Washington Mutual ( WM), continuing efforts to streamline its business, agreed to sell its mutual fund unit to Principal Financial Group ( PFG) for $740 million.

The unit, WM Advisors, had $26.4 billion in assets under management as of June 30. The deal is expected to result in a pretax gain of at least $650 million, Washington Mutual said.

"This transaction is in keeping with our strategy to streamline our business model and sharpen the focus of our products and services which target U.S. middle-market consumers and small businesses," said Washington Mutual Chairman and Chief Executive Kerry Killinger in a statement. "The 'manufacturing' of retail mutual funds by WM Advisors is not part of our core business."

Just last week, Washington Mutual agreed to sell its mortgage-servicing business to Wells Fargo ( WFC) for an undisclosed sum. The company said at the time it was seeking to sell WM Advisors.

The Seattle-based company will continue to sell mutual fund, annuity and retirement products through its broker-dealer unit. Meanwhile, Principal will offer funds and annuity products to WaMu customers after the deal closes.

Principal had $205.3 billion in assets as of March 31, and the purchase is expected to boost its mutual fund assets to about $49 billion. The Des Moines, Iowa, company predicts the deal will add to earnings beginning 2007.

The transaction is expected to close in the fourth quarter.