PRINCIPAL GLOBAL INVESTORS FUNDS. Supplement dated 31 July for the Long/Short Global Opportunities Equity Fund

Transcription

1 PRINCIPAL GLOBAL INVESTORS FUNDS Supplement dated 31 July 2013 for the Long/Short Global Opportunities Equity Fund This Supplement contains specific information in relation to the Long/Short Global Opportunities Equity Fund (the Fund), a Fund of the Principal Global Investors Funds (the Unit Trust), an open-ended umbrella type unit trust authorised by the Central Bank of Ireland (the Central Bank) as an undertaking for collective investment in transferable securities pursuant to the UCITS Regulations. The Directors of the Manager, whose names appear in the Prospectus, accept responsibility for the information contained in this Supplement. To the best of the knowledge and belief of the Directors (who have taken all reasonable care to ensure that such is the case) the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of the information. The Directors accept responsibility accordingly. This Supplement forms part of and should be read in conjunction with the Prospectus for the Unit Trust dated 14 December 2012 (the Prospectus). Words and expressions defined in the Prospectus shall, unless the context otherwise requires, have the same meaning when used in this Supplement.

2 1. INVESTMENT OBJECTIVE AND POLICIES 1.1. Investment Objective The investment objective of the Fund is to seek capital growth over the medium to long term with the secondary objective of seeking to limit volatility Investment Policies The Fund seeks to achieve its objective by investing principally in both long and short positions in equity securities and equity related securities (comprising American Depository Receipts and Global Depository Receipts) from investment markets around the world. The Fund will hold short positions synthetically through the use of the financial derivative instruments (FDIs) described below. The Fund may select publicly listed equity securities from markets around the world. However, when investing in emerging markets, the Fund adopts a policy of diversification. The Fund will invest in both long and short investment positions. The Adviser will adjust the long and short exposures of the Fund on an unconstrained basis, seeking to limit volatility within the Fund. It is intended that the Fund will be in a net notional long position. The short investment positions will be taken as a means of reducing the Fund's exposure to market fluctuations, thereby seeking to limit volatility within the Fund. The Fund may also invest in eligible real estate investment trusts (REITS) or other REIT-like structures which will be the equivalent of REITS. It may also invest in other Funds of the Unit Trust and eligible exchange traded funds (ETFs) the constituents of which may comprise the instruments and techniques described above and therefore is an alternative means through which the Fund may gain exposure to these types of instruments and techniques. The Fund may also hold ancillary liquid assets such as bank deposits, bonds, commercial paper, floating rate notes, certificates of deposit, freely transferable promissory notes, warrants, debentures, asset backed securities, government or corporate bonds and debt and preferred securities issued by companies, the equity securities of which would be eligible for purchase by the Fund. Any bonds may or may not be of investment grade and may be fixed or floating rate. An investment in the Fund should not constitute a substantial proportion of an investment portfolio and may not be appropriate for all investors. The Fund may use the following FDIs for investment purposes as well as for hedging and/or efficient portfolio management purposes: Equity futures contracts In purchasing a futures contract, the buyer agrees to purchase a specified underlying on a specified future date. In selling a futures contract, the seller agrees to sell a specified underlying on a specified future date. The price at which the purchase and sale will take place is fixed when the buyer and seller enter into the contract. Futures not calling for physical delivery of the underlying instrument will be settled through cash payments rather than through delivery of the underlying instrument. Futures can be held until their delivery dates or can be closed out by offsetting purchases or sales of futures contracts before then if a liquid market is available. The Fund may realise a gain or loss by closing out its futures contracts. The value of a futures contract tends to increase and decrease in tandem with the value of its underlying. Therefore, purchasing futures contracts will tend to increase the Fund's exposure to positive and negative price fluctuations in the underlying, much as if it had purchased the underlying 1

3 directly. When the Fund sells a futures contract, by contrast, the value of its futures position will tend to move in a direction contrary to the market. Selling futures contracts, therefore, will tend to offset both positive and negative market price changes, much as if the underlying had been sold. The purchaser or seller of a futures contract is not required to deliver or pay for the underlying or the final cash settlement price, as applicable, unless the contract is held until the delivery date. However, both the purchaser and seller are required to deposit "initial margin" with a futures broker, known as a futures commission merchant (FCM), when the contract is entered into. If the value of either party's position declines, that party will be required to make additional "variation margin" payments to settle the change in value on a daily basis. The party that has a gain is entitled to receive all or a portion of this amount. Because there are a limited number of types of exchange-traded futures contracts, it is likely that the standardised contracts available will not match the Fund's current or anticipated investments exactly. The Fund may invest in futures contracts based on securities with different issuers or other characteristics from the securities in which the Fund typically invests, which involves a risk that the futures position will not track the performance of the Fund's other investments. Futures prices can also diverge from the prices of their underlying, even if the underlying match the Fund's investments well. Futures prices are affected by such factors as current and anticipated shortterm interest rates, changes in volatility of the underlying and the time remaining until expiration of the contract, which may not affect security prices the same way. Imperfect correlation may also result from differing levels of demand in the futures markets and the securities markets, from structural differences in how futures and securities are traded or from imposition of daily price fluctuation limits or trading halts. The Fund may purchase or sell futures contracts with a greater or lesser value than the securities it wishes to hedge or intends to purchase in order to attempt to compensate for differences in volatility between the contract and the securities, although this may not be successful in all cases. If price changes in the Fund's futures positions are poorly correlated with its other investments, the positions may fail to produce anticipated gains or result in losses that are not offset by gains in other investments. Using futures to achieve a particular strategy instead of using the underlying or related security results in lower transaction costs being incurred and less disruption to the underlying assets of the Fund. The Fund may also use futures contracts to take currency hedging and currency investment positions. Futures are exchange traded and do not carry counterparty risk. Equity Options These are used both to gain investment exposure and hedge exposures in the equity market. Options can be both exchange traded as well as traded over-the-counter (OTC). Options carry the delta weighted risk of the underlying equity. In addition, OTC traded FDI have counterparty risk. There are two forms of options, put and call options. Put options are contracts sold for a premium that gives one party (the buyer) the right, but not the obligation, to sell to the other party (the seller) of the contract, a specific quantity of the particular equity at a specified price. Call options are similar contracts sold for a premium that gives the buyer the right, but not the obligation, to buy from the seller of the option at a specified price. Options may also be cash settled. The Fund may be a seller or buyer of put and call options and may purchase or sell these instruments either individually or in combinations. Currency Forwards A forward contract locks-in the price at which a specific currency may be purchased or sold on a future date. The contract holders are obliged to buy or sell the currency at a specified price, at a specified quantity and on a specified future date. This reduces the Fund's exposure to changes in the value of the currency it will deliver and increases its exposure to changes in the value of the currency it will 2

4 receive for the duration of the contract. Currency forwards are used both to hedge unwanted currency risk, to enhance the return of the Fund by achieving a specific currency exposure or to shift exposure to currency fluctuations from one currency to another. The Fund may use one currency (or a basket of currencies) to hedge against adverse changes in the value of another currency (or a basket of currencies) when exchange rates between the two currencies are positively correlated. Currency forwards have the risk of currency exposure in the same way as a regular currency spot transaction. Currency forwards are OTC traded and therefore have counterparty risk. Forward contracts also carry roll risk, which is the risk that when a forward contract expires, a new forward to replace the expired one cannot be put into place at the same cost or on the same hedge basis. This may occur due to changes in market liquidity or interest rates, resulting in a potential slippage or loss in the hedge position due to the contract expiration and roll. Such transactions may not be successful and may eliminate any chance for the Fund to benefit from favourable fluctuations in relevant foreign currencies. The Fund s investments (save for permitted unlisted investments) will be listed/traded on the exchanges and markets listed in Appendix E to the Prospectus. Investors attention is drawn to the information set out in the Prospectus under the headings General Information and Special Investment Considerations and Risks Profile of a Typical Investor Investment in the Fund is suitable for investors seeking capital growth over the medium to long term. All investors must be able to afford to set aside the invested capital for the medium to long term. The Fund is suitable as an investment in a well-diversified portfolio and for investors who are prepared to accept, in normal market conditions, a medium degree of volatility of Net Asset Value from time to time. 2. INVESTMENT RESTRICTIONS The general investment restrictions set out in Appendix A of the Prospectus shall apply. In the case of cross-investment in another Fund of the Unit Trust the following additional restrictions apply: 2.1. An investment must not be made in a Fund which itself holds Units in other Funds of the Unit Trust; 2.2. The Fund must not pay a fee to the Manager in respect of that portion of its assets invested in other Funds of the Unit Trust. 3. COLLATERAL The collateral policy of the Fund arising from OTC FDI shall be in a form acceptable to the Trustee and in accordance with the requirements of the Central Bank and as further described below. Permitted Types of Collateral: Non-Cash Collateral (i) Liquidity: Non-cash collateral should be highly liquid and traded on a regulated market or multilateral trading facility with transparent pricing in order that it can be sold quickly at a price that is close to pre- 3

5 sale valuation. Collateral received should also comply with the provisions of Regulation 74 of the Regulations; (ii) Valuation: Collateral must be capable of being valued on at least a daily basis and assets that exhibit high price volatility should not be accepted as collateral unless suitably conservative haircuts are in place; (iii) Issuer credit quality: Collateral received should be of high quality; (iv) Correlation: Collateral received should be issued by an entity that is independent from the counterparty and is not expected to display a high correlation with the performance of the counterparty; (v) Diversification (asset concentration): Collateral should be sufficiently diversified in terms of country, markets and issuers with a maximum exposure to a given issuer of 20% of the Net Asset Value. When the Fund is exposed to different counterparties, the different baskets of collateral should be aggregated to calculate the 20% limit of exposure to a single issuer; (vi) Immediately available: Collateral received should be capable of being fully enforced at any time without reference to or approval from the relevant counterparty; and (vii) Non-cash collateral received cannot be sold, pledged or reinvested. Cash collateral Reinvestment of cash collateral must at all times, meet with the following requirements: Cash received as collateral may only be invested in the following: (i) deposits with an EU credit institution, a bank authorised in the remaining Member States of the European Economic Area (EEA) (Norway, Iceland, Liechtenstein), a bank authorised by a signatory state, other than an EU Member State or a Member State of EEA, to the Basle Capital Convergence Agreement of July 1988 (Switzerland, Canada, Japan, United States) or a credit institution authorised in Jersey, Guernsey, the Isle of Man, Australia or New Zealand (the Relevant Institutions); (a) high quality government bonds; (b) reverse repurchase agreements provided the transactions are with credit institutions subject to prudential supervision and the Investment Adviser and/or Sub-Investment Adviser is able to recall at any time the full amount of cash on an accrued basis; (c) short-term money market funds as defined in the ESMA Guidelines on a Common Definition of European Money Market Funds (ref CESR/10-049); (ii) meet the requirements in section (v) under Non-Cash Collateral above, where applicable; (iii) Invested cash collateral may not be placed on deposit with the counterparty or a related entity. Level of Collateral In respect of OTC FDI such collateral shall be required to ensure that counterparty exposure is managed within the limits set out in Appendix A of the Prospectus. Otherwise the Fund will require collateral where the exposure to a counterparty has reached a minimum threshold level. That minimum threshold level will be determined on a counterparty by counterparty basis and will depend on many factors including the credit quality of the counterparty. Haircut Policy 4

6 While the Fund will only accept non-cash collateral which does not exhibit high price volatility, the noncash collateral received on behalf of the funds will typically be subject to a valuation percentage of up to 20%. The valuation percentage will depend on factors such as liquidity, price volatility, issuer credit quality and remaining maturity and will take into account the results of stress tests performed by the Investment Adviser. 4. BORROWINGS AND LEVERAGE In accordance with the general provisions set out under the heading General Information Borrowings of the Prospectus, the Fund may borrow up to 10% of its net assets on a temporary basis. The Fund s leverage (as prescribed in the Central Bank s Notices) relating to FDI will not exceed 100% of its Net Asset Value. The Fund will utilise the commitment approach for the purposes of calculating the global exposure of the Fund. 5. INVESTMENT ADVISER The Manager has appointed Principal Global Investors, LLC (Principal Global Investors or the Investment Adviser) as investment adviser to the Fund pursuant to the Investment Advisers Agreement (as amended and novated) described in the Prospectus under the heading Material Contracts. This agreement may be terminated by either party on giving six (6) months' written notice to the other although, in certain circumstances, the agreement may be terminated forthwith by notice in writing by either party to the other. Principal Global Investors is a diversified asset management organization and a member of the Principal Financial Group. It manages over US$245 billion in assets for clients worldwide. Its investment capabilities encompass an extensive range of equity, fixed income and real estate investments as well as specialized overlay and advisory services. 6. RISK FACTORS The General risk factors set out under the heading Special Investment Considerations and Risks of the Prospectus apply to the Fund. The risks relating to the investment of cash collateral are reflected in the first four risk factors in the General risk factors section. Additional risk considerations are also applicable to investments in Emerging Markets, to Hedged Unit Classes and to investment in FDI, and investors' attention is drawn to the relevant information in the Prospectus under the relevant headings in the Special Investment Considerations and Risks section of the Prospectus. 7. DISTRIBUTION POLICY The general distribution policy set out under the heading Distribution Policy of the Prospectus applies to the Fund. 8. KEY INFORMATION FOR BUYING AND SELLING Base Currency US dollars. Initial Issue Price US$10 per Unit (or its equivalent in a foreign currency). 5

7 Initial Offer Period From 9.00 a.m. on the date after the date of this Supplement to 5.30 p.m. on 30 January 2014 as may be shortened or extended by the Manager and in accordance with the requirements of the Central Bank. Business Day Any day other than Saturday or Sunday on which banks are open for business in Ireland. Dealing Day Any Business Day and/or such other day or days as the Manager may with prior notification to the Holders determine provided that there shall be at least one per fortnight. Dealing Deadline Until further notice, the dealing deadline shall be 10:00am Dublin time on the relevant Dealing Day. 9. CHARGES AND EXPENSES Investment and Management Charges (all amounts in US$) 1 Units Minimum Initial Subscription Minimum Additional Subscription Current Preliminary Charge (%) Annual Management Fee (% per annum) Administration Fee (% per annum) Marketing and Annual Trustee Fee Distribution Fee (% per annum) (% per annum) A 10,000 1, (on first 100 I 2,000, , (on first 100 D 10,000 1, (on first 100 F 10,000 1, (on first 100 P 10,000 1, (on first 100 The costs of establishing the Fund, which are not expected to exceed USD 30,000, will be borne by the Fund and amortised over the first five years of the Fund. Further details of charges and expenses payable out of the assets of the Fund are set out in the Prospectus under the heading Charges and Expenses. 10. OTHER INFORMATION The other Funds of the Unit Trust in existence at the date of this Supplement are: Asian Equity Fund Emerging Markets Equity Fund European Equity Fund 1 Or such other amounts as the Manager may determine and, in the case of an increase in such amounts, notify to Holders. 6

8 Global Equity Fund Global Equity (ex-japan) Fund Global Property Securities Fund High Yield Fund Japanese Equity Fund Multi Strategy Currency Fund Post Global Limited Term High Yield Fund Preferred Securities Fund U.S. Equity Fund EDGE Equity Income Fund Global Small Cap Equity Fund Origin Global Equity Fund Origin Global Constrained Equity Fund Origin Global Emerging Markets Fund Origin Global Smaller Companies Fund The Fund was approved by the Central Bank on 30 July The following classes of Units in the Fund are available for issue and application has been made to The Irish Stock Exchange Limited for the listing of these Units, issued and available for issue, on the Official List and trading on the main securities market of The Irish Stock Exchange Limited. I Class Accumulation Units A Class Income Units I Class Income Units A Class Accumulation Units Euro A Class Accumulation Units Euro A Class Income Units Euro I Class Accumulation Units Euro I Class Income Units Euro Hedged A Class Accumulation Units Euro Hedged A Class Income Units Euro Hedged I Class Accumulation Units Euro Hedged I Class Income Units Sterling A Class Accumulation Units Sterling A Class Income Units Sterling I Class Accumulation Units Sterling I Class Income Units Sterling Hedged A Class Accumulation Units Sterling Hedged A Class Income Units Sterling Hedged I Class Accumulation Units Sterling Hedged I Class Income Units Swiss Franc A Class Accumulation Units Swiss Franc A Class Income Units Swiss Franc I Class Accumulation Units Swiss Franc I Class Income Units Swiss Franc Hedged A Class Accumulation Units Swiss Franc Hedged A Class Income Units Swiss Franc Hedged I Class Accumulation Units Swiss Franc Hedged I Class Income Units Yen A Class Accumulation Units Yen A Class Income Units Yen I Class Accumulation Units Yen I Class Income Units Yen Hedged A Class Accumulation Units Yen Hedged A Class Income Units Yen Hedged I Class Accumulation Units Yen Hedged I Class Income Units D Class Accumulation Units D Class Income Units 7

9 F Class Accumulation Units F Class Income Units P Class Accumulation Units P Class Income Units Investors should contact the Administrator for confirmation of the classes of Units available in the Fund at any given time and whether or not they have already been admitted to listing and trading on the main securities market of the Irish Stock Exchange. 8