PFI 1031 Annual Update 030123
PRINCIPAL FUNDS, INC.
(“PFI” or the “Registrant”)
Statement of Additional Information
Dated March 1, 2023
This Statement of Additional Information (“SAI”) is not a prospectus. It contains information in addition to the information in the Registrant’s Prospectus. The Prospectus, which may be amended from time to time, contains the basic information you should know before investing in a Fund. You should read this SAI together with the Prospectus dated March 1, 2023.
Incorporation by Reference: The audited financial statements, schedules of investments, and auditor’s report included in the Registrant’s Annual Report to Shareholders, for the fiscal year ended October 31, 2022, are hereby incorporated by reference into and are legally a part of this SAI.
For a free copy of the current Prospectus, Semi-Annual Report, or Annual Report, call 1-800-222-5852 or write:
Principal Funds
P.O. Box 219971
Kansas City, MO 64121-9971
The Prospectus may be viewed at www.PrincipalAM.com/Prospectuses.
The proposed merger of the Principal LifeTime 2010 Fund into the Principal LifeTime Strategic Income Fund is expected to occur on or about May 12, 2023 (the “Merger Date”). The Fund’s officers, however, have the discretion to change this date. On the Merger Date, delete all references to the Principal LifeTime 2010 Fund from this SAI.
The ticker symbols for series and share classes begin on the next page.

 
Ticker Symbols by Share Class
Fund/Portfolio
A
C
J
Inst.
R-1
R-3
R-4
R-5
R-6
California Municipal
SRCMX
SRCCX
 
PCMFX
 
 
 
 
 
Core Fixed Income
CMPIX
CNMCX
PIOJX
PIOIX
PIOMX
PIOOX
PIOPX
PIOQX
PICNX
Core Plus Bond
PRBDX
 
PBMJX
PMSIX
PBOMX
PBMMX
PBMSX
PBMPX
 
Diversified Income
PGBAX
PGDCX
 
PGDIX
 
 
 
 
PGBLX
Diversified International
PRWLX
 
PIIJX
PIIIX
PDVIX
PINRX
PINLX
PINPX
PDIFX
Equity Income
PQIAX
PEUCX
PEIJX
PEIIX
PIEMX
PEIOX
PEIPX
PEIQX
 
Finisterre Emerging Markets Total Return Bond
 
 
 
PFUMX
 
 
 
 
 
Global Emerging Markets
PRIAX
 
PIEJX
PIEIX
PIXEX
PEAPX
PESSX
PEPSX
PIIMX
Global Real Estate Securities
POSAX
 
 
POSIX
 
PGRKX
PGRVX
PGRUX
PGRSX
Government & High Quality Bond
CMPGX
 
PMRJX
PMRIX
PMGRX
PRCMX
PMRDX
PMREX
 
Government Money Market
 
 
 
PGVXX
 
 
 
 
PGWXX
High Income
 
 
 
PYHIX
 
 
 
 
 
High Yield
CPHYX
CCHIX
 
PHYTX
 
 
 
 
PHYFX
Inflation Protection
 
 
PIPJX
PIPIX
PISPX
PIFPX
PIFSX
PBPPX
 
International I
 
 
 
PINIX
PPISX
PRPPX
PUPPX
PTPPX
PIIDX
LargeCap Growth I
PLGAX
 
PLGJX
PLGIX
PCRSX
PPUMX
PPUSX
PPUPX
PLCGX
LargeCap S&P 500 Index
PLSAX
PLICX
PSPJX
PLFIX
PLPIX
PLFMX
PLFSX
PLFPX
 
LargeCap Value III
 
 
PLVJX
PLVIX
PESAX
PPSFX
PPSSX
PPSRX
 
MidCap
PEMGX
PMBCX
PMBJX
PCBIX
PMSBX
PMBMX
PMBSX
PMBPX
PMAQX
MidCap Growth
 
 
PMGJX
PGWIX
PMSGX
PFPPX
PIPPX
PHPPX
 
MidCap Growth III
 
 
PPQJX
PPIMX
PHASX
PPQMX
PPQSX
PPQPX
 
MidCap S&P 400 Index
 
 
PMFJX
MPSIX
PMSSX
PMFMX
PMFSX
PMFPX
PMAPX
MidCap Value I
PCMVX
 
PVEJX
PVMIX
PLASX
PMPRX
PABWX
PABVX
PCMSX
Money Market
PCSXX
 
PMJXX
 
 
 
 
 
 
Overseas
 
 
 
PINZX
 
PINTX
PINUX
 
 
Principal Capital Appreciation
CMNWX
CMNCX
 
PWCIX
PCAMX
PCAOX
PCAPX
PCAQX
 
Principal LifeTime Strategic Income
PALTX
 
PLSJX
PLSIX
PLAIX
PLSMX
PLSSX
PLSPX
 
Principal LifeTime 2010
PENAX
 
PTAJX
PTTIX
PVASX
PTAMX
PTASX
PTAPX
 
Principal LifeTime 2015
 
 
 
LTINX
LTSGX
LTAPX
LTSLX
LTPFX
 
Principal LifeTime 2020
PTBAX
 
PLFJX
PLWIX
PWASX
PTBMX
PTBSX
PTBPX
 
Principal LifeTime 2025
 
 
 
LTSTX
LTSNX
LTVPX
LTEEX
LTPDX
 
Principal LifeTime 2030
PTCAX
 
PLTJX
PMTIX
PXASX
PTCMX
PTCSX
PTCPX
 
Principal LifeTime 2035
 
 
 
LTIUX
LTANX
LTAOX
LTSEX
LTPEX
 
Principal LifeTime 2040
PTDAX
 
PTDJX
PTDIX
PYASX
PTDMX
PTDSX
PTDPX
 
Principal LifeTime 2045
 
 
 
LTRIX
LTRGX
LTRVX
LTRLX
LTRDX
 
Principal LifeTime 2050
PPEAX
 
PFLJX
PPLIX
PZASX
PTERX
PTESX
PTEFX
 
Principal LifeTime 2055
 
 
 
LTFIX
LTFGX
LTFDX
LTFLX
LTFPX
 
Principal LifeTime 2060
 
 
PLTAX
PLTZX
PLTRX
PLTCX
PLTMX
PLTOX
 
Principal LifeTime 2065
 
 
 
PLJIX
PLJAX
PLJCX
PLJDX
PLJEX
 
Principal LifeTime 2070
 
 
PLTLX
PLTGX
PLTSX
PLTDX
PLTBX
PLTFX
 
Principal LifeTime Hybrid Income
 
 
PHJFX
PHTFX
 
 
 
 
PLTYX
Principal LifeTime Hybrid 2015
 
 
PHJMX
PHTMX
 
 
 
 
PLRRX
Principal LifeTime Hybrid 2020
 
 
PHJTX
PHTTX
 
 
 
 
PLTTX
Principal LifeTime Hybrid 2025
 
 
PHJQX
PHTQX
 
 
 
 
PLFTX
Principal LifeTime Hybrid 2030
 
 
PHJNX
PHTNX
 
 
 
 
PLZTX
Principal LifeTime Hybrid 2035
 
 
PHJJX
PHTJX
 
 
 
 
PLRTX
Principal LifeTime Hybrid 2040
 
 
PHJEX
PLTQX
 
 
 
 
PLMTX
Principal LifeTime Hybrid 2045
 
 
PHJYX
PHTYX
 
 
 
 
PLNTX
Principal LifeTime Hybrid 2050
 
 
PHJUX
PHTUX
 
 
 
 
PLJTX
Principal LifeTime Hybrid 2055
 
 
PHJBX
PLTNX
 
 
 
 
PLHTX
Principal LifeTime Hybrid 2060
 
 
PHJGX
PLTHX
 
 
 
 
PLKTX
Principal LifeTime Hybrid 2065
 
 
PHJDX
PLHHX
 
 
 
 
PLHRX
Principal LifeTime Hybrid 2070
 
 
PLKJX
PLKSX
 
 
 
 
PLKRX
Real Estate Securities
PRRAX
PRCEX
PREJX
PIREX
PRAEX
PRERX
PRETX
PREPX
PFRSX
SAM Balanced
SABPX
SCBPX
PSAJX
PSBIX
PSBGX
PBAPX
PSBLX
PSBFX
 

 
Ticker Symbols by Share Class
Fund/Portfolio
A
C
J
Inst.
R-1
R-3
R-4
R-5
R-6
SAM Conservative Balanced
SAIPX
SCIPX
PCBJX
PCCIX
PCSSX
PCBPX
PCBLX
PCBFX
 
SAM Conservative Growth
SAGPX
SCGPX
PCGJX
PCWIX
PCGGX
PCGPX
PCWSX
PCWPX
 
SAM Flexible Income
SAUPX
SCUPX
PFIJX
PIFIX
PFIGX
PFIPX
PFILX
PFIFX
 
SAM Strategic Growth
SACAX
SWHCX
PSWJX
PSWIX
PSGGX
PSGPX
PSGLX
PSGFX
 
Short-Term Income
SRHQX
STCCX
PSJIX
PSHIX
PSIMX
PSIOX
PSIPX
PSIQX
 
SmallCap
PLLAX
PSMCX
PSBJX
PSLIX
PSABX
PSBMX
PSBSX
PSBPX
PSMLX
SmallCap Growth I
 
 
PSIJX
PGRTX
PNASX
PPNMX
PPNSX
PPNPX
PCSMX
SmallCap S&P 600 Index
 
 
PSSJX
PSSIX
PSAPX
PSSMX
PSSSX
PSSPX
PSPIX
SmallCap Value II
 
 
PSMJX
PPVIX
PCPTX
PJARX
PSTWX
PLARX
PSMVX
Tax-Exempt Bond
PTEAX
PTBCX
 
PITEX
 
 
 
 
 

Table of Contents
2

HISTORY OF THE FUNDS
Principal Funds, Inc. (“PFI” or the “Registrant”) was organized as Principal Special Markets Fund, Inc. on January 28, 1993, as a Maryland corporation. The Registrant changed its name to Principal Investors Fund, Inc. effective September 14, 2000 and to Principal Funds, Inc. effective June 13, 2008.
On January 12, 2007, the Registrant acquired WM Trust I, WM Trust II, and WM Strategic Asset Management Portfolios, LLC.
Classes offered by each series of the Registrant (each, a “Fund” and, together, the “Funds”) are shown in the following table.
 
Share Class
Fund/Portfolio
A
C
J
Inst.
R-1
R-3
R-4
R-5
R-6
California Municipal
X
X
 
X
 
 
 
 
 
Core Fixed Income
X
X
X
X
X
X
X
X
X
Core Plus Bond
X
 
X
X
X
X
X
X
 
Diversified Income
X
X
 
X
 
 
 
 
X
Diversified International
X
 
X
X
X
X
X
X
X
Equity Income
X
X
X
X
X
X
X
X
 
Finisterre Emerging Markets Total Return Bond
 
 
 
X
 
 
 
 
 
Global Emerging Markets
X
 
X
X
X
X
X
X
X
Global Real Estate Securities
X
 
 
X
 
X
X
X
X
Government & High Quality Bond
X
 
X
X
X
X
X
X
 
Government Money Market
 
 
 
X
 
 
 
 
X
High Income
 
 
 
X
 
 
 
 
 
High Yield
X
X
 
X
 
 
 
 
X
Inflation Protection
 
 
X
X
X
X
X
X
 
International I
 
 
 
X
X
X
X
X
X
LargeCap Growth I
X
 
X
X
X
X
X
X
X
LargeCap S&P 500 Index
X
X
X
X
X
X
X
X
 
LargeCap Value III
 
 
X
X
X
X
X
X
 
MidCap
X
X
X
X
X
X
X
X
X
MidCap Growth
 
 
X
X
X
X
X
X
 
MidCap Growth III
 
 
X
X
X
X
X
X
 
MidCap S&P 400 Index
 
 
X
X
X
X
X
X
X
MidCap Value I
X
 
X
X
X
X
X
X
X
Money Market
X
 
X
 
 
 
 
 
 
Overseas
 
 
 
X
X
X
X
 
 
Principal Capital Appreciation
X
X
 
X
X
X
X
X
 
Principal LifeTime Strategic Income
X
 
X
X
X
X
X
X
 
Principal LifeTime 2010
X
 
X
X
X
X
X
X
 
Principal LifeTime 2015
 
 
 
X
X
X
X
X
 
Principal LifeTime 2020
X
 
X
X
X
X
X
X
 
Principal LifeTime 2025
 
 
 
X
X
X
X
X
 
Principal LifeTime 2030
X
 
X
X
X
X
X
X
 
Principal LifeTime 2035
 
 
 
X
X
X
X
X
 
Principal LifeTime 2040
X
 
X
X
X
X
X
X
 
Principal LifeTime 2045
 
 
 
X
X
X
X
X
 
Principal LifeTime 2050
X
 
X
X
X
X
X
X
 
Principal LifeTime 2055
 
 
 
X
X
X
X
X
 
Principal LifeTime 2060
 
 
X
X
X
X
X
X
 
Principal LifeTime 2065
 
 
 
X
X
X
X
X
 
Principal LifeTime 2070
 
 
X
X
X
X
X
X
 
Principal LifeTime Hybrid Income
 
 
X
X
 
 
 
 
X
Principal LifeTime Hybrid 2015
 
 
X
X
 
 
 
 
X
Principal LifeTime Hybrid 2020
 
 
X
X
 
 
 
 
X
Principal LifeTime Hybrid 2025
 
 
X
X
 
 
 
 
X
Principal LifeTime Hybrid 2030
 
 
X
X
 
 
 
 
X
Principal LifeTime Hybrid 2035
 
 
X
X
 
 
 
 
X
3

 
Share Class
Fund/Portfolio
A
C
J
Inst.
R-1
R-3
R-4
R-5
R-6
Principal LifeTime Hybrid 2040
 
 
X
X
 
 
 
 
X
Principal LifeTime Hybrid 2045
 
 
X
X
 
 
 
 
X
Principal LifeTime Hybrid 2050
 
 
X
X
 
 
 
 
X
Principal LifeTime Hybrid 2055
 
 
X
X
 
 
 
 
X
Principal LifeTime Hybrid 2060
 
 
X
X
 
 
 
 
X
Principal LifeTime Hybrid 2065
 
 
X
X
 
 
 
 
X
Principal LifeTime Hybrid 2070
 
 
X
X
 
 
 
 
X
Real Estate Securities
X
X
X
X
X
X
X
X
X
SAM Balanced
X
X
X
X
X
X
X
X
 
SAM Conservative Balanced
X
X
X
X
X
X
X
X
 
SAM Conservative Growth
X
X
X
X
X
X
X
X
 
SAM Flexible Income
X
X
X
X
X
X
X
X
 
SAM Strategic Growth
X
X
X
X
X
X
X
X
 
Short-Term Income
X
X
X
X
X
X
X
X
 
SmallCap
X
X
X
X
X
X
X
X
X
SmallCap Growth I
 
 
X
X
X
X
X
X
X
SmallCap S&P 600 Index
 
 
X
X
X
X
X
X
X
SmallCap Value II
 
 
X
X
X
X
X
X
X
Tax-Exempt Bond
X
X
 
X
 
 
 
 
 
Each class has different expenses. Because of these different expenses, the investment performance of the classes will vary. For more information, including your eligibility to purchase certain classes of shares, call Principal Funds at 1-800-222-5852.
Principal Global Investors, LLC (“PGI” or the “Manager”) may recommend to the Board of Directors (the “Board”), and the Board may elect, to close certain Funds to new investors or close certain Funds to new and existing investors. PGI may make such a recommendation when a Fund approaches a size where additional investments in the Fund have the potential to adversely impact Fund performance and make it increasingly difficult to keep the Fund fully invested in a manner consistent with its investment objective. PGI may also recommend to the Board, and the Board may elect, to close certain share classes to new or new and existing investors.
MULTIPLE CLASS STRUCTURE
The Board has adopted a multiple class plan (the “Multiple Class Plan”) pursuant to U.S. Securities and Exchange Commission (“SEC”) Rule 18f-3. The share classes each Fund offers are identified in the chart included under the heading “History of the Funds.” The share classes offered under the Multiple Class Plan include: Classes A, C, J, Institutional, R-1, R-3, R-4, R-5, and R-6.
Class A shares are generally sold with a sales charge that is a variable percentage based on the amount of the purchase, as described in the Prospectus. Certain redemptions of Class A shares within 12 months of purchase may be subject to a contingent deferred sales charge (“CDSC”), as described in the Prospectus.
Class C shares are not subject to a sales charge at the time of purchase but are subject to a 1% CDSC on shares redeemed within 12 months of purchase, as described in the Prospectus.
Class J shares are sold without any front-end sales charge. A CDSC of 1% is imposed if Class J shares are redeemed within 18 months of purchase, as described in the Prospectus.
Sales charge waivers and reductions may be available depending on whether shares are purchased directly from the Fund or through a financial intermediary, as described in the Prospectus and Appendix B to the Prospectus, titled “Intermediary-Specific Sales Charge Waivers and Reductions.”
4

For Classes A, C, and J shares purchased from the Fund or through an intermediary not identified on Appendix B to the Prospectus, 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 prior to 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 purchased from the Fund or through an intermediary not identified on Appendix B to the Prospectus, 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. (PSI).
Institutional Class and Classes R-1, R-3, R-4, R-5, and R-6 shares are available without any front-end sales charge or CDSC. Classes R-1, R-3, R-4, and R-5 shares are available through employer-sponsored retirement plans. Such plans may impose fees in addition to those charged by the Funds. Classes R-1, R-3, R-4, and R-5 shares are subject to asset-based charges (described below). Class R-6 shares are generally available through the defined contribution investment only channel.
PGI receives a fee for providing investment advisory and certain corporate administrative services under the terms of the Management Agreement between the Registrant and PGI. In addition to the management fee, the Funds’ Classes R-1, R-3, R-4, and R-5 shares pay PGI a service fee and an administrative services fee under the terms of a Service Agreement between the Registrant and PGI and an Administrative Services Agreement between the Registrant and PGI, respectively.
Service Agreement (Classes R-1, R-3, R-4, and R-5 Shares)
The Service Agreement provides for PGI to provide certain personal services to shareholders (plan sponsors) and beneficial owners (plan members) of those classes. These personal services include:
responding to plan sponsor and plan member inquiries;
providing information regarding plan sponsor and plan member investments; and
providing other similar personal services or services related to the maintenance of shareholder accounts as contemplated by National Association of Securities Dealers (NASD) Rule 2830 (or any successor thereto).
As compensation for these services, Principal Funds will pay PGI service fees equal to 0.25% of the average daily net assets attributable to each of the R-1, R-3, R-4, and R-5 Classes. The service fees are calculated and accrued daily and paid monthly to PGI (or at such other intervals as Principal Funds and PGI may agree).
5

Administrative Services Agreement (Classes R-1, R-3, R-4, and R-5 Shares)
The Administrative Services Agreement provides for PGI to provide services to beneficial owners of Fund shares. Such services include:
receiving, aggregating, and processing purchase, exchange, and redemption requests from plan shareholders;
providing plan shareholders with a service that invests the assets of their accounts in shares pursuant to pre-authorized instructions submitted by plan members;
processing dividend payments from the Funds on behalf of plan shareholders and changing shareholder account designations;
acting as shareholder of record and nominee for plans;
maintaining account records for shareholders and/or other beneficial owners;
providing notification to plan shareholders of transactions affecting their accounts;
forwarding prospectuses, financial reports, tax information, and other communications from the Fund to beneficial owners;
distributing, receiving, tabulating, and transmitting proxy ballots of plan shareholders; and
other similar administrative services.
As compensation for these services, Principal Funds will pay PGI service fees equal to 0.28% of the average daily net assets attributable to the R-1 Class, 0.07% of the average daily net assets of the R-3 Class, 0.03% of the average daily net assets of the R-4 Class, and 0.01% of the average daily net assets of the R-5 Class. The service fees are calculated and accrued daily and paid monthly to PGI (or at such other intervals as Principal Funds and PGI may agree).
PGI will generally, at its discretion, appoint (and may at any time remove) other parties, including companies affiliated with PGI, as its agent to carry out the provisions of the Service Agreement and/or the Administrative Services Agreement. However, the appointment of an agent shall not relieve PGI of any of its responsibilities or liabilities under those agreements. Any fees paid to agents under these agreements shall be the sole responsibility of PGI.
Rule 12b-1 Fees / Distribution Plans and Agreements
The Distributor for the Funds is Principal Funds Distributor, Inc. (“PFD” or the “Distributor”). The address for PFD is as follows: 711 High Street, Des Moines, IA 50392.
In addition to the management and service fees, certain of the Funds’ share classes are subject to a Rule 12b-1 Distribution Plan and Agreement (each, a “Plan” and, together, the “Plans”). The Board and initial shareholders of Classes A, C, J, R-1, R-3, and R-4 shares have approved and entered into a Plan. In adopting the Plans, the Board (including a majority of board members who are not interested persons of the Funds (as defined in the Investment Company Act of 1940, as amended) determined that there was a reasonable likelihood that the Plans would benefit the Funds and the shareholders of the affected classes. Among the possible benefits of the Plans include the potential for building and retaining Fund assets, as well as the ability to offer an incentive for registered representatives to provide ongoing servicing to shareholders.
The Plans provide that each Fund makes payments to the Fund’s Distributor from assets of each share class that has a Plan to compensate the Distributor and other selling dealers, various banks, broker-dealers, and other financial intermediaries, for providing certain services to the Fund. Such services may include, but are not limited to:
formulation and implementation of marketing and promotional activities;
preparation, printing, and distribution of sales literature;
preparation, printing, and distribution of prospectuses and the Fund reports to other-than-existing shareholders;
obtaining such information with respect to marketing and promotional activities as the Distributor deems advisable;
making payments to dealers and others engaged in the sale of shares or who engage in shareholder support services; and
providing training, marketing, and support with respect to the sale of shares.
6

Each Fund pays the Distributor a fee after the end of each month at an annual rate as a percentage of the daily net asset value of the assets attributable to each share class as follows:
Share Class
Maximum Annualized Rule
12b-1 Fee
A(1)(2)
0.25%(3)
C(2)
1.00%
J(2)
0.15%
R-1
0.35%
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.
(2)
The Distributor also receives the proceeds of any CDSC imposed.
(3)
The maximum annualized Rule 12b-1 fee for Class A shares of the Government & High Quality Bond, LargeCap S&P 500 Index, and Short-Term Income Funds is 0.15%.
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 29, 2024 and will reduce the Money Market Fund’s distribution fees by 0.15%. It is expected that the fee waiver will continue to the period disclosed; however, PFI and the Distributor, the parties to the agreement, may agree to terminate the fee waiver prior to the end of the period.
Effective January 1, 2021, the Distributor has voluntarily agreed to limit the distribution fees attributable to Class J, reducing the Funds’ distribution fees for Class J shares by 0.020%.* This voluntary waiver may be revised or terminated at any time without notice to shareholders.
*
For the period from December 31, 2016 to December 31, 2020, the voluntary waiver was 0.030%.
The Distributor may remit on a continuous basis all of these sums to its investment representatives and other financial intermediaries as a trail fee in recognition of their services and assistance.
Currently, the Distributor makes payments to dealers on accounts for which such dealer is designated dealer of record. Payments are based on the average net asset value of the accounts invested in Classes A, C, J, R-1, R-3, or R-4 shares.
Under the Plans, the Funds have no legal obligation to pay any amount that exceeds the compensation limit. The Funds do not pay, directly or indirectly, interest, carrying charges, or other financing costs in association with these Plans. All fees paid under a Fund’s Plan are paid to the Distributor, which is entitled to retain such fees paid by the Fund without regard to the expenses that it incurs.
For the fiscal year ended October 31, 2022, each Fund made the following 12b-1 payments to PFD, and PFD, from these 12b-1 payments, made the following payments to financial intermediaries that distribute and/or service the Fund’s shares. The “Retained by PFD” column reflects the difference between the amount paid by the Fund to PFD and the amount of that 12b-1 fee paid by PFD to financial intermediaries. That difference/remainder is then used by PFD to pay for other 12b-1-eligible expenses. For the fiscal year ended October 31, 2022, the 12b-1-eligible expenses for each Fund were greater than the amount of the Fund’s 12b-1 payments to PFD.
Fund/Portfolio
Paid by Fund to PFD
(amounts in thousands)
Paid by PFD to
Financial Intermediaries
(amounts in thousands)
Retained by PFD
(amounts in thousands)
California Municipal
$1,327
$1,281
$ 46
Core Fixed Income
1,071
1,071
Core Plus Bond
452
445
7
Diversified Income
7,001
7,001
Diversified International
890
875
15
Equity Income
4,610
4,404
206
Finisterre Emerging Markets Total Return Bond
5
5
Global Emerging Markets
362
354
8
Global Real Estate Securities
365
352
13
Government & High Quality Bond
535
528
7
Government Money Market
High Income
High Yield
1,719
1,689
30
7

Fund/Portfolio
Paid by Fund to PFD
(amounts in thousands)
Paid by PFD to
Financial Intermediaries
(amounts in thousands)
Retained by PFD
(amounts in thousands)
Inflation Protection
$55
$51
$4
International I
12
12
LargeCap Growth I
2,011
1,934
77
LargeCap S&P 500 Index
3,338
3,166
172
LargeCap Value III
159
155
4
MidCap
6,172
6,172
MidCap Growth
209
206
3
MidCap Growth III
85
83
2
MidCap S&P 400 Index
456
423
33
MidCap Value I
443
432
11
Money Market
752
752
Overseas
2
2
Principal Capital Appreciation
3,203
3,143
60
Principal LifeTime 2010
404
395
9
Principal LifeTime 2015
78
75
3
Principal LifeTime 2020
1,761
1,735
26
Principal LifeTime 2025
358
339
19
Principal LifeTime 2030
2,676
2,630
46
Principal LifeTime 2035
307
297
10
Principal LifeTime 2040
1,893
1,867
26
Principal LifeTime 2045
230
227
3
Principal LifeTime 2050
926
912
14
Principal LifeTime 2055
132
130
2
Principal LifeTime 2060
90
89
1
Principal LifeTime 2065
13
12
1
Principal LifeTime 2070(1)
Principal LifeTime Hybrid 2015
116
116
Principal LifeTime Hybrid 2020
302
302
Principal LifeTime Hybrid 2025
367
367
Principal LifeTime Hybrid 2030
294
294
Principal LifeTime Hybrid 2035
230
230
Principal LifeTime Hybrid 2040
195
195
Principal LifeTime Hybrid 2045
119
119
Principal LifeTime Hybrid 2050
96
96
Principal LifeTime Hybrid 2055
43
43
Principal LifeTime Hybrid 2060
19
19
Principal LifeTime Hybrid 2065
8
8
Principal LifeTime Hybrid 2070(2)
Principal LifeTime Hybrid Income
59
59
Principal LifeTime Strategic Income
180
173
7
Real Estate Securities
1,597
1,495
102
SAM Balanced
9,837
9,683
154
SAM Conservative Balanced
3,717
3,637
80
SAM Conservative Growth
6,977
6,844
133
SAM Flexible Income
6,551
6,330
221
SAM Strategic Growth
4,568
4,461
107
Short-Term Income
1,142
1,057
85
SmallCap
1,341
1,262
79
8

Fund/Portfolio
Paid by Fund to PFD
(amounts in thousands)
Paid by PFD to
Financial Intermediaries
(amounts in thousands)
Retained by PFD
(amounts in thousands)
SmallCap Growth I
$172
$164
$8
SmallCap S&P 600 Index
566
535
31
SmallCap Value II
53
51
2
Tax-Exempt Bond
1,225
1,170
55
(1)
The Principal LifeTime 2070 Fund is new since October 31, 2022.
(2)
The Principal LifeTime Hybrid 2070 Fund is new since October 31, 2022.
Principal Underwriter
PFD acts as the principal underwriter in the continuous public offering of the Funds’ shares. The table below shows the aggregate dollar amount of underwriting commissions and the amount retained by PFD for the last three fiscal years ended October 31:
Underwriting Fees for Periods Ended October 31
(amounts in thousands)
 
2022
2021
2020
Fund/Portfolio
Total
Underwriting
Commissions
Amount
Retained
by PFD
Total
Underwriting
Commissions
Amount
Retained
by PFD
Total
Underwriting
Commissions
Amount
Retained
by PFD
California Municipal
$77
$59
$94
$31
$286
$194
Core Fixed Income
87
28
249
77
240
78
Core Plus Bond
48
14
72
21
107
29
Diversified Income
267(1)
73
411
114
738
218
Diversified International
161
33
214
37
159
29
Equity Income
682
133
895
159
939
196
Finisterre Emerging Markets Total Return
Bond
3
1
17(2)
5
11
2
Global Emerging Markets
76(3)
15
117
23
74
13
Global Real Estate Securities
100
18
62
11
102
20
Government & High Quality Bond
71
23
103
32
183
36
High Income
1
9
2
High Yield
139
39
169
44
222
65
Inflation Protection
5
5
3
1
13
3
International I
3
1
40
6
LargeCap Growth I
273
59
409
80
346
63
LargeCap S&P 500 Index
516
139
557
141
620
150
LargeCap Value III
2
2
1
1
MidCap
574
106
838
152
665
114
MidCap Growth
6
6
8
8
4
4
MidCap Growth III
1
1
1
1
MidCap S&P 400 Index
4
4
6
6
10
10
MidCap Value I
130
25
132
22
89
15
Money Market
175
175
103
103
76
76
Principal Capital Appreciation
376
66
456
74
459
76
Principal Lifetime Strategic Income
33
18
27
6
20
5
Principal LifeTime 2010
10
5
16
6
29
8
Principal LifeTime 2020
104
50
140
60
137
47
Principal LifeTime 2030
335
84
387
82
378
76
Principal LifeTime 2040
342
74
368
81
358
79
Principal LifeTime 2050
506
90
462
79
404
73
Principal LifeTime 2060
4
4
6
6
2
2
Principal LifeTime Hybrid Income
22
22
4
4
6
6
Principal LifeTime Hybrid 2015
45
45
7
7
9
9
Principal LifeTime Hybrid 2020
103
103
57
57
26
26
Principal LifeTime Hybrid 2025
157
157
76
76
34
34
Principal LifeTime Hybrid 2030
92
92
46
46
23
23
Principal LifeTime Hybrid 2035
85
85
43
43
36
36
Principal LifeTime Hybrid 2040
77
77
37
37
31
31
9

Underwriting Fees for Periods Ended October 31
(amounts in thousands)
 
2022
2021
2020
Fund/Portfolio
Total
Underwriting
Commissions
Amount
Retained
by PFD
Total
Underwriting
Commissions
Amount
Retained
by PFD
Total
Underwriting
Commissions
Amount
Retained
by PFD
Principal LifeTime Hybrid 2045
$57
$57
$20
$20
$21
$21
Principal LifeTime Hybrid 2050
51
51
23
23
12
12
Principal LifeTime Hybrid 2055
28
28
9
9
4
4
Principal LifeTime Hybrid 2060
11
11
3
3
4
4
Principal LifeTime Hybrid 2065
3
3
1
1
Real Estate Securities
280
55
243
46
367
70
SAM Balanced
2,044
542
2,277
444
2,067
417
SAM Conservative Balanced
844
311
1,098
260
927
227
SAM Conservative Growth
1,791
396
1,858
379
1,704
322
SAM Flexible Income
918
399
1,172
375
1,176
361
SAM Strategic Growth
1,447
283
1,465
262
1,519
291
Short-Term Income
469
137
553
159
450
136
SmallCap
247
56
380
61
210
36
SmallCap Growth I
2
2
10
10
4
4
SmallCap S&P 600 Index
4
4
4
4
3
3
SmallCap Value II
1
1
6
2
18
3
Tax-Exempt Bond
155
85
164
56
177
72
(1)
Effective March 1, 2022, Global Diversified Income Fund changed its name to Diversified Income Fund.
(2)
Effective February 1, 2021, Finisterre Unconstrained Emerging Markets Bond Fund changed its name to Finisterre Emerging Markets Total Return Bond Fund.
(3)
Effective January 1, 2022, International Emerging Markets Fund changed its name to Global Emerging Markets Fund.
PFD does not charge fees on redemptions or repurchases of Fund shares. The amounts in the table above for Total Underwriting Commissions include any applicable contingent deferred sales charges and front-end sales charges.
Transfer Agency Agreement (Classes A, C, J, Institutional, R-1, R-3, R-4, R-5, and R-6)
The Transfer Agency Agreement provides for Principal Shareholder Services, Inc. (“PSS”) (711 High Street, Des Moines, IA 50392) an affiliate of PGI, to act as transfer and shareholder servicing agent for the Classes A, C, J, Institutional, R-1, R-3, R-4, R-5, and R-6.
For Classes A and C, and Institutional Class shares, the Registrant pays PSS a fee for the services provided pursuant to the Transfer Agency Agreement in an amount equal to the costs incurred by PSS for providing such services.
For Class J shares, the Registrant pays PSS a fee for the services provided pursuant to the Transfer Agency Agreement in an amount that includes profit.
The Registrant pays PSS for the following services for Classes A, C, and J, and Institutional Class shares:
issuance, transfer, conversion, cancellation, and registry of ownership of Fund shares, and maintenance of open account system;
preparation and distribution of dividend and capital gain payments to shareholders;
delivery, redemption, and repurchase of shares, and remittances to shareholders;
the tabulation of proxy ballots and the preparation and distribution to shareholders of notices, proxy statements and proxies, reports, confirmation of transactions, prospectuses, and tax information;
communication with shareholders concerning the above items; and
use of its best efforts to qualify the capital stock of the Funds for sale in states and jurisdictions as directed by the Funds.
The Registrant does not pay for these services for Classes R-1, R-3, R-4, R-5, and R-6 shares. PSS will pay operating expenses attributable to Classes R-1, R-3, R-4, and R-5 shares related to (a) the cost of meetings of shareholders and (b) the costs of initial and ongoing qualification of the capital stock of the Funds for sale in states and jurisdictions.
10

DESCRIPTION OF THE FUNDS’ INVESTMENTS AND RISKS
The Registrant is a registered, open-end management investment company, commonly called a mutual fund. The Registrant consists of multiple investment portfolios, which are referred to as “Funds.” Each Fund has its own investment objective, strategies, and portfolio management team. As described below, each Fund has adopted a fundamental policy regarding diversification, as that term is used in the Investment Company Act of 1940, as amended (the “1940 Act”), and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.
Fund Policies
The investment objective, principal investment strategies, and principal risks of each Fund are described in the Prospectus. This SAI contains supplemental information about those strategies and risks and the types of securities that those managing the investments of each Fund can select. Additional information is also provided about other strategies that each Fund may use to try to achieve its objective.
The composition of each Fund and the techniques and strategies that those managing a Fund’s investments may use in selecting securities will vary over time. A Fund is not required to use all of the investment techniques and strategies available to it in seeking its goals.
Unless otherwise indicated, with the exception of the percentage limitations on borrowing, the restrictions apply at the time transactions are entered into. Accordingly, any later increase or decrease beyond the specified limitation, resulting from market fluctuations or in a rating by a rating service, does not require elimination of any security from a Fund’s portfolio.
The investment objective of each Fund and, except as described below as “fundamental restrictions,” the investment strategies described in this SAI and the Prospectus are not fundamental and may be changed by the Board without shareholder approval.
With the exception of the diversification test required by the Internal Revenue Code, the Funds will not consider collateral held in connection with securities lending activities when applying any of the following fundamental restrictions or any other investment restriction set forth in the Prospectus or SAI.
Fundamental Restrictions
Except as specifically noted, each Fund has adopted the following fundamental restrictions. Each fundamental restriction is a matter of fundamental policy and may not be changed without a vote of a majority of the outstanding voting securities of the affected Fund, except as permitted by the 1940 Act or other governing Statute and the Rules thereunder, the SEC, or other regulatory agency with authority over the Funds. The 1940 Act provides that “a vote of a majority of the outstanding voting securities” of a Fund means the affirmative vote of the lesser of (1) more than 50% of the outstanding Fund shares or (2) 67% or more of the Fund shares present at a meeting if more than 50% of the outstanding Fund shares are represented at the meeting in person or by proxy. Each share has one vote, with fractional shares voting proportionately. Shares of all classes of a Fund will vote together as a single class, except when otherwise required by law or as determined by the Board.
Each Fund:
1)
may not issue senior securities, except as permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time.
2)
has adopted a commodities policy, as follows:
(a)
The California Municipal Fund may not purchase or sell commodities, except as permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time.
(b)
The remaining Funds may not purchase or sell commodities, except as permitted by applicable law, regulation or regulatory authority having jurisdiction.
3)
may not purchase or sell real estate, which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein, except that each Fund reserves freedom of action to hold and to sell real estate acquired as a result of the Fund’s ownership of securities.
4)
may not borrow money, except as permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time.
5)
may not make loans, except as permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time.
6)
has adopted a policy regarding diversification, as follows:
11

(a)
The LargeCap Growth I and Real Estate Securities Funds have elected to be non-diversified.
(b)
All other Funds have elected to be treated as a “diversified” investment company, as that term is used in the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time.
7)
has adopted a concentration policy, as follows:
(a)
The Global Real Estate Securities and Real Estate Securities Funds will concentrate their investments in a particular industry or group of industries as described in the Prospectus.
(b)
The LargeCap S&P 500 Index, MidCap S&P 400 Index, and SmallCap S&P 600 Index Funds will not concentrate their investments in a particular industry or group of industries, except to the extent that their related Index is also so concentrated.
(c)
The remaining Funds may not concentrate, as that term is used in the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time, its investments in a particular industry or group of industries.
8)
may not act as an underwriter of securities, except to the extent that the Fund may be deemed to be an underwriter in connection with the sale of securities held in its portfolio.
Non-Fundamental Restrictions
Except as specifically noted, each Fund has also adopted the following non-fundamental restrictions. Non-fundamental restrictions are not fundamental policies and may be changed without shareholder approval. It is contrary to each Fund’s present policy to:
1)
Invest more than 15% of its net assets in illiquid securities and in repurchase agreements maturing in more than seven days, except to the extent permitted by applicable law or regulatory authority having jurisdiction, from time to time; however:
(a)
The Government Money Market and Money Market Funds may each not invest more than 5% of its net assets in illiquid securities and in repurchase agreements maturing in more than seven days, except to the extent permitted by applicable law or regulatory authority having jurisdiction, from time to time.
(b)
International Fund I, the Principal LifeTime Funds, Principal LifeTime Hybrid Funds, and the Strategic Asset Management (SAM) Portfolios have not adopted this non-fundamental restriction.
2)
Pledge, mortgage, or hypothecate its assets, except to secure permitted borrowings.
(a)
With respect to the Principal LifeTime Funds, Principal LifeTime Hybrid Funds, and Strategic Asset Management (SAM) Portfolios, the deposit of underlying securities and other assets in escrow and other collateral arrangements in connection with transactions that involve any future payment obligation, as permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by any regulatory authority having jurisdiction, from time to time, by the underlying funds are not deemed to be pledges, mortgages, hypothecations, or other encumbrances.
(b)
For all Funds, the deposit of underlying securities and other assets in escrow and other collateral arrangements in connection with transactions that involve any future payment obligation, as permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by any regulatory authority having jurisdiction, from time to time, are not deemed to be pledges, mortgages, hypothecations, or other encumbrances.
(c)
International Fund I has not adopted this non-fundamental restriction.
3)
Invest in companies for the purpose of exercising control or management.
(a)
International Fund I has not adopted this non-fundamental restriction.
4)
Invest more than 25% of its assets in foreign securities; however:
(a)
The High Yield Fund may not invest more than 35% of its assets in foreign securities;
(b)
The Diversified Income, Diversified International, Finisterre Emerging Markets Total Return Bond, Global Emerging Markets, Global Real Estate Securities, Money Market, and Overseas Funds each may invest up to 100% of its assets in foreign securities;
(c)
The LargeCap S&P 500 Index, MidCap S&P 400 Index, and SmallCap S&P 600 Index Funds each may invest in foreign securities to the extent that the relevant index is so invested;
12

(d)
The California Municipal, Government & High Quality Bond, Government Money Market, and Tax-Exempt Bond Funds may not invest in foreign securities; and
(e)
International Fund I, the Principal LifeTime Funds, Principal LifeTime Hybrid Funds, and the Strategic Asset Management (SAM) Portfolios have not adopted this non-fundamental restriction.
5)
Invest more than 5% of its total assets in real estate limited partnership interests.
(a)
The Diversified Income, Global Real Estate Securities, International I, and Real Estate Securities Funds and the Principal LifeTime Funds, Principal LifeTime Hybrid Funds, and the Strategic Asset Management (SAM) Portfolios have not adopted this non-fundamental restriction.
6)
Acquire securities of other investment companies in reliance on Section 12(d)(1)(F) or (G) of the 1940 Act, invest more than 10% of its total assets in securities of other investment companies, invest more than 5% of its total assets in the securities of any one investment company, or acquire more than 3% of the outstanding voting securities of any one investment company, except in connection with a merger, consolidation, or plan of reorganization and except as permitted by the 1940 Act, SEC Rules adopted under the 1940 Act, or exemptions granted by the SEC. The Fund may purchase securities of closed-end investment companies in the open market where no underwriter or dealer’s commission or profit, other than a customary broker’s commission, is involved.
(a)
The Principal LifeTime Funds, Principal LifeTime Hybrid Funds, and the Strategic Asset Management (SAM) Portfolios have not adopted this non-fundamental restriction.
International Fund I has adopted additional non-fundamental restrictions as noted below. The Fund:
1)
may not purchase securities on margin, except that the Fund may obtain such short-term credits as are necessary for the clearance of transactions, and provided that margin payments in connection with futures contracts and options on futures contracts shall not constitute purchasing securities on margin.
2)
may not purchase any security if, as a result, more than 15% of its net assets would be invested in securities that are deemed to be illiquid because they are subject to legal or contractual restrictions on resale or because they cannot be sold or disposed of in the ordinary course of business at approximately the prices at which they are valued.
Non-Fundamental Policy - Rule 35d-1 under the 1940 Act - Investment Company Names
Except as specifically noted, each Fund has also adopted a non-fundamental policy, pursuant to SEC Rule 35d-1, which requires it, under normal circumstances, to invest at least 80% of its net assets, plus any borrowings for investment purposes, in the type of investments, industry, or geographic region (as described in the Prospectus) as suggested by the name of the Fund.
This policy applies at the time of purchase. A Fund will provide 60 days’ notice to shareholders prior to implementing a change in this policy for the Fund. For purposes of this non-fundamental policy, each Fund tests market capitalization ranges monthly.
For purposes of testing this requirement with respect to:
Forward foreign currency contracts and other investments that have economic characteristics similar to foreign currency: the value of such contracts and investments may include the Fund’s investments in cash and/or cash equivalents to the extent such cash and/or cash equivalents are maintained with respect to the Fund’s exposure under its forward foreign currency contracts and similar investments.