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PRINCIPAL FUNDS, INC. (“PFI”)

Effective June 23, 2017, remove Class P Shares from the following list of share classes.

Class A Shares

Class C Shares

Class J Shares

Class P Shares

Institutional Class Shares

Class R-1 Shares

Class R-2 Shares

Class R-3 Shares

Class R-4 Shares

Class R-5 Shares

Class R-6 Shares

The date of this Prospectus is March 1, 2017, as revised May 2, 2017 and previously supplemented on

March 17, 2017, March 24, 2017, March 27, 2017, April 7, 2017, and May 2, 2017.

The ticker symbols for series and share classes are on the next page.

The Securities and Exchange Commission and the Commodity Futures Trading Commission have not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

On June 23, 2017, remove column P from the Ticker Symbols by Share Class table.



Ticker Symbols by Share Class
Fund	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
California Municipal	SRCMX	SRCCX		PLBTX	PCMFX
Core Plus Bond	PRBDX	PBMCX	PBMJX		PMSIX	PBOMX	PBMNX	PBMMX	PBMSX	PBMPX
Diversified International	PRWLX	PDNCX	PIIJX	PDIPX	PIIIX	PDVIX	PINNX	PINRX	PINLX	PINPX
Equity Income	PQIAX	PEUCX		PEQPX	PEIIX	PIEMX	PEINX	PEIOX	PEIPX	PEIQX
Finisterre Unconstrained Emerging Markets Bond	PFUEX			PFUBX	PFUMX
Global Diversified Income	PGBAX	PGDCX		PGDPX	PGDIX
Global Real Estate Securities	POSAX	POSCX		POSPX	POSIX			PGRKX	PGRVX	PGRUX	PGRSX
Government & High Quality Bond	CMPGX	CCUGX	PMRJX	PGSPX	PMRIX	PMGRX	PFMRX	PRCMX	PMRDX	PMREX
High Yield	CPHYX	CCHIX		PYHPX	PHYTX						PHYFX
High Yield I	PYHAX				PYHIX
Income	CMPIX	CNMCX	PIOJX	PIMPX	PIOIX	PIOMX	PIONX	PIOOX	PIOPX	PIOQX	PICNX
Inflation Protection	PITAX	PPOCX	PIPJX		PIPIX	PISPX	PBSAX	PIFPX	PIFSX	PBPPX
International Emerging Markets	PRIAX	PMKCX	PIEJX	PIEPX	PIEIX	PIXEX	PEASX	PEAPX	PESSX	PEPSX	PIIMX
International I	PFAFX			PTRPX	PINIX	PPISX	PSPPX	PRPPX	PUPPX	PTPPX	PIIDX
LargeCap Growth	PRGWX	PLGCX	PGLJX	PGLPX	PGLIX	PLSGX	PCPPX	PLGPX	PEPPX	PDPPX
LargeCap Growth I	PLGAX		PLGJX	PVCPX	PLGIX	PCRSX	PPUNX	PPUMX	PPUSX	PPUPX	PLCGX
LargeCap Growth II			PPLJX		PPIIX	PDASX	PPTNX	PPTMX	PPTSX	PPTPX
LargeCap S&P 500 Index	PLSAX	PLICX	PSPJX		PLFIX	PLPIX	PLFNX	PLFMX	PLFSX	PLFPX
LargeCap Value	PCACX	PLUCX	PVLJX	PVFPX	PVLIX	PLSVX	PLVNX	PLVMX	PLVSX	PLVPX
LargeCap Value III			PLVJX		PLVIX	PESAX	PPSNX	PPSFX	PPSSX	PPSRX
MidCap	PEMGX	PMBCX	PMBJX	PMCPX	PCBIX	PMSBX	PMBNX	PMBMX	PMBSX	PMBPX	PMAQX
MidCap Growth			PMGJX		PGWIX	PMSGX	PGPPX	PFPPX	PIPPX	PHPPX
MidCap Growth III			PPQJX		PPIMX	PHASX	PPQNX	PPQMX	PPQSX	PPQPX
MidCap S&P 400 Index			PMFJX		MPSIX	PMSSX	PMFNX	PMFMX	PMFSX	PMFPX	PMAPX
MidCap Value I			PVEJX		PVMIX	PLASX	PABUX	PMPRX	PABWX	PABVX
MidCap Value III	PVCAX		PMCJX	PMVPX	PVUIX	PMSVX	PKPPX	PJPPX	PMPPX	PLPPX	PCMIX
Money Market	PCSXX	PPCXX	PMJXX		PVMXX
Overseas					PINZX	PINQX	PINSX	PINTX	PINUX	PINGX
Principal Capital Appreciation	CMNWX	CMNCX		PCFPX	PWCIX	PCAMX	PCANX	PCAOX	PCAPX	PCAQX
Principal LifeTime Strategic Income	PALTX		PLSJX		PLSIX	PLAIX	PLSNX	PLSMX	PLSSX	PLSPX
Principal LifeTime 2010	PENAX		PTAJX		PTTIX	PVASX	PTANX	PTAMX	PTASX	PTAPX
Principal LifeTime 2015					LTINX	LTSGX	LTASX	LTAPX	LTSLX	LTPFX
Principal LifeTime 2020	PTBAX		PLFJX		PLWIX	PWASX	PTBNX	PTBMX	PTBSX	PTBPX
Principal LifeTime 2025					LTSTX	LTSNX	LTADX	LTVPX	LTEEX	LTPDX
Principal LifeTime 2030	PTCAX		PLTJX		PMTIX	PXASX	PTCNX	PTCMX	PTCSX	PTCPX
Principal LifeTime 2035					LTIUX	LTANX	LTVIX	LTAOX	LTSEX	LTPEX
Principal LifeTime 2040	PTDAX		PTDJX		PTDIX	PYASX	PTDNX	PTDMX	PTDSX	PTDPX
Principal LifeTime 2045					LTRIX	LTRGX	LTRSX	LTRVX	LTRLX	LTRDX
Principal LifeTime 2050	PPEAX		PFLJX		PPLIX	PZASX	PTENX	PTERX	PTESX	PTEFX
Principal LifeTime 2055					LTFIX	LTFGX	LTFSX	LTFDX	LTFLX	LTFPX
Principal LifeTime 2060			PLTAX		PLTZX	PLTRX	PLTBX	PLTCX	PLTMX	PLTOX
Principal LifeTime Hybrid Income					PHTFX						PLTYX
Principal LifeTime Hybrid 2015					PHTMX						PLRRX
Principal LifeTime Hybrid 2020					PHTTX						PLTTX
Principal LifeTime Hybrid 2025					PHTQX						PLFTX
Principal LifeTime Hybrid 2030					PHTNX						PLZTX
Principal LifeTime Hybrid 2035					PHTJX						PLRTX
Principal LifeTime Hybrid 2040					PLTQX						PLMTX
Principal LifeTime Hybrid 2045					PHTYX						PLNTX
Principal LifeTime Hybrid 2050					PHTUX						PLJTX
Principal LifeTime Hybrid 2055					PLTNX						PLHTX
Principal LifeTime Hybrid 2060					PLTHX						PLKTX
Real Estate Securities	PRRAX	PRCEX	PREJX	PIRPX	PIREX	PRAEX	PRENX	PRERX	PRETX	PREPX	PFRSX
SAM Balanced	SABPX	SCBPX	PSAJX	PQRBX	PSBIX	PSBGX	PSBVX	PBAPX	PSBLX	PSBFX
SAM Conservative Balanced	SAIPX	SCIPX	PCBJX	PCBTX	PCCIX	PCSSX	PCNSX	PCBPX	PCBLX	PCBFX
SAM Conservative Growth	SAGPX	SCGPX	PCGJX	PCGMX	PCWIX	PCGGX	PCGVX	PCGPX	PCWSX	PCWPX
SAM Flexible Income	SAUPX	SCUPX	PFIJX	PFITX	PIFIX	PFIGX	PFIVX	PFIPX	PFILX	PFIFX
SAM Strategic Growth	SACAX	SWHCX	PSWJX	PSGHX	PSWIX	PSGGX	PSGVX	PSGPX	PSGLX	PSGFX
Short-Term Income	SRHQX	STCCX	PSJIX	PSTPX	PSHIX	PSIMX	PSINX	PSIOX	PSIPX	PSIQX
SmallCap	PLLAX	PSMCX	PSBJX	PSFPX	PSLIX	PSABX	PSBNX	PSBMX	PSBSX	PSBPX	PSMLX
SmallCap Growth I			PSIJX		PGRTX	PNASX	PPNNX	PPNMX	PPNSX	PPNPX	PCSMX
SmallCap S&P 600 Index			PSSJX		PSSIX	PSAPX	PSSNX	PSSMX	PSSSX	PSSPX	PSPIX
SmallCap Value II	PSVAX		PSMJX	PSCPX	PPVIX	PCPTX	PKARX	PJARX	PSTWX	PLARX	PSMVX
Tax-Exempt Bond	PTEAX	PTBCX		PTETX	PITEX

This page left blank intentionally.

TABLE OF CONTENTS



FUND SUMMARIES	5
CALIFORNIA MUNICIPAL FUND	5
CORE PLUS BOND FUND	10
DIVERSIFIED INTERNATIONAL FUND	16
EQUITY INCOME FUND	22
FINISTERRE UNCONSTRAINED EMERGING MARKETS BOND FUND	28
GLOBAL DIVERSIFIED INCOME FUND	34
GLOBAL REAL ESTATE SECURITIES FUND	43
GOVERNMENT & HIGH QUALITY BOND FUND	50
HIGH YIELD FUND	56
HIGH YIELD FUND I	62
INCOME FUND	66
INFLATION PROTECTION FUND	73
INTERNATIONAL EMERGING MARKETS FUND	78
INTERNATIONAL FUND I	85
LARGECAP GROWTH FUND	91
LARGECAP GROWTH FUND I	97
LARGECAP GROWTH FUND II	103
LARGECAP S&P 500 INDEX FUND	107
LARGECAP VALUE FUND	112
LARGECAP VALUE FUND III	118
MIDCAP FUND	122
MIDCAP GROWTH FUND	128
MIDCAP GROWTH FUND III	132
MIDCAP S&P 400 INDEX FUND	136
MIDCAP VALUE FUND I	142
MIDCAP VALUE FUND III	146
MONEY MARKET FUND	153
OVERSEAS FUND	157
PRINCIPAL CAPITAL APPRECIATION FUND	161
PRINCIPAL LIFETIME STRATEGIC INCOME FUND	167
PRINCIPAL LIFETIME 2010 FUND	174
PRINCIPAL LIFETIME 2015 FUND	181
PRINCIPAL LIFETIME 2020 FUND	188
PRINCIPAL LIFETIME 2025 FUND	195
PRINCIPAL LIFETIME 2030 FUND	201
PRINCIPAL LIFETIME 2035 FUND	208
PRINCIPAL LIFETIME 2040 FUND	214
PRINCIPAL LIFETIME 2045 FUND	221
PRINCIPAL LIFETIME 2050 FUND	226
PRINCIPAL LIFETIME 2055 FUND	233
PRINCIPAL LIFETIME 2060 FUND	238



PRINCIPAL LIFETIME HYBRID INCOME FUND	245
PRINCIPAL LIFETIME HYBRID 2015 FUND	252
PRINCIPAL LIFETIME HYBRID 2020 FUND	259
PRINCIPAL LIFETIME HYBRID 2025 FUND	265
PRINCIPAL LIFETIME HYBRID 2030 FUND	271
PRINCIPAL LIFETIME HYBRID 2035 FUND	278
PRINCIPAL LIFETIME HYBRID 2040 FUND	284
PRINCIPAL LIFETIME HYBRID 2045 FUND	290
PRINCIPAL LIFETIME HYBRID 2050 FUND	296
PRINCIPAL LIFETIME HYBRID 2055 FUND	302
PRINCIPAL LIFETIME HYBRID 2060 FUND	308
REAL ESTATE SECURITIES FUND	314
SAM (STRATEGIC ASSET MANAGEMENT) BALANCED PORTFOLIO	321
SAM (STRATEGIC ASSET MANAGEMENT) CONSERVATIVE BALANCED PORTFOLIO	328
SAM (STRATEGIC ASSET MANAGEMENT) CONSERVATIVE GROWTH PORTFOLIO	335
SAM (STRATEGIC ASSET MANAGEMENT) FLEXIBLE INCOME PORTFOLIO	342
SAM (STRATEGIC ASSET MANAGEMENT) STRATEGIC GROWTH PORTFOLIO	349
SHORT-TERM INCOME FUND	356
SMALLCAP FUND	363
SMALLCAP GROWTH FUND I	369
SMALLCAP S&P 600 INDEX FUND	375
SMALLCAP VALUE FUND II	381
TAX-EXEMPT BOND FUND	388
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS	393
PORTFOLIO HOLDINGS INFORMATION	424
MANAGEMENT OF THE FUNDS	424
PRICING OF FUND SHARES	436
CONTACT PRINCIPAL FUNDS, INC.	437
PURCHASE OF FUND SHARES	438
REDEMPTION OF FUND SHARES	443
EXCHANGE OF FUND SHARES	446
DIVIDENDS AND DISTRIBUTIONS	448
FREQUENT PURCHASES AND REDEMPTIONS	449
TAX CONSIDERATIONS	450
CHOOSING A SHARE CLASS AND THE COSTS OF INVESTING	452
DISTRIBUTION PLANS AND INTERMEDIARY COMPENSATION	458
FUND ACCOUNT INFORMATION	461
FINANCIAL HIGHLIGHTS	465
APPENDIX A - DESCRIPTION OF BOND RATINGS	711
APPENDIX B - RELATED PERFORMANCE OF CERTAIN SUB-ADVISORS	717
ADDITIONAL INFORMATION	721

CALIFORNIA MUNICIPAL FUND

On March 13, 2017, the Board of Directors of Principal Funds, Inc. (“PFI”) approved the automatic conversion of Class P shares into Institutional Class shares. After June 22, 2017, Class P shares will no longer be available for purchase. Following the close of business on June 23, 2017, Class P shares will automatically convert into Institutional Class shares of the same Fund on the basis of the share classes’ relative net asset values on such date without the imposition of a sales charge or any other charge. At such time, delete references to Class P from this Prospectus.


Objective:	The Fund seeks to provide as high a level of current income that is exempt from federal and state personal income tax as is consistent with prudent investment management and preservation of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $100,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	P	Inst.
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	3.75%	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	P	Inst.
Management Fees	0.45%	0.45%	0.45%	0.45%
Distribution and/or Service (12b-1) Fees	0.25%	1.00%	N/A	N/A
Other Expenses
Interest Expense	0.05%	0.05%	0.05%	0.05%
Remainder of Other Expenses	0.07%	0.15%	0.12%	0.71%
Total Other Expenses	0.12%	0.20%	0.17%	0.76%
Total Annual Fund Operating Expenses	0.82%	1.65%	0.62%	1.21%
Expense Reimbursement ⁽¹⁾	N/A	N/A	(0.06)%	(0.65)%
Total Annual Fund Operating Expenses after Expense Reimbursement	0.82%	1.65%	0.56%	0.56%
⁽¹⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.51% for Class P and 0.51% for Institutional Class shares. It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. The calculation of costs takes into account any applicable contractual fee waivers and/or expense reimbursements for the period noted in the table above. Although your actual costs may be higher or lower, based on these assumptions your costs would be:



	1 year	3 years	5 years	10 years
Class A	$456	$627	$813	$1,350
Class C	268	520	897	1,955
Class P	57	192	340	769
Institutional Class	57	320	602	1,408

With respect to Class C shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$168	$520	$897	$1,955

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 27.9% of the average value of its portfolio.

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in California municipal obligations (securities issued by or on behalf of state or local governments and other public authorities) at the time of purchase. Generally, these municipal obligations pay interest that is exempt from state personal income tax and federal income tax. These obligations may include bonds that generate interest payments that are subject to the alternative minimum tax. Under normal circumstances, the Fund maintains an average portfolio duration that is within ±50% of the duration of the Bloomberg Barclays California Municipal Bond Index, which as of December 31, 2016 was 6.08 years. The Fund may invest up to 20% of its assets in below investment grade bonds (sometimes called “high yield bonds” or "junk bonds") which are rated at the time of purchase Ba1 or lower by Moody's Investors Service, Inc. ("Moody's") and BB+ or lower by S&P Global Ratings ("S&P Global") (if the bond has been rated by only one of those agencies, that rating will determine whether the bond is below investment grade; if the bond has not been rated by either of those agencies, those selecting such investments will determine whether the bond is of a quality comparable to those rated below investment grade). The Fund is not managed to a particular maturity. The Fund also invests in inverse floating rate obligations, which are generally more volatile than other types of municipal obligations and may involve leverage.

During the fiscal year ended October 31, 2016, the average ratings of the Fund’s fixed-income assets, based on market value at each month-end, were as follows (all ratings are by Moody’s):



9.45% in securities rated Aaa	9.63% in securities rated Baa	0.00% in securities rated Caa	0.00% in securities rated D
46.31% in securities rated Aa	4.17% in securities rated Ba	0.00% in securities rated Ca	7.77% in securities not rated
17.38% in securities rated A	5.29% in securities rated B	0.00% in securities rated C

Principal Risks

The value of your investment in the Fund changes with the value of the Fund's investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund, in alphabetical order, are:

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate risk and credit quality risk. The market value of fixed-income securities generally declines when interest rates rise, and an issuer of fixed-income securities could default on its payment obligations.

Geographic Concentration Risk. A fund that invests significant portions of its assets in municipal obligations and bonds in particular geographic areas (a particular state, such as California, or a particular country or region) has greater exposure than other funds to economic conditions and developments in those areas.

High Yield Securities Risk. High yield fixed-income securities (commonly referred to as "junk bonds") are subject to greater credit quality risk than higher rated fixed-income securities and should be considered speculative.

Inverse Floating Rate Investments Risk. Inverse floating rate investments are extremely sensitive to changes in interest rates and in some cases their market value may be extremely volatile.

Leverage Risk. Leverage created by borrowing or certain types of transactions or investments may impair the fund's liquidity, cause it to liquidate positions at an unfavorable time, increase volatility of the fund's net asset value, or diminish the fund's performance.

Municipal Obligations Risk. Principal and interest payments on municipal securities may not be guaranteed by the issuing body and may be payable only from a particular source. That source may not perform as expected and payment obligations may not be made or made on time.

Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund's average portfolio duration, the more sensitive the fund will be to changes in interest rates.

Performance

The following information provides some indication of the risks of investing in the Fund. Past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852 or online at:


•	For Classes A, C, and P shares - www.principalfunds.com.


•	For Institutional Class shares - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

For periods prior to the inception date of Institutional Class shares (March 1, 2015) and Class P shares (August 24, 2015), the performance shown in the table for Institutional Class and Class P shares is based on the performance of the Fund's Class A shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class A shares, the historical performance of Class A shares is used for the newer class (without respect to sales charges, if not applicable to the newer class). These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Class A shares.

The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods prior to that date is based on the performance of the predecessor fund.

The predecessor fund's Class A shares commenced operations on July 25, 1989.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '09	11.85	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(10.08	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	(3.92)%	3.90%	3.10%
Class A Return After Taxes on Distributions	(3.92)%	3.90%	3.10%
Class A Return After Taxes on Distribution and Sale of Fund Shares	(0.98)%	3.94%	3.30%
Class C Return Before Taxes	(1.98)%	3.72%	2.55%
Class P Return Before Taxes	0.06%	4.77%	3.53%
Institutional Class Return Before Taxes	(0.02)%	4.77%	3.53%
Bloomberg Barclays California Municipal Index (reflects no deduction for fees, expenses, or taxes)	(0.14)%	3.85%	4.44%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James Noble (since 2013), Portfolio Manager


•	James Welch (since 2014), Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A and C	Initial Investment	$1,000⁽¹⁾
A and C	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A and C	Subsequent Investments	$100⁽¹⁾⁽²⁾
P and Institutional	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

You may purchase or redeem shares on any business day (normally any day when the New York Stock Exchange is open for regular trading) through your plan, intermediary, or Financial Professional; by sending a written request to Principal Funds at P.O. Box 8024, Boston, MA 02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight mail); calling us at 1-800-222-5852; or accessing our website (www.principalfunds.com).

Tax Information

While the Fund intends to distribute income that is exempt from regular federal and California income taxes, a portion of the Fund’s distributions may be subject to California or federal income taxes or to the federal alternative minimum tax.

Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment adviser, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, or to recommend one share class of the Fund over another share class. Ask your salesperson or visit your financial intermediary’s website for more information.

CORE PLUS BOND FUND


Objective:	The Fund seeks to provide current income and, as a secondary objective, capital appreciation.

Fees and Expenses of the Fund

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	3.75%	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.49%	0.49%	0.49%	0.49%	0.49%	0.49%	0.49%	0.49%	0.49%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.25%	0.52%	0.14%	0.01%	0.54%	0.46%	0.33%	0.29%	0.27%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	1.00%	2.02%	0.79%	0.51%	1.39%	1.26%	1.08%	0.89%	0.77%
Fee Waiver and Expense Reimbursement ⁽²⁾⁽³⁾	(0.11)%	(0.26)%	(0.01)%	(0.01)%	(0.01)%	(0.01)%	(0.01)%	(0.01)%	(0.01)%
Total Annual Fund Operating Expenses after Fee Waiver and Expense Reimbursement	0.89%	1.76%	0.78%	0.50%	1.38%	1.25%	1.07%	0.88%	0.76%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending February 28, 2019. The fee waiver will reduce the Fund's Management Fees by 0.01% (expressed as a percent of average net assets on an annualized basis). It is expected that the fee waiver will continue through the period disclosed; however, Principal Funds, Inc. and PGI, the parties to the agreement may mutually agree to terminate the fee waiver prior to the end of the period.
⁽³⁾ Principal Global Investors,LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.88% for Class A and 1.75% for Class C shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$462	$670	$895	$1,543
Class C	279	607	1,063	2,326
Class J	180	250	437	976
Institutional Class	51	161	283	638
Class R-1	140	438	759	1,667
Class R-2	127	398	690	1,521
Class R-3	109	341	593	1,315
Class R-4	90	282	491	1,094
Class R-5	78	244	426	952

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$179	$607	$1,063	$2,326
Class J	80	250	437	976

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in bonds or other debt securities at the time of purchase. The bonds and other debt securities in which the Fund invests include intermediate maturity fixed-income securities, which are rated, at the time of purchase, BBB- or higher by S&P Global Ratings ("S&P Global") or Baa3 or higher by Moody's Investors Service, Inc. ("Moody's”). The fixed-income securities in which the Fund invests include securities issued or guaranteed by the U.S. government or its agencies or instrumentalities (including collateralized mortgage obligations); asset-backed securities or mortgage-backed securities (securitized products); corporate bonds; and securities issued or guaranteed by foreign governments payable in U.S. dollars. The Fund also invests in foreign securities, and up to 20% of its assets in below investment grade bonds (sometimes called “high yield bonds” or "junk bonds") which are rated at the time of purchase Ba1 or lower by Moody's and BB+ or lower by S&P Global (if the bond has been rated by only one of those agencies, that rating will determine whether the bond is below investment grade; if the bond has not been rated by either of those agencies, those selecting such investments will determine whether the bond is of a quality comparable to those rated below investment grade). The Fund is not managed to a particular maturity. Under normal circumstances, the Fund maintains an average portfolio duration that is within ±25% of the duration of the Bloomberg Barclays U.S. Aggregate Bond Index, which as of December 31, 2016 was 5.89 years.

The Fund actively trades portfolio securities and enters into dollar roll transactions which may involve leverage. The Fund utilizes derivative strategies for hedging or managing fixed income exposure. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. Specifically, the Fund invests in Treasury futures or interest rate swaps to manage the fixed-income exposure (including for hedging purposes) and credit default swaps to increase or decrease, in an efficient manner, exposures to certain sectors or individual issuers.

During the fiscal year ended October 31, 2016, the average ratings of the Fund’s fixed-income assets, based on market value at each month-end, were as follows (all ratings are by Moody’s):



49.85% in securities rated Aaa	20.30% in securities rated Baa	0.91% in securities rated Caa	0.01% in securities rated D
4.50% in securities rated Aa	6.69% in securities rated Ba	0.02% in securities rated Ca	1.16% in securities not rated
13.14% in securities rated A	3.41% in securities rated B	0.01% in securities rated C

Principal Risks

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund's initial investment.

•

Credit Default Swaps. Credit default swaps involve special risks in addition to those associated with swaps generally because they are difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty). The protection “buyer” in a credit default contract may be obligated to pay the protection “seller” an upfront payment or a periodic stream of payments over the term of the contract provided generally that no credit event on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the “par value” (full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. The Fund may be either the buyer or seller in the transaction.


•	Currency Contracts. Derivatives related to currency contracts involve the specific risk of government action through exchange controls that would restrict the ability of the fund to deliver or receive currency.

•

Futures and Swaps. Futures and swaps involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the future or swap; possible lack of a liquid secondary market for a future or swap and the resulting inability to close a future or swap when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).

Hedging Risk. A fund that implements a hedging strategy using derivatives and/or securities could expose the fund to the risk that can arise when a change in the value of a hedge does not match a change in the value of the asset it hedges. In other words, the change in value of the hedge could move in a direction that does not match the change in value of the underlying asset, resulting in a risk of loss to the fund.

Portfolio Turnover (Active Trading) Risk. High portfolio turnover (more than 100%) caused by actively trading portfolio securities may result in accelerating the realization of taxable gains and losses, lower fund performance and increased brokerage costs.

Real Estate Securities Risk. Investing in real estate securities subjects the fund to the risks associated with the real estate market (which are similar to the risks associated with direct ownership in real estate), including declines in real estate values, loss due to casualty or condemnation, property taxes, interest rate changes, increased expenses, cash flow of underlying real estate assets, regulatory changes (including zoning, land use and rents), and environmental problems, as well as to the risks related to the management skill and creditworthiness of the issuer.

Redemption Risk. A fund that serves as an underlying fund for a fund of funds is subject to certain risks. When a fund of funds reallocates or rebalances its investments, an underlying fund may experience relatively large redemptions or investments. These transactions may cause the underlying fund to sell portfolio securities to meet such redemptions, or to invest cash from such investments, at times it would not otherwise do so, and may as a result increase transaction costs and adversely affect underlying fund performance. Moreover, a fund of fund's redemptions or reallocations among share classes of an underlying fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.

Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored or -chartered enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. Treasury.

Performance


•	For Classes A, C, and J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

For periods prior to the inception date of Class C shares (January 16, 2007), the performance shown in the table for Class C is based on the performance of the Fund's Class R-3 shares, adjusted to reflect the fees and expenses of Class C. These adjustments result in performance for such periods that is no higher than the historical performance of the Class R-3 shares, which were first sold on December 6, 2000.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '09	9.08	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(6.25	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	(0.25)%	1.80%	3.04%
Class A Return After Taxes on Distributions	(1.16)%	0.83%	1.81%
Class A Return After Taxes on Distribution and Sale of Fund Shares	(0.14)%	0.96%	1.84%
Class C Return Before Taxes	1.70%	1.72%	2.58%
Class J Return Before Taxes	2.66%	2.59%	3.36%
Institutional Class Return Before Taxes	3.99%	2.97%	3.85%
Class R-1 Return Before Taxes	3.09%	2.07%	2.95%
Class R-2 Return Before Taxes	3.26%	2.21%	3.08%
Class R-3 Return Before Taxes	3.43%	2.40%	3.26%
Class R-4 Return Before Taxes	3.64%	2.60%	3.47%
Class R-5 Return Before Taxes	3.75%	2.72%	3.58%
Bloomberg Barclays U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)	2.65%	2.23%	4.34%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC

• William C. Armstrong (since 2000), Portfolio Manager

•Tina Paris (since 2015), Portfolio Manager

•Timothy R. Warrick (since 2000), Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

You may purchase or redeem shares on any business day (normally any day when the New York Stock Exchange is open for regular trading), through your plan, intermediary, or Financial Professional; by sending a written request to Principal Funds at P.O. Box 8024, Boston, MA 02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight mail); calling us at 1-800-222-5852; or accessing our website (www.principalfunds.com).

Tax Information

The Fund’s distributions you receive are generally subject to federal income tax as ordinary income or capital gain and may also be subject to state and local taxes, unless you are tax-exempt or your account is tax-deferred in which case your distributions would be taxed when withdrawn from the tax-deferred account.

Payments to Broker-Dealers and Other Financial Intermediaries

DIVERSIFIED INTERNATIONAL FUND


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.83%	0.83%	0.83%	0.83%	0.83%	0.83%	0.83%	0.83%	0.83%	0.83%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.28%	0.47%	0.18%	0.55%	0.02%	0.54%	0.46%	0.33%	0.29%	0.27%
Total Annual Fund Operating Expenses	1.36%	2.30%	1.16%	1.38%	0.85%	1.72%	1.59%	1.41%	1.22%	1.10%
Expense Reimbursement⁽²⁾	N/A	(0.22)%	N/A	(0.35)%	N/A	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.36%	2.08%	1.16%	1.03%	0.85%	1.72%	1.59%	1.41%	1.22%	1.10%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 2.08% for Class C shares. In addition, for Class P, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.83%	0.83%	0.83%	0.83%	0.83%	0.83%	0.83%	0.83%	0.83%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.28%	0.47%	0.18%	0.02%	0.54%	0.46%	0.33%	0.29%	0.27%
Total Annual Fund Operating Expenses	1.36%	2.30%	1.16%	0.85%	1.72%	1.59%	1.41%	1.22%	1.10%
Expense Reimbursement⁽²⁾⁽³⁾	N/A	(0.22)%	N/A	—%	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.36%	2.08%	1.16%	0.85%	1.72%	1.59%	1.41%	1.22%	1.10%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 2.08% for Class C shares. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.85% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$681	$957	$1,254	$2,095
Class C	311	697	1,210	2,619
Class J	218	368	638	1,409
Class P	105	402	722	1,627
Institutional Class	87	271	471	1,049
Class R-1	175	542	933	2,030
Class R-2	162	502	866	1,889
Class R-3	144	446	771	1,691
Class R-4	124	387	670	1,477
Class R-5	112	350	606	1,340

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$211	$697	$1,210	$2,619
Class J	118	368	638	1,409

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$681	$957	$1,254	$2,095
Class C	311	697	1,210	2,619
Class J	218	368	638	1,409
Institutional Class	87	271	471	1,049
Class R-1	175	542	933	2,030
Class R-2	162	502	866	1,889
Class R-3	144	446	771	1,691
Class R-4	124	387	670	1,477
Class R-5	112	350	606	1,340

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$211	$697	$1,210	$2,619
Class J	118	368	638	1,409

Portfolio Turnover

Principal Investment Strategies

The Fund invests primarily in foreign equity securities. The Fund has no limitation on the percentage of assets that are invested in any one country or denominated in any one currency, but the Fund typically invests in foreign securities of at least 30 countries. Primary consideration is given to securities of corporations of developed areas, such as Japan, Western Europe, Canada, Australia, Hong Kong, Singapore and New Zealand; however, the Fund also invests in emerging market securities. The Fund invests in equity securities regardless of market capitalization size (small, medium or large) and style (growth or value).

Principal Risks

Emerging Markets Risk. Investments in emerging market countries may have more risk than those in developed market countries because the emerging markets are less developed and more illiquid. Emerging market countries can also be subject to increased social, economic, regulatory, and political uncertainties and can be extremely volatile.

Equity Securities Risk. The value of equity securities could decline if the issuer's financial condition declines or in response to overall market and economic conditions. A fund's principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth companies stocks also typically lack the dividend yield that can lessen price declines in market downtowns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Value Stock Risk. Value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by the fund, or the events that the portfolio manager believed would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock judged to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

Performance


•	For Classes A, C, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

For periods prior to the inception date of Class C shares (January 16, 2007) and Class P shares (September 27, 2010), the performance shown in the table for Classes C and P is based on the performance of the Fund's Class R-3 shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class R-3 shares, the historical performance of Class R-3 shares is used for the newer class. These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Class R-3 shares, which were first sold on December 6, 2000.

During 2010, the R-5 Class experienced a significant one-time gain approximately $0.08/share as the result of a settlement in an SEC administrative proceeding. If such a gain had not been recognized, the total return amounts expressed herein would have been lower.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	21.03	%
Lowest return for a quarter during the period of the bar chart above:	Q3 '08	(24.17	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	(5.82)%	4.58%	(0.29)%
Class A Return After Taxes on Distributions	(5.88)%	4.49%	(0.54)%
Class A Return After Taxes on Distribution and Sale of Fund Shares	(2.89)%	3.78%	0.09%
Class C Return Before Taxes	(1.99)%	5.06%	(0.38)%
Class J Return Before Taxes	(1.07)%	5.91%	0.31%
Class P Return Before Taxes	0.05%	6.16%	0.49%
Institutional Class Return Before Taxes	0.26%	6.33%	0.82%
Class R-1 Return Before Taxes	(0.71)%	5.42%	(0.06)%
Class R-2 Return Before Taxes	(0.58)%	5.54%	0.06%
Class R-3 Return Before Taxes	(0.31)%	5.75%	0.25%
Class R-4 Return Before Taxes	(0.13)%	5.94%	0.44%
Class R-5 Return Before Taxes	(0.01)%	6.07%	0.65%	⁽¹⁾
MSCI ACWI Ex-U.S. Index (reflects no deduction for fees, expenses, or taxes)	4.50%	5.00%	0.96%


⁽¹⁾	During 2010, the Class experienced a significant one-time gain of approximately $0.08/share as the result of a settlement in an SEC administrative proceeding. If such gain had not been recognized, the total return amounts expressed herein would have been lower.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Paul H. Blankenhagen (since 2003), Portfolio Manager


•	Juliet Cohn (since 2004), Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

EQUITY INCOME FUND


Objective:	The Fund seeks to provide current income and long-term growth of income and capital.

Fees and Expenses of the Fund

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	P	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	P	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.51%	0.51%	0.51%	0.51%	0.51%	0.51%	0.51%	0.51%	0.51%
Distribution and/or Service (12b-1) Fees	0.25%	1.00%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses	0.15%	0.14%	0.09%	0.01%	0.53%	0.45%	0.32%	0.28%	0.26%
Total Annual Fund Operating Expenses	0.91%	1.65%	0.60%	0.52%	1.39%	1.26%	1.08%	0.89%	0.77%

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.51%	0.51%	0.51%	0.51%	0.51%	0.51%	0.51%	0.51%
Distribution and/or Service (12b-1) Fees	0.25%	1.00%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses	0.15%	0.14%	0.01%	0.53%	0.45%	0.32%	0.28%	0.26%
Total Annual Fund Operating Expenses	0.91%	1.65%	0.52%	1.39%	1.26%	1.08%	0.89%	0.77%
Expense Reimbursement ⁽¹⁾	N/A	N/A	—%	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	0.91%	1.65%	0.52%	1.39%	1.26%	1.08%	0.89%	0.77%
⁽¹⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.52% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$638	$824	$1,026	$1,608
Class C	268	520	897	1,955
Class P	61	192	335	750
Institutional Class	53	167	291	653
Class R-1	142	440	761	1,669
Class R-2	128	400	692	1,523
Class R-3	110	343	595	1,317
Class R-4	91	284	493	1,096
Class R-5	79	246	428	954

With respect to Class C shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$168	$520	$897	$1,955

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$638	$824	$1,026	$1,608
Class C	268	520	897	1,955
Institutional Class	53	167	291	653
Class R-1	142	440	761	1,669
Class R-2	128	400	692	1,523
Class R-3	110	343	595	1,317
Class R-4	91	284	493	1,096
Class R-5	79	246	428	954

With respect to Class C shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$168	$520	$897	$1,955

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in dividend-paying equity securities at the time of purchase. The Fund usually invests in equity securities of companies with large and medium market capitalizations. For this Fund, companies with large market capitalizations are those with market capitalizations within the range of companies comprising the Russell 1000^® Value Index (as of December 31, 2016, this range was between approximately $394.9 million and $634.4 billion). The Fund invests in value equity securities, an investment strategy that emphasizes buying equity securities that appear to be undervalued. The Fund also invests in real estate investment trusts and securities of foreign issuers.

Principal Risks


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

Real Estate Investment Trusts (“REITs”) Risk. In addition to risks associated with investing in real estate securities, REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self-liquidation. Investment in REITs also involves risks similar to risks of investing in small market capitalization companies, such as limited financial resources, less frequent and limited volume trading, and may be subject to more abrupt or erratic price movements than larger company securities. A REIT could fail to qualify for tax-free pass-through of income under the Internal Revenue Code. Fund shareholders will indirectly bear their proportionate share of the expenses of REITs in which the fund invests.

Performance


•	For Classes A, C, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods prior to that date is based on the performance of the predecessor fund.

For periods prior to the inception date of Classes R-1, R-2, R-3, R-4, and R-5 shares (March 1, 2010) and Class P shares (September 27, 2010), the performance shown in the table for Classes P, R-1, R-2, R-3, R-4, and R-5 shares is based on the performance of the Fund's Class A shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class A shares (without respect to sales charges, if not applicable to the newer class), the historical performance of the Class A shares is used for the newer class. These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of Class A shares. The predecessor fund's Class A shares commenced operations on May 31, 1939.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '09	13.97	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(19.82	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	8.80%	10.75%	5.28%
Class A Return After Taxes on Distributions	7.84%	10.15%	4.61%
Class A Return After Taxes on Distribution and Sale of Fund Shares	5.74%	8.51%	4.14%
Class C Return Before Taxes	13.30%	11.19%	5.10%
Class P Return Before Taxes	15.50%	12.33%	6.07%
Institutional Class Return Before Taxes	15.58%	12.45%	6.32%
Class R-1 Return Before Taxes	14.59%	11.49%	5.39%
Class R-2 Return Before Taxes	14.73%	11.63%	5.53%
Class R-3 Return Before Taxes	14.90%	11.83%	5.71%
Class R-4 Return Before Taxes	15.14%	12.04%	5.90%
Class R-5 Return Before Taxes	15.30%	12.18%	6.00%
Russell 1000 Value Index (reflects no deduction for fees, expenses, or taxes)	17.34%	14.80%	5.72%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Daniel R. Coleman (since 2010), Head of Equities, Portfolio Manager


•	David W. Simpson (since 2008), Portfolio Manager


•	Nedret Vidinli (since 2017), Associate Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A and C	Initial Investment	$1,000⁽¹⁾
A and C	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A and C	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

FINISTERRE UNCONSTRAINED EMERGING MARKETS BOND FUND

Objective: The Fund seeks to generate total returns from current income and capital appreciation.

Fees and Expenses of the Fund

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	P	Inst.
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	3.75%	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	P	Inst.
Management Fees	1.02%	1.02%	1.02%
Distribution and/or Service (12b-1) Fees	0.25%	N/A	N/A
Other Expenses ⁽¹⁾	0.60%	0.43%	0.43%
Total Annual Fund Operating Expenses	1.87%	1.45%	1.45%
Expense Reimbursement ⁽²⁾	(0.40)%	(0.30)%	(0.33)%
Total Annual Fund Operating Expenses after Expense Reimbursement	1.47%	1.15%	1.12%
⁽¹⁾ Based on estimated expenses for the current fiscal year.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.47% for Class A, 1.15% for Class P and 1.12% for Institutional Class shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	Inst.
Management Fees	1.02%	1.02%
Distribution and/or Service (12b-1) Fees	0.25%	N/A
Other Expenses ⁽¹⁾	0.60%	0.43%
Total Annual Fund Operating Expenses	1.87%	1.45%
Expense Reimbursement ⁽²⁾	(0.40)%	(0.33)%
Total Annual Fund Operating Expenses after Expense Reimbursement	1.47%	1.12%
⁽¹⁾ Based on estimated expenses for the current fiscal year.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.47% for Class A and 1.12% for Institutional Class shares. It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years
Class A	$519	$903
Class P	117	429
Institutional Class	114	426

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years
Class A	$519	$903
Institutional Class	114	426

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. From July 11, 2016, the date operations commenced, through October 31, 2016, the Fund’s annualized portfolio turnover rate was 511.0% of the average value of its portfolio.

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment

purposes, in bonds, debt securities and other fixed-income securities, and in derivatives on such investments, that are tied economically to an emerging market country. The Fund considers a security to be tied economically to an emerging market country if the issuer of the security has its principal place of business or principal office in an emerging market country, has its principal securities trading market in an emerging market country, or derives a majority of its revenue from emerging markets countries. Emerging market countries include frontier market countries. The Fund actively trades portfolio securities.

The Fund follows an investment process that focuses primarily on market level analysis of global markets and political developments and their impact on individual countries and companies in emerging markets. The portfolio construction process for the Fund will follow a top-down process, blending both fundamental and technical considerations. The unconstrained nature of the investment strategy provides greater flexibility to identify opportunities across asset classes, capital structures, maturities, and currencies.

The types of fixed-income securities that the Fund can invest in include bonds, asset-backed securities (securitized products), convertible bonds, contingent convertible securities (hybrid bonds that will, when the issuers capital ratio falls below a predetermined trigger level, be converted into an equity security), credit and index linked securities, and non-registered or restricted securities (including those issued in reliance on Rule 144A and Regulation S). These types of securities may be issued by stressed, distressed and bankrupt issuers. The Fund's investments also include U.S government securities and U.S. government-sponsored or -chartered enterprises securities.

The Fund may invest, without limitation, in high yield securities (also known as “junk bonds”) rated at the time of purchase Ba1 or lower by Moody’s Investors Services, Inc., and BB+ or lower by S&P Global Ratings ("S&P Global") (if the security has been rated by only one of these agencies, that rating will determine whether the security is below investment grade; if the security has not been rated by either of those agencies, those selecting such investments will determine whether the security is of a quality comparable to those rated below investment grade). Holdings may range in maturity from overnight to 30 years or more and will not be subject to any minimum credit rating standard. The Fund also utilizes derivatives to enhance return, hedge the value of its assets against adverse movements, and manage certain investment risks. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. Specifically, the Fund expects to use forward contracts, futures, options, and swaps. The Fund holds cash to support certain of these investments.

The Fund is considered non-diversified, which means it can invest a higher percentage of assets in securities of individual issuers than a diversified fund.

Emerging market debt markets are particularly sensitive to adverse or unstable market, economic, political and/or other conditions. During such periods of uncertainty in these markets, the Fund is likely to take a temporary defensive position and invest a significant portion of its assets in cash and cash equivalents.

During the fiscal year ended October 31, 2016, the average ratings of the Fund’s fixed-income assets, based on market value at each month-end, were as follows (all ratings are by Moody’s):



0.00% in securities rated Aaa	26.38% in securities rated Baa	3.31% in securities rated Caa	0.00% in securities rated D
1.36% in securities rated Aa	30.12% in securities rated Ba	0.00% in securities rated Ca	14.27% in securities not rated
8.10% in securities rated A	16.46% in securities rated B	0.00% in securities rated C

Principal Risks

Convertible Securities Risk. Convertible securities are bonds, notes, debentures, preferred stock or other securities which are convertible into common stock. Convertible securities are subject to credit and interest rate risks associated with fixed income securities and to stock market risk associated with equity securities.

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.


•	Currency Contracts. Derivatives related to currency contracts involve the specific risk of government action through exchange controls that would restrict the ability of the fund to deliver or receive currency.

•

Forward Contracts, Futures and Swaps. Forward contracts, futures, and swaps involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the forward contract, future or swap; possible lack of a liquid secondary market for a forward contract, future or swap and the resulting inability to close a forward contract, future or swap when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.

•

Options. Options involve specific risks, including: imperfect correlation between the change in market value of the instruments held by the fund and the price of the options, counterparty risk, difference in trading hours for the options markets and the markets for the underlying securities (rate movements can take place in the underlying markets that cannot be reflected in the options markets), and an insufficient liquid secondary market for particular options.

Distressed Investments Risk. A fund’s investment in instruments involving loans, loan participations, bonds, notes, non-performing and sub-performing mortgage loans, many of which are not publicly traded, may involve a substantial degree of risk for the following reasons. These instruments may become illiquid and the prices of such instruments may be extremely volatile. Valuing such instruments may be difficult and a fund may lose all of its investment, or it may be required to accept cash or securities with a value less than the fund’s original investment. Issuers of distressed securities are typically in a weak financial condition and may default, in which case the fund may lose its entire investment.

•

Frontier Markets Risk. Frontier market countries are emerging market countries, but generally have small economies or less mature capital markets than more developed emerging markets, and, as a result, the risks of investing in emerging market countries are magnified in frontier countries. The markets of frontier countries typically have low trading volumes and the potential for extreme price volatility and illiquidity.


•	Temporary Defensive Strategy Risk. In taking a large cash position, the Fund’s performance may be adversely affected as the Fund may not be able to benefit from an upswing in the market. Further, the Fund may be unable to pursue or achieve its investment objective when employing such a defensive strategy.

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

Leverage Risk. Leverage created by borrowing or certain types of transactions or investments may impair the fund’s liquidity, cause it to liquidate positions at an unfavorable time, increase volatility of the fund’s net asset value, or diminish the fund’s performance.

Non-Diversification Risk. A non-diversified fund may invest a high percentage of its assets in the securities of a small number of issuers and is more likely than diversified funds to be significantly affected by a specific security’s poor performance.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yield from many other fixed-income securities.

U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored or -charted enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National; Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. Treasury.

Performance

No performance information is shown below because the Fund has not yet had a calendar year of performance.

The Fund's performance is benchmarked against the JPM CEMBI Broad Diversified Index. Performance information provides an indication of the risks of investing in the Fund. Past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. You may get updated performance information by calling 1-800-222-5852 or online at:


•	For Class A and P - www.principalfunds.com.


•	For Institutional Class - www.principal.com.

Management

Investment Advisor:

Principal Global Investors, LLC

Sub-Advisor and Portfolio Managers:

Finisterre Capital LLP

• Damien Buchet, Portfolio Manager (since 2016)

• Arthur Duchon-Doris, Assistant Portfolio Manager (since 2016)


•	Christopher Watson, Portfolio Manager (since 2016)

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A	Initial Investment	$1,000⁽¹⁾
A	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A	Subsequent Investments	$100⁽¹⁾⁽²⁾
P and Institutional	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

GLOBAL DIVERSIFIED INCOME FUND


Objective:	The Fund seeks income.

Fees and Expenses of the Fund

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	P	Inst.
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	3.75%	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	P	Inst.
Management Fees	0.72%	0.72%	0.72%	0.72%
Distribution and/or Service (12b-1) Fees	0.25%	1.00%	N/A	N/A
Other Expenses:
Dividend and Interest Expense on Short Sales	0.10%	0.10%	0.10%	0.10%
Remainder of Other Expenses	0.12%	0.13%	0.10%	0.04%
Total Other Expenses	0.22%	0.23%	0.20%	0.14%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	1.20%	1.96%	0.93%	0.87%

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	Inst.
Management Fees	0.72%	0.72%	0.72%
Distribution and/or Service (12b-1) Fees	0.25%	1.00%	N/A
Other Expenses:
Dividend and Interest Expense on Short Sales	0.10%	0.10%	0.10%
Remainder of Other Expenses	0.12%	0.13%	0.04%
Total Other Expenses	0.22%	0.23%	0.14%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	1.20%	1.96%	0.87%
Expense Reimbursement ⁽¹⁾	N/A	N/A	—%
Total Annual Fund Operating Expenses after Expense Reimbursement	1.20%	1.96%	0.87%
⁽¹⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.76% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$493	$742	$1,010	$1,775
Class C	299	615	1,057	2,285
Class P	95	296	515	1,143
Institutional Class	89	278	482	1,073

With respect to Class C shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$199	$615	$1,057	$2,285

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$493	$742	$1,010	$1,775
Class C	299	615	1,057	2,285
Institutional Class	89	278	482	1,073

With respect to Class C shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$199	$615	$1,057	$2,285

Portfolio Turnover

Principal Investment Strategies

The Fund generally invests a majority of its assets in fixed income securities, such as high yield bonds (also known as "junk" bonds), preferred securities, commercial mortgage-backed securities, and emerging market debt securities, in an effort to provide incremental yields over a portfolio of government securities. In addition, the Fund invests in equity securities to provide incremental dividend yields and diversify fixed-income related risks in the Fund. The Fund generally invests a portion of its assets in equity securities of global companies principally engaged in the real estate industry, equity securities of global infrastructure companies, and value equities of global companies. As described below, the Fund will use some derivative strategies. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. The Fund actively trades portfolio securities.

As a Fund that invests globally, some of the Fund's strategies involve investing in foreign securities. The Fund typically invests in foreign securities of at least 10 countries and at least 30% of its net assets in foreign securities.

In managing the Fund, Principal Global Investors, LLC ("PGI"), the Fund’s investment advisor, determines the Fund's strategic asset allocation among the following general investment categories, which are executed by PGI and multiple sub-advisors: high yield, preferred securities, emerging market debt, global real estate, commercial mortgage-backed securities, global value equity, and publicly-traded infrastructure. The Fund may add additional investment categories. The Fund seeks to provide yield by having those selecting investments for the Fund focus on those securities offering the best potential for yield, taking risk into consideration, within their respective investment categories.

The Fund also purchases and sells call and put options on equity indexes and exchange-traded funds (“ETFs”) in order to obtain long or short exposures to certain asset categories of the Fund. The primary purpose of this investment strategy is to reduce portfolio volatility in the Fund. PGI determines the asset categories on which this strategy is applied, which may include global real estate securities, global value equity, and/or publicly-traded infrastructure investments.

A portion of the Fund's assets is invested in high yield and other income-producing securities including bank loans and corporate bonds. These include foreign securities issued in both USD and non-USD. "High yield" securities are below investment grade bonds (sometimes called "junk bonds") which are rated at the time of purchase Ba1 or lower by Moody's Investors Service, Inc. ("Moody's") and BB+ or lower by S&P Global Ratings ("S&P Global") (if the bond has been rated by only one of those agencies, that rating will determine whether the bond is below investment grade; if the bond has not been rated by either of those agencies, those selecting such investments will determine whether the bond is of a quality comparable to those rated below investment grade). These securities offer a higher yield than other, higher rated securities, but they carry a greater degree of risk and are considered speculative with respect to the issuer's ability to pay interest and to repay principal. This portion of the Fund also invests in currency forwards and currency options to hedge currency risk.

A portion of the Fund's assets is invested primarily in preferred securities of U.S. and non-U.S. companies. This portion of the Fund focuses primarily on the financial services, real estate investment trust ("REIT"), and utility industries.

A portion of the Fund's assets is invested in a diversified portfolio of fixed income securities issued primarily by governments, their agencies, local authorities and instrumentalities, and corporate entities domiciled in or exercising the predominant part of their economic activities in emerging markets. This portion of the Fund is not managed to a particular maturity or duration. This portion of the Fund also invests in interest rate swaps or Treasury futures to manage fixed income exposure; credit default swaps to increase or decrease in an efficient manner exposures to certain sectors or individual issuers; total return swaps to increase or decrease in an efficient manner exposures to certain sectors; and currency forwards and currency options to hedge currency risk and express views on the direction of currency. Here, "emerging market country" means any country which is considered to be an emerging country by the international financial community (including the MSCI Emerging Markets Index) and any country included in any J.P. Morgan Emerging Market Bond Index. These countries generally exclude the U.S., Canada, Japan, Hong Kong, Singapore, Australia, and New Zealand, and most nations located in Western Europe.

A portion of the Fund's assets is invested in equity securities of global real estate companies. A real estate company has at least 50% of its assets, income or profits derived from products or services related to the real estate industry. Real estate companies include REITs, REIT-like entities, and companies with substantial real estate holdings such as paper, lumber, hotel and entertainment companies as well as building supply manufacturers, mortgage lenders, and mortgage servicing companies.

A portion of the Fund’s assets is invested in commercial mortgage-backed securities, which are bonds that are secured by first mortgages on commercial real estate.

A portion of the Fund's assets is invested in a diversified portfolio of value equity securities of companies located or operating in the U.S. and foreign countries, including emerging markets. The Fund invests in equity securities regardless of market capitalization (small, medium or large). Investing in value equity securities, is an investment strategy that emphasizes buying equity securities that appear to be undervalued.

A portion of the Fund's assets is invested in publicly-listed infrastructure companies (domestic and foreign public utility, energy, and transportation companies). Publicly-listed infrastructure equity securities trade on an exchange and include companies involved to a significant extent in providing products, services or equipment for: transportation (including toll roads, airports, railways, and ports); the generation, transmission or distribution of electricity, gas or water (utilities); or telecommunications activities as well as in companies involved in the discovery, development, production, generation, transmission, refinement, measurement, trading, marketing or distribution of energy.

During the fiscal year ended October 31, 2016, the average ratings of the Fund’s fixed-income assets, based on market value at each month-end, were as follows (all ratings are by Moody’s):



1.95% in securities rated Aaa	16.15% in securities rated Baa	15.64% in securities rated Caa	0.32% in securities rated D
1.12% in securities rated Aa	23.69% in securities rated Ba	0.38% in securities rated Ca	11.21% in securities not rated
3.51% in securities rated A	26.02% in securities rated B	0.01% in securities rated C

Principal Risks

Asset Allocation Risk. A fund's selection and weighting of asset classes may cause it to underperform other funds with a similar investment objective.

Bank Loans Risk. Changes in economic conditions are likely to cause issuers of bank loans (also known as senior floating rate interests) to be unable to meet their obligations. In addition, the value of the collateral securing the loan (if any) may decline, causing a loan to be substantially unsecured. Underlying credit agreements governing the bank loans, reliance on market makers, priority of repayment and overall market volatility may harm the liquidity of loans.

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

•

Credit Default Swaps. Credit default swaps involve special risks in addition to those associated to swaps generally, because they are difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty). The protection “buyer” in a credit default contract may be obligated to pay the protection “seller” an upfront payment or a periodic stream of payments over the term of the contract provided generally that no credit event on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the “par value” (full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. The Fund may be either the buyer or seller in the transaction.


•	Currency Contracts. Derivatives related to currency contracts involve the specific risk of government action through exchange controls that would restrict the ability of the fund to deliver or receive currency.

•

Equity Index/Exchange-traded Fund (“ETF”) Call Options. A fund that writes equity index/exchange-traded fund (“ETF”) call options forgoes, during the option’s life, the opportunity to profit from increases in the market value of the index on which the call option has been written above the sum of the premium and the strike price of the call, but retains the risk of loss should the price of the underlying index decline (net of premiums received). In addition, a fund bears the risk that the index/ETF on which the call option has been written behaves differently than the underlying stocks in the portfolio, which would limit the ability of the call option overwriting strategy to reduce portfolio volatility.

•

Forward Contracts, Futures and Swaps. Forward contracts, futures, and swaps involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the forward contract, future, or swap; possible lack of a liquid secondary market for a forward contract, future, or swap and the resulting inability to close a forward contract, future, or swap when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.

•


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

Preferred Securities Risk. Because preferred securities have a lower priority claim on assets or earnings than senior bonds and other debt instruments in a company's capital structure, they are subject to greater credit and liquidation risk than more senior debt instruments. In addition, preferred securities are subject to other risks, such as limited or no voting rights, deferring or skipping distributions, interest rate risk, and redeeming the security prior to any stated maturity date.

Volatility Mitigation Risk. Volatility mitigation strategies may increase fund transaction costs, which could increase losses or reduce gains. These strategies may not protect the fund from market declines and may reduce the fund’s participation in market gains.

Performance


•	For Classes A, C, and P - www.principalfunds.com.


•	For Institutional Class - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, the results would be lower. The table shows, for each class of shares of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

Life of Fund results are measured from the date the Fund's shares were first sold (December 15, 2008).

For periods prior to the inception date of Class P shares (September 27, 2010), the performance shown in the table for Class P shares is based on the performance of the Fund's Institutional Class shares, adjusted to reflect the fees and expenses of Class P shares. These adjustments for Class P shares result in performance for such periods that is no higher than the historical performance of the Institutional Class shares, which were first sold on December 15, 2008.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	20.93	%
Lowest return for a quarter during the period of the bar chart above:	Q3 '11	(8.15	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	Life of Fund
Class A Return Before Taxes	5.18%	5.91%	10.71%
Class A Return After Taxes on Distributions	2.87%	3.77%	8.08%
Class A Return After Taxes on Distribution and Sale of Fund Shares	3.02%	3.75%	7.53%
Class C Return Before Taxes	7.44%	5.91%	10.39%
Class P Return Before Taxes	9.56%	6.99%	11.41%
Institutional Class Return Before Taxes	9.62%	7.05%	11.53%
Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index (reflects no deduction for fees, expenses, or taxes)	17.13%	7.36%	14.69%
Bloomberg Barclays Global Credit Index (reflects no deduction for fees, expenses, or taxes)	5.43%	3.40%	6.32%
Bloomberg Barclays Global High Yield Index (reflects no deduction for fees, expenses, or taxes)	14.27%	7.37%	14.28%
MSCI ACWI Value Index (reflects no deduction for fees, expenses, or taxes)	12.57%	8.96%	9.82%
Global Diversified Income Blended Index (reflects no deduction for fees, expenses, or taxes)	10.25%	6.32%	9.89%

Performance of a blended index shows how the Fund’s performance compares to a blend of indices with similar investment objectives. Performance of each component of the blended index is also shown. The weightings for the Global Diversified Income Blended Index are: 40% Bloomberg Barclays Global Credit Index; 30% Bloomberg Barclays Global High Yield Index; and 30% MSCI ACWI Value Index. The custom or blended index returns reflect the allocation in effect for the time period(s) for which the fund returns are disclosed. Previous weightings or allocations of the custom or blended index are not restated.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Jake S. Anonson (since 2014), Portfolio Manager


•	Jessica S. Bush (since 2014), Portfolio Manager


•	Marcus W. Dummer (since 2014), Portfolio Manager


•	Kelly A. Grossman (since 2010), Portfolio Manager


•	Benjamin E. Rotenberg (since 2014), Portfolio Manager

Sub-Advisors:

Analytic Investors, LLC

Colonial First State Asset Management (Australia) Limited

DDJ Capital Management, LLC

Logan Circle Partners, L.P.

Post Advisory Group, LLC

Principal Real Estate Investors, LLC

Spectrum Asset Management, Inc.

Stone Harbor Investment Partners LP

W. H. Reaves & Co., Inc. (doing business as Reaves Asset Management)

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A and C	Initial Investment	$1,000⁽¹⁾
A and C	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A and C	Subsequent Investments	$100⁽¹⁾⁽²⁾
P and Institutional	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

GLOBAL REAL ESTATE SECURITIES FUND


Objective:	The Fund seeks to generate a total return.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	P	Inst.	R-3	R-4	R-5	R-6
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	P	Inst.	R-3	R-4	R-5	R-6
Management Fees	0.86%	0.86%	0.86%	0.86%	0.86%	0.86%	0.86%	0.86%
Distribution and/or Service (12b-1) Fees	0.25%	1.00%	N/A	N/A	0.25%	0.10%	N/A	N/A
Other Expenses	0.21%	0.25%	0.15%	0.04%	0.33%	0.29%	0.27%	2.66%
Total Annual Fund Operating Expenses	1.32%	2.11%	1.01%	0.90%	1.44%	1.25%	1.13%	3.52%
Expense Reimbursement ⁽¹⁾	N/A	—%	—%	N/A	N/A	N/A	N/A	(2.58)%
Total Annual Fund Operating Expenses after Expense Reimbursement	1.32%	2.11%	1.01%	0.90%	1.44%	1.25%	1.13%	0.94%
⁽¹⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 2.20% for Class C and 0.94% for Class R-6 shares. In addition, for Class P, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnote and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	Inst.	R-3	R-4	R-5	R-6
Management Fees	0.86%	0.86%	0.86%	0.86%	0.86%	0.86%	0.86%
Distribution and/or Service (12b-1) Fees	0.25%	1.00%	N/A	0.25%	0.10%	N/A	N/A
Other Expenses	0.21%	0.25%	0.04%	0.33%	0.29%	0.27%	2.66%
Total Annual Fund Operating Expenses	1.32%	2.11%	0.90%	1.44%	1.25%	1.13%	3.52%
Expense Reimbursement ⁽¹⁾⁽²⁾	N/A	—%	—%	N/A	N/A	N/A	(2.64)%
Total Annual Fund Operating Expenses after Expense Reimbursement	1.32%	2.11%	0.90%	1.44%	1.25%	1.13%	0.88%
⁽¹⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 2.20% for Class C shares. In addition, for Class R-6, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.94% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$677	$945	$1,234	$2,053
Class C	314	661	1,134	2,441
Class P	103	322	558	1,236
Institutional Class	92	287	498	1,108
Class R-3	147	456	787	1,724
Class R-4	127	397	686	1,511
Class R-5	115	359	622	1,375
Class R-6	96	839	1,605	3,620

With respect to Class C shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example)



	1 year	3 years	5 years	10 years
Class C	$214	$661	$1,134	$2,441

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$677	$945	$1,234	$2,053
Class C	314	661	1,134	2,441
Institutional Class	92	287	498	1,108
Class R-3	147	456	787	1,724
Class R-4	127	397	686	1,511
Class R-5	115	359	622	1,375
Class R-6	90	834	1,600	3,616

With respect to Class C shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example)



	1 year	3 years	5 years	10 years
Class C	$214	$661	$1,134	$2,441

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of U.S. and non-U.S. companies principally engaged in the real estate industry at the time of purchase. For the Fund's investment policies, a real estate company has at least 50% of its assets, income or profits derived from products or services related to the real estate industry. Real estate companies include real estate investment trusts ("REITs") and companies with substantial real estate holdings such as paper, lumber, hotel and entertainment companies as well as those whose products and services relate to the real estate industry such as building supply manufacturers, mortgage lenders, and mortgage servicing companies. The Fund invests in equity securities regardless of market capitalization (small, medium or large). The Fund invests in value equity securities, which is an investment strategy that emphasizes buying equity securities that appear to be undervalued.

REITs are pooled investment vehicles that invest in income producing real estate, real estate related loans, or other types of real estate interests. REITs in the U.S. are corporations or business trusts that are permitted to eliminate corporate level federal income taxes by meeting certain requirements of the Internal Revenue Code.

Some foreign countries have adopted REIT structures that are very similar to those in the United States. Similarities include pass through tax treatment and portfolio diversification. Other countries may have REIT structures that are significantly different than the U.S. or may not have adopted a REIT like structure at all. The Fund invests a significant percentage of its portfolio in REITs and foreign REIT-like entities.

The Fund typically invests in foreign securities of at least three countries and at least 30% of its net assets in foreign securities.

The Fund concentrates its investments (invest more than 25% of its net assets) in securities in the real estate industry.

Principal Risks


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Value Stock Risk. Value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by the fund, or the event that the portfolio manager believed would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock judged to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

Industry Concentration Risk. A fund that concentrates investments in a particular industry or group of industries has greater exposure than other funds to market, economic and other factors affecting that industry or group of industries.


•	Real Estate. A fund concentrating in the real estate industry can be subject to the risks associated with direct ownership of real estate, securities of companies in the real estate industry, and/or real estate investment trusts.

Performance


•	For Classes A, C, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-3, R-4, R-5, and R-6 - www.principal.com.

The bar chart shows the investment returns of the Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, the results would be lower. The table shows, for each class of shares of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

Life of Fund results are measured from the date the Fund's shares were first sold (October 1, 2007).

For periods prior to the inception date of Class P shares (December 29, 2010), Class R-6 shares (November 25, 2014), and Classes R-3, R-4, and R-5 shares (March 1, 2016), the performance shown in the table for Classes P, R-3, R-4, R-5 and R-6 shares is based on the performance of the Fund's Institutional Class shares, adjusted to reflect the respective fees and expenses of each class. These adjustments for the newer classes result in performance for such periods that is no higher than the historical performance of the Institutional Class shares, which were first sold on October 1, 2007.

During 2007, the Fund processed a significant (relative to Class A) "As Of" transaction that resulted in a gain to the remaining shareholders of Class A. “As Of " transaction processing occurs when a fund transaction is processed after its receipt date but “as of” the date required by SEC rule. In accordance with the Fund's shareholder processing policies, this benefit inures all shareholders of Class A. Had such a gain not been recognized, the total return amounts expressed herein would have been smaller.

During 2010, the Institutional Class experienced a significant withdrawal of monies by an affiliate. As the remaining shareholders held relatively small positions, the total return amounts expressed herein are greater than those that would have been experienced without the withdrawal.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	30.77	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(29.65	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	Life of Fund
Class A Return Before Taxes	(5.48)%	8.63%	1.36%	⁽¹⁾
Class A Return After Taxes on Distributions	(6.58)%	6.86%	(0.06)%	⁽¹⁾
Class A Return After Taxes on Distribution and Sale of Fund Shares	(2.81)%	6.13%	0.48%	⁽¹⁾
Class C Return Before Taxes	(1.70)%	9.01%	1.11%
Class P Return Before Taxes	0.34%	10.16%	2.69%	⁽²⁾
Institutional Class Return Before Taxes	0.45%	10.32%	2.85%	⁽²⁾
Class R-3 Return Before Taxes	0.00%	9.76%	2.33%	⁽²⁾
Class R-4 Return Before Taxes	0.15%	9.96%	2.52%	⁽²⁾
Class R-5 Return Before Taxes	0.24%	10.08%	2.63%	⁽²⁾
Class R-6 Return Before Taxes	0.31%	10.29%	2.82%	⁽²⁾
FTSE EPRA/NAREIT Developed Index NR (reflects no deduction for fees, expenses or taxes)	4.06%	9.48%	1.17%
⁽¹⁾ During 2007, the Fund processed a significant (relative to Class A) "As Of" transaction that resulted in a gain to the remaining shareholders of Class A. “As-of” transaction processing occurs when a fund transaction is processed after its receipt date but “as of” the date required by SEC rule. In accordance with the Fund's shareholder processing policies, this benefit inures all shareholders of Class A. Had such a gain not been recognized, the total return amounts expressed herein would have been smaller.
⁽²⁾ During 2010, the Institutional Class experienced a significant withdrawal of monies by an affiliate. As the remaining shareholders held relatively small positions, the total return amounts expressed herein are greater than those that would have been experienced without the withdrawal.

Management

Investment Advisor:

Principal Global Investors, LLC

Sub-Advisor and Portfolio Managers:

Principal Real Estate Investors, LLC


•	Simon Hedger (since 2007), Portfolio Manager


•	Anthony Kenkel (since 2010), Portfolio Manager


•	Kelly D. Rush (since 2007), Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A and C	Initial Investment	$1,000⁽¹⁾
A and C	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A and C	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-3, R-4, R-5, and R-6	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

For Class R-6 shares, the Fund and its related companies do not pay broker-dealers or other financial intermediaries (such as a bank, insurance company, investment adviser, etc.) for the sale of Fund shares or related services.

For the other share classes, if you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment adviser, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, or to recommend one share class of the Fund over another share class. Ask your salesperson or visit your financial intermediary's website for more information.

GOVERNMENT & HIGH QUALITY BOND FUND


Objective:	The Fund seeks to provide a high level of current income consistent with safety and liquidity.

Fees and Expenses of the Fund

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	2.25%	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.50%	0.50%	0.50%	0.50%	0.50%	0.50%	0.50%	0.50%	0.50%	0.50%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.16%	0.18%	0.17%	0.16%	0.03%	0.53%	0.45%	0.32%	0.28%	0.26%
Total Annual Fund Operating Expenses	0.91%	1.68%	0.82%	0.66%	0.53%	1.38%	1.25%	1.07%	0.88%	0.76%
Expense Reimbursement ⁽²⁾	—%	(0.05)%	N/A	—%	N/A	(0.09)%	(0.09)%	(0.09)%	(0.09)%	(0.09)%
Total Annual Fund Operating Expenses after Expense Reimbursement	0.91%	1.63%	0.82%	0.66%	0.53%	1.29%	1.16%	0.98%	0.79%	0.67%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.88% for Class A, 1.63% for Class C, 1.29% for Class R-1, 1.16% for Class R-2, 0.98% for Class R-3, 0.79% for Class R-4, and 0.67% for Class R-5 shares. In addition, for Class P, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.50%	0.50%	0.50%	0.50%	0.50%	0.50%	0.50%	0.50%	0.50%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.16%	0.18%	0.17%	0.03%	0.53%	0.45%	0.32%	0.28%	0.26%
Total Annual Fund Operating Expenses	0.91%	1.68%	0.82%	0.53%	1.38%	1.25%	1.07%	0.88%	0.76%
Expense Reimbursement ⁽²⁾⁽³⁾	—%	(0.05)%	N/A	—%	(0.09)%	(0.09)%	(0.09)%	(0.09)%	(0.09)%
Total Annual Fund Operating Expenses after Expense Reimbursement	0.91%	1.63%	0.82%	0.53%	1.29%	1.16%	0.98%	0.79%	0.67%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.88% for Class A, 1.63% for Class C, 1.29% for Class R-1, 1.16% for Class R-2, 0.98% for Class R-3, 0.79% for Class R-4, and 0.67% for Class R-5 shares. It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.53% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$316	$509	$718	$1,319
Class C	266	525	908	1,983
Class J	184	262	455	1,014
Class P	67	211	368	822
Institutional Class	54	170	296	665
Class R-1	131	428	747	1,650
Class R-2	118	388	678	1,503
Class R-3	100	331	581	1,298
Class R-4	81	272	479	1,076
Class R-5	68	234	414	934

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$166	$525	$908	$1,983
Class J	84	262	455	1,014

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$316	$509	$718	$1,319
Class C	266	525	908	1,983
Class J	184	262	455	1,014
Institutional Class	54	170	296	665
Class R-1	131	428	747	1,650
Class R-2	118	388	678	1,503
Class R-3	100	331	581	1,298
Class R-4	81	272	479	1,076
Class R-5	68	234	414	934

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$166	$525	$908	$1,983
Class J	84	262	455	1,014

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in securities issued by the U.S. government, its agencies or instrumentalities or securities that are rated, at the time of purchase, AAA by S&P Global Ratings ("S&P Global") or Aaa by Moody's Investors Service, Inc. ("Moody's"), or, if unrated, in the opinion of those selecting such investments, are of comparable quality including but not limited to mortgage securities such as agency and non-agency collateralized mortgage obligations, and other obligations that are secured by mortgages or mortgage-backed securities (securitized products). Under normal circumstances, the Fund maintains an average portfolio duration that is within ±25% of the duration of the Bloomberg Barclays Fixed-Rate MBS Index, which as of December 31, 2016 was 4.60 years. The Fund is not managed to a particular maturity. The Fund also invests in mortgage-backed securities that are not issued by the U.S. government, its agencies or instrumentalities or not rated AAA by S&P Global, AAA by Fitch, or Aaa by Moody's (or of comparable quality), including collateralized mortgage obligations, and in other obligations that are secured by mortgages or mortgage-backed securities.

Principal Risks

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Classes A, C, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods prior to that date is based on the performance of the predecessor fund.

For periods prior to the inception date of Classes J, R-1, R-2, R-3, R-4, and R-5 shares (December 15, 2008) and Class P shares (September 27, 2010), the performance shown in the table for Classes J, P, R-1, R-2, R-3, R-4, and R-5 shares is based on the performance of the Fund's Class A shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class A shares, the historical performance of the Class A shares is used for the newer class (without respect to sales charges, if not applicable to the newer class). These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of Class A shares. The predecessor fund's Class A shares commenced operations on May 4, 1984.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '10	3.07	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '16	(2.20	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	(0.88)%	1.33%	3.53%
Class A Return After Taxes on Distributions	(2.44)%	0.03%	2.11%
Class A Return After Taxes on Distribution and Sale of Fund Shares	(0.49)%	0.45%	2.16%
Class C Return Before Taxes	(0.45)%	0.96%	2.95%
Class J Return Before Taxes	0.36%	1.70%	3.65%
Class P Return Before Taxes	1.53%	1.91%	3.86%
Institutional Class Return Before Taxes	1.64%	2.09%	4.10%
Class R-1 Return Before Taxes	0.87%	1.30%	3.30%
Class R-2 Return Before Taxes	1.10%	1.45%	3.43%
Class R-3 Return Before Taxes	1.28%	1.64%	3.62%
Class R-4 Return Before Taxes	1.37%	1.81%	3.79%
Class R-5 Return Before Taxes	1.49%	1.93%	3.89%
Bloomberg Barclays MBS Fixed Rate Index (reflects no deduction for fees, expenses or taxes)	1.67%	2.07%	4.31%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	John R. Friedl (since 2010), Portfolio Manager


•	Ryan P. McCann (since 2010), Portfolio Manager


•	Scott J. Peterson (since 2010), Portfolio Manager


•	Greg L. Tornga (since 2011), Head of Fixed Income and Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

HIGH YIELD FUND


Objective:	The Fund seeks to provide a high level of current income.

Fees and Expenses of the Fund

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	P	Inst.	R-6
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	3.75%	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	P	Inst.	R-6
Management Fees	0.51%	0.51%	0.51%	0.51%	0.51%
Distribution and/or Service (12b-1) Fees	0.25%	1.00%	N/A	N/A	N/A
Other Expenses ⁽¹⁾	0.14%	0.14%	0.10%	0.13%	176.25%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	0.91%	1.66%	0.62%	0.65%	176.77%
Expense Reimbursement ⁽²⁾	N/A	N/A	—%	(0.03)%	(176.10)%
Total Annual Fund Operating Expenses after Expense Reimbursement	0.91%	1.66%	0.62%	0.62%	0.67%
⁽¹⁾ Based on estimated amounts for the current fiscal year (Class R-6).
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.61% for Institutional Class and 0.66% for Class R-6 shares. In addition, for Class P, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	Inst.	R-6
Management Fees	0.51%	0.51%	0.51%	0.51%
Distribution and/or Service (12b-1) Fees	0.25%	1.00%	N/A	N/A
Other Expenses ⁽¹⁾	0.14%	0.14%	0.13%	176.25%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	0.91%	1.66%	0.65%	176.77%
Expense Reimbursement ⁽²⁾	N/A	N/A	(0.03)%	(176.23)%
Total Annual Fund Operating Expenses after Expense Reimbursement	0.91%	1.66%	0.62%	0.54%
⁽¹⁾ Based on estimated amounts for the current fiscal year (Class R-6).
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.61% for Institutional Class shares. In addition, for Class R-6, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$464	$654	$860	$1,453
Class C	269	523	902	1,965
Class P	63	199	346	774
Institutional Class	63	205	359	808
Class R-6	68	803	1,182	1,661

With respect to Class C shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$169	$523	$902	$1,965

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$464	$654	$860	$1,453
Class C	269	523	902	1,965
Institutional Class	63	205	359	808
Class R-6	55	791	1,170	1,649

With respect to Class C shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$169	$523	$902	$1,965

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in below investment grade bonds (sometimes called “high yield bonds” or "junk bonds") which are rated, at the time of purchase, Ba1 or lower by Moody's Investors Service, Inc. ("Moody's") and BB+ or lower by S&P Global Ratings ("S&P Global") (if the bond has been rated by only one of those agencies, that rating will determine whether the bond is below investment grade; if the bond has not been rated by either of those agencies, those selecting such investments will determine whether the bond is of a quality comparable to those rated below investment grade). The Fund also invests in bank loans (also known as senior floating rate interests) and securities of foreign issuers, including those located in developing or emerging countries. Under normal circumstances, the Fund maintains an average portfolio duration that is within ±20% of the duration of the Bloomberg Barclays US High Yield 2% Issuer Capped Index, which as of December 31, 2016 was 4.11 years. The Fund is not managed to a particular maturity.

During the fiscal year ended October 31, 2016, the average ratings of the Fund’s fixed-income assets, based on market value at each month-end, were as follows (all ratings are by Moody’s):



0.52% in securities rated Aaa	10.71% in securities rated Baa	9.78% in securities rated Caa	0.08% in securities rated D
0.00% in securities rated Aa	42.22% in securities rated Ba	0.19% in securities rated Ca	0.83% in securities not rated
0.07% in securities rated A	35.57% in securities rated B	0.03% in securities rated C

Principal Risks

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

Performance


•	For Classes A, C, and P - www.principalfunds.com.


•	For Institutional and R-6 Class - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, each class of shares of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods prior to that date is based on the performance of the predecessor fund.

For periods prior to the inception date of Class P shares (September 27, 2010) and Class R-6 shares (November 22, 2016), the performance shown in the table for Class P and R-6 shares is based on the performance of the Fund's Class A shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class A shares, the historical performance of the Class A shares is used for the newer class (without respect to sales charges if not applicable to the newer class). Adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Class A shares. The predecessor fund's Class A shares commenced operations on April 8, 1998.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	18.88	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(11.89	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	10.38%	6.15%	6.49%
Class A Return After Taxes on Distributions	7.63%	3.26%	3.38%
Class A Return After Taxes on Distribution and Sale of Fund Shares	5.78%	3.48%	3.76%
Class C Return Before Taxes	12.79%	6.20%	6.10%
Class P Return Before Taxes	14.96%	7.23%	7.10%
Institutional Class Return Before Taxes	15.05%	7.33%	7.24%
Class R-6 Return Before Taxes	14.67%	6.98%	6.90%
Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index (reflects no deduction for fees, expenses, or taxes)	17.13%	7.36%	7.55%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Mark P. Denkinger (since 2009), Portfolio Manager


•	Josh Rank (since 2015), Portfolio Manager


•	Darrin E. Smith (since 2009), Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A and C	Initial Investment	$1,000⁽¹⁾
A and C	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A and C	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, and R-6	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

HIGH YIELD FUND I


Objective:	The Fund seeks high current income.

Fees and Expenses of the Fund

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	Inst.
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	3.75%	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	Inst.
Management Fees	0.64%	0.64%
Distribution and/or Service (12b-1) Fees	0.25%	N/A
Other Expenses	0.61%	0.02%
Total Annual Fund Operating Expenses	1.50%	0.66%
Expense Reimbursement ⁽¹⁾	(0.45)%	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.05%	0.66%
⁽¹⁾Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.05% for Class A shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. The calculation of costs takes into account any applicable contractual fee waivers and/or expense reimbursements for the period noted in the table above. Although your actual costs may be higher or lower, based on these assumptions your costs would be:



	1 year	3 years	5 years	10 years
Class A	$478	$789	$1,122	$2,061
Institutional Class	67	211	368	822

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in below investment grade bonds (sometimes called “high yield bonds” or "junk bonds") which are rated, at the time of purchase, Ba1 or lower by Moody's Investors Service, Inc. ("Moody's") and BB+ or lower by S&P Global Ratings ("S&P Global") (if the bond has been rated by only one of those agencies, that rating will determine whether the bond is below investment grade; if the bond has not been rated by either of those agencies, those selecting such investments will determine whether the bond is of a quality comparable to those rated below investment grade). The Fund also invests in bank loans (also known as senior floating rate interests) and securities of foreign issuers. Under normal circumstances, the Fund maintains an average portfolio duration that is within ±25% of the duration of the Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index, which as of December 31, 2016 was 4.11 years. The Fund is not managed to a particular maturity.

During the fiscal year ended October 31, 2016, the average ratings of the Fund’s fixed-income assets, based on market value at each month-end, were as follows (all ratings are by Moody’s):



0.00% in securities rated Aaa	9.21% in securities rated Baa	6.14% in securities rated Caa	0.01% in securities rated D
0.00% in securities rated Aa	50.64% in securities rated Ba	0.22% in securities rated Ca	0.84% in securities not rated
0.15% in securities rated A	32.79% in securities rated B	0.00% in securities rated C

Principal Risks

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

Performance


•	For Class A - www.principalfunds.com.


•	For Institutional Class - www.principal.com.

Using the historical performance of the Fund's Institutional Class shares, adjusted as described below, the bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each class of shares of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

For periods prior to the inception date of Class A shares (March 1, 2013), the performance shown in the bar chart and the table for Class A shares is based on the performance of the Fund's Institutional Class shares, adjusted to reflect the fees and expenses of the Class A shares. These adjustments for Class A shares result in performance for such periods that is no higher than the historical performance of the Institutional Class shares, which were first sold December 29, 2004.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	18.91	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(14.49	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	9.26%	5.28%	6.57%
Class A Return After Taxes on Distributions	6.77%	2.65%	3.82%
Class A Return After Taxes on Distribution and Sale of Fund Shares	5.18%	2.99%	4.00%
Institutional Class Return Before Taxes	14.01%	6.46%	7.39%
Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index(reflects no deduction for fees, expenses, or taxes)	17.13%	7.36%	7.55%

Management

Investment Advisor:

Principal Global Investors, LLC

Sub-Advisors and Portfolio Managers:

J.P. Morgan Investment Management Inc.


•	William J. Morgan (since 2007), Managing Director, Senior Portfolio Manager and High Yield Team Leader


•	James P. Shanahan, Jr. (since 2007), Managing Director, Portfolio Manager

Neuberger Berman Investment Advisers LLC


•	William (Russ) Covode (since 2011), Managing Director


•	Daniel Doyle (since 2014), Managing Director


•	Patrick Flynn (since 2016), Managing Director


•	Thomas P. O’Reilly (since 2007), Managing Director

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A	Initial Investment	$1,000⁽¹⁾
A	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

INCOME FUND


Objective:	The Fund seeks to provide a high level of current income consistent with preservation of capital.

Fees and Expenses of the Fund

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	2.25%	None	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.48%	0.48%	0.48%	0.48%	0.48%	0.48%	0.48%	0.48%	0.48%	0.48%	0.48%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾	0.15%	0.21%	0.14%	0.16%	0.01%	0.53%	0.45%	0.32%	0.28%	0.26%	0.32%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	0.89%	1.70%	0.78%	0.65%	0.50%	1.37%	1.24%	1.06%	0.87%	0.75%	0.81%
Expense Reimbursement ⁽²⁾	N/A	N/A	N/A	—%	N/A	N/A	N/A	N/A	N/A	N/A	(0.25)%
Total Annual Fund Operating Expenses after Expense Reimbursement	0.89%	1.70%	0.78%	0.65%	0.50%	1.37%	1.24%	1.06%	0.87%	0.75%	0.56%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.55% for Class R-6 shares. In addition, for Class P, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.48%	0.48%	0.48%	0.48%	0.48%	0.48%	0.48%	0.48%	0.48%	0.48%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾	0.15%	0.21%	0.14%	0.01%	0.53%	0.45%	0.32%	0.28%	0.26%	0.32%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	0.89%	1.70%	0.78%	0.50%	1.37%	1.24%	1.06%	0.87%	0.75%	0.81%
Expense Reimbursement ⁽²⁾⁽³⁾	N/A	N/A	N/A	—%	N/A	N/A	N/A	N/A	N/A	(0.31)%
Total Annual Fund Operating Expenses after Expense Reimbursement	0.89%	1.70%	0.78%	0.50%	1.37%	1.24%	1.06%	0.87%	0.75%	0.50%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.01% for Class R-6 shares. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.58% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$314	$502	$707	$1,296
Class C	273	536	923	2,009
Class J	180	249	433	966
Class P	66	208	362	810
Institutional Class	51	160	280	628
Class R-1	139	434	750	1,646
Class R-2	126	393	681	1,500
Class R-3	108	337	585	1,294
Class R-4	89	278	482	1,073
Class R-5	77	240	417	930
Class R-6	57	234	425	978

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$173	$536	$923	$2,009
Class J	80	249	433	966

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$314	$502	$707	$1,296
Class C	273	536	923	2,009
Class J	180	249	433	966
Institutional Class	51	160	280	628
Class R-1	139	434	750	1,646
Class R-2	126	393	681	1,500
Class R-3	108	337	585	1,294
Class R-4	89	278	482	1,073
Class R-5	77	240	417	930
Class R-6	51	228	419	973

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$173	$536	$923	$2,009
Class J	80	249	433	966

Portfolio Turnover

Principal Investment Strategies

The Fund invests primarily in a diversified pool of fixed-income securities including corporate securities, U.S. government securities, and mortgage-backed securities (securitized products) (including collateralized mortgage obligations), up to 35% of which may be in below investment grade bonds (sometimes called “high yield bonds” or "junk bonds") which are rated at the time of purchase Ba1 or lower by Moody's Investors Service, Inc. ("Moody's") and BB+ or lower by S&P Global Ratings ("S&P Global") (if the bond has been rated by only one of those agencies, that rating will determine whether the bond is below investment grade; if the bond has not been rated by either of those agencies, those selecting such investments will determine whether the bond is of a quality comparable to those rated below investment grade). Under normal circumstances, the Fund maintains an average portfolio duration that is within ±25% of the duration of the Bloomberg Barclays U.S. Aggregate Bond Index, which as of December 31, 2016 was 5.89 years. The Fund is not managed to a particular maturity. The Fund also invests in foreign securities.

During the fiscal year ended October 31, 2016, the average ratings of the Fund’s fixed-income assets, based on market value at each month-end, were as follows (all ratings are by Moody’s):



39.79% in securities rated Aaa	28.06% in securities rated Baa	1.90% in securities rated Caa	0.00% in securities rated D
5.23% in securities rated Aa	3.80% in securities rated Ba	0.10% in securities rated Ca	0.61% in securities not rated
16.42% in securities rated A	4.08% in securities rated B	0.01% in securities rated C

Principal Risks

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Classes A, C, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods prior to that date is based on the performance of the predecessor fund.

For periods prior to the inception date of Class J shares (September 30, 2009), Classes R-1, R-2, R-3, R-4, and R-5 shares (March 1, 2010), Class P shares (September 27, 2010) and Class R-6 shares (November 25, 2014), the performance shown in the table for Classes J, P, R-1, R-2, R-3, R-4, R-5 and R-6 shares is based on the performance of the Fund's Class A shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class A shares, the historical performance of the Class A shares is used for the newer class (without respect to sales charges, if not applicable to the newer class). These adjustments for the newer classes result in performance for such periods that is no higher than the historical performance of the Class A shares. The predecessor fund's Class A shares commence operations on December 15, 1975.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	10.26	%
Lowest return for a quarter during the period of the bar chart above:	Q3 '08	(4.74	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	2.75%	2.99%	4.82%
Class A Return After Taxes on Distributions	1.37%	1.50%	3.06%
Class A Return After Taxes on Distribution and Sale of Fund Shares	1.56%	1.64%	3.02%
Class C Return Before Taxes	3.20%	2.65%	4.26%
Class J Return Before Taxes	4.17%	3.46%	4.94%
Class P Return Before Taxes	5.30%	3.69%	5.19%
Institutional Class Return Before Taxes	5.47%	3.85%	5.47%
Class R-1 Return Before Taxes	4.56%	2.97%	4.56%
Class R-2 Return Before Taxes	4.80%	3.10%	4.71%
Class R-3 Return Before Taxes	4.87%	3.28%	4.89%
Class R-4 Return Before Taxes	5.19%	3.48%	5.09%
Class R-5 Return Before Taxes	5.21%	3.61%	5.15%
Class R-6 Return Before Taxes	5.45%	3.61%	5.14%
Bloomberg Barclays U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)	2.65%	2.23%	4.34%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	John R. Friedl (since 2005), Portfolio Manager


•	Ryan P. McCann (since 2010), Portfolio Manager


•	Scott J. Peterson (since 2010), Portfolio Manager


•	Greg L. Tornga (since 2011), Head of Fixed Income and Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, R-5, and R-6	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

INFLATION PROTECTION FUND


Objective:	The Fund seeks to provide current income and real (after inflation) total returns.

Fees and Expenses of the Fund

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	3.75%	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.38%	0.38%	0.38%	0.38%	0.38%	0.38%	0.38%	0.38%	0.38%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.28%	0.91%	0.53%	0.00%	0.53%	0.45%	0.32%	0.28%	0.26%
Total Annual Fund Operating Expenses	0.91%	2.29%	1.06%	0.38%	1.26%	1.13%	0.95%	0.76%	0.64%
Expense Reimbursement ⁽²⁾	(0.01)%	(0.64)%	—%	N/A	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	0.90%	1.65%	1.06%	0.38%	1.26%	1.13%	0.95%	0.76%	0.64%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.90% for Class A, 1.65% for Class C, and 1.15% for Class J shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$463	$653	$859	$1,452
Class C	268	654	1,167	2,576
Class J	208	337	585	1,294
Institutional Class	39	122	213	480
Class R-1	128	400	692	1,523
Class R-2	115	359	622	1,375
Class R-3	97	303	525	1,166
Class R-4	78	243	422	942
Class R-5	65	205	357	798

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$168	$654	$1,167	$2,576
Class J	108	337	585	1,294

Portfolio Turnover

Principal Investment Strategies

The Fund invests primarily in inflation-indexed bonds of varying maturities issued by the U.S. and non-U.S. governments, their agencies or instrumentalities, and U.S. and non-U.S. corporations. Inflation-indexed bonds are fixed income securities that are structured to provide protection against inflation. The value of the bond's principal or the interest income paid on the bond is adjusted to track changes in an official inflation measure. The U.S. Treasury uses the Consumer Price Index for Urban Consumers as the inflation measure. Inflation-indexed bonds issued by a foreign government are generally adjusted to reflect a comparable inflation index, calculated by that government. Under normal circumstances, the Fund maintains an average portfolio duration that is within ±20% of the duration of the Bloomberg Barclays U.S. Treasury Inflation Protected Securities ("TIPS") Index. The Fund is not managed to a particular maturity. The Fund also invests in foreign securities, U.S. Treasuries and agency securities. The Fund utilizes derivative strategies, specifically futures, swaps, and options for purposes of managing the risk profile of the Fund. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index.

Principal Risks

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Classes A, C, and J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

For periods prior to the inception date of Class C shares (January 16, 2007), the performance shown in the table for Class C is based on the performance of the Fund's Institutional Class shares, adjusted to reflect the Class C fees and expenses. These adjustments result in performance for such periods that is no higher than the historical performance of the Fund's Institutional Class shares, which were first sold December 29, 2004.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '11	4.35	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(10.39	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	(0.54)%	(0.66)%	0.56%
Class A Return After Taxes on Distributions	(0.87)%	(1.01)%	(0.23)%
Class A Return After Taxes on Distribution and Sale of Fund Shares	(0.31)%	(0.62)%	0.16%
Class C Return Before Taxes	1.68%	(0.65)%	0.16%
Class J Return Before Taxes	2.12%	(0.08)%	0.70%
Institutional Class Return Before Taxes	3.83%	0.57%	1.40%
Class R-1 Return Before Taxes	2.98%	(0.28)%	0.53%
Class R-2 Return Before Taxes	3.16%	(0.15)%	0.66%
Class R-3 Return Before Taxes	3.29%	0.02%	0.82%
Class R-4 Return Before Taxes	3.56%	0.22%	1.02%
Class R-5 Return Before Taxes	3.68%	0.32%	1.15%
Bloomberg Barclays U.S. Treasury TIPS Index (reflects no deduction for fees, expenses, or taxes)	4.68%	0.89%	4.36%

Management

Investment Advisor:

Principal Global Investors, LLC

Sub-Advisor and Portfolio Manager:

BlackRock Financial Management, Inc.


•	Martin Hegarty (since 2010), Managing Director

Sub-Sub-Advisor and Portfolio Manager:

BlackRock International Limited


•	Chris Allen (since 2017), Managing Director

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾
Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

INTERNATIONAL EMERGING MARKETS FUND


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	1.19%	1.19%	1.19%	1.19%	1.19%	1.19%	1.19%	1.19%	1.19%	1.19%	1.19%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾⁽²⁾	0.43%	0.76%	0.28%	1.47%	0.08%	0.59%	0.51%	0.38%	0.34%	0.32%	176.31%
Total Annual Fund Operating Expenses	1.87%	2.95%	1.62%	2.66%	1.27%	2.13%	2.00%	1.82%	1.63%	1.51%	177.50%
Expense Reimbursement ⁽³⁾	(0.26)%	(0.29)%	(0.10)%	(1.27)%	N/A	N/A	N/A	N/A	N/A	N/A	(176.17)%
Total Annual Fund Operating Expenses after Expense Reimbursement	1.61%	2.66%	1.52%	1.39%	1.27%	2.13%	2.00%	1.82%	1.63%	1.51%	1.33%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Based on estimated amounts for the current fiscal year (Class R-6).
⁽³⁾Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.61% for Class A, 2.66% for Class C, 1.52% for Class J and 1.33% for Class R-6 shares. In addition, for Class P, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	1.19%	1.19%	1.19%	1.19%	1.19%	1.19%	1.19%	1.19%	1.19%	1.19%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾⁽²⁾	0.43%	0.76%	0.28%	0.08%	0.59%	0.51%	0.38%	0.34%	0.32%	176.31%
Total Annual Fund Operating Expenses	1.87%	2.95%	1.62%	1.27%	2.13%	2.00%	1.82%	1.63%	1.51%	177.50%
Expense Reimbursement ^{(3) (4)}	(0.26)%	(0.29)%	(0.10)%	—%	N/A	N/A	N/A	N/A	N/A	(176.29)%
Total Annual Fund Operating Expenses after Expense Reimbursement	1.61%	2.66%	1.52%	1.27%	2.13%	2.00%	1.82%	1.63%	1.51%	1.21%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Based on estimated amounts for the current fiscal year (Class R-6).
⁽³⁾Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.61% for Class A, 2.66% for Class C and 1.52% for Class J shares. In addition, for Class R-6, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.
⁽⁴⁾Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.34% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$705	$1,082	$1,483	$2,600
Class C	369	885	1,527	3,250
Class J	255	501	872	1,914
Class P	142	706	1,297	2,899
Institutional Class	129	403	697	1,534
Class R-1	216	667	1,144	2,462
Class R-2	203	627	1,078	2,327
Class R-3	185	573	985	2,137
Class R-4	166	514	887	1,933
Class R-5	154	477	824	1,802
Class R-6	135	831	1,197	1,683

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$269	$885	$1,527	$3,250
Class J	155	501	872	1,914

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$705	$1,082	$1,483	$2,600
Class C	369	885	1,527	3,250
Class J	255	501	872	1,914
Institutional Class	129	403	697	1,534
Class R-1	216	667	1,144	2,462
Class R-2	203	627	1,078	2,327
Class R-3	185	573	985	2,137
Class R-4	166	514	887	1,933
Class R-5	154	477	824	1,802
Class R-6	123	820	1,186	1,673

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$269	$885	$1,527	$3,250
Class J	155	501	872	1,914

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of emerging market companies at the time of purchase. The Fund considers a security to be tied economically to an emerging market country (an "emerging market security") if the issuer of the security has its principal place of business or principal office in an emerging market country, has its principal securities trading market in an emerging market country, or derives a majority of its revenue from emerging market countries. The Fund actively trades portfolio securities.

Here, "emerging market country" means any country which is considered to be an emerging country by the international financial community (including the MSCI Emerging Markets Index or Bloomberg Barclays Emerging Markets USD Aggregate Bond Index). These countries generally exclude the United States, Canada, Japan, Australia, Hong Kong, Singapore, New Zealand, and most nations located in Western Europe. The Fund invests in equity securities regardless of market capitalization (small, medium or large) and style (growth or value).

Principal Risks


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Value Stock Risk. Value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by the fund, or the event that the portfolio manager believed would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock judged to be undervalued may be appropriately priced as a low level and therefore would not be profitable for the fund.

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

Performance


•	For Classes A, C, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

For periods prior to the inception date of Class C shares (January 16, 2007), Class P shares (September 27, 2010), and Class R-6 shares (November 22, 2016), the performance shown in the table for Classes C, P, and R-6 shares is based on the performance of the Fund’s Class R-3 shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class R-3 shares, the historical performance of the Class R-3 shares is used for the newer class. These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Fund's Class R-3 shares, which were first sold December 6, 2000.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	28.76	%
Lowest return for a quarter during the period of the bar chart above:	Q3 '08	(29.21	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	2.43%	(0.84)%	(0.09)%
Class A Return After Taxes on Distributions	2.37%	(0.77)%	(0.43)%
Class A Return After Taxes on Distribution and Sale of Fund Shares	1.73%	(0.39)%	0.19%
Class C Return Before Taxes	6.19%	(0.70)%	(0.46)%
Class J Return Before Taxes	7.46%	0.41%	0.55%
Class P Return Before Taxes	8.74%	0.70%	0.75%
Institutional Class Return Before Taxes	8.81%	0.83%	1.04%
Class R-1 Return Before Taxes	7.91%	(0.03)%	0.17%
Class R-2 Return Before Taxes	8.07%	0.10%	0.30%
Class R-3 Return Before Taxes	8.24%	0.26%	0.48%
Class R-4 Return Before Taxes	8.46%	0.47%	0.67%
Class R-5 Return Before Taxes	8.59%	0.59%	0.79%
Class R-6 Return Before Taxes	8.34%	0.28%	0.48%
MSCI Emerging Markets NR Index (reflects no deduction for fees, expenses, or taxes)	11.19%	1.28%	1.84%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Mihail Dobrinov (since 2007), Portfolio Manager


•	Alan Wang (since 2014), Portfolio Manager


•	Mohammed Zaidi (since 2012), Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, R-5, and R-6	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

INTERNATIONAL FUND I


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	None	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.90%	0.90%	0.90%	0.90%	0.90%	0.90%	0.90%	0.90%	0.90%
Distribution and/or Service (12b-1) Fees	0.25%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾	0.88%	0.13%	0.11%	0.60%	0.52%	0.39%	0.35%	0.33%	176.32%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	2.04%	1.04%	1.02%	1.86%	1.73%	1.55%	1.36%	1.24%	177.23%
Expense Reimbursement ⁽²⁾	(0.58)%	—%	(0.01)%	N/A	N/A	N/A	N/A	N/A	(176.17)%
Total Annual Fund Operating Expenses after Expense Reimbursement	1.46%	1.04%	1.01%	1.86%	1.73%	1.55%	1.36%	1.24%	1.06%
⁽¹⁾ Based on estimated amounts for the current fiscal year (Class R-6).
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.45% for Class A, 1.00% for Institutional Class and 1.05% for R-6 shares. In addition, for Class P, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20% (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.90%	0.90%	0.90%	0.90%	0.90%	0.90%	0.90%	0.90%
Distribution and/or Service (12b-1) Fees	0.25%	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾	0.88%	0.11%	0.60%	0.52%	0.39%	0.35%	0.33%	176.32%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	2.04%	1.02%	1.86%	1.73%	1.55%	1.36%	1.24%	177.23%
Expense Reimbursement ⁽²⁾	(0.58)%	(0.01)%	N/A	N/A	N/A	N/A	N/A	176.30%
Total Annual Fund Operating Expenses after Expense Reimbursement	1.46%	1.01%	1.86%	1.73%	1.55%	1.36%	1.24%	0.93%
⁽¹⁾ Based on estimated amounts for the current fiscal year (Class R-6).
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.45% for Class A and 1.00% for Institutional Class shares. In addition, for Class R-6, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02% (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$690	$1,102	$1,537	$2,745
Class P	106	331	574	1,271
Institutional Class	103	324	562	1,247
Class R-1	189	585	1,006	2,180
Class R-2	176	545	939	2,041
Class R-3	158	490	845	1,845
Class R-4	138	431	745	1,635
Class R-5	126	393	681	1,500
Class R-6	108	818	1,189	1,673

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$690	$1,102	$1,537	$2,745
Institutional Class	103	324	562	1,247
Class R-1	189	585	1,006	2,180
Class R-2	176	545	939	2,041
Class R-3	158	490	845	1,845
Class R-4	138	431	745	1,635
Class R-5	126	393	681	1,500
Class R-6	95	806	1,177	1,661

Portfolio Turnover

Principal Investment Strategies

The Fund invests primarily in foreign equity securities. Usually, the Fund's investments are diversified across many different countries and regions, including countries with emerging markets. The Fund typically invests in foreign securities of at least ten countries. The Fund invests in equity securities of small, medium, and large market capitalization companies.

The Fund invests in value equity securities, an investment strategy that emphasizes buying equity securities that appear to be undervalued. The Fund also invests in growth equity securities; growth orientation emphasizes buying equity securities of companies whose potential for growth of capital and earnings is expected to be above average.

Principal Risks


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

Performance


•	For Classes A and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 - www.principal.com.

Using the historical performance of the Fund's Institutional Class shares, adjusted as described below, the bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

For periods prior to the inception date of Classes A and P shares (June 3, 2014) and Class R-6 shares (November 22, 2016), the performance shown in the bar chart for Class A and the table for Classes A, P, and R-6 shares is based on the performance of the Fund's Institutional Class shares, adjusted to reflect the respective fees and expenses of each class. These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Fund's Institutional Class shares, were first sold on December 29, 2003.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	22.51	%
Lowest return for a quarter during the period of the bar chart above:	Q3 '11	(22.90	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	(10.29)%	5.24%	(0.46)%
Class A Return After Taxes on Distributions	(10.21)%	5.12%	(0.74)%
Class A Return After Taxes on Distribution and Sale of Fund Shares	(5.56)%	4.31%	(0.07)%
Class P Return Before Taxes	(4.64)%	6.85%	0.47%
Institutional Class Return Before Taxes	(4.68)%	6.93%	0.51%
Class R-1 Return Before Taxes	(5.46)%	6.02%	(0.36)%
Class R-2 Return Before Taxes	(5.35)%	6.15%	(0.23)%
Class R-3 Return Before Taxes	(5.21)%	6.35%	(0.05)%
Class R-4 Return Before Taxes	(4.95)%	6.55%	0.14%
Class R-5 Return Before Taxes	(4.90)%	6.67%	0.26%
Class R-6 Return Before Taxes	(4.80)%	6.85%	0.47%
MSCI ACWI Ex-U.S. Index (reflects no deduction for fees, expenses, or taxes)	4.50%	5.00%	0.96%

Management

Investment Advisor:

Principal Global Investors, LLC

Sub-Advisor and Portfolio Managers:

Origin Asset Management LLP


•	John Birkhold (since 2014), Partner


•	Chris Carter (since 2014), Partner


•	Nigel Dutson (since 2014), Partner


•	Tarlock Randhawa (since 2014), Partner


•	Grace Tolley (since 2017), Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A	Initial Investment	$1,000⁽¹⁾
A	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, R-5, and R-6	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

LARGECAP GROWTH FUND


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.63%	0.63%	0.63%	0.63%	0.63%	0.63%	0.63%	0.63%	0.63%	0.63%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.23%	0.35%	0.16%	0.25%	0.02%	0.54%	0.46%	0.33%	0.29%	0.27%
Total Annual Fund Operating Expenses	1.11%	1.98%	0.94%	0.88%	0.65%	1.52%	1.39%	1.21%	1.02%	0.90%
Expense Reimbursement ⁽²⁾	N/A	N/A	N/A	(0.05)%	N/A	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.11%	1.98%	0.94%	0.83%	0.65%	1.52%	1.39%	1.21%	1.02%	0.90%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20% for Class P shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.63%	0.63%	0.63%	0.63%	0.63%	0.63%	0.63%	0.63%	0.63%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.23%	0.35%	0.16%	0.02%	0.54%	0.46%	0.33%	0.29%	0.27%
Total Annual Fund Operating Expenses	1.11%	1.98%	0.94%	0.65%	1.52%	1.39%	1.21%	1.02%	0.90%
Expense Reimbursement ⁽²⁾	N/A	N/A	N/A	—%	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.11%	1.98%	0.94%	0.65%	1.52%	1.39%	1.21%	1.02%	0.90%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.68% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$657	$883	$1,128	$1,827
Class C	301	621	1,068	2,306
Class J	196	300	520	1,155
Class P	85	276	483	1,080
Institutional Class	66	208	362	810
Class R-1	155	480	829	1,813
Class R-2	142	440	761	1,669
Class R-3	123	384	665	1,466
Class R-4	104	325	563	1,248
Class R-5	92	287	498	1,108

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$201	$621	$1,068	$2,306
Class J	96	300	520	1,155

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$657	$883	$1,128	$1,827
Class C	301	621	1,068	2,306
Class J	196	300	520	1,155
Institutional Class	66	208	362	810
Class R-1	155	480	829	1,813
Class R-2	142	440	761	1,669
Class R-3	123	384	665	1,466
Class R-4	104	325	563	1,248
Class R-5	92	287	498	1,108

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$201	$621	$1,068	$2,306
Class J	96	300	520	1,155

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies with large market capitalizations at the time of purchase. For this Fund, companies with large market capitalizations are those with market capitalizations within the range of companies comprising the Russell 1000^® Growth Index (as of December 31, 2016, this range was between approximately $394.9 million and $634.4 billion). The Fund invests in growth equity securities; growth orientation emphasizes buying equity securities of companies whose potential for growth of capital and earnings is expected to be above average.

Principal Risks


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.

Performance


•	For Classes A, C, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

For periods prior to the inception date of Class C shares (January 16, 2007) and Class P shares (September 27, 2010), the performance shown in the table for Classes C and P shares is based on the performance of the Fund's Class R-3 shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class R-3 shares, the historical performance of the Class R-3 shares is used for the newer class. These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Class R-3 shares, which were first sold on December 6, 2000.

During 2010, Class R-3 experienced a significant one-time gain of approximately $0.06/shares as the result of a settlement in an SEC administrative proceeding. If such gain had not been recognized, the total amounts expressed herein would have been lower.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q1 '12	17.04	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(25.99	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	(10.80)%	9.75%	4.56%
Class A Return After Taxes on Distributions	(13.64)%	7.43%	3.42%
Class A Return After Taxes on Distribution and Sale of Fund Shares	(3.70)%	7.73%	3.64%
Class C Return Before Taxes	(7.32)%	10.06%	4.30%
Class J Return Before Taxes	(6.27)%	11.10%	5.20%
Class P Return Before Taxes	(5.31)%	11.36%	5.50%	⁽¹⁾
Institutional Class Return Before Taxes	(5.19)%	11.56%	5.76%
Class R-1 Return Before Taxes	(6.07)%	10.58%	4.85%
Class R-2 Return Before Taxes	(5.88)%	10.72%	4.97%
Class R-3 Return Before Taxes	(5.73)%	10.94%	5.24%	⁽¹⁾
Class R-4 Return Before Taxes	(5.55)%	11.13%	5.36%
Class R-5 Return Before Taxes	(5.47)%	11.26%	5.48%
Russell 1000 Growth Index (reflects no deduction for fees, expenses, or taxes)	7.08%	14.50%	8.33%


⁽¹⁾	During 2010, the R-3 Class experienced a significant one-time gain of approximately $0.06/share as the result of a settlement in an SEC administrative proceeding. If such gain had not been recognized, the total amounts expressed herein would have been lower.

Management

Investment Advisor:

Principal Global Investors, LLC

Sub-Advisor and Portfolio Managers:

Columbus Circle Investors


•	Thomas J. Bisighini (since 2009), Managing Director/Co-Portfolio Manager


•	Anthony Rizza (since 2005), Senior Managing Director/Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

LARGECAP GROWTH FUND I


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	J	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	None	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	J	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.60%	0.60%	0.60%	0.60%	0.60%	0.60%	0.60%	0.60%	0.60%	0.60%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾	0.32%	0.15%	1.30%	0.04%	0.54%	0.46%	0.33%	0.29%	0.27%	0.72%
Total Annual Fund Operating Expenses	1.17%	0.90%	1.90%	0.64%	1.49%	1.36%	1.18%	0.99%	0.87%	1.32%
Fee Waiver and Expense Reimbursement⁽²⁾⁽³⁾	(0.02)%	(0.02)%	(1.12)%	(0.02)%	(0.02)%	(0.02)%	(0.02)%	(0.02)%	(0.02)%	(0.67)%
Total Annual Fund Operating Expenses after Fee Waiver and Expense Reimbursement	1.15%	0.88%	0.78%	0.62%	1.47%	1.34%	1.16%	0.97%	0.85%	0.65%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending February 28, 2018. The fee waiver will reduce the Fund's Management Fees by 0.016% (expressed as a percent of average net assets on an annualized basis). It is expected that the fee waiver will continue through the period disclosed; however, Principal Funds, Inc. and PGI, the parties to the agreement may mutually agree to terminate the fee waiver prior to the end of the period.
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.25% for Class A and 0.65% for Class R-6 shares. In addition for Class P, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	J	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.60%	0.60%	0.60%	0.60%	0.60%	0.60%	0.60%	0.60%	0.60%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾	0.32%	0.15%	0.04%	0.54%	0.46%	0.33%	0.29%	0.27%	0.72%
Total Annual Fund Operating Expenses	1.17%	0.90%	0.64%	1.49%	1.36%	1.18%	0.99%	0.87%	1.32%
Fee Waiver and Expense Reimbursement^(2)(3)(4)	(0.02)%	(0.02)%	(0.02)%	(0.02)%	(0.02)%	(0.02)%	(0.02)%	(0.02)%	(0.72)%
Total Annual Fund Operating Expenses after Fee Waiver and Expense Reimbursement	1.15%	0.88%	0.62%	1.47%	1.34%	1.16%	0.97%	0.85%	0.60%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending June 30, 2018. The fee waiver will reduce the Fund's Management Fees by 0.016% (expressed as a percent of average net assets on an annualized basis). It is expected that the fee waiver will continue through the period disclosed; however, Principal Funds, Inc. and PGI, the parties to the agreement may mutually agree to terminate the fee waiver prior to the end of the period.
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.25% for Class A shares. In addition for Class R-6, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.
⁽⁴⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.66% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$661	$899	$1,156	$1,891
Class J	190	285	497	1,106
Class P	80	488	922	2,131
Institutional Class	63	203	355	796
Class R-1	150	469	811	1,778
Class R-2	136	429	743	1,633
Class R-3	118	373	647	1,430
Class R-4	99	313	545	1,211
Class R-5	87	276	480	1,071
Class R-6	66	352	659	1,532

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$90	$285	$497	$1,106

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$661	$899	$1,156	$1,891
Class J	190	285	497	1,106
Institutional Class	63	203	355	796
Class R-1	150	469	811	1,778
Class R-2	136	429	743	1,633
Class R-3	118	373	647	1,430
Class R-4	99	313	545	1,211
Class R-5	87	276	480	1,071
Class R-6	61	347	654	1,527

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$90	$285	$497	$1,106

Portfolio Turnover

Principal Investment Strategies

Principal Global Investors, LLC invests between 10% and 30% of the Fund's assets in equity securities in an attempt to match or exceed the performance of the Russell 1000^® Growth Index by purchasing securities in the index while slightly overweighting and underweighting certain individual equity securities relative to their weight in the index. The Fund's remaining assets are managed by the sub-advisors.

Principal Risks


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.

Performance


•	For Classes A, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, R-5 and R-6 - www.principal.com.

Using the historical performance of the Fund's Institutional Class shares, adjusted as described below, the bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

For periods prior to the inception date of Class A shares (March 1, 2013), Class P shares (June 3, 2014), and Class R-6 shares (November 25, 2014), the performance shown in the bar chart for Class A shares and the table for Classes A, P, and R-6 shares is based on the performance of the Fund's Institutional Class shares, adjusted to reflect the respective fees and expenses of each class. These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Institutional Class shares, which were first sold on December 6, 2000.

100

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	19.69	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(22.85	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	(5.16)%	11.60%	7.03%
Class A Return After Taxes on Distributions	(6.15)%	9.78%	6.01%
Class A Return After Taxes on Distribution and Sale of Fund Shares	(2.08)%	9.18%	5.65%
Class J Return Before Taxes	(0.29)%	13.12%	7.69%
Class P Return Before Taxes	0.73%	13.36%	8.12%
Institutional Class Return Before Taxes	0.98%	13.58%	8.27%
Class R-1 Return Before Taxes	0.07%	12.59%	7.32%
Class R-2 Return Before Taxes	0.26%	12.76%	7.47%
Class R-3 Return Before Taxes	0.43%	12.96%	7.66%
Class R-4 Return Before Taxes	0.69%	13.16%	7.86%
Class R-5 Return Before Taxes	0.76%	13.31%	7.99%
Class R-6 Return Before Taxes	0.98%	13.54%	8.25%
Russell 1000 Growth Index (reflects no deduction for fees, expenses, or taxes)	7.08%	14.50%	8.33%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2009), Portfolio Manager


•	Randy L. Welch (since 2009), Portfolio Manager

Sub-Advisors:

Brown Advisory, LLC

T. Rowe Price Associates, Inc.

101

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A and J	Initial Investment	$1,000⁽¹⁾
A and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, R-5, and R-6	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

102

LARGECAP GROWTH FUND II


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.89%	0.89%	0.89%	0.89%	0.89%	0.89%	0.89%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.21%	0.01%	0.54%	0.46%	0.33%	0.29%	0.27%
Total Annual Fund Operating Expenses	1.25%	0.90%	1.78%	1.65%	1.47%	1.28%	1.16%
Fee Waiver ⁽²⁾	(0.04)%	(0.04)%	(0.04)%	(0.04)%	(0.04)%	(0.04)%	(0.04)%
Total Annual Fund Operating Expenses after Fee Waiver	1.21%	0.86%	1.74%	1.61%	1.43%	1.24%	1.12%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending February 28, 2018. The fee waiver will reduce the Fund's Management Fees by 0.044% (expressed as a percent of average net assets on an annualized basis). It is expected that the fee waiver will continue through the period disclosed; however, Principal Funds, Inc. and PGI, the parties to the agreement may mutually agree to terminate the fee waiver prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class J	$223	$393	$682	$1,508
Institutional Class	88	283	495	1,104
Class R-1	177	556	961	2,091
Class R-2	164	516	893	1,951
Class R-3	146	461	799	1,754
Class R-4	126	402	698	1,542
Class R-5	114	365	634	1,405

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$123	$393	$682	$1,508

103

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies with large market capitalizations at the time of purchase. For this Fund, companies with large market capitalizations are those with market capitalizations within the range of companies comprising the Russell 1000^® Growth Index (as of December 31, 2016, the range was between approximately $394.9 million and $634.4 billion). The Fund invests in growth equity securities; growth orientation emphasizes buying equity securities of companies whose potential for growth of capital and earnings is expected to be above average.

Principal Risks


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.

Performance


•	For Class J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Institutional Class shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

104

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	15.82	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(22.90	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Institutional Class Return Before Taxes	5.33%	12.59%	7.43%
Institutional Class Return After Taxes on Distributions	4.36%	9.69%	5.62%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	3.83%	9.74%	5.78%
Class J Return Before Taxes	3.96%	12.10%	6.84%
Class R-1 Return Before Taxes	4.37%	11.60%	6.49%
Class R-2 Return Before Taxes	4.50%	11.75%	6.63%
Class R-3 Return Before Taxes	4.76%	11.95%	6.81%
Class R-4 Return Before Taxes	4.96%	12.16%	7.02%
Class R-5 Return Before Taxes	5.04%	12.30%	7.14%
Russell 1000 Growth Index (reflects no deduction for fees, expenses, or taxes)	7.08%	14.50%	8.33%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2009), Portfolio Manager


•	Randy L. Welch (since 2009), Portfolio Manager

Sub-Advisors:

American Century Investment Management, Inc.

Sawgrass Asset Management, LLC

105

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
J	Initial Investment	$1,000⁽¹⁾
J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

106

LARGECAP S&P 500 INDEX FUND


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	1.50%	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	0.25%	1.00%	1.00%	None	None	None	None	None	None

Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.15%	0.15%	0.15%	0.15%	0.15%	0.15%	0.15%	0.15%	0.15%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.15%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.18%	0.21%	0.10%	0.01%	0.54%	0.46%	0.33%	0.29%	0.27%
Total Annual Fund Operating Expenses	0.48%	1.36%	0.40%	0.16%	1.04%	0.91%	0.73%	0.54%	0.42%
Expense Reimbursement ⁽²⁾	N/A	(0.06)%	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	0.48%	1.30%	0.40%	0.16%	1.04%	0.91%	0.73%	0.54%	0.42%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.30% for Class C shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

107

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$198	$302	$415	$745
Class C	232	425	739	1,630
Class J	141	128	224	505
Institutional Class	16	52	90	205
Class R-1	106	331	574	1,271
Class R-2	93	290	504	1,120
Class R-3	75	233	406	906
Class R-4	55	173	302	677
Class R-5	43	135	235	530

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$132	$425	$739	$1,630
Class J	41	128	224	505

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies that compose the Standard & Poor's ("S&P") 500 Index (the "Index") at the time of purchase. The Index is designed to represent U.S. equities with risk/return characteristics of the large cap universe, which include growth and value stocks. As of December 31, 2016, the market capitalization range of the companies comprising the Index was between approximately $2.4 billion and $617.6 billion. Each component stock of the Index is weighted in proportion to its total market value. The Index is balanced quarterly.

The Fund employs a passive investment approach designed to attempt to track the performance of the Index. In seeking its objective, the Fund typically employs a replication strategy which involves investing in all the securities that make up the Index, in the same proportions as the Index.

The Fund utilizes derivative strategies and exchange-traded funds ("ETFs"). A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. Specifically, the Fund invests in index futures and equity ETFs on a daily basis to gain exposure to the Index in an effort to minimize tracking error relative to the benchmark.


Note:	“Standard & Poor's 500" and "S&P 500^®" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed by Principal. The Fund is not sponsored, endorsed, sold, or promoted by S&P Global and S&P Global makes no representation regarding the advisability of investing in the Fund.

108

Principal Risks

•

Futures. Futures contracts involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the futures contract; possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.

•

Index Fund Risk. An index fund has operating and other expenses while an index does not. As a result, over time, index funds tend to underperform the index. The correlation between fund performance and index performance may also be affected by changes in securities markets, changes in the composition of the index, and the timing of purchases and sales of fund shares.

Investment Company Securities Risk. A fund that invests in another investment company (for example, another fund or an exchange-traded fund ("ETF")) is subject to the risks associated with direct ownership of the securities in which such investment company invests. Fund shareholders indirectly bear their proportionate share of expenses of each such investment company.

Performance


•	For Classes A, C, and J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

109

For periods prior to the inception date of Class C shares (January 16, 2007), the performance shown in the table for Class C is based on the performance of the Fund's Class R-3 shares, adjusted to reflect the Class C fees and expenses. These adjustments result in performance for such periods that is no higher than the historical performance of the Class R-3 shares, which were first sold December 6, 2000.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	15.77	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(22.13	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	9.73%	13.70%	6.15%
Class A Return After Taxes on Distributions	8.99%	13.21%	5.79%
Class A Return After Taxes on Distribution and Sale of Fund Shares	6.13%	10.98%	4.93%
Class C Return Before Taxes	9.47%	13.14%	5.53%
Class J Return Before Taxes	10.55%	14.08%	6.32%
Institutional Class Return Before Taxes	11.76%	14.43%	6.75%
Class R-1 Return Before Taxes	10.81%	13.46%	5.83%
Class R-2 Return Before Taxes	10.94%	13.60%	5.98%
Class R-3 Return Before Taxes	11.11%	13.80%	6.16%
Class R-4 Return Before Taxes	11.29%	14.01%	6.37%
Class R-5 Return Before Taxes	11.49%	14.18%	6.50%
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)	11.96%	14.66%	6.95%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Thomas L. Kruchten (since 2011), Research Analyst and Portfolio Manager


•	Jeffrey A. Schwarte (since 2016), Portfolio Manager

110

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

111

LARGECAP VALUE FUND


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.42%	0.42%	0.42%	0.42%	0.42%	0.42%	0.42%	0.42%	0.42%	0.42%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.20%	0.61%	0.16%	5.32%	0.01%	0.53%	0.45%	0.32%	0.28%	0.26%
Total Annual Fund Operating Expenses	0.87%	2.03%	0.73%	5.74%	0.43%	1.30%	1.17%	0.99%	0.80%	0.68%
Expense Reimbursement ⁽²⁾	N/A	(0.33)%	N/A	(5.12)%	N/A	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	0.87%	1.70%	0.73%	0.62%	0.43%	1.30%	1.17%	0.99%	0.80%	0.68%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.70% for Class C shares. In addition for Class P, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

112

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.42%	0.42%	0.42%	0.42%	0.42%	0.42%	0.42%	0.42%	0.42%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.20%	0.61%	0.16%	0.01%	0.53%	0.45%	0.32%	0.28%	0.26%
Total Annual Fund Operating Expenses	0.87%	2.03%	0.73%	0.43%	1.30%	1.17%	0.99%	0.80%	0.68%
Expense Reimbursement ⁽²⁾⁽³⁾	N/A	(0.33)%	N/A	—%	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	0.87%	1.70%	0.73%	0.43%	1.30%	1.17%	0.99%	0.80%	0.68%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.70% for Class C shares. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.43% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$634	$812	$1,006	$1,564
Class C	273	605	1,063	2,332
Class J	175	233	406	906
Class P	63	1,253	2,425	5,279
Institutional Class	44	138	241	542
Class R-1	132	412	713	1,568
Class R-2	119	372	644	1,420
Class R-3	101	315	547	1,213
Class R-4	82	255	444	990
Class R-5	69	218	379	847

113

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$173	$605	$1,063	$2,332
Class J	75	233	406	906

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$634	$812	$1,006	$1,564
Class C	273	605	1,063	2,332
Class J	175	233	406	906
Institutional Class	44	138	241	542
Class R-1	132	412	713	1,568
Class R-2	119	372	644	1,420
Class R-3	101	315	547	1,213
Class R-4	82	255	444	990
Class R-5	69	218	379	847

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$173	$605	$1,063	$2,332
Class J	75	233	406	906

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies with large market capitalizations at the time of purchase. For this Fund, companies with large market capitalizations are those with market capitalizations within the range of companies comprising the Russell 1000^® Value Index (which as of December 31, 2016 ranged between approximately $394.9 million and $634.4 billion). The Fund invests in value equity securities, an investment strategy that emphasizes buying equity securities that appear to be undervalued.

114

Principal Risks

•

Performance


•	For Classes A, C, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

For periods prior to the inception date of Class C shares (January 16, 2007) and Class P shares (June 3, 2014), the performance shown in the table for Classes C and P shares is based on the performance of the Fund’s Class R-3 shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class R-3 shares, the historical performance of the Class R-3 shares is used for the newer class. These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Class R-3 shares, which were first sold on December 6, 2000.

115

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '09	15.65	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(21.93	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	1.79%	11.43%	3.80%
Class A Return After Taxes on Distributions	0.81%	9.37%	2.59%
Class A Return After Taxes on Distribution and Sale of Fund Shares	1.84%	8.73%	2.82%
Class C Return Before Taxes	5.91%	11.74%	3.61%
Class J Return Before Taxes	6.86%	12.72%	4.37%
Class P Return Before Taxes	8.02%	12.79%	4.43%
Institutional Class Return Before Taxes	8.21%	13.22%	4.92%
Class R-1 Return Before Taxes	7.29%	12.23%	4.02%
Class R-2 Return Before Taxes	7.42%	12.36%	4.15%
Class R-3 Return Before Taxes	7.64%	12.59%	4.34%
Class R-4 Return Before Taxes	7.74%	12.77%	4.53%
Class R-5 Return Before Taxes	7.94%	12.91%	4.65%
Russell 1000 Value Index (reflects no deduction for fees, expenses, or taxes)	17.34%	14.80%	5.72%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Joel Fortney (since 2014), Portfolio Manager


•	Christopher Ibach (since 2015), Portfolio Manager

116

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

117

LARGECAP VALUE FUND III


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.78%	0.78%	0.78%	0.78%	0.78%	0.78%	0.78%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.15%	—%	0.53%	0.45%	0.32%	0.28%	0.26%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	1.09%	0.79%	1.67%	1.54%	1.36%	1.17%	1.05%
Fee Waiver ⁽²⁾	(0.01)%	(0.01)%	(0.01)%	(0.01)%	(0.01)%	(0.01)%	(0.01)%
Total Annual Fund Operating Expenses after Fee Waiver	1.08%	0.78%	1.66%	1.53%	1.35%	1.16%	1.04%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending February 28, 2018. The fee waiver will reduce the Fund's Management Fees by 0.012% (expressed as a percent of average net assets on an annualized basis). It is expected that the fee waiver will continue through the period disclosed; however, Principal Funds, Inc. and PGI, the parties to the agreement may mutually agree to terminate the fee waiver prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class J	$210	$346	$600	$1,328
Institutional Class	80	251	438	977
Class R-1	169	526	906	1,975
Class R-2	156	485	838	1,834
Class R-3	137	430	744	1,634
Class R-4	118	371	643	1,419
Class R-5	106	333	578	1,282

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$110	$346	$600	$1,328

118

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in companies with large market capitalizations at the time of purchase. For this Fund, companies with large market capitalizations are those with market capitalizations within the range of companies comprising the Russell 1000^® Value Index (as of December 31, 2016, the range of the index was between approximately $394.9 million and $634.4 billion). The Fund invests in value equity securities, an investment strategy that emphasizes buying equity securities that appear to be undervalued.

Principal Global Investors, LLC invests between 10% and 30% of the Fund's assets in equity securities in an attempt to match or exceed the performance of the Russell 1000^® Value Index by purchasing securities in the index while slightly overweighting and underweighting certain individual equity securities relative to their weight in the index. The Fund's remaining assets are managed by the sub-advisors.

Principal Risks

•

Performance


•	For Class J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

119

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '09	15.89	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(21.54	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Institutional Class Return Before Taxes	13.17%	13.74%	3.54%
Institutional Class Return After Taxes on Distributions	12.01%	12.84%	2.88%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	8.43%	10.99%	2.78%
Class J Return Before Taxes	11.78%	13.30%	3.04%
Class R-1 Return Before Taxes	12.20%	12.76%	2.65%
Class R-2 Return Before Taxes	12.34%	12.92%	2.78%
Class R-3 Return Before Taxes	12.54%	13.10%	2.96%
Class R-4 Return Before Taxes	12.80%	13.34%	3.16%
Class R-5 Return Before Taxes	12.88%	13.46%	3.28%
Russell 1000 Value Index (reflects no deduction for fees, expenses, or taxes)	17.34%	14.80%	5.72%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2009), Portfolio Manager


•	Randy L. Welch (since 2009), Portfolio Manager

Sub-Advisors:

Barrow, Hanley, Mewhinney & Strauss, LLC

Westwood Management Corp.

120

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
J	Initial Investment	$1,000⁽¹⁾
J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

121

MIDCAP FUND


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.59%	0.59%	0.59%	0.59%	0.59%	0.59%	0.59%	0.59%	0.59%	0.59%	0.59%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾⁽²⁾	0.15%	0.14%	0.08%	0.11%	0.09%	0.53%	0.45%	0.32%	0.28%	0.26%	176.25%
Total Annual Fund Operating Expenses	0.99%	1.73%	0.82%	0.70%	0.68%	1.47%	1.34%	1.16%	0.97%	0.85%	176.84%
Expense Reimbursement ⁽³⁾	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	(176.10)%
Total Annual Fund Operating Expenses after Expense Reimbursement	0.99%	1.73%	0.82%	0.70%	0.68%	1.47%	1.34%	1.16%	0.97%	0.85%	0.74%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Based on estimated amounts for the current fiscal year (Class R-6).
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.74% for Class R-6 shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

122

Effective June 23, 2017, delete the Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.59%	0.59%	0.59%	0.59%	0.59%	0.59%	0.59%	0.59%	0.59%	0.59%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾⁽²⁾	0.15%	0.14%	0.08%	0.09%	0.53%	0.45%	0.32%	0.28%	0.26%	176.25%
Total Annual Fund Operating Expenses	0.99%	1.73%	0.82%	0.68%	1.47%	1.34%	1.16%	0.97%	0.85%	176.84%
Expense Reimbursement ⁽³⁾⁽⁴⁾	N/A	N/A	N/A	—%	N/A	N/A	N/A	N/A	N/A	(176.23)%
Total Annual Fund Operating Expenses after Expense Reimbursement	0.99%	1.73%	0.82%	0.68%	1.47%	1.34%	1.16%	0.97%	0.85%	0.61%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Based on estimated amounts for the current fiscal year (Class R-6).
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02% for Class R-6 shares. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.
⁽⁴⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.70% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$645	$848	$1,067	$1,696
Class C	276	545	939	2,041
Class J	184	262	455	1,014
Class P	72	224	390	871
Institutional Class	69	218	379	847
Class R-1	150	465	803	1,757
Class R-2	136	425	734	1,613
Class R-3	118	368	638	1,409
Class R-4	99	309	536	1,190
Class R-5	87	271	471	1,049
Class R-6	76	807	1,184	1,663

123

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$176	$545	$939	$2,041
Class J	84	262	455	1,014

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$645	$848	$1,067	$1,696
Class C	276	545	939	2,041
Class J	184	262	455	1,014
Institutional Class	69	218	379	847
Class R-1	150	465	803	1,757
Class R-2	136	425	734	1,613
Class R-3	118	368	638	1,409
Class R-4	99	309	536	1,190
Class R-5	87	271	471	1,049
Class R-6	62	794	1,172	1,652

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$176	$545	$939	$2,041
Class J	84	262	455	1,014

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies with medium market capitalizations at the time of purchase. For this Fund, companies with medium market capitalizations are those with market capitalizations within the range of companies comprising the Russell Midcap^® Index (as of December 31, 2016, this range was between approximately $394.9 million and $57.0 billion). The Fund also invests in foreign securities.

The Fund invests in equity securities with growth and/or value characteristics. Investing in value equity securities is an investment strategy that emphasizes buying equity securities that appear to be undervalued. The growth orientation selection emphasizes buying equity securities of companies whose potential for growth of capital and earnings is expected to be above average. The Fund does not have a policy of preferring one of these categories over the other.

124

Principal Risks


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

Performance


•	For Classes A, C, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

For periods prior to the inception date of Class C shares (January 16, 2007), Class P shares (September 27, 2010), and Class R-6 shares (November 22, 2016), the performance shown in the table for Classes C, P, and R-6 shares is based on the performance of the Fund's Class R-3 shares, adjusted to reflect the fees and expenses of each respective class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class R-3 shares, the historical performance of the Class R-3 shares is used for the newer class. These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Class R-3 shares, which were first sold on December 6, 2000.

125

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	17.51	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(23.89	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	3.86%	13.25%	8.92%
Class A Return After Taxes on Distributions	3.33%	12.36%	8.04%
Class A Return After Taxes on Distribution and Sale of Fund Shares	2.64%	10.57%	7.19%
Class C Return Before Taxes	8.12%	13.70%	8.69%
Class J Return Before Taxes	9.12%	14.64%	9.52%
Class P Return Before Taxes	10.22%	14.88%	9.70%
Institutional Class Return Before Taxes	10.25%	14.95%	9.98%
Class R-1 Return Before Taxes	9.38%	14.00%	9.05%
Class R-2 Return Before Taxes	9.52%	14.16%	9.19%
Class R-3 Return Before Taxes	9.70%	14.37%	9.40%
Class R-4 Return Before Taxes	9.94%	14.58%	9.60%
Class R-5 Return Before Taxes	10.02%	14.71%	9.74%
Class R-6 Return Before Taxes	9.77%	14.38%	9.40%
Russell Midcap Index (reflects no deduction for fees, expenses, or taxes)	13.80%	14.72%	7.86%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	K. William Nolin (since 2000), Portfolio Manager


•	Tom Rozycki (since 2013), Portfolio Manager

126

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, R-5, and R-6	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

For retail investors (i.e., non-employer sponsored retirement plan investors), effective as of the close of the New York Stock Exchange on June 14, 2013 and for employer-sponsored retirement plan investors, effective as of the close of the New York Stock Exchange on August 15, 2013, the MidCap Fund will no longer be available for purchases from new investors except in limited circumstances. See the section Purchase of Fund Shares for additional information.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

127

MIDCAP GROWTH FUND


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.65%	0.65%	0.65%	0.65%	0.65%	0.65%	0.65%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.22%	0.16%	0.55%	0.47%	0.34%	0.30%	0.28%
Total Annual Fund Operating Expenses	1.02%	0.81%	1.55%	1.42%	1.24%	1.05%	0.93%
Expense Reimbursement ⁽²⁾	N/A	(0.06)%	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.02%	0.75%	1.55%	1.42%	1.24%	1.05%	0.93%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.75% for Institutional Class shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

128

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class J	$204	$325	$563	$1,248
Institutional Class	77	253	444	996
Class R-1	158	490	845	1,845
Class R-2	145	449	776	1,702
Class R-3	126	393	681	1,500
Class R-4	107	334	579	1,283
Class R-5	95	296	515	1,143

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$104	$325	$563	$1,248

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies with medium market capitalizations at the time of purchase. For this Fund, companies with medium market capitalizations are those with market capitalizations within the range of companies comprising the Russell Midcap^® Growth Index (as of December 31, 2016, this range was between approximately $394.9 million and $57.0 billion). The Fund invests in growth equity securities; growth orientation emphasizes buying equity securities of companies whose potential for growth of capital and earnings is expected to be above average. The Fund actively trades portfolio securities.

Principal Risks


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

129

Performance


•	For Class J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q4 ‘10	17.62	%
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08	(25.27	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Institutional Class Return Before Taxes	3.12%	12.67%	7.79%
Institutional Class Return After Taxes on Distributions	3.04%	8.79%	5.55%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	1.84%	8.52%	5.51%
Class J Return Before Taxes	1.89%	12.20%	7.19%
Class R-1 Return Before Taxes	2.25%	11.76%	6.88%
Class R-2 Return Before Taxes	2.43%	11.89%	7.02%
Class R-3 Return Before Taxes	2.60%	12.11%	7.23%
Class R-4 Return Before Taxes	2.83%	12.34%	7.44%
Class R-5 Return Before Taxes	2.96%	12.45%	7.56%
Russell Midcap Growth Index (reflects no deduction for fees, expenses, or taxes)	7.33%	13.51%	7.83%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

130

Management

Investment Advisor:

Principal Global Investors, LLC

Sub-Advisor and Portfolio Managers:

Columbus Circle Investors


•	Clifford G. Fox (since 2005), Senior Managing Director/Co-Portfolio Manager


•	Michael Iacono (since 2005), Managing Director/Portfolio Manager


•	Katerina Wasserman (since 2009), Managing Director/Co-Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
J	Initial Investment	$1,000⁽¹⁾
J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

131

MIDCAP GROWTH FUND III


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.97%	0.97%	0.97%	0.97%	0.97%	0.97%	0.97%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.20%	0.01%	0.53%	0.45%	0.32%	0.28%	0.26%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	1.33%	0.99%	1.86%	1.73%	1.55%	1.36%	1.24%
Fee Waiver ⁽²⁾	(0.03)%	(0.03)%	(0.03)%	(0.03)%	(0.03)%	(0.03)%	(0.03)%
Total Annual Fund Operating Expenses after Fee Waiver	1.30%	0.96%	1.83%	1.70%	1.52%	1.33%	1.21%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending February 28, 2018. The fee waiver will reduce the Fund's Management Fees by 0.032% (expressed as a percent of average net assets on an annualized basis). It is expected that the fee waiver will continue through the period disclosed; however, Principal Funds, Inc. and PGI, the parties to the agreement may mutually agree to terminate the fee waiver prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class J	$232	$418	$726	$1,599
Institutional Class	98	312	544	1,210
Class R-1	186	582	1,003	2,177
Class R-2	173	542	936	2,038
Class R-3	155	487	842	1,843
Class R-4	135	428	742	1,632
Class R-5	123	390	678	1,497

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$132	$418	$726	$1,599

132

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies with medium market capitalizations at the time of purchase. For this Fund, companies with medium market capitalizations are those with market capitalizations within the range of companies comprising the Russell Midcap^® Growth Index (as of December 31, 2016, this range was between approximately $394.9 million and $57.0 billion). The Fund invests in growth equity securities; growth orientation emphasizes buying equity securities of companies whose potential for growth of capital and earnings is expected to be above average.

Principal Global Investors, LLC invests between 10% and 30% of the Fund's assets in equity securities in an attempt to match or exceed the performance of the Russell Midcap^® Growth Index by purchasing securities in the index while slightly overweighting and underweighting certain individual equity securities relative to their weight in the index. The Fund's remaining assets are managed by the sub-advisors.

Principal Risks


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

Performance


•	For Class J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

133

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '09	20.43	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(28.66	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Institutional Class Return Before Taxes	4.50%	10.34%	6.38%
Institutional Class Return After Taxes on Distributions	4.44%	7.45%	4.87%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	2.61%	7.55%	4.84%
Class J Return Before Taxes	3.25%	9.83%	5.82%
Class R-1 Return Before Taxes	3.69%	9.37%	5.46%
Class R-2 Return Before Taxes	3.79%	9.52%	5.60%
Class R-3 Return Before Taxes	3.96%	9.69%	5.77%
Class R-4 Return Before Taxes	4.09%	9.89%	5.97%
Class R-5 Return Before Taxes	4.25%	10.03%	6.09%
Russell Midcap Growth Index (reflects no deduction for fees, expenses, or taxes)	7.33%	13.51%	7.83%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2009), Portfolio Manager


•	Randy L. Welch (since 2009), Portfolio Manager

Sub-Advisors:

Robert W. Baird & Co. Incorporated

William Blair Investment Management, LLC

134

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
J	Initial Investment	$1,000⁽¹⁾
J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

135

MIDCAP S&P 400 INDEX FUND


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.15%	0.15%	0.15%	0.15%	0.15%	0.15%	0.15%	0.15%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾⁽²⁾	0.19%	0.05%	0.54%	0.46%	0.33%	0.29%	0.27%	176.26%
Total Annual Fund Operating Expenses	0.49%	0.20%	1.04%	0.91%	0.73%	0.54%	0.42%	176.41%
Expense Reimbursement ⁽³⁾	N/A	N/A	N/A	N/A	N/A	N/A	N/A	(176.16)%
Total Annual Fund Operating Expenses after Expense Reimbursement	0.49%	0.20%	1.04%	0.91%	0.73%	0.54%	0.42%	0.25%
⁽¹⁾Expense information in the table has been restated to reflect current fees.
⁽²⁾Based on estimated amounts for the current fiscal year (Class R-6).
⁽³⁾Principal Global Investors, LLC ("PGI), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.25% for Class R-6 shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

136

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.15%	0.15%	0.15%	0.15%	0.15%	0.15%	0.15%	0.15%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾⁽²⁾	0.19%	0.05%	0.54%	0.46%	0.33%	0.29%	0.27%	176.26%
Total Annual Fund Operating Expenses	0.49%	0.20%	1.04%	0.91%	0.73%	0.54%	0.42%	176.41%
Expense Reimbursement ⁽³⁾⁽⁴⁾	N/A	—%	N/A	N/A	N/A	N/A	N/A	(176.24)%
Total Annual Fund Operating Expenses after Expense Reimbursement	0.49%	0.20%	1.04%	0.91%	0.73%	0.54%	0.42%	0.17%
⁽¹⁾Expense information in the table has been restated to reflect current fees.
⁽²⁾Based on estimated amounts for the current fiscal year (Class R-6).
⁽³⁾Principal Global Investors, LLC ("PGI), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02% for Class R-6 shares. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.
⁽⁴⁾Principal Global Investors, LLC ("PGI), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.25% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class J	$150	$157	$274	$616
Institutional Class	20	64	113	255
Class R-1	106	331	574	1,271
Class R-2	93	290	504	1,120
Class R-3	75	233	406	906
Class R-4	55	173	302	677
Class R-5	43	135	235	530
Class R-6	26	781	1,166	1,641

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$50	$157	$274	$616

137

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class J	$150	$157	$274	$616
Institutional Class	20	64	113	255
Class R-1	106	331	574	1,271
Class R-2	93	290	504	1,120
Class R-3	75	233	406	906
Class R-4	55	173	302	677
Class R-5	43	135	235	530
Class R-6	17	773	1,159	1,634

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$50	$157	$274	$616

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies that compose the Standard & Poor's ("S&P") MidCap 400 Index (the "Index") at the time of purchase. The Index is designed to represent U.S. equities with risk/return characteristics of the mid cap universe, which include growth and value stocks. As of December 31, 2016, the market capitalization range of the companies comprising the Index was between approximately $952.0 million and $10.5 billion. Each component stock of the Index is weighted in proportion to its total market value. The Index is rebalanced quarterly.


Note:	“Standard & Poor's MidCap 400" and "S&P MidCap 400" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed by Principal. The Fund is not sponsored, endorsed, sold or promoted by S&P Global and S&P Global makes no representation regarding the advisability of investing in the Fund.

138

Principal Risks

•


•	Growth Stock Risk. If growth companies do not increase their earnings as a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Value Stock Risk. Value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by the fund, or the events that the portfolio manager believed would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock judged to be undervalued actually may be appropriately priced as a low level and therefore would not be profitable for the fund.

Investment Company Risk. A fund that invests in another investment company (for example, another fund or an exchanged-traded fund ("ETF")) is subject to the risks associated with direct ownership of the securities in which such investment company invests. Fund shareholders indirectly bear their proportionate share of the expenses of each such investment company.

Performance


•	For Class J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 - www.principal.com.

139

For periods prior to the inception date of Class R-6 shares (November 22, 2016), the performance shown in the table for Class R-6 shares is based on the performance of the Fund’s Class R-3 shares, adjusted to reflect the fees and expenses of Class R-6 shares. Where this adjustment for fees and expenses results in performance for Class R-6 shares that is higher than the historical performance of the Class R-3 shares, the historical performance of the Class R-3 shares is used for Class R-6 shares. These adjustments for Class R-6 shares result in performance for such periods that is no higher than the historical performance of the Fund's Class R-3 shares, which were first sold December 6, 2000.

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '09	19.87	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(25.73	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Institutional Class Return Before Taxes	20.42%	15.06%	8.92%
Institutional Class Return After Taxes on Distributions	18.68%	13.58%	7.80%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	13.01%	11.97%	7.13%
Class J Return Before Taxes	19.02%	14.61%	8.38%
Class R-1 Return Before Taxes	19.43%	14.10%	8.00%
Class R-2 Return Before Taxes	19.53%	14.25%	8.14%
Class R-3 Return Before Taxes	19.79%	14.44%	8.34%
Class R-4 Return Before Taxes	19.97%	14.65%	8.53%
Class R-5 Return Before Taxes	20.12%	14.81%	8.67%
Class R-6 Return Before Taxes	19.85%	14.45%	8.34%
S&P Midcap 400 Index (reflects no deduction for fees, expenses, or taxes)	20.74%	15.33%	9.16%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

140

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Thomas L. Kruchten (since 2011), Research Analyst and Portfolio Manager


•	Jeffrey A. Schwarte (since 2016), Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
J	Initial Investment	$1,000⁽¹⁾
J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional, R-1, R-2, R-3, R-4, R-5, and R-6	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

141

MIDCAP VALUE FUND I


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.98%	0.98%	0.98%	0.98%	0.98%	0.98%	0.98%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.18%	0.04%	0.54%	0.46%	0.33%	0.29%	0.27%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	1.32%	1.03%	1.88%	1.75%	1.57%	1.38%	1.26%
Fee Waiver ⁽²⁾	(0.12)%	(0.12)%	(0.12)%	(0.12)%	(0.12)%	(0.12)%	(0.12)%
Total Annual Fund Operating Expenses after Fee Waiver	1.20%	0.91%	1.76%	1.63%	1.45%	1.26%	1.14%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending February 28, 2018. The fee waiver will reduce the Fund's Management Fees by 0.12% (expressed as a percent of average net assets on an annualized basis). It is expected that the fee waiver will continue through the period disclosed; however, Principal Funds, Inc. and PGI, the parties to the agreement may mutually agree to terminate the fee waiver prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class J	$222	$406	$712	$1,580
Institutional Class	93	316	557	1,249
Class R-1	179	579	1,005	2,191
Class R-2	166	539	938	2,053
Class R-3	148	484	844	1,857
Class R-4	128	425	744	1,647
Class R-5	116	388	680	1,512

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$122	$406	$712	$1,580

142

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies with medium market capitalizations at the time of purchase. For this Fund, companies with medium market capitalizations are those with market capitalizations within the range of companies comprising the Russell Midcap^® Value Index (as of December 31, 2016, the range was between approximately $394.9 million and $38.8 billion). The Fund invests in value equity securities, an investment strategy that emphasizes buying equity securities that appear to be undervalued. The Fund also invests in real estate investment trusts, and actively trades portfolio securities.

Principal Global Investors, LLC invests between 10% and 30% of the Fund's assets in equity securities in an attempt to match or exceed the performance of the Russell Midcap^® Value Index by purchasing securities in the index while slightly overweighting and underweighting certain individual equity securities relative to their weight in the index. The Fund's remaining assets are managed by the sub-advisors.

Principal Risks


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

143

Performance


•	For Class J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

For periods prior to the inception date of Class J shares (March 2, 2009), the performance shown in the table for Class J shares is based on the performance of the Fund's Institutional Class shares, adjusted to reflect the fees and expenses of Class J shares. These adjustments for Class J shares result in performance for such periods that is no higher than the historical performance of the Institutional Class shares, which were first sold December 29, 2003.

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '09	22.38	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(23.74	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Institutional Class Return Before Taxes	15.26%	13.85%	7.24%
Institutional Class Return After Taxes on Distributions	14.83%	10.63%	5.39%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	8.99%	10.23%	5.36%
Class J Return Before Taxes	13.82%	13.38%	6.68%
Class R-1 Return Before Taxes	14.23%	12.88%	6.32%
Class R-2 Return Before Taxes	14.40%	13.00%	6.45%
Class R-3 Return Before Taxes	14.60%	13.23%	6.65%
Class R-4 Return Before Taxes	14.85%	13.45%	6.86%
Class R-5 Return Before Taxes	14.91%	13.57%	6.97%
Russell Midcap Value Index (reflects no deduction for fees, expenses, or taxes)	20.00%	15.70%	7.59%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

144

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2009), Portfolio Manager


•	Randy L. Welch (since 2009), Portfolio Manager

Sub-Advisors:

Los Angeles Capital Management and Equity Research, Inc.

Victory Capital Management Inc.

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
J	Initial Investment	$1,000⁽¹⁾
J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

145

MIDCAP VALUE FUND III


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	J	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	None	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	J	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.64%	0.64%	0.64%	0.64%	0.64%	0.64%	0.64%	0.64%	0.64%	0.64%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾	0.43%	0.13%	2.77%	0.02%	0.53%	0.45%	0.32%	0.28%	0.26%	0.55%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	1.33%	0.93%	3.42%	0.67%	1.53%	1.40%	1.22%	1.03%	0.91%	1.20%
Fee Waiver and Expense Reimbursement ⁽²⁾⁽³⁾	(0.02)%	(0.01)%	(2.58)%	(0.01)%	(0.01)%	(0.01)%	(0.01)%	(0.01)%	(0.01)%	(0.50)%
Total Annual Fund Operating Expenses after Fee Waiver and Expense Reimbursement	1.31%	0.92%	0.84%	0.66%	1.52%	1.39%	1.21%	1.02%	0.90%	0.70%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending February 28, 2018. The fee waiver will reduce the Fund's Management Fees by 0.014% (expressed as a percent of average net assets on an annualized basis). It is expected that the fee waiver will continue through the period disclosed; however, Principal Funds, Inc. and PGI, the parties to the agreement may mutually agree to terminate the fee waiver prior to the end of the period.
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.30% for Class A and 0.69% for Class R-6 shares. In addition, for Class P, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20% (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

146

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	J	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.64%	0.64%	0.64%	0.64%	0.64%	0.64%	0.64%	0.64%	0.64%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾	0.43%	0.13%	0.02%	0.53%	0.45%	0.32%	0.28%	0.26%	0.55%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	1.33%	0.93%	0.67%	1.53%	1.40%	1.22%	1.03%	0.91%	1.20%
Fee Waiver and Expense Reimbursement ^(2)(3)(4)	(0.02)%	(0.01)%	(0.01)%	(0.01)%	(0.01)%	(0.01)%	(0.01)%	(0.01)%	(0.54)%
Total Annual Fund Operating Expenses after Fee Waiver and Expense Reimbursement	1.31%	0.92%	0.66%	1.52%	1.39%	1.21%	1.02%	0.90%	0.66%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending June 30, 2018. The fee waiver will reduce the Fund's Management Fees by 0.014% (expressed as a percent of average net assets on an annualized basis). It is expected that the fee waiver will continue through the period disclosed; however, Principal Funds, Inc. and PGI, the parties to the agreement may mutually agree to terminate the fee waiver prior to the end of the period.
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.30% for Class A shares. In addition, for Class R-6, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02% (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.
⁽⁴⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.75% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

147

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$676	$946	$1,237	$2,062
Class J	194	295	514	1,142
Class P	86	810	1,556	3,529
Institutional Class	67	213	372	834
Class R-1	155	482	833	1,823
Class R-2	142	442	765	1,679
Class R-3	123	386	669	1,476
Class R-4	104	327	568	1,259
Class R-5	92	289	503	1,119
Class R-6	72	331	611	1,410

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$94	$295	$514	$1,142

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$676	$946	$1,237	$2,062
Class J	194	295	514	1,142
Institutional Class	67	213	372	834
Class R-1	155	482	833	1,823
Class R-2	142	442	765	1,679
Class R-3	123	386	669	1,476
Class R-4	104	327	568	1,259
Class R-5	92	289	503	1,119
Class R-6	67	327	608	1,407

148

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$94	$295	$514	$1,142

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies with medium market capitalizations at the time of purchase. For this Fund, companies with medium market capitalizations are those with market capitalizations within the range of companies comprising the Russell Midcap^® Value Index (as of December 31, 2016, this range was between approximately $394.9 million and $38.8 billion). The Fund invests in value equity securities, an investment strategy that emphasizes buying equity securities that appear to be undervalued. The Fund invests in real estate investment trusts.

Principal Risks


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

149

Performance


•	For Classes A, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 - www.principal.com.

Using the historical performance of the Fund's Class R-3 shares, adjusted as described below, the bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

For periods prior to the inception date of Classes A and P shares (June 3, 2014) and Class R-6 shares (November 25, 2014), the performance shown in the bar chart for Class A shares and the table for Classes A, P and R-6 shares is based on the performance of the Fund's Class R-3 shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class R-3 shares, the historical performance of the Class R-3 shares is used for the newer class. These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Class R-3 shares, which were first sold on December 6, 2000.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '09	19.13	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(22.51	)%

150



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	5.47%	11.93%	5.71%
Class A Return After Taxes on Distributions	5.16%	10.84%	4.89%
Class A Return After Taxes on Distribution and Sale of Fund Shares	3.35%	9.29%	4.37%
Class J Return Before Taxes	11.07%	13.51%	6.48%
Class P Return Before Taxes	12.07%	13.50%	6.48%
Institutional Class Return Before Taxes	12.32%	13.92%	7.00%
Class R-1 Return Before Taxes	11.36%	12.94%	6.05%
Class R-2 Return Before Taxes	11.47%	13.06%	6.18%
Class R-3 Return Before Taxes	11.68%	13.28%	6.38%
Class R-4 Return Before Taxes	11.87%	13.49%	6.58%
Class R-5 Return Before Taxes	12.04%	13.63%	6.71%
Class R-6 Return Before Taxes	12.27%	13.54%	6.50%
Russell Midcap Value Index (reflects no deduction for fees, expenses, or taxes)	20.00%	15.70%	7.59%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2010), Portfolio Manager


•	Randy L. Welch (since 2010), Portfolio Manager

Sub-Advisor:

Barrow, Hanley, Mewhinney & Strauss, LLC

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A and J	Initial Investment	$1,000⁽¹⁾
A and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, R-5, and R-6	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

151

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

152

MONEY MARKET FUND


Objective:	The Fund seeks as high a level of current income as is considered consistent with preservation of principal and maintenance of liquidity.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	Inst.
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.
Management Fees	0.40%	0.40%	0.40%	0.40%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	—%	1.00%	0.15%	N/A
Other Expenses ⁽¹⁾	0.14%	0.25%	0.17%	0.02%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	0.55%	1.66%	0.73%	0.43%
Fee Waiver and Expense Reimbursement ⁽²⁾⁽³⁾	N/A	—%	(0.15)%	N/A
Total Annual Fund Operating Expenses after Fee Waiver and Expense Reimbursement	0.55%	1.66%	0.58%	0.43%
⁽¹⁾Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Funds Distributor, Inc. (the "Distributor") has contractually agreed to limit the Distribution Fees attributable to Class J. The waiver will reduce the Fund's Distribution Fees by 0.15%. It is expected that the fee waiver will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and the Distributor, the parties to the agreement, may mutually agree to terminate the fee waiver prior to the end of the period.
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.79% for Class C shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

153

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$156	$176	$307	$689
Class C	269	523	902	1,965
Class J	159	218	391	892
Institutional Class	44	138	241	542

With respect to Classes A, C, and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class A	$56	$176	$307	$689
Class C	169	523	902	1,965
Class J	59	218	391	892

Principal Investment Strategies

The Fund seeks to maintain a stable net asset value of $1.00 per share by investing its assets in a portfolio of high quality, short-term money market instruments such as those issued by banks, corporations (U.S. and non-U.S.), municipalities and the U.S. government. Such instruments include certificates of deposit, banker's acceptances, commercial paper, treasury bills, bonds, and shares of other money market funds. The Fund maintains a dollar weighted average portfolio maturity of 60 days or less. As with all mutual funds, the value of the Fund's assets may rise or fall.

Principal Risks

You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund's liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time. The principal risks of investing in the Fund, in alphabetical order, are:

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

154

Performance


•	For Classes A, C, and J - www.principalfunds.com.


•	For Institutional Class - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

For periods prior to the inception date of Class C shares (January 16, 2007), performance shown in the table for Class C is based on the performance of the Fund's Class R-3 shares, adjusted to reflect the Class C fees and expenses. These adjustments result in performance for such periods that is no higher than the historical performance of the Class R-3 shares, which were first sold on December 6, 2000 and liquidated on March 25, 2012.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '07	1.24	%
Lowest return for a quarter during the period of the bar chart above:	Q3 '16	0.00	%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	0.04%	0.01%	0.76%
Class C Return Before Taxes	(0.98)%	0.00%	0.53%
Class J Return Before Taxes	(0.97)%	0.01%	0.66%
Institutional Class Return Before Taxes	0.05%	0.01%	0.79%
Bloomberg Barclays U.S. Treasury Bellwethers 3 Month Index (reflects no deduction for fees, expenses, or taxes)	0.35%	0.14%	0.84%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Tracy Reeg (since 2004), Portfolio Manager


•	Alice Robertson (since 2000), Trader and Portfolio Manager

155

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

The Money Market Fund is operated as a retail money market fund, and as such, has adopted policies and procedures reasonably designed to limit all beneficial owners to natural persons. See the section Purchase of Fund Shares for additional information.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

156

OVERSEAS FUND


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment): None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	1.06%	1.06%	1.06%	1.06%	1.06%	1.06%
Distribution and/or Service (12b-1) Fees	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses	0.04%	0.56%	0.48%	0.35%	0.31%	0.29%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	1.11%	1.98%	1.85%	1.67%	1.48%	1.36%
Fee Waiver ⁽¹⁾	(0.04)%	(0.04)%	(0.04)%	(0.04)%	(0.04)%	(0.04)%
Total Annual Fund Operating Expenses after Fee Waiver	1.07%	1.94%	1.81%	1.63%	1.44%	1.32%
⁽¹⁾Principal Global Investors, LLC ("PGI") has contractually agreed to limit the Fund's Management Fees through the period ending February 28, 2018. The fee waiver will reduce the Fund's Management Fees by 0.04% (expressed as a percent of average net assets on an annualized basis). It is expected that the fee waiver will continue through the period disclosed; however, Principal Funds, Inc. and PGI, the parties to the agreement may mutually agree to terminate the fee waiver prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Institutional Class	$109	$349	$608	$1,348
Class R-1	197	618	1,064	2,303
Class R-2	184	578	997	2,166
Class R-3	166	523	904	1,973
Class R-4	147	464	804	1,765
Class R-5	134	427	741	1,632

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities that are tied economically to countries outside the U.S. at the time of purchase. The Fund considers a security to be tied economically to countries outside the U.S. (a "foreign security") if the issuer of the security has its principal place of business or principal office outside the U.S., has its principal securities trading market outside the U.S., or derives a majority of its revenue from outside the U.S.

157

The Fund invests in emerging market countries. The Fund invests in value equity securities, an investment strategy that emphasizes buying equity securities that appear to be undervalued. The Fund invests in equity securities of small, medium, and large market capitalization companies.

Principal Global Investors, LLC invests between 10% and 30% of the Fund's assets in equity securities in an attempt to match or exceed the performance of the MSCI EAFE Value Index by purchasing securities in the index while slightly overweighting and underweighting certain individual equity securities relative to their weight in the index. The Fund's remaining assets are managed by the sub-advisors.

Principal Risks


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

Performance

Life of Fund results are measured from the date the Fund's shares were first sold (September 30, 2008).

158

For periods prior to the inception date of Classes R-1, R-2, R-3, R-4, and R-5 shares (March 1, 2012), the performance shown in the table for Classes R-1, R-2, R-3, R-4, and R-5 shares is based on the performance of the Fund's Institutional Class shares, adjusted to reflect the respective fees and expenses of each class. These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Institutional Class shares, which were first sold on September 30, 2008.

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q2' 09	22.88	%
Lowest return for a quarter during the period of the bar chart above:	Q3' 11	(21.11	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	Life of Fund
Institutional Class Return Before Taxes	1.61%	5.98%	4.44%
Institutional Class Return After Taxes on Distributions	1.35%	5.09%	3.51%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	1.53%	4.91%	3.72%
Class R-1 Return Before Taxes	0.82%	5.06%	3.53%
Class R-2 Return Before Taxes	0.90%	5.21%	3.67%
Class R-3 Return Before Taxes	1.03%	5.38%	3.85%
Class R-4 Return Before Taxes	1.26%	5.60%	4.05%
Class R-5 Return Before Taxes	1.48%	5.72%	4.18%
MSCI EAFE Value Index (reflects no deduction for fees, expenses, or taxes)	5.02%	6.28%	3.46%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2009), Portfolio Manager


•	Randy L. Welch (since 2009), Portfolio Manager

Sub-Advisors:

Barrow, Hanley, Mewhinney & Strauss, LLC

Causeway Capital Management LLC

159

Purchase and Sale of Fund Shares

There are no minimum initial or subsequent investment requirements for an eligible purchaser. You may purchase or redeem shares on any business day (normally any day when the New York Stock Exchange is open for regular trading) through your plan, intermediary, or Financial Professional; by sending a written request to Principal Funds at P.O. Box 8024, Boston, MA 02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight mail); calling us at 1-800-222-5852; or accessing our website (www.principalfunds.com).

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

160

PRINCIPAL CAPITAL APPRECIATION FUND


Objective:	The Fund seeks to provide long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	P	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	P	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.45%	0.45%	0.45%	0.45%	0.45%	0.45%	0.45%	0.45%	0.45%
Distribution and/or Service (12b-1) Fees	0.25%	1.00%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses	0.14%	0.22%	0.15%	0.02%	0.53%	0.45%	0.32%	0.28%	0.26%
Total Annual Fund Operating Expenses	0.84%	1.67%	0.60%	0.47%	1.33%	1.20%	1.02%	0.83%	0.71%
Expense Reimbursement ⁽¹⁾	N/A	N/A	—%	N/A	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	0.84%	1.67%	0.60%	0.47%	1.33%	1.20%	1.02%	0.83%	0.71%
⁽¹⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20% for Class P shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

161

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.45%	0.45%	0.45%	0.45%	0.45%	0.45%	0.45%	0.45%
Distribution and/or Service (12b-1) Fees	0.25%	1.00%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses	0.14%	0.22%	0.02%	0.53%	0.45%	0.32%	0.28%	0.26%
Total Annual Fund Operating Expenses	0.84%	1.67%	0.47%	1.33%	1.20%	1.02%	0.83%	0.71%
Expense Reimbursement ⁽¹⁾	N/A	N/A	—%	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	0.84%	1.67%	0.47%	1.33%	1.20%	1.02%	0.83%	0.71%
⁽¹⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.47% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$631	$803	$990	$1,530
Class C	270	526	907	1,976
Class P	61	192	335	750
Institutional Class	48	151	263	591
Class R-1	135	421	729	1,601
Class R-2	122	381	660	1,455
Class R-3	104	325	563	1,248
Class R-4	85	265	460	1,025
Class R-5	73	227	395	883

With respect to Class C shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$170	$526	$907	$1,976

162

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$631	$803	$990	$1,530
Class C	270	526	907	1,976
Institutional Class	48	151	263	591
Class R-1	135	421	729	1,601
Class R-2	122	381	660	1,455
Class R-3	104	325	563	1,248
Class R-4	85	265	460	1,025
Class R-5	73	227	395	883

With respect to Class C shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$170	$526	$907	$1,976

Portfolio Turnover

Principal Investment Strategies

The Fund invests primarily in equity securities of companies with any market capitalization, but has a greater exposure to large market capitalization companies than small or medium market capitalization companies.

The Fund invests in equity securities with value and/or growth characteristics and constructs an investment portfolio that has a "blend" of equity securities with these characteristics. Investing in value equity securities is an investment strategy that emphasizes buying equity securities that appear to be undervalued. The growth orientation selection emphasizes buying equity securities of companies whose potential for growth of capital and earnings is expected to be above average. The Fund does not have a policy of preferring one of these categories over the other.

Principal Risks

163


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Performance


•	For Classes A, C, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods prior to that date is based on the performance of the predecessor fund.

For periods prior to the inception date of Classes R-1, R-2, R-3, R-4, and R-5 shares (March 1, 2010) and Class P shares (September 27, 2010), the performance shown in the table for Classes P, R-1, R-2, R-3, R-4, and R-5 shares is based on the performance of the Fund's Class A shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses result in performance for a newer class that is higher than the historical performance of the Class A shares, the historical performance of the Class A shares is used for the newer class (without respect to sales charges, if not applicable to the newer class). These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Class A shares. The predecessor fund's Class A shares commenced operations on November 24, 1986.

164

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	16.44	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(22.78	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	2.85%	12.11%	6.60%
Class A Return After Taxes on Distributions	0.56%	10.85%	5.67%
Class A Return After Taxes on Distribution and Sale of Fund Shares	3.53%	9.62%	5.26%
Class C Return Before Taxes	6.98%	12.44%	6.25%
Class P Return Before Taxes	9.06%	13.65%	7.36%
Institutional Class Return Before Taxes	9.25%	13.84%	7.65%
Class R-1 Return Before Taxes	8.30%	12.85%	6.68%
Class R-2 Return Before Taxes	8.44%	12.99%	6.82%
Class R-3 Return Before Taxes	8.63%	13.20%	7.01%
Class R-4 Return Before Taxes	8.83%	13.41%	7.20%
Class R-5 Return Before Taxes	8.97%	13.55%	7.31%
Russell 3000 Index (reflects no deduction for fees, expenses, or taxes)	12.74%	14.67%	7.07%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Daniel R. Coleman (since 2010), Head of Equities, Portfolio Manager


•	Theodore Jayne (since 2015), Portfolio Manager

165

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A and C	Initial Investment	$1,000⁽¹⁾
A and C	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A and C	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

166

PRINCIPAL LIFETIME STRATEGIC INCOME FUND


Objective:	The Fund seeks current income, and as a secondary objective, capital appreciation.

Fees and Expenses of the Fund

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	J	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	3.75%	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses⁽¹⁾	0.26%	0.13%	0.03%	0.55%	0.47%	0.34%	0.30%	0.28%
Acquired Fund Fees and Expenses	0.61%	0.61%	0.61%	0.61%	0.61%	0.61%	0.61%	0.61%
Total Annual Fund Operating Expenses	1.12%	0.89%	0.64%	1.51%	1.38%	1.20%	1.01%	0.89%
Expense Reimbursement ⁽²⁾	(0.13)%	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	0.99%	0.89%	0.64%	1.51%	1.38%	1.20%	1.01%	0.89%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.38% for Class A shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

167

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$472	$705	$957	$1,676
Class J	191	284	493	1,096
Institutional Class	65	205	357	798
Class R-1	154	477	824	1,802
Class R-2	140	437	755	1,657
Class R-3	122	381	660	1,455
Class R-4	103	322	558	1,236
Class R-5	91	284	493	1,096

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$91	$284	$493	$1,096

Portfolio Turnover

As a fund of funds, the Fund does not pay transaction costs, such as commissions, when it buys and sells shares of underlying funds (or “turns over” its portfolio). An underlying fund does pay transaction costs when it buys and sells portfolio securities, and a higher portfolio turnover may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the examples, affect the performance of the underlying fund and the Fund. During its most recent fiscal year, the Fund's portfolio turnover rate was 18.2% of the average value of its portfolio.

Principal Investment Strategies

The Fund invests according to an asset allocation strategy designed for investors primarily seeking current income and secondarily capital appreciation. The Fund's asset allocation is designed for investors who are approximately 15 years beyond the normal retirement age of 65. The Fund is a fund of funds and invests in underlying funds of Principal Funds, Inc. (“PFI”). Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.

The Fund is managed with strategic or long-term asset class targets and target ranges. There is a rebalancing strategy that aligns with the target weights to identify asset classes that are either overweight or underweight. The Fund may shift asset class targets in response to normal evaluative processes, the shortening time horizon of the Fund or changes in market forces or Fund circumstances.

In selecting underlying funds and target weights, the Fund considers both quantitative measures (e.g., past performance, expected levels of risk and returns, expense levels, diversification and style consistency) and qualitative factors (e.g., organizational stability, investment experience, investment and risk management processes, and information, trading, and compliance systems). There are no minimum or maximum percentages of assets that the Fund must invest in a specific asset class or underlying fund.

168

The underlying funds invest in growth and value stocks of large market capitalization companies, fixed-income securities, domestic and foreign securities, securities denominated in foreign currencies, investment companies (including index funds), derivatives, mortgage-backed securities and other securitized products, and U.S. government and U.S. government-sponsored securities. The underlying funds engage in derivative transactions to gain exposure to a variety of securities or asset classes or attempt to reduce risk. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. The underlying funds principally use futures, options, swaps (including, for example, credit default, interest rate, and currency swaps) and forwards.

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

169

Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies in which the Fund invests ("underlying funds"). The Fund's selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund's performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.

Target Date Fund Risk. A target date fund should not be selected based solely on age or retirement date because there is no guarantee that this fund will provide adequate income at or through retirement.

Principal Risks due to the Fund's Investments in Underlying Funds

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

•

Credit Default Swaps. Credit default swaps involve special risks, in addition to those generally associated with swaps, because they are difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty). The protection “buyer” in a credit default contract may be obligated to pay the protection “seller” an upfront payment or a periodic stream of payments over the term of the contract provided generally that no credit event on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the “par value” (full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. The Fund may be either the buyer or seller in the transaction.

•

Forward Contracts, Futures and Swaps. Forward contracts, futures, and swaps involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the forward contract, future, or swap; possible lack of a liquid secondary market for a forward contract, future, or swap and the resulting inability to close a forward contract, future, or swap when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.

•

170

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Classes A and J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

171

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '09	9.69	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(11.34	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	0.54%	3.45%	2.30%
Class A Return After Taxes on Distributions	(0.19)%	2.73%	1.30%
Class A Return After Taxes on Distribution and Sale of Fund Shares	0.45%	2.39%	1.41%
Class J Return Before Taxes	3.59%	4.30%	2.66%
Institutional Class Return Before Taxes	4.79%	4.62%	3.06%
Class R-1 Return Before Taxes	3.89%	3.71%	2.17%
Class R-2 Return Before Taxes	4.02%	3.85%	2.30%
Class R-3 Return Before Taxes	4.23%	4.02%	2.48%
Class R-4 Return Before Taxes	4.44%	4.23%	2.69%
Class R-5 Return Before Taxes	4.51%	4.35%	2.81%
S&P Target Date Retirement Income Index (reflects no deduction for fees, expenses, or taxes)	5.01%	4.66%	3.89%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Matthew Annenberg (since 2013), Managing Director, Asset Allocation


•	James W. Fennessey (since 2007), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2011), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2007), Portfolio Manager

172

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A and J	Initial Investment	$1,000⁽¹⁾
A and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

173

PRINCIPAL LIFETIME 2010 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	J	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	3.75%	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.21%	0.07%	0.02%	0.55%	0.47%	0.34%	0.30%	0.28%
Acquired Fund Fees and Expenses	0.65%	0.65%	0.65%	0.65%	0.65%	0.65%	0.65%	0.65%
Total Annual Fund Operating Expenses	1.11%	0.87%	0.67%	1.55%	1.42%	1.24%	1.05%	0.93%
Expense Reimbursement ⁽²⁾	(0.08)%	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.03%	0.87%	0.67%	1.55%	1.42%	1.24%	1.05%	0.93%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.38% for Class A shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

174

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$476	$707	$956	$1,669
Class J	189	278	482	1,073
Institutional Class	68	214	373	835
Class R-1	158	490	845	1,845
Class R-2	145	449	776	1,702
Class R-3	126	393	681	1,500
Class R-4	107	334	579	1,283
Class R-5	95	296	515	1,143

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$89	$278	$482	$1,073

Portfolio Turnover

Principal Investment Strategies

The Fund operates as a “target date fund” that invests according to an asset allocation strategy designed for investors having a retirement investment goal close to the year in the Fund’s name. The Fund's asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. The Fund is a fund of funds and invests in underlying funds of Principal Funds, Inc. (“PFI”). Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.

175

The underlying funds invest in growth and value stocks of large market capitalization companies, fixed-income securities, domestic and foreign securities, securities denominated in foreign currencies, investment companies (including index funds), derivatives, mortgage-backed and asset-backed securities (securitized products), and U.S. government and U.S. government-sponsored securities. The underlying funds engage in derivative transactions to gain exposure to a variety of securities or asset classes or attempt to reduce risk. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. The underlying funds principally use futures, options, swaps (including, for example, credit default, interest rate, and currency swaps) and forwards.

Approximately 15 years after its target year, the Fund's underlying fund allocation is expected to match that of the Principal LifeTime Strategic Income Fund. At that time, the Fund may be combined with the Principal LifeTime Strategic Income Fund if the Board of Directors determines that the combination is in the best interests of Fund shareholders. It is expected that at the target date in the Fund’s name, the shareholder will begin gradually withdrawing the account's value.

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

176

Principal Risks due to the Fund's Investments in Underlying Funds

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

•

Options. Options involve specific risks, including: imperfect correlation between the change in market value of the instrument held by the fund and the price of the options, counterparty risk, difference in trading hours for the options markets and the markets for the underlying securities (rate movements can take place in the underlying markets that cannot be reflected in the options markets), and an insufficient liquid secondary market for particular options.


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.

•

177

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Classes A and J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

178

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	13.95	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(16.36	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	0.95%	5.11%	2.75%
Class A Return After Taxes on Distributions	(0.17)%	4.23%	1.79%
Class A Return After Taxes on Distribution and Sale of Fund Shares	1.06%	3.75%	1.86%
Class J Return Before Taxes	4.07%	6.03%	3.14%
Institutional Class Return Before Taxes	5.32%	6.33%	3.52%
Class R-1 Return Before Taxes	4.32%	5.38%	2.61%
Class R-2 Return Before Taxes	4.48%	5.51%	2.74%
Class R-3 Return Before Taxes	4.71%	5.72%	2.94%
Class R-4 Return Before Taxes	4.92%	5.93%	3.14%
Class R-5 Return Before Taxes	5.03%	6.04%	3.25%
S&P Target Date 2010 Index (reflects no deduction for fees, expenses, or taxes)	5.82%	5.75%	4.21%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Matthew Annenberg (since 2013), Managing Director, Asset Allocation


•	James W. Fennessey (since 2007), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2011), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2007), Portfolio Manager

179

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A and J	Initial Investment	$1,000⁽¹⁾
A and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

180

PRINCIPAL LIFETIME 2015 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment): None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses	0.01%	0.54%	0.46%	0.33%	0.29%	0.27%
Acquired Fund Fees and Expenses	0.67%	0.67%	0.67%	0.67%	0.67%	0.67%
Total Annual Fund Operating Expenses	0.68%	1.56%	1.43%	1.25%	1.06%	0.94%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Institutional Class	$69	$218	$379	$847
Class R-1	159	493	850	1,856
Class R-2	146	452	782	1,713
Class R-3	127	397	686	1,511
Class R-4	108	337	585	1,294
Class R-5	96	300	520	1,155

Portfolio Turnover

181

Principal Investment Strategies

The underlying funds invest in growth and value stocks of small, medium and large market capitalization companies, fixed-income securities, domestic and foreign securities, securities denominated in foreign currencies, investment companies (including index funds), derivatives, mortgage-backed and asset-backed securities (securitized products), and U.S. government and U.S. government-sponsored securities. The underlying funds engage in derivative transactions to gain exposure to a variety of securities or asset classes or attempt to reduce risk. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. The underlying funds principally use futures, options, swaps (including, for example, credit default, interest rate, and currency swaps) and forwards.

182

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

183

Principal Risks due to the Fund's Investments in Underlying Funds

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

184

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance

Life of Fund results are measured from the date the Fund's shares were first sold (February 29, 2008).

185

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '09	14.34	%
Lowest return for a quarter during the period of the bar chart above:	Q3 '11	(10.77	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	Life of Fund
Institutional Class Return Before Taxes	5.55%	7.06%	4.49%
Institutional Class Return After Taxes on Distributions	4.43%	5.47%	3.20%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	3.64%	5.23%	3.23%
Class R-1 Return Before Taxes	4.63%	6.13%	3.52%
Class R-2 Return Before Taxes	4.84%	6.28%	3.68%
Class R-3 Return Before Taxes	5.03%	6.47%	3.85%
Class R-4 Return Before Taxes	5.21%	6.66%	4.05%
Class R-5 Return Before Taxes	5.34%	6.79%	4.17%
S&P Target Date 2015 Index (reflects no deduction for fees, expenses, or taxes)	6.56%	6.79%	4.89%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Advisors, LLC


•	Matthew Annenberg (since 2013), Managing Director, Asset Allocation


•	James W. Fennessey (since 2008), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2011), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2008), Portfolio Manager

186

Purchase and Sale of Fund Shares

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

187

PRINCIPAL LIFETIME 2020 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	J	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.16%	0.06%	0.01%	0.54%	0.46%	0.33%	0.29%	0.27%
Acquired Fund Fees and Expenses	0.70%	0.70%	0.70%	0.70%	0.70%	0.70%	0.70%	0.70%
Total Annual Fund Operating Expenses	1.11%	0.91%	0.71%	1.59%	1.46%	1.28%	1.09%	0.97%
Expense Reimbursement ⁽²⁾	(0.03)%	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.08%	0.91%	0.71%	1.59%	1.46%	1.28%	1.09%	0.97%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.38% for Class A shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

188

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$654	$881	$1,125	$1,825
Class J	193	290	504	1,120
Institutional Class	73	227	395	883
Class R-1	162	502	866	1,889
Class R-2	149	462	797	1,746
Class R-3	130	406	702	1,545
Class R-4	111	347	601	1,329
Class R-5	99	309	536	1,190

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$93	$290	$504	$1,120

Portfolio Turnover

Principal Investment Strategies

189

The underlying funds invest in growth and value stocks of small, medium, and large market capitalization companies, fixed-income securities, domestic and foreign securities, securities denominated in foreign currencies, investment companies (including index funds), derivatives, and U.S. government and U.S. government-sponsored securities. The underlying funds engage in derivative transactions to gain exposure to a variety of securities or asset classes or attempt to reduce risk. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. The underlying funds principally use futures, options, swaps (including, for example, credit default, interest rate, and currency swaps) and forwards.

Principal Risks

190

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

Principal Risks due to the Fund's Investments in Underlying Funds

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

191

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Classes A and J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

192

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	15.99	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(18.46	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	(0.38)%	6.38%	3.04%
Class A Return After Taxes on Distributions	(1.43)%	5.11%	1.98%
Class A Return After Taxes on Distribution and Sale of Fund Shares	0.14%	4.75%	2.12%
Class J Return Before Taxes	4.60%	7.69%	3.64%
Institutional Class Return Before Taxes	5.83%	7.99%	4.02%
Class R-1 Return Before Taxes	4.86%	7.05%	3.10%
Class R-2 Return Before Taxes	5.03%	7.18%	3.25%
Class R-3 Return Before Taxes	5.17%	7.37%	3.43%
Class R-4 Return Before Taxes	5.41%	7.59%	3.63%
Class R-5 Return Before Taxes	5.56%	7.71%	3.75%
S&P Target Date 2020 Index (reflects no deduction for fees, expenses, or taxes)	7.22%	7.66%	4.68%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Matthew Annenberg (since 2013), Managing Director, Asset Allocation

•James W. Fennessey (since 2007), Portfolio Manager

•Scott Smith (since 2017), Associate Portfolio Manager

•Jeffrey R. Tyler (since 2011), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2007), Portfolio Manager

193

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A and J	Initial Investment	$1,000⁽¹⁾
A and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

194

PRINCIPAL LIFETIME 2025 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment): None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses	0.01%	0.53%	0.45%	0.32%	0.28%	0.26%
Acquired Fund Fees and Expenses	0.72%	0.72%	0.72%	0.72%	0.72%	0.72%
Total Annual Fund Operating Expenses	0.73%	1.60%	1.47%	1.29%	1.10%	0.98%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Institutional Class	$75	$233	$406	$906
Class R-1	163	505	871	1,900
Class R-2	150	465	803	1,757
Class R-3	131	409	708	1,556
Class R-4	112	350	606	1,340
Class R-5	100	312	542	1,201

Portfolio Turnover

Principal Investment Strategies

195

196

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

Principal Risks due to the Fund's Investments in Underlying Funds

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

•

197


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance

198

Life of Fund results are measured from the date the Fund's shares were first sold (February 29, 2008).

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	15.65	%
Lowest return for a quarter during the period of the bar chart above:	Q3 '11	(13.65	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	Life of Fund
Institutional Class Return Before Taxes	6.02%	8.47%	4.82%
Institutional Class Return After Taxes on Distributions	4.98%	6.86%	3.63%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	4.00%	6.40%	3.56%
Class R-1 Return Before Taxes	5.03%	7.53%	3.91%
Class R-2 Return Before Taxes	5.27%	7.67%	4.05%
Class R-3 Return Before Taxes	5.33%	7.84%	4.21%
Class R-4 Return Before Taxes	5.61%	8.05%	4.43%
Class R-5 Return Before Taxes	5.81%	8.19%	4.56%
S&P Target Date 2025 Index (reflects no deduction for fees, expenses, or taxes)	7.82%	8.37%	5.41%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Matthew Annenberg (since 2013), Managing Director, Asset Allocation


•	James W. Fennessey (since 2008), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2011), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2008), Portfolio Manager

199

Purchase and Sale of Fund Shares

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

200

PRINCIPAL LIFETIME 2030 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	J	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.19%	0.08%	0.01%	0.54%	0.46%	0.33%	0.29%	0.27%
Acquired Fund Fees and Expenses	0.72%	0.72%	0.72%	0.72%	0.72%	0.72%	0.72%	0.72%
Total Annual Fund Operating Expenses	1.16%	0.95%	0.73%	1.61%	1.48%	1.30%	1.11%	0.99%
Expense Reimbursement ⁽²⁾	(0.06)%	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.10%	0.95%	0.73%	1.61%	1.48%	1.30%	1.11%	0.99%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.38% for Class A shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

201

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$656	$893	$1,148	$1,876
Class J	197	303	525	1,166
Institutional Class	75	233	406	906
Class R-1	164	508	876	1,911
Class R-2	151	468	808	1,768
Class R-3	132	412	713	1,568
Class R-4	113	353	612	1,352
Class R-5	101	315	547	1,213

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$97	$303	$525	$1,166

Portfolio Turnover

Principal Investment Strategies

202

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

203

Principal Risks due to the Fund's Investments in Underlying Funds

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

204

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Classes A and J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

205

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	16.94	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(20.15	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	(0.41)%	7.27%	3.22%
Class A Return After Taxes on Distributions	(1.31)%	5.89%	2.15%
Class A Return After Taxes on Distribution and Sale of Fund Shares	0.37%	5.43%	2.28%
Class J Return Before Taxes	4.63%	8.58%	3.81%
Institutional Class Return Before Taxes	5.89%	8.91%	4.21%
Class R-1 Return Before Taxes	4.93%	7.94%	3.29%
Class R-2 Return Before Taxes	5.01%	8.08%	3.43%
Class R-3 Return Before Taxes	5.23%	8.28%	3.61%
Class R-4 Return Before Taxes	5.42%	8.48%	3.82%
Class R-5 Return Before Taxes	5.52%	8.60%	3.93%
S&P Target Date 2030 Index (reflects no deduction for fees, expenses, or taxes)	8.35%	9.05%	4.82%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Matthew Annenberg (since 2013), Managing Director, Asset Allocation


•	James W. Fennessey (since 2007), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2011), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2007), Portfolio Manager

206

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A and J	Initial Investment	$1,000⁽¹⁾
A and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

207

PRINCIPAL LIFETIME 2035 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment): None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses	0.01%	0.53%	0.45%	0.32%	0.28%	0.26%
Acquired Fund Fees and Expenses	0.68%	0.68%	0.68%	0.68%	0.68%	0.68%
Total Annual Fund Operating Expenses	0.69%	1.56%	1.43%	1.25%	1.06%	0.94%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Institutional Class	$70	$221	$384	$859
Class R-1	159	493	850	1,856
Class R-2	146	452	782	1,713
Class R-3	127	397	686	1,511
Class R-4	108	337	585	1,294
Class R-5	96	300	520	1,155

Portfolio Turnover

Principal Investment Strategies

208

The underlying funds invest in growth and value stocks of small, medium, and large market capitalization companies, fixed-income securities, domestic and foreign (including those in emerging markets) securities, securities denominated in foreign currencies, investment companies (including index funds), derivatives, and U.S. government and U.S. government-sponsored securities. The underlying funds engage in derivative transactions to gain exposure to a variety of securities or asset classes or attempt to reduce risk. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. The underlying funds principally use futures, options, swaps (including, for example, credit default, interest rate, and currency swaps) and forwards.

209

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

Principal Risks due to the Fund's Investments in Underlying Funds

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

•

210


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance

211

Life of Fund results are measured from the date the Fund's shares were first sold (February 29, 2008).

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	16.61	%
Lowest return for a quarter during the period of the bar chart above:	Q3 '11	(15.22	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	Life of Fund
Institutional Class Return Before Taxes	5.33%	9.32%	5.03%
Institutional Class Return After Taxes on Distributions	4.23%	7.87%	3.97%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	3.80%	7.15%	3.78%
Class R-1 Return Before Taxes	4.47%	8.39%	4.14%
Class R-2 Return Before Taxes	4.55%	8.53%	4.25%
Class R-3 Return Before Taxes	4.74%	8.71%	4.45%
Class R-4 Return Before Taxes	4.91%	8.92%	4.65%
Class R-5 Return Before Taxes	5.00%	9.04%	4.78%
S&P Target Date 2035 Index (reflects no deduction for fees, expenses, or taxes)	8.85%	9.59%	5.65%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Matthew Annenberg (since 2013), Managing Director, Asset Allocation


•	James W. Fennessey (since 2008), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2011), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2008), Portfolio Manager

212

Purchase and Sale of Fund Shares

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

213

PRINCIPAL LIFETIME 2040 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	J	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.23%	0.09%	0.01%	0.54%	0.46%	0.33%	0.29%	0.27%
Acquired Fund Fees and Expenses	0.70%	0.70%	0.70%	0.70%	0.70%	0.70%	0.70%	0.70%
Total Annual Fund Operating Expenses	1.18%	0.94%	0.71%	1.59%	1.46%	1.28%	1.09%	0.97%
Expense Reimbursement ⁽²⁾	(0.10)%	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.08%	0.94%	0.71%	1.59%	1.46%	1.28%	1.09%	0.97%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.38% for Class A shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

214

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$654	$895	$1,154	$1,895
Class J	196	300	520	1,155
Institutional Class	73	227	395	883
Class R-1	162	502	866	1,889
Class R-2	149	462	797	1,746
Class R-3	130	406	702	1,545
Class R-4	111	347	601	1,329
Class R-5	99	309	536	1,190

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$96	$300	$520	$1,155

Portfolio Turnover

Principal Investment Strategies

215

Principal Risks

216

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

Principal Risks due to the Fund's Investments in Underlying Funds

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

•

Futures. Futures involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the future; possible lack of a liquid secondary market for a future and the resulting inability to close a future when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

217

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Classes A and J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

218

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	17.31	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(21.45	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	(0.77)%	8.01%	3.28%
Class A Return After Taxes on Distributions	(1.84)%	6.73%	2.33%
Class A Return After Taxes on Distribution and Sale of Fund Shares	0.40%	6.14%	2.42%
Class J Return Before Taxes	4.20%	9.28%	3.84%
Institutional Class Return Before Taxes	5.45%	9.65%	4.28%
Class R-1 Return Before Taxes	4.52%	8.69%	3.37%
Class R-2 Return Before Taxes	4.64%	8.82%	3.50%
Class R-3 Return Before Taxes	4.85%	9.02%	3.69%
Class R-4 Return Before Taxes	5.06%	9.22%	3.89%
Class R-5 Return Before Taxes	5.18%	9.35%	4.01%
S&P Target Date 2040 Index (reflects no deduction for fees, expenses, or taxes)	9.23%	10.00%	4.92%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Matthew Annenberg (since 2013), Managing Director, Asset Allocation


•	James W. Fennessey (since 2007), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2011), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2007), Portfolio Manager

219

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A and J	Initial Investment	$1,000⁽¹⁾
A and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

220

PRINCIPAL LIFETIME 2045 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment): None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses	0.02%	0.54%	0.46%	0.33%	0.29%	0.27%
Acquired Fund Fees and Expenses	0.71%	0.71%	0.71%	0.71%	0.71%	0.71%
Total Annual Fund Operating Expenses	0.73%	1.60%	1.47%	1.29%	1.10%	0.98%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Institutional Class	$75	$233	$406	$906
Class R-1	163	505	871	1,900
Class R-2	150	465	803	1,757
Class R-3	131	409	708	1,556
Class R-4	112	350	606	1,340
Class R-5	100	312	542	1,201

Portfolio Turnover

Principal Investment Strategies

221

222

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

Principal Risks due to the Fund's Investments in Underlying Funds

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

223

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

Performance

Life of Fund results are measured from the date the Fund's shares were first sold (February 29, 2008).

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	17.31	%
Lowest return for a quarter during the period of the bar chart above:	Q3 '11	(16.15	)%

224



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	Life of Fund
Institutional Class Return Before Taxes	5.58%	9.91%	5.17%
Institutional Class Return After Taxes on Distributions	4.47%	8.25%	4.02%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	4.02%	7.39%	3.78%
Class R-1 Return Before Taxes	4.57%	8.95%	4.22%
Class R-2 Return Before Taxes	4.75%	9.10%	4.37%
Class R-3 Return Before Taxes	4.97%	9.29%	4.54%
Class R-4 Return Before Taxes	5.20%	9.51%	4.74%
Class R-5 Return Before Taxes	5.24%	9.61%	4.87%
S&P Target Date 2045 Index (reflects no deduction for fees, expenses, or taxes)	9.54%	10.31%	5.73%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Matthew Annenberg (since 2013), Managing Director, Asset Allocation


•	James W. Fennessey (since 2008), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2011), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2008), Portfolio Manager

Purchase and Sale of Fund Shares

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

225

PRINCIPAL LIFETIME 2050 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	J	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.29%	0.18%	0.02%	0.54%	0.46%	0.33%	0.29%	0.27%
Acquired Fund Fees and Expenses	0.72%	0.72%	0.72%	0.72%	0.72%	0.72%	0.72%	0.72%
Total Annual Fund Operating Expenses	1.26%	1.05%	0.74%	1.61%	1.48%	1.30%	1.11%	0.99%
Expense Reimbursement ⁽²⁾	(0.16)%	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.10%	1.05%	0.74%	1.61%	1.48%	1.30%	1.11%	0.99%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.38% for Class A shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

226

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$656	$913	$1,189	$1,976
Class J	207	334	579	1,283
Institutional Class	76	237	411	918
Class R-1	164	508	876	1,911
Class R-2	151	468	808	1,768
Class R-3	132	412	713	1,568
Class R-4	113	353	612	1,352
Class R-5	101	315	547	1,213

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$107	$334	$579	$1,283

Portfolio Turnover

Principal Investment Strategies

227

Principal Risks

228

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

Principal Risks due to the Fund's Investments in Underlying Funds

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

229

Performance


•	For Classes A and J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	17.71	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(22.13	)%

230



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	(0.56)%	8.48%	3.36%
Class A Return After Taxes on Distributions	(1.57)%	7.25%	2.42%
Class A Return After Taxes on Distribution and Sale of Fund Shares	0.52%	6.55%	2.47%
Class J Return Before Taxes	4.25%	9.64%	3.78%
Institutional Class Return Before Taxes	5.58%	10.12%	4.33%
Class R-1 Return Before Taxes	4.69%	9.16%	3.43%
Class R-2 Return Before Taxes	4.81%	9.31%	3.56%
Class R-3 Return Before Taxes	5.01%	9.50%	3.74%
Class R-4 Return Before Taxes	5.24%	9.72%	3.94%
Class R-5 Return Before Taxes	5.33%	9.84%	4.06%
S&P Target Date 2050 Index (reflects no deduction for fees, expenses, or taxes)	9.74%	10.60%	4.99

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Matthew Annenberg (since 2013), Managing Director, Asset Allocation


•	James W. Fennessey (since 2007), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2011), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2007), Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A and J	Initial Investment	$1,000⁽¹⁾
A and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

231

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

232

PRINCIPAL LIFETIME 2055 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment): None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses	0.03%	0.54%	0.46%	0.33%	0.29%	0.27%
Acquired Fund Fees and Expenses	0.72%	0.72%	0.72%	0.72%	0.72%	0.72%
Total Annual Fund Operating Expenses	0.75%	1.61%	1.48%	1.30%	1.11%	0.99%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Institutional Class	$77	$240	$417	$930
Class R-1	164	508	876	1,911
Class R-2	151	468	808	1,768
Class R-3	132	412	713	1,568
Class R-4	113	353	612	1,352
Class R-5	101	315	547	1,213

Portfolio Turnover

Principal Investment Strategies

233

234

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

Principal Risks due to the Fund's Investments in Underlying Funds

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

235

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

Performance

Life of Fund results are measured from the date the Fund's shares were first sold (February 29, 2008).

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	17.40	%
Lowest return for a quarter during the period of the bar chart above:	Q3 '11	(17.02	)%

236



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	Life of Fund
Institutional Class Return Before Taxes	5.72%	10.14%	5.15%
Institutional Class Return After Taxes on Distributions	4.25%	8.81%	4.21%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	3.53%	7.76%	3.87%
Class R-1 Return Before Taxes	4.75%	9.20%	4.23%
Class R-2 Return Before Taxes	4.86%	9.34%	4.36%
Class R-3 Return Before Taxes	5.09%	9.54%	4.56%
Class R-4 Return Before Taxes	5.28%	9.75%	4.76%
Class R-5 Return Before Taxes	5.39%	9.88%	4.88%
S&P Target Date 2055 Index (reflects no deduction for fees, expenses, or taxes)	9.94%	10.82%	5.97%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Matthew Annenberg (since 2013), Managing Director, Asset Allocation


•	James W. Fennessey (since 2008), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2011), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2008), Portfolio Manager

Purchase and Sale of Fund Shares

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

237

PRINCIPAL LIFETIME 2060 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	1.01%	0.04%	0.55%	0.47%	0.34%	0.30%	0.28%
Acquired Fund Fees and Expenses	0.73%	0.73%	0.73%	0.73%	0.73%	0.73%	0.73%
Total Annual Fund Operating Expenses	1.89%	0.77%	1.63%	1.50%	1.32%	1.13%	1.01%
Expense Reimbursement ⁽²⁾	(0.78)%	—%	—%	—%	—%	—%	—%
Total Annual Fund Operating Expenses after Expense Reimbursement	1.11%	0.77%	1.63%	1.50%	1.32%	1.13%	1.01%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.38% for Class J, 0.10% for Institutional Class, 0.93% for Class R-1, 0.80% for Class R-2, 0.62% for Class R-3, 0.43% for Class R-4, and 0.31% for Class R-5 shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

238

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class J	$213	$518	$949	$2,148
Institutional Class	79	246	428	954
Class R-1	166	514	887	1,933
Class R-2	153	474	818	1,791
Class R-3	134	418	723	1,590
Class R-4	115	359	622	1,375
Class R-5	103	322	558	1,236

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$113	$518	$949	$2,148

Portfolio Turnover

Principal Investment Strategies

239

Principal Risks

240

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

Principal Risks due to the Fund's Investments in Underlying Funds

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

241

Performance


•	For Class J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

Life of Fund results are measured from the date the Fund's shares were first sold (March 1, 2013).

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q4 '15	4.28	%
Lowest return for a quarter during the period of the bar chart above:	Q3 ‘15	(7.61	)%

242



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	Life of Fund
Institutional Class Return Before Taxes	5.68%	7.72%
Institutional Class Return After Taxes on Distributions	4.84%	6.85%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	3.92%	5.86%
Class J Return Before Taxes	4.31%	7.38%
Class R-1 Return Before Taxes	4.69%	6.79%
Class R-2 Return Before Taxes	4.83%	6.93%
Class R-3 Return Before Taxes	5.01%	7.18%
Class R-4 Return Before Taxes	5.17%	7.32%
Class R-5 Return Before Taxes	5.31%	7.45%
S&P Target Date 2060+ Index (reflects no deduction for fees, expenses, or taxes)	10.08%	8.69%
S&P Target Date 2055 Index (reflects no deduction for fees, expenses, or taxes)	9.94%	8.69%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Effective December 31, 2016, the Fund’s primary benchmark changed from S&P Target Date 2055 Index to the S&P Target Date 2060+ Index because of the recent availability of the index which more closely aligns with the investment approach of the Fund.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Matthew Annenberg (since 2013), Managing Director, Asset Allocation


•	James W. Fennessey (since 2013), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2013), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2013), Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
J	Initial Investment	$1,000⁽¹⁾
J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchasers.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

243

Payments to Broker-Dealers and Other Financial Intermediaries

244

PRINCIPAL LIFETIME HYBRID INCOME FUND


Objective:	The Fund seeks current income, and as a secondary objective, capital appreciation.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment): None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	0.82%	173.70%
Acquired Fund Fees and Expenses	0.39%	0.39%
Total Annual Fund Operating Expenses	1.21%	174.09%
Expense Reimbursement ⁽²⁾	(0.77)%	(173.68)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.44%	0.41%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional and 0.02% for R-6 shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	0.82%	173.70%
Acquired Fund Fees and Expenses	0.39%	0.39%
Total Annual Fund Operating Expenses	1.21%	174.09%
Expense Reimbursement ⁽²⁾	(0.77)%	(173.68)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.44%	0.41%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional Class shares. In addition for Class R-6 shares, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

245

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Institutional Class	$45	$308	$591	$1,398
Class R-6	42	912	1,327	1,766

Portfolio Turnover

Principal Investment Strategies

The Fund invests according to an asset allocation strategy designed for investors primarily seeking current income and secondarily capital appreciation. The Fund's asset allocation is designed for investors who are approximately 15 years beyond the normal retirement age of 65. The Fund is a fund of funds that invests in underlying funds of Principal Funds, Inc. (“PFI”), with a majority of the Fund's assets invested in index funds. Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.

The underlying funds invest in growth and value stocks of large market capitalization companies, fixed-income securities, domestic and foreign securities, securities denominated in foreign currencies, investment companies (including index funds), derivatives, mortgage-backed securities (securitized products), and U.S. government and U.S. government-sponsored securities. The underlying funds engage in derivative transactions to gain exposure to a variety of securities or asset classes or attempt to reduce risk. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. The underlying funds principally use futures, options, swaps (including, for example, credit default, interest rate, and currency swaps) and forwards.

246

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

247

Principal Risks due to the Fund's Investments in Underlying Funds

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.

•

Value Stock Risk. Value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that the portfolio manager believed would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock judged to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

248

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Institutional Class and Class R-6 - www.principal.com.

Life of Fund results are measured from the date the Fund's shares were first sold (September 30, 2014).

For periods prior to the inception date of Class R-6 shares (August 24, 2015), the performance shown in the table for Class R-6 shares is based on the performance of the Fund's Institutional Class shares, adjusted to reflect the fees and expenses of Class R-6 shares. These adjustments for Class R-6 shares result in performance for such periods that is no higher than the historical performance of the Institutional Class shares, which were first sold on September 30, 2014.

249

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q1 '15	2.37	%
Lowest return for a quarter during the period of the bar chart above:	Q3 ‘15	(2.03	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	Life of Fund
Institutional Class Return Before Taxes	4.69%	2.67%
Institutional Class Return After Taxes on Distributions	4.15%	1.42%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	2.74%	1.54%
Class R-6 Return Before Taxes	4.80%	2.72%
S&P Target Date Retirement Income Index (reflects no deduction for fees, expenses, or taxes)	5.01%	2.79%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2014), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2014), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2014), Portfolio Manager

Purchase and Sale of Fund Shares

250

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

For other share classes, if you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment adviser, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, or to recommend one share class of the Fund over another share class. Ask your salesperson or visit your financial intermediary's website for more information.

251

PRINCIPAL LIFETIME HYBRID 2015 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment): None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	0.40%	171.00%
Acquired Fund Fees and Expenses	0.41%	0.41%
Total Annual Fund Operating Expenses	0.81%	171.41%
Expense Reimbursement ⁽²⁾	(0.35)%	(170.98)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.46%	0.43%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional and 0.02% for R-6 shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	0.40%	171.00%
Acquired Fund Fees and Expenses	0.41%	0.41%
Total Annual Fund Operating Expenses	0.81%	171.41%
Expense Reimbursement ⁽²⁾	(0.35)%	(170.98)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.46%	0.43%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional Class shares. In addition for Class R-6 shares, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

252

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Institutional Class	$47	$224	$415	$969
Class R-6	44	1,055	1,501	1,898

Portfolio Turnover

Principal Investment Strategies

The Fund operates as a “target date fund” that invests according to an asset allocation strategy designed for investors having a retirement investment goal close to the year in the Fund’s name. The Fund's asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. The Fund is a fund of funds that invests in underlying funds of Principal Funds, Inc. (“PFI”), with a majority of the Fund's assets invested in index funds. Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.

Approximately 15 years after its target year, the Fund's underlying fund allocation is expected to match that of the Principal LifeTime Hybrid Income Fund. At that time, the Fund may be combined with the Principal LifeTime Hybrid Income Fund if the Board of Directors determines that the combination is in the best interests of Fund shareholders. It is expected that at the target date in the Fund’s name, the shareholder will begin gradually withdrawing the account's value.

253

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

254

Principal Risks due to the Fund's Investments in Underlying Funds

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

255

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Institutional Class and Class R-6 - www.principal.com.

Life of Fund results are measured from the date the Fund's shares were first sold (September 30, 2014).

256

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '16	2.62	%
Lowest return for a quarter during the period of the bar chart above:	Q3 ‘15	(4.12	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	Life of Fund
Institutional Class Return Before Taxes	6.37%	3.55%
Institutional Class Return After Taxes on Distributions	5.70%	2.30%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	3.84%	2.32%
Class R-6 Return Before Taxes	6.47%	3.59%
S&P Target Date 2015 Index (reflects no deduction for fees, expenses, or taxes)	6.56%	3.62%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2014), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2014), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2014), Portfolio Manager

Purchase and Sale of Fund Shares

Tax Information

257

Payments to Broker-Dealers and Other Financial Intermediaries

258

PRINCIPAL LIFETIME HYBRID 2020 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment): None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	0.15%	171.30%
Acquired Fund Fees and Expenses	0.41%	0.41%
Total Annual Fund Operating Expenses	0.56%	171.71%
Expense Reimbursement ⁽²⁾	(0.10)%	(171.28)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.46%	0.43%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional and 0.02% for R-6 shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	0.15%	171.30%
Acquired Fund Fees and Expenses	0.41%	0.41%
Total Annual Fund Operating Expenses	0.56%	171.71%
Expense Reimbursement ⁽²⁾	(0.10)%	(171.28)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.46%	0.43%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional Class shares. In addition for Class R-6 shares, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

259

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Institutional Class	$47	$169	$303	$692
Class R-6	44	1,039	1,482	1,884

Portfolio Turnover

Principal Investment Strategies

The Fund operates as a “target date fund” that invests according to an asset allocation strategy designed for investors having a retirement investment goal close to the year in the Fund’s name. The Fund's asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. The Fund is a fund of funds that invests in underlying funds of Principal Funds, Inc. (“PFI”), with a majority of the Fund's assets invested in index funds. Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The diversification of the Fund is designed to moderate overall price volatility.The Fund may add, remove, or substitute underlying funds at any time.

260

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

Principal Risks due to the Fund's Investments in Underlying Funds

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

261

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions

262

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Institutional Class and Class R-6 - www.principal.com.

Life of Fund results are measured from the date the Fund's shares were first sold (September 30, 2014).

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '16	3.01	%
Lowest return for a quarter during the period of the bar chart above:	Q3 ‘15	(4.70	)%

263



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	Life of Fund
Institutional Class Return Before Taxes	7.02%	4.11%
Institutional Class Return After Taxes on Distributions	6.33%	2.88%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	4.25%	2.79%
Class R-6 Return Before Taxes	7.02%	4.11%
S&P Target Date 2020 Index (reflects no deduction for fees, expenses, or taxes)	7.22%	3.95%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2014), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2014), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2014), Portfolio Manager

Purchase and Sale of Fund Shares

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

264

PRINCIPAL LIFETIME HYBRID 2025 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment): None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	0.54%	169.02%
Acquired Fund Fees and Expenses	0.42%	0.42%
Total Annual Fund Operating Expenses	0.96%	169.44%
Expense Reimbursement ⁽²⁾	(0.49)%	(169.00)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.47%	0.44%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional and 0.02% for R-6 shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	0.54%	169.02%
Acquired Fund Fees and Expenses	0.42%	0.42%
Total Annual Fund Operating Expenses	0.96%	169.44%
Expense Reimbursement ⁽²⁾	(0.49)%	(169.00)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.47%	0.44%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional Class shares. In addition for Class R-6 shares, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

265

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Institutional Class	$48	$257	$483	$1,133
Class R-6	45	1,165	1,630	1,997

Portfolio Turnover

Principal Investment Strategies

The Fund operates as a “target date fund” that invests according to an asset allocation strategy designed for investors having a retirement investment goal close to the year in the Fund’s name. The Fund's asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. The Fund is a fund of funds that invests in underlying funds of Principal Funds, Inc. (“PFI”), with a majority of the Fund's assets invested in index funds. Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.

266

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

Principal Risks due to the Fund's Investments in Underlying Funds

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

267

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

268

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Institutional Class and Class R-6 - www.principal.com.

Life of Fund results are measured from the date the Fund's shares were first sold (September 30, 2014).

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '16	3.31	%
Lowest return for a quarter during the period of the bar chart above:	Q3 ‘15	(5.27	)%

269



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	Life of Fund
Institutional Class Return Before Taxes	7.51%	4.49%
Institutional Class Return After Taxes on Distributions	6.91%	3.19%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	4.52%	3.02%
Class R-6 Return Before Taxes	7.50%	4.54%
S&P Target Date 2025 Index (reflects no deduction for fees, expenses, or taxes)	7.82%	4.15%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2014), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2014), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2014), Portfolio Manager

Purchase and Sale of Fund Shares

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

270

PRINCIPAL LIFETIME HYBRID 2030 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment): None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	0.15%	169.71%
Acquired Fund Fees and Expenses	0.42%	0.42%
Total Annual Fund Operating Expenses	0.57%	170.13%
Expense Reimbursement ⁽²⁾	(0.10)%	(169.69)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.47%	0.44%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional and 0.02% for R-6 shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	0.15%	169.71%
Acquired Fund Fees and Expenses	0.42%	0.42%
Total Annual Fund Operating Expenses	0.57%	170.13%
Expense Reimbursement ⁽²⁾	(0.10)%	(169.69)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.47%	0.44%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional Class shares. In addition for Class R-6 shares, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

271

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Institutional Class	$48	$173	$308	$704
Class R-6	45	1,126	1,585	1,963

Portfolio Turnover

Principal Investment Strategies

The Fund operates as a “target date fund” that invests according to an asset allocation strategy designed for investors having a retirement investment goal close to the year in the Fund’s name. The Fund's asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. The Fund is a fund of funds that invests in underlying funds of Principal Funds, Inc. (“PFI”), with a majority of the Fund's assets invested in index funds. Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.

272

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

273

Principal Risks due to the Fund's Investments in Underlying Funds

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

274

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Institutional Class and Class R-6 - www.principal.com.

Life of Fund results are measured from the date the Fund's shares were first sold (September 30, 2014).

275

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '16	3.60	%
Lowest return for a quarter during the period of the bar chart above:	Q3 ‘15	(5.74	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	Life of Fund
Institutional Class Return Before Taxes	7.89%	4.78%
Institutional Class Return After Taxes on Distributions	7.21%	3.50%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	4.84%	3.28%
Class R-6 Return Before Taxes	8.00%	4.83%
S&P Target Date 2030 Index (reflects no deduction for fees, expenses, or taxes)	8.35%	4.38%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2014), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2014), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2014), Portfolio Manager

Purchase and Sale of Fund Shares

276

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

277

PRINCIPAL LIFETIME HYBRID 2035 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment): None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	0.63%	167.74%
Acquired Fund Fees and Expenses	0.42%	0.42%
Total Annual Fund Operating Expenses	1.05%	168.16%
Expense Reimbursement ⁽²⁾	(0.58)%	(167.72)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.47%	0.44%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional and 0.02% for R-6 shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	0.63%	167.74%
Acquired Fund Fees and Expenses	0.42%	0.42%
Total Annual Fund Operating Expenses	1.05%	168.16%
Expense Reimbursement ⁽²⁾	(0.58)%	(167.72)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.47%	0.44%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional Class shares. In addition for Class R-6 shares, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

278

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Institutional Class	$48	$276	$523	$1,230
Class R-6	45	1,238	1,714	2,062

Portfolio Turnover

Principal Investment Strategies

The Fund operates as a “target date fund” that invests according to an asset allocation strategy designed for investors having a retirement investment goal close to the year in the Fund’s name. The Fund's asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. The Fund is a fund of funds that invests in underlying funds of Principal Funds, Inc. (“PFI”), with a majority of the Fund's assets invested in index funds. Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.

279

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

Principal Risks due to the Fund's Investments in Underlying Funds

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

280

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

281

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Institutional Class and Class R-6 - www.principal.com.

Life of Fund results are measured from the date the Fund's shares were first sold (September 30, 2014).

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '16	3.90	%
Lowest return for a quarter during the period of the bar chart above:	Q3 ‘15	(6.21	)%

282



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	Life of Fund
Institutional Class Return Before Taxes	8.31%	5.03%
Institutional Class Return After Taxes on Distributions	7.74%	3.93%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	5.05%	3.62%
Class R-6 Return Before Taxes	8.41%	5.08%
S&P Target Date 2035 Index (reflects no deduction for fees, expenses, or taxes)	8.85%	4.60%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2014), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2014), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2014), Portfolio Manager

Purchase and Sale of Fund Shares

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

283

PRINCIPAL LIFETIME HYBRID 2040 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment): None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	0.24%	166.92%
Acquired Fund Fees and Expenses	0.43%	0.43%
Total Annual Fund Operating Expenses	0.67%	167.35%
Expense Reimbursement ⁽²⁾	(0.19)%	(166.90)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.48%	0.45%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional and 0.02% for R-6 shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	0.24%	166.92%
Acquired Fund Fees and Expenses	0.43%	0.43%
Total Annual Fund Operating Expenses	0.67%	167.35%
Expense Reimbursement ⁽²⁾	(0.19)%	(166.90)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.48%	0.45%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional Class shares. In addition for Class R-6 shares, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

284

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Institutional Class	$49	$195	$354	$817
Class R-6	46	1,286	1,768	2,104

Portfolio Turnover

Principal Investment Strategies

The Fund operates as a “target date fund” that invests according to an asset allocation strategy designed for investors having a retirement investment goal close to the year in the Fund’s name. The Fund's asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. The Fund is a fund of funds that invests in underlying funds of Principal Funds, Inc. (“PFI”), with a majority of the Fund's assets invested in index funds. Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.

285

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

Principal Risks due to the Fund's Investments in Underlying Funds

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

286

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

287

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Institutional Class and Class R-6 - www.principal.com.

Life of Fund results are measured from the date the Fund's shares were first sold (September 30, 2014).

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '16	4.09	%
Lowest return for a quarter during the period of the bar chart above:	Q3 ‘15	(6.50	)%

288



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	Life of Fund
Institutional Class Return Before Taxes	8.67%	5.27%
Institutional Class Return After Taxes on Distributions	8.02%	4.17%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	5.34%	3.84%
Class R-6 Return Before Taxes	8.77%	5.31%
S&P Target Date 2040 Index (reflects no deduction for fees, expenses, or taxes)	9.23%	4.74%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2014), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2014), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2014), Portfolio Manager

Purchase and Sale of Fund Shares

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

289

PRINCIPAL LIFETIME HYBRID 2045 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment): None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	1.07%	166.99%
Acquired Fund Fees and Expenses	0.44%	0.44%
Total Annual Fund Operating Expenses	1.51%	167.43%
Expense Reimbursement ⁽²⁾	(1.02)%	(166.97)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.49%	0.46%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional and 0.02% for R-6 shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	1.07%	166.99%
Acquired Fund Fees and Expenses	0.44%	0.44%
Total Annual Fund Operating Expenses	1.51%	167.43%
Expense Reimbursement ⁽²⁾	(1.02)%	(166.97)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.49%	0.46%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional Class shares. In addition for Class R-6 shares, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

290

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Institutional Class	$50	$377	$727	$1,714
Class R-6	47	1,282	1,764	2,100

Portfolio Turnover

Principal Investment Strategies

The Fund operates as a “target date fund” that invests according to an asset allocation strategy designed for investors having a retirement investment goal close to the year in the Fund’s name. The Fund's asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. The Fund is a fund of funds that invests in underlying funds of Principal Funds, Inc. (“PFI”), with a majority of the Fund's assets invested in index funds. Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.

291

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

Principal Risks due to the Fund's Investments in Underlying Funds

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

292

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

293

Performance


•	For Institutional Class and Class R-6 - www.principal.com.

Life of Fund results are measured from the date the Fund's shares were first sold (September 30, 2014).

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '16	4.30	%
Lowest return for a quarter during the period of the bar chart above:	Q3 ‘15	(6.89	)%

294



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	Life of Fund
Institutional Class Return Before Taxes	9.06%	5.34%
Institutional Class Return After Taxes on Distributions	8.52%	4.30%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	5.51%	3.91%
Class R-6 Return Before Taxes	9.06%	5.33%
S&P Target Date 2045 Index (reflects no deduction for fees, expenses, or taxes)	9.54%	4.85%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2014), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2014), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2014), Portfolio Manager

Purchase and Sale of Fund Shares

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

295

PRINCIPAL LIFETIME HYBRID 2050 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment): None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	0.42%	166.19%
Acquired Fund Fees and Expenses	0.44%	0.44%
Total Annual Fund Operating Expenses	0.86%	166.63%
Expense Reimbursement ⁽²⁾	(0.37)%	(166.17)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.49%	0.46%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional and 0.02% for R-6 shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	0.42%	166.19%
Acquired Fund Fees and Expenses	0.44%	0.44%
Total Annual Fund Operating Expenses	0.86%	166.63%
Expense Reimbursement ⁽²⁾	(0.37)%	(166.17)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.49%	0.46%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional Class shares. In addition for Class R-6 shares, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

296

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Institutional Class	$50	$237	$440	$1,027
Class R-6	47	1,329	1,816	2,141

Portfolio Turnover

Principal Investment Strategies

The Fund operates as a “target date fund” that invests according to an asset allocation strategy designed for investors having a retirement investment goal close to the year in the Fund’s name. The Fund's asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. The Fund is a fund of funds that invests in underlying funds of Principal Funds, Inc. (“PFI”), with a majority of the Fund's assets invested in index funds. Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.

297

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

298

Principal Risks due to the Fund's Investments in Underlying Funds

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

299

Performance


•	For Institutional Class and Class R-6 - www.principal.com.

Life of Fund results are measured from the date the Fund's shares were first sold (September 30, 2014).

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '16	4.39	%
Lowest return for a quarter during the period of the bar chart above:	Q3 ‘15	(7.07	)%

300



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	Life of Fund
Institutional Class Return Before Taxes	9.29%	5.57%
Institutional Class Return After Taxes on Distributions	8.64%	4.50%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	5.74%	4.11%
Class R-6 Return Before Taxes	9.19%	5.52%
S&P Target Date 2050 Index (reflects no deduction for fees, expenses, or taxes)	9.74%	4.95%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2014), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2014), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2014), Portfolio Manager

Purchase and Sale of Fund Shares

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

301

PRINCIPAL LIFETIME HYBRID 2055 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment): None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	4.07%	168.34%
Acquired Fund Fees and Expenses	0.44%	0.44%
Total Annual Fund Operating Expenses	4.51%	168.78%
Expense Reimbursement ⁽²⁾	(4.02)%	(168.32)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.49%	0.46%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional and 0.02% for R-6 shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	4.07%	168.34%
Acquired Fund Fees and Expenses	0.44%	0.44%
Total Annual Fund Operating Expenses	4.51%	168.78%
Expense Reimbursement ⁽²⁾	(4.02)%	(168.32)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.49%	0.46%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional Class shares. In addition for Class R-6 shares, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

302

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Institutional Class	$50	$997	$1,954	$4,387
Class R-6	47	1,204	1,675	2,032

Portfolio Turnover

Principal Investment Strategies

The Fund operates as a “target date fund” that invests according to an asset allocation strategy designed for investors having a retirement investment goal close to the year in the Fund’s name. The Fund's asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. The Fund is a fund of funds that invests in underlying funds of Principal Funds, Inc. (“PFI”), with a majority of the Fund's assets invested in index funds. Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.

303

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

304

Principal Risks due to the Fund's Investments in Underlying Funds

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

305

Performance


•	For Institutional Class and Class R-6 - www.principal.com.

Life of Fund results are measured from the date the Fund's shares were first sold (September 30, 2014).

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '16	4.49	%
Lowest return for a quarter during the period of the bar chart above:	Q3 ‘15	(7.35	)%

306



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	Life of Fund
Institutional Class Return Before Taxes	9.44%	5.62%
Institutional Class Return After Taxes on Distributions	8.92%	4.62%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	5.74%	4.16%
Class R-6 Return Before Taxes	9.55%	5.66%
S&P Target Date 2055 Index (reflects no deduction for fees, expenses, or taxes)	9.94%	5.00%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2014), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2014), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2014), Portfolio Manager

Purchase and Sale of Fund Shares

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

307

PRINCIPAL LIFETIME HYBRID 2060 FUND


Objective:	The Fund seeks a total return consisting of long-term growth of capital and current income.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment): None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	11.51%	172.37%
Acquired Fund Fees and Expenses	0.44%	0.44%
Total Annual Fund Operating Expenses	11.95%	172.81%
Expense Reimbursement ⁽²⁾	(11.46)%	(172.35)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.49%	0.46%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional and 0.02% for R-6 shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	Inst.	R-6
Management Fees ⁽¹⁾	0.00%	0.00%
Distribution and/or Service (12b-1) Fees	N/A	N/A
Other Expenses	11.51%	172.37%
Acquired Fund Fees and Expenses	0.44%	0.44%
Total Annual Fund Operating Expenses	11.95%	172.81%
Expense Reimbursement ⁽²⁾	(11.46)%	(172.35)%
Total Annual Fund Operating Expenses After Expense Reimbursement	0.49%	0.46%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.05% for Institutional Class shares. In addition for Class R-6 shares, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

308

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Institutional Class	$50	$2,377	$4,392	$8,325
Class R-6	47	983	1,413	1,832

Portfolio Turnover

Principal Investment Strategies

The Fund operates as a “target date fund” that invests according to an asset allocation strategy designed for investors having a retirement investment goal close to the year in the Fund’s name. The Fund's asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. The Fund is a fund of funds that invests in underlying funds of Principal Funds, Inc. (“PFI”), with a majority of the Fund's assets invested in index funds. Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.

309

Principal Risks

The principal risks of investing in the Fund that are inherent in the fund of funds, in alphabetical order, are:

310

Principal Risks due to the Fund's Investments in Underlying Funds

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

311

Performance


•	For Institutional Class and Class R-6 - www.principal.com.

Life of Fund results are measured from the date the Fund's shares were first sold (September 30, 2014).

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '16	4.59	%
Lowest return for a quarter during the period of the bar chart above:	Q3 ‘15	(7.25	)%

312



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	Life of Fund
Institutional Class Return Before Taxes	9.67%	5.72%
Institutional Class Return After Taxes on Distributions	8.78%	4.44%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	5.61%	3.99%
Class R-6 Return Before Taxes	9.66%	5.77%
S&P Target Date 2060+ Index (reflects no deduction for fees, expenses, or taxes)	10.08%	5.00%
S&P Target Date 2055 Index (reflects no deduction for fees, expenses, or taxes)	9.94%	5.00%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2014), Portfolio Manager


•	Scott Smith (since 2017), Associate Portfolio Manager


•	Jeffrey R. Tyler (since 2014), Portfolio Manager (remove effective March 2018)


•	Randy L. Welch (since 2014), Portfolio Manager

Purchase and Sale of Fund Shares

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

313

REAL ESTATE SECURITIES FUND


Objective:	The Fund seeks to generate a total return.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.81%	0.81%	0.81%	0.81%	0.81%	0.81%	0.81%	0.81%	0.81%	0.81%	0.81%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾⁽²⁾	0.19%	0.26%	0.16%	0.15%	0.07%	0.54%	0.46%	0.33%	0.29%	0.27%	176.25%
Total Annual Fund Operating Expenses	1.25%	2.07%	1.12%	0.96%	0.88%	1.70%	1.57%	1.39%	1.20%	1.08%	177.06%
Expense Reimbursement ⁽³⁾	N/A	N/A	N/A	—%	N/A	N/A	N/A	N/A	N/A	N/A	(176.09)%
Total Annual Fund Operating Expenses after Expense Reimbursement	1.25%	2.07%	1.12%	0.96%	0.88%	1.70%	1.57%	1.39%	1.20%	1.08%	0.97%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Based on estimated amounts for the current fiscal year (Class R-6).
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.97% for Class R-6 shares. In addition for Class P, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20% (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

314

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.81%	0.81%	0.81%	0.81%	0.81%	0.81%	0.81%	0.81%	0.81%	0.81%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾⁽²⁾	0.19%	0.26%	0.16%	0.07%	0.54%	0.46%	0.33%	0.29%	0.27%	176.25%
Total Annual Fund Operating Expenses	1.25%	2.07%	1.12%	0.88%	1.70%	1.57%	1.39%	1.20%	1.08%	177.06%
Expense Reimbursement ⁽³⁾⁽⁴⁾	N/A	N/A	N/A	—%	N/A	N/A	N/A	N/A	N/A	(176.23)%
Total Annual Fund Operating Expenses after Expense Reimbursement	1.25%	2.07%	1.12%	0.88%	1.70%	1.57%	1.39%	1.20%	1.08%	0.83%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Based on estimated amounts for the current fiscal year (Class R-6).
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02% for Class R-6 shares. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.
⁽⁴⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.91% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$670	$925	$1,199	$1,978
Class C	310	649	1,114	2,400
Class J	214	356	617	1,363
Class P	98	306	531	1,178
Institutional Class	90	281	488	1,084
Class R-1	173	536	923	2,009
Class R-2	160	496	855	1,867
Class R-3	142	440	761	1,669
Class R-4	122	381	660	1,455
Class R-5	110	343	595	1,317
Class R-6	99	818	1,191	1,673

315

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$210	$649	$1,114	$2,400
Class J	114	356	617	1,363

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$670	$925	$1,199	$1,978
Class C	310	649	1,114	2,400
Class J	214	356	617	1,363
Institutional Class	90	281	488	1,084
Class R-1	173	536	923	2,009
Class R-2	160	496	855	1,867
Class R-3	142	440	761	1,669
Class R-4	122	381	660	1,455
Class R-5	110	343	595	1,317
Class R-6	85	805	1,178	1,661

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$210	$649	$1,114	$2,400
Class J	114	356	617	1,363

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies principally engaged in the real estate industry at the time of purchase. A real estate company has at least 50% of its assets, income or profits derived from products or services related to the real estate industry. Real estate companies include real estate investment trusts ("REITs") and companies with substantial real estate holdings such as paper, lumber, hotel and entertainment companies as well as those whose products and services relate to the real estate industry include building supply manufacturers, mortgage lenders and mortgage servicing companies. REITs are pooled investment vehicles that invest in income producing real estate, real estate related loans, or other types of real estate interests. REITs are corporations or business trusts that are permitted to eliminate corporate level federal income taxes by meeting certain requirements of the Internal Revenue Code.

316

The Fund invests in value equity securities, an investment strategy that emphasizes buying securities that appear to be undervalued.

The Fund concentrates its investments (invest more than 25% of its net assets) in securities in the real estate industry.

The Fund is considered non-diversified, which means it can invest a higher percentage of assets in securities of individual issuers than a diversified fund. As a result, changes in the value of a single investment could cause greater fluctuations in the Fund's share price than would occur in a more diversified fund.

Principal Risks

•


•	Real Estate. A fund concentrating in the real estate industry can be subject to the risks associated with direct ownership of real estate, securities of companies in the real estate industry, and/or real estate investment trusts.

317

Performance


•	For Classes A, C, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

For periods prior to the inception date of Class C shares (January 16, 2007), Class P shares (September 27, 2010), and Class R-6 shares (November 22, 2016), the performance shown in the table for Classes C, P, and R-6 shares is based on the performance of the Fund's R-3 Class shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class R-3 shares, the historical performance of the Class R-3 shares is used for the newer class. These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the R-3 Class shares, which were first sold on December 6, 2000.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '09	33.08	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(33.89	)%

318



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	(0.31)%	10.50%	4.60%
Class A Return After Taxes on Distributions	(1.45)%	8.76%	3.07%
Class A Return After Taxes on Distribution and Sale of Fund Shares	0.38%	7.87%	3.23%
Class C Return Before Taxes	3.65%	10.86%	4.40%
Class J Return Before Taxes	4.59%	11.83%	5.15%
Class P Return Before Taxes	5.80%	12.12%	5.37%
Institutional Class Return Before Taxes	5.93%	12.24%	5.67%
Class R-1 Return Before Taxes	5.03%	11.31%	4.78%
Class R-2 Return Before Taxes	5.17%	11.45%	4.91%
Class R-3 Return Before Taxes	5.35%	11.66%	5.10%
Class R-4 Return Before Taxes	5.58%	11.87%	5.30%
Class R-5 Return Before Taxes	5.68%	12.01%	5.43%
Class R-6 Return Before Taxes	5.41%	11.67%	5.11%
MSCI US REIT Index (reflects no deduction for fees, expenses, or taxes)	8.60%	11.86%	4.96%

Management

Investment Advisor:

Principal Global Investors, LLC

Sub-Advisor and Portfolio Managers:

Principal Real Estate Investors, LLC

• Keith Bokota (since 2013), Portfolio Manager

• Anthony Kenkel (since 2012), Portfolio Manager


•	Kelly D. Rush (since 2000), Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, R-5, and R-6	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

319

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

320

SAM (STRATEGIC ASSET MANAGEMENT) BALANCED PORTFOLIO


Objective:	The Portfolio seeks to provide as high a level of total return (consisting of reinvested income and capital appreciation) as is consistent with reasonable risk.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.10%	0.09%	0.05%	0.34%	—%	0.53%	0.45%	0.32%	0.28%	0.26%
Acquired Fund Fees and Expenses	0.74%	0.74%	0.74%	0.74%	0.74%	0.74%	0.74%	0.74%	0.74%	0.74%
Total Annual Fund Operating Expenses	1.37%	2.11%	1.22%	1.36%	1.02%	1.90%	1.77%	1.59%	1.40%	1.28%
Expense Reimbursement ⁽²⁾	N/A	N/A	N/A	(0.14)%	N/A	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.37%	2.11%	1.22%	1.22%	1.02%	1.90%	1.77%	1.59%	1.40%	1.28%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20% for Class P shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

321

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.10%	0.09%	0.05%	—%	0.53%	0.45%	0.32%	0.28%	0.26%
Acquired Fund Fees and Expenses	0.74%	0.74%	0.74%	0.74%	0.74%	0.74%	0.74%	0.74%	0.74%
Total Annual Fund Operating Expenses	1.37%	2.11%	1.22%	1.02%	1.90%	1.77%	1.59%	1.40%	1.28%
Expense Reimbursement ⁽²⁾	N/A	N/A	N/A	—%	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.37%	2.11%	1.22%	1.02%	1.90%	1.77%	1.59%	1.40%	1.28%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.28% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$682	$960	$1,259	$2,106
Class C	314	661	1,134	2,441
Class J	224	387	670	1,477
Class P	124	417	731	1,623
Institutional Class	104	325	563	1,248
Class R-1	193	597	1,026	2,222
Class R-2	180	557	959	2,084
Class R-3	162	502	866	1,889
Class R-4	143	443	766	1,680
Class R-5	130	406	702	1,545

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$214	$661	$1,134	$2,441
Class J	124	387	670	1,477

322

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$682	$960	$1,259	$2,106
Class C	314	661	1,134	2,441
Class J	224	387	670	1,477
Institutional Class	104	325	563	1,248
Class R-1	193	597	1,026	2,222
Class R-2	180	557	959	2,084
Class R-3	162	502	866	1,889
Class R-4	143	443	766	1,680
Class R-5	130	406	702	1,545

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$214	$661	$1,134	$2,441
Class J	124	387	670	1,477

Portfolio Turnover

As a fund of funds, the Fund does not pay transaction costs, such as commissions, when it buys and sells shares of underlying funds (or “turns over” its portfolio); however, the Fund does pay such transaction costs when it buys and sells other investments. Also, an underlying fund pays transaction costs when it buys and sells portfolio securities, and a higher portfolio turnover for the underlying fund may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the examples, affect the performance of the underlying fund and the Fund. During its most recent fiscal year, the Fund's portfolio turnover rate was 17.1% of the average value of its portfolio.

Principal Investment Strategies

The SAM Portfolios operate as funds of funds and invest principally in shares of Principal Funds, Inc. equity funds, fixed-income funds and specialty funds (“Underlying Funds”); the SAM Portfolio generally categorizes the Underlying Fund based on its investment profile. Each SAM Portfolio typically allocates its assets among Underlying Funds, and within predetermined percentage ranges, as determined by the SAM Portfolio in accordance with its outlook for the economy, the financial markets and the relative market valuations of the Underlying Funds. The diversification of the SAM Portfolio is designed to moderate overall price volatility.

The Portfolio:


•	Generally invests between 20% and 60% of its assets in fixed-income funds, and less than 40% in any one fixed-income fund; such fixed-income funds generally invest in fixed income instruments such as real estate securities, mortgage-backed securities and other securitized products, government and government-sponsored securities, and corporate bonds;


•	Generally invests between 40% and 80% of its assets in equity funds that invest in small, medium, and large market capitalization domestic and foreign companies with growth and/or value characteristics, and less than 30% in any one equity fund; and

323

•

Generally invests less than 20% of its assets in specialty funds, and less than 20% in any one specialty fund. Such specialty funds that generally offer unique combinations of traditional equity securities and fixed-income securities or that use alternative investment strategies that aim to offer diversification beyond traditional equity and fixed-income securities and include investments in such assets as infrastructure, commodities, currencies, and public timber companies.

The SAM Portfolio may temporarily exceed the applicable percentage ranges for short periods and may alter the percentage ranges when it deems appropriate.

Principal Risks

The value of your investment in the Portfolio changes with the value of the Portfolio's investments. Many factors affect that value, and it is possible to lose money by investing in the Portfolio. An investment in the Portfolio is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

The principal risks of investing in the Portfolio that are inherent in the fund of funds are:

Fund of Funds Risk. Portfolio shareholders bear indirectly their proportionate share of the expenses of other investment companies in which the Portfolio invests ("underlying funds"). The Portfolio's selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Portfolio's performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Portfolio entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Portfolio assets to underlying funds from which they receive higher fees.

Principal Risks due to the Portfolio's Investments in Underlying Funds


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

324

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance

The following information provides some indication of the risks of investing in the Portfolio. Past performance (before and after taxes) is not necessarily an indication of how the Portfolio will perform in the future. You may get updated performance information by calling 1-800-222-5852 or online at:


•	For Classes A, C, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Portfolio's Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Portfolio). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Portfolio and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Portfolio), how the Portfolio's average annual total returns compare with those of one or more broad measures of market performance.

The Portfolio commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods prior to that date is based on the performance of the predecessor fund. The predecessor fund's Class A shares commenced operations on July 25, 1996.

For periods prior to the inception date of Classes J, Institutional, R-1, R-2, R-3, R-4, and R-5 shares (January 16, 2007) and Class P shares (August 24, 2015), the performance shown in the table for Classes J, Institutional, P, R-1, R-2, R-3, R-4, and R-5 shares is based on the performance of the Portfolio's Class A shares, adjusted to reflect the respective fees and expenses of each class. Where the adjustments for fees and expenses result in performance for a newer class that is higher than the historical performance of the Class A shares, the historical performance of the Class A shares is used for the newer class (without respect to sales charges, if not applicable to the newer class). These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Class A shares.

325

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	13.43	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(14.46	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	0.49%	6.76%	4.55%
Class A Return After Taxes on Distributions	(0.44)%	5.57%	3.38%
Class A Return After Taxes on Distribution and Sale of Fund Shares	0.87%	5.11%	3.37%
Class C Return Before Taxes	4.47%	7.17%	4.36%
Class J Return Before Taxes	5.47%	8.06%	4.99%
Class P Return Before Taxes	6.51%	8.04%	5.17%
Institutional Class Return Before Taxes	6.70%	8.35%	5.49%
Class R-1 Return Before Taxes	5.78%	7.41%	4.58%
Class R-2 Return Before Taxes	5.87%	7.54%	4.71%
Class R-3 Return Before Taxes	6.04%	7.73%	4.90%
Class R-4 Return Before Taxes	6.23%	7.94%	5.10%
Class R-5 Return Before Taxes	6.38%	8.08%	5.23%
Russell 3000 Index (reflects no deduction for fees, expenses, or taxes)	12.74%	14.67%	7.07%
Bloomberg Barclays U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)	2.65%	2.23%	4.34%
MSCI EAFE Index NR (reflects no deduction for fees, expenses, or taxes)	1.00%	6.53%	0.75%
SAM Balanced Blended Index (reflects no deduction for fees, expenses, or taxes)	7.04%	8.54%	5.40%

Performance of a blended index shows how the Portfolio’s performance compares to a blend of indices with similar investment objectives. Performance of the components of the blended index are also shown. The weightings for SAM Balanced Blended Index are 45% Russell 3000^® Index, 40% Bloomberg Barclays U.S. Aggregate Bond Index and 15% MSCI EAFE Index NR. The custom or blended index returns reflect the allocation in effect for the time period(s) for which the fund returns are disclosed. Previous weightings or allocations of the custom or blended index are not restated.

326

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Charles D. Averill (since 2010), Portfolio Manager


•	Todd A. Jablonski (since 2010), Chief Investment Officer and Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

327

SAM (STRATEGIC ASSET MANAGEMENT) CONSERVATIVE BALANCED PORTFOLIO


Objective:	The Portfolio seeks to provide a high level of total return (consisting of reinvestment of income and capital appreciation), consistent with a moderate degree of principal risk.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.10%	0.10%	0.05%	0.72%	0.01%	0.53%	0.45%	0.32%	0.28%	0.26%
Acquired Fund Fees and Expenses	0.68%	0.68%	0.68%	0.68%	0.68%	0.68%	0.68%	0.68%	0.68%	0.68%
Total Annual Fund Operating Expenses	1.31%	2.06%	1.16%	1.68%	0.97%	1.84%	1.71%	1.53%	1.34%	1.22%
Expense Reimbursement ⁽²⁾	—%	—%	—%	(0.52)%	N/A	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.31%	2.06%	1.16%	1.16%	0.97%	1.84%	1.71%	1.53%	1.34%	1.22%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.63% for Class A, 1.38% for Class C, and 0.63% for Class J shares. In addition for Class P, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

328

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.10%	0.10%	0.05%	0.01%	0.53%	0.45%	0.32%	0.28%	0.26%
Acquired Fund Fees and Expenses	0.68%	0.68%	0.68%	0.68%	0.68%	0.68%	0.68%	0.68%	0.68%
Total Annual Fund Operating Expenses	1.31%	2.06%	1.16%	0.97%	1.84%	1.71%	1.53%	1.34%	1.22%
Expense Reimbursement ⁽²⁾⁽³⁾	—%	—%	—%	—%	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.31%	2.06%	1.16%	0.97%	1.84%	1.71%	1.53%	1.34%	1.22%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.63% for Class A, 1.38% for Class C, and 0.63% for Class J shares. It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.29% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$676	$942	$1,229	$2,042
Class C	309	646	1,108	2,390
Class J	218	368	638	1,409
Class P	118	479	864	1,944
Institutional Class	99	309	536	1,190
Class R-1	187	579	995	2,159
Class R-2	174	539	928	2,019
Class R-3	156	483	834	1,824
Class R-4	136	425	734	1,613
Class R-5	124	387	670	1,477

329

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$209	$646	$1,108	$2,390
Class J	118	368	638	1,409

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$676	$942	$1,229	$2,042
Class C	309	646	1,108	2,390
Class J	218	368	638	1,409
Institutional Class	99	309	536	1,190
Class R-1	187	579	995	2,159
Class R-2	174	539	928	2,019
Class R-3	156	483	834	1,824
Class R-4	136	425	734	1,613
Class R-5	124	387	670	1,477

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$209	$646	$1,108	$2,390
Class J	118	368	638	1,409

Portfolio Turnover

Principal Investment Strategies

330

The Portfolio:


•	Generally invests between 40% and 80% of its assets in fixed-income funds, and less than 40% in any one fixed-income fund; such fixed-income funds generally invest in fixed income instruments such as high yield securities (or “junk” bonds), real estate securities, mortgage-backed securities and other securitized products, government and government-sponsored securities, and corporate bonds;


•	Generally invests between 20% and 60% of its assets in equity funds, and less than 30% in any one equity fund; such equity funds generally invest in domestic and foreign equity securities regardless of market capitalization (small, medium or large) and style (growth or value); and

•

Generally invests less than 20% of its assets in specialty funds, and less than 20% in any one specialty fund; such specialty funds that generally offer unique combinations of traditional equity securities and fixed-income securities or that use alternative investment strategies that aim to offer diversification beyond traditional equity and fixed-income securities and include investments in such assets as infrastructure, commodities, currencies, and public timber companies.

The SAM Portfolio may temporarily exceed these percentage ranges for short periods and may alter the percentage ranges when it deems appropriate.

Principal Risks

The principal risks of investing in the Portfolio that are inherent in the fund of funds are:

Fund of Funds Risk. Portfolio shareholders bear indirectly their proportionate share of the expenses of other investment companies in which the Portfolio invests ("underlying funds"). The Portfolio's selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Portfolio's performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Portfolio entails potential conflicts of interest: the Portfolio invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Portfolio assets to underlying funds from which they receive higher fees.

Principal Risks due to the Portfolio's Investments in Underlying Funds


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

331

Investment Company Securities Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies in which the fund invests.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Classes A, C, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

332

For periods prior to the inception date of Classes J, Institutional, R-1, R-2, R-3, R-4, and R-5 shares (January 16, 2007) and Class P shares (August 24, 2015), the performance shown in the table for Classes J, Institutional, P, R-1, R-2, R-3, R-4, and R-5 shares is based on the performance of the Portfolio's Class A shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class A shares, the historical performance of the Class A shares is used for the newer class (without respect to sales charges, if not applicable to the newer class). These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Class A shares.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	11.55	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(9.94	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Years	5 Years	10 Years
Class A Return Before Taxes	0.05%	5.13%	4.39%
Class A Return After Taxes on Distributions	(0.94)%	3.87%	3.12%
Class A Return After Taxes on Distribution and Sale of Fund Shares	0.38%	3.67%	3.10%
Class C Return Before Taxes	4.09%	5.53%	4.21%
Class J Return Before Taxes	5.03%	6.36%	4.90%
Class P Return Before Taxes	6.02%	6.36%	5.00%
Institutional Class Return Before Taxes	6.20%	6.66%	5.32%
Class R-1 Return Before Taxes	5.29%	5.74%	4.42%
Class R-2 Return Before Taxes	5.46%	5.88%	4.56%
Class R-3 Return Before Taxes	5.61%	6.06%	4.75%
Class R-4 Return Before Taxes	5.82%	6.26%	4.94%
Class R-5 Return Before Taxes	5.95%	6.39%	5.07%
Bloomberg Barclays U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)	2.65%	2.23%	4.34%
Russell 3000 Index(reflects no deduction for fees, expenses, or taxes)	12.74%	14.67%	7.07%
MSCI EAFE Index NR (reflects no deduction for fees, expenses, or taxes)	1.00%	6.53%	0.75%
SAM Conservative Balanced Blended Index (reflects no deduction for fees, expenses, or taxes)	5.62%	6.45%	5.16%

333

Performance of a blended index shows how the Portfolio’s performance compares to a blend of indices with similar investment objectives. Performance of the components of the blended index are also shown. The weightings for SAM Conservative Balanced Blended Index are 60% Bloomberg Barclays U.S. Aggregate Bond Index, 30% Russell 3000^® Index and 10% MSCI EAFE Index NR. The custom or blended index returns reflect the allocation in effect for the time period(s) for which the fund returns are disclosed. Previous weightings or allocations of the custom or blended index are not restated.

Management

Investment Advisor:

Principal Global Investors, LLC


•	Charles D. Averill (since 2010), Portfolio Manager


•	Todd A. Jablonski (since 2010), Chief Investment Officer and Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

334

SAM (STRATEGIC ASSET MANAGEMENT) CONSERVATIVE GROWTH PORTFOLIO


Objective:	The Portfolio seeks to provide long-term capital appreciation.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.10%	0.11%	0.06%	0.41%	0.01%	0.53%	0.45%	0.32%	0.28%	0.26%
Acquired Fund Fees and Expenses	0.79%	0.79%	0.79%	0.79%	0.79%	0.79%	0.79%	0.79%	0.79%	0.79%
Total Annual Fund Operating Expenses	1.42%	2.18%	1.28%	1.48%	1.08%	1.95%	1.82%	1.64%	1.45%	1.33%
Expense Reimbursement ⁽²⁾	N/A	N/A	N/A	(0.34)%	N/A	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.42%	2.18%	1.28%	1.14%	1.08%	1.95%	1.82%	1.64%	1.45%	1.33%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.35% for Class P shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

335

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.10%	0.11%	0.06%	0.01%	0.53%	0.45%	0.32%	0.28%	0.26%
Acquired Fund Fees and Expenses	0.79%	0.79%	0.79%	0.79%	0.79%	0.79%	0.79%	0.79%	0.79%
Total Annual Fund Operating Expenses	1.42%	2.18%	1.28%	1.08%	1.95%	1.82%	1.64%	1.45%	1.33%
Expense Reimbursement ⁽²⁾	N/A	N/A	N/A	—%	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.42%	2.18%	1.28%	1.08%	1.95%	1.82%	1.64%	1.45%	1.33%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.29% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$687	$975	$1,284	$2,158
Class C	321	682	1,169	2,513
Class J	230	406	702	1,545
Class P	116	435	776	1,739
Institutional Class	110	343	595	1,317
Class R-1	198	612	1,052	2,275
Class R-2	185	573	985	2,137
Class R-3	167	517	892	1,944
Class R-4	148	459	792	1,735
Class R-5	135	421	729	1,601

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$221	$682	$1,169	$2,513
Class J	130	406	702	1,545

336

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$687	$975	$1,284	$2,158
Class C	321	682	1,169	2,513
Class J	230	406	702	1,545
Institutional Class	110	343	595	1,317
Class R-1	198	612	1,052	2,275
Class R-2	185	573	985	2,137
Class R-3	167	517	892	1,944
Class R-4	148	459	792	1,735
Class R-5	135	421	729	1,601

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$221	$682	$1,169	$2,513
Class J	130	406	702	1,545

Portfolio Turnover

Principal Investment Strategies

The Portfolio:


•	Generally invests between 0% and 40% of its assets in fixed-income funds, and less than 30% in any one fixed-income fund; such fixed-income funds generally invest in fixed-income instruments such as government and government-sponsored securities and corporate bonds;


•	Generally invests between 60% and 100% of its assets in equity funds that invest in small, medium, and large market capitalization domestic and foreign companies with growth and/or value characteristics, and less than 40% in any one equity fund; and

337

•

The SAM Portfolio may temporarily exceed the applicable percentage ranges for short periods and may alter the percentage ranges when it deems appropriate.

Principal Risks

The principal risks of investing in the Portfolio that are inherent in the fund of funds are:

Fund of Funds Risk. Portfolio shareholders bear indirectly their proportionate share of the expenses of other investment companies in which the Portfolio invests ("underlying funds"). The Portfolio's selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Portfolio's performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Portfolio entails potential conflicts of interest: the Portfolio invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Portfolio assets to underlying funds from which they receive higher fees.

Principal Risks due to the Portfolio's Investments in Underlying Funds


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

Investment Company Securities Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies in which the fund invests.

338

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Classes A, C, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

For periods prior to the inception date of Classes J, Institutional, R-1, R-2, R-3, R-4, and R-5 shares (January 16, 2007) and Class P shares (August 24, 2015), the performance shown in the table for Classes J, Institutional, P, R-1, R-2, R-3, R-4, and R-5 shares is based on the performance of the Portfolio's Class A shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class A shares, the historical performance of the Class A shares is used for the newer class (without respect to sales charges, if not applicable to the newer class). These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Class A shares.

339

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	14.58	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(19.14	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	0.70%	8.10%	4.31%
Class A Return After Taxes on Distributions	(0.04)%	6.94%	3.33%
Class A Return After Taxes on Distribution and Sale of Fund Shares	1.07%	6.28%	3.35%
Class C Return Before Taxes	4.72%	8.51%	4.12%
Class J Return Before Taxes	5.66%	9.40%	4.84%
Class P Return Before Taxes	6.80%	9.41%	4.94%
Institutional Class Return Before Taxes	6.91%	9.71%	5.27%
Class R-1 Return Before Taxes	5.89%	8.76%	4.36%
Class R-2 Return Before Taxes	6.13%	8.90%	4.50%
Class R-3 Return Before Taxes	6.28%	9.09%	4.68%
Class R-4 Return Before Taxes	6.51%	9.31%	4.89%
Class R-5 Return Before Taxes	6.64%	9.44%	5.02%
Russell 3000 Index (reflects no deduction for fees, expenses, or taxes)	12.74%	14.67%	7.07%
Bloomberg Barclays U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)	2.65%	2.23%	4.34%
MSCI EAFE Index NR (reflects no deduction for fees, expenses, or taxes)	1.00%	6.53%	0.75%
SAM Conservative Growth Blended Index (reflects no deduction for fees, expenses, or taxes)	8.42%	10.60%	5.52%

Performance of a blended index shows how the Portfolio’s performance compares to a blend of indices with similar investment objectives. Performance of the components of the blended index are also shown. The weightings for SAM Conservative Growth Blended Index are 60% Russell 3000^® Index, 20% Bloomberg Barclays U.S. Aggregate Bond Index, and 20% MSCI EAFE Index NR. The custom or blended index returns reflect the allocation in effect for the time period(s) for which the fund returns are disclosed. Previous weightings or allocations of the custom or blended index are not restated.

340

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Charles D. Averill (since 2010), Portfolio Manager


•	Todd A. Jablonski (since 2010), Chief Investment Officer and Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

341

SAM (STRATEGIC ASSET MANAGEMENT) FLEXIBLE INCOME PORTFOLIO


Objective:	The Portfolio seeks to provide a high level of total return (consisting of reinvestment of income with some capital appreciation).

Fees and Expenses of the Fund

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	3.75%	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.08%	0.10%	0.06%	0.24%	0.01%	0.53%	0.45%	0.32%	0.28%	0.26%
Acquired Fund Fees and Expenses	0.57%	0.57%	0.57%	0.57%	0.57%	0.57%	0.57%	0.57%	0.57%	0.57%
Total Annual Fund Operating Expenses	1.18%	1.95%	1.06%	1.09%	0.86%	1.73%	1.60%	1.42%	1.23%	1.11%
Expense Reimbursement ⁽²⁾	N/A	N/A	N/A	(0.04)%	N/A	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.18%	1.95%	1.06%	1.05%	0.86%	1.73%	1.60%	1.42%	1.23%	1.11%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20% for Class P shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

342

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.08%	0.10%	0.06%	0.01%	0.53%	0.45%	0.32%	0.28%	0.26%
Acquired Fund Fees and Expenses	0.57%	0.57%	0.57%	0.57%	0.57%	0.57%	0.57%	0.57%	0.57%
Total Annual Fund Operating Expenses	1.18%	1.95%	1.06%	0.86%	1.73%	1.60%	1.42%	1.23%	1.11%
Expense Reimbursement ⁽²⁾	N/A	N/A	N/A	—%	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.18%	1.95%	1.06%	0.86%	1.73%	1.60%	1.42%	1.23%	1.11%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.29% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$491	$736	$1,000	$1,753
Class C	298	612	1,052	2,275
Class J	208	337	585	1,294
Class P	107	343	597	1,325
Institutional Class	88	274	477	1,061
Class R-1	176	545	939	2,041
Class R-2	163	505	871	1,900
Class R-3	145	449	776	1,702
Class R-4	125	390	676	1,489
Class R-5	113	353	612	1,352

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$198	$612	$1,052	$2,275
Class J	108	337	585	1,294

343

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$491	$736	$1,000	$1,753
Class C	298	612	1,052	2,275
Class J	208	337	585	1,294
Institutional Class	88	274	477	1,061
Class R-1	176	545	939	2,041
Class R-2	163	505	871	1,900
Class R-3	145	449	776	1,702
Class R-4	125	390	676	1,489
Class R-5	113	353	612	1,352

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$198	$612	$1,052	$2,275
Class J	108	337	585	1,294

Portfolio Turnover

Principal Investment Strategies

The Portfolio:


•	Generally invests between 55% and 95% of its assets in fixed-income funds, and less than 40% in any one fixed-income fund; such fixed-income funds generally invest in fixed income instruments such as high yield securities (or “junk” bonds), real estate securities, mortgage-backed securities and other securitized products, government and government-sponsored securities, and corporate bonds;


•	Generally invests between 5% and 45% of its assets in equity funds that invest in foreign and domestic securities, including value equity securities, and less than 30% in any one equity fund; and

•

344

The SAM Portfolio may temporarily exceed these percentage ranges for short periods and may alter the percentage ranges when it deems appropriate.

Principal Risks

The principal risks of investing in the Portfolio that are inherent in the fund of funds are:

Fund of Funds Risk. Portfolio shareholders bear indirectly their proportionate share of the expenses of other investment companies in which the Portfolio invests ("underlying funds"). The Portfolio's selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Portfolio's performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Portfolio entails potential conflicts of interest: the Portfolio invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Portfolio assets to underlying funds from which they receive higher fees.

Principal Risks due to the Portfolio's Investments in Underlying Funds

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

345

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


•	For Classes A, C, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

For periods prior to the inception date of Classes J, Institutional, R-1, R-2, R-3, R-4 and R-5 shares (January 16, 2007) and Class P shares (August 24, 2015), the performance shown in the table for Classes J, Institutional, P, R-1, R-2, R-3, R-4, and R-5 shares is based on the performance of the Portfolio's Class A shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class A shares, the historical performance of the Class A shares is used for the newer class (without respect to sales charges, if not applicable to the newer class). These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Class A shares.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	10.74	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(7.04	)%

346



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	2.48%	4.61%	4.52%
Class A Return After Taxes on Distributions	1.33%	3.25%	3.11%
Class A Return After Taxes on Distribution and Sale of Fund Shares	1.58%	3.15%	3.08%
Class C Return Before Taxes	4.62%	4.63%	4.13%
Class J Return Before Taxes	5.55%	5.46%	4.82%
Class P Return Before Taxes	6.62%	5.46%	4.93%
Institutional Class Return Before Taxes	6.71%	5.75%	5.26%
Class R-1 Return Before Taxes	5.84%	4.85%	4.35%
Class R-2 Return Before Taxes	5.93%	4.98%	4.49%
Class R-3 Return Before Taxes	6.23%	5.18%	4.68%
Class R-4 Return Before Taxes	6.42%	5.37%	4.88%
Class R-5 Return Before Taxes	6.47%	5.49%	5.00%
Bloomberg Barclays U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)	2.65%	2.23%	4.34%
Russell 3000 Index(reflects no deduction for fees, expenses, or taxes)	12.74%	14.67%	7.07%
MSCI EAFE Index NR (reflects no deduction for fees, expenses, or taxes)	1.00%	6.53%	0.75%
SAM Flexible Income Blended Index (reflects no deduction for fees, expenses, or taxes)	4.67%	4.97%	4.98%

Performance of a blended index shows how the Portfolio’s performance compares to a blend of indices with similar investment objectives. Performance of the components of the blended index are also shown. The weightings for SAM Flexible Income Blended Index are 75% Bloomberg Barclays U.S. Aggregate Bond Index, 20% Russell 3000^® Index and 5% MSCI EAFE Index NR. The custom or blended index returns reflect the allocation in effect for the time period(s) for which the fund returns are disclosed. Previous weightings or allocations of the custom or blended index are not restated.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Charles D. Averill (since 2010), Portfolio Manager


•	Todd A. Jablonski (since 2010), Chief Investment Officer and Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

347

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

348

SAM (STRATEGIC ASSET MANAGEMENT) STRATEGIC GROWTH PORTFOLIO


Objective:	The Portfolio seeks to provide long-term capital appreciation.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.13%	0.13%	0.07%	0.97%	0.01%	0.53%	0.45%	0.32%	0.28%	0.26%
Acquired Fund Fees and Expenses	0.78%	0.78%	0.78%	0.78%	0.78%	0.78%	0.78%	0.78%	0.78%	0.78%
Total Annual Fund Operating Expenses	1.44%	2.19%	1.28%	2.03%	1.07%	1.94%	1.81%	1.63%	1.44%	1.32%
Expense Reimbursement ⁽²⁾	N/A	N/A	N/A	(0.77)%	N/A	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.44%	2.19%	1.28%	1.26%	1.07%	1.94%	1.81%	1.63%	1.44%	1.32%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20% for Class P shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

349

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees ⁽¹⁾	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%	0.28%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.13%	0.13%	0.07%	0.01%	0.53%	0.45%	0.32%	0.28%	0.26%
Acquired Fund Fees and Expenses	0.78%	0.78%	0.78%	0.78%	0.78%	0.78%	0.78%	0.78%	0.78%
Total Annual Fund Operating Expenses	1.44%	2.19%	1.28%	1.07%	1.94%	1.81%	1.63%	1.44%	1.32%
Expense Reimbursement ⁽²⁾	N/A	N/A	N/A	—%	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.44%	2.19%	1.28%	1.07%	1.94%	1.81%	1.63%	1.44%	1.32%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.29% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$689	$980	$1,294	$2,179
Class C	322	685	1,175	2,524
Class J	230	406	702	1,545
Class P	128	562	1,022	2,297
Institutional Class	109	340	590	1,306
Class R-1	197	609	1,047	2,264
Class R-2	184	569	980	2,127
Class R-3	166	514	887	1,933
Class R-4	147	456	787	1,724
Class R-5	134	418	723	1,590

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$222	$685	$1,175	$2,524
Class J	130	406	702	1,545

350

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$689	$980	$1,294	$2,179
Class C	322	685	1,175	2,524
Class J	230	406	702	1,545
Institutional Class	109	340	590	1,306
Class R-1	197	609	1,047	2,264
Class R-2	184	569	980	2,127
Class R-3	166	514	887	1,933
Class R-4	147	456	787	1,724
Class R-5	134	418	723	1,590

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$222	$685	$1,175	$2,524
Class J	130	406	702	1,545

Portfolio Turnover

Principal Investment Strategies

The Portfolio:


•	Generally invests between 75% and 100% of its assets in equity funds that invest in small, medium, and large market capitalization domestic and foreign companies with growth and/or value characteristics, and less than 50% in any one equity fund; and

•

Generally invests less than 20% of its assets in specialty funds, and less than 20% in any one specialty fund; such specialty funds generally offer unique combinations of traditional equity securities and fixed-income securities or that use alternative investment strategies that aim to offer diversification beyond traditional equity and fixed-income securities and include investments in such assets as infrastructure, commodities, currencies, and public timber companies.

351

The SAM Portfolio may temporarily exceed the applicable percentage ranges for short periods and may alter the percentage ranges when it deems appropriate.

Principal Risks

The principal risks of investing in the Portfolio that are inherent in the fund of funds are:

Fund of Funds Risk. Portfolio shareholders bear indirectly their proportionate share of the expenses of other investment companies in which the Portfolio invests ("underlying funds"). The Portfolio's selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Portfolio's performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Portfolio entails potential conflicts of interest: the Portfolio invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Portfolio assets to underlying funds from which they receive higher fees.

Principal Risks due to the Portfolio's Investments in Underlying Funds


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

352

Performance


•	For Classes A, C, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

For periods prior to the inception date of Classes J, Institutional, R-1, R-2, R-3, R-4, and R-5 shares (January 16, 2007) and Class P shares (August 24, 2015), the performance shown in the table for Classes J, Institutional, P, R-1, R-2, R-3, R-4, and R-5 shares is based on the performance of the Portfolio's Class A shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class A shares, the historical performance of the Class A shares is used for the newer class (without respect to sales charges, if not applicable to the newer class). These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Class A shares.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	15.72	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(22.29	)%

353



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	(0.09)%	9.04%	4.15%
Class A Return After Taxes on Distributions	(0.89)%	7.73%	3.18%
Class A Return After Taxes on Distribution and Sale of Fund Shares	0.70%	7.10%	3.26%
Class C Return Before Taxes	3.90%	9.44%	3.96%
Class J Return Before Taxes	4.84%	10.35%	4.71%
Class P Return Before Taxes	5.82%	10.33%	4.77%
Institutional Class Return Before Taxes	6.05%	10.69%	5.15%
Class R-1 Return Before Taxes	5.18%	9.73%	4.24%
Class R-2 Return Before Taxes	5.26%	9.87%	4.37%
Class R-3 Return Before Taxes	5.42%	10.06%	4.56%
Class R-4 Return Before Taxes	5.68%	10.28%	4.76%
Class R-5 Return Before Taxes	5.80%	10.40%	4.89%
Russell 3000 Index(reflects no deduction for fees, expenses, or taxes)	12.74%	14.67%	7.07%
MSCI EAFE Index NR (reflects no deduction for fees, expenses, or taxes)	1.00%	6.53%	0.75%
Bloomberg Barclays U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)	2.65%	2.23%	4.34%
SAM Strategic Growth Blended Index (reflects no deduction for fees, expenses, or taxes)	9.28%	12.04%	5.46%

Performance of a blended index shows how the Portfolio’s performance compares to a blend of indices with similar investment objectives. Performance of the components of the blended index are also shown. The weightings for SAM Strategic Growth Blended Index are 70% Russell 3000^® Index, 25% MSCI EAFE Index NR and 5% Bloomberg Barclays U.S. Aggregate Bond Index. The custom or blended index returns reflect the allocation in effect for the time period(s) for which the fund returns are disclosed. Previous weightings or allocations of the custom or blended index are not restated.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Charles D. Averill (since 2010), Portfolio Manager


•	Todd A. Jablonski (since 2010), Chief Investment Officer and Portfolio Manager

354

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

355

SHORT-TERM INCOME FUND


Objective:	The Fund seeks to provide as high a level of current income as is consistent with prudent investment management and stability of principal.

Fees and Expenses of the Fund

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	2.25%	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.41%	0.41%	0.41%	0.41%	0.41%	0.41%	0.41%	0.41%	0.41%	0.41%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.15%	1.00%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.13%	0.16%	0.13%	0.11%	0.02%	0.54%	0.46%	0.33%	0.29%	0.27%
Total Annual Fund Operating Expenses	0.69%	1.57%	0.69%	0.52%	0.43%	1.30%	1.17%	0.99%	0.80%	0.68%
Expense Reimbursement ⁽²⁾	N/A	N/A	N/A	N/A	N/A	—%	—%	—%	(0.01)%	—%
Total Annual Fund Operating Expenses after Expense Reimbursement	0.69%	1.57%	0.69%	0.52%	0.43%	1.30%	1.17%	0.99%	0.79%	0.68%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.30% for Class R-1, 1.18% for Class R-2, 0.99% for Class R-3, 0.79% for Class R-4, and 0.68% for Class R-5 shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

356

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5
Management Fees	0.41%	0.41%	0.41%	0.41%	0.41%	0.41%	0.41%	0.41%	0.41%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.15%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A
Other Expenses ⁽¹⁾	0.13%	0.16%	0.13%	0.02%	0.54%	0.46%	0.33%	0.29%	0.27%
Total Annual Fund Operating Expenses	0.69%	1.57%	0.69%	0.43%	1.30%	1.17%	0.99%	0.80%	0.68%
Expense Reimbursement ⁽²⁾⁽³⁾	N/A	N/A	N/A	—%	—%	—%	—%	(0.01)%	—%
Total Annual Fund Operating Expenses after Expense Reimbursement	0.69%	1.57%	0.69%	0.43%	1.30%	1.17%	0.99%	0.79%	0.68%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.30% for Class R-1, 1.18% for Class R-2, 0.99% for Class R-3, 0.79% for Class R-4, and 0.68% for Class R-5 shares. It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.43% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$294	$441	$601	$1,064
Class C	260	496	855	1,867
Class J	170	221	384	859
Class P	53	167	291	653
Institutional Class	44	138	241	542
Class R-1	132	412	713	1,568
Class R-2	119	372	644	1,420
Class R-3	101	315	547	1,213
Class R-4	81	254	443	989
Class R-5	69	218	379	847

357

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$160	$496	$855	$1,867
Class J	70	221	384	859

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$294	$441	$601	$1,064
Class C	260	496	855	1,867
Class J	170	221	384	859
Institutional Class	44	138	241	542
Class R-1	132	412	713	1,568
Class R-2	119	372	644	1,420
Class R-3	101	315	547	1,213
Class R-4	81	254	443	989
Class R-5	69	218	379	847

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$160	$496	$855	$1,867
Class J	70	221	384	859

Portfolio Turnover

Principal Investment Strategies

The Fund invests primarily in high quality short-term bonds and other fixed-income securities that, at the time of purchase, are rated BBB- or higher by S&P Global Ratings ("S&P Global") or Baa3 or higher by Moody's Investors Service, Inc. ("Moody's") or, if unrated, in the opinion of those selecting such investments, are of comparable quality. Under normal circumstances, the Fund maintains an effective maturity of five years or less and an average portfolio duration that is within ±15% of the duration of the Bloomberg Barclays Credit 1-3 Year Index which as of December 31, 2016 was 1.87 years. The Fund's investments also include corporate securities, U.S. and foreign government securities, mortgage-backed and asset-backed securities (securitized products), and real estate investment trust ("REIT") securities. The Fund invests in securities denominated in foreign currencies and in securities of foreign issuers.

358

Principal Risks

Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

359

Performance


•	For Classes A, C, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.

The bar chart shows the investment returns of the Fund's Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund's average annual total returns compare with those of one or more broad measures of market performance.

The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods prior to that date is based on the performance of the predecessor fund.

For periods prior to the inception date of Classes J, R-1, R-2, R-3, R-4, and R-5 shares (July 12, 2010) and Class P shares (September 27, 2010), the performance shown in the table for Classes J, P, R-1, R-2, R-3, R-4, and R-5 shares is based on the performance of the Class A shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class A shares, the historical performance of the Class A shares is used for the newer class (without respect to sales charges, if not applicable to the newer class). These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of Class A shares. The predecessor fund's Class A shares commenced operations on November 1, 1993.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	3.96	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(1.87	)%

360



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	(0.07)%	1.49%	2.68%
Class A Return After Taxes on Distributions	(0.78)%	0.86%	1.78%
Class A Return After Taxes on Distribution and Sale of Fund Shares	(0.04)%	0.87%	1.72%
Class C Return Before Taxes	0.36%	1.08%	2.06%
Class J Return Before Taxes	1.16%	1.84%	2.75%
Class P Return Before Taxes	2.43%	2.12%	3.02%
Institutional Class Return Before Taxes	2.43%	2.21%	3.21%
Class R-1 Return Before Taxes	1.55%	1.34%	2.37%
Class R-2 Return Before Taxes	1.77%	1.48%	2.50%
Class R-3 Return Before Taxes	1.95%	1.67%	2.69%
Class R-4 Return Before Taxes	2.15%	1.85%	2.86%
Class R-5 Return Before Taxes	2.18%	1.98%	2.93%
Bloomberg Barclays Credit 1-3 Year Index (reflects no deduction for fees, expenses, or taxes)	2.11%	1.84%	3.25%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	John R. Friedl (since 2010), Portfolio Manager


•	Ryan P. McCann (since 2010), Portfolio Manager


•	Scott J. Peterson (since 2010), Portfolio Manager


•	Greg L. Tornga (since 2011), Head of Fixed Income and Portfolio Manager

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, and R-5	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

361

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

362

SMALLCAP FUND


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	1.00%	None	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.75%	0.75%	0.75%	0.75%	0.75%	0.75%	0.75%	0.75%	0.75%	0.75%	0.75%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾⁽²⁾	0.24%	0.34%	0.12%	0.36%	0.07%	0.54%	0.46%	0.33%	0.29%	0.27%	176.26%
Acquired Fund Fees and Expenses	0.02%	0.02%	0.02%	0.02%	0.02%	0.02%	0.02%	0.02%	0.02%	0.02%	0.02%
Total Annual Fund Operating Expenses	1.26%	2.11%	1.04%	1.13%	0.84%	1.66%	1.53%	1.35%	1.16%	1.04%	177.03%
Expense Reimbursement ⁽³⁾	N/A	(0.01)%	N/A	(0.16)%	(0.02)%	N/A	N/A	N/A	N/A	N/A	(176.11)%
Total Annual Fund Operating Expenses after Expense Reimbursement	1.26%	2.10%	1.04%	0.97%	0.82%	1.66%	1.53%	1.35%	1.16%	1.04%	0.92%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Based on estimated amounts for the current fiscal year (Class R-6).
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 2.08% for Class C, 0.80% for Institutional Class, and 0.90% for R-6 shares. In addition for Class P, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

363

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	J	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.75%	0.75%	0.75%	0.75%	0.75%	0.75%	0.75%	0.75%	0.75%	0.75%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	1.00%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾⁽²⁾	0.24%	0.34%	0.12%	0.07%	0.54%	0.46%	0.33%	0.29%	0.27%	176.26%
Acquired Fund Fees and Expenses	0.02%	0.02%	0.02%	0.02%	0.02%	0.02%	0.02%	0.02%	0.02%	0.02%
Total Annual Fund Operating Expenses	1.26%	2.11%	1.04%	0.84%	1.66%	1.53%	1.35%	1.16%	1.04%	177.03%
Expense Reimbursement ⁽³⁾	N/A	(0.01)%	N/A	(0.02)%	N/A	N/A	N/A	N/A	N/A	(176.24)%
Total Annual Fund Operating Expenses after Expense Reimbursement	1.26%	2.10%	1.04%	0.82%	1.66%	1.53%	1.35%	1.16%	1.04%	0.79%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Based on estimated amounts for the current fiscal year (Class R-6).
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 2.08% for Class C and 0.80% for Institutional Class shares. In addition for Class R-6, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$671	$928	$1,204	$1,989
Class C	313	660	1,133	2,441
Class J	206	331	574	1,271
Class P	99	343	607	1,360
Institutional Class	84	266	464	1,035
Class R-1	169	523	902	1,965
Class R-2	156	483	834	1,824
Class R-3	137	428	739	1,624
Class R-4	118	368	638	1,409
Class R-5	106	331	574	1,271
Class R-6	94	815	1,189	1,670

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$213	$660	$1,133	$2,441
Class J	106	331	574	1,271

364

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$671	$928	$1,204	$1,989
Class C	313	660	1,133	2,441
Class J	206	331	574	1,271
Institutional Class	84	266	464	1,035
Class R-1	169	523	902	1,965
Class R-2	156	483	834	1,824
Class R-3	137	428	739	1,624
Class R-4	118	368	638	1,409
Class R-5	106	331	574	1,271
Class R-6	81	802	1,177	1,659

With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$213	$660	$1,133	$2,441
Class J	106	331	574	1,271

Portfolio Turnover

Principal Investment Strategies

The Fund invests in equity securities with value and/or growth characteristics and constructs an investment portfolio that has a blend of equity securities with these characteristics. Investing in value equity securities is an investment strategy that emphasizes buying equity securities that appear to be undervalued. The growth orientation selection emphasizes buying equity securities of companies whose potential for growth of capital and earnings is expected to be above average. The Fund does not have a policy of preferring one of these categories over the other.

365

Principal Risks


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Performance


•	For Classes A, C, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

For periods prior to the inception date of Class C shares (January 16, 2007), Class P shares (June 3, 2014), and Class R-6 shares (November 22, 2016), the performance shown in the table for Classes C, P, and R-6 shares is based on the performance of the Fund's Class R-3 shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class R-3 shares, the historical performance of the Class R-3 shares is used for the newer class. These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the R-3 Class shares, which were first sold on December 6, 2000.

366

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q4 '11	17.97	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(26.29	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	10.39%	14.09%	6.02%
Class A Return After Taxes on Distributions	9.79%	12.70%	5.20%
Class A Return After Taxes on Distribution and Sale of Fund Shares	6.38%	11.12%	4.70%
Class C Return Before Taxes	14.79%	14.45%	5.83%
Class J Return Before Taxes	16.05%	15.53%	6.83%
Class P Return Before Taxes	17.14%	15.54%	6.79%
Institutional Class Return Before Taxes	17.29%	15.93%	7.26%
Class R-1 Return Before Taxes	16.30%	14.96%	6.35%
Class R-2 Return Before Taxes	16.48%	15.10%	6.49%
Class R-3 Return Before Taxes	16.66%	15.31%	6.68%
Class R-4 Return Before Taxes	16.89%	15.54%	6.88%
Class R-5 Return Before Taxes	17.02%	15.67%	7.01%
Class R-6 Return Before Taxes	16.69%	15.32%	6.69%
Russell 2000 Index (reflects no deduction for fees, expenses, or taxes)	21.31%	14.46%	7.07%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Phil Nordhus (since 2006), Portfolio Manager


•	Brian W. Pattinson (since 2011), Portfolio Manager

367

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A, C, and J	Initial Investment	$1,000⁽¹⁾
A, C, and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A, C, and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, R-5, and R-6	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

368

SMALLCAP GROWTH FUND I


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	1.08%	1.08%	1.08%	1.08%	1.08%	1.08%	1.08%	1.08%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾	0.18%	0.02%	0.54%	0.46%	0.33%	0.29%	0.27%	9.51%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	1.42%	1.11%	1.98%	1.85%	1.67%	1.48%	1.36%	10.60%
Fee Waiver and Expense Reimbursement ⁽²⁾⁽³⁾	(0.07)%	(0.08)%	(0.09)%	(0.09)%	(0.09)%	(0.09)%	(0.09)%	(9.53)%
Total Annual Fund Operating Expenses after Fee Waiver and Expense Reimbursement	1.35%	1.03%	1.89%	1.76%	1.58%	1.39%	1.27%	1.07%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending February 28, 2018. The fee waiver will reduce the Fund's Management Fees by 0.072% (expressed as a percent of average net assets on an annualized basis). It is expected that the fee waiver will continue through the period disclosed; however, Principal Funds, Inc. and PGI, the parties to the agreement may mutually agree to terminate the fee waiver prior to the end of the period.
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.50% for Class J, 1.02% for Institutional, 1.88% for Class R-1, 1.75% for Class R-2, 1.57% for Class R-3, 1.38% for Class R-4, 1.26% for Class R-5, and 1.06% for Class R-6 shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

369

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	1.08%	1.08%	1.08%	1.08%	1.08%	1.08%	1.08%	1.08%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾	0.18%	0.02%	0.54%	0.46%	0.33%	0.29%	0.27%	9.51%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	1.42%	1.11%	1.98%	1.85%	1.67%	1.48%	1.36%	10.60%
Fee Waiver and Expense Reimbursement ⁽²⁾⁽³⁾	(0.07)%	(0.08)%	(0.09)%	(0.09)%	(0.09)%	(0.09)%	(0.09)%	(9.57)%
Total Annual Fund Operating Expenses after Fee Waiver and Expense Reimbursement	1.35%	1.03%	1.89%	1.76%	1.58%	1.39%	1.27%	1.03%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending June 30, 2018. The fee waiver will reduce the Fund's Management Fees by 0.072% (expressed as a percent of average net assets on an annualized basis). It is expected that the fee waiver will continue through the period disclosed; however, Principal Funds, Inc. and PGI, the parties to the agreement may mutually agree to terminate the fee waiver prior to the end of the period.
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.50% for Class J, 1.02% for Institutional, 1.88% for Class R-1, 1.75% for Class R-2, 1.57% for Class R-3, 1.38% for Class R-4 and 1.26% for Class R-5 shares. In addition for Class R-6, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.01%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class J	$237	$442	$770	$1,696
Institutional Class	105	345	604	1,345
Class R-1	192	613	1,059	2,299
Class R-2	179	573	992	2,162
Class R-3	161	518	899	1,969
Class R-4	142	459	799	1,761
Class R-5	129	422	736	1,627
Class R-6	109	2,191	4,046	7,847

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$137	$442	$770	$1,696

370

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class J	$237	$442	$770	$1,696
Institutional Class	105	345	604	1,345
Class R-1	192	613	1,059	2,299
Class R-2	179	573	992	2,162
Class R-3	161	518	899	1,969
Class R-4	142	459	799	1,761
Class R-5	129	422	736	1,627
Class R-6	105	2,188	4,043	7,846

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$137	$442	$770	$1,696

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies with small market capitalizations at the time of purchase. For this Fund, companies with small market capitalizations are those with market capitalizations equal to or smaller than the greater of: 1) $6.0 billion or 2) the highest market capitalization of the companies comprising the Russell 2000^® Growth Index (as of December 31, 2016, the range was between approximately $20.4 million and $10.3 billion). The Fund invests in growth equity securities; growth orientation emphasizes buying equity securities of companies whose potential for growth of capital and earnings is expected to be above average.

Principal Global Investors, LLC invests between 10% and 30% of the Fund's assets in equity securities in an attempt to match or exceed the performance of the Russell 2000^® Growth Index by purchasing securities in the index while slightly overweighting and underweighting certain individual equity securities relative to their weight in the index. The Fund's remaining assets are managed by the sub-advisors.

371

Principal Risks


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

Performance


•	For Class J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 - www.principal.com.

For periods prior to the inception date of Class R-6 shares (November 25, 2014), the performance shown in the table for Class R-6 shares is based on the performance of the Fund's Institutional Class shares, adjusted to reflect the fees and expenses of Class R-6 shares. These adjustments for Class R-6 shares result in performance for such periods that is no higher than the historical performance of the Institutional Class shares, which were first sold on December 6, 2000.

372

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	19.78	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(29.22	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Institutional Class Return Before Taxes	9.25%	12.97%	8.41%
Institutional Class Return After Taxes on Distributions	8.50%	10.59%	7.00%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	5.88%	10.17%	6.71%
Class J Return Before Taxes	7.91%	12.46%	7.75%
Class R-1 Return Before Taxes	8.29%	11.99%	7.47%
Class R-2 Return Before Taxes	8.42%	12.13%	7.63%
Class R-3 Return Before Taxes	8.64%	12.34%	7.82%
Class R-4 Return Before Taxes	8.82%	12.56%	8.03%
Class R-5 Return Before Taxes	8.98%	12.69%	8.15%
Class R-6 Return Before Taxes	9.17%	12.93%	8.39%
Russell 2000 Growth Index (reflects no deduction for fees, expenses, or taxes)	11.32%	13.74%	7.76%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2009), Portfolio Manager


•	Randy L. Welch (since 2009), Portfolio Manager

Sub-Advisors:

AllianceBernstein L.P.

Brown Advisory, LLC

Emerald Advisers, Inc.

373

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
J	Initial Investment	$1,000⁽¹⁾
J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional, R-1, R-2, R-3, R-4, R-5, and R-6	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

374

SMALLCAP S&P 600 INDEX FUND


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.15%	0.15%	0.15%	0.15%	0.15%	0.15%	0.15%	0.15%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾⁽²⁾	0.16%	0.06%	0.54%	0.46%	0.33%	0.29%	0.27%	176.26%
Total Annual Fund Operating Expenses	0.46%	0.21%	1.04%	0.91%	0.73%	0.54%	0.42%	176.41%
Expense Reimbursement ⁽³⁾	N/A	N/A	N/A	N/A	N/A	N/A	N/A	(176.16)%
Total Annual Fund Operating Expenses after Expense Reimbursement	0.46%	0.21%	1.04%	0.91%	0.73%	0.54%	0.42%	0.25%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Based on estimated amounts for the current fiscal year (Class R-6).
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.25% for Class R-6 shares. It is expected that the expense limit will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

375

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	J	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.15%	0.15%	0.15%	0.15%	0.15%	0.15%	0.15%	0.15%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾⁽²⁾	0.16%	0.06%	0.54%	0.46%	0.33%	0.29%	0.27%	176.26%
Total Annual Fund Operating Expenses	0.46%	0.21%	1.04%	0.91%	0.73%	0.54%	0.42%	176.41%
Expense Reimbursement ⁽³⁾⁽⁴⁾	N/A	—%	N/A	N/A	N/A	N/A	N/A	(176.24)%
Total Annual Fund Operating Expenses after Expense Reimbursement	0.46%	0.21%	1.04%	0.91%	0.73%	0.54%	0.42%	0.17%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Based on estimated amounts for the current fiscal year (Class R-6).
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02% for Class R-6 shares. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.
⁽⁴⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.27% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class J	$147	$148	$258	$579
Institutional Class	22	68	118	268
Class R-1	106	331	574	1,271
Class R-2	93	290	504	1,120
Class R-3	75	233	406	906
Class R-4	55	173	302	677
Class R-5	43	135	235	530
Class R-6	26	781	1,166	1,641

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$47	$148	$258	$579

376

Effective June 23, 2017, delete the preceding Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class J	$147	$148	$258	$579
Institutional Class	22	68	118	268
Class R-1	106	331	574	1,271
Class R-2	93	290	504	1,120
Class R-3	75	233	406	906
Class R-4	55	173	302	677
Class R-5	43	135	235	530
Class R-6	17	773	1,159	1,634

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$47	$148	$258	$579

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies that compose the Standard & Poor's ("S&P") SmallCap 600 Index (the "Index") at the time of purchase. The Index is designed to represent U.S. equities with risk/return characteristics of the small cap universe, which include growth and value stocks. As of December 31, 2016, the market capitalization range of the companies comprising the Index was between approximately $51.6 million and $4.5 billion. Each component stock of the Index is weighted in proportion to its total market value. The Index is rebalanced quarterly.


Note:	"Standard & Poor's SmallCap 600" and "S&P SmallCap 600" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed by Principal. The Fund is not sponsored, endorsed, sold or promoted by S&P Global and S&P Global makes no representation regarding the advisability of investing in the Fund.

377

Principal Risks

•


•	Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

Investment Company Securities Risk. A fund that invests in another investment company (for example, another fund or an exchange-traded fund (“ETF”)) is subject to the risks associated with direct ownership of the securities in which such investment company invests. Fund shareholders indirectly bear their proportionate share of the expenses of each such investment company.

Performance


•	For Class J - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 - www.principal.com.

378

Total Returns as of December 31 (Institutional Class shares)



Highest return for a quarter during the period of the bar chart above:	Q2 '09	20.85	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(25.21	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Institutional Class Return Before Taxes	26.18%	16.32%	8.80%
Institutional Class Return After Taxes on Distributions	24.21%	14.76%	7.68%
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	16.32%	12.92%	6.94%
Class J Return Before Taxes	24.88%	15.92%	8.27%
Class R-1 Return Before Taxes	25.14%	15.36%	7.89%
Class R-2 Return Before Taxes	25.32%	15.51%	8.03%
Class R-3 Return Before Taxes	25.56%	15.72%	8.22%
Class R-4 Return Before Taxes	25.78%	15.94%	8.43%
Class R-5 Return Before Taxes	25.94%	16.09%	8.56%
Class R-6 Return Before Taxes	25.60%	15.73%	8.23%
S&P SmallCap 600 Index (reflects no deduction for fees, expenses, or taxes)	26.56%	16.62%	9.03%

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Institutional Class shares only and would be different for the other share classes.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	Thomas L. Kruchten (since 2011), Research Analyst and Portfolio Manager


•	Jeffrey A. Schwarte (since 2016), Portfolio Manager

379

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
J	Initial Investment	$1,000⁽¹⁾
J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
J	Subsequent Investments	$100⁽¹⁾⁽²⁾
Institutional, R-1, R-2, R-3, R-4, R-5, and R-6	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

380

SMALLCAP VALUE FUND II


Objective:	The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	J	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	None	None	None	None	None	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	None	None	None	None	None	None	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	J	P	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.98%	0.98%	0.98%	0.98%	0.98%	0.98%	0.98%	0.98%	0.98%	0.98%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	0.15%	N/A	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾	1.22%	0.29%	0.75%	0.03%	0.54%	0.46%	0.33%	0.29%	0.27%	2.07%
Acquired Fund Fees and Expenses	0.06%	0.06%	0.06%	0.06%	0.06%	0.06%	0.06%	0.06%	0.06%	0.06%
Total Annual Fund Operating Expenses	2.51%	1.48%	1.79%	1.07%	1.93%	1.80%	1.62%	1.43%	1.31%	3.11%
Fee Waiver and Expense Reimbursement ⁽²⁾⁽³⁾	(1.00)%	(0.02)%	(0.57)%	(0.02)%	(0.02)%	(0.02)%	(0.02)%	(0.02)%	(0.02)%	(2.04)%
Total Annual Fund Operating Expenses after Fee Waiver and Expense Reimbursement	1.51%	1.46%	1.22%	1.05%	1.91%	1.78%	1.60%	1.41%	1.29%	1.07%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending February 28, 2018. The fee waiver will reduce the Fund's Management Fees by 0.024% (expressed as a percent of average net assets on an annualized basis). It is expected that the fee waiver will continue through the period disclosed; however, Principal Funds, Inc. and PGI, the parties to the agreement may mutually agree to terminate the fee waiver prior to the end of the period.
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.45% for Class A, and 1.01% for Class R-6 shares. In addition, for Class P, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20% (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

381

Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	J	Inst.	R-1	R-2	R-3	R-4	R-5	R-6
Management Fees	0.98%	0.98%	0.98%	0.98%	0.98%	0.98%	0.98%	0.98%	0.98%
Distribution and/or Service (12b-1) Fees ⁽¹⁾	0.25%	0.15%	N/A	0.35%	0.30%	0.25%	0.10%	N/A	N/A
Other Expenses ⁽¹⁾	1.22%	0.29%	0.03%	0.54%	0.46%	0.33%	0.29%	0.27%	2.07%
Acquired Fund Fees and Expenses	0.06%	0.06%	0.06%	0.06%	0.06%	0.06%	0.06%	0.06%	0.06%
Total Annual Fund Operating Expenses	2.51%	1.48%	1.07%	1.93%	1.80%	1.62%	1.43%	1.31%	3.11%
Fee Waiver and Expense Reimbursement ^(2)(3)(4)	(1.00)%	(0.02)%	(0.02)%	(0.02)%	(0.02)%	(0.02)%	(0.02)%	(0.02)%	(2.07)%
Total Annual Fund Operating Expenses after Fee Waiver and Expense Reimbursement	1.51%	1.46%	1.05%	1.91%	1.78%	1.60%	1.41%	1.29%	1.04%
⁽¹⁾ Expense information in the table has been restated to reflect current fees.
⁽²⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending June 30, 2018. The fee waiver will reduce the Fund's Management Fees by 0.024% (expressed as a percent of average net assets on an annualized basis). It is expected that the fee waiver will continue through the period disclosed; however, Principal Funds, Inc. and PGI, the parties to the agreement may mutually agree to terminate the fee waiver prior to the end of the period.
⁽³⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.45% for Class A shares. In addition, for Class R-6, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02% (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.
⁽⁴⁾ Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.01% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

382

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$695	$1,198	$1,727	$3,168
Class J	249	466	806	1,767
Class P	124	508	916	2,058
Institutional Class	107	338	588	1,304
Class R-1	194	604	1,040	2,252
Class R-2	181	564	973	2,114
Class R-3	163	509	879	1,920
Class R-4	144	450	780	1,711
Class R-5	131	413	716	1,577
Class R-6	109	768	1,452	3,278

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$149	$466	$806	$1,767

Effective June 23, 2017, delete the Example section and replace with the following:

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$695	$1,198	$1,727	$3,168
Class J	249	466	806	1,767
Institutional Class	107	338	588	1,304
Class R-1	194	604	1,040	2,252
Class R-2	181	564	973	2,114
Class R-3	163	509	879	1,920
Class R-4	144	450	780	1,711
Class R-5	131	413	716	1,577
Class R-6	106	765	1,449	3,276

With respect to Class J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class J	$149	$466	$806	$1,767

383

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies with small market capitalizations at the time of purchase. For this Fund, companies with small market capitalizations are those with market capitalizations of one or both of the following: $3.5 billion or less, or within the range of companies composing the Russell 2000^® Value Index (as of December 31, 2016, this range was between approximately $36.1 million and $10.3 billion). The Fund invests in value equity securities, an investment strategy that emphasizes buying equity securities that appear to be undervalued. The Fund also invests in real estate investment trusts ("REITs").

Principal Global Investors, LLC invests between 10% and 30% of the Fund's assets in equity securities in an attempt to match or exceed the performance of the Russell 2000^® Value Index by purchasing securities in the index while slightly overweighting and underweighting certain individual equity securities relative to their weight in the index. The Fund's remaining assets are managed by the sub-advisors.

Principal Risks


•	Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

•

384

Performance


•	For Classes A, J, and P - www.principalfunds.com.


•	For Institutional Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 - www.principal.com.

Using the historical performance of the Fund's Institutional Class shares, adjusted as described below, the bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

For periods prior to the inception date of Class J shares (March 2, 2009), Classes A and P shares (June 3, 2014) and Class R-6 shares (November 25, 2014), the performance shown in the bar chart for Class A shares and the table for Classes A, P, J, and R-6 shares is based on the performance of the Fund's Institutional Class shares, adjusted to reflect the respective fees and expenses of each class. These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Institutional Class shares, which were first sold on June 1, 2004.

During 2016, the Class experienced a significant withdrawal of monies. As the remaining shareholders held relatively small positions, the total return amounts expressed herein are less than those that would have been experienced without the withdrawal.

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '09	23.75	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(27.14	)%

385



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year		5 Years		10 Years
Class A Return Before Taxes	17.97%		14.05%		5.57%
Class A Return After Taxes on Distributions	16.44%		11.66%		3.98%
Class A Return After Taxes on Distribution and Sale of Fund Shares	11.46%		10.52%		3.97%
Class J Return Before Taxes	23.79%		15.25%		5.92%
Class P Return Before Taxes	23.89%	⁽¹⁾	15.47%	⁽¹⁾	6.38%	⁽¹⁾
Institutional Class Return Before Taxes	25.28%		15.89%		6.65%
Class R-1 Return Before Taxes	24.27%		14.88%		5.72%
Class R-2 Return Before Taxes	24.37%		15.03%		5.86%
Class R-3 Return Before Taxes	24.63%		15.23%		6.05%
Class R-4 Return Before Taxes	24.88%		15.45%		6.25%
Class R-5 Return Before Taxes	25.02%		15.59%		6.38%
Class R-6 Return Before Taxes	25.30%		15.77%		6.53%
Russell 2000 Value Index (reflects no deduction for fees, expenses, or taxes)	31.74%		15.07%		6.26%
⁽¹⁾ During 2016, the Class experienced a significant withdrawal of monies. As the remaining shareholders held relatively small positions, the total return amounts expressed herein are less than those that would have been experienced without the withdrawal.

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James W. Fennessey (since 2009), Portfolio Manager


•	Randy L. Welch (since 2009), Portfolio Manager

Sub-Advisors:

Dimensional Fund Advisors LP

Los Angeles Capital Management and Equity Research, Inc.

Vaughan Nelson Investment Management, LP

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A and J	Initial Investment	$1,000⁽¹⁾
A and J	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A and J	Subsequent Investments	$100⁽¹⁾⁽²⁾
P, Institutional, R-1, R-2, R-3, R-4, R-5, and R-6	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

386

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

387

TAX-EXEMPT BOND FUND


Objective:	The Fund seeks to provide a high level of income that is exempt from federal income tax while protecting investors’ capital.

Fees and Expenses of the Fund

Shareholder Fees (fees paid directly from your investment)



	Share Class
	A	C	P	Inst.
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	3.75%	None	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)	1.00%	1.00%	None	None

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)



	Share Class
	A	C	P	Inst.
Management Fees	0.45%	0.45%	0.45%	0.45%
Distribution and/or Service (12b-1) Fees	0.25%	1.00%	N/A	N/A
Other Expenses
Interest Expense	0.03%	0.03%	0.03%	0.03%
Remainder of Other Expenses	0.08%	0.21%	0.24%	0.85%
Total Other Expenses	0.11%	0.24%	0.27%	0.88%
Total Annual Fund Operating Expenses	0.81%	1.69%	0.72%	1.33%
Expense Reimbursement ⁽¹⁾	N/A	(0.06)%	(0.17)%	(0.78)%
Total Annual Fund Operating Expenses after Expense Reimbursement	0.81%	1.63%	0.55%	0.55%
⁽¹⁾Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.60% for Class C, 0.52% for Class P and 0.52% for Institutional Class shares. It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

388

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.



	1 year	3 years	5 years	10 years
Class A	$455	$624	$808	$1,339
Class C	266	527	912	1,993
Class P	56	213	384	879
Institutional Class	56	344	654	1,533

With respect to Class C shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):



	1 year	3 years	5 years	10 years
Class C	$166	$527	$912	$1,993

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in tax-exempt bonds (securities issued by or on behalf of state or local governments and other public authorities) at the time of purchase. Many of these are from California, Illinois, and New York. Generally, municipal obligations pay interest that is exempt from federal income tax. The Fund also invests in inverse floating rate obligations, which are generally more volatile than other types of municipal obligations and may involve leverage. The Fund may invest up to 20% of its assets in below investment grade bonds (sometimes called “high yield bonds” or "junk bonds") which are rated at the time of purchase Ba1 or lower by Moody's Investors Service, Inc. ("Moody's") and BB+ or lower by S&P Global Ratings ("S&P Global") (if the bond has been rated by only one of those agencies, that rating will determine whether the bond is below investment grade; if the bond has not been rated by either of those agencies, those selecting such investments will determine whether the bond is of a quality comparable to those rated below investment grade). Under normal circumstances, the Fund maintains an average portfolio duration that is within ±50% of the duration of the Bloomberg Barclays Municipal Bond Index, which as of December 31, 2016 was 6.24 years. The Fund is not managed to a particular maturity.

During the fiscal year ended October 31, 2016, the average ratings of the Fund’s fixed-income assets, based on market value at each month-end, were as follows (all ratings are by Moody’s):



15.64% in securities rated Aaa	15.71% in securities rated Baa	0.00% in securities rated Caa	0.00% in securities rated D
31.21% in securities rated Aa	4.34% in securities rated Ba	0.00% in securities rated Ca	7.52% in securities not rated
20.37% in securities rated A	5.21% in securities rated B	0.00% in securities rated C

389

Principal Risks

Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

Geographic Concentration Risk. A fund that invests significant portions of its assets in particular geographic areas (a particular state, such as California, Illinois, or New York, or a particular country or region) has greater exposure than other funds to economic conditions and developments in those areas.

Inverse Floating Rate Investments Risk. Inverse floating rate investments are extremely sensitive to changes in interest rates and in some cases their market value may be extremely volatile.

Performance


•	For Classes A, C, and P - www.principalfunds.com.


•	For Institutional Class - www.principal.com.

The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

For periods prior to the inception date of the Institutional Class shares (May 18, 2015) and Class P shares (August 24, 2015), the performance shown in the bar chart and table for Institutional Class and Class P shares is based on the performance of the Fund's Class A shares, adjusted to reflect the fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class A shares, the historical performance of the Class A shares is used for the newer class (without respect to sales charges, if not applicable to the newer class). These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Class A shares.

The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods prior to that date is based on the performance of the predecessor fund, which commenced operations on January 3, 1977.

390

Total Returns as of December 31 (Class A shares)



Highest return for a quarter during the period of the bar chart above:	Q3 '09	10.13	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	(5.96	)%



Average Annual Total Returns
For the periods ended December 31, 2016	1 Year	5 Years	10 Years
Class A Return Before Taxes	(4.55)%	2.91%	3.28%
Class A Return After Taxes on Distributions	(4.55)%	2.91%	3.28%
Class A Return After Taxes on Distributions and Sale of Fund Shares	(0.99)%	3.18%	3.49%
Class C Return Before Taxes	(2.59)%	2.84%	2.84%
Class P Return Before Taxes	(0.42)%	3.77%	3.72%
Institutional Class Return Before Taxes	(0.65)%	3.76%	3.71%
Bloomberg Barclays Municipal Bond Index(reflects no deduction for fees, expenses, or taxes)	0.25%	3.28%	4.25%

Management

Investment Advisor and Portfolio Managers:

Principal Global Investors, LLC


•	James Noble (since 2013), Portfolio Manager


•	James Welch (since 2014), Portfolio Manager

391

Purchase and Sale of Fund Shares



Share Class	Investment Type	Purchase Minimum Per Fund
A and C	Initial Investment	$1,000⁽¹⁾
A and C	Initial Investment for accounts with an Automatic Investment Plan (AIP)	$100
A and C	Subsequent Investments	$100⁽¹⁾⁽²⁾
P and Institutional	There are no minimum initial or subsequent investment requirements for eligible purchases.	N/A


⁽¹⁾	Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.


⁽²⁾	For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.

Tax Information

While the Fund intends to distribute income that is exempt from regular federal and possibly some state income taxes, a portion of the Fund’s distributions may be subject to federal income taxes or to the federal alternative minimum tax. A portion of the Fund’s distributions likely will be subject to state income taxes depending on the state’s rules.

Payments to Broker-Dealers and Other Financial Intermediaries

392

ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS

Each Fund’s investment objective is described in the summary section for each Fund. The summary section also describes each Fund’s principal investment strategies, including the types of securities in which each Fund invests, and the principal risks of investing in each Fund. The principal investment strategies are not the only investment strategies available to each Fund, but they are the ones each Fund primarily uses to achieve its investment objective.

Except for Fundamental Restrictions described in the Fund’s Statement of Additional Information (“SAI”), the Board of Directors may change any Fund's objective or investment strategies without a shareholder vote if it determines such a change is in the best interests of the Fund. If there is a material change to a Fund's investment objective or investment strategies, you should consider whether the Fund remains an appropriate investment for you. There is no guarantee that each Fund will meet its objective.

Each Fund is designed to be a portion of an investor's portfolio. No Fund is intended to be a complete investment program. Investors should consider the risks of a Fund before making an investment; it is possible to lose money by investing in a Fund.

Active Management

The performance of a fund that is actively managed will reflect in part the ability of those managing the investments of the fund to make investment decisions that are suited to achieving the fund's investment objective. Actively-managed funds may invest differently from the benchmark against which the Fund's performance is compared. When making decisions about whether to buy or sell equity securities, considerations may include, among other things, a company’s strength in fundamentals, its potential for earnings growth over time, its ability to navigate certain macroeconomic environments, the current price of its securities relative to their perceived worth and relative to others in its industry, and analysis from computer models. When making decisions about whether to buy or sell fixed-income investments, considerations may include, among other things, the strength of certain sectors of the fixed-income market relative to others, interest rates, a range of economic, political and financial factors, the balance between supply and demand for certain asset classes, the credit quality of individual issuers, the fundamental strengths of corporate and municipal issuers, and other general market conditions.

An active fund's investment performance depends upon the successful allocation of the fund's assets among asset classes, geographical regions, industry sectors, and specific issuers and investments. There is no guarantee that these allocation techniques and decisions will produce the desired results. It is possible to lose money on an investment in a fund as a result of these allocation decisions. If a fund's investment strategies do not perform as expected, the fund could underperform other funds with similar investment objectives or lose money. Moreover, buying and selling securities to adjust the fund’s asset allocation may increase portfolio turnover and generate transaction costs.

Passive Management (Index Funds)

Index funds use a passive, or indexing, investment approach. Pure index funds do not attempt to manage market volatility, use defensive strategies or reduce the effect of any long-term periods of poor stock or bond performance. Some index funds attempt to fully replicate their relevant target index by investing primarily in the securities held by the index in approximately the same proportion of the weightings in the index. However, because of the difficulty of executing some relatively small securities trades, other index funds may use a "sampling" approach and may not be invested in the less heavily weighted securities held by the index. Some index funds may invest in index futures and/or exchange-traded funds on a daily basis to gain exposure to the index in an effort to minimize tracking error relative to the benchmark.

It is unlikely that an index fund's performance will perfectly correlate with the performance of the fund's relevant index. An index fund's ability to match the performance of its index may be affected by many factors, such as fund expenses, the timing of cash flows into and out of the fund, changes in securities markets, and changes in the composition of the index.

Liquidity

Certain fund holdings may be deemed to be less liquid or illiquid because they cannot be readily sold without significantly impacting the value of the holdings. A fund is exposed to liquidity risk when trading volume, lack of a market maker, or legal restrictions impair its ability to sell particular securities or close derivative positions at an advantageous price. Accounts with principal investment strategies that involve securities of companies with smaller market capitalizations, foreign securities, derivatives, high yield bonds and bank loans or securities with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk.

393

Liquidity risk also refers to the risk of unusually high redemption requests, redemption requests by certain large shareholders such as institutional investors or asset allocators, or other unusual market conditions that may make it difficult for a fund to sell investments within the allowable time period to meet redemptions. Meeting such redemption requests could require a fund to sell securities at reduced prices or under unfavorable conditions, which would reduce the value of the fund.

Market Volatility and Securities Issuers

The value of a fund's portfolio securities may decrease in response to overall stock or bond market movements. Markets tend to move in cycles, with periods of rising prices and periods of falling prices. Stocks tend to go up and down in value more than bonds. If a fund's investments are concentrated in certain sectors, its performance could be worse than the overall market. The value of an individual security or particular type of security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole. The value of a security may decline for reasons directly related to the issuer, such as management performance, financial leverage, and reduced demand for the issuer’s goods or services. It is possible to lose money when investing in a fund.

Temporary Defensive Measures

From time to time, as part of its investment strategy, a Fund may invest without limit in cash and cash equivalents for temporary defensive purposes in response to adverse market, economic, or political conditions. For this purpose, cash equivalents include: bank notes, bank certificates of deposit, bankers' acceptances, repurchase agreements, commercial paper, and commercial paper master notes, which are floating rate debt instruments without a fixed maturity. In addition, a Fund may purchase U.S. government securities, preferred stocks, and debt securities, whether or not convertible into or carrying rights for common stock. There is no limit on the extent to which a fund may take temporary defensive measures. In taking such measures, a Fund may lose the benefit of upswings and may limit its ability to meet, or fail to achieve, its investment objective.

The Money Market Fund will only invest in high-quality money market securities at any time.

Strategy and Risk Table

The following table lists each Fund and identifies whether the strategies and risks discussed in this section (listed in alphabetical order) are principal, non-principal, (meaning they are relevant to a Fund but to a lesser degree than those designated as principal), or not applicable for each Fund. The risks described below for each fund that operates as a fund of funds (as identified in the table) include risks at both the fund of funds level and underlying funds level. Each fund is also subject to the risks of any underlying funds in which it invests.

The SAI contains additional information about investment strategies and their related risks.

394



INVESTMENT STRATEGIES AND RISKS	CALIFORNIA MUNICIPAL	CORE PLUS BOND	DIVERSIFIED INTERNATIONAL	EQUITY INCOME	FINISTERRE UNCONSTRAINED EMERGING MARKETS BOND
Arbitrage Trading	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Non-Principal
Bank Loans (also known as Senior Floating Rate interests)	Not Applicable	Non-Principal	Not Applicable	Non-Principal	Non-Principal
Commodity-Related Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Contingent Convertible Securities	Not Applicable	Non-Principal	Not Applicable	Not Applicable	Non-Principal
Convertible Securities	Not Applicable	Non-Principal	Non-Principal	Non-Principal	Principal
Counterparty Risk	Principal	Principal	Non-Principal	Not Applicable	Principal
Derivatives	Non-Principal	Principal	Non-Principal	Not Applicable	Principal
Emerging Markets	Not Applicable	Non-Principal	Principal	Non-Principal	Principal
Equity Securities	Not Applicable	Not Applicable	Principal	Principal	Non-Principal
• Growth Stock	Not Applicable	Not Applicable	Principal	Non-Principal	Non-Principal
• Small and Medium Capitalization Companies	Not Applicable	Not Applicable	Principal	Principal	Non-Principal
• Value Stock	Not Applicable	Not Applicable	Principal	Principal	Non-Principal
Fixed-Income Securities	Principal	Principal	Non-Principal	Non-Principal	Principal
Foreign Currency	Not Applicable	Principal	Principal	Principal	Principal
Foreign Securities	Not Applicable	Principal	Principal	Principal	Principal
Fund of Funds	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Geographic Concentration (Municipal Obligations)	Principal	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Hedging	Non-Principal	Principal	Non-Principal	Not Applicable	Principal
High Yield Securities	Principal	Principal	Not Applicable	Non-Principal	Principal
Industry Concentration	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Inverse Floating Rate Investments	Principal	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Investment Company Securities	Non-Principal	Not Applicable	Non-Principal	Non-Principal	Non-Principal
Leverage	Principal	Principal	Non-Principal	Not Applicable	Principal
Master Limited Partnerships ("MLPs")	Not Applicable	Not Applicable	Non-Principal	Non-Principal	Non-Principal
Municipal Obligations and AMT-Subject Bonds	Principal	Non-Principal	Not Applicable	Non-Principal	Not Applicable
Portfolio Duration	Principal	Principal	Not Applicable	Not Applicable	Principal
Portfolio Turnover (Active Trading)	Non-Principal	Principal	Non-Principal	Non-Principal	Principal
Preferred Securities	Not Applicable	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Real Estate Investment Trusts ("REITs")	Not Applicable	Non-Principal	Non-Principal	Principal	Non-Principal
Real Estate Securities	Not Applicable	Principal	Non-Principal	Principal	Non-Principal
Redemption Risk	Not Applicable	Principal	Principal	Principal	Not Applicable
Royalty Trusts	Not Applicable	Not Applicable	Non-Principal	Non-Principal	Non-Principal
Securitized Products	Not Applicable	Principal	Not Applicable	Not Applicable	Principal
Short Sales	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
U.S. Government and U.S. Government Sponsored Securities	Non-Principal	Principal	Non-Principal	Not Applicable	Principal
Volatility Mitigation	Not Applicable	Non-Principal	Not Applicable	Not Applicable	Non-Principal

395



INVESTMENT STRATEGIES AND RISKS	GLOBAL DIVERSIFIED INCOME	GLOBAL REAL ESTATE SECURITIES	GOVERNMENT & HIGH QUALITY BOND	HIGH YIELD	HIGH YIELD I
Arbitrage Trading	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Bank Loans (also known as Senior Floating Rate interests)	Principal	Not Applicable	Not Applicable	Principal	Principal
Commodity-Related Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Contingent Convertible Securities	Non-Principal	Not Applicable	Not Applicable	Non-Principal	Non-Principal
Convertible Securities	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
Counterparty Risk	Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Derivatives	Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Emerging Markets	Principal	Non-Principal	Not Applicable	Principal	Non-Principal
Equity Securities	Principal	Principal	Not Applicable	Non-Principal	Non-Principal
• Growth Stock	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
• Small and Medium Capitalization Companies	Principal	Principal	Not Applicable	Non-Principal	Non-Principal
• Value Stock	Principal	Principal	Not Applicable	Non-Principal	Non-Principal
Fixed-Income Securities	Principal	Non-Principal	Principal	Principal	Principal
Foreign Currency	Principal	Principal	Not Applicable	Principal	Principal
Foreign Securities	Principal	Principal	Not Applicable	Principal	Principal
Fund of Funds	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Geographic Concentration (Municipal Obligations)	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Hedging	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
High Yield Securities	Principal	Non-Principal	Non-Principal	Principal	Principal
Industry Concentration	Not Applicable	Principal	Not Applicable	Not Applicable	Not Applicable
Inverse Floating Rate Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Investment Company Securities	Non-Principal	Non-Principal	Not Applicable	Not Applicable	Not Applicable
Leverage	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Master Limited Partnerships ("MLPs")	Non-Principal	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Municipal Obligations and AMT-Subject Bonds	Non-Principal	Not Applicable	Non-Principal	Not Applicable	Not Applicable
Portfolio Duration	Principal	Not Applicable	Principal	Principal	Principal
Portfolio Turnover (Active Trading)	Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Preferred Securities	Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
Real Estate Investment Trusts ("REITs")	Principal	Principal	Non-Principal	Non-Principal	Non-Principal
Real Estate Securities	Principal	Principal	Principal	Non-Principal	Non-Principal
Redemption Risk	Principal	Principal	Principal	Principal	Principal
Royalty Trusts	Non-Principal	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Securitized Products	Principal	Non-Principal	Principal	Non-Principal	Non-Principal
Short Sales	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
U.S. Government and U.S. Government Sponsored Securities	Non-Principal	Not Applicable	Principal	Non-Principal	Non-Principal
Volatility Mitigation	Principal	Not Applicable	Not Applicable	Non-Principal	Not Applicable

396



INVESTMENT STRATEGIES AND RISKS	INCOME	INFLATION PROTECTION	INTERNATIONAL EMERGING MARKETS	INTERNATIONAL I	LARGECAP GROWTH
Arbitrage Trading	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Bank Loans (also known as Senior Floating Rate interests)	Non-Principal	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Commodity-Related Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Contingent Convertible Securities	Non-Principal	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Convertible Securities	Non-Principal	Not Applicable	Non-Principal	Non-Principal	Non-Principal
Counterparty Risk	Non-Principal	Principal	Non-Principal	Not Applicable	Not Applicable
Derivatives	Non-Principal	Principal	Non-Principal	Not Applicable	Not Applicable
Emerging Markets	Non-Principal	Not Applicable	Principal	Principal	Not Applicable
Equity Securities	Non-Principal	Not Applicable	Principal	Principal	Principal
• Growth Stock	Non-Principal	Not Applicable	Principal	Principal	Principal
• Small and Medium Capitalization Companies	Non-Principal	Not Applicable	Principal	Principal	Non-Principal
• Value Stock	Non-Principal	Not Applicable	Principal	Principal	Non-Principal
Fixed-Income Securities	Principal	Principal	Non-Principal	Not Applicable	Non-Principal
Foreign Currency	Principal	Principal	Principal	Principal	Not Applicable
Foreign Securities	Principal	Principal	Principal	Principal	Non-Principal
Fund of Funds	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Geographic Concentration (Municipal Obligations)	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Hedging	Non-Principal	Non-Principal	Non-Principal	Not Applicable	Not Applicable
High Yield Securities	Principal	Non-Principal	Not Applicable	Not Applicable	Not Applicable
Industry Concentration	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Inverse Floating Rate Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Investment Company Securities	Non-Principal	Not Applicable	Non-Principal	Not Applicable	Non-Principal
Leverage	Non-Principal	Non-Principal	Non-Principal	Not Applicable	Not Applicable
Master Limited Partnerships ("MLPs")	Not Applicable	Not Applicable	Non-Principal	Non-Principal	Non-Principal
Municipal Obligations and AMT-Subject Bonds	Non-Principal	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Portfolio Duration	Principal	Principal	Not Applicable	Not Applicable	Not Applicable
Portfolio Turnover (Active Trading)	Non-Principal	Non-Principal	Principal	Non-Principal	Non-Principal
Preferred Securities	Non-Principal	Not Applicable	Non-Principal	Not Applicable	Non-Principal
Real Estate Investment Trusts ("REITs")	Non-Principal	Not Applicable	Non-Principal	Non-Principal	Non-Principal
Real Estate Securities	Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Redemption Risk	Principal	Principal	Principal	Not Applicable	Principal
Royalty Trusts	Non-Principal	Not Applicable	Non-Principal	Not Applicable	Non-Principal
Securitized Products	Principal	Non-Principal	Not Applicable	Not Applicable	Not Applicable
Short Sales	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
U.S. Government and U.S. Government Sponsored Securities	Principal	Principal	Non-Principal	Not Applicable	Not Applicable
Volatility Mitigation	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable

397



INVESTMENT STRATEGIES AND RISKS	LARGECAP GROWTH I	LARGECAP GROWTH II	LARGECAP S&P 500 INDEX	LARGECAP VALUE	LARGECAP VALUE III
Arbitrage Trading	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Bank Loans (also known as Senior Floating Rate interests)	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Commodity-Related Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Contingent Convertible Securities	Not Applicable	Not Applicable	Not Applicable	Non-Principal	Not Applicable
Convertible Securities	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
Counterparty Risk	Not Applicable	Non-Principal	Not Applicable	Not Applicable	Not Applicable
Derivatives	Non-Principal	Non-Principal	Principal	Non-Principal	Non-Principal
Emerging Markets	Non-Principal	Non-Principal	Not Applicable	Not Applicable	Not Applicable
Equity Securities	Principal	Principal	Principal	Principal	Principal
• Growth Stock	Principal	Principal	Principal	Non-Principal	Non-Principal
• Small and Medium Capitalization Companies	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
• Value Stock	Non-Principal	Non-Principal	Principal	Principal	Principal
Fixed-Income Securities	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
Foreign Currency	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
Foreign Securities	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
Fund of Funds	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Geographic Concentration (Municipal Obligations)	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Hedging	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
High Yield Securities	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Industry Concentration	Not Applicable	Not Applicable	Non-Principal⁽¹⁾	Not Applicable	Not Applicable
Inverse Floating Rate Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Investment Company Securities	Non-Principal	Non-Principal	Principal	Non-Principal	Non-Principal
Leverage	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Master Limited Partnerships ("MLPs")	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
Municipal Obligations and AMT-Subject Bonds	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Portfolio Duration	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Portfolio Turnover (Active Trading)	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Preferred Securities	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
Real Estate Investment Trusts ("REITs")	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Real Estate Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Redemption Risk	Principal	Not Applicable	Principal	Principal	Principal
Royalty Trusts	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
Securitized Products	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Short Sales	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
U.S. Government and U.S. Government Sponsored Securities	Not Applicable	Non-Principal	Not Applicable	Non-Principal	Not Applicable
Volatility Mitigation	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable


⁽¹⁾	The Index Fund may concentrate its investments in a particular industry only to the extent that the relevant index is so concentrated.

398



INVESTMENT STRATEGIES AND RISKS	MIDCAP	MIDCAP GROWTH	MIDCAP GROWTH III	MIDCAP S&P 400 INDEX	MIDCAP VALUE I
Arbitrage Trading	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Bank Loans (also known as Senior Floating Rate interests)	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Commodity-Related Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Contingent Convertible Securities	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Convertible Securities	Non-Principal	Non-Principal	Non-Principal	Not Applicable	Non-Principal
Counterparty Risk	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Derivatives	Non-Principal	Not Applicable	Non-Principal	Principal	Not Applicable
Emerging Markets	Not Applicable	Non-Principal	Not Applicable	Not Applicable	Non-Principal
Equity Securities	Principal	Principal	Principal	Principal	Principal
• Growth Stock	Principal	Principal	Principal	Principal	Non-Principal
• Small and Medium Capitalization Companies	Principal	Principal	Principal	Principal	Principal
• Value Stock	Principal	Non-Principal	Non-Principal	Principal	Principal
Fixed-Income Securities	Non-Principal	Non-Principal	Non-Principal	Not Applicable	Non-Principal
Foreign Currency	Principal	Not Applicable	Non-Principal	Not Applicable	Non-Principal
Foreign Securities	Principal	Non-Principal	Non-Principal	Not Applicable	Non-Principal
Fund of Funds	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Geographic Concentration (Municipal Obligations)	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Hedging	Non-Principal	Not Applicable	Non-Principal	Not Applicable	Non-Principal
High Yield Securities	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Industry Concentration	Not Applicable	Not Applicable	Not Applicable	Non-Principal⁽¹⁾	Not Applicable
Inverse Floating Rate Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Investment Company Securities	Non-Principal	Non-Principal	Non-Principal	Principal	Non-Principal
Leverage	Non-Principal	Not Applicable	Non-Principal	Non-Principal	Non-Principal
Master Limited Partnerships ("MLPs")	Non-Principal	Non-Principal	Non-Principal	Not Applicable	Non-Principal
Municipal Obligations and AMT-Subject Bonds	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Portfolio Duration	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Portfolio Turnover (Active Trading)	Non-Principal	Principal	Non-Principal	Non-Principal	Principal
Preferred Securities	Non-Principal	Non-Principal	Non-Principal	Not Applicable	Non-Principal
Real Estate Investment Trusts ("REITs")	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Principal
Real Estate Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Principal
Redemption Risk	Principal	Not Applicable	Principal	Principal	Not Applicable
Royalty Trusts	Non-Principal	Non-Principal	Non-Principal	Not Applicable	Non-Principal
Securitized Products	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Short Sales	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
U.S. Government and U.S. Government Sponsored Securities	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Non-Principal
Volatility Mitigation	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable


⁽¹⁾	The Index Fund may concentrate its investments in a particular industry only to the extent that the relevant index is so concentrated.

399



INVESTMENT STRATEGIES AND RISKS	MIDCAP VALUE III	MONEY MARKET	OVERSEAS	PRINCIPAL CAPITAL APPRECIATION	PRINCIPAL LIFETIME STRATEGIC INCOME
Arbitrage Trading	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Bank Loans (also known as Senior Floating Rate interests)	Not Applicable	Not Applicable	Not Applicable	Non-Principal	Non-Principal
Commodity-Related Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Non-Principal
Contingent Convertible Securities	Non-Principal	Not Applicable	Not Applicable	Not Applicable	Non-Principal
Convertible Securities	Non-Principal	Not Applicable	Non-Principal	Non-Principal	Non-Principal
Counterparty Risk	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Principal
Derivatives	Non-Principal	Not Applicable	Non-Principal	Not Applicable	Principal
Emerging Markets	Not Applicable	Not Applicable	Principal	Non-Principal	Non-Principal
Equity Securities	Principal	Not Applicable	Principal	Principal	Principal
• Growth Stock	Non-Principal	Not Applicable	Non-Principal	Principal	Principal
• Small and Medium Capitalization Companies	Principal	Not Applicable	Principal	Principal	Non-Principal
• Value Stock	Principal	Not Applicable	Principal	Principal	Principal
Fixed-Income Securities	Non-Principal	Principal	Non-Principal	Non-Principal	Principal
Foreign Currency	Non-Principal	Non-Principal	Principal	Not Applicable	Principal
Foreign Securities	Non-Principal	Principal	Principal	Non-Principal	Principal
Fund of Funds	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Principal
Geographic Concentration (Municipal Obligations)	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Hedging	Non-Principal	Not Applicable	Non-Principal	Not Applicable	Non-Principal
High Yield Securities	Not Applicable	Not Applicable	Not Applicable	Non-Principal	Non-Principal
Industry Concentration	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Inverse Floating Rate Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Investment Company Securities	Non-Principal	Not Applicable	Non-Principal	Non-Principal	Non-Principal
Leverage	Non-Principal	Not Applicable	Non-Principal	Not Applicable	Non-Principal
Master Limited Partnerships ("MLPs")	Non-Principal	Not Applicable	Non-Principal	Non-Principal	Non-Principal
Municipal Obligations and AMT-Subject Bonds	Not Applicable	Non-Principal	Not Applicable	Not Applicable	Non-Principal
Portfolio Duration	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Principal
Portfolio Turnover (Active Trading)	Non-Principal	Not Applicable	Non-Principal	Non-Principal	Non-Principal
Preferred Securities	Non-Principal	Not Applicable	Non-Principal	Non-Principal	Non-Principal
Real Estate Investment Trusts ("REITs")	Principal	Not Applicable	Non-Principal	Non-Principal	Non-Principal
Real Estate Securities	Principal	Not Applicable	Non-Principal	Non-Principal	Principal
Redemption Risk	Principal	Not Applicable	Principal	Principal	Principal
Royalty Trusts	Non-Principal	Not Applicable	Non-Principal	Non-Principal	Non-Principal
Securitized Products	Not Applicable	Non-Principal	Not Applicable	Not Applicable	Principal
Short Sales	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Non-Principal
U.S. Government and U.S. Government Sponsored Securities	Not Applicable	Principal	Not Applicable	Not Applicable	Principal
Volatility Mitigation	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable

400



INVESTMENT STRATEGIES AND RISKS	PRINCIPAL LIFETIME 2010	PRINCIPAL LIFETIME 2015	PRINCIPAL LIFETIME 2020	PRINCIPAL LIFETIME 2025	PRINCIPAL LIFETIME 2030
Arbitrage Trading	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Bank Loans (also known as Senior Floating Rate interests)	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Commodity-Related Investments	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Contingent Convertible Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Convertible Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Counterparty Risk	Principal	Principal	Principal	Principal	Principal
Derivatives	Principal	Principal	Principal	Principal	Principal
Emerging Markets	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Equity Securities	Principal	Principal	Principal	Principal	Principal
• Growth Stock	Principal	Principal	Principal	Principal	Principal
• Small and Medium Capitalization Companies	Non-Principal	Principal	Principal	Principal	Principal
• Value Stock	Principal	Principal	Principal	Principal	Principal
Fixed-Income Securities	Principal	Principal	Principal	Principal	Principal
Foreign Currency	Principal	Principal	Principal	Principal	Principal
Foreign Securities	Principal	Principal	Principal	Principal	Principal
Fund of Funds	Principal	Principal	Principal	Principal	Principal
Geographic Concentration (Municipal Obligations)	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Hedging	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
High Yield Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Industry Concentration	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Inverse Floating Rate Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Investment Company Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Leverage	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Master Limited Partnerships ("MLPs")	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Municipal Obligations and AMT-Subject Bonds	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Portfolio Duration	Principal	Principal	Principal	Principal	Principal
Portfolio Turnover (Active Trading)	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Preferred Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Real Estate Investment Trusts ("REITs")	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Real Estate Securities	Principal	Principal	Non-Principal	Non-Principal	Non-Principal
Redemption Risk	Principal	Principal	Principal	Principal	Principal
Royalty Trusts	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Securitized Products	Principal	Principal	Non-Principal	Non-Principal	Non-Principal
Short Sales	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
U.S. Government and U.S. Government Sponsored Securities	Principal	Principal	Principal	Principal	Principal
Volatility Mitigation	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable

401



INVESTMENT STRATEGIES AND RISKS	PRINCIPAL LIFETIME 2035	PRINCIPAL LIFETIME 2040	PRINCIPAL LIFETIME 2045	PRINCIPAL LIFETIME 2050	PRINCIPAL LIFETIME 2055
Arbitrage Trading	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Bank Loans (also known as Senior Floating Rate interests)	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Commodity-Related Investments	Non-Principal	Non-Principal	Not-Principal	Non-Principal	Non-Principal
Contingent Convertible Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Convertible Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Counterparty Risk	Principal	Principal	Principal	Non-Principal	Non-Principal
Derivatives	Principal	Principal	Principal	Principal	Principal
Emerging Markets	Principal	Principal	Principal	Principal	Principal
Equity Securities	Principal	Principal	Principal	Principal	Principal
• Growth Stock	Principal	Principal	Principal	Principal	Principal
• Small and Medium Capitalization Companies	Principal	Principal	Principal	Principal	Principal
• Value Stock	Principal	Principal	Principal	Principal	Principal
Fixed-Income Securities	Principal	Principal	Principal	Principal	Principal
Foreign Currency	Principal	Principal	Principal	Principal	Principal
Foreign Securities	Principal	Principal	Principal	Principal	Principal
Fund of Funds	Principal	Principal	Principal	Principal	Principal
Geographic Concentration (Municipal Obligations)	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Hedging	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
High Yield Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Industry Concentration	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Inverse Floating Rate Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Investment Company Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Leverage	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Master Limited Partnerships ("MLPs")	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Municipal Obligations and AMT-Subject Bonds	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Portfolio Duration	Principal	Principal	Principal	Principal	Principal
Portfolio Turnover (Active Trading)	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Preferred Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Real Estate Investment Trusts ("REITs")	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Real Estate Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Redemption Risk	Principal	Principal	Principal	Principal	Principal
Royalty Trusts	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Securitized Products	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Short Sales	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
U.S. Government and U.S. Government Sponsored Securities	Principal	Principal	Non-Principal	Non-Principal	Non-Principal
Volatility Mitigation	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable

402



INVESTMENT STRATEGIES AND RISKS	PRINCIPAL LIFETIME 2060	PRINCIPAL LIFETIME HYBRID INCOME	PRINCIPAL LIFETIME HYBRID 2015	PRINCIPAL LIFETIME HYBRID 2020	PRINCIPAL LIFETIME HYBRID 2025
Arbitrage Trading	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Bank Loans (also known as Senior Floating Rate interests)	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Commodity-Related Investments	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Contingent Convertible Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Convertible Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Counterparty Risk	Non-Principal	Principal	Principal	Principal	Principal
Derivatives	Principal	Principal	Principal	Principal	Principal
Emerging Markets	Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Equity Securities	Principal	Principal	Principal	Principal	Principal
• Growth Stock	Principal	Principal	Principal	Principal	Principal
• Small and Medium Capitalization Companies	Principal	Non-Principal	Principal	Principal	Principal
• Value Stock	Principal	Principal	Principal	Principal	Principal
Fixed-Income Securities	Principal	Principal	Principal	Principal	Principal
Foreign Currency	Principal	Principal	Principal	Principal	Principal
Foreign Securities	Principal	Principal	Principal	Principal	Principal
Fund of Funds	Principal	Principal	Principal	Principal	Principal
Geographic Concentration (Municipal Obligations)	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Hedging	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
High Yield Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Industry Concentration	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Inverse Floating Rate Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Investment Company Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Leverage	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Master Limited Partnerships ("MLPs")	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Municipal Obligations and AMT-Subject Bonds	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Portfolio Duration	Principal	Principal	Principal	Principal	Principal
Portfolio Turnover (Active Trading)	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Preferred Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Real Estate Investment Trusts ("REITs")	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Real Estate Securities	Non-Principal	Principal	Principal	Non-Principal	Non-Principal
Redemption Risk	Principal	Principal	Principal	Principal	Principal
Royalty Trusts	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Securitized Products	Non-Principal	Principal	Principal	Non-Principal	Non-Principal
Short Sales	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
U.S. Government and U.S. Government Sponsored Securities	Non-Principal	Principal	Principal	Principal	Principal
Volatility Mitigation	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable

403



INVESTMENT STRATEGIES AND RISKS	PRINCIPAL LIFETIME HYBRID 2030	PRINCIPAL LIFETIME HYBRID 2035	PRINCIPAL LIFETIME HYBRID 2040	PRINCIPAL LIFETIME HYBRID 2045	PRINCIPAL LIFETIME HYBRID 2050
Arbitrage Trading	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Bank Loans (also known as Senior Floating Rate interests)	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Commodity-Related Investments	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Contingent Convertible Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Convertible Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Counterparty Risk	Principal	Principal	Principal	Principal	Non-Principal
Derivatives	Principal	Principal	Principal	Principal	Principal
Emerging Markets	Non-Principal	Principal	Principal	Principal	Principal
Equity Securities	Principal	Principal	Principal	Principal	Principal
• Growth Stock	Principal	Principal	Principal	Principal	Principal
• Small and Medium Capitalization Companies	Principal	Principal	Principal	Principal	Principal
• Value Stock	Principal	Principal	Principal	Principal	Principal
Fixed-Income Securities	Principal	Principal	Principal	Principal	Principal
Foreign Currency	Principal	Principal	Principal	Principal	Principal
Foreign Securities	Principal	Principal	Principal	Principal	Principal
Fund of Funds	Principal	Principal	Principal	Principal	Principal
Geographic Concentration (Municipal Obligations)	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Hedging	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
High Yield Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Industry Concentration	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Inverse Floating Rate Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Investment Company Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Leverage	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Master Limited Partnerships ("MLPs")	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Municipal Obligations and AMT-Subject Bonds	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Portfolio Duration	Principal	Principal	Principal	Principal	Principal
Portfolio Turnover (Active Trading)	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Preferred Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Real Estate Investment Trusts ("REITs")	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Real Estate Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Redemption Risk	Principal	Principal	Principal	Principal	Principal
Royalty Trusts	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Securitized Products	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Short Sales	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
U.S. Government and U.S. Government Sponsored Securities	Principal	Principal	Principal	Non-Principal	Non-Principal
Volatility Mitigation	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable

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INVESTMENT STRATEGIES AND RISKS	PRINCIPAL LIFETIME HYBRID 2055	PRINCIPAL LIFETIME HYBRID 2060	REAL ESTATE SECURITIES	SAM BALANCED	SAM CONSERVATIVE BALANCED
Arbitrage Trading	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Bank Loans (also known as Senior Floating Rate interests)	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
Commodity-Related Investments	Non-Principal	Non-Principal	Not Applicable	Not Applicable	Not Applicable
Contingent Convertible Securities	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
Convertible Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Counterparty Risk	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
Derivatives	Principal	Principal	Non-Principal	Non-Principal	Non-Principal
Emerging Markets	Principal	Principal	Not Applicable	Non-Principal	Non-Principal
Equity Securities	Principal	Principal	Principal	Principal	Principal
• Growth Stock	Principal	Principal	Non-Principal	Principal	Principal
• Small and Medium Capitalization Companies	Principal	Principal	Non-Principal	Principal	Principal
• Value Stock	Principal	Principal	Principal	Principal	Principal
Fixed-Income Securities	Principal	Principal	Non-Principal	Principal	Principal
Foreign Currency	Principal	Principal	Not Applicable	Principal	Principal
Foreign Securities	Principal	Principal	Non-Principal	Principal	Principal
Fund of Funds	Principal	Principal	Not Applicable	Principal	Principal
Geographic Concentration (Municipal Obligations)	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Hedging	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
High Yield Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Principal
Industry Concentration	Not Applicable	Not Applicable	Principal	Not Applicable	Not Applicable
Inverse Floating Rate Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Investment Company Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Leverage	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Master Limited Partnerships ("MLPs")	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
Municipal Obligations and AMT-Subject Bonds	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
Portfolio Duration	Principal	Principal	Not Applicable	Principal	Principal
Portfolio Turnover (Active Trading)	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Preferred Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Real Estate Investment Trusts ("REITs")	Non-Principal	Non-Principal	Principal	Non-Principal	Non-Principal
Real Estate Securities	Non-Principal	Non-Principal	Principal	Principal	Principal
Redemption Risk	Principal	Principal	Principal	Principal	Principal
Royalty Trusts	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
Securitized Products	Non-Principal	Non-Principal	Non-Principal	Principal	Principal
Short Sales	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Non-Principal
U.S. Government and U.S. Government Sponsored Securities	Non-Principal	Non-Principal	Not Applicable	Principal	Principal
Volatility Mitigation	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable

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INVESTMENT STRATEGIES AND RISKS	SAM CONSERVATIVE GROWTH	SAM FLEXIBLE INCOME	SAM STRATEGIC GROWTH	SHORT-TERM INCOME	SMALLCAP
Arbitrage Trading	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Bank Loans (also known as Senior Floating Rate interests)	Non-Principal	Non-Principal	Non-Principal	Not Applicable	Not Applicable
Commodity-Related Investments	Non-Principal	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Contingent Convertible Securities	Non-Principal	Non-Principal	Not Applicable	Non-Principal	Not Applicable
Convertible Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Counterparty Risk	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Not Applicable
Derivatives	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Emerging Markets	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Not Applicable
Equity Securities	Principal	Principal	Principal	Not Applicable	Principal
• Growth Stock	Principal	Non-Principal	Principal	Not Applicable	Principal
• Small and Medium Capitalization Companies	Principal	Non-Principal	Principal	Not Applicable	Principal
• Value Stock	Principal	Principal	Principal	Not Applicable	Principal
Fixed-Income Securities	Principal	Principal	Non-Principal	Principal	Non-Principal
Foreign Currency	Principal	Principal	Principal	Principal	Not Applicable
Foreign Securities	Principal	Principal	Principal	Principal	Non-Principal
Fund of Funds	Principal	Principal	Principal	Not Applicable	Not Applicable
Geographic Concentration (Municipal Obligations)	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Hedging	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
High Yield Securities	Non-Principal	Principal	Non-Principal	Non-Principal	Not Applicable
Industry Concentration	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Inverse Floating Rate Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Investment Company Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Leverage	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Master Limited Partnerships ("MLPs")	Non-Principal	Non-Principal	Non-Principal	Not Applicable	Non-Principal
Municipal Obligations and AMT-Subject Bonds	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Not Applicable
Portfolio Duration	Principal	Principal	Non-Principal	Principal	Not Applicable
Portfolio Turnover (Active Trading)	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Preferred Securities	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Real Estate Investment Trusts ("REITs")	Non-Principal	Non-Principal	Non-Principal	Principal	Non-Principal
Real Estate Securities	Non-Principal	Principal	Non-Principal	Principal	Non-Principal
Redemption Risk	Principal	Principal	Principal	Principal	Not Applicable
Royalty Trusts	Non-Principal	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Securitized Products	Non-Principal	Principal	Non-Principal	Principal	Not Applicable
Short Sales	Non-Principal	Non-Principal	Non-Principal	Not Applicable	Not Applicable
U.S. Government and U.S. Government Sponsored Securities	Principal	Principal	Non-Principal	Principal	Non-Principal
Volatility Mitigation	Not Applicable	Not Applicable	Not Applicable	Not Applicable	Not Applicable

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INVESTMENT STRATEGIES AND RISKS	SMALLCAP GROWTH I	SMALLCAP S&P 600 INDEX	SMALLCAP VALUE II	TAX-EXEMPT BOND
Arbitrage Trading	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Bank Loans (also known as Senior Floating Rate interests)	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Commodity-Related Investments	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Contingent Convertible Securities	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Convertible Securities	Non-Principal	Not Applicable	Non-Principal	Not Applicable
Counterparty Risk	Not Applicable	Not Applicable	Not Applicable	Principal
Derivatives	Non-Principal	Principal	Non-Principal	Non-Principal
Emerging Markets	Non-Principal	Not Applicable	Non-Principal	Not Applicable
Equity Securities	Principal	Principal	Principal	Not Applicable
• Growth Stock	Principal	Principal	Non-Principal	Not Applicable
• Small and Medium Capitalization Companies	Principal	Principal	Principal	Not Applicable
• Value Stock	Non-Principal	Principal	Principal	Not Applicable
Fixed-Income Securities	Non-Principal	Not Applicable	Non-Principal	Principal
Foreign Currency	Non-Principal	Not Applicable	Non-Principal	Not Applicable
Foreign Securities	Non-Principal	Not Applicable	Non-Principal	Not Applicable
Fund of Funds	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Geographic Concentration (Municipal Obligations)	Not Applicable	Not Applicable	Not Applicable	Principal
Hedging	Non-Principal	Not Applicable	Non-Principal	Non-Principal
High Yield Securities	Not Applicable	Not Applicable	Not Applicable	Principal
Industry Concentration	Not Applicable	Non-Principal⁽¹⁾	Not Applicable	Not Applicable
Inverse Floating Rate Investments	Not Applicable	Not Applicable	Not Applicable	Principal
Investment Company Securities	Non-Principal	Principal	Non-Principal	Non-Principal
Leverage	Non-Principal	Non-Principal	Non-Principal	Principal
Master Limited Partnerships ("MLPs")	Non-Principal	Not Applicable	Non-Principal	Not Applicable
Municipal Obligations and AMT-Subject Bonds	Not Applicable	Not Applicable	Not Applicable	Principal
Portfolio Duration	Not Applicable	Not Applicable	Not Applicable	Principal
Portfolio Turnover (Active Trading)	Non-Principal	Non-Principal	Non-Principal	Non-Principal
Preferred Securities	Non-Principal	Not Applicable	Non-Principal	Not Applicable
Real Estate Investment Trusts ("REITs")	Non-Principal	Non-Principal	Principal	Not Applicable
Real Estate Securities	Non-Principal	Non-Principal	Principal	Not Applicable
Redemption Risk	Principal	Principal	Principal	Not Applicable
Royalty Trusts	Non-Principal	Not Applicable	Non-Principal	Not Applicable
Securitized Products	Not Applicable	Not Applicable	Not Applicable	Not Applicable
Short Sales	Not Applicable	Not Applicable	Not Applicable	Not Applicable
U.S. Government and U.S. Government Sponsored Securities	Not Applicable	Not Applicable	Not Applicable	Non-Principal
Volatility Mitigation	Not Applicable	Not Applicable	Not Applicable	Not Applicable


⁽¹⁾	The Index Fund may concentrate its investments in a particular industry only to the extent that the relevant index is so concentrated.

Arbitrage Trading

A fund employing arbitrage strategies has the risk that anticipated opportunities do not play out as planned, resulting in potentially reduced returns or losses to the fund as it unwinds failed trades. For example, with respect to the convertible arbitrage strategy, an issuer may default or may be unable to make interest and dividend payments when due; with respect to the merger arbitrage strategy, the merger deal may terminate before closing, thereby imposing losses to the fund.

Bank Loans (also known as Senior Floating Rate Interests)

Bank loans typically hold the most senior position in the capital structure of a business entity (the "Borrower"), are secured by specific collateral, and have a claim on the Borrower's assets and/or stock that is senior to that held by the Borrower's unsecured subordinated debtholders and stockholders. The proceeds of bank loans primarily are used to finance leveraged buyouts, recapitalizations, mergers, acquisitions, stock repurchases, dividends, and, to a lesser extent, to finance internal growth and for other corporate purposes. Bank loans are typically structured and administered by a financial institution that acts as the agent of the lenders participating in the bank loan. Most bank loans that will be purchased by a fund are rated below-investment-grade (sometimes called "junk") or will be

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comparable if unrated, which means they are more likely to default than investment-grade loans. A default could lead to non-payment of income which would result in a reduction of income to the fund, and there can be no assurance that the liquidation of any collateral would satisfy the Borrower's obligation in the event of non-payment of scheduled interest or principal payments, or that such collateral could be readily liquidated. Most bank loans are not traded on any national securities exchange. Bank loans generally have less liquidity than investment-grade bonds and there may be less public information available about them. Bank loan interests may not be considered “securities,” and purchasers therefore may not be entitled to rely on the anti-fraud protections of the federal securities laws.

The primary and secondary market for bank loans may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods, which may cause a fund to be unable to realize full value and thus cause a material decline in a fund's net asset value. Because transactions in bank loans may be subject to extended settlement periods, a fund may not receive proceeds from the sale of a bank loan for a period of time after the sale. As a result, sale proceeds may not be available to make additional investments or to meet a fund’s redemption obligations for a period of time after the sale of the bank loans, which could lead to a fund having to sell other investments, borrow to meet obligations, or borrow to remain fully invested while awaiting settlement.

Bank loans pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate ("LIBOR") or the prime rate offered by one or more major U.S. banks.

Bank loans generally are subject to mandatory and/or optional prepayment. Because of these prepayment conditions and because there may be significant economic incentives for the borrower to repay, prepayments may occur.

Commodity-Related Investments

Commodities are assets that have tangible properties, such as oil, coal, natural gas, agricultural products, industrial metals, livestock, and precious metals. The value of commodities investments will generally be affected by overall market movements and factors specific to a particular industry or commodity, which may include weather, embargoes, tariffs, and health, political, international, and regulatory developments. Economic and other events (whether real or perceived) can reduce the demand for commodities, which may reduce market prices and cause the value of fund shares to fall. The frequency and magnitude of such changes cannot be predicted. Exposure to commodities and commodities markets may subject a fund to greater volatility than investments in traditional securities. No active trading market may exist for certain commodities investments, which may impair the ability of a fund to sell or to realize the full value of such investments in the event of the need to liquidate such investments. In addition, adverse market conditions may impair the liquidity of actively traded commodities investments. Certain types of commodities instruments (such as commodity swaps) are subject to the risk that the counterparty to the instrument will not perform or will be unable to perform in accordance with the terms of the instrument.

Contingent Convertible Securities ("CoCos")

Contingent convertible securities (“CoCos”) are hybrid debt securities that are a form of preferred securities. Cocos are intended to either convert into equity or have their principal written down upon the occurrence of certain “triggers.” The triggers are generally linked to regulatory capital thresholds or regulatory actions calling into question the issuing banking institution’s continued viability as a going-concern, if the conversion trigger were not exercised. CoCos’ unique equity conversion or principal write-down features are tailored to the issuing banking institution and its regulatory requirements. Some additional risks associated with CoCos include, but are not limited to, the following:


•	The occurrence of a conversion event is inherently unpredictable and depends on many factors, some of which will be outside the issuer’s control. Because of the uncertainty regarding whether a conversion event will occur, it may be difficult to predict when, if at all, a CoCo will be converted to equity, and a fund may suffer losses as a result.


•	CoCos may have no stated maturity and fully discretionary coupons. This means coupon (i.e., interest) payments can be canceled at the banking institution’s discretion or at the request of the relevant regulatory authority in order to help the bank absorb losses, without causing a default.

•

CoCos are usually issued in the form of subordinated debt instruments to provide the appropriate regulatory capital treatment. If an issuer liquidates, dissolves or winds-up before a conversion to equity has occurred, the rights and claims of the holders of the CoCos (such as a fund) against the issuer generally rank junior to the claims of holders of unsubordinated obligations of the issuer. In addition, if the CoCos are converted into the issuer’s underlying equity securities after a conversion event (i.e., a “trigger”), each holder will be further subordinated.

•

The value of CoCos is unpredictable and is influenced by many factors including, without limitation: the creditworthiness of the issuer and/or fluctuations in such issuer’s applicable capital ratios; supply and demand for CoCos; general market conditions and available liquidity; and economic, financial and political events that affect the issuer, its particular market or the financial markets in general.

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Due to these features, CoCos may have substantially greater risk than other securities in times of financial stress. If the trigger level is breached, the issuer’s decision to write down, write off or convert a CoCo may be outside a fund’s control, and a fund may suffer a complete loss on an investment in CoCos with no chance of recovery even if the issuer remains in existence.

Convertible Securities

Convertible securities are usually fixed-income securities that a fund has the right to exchange for equity securities at a specified conversion price. Convertible securities could also include corporate bonds, notes, or preferred stocks of U.S. or foreign issuers. Convertible securities allow a fund to realize additional returns if the market price of the equity securities exceeds the conversion price. For example, a fund may hold fixed-income securities that are convertible into shares of common stock at a conversion price of $10 per share. If the market value of the shares of common stock reached $12, the fund could realize an additional $2 per share by converting its fixed-income securities.

Convertible securities have lower yields than comparable fixed-income securities. In addition, at the time a convertible security is issued the conversion price exceeds the market value of the underlying equity securities. Thus, convertible securities may provide lower returns than non-convertible fixed-income securities or equity securities depending upon changes in the price of the underlying equity securities. However, convertible securities permit a fund to realize some of the potential appreciation of the underlying equity securities with less risk of losing its initial investment.

Depending on the features of the convertible security, a fund will treat a convertible security as a fixed-income security, equity security, or preferred security for purposes of investment policies and limitations because of the unique characteristics of convertible securities. Funds that invest in convertible securities may invest in convertible securities that are below investment grade. Many convertible securities are relatively illiquid.

Counterparty Risk

Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations. If a counterparty fails to meet its contractual obligations, goes bankrupt, or otherwise experiences a business interruption, a fund could miss investment opportunities or otherwise hold investments it would prefer to sell, resulting in losses for the fund. In addition, a fund may suffer losses if a counterparty fails to comply with applicable laws or other requirements. Counterparty risk is pronounced during unusually adverse market conditions and is particularly acute in environments in which financial services firms are exposed to systemic risks.

Derivatives

Generally, a derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. A fund may invest in certain derivative strategies to earn income, manage or adjust the risk profile of the fund, replace more direct investments, or obtain exposure to certain markets. A fund may enter into forward commitment agreements, which call for the fund to purchase or sell a security on a future date at a fixed price. A fund may also enter into contracts to sell its investments either on demand or at a specific interval.

The risks associated with derivative investments include:


•	increased volatility of a fund and/or the failure of the investment to mitigate volatility as intended;


•	the inability of those managing investments of the fund to predict correctly the direction of securities prices, interest rates, currency exchange rates, asset values, and other economic factors;


•	losses caused by unanticipated market movements, which may be substantially greater than a fund's initial investment and are potentially unlimited;


•	the possibility that there may be no liquid secondary market, which may make it difficult or impossible to close out a position when desired;


•	the possibility that the counterparty may fail to perform its obligations; and


•	the inability to close out certain hedged positions to avoid adverse tax consequences.

There are many different types of derivatives and many different ways to use them. The specific derivatives that are principal strategies of each Fund are listed in its Fund Summary.

•

Commodity Index-Linked Notes are derivative debt instruments issued by U.S. and foreign banks, brokerage firms, insurance companies and other corporations with principal and/or coupon payments linked to the performance of commodity indices. These notes expose a fund to movements in commodity prices. They are also subject to credit, counterparty, and interest rate risk. Commodity index-linked notes are often leveraged, increasing the volatility of each note's market value relative to changes in the underlying commodity index. At the maturity of the note, a fund may receive more or less principal than it originally invested. A fund may also receive interest payments on the note that are less than the stated coupon interest payments.

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•

Credit Default Swap Agreements may be entered into by a fund as a "buyer" or "seller" of credit protection. Credit default swap agreements involve special risks because they may be difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty). Credit default swaps can increase credit risk because a fund has exposure to both the issuer of the referenced obligation and the counterparty to the credit default swap.

•

Foreign Currency Contracts (such as foreign currency options and foreign currency forward and swap agreements) may be used by funds to increase exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one country to another. A forward currency contract involves a privately negotiated obligation to purchase or sell a specific currency at a future date at a price set in the contract. For currency contracts, there is also a risk of government action through exchange controls that would restrict the ability of a fund to deliver or receive currency.

•

Forwards, futures contracts and options thereon (including commodities futures); options (including put or call options); and swap agreements and over-the-counter swap agreements (e.g., interest rate swaps, total return swaps and credit default swaps) may be used by funds for hedging purposes in order to try to mitigate or protect against potential losses due to changing interest rates, securities prices, asset values, currency exchange rates, and other market conditions; non-hedging purposes to seek to increase the fund's income or otherwise enhance return; and as a low-cost method of gaining exposure to a particular market without investing directly in those securities or assets.

These derivative investments are subject to special risk considerations, particularly the imperfect correlation between the change in market value of the instruments held by a fund and the price of the derivative instrument. If a fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements, even when it may be disadvantageous to do so. Options and Swap Agreements also involve counterparty risk. With respect to options, there may be difference in trading hours for the options markets and the markets for the underlying securities (rate movements can take place in the underlying markets that cannot be reflected in the options markets) and an insufficient liquid secondary market for particular options.


•	Index/structured securities. Certain derivative securities are described more accurately as index/structured securities, which are derivative securities whose value or performance is linked to other equity securities (such as depositary receipts), currencies, interest rates, indices, or other financial indicators (reference indices).

Emerging Markets

The Fund considers a security to be tied economically to an emerging market country (an "emerging market security")if the issuer of the security has its principal place of business or principal office in an emerging market country, has its principal securities trading market in an emerging market country, or derives a majority of its revenue from emerging market countries.

Usually, the term "emerging market country" (also called a "developing country") means any country that is considered to be an emerging country by the international financial community (including the MSCI Emerging Markets Index or Bloomberg Barclays Emerging Markets USD Aggregate Bond Index). These countries generally exclude the U.S., Canada, Japan, Hong Kong, Singapore, Australia, New Zealand, and most nations located in Western Europe.

Investments in companies of emerging market countries are subject to higher risks than investments in companies in more developed countries. These risks include:


•	increased social, political, and economic instability;


•	a smaller market for these securities and low or nonexistent trading volume that results in a lack of liquidity and greater price volatility;


•	lack of publicly available information, including reports of payments of dividends or interest on outstanding securities;


•	foreign government policies that may restrict opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests;


•	relatively new capital market structure or market-oriented economy;


•	the possibility that recent favorable economic developments may be slowed or reversed by unanticipated political or social events in these countries;


•	restrictions that may make it difficult or impossible for a fund to vote proxies, exercise shareholder rights, pursue legal remedies, and obtain judgments in foreign courts; and


•	possible losses through the holding of securities in domestic and foreign custodial banks and depositories.

In addition, many developing countries have experienced substantial and, in some periods, extremely high rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies, currencies, interest rates, and securities markets of those countries.

410

Repatriation of investment income, capital, and proceeds of sales by foreign investors may require governmental registration and/or approval in some developing countries. A fund could be adversely affected by delays in or a refusal to grant any required governmental registration or approval for repatriation.

Further, the economies of developing countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade.

Equity Securities

Equity securities include common stocks, convertible securities, depositary receipts, rights (an offering of common stock to investors who currently own shares which entitle them to buy subsequent issues at a discount from the offering price), and warrants (the right to purchase securities from the issuer at a specified price, normally higher than the current market price). Common stocks, the most familiar type, represent an equity (ownership) interest in a corporation. The value of a company's stock may fall as a result of factors directly relating to that company, such as decisions made by its management or lower demand for the company's products or services. A stock's value may also fall because of factors affecting not just the company, but also companies in the same industry or in a number of different industries, such as increases in production costs. The value of a company's stock may also be affected by changes in financial markets that are relatively unrelated to the company or its industry, such as changes in interest rates or currency exchange rates. In addition, a company's stock generally pays dividends only after the company invests in its own business and makes required payments to holders of its bonds and other debt. For this reason, the value of a company's stock will usually react more strongly than its bonds and other debt to actual or perceived changes in the company's financial condition or prospects.

Some funds focus their investments on certain market capitalization ranges. Market capitalization is defined as total current market value of a company's outstanding equity securities. The market capitalization of companies in a fund’s portfolios and their related indexes will change over time, and a fund will not automatically sell a security just because it falls outside of the market capitalization range of its index(es).

Growth Stock

The prices of growth stocks may be based largely on expectations of future earnings, and their prices can decline rapidly and significantly in reaction to negative news about such factors as earnings, revenues, the economy, political developments, or other news. Growth stocks may underperform value stocks and stocks in other broad style categories (and the stock market as a whole) over any period of time and may shift in and out of favor with investors generally, sometimes rapidly, depending on changes in market, economic, and other factors. As a result, a fund that holds substantial investments in growth stocks may underperform other funds that invest more broadly or favor different investment styles. Because growth companies typically reinvest their earnings, growth stocks typically do not pay dividends at levels associated with other types of stocks, if at all.

Small and Medium Market Capitalization Companies

Investments in companies with smaller market capitalizations may involve greater risks and price volatility (wide, rapid fluctuations) than investments in larger, more mature companies. Small company stocks may decline in price as large company stocks rise, or rise in price while larger company stocks decline. The net asset value of a fund that invests a substantial portion of its assets in small company stocks may therefore be more volatile than the shares of a fund that invests solely in larger company stocks. Small companies may be less significant within their industries and may be at a competitive disadvantage relative to their larger competitors. Smaller companies may be less mature than larger companies. At this earlier stage of development, the companies may have limited product lines, reduced market liquidity for their shares, limited financial resources, or less depth in management than larger or more established companies. While smaller companies may be subject to these additional risks, they may also realize more substantial growth than larger or more established companies.

Unseasoned issuers are companies with a record of less than three years continuous operation, including the operation of predecessors and parents. Many unseasoned issuers also may be small companies and involve the risks and price volatility associated with smaller companies. Unseasoned issuers by their nature have only a limited operating history that can be used for evaluating the company's growth prospects. As a result, these securities may place a greater emphasis on current or planned product lines and the reputation and experience of the company's management and less emphasis on fundamental valuation factors than would be the case for more mature growth companies.

411

Value Stock

Value stocks present the risk that they may decline in price or never reach their expected full market value because the market fails to recognize the stock's intrinsic worth. Value stocks may underperform growth stocks and stocks in other broad style categories (and the stock market as a whole) over any period of time and may shift in and out of favor with investors generally, sometimes rapidly, depending on changes in market, economic, and other factors. As a result, a fund that holds substantial investments in value stocks may underperform other funds that invest more broadly or favor different investment styles.

Fixed-Income Securities

Fixed-income securities include bonds and other debt instruments that are used by issuers to borrow money from investors (examples include corporate bonds, convertible securities, mortgage-backed securities, U.S. government securities and asset-backed securities). The issuer of a fixed-income security generally pays the investor a fixed, variable, or floating rate of interest. The amount borrowed must be repaid at maturity. Some debt securities, such as zero coupon bonds, do not pay current interest, but are sold at a discount from their face values.

Fixed-income securities are sensitive to changes in interest rates. In general, fixed-income security prices rise when interest rates fall and fall when interest rates rise. If interest rates fall, issuers of callable bonds may call (repay) securities with high interest rates before their maturity dates; this is known as call risk. In this case, a fund would likely reinvest the proceeds from these securities at lower interest rates, resulting in a decline in the fund's income. Floating rate securities generally are less sensitive to interest rate changes but may decline in value if their interest rates do not rise as much, or as quickly, as interest rates in general. Conversely, floating rate securities will not generally increase in value if interest rates decline.

Fixed-income securities are also affected by the credit quality of the issuer. Investment-grade debt securities are medium and high quality securities. Some bonds, such as lower grade or "junk" bonds, may have speculative characteristics and may be particularly sensitive to economic conditions and the financial condition of the issuers. Credit risk refers to the possibility that the issuer of the security will not be able to make principal and interest payments when due.

Funds may invest in fixed-income securities of companies with small- or medium-sized market capitalizations. Investments in companies with smaller market capitalizations may involve greater risks, price volatility (wide, rapid fluctuations), and less liquidity than investments in larger, more mature companies.

Foreign Currency

Certain of a fund’s investments will be denominated in foreign currencies or traded in securities markets in which settlements are made in foreign currencies. Any income on such investments is generally paid to a fund in foreign currencies. In addition, funds may engage in foreign currency transactions for both hedging and investment purposes, as well as to increase exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one country to another.

The value of foreign currencies relative to the U.S. dollar varies continually, causing changes in the dollar value of a fund’s portfolio investments (even if the local market price of the investments is unchanged) and changes in the dollar value of a fund’s income available for distribution to its shareholders. The effect of changes in the dollar value of a foreign currency on the dollar value of a fund’s assets and on the net investment income available for distribution may be favorable or unfavorable. Transactions in non-U.S. currencies are also subject to many of the risks of investing in foreign (non-U.S.) securities; for example, changes in foreign economies and political climates are more likely to affect a fund that has foreign currency exposure than a fund that invests exclusively in U.S. companies and currency. There also may be less government supervision of foreign markets, resulting in non-uniform accounting practices and less publicly available information. Transactions in foreign currencies, foreign currency denominated debt and certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned.

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A fund may incur costs in connection with conversions between various currencies. In addition, a fund may be required to liquidate portfolio assets, or may incur increased currency conversion costs, to compensate for a decline in the dollar value of a foreign currency occurring between the time when a fund declares and pays a dividend, or between the time when a fund accrues and pays an operating expense in U.S. dollars. To protect against a change in the foreign currency exchange rate between the date on which a fund contracts to purchase or sell a security and the settlement date for the purchase or sale, to gain exposure to one or more foreign currencies or to “lock in” the equivalent of a dividend or interest payment in another currency, a fund might purchase or sell a foreign currency on a spot (i.e., cash) basis at the prevailing spot rate.

Currency hedging involves some of the same general risks and considerations as other transactions with similar instruments (i.e., derivative instruments) and hedging. Currency transactions are also subject to additional risks. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be adversely affected by government exchange controls, limitations or restrictions on repatriation of currency, and manipulations or exchange restrictions imposed by governments. These forms of governmental actions can result in losses to a fund if it is unable to deliver or receive currency or monies in settlement of obligations. They could also cause hedges the fund has entered into to be rendered useless, resulting in full currency exposure as well as incurring transaction costs. Settlement of a currency forward contract for the purchase of most currencies must occur at a bank based in the issuing nation. The ability to establish and close out positions on trading options on currency futures contracts is subject to the maintenance of a liquid market that may not always be available.

Foreign Securities

The Fund considers a security to be tied economically to countries outside the U.S. (a "foreign security") if the issuer of the security has its principal place of business or principal office outside the U.S., has its principal securities trading market outside the U.S., or derives a majority of its revenue from outside the U.S.

Foreign companies may not be subject to the same uniform accounting, auditing, and financial reporting practices as are required of U.S. companies. In addition, there may be less publicly available information about a foreign company than about a U.S. company. Securities of many foreign companies are less liquid and more volatile than securities of comparable U.S. companies. Commissions on foreign securities exchanges may be generally higher than those on U.S. exchanges.

Foreign markets also have different clearance and settlement procedures than those in U.S. markets. In certain markets, there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct these transactions. Delays in settlement could result in temporary periods when a portion of fund assets is not invested and earning no return. If a fund is unable to make intended security purchases due to settlement problems, the fund may miss attractive investment opportunities. In addition, a fund may incur a loss as a result of a decline in the value of its portfolio if it is unable to sell a security.

With respect to certain foreign countries, there is the possibility of nationalization, expropriation or confiscatory taxation, political or social instability, or diplomatic developments that could affect a fund's investments in those countries. In addition, a fund may also suffer losses due to differing accounting practices and treatments. Investments in foreign securities are subject to laws of the foreign country that may limit the amount and types of foreign investments. Changes of governments or of economic or monetary policies, in the U.S. or abroad, changes in dealings between nations, currency convertibility or exchange rates could result in investment losses for a fund.

Foreign securities are often traded with less frequency and volume, and therefore may have greater price volatility, than is the case with many U.S. securities. Brokerage commissions, custodial services, and other costs relating to investment in foreign countries are generally more expensive than in the U.S. Though the fund intends to acquire the securities of foreign issuers where there are public trading markets, economic or political turmoil in a country in which a fund has a significant portion of its assets or deterioration of the relationship between the U.S. and a foreign country may reduce the liquidity of a fund's portfolio. The fund may have difficulty meeting a large number of redemption requests. Furthermore, there may be difficulties in obtaining or enforcing judgments against foreign issuers.

A fund may invest in a foreign company by purchasing depositary receipts. Depositary receipts are certificates of ownership of shares in a foreign-based issuer held by a bank or other financial institution. They are alternatives to purchasing the underlying security but are subject to the foreign securities risks to which they relate.

If a fund's portfolio is over-weighted in a certain geographic region, any negative development affecting that region will have a greater impact on the fund than a fund that is not over-weighted in that region.

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Fund of Funds

The performance and risks of a fund of funds directly correspond to the performance and risks of the underlying funds in which the fund invests.

As of October 31, 2016, the Principal LifeTime Funds’ and SAM Portfolios’ assets were allocated among the underlying funds as identified in the tables below.



Underlying Fund	Principal LifeTime 2010 Fund	Principal LifeTime 2015 Fund	Principal LifeTime 2020 Fund	Principal LifeTime 2025 Fund	Principal LifeTime 2030 Fund	Principal LifeTime 2035 Fund
Blue Chip	2.90%	3.70%	4.30%	4.90%	4.30%	—%
Bond Market Index	8.80	8.20	6.50	6.70	4.50	6.30
Core Plus Bond	18.90	18.50	18.20	15.80	13.20	11.40
Diversified International	4.00	5.00	6.00	7.10	7.90	8.60
Diversified Real Asset	2.60	2.60	2.60	2.50	2.50	2.60
Equity Income	2.80	3.50	4.10	4.70	3.50	—
Global Diversified Income	9.00	8.00	7.00	5.90	4.60	—
Global Multi-Strategy	5.30	4.80	4.40	3.90	3.40	—
Global Opportunities	3.10	4.20	4.90	5.60	6.40	3.50
Global Real Estate Securities	—	—	2.00	2.90	3.30	3.80
High Yield I	—	—	—	—	—	2.10
Inflation Protection	8.60	6.80	3.70	3.20	2.10	1.50
International Emerging Markets	0.50	0.60	0.80	0.90	1.00	1.20
LargeCap Growth	—	—	—	—	—	1.70
LargeCap Growth I	2.90	3.60	4.20	4.90	6.50	11.20
LargeCap S&P 500 Index	4.70	5.90	7.00	8.10	9.10	10.50
LargeCap Value	—	—	—	—	3.50	5.90
LargeCap Value III	2.90	3.60	4.20	4.80	3.70	6.20
MidCap	2.10	2.90	3.40	3.00	2.40	—
MidCap Growth III	1.00	1.10	1.50	2.10	2.80	4.60
MidCap Value III	1.00	1.20	1.50	2.20	2.90	4.80
Origin Emerging Markets	0.60	0.70	0.80	0.90	1.00	1.20
Overseas	3.70	4.80	5.90	6.80	7.80	8.80
Short-Term Income	12.70	7.90	4.20	—	—	—
SmallCap Growth I	0.90	1.20	1.40	1.50	1.80	2.00
SmallCap Value II	1.00	1.20	1.40	1.60	1.80	2.10
	100.00%	100.00%	100.00%	100.00%	100.00%	100.00%

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Underlying Fund	Principal LifeTime 2040 Fund	Principal LifeTime 2045 Fund	Principal LifeTime 2050 Fund	Principal LifeTime 2055 Fund	Principal LifeTime 2060 Fund	Principal LifeTime Strategic Income Fund
Blue Chip	—%	—%	—%	—%	—%	1.80%
Bond Market Index	4.60	3.40	2.20	1.60	1.60	10.70
Core Plus Bond	8.70	6.50	4.50	3.20	2.90	23.90
Diversified International	9.80	10.10	10.70	10.90	11.00	2.80
Diversified Real Asset	2.60	2.60	2.50	2.30	2.40	—
Equity Income	—	—	—	—	—	3.30
Global Diversified Income	—	—	—	—	—	9.70
Global Multi-Strategy	—	—	—	—	—	6.60
Global Opportunities	3.80	4.00	4.10	4.20	4.20	1.80
Global Real Estate Securities	4.30	4.80	4.90	5.00	4.90	—
High Yield I	2.00	2.10	2.10	2.00	2.10	—
Inflation Protection	0.90	—	—	—	—	11.70
International Emerging Markets	1.30	1.40	1.40	1.40	1.60	—
LargeCap Growth	1.90	1.30	1.60	2.10	2.20	—
LargeCap Growth I	11.10	12.30	12.80	12.70	12.80	1.70
LargeCap S&P 500 Index	11.10	11.70	11.90	12.50	12.70	2.70
LargeCap Value	6.30	6.70	6.90	7.20	7.00	—
LargeCap Value III	6.70	7.00	7.20	7.40	7.30	—
MidCap	—	—	—	—	—	2.50
MidCap Growth III	4.80	5.20	5.30	5.40	5.40	—
MidCap Value III	4.90	5.30	5.50	5.60	5.50	—
Origin Emerging Markets	1.20	1.20	1.30	1.40	1.40	—
Overseas	9.80	10.00	10.60	10.50	10.50	2.70
Short-Term Income	—	—	—	—	—	16.90
SmallCap Growth I	2.10	2.10	2.20	2.30	2.20	0.60
SmallCap Value II	2.10	2.30	2.30	2.30	2.30	0.60
	100.00%	100.00%	100.00%	100.00%	100.00%	100.00%



Underlying Fund	Principal LifeTime Hybrid 2015 Fund	Principal LifeTime Hybrid 2020 Fund	Principal LifeTime Hybrid 2025 Fund	Principal LifeTime Hybrid 2030 Fund	Principal LifeTime Hybrid 2035 Fund	Principal LifeTime Hybrid 2040 Fund
Bond Market Index	31.60%	28.50%	26.40%	20.90%	17.70%	13.10%
Diversified International	10.30	12.30	14.10	15.80	16.90	17.90
Diversified Real Asset	2.50	2.50	2.50	2.50	2.50	2.50
Global Diversified Income	7.90	6.90	5.90	4.60	—	—
Global Real Estate Securities	—	1.90	2.80	3.20	3.70	4.20
High Yield I	—	—	—	—	2.10	2.10
Inflation Protection	6.70	4.00	3.10	2.30	1.50	1.00
International Emerging Markets	0.60	0.70	0.80	0.90	1.20	1.30
International Small Company	1.60	1.90	2.20	2.40	2.60	2.80
LargeCap S&P 500 Index	21.80	26.10	29.90	33.40	36.50	38.70
MidCap S&P 400 Index	6.10	7.30	8.30	9.30	10.10	10.80
Origin Emerging Markets	0.50	0.60	0.70	0.90	1.10	1.20
Short-Term Income	7.90	4.40	—	—	—	—
SmallCap S&P 600 Index	2.50	2.90	3.30	3.80	4.10	4.40
	100.00%	100.00%	100.00%	100.00%	100.00%	100.00%

415



Underlying Fund	Principal LifeTime Hybrid 2045 Fund	Principal LifeTime Hybrid 2050 Fund	Principal LifeTime Hybrid 2055 Fund	Principal LifeTime Hybrid 2060 Fund	Principal LifeTime Hybrid Income Fund
Bond Market Index	9.90%	6.90%	4.90%	4.40%	41.20%
Diversified International	18.80	19.50	20.00	20.00	5.20
Diversified Real Asset	2.50	2.50	2.50	2.50	—
Global Diversified Income	—	—	—	—	9.70
Global Real Estate Securities	4.60	4.70	4.70	4.70	—
High Yield I	2.10	2.10	2.10	2.10	—
Inflation Protection	—	—	—	—	12.10
International Emerging Markets	1.30	1.40	1.40	1.40	—
International Small Company	3.00	3.00	3.10	3.10	0.80
LargeCap S&P 500 Index	40.70	42.10	43.10	43.40	10.10
MidCap S&P 400 Index	11.30	11.80	12.00	12.10	2.80
Origin Emerging Markets	1.30	1.30	1.40	1.40	—
Short-Term Income	—	—	—	—	17.00
SmallCap S&P 600 Index	4.50	4.70	4.80	4.90	1.10
	100.00%	100.00%	100.00%	100.00%	100.00%



Underlying Fund	SAM Balanced Portfolio	SAM Conservative Balanced Portfolio	SAM Conservative Growth Portfolio	SAM Flexible Income Portfolio	SAM Strategic Growth Portfolio
Blue Chip	4.80%	2.10%	6.00%	—%	—%
Diversified International	11.20	7.90	14.80	3.10	19.10
Diversified Real Asset	—	—	2.50	—	—
EDGE MidCap	2.00	1.70	2.60	—	2.10
Equity Income	10.90	6.90	11.30	8.80	11.40
Global Diversified Income	2.00	3.30	—	6.60	—
Global Multi-Strategy	7.50	5.10	2.80	—	2.00
Global Real Estate Securities	2.50	1.90	2.00	2.40	3.70
Government & High Quality Bond	5.20	10.20	2.40	10.30	—
High Yield	2.10	5.10	1.50	7.40	—
Income	12.90	20.60	5.30	30.70	—
Inflation Protection	1.80	2.40	—	4.20	—
International Emerging Markets	2.50	1.70	—	0.90	—
International Small Company	1.10	0.70	1.50	—	2.00
LargeCap Growth	5.40	4.40	7.90	3.10	12.20
LargeCap Value	6.30	5.50	10.80	3.00	10.80
MidCap	4.80	2.20	6.60	—	—
Multi-Manager Equity Long/Short	—	—	2.90	—	2.20
Origin Emerging Markets	—	—	3.70	—	6.80
Preferred Securities	2.10	1.50	1.50	1.60	—
Principal Capital Appreciation	3.40	2.60	5.00	—	15.00
Principal EDGE Active Income ETF	1.00	2.40	—	2.50	4.20
Principal U.S. Small Cap Index ETF	1.20	1.00	2.00	—	2.90
Real Estate Debt Income	1.00	1.00	—	2.00	1.00
Short-Term Income	3.90	6.70	1.50	9.30	—
Small-MidCap Dividend Income	4.40%	3.10%	5.40%	4.10%	4.60%
	100.00%	100.00%	100.00%	100.00%	100.00%

A fund of funds indirectly bears its pro-rata share of the expenses of the underlying funds in which it invests, as well as directly incurring expenses. Therefore, investment in a fund of funds is more costly than investing directly in shares of the underlying funds. Generally, if an underlying fund offers multiple classes of shares for investment by funds of funds, the Funds will purchase shares of the class with the lowest expense ratio (expressed as a percent of average net assets on an annualized basis) at the time of purchase.

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If you are considering investing in a Principal LifeTime Fund or Principal LifeTime Hybrid Fund, you should take into account your estimated retirement date and risk tolerance. In general, each Principal LifeTime Fund or Principal LifeTime Hybrid Fund is managed with the assumption that the investor will invest in a Principal LifeTime Fund or Principal LifeTime Hybrid Fund whose stated date is closest to the date the shareholder retires. Choosing a fund targeting an earlier date represents a more conservative choice; choosing a fund with a later date represents a more aggressive choice. It is important to note that the retirement year of the fund you select should not necessarily represent the specific year you intend to start drawing retirement assets. It should be a guide only. Generally, the potential for higher returns over time is accompanied by the higher risk of a decline in the value of your principal. Investors should realize that the Principal LifeTime Funds or Principal LifeTime Hybrid Fund are not a complete solution to their retirement needs. Investors must weigh many factors when considering when to retire, what their retirement needs will be, and what sources of income they may have.

There are five Strategic Asset Management ("SAM") Portfolios: Flexible Income, Conservative Balanced, Balanced, Conservative Growth and Strategic Growth. The SAM Portfolios offer long-term investors different asset allocation strategies having different levels of potential investment risk and reward. The SAM Portfolios share the same risks but often with different levels of exposure. In general, relative to the other Portfolios:


•	the Balanced Portfolio should offer investors the potential for a medium level of income and a medium level of capital growth, while exposing them to a medium level of principal risk,


•	the Conservative Balanced Portfolio should offer investors the potential for a medium to high level of income and a medium to low level of capital growth, while exposing them to a medium to low level of principal risk,


•	the Conservative Growth Portfolio should offer investors the potential for a low to medium level of income and a medium to high level of capital growth, while exposing them to a medium to high level of principal risk,


•	the Flexible Income Portfolio should offer investors the potential for a high level of income and a low level of capital growth, while exposing them to a low level of principal risk, and


•	the Strategic Growth Portfolio should offer investors the potential for a high level of capital growth, and a corresponding level of principal risk.

Funds of funds can be subject to payment in kind liquidity risk: If an underlying fund pays a redemption request by the fund wholly or partly by a distribution-in-kind of portfolio securities rather than in cash, the fund may hold such portfolio securities until those managing the investments of the fund determine that it is appropriate to dispose of them.

Management of funds of funds entails potential conflicts of interest: a fund of fund may invest in affiliated underlying funds; and those who manage the fund's investments and their affiliates may earn different fees from different underlying funds and may have an incentive to allocate more fund of fund assets to underlying funds from which they receive higher fees.

Geographic Concentration

Greater risks may arise from the geographic concentration (a particular state, such as California, Illinois, or New York, or a particular country or region) of investments, as well as the current and past financial condition of municipal issuers in the case of a municipal fund. In addition to factors affecting the state or regional economy, certain constitutional amendments, legislative measures, executive orders, administrative regulations, court decisions, and voter initiatives could result in adverse consequences affecting municipal obligations. See the SAI for a more detailed description of these risks.

Hedging

Hedging is a strategy that can be used to limit or offset investment risk. The success of a fund’s hedging strategy will be subject to the ability of those managing the fund's investments to correctly assess the degree of correlation between the performance of the instruments used in the hedging strategy and the performance of the investments in the portfolio being hedged. Since the characteristics of many securities change as markets change or time passes, the success of a fund’s hedging strategy will also be subject to the ability of those managing the fund's investments to continually recalculate, readjust, and execute hedges in an efficient and timely manner. For a variety of reasons, those managing the fund's investments may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Such imperfect correlation may prevent a fund from achieving the intended hedge or expose a fund to risk of loss. In addition, it is not possible to hedge fully or perfectly against any risk, and hedging entails its own costs.

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High Yield Securities

Below investment grade bonds, which are rated at the time of purchase Ba1 or lower by Moody's Investors Service, Inc. ("Moody's") and BB+ or lower by S&P Global Ratings ("S&P Global") (if the bond has been rated by only one of those agencies, that rating will determine if the bond is below investment grade; if the bond has not been rated by either of those agencies, those managing investments of the fund will determine whether the bond is of a quality comparable to those rated below investment grade), are sometimes referred to as high yield or "junk bonds" and are considered speculative. Such securities could be in default at time of purchase. Each fund of funds may invest in underlying funds that may invest in such securities.

Investment in high yield bonds involves special risks in addition to the risks associated with investment in highly rated debt securities. High yield bonds may be regarded as predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. Moreover, under certain circumstances, such securities may be less liquid than higher rated debt securities.

Analysis of the creditworthiness of issuers of high yield securities may be more complex than for issuers of higher quality debt securities. The ability of a fund to achieve its investment objective may, to the extent of its investment in high yield bonds, be more dependent on such credit analysis than would be the case if the fund were investing in higher quality bonds.

High yield bonds may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher-grade bonds. The prices of high yield bonds have been found to be less sensitive to interest rate changes than more highly rated investments, but more sensitive to adverse economic downturns or individual corporate developments. If the issuer of high yield bonds defaults, a fund may incur additional expenses to seek recovery. To the extent that such high yield issuers undergo a corporate restructuring, such high yield securities may become exchanged for or converted into reorganized equity of the underlying issuer. High yield bonds oftentimes include complex legal covenants that impose various degrees of restriction on the issuer’s ability to take certain actions, such as distribute cash to equity holders, incur additional indebtedness, and dispose of assets. To the extent that a bond indenture or loan agreement does not contain sufficiently protective covenants or otherwise permits the issuer to take certain actions to the detriment of the holder of the fixed-income security, the underlying value of such fixed-income security may decline.

The secondary market on which high yield bonds are traded may be less liquid than the market for higher-grade bonds. Less liquidity in the secondary trading market could adversely affect the price at which a fund could sell a high yield bond and could adversely affect and cause large fluctuations in the daily price of the fund's shares. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the value and liquidity of high yield bonds, especially in a thinly traded market.

The use of credit ratings for evaluating high yield bonds also involves certain risks. For example, credit ratings evaluate the safety of principal and interest payments, not the market value risk of high yield bonds. Also, credit rating agencies may fail to change credit ratings in a timely manner to reflect subsequent events. If a credit rating agency changes the rating of a portfolio security held by a fund, the fund may retain the security if those managing the investments of the fund think it is in the best interest of shareholders.

Industry Concentration

A fund that concentrates its investments (invests more than 25% of its net assets) in a particular industry (or group of industries) is more exposed to the overall condition of the particular industry than a fund that invests in a wider variety of industries. A particular industry could be affected by economic, business, supply-and-demand, political, or regulatory factors. Companies within the same industry could react similarly to such factors. As a result, a fund’s concentration in a particular industry would increase the possibility that the fund’s performance will be affected by such factors.

Inverse Floating Rate Investments

Inverse floating rate investments are variable rate debt instruments that pay interest at rates that move in the opposite direction of prevailing interest rates. Inverse floating rate investments tend to underperform the market for fixed rate bonds in a rising interest rate environment. Inverse floating rate investments have varying degrees of liquidity. Inverse floating rate investments in which the funds may invest may include derivative instruments, such as residual interest bonds or tender option bonds. Such instruments are typically created by a special purpose trust that holds long-term fixed rate bonds and sells two classes of beneficial interests: short-term floating rate interests, which are sold to third party investors, and the inverse floating residual interests, which are purchased by the funds. The funds generally invest in inverse floating rate investments that include embedded leverage, thus exposing the funds to greater risks and increased costs. The market value of a "leveraged" inverse floating rate investment generally will fluctuate in response to changes in market rates of interest to a greater extent than the value of an unleveraged investment. A fund making such an investment will segregate on its books liquid securities having a value equal to the market value of the bonds underlying the "leveraged" inverse floating rate investment.

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Investment Company Securities

Securities of other investment companies, including shares of closed-end investment companies, unit investment trusts, various exchange-traded funds ("ETFs"), and other open-end investment companies, represent interests in professionally managed portfolios that may invest in a variety of instruments. Certain types of investment companies, such as closed-end investment companies, issue a fixed number of shares that trade on a stock exchange or over-the-counter at a premium or a discount to their net asset value. Others are continuously offered at net asset value, but may also be traded in the secondary market. ETFs are often structured to perform in a similar fashion to a broad-based securities index. Investing in ETFs involves generally the same risks as investing directly in the underlying instruments. Investing in ETFs involves the risk that they will not perform in exactly the same fashion, or in response to the same factors, as the index or underlying instruments. Shares of ETFs may trade at prices other than NAV.

A fund that invests in another investment company is subject to the risks associated with direct ownership of the securities in which such investment company invests. Fund shareholders indirectly bear their proportionate share of the expenses of each such investment company, including its advisory and administrative fees. The Fund would also continue to pay its own advisory fees and other expenses. Consequently, the Fund and its shareholders would, in effect, absorb two levels of fees with respect to investments in other investment companies.

A fund may invest in affiliated underlying funds, and those who manage such fund's investments and their affiliates may earn different fees from different underlying funds and may have an incentive to allocate more fund assets to underlying funds from which they receive higher fees.

Leverage

If a fund makes investments in futures contracts, forward contracts, swaps and other derivative instruments, these instruments provide the economic effect of financial leverage by creating additional investment exposure, as well as the potential for greater loss. If a fund uses leverage through activities such as borrowing, entering into short sales, purchasing securities on margin or on a “when-issued” basis or purchasing derivative instruments in an effort to increase its returns, the fund has the risk of magnified capital losses that occur when losses affect an asset base, enlarged by borrowings or the creation of liabilities, that exceeds the net assets of the fund. The net asset value of a fund employing leverage will be more volatile and sensitive to market movements. Leverage may involve the creation of a liability that requires the fund to pay interest. Leveraging may cause a fund to liquidate portfolio positions to satisfy its obligations or to meet segregation requirements when it may not be advantageous to do so. To the extent that a fund is not able to close out a leveraged position because of market illiquidity, a fund’s liquidity may be impaired to the extent that it has a substantial portion of liquid assets segregated or earmarked to cover obligations.

Master Limited Partnerships ("MLPs")

A master limited partnership ("MLP") that invests in a particular industry (e.g., oil and gas) will be harmed by detrimental economic events within that industry. For example, the business of certain MLPs is affected by supply and demand for energy commodities because such MLPs derive revenue and income based upon the volume of the underlying commodity produced, transported, processed, distributed, and/or marketed. Many MLPs are also subject to various federal, state and local environmental laws and health and safety laws as well as laws and regulations specific to their particular activities.

MLPs tend to pay relatively higher distributions than other types of companies. The amount of cash that an MLP can distribute to its partners will depend on the amount of cash it generates from operations, which will vary from quarter to quarter depending on factors affecting the market generally and on factors affecting the particular business lines of the MLP. Available cash will also depend on the MLP's level of operating costs (including incentive distributions to the general partner), level of capital expenditures, debt service requirements, acquisition costs (if any), fluctuations in working capital needs and other factors.

Certain benefits derived from investment in MLPs depend largely on the MLPs being treated as partnerships for federal income tax purposes. As a partnership, an MLP has no federal income tax liability at the entity level. MLPs taxed as partnerships file a partnership tax return for U.S. federal, state, and local income tax purposes and communicate the Fund's allocable share of the MLP's income, gains, losses, deductions, and expenses via a "Schedule K-1." Each year, the Fund will send you an annual tax statement (Form 1099) to assist you in completing your tax returns. In some circumstances the Fund may need to send you a corrected Form 1099, which could require you to amend your tax returns. For example, if the Fund keeps MLP investments until the basis (generally the price paid for the units, as adjusted downwards with each distribution and allocation of deductions and losses, and upwards with each allocation of taxable income and gain) is zero, subsequent distributions will be taxable to the Fund at ordinary income rates and shareholders may receive a corrected Form 1099.

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If, as a result of a change in current law or a change in an MLP's business, an MLP was treated as a corporation for federal income tax purposes, the MLP would be obligated to pay federal income tax on its income at the corporate tax rate. If an MLP was classified as a corporation for federal income tax purposes, the amount of cash available for distribution would be reduced and the distributions received might be taxed entirely as dividend income.

To the extent a distribution received by a fund from an MLP is treated as a return of capital, the fund's adjusted tax basis in the interests of the MLP will be reduced, which may increase the fund's tax liability upon the sale of the interests in the MLP or upon subsequent distributions in respect of such interests.

Municipal Obligations and AMT-Subject Bonds

The term “municipal obligations” generally is understood to include debt obligations issued by municipalities to obtain funds for various public purposes. The two principal classifications of municipal bonds are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit, with either limited or unlimited taxing power for the payment of principal and interest. Revenue bonds are not supported by the issuer's full taxing authority; generally, they are payable only from the revenues of a particular facility, a class of facilities, or the proceeds of another specific revenue source.

"AMT-subject bonds" are municipal obligations issued to finance certain "private activities," such as bonds used to finance airports, housing projects, student loan programs, and water and sewer projects. Interest on AMT-subject bonds is an item of tax preference for purposes of the federal individual alternative minimum tax ("AMT") and will also give rise to corporate alternative minimum taxes. See "Tax Considerations" for a discussion of the tax consequences of investing in the fund.

Current federal income tax laws limit the types and volume of bonds qualifying for the federal income tax exemption of interest, which may have an effect upon the ability of the fund to purchase sufficient amounts of tax-exempt securities.

Portfolio Duration

Average duration is a mathematical calculation of the average life of a bond (or bonds in a bond fund) that serves as a useful measure of its price risk. Duration is an estimate of how much the value of the bonds held by a fund will fluctuate in response to a change in interest rates. For example, if a fund has an average duration of 4 years and interest rates rise by 1%, the value of the bonds held by the fund will decline by approximately 4%, and if the interest rates decline by 1%, the value of the bonds held by the fund will increase by approximately 4%. Longer term bonds and zero coupon bonds are generally more sensitive to interest rate changes. Duration, which measures price sensitivity to interest rate changes, is not necessarily equal to average maturity.

Portfolio Turnover (Active Trading)

"Portfolio Turnover" is the term used in the industry for measuring the amount of trading that occurs in a fund's portfolio during the year. For example, a 100% turnover rate means that on average every security in the portfolio has been replaced once during the year. Funds with high turnover rates (more than 100%) are considered actively-traded and often have higher transaction costs (which are paid by the fund), may result in higher taxes when fund shares are held in a taxable account, and may lower the fund's performance. High portfolio turnover can result in a lower capital gain distribution due to higher transaction costs added to the basis of the assets or can result in lower ordinary income distributions to shareholders when the transaction costs cannot be added to the basis of assets. Both events reduce fund performance.

Please consider all the factors when you compare the turnover rates of different funds. You should also be aware that the "total return" line in the Financial Highlights section reflects portfolio turnover costs.

No turnover rate can be calculated for the Money Market Fund because of the short maturities of the securities in which it invests.

Preferred Securities

Preferred securities include preferred stock and various types of subordinated debt and convertible securities, including contingent convertible securities ("CoCos"). Preferred securities may pay fixed rate or adjustable rate dividends and generally have "preference" over common stock in the payment of dividends, but are junior to the issuer's senior debt in a liquidation of the issuer's assets. Preference would mean that a company must pay on its preferred securities before paying on its common stock, and that any claims of the preferred security holder would typically be ahead of common stockholders' claims on assets in a corporate liquidation.

Holders of preferred securities usually have no right to vote for corporate directors or on other matters. The market value of preferred securities is sensitive to changes in interest rates as they are typically fixed income securities; the fixed-income payments are expected to be the primary source of long-term investment return. While some preferred

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securities are issued with a final maturity date, others are perpetual in nature. In certain instances, a final maturity date may be extended and/or the final payment of principal may be deferred at the issuer’s option for a specified time without triggering an event of default for the issuer. In addition, an issuer of preferred securities may have the right to redeem the securities before their stated maturity date. For instance, for certain types of preferred securities, a redemption may be triggered by a change in federal income tax or securities laws. As with call provisions, a redemption by the issuer may reduce the return of the security held by the fund. Preferred securities may be subject to provisions that allow an issuer, under certain circumstances to skip (indefinitely) or defer (possibly up to 10 years) distributions. If a fund owns a preferred security that is deferring its distribution, the fund may be required to report income for tax purposes while it is not receiving any income.

Preferred securities are typically issued by corporations, generally in the form of interest or dividend bearing instruments, or by an affiliated business trust of a corporation, generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The preferred securities market is generally divided into the $25 par “retail” and the $1,000 par “institutional” segments. The $25 par segment includes securities that are listed on the New York Stock Exchange (exchange traded), which trade and are quoted with accrued dividend or interest income, and which are often callable at par value five years after their original issuance date. The institutional segment includes $1,000 par value securities that are not exchange-listed (over the counter), which trade and are quoted on a “clean” price, i.e., without accrued dividend or interest income, and which often have a minimum of 10 years of call protection from the date of their original issuance. Preferred securities can also be issued by real estate investment trusts and involve risks similar to those associated with investing in real estate investment trust companies.

Real Estate Investment Trusts ("REITs")

Real estate investment trust securities ("REITs") involve certain unique risks in addition to the risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds, or extended vacancies of property). REITs are characterized as: equity REITs, which primarily own property and generate revenue from rental income; mortgage REITs, which invest in real estate mortgages; and hybrid REITs, which combine the characteristics of both equity and mortgage REITs. Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self-liquidation. A fund that invests in a REIT is subject to the REIT’s expenses, including management fees, and will remain subject to the fund's advisory fees with respect to the assets so invested. REITs are also subject to the possibilities of failing to qualify for the special tax treatment accorded REITs under the Code, and failing to maintain their exemptions from registration under the 1940 Act.

Investment in REITs also involves risks similar to those associated with investing in small market capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume, and may be subject to more abrupt or erratic price movements than larger company securities.

Real Estate Securities

Investing in securities of companies in the real estate industry subjects a fund to the special risks associated with the real estate market and the real estate industry in general. Generally, companies in the real estate industry are considered to be those that have principal activity involving the development, ownership, construction, management or sale of real estate; have significant real estate holdings, such as hospitality companies, healthcare facilities, supermarkets, mining, lumber and/or paper companies; and/or provide products or services related to the real estate industry, such as financial institutions that make and/or service mortgage loans and manufacturers or distributors of building supplies. Securities of companies in the real estate industry are sensitive to factors such as loss to casualty or condemnation, changes in real estate values, property taxes, interest rates, cash flow of underlying real estate assets, occupancy rates, government regulations affecting zoning, land use and rents, and the management skill and creditworthiness of the issuer. Companies in the real estate industry may also be subject to liabilities under environmental and hazardous waste laws.

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Redemption Risk

An underlying fund to a fund of funds may experience relatively large redemptions or purchases as the fund of funds periodically reallocates or rebalances its assets. These transactions may accelerate the realization of taxable income if sales of portfolio securities result in gains and could increase transaction costs. In addition, when a fund of funds reallocates or redeems significant assets away from an underlying fund, the loss of assets to the underlying fund could result in increased expense ratios for that fund. Moreover, a fund of fund's redemptions or reallocations among share classes of an underlying fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.

Principal Global Investors, LLC ("PGI") is the advisor to the Principal LifeTime Funds, Principal LifeTime Hybrid Funds, Real Estate Allocation Fund, the SAM Portfolios, PVC Diversified Balanced Account, PVC Diversified Balanced Managed Volatility Account, PVC Diversified Growth Account, PVC Diversified Growth Managed Volatility Account, PVC Diversified Income Account, PVC Multi-Asset Income Account, and each of the underlying funds. Principal Real Estate Investors, LLC ("Principal-REI") is sub-advisor to the Real Estate Allocation Fund. Principal-REI also serves as Sub-Advisor to some of the underlying funds. PGI and Principal-REI are committed to minimizing the potential impact of underlying fund risk on underlying funds to the extent consistent with pursuing the investment objectives of the fund of funds that it manages. Each may face conflicts of interest in fulfilling its responsibilities to all such funds.

As of October 31, 2016, PFI Principal LifeTime Funds, PFI Principal LifeTime Hybrid Funds, PFI Real Estate Allocation Fund*, PFI SAM Portfolios, PVC Diversified Balanced Account, PVC Diversified Balanced Managed Volatility Account, PVC Diversified Growth Account, PVC Diversified Growth Managed Volatility Account, PVC Diversified Income Account, PVC Principal LifeTime Accounts, PVC Multi-Asset Income Account, and PVC SAM Portfolios owned the following percentages, in the aggregate, of the outstanding shares of the underlying funds listed below:



Fund	Total Percentage of Outstanding Shares Owned
Core Plus Bond Fund	85.59%
Diversified International Fund	47.86%
Equity Income Fund	38.04%
Global Diversified Income Fund	12.84%
Global Real Estate Securities Fund	38.48%
Government & High Quality Bond Fund	49.05%
High Yield Fund	13.27%
High Yield Fund I	19.94%
Income Fund	57.58%
Inflation Protection Fund	54.70%
International Emerging Markets Fund	47.53%
LargeCap Growth Fund	55.59%
LargeCap Growth Fund I	27.53%
LargeCap S&P 500 Index Fund	48.84%
LargeCap Value Fund	83.35%
LargeCap Value Fund III	73.75%
MidCap Fund	8.16%
MidCap Growth Fund III	58.84%
MidCap S&P 400 Index Fund	21.53%
MidCap Value Fund III	67.41%
Overseas Fund	65.54%
Principal Capital Appreciation Fund	28.55%
Short-Term Income Fund	39.73%
SmallCap Growth Fund I	31.92%
SmallCap S&P 600 Index Fund	22.16%
SmallCap Value Fund II	38.30%

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Royalty Trusts

A royalty trust generally acquires an interest in natural resource or chemical companies and distributes the income it receives to its investors. A sustained decline in demand for natural resource and related products could adversely affect royalty trust revenues and cash flows. Such a decline could result from a recession or other adverse economic conditions, an increase in the market price of the underlying commodity, higher taxes or other regulatory actions that increase costs, or a shift in consumer demand. Rising interest rates could harm the performance and limit the capital appreciation of royalty trusts because of the increased availability of alternative investments at more competitive yields. Fund shareholders will indirectly bear their proportionate share of the royalty trusts' expenses.

Securitized Products

Securitized products are fixed income instruments that represent interests in underlying pools of collateral or assets. The value of the securitized product is derived from the performance, value, and cash flows of the underlying asset(s). The fund’s investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Prepayment risk may make it difficult to calculate the average life of a fund’s investment in securitized products. Securitized products are generally issued as pass-through certificates, which represent the right to receive principal and interest payments collected on the underlying pool of assets, which are passed through to the security holder. Therefore, repayment depends on the cash flows generated by the underlying pool of assets. The securities may be rated as investment-grade or below-investment-grade.

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Mortgage-backed securities (“MBS”) represent an interest in a pool of underlying mortgage loans secured by real property. MBS are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. If interest rates fall and the underlying loans are prepaid faster than expected, the fund may have to reinvest the prepaid principal in lower yielding securities, thus reducing the fund’s income. Conversely, rising interest rates tend to discourage refinancings and the underlying loans may be prepaid more slowly than expected, reducing a fund’s potential to reinvest the principal in higher yielding securities and extending the duration of the underlying loans. In addition, when market conditions result in an increase in default rates on the underlying loans and the foreclosure values of the underlying real estate is less than the outstanding amount due on the underlying loan, collection of the full amount of accrued interest and principal on these investments may be doubtful. The risk of such defaults is generally higher in the case of underlying mortgage pools that include sub-prime mortgages (mortgages granted to borrowers whose credit histories would not support conventional mortgages).

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Commercial mortgage-backed securities (“CMBS”) represent an interest in a pool of underlying commercial mortgage loans secured by real property such as retail, office, hotel, multi-family, and industrial properties. Certain CMBS are issued in several classes with different levels of yield and credit protection, and the CMBS class in which a fund invests usually influences the interest rate, credit, and prepayment risks.


•	Asset-backed securities (“ABS”) are backed by non-mortgage assets such as company receivables, truck and auto loans, student loans, leases and credit card receivables. ABS entail credit risk. They also may present a risk that, in the event of default, the liquidation value of the underlying assets may be inadequate to pay any unpaid interest or principal.

Short Sales

A fund enters into a short sale by selling a security it has borrowed (typically from a broker or other institution) with the hope of purchasing the same security at a later date at a lower price. A fund may also take a short position in a derivative instrument, such as a future, forward or swap. If the market price of the security or derivatives increases, the fund will suffer a (potentially unlimited) loss when it replaces the security or derivative at the higher price. In certain cases, purchasing a security to cover a short position can itself cause the price of the security to rise further, thereby exacerbating the loss. In addition, a fund may not always be able to borrow the security at a particular time or at an acceptable price. Before a fund replaces a borrowed security, it is required to designate on its books cash or liquid assets as collateral to cover the fund’s short position, marking the collateral to market daily. This obligation limits a fund’s investment flexibility, as well as its ability to meet redemption requests or other current obligations. A short position in a derivative instrument involves the risk of a theoretically unlimited increase in the value of the underlying instrument. Short sales also involve transaction and other costs that will reduce potential fund gains and increase potential fund losses.

Certain funds may also invest the proceeds received from short selling securities, which creates additional leverage. Using such leverage allows the fund to use the proceeds to purchase additional securities, thereby increasing its exposure to assets, such that its total assets may be greater than its capital. Leverage also magnifies the volatility of changes in the value of the fund’s portfolio. The effect of the use of leverage by the fund in a market that moves adversely to its investments could result in substantial losses to the fund, which would be greater than if the fund were

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not leveraged. Because a short position loses value as the security’s price increases, the loss on a short sale is theoretically unlimited.

The short sale proceeds utilized by a fund to leverage investments are collateralized by all or a portion of such fund’s portfolio. Accordingly, a fund may pledge securities in order to effect short sales, utilize short sale proceeds or otherwise obtain leverage for investment or other purposes. Should the securities pledged to brokers to secure the fund’s margin accounts decline in value, the fund could be subject to a “margin call”, pursuant to which the fund must either deposit additional funds or securities with the broker or suffer mandatory liquidation of all or a portion of the pledged securities to compensate for the decline in value. The banks and dealers that provide leverage to the fund have discretion to change the fund’s margin requirements at any time. Changes by counterparties in the foregoing may result in large margin calls, loss of leverage and forced liquidations of positions at disadvantageous prices. The utilization of short sale proceeds for leverage will cause the fund to be subject to higher transaction fees and other costs.

U.S. Government and U.S. Government-Sponsored Securities

U.S. Government securities, such as Treasury bills, notes and bonds and mortgage-backed securities guaranteed by the Government National Mortgage Association (Ginnie Mae), are supported by the full faith and credit of the United States; others are supported by the right of the issuer to borrow from the U.S. Treasury; others are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; and still others are supported only by the credit of the issuing agency, instrumentality, or enterprise.

Although U.S. Government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae) may be chartered or sponsored by Congress, they are not funded by Congressional appropriations, and their securities are not issued by the U.S. Treasury nor supported by the full faith and credit of the U.S. Government.

There is no assurance that the U.S. Government would provide financial support to its agencies and instrumentalities if not required to do so. In addition, certain governmental entities have been subject to regulatory scrutiny regarding their accounting policies and practices and other concerns that may result in legislation, changes in regulatory oversight and/or other consequences that could adversely affect the credit quality, availability, or investment character of securities issued by these entities. The value and liquidity of U.S. Government securities may be affected adversely by changes in the ratings of those securities.

Volatility Mitigation

Volatility mitigation strategies may increase fund transaction costs, which could increase losses or reduce gains. These strategies may not protect the fund from market declines and may reduce the fund’s participation in market gains.

PORTFOLIO HOLDINGS INFORMATION

A description of the Fund's policies and procedures with respect to disclosure of the Fund's portfolio securities is available in the Fund's Statement of Additional Information.

MANAGEMENT OF THE FUNDS

The Manager

Principal Global Investors, LLC (“PGI”), an indirect subsidiary of Principal Financial Group, Inc. ("Principal^®"), serves as the manager for the Fund. Principal Management Corporation, previously an affiliate of PGI, served as manager to the Fund prior to its merger with and into PGI on May 1, 2017.

Through the Management Agreement with the Fund, PGI provides investment advisory services and certain corporate administrative services for the Fund. Along with serving as investment advisor to the Fund, PGI is part of a diversified global asset management organization which utilizes a multi-boutique strategy of specialized investment groups and affiliates to provide institutional investors and individuals with diverse investment capabilities, including fixed income, equities, real estate, currency, asset allocation and stable value. PGI's address is 711 High Street, Des Moines, IA 50392. PGI also has asset management offices of affiliate advisors in non-U.S. locations including London, Singapore, Tokyo, Hong Kong and Sydney. PGI has been an investment advisor since 1998.

In addition to serving as the investment advisor or manager for all Funds, PGI also serves as a discretionary advisor (directly making decisions to purchase or sell securities) or as one of multiple discretionary advisors for the following Funds: California Municipal Fund, Core Plus Bond Fund, Diversified International Fund, Equity Income Fund, Global Diversified Income Fund (the global value equity and opportunistic mortgage-backed securities portions and one of the advisors for the high yield portion), Government & High Quality Bond Fund, High Yield Fund, Income Fund,

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International Emerging Markets Fund, LargeCap S&P 500 Index Fund, LargeCap Value Fund, MidCap Fund, MidCap S&P 400 Index Fund, MidCap Value Fund III (a portion), Money Market Fund, Principal Capital Appreciation Fund, Principal LifeTime Strategic Income Fund, Principal LifeTime 2010 Fund, Principal LifeTime 2015 Fund, Principal LifeTime 2020 Fund, Principal LifeTime 2025 Fund, Principal LifeTime 2030 Fund, Principal LifeTime 2035 Fund, Principal LifeTime 2040 Fund, Principal LifeTime 2045 Fund, Principal LifeTime 2050 Fund, Principal LifeTime 2055 Fund, Principal LifeTime 2060 Fund, Principal LifeTime Hybrid Income Fund, Principal LifeTime Hybrid 2015 Fund, Principal LifeTime Hybrid 2020 Fund, Principal LifeTime Hybrid 2025 Fund, Principal LifeTime Hybrid 2030 Fund, Principal LifeTime Hybrid 2035 Fund, Principal LifeTime Hybrid 2040 Fund, Principal LifeTime Hybrid 2045 Fund, Principal LifeTime Hybrid 2050 Fund, Principal LifeTime Hybrid 2055 Fund, Principal LifeTime Hybrid 2060 Fund, SAM (Strategic Asset Management) Balanced Portfolio, SAM (Strategic Asset Management) Conservative Balanced Portfolio, SAM (Strategic Asset Management) Conservative Growth Portfolio, SAM (Strategic Asset Management) Flexible Income Portfolio, SAM (Strategic Asset Management) Strategic Growth Portfolio, Short-Term Income Fund, SmallCap Fund, SmallCap S&P 600 Index Fund, and Tax-Exempt Bond Fund.


•	For the MidCap Fund, these services are provided by "Aligned Investors", a specialized boutique of PGI.

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For the Equity Income Fund, Government & High Quality Bond Fund, Income Fund, Principal Capital Appreciation Fund, SAM (Strategic Asset Management) Balanced Portfolio, SAM (Strategic Asset Management) Conservative Balanced Portfolio, SAM (Strategic Asset Management) Conservative Growth Portfolio, SAM (Strategic Asset Management) Flexible Income Portfolio, SAM (Strategic Asset Management) Strategic Growth Portfolio, and Short-Term Income Fund, these services are provided by "Edge Asset Management", a specialized boutique of PGI.

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For the Global Diversified Income Fund (asset allocation services), LargeCap Growth Fund I, LargeCap Growth Fund II, LargeCap Value Fund III, MidCap Growth Fund III, MidCap Value Fund I, MidCap Value Fund III, Overseas Fund, Principal LifeTime Strategic Income Fund, Principal LifeTime 2010 Fund, Principal LifeTime 2015 Fund, Principal LifeTime 2020 Fund, Principal LifeTime 2025 Fund, Principal LifeTime 2030 Fund, Principal LifeTime 2035 Fund, Principal LifeTime 2040 Fund, Principal LifeTime 2045 Fund, Principal LifeTime 2050 Fund, Principal LifeTime 2055 Fund, Principal LifeTime 2060 Fund, Principal LifeTime Hybrid Income Fund, Principal LifeTime Hybrid 2015 Fund, Principal LifeTime Hybrid 2020 Fund, Principal LifeTime Hybrid 2025 Fund, Principal LifeTime Hybrid 2030 Fund, Principal LifeTime Hybrid 2035 Fund, Principal LifeTime Hybrid 2040 Fund, Principal LifeTime Hybrid 2045 Fund, Principal LifeTime Hybrid 2050 Fund, Principal LifeTime Hybrid 2055 Fund, Principal LifeTime Hybrid 2060 Fund, SmallCap Growth Fund I, SmallCap Value Fund II, these services are provided by “Principal Portfolio Strategies^SM”, a specialized boutique of PGI.

PGI also provides discretionary advisory services with respect to 10-30% of the assets of the following Funds: LargeCap Growth Fund I, LargeCap Growth Fund II, LargeCap Value Fund III, MidCap Growth Fund III, MidCap Value Fund I, MidCap Value Fund III, Overseas Fund, SmallCap Growth Fund I, and SmallCap Value Fund II. The remaining assets in each of these Funds will be managed by the sub-advisor(s) named in the prospectus.

PGI may provide discretionary advisory services, on a temporary basis, for a portion of the Global Diversified Income Fund by managing one or more portfolios that seek to track the performance of an index related to a particular sector or asset class. Portfolios that are based on an equity index will typically utilize a “replication” method to purchase all the securities in the index, in the approximate proportions as the index. Portfolios that are based on a fixed income index will typically utilize a “sampling” method to purchase a subset of securities in the index that seeks to construct a portfolio of securities with similar risk, return, and other characteristics as the index.

As reflected in the fund summaries, the day-to-day portfolio management, for some funds, is shared by multiple portfolio managers. In each such case, except for the MidCap Fund, the Principal LifeTime Funds, and the Principal LifeTime Hybrid Funds, the portfolio managers operate as a team, sharing authority and responsibility for research and the day-to-day management of the portfolio with no limitation on the authority of one portfolio manager in relation to another. For the MidCap Fund, Mr. Nolin and Mr. Rozycki work as a team, sharing day-to-day management of the Fund; however, Mr. Nolin has ultimate decision making authority. Mr. Rozycki may execute trades in Mr. Nolin’s absence. The day-to-day portfolio management for the Principal LifeTime Funds and Principal LifeTime Hybrid Funds is shared by multiple portfolio managers. Those Portfolio Managers and any Associate Portfolio Managers operate as a team, sharing authority and responsibility for research and the day-to-day management of the portfolio; however, Associate Portfolio Managers’ authority is more limited than that of Portfolio Managers.

Several of the Funds have multiple Sub-Advisors. For those Funds (except the Global Diversified Income Fund), a team at PGI consisting of James Fennessey and Randy Welch, determines the portion of the Fund's assets each Sub-Advisor will manage and may, from time-to-time, reallocate Fund assets between PGI acting in a discretionary advisory capacity and the Sub- Advisors. The decision to do so may be based on a variety of factors, including but

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not limited to: the investment capacity of PGI and each Sub-Advisor, portfolio diversification, volume of net cash flows, fund liquidity, investment performance, investment strategies, changes in PGI or each Sub-Advisor's firm or investment professionals or changes in the number of Sub-Advisors. Ordinarily, reallocations of Fund assets among Sub-Advisors occur as a Sub-Advisor liquidates assets in the normal course of portfolio management or with net new cash flows; however, at times existing Fund assets may be reallocated among Sub-Advisors. This team shares equally in the day-to-day portfolio management responsibility and agrees on allocation decisions.

The Global Diversified Income Fund has multiple Sub-Advisors. A team within Principal Portfolio Strategies^SM, a specialized boutique of PGI and whose members are identified in each Fund summary, determines the portion of the Fund’s assets each Sub-Advisor will manage and may reallocate Fund assets among the Sub-Advisors from time-to-time. This team shares authority and responsibility for day-to-day portfolio management, with no limitation on the authority of one portfolio manager in relation to another. The decision to reallocate Fund assets between PGI acting in a discretionary advisory capacity and the Sub-Advisors may be based on a variety of factors, including but not limited to: the investment capacity of PGI and each Sub-Advisor, portfolio diversification, volume of net cash flows, fund liquidity, investment performance, investment strategies, changes in PGI or each Sub-Advisor's firm or investment professionals or changes in the number of Sub-Advisors. Ordinarily, reallocations of Fund assets among Sub-Advisors occur as a Sub-Advisor liquidates assets in the normal course of portfolio management or with net new cash flows; however, at times existing Fund assets may be reallocated among Sub-Advisors.

The Fund summaries identified the portfolio managers and the funds they manage. Additional information about the portfolio managers follows. The SAI provides additional information about each portfolio manager’s compensation, other accounts managed by the portfolio manager, and the portfolio manager’s ownership of securities in the Fund.

Matthew D. Annenberg has been with PGI since 2012. Prior to PGI, he was Managing Director at K2 Advisors from 2009 to 2012. He earned a bachelor's degree in Finance from Harvard College. Mr. Annenberg has earned the right to use the Chartered Financial Analyst designation.

Jake S. Anonson initially joined Principal^® in 1998 and re-joined Principal^® in 2012 after working at Miles Capital from 2010-2012. Mr. Anonson is responsible for the asset allocation and manager selection for Principal Portfolio Strategies^SM. Mr. Anonson earned a bachelor’s degree in Finance and Economics from the University of Northern Iowa and an M.B.A. from Iowa State University. He has earned the right to use the Chartered Financial Analyst designation.

William C. Armstrong has been with PGI and its affiliates since 1992. He earned a bachelor’s degree from Kearney State College and an M.B.A. from the University of Iowa. Mr. Armstrong has earned the right to use the Chartered Financial Analyst designation.

Charles D. Averill has been with PGI since 2017. Prior thereto, he was with Edge Asset Management, Inc. (which merged with and into PGI in 2017) since 1990. He earned a bachelor’s degree in Economics from Reed College and an M.A. in Economics from Princeton University. Mr. Averill has earned the right to use the Chartered Financial Analyst designation.

Paul H. Blankenhagen has been with PGI and its affiliates since 1992. He earned a bachelor’s degree in Finance from Iowa State University and a master’s degree from Drake University. Mr. Blankenhagen has earned the right to use the Chartered Financial Analyst designation.

Jessica S. Bush joined Principal^® in 2006. Ms. Bush is responsible for the asset allocation and manager selection for Principal Portfolio Strategies^SM. Ms. Bush earned a bachelor’s degree in Business Administration from the University of Michigan. She has earned the right to use the Chartered Financial Analyst designation.

Juliet Cohn has been with PGI since 2003. Ms. Cohn is an employee of Principal Global Investors (Europe) Limited and manages Principal Fund assets through PGI pursuant to a participating affiliate arrangement. She earned a bachelor's degree in Mathematics from Trinity College, Cambridge, England.

Daniel R. Coleman has been with PGI since 2017. Prior thereto, he was with Edge Asset Management, Inc. (which merged with and into PGI in 2017) since 2001 and has held various investment management roles on the equity team, including Portfolio Manager and some senior management roles. He earned a bachelor's degree in Finance from the University of Washington and an M.B.A. from New York University.

Mark P. Denkinger has been with PGI and its affiliates since 1990. He earned a bachelor’s degree in Finance and an M.B.A. with a Finance emphasis from the University of Iowa. Mr. Denkinger has earned the right to use the Chartered Financial Analyst designation.

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Mihail Dobrinov has been with PGI and its affiliates since 1995. He earned an M.B.A. in Finance from the University of Iowa and a law degree from Sofia University, Bulgaria. Mr. Dobrinov has earned the right to use the Chartered Financial Analyst designation.

Marcus W. Dummer joined Principal^® in 2003. Mr. Dummer is responsible for the asset allocation and manager selection for Principal Portfolio Strategies^SM. Mr. Dummer earned a bachelor’s degree in Finance and an M.B.A. from the University of Utah. He has earned the right to use the Chartered Alternative Investment Analyst designation.

James W. Fennessey joined Principal^® in 2000. He is the Head of the Manager Research Team that is responsible for analyzing, interpreting, and coordinating investment performance data and evaluation of the investment managers under the due diligence process that monitors investment managers used by the Principal Funds. Mr. Fennessey earned a B.S. in Business Administration, with an emphasis in Finance, and a minor in Economics from Truman State University. He has earned the right to use the Chartered Financial Analyst designation.

Joel Fortney has been with PGI since 2001. He earned a bachelor's degree in Finance from the University of Iowa and an M.B.A. from University of Chicago Booth School of Business. Mr. Fortney has earned the right to use the Chartered Financial Analyst designation.

John R. Friedl has been with with PGI since 2017. Prior thereto, he was with Edge Asset Management, Inc. (which merged with and into PGI in 2017) since 1998. He earned a B.A. in Communications and History from the University of Washington and a master's degree in Finance from Seattle University. Mr. Friedl has earned the right to use the Chartered Financial Analyst designation.

Kelly A. Grossman joined Principal^® in 1991. Ms. Grossman is responsible for the asset allocation and manager selection for Principal Portfolio Strategies^SM. Ms. Grossman earned a bachelor’s degree in Mathematics and Computer Science from the University of Northern Iowa. Ms. Grossman is a Fellow of the Society of Actuaries and a member of the American Academy of Actuaries.

Christopher Ibach has been with PGI since 2000. He earned an M.B.A. in Finance and a bachelor's degree in Electrical Engineering from the University of Iowa. Mr. Ibach has earned the right to use the Chartered Financial Analyst designation.

Todd A. Jablonski has been with PGI since 2017. Prior thereto, he was with Edge Asset Management, Inc. (which merged with and into PGI in 2017) since 2010. He earned a bachelor’s degree in Economics from the University of Virginia and an M.B.A. with an emphasis in Quantitative Finance from New York University's Stern School of Business. Mr. Jablonski has earned the right to use the Chartered Financial Analyst designation.

Theodore Jayne has been with PGI since 2017. Prior thereto, he was a Portfolio Manager with Edge Asset Management, Inc. (which merged with and into PGI in 2017) since 2015. Prior to joining Edge, he was a Managing Director and Portfolio Manager at Wellington Management Company, LLP from 1998 to 2014. He earned a bachelor’s degree in Anthropology from Harvard University. Mr. Jayne has earned the right to use the Chartered Financial Analyst designation.

Thomas L. Kruchten has been with PGI since 2005. He earned a B.A. in Finance from the University of Northern Iowa. Mr. Kruchten has earned the right to use the Chartered Financial Analyst designation and is a member of the CFA Society of Iowa.

Ryan P. McCann has been with PGI since 2017. Prior thereto, he was a Portfolio Manager for Edge Asset Management, Inc. (which merged with and into PGI in 2017) since 2010. He earned a B.A. in Business Administration from Washington State University. Mr. McCann has earned the right to use the Chartered Financial Analyst designation.

James Noble has been with PGI since 2010. He earned a bachelor’s degree in Finance and an M.B.A. from Hofstra University.

K. William Nolin has been with PGI and its affiliates since 1993. He earned a bachelor’s degree in Finance from the University of Iowa and an M.B.A. from the Yale School of Management. Mr. Nolin has earned the right to use the Chartered Financial Analyst designation.

Phil Nordhus has been with PGI and its affiliates since 1990. He earned a bachelor’s degree in Economics from Kansas State University and an M.B.A. from Drake University. Mr. Nordhus has earned the right to use the Chartered Financial Analyst designation.

Tina Paris has been with PGI since 2001. She earned a bachelor's degree in Finance and Economics from the University of Northern Iowa and an M.B.A with a Finance emphasis from the University of Iowa. Ms. Paris has earned the right to use the Chartered Financial Analyst designation.

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Brian W. Pattinson has been with PGI and its affiliates since 1994. He earned a bachelor's degree and an M.B.A. in Finance from the University of Iowa. Mr. Pattinson has earned the right to use the Chartered Financial Analyst designation.

Scott J. Peterson has been with PGI since 2017. Prior thereto, he was with Edge Asset Management, Inc. (which merged with and into PGI in 2017) since 2002. He earned a bachelor’s degree in Mathematics from Brigham Young University and an M.B.A. from New York University’s Stern School of Business. Mr. Peterson has earned the right to use the Chartered Financial Analyst designation.

Josh Rank has been with PGI since 2013. Prior to that, he worked at Aviva Investors Americas from 2005 to 2013. He earned a bachelor's degree in Finance from Iowa State University. Mr. Rank has earned the right to use the Chartered Financial Analyst designation.

Tracy Reeg has been with PGI and its affiliates since 1993. She earned a bachelor’s degree in Finance from the University of Northern Iowa.

Alice Robertson has been with Principal^® since 1990. She earned a bachelor’s degree in Economics from Northwestern University and a master’s degree in Finance and Marketing from DePaul University.

Benjamin E. Rotenberg joined Principal^® in 2014. Prior to that, he was employed at Cliffwater LLC from 2007-2014. Mr. Rotenberg is responsible for the asset allocation and manager selection for Principal Portfolio Strategies^SM. Mr. Rotenberg earned a bachelor’s degree in International Relations and Russian from Pomona College. He has earned the right to use the Chartered Financial Analyst and the Chartered Alternative Investment Analyst designations.

Tom Rozycki has been with PGI since 2001. He earned a bachelor’s degree in Finance from Drake University. Mr. Rozycki has earned the right to use the Chartered Financial Analyst designation.

Jeffrey A. Schwarte has been with PGI and its affiliates since 1993. He earned a bachelor’s degree in Accounting from the University of Northern Iowa. Mr. Schwarte is a CPA and has earned the right to use the Chartered Financial Analyst designation.

David W. Simpson has been with PGI since 2017. Prior thereto, he was with Edge Asset Management, Inc. (which merged with and into PGI in 2017) since 2003. He earned a bachelor's degree from the University of Illinois and an M.B.A. in Finance from the University of Wisconsin. Mr. Simpson has earned the right to use the Chartered Financial Analyst designation.

Darrin E. Smith has been with PGI since 2007. He earned a bachelor’s degree in Economics from Iowa State University and an M.B.A. from Drake University. Mr. Smith has earned the right to use the Chartered Financial Analyst designation.

Scott Smith has been with PGI since 1999. Mr. Smith earned a bachelor's degree from Iowa State University.

Greg L. Tornga has been with PGI since 2017. Prior thereto, he was with Edge Asset Management, Inc. (which merged with and into PGI in 2017) since 2011. He earned a bachelor’s degree from the University of Michigan and an M.B.A. from the Argyros School of Business at Chapman University. Mr. Tornga has earned the right to use the Chartered Financial Analyst designation.

Jeffrey R. Tyler joined Principal^® in 2011. Prior to that, Mr. Tyler was the Chief Investment Officer at EXOS Partners. He earned a B.A. in Business Economics and Accounting from the University of California, Santa Barbara and a Master of Management in Finance and Economics from the J.L. Kellogg Graduate School of Management, Northwestern University. Mr. Tyler has earned the right to use the Chartered Financial Analyst designation.

(Effective March 2018, remove Jeffrey R. Tyler.)

Nedret Vidinli has been with PGI since 2017. Prior thereto, he was with Edge Asset Management, Inc. (which merged with and into PGI in 2017) since 2010. He earned his bachelor’s degree in Business Administration at Drake University and an M.B.A. at Benedictine University. Mr. Vidinli has earned the right to use the Chartered Financial Analyst designation.

Alan Wang has been with PGI since 2012. Mr. Wang is an employee of Principal Global Investors (Hong Kong) Limited and manages Principal Fund assets through PGI pursuant to a participating affiliate arrangement. From 2008 to 2012, he was with Ping An of China Asset Management (Hong Kong). He earned a bachelor’s degree in Economics and International Finance from Renmin University of China and an M.B.A. from the University of Iowa. Mr. Wang has earned the right to use the Chartered Financial Analyst designation.

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Timothy R. Warrick has been with PGI and its affiliates since 1990. He earned a bachelor’s degree in Accounting and Economics from Simpson College and an M.B.A. in Finance from Drake University. Mr. Warrick has earned the right to use the Chartered Financial Analyst designation.

James Welch has been with PGI since 2014. Prior to that, Mr. Welch was a Senior Portfolio Manager at Castleton Partners, where he was employed from 2013 to 2014; and, from 2009 to 2012, he worked at Standish Mellon Asset Management. Mr. Welch earned a bachelor's degree in Economics from the Pennsylvania State University.

Randy L. Welch joined Principal^® in 1989 and oversees the functions of the Manager Selection & Investment Support Team, which includes investment manager research, investment consulting, performance analysis, and attribution. He is also responsible for the due diligence process that monitors investment managers on Principal's platform. Mr. Welch is an affiliate member of the Chartered Financial Analysts (CFA) Institute. Mr. Welch earned a B.A. in Business/Finance from Grand View College and an M.B.A. from Drake University.

Mohammed Zaidi has been with PGI since 2012. Mr. Zaidi is an employee of Principal Global Investors (Europe) Limited and manages Principal Fund assets through PGI pursuant to a participating affiliate arrangement. From 2006 to 2012, he was with Martin Currie Investment Management. He earned a bachelor’s degree in Economics from the Wharton School of the University of Pennsylvania and an M.B.A. from Massachusetts Institute of Technology, Sloan School of Management.

Cash Management Program

For each Fund, PGI may invest excess cash in money market funds, lend it to other Funds pursuant to the Funds' interfund lending facility, or invest it in overnight repurchase agreements through the Funds' joint trade account.

In addition, the following Funds have adopted a special cash management program, which is executed by PGI: International Fund I, LargeCap Growth Fund I, LargeCap Growth Fund II, LargeCap Value Fund III, MidCap Growth Fund III, MidCap Value Fund I, MidCap Value Fund III, Overseas Fund, SmallCap Growth Fund I, and SmallCap Value Fund II. Pursuant to this program, each listed Fund may invest its excess cash in stock index futures contracts reflecting the Fund's market capitalization to gain exposure to the market. Stock index futures provide returns similar to those of common stocks. PGI believes that, over the long term, this strategy will enhance the investment performance of the Funds.

The Sub-Advisors

PGI has signed contracts with various Sub-Advisors. Under the sub-advisory agreements, the Sub-Advisor agrees to assume the obligations of PGI to provide investment advisory services to the portion of the assets of a specific Fund allocated to it by PGI. For these services, PGI pays the Sub-Advisor a fee.

PGI or the Sub-Advisor provides the Directors of the Fund with a recommended investment program. The program must be consistent with the Fund's investment objective and policies. Within the scope of the approved investment program, the Sub-Advisor advises the Fund on its investment policy and determines which securities are bought or sold, and in what amounts.


Sub-Advisor:	AllianceBernstein L.P. (“AllianceBernstein”), 1345 Avenue of the Americas, New York, NY 10105, was founded in 1971 as an independent investment advisor registered with the SEC.

AllianceBernstein is the sub-advisor for a portion of the assets of the SmallCap Growth Fund I.


Sub-Advisor:	American Century Investment Management, Inc. (“American Century”), American Century Tower, 4500 Main Street, Kansas City, MO 64111, was founded in 1958.

American Century is the sub-advisor for a portion of the assets of the LargeCap Growth Fund II.


Sub-Advisor:	Analytic Investors, LLC (“Analytic Investors”), 555 West Fifth Street, Los Angeles, CA 90013 is an SEC registered investment advisor and has been in the business of investment management since 1970.

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Analytic Investors is the sub-advisor for the equity volatility reduction overlay portion of the Global Diversified Income Fund.


Sub-Advisor:	Barrow, Hanley, Mewhinney & Strauss, LLC (“BHMS”), 2200 Ross Avenue, 31st Floor, Dallas, Texas 75201, is an investment advisory firm that was founded in 1979.

BHMS is the sub-advisor for a portion of the assets of the LargeCap Value Fund III, a portion of the assets of the MidCap Value Fund III, and a portion of the assets of the Overseas Fund.


Sub-Advisor:	BlackRock Financial Management, Inc. (“BlackRock”), 55 East 52nd Street, New York, New York 10055, is a registered investment adviser organized in 1994. BlackRock and its affiliates manage investment company and other portfolio assets.

BlackRock is the sub-advisor for the Inflation Protection Fund.

Martin Hegarty has been with BlackRock since 2010. He earned a B.S. in Economics from Rhodes University, South Africa.


Sub-Sub-Advisor:	BlackRock International Limited ("BIL"), Exchange Place One, 1 Semple Street, Edinburgh EH3 8BL, Scotland, is a registered investment adviser that was founded in 1995.

BlackRock Financial Management, Inc. (“BlackRock”) and BlackRock International Limited (“BIL”), with the consent of PGI, have entered into a sub-sub-advisory agreement for the Inflation Protection Fund. Under the agreement, BIL has agreed to carry out certain investment advisory obligations of BlackRock to manage the Inflation Protection Fund’s assets. BlackRock will allocate to BIL a portion of the Inflation Protection Fund assets it manages.

Chris Allen has been with BIL since 2009. He earned an M.A. degree in Mathematics from Oxford University. Mr. Allen has earned the right to use the Chartered Financial Analyst designation.


Sub-Advisor:	Brown Advisory, LLC (“Brown”), 901 South Bond Street, Suite 400, Baltimore, Maryland 21231, is a registered investment adviser that works with institutions, corporations, nonprofits, families and individuals.

Brown is the sub-advisor for a portion of the assets of the LargeCap Growth Fund I and a portion of the assets of the SmallCap Growth Fund I.


Sub-Advisor:	Causeway Capital Management LLC (“Causeway”), 11111 Santa Monica Boulevard, 15th Floor, Los Angeles, CA 90025, is a registered investment adviser founded in 2001.

Causeway is the sub-advisor for a portion of the assets of the Overseas Fund.

Sub-Advisor:

Colonial First State Asset Management (Australia) Limited (“Colonial First State”), Level 3, Darling Park Tower 1, 201 Sussex Street, Sydney NSW 2000, is a global asset manager, which has experience across a range of asset classes and specialist investment sectors. Colonial First State manages investments on behalf of institutional investors, pension funds, wholesale distributors and platforms, financial advisers and their clients.

Colonial First State is one of the sub-advisors for the publicly-listed infrastructure portion of the Global Diversified Income Fund.


Sub-Advisor:	Columbus Circle Investors (“CCI”), Metro Center, One Station Place, Stamford, CT 06902, founded in 1975, manages growth-oriented portfolios in Large Cap, Mid Cap, SMID, and Small Cap categories for domestic equities. CCI specializes in the management of discretionary accounts for a variety of organizations. CCI also offers advisory services for mutual funds and high net worth individuals.

CCI is the sub-advisor for the LargeCap Growth Fund and the MidCap Growth Fund.

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For the LargeCap Growth Fund, Anthony Rizza is the lead Portfolio Manager, and Thomas J. Bisighini, as Co-Portfolio Manager, has responsibility for research and supports Mr. Rizza on the day-to-day management of the Fund.

For the MidCap Growth Fund, Michael Iacono is the lead Portfolio Manager and Clifford G. Fox and Katerina Wasserman are Co-Portfolio Managers. Mr. Iacono has the final decision making authority, but Mr. Fox and Ms. Wasserman have the authority to execute trades in Mr. Iacono’s absence.

Thomas J. Bisighini has been with CCI since 2004. He earned a B.S. from Bentley College and an M.B.A. in Finance from Fordham University. Mr. Bisighini has earned the right to use the Chartered Financial Analyst designation.

Clifford G. Fox has been with CCI since 1992. He earned an M.B.A. from the Stern School of Business, New York University and a B.S. in Economics from the Wharton School, University of Pennsylvania. Mr. Fox has earned the right to use the Chartered Financial Analyst designation.

Michael Iacono has been with CCI since 1997. He earned a B.S. in Accounting from Boston College. Mr. Iacono is a CPA and has earned the right to use the Chartered Financial Analyst designation.

Anthony Rizza has been with CCI since 1991. He earned a B.S. in Business from the University of Connecticut. Mr. Rizza has earned the right to use the Chartered Financial Analyst designation.

Katerina Wasserman has been with CCI since 2000. She earned a B.S. in Biochemistry from the State University of New York at Stony Brook and a Master’s of Public Administration from the Robert F. Wagner Graduate School at New York University.


Sub-Advisor:	DDJ Capital Management, LLC (“DDJ”), 130 Turner Street, Building 3, Suite 600, Waltham, MA 02453, is an SEC registered investment advisor. DDJ was formed in 1996 and presently manages opportunistic high yield, core high yield, bank loan, and total return credit strategies on behalf of domestic and international institutional investors.

DDJ is one of the sub-advisors for the high yield portion of the Global Diversified Income Fund.


Sub-Advisor:	Dimensional Fund Advisors LP (“Dimensional”), 6300 Bee Cave Road, Building One, Austin, TX 78746, is a registered investment advisor organized in 1981.

Dimensional is the sub-advisor for a portion of the assets of the SmallCap Value Fund II.


Sub-Advisor:	Emerald Advisers, Inc. (“Emerald”), 3175 Oregon Pike, Leola, PA 17540, was incorporated in 1991 and manages institutional separate account and mutual fund investment portfolios for corporations, public and private pension funds, and for individual retail investors.

Emerald is the sub-advisor for a portion of the assets of the SmallCap Growth Fund I.


Sub-Advisor:	Finisterre Capital LLP (“Finisterre”), 10 New Burlington Street, London, England W1S 3BE, manages emerging market assets for a variety of investors.

Finisterre is the sub-advisor for the Finisterre Unconstrained Emerging Markets Bond Fund.

The portfolio managers operate as a team, sharing authority and responsibility for research and the day-to-day management of the portfolio. In the absence of a consensus among portfolio managers, Damien Buchet, as CIO of total return strategies and head of the investment team, has the final say on the investment decision.

Damien Buchet has been with Finisterre since 2015. Prior to joining Finisterre he was at AXA Investment Managers (2010 - 2015). He earned his degree from the EDHEC School of Business Administration. Mr. Buchet has earned the right to use the Chartered Financial Analyst designation.

Arthur Duchon-Doris has been with Finisterre since 2015. Previously, he was employed by AXA Investment Managers (2015), Credit Agricole CIB (2014 - 2015), Societe General CIB (2012 - 2013), and Epervier Corporate Finance (2011). Mr. Duchon-Doris earned his M.S.C. in Financial Markets with a concentration in Asset Management from the EDHEC Business School.

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Christopher Watson has been with Finisterre since October 2007. Mr. Watson received an M.B.A. from IMD Lausanne and his B.A. Hons from McGill University, Montreal, and has earned the right to use the Chartered Financial Analyst designation.


Sub-Advisor:	J.P. Morgan Investment Management Inc. (“J.P. Morgan”), 270 Park Avenue, New York, NY 10017, is an SEC registered investment advisor.

J.P. Morgan is the sub-advisor for a portion of the assets of the High Yield Fund I.

For the portion of the assets allocated to this firm, the portfolio managers operate as a team, sharing authority and responsibility for research and the day-to-day management of the portfolio with no limitation on the authority of one portfolio manager in relation to another.

William J. Morgan has been with J.P. Morgan since 2005. He earned a B.A. in History from Kenyon College and an M.B.A. from Xavier University.

James P. Shanahan, Jr. has been with J.P. Morgan since 2005. He earned a B.A. from Xavier University and a J.D. from the University of Cincinnati College of Law.


Sub-Advisor:	Logan Circle Partners, L.P. (“Logan Circle”), Three Logan Square, 1717 Arch Street, Suite 1500, Philadelphia, PA 19103, is a registered investment advisor founded in 2007.

Logan Circle is one of the sub-advisors for the emerging markets debt portion of the Global Diversified Income Fund.


Sub-Advisor:	Los Angeles Capital Management and Equity Research, Inc. ("Los Angeles Capital"), 11150 Santa Monica Boulevard, Suite 200, Los Angeles, CA 90025, founded in 2002, is a registered investment adviser offering risk-controlled, active equity management services to a broad range of institutional investors.

Los Angeles Capital is the sub-advisor for a portion of the assets of the MidCap Value Fund I and a portion of the assets of the SmallCap Value Fund II.


Sub-Advisor:	Neuberger Berman Investment Advisers LLC (“Neuberger Berman"), 190 South LaSalle Street, Chicago, IL 60603, is an investment adviser registered with the SEC.

Neuberger Berman is the sub-advisor for a portion of the assets of the High Yield Fund I.

William (Russ) Covode has been with Neuberger Berman since 2006. He earned a B.A. in Economics from Colorado College and an M.B.A. from the University of Chicago.

Daniel Doyle has been with Neuberger Berman since 2012. Before that, Mr. Doyle was Managing Director at SunTrust Robinson Humphrey from 2010 to 2012. He earned a B.S. from Northern Illinois University and an M.B.A. from the University of Chicago. He has earned the right to use the Chartered Financial Analyst designation.

Patrick Flynn has been with Neuberger Berman since 2006. He earned an A.B. from Columbia University and an M.B.A. from the University of Chicago. He has earned the right to use the Chartered Financial Analyst designation.

Thomas P. O’Reilly has been with Neuberger Berman (and its predecessors) since 1997. He earned a B.S. in Finance from Indiana University and an M.B.A. from Loyola University. He has earned the right to use the Chartered Financial Analyst designation.

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Sub-Advisor:	Origin Asset Management LLP ("Origin"), One Carey Lane, London, EC2V 8AE, UK manages global equity securities for institutional clients.

Origin is the sub-advisor for the International Fund I.

The portfolio managers operate as a team, sharing authority and responsibility for research and the day-to-day management of the portfolio with no limitation on the authority of one portfolio manager in relation to another.

John Birkhold has been with Origin since 2009. He earned a B.S. and M.E. in Systems Engineering from the University of Virginia and an M.B.A. in Finance from the University of Chicago.

Chris Carter has been with Origin since 2005. Mr. Carter is a graduate of Gonville & Caius College, University of Cambridge, with an M.A. Honours Degree in Economics and Philosophy.

Nigel Dutson has been with Origin since 2005. Mr. Dutson is a graduate of Surrey University with a B.Sc. Joint Honours Degree in Mathematics & Economics.

Tarlock Randhawa has been with Origin since 2005. Mr. Randhawa is a graduate of Brunel University with a B.Sc. Joint Honours Degree in Mathematics & Management.

Grace Tolley has been with Origin since 2015. Prior to joining Origin, she was employed at Buck Consultants from 2014 to 2015, and at Aon Hewitt from 2010 to 2014. Ms. Tolley has earned a First Class B.Sc. Honours Degree in Mathematics from the University of Birmingham and holds the Investment Manager Certificate.


Sub-Advisor:	Post Advisory Group, LLC (“Post”), 2049 Century Park East, Suite 3050, Los Angeles, CA 90067, founded in 1992, is a global investment manager specializing in high yield securities with a multi-strategy, value-oriented investment approach.

Post is one of the sub-advisors for the high yield portion of the Global Diversified Income Fund.


Sub-Advisor:	Principal Real Estate Investors, LLC (“Principal - REI”), 711 High Street, Des Moines, IA 50392, was founded in 2000 and manages commercial real estate across the spectrum of public and private equity and debt investments, primarily for institutional investors.

Principal - REI is the sub-advisor for the Global Real Estate Securities Fund, the Real Estate Securities Fund, and the global real estate and CMBS portions of the Global Diversified Income Fund.

Keith Bokota has been with Principal - REI since 2007. He earned a bachelor’s degree in Finance and International Business from Georgetown University. Mr. Bokota has earned the right to use the Chartered Financial Analyst designation.

Simon Hedger has been with Principal - REI since 2003. Mr. Hedger is an employee of Principal Global Investors (Europe) Limited and manages Principal Fund assets through Principal - REI pursuant to a participating affiliate arrangement. He earned an M.B.A. from the University of New England and is an associate member of both the Royal Institute of Chartered Surveyors and of the Australian Property Institute. He is a U.K. qualified chartered surveyor (ARICS).

Anthony Kenkel has been with Principal - REI since 2005. He earned a bachelor’s degree in Finance from Drake University and an M.B.A. from the University of Chicago Graduate School of Business. Mr. Kenkel has earned the right to use the Chartered Financial Analyst and Financial Risk Manager designations.

Kelly D. Rush has been with Principal - REI since 2000 and the predecessor firms since 1987. He earned a B.A. in Finance and an M.B.A. in Business Administration from the University of Iowa. Mr. Rush has earned the right to use the Chartered Financial Analyst designation.


Sub-Advisor:	Robert W. Baird & Co. Incorporated (“Baird”), 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, was founded in 1919. Baird provides investment management services for individuals and institutional clients including pension and profit sharing plans.

Baird is the sub-advisor for a portion of the assets of the MidCap Growth Fund III.

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Sub-Advisor:	Sawgrass Asset Management, LLC (“Sawgrass”), 1579 The Greens Way, Suite 20, Jacksonville Beach, Florida 32250 is a registered investment advisor founded in 1998 that provides active growth equity and fixed income investment management services to institutional investors.

Sawgrass is the sub-advisor for a portion of the assets of LargeCap Growth Fund II.

Sub-Advisor:

Spectrum Asset Management, Inc. (“Spectrum”), 2 High Ridge Park, Stamford, CT 06905, founded in 1987, manages portfolios of preferred securities for corporate, pension fund, insurance and endowment clients, open-end and closed-end mutual funds, and separately managed account programs for high net worth individual investors as well as providing volatility mitigation solutions for some client portfolios.

Spectrum is the sub-advisor for the preferred securities portion of the Global Diversified Income Fund.


Sub-Advisor:	Stone Harbor Investment Partners LP (“Stone Harbor”), 31 West 52^nd Street, 16^th Floor, New York, New York 10019, was established in 2006 and provides investment advisory services to clients located throughout the world.

Stone Harbor is the sub-advisor for the European high yield asset portion and one of the sub-advisors for the emerging market debt portion of the Global Diversified Income Fund.


Sub-Advisor:	T. Rowe Price Associates, Inc. (“T. Rowe Price”), 100 East Pratt Street, Baltimore, MD 21202, has over 75 years of investment management experience.

T. Rowe Price is the sub-advisor for a portion of the assets of the LargeCap Growth Fund I.


Sub-Advisor:	Vaughan Nelson Investment Management, LP (“Vaughan Nelson”), 600 Travis Street, Suite 6300, Houston, Texas 77002, was founded in 1970.

Vaughan Nelson is the sub-advisor for a portion of the assets of the SmallCap Value Fund II.


Sub-Advisor:	Victory Capital Management Inc. (“Victory Capital”), 4900 Tiedeman Road, 4th Floor, Brooklyn, OH 44144, is an SEC-registered investment adviser that provides asset management services to individual and institutional clients through several investment franchises.

Victory Capital is the sub-advisor for a portion of the assets of the MidCap Value Fund I.


Sub-Advisor:	W. H. Reaves & Co., Inc. (doing business as Reaves Asset Management), 10 Exchange Place, 18th Floor, Jersey City, NJ 07302, was founded in 1961 as an institutional research firm and is an SEC registered adviser.

Reaves Asset Management is one of the sub-advisors for the publicly-listed infrastructure portion of the Global Diversified Income Fund.


Sub-Advisor:	Westwood Management Corp. (“Westwood”), 200 Crescent Court, Suite 1200, Dallas, Texas 75201, is a registered investment advisor that was founded in 1983.

Westwood is the sub-advisor for a portion of the assets of the LargeCap Value Fund III.


Sub-Advisor:	William Blair Investment Management, LLC (“William Blair”), 222 West Adams Street, Chicago, Illinois 60606, has been an investment advisor since 2014, and provides investment management services to mutual funds, corporate pension plans, endowments and foundations.

William Blair is the sub-advisor for a portion of the assets of the MidCap Growth Fund III.

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Fees Paid to PGI

Each Fund pays PGI a fee for its services, which includes the fee PGI pays to Sub-Advisors, as applicable.

The fee each Fund paid (as a percentage of the average daily net assets) for the fiscal year ended October 31, 2016 was:



California Municipal Fund	0.45	%	Principal LifeTime 2025 Fund ⁽¹⁾	0.00%
Core Plus Bond Fund	0.49	%	Principal LifeTime 2030 Fund ⁽²⁾	0.00%
Diversified International Fund	0.83	%	Principal LifeTime 2035 Fund ⁽²⁾	0.00%
Equity Income Fund	0.51	%	Principal LifeTime 2040 Fund ⁽²⁾	0.00%
Finisterre Unconstrained Emerging Markets Bond Fund ⁽¹⁾	1.02	%	Principal LifeTime 2045 Fund ⁽²⁾	0.00%
Global Diversified Income Fund	0.72	%	Principal LifeTime 2050 Fund ⁽²⁾	0.00%
Global Real Estate Securities Fund	0.86	%	Principal LifeTime 2055 Fund ⁽²⁾	0.00%
Government & High Quality Bond Fund	0.50	%	Principal LifeTime 2060 Fund ⁽²⁾	0.00%
High Yield Fund	0.51	%	Principal LifeTime Hybrid 2015 Fund ⁽²⁾	0.00%
High Yield Fund I	0.64	%	Principal LifeTime Hybrid 2020 Fund ⁽²⁾	0.00%
Income Fund	0.48	%	Principal LifeTime Hybrid 2025 Fund ⁽²⁾	0.00%
Inflation Protection Fund	0.38	%	Principal LifeTime Hybrid 2030 Fund ⁽²⁾	0.00%
International Emerging Markets Fund	1.19	%	Principal LifeTime Hybrid 2035 Fund ⁽²⁾	0.00%
International Fund I	0.90	%	Principal LifeTime Hybrid 2040 Fund ⁽²⁾	0.00%
LargeCap Growth Fund	0.63	%	Principal LifeTime Hybrid 2045 Fund ⁽²⁾	0.00%
LargeCap Growth Fund I	0.60	%	Principal LifeTime Hybrid 2050 Fund ⁽²⁾	0.00%
LargeCap Growth Fund II	0.89	%	Principal LifeTime Hybrid 2055 Fund ⁽²⁾	0.00%
LargeCap S&P 500 Index Fund	0.15	%	Principal LifeTime Hybrid 2060 Fund ⁽²⁾	0.00%
LargeCap Value Fund	0.42	%	Principal LifeTime Hybrid Income Fund ⁽²⁾	0.00%
LargeCap Value Fund III	0.78	%	Principal LifeTime Strategic Income Fund ⁽²⁾	0.00%
MidCap Fund	0.59	%	Real Estate Securities Fund	0.81%
MidCap Growth Fund	0.65	%	SAM Balanced Portfolio ⁽³⁾	0.28%
MidCap Growth Fund III	0.97	%	SAM Conservative Balanced Portfolio ⁽³⁾	0.28%
MidCap S&P 400 Index Fund	0.15	%	SAM Conservative Growth Portfolio ⁽³⁾	0.28%
MidCap Value Fund I	0.98	%	SAM Flexible Income Portfolio ⁽³⁾	0.28%
MidCap Value Fund III	0.64	%	SAM Strategic Growth Portfolio ⁽³⁾	0.28%
Money Market Fund	0.40	%	Short-Term Income Fund	0.41%
Overseas Fund	1.06	%	SmallCap Fund	0.75%
Principal Capital Appreciation Fund	0.45	%	SmallCap Growth Fund I	1.08%
Principal LifeTime 2010 Fund ⁽²⁾	0.00	%	SmallCap S&P 600 Index Fund	0.15%
Principal LifeTime 2015 Fund ⁽²⁾	0.00	%	SmallCap Value Fund II	0.98%
Principal LifeTime 2020 Fund ⁽²⁾	0.00	%	Tax-Exempt Bond Fund	0.45%

⁽¹⁾ Operations commenced on July 11, 2016
⁽²⁾ Management fees have been restated to reflect current fees. Effective March 1, 2016, the Management Fees were reduced.
⁽³⁾ Management fees have been restated to reflect current fees. Effective November 1, 2016, the Management Fees were reduced.

The management fee schedules for the Funds that have not completed a full fiscal year are as follows:



	Management Fee Schedule (as a percentage of the average daily net assets)
Fund	First $500 Million	Next $500 Million	Next $500 Million	Over $1.5 Billion
Finisterre Unconstrained Emerging Markets Bond	1.02%	1.00%	0.98%	0.97%

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Availability of the discussions regarding the basis for the Board of Directors approval of various management and sub-advisory agreements is as follows:



	Annual Report to Shareholders for the period ending October 31, 2016
Fund	Management Agreement	Sub-Advisory Agreement
All Funds	X	X

Voluntary Waivers

Money Market Fund

PGI has voluntarily agreed to limit the Fund's expenses to the extent necessary to maintain a 0% yield. The voluntary expense limit may be terminated at any time.

Manager of Managers

The Fund operates as a Manager of Managers. Under the conditions of an order previously received from the SEC (the "unaffiliated order"), the Fund and PGI may enter into and materially amend agreements with Sub-Advisors, other than those affiliated with PGI, without obtaining shareholder approval. PGI may, without obtaining shareholder approval:


•	hire one or more Sub-Advisors;


•	change Sub-Advisors; and


•	reallocate management fees between itself and Sub-Advisors.

The SEC has granted an amended exemptive order that expands the relief of the unaffiliated order to allow PGI to enter into and materially amend agreements with wholly-owned affiliated sub-advisors (affiliated sub-advisors which are at least 95% owned, directly or indirectly, by PGI or an affiliated person of PGI) (the "wholly-owned order").

Further, the Fund has applied to the SEC for another amended exemptive order, which if granted would allow PGI to also enter into and materially amend agreements with majority-owned affiliated sub-advisors (affiliated sub-advisors which are at least 50% owned, directly or indirectly, by PGI or an affiliated person of PGI) (the "majority-owned order"). There is no assurance, however, that the SEC will grant the majority-owned order.

PGI has ultimate responsibility for the investment performance of each Fund that utilizes a Sub-Advisor due to its responsibility to oversee Sub-Advisors and recommend their hiring, termination, and replacement. No Fund will rely on the unaffiliated order, the wholly-owned order, the majority-owned order, or any future order until it receives approval from its shareholders (or, in the case of a new Fund, the Fund’s sole initial shareholder before the Fund is available to the other purchasers).

The shareholders of the following Funds have approved reliance, and the Funds intend to rely, on the majority-owned order, should the SEC grant that relief in the future, and the wholly-owned order: Finisterre Unconstrained Emerging Markets Bond Fund, Global Diversified Income and Principal LifeTime Hybrid Funds. The remaining Funds have approved the Fund's reliance on the unaffiliated order and intend to rely on it.

PRICING OF FUND SHARES

Each Fund’s shares are bought and sold at the current share price. The share price of each class of each Fund is calculated each day the New York Stock Exchange (“NYSE”) is open (share prices are not calculated on the days on which the NYSE is closed for trading, generally New Year’s Day, Martin Luther King, Jr. Day, Washington’s Birthday/ Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas). The share price is determined as of the close of business of the NYSE (normally 3:00 p.m. Central Time). When an order to buy or sell shares is received, the share price used to fill the order is the next price we calculate after we receive the order (in proper form) at our transaction processing center in Canton, Massachusetts. To process your transaction (purchase, redemption, or exchange) on the day we receive it, we must receive the order (with complete information):


•	on a day that the NYSE is open and


•	before the close of trading on the NYSE (normally 3 p.m. Central Time).

Orders received after the close of the NYSE or on days that the NYSE is not open will be processed on the next day that the NYSE is open for normal trading. The Funds will not treat an intraday unscheduled disruption in NYSE trading as a closure of the NYSE and will price its shares as of 3:00 p.m. Central Time, if the particular disruption directly affects only the NYSE.

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If we receive an application or purchase request for a new mutual fund account or subsequent purchase into an existing account that is accompanied by a check and the application or purchase request does not contain complete information, we may hold the application (and check) for up to two business days while we attempt to obtain the necessary information. If we receive the necessary information within two business days, we will process the order using the next share price calculated. If we do not receive the information within two business days, we will return the application and check to you.

For all Funds, except the Money Market Fund, the share price is calculated by:


•	taking the current market value of the total assets of the Fund


•	subtracting liabilities of the Fund


•	dividing the remainder proportionately into the classes of the Fund


•	subtracting the liability of each class


•	dividing the remainder by the total number of shares outstanding for that class.

With respect to the funds of funds, which invest in other registered investment company funds, each Fund's NAV is calculated based on the NAV of such other registered investment company funds in which the Fund invests.

The securities of the Money Market Fund are valued at amortized cost. The calculation procedure is described in the Statement of Additional Information.

Notes:


•	If market quotations are not readily available for a security owned by a Fund, its fair value is determined using a policy adopted by the Directors. Fair valuation pricing is subjective and creates the possibility that the fair value determined for a security may differ materially from the value that could be realized upon the sale of the security.

•

A Fund’s securities may be traded on foreign securities markets that generally complete trading at various times during the day before the close of the NYSE. Foreign securities and currencies are converted to U.S. dollars using the exchange rate in effect at the close of the NYSE. Securities traded outside of the Western Hemisphere are valued using a fair value policy adopted by the Fund. These fair valuation procedures are intended to discourage shareholders from investing in the Fund for the purpose of engaging in market timing or arbitrage transactions.


•	The trading of foreign securities generally or in a particular country or countries may not take place on all days the NYSE is open, or may trade on days the NYSE is closed. Thus, the value of the foreign securities held by the Fund may change on days when shareholders are unable to purchase or redeem shares.

•

Certain securities issued by companies in emerging market countries may have more than one quoted valuation at any point in time. These may be referred to as local price and premium price. The premium price is often a negotiated price that may not consistently represent a price at which a specific transaction can be effected. The Fund has a policy to value such securities at a price at which the Sub-Advisor expects the securities may be sold.

CONTACT PRINCIPAL FUNDS, INC.

Contact information for Principal Funds, Inc. (“Principal Funds”) is as follows:

Mailing Addresses:



Regular Mail	Overnight Mail
Principal Funds	Principal Funds
P.O. Box 8024	30 Dan Road
Boston, MA 02266-8024	Canton, MA 02021-2809

You may speak with a Client Relations Specialist by calling 1-800-222-5852, between 7:00 a.m. and 7:00 p.m. Central Time on any day that the NYSE is open.

To obtain Automated Clearing House ("ACH") or wire instructions, please contact a Client Relations Specialist.

For additional information about Principal Funds, Inc., go to www.principalfunds.com.

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PURCHASE OF FUND SHARES

On June 23, 2017, remove all Class P references.

Principal Funds, Inc. offers funds in multiple share classes: A, C, J, P, Institutional, R-1, R-2, R-3, R-4, R-5, R-6, and S. Funds available in multiple share classes have the same investments, but differing expenses. Classes A, C, J, P, Institutional, R-1, R-2, R-3, R-4, R-5, and R-6 shares are available in this prospectus.

The Fund reserves the right to refuse or cancel any purchase orders, including those by exchange, for any reason. For example, the Fund does not intend to permit market timing because short-term or other excessive trading into and out of the Funds may harm performance by disrupting portfolio management strategies and by increasing expenses. Accordingly, the Fund may reject any purchase orders from market timers or investors that, in PGI’s opinion, may be disruptive to the Fund. For these purposes, PGI may consider an investor’s trading history in the Fund or other Funds sponsored by Principal Life and accounts under common ownership or control.

PGI may recommend to the Board, and the Board may elect, to close certain funds or share classes to new investors or to close certain funds or share classes to new and existing investors.

Principal Funds will not issue certificates for shares.

No salesperson, broker-dealer or other person is authorized to give information or make representations about a Fund other than those contained in this Prospectus. Information or representations not contained in this prospectus may not be relied upon as having been provided or made by Principal Funds, a Fund, PGI, any Sub-Advisor, or Principal Funds Distributor, Inc.

Procedures for Opening an Account and Making an Investment

Classes A and C Shares

Shares of the Funds are generally purchased through Financial Professionals. Financial Professionals may establish shareholder accounts according to their procedures or they may establish shareholder accounts directly with the Fund by visiting our website to obtain the appropriate forms.

Your Financial Professional can help you buy shares of the Funds by mail, through bank wire, direct deposit, or Automatic Investment Plan (“AIP”). No wires are accepted on days when the NYSE is closed or when the Federal Reserve is closed (because the bank that would receive your wire is closed). An investment in the Fund may be held in various types of accounts, including individual, joint ownership, trust, and business accounts. The Fund also offers a range of custodial accounts for those who wish to invest for retirement and/or education expenses. Prospective shareholders should consult with their Financial Professional before making decisions about the account and type of investment that are appropriate for them.

Class J Shares

Class J shares are currently available through registered representatives of:

•

Principal Securities, Inc. ("PSI") who are also employees of Principal Life distribution channels used to directly market certain products and services of subsidiaries of Principal Financial Group, Inc. as well as provide retirement plan services and education on topics such as investing and retirement. These PSI registered representatives are with Principal Connection (part of Principal Bank) and Worksite Solutions (part of the Retirement & Income Solutions and US Insurance Solutions Distribution area), and


•	Selected broker-dealers that have entered into a selling agreement to offer Class J shares.

Class J shares are also available through an online IRA rollover tool on www.principalfunds.com.

For more information about Class J shares of the Funds, please call Principal Connection at 1-800-243-4380, extension 704.

Institutional Class and Classes P, R-1, R-2, R-3, R-4, R-5, and R-6 Shares

Shares may be purchased from Principal Funds Distributor, Inc. (“PFD” or “the Distributor”). The Distributor is an affiliate of Principal Life Insurance Company and with it are subsidiaries of Principal Financial Group, Inc. and members of Principal^®. There are no sales charges on Institutional Class or Classes P, R-1, R-2, R-3, R-4, R-5, and R-6 shares of the Fund.

Shareholder accounts for the Fund are maintained under an open account system. Under this system, an account is opened and maintained for each investor (generally an omnibus account, plan level account, or institutional investor). Each investment is confirmed by sending the investor a statement of account showing the current purchase or sale and the total number of shares owned. The statement of account is treated by the Fund as evidence of ownership of Fund shares. Contact your Financial Professional for additional information on how to buy shares.

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Verification of Identity

To help the government fight the funding of terrorism and money laundering activities, Federal law requires financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, we (or your Financial Professional) may ask for your name, address, date of birth, and other information that will allow us (or your Financial Professional) to verify your identity. We (or your Financial Professional) may also ask to see your driver’s license or other identifying documents.

If concerns arise with verification of your identity, no transactions, other than redemptions, will be permitted while we attempt to reconcile the concerns. If we are unable to verify your identity on a timely basis, we may close your account or take such other action as we deem appropriate.

Principal Funds will not establish accounts with foreign addresses. If an existing shareholder with a U.S. address moves to a foreign location and updates the address on the shareholder’s account, we are unable to process any purchases or exchanges on that account. Principal Funds will not establish accounts that are for the benefit of a business/organization that is illegal under Federal and/or state law (such as a marijuana clinic) or a person who owns or receives income from such an entity or whose source of funds is illegal.

Eligible Purchasers

You must be an eligible purchaser for a particular share class to buy shares of a Fund available in that share class. PGI reserves the right to broaden or limit the designation of eligible purchasers. Not all of the Funds are offered in every state. Please check with your financial advisor or our home office for state availability.

Class C Shares - Money Market Fund

Class C shares of the Money Market Fund may be purchased only by exchange from other Fund accounts in the same share class or by reinvestment of distributions made on such shares. Class C shares are not available to retirement plans qualified under IRC section 401(a) that are not already investing in Class C shares of other Funds of the Principal Funds, but are available to new participants in plans that currently invest in Class C shares of the Fund.

Institutional Class and Classes P, R-1, R-2, R-3, R-4, R-5, and R-6 Shares

Some eligible purchasers (as listed below) purchase shares through plans or other arrangements; such plans or arrangements may impose fees in addition to those charged by the Funds. The services or share classes available to you may vary depending upon how you wish to purchase shares of the Fund. Each investor's financial considerations are different. You should speak with your financial professional to help you decide which share class is best for you.

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Except as described following this table, eligible purchasers of Institutional Class and Classes P, R-1, R-2, R-3, R-4, R-5, and R-6 shares currently include, but are not limited to:



Eligible purchasers currently include, but are not limited to:	P	Institutional	R-1	R-2	R-3	R-4	R-5	R-6
retirement and pension plans to which Principal Life Insurance Company (“Principal Life”) provides recordkeeping services		X	X	X	X	X	X	X
separate accounts of Principal Life		X	X	X	X	X	X	X
Principal Life or any of its subsidiaries or affiliates		X	X	X	X	X	X	X
any fund distributed by PFD if the fund seeks to achieve its investment objective by investing primarily in shares of mutual funds		X	X	X	X	X	X	X
clients of Principal Global Investors, LLC	X	X	X	X	X	X	X	X
certain employer sponsored retirement plans with plan level omnibus accounts		X	X	X	X	X	X	X
certain pension plans and employee benefit plans		X	X	X	X	X	X	X
certain retirement account investment vehicles administered by foreign or domestic pension plans		X	X	X	X	X	X	X
an investor who buys shares through an omnibus account with certain intermediaries, such as a broker-dealer, bank, or other financial institution, pursuant to a written agreement between the intermediary and PFD or its affiliate		X	X	X	X	X	X	X
certain retirement plan clients that have an organization, approved by Principal Life, for purposes of providing plan recordkeeping services		X	X	X	X	X	X	X
investors investing at least $1,000,000 per fund		X						X
sponsors, recordkeepers, or administrators of wrap account, mutual fund asset allocation, or fee-based programs or participants in those programs	X	X						X
certain institutional investors that provide recordkeeping for retirement plans or other employee benefit plans	X	X						X
institutional clients that Principal Life has approved for purposes of providing plan recordkeeping		X						X
institutional investors investing for their own account, including banks, trust companies, financial intermediaries, corporations, endowments and foundations		X						X
collective trust funds, fund of funds or other pooled investment vehicles, and entities acting for the account of a public entity		X						X
certain clients of a private banking division pursuant to a written agreement between the bank and PFD or its affiliate		X						X
the portfolio manager of any adviser to the fund		X						X
certain institutional investors with special arrangements (for example, insurance companies, employee benefit plans, retirement plans, and Section 529 Plans, among others)	X	X						X

Class R-1 and Class R-2 Shares

For retirement plan investors, effective as of the close of the New York Stock Exchange on January 31, 2017, Class R-1 and Class R-2 shares will no longer be available for purchase from new retirement plans except in limited circumstances. However, if a retirement plan currently offers Class R-1 or Class R-2, such plans will be allowed to continue to invest in these share classes through: Funds they currently offer in their plans or Funds they add to their plans.

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MidCap Fund

For retail investors (i.e., non-employer sponsored retirement plan investors), effective as of the close of the New York Stock Exchange on June 14, 2013, and for employer-sponsored retirement plan investors, effective as of the close of the New York Stock Exchange on August 15, 2013, the MidCap Fund will no longer be available for purchases from new investors except in limited circumstances, such as the following:


•	Shareholders, including those in omnibus accounts, who own shares of the MidCap Fund as of June 14, 2013 (for retail investors, i.e., non-employer sponsored retirement plan investors) or August 15, 2013, (for employer sponsored retirement plan investors), may continue to make purchases, exchanges, and dividend or capital gains reinvestment in existing accounts.

•

Registered Investment Advisor (RIA) and bank trust firms that have an investment allocation to the MidCap Strategy (i.e. investments in the same strategy used in collective investment trust, separately managed accounts, individually managed accounts or insurance separate accounts) in a fee-based, wrap or advisory account, may continue to add new clients, purchase shares, and exchange into the MidCap Fund. The MidCap Fund will not be available to new RIA and bank trust firms.


•	Shareholders through accounts at private banks may continue to purchase shares and exchange into the MidCap Fund. Private banks that have an investment allocation to the MidCap Strategy may add new clients to the MidCap Fund. The MidCap Fund will not be available to private bank or private bank platforms not already investing in the MidCap Strategy.


•	Shareholders in broker/dealer wrap or fee-based programs that have an investment allocation to the MidCap Fund may continue to purchase shares and exchange into the MidCap Fund. Existing broker/dealer wrap or fee-based programs may add new participants.


•	Shareholders in certain types of retirement plans (including 401(k)s, SEPs, SIMPLEs, 403(b)s, etc.) may continue to purchase shares and exchange into the MidCap Fund. New participants in these plans may elect to purchase shares of the MidCap Fund.


•	Retirement plans in transition as of the closure date will have until August 15, 2013, to fund any new accounts in the MidCap Fund.


•	Investors who open a new IRA transfer or rollover account by the close of business on June 13, 2013, will have until August 15, 2013, to fund these accounts.


•	Shareholders within brokerage accounts may continue to purchase shares of the MidCap Fund; however, new brokerage accounts will not be permitted to begin investing in the MidCap Fund after June 14, 2013.


•	529 plans that include the MidCap Fund within their investment options may continue to purchase shares and exchange into the MidCap Fund.


•	Investors who have a direct investment in the MidCap Strategy may, subject to the approval of the Distributor, purchase shares in the MidCap Fund.

At the sole discretion of the Distributor, the MidCap Fund may permit certain types of investors to open new accounts, impose further restrictions on purchases, or reject any purchase orders, all without prior notice.

Money Market Fund

The Money Market Fund qualifies as a retail money market fund; therefore, it uses amortized cost to value its portfolio securities, transacts at a $1.00 share price, and maintains a $1.00 stable NAV.

Natural Persons. A natural person is an individual human being with sole or shared voting and/or investment power over the investment. As a retail money market fund, the Money Market Fund has adopted policies and procedures reasonably designed to limit all beneficial owners of the Fund to natural persons (whether investing directly or through an intermediary). New sales or exchanges into the Money Market Fund by investors who do not meet the definition of a natural person (whether investing directly or through an intermediary) will not be allowed. If a non-natural person invests (whether directly or through an intermediary) in the Money Market Fund, the Money Market Fund will involuntarily redeem those investors. The Money Market Fund will provide 60-days advance notice prior to involuntarily redeeming shares owned by investors who do not meet the definition of a natural person (whether investing directly or through an intermediary).

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Minimum Investments

Classes A, C, and J Shares

Principal Funds has a minimum initial investment amount of $1,000 and a minimum subsequent investment amount of $100. Initial and subsequent investment minimums apply on a per-fund basis for each Fund or Portfolio in which a shareholder invests.

Shareholders must meet the minimum initial investment amount of $1,000 unless an Automatic Investment Plan ("AIP") is established. With an AIP, the minimum initial investment is $100. Accounts or automatic payroll deduction plans established with an AIP that do not meet the minimum initial investment must maintain subsequent automatic investments that total at least $1,200 annually.

Minimum initial and subsequent investments may be waived on accounts set up for: certain employee benefit plans; retirement plans qualified under Internal Revenue Code Section 401(a); payroll deduction plans submitting contributions in an electronic format devised and/or approved by the Fund; and purchases through an omnibus account with a broker-dealer, investment advisor, or other financial institution.

Institutional Class and Classes P, R-1, R-2, R-3, R-4, R-5, and R-6 Shares

There are no minimum initial or subsequent investment requirements for an eligible purchaser.

Payment

Classes A, C, and J Shares

Payments are to be made via personal or financial institution check (for example, a bank or cashier's check). We consider your purchase of Fund shares by check to be your authorization to make an automated clearing house (“ACH”) debit entry to your account. We reserve the right to refuse any payment that we feel presents a fraud or money laundering risk. Examples of the types of payments we will not accept are cash, starter checks, money orders, travelers' checks, credit card checks, and foreign checks.

The Funds may, in their discretion and under certain limited circumstances, accept securities as payment for Fund shares at the applicable net asset value (“‘NAV”). For federal income tax purposes, a purchase of shares with securities will be treated as a sale or exchange of such securities on which the investor will generally realize a taxable gain or loss. Each Fund will value securities used to purchase its shares using the same method the Fund uses to value its portfolio securities as described in this prospectus.

You may reinvest your redemption proceeds, dividend payment or capital gain distribution without an initial sales charge or contingent deferred sales charge, in the same share class of any other Fund of Principal Funds within 90 days of the date of the redemption. To purchase the shares without a sales charge (initial or contingent deferred) as described in this section, the shareholder must notify Principal Funds at the time of reinvestment that the shareholder is reinvesting proceeds within 90 days of the date of redemption. The original redemption will be considered a sale for federal (and state) income tax purposes even if the proceeds are reinvested within 90 days. If a loss is realized on the sale, the reinvestment may be subject to the “wash sale” rules resulting in the postponement of the recognition of the loss for tax purposes.

Your Financial Professional can help you make a Direct Deposit from your paycheck (if your employer approves) or from a government allotment. Direct Deposit allows you to deposit automatically all or part of your paycheck (or government allotment) to your Principal Funds account(s). You can request a Direct Deposit Authorization Form to give to your employer or the governmental agency (either of which may charge a fee for this service). Shares will be purchased on the day the ACH notification is received by the transfer agent’s bank. On days when the NYSE is closed, but the bank receiving the ACH notification is open, your purchase will be priced at the next calculated share price.

Your Financial Professional can help you establish an Automatic Investment Plan ("AIP"). You may make regular monthly investments with automatic deductions from your bank or other financial institution account. You select the day of the month the deduction is to be made (if none is selected, the investment will be made on the 15^th of the month). If that date is a non-trading day, we will process the deduction on the next trading day. If the next trading day falls in the next month or year, we will process the deduction on the day before your selected day.

Institutional Class and Classes P, R-1, R-2, R-3, R-4, R-5, and R-6 Shares

Payments are generally to be made through your plan or intermediary. We reserve the right to refuse any payment that we feel presents a fraud or money laundering risk. Examples of the types of payments we will not accept are cash, starter checks, money orders, travelers' checks, credit card checks, and foreign checks.

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REDEMPTION OF FUND SHARES

On June 23, 2017, remove all Class P references.

You may redeem any class of shares of the Fund upon request. There is no charge for the redemption. The Fund Board of Directors has determined that it is not necessary to impose a fee upon the redemption of fund shares, because the Fund has adopted transfer restrictions as described in “Exchange of Fund Shares.”

Shares are redeemed at the NAV per share next computed after the request is received by the Fund in proper and complete form. The amount you receive will be reduced by any applicable CDSC except as noted below; see Choosing a Share Class and the Costs of Investing, One-Time Fee - Contingent Deferred Sales Charge ("CDSC"), CDSC Waiver for Classes A, C, and J Shares.

Principal Funds typically sends the sale proceeds on the next business day (a day when the NYSE is open for normal business) after the sell order is received, regardless of whether the sell order is made by check, wire, or an automated clearing house transfer. Under unusual circumstances, Principal Funds may suspend redemptions, or postpone payment for up to seven days, as permitted by federal securities law. Shares purchased by check may be sold only after the check has cleared your bank, which may take up to seven calendar days.

Under normal circumstances, the Funds expect to meet redemption requests through the sale of investments held in cash or cash equivalents. Funds that are included in the cash management program (as described under MANAGEMENT OF THE FUNDS-Cash Management Program) may also meet such requests by selling liquid index futures. In situations in which investment holdings in cash, cash equivalents, or, with respect to funds in the cash management program, index futures are not sufficient to meet redemption requests, a Fund will typically borrow money through the Fund’s interfund lending facility or through a bank line-of-credit. Funds may also choose to sell portfolio assets for the purpose of meeting such requests. Each Fund further reserves the right to distribute “in kind” securities from the Fund’s portfolio in lieu (in whole or in part) of cash under certain circumstances, including under stressed market conditions.

Classes A, C, and J Shares

You will be charged a $10 wire fee if you have the sale proceeds wired to your bank. It may take additional business days for your financial institution to post this payment to your account at that financial institution. At your request, the check will be sent overnight (a $15 overnight fee will be deducted from your account unless other arrangements are made).

Distributions from IRA, SEP, SIMPLE, 403(b), and SAR-SEP accounts may be taken as:


•	lump sum of the entire interest in the account,


•	partial interest in the account, or


•	periodic payments of either a fixed amount or an amount based on certain life expectancy calculations.

Tax penalties may apply to distributions before the participant reaches age 59 ½.

Selling shares may create a gain or a loss for federal (and state) income tax purposes. You should maintain accurate records for use in preparing your income tax returns.

Generally, sales proceeds are:


•	payable to all owners on the account (as shown in the account registration) and


•	mailed to the address on the account (if not changed within last 15 days) or sent by wire or ACH to previously authorized U.S. bank account.

For other payment arrangements, please call Principal Funds. You should also call Principal Funds for special instructions that may apply to sales from accounts:


•	when an owner has died


•	for certain employee benefit plans; or


•	owned by corporations, partnerships, agents, or fiduciaries.

Except as described above, you may redeem shares of the Funds in any of the following ways:

By Mail

To sell shares by mail, you must:


•	Send a letter or our distribution form which is signed by an owner of the account,


•	Specify the account number, and

443


•	Specify the number of shares or the dollar amount to be sold.

If you send a letter rather than our distribution form, the letter must be in a form acceptable to the Fund.

By Telephone or Website, in amounts of $100,000 or less

To sell shares by telephone:


•	The request may be made by a shareholder or by the shareholder’s Financial Professional.


•	The combined amount requested from all funds to which the redemption request relates is $100,000 or less.


•	The address on the account must not have been changed within the last 15 days and telephone privileges must apply to the account from which the shares are being sold.


•	If previously authorized, wire or ACH can be sent to a shareholder’s U.S. bank account.


•	If our phone lines are busy or our website is unavailable, you may need to send in a written sell order.

Telephone and/or Website redemption privileges are NOT available for all account types.

Classes A, C, and J Shares - Systematic Withdrawal Plans

You may set up a systematic withdrawal plan on a monthly, quarterly, semiannual, or annual basis to sell enough shares to provide a fixed amount of money ($100 minimum amount; the required minimum is waived to the extent necessary to meet the required minimum distribution as defined by the Internal Revenue Code).

You can set up a systematic withdrawal plan by:


•	completing the applicable section of the application,


•	sending us your written instructions,


•	completing a Systematic Withdrawal Plan Request form, or


•	calling us if you have telephone privileges on the account (telephone privileges may not be available for all types of accounts).

Your systematic withdrawal plan continues until:


•	you instruct us to stop or


•	your Fund account balance is zero.

When you set up the withdrawal plan, you select which day you want the sale made (if none is selected, the sale will be made on the 15th of the month). If the selected date is not a trading day, the sale will take place on the preceding trading day (if that day falls in the month or year before your selected date, the transaction will take place on the next trading day after your selected date). If telephone privileges apply to the account, you may change the date or amount by telephoning us. Sales made under your systematic withdrawal plan will reduce and may eventually exhaust your account. The Fund from which the systematic withdrawal is made makes no recommendation as to either the number of shares or the fixed amount that you withdraw.

Class A shares of Money Market Fund: Sell shares by checkwriting


•	Checkwriting must be elected on initial application or by written request to Principal Funds. Such election continues in effect until the Fund receives written notice revoking or changing the election.


•	The Fund can only sell shares after your check making the Fund investment has cleared your bank.


•	Checks must be written for at least $250. The Fund reserves the right to increase the minimum check amount.


•	The rules of the bank on which the checks are drawn concerning checking accounts apply.


•	If the account does not have sufficient funds to cover the check, it is marked “Insufficient Funds” and returned (the Fund may revoke checkwriting on accounts on which “Insufficient Funds” checks are drawn).


•	Accounts may not be closed by withdrawal check (accounts continue to earn dividends until checks clear and the exact value of the account is not known until the check is received by the bank).


•	Checkwriting is available only for non-qualified accounts.


•	Neither the Fund, the bank, nor PGI shall incur any liability for honoring the checks, selling shares to pay checks, or for returning checks unpaid.


•	Checkwriting may be converted to a point-of-purchase debit from your account. This only applies if such service is available at the business with which you are doing business.

Institutional Class and Classes P, R-1, R-2, R-3, R-4, R-5, and R-6 Shares

You may redeem shares of the Funds in any of the following ways:

Through an Employer Sponsored Retirement Plan Administrator or Record-Keeper

If you own Fund shares in an eligible retirement or employee benefit plan, you must sell your shares through the plan’s administrator or record-keeper.

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Through your Financial Professional

If your Fund shares are held for you in nominee form, you must sell those shares through your intermediary or dealer.

By mail

To sell shares by mail, you must:


•	Send a letter or our distribution form which is signed by an owner of the account,


•	Specify the account number, and


•	Specify the number of shares or the dollar amount to be sold.

If you send a letter rather than our distribution form, the letter must be in a form acceptable to the Fund.

By telephone

To sell shares by telephone:


•	Telephone privileges must apply to the account from which the shares are sold.


•	A shareholder or the shareholder’s Financial Professional may request to sell shares by telephone.


•	A maximum amount (listed below) of redemption requests will be permitted per day per account, as the combined amount from all funds, provided the proceeds are to be sent to a previously authorized U.S. bank account:

◦$10,000,000 for Institutional Class.

◦$100,000 for Class P.

◦$500,000 for Classes R-1, R-2, R-3, R-4, R-5, and R-6.


•	A maximum of $500,000 ($100,000 for Class P) of redemption requests will be permitted per day, as the combined amount from all funds, provided the proceeds are to be sent by check through the mail to the address on the account and such address must not have changed within the last 15 days.


•	If our telephone lines are busy, you may need to send in a written sell order.

Distributions in Kind

Payment for shares of the Funds tendered for redemption is ordinarily made by check. However, the Funds may determine that it would be detrimental to the remaining shareholders of a Fund to make payment of a redemption order wholly or partly in cash. Under certain circumstances, therefore, each of the Funds may pay the redemption proceeds in whole or in part by a distribution of “in kind” of securities from the Fund’s portfolio in lieu of cash. If a Fund pays the redemption proceeds in kind, the redeeming shareholder might incur brokerage or other costs in selling the securities for cash. Each Fund will value securities used to pay redemptions in kind using the same method the Fund uses to value its portfolio securities as described in this prospectus.

Money Market Fund

Liquidity Fees on Redemptions and Redemption Gates. As a retail money market fund, the Money Market Fund has adopted policies and procedures regarding the imposition of liquidity fees on redemptions and/or redemption gates in the event that its level of weekly liquid assets falls below a designated threshold, subject to the actions of the Money Market Fund’s board of directors. The imposition of liquidity fees or redemption gates affects checkwriting and exchanges into the Money Market Fund.

Imposition. If at any time, the Money Market Fund has invested less than 30% of its total assets in weekly liquid assets, the Money Market Fund’s Board, in its discretion, may impose liquidity fees of up to 2% of the value of the shares redeemed (discretionary liquidity fee) and/or suspend redemptions (redemption gate). The Board must determine that taking such action is in the best interests of the Money Market Fund. In addition, if at the end of a business day, the Money Market Fund has invested less than 10% of its total assets in weekly liquid assets, the Money Market Fund must impose a 1% liquidity fee on shareholder redemptions (default liquidity fee) unless the Money Market Fund’s Board determines that not doing so or imposing a lower or higher (not to exceed 2%) fee level is in the best interests of the Money Market Fund. The discretionary liquidity fee, redemption gate, or default liquidity fee will be applied to all shares for which redemption requests are submitted.

Duration. Discretionary Liquidity Fee. A discretionary liquidity fee will commence when the Board determines to impose it (as early as the same day the Board makes the determination) and will remain in place until the Board determines that imposing the discretionary liquidity fee is no longer in the best interests of the Money Market Fund. However, if at the end of a business day, the Money Market Fund’s level of weekly liquid assets equals or exceeds 30% of its total assets, the Money Market Fund must cease charging the discretionary liquidity fee, effective the beginning of the next business day.

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Redemption Gate. A redemption gate will commence when the Board determines to impose it and will remain in place until the Board determines that imposing the redemption gate is no longer in the best interests of the Money Market Fund. However, the redemption gate must be lifted on the earlier of (1) the beginning of the next business day, following a business day that ended with the Money Market Fund’s level of weekly liquid assets equaling or exceeding 30% of its total assets or (2) the beginning of the next business day, following 10 business days after instituting the redemption gate (the Money Market Fund cannot impose a redemption gate for more than 10 business days in any rolling 90 calendar day period).

Default Liquidity Fee. Assuming the default liquidity fee goes into effect, such fee will commence at the beginning of the business day following the business day in which the Money Market Fund’s level of weekly liquid assets fell below 10% and will remain in place until the Board determines that imposing the default liquidity fee is no longer in the best interests of the Money Market Fund. However, if at the end of a business day, the Money Market Fund’s level of weekly liquid assets equals or exceeds 30% of its total assets, the Money Market Fund must cease charging the default liquidity fee, effective the beginning of the next business day.

Investor Communications. The Money Market Fund will communicate the imposition or lifting of a liquidity fee and/or redemption gate in various ways, including:


•	filing a prospectus supplement


•	filing Form N-CR


•	posting information on its website

Use of Fee Proceeds

The liquidity fees imposed by the Money Market Fund will be used to offset the costs of liquidity incurred by the Fund for redeeming shareholders and to protect the Fund’s NAV.

Tax Consequences to the Money Market Fund and Investors of the Fund’s Receipt of Liquidity Fees

It is currently anticipated that shareholders of money market funds that impose a liquidity fee may generally treat the fee on the redemption as offsetting the shareholder’s amount realized on the redemption (thereby decreasing the shareholder’s gain, or increasing the shareholder’s loss, on the redeemed amount). The fund anticipates using 100% of a liquidity fee to help repair a market-based net asset value per share that was below $1.00.

Liquidity fees are expected to be non-taxable to the Fund. A money market fund that uses amortized cost to maintain a stable share price of $1.00 may need to distribute to its remaining shareholders sufficient value to prevent the fund from breaking the buck on the upside (i.e., by rounding up to $1.01 in pricing its shares), if the imposition of liquidity fees causes the fund’s market-based net asset value to reach $1.0050. To the extent that the fund has sufficient earnings and profits to support the distribution, the additional dividends would be taxable as ordinary income to shareholders and would be eligible for deduction by the funds. Any distribution in excess of the fund’s earnings and profits is treated as a return of capital, which would reduce your cost basis in the fund shares.

Liquidation. If the Money Market Fund, at the end of a business day, has invested less than 10% of its total assets in weekly liquid assets or if the Money Market Fund’s price per share, rounded to the nearest one percent, has deviated from $1.00 or the Board determines that such deviation is likely to occur, the Board can irrevocably approve the liquidation of the Money Market Fund. The Money Market Fund does not have to impose liquidity fees or redemption gates prior to making the determination to liquidate.

EXCHANGE OF FUND SHARES

On June 23, 2017, remove all Class P references.

An exchange between Funds is a redemption of shares of one Fund and a concurrent purchase of shares in another Fund with the redemption proceeds. To prevent excessive exchanges, and under other circumstances where the Fund Board of Directors or PGI believes it is in the best interests of the Fund, the Fund reserves the right to revise or terminate this exchange privilege, limit the amount or further limit the number of exchanges, reject any exchange or close an account.

446

Classes A, C, and J Shares

Your shares in the Funds (except Money Market) may be exchanged without a sales charge or CDSC for the same class of any other Principal Funds. However, the original purchase date of the shares from which an exchange is made is used to determine if newly acquired shares are subject to a CDSC when they are sold. The Fund reserves the right to revise or terminate the exchange privilege at any time.

You may exchange shares by:


•	sending a written request to Principal Funds,


•	using our website, or


•	calling us, if you have telephone privileges on the account.

Exchanges from Money Market Fund

Class A shares of Money Market Fund may be exchanged into:


•	Class A shares of other Funds.


•	If Money Market Fund shares were acquired by direct purchase, a sales charge will be imposed on the exchange into other Class A shares.


•	If Money Market Fund shares were acquired by (1) exchange from other Funds, (2) conversion of Class B shares, or (3) reinvestment of dividends earned on Class A shares that were acquired through exchange, no sales charge will be imposed on the exchange into other Class A shares.


•	Class C shares of other Funds - subject to the applicable CDSC.

Automatic Exchange Election

This election authorizes an exchange from one fund of Principal Funds to another fund of Principal Funds on a monthly, quarterly, semiannual or annual basis. You can set up an automatic exchange by:


•	completing the Automatic Exchange Election section of the application,


•	calling us if telephone privileges apply to the account from which the exchange is to be made,


•	sending us your written instructions, or


•	completing an Automatic Exchange Election form.

Your automatic exchange continues until:


•	you instruct us to stop (by calling us if telephone privileges apply to the account or sending us your written instructions) or


•	your Fund account balance of the account from which shares are redeemed is zero.

You may specify the day of the exchange (if none is selected, the exchange will be made on the 15th of the month). If the selected day is not a trading day, the sale will take place on the preceding trading day (if that day falls in the month or year before your selected date, the transaction will take place on the next trading day after your selected date). If telephone privileges apply to the account, you may change the date or amount by telephoning us.

General


•	An exchange by any joint owner is binding on all joint owners.


•	If you do not have an existing account in the Fund to which the exchange is being made, a new account is established. The new account has the same owner(s), dividend and capital gain options and dealer of record as the account from which the shares are being exchanged.


•	All exchanges are subject to the minimum investment and eligibility requirements of the Fund being acquired.


•	You may acquire shares of a Fund only if its shares are legally offered in your state of residence.

When money is exchanged or transferred from one account registration or tax identification number to another, the account holder is relinquishing his or her rights to the money. Therefore, exchanges and transfers can only be accepted by telephone if the exchange (transfer) is between:


•	accounts with identical ownership,


•	an account with a single owner to one with joint ownership if the owner of the single owner account is also an owner of the account with joint ownership,


•	a single owner to a Uniform Transfers to Minors Act ("UTMA") account if the owner of the single owner account is also the custodian on the UTMA account, or


•	a single or jointly owned account to an IRA account to fund the yearly IRA contribution of the owner (or one of the owners in the case of a jointly owned account).

The exchange is treated as a sale of shares for federal (and state) income tax purposes and may result in a capital gain or loss.

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Fund shares used to fund an employee benefit plan may be exchanged only for shares of other Funds available to employee benefit plans. Such an exchange must be made by following the procedures provided in the employee benefit plan and the written service agreement.

Class P Shares

A shareholder, including a beneficial owner of shares held in nominee name may exchange Fund shares under certain circumstances. You may exchange your Fund shares, without charge, for shares of any other Fund of the Principal Funds available in Class P; however, an intermediary may impose restrictions on exchanges.

Institutional Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 Shares

A shareholder, including a beneficial owner of shares held in nominee name or a participant in a participant-directed employee benefit plan, may exchange Fund shares under certain circumstances. In addition to any restrictions an intermediary or an employee benefit plan imposes, Fund shares may be exchanged, without charge, for shares of any other Fund of the Principal Funds, provided that:


•	the shareholder has not exchanged shares of the Fund within 30 days preceding the exchange, unless the shareholder is exchanging into the Money Market Fund,


•	the share class of such other Fund is available through the plan, and


•	the share class of such other Fund is available in the shareholder’s state of residence.

All exchanges completed on the same day are considered a single exchange for purposes of this exchange limitation. In addition, the Fund will reject an order to purchase shares of any Fund, except shares of the Money Market Fund, if the shareholder redeemed shares from that Fund within the preceding 30-day period. The 30-day exchange or purchase restriction does not apply to exchanges or purchases made on a scheduled basis such as scheduled periodic portfolio rebalancing transactions or to transactions by managers of funds of funds in shares of the underlying Funds.

If Fund shares are purchased through an intermediary that is unable or unwilling to impose the 30-day exchange or repurchase restrictions described above, Fund management may waive these restrictions based on:


•	Exchange and repurchase limitations that the intermediary is able to impose if, in management’s judgment, such limitations are reasonably likely to prevent excessive trading in Fund shares; or


•	The implementation of other transaction monitoring management believes is reasonably likely to identify and prevent excessive trading in Fund shares.

DIVIDENDS AND DISTRIBUTIONS

Dividends are based on estimates of income, expenses, and shareholder activity for the Fund. Actual income, expenses, and shareholder activity may differ from estimates; consequently, differences, if any, will be included in the calculation of subsequent dividends. The Funds pay their net investment income to record date shareholders; this record date is the business day before the payment date. The payment schedule is as follows:


•	The California Municipal, Core Plus Bond, Government & High Quality Bond, High Yield, High Yield I, Income, Short-Term Income, and Tax-Exempt Bond Funds declare dividends of their daily net investment income each day their shares are priced. The Funds pay out their accumulated declared dividends monthly.

•

The Money Market Fund declares dividends of all its daily net investment income each day its shares are priced. On the 20th day of each month (or the previous business day), the Fund will distribute its accumulated declared dividends. You may ask to have your dividends paid to you in cash. If you do not request cash payment, your dividend will be applied to purchase additional shares of the Fund monthly.


•	The Finisterre Unconstrained Emerging Markets Bond Fund, Global Diversified Income Fund and SAM Flexible Income Portfolio pay their net investment income monthly.


•	The Equity Income, Global Real Estate Securities, Inflation Protection, and Real Estate Securities Funds and the SAM Conservative Balanced, and SAM Balanced Portfolios each pay their net investment income quarterly in March, June, September, and December.


•	The other Funds pay their net investment income annually in December.

For more details on the payment schedule, go to: www.principalfunds.com/taxcenter.

Net realized capital gains, if any, are distributed annually in December. Payments are made to shareholders of record on the business day before the payable date. Capital gains may be taxable at different rates, depending on the length of time that the Fund holds its assets.

448

The Money Market Fund does not seek to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends.

Dividend and capital gains distributions will be reinvested, without a sales charge, in shares of the Fund from which the distribution is paid; however, you may authorize (on your application or at a later time) the distribution to be:


•	invested in shares of another of the Principal Funds without a sales charge (distributions of a Fund may be directed only to one receiving Fund); or


•	paid in cash, if the amount is $10 or more.

Generally, for federal income tax purposes, Fund distributions are taxable as ordinary income, except that any distributions of long-term capital gains will be taxed as such, regardless of how long Fund shares have been held. Special tax rules apply to Fund distributions to Individual Retirement Accounts and other retirement plans. A tax advisor should be consulted to determine the suitability of the Fund as an investment by such a plan and the tax treatment of distributions by the Fund. A tax advisor can also provide information on the potential impact of possible foreign, state, and local taxes. A Fund’s investments in foreign securities may be subject to foreign withholding taxes. In that case, the Fund’s yield on those securities would be decreased.

To the extent that distributions the Fund pays are derived from a source other than net income (such as a return of capital), a notice will be included in your quarterly statement pursuant to Section 19(a) of the Investment Company Act of 1940, as amended, and Rule 19a-1 disclosing the source of such distributions. Furthermore, such notices shall be posted monthly on our website at www.principalfunds.com/sources-of-distribution. You may request a copy of all such notices, free of charge, by telephoning 1-800-222-5852. The amounts and sources of distributions included in such notices are estimates only and you should not rely upon them for purposes of reporting income taxes. The Fund will send shareholders a Form 1099-DIV for the calendar year that will tell shareholders how to report these distributions for federal income tax purposes.

A Fund’s payment of income dividends and capital gains has the effect of reducing the share price by the amount of the payment. Distributions from a Fund, whether received in cash or reinvested in additional shares, may be subject to federal (and state) income tax. For these reasons, buying shares of a Fund shortly before it makes a distribution may be disadvantageous to you.

FREQUENT PURCHASES AND REDEMPTIONS

The Funds are not designed for, and do not knowingly accommodate, frequent purchases and redemptions of fund shares. If you intend to trade frequently and/or use market timing investment strategies, you should not purchase these Funds.

Frequent purchases and redemptions pose a risk to the Funds because they may:


•	Disrupt the management of the Funds by:


•	forcing the Funds to hold short-term (liquid) assets rather than investing for long-term growth, which results in lost investment opportunities for the Funds and


•	causing unplanned portfolio turnover;


•	Hurt the portfolio performance of the Funds; and


•	Increase expenses of the Funds due to:


•	increased broker-dealer commissions and


•	increased recordkeeping and related costs.

Certain Funds may be at greater risk of harm due to frequent purchases and redemptions. For example, those Funds that invest in foreign securities may appeal to investors attempting to take advantage of time-zone arbitrage. The Funds have adopted procedures to “fair value” foreign securities owned by the Funds each day to discourage these market timing transactions in shares of the Funds.

The Board of Directors of the Fund has also adopted policies and procedures with respect to frequent purchases and redemptions of shares of the Funds. The Funds monitor shareholder trading activity to identify and take action against abuses. When we do identify abusive trading, we will apply our policies and procedures in a fair and uniform manner. While our policies and procedures are designed to identify and protect against abusive trading practices, there can be no certainty that we will identify and prevent abusive trading in all instances. If we are not able to identify such excessive trading practices, the Funds and their shareholders may be harmed. The harm of undetected excessive trading in shares of the underlying funds in which the funds of funds invest could flow through to the funds of funds as they would for any fund shareholder.

449

If we, or a Fund, deem abusive trading practices to be occurring, we will take action that may include, but is not limited to:


•	Rejecting exchange instructions from the shareholder or other person authorized by the shareholder to direct exchanges;


•	Restricting submission of exchange requests by, for example, allowing exchange requests to be submitted by 1st class U.S. mail only and disallowing requests made by facsimile, overnight courier, telephone or via the internet;


•	Limiting the number of exchanges during a year; and


•	Taking such other action as directed by the Fund.

The Funds have reserved the right to accept or reject, without prior written notice, any exchange requests. In some instances, an exchange may be completed before a determination of abusive trading. In those instances, we will reverse the exchange and return the account holdings to the positions held before the exchange. We will give the shareholder written notice in this instance.

Institutional Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 Shares

In addition to taking any of the foregoing actions, if we, or a Fund, deem abusive trading practices to be occurring, we may require a holding period of a minimum of 30 days before permitting exchanges among the Funds where there is evidence of at least one round-trip exchange (exchange or redemption of shares that were purchased within 30 days of the exchange/redemption).

The Funds have adopted an exchange frequency restriction for these classes, described above in “Exchange of Fund Shares” to limit excessive trading in fund shares.

TAX CONSIDERATIONS

It is a policy of the Funds to make distributions of substantially all of their respective investment income and any net realized capital gains. Shareholders are responsible for federal income tax (and any other taxes, including state and local income taxes, if applicable) on dividends and capital gains distributions whether such dividends or distributions are paid in cash or are reinvested in additional shares. Special tax rules apply to distributions from IRAs and other retirement accounts. You should consult a tax advisor to determine the suitability of the Fund as an investment by such a plan and the tax treatment of Fund distributions.

Generally, dividends paid by the Funds from interest, dividends, or net short-term capital gains will be taxed as ordinary income. Distributions properly designated by the Fund as deriving from net gains on securities held for more than one year are taxable as such (generally at a 15% tax rate for individuals and taxable trusts, some individuals and taxable trusts will be subject to a 20% tax rate), regardless of how long you have held your shares. Distributions of investment income properly designated by the Fund as derived from “qualified dividend income” will be taxed at the rates applicable to long-term capital gains. Some high-income individuals and taxable trusts will be subject to a Medicare 3.8% tax on unearned net investment income.

Because of tax law requirements, you must provide the Fund with an accurate and certified taxpayer identification number (for individuals, generally a Social Security number) to avoid “back-up” withholding, which is imposed at a rate of 28%. The Fund is required in certain cases to withhold and remit to the U.S. Treasury 28% of ordinary income dividends and capital gain dividends, and the proceeds of redemption of shares, paid to any shareholder who has provided either an incorrect tax identification number or no number at all, who is subject to backup withholding by the Internal Revenue Service for failure to report the receipt of interest or dividend income properly, or who has failed to certify to the Fund that it is not subject to backup withholding or that it is a corporation or other "exempt recipient."

A shareholder recognizes gain or loss on the sale or redemption of shares of the Fund in an amount equal to the difference between the proceeds of the sales or redemption and the shareholder's adjusted tax basis in the shares. All or a portion of any loss so recognized may be disallowed if the shareholder purchases other shares of the Fund within 30 days before or after the sale or redemption. In general, any gain or loss arising from (or treated as arising from) the sale or redemption of shares of the Fund is considered capital gain or loss (long-term capital gain or loss if the shares were held for longer than one year). However, any capital loss arising from the sales or redemption of shares held for six months or less is disallowed to the extent of the amount of exempt-interest dividends received on such shares and (to the extent not disallowed) is treated as a long-term capital loss to the extent of the amount of capital gain dividends received on such shares. Capital losses in any year are deductible only to the extent of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income under current rules.

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If a shareholder incurs a sales charge in acquiring shares of the Fund, disposes of such shares less than 91 days after they are acquired, and subsequently acquires shares of the Fund or another fund at a reduced sales charge pursuant to a right to reinvest at such reduced sales charge acquired in connection with the acquisition of the shares disposed of, then the sales charge on the shares disposed of (to the extent of the reduction in the sales charge on the shares subsequently acquired) shall not be taken into account in determining gain or loss on the shares disposed of but shall be treated as incurred on the acquisition of the shares subsequently acquired.

Any gain resulting from the redemption or exchange, of your shares will generally also be subject to tax. For shares acquired after January 1, 2012, you will need to select a cost basis method to be used to calculate your reported gains and losses prior to or at the time of any redemption or exchange. If you do not select a method, the Funds’ default method of average cost will be applied to the transactions. The cost basis method used on your account could significantly affect your taxes due and should be carefully considered. You should consult your tax advisor for more information on your own tax situation, including possible foreign, state, and local taxes.

Investments by a Fund in certain debt instruments or derivatives may cause the Fund to recognize taxable income in excess of the cash generated by such instruments. As a result, the Fund could be required at times to liquidate other investments to satisfy its distribution requirements under the Internal Revenue Code. The Fund’s use of derivatives will also affect the amount, timing, and character of the Fund’s distributions.

Early in each calendar year, each Fund will notify you of the amount and tax status of distributions paid to you for the preceding year.

A dividend or distribution made shortly after the purchase of shares of a Fund by a shareholder, although in effect a return of capital to that shareholder, would be taxable to that shareholder as described above, subject to a holding period requirement for dividends designated as qualified dividend income.

The information contained in this prospectus is not a complete description of the federal, state, local, or foreign tax consequences of investing in the Fund. You should consult your tax advisor before investing in the Fund.

Funds Investing in Securities Generating Tax-Exempt Income

Distributions designated as “exempt-interest dividends” by Funds investing in securities generating tax-exempt income are generally not subject to federal income tax. However, if you receive Social Security or railroad retirement benefits, you should consult your tax advisor to determine what effect, if any, an investment in such Funds may have on the federal taxation of your benefits. Some Funds invest in “AMT-subject bonds,” which are municipal obligations issued to finance certain “private activities,” such as bonds used to finance airports, housing projects, student loan programs, and water and sewer projects. Interest on AMT-subject bonds is an item of tax preference for purposes of the federal individual alternative minimum tax (“AMT”) and will also give rise to corporate alternative minimum taxes. A portion of such Funds' distributions may, therefore, be subject to federal income taxes or to the federal alternative minimum tax. Some Funds may invest a portion of their assets in securities that generate income that is not exempt from federal (or state and local) income tax. Income exempt from federal tax may be subject to state and local income tax. In addition, any capital gains distributed by such Funds will be taxable as described in this section. A portion of the dividends paid by such Funds may be exempt from California State personal income tax, but not from California State franchise tax or California State corporate income tax. Corporate taxpayers should consult their tax advisor concerning the California state tax treatment of investments in such Funds.

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CHOOSING A SHARE CLASS AND THE COSTS OF INVESTING

On June 23, 2017, remove all Class P references.

Before you invest, you should understand the characteristics of each share class so you can be sure to choose the class that is right for you. Fund and share class selections must be made at the time of purchase.

Classes differ regarding the costs associated with buying, redeeming, and holding shares. Which class is best for you depends upon:


•	the dollar amount you are investing,


•	the amount of time you plan to hold the investment,


•	any plans to make additional investments in the Principal Funds, and


•	eligibility to purchase the class.

The following sections describe the fees and expenses you may pay if you invest in a Fund. You may pay both one-time fees and ongoing fees. Fees and expenses are important because they lower your earnings. Before investing, you should be sure you understand the nature of different costs. Your Financial Professional can help you with this process and can help you choose the share class and Fund or Funds that are appropriate for you based upon your investment objective, risk tolerance and other factors. Financial Professionals may receive different compensation depending upon which class of shares you purchase.

Fees and Expenses of the Funds

Classes A, C, and J Shares

There is no sales charge on shares of the Funds purchased with reinvested dividends or other distributions. You may obtain more information about sales charge reductions and waivers from your Financial Professional.

In some cases, the initial sales charge or contingent deferred sales charge may be waived or reduced. To receive a waiver or reduction in the initial sales charge or contingent deferred sales charge, you or your Financial Professional must let the Fund know at the time you purchase or redeem shares that you qualify for such a waiver or reduction. It may be necessary for you to provide information and records, such as account statements, to determine your eligibility. If you or your Financial Professional do not let the Fund know that you are eligible for a waiver or reduction, it is possible you will not receive a sales charge discount to which you are otherwise entitled.

Class C Shares

Class C shares may not be suitable for large investments. Due to the higher expenses associated with Class C shares, it may be more advantageous for investors currently purchasing, intending to purchase, or with existing assets in amounts that may qualify for a reduced sales charge on Class A shares, including through Rights of Accumulation and/or Statement of Intent, to purchase Class A shares. Class C shares have higher annual expenses than Class A shares because they are subject to higher distribution fees.

The Fund seeks to prevent investments in Class C shares by shareholders with at least $1 million of investments in Principal Funds eligible for inclusion pursuant to Rights of Accumulation. If you are making an initial purchase of Principal Funds of $1,000,000 or more and have selected Class C shares, the purchase will be of Class A shares of the Fund(s) you have selected. If you are making subsequent purchases into your existing Principal Funds Class C share accounts and the combined value of the subsequent investment and your existing Classes A, B, C, and J share accounts combined for Rights of Accumulation purposes exceeds $1,000,000, the subsequent investment will be applied to purchase Class A shares of the Fund(s) you have selected.

Institutional Class and Classes P, R-1, R-2, R-3, R-4, R-5, and R-6 Shares

Fund shares are sold without a front-end sales charge and do not have a contingent deferred sales charge. There is no sales charge on Fund shares purchased with reinvested dividends or other distributions.

One-Time Fee - Initial Sales Charge

Class A Shares

The offering price for Class A shares is the NAV next calculated after receipt of an investor’s order in proper form by the Fund or its servicing agent, plus any applicable initial sales charge as shown in the table below. The right-hand column in the table indicates what portion of the sales charge is paid to Financial Professionals and their brokerage firms (“dealers”) for selling Class A shares. For more information regarding compensation paid to dealers, see “Distribution Plans and Intermediary Compensation.”

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CLASS A SALES CHARGES⁽¹⁾
California Municipal, Core Plus Bond, Finisterre Unconstrained Emerging Markets Bond, Global Diversified Income, High Yield, High Yield I, Inflation Protection, Principal LifeTime 2010, Principal LifeTime Strategic Income, Tax-Exempt Bond Funds, and SAM Flexible Income Portfolio
	Class A Sales Charge as % of
Amount of Purchase	Offering Price	Amount Invested	Dealer Allowance as of % of Offering Price
Less than $100,000	3.75%	3.90%	3.00%
$100,000 but less than $250,000	2.75%	2.83%	2.25%
$250,000 but less than $500,000	1.50%	1.52%	1.00%
$500,000 or more	0.00%	0.00%	0.00%⁽²⁾



Government & High Quality Bond, Income, and Short-Term Income Funds
	Class A Sales Charge as % of
Amount of Purchase	Offering Price	Amount Invested	Dealer Allowance as of % of Offering Price
Less than $100,000	2.25%	2.30%	2.00%
$100,000 but less than $250,000	1.75%	1.78%	1.50%
$250,000 but less than $500,000	1.25%	1.27%	1.00%
$500,000 or more	0.00%	0.00%	0.00%⁽²⁾



LargeCap S&P 500 Index Fund
	Class A Sales Charge as % of
Amount of Purchase	Offering Price	Amount Invested	Dealer Allowance as of % of Offering Price
Less than $50,000	1.50%	1.52%	1.25%
$50,000 but less than $100,000	1.25%	1.27%	1.00%
$100,000 but less than $250,000	1.00%	1.01%	0.75%
$250,000 but less than $500,000	0.75%	0.76%	0.50%
$500,000 but less than $1,000,000	0.50%	0.50%	0.25%
$1,000,000 or more	0.00%	0.00%	0.25%



All other Funds (except Money Market Fund⁽⁴⁾)
	Class A Sales Charge as % of
Amount of Purchase	Offering Price	Amount Invested	Dealer Allowance as of % of Offering Price
Less than $50,000	5.50%	5.82%	4.75%
$50,000 but less than $100,000	4.75%	4.99%	4.00%
$100,000 but less than $250,000	3.75%	3.90%	3.00%
$250,000 but less than $500,000	3.00%	3.09%	2.50%
$500,000 but less than $1,000,000	2.00%	2.04%	1.75%
$1,000,000 or more	0.00%	0.00%	0.00%⁽³⁾


⁽¹⁾	Because of rounding in the calculation of the offering price, the actual maximum front-end sales charge paid by an investor may be higher or lower than the percentages noted above.

⁽²⁾

The Distributor may pay authorized dealers commissions on purchases of Class A shares over $500,000 calculated as follows: 1.00% on purchases between $500,000 and $4,999,999, 0.50% on purchases between $5 million and $49,999,999, and 0.25% on purchases of $50 million or more. The commission rate is determined based on the cumulative investments over the life of the account combined with the investments in existing Classes A, C, and J shares.

⁽³⁾

The Distributor may pay authorized dealers commissions on purchases of Class A shares over $1 million calculated as follows: 1.00% on purchases between $1,000,000 and $4,999,999, 0.50% on purchases between $5 million and $49,999,999, and 0.25% on purchases of $50 million or more. The commission rate is determined based on the cumulative investments over the life of the account combined with the investments in existing Classes A, C, and J shares.


⁽⁴⁾	There is no sales charge on purchases of Class A shares of the Money Market Fund.

Initial Sales Charge Waiver or Reduction

Class A shares of the Funds may be purchased without a sales charge or at a reduced sales charge. The availability of certain sales charge waivers and reductions will depend on whether you purchase your shares directly from the Fund or through a financial intermediary. Intermediaries may have different policies and procedures regarding the availability of initial (front-end) sales charge waivers or contingent deferred (back-end) sales charge (“CDSC”) waivers, which are

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discussed below. In all instances, it is your responsibility to notify the Fund or your financial intermediary at the time of purchase of any relationship or other facts qualifying you for sales charge waivers or reductions. For waivers and reductions not available through a particular intermediary, you will have to purchase Fund shares directly from the Fund or through another intermediary to receive these waivers or reductions.

Initial Sales Charge Waiver - if purchasing shares directly from the Fund or intermediaries other than Merrill Lynch:


•	No initial sales charge will apply to purchases of Fund shares if the purchase is of sufficient size as disclosed in the preceding “Class A Sales Charges” table.


•	You may reinvest the Funds' Class A share redemption proceeds without a sales charge within 90 days of the redemption, if you previously paid a sales charge. Shares invested directly within the Class A Money Market Fund are not eligible for this waiver; however, shares in the Money Market Fund that were obtained by exchange of another Fund that imposed an initial sales charge are eligible.


•	A Fund’s Class A shares may be purchased without an initial sales charge by the following individuals, groups, and/or entities:

•

current and former Directors of Principal Funds, member companies of Principal®, and their active or retired employees, officers, directors, brokers, or agents (for the life of the account). This also includes their immediate family members (spouse, domestic partner, children (regardless of age and including in-laws), and parents, including in-laws) and trusts created by or primarily for the benefit of these individuals;


•	any employee or registered representative (and their immediate family members and employees) of an authorized broker-dealer or company that makes available shares of a Fund;


•	clients investing in Class A shares through a “wrap account” or investment product offered through broker-dealers, registered investment advisors, and other financial institutions under which clients may pay a fee to the broker-dealer, registered investment advisor, or financial institution;


•	any investor who buys Class A shares through an omnibus account held by financial intermediaries, such as a bank, broker-dealer, or other financial institution, and that does not accept or charge the initial sales charge;


•	financial intermediaries who offer shares to self-directed investment brokerage accounts;


•	retirement plans or benefit plans, or participants in such plans, where the plan’s investments in the Fund are part of an omnibus account. For clarification, such plans do not include individual retirement arrangements under IRC Section 408, such as Simplified Employee Pensions (SEP), SIMPLE IRAs or other IRAs; and


•	shareholders who acquired Class A shares of Principal Capital Appreciation Fund through that fund's acquisition of Class J shares of the LargeCap Blend Fund II.


•	The following two bullet points are only applicable to intermediaries that are affiliated with Principal Financial Group, Inc. A Fund’s Class A shares may be purchased without an initial sales charge by the following individuals, groups, and/or entities:

•Premier Credit Union when the shares are owned directly with Principal Funds; and

•non-ERISA clients of Principal Global Investors LLC.

Initial Sales Charge Reduction - if purchasing shares directly from the Fund or intermediaries other than Merrill Lynch:

(1)

Rights of Accumulation. The sales charge varies with the size of your purchase. Purchases made by you, your spouse or domestic partner, your children (including children of your spouse or domestic partner) age 25 or under, and/or a trust created by or primarily for the benefit of such persons (together “a Qualified Purchaser”) will be combined along with the value of existing Classes A, C, and J shares of Principal Funds owned by such persons, to determine the applicable sales charge. Class A shares of the Money Market Fund are not included in the calculation unless they were acquired in exchange from other Principal Fund shares. If the total amount being invested in the Principal Funds is near a sales charge breakpoint, you should consider increasing the amount invested to take advantage of a lower sales charge.

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(2)

Statement of Intent (SOI). Qualified Purchasers may obtain reduced sales charges by signing an SOI. The SOI is a nonbinding obligation on the Qualified Purchaser to purchase the full amount indicated in the SOI. Purchases made by you, your spouse or domestic partner, or the children of you, your spouse or domestic partner up to and including the age of 25 and/or a trust created by or primarily for the benefit of such persons (together “a Qualified Purchaser”) will be combined along with the value of existing Classes A, C, and J shares of Principal Funds owned by such persons. Purchases of Class A shares of Money Market Fund are not included. The sales charge is based on the total amount to be invested in a 13-month period. If the intended investment is not made (or shares are sold during the 13-month period), sufficient shares will be sold to pay the additional sales charge due. If a shareholder who signs an SOI dies within the 13-month period, no additional front-end sales charge will be required and the SOI will be considered met. An SOI is not available for 401(a) plan purchases.

(3)

The maximum sales charge that applies to purchases of Class A shares by qualified plans administered by Expertplan, Inc. that were previously converted from B share plans is the sales charge that applies to purchases of at least $250,000 but less than $500,000 as described in the sales charge tables; the regular sales charge applies to purchases of $500,000 or more in such accounts and to all purchases of the Global Diversified Income Fund, LargeCap S&P 500 Index Fund, and Short-Term Income Fund shares.

(4)

The maximum sales charge for all purchases made in an account that is included in a SIMPLE IRA, SEP, SAR-SEP, non-qualified deferred compensation, or payroll deduction plan established before March 1, 2002 with Principal Management Corporation as the Funds’ transfer agent, is the sales charge that applies to purchases of at least $100,000 but less than $250,000 as described in the sales charge tables; the regular sales charge applies to purchases of $250,000 or more in such accounts and to all purchases of the Global Diversified Income Fund, LargeCap S&P 500 Index Fund, and Short-Term Income Fund. The reduced sales charge applies to purchases made by or on behalf of participants to such plans who became participants on or before July 28, 2007.

Initial Sales Charge Waiver or Reduction - if purchasing shares from Merrill Lynch:

If you purchase Fund shares through a Merrill Lynch platform or account you will be eligible only for the following initial sales charge waivers and reductions, which differ from those disclosed elsewhere in this prospectus or the SAI.

Initial Sales Charge Waivers on Class A Shares available at Merrill Lynch


•	Employer-sponsored retirement, deferred compensation and employee benefit plans (including health savings accounts) and trusts used to fund those plans, provided that the shares are not held in a commission-based brokerage account and shares are held for the benefit of the plan


•	Shares purchased by or through a 529 Plan


•	Shares purchased through a Merrill Lynch affiliated investment advisory program


•	Shares purchased by third party investment advisors on behalf of their advisory clients through Merrill Lynch’s platform


•	Shares of funds purchased through the Merrill Edge Self-Directed platform


•	Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the same fund (but not any other fund within the fund family)


•	Shares exchanged from Class C (i.e. level-load) shares of the same fund in the month of or following the 10-year anniversary of the purchase date


•	Employees and registered representatives of Merrill Lynch or its affiliates and their family members


•	Directors or Trustees of the Fund, and employees of the Fund’s investment adviser or any of its affiliates, as described in this prospectus


•	Shares purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase occurs within 90 days following the redemption, (2) the redemption and purchase occur in the same account, and (3) redeemed shares were subject to a front-end or deferred sales load (known as Rights of Reinstatement)

455

Initial Sales Charge Reductions Available at Merrill Lynch: Breakpoints, Rights of Accumulation & Letters of Intent


•	Breakpoints as described in this prospectus.

•

Rights of Accumulation (ROA) which entitle shareholders to breakpoint discounts will be automatically calculated based on the aggregated holding of Class A shares and Class C shares of fund family assets held by accounts within the purchaser’s household at Merrill Lynch. Eligible fund family assets not held at Merrill Lynch may be included in the ROA calculation only if the shareholder notifies his or her financial advisor about such assets


•	Letters of Intent (LOI) which allow for breakpoint discounts based on anticipated purchases of Class A shares and Class C shares within a fund family, through Merrill Lynch, over a 13-month period of time

Class C Shares

Purchases of Class C shares are not subject to a front-end sales load. The offering price for Class C shares is the NAV next calculated after receipt of an investor’s order in proper form by the Fund or its servicing agent, with no initial sales charge. The Distributor currently pays authorized dealers commissions of up to 1.00% of the amount invested in Class C shares.

Institutional Class and Classes J, P, R-1, R-2, R-3, R-4, R-5, and R-6 Shares

Purchases of these classes of shares are not subject to a front-end sales load. The offering price for such shares is the NAV next calculated after receipt of an investor’s order in proper form by the Fund or its servicing agent, with no initial sales charge.

One-Time Fee - Contingent Deferred Sales Charge ("CDSC")

If you sell (redeem) shares and the CDSC is imposed, it will reduce the amount of sales proceeds.

The CDSC is based on the lesser of the market value at the time of redemption or the initial purchase price of the shares sold. The CDSC does not apply to shares purchased with reinvested dividends or other distributions. The CDSC is not charged on exchanges. However, the original purchase date of the shares from which an exchange is made determines if the newly acquired shares are subject to the CDSC when they are sold.

If you sell some but not all of the shares in your account, the shares not subject to a CDSC will be sold first. Other shares will be sold in the order purchased (first in, first out). The CDSC does not apply to shares redeemed according to a systematic withdrawal plan limited to no more than 1.00% per month (measured cumulatively for non-monthly plans) of the value of the Fund account at the time, and beginning on the date, the systematic withdrawal plan is established.

Class A Shares

Class A shares purchased in amounts that are of sufficient size to qualify for a 0.00% sales charge, as disclosed in the “Class A Sales Charges” table, are generally subject to a CDSC of 1.00% (0.25% for the LargeCap S&P 500 Index Fund) if the shares are redeemed during the first 12 months after purchase, unless the dealer, at its discretion, has waived the commission. The Distributor may pay authorized dealers commissions up to 1.00% of the price of such purchases.

There is no CDSC on Class A shares of the Money Market Fund that are directly purchased by the shareholder. Class A shares of the Money Market Fund that are obtained through an exchange of another Fund's shares are generally subject to a CDSC of 1.00% on certain redemptions made within 12 months following purchases of Fund shares that are of sufficient size to qualify for a 0.00% sales charge as disclosed in the “Class A Sales Charges” table.

The CDSC generally applicable to redemptions of Class A shares made within 12 months after purchase will not be imposed on redemptions of shares purchased through an omnibus account with certain financial intermediaries, such as a bank or other financial institution, where no sales charge payments were advanced for purchases made through these entities.

Class C Shares

Each initial and subsequent purchase of Class C shares is subject to a CDSC of 1.00% for a period of 12 months from the date of purchase. Shares will be redeemed first from shares purchased through reinvested dividends and capital gain distributions, which are not subject to the CDSC, and then in order of purchase. Within 90 days after the sale of Class C shares, you may reinvest any amount of the sale proceeds in Class C shares and those shares purchased will not be subject to the 12-month CDSC.

456

Class J Shares

If you sell your Class J shares within 18 months of purchase, a CDSC may be imposed on the shares sold. The CDSC, if any, is determined by multiplying by 1.00% the lesser of the market value at the time of redemption or the initial purchase price of the shares sold. Within 90 days after the sale of J shares, you may reinvest the amount of the sale proceeds into any Principal Funds Class J shares fund; shares purchased by redemption proceeds are not subject to the eighteen-month CDSC.

Institutional Class and Classes P, R-1, R-2, R-3, R-4, R-5, and R-6 Shares

These share classes are not subject to a CDSC.

CDSC Waiver

The CDSC may be waived on Classes A, C, and J shares of the Funds; waivers vary depending on how shares are purchased. Certain waivers and reductions apply when shares are purchased directly from the Fund; others apply when shares are purchased through an intermediary. Different intermediaries have differing waivers or reductions.

CDSC Waiver - if purchasing shares directly from the Fund or intermediaries other than Merrill Lynch:

For Classes A, C, and J shares, the CDSC is waived on shares:


•	redeemed within 90 days after an account is re-registered due to a shareholder's death;


•	redeemed to pay surrender fees;


•	redeemed to pay retirement plan fees;


•	redeemed involuntarily from accounts with small balances;


•	redeemed due to the shareholder's disability (as defined by the Internal Revenue Code) provided the shares were purchased before the disability;


•	redeemed from retirement plans to satisfy minimum distribution rules under the Internal Revenue Code;


•	redeemed from a retirement plan to assure the plan complies with the Internal Revenue Code;


•	redeemed from retirement plans qualified under Section 401(a) of the Internal Revenue Code due to the plan participant's death, disability, retirement, or separation from service after attaining age 55;


•	redeemed from retirement plans to satisfy excess contribution rules under the Internal Revenue Code; or


•	redeemed using a systematic withdrawal plan (up to 1% per month (measured cumulatively with respect to non-monthly plans) of the value of the fund account at the time, and beginning on the date, the systematic withdrawal plan begins). (The free withdrawal privilege not used in a calendar year is not added to the free withdrawal privileges for any following year.)

For Class J shares, the CDSC also is waived on shares:


•	redeemed that were purchased pursuant to the Small Amount Force Out program (SAFO); or


•	of the Money Market Fund redeemed within 30 days of the initial purchase if the redemption proceeds are transferred to another Principal IRA, defined as either a fixed or variable annuity issued by Principal Life Insurance Company to fund an IRA, a Principal Bank IRA product, or a WRAP account IRA sponsored by Principal Securities, Inc.

CDSC Waiver - if purchasing shares from Merrill Lynch:

If you purchase Fund shares through a Merrill Lynch platform or account you will be eligible only for the following CDSC waivers, which differ from those disclosed elsewhere in this prospectus or the SAI.

CDSC Waivers on A and C Shares available at Merrill Lynch


•	Death or disability of the shareholder


•	Shares sold as part of a systematic withdrawal plan as described in the Fund’s prospectus


•	Return of excess contributions from an IRA Account


•	Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching age 70½


•	Shares sold to pay Merrill Lynch fees but only if the transaction is initiated by Merrill Lynch


•	Shares acquired through a right of reinstatement


•	Shares held in retirement brokerage accounts, that are exchanged for a lower cost share class due to transfer to a fee based account or platform (applicable to A and C shares only)

Ongoing Fees

The ongoing fees are the operating expenses of a Fund, which are described in the “Annual Fund Operating Expenses” table included in the Summary for each Fund. These expenses reduce the value of each share you own. Because they are ongoing, they increase the cost of investing in the Funds.

457

Each fund of funds, as a shareholder in the underlying fund, bears its pro rata share of the operating expenses incurred by each underlying fund. The investment return of each fund of funds is net of the underlying funds’ operating expenses.

Each of the Funds pays ongoing fees to PGI and others who provide services to the Fund. These fees include:


•	Management Fee (all Classes) – Through the Management Agreement with the Fund, PGI has agreed to provide investment advisory services and corporate administrative services to the Fund.

•

Distribution Fee (Classes A, C, J, R-1, R-2, R-3, and R-4) - Each Fund has adopted a distribution plan under Rule 12b-1 of the Investment Company Act of 1940 for its Classes A (except the Money Market Fund), C, J, R-1, R-2, R-3, and R-4 shares. Under the plan, these classes of each Fund pay a distribution fee based on the average daily NAV of the Fund. These fees pay distribution and other expenses for the sale of Fund shares and for services provided to shareholders. Because they are ongoing fees, over time, these fees may exceed other types of sales charges.


•	Other Expenses (all Classes) - A portion of expenses that are allocated to all classes of the Fund. Other expenses include interest expense, expenses related to fund investments and index licensing fees. Additional examples of other expenses include:

•

Transfer Agent Fee (all Classes) - Principal Shareholder Services, Inc. (“PSS”) has entered into a Transfer Agency Agreement with the Fund under which PSS provides transfer agent services to these classes. For Class J shares, these services are currently provided at a rate that includes a profit; for Classes A, C, P, and Institutional Class shares, these services are currently provided at cost. The Fund does not pay for these services for Classes R-1, R-2, R-3, R-4, R-5, and R-6 shares.


•	Certain Operating Expenses (Institutional Class and Classes A, C, J, P, and R-6) - expenses of registering and qualifying shares for sale, the cost of producing and distributing reports and prospectuses to shareholders of these classes, the cost of shareholder meetings held solely for shareholders of these classes, and other operating expenses of the Fund.


•	Service Fee (Classes R-1, R-2, R-3, R-4, and R-5) - PGI has entered into a Service Agreement with the Fund under which PGI is required to provide certain personal services to shareholders (plan sponsors) and beneficial owners (plan members), such as responding to plan sponsor and plan member inquiries.


•	Administrative Services Fee (Classes R-1, R-2, R-3, R-4, and R-5) - PGI has entered into an Administrative Services Agreement with Principal Funds under which PGI is required to provide shareholder and administrative services for retirement plans and other beneficial owners of Fund shares.


•	Acquired Fund Fees and Expenses (all Classes) – fees and expenses charged by other investment companies in which a Fund invests a portion of its assets.

DISTRIBUTION PLANS AND INTERMEDIARY COMPENSATION

On June 23, 2017, remove all Class P references.

Distribution and/or Service (12b-1) Fees

Principal Funds Distributor, Inc. ("PFD" or the "Distributor") is the distributor for the shares of Principal Funds, Inc. PFD is an affiliate of Principal Life Insurance Company and with it is a subsidiary of Principal Financial Group, Inc. and member of Principal^®.

Principal Funds has adopted a distribution plan pursuant to Rule 12b-1 under the Investment Company Act for each of the Classes A, C, J, R-1, R-2, R-3, and R-4 shares of Principal Funds. Under the 12b-1 Plans, except as noted below, each Fund makes payments from its assets attributable to the particular share class to the Fund's Distributor for distribution-related expenses and for providing services to shareholders of that share class. Payments under the 12b-1 plans are made by the Funds to the Distributor pursuant to the 12b-1 plans regardless of the expenses incurred by the Distributor. When the Distributor receives Rule 12b-1 fees, it may pay some or all of them to intermediaries whose customers are shareholders of the funds for sales support services and for providing services to shareholders of that share class. Intermediaries may include, among others, broker-dealers, registered investment advisors, banks, trust companies, pension plan consultants, retirement plan administrators, and insurance companies. These intermediaries include Principal Securities, Inc., a broker-dealer affiliated with PGI. Because Rule 12b-1 fees are paid out of Fund assets and are ongoing fees, over time they will increase the cost of your investment in the Funds and may cost you more than other types of sales charges.

458

The maximum annual Rule 12b-1 fee for distribution related expenses and/or for providing services to shareholders under each 12b-1 plan (as a percentage of average daily net assets) is:



Share Class	Maximum Annualized Rate 12b-1 Fee
A⁽¹⁾	0.25% (0.15% for LargeCap S&P 500 Index and Short-Term Income Funds)
C	1.00%
J	0.15%
R-1	0.35%
R-2	0.30%
R-3	0.25%
R-4	0.10%

⁽¹⁾ Class A shares of the Money Market Fund are not subject to Rule 12b-1 fees.

The Distributor generally uses Rule 12b-1 fees to finance any activity that is primarily intended to result in the sale of shares and for providing services to shareholders of the share class, and the activities vary depending on the share class. In addition to shareholder services, examples of such sales or distribution related expenses include, but are not limited to:


•	Compensation to salespeople and selected dealers, including ongoing commission payments.


•	Printing of prospectuses and statements of additional information and reports for other than existing shareholders, and preparing and conducting sales seminars.

Examples of services to shareholders include furnishing information as to the status of shareholder accounts, responding to telephone and written inquiries of shareholders, and assisting shareholders with tax information.

Payments under the 12b-1 plans will not automatically terminate for funds that are closed to new investors or to additional purchases by existing shareholders. The fund Board will determine whether to terminate, modify, or leave unchanged the 12b-1 plans when the Board directs the implementation of the closure of a fund.

Classes A and C Shares

Generally, to receive 12b-1 fees from the Distributor, dealers or other intermediaries must be the dealer of record for shares with average daily net assets of at least $100,000. Generally, Class A shares must be held for three months before these fees are paid. In the case of Class C shares, generally these fees are not paid until such shares have been held for twelve months.

Class J Shares

Effective December 31, 2015, the Distributor has contractually agreed to limit the Distribution Fees attributable to Class J normally payable by the Money Market Fund. This waiver is in place through February 28, 2018 and will reduce the Money Market Fund’s Distribution Fees by 0.15%. It is expected that the fee waiver will continue through the period disclosed; however, Principal Funds, Inc. and the Distributor, the parties to the agreement, may agree to terminate the fee waiver prior to the end of the period.

Effective December 31, 2016, Principal Funds Distributor, Inc. (the "Distributor") has voluntarily agreed to limit the Distribution Fees attributable to Class J. The voluntary fee waiver will reduce the Fund's Distribution Fees by 0.03%. The voluntary fee waiver may be revised or terminated at any time without notice to shareholders.

Government & High Quality Bond Fund

The Distributor has voluntarily agreed to limit the Fund's Distribution and/or Service (12b-1) Fees normally payable by the Fund. The limit will maintain the level of Distribution and/or Service (12b-1) Fees (expressed as a percent of average net assets on an annualized basis) not to exceed 0.15% for Class A shares. The voluntary expense limit may be revised or terminated at any time without notice to the shareholders.

Money Market Fund

The Distributor has voluntarily agreed to limit the Fund’s Distribution and/or Service (12b-1) Fees normally payable by the Fund. The expense limit will maintain a level of Distribution and/or Service (12b-1) Fees (expressed as a percent of average net assets on an annualized basis) not to exceed 0.00% for Class C shares. The voluntary expense limit may be revised or terminated at any time without notice to shareholders.

459

Commissions, Finder’s Fees, and Ongoing Payments

See "Choosing a Share Class and The Costs of Investing" for more details.

Class A Shares

All or a portion of the initial sales charge that you pay may be paid by the Distributor to intermediaries selling Class A shares. The Distributor may pay these intermediaries a commission of up to 1.00% on purchases of $1,000,000 or more (or $500,000 or more depending on the Fund purchased), excluding purchases by qualified retirement plans in omnibus accounts which are not subject to initial sales charges.

In lieu of commissions, the Distributor may pay intermediaries a finder’s fee on initial investment by qualified retirement plans in omnibus accounts which are not subject to initial sales charges, provided the selling intermediary notifies the Distributor within 90 days of the initial investment that the transaction is eligible for the payment of a finder’s fee. The finder’s fee on such initial investments may be up to 1.00% on initial investments between $500,000 and $4,999,999, 0.50% on initial investments between $5 million and $49,999,999, 0.25% on initial investments of $50 million or more. Initial investments include transfers, rollovers and other lump sum purchases, excluding ongoing systematic investments, made within 90 days of the initial funding of the account. The intermediary shall, upon request by the Distributor provided within 90 days of the triggering event, refund the finder’s fee to the Distributor to the extent shares are redeemed within 12 months of the initial investment or trading restrictions are placed on the account in accordance with the Funds' frequent trading policy.

Classes A, J, R-1, R-2, R-3, and R-4 Shares

Additionally, the Distributor generally makes ongoing 12b-1 fee payments to your intermediary at a rate that varies by class, as noted above under “Distribution and/or Service (12b-1) Fees."

Class C Shares

The Distributor will pay, at the time of your purchase, a commission to your intermediary equal to 1.00% of your investment. Additionally, the Distributor generally makes ongoing 12b-1 fee payments to your intermediary as noted above under “Distribution and/or Service (12b-1) Fees."

Additional Payments to Intermediaries

Shares of the Fund are sold primarily through intermediaries, such as brokers, dealers, investment advisors, banks, trust companies, pension plan consultants, retirement plan administrators, and insurance companies.

Classes A, C, J, and P Shares

In addition to payments pursuant to 12b-1 plans, sales charges, commissions and finder’s fees, including compensation for referrals, PGI or its affiliates enter into agreements with some intermediaries pursuant to which the intermediaries receive payments for providing services relating to Fund shares. Examples of such services are administrative, networking, recordkeeping, sub-transfer agency and shareholder services. In some situations, the Fund will reimburse PGI or its affiliates for making such payments; in others, the Fund may make such additional payments directly to intermediaries.

PGI or its affiliates may also pay, without reimbursement from the Fund, compensation from their own resources to certain intermediaries that support the distribution of shares of the Fund or provide services to Fund shareholders.

Such additional payments may vary, but generally do not exceed: (a) 0.25% of the current year's sales of Fund shares by that intermediary and/or (b) 0.25% of average net asset value of Fund shares held by clients of such intermediary.

The Distributor and its affiliates may pay a bonus or other consideration or incentive to intermediaries if an employee covered under an employer sponsored benefit program purchases a product from an affiliate of Distributor with the assistance of a registered representative of an affiliate of Distributor, if the intermediary sold the funding vehicle the employer sponsored benefit program utilizes or if the intermediary subsequently became the broker of record with regard to the employer sponsored benefit program.

Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 Shares

In addition to payments pursuant to 12b-1 plans, PGI or its affiliates enter into agreements with some intermediaries pursuant to which the intermediaries receive payments for providing services relating to Fund shares. Examples of such services are administrative, networking, recordkeeping, sub-transfer agency and/or shareholder services. For Classes R-1, R-2, R-3, R-4, and R-5 shares, such compensation is generally paid out of the Service Fees and Administrative Service Fees that are disclosed in this prospectus as Other Expenses. For Institutional Class shares,

460

in some situations the Fund will reimburse PGI or its affiliates for making such payments; in others, the Fund may make such payments directly to the intermediaries.

For Institutional Class shares, such payments may vary, but generally do not exceed: (a) 0.10% of the current year’s sales of Fund shares by that intermediary or (b) 0.10% of the average net asset value of Fund shares held by clients of such intermediary.

Principal Life Insurance Company is one such intermediary that provides services relating to Fund shares held in retirement plans, and it is typically paid some or all of the Service Fees and Administrative Service Fees pertaining to such plans, and it also receives compensation paid by PGI from its own resources.

Institutional Class and Classes A, C, J, P, R-1, R-2, R-3, R-4, and R-5 Shares

The intermediary may pay to its Financial Professionals some or all of the amounts the Distributor and its affiliates pay to the intermediary.

The amounts paid to intermediaries vary by share class and by Fund.

In some cases, the Distributor and its affiliates will provide payments or reimbursements in connection with the costs of conferences, educational seminars, training and marketing efforts related to the Funds. Such activities may be sponsored by intermediaries or the Distributor. The costs associated with such activities may include travel, lodging, entertainment, and meals. In some cases, the Distributor will also provide payment or reimbursement for expenses associated with transactions ("ticket") charges and general marketing expenses.

For more information, see the Statement of Additional Information (SAI).

The payments described in this prospectus may create a conflict of interest by influencing your Financial Professional or your intermediary to recommend the Fund over another investment, or to recommend one share class of the Fund over another share class. Ask your Financial Professional or visit your intermediary's website for more information about the total amounts paid to them by PGI and its affiliates, and by sponsors of other investment companies your Financial Professional may recommend to you.

Your intermediary may charge you additional fees other than those disclosed in this prospectus. Ask your Financial Professional about any fees and commissions they charge.

Class R-6 Shares

Distributor and its affiliates do not pay compensation to intermediaries for distribution or other services for Class R-6 shares. For more information, see the Statement of Additional Information (SAI).

FUND ACCOUNT INFORMATION

On June 23, 2017, remove all Class P references.

Statements

You will receive quarterly statements for the Funds you own, or if you purchase through a third party intermediary, on a periodic basis established by such intermediary. Such statements provide the number and value of shares you own, transactions during the period, dividends declared or paid, and other information. The year-end statement includes information for all transactions that took place during the year. Please review your statement as soon as you receive it. Keep your statements, as you may need them for tax reporting purposes.

Generally, each time you buy, sell, or exchange shares in Principal Funds, you will receive a confirmation shortly thereafter. It summarizes all the key information - what you bought or sold, the amount of the transaction, and other important information.

461

Certain purchases and sales are only included on your quarterly statement. These include accounts:


•	when the only activity during the quarter are:


•	purchases of shares from reinvested dividends and/or capital gains,


•	purchases under an Automatic Investment Plan,


•	sales under a Systematic Withdrawal Plan, or


•	purchases or sales under an Automatic Exchange Election


•	used to fund certain individual retirement or individual pension plans; or


•	established under a payroll deduction plan.

If you need information about your account(s) at other times, you may call us or access your account on the internet.

Orders Placed by Intermediaries

Principal Funds may have an agreement with your intermediary, such as a broker-dealer, third party administrator, or trust company, that permits the intermediary to receive orders on behalf of the Fund until 3 p.m. Central Time. The agreement may include authorization for your intermediary to designate other intermediaries (“sub-designees”) to receive orders on behalf of the Fund on the same terms that apply to the intermediary. In such cases, if your intermediary or a sub-designee receives your order in correct form by 3 p.m. Central Time, transmits it to the Fund, and pays for it in accordance with the agreement, the Fund will price the order at the next net asset value per share it computes after your intermediary or sub-designee received your order.

The time at which the Fund prices orders and the time until which the Fund or your intermediary or sub-designee will accept orders may change in the case of an emergency or if the NYSE closes at a time other than 3 p.m. Central Time.

Transactions through Financial Institutions/Professionals

Financial institutions and dealers may charge their customers a processing or service fee in connection with the purchase or redemption of Fund shares. The amount and applicability of such a fee is determined and disclosed to its customers by each individual financial institution or dealer. Processing or service fees typically are fixed, nominal dollar amounts and are in addition to the sales and other charges described in this prospectus and the SAI.

Your financial institution or dealer will provide you with specific information about any processing or service fees you will be charged.

Telephone and Internet Instructions

The Funds reserve the right to refuse telephone and/or internet instructions. You are liable for a loss resulting from a fraudulent telephone or internet instruction that we reasonably believe is genuine. We use reasonable procedures to assure instructions are genuine. If the procedures are not followed, we may be liable for loss due to unauthorized or fraudulent transactions. The procedures include: recording all telephone instructions, requiring the use of a password (Personal Identification Number) for internet instructions, requesting personal identification information, and sending written confirmation to the shareholder’s address of record.

If you elect telephone privileges, instructions regarding your account(s) may be given to us via the telephone or internet. Your instructions:


•	may be given by calling us;


•	may be given via our website for certain transactions (for security purposes you need a user name and password to use any of the internet services, including viewing your account information on-line. If you don’t have a user name or password, you may obtain one at our website); or


•	may be given to your Financial Professional (a person employed by or affiliated with broker/dealer firms) who will in turn contact us with your instructions.

Instructions received from one owner are binding on all owners. In the case of an account owned by a corporation or trust, instructions received from an authorized person are binding on the corporation/trust unless we have a written notification requiring that more than one authorized person execute written instructions.

462

Signature Guarantees

A signature guarantee may help protect your account against fraud. If required, the signature(s) must be guaranteed by a commercial bank, trust company, credit union, savings and loan, national securities exchange member, or brokerage firm that participates in a Medallion program recognized by the Securities Transfer Association. A signature guaranteed by a notary public or savings bank is not acceptable. We reserve the right to require a signature guarantee on any transaction.



Signature guarantees are required in any of the following circumstances:	A	C	J	Inst	P	R-1	R-2	R-3	R-4	R-5	R-6
if you sell more than $100,000 (in the aggregate) from the Funds	X	X	X
if you sell more than $500,000 (in the aggregate) from the Funds				X	X	X	X	X	X	X	X
if you sell more than $10,000,000 if you have the proceeds sent electronically to a previously authorized U.S. bank account				X
if a sales proceeds check is payable to a party other than the account shareholder(s)				X		X	X	X	X	X	X
if a sales proceeds check is payable to a party other than the account shareholder(s) or Principal Life, Principal Bank, a retirement plan trustee or custodian that has agreed in writing to accept a transfer of assets from the Fund or Principal Securities, Inc. payable through Pershing	X	X	X		X
to change ownership of an account	X	X	X	X	X	X	X	X	X	X	X
to add telephone transaction services and/or wire or ACH redemption privileges to an existing account if there is not a common owner between the bank account and mutual fund account	X	X	X	X	X	X	X	X	X	X	X
to change bank account information designated under an existing telephone withdrawal plan if there is not a common owner between the bank account and mutual fund account	X	X	X	X	X	X	X	X	X	X	X
to wire or ACH to a shareholder’s U.S. bank account not previously authorized or when the request does not include a voided check or deposit slip indicating a common owner between the bank account and mutual fund account	X	X	X	X	X	X	X	X	X	X	X
to exchange or transfer among accounts with different ownership	X	X	X	X	X	X	X	X	X	X	X
to have a sales proceeds check mailed to an address other than the address on the account or to the address on the account if it has been changed within the preceding 15 days	X	X	X	X	X	X	X	X	X	X	X

Reservation of Rights

Principal Funds reserves the right to amend or terminate the special plans described in this prospectus. Shareholders will be notified of any such action to the extent required by law.

Such plans include, for example, automatic investment, systematic withdrawal, waiver of Fund minimums for certain accounts and waiver or reduction of the sales charge or contingent deferred sales charge for certain purchasers.

Classes A, C, and J Shares - Minimum Account Balance

Each Fund has a minimum required account balance of $1000. The Fund reserves the right to redeem all shares in your account if the value of your account falls below $1000. The Fund will mail the redemption proceeds to you. An involuntary redemption of a small account will not be triggered by market conditions alone. The Fund will notify you before involuntarily redeeming your account. You will have 30 days to make an additional investment of an amount that brings your account up to the required minimum. The Funds reserve the right to increase the required minimum.

Householding

To avoid sending duplicate copies of materials to households, mailings for accounts held by members of your household may be combined so that only one copy of each prospectus, annual and semiannual reports will be mailed. In addition, your account information may be included with other householded accounts on the same quarterly and annual statements. The consolidation of these mailings, called householding, benefits Principal Funds and our shareholders through reduced printing and mailing expenses. If you prefer to receive multiple copies of these materials, you may write or call Principal Funds. Householding will be stopped within thirty (30) days after we receive your request.

463

Multiple Translations

This prospectus may be translated into other languages. In the event of any inconsistencies or ambiguity as to the meaning of any word or phrase in a translation, the English text will prevail.

Financial Statements

Shareholders will receive annual financial statements for the Funds, audited by the Funds’ independent registered public accounting firm. Shareholders will also receive a semiannual financial statement that is unaudited.

464

FINANCIAL HIGHLIGHTS

The following financial highlights tables are intended to help you understand the Fund’s financial performance for the periods shown. Certain information reflects returns for a single Fund share. The total returns in each table represent the rate that an investor would have earned or lost each period on an investment in the Fund (assuming reinvestment of all distributions). This information has been audited by Ernst & Young LLP, Independent Registered Public Accounting Firm, whose report, along with each Fund’s financial statements, is included in Principal Funds, Inc. Annual Report to Shareholders for the fiscal year ended October 31, 2016, which is available upon request, and incorporated by reference into the SAI.

To request a free copy of the latest annual or semiannual report for the Fund, you may telephone 1-800-222-5852.

465

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466



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
CALIFORNIA MUNICIPAL FUND
Class A Shares
2016	$10.46	$0.36	$0.21		$0.57		($0.35)		($0.35)		$10.68	5.50 %
2015	10.51	0.41	(0.03	)	0.38		(0.43	)	(0.43	)	10.46	3.67
2014	9.75	0.43	0.74		1.17		(0.41	)	(0.41	)	10.51	12.28
2013	10.45	0.43	(0.69	)	(0.26	)	(0.44	)	(0.44	)	9.75	(2.57	)
2012	9.71	0.43	0.73		1.16		(0.42	)	(0.42	)	10.45	12.18
Class C Shares
2016	10.48	0.26	0.22		0.48		(0.26	)	(0.26	)	10.70	4.60
2015	10.53	0.31	(0.03	)	0.28		(0.33	)	(0.33	)	10.48	2.70
2014	9.77	0.33	0.74		1.07		(0.31	)	(0.31	)	10.53	11.15
2013	10.47	0.33	(0.70	)	(0.37	)	(0.33	)	(0.33	)	9.77	(3.57	)
2012	9.73	0.34	0.73		1.07		(0.33	)	(0.33	)	10.47	11.12
Class P Shares
2016	10.46	0.38	0.21		0.59		(0.38	)	(0.38	)	10.67	5.66
2015(e)	10.48	0.08	0.01		0.09		(0.11	)	(0.11	)	10.46	0.91 (f)

467



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Expenses to Average Net Assets (Excluding Interest Expense and Fees)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$334,431	0.82 %	0.77 %(c)	3.31	%	27.9 %
201,572	0.81	0.78 (c)	3.92		26.6
215,618	0.81	0.77 (c)	4.25		28.7
163,521	0.81	0.77 (c)	4.25		20.4
212,099	0.81	0.77 (c)	4.26		21.9

48,468	1.65	1.60 (c)	2.43		27.9
16,014	1.74	1.71 (c)	2.99		26.6
11,563	1.79	1.75 (c)	3.27		28.7
8,301	1.84	1.80 (c)	3.23		20.4
10,486	1.74	1.70 (c)	3.33		21.9

73,780	0.57 (d)	0.52 (c)(d)	3.48		27.9
6,710	0.68 (d),(g)	0.65 (c),(d),(g)	3.88 (g)		26.6 (g)



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Excludes interest expense and fees paid through inverse floater agreements. See "Operating Policies" in notes to financial statements.
(d)	Reflects Manager's contractual expense limit.
(e)	Period from August 24, 2015, date shares first offered, through October 31, 2015.
(f)	Total return amounts have not been annualized.
(g)	Computed on an annualized basis.

468



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
CALIFORNIA MUNICIPAL FUND
Institutional Shares
2016	$10.46	$0.36	$0.23		$0.59	($0.37)		($0.37)		$10.68	5.68 %
2015(d)	10.62	0.29	(0.12	)	0.17	(0.33	)	(0.33	)	10.46	1.67 (e)

469



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Expenses to Average Net Assets (Excluding Interest Expense Fees)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$5,771	0.65 %(b)	0.60 %(b),(c)	3.32	%	27.9 %
141	0.63 (b),(f)	0.60 (b),(c),(f)	4.09 (f)		26.6 (f)



(a)	Calculated based on average shares outstanding during the period.
(b)	Reflects Manager's contractual expense limit.
(c)	Excludes interest expense and fees paid through inverse floater agreements. See "Operating Policies" in notes to financial statements.
(d)	Period from February 27, 2015, date operations commenced, through October 31, 2015.
(e)	Total return amounts have not been annualized.
(f)	Computed on an annualized basis.

470



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
CORE PLUS BOND FUND
Class A Shares
2016	$10.80	$0.24	$0.23		$0.47		($0.22)		$(0.22)		$11.05	4.40	%
2015	10.97	0.24	(0.17	)	0.07		(0.24	)	(0.24	)	10.80	0.63
2014	10.80	0.23	0.20		0.43		(0.26	)	(0.26	)	10.97	4.02
2013	11.09	0.24	(0.30	)	(0.06	)	(0.23	)	(0.23	)	10.80	(0.52	)
2012	10.63	0.29	0.49		0.78		(0.32	)	(0.32	)	11.09	7.49
Class C Shares
2016	10.80	0.15	0.23		0.38		(0.13	)	(0.13	)	11.05	3.50
2015	10.97	0.14	(0.16	)	(0.02	)	(0.15	)	(0.15	)	10.80	(0.23	)
2014	10.80	0.14	0.19		0.33		(0.16	)	(0.16	)	10.97	3.12
2013	11.09	0.15	(0.30	)	(0.15	)	(0.14	)	(0.14	)	10.80	(1.33	)
2012	10.63	0.20	0.50		0.70		(0.24	)	(0.24	)	11.09	6.63

471



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Expenses to Average Net Assets (Excluding Interest Expense and Fees)	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$95,813	0.88 %(c)	N/A	2.20 %	168.4 %
96,057	0.88 (c)	N/A	2.16	208.3
101,747	0.88 (c)	N/A	2.15	204.5
106,666	0.94 (c)	N/A	2.16	205.6
127,605	0.94 (c)	N/A	2.65	218.6

9,228	1.75 (c)	N/A	1.33	168.4
7,020	1.75 (c)	N/A	1.28	208.3
6,654	1.75 (c)	N/A	1.28	204.5
6,967	1.75 (c)	N/A	1.35	205.6
8,861	1.75 (c)	N/A	1.82	218.6



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.

472



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
CORE PLUS BOND FUND
Class J Shares
2016	$10.87	$0.25	$0.23		$0.48		($0.23)		($0.23)		$11.12	4.46 %(c)
2015	11.03	0.23	(0.15	)	0.08		(0.24	)	(0.24)		10.87	0.71 (c)
2014	10.86	0.23	0.19		0.42		(0.25	)	(0.25)		11.03	3.95 (c)
2013	11.16	0.24	(0.31	)	(0.07	)	(0.23	)	(0.23)		10.86	(0.61)(c)
2012	10.69	0.28	0.51		0.79		(0.32	)	(0.32	)	11.16	7.49 (c)
Institutional Shares
2016	10.79	0.28	0.23		0.51		(0.26	)	(0.26	)	11.04	4.80
2015	10.96	0.28	(0.17	)	0.11		(0.28	)	(0.28	)	10.79	1.01
2014	10.79	0.27	0.20		0.47		(0.30	)	(0.30	)	10.96	4.40
2013	11.09	0.28	(0.30	)	(0.02	)	(0.28	)	(0.28	)	10.79	(0.20	)
2012	10.62	0.33	0.51		0.84		(0.37	)	(0.37	)	11.09	8.04
R-1 Shares
2016	10.79	0.19	0.23		0.42		(0.17	)	(0.17	)	11.04	3.89
2015	10.96	0.18	(0.16	)	0.02		(0.19	)	(0.19	)	10.79	0.14
2014	10.79	0.18	0.19		0.37		(0.20	)	(0.20	)	10.96	3.49
2013	11.09	0.19	(0.31	)	(0.12	)	(0.18	)	(0.18	)	10.79	(1.07	)
2012	10.62	0.24	0.50		0.74		(0.27	)	(0.27	)	11.09	7.10
R-2 Shares
2016	10.69	0.20	0.22		0.42		(0.18	)	(0.18	)	10.93	3.98
2015	10.86	0.19	(0.16	)	0.03		(0.20	)	(0.20	)	10.69	0.28
2014	10.70	0.19	0.19		0.38		(0.22	)	(0.22	)	10.86	3.57
2013	10.99	0.20	(0.29	)	(0.09	)	(0.20	)	(0.20	)	10.70	(0.85	)
2012	10.53	0.25	0.50		0.75		(0.29	)	(0.29	)	10.99	7.21
R-3 Shares
2016	10.73	0.22	0.23		0.45		(0.20	)	(0.20	)	10.98	4.24
2015	10.90	0.21	(0.16	)	0.05		(0.22	)	(0.22	)	10.73	0.45
2014	10.74	0.21	0.19		0.40		(0.24	)	(0.24	)	10.90	3.74
2013	11.03	0.22	(0.29	)	(0.07	)	(0.22	)	(0.22	)	10.74	(0.67	)
2012	10.57	0.27	0.50		0.77		(0.31	)	(0.31	)	11.03	7.37
R-4 Shares
2016	10.93	0.24	0.24		0.48		(0.22	)	(0.22	)	11.19	4.44
2015	11.10	0.24	(0.17	)	0.07		(0.24	)	(0.24	)	10.93	0.63
2014	10.92	0.24	0.20		0.44		(0.26	)	(0.26	)	11.10	4.05
2013	11.22	0.24	(0.30	)	(0.06	)	(0.24	)	(0.24	)	10.92	(0.57	)
2012	10.74	0.29	0.52		0.81		(0.33	)	(0.33	)	11.22	7.64

473



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$157,791	0.79	%	0.82	%	2.29	%	168.4	%
157,975	0.89		0.92		2.14		208.3
166,719	0.92		0.96		2.11		204.5
173,945	0.94		1.14		2.17		205.6
201,223	0.99		1.20		2.60		218.6

3,630,319	0.50		—		2.58		168.4
3,861,879	0.50		—		2.53		208.3
3,556,478	0.52 (d)		—		2.49		204.5
1,925,899	0.52 (d)		—		2.58		205.6
1,828,579	0.53 (d)		—		3.04		218.6

5,354	1.38		—		1.70		168.4
6,480	1.38		—		1.67		208.3
4,667	1.40		—		1.64		204.5
5,969	1.40		—		1.71		205.6
11,645	1.41		—		2.18		218.6

10,445	1.25		—		1.83		168.4
11,029	1.25		—		1.79		208.3
10,799	1.27		—		1.77		204.5
14,978	1.27		—		1.83		205.6
19,392	1.28		—		2.32		218.6

26,396	1.07		—		2.01		168.4
30,643	1.07		—		1.97		208.3
27,332	1.09		—		1.95		204.5
32,743	1.09		—		2.01		205.6
38,896	1.10		—		2.50		218.6

21,651	0.88		—		2.20		168.4
23,662	0.88		—		2.16		208.3
27,091	0.90		—		2.14		204.5
30,315	0.90		—		2.20		205.6
37,187	0.91		—		2.67		218.6



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Reflects Manager's contractual expense limit.

474



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
CORE PLUS BOND FUND
R-5 Shares
2016	$10.74	$0.25	$0.23		$0.48		($0.23)		($0.23)		$10.99	$4.56
2015	10.91	0.25	(0.17	)	0.08		(0.25	)	(0.25	)	10.74	0.76
2014	10.75	0.24	0.19		0.43		(0.27	)	(0.27	)	10.91	4.06
2013	11.04	0.25	(0.29	)	(0.04	)	(0.25	)	(0.25	)	10.75	(0.37	)
2012	10.58	0.30	0.50		0.80		(0.34	)	(0.34	)	11.04	7.70

475



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$58,656	76	%	-%	2.32	%	168.4	%
60,816	0.76		—	2.29		208.3
46,871	0.78		—	2.26		204.5
44,281	0.78		—	2.32		205.6
70,930	0.79		—	2.79		218.6



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Reflects Manager's contractual expense limit.

476



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
DIVERSIFIED INTERNATIONAL FUND
Class A Shares
2016	$11.55	$0.13	($0.22)		($0.09)		($0.11)		($0.11)		$11.35	(0.78)%
2015	11.96	0.15	(0.44	)	(0.29	)	(0.12	)	(0.12	)	11.55	(2.39)
2014	11.79	0.13	0.22		0.35		(0.18	)	(0.18	)	11.96	2.94
2013	9.88	0.14	1.93		2.07		(0.16	)	(0.16	)	11.79	21.15
2012	9.41	0.16	0.41		0.57		(0.10	)	(0.10	)	9.88	6.13
Class C Shares
2016	11.51	0.06	(0.23	)	(0.17	)	(0.04	)	(0.04	)	11.30	(1.49)
2015	11.91	0.06	(0.43	)	(0.37	)	(0.03	)	(0.03	)	11.51	(3.12)
2014	11.77	0.04	0.21		0.25		(0.11	)	(0.11	)	11.91	2.10
2013	9.86	0.07	1.93		2.00		(0.09	)	(0.09	)	11.77	20.47
2012	9.38	0.10	0.41		0.51		(0.03	)	(0.03	)	9.86	5.47
Class P Shares
2016	11.48	0.16	(0.21	)	(0.05	)	(0.15	)	(0.15	)	11.28	(0.46	)
2015	11.90	0.19	(0.44	)	(0.25	)	(0.17	)	(0.17	)	11.48	(2.11	)
2014	11.74	0.17	0.21		0.38		(0.22	)	(0.22	)	11.90	3.25
2013	9.85	0.19	1.90		2.09		(0.20	)	(0.20	)	11.74	21.55
2012	9.38	0.20	0.41		0.61		(0.14	)	(0.14	)	9.85	6.67

477



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$221,880	1.36 %	1.21	%	48.2 %
242,162	1.35	1.28		51.7
255,248	1.33	1.10		67.0
263,419	1.40	1.34		76.9
235,602	1.49	1.67		74.2

13,511	2.08 (c)	0.51		48.2
14,376	2.08 (c)	0.55		51.7
13,125	2.08 (c)	0.36		67.0
12,440	2.08 (c)	0.64		76.9
9,787	2.08 (c)	1.08		74.20

6,566	1.03 (c)	1.48		48.2
3,992	1.03 (c)	1.59		51.7
4,487	1.03 (c)	1.40		67.0
1,656	1.04 (c)	1.73		76.9
862	1.06 (c)	2.15		74.2



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.

478



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
DIVERSIFIED INTERNATIONAL FUND
Class J Shares
2016	$11.43	$0.15	($0.23)		($0.08)		($0.12)		($0.12)		$11.23	(0.66)%(c)
2015	11.83	0.16	(0.43	)	(0.27	)	(0.13	)	(0.13	)	11.43	(2.26)(c)
2014	11.67	0.14	0.21		0.35		(0.19	)	(0.19	)	11.83	2.98 (c)
2013	9.77	0.15	1.92		2.07		(0.17	)	(0.17	)	11.67	21.40 (c)
2012	9.31	0.16	0.41		0.57		(0.11	)	(0.11	)	9.77	6.23 (c)
Institutional Shares
2016	11.53	0.19	(0.23	)	(0.04	)	(0.17	)	(0.17	)	11.32	(0.34	)
2015	11.94	0.21	(0.44	)	(0.23	)	(0.18	)	(0.18	)	11.53	(1.90	)
2014	11.77	0.19	0.21		0.40		(0.23	)	(0.23	)	11.94	3.45
2013	9.87	0.20	1.92		2.12		(0.22	)	(0.22	)	11.77	21.79
2012	9.40	0.21	0.41		0.62		(0.15	)	(0.15	)	9.87	6.76
R-1 Shares
2016	11.48	0.09	(0.23	)	(0.14	)	(0.06	)	(0.06	)	11.28	(1.20	)
2015	11.87	0.11	(0.43	)	(0.32	)	(0.07	)	(0.07	)	11.48	(2.80)(d)
2014	11.70	0.09	0.20		0.29		(0.12	)	(0.12	)	11.87	2.56 (d)
2013	9.80	0.11	1.91		2.02		(0.12	)	(0.12	)	11.70	20.82
2012	9.33	0.13	0.40		0.53		(0.06	)	(0.06	)	9.80	5.81
R-2 Shares
2016	11.43	0.11	(0.22	)	(0.11	)	(0.07	)	(0.07	)	11.25	(0.99	)
2015	11.83	0.12	(0.43	)	(0.31	)	(0.09	)	(0.09	)	11.43	(2.64	)
2014	11.67	0.09	0.21		0.30		(0.14	)	(0.14	)	11.83	2.60
2013	9.77	0.12	1.92		2.04		(0.14	)	(0.14	)	11.67	21.04
2012	9.30	0.14	0.40		0.54		(0.07	)	(0.07	)	9.77	5.92
R-3 Shares
2016	11.48	0.13	(0.22	)	(0.09	)	(0.10	)	(0.10	)	11.29	(0.79	)
2015	11.89	0.14	(0.44	)	(0.30	)	(0.11	)	(0.11	)	11.48	(2.54	)
2014	11.72	0.12	0.22		0.34		(0.17	)	(0.17	)	11.89	2.89
2013	9.83	0.14	1.91		2.05		(0.16	)	(0.16	)	11.72	21.11
2012	9.35	0.16	0.41		0.57		(0.09	)	(0.09	)	9.83	6.24
R-4 Shares
2016	11.66	0.15	(0.23	)	(0.08	)	(0.12	)	(0.12	)	11.46	(0.65	)
2015	12.07	0.17	(0.45	)	(0.28	)	(0.13	)	(0.13	)	11.66	(2.30	)
2014	11.90	0.14	0.22		0.36		(0.19	)	(0.19	)	12.07	3.05
2013	9.97	0.16	1.95		2.11		(0.18	)	(0.18	)	11.90	21.44
2012	9.49	0.18	0.41		0.59		(0.11	)	(0.11	)	9.97	6.35

479



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$164,531	1.17	%	1.20	%	1.40	%	48.2	%
181,039	1.25		1.28		1.38		51.7
200,044	1.26		1.30		1.16		67.0
204,288	1.30		1.50		1.43		76.9
183,831	1.40		1.59		1.76		74.2

7,449,362	0.85		–		1.73		48.2
5,579,231	0.85		–		1.75		51.7
4,849,850	0.85		–		1.58		67.0
4,208,838	0.87		0.87		1.89		76.9
2,833,609	0.89		0.89		2.25		74.2

4,570	1.72		–		0.83		48.2
5,298	1.73		–		0.89		51.7
6,020	1.73		–		0.72		67.0
7,021	1.74		–		0.99		76.9
7,944	1.76		–		1.42		74.2

5,778	1.59		–		1.04		48.2
6,922	1.60		–		1.01		51.7
9,816	1.60		–		0.79		67.0
12,328	1.61		–		1.13		76.9
13,572	1.63		–		1.54		74.2

27,288	1.41		–		1.16		48.2
37,260	1.42		–		1.18		51.7
50,493	1.42		–		1.00		67.0
56,229	1.43		–		1.30		76.9
53,185	1.45		–		1.70		74.2

36,763	1.22		–		1.32		48.2
36,818	1.23		–		1.39		51.7
41,798	1.23		–		1.17		67.0
51,609	1.24		–		1.51		76.9
41,896	1.26		–		1.91		74.2



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

480



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
DIVERSIFIED INTERNATIONAL FUND
R-5 Shares
2016	$11.64	$0.16	($0.22)		($0.06)		($0.14)		($0.14)		$11.44	(0.52	)%
2015	12.05	0.18	(0.44	)	(0.26	)	(0.15	)	(0.15	)	11.64	(2.16	)
2014	11.88	0.16	0.22		0.38		(0.21	)	(0.21	)	12.05	3.18
2013	9.96	0.17	1.94		2.11		(0.19	)	(0.19	)	11.88	21.51
2012	9.48	0.19	0.41		0.60		(0.12	)	(0.12	)	9.96	6.50

481



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$61,816	1.10	%	-%	1.45	%	48.2	%
70,739	1.11		–	1.51		51.7
79,982	1.11		–	1.33		67.0
81,793	1.12		–	1.60		76.9
80,363	1.14		–	2.00		74.2



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

482



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
EQUITY INCOME FUND
Class A Shares
2016	$25.80	$0.56	$0.86		$1.42		($0.53)		($0.53)		$26.69	5.56 %
2015	26.27	0.54	(0.50	)	0.04		(0.51	)	(0.51	)	25.80	0.16
2014	23.14	0.56	3.04		3.60		(0.47	)	(0.47	)	26.27	15.66
2013	19.47	0.55	3.65		4.20		(0.53	)	(0.53	)	23.14	21.87
2012	17.57	0.50	1.87		2.37		(0.47	)	(0.47	)	19.47	13.64
Class C Shares
2016	25.22	0.36	0.83		1.19		(0.34	)	(0.34	)	26.07	4.76
2015	25.69	0.34	(0.49	)	(0.15	)	(0.32	)	(0.32	)	25.22	(0.57	)
2014	22.65	0.37	2.96		3.33		(0.29	)	(0.29	)	25.69	14.79
2013	19.07	0.38	3.58		3.96		(0.38	)	(0.38	)	22.65	21.01
2012	17.22	0.35	1.84		2.19		(0.34	)	(0.34	)	19.07	12.83
Class P Shares
2016	25.81	0.63	0.86		1.49		(0.61	)	(0.61	)	26.69	5.84
2015	26.28	0.62	(0.50	)	0.12		(0.59	)	(0.59	)	25.81	0.45
2014	23.15	0.62	3.05		3.67		(0.54	)	(0.54	)	26.28	15.99
2013	19.47	0.61	3.66		4.27		(0.59	)	(0.59	)	23.15	22.27
2012	17.57	0.54	1.88		2.42		(0.52	)	(0.52	)	19.47	13.91

483



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$891,633	0.91 %	2.15 %	16.4 %
942,277	0.91	2.06	15.8
990,916	0.89	2.26	14.5
916,224	0.93	2.57	16.4
709,464	0.96	2.66	23.5

181,177	1.65	1.41	16.4
189,402	1.64	1.32	15.8
191,198	1.63	1.51	14.5
160,568	1.66	1.83	16.4
112,082	1.70	1.93	23.5

131,759	0.60 (c)	2.45	16.4
125,785	0.62 (c)	2.35	15.8
130,436	0.62 (c)	2.50	14.5
82,839	0.63 (c)	2.83	16.4
50,045	0.70 (c)	2.89	23.5



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.

484



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
EQUITY INCOME FUND
Institutional Shares
2016	$25.83	$0.66	$0.86		$1.52		($0.63)		($0.63)		$26.72	5.96	%
2015	26.30	0.64	(0.50	)	0.14		(0.61	)	(0.61	)	25.83	0.55
2014	23.17	0.65	3.04		3.69		(0.56	)	(0.56	)	26.30	16.08
2013	19.49	0.64	3.65		4.29		(0.61	)	(0.61	)	23.17	22.39
2012	17.59	0.58	1.87		2.45		(0.55	)	(0.55	)	19.49	14.10
R-1 Shares
2016	25.71	0.44	0.84		1.28		(0.39	)	(0.39	)	26.60	5.02
2015	26.17	0.41	(0.49	)	(0.08	)	(0.38	)	(0.38	)	25.71	(0.29	)
2014	23.06	0.45	3.00		3.45		(0.34	)	(0.34	)	26.17	15.06
2013	19.40	0.45	3.64		4.09		(0.43	)	(0.43	)	23.06	21.36
2012	17.52	0.42	1.86		2.28		(0.40	)	(0.40	)	19.40	13.09
R-2 Shares
2016	25.79	0.47	0.85		1.32		(0.43	)	(0.43	)	26.68	5.17
2015	26.26	0.45	(0.51	)	(0.06	)	(0.41	)	(0.41	)	25.79	(0.21	)
2014	23.13	0.47	3.04		3.51		(0.38	)	(0.38	)	26.26	15.25
2013	19.46	0.48	3.65		4.13		(0.46	)	(0.46	)	23.13	21.48
2012	17.57	0.43	1.89		2.32		(0.43	)	(0.43	)	19.46	13.29
R-3 Shares
2016	25.73	0.51	0.85		1.36		(0.48	)	(0.48	)	26.61	5.35
2015	26.19	0.50	(0.50	)	–		(0.46	)	(0.46	)	25.73	0.01
2014	23.07	0.51	3.03		3.54		(0.42	)	(0.42	)	26.19	15.47
2013	19.41	0.51	3.65		4.16		(0.50	)	(0.50	)	23.07	21.72
2012	17.53	0.46	1.88		2.34		(0.46	)	(0.46	)	19.41	13.45
R-4 Shares
2016	25.77	0.56	0.85		1.41		(0.53	)	(0.53	)	26.65	5.54
2015	26.24	0.54	(0.49	)	0.05		(0.52	)	(0.52	)	25.77	0.18
2014	23.12	0.56	3.03		3.59		(0.47	)	(0.47	)	26.24	15.64
2013	19.45	0.55	3.66		4.21		(0.54	)	(0.54	)	23.12	21.94
2012	17.56	0.49	1.89		2.38		(0.49	)	(0.49	)	19.45	13.70
R-5 Shares
2016	25.81	0.60	0.84		1.44		(0.56	)	(0.56	)	26.69	5.66
2015	26.28	0.58	(0.50	)	0.08		(0.55	)	(0.55	)	25.81	0.30
2014	23.15	0.59	3.04		3.63		(0.50	)	(0.50	)	26.28	15.81
2013	19.47	0.59	3.65		4.24		(0.56	)	(0.56	)	23.15	22.11
2012	17.58	0.51	1.89		2.40		(0.51	)	(0.51	)	19.47	13.81

485



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$3,973,961	0.52	%	2.53	%	16.4	%
3,921,558	0.52		2.44		15.8
4,325,786	0.52		2.63		14.5
3,791,024	0.52		2.99		16.4
3,105,517	0.52		3.09		23.5

1,987	139		1.71		16.4
3,194	1.39		1.57		15.8
3,135	1.39		1.81		14.5
3,661	1.39		2.11		16.4
2,790	1.39		2.24		23.5

5,036	1.26		1.81		16.4
5,605	1.26		1.71		15.8
7,068	1.26		1.90		14.5
8,608	1.26		2.27		16.4
7,317	1.26		2.29		23.5

58,084	1.08		1.99		16.4
68,044	1.08		1.89		15.8
80,594	1.08		2.06		14.5
72,261	1.08		2.39		16.4
44,323	1.08		2.47		23.5

46,986	0.89		2.18		16.4
56,958	0.89		2.07		15.8
54,861	0.89		2.26		14.5
50,967	0.89		2.59		16.4
31,695	0.89		2.61		23.5

99,310	0.77		2.33		16.4
165,486	0.77		2.19		15.8
168,487	0.77		2.37		14.5
142,322	0.77		2.73		16.4
106,715	0.77		2.71		23.5



(a)	Calculated based on average shares outstanding during the period.

486



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
FINISTERRE UNCONSTRAINED EMERGING MARKETS BOND FUND
Class A Shares
2016(c)	$10.00	$0.13	$0.13	$0.26	($0.12)		($0.12)		$10.14	2.56 %(d)
Class P Shares
2016(c)	10.00	0.14	0.13	0.27	(0.12	)	(0.12	)	10.15	2.66 (d)

487



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$101	1.47 %(e),(f)	4.23 %(e)	511.0 %(e)

102	1.15 (e),(f)	4.55 (e)	511.0 (e)



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Period from July 11, 2016, date shares first offered, through October 31, 2016.
(d)	Total return amounts have not been annualized.
(e)	Computed on an annualized basis.
(f)	Reflects Manager's contractual expense limit.

488



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income	Total Dividends and Distributions	Net Asset Value, End of Period	Total Return
FINISTERRE UNCONSTRAINED EMERGING MARKETS BOND FUND
Institutional shares
2016(b)	$10.00	$0.14	$0.13	$0.27	($0.12)	($0.12)	$10.15	2.66 %(c)

489



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$25,181	1.12 %(d),(e)	4.58 %(d)	511.0 %(d)



(a)	Calculated based on average shares outstanding during the period.
(b)	Period from July 11, 2016, date operations commenced, through October 31, 2016.
(c)	Total return amounts have not been annualized.
(d)	Computed on an annualized basis.
(e)	Reflects Manager's contractual expense limit.

490



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
GLOBAL DIVERSIFIED INCOME FUND
Class A Shares
2016	$13.59	$0.70	$0.14		$0.84		($0.71)		$–		($0.71)		$13.72	6.50 %
2015	14.76	0.65	(0.86	)	(0.21	)	(0.61	)	(0.35	)	(0.96	)	13.59	(1.49)
2014	14.23	0.63	0.51		1.14		(0.61	)	–		(0.61	)	14.76	8.18
2013	14.14	0.67	0.20		0.87		(0.66	)	(0.12	)	(0.78	)	14.23	6.40
2012	12.98	0.76	1.16		1.92		(0.72	)	(0.04	)	(0.76	)	14.14	15.25
Class C Shares
2016	13.51	0.60	0.14		0.74		(0.61	)	–		(0.61	)	13.64	5.67 (e)
2015	14.69	0.54	(0.87	)	(0.33	)	(0.50	)	(0.35	)	(0.85	)	13.51	(2.17)(e)
2014	14.17	0.52	0.51		1.03		(0.51	)	–		(0.51	)	14.69	7.27 (e)
2013	14.08	0.55	0.22		0.77		(0.56	)	(0.12	)	(0.68	)	14.17	5.65
2012	12.93	0.66	1.15		1.81		(0.62	)	(0.04	)	(0.66	)	14.08	14.39
Class P Shares
2016	13.52	0.74	0.14		0.88		(0.75	)	–		(0.75	)	13.65	6.83
2015	14.69	0.69	(0.87	)	(0.18	)	(0.64	)	(0.35	)	(0.99	)	13.52	(1.25	)
2014	14.17	0.66	0.51		1.17		(0.65	)	–		(0.65	)	14.69	8.43
2013	14.09	0.69	0.21		0.90		(0.70	)	(0.12	)	(0.82	)	14.17	6.63
2012	12.93	0.79	1.16		1.95		(0.75	)	(0.04	)	(0.79	)	14.09	15.59

491



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Expenses to Average Net Assets (Excluding Dividends and Interest Expense on Short Sales, Short Sale Fees and Reverse Repurchase Agreement Expense)	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$2,088,052	1.19 %	1.09 %(c)	5.28 %	101.1 %
2,353,934	1.09	1.08 (c)	4.64	76.9
2,466,867	1.17 (d)	1.08 (c)	4.33	83.4
2,658,057	1.15 (d)	1.10 (c)	4.71	79.0
2,019,170	1.13 (d)	N/A	5.64	50.8

2,417,920	1.95	1.85 (c)	4.52	101.1
2,677,807	1.85	1.84 (c)	3.88	76.9
2,766,661	1.92 (d)	1.83 (c)	3.56	83.4
2,372,549	1.91 (d)	1.86 (c)	3.94	79.0
1,535,844	1.89 (d)	N/A	4.87	50.8

2,823,066	0.92 (d)	0.82 (c)	5.54	101.1
2,972,152	0.83 (d)	0.82 (c)	4.90	76.9
3,329,928	0.91 (d)	0.82 (c)	4.55	83.4
2,285,742	0.89 (d)	0.84 (c)	4.93	79.0
1,125,168	0.90 (d)	N/A	5.84	50.8



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Excludes dividends and interest expense on short sales and short sale fees and reverse repurchase agreement expense. See "Operating Policies" in notes to financial statements.
(d)	Reflects Manager's contractual expense limit.
(e)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
(f)	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

492



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
GLOBAL DIVERSIFIED INCOME FUND
Institutional Shares
2016	$13.54	$0.74	$0.14		$0.88		($0.76)		$–		($0.76)		$13.66	6.80	%
2015	14.71	0.70	(0.87	)	(0.17	)	(0.65	)	(0.35	)	(1.00	)	13.54	(1.19	)
2014	14.19	0.67	0.51		1.18		(0.66	)	–		(0.66	)	14.71	8.47
2013	14.10	0.71	0.21		0.92		(0.71	)	(0.12	)	(0.83	)	14.19	6.75
2012	12.94	0.81	1.15		1.96		(0.76	)	(0.04	)	(0.80	)	14.10	15.67

493



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Expenses to Average Net Assets (Excluding Dividends and Interest Expense on Shorts, Short Sale Fees and Reverse Repurchase Agreement Expense)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$3,865,786	0.86	%	0.76 %(b)	5.58	%	101.1	%
3,371,424	0.78		0.77 (b)	4.99		76.9
1,383,778	0.86		0.77 (b)	4.59		83.4
876,282	0.83 (c)		0.78 (b)	5.02		79.0
751,759	0.80 (c)		N/A	6.01		50.8



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes dividends and interest expense on short sales and short sale fees. See "Operating Policies" in notes to financial statements.
(c)	Reflects Manager's contractual expense limit.

494



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
GLOBAL REAL ESTATE SECURITIES FUND
Class A Shares
2016	$8.75	$0.11	$(0.16)		$(0.05)		($0.19)		($0.16)		($0.35)		$8.35	(0.50)%
2015	8.72	0.10	0.21		0.31		(0.23	)	(0.05	)	(0.28	)	8.75	3.59
2014	8.30	0.10	0.76		0.86		(0.16	)	(0.28	)	(0.44	)	8.72	11.07
2013	7.83	0.11	0.94		1.05		(0.43	)	(0.15	)	(0.58	)	8.30	13.94
2012	6.72	0.10	1.16		1.26		(0.15	)	–		(0.15	)	7.83	19.08
Class C Shares
2016	8.50	0.04	(0.14	)	(0.10	)	(0.13	)	(0.16	)	(0.29	)	8.11	(1.18)
2015	8.50	0.03	0.20		0.23		(0.18	)	(0.05	)	(0.23	)	8.50	2.75
2014	8.12	0.03	0.74		0.77		(0.11	)	(0.28	)	(0.39	)	8.50	10.08
2013	7.67	0.04	0.93		0.97		(0.37	)	(0.15	)	(0.52	)	8.12	13.19
2012	6.59	0.05	1.14		1.19		(0.11	)	–		(0.11	)	7.67	18.27
Class P Shares
2016	9.31	0.14	(0.16	)	(0.02	)	(0.22	)	(0.16	)	(0.38	)	8.91	(0.21	)
2015	9.25	0.12	0.24		0.36		(0.25	)	(0.05	)	(0.30	)	9.31	3.98
2014	8.78	0.12	0.81		0.93		(0.18	)	(0.28	)	(0.46	)	9.25	11.33
2013	8.24	0.14	1.00		1.14		(0.45	)	(0.15	)	(0.60	)	8.78	14.36
2012	7.07	0.14	1.20		1.34		(0.17	)	–		(0.17	)	8.24	19.37

495



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$164,926	1.32 %	1.26 %	54.7 %
146,690	1.32 (c)	1.11	47.5
102,093	1.32 (c)	1.16	29.3
70,426	1.37 (c)	1.40	52.4
20,896	1.45 (c)	1.46	87.9

51,053	2.11 (c)	0.49	54.7
59,807	2.09 (c)	0.35	47.5
47,399	2.14 (c)	0.33	29.3
24,808	2.20 (c)	0.53	52.4
5,021	2.20 (c)	0.70	87.9

269,828	1.01 (c)	1.56	54.7
226,953	1.03 (c)	1.34	47.5
109,673	1.06 (c)	1.39	29.3
51,000	1.08 (c)	1.61	52.4
6,970	1.09 (c)	1.78	87.9



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.

496



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
GLOBAL REAL ESTATE SECURITIES FUND
Institutional Shares
2016	$9.32	$0.15	$(0.16)		$(0.01)		($0.23)		($0.16)		($0.39)		$8.92	(0.10	)%
2015	9.26	0.14	0.23		0.37		(0.26	)	(0.05	)	(0.31	)	9.32	4.09
2014	8.79	0.14	0.80		0.94		(0.19	)	(0.28	)	(0.47	)	9.26	11.46
2013	8.25	0.16	0.99		1.15		(0.46	)	(0.15	)	(0.61	)	8.79	14.49
2012	7.07	0.15	1.21		1.36		(0.18	)	–		(0.18	)	8.25	19.67
R-3 Shares
2016(c)	8.61	0.06	0.32		0.38		(0.07	)	–		(0.07	)	8.92	4.39 (d)
R-4 Shares
2016(c)	8.61	0.07	0.32		0.39		(0.08	)	–		(0.08	)	8.92	4.48 (d)
R-5 Shares
2016(c)	8.61	0.08	0.32		0.40		(0.08	)	–		(0.08	)	8.93	4.63 (d)
R-6 Shares
2016	9.32	0.14	(0.15	)	(0.01	)	(0.23	)	(0.16	)	(0.39	)	8.92	(0.13	)
2015(f)	9.28	0.12	0.23		0.35		(0.26	)	(0.05	)	(0.31	)	9.32	3.83 (d)

497



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$2,620,500	0.90	%	1.69	%	54.7	%
2,521,188	0.90 (b)		1.55		47.5
2,076,053	0.90 (b)		1.57		29.3
1,470,065	0.92 (b)		1.86		52.4
1,077,821	0.93 (b)		1.92		87.9

21	1.44 (e)		0.96 (e)		54.7 (e)

21	1.25 (e)		1.15 (e)		54.7 (e)

10	1.13 (e)		1.31 (e)		54.7 (e)

1,108	0.94 (b)		1.48		54.7
39	0.94 (b),(e)		1.42 (e)		47.5 (e)



(a)	Calculated based on average shares outstanding during the period.
(b)	Reflects Manager's contractual expense limit.
(c)	Period from March 1, 2016, date operations commenced, through October 31, 2016.
(d)	Total return amounts have not been annualized.
(e)	Computed on an annualized basis.
(f)	Period from November 25, 2014, date operations commenced, through October 31, 2015.

498



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
GOVERNMENT & HIGH QUALITY BOND FUND
Class A Shares
2016	$10.93	$0.32	($0.02)		$0.30		($0.39)		($0.39)		$10.84	2.79 %
2015	11.03	0.26	(0.06	)	0.20		(0.30	)	(0.30	)	10.93	1.80
2014	10.98	0.24	0.13		0.37		(0.32	)	(0.32	)	11.03	3.39
2013	11.37	0.24	(0.31	)	(0.07	)	(0.32	)	(0.32	)	10.98	(0.61	)
2012	11.26	0.31	0.20		0.51		(0.40	)	(0.40	)	11.37	4.58
Class C Shares
2016	10.92	0.23	(0.02	)	0.21		(0.30	)	(0.30	)	10.83	1.91
2015	11.02	0.15	(0.04	)	0.11		(0.21	)	(0.21	)	10.92	0.97
2014	10.97	0.15	0.12		0.27		(0.22	)	(0.22	)	11.02	2.52
2013	11.36	0.15	(0.31	)	(0.16	)	(0.23	)	(0.23	)	10.97	(1.44	)
2012	11.25	0.21	0.20		0.41		(0.30	)	(0.30	)	11.36	3.73
Class P Shares
2016	10.96	0.34	(0.02	)	0.32		(0.40	)	(0.40	)	10.88	2.92
2015	11.05	0.26	(0.04	)	0.22		(0.31	)	(0.31	)	10.96	1.99
2014	11.00	0.25	0.13		0.38		(0.33	)	(0.33	)	11.05	3.47
2013	11.39	0.25	(0.31	)	(0.06	)	(0.33	)	(0.33	)	11.00	(0.52	)
2012	11.28	0.32	0.20		0.52		(0.41	)	(0.41	)	11.39	4.68

499



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Gross Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$312,158	0.81 %	0.91 %(c)	2.89	%	31.4	%
291,241	0.80	0.90 (c)	2.32		31.0
316,531	0.79	0.89 (c)	2.22		32.8
387,828	0.79	0.89 (c)	2.17		41.1
513,204	0.81	0.91 (c)	2.73		52.8

62,811	1.63 (d)	–	2.08		31.4
54,699	1.63 (d)	–	1.40		31.0
59,847	1.63 (d)	–	1.38		32.8
82,486	1.63 (d)	–	1.33		41.1
113,801	1.63 (d)	–	1.90		52.8

34,376	0.66 (d)	–	3.15		31.4
8,300	0.70 (d)	–	2.33		31.0
7,390	0.70 (d)	–	2.32		32.8
10,855	0.70 (d)	–	2.26		41.1
17,803	0.70 (d)	–	2.83		52.8



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Reflects Manager's contractual expense limit.

500



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
GOVERNMENT & HIGH QUALITY BOND FUND
Class J Shares
2016	$10.95	$0.31	($0.02)		$0.29		($0.38)		($0.38)		$10.86	2.72 %(c)
2015	11.05	0.24	(0.05	)	0.19		(0.29)		(0.29)		10.95	1.75 (c)
2014	10.99	0.23	0.13		0.36		(0.30)		(0.30)		11.05	3.37 (c)
2013	11.38	0.23	(0.31	)	(0.08	)	(0.31)		(0.31)		10.99	(0.75)(c)
2012	11.28	0.29	0.19		0.48		(0.38)		(0.38)		11.38	4.28 (c)
Institutional Shares
2016	10.94	0.34	(0.01	)	0.33		(0.42	)	(0.42	)	10.85	3.03
2015	11.04	0.28	(0.05	)	0.23		(0.33	)	(0.33	)	10.94	2.08
2014	10.98	0.27	0.14		0.41		(0.35	)	(0.35	)	11.04	3.77
2013	11.37	0.27	(0.31	)	(0.04	)	(0.35	)	(0.35	)	10.98	(0.33	)
2012	11.27	0.34	0.19		0.53		(0.43	)	(0.43	)	11.37	4.80
R-1 Shares
2016	10.94	0.26	(0.01	)	0.25		(0.33	)	(0.33	)	10.86	2.25 (d)
2015	11.04	0.19	(0.05	)	0.14		(0.24	)	(0.24	)	10.94	1.40 (d)
2014	10.99	0.19	0.12		0.31		(0.26	)	(0.26	)	11.04	2.86
2013	11.38	0.19	(0.31	)	(0.12	)	(0.27	)	(0.27	)	10.99	(1.10	)
2012	11.27	0.26	0.19		0.45		(0.34	)	(0.34	)	11.38	4.07
R-2 Shares
2016	10.94	0.28	(0.01	)	0.27		(0.35	)	(0.35	)	10.86	2.48
2015	11.04	0.21	(0.05	)	0.16		(0.26	)	(0.26	)	10.94	1.44
2014	10.99	0.20	0.12		0.32		(0.27	)	(0.27	)	11.04	3.00
2013	11.38	0.20	(0.31	)	(0.11	)	(0.28	)	(0.28	)	10.99	(0.97	)
2012	11.27	0.27	0.20		0.47		(0.36	)	(0.36	)	11.38	4.21
R-3 Shares
2016	10.94	0.30	(0.01	)	0.29		(0.37	)	(0.37	)	10.86	2.66
2015	11.04	0.23	(0.05	)	0.18		(0.28	)	(0.28	)	10.94	1.62
2014	10.99	0.22	0.12		0.34		(0.29	)	(0.29	)	11.04	3.18
2013	11.38	0.22	(0.31	)	(0.09	)	(0.30	)	(0.30	)	10.99	(0.80	)
2012	11.27	0.29	0.20		0.49		(0.38	)	(0.38	)	11.38	4.40
R-4 Shares
2016	10.95	0.32	(0.02	)	0.30		(0.39	)	(0.39	)	10.86	2.76
2015	11.04	0.25	(0.04	)	0.21		(0.30	)	(0.30	)	10.95	1.90
2014	10.99	0.24	0.13		0.37		(0.32	)	(0.32	)	11.04	3.38
2013	11.38	0.24	(0.31	)	(0.07	)	(0.32	)	(0.32	)	10.99	(0.61	)
2012	11.27	0.31	0.20		0.51		(0.40	)	(0.40	)	11.38	4.59

501



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$139,808	0.82	%	0.86	%	2.88	%	31.4	%
133,414	0.85		0.90		2.19		31.0
135,736	0.89		0.93		2.12		32.8
144,809	0.94		1.14		2.02		41.1
156,522	1.00		1.23		2.53		52.8

922,143	0.53		–		3.16		31.4
1,001,014	0.52		–		2.51		31.0
1,086,207	0.51		–		2.50		32.8
1,098,217	0.51		–		2.45		41.1
1,044,466	0.51		–		3.04		52.8

2,866	1.29 (e)		–		2.41		31.4
2,703	1.29 (e)		–		1.75		31.0
2,480	1.29 (e)		–		1.72		32.8
3,151	1.29 (e)		–		1.67		41.1
3,722	1.29 (e)		–		2.25		52.8

14,622	1.16 (e)		–		2.59		31.4
7,499	1.16 (e)		–		1.87		31.0
4,914	1.16 (e)		–		1.85		32.8
5,207	1.16 (e)		–		1.80		41.1
6,464	1.16 (e)		–		2.39		52.8

14,995	0.98 (e)		–		2.71		31.4
17,243	0.98 (e)		–		2.05		31.0
16,350	0.98 (e)		–		2.03		32.8
17,952	0.98 (e)		–		1.98		41.1
21,930	0.98 (e)		–		2.56		52.8

14,676	0.79 (e)		–		2.94		31.4
10,391	0.79 (e)		–		2.25		31.0
10,900	0.79 (e)		–		2.22		32.8
10,708	0.79 (e)		–		2.17		41.1
11,093	0.79 (e)		–		2.75		52.8



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
(e)	Reflects Manager's contractual expense limit.

502



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
GOVERNMENT & HIGH QUALITY BOND FUND
R-5 Shares
2016	$10.95	$0.33	($0.02)		$0.31		($0.40)		($0.40)		$10.86	2.88	%
2015	11.05	0.26	(0.05	)	0.21		(0.31	)	(0.31	)	10.95	1.93
2014	11.00	0.26	0.12		0.38		(0.33	)	(0.33	)	11.05	3.50
2013	11.39	0.26	(0.32	)	(0.06	)	(0.33	)	(0.33	)	11.00	(0.49	)
2012	11.28	0.32	0.20		0.52		(0.41	)	(0.41	)	11.39	4.72

503



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$24,759	0.67 % (e)	—	%	3.03	%	31.4	%
22,979	0.67 (e)	–		2.36		31.0
20,405	0.67 (e)	–		2.34		32.8
19,242	0.67 (e)	–		2.29		41.1
21,996	0.67 (e)	–		2.87		52.8



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
(e)	Reflects Manager's contractual expense limit.

504



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
HIGH YIELD FUND
Class A Shares
2016	$7.16	$0.40	$0.11		$0.51		($0.43)		$–		($0.43)		$7.24	7.55 %
2015	7.72	0.40	(0.47	)	(0.07	)	(0.41	)	(0.08	)	(0.49	)	7.16	(0.90)
2014	7.94	0.43	(0.03	)	0.40		(0.46	)	(0.16	)	(0.62	)	7.72	5.32
2013	7.84	0.49	0.19		0.68		(0.51	)	(0.07	)	(0.58	)	7.94	8.90
2012	7.72	0.52	0.40		0.92		(0.54	)	(0.26	)	(0.80	)	7.84	12.85
Class C Shares
2016	7.23	0.35	0.11		0.46		(0.38	)	–		(0.38	)	7.31	6.68
2015	7.78	0.35	(0.47	)	(0.12	)	(0.35	)	(0.08	)	(0.43	)	7.23	(1.50)
2014	8.01	0.38	(0.04	)	0.34		(0.41	)	(0.16	)	(0.57	)	7.78	4.42
2013	7.90	0.44	0.19		0.63		(0.45	)	(0.07	)	(0.52	)	8.01	8.18
2012	7.77	0.47	0.40		0.87		(0.48	)	(0.26	)	(0.74	)	7.90	12.07
Class P Shares
2016	7.16	0.42	0.11		0.53		(0.45	)	–		(0.45	)	7.24	7.86
2015	7.72	0.42	(0.48	)	(0.06	)	(0.42	)	(0.08	)	(0.50	)	7.16	(0.73	)
2014	7.94	0.45	(0.02	)	0.43		(0.49	)	(0.16	)	(0.65	)	7.72	5.62
2013	7.84	0.51	0.19		0.70		(0.53	)	(0.07	)	(0.60	)	7.94	9.16
2012	7.72	0.54	0.40		0.94		(0.56	)	(0.26	)	(0.82	)	7.84	13.08

505



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$933,518	0.90 %	5.74 %	42.7 %
1,039,461	0.88	5.42	45.1
1,192,803	0.93	5.53	51.7
1,964,696	0.92	6.21	69.6
1,829,010	0.91	6.84	82.6

382,177	1.65	5.00	42.7
415,004	1.63	4.69	45.1
502,489	1.62	4.82	51.7
552,250	1.63	5.50	69.6
596,620	1.65	6.10	82.6

531,095	0.61 (c)	6.03	42.7
538,738	0.71 (c)	5.59	45.1
1,049,626	0.65 (c)	5.74	51.7
653,980	0.67 (c)	6.45	69.6
583,929	0.71 (c)	7.04	82.6



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.

506



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
HIGH YIELD FUND
Institutional Shares
2016	$7.12	$0.42	$0.10		$0.52		($0.45)		$–		($0.45)		$7.19	7.76	%
2015	7.67	0.42	(0.46	)	(0.04	)	(0.43	)	(0.08	)	(0.51	)	7.12	(0.49	)
2014	7.90	0.46	(0.04	)	0.42		(0.49	)	(0.16	)	(0.65	)	7.67	5.58
2013	7.80	0.51	0.20		0.71		(0.54	)	(0.07	)	(0.61	)	7.90	9.31
2012	7.69	0.55	0.39		0.94		(0.57	)	(0.26	)	(0.83	)	7.80	13.17

507



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Gross Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$1,713,770	0.61 %	0.64 %(b)	6.02 %	42.7 %
1,641,089	0.60	0.60 (b)	5.71	45.1
992,990	0.59	0.59 (b)	5.84	51.7
919,683	0.58	0.59 (b)	6.52	69.6
721,892	0.56	0.59 (b)	7.19	82.6



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager.

508



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
HIGH YIELD FUND I
Class A Shares
2016	$9.64	$0.51	$0.16		$0.67		($0.51)		$–		($0.51)		$9.80	7.31 %
2015	10.49	0.51	(0.75	)	(0.24	)	(0.53	)	(0.08	)	(0.61	)	9.64	(2.37)
2014	10.76	0.54	(0.06	)	0.48		(0.54	)	(0.21	)	(0.75	)	10.49	4.56
2013(d)	10.70	0.36	0.07		0.43		(0.37	)	–		(0.37	)	10.76	4.11 (e)

509



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$5,426	1.05 %(c)	5.36 %	51.5 %
3,981	1.05 (c)	4.96	49.6
2,661	1.05 (c)	5.09	43.2
33,001	1.05 (c),(f)	5.07 (f)	67.0 (f)



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.
(d)	Period from March 1, 2013, date shares first offered, through October 31, 2013.
(e)	Total return amounts have not been annualized.
(f)	Computed on an annualized basis.

510



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
HIGH YIELD FUND I
Institutional Shares
2016	$9.65	$0.54	$0.17		$0.71		($0.55)		$–		($0.55)		$9.81	7.75	%
2015	10.49	0.55	(0.76	)	(0.21	)	(0.55	)	(0.08	)	(0.63	)	9.65	(2.11	)
2014	10.76	0.58	(0.06	)	0.52		(0.58	)	(0.21	)	(0.79	)	10.49	4.99
2013	11.37	0.65	0.27		0.92		(1.22	)	(0.31	)	(1.53	)	10.76	8.72
2012	11.05	0.73	0.54		1.27		(0.73	)	(0.22	)	(0.95	)	11.37	12.65

511



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$958,923	0.66 %	5.76 %	51.5 %
872,382	0.65	5.40	49.6
1,789,770	0.64	5.44	43.2
1,495,205	0.65	6.00	67.0
1,189,513	0.65	6.75	75.0



(a)	Calculated based on average shares outstanding during the period.

512



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
INCOME FUND
Class A Shares
2016	$9.48	$0.27	$0.21		$0.48		($0.32)		($0.32)		$9.64	5.12 %
2015	9.76	0.27	(0.26	)	0.01		(0.29	)	(0.29	)	9.48	0.06
2014	9.65	0.32	0.13		0.45		(0.34	)	(0.34	)	9.76	4.77
2013	9.98	0.34	(0.31	)	0.03		(0.36	)	(0.36	)	9.65	0.36
2012	9.55	0.41	0.45		0.86		(0.43	)	(0.43	)	9.98	9.23
Class C Shares
2016	9.53	0.19	0.21		0.40		(0.24	)	(0.24	)	9.69	4.25
2015	9.81	0.20	(0.27	)	(0.07	)	(0.21	)	(0.21	)	9.53	(0.73)
2014	9.70	0.24	0.13		0.37		(0.26	)	(0.26	)	9.81	3.90
2013	10.03	0.26	(0.30	)	(0.04	)	(0.29	)	(0.29	)	9.70	(0.42)
2012	9.60	0.33	0.45		0.78		(0.35	)	(0.35	)	10.03	8.33
Class P Shares
2016	9.50	0.29	0.21		0.50		(0.34	)	(0.34	)	9.66	5.35
2015	9.78	0.29	(0.26	)	0.03		(0.31	)	(0.31	)	9.50	0.27
2014	9.67	0.33	0.14		0.47		(0.36	)	(0.36	)	9.78	4.94
2013	10.00	0.36	(0.31	)	0.05		(0.38	)	(0.38	)	9.67	0.56
2012	9.57	0.43	0.45		0.88		(0.45	)	(0.45	)	10.00	9.42

513



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$273,241	0.88 %	2.81	%	12.9 %
265,113	0.87	2.82		11.5
272,809	0.86	3.26		11.3
293,396	0.89	3.43		20.7
338,977	0.90	4.2		14.1

66,576	1.69	2.00		12.9
64,349	1.66	2.02		11.5
65,027	1.67	2.45		11.3
73,328	1.67	2.65		20.7
86,409	1.68	3.41		14.1

24,111	0.64 (c)	3.04		12.9
20,563	0.66 (c)	3.02		11.5
25,010	0.68 (c)	3.40		11.3
12,960	0.69 (c)	3.63		20.7
15,196	0.70 (c)	4.37		14.1



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.

514



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
INCOME FUND
Class J Shares
2016	$9.50	$0.28	$0.21		$0.49		($0.33)		($0.33)		$9.66	5.22 %(c)
2015	9.78	0.27	(0.26	)	0.01		(0.29	)	(0.29	)	9.50	0.08 (c)
2014	9.67	0.31	0.14		0.45		(0.34	)	(0.34	)	9.78	4.73 (c)
2013	10.00	0.33	(0.30	)	0.03		(0.36	)	(0.36	)	9.67	0.29 (c)
2012	9.57	0.39	0.45		0.84		(0.41	)	(0.41	)	10.00	9.03 (c)
Institutional Shares
2016	9.51	0.30	0.20		0.50		(0.35	)	(0.35	)	9.66	5.40
2015	9.78	0.31	(0.26	)	0.05		(0.32	)	(0.32	)	9.51	0.54
2014	9.67	0.35	0.14		0.49		(0.38	)	(0.38	)	9.78	5.13
2013	10.00	0.37	(0.30	)	0.07		(0.40	)	(0.40	)	9.67	0.74
2012	9.57	0.44	0.46		0.90		(0.47	)	(0.47	)	10.00	9.62
R-1 Shares
2016	9.51	0.22	0.21		0.43		(0.27	)	(0.27	)	9.67	4.60
2015	9.79	0.22	(0.26	)	(0.04	)	(0.24	)	(0.24	)	9.51	(0.42	)
2014	9.68	0.26	0.14		0.40		(0.29	)	(0.29	)	9.79	4.22
2013	10.00	0.29	(0.29	)	–		(0.32	)	(0.32	)	9.68	(0.02	)
2012	9.57	0.36	0.45		0.81		(0.38	)	(0.38	)	10.00	8.68
R-2 Shares
2016	9.52	0.23	0.21		0.44		(0.28	)	(0.28	)	9.68	4.73
2015	9.79	0.24	(0.26	)	(0.02	)	(0.25	)	(0.25	)	9.52	(0.19	)
2014	9.68	0.28	0.14		0.42		(0.31	)	(0.31	)	9.79	4.35
2013	10.01	0.30	(0.30	)	–		(0.33	)	(0.33	)	9.68	—
2012	9.58	0.37	0.46		0.83		(0.40	)	(0.40	)	10.01	8.81
R-3 Shares
2016	9.52	0.25	0.21		0.46		(0.30	)	(0.30	)	9.68	4.92
2015	9.80	0.25	(0.26	)	(0.01	)	(0.27	)	(0.27	)	9.52	(0.12	)
2014	9.69	0.30	0.13		0.43		(0.32	)	(0.32	)	9.80	4.54
2013	10.01	0.32	(0.29	)	0.03		(0.35	)	(0.35	)	9.69	0.28
2012	9.58	0.39	0.45		0.84		(0.41	)	(0.41	)	10.01	9.00
R-4 Shares
2016	9.52	0.27	0.20		0.47		(0.32	)	(0.32	)	9.67	5.01
2015	9.79	0.27	(0.25	)	0.02		(0.29	)	(0.29	)	9.52	0.17
2014	9.68	0.32	0.13		0.45		(0.34	)	(0.34	)	9.79	4.74
2013	10.01	0.34	(0.30	)	0.04		(0.37	)	(0.37	)	9.68	0.37
2012	9.58	0.41	0.45		0.86		(0.43	)	(0.43	)	10.01	9.21

515



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$100,416	0.78	%	0.81	%	2.91	%	12.9	%
92,169	0.85		0.88		2.83		11.5
93,304	0.89		0.93		3.23		11.3
88,170	0.96		1.16		3.36		20.7
90,263	1.06		1.25		4.02		14.1

2,692,447	0.49		–		3.19		12.9
2,576,219	0.49		–		3.19		11.5
2,288,675	0.50		–		3.61		11.3
1,907,327	0.50		–		3.82		20.7
1,763,464	0.51		–		4.56		14.1

19,256	1.36		–		2.32		12.9
15,740	1.36		–		2.31		11.5
10,308	1.37		–		2.71		11.3
5,593	1.37		–		2.94		20.7
1,084	1.38		–		3.69		14.1

3,155	1.23		–		2.45		12.9
2,867	1.23		–		2.44		11.5
2,267	1.24		–		2.85		11.3
1,208	1.24		–		3.07		20.7
1,157	1.25		–		3.77		14.1

32,657	1.05		–		2.63		12.9
33,494	1.05		–		2.62		11.5
24,899	1.06		–		3.05		11.3
21,640	1.06		–		3.25		20.7
16,508	1.07		–		4.01		14.1

27,577	0.86		–		2.82		12.9
23,620	0.86		–		2.82		11.5
21,679	0.87		–		3.23		11.3
15,785	0.87		–		3.45		20.7
8,155	0.88		–		4.17		14.1



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
(e)	Reflects Manager's contractual expense limit.
(f)	Period from November 25, 2014, date operations commenced, through October 31, 2015.
(g)	Total return amounts have not been annualized.
(h)	Computed on an annualized basis.

516



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
INCOME FUND
R-5 Shares
2016	$9.50	$0.28	$0.21		$0.49	($0.33)		($0.33)		$9.66	5.25	%
2015	9.78	0.28	(0.26	)	0.02	(0.30	)	(0.30	)	9.50	0.19
2014	9.67	0.33	0.13		0.46	(0.35	)	(0.35	)	9.78	4.87
2013	10.00	0.35	(0.30	)	0.05	(0.38	)	(0.38	)	9.67	0.50
2012	9.57	0.42	0.45		0.87	(0.44	)	(0.44	)	10.00	9.35
R-6 Shares
2016	9.50	0.30	0.21		0.51	(0.35	)	(0.35	)	9.66	5.37 (d)
2015(f)	9.78	0.27	(0.25	)	0.02	(0.30	)	(0.30	)	9.50	0.27 (d),(g)

517



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$50,807	0.74	%	–	2.94	%	12.9	%
46,970	0.74		–	2.93		11.5
33,814	0.75		–	3.36		11.3
15,858	0.75		–	3.56		20.7
13,785	0.76		–	4.31		14.1

6,656	0.55 (e)		–	3.13		12.9
6,539	0.55 (e),(h)		–	3.05 (h)		11.5 (h)



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
(e)	Reflects Manager's contractual expense limit.
(f)	Period from November 25, 2014, date operations commenced, through October 31, 2015.
(g)	Total return amounts have not been annualized.
(h)	Computed on an annualized basis.

518



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
INFLATION PROTECTION FUND
Class A Shares
2016	$8.29	$0.03		$0.36		$0.39		($0.06)		$–		($0.06)		$8.62	4.71 %
2015	8.62	0.01		(0.23	)	(0.22	)	(0.11	)	–		(0.11	)	8.29	(2.62)
2014	8.69	0.05		0.04		0.09		–		(0.16	)	(0.16	)	8.62	1.07
2013	9.32	0.02		(0.63	)	(0.61	)	(0.02	)	–		(0.02	)	8.69	(6.52)
2012	8.70	0.04		0.59		0.63		(0.01	)	–		(0.01	)	9.32	7.24
Class C Shares
2016	7.99	(0.03	)	0.33		0.30		(0.04	)	–		(0.04	)	8.25	3.83
2015	8.36	(0.10	)	(0.18	)	(0.28	)	(0.09	)	–		(0.09	)	7.99	(3.36)
2014	8.50	(0.02	)	0.04		0.02		–		(0.16	)	(0.16	)	8.36	0.25
2013	9.16	(0.05	)	(0.61	)	(0.66	)	–		–		–		8.50	(7.21)
2012	8.61	(0.02	)	0.57		0.55		–		–		–		9.16	6.43

519



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$13,910	0.90 %(c)	0.30	%	62.0 %
13,490	0.90 (c)	0.09		54.5
15,296	0.90 (c)	0.55		101.6
18,098	0.90 (c)	0.24		100.9
29,440	0.90 (c)	0.41		152.9

3,850	1.65 (c)	(0.39	)	62.0
3,834	1.65 (c)	(1.20	)	54.5
4,222	1.65 (c)	(0.18	)	101.6
5,259	1.65 (c)	(0.52	)	100.9
9,304	1.65 (c)	(0.21	)	152.9



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.

520



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
INFLATION PROTECTION FUND
Class J Shares
2016	$8.11	$0.01		$0.35		$0.36		($0.05)		$–		($0.05)		$8.42	4.51 %(c)
2015	8.46	(0.05	)	(0.20	)	(0.25	)	(0.10	)	–		(0.10	)	8.11	(2.96)(c)
2014	8.55	0.03		0.04		0.07		–		(0.16	)	(0.16	)	8.46	0.85 (c)
2013	9.15	0.02		(0.61	)	(0.59	)	(0.01	)	–		(0.01	)	8.55	(6.45)(c)
2012	8.56	0.02		0.58		0.60		(0.01	)	–		(0.01	)	9.15	7.00 (c)
Institutional Shares
2016	8.35	0.07		0.37		0.44		(0.07	)	–		(0.07	)	8.72	5.30
2015	8.66	0.03		(0.22	)	(0.19	)	(0.12	)	–		(0.12	)	8.35	(2.26	)
2014	8.69	0.11		0.02		0.13		–		(0.16	)	(0.16	)	8.66	1.54
2013	9.29	0.07		(0.62	)	(0.55	)	(0.05	)	–		(0.05	)	8.69	(6.00	)
2012	8.65	0.09		0.58		0.67		(0.03	)	–		(0.03	)	9.29	7.78
R-1 Shares
2016	8.00	0.01		0.33		0.34		(0.05	)	–		(0.05	)	8.29	4.31
2015	8.35	(0.07	)	(0.19	)	(0.26	)	(0.09	)	–		(0.09	)	8.00	(3.09)
2014	8.46	0.02		0.03		0.05		–		(0.16	)	(0.16	)	8.35	0.62
2013	9.09	(0.02	)	(0.60	)	(0.62	)	(0.01	)	–		(0.01	)	8.46	(6.83)
2012	8.51	0.02		0.57		0.59		(0.01	)	–		(0.01	)	9.09	6.89
R-2 Shares
2016	8.04	0.01		0.35		0.36		(0.05	)	–		(0.05	)	8.35	4.44 (d)
2015	8.39	(0.06	)	(0.19	)	(0.25	)	(0.10	)	–		(0.10	)	8.04	(2.86)(d)
2014	8.49	0.03		0.03		0.06		–		(0.16	)	(0.16	)	8.39	0.73
2013	9.11	–		(0.61	)	(0.61	)	(0.01	)	–		(0.01	)	8.49	(6.73)
2012	8.52	0.03		0.57		0.60		(0.01	)	–		(0.01	)	9.11	7.01
R-3 Shares
2016	8.12	0.02		0.36		0.38		(0.06	)	–		(0.06	)	8.44	4.69
2015	8.46	(0.05	)	(0.19	)	(0.24	)	(0.10	)	–		(0.10	)	8.12	(2.80)
2014	8.54	0.04		0.04		0.08		–		(0.16	)	(0.16	)	8.46	0.97
2013	9.16	0.02		(0.62	)	(0.60	)	(0.02	)	–		(0.02	)	8.54	(6.54)
2012	8.55	0.04		0.58		0.62		(0.01	)	–		(0.01	)	9.16	7.24
R-4 Shares
2016	8.19	0.04		0.35		0.39		(0.06	)	–		(0.06	)	8.52	4.82
2015	8.52	(0.02	)	(0.20	)	(0.22	)	(0.11	)	–		(0.11	)	8.19	(2.62	)
2014	8.58	0.07		0.03		0.10		–		(0.16	)	(0.16	)	8.52	1.20
2013	9.20	0.04		(0.63	)	(0.59	)	(0.03	)	–		(0.03	)	8.58	(6.42	)
2012	8.58	0.08		0.55		0.63		(0.01	)	–		(0.01	)	9.20	7.38

521



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$7,758	1.09	%	1.12	%	0.17	%	62	%
7,516	1.10		1.13		(0.63	)	54.5
8,692	1.11		1.15		0.40		101.6
9,894	0.86		1.06		0.25		100.9
15,135	1.15		1.52		0.25		152.9

1,770,164	0.38		–		0.88		62.0
1,608,193	0.39		–		0.41		54.5
1,023,698	0.40		–		1.29		101.6
773,261	0.40		–		0.79		100.9
740,023	0.40		–		1.04		152.9

1,017	1.26		–		0.12		62.0
693	1.27		–		(0.8	)	54.5
905	1.28		–		0.28		101.6
910	1.28		–		(0.21	)	100.9
1,821	1.28		–		0.19		152.9

524	1.13		–		0.07		62.0
533	1.14		–		(0.74	)	54.5
577	1.15		–		0.34		101.6
752	1.15		–		0.01		100.9
1,263	1.15		–		0.35		152.9

5,602	0.95		–		0.29		62.0
4,825	0.96		–		(0.54	)	54.5
5,784	0.97		–		0.5		101.6
6,353	0.97		–		0.22		100.9
5,447	0.97		–		0.47		152.9

2,357	0.76		–		0.45		62.0
1,982	0.77		–		(0.21	)	54.5
2,036	0.78		–		0.83		101.6
1,655	0.78		–		0.47		100.9
1,995	0.78		–		0.88		152.9



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

522



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
INFLATION PROTECTION FUND
R-5 Shares
2016	$8.25	$0.05	$0.35		$0.40		($0.06)		$-		($0.06)		$8.59	4.93	%
2015	8.57	—	(0.21	)	(0.21	)	(0.11	)	—		(0.11	)	8.25	(2.45	)
2014	8.62	0.16	(0.05	)	0.11		—		(0.16	)	(0.16	)	8.57	1.31
2013	9.24	0.06	(0.65	)	(0.59	)	(0.03	)	—		(0.03	)	8.62	(6.37	)
2012	8.61	0.07	0.58		0.65		(0.02	)	—		(0.02	)	9.24	7.55

523



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$3,833	0.64	%	—	%	0.65	%	62.0	%
4,259	0.65		—		(0.04)		54.5
3,790	0.66		—		1.82		101.6
2,516	0.66		—		0.71		100.9
4,539	0.66		—		0.81		152.9



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

524



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
INTERNATIONAL EMERGING MARKETS FUND
Class A Shares
2016	$21.37	$0.11		$1.32		$1.43		($0.06)		($0.06)		$22.74	6.75 %
2015	25.01	0.19		(3.56	)	(3.37	)	(0.27	)	(0.27	)	21.37	(13.56)
2014	25.11	0.18		(0.23	)	(0.05	)	(0.05	)	(0.05	)	25.01	(0.18)
2013	24.52	0.18		0.65		0.83		(0.24	)	(0.24	)	25.11	3.34
2012	23.76	0.20		0.74		0.94		(0.18	)	(0.18	)	24.52	4.05
Class C Shares
2016	20.45	(0.10	)	1.26		1.16		–		–		21.61	5.62 (d)
2015	23.96	(0.06	)	(3.39	)	(3.45	)	(0.06	)	(0.06	)	20.45	(14.43)
2014	24.24	(0.05	)	(0.23	)	(0.28	)	–		–		23.96	(1.16)
2013	23.69	(0.06	)	0.61		0.55		–		–		24.24	2.32
2012	22.98	(0.02	)	0.73		0.71		–		–		23.69	3.09
Class P Shares
2016	21.22	0.20		1.30		1.50		(0.15	)	(0.15	)	22.57	7.14
2015	24.84	0.26		(3.52	)	(3.26	)	(0.36	)	(0.36	)	21.22	(13.24	)
2014	24.97	0.28		(0.23	)	0.05		(0.18	)	(0.18	)	24.84	0.20
2013	24.37	0.30		0.65		0.95		(0.35	)	(0.35	)	24.97	3.87
2012	23.65	0.32		0.71		1.03		(0.31	)	(0.31	)	24.37	4.51

525



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$77,283	1.75 %(c)	0.53	%	120.3 %
78,797	1.75 (c)	0.79		88.4
93,053	1.76 (c)	0.71		114.7
100,585	1.82	0.73		117.2
109,294	1.84	0.83		104.8

9,220	2.80 (c)	(0.51	)	120.30
9,388	2.80 (c)	(0.25	)	88.4
10,906	2.70 (c)	(0.20	)	114.7
10,913	2.80 (c)	(0.25	)	117.2
12,148	2.77 (c)	(0.07	)	104.8

1,522	1.39 (c)	0.97		120.3
1,279	1.38 (c)	1.14		88.4
2,023	1.37 (c)	1.14		114.7
2,508	1.38 (c)	1.24		117.2
2,310	1.38 (c)	1.36		104.8



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

526



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
INTERNATIONAL EMERGING MARKETS FUND
Class J Shares
2016	$20.61	$0.13	$1.28		$1.41		($0.09)		($0.09)		$21.93	6.87 %(c)
2015	24.14	0.19	(3.41	)	(3.22	)	(0.31	)	(0.31	)	20.61	(13.47)(c)
2014	24.25	0.20	(0.22	)	(0.02	)	(0.09	)	(0.09	)	24.14	(0.09)(c)
2013	23.69	0.21	0.62		0.83		(0.27	)	(0.27	)	24.25	3.49 (c)
2012	22.96	0.22	0.72		0.94		(0.21	)	(0.21	)	23.69	4.18 (c)
Institutional Shares
2016	21.24	0.20	1.33		1.53		(0.18	)	(0.18	)	22.59	7.27 (d)
2015	24.88	0.26	(3.49	)	(3.23	)	(0.41	)	(0.41	)	21.24	(13.13	)
2014	25.01	0.32	(0.24	)	0.08		(0.21	)	(0.21	)	24.88	0.33
2013	24.42	0.33	0.64		0.97		(0.38	)	(0.38	)	25.01	3.96
2012	23.67	0.34	0.73		1.07		(0.32	)	(0.32	)	24.42	4.67
R-1 Shares
2016	21.08	0.03	1.31		1.34		–		–		22.42	6.36
2015	24.66	0.10	(3.51	)	(3.41	)	(0.17	)	(0.17	)	21.08	(13.88)
2014	24.79	0.09	(0.22	)	(0.13	)	–		–		24.66	(0.52)
2013	24.20	0.11	0.64		0.75		(0.16	)	(0.16	)	24.79	3.09
2012	23.37	0.13	0.75		0.88		(0.05	)	(0.05	)	24.20	3.77
R-2 Shares
2016	20.95	0.06	1.30		1.36		–		–		22.31	6.49
2015	24.52	0.11	(3.47	)	(3.36	)	(0.21	)	(0.21	)	20.95	(13.76)
2014	24.63	0.12	(0.22	)	(0.10	)	(0.01	)	(0.01	)	24.52	(0.41)
2013	24.03	0.13	0.65		0.78		(0.18	)	(0.18	)	24.63	3.21
2012	23.26	0.16	0.74		0.90		(0.13	)	(0.13	)	24.03	3.93
R-3 Shares
2016	21.10	0.10	1.31		1.41		(0.05	)	(0.05	)	22.46	6.70
2015	24.68	0.16	(3.49	)	(3.33	)	(0.25	)	(0.25	)	21.10	(13.60	)
2014	24.74	0.17	(0.23	)	(0.06	)	–		–		24.68	(0.24	)
2013	24.15	0.19	0.64		0.83		(0.24	)	(0.24	)	24.74	3.42
2012	23.38	0.22	0.72		0.94		(0.17	)	(0.17	)	24.15	4.08
R-4 Shares
2016	21.20	0.13	1.33		1.46		(0.08	)	(0.08	)	22.58	6.86 (d)
2015	24.82	0.21	(3.52	)	(3.31	)	(0.31	)	(0.31	)	21.20	(13.42)(d)
2014	24.93	0.20	(0.21	)	(0.01	)	(0.10	)	(0.10	)	24.82	(0.01)
2013	24.35	0.24	0.64		0.88		(0.30	)	(0.30	)	24.93	3.57
2012	23.59	0.25	0.74		0.99		(0.23	)	(0.23	)	24.35	4.28

527



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$97,753	1.64	%	1.67	%	0.65	%	120.3	%
99,723	1.66		1.69		0.86		88.4
129,223	1.65		1.69		0.83		114.7
146,376	1.69		1.89		0.85		117.2
164,299	1.72		1.91		0.96		104.8

756,257	1.27		–		0.97		120.3
948,114	1.25		–		1.10		88.4
1,752,175	1.23		–		1.30		114.7
1,537,280	1.24		1.24		1.35		117.2
1,219,393	1.25		1.25		1.45		104.8

2,585	2.13		–		0.14		120.3
2,842	2.12		–		0.42		88.4
3,490	2.10		–		0.38		114.7
4,467	2.11		–		0.43		117.2
5,362	2.11		–		0.56		104.8

3,346	2.00		–		0.30		120.3
3,777	1.99		–		0.46		88.4
5,878	1.97		–		0.50		114.7
6,610	1.98		–		0.53		117.2
9,010	1.98		–		0.69		104.8

10,275	1.82		–		0.48		120.3
10,805	1.81		–		0.71		88.4
14,835	1.79		–		0.68		114.7
19,344	1.80		–		0.77		117.2
37,931	1.80		–		0.94		104.8

8,340	1.63		–		0.66		120.3
8,922	1.62		–		0.90		88.4
14,415	1.60		–		0.84		114.7
20,951	1.61		–		0.98		117.2
21,453	1.61		–		1.05		104.8



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

528



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
INTERNATIONAL EMERGING MARKETS FUND
R-5 Shares
2016	$21.26	$0.15	$1.32		$1.47		($0.12)		($0.12)		$22.61	6.99	%
2015	24.89	0.24	(3.53	)	(3.29	)	(0.34	)	(0.34	)	21.26	(13.33	)
2014	25.02	0.24	(0.22	)	0.02		(0.15	)	(0.15	)	24.89	0.08
2013	24.43	0.27	0.65		0.92		(0.33	)	(0.33	)	25.02	3.73
2012	23.67	0.29	0.72		1.01		(0.25	)	(0.25	)	24.43	4.41

529



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$18,989	1.51	%	—	%	0.73	%	120.3	%
22,656	1.50		—		1.01		88.4
29,903	1.48		—		0.97		114.7
33,812	1.49		—		1.08		117.2
37,421	1.49		—		1.21		104.8



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

530



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
INTERNATIONAL FUND I
Class A Shares
2016	$13.45	$0.07	($0.45)		($0.38)		($0.08)		($0.08)		$12.99	(2.91)%(c)
2015	13.63	0.14	(0.01)		0.13		(0.31)		(0.31)		13.45	0.96 (c)
2014(e)	13.71	–	(0.08)		(0.08)		–		–		13.63	(0.51)(c),(f)
Class P Shares
2016	13.51	0.14	(0.47	)	(0.33	)	(0.1	)	(0.1	)	13.08	(2.43)
2015	13.65	0.19	(0.01	)	0.18		(0.32	)	(0.32	)	13.51	1.29 (c)
2014(e)	13.71	0.09	(0.15	)	(0.06	)	–		–		13.65	(0.36)(c),(f)

531



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$3,992	1.45 %(d)	0.54	%	69.9 %
5,303	1.45 (d)	1.02		52.8
771	1.45 (d),(g)	(0.01)(g)		128.4 (g)

69,820	1.03 (d)	1.08		69.9
34,612	1.08 (d)	1.41		52.8
10	1.10 (d),(g)	1.50 (g)		128.4 (g)



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
(d)	Reflects Manager's contractual expense limit.
(e)	Period from June 3, 2014, date shares first offered, through October 31, 2014.
(f)	Total return amounts have not been annualized.
(g)	Computed on an annualized basis.

532



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
INTERNATIONAL FUND I
Institutional Shares
2016	$13.53	$0.13	($0.45)		($0.32)		($0.10)		($0.10)		$13.11	(2.36)%
2015	13.65	0.16	0.03		0.19		(0.31	)	(0.31	)	13.53	1.32 (c)
2014	13.05	0.23	0.58		0.81		(0.21	)	(0.21	)	13.65	6.45 (c)
2013	10.79	0.15	2.32		2.47		(0.21	)	(0.21	)	13.05	23.23
2012	10.31	0.20	0.45		0.65		(0.17	)	(0.17	)	10.79	6.53
R-1 Shares
2016	13.42	0.02	(0.45	)	(0.43	)	–		–		12.99	(3.20	)
2015	13.54	0.04	0.03		0.07		(0.19	)	(0.19	)	13.42	0.48 (c)
2014	12.94	0.16	0.54		0.70		(0.10	)	(0.10	)	13.54	5.53 (c)
2013	10.70	0.06	2.29		2.35		(0.11	)	(0.11	)	12.94	22.17
2012	10.20	0.11	0.46		0.57		(0.07	)	(0.07	)	10.70	5.61
R-2 Shares
2016	13.48	0.04	(0.46	)	(0.42	)	–		–		13.06	(3.12	)
2015	13.57	0.06	0.04		0.10		(0.19	)	(0.19	)	13.48	0.71 (c)
2014	12.96	0.18	0.54		0.72		(0.11	)	(0.11	)	13.57	5.66 (c)
2013	10.72	0.07	2.30		2.37		(0.13	)	(0.13	)	12.96	22.25
2012	10.21	0.12	0.46		0.58		(0.07	)	(0.07	)	10.72	5.79
R-3 Shares
2016	13.47	0.06	(0.45	)	(0.39	)	(0.03	)	(0.03	)	13.05	(2.90	)
2015	13.57	0.08	0.04		0.12		(0.22	)	(0.22	)	13.47	0.86 (c)
2014	12.97	0.20	0.54		0.74		(0.14	)	(0.14	)	13.57	5.83 (c)
2013	10.71	0.10	2.29		2.39		(0.13	)	(0.13	)	12.97	22.51
2012	10.22	0.14	0.46		0.60		(0.11	)	(0.11	)	10.71	5.97
R-4 Shares
2016	13.49	0.09	(0.46	)	(0.37	)	(0.05	)	(0.05	)	13.07	(2.75	)
2015	13.60	0.10	0.06		0.16		(0.27	)	(0.27	)	13.49	1.11 (c)
2014	13.00	0.22	0.55		0.77		(0.17	)	(0.17	)	13.60	6.01 (c)
2013	10.74	0.12	2.30		2.42		(0.16	)	(0.16	)	13.00	22.82
2012	10.26	0.16	0.45		0.61		(0.13	)	(0.13	)	10.74	6.07
R-5 Shares
2016	13.49	0.08	(0.44	)	(0.36	)	(0.07	)	(0.07	)	13.06	(2.69	)
2015	13.61	0.12	0.05		0.17		(0.29	)	(0.29	)	13.49	1.12 (c)
2014	13.02	0.24	0.54		0.78		(0.19	)	(0.19	)	13.61	6.18 (c)
2013	10.76	0.14	2.31		2.45		(0.19	)	(0.19	)	13.02	23.02
2012	10.28	0.17	0.45		0.62		(0.14	)	(0.14	)	10.76	6.17

533



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Gross Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$296,966	1.00 %	1.01 %	1.02 %	69.9	%
316,421	0.97	0.97	1.14	52.8
344,528	1.01	1.04	1.76	128.4
610,764	0.97	1.02	1.27	50.6
1,069,269	0.98	1.01	1.95	57.3

2,759	1.85	–	0.16	69.9
3,710	1.81	–	0.30	52.8
4,271	1.85 (d)	–	1.22	128.4
4,758	1.83 (d)	–	0.54	50.6
4,294	1.85 (d)	–	1.04	57.3

2,577	1.72	–	0.30	69.9
3,189	1.68	–	0.44	52.8
3,069	1.72 (d)	–	1.34	128.4
4,108	1.70 (d)	–	0.63	50.6
4,182	1.72 (d)	–	1.22	57.3

5,326	1.54	–	0.49	69.9
4,721	1.50	–	0.59	52.8
5,340	1.54 (d)	–	1.51	128.4
6,505	1.52 (d)	–	0.88	50.6
7,223	1.54 (d)	–	1.42	57.3

3,386	1.35	–	0.68	69.9
3,651	1.31	–	0.71	52.8
5,718	1.35 (d)	–	1.67	128.4
8,174	1.33 (d)	–	1.04	50.6
6,264	1.35 (d)	–	1.56	57.3

3,710	1.23	–	0.61	69.9
9,244	1.19	–	0.89	52.8
8,839	1.23 (d)	–	1.83	128.4
8,295	1.21 (d)	–	1.15	50.6
6,265	1.23 (d)	–	1.69	57.3



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager.
(c)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
(d)	Reflects Manager's contractual expense limit.

534



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
LARGECAP GROWTH FUND
Class A Shares
2016	$10.94	$–		$(0.40)		$(0.40)		$–		($1.08)		($1.08)		$9.46	(4.09)%
2015	11.55	(0.02	)	0.63		0.61		–		(1.22	)	(1.22	)	10.94	5.96
2014	11.25	(0.02	)	1.53		1.51		–		(1.21	)	(1.21	)	11.55	14.61
2013	8.68	0.02		2.56		2.58		(0.01	)	–		(0.01	)	11.25	29.76
2012	7.87	(0.01	)	0.82		0.81		–		–		–		8.68	10.29
Class C Shares
2016	10.06	(0.08	)	(0.37	)	(0.45	)	–		(1.08	)	(1.08	)	8.53	(5.03)
2015	10.79	(0.10	)	0.59		0.49		–		(1.22	)	(1.22)		10.06	5.20
2014	10.67	(0.10	)	1.43		1.33		–		(1.21	)	(1.21	)	10.79	13.62
2013	8.30	(0.07	)	2.44		2.37		–		–		–		10.67	28.55
2012	7.58	(0.08	)	0.80		0.72		–		–		–		8.30	9.50
Class P Shares
2016	11.31	0.03		(0.42	)	(0.39	)	(0.01	)	(1.08)		(1.09	)	9.83	(3.84	)
2015	11.86	0.01		0.66		0.67		–		(1.22	)	(1.22	)	11.31	6.34
2014	11.51	0.01		1.57		1.58		(0.02	)	(1.21	)	(1.23	)	11.86	14.88
2013	8.90	0.04		2.64		2.68		(0.07	)	–		(0.07	)	11.51	30.26
2012	8.06	0.03		0.83		0.86		(0.02	)	–		(0.02	)	8.90	10.72

535



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$328,689	1.11 %	(0.02	)%	62.5 %
380,233	1.07	(0.19	)	54.1
374,202	1.07	(0.17	)	57.7
351,128	1.19	0.17		79.3
294,477	1.27	(0.12	)	64.3

15,327	1.98	(0.89	)	62.5
18,986	1.90	(1.03	)	54.1
16,043	1.91	(1.02	)	57.7
14,370	2.05	(0.71	)	79.3
10,657	2.09	(0.94	)	64.3

9,007	0.83 (c)	0.26		62.5
11,686	0.81 (c)	0.08		54.1
11,169	0.82 (c)	0.08		57.7
10,754	0.83 (c)	0.36		79.3
1,482	0.83 (c)	0.32		64.3



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.

536



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
LARGECAP GROWTH FUND
Class J Shares
2016	$10.37	$0.01		($0.38)		($0.37)		$–		($1.08)		($1.08)		$8.92	(4.01)%(c)
2015	11.00	(0.02	)	0.61		0.59		–		(1.22	)	(1.22	)	10.37	6.10 (c)
2014	10.77	(0.02	)	1.46		1.44		–		(1.21	)	(1.21	)	11.00	14.61 (c)
2013	8.31	0.02		2.46		2.48		(0.02	)	–		(0.02	)	10.77	29.92 (c)
2012	7.53	–		0.78		0.78		–		–		–		8.31	10.36 (c)
Institutional Shares
2016	11.38	0.05		(0.43	)	(0.38	)	(0.03	)	(1.08	)	(1.11	)	9.89	(3.75	)
2015	11.93	0.03		0.66		0.69		(0.02	)	(1.22	)	(1.24	)	11.38	6.48
2014	11.57	0.03		1.57		1.60		(0.03	)	(1.21	)	(1.24	)	11.93	15.09
2013	8.93	0.07		2.64		2.71		(0.07	)	–		(0.07	)	11.57	30.52
2012	8.07	0.04		0.85		0.89		(0.03	)	–		(0.03	)	8.93	11.01
R-1 Shares
2016	10.52	(0.04	)	(0.38	)	(0.42	)	–		(1.08	)	(1.08	)	9.02	(4.47	)
2015	11.19	(0.06	)	0.61		0.55		–		(1.22	)	(1.22	)	10.52	5.58
2014	10.98	(0.06	)	1.48		1.42		–		(1.21	)	(1.21	)	11.19	14.10
2013	8.49	(0.01	)	2.50		2.49		–		–		–		10.98	29.33
2012	7.72	(0.03	)	0.80		0.77		–		–		–		8.49	9.97
R-2 Shares
2016	10.69	(0.02	)	(0.40	)	(0.42	)	–		(1.08	)	(1.08	)	9.19	(4.40	)
2015	11.34	(0.05	)	0.62		0.57		–		(1.22	)	(1.22	)	10.69	5.70
2014	11.09	(0.05	)	1.51		1.46		–		(1.21	)	(1.21	)	11.34	14.34
2013	8.57	–		2.52		2.52		–		–		–		11.09	29.40
2012	7.77	(0.02	)	0.82		0.80		–		–		–		8.57	10.30
R-3 Shares
2016	11.61	(0.01	)	(0.43	)	(0.44	)	–		(1.08	)	(1.08	)	10.09	(4.21	)
2015	12.19	(0.03	)	0.67		0.64		–		(1.22	)	(1.22	)	11.61	5.89
2014	11.82	(0.03	)	1.61		1.58		–		(1.21	)	(1.21	)	12.19	14.48
2013	9.12	0.02		2.68		2.70		–		–		–		11.82	29.67
2012	8.26	–		0.86		0.86		–		–		–		9.12	10.41
R-4 Shares
2016	11.56	0.01		(0.43	)	(0.42	)	–		(1.08	)	(1.08	)	10.06	(4.04	)
2015	12.12	(0.01	)	0.67		0.66		–		(1.22	)	(1.22	)	11.56	6.11
2014	11.74	(0.01	)	1.60		1.59		–		(1.21	)	(1.21	)	12.12	14.68
2013	9.06	0.03		2.68		2.71		(0.03	)	–		(0.03	)	11.74	29.94
2012	8.19	0.01		0.86		0.87		–		–		–		9.06	10.62

537



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$57,924	0.95	%	0.98	%	0.15	%	62.5	%
69,824	1.03		1.06		(0.15	)	54.1
64,841	1.04		1.08		(0.16	)	57.7
56,800	1.09		1.29		0.25		79.3
45,831	1.20		1.39		(0.04	)	64.3

1,549,259	0.65		–		0.46		62.5
2,352,018	0.64		–		0.25		54.1
2,791,488	0.65		–		0.24		57.7
2,513,518	0.64		–		0.69		79.3
1,852,751	0.64		–		0.51		64.3

4,378	1.52		–		(0.42	)	62.5
5,815	1.50		–		(0.62	)	54.1
6,258	1.50		–		(0.60	)	57.7
6,534	1.51		–		(0.10	)	79.3
8,500	1.52		–		(0.37	)	64.3

2,093	1.39		–		(0.24	)	62.5
5,386	1.37		–		(0.50	)	54.1
5,846	1.37		–		(0.47	)	57.7
7,383	1.38		–		0.01		79.3
8,616	1.39		–		(0.23	)	64.3

14,755	1.21		–		(0.12	)	62.5
19,280	1.19		–		(0.30	)	54.1
20,863	1.19		–		(0.29	)	57.7
22,527	1.20		–		0.19		79.3
25,611	1.21		–		(0.05	)	64.3

10,224	1.02		–		0.08		62.5
14,853	1.00		–		(0.12	)	54.1
13,833	1.00		–		(0.08	)	57.7
18,484	1.01		–		0.32		79.3
13,612	1.02		–		0.14		64.3



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.

538



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
LARGECAP GROWTH FUND
R-5 Shares
2016	$11.45	$0.02	($0.43)	($0.41)	$-		($1.08)		($1.08)		$9.96	(3.98	)%
2015	12.00	–	0.67	0.67	–		(1.22	)	(1.22	)	11.45	6.27
2014	11.62	–	1.59	1.59	–		(1.21	)	(1.21	)	12.00	14.85
2013	8.98	0.06	2.62	2.68	(0.04	)	–		(0.04	)	11.62	30.01
2012	8.11	0.02	0.85	0.87	–		–		–		8.98	10.77

539



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$50,611	0.90	%	-%	0.20	%	62.5	%
64,417	0.88		–	0.01		54.1
71,922	0.88		–	0.01		57.7
67,568	0.89		–	0.56		79.3
129,852	0.90		–	0.26		64.3



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.

540



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
LARGECAP GROWTH FUND I
Class A Shares
2016	$13.31	($0.05)		$0.02	$(0.03)	$–		($1.49)		($1.49)		$11.79	(0.21)%
2015	13.47	(0.06	)	1.17	1.11	–		(1.27	)	(1.27	)	13.31	9.22
2014	12.70	(0.06	)	1.60	1.54	–		(0.77	)	(0.77	)	13.47	12.70
2013(d)	10.52	(0.04	)	2.22	2.18	–		–		–		12.70	20.72 (e)
Class P Shares
2016	13.46	–		0.03	0.03	–		(1.49	)	(1.49	)	12.00	0.28
2015	13.58	(0.01	)	1.19	1.18	(0.03	)	(1.27	)	(1.30	)	13.46	9.70
2014(g)	12.79	(0.01	)	0.80	0.79	–		–		–		13.58	6.18 (e)

541



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$22,488	1.15 %(c)	(0.41	)%	32.8 %
14,606	1.25 (c)	(0.50	)	39.3
6,464	1.25 (c)	(0.47)		38.4
1,727	1.25 (c),(f)	(0.52)(f)		37.0 (f)

1,128	0.79 (c)	(0.03	)	32.8
1,300	0.78 (c)	(0.06)		39.3
18	0.78 (c),(f)	(0.12)(f)		38.4 (f)



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.
(d)	Period from March 1, 2013, date shares first offered, through October 31, 2013.
(e)	Total return amounts have not been annualized.
(f)	Computed on an annualized basis.
(g)	Period from June 3, 2014, date shares first offered, through October 31, 2014.

542



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
LARGECAP GROWTH FUND I
Class J Shares
2016	$11.70	($0.01)		$0.02	$0.01		$–		($1.49)		($1.49)		$10.22	0.13 %(c)
2015	11.97	(0.02	)	1.02	1.00		–		(1.27	)	(1.27	)	11.70	9.48 (c)
2014	11.35	(0.02	)	1.41	1.39		–		(0.77	)	(0.77	)	11.97	12.90 (c)
2013	8.98	–		2.81	2.81		(0.01	)	(0.43	)	(0.44	)	11.35	32.60 (c)
2012	8.55	(0.02	)	0.79	0.77		–		(0.34	)	(0.34	)	8.98	9.61 (c)
Institutional Shares
2016	13.49	0.02		0.02	0.04		(0.01	)	(1.49	)	(1.50	)	12.03	0.34
2015	13.59	0.02		1.19	1.21		(0.04	)	(1.27	)	(1.31	)	13.49	9.93
2014	12.76	0.03		1.59	1.62		(0.02	)	(0.77	)	(0.79	)	13.59	13.31
2013	10.04	0.05		3.15	3.20		(0.05	)	(0.43	)	(0.48	)	12.76	33.23
2012	9.48	0.03		0.88	0.91		(0.01	)	(0.34	)	(0.35	)	10.04	10.22
R-1 Shares
2016	12.23	(0.08	)	0.02	(0.06	)	–		(1.49	)	(1.49	)	10.68	(0.50	)%
2015	12.51	(0.08	)	1.07	0.99		–		(1.27	)	(1.27	)	12.23	9.04 (e)
2014	11.87	(0.08	)	1.49	1.41		–		(0.77	)	(0.77	)	12.51	12.39 (e)
2013	9.40	(0.05	)	2.95	2.90		–		(0.43	)	(0.43	)	11.87	32.09
2012	8.97	(0.06	)	0.83	0.77		–		(0.34	)	(0.34	)	9.40	9.14
R-2 Shares
2016	11.97	(0.06	)	0.02	(0.04	)	–		(1.49	)	(1.49	)	10.44	(0.34	)
2015	12.26	(0.06	)	1.04	0.98		–		(1.27	)	(1.27	)	11.97	9.05
2014	11.64	(0.06	)	1.45	1.39		–		(0.77	)	(0.77	)	12.26	12.56
2013	9.21	(0.03	)	2.89	2.86		–		(0.43	)	(0.43	)	11.64	32.32
2012	8.78	(0.04	)	0.81	0.77		–		(0.34	)	(0.34	)	9.21	9.34
R-3 Shares
2016	12.68	(0.04	)	0.02	(0.02	)	–		(1.49	)	(1.49	)	11.17	(0.14	)
2015	12.88	(0.04	)	1.11	1.07		–		(1.27	)	(1.27	)	12.68	9.34
2014	12.18	(0.04	)	1.51	1.47		–		(0.77	)	(0.77	)	12.88	12.67
2013	9.61	(0.02	)	3.03	3.01		(0.01	)	(0.43	)	(0.44	)	12.18	32.55
2012	9.13	(0.03	)	0.85	0.82		–		(0.34	)	(0.34	)	9.61	9.54
R-4 Shares
2016	12.80	(0.02	)	0.02	–		–		(1.49	)	(1.49	)	11.31	0.03
2015	12.97	(0.02	)	1.12	1.10		–		(1.27	)	(1.27	)	12.80	9.52
2014	12.23	(0.02	)	1.53	1.51		–		(0.77	)	(0.77	)	12.97	12.95
2013	9.65	–		3.03	3.03		(0.02	)	(0.43	)	(0.45	)	12.23	32.75
2012	9.15	(0.01	)	0.85	0.84		–		(0.34	)	(0.34	)	9.65	9.74

543



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$110,553	0.89	%	0.94	%	(0.13	)%	32.8	%
123,054	0.97		1.02		(0.18	)	39.3
106,144	0.99		1.05		(0.19	)	38.4
95,021	1.06		1.27		(0.03	)	37.0
69,178	1.13		1.34		(0.25	)	33.7

6,436,701	0.62 (d)		–		0.14		32.8
6,608,588	0.61 (d)		–		0.19		39.3
7,031,086	0.61 (d)		–		0.20		38.4
6,240,772	0.61 (d)		–		0.41		37.0
4,523,083	0.61 (d)		–		0.29		33.7

6,716	1.47 (d)		–		(0.71	)	32.8
8,078	1.47 (d)		–		(0.67	)	39.3
8,406	1.47 (d)		–		(0.66	)	38.4
8,519	1.47 (d)		–		(0.44	)	37.0
5,708	1.48 (d)		–		(0.60	)	33.7

13,145	1.34 (d)		–		(0.58	)	32.8
16,204	1.34 (d)		–		(0.54	)	39.3
21,048	1.34 (d)		–		(0.54	)	38.4
16,060	1.34 (d)		–		(0.30	)	37.0
13,403	1.35 (d)		–		(0.46	)	33.7

116,736	1.16 (d)		–		(0.40	)	32.8
152,222	1.16 (d)		–		(0.36	)	39.3
165,698	1.16 (d)		–		(0.35	)	38.4
152,377	1.16 (d)		–		(0.16	)	37.0
91,042	1.17 (d)		–		(0.28	)	33.7

74,021	0.97 (d)		–		(0.21	)	32.8
94,343	0.97 (d)		–		(0.18	)	39.3
90,002	0.97 (d)		–		(0.16	)	38.4
95,501	0.97 (d)		–		0.04		37.0
58,532	0.98 (d)		–		(0.09	)	33.7



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Reflects Manager's contractual expense limit.
(e)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
(f)	Period from November 25, 2014, date operations commenced, through October 31, 2015.
(g)	Total return amounts have not been annualized.
(h)	Computed on an annualized basis.

544



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
LARGECAP GROWTH FUND I
R-5 Shares
2016	$13.14	($0.01)		$0.02	$0.01	$-		($1.49)		($1.49)		$11.66	0.12	%
2015	13.27	(0.01	)	1.16	1.15	(0.01	)	(1.27	)	(1.28	)	13.14	9.70
2014	12.49	(0.01	)	1.56	1.55	–		(0.77	)	(0.77	)	13.27	13.01
2013	9.84	0.02		3.09	3.11	(0.03	)	(0.43	)	(0.46	)	12.49	32.90
2012	9.31	–		0.87	0.87	–		(0.34	)	(0.34	)	9.84	9.91
R-6 Shares
2016	13.49	0.01		0.02	0.03	(0.01	)	(1.49	)	(1.50	)	12.02	0.27
2015(f)	13.87	(0.01	)	0.94	0.93	(0.04	)	(1.27	)	(1.31	)	13.49	7.72 (g)

545



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Gross Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$273,161	0.85 % (d)	-%	(0.09	)%	32.8	%
320,510	0.85 (d)	–	(0.05	)	39.3
329,991	0.85 (d)	–	(0.05	)	38.4
250,770	0.85 (d)	–	0.18		37.0
182,770	0.86 (d)	–	0.02		33.7

3,333	0.65 (d)	–	0.09		32.8
1,383	0.65 (d),(h)	–	(0.09)(h)		39.3 (h)



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Reflects Manager's contractual expense limit.
(e)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
(f)	Period from November 25, 2014, date operations commenced, through October 31, 2015.
(g)	Total return amounts have not been annualized.
(h)	Computed on an annualized basis.

546



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
LARGECAP GROWTH FUND II
Class J Shares
2016	$7.72	$0.02		$(0.01)		$0.01		($0.02)		($1.16)		($1.18)		$6.55	0.30 %(c)
2015	9.69	0.01		0.55		0.56		(0.03	)	(2.50	)	(2.53	)	7.72	7.53 (c)
2014	9.37	0.01		1.19		1.20		(0.03	)	(0.85	)	(0.88	)	9.69	13.81 (c)
2013	7.66	0.04		1.83		1.87		(0.04	)	(0.12	)	(0.16	)	9.37	24.95 (c)
2012	7.62	0.01		0.73		0.74		(0.01	)	(0.69	)	(0.70	)	7.66	11.16 (c)
Institutional Shares
2016	9.06	0.06		(0.02	)	0.04		(0.05	)	(1.16	)	(1.21	)	7.89	0.60
2015	10.92	0.06		0.64		0.70		(0.06	)	(2.50	)	(2.56	)	9.06	8.07
2014	10.45	0.05		1.34		1.39		(0.07	)	(0.85	)	(0.92	)	10.92	14.23
2013	8.53	0.08		2.04		2.12		(0.08	)	(0.12	)	(0.20	)	10.45	25.46
2012	8.39	0.06		0.81		0.87		(0.04	)	(0.69	)	(0.73	)	8.53	11.87
R-1 Shares
2016	8.40	(0.01	)	(0.02	)	(0.03	)	–		(1.16	)	(1.16	)	7.21	(0.26	)
2015	10.32	(0.02	)	0.60		0.58		–		(2.50	)	(2.50	)	8.40	7.13
2014	9.95	(0.04	)	1.26		1.22		–		(0.85	)	(0.85	)	10.32	13.14
2013	8.11	–		1.96		1.96		–		(0.12	)	(0.12	)	9.95	24.54
2012	8.04	(0.02	)	0.78		0.76		–		(0.69	)	(0.69	)	8.11	10.82
R-2 Shares
2016	8.04	–		(0.02	)	(0.02	)	–		(1.16	)	(1.16	)	6.86	(0.12	)
2015	9.98	(0.01	)	0.57		0.56		–		(2.50	)	(2.50	)	8.04	7.21
2014	9.63	(0.02	)	1.22		1.20		–		(0.85	)	(0.85	)	9.98	13.38
2013	7.86	0.01		1.89		1.90		(0.01	)	(0.12	)	(0.13	)	9.63	24.65
2012	7.81	–		0.74		0.74		–		(0.69	)	(0.69	)	7.86	10.90
R-3 Shares
2016	8.31	0.01		(0.02	)	(0.01	)	–		(1.16	)	(1.16	)	7.14	0.03
2015	10.22	–		0.59		0.59		–		(2.50	)	(2.50	)	8.31	7.43
2014	9.84	(0.01	)	1.26		1.25		(0.02	)	(0.85	)	(0.87	)	10.22	13.61
2013	8.03	0.03		1.93		1.96		(0.03	)	(0.12	)	(0.15	)	9.84	24.87
2012	7.95	0.01		0.77		0.78		(0.01	)	(0.69	)	(0.70	)	8.03	11.21
R-4 Shares
2016	8.61	0.02		(0.01	)	0.01		(0.01	)	(1.16	)	(1.17	)	7.45	0.17 (e)
2015	10.52	0.02		0.60		0.62		(0.03	)	(2.50	)	(2.53	)	8.61	7.62 (e)
2014	10.10	0.01		1.29		1.30		(0.03	)	(0.85	)	(0.88	)	10.52	13.80
2013	8.23	0.05		1.98		2.03		(0.04	)	(0.12	)	(0.16	)	10.10	25.12
2012	8.13	0.02		0.78		0.80		(0.01	)	(0.69	)	(0.70	)	8.23	11.29
R-5 Shares
2016	8.74	0.03		(0.02	)	0.01		(0.02	)	(1.16	)	(1.18	)	7.57	0.32
2015	10.63	0.03		0.61		0.64		(0.03	)	(2.50	)	(2.53	)	8.74	7.68
2014	10.19	0.03		1.30		1.33		(0.04	)	(0.85	)	(0.89	)	10.63	13.99
2013	8.31	0.06		2.00		2.06		(0.06	)	(0.12	)	(0.18	)	10.19	25.28
2012	8.20	0.04		0.78		0.82		(0.02	)	(0.69	)	(0.71	)	8.31	11.41

547



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$32,690	1.22	%	1.29	%	0.35	%	46.3	%
33,873	1.28		1.35		0.17		86.1
34,858	1.30		1.35		0.06		83.6
32,564	1.32		1.53		0.45		63.6
28,779	1.40		1.61		0.17		64.8

479,594	0.86 (d)		–		0.72		46.3
590,069	0.85 (d)		–		0.63		86.1
1,062,254	0.87 (d)		–		0.50		83.6
1,191,048	0.87 (d)		–		0.91		63.6
1,107,456	0.87 (d)		–		0.71		64.8

786	1.74 (d)		–		(0.16	)	46.3
1,358	1.73 (d)		–		(0.29	)	86.1
1,156	1.75 (d)		–		(0.38	)	83.6
1,293	1.74 (d)		–		0.06		63.6
1,806	1.75 (d)		–		(0.19	)	64.8

1,584	1.61 (d)		–		(0.04	)	46.3
1,559	1.60 (d)		–		(0.15	)	86.1
1,730	1.62 (d)		–		(0.22	)	83.6
3,250	1.61 (d)		–		0.16		63.6
3,038	1.62 (d)		–		—		64.8

3,759	1.43 (d)		–		0.14		46.3
6,719	1.42 (d)		–		0.04		86.1
8,378	1.44 (d)		–		(0.05	)	83.6
11,438	1.43 (d)		–		0.34		63.6
11,537	1.44 (d)		–		0.13		64.8

2,229	1.24 (d)		–		0.33		46.3
2,186	1.23 (d)		–		0.22		86.1
6,060	1.25 (d)		–		0.11		83.6
5,436	1.24 (d)		–		0.54		63.6
5,291	1.25 (d)		–		0.31		64.8

5,284	1.12 (d)		–		0.46		46.3
6,180	1.11 (d)		–		0.37		86.1
10,823	1.13 (d)		–		0.27		83.6
17,351	1.12 (d)		–		0.64		63.6
22,643	1.13 (d)		–		0.45		64.8



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Reflects Manager's contractual expense limit.
(e)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

548



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
LARGECAP S&P 500 INDEX FUND
Class A Shares
2016	$14.79	$0.25	$0.32	$0.57	($0.22)		($0.12)		($0.34)		$15.02	3.97	%
2015	14.35	0.23	0.44	0.67	(0.22	)	(0.01	)	(0.23	)	14.79	4.68
2014	12.46	0.20	1.86	2.06	(0.17	)	–		(0.17	)	14.35	16.70
2013	10.01	0.18	2.42	2.60	(0.15	)	–		(0.15	)	12.46	26.39
2012	8.88	0.14	1.12	1.26	(0.13	)	–		(0.13	)	10.01	14.41
Class C Shares
2016	14.49	0.13	0.31	0.44	(0.12	)	(0.12	)	(0.24	)	14.69	3.11
2015	14.08	0.11	0.44	0.55	(0.13	)	(0.01	)	(0.14	)	14.49	3.92
2014	12.29	0.09	1.82	1.91	(0.12	)	–		(0.12	)	14.08	15.62
2013	9.89	0.09	2.41	2.50	(0.10	)	–		(0.10	)	12.29	25.48
2012	8.78	0.08	1.11	1.19	(0.08	)	–		(0.08	)	9.89	13.71

549



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$289,269	0.48 %	1.70	%	4.2 %
269,123	0.48	1.56		6.3
245,546	0.49 (c)	1.48		5.9
210,726	0.56 (c)	1.63		3.0
164,163	0.65 (c)	1.49		3.5

41,497	1.30 (c)	0.88		4.2
32,500	1.30 (c)	0.74		6.3
25,433	1.30 (c)	0.66		5.9
17,352	1.30 (c)	0.85		3.0
9,111	1.30 (c)	0.84		3.5



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.

550



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
LARGECAP S&P 500 INDEX FUND
Class J Shares
2016	$14.66	$0.26	$0.32	$0.58	($0.23)		($0.12)		($0.35)		$14.89	4.05 %(c)
2015	14.21	0.23	0.45	0.68	(0.22	)	(0.01)		(0.23	)	14.66	4.78 (c)
2014	12.35	0.19	1.84	2.03	(0.17	)	–		(0.17	)	14.21	16.61 (c)
2013	9.93	0.18	2.40	2.58	(0.16	)	–		(0.16	)	12.35	26.39 (c)
2012	8.81	0.15	1.11	1.26	(0.14	)	–		(0.14	)	9.93	14.49 (c)
Institutional Shares
2016	14.80	0.30	0.32	0.62	(0.27	)	(0.12	)	(0.39	)	15.03	4.31
2015	14.35	0.27	0.45	0.72	(0.26	)	(0.01	)	(0.27	)	14.80	5.06
2014	12.47	0.24	1.85	2.09	(0.21	)	–		(0.21	)	14.35	17.00
2013	10.02	0.23	2.42	2.65	(0.20	)	–		(0.20	)	12.47	26.98
2012	8.89	0.19	1.11	1.30	(0.17	)	–		(0.17	)	10.02	14.97
R-1 Shares
2016	14.70	0.17	0.32	0.49	(0.14)		(0.12)		(0.26)		14.93	3.43
2015	14.26	0.15	0.44	0.59	(0.14	)	(0.01)		(0.15	)	14.70	4.16
2014	12.39	0.13	1.84	1.97	(0.10	)	–		(0.10	)	14.26	16.00
2013	9.96	0.13	2.41	2.54	(0.11	)	–		(0.11	)	12.39	25.81
2012	8.83	0.11	1.11	1.22	(0.09	)	–		(0.09	)	9.96	13.98
R-2 Shares
2016	14.80	0.19	0.32	0.51	(0.15	)	(0.12	)	(0.27	)	15.04	3.53
2015	14.35	0.17	0.44	0.61	(0.15	)	(0.01)		(0.16	)	14.80	4.27
2014	12.47	0.14	1.86	2.00	(0.12	)	–		(0.12	)	14.35	16.20
2013	10.02	0.14	2.44	2.58	(0.13	)	–		(0.13	)	12.47	26.00
2012	8.88	0.12	1.12	1.24	(0.10	)	–		(0.10	)	10.02	14.12
R-3 Shares
2016	14.78	0.21	0.33	0.54	(0.18	)	(0.12	)	(0.30	)	15.02	3.74
2015	14.33	0.19	0.45	0.64	(0.18	)	(0.01)		(0.19	)	14.78	4.46
2014	12.45	0.17	1.86	2.03	(0.15	)	–		(0.15	)	14.33	16.43
2013	10.02	0.16	2.42	2.58	(0.15	)	–		(0.15	)	12.45	26.14
2012	8.89	0.13	1.13	1.26	(0.13	)	–		(0.13	)	10.02	14.35
R-4 Shares
2016	14.83	0.24	0.33	0.57	(0.21	)	(0.12	)	(0.33	)	15.07	3.96
2015	14.39	0.22	0.44	0.66	(0.21	)	(0.01)		(0.22	)	14.83	4.62
2014	12.50	0.19	1.87	2.06	(0.17	)	–		(0.17	)	14.39	16.67
2013	10.05	0.18	2.44	2.62	(0.17	)	–		(0.17	)	12.50	26.43
2012	8.92	0.15	1.12	1.27	(0.14	)	–		(0.14	)	10.05	14.50

551



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$530,674	0.40	%	0.43	%	1.79	%	4.2	%
518,099	0.45		0.50		1.59		6.3
508,718	0.50		0.54		1.47		5.9
435,774	0.54		0.74		1.66		3.0
349,801	0.59		0.78		1.55		3.5

3,244,789	0.16		–		2.03		4.2
3,232,141	0.16		–		1.87		6.3
2,530,539	0.16		–		1.81		5.9
2,231,434	0.16		0.16		2.02		3.0
1,687,068	0.16		0.16		1.97		3.5

18,393	1.04		–		1.17		4.2
21,157	1.03		–		1.00		6.3
18,889	1.03		–		0.95		5.9
18,762	1.03		–		1.17		3.0
16,940	1.04		–		1.11		3.5

30,093	0.91		–		1.29		4.2
30,689	0.90		–		1.14		6.3
37,848	0.90		–		1.09		5.9
43,560	0.90		–		1.29		3.0
37,824	0.91		–		1.24		3.5

194,613	0.73		–		1.47		4.2
217,562	0.72		–		1.32		6.3
248,852	0.72		–		1.25		5.9
219,693	0.72		–		1.47		3.0
170,210	0.73		–		1.41		3.5

189,284	0.54		–		1.67		4.2
219,215	0.53		–		1.51		6.3
214,570	0.53		–		1.44		5.9
179,047	0.53		–		1.64		3.0
120,923	0.54		–		1.61		3.5



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.

552



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
LARGECAP S&P 500 INDEX FUND
R-5 Shares
2016	$14.95	$0.26	$0.34	$0.60	($0.23)		($0.12)		($0.35)		$15.20	4.11	%
2015	14.50	0.24	0.45	0.69	(0.23	)	(0.01	)	(0.24	)	14.95	4.76
2014	12.60	0.21	1.87	2.08	(0.18	)	–		(0.18	)	14.50	16.73
2013	10.13	0.20	2.45	2.65	(0.18	)	–		(0.18	)	12.60	26.58
2012	8.98	0.17	1.13	1.30	(0.15	)	–		(0.15	)	10.13	14.74

553



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$411,195	0.42	%	-%	1.77	%	4.2	%
381,876	0.41		–	1.63		6.3
418,629	0.41		–	1.56		5.9
354,869	0.41		–	1.77		3.0
260,492	0.42		–	1.73		3.5



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.

554



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
LARGECAP VALUE FUND
Class A Shares
2016	$12.75	$0.19	$(0.41)		$(0.22)		($0.19)		($0.88)		($1.07)		$11.46	(1.69)%
2015	13.9	0.18	0.18		0.36		(0.15	)	(1.36	)	(1.51	)	12.75	2.79
2014	13.58	0.15	1.45		1.60		(0.11	)	(1.17	)	(1.28	)	13.90	12.72
2013	10.89	0.20	2.66		2.86		(0.17	)	–		(0.17	)	13.58	26.68
2012	9.31	0.14	1.52		1.66		(0.08	)	–		(0.08	)	10.89	18.05
Class C Shares
2016	12.41	0.09	(0.40	)	(0.31	)	(0.09	)	(0.88	)	(0.97	)	11.13	(2.54)
2015	13.58	0.07	0.17		0.24		(0.05	)	(1.36	)	(1.41	)	12.41	1.88
2014	13.35	0.04	1.42		1.46		(0.06	)	(1.17	)	(1.23	)	13.58	11.78
2013	10.74	0.08	2.64		2.72		(0.11	)	–		(0.11	)	13.35	25.52
2012	9.18	0.07	1.51		1.58		(0.02	)	–		(0.02	)	10.74	17.25
Class P Shares
2016	12.72	0.21	(0.40	)	(0.19	)	(0.22)		(0.88	)	(1.10	)	11.43	(1.44)
2015	13.89	0.21	0.18		0.39		(0.20	)	(1.36	)	(1.56	)	12.72	3.02
2014(d)	13.46	0.06	0.37		0.43		–		–		–		13.89	3.19 (e)

555



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$180,209	0.87 %	1.62	%	99.2 %
202,026	0.86	1.39		90.6
211,555	0.85	1.16		118.8
202,301	0.89	1.63		121.4
167,425	0.99	1.39		117.4

5,968	1.70 (c)	0.80		99.2
7,233	1.70 (c)	0.55		90.6
8,023	1.70 (c)	0.31		118.8
7,115	1.70 (c)	0.62		121.4
2,130	1.70 (c)	0.68		117.4

243	0.62 (c)	1.87		99.2
273	0.61 (c)	1.61		90.6
205	0.61 (c),(f)	1.14 (f)		118.8 (f)



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.
(d)	Period from June 3, 2014, date shares first offered, through October 31, 2014.
(e)	Total return amounts have not been annualized.
(f)	Computed on an annualized basis.

556



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
LARGECAP VALUE FUND
Class J Shares
2016	$12.53	$0.20	($0.40)		($0.20)		($0.20)		($0.88)		($1.08)		$11.25	(1.56)%(c)
2015	13.69	0.18	0.18		0.36		(0.16	)	(1.36	)	(1.52	)	12.53	2.81 (c)
2014	13.39	0.16	1.42		1.58		(0.11	)	(1.17)		(1.28	)	13.69	12.75 (c)
2013	10.74	0.19	2.64		2.83		(0.18	)	–		(0.18	)	13.39	26.74 (c)
2012	9.19	0.14	1.50		1.64		(0.09	)	–		(0.09	)	10.74	17.97 (c)
Institutional Shares
2016	12.75	0.24	(0.40	)	(0.16	)	(0.25	)	(0.88	)	(1.13	)	11.46	(1.24	)
2015	13.90	0.24	0.18		0.42		(0.21	)	(1.36	)	(1.57	)	12.75	3.24
2014	13.58	0.21	1.45		1.66		(0.17	)	(1.17)		(1.34	)	13.90	13.19
2013	10.90	0.25	2.66		2.91		(0.23	)	–		(0.23	)	13.58	27.26
2012	9.32	0.20	1.52		1.72		(0.14	)	–		(0.14	)	10.90	18.71
R-1 Shares
2016	12.60	0.14	(0.40)		(0.26)		(0.14)		(0.88	)	(1.02)		11.32	(2.13	)
2015	13.76	0.12	0.17		0.29		(0.09	)	(1.36	)	(1.45	)	12.60	2.29
2014	13.47	0.09	1.44		1.53		(0.07	)	(1.17	)	(1.24	)	13.76	12.21
2013	10.80	0.15	2.65		2.80		(0.13	)	–		(0.13	)	13.47	26.24
2012	9.23	0.10	1.52		1.62		(0.05	)	–		(0.05	)	10.80	17.65
R-2 Shares
2016	12.64	0.15	(0.40	)	(0.25	)	(0.13	)	(0.88	)	(1.01	)	11.38	(1.97	)
2015	13.81	0.14	0.17		0.31		(0.12	)	(1.36	)	(1.48	)	12.64	2.39
2014	13.52	0.11	1.45		1.56		(0.10	)	(1.17	)	(1.27	)	13.81	12.39
2013	10.84	0.16	2.67		2.83		(0.15	)	–		(0.15	)	13.52	26.40
2012	9.25	0.12	1.52		1.64		(0.05	)	–		(0.05	)	10.84	17.83
R-3 Shares
2016	12.63	0.17	(0.39	)	(0.22	)	(0.18	)	(0.88	)	(1.06	)	11.35	(1.78	)
2015	13.80	0.16	0.18		0.34		(0.15	)	(1.36	)	(1.51	)	12.63	2.60
2014	13.50	0.14	1.44		1.58		(0.11	)	(1.17	)	(1.28	)	13.80	12.57
2013	10.83	0.18	2.67		2.85		(0.18	)	–		(0.18	)	13.50	26.67
2012	9.26	0.14	1.51		1.65		(0.08	)	–		(0.08	)	10.83	18.03
R-4 Shares
2016	12.62	0.20	(0.40	)	(0.20	)	(0.20	)	(0.88	)	(1.08	)	11.34	(1.60	)
2015	13.78	0.19	0.17		0.36		(0.16	)	(1.36	)	(1.52	)	12.62	2.77
2014	13.47	0.16	1.44		1.60		(0.12	)	(1.17	)	(1.29	)	13.78	12.80
2013	10.81	0.20	2.65		2.85		(0.19	)	–		(0.19	)	13.47	26.81
2012	9.24	0.16	1.51		1.67		(0.10	)	–		(0.10	)	10.81	18.26

557



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$61,362	0.73	%	0.76	%	1.77	%	99.2	%
68,986	0.79		0.82		1.46		90.6
75,289	0.83		0.87		1.18		118.8
68,659	0.91		1.11		1.59		121.4
51,317	0.99		1.18		1.39		117.4

2,082,564	0.43		–		2.05		99.2
2,187,554	0.42		–		1.85		90.6
3,432,095	0.41		–		1.59		118.8
2,998,720	0.43		–		2.04		121.4
1,612,943	0.44		–		1.94		117.4

1,370	1.30		–		1.22		99.2
1,384	1.29		–		0.95		90.6
1,415	1.29		–		0.71		118.8
1,517	1.30		–		1.21		121.4
1,115	1.31		–		1.05		117.4

2,256	1.17		–		1.30		99.2
2,048	1.16		–		1.13		90.6
4,144	1.16		–		0.85		118.8
3,487	1.17		–		1.29		121.4
2,032	1.18		–		1.19		117.4

3,701	0.99		–		1.50		99.2
3,815	0.98		–		1.26		90.6
4,508	0.98		–		1.03		118.8
3,725	0.99		–		1.52		121.4
2,753	1.00		–		1.37		117.4

1,442	0.80		–		1.71		99.2
2,116	0.79		–		1.46		90.6
2,579	0.79		–		1.22		118.8
2,721	0.80		–		1.65		121.4
2,117	0.81		–		1.58		117.4



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

558



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
LARGECAP VALUE FUND
R-5 Shares
2016	$12.75	$0.21	($0.41)	($0.20)	($0.21)		($0.88)		($1.09)		$11.46	(1.48)%(d)
2015	13.90	0.20	0.18	0.38	(0.17	)	(1.36	)	(1.53	)	12.75	2.94
2014	13.57	0.18	1.45	1.63	(0.13	)	(1.17	)	(1.30	)	13.90	12.91
2013	10.91	0.22	2.66	2.88	(0.22	)	–		(0.22	)	13.57	26.89
2012	9.32	0.17	1.53	1.70	(0.11	)	–		(0.11	)	10.91	18.44

559



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$4,060	0.68	%	-%	1.85	%	99.2	%
7,201	0.67		–	1.57		90.6
8,092	0.67		–	1.36		118.8
9,285	0.68		–	1.85		121.4
5,500	0.69		–	1.69		117.4



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

560



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
LARGECAP VALUE FUND III
Class J Shares
2016	$15.58	$0.23	$0.18	$0.41	($0.21)		($0.90)		($1.11)		$14.88	3.05 %(c)
2015	15.55	0.19	0.19	0.38	(0.19	)	(0.16	)	(0.35	)	15.58	2.40 (c)
2014	13.56	0.17	1.85	2.02	(0.03	)	–		(0.03	)	15.55	14.96 (c)
2013	10.91	0.15	2.71	2.86	(0.21	)	–		(0.21	)	13.56	26.65 (c)
2012	9.73	0.14	1.17	1.31	(0.13	)	–		(0.13	)	10.91	13.63 (c)
Institutional Shares
2016	15.79	0.28	0.18	0.46	(0.27	)	(0.90	)	(1.17	)	15.08	3.37
2015	15.75	0.25	0.20	0.45	(0.25	)	(0.16	)	(0.41	)	15.79	2.82
2014	13.74	0.22	1.88	2.10	(0.09	)	–		(0.09	)	15.75	15.36
2013	11.07	0.19	2.75	2.94	(0.27	)	–		(0.27	)	13.74	27.13
2012	9.86	0.20	1.19	1.39	(0.18	)	–		(0.18	)	11.07	14.38
R-1 Shares
2016	15.68	0.15	0.18	0.33	(0.13	)	(0.90	)	(1.03)		14.98	2.46
2015	15.68	0.11	0.19	0.30	(0.14	)	(0.16	)	(0.30)		15.68	1.91
2014	13.71	0.08	1.89	1.97	–		–		–		15.68	14.37
2013	11.02	0.10	2.74	2.84	(0.15	)	–		(0.15)		13.71	26.10
2012	9.79	0.10	1.19	1.29	(0.06	)	–		(0.06)		11.02	13.31
R-2 Shares
2016	15.67	0.18	0.17	0.35	(0.09	)	(0.90	)	(0.99	)	15.03	2.56
2015	15.64	0.13	0.20	0.33	(0.14	)	(0.16	)	(0.30	)	15.67	2.11
2014	13.66	0.11	1.87	1.98	–		–		–		15.64	14.49
2013	10.98	0.11	2.74	2.85	(0.17	)	–		(0.17	)	13.66	26.27
2012	9.76	0.12	1.18	1.30	(0.08	)	–		(0.08	)	10.98	13.42
R-3 Shares
2016	16.29	0.20	0.19	0.39	(0.17	)	(0.90	)	(1.07	)	15.61	2.78
2015	16.24	0.17	0.20	0.37	(0.16	)	(0.16	)	(0.32	)	16.29	2.28
2014	14.18	0.14	1.93	2.07	(0.01	)	–		(0.01	)	16.24	14.64
2013	11.39	0.14	2.83	2.97	(0.18	)	–		(0.18	)	14.18	26.47
2012	10.13	0.14	1.23	1.37	(0.11	)	–		(0.11	)	11.39	13.64
R-4 Shares
2016	15.74	0.23	0.19	0.42	(0.21	)	(0.90	)	(1.11)		15.05	2.97 (f)
2015	15.72	0.19	0.19	0.38	(0.20	)	(0.16	)	(0.36)		15.74	2.46 (f)
2014	13.71	0.16	1.89	2.05	(0.04	)	–		(0.04)		15.72	14.96
2013	11.03	0.16	2.73	2.89	(0.21	)	–		(0.21)		13.71	26.67
2012	9.82	0.16	1.19	1.35	(0.14	)	–		(0.14)		11.03	13.93
R-5 Shares
2016	15.86	0.25	0.18	0.43	(0.23	)	(0.90	)	(1.13	)	15.16	3.09
2015	15.82	0.21	0.20	0.41	(0.21	)	(0.16	)	(0.37	)	15.86	2.56
2014	13.77	0.19	1.89	2.08	(0.03	)	–		(0.03	)	15.82	15.11
2013	11.11	0.17	2.74	2.91	(0.25	)	–		(0.25	)	13.77	26.72
2012	9.87	0.17	1.20	1.37	(0.13	)	–		(0.13	)	11.11	14.10

561



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$68,742	1.08 %	1.12	%	1.60 %	35.0 %
72,661	1.14	1.18		1.21	27.6
78,435	1.15	1.20		1.14	41.3 (d)
73,120	1.22	1.43		1.21	64.8
62,870	1.31	1.52		1.33	58.3

1,634,892	0.77 (e)	–		1.91	35.0
1,796,638	0.76 (e)	–		1.60	27.6
2,804,940	0.76 (e)	–		1.51	41.3 (d)
1,657,474	0.79 (e)	–		1.56	64.8
677,325	0.78 (e)	–		1.92	58.3

4,072	1.65 (e)	–		1.03	35.0
4,604	1.64 (e)	–		0.71	27.6
5,160	1.63 (e)	–		0.56	41.3 (d)
2,175	1.67 (e)	–		0.79	64.8
2,369	1.66 (e)	–		0.99	58.3

3,096	1.52 (e)	–		1.20	35.0
5,018	1.51 (e)	–		0.84	27.6
5,737	1.50 (e)	–		0.75	41.3 (d)
5,605	1.54 (e)	–		0.92	64.8
6,283	1.53 (e)	–		1.15	58.3

11,209	1.34 (e)	–		1.34	35.0
11,864	1.33 (e)	–		1.02	27.6
15,163	1.32 (e)	–		0.94	41.3 (d)
10,306	1.36 (e)	–		1.09	64.8
9,792	1.35 (e)	–		1.31	58.3

5,659	1.15 (e)	–		1.53	35.0
6,276	1.14 (e)	–		1.22	27.6
9,314	1.13 (e)	–		1.09	41.3 (d)
5,773	1.17 (e)	–		1.27	64.8
5,167	1.16 (e)	–		1.58	58.3

7,123	1.03 (e)	–		1.65	35.0
11,280	1.02 (e)	–		1.32	27.6
9,397	1.01 (e)	–		1.26	41.3 (d)
8,642	1.05 (e)	–		1.40	64.8
8,898	1.04 (e)	–		1.63	58.3



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Portfolio turnover rate excludes approximately $123,553,000 of sales from portfolio realignment from the acquisition of LargeCap Value Fund I.
(e)	Reflects Manager's contractual expense limit.
(f)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

562



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
MIDCAP FUND
Class A Shares
2016	$22.25	$0.04		$0.79	$0.83	$–		($1.29)		($1.29)		$21.79	4.14 %
2015	21.99	(0.01	)	1.35	1.34	–		(1.08	)	(1.08	)	22.25	6.35
2014	19.87	0.02		2.52	2.54	–		(0.42	)	(0.42	)	21.99	13.05
2013	15.46	0.04		4.74	4.78	(0.14	)	(0.23	)	(0.37	)	19.87	31.58
2012	14.05	0.05		2.20	2.25	(0.03	)	(0.81	)	(0.84	)	15.46	17.19
Class C Shares
2016	20.77	(0.11	)	0.73	0.62	–		(1.29	)	(1.29	)	20.10	3.39
2015	20.74	(0.17	)	1.28	1.11	–		(1.08	)	(1.08	)	20.77	5.59
2014	18.90	(0.12	)	2.38	2.26	–		(0.42	)	(0.42	)	20.74	12.22
2013	14.78	(0.09	)	4.53	4.44	(0.09	)	(0.23	)	(0.32	)	18.90	30.63
2012	13.54	(0.05	)	2.10	2.05	–		(0.81	)	(0.81	)	14.78	16.31
Class P Shares
2016	22.54	0.10		0.82	0.92	(0.02	)	(1.29	)	(1.31	)	22.15	4.52
2015	22.28	0.05		1.36	1.41	(0.07	)	(1.08	)	(1.15	)	22.54	6.60
2014	20.10	0.08		2.56	2.64	(0.04	)	(0.42	)	(0.46	)	22.28	13.43
2013	15.63	0.09		4.78	4.87	(0.17	)	(0.23	)	(0.40	)	20.10	31.94
2012	14.20	0.10		2.22	2.32	(0.08	)	(0.81	)	(0.89	)	15.63	17.60

563



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$2,096,851	0.99 %	0.19	%	22.4 %
1,995,620	0.98	(0.06	)	22.6
1,863,094	1.00	0.11		18.3
1,990,943	1.02	0.24		13.0
1,121,880	1.08 (c)	0.37		21.1

309,404	1.73	(0.57	)	22.4
346,242	1.71	(0.79	)	22.6
353,109	1.74 (c)	(0.63	)	18.3
346,941	1.77 (c)	(0.54	)	13.0
127,165	1.82 (c)	(0.35	)	21.1

2,807,462	0.70 (c)	0.48		22.4
2,478,644	0.70 (c)	0.21		22.6
1,841,917	0.71 (c)	0.38		18.3
1,264,841	0.73 (c)	0.50		13.0
515,469	0.79 (c)	0.68		21.1



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.

564



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
MIDCAP FUND
Class J Shares
2016	$21.47	$0.07		$0.77	$0.84	$–		($1.29)		($1.29)		$21.02	4.35 %(c)
2015	21.27	0.01		1.30	1.31	(0.03)		(1.08	)	(1.11	)	21.47	6.42 (c)
2014	19.21	0.04		2.44	2.48	–		(0.42	)	(0.42	)	21.27	13.18 (c)
2013	14.95	0.05		4.57	4.62	(0.13	)	(0.23	)	(0.36	)	19.21	31.56 (c)
2012	13.60	0.05		2.13	2.18	(0.02	)	(0.81	)	(0.83	)	14.95	17.27 (c)
Institutional Shares
2016	22.60	0.11		0.82	0.93	(0.03	)	(1.29	)	(1.32	)	22.21	4.49 (d)
2015	22.33	0.05		1.38	1.43	(0.08	)	(1.08	)	(1.16	)	22.60	6.71 (d)
2014	20.15	0.09		2.56	2.65	(0.05	)	(0.42	)	(0.47	)	22.33	13.45
2013	15.67	0.10		4.80	4.90	(0.19	)	(0.23	)	(0.42	)	20.15	32.04
2012	14.22	0.12		2.22	2.34	(0.08	)	(0.81	)	(0.89	)	15.67	17.72
R-1 Shares
2016	21.11	(0.06)		0.74	0.68	–		(1.29)		(1.29)		20.50	3.63
2015	21.02	(0.12	)	1.29	1.17	–		(1.08	)	(1.08	)	21.11	5.81
2014	19.09	(0.07	)	2.42	2.35	–		(0.42	)	(0.42	)	21.02	12.57
2013	14.92	(0.04	)	4.56	4.52	(0.12	)	(0.23	)	(0.35	)	19.09	30.96
2012	13.62	–		2.11	2.11	–		(0.81	)	(0.81	)	14.92	16.68
R-2 Shares
2016	21.33	(0.04	)	0.76	0.72	–		(1.29	)	(1.29	)	20.76	3.79
2015	21.20	(0.09	)	1.30	1.21	–		(1.08	)	(1.08	)	21.33	5.95
2014	19.23	(0.05	)	2.44	2.39	–		(0.42	)	(0.42	)	21.20	12.69
2013	15.00	(0.02	)	4.59	4.57	(0.11	)	(0.23	)	(0.34	)	19.23	31.09
2012	13.66	0.01		2.14	2.15	–		(0.81	)	(0.81	)	15.00	16.93
R-3 Shares
2016	21.90	–		0.79	0.79	–		(1.29	)	(1.29	)	21.40	4.02
2015	21.70	(0.05	)	1.33	1.28	–		(1.08	)	(1.08	)	21.90	6.15
2014	19.64	(0.01	)	2.49	2.48	–		(0.42	)	(0.42	)	21.70	12.89
2013	15.32	0.01		4.68	4.69	(0.14	)	(0.23	)	(0.37	)	19.64	31.30
2012	13.91	0.04		2.18	2.22	–		(0.81	)	(0.81	)	15.32	17.17
R-4 Shares
2016	22.55	0.04		0.81	0.85	–		(1.29	)	(1.29	)	22.11	4.18
2015	22.29	(0.01	)	1.36	1.35	(0.01	)	(1.08	)	(1.09	)	22.55	6.32
2014	20.12	0.03		2.56	2.59	–		(0.42	)	(0.42	)	22.29	13.13
2013	15.66	0.05		4.79	4.84	(0.15	)	(0.23	)	(0.38	)	20.12	31.59
2012	14.23	0.07		2.22	2.29	(0.05	)	(0.81	)	(0.86	)	15.66	17.33

565



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$261,105	0.82	%	0.85	%	0.35	%	22.4	%
278,993	0.88		0.91		0.04		22.6
290,503	0.92		0.96		0.19		18.3
287,254	0.98		1.18		0.31		13.0
222,928	1.10		1.29		0.35		21.1

5,356,398	0.68		–		0.49		22.4
5,328,050	0.67		–		0.23		22.6
3,836,296	0.68		–		0.43		18.3
2,828,522	0.66		0.66		0.59		13.0
1,389,161	0.65		0.65		0.80		21.1

66,856	1.47		–		(0.30	)	22.4
58,620	1.47		–		(0.58	)	22.6
32,574	1.47		–		(0.38	)	18.3
20,791	1.48		–		(0.25	)	13.0
7,778	1.50		–		(0.03	)	21.1

28,422	1.34		–		(0.18	)	22.4
34,310	1.34		–		(0.41	)	22.6
40,695	1.34		–		(0.23	)	18.3
40,741	1.35		–		(0.10	)	13.0
21,181	1.37		–		0.08		21.1

123,971	1.16		–		—		22.4
151,776	1.16		–		(0.24	)	22.6
158,675	1.16		–		(0.05	)	18.3
155,477	1.17		–		0.08		13.0
77,423	1.19		–		0.28		21.1

145,709	0.97		–		0.19		22.4
154,669	0.97		–		(0.06	)	22.6
168,845	0.97		–		0.14		18.3
163,047	0.98		–		0.28		13.0
90,257	1.00		–		0.44		21.1



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

566



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
MIDCAP FUND
R-5 Shares
2016	$22.38	$0.07	$0.80	$0.87	$-		($1.29)		($1.29)		$21.96	4.31	%
2015	22.13	0.01	1.36	1.37	(0.04	)	(1.08	)	(1.12	)	22.38	6.46
2014	19.98	0.05	2.54	2.59	(0.02	)	(0.42	)	(0.44	)	22.13	13.25
2013	15.55	0.07	4.75	4.82	(0.16	)	(0.23	)	(0.39	)	19.98	31.74
2012	14.12	0.08	2.21	2.29	(0.05	)	(0.81	)	(0.86	)	15.55	17.46

567



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$304,581	0.85	%	-%	0.31	%	22.4	%
325,637	0.85		–	0.06		22.6
266,198	0.85		–	0.25		18.3
196,640	0.86		–	0.37		13.0
77,833	0.88		–	0.57		21.1



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

568



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
MIDCAP GROWTH FUND
Class J Shares
2016	$5.84	$0.01		$(0.19)		$(0.18)		($0.16)		($0.16)		$5.50	(3.03)%(c)
2015	6.96	(0.04	)	0.51		0.47		(1.59	)	(1.59	)	5.84	8.34 (c)
2014	8.00	(0.04	)	0.87		0.83		(1.87	)	(1.87	)	6.96	12.73 (c)
2013	6.51	(0.04	)	1.95		1.91		(0.42	)	(0.42	)	8.00	31.12 (c)
2012	7.15	(0.04	)	0.31		0.27		(0.91	)	(0.91	)	6.51	5.71 (c)
Institutional Shares
2016	7.25	0.02		(0.23	)	(0.21	)	(0.16	)	(0.16	)	6.88	(2.85)
2015	8.23	(0.01	)	0.62		0.61		(1.59	)	(1.59	)	7.25	8.84
2014	9.08	(0.01	)	1.03		1.02		(1.87	)	(1.87	)	8.23	13.41
2013	7.31	–		2.19		2.19		(0.42	)	(0.42	)	9.08	31.57
2012	7.86	–		0.36		0.36		(0.91	)	(0.91	)	7.31	6.40
R-1 Shares
2016	6.12	(0.02	)	(0.20	)	(0.22	)	(0.16	)	(0.16	)	5.74	(3.56)
2015	7.24	(0.06	)	0.53		0.47		(1.59	)	(1.59	)	6.12	7.95
2014	8.27	(0.07	)	0.91		0.84		(1.87	)	(1.87	)	7.24	12.34
2013	6.74	(0.06	)	2.01		1.95		(0.42	)	(0.42	)	8.27	30.63
2012	7.38	(0.06	)	0.33		0.27		(0.91	)	(0.91	)	6.74	5.48
R-2 Shares
2016	6.54	(0.02	)	(0.21	)	(0.23	)	(0.16	)	(0.16	)	6.15	(3.63)(d)
2015	7.63	(0.06	)	0.56		0.50		(1.59	)	(1.59	)	6.54	8.11 (d)
2014	8.60	(0.06	)	0.96		0.90		(1.87	)	(1.87	)	7.63	12.62
2013	6.98	(0.05	)	2.09		2.04		(0.42	)	(0.42	)	8.60	30.86
2012	7.61	(0.05	)	0.33		0.28		(0.91	)	(0.91	)	6.98	5.45
R-3 Shares
2016	6.91	–		(0.24	)	(0.24	)	(0.16	)	(0.16	)	6.51	(3.44)
2015	7.95	(0.05	)	0.60		0.55		(1.59	)	(1.59	)	6.91	8.31
2014	8.87	(0.05	)	1.00		0.95		(1.87	)	(1.87	)	7.95	12.83
2013	7.18	(0.04	)	2.15		2.11		(0.42	)	(0.42	)	8.87	30.99
2012	7.78	(0.04	)	0.35		0.31		(0.91	)	(0.91	)	7.18	5.75
R-4 Shares
2016	7.24	–		(0.23	)	(0.23	)	(0.16	)	(0.16	)	6.85	(3.14)
2015	8.24	(0.04	)	0.63		0.59		(1.59	)	(1.59	)	7.24	8.53
2014	9.12	(0.03	)	1.02		0.99		(1.87	)	(1.87	)	8.24	12.96
2013	7.36	(0.03	)	2.21		2.18		(0.42	)	(0.42	)	9.12	31.20
2012	7.93	(0.03	)	0.37		0.34		(0.91	)	(0.91	)	7.36	6.05
R-5 Shares
2016	7.48	0.01		(0.24	)	(0.23	)	(0.16	)	(0.16	)	7.09	(3.04	)
2015	8.46	(0.03	)	0.64		0.61		(1.59	)	(1.59	)	7.48	8.56
2014	9.30	(0.02	)	1.05		1.03		(1.87	)	(1.87	)	8.46	13.16
2013	7.48	(0.02	)	2.26		2.24		(0.42	)	(0.42	)	9.30	31.51
2012	8.05	(0.02	)	0.36		0.34		(0.91	)	(0.91	)	7.48	5.95

569



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$49,592	1.03 %	1.06	%	0.18 %		110.3 %
65,375	1.20	1.23		(0.64	)	128.9
42,144	1.20	1.24		(0.55	)	184.6
31,805	1.22	1.42		(0.51	)	222.6
23,812	1.28	1.47		(0.60	)	167.6

41,967	0.75	0.81		0.33		110.3
37,603	0.75	0.75		(0.17	)	128.9
33,471	0.75	0.78		(0.14	)	184.6
65,325	0.74	0.77		(0.04	)	222.6
49,383	0.70	0.78		(0.02	)	167.6

1,275	1.55	–		(0.37	)	110.3
1,607	1.56	–		(0.99	)	128.9
1,269	1.56	–		(0.92	)	184.6
1,518	1.56	–		(0.85	)	222.6
1,503	1.56	–		(0.88	)	167.6

3,717	1.42	–		(0.28	)	110.3
3,642	1.43	–		(0.86	)	128.9
2,751	1.43	–		(0.78	)	184.6
2,699	1.43	–		(0.72	)	222.6
2,609	1.43	–		(0.76	)	167.6

9,967	1.24	–		(0.05	)	110.3
11,746	1.25	–		(0.74	)	128.9
4,118	1.25	–		(0.58	)	184.6
3,830	1.25	–		(0.52	)	222.6
5,306	1.25	–		(0.58	)	167.6

6,594	1.05	–		0.03		110.3
5,296	1.06	–		(0.53	)	128.9
2,193	1.06	–		(0.42	)	184.6
2,239	1.06	–		(0.35	)	222.6
2,608	1.06	–		(0.45	)	167.6

16,619	0.93	–		0.21		110.3
17,729	0.94	–		(0.37	)	128.9
14,192	0.94	–		(0.29	)	184.6
15,380	0.94	–		(0.26	)	222.6
19,913	0.94	–		(0.30	)	167.6



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

570



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
MIDCAP GROWTH FUND III
Class J Shares
2016	$8.88	($0.03)		$(0.11)		$(0.14)		$–		($0.50)		($0.5)		$8.24	(1.47)%(c)
2015	11.26	(0.07	)	0.30		0.23		–		(2.61	)	(2.61	)	8.88	2.53 (c)
2014	12.69	(0.06	)	1.10		1.04		–		(2.47	)	(2.47	)	11.26	9.50 (c)
2013	9.91	(0.06	)	3.08		3.02		–		(0.24	)	(0.24	)	12.69	31.14 (c)
2012	9.71	(0.05	)	0.25		0.20		–		–		–		9.91	2.06 (c)
Institutional Shares
2016	10.42	–		(0.13	)	(0.13	)	–		(0.50	)	(0.50	)	9.79	(1.15)
2015	12.72	(0.04	)	0.35		0.31		–		(2.61	)	(2.61	)	10.42	2.93
2014	13.97	(0.01	)	1.23		1.22		–		(2.47	)	(2.47	)	12.72	9.99
2013	10.87	–		3.38		3.38		(0.04	)	(0.24	)	(0.28	)	13.97	31.78
2012	10.59	0.01		0.27		0.28		–		–		–		10.87	2.64
R-1 Shares
2016	9.04	(0.08	)	(0.11	)	(0.19	)	–		(0.50	)	(0.50	)	8.35	(2.03)
2015	11.46	(0.12	)	0.31		0.19		–		(2.61	)	(2.61	)	9.04	2.05
2014	12.91	(0.11	)	1.13		1.02		–		(2.47	)	(2.47	)	11.46	9.12
2013	10.12	(0.10	)	3.13		3.03		–		(0.24	)	(0.24	)	12.91	30.57
2012	9.95	(0.08	)	0.25		0.17		–		–		–		10.12	1.71
R-2 Shares
2016	9.34	(0.07	)	(0.11	)	(0.18	)	–		(0.50	)	(0.50	)	8.66	(1.95)(e)
2015	11.75	(0.11	)	0.31		0.20		–		(2.61	)	(2.61	)	9.34	2.21 (e)
2014	13.16	(0.09	)	1.15		1.06		–		(2.47	)	(2.47	)	11.75	9.27
2013	10.30	(0.09	)	3.19		3.10		–		(0.24	)	(0.24	)	13.16	30.72
2012	10.11	(0.07	)	0.26		0.19		–		–		–		10.30	1.88
R-3 Shares
2016	9.99	(0.06	)	(0.12	)	(0.18	)	–		(0.50	)	(0.50	)	9.31	(1.72)
2015	12.36	(0.09	)	0.33		0.24		–		(2.61	)	(2.61	)	9.99	2.36
2014	13.71	(0.08	)	1.20		1.12		–		(2.47	)	(2.47	)	12.36	9.36
2013	10.70	(0.07	)	3.32		3.25		–		(0.24	)	(0.24	)	13.71	30.98
2012	10.48	(0.05	)	0.27		0.22		–		–		–		10.70	2.10
R-4 Shares
2016	10.20	(0.04	)	(0.13	)	(0.17	)	–		(0.50	)	(0.50	)	9.53	(1.58)
2015	12.54	(0.07	)	0.34		0.27		–		(2.61	)	(2.61	)	10.20	2.60
2014	13.85	(0.05	)	1.21		1.16		–		(2.47	)	(2.47	)	12.54	9.58
2013	10.79	(0.05	)	3.35		3.30		–		(0.24	)	(0.24	)	13.85	31.19
2012	10.55	(0.04	)	0.28		0.24		–		–		–		10.79	2.27
R-5 Shares
2016	10.55	(0.03	)	(0.13	)	(0.16	)	–		(0.50	)	(0.50	)	9.89	(1.42	)
2015	12.87	(0.07	)	0.36		0.29		–		(2.61	)	(2.61	)	10.55	2.72
2014	14.13	(0.04	)	1.25		1.21		–		(2.47	)	(2.47	)	12.87	9.76
2013	10.99	(0.03	)	3.41		3.38		–		(0.24	)	(0.24	)	14.13	31.38
2012	10.74	(0.02	)	0.27		0.25		–		–		–		10.99	2.33

571



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$31,465	1.30 %	1.36	%	(0.39)%		64.6 %
35,147	1.37	1.43		(0.77	)	64.6
37,273	1.41	1.47		(0.53	)	131.4
37,316	1.43	1.65		(0.53	)	105.0
29,541	1.50	1.71		(0.48	)	127.6

1,302,544	0.95 (d)	–		(0.04	)	64.6
1,319,604	0.95 (d)	–		(0.34	)	64.6
1,378,931	0.95 (d)	–		(0.07	)	131.4
1,406,949	0.95 (d)	–		(0.04	)	105.0
1,310,305	0.95 (d)	–		0.07		127.6

2,023	1.82 (d)	–		(0.90	)	64.6
2,914	1.83 (d)	–		(1.22	)	64.6
3,400	1.83 (d)	–		(0.95	)	131.4
3,446	1.83 (d)	–		(0.88	)	105.0
3,731	1.83 (d)	–		(0.82	)	127.6

3,057	1.69 (d)	–		(0.79	)	64.6
4,233	1.70 (d)	–		(1.09	)	64.6
4,970	1.70 (d)	–		(0.81	)	131.4
6,205	1.70 (d)	–		(0.78	)	105.0
6,229	1.70 (d)	–		(0.69	)	127.6

6,088	1.51 (d)	–		(0.60	)	64.6
8,561	1.52 (d)	–		(0.87	)	64.6
18,078	1.52 (d)	–		(0.63	)	131.4
22,048	1.52 (d)	–		(0.58	)	105.0
23,334	1.52 (d)	–		(0.50	)	127.6

5,682	1.32 (d)	–		(0.41	)	64.6
8,250	1.33 (d)	–		(0.68	)	64.6
22,511	1.33 (d)	–		(0.44	)	131.4
27,086	1.33 (d)	–		(0.39	)	105.0
24,559	1.33 (d)	–		(0.32	)	127.6

7,628	1.20 (d)	–		(0.28	)	64.6
10,947	1.21 (d)	–		(0.61	)	64.6
11,399	1.21 (d)	–		(0.30	)	131.4
20,890	1.21 (d)	–		(0.22	)	105.0
37,395	1.21 (d)	–		(0.19	)	127.6



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Reflects Manager's contractual expense limit.
(e)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

572



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
MIDCAP S&P 400 INDEX FUND
Class J Shares
2016	$19.04	$0.23	$0.72	$0.95	($0.18)		($1.19)		($1.37)		$18.62	5.63 %(c)
2015	19.58	0.18	0.35	0.53	(0.16	)	(0.91	)	(1.07	)	19.04	2.84 (c)
2014	18.35	0.15	1.80	1.95	(0.12	)	(0.60	)	(0.72	)	19.58	10.96 (c)
2013	14.43	0.14	4.40	4.54	(0.13	)	(0.49	)	(0.62	)	18.35	32.57 (c)
2012	13.60	0.10	1.34	1.44	(0.07	)	(0.54	)	(0.61	)	14.43	11.31 (c)
Institutional Shares
2016	19.50	0.29	0.74	1.03	(0.24	)	(1.19	)	(1.43	)	19.10	5.96
2015	20.03	0.25	0.36	0.61	(0.23	)	(0.91	)	(1.14	)	19.50	3.20
2014	18.74	0.23	1.84	2.07	(0.18	)	(0.60	)	(0.78	)	20.03	11.44
2013	14.73	0.22	4.47	4.69	(0.19	)	(0.49	)	(0.68	)	18.74	33.09
2012	13.87	0.17	1.36	1.53	(0.13	)	(0.54	)	(0.67	)	14.73	11.86
R-1 Shares
2016	19.23	0.14	0.73	0.87	(0.07	)	(1.19	)	(1.26	)	18.84	5.11
2015	19.78	0.08	0.35	0.43	(0.07	)	(0.91	)	(0.98	)	19.23	2.30
2014	18.58	0.07	1.82	1.89	(0.09	)	(0.60	)	(0.69	)	19.78	10.48
2013	14.60	0.08	4.46	4.54	(0.07	)	(0.49	)	(0.56	)	18.58	32.08
2012	13.74	0.05	1.36	1.41	(0.01	)	(0.54	)	(0.55	)	14.60	10.92
R-2 Shares
2016	19.75	0.16	0.77	0.93	(0.09	)	(1.19	)	(1.28	)	19.40	5.25
2015	20.28	0.11	0.36	0.47	(0.09	)	(0.91	)	(1.00	)	19.75	2.43
2014	18.98	0.10	1.86	1.96	(0.06	)	(0.60	)	(0.66	)	20.28	10.61
2013	14.89	0.10	4.55	4.65	(0.07	)	(0.49	)	(0.56	)	18.98	32.24
2012	13.99	0.07	1.39	1.46	(0.02	)	(0.54	)	(0.56	)	14.89	11.08
R-3 Shares
2016	19.71	0.20	0.75	0.95	(0.13	)	(1.19	)	(1.32	)	19.34	5.41
2015	20.24	0.15	0.36	0.51	(0.13	)	(0.91	)	(1.04	)	19.71	2.64
2014	18.94	0.13	1.86	1.99	(0.09	)	(0.60	)	(0.69	)	20.24	10.82
2013	14.88	0.13	4.54	4.67	(0.12	)	(0.49	)	(0.61	)	18.94	32.42
2012	14.01	0.09	1.39	1.48	(0.07	)	(0.54	)	(0.61	)	14.88	11.31
R-4 Shares
2016	19.77	0.23	0.76	0.99	(0.17	)	(1.19	)	(1.36	)	19.40	5.63
2015	20.29	0.19	0.36	0.55	(0.16	)	(0.91	)	(1.07	)	19.77	2.86
2014	19.00	0.17	1.86	2.03	(0.14	)	(0.60	)	(0.74	)	20.29	11.02
2013	14.93	0.16	4.55	4.71	(0.15	)	(0.49	)	(0.64	)	19.00	32.66
2012	14.04	0.12	1.40	1.52	(0.09	)	(0.54	)	(0.63	)	14.93	11.54
R-5 Shares
2016	19.93	0.26	0.75	1.01	(0.19	)	(1.19	)	(1.38	)	19.56	5.71
2015	20.44	0.21	0.38	0.59	(0.19	)	(0.91	)	(1.10	)	19.93	3.02
2014	19.13	0.19	1.87	2.06	(0.15	)	(0.60	)	(0.75	)	20.44	11.11
2013	15.02	0.19	4.57	4.76	(0.16	)	(0.49	)	(0.65	)	19.13	32.85
2012	14.12	0.14	1.40	1.54	(0.10	)	(0.54	)	(0.64	)	15.02	11.62

573



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$105,731	0.50 %	0.53	%	1.27 %	17.6 %
93,241	0.54	0.59		0.93	19.8
88,285	0.60	0.64		0.79	13.9
73,163	0.65	0.85		0.86	11.2
47,839	0.66	0.85		0.72	14.5

666,562	0.20	0.20		1.57	17.6
621,745	0.19	0.19		1.26	19.8
534,362	0.20	0.20		1.19	13.9
402,962	0.21	0.21		1.30	11.2
250,683	0.20	0.24		1.18	14.5

12,290	1.04	–		0.74	17.6
19,225	1.04	–		0.42	19.8
20,397	1.04	–		0.35	13.9
12,674	1.04	–		0.50	11.2
9,930	1.04	–		0.34	14.5

15,930	0.91	–		0.86	17.6
17,423	0.91	–		0.56	19.8
21,010	0.91	–		0.49	13.9
20,660	0.91	–		0.62	11.2
17,916	0.91	–		0.47	14.5

104,741	0.73	–		1.05	17.6
114,367	0.73	–		0.74	19.8
124,106	0.73	–		0.67	13.9
133,208	0.73	–		0.79	11.2
83,360	0.73	–		0.64	14.5

104,499	0.54	–		1.23	17.6
119,042	0.54	–		0.92	19.8
110,658	0.54	–		0.85	13.9
89,068	0.54	–		0.97	11.2
53,385	0.54	–		0.84	14.5

196,677	0.42	–		1.35	17.6
199,225	0.42	–		1.05	19.8
215,084	0.42	–		0.98	13.9
181,266	0.42	–		1.09	11.2
113,313	0.42	–		0.96	14.5



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.

574



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
MIDCAP VALUE FUND I
Class J Shares
2016	$14.10	$0.14		$0.12		$0.26		($0.05)		($1.29)		($1.34)		$13.02	2.37 %(c),(d)
2015	16.34	0.04		(0.17	)	(0.13	)	(0.03	)	(2.08	)	(2.11	)	14.10	(0.96)(c),(d)
2014	18.32	0.03		2.17		2.20		(0.04	)	(4.14	)	(4.18	)	16.34	14.64 (c)
2013	14.03	0.07		4.33		4.40		(0.11	)	–		(0.11	)	18.32	31.54 (c)
2012	12.47	0.07		1.51		1.58		(0.02	)	–		(0.02	)	14.03	12.66 (c)
Institutional Shares
2016	14.26	0.18		0.11		0.29		(0.10	)	(1.29	)	(1.39	)	13.16	2.69
2015	16.49	0.10		(0.17	)	(0.07	)	(0.08	)	(2.08	)	(2.16	)	14.26	(0.59)
2014	18.45	0.10		2.18		2.28		(0.10	)	(4.14	)	(4.24	)	16.49	15.07
2013	14.14	0.15		4.34		4.49		(0.18	)	–		(0.18	)	18.45	32.12
2012	12.57	0.15		1.51		1.66		(0.09	)	–		(0.09	)	14.14	13.28
R-1 Shares
2016	13.72	0.06		0.12		0.18		–		(1.29	)	(1.29	)	12.61	1.78 (d)
2015	16.00	(0.03	)	(0.17	)	(0.20	)	–		(2.08	)	(2.08	)	13.72	(1.45)(d)
2014	18.05	(0.04	)	2.13		2.09		–		(4.14	)	(4.14	)	16.00	14.13
2013	13.83	–		4.27		4.27		(0.05	)	–		(0.05	)	18.05	30.99
2012	12.32	0.03		1.48		1.51		–		–		–		13.83	12.26
R-2 Shares
2016	13.82	0.08		0.12		0.20		–		(1.29	)	(1.29	)	12.73	2.00
2015	16.08	(0.01	)	(0.17	)	(0.18	)	–		(2.08	)	(2.08	)	13.82	(1.37	)
2014	18.10	(0.02	)	2.14		2.12		–		(4.14	)	(4.14	)	16.08	14.30
2013	13.87	0.02		4.28		4.30		(0.07	)	–		(0.07	)	18.10	31.14
2012	12.34	0.05		1.48		1.53		–		–		–		13.87	12.40
R-3 Shares
2016	14.03	0.11		0.11		0.22		(0.02	)	(1.29	)	(1.31	)	12.94	2.13
2015	16.26	0.01		(0.16	)	(0.15	)	–		(2.08	)	(2.08	)	14.03	(1.15)
2014	18.25	0.01		2.16		2.17		(0.02	)	(4.14	)	(4.16	)	16.26	14.49
2013	13.99	0.05		4.31		4.36		(0.10	)	–		(0.10	)	18.25	31.32
2012	12.43	0.07		1.50		1.57		(0.01	)	–		(0.01	)	13.99	12.66
R-4 Shares
2016	14.07	0.13		0.13		0.26		(0.05	)	(1.29	)	(1.34	)	12.99	2.35 (d)
2015	16.31	0.04		(0.17	)	(0.13	)	(0.03	)	(2.08	)	(2.11	)	14.07	(0.92)(d)
2014	18.30	0.04		2.16		2.20		(0.05	)	(4.14	)	(4.19	)	16.31	14.66
2013	14.03	0.08		4.32		4.40		(0.13	)	–		(0.13	)	18.30	31.60
2012	12.46	0.09		1.52		1.61		(0.04	)	–		(0.04	)	14.03	12.92
R-5 Shares
2016	14.15	0.15		0.11		0.26		(0.06	)	(1.29	)	(1.35	)	13.06	2.49
2015	16.39	0.06		(0.17	)	(0.11	)	(0.05	)	(2.08	)	(2.13	)	14.15	(0.89	)
2014	18.36	0.06		2.17		2.23		(0.06	)	(4.14	)	(4.20	)	16.39	14.86
2013	14.08	0.10		4.33		4.43		(0.15	)	–		(0.15	)	18.36	31.77
2012	12.52	0.11		1.51		1.62		(0.06	)	–		(0.06	)	14.08	12.98

575



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$65,870	1.23 %	1.35	%	1.07 %		131.3 %
70,488	1.31	1.40		0.27		106.6
77,754	1.36	1.46		0.17		85.3
65,896	1.43	1.65		0.42		98.6
52,378	1.51	1.72		0.56		87.3

944,079	0.94 (e)	–		1.43		131.3
1,518,632	0.94 (e)	–		0.64		106.6
1,377,675	0.94 (e)	–		0.59		85.3
1,279,003	0.98 (e)	–		0.93		98.6
1,431,810	0.98 (e)	–		1.09		87.3

4,475	1.79 (e)	–		0.52		131.3
5,378	1.80 (e)	–		(0.21	)	106.6
6,852	1.80 (e)	–		(0.27	)	85.3
6,643	1.84 (e)	–		—		98.6
6,229	1.85 (e)	–		0.22		87.3

5,592	1.66 (e)	–		0.65		131.3
9,423	1.67 (e)	–		(0.08	)	106.6
12,046	1.67 (e)	–		(0.13	)	85.3
15,229	1.71 (e)	–		0.16		98.6
14,689	1.72 (e)	–		0.35		87.3

20,452	1.48 (e)	–		0.87		131.3
29,970	1.49 (e)	–		0.10		106.6
37,981	1.49 (e)	–		0.05		85.3
39,275	1.53 (e)	–		0.31		98.6
32,137	1.54 (e)	–		0.53		87.3

20,414	1.29 (e)	–		1.03		131.3
27,448	1.30 (e)	–		0.30		106.6
36,994	1.30 (e)	–		0.24		85.3
35,447	1.34 (e)	–		0.50		98.6
27,235	1.35 (e)	–		0.71		87.3

50,945	1.17 (e)	–		1.15		131.3
66,454	1.18 (e)	–		0.41		106.6
83,762	1.18 (e)	–		0.35		85.3
68,821	1.22 (e)	–		0.64		98.6
57,052	1.23 (e)	–		0.85		87.3



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
(e)	Reflects Manager's contractual expense limit.

576



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
MIDCAP VALUE FUND III
Class A Shares
2016	$19.00	$0.19	($0.23)		($0.04)	($0.16)		($0.46)		($0.62)		$18.34	(0.12)%
2015	20.54	0.11	0.06		0.17	(0.22	)	(1.49	)	(1.71	)	19.00	0.82
2014(d)	20.10	0.03	0.41		0.44	–		–		–		20.54	2.19 (e)
Class P Shares
2016	19.12	0.27	(0.23	)	0.04	(0.23	)	(0.46	)	(0.69	)	18.47	0.33
2015	20.58	0.20	0.06		0.26	(0.23	)	(1.49	)	(1.72	)	19.12	1.29
2014(d)	20.10	0.08	0.40		0.48	–		–		–		20.58	2.39 (e)

577



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$15,070	1.30 %(c)	1.07	%	73.7 %
12,058	1.30 (c)	0.55		70.9
1,997	1.30 (c),(f)	0.37 (f)		70.2 (f)

682	0.82 (c)	1.52		73.7
158	0.83 (c)	1.02		70.9
41	0.83 (c),(f)	0.91 (f)		70.2 (f)



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.
(d)	Period from June 3, 2014, date shares first offered, through October 31, 2014.
(e)	Total return amounts have not been annualized.
(f)	Computed on an annualized basis.

578



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
MIDCAP VALUE FUND III
Class J Shares
2016	$18.07	$0.25	($0.22)		$0.03		($0.17)		($0.46)		($0.63)		$17.47	0.29 %(c)
2015	19.52	0.18	0.03		0.21		(0.17	)	(1.49	)	(1.66	)	18.07	1.13 (c)
2014	17.94	0.17	2.09		2.26		(0.15	)	(0.53)		(0.68	)	19.52	12.97 (c)
2013	13.60	0.17	4.33		4.50		(0.16	)	–		(0.16	)	17.94	33.42 (c)
2012	11.97	0.15	1.59		1.74		(0.11	)	–		(0.11	)	13.60	14.65 (c)
Institutional Shares
2016	19.16	0.31	(0.24	)	0.07		(0.23	)	(0.46	)	(0.69	)	18.54	0.50
2015	20.60	0.25	0.04		0.29		(0.24	)	(1.49	)	(1.73	)	19.16	1.46
2014	18.88	0.26	2.20		2.46		(0.21	)	(0.53)		(0.74	)	20.60	13.44
2013	14.31	0.24	4.55		4.79		(0.22	)	–		(0.22	)	18.88	33.96
2012	12.59	0.23	1.66		1.89		(0.17	)	–		(0.17	)	14.31	15.18
R-1 Shares
2016	18.14	0.15	(0.23)		(0.08)		(0.10)		(0.46)		(0.56)		17.50	(0.35	)
2015	19.65	0.07	0.05		0.12		(0.14	)	(1.49	)	(1.63	)	18.14	0.60
2014	18.07	0.08	2.11		2.19		(0.08	)	(0.53	)	(0.61	)	19.65	12.45
2013	13.69	0.10	4.36		4.46		(0.08	)	–		(0.08	)	18.07	32.79
2012	12.03	0.10	1.60		1.70		(0.04	)	–		(0.04	)	13.69	14.20
R-2 Shares
2016	18.27	0.17	(0.22	)	(0.05	)	(0.11	)	(0.46	)	(0.57	)	17.65	(0.18	)
2015	19.76	0.10	0.03		0.13		(0.13	)	(1.49	)	(1.62	)	18.27	0.68
2014	18.18	0.10	2.12		2.22		(0.11	)	(0.53	)	(0.64	)	19.76	12.58
2013	13.79	0.12	4.39		4.51		(0.12	)	–		(0.12	)	18.18	32.94
2012	12.11	0.12	1.61		1.73		(0.05	)	–		(0.05	)	13.79	14.38
R-3 Shares
2016	18.16	0.20	(0.22	)	(0.02	)	(0.15	)	(0.46	)	(0.61	)	17.53	(0.02	)
2015	19.64	0.13	0.05		0.18		(0.17	)	(1.49	)	(1.66	)	18.16	0.93
2014	18.07	0.13	2.11		2.24		(0.14	)	(0.53	)	(0.67	)	19.64	12.75
2013	13.73	0.14	4.37		4.51		(0.17	)	–		(0.17	)	18.07	33.18
2012	12.08	0.15	1.59		1.74		(0.09	)	–		(0.09	)	13.73	14.52
R-4 Shares
2016	18.01	0.23	(0.23	)	–		(0.17	)	(0.46	)	(0.63	)	17.38	0.12
2015	19.48	0.17	0.04		0.21		(0.19	)	(1.49	)	(1.68	)	18.01	1.13
2014	17.92	0.16	2.10		2.26		(0.17	)	(0.53	)	(0.70	)	19.48	12.99
2013	13.61	0.17	4.33		4.50		(0.19	)	–		(0.19	)	17.92	33.44
2012	11.98	0.17	1.58		1.75		(0.12	)	–		(0.12	)	13.61	14.72

579



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$95,056	0.91	%	0.95	%	1.47	%	73.7	%
104,787	0.98		1.02		0.96		70.9
112,480	1.02		1.07		0.93		70.2
103,978	1.05		1.27		1.11		88.3
82,259	1.16		1.36		1.19		52.9

1,025,943	0.65		0.66		1.72		73.7
866,866	0.65		0.66		1.28		70.9
822,011	0.64		0.65		1.29		70.2
640,181	0.66		0.67		1.40		88.3
1,893	0.69		2.25		1.68		52.9

994	1.51 (d)		–		0.88		73.7
1,496	1.51 (d)		–		0.39		70.9
1,046	1.51 (d)		–		0.41		70.2
452	1.53 (d)		–		0.64		88.3
318	1.56 (d)		–		0.79		52.9

1,977	1.38 (d)		–		1.00		73.7
2,204	1.38 (d)		–		0.55		70.9
1,663	1.38 (d)		–		0.53		70.2
1,176	1.40 (d)		–		0.77		88.3
871	1.43 (d)		–		0.93		52.9

17,205	1.20 (d)		–		1.17		73.7
15,024	1.20 (d)		–		0.69		70.9
9,010	1.20 (d)		–		0.69		70.2
4,319	1.22 (d)		–		0.90		88.3
2,188	1.25 (d)		–		1.12		52.9

20,460	1.01 (d)		–		1.37		73.7
18,262	1.01 (d)		–		0.89		70.9
14,160	1.01 (d)		–		0.83		70.2
4,061	1.03 (d)		–		1.04		88.3
1,125	1.06 (d)		–		1.30		52.9



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Reflects Manager's contractual expense limit.
(e)	Period from November 25, 2014, date operations commenced, through October 31, 2015.
(f)	Total return amounts have not been annualized.
(g)	Computed on an annualized basis.

580



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
MIDCAP VALUE FUND III
R-5 Shares
2016	$18.18	$0.26	($0.23)		$0.03		($0.19)		($0.46)		($0.65)		$17.56	0.27	%
2015	19.65	0.19	0.04		0.23		(0.21	)	(1.49	)	(1.70	)	18.18	1.23
2014	18.03	0.19	2.12		2.31		(0.16	)	(0.53	)	(0.69	)	19.65	13.19
2013	13.70	0.20	4.33		4.53		(0.20	)	–		(0.20	)	18.03	33.53
2012	12.05	0.18	1.60		1.78		(0.13	)	–		(0.13	)	13.70	14.96
R-6 Shares
2016	19.16	0.31	(0.24	)	0.07		(0.23	)	(0.46	)	(0.69	)	18.54	0.49
2015(e)	21.10	0.19	(0.40	)	(0.21	)	(0.24	)	(1.49	)	(1.73	)	19.16	(0.94)(f)

581



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Gross Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$28,552	0.89 (d)	-%	1.49	%	73.7	%
27,790	0.89 (d)	–	1.03		70.9
17,886	0.89 (d)	–	1.03		70.2
11,095	0.91 (d)	–	1.26		88.3
6,614	0.94 (d)	–	1.41		52.9

3,504	0.69 (d)	–	1.69		73.7
3,846	0.69 (d),(g)	–	1.06 (g)		70.9 (g)



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Reflects Manager's contractual expense limit.
(e)	Period from November 25, 2014, date operations commenced, through October 31, 2015.
(f)	Total return amounts have not been annualized.
(g)	Computed on an annualized basis.

582



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Dividends from Net Investment Income	Total Dividends and Distributions	Net Asset Value, End of Period	Total Return(b)
MONEY MARKET FUND
Class A Shares
2016	$1.00	$–	$–	$–	$1.00	0.00	%
2015	1.00	–	–	–	1.00	0.00
2014	1.00	–	–	–	1.00	0.00
2013	1.00	–	–	–	1.00	0.00
2012	1.00	–	–	–	1.00	0.00
Class C Shares
2016	1.00	–	–	–	1.00	0.00
2015	1.00	–	–	–	1.00	0.00
2014	1.00	–	–	–	1.00	0.00
2013	1.00	–	–	–	1.00	0.00
2012	1.00	–	–	–	1.00	0.00

583



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Gross Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets


$451,554	0.50 %	0.54 %(c)	0.00 %
465,970	0.20	0.53 (c)	0.00
471,109	0.17	0.54 (c)	0.00
472,504	0.21	0.54 (c)	0.00
458,037	0.29	0.58 (c)	0.00

19,863	0.50	1.65 (d)	0.00
19,896	0.20	1.64 (d)	0.00
17,977	0.17	1.67 (d)	0.00
21,232	0.21	1.66 (d)	0.00
17,320	0.29	1.68 (d)	0.00



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Excludes expense reimbursement from Manager.
(d)	Excludes expense reimbursement from Manager and/or Distributor.

584



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Total Dividends and Distributions	Net Asset Value, End of Period	Total Return
MONEY MARKET FUND
Class J Shares
2016	$1.00	$–	$–	$1.00	0.00 %(c)
2015	1.00	–	–	1.00	0.00 (c)
2014	1.00	–	–	1.00	0.00 (c)
2013	1.00	–	–	1.00	0.00 (c)
2012	1.00	–	–	1.00	0.00 (c)
Institutional Shares
2016	1.00	–	–	1.00	0.05
2015	1.00	–	–	1.00	0.00
2014	1.00	–	–	1.00	0.00
2013	1.00	–	–	1.00	0.00
2012	1.00	–	–	1.00	0.00

585



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Gross Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets


$268,364	0.50 %	0.76 %	0.00 %
254,240	0.20	0.83	0.00
249,914	0.17	0.82	0.00
278,536	0.21	0.82	0.00
282,576	0.29	0.87	0.00

51	0.42	0.42	0.05
260,109	0.20	0.42	0.00
337,381	0.17	0.42	0.00
357,925	0.21	0.41	0.00
353,584	0.28	0.43	0.00



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.

586



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
OVERSEAS FUND
Institutional Shares
2016	$10.17	$0.19	($0.59)		($0.40)		($0.18)		($0.19)		($0.37)		$9.40	(3.88	)%
2015	11.51	0.20	(0.73	)	(0.53	)	(0.28	)	(0.53	)	(0.81	)	10.17	(4.66)
2014	12.11	0.25	(0.08	)	0.17		(0.22	)	(0.55	)	(0.77	)	11.51	1.49
2013	9.96	0.24	2.13		2.37		(0.22	)	–		(0.22	)	12.11	24.16
2012	9.89	0.24	0.47		0.71		(0.23	)	(0.41	)	(0.64	)	9.96	8.29
R-1 Shares
2016	10.07	0.10	(0.59	)	(0.49	)	(0.09	)	(0.19	)	(0.28	)	9.30	(4.82	)
2015	11.40	0.10	(0.72	)	(0.62	)	(0.18	)	(0.53	)	(0.71	)	10.07	(5.49)
2014	12.01	0.15	(0.08	)	0.07		(0.13	)	(0.55	)	(0.68	)	11.40	0.63
2013	9.90	0.15	2.11		2.26		(0.15	)	–		(0.15	)	12.01	23.09
2012(c)	9.89	0.15	(0.14	)	0.01		–		–		–		9.90	0.10 (d)
R-2 Shares
2016	10.09	0.12	(0.59	)	(0.47	)	(0.11	)	(0.19	)	(0.30	)	9.32	(4.63	)
2015	11.42	0.11	(0.71	)	(0.60	)	(0.20	)	(0.53	)	(0.73	)	10.09	(5.36	)
2014	12.02	0.16	(0.07	)	0.09		(0.14	)	(0.55	)	(0.69	)	11.42	0.82
2013	9.91	0.16	2.11		2.27		(0.16	)	–		(0.16	)	12.02	23.19
2012(c)	9.89	0.16	(0.14	)	0.02		–		–		–		9.91	0.20 (d)
R-3 Shares
2016	10.08	0.14	(0.59	)	(0.45	)	(0.13	)	(0.19	)	(0.32	)	9.31	(4.43	)
2015	11.41	0.13	(0.71	)	(0.58	)	(0.22	)	(0.53	)	(0.75	)	10.08	(5.12	)
2014	12.04	0.19	(0.08	)	0.11		(0.19	)	(0.55	)	(0.74	)	11.41	0.94
2013	9.92	0.20	2.09		2.29		(0.17	)	–		(0.17	)	12.04	23.42
2012(c)	9.89	0.17	(0.14	)	0.03		–		–		–		9.92	0.30 (d)
R-4 Shares
2016	10.12	0.16	(0.59	)	(0.43	)	(0.15	)	(0.19	)	(0.34	)	9.35	(4.28	)
2015	11.45	0.16	(0.72	)	(0.56	)	(0.24	)	(0.53	)	(0.77	)	10.12	(4.98	)
2014	12.07	0.21	(0.08	)	0.13		(0.20	)	(0.55	)	(0.75	)	11.45	1.15
2013	9.94	0.07	2.25		2.32		(0.19	)	–		(0.19	)	12.07	23.65
2012(c)	9.89	0.18	(0.13	)	0.05		–		–		–		9.94	0.51 (d)
R-5 Shares
2016	10.12	0.17	(0.58	)	(0.41	)	(0.16	)	(0.19	)	(0.35	)	9.36	(4.15)(f)
2015	11.46	0.17	(0.73	)	(0.56	)	(0.25	)	(0.53	)	(0.78	)	10.12	(4.85)(f)
2014	12.06	0.22	(0.07	)	0.15		(0.20	)	(0.55	)	(0.75	)	11.46	1.26
2013	9.95	0.21	2.12		2.33		(0.22	)	–		(0.22	)	12.06	23.75
2012(c)	9.89	0.19	(0.13	)	0.06		–		–		–		9.95	0.61 (d)

587



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$3,080,741	1.07 %(b)	2.05	%	31.8	%
2,654,066	1.06 (b)	1.85		35.8
2,559,657	1.06 (b)	2.14		34.9
2,280,703	1.07 (b)	2.25		35.3
1,707,927	1.08 (b)	2.58		27.9

21	1.94 (b)	1.05		31.8
12	1.93 (b)	0.95		35.8
12	1.93 (b)	1.24		34.9
12	1.94 (b)	1.35		35.3
10	1.94 (b),(e)	2.31 (e)		27.9 (e)

14	1.81 (b)	1.29		31.8
12	1.80 (b)	1.07		35.8
12	1.80 (b)	1.37		34.9
12	1.81 (b)	1.48		35.3
10	1.82 (b),(e)	2.45 (e)		27.9 (e)

321	1.63 (b)	1.49		31.8
281	1.62 (b)	1.25		35.8
249	1.62 (b)	1.58		34.9
172	1.63 (b)	1.85		35.3
10	1.64 (b),(e)	2.61 (e)		27.9 (e)

546	1.44 (b)	1.71		31.8
461	1.43 (b)	1.46		35.8
484	1.43 (b)	1.81		34.9
469	1.44 (b)	0.61		35.3
10	1.45 (b),(e)	2.79 (e)		27.9 (e)

501	1.32 (b)	1.81		31.8
512	1.31 (b)	1.57		35.8
554	1.31 (b)	1.87		34.9
606	1.32 (b)	1.99		35.3
10	1.33 (b),(e)	2.94 (e)		27.9 (e)



(a)	Calculated based on average shares outstanding during the period.
(b)	Reflects Manager's contractual expense limit.
(c)	Period from March 1, 2012, date operations commenced, through October 31, 2012.
(d)	Total return amounts have not been annualized.
(e)	Computed on an annualized basis.
(f)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

588



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
PRINCIPAL CAPITAL APPRECIATION FUND
Class A Shares
2016	$59.26	$0.64	$0.39	$1.03	($0.66)		($2.35)		($3.01)		$57.28	1.91 %
2015	58.80	0.62	2.60	3.22	(0.53	)	(2.23	)	(2.76	)	59.26	5.72
2014	52.54	0.50	7.32	7.82	(0.41	)	(1.15	)	(1.56	)	58.80	15.22
2013	41.72	0.57	11.27	11.84	(0.53	)	(0.49	)	(1.02	)	52.54	28.98
2012	38.14	0.37	3.99	4.36	(0.30	)	(0.48	)	(0.78	)	41.72	11.73
Class C Shares
2016	48.72	0.13	0.32	0.45	(0.35	)	(2.35	)	(2.70	)	46.47	1.05
2015	48.88	0.12	2.15	2.27	(0.20	)	(2.23	)	(2.43	)	48.72	4.87
2014	44.06	0.02	6.11	6.13	(0.16	)	(1.15	)	(1.31	)	48.88	14.22
2013	35.19	0.14	9.49	9.63	(0.27	)	(0.49	)	(0.76	)	44.06	27.89
2012	32.29	0.02	3.40	3.42	(0.04	)	(0.48	)	(0.52	)	35.19	10.83
Class P Shares
2016	60.00	0.78	0.39	1.17	(0.80	)	(2.35	)	(3.15	)	58.02	2.14
2015	59.49	0.77	2.63	3.40	(0.66	)	(2.23	)	(2.89	)	60.00	5.97
2014	53.15	0.62	7.40	8.02	(0.53	)	(1.15	)	(1.68	)	59.49	15.45
2013	42.23	0.67	11.40	12.07	(0.66	)	(0.49	)	(1.15	)	53.15	29.27
2012	38.56	0.48	4.05	4.53	(0.38	)	(0.48	)	(0.86	)	42.23	12.07

589



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$878,686	0.84 %	1.13 %	34.5 %
933,710	0.84	1.06	14.0
810,788	0.82	0.91	8.3
734,098	0.90	1.22	14.3
591,255	0.97	0.92	8.2

46,507	1.67	0.29	34.5
48,298	1.65 (c)	0.25	14.0
42,658	1.67 (c)	0.05	8.3
35,400	1.73 (c)	0.36	14.3
24,958	1.82 (c)	0.06	8.2

29,415	0.60 (c)	1.37	34.5
33,658	0.60 (c)	1.30	14.0
31,028	0.60 (c)	1.11	8.3
21,302	0.67 (c)	1.42	14.3
14,471	0.68 (c)	1.18	8.2



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.

590



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL CAPITAL APPRECIATION FUND
Institutional Shares
2016	$60.21	$0.86	$0.39	$1.25	($0.87)		($2.35)		($3.22)		$58.24	2.27	%
2015	59.67	0.86	2.64	3.50	(0.73	)	(2.23	)	(2.96	)	60.21	6.12
2014	53.31	0.71	7.41	8.12	(0.61	)	(1.15	)	(1.76	)	59.67	15.62
2013	42.34	0.77	11.42	12.19	(0.73	)	(0.49	)	(1.22	)	53.31	29.52
2012	38.63	0.56	4.05	4.61	(0.42	)	(0.48	)	(0.90	)	42.34	12.28
R-1 Shares
2016	59.14	0.37	0.38	0.75	(0.49)		(2.35)		(2.84)		57.05	1.38 (b)
2015	58.68	0.33	2.60	2.93	(0.24	)	(2.23	)	(2.47	)	59.14	5.21 (b)
2014	52.40	0.22	7.30	7.52	(0.09	)	(1.15	)	(1.24	)	58.68	14.60
2013	41.64	0.38	11.24	11.62	(0.37	)	(0.49	)	(0.86	)	52.40	28.39
2012	38.18	0.20	4.01	4.21	(0.27	)	(0.48	)	(0.75	)	41.64	11.32
R-2 Shares
2016	59.28	0.43	0.40	0.83	(0.52	)	(2.35	)	(2.87	)	57.24	1.54
2015	58.79	0.41	2.59	3.00	(0.28	)	(2.23	)	(2.51	)	59.28	5.33
2014	52.56	0.29	7.32	7.61	(0.23	)	(1.15	)	(1.38	)	58.79	14.77
2013	41.78	0.41	11.30	11.71	(0.44	)	(0.49	)	(0.93	)	52.56	28.56
2012	38.26	0.26	4.00	4.26	(0.26	)	(0.48	)	(0.74	)	41.78	11.43
R-3 Shares
2016	59.22	0.53	0.40	0.93	(0.58	)	(2.35	)	(2.93	)	57.22	1.70 (b)
2015	58.78	0.52	2.59	3.11	(0.44	)	(2.23	)	(2.67	)	59.22	5.53 (b)
2014	52.58	0.38	7.32	7.70	(0.35	)	(1.15	)	(1.50	)	58.78	14.97
2013	41.85	0.46	11.33	11.79	(0.57	)	(0.49	)	(1.06	)	52.58	28.79
2012	38.31	0.33	4.01	4.34	(0.32	)	(0.48	)	(0.80	)	41.85	11.64
R-4 Shares
2016	59.66	0.65	0.40	1.05	(0.67	)	(2.35	)	(3.02	)	57.69	1.90 (b)
2015	59.17	0.63	2.62	3.25	(0.53	)	(2.23	)	(2.76	)	59.66	5.73
2014	52.91	0.50	7.35	7.85	(0.44	)	(1.15	)	(1.59	)	59.17	15.17
2013	42.05	0.58	11.37	11.95	(0.60	)	(0.49	)	(1.09	)	52.91	29.05
2012	38.42	0.40	4.03	4.43	(0.32	)	(0.48	)	(0.80	)	42.05	11.83
R-5 Shares
2016	59.86	0.72	0.39	1.11	(0.75	)	(2.35	)	(3.10	)	57.87	2.03
2015	59.34	0.70	2.63	3.33	(0.58	)	(2.23	)	(2.81	)	59.86	5.86
2014	53.06	0.56	7.38	7.94	(0.51	)	(1.15	)	(1.66	)	59.34	15.32
2013	42.15	0.64	11.39	12.03	(0.63	)	(0.49	)	(1.12	)	53.06	29.20
2012	38.50	0.47	4.01	4.48	(0.35	)	(0.48	)	(0.83	)	42.15	11.96

591



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$1,399,596	0.47	%	1.49	%	34.5	%
1,501,149	0.46		1.45		14.0
1,507,343	0.46		1.27		8.3
1,357,704	0.48		1.63		14.3
1,053,972	0.50		1.38		8.2

2,904	1.33		0.65		34.5
4,282	1.33		0.56		14.0
1,635	1.34		0.39		8.3
1,424	1.35		0.82		14.3
1,789	1.37		0.50		8.2

3,393	1.20		0.76		34.5
3,797	1.20		0.70		14.0
2,155	1.21		0.52		8.3
2,228	1.22		0.88		14.3
1,800	1.24		0.65		8.2

29,886	1.02		0.94		34.5
35,202	1.02		0.88		14.0
24,394	1.03		0.70		8.3
19,700	1.04		0.97		14.3
9,790	1.06		0.82		8.2

20,833	0.83		1.13		34.5
23,003	0.83		1.07		14.0
15,267	0.84		0.90		8.3
16,588	0.85		1.22		14.3
9,840	0.87		0.98		8.2

49,392	0.71		1.25		34.5
54,410	0.71		1.19		14.0
36,551	0.72		1.00		8.3
29,179	0.73		1.35		14.3
16,559	0.75		1.15		8.2



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated using the traded net asset value which may differ from the reported net asset value.
	The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

592



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains	Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
PRINCIPAL LIFETIME 2010 FUND
Class A Shares
2016	$13.55	$0.22	$0.14		$0.36	($0.20)		($0.40)	($0.60)		$13.31	2.83	%
2015	13.76	0.26	(0.22	)	0.04	(0.25	)	–	(0.25	)	13.55	0.26
2014	13.18	0.23	0.57		0.80	(0.22	)	–	(0.22	)	13.76	6.14
2013	12.18	0.24	1.01		1.25	(0.25	)	–	(0.25	)	13.18	10.45
2012	11.40	0.20	0.82		1.02	(0.24	)	–	(0.24	)	12.18	9.19

593



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$33,881	0.39 %(c),(d)	1.68	%	15.1 %
42,365	0.41 (c),(d)	1.90		32.7
42,880	0.41 (c),(d)	1.69		24.1
41,988	0.41 (c),(d)	1.93		15.2
38,144	0.41 (c),(d)	1.75		28.7



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Does not include expenses of the investment companies in which the Fund invests.
(d)	Reflects Manager's contractual expense limit.

594



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME 2010 FUND
Class J Shares
2016	$13.44	$0.22	$0.15		$0.37		($0.21)		($0.40)		($0.61)		$13.20	2.98 %(d)
2015	13.65	0.27	(0.22	)	0.05		(0.26	)	–		(0.26	)	13.44	0.36 (d)
2014	13.07	0.23	0.58		0.81		(0.23	)	–		(0.23	)	13.65	6.25 (d)
2013	12.08	0.25	1.00		1.25		(0.26	)	–		(0.26	)	13.07	10.51 (d)
2012	11.31	0.21	0.81		1.02		(0.25	)	–		(0.25	)	12.08	9.22 (d)
Institutional Shares
2016	13.50	0.25	0.16		0.41		(0.25	)	(0.40	)	(0.65	)	13.26	3.25
2015	13.71	0.32	(0.23	)	0.09		(0.30	)	–		(0.30	)	13.50	0.65
2014	13.13	0.27	0.58		0.85		(0.27	)	–		(0.27	)	13.71	6.54
2013	12.14	0.30	0.99		1.29		(0.30	)	–		(0.30	)	13.13	10.81
2012	11.37	0.25	0.81		1.06		(0.29	)	–		(0.29	)	12.14	9.58
R-1 Shares
2016	13.38	0.15	0.14		0.29		(0.12	)	(0.40	)	(0.52	)	13.15	2.33
2015	13.58	0.20	(0.23	)	(0.03	)	(0.17	)	–		(0.17	)	13.38	(0.23	)
2014	13.00	0.17	0.55		0.72		(0.14	)	–		(0.14	)	13.58	5.61
2013	12.01	0.19	0.98		1.17		(0.18	)	–		(0.18	)	13.00	9.90
2012	11.24	0.15	0.80		0.95		(0.18	)	–		(0.18	)	12.01	8.62
R-2 Shares
2016	13.39	0.15	0.15		0.30		(0.14	)	(0.40	)	(0.54	)	13.15	2.37
2015	13.58	0.22	(0.24	)	(0.02	)	(0.17	)	–		(0.17	)	13.39	(0.11	)
2014	13.00	0.18	0.56		0.74		(0.16	)	–		(0.16	)	13.58	5.74
2013	12.00	0.22	0.97		1.19		(0.19	)	–		(0.19	)	13.00	10.09
2012	11.22	0.17	0.80		0.97		(0.19	)	–		(0.19	)	12.00	8.77
R-3 Shares
2016	13.36	0.18	0.14		0.32		(0.16	)	(0.40	)	(0.56	)	13.12	2.60
2015	13.56	0.24	(0.22	)	0.02		(0.22	)	–		(0.22	)	13.36	0.12
2014	12.99	0.19	0.57		0.76		(0.19	)	–		(0.19	)	13.56	5.93
2013	12.01	0.23	0.98		1.21		(0.23	)	–		(0.23	)	12.99	10.20
2012	11.24	0.19	0.79		0.98		(0.21	)	–		(0.21	)	12.01	8.94
R-4 Shares
2016	13.40	0.21	0.14		0.35		(0.19	)	(0.40	)	(0.59	)	13.16	2.80
2015	13.60	0.28	(0.25	)	0.03		(0.23	)	–		(0.23	)	13.40	0.26
2014	13.03	0.23	0.56		0.79		(0.22	)	–		(0.22	)	13.60	6.10
2013	12.03	0.24	1.00		1.24		(0.24	)	–		(0.24	)	13.03	10.52
2012	11.27	0.21	0.79		1.00		(0.24	)	–		(0.24	)	12.03	9.12

595



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$245,736	0.22	%	0.25	%	1.71	%	15.1	%
249,105	0.31		0.34		1.99		32.7
255,331	0.33		0.37		1.71		24.1
235,463	0.34		0.54		2.00		15.2
214,077	0.37		0.56		1.82		28.7

768,118	0.03		–		1.94		15.1
871,781	0.04		–		2.31		32.7
1,096,931	0.04		–		2.04		24.1
1,093,311	0.04		–		2.42		15.2
1,148,980	0.04		–		2.14		28.7

7,515	0.91		–		1.19		15.1
12,141	0.92		–		1.48		32.7
14,995	0.91		–		1.27		24.1
18,403	0.91		–		1.53		15.2
20,503	0.91		–		1.31		28.7

8,387	0.78		–		1.19		15.1
12,072	0.79		–		1.63		32.7
15,736	0.78		–		1.39		24.1
20,762	0.78		–		1.76		15.2
25,982	0.78		–		1.48		28.7

50,539	0.60		–		1.37		15.1
64,152	0.61		–		1.76		32.7
74,667	0.60		–		1.47		24.1
76,245	0.60		–		1.83		15.2
80,009	0.60		–		1.61		28.7

29,697	0.41		–		1.61		15.1
38,245	0.42		–		2.10		32.7
59,247	0.41		–		1.71		24.1
68,271	0.41		–		1.94		15.2
68,441	0.41		–		1.85		28.7



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

596



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains	Total Dividends and Distributions		Net Asset Value, End of Period		Total Return
PRINCIPAL LIFETIME 2010 FUND
R-5 Shares
2016	$13.43	$0.22	$0.15		$0.37	($0.21)		($0.40)	($0.61)		13.19	%	$2.95
2015	13.64	0.28	(0.23	)	0.05	(0.26	)	–	(0.26	)	13.43		0.39
2014	13.06	0.24	0.57		0.81	(0.23	)	–	(0.23	)	13.64		6.29
2013	12.07	0.27	0.99		1.26	(0.27	)	–	(0.27	)	13.06		10.59
2012	11.30	0.22	0.81		1.03	(0.26	)	–	(0.26	)	12.07		9.31

597



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$73,347	0.29	%	-%	1.70	%	15.1	%
90,554	0.30		–	2.06		32.7
108,094	0.29		–	1.77		24.1
113,248	0.29		–	2.16		15.2
114,530	0.29		–	1.90		28.7



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

598



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME 2015 FUND
Institutional Shares
2016	$10.76	$0.19	$0.08		$0.27		($0.18)		($0.68)		($0.86)		$10.17	2.91	%
2015	11.31	0.26	(0.18	)	0.08		(0.27	)	(0.36	)	(0.63	)	10.76	0.72
2014	11.13	0.22	0.54		0.76		(0.21	)	(0.37	)	(0.58	)	11.31	7.12
2013	10.27	0.22	1.09		1.31		(0.23	)	(0.22	)	(0.45	)	11.13	13.25
2012	9.70	0.20	0.73		0.93		(0.22	)	(0.14	)	(0.36	)	10.27	10.01
R-1 Shares
2016	10.47	0.10	0.08		0.18		(0.07	)	(0.68	)	(0.75	)	9.90	2.07
2015	11.02	0.19	(0.22	)	(0.03	)	(0.16	)	(0.36	)	(0.52	)	10.47	(0.23	)
2014	10.86	0.14	0.51		0.65		(0.12	)	(0.37	)	(0.49	)	11.02	6.20
2013	10.03	0.14	1.05		1.19		(0.14	)	(0.22	)	(0.36	)	10.86	12.27
2012	9.48	0.12	0.71		0.83		(0.14	)	(0.14	)	(0.28	)	10.03	9.08
R-2 Shares
2016	10.52	0.12	0.07		0.19		(0.09	)	(0.68	)	(0.77	)	9.94	2.19
2015	11.07	0.19	(0.20	)	(0.01	)	(0.18	)	(0.36	)	(0.54	)	10.52	(0.08	)
2014	10.90	0.12	0.54		0.66		(0.12	)	(0.37	)	(0.49	)	11.07	6.35
2013	10.08	0.16	1.04		1.20		(0.16	)	(0.22	)	(0.38	)	10.90	12.31
2012	9.51	0.13	0.72		0.85		(0.14	)	(0.14	)	(0.28	)	10.08	9.26
R-3 Shares
2016	10.53	0.13	0.08		0.21		(0.12	)	(0.68	)	(0.80	)	9.94	2.38
2015	11.09	0.21	(0.20	)	0.01		(0.21	)	(0.36	)	(0.57	)	10.53	0.07
2014	10.92	0.15	0.54		0.69		(0.15	)	(0.37	)	(0.52	)	11.09	6.60
2013	10.09	0.16	1.07		1.23		(0.18	)	(0.22	)	(0.40	)	10.92	12.58
2012	9.54	0.14	0.72		0.86		(0.17	)	(0.14	)	(0.31	)	10.09	9.39
R-4 Shares
2016	10.60	0.15	0.09		0.24		(0.14	)	(0.68	)	(0.82	)	10.02	2.62
2015	11.15	0.23	(0.20	)	0.03		(0.22	)	(0.36	)	(0.58	)	10.60	0.32
2014	10.98	0.18	0.53		0.71		(0.17	)	(0.37	)	(0.54	)	11.15	6.76
2013	10.15	0.19	1.05		1.24		(0.19	)	(0.22	)	(0.41	)	10.98	12.68
2012	9.59	0.18	0.71		0.89		(0.19	)	(0.14	)	(0.33	)	10.15	9.63
R-5 Shares
2016	10.62	0.16	0.09		0.25		(0.15	)	(0.68	)	(0.83	)	10.04	2.75
2015	11.18	0.25	(0.21	)	0.04		(0.24	)	(0.36	)	(0.60	)	10.62	0.38
2014	11.01	0.19	0.53		0.72		(0.18	)	(0.37	)	(0.55	)	11.18	6.85
2013	10.17	0.19	1.08		1.27		(0.21	)	(0.22	)	(0.43	)	11.01	12.93
2012	9.61	0.15	0.75		0.90		(0.20	)	(0.14	)	(0.34	)	10.17	9.72

599



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$556,606	0.02 %	1.87 %	13.9 %
594,985	0.04	2.41	39.3
844,414	0.04	1.96	24.6
735,777	0.04 (c)	2.13	21.4
580,784	0.04 (c)	1.99	22.7

8,405	0.90	1.03	13.9
10,613	0.92	1.74	39.3
13,884	0.91	1.28	24.6
16,354	0.91	1.38	21.4
15,687	0.92	1.21	22.7

8,043	0.77	1.19	13.9
11,945	0.79	1.78	39.3
14,408	0.78	1.13	24.6
14,150	0.78	1.57	21.4
13,920	0.79	1.30	22.7

73,860	0.59	1.36	13.9
88,009	0.61	1.93	39.3
91,962	0.60	1.38	24.6
82,506	0.60	1.55	21.4
66,650	0.61	1.43	22.7

44,908	0.40	1.52	13.9
53,197	0.42	2.17	39.3
66,135	0.41	1.61	24.6
61,034	0.41	1.83	21.4
50,724	0.42	1.88	22.7

68,496	0.28	1.65	13.9
73,077	0.30	2.34	39.3
90,729	0.29	1.74	24.6
87,721	0.29	1.83	21.4
66,279	0.30	1.53	22.7



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Reflects Manager's contractual expense limit.

600



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
PRINCIPAL LIFETIME 2020 FUND
Class A Shares
2016	$14.24	$0.20	$0.09		$0.29	($0.18)		($0.90)		($1.08)		$13.45	2.31	%
2015	14.99	0.33	(0.25	)	0.08	(0.31	)	(0.52	)	(0.83	)	14.24	0.58
2014	14.32	0.23	0.82		1.05	(0.23	)	(0.15	)	(0.38	)	14.99	7.44
2013	12.66	0.24	1.67		1.91	(0.25	)	–		(0.25	)	14.32	15.35
2012	11.69	0.20	1.00		1.20	(0.23	)	–		(0.23	)	12.66	10.46

601



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$118,522	0.39 %(c),(d)	1.54	%	12.0 %
133,985	0.41 (c),(d)	2.26		33.5
128,189	0.41 (c),(d)	1.60		18.6
118,277	0.41 (c),(d)	1.79		25.7
99,802	0.41 (c),(d)	1.67		21.9



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Does not include expenses of the investment companies in which the Fund invests.
(d)	Reflects Manager's contractual expense limit.

602



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME 2020 FUND
Class J Shares
2016	$14.10	$0.21	$0.10		$0.31	($0.19)		($0.90)		($1.09)		$13.32	2.53 %(d)
2015	14.86	0.35	(0.27	)	0.08	(0.32	)	(0.52	)	(0.84	)	14.10	0.59 (d)
2014	14.19	0.24	0.82		1.06	(0.24	)	(0.15	)	(0.39	)	14.86	7.57 (d)
2013	12.55	0.24	1.66		1.90	(0.26	)	–		(0.26	)	14.19	15.38 (d)
2012	11.59	0.21	0.98		1.19	(0.23	)	–		(0.23	)	12.55	10.49 (d)
Institutional Shares
2016	14.19	0.24	0.10		0.34	(0.23	)	(0.90	)	(1.13	)	13.40	2.71
2015	14.94	0.39	(0.26	)	0.13	(0.36	)	(0.52	)	(0.88	)	14.19	0.95
2014	14.27	0.29	0.81		1.10	(0.28	)	(0.15	)	(0.43	)	14.94	7.84
2013	12.61	0.30	1.66		1.96	(0.30	)	–		(0.30	)	14.27	15.82
2012	11.65	0.25	0.98		1.23	(0.27	)	–		(0.27	)	12.61	10.84
R-1 Shares
2016	14.04	0.13	0.09		0.22	(0.10	)	(0.90	)	(1.00	)	13.26	1.82
2015	14.79	0.28	(0.27	)	0.01	(0.24	)	(0.52	)	(0.76	)	14.04	0.05
2014	14.12	0.18	0.78		0.96	(0.14	)	(0.15	)	(0.29	)	14.79	6.91
2013	12.48	0.19	1.64		1.83	(0.19	)	–		(0.19	)	14.12	14.81
2012	11.53	0.14	0.98		1.12	(0.17	)	–		(0.17	)	12.48	9.84
R-2 Shares
2016	14.02	0.15	0.08		0.23	(0.11	)	(0.90	)	(1.01	)	13.24	1.92
2015	14.76	0.30	(0.27	)	0.03	(0.25	)	(0.52	)	(0.77	)	14.02	0.21
2014	14.10	0.18	0.80		0.98	(0.17	)	(0.15	)	(0.32	)	14.76	7.06
2013	12.47	0.20	1.63		1.83	(0.20	)	–		(0.20	)	14.10	14.87
2012	11.50	0.17	0.97		1.14	(0.17	)	–		(0.17	)	12.47	10.06
R-3 Shares
2016	14.02	0.17	0.10		0.27	(0.15	)	(0.90	)	(1.05	)	13.24	2.19
2015	14.78	0.32	(0.28	)	0.04	(0.28	)	(0.52	)	(0.80	)	14.02	0.30
2014	14.12	0.20	0.81		1.01	(0.20	)	(0.15	)	(0.35	)	14.78	7.27
2013	12.49	0.22	1.64		1.86	(0.23	)	–		(0.23	)	14.12	15.10
2012	11.54	0.18	0.97		1.15	(0.20	)	–		(0.20	)	12.49	10.19
R-4 Shares
2016	14.06	0.19	0.10		0.29	(0.17	)	(0.90	)	(1.07	)	13.28	2.37
2015	14.81	0.37	(0.30	)	0.07	(0.30	)	(0.52	)	(0.82	)	14.06	0.53
2014	14.15	0.24	0.80		1.04	(0.23	)	(0.15	)	(0.38	)	14.81	7.46
2013	12.51	0.23	1.66		1.89	(0.25	)	–		(0.25	)	14.15	15.32
2012	11.56	0.21	0.97		1.18	(0.23	)	–		(0.23	)	12.51	10.40

603



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$900,189	0.20	%	0.23	%	1.64	%	12.0	%
900,725	0.31		0.34		2.42		33.5
879,358	0.33		0.37		1.65		18.6
782,787	0.35		0.55		1.84		25.7
655,845	0.37		0.56		1.73		21.9

3,948,810	0.02		–		1.83		12.0
4,195,249	0.04		–		2.70		33.5
4,743,088	0.04		–		1.96		18.6
4,348,221	0.04		–		2.22		25.7
3,856,280	0.04		–		2.03		21.9

40,455	0.90		–		0.99		12.0
46,993	0.91		–		1.93		33.5
53,222	0.91		–		1.21		18.6
57,842	0.91		–		1.43		25.7
62,546	0.91		–		1.21		21.9

48,551	0.77		–		1.13		12.0
57,059	0.78		–		2.11		33.5
76,267	0.78		–		1.27		18.6
78,817	0.78		–		1.51		25.7
77,610	0.78		–		1.40		21.9

235,954	0.59		–		1.31		12.0
277,010	0.60		–		2.21		33.5
316,368	0.60		–		1.40		18.6
291,200	0.60		–		1.64		25.7
263,407	0.60		–		1.49		21.9

182,490	0.40		–		1.48		12.0
197,589	0.41		–		2.57		33.5
249,613	0.41		–		1.69		18.6
263,543	0.41		–		1.74		25.7
212,684	0.41		–		1.78		21.9



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

604



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME 2020 FUND
R-5 Shares
2016	$14.10	$0.21	$0.10		$0.31	($0.19)		($0.90)		($1.09)		$13.32	2.50	%
2015	14.86	0.36	(0.27	)	0.09	(0.33	)	(0.52	)	(0.85	)	14.10	0.63
2014	14.20	0.24	0.81		1.05	(0.24	)	(0.15	)	(0.39	)	14.86	7.55
2013	12.55	0.26	1.66		1.92	(0.27	)	–		(0.27	)	14.20	15.54
2012	11.60	0.22	0.97		1.19	(0.24	)	–		(0.24	)	12.55	10.50

605



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$375,444	0.28	%	-%	1.62	%	12.0	%
433,423	0.29		–	2.48		33.5
472,434	0.29		–	1.68		18.6
439,570	0.29		–	1.98		25.7
384,604	0.29		–	1.83		21.9



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

606



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME 2025 FUND
Institutional Shares
2016	$11.17	$0.17	$0.07		$0.24	($0.17)		($0.73)		($0.90)		$10.51	2.50	%
2015	11.76	0.29	(0.18	)	0.11	(0.31	)	(0.39	)	(0.70	)	11.17	1.01
2014	11.50	0.22	0.70		0.92	(0.22	)	(0.44	)	(0.66	)	11.76	8.30
2013	10.22	0.22	1.49		1.71	(0.22	)	(0.21	)	(0.43	)	11.50	17.40
2012	9.47	0.19	0.82		1.01	(0.22	)	(0.04	)	(0.26	)	10.22	10.92
R-1 Shares
2016	10.92	0.09	0.05		0.14	(0.07	)	(0.73	)	(0.80	)	10.26	1.55
2015	11.51	0.22	(0.20	)	0.02	(0.22	)	(0.39	)	(0.61	)	10.92	0.19
2014	11.28	0.14	0.66		0.80	(0.13	)	(0.44	)	(0.57	)	11.51	7.31
2013	10.04	0.14	1.45		1.59	(0.14	)	(0.21	)	(0.35	)	11.28	16.33
2012	9.30	0.12	0.80		0.92	(0.14	)	(0.04	)	(0.18	)	10.04	10.04
R-2 Shares
2016	10.95	0.11	0.04		0.15	(0.09	)	(0.73	)	(0.82	)	10.28	1.68
2015	11.53	0.23	(0.20	)	0.03	(0.22	)	(0.39	)	(0.61	)	10.95	0.32
2014	11.29	0.13	0.69		0.82	(0.14	)	(0.44	)	(0.58	)	11.53	7.52
2013	10.06	0.16	1.44		1.60	(0.16	)	(0.21	)	(0.37	)	11.29	16.41
2012	9.32	0.13	0.80		0.93	(0.15	)	(0.04	)	(0.19	)	10.06	10.13
R-3 Shares
2016	10.97	0.12	0.05		0.17	(0.11	)	(0.73	)	(0.84	)	10.30	1.88
2015	11.56	0.24	(0.19	)	0.05	(0.25	)	(0.39	)	(0.64	)	10.97	0.49
2014	11.32	0.15	0.69		0.84	(0.16	)	(0.44	)	(0.60	)	11.56	7.72
2013	10.08	0.15	1.47		1.62	(0.17	)	(0.21	)	(0.38	)	11.32	16.65
2012	9.35	0.13	0.81		0.94	(0.17	)	(0.04	)	(0.21	)	10.08	10.28
R-4 Shares
2016	11.06	0.13	0.06		0.19	(0.13	)	(0.73	)	(0.86	)	10.39	2.01
2015	11.65	0.27	(0.20	)	0.07	(0.27	)	(0.39	)	(0.66	)	11.06	0.65
2014	11.40	0.18	0.69		0.87	(0.18	)	(0.44	)	(0.62	)	11.65	7.94
2013	10.14	0.18	1.48		1.66	(0.19	)	(0.21	)	(0.40	)	11.40	16.93
2012	9.40	0.19	0.77		0.96	(0.18	)	(0.04	)	(0.22	)	10.14	10.50
R-5 Shares
2016	11.10	0.15	0.06		0.21	(0.14	)	(0.73	)	(0.87	)	10.44	2.23
2015	11.69	0.29	(0.21	)	0.08	(0.28	)	(0.39	)	(0.67	)	11.10	0.76
2014	11.43	0.20	0.69		0.89	(0.19	)	(0.44	)	(0.63	)	11.69	8.11
2013	10.17	0.19	1.48		1.67	(0.20	)	(0.21	)	(0.41	)	11.43	17.04
2012	9.43	0.16	0.81		0.97	(0.19	)	(0.04	)	(0.23	)	10.17	10.59

607



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$1,247,487	0.02 %	1.69 %	13.7 %
1,139,392	0.04	2.60	49.9
1,366,540	0.04	1.90	15.8
1,067,809	0.04 (c)	2.03	22.2
751,118	0.04 (c)	1.95	15.4

14,810	0.89	0.89	13.7
16,680	0.91	2.00	49.9
18,238	0.91	1.25	15.8
18,515	0.91	1.35	22.2
16,380	0.92	1.25	15.4

18,268	0.76	1.06	13.7
21,044	0.78	2.07	49.9
21,201	0.78	1.14	15.8
19,431	0.78	1.49	22.2
17,174	0.79	1.38	15.4

172,896	0.58	1.18	13.7
173,313	0.60	2.18	49.9
162,213	0.60	1.30	15.8
127,846	0.60	1.44	22.2
90,350	0.61	1.37	15.4

96,203	0.39	1.28	13.7
80,896	0.41	2.42	49.9
89,551	0.41	1.56	15.8
72,332	0.41	1.70	22.2
51,138	0.42	1.95	15.4

143,138	0.27	1.44	13.7
125,570	0.29	2.60	49.9
143,610	0.29	1.73	15.8
133,941	0.29	1.79	22.2
92,048	0.30	1.60	15.4



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Reflects Manager's contractual expense limit.

608



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
PRINCIPAL LIFETIME 2030 FUND
Class A Shares
2016	$14.44	$0.18	($0.01)		$0.17	($0.16)		($1.01)		($1.17)		$13.44	1.49	%
2015	15.24	0.34	(0.22	)	0.12	(0.34	)	(0.58	)	(0.92	)	14.44	0.88
2014	14.48	0.23	0.95		1.18	(0.23	)	(0.19	)	(0.42	)	15.24	8.36
2013	12.45	0.23	2.04		2.27	(0.24	)	–		(0.24	)	14.48	18.51
2012	11.49	0.19	0.99		1.18	(0.22	)	–		(0.22	)	12.45	10.50

609



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$117,542	0.39 %(c),(d)	1.36	%	15.2 %
125,826	0.41 (c),(d)	2.31		36.0
116,459	0.41 (c),(d)	1.57		15.3
104,960	0.41 (c),(d)	1.74		25.1
84,188	0.41 (c),(d)	1.63		20.0



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Does not include expenses of the investment companies in which the Fund invests.
(d)	Reflects Manager's contractual expense limit.

610



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME 2030 FUND
Class J Shares
2016	$14.37	$0.19	$0.01		$0.20	($0.18)		($1.01)		($1.19)		$13.38	1.68 %(d)
2015	15.17	0.36	(0.23	)	0.13	(0.35	)	(0.58	)	(0.93	)	14.37	0.96 (d)
2014	14.41	0.23	0.96		1.19	(0.24	)	(0.19	)	(0.43	)	15.17	8.45 (d)
2013	12.39	0.23	2.03		2.26	(0.24	)	–		(0.24	)	14.41	18.54 (d)
2012	11.43	0.20	0.98		1.18	(0.22	)	–		(0.22	)	12.39	10.56 (d)
Institutional Shares
2016	14.43	0.22	–		0.22	(0.21	)	(1.01	)	(1.22	)	13.43	1.88
2015	15.22	0.40	(0.22	)	0.18	(0.39	)	(0.58	)	(0.97	)	14.43	1.32
2014	14.46	0.28	0.95		1.23	(0.28	)	(0.19	)	(0.47	)	15.22	8.74
2013	12.44	0.29	2.01		2.30	(0.28	)	–		(0.28	)	14.46	18.85
2012	11.47	0.24	0.99		1.23	(0.26	)	–		(0.26	)	12.44	11.03
R-1 Shares
2016	14.26	0.11	–		0.11	(0.08)		(1.01	)	(1.09)		13.28	1.03
2015	15.07	0.28	(0.25	)	0.03	(0.26	)	(0.58	)	(0.84	)	14.26	0.32
2014	14.31	0.17	0.93		1.10	(0.15	)	(0.19	)	(0.34	)	15.07	7.82
2013	12.31	0.19	1.98		2.17	(0.17	)	–		(0.17	)	14.31	17.83
2012	11.35	0.14	0.98		1.12	(0.16	)	–		(0.16	)	12.31	10.01
R-2 Shares
2016	14.29	0.13	–		0.13	(0.10	)	(1.01	)	(1.11	)	13.31	1.14
2015	15.08	0.32	(0.26	)	0.06	(0.27	)	(0.58	)	(0.85	)	14.29	0.52
2014	14.33	0.19	0.93		1.12	(0.18	)	(0.19	)	(0.37	)	15.08	7.94
2013	12.33	0.21	1.97		2.18	(0.18	)	–		(0.18	)	14.33	17.93
2012	11.36	0.16	0.98		1.14	(0.17	)	–		(0.17	)	12.33	10.17
R-3 Shares
2016	14.33	0.15	–		0.15	(0.13	)	(1.01	)	(1.14	)	13.34	1.35
2015	15.13	0.34	(0.25	)	0.09	(0.31	)	(0.58	)	(0.89	)	14.33	0.67
2014	14.38	0.20	0.95		1.15	(0.21	)	(0.19	)	(0.4	)	15.13	8.14
2013	12.37	0.21	2.01		2.22	(0.21	)	–		(0.21	)	14.38	18.22
2012	11.41	0.18	0.97		1.15	(0.19	)	–		(0.19	)	12.37	10.31
R-4 Shares
2016	14.75	0.18	–		0.18	(0.16	)	(1.01	)	(1.17	)	13.76	1.50
2015	15.54	0.41	(0.29	)	0.12	(0.33	)	(0.58	)	(0.91	)	14.75	0.88
2014	14.76	0.25	0.95		1.20	(0.23	)	(0.19	)	(0.42	)	15.54	8.32
2013	12.68	0.23	2.08		2.31	(0.23	)	–		(0.23	)	14.76	18.50
2012	11.69	0.21	1.00		1.21	(0.22	)	–		(0.22	)	12.68	10.55

611



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$1,066,715	0.22	%	0.25	%	1.47	%	15.2	%
1,046,222	0.32		0.35		2.44		36.0
1,001,423	0.34		0.38		1.59		15.3
867,848	0.36		0.56		1.76		25.1
677,464	0.40		0.59		1.66		20.0

4,517,455	0.02		–		1.66		15.2
4,549,028	0.04		–		2.73		36.0
4,734,382	0.04		–		1.91		15.3
4,198,702	0.04		–		2.17		25.1
3,573,298	0.04		–		2.02		20.0

34,738	0.90		–		0.87		15.2
41,478	0.91		–		1.94		36.0
46,220	0.91		–		1.17		15.3
47,197	0.91		–		1.41		25.1
53,082	0.91		–		1.22		20.0

47,988	0.77		–		0.97		15.2
59,122	0.78		–		2.17		36.0
72,768	0.78		–		1.28		15.3
75,964	0.78		–		1.55		25.1
76,588	0.78		–		1.40		20.0

233,975	0.59		–		1.13		15.2
250,480	0.60		–		2.30		36.0
276,196	0.60		–		1.38		15.3
263,892	0.60		–		1.59		25.1
230,818	0.60		–		1.52		20.0

184,624	0.40		–		1.34		15.2
200,722	0.41		–		2.72		36.0
243,720	0.41		–		1.67		15.3
246,295	0.41		–		1.69		25.1
197,788	0.41		–		1.77		20.0



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

612



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME 2030 FUND
R-5 Shares
2016	$14.39	$0.20	($0.01)		$0.19	($0.17)		($1.01)		($1.18)		$13.40	1.66	%
2015	15.19	0.37	(0.24	)	0.13	(0.35	)	(0.58	)	(0.93	)	14.39	1.00
2014	14.43	0.24	0.96		1.20	(0.25	)	(0.19	)	(0.44	)	15.19	8.50
2013	12.41	0.26	2.01		2.27	(0.25	)	–		(0.25	)	14.43	18.60
2012	11.45	0.22	0.97		1.19	(0.23	)	–		(0.23	)	12.41	10.65

613



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$374,343	0.28	%	-%	1.48	%	15.2	%
422,505	0.29		–	2.50		36.0
441,746	0.29		–	1.65		15.3
416,542	0.29		–	1.93		25.1
346,730	0.29		–	1.81		20.0



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

614



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME 2035 FUND
Institutional Shares
2016	$11.52	$0.16	($0.05)		$0.11	($0.16)		($0.44)		($0.60)		$11.03	1.11	%
2015	12.14	0.28	(0.12	)	0.16	(0.31	)	(0.47	)	(0.78	)	11.52	1.52
2014	11.75	0.21	0.82		1.03	(0.22	)	(0.42	)	(0.64	)	12.14	9.10
2013	10.12	0.21	1.82		2.03	(0.22	)	(0.18	)	(0.40	)	11.75	20.69
2012	9.33	0.17	0.85		1.02	(0.20	)	(0.03	)	(0.23	)	10.12	11.23
R-1 Shares
2016	11.29	0.07	(0.06	)	0.01	(0.06	)	(0.44	)	(0.50	)	10.80	0.21
2015	11.92	0.23	(0.18	)	0.05	(0.21	)	(0.47	)	(0.68	)	11.29	0.57
2014	11.54	0.13	0.78		0.91	(0.11	)	(0.42	)	(0.53	)	11.92	8.22
2013	9.95	0.14	1.76		1.90	(0.13	)	(0.18	)	(0.31	)	11.54	19.61
2012	9.18	0.10	0.82		0.92	(0.12	)	(0.03	)	(0.15	)	9.95	10.23
R-2 Shares
2016	11.28	0.09	(0.06	)	0.03	(0.08	)	(0.44	)	(0.52	)	10.79	0.37
2015	11.91	0.22	(0.15	)	0.07	(0.23	)	(0.47	)	(0.70	)	11.28	0.70
2014	11.54	0.12	0.81		0.93	(0.14	)	(0.42	)	(0.56	)	11.91	8.35
2013	9.96	0.14	1.78		1.92	(0.16	)	(0.18	)	(0.34	)	11.54	19.77
2012	9.19	0.11	0.82		0.93	(0.13	)	(0.03	)	(0.16	)	9.96	10.30
R-3 Shares
2016	11.34	0.11	(0.06	)	0.05	(0.10	)	(0.44	)	(0.54	)	10.85	0.56
2015	11.97	0.24	(0.15	)	0.09	(0.25	)	(0.47	)	(0.72	)	11.34	0.91
2014	11.60	0.14	0.81		0.95	(0.16	)	(0.42	)	(0.58	)	11.97	8.51
2013	10.00	0.14	1.81		1.95	(0.17	)	(0.18	)	(0.35	)	11.60	20.03
2012	9.23	0.12	0.83		0.95	(0.15	)	(0.03	)	(0.18	)	10.00	10.55
R-4 Shares
2016	11.41	0.12	(0.05	)	0.07	(0.12	)	(0.44	)	(0.56	)	10.92	0.71
2015	12.04	0.28	(0.16	)	0.12	(0.28	)	(0.47	)	(0.75	)	11.41	1.10
2014	11.66	0.17	0.81		0.98	(0.18	)	(0.42	)	(0.60	)	12.04	8.74
2013	10.05	0.17	1.81		1.98	(0.19	)	(0.18	)	(0.37	)	11.66	20.25
2012	9.27	0.16	0.81		0.97	(0.16	)	(0.03	)	(0.19	)	10.05	10.79
R-5 Shares
2016	11.45	0.13	(0.04	)	0.09	(0.13	)	(0.44	)	(0.57	)	10.97	0.92
2015	12.08	0.29	(0.16	)	0.13	(0.29	)	(0.47	)	(0.76	)	11.45	1.21
2014	11.69	0.19	0.81		1.00	(0.19	)	(0.42	)	(0.61	)	12.08	8.92
2013	10.08	0.18	1.81		1.99	(0.20	)	(0.18	)	(0.38	)	11.69	20.32
2012	9.30	0.14	0.85		0.99	(0.18	)	(0.03	)	(0.21	)	10.08	10.90

615



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$973,792	0.02 %	1.48 %	15.2 %
888,781	0.04	2.43	38.8
961,514	0.04	1.78	13.4
734,686	0.04 (c)	1.94	22.2
490,889	0.04 (c)	1.78	13.0

12,700	0.89	0.65	15.2
12,831	0.92	1.99	38.8
14,516	0.91	1.15	13.4
14,704	0.91	1.28	22.2
14,603	0.92	1.01	13.0

13,427	0.76	0.84	15.2
15,383	0.79	1.92	38.8
15,138	0.78	0.99	13.4
11,998	0.78	1.30	22.2
9,549	0.79	1.10	13.0

111,881	0.58	1.00	15.2
117,689	0.61	2.06	38.8
108,395	0.60	1.23	13.4
91,530	0.60	1.36	22.2
62,383	0.61	1.26	13.0

70,656	0.39	1.08	15.2
65,678	0.42	2.42	38.8
70,482	0.41	1.48	13.4
53,662	0.41	1.61	22.2
40,305	0.42	1.70	13.0

107,447	0.27	1.24	15.2
98,245	0.30	2.47	38.8
107,166	0.29	1.61	13.4
95,411	0.29	1.65	22.2
57,005	0.30	1.45	13.0



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Reflects Manager's contractual expense limit.

616



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
PRINCIPAL LIFETIME 2040 FUND
Class A Shares
2016	$14.67	$0.17	($0.11)		$0.06	($0.15)		($0.72)		($0.87)		$13.86	0.58	%
2015	15.50	0.34	(0.18	)	0.16	(0.36	)	(0.63	)	(0.99	)	14.67	1.13
2014	14.80	0.21	1.09		1.30	(0.23	)	(0.37	)	(0.60	)	15.50	9.02
2013	12.42	0.22	2.39		2.61	(0.23	)	—		(0.23	)	14.80	21.35
2012	11.42	0.17	1.03		1.20	(0.20	)	—		(0.20	)	12.42	10.73

617



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$84,378	0.39 %(c),(d)	1.24	%	17.9 %
91,391	0.41 (c),(d)	2.25		25.2
82,944	0.41 (c),(d)	1.43		11.5
69,974	0.41 (c),(d)	1.65		30.1
54,432	0.41 (c),(d)	1.44		12.5



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Does not include expenses of the investment companies in which the Fund invests.
(d)	Reflects Manager's contractual expense limit.

618



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME 2040 FUND
Class J Shares
2016	$14.78	$0.18	($0.09)		$0.09	($0.16)		($0.72)		($0.88)		$13.99	0.78 %(d)
2015	15.61	0.35	(0.19	)	0.16	(0.36	)	(0.63	)	(0.99	)	14.78	1.15 (d)
2014	14.90	0.22	1.09		1.31	(0.23	)	(0.37	)	(0.60	)	15.61	9.04 (d)
2013	12.50	0.22	2.41		2.63	(0.23	)	—		(0.23	)	14.90	21.35 (d)
2012	11.49	0.17	1.04		1.21	(0.20	)	—		(0.20	)	12.50	10.71 (d)
Institutional Shares
2016	14.91	0.21	(0.09	)	0.12	(0.21	)	(0.72	)	(0.93	)	14.10	0.94
2015	15.74	0.41	(0.20	)	0.21	(0.41	)	(0.63	)	(1.04	)	14.91	1.47
2014	15.02	0.28	1.09		1.37	(0.28	)	(0.37	)	(0.65	)	15.74	9.38
2013	12.59	0.28	2.42		2.70	(0.27	)	—		(0.27	)	15.02	21.87
2012	11.57	0.22	1.04		1.26	(0.24	)	—		(0.24	)	12.59	11.18
R-1 Shares
2016	14.71	0.09	(0.09	)	—	(0.07	)	(0.72	)	(0.79	)	13.92	0.08
2015	15.54	0.30	(0.22	)	0.08	(0.28	)	(0.63	)	(0.91	)	14.71	0.60
2014	14.83	0.16	1.06		1.22	(0.14	)	(0.37	)	(0.51	)	15.54	8.43
2013	12.44	0.17	2.38		2.55	(0.16	)	—		(0.16	)	14.83	20.71
2012	11.42	0.12	1.04		1.16	(0.14	)	—		(0.14	)	12.44	10.29
R-2 Shares
2016	14.72	0.11	(0.10	)	0.01	(0.08	)	(0.72	)	(0.80	)	13.93	0.19
2015	15.54	0.34	(0.24	)	0.10	(0.29	)	(0.63	)	(0.92	)	14.72	0.73
2014	14.84	0.18	1.06		1.24	(0.17	)	(0.37	)	(0.54	)	15.54	8.58
2013	12.45	0.19	2.38		2.57	(0.18	)	—		(0.18	)	14.84	20.94
2012	11.43	0.14	1.03		1.17	(0.15	)	—		(0.15	)	12.45	10.36
R-3 Shares
2016	14.71	0.13	(0.10	)	0.03	(0.12	)	(0.72	)	(0.84	)	13.90	0.36
2015	15.54	0.33	(0.20	)	0.13	(0.33	)	(0.63	)	(0.96	)	14.71	0.92
2014	14.84	0.19	1.08		1.27	(0.20	)	(0.37	)	(0.57	)	15.54	8.78
2013	12.45	0.20	2.39		2.59	(0.20	)	—		(0.20	)	14.84	21.11
2012	11.44	0.16	1.02		1.18	(0.17	)	—		(0.17	)	12.45	10.54
R-4 Shares
2016	14.74	0.16	(0.09	)	0.07	(0.15	)	(0.72	)	(0.87	)	13.94	0.62
2015	15.57	0.40	(0.25	)	0.15	(0.35	)	(0.63	)	(0.98	)	14.74	1.07
2014	14.87	0.24	1.06		1.30	(0.23	)	(0.37	)	(0.60	)	15.57	8.97
2013	12.47	0.22	2.41		2.63	(0.23	)	—		(0.23	)	14.87	21.39
2012	11.46	0.18	1.03		1.21	(0.20	)	—		(0.20	)	12.47	10.76

619



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$625,617	0.24	%	0.27	%	1.28	%	17.9	%
609,315	0.35		0.38		2.34		25.2
569,314	0.38		0.42		1.45		11.5
484,414	0.40		0.60		1.63		30.1
361,253	0.45		0.64		1.40		12.5

3,052,072	0.02		–		1.50		17.9
3,056,094	0.04		–		2.68		25.2
3,109,551	0.04		–		1.81		11.5
2,718,326	0.04		–		2.07		30.1
2,235,924	0.04		–		1.83		12.5

24,595	0.90		–		0.69		17.9
28,622	0.91		–		2.00		25.2
33,659	0.91		–		1.07		11.5
33,757	0.91		–		1.26		30.1
37,999	0.91		–		0.98		12.5

32,821	0.77		–		0.79		17.9
37,545	0.78		–		2.29		25.2
51,404	0.78		–		1.20		11.5
55,940	0.78		–		1.40		30.1
47,947	0.78		–		1.17		12.5

146,325	0.59		–		0.98		17.9
158,468	0.60		–		2.24		25.2
169,617	0.60		–		1.26		11.5
151,677	0.60		–		1.50		30.1
132,770	0.60		–		1.36		12.5

127,949	0.40		–		1.17		17.9
134,693	0.41		–		2.64		25.2
153,985	0.41		–		1.56		11.5
153,849	0.41		–		1.59		30.1
123,706	0.41		–		1.53		12.5



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

620



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME 2040 FUND
R-5 Shares
2016	$14.83	$0.18	($0.10)		$0.08	($0.17)		($0.72)		($0.89)		$14.02	0.66	%
2015	15.66	0.36	(0.18	)	0.18	(0.38	)	(0.63	)	(1.01	)	14.83	1.23
2014	14.95	0.23	1.09		1.32	(0.24	)	(0.37	)	(0.61	)	15.66	9.11
2013	12.54	0.25	2.40		2.65	(0.24	)	—		(0.24	)	14.95	21.50
2012	11.52	0.19	1.04		1.23	(0.21	)	—		(0.21	)	12.54	10.93

621



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$261,210	0.28	%	-%	1.32	%	17.9	%
295,602	0.29		–	2.39		25.2
292,483	0.29		–	1.52		11.5
260,420	0.29		–	1.84		30.1
204,880	0.29		–	1.63		12.5



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

622



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME 2045 FUND
Institutional Shares
2016	$11.76	$0.16	($0.07)		$0.09		($0.16)		($0.44)		($0.60)		$11.25	0.86	%
2015	12.39	0.29	(0.12	)	0.17		(0.33	)	(0.47	)	(0.80	)	11.76	1.55
2014	11.90	0.21	0.89		1.10		(0.22	)	(0.39	)	(0.61	)	12.39	9.62
2013	10.06	0.20	2.00		2.20		(0.21	)	(0.15	)	(0.36	)	11.90	22.58
2012	9.26	0.16	0.85		1.01		(0.18	)	(0.03	)	(0.21	)	10.06	11.27
R-1 Shares
2016	11.42	0.07	(0.09	)	(0.02	)	(0.05	)	(0.44	)	(0.49	)	10.91	(0.11	)
2015	12.06	0.26	(0.19	)	0.07		(0.24	)	(0.47	)	(0.71	)	11.42	0.67
2014	11.59	0.13	0.84		0.97		(0.11	)	(0.39	)	(0.50	)	12.06	8.75
2013	9.82	0.14	1.92		2.06		(0.14	)	(0.15	)	(0.29	)	11.59	21.44
2012	9.04	0.08	0.84		0.92		(0.11	)	(0.03	)	(0.14	)	9.82	10.40
R-2 Shares
2016	11.42	0.09	(0.09	)	—		(0.08	)	(0.44	)	(0.52	)	10.90	0.04
2015	12.06	0.22	(0.14	)	0.08		(0.25	)	(0.47	)	(0.72	)	11.42	0.77
2014	11.61	0.12	0.86		0.98		(0.14	)	(0.39	)	(0.53	)	12.06	8.83
2013	9.84	0.14	1.94		2.08		(0.16	)	(0.15	)	(0.31	)	11.61	21.65
2012	9.06	0.08	0.85		0.93		(0.12	)	(0.03	)	(0.15	)	9.84	10.53
R-3 Shares
2016	11.51	0.10	(0.08	)	0.02		(0.10	)	(0.44	)	(0.54	)	10.99	0.26
2015	12.14	0.24	(0.13	)	0.11		(0.27	)	(0.47	)	(0.74	)	11.51	1.04
2014	11.68	0.14	0.87		1.01		(0.16	)	(0.39	)	(0.55	)	12.14	9.02
2013	9.89	0.14	1.96		2.10		(0.16	)	(0.15	)	(0.31	)	11.68	21.79
2012	9.11	0.12	0.83		0.95		(0.14	)	(0.03	)	(0.17	)	9.89	10.69
R-4 Shares
2016	11.59	0.11	(0.07	)	0.04		(0.12	)	(0.44	)	(0.56	)	11.07	0.40
2015	12.22	0.30	(0.17	)	0.13		(0.29	)	(0.47	)	(0.76	)	11.59	1.23
2014	11.74	0.17	0.87		1.04		(0.17	)	(0.39	)	(0.56	)	12.22	9.21
2013	9.94	0.18	1.96		2.14		(0.19	)	(0.15	)	(0.34	)	11.74	22.11
2012	9.15	0.11	0.86		0.97		(0.15	)	(0.03	)	(0.18	)	9.94	10.90
R-5 Shares
2016	11.61	0.13	(0.08	)	0.05		(0.13	)	(0.44	)	(0.57	)	11.09	0.50
2015	12.24	0.30	(0.16	)	0.14		(0.30	)	(0.47	)	(0.77	)	11.61	1.34
2014	11.77	0.18	0.88		1.06		(0.20	)	(0.39	)	(0.59	)	12.24	9.37
2013	9.97	0.16	1.98		2.14		(0.19	)	(0.15	)	(0.34	)	11.77	22.13
2012	9.17	0.13	0.86		0.99		(0.16	)	(0.03	)	(0.19	)	9.97	11.15

623



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$634,436	0.03 %	1.41 %	14.7 %
546,736	0.05	2.44	33.3
536,107	0.04	1.71	8.7
399,463	0.05 (c)	1.87	23.3
244,484	0.05 (c)	1.63	8.1

6,930	0.90	0.63	14.7
7,540	0.92	2.22	33.3
9,350	0.92	1.11	8.7
9,201	0.92	1.28	23.3
9,027	0.92	0.85	8.1

10,083	0.77	0.81	14.7
11,626	0.79	1.90	33.3
11,165	0.79	1.01	8.7
9,204	0.79	1.29	23.3
6,674	0.79	0.89	8.1

70,524	0.59	0.91	14.7
67,285	0.61	2.02	33.3
56,544	0.61	1.19	8.7
46,505	0.61	1.35	23.3
30,592	0.61	1.32	8.1

40,967	0.40	1.00	14.7
35,086	0.42	2.56	33.3
37,009	0.42	1.43	8.7
27,277	0.42	1.68	23.3
29,088	0.42	1.20	8.1

87,897	0.28	1.17	14.7
77,534	0.30	2.57	33.3
87,269	0.30	1.51	8.7
69,834	0.30	1.52	23.3
28,899	0.30	1.36	8.1



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Reflects Manager's contractual expense limit.

624



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
PRINCIPAL LIFETIME 2050 FUND
Class A Shares
2016	$14.51	$0.16	($0.13)		$0.03	($0.14)		($0.62)		($0.76)		$13.78	0.36	%
2015	15.31	0.34	(0.17	)	0.17	(0.36	)	(0.61	)	(0.97	)	14.51	1.20
2014	14.61	0.20	1.13		1.33	(0.22	)	(0.41	)	(0.63	)	15.31	9.43
2013	12.11	0.19	2.53		2.72	(0.22	)	—		(0.22	)	14.61	22.78
2012	11.09	0.16	1.03		1.19	(0.17	)	—		(0.17	)	12.11	10.98

625



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$64,995	0.39 %(c),(d)	1.19	%	17.0 %
68,799	0.41 (c),(d)	2.28		21.6
61,439	0.41 (c),(d)	1.35		9.9
50,375	0.41 (c),(d)	1.43		29.5
31,354	0.41 (c),(d)	1.35		10.5



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Does not include expenses of the investment companies in which the Fund invests.
(d)	Reflects Manager's contractual expense limit.

626



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME 2050 FUND
Class J Shares
2016	$14.10	$0.15	($0.11)		$0.04		($0.14)		($0.62)		($0.76)		$13.38	0.41 %(d)
2015	14.91	0.31	(0.16	)	0.15		(0.35	)	(0.61	)	(0.96	)	14.10	1.12 (d)
2014	14.25	0.18	1.10		1.28		(0.21	)	(0.41	)	(0.62	)	14.91	9.30 (d)
2013	11.81	0.20	2.45		2.65		(0.21	)	—		(0.21	)	14.25	22.73 (d)
2012	10.82	0.13	1.02		1.15		(0.16	)	—		(0.16	)	11.81	10.84 (d)
Institutional Shares
2016	14.47	0.19	(0.11	)	0.08		(0.19	)	(0.62	)	(0.81	)	13.74	0.72
2015	15.27	0.39	(0.17	)	0.22		(0.41	)	(0.61	)	(1.02	)	14.47	1.57
2014	14.57	0.26	1.12		1.38		(0.27	)	(0.41	)	(0.68	)	15.27	9.80
2013	12.07	0.27	2.49		2.76		(0.26	)	—		(0.26	)	14.57	23.28
2012	11.05	0.20	1.04		1.24		(0.22	)	—		(0.22	)	12.07	11.45
R-1 Shares
2016	14.27	0.08	(0.11	)	(0.03	)	(0.07	)	(0.62	)	(0.69	)	13.55	(0.12	)
2015	15.08	0.28	(0.19	)	0.09		(0.29	)	(0.61	)	(0.90	)	14.27	0.68
2014	14.39	0.15	1.09		1.24		(0.14	)	(0.41	)	(0.55	)	15.08	8.87
2013	11.92	0.16	2.46		2.62		(0.15	)	—		(0.15	)	14.39	22.20
2012	10.91	0.10	1.03		1.13		(0.12	)	—		(0.12	)	11.92	10.49
R-2 Shares
2016	14.27	0.10	(0.12	)	(0.02	)	(0.08	)	(0.62	)	(0.70	)	13.55	(0.07	)
2015	15.07	0.36	(0.25	)	0.11		(0.30	)	(0.61	)	(0.91	)	14.27	0.82
2014	14.40	0.16	1.09		1.25		(0.17	)	(0.41	)	(0.58	)	15.07	8.98
2013	11.94	0.18	2.46		2.64		(0.18	)	—		(0.18	)	14.40	22.39
2012	10.92	0.12	1.03		1.15		(0.13	)	—		(0.13	)	11.94	10.64
R-3 Shares
2016	14.30	0.12	(0.12	)	—		(0.12	)	(0.62	)	(0.74	)	13.56	0.09
2015	15.10	0.33	(0.19	)	0.14		(0.33	)	(0.61	)	(0.94	)	14.30	1.03
2014	14.42	0.17	1.12		1.29		(0.20	)	(0.41	)	(0.61	)	15.10	9.20
2013	11.95	0.19	2.47		2.66		(0.19	)	—		(0.19	)	14.42	22.59
2012	10.95	0.14	1.01		1.15		(0.15	)	—		(0.15	)	11.95	10.73
R-4 Shares
2016	14.37	0.15	(0.12	)	0.03		(0.14	)	(0.62	)	(0.76	)	13.64	0.35
2015	15.16	0.40	(0.23	)	0.17		(0.35	)	(0.61	)	(0.96	)	14.37	1.22
2014	14.48	0.22	1.09		1.31		(0.22	)	(0.41	)	(0.63	)	15.16	9.33
2013	11.99	0.21	2.50		2.71		(0.22	)	—		(0.22	)	14.48	22.93
2012	10.99	0.15	1.03		1.18		(0.18	)	—		(0.18	)	11.99	10.91

627



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$194,644	0.36	%	0.39	%	1.11	%	17.0	%
183,490	0.47		0.50		2.19		21.6
159,787	0.49		0.53		1.27		9.9
124,651	0.51		0.71		1.51		29.5
88,494	0.56		0.76		1.16		10.5

1,769,456	0.03		–		1.42		17.0
1,671,172	0.04		–		2.67		21.6
1,603,984	0.04		–		1.78		9.9
1,370,372	0.04		–		2.01		29.5
1,031,138	0.04		–		1.72		10.5

16,051	0.90		–		0.62		17.0
17,417	0.92		–		1.91		21.6
18,098	0.91		–		1.00		9.9
16,286	0.91		–		1.19		29.5
17,885	0.91		–		0.84		10.5

21,050	0.77		–		0.73		17.0
23,189	0.79		–		2.51		21.6
31,670	0.78		–		1.09		9.9
29,353	0.78		–		1.35		29.5
21,922	0.78		–		1.04		10.5

77,168	0.59		–		0.90		17.0
76,536	0.61		–		2.26		21.6
78,959	0.60		–		1.19		9.9
68,416	0.60		–		1.43		29.5
52,457	0.60		–		1.26		10.5

64,127	0.40		–		1.11		17.0
66,438	0.42		–		2.74		21.6
73,607	0.41		–		1.53		9.9
69,616	0.41		–		1.60		29.5
57,975	0.41		–		1.30		10.5



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

628



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME 2050 FUND
R-5 Shares
2016	$14.40	$0.17	($0.13)		$0.04	($0.15)		($0.62)		($0.77)		$13.67	0.45	%
2015	15.20	0.35	(0.16	)	0.19	(0.38	)	(0.61	)	(0.99	)	14.40	1.35
2014	14.51	0.22	1.12		1.34	(0.24	)	(0.41	)	(0.65	)	15.20	9.54
2013	12.03	0.23	2.48		2.71	(0.23	)	—		(0.23	)	14.51	22.91
2012	11.01	0.17	1.04		1.21	(0.19	)	—		(0.19	)	12.03	11.19

629



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$155,397	0.28	%	-%	1.25	%	17.0	%
170,071	0.30		–	2.38		21.6
163,844	0.29		–	1.47		9.9
133,924	0.29		–	1.76		29.5
90,201	0.29		–	1.48		10.5



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

630



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME 2055 FUND
Institutional Shares
2016	$12.04	$0.15	($0.09)		$0.06		($0.16)		($0.35)		($0.51)		$11.59	0.61	%
2015	12.56	0.28	(0.09	)	0.19		(0.33	)	(0.38	)	(0.71	)	12.04	1.63
2014	11.98	0.19	0.94		1.13		(0.21	)	(0.34	)	(0.55	)	12.56	9.78
2013	10.02	0.19	2.09		2.28		(0.21	)	(0.11	)	(0.32	)	11.98	23.32
2012	9.22	0.14	0.87		1.01		(0.17	)	(0.04	)	(0.21	)	10.02	11.27
R-1 Shares
2016	11.66	0.05	(0.09	)	(0.04	)	(0.06	)	(0.35	)	(0.41	)	11.21	(0.20	)
2015	12.20	0.21	(0.12	)	0.09		(0.25	)	(0.38	)	(0.63	)	11.66	0.75
2014	11.66	0.11	0.89		1.00		(0.12	)	(0.34	)	(0.46	)	12.20	8.87
2013	9.78	0.13	2.00		2.13		(0.14	)	(0.11	)	(0.25	)	11.66	22.21
2012	9.01	0.07	0.85		0.92		(0.11	)	(0.04	)	(0.15	)	9.78	10.36
R-2 Shares
2016	11.70	0.07	(0.10	)	(0.03	)	(0.08	)	(0.35	)	(0.43	)	11.24	(0.10	)
2015	12.23	0.19	(0.08	)	0.11		(0.26	)	(0.38	)	(0.64	)	11.70	0.95
2014	11.70	0.09	0.92		1.01		(0.14	)	(0.34	)	(0.48	)	12.23	8.92
2013	9.81	0.13	2.03		2.16		(0.16	)	(0.11	)	(0.27	)	11.70	22.47
2012	9.02	0.06	0.87		0.93		(0.10	)	(0.04	)	(0.14	)	9.81	10.43
R-3 Shares
2016	11.77	0.09	(0.09	)	—		(0.10	)	(0.35	)	(0.45	)	11.32	0.16
2015	12.31	0.22	(0.10	)	0.12		(0.28	)	(0.38	)	(0.66	)	11.77	1.01
2014	11.77	0.12	0.92		1.04		(0.16	)	(0.34	)	(0.50	)	12.31	9.18
2013	9.86	0.12	2.07		2.19		(0.17	)	(0.11	)	(0.28	)	11.77	22.65
2012	9.08	0.08	0.87		0.95		(0.13	)	(0.04	)	(0.17	)	9.86	10.69
R-4 Shares
2016	11.85	0.10	(0.08	)	0.02		(0.12	)	(0.35	)	(0.47	)	11.40	0.28
2015	12.39	0.29	(0.15	)	0.14		(0.30	)	(0.38	)	(0.68	)	11.85	1.18
2014	11.83	0.15	0.93		1.08		(0.18	)	(0.34	)	(0.52	)	12.39	9.44
2013	9.91	0.15	2.06		2.21		(0.18	)	(0.11	)	(0.29	)	11.83	22.84
2012	9.12	0.11	0.86		0.97		(0.14	)	(0.04	)	(0.18	)	9.91	10.89
R-5 Shares
2016	11.89	0.11	(0.07	)	0.04		(0.13	)	(0.35	)	(0.48	)	11.45	0.44
2015	12.42	0.28	(0.12	)	0.16		(0.31	)	(0.38	)	(0.69	)	11.89	1.37
2014	11.86	0.16	0.93		1.09		(0.19	)	(0.34	)	(0.53	)	12.42	9.54
2013	9.93	0.15	2.08		2.23		(0.19	)	(0.11	)	(0.30	)	11.86	23.01
2012	9.15	0.10	0.87		0.97		(0.15	)	(0.04	)	(0.19	)	9.93	10.91

631



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$234,603	0.04 %	1.29 %	11.5 %
169,883	0.07 (c)	2.32	22.4
127,374	0.07 (c)	1.60	8.6
84,497	0.09 (c)	1.77	29.1
47,528	0.08 (c)	1.46	15.1

2,723	0.90 (c)	0.43	11.5
2,254	0.93 (c)	1.74	22.4
1,861	0.93 (c)	0.94	8.6
1,453	0.93 (c)	1.21	29.1
1,148	0.94 (c)	0.79	15.1

2,743	0.77 (c)	0.62	11.5
2,398	0.80 (c)	1.64	22.4
1,751	0.80 (c)	0.75	8.6
1,142	0.80 (c)	1.26	29.1
715	0.81 (c)	0.59	15.1

21,628	0.59 (c)	0.79	11.5
16,439	0.62 (c)	1.81	22.4
11,168	0.62 (c)	1.04	8.6
7,790	0.62 (c)	1.13	29.1
3,765	0.63 (c)	0.83	15.1

15,452	0.40 (c)	0.89	11.5
11,748	0.43 (c)	2.38	22.4
10,401	0.43 (c)	1.27	8.6
6,590	0.43 (c)	1.37	29.1
3,511	0.44 (c)	1.18	15.1

28,139	0.28 (c)	1.02	11.5
19,662	0.31 (c)	2.31	22.4
18,911	0.31 (c)	1.29	8.6
11,694	0.31 (c)	1.36	29.1
4,519	0.32 (c)	1.07	15.1



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Reflects Manager's contractual expense limit.

632



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME 2060 FUND
Class J Shares
2016	$12.19	$0.12		($0.09)		$0.03		($0.13)		($0.23)		($0.36)		$11.86	0.26 %(c)
2015	12.36	0.20		(0.06)		0.14		(0.30)		(0.01)		(0.31)		12.19	1.16 (c)
2014	11.50	0.10		0.97		1.07		(0.19)		(0.02)		(0.21)		12.36	9.38 (c)
2013(e)	10.00	—		1.50		1.50		–		–		–		11.50	15.00 (c),(f)
Institutional Shares
2016	12.26	0.15		(0.09	)	0.06		(0.16	)	(0.23	)	(0.39	)	11.93	0.51
2015	12.41	0.23		(0.05	)	0.18		(0.32	)	(0.01	)	(0.33	)	12.26	1.49
2014	11.52	0.03		1.08		1.11		(0.20	)	(0.02	)	(0.22	)	12.41	9.75
2013(e)	10.00	0.02		1.50		1.52		–		–		–		11.52	15.20 (f)
R-1 Shares
2016	12.03	0.02		(0.06	)	(0.04	)	(0.09	)	(0.23	)	(0.32	)	11.67	(0.32	)
2015	12.23	0.10		(0.02	)	0.08		(0.27	)	(0.01	)	(0.28	)	12.03	0.67
2014	11.45	(0.05	)	1.05		1.00		(0.20	)	(0.02	)	(0.22	)	12.23	8.83
2013(e)	10.00	(0.04	)	1.49		1.45		–		–		–		11.45	14.50 (f)
R-2 Shares
2016	12.06	0.06		(0.08	)	(0.02	)	(0.09	)	(0.23	)	(0.32	)	11.72	(0.14	)
2015	12.26	0.14		(0.05	)	0.09		(0.28	)	(0.01	)	(0.29	)	12.06	0.77
2014	11.46	(0.04	)	1.06		1.02		(0.20	)	(0.02	)	(0.22	)	12.26	9.00
2013(e)	10.00	(0.03	)	1.49		1.46		–		–		–		11.46	14.60 (f)
R-3 Shares
2016	12.15	0.09		(0.08	)	0.01		(0.11	)	(0.23	)	(0.34	)	11.82	0.07
2015	12.33	0.18		(0.06	)	0.12		(0.29	)	(0.01	)	(0.30	)	12.15	0.95
2014	11.50	(0.02	)	1.06		1.04		(0.19	)	(0.02	)	(0.21	)	12.33	9.14
2013(e)	10.00	(0.02	)	1.52		1.50		–		–		–		11.50	15.00 (f)
R-4 Shares
2016	12.16	0.13		(0.10	)	0.03		(0.13	)	(0.23	)	(0.36	)	11.83	0.25
2015	12.33	0.22		(0.08	)	0.14		(0.30	)	(0.01	)	(0.31	)	12.16	1.15
2014	11.49	(0.01	)	1.07		1.06		(0.20	)	(0.02	)	(0.22	)	12.33	9.33
2013(e)	10.00	(0.01	)	1.50		1.49		–		–		–		11.49	14.90 (f)
R-5 Shares
2016	12.19	0.13		(0.10	)	0.03		(0.13	)	(0.23	)	(0.36	)	11.86	0.31
2015	12.36	0.21		(0.06	)	0.15		(0.31	)	(0.01	)	(0.32	)	12.19	1.25
2014	11.50	–		1.08		1.08		(0.20	)	(0.02	)	(0.22	)	12.36	9.50
2013(e)	10.00	–		1.50		1.50		–		–		–		11.50	15.00 (f)

633



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$5,164	0.39 %(d)	1.06	%	15.2	%
$4,487	0.41 (d)	1.59		24.5
2,226	0.41 (d)	0.84		16.2
662	0.41 (d),(g)	(0.04)(g)		42.5 (g)

131,082	0.05 (d)	1.25		15.2
87,981	0.09 (d)	1.87		24.5
39,465	0.13 (d)	0.22		16.2
13	0.13 (d),(g)	0.25 (g)		42.5 (g)

1,099	0.91 (d)	0.20		15.2
533	0.94 (d)	0.85		24.5
193	0.96 (d)	(0.43	)	16.2
11	0.96 (d),(g)	(0.59)(g)		42.5 (g)

947	0.78 (d)	0.53		15.2
699	0.81 (d)	1.19		24.5
254	0.83 (d)	(0.33	)	16.2
11	0.83 (d),(g)	(0.46)(g)		42.5 (g)

5,126	0.60 (d)	0.78		15.2
3,746	0.63 (d)	1.45		24.5
2,073	0.65 (d)	(0.17	)	16.2
69	0.65 (d),(g)	(0.26)(g)		42.5 (g)

4,573	0.41 (d)	1.08		15.2
3,335	0.44 (d)	1.79		24.5
1,670	0.46 (d)	(0.07	)	16.2
11	0.46 (d),(g)	(0.10)(g)		42.5 (g)

7,534	0.29 (d)	1.11		15.2
6,627	0.32 (d)	1.69		24.5
2,756	0.34 (d)	0.03		16.2
12	0.34 (d),(g)	0.02 (g)		42.5 (g)



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Reflects Manager's contractual expense limit.
(e)	Period from March 1, 2013, date operations commenced, through October 31, 2013.
(f)	Total return amounts have not been annualized.
(g)	Computed on an annualized basis.

634



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME HYBRID 2015 FUND
Institutional Shares
2016	$9.86	$0.16	$0.19	$0.35	($0.15)		($0.15)		$10.06	3.67	%
2015	10.14	0.05	0.13	0.18	(0.46	)	(0.46	)	9.86	1.79
2014(c)	10.00	–	0.14	0.14	–		–		10.14	1.40 (d)
R-6 Shares
2016	9.86	0.19	0.16	0.35	(0.15	)	(0.15	)	10.06	3.67
2015(f)	9.51	0.01	0.34	0.35	–		–		9.86	3.68 (d)
PRINCIPAL LIFETIME HYBRID 2020 FUND
Institutional Shares
2016	9.93	0.15	0.19	0.34	(0.16	)	(0.16	)	10.11	3.48
2015	10.18	0.04	0.18	0.22	(0.47	)	(0.47	)	9.93	2.18
2014(c)	10.00	–	0.18	0.18	–		–		10.18	1.80 (d)
R-6 Shares
2016	9.92	0.19	0.16	0.35	(0.16	)	(0.16	)	10.11	3.58
2015(f)	9.48	0.01	0.43	0.44	–		–		9.92	4.64 (d)

635



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets (g)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$12,207	0.05 %(b)	1.62	%	27.7	%
7,686	0.06 (b)	0.53		20.9
10	0.06 (b),(e)	0.36 (e)		0.0 (e)

11	0.02 (b)	1.92		27.7
10	0.03 (b),(e)	0.56 (e)		20.9 (e)

43,541	0.05 (b)	1.51		14.7
23,438	0.06 (b)	0.40		40.7
10	0.06 (b),(e)	0.31 (e)		0.0 (e)

11	0.02 (b)	1.90		14.7
10	0.03 (b),(e)	0.45 (e)		40.7 (e)



(a)	Calculated based on average shares outstanding during the period.
(b)	Reflects Manager's contractual expense limit.
(c)	Period from September 30, 2014, date operations commenced, through October 31, 2014.
(d)	Total return amounts have not been annualized.
(e)	Computed on an annualized basis.
(f)	Period from August 24, 2015, date operations commenced, through October 31, 2015.
(g)	Does not include expenses of the investment companies in which the Fund invests

636



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains	Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME HYBRID 2025 FUND
Institutional Shares
2016	$9.97	$0.10	$0.23	$0.33	($0.17)		($0.01)	($0.18)		$10.12	3.32 %
2015	10.20	0.03	0.22	0.25	(0.48	)	–	(0.48	)	9.97	2.51
2014(c)	10.00	–	0.20	0.20	–		–	–		10.20	2.00 (d)
R-6 Shares
2016	9.97	0.18	0.16	0.34	(0.17)		(0.01)	(0.18	)	10.13	3.42
2015(f)	9.46	0.01	0.50	0.51	–		–	–		9.97	5.39 (d)

637



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(g)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$12,863	0.05 %(b)	0.98	%	25.5	%
2,706	0.06 (b)	0.33		89.0
10	0.06 (b),(e)	0.24 (e)		0.0 (e)

11	0.02 (b)	1.86		25.5
11	0.03 (b),(e)	0.32 (e)		89.0 (e)



(a)	Calculated based on average shares outstanding during the period.
(b)	Reflects Manager's contractual expense limit.
(c)	Period from September 30, 2014, date operations commenced, through October 31, 2014.
(d)	Total return amounts have not been annualized.
(e)	Computed on an annualized basis.
(f)	Period from August 24, 2015, date operations commenced, through October 31, 2015.
(g)	Does not include expenses of the investment companies in which the Fund invests

638



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME HYBRID 2030 FUND
Institutional Shares
2016	$9.99	$0.14	$0.19	$0.33	($0.16)		($0.16)		$10.16	3.41	%
2015	10.21	0.02	0.24	0.26	(0.48	)	(0.48	)	9.99	2.57
2014(c)	10.00	–	0.21	0.21	–		–		10.21	2.10 (d)
R-6 Shares
2016	9.99	0.18	0.15	0.33	(0.16)		(0.16)		10.16	3.41
2015(f)	9.43	–	0.56	0.56	–		–		9.99	5.94 (d)
PRINCIPAL LIFETIME HYBRID 2035 FUND
Institutional Shares
2016	10.02	0.10	0.22	0.32	(0.16	)	(0.16	)	10.18	3.29
2015	10.22	0.01	0.26	0.27	(0.47	)	(0.47	)	10.02	2.74
2014(c)	10.00	–	0.22	0.22	–		–		10.22	2.20 (d)
R-6 Shares
2016	10.02	0.17	0.15	0.32	(0.16)		(0.16)		10.18	3.29
2015(f)	9.41	–	0.61	0.61	–		–		10.02	6.48 (d)
PRINCIPAL LIFETIME HYBRID 2040 FUND
Institutional Shares
2016	10.04	0.13	0.19	0.32	(0.16	)	(0.16	)	10.20	3.27
2015	10.23	0.02	0.26	0.28	(0.47	)	(0.47	)	10.04	2.83
2014(c)	10.00	–	0.23	0.23	–		–		10.23	2.30 (d)
R-6 Shares
2016	10.04	0.17	0.15	0.32	(0.16)		(0.16)		10.20	3.27
2015(f)	9.39	–	0.65	0.65	–		–		10.04	6.92 (d)
PRINCIPAL LIFETIME HYBRID 2045 FUND
Institutional Shares
2016	10.03	0.11	0.20	0.31	(0.16	)	(0.16	)	10.18	3.18
2015	10.23	0.02	0.25	0.27	(0.47	)	(0.47	)	10.03	2.70
2014(c)	10.00	–	0.23	0.23	–		–		10.23	2.30 (d)
R-6 Shares
2016	10.03	0.17	0.14	0.31	(0.16)		(0.16)		10.18	3.18
2015(f)	9.34	–	0.69	0.69	–		–		10.03	7.39 (d)

639



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$45,779	0.05 %(b)	1.42	%	12.1	%
25,108	0.06 (b)	0.21		27.3
10	0.06 (b),(e)	0.21 (e)		0.0 (e)

11	0.02 (b)	1.79		12.1
11	0.03 (b),(e)	0.23 (e)		27.3 (e)

9,871	0.05 (b)	1.04		24.6
3,215	0.06 (b)	0.14		18.9
10	0.06 (b),(e)	0.20 (e)		0.0 (e)

11	0.02 (b)	1.71		24.6
11	0.03 (b),(e)	0.11 (e)		18.9 (e)

23,771	0.05 (b)	1.36		13.0
13,492	0.06 (b)	0.17		36.5
10	0.06 (b),(e)	0.16 (e)		0.0 (e)

11	0.02 (b)	1.70		13.0
11	0.03 (b),(e)	0.11 (e)		36.5 (e)

6,226	0.05 (b)	1.10		11.4
1,895	0.06 (b)	0.19		19.3
10	0.06 (b),(e)	0.10 (e)		0.0 (e)

11	0.02 (b)	1.73		11.4
10	0.03 (b),(e)	0.12 (e)		19.3 (e)



(a)	Calculated based on average shares outstanding during the period.
(b)	Reflects Manager's contractual expense limit.
(c)	Period from September 30, 2014, date operations commenced, through October 31, 2014.
(d)	Total return amounts have not been annualized.
(e)	Computed on an annualized basis.
(f)	Period from August 24, 2015, date operations commenced, through October 31, 2015.
(g)	Does not include expenses of the investment companies in which the Fund invests

640



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME HYBRID 2050 FUND
Institutional Shares
2016	$10.06	$0.14	$0.17		$0.31	($0.16)		($0.16)		$10.21	3.16	%
2015	10.24	0.02	0.27		0.29	(0.47	)	(0.47	)	10.06	2.90
2014(c)	10.00	–	0.24		0.24	–		–		10.24	2.40 (d)
R-6 Shares
2016	10.06	0.17	0.14		0.31	(0.16)		(0.16)		10.21	3.16
2015(f)	9.34	–	0.72		0.72	–		–		10.06	7.71 (d)
PRINCIPAL LIFETIME HYBRID 2055 FUND
Institutional Shares
2016	10.06	0.08	0.24		0.32	(0.16	)	(0.16	)	10.22	3.25
2015	10.24	0.06	0.23		0.29	(0.47	)	(0.47	)	10.06	2.88
2014(c)	10.00	–	0.24		0.24	–		–		10.24	2.40 (d)
R-6 Shares
2016	10.06	0.17	0.16		0.33	(0.16)		(0.16)		10.23	3.35
2015(f)	9.33	–	0.73		0.73	–		–		10.06	7.82 (d)
PRINCIPAL LIFETIME HYBRID 2060 FUND
Institutional Shares
2016	10.06	0.08	0.24		0.32	(0.16	)	(0.16	)	10.22	3.27
2015	10.24	0.41	(0.12	)	0.29	(0.47	)	(0.47	)	10.06	2.88
2014(c)	10.00	–	0.24		0.24	–		–		10.24	2.40 (d)
R-6 Shares
2016	10.06	0.17	0.16		0.33	(0.16)		(0.16)		10.23	3.37
2015(f)	9.33	–	0.73		0.73	–		–		10.06	7.82 (d)
PRINCIPAL LIFETIME HYBRID INCOME FUND
Institutional Shares
2016	9.82	0.16	0.20		0.36	(0.14	)	(0.14	)	10.04	3.79
2015	10.10	0.12	0.03		0.15	(0.43	)	(0.43	)	9.82	1.54
2014(c)	10.00	–	0.10		0.10	–		–		10.10	1.00 (d)
R-6 Shares
2016	9.82	0.20	0.17		0.37	(0.14)		(0.14)		10.05	3.90
2015(f)	9.66	0.02	0.14		0.16	–		–		9.82	1.66 (d)

641



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$12,592	0.05 %(b)	1.40	%	12.2	%
7,536	0.06 (b)	0.23		9.6
10	0.06 (b),(e)	0.08 (e)		0.0 (e)

11	0.02 (b)	1.71		12.2
11	0.03 (b),(e)	0.12 (e)		9.6 (e)

1,903	0.05 (b)	0.81		20.1
352	0.06 (b)	0.64		49.9
10	0.06 (b),(e)	0.06 (e)		0.0 (e)

11	0.02 (b)	1.73		20.1
11	0.03 (b),(e)	0.12 (e)		49.9 (e)

440	0.05 (b)	0.84		21.8
129	0.06 (b)	4.06		70.5
10	0.06 (b),(e)	0.06 (e)		0.0 (e)

11	0.02 (b)	1.73		21.8
11	0.03 (b),(e)	0.12 (e)		70.5 (e)

8,773	0.05 (b)	1.58		25.5
2,804	0.06 (b)	1.18		116.2
10	0.06 (b),(e)	0.50 (e)		0.0 (e)(e)

11	0.02 (b)	2.03		25.5
10	0.03 (b),(e)	0.85 (e)		116.2 (e)



(a)	Calculated based on average shares outstanding during the period.
(b)	Reflects Manager's contractual expense limit.
(c)	Period from September 30, 2014, date operations commenced, through October 31, 2014.
(d)	Total return amounts have not been annualized.
(e)	Computed on an annualized basis.
(f)	Period from August 24, 2015, date operations commenced, through October 31, 2015.
(g)	Does not include expenses of the investment companies in which the Fund invests

642



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains	Total Dividends and Distributions		Net Asset Value, End of Period		Total Return(b)
PRINCIPAL LIFETIME STRATEGIC INCOME FUND
Class A Shares
2016	$12.09	$0.21	$0.19		$0.40	($0.20)		$–	($0.20)		12.29	%	3.40	%
2015	12.30	0.23	(0.23	)	–	(0.21	)	–	(0.21	)	12.09		0.01
2014	11.94	0.22	0.36		0.58	(0.22	)	–	(0.22	)	12.30		4.92
2013	11.60	0.26	0.34		0.60	(0.26	)	–	(0.26	)	11.94		5.26
2012	11.00	0.21	0.67		0.88	(0.28	)	–	(0.28	)	11.60		8.17

643



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$21,260	0.39 %(c),(d)	1.73	%	18.2 %
29,781	0.41 (c),(d)	1.85		36.8
31,332	0.41 (c),(d)	1.85		26.8
30,838	0.41 (c),(d)	2.20		14.6
29,464	0.41 (c),(d)	1.90		31.1



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Does not include expenses of the investment companies in which the Fund invests.
(d)	Reflects Manager's contractual expense limit.

644



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME STRATEGIC INCOME FUND
Class J Shares
2016	$11.96	$0.21	$0.19		$0.40		($0.21)		($0.21)		$12.15	3.42 %(d)
2015	12.17	0.22	(0.21	)	0.01		(0.22	)	(0.22	)	11.96	0.08 (d)
2014	11.81	0.23	0.35		0.58		(0.22	)	(0.22	)	12.17	5.02 (d)
2013	11.47	0.26	0.34		0.60		(0.26	)	(0.26	)	11.81	5.30 (d)
2012	10.89	0.21	0.64		0.85		(0.27	)	(0.27	)	11.47	8.05 (d)
Institutional Shares
2016	12.04	0.24	0.19		0.43		(0.25	)	(0.25	)	12.22	3.63
2015	12.25	0.27	(0.22	)	0.05		(0.26	)	(0.26	)	12.04	0.40
2014	11.89	0.27	0.35		0.62		(0.26	)	(0.26	)	12.25	5.33
2013	11.55	0.30	0.34		0.64		(0.30	)	(0.30	)	11.89	5.64
2012	10.96	0.25	0.66		0.91		(0.32	)	(0.32	)	11.55	8.52
R-1 Shares
2016	11.97	0.14	0.19		0.33		(0.12)		(0.12)		12.18	2.83
2015	12.17	0.17	(0.23	)	(0.06	)	(0.14	)	(0.14	)	11.97	(0.51	)
2014	11.81	0.17	0.34		0.51		(0.15	)	(0.15	)	12.17	4.40
2013	11.46	0.20	0.34		0.54		(0.19	)	(0.19	)	11.81	4.79
2012	10.87	0.17	0.63		0.80		(0.21	)	(0.21	)	11.46	7.55
R-2 Shares
2016	11.98	0.16	0.18		0.34		(0.14	)	(0.14	)	12.18	2.90
2015	12.18	0.18	(0.23	)	(0.05	)	(0.15	)	(0.15	)	11.98	(0.40	)
2014	11.82	0.17	0.36		0.53		(0.17	)	(0.17	)	12.18	4.54
2013	11.47	0.22	0.34		0.56		(0.21	)	(0.21	)	11.82	4.93
2012	10.89	0.17	0.64		0.81		(0.23	)	(0.23	)	11.47	7.63
R-3 Shares
2016	11.90	0.18	0.18		0.36		(0.17	)	(0.17	)	12.09	3.11
2015	12.10	0.21	(0.23	)	(0.02	)	(0.18	)	(0.18	)	11.90	(0.14	)
2014	11.75	0.20	0.34		0.54		(0.19	)	(0.19	)	12.10	4.68
2013	11.42	0.22	0.35		0.57		(0.24	)	(0.24	)	11.75	5.04
2012	10.83	0.18	0.66		0.84		(0.25	)	(0.25	)	11.42	7.97
R-4 Shares
2016	11.94	0.20	0.18		0.38		(0.20	)	(0.20	)	12.12	3.23
2015	12.14	0.24	(0.23	)	0.01		(0.21	)	(0.21	)	11.94	0.07
2014	11.79	0.23	0.34		0.57		(0.22	)	(0.22	)	12.14	4.89
2013	11.44	0.25	0.35		0.60		(0.25	)	(0.25	)	11.79	5.33
2012	10.87	0.23	0.62		0.85		(0.28	)	(0.28	)	11.44	8.01

645



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$80,677	0.26	%	0.29	%	1.80	%	18.2	%
81,357	0.36		0.39		1.84		36.8
77,956	0.37		0.41		1.88		26.8
73,093	0.37		0.57		2.22		14.6
70,563	0.42		0.62		1.91		31.1

491,823	0.04		–		2.02		18.2
505,216	0.05		–		2.23		36.8
573,524	0.04		–		2.21		26.8
543,521	0.04		–		2.57		14.6
551,533	0.04		–		2.25		31.1

4,187	0.91		–		1.20		18.2
5,467	0.92		–		1.43		36.8
7,563	0.92		–		1.46		26.8
9,473	0.91		–		1.77		14.6
10,740	0.92		–		1.51		31.1

6,161	0.78		–		1.30		18.2
7,320	0.79		–		1.46		36.8
9,709	0.79		–		1.46		26.8
9,572	0.78		–		1.93		14.6
11,148	0.79		–		1.57		31.1

26,646	0.60		–		1.48		18.2
29,146	0.61		–		1.71		36.8
35,215	0.61		–		1.68		26.8
38,997	0.60		–		1.95		14.6
39,193	0.61		–		1.66		31.1

15,566	0.41		–		1.69		18.2
16,252	0.42		–		1.98		36.8
21,059	0.42		–		1.93		26.8
22,865	0.41		–		2.18		14.6
24,227	0.42		–		2.08		31.1



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

646



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
PRINCIPAL LIFETIME STRATEGIC INCOME FUND
R-5 Shares
2016	$12.01	$0.22	$0.18		$0.40	($0.21)		($0.21)		$12.20	3.43	%
2015	12.22	0.23	(0.21	)	0.02	(0.23	)	(0.23	)	12.01	0.15
2014	11.86	0.23	0.36		0.59	(0.23	)	(0.23	)	12.22	5.08
2013	11.52	0.27	0.34		0.61	(0.27	)	(0.27	)	11.86	5.39
2012	10.93	0.22	0.66		0.88	(0.29	)	(0.29	)	11.52	8.26

647



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$40,472	0.29	%	-%	1.82	%	18.2	%
45,434	0.30		–	1.92		36.8
48,096	0.30		–	1.93		26.8
45,658	0.29		–	2.34		14.6
43,874	0.30		–	2.00		31.1



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Fund invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

648



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
REAL ESTATE SECURITIES FUND
Class A Shares
2016	$23.22	$0.25	$0.87	$1.12	($0.28)		($1.26)		($1.54)		$22.80	4.99 %(c)
2015	22.25	0.25	1.19	1.44	(0.25	)	(0.22	)	(0.47	)	23.22	6.57 (c)
2014	21.63	0.19	3.63	3.82	(0.29	)	(2.91	)	(3.20	)	22.25	21.34
2013	19.54	0.29	2.01	2.30	(0.21	)	–		(0.21	)	21.63	11.83
2012	17.40	0.19	2.08	2.27	(0.13	)	–		(0.13	)	19.54	13.07
Class C Shares
2016	22.90	0.06	0.85	0.91	(0.13	)	(1.26	)	(1.39	)	22.42	4.17
2015	21.95	0.08	1.17	1.25	(0.08	)	(0.22	)	(0.30	)	22.90	5.71
2014	21.38	0.03	3.59	3.62	(0.14	)	(2.91	)	(3.05	)	21.95	20.42
2013	19.33	0.12	1.99	2.11	(0.06	)	–		(0.06	)	21.38	10.91
2012	17.24	0.03	2.06	2.09	–		–		–		19.33	12.12
Class P Shares
2016	23.22	0.31	0.89	1.20	(0.36	)	(1.26	)	(1.62	)	22.80	5.36
2015	22.24	0.32	1.20	1.52	(0.32	)	(0.22	)	(0.54	)	23.22	6.89
2014	21.62	0.24	3.64	3.88	(0.35	)	(2.91	)	(3.26	)	22.24	21.74
2013	19.53	0.36	2.01	2.37	(0.28	)	–		(0.28	)	21.62	12.22
2012	17.40	0.25	2.07	2.32	(0.19	)	–		(0.19	)	19.53	13.38

649



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$370,306	1.25 %	1.08	%	24.8 %
289,165	1.30	1.08		26.2
208,670	1.30 (d)	0.92		11.1
158,650	1.33 (d)	1.36		42.1
157,471	1.36 (d)	0.98		44.6

52,388	2.07 (d)	0.27		24.8
42,051	2.07 (d)	0.35		26.2
33,740	2.09 (d)	0.13		11.1
28,091	2.11 (d)	0.57		42.1
21,622	2.20 (d)	0.14		44.6

126,695	0.96 (d)	1.33		24.8
73,264	0.97 (d)	1.40		26.2
43,891	1.00 (d)	1.22		11.1
34,291	0.99 (d)	1.69		42.1
22,975	1.03 (d)	1.31		44.6



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Total return is calculated using the traded net asset value which may differ from the reported net asset value. The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
(d)	Reflects Manager's contractual expense limit.

650



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
REAL ESTATE SECURITIES FUND
Class J Shares
2016	$22.65	$0.28	$0.84	$1.12	($0.32)		($1.26)		($1.58)		$22.19	5.14 %(c)
2015	21.70	0.28	1.15	1.43	(0.26	)	(0.22	)	(0.48	)	22.65	6.66 (c)
2014	21.18	0.19	3.54	3.73	(0.30	)	(2.91)		(3.21	)	21.70	21.39 (c)
2013	19.14	0.29	1.97	2.26	(0.22	)	–		(0.22	)	21.18	11.85 (c)
2012	17.05	0.18	2.04	2.22	(0.13	)	–		(0.13	)	19.14	13.06 (c)
Institutional Shares
2016	23.24	0.34	0.88	1.22	(0.37	)	(1.26	)	(1.63	)	22.83	5.42 (d)
2015	22.26	0.35	1.19	1.54	(0.34	)	(0.22	)	(0.56	)	23.24	7.01 (d)
2014	21.64	0.26	3.64	3.90	(0.37	)	(2.91)		(3.28	)	22.26	21.84
2013	19.54	0.39	2.02	2.41	(0.31	)	–		(0.31	)	21.64	12.38
2012	17.41	0.28	2.07	2.35	(0.22	)	–		(0.22	)	19.54	13.55
R-1 Shares
2016	22.98	0.14	0.86	1.00	(0.19)		(1.26)		(1.45	)	22.53	4.56
2015	22.01	0.17	1.17	1.34	(0.15	)	(0.22	)	(0.37	)	22.98	6.11
2014	21.43	0.10	3.60	3.70	(0.21	)	(2.91)		(3.12	)	22.01	20.87
2013	19.36	0.21	1.99	2.20	(0.13	)	–		(0.13	)	21.43	11.39
2012	17.25	0.12	2.06	2.18	(0.07	)	–		(0.07	)	19.36	12.63
R-2 Shares
2016	22.26	0.17	0.83	1.00	(0.22	)	(1.26	)	(1.48	)	21.78	4.70
2015	21.34	0.19	1.14	1.33	(0.19	)	(0.22	)	(0.41	)	22.26	6.26
2014	20.88	0.12	3.49	3.61	(0.24	)	(2.91)		(3.15	)	21.34	21.04
2013	18.87	0.23	1.94	2.17	(0.16	)	–		(0.16	)	20.88	11.54
2012	16.82	0.14	2.01	2.15	(0.10	)	–		(0.10	)	18.87	12.76
R-3 Shares
2016	22.73	0.22	0.85	1.07	(0.26	)	(1.26	)	(1.52	)	22.28	4.85 (d)
2015	21.79	0.23	1.16	1.39	(0.23	)	(0.22	)	(0.45	)	22.73	6.45 (d)
2014	21.25	0.16	3.56	3.72	(0.27	)	(2.91)		(3.18	)	21.79	21.26
2013	19.20	0.27	1.98	2.25	(0.20	)	–		(0.20	)	21.25	11.75
2012	17.11	0.17	2.05	2.22	(0.13	)	–		(0.13	)	19.20	12.97
R-4 Shares
2016	22.51	0.27	0.83	1.10	(0.29	)	(1.26	)	(1.55	)	22.06	5.12
2015	21.58	0.27	1.15	1.42	(0.27	)	(0.22	)	(0.49	)	22.51	6.62
2014	21.08	0.20	3.52	3.72	(0.31	)	(2.91)		(3.22	)	21.58	21.48
2013	19.05	0.30	1.97	2.27	(0.24	)	–		(0.24	)	21.08	11.97
2012	16.98	0.21	2.02	2.23	(0.16	)	–		(0.16	)	19.05	13.16

651



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$190,646	1.13	%	1.16	%	1.22	%	24.8	%
179,043	1.20		1.23		1.24		26.2
182,382	1.27		1.31		0.95		11.1
143,710	1.29		1.49		1.41		42.1
143,101	1.36		1.55		0.99		44.6

1,829,410	0.88		–		1.45		24.8
1,458,518	0.89		–		1.53		26.2
1,247,104	0.90		–		1.30		11.1
807,558	0.88		–		1.86		42.1
897,798	0.86		–		1.52		44.6

8,724	1.70		–		0.62		24.8
6,976	1.70		–		0.74		26.2
7,138	1.71		–		0.52		11.1
6,737	1.71		–		1.00		42.1
7,692	1.71		–		0.62		44.6

19,671	1.57		–		0.78		24.8
16,941	1.57		–		0.87		26.2
17,507	1.58		–		0.64		11.1
14,360	1.58		–		1.12		42.1
15,354	1.58		–		0.76		44.6

64,094	1.39		–		0.98		24.8
64,026	1.39		–		1.04		26.2
56,032	1.40		–		0.83		11.1
47,905	1.40		–		1.30		42.1
48,924	1.40		–		0.94		44.6

72,515	1.20		–		1.22		24.8
93,806	1.20		–		1.20		26.2
67,466	1.21		–		1.01		11.1
48,216	1.21		–		1.47		42.1
40,509	1.21		–		1.13		44.6



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value. The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

652



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
REAL ESTATE SECURITIES FUND
R-5 Shares
2016	$22.56	$0.28	$0.85	$1.13	($0.33)		($1.26)		($1.59)		$22.10	5.21	%
2015	21.62	0.30	1.15	1.45	(0.29	)	(0.22	)	(0.51	)	22.56	6.78
2014	21.11	0.22	3.53	3.75	(0.33	)	(2.91	)	(3.24	)	21.62	21.63
2013	19.08	0.33	1.96	2.29	(0.26	)	–		(0.26	)	21.11	12.08
2012	17.00	0.23	2.03	2.26	(0.18	)	–		(0.18	)	19.08	13.33

653



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$175,640	1.08	%	-%	1.23	%	24.8	%
146,496	1.08		–	1.36		26.2
167,195	1.09		–	1.11		11.1
105,831	1.09		–	1.61		42.1
107,275	1.09		–	1.26		44.6



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value. The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

654



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
SAM BALANCED PORTFOLIO
Class A Shares
2016	$15.87	$0.22	$0.17		$0.39	($0.21)		($0.98)		($1.19)		$15.07	2.80	%
2015	16.39	0.31	(0.14	)	0.17	(0.31	)	(0.38	)	(0.69	)	15.87	1.10
2014	15.60	0.26	1.04		1.30	(0.26	)	(0.25	)	(0.51	)	16.39	8.50
2013	13.70	0.26	1.90		2.16	(0.26	)	–		(0.26	)	15.60	15.97
2012	12.67	0.26	1.03		1.29	(0.26	)	–		(0.26	)	13.70	10.27
Class C Shares
2016	15.68	0.11	0.16		0.27	(0.10	)	(0.98	)	(1.08	)	14.87	2.03
2015	16.20	0.18	(0.12	)	0.06	(0.20	)	(0.38	)	(0.58	)	15.68	0.39
2014	15.43	0.14	1.02		1.16	(0.14	)	(0.25	)	(0.39	)	16.20	7.67
2013	13.55	0.15	1.89		2.04	(0.16	)	–		(0.16	)	15.43	15.17
2012	12.54	0.16	1.01		1.17	(0.16	)	–		(0.16	)	13.55	9.42
Class P Shares
2016	15.66	0.22	0.19		0.41	(0.24	)	(0.98	)	(1.22	)	14.85	2.97
2015(e)	15.01	0.04	0.65		0.69	(0.04	)	–		(0.04	)	15.66	4.64 (f)

655



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$2,047,943	0.66 %(c)	1.51	%	17.1 %
2,124,905	0.65 (c)	1.90		27.6
2,083,846	0.65 (c)	1.63		3.3
1,923,276	0.68 (c)	1.78		16.9
1,675,088	0.71 (c)	1.94		9.6

747,750	1.40 (c)	0.75		17.1
762,424	1.39 (c)	1.14		27.6
732,362	1.40 (c)	0.88		3.3
654,170	1.41 (c)	1.03		16.9
554,609	1.45 (c)	1.21		9.6

11,310	0.51 (c),(d)	1.51		17.1
3,811	0.51 (c),(d),(g)	1.21 (g)		27.6 (g)



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Does not include expenses of the investment companies in which the Portfolio invests.
(d)	Reflects Manager's contractual expense limit.
(e)	Period from August 24, 2015, date shares first offered, through October 31, 2015.
(f)	Total return amounts have not been annualized.
(g)	Computed on an annualized basis.

656



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SAM BALANCED PORTFOLIO
Class J Shares
2016	$15.44	$0.24	$0.16		$0.40	($0.24)		($0.98)		($1.22)		$14.62	2.92 %(d)
2015	15.96	0.31	(0.13	)	0.18	(0.32	)	(0.38	)	(0.70	)	15.44	1.20 (d)
2014	15.21	0.26	1.00		1.26	(0.26	)	(0.25	)	(0.51	)	15.96	8.50 (d)
2013	13.36	0.25	1.87		2.12	(0.27	)	–		(0.27	)	15.21	16.07 (d)
2012	12.37	0.25	1.00		1.25	(0.26	)	–		(0.26	)	13.36	10.24 (d)
Institutional Shares
2016	15.66	0.27	0.17		0.44	(0.26	)	(0.98	)	(1.24	)	14.86	3.19
2015	16.19	0.36	(0.14	)	0.22	(0.37	)	(0.38	)	(0.75	)	15.66	1.39
2014	15.42	0.30	1.03		1.33	(0.31	)	(0.25	)	(0.56	)	16.19	8.83
2013	13.54	0.30	1.89		2.19	(0.31	)	–		(0.31	)	15.42	16.42
2012	12.52	0.27	1.05		1.32	(0.30	)	–		(0.30	)	13.54	10.71
R-1 Shares
2016	15.63	0.15	0.15		0.30	(0.13)		(0.98	)	(1.11)		14.82	2.23
2015	16.15	0.23	(0.15	)	0.08	(0.22	)	(0.38	)	(0.60	)	15.63	0.54
2014	15.39	0.18	1.00		1.18	(0.17	)	(0.25	)	(0.42	)	16.15	7.86
2013	13.51	0.19	1.88		2.07	(0.19	)	–		(0.19	)	15.39	15.45
2012	12.50	0.20	1.00		1.20	(0.19	)	–		(0.19	)	13.51	9.67
R-2 Shares
2016	15.59	0.15	0.17		0.32	(0.15	)	(0.98	)	(1.13	)	14.78	2.37
2015	16.11	0.26	(0.16	)	0.10	(0.24	)	(0.38	)	(0.62	)	15.59	0.64
2014	15.34	0.20	1.01		1.21	(0.19	)	(0.25	)	(0.44	)	16.11	8.07
2013	13.48	0.20	1.87		2.07	(0.21	)	–		(0.21	)	15.34	15.51
2012	12.48	0.20	1.01		1.21	(0.21	)	–		(0.21	)	13.48	9.83
R-3 Shares
2016	15.61	0.18	0.17		0.35	(0.18	)	(0.98	)	(1.16	)	14.80	2.57
2015	16.14	0.26	(0.13	)	0.13	(0.28	)	(0.38	)	(0.66	)	15.61	0.83
2014	15.37	0.22	1.02		1.24	(0.22	)	(0.25	)	(0.47	)	16.14	8.25
2013	13.50	0.21	1.89		2.10	(0.23	)	–		(0.23	)	15.37	15.77
2012	12.50	0.22	1.01		1.23	(0.23	)	–		(0.23	)	13.50	9.99
R-4 Shares
2016	15.64	0.22	0.17		0.39	(0.21	)	(0.98	)	(1.19	)	14.84	2.80
2015	16.17	0.33	(0.18	)	0.15	(0.30	)	(0.38	)	(0.68	)	15.64	0.99
2014	15.40	0.26	1.01		1.27	(0.25	)	(0.25	)	(0.50	)	16.17	8.44
2013	13.52	0.24	1.90		2.14	(0.26	)	–		(0.26	)	15.40	16.03
2012	12.52	0.23	1.03		1.26	(0.26	)	–		(0.26	)	13.52	10.16

657



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$1,008,439	0.50	%	0.53	%	1.64	%	17.1	%
994,998	0.57		0.60		1.98		27.6
981,860	0.61		0.65		1.66		3.3
864,184	0.63		0.83		1.78		16.9
675,382	0.68		0.88		1.92		9.6

763,306	0.31		–		1.84		17.1
782,696	0.31		–		2.25		27.6
787,845	0.31		–		1.91		3.3
719,100	0.33		0.33		2.11		16.9
612,372	0.35		0.35		2.06		9.6

2,795	1.19		–		1.01		17.1
3,689	1.19		–		1.45		27.6
4,602	1.19		–		1.15		3.3
4,303	1.20		–		1.29		16.9
4,166	1.22		–		1.52		9.6

4,805	1.06		–		1.06		17.1
5,570	1.06		–		1.65		27.6
9,335	1.06		–		1.28		3.3
9,478	1.07		–		1.36		16.9
9,131	1.09		–		1.50		9.6

72,364	0.88		–		1.25		17.1
68,091	0.88		–		1.66		27.6
61,467	0.88		–		1.42		3.3
64,428	0.89		–		1.46		16.9
43,574	0.91		–		1.65		9.6

31,676	0.69		–		1.53		17.1
40,322	0.69		–		2.08		27.6
56,036	0.69		–		1.63		3.3
48,779	0.70		–		1.66		16.9
31,774	0.72		–		1.77		9.6



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Portfolio invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

658



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SAM BALANCED PORTFOLIO
R-5 Shares
2016	$15.65	$0.23	$0.17		$0.40	($0.23)		($0.98)		($1.21)		$14.84	2.87	%
2015	16.17	0.33	(0.14	)	0.19	(0.33	)	(0.38	)	(0.71	)	15.65	1.20
2014	15.40	0.25	1.04		1.29	(0.27	)	(0.25	)	(0.52	)	16.17	8.57
2013	13.52	0.26	1.89		2.15	(0.27	)	–		(0.27	)	15.40	16.16
2012	12.52	0.25	1.02		1.27	(0.27	)	–		(0.27	)	13.52	10.29

659



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$68,810	0.57	%	-%	1.57	%	17.1	%
76,846	0.57		–	2.05		27.6
115,255	0.57		–	1.61		3.3
86,523	0.58		–	1.83		16.9
69,681	0.60		–	1.94		9.6



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Portfolio invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

660



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
SAM CONSERVATIVE BALANCED PORTFOLIO
Class A Shares
2016	$12.04	$0.24	$0.12		$0.36	($0.23)		($0.47)		($0.70)		$11.70	3.26	%
2015	12.41	0.26	(0.16	)	0.10	(0.27	)	(0.20	)	(0.47	)	12.04	0.84
2014	12.05	0.25	0.58		0.83	(0.24	)	(0.23	)	(0.47	)	12.41	7.10
2013	11.22	0.25	0.89		1.14	(0.25	)	(0.06	)	(0.31	)	12.05	10.41
2012	10.56	0.27	0.70		0.97	(0.26	)	(0.05	)	(0.31	)	11.22	9.39
Class C Shares
2016	11.93	0.15	0.11		0.26	(0.14	)	(0.47	)	(0.61	)	11.58	2.45
2015	12.30	0.17	(0.15	)	0.02	(0.19	)	(0.20	)	(0.39	)	11.93	0.10
2014	11.95	0.16	0.58		0.74	(0.16	)	(0.23	)	(0.39	)	12.30	6.30
2013	11.13	0.16	0.89		1.05	(0.17	)	(0.06	)	(0.23	)	11.95	9.60
2012	10.48	0.18	0.70		0.88	(0.18	)	(0.05	)	(0.23	)	11.13	8.57
Class P Shares
2016	11.94	0.21	0.16		0.37	(0.25	)	(0.47	)	(0.72	)	11.59	3.35
2015(e)	11.63	0.04	0.32		0.36	(0.05	)	–		(0.05	)	11.94	3.09 (f)

661



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$512,080	0.63 %(c),(d)	2.04	%	17.3 %
512,264	0.63 (c),(d)	2.16		22.7
490,692	0.63 (c),(d)	2.07		3.2
439,792	0.63 (c),(d)	2.18		13.1
382,440	0.70 (d)	2.45		6.8

264,058	1.38 (c),(d)	1.29		17.3
264,904	1.38 (c),(d)	1.40		22.7
242,887	1.38 (c),(d)	1.30		3.2
209,997	1.38 (c),(d)	1.42		13.1
179,925	1.44 (d)	1.72		6.8

8,386	0.51 (c),(d)	1.81		17.3
1,889	0.51 (c),(d),(g)	1.82 (g)		22.7 (g)



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Does not include expenses of the investment companies in which the Portfolio invests.
(d)	Reflects Manager's contractual expense limit.
(e)	Period from August 24, 2015, date shares first offered, through October 31, 2015.
(f)	Total return amounts have not been annualized.
(g)	Computed on an annualized basis.

662



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SAM CONSERVATIVE BALANCED PORTFOLIO
Class J Shares
2016	$11.91	$0.25	$0.11		$0.36	($0.24)		($0.47)		($0.71)		$11.56	3.34 %(d)
2015	12.27	0.27	(0.15	)	0.12	(0.28	)	(0.20	)	(0.48	)	11.91	0.98 (d)
2014	11.92	0.25	0.58		0.83	(0.25	)	(0.23	)	(0.48	)	12.27	7.12 (d)
2013	11.10	0.25	0.89		1.14	(0.26	)	(0.06	)	(0.32	)	11.92	10.45 (d)
2012	10.46	0.26	0.69		0.95	(0.26	)	(0.05	)	(0.31	)	11.10	9.31 (d)
Institutional Shares
2016	11.94	0.27	0.11		0.38	(0.26	)	(0.47	)	(0.73	)	11.59	3.52
2015	12.31	0.30	(0.16	)	0.14	(0.31	)	(0.20	)	(0.51	)	11.94	1.16
2014	11.96	0.29	0.57		0.86	(0.28	)	(0.23	)	(0.51	)	12.31	7.40
2013	11.13	0.28	0.90		1.18	(0.29	)	(0.06	)	(0.35	)	11.96	10.83
2012	10.48	0.29	0.71		1.00	(0.30	)	(0.05	)	(0.35	)	11.13	9.74
R-1 Shares
2016	11.90	0.18	0.10		0.28	(0.16)		(0.47	)	(0.63)		11.55	2.62
2015	12.27	0.19	(0.15	)	0.04	(0.21	)	(0.20	)	(0.41	)	11.90	0.28
2014	11.91	0.21	0.55		0.76	(0.17	)	(0.23	)	(0.40	)	12.27	6.54
2013	11.10	0.18	0.88		1.06	(0.19	)	(0.06	)	(0.25	)	11.91	9.75
2012	10.45	0.21	0.70		0.91	(0.21	)	(0.05	)	(0.26	)	11.10	8.86
R-2 Shares
2016	11.97	0.19	0.12		0.31	(0.18	)	(0.47	)	(0.65	)	11.63	2.80
2015	12.33	0.22	(0.17	)	0.05	(0.21	)	(0.20	)	(0.41	)	11.97	0.42
2014	11.97	0.20	0.58		0.78	(0.19	)	(0.23	)	(0.42	)	12.33	6.68
2013	11.15	0.19	0.90		1.09	(0.21	)	(0.06	)	(0.27	)	11.97	9.93
2012	10.50	0.23	0.69		0.92	(0.22	)	(0.05	)	(0.27	)	11.15	8.92
R-3 Shares
2016	11.92	0.21	0.11		0.32	(0.20	)	(0.47	)	(0.67	)	11.57	2.95
2015	12.29	0.24	(0.17	)	0.07	(0.24	)	(0.20	)	(0.44	)	11.92	0.59
2014	11.93	0.22	0.58		0.80	(0.21	)	(0.23	)	(0.44	)	12.29	6.91
2013	11.12	0.23	0.87		1.10	(0.23	)	(0.06	)	(0.29	)	11.93	10.05
2012	10.47	0.24	0.70		0.94	(0.24	)	(0.05	)	(0.29	)	11.12	9.18
R-4 Shares
2016	11.93	0.23	0.11		0.34	(0.22	)	(0.47	)	(0.69	)	11.58	3.13
2015	12.30	0.26	(0.16	)	0.10	(0.27	)	(0.20	)	(0.47	)	11.93	0.77
2014	11.95	0.25	0.57		0.82	(0.24	)	(0.23	)	(0.47	)	12.30	7.02
2013	11.13	0.23	0.90		1.13	(0.25	)	(0.06	)	(0.31	)	11.95	10.34
2012	10.48	0.24	0.72		0.96	(0.26	)	(0.05	)	(0.31	)	11.13	9.39

663



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$565,441	0.50	%	0.53	%	2.16	%	17.3	%
538,078	0.58		0.61		2.23		22.7
530,582	0.61		0.65		2.07		3.2
451,227	0.63		0.84		2.14		13.1
340,861	0.69		0.88		2.42		6.8

318,123	0.32		–		2.32		17.3
290,780	0.32		–		2.49		22.7
288,691	0.32		–		2.38		3.2
268,881	0.34		0.34		2.46		13.1
236,776	0.35		0.35		2.64		6.8

2,408	1.19		–		1.56		17.3
2,927	1.19		–		1.61		22.7
2,823	1.19		–		1.75		3.2
4,436	1.20		–		1.60		13.1
3,753	1.22		–		1.94		6.8

1,194	1.06		–		1.62		17.3
1,532	1.06		–		1.79		22.7
2,756	1.06		–		1.67		3.2
3,019	1.07		–		1.64		13.1
2,532	1.09		–		2.17		6.8

16,869	0.88		–		1.82		17.3
18,301	0.88		–		2.02		22.7
21,180	0.88		–		1.82		3.2
20,157	0.89		–		2.04		13.1
22,210	0.91		–		2.20		6.8

15,336	0.69		–		2.02		17.3
18,067	0.69		–		2.17		22.7
20,811	0.69		–		2.06		3.2
17,604	0.70		–		1.99		13.1
11,581	0.72		–		2.26		6.8



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Portfolio invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

664



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SAM CONSERVATIVE BALANCED PORTFOLIO
R-5 Shares
2016	$11.93	$0.24	$0.12		$0.36	($0.24)		($0.47)		($0.71)		$11.58	3.26	%
2015	12.30	0.27	(0.16	)	0.11	(0.28	)	(0.20	)	(0.48	)	11.93	0.90
2014	11.95	0.25	0.58		0.83	(0.25	)	(0.23	)	(0.48	)	12.30	7.14
2013	11.13	0.25	0.89		1.14	(0.26	)	(0.06	)	(0.32	)	11.95	10.48
2012	10.48	0.27	0.70		0.97	(0.27	)	(0.05	)	(0.32	)	11.13	9.49

665



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$32,100	0.57	%	-%	2.06	%	17.3	%
28,673	0.57		–	2.21		22.7
36,356	0.57		–	2.08		3.2
29,141	0.58		–	2.14		13.1
18,477	0.60		–	2.46		6.8



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Portfolio invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

666



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
SAM CONSERVATIVE GROWTH PORTFOLIO
Class A Shares
2016	$18.16	$0.16	$0.14		$0.30	($0.14)		($1.64)		($1.78)		$16.68	2.05	%
2015	18.86	0.29	(0.11	)	0.18	(0.30	)	(0.58	)	(0.88	)	18.16	1.05
2014	17.53	0.21	1.50		1.71	(0.23	)	(0.15	)	(0.38	)	18.86	9.90
2013	14.73	0.22	2.81		3.03	(0.23	)	–		(0.23	)	17.53	20.88
2012	13.48	0.19	1.26		1.45	(0.20	)	–		(0.20	)	14.73	10.92
Class C Shares
2016	17.09	0.04	0.13		0.17	(0.03	)	(1.64	)	(1.67	)	15.59	1.31
2015	17.81	0.15	(0.11	)	0.04	(0.18	)	(0.58	)	(0.76	)	17.09	0.28
2014	16.59	0.08	1.40		1.48	(0.11	)	(0.15	)	(0.26	)	17.81	9.05
2013	13.95	0.09	2.68		2.77	(0.13	)	–		(0.13	)	16.59	20.01
2012	12.77	0.08	1.20		1.28	(0.10	)	–		(0.10	)	13.95	10.09
Class P Shares
2016	17.87	0.18	0.16		0.34	(0.20	)	(1.64	)	(1.84	)	16.37	2.32
2015(e)	16.84	0.01	1.02		1.03	–		–		–		17.87	6.12 (f)

667



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$1,418,053	0.66 %(c)	1.00	%	22.4 %
1,506,074	0.65 (c)	1.60		35.6
1,493,034	0.65 (c)	1.17		4.0
1,372,490	0.68 (c)	1.35		20.2
1,174,694	0.72 (c)	1.32		13.1

515,921	1.42 (c)	0.24		22.4
549,093	1.40 (c)	0.87		35.6
551,460	1.40 (c)	0.44		4.0
510,553	1.43 (c)	0.61		20.2
443,838	1.47 (c)	0.59		13.1

6,077	0.38 (c),(d)	1.12		22.4
2,877	0.42 (c),(d),(g)	0.43 (g)		35.6 (g)



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Does not include expenses of the investment companies in which the Portfolio invests.
(d)	Reflects Manager's contractual expense limit.
(e)	Period from August 24, 2015, date shares first offered, through October 31, 2015.
(f)	Total return amounts have not been annualized.
(g)	Computed on an annualized basis.

668



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SAM CONSERVATIVE GROWTH PORTFOLIO
Class J Shares
2016	$17.66	$0.18	$0.13		$0.31	($0.16)		($1.64)		($1.80)		$16.17	2.15 %(d)
2015	18.36	0.30	(0.11	)	0.19	(0.31	)	(0.58	)	(0.89	)	17.66	1.14 (d)
2014	17.08	0.21	1.46		1.67	(0.24	)	(0.15	)	(0.39	)	18.36	9.93 (d)
2013	14.36	0.21	2.75		2.96	(0.24	)	–		(0.24	)	17.08	20.95 (d)
2012	13.15	0.17	1.25		1.42	(0.21	)	–		(0.21	)	14.36	10.94 (d)
Institutional Shares
2016	17.87	0.22	0.13		0.35	(0.20	)	(1.64	)	(1.84	)	16.38	2.39
2015	18.57	0.36	(0.11	)	0.25	(0.37	)	(0.58	)	(0.95	)	17.87	1.42
2014	17.27	0.27	1.47		1.74	(0.29	)	(0.15	)	(0.44	)	18.57	10.23
2013	14.52	0.26	2.78		3.04	(0.29	)	–		(0.29	)	17.27	21.30
2012	13.29	0.20	1.28		1.48	(0.25	)	–		(0.25	)	14.52	11.37
R-1 Shares
2016	17.56	0.08	0.12		0.20	(0.03)		(1.64	)	(1.67)		16.09	1.48
2015	18.26	0.22	(0.13	)	0.09	(0.21	)	(0.58	)	(0.79	)	17.56	0.56
2014	16.99	0.12	1.44		1.56	(0.14	)	(0.15	)	(0.29	)	18.26	9.28
2013	14.29	0.13	2.74		2.87	(0.17	)	–		(0.17	)	16.99	20.30
2012	13.07	0.12	1.23		1.35	(0.13	)	–		(0.13	)	14.29	10.40
R-2 Shares
2016	17.57	0.09	0.13		0.22	(0.04	)	(1.64	)	(1.68	)	16.11	1.58
2015	18.28	0.27	(0.16	)	0.11	(0.24	)	(0.58	)	(0.82	)	17.57	0.66
2014	17.01	0.14	1.45		1.59	(0.17	)	(0.15	)	(0.32	)	18.28	9.45
2013	14.29	0.13	2.76		2.89	(0.17	)	–		(0.17	)	17.01	20.45
2012	13.08	0.12	1.24		1.36	(0.15	)	–		(0.15	)	14.29	10.54
R-3 Shares
2016	17.62	0.12	0.13		0.25	(0.11	)	(1.64	)	(1.75	)	16.12	1.79
2015	18.32	0.24	(0.10	)	0.14	(0.26	)	(0.58	)	(0.84	)	17.62	0.84
2014	17.05	0.18	1.45		1.63	(0.21	)	(0.15	)	(0.36	)	18.32	9.68
2013	14.35	0.16	2.76		2.92	(0.22	)	–		(0.22	)	17.05	20.60
2012	13.15	0.15	1.24		1.39	(0.19	)	–		(0.19	)	14.35	10.76
R-4 Shares
2016	17.77	0.16	0.13		0.29	(0.13	)	(1.64	)	(1.77	)	16.29	2.01
2015	18.48	0.31	(0.14	)	0.17	(0.30	)	(0.58	)	(0.88	)	17.77	1.01
2014	17.20	0.22	1.44		1.66	(0.23	)	(0.15	)	(0.38	)	18.48	9.83
2013	14.46	0.21	2.76		2.97	(0.23	)	–		(0.23	)	17.20	20.87
2012	13.24	0.16	1.27		1.43	(0.21	)	–		(0.21	)	14.46	10.96

669



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$490,030	0.51	%	0.54	%	1.11	%	22.4	%
496,991	0.59		0.62		1.68		35.6
496,391	0.62		0.66		1.19		4.0
422,288	0.65		0.85		1.33		20.2
313,149	0.70		0.90		1.26		13.1

471,935	0.32		–		1.35		22.4
523,817	0.31		–		1.97		35.6
526,264	0.32		–		1.52		4.0
487,967	0.33		0.33		1.67		20.2
401,459	0.34		0.34		1.40		13.1

2,542	1.19		–		0.49		22.4
3,158	1.19		–		1.25		35.6
4,246	1.19		–		0.68		4.0
4,190	1.20		–		0.83		20.2
3,657	1.21		–		0.86		13.1

4,172	1.06		–		0.58		22.4
5,383	1.06		–		1.49		35.6
8,556	1.06		–		0.77		4.0
8,384	1.07		–		0.82		20.2
5,916	1.08		–		0.90		13.1

27,286	0.88		–		0.78		22.4
29,621	0.88		–		1.33		35.6
26,537	0.88		–		1.02		4.0
26,667	0.89		–		1.01		20.2
17,863	0.90		–		1.06		13.1

15,639	0.69		–		0.99		22.4
20,164	0.69		–		1.70		35.6
24,177	0.69		–		1.21		4.0
21,406	0.70		–		1.31		20.2
15,442	0.71		–		1.15		13.1



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Portfolio invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

670



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SAM CONSERVATIVE GROWTH PORTFOLIO
R-5 Shares
2016	$17.74	$0.16	$0.14		$0.30	($0.13)		($1.64)		($1.77)		$16.27	2.10	%
2015	18.44	0.33	(0.13	)	0.20	(0.32	)	(0.58	)	(0.90	)	17.74	1.18
2014	17.16	0.21	1.47		1.68	(0.25	)	(0.15	)	(0.40	)	18.44	9.95
2013	14.43	0.22	2.77		2.99	(0.26	)	–		(0.26	)	17.16	21.04
2012	13.21	0.18	1.26		1.44	(0.22	)	–		(0.22	)	14.43	11.10

671



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$47,063	0.57	%	-%	1.02	%	22.4	%
47,254	0.57		–	1.81		35.6
84,381	0.57		–	1.17		4.0
67,284	0.58		–	1.37		20.2
47,638	0.59		–	1.32		13.1



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Portfolio invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

672



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
SAM FLEXIBLE INCOME PORTFOLIO
Class A Shares
2016	$12.21	$0.32	$0.16		$0.48		($0.32)		($0.30)		($0.62)		$12.07	4.18	%
2015	12.64	0.33	(0.31	)	0.02		(0.32	)	(0.13	)	(0.45	)	12.21	0.20
2014	12.37	0.32	0.46		0.78		(0.32	)	(0.19	)	(0.51	)	12.64	6.44
2013	11.99	0.33	0.50		0.83		(0.34	)	(0.11	)	(0.45	)	12.37	7.09
2012	11.32	0.36	0.68		1.04		(0.35	)	(0.02	)	(0.37	)	11.99	9.30
Class C Shares
2016	12.10	0.22	0.16		0.38		(0.23	)	(0.30	)	(0.53	)	11.95	3.35
2015	12.53	0.23	(0.30	)	(0.07	)	(0.23	)	(0.13	)	(0.36	)	12.10	(0.55	)
2014	12.27	0.22	0.45		0.67		(0.22	)	(0.19	)	(0.41	)	12.53	5.61
2013	11.90	0.23	0.50		0.73		(0.25	)	(0.11	)	(0.36	)	12.27	6.25
2012	11.23	0.27	0.68		0.95		(0.26	)	(0.02	)	(0.28	)	11.90	8.56
Class P Shares
2016	12.17	0.33	0.15		0.48		(0.33	)	(0.30	)	(0.63	)	12.02	4.25
2015(e)	11.97	0.06	0.21		0.27		(0.07	)	–		(0.07	)	12.17	2.24 (f)

673



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$917,507	0.64 %(c)	2.67	%	10.4 %
840,440	0.63 (c)	2.63		17.7
793,238	0.64 (c)	2.57		2.2
718,931	0.66 (c)	2.71		10.5
612,795	0.69 (c)	3.08		5.5

368,051	1.41 (c)	1.90		10.4
347,647	1.39 (c)	1.87		17.7
311,494	1.40 (c)	1.79		2.2
259,444	1.42 (c)	1.95		10.5
224,627	1.44 (c)	2.33		5.5

11,865	0.51 (c),(d)	2.79		10.4
4,635	0.51 (c),(d),(g)	2.70 (g)		17.7 (g)



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Does not include expenses of the investment companies in which the Portfolio invests.
(d)	Reflects Manager's contractual expense limit.
(e)	Period from August 24, 2015, date shares first offered, through October 31, 2015.
(f)	Total return amounts have not been annualized.
(g)	Computed on an annualized basis.

674



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SAM FLEXIBLE INCOME PORTFOLIO
Class J Shares
2016	$12.12	$0.33	$0.15		$0.48		($0.33)		($0.30)		($0.63)		$11.97	4.26 %(d)
2015	12.55	0.33	(0.30	)	0.03		(0.33	)	(0.13	)	(0.46	)	12.12	0.25 (d)
2014	12.29	0.32	0.45		0.77		(0.32	)	(0.19	)	(0.51	)	12.55	6.43 (d)
2013	11.91	0.32	0.51		0.83		(0.34	)	(0.11	)	(0.45	)	12.29	7.16 (d)
2012	11.25	0.35	0.68		1.03		(0.35	)	(0.02)		(0.37	)	11.91	9.27 (d)
Institutional Shares
2016	12.17	0.35	0.17		0.52		(0.36	)	(0.30	)	(0.66	)	12.03	4.51
2015	12.60	0.37	(0.31	)	0.06		(0.36	)	(0.13	)	(0.49	)	12.17	0.51
2014	12.34	0.36	0.45		0.81		(0.36	)	(0.19	)	(0.55	)	12.60	6.70
2013	11.96	0.37	0.50		0.87		(0.38	)	(0.11	)	(0.49	)	12.34	7.45
2012	11.29	0.39	0.69		1.08		(0.39	)	(0.02)		(0.41	)	11.96	9.68
R-1 Shares
2016	12.13	0.25	0.16		0.41		(0.26)		(0.30)		(0.56)		11.98	3.57
2015	12.56	0.26	(0.31	)	(0.05	)	(0.25	)	(0.13	)	(0.38	)	12.13	(0.36	)
2014	12.30	0.25	0.45		0.70		(0.25	)	(0.19	)	(0.44	)	12.56	5.80
2013	11.92	0.26	0.50		0.76		(0.27	)	(0.11	)	(0.38	)	12.30	6.56
2012	11.25	0.30	0.68		0.98		(0.29	)	(0.02)		(0.31	)	11.92	8.78
R-2 Shares
2016	12.16	0.27	0.15		0.42		(0.27	)	(0.30	)	(0.57	)	12.01	3.66
2015	12.59	0.27	(0.30	)	(0.03	)	(0.27	)	(0.13	)	(0.40	)	12.16	(0.23	)
2014	12.32	0.27	0.45		0.72		(0.26	)	(0.19	)	(0.45	)	12.59	6.00
2013	11.94	0.28	0.50		0.78		(0.29	)	(0.11	)	(0.40	)	12.32	6.68
2012	11.27	0.31	0.68		0.99		(0.30	)	(0.02)		(0.32	)	11.94	8.90
R-3 Shares
2016	12.15	0.29	0.15		0.44		(0.29	)	(0.30	)	(0.59	)	12.00	3.86
2015	12.58	0.30	(0.31	)	(0.01	)	(0.29	)	(0.13	)	(0.42	)	12.15	(0.05	)
2014	12.32	0.29	0.45		0.74		(0.29	)	(0.19	)	(0.48	)	12.58	6.12
2013	11.94	0.30	0.50		0.80		(0.31	)	(0.11	)	(0.42	)	12.32	6.87
2012	11.27	0.33	0.68		1.01		(0.32	)	(0.02)		(0.34	)	11.94	9.11
R-4 Shares
2016	12.16	0.31	0.15		0.46		(0.31	)	(0.30	)	(0.61	)	12.01	4.05
2015	12.59	0.33	(0.32	)	0.01		(0.31	)	(0.13	)	(0.44	)	12.16	0.13
2014	12.32	0.32	0.45		0.77		(0.31	)	(0.19	)	(0.50	)	12.59	6.40
2013	11.95	0.31	0.50		0.81		(0.33	)	(0.11	)	(0.44	)	12.32	6.99
2012	11.28	0.35	0.69		1.04		(0.35	)	(0.02)		(0.37	)	11.95	9.31

675



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$1,024,333	0.51	%	0.54	%	2.79	%	10.4	%
849,016	0.58		0.61		2.66		17.7
723,517	0.61		0.65		2.57		2.2
589,349	0.64		0.84		2.69		10.5
423,411	0.69		0.89		3.05		5.5

174,007	0.32		–		2.99		10.4
177,423	0.32		–		2.95		17.7
180,049	0.32		–		2.89		2.2
174,501	0.34		0.34		3.05		10.5
168,309	0.36		0.36		3.30		5.5

1,100	1.19		–		2.11		10.4
676	1.19		–		2.10		17.7
741	1.19		–		2.05		2.2
1,044	1.20		–		2.16		10.5
820	1.21		–		2.58		5.5

717	1.06		–		2.25		10.4
839	1.06		–		2.21		17.7
1,139	1.06		–		2.16		2.2
1,682	1.07		–		2.31		10.5
1,767	1.08		–		2.67		5.5

8,034	0.88		–		2.49		10.4
10,070	0.88		–		2.43		17.7
10,483	0.88		–		2.36		2.2
10,544	0.89		–		2.47		10.5
8,821	0.90		–		2.85		5.5

6,091	0.69		–		2.66		10.4
7,849	0.69		–		2.70		17.7
12,062	0.69		–		2.55		2.2
12,416	0.70		–		2.55		10.5
6,962	0.71		–		3.01		5.5



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Portfolio invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

676



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SAM FLEXIBLE INCOME PORTFOLIO
R-5 Shares
2016	$12.15	$0.32	$0.17		$0.49	($0.33)		($0.30)		($0.63)		$12.01	4.27	%
2015	12.58	0.34	(0.31	)	0.03	(0.33	)	(0.13	)	(0.46	)	12.15	0.26
2014	12.32	0.32	0.46		0.78	(0.33	)	(0.19	)	(0.52	)	12.58	6.45
2013	11.94	0.33	0.51		0.84	(0.35	)	(0.11	)	(0.46	)	12.32	7.20
2012	11.28	0.36	0.68		1.04	(0.36	)	(0.02	)	(0.38	)	11.94	9.35

677



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$20,211	0.57	%	-%	2.71	%	10.4	%
16,871	0.57		–	2.74		17.7
20,815	0.57		–	2.61		2.2
17,297	0.58		–	2.77		10.5
12,966	0.59		–	3.08		5.5



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Portfolio invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

678



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
SAM STRATEGIC GROWTH PORTFOLIO
Class A Shares
2016	$20.60	$0.20	($0.07)		$0.13		($0.17)		($2.32)		($2.49)		$18.24	1.03	%
2015	21.79	0.37	(0.19	)	0.18		(0.37	)	(1.00	)	(1.37	)	20.60	0.92
2014	19.91	0.21	2.03		2.24		(0.22	)	(0.14	)	(0.36	)	21.79	11.39
2013	16.13	0.19	3.79		3.98		(0.20	)	–		(0.20	)	19.91	24.92
2012	14.61	0.12	1.52		1.64		(0.12	)	–		(0.12	)	16.13	11.31
Class C Shares
2016	19.11	0.06	(0.07	)	(0.01	)	(0.05	)	(2.32	)	(2.37	)	16.73	0.26
2015	20.32	0.21	(0.19	)	0.02		(0.23	)	(1.00	)	(1.23	)	19.11	0.16
2014	18.61	0.05	1.89		1.94		(0.09	)	(0.14	)	(0.23	)	20.32	10.54
2013	15.09	0.06	3.54		3.60		(0.08	)	–		(0.08	)	18.61	24.00
2012	13.67	0.01	1.42		1.43		(0.01	)	–		(0.01	)	15.09	10.47
Class P Shares
2016	20.25	0.19	(0.02	)	0.17		(0.24	)	(2.32	)	(2.56	)	17.86	1.18 (d)
2015(f)	18.81	0.01	1.43		1.44		–		–		–		20.25	7.71 (d),(g)

679



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$926,183	0.69 %(c)	1.10	%	22.9 %
996,126	0.67 (c)	1.77		51.2
989,320	0.67 (c)	1.00		5.9
921,467	0.71 (c)	1.08		26.5
767,482	0.76 (c)	0.78		13.6

302,748	1.44 (c)	0.35		22.9
326,391	1.42 (c)	1.06		51.2
333,072	1.42 (c)	0.27		5.9
317,406	1.46 (c)	0.36		26.5
273,694	1.51 (c)	0.06		13.6

2,418	0.51 (c),(e)	1.08		22.9
1,366	0.51 (c),(e),(h)	0.15 (h)		51.2 (h)



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Does not include expenses of the investment companies in which the Portfolio invests.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value. The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
(e)	Reflects Manager's contractual expense limit.
(f)	Period from August 24, 2015, date shares first offered, through October 31, 2015.
(g)	Total return amounts have not been annualized.
(h)	Computed on an annualized basis.

680



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SAM STRATEGIC GROWTH PORTFOLIO
Class J Shares
2016	$20.06	$0.22	($0.06)		$0.16	($0.19)		($2.32)		($2.51)		$17.71	1.22 %(d)
2015	21.26	0.38	(0.19	)	0.19	(0.39	)	(1.00	)	(1.39	)	20.06	0.96 (d)
2014	19.44	0.20	1.99		2.19	(0.23	)	(0.14	)	(0.37	)	21.26	11.43 (d)
2013	15.75	0.19	3.71		3.90	(0.21	)	–		(0.21	)	19.44	25.04 (d)
2012	14.28	0.12	1.48		1.60	(0.13	)	–		(0.13	)	15.75	11.28 (d)
Institutional Shares
2016	20.26	0.26	(0.06	)	0.20	(0.24	)	(2.32	)	(2.56	)	17.90	1.44
2015	21.46	0.45	(0.20	)	0.25	(0.45	)	(1.00	)	(1.45	)	20.26	1.25
2014	19.61	0.27	2.01		2.28	(0.29	)	(0.14	)	(0.43	)	21.46	11.80
2013	15.89	0.25	3.73		3.98	(0.26	)	–		(0.26	)	19.61	25.43
2012	14.40	0.14	1.53		1.67	(0.18	)	–		(0.18	)	15.89	11.74
R-1 Shares
2016	19.91	0.12	(0.08)		0.04	(0.08)		(2.32	)	(2.40)		17.55	0.54
2015	21.10	0.48	(0.41	)	0.07	(0.26	)	(1.00	)	(1.26	)	19.91	0.37
2014	19.30	0.10	1.97		2.07	(0.13	)	(0.14	)	(0.27	)	21.10	10.85
2013	15.65	0.09	3.69		3.78	(0.13	)	–		(0.13	)	19.30	24.35
2012	14.18	0.06	1.46		1.52	(0.05	)	–		(0.05	)	15.65	10.74
R-2 Shares
2016	19.96	0.12	(0.06	)	0.06	(0.07	)	(2.32	)	(2.39	)	17.63	0.62
2015	21.15	0.36	(0.26	)	0.10	(0.29	)	(1.00	)	(1.29	)	19.96	0.55
2014	19.36	0.11	1.98		2.09	(0.16	)	(0.14	)	(0.30	)	21.15	10.95
2013	15.68	0.09	3.72		3.81	(0.13	)	–		(0.13	)	19.36	24.51
2012	14.22	0.05	1.49		1.54	(0.08	)	–		(0.08	)	15.68	10.88
R-3 Shares
2016	20.00	0.16	(0.07	)	0.09	(0.14	)	(2.32	)	(2.46	)	17.63	0.83
2015	21.19	0.33	(0.19	)	0.14	(0.33	)	(1.00	)	(1.33	)	20.00	0.72
2014	19.39	0.18	1.95		2.13	(0.19	)	(0.14	)	(0.33	)	21.19	11.15
2013	15.72	0.14	3.71		3.85	(0.18	)	–		(0.18	)	19.39	24.77
2012	14.25	0.08	1.49		1.57	(0.10	)	–		(0.10	)	15.72	11.13
R-4 Shares
2016	20.12	0.20	(0.07	)	0.13	(0.16	)	(2.32	)	(2.48	)	17.77	1.03
2015	21.32	0.42	(0.25	)	0.17	(0.37	)	(1.00	)	(1.37	)	20.12	0.89
2014	19.50	0.18	2.00		2.18	(0.22	)	(0.14	)	(0.36	)	21.32	11.36
2013	15.81	0.11	3.79		3.90	(0.21	)	–		(0.21	)	19.50	24.94
2012	14.34	0.11	1.50		1.61	(0.14	)	–		(0.14	)	15.81	11.33

681



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$265,807	0.53	%	0.56	%	1.23	%	22.9	%
278,150	0.60		0.63		1.87		51.2
283,507	0.63		0.67		1.01		5.9
253,180	0.66		0.86		1.07		26.5
185,076	0.73		0.92		0.77		13.6

243,768	0.32		–		1.49		22.9
267,751	0.31		–		2.19		51.2
280,593	0.32		–		1.34		5.9
255,114	0.33		0.33		1.41		26.5
199,595	0.36		0.36		0.88		13.6

2,133	1.19		–		0.69		22.9
3,151	1.19		–		2.34		51.2
4,253	1.19		–		0.47		5.9
4,215	1.20		–		0.52		26.5
2,904	1.22		–		0.41		13.6

2,168	1.06		–		0.70		22.9
2,830	1.06		–		1.74		51.2
4,779	1.06		–		0.55		5.9
4,290	1.07		–		0.54		26.5
2,597	1.09		–		0.31		13.6

17,423	0.88		–		0.89		22.9
17,993	0.88		–		1.61		51.2
17,809	0.88		–		0.90		5.9
19,357	0.89		–		0.79		26.5
13,780	0.91		–		0.56		13.6

11,621	0.69		–		1.12		22.9
14,237	0.69		–		2.05		51.2
20,035	0.69		–		0.90		5.9
15,061	0.70		–		0.63		26.5
6,644	0.72		–		0.70		13.6



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Portfolio invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

682



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SAM STRATEGIC GROWTH PORTFOLIO
R-5 Shares
2016	$20.09	$0.22	($0.07)		$0.15	($0.18)		($2.32)		($2.50)		$17.74	1.14	%
2015	21.28	0.39	(0.18	)	0.21	(0.40	)	(1.00	)	(1.40	)	20.09	1.07
2014	19.46	0.20	2.01		2.21	(0.25	)	(0.14	)	(0.39	)	21.28	11.51
2013	15.78	0.21	3.70		3.91	(0.23	)	–		(0.23	)	19.46	25.09
2012	14.30	0.12	1.50		1.62	(0.14	)	–		(0.14	)	15.78	11.48

683



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets(b)		Ratio of Gross Expenses to Average Net Assets(b),(c)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$20,857	0.57	%	-%	1.26	%	22.9	%
24,189	0.57		–	1.93		51.2
34,618	0.57		–	1.00		5.9
27,490	0.58		–	1.17		26.5
18,765	0.60		–	0.81		13.6



(a)	Calculated based on average shares outstanding during the period.
(b)	Does not include expenses of the investment companies in which the Portfolio invests.
(c)	Excludes expense reimbursement from Manager and/or Distributor.
(d)	Total return is calculated without the contingent deferred sales charge.

684



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
SHORT-TERM INCOME FUND
Class A Shares
2016	$12.18	$0.20	$0.06		$0.26	($0.21)		$–		($0.21)		$12.23	2.17	%
2015	12.23	0.17	(0.05	)	0.12	(0.17	)	—		(0.17	)	12.18	0.98
2014	12.27	0.18	(0.03	)	0.15	(0.18	)	(0.01	)	(0.19	)	12.23	1.20
2013	12.28	0.17	(0.02	)	0.15	(0.16	)	—		(0.16	)	12.27	1.19
2012	11.97	0.22	0.30		0.52	(0.21	)	—		(0.21	)	12.28	4.38
Class C Shares
2016	12.18	0.09	0.07		0.16	(0.10	)	—		(0.10	)	12.24	1.36
2015	12.24	0.06	(0.06	)	—	(0.06	)	—		(0.06	)	12.18	0.00
2014	12.28	0.07	(0.03	)	0.04	(0.07	)	(0.01	)	(0.08	)	12.24	0.30
2013	12.29	0.07	(0.02	)	0.05	(0.06	)	—		(0.06	)	12.28	0.38
2012	11.97	0.12	0.31		0.43	(0.11	)	—		(0.11	)	12.29	3.62
Class P Shares
2016	12.17	0.22	0.06		0.28	(0.23	)	—		(0.23	)	12.22	2.36
2015	12.23	0.19	(0.06	)	0.13	(0.19	)	—		(0.19	)	12.17	1.06
2014	12.27	0.20	(0.03	)	0.17	(0.20	)	(0.01	)	(0.21	)	12.23	1.34
2013	12.28	0.19	(0.02	)	0.17	(0.18	)	—		(0.18	)	12.27	1.41
2012	11.96	0.24	0.31		0.55	(0.23	)	—		(0.23	)	12.28	4.64

685



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$340,470	0.69 %	1.63	%	53.6 %
297,899	0.68	1.39		56.4
277,110	0.69	1.45		49.1
336,352	0.76	1.36		50.1
359,554	0.77 (c)	1.81		47.9

86,734	1.57	0.75		53.6
84,886	1.57	0.50		56.4
90,275	1.57 (c)	0.57		49.1
105,547	1.57 (c)	0.55		50.1
99,524	1.58 (c)	1.01		47.9

134,616	0.52 (c)	1.81		53.6
86,908	0.52 (c)	1.55		56.4
72,897	0.53 (c)	1.61		49.1
57,343	0.54 (c)	1.58		50.1
41,798	0.61 (c)	1.95		47.9



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.

686



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SHORT-TERM INCOME FUND
Class J Shares
2016	$12.17	$0.20	$0.06		$0.26	($0.21)		$–		($0.21)		$12.22	2.16 %(c)
2015	12.23	0.16	(0.06	)	0.10	(0.16	)	–		(0.16	)	12.17	0.83 (c)
2014	12.26	0.16	(0.02	)	0.14	(0.16	)	(0.01	)	(0.17	)	12.23	1.16 (c)
2013	12.28	0.15	(0.03	)	0.12	(0.14	)	–		(0.14	)	12.26	1.00 (c)
2012	11.96	0.20	0.31		0.51	(0.19	)	–		(0.19	)	12.28	4.29 (c)
Institutional Shares
2016	12.17	0.23	0.06		0.29	(0.24	)	–		(0.24	)	12.22	2.44
2015	12.23	0.20	(0.06	)	0.14	(0.20	)	–		(0.20	)	12.17	1.14
2014	12.26	0.21	(0.02	)	0.19	(0.21	)	(0.01	)	(0.22	)	12.23	1.52
2013	12.28	0.20	(0.03	)	0.17	(0.19	)	–		(0.19	)	12.26	1.43
2012	11.96	0.25	0.32		0.57	(0.25	)	–		(0.25	)	12.28	4.79
R-1 Shares
2016	12.17	0.13	0.06		0.19	(0.14)		–		(0.14)		12.22	1.56
2015	12.23	0.10	(0.07	)	0.03	(0.09	)	–		(0.09	)	12.17	0.27
2014	12.26	0.10	(0.02	)	0.08	(0.10	)	(0.01	)	(0.11	)	12.23	0.65
2013	12.28	0.10	(0.03	)	0.07	(0.09	)	–		(0.09	)	12.26	0.57
2012	11.96	0.15	0.32		0.47	(0.15	)	–		(0.15	)	12.28	3.92
R-2 Shares
2016	12.17	0.14	0.06		0.20	(0.15	)	–		(0.15	)	12.22	1.70
2015	12.23	0.11	(0.06	)	0.05	(0.11	)	–		(0.11	)	12.17	0.40
2014	12.26	0.12	(0.02	)	0.10	(0.12	)	(0.01	)	(0.13	)	12.23	0.78
2013	12.28	0.12	(0.03	)	0.09	(0.11	)	–		(0.11	)	12.26	0.70
2012	11.96	0.16	0.32		0.48	(0.16	)	–		(0.16	)	12.28	4.04
R-3 Shares
2016	12.17	0.16	0.08		0.24	(0.18	)	–		(0.18	)	12.23	1.88 (e)
2015	12.23	0.13	(0.06	)	0.07	(0.13	)	–		(0.13	)	12.17	0.67 (e)
2014	12.27	0.14	(0.03	)	0.11	(0.14	)	(0.01	)	(0.15	)	12.23	0.88
2013	12.28	0.14	(0.02	)	0.12	(0.13	)	–		(0.13	)	12.27	0.96
2012	11.96	0.19	0.31		0.50	(0.18	)	–		(0.18	)	12.28	4.24
R-4 Shares
2016	12.17	0.19	0.07		0.26	(0.20	)	–		(0.20	)	12.23	2.16
2015	12.23	0.16	(0.07	)	0.09	(0.15	)	–		(0.15	)	12.17	0.78
2014	12.27	0.17	(0.03	)	0.14	(0.17	)	(0.01	)	(0.18	)	12.23	1.09
2013	12.28	0.16	(0.02	)	0.14	(0.15	)	–		(0.15	)	12.27	1.17
2012	11.97	0.21	0.31		0.52	(0.21	)	–		(0.21	)	12.28	4.36

687



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$144,158	0.70	%	0.73	%	1.62	%	53.6	%
124,221	0.75		0.80		1.32		56.4
120,296	0.80		0.84		1.34		49.1
124,761	0.87		1.07		1.25		50.1
107,444	0.94		1.13		1.63		47.9

2,346,871	0.43		–		1.89		53.6
2,180,068	0.43		–		1.63		56.4
1,936,142	0.44		–		1.69		49.1
1,134,768	0.45		0.45		1.67		50.1
897,254	0.46		0.46		2.10		47.9

1,338	1.30 (d)		–		1.03		53.6
1,237	1.30 (d)		–		0.78		56.4
1,468	1.30 (d)		–		0.84		49.1
1,851	1.30 (d)		–		0.82		50.1
2,247	1.30 (d)		–		1.22		47.9

2,358	1.17 (d)		–		1.16		53.6
1,975	1.17 (d)		–		0.90		56.4
1,957	1.17 (d)		–		0.97		49.1
1,640	1.18 (d)		–		0.94		50.1
1,194	1.18 (d)		–		1.30		47.9

21,159	0.99 (d)		–		1.34		53.6
11,415	0.99 (d)		–		1.09		56.4
14,472	0.99 (d)		–		1.15		49.1
10,748	0.99 (d)		–		1.13		50.1
10,336	0.99 (d)		–		1.56		47.9

13,199	0.79 (d)		–		1.53		53.6
14,049	0.79 (d)		–		1.28		56.4
14,272	0.79 (d)		–		1.35		49.1
4,377	0.79 (d)		–		1.33		50.1
3,106	0.79 (d)		–		1.72		47.9



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Reflects Manager's contractual expense limit.
(e)	Total return is calculated using the traded net asset value which may differ from the reported net asset value. The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

688



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SHORT-TERM INCOME FUND
R-5 Shares
2016	$12.18	$0.20	$0.06		$0.26	($0.21)		$-		($0.21)		$12.23	2.19	%
2015	12.24	0.17	(0.06	)	0.11	(0.17	)	–		(0.17	)	12.18	0.90
2014	12.27	0.18	(0.02	)	0.16	(0.18	)	(0.01	)	(0.19	)	12.24	1.28
2013	12.28	0.18	(0.02	)	0.16	(0.17	)	–		(0.17	)	12.27	1.28
2012	11.96	0.23	0.31		0.54	(0.22	)	–		(0.22	)	12.28	4.56

689



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Gross Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$12,039	0.68 (d)	-%	1.65	%	53.6	%
12,383	0.68 (d)	–	1.39		56.4
9,287	0.68 (d)	–	1.46		49.1
4,735	0.68 (d)	–	1.44		50.1
3,373	0.68 (d)	–	1.89		47.9



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Reflects Manager's contractual expense limit.
(e)	Total return is calculated using the traded net asset value which may differ from the reported net asset value. The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.

690



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
SMALLCAP FUND
Class A Shares
2016	$20.62	$0.10		$0.04		$0.14		$–		($0.74)		($0.74)		$20.02	0.77	%
2015	21.74	(0.04	)	1.39		1.35		–		(2.47	)	(2.47	)	20.62	6.90
2014	21.60	(0.04	)	1.74		1.70		–		(1.56	)	(1.56	)	21.74	8.08
2013	15.50	0.03		6.21		6.24		(0.05	)	(0.09	)	(0.14	)	21.60	40.56
2012	13.76	0.01		1.73		1.74		–		—		—		15.50	12.65
Class C Shares
2016	19.16	(0.05	)	0.03		(0.02	)	–		(0.74	)	(0.74	)	18.40	(0.03	)
2015	20.53	(0.20	)	1.30		1.10		–		(2.47	)	(2.47	)	19.16	5.99
2014	20.65	(0.21	)	1.65		1.44		–		(1.56	)	(1.56	)	20.53	7.13
2013	14.89	(0.11	)	5.96		5.85		–		(0.09	)	(0.09	)	20.65	39.51
2012	13.31	(0.09	)	1.67		1.58		–		–		–		14.89	11.87
Class P Shares
2016	21.76	0.14		0.08		0.22		–		(0.74	)	(0.74	)	21.24	1.06 (d)
2015	22.76	0.03		1.44		1.47		–		(2.47	)	(2.47	)	21.76	7.19 (d)
2014(e)	22.83	0.01		(0.08	)	(0.07	)	–		–		–		22.76	(0.31)(f)

691



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$214,666	1.24 %(c)	0.52	%	59.1 %
225,217	1.23 (c)	(0.19	)	69.2
189,911	1.23 (c)	(0.19	)	67.6
178,336	1.34 (c)	0.17		95.2
130,282	1.37 (c)	0.08		90.2

25,294	2.08 (c)	(0.31	)	59.1
25,086	2.07 (c)	(1.01	)	69.2
15,737	2.08 (c)	(1.04	)	67.6
12,344	2.08 (c)	(0.60	)	95.2
7,790	2.09 (c)	(0.59	)	90.2

10,953	0.95 (c)	0.66		59.1
6,007	0.95 (c)	0.16		69.2
78	0.95 (c),(g)	0.13 (g)		67.6 (g)



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.
(d)	Total return is calculated using the traded net asset value which may differ from the reported net asset value. The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
(e)	Period from June 3, 2014, date shares first offered, through October 31, 2014.
(f)	Total return amounts have not been annualized.
(g)	Computed on an annualized basis.

692



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SMALLCAP FUND
Class J Shares
2016	$19.82	$0.14		$0.04	$0.18	$–		($0.74)		($0.74)		$19.26	1.01 %(c)
2015	20.98	(0.01	)	1.32	1.31	–		(2.47	)	(2.47	)	19.82	6.97 (c)
2014	20.88	(0.02	)	1.68	1.66	–		(1.56	)	(1.56	)	20.98	8.17 (c)
2013	14.97	0.06		6.01	6.07	(0.07)		(0.09	)	(0.16	)	20.88	40.88 (c)
2012	13.28	0.02		1.67	1.69	–		–		–		14.97	12.73 (c)
Institutional Shares
2016	21.81	0.23		0.01	0.24	–		(0.74	)	(0.74	)	21.31	1.20
2015	22.77	0.06		1.45	1.51	–		(2.47	)	(2.47	)	21.81	7.34
2014	22.51	0.06		1.81	1.87	(0.05	)	(1.56	)	(1.61	)	22.77	8.54
2013	16.14	0.13		6.47	6.60	(0.14)		(0.09	)	(0.23	)	22.51	41.38
2012	14.24	0.09		1.81	1.90	–		–		–		16.14	13.34
R-1 Shares
2016	19.88	0.03		0.03	0.06	–		(0.74	)	(0.74	)	19.20	0.38
2015	21.13	(0.12	)	1.34	1.22	–		(2.47	)	(2.47	)	19.88	6.44
2014	21.12	(0.13	)	1.70	1.57	–		(1.56	)	(1.56	)	21.13	7.62
2013	15.16	(0.02	)	6.08	6.06	(0.01)		(0.09	)	(0.1	)	21.12	40.21
2012	13.50	(0.01	)	1.67	1.66	–		–		–		15.16	12.30
R-2 Shares
2016	20.06	0.01		0.07	0.08	–		(0.74	)	(0.74	)	19.40	0.48
2015	21.27	(0.10	)	1.36	1.26	–		(2.47	)	(2.47	)	20.06	6.60
2014	21.22	(0.10	)	1.71	1.61	–		(1.56	)	(1.56	)	21.27	7.78
2013	15.21	–		6.11	6.11	(0.01)		(0.09	)	(0.1	)	21.22	40.35
2012	13.52	(0.01	)	1.70	1.69	–		–		–		15.21	12.50
R-3 Shares
2016	20.63	0.09		0.03	0.12	–		(0.74	)	(0.74	)	20.01	0.67
2015	21.77	(0.06	)	1.39	1.33	–		(2.47	)	(2.47	)	20.63	6.79
2014	21.65	(0.06	)	1.74	1.68	–		(1.56	)	(1.56	)	21.77	7.96
2013	15.54	0.03		6.23	6.26	(0.06)		(0.09	)	(0.15	)	21.65	40.62
2012	13.79	0.03		1.72	1.75	–		–		–		15.54	12.69
R-4 Shares
2016	21.27	0.11		0.06	0.17	–		(0.74	)	(0.74	)	20.70	0.89
2015	22.34	(0.02	)	1.42	1.40	–		(2.47	)	(2.47	)	21.27	6.95
2014	22.14	(0.02	)	1.78	1.76	–		(1.56	)	(1.56	)	22.34	8.16
2013	15.87	0.07		6.37	6.44	(0.08)		(0.09	)	(0.17	)	22.14	40.93
2012	14.06	0.04		1.77	1.81	–		–		–		15.87	12.87

693



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$182,800	1.02	%	1.05	%	0.75	%	59.1	%
200,263	1.10		1.13		(0.06	)	69.2
200,333	1.13		1.17		(0.09	)	67.6
200,359	1.18		1.38		0.32		95.2
148,772	1.28		1.48		0.17		90.2

61,357	0.80		0.82		1.12		59.1
98,042	0.79		0.79		0.26		69.2
72,583	0.79		0.79		0.25		67.6
65,062	0.80		0.80		0.70		95.2
45,620	0.79		0.79		0.61		90.2

2,535	1.64		–		0.16		59.1
2,889	1.64		–		(0.59	)	69.2
2,079	1.64		–		(0.60	)	67.6
2,401	1.64		–		(0.11	)	95.2
2,001	1.64		–		(0.10	)	90.2

11,107	1.51		–		0.05		59.1
4,161	1.51		–		(0.47	)	69.2
2,956	1.51		–		(0.47	)	67.6
3,018	1.51		–		0.01		95.2
2,852	1.51		–		(0.05	)	90.2

12,944	1.33		–		0.45		59.1
9,368	1.33		–		(0.28	)	69.2
6,628	1.33		–		(0.28	)	67.6
6,143	1.33		–		0.18		95.2
4,907	1.33		–		0.22		90.2

13,799	1.14		–		0.57		59.1
9,089	1.14		–		(0.08	)	69.2
4,052	1.14		–		(0.10	)	67.6
4,200	1.14		–		0.37		95.2
2,944	1.14		–		0.26		90.2



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.

694



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SMALLCAP FUND
R-5 Shares
2016	$21.65	$0.15	$0.04	$0.19	$-		($0.74)		($0.74)		$21.10	0.97	%
2015	22.66	–	1.46	1.46	–		(2.47	)	(2.47	)	21.65	7.13
2014	22.42	0.01	1.80	1.81	(0.01	)	(1.56	)	(1.57	)	22.66	8.27
2013	16.08	0.09	6.44	6.53	(0.10	)	(0.09	)	(0.19	)	22.42	41.04
2012	14.22	0.07	1.79	1.86	–		–		–		16.08	13.08

695



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$18,947	1.02	%	-%	0.75	%	59.1	%
18,855	1.02		–	0.02		69.2
12,020	1.02		–	0.02		67.6
11,690	1.02		–	0.49		95.2
8,943	1.02		–	0.45		90.2



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.

696



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SMALLCAP GROWTH FUND I
Class J Shares
2016	$9.52	($0.06)		$0.14	$0.08	($1.01)		($1.01)		$8.59	0.95 %(c)
2015	11.70	(0.10	)	0.38	0.28	(2.46	)	(2.46	)	9.52	3.12 (c)
2014	12.63	(0.13	)	0.74	0.61	(1.54	)	(1.54	)	11.70	5.00 (c)
2013	9.94	(0.13	)	3.54	3.41	(0.72	)	(0.72	)	12.63	36.73 (c)
2012	9.56	(0.12	)	1.08	0.96	(0.58	)	(0.58	)	9.94	11.07 (c)
Institutional Shares
2016	11.99	(0.04	)	0.19	0.15	(1.01	)	(1.01	)	11.13	1.36
2015	14.05	(0.07	)	0.47	0.40	(2.46	)	(2.46	)	11.99	3.50
2014	14.80	(0.08	)	0.87	0.79	(1.54	)	(1.54	)	14.05	5.52
2013	11.47	(0.09	)	4.14	4.05	(0.72	)	(0.72	)	14.80	37.45
2012	10.89	(0.07	)	1.23	1.16	(0.58	)	(0.58	)	11.47	11.58
R-1 Shares
2016	10.39	(0.11	)	0.15	0.04	(1.01	)	(1.01	)	9.42	0.43
2015	12.59	(0.15	)	0.41	0.26	(2.46	)	(2.46	)	10.39	2.64
2014	13.52	(0.18	)	0.79	0.61	(1.54	)	(1.54	)	12.59	4.63
2013	10.63	(0.18	)	3.79	3.61	(0.72	)	(0.72	)	13.52	36.19
2012	10.22	(0.16	)	1.15	0.99	(0.58	)	(0.58	)	10.63	10.63
R-2 Shares
2016	10.13	(0.10	)	0.15	0.05	(1.01	)	(1.01	)	9.17	0.55
2015	12.32	(0.13	)	0.40	0.27	(2.46	)	(2.46	)	10.13	2.82
2014	13.25	(0.16	)	0.77	0.61	(1.54	)	(1.54	)	12.32	4.74
2013	10.42	(0.16	)	3.71	3.55	(0.72	)	(0.72	)	13.25	36.36
2012	10.01	(0.14	)	1.13	0.99	(0.58	)	(0.58	)	10.42	10.86
R-3 Shares
2016	10.59	(0.09	)	0.16	0.07	(1.01	)	(1.01	)	9.65	0.73
2015	12.75	(0.12	)	0.42	0.30	(2.46	)	(2.46	)	10.59	2.99
2014	13.64	(0.15	)	0.80	0.65	(1.54	)	(1.54	)	12.75	4.92
2013	10.68	(0.15	)	3.83	3.68	(0.72	)	(0.72	)	13.64	36.70
2012	10.24	(0.13	)	1.15	1.02	(0.58	)	(0.58	)	10.68	10.91
R-4 Shares
2016	11.07	(0.08	)	0.17	0.09	(1.01	)	(1.01	)	10.15	0.90
2015	13.19	(0.10	)	0.44	0.34	(2.46	)	(2.46	)	11.07	3.22
2014	14.04	(0.13	)	0.82	0.69	(1.54	)	(1.54	)	13.19	5.07
2013	10.96	(0.13	)	3.93	3.80	(0.72	)	(0.72	)	14.04	36.88
2012	10.46	(0.11	)	1.19	1.08	(0.58	)	(0.58	)	10.96	11.27
R-5 Shares
2016	11.45	(0.07	)	0.18	0.11	(1.01	)	(1.01	)	10.55	1.05
2015	13.55	(0.09	)	0.45	0.36	(2.46	)	(2.46	)	11.45	3.31
2014	14.36	(0.11	)	0.84	0.73	(1.54	)	(1.54	)	13.55	5.25
2013	11.18	(0.11	)	4.01	3.90	(0.72	)	(0.72	)	14.36	37.05
2012	10.65	(0.10	)	1.21	1.11	(0.58	)	(0.58	)	11.18	11.36
R-6 Shares
2016	11.98	(0.06	)	0.20	0.14	(1.01	)	(1.01	)	11.11	1.27
2015(e)	14.24	(0.07	)	0.27	0.20	(2.46	)	(2.46	)	11.98	2.05 (f)

697



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$47,535	1.35	%	1.46	%	(0.73	)%	57.1	%
52,609	1.46		1.56		(0.96	)	70.0
53,357	1.50		1.67		(1.09	)	66.1
30,644	1.56		1.78		(1.17	)	74.7
22,970	1.63		1.85		(1.20	)	79.9

1,292,151	1.02		1.10		(0.39	)	57.1
1,489,140	1.02		1.09		(0.52	)	70.0
1,707,451	1.02		1.09		(0.61	)	66.1
1,729,462	1.07		1.09		(0.68	)	74.7
1,329,439	1.08		1.10		(0.65	)	79.9

2,148	1.88 (d)		–		(1.24	)	57.1
2,974	1.88 (d)		–		(1.38	)	70.0
3,123	1.88 (d)		–		(1.47	)	66.1
2,783	1.94 (d)		–		(1.54	)	74.7
2,531	1.95 (d)		–		(1.52	)	79.9

4,491	1.75 (d)		–		(1.12	)	57.1
6,055	1.75 (d)		–		(1.25	)	70.0
6,581	1.75 (d)		–		(1.34	)	66.1
4,061	1.81 (d)		–		(1.41	)	74.7
3,100	1.82 (d)		–		(1.39	)	79.9

16,020	1.57 (d)		–		(0.94	)	57.1
20,155	1.57 (d)		–		(1.07	)	70.0
21,440	1.57 (d)		–		(1.16	)	66.1
18,858	1.63 (d)		–		(1.25	)	74.7
11,606	1.64 (d)		–		(1.21	)	79.9

12,216	1.38 (d)		–		(0.75	)	57.1
15,758	1.38 (d)		–		(0.89	)	70.0
16,819	1.38 (d)		–		(0.97	)	66.1
16,584	1.44 (d)		–		(1.05	)	74.7
12,347	1.45 (d)		–		(1.01	)	79.9

34,740	1.26 (d)		–		(0.64	)	57.1
36,955	1.26 (d)		–		(0.76	)	70.0
37,684	1.26 (d)		–		(0.85	)	66.1
31,647	1.32 (d)		–		(0.93	)	74.7
23,202	1.33 (d)		–		(0.90	)	79.9

605	1.06 (d)		–		(0.57	)	57.1
10	1.06 (d),(g)		–		(0.59)(g)		70.0 (g)



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Reflects Manager's contractual expense limit.
(e)	Period from November 25, 2014, date operations commenced, through October 31, 2015.
(f)	Total return amounts have not been annualized.
(g)	Computed on an annualized basis.

698



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SMALLCAP S&P 600 INDEX FUND
Class J Shares
2016	$23.02	$0.21	$0.98	$1.19	($0.21)		($1.63)		($1.84)		$22.37	5.85 %(c)
2015	24.36	0.22	0.28	0.50	(0.18	)	(1.66	)	(1.84	)	23.02	2.28 (c)
2014	23.10	0.17	1.80	1.97	(0.11	)	(0.60	)	(0.71	)	24.36	8.66 (c)
2013	16.90	0.17	6.21	6.38	(0.18	)	–		(0.18	)	23.10	38.11 (c)
2012	15.03	0.11	1.81	1.92	(0.05	)	–		(0.05	)	16.90	12.81 (c)
Institutional Shares
2016	24.05	0.28	1.01	1.29	(0.27	)	(1.63	)	(1.90	)	23.44	6.07
2015	25.37	0.29	0.31	0.60	(0.26	)	(1.66	)	(1.92	)	24.05	2.61
2014	24.02	0.26	1.87	2.13	(0.18	)	(0.60	)	(0.78	)	25.37	9.05
2013	17.58	0.26	6.44	6.70	(0.26	)	–		(0.26	)	24.02	38.62
2012	15.63	0.19	1.88	2.07	(0.12	)	–		(0.12	)	17.58	13.36
R-1 Shares
2016	23.67	0.09	1.01	1.10	(0.08	)	(1.63	)	(1.71	)	23.06	5.22
2015	24.99	0.09	0.31	0.40	(0.06	)	(1.66	)	(1.72	)	23.67	1.75
2014	23.71	0.05	1.84	1.89	(0.01	)	(0.60	)	(0.61	)	24.99	8.10
2013	17.35	0.09	6.38	6.47	(0.11	)	–		(0.11	)	23.71	37.53
2012	15.43	0.05	1.87	1.92	–		–		–		17.35	12.44
R-2 Shares
2016	24.19	0.12	1.03	1.15	(0.09	)	(1.63	)	(1.72	)	23.62	5.35
2015	25.51	0.13	0.29	0.42	(0.08	)	(1.66	)	(1.74	)	24.19	1.84
2014	24.17	0.09	1.89	1.98	(0.04	)	(0.60	)	(0.64	)	25.51	8.31
2013	17.67	0.12	6.50	6.62	(0.12	)	–		(0.12	)	24.17	37.71
2012	15.70	0.07	1.90	1.97	–		–		–		17.67	12.55
R-3 Shares
2016	24.36	0.17	1.03	1.20	(0.14	)	(1.63	)	(1.77	)	23.79	5.54
2015	25.68	0.17	0.31	0.48	(0.14	)	(1.66	)	(1.80	)	24.36	2.05
2014	24.34	0.13	1.90	2.03	(0.09	)	(0.60	)	(0.69	)	25.68	8.46
2013	17.82	0.15	6.55	6.70	(0.18	)	–		(0.18	)	24.34	37.91
2012	15.83	0.10	1.92	2.02	(0.03	)	–		(0.03	)	17.82	12.78
R-4 Shares
2016	24.57	0.21	1.05	1.26	(0.19	)	(1.63	)	(1.82	)	24.01	5.75
2015	25.89	0.22	0.30	0.52	(0.18	)	(1.66	)	(1.84	)	24.57	2.22
2014	24.51	0.18	1.92	2.10	(0.12	)	(0.60	)	(0.72	)	25.89	8.71
2013	17.93	0.19	6.59	6.78	(0.20	)	–		(0.20	)	24.51	38.20
2012	15.94	0.13	1.93	2.06	(0.07	)	–		(0.07	)	17.93	12.99
R-5 Shares
2016	24.69	0.24	1.05	1.29	(0.22	)	(1.63	)	(1.85	)	24.13	5.86
2015	25.99	0.25	0.31	0.56	(0.20	)	(1.66	)	(1.86	)	24.69	2.38
2014	24.61	0.21	1.92	2.13	(0.15	)	(0.60	)	(0.75	)	25.99	8.79
2013	18.00	0.22	6.61	6.83	(0.22	)	–		(0.22	)	24.61	38.36
2012	16.00	0.16	1.92	2.08	(0.08	)	–		(0.08	)	18.00	13.09

699



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$149,939	0.47	%	0.50	%	0.97	%	20.7	%
139,090	0.49		0.54		0.92		19.9
145,647	0.56		0.60		0.71		19.0
140,138	0.61		0.81		0.88		14.6
98,085	0.68		0.87		0.65		16.0

558,869	0.21		–		1.24		20.7
573,165	0.20		0.20		1.20		19.9
471,425	0.20		0.20		1.06		19.0
384,824	0.21		0.21		1.24		14.6
203,079	0.20		0.25		1.12		16.0

12,570	1.04		–		0.40		20.7
11,924	1.04		–		0.37		19.9
14,480	1.04		–		0.23		19.0
14,560	1.04		–		0.43		14.6
9,183	1.04		–		0.28		16.0

16,157	0.91		–		0.54		20.7
15,006	0.91		–		0.51		19.9
19,359	0.91		–		0.36		19.0
19,526	0.91		–		0.57		14.6
14,892	0.91		–		0.42		16.0

119,969	0.73		–		0.72		20.7
127,893	0.73		–		0.68		19.9
135,744	0.73		–		0.53		19.0
106,891	0.73		–		0.73		14.6
58,655	0.73		–		0.59		16.0

76,916	0.54		–		0.92		20.7
84,632	0.54		–		0.87		19.9
87,241	0.54		–		0.73		19.0
84,904	0.54		–		0.92		14.6
47,925	0.54		–		0.78		16.0

184,384	0.42		–		1.02		20.7
178,942	0.42		–		0.99		19.9
191,185	0.42		–		0.85		19.0
197,548	0.42		–		1.04		14.6
108,147	0.42		–		0.92		16.0



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.

700



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
SMALLCAP VALUE FUND II
Class A Shares
2016	$12.68	$0.01	$0.45	$0.46	($0.05)		($1.25)		($1.30)		$11.84	4.38	%
2015	14.08	–	0.14	0.14	(0.04	)	(1.50	)	(1.54	)	12.68	1.12
2014(d)	13.75	(0.03)	0.36	0.33	–		–		–		14.08	2.40 (e)
Class P Shares
2016	12.73	0.04	0.34	0.38	(0.08	)	(1.25	)	(1.33	)	11.78	3.66 (g)
2015	14.09	0.04	0.14	0.18	(0.04	)	(1.50	)	(1.54	)	12.73	1.43
2014(d)	13.75	–	0.34	0.34	–		–		–		14.09	2.47 (e)

701



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$2,862	1.45 %(c)	0.13	%	52.5 %
2,320	1.45 (c)	(0.01)		47.8
223	1.45 (c),(f)	(0.58)(f)		42.1 (f)

333	1.16 (c)	0.38		52.5
50	1.16 (c)	0.34		47.8
15	1.16 (c),(f)	(0.07)(f)		42.1 (f)



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Reflects Manager's contractual expense limit.
(d)	Period from June 3, 2014, date shares first offered, through October 31, 2014.
(e)	Total return amounts have not been annualized.
(f)	Computed on an annualized basis.
(g)	During 2016, the Class experienced a significant withdrawal of monies. As the remaining shareholders held relatively small positions, the total return amounts expressed herein are less than those that would have been experienced without the withdrawal.

702



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)		Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SMALLCAP VALUE FUND II
Class J Shares
2016	$12.49	$0.02		$0.43	$0.45	($0.03)		($1.25)		($1.28)		$11.66	4.33 %(c)
2015	13.85	0.02		0.12	0.14	–		(1.50	)	(1.50	)	12.49	1.16 (c)
2014	13.56	(0.04	)	1.21	1.17	–		(0.88	)	(0.88	)	13.85	8.97 (c)
2013	10.02	0.03		3.58	3.61	(0.07	)	–		(0.07)		13.56	36.19 (c)
2012	8.93	0.01		1.08	1.09	–		–		–		10.02	12.21 (c)
Institutional Shares
2016	12.76	0.07		0.44	0.51	(0.08	)	(1.25	)	(1.33	)	11.94	4.82
2015	14.10	0.08		0.13	0.21	(0.05	)	(1.50	)	(1.55	)	12.76	1.64
2014	13.79	0.03		1.22	1.25	(0.06	)	(0.88	)	(0.94	)	14.10	9.47
2013	10.19	0.11		3.62	3.73	(0.13	)	–		(0.13	)	13.79	37.05
2012	9.06	0.08		1.09	1.17	(0.04	)	–		(0.04	)	10.19	13.00
R-1 Shares
2016	11.88	(0.03	)	0.41	0.38	–		(1.25	)	(1.25	)	11.01	3.93
2015	13.30	(0.04	)	0.12	0.08	–		(1.50	)	(1.50	)	11.88	0.70
2014	13.10	(0.08	)	1.16	1.08	–		(0.88	)	(0.88	)	13.30	8.57
2013	9.69	0.01		3.45	3.46	(0.05	)	–		(0.05	)	13.10	35.82
2012	8.65	–		1.04	1.04	–		–		–		9.69	12.02
R-2 Shares
2016	12.00	(0.02	)	0.42	0.40	–		(1.25	)	(1.25	)	11.15	3.98 (e)
2015	13.40	(0.01	)	0.11	0.10	–		(1.50	)	(1.50	)	12.00	0.95 (e)
2014	13.18	(0.06	)	1.16	1.10	–		(0.88	)	(0.88	)	13.40	8.68
2013	9.74	0.03		3.47	3.50	(0.06	)	–		(0.06	)	13.18	36.09
2012	8.69	0.01		1.04	1.05	–		–		–		9.74	12.08
R-3 Shares
2016	12.35	–		0.43	0.43	(0.02	)	(1.25	)	(1.27	)	11.51	4.23
2015	13.72	–		0.13	0.13	–		(1.50	)	(1.50	)	12.35	1.08
2014	13.46	(0.04	)	1.18	1.14	–		(0.88	)	(0.88	)	13.72	8.84
2013	9.93	0.04		3.55	3.59	(0.06	)	–		(0.06	)	13.46	36.35
2012	8.84	0.02		1.07	1.09	–		–		–		9.93	12.33
R-4 Shares
2016	12.48	0.03		0.43	0.46	(0.04	)	(1.25	)	(1.29	)	11.65	4.43
2015	13.83	0.03		0.12	0.15	–		(1.50	)	(1.50	)	12.48	1.24
2014	13.54	(0.02	)	1.21	1.19	(0.02	)	(0.88	)	(0.90	)	13.83	9.13
2013	10.00	0.07		3.56	3.63	(0.09	)	–		(0.09	)	13.54	36.58
2012	8.90	0.04		1.08	1.12	(0.02	)	–		(0.02	)	10.00	12.56

703



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets		Ratio of Gross Expenses to Average Net Assets(b)		Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$18,069	1.41	%	1.46	%	0.18	%	52.5	%
18,937	1.45		1.50		0.12		47.8
19,885	1.48		1.54		(0.27	)	42.1
18,556	1.63		1.85		0.23		60.5
11,655	1.70		1.92		0.11		53.5

1,144,250	0.99		1.01		0.60		52.5
1,251,443	0.98		1.00		0.60		47.8
1,489,023	0.97		0.99		0.25		42.1
1,475,200	0.98		1.00		0.93		60.5
1,046,022	0.99		1.01		0.83		53.5

1,434	1.85 (d)		–		(0.26	)	52.5
1,761	1.85 (d)		–		(0.29	)	47.8
1,870	1.84 (d)		–		(0.62	)	42.1
2,106	1.85 (d)		–		0.07		60.5
1,901	1.86 (d)		–		(0.05	)	53.5

3,735	1.72 (d)		–		(0.14	)	52.5
3,666	1.72 (d)		–		(0.12	)	47.8
4,588	1.71 (d)		–		(0.48	)	42.1
6,141	1.72 (d)		–		0.24		60.5
5,677	1.73 (d)		–		0.08		53.5

13,501	1.54 (d)		–		0.03		52.5
11,887	1.54 (d)		–		0.01		47.8
11,532	1.53 (d)		–		(0.31	)	42.1
11,825	1.54 (d)		–		0.37		60.5
8,601	1.55 (d)		–		0.26		53.5

7,570	1.35 (d)		–		0.25		52.5
12,024	1.35 (d)		–		0.23		47.8
13,254	1.34 (d)		–		(0.13	)	42.1
11,430	1.35 (d)		–		0.58		60.5
9,258	1.36 (d)		–		0.44		53.5



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Reflects Manager's contractual expense limit.
(e)	Total return is calculated using the traded net asset value which may differ from the reported net asset value. The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
(f)	Period from November 25, 2014, date operations commenced, through October 31, 2015.
(g)	Total return amounts have not been annualized.
(h)	Computed on an annualized basis.

704



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Distributions from Realized Gains		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
SMALLCAP VALUE FUND II
R-5 Shares
2016	$12.59	$0.04	$0.44		$0.48		($0.05)		($1.25)		($1.30)		$11.77	4.60	%
2015	13.93	0.04	0.13		0.17		(0.01	)	(1.50	)	(1.51	)	12.59	1.41
2014	13.64	–	1.20		1.20		(0.03	)	(0.88	)	(0.91	)	13.93	9.16
2013	10.08	0.08	3.59		3.67		(0.11	)	–		(0.11	)	13.64	36.78
2012	8.96	0.06	1.08		1.14		(0.02	)	–		(0.02	)	10.08	12.69
R-6 Shares
2016	12.75	0.03	0.48		0.51		(0.08	)	(1.25	)	(1.33	)	11.93	4.82
2015(f)	14.36	0.07	(0.13	)	(0.06	)	(0.05	)	(1.50	)	(1.55	)	12.75	(0.27)(g)

705



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Gross Expenses to Average Net Assets(b)	Ratio of Net Investment Income to Average Net Assets		Portfolio Turnover Rate


$23,856	1.23 (d)	-%	0.35	%	52.5	%
22,508	1.23 (d)	–	0.34		47.8
22,406	1.22 (d)	–	(0.01	)	42.1
21,954	1.23 (d)	–	0.72		60.5
19,962	1.24 (d)	–	0.60		53.5

3,511	1.01 (d)	–	0.28		52.5
10	1.01 (d),(h)	–	0.55 (h)		47.8 (h)



(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Reflects Manager's contractual expense limit.
(e)	Total return is calculated using the traded net asset value which may differ from the reported net asset value. The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
(f)	Period from November 25, 2014, date operations commenced, through October 31, 2015.
(g)	Total return amounts have not been annualized.
(h)	Computed on an annualized basis.

706



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments		Total From Investment Operations		Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return(b)
TAX-EXEMPT BOND FUND
Class A Shares
2016	$7.34	$0.28	$0.06		$0.34		($0.26)		($0.26)		$7.42	4.71	%
2015	7.42	0.30	(0.07	)	0.23		(0.31	)	(0.31	)	7.34	3.17
2014	7.00	0.31	0.41		0.72		(0.30	)	(0.30	)	7.42	10.52
2013	7.59	0.31	(0.60	)	(0.29	)	(0.30	)	(0.30	)	7.00	(3.86	)
2012	7.10	0.30	0.49		0.79		(0.30	)	(0.30	)	7.59	11.27
Class C Shares
2016	7.36	0.21	0.07		0.28		(0.20	)	(0.20	)	7.44	3.84
2015	7.44	0.24	(0.07	)	0.17		(0.25	)	(0.25	)	7.36	2.32
2014	7.02	0.25	0.41		0.66		(0.24	)	(0.24	)	7.44	9.59
2013	7.60	0.25	(0.59	)	(0.34	)	(0.24	)	(0.24	)	7.02	(4.50	)
2012	7.12	0.24	0.48		0.72		(0.24	)	(0.24	)	7.60	10.19
Class P Shares
2016	7.33	0.29	0.08		0.37		(0.28	)	(0.28	)	7.42	5.12
2015(e)	7.31	0.06	–		0.06		(0.04	)	(0.04	)	7.33	0.78 (f)

707



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Expenses to Average Net Assets (Excluding Interest Expense and Fees)	Ratio of Gross Expenses to Average Net Assets	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$326,545	0.81 %	0.78 %(c),(h)	– %	3.68 %	33.7	%
226,170	0.81	0.79 (c),(h)	0.81	4.06	21.0
207,234	0.81	0.78 (c),(h)	0.81 (d)	4.35	22.3
206,449	0.81	0.78 (c),(h)	0.81 (d)	4.15	38.1
252,046	0.81	0.78 (c),(h)	0.81 (d)	4.11	24.1

31,846	1.63	1.60 (c),(h)	1.69 (d)	2.84	33.7
14,771	1.62	1.60 (c),(h)	1.78 (d)	3.25	21.0
9,901	1.63	1.60 (c),(h)	1.84 (d)	3.52	22.3
8,545	1.63	1.60 (c),(h)	1.87 (d)	3.32	38.1
11,127	1.63	1.60 (c),(h)	1.78 (d)	3.28	24.1

69,216	0.56	0.53 (c),(h)	0.72 (d)	3.84	33.7
9,913	0.67 (g)	0.65 (c),(g),(h)	2.15 (d),(g)	4.13 (g)	21.0 (g)



(a)	Calculated based on average shares outstanding during the period.
(b)	Total return is calculated without the front-end sales charge or contingent deferred sales charge, if applicable.
(c)	Excludes interest expense and fees paid through inverse floater agreements. See "Operating Policies" in notes to financial statements.
(d)	Excludes expense reimbursement from Manager.
(e)	Period from August 24, 2015, date shares first offered, through October 31, 2015.
(f)	Total return amounts have not been annualized.
(g)	Computed on an annualized basis.
(h)	Reflects Manager's contractual expense limit.

708



FINANCIAL HIGHLIGHTS
PRINCIPAL FUNDS, INC.

Selected data for a share of Capital Stock outstanding throughout each year ended October 31 (except as noted):

	Net Asset Value, Beginning of Period	Net Investment Income (Loss)(a)	Net Realized and Unrealized Gain (Loss) on Investments	Total From Investment Operations	Dividends from Net Investment Income		Total Dividends and Distributions		Net Asset Value, End of Period	Total Return
TAX-EXEMPT BOND FUND
Institutional Shares
2016	$7.34	$0.28	$0.09	$0.37	($0.28)		($0.28)		$7.43	5.04	%
2015(d)	7.31	0.14	0.01	0.15	(0.12	)	(0.12	)	7.34	2.07 (e)

709



FINANCIAL HIGHLIGHTS (CONTINUED)
PRINCIPAL FUNDS, INC.



Net Assets, End of Period (in thousands)	Ratio of Expenses to Average Net Assets	Ratio of Expenses to Average Net Assets (Excluding Interest Expense Fees)	Ratio of Net Investment Income to Average Net Assets	Portfolio Turnover Rate


$4,346	0.63 %(b)	0.60 %(b),(c)	3.76 %	33.7 %
$345	0.62 (b),(f)	0.60 (b),(c),(f)	4.15 (f)	21.0 (f)



(a)	Calculated based on average shares outstanding during the period.
(b)	Reflects Manager's contractual expense limit.
(c)	Excludes interest expense and fees paid through inverse floater agreements. See "Operating Policies" in notes to financial statements.
(d)	Period from May 18, 2015, date operations commenced, through October 31, 2015.
(e)	Total return amounts have not been annualized.
(f)	Computed on an annualized basis.

710

APPENDIX A - DESCRIPTION OF BOND RATINGS

Moody's Investors Service, Inc. Rating Definitions:

Long-Term Obligation Ratings

Ratings assigned on Moody's global long-term obligation rating scales are forward-looking opinions of the relative credit risk of financial obligations issued by non-financial corporates, financial institutions, structured finance vehicles, project finance vehicles, and public sector entities. Long-term ratings are assigned to issuers or obligations with an original maturity of one year or more and reflect both on the likelihood of default on contractually promised payments and the expected financial loss suffered in the event of default.¹

¹For certain structured finance, preferred stock and hybrid securities in which payment default events are either not defined or do not match investor’s expectations for timely payment, the ratings reflect the likelihood of impairment and the expected financial loss in the event of impairment.


Aaa:	Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.


Aa:	Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.


A:	Obligations rated A are considered upper-medium grade and are subject to low credit risk.


Baa:	Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics.


Ba:	Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.


B:	Obligations rated B are considered speculative and are subject to high credit risk.


Caa:	Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.


Ca:	Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.


C:	Obligations rated C are the lowest rated class of bonds and are typically in default, with little prospect for recovery of principal or interest.

NOTE: Moody's appends numerical modifiers, 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category, the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates a ranking in the lower end of that generic rating category. Additionally, a “(hyb)” indicator is appended to all ratings of hybrid securities issued by banks, issuers, financial companies, and securities firms.*

* By their terms, hybrid securities allow for the omission of scheduled dividends, interest, or principal payments, which can potentially result in impairment if such an omission occurs. Hybrid securities may also by subject to contractually allowable write-downs of principal that could result in impairment. Together the hybrid indicator, the long-term obligation rating assigned to a hybrid security is an expression of the relative credit risk associated with that security.

SHORT-TERM NOTES: Short-term ratings are assigned to obligations with an original maturity of thirteen months or less and reflect the likelihood of a default on contractually promised payments. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers:

Issuers rated Prime-1 (or related supporting institutions) have a superior ability to repay short-term debt obligations.

Issuers rated Prime-2 (or related supporting institutions) have a strong ability to repay short-term debt obligations.

Issuers rated Prime-3 (or related supporting institutions) have an acceptable ability to repay short-term promissory obligations.

Issuers rated Not Prime do not fall within any of the Prime rating categories.

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US MUNICIPAL SHORT-TERM DEBT: The Municipal Investment Grade (MIG) scale is used to rate US municipal bonds of up to three years maturity. MIG ratings are divided into three levels - MIG 1 through MIG 3 - while speculative grade short-term obligations are designed SG.

MIG 1 denotes superior credit quality, afforded excellent protection from established cash flows, reliable liquidity support, or broad-based access to the market for refinancing.

MIG 2 denotes strong credit quality with ample margins of protection, although not as large as in the preceding group.

MIG 3 notes are of acceptable credit quality. Liquidity and cash-flow protection may be narrow and market access for refinancing is likely to be less well-established

SG denotes speculative-grade credit quality and may lack sufficient margins of protection.

Description of S&P Global Ratings' Credit Rating Definitions:

S&P Global's credit rating, both long-term and short-term, is a forward-looking opinion of the creditworthiness of an obligor with respect to a specific obligation. This assessment takes into consideration obligors such as guarantors, insurers, or lessees.

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor.

The ratings are statements of opinion as of the date they are expressed furnished by the issuer or obtained by S&P Global from other sources S&P Global considers reliable. S&P Global does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or for other circumstances.

The ratings are based, in varying degrees, on the following considerations:


•	Likelihood of default - capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;


•	Nature of and provisions of the obligation;


•	Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditor's rights.

LONG-TERM CREDIT RATINGS:


AAA:	Obligations rated ‘AAA’ have the highest rating assigned by S&P Global. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.


AA:	Obligations rated ‘AA’ differ from the highest-rated issues only in small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.


A:	Obligations rated ‘A’ have a strong capacity to meet financial commitment on the obligation although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories.


BBB:	Obligations rated ‘BBB’ exhibit adequate protection parameters; however, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to meet financial commitment on the obligation.

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BB, B, CCC,	Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded, on balance, as having significant


CC, and C:	speculative characteristics. ‘BB’ indicates the lowest degree of speculation and ‘C’ the highest degree of speculation. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major risk exposures to adverse conditions.


BB:	Obligations rated ‘BB’ are less vulnerable to nonpayment than other speculative issues. However it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.


B:	Obligations rated ‘B’ are more vulnerable to nonpayment than ‘BB’ but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair this capacity.


CCC:	Obligations rated ‘CCC’ are currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. If adverse business, financial, or economic conditions occur, the obligor is not likely to have the capacity to meeting its financial commitment on the obligation.


CC:	Obligations rated ‘CC’ are currently highly vulnerable to nonpayment. The ‘CC’ rating is used when a default has not yet occurred but S&P Global expects default to be a virtual certainty, regardless of anticipated time to default.


C:	The rating ‘C’ is highly vulnerable to nonpayment, the obligation is expected to have lower relative seniority or lower ultimate recovery compared to higher rated obligations.

Obligations rated ‘D’ are in default, or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’ rating category is used when payments on an obligation are not made on the date due, unless S&P Global believes that such payments will be made within five business days in the absence of a stated grace period or within the earlier of the stated grace period or 30 calendar days. This rating will also be used upon filing for bankruptcy petition or the taking or similar action and where default is a virtual certainty. If an obligation is subject to a distressed exchange offer the rating is lowered to ‘D’.

Plus (+) or Minus (-): The ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.


NR:	Indicates that no rating has been requested, that there is insufficient information on which to base a rating or that S&P Global does not rate a particular type of obligation as a matter of policy.

SHORT-TERM CREDIT RATINGS: Short-Term credit ratings are forward-looking opinions of the likelihood of timely payment of obligations having an original maturity of no more than 365 days. Ratings are graded into four categories, ranging from ‘A-1’ for the highest quality obligations to ‘D’ for the lowest. Ratings are applicable to both taxable and tax-exempt commercial paper. The four categories are as follows:


A-1:	This is the highest category. The obligor’s capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitment on these obligations is extremely strong.


A-2:	Issues carrying this designation are somewhat more susceptible to the adverse effects of the changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor’s capacity to meet its financial commitment on the obligation is satisfactory.


A-3:	Issues carrying this designation exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet it financial commitment on the obligation.

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B:	Issues rated ‘B’ are regarded as vulnerable and have significant speculative characteristics. The obligor has capacity to meet financial commitments; however, it faces major ongoing uncertainties which could lead to obligor’s inadequate capacity to meet its financial obligations.


C:	This rating is assigned to short-term debt obligations that are currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions to meet its financial commitment on the obligation.

This rating indicates that the issue is either in default or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’ rating category is used when payments on an obligation are not made on the date due, unless S&P Global believes that such payments will be made within five business days in the absence of a stated grace period or within the earlier of the stated grace period or 30 calendar days. This rating will also be used upon filing for bankruptcy petition or the taking or similar action and where default is a virtual certainty. If an obligation is subject to a distressed exchange offer the rating is lowered to ‘D’.

MUNICIPAL SHORT-TERM NOTE RATINGS: S&P Global rates U.S. municipal notes with a maturity of less than three years as follows:


SP-1:	A strong capacity to pay principal and interest. Issues that possess a very strong capacity to pay debt service is given a "+" designation.


SP-2:	A satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the terms of the notes.


SP-3:	A speculative capacity to pay principal and interest.

Fitch, Inc. Rating Definitions:

Fitch’s credit ratings are forward looking and typically attempt to assess the likelihood of repayment by the obligor at “ultimate/final maturity” and thus material changes in economic conditions and expectations (for a particular issuer) may result in a rating change. Credit ratings are opinions on relative credit quality and not a predictive measure of specific default probability.

Investment Grade


AAA:	Highest credit quality. ‘AAA’ ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.


AA:	Very high credit quality. ‘AA’ ratings denote expectations of very low credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.


A:	High credit quality. ‘A’ ratings denote low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.


BBB:	Good credit quality. ‘BBB’ ratings indicate that expectations of credit risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity.

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Speculative Grade


BB:	Speculative. ‘BB’ ratings indicate an elevated vulnerability to credit risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial alternatives may be available to allow financial commitments to be met.


B:	Highly speculative. ‘B’ ratings indicate that material credit risk is present.


CCC:	Substantial credit risk. ‘CCC’ ratings indicate that substantial credit risk is present.


CC:	Very high levels of credit risk. ‘CC’ ratings indicate very high levels of credit risk.


C:	Exceptionally high levels of credit risk. ‘C’ indicates exceptionally high levels of credit risk.


D:	Default. ‘D’ ratings indicate an issuer has entered into bankruptcy filings, administration, receivership, liquidation or which has otherwise ceased business.

Note: The modifiers “+” or “-“may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the ‘AAA’ obligation rating category, or to corporate finance obligation ratings in the categories below ‘B’.

Short-Term Credit Ratings

A short-term issuer or obligation rating is based in all cases on the short-term vulnerability to default of the rated entity or security stream, and relates to the capacity to meet financial obligations in accordance with the documentation governing the relevant obligation. Short-Term Ratings are assigned to obligations whose initial maturity is viewed as “short term” based on market convention. Typically, this means up to 13 months for corporate, structured and sovereign obligations, and up to 36 months for obligations in US public finance markets.


F1:	Highest short-term credit quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added “+” to denote any exceptionally strong credit feature.


F2:	Good short-term credit quality. Good intrinsic capacity for timely payment of financial commitments.


F3:	Fair short-term credit quality. The intrinsic capacity for timely payment of financial commitments is adequate.


B:	Speculative short-term credit quality. Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in financial and economic conditions.


C:	High short-term default risk. Default is a real possibility.


RD:	Restricted default. Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Typically applicable to entity ratings only.


D:	Default. Indicates a broad-based default event for an entity, or the default of a specific short-term obligation.

Recovery Ratings

Recovery Ratings are assigned to selected individual securities and obligations, most frequently for individual obligations of corporate issuers with speculative grade ratings.

Among the factors that affect recovery rates for securities are the collateral, the seniority relative to other obligations in the capital structure (where appropriate), and the expected value of the company or underlying collateral in distress.

The Recovery Rating scale is based upon the expected relative recovery characteristics of an obligation upon the curing of a default, emergence from insolvency or following the liquidation or termination of the obligor or its associated collateral. Recovery Ratings are an ordinal scale and do not attempt to precisely predict a given level of recovery. As a guideline in developing the rating assessments, the agency employs broad theoretical recovery bands in its ratings approach based on historical averages, but actual recoveries for a given security may deviate materially from historical averages.

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RR1:	Outstanding recovery prospects given default. ‘RR1’ rated securities have characteristics consistent with securities historically recovering 91%-100% of current principal and related interest.


RR2:	Superior recovery prospects given default. ‘RR2’ rated securities have characteristics consistent with securities historically recovering 71%-90% of current principal and related interest.


RR3:	Good recovery prospects given default. ‘RR3’ rated securities have characteristics consistent with securities historically recovering 51%-70% of current principal and related interest.


RR4:	Average recovery prospects given default. ‘RR4’ rated securities have characteristics consistent with securities historically recovering 31%-50% of current principal and related interest.


RR5:	Below average recovery prospects given default. ‘RR5’ rated securities have characteristics consistent with securities historically recovering 11%-30% of current principal and related interest.


RR6:	Poor recovery prospects given default. ‘RR6’ rated securities have characteristics consistent with securities historically recovering 0%-10% of current principal and related interest.

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Finisterre Capital LLP

Finisterre Capital LLP (“Finisterre”) is the sub-advisor for the Finisterre Unconstrained Emerging Markets Bond Fund (the "Fund"). The Fund has limited historical performance to disclose in this prospectus. Therefore, the Fund provides you with the following Performance Results table that shows the performance results of the Emerging Market Total Return Composite as well as the performance of the JPM CEMBI Broad Diversified Index, a broad-based securities market index against which the Fund's performance is compared, and the performance of the Finisterre Unconstrained Emerging Markets Bond Blended Index (the "Blended Index"). Performance of the Blended Index shows how the Fund's performance compares to a blend of indices with similar investment objectives. Performance of each component of the Blended Index is also shown. The weighting of the Blended Index are: 60% JPM CEMBI Broad Diversified Index; 25% EMBI Global Diversified Index; and 15% GBI-EM Global Diversified Index.

Finisterre’s composite consists of historical information about all client accounts Finisterre manages that have investment objectives, policies, and strategies substantially similar to those of the Fund. The composite is provided to illustrate Finisterre's past performance in managing accounts with investment objectives and strategies substantially similar to those of the Fund. The composite does not represent the performance of the Fund.

Finisterre computes its composite performance based upon its asset weighted average performance with regard to accounts it manages that have investment objectives, policies, and strategies substantially similar to those of the Fund. Finisterre's composite performance results are net of trading expenses, management fees, and any performance incentive fees incurred by any client account in the composite. If Finisterre's composite performance results were to be adjusted to reflect the fees and expenses of the Fund, the composite performance results shown could be lower. Although the Fund and the client accounts comprising the Finisterre composite have substantially similar investment objectives, policies, and strategies, you should not assume that the Fund will achieve the same performance as the composite. For example, the Fund’s future performance may be better or worse than the composite's performance due to, among other things, differences in sales charges, expenses, asset sizes, and cash flows of the Fund and those of the client accounts represented in the composite.

The client accounts in Finisterre's composite can change from time-to-time. Some of the accounts included in the Finisterre composite are not mutual funds registered under the Investment Company Act of 1940 (“1940 Act”). Those accounts are not subject to investment limitations, diversification requirements, and other restrictions imposed by the 1940 Act and the Internal Revenue Code. If such requirements were applicable to these accounts, the performance of the composite shown below may have been lower.

Portions of the Performance Results information are based on data supplied by Finisterre and from statistical services, reports, or other sources believed by Principal Global Investors, LLC (“PGI”) to be reliable. However, PGI has not verified or audited such information.

Current performance of the Finisterre composite may be lower or higher than the performance data shown.

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PERFORMANCE RESULTS

Total Returns as of December 31



Highest return for a quarter during the period of the bar chart above:	Q3 '16	3.98	%
Lowest return for a quarter during the period of the bar chart above:	Q3 '15	(3.19	)%



	Average Annual Total Returns (through December 31, 2016)
	1 Year	Life of Composite (6/1/2013)
Finisterre Unconstrained Emerging Markets Bond Fund Composite	10.41%	3.10%
JPM CEMBI Broad Diversified Index	9.65%	4.13%
JPM EMBI Global Diversified Index	10.15%	4.46%
JPM GBI-EM Global Diversified Index	9.94%	(5.10)%
Finisterre Unconstrained Emerging Markets Bond Blended Index	9.82%	2.90%

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Origin Asset Management LLP

Origin Asset Management LLP ("Origin") is the sub-advisor for the International Fund I (the "Fund"). The Fund changed sub-advisors in June of 2014. Therefore, the Fund provides you with the following Performance Results table that shows the performance results of the Origin International (ex US) Composite as well as the performance of the MSCI EAFE Index NR (the Fund’s previous primary benchmark) and the MSCI ACWI Ex-U.S. (the Fund’s primary benchmark effective June 30, 2014), broad-based securities market indexes comparable to Origin’s composite.

Origin’s composite consists of historical information about all client accounts Origin manages that have investment objectives, policies, and strategies substantially similar to those of the Fund. The composite is provided to illustrate Origin’s past performance in managing accounts with investment objectives and strategies substantially similar to those of the Fund. The composite does not represent the performance of the Fund.

Origin computes its composite performance based upon its asset weighted average performance with regard to accounts it manages that have investment objectives, policies, and strategies substantially similar to those of the Fund. Origin’s composite performance results are net of all fees and expenses incurred by any client account in the composite. If Origin’s composite performance results were to be adjusted to reflect the fees and expenses of the Fund, the composite performance results shown would be lower. Although the Fund and the client accounts comprising the Origin composite have substantially similar investment objectives, policies, and strategies, you should not assume that the Fund will achieve the same performance as the composite. For example, the Fund's future performance may be better or worse than the composite's performance due to, among other things, differences in sales charges, expenses, asset sizes, and cash flows of the Fund and those of the client accounts represented in the composite.

The client accounts in Origin’s composite can change from time-to-time. Some of the accounts included in the Origin composite are not mutual funds registered under the Investment Company Act of 1940 (“1940 Act”). Those accounts are not subject to investment limitations, diversification requirements, and other restrictions imposed by the 1940 Act and the Internal Revenue Code. If such requirements were applicable to those accounts, the performance of the composite shown may have been lower.

Portions of the Performance Results information are based on data supplied by Origin and from statistical services, reports, or other sources believed by Principal Global Investors, LLC (“PGI”) to be reliable. However, PGI has not verified or audited such information.

The effect of taxes is not reflected in the composite performance information below because the effect would depend on each client's tax status.

Current performance of the Origin composite may be lower or higher than the performance data shown.

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PERFORMANCE RESULTS

Total Returns as of December 31



Highest return for a quarter during the period of the bar chart above:	Q3 '10	19.07	%
Lowest return for a quarter during the period of the bar chart above:	Q3 '11	(21.16	)%



	Average Annual Total Returns (through December 31, 2016)
	1 Year	5 Years	Life of Composite (11/1/2009)
Origin International Equity Composite	(4.37)%	6.85%	5.53%
MSCI EAFE Index NR	1.00%	6.53%	4.21%
MSCI ACWI Ex-U.S Index	4.50%	5.00%	3.57%

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ADDITIONAL INFORMATION

Additional information about the Fund is available in the Statement of Additional Information dated March 1, 2017, which is incorporated by reference into this prospectus. Additional information about the Funds’ investments is available in the Fund’s annual and semiannual reports to shareholders. In the Fund’s annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Funds’ performance during the last fiscal year. The Statement of Additional Information and the Fund’s annual and semiannual reports can be obtained free of charge by writing Principal Funds, P.O. Box 8024, Boston, MA 02266-8024. In addition, the Fund makes its Statement of Additional Information and annual and semiannual reports available, free of charge, on our website www.principalfunds.com/prospectuses. To request this and other information about the Fund and to make shareholder inquiries, telephone 1-800-222-5852.

Information about the Fund (including the Statement of Additional Information) can be reviewed and copied at the Securities and Exchange Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-202-551-8090. Reports and other information about the Fund are available on the EDGAR Database on the Commission’s internet site at www.sec.gov. Copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: [email protected], or by writing the Commission’s Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549-1520.

PFI has entered into a management agreement with Principal Global Investors, LLC (“PGI”). PFI and/or PGI, on behalf of the Funds, enter into contractual arrangements with various parties, including, among others, the Funds’ sub-advisors, distributor, transfer agent and custodian, who provide services to the Funds. These arrangements are between PFI and/or PGI and the applicable service provider. Shareholders are not parties to, or intended to be third-party beneficiaries of, any of these arrangements. Such arrangements are not intended to create in any individual shareholder or group of shareholders any right, including the right to enforce such arrangements against the service providers or to seek any remedy thereunder against PGI or any other service provider, either directly or on behalf of PFI or any Fund.

This prospectus provides information that you should consider in determining whether to purchase shares of a Fund. This prospectus, the Statement of Additional Information, or the contracts that are exhibits to PFI’s registration statement are not intended to give rise to any agreement or contract between PFI and/or any Fund and any investor, or give rise to any contract or other rights in any individual shareholder, group of shareholders or other person other than any rights conferred explicitly by federal or state securities laws that may not be waived.

The U.S. government does not insure or guarantee an investment in any of the Funds. There can be no assurance that the Money Market Fund will be able to maintain a stable share price of $1.00 per share.

Shares of the Funds are not deposits or obligations of, or guaranteed or endorsed by, Principal Bank or any other financial institution, nor are shares of the Funds federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.

Principal Funds, Inc. SEC File 811-07572

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