, and anti-takeover provisions;

b. Changes to capital structure, including increases anddecreases of capital and preferred stock issuances;

c. Stock option plans and other management compensationissues;

d. Social and corporate responsibility issues;

e. Appointment and Removal of Directors; and

f. Any other issue that may affect the interest of theshareholders in general and interest of the unit-holdersin particular.

Details on vote exercised is stated here below:

ANNEXURE II


18

Apr-J

une-

2014

7-Ap

r-201

4DL

F LT

DPo

stal

Bal

lot

Man

agem

ent

Appo

intm

ent o

f Mr.

Moh

it G

ujra

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rFo

rTh

e di

rect

or h

olds

nec

essa

ry e

xper

ienc

eas

Who

letim

e D

irect

or fo

r 5 y

ears

and/

or e

duca

tion

to a

dd v

alue

to th

e bo

ard.

with

effe

ct fr

om 1

4.2.

2014

The

rem

uner

atio

n an

d pe

rqui

site

s pa

id to

top

exec

utive

s an

d di

rect

ors

is c

omm

ensu

rate

with

the

grow

th p

rosp

ects

of t

he c

ompa

ny.

Apr-J

une-

2014

7-Ap

r-201

4DL

F LT

DPo

stal

Bal

lot

Man

agem

ent

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intm

ent o

f Mr.

Raje

ev Ta

lwar

For

For

The

dire

ctor

hol

ds n

eces

sary

exp

erie

nce

as W

hole

time

Dire

ctor

for 5

yea

rsan

d/or

edu

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n to

add

val

ue to

the

boar

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th e

ffect

from

14.

2.20

14Th

e re

mun

erat

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and

perq

uisi

tes

paid

to to

pex

ecut

ives

and

dire

ctor

s is

com

men

sura

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th th

e gr

owth

pro

spec

ts o

f the

com

pany

.

Apr-J

une-

2014

7-Ap

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DPo

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Bal

lot

Man

agem

ent

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intm

ent o

f Mr.

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ry e

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letim

e as

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Cha

irman

and/

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duca

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to a

dd v

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e bo

ard.

for 5

yea

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e re

mun

erat

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perq

uisi

tes

paid

to to

pwi

th e

ffect

from

9.4

.201

4ex

ecut

ives

and

dire

ctor

s is

com

men

sura

tewi

th th

e gr

owth

pro

spec

ts o

f the

com

pany

.

Apr-J

une-

2014

9-Ap

r-201

4AC

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DAG

MM

anag

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optio

n of

Acc

ount

sFo

rFo

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it p

erta

ins

to re

gula

r bus

ines

s ac

tivity

.

Apr-J

une-

2014

9-Ap

r-201

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ivide

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re g

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d ex

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plan

s.

Apr-J

une-

2014

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men

t of M

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essa

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ctor

and/

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dd v

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to th

e bo

ard.

Apr-J

une-

2014

9-Ap

r-201

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-app

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men

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AG

AINS

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iven

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nom

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Apr-J

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ctor

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Apr-J

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red

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udito

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ines

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Apr-J

une-

2014

9-Ap

r-201

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anag

emen

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Dire

ctor

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alue

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Apr-J

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irect

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catio

n to

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Apr-J

une-

2014

9-Ap

r-201

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ar S

harm

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ctor

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alue

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ard.

Apr-J

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2014

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pr-2

014

AMBU

JA C

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ount

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Apr-J

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10-A

pr-2

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AMBU

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EMEN

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Apr-J

une-

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10-A

pr-2

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AMBU

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anag

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-app

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men

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Mun

jee

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as a

Dire

ctor

and/

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Det

ails

of V

ote

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st d

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inan

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14-2

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Qua

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19

Apr-J

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itale

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rect

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Apr-J

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10-A

pr-2

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Apr-J

une-

2014

10-A

pr-2

014

AMBU

JA C

EMEN

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DAG

MM

anag

emen

tAp

poin

tmen

t of M

/s. S

RBC

& Co

, LLP

,Fo

rFo

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poin

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udito

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in th

e no

rmal

cou

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Char

tere

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coun

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itors

of b

usin

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Apr-J

une-

2014

10-A

pr-2

014

AMBU

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r. Be

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The

dire

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as a

Dire

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duca

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dd v

alue

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Apr-J

une-

2014

10-A

pr-2

014

AMBU

JA C

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MM

anag

emen

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poin

tmen

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r. Aj

ay K

apur

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dire

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hol

ds n

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sary

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erie

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as a

Dire

ctor

and/

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tion

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dd v

alue

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e bo

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Apr-J

une-

2014

10-A

pr-2

014

AMBU

JA C

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T LT

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MM

anag

emen

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poin

tmen

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ay K

apur

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ctor

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ds n

eces

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erie

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as a

Dep

uty

MD

& C

EO fo

r 3 y

ears

and/

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duca

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dd v

alue

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with

effe

ct fr

om 1

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013

Apr-J

une-

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pr-2

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form

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Agai

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te A

GAI

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this

reso

lutio

n is

warra

nted

of A

dviso

ry fe

e to

Mr.

B. L

. Tap

aria

.gi

ven

that

the

prop

osal

invo

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an u

nusu

alpa

ymen

t of r

emun

erat

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to a

non

-exe

cutiv

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rect

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hich

cou

ld c

reat

e co

nflic

ts o

fin

tere

st fo

r the

dire

ctor

.

Apr-J

une-

2014

30-A

pr-2

014

HIND

USTA

N UN

ILEV

ER L

TDPo

stal

Bal

lot

Man

agem

ent

Appo

intm

ent o

f Mr.

P. B.

Bal

aji a

s th

eFo

rFo

rTh

e di

rect

or h

olds

nec

essa

ry e

xper

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