Notification of changes to the underlying fund of Principal European Equity

13 Jan 2026

Notification of changes to the underlying fund of:

• J76 Principal European Equity (USD)
• H65 Principal European Equity (USD)*

(together the “Affected Mirror Funds”)

We have been notified by Principal Global Investors (Ireland) Limited (the “Manager”) of changes to the underlying fund of the Affected Mirror Funds. These changes will take effect from 19 January 2026 (the “Effective Date”).

Background

The previous lead portfolio manager of the underlying fund of the Affected Mirror Funds retired in 2024. As part of the transition of the underlying fund to the new portfolio managers, the underlying fund’s established processes were refined and strengthened and these processes varied from the approach described in the underlying fund prospectus. As a result, the Manager has advised that the investment policy of the underlying fund of the Affected Mirror Funds is being updated to reflect the processes currently being implemented.

In order to achieve the underlying fund investment objective, the investment manager of the underlying fund of the Affected Mirror Funds (the “Investment Manager”) employs a fundamental research process which seeks to focus on identifying and investing in companies where future free cash flow growth is underestimated by the market. A future free cash flow focused discipline allows for open-minded assessment of opportunities ranging from aggressive growth to deep value. This philosophy requires scrutiny of growth opportunities to assess free cash flow generation and also demands an understanding of valuation by identifying differences in growth expectations. The Investment Manager analyses potential investee companies identified pursuant to the foregoing process to determine whether they are consistent with the sustainability considerations. 

In order to meet the environmental characteristic promoted (described in more detail below) the Investment Manager integrates sustainability considerations as part of the fundamental research process, and screens out thermal coal producers and companies excluded by the Manager’s Exclusions Policy (details of which are currently set out in the Prospectus of the underlying fund of the Affected Mirror Funds).

The evaluation of sustainability considerations is embedded within the fundamental research conducted by the Investment Manager’s analysts, as they are best placed to determine the importance of such considerations in relation to a specific company or industry. The analysts have discretion to focus on the considerations and concerns that are most important and impactful to forward free cash flow, earnings, sentiment, and relative valuation within their area of coverage, which may include material environmental, social and/or governance considerations.

Amendment to environmental and social characteristics

It is intended to amend the environmental and social characteristics promoted by the underlying fund so that, going forward, the underlying fund of the Affected Mirror Funds will only promote one environmental characteristic – the reduction of greenhouse (GHG) emissions. As a result, the prospectus of the underlying fund of the Affected Mirror Funds will be updated to reflect this change and also include information on the processes implemented to promote this characteristic. 

In particular, the Investment Manager will use third-party data to monitor the underlying fund’s weighted average carbon intensity, which will be maintained at a level 5% lower than MCI Europe NTR (the “Index”). Thereafter, on an ongoing basis, the Investment Manager will also use third party data to monitor the underlying fund’s carbon risk score relative to the Index to maintain this minimum 5% threshold.

Update to the exclusions

In addition to the above monitoring of the underlying fund’s weighted average carbon intensity, the underlying fund of the Affected Mirror Funds also excludes:

1. thermal coal producers from the underlying fund’s holdings as defined by GICS Industry Sector classification;

2. issuers that manufacture controversial weapons as follows:

a) issuers that have any ties to the controversial weapons – whether the issuer is involved in the production of whole weapon systems, delivery platforms or components of cluster munitions; production of whole weapons systems or components of landmines and biological or chemical weapons; production of depleted uranium weapons, blinding laser weapons, incendiary weapons, or weapons with non-detectable fragments; or is involved indirectly through ownership ties to companies involved in such products;

b) issuers that produce nuclear warheads, missiles, and delivery platforms capable of deploying nuclear weapons;

c) issuers that produce automatic firearms intended for civilian markets; and

d) issuers that produce semi-automatic firearms intended for civilian markets.

3. issuers involved in major controversies, in terms of corporate governance or environmental and social responsibility, with no adequate remediation efforts based on the following assessment:

a) whether the issuer is aligned with the UNGC principles (based on MSCI ESG Research methodology);

b) whether the issuer is aligned with the OECD Guidelines for Multinational Enterprises Alignment (based on MSCI ESG Research methodology); and

c) whether the issuer’s overall assessment signals whether the issuer has a notable controversy related to the issuer’s operations and / or products, and the severity of the social or environmental impact of the controversy.

Update to assessment of government practices of investee companies

In terms of the underlying fund’s policy to assess good governance practices of investee companies, and integral to the Investment Manager’s fundamental research approach, is identifying companies with sustainable competitive advantages, strong management teams and that exhibit financial strength. When evaluating a company, the Investment Manager focuses on a number of governance facets including shareholder rights (voting structure), board composition and independence, product and pricing, as well as management incentives. These elements are tied to the sustainability of company fundamentals and valuation. Furthermore, the Investment Manager screens for and avoids companies that have been identified as violating UNGC principles.

Removal of sub-investment manager

Principal Global Investors (Europe) Limited, which was appointed to act as the sub-investment manager by the Investment Manager, is no longer involved in the management of the underlying fund of the Affected Mirror Funds.

These changes will take effect automatically and policyholders do not need to take any action. We recommend that policyholders seek the advice of their usual financial adviser before making any investment decisions.

Should you have any questions regarding these changes, please contact the Investment Marketing Team.

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*Fund applicable to Hong Kong designated policyholders.