Table of Contents  
Economic & Financial Market Review 1
Important Fund Information 2
Principal Active High Yield ETF (unaudited) 3
Principal Healthcare Innovators ETF (unaudited) 4
Principal International Adaptive Multi-Factor ETF (unaudited) 5
Principal Investment Grade Corporate Active ETF (unaudited) 6
Principal Millennials ETF (unaudited) 7
Principal Quality ETF (unaudited) 8
Principal Spectrum Preferred Securities Active ETF (unaudited) 9
Principal Spectrum Tax-Advantaged Dividend Active ETF (unaudited) 10
Principal Ultra-Short Active Income ETF (unaudited) 11
Principal U.S. Large-Cap Adaptive Multi-Factor ETF (unaudited) 12
Principal U.S. Mega-Cap ETF (unaudited) 13
Principal U.S. Small-Cap Adaptive Multi-Factor ETF (unaudited) 14
Principal U.S. Small-Cap Multi-Factor ETF (unaudited) 15
Principal Value ETF (unaudited) 16
Statements of Assets and Liabilities 17
Statements of Operations 22
Statements of Changes in Net Assets 27
Notes to Financial Statements 42

 


 

Table of Contents (Continued)  
Schedules of Investments 59
Financial Highlights (Includes Performance Information) 168
Report of Independent Registered Public Accounting Firm 183
Shareholder Expense Example 186
Supplemental Information 189

 

Not FDIC or NCUA insured 

May lose value  Not a deposit  No bank or credit union guarantee Not insured by any Federal government agency 


 

Economic & Financial Market Review

Global economic growth has slowed down as the economy enters late cycle. High inflation and accelerated hawkish monetary policy are presenting headwinds. United States (U.S.) real Gross Domestic Product (GDP) grew at an average quarter-over-quarter annualized rate of 3.6% in the four quarters ending 1Q 2022. Germany and Japan GDP growth rates were 3.8% and 0.7% respectively. China GDP growth was challenged by resurgence of COVID-19 cases, but stimulative policies should provide a floor. Global manufacturing Purchasing Manager’s Index (PMI) remained well above 50 in the last twelve months (a number above 50 means manufacturing activity is expanding and number below 50 indicates contraction), and the latest reading as of June 2022 is 52.1, 4.9 lower than June 2021. The slowdown trend was broad based, but developed markets readings were still higher.

Geopolitical disruptions and lingering supply constraints continued to drive inflation upwards. Global inflation increased from 3.0% in June 2021 to 6.4% in May 2022. High inflation and the risk of it getting stickier led some global central banks to aggressive tightening paths. Global policy rates rose by 97 basis points (bps) in the last twelve months. The United States Federal Reserve hiked interest rates three times, totaling 150bps in increases, with more hikes already being priced in. Hawkish monetary policies have caused global financial conditions to tighten sharply since beginning of the year.

Global earnings growth slowed but remained strong in the last twelve months ending June 2022. Compared to the same time last year, MSCI All Country World Index (ACWI) trailing twelve months earnings per share (TTM EPS) grew by 18%. MSCI World Index TTM EPS increased by 20%, much higher than MSCI EM Index’s 7%. Within developed markets, MSCI Europe Index earnings grew at a faster pace than did the U.S. Within the U.S., Midcap and Smallcap delivered much higher earnings growth (34% and 37%) than Largecap (21%). Additionally, value beat growth (24% vs 17%). Largecap tech firms, represented by the NASDAQ 100 Index, delivered 12% earnings growth.

Global equities outperformed global fixed income in the last twelve months, but both delivered negative returns. In USD terms, MSCI ACWI Index recorded -16% loss year-over-year while the Bloomberg Global Aggregate Corporate Index ended -17% lower. Within equities, developed markets outperformed emerging markets by 11%, and U.S. outperformed developed market ex-U.S. by 4%. Among major markets, China was the worst performer with -32% loss, bringing MSCI EM Index down to -25%. Within the U.S., Largecap and value stocks outperformed. The Bloomberg U.S. Treasury Index delivered a -9% loss as the U.S. 10-year Treasury yield rose from 1.47% to 3.01%. Global high yield bonds, investment grade corporate bonds, and global treasury bonds all delivered similar returns between -17% and -18%. DXY Index, a proxy for U.S. Dollar strength, increased by 13%. Commodity prices, represented by the S&P GSCI Total Return Index, increased by 45%, and Nymex crude oil rose from 73.5 to 105.8 USD/barrel.

* Unless otherwise stated, data sources are Bloomberg, FactSet, and Principal Global Asset Allocation. Data as of June 30, 2022.

Index descriptions:

MSCI All Country World Index (ACWI) Index includes large and mid cap stocks across developed and emerging market countries.

MSCI World Index captures large and mid cap representation across 23 Developed Markets (DM) countries.

MSCI Europe Index captures large and mid cap representation across 15 Developed Markets (DM) countries in Europe.

MSCI Emerging Markets Index consists of large and mid cap companies across 24 countries and represents 10% of the world market capitalization. The index covers approximately 85% of the free float-adjusted market capitalization in each country in each of the 24 countries.

Nasdaq 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the Nasdaq stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks.

Bloomberg Barclays Global Aggregate Index is  a flagship measure of global investment grade debt from twenty- four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.

Bloomberg U.S. Treasury Index measures US dollar-denominated, fixed-rate, nominal debt issued by the U.S. Treasury.

U.S. Dollar Index (USDX, DXY, DX) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners' currencies.

S&P GSCI Total Return Index is an index of 24 exchange-traded futures contracts that represent a large portion of the global commodities market.

1


 

Important Fund Information

The following information applies to all funds shown in the annual report:

The line graphs on the following pages illustrate the growth of a hypothetical $10,000 investment.

Investment results shown represent historical performance and do not guarantee future results. Your investment’s returns and principal values will fluctuate with changes in interest rates and other market conditions so the value, when redeemed, may be worth more or less than original costs. Current performance may be lower or higher than the performance shown. For more information, including the most recent month-end performance, call 1-800-787-1621 or online at www.PrincipalETFs.com.

* Performance is based on net asset value (NAV) and assumes reinvestment of all dividends and capital gains. Performance does not reflect the impact of federal, state, or municipal taxes. If it did, performance would be lower. Since inception returns less than one year are not annualized.

** Performance shown for the benchmark assumes reinvestment of all dividends and distributions. Indices are unmanaged, and individuals cannot invest directly in an index.

.

2


 

Principal Active High Yield ETF

Investment Advisor: Principal Global Investors, LLC


Average Annual Total Returns* as of June 30, 2022              
  1-Year   5-Year   Since Inception   Inception Date
Principal Active High Yield ETF -10.65 % 2.06 % 3.30 % 7/8/15
 
What contributed to or detracted from Fund performance during the fiscal year?

 

The investment seeks to provide a high level of current income. The fund is an actively managed exchange-traded fund (“ETF”) that seeks to achieve its investment objective by investing, under normal circumstances, at least 80% of its net assets, plus any borrowings for investment purposes, in below-investment grade (commonly known as "junk" or “high yield”) fixed income securities, such as bonds and bank loans. It invests in U.S. treasury bills, bonds, and other obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities, investment grade bank loans (also known as senior floating rate interests), and preferred securities.

Security selection positively impacted returns due to the outperformance from overweights to CBL & Associates, Fresh Market Inc, Pixelle Specialty Solutions LLC, Peninsula Pacific Entertainment, and DKT Finance. Sector allocation outperformed due to an underweight to communications and an overweight to basic industry.

Underperformance came from our positioning within the capital structures of US LBM Holdings, Dish, TMS International, and Olympus Water. From a sector perspective, our underweight to technology and overweight to finance companies had a negative impact on performance.

3


 

Principal Healthcare Innovators ETF

Investment Advisor: Principal Global Investors, LLC


Average Annual Total Returns* as of June 30, 2022              
  1-Year   5-Year   Since Inception   Inception Date
Principal Healthcare Innovators ETF -46.36 % 2.78 % 4.72 % 8/19/16
 
What contributed to or detracted from Fund performance during the fiscal year?

 

The investment seeks to provide investment results that closely correspond, before expenses, to the performance of the NASDAQ US Health Care Innovators Index (the "index"). 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 index at the time of purchase. The index uses a quantitative model designed to identify equity securities in the NASDAQ US benchmark index that are small and medium capitalization U.S. healthcare companies.

The Principal Healthcare Innovators ETF performed in line with the NASDAQ US Health Care Innovators Index. The insurance industry performed the best within the index. Kadmon Holdings, Lantheus Holdings, and Cytokinetics outperformed within the index, while our positioning in Centene, Seagen, and Intra-Cellular Therapies contributed to performance.

The life sciences tools and services underperformed during the period. Rubius Therapeutics, Ontrak, and Allakos underperformed within the index, while our positioning in Arena Pharmaceuticals, Dicerna Pharmaceuticals, and Turning Point Therapeutics detracted from performance.

4


 

Principal International Adaptive Multi-Factor ETF

Investment Advisor: Principal Global Investors, LLC


Average Annual Total Returns* as of June 30, 2022          
  1-Year   Since Inception   Inception Date
Principal International Adaptive Multi-Factor ETF -15.82 % -15.17 % 5/26/21
 
What contributed to or detracted from Fund performance during the fiscal year?

 

The investment seeks long-term growth of capital. Under normal circumstances, the fund invests at least 40% of its net assets, plus any borrowings for investment purposes, in securities of foreign companies. It invests in securities regardless of market capitalization size (small, medium or large). For security selection and portfolio construction, Principal Global Investors, LLC ("PGI") uses a proprietary quantitative model. The model is designed to identify and rank equity securities in the MSCI World Ex-U.S. Index (the "index").

The Principal International Adaptive Multi-Factor ETF outperformed the index over the last 12 months. One of the eleven sectors within the index posted positive returns, led by energy. Cenovus Energy, Elbit Systems, and Equinor outperformed within the index, while our positioning in Sea, Siemens, and Adidas contributed to performance.

The information technology and consumer discretionary sectors lagged during the period. Sinch, Kornit Digital, and Canopy Growth underperformed within the index, while our positioning in TotalEnergies, BP, and Shell detracted from performance.

5


 

Principal Investment Grade Corporate Active ETF

Investment Advisor: Principal Global Investors, LLC


Average Annual Total Returns* as of June 30, 2022          
  1-Year   Since Inception   Inception Date
Principal Investment Grade Corporate Active ETF -15.47 % 1.35 % 4/18/18
 
What contributed to or detracted from Fund performance during the fiscal year?

 

The investment seeks to provide current income and, as a secondary objective, capital appreciation. The fund is an actively managed exchange-traded fund ("ETF") that seeks to achieve its investment objective by investing, under normal circumstances, at least 80% of its net assets, plus any borrowings for investment purposes, in investment grade corporate bonds and other fixed income securities at the time of purchase. "Investment grade" securities 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, of comparable quality in the opinion of those selecting such investments.

Underweight positions in Electric, Consumer Cyclical, Capital Goods, Energy, Basic Industry, and Technology contributed positively to performance.

Security selection within Banking, Consumer Non-Cyclical, Consumer Cyclical, Capital Goods, and REIT were detractors. For sector allocation, overweight positions in Finance, Banking, Communications, Insurance, Brokerage/Asset Managers/Exchanges contributed negatively to performance.

6


 

Principal Millennials ETF

Investment Advisor: Principal Global Investors, LLC


Average Annual Total Returns* as of June 30, 2022            
  1-Year   5-Year   Since Inception   Inception Date
Principal Millennials ETF -38.99 % 7.69 % 9.29 % 8/19/16
 
What contributed to or detracted from Fund performance during the fiscal year?

 

The investment seeks to provide investment results that closely correspond, before expenses, to the performance of the NASDAQ Global Millennial Opportunity Index (the "index"). 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 index at the time of purchase. The index uses a quantitative model designed to identify equity securities of companies in the NASDAQ Global Index (the "parent index") that are impacted by the spending and lifestyle activities of the Millennial generation, which refers to people born from 1980 to the mid-2000s.

The Principal Millennials ETF performed in line the NASDAQ Global Millennial Opportunity NTR Index. One of the seven sectors within the index posted positive returns, led by consumer staples. Futu Holdings, iQIYI, and Albertsons Companies outperformed within the index, while our positioning in Discover Financial Services, AT&T, and Hennes & Mauritz contributed to performance.

The consumer discretionary and communication services sectors lagged during the period. RealReal, China Yuhua Education, and Farfetch underperformed within the index, while our positioning in AfreecaTV, Hello Group, and JOYY detracted from performance.

7


 

Principal Quality ETF

Investment Advisor: Principal Global Investors, LLC


Average Annual Total Returns* as of June 30, 2022            
  1-Year   5-Year   Since Inception   Inception Date
Principal Quality ETF -9.07 % 11.83 % 12.25 % 3/21/16
 
What contributed to or detracted from Fund performance during the fiscal year?

 

The investment seeks long-term growth of capital. Under normal circumstances, the fund primarily invests in equity securities. For security selection and portfolio construction, Principal Global Investors, LLC (“PGI”) uses a proprietary quantitative model designed to identify equity securities in the S&P 500 Index or S&P 400 Index that exhibit higher quality, growth potential, and pricing power. The fund invested significantly in one or more industries within the healthcare sector.

The Principal Quality ETF outperformed the index over the last twelve months. Two of the eleven sectors in the index posted positive returns, led by utilities and consumer staples. AutoZone, AbbVie, and Fortinet outperformed within the index, while our positioning in Fortinet, General Mills, and Pfizer contributed to performance.

The communication services and materials sectors lagged during the period. Zoom Video Communications, PayPal, and IDEXX Laboratories underperformed in the index, while our positioning in Tapestry, Nike, and PayPal detracted from performance.

**Effective June 17, 2022, the fund changed its primary broad-based index to the S&P 500 Index in connection with the fund’s change to an actively managed fund. Prior to that date, the fund was passively managed to correspond to the NASDAQ US Price Setters Index.

8


 

Principal Spectrum Preferrerd Securities Active ETF

Investment Advisor: Principal Global Investors, LLC
Sub-Advisor: Spectrum Asset Management, Inc.


Average Annual Total Returns* as of June 30, 2022          
  1-Year   Since Inception   Inception Date
Principal Spectrum Preferred Securities Active ETF -13.15 % 1.57 % 7/10/17
 
What contributed to or detracted from Fund performance during the fiscal year?

 

The investment seeks to provide current income. Under normal circumstances, the fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in preferred securities at the time of purchase. Examples of preferred securities include preferred stock, certain depositary receipts, and various types of junior subordinated debt (such debt generally includes the contractual ability to defer payment of interest without accelerating an immediate default event). It concentrates its investments (invests more than 25% of its net assets) in securities in one or more industries within the financial services sector.

In a rising rate environment (US Treasury 2 year yield increased 270 bps and the 10 year yield increased 154 bps), all industries had negative returns. Cash was the best contributor as all investment industries performed negatively. The fund's investments in Banking Junior Sub-Debt returned -8.37%, which contributed 53 bps less drag in performance, mainly because of security selection, as compared to the ICE BofA US Investment Grade Institutional Capital Securities Index.

Utility Junior Sub-debt investments returned -16.0% and were the largest detractor, due to over-weighting and security selection, relative to the ICE BofA US Investment Grade Institutional Capital Securities Index.

9


 

Principal Spectrum Tax-Advantaged Dividend Active ETF

Investment Advisor: Principal Global Investors, LLC
Sub-Advisor: Spectrum Asset Management, Inc.


Average Annual Total Returns* as of June 30, 2022          
  1-Year   Since Inception   Inception Date
Principal Spectrum Tax-Advantaged Dividend Active ETF -10.38 % 0.67 % 6/16/20
 
What contributed to or detracted from Fund performance during the fiscal year?

 

The investment seeks to provide current income. Under normal circumstances, the fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in dividend-paying securities at the time of purchase. Such securities include, without limitation, preferred securities and capital securities of U.S. and non-U.S. issuers. The fund invests significantly in securities that, at the time of issuance, are eligible to pay dividends that qualify for favorable U.S. federal income tax treatment, such as dividends treated as “qualified dividend income” (“QDI”) and qualified dividends from real estate investment trusts (“REITS”).

In a rising rate environment (U.S. Treasury 2 year yield increased 270 bps and the 10 year yield increased 154 bps), all industries held had negative returns. Cash was the best contributor as all investment sectors performed negatively. The top returning (least negative) sectors were Yankee Banking contingent convertibles sector -7.47% and $1,000 par Preferred Stock -11.21%.

The largest detractors were $25 par preferred stocks -15.01% and Bank Non-Viability Contingent Capital Additional Tier 1 -12.08%.

10


 

Principal Ultra-Short Active Income ETF

Investment Advisor: Principal Global Investors, LLC


Average Annual Total Returns* as of June 30, 2022          
  1-Year   Since Inception   Inception Date
Principal Ultra-Short Active Income ETF -1.40 % 0.72 % 4/24/19
 
What contributed to or detracted from Fund performance during the fiscal year?

 

The investment seeks to provide current income. The fund is an actively managed exchange-traded fund ("ETF") that seeks to achieve its investment objective by investing, under normal circumstances, at least 80% of its net assets, plus any borrowings for investment purposes, in investment-grade bonds and other fixed income securities. The fund invests in fixed- and floating-rate securities. Under normal circumstances, the fund maintains an average effective maturity of three years or less and an average portfolio duration of one year or less.

Top contributors to performance during the fiscal year included out of benchmark allocation to energy, out of benchmark allocation to consumer non-cyclical, out of benchmark allocation to communications, out of benchmark allocation to auto backed asset-backed securities, and out of benchmark allocation to insurance.

Key negative detractors to performance during the fiscal year included out of benchmark allocation to banking, out of benchmark allocation to other asset-backed securities, out of benchmark allocation to capital goods, out of benchmark allocation to finance companies, and out of benchmark allocation to electric utilities.

11


 

Principal U.S. Large-Cap Adaptive Multi-Factor ETF

Investment Advisor: Principal Global Investors, LLC


Average Annual Total Returns* as of June 30, 2022          
  1-Year   Since Inception   Inception Date
Principal U.S. Large-Cap Adaptive Multi-Factor ETF -9.89 % -5.82 % 5/19/21
 
What contributed to or detracted from Fund performance during the fiscal year?

 

The investment seeks long-term growth of capital. 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. companies with large market capitalizations at the time of purchase. As a result, changes in the value of a single investment could cause greater fluctuations in it's share price than would occur in a more diversified fund. The fund’s strategies may result in the active and frequent trading of its portfolio securities. It is non-diversified.

The Principal U.S. Large-Cap Adaptive Multi-Factor ETF outperformed the index over the last 12 months. Four of the eleven sectors within the index posted positive returns, led by energy and utilities. Devon Energy, Occidental Petroleum, and McKesson outperformed within the index, while our positioning in Walt Disney, PayPal, and Boeing contributed to performance.

The communication services and consumer discretionary sectors lagged during the period. PayPal, Carnival, and Netflix underperformed within the index, while our positioning in Chevron, Eli Lilly, and NextEra Energy detracted from performance.

12


 

Principal U.S. Mega-Cap ETF

Investment Advisor: Principal Global Investors, LLC


Average Annual Total Returns* as of June 30, 2022        
  1-Year   Since Inception   Inception Date
Principal U.S. Mega-Cap ETF -6.18 % 10.37 % 10/11/17
 
What contributed to or detracted from Fund performance during the fiscal year?

 

The investment seeks long-term growth of capital. 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. companies with very large ("mega") market capitalizations at the time of purchase. For this fund, companies with mega capitalizations are those with market capitalizations in the top 50th percentile of the S&P 500 Index at the time of purchase.

The Principal U.S. Mega-Cap ETF outperformed the index over the last 12 months. Four of the eleven sectors within the index posted positive returns, led by energy and healthcare. Chevron, Eli Lilly, and Exxon Mobil outperformed within the index, while our positioning in Pfizer, Danaher, and Costco Wholesale contributed to performance.

The communication services and consumer discretionary sectors lagged during the period. PayPal, Netflix, and Meta Platforms underperformed in the index, while our positioning in Advanced Micro Devices, Chevron, and Exxon Mobil detracted from performance.

**Effective June 10, 2022, the fund changed its primary broad-based index to the S&P 500 Index in connection with the fund’s change to an actively managed fund. Prior to that date, the fund was passively managed to correspond to the NASDAQ US Mega Cap Select Leaders Index.

13


 

Principal U.S. Small-Cap Adaptive Multi-Factor ETF

Investment Advisor: Principal Global Investors, LLC


Average Annual Total Returns* as of June 30, 2022          
  1-Year   Since Inception   Inception Date
Principal U.S. Small-Cap Adaptive Multi-Factor ETF -13.25 % -10.03 % 5/19/21
 
What contributed to or detracted from Fund performance during the fiscal year?

 

The investment seeks long-term growth of capital. 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. companies with small market capitalizations at the time of purchase. For security selection and portfolio construction, Principal Global Investors, LLC ("PGI") uses a proprietary quantitative model. The fund’s strategies may result in the active and frequent trading of its portfolio securities.

The Principal U.S. Small-Cap Adaptive Multi-Factor ETF outperformed the index over the last 12 months. Two of the eleven sectors within the index posted positive returns, led by energy and utilities. Consol Energy, Lantheus Holdings, and PBF Energy outperformed within the index, while our positioning in NeoGenomics, LivePerson, and Crocs contributed to performance.

The consumer discretionary and healthcare sectors lagged during the period. Loyalty Ventures, Endo International, and SelectQuote underperformed within the index, while our positioning in Cytokinetics, Lantheus Holdings, and South Jersey Industries detracted from performance.

14


 

Principal U.S. Small-Cap Multi-Factor ETF

Investment Advisor: Principal Global Investors, LLC


Average Annual Total Returns* as of June 30, 2022              
  1-Year   5-Year   Since Inception   Inception Date
Principal U.S. Small-Cap Multi-Factor ETF -17.88 % 7.06 % 8.87 % 9/21/16
 
What contributed to or detracted from Fund performance during the fiscal year?

 

The investment seeks investment results that closely correspond, before expenses, to the performance of the NASDAQ US Small Cap Select Leaders Index (the "parent index"). The fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies that compose the index. The index uses a quantitative model designed to identify equity securities (including growth and value stock) of small-capitalization companies in the NASDAQ US Small Cap Index that exhibit potential for high degrees of value, quality growth, and strong momentum, while adjusting for liquidity and volatility.

The Principal U.S. Small-Cap Multi-Factor ETF performed in line with the NASDAQ US Small Cap Select Leaders Index. One of the eleven sectors within the index posted positive returns, led by utilities. Lantheus Holdings, Alpha Metallurgical Resources, and Preferred Apartment Communities outperformed within the index, while our positioning in Jackson Financial, Arch Resources, and Box contributed to performance.

The healthcare and consumer discretionary sectors lagged during the period. Loyalty Ventures, Eargo, andAkebia Therapeutics underperformed within the index, while our positioning in Sitio Royalties, Houlihan Lokey, and National Storage Affiliates detracted from performance.

15


 

Principal Value ETF

Investment Advisor: Principal Global Investors, LLC


Average Annual Total Returns* as of June 30, 2022            
  1-Year   5-Year   Since Inception   Inception Date
Principal Value ETF -5.58 % 8.60 % 9.90 % 3/21/16
 
What contributed to or detracted from Fund performance during the fiscal year?

 

The investment seeks long-term growth of capital. Under normal circumstances, the fund primarily invests in equity securities, focusing on value stocks. For security selection and portfolio construction, Principal Global Investors, LLC ("PGI") uses a proprietary quantitative model designed to identify equity securities of mid- to large-capitalization companies in the S&P 500 Index that exhibit higher degrees of shareholder yield (meaning how much money a company distributes to shareholders through dividends and share repurchases).

The Principal Value ETF outperformed the index over the last twelve months. Four of the eleven sectors within the index posted positive returns, led by consumer staples and healthcare. McKesson, EOG Resources, and Quanta Services outperformed within the index, while our positioning in OneMain Holdings, SL Green Realty, and Dick’s Sporting Goods contributed to performance.

The consumer discretionary and real estate sectors lagged during the period. Qurate Retail, eXp World Holdings, and Synchrony Financial underperformed, while our positioning in Apple, Accenture, and Ross Stores detracted from performance.

**Effective June 24, 2022, the fund changed its primary broad-based index to the S&P 500 Index in connection with the fund’s change to an actively managed fund. Prior to that date, the fund was passively managed to correspond to the NASDAQ US Shareholder Yield Index.

16


 

  Statements of Assets and Liabilities              
  Principal Exchange-Traded Funds              
  June 30, 2022                
 
                    Principal  
              Principal     International  
      Principal     Healthcare     Adaptive  
      Active High     Innovators     Multi-Factor  
      Yield ETF (a)     ETF (b)     ETF  
Investment in securities — at cost   $ 248,132,561   $ 97,414,719   $ 17,795,865  
Investment in affiliated funds — at cost     $ 5,781,485   $ 1,097,187   $  
Foreign currency — at cost     $   $   $ 48,469  
Assets                      
Investment in securities — at value   $ 215,412,273 (c) $ 53,287,781 (c) $ 14,094,953  
Investment in affiliated funds — at value       5,781,485     1,097,187      
Foreign currency — at value               48,501  
Receivables:                      
Dividends       20,486     144     72,481  
Interest       3,726,082          
Securities lending income       2,490     5,534      
Investment securities sold       3,171,861          
  Total Assets   228,114,677     54,390,646     14,215,935  
 
Liabilities                      
Accrued management and investment advisory fees       68,763     18,304     2,987  
Payables:                      
Investment securities purchased       3,489,488         11,482  
Collateral obligation on securities loaned — at value       5,781,485     1,097,187      
  Total Liabilities     9,339,736     1,115,491     14,469  
Net Assets Applicable to Outstanding Shares   $ 218,774,941   $ 53,275,155   $ 14,201,466  
 
Net Assets Consist of:                      
Capital shares and additional paid-in-capital   $ 262,211,544   $ 105,260,173   $ 24,778,232  
Total distributable earnings (accumulated loss)     (43,436,603 )   (51,985,018 )   (10,576,766 )
  Total Net Assets $ 218,774,941   $ 53,275,155   $ 14,201,466  
 
Net Asset Value Per Share:                      
Net assets   $ 218,774,941   $ 53,275,155   $ 14,201,466  
Shares issued and outstanding     12,350,000     1,650,001     700,001  
Net asset value per share     $ 17.71   $ 32.29   $ 20.29  

 

(a)      Effective September 1, 2021, Principal Active Income ETF changed its name to Principal Active High Yield ETF.
(b)      Effective October 29, 2021, Principal Healthcare Innovators Index ETF changed its name to Principal Healthcare Innovators ETF.
(c)      Includes fair market value of securities loaned, see 'Securities Lending' in Notes to Financial Statements.

See accompanying notes.

17


 

Statements of Assets and Liabilities              
Principal Exchange-Traded Funds              
June 30, 2022                
 
    Principal              
    Investment              
    Grade     Principal        
    Corporate     Millennials     Principal  
    Active ETF     ETF (a)     Quality ETF  
Investment in securities — at cost $ 433,268,736   $ 34,418,820   $ 46,760,329  
Investment in affiliated funds — at cost $ 1,398,980   $ 988,500   $  
Foreign currency — at cost $   $ 3,832   $  
Assets                  
Investment in securities — at value $ 365,297,483 (b) $ 23,587,655 (b) $ 45,463,858  
Investment in affiliated funds — at value   1,398,980     988,500      
Foreign currency — at value       3,852      
Cash   18,820          
Deposits with counterparty   99,850          
Receivables:                  
Dividends   4,942     22,158     30,810  
Interest   3,679,956          
Securities lending income   571     2,272      
Total Assets   370,500,602     24,604,437     45,494,668  
 
Liabilities                  
Accrued management and investment advisory fees   58,905     8,886     5,718  
Payables:                  
Variation margin on financial derivative instruments   16,412          
Collateral obligation on securities loaned — at value   1,398,980     988,500      
Total Liabilities   1,474,297     997,386     5,718  
Net Assets Applicable to Outstanding Shares $ 369,026,305   $ 23,607,051   $ 45,488,950  
 
Net Assets Consist of:                  
Capital shares and additional paid-in-capital $ 445,058,964   $ 43,148,046   $ 59,000,696  
Total distributable earnings (accumulated loss)   (76,032,659 )   (19,540,995 )   (13,511,746 )
Total Net Assets $ 369,026,305   $ 23,607,051   $ 45,488,950  
 
Net Asset Value Per Share:                  
Net assets $ 369,026,305   $ 23,607,051   $ 45,488,950  
Shares issued and outstanding   16,900,001     600,001     950,001  
Net asset value per share $ 21.84   $ 39.35   $ 47.88  

 

(a)      Effective October 29, 2021, Principal Millennials Index ETF changed its name to Principal Millennials ETF.
(b)      Includes fair market value of securities loaned, see 'Securities Lending' in Notes to Financial Statements.

See accompanying notes.

18


 

  Statements of Assets and Liabilities              
  Principal Exchange-Traded Funds              
  June 30, 2022                
 
            Principal     Principal  
    Principal Real     Spectrum     Spectrum Tax-  
    Estate Active     Preferred     Advantaged  
    Opportunities     Securities     Dividend  
      ETF     Active ETF     Active ETF  
Investment in securities — at cost   $ 5,520,340   $ 394,612,649   $ 22,755,435  
Investment in affiliated funds — at cost   $   $ 2,707,203   $  
Assets                    
Investment in securities — at value   $ 5,368,606   $ 341,484,797 (a) $ 20,881,858  
Investment in affiliated funds — at value         2,707,203      
Cash     26     10,913     6,165  
Deposits with counterparty             17,285  
Receivables:                    
Dividends     23,884     6,969     18,143  
Interest         3,610,799     175,208  
Securities lending income         2,400      
  Total Assets   5,392,516     347,823,081     21,098,659  
 
Liabilities                    
Accrued management and investment advisory fees     2,919     159,104     10,573  
Payables:                    
Collateral obligation on securities loaned — at value         2,707,203      
  Total Liabilities   2,919     2,866,307     10,573  
Net Assets Applicable to Outstanding Shares   $ 5,389,597   $ 344,956,774   $ 21,088,086  
 
Net Assets Consist of:                    
Capital shares and additional paid-in-capital   $ 5,497,549   $ 406,851,392   $ 23,199,789  
Total distributable earnings (accumulated loss)     (107,952 )   (61,894,618 )   (2,111,703 )
  Total Net Assets $ 5,389,597   $ 344,956,774   $ 21,088,086  
 
Net Asset Value Per Share:                    
Net assets   $ 5,389,597   $ 344,956,774   $ 21,088,086  
Shares issued and outstanding     220,001     20,050,005     1,150,001  
Net asset value per share   $ 24.50   $ 17.20   $ 18.34  

 

(a)      Includes fair market value of securities loaned, see 'Securities Lending' in Notes to Financial Statements.
      

19


 

Statements of Assets and Liabilities              
Principal Exchange-Traded Funds              
June 30, 2022              
 
          Principal U.S.        
    Principal   Large-Cap        
  Ultra-Short     Adaptive        
  Active Income     Multi-Factor     Principal U.S.  
    ETF     ETF     Mega-Cap ETF  
Investment in securities — at cost $ 8,518,753   $ 15,797,878   $ 1,364,664,391  
Investment in affiliated funds — at cost $ 66,468   $   $  
Assets                  
Investment in securities — at value $ 8,417,784 (a) $ 12,738,211   $ 1,366,776,284  
Investment in affiliated funds — at value   66,468          
Receivables:                  
Dividends   374     13,078     778,326  
Interest   21,513          
Securities lending income   88          
Fund shares sold           3,693,690  
Expense reimbursement from Advisor           34,625  
Total Assets   8,506,227     12,751,289     1,371,282,925  
 
Liabilities                  
Accrued management and investment advisory fees   1,249     1,700     173,126  
Payables:                  
Investment securities purchased           3,682,951  
Collateral obligation on securities loaned — at value   66,468          
Total Liabilities   67,717     1,700     3,856,077  
Net Assets Applicable to Outstanding Shares $ 8,438,510   $ 12,749,589   $ 1,367,426,848  
 
Net Assets Consist of:                  
Capital shares and additional paid-in-capital $ 8,799,636   $ 20,169,800   $ 1,426,990,456  
Total distributable earnings (accumulated loss)   (361,126 )   (7,420,211 )   (59,563,608 )
Total Net Assets $ 8,438,510   $ 12,749,589   $ 1,367,426,848  
 
Net Asset Value Per Share:                  
Net assets $ 8,438,510   $ 12,749,589   $ 1,367,426,848  
Shares issued and outstanding   350,001     550,001     37,350,001  
Net asset value per share $ 24.11   $ 23.18   $ 36.61  
 
(a) Includes fair market value of securities loaned, see 'Securities Lending' in Notes to Financial Statements.        

 

See accompanying notes.

20


 

  Statements of Assets and Liabilities              
  Principal Exchange-Traded Funds              
  June 30, 2022                
 
    Principal U.S.              
    Small-Cap     Principal U.S.        
    Adaptive   Small-Cap        
    Multi-Factor     Multi-Factor     Principal Value  
      ETF     ETF     ETF  
Investment in securities — at cost   $ 5,885,284   $ 722,766,828   $ 220,734,530  
Investment in affiliated funds — at cost   $   $ 5,359,834   $  
Assets                    
Investment in securities — at value   $ 5,455,284   $ 615,853,652 (a) $ 215,536,678  
Investment in affiliated funds — at value         5,359,834      
Receivables:                    
Dividends     7,347     817,033     402,390  
Securities lending income         5,176     332  
Investment securities sold     1,496         7,743,636  
  Total Assets   5,464,127     622,035,695     223,683,036  
 
Liabilities                    
Accrued management and investment advisory fees     882     200,402     28,492  
Fund shares redeemed             7,779,287  
Payables:                    
Investment securities purchased         210,941      
Collateral obligation on securities loaned — at value         5,359,834      
  Total Liabilities   882     5,771,177     7,807,779  
Net Assets Applicable to Outstanding Shares   $ 5,463,245   $ 616,264,518   $ 215,875,257  
 
Net Assets Consist of:                    
Capital shares and additional paid-in-capital   $ 6,262,759   $ 868,526,604   $ 246,907,473  
Total distributable earnings (accumulated loss)     (799,514 )   (252,262,086 )   (31,032,216 )
  Total Net Assets $ 5,463,245   $ 616,264,518   $ 215,875,257  
 
Net Asset Value Per Share:                    
Net assets   $ 5,463,245   $ 616,264,518   $ 215,875,257  
Shares issued and outstanding     250,001     16,200,001     5,550,001  
Net asset value per share   $ 21.85   $ 38.04   $ 38.90  

 

(a)      Includes fair market value of securities loaned, see 'Securities Lending' in Notes to Financial Statements.
      

21


 

Statements of Operations              
Principal Exchange-Traded Funds              
Year Ended June 30, 2022              
 
                Principal  
          Principal     International  
    Principal     Healthcare     Adaptive  
  Active High     Innovators     Multi-Factor  
  Yield ETF (a)     ETF (b)     ETF  
Net Investment Income (Loss)                  
Income:                  
Dividend $ 169,716   $ 74,127   $ 2,469,627  
Withholding tax   (719 )       (233,960 )
Interest   11,138,594         5,211  
Securities lending — net   10,886     61,431      
Total Income   11,318,477     135,558     2,240,878  
 
Expenses:                  
Management and investment advisory fees   947,585     428,742     203,476  
Total Expenses   947,585     428,742     203,476  
Net Investment Income (Loss)   10,370,892     (293,184 )   2,037,402  
 
Net Realized and Unrealized Gain (Loss)                  
Net realized gain (loss) from:                  
Investment transactions   4,728,128     (5,201,594 )   (7,207,574 )
In-kind redemptions   17,960,383     9,993,881     (1,836,920 )
Foreign currency transactions   (478 )       (17,985 )
Change in unrealized appreciation (depreciation) of:                  
Investments   (58,007,682 )   (65,363,644 )   (2,675,318 )
Foreign currency transactions   247         (1,768 )
Net Realized and Unrealized Gain (Loss)   (35,319,402 )   (60,571,357 )   (11,739,565 )
Net Increase (Decrease) in Net Assets Resulting from Operations $ (24,948,510 ) $ (60,864,541 ) $ (9,702,163 )

 

(a)      Effective September 1, 2021, Principal Active Income ETF changed its name to Principal Active High Yield ETF.
(b)      Effective October 29, 2021, Principal Healthcare Innovators Index ETF changed its name to Principal Healthcare Innovators ETF.

See accompanying notes.

22


 

Statements of Operations              
Principal Exchange-Traded Funds              
Year Ended June 30, 2022              
 
    Principal              
  Investment              
    Grade     Principal        
    Corporate     Millennials     Principal  
  Active ETF     ETF (a)     Quality ETF  
Net Investment Income (Loss)                  
Income:                  
Dividend $ 8,952   $ 3,493,490   $ 1,012,196  
Withholding tax       (423,627 )    
Interest   12,380,857          
Securities lending — net   9,134     160,981      
Total Income   12,398,943     3,230,844     1,012,196  
 
Expenses:                  
Management and investment advisory fees   851,728     344,800     120,921  
Total Expenses   851,728     344,800     120,921  
Net Investment Income (Loss)   11,547,215     2,886,044     891,275  
 
Net Realized and Unrealized Gain (Loss)                  
Net realized gain (loss) from:                  
Investment transactions   (5,453,921 )   (6,869,200 )   (10,918,320 )
In-kind redemptions   (1,174,255 )   (7,806,259 )   5,366,899  
Foreign currency transactions       (9,843 )    
Futures contracts   1,547,179          
Change in unrealized appreciation (depreciation) of:                  
Investments   (76,291,632 )   (22,104,756 )   (3,671,471 )
Futures contracts   131,975          
Foreign currency transactions       (221 )    
Net Realized and Unrealized Gain (Loss)   (81,240,654 )   (36,790,279 )   (9,222,892 )
Net Increase (Decrease) in Net Assets Resulting from Operations $ (69,693,439 ) $ (33,904,235 ) $ (8,331,617 )
 
(a) Effective October 29, 2021, Principal Millennials Index ETF changed its name to Principal Millennials ETF.        

 

See accompanying notes.

23


 

Statements of Operations              
Principal Exchange-Traded Funds              
Year Ended June 30, 2022              
 
          Principal     Principal  
  Principal Real     Spectrum     Spectrum Tax-  
  Estate Active     Preferred     Advantaged  
  Opportunities     Securities     Dividend  
    ETF (a)     Active ETF     Active ETF  
Net Investment Income (Loss)                  
Income:                  
Dividend $ 25,669   $ 13,223   $ 147,098  
Interest       15,117,718     933,334  
Securities lending — net       37,199      
Total Income   25,669     15,168,140     1,080,432  
 
Expenses:                  
Management and investment advisory fees   4,009     2,201,398     138,109  
Total Expenses   4,009     2,201,398     138,109  
Net Investment Income (Loss)   21,660     12,966,742     942,323  
 
Net Realized and Unrealized Gain (Loss)                  
Net realized gain (loss) from:                  
Investment transactions   22,299     (852,146 )   25,207  
In-kind redemptions       (931,604 )    
Futures contracts           (16,532 )
Written options           20,220  
Change in unrealized appreciation (depreciation) of:                  
Investments   (151,734 )   (66,719,754 )   (3,438,648 )
Net Realized and Unrealized Gain (Loss)   (129,435 )   (68,503,504 )   (3,409,753 )
Net Increase (Decrease) in Net Assets Resulting from Operations $ (107,775 ) $ (55,536,762 ) $ (2,467,430 )
 
(a) Period from May 18, 2022, date operations commenced, through June 30, 2022.                  

 

See accompanying notes.

24


 

Statements of Operations              
Principal Exchange-Traded Funds              
Year Ended June 30, 2022              
 
          Principal U.S.        
    Principal   Large-Cap        
  Ultra-Short     Adaptive        
  Active Income     Multi-Factor     Principal U.S.  
    ETF     ETF     Mega-Cap ETF  
Net Investment Income (Loss)                  
Income:                  
Dividend $ 844   $ 1,295,546   $ 31,723,023  
Withholding tax       (178 )    
Interest   61,463          
Securities lending — net   698          
Total Income   63,005     1,295,368     31,723,023  
 
Expenses:                  
Management and investment advisory fees   15,266     145,015     2,689,770  
Total Gross Expenses   15,266     145,015     2,689,770  
Less: Reimbursement from Advisor           (537,954 )
Total Net Expenses   15,266     145,015     2,151,816  
Net Investment Income (Loss)   47,739     1,150,353     29,571,207  
 
Net Realized and Unrealized Gain (Loss)                  
Net realized gain (loss) from:                  
Investment transactions   (54,767 )   (4,552,215 )   (4,242,880 )
In-kind redemptions       740,379     322,871,885  
Change in unrealized appreciation (depreciation) of:                  
Investments   (112,386 )   (3,432,631 )   (388,433,052 )
Net Realized and Unrealized Gain (Loss)   (167,153 )   (7,244,467 )   (69,804,047 )
Net Increase (Decrease) in Net Assets Resulting from Operations $ (119,414 ) $ (6,094,114 ) $ (40,232,840 )

 

See accompanying notes.

25


 

Statements of Operations              
Principal Exchange-Traded Funds              
Year Ended June 30, 2022              
 
  Principal U.S.              
    Small-Cap     Principal U.S.        
    Adaptive   Small-Cap        
  Multi-Factor     Multi-Factor     Principal Value  
    ETF     ETF     ETF  
Net Investment Income (Loss)                  
Income:                  
Dividend $ 108,715   $ 20,014,019   $ 4,836,705  
Withholding tax   (128 )   (7,396 )   (1,093 )
Securities lending — net       331,237     3,508  
Total Income   108,587     20,337,860     4,839,120  
 
Expenses:                  
Management and investment advisory fees   11,876     4,417,238     181,310  
Total Expenses   11,876     4,417,238     181,310  
Net Investment Income (Loss)   96,711     15,920,622     4,657,810  
 
Net Realized and Unrealized Gain (Loss)                  
Net realized gain (loss) from:                  
Investment transactions   (365,590 )   (60,348,864 )   (26,388,114 )
In-kind redemptions       240,184,248     9,262,686  
Change in unrealized appreciation (depreciation) of:                  
Investments   (561,664 )   (330,521,307 )   (7,994,936 )
Net Realized and Unrealized Gain (Loss)   (927,254 )   (150,685,923 )   (25,120,364 )
Net Increase (Decrease) in Net Assets Resulting from Operations $ (830,543 ) $ (134,765,301 ) $ (20,462,554 )
 
 
                   

 

26


 

Statement of Changes in Net Assets        
Principal Exchange-Traded Funds        
 
 
    Principal Active High Yield ETF (a)  
    Year ended     Year ended  
    June 30, 2022   June 30, 2021  
Operations            
Net investment income (loss) $ 10,370,892   $ 9,199,173  
Net realized gain (loss)   22,688,033     (6,479,099 )
Change in unrealized appreciation (depreciation)   (58,007,435 )   42,205,061  
Net Increase (Decrease) in Net Assets Resulting from Operations   (24,948,510 )   44,925,135  
 
Dividends to Shareholders            
From net investment income and net realized gain on investments   (11,667,484 )   (9,881,656 )
Total Dividends   (11,667,484 )   (9,881,656 )
 
Capital Share Transactions            
Net increase (decrease) in capital share transactions   22,948,323     (72,696,915 )
Total Increase (Decrease) in Net Assets   (13,667,671 )   (37,653,436 )
 
Net Assets            
Beginning of year   232,442,612     270,096,048  
End of year $ 218,774,941   $ 232,442,612  
 
Capital Share Transactions            
Dollars:            
Sold $ 102,653,195   $ 2,059,299  
Redeemed   (79,704,872 )   (74,756,214 )
Net Increase (Decrease) $ 22,948,323   $ (72,696,915 )
Shares:            
Sold   3,700,000     100,000 (b)
Redeemed   (2,500,000 )   (3,900,000 ) (b)
Net Increase (Decrease)   1,200,000     (3,800,000 )

 

(a)      Effective September 1, 2021, Principal Active Income ETF changed its name to Principal Active High Yield ETF.
(b)      Reflects a 2 to 1 stock split effective after the close of trading on August 30, 2021, see Notes to Financial Statements.
      

27


 

Statement of Changes in Net Assets          
Principal Exchange-Traded Funds          
 
 
    Principal Healthcare Innovators ETF (a)  
    Year ended     Year ended  
    June 30, 2022     June 30, 2021  
Operations              
Net investment income (loss)   $ (293,184 ) $ (372,510 )
Net realized gain (loss)     4,792,287     28,979,751  
Change in unrealized appreciation (depreciation)   (65,363,644 )   6,955,733  
Net Increase (Decrease) in Net Assets Resulting from Operations   (60,864,541 )   35,562,974  
 
Dividends to Shareholders              
From net investment income and net realized gain on investments     (861,124 )   (527,787 )
Total Dividends     (861,124 )   (527,787 )
 
Capital Share Transactions              
Net increase (decrease) in capital share transactions   (61,196,542 )   45,823,914  
Total Increase (Decrease) in Net Assets   (122,922,207 )   80,859,101  
 
Net Assets              
Beginning of year   176,197,362     95,338,261  
End of year   $ 53,275,155   $ 176,197,362  
 
Capital Share Transactions              
Dollars:              
Sold   $ 2,777,910   $ 111,095,936  
Redeemed   (63,974,452 )   (65,272,022 )
Net Increase (Decrease) $ (61,196,542 ) $ 45,823,914  
Shares:              
Sold     50,000     1,900,000  
Redeemed     (1,300,000 )   (1,150,000 )
Net Increase (Decrease)     (1,250,000 )   750,000  

 

(a)      Effective October 29, 2021, Principal Healthcare Innovators Index ETF changed its name to Principal Healthcare Innovators ETF.
      

28


 

Statement of Changes in Net Assets        
Principal Exchange-Traded Funds        
 
 
    Principal International Adaptive Multi-  
    Factor ETF    
    Year ended   Period ended  
    June 30, 2022   June 30, 2021 (a)  
Operations            
Net investment income (loss) $ 2,037,402   $ 67,312  
Net realized gain (loss)   (9,062,479 )   13,912  
Change in unrealized appreciation (depreciation)   (2,677,086 )   (1,026,037 )
Net Increase (Decrease) in Net Assets Resulting from Operations   (9,702,163 )   (944,813 )
 
Dividends to Shareholders            
From net investment income and net realized gain on investments   (1,862,278 )    
Total Dividends   (1,862,278 )    
 
Capital Share Transactions            
Net increase (decrease) in capital share transactions   (21,352,130 )   48,062,850  
Total Increase (Decrease) in Net Assets   (32,916,571 )   47,118,037  
 
Net Assets            
Beginning of period   47,118,037      
End of period $ 14,201,466   $ 47,118,037  
 
Capital Share Transactions            
Dollars:            
Sold $ 133,715,469   $ 48,062,850  
Redeemed   (155,067,599 )    
Net Increase (Decrease) $ (21,352,130 ) $ 48,062,850  
Shares:            
Sold   5,400,000     1,900,001  
Redeemed   (6,600,000 )    
Net Increase (Decrease)   (1,200,000 )   1,900,001  

 

(a)      Period from May 26, 2021, date operations commenced, through June 30, 2021.
      

29


 

Statement of Changes in Net Assets        
Principal Exchange-Traded Funds        
 
 
    Principal Investment Grade Corporate  
    Active ETF    
    Year ended   Year ended  
    June 30, 2022   June 30, 2021  
Operations            
Net investment income (loss) $ 11,547,215   $ 7,616,986  
Net realized gain (loss)   (5,080,997 )   3,895,398  
Change in unrealized appreciation (depreciation)   (76,159,657 )   403,989  
Net Increase (Decrease) in Net Assets Resulting from Operations   (69,693,439 )   11,916,373  
 
Dividends to Shareholders            
From net investment income and net realized gain on investments   (15,584,122 )   (14,392,204 )
Total Dividends   (15,584,122 )   (14,392,204 )
 
Capital Share Transactions            
Net increase (decrease) in capital share transactions   (26,967,396 )   373,054,558  
Total Increase (Decrease) in Net Assets   (112,244,957 )   370,578,727  
 
Net Assets            
Beginning of year   481,271,262     110,692,535  
End of year $ 369,026,305   $ 481,271,262  
 
Capital Share Transactions            
Dollars:            
Sold $ 37,903,794   $ 383,550,803  
Redeemed   (64,871,190 )   (10,496,245 )
Net Increase (Decrease) $ (26,967,396 ) $ 373,054,558  
Shares:            
Sold   1,500,000     14,250,000  
Redeemed   (2,600,000 )   (400,000 )
Net Increase (Decrease)   (1,100,000 )   13,850,000  
 
 
             

 

30


 

Statement of Changes in Net Assets          
Principal Exchange-Traded Funds          
 
 
      Principal Millennials ETF (a)  
    Year ended   Year ended  
    June 30, 2022   June 30, 2021  
Operations              
Net investment income (loss)   $ 2,886,044   $ 331,354  
Net realized gain (loss)   (14,685,302 )   21,712,308  
Change in unrealized appreciation (depreciation)   (22,104,977 )   7,404,266  
Net Increase (Decrease) in Net Assets Resulting from Operations   (33,904,235 )   29,447,928  
 
Dividends to Shareholders              
From net investment income and net realized gain on investments     (2,817,266 )   (481,261 )
Total Dividends     (2,817,266 )   (481,261 )
 
Capital Share Transactions              
Net increase (decrease) in capital share transactions   (66,070,744 )   71,724,249  
Total Increase (Decrease) in Net Assets   (102,792,245 )   100,690,916  
 
Net Assets              
Beginning of year   126,399,296     25,708,380  
End of year   $ 23,607,051   $ 126,399,296  
 
Capital Share Transactions              
Dollars:              
Sold   $ 45,979,391   $ 147,097,949  
Redeemed   (112,050,135 ) (75,373,700 )
Net Increase (Decrease) $ (66,070,744 ) $ 71,724,249  
Shares:              
Sold     800,000     2,550,000  
Redeemed     (2,100,000 )   (1,250,000 )
Net Increase (Decrease)     (1,300,000 )   1,300,000  

 

(a)      Effective October 29, 2021, Principal Millennials Index ETF changed its name to Principal Millennials ETF.
      

31


 

Statement of Changes in Net Assets        
Principal Exchange-Traded Funds        
 
 
    Principal Quality ETF  
    Year ended   Year ended  
    June 30, 2022   June 30, 2021  
Operations            
Net investment income (loss) $ 891,275   $ 380,155  
Net realized gain (loss)   (5,551,421 )   7,418,259  
Change in unrealized appreciation (depreciation)   (3,671,471 )   1,633,115  
Net Increase (Decrease) in Net Assets Resulting from Operations   (8,331,617 )   9,431,529  
 
Dividends to Shareholders            
From net investment income and net realized gain on investments   (811,956 )   (296,923 )
Total Dividends   (811,956 )   (296,923 )
 
Capital Share Transactions            
Net increase (decrease) in capital share transactions   (3,853,104 )   31,399,812  
Total Increase (Decrease) in Net Assets   (12,996,677 )   40,534,418  
 
Net Assets            
Beginning of year   58,485,627     17,951,209  
End of year $ 45,488,950   $ 58,485,627  
 
Capital Share Transactions            
Dollars:            
Sold $ 144,698,544   $ 83,793,358  
Redeemed   (148,551,648 )   (52,393,546 )
Net Increase (Decrease) $ (3,853,104 ) $ 31,399,812  
Shares:            
Sold   2,600,000     1,700,000  
Redeemed   (2,750,000 )   (1,050,000 )
Net Increase (Decrease)   (150,000 )   650,000  
 
 
             

 

32


 

Statement of Changes in Net Assets  
Principal Exchange-Traded Funds  
 
 
    Principal Real  
    Estate Active  
  Opportunities ETF  
    Period ended  
    June 30, 2022 (a)  
Operations      
Net investment income (loss) $ 21,660  
Net realized gain (loss)   22,299  
Change in unrealized appreciation (depreciation)   (151,734 )
Net Increase (Decrease) in Net Assets Resulting from Operations   (107,775 )
 
 
Capital Share Transactions      
Net increase (decrease) in capital share transactions   5,497,372  
Total Increase (Decrease) in Net Assets   5,389,597  
 
Net Assets      
Beginning of period    
End of period $ 5,389,597  
 
Capital Share Transactions      
Dollars:      
Sold $ 5,497,372  
Redeemed    
Net Increase (Decrease) $ 5,497,372  
Shares:      
Sold   220,001  
Redeemed    
Net Increase (Decrease)   220,001  

 

(a)      Period from May 18, 2022, date operations commenced, through June 30, 2022.
      

33


 

Statement of Changes in Net Assets        
Principal Exchange-Traded Funds        
 
 
  Principal Spectrum Preferred Securities  
    Active ETF    
    Year ended   Year ended  
    June 30, 2022   June 30, 2021  
Operations            
Net investment income (loss) $ 12,966,742   $ 8,156,646  
Net realized gain (loss)   (1,783,750 )   550,789  
Change in unrealized appreciation (depreciation)   (66,719,754 )   13,134,839  
Net Increase (Decrease) in Net Assets Resulting from Operations   (55,536,762 )   21,842,274  
 
Dividends to Shareholders            
From net investment income and net realized gain on investments   (16,461,144 )   (9,608,037 )
Total Dividends   (16,461,144 )   (9,608,037 )
 
Capital Share Transactions            
Net increase (decrease) in capital share transactions   53,621,546     211,103,817  
Total Increase (Decrease) in Net Assets   (18,376,360 )   223,338,054  
 
Net Assets            
Beginning of year   363,333,134     139,995,080  
End of year $ 344,956,774   $ 363,333,134  
 
Capital Share Transactions            
Dollars:            
Sold $ 119,885,173   $ 211,103,817  
Redeemed   (66,263,627 )    
Net Increase (Decrease) $ 53,621,546   $ 211,103,817  
Shares:            
Sold   5,950,000     10,350,000  
Redeemed   (3,500,000 )    
Net Increase (Decrease)   2,450,000     10,350,000  
 
 
             

 

34


 

Statement of Changes in Net Assets          
Principal Exchange-Traded Funds          
 
 
  Principal Spectrum Tax-Advantaged  
    Dividend Active ETF  
  Year ended   Year ended  
  June 30, 2022   June 30, 2021  
Operations            
Net investment income (loss) $ 942,323   $ 919,696  
Net realized gain (loss)   28,895     129,559  
Change in unrealized appreciation (depreciation)   (3,438,648 )   1,712,911  
Net Increase (Decrease) in Net Assets Resulting from Operations   (2,467,430 )   2,762,166  
 
Dividends to Shareholders            
From net investment income and net realized gain on investments   (1,220,956 )   (1,062,462 )
Total Dividends   (1,220,956 )   (1,062,462 )
 
Capital Share Transactions            
Net increase (decrease) in capital share transactions   2,129,041     1,000,132  
Total Increase (Decrease) in Net Assets   (1,559,345 )   2,699,836  
 
Net Assets            
Beginning of year   22,647,431     19,947,595  
End of year $ 21,088,086   $ 22,647,431  
 
Capital Share Transactions            
Dollars:            
Sold $ 2,129,041   $ 1,000,132  
Redeemed        
Net Increase (Decrease) $ 2,129,041   $ 1,000,132  
Shares:            
Sold   100,000     50,000  
Redeemed        
Net Increase (Decrease)   100,000     50,000  
 
 
             

 

35


 

Statement of Changes in Net Assets          
Principal Exchange-Traded Funds          
 
 
  Principal Ultra-Short Active Income  
        ETF    
  Year ended     Year ended  
  June 30, 2022   June 30, 2021  
Operations            
Net investment income (loss) $ 47,739   $ 89,020  
Net realized gain (loss)   (54,767 )   13,955  
Change in unrealized appreciation (depreciation)   (112,386 )   (32,874 )
Net Increase (Decrease) in Net Assets Resulting from Operations   (119,414 )   70,101  
 
Dividends to Shareholders            
From net investment income and net realized gain on investments   (97,102 )   (215,987 )
Total Dividends   (97,102 )   (215,987 )
 
Capital Share Transactions            
Net increase (decrease) in capital share transactions   (1,993 )   (3,706,573 )
Total Increase (Decrease) in Net Assets   (218,509 )   (3,852,459 )
 
Net Assets            
Beginning of year   8,657,019     12,509,478  
End of year $ 8,438,510   $ 8,657,019  
 
Capital Share Transactions            
Dollars:            
Sold $ 1,209,257   $ 1,238,181  
Redeemed   (1,211,250 )   (4,944,754 )
Net Increase (Decrease) $ (1,993 ) $ (3,706,573 )
Shares:            
Sold   50,000     50,000  
Redeemed   (50,000 )   (200,000 )
Net Increase (Decrease)       (150,000 )
 
 
             

 

36


 

Statement of Changes in Net Assets      
Principal Exchange-Traded Funds      
 
 
    Principal U.S. Large-Cap Adaptive
    Multi-Factor ETF
    Year ended   Period ended
    June 30, 2022   June 30, 2021 (a)
Operations          
Net investment income (loss) $ 1,150,353   $ 15,311
Net realized gain (loss)   (3,811,836 )   110
Change in unrealized appreciation (depreciation)   (3,432,631 )   372,964
Net Increase (Decrease) in Net Assets Resulting from Operations   (6,094,114 )   388,385
 
Dividends to Shareholders          
From net investment income and net realized gain on investments   (1,000,323 )  
Total Dividends   (1,000,323 )  
 
Capital Share Transactions          
Net increase (decrease) in capital share transactions   (9,997,947 )   29,453,588
Total Increase (Decrease) in Net Assets   (17,092,384 )   29,841,973
 
Net Assets          
Beginning of period   29,841,973    
End of period $ 12,749,589   $ 29,841,973
 
Capital Share Transactions          
Dollars:          
Sold $ 172,626,760   $ 29,453,588
Redeemed   (182,624,707 )  
Net Increase (Decrease) $ (9,997,947 ) $ 29,453,588
Shares:          
Sold   6,400,000     1,150,001
Redeemed   (7,000,000 )  
Net Increase (Decrease)   (600,000 )   1,150,001

 

(a)

               

 

Period from May 19, 2021, date operations commenced, through June 30, 2021.

 

 

37


 

Statement of Changes in Net Assets        
Principal Exchange-Traded Funds        
 
 
    Principal U.S. Mega-Cap ETF  
    Year ended     Year ended  
    June 30, 2022     June 30, 2021  
Operations            
Net investment income (loss) $ 29,571,207   $ 28,827,265  
Net realized gain (loss)   318,629,005     192,160,118  
Change in unrealized appreciation (depreciation)   (388,433,052 )   284,619,935  
Net Increase (Decrease) in Net Assets Resulting from Operations   (40,232,840 )   505,607,318  
 
Dividends to Shareholders            
From net investment income and net realized gain on investments   (31,378,545 )   (27,303,682 )
Total Dividends   (31,378,545 )   (27,303,682 )
 
Capital Share Transactions            
Net increase (decrease) in capital share transactions   (519,025,943 )   (25,285,343 )
Total Increase (Decrease) in Net Assets   (590,637,328 )   453,018,293  
 
Net Assets            
Beginning of year   1,958,064,176     1,505,045,883  
End of year $ 1,367,426,848   $ 1,958,064,176  
 
Capital Share Transactions            
Dollars:            
Sold $ 564,035,727   $ 526,851,840  
Redeemed   (1,083,061,670 )   (552,137,183 )
Net Increase (Decrease) $ (519,025,943 ) $ (25,285,343 )
Shares:            
Sold   13,400,000     14,150,000  
Redeemed   (25,400,000 )   (14,900,000 )
Net Increase (Decrease)   (12,000,000 )   (750,000 )
 
 
             

 

38


 

Statement of Changes in Net Assets        
Principal Exchange-Traded Funds        
 
 
  Principal U.S. Small-Cap Adaptive
    Multi-Factor ETF  
  Year ended   Period ended
  June 30, 2022   June 30, 2021 (a)
Operations          
Net investment income (loss) $ 96,711   $ 6,980
Net realized gain (loss)   (365,590 )   1,295
Change in unrealized appreciation (depreciation)   (561,664 )   131,664
Net Increase (Decrease) in Net Assets Resulting from Operations   (830,543 )   139,939
 
Dividends to Shareholders          
From net investment income and net realized gain on investments   (108,910 )  
Total Dividends   (108,910 )  
 
Capital Share Transactions          
Net increase (decrease) in capital share transactions       6,262,759
Total Increase (Decrease) in Net Assets   (939,453 )   6,402,698
 
Net Assets          
Beginning of period   6,402,698    
End of period $ 5,463,245   $ 6,402,698
 
Capital Share Transactions          
Dollars:          
Sold $   $ 6,262,759
Redeemed      
Net Increase (Decrease) $   $ 6,262,759
Shares:          
Sold       250,001
Redeemed      
Net Increase (Decrease)       250,001

 

(a)      Period from May 19, 2021, date operations commenced, through June 30, 2021.
      

39


 

Statement of Changes in Net Assets        
Principal Exchange-Traded Funds        
 
 
    Principal U.S. Small-Cap Multi-Factor  
        ETF    
    Year ended     Year ended  
    June 30, 2022   June 30, 2021  
Operations            
Net investment income (loss) $ 15,920,622   $ 13,278,051  
Net realized gain (loss)   179,835,384     186,577,277  
Change in unrealized appreciation (depreciation)   (330,521,307 )   264,338,863  
Net Increase (Decrease) in Net Assets Resulting from Operations   (134,765,301 )   464,194,191  
 
Dividends to Shareholders            
From net investment income and net realized gain on investments   (17,721,353 )   (10,376,768 )
Total Dividends   (17,721,353 )   (10,376,768 )
 
Capital Share Transactions            
Net increase (decrease) in capital share transactions   (859,252,127 )   845,880,659  
Total Increase (Decrease) in Net Assets   (1,011,738,781 )   1,299,698,082  
 
Net Assets            
Beginning of year   1,628,003,299     328,305,217  
End of year $ 616,264,518   $ 1,628,003,299  
 
Capital Share Transactions            
Dollars:            
Sold $ 472,542,832   $ 1,451,694,258  
Redeemed   (1,331,794,959 )   (605,813,599 )
Net Increase (Decrease) $ (859,252,127 ) $ 845,880,659  
Shares:            
Sold   10,150,000     36,050,000  
Redeemed   (28,650,000 )   (13,350,000 )
Net Increase (Decrease)   (18,500,000 )   22,700,000  

 

See accompanying notes.

40


 

Statement of Changes in Net Assets        
Principal Exchange-Traded Funds        
 
 
    Principal Value ETF  
    Year ended   Year ended  
    June 30, 2022   June 30, 2021  
Operations            
Net investment income (loss) $ 4,657,810   $ 826,275  
Net realized gain (loss)   (17,125,428 )   7,607,296  
Change in unrealized appreciation (depreciation)   (7,994,936 )   1,803,600  
Net Increase (Decrease) in Net Assets Resulting from Operations   (20,462,554 )   10,237,171  
 
Dividends to Shareholders            
From net investment income and net realized gain on investments   (2,251,380 )   (700,888 )
Total Dividends   (2,251,380 )   (700,888 )
 
Capital Share Transactions            
Net increase (decrease) in capital share transactions   194,090,855     3,055,086  
Total Increase (Decrease) in Net Assets   171,376,921     12,591,369  
 
Net Assets            
Beginning of year   44,498,336     31,906,967  
End of year $ 215,875,257   $ 44,498,336  
 
Capital Share Transactions            
Dollars:            
Sold $ 371,175,106   $ 38,529,990  
Redeemed   (177,084,251 )   (35,474,904 )
Net Increase (Decrease) $ 194,090,855   $ 3,055,086  
Shares:            
Sold   8,700,000     950,000  
Redeemed   (4,200,000 )   (1,050,000 )
Net Increase (Decrease)   4,500,000     (100,000 )

 

See accompanying notes.

41


 

Notes to Financial Statements
Principal Exchange-Traded Funds
June 30, 2022

1. Organization

The Principal Exchange-Traded Funds (the “Trust) is a statutory trust organized under the laws of the State of Delaware in 2013 and is authorized to have multiple series or portfolios. The Trust is an open-end management investment company, registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Trust currently consists of fifteen series, Principal Active High Yield ETF, Principal Healthcare Innovators ETF, Principal International Adaptive Multi-Factor ETF, Principal Investment Grade Corporate Active ETF, Principal Millennials ETF, Principal Quality ETF, Principal Real Estate Active Opportunities ETF, Principal Spectrum Preferred Securities Active ETF, Principal Spectrum Tax-Advantaged Dividend Active ETF, Principal Ultra-Short Active Income ETF, Principal U.S. Large-Cap Adaptive Multi-Factor ETF, Principal U.S. Mega-Cap ETF, Principal U.S. Small-Cap Adaptive Multi-Factor ETF, Principal U.S. Small-Cap Multi-Factor ETF and Principal Value ETF (collectively, the Fundsand individually, a Fund). The shares of the Funds are referred to herein as “Shares”.

Each of the Funds is an investment company and applies specialized accounting and reporting under Accounting Standards Codification Topic 946, Financial Services - Investment Companies. The Funds have not provided financial support and are not contractually required to provide financial support to any investee.

The Trust issues and redeems Shares at net asset value (NAV) only with Authorized Participants (APs) and only in aggregations of 50,000 Shares with the exception of Principal International Adaptive Multi-Factor ETF and Principal Real Estate Active Opportunities ETF which are issued and redeemed in aggregations of 100,000 shares and 20,000 shares, respectively (each a Creation Unitor multiples thereof Creation Unit Aggregations), which is subject to change. The Trust issues and redeems Creation Unit Aggregations in exchange for portfolio securities and/or cash, plus a fixed and/or variable transaction fee.

Shares trade on exchanges at market prices that may be below, at, or above NAV. Shares are listed on the respective exchanges as listed below:

Fund Exchange
Principal Active High Yield ETF NYSE Arca
Principal Healthcare Innovators ETF The Nasdaq Stock Market LLC
Principal International Adaptive Multi-Factor ETF Cboe BZX Exchange, Inc.
Principal Investment Grade Corporate Active ETF NYSE Arca
Principal Millennials ETF The Nasdaq Stock Market LLC
Principal Quality ETF The Nasdaq Stock Market LLC
Principal Real Estate Active Opportunities ETF NYSE Arca
Principal Spectrum Preferred Securities Active ETF NYSE Arca
Principal Spectrum Tax-Advantaged Dividend Active ETF NYSE Arca
Principal Ultra-Short Active Income ETF NYSE Arca
Principal U.S. Large-Cap Adaptive Multi-Factor ETF Cboe BZX Exchange, Inc.
Principal U.S. Mega-Cap ETF The Nasdaq Stock Market LLC
Principal U.S. Small-Cap Adaptive Multi-Factor ETF Cboe BZX Exchange, Inc.
Principal U.S. Small-Cap Multi-Factor ETF The Nasdaq Stock Market LLC
Principal Value ETF The Nasdaq Stock Market LLC

 

Principal U.S. Large-Cap Adaptive Multi-Factor ETF and Principal U.S. Small-Cap Adaptive Multi-Factor ETF initial investments and commencement of operations was May 19, 2021. Principal International Adaptive Multi-Factor ETF initial investment and commencement of operations was May 26, 2021. Principal Real Estate Active Opportunities ETF initial investment and commencement of operations was May 18, 2022.

Effective September 1, 2021, Principal Active Income ETF changed its name to Principal Active High Yield ETF. In addition to the name change, the Board of Trustees authorized a 2 for 1 stock split effective after the close of trading on August 30, 2021. The stock split has been retroactively reflected on the Statement of Changes in Net Assets and Financial Highlights.

42


 

Notes to Financial Statements
Principal Exchange-Traded Funds
June 30, 2022

1. Organization (continued)

Effective October 29, 2021, the following Funds changed their names as shown below:

Previous Name New Name
Principal Healthcare Innovators Index ETF Principal Healthcare Innovators ETF
Principal Millennials Index ETF Principal Millennials ETF

 

Effective June 10, 2022, June 17, 2022 and June 24, 2022, Principal U.S. Mega-Cap ETF, Principal Quality ETF and Principal Value ETF changed from passively managed to actively managed, respectively.

2. Significant Accounting Policies

The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Funds:

Security Valuation. The Funds may invest in series of Principal Funds, Inc. and other investment funds, which may include money market funds and other registered open-end investment companies. Investments in registered open-end investment companies are valued at the respective fund's closing NAV per share on the day of valuation.

The Funds value securities for which market quotations are readily available at fair value, which is determined using the last reported sale price. If no sales are reported, as is regularly the case for some securities traded over-the-counter, securities are valued using the last reported bid price or an evaluated bid price provided by a pricing service. Pricing services use modeling techniques that incorporate security characteristics such as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, other yield and risk factors and other market conditions to determine an evaluated bid price. When reliable market quotations are not considered to be readily available, which may be the case, for example, with respect to restricted securities, certain debt securities, preferred stocks, and foreign securities, the investments are valued at their fair value as determined in good faith by the Principal Global Investors, LLC (the Advisor) under procedures established and periodically reviewed by the Fund's Board of Trustees.

The value of foreign securities used in computing the NAV per share is generally determined as of the close of the foreign exchange where the security is principally traded. Events that occur after the close of the applicable foreign market or exchange but prior to the calculation of the Fund’s NAV are reflected in the Fund’s NAV and these securities are valued at fair value. Many factors, provided by independent pricing services, are reviewed in the course of making a good faith determination of a security's fair value including, but not limited to, price movements in American

Depository Receipts (“ADRs”), futures contracts, industry indices, general indices, and foreign currencies.

To the extent the Funds invest in foreign securities listed on foreign exchanges which trade on days on which the

Funds do not determine NAV, for example, weekends and other customary national U.S. holidays, the Fund’s NAV could be significantly affected on days when shares are not able to be issued or redeemed by APs.

Certain securities issued by companies in emerging market countries may have more than one quoted valuation at any given point in time, sometimes referred to as a “local” price and a “premium” price. The premium price is often a negotiated price, which may not consistently represent a price at which a specific transaction can be effected. It is the policy of the Funds to value such securities at prices at which it is expected those shares may be sold, and the Advisor, or any sub-advisor, is authorized to make such determinations subject to such oversight by the Trust's Board of Trustees, as may occasionally be necessary.

43


 

Notes to Financial Statements
Principal Exchange-Traded Funds
June 30, 2022

2. Significant Accounting Policies (continued)

Currency Translation. Foreign holdings are translated to U.S. dollars using the exchange rate at the daily close of the New York Stock Exchange. The identified cost of the Funds’ holdings is translated at approximate rates prevailing when acquired. Income and expense amounts are translated at approximate rates prevailing when received or paid, with daily accruals of such amounts reported at approximate rates prevailing at the date of valuation. Since the carrying amount of the foreign securities is determined based on the exchange rate and market values at the close of the period, it is not practicable to isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of securities during the period.

Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between trade and settlement dates on security transactions, and the difference between the amount of dividends, interest income, interest expense, and foreign withholding taxes recorded on the books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies arise from changes in the exchange rate relating to assets and liabilities, other than investments in securities, purchased and held in non-U.S. denominated currencies.

The following Funds held securities denominated in foreign currencies that exceeded 5% of net assets of the respective Fund as of June 30, 2022:

Principal International Adaptive Multi-Factor ETF    
Australian Dollar 6.92 %
British Pound Sterling 13.01 %
Canadian Dollar 15.37 %
Euro 23.09 %
Japanese Yen 19.40 %
Swiss Franc 9.04 %
Principal Millennials ETF    
Euro 11.93 %

 

Income and Investment Transactions. The Funds record investment transactions on a trade date basis. Trade date for senior floating rate interests purchased in the primary market is considered the date on which the loan allocations are determined. Trade date for senior floating rate interests purchased in the secondary market is the date on which the transaction is entered into. The identified cost basis has been used in determining the net realized gain or loss from investment transactions and unrealized appreciation or depreciation of investments. The Funds record dividend income on the ex-dividend date, except dividend income from foreign securities whereby the ex-dividend date has passed; such dividends are recorded as soon as the Funds are informed of the ex-dividend date. Interest income is recognized on an accrual basis. Discounts and premiums on securities are accreted/amortized, respectively, on the level yield method over the expected lives of the respective securities. Callable debt securities purchased at a premium are amortized to the earliest call date and to the callable amount, if other than par.

Distributions from Real Estate Investment Trusts ("REITs") may be characterized as ordinary income, capital gain, or a return of capital to the Funds. The proper characterization of REIT distributions is generally not known until after the end of each calendar year. As such, estimates are used in reporting the character of income and distributions for financial statement purposes. Principal Real Estate Active Opportunities ETF receives substantial distributions from holdings in REITs.

Capital Share Transactions. Capital shares are issued and redeemed by the Funds only in a Creation Unit or Creation Unit Aggregations. Except when aggregated into at least a Creation Unit, Shares are not redeemable.

The consideration for the purchase of a Creation Unit or Creation Unit Aggregations of a Fund generally consists of a basket of cash and/or securities that the Fund specifies each business day. To offset transfer and other transaction costs associated with the issuance and redemption of Creation Unit Aggregations, APs are subject to standard creation and redemption transaction fees.

44


 

Notes to Financial Statements
Principal Exchange-Traded Funds
June 30, 2022

2. Significant Accounting Policies (continued)

Expenses. For all Funds, a unitary investment management and advisory fee is charged. The Advisor covers all operating expenses through the investment management and advisory fee with the exception of 12b-1 fees, brokerage commissions and other expenses connected to the execution of portfolio transactions, interest expense, taxes, acquired fund fees and expenses, litigation expenses and other extraordinary expenses, if applicable.

Dividends to Shareholders. Dividends to shareholders of the Funds are recorded on the ex-dividend date. Dividends to shareholders from net investment income and net realized gain from investments and foreign currency transactions are determined in accordance with federal tax regulations, which may differ from U.S. GAAP. These differences are primarily due to differing treatments for amortization of premiums and discounts, futures contracts, net operating losses, sales of passive foreign investment companies, partnership investments, foreign currency transactions, losses deferred due to wash sales, tax straddles, mortgage-backed securities, certain preferred securities, redemptions-in-kind, REITs, utilization of earnings and profits distributed to shareholders on redemption of Shares, and limitations imposed by Sections 381-384 of the Internal Revenue Code (“IRC”). Permanent book and tax basis differences are reclassified within the capital accounts based on federal tax-basis treatment; temporary differences do not require reclassification. To the extent dividends exceed current and accumulated earnings and profits for federal income tax purposes, they are reported as return of capital distributions.

Federal Income Taxes. No provision for federal income taxes is considered necessary because the Funds each intend to qualify as a “regulated investment company” under the IRC and they intend to distribute each year substantially all of their net investment income and realized capital gains to shareholders.

Management evaluates tax positions taken or expected to be taken in the course of preparing the Funds' tax returns to determine whether it is “more likely than not” that each tax position would be sustained upon examination by a taxing authority based on the technical merits of their position. Tax positions not deemed to meet the “more likely than not” threshold would be recorded as a tax benefit or expense in the current year. During the year ended June 30, 2022, the Funds did not record any such tax benefit or expense in the accompanying financial statements. The statute of limitations remains open for the last three years, once a return is filed. No examinations are in progress at this time.

Foreign Taxes. Certain Funds are subject to foreign income taxes imposed by certain countries in which they invest. Foreign income taxes are accrued by the Funds as a reduction of income. These amounts are shown as withholding tax on the Statements of Operations.

Recent Accounting Pronouncements. In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848); Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform. The guidance is applicable to contracts referencing London Inter-Bank Offered Rate (“LIBOR”) or another reference rate that is expected to be discontinued due to reference rate reform. The ASU is effective as of March 12, 2020 and generally can be applied through December 31, 2022. Management expects the ASU will not have a material impact on the Funds' financial statements.

In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820); Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which provides clarifying guidance that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Management expects the ASU will not have a material impact on the Funds' financial statements.

45


 

Notes to Financial Statements
Principal Exchange-Traded Funds
June 30, 2022

2. Significant Accounting Policies (continued)

Tracking Basket Structure. Principal Real Estate Active Opportunities ETF operates pursuant to an exemptive order from the Securities and Exchange Commission (“SEC”) and does not publicly disclose its complete portfolio holdings each business day. Instead, the Fund publishes each business day on its website a “Tracking Basket” which is designed to closely track the daily performance of the Fund but is not the Fund's actual portfolio. The Fund's Tracking Basket structure may affect the price at which shares of the Fund trade in the secondary market. Although the Tracking Basket is intended to provide investors with enough information to allow for an effective arbitrage mechanism that will keep the market price of the Fund at or close to the Fund's NAV, there is a risk that market prices will vary significantly from NAV.

3. Operating Policies

Contingent Convertible Securities (CoCos). As footnoted in the Schedules of Investments, certain of the Funds invest in contingent convertible securities. CoCos are hybrid debt securities that may convert into equity or have their principal written down upon the occurrence of certain triggers. Although a contingent convertible security's equity conversion and principal write-down features are tailored to the particular issuing banking institution and its regulatory requirements, triggers are generally linked to regulatory capital thresholds or regulatory actions calling into question such institution's continued viability as a going-concern. CoCos may have no stated maturity and fully discretionary coupons, which means coupon payments can be canceled at the issuing banking institution's discretion or at the request of the relevant regulatory authority without causing a default. To provide the appropriate regulatory capital treatment, CoCos are usually issued in the form of subordinated debt instruments that rank junior to the claims of holders of more senior obligations in the event of the issuer's liquidation. If CoCos are converted into equity securities due to a trigger event, holders will be further subordinated. The future 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. Due to these features, CoCos may have substantially greater risk than other securities in times of financial stress. Because of the uncertainty regarding whether a conversion event will occur, it may be difficult to predict when, if at all, a contingent convertible security will be converted to equity, and a fund may suffer losses as a result. If the trigger level is breached, the issuer's decision to write down, write off or convert a contingent convertible security may result in the fund's complete loss on an investment in CoCos with no chance of recovery even if the issuer remains in existence.

Cross Trades. The Funds may engage in cross trades. A cross trade is a purchase or sale transaction between affiliated portfolios executed directly or through an intermediary. Mutual funds and other managed portfolios may be considered affiliated if they have a common investment advisor, so a fund may be considered affiliated with any portfolio for which the fund's sub-advisor acts as an investment advisor. Such transactions are permissible provided that the conditions of Rule 17a-7 under the 1940 Act are satisfied. For the year ended June 30, 2022, the Funds did not engage in cross trades.

Deposits with Counterparty. Cash pledged as collateral is reflected as an asset on the Statements of Assets and Liabilities as deposits with counterparty. There are a variety of security types which require varying levels of pledged collateral. Customer account agreements govern cleared derivatives transactions such as futures contracts. Such transactions require posting of initial margin as determined by each relevant clearing agency which is segregated in an account at a futures commission merchant (FCM) registered with the Commodity Futures Trading Commission. As of June 30, 2022, deposits with counterparty for Principal Investment Grade Corporate Active ETF and Principal Spectrum Tax-Advantaged Dividend Active ETF were $99,850 and $17,285 respectively.

46


 

Notes to Financial Statements
Principal Exchange-Traded Funds
June 30, 2022

3. Operating Policies (continued)

Futures Contracts. The Funds are subject to equity price risk, interest rate risk, and foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The Funds may enter into futures contracts to hedge against changes in, or to gain exposure to, change in the value of equities, interest rates and foreign currencies. Initial margin deposits are made by cash deposits or segregation of specific securities as may be required by the exchange on which the transaction was conducted. Pursuant to the contracts, typically a Fund agrees to receive from or pay to the broker, an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation marginand are recorded by the Funds as variation margin receivable or payable on financial derivative instruments. For those contracts where daily variation margin payments are not received from or paid to the broker, the cumulative unrealized gains or losses are included in variation margin receivable or payable on financial derivative instruments. Futures contracts are marked to market daily at the closing settlement price or in the absence of such a price, the most recent quoted bid price. If there are no quotations available, the security is valued at the last available closing settlement price. During the period the futures contracts are open, daily changes in the fair value of the contracts are recognized as unrealized gains or losses. These unrealized gains or losses are included as a component of net unrealized appreciation (depreciation) of investments on the Statements of Assets and Liabilities. When the contracts are closed, the Funds recognize a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s cost basis in the contract. There is minimal counterparty credit risk to the Funds because futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default.

Long and short U.S. Treasury futures contracts are used to obtain interest rate exposure in order to manage duration of the Principal Investment Grade Corporate Active ETF. The notional values of the futures contracts will vary in accordance with changing duration of this Fund.

Illiquid Securities. Illiquid securities generally cannot be sold or disposed of in the ordinary course of business (within seven calendar days) at approximately the value at which each of the Funds has valued the investments. This may have an adverse effect on each of the Funds’ ability to dispose of particular illiquid securities at fair value and may limit each of the Funds’ ability to obtain accurate market quotations for purposes of valuing the secur ities.

Indemnification. In a normal course of business, the Funds enter into contracts that contain a variety of indemnifications. The Funds’ maximum exposure under these arrangements is unknown as this would involve potential future claims against the Funds that have not yet occurred. Based on management's experience, the risk of loss would be remote.

Restricted Securities. Certain of the Funds may invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult.

Securities Lending. As footnoted in the Schedules of Investments, certain of the Funds may lend portfolio securities to approved brokerage firms to earn additional income. The Funds receive collateral, in the form of cash, against the loaned securities. During the period of the loan, the borrower must maintain collateral in an amount not less than 102% of the market value of the domestic and foreign fixed income loaned securities and 105% of the market value of the foreign equity loaned securities. The market value of the loaned securities is determined at the close of business of the Funds and any additional required collateral is delivered to the Funds on the next business day. The cash collateral received is usually invested in a SEC-registered money market mutual fund and the Funds could realize a loss on such investments. Further, the Funds could experience a delay in recovering their securities and possible loss of income or value if the borrower fails to return them. Securities lending income, net of related fees, is shown on the Statements of Operations.

47


 

Notes to Financial Statements
Principal Exchange-Traded Funds
June 30, 2022

3. Operating Policies (continued)

Senior Floating Rate Interests. The Fund may invest in senior floating rate interests (bank loans). Senior floating rate interests hold the most senior position in the capital structure of a business entity (the “Borrower”), are typically secured by specific collateral and have a claim on the assets and/or stock of the Borrower that is senior to that held by subordinated debtholders and stockholders of the Borrower. Senior floating rate interests are typically structured and administered by a financial institution that acts as the agent of the lenders participating in the senior floating rate interest. Borrowers of senior floating rate interests are typically rated below investment grade, 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.

Senior floating rate interests 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 LIBOR rate.

Senior floating rate interests generally are subject to mandatory and/or optional prepayment. Because of these mandatory prepayment conditions and because there may be significant economic incentives for the Borrower to repay, prepayments of senior floating rate interests may occur. As a result, the actual remaining maturity of senior floating rate interests may be substantially less than stated maturities shown in the Schedule of Investments.

In connection with the senior floating rate interests, the Fund may also enter into unfunded loan commitments. All or a portion of the loan commitments may be unfunded. The Fund is obligated to fund these commitments at the Borrower’s discretion. Therefore, the Fund must have funds sufficient to cover its contractual obligation. Unfunded loan commitments are marked to market daily and the unrealized gain or loss is shown as a separate line item called unrealized gain or loss on unfunded commitments on the statement of assets and liabilities and included in the net change in unrealized appreciation/(depreciation) of investments on the statements of operations, as applicable. As of year end, the unfunded loan commitments are categorized as Level 2 within the disclosure hierarchy. As of June 30, 2022, there were no unfunded loan commitments.

Underlying Funds. An underlying fund may experience relatively large redemptions or purchases as the investee fund 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.

The Advisor is the advisor to Principal Funds, Inc., Principal Variable Contracts Funds, Inc., affiliates of the Advisor, and other asset allocation programs. The Advisor is committed to minimizing the potential impact of underlying fund risk to the extent consistent with pursuing the investment objectives of the investee funds which it manages. Each may face conflicts of interest in fulfilling its responsibilities to all such funds.

As of June 30, 2022, series of Principal Funds, Inc. and Principal Variable Contracts Funds, Inc. owned the following percentages, in aggregate, of the outstanding Shares of the Funds listed below:

  Total Percentage of  
Fund Outstanding Shares Owned  
Principal Active High Yield ETF 76.88 %
Principal Investment Grade Corporate Active ETF 93.20  
Principal U.S. Mega-Cap ETF 80.72  
Principal U.S. Small-Cap Multi-Factor ETF 94.75  

 

48


 

Notes to Financial Statements
Principal Exchange-Traded Funds
June 30, 2022

3. Operating Policies (continued)

U.S. Government Agencies or Government-Sponsored Enterprises. Certain of the Funds may invest in U.S. Government agencies or government-sponsored enterprises. U.S. Government securities are obligations of, and in certain cases, guaranteed by, the U.S. Government or its agencies. The U.S. Government does not guarantee the NAV of the Funds’ Shares. Some U.S. Government securities such as treasury bills, notes and bonds, and securities guaranteed by the Government National Mortgage Association (“GNMA”) are supported by the full faith and credit of the U.S. Government. Other securities, such as those of the Federal Home Loan Bank, are supported by the right of the issuer to borrow from the U.S. Department of the Treasury. Still other securities, such as those of the Federal National Mortgage Association (“FNMA”), are supported by the discretionary authority of the U.S. Government to purchase the agency’s obligations.

Government related guarantors (those not backed by the full faith and credit of the U.S. Government) include FNMA and Federal Home Loan Mortgage Corporation (“FHLMC”). FNMA is a government sponsored corporation, the common stock of which is owned entirely by private stockholders. FNMA purchases conventional residential mortgages from a list of approved seller/servicers which include state and federally chartered savings and loan associations, mutual savings banks, commercial banks, credit unions, and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to the timely payment of principal and interest by FNMA, but are not backed by the full faith and credit of the U.S. Government. FHLMC issues participation certificates, which are pass-through securities, each representing an undivided interest in a pool of residential mortgages. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but participation certificates are not backed by the full faith and credit of the U.S. Government.

Derivatives. The following tables provide information about where on the Statements of Assets and Liabilities and Statements of Operations information about derivatives can be found:

  Asset Derivatives       Liability Derivatives      
  June 30, 2022       June 30, 2022      
 
  Statement of Assets and       Statement of Assets and      
Derivatives not accounted for as hedging instruments Liabilities Location   Fair Value   Liabilities Location   Fair Value  
Principal Investment Grade Corporate Active ETF                
Interest rate contracts Receivables, Total       Payables, Total      
  distributable earnings       distributable earnings      
  (accumulated loss) $ 166,831 * (accumulated loss) $ (124,635 ) *

 

* Includes cumulative unrealized appreciation (depreciation) of futures contracts as shown in the Schedule of Investments. Only the portion of the unrealized appreciation (depreciation) not yet cash settled is shown in the Statements of Assets and Liabilities as variation margin.

      Net Realized Gain or     Net Change in Unrealized
      (Loss) on Derivatives     Appreciation
  Location of Gain or (Loss) on   Recognized in     (Depreciation) of
  Derivatives Recognized in   Statement of     Derivatives Recognized in
Derivatives not accounted for as hedging instruments Statement of Operations   Operations     Statement of Operations
Principal Investment Grade Corporate Active ETF            
Interest rate contracts Futures contracts $ 1,547,179   $ 131,975
 
Principal Spectrum Tax-Advantaged Dividend Active ETF          
  Investment          
Interest rate contracts transactions/Investments $ (3,165 ) ** $
  Futures contracts   (16,532 )  
  Written options   20,220    
 
** Investment transactions includes purchased options and/or purchased swaptions.          

 

49


 

Notes to Financial Statements
Principal Exchange-Traded Funds
June 30, 2022

3. Operating Policies (continued)

The following table includes a summary of the monthly average outstanding notional by derivative instrument type for the year ended June 30, 2022:

      Average Notional or
Contract Type Derivative Type   Number of Contracts
Principal Investment Grade Corporate Active ETF      
Interest rate contracts Futures Short $ 39,938,873
  Futures Long $ 5,885,681
 
Principal Spectrum Tax-Advantaged Dividend Active ETF      
Interest rate contracts Purchased options   2
  Futures Short $ 306,016
  Written options   2
 
4. Fair Valuation      

 

Fair value is defined as the price that the Funds would receive upon selling a security or transferring a liability in a timely transaction to an independent buyer in the principal or most advantageous market of the security at the measurement date. In determining fair value, the Funds may use one or more of the following approaches: market, income and/or cost. A hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Funds. Unobservable inputs are inputs that reflect the Fund’s own estimates about the estimates market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The three-tier hierarchy of inputs is summarized in the three broad levels listed below.

Level 1 Quoted prices are available in active markets for identical securities as of the reporting date. Investments which are generally included in this category include listed equities and listed derivatives.

Level 2 Other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.). Investments which are generally included in this category include certain corporate bonds, senior floating rate interests, over-the-counter (“OTC”) derivatives, mortgage-backed securities and municipal bonds.

Level 3 Significant unobservable inputs (including the Funds' assumptions in determining the fair value of investments). Investments which are generally included in this category include certain corporate bonds and certain common stocks.

The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the market place, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Funds in determining fair value is greatest for instruments categorized in Level 3.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

50


 

Notes to Financial Statements
Principal Exchange-Traded Funds
June 30, 2022

4. Fair Valuation (continued)

Fair value is a market based measure considered from the perspective of a market participant who holds the asset rather than an entity specific measure. Therefore, even when market assumptions are not readily available, the Funds’ own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Funds use prices and inputs that are current as of the measurement date, to the extent available.

Investments which are included in the Level 3 category may be valued using quoted prices from brokers and dealers participating in the market for these investments. These investments are classified as Level 3 investments due to the lack of market transparency and market corroboration to support these quoted prices.

Valuation models may be used as the pricing source for other investments classified as Level 3. Valuation models rely on one or more significant unobservable inputs such as prepayment rates, probability of default, or loss severity in the event of default. Significant increases in any of those inputs in isolation would result in a significantly lower fair value measurement.

The fair values of these entities are dependent on economic, political and other considerations. The values of the underlying investee entities may be affected by significant changes in the economic conditions, changes in government policies, and other factors (e.g., natural disasters, pandemics, accidents, conflicts, etc.).

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those instruments.

During the period there were no significant purchases, sales, or transfers into or out of Level 3.

The following is a summary of the inputs used as of June 30, 2022, in valuing the Funds' securities carried at fair value:

        Level 2          
        Other   Level 3      
    Level 1   Significant   Significant      
    Quoted   Observable   Unobservable      
Fund   Prices   Inputs   Inputs   Totals (Level 1,2,3)  
 
Principal Active High Yield ETF                  
Bonds* $ $   188,576,281 $   $ 188,576,281  
Senior Floating Rate Interests*     16,684,899     16,684,899  
Investment Companies   15,932,578       15,932,578  
Total investments in securities $ 15,932,578 $ 205,261,180 $   $ 221,193,758  
 
Principal Healthcare Innovators ETF                  
Common Stocks* $ 53,111,862 $ $     $ 53,111,862  
Investment Companies   1,273,106       1,273,106  
Total investments in securities $ 54,384,968 $ $     $ 54,384,968  
 
Principal International Adaptive Multi-Factor ETF              
Common Stocks* $ 13,991,881 $ $     $ 13,991,881  
Preferred Stocks*   10,950       10,950  
Investment Companies   92,122       92,122  
Total investments in securities $ 14,094,953 $ $     $ 14,094,953  
 
Principal Investment Grade Corporate Active ETF              
Bonds* $ $   355,251,849 $   $ 355,251,849  
Investment Companies   11,444,614       11,444,614  
Total investments in securities $ 11,444,614 $ 355,251,849 $   $ 366,696,463  
Derivative Assets                  
Interest rate contracts                  
Futures $ 166,831 $ $     $ 166,831  
Derivative Liabilities                  
Interest rate contracts                  
Futures $ (124,635 ) $ $     $ (124,635 )

 

51


 

Notes to Financial Statements
Principal Exchange-Traded Funds
June 30, 2022

 
 
4. Fair Valuation (continued)                
 
        Level 2        
        Other   Level 3    
    Level 1   Significant   Significant    
    Quoted   Observable   Unobservable    
Fund   Prices   Inputs   Inputs   Totals (Level 1,2,3)
 
Principal Millennials ETF                
Common Stocks* $ 23,500,235 $ $     $ 23,500,235
Investment Companies   1,075,920       1,075,920
Total investments in securities $ 24,576,155 $ $     $ 24,576,155
 
Principal Quality ETF                
Common Stocks* $ 45,346,056 $ $     $ 45,346,056
Investment Companies   117,802       117,802
Total investments in securities $ 45,463,858 $ $     $ 45,463,858
 
Principal Real Estate Active Opportunities ETF            
Common Stocks* $ 5,264,831 $ $     $ 5,264,831
Investment Companies   103,775       103,775
Total investments in securities $ 5,368,606 $ $     $ 5,368,606
 
Principal Spectrum Preferred Securities Active ETF            
Bonds* $ $   332,260,000 $   $ 332,260,000
Investment Companies   11,932,000       11,932,000
Total investments in securities $ 11,932,000 $ 332,260,000 $   $ 344,192,000
 
Principal Spectrum Tax-Advantaged Dividend Active ETF            
Preferred Stocks* $ 2,416,374 $ $     $ 2,416,374
Bonds*     17,906,709     17,906,709
Investment Companies   558,775       558,775
Total investments in securities $ 2,975,149 $ 17,906,709 $   $ 20,881,858
 
Principal Ultra-Short Active Income ETF                
Bonds* $ $   7,750,425 $   $ 7,750,425
Investment Companies   733,827       733,827
Total investments in securities $ 733,827 $ 7,750,425 $   $ 8,484,252
 
Principal U.S. Large-Cap Adaptive Multi-Factor ETF            
Common Stocks* $ 12,704,659 $ $     $ 12,704,659
Investment Companies   33,552       33,552
Total investments in securities $ 12,738,211 $ $     $ 12,738,211
 
Principal U.S. Mega-Cap ETF                
Common Stocks* $ 1,362,898,009 $ $     $ 1,362,898,009
Investment Companies   3,878,275       3,878,275
Total investments in securities $ 1,366,776,284 $ $     $ 1,366,776,284
 
Principal U.S. Small-Cap Adaptive Multi-Factor ETF            
Common Stocks* $ 5,428,344 $ $     $ 5,428,344
Investment Companies   26,940       26,940
Total investments in securities $ 5,455,284 $ $     $ 5,455,284
 
Principal U.S. Small-Cap Multi-Factor ETF              
Common Stocks* $ 613,891,568 $ $     $ 613,891,568
Investment Companies   7,321,918       7,321,918
Total investments in securities $ 621,213,486 $ $     $ 621,213,486
 
Principal Value ETF                
Common Stocks* $ 214,811,091 $ $     $ 214,811,091
Investment Companies   725,587       725,587
Total investments in securities $ 215,536,678 $ $     $ 215,536,678
 
* For additional detail regarding sector classifications, please see the Schedules of Investments.        

 

52


 

Notes to Financial Statements
Principal Exchange-Traded Funds
June 30, 2022

5. Management Agreement and Transactions with Affiliates

Management Services. The Funds have agreed to pay management and investment advisory fees to the Advisor computed at an annual percentage rate of each of the Funds' average daily net assets. A portion of the management fee is paid by the Advisor to the sub-advisor of the Funds, which is also an affiliate of the Advisor. The management fee schedule for the Funds is as follows:

  First   Next   Next   Over  
Fund $500 Million   $500 Million   $500 Million   $1.5 Billion  
Principal Healthcare Innovators ETF 0.42 % 0.40 % 0.38 % 0.37 %
Principal Millennials ETF 0.45   0.43   0.41   0.40  
 
Fund             All Assets  
Principal Active High Yield ETF             0.39 %*
Principal International Adaptive Multi-Factor ETF             0.24  
Principal Investment Grade Corporate Active ETF             0.19  
Principal Quality ETF             0.15  
Principal Real Estate Active Opportunities ETF             0.65  
Principal Spectrum Preferred Securities Active ETF             0.55  
Principal Spectrum Tax-Advantaged Dividend Active ETF             0.60  
Principal Ultra-Short Active Income ETF             0.18  
Principal U.S. Large-Cap Adaptive Multi-Factor ETF             0.15  
Principal U.S. Mega-Cap ETF             0.15  
Principal U.S. Small-Cap Adaptive Multi-Factor ETF             0.19  
Principal U.S. Small-Cap Multi-Factor ETF             0.38  
Principal Value ETF             0.15  
* Prior to September 1, 2021, the management fee was 0.49%.                

 

The Advisor has contractually agreed to limit the expenses (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, tax reclaim recovery expenses, and other extraordinary expenses) for certain of the Funds. The reductions and reimbursements are in amounts that maintain total operating expenses at or below certain limits.

The limit is expressed as a percentage of average daily net assets attributable to each Fund on an annualized basis during the reporting period. The expenses borne by the Advisor are subject to reimbursement by the Fund through the fiscal year end, provided no reimbursement will be made if it would result in the Fund exceeding the total operating expense limit. Any amount outstanding at the end of the period are shown as an expense reimbursement from Advisor or expense reimbursement to Advisor on the Statements of Assets and Liabilities. The expense limit for Principal U.S. Mega-Cap ETF is 0.12% through October 31, 2022. No other Funds had expense limitation agreements in place during the year.

Affiliated Ownership. At June 30, 2022, Principal Financial Services, Inc. (an affiliate of the Advisor) owned Shares of the Funds as follows:

Fund Shares
Principal International Adaptive Multi-Factor ETF 390,001
Principal Real Estate Active Opportunities ETF 199,204
Principal Spectrum Tax-Advantaged Dividend Active ETF 995,521
Principal Ultra-Short Active Income ETF 199,681
Principal U.S. Large-Cap Adaptive Multi-Factor ETF 198,571
Principal U.S. Small-Cap Adaptive Multi-Factor ETF 200,965

 

53


 

Notes to Financial Statements
Principal Exchange-Traded Funds
June 30, 2022

5. Management Agreement and Transactions with Affiliates (continued)

Affiliated Brokerage Commissions. With respect to Principal Spectrum Tax-Advantaged Dividend Active ETF, $306 of brokerage commissions were paid to SAMI Brokerage LLC, a member of the Principal Financial Group. The other Funds did not pay brokerage commissions to any member of the Principal Financial Group during the year ended June 30, 2022.

6. Investment Transactions

For the period ended June 30, 2022, the cost of investment securities purchased and proceeds from investment securities sold (not including short-term investments and in-kind transactions) by the Funds were as follows:

    Non-U.S. Government   U.S. Government
Fund   Purchases     Sales Purchases Sales
Principal Active High Yield ETF $ 320,434,117 $ 247,180,756 $ $
Principal Healthcare Innovators ETF   47,061,197   48,154,689    
Principal International Adaptive Multi-Factor ETF   93,786,980   87,842,604    
Principal Investment Grade Corporate Active ETF   221,850,980   206,369,501    
Principal Millennials ETF   21,206,332   25,525,253    
Principal Quality ETF   75,509,416   75,368,468    
Principal Real Estate Active Opportunities ETF   1,229,317     885,171    
Principal Spectrum Preferred Securities Active ETF   102,886,792   35,533,324    
Principal Spectrum Tax-Advantaged Dividend Active ETF   1,508,643     1,722,559    
Principal Ultra-Short Active Income ETF   7,058,743     4,868,809    
Principal U.S. Large-Cap Adaptive Multi-Factor ETF   96,352,679   96,464,489    
Principal U.S. Mega-Cap ETF   729,068,183   727,638,076    
Principal U.S. Small-Cap Adaptive Multi-Factor ETF   7,948,167     7,954,633    
Principal U.S. Small-Cap Multi-Factor ETF   815,503,827   809,329,831    
Principal Value ETF   365,722,561   363,221,233    
 
For the period ended June 30, 2022, in-kind transactions were as follows:            
 
Fund         Purchases     Sales  
Principal Active High Yield ETF       $ 28,269,961 $ 73,364,940
Principal Healthcare Innovators ETF         2,778,151   63,976,645
Principal International Adaptive Multi-Factor ETF         120,307,190   147,069,182
Principal Investment Grade Corporate Active ETF         27,086,171   60,737,741
Principal Millennials ETF         42,407,308   103,885,853
Principal Quality ETF         144,652,388   148,502,876
Principal Real Estate Active Opportunities ETF         5,056,571    
Principal Spectrum Preferred Securities Active ETF         36,327,301   51,790,980
Principal Spectrum Tax-Advantaged Dividend Active ETF         1,940,785    
Principal U.S. Large-Cap Adaptive Multi-Factor ETF         169,275,713   178,909,893
Principal U.S. Mega-Cap ETF         551,732,715   1,073,608,748
Principal U.S. Small-Cap Multi-Factor ETF         470,048,653   1,330,979,037
Principal Value ETF         367,713,259   174,413,518

 

Unsettled in-kind purchases and sales at the end of the period are included in investment securities purchased and investment securities sold, respectively, on the Statements of Assets and Liabilities.

54


 

Notes to Financial Statements
Principal Exchange-Traded Funds
June 30, 2022

7. Federal Tax Information

Distributions to Shareholders. The federal income tax character of distributions paid for the periods ended June 30, 2022, and June 30, 2021 was as follows:

    Ordinary Income   Long-Term Capital Gain*
    Period ended   Period ended   Period ended   Period ended
Fund   June 30, 2022   June 30, 2021   June 30, 2022   June 30, 2021
Principal Active High Yield ETF $ 11,667,484 $ 9,881,656 $ $
Principal Healthcare Innovators ETF   861,124   527,787    
Principal International Adaptive Multi-Factor ETF   1,862,278      
Principal Investment Grade Corporate Active ETF   14,949,956   10,618,462   634,166   3,773,742
Principal Millennials ETF   2,817,266   481,261    
Principal Quality ETF   811,956   296,923    
Principal Real Estate Active Opportunities ETF     N/A     N/A
Principal Spectrum Preferred Securities Active ETF   16,461,144   9,608,037    
Principal Spectrum Tax-Advantaged Dividend Active ETF   1,190,472   1,062,462   30,484  
Principal Ultra-Short Active Income ETF   97,102   215,987    
Principal U.S. Large-Cap Adaptive Multi-Factor ETF   1,000,076     247  
Principal U.S. Mega-Cap ETF   31,378,545   27,303,682    
Principal U.S. Small-Cap Adaptive Multi-Factor ETF   108,590     320  
Principal U.S. Small-Cap Multi-Factor ETF   17,721,353   10,376,768    
Principal Value ETF   2,251,380   700,888    

 

* The Funds designate these distributions as long-term capital gain dividends per IRC Sec. 852(b)(3)(C) in the 20-percent group (which may be taxed at a 20-percent rate, a 15-percent rate or a 0-percent rate, depending on the shareholder’s taxable income).

For U.S. federal income tax purposes, short-term capital gain distributions are considered ordinary income distributions.

Distributable Earnings. As of June 30, 2022, the components of distributable earnings (accumulated loss) on a federal income tax basis were:

                  Late Year        
                  Ordinary and        
    Undistributed                                Undistributed   Unrealized     Post Oct        
    Ordinary Long-Term   Appreciation/     Capital Loss     Capital Loss  
Fund   Income     Capital Gains                                    (Depreciation)     Deferrals     Carryforward  
Principal Active High Yield ETF $ 1,330,911 $ $ (34,101,619 ) $   $ (10,665,895 )
Principal Healthcare Innovators ETF       (44,347,641 )   (62,480 )   (7,574,897 )
Principal International Adaptive Multi-Factor ETF   254,166     (3,735,088 )       (7,095,844 )
Principal Investment Grade Corporate Active ETF   1,147,841     (70,834,424 )   (6,346,076 )    
Principal Millennials ETF   420,508     (11,681,534 )       (8,279,969 )
Principal Quality ETF   222,217     (1,297,630 )       (12,436,333 )
Principal Real Estate Active Opportunities ETF   42,862   1,790   (152,604 )        
Principal Spectrum Preferred Securities Active ETF   1,290,330     (58,938,366 )       (4,246,582 )
Principal Spectrum Tax-Advantaged Dividend Active ETF   100,565     (2,138,162 )   (74,106 )    
Principal Ultra-Short Active Income ETF   12,840     (122,759 )       (251,207 )
Principal U.S. Large-Cap Adaptive Multi-Factor ETF   165,718     (3,075,481 )       (4,510,448 )
Principal U.S. Mega-Cap ETF   6,657,730     1,614,647         (67,835,985 )
Principal U.S. Small-Cap Adaptive Multi-Factor ETF   26,491     (432,710 )   (393,295 )    
Principal U.S. Small-Cap Multi-Factor ETF   2,613,677     (107,105,813 )       (147,769,950 )
Principal Value ETF   2,701,627     (5,197,850 )       (28,535,993 )

 

55


 

Notes to Financial Statements
Principal Exchange-Traded Funds
June 30, 2022

7. Federal Tax Information (continued)

Capital Loss Carryforwards. For federal income tax purposes, capital loss carryforwards are losses that can be used to offset future capital gains of the Fund. As of June 30, 2022, the Funds had approximate net capital loss carryforwards as follows:

    No Expiration   No Expiration       Annual
Fund   Short-Term   Long-Term   Total   Limitations*
Principal Active High Yield ETF $ 7,039,031 $ 3,626,864 $ 10,665,895 $ 1,874,152
Principal Healthcare Innovators ETF   4,713,904   2,860,993   7,574,897  
Principal International Adaptive Multi-Factor ETF   6,905,658   190,186   7,095,844  
Principal Millennials ETF   6,704,798   1,575,171   8,279,969  
Principal Quality ETF   11,901,054   535,279   12,436,333   294,429
Principal Spectrum Preferred Securities Active ETF   1,575,986   2,670,596   4,246,582  
Principal Ultra-Short Active Income ETF   138,959   112,248   251,207  
Principal U.S. Large-Cap Adaptive Multi-Factor ETF   4,479,912   30,536   4,510,448  
Principal U.S. Mega-Cap ETF   67,835,985     67,835,985  
Principal U.S. Small-Cap Multi-Factor ETF   123,369,770   24,400,180   147,769,950  
Principal Value ETF   26,347,409   2,188,584   28,535,993   230,798

 

* In accordance with IRC Sections 381-384, a portion of certain Fundslosses have been subjected to an annual limitation.

All of these capital losses were generated in taxable years beginning after the enactment date of the Regulated Investment Company Modernization Act of 2010 on December 22, 2010, and will be carried forward with no expiration and with the character of the loss retained.

For the year ended June 30, 2022, the Fund utilized capital loss carryforwards as follows:

Fund   ST Utilized   LT Utilized
Principal Active High Yield ETF $ 503,494 $ 3,209,996

 

Late-Year Losses. A regulated investment company may elect to treat any portion of its qualified late-year loss as arising on the first day of the next taxable year. Qualified late-year losses are certain capital and ordinary losses which occur during the portion of the Fund’s taxable year subsequent to October 31 and December 31, respectively.

For the taxable year ended June 30, 2022, the Funds intend to defer late-year capital and ordinary losses as follows:

Fund   Late Year Ordinary Loss     Post October Loss Capital Loss  
Principal Healthcare Innovators ETF $ (62,480 ) $  
Principal Investment Grade Corporate Active ETF       (6,346,076 )
Principal Spectrum Tax-Advantaged Dividend Active ETF       (74,106 )
Principal U.S. Small-Cap Adaptive Multi-Factor ETF       (393,295 )

 

56


 

Notes to Financial Statements
Principal Exchange-Traded Funds
June 30, 2022

7. Federal Tax Information (continued)

Reclassification of Capital Accounts. The Funds may record reclassifications in their capital accounts. These reclassifications have no impact on the total net assets of the Funds. The reclassifications are a result of permanent differences between U.S. GAAP and tax accounting. Adjustments are made to reflect the impact these items have on current and future distributions to shareholders. Therefore, the source of the Funds’ distributions may be shown in the accompanying Statement of Changes in Net Assets as from net investment income and net realized gains on investments or from tax return of capital depending on the type of book and tax differences that exist. For the period ended June 30, 2022, the Funds recorded reclassifications as follows:

    Total        
    Distributable Earnings        
Fund   (Accumulated Loss)     Paid In Capital  
Principal Active High Yield ETF $ (18,122,655 ) $ 18,122,655  
Principal Healthcare Innovators ETF   (8,268,653 )   8,268,653  
Principal International Adaptive Multi-Factor ETF   1,947,488     (1,947,488 )
Principal Investment Grade Corporate Active ETF   1,119,112     (1,119,112 )
Principal Millennials ETF   8,755,193     (8,755,193 )
Principal Quality ETF   (5,347,733 )   5,347,733  
Principal Real Estate Active Opportunities ETF   (177 )   177  
Principal Spectrum Preferred Securities Active ETF   420,840     (420,840 )
Principal Spectrum Tax-Advantaged Dividend Active ETF   (596 )   596  
Principal Ultra-Short Active Income ETF   (1,210 )   1,210  
Principal U.S. Large-Cap Adaptive Multi-Factor ETF   (714,159 )   714,159  
Principal U.S. Mega-Cap ETF   (322,508,916 )   322,508,916  
Principal U.S. Small-Cap Multi-Factor ETF   (242,005,320 )   242,005,320  
Principal Value ETF   (9,268,137 )   9,268,137  

 

Federal Income Tax Basis. As of June 30, 2022, the net federal income tax unrealized appreciation (depreciation) and federal tax cost of investments held by each Fund were as follows:

                    Cost for
              Net Unrealized     Federal
    Unrealized   Unrealized     Appreciation     Income Tax
Fund   Appreciation   Depreciation     (Depreciation)     Purposes
Principal Active High Yield ETF $ 252 $ (34,101,871 ) $ (34,101,619 ) $ 255,295,377
Principal Healthcare Innovators ETF   2,533,747   (46,881,387 )   (44,347,640 )   98,732,608
Principal International Adaptive Multi-Factor ETF   70,898   (3,806,019 )   (3,735,121 )   17,830,074
Principal Investment Grade Corporate Active ETF   15,915   (70,850,339 )   (70,834,424 )   437,573,083
Principal Millennials ETF   560,554   (12,242,107 )   (11,681,553 )   36,257,708
Principal Quality ETF   864,760   (2,162,390 )   (1,297,630 )   46,761,488
Principal Real Estate Active Opportunities ETF   70,464   (223,068 )   (152,604 )   5,521,210
Principal Spectrum Preferred Securities Active ETF     (58,938,366 )   (58,938,366 )   403,130,366
Principal Spectrum Tax-Advantaged Dividend Active ETF   35,886   (2,174,048 )   (2,138,162 )   23,020,020
Principal Ultra-Short Active Income ETF     (122,759 )   (122,759 )   8,607,011
Principal U.S. Large-Cap Adaptive Multi-Factor ETF   86,836   (3,162,317 )   (3,075,481 )   15,813,692
Principal U.S. Mega-Cap ETF   92,823,010   (91,208,363 )   1,614,647     1,365,161,637
Principal U.S. Small-Cap Adaptive Multi-Factor ETF   206,124   (638,834 )   (432,710 )   5,887,994
Principal U.S. Small-Cap Multi-Factor ETF   18,787,829   (125,893,642 )   (107,105,813 )   728,319,299
Principal Value ETF   943,803   (6,141,653 )   (5,197,850 )   220,734,528

 

57


 

Notes to Financial Statements
Principal Exchange-Traded Funds
June 30, 2022

8. Subsequent Events

Management has evaluated events or transactions that have occurred through the date the financial statements were issued that would merit recognition or disclosure in the financial statements. Effective July 8, 2022 and July 15, 2022, Principal U.S. Small-Cap Multi-Factor ETF and Principal Healthcare Innovators ETF changed from passively managed funds to actively managed funds, respectively. Effective July 15, 2022, Principal Millennials ETF changed from a passively managed fund to an actively managed fund and changed its name to Principal Millennial Global Growth ETF. Through the date these financial statements were issued, Principal Active High Yield ETF and Principal Investment Grade Corporate Active ETF experienced significant redemption transactions of approximately 50% and 25%, respectively. There were no additional items requiring adjustment of the financial statements or additional disclosure.

58


 

Schedule of Investments        
Principal Active High Yield ETF      
June 30, 2022        
 
    Principal    
BONDS — 86.20%   Amount   Value
 
Aerospace & Defense — 1.44%        
Bombardier, Inc.        
7.13%, 06/15/2026 (a) $ 440,000 $ 362,771
Triumph Group, Inc.        
7.75%, 08/15/2025 (b)   3,382,000   2,604,140
8.88%, 06/01/2024 (a)   190,000   191,400
      $ 3,158,311
 
Airlines — 0.11%        
United Airlines 2016-1 Class B Pass Through Trust        
3.65%, 01/07/2026   270,194   245,851
 
Auto Manufacturers — 1.76%        
Ford Motor Co.        
3.25%, 02/12/2032   1,527,000   1,142,043
Ford Motor Credit Co. LLC        
3.38%, 11/13/2025   1,929,000   1,737,007
4.39%, 01/08/2026   222,000   204,475
4.54%, 08/01/2026   845,000   773,024
      $ 3,856,549
 
Auto Parts & Equipment — 1.52%        
Tenneco, Inc.        
7.88%, 01/15/2029 (a)   3,435,000   3,319,667
 
Banks — 2.34%        
Deutsche Bank AG        
(5-year Treasury Constant Maturity Rate + 4.52%),        
6.00%, 10/30/2025 (c),(d),(e)   3,360,000   2,898,000
JPMorgan Chase & Co.        
(6-month Secured Overnight Financing Rate + 3.13%),        
4.60%, 02/01/2025 (c),(d)   2,619,000   2,211,801
      $ 5,109,801
 
Chemicals — 3.47%        
Consolidated Energy Finance SA        
5.63%, 10/15/2028 (a)   3,635,000   2,924,206
Kobe U.S. Midco 2, Inc.        
9.25%, PIK 10.00%; 11/01/2026 (a),(f)   963,000   880,799
Olympus Water U.S. Holding Corp.        
6.25%, 10/01/2029 (a),(b)   2,520,000   1,750,984
Tronox, Inc.        
4.63%, 03/15/2029 (a)   2,520,000   2,026,332
      $ 7,582,321
 
Commercial Services — 4.95%        
Ahern Rentals, Inc.        
7.38%, 05/15/2023 (a)   2,130,000   1,640,100
Albion Financing 1 SARL/Aggreko Holdings, Inc.        
6.13%, 10/15/2026 (a)   2,081,000   1,780,976
Garda World Security Corp.        
6.00%, 06/01/2029 (a)   356,000   273,675
9.50%, 11/01/2027 (a)   2,365,000   2,162,969
WASH Multifamily Acquisition, Inc.        
5.75%, 04/15/2026 (a)   3,144,000   2,963,220
ZipRecruiter, Inc.        
5.00%, 01/15/2030 (a),(b)   2,404,000   2,019,360
      $ 10,840,300

 

See accompanying notes.

59


 

Schedule of Investments        
Principal Active High Yield ETF      
June 30, 2022        
 
    Principal    
BONDS (continued)   Amount   Value
 
Construction Materials — 1.46%        
SRM Escrow Issuer LLC        
6.00%, 11/01/2028 (a) $ 3,786,000 $ 3,200,041
 
Diversified Financial Services — 5.30%        
AerCap Holdings NV        
(5-year Treasury Constant Maturity Rate + 4.54%),        
5.88%, 10/10/2079 (c)   3,548,000   3,039,312
Credit Acceptance Corp.        
6.63%, 03/15/2026 (b)   3,462,000   3,241,471
Global Aircraft Leasing Co. Ltd.        
6.50%, PIK 7.25%; 09/15/2024 (a),(f)   3,553,201   2,691,550
OneMain Finance Corp.        
4.00%, 09/15/2030   2,475,000   1,834,594
6.63%, 01/15/2028   892,000   797,234
      $ 11,604,161
 
Electric — 3.79%        
Clearway Energy Operating LLC        
4.75%, 03/15/2028 (a)   2,430,000   2,186,226
GenOn Energy, Inc.        
0.00%, 10/15/2049 (g),(h),(i)   3,100,000  
NRG Energy, Inc.        
3.88%, 02/15/2032 (a)