annual report 2015-16 - principal mutual fund india...annual report 2015-16 5 principal index fund -...

ANNUAL REPORT 2015-16

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Particulars Page No.

Trustee Report 3 - 205

Independent Auditor’s Report 206 - 207

Balanced Sheet 208 - 212

Revenue Account 213 - 227

Schedules to the Financial Statements 228 - 293

Cash Flow Statement 294 - 308

Annexure(s)

Annexure I - Industrywise ‘Statement of Portfolio Holding’ 309 - 348

Annexure II - 5% Cross holding Report under Regulation 25(11) 349 - 354

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 355 - 361

Annexure IV - Brokerage / Commission Paid to Associates / Related Parties /Group Companies of Sponsor AMC 362 - 363

Annexure V - Historical Per Unit Statistics 364 - 381

Annexure VI - Disclosure for Investments in Derivative Instruments 382 - 385

INDEX


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To the Unitholders,

Directors of Principal Trustee Company Private Limited havethe pleasure in presenting the Twenty Second Annual Reportalong with the audited financial statements of the Schemesof Principal Mutual Fund for the Financial Year 2015-2016.

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

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

The year was a challenging one for equity markets, especiallythe Emerging Markets. Against the backdrop of slowingglobal economy, most commodity prices witnessed a sharpfall. The prime reason was the marked slowdown in Chineseeconomy which is in the midst of a transition from industrial-capex led to consumption-led growth. The sharp fall incommodity prices brought to the fore macroeconomicheadwinds for the commodity-heavy EM economies, whichwitnesses sharp currency depreciation, slowing growth andinflationary pressures in an otherwise seemingly deflationaryworld. Due to the perceived safety of developed economies,EM funds witnessed heavy redemptions during the year. Thedeveloped economies did relatively better in terms of growth,most notably US which witnessed steady growth, anappreciating dollar and which also saw the first rate hike of25 bps by the Fed

Contrary to popular belief that the Indian markets would dobetter in a falling commodity price scenario, it also struggledduring the year though it performed better than many otherEms. The challenges in India emanated from secondconsecutive bad monsoon, falling exports due to globalgrowth headwinds, struggling capex cycle especially by theprivate sector and redemption pressure from FIIs, althoughthe flows were well matched record inflows into DomesticMutual Funds. The favourable macros (GDP growth of around7.5%, falling deficits, relatively stable currency etc.) failed totranslate into favourable earnings growth; as againstexpectations at the start of the year of 15% earnings growthfor the BSE Sensex companies, it is most likely to be flat ora mild decline. RBI did cut policy rates due to falling inflation,but it failed to spur any investment activity and consumption,especially urban consumption remained the sole bright spot.Against the backdrop of the above situation, it became moreof a bottom-up, stock picking market.

The outllook for 2016-2017 remains challenging in terms ofglobal growth headwinds. The recent bounceback incommodity prices and the Fed's decision to move in acalibrated manner in determining further rate hikes hasbrought back some stability to the global markets. Muchhowever depends upon the trajectory of the Chineseeconomy and its impact on global growth. Some impact ofthe sharp fall in commodity prices on certain commodity-intensive economies and companies may also emanate, asdoes the uncertainty over Britain's exit from Eurozone. Theinitial predictions indicate a good monsoon in India and this,

TRUSTEE REPORT

supplemented with the thrust of the Government's 2016Budget on reviving the rural economy, augur well for India.Continuing thrust on the roads sector, big push in railwayscapex plans, 7th Pay Commssion and trending down ofinterest rates bode well for India. With earnings expectationsreset to much lower and realistic levels, we expect 12%-15% earnings growth in FY17, and hence equity marketreturns in line with earnings growth.

31-Mar-16

Index 1 Mth 3 Mth 6 Mth 1 Yr

Broad Markets

CNX Nifty Index 7738 10.75 -2.62 -2.65 -8.86

S&P BSE Sensex 25342 10.17 -2.97 -3.11 -9.36

S&P BSE 100 7835 10.74 -3.24 -3.00 -8.96

S&P BSE 200 3259 10.61 -3.50 -2.76 -7.86

S&P BSE 500 10185 10.64 -4.22 -2.98 -7.82

S&P BSE MID CAP 10619 10.90 -4.70 -1.67 0.03

S&P BSE SMALL CAP 10542 10.40 -10.94 -4.35 -6.38

Sectoral Performance

S&P BSE AUTO 18002 13.56 -2.79 3.51 -6.53

S&P BSE Bankex 18392 16.30 -4.85 -6.55 -11.85

S&P BSEConsumer Goods 12861 14.43 -8.97 -14.89 -25.63

S&P BSEConsumer Durables 11481 3.86 -4.31 6.21 10.20

S&P BSE FMCG 7692 8.12 -2.28 -0.77 -1.06

S&P BSE METAL 7541 11.56 1.93 10.35 -20.34

S&P BSE Oil & Gas 9162 11.53 -4.12 5.37 -1.61

S&P BSE PSU 9162 65.79 34.46 36.85 20.42

S&P BSE Teck 6105 10.72 0.86 -2.41 -2.43

S&P BSE Healthcare 15149 -0.38 -10.39 -14.79 -12.09

Source: Internal


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Performance of Equity / Balanced / Equity Linked SavingsScheme / Fund of Funds Schemes as on March 31, 2016:

EQUITY SCHEMES -

Principal Dividend Yield Fund (An open ended EquityScheme)

Period Date Appreciation(%)

NAV^ Nifty DividendOpportunities 50

Index

Regular Plan

Last 1 Year 31-Mar- 15 -6.87 -9.95

Last 3 Years 28-Mar-13 11.66 4.71

Last 5 Years 31-Mar-11 6.67 4.11

Since Inception 15-Oct-04 10.86 Not Available

Direct Plan

Last 1 Year 31-Mar- 15 -6.36 -9.95

Last 3 Years 28-Mar-13 12.28 4.71

Since Inception 02-Jan-13 6.95 0.75

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

During the Financial Year 2015-16, the Scheme outperformedits benchmark due to the outperformance of stocks boughtin Financials, Textiles and Energy sectors with the returnsfrom some of these stocks being significantly highercompared to the benchmark.

The net assets of the Scheme amounted to ̀ 101.05 Crs asat March 31, 2016 as compared to ` 116.85 Crs as atMarch 31, 2015.

Principal Growth Fund - (An open ended Equity Scheme)


NAV^ S&P BSE 200Index

Regular Plan

Last 1 Year 31 -Mar-15 -5.47 -7.84

Last 3 Years 28-Mar-13 19.29 12.47

Last 5 Years 31-Mar-11 11.73 6.49

Since Inception 25-Oct-00 15.26 14.41

Direct Plan

Last 1 Year 31 -Mar- 15 -4.80 -7.84

Last 3 Years 28-Mar-13 20.04 12.47



During the Financial Year 2015-2016, the Schemeoutperformed its benchmark due to the outperformance ofstocks bought in Construction, Pharmaceuticals, Servicesand Energy sectors with the returns from some of thesestocks being significantly higher compared to the benchmark.

The net assets of the Scheme amounted to to ` 347.30 Crsas at March 31, 2016 as compared ` 372.32 Crs as atMarch 31, 2015.

Principal Large Cap Fund (An open ended Equity Scheme)


NAV^ S&P BSE 100Index

Regular Plan

Last 1 Year 31-Mar- 15 -7.70 -8.94

Last 3 Years 28-Mar-13 15.29 11.28

Last 5 Years 31-Mar-11 8.35 5.99

Since Inception 11-Nov-05 15.15 11.23

Direct Plan

Last 1 Year 31-Mar- 15 -7.05 -8.94

Last 3 Years 28-Mar-13 16.01 11.28



During the Financial Year 2015-16, the Scheme outperformedits benchmark due to the outperformance of stocks boughtin Energy, Pharmaceuticals, Cement and Financials sectorswith the returns from some of these stocks being significantlyhigher compared to the benchmark.

The net assets of the Scheme amounted to ` 278.03 Crsas at March 31, 2016 as compared to ` 314.38 Crs as atMarch 31, 2015.

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


NAV^ Nifty 50 Index

Regular Plan

Last 1 Year 31-Mar- 15 -8.52 -8.84

Last 3 Years 28-Mar-13 11.05 10.80

Last 5 Years 31-Mar-11 6.06 5.81

Since Inception 27-Jul-99 10.55 11.23

Direct Plan

Last 1 Year 31-Mar- 15 -8.06 -8.84

Last 3 Years 28-Mar-13 11.60 10.80



During the Financial Year 2015-16, the fund tracks the NSENifty Index and the performance of the fund has been in linewith that of the underlying benchmark. The fund aims to trackthe underlying index subject to impact costs caused byinflows/outflows and the corresponding purchases/sales ofNifty baskets, inclusions/exclusions of stocks in the Niftywhich necessitate modifications in the portfolios'.

The net asset of the Scheme is ` 24.56 Crs as at March 31,2016 as compared to ` 14.67 Crs as at March 31, 2015.


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


NAV^ Nifty Midcap100 Index

Regular Plan

Last 1 Year 31-Mar-15 -1.46 -1.91

Since Inception 12-May-14 19.88 19.91

Direct Plan

Last 1 Year 31-Mar-15 -0.96 -1.91



During the Financial Year 2015-16, the performance of theFund is broadly in line with that of the benchmark index withthe small difference due to differences in the timing in inflows/outflows and the corresponding purchase/sales of theMidcap basket, inclusions/exclusions in the Midcap index(necessitating modifications in the portfolios accordingly)

The net asset of the Scheme is ` 8.20 Crs as at March 31,2016 as compared to ` 14.67 Crs as at March 31, 2015.

Principal Emerging Bluechip Fund(An open ended Equity Scheme)


NAV^ Nifty Midcap100 Index

Regular Plan

Last 1 Year 31-Mar-15 -5.31 -1.91

Last 3 Year 28-Mar-13 27.83 19.80

Last 5 Years 31-Mar-11 17.46 9.65


Direct Plan

Last 1 Year 31-Mar- 15 -4.40 -1.91

Last 3 Year 28-Mar-13 28.78 19.80



During the Financial Year 2015-16, the Schemeunderperformed its benchmark due to the underperformanceof stocks bought in Consumer, Automobiles, Financials andIT sectors with the returns from some of these stocks beingsignificantly lower compared to the benchmark. This waspartly compensated by the stocks in the Chemicals,Pharmaceuticals and Industrial sectors which did relativelybetter.


Principal Smart Equity Fund (An open ended Equity Scheme)

Period Date Appreciation(%)NAV^ Crisil Balanced

Fund Index

Regular Plan

Last 1 Year 31-Mar-15 -0.54 -2.90

Last 3 Year 28-Mar-13 15.28 10.46

Last 5 Year 31- Mar-11 10.67 7.15

Since Inception 16-Dec-10 9.94 6.64

Direct Plan

Last 1 Year 31-Mar-15 0.47 -2.90

Last 3 Year 28-Mar-13 16.23 10.46



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 andat the same time providing growth. During the Financial Year2015-16, the Scheme outperformed its benchmark due tothe outperformance of stocks bought in Energy,Pharmaceuticals, Cement and Financials sectors with thereturns from some of these stocks being significantly highercompared to the benchmark.


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- 15 -5.51 -7.84

Last 3 Years 28-Mar-13 19.31 12.47

Last 5 Years 31-Mar-11 12.06 6.49

Since Inception 31-Mar-96 16.12 11.87

Direct PlanLast 1 Year 31-Mar- 15 -4.98 -7.84

Last 3 Years 28-Mar-13 19.90 12.47


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


NAV## S&P BSE 100Index

Regular Plan

Last 1 Year 31-Mar- 15 -7.88 -8.94

Last 3 Years 28-Mar-13 15.38 11.28

Last 5 Years 31-Mar-11 8.12 5.99


Direct Plan

Last 1 Year 31-Mar- 15 -7.27 -8.94

Last 3 Years 28-Mar-13 16.06 11.28


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

During the Financial Year 2015-16, the Scheme outperformedits benchmark due to the outperformance of stocks boughtin Energy, Pharmaceuticals, Cement and Financials sectorswith the returns from some of these stocks being significantlyhigher compared to the benchmark.


BALANCED SCHEME -

Principal Balanced Fund (An open ended Balanced Scheme)


NAV^ Crisil BalancedFund Index

Regular Plan

Last 1 Year 31-Mar- 15 -2.14 -2.90

Last 3 Years 28-Mar-13 14.93 10.46

Last 5 Years 31-Mar-11 10.08 7.15

Since Inception 14-Jan-00 10.32 Not Available

Direct Plan

Last 1 Year 31-Mar- 15 -1.40 -2.90

Last 3 Years 28-Mar-13 15.85 10.46




The net assets of the Scheme amounted ` 32.94 Crs asat March 31, 2016 as compared to ` 23.26 Crs as atMarch 31, 2015.

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- 15 -8.38 0.51

Last 3 Years 28-Mar-13 -0.81 11.68

Last 5 Years 31-Mar-11 2.18 12.85


Direct Plan

Last 1 Year 31-Mar- 15 -7.97 0.51

Last 3 Years 28-Mar-13 -0.41 11.68

Since Inception 02-Jan-13 -1.31 12.58


During the Financial Year 2015-16, the Schemeunderperformed its benchmark. The developed markets haveperformed well in FY15 compared to the Emerging marketswhich has led to the fund underperforming the MSCI WorldIndex, which is dominated by developed markets. TheEmerging markets were impacted by central bank actions,declining commodity prices, slowing rate of growth in Chinaand a strong US Dollar among other issues. The fund hashowever, outperformed the MSCI Emerging Marketsbenchmark. The underlying fund continued to prefercompanies with positive fundamental change, earningsrevision and attractive valuations.


Note: Performance of Principal Asset Allocation Fund ofFunds is not provided as the scheme has not completedone year from the date of allotment.Date of Allotment: December 14, 2015.

(b) Debt Schemes - Overview during Financial Year2015-2016:

During the Financial Year 2015-16, RBI continued with itsaccommodative policy stance on interest rates and easedkey rates by a further 75 bps taking the repo rate to 6.75%and reverse repo rate to 5.75% by end of March 2016. Therate cut cycle was supported by a number of factors includingfall in CPI as per RBI's forecast, sharp fall in commodityprices led by global crude oil prices, weak credit growthenvironment, need to boost growth and governmentcommitting to its fiscal consolidation stance.

CPI inflation remained remarkably stable and lower thanRBI's targeted trajectory of 6% by Jan 2016. During theFinancial year it touched a low of 3.69% in July 2015 onfavourable base effect before rebounding to 5.69% in Jan2016 and falling again to 5.18% in February 2016. Real GDPgrowth for the first three quarters of FY 16 averaged 7.5%and the estimate for the full year growth for FY 16 is pegged


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at 7.6%. However other high frequency growth indicatorslike PMI, IIP, import of capital goods, auto sales etc havebeen indicating sluggish growth. Importantly, agriculturalgrowth and rural incomes too have remained low hamperedby poor monsoons and slowdown in government spending.

The new ten yr benchmark Gsec ended the year at 7.46%,a fall of 30 bps as compared to the yield prevailing at March2015. Five yr AAA PSU corporate bonds ended the year 5bps lower at 8.35% and ten yr AAA PSU corporate bondsended largely flat at 8.41%. The year was marked by creditrating downgrades across both banks and corporates. Thiswas led by weak economic growth and low commodity prices.Yields on one year CDs came down to 8%, a fall of 45 bpsas compared to previous year end. One year T bill levels fellsharply to 7.06%, a fall of 87 bps as compared to March 2015.

The markets and economy got a boost from the record fallin crude oil prices during the fiscal. Brent Crude oil pricesfell to USD 38 per barrel as compared to USD 55 per barrelat the beginning of the financial year.

Banking system liquidity remained in deficit mode throughmost of the year though it briefly came into surplus mode inJuly 2015. However in the second half build up of governmentbalances and increase in seasonal currency demand led toa sharp increase in banking system liquidity deficit. RBIconducted term repos and open market purchases of datedGovernment securities to inject short term and durable liquidity.

For the full financial year government's gross borrowingthrough dated G secs totaled ` 5.85 lakh crores. As statedin the Union Budget presentation held on Feb 29th, 2016government met its target of 3.9% fiscal deficit for the yearaided by robust growth in indirect taxes and a lower subsidybill. For FY 17, government has shown its commitment tostick to the fiscal consolidation path by announcing a fiscaldeficit target of 3.5% of GDP. Gross borrowing through datedG-secs is pegged at ` 6 lakh crores, which is much lowerthan market estimates. During the last two months of thefinancial year government also rolled out the UDAY schemeand states which had enrolled successfully issued StateDevelopment Loans (or SDLs, called as UDAY Special nonSLR SDLs) and state guaranteed bonds to the tune of ` 1lakh crores. This would be issued to retire high cost bankand institution debt and thereby effect saving in interest costwhich is expected to bring down the debt burden of statediscoms.

On the global front while Federal Reserve Bank in the USeffected their first rate hike of 25 bps in December 2015, themove didn't lead to undue volatility. US treasury yields havesince fallen and ended the year at 1.77% as compared to1.95% a year back. In the Euro Zone and Japan, centralbanks continue to conduct quantitative easing and cut keyrates on deflatinary threats and to kickstart growth. The rupeeweakened during the year and ended at 66.24 as comparedto 62.77 a year back. One of the primary reasons for thedepreciation was the successive rounds of yuan devaluationby Chinese authorities which led to spillover effect to otheremerging market currencies including our currency. FIIs weremarginal buyers in debt market in FY 16 to the tune of ̀ 900cr approx.

Performance of Debt and Liquid Schemes / Plans as onMarch 31, 2016:

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


NAV^ CRISIL LiquidFund Index

Regular Plan

Last 1 Year 31-Mar- 15 8.12 8.04

Last 3 Years 28-Mar-13 8.53 8.82

Last 5 Years 31-Mar-11 8.94 8.63

Since Inception 14-Sep-04 7.80 7.17

Direct Plan

Last 1 Year 31-Mar- 15 9.06 8.04

Last 3 Years 28-Mar-13 9.38 8.82



During the Financial Year 2015-16, both Regular and DirectPlans under the Scheme outperformed its benchmark. Theoutperformance was primarily on account of dynamicallymanaging the average maturity and opportunistic trading inCPs, CDs and bonds. In the light of the easing money marketrates, we kept an average maturity of 6 months - 9 monthsfor most of the year.

The net assets of the Plan under the Scheme amountedto ` 223.72 Crs as at March 31, 2016 as compared to` 404.70 crs as at March 31, 2015.

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



Regular Plan

Last 1 Year 31-Mar- 15 9.02 8.04

Last 3 Years 28-Mar-13 8.63 8.82

Last 5 Years 31-Mar-11 8.83 8.63

Since Inception 14-Sep-04 7.65 7.17

Direct Plan

Last 1 Year 31-Mar- 15 9.19 8.04

Last 3 Years 28-Mar-13 9.03 8.82



During the Financial Year 2015-16, both Regular and DirectPlans under the Scheme outperformed its benchmark. It wasprimarily on account of exposure to top rated high yieldcommercial papers.

The net assets of Plan under the Scheme amount to` 94.85 Crs as at March 31, 2016 as compared to ` 233.32crs as at March 31, 2015.


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Principal Bank CD Fund (An open ended Debt Scheme)



Regular Plan

Last 1 Year 31-Mar- 15 8.36 8.04

Last 3 Years 28-Mar-13 8.92 8.82

Last 5 Years 31-Mar-11 9.01 8.63


Direct Plan

Last 1 Year 31-Mar- 15 8.91 8.04

Last 3 Years 28-Mar-13 9.38 8.82



During the financial year 2015-16, the scheme has outperformed the benchmark. This was essentially on accountof deploying the funds in a judicious mix of Certificates ofDeposit, CBLOs and marginal exposure to short term NCDsas well.

The net assets of the Scheme amounted to amount to` 74.75 Crs as at March 31, 2016 as compared to ` 81.26Crs as at March 31, 2015.

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


NAV^ I-Sec CompositeIndex

Regular Plan

Last 1 Year 31-Mar- 15 5.88 8.20

Last 3 Years 28-Mar-13 7.93 9.14

Last 5 Years 31-Mar-11 7.56 9.17

Since Inception 23-Aug-01 7.70 Not Available

Direct Plan

Last 1 Year 31-Mar- 15 6.41 8.20

Last 3 Years 28-Mar-13 8.47 9.14



During the Financial Year 2015-16, the Scheme outperformedits benchmark in seven out of 12 months on a one yr basis.The underperformance towards the end of the year was onaccount of higher exposure to longer dated governmentsecurities as compared to the benchmark where yields rosedue to supply concerns.


Principal Dynamic Bond Fund(An open ended Income Scheme)


NAV^ Crisil CompositeBond Fund Index

Regular Plan

Last 1 Year 31-Mar- 15 6.07 8.22

Last 3 Years 28-Mar-13 7.95 8.96

Last 5 Years 31-Mar-11 8.67 8.77


Direct Plan

Last 1 Year 31-Mar- 15 6.85 8.22

Last 3 Years 28-Mar-13 8.76 8.96



During the Financial Year 2015-16, the schemeunderperformed the benchmark due to relatively higherexposure to government bonds and lower exposure to longdated AAA and AA corporate bonds. Government bondsyields rose in the second half of the year and were morevolatile.

The net assets of the Plan amounted to ` 94.56 Crs asat March 31, 2016 as compared to ` 73.51 Crs as atMarch 31, 2015.

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


NAV^ Crisil Short TermBond Fund Index

Regular Plan

Last 1 Year 31-Mar- 15 8.02 8.44

Last 3 Years 28-Mar-13 8.64 9.18

Last 5 Years 31-Mar-11 9.00 8.98


Direct Plan

Last 1 Year 31-Mar- 15 8.82 8.44

Last 3 Years 28-Mar-13 9.42 9.18



During the Financial Year 2015-16, the Regular Plan underthe Scheme marginally underperformed its benchmark dueto difference in the expense ratio as compared to Direct Plan.

The Direct Plan under the scheme, for the Financial Year2015-16 has outperformed the benchmark due to effectiveduration management and regular effective change ofweightages between corporate bonds and governmentsecurities.

The net assets of the Plan amounted to ` 141.72 Crsas at March 31, 2016 as compared to ` 157.69 Crs as atMarch 31, 2015.


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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 31-Mar- 15 1.49 5.65

Last 3 Years 28-Mar-13 5.53 9.40

Last 5 Years 31-Mar-11 6.23 8.50


Direct Plan

Last 1 Year 31-Mar- 15 2.18 5.65

Last 3 Years 28-Mar-13 6.30 9.40



During the Financial Year 2015-16, the Schemeunderperformed its benchmark. The underperformance wasdue to relatively higher average maturity and higher exposureto Government Securities in the debt portion compared tothe benchmark.

The net assets of the Plan amounted to ` 21.30 Crs asat March 31, 2016 as compared to ` 23.84 Crs as atMarch 31, 2015.

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


NAV^ Crisil Short TermBond Fund Index

Regular Plan

Last 1 Year 31-Mar- 15 7.13 8.44

Last 3 Years 28-Mar-13 7.54 9.18

Last 5 Years 31-Mar-11 7.13 8.98


Direct Plan

Last 1 Year 31-Mar-15 7.93 8.44

Last 3 Years 28-Mar-13 8.36 9.18



During the Financial Year 2015-16, the Regular and DirectPlans under the Scheme underperformed its benchmark.This was mainly due to maintaining higher average maturityand higher exposure to Government Securities comparedto the benchmark.

The net assets of the Plan accounted to ` 21.52 Crsas at March 31, 2016 as compared to ` 25.35 Crs as atMarch 31, 2015.

Principal Cash Management Fund(An open ended Liquid Scheme)


NAV^ Crisil LiquidFund Index

Regular Plan

Last 1 Year 31-Mar-15 8.24 8.04

Last 3 Years 31-Mar-13 8.84 8.85

Last 5 Years 31-Mar-11 9.05 8.63

Since Inception 30-Aug-04 7.66 7.16

Direct Plan

Last 1 Year 31-Mar-15 8.32 8.04

Last 3 Years 31-Mar-13 8.93 8.85



During the Financial Year 2015-16, 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 ` 1,223.23 Crsas at March 31, 2016 as compared to ` 1,551.99 Crs as atMarch 31, 2015.

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


NAV^ Crisil LiquidFund Index

Regular Plan

Last 1 Year 31-Mar-15 8.56 8.04

Last 3 Years 28-Mar-13 9.26 8.82

Last 5 Years 31-Mar-11 9.11 8.63


Direct Plan

Last 1 Year 31-Mar-15 8.64 8.04

Last 3 Years 28-Mar-13 9.36 8.82



During the Financial Year 2015-16, 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 ` 38.63 Crsas at March 31, 2016 as compared to ` 27.20 crs asat March 31, 2015.


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


NAV^ Crisil Short TermBond Fund index

Regular Plan

Last 1 Year 31-Mar-15 8.22 8.44


Direct Plan

Last 1 Year 31-Mar-15 8.27 8.44



Principal Pnb Fixed Maturity Plan - Series B10(A close ended debt Scheme offering Fixed Maturity Plan of 476 days(the Scheme was further rolled-over for a period of 731 days))



Regular Plan

Last 1 Year 31-Mar-15 8.00 8.44


Direct Plan

Last 1 Year 31-Mar-15 8.33 8.44



Principal Pnb Fixed Maturity Plan - Series B13(A close ended debt Scheme offering Fixed Maturity Plan of 399 days(the Scheme was further rolled - over for a period of 731 days))



Regular Plan

Last 1 Year 31-Mar-15 8.03 8.44


Direct Plan

Last 1 Year 31-Mar-15 8.35 8.44



Principal Pnb Fixed Maturity Plan - Series B14(A close ended debt Scheme offering Fixed Maturity Plan of 390 days(the Scheme was further rolled - over for a period of 731 days))

Period Date Appreciation(%)NAV^ Crisil Short Term

Bond Fund index

Regular Plan

Last 1 Year 31-Mar-15 8.02 8.44


Direct Plan

Last 1 Year 31-Mar-15 8.35 8.44



Principal Pnb Fixed Maturity Plan - Series B16(A close ended debt Scheme offering Fixed Maturity Plan of 1094 days)


Bond Fund index

Regular Plan

Last 1 Year 31-Mar-15 7.86 8.44

Since Inception 30-Apr-14 9.26 9.40

Direct Plan

Last 1 Year 31-Mar-15 8.51 8.44

Since Inception 30-Apr-14 9.92 9.40


Principal Pnb Fixed Maturity Plan - Series B17(A close ended debt Scheme offering Fixed Maturity Plan of 371 days(the Scheme was further rolled-over for a period of 729 days))


Bond Fund indexRegular Plan

Last 1 Year 31-Mar-15 8.34 8.44


Direct Plan

Last 1 Year 31-Mar-15 8.43 8.44



Most of the scheme’(s) under the Fixed Maturity Plans sincetheir inception have been in line with their benchmarks ormarginally underperformed. The same has essentially beenon account of the scheme(s) being Fixed Maturity Plan(s) whichrequired locking in investments in a fixed asset allocation patternas per regulatory requirements till maturity of the Scheme(s).The FMPs also did not invest in long dated governmentsecurities which exceed the maturity of the scheme unlike theindex which has a weightage to dated government securities.^ Growth OptionNote: Returns less than one year are calculated on absolutebasis and returns for more than one year are calculated onCompounded Annualised basis.


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Outlook and Operations of the Scheme:

a. Equity Market:

While the economy through FY16 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. Cement demand has shown signs of improvementand consumer durables sales have generally been good. Whilestressed assets of banks is an issue, but most corporatesseems to be making efforts to sell assets and improve theBalance Sheet. The rate cycle seems to have tail winds asinflation is likely to be steady for most of the year. Initialmonsson forecasts from the weather forecaster are for anormal monsoon which should help in rural demand.

After weak earnings for the past 2 years, earning should revivein FY 17. However, valuations are fair in line with long termaverages. Global events like stability in commodity prices,geopolitical developments and the macroeconomic situationin advanced economies will drive flows in Emerging Markets(EMs). India is placed in a relatively better position comparedto most Ems in attracting these flows.

b. Debt Market:

The key drivers for debt market in FY 2016-17 would beRBI's open market operations, liquidity conditions in thebanking system and demand supply dynamics forGovernment Securities (G-Secs). Given's RBI's stated stanceto bring banking system liquidity deficit to a "neutral" levelwe expect higher OMO purchases of dated gilts and lowerdeficit levels as compared to FY 16.

Issuance of UDAY bonds and States' SDL could putintermittent upward pressure on bond yields as the totalsupply remains high. Foreign inflows to debt market areexpected to pick up in the backdrop of stable global conditionsand benign interest rates across US, Eurozone and Japan.Inflation is expected to average close to 5% for the financialyear in line with RBI's targeted trajectory path for CPI inflationand thus we expect RBI to remain in an accommodative policystance during the year, though further rate cuts maybe limited.

Global crude oil prices would continue to remain an importantindicator in terms of fuel inflation, oil import growth andsubsidy bill of government. Any sharp rise in oil prices canbe negative for the markets in terms of higher subsidy billwhich can impact fiscal deficit negatively and higher inflation.We expect the government to broadly meet its fiscal deficittarget of 3.5% for FY 17.

The broad range for 10 year benchmark for financial year2015-16 is likely to be 7.00%-7.70%. Given the cuts in keyrates by RBI, change to MCLR regime by banks andalignment of small savings instruments rates to market yieldsby the government, we expect greater transmission of policyrates to short end of the curve and thus short to mediumtenor corporate bonds and CP/CD yields should remainbenign broadly with downward bias.

Operations: Principal Mutual Fund (PMF) as at March 31,2016 offers twenty Eight Schemes. These include nine EquitySchemes (including two Equity Linked Savings Schemes),one Balanced Scheme, one Hybrid Scheme, one Fund ofFund Scheme (Overseas), one Fund of Fund (Domestic),eight Debt Schemes/Plans including one Liquid Scheme,

and six Fixed Maturity Plans. The total assets undermanagement across all these Schemes as on March 31,2016 was ` 4073.84 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 and Constitution of the Mutual Fund:

Principal Mutual Fund is sponsored by Principal FinancialServices Inc., USA [acting through its wholly ownedsubsidiary Principal Financial Group (Mauritius) Ltd.]. TheSponsor is the Settlor of the Mutual Fund Trust withPunjab National Bank as co-settlor. The Sponsor andco-settlor have entrusted a sum of Rs. 25 lakhs to theTrustee as the initial contribution towards the corpus ofthe Mutual Fund. Principal Financial Services Inc. is amember of the Principal Financial Group - a leadingprovider of financial products and services globally tobusinesses and individuals including retirement andinvestment services, Mutual Funds, life and healthinsurance, annuities and mortgage banking. Establishedin 1879, the Principal Financial Group has more than$516.2 billion in assets under management and servesover 20.6 million customers worldwide through operationsin the United States, Asia, Australia, Europe, LatinAmerica and North America (as on December 31, 2015).The business of Principal Financial Group (Mauritius)Limited, is to carry out business activities which are notprohibited under the Laws of Mauritius and the laws ofthe countries where the Company is transacting businessand to do all such things as are incidental or conduciveto the attainment of the above objects.

The present share holding pattern of the AMC is asfollows:

Name of Shareholder % of equity capital

Principal Financial Group (Mauritius) Limited 78.62

Punjab National Bank 21.38

B. Principal Trustee Company Private Limited (“theTrustee”):

The Trustee is the exclusive owner of the Trust Fund andholds the same in trust for the benefit of the Unitholders.

Principal Trustee Company Private Limited (formerlyIDBI-PRINCIPAL Trustee Company Limited), a companyincorporated under the Companies Act, 1956 is theTrustee to the Fund with effect from October 18, 2002.Prior to October 18, 2002, Board of Trustees dischargedthe Trusteeship function of the Fund. The Trustee hasthe exclusive ownership of the Trust Fund and is vestedwith the general powers of superintendence, directionand management of the affairs of the Trust.


12

The Trustee has been discharging its duties and carryingout its responsibilities as provided in the SEBI (MutualFunds) Regulations, 1996 and the Trust Deed. TheTrustee seeks to ensure that the Fund and the Schemesfloated there under are managed by the AMC inaccordance with the Trust Deed, the Regulations,directions and guidelines issued by the SEBI, theAssociation of Mutual Funds in India and other regulatoryagencies.

Principal Financial Group (Mauritius) Limited and PunjabNational Bank hold 70% and 30% respectively of thepaid up equity capital of the Trustee Company.

C. 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 forundertaking activities which are in the nature of advisoryservices to offshore funds, venture capital funds, financialconsultancy and exchange of research pertaining tosecurities.

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 Objective 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 R750 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 intention


13

of 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 beprimarily 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 or

expensively 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 investmentstrategy would be to identify stocks which can provide capitalappreciation in the long term. The aim will be to build adiversified portfolio across major industries and economicsectors by using "fundamental analysis" as its selectionprocess.

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 activeinvestment strategy depending on the market situation andafter considering the macroeconomic conditions includingthe prevailing political conditions, the economic environment(including interest rates and inflation) and to adhere to theneed for a diversified portfolio in accordance with theapplicable 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 in


14

overseas 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.

xii. Principal Asset Allocation Fund-of-Funds (An Openended Fund of Funds Scheme)

Conservative Plan: The objective of the Plan is to providelong term total return primarily by seeking income throughinvestments made in debt/money market mutual funds withsome exposure to equity mutual funds.

Moderate Plan: The objective of the Plan is to provide longterm total return by seeking capital appreciation and incomethrough investments made in a basket of equity mutual funds,debt/money market mutual funds and Gold ETFs.

Aggressive Plan: The objective of the Plan is to providelong term total return by seeking capital appreciation throughinvestments made primarily in equity mutual funds with someallocation to debt/money market mutual funds and GoldETFs.

Market movements; particularly in the equity and fixedincome markets can be unpredictable and the resultantvolatility can be intimidating for most retail investors seekingto invest in the long-term to meet their pre-identified goals.

Even experienced investment professionals are often unableto foresee exactly where the markets will be headedespecially in the longer term. Therefore, spreadinginvestments among several asset categories with differentcharacteristics allows for more consistent performance undera variety of economic backdrops. Over time, a well-diversifiedportfolio of investments allows investors to take advantageof gains in performing asset classes in different marketconditions and economic cycles; thereby reducing the impactof underperforming asset classes, moderating the portfolio'soverall risk exposure and smoothing returns.

The asset allocation is a thoughtful and scientific processthat should be distinguished from the related concept ofdiversification, which simply means to distribute a portfolio'sinvestment among a variety of asset classes.

This Scheme will use a quantitative model to determine themost suitable asset allocation under each of its Plans.

DEBT SCHEMES:

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

The investment objective of the Scheme is to generateregular income & Capital appreciation through investments

in debt securities and money market instruments.

The net assets of the Plan will be invested in money marketand debt instruments. The Plan will seek to optimize the riskreturn proposition for the benefit of investors. The investmentprocess will focus on macro - economic research, credit riskand liquidity management. The Plan will maintain a judiciousmix of cash, short term and medium term instruments basedon the mandates of the plan. As par t of credit riskassessment, the Plan will also apply its credit evaluationprocess besides taking guidance from ratings of ratingagencies. In order to maintain liquidity, the fund will maintaina reasonable proportion of the Scheme's investments inrelatively 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 Marketsecurities 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.

xiv. 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.

xv. 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.

xvi. Principal Dynamic Bond Fund (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.

The Scheme will aim to invest its assets in a portfolio of debtinstruments and related securities of government, quasi-government, corporate issuers and money market


15

instruments with varying risks - rated investment grade orhigher or otherwise comparable (if not rated).

xvii. Principal Income Fund - Short Term Plan (An openended 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 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.

xviii. 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 capitalappreciation 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.

xix. Principal Debt Savings Fund - Retail Plan (An open-ended Income fund.)

To seek to generate stable returns and capital appreciationthrough investment in Debt instruments and related securitiesover medium to long term investment horizon.

To achieve the Investment Objective, assets under the Planwill be invested in a wide range of Fixed Income and MoneyMarket instruments - rated Investment Grade or higher orotherwise comparable (if not rated).

xx. 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 money marketinstruments. The investments will be in securities, which theInvestment Manager believes present minimal liquidity and/or credit risks.

xxi. 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 moneymarket and debt instruments. The scheme will seek tooptimize the risk return proposition for the benefit of investors.The investment process will focus on macro-economicresearch, credit risk and liquidity management. The schemewill maintain a judicious mix of cash, short term and mediumterm instruments based on the mandates of the scheme. Aspart of credit risk assessment the scheme will also apply itscredit evaluation process besides taking guidance fromratings of rating agencies. In order to maintain liquidity thescheme will maintain a reasonable proportion of scheme'sinvestments in relatively liquid investments.

xxii. 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 (the Scheme has been further rolled- over for a period of 731 days))

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.



Principal Pnb Fixed Maturity Plan - Series B16(A close ended debt Scheme offering Fixed MaturityPlan of 1094 days)

Principal Pnb Fixed Maturity Plan - Series B17(A close ended debt Scheme offering Fixed MaturityPlan of 371 days (the Scheme has been further rolled-over for a period of 729 days))

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 Policies

The 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 Funds) Regulations, 1996.


16

5. Unclaimed Dividends & Redemptions for the financialyear 2015-2016

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

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

1 Principal Income Fund - 17.42 3197 10.99 88Long Term Plan

2 Principal Debt Savings Fund - 8.22 2124 14.22 349MIP

3 Principal Bank CD Fund 0.10 67 0.18 12

4 Principal Debt Savings Fund - 15.69 4185 5.94 55Retail Plan

5 Principal Income Fund - 1.03 43 0.78 3Short Term Plan

6 Principal GovernmentSecurities Fund 0.29 45 0.12 1

7 Principal Growth Fund 336.91 15046 234.34 1107

8 Principal CashManagement Fund 0.12 64 1.82 88

9 Principal Dividend Yield Fund 311.48 15402 56.44 356

10 Principal Balanced Fund 25.99 590 12.70 37

11 Principal Retail MoneyManager Fund 0.00 0.26 2

12 Principal Index Fund - Nifty 0.28 4 1.10 7

13 Principal Tax Savings Fund 326.76 20720 103.99 714

14 Principal Debt OpportunitiesFund - Conservative Plan 0.06 182 1.82 23

15 Principal Debt OpportunitiesFund - Corporate Bond Plan 0.49 235 1.47 74

16 Principal EmergingBluechip Fund 216.25 7856 64.08 379

17 Principal GlobalOpportunities Fund – – 20.26 41

18 Principal PersonalTax Saver Fund 182.45 9081 119.45 848

19 Principal Large Cap Fund 90.17 3667 67.91 337

20 Principal Smart Equity Fund 1.73 70 2.39 12

21 Principal Pnb Fixed Maturityplan - 732 Days - series B5$$ – – 0.06 1

22 Principal Pnb Fixed Maturityplan - 91 Days - series XV$$ – – 3.35 1

TOTAL 892.69 61473 590.92 4634$$ Schemes Matured/Redeemed/Closed.

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

a. As per the requirements of the SEBI Circular No. SEBI/IMD/CIR No.18/198647/2010 dated March 15, 2010 andSEBI Circular No. CIR/IMD/DF/05/2014 dated March 24,2014 the General policies and procedures for exercisingvoting rights (along with the relevant disclosures) inrespect of the shares held by the Schemes of PrincipalMutual Fund; has been hosted on our website -www.principalindia.com.

b. During the FY 2015-16, the proxy voting was exercisedby Principal Pnb Asset Management Company PrivateLimited for and on behalf of Principal Mutual Fund ("theFund"). The summary of proxy votes cast by PrincipalMutual Fund/AMC across all the investee companies isas follows:

Summary of Votes cast during the F.Y. 2015-2016F.Y. Quarter Total no. of Break-up of Vote decision

Resolutions For Against Abstained

2015-2016 April-June 245 215 20 10

2015-2016 July-September 1514 1272 234 8

2015-2016 October - December 114 97 13 4

2015-2016 Jaunary- March 80 74 5 1

For complete voting details for the period of 2015-16,unit holders can log on to the website(www.principalindia.com) of the Fund. Further the saidDetails are also available in the Annual Report for theperiod 2015-16. A copy thereof is available on the saidwebsite of the fund and shall be sent / emailed to theunit holders free of cost on demand.

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, andincome from them, can go up as well down withfluctuations in the market value of its underlyinginvestment;

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, distributors, keypartners and service providers for their commitment andstrong support.

For Principal Trustee Company Private Limited

Sd/-

V.S.Mathur

Chairman

Date: July 13, 2016

Place: Mumbai


17

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18

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


19

Apr-J

une

3-Ap

r-15

GO

DREJ

INDU

STRI

ES LT

D.Po

stal

Bal

lot

Man

agem

ent

Give

loan

(s)/g

uara

ntee

(s),

mak

eFo

rFo

rA

vote

FO

R th

is re

solu

tion

is wa

rrant

ed g

iven

inve

stm

ents

upt

o Rs

1 L

acs.

the

prop

osal

wou

ld fa

cilita

te s

ettin

g up

a fa

cility

man

agem

ent c

ompa

ny fo

r the

new

offi

cebu

ildin

g an

d ot

her p

rope

rty d

evel

opm

ent

proj

ects

of t

he g

roup

.

Apr-J

une

6-Ap

r-15

JIND

AL S

TEEL

& P

OW

ER LT

D.EG

MM

anag

emen

tAl

tera

tion

of A

OA

For

For

A vo

te F

OR

this

reso

lutio

n is

warra

nted

give

nth

at g

rant

ing

certa

in ri

ghts

to a

lend

er p

ursu

ant

to a

loan

agr

eem

ent is

a st

anda

rd p

racti

ce in

India

.

Apr-J

une

6-Ap

r-15

JIND

AL S

TEEL

& P

OW

ER LT

D.EG

MM

anag

emen

tRe

visio

n of

rem

uner

atio

n of

For

Agai

nst

A vo

te A

GAI

NST

the

prop

osed

waiv

er o

f mini

mum

Mr.

Nave

en J

inda

l Cha

irman

and

pay

and

revis

ed re

mun

erat

ion

of N

. Jin

dal i

sPa

ymen

t of M

inim

um re

mun

erat

ion

warra

nted

bec

ause

: • N

. Jin

dal w

as c

onsid

ered

the

high

est p

aid

exec

utive

in In

dia

in 2

012

and

cont

inues

to b

e on

e of

the

highe

st-pa

id ex

ecut

ives,

and

the

com

pany

has

faile

d to

pro

vide

suffi

cient

just

ifica

tion

for h

is re

mun

erat

ion;

and

• Th

epr

opos

ed w

aive

r of m

inim

um p

ay o

f N. J

inda

lwi

ll be

effec

tive

for a

per

iod o

f thr

ee fin

ancia

l yea

rs.

Apr-J

une

6-Ap

r-15

JIND

AL S

TEEL

& P

OW

ER LT

D.EG

MM

anag

emen

tRe

visio

n of

rem

uner

atio

n of

Mr.

Ravi

Kant

For

For

A vo

te F

OR

the

prop

osed

wai

ver o

f min

imum

Uppa

l Man

agin

g Di

rect

or a

nd G

roup

CEO

pay

of R

.K. U

ppal

and

revi

sed

rem

uner

atio

n of

and

paym

ent o

f Min

imum

rem

uner

atio

nUp

pal i

s wa

rrant

ed g

iven

the

follo

wing

:Th

e pr

opos

ed w

aive

r of m

inim

um p

ay is

onl

yfo

r the

fina

ncia

l yea

r end

ing

Mar

ch 3

1, 2

015,

wher

ein th

e re

porte

d los

s is d

ue to

an

unex

cept

ional

even

t bey

ond

exec

utive

s' co

ntro

l and

is o

f one

time

in n

atur

e; a

nd A

ccor

ding

to th

e co

mpa

ny,

the

exec

utive

rem

uner

atio

ns h

ave

been

ben

ch-

mar

ked

with

the

rem

uner

atio

n pa

id b

y its

pee

rs.

Apr-J

une

6-Ap

r-15

JIND

AL S

TEEL

& P

OW

ER LT

D.EG

MM

anag

emen

tPa

ymen

t of M

inim

um re

mun

erat

ion

toFo

rFo

rA

vote

FO

R th

e pr

opos

ed w

aive

r of m

inim

umM

r. K

Raja

gopa

l Gro

up C

FO &

Dire

ctor

pay

of K

. Raj

agop

al a

nd re

vised

rem

uner

atio

nof

Upp

al is

war

rant

ed g

iven

the

follo

wing

:Th

e pr

opos

ed w

aive

r of m

inim

um p

ay is

onl

yfo

r the

fina

ncia

l yea

r end

ing

Mar

ch 3

1, 2

015,

wher

ein th

e re

porte

d los

s is d

ue to

an

unex

cept

ional

even

t bey

ond

exec

utive

s' co

ntro

l and

is o

f one

time

in n

atur

e; a

nd A

ccor

ding

to th

e co

mpa

ny,

the

exec

utive

rem

uner

atio

ns h

ave

been

ben

ch-

mar

ked

with

the

rem

uner

atio

n pa

id b

y its

pee

rs.

Apr-J

une

6-Ap

r-15

JIND

AL S

TEEL

& P

OW

ER LT

D.EG

MM

anag

emen

tPa

ymen

t of M

inim

um re

mun

erat

ion

toFo

rFo

rA

vote

FO

R th

e pr

opos

ed w

aive

r of m

inim

umM

r. Di

nesh

Kum

ar S

arao

gi W

hole

-tim

epa

y of

D.K

. Sar

aogi

and

revis

ed re

mun

erat

ion

Dire

ctor

.of

Upp

al is

war

rant

ed g

iven

the

follo

wing

:• T

he p

ropo

sed

waive

r of m

inim

um p

ay is

onl

yfo

r the

fina

ncia

l yea

r end

ing

Mar

ch 3

1, 2

015,

wher

ein th

e re

porte

d los

s is d

ue to

an

unex

cept

ional

even

t bey

ond

exec

utive

s' co

ntro

l and

is o

f one

Det

ails

of V

ote

s ca

st d

uri

ng

th

e F

inan

cial

yea

r 20

15-2

016

Qua

rter

Mee

ting

Com

pany

Nam

eTy

pe o

fPr

opos

al b

yPr

opos

al’s

Des

crip

tion

Inve

stee

Vote

(For

/Re

ason

Sup

port

ing

the

Vote

Dec

isio

nDa

teM

eetin

gsM

anag

emen

tco

mpa

ny’s

Aga

inst

/(A

GM

/EG

M)

orM

anag

emen

tAb

stai

n)Sh

areh

olde

rRe

com

men

datio

n


20

time

in n

atur

e; a

nd o

Acc

ordi

ng to

the

com

pany

,th

e ex

ecut

ive re

mun

erat

ions

hav

e be

en b

ench

-m

arke

d wi

th th

e re

mun

erat

ion

paid

by

its p

eers

.

Apr-J

une

7-Ap

r-15

SANO

FI IN

DIA

LTD.

Post

al B

allo

tM

anag

emen

tAp

poin

tmen

t of M

r. S.

R. G

upte

For

For

A vo

te F

OR

S.R.

Gup

te is

war

rant

ed g

iven

the

as In

depe

nden

t Dire

ctor

abse

nce

of a

ny k

nown

issu

es c

once

rnin

g th

eno

min

ees

and

the

com

pany

's bo

ard

and

com

mitt

ee d

ynam

ics.

Apr-J

une

7-Ap

r-15

SANO

FI IN

DIA

LTD.

Post

al B

allo

tM

anag

emen

tAp

poin

tmen

t of M

r. A.

K.R.

Ned

unga

diFo

rFo

rA

vote

FO

R A.

K.R.

Ned

unga

di is

war

rant

edas

Inde

pend

ent D

irect

orgi

ven

the

abse

nce

of a

ny k

nown

i

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